Tilray Brands (TLRY 1.71%), a leading cannabis and consumer packaged goods (CPG) company, recently acquired eight beer and beverage brands from Anheuser-Busch (BUD 0.12%). Specifically, the Canadian CPG player purchased Shock Top, Breckenridge Brewery, Blue Point Brewing Company, 10 Barrel Brewing Company, Redhook Brewery, Widmer Brothers Brewing, Square Mile Cider Company, and HiBall Energy, along with the breweries and brewpubs associated with these brands.
Is this business development transaction a thesis-altering move by the company's management team? Here are two reasons Tilray Brands stock stands out as a compelling buy in the wake of this transformational deal, as well as one big reason investors may want to keep their distance.
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2 reasons to buy
Tilray Brands screens a potential buy for two clear-cut reasons. First, the Canadian CPG powerhouse ought to be much closer to hitting the breakeven point following its acquisition of Anheuser-Busch's family of craft beers and beverages, alongside its recent buyout of fellow Canadian licensed cannabis producer Hexo. Barring another costly acquisition, Wall Street's consensus view seems to be that Tilray Brands should be cash flow positive, on a consistent basis, by no later than fiscal year 2026. Now, there are a lot of moving parts involved in this forward-looking financial forecast, but the take-home point is that the company appears to be trending in the right direction, financially speaking.
Second, Tilray Brands has morphed into a leading craft beer company, with an option on the global cannabis industry. Alcoholic beverages should stabilize the company's financial picture in the short term, allowing management to position the company for solid long-term growth in response to the eventual legalization of cannabis in key territories like the U.S. and the European Union. Tilray Brands, after all, already sports two EU-GMP cultivation facilities in Portugal and Germany, and its craft beer business could lay the foundation for the vast distribution network required to compete in the high-value U.S. cannabis market, once federal prohibition comes to an end.
1 reason to avoid
Tilray Brands is far from a slam-dunk investment. Despite its recent progress at building out a top-shelf alcohol business and further consolidating its position in the Canadian cannabis market, the company is facing some significant challenges that will probably stunt its growth over the next 10 years.
First up, Europe and the U.S. both seem to be taking a cautious approach to legalizing cannabis in the broad sense. Wall Street, in turn, expects the company's cannabis business to only grow by mid-single digits on an annual basis over the next 10 years.
Second, beer sales have been steadily declining for a long time, and this unfavorable trend is forecast to accelerate in the years to come because of changing attitudes toward drinking in general. Tilray Brands, in effect, is branching out into a market in the midst of a long-term decline.
Taken together, these dual headwinds could result in the company growing its top line by low single digits all the way out to fiscal year 2032. As a result, Tilray Brands stock arguably doesn't sport an overly attractive risk-to-reward ratio -- even after this landmark deal with the self-proclaimed "King of Beers."
