Q3 2024 Tilray Brands Inc Earnings Call
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Ladies and gentlemen, thank you for standing by to raise conference call will begin shortly once again, we thank you for dialing in please continue to hold a.
Operator: The conference will begin shortly. Subs by www.zeoranger.co.uk. Bye! BF-WATCH TV 2021, [inaudible] BF-WATCH TV 2021, [inaudible] Thank you for joining today's conference call to discuss Tilray Brand's financial results for the third quarter of fiscal year 2024, ended February 29th, 2024. All lines have been placed on mute to prevent any background noise.
The conference will begin shortly.
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Operator: After the speaker's remarks, there will be a question and answer session for analysts and investment firms conducted via audio. I will now turn the call over to Ms. Berrin Noorata, Tilray Branch Chief Corporate Affairs and Communications Officer. Thank you. You may now begin.
None: Thank you for joining today's conference call to discuss two very brands financial results for the third quarter of fiscal year 2024 ended February 29 2024.
None: 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.
Berrin Noorata: Thank you, Operator, and good morning, everyone. By now, you should have access to the earnings press release, which is available in the Investors section of the Tilray Brands website at tilray.com and has been filed with the SEC and CDOT. 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.
None: I will now turn the call over to MS bearing Marotta jewelry branch Chief Corporate Affairs and Communications Officer. Thank you you may now begin.
Marotta: Thank you operator, and good morning, everyone by now you should have access to the earnings press release, which is available on the investors section of the jewelry 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.
Marotta: 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.
Berrin Noorata: 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.
Marotta: In addition, we will be making numerous forward looking statements during our remarks and in response to your questions.
Marotta: These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect.
Irwin David Simon: 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. 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 for the third quarter and update our financial guidance for the fiscal year 2024. Also joining us for the question and answer segment are Denise Faltischek, Chief Strategy Officer and Head of International, Blair MacNeil, And now I'd like to turn the call over to Tilray Brand's Chairman and CEO, Irwin Simon. Thank you, Berrin.
Marotta: Actual results could differ materially from those described in those forward looking statements to text in our earnings press release includes many of the risks and uncertainties associated with such forward looking statements.
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 for the third quarter and update our financial guidance for the.
Full year 2024.
Marotta: Also joining us for the question and answer segment are Denise pumps check Chief strategy Officer, and head of International Flair Mcneill President of Canada, and tie Gilmore President of our U S business and now I'd like to turn the call over to Terry brands, Chairman and CEO Irwin Simon.
Terry Brands: Thank you Barry and good morning, everyone and thank you for joining us.
Irwin David Simon: Good morning, everyone, and thank you for joining us. At Tilray Brands, we take great pride in our mission to be the most responsible, trusted, and market-leading cannabis and consumer products company across the globe. Today, with our complementary business units, we believe Tilray Brands is the best positioned company in the world to take advantage of all the positive regulatory tailwinds happening globally with cannabis legalization and drug policy reform. In Canada, Tilray continues to lead the cannabis industry with the leading portfolio of adult-use brands and the number one market share. In the event that the current excise tax regime were to be replaced with a 10% ad valorem tax based on the value of the product sold and not a program tax, we expect an annual savings of $80 million.
Terry Brands: Until Ray brands, we take great pride in our mission to be the most responsible trusted and market, leading cannabis and consumer products companies across the globe.
Terry Brands: Today with our complementary business units, we believe Toray brands is the best positioned company in the world to take advantage of all the positive regulatory tailwind happening globally with cannabis legalization and drug policy reform.
Terry Brands: In Canada.
Terry Brands: Seniors to lead the cannabis industry with our leading portfolio of adult use brands and the number one market share in the.
Terry Brands: Events, the current excise tax regime or to be replaced with a 10% AD valorem tax based on the value of the products sold and not a program tax we expect an annual savings of $80 million. We also expect to benefit from additional cannabis related regulatory reforms or a marketer.
Irwin David Simon: We also expect to benefit from additional cannabis-related regulatory reforms around marketing and THC potencies. I'll take a deeper dive into the Canadian market shortly. In Germany, Tilray has the leading cannabis market share by revenue for the trailing 12 months, and we believe we are best positioned to capture a large portion of the expected growth in the medical market with both our in-country cultivation facility in Germany and our state-of-the-art facility in Portugal. We also have the ability to ship products from Canada to Germany.
Terry Brands: And THC potencies, I'll take a deeper dive into the Canadian market shortly.
Terry Brands: In Germany.
Terry Brands: It has the leading cannabis market share by revenue for the trailing 12 months and we believe we are best positioned to capture a large portion of the expected growth in the medical market with both our in country cultivation facility in Germany, and our state of the art facility in Portugal.
We also have the ability to ship products from Canada to Germany.
Irwin David Simon: In the U.S., Tilray has multiple options and is, in particular, well positioned to benefit from the federal legalization of medical cannabis as a result of rescheduling. Yes, we believe that the rescheduling of cannabis from Schedule 1 to Schedule 3 in the U.S. would provide a path for Tilray to sell pharmaceutical-grade medical cannabis in the U.S., subject to doctor prescriptions. This is a different strategy from what MSOs are doing today.
Terry Brands: In the U S El.
Terry Brands: So ray has multiple options and in particular is well positioned to benefit from the federal legalization of medical cannabis as a result of rescheduling.
None: Yes, we believe that the rescheduling of cannabis from schedule one to schedule III in the U S will provide a path for til ready to sell pharmaceutical grade medical cannabis in the U S subject to Doctor prescriptions.
None: This is a different strategy from what Msos are doing today, we believe there's an opportunity to supply medical cannabis products from our existing operations into the U S for medical purposes.
Irwin David Simon: We believe there's an opportunity to supply medical cannabis products from our existing operations into the U.S. for medical purposes. Further, in the event of future federal adult use of medical cannabis legalization in the U.S., we believe Tilray is well-positioned to immediately leverage its strong global leadership position, know-how, and strategic strengths across operations, distribution, and brands to sell EHE-infused products across its robust distribution network and sales channels in the U.S. Today, Tilray is a clear outlier in the global cannabis industry because we're the only company with global Our innovation comes from GMP certified pharmaceutical grade medicines through all recreational cannabis formats, including THC infused beverages, which also parlays into our beverage strategy.
None: Further in the event of a future federal adult use in medical cannabis legalization in the U S. We believe CRA is well positioned to immediately leverage its strong global leadership position Knowhow and strategic strengths across operations distribution of brands to sell T. H E.
None: Infused products across its robust distribution network and sales channels in the U S.
None: Today kiln Ray has a clear outlier in the global cannabis industry, because we're the only company with global expertise in both adult use and medical cannabis.
None: Our innovation comes from GMP certified pharmaceutical grade medicines to all recreational cannabis formats, including THC infused beverages, which also parlays into a beverage strategy.
Irwin David Simon: We have rigorous cannabis quality control, regulatory affairs, branding, marketing, sales, and distribution. We also have the number one cannabis market share in Canada, the number one cannabis market share in Germany as measured by revenue, and we distribute medical cannabis in over 20 countries around the world. Since 2019, we have quickly developed a diversified and award-winning portfolio of brands backed by best-in-class operations in Canada, the U.S., Europe, Australia, and Latin America that supports our goals of becoming a multi-billion dollar cannabis and consumer products company that addresses the needs of consumers and patients we serve today. As you know, the leadership team at Tilray has the expertise of buying TPG brands and building them into something greater than they were Our creative portfolio of beverage brands includes craft beers, spirits, ready-to-drink cocktails, ciders, and non-alcoholic beverages.
None: We have rigorous cannabis quality control regulatory affairs, R&D marketing sales and distribution. We also have the number one cannabis market share in Canada. The number one cannabis market share in Germany as measured by revenue and we distribute medical cannabis in over 20 countries.
None: Around the world.
None: Since 2019, we quickly develop a diversified and award winning portfolio of brands backed by a best in class operations in Canada. The U S Europe, Australia, and Latin America that supports our goals of becoming a multibillion dollar cannabis.
None: And consumer products company that addresses the needs of consumers and patients we serve today.
None: As you know the leadership team at kill rate as the expertise supplying CPG brands and building them into somewhat greater than they were before our creative portfolio of beverage brands includes craft beers.
Irwin David Simon: We are now the fifth largest craft brewer in the U.S., with a 4.5% share of the craft beer market. With over 500 beer distributors alone, Tilray is now dominating key regions across the U.S. with our craft beer brands in the Northeast, Pacific Northwest, Midwest, and Southeast, along with one of the most awarded bourbon brands with Breckenridge Distillery, which continues to gain market share across whiskey, vodka, and gin products. Our wellness brands include Manitoba Harvest, hemp-based food products, ingredients, and snacks, as well as our Happy Flower, our CBD-infused beverages, and our recently relaunched Highball Energy drinks, which in their first month on Amazon received over $1 million in orders. With the appropriate approvals, we're also looking to introduce hemp-based Delta 9 beverages and products under our Happy Flower brand and across other wellness brands in the U.S. And finally, we own and operate a European medical cannabis and pharmaceutical distribution business in Germany, CC Pharma, also known as Tilray Pharma, with a robust footprint, reaching 13,000 pharmacies in Germany alone.
None: Ready to drink cocktails spiders and non alcoholic beverages.
None: We are now the fifth largest craft brewer in the U S with a four 5% share of the craft beer market.
None: With over 500 beer distributors alone kill rate is now dominating key regions across the U S with our craft beer brands in the northeast Pacific Northwest Midwest and southeast along with one of the most awarded Bourbon brands with Breckenridge distillery, which continues to gain.
None: <unk> market share across whisky vodka and gin products.
None: Our wellness brands include Manitoba harvest hemp based foods products ingredients as snacks as well as our happy flower or CBD infused beverages, and our recently relaunched high ball energy drinks, which in its first month on Amazon received over 1 million.
None: And orders.
None: With the appropriate approvals. We're also looking to introduce 10 phase Delta nine beverages and products with our happy flower brand and across other wellness brands in the U S.
None: And finally, we own and operate our European medical cannabis in pharmaceutical distribution business in Germany Cc pharma also known as <unk> pharma with a robust footprint, reaching 13000 pharmacies in Germany alone.
Irwin David Simon: With broader medical cannabis use, doctor prescriptions in Germany, we expect there to be tremendous demand for medical cannabis within pharmacies. I can't predict the future, but my belief is there will be a lot of canvas regulatory changes we've seen with Germany, in Canada and the U.S., and Tilray is best equipped to reach these underlying opportunities, and we have the assets and the tools to reach our goal for Tilray Brands to deliver industry-leading profitable growth and sustainable long-term shareholder value through a focus on these three fundamentals, maximizing profitable revenue growth through organic growth and strategic acquisitions with strong synergy opportunities, realizing the benefits of optimized asset utilization and cost management to ensure an efficient cost structure across all our business segments, and to strengthen our industry-leading balance sheet and cash position.
None: With broader medical cannabis use doctor prescriptions in Germany, we expect there to be tremendous demand for medical cannabis within pharmacies.
None: I can't predict the future.
None: But my belief is there'll be a lot of canvas regulatory changes, we've seen with Germany, and Canada and the U S and kill rate is best equipped to reach these underlying opportunities and we have the assets and the tools to reach our goal for kilroy brands to deliver industry, leading profitable growth and.
None: I'm, a long term shareholder value through a focus on these three fundamentals.
Irwin David Simon: During Q3, we achieved net revenue of $188 million, representing approximately 30% growth over the previous year. We grew our revenue across our core business segments. This was achieved by focusing on organic growth of legacy brands and enhancing the performance of our more recent strategic acquisitions. Gross profit was $49.4 million, despite the impact of the newly acquired Kraft Beverage brands, which have a lower margin. Our net loss was $105 million, of which only $4.5 million represented losses from operations, and cash used in operating activities was $15.6 million.
None: Maximizing profitable revenue growth through organic growth and strategic acquisitions with strong synergy opportunities realizing the benefits of optimize asset utilization and cost management to ensure and in fishing cost structure across all of our <unk>.
None: <unk> segments.
None: And to strengthen our industry, leading balance sheet and cash position.
None: During Q3, we achieved net revenue of $188 million Rep.
Representing approximately 30% growth over the previous year.
None: We grew our revenue across our core business segments.
None: This was achieved by focusing on organic growth of legacy brands and enhancing the performance of our more recent strategic acquisitions.
Irwin David Simon: Adjusted gross profit was $51.6 million, and adjusted EBITDA was $10.2 million. With adjusted net income of $900,000 and adjusted EPS of $0.00, we delivered positive adjusted free cash flow for the quarter. Over the last three quarters, we significantly reduced our convertible debt by $205 million, decreasing our net debt to approximately $175 million, and we'll work to continue reducing our indebtedness, optimizing our capital structure, and enhancing our financial flexibility. The net reduction in our convertible debt will decrease our annual interest expense by $9.8 million, which flows directly to adjusted net loss and adjusted pre-cash flow.
None: Gross profit was $49 4 million despite impact of the newly acquired craft beverage brands, which have a lower margin.
None: Our net loss was $105 million, which only $4 5 million represented a loss from operations and cash used in operating activities was $15 6 million.
None: Adjusted gross profit was $51 6 million adjusted EBITDA was $10 2 million adjusted net income of 900000, and adjusted EPS of zero cents, we delivered positive adjusted free cash flow for the quarter.
None: Over the last three quarters, we significantly reduced our convertible debt by $205 million decreasing our net debt to approximately $175 million and we will work to continue reducing our indebtedness optimizing our capital structure and enhancing our financial flexibility.
Irwin David Simon: Let's now dive deeper into each of our business segments. We grew our global cannabis net revenue by 33% to $63.4 million in Q3, compared to the previous year quarter, driven by our acquisition of HEXO and Trust, as well as our international business and innovation in the Canadian markets. Net Canadian cannabis revenue grew 31% to $49.4 million in Q3, compared to the previous year. We achieved this growth with the HEXO acquisition, despite price compression totaling $3.1 million from the prior year quarter and a crippling tax structure that has allowed taxes to spike while prices declined by more than 50%. Excise tax increased by $8.2 million and amounted to $21.8 million, or 32% of our gross Canadian cannabis revenue in Q3, compared to $13.6 million, or 26% in the same quarter last year. Recent enforcement efforts by the Canada Revenue Agency garnishing LP payments from the provincial boards are already having an impact on our competitors. Over 1,000 of whom have negligible market share. The continued enforcement by CRA, we believe, will lead to further and necessary industry consolidation, perhaps on a mass level.
None: The net reduction in our convertible debt will decrease our annual interest expense by $9 $8 million, which flows directly to adjusted net loss and adjusted free cash flow.
None: Let's now dive deeper into each of our business segments.
None: We grew our global cannabis net revenue by 33% to $63 4 million in Q3 compared to the previous year quarter, driven by our acquisition of XO and trust as well as our international business and innovation in the Canadian markets net Canadian cannabis revenue grew 31% to.
None: $49 4 million in Q3 compared to the previous year, we achieved this growth with the <unk> acquisition, despite price compression totaling $3 1 million from the prior year quarter and a crippling tax structure that has allowed taxes, despite while prices declined by more than 50.
None: <unk> <unk>.
None: <unk> tax increased by $8 2 million and amounted to $21 8 million or 32% of our gross Canadian cannabis revenue in Q3 compared to $13 6 million or 26% in the same quarter last year.
Irwin David Simon: Canada continues to be the largest federally legal and commercial adult-use cannabis market in the world, and Tilray Brands maintains that number one market share position in the country. We are number one in Ontario, number one in Quebec, and number one in British Columbia, which together represents over 60% of the population of Canada.
None: The recent enforcement efforts by Canada revenue agency guarantee seeing LP payments from the provincial boards is already having an impact on our competitors over 1000 approved have negligible market share.
None: We continue enforcement by CRA, we believe will lead to further unnecessary industry consolidation, perhaps on a mass level.
Irwin David Simon: We're also number one in cannabis flour, oils, concentrates, and THC beverages, number two in pre-rolls, and number four in vapes, and in the top ten in all other categories, all while operating under rigorous, high-quality control standards. Our focus in Canada is on two things. First, growing sales primarily through continuous launches of new product innovation. And second, taking more and more costs out of our businesses. On a ladder, a large part of our acquisition strategy for Hexo and Trust involves removing legacy costs and skew rationalization from these businesses. For HECSO, we initially target $27 million, but then increase that to between $30 and $35 million, of which we've already achieved $27.5 million in savings on an annualized run rate basis, of which $15.6 million is realized cost savings during the period.
None: Canada continues to be the largest February legal and commercial adult use cannabis market in the world until Ray brands maintains at number one market share position in the country. We are number one and then carrier number one in Q back number one in British Columbia, which together represents over 60% of.
None: The population of Canada.
None: We're also number one in Canada flour oils concentrates and THC beverages number two and pre rolls and number four in <unk> and in the top 10 in all other categories, all while operating under rigorous high quality control standards.
None: Our focus in Canada is on two things first growing sales primarily through continuous launches of new product innovation and second taking more and more costs out of our businesses.
None: On a ladder on a large part of our acquisition strategy for Hexcel entrust involves removing legacy costs and SKU rationalization from these businesses for.
Irwin David Simon: Our HEXO integration plan includes streamlining our Canadian operations, improving utilization of our core facilities, improving margins, and maximizing cash opportunities by pursuing divestitures and consolidating facilities. We plan to close the Cayuga facility and move its cannabis cultivation to our existing Canadian production line. Sell our Maison facility in Quebec, which is currently cultivating cucumbers, as a vegetable operator, and sell the Belleville facility and move our manufacturing to our London facility for our beverages. We expect this plan to result in a one-time $70 to $85 million of Canadian cash flow inflow opportunity and be accretive to margins and net income by $5 to $7 million on an annual basis. From a regulatory standpoint, the expert panel appointed by the federal government clearly highlights three areas of focus which Tilray would benefit from once implemented.
None: For Hexcel, we originally target $27 million, but then increased that to between 30 and $35 million of which we've already achieved $27 5 million in savings on an annualized run rate basis of which $15 6 million.
Is realized cost savings during the period.
None: Our hexcel integration plan includes streamlining our Canadian operations, improving utilization of our core facilities, improving margins and maximizing cash opportunities by pursuing divestitures and consolidated facilities.
None: We plan to close to close the <unk> facility and move its cannabis cultivation for existing Canadian production lines.
None: Tell our Mesa facility in <unk>, which is currently cultivating cucumbers as eventual operator and sell the Belleville facility and move our manufacturing to our London facility for our beverages.
Irwin David Simon: First, excise tax reduction, which I've talked about, both in adult recreational and medical with benefit, Tilray, $80 million. Secondly, there is a proposed opportunity for pharmacies to carry CBD and medical cannabis for medical patients, which would move plant-based medicines into the mainstream as an option for patients to treat ailments. And finally, enforcement against illicit websites, dispensaries that don't contribute to excise tax, and put youth at risk through unregulated product channels available easily online with e-transfer and Canadian Post e-mail. We think Canadian Post and the Canadian banking systems are responsible for shutting down access to these unlawful establishments.
None: We expect this plan to result in one time, 70% to $85 million of Canadian cash flow inflow opportunity and accretive to margins and net income by 5% to $7 million on an annual basis.
None: From a regulatory standpoint, the expert panel appointed by the Federal government clearly highlight three areas of focus which still ray would benefit from once implemented.
None: First excise tax reduction, which I've talked about both in adult recreation and medical with benefit fill rate $80 million.
None: Secondly, there is a proposed opportunity for pharmacies to carry CBD and medical cannabis for medical patients, which would move plant based medicines into the mainstream and options for patients to treat ailments.
None: And finally enforcement against illicit websites dispensaries that don't contribute to excise tax.
Irwin David Simon: Turning to international cannabis, we grew net revenue organically by 44% year-over-year to $14 million, and we remain the number one market leader in medical cannabis across Europe with a leading market share in Germany and Poland. Tilray's international growth has also been driven by increased sales in our existing markets, such as Portugal, Italy, the UK, Australia, and New Zealand. The new German medical market opportunity is projected to be approximately $3 billion in the medium term, while the European opportunity could represent a potential $45 billion medical market alone in the long term. Our presence in Europe allows Tilray to grow our global brand portfolio to a base of over 700 million people in Europe, which is twice the population of the U.S.
None: Put us at risk through unregulated product channels available easily online with E transfer a Canadian post E Mail, we see Canada post in the Canadian baked beans systems are responsible for shutting down access to these unlawful establishment.
None: Turning to international cannabis, we grew net revenue organically by 44% year over year to $14 million and we remain the number one market leader in medical cannabis across Europe, with a leading market share in Germany and Poland.
None: <unk> International growth has also been driven by increased sales in our existing markets, such as Portugal, Italy, The U K, Australia and New Zealand.
Irwin David Simon: While much of the media attention related to the new cannabis reform in Germany has been centered around cultivation for personal use and the establishment of cannabis social clubs, the new opportunities for Tilray flow mostly from the removal of medical cannabis from the Narcotics Act. This descheduled change is expected to significantly expand the medical cannabis market in Germany as it would allow for more doctors to prescribe medical cannabis more easily to patients and potentially allow for broader health insurance coverage. We will therefore be increasing our educational efforts to bring more and more health professionals on board with medical cannabis as a therapeutic option. We estimate that less than 0.4% of the population in Germany is presently buying medical cannabis compared with 4% in states like Pennsylvania.
None: The new German medical market opportunity is projected to be approximately $3 billion in the medium term, while the European opportunity could represent a potential $45 billion medical market alone and the long term our president in Europe allow us fill rate to grow our global brand portfolio.
None: Leo to a base of over 700 million people in Europe, which is twice the population of the U S.
None: While much of the media attention related to the new cannabis reform in Germany has been centered around cultivation for personal use and the establishment of Canada associate clubs, the new opportunities for til rate flow, mostly from the removal of medical cannabis from the Narcotics Act. This these scheduled change is.
None: Expect it to significantly expand the medical cannabis market in Germany as it would allow for more doctors to prescribe medical cannabis more easily to patients and potentially allow for a broader health insurance coverage.
Irwin David Simon: In Germany, we also stand to benefit from the abolishment of the tender process for in-country cultivation of medicinal cannabis, which is being replaced by a licensing scheme. We are currently one of the only three in-country cultivation facilities in Germany today, and these legislative changes would allow us to better meet patients' needs by expanding our medical cannabis product offerings. This would, in turn, significantly increase our cannabis production in Germany by five times more than double our revenue opportunities. Tilray's opportunities in the U.S. cannabis market remain strong. Over the past several years, our playbook of expanding our business beyond cannabis to adjacencies and complementary markets has positioned Tilray well for the current environment as well as for future growth opportunities. While we currently do not engage in any U.S. cannabis operations because of federal regulations, we're well-positioned to participate and win in a federally legalized market when that changes either rescheduling for medical cannabis or the passage of federal cannabis legalization
We will therefore be increasing our educational efforts to bring more and more health professionals on board with medical cannabis as therapeutic options.
None: We estimate that in less than four.
None: 4% of the population in Germany are presently buying medical cannabis compared with 4% in states like Pennsylvania.
None: In Germany, we also stand to benefit from the abolishment of the tender process for in country cultivation of medicinal cannabis, which is being replaced with our licensees scheme.
None: We are currently one of the only three in country cultivation facilities in Germany today, and these legislative changes would allow us to better meet patient needs by expanding our medical cannabis product offerings. This would in turn significantly increase our cannabis production in Germany by five times.
None: More than double our revenue opportunities.
None: So ray opportunities in the U S. Cannabis remains strong over the past several years, our playbook of expanding our business beyond cannabis two adjacencies and complementary markets as positioned kill rate well for the current environment as well for future growth opportunities.
Irwin David Simon: Given our deep knowledge, global expertise in medical and adult use cannabis, and regulatory compliance applicable Tilray's playbook in the U.S. is to build and deliver iconic brands in the beverage alcohol and CPG sectors backed by product excellence and innovation, educate consumers about our brands and our stringent quality standards to encourage trial and foster loyalty, and last but not least, to drive and scale and distribute to get our brands into consumer hands to grow our market share. Moving to our beverage segment, which is quickly approaching approximately $300 million annualized. As mentioned earlier, Tilray Brands is now the fifth largest craft brewer in the U.S., with a 4.5% craft beer market share, and we aspire to be a top 12 beverage company in the U.S. Q3 beverage alcohol net revenue was $54.7 million, representing 165% growth year-over-year.
None: While we currently do not engage in any U S cannabis operations because of federal regulations.
None: We're well positioned to participate and win in a federally legalized market when that changes either rescheduling or medical cannabis or the passage of federal cannabis legalization giver.
None: Given our deep knowledge global expertise in medical and adult use cannabis and the regulatory compliance imply.
None: Till race playbook in the U S is to build and deliver iconic sought off brands in the beverage alcohol in the CPG backed by product excellence and innovation edgy.
None: Educate consumers about our brands and our stringent quality standards to encourage trial and foster loyalty and last but not least to drive scale and distribute to get our brands into consumer hands to grow our market share.
Irwin David Simon: Tilray now holds 4.5% of the craft beer market share in the U.S., and we're just getting started and ramping up. Of this, the legacy brands of Sweetwater, Montauk, Alpine, Nelson, and Greenflat, demonstrate our ability to successfully grow existing brands along with our recent acquisition of 12 craft brands from ABI InBev. We have gained in scale and see further expansion opportunities. Wheatwater remains the number one brand family in Georgia,
None: Moving to our beverage segment, which is quickly approaching approximately $300 million annualized as mentioned earlier <unk> brands is now the fifth largest cracker in the U S with a four 5% craft beer market share and we aspire to be a top 12 beverage company in the U S.
None: Q3 beverage alcohol net revenue was $54 7 million, representing a 165% growth year over year <unk> now holds a four 5% of the craft beer market share in the U S. And we're just getting started and ramping up of this our legacy brands or Sweetwater montage our clients Nelson.
Irwin David Simon: Montauk remains the number one brand family in Metro New York, having increased its distribution by 28% versus last year. Tilray is now the number one craft supplier year to date in the Pacific Northwest. Ten Barrel's volume growth increased by 413 basis points since Tilray took over the brand, and we're now capitalizing on the success of Ten Barrel Pub Beer brand extensions by adding Pub Ice and Pub Cerveza line extensions. Both innovations we're extremely excited to launch; growing 24% of beer is now the top 20 brand on the West Coast, with only half the distribution of top competitors due to its focus on the Pacific Northwest. Still, our vision is to be much higher, as we're aiming and uniquely positioned to become a top 12 beverage alcohol business. This will be accomplished by leveraging our portfolio to win more occasions through core products, such as craft beer and beyond, through innovation to categories like flavored malt beverages, ready-to-drink cocktails, and spirits. But ultimately, our plans go beyond alcohol, as we will be expanding into sparkling water, energy drinks, and other categories.
None: And green flush.
None: Demonstrates our ability to successfully grow existing brands along with our recent acquisition of 12 craft brands from Abi in Bev, we are gaining the scale. We have gained in scale and see further expansion opportunities.
None: <unk> remains the number one brand family in Georgia multi outlets montage remains the number one brand family in Metro New York avid increased its distribution by 28% versus last year.
None: <unk> is now the number one craft supplier year debate in the Pacific Northwest and barrels volume growth increased by 413 basis points. Since <unk> took over the brand and we are now capitalizing on the success of 10 barrel of beer brand extensions by adding up ice officer vessel.
None: Align expenses both innovations we're extremely excited to launch.
Growing 24% of beer is now, but top 20 brand on the west coast with only half the distribution of top competitors due to its focus on the Pacific Northwest States.
None: Still our ambition is to be much higher as we're aiming and uniquely positioned to become a top 12 beverage alcohol business. This will be accomplished by leveraging our portfolio to win more occasions through core products, such as craft beer and beyond through innovation to categories.
Irwin David Simon: This is important because we have the manufacturing facilities, the distribution, and the sales and marketing infrastructure to drive Tilray businesses. Working with ECG, we developed a clear and focused strategy to drive top-line and bottom-line growth for our beverage businesses. The three-pronged approach will deploy a regional strategy called DUAL to stabilize scale brands such as Sweetwater and Montauk Blue Point in their respective key adjacent regional markets across the U.S. and maximize their potential to gain market share from competitors. Juul is already paying off.
None: Like flavored malt beverages ready to drink cocktails and spirits.
None: But ultimately our plans go beyond alcohol as we will be expanding into sparkling water energy drinks and other categories. This is important because we have the manufacturing facilities, the distribution and the sales and marketing infrastructure to drive kill rate businesses.
Irwin David Simon: According to BI sales to retail data, Tilray has increased its market share of total beer in 13 states, including key beer markets such as Oregon, Washington, Colorado, Idaho, Minnesota, and Arizona, when comparing share before and after the craft acquisition. In the Southeast alone, we've improved trends by 4.6% post-acquisition. For Q3, 10 Barrel saw a 12.3% increase in distribution. Amongst our top 10 distributors, when compared to the same time last year, and when comparing six months pre-acquisition with the five months post-acquisition, overall trends have improved three and a half percent. Overall trends for Bluepoint have improved 1.3%, while its number one distributor has improved trends by 3.8%, and those are just a few examples. We are also executing a national brand strategy, beginning with revitalizing Shock Top to win as a national craft beer over time by targeting share and connecting occasions to reach mainstream male and female drinkers. We think there is tremendous upside with Shock Top, as according to our qualitative research, Shock Top has the highest purchase intent among 12 of the largest beer brands. This is why we're focused on increasing distribution and getting this brand back into the hands of consumers. We are already on our way.
None: Yes.
None: Working with the ECG, we developed a clear and focused strategy to drive topline and bottomline growth for our beverage businesses. The three pronged approach will deploy our regional strategy called dual to stabilize scale brands, such as Sweetwater montage bluepoint and their respective.
None: <unk> of key adjacent regional markets across the U S and maximize their potential to gain market share from competitors.
None: Fuel is already paying off.
None: According to <unk> sales to retail data.
None: Ray has increased its market share of total beer 13 states, including key beer markets, such as Oregon, Washington, Colorado, Idaho, Minnesota, and Arizona, when comparing share before and after the craft acquisition and.
None: The southeast alone we've improved trends by four 6% post acquisition for Q3 10 barrel SC at 12, 3% increase in distribution.
None: Amongst our top 10 distributors when compared to the same time last year and when comparing six months pre acquisition with a five months post acquisition overall trends have improved three 5%.
None: Overall trends for Bluepoint have improved one 3% while its number one distributor is improved trends by three 8% and those are just a few examples.
Irwin David Simon: In Q3, ShopTalk's number one distributor increased distribution 24% versus last year, while on-premise distribution increased 0.5% over last year among ShopTalk's top 10 distributors. We are aggressively launching new and often disruptive innovations across our beer and non-alcoholic crafts to increase portfolio brand appeal to new consumers and new occasions. Many of our newly acquired brands have not innovated in the last couple of years. Among many others, recent examples include Liquid Love for heartfelt hydration, Runner's High, a non-alcoholic craft brew for athletes, Eyeball and Hardball, a non-carbonated 10% ABV product sold in 16.9-ounce plastic resealable containers, and non-carbonated shotgun, Lit RT.
None: We are also executing a national brand strategy, beginning with revitalizing shock top to win as a national craft beer overtime by targeting share and connect occasions to reach mainstream male and female drinkers we.
None: There is tremendous upside with chalked up.
None: As according to our qualitative research shock top.
None: As the highest purchase intent.
None: <unk> 12 of the largest beer brands. This is why we're focused on increasing distribution and getting this brand back into the hands of consumers.
Irwin David Simon: Let me say that we're working to get the cost structure right, transforming the productivity and profitability of the breweries we acquire. We expect that our beer gross margins will increase once we fully realize the cost savings achieved in connection with the fully integrated beverage alcohol platform as we move away from the existing co-packing manufacturer agreements with ABI and increase our productivity in our newly acquired breweries and 13 brew pubs. Finally, let's discuss our wellness segment, represented mostly by Manitoba Harvest, which is fostering a positive impact on people and the planet through hemp by making ongoing commitments to sustainability with breakthrough initiatives such as investment in regenerative agriculture. Revenue grew 12% in Q3 to $13.4 million compared to last year. We partnered with bioactives company BrightSea to revolutionize the functional fiber market and breakthrough product, Manitoba Harvest Bioactive Fiber, which is now exclusively available at Whole Foods markets nationwide. Incredibly, 95% of Americans do not consume the recommended daily intake of fiber.
None: We are already on our way in Q3 shocked us number one distributor as increased distributions, 24% versus last year.
None: Im premise distribution has increased 5% over last year among shop talk top 10 distributors.
None: We are aggressively launching new and often disruptive innovation across our beer and non alcoholic craft to increase portfolio of brand appeal to new consumers and new occasions.
None: Many of our newly acquired brands have not had innovation of last couple of years. Among many others. Recent examples include liquid love.
None: <unk> felt hydration runner's high a non alcoholic craft brew for athletes eyeball and hard ball on non carbonated, 10% ABV products sold and $16 nine ounce plastic resealable containers and non carbonated shock top lift arty.
None: Let me say that we're working to get the cost structure right transforming the productivity and profitability of the breweries. We acquired we expect that our beer gross margins will increase once we fully realize the cost savings achieved in connection with the fully integrated beverage alcohol platform.
None: As we move away from the existing co packing manufacturer agreements with Abi and increase our productivity and our newly acquired breweries and 13 brew pubs.
Carl A. Merton: This product provides 6 grams of both soluble and insoluble fiber per serving and is the only fiber solution containing two powerful hemp-based bioactives for gut health. Moving forward, the team continues to assess the opportunity to bring hemp-derivative Delta-9 beverages to market under Happy Flower and Tilray brands. With that, I now turn the call over to Carl to discuss our financials in greater detail.
None: Finally, let's discuss our wellness segment represented mostly by Manitoba harvest, which is fostering a positive impact on people and the planet through him by making ongoing commitment to sustainability with breakthrough initiatives such as investment in regenerated agriculture revenue grew 12.
Were sent in Q3 to $13 4 million compared to last year, we partner with Bioactive company Bright C to revolutionize the functional fiber market and break through product, Manitoba harvest bio active fiber, which is now exclusively available at whole foods markets nationwide.
Carl A. Merton: Thank you, Irwin. Recall that we present our financial results in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussion, we will be referring to both GAAP and non-GAAP adjusted results, and we encourage you to review the reconciliation contained within our press release on our reported results under GAAP for the corresponding non-GAAP measures. Let's now review our quarterly performance for the three months ended February 29th, 2024. Q3 total net revenue rose to $188.3 million compared to the prior year quarter of $145.6 million, representing almost 30% growth, excluding acquisitions completed within the fiscal year and the $8.7 million HECSO advisory fee captured in the prior year quarter. Our legacy businesses remain consistent despite a 13% revenue decline in our lowest margin segment.
None: Incredibly 95% of Americans do not assume the recommended daily intake of fiber. This product provides six grams of both solvable and insoluble fiber for Serbia and is the only fiber solutions.
None: Two powerful hand face bio access for gut health.
None: Moving forward the team continues to assess the opportunity to bring enhanced derivative delta nine beverages to market under happy flower until Ray brands.
None: With that I'll now turn the call over to Carl discuss our financials in greater detail Karl.
Carl: Thank you Irwin.
Carl: Recall that we present, our financial results in accordance with U S GAAP and in U S dollars.
Carl: Throughout our discussion we will be referring to both GAAP and non-GAAP adjusted results and we encourage you to review the reconciliation contained within our press release.
Carl: Reported results under GAAP for the corresponding non-GAAP measures.
Carl A. Merton: We continuously emphasize the strategic importance of our adjacency business model, which is a key differentiator for us. This is best reflected by the contribution of our four segments to our overall results, which shows that we are not too dependent on any individual segment having a disproportionate impact on our sales or profit growth. Each segment is also, in our view, on a path to sustainable long-term growth. Looking at each segment now, during Q3 and compared against the prior year period, net beverage alcohol rose 165% and represented 25% of our total revenue mix, more than double relative to last year's 14% of total mix. Net cannabis revenue rose 33% and represented 34% of total mix, up slightly from 33% last year. However, distribution revenue decreased 13% and represented 30% of total mix, down from 45% last year.
Carl: Let's now review our quarterly performance for the three months ended February 29 2024.
Carl: Q3, total net revenue rose to $188 3 million compared to the prior year quarter of $145 $6 million, representing almost 30% growth.
Carl: Excluding acquisitions completed within the fiscal year, and the $8 $7 million Hexcel advisory fee captured in the prior year quarter. Our legacy businesses remained consistent despite a 13% revenue decline in our lowest margin segment.
Carl: We continually emphasized the strategic importance of our adjacency business model, which is a key differentiator for us.
Carl: This is best reflected by the contribution of our four segments to our overall results, which shows that we are not too dependent on any individual segment, having a disproportionate impact on our sales or profit growth.
Carl: Each segment is also in our view on a path to sustainable long term growth.
Carl A. Merton: And wellness revenue rose 12% and represented about 7% of total mix, down only slightly from 8% last year, respectively. Diversification is also reflected in our geographic footprint. During Q3, more than 62% of our net revenue was generated in North America. Roughly 36% was generated in EMEA, and the remaining 2% is coming from other parts of the world. This compares to about half from North America and EMEA in Q3 last year, with the variance related to the North American acquisitions we completed since that time, namely HEXO, the Kraft Acquisition Brands, and the remainder of Trust Beverages. Let me first touch on the key current item related to cannabis before moving on to a discussion on profitability. We incurred $21.8 million in Canadian cannabis excise taxes during Q3, which is a reduction in revenue compared to only $13.6 million last year.
Looking at each segment now during Q3 and compared against the prior year period net in beverage alcohol rose, 165% and represented 25% of our total revenue mix more than doubled relative to last year's 14% of total mix.
Carl: Net cannabis revenue rose, 33% and represented 34% of total mix.
Carl: Up slightly from 33% last year.
Carl: Distribution revenue decreased 13% and represented 30% of total mix down from 45% last year.
Carl: And wellness revenue rose, 12% and represented about 7% of total mix down only slightly from 8% last year respectively.
Carl: Diversification is also reflected in our geographic footprint.
Carl: During Q3 more than 62% of our net revenue was generated in North America roughly.
Carl: Roughly 36% was generating EMEA.
Carl A. Merton: The increase in excise taxes is reflected by a sharp increase in cannabis revenue generated in Canada versus the year-ago period, due in part to the HECSU and trust acquisitions and a change in our revenue mix to higher excise tax products. Through the first three quarters of our fiscal year, we've incurred more than $75 million in excise taxes versus $47 million for the year-ago nine-month period. For many quarters, we have been on the record with respect to the inherent unfairness as to how the excise tax is predominantly computed, which is largely a fixed price per gram sold rather than as a percentage of the selling price. Because the selling price has declined meaningfully since the law was first enacted in 2018, it has made the excise tax a larger and larger component of net revenue over time, particularly as current growth categories like infused pre-rolls and concentrates become the biggest part of our sales mix.
Carl: And the remaining 2% coming from other parts of the world.
Carl: This compares to about half from North America, and EMEA in Q3 last year with.
With the variance related to the North American acquisitions, we completed since that time, mainly hecco craft acquisition brands and the remainder of truss beverages.
Let me first touch on the key current item related to cannabis before moving onto a discussion on profitability.
Carl: We incurred $21 $8 million in Canadian cannabis excise taxes during Q3.
Which are a reduction to revenue.
Carl: Paired to only $13 6 million last year.
The increase in excise taxes as reflected by a sharp increase in cannabis revenue generated in Canada versus the year ago period due in part to the <unk> acquisition and a change in our revenue mix to higher excise tax products.
Carl: Through the first three quarters of our fiscal year, we've incurred more than $75 million in excise taxes versus $47 million for the year ago nine months period.
Carl A. Merton: To prove this point further, excise tax amounted to 32% of gross Canadian cannabis revenue in Q3, compared to 26% in the same quarter last year. Furthermore, through the first three quarters of the year, excise tax came to 34% of gross cannabis revenue versus 27% for the first nine months of fiscal 2023. In our view, and in the view of so many others, this price-based tax structure is crippling as it has allowed taxes to spike as the price of cannabis has declined by more than 50% since legalization. In late February, the Canadian House of Commons Standing Committee on Finance issued a report outlining several recommendations regarding the regulated adult use cannabis industry, including a recommendation to adjust the tax structure. Recommendation 329 in particular calls on legislators to make adjustments to the excise duty formula for cannabis so that it is limited to a 10% ad valorem rate.
Carl: For many quarters, we have been on the record with respect to the inherent unfairness is that how the excise tax is predominantly computed.
Carl: Which is largely a fixed price on grams sold rather than as a percentage of the selling price.
Carl: Because of the selling prices declined meaningfully since the law was first enacted in 2018. It has made the excise tax a larger and larger component of net revenue overtime.
Carl: Particularly as current growth categories like confused pre rolls and concentrates become the biggest part of our sales mix.
Carl: To prove this point further.
Carl: This tax amounted to 32% of gross Canadian cannabis revenue in Q3 compared to 26% in the same quarter last year.
Carl: Through the first three quarters of the year excise tax came to 34% of gross cannabis revenue versus 27% for the first nine months of fiscal 2023 and.
Carl: In our view and in the view of so many others.
Price based tax structure is crippling as it has allowed taxes to spike as the price of candidates has declined by more than 50% since legalization.
Carl: In late February the Canadian House of Commons Standing Committee on Finance issued a report outlining several recommendations regarding the regulated adult use cannabis industry, including the recommendation to adjust the tax structure recommend.
Carl A. Merton: If enacted, this would be a welcome change that could result in $80 million in annualized revenue for our cannabis business, which would largely fall to the bottom line. The key to the government's plan and needed relief for our industry is that the provinces do not enact their own excise tax to reflect the loss in taxes they are reaping from the status quo, increase their profits at the boards, or mandate that the tax savings are passed on directly to the consumer in the form of lower pricing. The budget announcement is next week, and we will be following developments closely, but are resolute in our view that reform is greatly needed and measures must be enacted to stabilize the Canadian cannabis industry. Turning back to our performance, gross profit was $49.4 million compared to a loss of $11.7 million in the prior year quarter. Will gross margin increase to 26% from negative 8% in the prior year quarter? Adjusted gross margin decreased to 27% compared to 30% in the prior year quarter.
Carl: Recommendation 329 in particular calls on legislators to make adjustment to the excise duty formula for candidates.
Carl: It is limited to a 10% AD valorem rate.
Carl: If enacted this would be a welcome change that could result in $80 million in annualized revenue for our cannabis business.
Carl: Which would largely fall to the bottom line.
Carl: The key to the government's plan and needed relief for our industry is that the provinces not enact their own excise tax to reflect the loss in taxes. They are reaping from the status quo.
Increase their profits at the boards or mandates that the tax savings are passed on directly to the consumer in the form of lower pricing.
Carl: The budget announcement is next week and we are following developments closely but are resolute in our view that reform is greatly needed and measures must be enacted to stabilize the Canadian cannabis industry.
Carl: Turning back to our performance gross profit was $49 4 million compared to a loss of $11 7 million in the prior year quarter.
Carl: While gross margin increased to 26% from negative 8% in the prior year quarter.
Carl: Adjusted gross margin decreased to 27% compared to 30% in the prior year quarter.
Carl A. Merton: I will discuss adjusted gross margin by individual segment in a moment. However, the majority of the decrease relates to the addition of the new craft brands, which are subject to a co-manufacturing agreement with ABI until at least the end of Q1 next year and the prior year figure, including the HECSO advisory fees. The net loss improved to $105 million, compared to a net loss of $1.2 billion in the prior year quarter, which included $934 million of impairment.
None: I will discuss adjusted gross margin by individual segment in a moment. However, the majority of the decrease relates to the addition of the new craft brands, which are subject to a co manufacturing agreement with Abi until at least the end of Q1 next year and the prior year figure, including the Hexcel advisory fees.
None: Net loss improved to $105 million.
None: Compared to a net loss of $1 2 billion in the prior year quarter, which included $934 million of impairments.
Carl A. Merton: On a per share basis, this amounted to a net loss of $0.12 versus $1.90 in the prior year quarter. Recall that last quarter, we introduced two new reporting metrics to our discussions, adjusted net income loss and adjusted earnings per share. The definitions of both are identified in the press release, along with the relevant record affiliations and calculations.
None: On a per share basis. This amounted to a net loss of <unk> 12 versus $1 90 in the prior year quarter.
None: Recall that last quarter, we introduced two new reporting metrics through our discussions.
None: Adjusted net income loss and adjusted earnings per share.
None: The definitions of both are identified in the press release, along with the relevant reconciliations and calculations.
Carl A. Merton: For Q3, we are reporting an adjusted net income of $900,000, which when calculated on a per-share basis, results in EPS of zero for the quarter. Adjusted EBITDA was $10.2 million, down from $13.3 million in the prior year quarter. This is mainly a consequence of the negative impact of the cannabis gross margin related to wholesale revenue, the termination of the HEXO advisory services contract on our acquisition of HEXO in June, and the co-manufacturing agreements with the new Kraft brands, as I will explain shortly. During the quarter, we made great progress against the HECSO Synergy Plan, which we had previously increased to between $30 and $35 million. As of the end of Q3, we achieved $27.5 million in savings on an annualized run rate basis, of which $15.6 represented actual cost savings during the period. Operating cash flow was negative $15.4 million compared to negative $18.6 million in the prior year quarter.
None: For Q2, we are reporting an adjusted net income.
None: $900000, which when calculated on a per share basis, resulting in EPS of zero for the quarter.
None: Adjusted EBITDA was $10 2 million.
None: Down from $13 3 million in the prior year quarter.
None: This is mainly a consequence of the negative impact of the candidates gross margin related to wholesale revenue.
None: The termination of the <unk> Advisory services contract on our acquisition of XO in June and the co manufacturing agreements with the new craft brands as I will explain shortly.
None: During the quarter, we made great progress against the <unk> synergy plan, which we had previously increased to between 30% and $35 million.
None: As of the end of Q3, we achieved $27 5 million in savings on an annualized run rate basis of which $15 six represented actual cost savings during the period.
None: Operating cash flow was negative $15 4 million compared to negative $18 6 million in the prior year quarter. This improvement in cash used during Q3. This year was primarily related to achieve synergies of previously identified cost savings plans.
Carl A. Merton: This improvement in cash used during Q3 this year was primarily related to the achieved synergies of previously identified cost savings plans. Turning now to our four big business segments. Beverage alcohol revenue was $54.7 million, up 165% from $20.6 million in the prior year quarter. The positive delta was due to contributions from the craft brands, which were purchased last fall. However, we note that the impact of dry January was far more of a headwind than it had been for the industry in previous years. Beverage alcohol gross profit increased to $18.9 million compared to $10 million, while beverage alcohol gross margin decreased to 34% from 48% in the prior year quarter. The adjusted gross margin fell to 38% from 53%.
None: Turning now to our four business segments.
None: Alcohol revenue was $54 7 million up 165% from $20 6 million in the prior year quarter.
None: Positive Delta was due to contributions from the craft brands, which were purchased last fall. However, we note that the impact of dry January was far more of a headwind than it was for the industry in previous years.
None: Beverage alcohol gross profit increased to $18 9 million compared to $10 million, while beverage alcohol gross margin decreased to 34% from 48% in the prior year quarter.
None: Adjusted gross margin fell to 38% from 53%.
Carl A. Merton: Both of these outcomes were a result of the Kraft grants, which currently have lower margins than our historical business. This is primarily due to the co-manufacturing agreements for Bruin. For greater context, adjusted gross margin for our legacy beverage business was 59%, compared to the prior year quarter of 53%, primarily as a result of an agreement with a distributor related to our spirits business. Adjusted gross margin from the Kraft Brands was
None: Both of these outcomes are a result of the craft brands, which currently have lower margins than our historical business. This is primarily due to the co manufacturing agreements for brewing.
None: For greater context, adjusted gross margin for our legacy beverage business was 59% compared to the prior year quarter of 53%.
None: Primarily as a result of an agreement with the distributor related to our spirits business.
Adjusted gross margin from the Kraft brands was 26%.
Carl A. Merton: The improvement of gross margins in the beverage alcohol business, primarily in the beer portion of the business, represents a major focus for the organization. Gross cannabis revenue of $85.2 million was comprised of $62.1 million in Canadian Adult Use Revenue, $14 million in International Cannabis Revenue, $6.4 million in Canadian Medical Cannabis Revenue, and $2.8 million in Wholesale Cannabis Revenue. Net cannabis revenue, which excludes the aforementioned $21.8 million in excise taxes, was $63.4 million, representing a 33% increase from the year-ago period. The positive variance is related to increased organic growth of over 14%, combined with contributions from the acquisitions of HEXO and TRUST. Offsetting the increase in net cannabis revenue was the elimination of advisory services revenue totaling $8.7 million from the prior year quarter due to the HECSO acquisition, which terminated the previous strategic arrangement that was in place.
None: The improvement of gross margins in the beverage alcohol business, primarily in the beer portion of the business represents a major focus for the organization.
None: Gross cannabis revenue of $85 2 million was comprised of $62 1 million in Canadian adult use revenue $14 million in international cannabis revenue.
$6 4 million in Canadian medical cannabis revenue and $2 8 million and wholesale cannabis revenue.
None: Net cabinet this revenue, which excludes the aforementioned $21 $8 million in excise taxes was $63 $4 million.
None: Representing a 33% increase from the year ago period.
None: The positive variance is related to the increased organic growth of over 14% combined with contributions from the acquisitions of <unk> and trust.
None: Offsetting the increase in net cannabis revenue was the elimination of advisory services revenue totaling $8 7 million from the prior year quarter due to the <unk> acquisition, which terminated the previous strategic arrangement that was in place.
Carl A. Merton: While revenue from Canadian medical cannabis grew only slightly, as the category is being impacted by competition from the adult use market and its related price compression, revenue from Canadian adult use rose 37%, which was driven by new product innovation and increased revenue from HECSO and Trust. International cannabis grew 44%, largely because of growth in our existing markets and the expansion into emerging international medical markets. Wholesale cannabis revenue increased to $2.8 million from essentially zero last year, as these sales are opportunistic and variable. We entered into this wholesale agreement to optimize our inventory levels and prioritize the generation of positive operating cash flow, but it unfavorably impacted our gross profit and EBITDA. Cannabis gross profit was $20.9 million, and cannabis gross margin was 33% compared to negative $32.8 million and negative 69% in the prior year quarter, excluding the impact of the non-cash fair value purchase price accounting step-up and inventory valuation adjustments. The adjusted gross margin decreased to 33% from 47%.
None: While revenue from Canadian Medical cannabis grew only slightly as a category is being impacted by competition from the adult use market and its related price compression.
None: Revenue from Canadian adult use rose, 37%, which was driven by new product innovation and increased revenue from Hexcel and trust.
None: International cannabis grew 44% largely because of growth in our existing markets and the expansion into emerging international medical markets.
None: Wholesale cannabis revenue increased to $2 8 million from essentially zero last year. As these sales are opportunistic and variable we entered into this wholesale agreement to optimize our inventory levels and prioritize the generation of positive operating cash flow, However, unfavorably impacted our gross profit and EBITDA.
None: <unk> gross profit was $29 million in cannabis gross margin was 33% compared to negative $32 8 million and negative 69% in the prior year quarter.
None: Excluding the impact of the noncash fair value purchase price accounting step up in inventory valuation adjustments.
None: Adjusted gross margin decreased to 33% from 47%.
Carl A. Merton: As I said earlier, a portion of the margin decrease is a result of the termination of the HECSA Advisory Services Agreement, which contributed zero gross profit in the current year, compared to $8.7 million in the prior year, which, if excluded, would decrease adjusted gross margin to 35%, essentially meaning that our cannabis gross margin was largely flat year over year. Distribution revenue derived predominantly through Tilray Pharma decreased 13% to $56.8 million from $65.4 million in the prior year quarter. Revenue was negatively impacted by infrastructure outages and weather, which impacted revenue by just over $3 million, and short-term challenges related to new rebate regulations. Tillray Pharma's gross profit decreased to $5.6 million compared to $7.5 million in the prior year period.
None: As I said earlier a portion of the margin decrease is a result of the termination of the <unk> Advisory services agreement, which contributed zero gross profit in the current year compared to $8 7 million in the prior year, which if excluded would decrease adjusted gross margin to 35%.
None: Essentially meaning that our cannabis gross margin was largely flat year over year.
None: Distribution revenue derived predominantly through till Ray farmer.
None: Increased 13% to $56 8 million from $65 4 million in the prior year quarter.
Revenue was negatively impacted by infrastructure outages and weather, which impacted revenue by just over $3 million.
And short term challenges related to new rebate regulations.
Sorry, pharma gross profit decreased to $5 6 million compared to $7 5 million in the prior year period.
Carl A. Merton: Tilray Pharma's gross margin decreased to 10% from 11% in the prior year quarter because of the product. Wellness revenue grew to 12% at $13.4 million from $12 million in the prior year quarter. The increase was driven by our strategic focus on targeted advertising campaigns, aligned with emerging trends in healthier lifestyles, particularly around the new year, coupled with our continuous innovation efforts. Wellness gross profit was $4.1 million, up from $3.7 million in the prior year quarter, and gross margin held at 30% compared to 31% in the prior year period, as we experienced a change in sales mix towards more bulk retail sales. Our cash and marketable securities balance as of February 29th was $225.9 million, down from $408.3 million in the year-ago period.
None: So we're a pharma gross margin decreased to 10% from 11% in the prior year quarter because of product mix.
None: Wellness revenue grew to 12% at $13 $4 million from $12 million in the prior year quarter.
None: The increase was driven by our strategic focus on targeted advertising campaigns aligned with emerging trends and healthier lifestyles, particularly around the new year, coupled with our continuous innovation efforts.
None: Wellness gross profit was $4 1 million up from $3 7 million in the prior year quarter.
None: And gross margin held up 30% compared to 31%.
None: In the prior year period, as we experienced a change in sales mix towards more bulk retail sales.
None: Our cash and marketable securities balance as of February 29 was $225 9 million.
None: Down from $408 3 million in the year ago period.
Carl A. Merton: The majority of the variance was related to the payment on maturity of the Tilray 23s, the cash acquisition of the new Kraft brands, and settling assumed liabilities from HECSO, including unpaid excise tax, as well as legacy litigation settlements. Having now completed three quarters of our fiscal year, it is clear that our prior fiscal 2024 guidance of adjusted EBITDA between $68 million and $78 million is no longer feasible. We have therefore lowered our adjusted EBITDA range to be between $60 and $63 million, which takes into consideration our performance through the three quarters.
None: The majority of the variance was related to the payment on maturity of the Tory 20 threes.
None: Our cash acquisition of the new craft brands and settling assumed liabilities from XO, including unpaid excise tax as well as legacy litigation settlements.
None: Having now completed three quarters of our fiscal year. It is clear that our prior fiscal 2024 guidance of adjusted EBITDA between 68% and $78 million is no longer feasible.
None: We have therefore lowered our adjusted EBITDA range to be between 60% and $63 million, which takes into consideration our performance through the three quarters.
Carl A. Merton: Over $12 million a year to date in price compression in the cannabis business and continued expectations for the fourth quarter. Still, the fourth quarter represents a major increase from the current quarter, which is traditionally our lowest quarter due to the seasonality within our cycle. The fourth quarter seasonality improvement is a function of our beer business leading up to the summer, a historically busy season. New innovations scheduled to be launched as part of the spring reset, new innovation in our cannabis business along with expected wholesale sales, and in our distribution business as pharmacies buy in bulk for their customers ahead of them going on summer vacation. Recall that we also projected positive adjusted free cash flow from operations for the entire fiscal year, excluding our integration costs for HECSO, trust, the new craft brands, and the cash income taxes associated with a free diamond. Due to the timing of collecting the cash on the various asset sales mentioned, we now do not expect to achieve this prior adjusted free cash flow guide.
None: Over $12 million year to date and price compression and the canvas business and continued expectations for the fourth quarter.
Bill: Bill the fourth quarter represents a major increase from the current quarter, which is traditionally our lowest quarter due to the seasonality within our segments.
Bill: The fourth quarter seasonality improvement is a function of our beer business, leading up to the summer Ah historically busy season, new innovation scheduled to be launched as part of the spring reset.
Bill: New innovation in our cannabis business, along with expected wholesale sales and in our distribution business as pharmacies buying bulk for their customers ahead of them going on summer vacation.
Bill: Recall that we also projected positive adjusted free cash flow from operations for the entire fiscal year, excluding our integration costs for Hexcel Trust.
Bill: New craft brands and the cash income taxes associated with the free of Diamond.
Bill: Due to the timing of collecting the cash on the various asset sales mentioned, we now do not expect to achieve this prior adjusted free cash flow guidance.
Carl A. Merton: While we were adjusted free cash flow positive in the current quarter, our current expectations are for a very strong fourth quarter of adjusted positive free cash flow. Of course, we will continue managing CapEx as part of our efforts to strengthen our industry-leading balance sheet. Let me now conclude our prepared remarks and open the lines for questions from our covering analysts. Operator, what's the first question?
Bill: While we were adjusted free cash flow positive in the current quarter. Our current expectations are for a very strong fourth quarter of adjusted positive free cash flow.
Bill: Of course, we will continue managing capex as part of our efforts to strengthen our industry leading balance sheet.
None: Let me now conclude our prepared remarks and open the lines for questions from our covering analysts operator, what's the first question.
Operator: Thank you. Just as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue... You may press star 2 if you'd like to remove your question from the queue.
Operator: Thank you just as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
None: Information tone will indicate your line is in the question queue.
None: 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. Our first question comes from the line of Andrew Carter with Stifel. Please proceed with your question.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 2. Our first question comes from the line of Andrew Carter with Stiefel. Please proceed with your question. Hey, thank you. Good morning.
Andrew Carter: Hey, Thank you good morning wanted to ask about the German changes I mean, obviously its going to likely manifest in a big uptick in patients with doctors now having.
Andrew Carter: I wanted to ask about the German changes. I mean, obviously, it's going to likely manifest in a big uptick in patients with doctors now having more freedom to prescribe cannabis. But kind of thinking through this competitively, how do you see this as your position unique in being able to attack this market? I know that for the past five years, we've seen a lot of decks with Germany circled and the capacity to hit that market. Is that capacity still out there? How expensive is it to maintain this?
Andrew Carter: More freedom.
Andrew Carter: To prescribe to prescribe cannabis, but kind of thinking through this competitively how do you how do you see this as your position unique in being able to attack this market I know that.
Andrew Carter: For the past five years, we've seen a lot of decks with German German Germany circles and capacity to hit that market is that capacity is still out there how expensive. It is to maintain this and can you give US a reminder of kind of the stringent quality standards you have to have in place to serve the German market.
Irwin David Simon: And can you give us a reminder of the kind of stringent quality standards you have to have in place to serve the German market? Thanks. Andrew, thank you and a great question. Number one, listen. We see the opportunities in Germany in multiple ways. We have a facility in Germany today, and that facility before would only serve as a tender to the German government. Now that tender process will go away, and we'll be able to sell the product in the marketplace. So that's number one. Number two is that before, only a certain amount of doctors were able to prescribe cannabis, and it was a very small amount for specialty reasons, and now every doctor, because it's no longer a narcotic, will be able to prescribe cannabis. Number three, you know; we also have a facility in Portugal that will be able to supply Germany. Number four is we have something called Tilray Pharma, CC Pharma, which is a distribution company that distributes cannabis and other medicines to over 13,000 drugstores. We have a team based in Germany.
Andrew Thank you and great question.
None: Number one we see the opportunities in Germany in multiple ways.
Andrew Carter: We have a facility in Germany today, and that Germany before only with service attendant to the German government.
Andrew Carter: Now the debt tender world process will go away.
Andrew Carter: We'll be able to sell product into the marketplace. So that's number one number two is before o'neill certain amount of doctors are able to prescribe cannabis.
Andrew Carter: And this is a very small amount from specialty reasons.
Andrew Carter: And now every doctor because it's no longer in our colleague will be able to describe Kansas.
Andrew Carter: Number three we also have a facility in.
Andrew Carter: Portugal.
Andrew Carter: Which will be able to supply Germany from before we have something called Solvay pharma Cc pharma, which has a distribution company that distributes cannabis in other medicines to over 13000 drug stores.
Andrew Carter: We had a team based in Germany, we have a sales team based in Germany.
Denise Menikheim Faltischek: We have a sales team based in Germany. We have R&D, and we have quality assurance, so we've been there for four or five years. And we've had some tough four or five years because of what's happening. The other big thing here is, you know, Europe is a big country, and, you know, with it no longer being a narcotic and decriminalized, we see lots of other places, you know, countries opening up. I have Denise Faltischek here, who's head of Europe. Denise, is there anything I missed here or anything that, you know, you should add? Yeah, no, Erwin, you did not miss anything.
Andrew Carter: R&D with quality insurance, so we've been there for four or five years, and we've had some tough four or five years because of what's happening the other big thing here is.
Andrew Carter: Europe.
Andrew Carter: The country.
Andrew Carter: No longer being on narcotic gain decriminalized, we see lots of other places.
Our country is opening up a Denise falter check here inside of Europe to these loading on next year.
None: You should all know Irwin you did not miss anything just to add a little bit more in terms of the facts are in terms of that abolishment of the tender that Irwin spoke about.
Irwin David Simon: Just to add a little bit more in terms of facts, so in terms of that abolishment of the tender that Erwin spoke about and the fact that, under the new regulations, we'll be able to apply for a license with our facility in Nuremberg. So today, just to refresh everyone's memory, we are subject to a tender contract. We are capped at about 1,000 kilograms that we can grow every year, and that is done pursuant to certain prices.
None: And the fact that I'm Derrick.
None: Under the new regulation will be able to apply for a license with our facility in New Orleans testing today just to refresh.
None: Everyone's memory, we are subject to a tender contract.
None: <unk> capped alibaba Arvind kilogram that we can grow every year and that income Kristina to certain pricing.
Denise Menikheim Faltischek: So with the abolishment of the tender process, we now open up to a licensing process where we are now subject to just market conditions as relates to patient demand. And so we can utilize that facility to meet that demand, which would allow us to increase our capacities. We have the ability today to grow up to about 5,000 to 6,000 kilograms without any additional capex, and we can basically then also have pricing that is subject to market demand today.
None: With the abolishment of the tender we now open up until licensing process, where we are now subject to market conditions as it relates to patients and warm until we can utilize that facility to meet that demand, which will allow us to increase our capacity we have the ability to grow.
None: Grow up to about five to 6000 kilogram.
None: Without any additional capex.
None: And we can basically then also.
None: We have pricing that is subject to market demand does that that isn't immediate.
Denise Menikheim Faltischek: So that is an immediate benefit there. In terms of the ability to prescribe, we are amping up our ability to be in front of doctors and working on symposiums and educational platforms. One of the things we've done on the prescription platform software, if a doctor wants to prescribe medical cannabis, they go to that page, and there's a Tilray banner at the bottom, which shows all of our portfolio of products, what the conditions are, and how to prescribe.
None: Sure.
Terms of the ability to prescribe we are amping up our building.
None: The Doctor.
None: And working on conclusions and educational platform.
None: <unk>.
One of the things we've done on the prescription platform software if a doctor wants to prescribe medical accountable.
None: They go to that page <unk> ray ban or at the bottom, which shows all of our portfolio of products, but the conditions are how to prescribe we are out there also providing.
Irwin David Simon: So we are out there also providing basically information for doctors who are willing to prescribe and want to prescribe. I think the big thing, Xavier, we do have a brand, a Tilray brand, but the whole thing of socialized medicine and prescriptions and paying for it, we see lots of changes happening. So we have been working in the German market with regard to products for pain, for anxiety, for sleep, for cancer, for epilepsy. So we've been all over that and take our expertise of what we do at Medical Cannabis in Canada and translate it there. And secondly, like I said, there is a market out there that will be looking for medical cannabis but ultimately using it for recreational cannabis. So from a standpoint, we really are excited about what's happening in Germany. It does not affect us in regards to the social measures that have come into place there.
None: Basically information for toxicity.
Scott and warrants with the size and I think the big thing in January we do have a brand and <unk> brand.
None: The whole thing is socialized medicine in prescription and paying for it we see lots of changes happening so.
None: We have been working in the German market with regards to <unk>.
Products for pain for anxiety sleep for cancer for epilepsy.
None: So we've been all over that and take our expertise of what we do at Nathan candidates.
None: Canada translated there.
None: And secondly, like I said, there is a market out there, but we'll be looking for medical cannabis, but ultimately using it for recreational cannabis so.
None: From our standpoint, we really are excited about what's happening in Germany.
None: It does not affect us in regards to the social measures that would come in place there.
Irwin David Simon: And, you know, we have the team, we have the growth, we have the infrastructure, the research and development ready to go here and, you know, right now. Thanks. I'll pass it on.
And.
None: We had the team we have to grow.
None: We have the infrastructure the research and development ready to go here.
None: Effective now.
None: Thanks ill pass it on.
Nadine Sarwat: Thank you. Thank you. Our next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question. Hi, thank you. Two for me, please.
None: Thank you.
None: Thank you. Our next question comes from the line of Nathan <unk> with Bernstein. Please proceed with your question.
Nathan: Hi, Thank you two for me please first.
Irwin David Simon: First, on the guidance, I appreciate the added color that you gave. Could you be a little bit more specific about perhaps what exactly has changed versus last quarter and this quarter? What sort of surprise on the downside, and how do you see that progressing over the quarters to come? And then my second question: I know you guys called out your number one position in Canadian cannabis. So looking at the market share numbers you guys quote in the press release, I think that's on a downward trend for the last couple of quarters. So could you break down what's driving that? And if you think you can regain it over the quarters to come?
Nathan: The guidance I appreciate the added color that you gave could you be a little bit more specific and perhaps what exactly has changed versus last quarter and this quarter, what sort of surprise to the downside how do you see that progressing over the quarters to come and then my second question I know you guys called out your number one position in Canadian cannabis.
Nathan: Looking at market share numbers, you guys quote in the press release that King platform on the downward trend over the last couple of quarters. So could you break down what's driving that.
Nathan: Do you think you can regain that over the quarters to come and if so how do you anticipate doing that thank you.
Irwin David Simon: And if so, how do you anticipate doing that? Thank you. So I'm going to take start part of it. Number one, not all quarters are equal. This third quarter being one of our lowest quarters in regards to that alcohol and our cannabis business, our fourth quarters, and our first and second quarters. So that's, you know, as you look at our quarters, and absolutely, there's seasonality within all these businesses. Secondly, we did lose some market share in Canada.
None: So I'm going to take to start part of it.
None: Number one not all quarters repo this third quarter being one of our lowest quarters in regards to serve alcohol and our Canada business, our fourth quarters in the first quarter second quarter. So.
None: <unk>.
None: As you look at our quarters.
None: Lead their seasonality moving all of these businesses secondly, we did lose some share in Canada. Some of it was again coming back to price compression and some of it was coming back to some of the prices in regards to our flower.
Irwin David Simon: Some of it was, again, coming back to price compression, and some of it was coming back to some of the prices in regards to our flour. The other thing that happened was we had a lot of innovation that was coming into the marketplace that we didn't get into the market in our third quarter, which we expect to get back in our fourth quarter. I think what's important here. Again, there's been lots of price compression in Canada in regards to, we talked about our percentage in excise tax, and the market is changing dramatically there in regards to potencies and being infused pre-rolls, etc. So some of it is just timing, and do I expect to get it back? Blair, you're on the line.
None: The other thing what happened is we have a lot of innovation, that's coming into the marketplace, but we didn't get into the market.
None: In our third quarter, which we expect to get back in our fourth quarter I think what's important here.
None: Again, there has been lots of price compression in Canada.
None: In regards to we talked about our percentage in excise tax and.
None: And the market is changing dramatically there in regards to potencies.
None: And being infused pre rolls et cetera. So some of it is just timing and do I expect to get it back.
None: Larry you are on the line do you expect to get your share back.
Blair MacNeil: Do you expect to get your share back? Yeah, thanks, Irwin, and thanks, Nadine, for the call. Just to add a little bit more color to what Irwin was talking about, Q2 and Q3 were our most operationally complex periods. So, in addition to what Irwin talked about, what we also saw is when you are moving the location of SKUs and where they're going to be distributed from, and one of the things we've done is centralize all our packaging and logistics out of Leamington. That requires us to draw down inventories So, what you're seeing in some of the numbers is, in addition to the price compression Irwin talked about and the innovation side, just a reflection of the operational complexity we implemented in Q2.
Larry: Yes, thanks, everyone and thanks for the call just to add a little bit more color to what everyone was talking about Q2, and Q3, where our most operational complex.
Larry: So in addition to what Irwin talked about what we also saw is when you are moving the location of Skus, and where theyre going to be distributed from and one of the things. We've done is centralized all our packaging and logistics of the Bloomington.
Larry: That requires us to draw down inventories in each of the board and then rebuild that inventory once we've changed the source location. So what youre seeing in some of the numbers is in addition to the price compression Irwin talked about in the innovation side is just a reflection of the operational complexity.
Larry: We implemented in Q2 and Q3.
Blair MacNeil: Once that is completed, and it was all completed inside of Q3, that will generate very strong operational efficiencies for us moving forward, as everything outside of beverages will be shipped out of Q3. So, just a couple of things to add to the explanation as well. Our beverage alcohol business, and I think the entire industry, was hit a little bit harder than it has in the past in terms of dry January, so that took away a bit of a portion of our sales expectation for the year.
Larry: One that is completed and that was all completed inside of Q3 that will generate very strong operational efficiencies for us moving forward as everything outside of beverages will be shipped out of one location.
Larry: Carl.
None: I'll add a couple of things too.
Carl: Excellent instruments as well.
Carl: In our beverage alcohol business and I think in the entire industry.
Carl: What's it a little bit harder than it has in the past in terms of in terms of dry January.
Carl: My takeaway.
Carl: A bit of a portion of our sales expectation for the for the year.
Carl A. Merton: As I said in the script, we expect to be able to bring those up much closer to the historical margins that we've achieved, but it's going to take a few quarters, and so it is coming. It's really a function of the co-manufacturing agreements that we have and getting that production moved into our facilities and organized in an effective manner while not experiencing operational problems during that move. And in terms of the free cash flow guidance, we had some expectations for cash receipts on some of the bigger things, including some of the make whole provisions inside of the spirits business, which we now see coming in in June or July, as opposed to in May. And that's really what's led to that page.
Carl: The beverage alcohol business with the new acquisition.
Carl: Of the new brands those brands are at a lower gross margin.
Carl: And then the rest of our business, we're working very hard.
Carl: To bring those those pieces up and we will get back up over time as I said in the script.
Carl: We expect to be able to bring those up much closer to the historical margins that we've achieved but it's going to take it's going to take a few quarters and so it's coming and it's really a function of the co manufacturing agreements that we have.
And getting that production move them into our facilities and organize them in.
Carl: In an effective manner, Wal Mart quality operational problems dream during that move.
Carl: And in terms of the free cash flow guidance.
Carl: We had some expectations on cash receipts on some of some of the bigger things, including on some of the make whole provisions inside of the spirits business, which we now see coming in in June or July as opposed to EMEA and that's really what's led to that page I think the big thing here is just timing and thats.
Irwin David Simon: I think the big thing here is just timing and that, you know, I can't always predict things. And, you know, with our beer businesses, you know, the ABI businesses bought lower margins, but just from an integration standpoint, we had a transfer service agreement with ABI, we're moving away from that at the end of May, moving into our facilities, you know, we expect to get our margins up into the high 30s, low 40s. Today, with our Sweetwater and our legacy businesses, we're running margins at that rate. So, you know, with that in mind, we look to those margins. In regards to, you know, the Canadian cannabis businesses, as Blair said, integrating HEXO with SKU rationalization and looking at some of the strains and looking at some of the potencies and timing. And when you're dealing with agricultural products, not everything moves accordingly here.
Carl: I can't always predict things.
Carl: And with our beer businesses.
The Abi businesses, but lower margin, but just from an integration standpoint, we had a transfer service agreement with Abi were moving away from that at the end of May move it into our facilities, we expect to get our margins up into the high <unk> low $40 today, what our Sweetwater in our legacy businesses were running margins at that.
None: Right. So with that we look we look to those margins in regards to the Canadian cannabis businesses.
None: <unk> integrating <unk> with SKU rationalization with some of the strains and looking at some of the potencies and timing and when youre dealing with agriculture products not everything.
None: News Accordingly here, we've made some moves in regards to our <unk>.
Irwin David Simon: You know, we've made some moves in regards to, you know, our Cayuga, Maison, Belleville, and consolidating our businesses there, taking out costs. So, again, as we look at guidance, yes, there's guidance out there, but a lot of it is just timing. And as we move forward, you know, we have four quarters, not six quarters. If it was six quarters, it would be different.
None: In regards to my son in regards to Belleville and consolidating our businesses, they're taking out cost. So again as we look at guidance, yes, theres guidance out there, but a lot of it is just timing and.
None: As we move forward, we have four quarters six quarters six quarters that would be different.
Aaron Thomas Grey: Understood. Thank you. Thank you. Thank you. Our next question comes from Aaron Grey with Alliance Global Partners. Hi, good morning. Thank you for the questions. This is Remington Smith on behalf of Aaron Grey.
None: Understood. Thank you.
None: Thank you.
None: Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.
Aaron Thomas Grey: Hi, good morning, and thank you for the questions.
Aaron Thomas Grey: Remington Smith on for Aaron Greg My first question is.
Irwin David Simon: My first question is, in terms of the CRA having the province's garnished wages, have you started to see any changes in purchase habits from provinces or the overall competitive environment yet? And then with a kind of greater focus on those LPs paying their taxes? I don't think we've necessarily seen changes in purchasing patterns. I think we saw very quickly after CRA started garnishing those wages that a couple of LPs filed for protection within the same week, and then I think there's been a few more that have filed since that period of time.
Remington Smith: In terms of the CRA, having the provinces garnish wages, you're starting to see any changes in purchase habits from provinces in the overall competitive environment yet.
Remington Smith: Then kind of a greater focus on those Lps paying their taxes.
None: Thank you.
None: Don't think we've necessarily seen changes in purchasing patterns I think we saw very quickly after TRA started garnishing those wages a couple.
None: <unk> filed for protection.
None: Within the same week, and then I think theres been a few more that have filed since that period of time and so.
Irwin David Simon: But there are a lot of boards out there that have been asked by this area to garnish excise tax when they sell into it. And I think the big thing for us is we're finally seeing, you know, the Canadian government taking this seriously. And those that, you know, weren't paying excise tax could keep going and, you know, putting the rest of us at a disadvantage.
None: Some of them, who is excessively behind on their excise tax.
None: And having their payments garners theyre looking at four five maybe six months of time before they're going to get there next payments. They just don't have a lot of choices.
None: And so they're having to file for that protection.
None: <unk>.
None: I don't think the.
The boards are actually changing those patterns, yet I think that will probably happen over the next three or four months is more of an <unk> realized and get caught up in the garnishment.
None: But theres a lot of the boards out there that's been asked by the survey to garnish excise tax when they sell into it and I think the big thing for US is we're finally seeing the Canadian government Kagan will series.
Irwin David Simon: So I think we're going to continuously see changes. And, you know, we've talked about the study that's come out there in regards to changes in regards to excise tax and marketing, you know, medical cannabis, etc. I think there are some major things here that could really benefit the Canadian cannabis industry. Great. Thank you. I appreciate the color there.
None: And those that werent paying upside stops could keep going.
None: Putting the restaurants at a disadvantage. So I think we're going to continuously see changes and we've talked about the study that's come out there in regards to changes in regards to excise tax in marketing.
None: Medical cannabis et cetera, I think theres some major theme here that could really benefit the Canadian cannabis industry.
None: Great. Thank you I appreciate the color there and then my second question.
Irwin David Simon: And then my second question. Oh, go ahead. You'll go ahead?
None: Ed.
None: No go ahead.
Irwin David Simon: All right. My second question is just in regards to the excise change and excise tax changes that you mentioned that could potentially occur in the budget to be released next week. You mentioned tax savings potentially of $80 million for Tilray, so I guess with those savings, do you expect them to mostly be realized by the LPs, or could there be, you know, some benefit realized from the provinces and the retailers as well? If any color that would be helpful? You know, good question.
None: My second question just regards the excise change excise tax changes that you mentioned.
None: And that could potentially occur in the budget release next week.
None: You mentioned tax savings potentially of $80 million for <unk>.
None: So I guess with those savings do you expect it to mostly.
None: Be realized by the Lps or could there be some benefit realized in the province, and the retail as well any color on that would be helpful. Good. Good question I think as we know provinces and we know government.
Irwin David Simon: I think as we know provinces and governments, I'm sure they're going to try and grab some of that. But I think, listen, as we've said, and we've openly said it's about $80 million, you know, to Tilray. And the big thing is, you've got price compression, and you still have the same amount of excise tax that you're paying. And, you know, I think in this quarter 32, 33% of our sales were going to excise tax. So something has to be done. I don't mind if some of it goes back to the governments for education and promoting safety, bringing awareness, marketing, and allowing us to do these things. So, again, if we got half of it, $40 million, back in the business, I think it'd be tremendously beneficial, you know, to Tilray and other LPs.
None: I am sure they are going to try and grab some of that.
None: But I think listen as we've said and we both we said it's about $80 million.
None: Two two rate and the Big thing is you guys price compression and you still have the same amount of excise tax that you pay.
None: <unk>.
None: I think in this quarter was 32% to 33% of our sales was built to excise tax.
None: Something has to be done I don't mind is some of it goes back to the government education and promoting the safety, bringing awareness marketing and allow us to do these days. So again, if we got half of that $40 million back invest back in the business I think it would be tremendous.
None: To delay another Lps.
Irwin David Simon: Yeah, and I think the key to this piece is that if the government's making the change to strengthen the industry because the tax became, in a way, oppressive, they need to avoid creating new things that pull that money back, and they need to allow it to go to the industry to help the industry continue to grow. Great, thank you for that.
None: Yeah, and I think the key the key pieces that if the government is making the change to strengthen the industry because of the tax became in a way of PRASM.
None: They need to avoid creating new thing that that pull that money back.
None: And they need to allow us to go to the industry to help the industry continue to grow.
None: And strengthened.
Great. Thank you can answer.
William Joseph Kirk: Thank you. Our next question comes from the line of Bill Kirk with Roth MKM. Please proceed with your question. Thank you for taking the questions.
None: Thank you. Our next question comes from the line of Bill Kirk with Roth. Please proceed with your question.
William Joseph Kirk: Thank you for taking the questions maybe I missed it in the prepared remarks.
Carl A. Merton: Maybe I missed it in the prepared remarks, but what is the $29 million in assets that have been moved to held for sale? I imagine some of it might be the facilities that you mentioned earlier, but what specifically is in that number, and how is it? So that number is the Cayuga facility, it's Masson, and it's the Bellville facility that we acquired as part of Trust. And so in each case, it's a facility; it isn't the business; the business is being reorganized within our existing footprints. And then we're releasing or selling what becomes redundant assets at that point in time. Okay, and then in the third quarter, compared to two, of selling marketing expenses up a little bit. Can we lose you, Bill? I'm sorry, but it seems that his line may have... technical difficulties.
William Joseph Kirk: One is the.
The $29 million in assets that have been moved to held for sale I imagine some of it might be.
<unk> that you mentioned earlier, but what specifically is in that that number and how is that determined.
None: So that number is.
Eagle facility Meson ended the Belleville facility that we acquired as part of Trust.
None: So in each case at that facility it isn't the business the business has been reorganized within our existing footprints.
And then where we're releasing or selling.
None: <unk> become funded assets at that point in time.
None: Okay got it that's what I was looking for are not not the businesses, Okay and then.
None: In the third quarter compared to two Q.
None: Selling and marketing expenses up a little bit.
None: Okay.
None: In the release you Bill.
None: Okay.
None: Im sorry, it seems that his line may have.
None: Nicole difficulty.
Michael Scott Lavery: Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question. Thank you. Good morning.
None: Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your questions.
Thank you good morning.
Irwin David Simon: I just wanted to touch on the U.S., and I understand at the moment it's strictly speaking a little bit hypothetical still, but if rescheduling occurs, you laid out at a high level how you're thinking about it, a more pharmaceutical approach. I guess a couple questions are just maybe what your patient's level is if it does come to that, because the FDA certainly isn't known for its speed, and so, you know, is your understanding just, you know, that obviously, if that door opens, it could still take quite some time? Or how are you thinking about that? And in the release as well, you reminded us about the connection to MedMen, and how that could fit into that, potentially? Is that something that would still stay separate or could potentially become sort of like pharmacies?
Michael Scott Lavery: Just wanted to touch on the U S.
Michael Scott Lavery: We stand at the moment.
Michael Scott Lavery: Strictly speaking a little bit hypothetical still but it's rescheduling occurs.
Michael Scott Lavery: Laid out.
Michael Scott Lavery: At a high level, how you are thinking about it.
Michael Scott Lavery: On a more pharmaceutical approach I guess a couple of questions.
Michael Scott Lavery: Maybe what's your patience level, if it does come to that just because the FDA certainly has.
Michael Scott Lavery: Loan not for its speed and so.
Michael Scott Lavery: Is your understanding that.
Michael Scott Lavery: That obviously.
Michael Scott Lavery: Door opens it could still take quite some time or how you're thinking about that.
Michael Scott Lavery: In the release as well.
Michael Scott Lavery: Minded us about.
Michael Scott Lavery: Connection to Mad men, and how would that fit into that potentially is that something that would still.
Michael Scott Lavery: Separate or could potentially become sort of like pharmacies I guess, just maybe lay out some of how youre thinking about potential U S opportunities should regulatory change come through.
Irwin David Simon: I guess just maybe lay out some of how you're thinking about potential U.S. opportunities should regulatory change come through. So as you know, as I said, within the US, if medical cannabis is rescheduled and medical cannabis becomes legal, we being, you know, a large medical cannabis producer in Canada and Europe and have the expertise and have the research, not knowing what the FDA and not knowing in regards to, you know, what the guidelines will be, Tilray is ready to capitalize on all our expertise. Is there a possibility, with NAFTA or other rules, that we can, you know, export cannabis from Canada that's GMP certified? Today, you can export, you know, cannabis from Canada to other parts of the world if it's GMP certified. So, I'm not sure why that wouldn't be the case in the U.S. My personal belief is it's rescheduled from a medical cannabis standpoint, and they leave it up to each of the states on a recreational standpoint.
Michael Scott Lavery: So as you know as I said within the U S medical cannabis is rescheduled.
Michael Scott Lavery: In medical cannabis becomes legal.
Michael Scott Lavery: We began a large medical cannabis producer in Canada, and Europe and have the expertise and have the research not knowing what the FDA and not knowing in regards to what the guidelines will be.
Michael Scott Lavery: <unk> is ready to capitalize on all of our expertise.
Michael Scott Lavery: Is there a possibility with NAFTA or.
Michael Scott Lavery: Other rules that we can export cannabis from Canada.
Michael Scott Lavery: GMP certified.
Michael Scott Lavery: Today, you can export.
Michael Scott Lavery: Candidates from Canada to other parts of the other countries around the world as its GMP certified so I'm not sure why that wouldn't be the case in the U S hospitals.
Michael Scott Lavery: My personal belief is it's rescheduled from the medical cannabis standpoint, when they leave it up to each of the states on a recreational standpoint.
Irwin David Simon: And, you know, that is something different. So I think the big thing is I look into a crystal ball not knowing where this is going. I think something happens from a rescheduling standpoint, and you know, Tilray is ready to move.
Michael Scott Lavery: That means something different so I think the big thing as I look into a crystal ball not knowing where this is going I think something's happened from a rescheduling standpoint.
<unk> is ready to move.
Irwin David Simon: From a medical standpoint, if there was an acquisition for us, we're ready to move. And, you know, we hold the debt of MedMed. We think the MedMed name still has a strong, strong brand name, even though it's had its challenges and it's going through, you know, some changes right now to get rid of some of those liabilities and that.
Michael Scott Lavery: From a medical standpoint, if there was an acquisition for US we're ready to move and we hold the debt of Mednet. We think the med med need still has a strong strong brand name, even though it's had its challenges and it's going through some changes right now to get rid of some of those liabilities.
Michael Scott Lavery: He is not.
Irwin David Simon: And there's an opportunity that, you know, we could execute with the MedMed name across the U.S. The other thing is, depending, and I think one of the biggest opportunities, and we're seeing, you know, some opportunities with Delta 9, which is infused drinks with hemp-infused THC. I think the biggest opportunity is in drink. And with our distribution systems, with our brands, within our beer business and spirits, Tilray could get into that. So, you know, not knowing and not knowing what's going to happen.
There is an opportunity there.
Michael Scott Lavery: We could execute with the med med name across the U S. The other thing is the pending and I think one of the biggest opportunities and we're seeing.
Michael Scott Lavery: Some opportunities with Delta nine which is an infused dreams and confused.
Michael Scott Lavery: <unk>.
Michael Scott Lavery: I think the biggest opportunity is in drinks and with our distribution systems with our brands within our beer business and spirits till ray could get into that so.
Michael Scott Lavery: Not knowing whats.
Michael Scott Lavery: What's going to happen.
Irwin David Simon: I think, as I said, Tilray is circled in the U.S., and it's not like we'd have to change our model being an MSO where we're, you know, restricted to each state. Right now, we can take our expertise from around the world. We can take our medical expertise,
Michael Scott Lavery: As I said till Ray as circles in the U S and it's not like we would have to change your model being an MSL, where we are.
Michael Scott Lavery: Restricted to each state right now we can take our expertise from around the world. We can take our medical expertise, we can take our beverage expertise and bring it to the U S. Once we know which way rescheduling happens and it goes so that's where I'm excited about is once we know.
Irwin David Simon: We can take our beverage expertise and bring it to the U.S. once we know which way rescheduling happens and how it goes. So that's what I'm excited about: once we know what the guidelines are, once we know what the opportunities are, we can easily jump in there without undoing something that we own today. Okay, thanks. And just on the beverage side, you touched on your hopes for distribution upside on a lot of the recently acquired brands, but do you have a sense how you are coming into this spring shelf reset and what sort of shelf space gains your position for that are already in? So I have, hey, Ty, you're on the call, right? Do you want to jump in there?
Michael Scott Lavery: What the guidelines are once we know what the opportunities are we could easily jump in there without doing something that we own today.
Michael Scott Lavery: Okay.
None: Okay. Thanks, and just on the beverage side you touched on.
None: Hopes for distribution upside on a lot of the especially at our recently acquired brands, but do you have a sense, how you're coming in to the spring shelf resets and.
What sort of shelf space gains youre positioned for that are already in hand.
So I have a year on the call Ray do you want to jump in there listen I got to tell you in a short period of time.
Irwin David Simon: Listen, I got to tell you, in a short period of time, a lot of these brands were just starved for innovation, starved for distribution. We have 500 distributors out there, and I always say to Ty, if each distributor could make a million dollars more, which is not a lot, that's 500 million dollars. So I think the upside on beer is tremendous. You know, as you look at pricing, you look at it in relation to the whole spirits industry. I think we're so well positioned on beer, on innovation that we're coming out with, you know, moving into water, moving into some energy drinks, moving into some other infused drinks. So we're well positioned with our distributors. We have over 100 salespeople and, you know, headquarter people in marketing. So Ty, you want to just talk about some of the stuff that's happening?
Ray: A lot of the brands, we're just starved on innovation starved on distribution, we have 500 distributors that they are now we say the diabetes distributor can do a $1 million more which is not a lot at $500 million.
Ray: So I think the upside on beer is tremendous as youll.
Ray: Look at pricing you look you look with regards to the whole spirits industry I think we're so well positioned on beer.
Ray: Aviation network coming out with moving into water moving into some energy drinks moving into some other infused drinks. So we're well positioned with our distributor distributors, we have over 100 salespeople.
None: Headquarter people between marketing so you want to just talk about some of the stuff that's happened yet yes, no. Thanks, everyone and thanks for the question Michael Yes, we.
Ty H. Gilmore: Yeah, yeah, no, thanks, Erwin, and thanks for the question, Michael. Yeah, no, we feel really solid about some of the distribution gains, not only that we've made in the third quarter, but we also feel solid about the conversations we're having with, you know, several national and regional retailers across on and off premise with our brands. You know, specifically, if I look over Q3, we've gained north of 1,200 new effective placements on our existing brands, and with the innovation, we continue to see an uptick every day with our distributor network and how they're leaning in with us and helping drive distribution. So, yeah. Chains are going to continue to play a critical role in our success, and we're well suited, as Irwin said, to leverage our partnerships with our distributors and the relationships that we have across the board. Okay, thanks so much.
None: Phil.
None: Really solid about some of the distribution gains not only that we've made.
Phil: The third quarter, but we also feel solid about the conversations we're having with several national and regional.
Retailers across on and off premise with our brands.
None: Specifically five look over Q3, and we've gained north of 1200, new effective placements on our existing brands.
None: And with the innovation that we continue to see uptick.
None: Every day with our distributor network and how they're leaning in with us and.
None: In helping drive distribution so.
None: Yes.
None: Chains.
None: Are you going to continue to play a critical role in our success and we are well suited as Irwin said to leverage our partnerships with our distributors and the relationships that we have across the U S.
None: Okay. Thanks, so much.
None: Okay.
Matt Bottomley: Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question. Good morning, everyone. This one's for Carl.
None: Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.
Matt Bottomley: Hi, Good morning, everyone. Just one for Carl I, just wanted to go back to the revised guidance here on adjusted EBITDA going into fiscal Q4 here. So I'm just wondering if you could give a little more color on the dynamic between overall revenue progression versus margin expansion. There's obviously quite still a big step up expected even in the revised guidance and then specifically within.
Carl A. Merton: I just wanted to go back to the revised guidance here on unadjusted EBITDA going into fiscal Q4. So I'm just wondering if you could give a little more color on the dynamic between, you know, overall revenue progression versus margin expansion. There's obviously quite a big step up expected, even in the revised guidance. And then specifically within that, I'm wondering how much of that is beverage-related, given that I think you had commented that you're close to about a $300 million business now in all your beverage portfolios. If you run rate this quarter, and I understand their seasonality, it's closer to $200 to $225. So I'm just wondering if there's some step-up on the revenue side, specifically in Q4 when it comes to your alcohol contract. So, thanks, Matt.
That.
Carl: Im wondering how much of that is beverage related given that I think you had commented that you are close to about a $300 million business now in all your beverage portfolios. If your run rate this quarter and I understand there's seasonality it's closer to 200 to 225. So I'm just wondering if there is some step up on the revenue side, specifically in Q4 when it comes to your alcohol contribution.
None: So thanks, Thanks, Matt there is significant.
Irwin David Simon: There was a significant increase in sales in Q4 for beer. I think we've talked a little bit already on the call in terms of the spring reset and hitting those, you know, the key summer selling season, which is really driven by our April and May sales results for the organization, particularly in beer. We've also talked a few times about challenges in the experience business with sales growth and that we were going to get resolution of that in Q4 this year. So, that's also reflected in those expectations about you guys potentially driving both revenue and margins during that time period. I think on the beer business's margin side, you are going to see an increase in margins in Q4 that'll be driven by just more volume flowing through the facilities as we ramp up production in March and April to hit those April and May sales because there's such a quick turnaround time and lack of inventory inside that segment.
None: Increase in sales in Q4 in beer.
None: We've talked a little bit already on the call in terms of the spring reset and hitting hitting those.
The key summer selling season, which is really driven in our April or may.
None: Sales results for the organization, particularly in beer. We've also we've talked a few times about.
None: The challenges in the spirits business with sales growth and we were going to get resolution of that in Q4 of this year.
None: So that's also reflected inside of <unk>.
None: Those.
None: That expectation on EBITDA base potentially driving both.
None: Revenue and.
None: And margins during that during that time period I think.
None: Beer businesses margin side, you are going to see an increase in margins in Q4 that will be driven by just more more volume flowing through the facilities as we as we ramp up production in March and April to hit those April and May sales.
None: Is there such a quick turnaround time and lack of inventory inside.
Inside that segment.
Irwin David Simon: You've also got the buildup in the cannabis business for the summer period of time and increases in things like pre-rolls and other product forms in the cannabis business that are consumed on a more of a, let's call it a shared basis, either in a shared setting or actually, consumed on its own. And so that's a part of it. And with that increase, the sale level comes, increases in margins just because of the efficiency of the production. Okay, very helpful.
You've also got the buildup on the canvas business for the summer period of time.
None: Increases in things like pre rolls and other product forms and the canvas business that are that are consumed on a more of a let's call. It a shared basis either in a shared setting you are actually.
None: Sure enough on its own.
None: And so that's that.
None: That's a part of it and with that increased sales level comes.
None: Increases in margins just because of the efficiency.
None: On the production side.
None: Okay very helpful. Thank you.
Carl A. Merton: Thank you. Thank you. Our next question comes from the line of Doug Mann with RBC Capital Markets. Please proceed with your question. Thank you and good morning.
None: Thank you. Our next question comes from the line of Doug <unk> with RBC capital markets. Please proceed with your question.
Doug: Thank you and good morning.
Doug Mann: The question just has to do with, again, the excise tax and going back to this. There's obviously an opportunity for your company, but I am curious, if these changes were to go through and you benefit somewhere between $40 million and $80 million, the way you expected, what's your thinking about the other companies? Because we're starting to lose some of the smaller companies, but is this going to provide the smaller companies with another year or two of life? And... I'd say the other thing that I'm curious about as it relates to this is whether this could result in another leg.
Question, just has to do with again, the excise tax and going back to this there's obviously an opportunity for your company.
Doug: But I am curious if these changes were to go through.
Doug: You benefit somewhere between 40 and $80 million the way you expected.
Doug: What do you what's your thinking on the other companies because we are starting to lose some of the smaller companies, but is this going to provide the smaller companies with another year or two of life.
Doug: And.
None: I'd say the other thing that I'm curious about as it relates to this could result in another leg.
Irwin David Simon: of Downward Price, as they try to maintain market share. So, I think a couple things. Yes, I think, you know, if companies don't have to pay the same amount of excise tax that you know everybody is, I think some of these companies absolutely will survive.
None: Downward pricing as they tried to maintain market share.
Yes.
None: So I think a couple of things, yes, I think.
None: Companies don't have to pay the same amount of excise tax.
None: That.
None: Everybody is I think some of these companies absolutely will survive and I think listen I think at the end of the day, we all want a strong cannabis market in Canada.
Irwin David Simon: And I think listen, I think at the end of the day we all want a strong cannabis market in Canada. The big thing is, again, what's got to change is the excise tax, and yes, if you know, we are probably the highest. We are the highest payer of excise tax in Canada. So for us to receive back, if it's 80 million dollars, it's a lot of money. But at the end of the day, it's money that we're going to put into building our brands, building our products, our innovation, and hopefully, marketing and building a bigger category out there. And I think that's ultimately the benefit that the money's not going back to you know taxes; it's going back into building a marketplace and back into continuously growing the industry. So yes, will there be more competition out there? Could there be price compression?
The Big thing is again, what's got to change as the excise tax and yes.
None: We probably have the highest we are the highest payer of excise tax in Canada. So for us to receive back with $80 million is a lot of money, but at the end of the day, it's money that we're going to put into building our brands building our products, our innovation and ultimately marketing and building a bigger category out there.
None: And I think thats ultimately the benefit that the money's not going back to taxi.
Taxes is going back in to build a marketplace and back into <unk>.
None: Continuously grow the industry.
None: So yes, we will.
None: More competition would be out there could they be price compression, absolutely, but I'll tell you what I don't mind, some more price compression I don't mind, some more Lps being in there I wouldn't mind that $80 million coming into our.
Carl A. Merton: Absolutely, but I'll tell you what: I don't mind some more price compression. I don't mind some more LPs being in there. I wouldn't mind that $80 million coming into our company where we can invest it back in our business and drive growth, drive innovation, and drive marketing to brands in a much bigger category. I think it's also important to understand that different entities are going to have different amounts of a windfall from this, right? And as you get closer to the tail end of the share, the impact for a lot of those companies is going to be a lot less. And if they're behind on their excise taxes, you know, the excise tax garnishment may have a bigger impact on them. As Irwin said, we're on the opposite end of that tail because we're the largest.
None: Into our company, where we can invest it back in our business and drive growth drive.
None: Innovation and drive marketing the brand so much bigger category.
None: I think it's also important to understand is.
None: Different entities are going to have different amounts of a window into this and as you get as you get closer to the tail end of share the impact for a lot of those companies is going to be a lot less and if they're behind on their excise taxes.
None: The excise tax garnishment may have may have the bigger impact for them, where on the op. As Irwin said, we're on the opposite end of that tail because because we are the largest and then you've got a bunch of companies in the middle Ware.
Carl A. Merton: And then you've got a bunch of companies in the middle where, you know, I think that is more towards where your question was, where you're going to see some people who will be able to survive a little bit easier. And I don't think excise tax is going to keep everybody in business here, okay? I hope not.
None: More towards where your question was where youre going to see some people will be able to survive a little bit.
None: And I don't think excise tax is going to keep everybody in business here, Okay I hope not.
Irwin David Simon: I mean, you know, I continuously see more consolidation in the Canadian market. I see, you know, some of the smaller players ultimately going away. And I think that's what happens there as a new industry. There's just a filtration of these LPs.
None: Sure.
Continuously see more consolidation in the Canadian market I see some of the smaller players ultimately going away and I think thats what happens there is a new industry resist filtration of <unk>.
None: These are fees will become back and looked at it today.
Irwin David Simon: If you come back and look at it today, 25 LPs make up about 50% of market share. There are about another 1,000 LPs that make up the other 50% market share. So, you see some consolidation, you see companies going away, and I think what this creates is a much stronger cannabis industry within the Canadian market. And if what happens also, as I said before, there could be opportunities for growing cannabis in Canada to be shifted to the US and other parts of the world, which could, you know, enhance the Canadian cannabis industry. Okay, next one, thank you.
None: 25, Lps make up about 50% of the market share. There is about another 1000 Lps that make up the other 50% market share. So <unk> seen some consolidation you see companies going away and I think what this creates a much stronger cannabis industry within the Canadian market.
None: And if what happens also as I've said before there could be opportunities for grow in Canada to be shipped into the U S and other parts of the world, which could enhance the Canadian cannabis industry.
Okay excellent. Thank you.
John Zamparo: Thank you. Thank you. Our next question comes from the line of John Zamparo with CIBC. Thank you. Good morning.
None: Thank you.
None: Okay.
None: Thank you. Our next question comes from the line of Johnson <unk> with CIBC. Please proceed with your question.
Johnson: Thank you. Good morning. My question is on the cost side, both Cogs and SG&A and there's just a lot of moving parts here.
Irwin David Simon: My question is on the cost side, both COGS and SG&A. And there are just a lot of moving parts here. And I wonder how much FQ3 represents a run rate because you've got additional synergies coming from HEXO.
Johnson: And I wonder how much FQ3 represents a run rate because you've got additional synergies coming from <unk>. It sounds like you have savings on the beverage side as you move away from co packing agreements, but you're also investing in innovation and product extensions.
Irwin David Simon: It sounds like you have savings on the beverage side as you move away from co-packing agreements, but you're also investing in innovation and product extensions. And it sounds like another variable is selling the production facilities, which I think you said saves five to $7 million annually. So I wonder, when you think about all of this in aggregate, is there a net benefit on the cost side? And do you expect to see total costs come down from FQ3? Because it seems like organic revenue growth is a bit more difficult to achieve.
Johnson: And it sounds like another variable as selling the production facilities, which I think you'd said saves $5 million to $7 million annually. So I wonder when you think about all of this in aggregate is there a net benefit on the cost side and do you expect to see total costs come down from Q3, because it seems like organic revenue growth is a bit more difficult to achieve near term. Thank you.
Irwin David Simon: So first off, I think organic growth is going to come, particularly in the fourth quarter, as we see the new launches and the new innovation hit the market, particularly in some of these new categories that we're doing on the beverage alcohol side, including water and non-alcoholic. Q4 is traditionally our highest quarter in terms of revenue and production, so we're going to get an uptick on margins as a result of that incremental volume, particularly in beverage alcohol in And that's going to be what drives a chunk of the earnings guidance, and it's going to be what drives our results next quarter. I think the big thing here is, too, you heard me say before, the savings we're getting from the integration of EXO and Trust, somewhere between close to $35 million. We don't understand that immediately. It evens out over the quarter, so it takes us a full year to get that amount.
So.
Johnson: First off I think organ.
None: Organic growth is going to come.
None: Particularly in the fourth quarter.
As we see the new launches and the.
None: New innovations hit the market, particularly in some of these new categories that we're doing on the beverage alcohol side, including including the water and the non op.
None: Playing in that space claimed in the F&B.
None: T space things like that are new categories for us and so I think there are opportunities for organic growth.
None: If youre using Q3 as a baseline I don't think thats the right.
None: When you look at it.
And similarly, I don't think Q4 is necessarily the right baseline for and therefore, the exact polar opposite reasons Q3 is traditionally our lowest quarter in terms of revenue of the production in Q4 is traditionally our highest quarter in terms of revenue and production. So we get we're going to get a an uptick on margins as a.
None: Result of that incremental volume, particularly in beverage alcohol and our legacy business.
None: And that's going to be what drives a chunk of the earnings guidance and it's an easy one.
None: Rides are results networks I think the big thing here is to you heard me say before the.
None: The savings, we're getting from the integration of XO and trusts and somewhere in between.
None: Close to $35 million, we don't get that up immediately.
None: Evens out over the quarters. So it takes a full year to get that amount. The second thing is.
Irwin David Simon: The second thing is, as we've just owned the ABI businesses for two months, and just, you know, for two quarters, as we integrate them into our businesses and start from procurement to, you know, from the distribution standpoint, I mean, there's a lot for us to get done here, but we're focused on organic growth, and we're starting to see that already. We're focused on which facilities denigrate these products and which states we're going to focus on.
None: As we just own the Adi business is for two months.
None: And just.
None: Two quarters.
We integrate them into our businesses and start from the procurement from from the distribution standpoint, I mean, there is a lot for us to get done here, but.
None: We're focused on organic growth and we're starting to see that already we're focused on which facilities to integrate these products to which states. We're going to focus on we also have 13 brew pubs are there that we're focused on growing our brands through these brewpub.
Irwin David Simon: We also have 13 brewpubs out there that we're focused on growing our brand through these brewpubs. You know, big event for us, 4-20, coming up April 20. We have two big events, one in Atlanta and one in Long Island. And there's also, at every retailer, there's displays built out.
None: Big event for us for 'twenty coming up in April 'twenty, we have two big events, one in Atlanta, and one in long Island and.
None: There is also an every retailer theres displays built out so July 4th is one of the biggest.
Irwin David Simon: So, July 4th is one of the biggest, you know, beer category months that are sold out there from occasion. So, you know, right now, as we bring this together, and our aspirations are to grow our beer business to a $300 million business. And you've got to remember, in 2020, we sold 2.5 million cases. When we first acquired the Sweetwater brand, you know, today we're on a run rate of 12.5 million cases with tremendous opportunity with, you know, all the innovation that's happening. So, there's just a lot of evening out here, and there are a lot of moving pieces to bring all this together. And I think the big thing is, as we look at it, when we get a full year behind all these acquisitions with HEXA, with Trust, and the integration there, we get all this, you know, full year together with all the ABI stuff, we're seeing some great stuff. And listen, just with Montauk, we've owned it for over a year. One of the, you know, fastest growing beers within New York today. Some of the stuff we're seeing on the West Coast, with Green Flash, Nelson's, and Alpine.
None: Beer category months that are sold out there from occasions. So.
Right now as we bring this together and our aspiration is to grow our beer business to a $300 million business you got to remember in 2020, we sold $2 5 million cases.
None: When we first acquired Sweetwater brand.
None: Today, we're on a run rate to $12 5 million cases with tremendous opportunity with.
All of the innovation is happening so there's just a lot of evening out here and there's a lot of moving pieces to bring all this together and I think the big thing is is as we look at it when we get a full year behind all these acquisitions with hexcel with trusts.
None: And the integration and we get all of those.
Full year together with all the API software received some great stuff and listen just with Manta, we've owned it over a year one of them.
None: Fastest growing beer within New York today, some of the stuff, we're seeing on the West coast with three flash Nelson's in alpine so the legacy stuff that we've already bought in all of the year. We're seeing good results for it just takes us some time here to get these things integrated.
Irwin David Simon: So, the legacy stuff that we've already bought and owned for a year, we're seeing good results for. It just takes us some time here to get these things integrated. Okay, I appreciate the color.
None: Okay I appreciate the color I'll pass it on thank you.
John Zamparo: I'll pass it on. Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Simon for any final...
None: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Simon for any final comments.
Irwin David Simon: Thank you, everybody, for joining us today. Listen, I wish I could predict what's going to happen in the cannabis industry. There's going to be one thing for sure that will be changed. And we've been waiting for change for a long time, you know, in the German market. It finally came to foreclosure, and there's going to be a lot of execution to get it where it needs to be, but it's happening. I do think we've been sitting and waiting through the Biden administration before that change happened within the cannabis industry. There's lots of discussion about rescheduling.
Simon: Thank you everybody for joining us today.
Listen I wish I could predict what's going to happen in the cannabis industry.
Simon: There is going to be one thing for sure I can predict there will be change.
Irwin David Simon: And we've been waiting for change for a long time in the German market and finally came to fruition and theres going to be a lot of execution to get it where it needs to be for the task.
Irwin David Simon: I do think we've been sitting and waiting through the Biden administration before that change happen within the candidates industry.
Irwin David Simon: There's lots of discussion about rescheduling and again, it's not something we have control, but one thing we do have control over.
Irwin David Simon: And again, it's not something we have control of. But one thing we do have control of is research. We do know how to grow cannabis. We do know how to sell medical cannabis. We know about research. We have within Canada today over 5 million square feet of growth. We do have, in Europe, you know, two major facilities.
Irwin David Simon: We do know how to grow cannabis.
Irwin David Simon: We do know how to sell medical cannabis renewable research, we do have within Canada day over 5 million square feet of growth, we do have in Europe, two major facilities.
Irwin David Simon: And with that, depending on what happens in the US, we will be ready to launch what needs to be launched in the US, whether it's taking from our existing businesses, acquiring, or putting something together. We'll have the opportunity to do that. You know, as I've said, our aspirations are to grow our beer business to a $300 million beer business. We are already the fifth largest craft brewer today within the U.S. We have a great business at Breckenridge Distillery. We've been named some of the number one whiskeys in the world, within the U.S., and some exciting things are happening.
Irwin David Simon: And with that depending what happens in the U S. We will be ready to launch what needs to be launched in the U S. Whether it's taking from our existing businesses acquiring.
Irwin David Simon: Putting something together, we will have the opportunity to do that.
Irwin David Simon: As I've said, our aspiration is to grow our beer business to a $300 million beer business. We already are the fifth largest craft brewer today within <unk>.
Irwin David Simon: The U S. We have a great business within Breckenridge distillery.
Irwin David Simon: We've been named some of the number one whiskeys within the world within the U S and some exciting things happening I'm also really excited about what's happening in our wellness business and <unk> through Manitoba harvest and what's happening with <unk> from a high protein feed and now the perception of him as a great product.
Irwin David Simon: I'm also really excited about what's happening, you know, in our wellness business with regard to Manitoba Harvest and what's happening with hemp as a high-protein food and now the perception of hemp as a great product and a healthy product. So, you know, as Tilray Brands comes together over the last five years, there are a lot of really good pieces that will ultimately come together. There are tremendous opportunities with our products. There are tremendous opportunities with our distribution. There are tremendous opportunities as we build out, you know, our global market. So, you know, as I look at Tilray, we've circled a lot of the white wagon.
Irwin David Simon: And in healthy products so.
Irwin David Simon: As touring brands comes together over the last five years, there's a lot of real goods pieces that ultimately will come together.
Irwin David Simon: There is tremendous opportunities with our products theres tremendous opportunity with our distribution there is tremendous opportunities as we build out our global market. So.
Irwin David Simon: As I look until.
Irwin David Simon: We have circled a lot of the right wagons.
Irwin David Simon: And again, that's dealing with regulatory issues, dealing with unknowns in regards to rescheduling, but Tilray is there. I'm really happy with the team that I have in place and excited to work with the team. We've done a great job in the industry in regards to banking, what we did with our balance sheet, and we continue to work on that balance sheet. I'm someone personally that does not like debt, so how do we focus on our balance sheet?
And again that dealing with regulatory dealing with unknown in regards to reschedule Lee but to array is there I'm real happy with the team that I have in place and excited to work with the team we've done a great job in an industry in regards to banking, what we've done with our balance sheet and.
Irwin David Simon: We continue to work on that balance sheet I am somewhat personally that does not like that so how do we focus on our balance sheet.
Irwin David Simon: I'm very much in favor, and as I push with Carl and the rest of the team, cash flow and taking costs out of our business, and there aren't too many other industries out there that are taxed the way we are on cannabis, on beer, and on spirits. And I wish I were. Tilray was earning the amount of money that we're providing for the governments of Canada, the U.S., and Europe from our taxes that we generate from our businesses.
Irwin David Simon: Very much in favor and as I push with Carl and the team cash flow and taking costs out of our business.
Irwin David Simon: And there's not too many other industries out there.
Irwin David Simon: Our tax the way we are on cannabis.
Irwin David Simon: On beer and spirits and I wish I was <unk>.
Irwin David Simon: Mount of money that we're providing the governments of Canada.
Irwin David Simon: In Europe from our taxes that we generate from our business.
Irwin David Simon: With that, I look forward to talking to you again soon. Appreciate getting on the call. And have a great week. Thank you. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your...
Irwin David Simon: With that.
Irwin David Simon: Look forward to talking to you again soon appreciate getting on the call then.
Irwin David Simon: Dan.
None: Have a great week. Thank you.
None: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.