27 January 2023

Cannabis firm Tilray to grow fruit and vegetables to improve financials

Canada | This sounds desperate. As US cannabis legalisation has not progressed as hoped, the Canadian cannabis firm Tilray has to change its strategy to weather the financial storm. It may make more acquisitions in the alcohol space, or even grow vegetables at its cannabis facilities, CEO Irwin Simon said during an earnings call on 9 January 2023.

Shifting some growing capacity to fruits and vegetables will be a short-term measure, Mr Simon explained. “There are shortages in the world of lettuce, tomatoes, strawberries. … If we have overcapacity, how do we start growing fruits and vegetables at some of these facilities and supply food to the world?”

Analysts were not convinced. The margins on “branded” vegetables are slimmer than on cannabis. Perhaps the company should reduce its growing capacity instead, they suggested. Mr Simon responded that the company’s main goal is to grow cannabis, and this would be a “temporary bridge”.

Demand for cannabis in Canada is lagging

Facilities could be converted back should the US or Europe legalise cannabis and allow exports from Canada. Until then, it does not make sense to mothball them or have them running below capacity, Mr Simon added.

The company, which is based in Leamington, Ontario, is the Canadian market leader with a share of 8.3 percent. It admitted that the demand for cannabis in Canada has not materialised to the extent that it allows the more than 900 cannabis producers to utilise their cultivation facilities fully.

Expanding into the alcohol business

Tilray already owns craft brewers SweetWater from Georgia, Montauk from New York, Alpine and Green Flash from California, as well as a bourbon maker, Breckenridge Distillery. The company has plans to expand Montauk’s distribution outside of its core market in the Northeast. It also sees more acquisitions in the wellness space, like Manitoba Harvest, its hemp food business. It hopes to launch a CBD drink in the US, Happy Flower, in early 2023.

Mr Simon reiterated that Tilray is interested in acquiring alcohol brands in the US, Europe, and Canada, which could then be used to also market cannabis products in the event of legalisation.

Once it is fully legalised, cannabis use is expected to cannibalise the alcohol business. But for now, acquiring craft brewers is a way to expand Tilray’s presence in the US, Mr Simon expounded further.

In the second quarter (until 30 November 2022), Tilray’s reported revenue fell 7.1 percent from a year earlier to USD 144 million, missing the average analyst estimate of USD 155.5 million. The company posted a net loss of USD 61.6 million, meeting estimates.

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