THE GIST
Global cannabis and beverage company Tilray on Aug. 7 announced it would acquire eight craft beer and beverage brands from Anheuser-Busch InBev (ABI), tripling Tilray’s beer volume in the U.S. and expanding its manufacturing and distribution nationally. It further diversifies the company’s revenue streams, which CEO Irwin Simon said will now be split nearly evenly between recreational and medical cannabis (30%), beverage alcohol (30%), and medical cannabis distribution (30%), with food and wellness brands (10%) as a more narrow slice of the pie.
The acquired brands include Shock Top, Breckenridge Brewery, Blue Point Brewing Company, 10 Barrel Brewing Company, Redhook Brewery, Widmer Brothers Brewing, Square Mile Cider Company, and Hi Ball Energy; the deal includes all employees, brewing facilities, and brewpubs. (Separately but also on Aug. 7, ABI sold Virtue Cider back to its founder, Greg Hall, Beer Marketer’s Insights reports.) Tax filings show Tilray will pay $85 million in cash for the eight brands—the deal is expected to close later this year.
The current production volume across all these brands and locations wasn’t discussed, but is upwards of 500,000 barrels. Buying the collection for near pennies-on-the-dollar is an incredible deal as Tilray’s strategic interest in them appears to stem from the scale, synergies, and manufacturing capacity they can provide the company’s broader beverage-alcohol business. The added volume from the acquired breweries will make Tilray the fifth largest craft beer company in the U.S.
On an investor call, Simon touted the deal as creating a “truly nationwide” craft beer presence—both in terms of production and distribution—for Tilray brands. ABI was a willing seller, as it has been winnowing its craft beer portfolio in recent years. It shuttered its most recent craft acquisition, Platform Brewing, in February, after its sales plummeted, and subsequently laid off a number of employees at its craft breweries and some of its centralized craft marketing staff in New York.
The deal means Tilray will have a total of six production breweries across the Southeast, Northeast, and Mountain West; as well as 12 total brewpubs. Some of these “state of the art” breweries, Tilray noted on the call and in an investor deck, could be used to create new alcohol and non-alcoholic beverages in the future. Tilray already owned:
Atlanta-based SweetWater Brewing, which it acquired in 2020.
The San Diego-born Green Flash and Alpine brands, which it acquired from foreclosure in 2021.
Colorado’s Breckenridge Distillery, which it bought in 2021.
New York’s Montauk Brewing, which it purchased in late 2022.
WHY IT MATTERS
Tilray isn’t purchasing breweries at the height of their sales powers: Only two ABI craft breweries (Wicked Weed and Goose Island) saw positive volume growth in chain retail so far this year, and neither is part of the Tilray transaction. At least some of the breweries are coming in on something of a summer hot streak. Comparing May, June, and July of this year to the same period in 2022 market research company Circana shows growth for:
10 Barrel (+8%), thanks to continued expansion of its Pub Lager brand, which accounts for nearly 70% of its chain retail volume sales.
Redhook (+5%), which has leaned heavily into its Big Ballard Imperial IPA in recent years. That beer and its Variety Pack and Tropical Big Ballard Juicy IPA spinoffs have been the sources of the brewery’s growth in chain retail.
Square Mile (+72%) has seen a resurgence—while on a much smaller scale than the breweries—thanks to focus on a collection of Imperial Cider brands. Such high-ABV offerings are one of the fastest growing and most important sub-segments in cider.
Meanwhile, remaining producers purchased by Tilray all saw sales volumes decline in chain retail during this timeframe. The losses ranged from -10% (Breckenridge) to -38% (Blue Point).
“It’s not what the brands were doing before, it’s what we can do with them going forward,” Simon told investors, adding that the acquisitions would solidify the company’s national market share, bringing it to a projected 5% of U.S. craft beer.
Scale, Scott said, is critical for maintaining priority with distributors and for gaining efficiencies in ingredient procurement. This is particularly important as ingredients and input costs have risen over the past two years, reducing craft breweries’ margins. There are opportunities to improve efficiencies with production, sales, and marketing of Tilray’s existing craft brands alongside its new acquisitions; Scott gave the particular example of combining the forces of Montauk and Blue Point—separated by about 60 miles in New York—in the Northeast.
The deal will expand Tilray’s beer distribution into new regions through the ABI network. Currently, Tilray sells 65% of its beer volume in the Southeast and 25% in the Northeast, with virtually no sales in the Pacific Northwest. That will change quickly with several new companies in Washington State and Oregon. Though he did not give a timeframe for the following growth, according to Scott, the company projects that:
It will be the No. 1 craft beer company in the Pacific Northwest, where Widmer Brothers, Redhook, Square Mile Cider, and 10 Barrel are based, and where Green Flash and Alpine distribute.
It will be the No. 4 craft beer company in the Southeast, where SweetWater is based and Shock Top also has strong sales (its top sales state is Florida).
It will be the No. 4 craft beer company in a trio of states—Colorado, Missouri, and Kansas—that it refers to as Midwest.
It will be the No. 5 beer craft company in the Northeast, where Blue Point and Montauk are based, and where Shock Top has strong sales (its third-biggest sales market is New York).
Scott told investors there are opportunities to sell all these brands’ beers in Canada and globally as well.
Purchasing regionally successful breweries to scale them nationally was the strategic thinking behind ABI and Molson Coors’ acquisitions over the past decade, to varying degrees of sales success. The difference is that Tilray is acquiring the breweries from ABI in a much more established stage, and for a much lower price: Compare $85 million to the more than $600 million ABI spent on its 13 craft breweries and the purchase of Craft Brewers Alliance.
The network of production and distribution that these brands have would also benefit Tilray’s cannabis and CBD divisions should federal legalization occur, Scott said. It’s debatable how far away that watershed moment is, with estimates ranging from one year to 10 years. But Tilray has for a long time hoped to find legal intersections between its U.S. craft beverages and cannabis business divisions.
Scott told investors that “upon legalization one day,” there are likely to be adjacent opportunities for THC and CBD products given the distribution partnerships and manufacturing facilities that Tilray’s craft breweries bring to the table. Its purchase of Hiball Energy, too, offers a chance for crossover, with the company noting that the “Hiball trademark could be leveraged for cannabis beverages down the road upon U.S. legalization.”
In Canada, where Tilray is based, the company is making moves with a goal of increasing market share. In June, it acquired cannabis company HEXO, creating Canada’s largest cannabis company by revenue.
However, Tilray overall has yet to become anything close to profitable: It reported $1.4 billion in losses for fiscal year 2023, though losses were less in the fourth quarter than they had been in the same quarter the year prior. Critically, beverage alcohol has been a bright spot amidst the red, with sales up +33% to $95 million in fiscal year 2023, reports MJBizDaily. Much of this is attributable to alcohol acquisitions, indicating that Tilray is likely to keep its eye open for attractive targets in that space—especially if they’re available for a relative steal.
As the company expands its cannabis business in Canada and waits patiently for things to change in the U.S., Tilray's growing collection of beverage businesses offers a diversification of its portfolio. These brands are an affordable pickup as ABI appeared to view them as afterthoughts in its craft portfolio.
Words by Kate Bernot