On Tilray’s recent Q2 F2023 earnings call on Jan. 9, chairman and CEO Irwin Simon discussed the possibility of allocating cultivation resources to fruits and vegetables as a way of countering oversupply in the cannabis space and hedging against the industry’s broader economic headwinds. The company’s second quarter ended Nov. 30, 2022.
The conference call webcast may be accessed here.
“There’s food shortages in the world of lettuce, tomatoes, strawberries,” Simon shared on the conference call update, according to Bloomberg. “If we have overcapacity, how do we start growing fruits and vegetables at some of these facilities and supply food to the world?”
A question like that is brought about by the challenging nature of cannabis in Canada, where Tilray’s headquarters are located.
Setting aside the lack of federal reform in the U.S., which remains a non-starter for any potential Tilray operations in the country, Simon pointed to more specific market trends that have impacted the cannabis industry in Canada—and forced companies of Tilray’s scale to scan other markets for top-line revenue opportunities. He cited “difficult operating conditions, ongoing price compressions and high excise tax” as notable obstacles facing licensed producers across Canada.
During Q2, Tilray temporarily slowed production and cut production costs at Canadian cannabis facilities. Simon specifically mentioned the longer-than-anticipated delays in federal legalization of cannabis (in the U.S. and elsewhere) that forced a re-evaluation of future budget goals across the company’s multinational footprint.
But as cannabis production slows, what’s a company like Tilray supposed to do with all that indoor ag space (more than 3 million sq. ft. globally)? Branded produce, for one thing.
“It’s got to make sense,” Simon said. “It’s got to fit within our grow facilities, and it’s got to be accretive to Tilray and Tilray’s shareholders.” Low-cost capacity allows for such reconsiderations of revenue opportunities.
Blair MacNeil, president of Tilray, told analysts and shareholders on the call that this proposition relates to sustainability—rather than the mode of survivability that one sees across the entire cannabis landscape. Whether in fruits or veggies or cannabis, mergers and acquisitions may provide an avenue toward realizing corporate goals.
“For us, it’s an opportunity to utilize some of our excess capacity,” he said, “and help our industry thrive and get to that $10-billion industry in Canada and $100-billion globally.”
Indeed, this idea dovetails with Tilray Wellness, a division of Tilray Brands, and the company’s 2019 acquisition of hemp production company Manitoba Harvest, which manufactures and distributes hemp-based CPGs to businesses like Walmart. This nexus of cannabinoid-centric agriculture and CPG development is located at the heart of what Simon was sharing on the Jan. 9 conference call.
Simon underscored, however, that cannabis remains the central focus of Tilray’s operations. The company, which is based in Leamington, Ontario, presently holds 8.3% market share of the Canadian cannabis market, according to a recent press release. (“Looking ahead, Tilray’s focus on using data and consumer insights coupled with ongoing budtender and consumer education is expected to enable the acceleration of both sales and market share growth,” according to the company’s quarterly earnings press release.)
But in terms of the company’s broader ambitions, Simon also spent time on the call addressing alcoholic beverages.
The company already operates in the alcohol space, with acquisitions like SweetWater Brewing Co. and Montauk Brewing Co. filling out its portfolio. Such beverages sales “increased 56% to $21.4 million, over the prior year quarter, including revenue from acquisitions,” according to the quarterly update issued by Tilray. Those may be U.S.-based beverage companies, but Simon told analysts and shareholders that these non-cannabis plans could certainly take shape in Canada and Europe, as well, where Tilray is establishing a cannabis presence.
For now, the U.S. alcohol-beverage space remains important to Tilray’s outlook. In November 2022, Tilray went ahead and named industry veteran Ty Gilmore president of the company’s U.S. beer business.
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“Tilray Brands’ repositioning as a global diversified portfolio of brands will drive our ability to seize top-line opportunities across geographies and business lines,” Simon said in a public statement. “In the U.S., this includes investing in, acquiring or building compelling and profitable lifestyle CPG brands across craft beverage-alcohol and wellness consumer products that are cannabis adjacent, resonate powerfully with consumers, and are strongly positioned in key markets.”
Simon told analysts and shareholders and the company’s mission remains: “to create the world’s leading and most diversified cannabis lifestyle and consumer packages goods company” across four categories: adult-use cannabis, medical cannabis, “beverage-alcohol” and “wellness consumer products. This will be accomplished by several aims:
– “Pursuing our most profitable core business to drive growth now and over the long term;”
– “Maintaining our No. 1 leadership position and growing market share in recreational cannabis in Canada;”
– “Maintaining our leadership position and growing market share in medical cannabis across Europe—and a strong position to capture the adult-use market when legalization does occur;”
– “Winning in the U.S, despite delayed federal cannabis legalization, which we do not expect to happen at anytime in the near future.”
Those aims revolve around access to cannabis—and primarily the federal stance in the U.S.—but the current economic and political climate has prompted interest in adjacent operations within Tilray’s top-line revenue goals.
