Tilray’s August 2023 acquisition of eight craft brands from Anheuser-Busch InBev (A-B) has boosted the Canadian cannabis company’s beverage-alcohol net revenue +165% year-over-year (YoY), it reported today.
The increase in bev-alc revenue amounted to $54.7 million in Q3 of Tilray’s fiscal year (three months ending February 29), up from $20.6 million in Q3 of the prior year. Tilray’s bev-alc division increased +89%, to $18.9 million in Q3; adjusted gross profit was $20.9 million.
“The positive delta was due to contributions from the craft brands, which were purchased last fall,” CFO Carl Merton said today during a conference call with analysts. “However, we note that the impact of Dry January was far more of a headwind than it was for the industry in previous years.”
Bev-alc margin was 38% in Q3, compared to 53% in the same quarter last year, which Tilray said was the result of lower margins in the production of the brands acquired from A-B, “primarily due to the current underutilization of the breweries we acquired.”
“The improvement of gross margins in the beverage-alcohol business, primarily in the beer portion of the business, represents a major focus for the organization,” Merton said.
Tilray’s overall net revenue increased +30% YoY in Q3, to $188.3 million, and the company’s gross profit was $49.4 million and $51.6 million adjusted (+17%). Gross margin was 26%, and 27% adjusted.
Tilray’s “existing brands stayed consistent,” and the company pointed to its new acquisitions as the driving force behind the growth.
Those new brands include Shock Top, Breckenrdige, Blue Point, Redhook, HiBall, Widmer Brothers, 10 Barrel and Square Mile Cider. They joined Tilray’s existing portfolio of SweetWater, Green Flash, Alpine and Montauk.
“Tilray Brands is now the fifth largest craft brewer in the U.S. with a 4.5% craft beer market share,” CEO Irwin Simon said during the call. “We aspire to be a top 12 beverage company in the U.S.”
The company aims to grow its beer business to $300 million, Simon added. It has added 10 million case equivalents since it first entered the craft beer market.
Tilray’s foray into American craft beer began in late 2020, when it acquired Atlanta-based SweetWater, which amounted to 2.5 million cases. More acquisitions followed with Green Flash and Alpine in 2021, Montauk in 2022, and the A-B assortment in 2023.
“Today, we are on a run rate of 12.5 million cases with tremendous opportunity with all the innovation that’s happening,” Simon said. “So there’s just a lot of evening out here, and there’s a lot of moving pieces to bring all this together.”
To manage this growing portfolio, the company tapped Boston Consulting Group (BCG), which has helped it develop “a clear and focused strategy to drive top line and bottom line growth for a beverage business,” Simon said.
The strategy, dubbed “Dual,” is a “three-pronged approach” to “stabilize” brands in their respective regional markets and “maximize their potential to gain market share from competitors.” It is “already paying off,” Simon said.
Many of Tilray’s craft beer brands have grown share in their home markets and the company is the No. 1 craft supplier in the Pacific Northwest, home to 10 Barrel, Widmer and Redhook, Simon said. Tilray also leads the craft markets in metro New York, home to Montauk and Blue Point, and Georgia, SweetWater’s home state, according to a press release.
While the company is finding success with regional brands, it aims to leverage national reach with Shock Top, the wheat beer A-B launched in 2006 as a challenger to Molson Coors’ Blue Moon. At the time of Tiray’s acquisition, Shock Top had recorded production declines every year since 2017. The company has embarked on a revitalization project to revive it.
“We’re also executing a national brand strategy, beginning with revitalizing Shock Top to win as a national craft beer over time by targeting share and connect occasions to reach mainstream male and female drinkers,” Simon said. “We think there is tremendous upside with Shock Top as, according to our qualitative research, Shock Top has the highest purchase intent among 12 of the largest beer brands. This is why we’re focused on increasing distribution and getting this brand back into the hands of consumers.”
Shock Top’s makeover includes the resurrection of its rotating seasonal line and a 9% ABV non-carbonated hard tea, Shock Top Liit.
The new Shock Top products were announced with a full complement of other innovations, including line extensions to existing brands and new brands – the equivalent of what “a lot of companies do in five or six years,” U.S. beer division president Ty Gilmore told Brewbound last month.
During the earnings call, Gilmore said Tilray’s distributor network is optimistic about the new products, which include non-alc craft beer brand Runner’s High, canned water Liquid Love and flavored malt beverages (FMB) 10 Barrel Pub Ice and HiBall Hard Ball. Innovation aside, wholesalers and retailers are feeling rosy about Tilray’s beer portfolio in general, Gilmore said.
“We feel really solid about some of the distribution gains not only that we’ve made in the third quarter, but we also feel solid about the conversations we’re having with several national and regional retailers across on- and off-premise with our brands,” he said. “Specifically, I looked over Q3 and we’ve gained north of 1,200 new effective placements on our existing brands.
“And with the innovation, we continue to see uptick every day with our distributor network, and how they’re leaning in with us and helping drive distribution,” Gilmore continued. “Chains are going to continue to play a critical role in our success, and we’re well-suited, as Irwin said, to leverage our partnerships with our distributors and the relationships that we have across the U.S.”
As the calendar turns toward the beer category’s busy summer season, Tilray expects to “see an increase in margins” in the next quarter, the fourth of the company’s fiscal year, CFO Carl Merton said.
“That’ll be driven by just more volume flowing through the facilities as we ramp up production in March and April to hit those April and May sales because there’s such a quick turnaround time and lack of inventory inside that segment,” he said.
Year-to-date through March 24, Tilray’s beer portfolio has declined -10.5% in dollar sales and -8.7% in volume at off-premise retailers tracked by market research firm Circana. Those declines are accelerating – in the four-week period ending March 24, the company’s dollar sales declined -11.7% and volume declined -9.6%.
In the 52-week period ending March 24 – some of which predates the A-B acquisition – Tilray’s dollar sales declined -7.1% and volume declined -7.8%, according to Circana.
Tilray is the 15th largest beer category vendor in the U.S. in Circana-tracked channels.