Tilray Brand’s acquisition of Montauk Brewing Co. closed November 7 for an initial purchase price of $35.11 million, according to a 10-Q filing as part of the publicly traded cannabis firm and growing craft brewery consortium’s Q2 2023.
Tilray released its financial results Monday for the quarter ending November 30, 2022. Included in its filings were further details on its acquisition of the Montauk, New York-based brewery, announced in November.
Tilray acquired 100% ownership of Montauk for $28.688 million in cash and $6.422 million in stock (approximately 1,708,521 shares of Tilray Class 2 common stock), according to the 10-Q filing. Should Montauk achieve “certain volume and/or EBITDA [earnings before interest, taxes, depreciation and amortization] targets on or before December 31, 2025” an additional contingent cash consideration of up to $18 million will be available to Montauk stockholders.
The fair value of that contingent consideration at the closing date was determined to be $10.245 million, with a 80% “probability of achievement.”
Tilray is still in the process of assessing the final fair value of Montauk’s net assets, but preliminary estimates value the brewery’s total assets to be worth $53.403 million, with $8.048 million in liabilities, for a net asset value of $45.355 million.
Montauk joins Tilray’s growing portfolio of bev-alc brands, including SweetWater Brewing (Atlanta, Georgia), Breckenridge Distillery (Breckenridge, Colorado), Green Flash Brewing and Alpine Brewing (San Diego, California).
Tilray expects Montauk to “deliver strong revenue and EBITDA,” with plans to “leverage SweetWater’s excess capacity” and “nationwide infrastructure” to “significantly expand” Montauk’s distribution network, “making it a true national brand,” according to a press release.
“We are already leveraging SweetWater’s existing national infrastructure to significantly expand Montauk Brewing distribution network beyond its concentrated presence in the Northeast, further driving Montauk growth across key national markets – including California, Georgia, Florida, Connecticut – while rounding out the presence of our craft beverage portfolio across the U.S.” Tilray chairman and CEO Irwin Simon said during an earnings call with investors Monday.
Montauk produced 46,935 barrels of beer in 2021, a -4% decline year-over-year (YoY), according to the Brewers Association (BA). The majority of that volume is contract brewed at Wachusett Brewing in Westminster, Massachusetts, and Two Roads Brewing in Stratford, Connecticut, Montauk general manager Terry Hopper told Brewbound in November.
Tilray’s bev-alc portfolio generated $21.4 million in net revenue in Q2 2023, a +56% increase YoY compared to Q2 2022 ($13.7 million). The company credited the increase to the acquisitions of Breckenridge Distillery, Green Flash and Alpine – which all closed in December 2021 – as well as the Montauk purchase. The company’s bev-alc gross profit increased +28% YoY, to $10 million, while its adjusted gross profit increased +42%, to $11.1 million.
“We remain bullish on expanding this segment over time as we leverage our increased distribution, regional brand acceptance with Green Flash and Alpine, foster brand acceptance with SweetWater in California, build out an extensive innovation pipeline and, of course, potentially pursue other acquisitions,” Tilray CFO Carl Merton said during Monday’s call.
Tilray’s adjusted gross margin for bev-alc decreased from 57% to 52%, which Merton attributed “primarily” to the result of SweetWater’s Colorado expansion, “which is still in the startup phase of operations.” Tilray has been deepening SweetWater’s presence in the Centennial State since 2021, helped by the June 2021 acquisition of the former Red Truck Brewing facility in Fort Collins.
“Also, the Breckenridge and Montauk acquisitions were not completed in the prior year comparison and operate at a slightly lower margin than SweetWater,” Merton added.
Tilray reported a total net revenue of $144.1 million for the quarter, down -6% from Q1 2023 (153.2 million) and -7% versus Q2 2022 ($155.2 million). Merton credited the declines to “lower net cannabis distribution and wellness revenue that were only slightly offset by higher beverage alcohol revenue.”
Simon has previously touted the goal of becoming a $4 billion company by 2024, but delays in the legalization of cannabis in the U.S. and Europe have extended that timeline. Asked during Monday’s call whether those delays have caused Tilray to shift plans for its portfolio mix, Simon said they are going to continue to “diversify this company into multiple categories that have adjacency to the cannabis business.”
“I like [bev-alc’s] multiples, I like their margins,” Simon said. “And as I’ve been out there meeting with alcohol distributors and others – everybody is focused on cannabis because they realize one day upon legalization, the cannibalization in the whole spirits [and] beer business is going to come from cannabis.
“And trust me, all these major alcohol companies have an eye on cannabis, no different than the tobacco companies,” he continued. “So with that, if I today can’t do anything in the U.S. and have to sit there, why not get bigger into some of these craft brewers – like a SweetWater, like a Montauk, like a Breckenridge – like we did.”