Is Tilray's Brewdog Bet Already Backfiring? Collapsing UK Sales Suggest Yes.

Tilray (NASDAQ: TLRY) started its life in the marijuana sector. A few years ago, marijuana was a hot investment theme, and the stock soared on lofty investor expectations for the increasingly legal drug. Realty didn't match expectations, however, and marijuana stocks like Tilray have tanked (it is down more than 95% from its all-time highs).

The company has shifted gears. The recent move to buy Brewdog is an example of the direction change, but it doesn't look like a great decision right now. Here's what you need to know.

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Tilray bought a troubled asset

Tilray isn't exiting the marijuana space; it is expanding into other areas, most notably craft brewing. The goal is to shift from being a pot stock to being a brand manager, describing itself as "a global lifestyle and consumer packaged goods company." The packaged goods just happen to be marijuana, CBD, and alcohol.

So the decision to buy Brewdog, a well-known craft brewer, makes logical sense. And the price was fairly modest, with the U.K. side of the business costing around $44 million. The company didn't announce a cost for the U.S. side, but it is unlikely that Tilray, which is itself a fairly small company, paid a huge sum.

That said, Brewdog's U.K. business hasn't been doing very well. Since Brewdog started the sales process, its own sales have fallen 22.5% with volumes down nearly 22%, according to The Grocer. The declines have been accelerating, according to that industry watcher. That's bad news for Tilray and suggests that it stepped into a bit of a mess.

Tilray knew it was buying a fixer-upper

That said, Tilray didn't actually buy all of Brewdog. It was selective about which company locations it acquired (the rest were shut down), and it was likely most interested in the company's craft brew brands, anyway. And while Brewdog's share of the craft brew market in the U.K. has fallen, it is still nearly 50%. That's not a bad bolt-on for Tilray as it looks to reposition its business.

There will likely be a transition period as Tilray integrates Brewdog into its broader business. It wouldn't be shocking to see weak sales trends during this period, since Tilray will have to figure out exactly what it wants to do with the brands it has acquired and then implement those plans. So the Brewdog acquisition could look like, well, a dog for a while. The real test will be where Brewdog's brands are a year or two from now.

Tilray is a high-risk investment

Tilray is a money-losing business in the middle of a major overhaul because its early focus on marijuana didn't work out as well as hoped. Buying Brewdog was a part of that business overhaul. All but the most aggressive investors should probably avoid Tilray.

That said, it is probably too early to assess the company's Brewdog purchase. Sure, it looks like a potential mess right now, but management likely knew it would need to turn the business around when it acquired it. It's reasonable to afford Tilray some time to put its imprint on the craft brewer's brands.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Tilray Brands. The Motley Fool has a disclosure policy.