The cannabis industry still is in its early growth stages, and many companies are staking out positions to set up for big gains later on. But there's also a problem: Marijuana remains banned federally in the U.S., a huge potential market. That means there are hurdles to growth. Companies can't simply transport products across state lines, meaning a producer must have duplicative operations in every state where it's legal to sell marijuana.

The net effect of that is that some marijuana companies have turned to alternative ways to expand their businesses. One example of that is Tilray Brands (NASDAQ: TLRY). The Canadian marijuana producer can't enter the U.S. market without jeopardizing its position on the Nasdaq. How the company has looked to grow and tried to make up for those limitations may surprise you.

A breakdown of Tilray's sales

In January, Tilray Brands posted record revenue of $194 million for the second quarter of fiscal 2024, which ended Nov. 30. And while cannabis is a key part of its operations, the majority of Tilray's revenue comes from other area of its business.

Here's a breakdown of Tilray's segments and their respective revenue growth last quarter:

Data source: Company filings. Table by author.

Cannabis revenue was up an impressive 35% last quarter, but in June of last year, Tilray acquired a key rival, Hexo, which has helped give its revenue a boost from the prior-year numbers.

Tilray's distribution business involves the purchase and resale of pharmaceutical products. A key part of that business is CC Pharma, a leading pharmaceutical distributor based in Germany that Tilray owns. CC Pharma also distributes medical cannabis, offering Tilray a path to becoming a leading cannabis operator in Europe.

Wellness products include hemp-based cannabidiol products, which, while similar to marijuana, aren't as potent and are more easily accessible to consumers. The U.S. government legalized hemp-based products in 2018 through the Farm Bill.

Alcohol could be a much larger part of Tilray's business in the future

Alcohol, which generated the most significant growth in the most recent quarter, largely due to acquisitions, is by far the most intriguing aspect of Tilray's long-term growth strategy.

Cannabis-infused beverages may potentially be one of the cannabis industry's fastest-growing segments in the near future. The allure of them is that users get a buzz without worrying about a hangover the next day. Fortune Business Insights projects that the global cannabis beverages market is growing at a compounded annual growth rate of more than 54%, and by 2028, it may be worth over $19 billion.

Expansion into alcoholic products, therefore, isn't necessarily all that unexpected for a cannabis company, given the potential long-term opportunities and collaborations that may open up down the road. One of the more notable moves Tilray has made recently is the acquisition of eight beer and beverage brands from Anheuser-Busch. The acquisition has put Tilray onto the list of top five craft brewers in the country. In recent years, Tilray has acquired other beverage companies, including Montauk Brewing and Breckenridge Distillery.

Today, Tilray's beverage business accounts for a quarter of all revenue, but that percentage could rise in the future. Acquiring U.S.-based beverage brands can be a way for Tilray to both boost its top line while also staking out positions in the U.S., which could aid the company in the event that the federal government legalizes marijuana in the future.

The company remains unprofitable, and the stock is risky

Although Tilray Brands demonstrated strong growth last quarter, this is still a risky business to invest in. The company had a net loss of $46.2 million in Q2. And while that was an improvement from a net loss of $61.6 million a year ago, it underscores just why investors have been reluctant to buy the stock, as its operations remain deeply in the red.

During the past three years, shares of Tilray have plummeted by 87%. Diversifying into alcohol and other revenue streams can help the business grow, but they will also add cost and complexities along the way, making it unclear when or if the company can ever become profitable.

Is Tilray Brands stock a buy?

Despite its diversification, Tilray Brands isn't a stock I would invest in. The company still appears to be in acquisition mode, and a lot can change in the near future with respect to its financials. Its top line got a boost last quarter due to acquisitions, but unless it continues making deals, that growth rate is likely to slow a lot.

Until the company makes more of a significant improvement in its bottom line, with a realistic path to breaking even or profit, investors should avoid buying shares of this troubled cannabis producer, as the stock could continue to fall further.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq and Tilray Brands. The Motley Fool has a disclosure policy.