Tilray Turns to Beer, Cucumbers as Cannabis Falters

Tilray Turns to Beer, Cucumbers as Cannabis Falters

While the cannabis division of Ontario-based Tilray Brands Inc. (Nasdaq: TLRY) (TSX: TLRY) took a hit during its recently ended first quarter, management said during an investor call that it’s been firming up its other investments – including ethanol and traditional vegetables – to help soften the blow.

But the company still emphasizes that cannabis is expected to be its main play as regulatory rules loosen.

One of the primary concerns from analysts on the call centered on how Tilray plans to achieve its ambitious $68 million-$70 million EBITDA target guidance for the fiscal year. Discrepancies between that guidance and static EBITDA projections were brought to light, given Tilray’s recent acquisitions in the beer sector.

A big part of that, according ot CFO Carl Merton, is the cyclical nature of spirits brand sales. He pointed to sales peaks in the fiscal second quarter, thanks to to holiday buy-ins, and a fiscal fourth-quarter surge reflecting summer consumer buying patterns.

Merton said the company intends to better harness the synergies from the HEXO transaction going forward, which should boost financial performance. He also touched upon a series of cost-saving initiatives set to roll out in phases throughout the year.

But top-line growth through product diversification is where the company finds profitability, said CEO Irwin Simon.

“Our beer business, both SweetWater and Montauk, were up. Getting Montauk into other states -whether it’s New Jersey, Pennsylvania, Georgia – is going to be a big part of our growth,” Simon said.

He also highlighted the success of Tilray’s new gummies and the company’s commitment to organic growth, innovation, and cost reduction. Tilray has implemented cost cuts totaling $27 million so far this year. At the same time, the company is evaluating potential savings stemming from their ABI acquisition.

Mind the Gap

Beyond the pure alcohol plays Tilray has been making, management said it would keep trying to tap into the cannabis-infused beverage market – a segment that few have been able to really succeed in yet. The longer goal is not just to establish a specialized distribution network, but to introduce these products to mainstream retail channels, including convenience stores and bars.

Head of International Business and Chief Strategy Officer Denise Faltischek elaborated on Tilray’s expansive vision for Europe, with a keen focus on Germany. She depicted a comprehensive marketing and distribution strategy tailored for the region.

Faltischek noted that while the European landscape is currently anchored in medical cannabis, there’s a growing opportunity to merge it with the beverage alcohol sector.

“The regulations are still really shaping out,” she said. “We are looking to see medical cannabis in Germany become descheduled as a narcotic and become a regular medicine that can be prescribed.”

Traditional Agriculture

The company’s recent venture into cucumber farming also gave some extra beef to the balance sheet. Tilray plans to continue vegetable cultivation at the Masson facility, aligning with rising demand from Quebec-based retailers.

The company wants to transform a potentially underutilized asset into a steady revenue source.

“There’s a major shortage, and they want vegetables grown in Quebec,” Simon said. “There is better margin there than just keeping the place dark or selling cannabis that you can sell. It is a profitable business.”

With the regulatory environment in flux, particularly the potential changes from the U.S. Drug Enforcement Administration, management signaled readiness to adjust its strategies accordingly. This encompasses M&A considerations, regional expansion plans, and shifts in product diversification.

“Listen, I’d love to see it happen and I’ve been very clear: It does not affect us (from) day one,” he said. “But what it does, it helps get some confusion out of the market.”

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