Lifestyle company, meet lifestyle brand.
Canadian cannabis firm Tilray’s acquisition of New York’s Montauk Brewing Company brings together a lifestyle-minded acquirer and a craft brand with a vibe.
“We really saw ourselves as more than just craft beer,” Montauk general manager Terry Hopper told Brewbound.
That vibe came through in the way consumers interacted with the Montauk brand on beaches, patios and stadiums and showed up in the social media feeds, Hopper added.
“We used to always joke with distributors that we kind of felt like we were the Corona of craft,” he said. “We wanted to find our beach.”
Montauk discovered more than a beach. On Monday, the company sold for around $50 million, according to Beer Marketer’s Insights. Tilray’s 100% acquisition of Montauk included an exchange of more than 1.7 million shares of Tilray stock, according to an SEC filing.
Among those bought out were Bret Williams, who invested in the New York craft brewery a year after selling Woodchuck Hard Cider maker Vermont Hard Cider Company for $305 million to Irish cider company C&C in 2012.
Tilray wasn’t alone in its interest in Montauk. Sources tell Brewbound that the brewery had received interest from other breweries in recent years, including Molson Coors pre-pandemic and Artisanal Brewing Ventures.
However, Hopper called Tilray the “right fit” for Montauk – joining a portfolio of beer brands that includes Atlanta’s SweetWater and San Diego-founded brands Green Flash and Alpine – as the company immediately becomes “a very important part of [Tilray’s] business in the Northeast.”
Montauk’s leadership also clicked with Tilray chairman and CEO Irwin D. Simon, who has a house in the Hamptons. Hopper described a quick courtship between the two companies, with Simon being “decisive” in his desire to get a deal done.
“Irwin came to the table,” he said.
“As we started talking about our brands and talking with him – he’d come out and have a pint – he became really enamored with how cool the brand was and the vibe,” Hopper continued. “[Founders] Vaughan [Cutillo] and Eric [Moss] have done such a great job of [building] this come-as-you-are, chase-your-wave feel that when you go out to our patio, there’s 200 people. It could be a fisherman; it could be a CFO or a CEO or whoever; and everyone was just chillin’ having beer, and I think he really dug that.”
Additionally, Montauk’s leadership sees opportunities ahead for their 10-person team.
“It would have been different than if we would have picked a strategic partner like Bud, MillerCoors, Heineken, any of those guys,” he said. “They may have already had their own sales organizations in place, all that. Whereas our entire team, our entire sales organization is coming over, and we’re really being given the opportunity to grow and expand our markets, and add bodies and invest in the brand now.”
Cutillo, who co-founded Montauk a decade ago with Moss, told Brewbound that the sale marks a “pivotal moment” for the brand. Nevertheless, he expects Montauk to “dig deep” at home.
“We’ve always held the reins back a little bit by design, we want to dig deep and that’s not going to change,” he said. “We still have a lot of work to do in our home market and make sure that we do charity events at the brewery and really dig deep where we are. But this opens up the opportunities to really hit the ground running and explore new strategies for growth because we are absolutely going to grow this thing.”
Digging deep includes a potential New York City taproom, which Cutillo called “a no brainer.” Hopper added that other opportunities include getting into music venues and stadiums. He recalled Montauk’s Summer Ale being one of the top-selling products at Citi Field despite being sold in just one part of the stadium.
Montauk still has a long way to go to expand its distribution. The company’s beer is distributed on Long Island by Boening Brothers, in New York City by SKI and in northern New Jersey by Kohler Distributing. Hopper expects Montauk to start to add contiguous markets, such as filling out its New Jersey distribution.
“When you start to look at our current footprint, it’s just Long Island, New York City and then three counties outside of New York City,” Hopper said. He sees opportunity in New York’s Hudson Valley and in Fairfield County, and New London, Connecticut.
Hopper also believes flagship Wave Chaser IPA, which accounts for about 50% of Montauk’s business, can travel to “water markets,” such as Florida.
“It’s being smart and identifying the right markets that fit the culture,” he said.
The majority of Montauk’s volume is contract produced at Wachusett Brewing in Westminster, Massachusetts, with additional production at Two Roads Brewing in Stratford, Connecticut. As far as potentially moving production to Tilray’s owned breweries in Atlanta and Fort Collins, Colorado, Hopper said he expects there to be “some transition time” as the company sees through its contracts.
“Ultimately the goal I would think if I was SweetWater and Irwin and Tilray was to move that inside, right?” he said. “That’s where your synergies become stronger and your profitability becomes stronger.”
For 2023, Montauk will launch its first variety 12-pack featuring Wave Chaser, another IPA and some lighter styles, Cutillo said.
The company will also zero in on the convenience channel. Montauk will attack the channel with its top three SKUs, Wave Chaser and its two seasonal offerings (which combined make up 77% of its volume), in 19.2 oz. cans and Wave Chaser 6-packs
Investment research firm Bernstein Autonomous noted that it is positive on Tilray’s expansion into alcoholic beverages. Analyst Nadine Sarwat called the U.S. alcohol sector “incredibly attractive.”
“Scale, rationale competition and the three-tier system result in strong margins,” she wrote. “And the steady march of premiumization means that there are meaningful pockets of growth to be found even in beer. This strategy allows for cash flow generation from alcohol to support the cannabis segment until (i) Canadian cannabis prices stabilize, and/ or (ii) US federal legalization occurs.”
For Tilray, the addition of Montauk, which produces just under 50,000 barrels annually, will take the company’s beer barrelage close to 300,000 barrels. Sarwat noted that “after lapping very difficult comps,” Montauk “is once again growing ahead of the overall U.S. craft market in Nielsen channels.” The brand also has “white space for growth” with limited national distribution and “solid distribution” in its New York home market.