Tilray Brands’ Strong Revenue Growth Overshadowed by Alcohol Margin Drop

The TDR Three Takeaways:

1. Significant Revenue Growth: Tilray Brands experienced a substantial increase in its fiscal second quarter 2024, with net revenue reaching a record $194 million. This 34% increase from the previous year highlights the company’s successful expansion and performance in the cannabis market, especially in Canada and Europe.

2. Expansion in Beverage-Alcohol Sector: Tilray has made notable strides in the U.S. beverage-alcohol sector, becoming the 5th largest craft beer brewer with a 117% increase in beverage alcohol net revenue. This positions the company for potential growth into one of the top beverage-alcohol companies in the U.S.

3. Analyst Perspective on Growth and Challenges: As an analyst, the observation is that Tilray’s recent growth aligns more closely with the industry growth rate, addressing previous concerns of slowing growth. The strengthened balance sheet, with increased liquidity, is seen as a positive development. However, the growth in the alcohol segment, despite being outside their primary cannabis focus, needs careful monitoring due to shrinking gross margins. Further, in-depth research and analysis on Tilray are planned for the near future.

Tilray Brands (Nasdaq: TLRY; TSX: TLRY) reported its fiscal secondquarter 2024 results, demonstrating significant financial and operational growth. The company’s net revenue reached a record $194 million, representing a 34% increase from the previous year. This growth is primarily attributed to its commanding position in the Canadian cannabis market, where it achieved a 31% increase in net revenue, alongside a 55% increase in international cannabis net revenue, especially in Europe.

In the U.S. beverage-alcohol sector, Tilray has ascended to the 5th largest craft beer brewer, evidenced by a 117% increase in beverage alcohol net revenue. The company is actively working towards becoming one of the top 12 beverage-alcohol companies in the U.S. Additionally, it is on track to realize $30-$35 million in annual savings from the integration of the HEXO acquisition.

The quarter witnessed a 34% increase in net revenue and an 11% rise in gross profit to $47 million. The cannabis segment saw a 35% surge in net revenue, reaching $67 million, albeit with a reduced gross margin compared to the previous year. Conversely, the beverage alcohol segment’s net revenue saw a significant increase, yet its gross margin declined.

Tilray reported a reduced net loss of $46 million, a marked improvement from the $62 million loss in the previous year. The adjusted net loss was $2.7 million, with an adjusted EBITDA of $10.1 million. The company has enhanced its liquidity position, boasting approximately $261 million in assets, including cash and marketable securities, and has significantly decreased its convertible debt.

Operationally, Tilray maintains its leadership in the Canadian cannabis market and is broadening its reach in the international medical cannabis market. In the U.S., Tilray is strategically positioned to capitalize on potential federal cannabis legalization. Moreover, the company’s acquisition of several beer and beverage brands from Anheuser-Busch has bolstered Tilray’s U.S. beverage-alcohol segment.

For fiscal year 2024, Tilray is committed to maintaining its adjusted EBITDA target of $68 million to $78 million and expects to generate positive adjusted free cash flow. Its strategic actions in the second quarter of 2024, including product launches and acquisitions, aim to reinforce its position in both the cannabis and beverage-alcohol industries.

From my perspective, one of Tilray’s challenges has been its slowing growth; the previous three-year Revenue CAGR was 15.7%. It’s encouraging to see the company report a 34% year-over-year growth, aligning more closely with the industry growth rate. The balance sheet has also strengthened over the last year, with increased liquidity, which is a positive sign. Although outside their primary focus on cannabis, the growth in their alcohol segment is noteworthy. However, the shrinking gross margin in this area warrants close monitoring. We will be launching formal research on Tilray in the coming months and will provide a more in-depth analysis.

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