Tilray: Acquisition of Craft Brew Brands From Anheuser-Busch Sends Shares Up 36% Despite Few Details

No-moat Tilray TLRY announced the acquisition of eight craft brewery brands from beer giant Anheuser-Busch. Although few details were provided, shares skyrocketed an astounding 36% on the news. As we do not have enough information to incorporate the beer additions in our model, we cannot justify the market reaction. Indeed, we don’t plan to change our fair value estimates of $5.50 and CAD 7 per share until further information is released. We think there are few synergies across beer and cannabis but do think that additional profitable businesses could help the company scale overhead expenses. Even excluding the beer additions, shares still look undervalued for the only profitable Canadian cannabis licensed producer we cover.

Tilray provided few details in the press release or in its management call. However, we’ve gleaned a couple of estimates to help us gauge the economics of the deal. Based on our read of the purchase agreement, the all-cash price looks to be about $85 million. Additionally, Tilray stated that it will have pro-forma beer revenue of $250 million, which we estimate implies $100 million to $150 million in sales for the acquired brands (compared with roughly $700 million in total revenue we forecast for Tilray in fiscal 2024). That would put a purchase price-to-revenue multiple in the 1 to 2 times range, which compares favorably with a 3 times enterprise value-to-revenue multiple we have for Boston Beer. However, we caveat that such a comparison doesn’t consider differences in profitability, with the smaller scale craft brews likely lower margin. Thus, the market reaction looks overdone on the deal alone.