Q2 2025 Tilray Brands Inc Earnings Call
In Q2, we achieved strong net revenue results, while strengthening our operations and increasing our gross margin and gross profits across our business.
Quarter, two net revenue grew 9% year over year to $211 million gross profit increased by 29% and gross margin increased by 500 basis points compared to the prior quarter.
Our beverage business, Terry beverages, which includes craft beer spirits and nonalcoholic beverages grew 36% in net revenue year over year in Canada. We continued to lead the Canadian cannabis market by revenue, we significantly grew our international business by 25% year over year.
Here as we launch new commercial product and expanded our reach across Europe.
Wellness business continues to lead the hemp industry, increasing branded market share to 56% with Manitoba harvest in the U S and nearly 80% share in Canada.
Additionally, as Karl will discuss further our financial profile remains strong during the quarter. We reported an adjusted net loss of $2 million, primarily related to the investment necessary to develop the infrastructure and operating systems across our business sectors and drive industry leadership and innovation.
Got it.
Kill rate operates with a robust balance sheet ample cash reserves reduced debt levels and flexibility explore additional potential acquisition, our financial strength allows us to seize new opportunities and capitalize on market trends.
Fortunately kill rate is not exposed to meaningful care of risk in the U S. Let's now dive deeper into each of our business segments.
Starting with our beverage business to support the expansion of our beverage business and brands, we merged our beer and spirit operations and teams, creating kill rate beverages under the leadership with Tiger.
<unk> expansion into the beverage category began in December 2020, with the acquisition of Sweetwater Brewing Company, followed by the acquisition of Green Flash Alpine montage brewing companies and broker Shelley.
First spirit acquisition.
<unk> increased our footprint through cross acquisition, one from Abi in October 2023, and <unk> acquisition tube in September 2024 for Molson Coors to support the growth of these acquired brands and establish a clear path to profitability, we will implement project for 'twenty.
This comprehensive plan focuses on enhancing margins and profitability through operational optimization cost savings and synergies and portfolio optimization through project for 'twenty, we aim to achieve $25 million in cost savings synergies and cost avoidance.
These initiatives on which we've already achieved $70 million.
Today TRA beverages generated a third of til raised global revenue and includes more than 20 beverage brands, which includes 15 American craft beer brands can network manufacturing facilities over 700 distributors 20 brewed problems in restaurants, and a single integrated <unk>.
Sales and marketing team operating across the U S.
Our <unk> beverage strategy emphasizes strategic brand growth within selected states and regional markets prioritizing product excellence and scale ability in Q2, our beverage business achieved $63 million in net revenue and increased adjusted gross margin by.
400 basis points to reach a 42%.
PRA beverages has established itself as a leading provider of craft beer spirits and nonalcoholic beverages in key U S regions, including the northeast Pacific Northwest, Colorado, Texas, Michigan, and the southeast from a regional brand perspective.
<unk> nationwide Gillray beverage is the number one craft supplier in Metro New York with Montefiore in Bluepoint grooming brands. The number one craft supplier in the Pacific Northwest, Oregon, and Washington, where 10 barrel brewery Red Hook and Widmer brothers Brewing brands the number two <unk>.
Supplier in the southeast, Florida, and Georgia, with Sweetwater brewery and shock top brands and remember for kraft's supplier in Colorado. According to our data, notably we achieved a 10% increase in shock top distribution during Q2 in the southeast securing 400 units.
Placements for the brand.
Within the spirits category Breckenridge facility is a notable brand in the Bourbon sector as it experienced higher depletions compared to others in a declining market. It also made a significant progress as a vodka and gin markets complemented by its world class restaurant and retail.
<unk> that enhance the overall hospitality experience.
Our primary objective for growing our spirits business is to expand our market share across the U S.
And our non alcoholic branded product portfolio.
Recently launched spring Runner's high approval the company will soon be available in over 1200 public stores with plans for expansion into additional markets.
Non alcoholic craft beer segment represents a significant opportunity for growth with total addressable market estimated to be at $37 billion worldwide, given our scale and geographic footprint. We will continue to explore ways to capture a share of this rapidly expanding market.
Within the non op segment. We've also introduced hemp derived delta nine THC brands and products online through our direct to consumer channels and in key states across the U S, including Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee.
Louisiana, New Jersey and Texas.
We are leveraging our established craft beer distribution network, which is enthusiastic about this growth opportunity and independent retailers convenient stores and packaged stores, including multistate retailer's total wine and more.
So ray beverages strategic growth initiatives are poised to revolutionize our beverage portfolio, attracting a more diverse and expansive consumer base.
We're planning to expand our beverage operations internationally, including ventures into Canada, and Europe with a vision to become a global beverage leader.
By leveraging our innovation innovating products and exceptional quality, we aimed to set new standards in the industry and achieve remarkable success turning to candidates in fiscal Q2, our global cannabis business generated $66 million of net revenue and increased gross.
Margins by 400 basis points.
In Canada.
<unk> remains the leader in the Canadian cannabis market by revenue in the second quarter. The array regaining the number one position in the flower category, which constitute around 35% of cannabis retail sales with <unk>.
Brands like broken coast, where they can good supply and big sale, increasing market share through strong innovation, good genetics and great value.
And the THC beverage category <unk> had a leading market share of 45% with <unk> Malo THC beverages ranking number one and number two respectively.
Also retained the number one market share in oils and capsules categories combined 15% until raised Canadian cannabis net sales revenue was from new innovation and a lot more to come.
We shipped approximately 63 metric tons of cannabis biomass in Canada in Q2, representing about 22% of the implied <unk> in market volume, we continue to leverage the wholesale channel where contribution margins grow as supply tightens and adult recreational candidates.
We shipped approximately $15 million pre roll cones, and over $1 7 million cans of beverages.
Over the past few years, we focused on improving operational efficiency. During this period, we reduced cost by over $100 million.
Through eliminating duplication consolidate <unk> packaging logistics enhancing process with technology to lower labor costs. This effort include emphasizing revenue quality over quantity, which will improve margins and position our business for future success.
For instance over the past year, we reduced our exposure to lower margin categories, such as data and infuse pre rolls and prioritize other categories, even at the expense of some.
Some market share.
With our facility footprint of approximately 5 million square feet, along the optimization, our value chain and business process.
<unk> is best positioned for long term success in the Canadian cannabis market as demand for our cannabis products increased.
Possess the flexibility capability cost structure and optimal growth space necessary to nearly double our output.
In the U S. TL Ray is strategically well positioned to capitalize on the anticipated eight billions of 10 billion dollar medical cannabis market upon federal legalization. Our advantage is our best in class ability to cultivate large scale medical and <unk>.
<unk>, Greg candidates, which requires rigorous quality control standards and processes. Additionally, our established medical brands and product innovation can be utilized until raised primary legal markets, such as Canada, Germany, Portugal, and various other European countries should the United.
<unk> legalized medical cannabis, which could represent an additional $250 million opportunity per kill rate potentially captured two 2% to 3% of the U S medical cannabis market.
Turning to our international business, where we executed against our strategic initiatives and drove significant organic growth and margin in the second quarter in Q2 International cannabis business grew 25% over a period over the prior year period, driven by sales growth in Germany, Poland, we use.
Say in Italy.
In Germany since the new medical Cannabis Act went into effect.
Through medical cannabis flower sales by 55% and increased our medical cannabis extracts by 24% the increased growth in the German market, especially in whole flower category was due to the cannabis. These scheduling under the new regulations. In addition, we continue to see increased differential.
Jason between the physician led and the patient led channels with the patient led challenge requiring a greater emphasis on product assortment, especially genetics brand portfolio segmentation and quality.
As leaders in the physician led channel, where we have a dominant share of the medical cannabis extract category. We are now focusing on expanding within the patient led channel.
Our confident in our ability to win a sizable share of this channel given our well placed investments with two EU GMP certified facilities in Germany, and Portugal, and our route to market.
El Rey pharma.
Our German cultivation facility, a pre Rx was the first to be granted permission to expand our cultivation under Germany's new medical cannabis Act and in the quarter. We sold our first commercial batches, a medical cannabis cultivation and processing, Germany under this newly expanded license.
Supplementing these assets are Canadian cultivation facilities, and our deep expertise of our team, which has allowed us to establish a flexible and diverse supply chain to meet the needs of patients we serve in various countries in which we participate by introducing new medical cannabis brands.
And products to these markets.
We believe Germany's new canvas regulations will drive positive change in drug policy across Europe <unk> aims to expand its global brand to Europe, 700, plus million people, leveraging our infrastructure product portfolio and commitment to medical cannabis and our experienced team.
<unk> entered new markets with significant revenue potential.
In Poland demand remains strong as our revenue increase both over the prior year and quarter over quarter in Italy. We are focused on increasing awareness of the til rate medical brand and our product portfolio, where we have market authorization for three medical cannabis extracts.
As well as investing in the education of physicians regarding medical cannabis.
In the U K, our revenue has increased compared to the previous year and our Q1 results were implementing several strategic initiatives to enhance our presence in the UK market, which will serve as our European headquarters for international sales and commercial operations going forward.
Turning to Australia, which is still in early stages. It is quickly emerging as a significant medical cannabis market similar to Germany.
See increase differentiation between the physician led and the patient led channels in response, we launched broken coast Radicand, good supply brands and products.
Which provides the patient with a segmented portfolio of products, while we continue to deliver on the trust safety and consistency that has become expected from our <unk> medical brand.
And finally in Q2, <unk> wellness delivered a 13% net revenue growth compared to the prior year driven by strong core business sales.
With hemp innovation and the expansion into wellness beverages.
Our strong focus on costs helped the business unit improved margins delivering a 200 basis point increase in gross margin.
<unk> is also exploring further expansion opportunities in the wellness segment, especially focusing on protein rich wellness products and foods to meet the growing consumer demand for healthy nutrition options.
With that I will now turn the call over to Carl to discuss our financials in greater detail. Thank.
Carl: Thank you and as a reminder, our financial results are presented in accordance with U S GAAP and in U S dollars.
Carl: Now I'll review, our quarterly performance for the three months ended November 32024.
Carl: In Q2, net revenue was $211 million.
Carl: 9% growth compared to the prior year quarter net.
<unk> net revenue of $194 million.
Carl: As Aylwin stated it was our highest Q2 net revenue ever.
Carl: On a constant currency basis, net revenue grew 10% to $213 million.
Carl: By segment beverage net revenue increased 36% to $63 1 million.
Carl: Cannabis net revenue was in line with expectations at $65 7 million as a result of our strong focus on margins and strategic growth in key markets, which I'll discuss in a moment.
Carl: Distribution net revenue was flat and wellness net revenue rose, 13% to $14 6 million in the quarter.
From a segment perspective, 30% of our net revenue was generated by our beverage business.
Carl: 41% was generated by our canvas business.
Carl: 32% by our distribution business.
Carl: 7% by our wellness business.
Carl: This compares to 23% and beverage 35% in cannabis.
Carl: 35% in distribution and 7% in walnuts in the prior year quarter.
Carl: The year over year variances due to three months of revenue from our most recent <unk> acquisition and one month from the prior year's craft acquisition, which we did not purchase until October one.
Carl: Gross profit increased by 29% $61 2 million.
Carl: Third to $47 4 million in the prior year quarter.
Carl: Gross margin increased to 29% and over 500 basis point increase from the prior year period.
Carl: Demonstrating our strong focus on controlling costs driving revenues from aerials profitable skus and the ongoing optimization of our production footprint.
Carl: Adjusted gross profit increased 20% to $62 6 million from $52 1 million in the prior year, while adjusted gross margin increased by 300 basis points to 30%.
Carl: Primarily reflecting our focus on integration efforts to improve our utilizations at our beverage facilities and favorable sales mix.
Carl: Net loss was $85 3 million.
Compared to a net loss of $46 2 million in the prior year quarter with almost 75 million of noncash costs.
Carl: Part of those noncash costs included a $34 million foreign exchange loss that was largely created as a function of the strengthening U S. Dollar after the U S presidential election.
Carl: On a per share basis. This amounted to a net loss of <unk> <unk> per share compared to <unk> <unk> per share in the prior year quarter.
Adjusted net loss was $2 2 million compared.
Carl: Compared to an adjusted net loss of $2 $7 million in the prior year quarter, a 17% improvement year over year with adjusted net loss per share coming in at zero, a significant beat to expectations.
Carl: A 3% loss.
Carl: Adjusted EBITDA was $9 million compared.
Carl: Compared to $10 1 million in the prior year quarter. We are now approaching six consecutive years of generating positive adjusted EBITDA.
Carl: The decrease in adjusted EBITDA from the prior year is primarily related to the SKU rationalization and our beverage business that Irwin spoke of earlier.
Carl: Cash flow used in operations was $40 7 million compared to $34 million in the prior year quarter.
Carl: Adjusted free cash flow was negative $43 6 million compared to $18 4 million in the prior year quarter.
Carl: Really as a result of an increased demand in our working capital.
Carl: Working capital increases were associated with annual payments in the quarter increases in inventory at <unk> pharma as it prepared stock pharmacist inventories for the holidays increases.
Carl: Increases in inventory and beverages as we prepared for the positive impacts of the SKU rationalization plan, all offset by a significant decrease in Canadian candidates inventory levels.
Carl: We took advantage of positive pricing in the wholesale market.
Turning now to our four business segments.
Carl: And then our beverage segment, our $25 million synergy plan is well on its way was $17 million already realized.
Carl: Part of our cost savings initiatives were driven from implementing a product rationalization program to concentrate our product portfolio in key markets prioritizing high performing products and optimizing our cost structure.
Carl: Year to date with SKU rationalization plan lowered our revenues by $8 million.
Carl: With an expectation that over the next 18 months. These impacts will be offset by the introduction of new product innovations and brand extensions improving both sales and margins.
Carl: The completion of this rationalization program will be accretive to earnings and will have positive impacts on our cash conversion cycle once complete.
Carl: Average net revenue was $63 1 million.
Carl: Up 36% from $46 5 million in the prior year quarter as previously discussed.
Carl: As Alan discussed, we now own and operate 20, <unk> problems less staff restaurants in the U S that are in close proximity to the production of our craft brands in the quarter. These operations contributed $10 million of the $63 1 million in revenue and we expect them to be a key part of our strategy going forward, allowing us to increase.
Carl: Brand visibility and gained an intimate understanding of our key consumers.
Beverage gross profit increased to $25 2 million compared to $16 million and adjusted gross profit was $26 5 million compared to $17 8 million.
Carl: While our beverage gross margin was 40% compared to 34% and adjusted gross margin was 42% from 38% in the prior year quarter to.
Carl: A 400 basis point improvement to adjusted gross margin as a result of our efforts in integrating and optimizing our facilities as.
Carl: As well as a favorable product mix.
Gross cannabis revenue of $87 2 million was comprised of $59 1 million in the Canadian adult use revenue.
Carl: $14 9 million and international cannabis revenue.
Carl: $6 7 million in Canadian medical cannabis revenue and $6 5 million in wholesale cannabis revenue.
Carl: Net cannabis revenue, which was reduced by the $21 $5 million in excise taxes was $65 7 million.
Carl: Essentially flat from the year ago period.
Carl: Revenue from Canadian Medical cannabis grew 6% despite the category being impacted by competition from the adult use market while revenue from our Canadian adult use decreased 18%, which was a result of our increased focus on preserving gross margin and maintaining a higher average selling price in categories with high.
Carl: Excise tax.
Carl: As a result of recent significant Capex index investments, we positioned ourselves for an improved margin opportunity twice once the price compression pressures start to ease in the category.
Carl: Our capex investments and size advantage put us in a position to succeed as margins and high excise tax category has come under pressure.
Carl: International cannabis revenue rose, 25%, which was largely driven by the expanding German medical market as well as favorable variability in the timing of receiving export permits to countries other than Germany.
Carl: Resulting in fluctuations on a quarterly basis.
Carl: <unk> gross profit was $23 $2 million in cannabis gross margin was 35%.
Adjusted cannabis gross profit was relatively flat at $23 2 million compared to $23 6 million in the prior year quarter.
Carl: Distribution net revenue derived predominantly through cc pharma with $67 6 million compared to $67 2 million in the prior year quarter.
Carl: On a constant currency basis distribution net revenue increased 3% to $69 4 million compared to $67 2 million in the prior year quarter as a result of a favorable product mix.
Carl: Distribution gross profit increased to $8 4 million compared to $7 $1 million in the prior year period, while distribution gross margin increased to 12% from 11% in the prior year quarter. As a result of our extensive efforts in H two last year to focus on our higher margin skus.
Carl: <unk>.
Carl: Wireless net revenue grew 13% to $14 6 million from $12 9 million in the prior year quarter.
Carl: The increase was driven by our strategic focus on continued innovations.
Carl: Leading our launch of hemp derived delta nine products and organic growth within our branded hemp business related to higher consumption.
Carl: Wireless gross profit was $4 5 million up from $3 7 million in the prior year quarter, and gross margin rose to 31% compared to 29%.
Carl: The result of decreased input costs and continued operational efficiencies.
Carl: Our cash and marketable securities balance as of November 30 was $252 1 million down slightly from $260 5 million at year end.
Carl: This change was a result of our purchase of the new craft brands.
Carl: Temporary increase in working capital demands all offset by the funds raised from our ATM.
Carl: During the quarter, we raised gross proceeds of $46 million from our ATM.
And subsequent to quarter end, we raised an additional $11 million.
Carl: Finally, we are reaffirming our guidance for fiscal 2025.
Carl: We anticipate net revenues to be between $951 million.
Carl: Let me now conclude our prepared remarks and open the lines for questions from our covering analysts operator, what's the first question.
Carl: Thank you before we go to the first question as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Carl: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Como Carnival with Jefferies. Please proceed with your question.
Speaker Change: Hey, guys good morning.
Speaker Change: I guess, starting with the SKU rationalization, you've been talking about it for a while we have more details.
Speaker Change: To date does it look like.
The rational rationalizations will be complete by the end of your fiscal year is something that's ongoing for.
For some amount longer.
Speaker Change: So good.
Good morning, and thank you.
Speaker Change: I'm not sure it's going to be completed by the end of this fiscal year, we're well into it you got to remember what we're doing here we've taken Sweetwater, we've taken the Montauk, we've taken the Abi would you see most of the acquisition as we bring them together and we're eliminating over 300 plus skus.
Speaker Change: And we're ultimately eliminating states, where we sold some of our brands before so the majority will happen by the end of this fiscal year, but they absolutely will be some that will go into 2026 and the big thing here is listen we've taken out as we look for takeout costs of $25 million, we've taken out 15000.
Speaker Change: <unk> already big.
Speaker Change: The Big thing is as we introduce new Skus to replace some of these other skus and as we focus on certain.
Speaker Change: States that were only going to sell our product and it's not only us asking for distance retailers as distributors. So this is great and you think about it as we brought how many companies together under <unk> beverages, and cleaning up the tail and cleaning up some of these lower margin products and it shows in our.
Cost cutting and chosen our margin and has chosen our growth from some of these brands that this is absolutely working.
Speaker Change: And we haven't even launched our new products, yet so just stay tuned for that.
Speaker Change: We will you mentioned gross margins I was going to be my next question, it's up nicely across a series of divisions. We have a lot of details on some of the blocking and tackling is there something bigger going on maybe with input costs or perhaps price compression or anything that we should know because it looks like.
Speaker Change: Kind of across the enterprise trajectory is the same or is it as simple as the programs that you've talked about kind of starting to come to fruition.
Well, it's not coming from pricing. So that's the first thing is it's coming from just taking costs out of our system listen.
Speaker Change: When we put a chill ran a free it together and then XO, we took over $100 million.
We can come back and in regards to share of cannabis in Canada.
Speaker Change: We're focusing on margin here, we've had major price compression. So the big thing is we're really focused on gross profit, we're really focused here on profitability and our adjusted net loss in the quarter as $2 million okay.
Speaker Change: The majority of it is noncash so there is a big big drive year to generate cash and really focus on margins here and to invest back in our business and you're seeing this on gross margin growth there.
Speaker Change: Got it thank you guys.
Speaker Change: Thank you.
Speaker Change: Thank you, ladies and gentlemen, we ask that you each keep to one question.
Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Robert Moskow: Alright. Thanks.
Speaker Change: I thought I remembered last quarter that.
Speaker Change: Beverage sales were a bit below your internal expectations and it was due to timing around innovation and shipments to distributors.
Speaker Change: And I want to know I didn't hear much about it on the call today.
Speaker Change: Did that factor resolved itself in this quarter.
Speaker Change: And then and then also.
Speaker Change: Maybe you could give a little bit more color on what this innovation pipeline looks like.
Speaker Change: Are you do you have a lot of work still to do to flesh that out.
Speaker Change: So Robert you are hundred percent rate in our first quarter, we had some challenges as we brought.
Speaker Change: <unk>.
Speaker Change: The Abi businesses into our portfolio, we had some major out of stocks.
Speaker Change: Bringing the Abi distributors on and taking them off the Abi system potent monarch in regards to supply caused some issues.
Speaker Change: There were some accounts that just stopped ordering because they were confused.
Speaker Change: And just the integration so 100% in our first quarter.
Speaker Change: We had some negative comps I can note since then listen we've seen some great stuff happening shocked occupancy or.
Speaker Change: Manta growth, 9% since we bought it we've seen some great growth on bluepoint and Breckenridge. So we're seeing those volumes come back in.
Speaker Change: On the call and he can jump in there so.
Speaker Change: And Thats why Youre seeing up 36% now some of that is absolutely acquisition growth, but what we're doing is we're taking these growth brands and getting rid of the products, which were slow moving and running them out.
Speaker Change: In regards to innovation.
Speaker Change: And Ty jump in here and some of the new innovation, but.
Speaker Change: Im not going to tip my hat, yet, but we've got.
Speaker Change: In regards to these products, we have been out there presenting to their retailers presented to the distributors and there is a big focus on a lot of our new beers.
Speaker Change: There is a big focus on our non op. There is a big focus on our energy drinks is a big focus.
Speaker Change: On our waters and our Delta nine drinks are a big thing that has been happening with us tie you want to add anything to that.
Speaker Change: No I think you nailed it.
Speaker Change: With regards to innovation, absolutely we are locked and loaded.
Speaker Change: And now.
Speaker Change: Through the next seven or eight months.
Speaker Change: Everything is ready to go with sprint percentage of retailers and distributors.
Speaker Change: There is a lot of excitement about the spaces in categories that we're going to plan.
Speaker Change: It is exciting.
Speaker Change: And Robert I think the Big thing is that's what everybody is looking for is new innovation out there I think the important thing is this here is taken out some of those slow moving skus or taking the skus of the states. It's sold 10000 cases, a year and just plugged up the system. So that's number one number number two ways.
Speaker Change: The distributors are looking for innovation.
Speaker Change: Some of our pub here some of our lighter beer some of our non out.
Speaker Change: Some of our infused drinks with.
Speaker Change: With camera.
Speaker Change: So there is a good lineup here and the big thing, which I've said, but we're trying to do on beer is make it fun again and I think that's what we're doing we have no imports. So theres no tariffs come in on our beers. Our beers are all made in our facilities.
Speaker Change: We've done a great job I think of moving our production around we've closed one facility in Texas. So there is there is a plan here and just think about it we produced close to 15 million cases.
Speaker Change: Beer year over 1 million barrels and as we as we brought.
Speaker Change: All these beer brands together over 18 beer brands. We brought all of these cases together we brought all these facilities together in a matter of four years now, it's taking costs out get inefficiencies working with these distributors.
Speaker Change: Ty and team have put a blitz team on the street to really get out there and hit our off premise and really sell our products there so I.
Im excited to see what's happening in the beverage category and now that we've integrated our spirits business and listen these arent easy categories, so with that innovation and putting the people behind it and getting new distributors and retailers with something that's real important and last but not least gotta get Arkansas.
Speaker Change: Tumors buying our products and that's a big thing that we're trying to do and there is a lot of <unk>.
Speaker Change: <unk> media and Theres a lot of advertising in the quarter, we spent about six or $700000 more in advertising in the quarter back on these brands.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.
Aaron Grey: Hi, good morning, and thank you for the question here. So I just wanted to dive a little bit more on adults and on beverages, specifically around potential changes in regulation.
Aaron Grey: Farm Bill has been delayed two years now we're not going to have Republicans controlling both chambers of Congress as well as a Republican president So whats your anticipation in terms of the impact that can have on a farm bill getting done this year impacts on Tc hemp beverages, a lot of folks have been talking about potential closeouts of loopholes, but keeping a carve out for <unk>.
Aaron Grey: Please hold up your outlook on that just given right now you're one of the few players with an existing distribution system and alcohol channel back selling perhaps and how that could change.
Aaron Grey: With the regulations evolving thank you.
Aaron Grey: Thank you.
Speaker Change: Listen we do not in as good news as the firm those kicked down they kicked the can down the road for two two years. So that's number one.
Speaker Change: Number two a lot of distributors and a lot of the states and retailers are really excited in this product.
Speaker Change: There is a couple.
Speaker Change: A couple of million dollars of sales in this quarter that we've achieved already and.
Speaker Change: So with that we don't see any changes.
Speaker Change: We.
Speaker Change: I think there is a big big opportunity for us going forward and.
Speaker Change: Happy flower, which is.
Speaker Change: Our wellness team, which is out there.
Speaker Change: Pushing that brand and then we have.
Speaker Change: Our beverage team out there presenting and through our beer distributors distributing that product. So theres lots of opportunities for us and we have the products. We have the distribution and we have the infrastructure salespeople that are out there pushing it and the retailers and distributors want it.
Big thing so there should be no change for us.
Speaker Change: Okay, all right great. Thank you very much.
Speaker Change: Thank you.
Thank you. Our next question comes from the line of Frederico Gomez with ATB capital markets. Please proceed with your questions.
Frederico Gomez: Hi, good morning, Thanks for taking my question.
Frederico Gomez: I'm curious if you could talk about cannabis beverages in Canada.
Frederico Gomez: It seems like it's a very small part of the market scale. So.
Frederico Gomez: How do you see that segment why hasnt become a more relevant part of the Canadian market, whereas in the U S. We see this.
Frederico Gomez: The other main market growing quite rapidly right now.
Frederico Gomez: Yes.
Frederico Gomez: Great Great question and I have Blair on the call, we have a 45% share of the market.
Frederico Gomez: And is.
Frederico Gomez: About a $25 $30 million business for us.
We have one facility in London, Ontario that produces a product.
Frederico Gomez: And I always say this year I only sell it today in stores lifestyle cannabis.
Frederico Gomez: And there's different pricing out there and it's not cheap products, if we could sell that today in beer stores. If we can sell a untapped how big a business that would be but I think.
Frederico Gomez: One of the biggest problems today is just ultimately it's only sold in Canada stores and some of them.
Frederico Gomez: Pricing out there, but the opportunity as we sit today in dry January thats when youll see some of the biggest consumption of products. So we are ready willing enable and I've said this before is the new.
Frederico Gomez: <unk> THC infused drinks in the U S.
Frederico Gomez: It's a $1 billion plus CAD.
Frederico Gomez: Category out there.
Frederico Gomez: If we could ever do that just by looking at the size and the opportunities and the 15 states that.
Frederico Gomez: Hemp derived dream start today, the consumer is looking for a matter of fact of that a function last night and the majority of people were drinking.
Frederico Gomez: <unk> two streams versus alcohol drinks.
Frederico Gomez: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Bill Kirk with Roth.
Frederico Gomez: Please proceed with your question.
Bill Kirk: Hey, good morning, everyone. Further question on on the revenue guidance.
Bill Kirk: To get to in the range the final quarters of the year need to be about $60 million or so larger than the revenue just posted in <unk>, So where does that acceleration come from.
Speaker Change: Thanks, Thanks Bill.
Speaker Change: I think if people go back and look at our results from last year.
Speaker Change: Followed the same pattern.
That we had right when you look at the face pattern, our focus a couple of times.
Speaker Change: You and I individually were.
Speaker Change: We're doing about half of our sales were doing sorry, not half of our subs about half of our EBITDA in Q4 were doing.
Speaker Change: Q1, two and three our EBITDA tends to be around the other half right and then at bats earned relatively evenly.
Speaker Change: The quarters are even so if you if you use that as the starting point and then you then you work your way backwards through sales when you when you look at the changes we've made this year.
Speaker Change: Last year, we purchased the new brands, the new craft brands too late in the year to be involved in the spring reset.
Speaker Change: So this year on time.
This team and prints have been able to get out too to the distributors to get out to our meet our big accounts and to really be a part of that spring reset with that new innovation and we see significant increases.
Speaker Change: And the sales in Q4 for beer as part of that as part of that Springs pre Sac. We also traditionally fee sales upticks in our Cc pharma business.
Speaker Change: In Q4 that's.
Speaker Change: That's predominantly as pharmacists in Germany start stocking.
Speaker Change: Their inventories for the summer months as people go on vacation in Germany, and then we think we similarly see an uptick in things like pre rolls and flowers things that were higher indexed on in terms of share.
In the Canadian cannabis market as people get ready for the summer.
Speaker Change: A big part of that is just here is there seasonality and supply and new products sort of stepping back as Charles said.
Speaker Change: As you can <unk> January the next five months for Us to Memorial day, and July 4th or some of the biggest beer consumption events out. There. We also have our big four 'twenty event around beer plus you heard what I said before we have over 100, new products that get into the product to get into the marketplace and that's a lot of the resets happen with retail.
Speaker Change: In regards to canvas.
Speaker Change: Blair, how many new products do you have coming in the back half.
Speaker Change: From that Youll place.
Speaker Change: 30, 30, new innovations in the back half of the year.
Speaker Change: So the new innovation that will come from our cannabis business and then one of the big problems that happened to us in Europe.
Speaker Change: In regards to just having supply.
Speaker Change: From our European and lot of Thats coming from Canada, and also getting the permits that we could ship in this country has slowed things down.
Speaker Change: With that it's going to come from new products going to come from organic growth, it's going to come from new distribution.
Speaker Change: In the back half of the year.
Speaker Change: Thank you and then Irwin you quantified a $250 million opportunity for til Ray if the U S. Legalizing medical I guess, what gives you confidence the incoming administration will be favorable to rescheduling and even if they were that they would also be amenable to imports from Canada.
When there is so much tariff talk.
Speaker Change: So good question number one and again I want to be very.
Speaker Change: Clear this is just.
Looking at our Crystal ball and looking at what it could be in.
Speaker Change: Number one I step back and I say this year, it's an $8 to $10 billion medical market today in the U S.
Speaker Change: And with that we could get somewhere between two to three share. So a two to three share.
Speaker Change: There is a $160 million to $250 million business, we have a good sized medical business today.
Speaker Change: Canada.
Speaker Change: We have a good sized medical business in the U S. We have the products.
Speaker Change: We're paying for anxiety for sleep for cancer patients for multiple medical reasons.
Speaker Change: We have the packaging of the products.
Speaker Change: We have the turbines we have in regards to genetics et cetera.
Speaker Change: So we would know how to market and package these products.
Speaker Change: With that why do I see that it would be allowed us theres not a grow facility out there that could ever supply that we it would take us about 60 metric tons.
And we have available to us today about 137 metric tons that could supply.
Speaker Change: Additional candidates that we could grow so I don't know, but just that's out there be opening getsy listener.
Speaker Change: <unk>.
Speaker Change: If there was a duty honest etcetera, you have to pay it I'm not sure why not you put.
Speaker Change: We shipped EU GMP products, all throughout Europe, coming out of Canada, and some of the best cannabis grown today comes out of Canada, you got to remember, we have 5 million square feet.
Speaker Change: So that is again just all speculation.
Speaker Change: If that would happen out there and I think the big thing medical cannabis if anything is going to legalize medical cannabis I think medical candidates ultimately we would be sold through drug stores.
Speaker Change: Through the medical market and would be prescribed by prescription and I do come back and I say this here.
Speaker Change: The Trump administration is into tariffs into duty into.
Speaker Change: Regulating stock and I think if you come back and I say, the Canadian market for Us and you may.
Speaker Change: So a lot of candidates in Canada, but we pay a lot of excise tax.
And there's billions of dollars paid each year in the Canadian market, you would take that as a 10 times and you think about the opportunity in the U S for the government's here to bring into that excise tax and eliminate illicit market. It's about the business and I think that's how the Trump administration ultimately we'll look at it.
Speaker Change: Thank you again, that's just my first.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.
Matt Bottomley: Good morning, everyone, maybe staying on the topic of regulation, but and.
And changes.
Matt Bottomley: But maybe moving over to the international side of things. So you have got solid detail $50 million to $60 million of annual contribution in your international.
Speaker Change: Line, the way that it's allocated and I'm just wondering I guess two questions. There. So the first is just the visibility on that line with respect to what's been recurring for some time now and growing in some of these select markets that you're in versus maybe things that are more opportunistic and are harder to predict so I'm just trying to get an idea of the.
Speaker Change: The underpinning of that current contribution you have in markets, where you have exposure and then the second side of that question would be as I alluded to the regulatory side of things anything.
Speaker Change: To note outside of your prepared comments I know, Germany is the market that a lot of us always like to talk about in the last little while I'm just wondering if there's anything else to add to that.
Speaker Change: Sequentially, our <unk> home.
Speaker Change: Now the question in terms of whether it's sort of ball debasement of business and whats more currently much opex notebooks, what I would say that we're very focused on building a sustainable very solid foundation of profitable growth. We look at our business in terms of building our foundation an awesome.
Speaker Change: <unk> terminal for example, with a very strong strong base of medical Armstrong business, which is predominantly reimbursed by insurance and very profitable, we look at that business and sort of our foundation.
Speaker Change: Flower business is booming proliferating for the new regulations. We are focused on also growing that as well and you can see that in our numbers and that we've seen a 55% growth since the legalization.
Speaker Change: So we're very focused on both sides and again, we don't believe that every dollar of revenue is created equal importance of add ons. We look at how do we create sustainable sales I'm going to repeat it.
Speaker Change: We're keeping.
Speaker Change: Each and every corner I'm, so thankful to format in Germany, and Poland were building at our Italian market.
Speaker Change: Very very small at the moment, but.
Speaker Change: As we build up a reputation a tool rentals and medical supplier of Canada.
Speaker Change: Favorable <unk> system.
Speaker Change: Reduce the impact that we are building a base of doctors.
Speaker Change: Our impact Untrusting total product.
Speaker Change: I think the big thing here, which we come back is number one we have supply number two is each of these countries today are looking at how we view the medical cannabis, France is going to win there ultimately.
Speaker Change: Certain products okay.
Speaker Change: K is a big opportunity for us So I think as you step back.
Speaker Change: Listen, there's a big focus on the countries.
Speaker Change: Medical cannabis is legal today.
Speaker Change: We have a facility in Germany, we have the facility in Portugal that can supply and we have supply available to us out of Canada.
Speaker Change: Right.
Speaker Change: Again like the U S.
Speaker Change: Additional countries that are going to continuously open up.
Speaker Change: And with our infrastructure and we have a large infrastructure in Europe. Today, you heard me talk about putting the office in the U K that will be our international office.
Speaker Change: We look to grow our international business at the same time, we're looking at the same strategy in the U S. Do reenter the beverage and spirits business and take some of our beverages spirits business, along with something else that.
Speaker Change: Do we acquire in the international markets.
Speaker Change: Okay, great. Thanks for all that.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Pavel <unk> with <unk> Associates. Please proceed with your question.
Speaker Change: Thank you first of all congratulations on the growth in international business look I have a quick question for Ty and then I want to follow up with you with regarding the U S.
Speaker Change: When I look at the <unk> Delta nine drinks market, it's mostly DTC right and in theory.
Speaker Change: Have an advantage with your distribution network to sell your products, but this is not a fast turning items. Yet. So is it seems to me it's more conducive to DTC people that are selling to report.
Speaker Change: Selling and shipping have those states from online orders any quick thoughts on that.
Speaker Change: Yes. Thanks.
Speaker Change: For the question.
Speaker Change: Actually we see the broader opportunity in brick and mortar.
Speaker Change: When we talk to retailers and distributors.
Speaker Change: We see both convenience.
Liquor stores.
Speaker Change: There is a big national chain Thats.
Speaker Change: Leaning into HD, nine and a really really strong way.
Speaker Change: We absolutely are exploring and are taking part of D to C. But.
Speaker Change: We see the much bigger opportunity in brick and mortar.
Speaker Change: And when you look at the consumer and what's happening in this segment and you can look at some big chains.
Speaker Change: And with Xena or what's happened over the last couple of years in Minnesota.
You can clearly see that there's a consumer demand.
Speaker Change: In brick and mortar stores to go.
Speaker Change: To be able to look at brands there as you know.
Speaker Change: There are.
Speaker Change: Players like us that clearly are going to be the adults in the room that have all the all the regulations ticked and tied.
Speaker Change: But but I actually see the bigger opportunity in brick and mortar not not DTC.
Speaker Change: And Pablo Thanks, Greg we have today.
Speaker Change: We have support Apollo we have supported many states already with hei.
Speaker Change: We're working with partners to educate Congress.
Speaker Change: <unk> nine is.
Speaker Change: And how it should be best regulated.
Speaker Change: We would like it to be a regulated like alcohol and sold through alcohol distributors.
Speaker Change: Today, There is total wind you can go in and buy the product.
Speaker Change: We see fine line and 40 can buy the product so brick and mortar absolutely is ultimately.
Speaker Change: Where we absolutely want it but direct to consumer is something that we would absolutely look at too.
Speaker Change: Yeah, no understood agreed yet.
Speaker Change: Regarding the U S I'm going to make you repeat what you already said you have this vision, how medical cannabis could be federally legalized in the U S of course, we'll see how that plays out.
Speaker Change: You recently appointed Stephen point to your board.
We look at some of your peers they cannot be growth in SDL building beachheads in the U S with Motorola Reg type of focus.
Speaker Change: I just want to understand given you are apparent evolving views in terms of how the U S Mi.
Speaker Change: Deregulate, especially with the New administration, how are you thinking about when and how to maybe follow the model of some of your peers in terms of trying to build beachheads on the Reg side, you try to do that with Mad men and Im wondering how youre thinking of that right now thank you.
Listen good question and I think.
Speaker Change: Slide buying somewhat like a lottery ticket outlook, but I think.
Speaker Change: My my strategy.
Speaker Change: So March so far is we would be ready for it and could be ready for it in a very quick period of time, we have an infrastructure of a whole medical group in Canada, we have an infrastructure in Europe and put the team together within 90 days, we could be in the medical cannabis business in the U S.
Speaker Change: Dependent upon what legalization is and I've seen a lot of companies go out there and buy options do things that never came to for tuition and spent a lot of money.
Speaker Change: We did buy the debt of Mad men, we still own the IP for the brand medicine.
Speaker Change: So with that we have a close eye on it.
Speaker Change: Right now our focus is on Delta nine groups, which we think is a big opportunity.
Speaker Change: Like I said, we'd love to be able to sell.
Speaker Change: And let me take something that we could sell our our cannabis medical cannabis in Canada $250 million business that added 2% to 3% that would be great.
Speaker Change: Very.
Speaker Change: <unk> two.
Speaker Change: But until legalization until things change and my thing is the Trump organization will look at this year, just because of the dollars it will contribute to <unk>.
Speaker Change: Bringing in more tax dollars and also eliminating.
Speaker Change: From the illicit market and eliminate eliminated all the confusion, helping with say bank when do I think it will happen as I've said before I think that will happen. During this administration, but I did say it would happen during the Biden administration too, but I think.
Speaker Change: Oregon. This administration is much more business opportunistic and we'll look at it with right regulation I think thats whats important here.
In the meantime.
In the meantime.
Speaker Change: The good thing of which I've said are both correct. We have built a really strong business in the U S. Today with our beverage business with our spirits business in our wellness business.
And I will mention there is a big focus today.
Speaker Change: On growing our wellness business and whether it's additional acquisitions additional opportunities with hemp, which we think is.
Speaker Change: High protein fiber products and that's a big.
The opportunity for <unk>.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Speaker Change: Thank you and good morning.
Michael Lavery: Good morning, I wanted to follow up on a couple of things I guess.
Speaker Change: First on the Delta nine beverages.
Speaker Change: Traction, especially that you just called out.
Speaker Change: Louisiana, Minnesota.
Speaker Change: It's proven to be strongest where there is an adult use opportunities.
Speaker Change: Legal at the state level, how much do you sort of account for that as a potential limitation.
Speaker Change: How does that shape some of your thinking and then just on the guidance.
Speaker Change: I know you went through some of that earlier.
Speaker Change: Earlier question just wanted to follow up on how.
Speaker Change: The SKU rationalization timing fits in with that.
Speaker Change: In part of the guidance thinking all along or has it changed I mean, if it's nowhere is it the innovation thats new to offset it just help us think about potential puts and takes there.
Speaker Change: So first of all in regards to where do I see the big States and the big opportunities, Texas, Florida, Georgia, or some of the Big States and which are big beer States.
Speaker Change: <unk>.
Speaker Change: Opportunistic states for us immediately come back and look at the size of those states and some of the biggest states out there and there are some of the biggest markets, where we sell beer today.
Speaker Change: So that is where I see our big opportunities from our standpoint there.
Speaker Change: In regards to our guidance and our SKU rationalization. So far are we've taken approximately $17 million to $18 million of sales.
Speaker Change: But a $2 million EBITDA hit.
Yeah.
Speaker Change: Again, theres probably another.
Speaker Change: They are covering about $10 million and SKU rationalization that will come out of our top line sales now again, what you heard us say whatsapp, what's happening now.
Speaker Change: Those sales that can note, we're replacing them with new products and faster selling skus.
Speaker Change: And then I guess.
Speaker Change: It's a rotation of those products.
Speaker Change: Not everything gets on timing, but it's taking lower margins a lot slower selling skus out and replacing them with new products higher selling higher selling products and higher margin products to replace those.
Speaker Change: And then we should understand that as your color on the spring shelf resets.
Speaker Change: Having that in hand.
Speaker Change: One for one swaps.
Speaker Change: I didn't understand you broke up on that question.
Speaker Change: Yes, when you were saying how the innovation.
Speaker Change: Offset the SKU rationalizations.
You were talking about the better.
Speaker Change: Better timing. This go round for the shelf resets in the spring should we understand that you've got that in hand, and Rd set to go.
Yes, I mean, theres a timing on that too.
Speaker Change: It's going to be approximately $20 million to $25 million of sales that are coming out, but we would hope.
Speaker Change: With our new products.
Speaker Change: And our faster selling skus with more space, we would make up the sales in dental but there is a lag time on some of that too. It just doesn't all happen at once.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thank you.
Mr. Simon: 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.
Mr. Simon: Well, thank you everybody.
Speaker Change: Jumping on our call today, and first and foremost I want to put our thoughts with everybody in Los Angeles that has gone through therefore.
Speaker Change: Buyers out there that have lost their homes and we're thinking of you and.
Speaker Change: Also what.
Speaker Change: What happened in New Orleans, we're living in an interesting world out there.
Speaker Change: <unk>.
Speaker Change: From a standpoint of kore.
Speaker Change: As I sit here today and look at what we're doing in trying to understand the growth of this company.
Speaker Change: When you look at the cannabis industry and what we've done in Canada over the last five years.
Speaker Change: CIT and build out facilities today, we have 5 million square feet of growing candidates day with over a 1 billion plus dollars that we've invested in building out those facilities.
Speaker Change: In regards to our breweries today, we have 10 breweries today that produce our product 20 blue houses, we have a distillery in breckenridge, we have manufacturing facilities.
In Winnipeg, Canada that produce our hand, and then we have two facilities in.
Speaker Change: In Europe that produces and grow cannabis medical cannabis for us So we have an incredible.
Speaker Change: Incredible infrastructure out there to produce us with 90% of our products.
Speaker Change: We have today over 40 different brands, whether it's in beer, whether it's in spirit, whether it's in Canada, whether it's in our wellness products.
Speaker Change: And we have an incredible team that I get to work with to help bring all this together from a manufacturing standpoint from an operational standpoint from a distribution standpoint from a sales and marketing standpoint.
Speaker Change: Last but not least we're building something different out there there is no company out there today, that's in the cannabis business the wellness business in the beverage business and bringing it all together.
Speaker Change: Were handcuffed by regulation.
I wish to moral I can start selling cannabis in the U S and how big opportunity is not a lot of companies just can't sell new products and growth there and do it I wish I could set of cannabis infused drinks in the U S.
Speaker Change: I'm limited in Canada of how much I can do in Canada, and my contribution as I pay a $1 per gram in excise tax the richest cannabis company in Canada today as the Canadian government.
Speaker Change: And we spend about $155 million.
Speaker Change: In excise tax in Canada higher than beer higher than line higher than spirits, and some of the highest excise tax or anything in.
Speaker Change: And that's one of the biggest challenges you think how much we sell in Canada today, and it's still from a profitability standpoint, because it just has a higher excise tax.
Speaker Change: The beer category is changing dramatically and we will continue to change it.
Speaker Change: We'll make beer fun again, we will make a unique open up with new products.
Speaker Change: With R&D see under now the beer group.
Speaker Change: Brian note working with Ty lots of opportunities, we see in spirits today, with our Bourbon gin and vodka.
Speaker Change: My past I come from wellness foods.
Speaker Change: I think wellness is something thats going to be around forever and hemp is it going to be a big part as an ingredient is a food and we're going to look at other opportunities within the wellness area and last but not least international one of our.
Speaker Change: Fastest growing business today, one of our most profitable business today, and we look at it at 700 million people. So theres a lot of great DNA within till right today Theres a lot of great businesses with Intel right today, we reached a $1 billion Mark.
Speaker Change: And its taken companies like Tesla Amazon.
Speaker Change: Microsoft long time, and we've been adding <unk> five years.
Speaker Change: We really got a great strategic plan.
Speaker Change: A great plan to bring it together so stay tuned I appreciate the support listen I don't like how our stock perform but I got to tell you behind a stock out will be a great company and that's ultimately what we're trying to build out there and thank you for your support. Thank you very much for listening today, just be safe out there and again my thoughts <unk>.
Speaker Change: Two people in L. A massage close with people in New Orleans, and the rest of the world. Thank you very much.
Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.