Tilray (TLRY) is making waves after announcing two partnerships with AB InBev (ABI) and Sandoz. The idea is that the larger companies should help TLRY expand both by researching cannabis-based, non-alcoholic beverages in Canada as well as expanding its global footprint with already-established marketing technique. Cowen top analyst, Vivien Azer weighs in on the choice, saying the partnership will foster growth in new areas, while TLRY maintains its independence. The analyst maintains an Outperform rating with a price target of $150, showing a potential 109% upside.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Vivien Azer has a yearly average return of 23.5% and a 60% success rate. Azer has a -8.5% average loss when recommending TLRY, and is ranked #53 out of 5,078 analysts.
Shedding some light on the joint ventures: TLRY and ABI will research drinks that contain cannabis extract, which includes THC, CBD and other cannabinoids. Each company will invest up to $50 million each and the board will be equally split between companies. The partnership is currently just limited to Canada, but Azer points out Labatt beer company originated from one small brewery in London, Ontario and then became an internationally known beer. This is the same location where TLRY and ABI will work out of, as ABI will take advantage of its Labatt subsidiary while also making use of TLRY’s High Park subsidiary — also in London, ON. What are the implications of such a deal? Azer says the announcement puts TLRY on a playing field in which the company will be able to compete with other new cannabis beverage business.
“The deal provides TLRY with substantial industry expertise from a global beverage leader and additional capital to fund beverage R&D, which is increasingly important, as those products are expected to be commercially available in less than 12 months. We think that TLRY will move quickly to get a beverage line up and running, as TLRY has already begun securing equipment at their Hyde Park facility. TLRY has also made R&D investments to develop taste, time to onset/offset, flavors, and beverage recipes and can now further leverage ABI to develop a best-in-class product. We continue to believe that new form factors will drive a continued shift of consumers out of the illicit market and into the legal market in 2019. Today’s announcement improves TLRY’s to position to compete in the new cannabis beverage segment,” Azer explains.
“Given the nascent stage of the industry, we think TLRY is taking a methodical and patient approach and endeavors to partner with other global industry leaders. As such, we think the deal leaves TLRY options for additional partnerships while maintaining equity control without diluting its shareholders,” Azer concludes.
Despite Azer’s optimism, analysts who are keeping an eye on TLRY are not all in. Out of five analysts, just two are bullish and three are sidelined. The consensus price target of $140, shows a near 95% potential upside. (See TLRY’s price targets and analyst ratings on TipRanks)