Q1 2024 Tilray Brands Inc Earnings Call

Thank you for joining today's conference call to discuss two Great brands, Inc. Financial results for the 2020 for fiscal first quarter ended August 31st 2023.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session for analysts and investment firms conducted via audio.

Participating retail shareholders conducted via the Sei technologies platform.

Question submission and uploading through the Sei technologies platform has already concluded and the company will read aloud and answered the top questions.

I will now turn the call over to MS Bear neurotic to array branch, Chief Corporate Affairs and Communications Officer.

Thank you you may now begin.

Good morning, everyone by now you should have access to our earnings press release, which is available on the investors section of the Tilbury brands website until they dot com and has been filed with the SEC and SEDAR.

Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.

In addition, we will be making numerous forward looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect actual results could differ materially from those described.

And those forward looking statements.

The tech in our earnings press release includes many of the risks and uncertainties associated with such forward looking statements.

Operator: Thank you for joining today's conference call to discuss Tilray Brand's Inc financial results for the 2024 Fiscal First Quarter ended August 31, 2023 All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session for analysts and investment firms conducted via audio and participating retail shareholders conducted via the Say Technologies platform. Question, submission and uploading through the Say Technologies platform has already concluded and the company will read aloud and answer the top questions.

Today, we will be hearing from key members of our senior leadership team beginning with Irwin Simon Chairman and Chief Executive Officer, who will provide opening remarks and commentary followed by Carl Merton Chief Financial Officer, who will review, our quarterly financial results and maintain our adjusted EBITDA guidance for the two.

<unk> thousand 20 for fiscal year.

Also joining us for the question and answer segment are Denise boxes check Chief strategy Officer, and head of International Blair Mcneill President until they Canada anti Gilmore President of U S beer business.

Berrin Noorata: I will now turn the call over to Ms. Berrin Noorata, Tilray Brand's Chief Corporate Affairs and Communications Officer. Thank you. You may now begin. Good morning, everyone. By now, you should have access to our earnings press release, which is available on the investor section of the Tilray Brand's website at Tilray.com and has been filed with the SEC and CEDAR. Please note that during today's call, we will be referring to various non-GAF financial measures that can provide useful information for investors.

And now I'd like to turn the call over to Terry brands, Chairman and CEO Irwin Simon.

Thank you Barry and good morning, everyone. We appreciate you joining our quarterly call Kilroy brands we.

We strategically diversified our candidates lifestyle and CPG company globally, and we've done so for several reasons, including the tremendous growth opportunities, we see within the beverage category and across markets like craft beer ready to drink cocktails, non alcoholic beverages energy and nutritional drink.

Berrin Noorata: However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAF. The earnings press release contains a reconciliation of each non-GAF financial measure to the most comparable measure prepared in accordance with GAF. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements.

These product categories and others in our portfolio further allow us to address the ever changing cannabis market conditions, while driving market share and the industries in which we compete.

This effort is backed by our portfolio of high quality lifestyle brands and the strong and growing distribution networks that are behind US. Our goal is doing this is clear to accelerate our ability to deliver industry, leading profitable growth and sustainable long term shareholder value through this.

And our achievements in fiscal 2000, 2004 to date and expectations for the balance of the year reflects the strides we're making by focusing on our core fundamentals.

Berrin Noorata: Today, we will be hearing from key members of our senior leadership team, beginning with Erwin Simon, Chairman, and Chief Executive Officer, who will provide opening remarks and commentary followed by Carl Merton, Chief Financial Officer, who will review our quarterly financial results and maintain our adjusted either by guidance for the 2024 fiscal year.

Number one maximizing profitable revenue growth through organic expansion initiatives and key strategic acquisitions with strong synergy potential number to realizing the benefits of optimize asset utilization and cost management to ensure a lean efficient cost structure across.

Berrin Noorata: Also joining us for this question-and-answer segment are Denise Balch's check, Chief Strategy Officer, and Head of International, Blair McNeil, President Tillery Canada, and Ty Gilmore, President of US Beer Business.

<unk>, all our business segments and of course number three continuing to strengthen our industry, leading balance sheet and cash positions.

Our strategic execution and achievements affirm that we have emerged as the most diversified cannabis lifestyle and CPG company globally with four distinct and complementary business segments. These consist of canvas broken out into medical and adult use along with beverages, including craft beer.

Irwin Simon: And now I'd like to turn the call over to Tillery Bren, Chairman, and CEO Erwin Simon. Thank you, Baron, and good morning, everyone. We appreciate you joining our quarterly call. At Tillery Bren, we strategically diversify our Canada's lifestyle and CPG company globally, and we've done so for several reasons, including the tremendous growth opportunities we see within the beverage category across markets like craft beer, ready-to-dream cocktails, non-alcoholic beverages, energy, and nutritional drinks.

Spirits ready to drink mixed cocktails, and non alcoholic drinks and CBD beverages wireless products in our medical distribution business.

As a result, we had a record Q1 with net revenue of $177 million.

Representing 50% growth year over year, we grew EBITDA and our cannabis business and our international businesses. We grew Canadian cannabis revenue by 16, 5% in the quarter and remain the leading strongest and most profitable international cannabis LP with approximately a 13, 4%.

Irwin Simon: These product categories and others in our portfolio further allow us to address the ever-changing cannabis market conditions, while driving market share in the industries in which we compete. This effort is backed by our portfolio high quality lifestyle brands and the strong and growing distribution networks that are behind them. Our goal is doing this is clear to accelerate our ability to deliver industry leading, profitable growth, and sustainable long-term shareholder value.

<unk> share in Canada inclusive of Hexcel Entrust 631 basis points ahead of the next L. P.

From a product category perspective, we continued to lead candidate sales in almost every market across Canada, the largest federally legal cannabis market in the world.

Irwin Simon: To this end, our achievements in fiscal 2024 to date and expectations for the balance of the year reflects the strive for making by focusing on our core fundamentals. Number one, maximizing profitable revenue growth through organic expansion initiatives and key strategic acquisitions with strong synergy potential. Number two, realizing the benefits of optimized asset utilization and cost management to ensure a lean, efficient cost structure across all our business segments. And of course, number three, continuing to strengthen our industry-leading balancing and cash position.

<unk> is number one in cannabis flower oils concentrates and THC beverages and number two in pre rolls number four and vague and the top 10 in all other categories.

Aggregate all categories in either inhalable, our adjustables kill rate is number one in both of these groups.

We grew international cannabis revenue by 37% and we are the market leader in medical cannabis across Europe , with leading market shares in Germany.

And Luxembourg.

We are a leader in the hemp food industry with a 52% branded market share with Manitoba harvest in the U S and Canadian market share of nearly 80%.

Irwin Simon: Our strategic execution and achievements affirm that we have emerged as the most diversified cannabis lifestyle and CPG company globally with four distinct and complementary business segments. These consist of cannabis, broken out into medical and adult use, along with beverages including craft beer, spirits, ready to drink mixed cocktails, and non-alcoholic drinks and CBD beverages, wellness products and a medical distribution business. As a result, we got a record Q1 with net revenue of $177 million representing 50% growth year over year.

With our recent acquisition of eight craft beer and beverage brands and Anheuser Busch, we are growing fast in the craft beverage alcohol industry solidifying our leadership position as the fifth largest U S craft beer brewer with 5% market share in a growing market and since year end, we paid down one one.

$177 million of our debt.

The balance we have brought to our business model by going beyond cannabis has given us a strong position today and is positioning us well for a higher growth future opportunities, including when U S. Federal cannabis legalization and German legalization of adult use cannabis happens we believe.

Irwin Simon: We grew EBITDA in our cannabis business and our international businesses. We grew Canadian cannabis revenue by 16.5% in the quarter and remained the leading strongest and most profitable international cannabis LP with approximately a 13.4% share in Canada, inclusive of hexal and trust. 631 basis points ahead of the next LP. From a product category perspective, we continue to lead cannabis sales in almost every market across Canada, the largest federally illegal cannabis market in the world.

We're in a great place going forward, well positioned with the resources infrastructure and operations the distribution of brand sales and marketing and Knowhow to lead the revolution of cannabis CPG into the American and European Main Street.

Let us now discuss our individual segments with the context of our overall business candidates was our largest segment by net revenue and comprised of approximately 40% of the total revenue gross revenue from Canadian adult use cannabis increased 22% driven by innovation and share growth.

Irwin Simon: Kill rate is number one in cannabis flower, oils, concentrates and THC beverages, and number two in pre-rolls, number four in vape, and the top 10 in all other categories. Aggregating all categories in either inhalables or ingestibles, Kill rate is number one in both of these groups. We grew international cannabis revenue by 37%. And we are the market leader in medical cannabis across Europe with leading market shares in Germany, Poland and Luxembourg.

And dried flower and pre roll. This was achieved both organically and as a result of our recent acquisitions and despite price compression in the quarter of approximately $3 million from the prior year quarter.

Notably in Q1, according to combine high fire and we crawl our retail sales data till ray sold over double the units of the number two and number three lp's combined in equivalent Kgs, we sold double the amount of the number to LP.

Irwin Simon: We are a leader in the hand food industry with a 52% branded market share with Manitoba Harvest in the US and Canadian market share of nearly 80%. With our recent acquisition of eight craft beer and beverage brands, Banana Hizer Bush, we are growing fast in the craft beverage alcohol industry, solidifying our leadership position as the fifth largest US craft beer floor with 5% market share in a growing market. And since year end, we pay down $177 million of our debt.

As pre rolls continue to grow we shipped over $18 million pre rolls 200000 per day that is a lot of pre rolls.

In terms of market share in our core business of til rate when we exclude excellent trusts. We finished Q1 with $8 seven six market share, which is up versus Q4, 2023 and year over year versus fiscal year 2023, Q1 by 57 basis.

Irwin Simon: The balance we have brought to our business model by going beyond cannabis has given us a strong position today and is positioning us well for higher growth future opportunities, including when US federal cannabis legalization and German legalization of adult use cannabis happens.

<unk> and 38 basis points, respectively. We maintained our number one market share position and expand the gap by an additional 20 basis points to an overall GAAP of 136 basis points versus the number two LP by market share our combined market share for Q1.

Irwin Simon: We believe we are in a great place going forward, well positioned with the resources, infrastructure and operations, the distribution of brands, sales and marketing and know how to lead the revolution of cannabis CBG into the American and European mainstream.

When including Til rate excellent Trust was 13, 4%.

Regionally, we grew our share at all four major markets in Ontario, Alberta, British Columbia, and Quebec, furthering our best in class market coverage to a highly fragmented retail network.

Irwin Simon: Let us now discuss our individual segments with the context of our overall business. Cannabis was our largest segment by net revenue and comprised of approximately 40% of the total revenue. Gross revenue from Canadian adult use cannabis increased 22% driven by innovation and shared growth in dried flour, vapes and pre-roll. This was achieved both organically and as a result of our recent acquisitions. This compression in the quarter of approximately $3 million from the prior year quarter.

Finally, we continue to have a relentless focus on synergies we reported planned synergies up $27 million with the XO transaction in just two months. We have had already achieved 17, one of the targets through elimination of duplicate costs streamlining SG&A.

And renegotiated key contracts in Q2, we will complete the integration of Harry <unk> from an operational standpoint, which includes centralizing our packaging and logistics into a free one facility driving further efficiencies.

Irwin Simon: Notably, if you want, according to combined high fire and re-crawler retail sales data, Tilray sold over double the units of the number two and number three LPs combined. In terms of market share in our core business of Tilray, when we exclude hexotrust, we finish Q1 with 8.76 market share which is up versus Q4 2023 and year over year versus fiscal year 2023 Q1 by 57 basis points and 38 basis points respectively.

With regard to our Mesa facility in Quebec.

<unk> invested in making the necessary changes to convert and optimize the facility to grow cannabis in fruits and vegetables for the Quebec marketplace. This work is on track and we will begin plant DQ covers this year.

On a related acquisition in August we purchased the remaining 57, 5% equity ownership of trust beverage company for Molson, Canada.

The transaction further strengthens our number one cannabis market share position in Canada with a combined market share of approximately 40% in the THC beverage and positions us at the forefront of the adult use beverage sector. Our expanded cannabis portfolio now includes our fastest growing beverage.

Irwin Simon: We maintained our number one market share position and expanded the gap by an addition of 20 basis points to an overall gap of 136 basis points versus the number two LP by market share. Our combined market share for Q1 when including Tilray, hexotrust was 13.4%. Originally, we grew our share at all four major markets in Ontario, Alberta, British Columbia and Quebec, furthering our best in class market coverage to a highly fragmented retail network.

Each brands, including X Mg Malo, <unk> and little victory.

We believe that THC beverages present, a significant opportunity there are nearly 11 million customers and candidates for cannabis beverages on the categories, Paul already roughly $100 million Canadian at retail.

In addition to the category opportunity transitioning THC beverage production to our London facility will generate further cost savings and synergies.

Irwin Simon: Finally, we continue to have a relentless focus on synergies. We reported plans synergies of $27 million with the hexotransaction in just two months. We have had already achieved 17.1 of the target through elimination of duplicate costs, streetlining, SG&A and renegotiating key contracts. In Q2, we will complete the integration of hexot from an operational standpoint which includes centralizing our packaging and logistics into a free of one facility, driving further efficiencies. With regard to our MASEFON facility in Quebec, we've invested in making the necessary changes to convert and optimize the facility to grow cannabis and prints and vegetables for the Quebec marketplace. This work is on track and we will begin planting cucumbers this year.

Turning to international candidates, which achieved revenue growth and improved profitability in Q1, our attentions are twofold, strengthening our leadership position and market share in the medical cannabis category, where we currently operate across 21 countries and achieving early mover advantage in new countries.

Medical legalization advances based on these trends to date, we are building momentum in Poland, Italy, the UK and the Czech Republic.

As we look to fiscal 2024 for our international cannabis business. Our focus is on high quality medical cannabis brands, which are trusted by patients healthcare professionals and government officials around the world all of our best in class cultivation facilities in Portugal, and Germany, where we are.

Irwin Simon: On a related acquisition note in August, we purchased the remaining 57.5% equity ownership of trust beverage company from Molson's Canada. The transaction further strengthens our number one cannabis market share position in Canada with a combined market share of approximately 40% in the THC beverage and positions us at the forefront of the adult used beverage sector. Our expanded cannabis portfolio now includes fastest growing beverage brands including XMG, Molot, House of Turpings and Little Dicks.

Are one of only three companies in Germany that can cultivate in country as well as leveraging our Canadian cannabis facilities and expertise our medical distribution network led by our integrated <unk> pharma and medical cannabis teams with relationships across 13000 pharmacies from AR.

Bottom line perspective, we are laser focused on optimizing our European platform working to remove a proxy $8 million of costs from our businesses of which we've already completed.

Irwin Simon: We believe that THC beverages present a significant opportunity. There are nearly 11 million customers in Canada for cannabis beverages, and the categories are already roughly $100 million Canadian at retail. In addition to the category opportunity, transitioning THC beverage production to a London facility will generate further cost savings and synergies.

Over $6 8 million.

Cc pharma, which we are rebranding to <unk> pharma is our established medical distribution platform for traditional branded and generic pharmaceuticals as well as medical cannabis. This business segment from a revenue perspective is currently equal in size to our cannabis segment comprising slightly less than 40.

Percent of the total sales mix. It grew 14% in Q1 from a year ago and expanded its gross profit margin due to a reduction in production cost and improving product mix.

Irwin Simon: Turning to international cannabis, which achieve revenue growth and approved profitability in Q1, our tensions are twofold. Strengthening our leadership position and market share in the medical cannabis category, where we currently operate across 21 countries and achieving early mover advantage in new countries as medical legalization advances. Based on these trans to date, we are building momentum in Poland, Italy, the UK, and the Czech Republic. As we look to fiscal 2024 for our international cannabis business, our focus is on high quality medical cannabis brands, which are trusted by patients, healthcare professionals, and government officials around the world.

Similar to the U S. We are not planning our business around adult use legalization in Germany. However, there is proposed legislation in Germany for medical cannabis to be classified as a dark cottage and if the proposed German legislation comes to pass it may be prescribed as a medicine rather than.

And our colleague which is more difficult for healthcare providers to prescribe. This in turn with open assess ability to a larger patient population.

Now turning to our beverage alcohol in CPG portfolio of high quality growing portfolio of lifestyle craft beverage alcohol and wellness brands that have enabled us to build a strong footprint in the U S market without engaging in business that touches at Kansas plant.

Irwin Simon: Of our best-in-class cultivation facilities in Portugal and Germany, where we are one of only three companies in Germany that can cultivate in-country as well as leveraging our Canadian cannabis facilities and expertise. Our medical distribution network, led by our integrated Tilray pharma and medical cannabis teams, with relationships across 13,000 pharmacies. From a bottom line perspective, we are laser focused on optimizing our European platform, working to remove approximately $8 million a cost from our businesses, of which we have already competed over $6.8 million.

Importantly, beverages are a fast growing category with significant growth through innovation in M&A and high future growth and healthy margins.

Within beverages for example, the craft beer business is expected to grow to $282 billion globally by 2030 to a CAGR of 10, 5% between 2023 and 2032 with North America accounting for 40% of the revenue today of that $40 billion in 2010.

Irwin Simon: CC pharma, which we are rebranding to Tilray pharma, is our established medical distribution platform for traditional branded and generic pharmaceuticals as well as medical cannabis. This business segment from a revenue perspective is currently equal in size toward cannabis segment, comprising slightly less than 40% of the total sales mix. It grew 14% in Q1 from a year ago, and expanded its gross profit margin due to a reduction in production costs and improving product mix.

Three given that it is a market we have been following closely in order to seize on the clear opportunity that exists today.

Reflecting that earlier this week, we welcome. The newest addition to the <unk> brands family as we closed on our acquisition of eight beer and beverage brands from Anheuser Busch. These brands sharp top Breckenridge brewery Bluepoint Brewing company 10 barrel Brewing company Red Hook Brewery Widmer.

Brothers Brewing square mile Cider company and high Vol energy have enabled us to further diversify and expand our beverage alcohol segment, while elevating our position within craft beer from number nine to projected number five.

Irwin Simon: Similar to the US, we are not planning our business around adult use legalization in Germany. However, there is proposed legislation in Germany for medical cannabis to be classified as a narcotic, and if the proposed German legislation comes to pass, it may be prescribed as a medicine rather than a narcotic, which is more difficult for healthcare providers to prescribe, this in turn with open assessability to a larger patient population.

We are confident that as we layer on our team's deep experience and skills and product innovation and marketing, we will able not only grow our brands, but also evolved the overall craft beer category.

Where there is clear and strong opportunity to grow the consumer demographics and expand into new products and formats, such as RTD and new channels.

Irwin Simon: Now turning toward beverage alcohol and CBG portfolio, a high-quality, rowy portfolio of lifestyle craft beverage alcohol and wellness brands that have been able us to build a strong footprint in the US market without engaging in business that touches a cannabis plant. Importantly, beverages are a fast growing category with significant growth through innovation and M&A, and high-futured growth and healthy markets.

Taken together over the last three years, we've added a total of 13 brands to our beverage alcohol portfolio. The eight that I just referred to in addition to Sweetwater Brewing company in December of 2020, Alpine beer and Green Flash Brewing company in January of 2022, and Manta growing company in November .

2022, we also own Breckenridge distillery the award winning spirits brand and the world's best blended whisky, which was acquired in December of 2021.

Irwin Simon: . Within beverages, for example, the craft beer business is expected to grow to 282 billion globally by 2032, a cager of 10.5% between 2023 and 2032, with North America County 40% of the revenue today of that 40 billion in 2023. Given that, it is a market we have been following closely in order to seize on the clear opportunity that exists today.

In terms of overall segment performance quarterly revenue for the beverage alcohol business was $24 2 million in Q1, representing a 17% growth from last year and we're just getting started in making this segment more meaningful component of our financials.

Irwin Simon: Replacing that earlier this week, we welcome the newest additions to the Tilray Brands family as we close on our acquisition of eight beer and beverage brands from Anne Heiser Bush. These brands, Shocktop, Breckenridge Brewery, Blue Point Brewery Company, Ten Barrel Brewery Company, Red Hook Brewery, Whitimer Brothers Brewery, Square Miles Fighter Company, and Highball Energy have enabled us to further diversify and expand our beverage alcohol segment by elevating our position within craft beer from number nine to project it number five.

We project pro forma revenue for a beverage alcohol segment, including these recently acquired brands of about $300 million.

Finally, our wellness segment is delivering higher gross profit on a stable of top line as its adjusted to higher ingredient costs through increased pricing from a year ago. It remains an important element of our U S strategy because of these factors.

Strong consumer interest in hemp products expanded distribution into whole foods, and Walmart and product innovation to meet needs of the Gen Z millennials consumer through new hand forward foods and supplement offerings in CBD wellness beverage like are happy flower.

Irwin Simon: We are confident that as we layer on our team's deep experience and skills in product innovation and marketing, we will able not only grow our brands, but also evolve the overall craft beer category where there is clear and strong opportunity to grow the consumer demographics and expand into new products and formats such as RTV and new channels.

It's also worth noting that Manitoba harvest as the industry leader in terms of sustainability.

<unk> re certified as a B corp for the 10th consecutive year.

Having launched the first regenerative organic certified hemp heart skew this past spring.

Irwin Simon: Taken together over the last three years, we've added a total of 13 brands to our beverage alcohol portfolio, the eight that I just referred to in addition to Sweetwater Brewing Company in December of 2020, Alpine Beer and Green Flash Brewing Company in January of 2022, and Montauk Brewing Company in November of 2022. We also own Breckenridge Distillery, the award-winning spirits brand and the world's best blended whiskey, which was inquired in December of 2021.

Across the board, we are delivering solid performance by optimizing our U S businesses and setting the stage for significant growth in the near and longer term future for existing and newly acquired brands.

In summary, we think the opportunities afforded by our intentional business diversifications are numerous and exciting as we look ahead. Our go forward plan is to execute on what matters, most maximizing revenue and growth optimizing efficiency and maintaining our balance sheet strength as we <unk>.

Irwin Simon: In terms of overall segment performance, quarterly revenue for the beverage alcohol business was 24.2 million in Q1 representing a 17 percent growth in last year, and we're just getting started in making this segment a more meaningful component of our financials. We project pro-former revenue for our beverage alcohol segment, including these recently acquired brands of about $300 million.

Best in our industry leading brands.

I will now turn the call over to Carl to discuss the financials in greater detail.

Thank you.

Before reviewing our quarterly performance, let me remind everyone that our financial results are presented in accordance with U S. GAAP and in U S dollars and we will reference both GAAP and non-GAAP adjusted results throughout our discussion.

Irwin Simon: Finally, our wellness segment is delivering higher gross profit on the scale of top line as it's adjusted to higher-grading costs through increased pricing from a year ago. It remains an important element of our U.S, strategy because of these factors. Strong consumer interest in hand products, expanded distribution into Whole Foods and Walmart, and product innovation to meet needs of the Gen Z Millennial consumer through new hand-forward foods and supplement offerings and CBD wellness beverage like our happy flower.

In addition, our earnings press release contains a reconciliation of our reported results under GAAP to the non-GAAP measures identified during our remarks Q.

Q1, total net revenue rose to $177 million compared to the prior year quarter at $153 million, representing 15% growth in constant currency net revenue. Similarly grew 15% based upon constant currency revenue of $176 million in Q1 this year.

By segment cannabis net revenue rose, 20% or 22% on a constant currency basis.

Irwin Simon: It's also worth noting that Manitoba Harvest is the industry leader in terms of sustainability. Having recertified as a decode for the 10th consecutive year and having launched the first regenerative organic certified hand-hard skewed this past spring.

<unk> of $3 1 million.

Due to price compression in Canada of which virtually all also represented a reduction of EBITDA.

Distribution revenue rose, 14% or 11% on a constant currency basis.

Irwin Simon: Across the board, we are delivering solid performance by optimizing our U.S, businesses and setting a stage for significant growth in the near and longer-term future for existing and newly acquired brands.

Beverage alcohol revenue rose, 17% and wellness revenue declined 1%, but was flat on a constant currency basis.

Cannabis excise taxes, which are a reduction from revenue totaled $26 6 million compared to $17 1 million last year.

Irwin Simon: In summary, we think the opportunities afforded by our intentional business diversifications are numerous and exciting as we look ahead. Our goal forward plan is to execute on what matters most, maximizing revenue and growth, optimizing efficiency and maintaining our balance sheet strength as we invest in our industry leading brands.

This reflected a sharp increase in cannabis revenue generated in Canada versus the year ago period due in part to the <unk> acquisition, which closed during Q1.

<unk> offset by continued price compression in the market.

Call that excise taxes.

Dominantly computed as a fixed price on the Gram sold rather than as a percentage of the selling price. While there is an excise task force to present these challenges to the minister of Finance in Canada, We do not believe some level of reform is likely in the near term.

Carl Merton: I will now turn the call over to Carl to discuss the financials in greater detail. Thank you, Irwin. Before reviewing our quarterly performance, let me remind everyone that our financial results are presented in accordance with U.S, gap and in U.S, dollars and we will reference both gap and non-gap adjusted results throughout our discussion. In addition, our earnings press release contains a reconciliation of our reported results under gap to the non-gap measures identified during our remarks.

As Irwin already emphasized the inherent benefits of having a diversified business model. It is notable that in both Q1 this year and last year, our candidates and distribution segment. Each represented about 40% of our total revenue mix.

Carl Merton: Q1 total net revenue rose to $177 million compared to the prior year quarter at $153 million, representing 15% growth. In constant currency, net revenue similarly grew 15% based upon constant currency revenue of $176 million in Q1 this year. By segment, cannabis net revenue rose 20% or 22% on a constant currency basis, inclusive of $3.1 million due to price compression in Canada, of which virtually all also represented a reduction in either done.

While beverage alcohol and wellness represented about 14% and 8% respectively.

These percentages will change with a full quarter of contributions from the excellent Trust acquisitions, along with the addition of the acquired brands from Anheuser Busch we.

We believe we will achieve a balance of 30%, Canada, 30% distribution, 30% beverage alcohol and the final 10% wellness.

But the key takeaway here is that we have achieved great balance and are not overly dependent on any one segment from a top line or even gross profit standpoint.

In terms of our geographical footprint. We are also highly diversified with slightly more than half of our revenue from North America and about 45% from EMEA with the remainder from other parts of the world.

Carl Merton: Distribution revenue rose 14% or 11% on a constant currency basis, beverage alcohol revenue rose 17% and wellness revenue declined 1% that was flat on a constant currency basis. Canada's excise taxes, which are reduction from revenue, total 26.6 million compared to 17.1 million last year. This reflected a sharp increase in cannabis revenue generated in Canada versus the year goal period due in part to the hexal acquisition, which closed during Q1 offset by continued price compression in the market.

Gross profit was $44 2 million compared to $48 6 million in the prior year quarter, while gross margin decreased to 25% from 32% in the prior year quarter.

Adjusted gross profit inclusive of purchase price accounting step up was nearly flat at $49 $3 million.

Compared to $49 $7 million in the prior year quarter.

Carl Merton: Recall that excise taxes predominantly computed as a fixed price on Graham sold rather than as a percentage of a selling price. While there is an excise task force to present these challenges to the Minister of Finance in Canada, we do not believe some level of reform is likely in the near terms. As Owen already emphasized the inherent benefits of having a diversified business model, it is notable that in both Q1 this year and last year, our cannabis and distribution segment each represented about 40% of our total revenue mix.

While adjusted gross margin was 28% compared to 32%.

I will discuss adjusted gross margin by individual segment in a moment, but it improved across three of our four segments with the exception being candidates that was primarily due to the prior quarter, having 100% gross margin on the Hexcel advisory fee revenue.

Net loss improved to $55 9 million compared to $65 8 million in the prior year quarter.

On a per share basis. This amounted to a net loss of <unk> 10.

Versus 13 in the prior year quarter.

Carl Merton: While beverage alcohol and wellness represented about 14% and 8% respectively, these percentages will change with a full quarter of contributions from the hexal and trust acquisitions, along with the addition of the acquired brands for man-isable. We believe we will achieve a balance of 30% cannabis, 30% distribution, 30% beverage alcohol, and the final 10% wellness. But the key takeaway here is that we have achieved great balance and are not overly dependent on any one segment from a top line or even gross profit standpoint.

Adjusted EBITDA was $11 4 million.

Down from $13 5 million in the prior year quarter.

The primary variance relates to have the hexcel advisory fee revenue in the prior year quarter that was not duplicated this quarter as we owned <unk> for the majority of the quarter.

Other contributing factors include the timing difference in recognizing synergies from.

From operating results after completing acquisitions.

Recall that when we reported Q4 2022 during the summer of 2022, we announced a $30 million cost optimization plan.

Carl Merton: In terms of our geographical footprint, we are also highly diversified, with slightly more than half of our revenue from North America, and about 45% from EMEA, with the remainder from other parts of the world. Gross profit was $44.2 million compared to $48.6 million in the prior year quarter, while gross margin decreased to 25% from 32% in the prior year quarter. Addressant gross profits, inclusive of purchase price accounting step up, was nearly flat at $49.3 million compared to $49.7 million in the prior year quarter.

Through August 31 of this year, we have achieved $22 million on an annualized run rate basis of which $21 million represents actual cost savings from Q1. This.

This is up from $18 5 million when we reported last quarter.

Operating cash flow improved by $30 5 million to a loss.

Of $15 8 million from a loss of $46 3 million in the prior year quarter.

This was the result of improved operating efficiencies realized through our synergy programs and management of our working capital requirements.

Turning now to our business segments.

Gross cannabis revenue of $96 9 million was comprised of $71 2 million in Canadian adult use revenue.

Carl Merton: Well, adjusted gross margin was 28% compared to 32%. I will discuss adjusted gross margin by individual segment in a moment, but it improved across three of our four segments, with the exception being cannabis that was primarily due to the price. The prior quarter, having 100% gross margin on the actual advisory fee revenue. Net loss improved to 55.9 million compared to 65.8 million in the prior year quarter. On a per share basis, this amounted to a net loss of 10 cents versus 13 cents in the prior year quarter.

$14 $3 million in international cannabis revenue.

$6 1 million in Canadian medical cannabis revenue and $5 $3 million in wholesale cannabis revenues.

Net cannabis revenue was $70 3 million, representing a 20% increase from the year ago period or 22% in constant currency.

The positive variance was mostly related to increased organic growth and the acquisitions of excellent trusts.

Canadian medical cannabis decreased slightly due to increased competition from the adult use market.

Carl Merton: Adjust to be the thought was $11.4 million down from 13.5 million in the prior year quarter. The primary variance relates to as the hexal advisory fee revenue in the prior year quarter, that was not duplicated this quarter as we own the hexal for the majority of the quarter. Other contributing factors include depriving difference in recognizing synergies from operating results after completing acquisitions. The call that we reported Q4 2022 during summer of 2022, we announced a $30 million cost optimization plan.

And price compression in the medical cannabis market.

Adult use cannabis increased 22% due to organic growth from our existing brands launching new products as.

As well as the increased revenue from the acquisition of XO and trust.

Offsetting the increase in the current period was a substantial reduction of advisory services revenue from the prior year quarter due to the <unk> acquisition, which terminated the previous strategic arrangement that was in place.

The substantial increase in wholesale cannabis revenue was an opportunistic sale, which helped increase our cash flow from operations, even though it had a negative impact on gross margin and EBITDA.

Carl Merton: Through August 31st of this year, we have achieved 22 million on an annualized run rate basis, of which 21 million represents actual cost savings from Q1. This is up from 18.5 million when we reported last quarter. Operating cash flow improved by 30.5 million to a loss of 15.8 million from a loss of 46.3 million in the prior year quarter. This was the result of improved operating efficiencies realized through our synergy programs and management of our working capital requirements.

International <unk> grew 37% largely because of the expansion into emerging international medical markets.

<unk> gross profit was $19 8 million in cannabis gross margin was 28% compared to $29 7 million and 51% in the prior year quarter.

Adjusted cannabis gross profit, which removes the purchase price accounting step up decreased to $24 3 million from $29 7 million in the prior year quarter.

Carl Merton: Turning now to our business segments, gross cannabis revenue of 96.9 million was comprised of 71.2 million in Canadian and about youth revenue. 14.3 million in international cannabis revenue, 6.1 million in Canadian medical cannabis revenue, and 5.3 million in wholesale cannabis revenue. Net cannabis revenue was 70.3 million representing a 20% increase from the year of old period, or a 22% increase in current. The positive variance was mostly related to increased organic growth and the acquisitions of excellent trust.

While adjusted gross cannabis margin decreased to 35% from 51% in the prior year quarter.

However, if we are to exclude advisory services revenue from Hexcel of $1 5 million in Q1 2024 and.

Seven 8 million in Q1, 2023, and the wholesale transaction with a negative gross profit of $2 $7 million in the quarter. Our adjusted cannabis gross margin would have been 39%.

Compared to 43%.

The remaining decrease is a result of price compressions.

Carl Merton: Canadian medical cannabis decreased slightly due to increased competition from the adult use market and price compression in the medical cannabis market. Adult use cannabis increased 22% due to organic growth from our existing brands launching new products, as well as the increased revenue from the acquisition of excellent trust. Offsetting the increase in the current period was a substantial reduction of advisory services revenue from the prior year quarter to view the Hexill acquisition which terminated the previous strategic arrangement that was in place.

Distribution revenue derived predominantly through Cc pharma increased 14% to $69 2 million from $60 6 million in the prior year quarter the.

The increase was driven by increased capacity and a revamped sales approach to expand our distribution network of the current products and was aided partially by the strengthening of the euro relative to the U S. Dollar.

Yeah.

Distribution gross profit increased to $7 7 million compared to $5 6 billion, while distribution gross margin increased to 11% from 9% in the prior year quarter.

Carl Merton: The substantial increase in wholesale cannabis revenue was an opportunistic sale which helped increase our cash flow from operations, even though it had a negative impact on growth margin and EBITOP. International cannabis grew 37% largely because of the expansion into emerging international medical markets. Cannabis growth profit was 19.8 million and cannabis growth margin was 28% compared to 29.7 million and 51% in the prior year quarter. Adjusting cannabis growth profit which removes the purchase price accounting step-up decreased to 24.3 million from 29.7 million in the prior year quarter, while adjusted gross cannabis margin decreased to 35% from 51% in the prior year quarter.

Similar to the last three fiscal quarters the year over year increase was a result of a positive change in product mix.

Focus on higher margin sales, including the decision to exit the medical device reprocessing line.

Beverage alcohol revenue was $24 2 million up 17% from $20 7 million in the prior year quarter.

The positive Delta was due to contributions from our Montauk Brewery acquisition last November .

Beverage alcohol gross profit increased to $12 9 million compared to $9 8 million, while beverage alcohol gross margin increased to 53% from 47% in the prior year quarter.

Adjusted beverage alcohol gross profit, which removes the purchase price accounting step up was $13 5 million compared to $10 9 million in the prior year quarter.

Carl Merton: However, if we are to exclude advisory services revenue from Hexill of 1.5 million in T1 2024, and 7.8 million in T1 2023, and the wholesale transaction with a negative growth profit of 2.7 million in the quarter, our adjusted cannabis growth margin would have been 39% compared to 43%. The remaining decrease is a result of price compressions. Distribution revenue, derived predominantly through CT Pharma, increased 14% to 69.2 million from 60.6 million in the prior year quarter.

While adjusted gross margin rose to 56% from 53% in the prior year quarter.

This increase was related to a favorable sales mix change between beer and spirits, partially offset by the impact of the <unk> acquisition that was not completed in the prior year period.

Wellness segment revenue held at $13 3 million compared to $13 4 million in the prior year quarter, despite increasing pricing to come back ingredient cost inflation.

Wellness growth gross profit was $3 8 million up from $3 5 million in the prior year quarter and gross margin rose to 29% from 26%.

Carl Merton: The increase was driven by increased capacity and a revamped sales approach to expand our distribution network of the current products, and was aided partially by the strengthening of the year relative to the US dollar. Distribution gross profit increased to 7.7 million compared to 5.6 million will distribution gross margin increase to 11% from 9% in the prior year quarter. Similar to the last three fiscal quarters, the year-over-year increase was the result of a positive change in product mix, focused on higher margin sales, including the decision to exit the medical device repressor for money.

Counter to the impacts of higher input costs of seed ingredients with higher pricing.

Our cash and marketable securities balance as of August 31 was $464 $9 million down.

<unk> down from $490 6 million in the year ago period, but increase from the balance at year end of $448 5 million.

During Q1, we entered into a new $120 million credit agreement.

By Bank of America, and included Syndicate members City National Bank, TD Bank and clinical financial for our beverage alcohol Division, which is comprised of domestic owned subsidiaries and provides for among other things a $70 million term loan facility by $20 million delayed draw term.

Carl Merton: Feb. Revenue was $24.2 million, up 17% from 20.7 million in the prior year quarter. The positive delta was due to contributions from our Montauk Blurri Acquisition last November. Whether the alcohol gross profit increased to 12.9 million compared to 9.8 million will beverage alcohol gross margin increase to 53% from 47% in the prior year quarter. Justin Beverage Alcohol Gross Profit, which removes the purchase price accounting step up was 13.5 million compared to 10.9 million in the prior year quarter, while adjusted gross margin rose to 56% from 53% in the prior year quarter.

Loan facility, which we drew in full as part of the payment of the purchase price on the acquisition of the Anheuser Busch brands.

At $30 million line of credit of which we have only drawn $7 million.

The new credit agreement extended the maturity date on our loan from December 2023 out to June 2028.

With reduced repayment requirements and.

<unk> financial covenants, all while maintaining the interest rate spread on the loans.

Carl Merton: This increase was related to a favorable sales mix change between beer and spirits, partially offset by the impact of the Montauk acquisition that was not completed in the prior year period. Wellness segment revenue held at 13.3 million compared to 13.4 million in the prior year quarter despite increasing pricing to come back in green cost inflation. Wellness Gross Profit was 3.8 million up from 3.5 million in the prior year quarter and gross margin rose to 29% from 26%.

On August 31, we settled our obligations under our $50 million convertible promissory note, which had a maturity date of September one.

And finally subsequent to quarter end, we settled and paid in full artillery 23 convertible note.

Let's now reiterate our guidance for fiscal 2024, which ends on May 31 2024.

Adjusted EBITDA is still projected at $68 million to $78 million.

Both of them, we are not increasing this range after having acquired the beverage brands they will be accretive to EBITDA as we said when we first announced the transaction, but will not have a material impact on EBITDA in the first year post closing.

Carl Merton: As we counter the impacts of higher input costs of seed ingredients with higher prices. Our cash and marketable securities balance as of August 31st was $464.9 million down from $490.6 million in the year period, but increased from the balance at year end of $448.5 million. During Q1, we entered into a new $120 million credit agreement led by Bank of America and included Syndicate members, City National Bank, CD Bank, and Pinnacle Financial for our Beverage Alcohol Division, which is comprised of domestic owned subsidiaries and provides for among other things a $70 million term loan facility, a $20 million delayed drop term loan facility, which we drew in full as part of the payment of the purchase price on the acquisition of the Anhyzer Fresh Brands and a $30 million line of credit of which we have only drawn $7 million.

We also project positive adjusted free cash flow from operations, excluding our cost integrate XO trust from the brands from Anheuser Busch and the cash income taxes, we pay in any better for your diamond.

We will also work to minimize capex and improve our industry leading balance sheet.

With that I will conclude our prepared remarks and open the lines for questions from our covering analysts.

Operator <unk>.

The first question.

Thank you.

As a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys to allow for as many questions as.

Possible, we ask that you each keep to one question and one follow up thank you.

Carl Merton: The new credit agreement extended the maturity date on the loan from December 2023 out to June 2028, which reduced repayment requirements, improved financial dividends, all will maintain the interest rate spread on the loans. On August 31st, we settled our obligations under a $50 million convertible promissory note, which had a maturity date of September 1st.

Our first question comes from the line of Vivian Asia with TD Cowen. Please proceed with your question.

Good morning. This is robin holding on for Vivien Asia and thank you for taking the question.

First off good morning, modulations on closing, yes, good morning.

Congratulations on closing the acquisition of the Abi beverage brands.

Today, you called out the margin accretion from the <unk> acquisition to your overall beverage margins.

Carl Merton: And finally, subsequent to quarter end, we settled and paid in full our till rate 23 convertible note.

Could you please speak to how you see margins for that segment evolving over time in particular that.

So youre not only acquiring craft beer brands, but also on premise infrastructure.

Carl Merton: Let's now reiterate our guidance for fiscal 2024, which ends on May 31st, 2024. Adjust the EBITDA is still projected at $68 to $78 million. Note that we are not increasing this range after having acquired the Beverage Forens. They will be accreted to EBITDA, as we said, when we first announced the transaction, but will not have a material impact on EBITDA in the first year of post closing. We also project positive adjusted pre-catchable from operations, excluding our cost to integrate exotrust and the brands from anti-ribbush and the caching compactions we pay at a free diamond. We will also work to minimize capex and improve our industry leading balance sheet.

Yes.

So.

The increase in gross margin in beverage alcohol. This quarter was a combination of two things one it was it was a minor shift in.

Sales mix and product mix between beer and spirits and also as a result of the.

The acquisition of Bantam going going forward, we are very confident that the beer brands themselves will be able to maintain our margin by about 50%, but our spirits business traditionally has been closer to 50%. So as that blend gets mixed in with the new brands. We've acquired will start to see it move a little closer.

The beer margin and I know want to Vivien favorite questions as regards our brewhouse us we sell more beer in our brewhouse is then food.

Operator: With that, I will conclude our prepared remarks and open the lines for questions from our covering analyst. Lewis, Operator, what's the first question? Thank you.

And I think Thats whats the important thing is a power tool does not dilute our margins in our brewhouse us and that's what our brewhouse is our about us to go out there and market and sell more and more beer and that's very much what our plans are.

Operator: As a reminder, if you'd like to join the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Okay.

Thank you. Our next question comes from the line of Andrew Carter with Stifel. Please proceed with your question.

Operator: To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you.

Thanks, Good morning, Okay. So I wanted to just go back to the short report that was out last month and just use this to use this opportunity to clear the air first off regarding double Diamond could you help us fully understand the liability what is the required annual payment to your to your partners is it variable based on performance do you have the ability to throttle their production.

Ty Gilmore: Our first question comes from a line, a Vivian Azer with TD Cowan. Please proceed with your question. Good morning. This is Robert Holby on for Vivian Azer, and thank you for taking the question. First off, congratulations on closing. Yeah, morning. Congratulations on closing the acquisition of the ABI beverage brands. Today you called out the margin accretion from the Montauk acquisition to your overall beverage margins. Could you please speak to how you see margins for that segment evolving over time, in particular, that you're not only acquiring craft beer brands, but also on premise infrastructure?

Therefore, adjusted market demands and then the second question do you pay some proportion of your minority shareholder in <unk>.

In stock and if so are these stocks added back to EBITDA. Thanks.

Thanks, Andrew.

Ty Gilmore: Thank you. So the increase in gross margin in beverage alcohol this quarter was a combination of two things. One, it was a minor shift in sales mix, and product mix between beer and spirits, and also as a result of the acquisition of Montauk. Going forward, we are very confident that the beer brands themselves will be able to maintain a margin above 50%, but our spirits business traditionally has been closer to 50%.

I appreciate the opportunity to just to make sure that everyone is crystal clear on this transaction, but what I want to start off with first is that there we have never paid for an actual operating expense at a free and diamond the dividends that we've issued the dividends that we that we have.

Ty Gilmore: So as that blend gets mixed in with the new brands we've acquired, we'll start to see it move a little closer to the beer market. And I know one of Vivian's favorite questions is regards our brew houses.

Q2 through the to the our partners and our free.

Women.

I've always been a payment of profit distributions at the at the.

There is a couple of sorry, there is a quarterly payment.

That happens and then there is a true up at the at the end of the year and that is the only amount that we have ever paid through those dividends at one point during the year last year, we did provide some downside protection.

Ty Gilmore: We sell more beer in our brew houses than food, and I think that's what the important thing is of how food does not dilute our margins in our brew houses, and that's what our brew houses are about is to grow up there and market and sell more and more beer, and that's very much what our plans are. Thank you.

And when and when that payment was triggered payment went through the income statement.

And that was added back to EBITDA that is the only piece of those dividend parts.

That has ever flown through the income statement and it with it it was an extremely small amount and it was fully disclosed in our financial statements.

I think Andrew what's important is this here.

Andrew Carter: Our next question comes online of Andrew Carter with Steeple. Please proceed with your question. Hey, thanks for morning.

Our partner in Diamond.

We'll take equity and keeps its prerogative T cells as his prerogative, but again, there's a distribution of dividends at the same time, there is profits, where we have 50% 51%.

Andrew Carter: Okay, so I want to just go back to the short report that was out last month and just use this opportunity to clear the air. First off, regarding double diamond, could you help us fully understand the liability? What is the required annual payment to your partners? Is it variable based on performance? Do you have the ability to throttle their production? Therefore, just to market demands.

We're enjoying the profits of that too. So I think that's that's what's important but to karl's point.

Those the stock is not used to pay for operations of the business I think that's what's important.

Andrew Carter: And then the second question, do you pay some proportion of your minor shareholder in stock? And if so, are these stocks added back to EBITDA? Thanks. Thanks, Andrew.

Thank you I'll pass it on.

Thank you.

Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.

Carl Merton: I appreciate the opportunity to just make sure that everyone is crystal clear on this transaction. What I want to start off with first is that we have never paid for an actual operating expense at a free of diamond out of the dividends that we've issued. The dividends that we have issued to our partners in a free of diamond is, as always, been a payment of profit distribution at the, you know, there's a quarterly payment that happens and then there's a true up at the end of the year.

Hi, good morning, and thank you for the question.

So just regarding the EBITDA and EBIT guidance, you guys Havent know spiked the beer brands acquisition will be accretive.

But if we just look at the quarter, excluding small hexcel advisory fee, so call it about $10 million or so so can you walk us through how we think of the staff up to get to that 60% to $70 million.

For the fiscal year, and maybe if you could talk about the drivers and how we should think about the sequencing of the EBITDA step up to reach that guidance would be very helpful and any puts and takes alright, thanks going to be more through topline generation.

Carl Merton: And that is the only amount that we have ever paid through those dividends. At one point during the year, last year, we did provide some downside protection. And when that payment was triggered, that payment went through the income statement. And that was added back, that is the only piece of those dividend parts that has ever flown through the income statement and it was an extremely small amount and it was fully disclosed in our financial statements.

For more margin improvement and cost efficiencies or otherwise that would be I. Appreciate it. Thank you.

Sure.

Thanks, Thanks, Aaron a question kind of reminds me of some of the questions. We had last year when people asked the same questions on on phasing when we ultimately.

It did get to the EBITDA guidance number.

We traditionally have stronger performance in our spirits brand in Q2.

A year, that's because it's the it's the buy in.

Carl Merton: I think Andrew what's important is a share, our partner in diamond, you know, we'll take equity. And if he keeps it, it's his brother, if he sells it, it's his brother, but again, there's a distribution of dividends at the same time. There's, you know, profits. That's where we have 50% 51% and, you know, we're enjoying the profits of that too. So I think that's what's important, but to Carl's point, you know, those, the stock is not used to pay for operations of the business. I think that's what's important.

For the.

The Christmas holiday.

Carl Merton: Thank you. I'll pass it on.

Isn't that happens.

And so we see strengthening in that quarter in that business and then as we as we evolve through the year.

Operator: Thank you.

We have a significant outperformance in Q4 traditionally in our distribution business as people as pharmacies buying for their customers.

Going on vacation in the summer in our distribution business and then we see significant buy in on our beer business in the fourth quarter.

The lead up to the summer.

Aaron Grey: Our next question comes from Lyon of Aaron Gray with Alliance Global Partners. Please proceed with your question. I get morning and thank you for the question. So just regarding the EBITDA and EBITDA guidance, you guys held it now, you know, despite the beer brand's acquisitions will be accretive. But if we just look at the quarter, you know, excluding, you know, the small Hexwood advisory fee, so you know, called about 10 million dollars or so.

Overlaying that this year.

Is the synergies that we're achieving.

At XO.

Sorry on the <unk> transaction.

And our other.

Open cost saving plans that we've had throughout the year and so we're going to see we're going to see a bigger jump in EBITDA next quarter and in Q2, you may see Q3 flat to down a little bit versus Q2, and then youll see youll see a bigger Q4.

Aaron Grey: So can you walk us through, you know, how we think of the step up to get to that 68 to 70 million for the fiscal year? I mean, you can talk about the drivers and how we should think about the sequencing of the EBITDA step up to reach that guidance. I think I'll be very helpful in any puts and takes where I think I could be more through top line generation for more margin and improvement via cost efficiencies or otherwise. I think that'd be appreciated. Thank you. Thanks. Thanks Aaron.

The big drivers here is top line and you saw our top line in our first quarter and you heard me mentioned, we sold 20 million pre rolls.

Our beer business, both Sweetwater in Montauk were up.

And that is the big thing is getting the new distribution, but getting the new products out there.

Tying team launched a product called gummies, which.

As a new product for us and it was a big percentage.

Carl Merton: The question kind of reminds me of some of the questions we had last year when people asked the same questions on facing when we ultimately did get to the EBITDA guidance number. We traditionally have stronger performance in our spirits brand in Q2 every year. That's because it's the it's the buy-in for the Christmas holiday season that happens. And so we see strengthening in that quarter in that business. And then as we as we evolved through the year, we have a significant outperformance in Q4 traditionally in our distribution business as people as pharmacies buy in for their customers going on vacation in the summer in our distribution business.

Our growth of new products getting montoc into other states, whether it's New Jersey, Pennsylvania, Georgia is going to be a big part of our growth.

In our international business growing our medical business.

Poland, Germany.

Italy and places like that.

Going to be a big part of our business and the Big thing you got to remember, which I talked about we did three acquisitions.

And we're looking to take $27 million of cost out of hexcel, we're going to be looking to take tremendous amount of cost out of the Abi and it's going to take time and with the acquisition of trusts that we bought promotions will be moving those products to our London facility and we have an excellent facility in Belleville, Ontario that we're going to look to do non <unk>.

Soft drinks energy drinks.

Some other types of drinks there. So we're looking for a big year on organic growth and new products innovation new distribution.

Carl Merton: And then we see significant buy-in on our beer business in the fourth quarter in the lead up to summer. Overlaying that this year is the synergies that we're achieving at HECSO on the HECSO transaction and our other open cost saving plans that we've had throughout the year. And so we're going to see a bigger jump in EBITDA next quarter and Q2 you may see Q3 flat to down a little bit versus Q2 and then you'll see a bigger Q4.

We're focused on taking more and more cost out of the business in regards to our facility in Mesa and you heard me talk about that where we're converting that to vegetables and that should be online by the end of the year.

And taking tremendous amount of cost so.

The drivers here are going to be topline growth, taking costs out, which ultimately improve margins and drive profitability to the bottom line.

Okay, great. Thanks, very much for calling in Africa in the queue.

Carl Merton: I think the big drivers here is top line. And you saw our top line in our first quarter and you heard me mention we sold 20 million pre rolls. You know, our beer business, both sweet water and montage, you know, we're up. And that is the big thing is getting the new distribution, but getting the new products out there, you know, tiny team launched a product called gummies, which is a new product for us.

Okay.

Yes.

Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.

Hey, good morning, everyone. Just wanted to first touch base on kind of that first strategic priority in or when Youre just talking.

Talking about it now with respect to some of the organic growth, but on the M&A front. What is the current landscape. If we're looking at the cannabis sector in general and federally legal environment with respect to what we're seeing in Canada and international markets is this something that you think probably has the least amount of opportunistic.

Carl Merton: And it was a big percentage of our growth of new products, you know, getting montage, you know, into other states whether it's New Jersey, Pennsylvania, Georgia is going to be a big part of our growth. You know, in our international business, you know, growing our medical business, you know, in Poland, Germany, Italy, in places like that is going to be a big part of our business. And the big thing you got to remember, which I talked about, you know, we did three acquisitions and we're looking to take $27 million a cost out of HECSO.

Assets out there just given some of the headwinds we've seen in federal markets.

And should we expect maybe more beverage alcohol focus when it comes to M&A allocation I'm. Just curious if you have an indication one way or the other.

So I'm going to bring to other people in to talk about that I've learned Mcneil here, who runs Canada and I got to tell you I spent some time with blaring team in Toronto and spend some time with other control boards. It's five years since cannabis is now legal in Canada.

Carl Merton: We're going to be looking to take tremendous amount of cost out of the ABI and it's going to take time. And with the acquisition of trust that we bought from Molson's, you know, we'll be moving those products to our London facility. And we have an excellent facility in Belville, Ontario that we're going to look to do non out drinks and energy drinks, you know, some other types of drinks there. So, you know, we're looking for a big year on organic growth and new products, innovation, new distribution.

And what we're seeing is tremendous amount of consumers moving over to the legal market tremendous amount of consumers partaking in the recreational.

You heard us say, we sold $20 million.

Payrolls and where that is going we expect to sell 80 million pre rolls a year you see lots of consolidation at retail much more awareness out there because there is still lots of problems in the Canadian market, but I got to tell you for the first time I'm starting to feel really optimistic about the opportunities. There Blair you want to add anything to it yes.

Carl Merton: We're focused on taking more and more costs out of the business. In regards to our facility in Mason, you heard me talk about that where we're converting that to vegetables and that should be online by the end of the year and taking tremendous amount of costs. So, you know, the drivers here are going to be top line growth taking costs out, which ultimately improve margins and drives profitability to the bottom line.

So.

Your question, Matt on the on the opportunity on the M&A side from an asset standpoint, I think if you look at our portfolio, we're very well rounded I'd say, maybe we've got a small gap.

On the animal side, but when you look at the rest of our portfolio. We are very well represented so theres not a lot of assets out there that we would look to acquire over the next period of time, we do have.

Operator: Okay, great. Thanks very much for the call. I'll drop it in the queue. Thank you.

Matt Bottomley: Our next question comes from the line of Matt Bottomley with Cannecord Genuity. Please proceed with your question. Good morning, everyone. Just wanted to first touch based on kind of that first strategic priority and Irwin, you're just sort of talking about it now with respect to some of the organic growth.

As Irwin alluded to all of our facilities are starting to really get up there and utilization and we have availability of some capacity to be able to bring animals into that so we'll we'll look to do that over this next period of time so.

Irwin Simon: But on the M&A front, what is the current landscape if we're looking at, you know, the cannabis sector in general and federal legal environments with respect for working in Canada and international markets? Is this something that you think probably has the least amount of, you know, opportunistic assets out there, just given some of the headwinds we've seen in federal markets. And should we expect maybe more beverage alcohol focus when it comes to M&A allocation and just curious if you have an indication when we're the other. So, I'm going to bring two other people in to talk about that.

At least from a Canadian perspective, I'm happy with the growth we're seeing in the market I'm happy with where the industry is not.

Not without its challenges as Irwin said, but.

From an M&A standpoint, we don't see a lot of opportunity there and before I pass it to at least though Europe . We're really excited about the beverage category. If you come back and think what are the biggest opportunities and you walk into Canada stores. Today. There is a small fridge in there with drinks at $708, but think about how the beverage category within the world today.

Blair MacNeil: I have Blair McNeil here who runs Canada and I got to tell you I spent some time with Blair and team in Toronto and spend some time with other control boards. You know, it's five years since cannabis is now legal in Canada. And you know, what we're seeing is tremendous amount of consumers moving over to the legal market, tremendous amount of consumers, you know, partaking in the recreational. You know, you heard us say we sold 20 million, you know, pre rolls and where that is going, we expect to sell 80 million pre rolls a year. You know, you see lots of consolidation at retail, much more awareness out there. There's still lots of problems in the Canadian market.

If you look at the craft beer category 280 billion and you come back and think this is a whole new category and the opportunities. There. We have two facilities. We're the leader in the beverage business and everybody wants to figure out what's the right way to roll this out in merchandise and my hope one day that you would be able to go.

Into a beer store convenience store or go into a bar and it would be on tap so that to US is one of the biggest opportunities internationally medical has.

With tremendous opportunities Denise Thanks, Sterling Yeah. So internationally, if you look at Europe first.

Blair MacNeil: But I got to tell you for the first time, you know, I'm starting to feel really optimistic about the opportunities there. Blair, you want to add anything to it? Yeah, so, you know, to your question, Matt, on the, on the opportunity on the M&A side from an asset standpoint, I think if you look at our portfolio, we're very well rounded. I'd say, you know, maybe we've got a small gap on the edible side, but when you look at the rest of our portfolio, we are very well represented.

Really.

The cannabis today is a medical cannabis market in Germany still remains the largest market within southern Europe . However, we do see some countries that are coming online and developing very quickly.

The regulations are still as we all know are still nearly shaping out and we're looking to see medical cannabis in Germany become.

Blair MacNeil: So there's not a lot of assets out there that we would look to acquire over the next period of time. We do have as or when alluded to all of our facilities are starting to really get up there in utilization. And we have availability of some capacity to be able to bring animals into that. So we'll look to do that over this next period of time. So, you know, at least from a Canadian perspective, I'm happy with the growth we're seeing in the market. I'm happy with where the industry is.

These scheduled as a narcotic can become a regular medicine that can be prescribed and so if we look at our business. We really like our business is very nascent today and it's still developing and so we are evaluating where do we have gaps and capabilities and where can potentially M&A filling those gaps and we have so we are very much looking to see what.

Is out there what what can we do to make our business has full capabilities, whether it's technology, whether its online platforms et cetera.

Irwin Simon: You know, not without its challenges is there one said, but from an M&A standpoint, we don't see a lot of opportunity there. Before I pass with you, you know, we're really excited about the beverage category. If you come back and think one of the biggest opportunities and, you know, you walk into cannabis stores today, there's a small fridge in there with drinks at $78. But think about, you know, how the beverage category within the world today, you look at the craft beer category 280 billion.

And we are looking at the same thing in Australia, New Zealand, whether it's looking at clinics et cetera.

And then also talking about potentially looking at beverage alcohol might play a role in Europe as well. So we are very much focused and seeing what might be available to round out our capabilities and make our portfolio.

Irwin Simon: And you come back and think this is a whole new category and the opportunities there. You know, we have two facilities where the leader in the, you know, beverage business and, you know, everybody wants to figure out what's the right way to roll this out and merchandise it. And my hope one day that you would be able to go into a beer store, a convenience store or go into a bar and it would be on tap.

And to round out the third part of your question with regards to beverage alcohol.

We own some great brands today and tie and I are on the road to start visiting them. After today and how we start integrating them and where we will be looking to sell them in each.

State and each Tri state.

We will figure that out, but if you come back and look what.

The team has done with <unk> in a short period of time at growing at 9%.

Blair MacNeil: So, that to us is one of the biggest opportunities. Internationally, medical has tremendous opportunities beneath. Thanks, Irwin. Yeah. So, internationally, if you look at Europe first, really the only kind of that we get today is a medical cannabis market and Germany still remains the largest market within Europe. However, we do see some countries that are coming online and developing very quickly. The regulations are still, as we all know, are still really shaping out.

<unk> Sweetwater growing 4%.

We're excited about bluepoint, we're excited about Breckenridge brewery, we're excited about 10 barrel.

And the rest of that come along with this so.

Also there's a lot of good things happening in with Breckenridge distillery is this ultimately gets.

It gets together with recognized brewery.

As we continue to leap on the Bourbon craze and get new distribution and let's let's not forget our Manitoba harvest business, where we haven't got a 52% share.

Blair MacNeil: We're looking to see medical cannabis in Germany become these scheduled as a narcotic and become a regular medicine that can be prescribed. And so, if we look at our business, we really see like our business is very recent today and it's still developing. And so, we are evaluating where do we have gaps in capabilities and where can potentially M&A fill in those gaps. And we, so we are very much looking to see what is out there, what, what can we do to make our business have full capabilities, whether it's technology, whether it's online platforms, etc.

In a category that's developing a lot of new products and we're getting a lot of new distribution and I think the big thing is there I mean, we're in supermarkets, where in Costco's were in the Walmart. So we have avenues, if we decide to bring other products.

And we're selling our beer products and those today. So we have an avenue of retail if we bring other wellness foods in there to make sure they are accompanied by.

Blair MacNeil: And we are looking at the same thing in Australia and New Zealand, whether it's looking at clinics, etc. And then also talking about potentially looking at how beverage alcohol might play a role in Europe as well. So, we are very much focused in seeing what might be available to round out our capabilities and make us more focused in business.

Got it I appreciate all that color and it was a long response, so I'll just get back into queue.

Thank you.

Thank you. Our next question comes from the line of Federico Gums with ATB capital markets. Please proceed with your question.

Hi, Good morning, Thank you for taking my question.

Irwin Simon: And to round out the third part of your question in regards to beverage alcohol. Listen, we own some great brands today. And, you know, Ty and I are on the road to start visiting them after today. And how we start integrating them and where we will be looking to sell them in each state and each tri state. We will figure that out. But if you come back and look what, you know, the team is done with Montauk in a short period time growing that 9% and, you know, seeing sweetwater growing 4%.

Just on your capacity utilization I know that you addressed this a little bit, but maybe could you provide a bit more color on.

Where you currently stand in terms of utilization and your cultivation and manufacturing facilities in Canada and with your organic growth initiatives, where do you see that utilization ending over the remainder of the fiscal year and sort of the potential benefit that you could see in their margins as a result of that thank you.

Thanks for the question Yeah from a capacity and utilization is probably easiest for me to go.

Irwin Simon: We're excited about Blue Point. We're excited about Breck and Ridge, but we were excited about 10 barrel and the rest that come along with this. So, also, you know, there's a lot of good things happening and with Breck and Ridge to story as this ultimately gets together with Breck and Ridge Brewery. As we continue to, you know, leap on the bourbon craze and get new and new distribution. And let's not forget our Manitoba Harvest business where we haven't got a 52% share in a category that's developing a lot of new products and we're getting a lot of new distribution.

Across the facility is really quickly, but if you look at MISO. We're in the middle of the conversion of benign, which is 80% of that facility to vegetables, and thats on track to be fully utilized by.

January and then the remaining 20% will service the Quebec market with locally grown candidates for Quebec. So we're 100% utilized in may saw at the <unk> facility will be 100% utilized.

And outdoor grow <unk>, which is currently at 50% utilized but our plan is to grow that through pre rolls to be up to 100% utilized by the end of the year.

Irwin Simon: And I think the big thing is there. I mean, we're in supermarkets. We're in, you know, Costco's were in the Wal-Mart. So, we have avenues if we decide to bring other products in and we're selling, you know, our beer products in those today. So, we have, you know, an avenue of retail if we bring other wellness foods in there to make sure we, you know, they're accompanied by.

And that'll be very close to the end of the year because may is when we plant the outdoor grow and then from a.

Leamington standpoint will be 100% utilized in our free of Diamond and we do have some opportunities that will currently fill up our <unk> facility.

Robert Moskow: Robert, I appreciate all that color, and it was a long response, so I'll just get back into Q. Thank you.

By the end of the year and then broken coast has always been fully utilized so we feel very good about capacity utilization overall.

Frederico Gomes: Our next question comes from line of Federico Gomes with ATV Capital Markets. Please proceed with your question. Hi, good morning. Thank you for taking my question.

We think that will help the margins on the balance of the year I don't have.

Our crystal ball on that front, but certainly as Irwin talked about as we move all of our packaging from the acquisitions into Leamington, we're going to see great synergies on that side, the London facility on beverages will be close to 90% utilized with the transition of trust.

Ty Gilmore: Just on your capacity utilization, I know that you address this a little bit, but maybe could you provide a bit more color on where you currently stand in terms of utilization in your cultivation and manufacturing facilities in Canada. And with your organic growth initiatives, where do you see that utilization and being over the reminder of the fiscal year and the potential benefit that you could see in your margins as a result of that?

So definitely we're going to be able to allocate the overhead in those facilities across more volume throughout the end of the year and I think not only utilization we're vertically integrated here. So we can grow flowers, we can oil.

We can.

Ty Gilmore: Thank you. Thanks for the question. From a capacity and utilization, it's probably easiest for me to go across the facilities really quickly, but if you look at May's all, we're in the middle of the conversion of B9, which is 80% of that facility to vegetables, and that's on track to be fully utilized by January. And then the remaining 20% will service the Quebec market with locally grown cannabis for Quebec, so we're 100% utilized in May's all.

Are we the largest pre roll.

Producer today in the Canadian market, we're the largest producer of cancer, we can produce.

Any type of edible so with that.

And what we're doing basically today is producing for ourselves we are doing some wholesale so.

Not only.

Are we from a utilization standpoint, we're vertically integrated to support our 12 brands out there and the Big thing here is new product development and that's what we've realized is in the Canadian market consumers are looking for new products all the time.

Ty Gilmore: At the Reddican facility will be 100% utilized. We have an outdoor grow in Cayuga, which is currently at 50% utilized, but our plan is to grow that through pre-rolls to be up to 100% utilized by the end of the year. And that'll be very close to the end of the year, because May is when we plant the outdoor grow. And then from a 100% utilized in a free of diamond, and we do have some opportunities that will currently fill up our free of one facility by the end of the year.

And weather.

The potency of the product it's infused products.

Genetics of the product the big thing what we have to work on is how we develop brands and get consumers used to buying brands and that's one of the big opportunities and Thats one of the things we need to work out.

Thank you very much I'll hop back in the queue. Thanks.

Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Yes.

Ty Gilmore: And then broken coast has always been fully utilized. So we feel very good about capacity and the utilization overall. I definitely think that will help the margins on the balance of the year. I don't have a crystal ball in that front, but certainly as Erwin talked about, as we move all of our packaging from the acquisitions into Liemington, we're going to see great synergies on that side. The London facility on beverages will be close to 90% utilized with the transition of trust.

Thank you good morning.

Ty Gilmore: So definitely, we're going to be able to allocate the overhead of those facilities across more volume throughout the end of the year. And I think not only utilization, we're vertically integrated here. So we can grow flour. We can, you know, oil. We can, you know, we're probably the largest pre-roll, you know, producer today in the Canadian market, where the largest producer of cans, you know, we can produce, you know, any type of edible.

Just wanted to come back to the eight new brands that you just closed.

And purchased.

At least on the retail side, where we can see some data it's been declining for the last two or so years.

Maybe first is that the full picture is there.

A more holistic view that Scott.

Better momentum, but either way then what does it really take to get that you've set how important organic growth is obviously, it's not already in hand, so what does it take to really get those going in how much we're spending as their distribution upside there.

Been around for quite some time, how do you just think about driving growth there.

So I'm going to turn it over to tie in a second what goes down got ultimately go up right. So I think thats.

What's important here and yes. They are they are declining and thats what gave us the opportunity I think from some standpoint did they get the attention.

Ty Gilmore: So with that, you know, and what we're doing basically today is producing for ourselves, we are doing some wholesale. So, you know, not only, you know, are we, from the utilization standpoint, we're vertically integrated to support our 12 brands out there. And the big thing here is new product development. And that's what we've realized is in the Canadian market. Consumers are looking for new products all the time. And whether, you know, the potency of the product, its infused products, the genetics of the product, the big thing what we have to work on is how we develop brands and get consumers used to buying brands. And that's one of the big opportunities. And that's one of the things we need to, you know, work on.

That was needed and.

I think it goes back and shows what we've done with Sweetwater and what was done with Manta, what's done with Green Flash and Nelson.

And.

The team knows how to do it tie you want to add something to that yeah, Yeah, Michael I would say, yes, I am not real sure Youre seeing the full picture when you look at it as a total brand level.

When you dive a little bit deeper and you get into the SKU level, we're really really excited.

<unk> brands like 10 barrel, there Theyre pub beer, which is growing you see avalanche growing share in Colorado, you will see what the big Ballard part of the family and their Skus and how theyre getting into new segments is really really exciting so yes, I'm not real sure youre seeing the full the full picture.

Operator: Thank you very much. I'll be back in the queue. Thanks. Thank you.

Michael Lavery: Our next question comes from line of Michael Lavery with Piper Sandler. Please proceed with your question. Thank you, good morning. Just wanted to come back to the eight new brands that you've just closed and purchased and at least on the retail side where we can see some data. Those have been declining for the last two or so years. I guess maybe first is that the full picture is there a more holistic view that's got better momentum, but either way then what does it really take to get that you've said how important and organic growth is obviously it's not already in hand.

We've built out a really national Nash.

National account team and as you as you know change play an integral part in building distribution and building brands and.

We've had some really good conversations with big retailers around the U S and they are excited about the brands. Our distributors are extremely excited about us coming over and bringing energy and investments and focus and just like we've done with Montoc in Sweetwater.

Yes.

We're going to build out a plan to drive quality distribution build the brands and really lean in on the Skus that are that are driving some of these france, which are exciting.

Michael Lavery: So what does it take to really get those going and how much more spending is their distribution upside? They've all been around for quite some time. How do you just think about driving growth there? I'm going to turn it over to Ty in a second. What goes down got ultimately go up, right? So I think that's what's important here. And yeah, they're declining and that's what gave us the opportunity. I think from some standpoint, did they get the attention that was needed?

The Big thing is it's not it's these brands, but the whole craft.

Beer industry.

And what we can do and we're working with BCG on our whole overall strategy here on the brand the positioning who the consumers are up craft beer.

Where the non alcohol, where from an ingredient standpoint nutritionals on the beer.

In regards to can versus bottle versus other types of packaging.

Michael Lavery: And I think it goes back and shows what we've done with sweet water and what was done with montac, what's done with green flesh and Nelson. And the team knows how to do it. Ty, you want to add something to that? Yeah, Michael, I'd say I'm not real sure you're seeing the full picture. When you look at it at a total brand level, when you dive a little bit deeper and you get into the skew level, we're really, really excited.

What is sold in a brewpub what's sold on premise.

What sold in convenience stores, which are the biggest sellers.

Craft beer. So there's a lot we're studying right now there's a lot we're doing in data and research and working with BCG to bring that together, but we're pretty excited about the opportunity in the craft beer business and we're pretty excited listen we are even though they are declining we are now the fifth largest craft brewer and.

Michael Lavery: You see brands like Tin Barrel, they're pub beer, which is growing. You see avalanche growing, share and Colorado. You see what the big baller part of the Red Hook family and their skews and how they're getting into news segments is really, really exciting. So yeah, I'm not real sure you're seeing the full picture. You know, we built out a really national national account team. And as you know, chains play an integral part in building distribution and building brands.

The evolution.

Beer versus craft beer is changing dramatically.

Okay. Thanks for that.

Follow up on the cucumber farming.

Not a sort of.

The portfolio had anticipated maybe initially can you just help us understand maybe why that's interesting to you and what the margins and the growth might look like for that.

Number one.

Michael Lavery: And you know, we've had some really good conversations with big retailers around the US and they're excited about the brands. Our distributors are extremely excited about us coming over and bringing energy and investments and focus. And just like we've done with montac and sweet water, you know, we are going to build out a plan to drive quality distribution, build the brands, and really lean in on the skews that are driving some of these brands, which are exciting.

We've got $1 five dollar facility, if we went to sell it today, what the values and that you are getting for in cannabis facilities.

We think and we've been asked by multiple retailers in Quebec.

There's a major shortage and they want vegetables grown in Quebec, there is better margin there than just keeping the place dark or.

We're selling cannabis that you can sell and we'll see what happens ultimately maybe one day, we could sell it as a vegetable farm to someone else that wants it but right now with minimal investment.

Michael Lavery: And I think the big thing is it's not it's these brands, but the whole craft, you know, beer industry, and what we can do. And we're working with BCG on a whole overall strategy here on the brand, the positioning, who the consumers are of craft beer, where the not alcohol, where, you know, from an ingredient standpoint, nutritionals on a beer in regards to can versus bottle versus, you know, other types of packaging, what's sold in a brew pub, what's sold on premise, what's sold in convenient stores, which are the biggest sellers, you know, of craft beer.

That facility.

Probably a couple hundred million dollars investment in it.

And there is big demand for.

Fruits vegetables in the Quebec market. The other thing is which we're going to do there is grow cannabis just for the <unk> market, where they want cannabis.

Grown in their province for their retailers.

Okay.

It is it is a profitable business. So that's what I'd be very clear on that.

Michael Lavery: So there's a lot we're studying right now, there's a lot we're doing in data and research and working with BCG to bring that together. But we're pretty excited about the opportunity in the craft beer business. And we're pretty excited, listen, we're even though they're declining, we're now the fifth largest craft brewer. And I think the evolution of big beer versus craft beer is changing dramatically too. Okay, thanks for that.

Okay. Thanks.

Thank you. Our next question comes from the line of Bill Kirk with Roth. Please proceed with your question.

Okay. Thank you for taking the questions.

You mentioned expanded distribution at whole foods in your prepared remarks, and given your incredibly strong history with them could you maybe talk about how your background helps with this particular account and I guess what does it what does your experience tell you about the trajectory of brands into other retailers once you.

Irwin Simon: And I just follow up on the cucumber farming, not a sort of a piece of the portfolio I had anticipated maybe initially. Can you just help us understand maybe why that's interesting to you and what the margins and growth might look like for that? Number one, you know, listen, we got a million and a half dollar facility. If we went to sell it today, what the values in that you're getting for in, you know, Canada, it's just facilities, we think and we've been asked by multiple retailers in Quebec. There's a major shortage and they want vegetables growing in Quebec. There is better margin there than just, you know, keeping the place dark or selling cannabis that you can sell.

Find success at whole foods.

Back in the day. It is interesting and is a great question because other retailers you've still got a whole foods and see what was new what was natural what was organic and what was selling because everybody wanted to whole foods customers I think that's changed quite a bit today, but again whole foods is an important customer for us.

On our Sweetwater on our Montauk on our bluepoint and some of our other products also a very important customer for us on Manitoba harvest.

And again I think what whole foods is doing where they have their 365, but they want brands and that's what consumers are looking for.

Irwin Simon: And we'll see what happens ultimately maybe one day we could sell it as, you know, a vegetable farm to someone else that wants it. But right now with minimal investment. And that the so the, you know, probably a couple hundred million dollars investment in it. And there is big demand for, you know, fruits, vegetables, not in the Quebec market. The other thing is what we're going to do there is grow cannabis just for the Quebec market where they want cannabis, you know, grown in their province for their, you know, retailers. Okay, it is, it is, it is a profitable business. So that's one to be very clear on that.

But I will tell you whether it's Kroger albertsons.

Operator: Okay, thanks.

B.

They are important customers to us.

It's interesting what they are saying when we've introduced them to the new <unk> product or montage pumpkin, what that is doing so what retailers are doing out there. Yes. They are looking at what's selling and whole foods and is it a beer kombucha combined et cetera, some of the new innovation, but.

My experience before as retailers went to whole foods and see what was selling not as probably as much anymore, but retailers today in the craft beer industry want new innovation out there because if you look at craft beer there is a lot of ipas.

Bill Kirk: Thank you. Our next question comes from a line of Bill Kirk with Roth MKM. Please proceed with your question. Hey, thank you for taking the questions. Erwin, you mentioned expanded distribution at Whole Foods in your prepared remarks and given your incredibly strong history with them. Could you maybe talk about how your background helps with this particular count? And I guess what does your experience tell you about the trajectory of brands into other retailers once you find success at Whole Foods?

There is a lot of.

Other bidders out there, but what's new and unique and it's just not an IPA over there and I think that's what we're trying to bring to the party.

Excellent and then Carl you mentioned that <unk> helps beer does that does that load and explain the sequential difference for beverages and <unk> from that <unk> about about $8 million or so.

Should we think about that before the Abi brands coming over should we think about that $24 million and beverages <unk> has like a.

Bill Kirk: You know, back back in the day, it's interesting and I've been great question because other retailers used to go to Whole Foods and see what was new, what was natural, what was organic and what was selling because everybody wanted Whole Foods customers. I think that's changed quite a bit today. But again, you know, Whole Foods is an important customer for us, you know, on our sweet water, on our montage, on our blue point and some of our other products also very important customer for us on Manitoba Harvest.

Pure volume consumption number no load in know destock that's more of.

Volume consumer type number.

So I'll, let Tom talk about the volume and consumed by.

On the profitability side and the margin side, and then ultimately down to EBITDA, Yes, Scott.

But as a portion of the decline that is going on in that space is just a decrease in volume because you don't have that bias.

Bill Kirk: You know, and again, I think what Whole Foods is doing where they have their 365, but they want brands and that's what consumers are looking for. But, you know, I will tell you whether it's Kroger Albertsons, you know, HEB, they're important customers to us and it's interesting what they're saying when we've introduced them to the new gummies product or montag pumpkin, what that is doing. So what retailers are doing out there, yes, they're looking at what's selling in Whole Foods and is it a beer kabootcha combined et cetera and some of the new innovation.

Just let me jump on something that was just E mail by one of our employees.

Some of our hemp products that were in the whole foods I won't mention the other retailer, but they saw them in whole foods that we picked up two other retailers because they are in whole foods and sometimes whole foods is one of our best showrooms.

So that is something that happened just to answer your question on that.

And on the on the volume piece, Phil I would just say that.

Bill Kirk: But, you know, my experience before is retailers went to Whole Foods and see what was selling not as probably much anymore, but retailers today in the craft beer industry want new innovation out there because if you look at craft beer, there's a lot of IPAs. You know, there's a lot of, you know, other beers out there, but what's new and unique and it's just not an IPA out there, and I think that's what we're trying to bring to the party.

Consumption.

Seasonality drives consumption.

So I wouldn't use the word loaded consumptions peaks over times over quarters and yield like Carl said earlier.

There is a higher seasonality in consumption of beer.

And our Q4, which is the start of the summer.

And as we take on these new brands as we look into our Q2.

We expect we expect to see kind of organic consumption to be in line with what everything else is doing.

Carl Merton: Excellent. And then Carl, you mentioned that 4Q buy-and-help beer. Does that load in, explain the sequential difference for beverages in 1Q from that 4Q about about 8 million or so? And is, should we think about that before the ABI brands coming over? Should we think about that 24 million in beverages, 1Q is like a pure volume consumption number, no load-in, no destock, that's more of a volume-consumed type number? So I'll match that I talk about the volume consumed, but on the profitability side and the margin side, and then ultimately down to EBITDA, yes, that is a portion of the decline that is going on in that space is just decrease in volume because you don't have that main bias.

Got it thank you.

Thank you. Our next question comes from the line of Johnson <unk> with CIBC. Please proceed with your question.

Thank you very much. Good morning. My question is on the regulatory side and specifically if you do get the DEA. Following the HHS recommendation, what does that change for til rate does that adjust your M&A strategy at all or would you need to see additional developments or clarity from different departments.

So.

I've been very clear.

In regards to.

No.

Plasma vacation here.

I'd love to see it happen and I've been very clear.

It does not affect us day one.

Carl Merton: Just let me jump on something there, I was just emailed by one of our employees on some of our hemp products that were in the whole foods, I won't mention the other retailer, but they saw them in whole foods and we picked up two other retailers because they were in whole foods, and sometimes whole foods is one of our best showrooms. So that is something that happened just to answer your question on that.

But what it does it helps get some confusion in the market.

<unk> cannabis is classified today is the same as heroin the same as other drugs out there and it's absolutely not number two.

I think from a medical standpoint.

There is so many applications for it and the legalized is from a medical standpoint would be something very important there is so much confusion out there of legalization.

Carl Merton: And on the volume piece, I just say that consumption seasonality drives consumption, so I wouldn't use the word load-in. Consumptions peaks over times, over quarters, and like Carl said earlier, there is a higher seasonality and consumption of beer in RQ4, which is the start of the summer, and as we take on these new brands as we look into our Q2, we expect to see organic consumption to be in line with what everything else is doing.

Customers want it I mean, basically it is legalized without being legalized because everywhere you walk, whether it's New York, California.

Operator: Thank you.

No matter, what what states you're in cannabis is being utilized so we might as well do something with it select the tax dollars and ultimately get the regulatory in place where youre getting products out there that go through regulatory that are not cut with.

Other drugs or other ingredients out there that are not safe.

In regards to what ultimately the opportunities are for sale.

Listen if one day and again this is hope no reason to believe if we could grow it in Canada and ship it into the U S is an opportunity for US we have a big medical business in Europe , we have a medical business in Canada.

John Zamparo: Our next question comes from line of John Zamparo with CIBC, please proceed with your question.

Irwin Simon: Thank you very much, good morning. My question is on the regulatory side, and specifically if you do get the DEA following the HHS recommendation, what does that change for Till Ray? Does it adjust your M&A strategy at all, or would you need to see additional developments or clarity from different departments? I think I've been very clear in regards to classification here. I'd love to see it happen, and I've been very clear.

Which ultimately would get us into the business here in the U S. So I think first there is ultimately no benefit to <unk> I don't think anything is going to happen here for a little while for over the next two years anyway, but it would basically be very very very good for the cannabis industry.

Okay, Great I'll leave it there.

Thank you.

Irwin Simon: It does not affect us day one, but what it does, it helps get some confusion out of the market. The way cannabis is classified today is the same as heroin. The same as other drugs out there. That's absolutely not. Number two, I think from a medical standpoint, there are so many applications for it, and the legalized it from a medical standpoint would be something very important. There is so much confusion of their unlegalization, and customers want it.

That concludes our analyst questions. We will now proceed with questions submitted by retail stockholders on the same technology platform.

Question reads why.

Should we keep investing in television.

Listen again.

Pulp.

No.

By our results today and some of the things that we're doing.

That number one investors believe in the management team.

And believe in our strategy.

Some don't believe in our strategy, but I will tell you we have a.

Irwin Simon: Basically, it is legalized without being legalized because everywhere you walk, whether it's New York, California, no matter what state you're in, cannabis is being utilized. We might as well do something with it, select the tax dollars, and ultimately get the regulatory in place where you're getting products out there that go through regulatory that are not cut with other drugs or other ingredients out there that are not safe. In regards to what ultimately the opportunities are for Tilray, listen, if one day, and again, this is hope, no reason to believe, if we could grow it in Canada and ship it into the US, is an opportunity for us.

A defined strategy, we have a structure strategy with a lot of process and a lot of levers there that were ultimately pulling to have a structured strategy. We are secondly, a very diversified business, but ultimately how do they all come together under one common denominator we're not.

Just a cluster of a bunch of products brands and categories and.

Upon legalization.

We have multiple brands that can convert that cannabis.

Ultimately, we have tremendous amount of grow we have tremendous amount of production today with with.

Irwin Simon: We have a big medical business in Europe. We have a medical business in Canada, which ultimately would get us into the business here in the US. I think first, there is ultimately no benefit to Tilray. I don't think anything is going to happen here for a little while for over the next two years anyway, but it would basically be very, very good for the cannabis industry.

With our beer and our spirits business. We are one of the only ones with two cannabis grow facilities in Europe , where we have a great medical platform. So we're different than most other cannabis companies, we're different than most other craft beer businesses for different than any other.

Operator: Thank you.

Operator: That concludes our analyst's questions.

Healthier food business with our Manitoba harvest. So we're absolutely different we're a big believer in building brands brand equity brand equity brand equity and Theres a lot of work we have to do on our brands in Canada and make consumers familiar with our brands again cannabis has only been there.

Irwin Simon: We'll now proceed with questions submitted by retail stockholders on the SA Technologies platform. The question reads, why should we keep investing in Tilray? Listen, again, I hope by our results today and some of the things that we're doing, that number one, investors believe in the management team and believe in our strategy. Some don't believe in our strategy, but I will tell you, we have a defined strategy, we have a structured strategy with a lot of process and a lot of levers there that we're ultimately pulling to have a structured strategy.

For five years and again, it's educating the consumers on the brands and listen it's hard to build brands. When you are not legally allowed to advertise in the Canadian market to consumers, but we have to do that number two we've got some great brands in regards to beer, we got great brands in regards to Breckenridge Bourbon and manner.

Total harvest and we have a really really strong relationships with doctors and distributors in the European market with regards to our medical business.

<unk> pharma, which was cc pharma is a distributor that distributes into 13000 drug stores, we're looking to convert that business and working with other distributors throughout Europe of how we increase margins just think about it thats a $300 million business and every margin dollar that we increase there is a major contribution.

Irwin Simon: We are, secondly, a very diversified business, but ultimately, how do they all come together under one common denominator? We're not just a cluster of a bunch of products, brands and categories. And upon legalization, we have multiple brands that can convert to cannabis. Ultimately, we have tremendous amount of growth, we have tremendous amount of production today with our beer and our spirits business. We are one of the only ones with two cannabis growth facilities in Europe where we have a great medical platform.

<unk> to our bottom line, so with that we have a strategy.

We are about making money and managing our balance sheet.

Will it take some time to come together it absolutely has been but I'll tell you. The components are there and I think that's what's different and unique and that's why I hope.

Our investors stay with us and those that are thank you very much.

That is the questions for today.

Irwin Simon: So we're different than most other cannabis companies, we're different than most other craft beer businesses, we're different than any other healthier food business with our hand manitoba harvest. So we're absolutely different. We're a big believer in building brands, brand equity, brand equity, brand equity. And there's a lot of work we have to do on our brands on Canada and make consumers familiar with our brands. Again, cannabis has only been there for five years and again, it's educating the consumers on the brands.

I want to thank all of that has joined the call all of that has gone online to listen to us listen.

I can reassure you this year the cannabis industry is a tough industry. The beer industry is a tough industry, but theres no business. There is no industry out there thats not tough, but what's important today is that you have a team that knows how to deal with the toughness knows how to deal with the environment and today with the acquisition.

And of the Anheuser Busch businesses, we have posted 2300 employees around the world.

That are working hard everyday.

Irwin Simon: And listen, it's hard to build brands when you're not legally allowed to advertise in the Canadian market to consumers, but we have to do that. Number two, we got some great brands in regards to beer. We got great brands in regards to Breckenridge bourbon and Manitoba harvest. And we have a really, really strong relationships with doctors and distributors in the European market in regards to our medical business. Tilray pharma, which was CC pharma, is a distributor that distributes into 13,000 drug stores.

And just remember in 2019, we were $50 million business today on a run rate to be close to $1 billion business.

We were not diversified we have a diversified portfolio of diversified brands, we have diversified facilities that are out there around the world.

The World today is looking for innovation looking for new products and looking for new things and again consumers want cannabis consumers want to drink beer for the right reasons consumers wanted to drink Bourbon.

Irwin Simon: We're looking to convert that business and working with other distributors throughout Europe of how we increase margins. Just think about it. That's a $300 million business. And every margin dollar that we increase there is a major contribution to our bottom line. So with that, we have a strategy. We are about making money and managing our balance sheet. Well, it takes some time to come together. It absolutely has been. But I'll tell you the components are there. And I think that's what's different and unique. And that's why I hope our investors stay with us. And those that are, thank you very much.

<unk>, what medical cannabis for pain for inside for sleep for cancer patients.

Our epilepsy, so theres, so many opportunities and we're in the right areas today, where consumer demand will continue to move into.

With the combination of our free of Til Ray Heck, So sweetwater montoc in the eighth.

Brands that we just acquired from from Anheuser Busch, We've got a great portfolio of a lot of things.

And with 5 million square feet of growth, we're going to repurpose. These.

And ultimately how do we make it work if not.

Irwin Simon: That is the questions for today. I want to thank all that have joined the call. All that have gone online to listen to us. Listen, I can reassure you this year. The cannabis industry is a tough industry. The beer industry is a tough industry. But there's no business. There's no industry out there that's not tough. But what's important today is that you have a team that knows how to deal with the toughness.

Ultimately, we can sell these off so there's plenty of levers to pull within until right today.

Again, I want to thank everybody for being on the call listening to us.

And look forward to speaking to you again at our next earnings call. Thank you very much.

Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.

Irwin Simon: This knows how to deal with the environment. And today, with the acquisition of the in-hizer bush businesses, we have folks to 2,300 employees around the world that are working hard every day. And just remember, in 2019, we were a $50 million business today on the run rate to be close to a billion dollar business. We were not diversified. We have a diversified portfolio. We have diversified brands. We have diversified facilities that are out there around the world.

Irwin Simon: The world today is looking for innovation, looking for new products, and looking for new things. And again, consumers want cannabis. Consumers want to drink beer for the right reasons. Consumers want to drink bourbon. Consumers want medical cannabis for pain, for anxiety, for sleep, for cancer patients, for epilepsy. So there's so many opportunities. And we're in the right areas today where consumer demand will continue to move into. You know, with the combination of a free, a till-ray hexo, sweet water, montac, and the eight brands that we just acquire from, you know, from an in-hizer bush, we've got a great portfolio of a lot of things.

Irwin Simon: And with 5 million square feet of growth, we're going to repurpose these. And ultimately, how do we make it work? If not, you know, there's ultimately we can sell these off. So there's plenty of levers to pull within till-ray today. Again, I want to thank everybody for being on the call, listening to us, and look forward to speaking to you again at our next earnings call. Thank you very much. Thank you.

Operator: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your-