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Is Tilray Brands, Inc. (NASDAQ:TLRY) the Best Alcohol Stock?

We recently compiled a list of the 10 Best Alcohol Stocks to Buy Now. Since Tilray Brands, Inc. (NASDAQ:TLRY) is part of the list, we have discussed the stock in detail.

The Global Alcohol Industry:

In 2019, the global alcohol consumption, measured in liters of pure alcohol per person of 15 years of age or older, was 5.5 liters, which is a 4.7% relative decrease from 5.7 liters in 2010.  As we mentioned in our article – 20 Most Consumed Alcohols in the World – the global alcoholic beverages market size was valued at $1.62 trillion in 2021 and is projected to reach $2 trillion by 2031, with a CAGR of 2.2% during the forecast period.

The market is likely to be driven by the increasing global young-adult demographic, coupled with high disposable income and consumer demand for premium/super-premium products. Globally, beer drives the market for alcoholic beverages. Regionally, North America and Asia-Pacific are expected to dominate the market during the forecast period.

Resilience of the Beverage Alcohol Industry: 

As reported by Forbes, an analysis by Goldman Sachs has revealed that beer and spirits volumes in the American market have shown little correlation with economic growth. Their sales are more related to the general trends of alcohol consumption per capita rather than the general state of the economy. This is because beer and spirits are often seen as affordable luxuries or even staples.

Similarly, a Cambridge University study focused on business cycles and alcohol consumption across 24 countries over more than 50 years also found no symmetric reduction in beer and spirits consumption during recessions. The decreasing levels of average per capita income lead to very small changes in gross alcohol, wine, and beer consumption. In fact, the surge in unemployment during recessions could instead trigger an increase in the average alcohol intake. Moreover, it was also revealed that those who enjoy drinking tend to drink a lot more during the good times.

However, during times of economic difficulty, consumers tend to drink more at home as it is cheaper than hitting the bars. So while on-premise businesses suffer a decline in sales, liquor stores and online alcohol retailers tend to profit heavily.

Americans drank more alcohol also during the pandemic and this was reflected in the resultant imposts collected by the national kitty. Alcohol tax revenues collected by the U.S. Treasury Department rose by 8% in the fiscal year that ended on Sept. 30, 2021, compared to the previous year, and remained well above pre-pandemic levels.

Alcohol As a Lucrative Investment Asset: 

Rare whiskeys are incredible as investment vehicles. Aptly named ‘Liquid Gold’, this beloved liquor can preserve and even increase in value during economic instabilities, inflationary periods, and recessions. One simply cannot forget about the bottle of The Macallan 1926 Valerio Adami that sold in auction for $2.7 million in November 2023, or the 1975 cask of Ardbeg single malt which was acquired by a private collector in Asia in 2022 for over $20 million, more than double the amount Glenmorangie paid for the entire Ardbeg distillery and all its stock in 1997.

The Rare Whisky 101 Apex 1000 Index tracks whiskeys that are highly sought after for collection. It has gained over 383% since 2013, against 286% gains by S&P’s famous benchmark of the top 500 companies for the same period. The RW Japanese 100 Index, on the other hand, includes 100 collector's bottles from Japan, and since 2015, the index has seen gains of more than 396%. The index includes bottles like Ichiro's Malt 'Card' Ace of Spades, Ace of Diamonds, and King of Hearts, among others.

Similarly, if we enter the realm of rare wines, the Liv-ex Burgundy 150 Index tracks the ten most recently physical vintages for 15 white and red Burgundy, including six Domaine Romanée Conti labels. The index has gained over 102% over the last five years, against around 88% gains made by the broader market during the same period.

Is Tilray Brands, Inc. (NASDAQ:TLRY) the Best Alcohol Stock?
Is Tilray Brands, Inc. (NASDAQ:TLRY) the Best Alcohol Stock?

Methodology:

To collect data for this article, we scanned Insider Monkey’s database of 920 hedge funds and picked the top 10 companies operating in the alcohol sector with the highest number of hedge fund investors. When two companies had the same number of hedge funds investing in them, we ranked them by the revenue of their last financial year instead. Following are the Best Alcohol Stocks to Buy According to Hedge Funds:

10. Tilray Brands, Inc. (NASDAQ:TLRY)

Number of Hedge Fund Holders: 14

Tilray Brands, Inc. (NASDAQ:TLRY) – a craft beer and cannabis company that was among the first to be licensed for medical cannabis in Canada – announced last year that it had agreed to acquire eight beer and beverage brands from Anheuser-Busch InBev for an undisclosed amount.

The deal included the Shock Top, Blue Point, 10 Barrel, Breckenridge, Redhook, Widmer Brothers, Square Mile Cider, and HiBall Energy brands. With the satisfaction of customary closing conditions last October, combined with the pro forma sales revenue from the acquired businesses, Tilray Brands, Inc. (NASDAQ:TLRY) is now the 5th largest craft beer business in the U.S. with a 4.5% market share. Moreover, earlier this year, Tilray’s Breckenridge Distillery celebrated the wins of World’s Best Finished Bourbon, America’s Best Finished Bourbon, and Icons of Whisky Campaign Innovator of the Year: Highly Commended at the 2024 World Whiskies Awards.

However, the core business of Tilray Brands is cannabis and it boasts the number one market share in Canada, the leading cannabis market share by revenue in Germany, and it also distributes medical cannabis in 20 countries around the world.

In Tilray’s Q3 of 2024, which ended February 29th, the company reported revenue of $188.3 million, around 30% more than a year earlier. However, analysts were expecting a revenue $198.3 million, as the company has benefited from a boost in earnings due to recent acquisitions. The company also significantly reduced its loss to just $82.1 million compared to a massive $1.2 billion a year ago. The stock of TLRY was held by 14 hedge funds at the end of Q1 2024, with a collective stake value of over $14.7 million.

One thing that could benefit Tilray is the easing of federal restrictions on cannabis in the U.S. It was announced on the 16th of May that the US Justice Department has officially proposed a new rule that would reclassify marijuana from a ‘Schedule I’ drug, which includes heroin and LSD, to a less tightly regulated ‘Schedule III’ drug, which includes ketamine and some anabolic steroids. The decision marks a major policy shift by the federal government and while it would neither make the substance legal nor decriminalize it on a federal level, it would recognize the medical uses of cannabis and acknowledge that it has less potential for abuse than the many more harmful drugs. Also, after the rescheduling, cannabis companies operating in America would no longer have to follow tax provisions under a rule called 280E, which prevents them from taking standard business tax deductions.

Irwin Simon, the chairman and CEO of Tilray Brands, stated the following in the company’s Q3 2024 earnings call transcript:

“In the U.S., Tilray has multiple options and, in particular, is well positioned to benefit from the federal legalization of medical cannabis as a result of rescheduling. Yes, we believe that the rescheduling of cannabis from Schedule I to Schedule III in the U.S. would provide a path for Tilray to sell pharmaceutical grade medical cannabis in the U.S. subject to doctor prescriptions.

This is a different strategy from what MSOs are doing today. We believe there’s an opportunity to supply medical cannabis products from our existing operations into the U.S. for medical purposes. Further in the event of a future federal adult-use and medical cannabis legalization in the U.S., we believe Tilray is well positioned to immediately leverage its strong global leadership position, know-how and strategic strengths across operations, distribution and brands to sell THC infused products across its robust distribution network and sales channels in the U.S.”

As a result of the announcement by the US Justice Department on May 16th, Tilray saw its stock price move up by 6.3%. A day later, the company announced that it had filed for the sale of up to $250 million worth of its common stock through an at-the-market equity program. Tilray Brands, Inc. (NASDAQ:TLRY) plans to use proceeds from the sale to fund acquisitions or investments, including potential purchases of assets in the U.S. ‘in order to capitalize on expected regulatory advancements or expansion opportunities’.

Overall, TLRY ranks 10th on our list of the best alcohol stocks to buy. You can visit 10 Best Alcohol Stocks to Buy to see other alcohol stocks that are on hedge funds' radar. While we acknowledge the potential of TLRY as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TLRY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion "Opportunity" for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.

Disclosure: None. This article is originally published at Insider Monkey.