The beverage alcohol division of Canadian cannabis giant Tilray grew revenue +117%, to $46.5 million, in the second quarter of the company’s fiscal year compared to the same quarter last year, the company reported Tuesday.
However, the division’s gross margin declined -13% year-over-year (YoY), to 34%, in the quarter, driven by Tilray’s acquisition of eight brands from Anheuser-Busch InBev (A-B), which closed in September (Shock Top, Breckenridge Brewery, Blue Point Brewing, 10 Barrel Brewing, Redhook Brewery, Widmer Brothers Brewing, Square Mile Cider and Hiball Energy). Adjusted gross bev-alc margin declined -14% from Q1, to 38% in Q2.
“Excluding the newly acquired brands, adjusted gross margin would have been 55% in the current quarter,” Tilray wrote in a press release.
Non-adjusted bev-alc gross profit increased +60% YoY, from $10 million in Q2 2023, to $16 million in Q2 2024. Adjusted bev-alc gross profit was $18 million, up from $11 million in the same period.
Nadine Sarwat, analyst at financial services firm Bernstein, called out the “profit miss” in her report and noted the margin was “dragged down more than expected by the acquisitions of the craft brands.”
During a call with investors, Tilray CEO Irwin Simon discussed the company’s bev-alc strategy, which it hired the Boston Consulting Group to help create.
“Working with the Boston Consulting Group, we have developed a beverage strategy identifying new opportunities for pockets of growth across craft beverages, focusing on brand newness, being more connected to drinkers and by playing a leading role in driving excitement around craft beer to a broader consumer audience through product innovation, marketing, sponsorships, and events that connect with consumers across demographics,” he said.
By acquiring the A-B brands in 2023, Montauk Brewing in 2022, Green Flash and Alpine in 2021 and SweetWater in 2020, Tilray has become the fifth largest independent craft brewery in the country by volume, with ambitions beyond craft. The A-B acquisition will triple Tilray’s beer volume, from 4 million case equivalents (CEs) to 12 million CEs annually, Simon said.
“Tilray Brands is now uniquely positioned to become a top 12 beer and alcohol beverage company by leveraging our portfolio to win more occasions with core products such as craft beer and beyond through innovation to categories, like flavored malt beverages, ready-to-drink cocktails and spirits,” Simon said.
Tilray was the 14th largest beer category vendor in off-premise scan data for the first 11 months of 2023, according to market research firm Circana. Dollar sales of Tilray’s beer portfolio declined -6.2%, to $180.2 million, and volume declined -8.6% at multi-outlet grocery and convenience stores through December 3.
The company’s strategy hinges on Shock Top as a national brand bolstered by regional brands to provide “robust coverage across the U.S. and in other countries.”
Tilray plans to revitalize Shock Top – A-B’s Blue Moon challenger brand that has been challenged at retail for years with declining sales – by “targeting share and connection occasion to reach mainstream male and female beer drinkers,” Simon said.
With its regional breweries, Tilray will cross-pollinate brands through “multi-brand, best-of variety packs or installing multi-brand taps in taprooms” before launching brands in new markets.
Bev-alc and non-alc innovation launches are planned for Q3, Simon said.
“Through one national brand and many regional brands, we will provide robust coverage across the U.S. and other countries,” he said. “We will expand our innovation strategy to increase brand appeal to new consumers and occasions beyond craft beer in secondary targets.”
For more insight into Tilray’s bev-alc business, watch U.S. beer division president Ty Gilmore’s conversation with Brewbound editor Justin Kendall during the Brewbound Live business conference last month in Marina del Rey, California.