With its stock up 32% since sharing impressive Q4 financial results, Tilray Brands, Inc. (Nasdaq: TLRY) may further soar over the coming weeks following its recent acquisitions to boost its alcohol segment. With this in mind, the company recently acquired 8 beer and beverage brands from Anheuser-Busch (NYSE: BUD) in a move that would substantially boost the company’s revenues. Although these acquisitions expand the company’s portfolio of US alcoholic brands, an important aspect of these acquisitions is that they may be setting the infrastructure for the company to distribute its cannabis products once federal legalization happens. In light of this, TLRY stock may be poised to continue running over the coming weeks given investors’ enthusiasm over the company’s latest move.
TLRY Stock News
As things stand, TLRY is a Canadian marijuana giant that is considered the largest cannabis company in the world in terms of revenue. That being said, it also has a thriving alcohol business which provides it with substantial revenue and an extensive logistics network in the US. On that note, when TLRY acquired Montauk Brewery, it also acquired Montauk’s distribution centers which anchored its position in the US market. Currently, the company is seeking out more strategic acquisitions within the US alcohol industry as it aims for this segment to generate $300 million in annual revenues.
The Federal government is currently reevaluating marijuana’s status as a Schedule 1 drug. This in turn means that the cannabis could be rescheduled or de-scheduled. Getting de-scheduled means that cannabis will no longer be illegal. Being rescheduled, on the other hand, means that cannabis will no longer be considered a schedule one substance – meaning that cannabis research will no longer go through bureaucratic hurdles.
Rescheduling appears to be the most likely outcome, which while not ideal for the industry, could be considered a step toward legalization. In that case, the whole cannabis sector will run including TLRY stock.
There are 3 reasons it is very likely cannabis will not remain a Schedule 1 substance. The first of which is that Schedule 1 guidelines indicate that all substances within that umbrella have no medical use. This is not the case for cannabis since it is currently used to ease nerve pain and treat PTSD among other medicinal uses.
The second reason is that, according to Schedule 1 guidelines, the substance in question must have a potential for abuse. With that in mind, multiple studies have been conducted to measure the likelihood of cannabis abuse and these studies concluded that cannabis does not have a potential for abuse. In fact, one of these studies indicated that as little as 9% of cannabis users abuse the substance. The results of these studies are incomparable to other Schedule 1 substances like LSD and heroin which have a much higher abuse rate.
Finally, cannabis is not likely to remain a Schedule 1 drug due to the growing sentiment for federal legalization. Currently, 68% of Republican voters are pro-cannabis legalization and 80% of Democrats believe Congress should move to end the prohibition on cannabis. All in all, 88% of US adults support cannabis legalization which makes the odds to be in favor of rescheduling or de-scheduling.
Due to these factors, marijuana legalization may not be far off, and when it occurs, TLRY will be ready to swoop in through its logistics network because of its thriving alcohol business. As is, TLRY is able to repurpose its existing distribution network which will help it penetrate the US cannabis market and manage the distribution of its product within the country. In this way, the company’s sales may be poised to increase significantly, and combined with its improved financial performance, profitability may not be a far-fetched dream for the cannabis giant.
*Updated August 8th, 2023
Expanding Its Alcoholic Brands
Recently, TLRY struck a deal with BUD to acquire Shock Top, Breckenridge Brewery, Blue Point, Red Hook, 10 barrel brewing, Square Mile Cider, Widmer Brothers Brewing, and Hi Ball for $85 million in an all-cash deal. Through this deal, the company is now the 5th largest craft beer brewer in the US with a 5% market share. Overall, this deal is projected to increase the company’s annual alcohol purchases from 4 million cases to 12 million cases and increase its annual revenue by $250 million.
This increase in revenue is likely to improve TLRY’s profitability prospects considering that its alcohol segment had a gross margin of 48.7% in the fiscal year 2023. Given the expected increase in sales, it would not be a surprise to see the company’s gross margins improve since the average industry gross margin is 53.5% which means that the brands the company acquired may improve its gross margins which would reflect on the company’s bottom line.
Logistical Cohesion
Aside from this, the deal provides TLRY with another advantage that may help it flood the US market with its cannabis products once federal legalization happens which is logistical cohesion. In reference to the deal, the company’s CEO Erwin Simon stated “This is an exciting milestone for our beverage portfolio, no question. But I also want to emphasize that cannabis remains central to our overall strategy,”. This means that the company’s acquisitions are serving the company’s core business of selling cannabis products.
TLRY can achieve this through the logistical cohesion that it is set to have in the US once the deal closes later this year. Most of these brands serve a logistical benefit for the company due to their branching distribution networks that are focused on the northwest region which is in close proximity to Canada.
Brands like Widmer Brothers Brewing, 10 Barrel Brewing, and Square Mile Cider have extensive operations in Oregon which has a notably large marijuana market valued at around $1 billion. This indicates that these brands have a thorough logistics network in Oregon which could be used to distribute marijuana to Oregonians once it is federally legal.
That being said, this is only the tip of the iceberg. Oregon is relatively close to Canada indicating that direct transportation via roads is feasible which in turn means that it is more cost-effective. Additionally, given the distributive nature of logistical networks, TLRY could potentially sell its marijuana products to surrounding states like Washington, Idaho, Nevada, and California, which has an extremely large marijuana market size valued at around $2.2 billion.
On that note, TLRY could coordinate distribution with its existing brands like Alpine and Green Flash which operate in California to cover a larger area. For example, Alpine’s distribution center could service southern California while Widmer Brothers’ distribution center could service Northern California. In short, by fusing its subsidiaries’ distribution networks, the company could obtain a cohesive multi-state logistical network that could help it boost sales of its alcoholic brands and dominate the US cannabis market once cannabis is federally legalized.
TLRY Stock Financials
According to TLRY’s 2023 annual report, its assets decreased from $5.44 billion at the beginning of the year to $4.3 billion. The reason for this decline in assets is largely attributable to declines in capital assets from $587.4 million to $429.6 million, intangible assets from $1.2 billion to $973.7 million, and goodwill from $2.6 billion to $2 billion. Meanwhile, liabilities declined from $1 billion to $977.3 million due to a decline in convertible debt payable from $196.6 million to $167.3 million despite current liabilities increasing from $280.3 million to $432.9 million.
In terms of revenue, TLRY witnessed a slight YoY decline from $628.3 million to $627.1 million. However, what is notable is the company’s gross margin improved significantly YoY from 18.5% to 23.4%. As for operating costs, the company witnessed a drastic increase from $727.2 million to $1.5 billion. However, this increase is a result of impairment increasing from $378.2 million to $934 million and a $246.3 million change in the fair value of convertible notes. For this reason, the company’s net loss increased from $434.1 million to $1.4 billion.
Media Sentiment
@The_Real_Fly is spreading the word on TLRY’s deal with BUD.
@theresa_perrin is keeping an eye on TLRY stock following its latest acquisitions.
Technical Analysis
TLRY stock is currently in a neutral trend and is trading in a sideways channel between $2.20, and $2.85. Looking at the indicators, the stock is below the 50, and 21 MAs which is a bearish indication, while above the 200 MA which is a bullish indication. Meanwhile, the RSI is neutral at 36 and the MACD is curling bullishly.
As for the fundamentals, TLRY’s recent acquisition of 8 beer and beverage brands from BUD is a major catalyst for the stock given the benefits these brands add to the company. Since the company expects its alcohol revenue to increase by $250 million annually, its profitability prospects are set to improve significantly considering that the alcohol segment has the highest profit margin.
Meanwhile, the added distribution networks may benefit the company in the long term since it can use these networks to distribute its cannabis products once cannabis becomes federally legal. For these reasons, investors could find the $2 mark a good entry point in TLRY stock as its value may be poised to increase significantly in the long term.
TLRY Stock Forecast
TLRY’s recent deal has two overarching long-term benefits. The first is that it is projected to increase revenues substantially, and since alcohol sales have a higher gross margin, that could improve the company’s strides toward profitability. The second benefit lies in the fact that these brands have distribution centers that could be utilized as part of a larger logistical network once marijuana is legalized on a federal level. In light of these benefits, going long on TLRY stock may prove to be a profitable investment in the long term.
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