Tilray Brands (NASDAQ: TLRY) is no stranger to acquisitions. It’s been a key part of its growth strategy and a way to expand its business over the years. That’s allowed the company to grow sales without relying on competition in a saturated Canadian cannabis market where margins are low and profitability is hard to come by. At the same time, rather than waiting for the U.S. to legalize marijuana, it has expanded into other segments, such as alcohol.
The company recently announced that it would acquire more beverage brands to bolster that area of its business. It’s a big move for the company, but investors shouldn’t be surprised if more acquisitions follow.
Tilray buys four beer brands from Molson Coors
On August 13, Tilray announced that it was acquiring four craft breweries from Molson-Coors: Hops Valley, Terrapin Beer, Revolver Brewing, and Atwater Brewery. These brands are located throughout the US, including Oregon, Georgia, Texas, and Michigan. This adds to Tilray’s already formidable roster of beverage brands, which includes SweetWater Brewing, Montauk Brewing, and many others.
Last year the company acquired eight brands from Anheuser-Busch InBeva move that Tilray says would make it the fifth-largest craft brewery in the U.S. market.
Beverages are an increasingly important part of Tilray’s business. In the company’s most recent quarter, which ended May 31, the alcoholic beverage segment was the largest, with $76.7 million in sales and accounting for a third of revenue. Cannabis sales were slightly lower, at $71.9 million. The company also generates revenue from its distribution and wellness segments, as diversification has been a key part of its growth strategy.
Investors can expect more deals
By acquiring more brands, Tilray is paving the way for more growth opportunities, particularly in alcohol. But that doesn’t mean the company is satisfied with where it is now. Tilray still has more acquisitions in its sights, after this recent one. CEO Irwin Simon said that “this won’t be our last deal,” a clear indication that the company is still firmly in acquisition mode.
Given the company’s focus on expanding into the U.S. market and becoming a major craft brewer, it wouldn’t be surprising to see it continue to add more craft brewing brands to its growing portfolio. While Anheuser-Busch and Molson Coors may be willing to divest from slower-growing brands, these could still be good moves for Tilray. The more diverse the company becomes and the less reliant it is on low-margin cannabis products, the better positioned it will be to consistently generate profits.
The company’s most recent quarterly results show that its net loss narrowed to a loss of just $15.4 million from $119.8 million a year ago, largely due to its growing alcohol business.
Is it wise to buy Tilray Brands stock after this news?
Tilray is diversifying its businesses, which is a good sign for investors that the company is moving in a positive direction. It would be much harder to have any hope of making a profit if it simply dived deeper into the Canadian cannabis market.
But a company that focuses heavily on acquisitions can also be a risky business to invest in, as there are a lot of moving parts and inefficiencies that need to be ironed out along the way. While acquisitions can boost a company’s revenue, it may only be temporary. Investors should keep in mind that these deals may not translate into sustained, organic growth in the long term. Molson Coors says in this recent deal that the sale of these breweries will allow the company to focus on faster-growing brands, suggesting that the brands Tilray acquired may not have much growth potential.
As a result, it may be difficult to determine what Tilray’s true organic growth rate will be given its constant quest for acquisitions. For now, investors are still better off taking a wait-and-see approach to the cannabis stock, at least until the dust settles on all the shading and the shading and there’s a clearer picture of the company’s financial position.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.
Tilray Brands is buying more beer brands, and the trade isn’t over yet was originally published by The Motley Fool
