The Ratings Game: Tilray’s deal with AB InBev makes it a much bigger beer company — but beers with falling sales, analysts say

United States

Shares of Tilray Brands Inc. rocketed higher on Tuesday after the Canadian cannabis producer announced a deal to buy eight beer and beverage brands from Budweiser parent Anheuser-Busch InBev. The move elicited both praise and concern from Wall Street analysts.

The deal, analysts said, will bring in some much-needed cash and expand Tilray’s TLRY, +36.04% distribution network for booze — as well as for weed, whenever cannabis is legalized at the federal level in the U.S. As the company’s latest expansion into alcohol, it will hand Tilray well-known names like Shock Top and Redhook. And it will potentially bring in more money from alcohol sales than what cannabis currently brings in for Tilray.

But one analyst noted that sales of the beverages being bought have been falling since last year amid a broader decline in craft-beer sales volumes, a measure of liquid sold. Craft beer has faced rising competition over the years from nonbeer alternatives.

“We would note that craft beer has been in structural decline for the past 2 years as COVID has weighed on the sector due to its weight towards the on premise,” TD Cowen analyst Vivien Azer said.

“On premise” refers to alcohol bought at places like bars or restaurants, as opposed to “off-premise” locations like grocery or liquor stores. Bars and restaurants were hit hard by pandemic-related restrictions.

“Indeed, craft beer volumes declined 6% in 2021 and 9% in 2022. Specifically, in Nielsen tracked channels, we can see that the purchased portfolio has seen dollar sales declines of 6.4% [year to date] and -8.5% in 2022,” Azer continued.

Still, Tilray’s stock was up more than 35% Tuesday on the news of the deal. Thanks to Tuesday’s move higher, the stock is up 5.8% so far this year. However, it is still down 23.4% over the past 12 months as Canadian weed companies struggle with continued losses, competition domestically and stalled federal reform efforts in the U.S.

Tilray on Monday said it would buy the following brands from AB InBev BUD, -0.21% for $ 85 million: Shock Top, Breckenridge Brewery, Blue Point Brewing Co., 10 Barrel Brewing Co., Redhook Brewery, Widmer Brothers Brewing, Square Mile Cider Co. and HiBall Energy.

Tilray said it would pay in cash. The deal, expected to close this year, also included “current employees, breweries and brewpubs” related to those beverage makers. Tilray said the deal would give it four production facilities — two in Oregon and one each in Colorado and New York — and extra manufacturing capacity.

While Canada’s cannabis industry has missed its fair share of financial targets since the country legalized recreational use in 2018, Tilray said the deal was “projected to generate craft beer pro forma revenue of $ 250 million.” Should that projection hold, it would exceed the $ 220 million in sales that Tilray made from cannabis during its last fiscal year.

Tilray Chief Executive Irwin Simon, on a call with Wall Street analysts on Tuesday, said the company looked at “what we could do” with the eight beverage brands it will be taking on and how they might complement Tilray’s existing craft-beer business and distribution infrastructure. He added that the deal would put the company in markets that it wouldn’t otherwise have been able to enter with its current beverage business.

“Of course, when federal cannabis legalization occurs, it will be able to include THC-based products in our beverage and wellness portfolio as well,” Simon said.

Stifel analyst Andrew Carter said he was upbeat on the deal.

“We take a positive view of this transaction with Tilray enhancing its U.S. [consumer packaged goods] business which we view as the company’s best use of capital diversifying its portfolio with an opportunistic acquisition,” he said. “This provides cash flow and optionality around infrastructure/brands to capitalize on the U.S. cannabis opportunity.”