There hasn't been room for much organic growth in the cannabis industry, particularly in the Canadian market. That has led many marijuana producers to pursue acquisitions to bolster their top lines. Tilray Brands (TLRY +4.23%), a leading producer in Canada, has been no stranger to that in the past. It acquired rival Hexo last year and has also expanded into alcohol to help diversify its operations and make it less dependent on cannabis.
Tilray is looking at doing more deals this year. But will that help the business and its struggling stock price, or could that be bad news for investors?
NASDAQ: TLRY
Key Data Points
CEO says he's looking at more acquisitions
In an interview with MarketWatch last month, CEO Irwin Simon said that more deals could be coming soon. "I will look to do more acquisitions in 2024," the chief executive said. While Simon did not specify which categories or industries he may be looking at, the priority is to explore opportunities that will resonate with younger customers, including millennials and Generation Z.
That leaves open the potential for Tilray to pursue both alcohol and cannabis brands. One of the larger moves it has made in alcohol lately was the acquisition of eight beverage brands from industry giant Anheuser-Busch InBev. That deal closed in October 2023, and it has made Tilray a top-five craft brewer in the U.S.
Alcohol is a growing part of Tilray's business, with alcohol and beverages now accounting for one-quarter of total sales.
Is acquiring more companies a good move for Tilray Brands?
Acquisitions can have a positive impact on a business because they can diversify the company's operations and provide it with more growth opportunities. Tilray, for instance, reported just under $194 million in revenue in its most recent quarter, which ended on Nov. 30, 2023. That was a 34% increase on a year-over-year basis, with alcohol playing a large role in that.
The downside of taking on too many acquisitions, however, is that it can lead to additional costs, and it can involve issuing shares, which is dilutive and can result in a sharp decrease in the stock price. Tilray's deal for the Anheuser-Busch brands was an $85 million all-cash transaction, but for larger acquisitions, issuing stock may be inevitable. As of the end of last quarter, the company's cash and cash equivalents balance stood at over $143 million.
A lot will depend on the types of deals Tilray pursues and just how accretive they are to its operations. Investors should also note that acquisitions have already been a key part of the company's growth strategy, and it hasn't been paying off: In the past three years, the stock has plummeted 90%. Investors have become more concerned with a lack of profitability and ongoing cash burn, which may explain why, despite the rising revenue, Tilray Brands' shares haven't been taking off. Last quarter, the company incurred a net loss of more than $46 million and used up more than $30 million over the course of its day-to-day operating activities.
Is Tilray Brands stock a buy?
Tilray's pursuing more acquisitions isn't all that surprising given the company's track record for looking to mergers and acquisitions to boost its numbers. While deals can make the business bigger, that wouldn't mean Tilray would be better off in the long run. Revenue growth hasn't been paying off for the stock. Investors may prefer to see an improvement in overall efficiency and better margins, as well as prospects for profitability instead. Until that happens, M&A may not have a huge (positive) impact on the shares.
Investors are better off avoiding the stock given its continued risks. There are better and safer growth stocks for investors to consider adding to their portfolios than Tilray.
