As a multinational alcohol and cannabis company, it's no surprise that Tilray Brands (NASDAQ: TLRY) has more than one iron in the fire. What might come as a surprise is that it has so many different irons in the fire that it can advance a handful of its plans at once without slowing down.
But the question of whether these efforts make the stock worth investing in is a separate issue. After all, it's easier for a business to burn money than it is to create value. So here's what you need to know about the financial impact of Tilray's latest actions.
This beer move is becoming part of the grand strategy
Tilray's alcohol business just got a significant addition.
It purchased four craft beer breweries from Molson Coors Beverage Company for an undisclosed sum, as announced on Aug. 13, mirroring its similar but much larger acquisition of craft beer brands in 2023. In keeping with its strategy to "premiumize" its alcohol segment while scaling it up, the new craft beer brands will likely cater to more expensive tastes than mass-market beers. And, management says that the new assets will help it to realize cost synergies in distribution as well as fresh revenue.
It's hard to overstate the importance of the geographical aspect of the acquisition, which will give Tilray coverage in key regions of the U.S. where its other brands don't currently reach. It will now have a presence in the Midwest, South, Southeast, and Pacific Northwest, thereby fulfilling some of management's plans for expansion into the most lucrative beer markets, like Texas. The ultimate goal is to be one of the top brewers in the U.S., a $100 billion market.
Given Tilray's steady progress in adding to its craft beer market share and acquiring more breweries, investors can have a measure of confidence that the plan will continue so long as financial resources allow. In its fiscal Q4, ended May 31, Tilray's alcohol segment reported a gross margin of 53%, bringing in gross profit of $40.8 million. So the relatively new segment is already contributing to the bottom line rather than detracting from it, which is great news for shareholders.
Gaining ground in the E.U. cannabis scene
Tilray's marijuana business also saw several new developments that might make its stock more appealing.
First, it successfully sought and secured licenses to grow and sell medicinal cannabis in Germany. Its tight integration with the German medicinal marijuana programs means that its chances of deriving significant revenue from the market are now much higher than before.
But full legalization of a mass-scale recreational marijuana industry in the country remains an elusive target that may never happen, so it's important to recognize that the medicinal programs may be as good as it ever gets.
Thus, in another recent move, Tilray published on July 9 the results of a study it performed measuring the impacts of medicinal cannabis on patients older than age 50. While the study's findings (namely that 45% of patients experienced less pain and better sleep quality) aren't exactly mind-blowing, the study probably wasn't intended as marketing material for potential customers.
Instead, it likely serves as a piece of evidence to offer to regulators in the EU and elsewhere that the business is covering its bases with regard to proving its products are safe and at least arguably effective for their intended purpose, rather than being merely a workaround for selling recreational cannabis.
Actions like those are likely part of the reason Tilray was able to secure an approval in Portugal for its third medicinal cannabis product in late July. The product is a liquid cannabis extract intended for oral dosing. Much like in the German market, there is not necessarily a clear path toward full legalization in Portugal, and the margins associated with the medicinal segment are likely higher anyway.
Therefore, while the new approval will likely boost revenue slightly, it isn't going to result in a windfall.
Keep this progress in context
It's hard to argue against the idea that these four moves leave Tilray in a better place than before. Nonetheless, especially for risk-averse investors, four pieces of good news do not necessarily add up to the stock being a must-buy.
Although the craft beer acquisitions are likely favorable for the company's long-term prospects, and constitute a modest reason to load up on some shares, the marijuana developments are a bit underwhelming. There's nothing wrong with engaging productively with regulators or organizing studies to support those engagements. But given the slow-moving nature of the EU market for cannabis, at this point it's hard to say the company's recent accomplishments change much about its investment thesis.
The ambitious vision of Tilray being the world's largest marijuana seller, with operations across North America and Europe, is still far from being realized. For now, alcohol will surely be a much larger component of its revenue than marijuana, whereas before they were very roughly at parity.
In short, those who are evaluating Tilray as a marijuana stock may need to change their perspective before they can appreciate why it might be worth buying, as for the moment it looks like the brightest part of its future is focused on beer.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
