Knock down a six pack of this sheet and drive with confidence. The cops won't give you a DUI!
This Cannabis Company Is Snapping Up America’s Craft Beer Brewers
Canada’s Tilray Brands built itself into one of biggest craft brewers in U.S.—‘I’m either real smart or real dumb,’ CEO says
By Laura Cooper, WSJ
Nov. 23, 2024 5:30 am ET
The beer industry enabled Tilray to expand its business in the U.S. Photo: Tilray Brands Inc.
The weed business hasn’t panned out the way many investors expected. So one cannabis company is expanding into another struggling industry: craft beer.
Tilray Brands TLRY 5.99%increase; green up pointing triangle, which sells marijuana in Canada, is buying up American beer brands. It is now the fifth-largest craft brewer in the U.S. by volume, with 18 brands, including Shock Top, SweetWater and Montauk.
A craft beer shakeout has allowed Tilray to sweep them up at low prices. But it also presents a challenge for the newly minted brewing company: Craft beer sales in U.S. stores were down 4.4% by volume in the first nine months of the year, compared with the same period last year, according to an analysis of NIQ data by Bump Williams Consulting.
Tilray is aiming to expand its Montauk brand. Photo: Tilray Brands Inc.
“I’m either real smart or real dumb,” Tilray Chief Executive Irwin Simon said in an interview.
Simon said he aims to generate new revenue, build relationships with beer distributors and eventually use that network to sell marijuana-infused drinks if and when they become federally legal in the U.S.
In Canada, Tilray sells THC drinks, along with marijuana pre-rolls, vapes and gummies. The company doesn’t sell recreational marijuana products in the U.S., where 24 states and the District of Columbia have legalized recreational cannabis but the sale of marijuana remains illegal under federal law.
Entrepreneurs and investors flocked to Canada’s marijuana industry when it opened in 2018, fueling a stock craze reminiscent of the late 1990s dot-com bubble. In the frenzy, big companies and wealthy families as well as amateurs took stakes in the nascent market. These companies were vehicles for investors who wanted to participate in the cannabis industry without running afoul of U.S. federal law. Canadian operators made the pitch that they would be poised to expand into the U.S. when cannabis became federally legal—a move that many expected to happen quickly.
It hasn’t. And the momentum toward legalization stalled this month when measures to legalize recreational cannabis in Florida and two other states failed to gain the votes needed to pass.
Simon, who employed a similar strategy in buying up brands at snack company Hain Celestial, said he was attracted to the beer industry because it allowed Tilray to expand into the U.S. The company made its first craft beer acquisition in 2020, when it agreed to buy Atlanta-based SweetWater Brewing. Simon said beer was a good fit for Tilray because the U.S. beer industry and the Canadian cannabis industry have similar regulations and distribution models.
Since 2020, Tilray has spent about $450 million on 18 beer brands, nine manufacturing facilities and 20 brewhouses, Simon said. The deals have allowed beer giants to offload smaller brands from their portfolios in a slowing market. Tilray in August agreed to buy four beer brands from Molson Coors and last year acquired eight beer brands from Budweiser brewer Anheuser-Busch InBev.
Simon said he plans to use marketing investments to expand brands such as Montauk across a local region of three to four states. Tilray is spending time and money connecting with its customers in person, hosting events such as cannabis-themed music festivals at its breweries.
Some beer industry veterans are skeptical of Tilray’s plan.
“Craft is famously resistant to roll-up synergies,” said Samuel Adams founder Jim Koch, who decades ago helped start the craft beer movement in the U.S.
Tilray is “buying these assets from people who tried it—Molson Coors or ABI—without a lot of success,” Koch said.
Bart Watson, chief economist for the Brewers Association, a craft-beer industry group, said there are opportunities to expand craft beer brands that didn’t get the attention they needed inside large companies.
“Lots of people have come in with funding to the craft beer space, and that has not been a guarantee of success—but people are interested to see what happens,” Watson said.
Tilray is on track to sell 15 million cases of beer this fiscal year and now works with more than 700 beer distributors in the U.S. The company aims to reach profit margins of 45% on the acquired brands with cost savings such as buying cans and hops in bulk, Simon said. Tilray said it had profit margins of 40% on both its beer and cannabis products in the latest quarter.
Craft breweries that package beer for distribution typically have profit margins of 30% to 40%, according to the Brewers Association.
Beer consumption is falling in the U.S. as consumers’ tastes change. Younger adult drinkers tend to prefer canned cocktails and fruitier-flavored malt beverages, and are drinking less overall. Cannabis itself is also hurting U.S. beer sales, industry experts say.
“People say to me all the time: ‘The category is changing. Why are you jumping into it?’” Simon said. “And that’s my whole thing…It’s a big industry, and millennials are not drinking their fathers’ beer. There is a big consumer base to bring into it.”
Comments