Cannabis companies have been struggling to generate growth in recent years. The pot market isn't opening up (federally) in the U.S. anytime soon, and in Canada, there's an excess of competition, making it difficult for top companies to dominate and grow. One product Canadian pot producers have been turning to is alcohol. Two companies that have made that a key part of their growth strategies are Tilray Brands (TLRY 1.71%) and SNDL (SNDL 3.08%).
1. Tilray Brands
Tilray Brands is one of the leading cannabis companies in Canada, and it has been able to find ways to expand its top line through acquisitions. In particular, it has been acquiring alcohol companies to extend its presence in the U.S. while also diversifying its overall operations.
In its most recent fiscal year, which ended on May 31, the company's cannabis sales totaled $220 million and were down 7% year over year. Distribution sales were down, as was revenue from its wellness business. The one positive was its beverage and alcohol segment, where revenue of $95.1 million was up by 33%. Multiple craft beverage brands have been the key to its success, including SweetWater Brewing, Breckenridge Distillery, and Montauk Brewing.
Earlier this month, Tilray also announced the acquisition of eight brands from Anheuser-Busch InBev, which would now make it one of the largest craft brewers in the U.S., with a market share of about 5%. Last week, the company also said it would be acquiring full ownership of Truss Beverage Co., which makes cannabis-infused beverages in Canada. Previously, Tilray had partnered with beer maker Molson Coors on the venture but now will buy it out and own the entire business.
Alcohol looks to be a big part of the growth strategy for Tilray Brands, and investors should expect more moves around this area of the company's business, especially as the U.S. cannabis market remains off-limits.
It's too early to tell, however, whether expanding into craft brewing can make Tilray Brands a good investment. For now, investors are better off simply monitoring the pot stock to see how its business evolves amid all these changes.
2. SNDL
Cannabis producer SNDL has also been expanding into beverages, but its focus has been staying in Canada. Last year, it acquired Alcanna, which is a leading alcohol retailer in Canada.
In its most recent earnings report, for the period ended June 30, SNDL's total net revenue was 244.5 million Canadian dollars ($180 million) up 9% from the CA$223.7 million that it posted in the prior-year period. Liquor retail, at CA$151.7 million, represented the bulk of SNDL's business. Cannabis retail, which SNDL also expanded into a few years ago through the acquisition of Inner Spirit Holdings, contributed CA$71.9 million. The following chart helps put into perspective just how significantly acquisitions have transformed SNDL's business in the past few years:
Data source: YCharts.
This is a company that, in the past, has struggled to generate growth. In 2021, its full-year sales were just CA$56.1 million. Alcohol has been a key part of SNDL's transformation, as has the launch of pot shops and the acquisition of Inner Spirit.
Unfortunately, while SNDL's business has been growing, it remains unprofitable. Last quarter, it posted a net loss of CA$33.2 million. While that's an improvement from a year ago when the loss was just under CA$74 million, the company's exposure to a hotly competitive cannabis retail market in Canada could make it difficult for SNDL to get out of the red anytime soon.
Like Tilray, this is an interesting company to watch, given how aggressive it has been with respect to acquisitions, but it's not worth investing in right now.
