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Why Tilray Is Popping Today

By Keith Speights – Updated Dec 20, 2018 at 11:47AM

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The Canadian marijuana grower announced a partnership with big beer maker Anheuser Busch Inbev.

What happened

Shares of Tilray (TLRY) were up 7.7% as of 10:53 a.m. EST on Thursday after jumping as much as 13.5% earlier in the morning. The Canadian marijuana producer announced on Wednesday after the market closed that it was partnering with giant beer maker Anheuser Busch Inbev (BUD -0.62%) to research nonalcoholic beverages containing tetrahydrocannabinol (THC) and cannabidiol (CBD). 

So what

Tilray's teaming up with AB Inbev marked the third partnership between a major alcoholic beverage maker and a Canadian marijuana producer. Constellation Brands (STZ -1.71%) initially partnered with Canopy Growth (CGC -1.80%) in 2017, while Molson Coors Brewing (TAP -0.37%) established a joint venture with Hexo (HEXO -2.04%) earlier this year. But Tilray's relationship with AB Inbev isn't nearly as transformational as Canopy's deal with Constellation; it's more similar to the arrangement between Molson Coors and Hexo.

Overhead view of a glass containing a beverage and a marijuana leaf next to a cannabis plant

Image source: Getty Images.

While Constellation upped its initial investment in Canopy to more than $4 billion, AB Inbev isn't investing in Tilray at all. Instead, it and Tilray are putting up $50 million each into a joint venture. In addition, unlike with the global partnership between Constellation and Canopy, AB Inbev and Tilray have committed to working together only in Canada.

Tilray's deal with AB Inbev doesn't even appear to be as far-reaching as the one between Molson Coors and Hexo. Tilray's press release announcing the joint venture stated that "decisions regarding the commercialization of the beverages will be made in the future." Molson Coors and Hexo at least agreed to launch new products together.

Further complicating the matter is that tobacco company Altria owns nearly 10% of AB Inbev. This is a key detail because Altria is also acquiring a 45% stake in Cronos Group, one of Tilray's top rivals. It wouldn't be surprising if Altria didn't take kindly to AB Inbev's cozying up with Tilray.

So what does the AB Inbev deal really mean for Tilray? Any partnership with a major company outside the cannabis industry provides additional credibility for Tilray. And it's possible that the joint venture with AB Inbev will lead to a closer relationship, regardless of Altria's stake in the giant beer maker.

Now what

Canada doesn't even allow cannabis-infused beverages yet. The country has indicated that it will finalize regulations for cannabis edibles (including beverages) and concentrates in 2019. While the opportunity should be significant, it's too soon to know how Tilray's joint venture with AB Inbev will pay off for the company.

In the meantime, though, the clock is ticking for Tilray on another front. On Jan. 15, 2019, Tilray's initial public offering (IPO) lockup period expires. Insiders will then be able to sell their shares. If they sell in significant volume, Tilray's share prices could soon be due for a major tumble.

Over the long run, though, Tilray's business prospects appear to be pretty good. While the partnership with AB Inbev isn't nearly as impressive as other recent deals in the cannabis industry, it underscores Tilray's opportunity. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of Molson Coors Brewing. The Motley Fool recommends Anheuser-Busch InBev NV, Constellation Brands, and Hexo. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
BUD
$45.16 (-0.62%) $0.28
Tilray Stock Quote
Tilray
TLRY
Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
STZ
$229.68 (-1.71%) $-3.99
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
TAP
$47.99 (-0.37%) $0.18
Canopy Growth Stock Quote
Canopy Growth
CGC
$2.73 (-1.80%) $0.05
HEXO Stock Quote
HEXO
HEXO
$0.17 (-2.04%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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