Canadian consumer packaged-goods and cannabis-giant Tilray Brands (TLRY 1.71%) is making moves. Earlier this year, the company cemented its cannabis leadership position in its home territory through the acquisition of HEXO Corp., and yesterday, it closed another game-changing transaction to acquire eight beer and beverage brands from Anheuser-Busch (BUD 0.12%). Tilray noted in its press release that this transaction should transform the company into the fifth-largest craft brewer in the United States.
Is Tilray Brands' stock a top buy in the wake of these course-altering business development deals? Let's take a closer look to find out.
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Has Tilray Brands hit an inflection point?
Tilray Brands, like nearly all licensed marijuana cultivators in Canada, hasn't had an easy time since the legalization of adult-use recreational cannabis in the country back in 2018. Reflecting these hardships, Tilray Brands' stock has lost a staggering 75% of its value over the past five years, as of the time of this writing.
The core issue at play is that gross margins have plummeted in the Canadian cannabis industry since legalization, thanks to a wide variety of factors including burdensome governmental regulations, a vast oversupply of product from both legal and illicit sources, and high excise taxes.
The net result is that these companies have been burning through cash at an alarming rate over the past five years. This exceedingly high cash burn rate, in turn, has forced the majority of these companies to repeatedly tap the public markets for funding, which hasn't helped from a share-price appreciation standpoint.
With these hurricane-force headwinds poised to linger for the foreseeable future, it's not all that surprising that Tilray Brands decided to branch out into alcohol and beverages. But is this Anheuser-Busch asset deal a needle mover for the company?
Based on the preliminary financial estimates Tilray Brands provided to investors via its presentation yesterday, this craft beer acquisition does indeed appear like an exceptionally solid move.The key takeaway is that this deal should shrink Tilray Brands' quarterly net losses in a meaningful way, and that's a big deal for the company's shareholders. Tilray Brands, in short, seems to have separated itself from the pack through this savvy business deal.
Time to buy?
Tilray Brands sports an interesting value proposition, at the moment. The company now has the pieces in place to turn a profit consistently within the foreseeable future and can still offer investors plenty of upside from the long-term growth trajectory of the cannabis industry. Viewed this way, Tilray Brands stock might be worth buying for investors who have a long-term horizon and a tolerance for volatility.
After all, the consumer packaged-goods company already has an international footprint in the burgeoning cannabis space, sports a market-leading position in multiple cannabis product categories in Canada, and is well-positioned to jump into the high-value U.S. cannabis market upon federal legalization. If you're looking for exposure to the promising cannabis industry, Tilray Brands is, perhaps, one of the best options for investors right now.
