Q3 2025 Tilray Brands Inc Earnings Call

Speaker Change: To Clemont Moon, Jimmy Phillips, Malcolm Metzen, Stephen Price, Sybil Norman, Steven Durant Sue Graduate School, Nebraska State Motervas

Speaker Change: [music].

Speaker Change: Thank you for joining today's conference call to discuss jewelry brands financial results for the fiscal 2025 third quarter ended February 28 2025.

Speaker Change: 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.

Speaker Change: I will now turn the call over to MS Beringer Otter tail.

Speaker Change: Hillary branch Chief Communications, and corporate Affairs Officer. Thank you you may now begin.

Speaker Change: 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 rate Dot com and has been filed with the SEC and the C. S E P.

Speaker Change: 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 earnings.

Speaker Change: 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.

Speaker Change: And unknown risks and uncertainties, which may prove to be incorrect actual results could differ materially from those described in those forward looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward looking statements.

Speaker Change: Today, we will be hearing from key members of our senior leadership team beginning with Irwin, Simon Chairman and Chief Executive Officer, Ty Gilmore President's till right beverage North America, who will provide an update on our beverage business and Carl Merton Chief Financial Officer, who will review, our third quarter financial results for the fiscal year 2020 five.

Speaker Change: Also joining us for the question and answer segment are are Denise faulty check Chief strategy Officer, and head of International and Blair Mcneill President of Tillery, Canada, and now I'd like to turn the call over to jewelry brands, Chairman and CEO Irwin Simon.

Irwin Simon: Thank you Barry and good morning, everyone and thank you for joining US today. The array brands is at the forefront of the beverage cannabis and walnuts industries on a global basis.

Irwin Simon: We are expanding into new markets developing integrated consumer products that reflect how people eat drink relax and received relief from medical dishes.

Speaker Change: Other treatments have not been effective.

Speaker Change: And five years, our team has transformed <unk> from a business relying on cannabis legalization for growth into a diversified consumer products company, providing specialty beverages cannabis and wellness products worldwide.

Speaker Change: Barry cannabis habits for thousands of years these industries and their consumers are here to stay they are not going anywhere and neither is still right.

We're here to say with our strengthened balance sheet, our strong brands, our strong businesses and our global operations. There's a lot of value until ready today that is not reflected in our current market cap and stock price.

Speaker Change: <unk> is uniquely positioned as the only consumer company with a diversified portfolio of beer spirits cannabis and wellness products.

Speaker Change: Personally don't think people understand the value platform that we have three didn't have today.

Speaker Change: In a recent analyst report it was identified that.

Speaker Change: The increasing dual past month use of cannabis and alcohol, which is heightened among young adults with a 36% of illegal alcohol users in their twenties. Guernsey also consuming candidates up 14 points, the past decade and on pace for 50% of young.

Speaker Change: Adult users can dual use cannabis within the next 10 years staggering numbers.

Speaker Change: <unk> continues to advance in the sectors of beverage spirits canvas and wellness by innovative products manage costs efficiently and expanding internationally.

Speaker Change: Pettitte pace, while other companies are adopting similar models to remain ahead in several areas, including vertically integrated operations established portfolio of diversified brands and a comprehensive distribution network with a global reach.

Speaker Change: Regarding tariffs duration firms no current impact after analyzing the recently announced tariffs on international trade, we conclude that they are unlikely to substantially affect our sales and cost.

Speaker Change: In the U S. Our American craft beer and beverage brands are manufactured in the U S and distributed in the U S market in Canada, where a majority of our cannabis cultivation has grown our Canadian cannabis brands are produced in Canada for Canadian consumers and international markets, our medical cannabis brands and products are produced for local pace.

Speaker Change: And then our wellness business, we have received confirmation that Manitoba harvest is exempt from the new tariffs.

Speaker Change: 'twenty 'twenty, we've made seven acquisitions in the beverage craft beer and spirits sectors, we've introduced new categories, including non alcoholic beverages, not allow fears waters and hemp derived THC drapes.

Speaker Change: In the U S. We have tended to every facilities and over 500 distributors. When we acquired the a b I am most of the craft brands. They were not profitable we have built a new platform and infrastructure capable of revolutionizing the beer spirits and beverage industries and we're focused on.

Speaker Change: Capturing every opportunity to attract a broader consumer base, including new opportunities in the international markets, such as new ventures into Europe that will introduce our brands to the United Kingdom and other regions with local operations leveraging the infrastructure that we have built in the U S.

Speaker Change: Pi will provide further details regarding our beverage businesses spend is execution.

Speaker Change: Accordingly, we are laser focused on building a sustainable global business platform in terms of profitable sales growth improving profit margins and cash flow generation and maintaining a solid balance sheet that can help fill rate navigate market challenges and make use of strategic opportunities.

Speaker Change: As Carl will discuss in detail in the third quarter, we delivered our highest cannabis gross margin in almost two years and our net debt is less than one times EBITDA.

Speaker Change: We will not see sales growth just for the sake of growth. It is not additive to our bottom line and accretive to our shareholders.

Speaker Change: In the third quarter, we generated $186 million and net revenue or $193 million on a constant currency basis in the quarter, we implemented strategic initiatives aimed at enhancing our business operations over the mid and long term these measures focused on.

Speaker Change: Improving margin and profitability as well as driving long term operational efficiencies rather than pursuing revenue growth at any cost or in a non sustainable manner.

Speaker Change: However, these decisions came with short term impact in the third quarter and impacted our revenue by about $13 million.

Speaker Change: If we eliminate the impact of these strategic decisions and candidates and SKU rationalization in our beer business adjusted net revenue increased 10% to $206 million in the quarter.

Speaker Change: Our margin expansion efforts across each of our businesses, including beverage cannabis a wellness led to a 5% increase in gross profit and a 200 basis point increase in gross margin to 28% compared with the prior year period.

Speaker Change: Our balance sheet remains strong with ample cash and marketable securities totaling $248 million.

Speaker Change: During the fiscal year to date, we've also reduced debt levels by $58 million positioning us to pursue strategic acquisitions.

Speaker Change: These new opportunities and capitalize on market trends.

Speaker Change: Our cash burn is primarily resulted from investors and beverage set.

Speaker Change: Settling the legacy lawsuits and capital expenditures aimed at operational growth opportunities, we're committed to expanding our business, while managing our debt responsibly are.

Speaker Change: Cannabis wellness and distribution segments are generating positive operating cash flow and we're on track to drive growth in our beverage businesses.

So ray brands has demonstrated remarkable resilience and maintained its fundamental strength despite market challenges include.

Speaker Change: Including a tougher February than expected across both cannabis and beverage alcohol industry.

Speaker Change: <unk> continues to operate the largest legal cannabis business in Canada by revenue lead the medical cannabis business is in Europe and continued to dominate in the branded hemp high protein foods sector in North America with nearly a 60% market share in the U S and 80%.

Speaker Change: In Canada, we ranked as the fifth largest craft beer business in the United States.

Speaker Change: We are also leveraging advanced technology to align with our shareholders' interest.

Speaker Change: Consumer up tomorrow, enhancing efficiency and driving growth.

Speaker Change: <unk> is being implemented across our global platforms, we're combining AI driven data insights with advanced horticulture automation technology and global greenhouse operation. This integration allows real time management of greenhouse conditions, leading to increased efficiency higher out.

Speaker Change: Fourth improve quality and reduce cost per resources, such as labor water and energy. Additionally, kill Ray players to accept crypto currency as a payment method and its online operation and is exploring strategic initiatives related to crypto currency.

Speaker Change: That all aligns with our business goals.

Speaker Change: That is just to be here at <unk> brands is that a transformational point in its journey, our strategic initiatives innovative product development and robust infrastructure are propelling us towards unprecedented growth, we've harnessed efficiency across our businesses facilities and systems and our workforce globe.

Speaker Change: Blue ensuring we are prepared to capitalize on every opportunity.

Speaker Change: I also like that being one of the largest individual shareholders until ray brands, along with my team combined we own approximately 1% of til Ray brand stock, we along with our shareholders are impacted by the decline in our stock price and we are 100% fully invested in the positive trajectory.

Speaker Change: Performance of our stock price.

Speaker Change: Again, we are laser focused on building sustainable global business platform and believe our further growth performance will recognize and reward our shareholders.

Speaker Change: Now turning to Canada.

Speaker Change: In fiscal Q3, our global cannabis business generated $54 million.

Speaker Change: Of net revenue and $57 million on a constant currency basis and increased gross margin by 800 basis points year over year, our gross margin of 41% were the highest in almost two years growth in our international and our strategic decision not to participate in margin dilutive category.

Speaker Change: In the Canadian adult use market is driven margin improvements in fact, our global medical business when combining international Canada now accounts for approximately 80% of our tangible arberg polo cannabis profits, even though they contributed only approximately 35% of sale.

Speaker Change: <unk>.

Speaker Change: As a side point, we would say to investors only focus on a reported sales figure to pay more attention to gross profit dollars and potential drivers of profitable growth in the future.

Speaker Change: If the United States legalize medical cannabis it could mean, an additional $250 million per until rate potentially capturing 2% to 3% of the U S medical cannabis market.

Speaker Change: Til rate is not subject to any of the $2 80 tax obligations in the U S to raise cannabis advantage lies in this global scale and experience our top tier ability to cultivate large scale pharmaceutical grade cannabis with strict quality control standards.

Speaker Change: Our established medical brands and product innovation are already improving patients lives and legal markets, such as Canada, Germany, Portugal, and various other European countries.

Speaker Change: Regarding our international business in Q3, we saw quarter over quarter and year over year revenue growth in Germany, Italy, Luxembourg in Portugal.

Speaker Change: Our medical cannabis sales in Germany grew significantly with flower sales, increasing 79% post legalization and extract sales increasing 31% post legalization. This is a significant increase from the end of our second quarter, where we saw our post legal.

Speaker Change: <unk> flower and extracts increased 55% and 24% respectively.

This growth was driven by higher patient demand in the market.

Speaker Change: As I mentioned earlier, a large focus of our strategic growth initiatives from our Canada segment is redirecting inventories to international medical cannabis markets in order to capitalize on the higher margins available in such markets.

Speaker Change: Taking this one step further given the increasing demand in Germany, and the margins in Germany are the highest in the international markets. We are also allocating more of our inventory to that market to further enhance our profitability.

Speaker Change: At the end of Q3, we introduced <unk>, our new brand extension of the <unk> Medical brand in Germany, which aims to offer unique flower operations with higher THC and higher <unk> content and are derived from novel genetics in order to address the evolving needs of patients.

Speaker Change: We are cultivating high quality medical cannabis at our <unk> facility in Germany, using price holdovers from Canada exclusively for the German market. We're excited to launch our new medical cannabis flower, which is expected to be in the fourth quarter.

Speaker Change: Today, we are now providing high quality medical cannabis flower to Germany from our global facility in Canada, Portugal, and Germany, which is allowing us to be laser focused on product quality genetics cost per gram for our international markets. This coupled with our regulatory direct distribution.

Speaker Change: <unk> to wholesaler and pharmacies with our Cc pharma medical distribution business continues to differentiate us from competitors and allows us to quickly service our customers and patients.

Speaker Change: Turning now to Canada, we continue our focus on quality of revenue and it is shown in our margins in the quarter. We shipped three two metric tons of flower to support the international market as I previously said where margins are stronger than in the Canadian market. However.

Speaker Change: International sales and margin earned on them will not be recognized until ship to our customer predominantly in the Q4 caused a temporary timing delay on all our overall cannabis sales of $3 $2 million during the quarter.

Speaker Change: As I mentioned earlier, we remain the leader in the Canadian cannabis market by revenue, which is still the largest federally legal cannabis market in the world. We maintained our number one position in beverages chocolate edibles oils capsules and straight edge pre roll and the cannabis flower category, we were the number two <unk>.

Speaker Change: <unk> share position, despite giving up share on lower margin skus in favor of higher margin opportunities.

Speaker Change: In an environment, where constrained by tight regulation price compression and excise taxes, we remain laser focused on utilizing process improvement and investing in capex to drive margin improvement.

Speaker Change: Since fiscal 2024, we have reduced our cost per unit by 40% and expect an additional 20% cost reduction by the end of fiscal 'twenty five.

Speaker Change: In parallel our operations teams have been working hard on optimizing our extraction capability by leveraging our state of the art extraction chamber. So that all our remaining biomass gets utilized at a significantly reduced cost.

Speaker Change: As a result, we can expect healthier margins in our baseline business and growth in two of the fastest growing categories in <unk> and infuse pre rolls.

Speaker Change: On the cultivation side, we have the most flexible footprint in the global cannabis industry on our product range caters to diverse consumer segments, including premium with broken Coast Main street with Red <unk> can.

Speaker Change: And with value with good supply it was the fastest growing flower brand in Canada growing by 40 bps in the third quarter over the past couple of years, we have built a strong genetic pipeline across all our facilities totaling over 400 unique genetics.

Speaker Change: We of course have rose across all our consumer taste profiles. Additionally, we can add an additional 70 metric tons to our capacity when the market requires it.

Speaker Change: In the th beverage category <unk> had a leading market share of 45% with ex energy and mono brands ranking number one and number two respectfully with multi pack formats poised to enter the marketplace. We remain confident that beverages are significantly underrepresented in.

Speaker Change: In Canada, we anticipate capturing additional market share in this category, which is projected to experience substantial growth as regulatory environment improve.

Speaker Change: <unk> is well positioned for long term success in the Canadian cannabis market with a facility footprint, a proxy 5 million square feet and the capacity to produce over 200 metric tons of candidates.

Speaker Change: Our value chain and business process are the best in the industry and are optimized to enhance efficiency if the Canadian cannabis excise tax reduced by $1 per Gram to 50 cents per Gram and its Canada strengths were sold at the LCBO in convenience stores, we have foreseen.

Speaker Change: A tremendous amount of annual revenue opportunity that till right is positioned to capture.

Speaker Change: Turning to our two re wellness business as consumers become increasingly health conscious we continue to see steady growth as our revenue was $14 million in the quarter, we delivered 8% net revenue growth compared to the prior year on a constant currency basis. This growth was driven by Manitoba.

Speaker Change: Harvest supersede innovation and the expansion of our wellness beverages, including high ball energy Highball energy is a zero calorie caffeinated seltzer with the clean label available on Amazon, where experienced 68% growth in the last six months and available nation.

Speaker Change: Wise at whole foods market retail stores later this month.

Speaker Change: Our strong focus on costs helped the business unit improved margin delivering 180 basis points, increasing gross margin year over year. The margins are driven by a more favorable sales mix and productivity savings generated at our manufacturing facilities.

Speaker Change: <unk> is exploring further expansion opportunities in the wellness sections boasted wellness foods and wellness beverages in the months to come we will continue to diversify and expand the Manitoba harvest portfolio in North America and to begin to bring brand new international sales.

Speaker Change: We see the success of high ball as a validation that till ray wellness as the right infrastructure and experience to build and acquire a more broad based wellness beverage portfolio.

Speaker Change: With that I will turn the call over to Ty Gilmore President until Ray beverages of North America to tell you more about what's happening at til rate beverages tie.

Ty Gilmore: Thank you Irwin building on <unk> point in Q3, our beverage business generated 56 million in net revenue and increased gross margin to 36% compared to 34% in the prior year quarter.

Ty Gilmore: A day till Ray beverages operates more than 20 beverage brands, including 15 American craft beer brands across 10 network manufacturing facilities.

Ty Gilmore: <unk> brew pubs restaurants in a single integrated sales and marketing team operating nationwide we.

Ty Gilmore: We are focused on profitable expansion.

Ty Gilmore: Last quarter, we announced project for 'twenty our.

Ty Gilmore: Our strategic plan to integrate our craft beer businesses optimize operations.

Ty Gilmore: Vitalize the growth of our acquired brands.

Ty Gilmore: Copper, hence of initiative focuses on SKU rationalization.

Ty Gilmore: Geographic and distribution consolidation, all aimed at enhancing margins and profitability through portfolio optimization operational synergies and cost savings.

Ty Gilmore: In Q3, we increased our project for <unk> cost savings target to $33 million.

Ty Gilmore: Of which we have already achieved $26 million on an annualized basis.

Ty Gilmore: By working closely with our distributors in various markets, we streamline our portfolio to eliminate duplicate and slower growth products as well as the decision to concentrate our brands in the regions that they have the most strength.

Ty Gilmore: Impacting revenue to date by approximately $14 million.

Ty Gilmore: Together, we are poised to meet consumer preferences head on and drive growth and innovation in the beverage alcohol category.

Speaker Change: So ray beverages has successfully established itself as the number one craft supplier in Metro New York with Montoc Brewing and Bluepoint brewing brands.

Speaker Change: The number one craft supplier in the Pacific Northwest across Oregon, Washington, and Idaho, with our 10 barrel brewing Red Hawk Hop Valley, and Widmer Brothers Brewing brands.

Speaker Change: So ray is the number two craft supplier in the southeast and Florida, and Georgia, with Sweetwater Brewing Terrapin and shock top.

Speaker Change: And the number four craft supplier in Colorado, According to <unk>, Canada data.

Speaker Change: Our.

Speaker Change: <unk> execution as led to focus on strategic brand growth with shock top increasing 44, 8% in the southeast food channels.

Speaker Change: Sweetwater growing 1% and southeast food channels.

Speaker Change: Brackenridge brewing growing two 7% in Colorado.

Speaker Change: In Montauk burrowing showing steady growth with one 7% growth in New York Metro area.

Speaker Change: And 10, 5% growth in the northeast.

Speaker Change: Across strategic channels.

Speaker Change: We're a big Ballard is growing 7% across the convenience channel Terrapin hop secure shneur growing three 4% in Georgia food and Alpine in Green class growing 35, 5% in California convenience channel for the quarter.

Speaker Change: And we are not done as we continue to seek profitable sales growth.

Speaker Change: To meet the consumer demand for value trusted brands and disruptive innovation, we are focused on investments across the following segments.

Speaker Change: One.

Speaker Change: We created a new consumer segment craft light lagers with the introduction of pub beer at below core price points.

Speaker Change: We are now scaling this proposition across regions, including Sweetwater die beer in the southeast Long Island light from Bluepoint Brewing Company in New York.

Speaker Change: Water light in Michigan.

Speaker Change: And soon.

Speaker Change: Revolvers, you All's beer in Texas.

Speaker Change: This strategic move has positioned us to capture a broader consumer base in line with the trends mentioned earlier.

Speaker Change: Two.

Speaker Change: Our non alcoholic beer brands and product portfolio is also showing promising momentum.

Speaker Change: We've recently introduced a second Montoc SKU for new Yorkers with RNA IPA.

Speaker Change: Runner's High has recently increased distribution across 4500 retailers, demonstrating our ability to capitalize on the growth trend of the non alcoholic craft beer segment.

Speaker Change: Three and the spirits category Breckenridge distillery has proven its strength in the Bourbon sector experiencing higher depletions compared to others in a declining market.

Speaker Change: It has also made significant progress in the vodka and gin markets complemented by the World class restaurant and retail operation.

That provide an immersive brand experience.

Speaker Change: Our primary objectives.

Speaker Change: Growing our spirits business start to expand distribution of Breckenridge, Bourbon vodka, and gin and to launch World class innovation across tequila, non op spirits and to capitalize on the evolving shocks segment with innovative branding and packaging.

Speaker Change: And for <unk> and.

Speaker Change: And last but not least in the hemp derived THC drink segment.

Speaker Change: Array alternative beverage business is uniquely positioned to leverage the expertise of our hemp wellness business and our cannabis business to formulate great tasting beverages responsibly infused with five and 10 milligram of hemp derived THC.

Speaker Change: In the quarter <unk> expanded distribution of hemp derived THC across 10 states, including Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Minnesota, and New Jersey, and online direct to consumer.

Speaker Change: We estimate that our HDD nine drink.

Speaker Change: Folio are sold across 1000 distribution points.

Speaker Change: In addition to happy flower busy Jane and urban Bloom, our Mark tells in Seltzer brands, we are introducing for 'twenty fizz, a low calorie sweeteners and flavors flavor full soda proposition.

Speaker Change: So ray is also leveraging our established robust national beverage distribution network across our independent retailers convenience stores package stores, including multistate retailers, such as total wine and ABC, who are very excited about this category and new growth.

Speaker Change: <unk>.

Speaker Change: And with that I'd like to turn the call over to Carl to discuss Q3 financials.

Speaker Change: Paul.

Speaker Change: Thank you Ty as a reminder, our financial results are presented in accordance with U S GAAP and in U S dollars.

Speaker Change: Let's now review our quarterly performance for the three months ended February 28 2025.

Speaker Change: In Q3, which is one of our seasonally lowest quarters.

Speaker Change: Net revenue was $185 8 million compared to the.

Speaker Change: The previous year quarter net revenue of $188 3 million. However, on a constant currency basis, net revenue was $193 million or up 2%.

Irwin Simon: Further as Irwin already mentioned, we made several strategic decisions during the year, which impacted our Q3 revenues, including the decision to allocate three two metric tons of candidates from the Canadian market to international markets, where the revenue from that allocation plus an incremental $2 five metric.

Irwin Simon: Funds will be earned predominantly in Q4.

Irwin Simon: Our decision to focus on margin and not revenue temporarily in the vape and infuse pre rolled space, while we completed significant improvements to our industrial extraction process and the decision to engage an SKU rationalization program in the beverage business.

Irwin Simon: The Q3 revenue impact of the allocation of cannabis to international markets pushed approximately $3 $2 million and Canadian sales in Q3 to later quarters.

Irwin Simon: Illustrative Lee three two metric tons of cannabis sold in the international market should result in at least $10 million of revenue.

Irwin Simon: The Q3 revenue impact of focusing on margins within with vape and infused pre rolls resulted in a decrease in year over year revenue of approximately $4 million.

Irwin Simon: The Q3 impact of the beverages SKU rationalization was approximately $6 million.

Irwin Simon: If those elements were included in our constant currency revenue number for the quarter, we would've reported $206 million.

Irwin Simon: By segment beverage net revenue was $55 $9 million, but would have been over $60 million. If we had not made the strategic decision as previously discussed.

Irwin Simon: <unk> net revenue was $54 3 million.

Irwin Simon: We would also have been over $60 million. If we had not made the strategic decisions previously discussed.

Distribution net revenue was $61 $5 million and wellness net revenue was $14 $1 million in the quarter.

Gross profit increased by 5% to $52 million.

Irwin Simon: Compared to $49 4 million in the prior year quarter.

Irwin Simon: Gross margin increased 200 basis points to 28% from 26% in the prior year quarter.

Irwin Simon: Selling general and administrative costs decreased $1 $2 million from the prior year, when excluding an increase of $4 $4 million in bad debt that was a result of us reversing a previous bad debt in the prior year.

Irwin Simon: Like many industries and businesses impacted by the decline in the stock market since November.

Irwin Simon: We are reporting a $700 million noncash impairment related to macroeconomic conditions, including market volatility and the perception of the reduced likelihood of U S. <unk> European candidates regulatory change in the short term.

Irwin Simon: Primarily as a result of this noncash impairment we are reporting a net loss of $793 5 million.

Irwin Simon: Compared to a net loss of $105 million in the prior year quarter.

Irwin Simon: With almost 700 of the $79 1 million of noncash costs, including the $700 million noncash impairment.

Irwin Simon: $20 million of noncash fair value changes on our previous Mad men notes.

Irwin Simon: And $22 3 million of noncash foreign exchange losses.

Irwin Simon: On a per share basis. This amounted to a net loss of 87 per share compared to <unk> 12 per share in the prior year quarter.

Irwin Simon: On an adjusted net loss basis, the loss was close to breakeven at $2 9 million compared.

Irwin Simon: Compared to the adjusted net income of <unk> 9 million in the prior year quarter.

Irwin Simon: On a per share basis. This resulted in an adjusted EPS of zero cents per share for both periods.

Irwin Simon: Adjusted EBITDA was $9 million compared to $10 2 million in the prior year quarter.

Irwin Simon: The decrease in adjusted EBITDA from the prior year is primarily related to the impact of allocating candidates to international markets of zero point $6 million.

Irwin Simon: The SKU rationalization, and our beverage business of $1 million.

Irwin Simon: Cash flow used in operations was $5 8 million compared to $15 4 million in the prior year quarter.

Irwin Simon: Adjusted free cash flow was negative $18 $2 million compared to positive zero point $6 million in the prior year quarter, largely as a result of an increased demand on our working capital, including settling multiple litigation matters increases in inventory at Delray pharma as it prepared to stock pharmacist inventories for.

Irwin Simon: The summer holidays.

Irwin Simon: Increases in inventory and beverages as we prepared for the seasonality of beverage sales in the fourth quarter, all offset by a significant decrease in Canadian cannabis inventory levels.

Irwin Simon: In addition, we invested $7 $8 million in Capex within the beverage segment investing in the business to grow future revenues and reduce our cost structure.

Irwin Simon: For the year, we settled several legacy lawsuits inherited from acquisitions and the free a class action for a total of $11 $1 million. Those lawsuits had original claims of over $265 million.

Irwin Simon: Turning now to our four business segments. Despite recent skepticism on the industry, we believe that the beer and spirits markets are not going away, but rather are in flux based on changes in consumer preferences and purchasing patterns.

Irwin Simon: To capitalize on those trends, we created project for 'twenty, which focuses on four key elements.

Irwin Simon: Our SKU rationalization focus on our best performing brands introduction of key innovation and extension into adjacent beverage categories like water non alcoholic drinks and HDD nine dreams.

Irwin Simon: Our geographic rationalization focus on our regional dual strategy.

Irwin Simon: Our distributor rationalization to reduce our over 700 distributors to approximately 500 distributors and our synergy plan to optimize our cost structure.

Irwin Simon: During the quarter, we increased our synergy plan to $33 million up $8 million from the previous quarter, and we are well on our way with $26 million already achieved.

Irwin Simon: Fiscal year to date, the SKU rationalization plan lowered our revenues by $14 million.

Irwin Simon: For the fiscal year ended May 31, 2025, it is anticipated that the cumulative impact of these initiatives.

Irwin Simon: <unk> and a reduction of approximately $20 million in net revenue.

Irwin Simon: Which we believe will be offset by the growth of our new product innovation, including the new beverage categories in brand extension over the next 12 months.

Irwin Simon: For the quarter beverage net revenue was $55 9 million.

Irwin Simon: Our 2% growth compared to $54 7 million in the prior year quarter.

Irwin Simon: As previously discussed without the impact of the strategic decisions identified earlier beverage net revenue would have been over $60 million.

Irwin Simon: Beverage gross profit increased to $20 million compared to $18 9 million.

Irwin Simon: Beverage gross margin was 36% compared to 34% in the prior year quarter.

Irwin Simon: The improvement in gross margin was a result of our efforts and integrating and optimizing our facilities as well as a favorable product mix.

Irwin Simon: Gross cannabis revenue of $73 million was comprised of $49 3 million in Canadian adult use revenue.

Irwin Simon: $13 9 million and international cannabis revenue.

Irwin Simon: $5 8 million in Canadian medical cannabis revenue $3 $9 million in wholesale cannabis revenue, all offset by $18 $7 million in excise taxes.

Irwin Simon: Net cannabis revenue was $54 3 million and $57 5 million on a constant currency basis compared to $63 4 million in the year ago period.

Irwin Simon: As previously discussed the strategic decision to focus on margins in <unk> and infused pre rolls impacted revenue by $4 million in the quarter and the decision to ship three two metric tons of candidates that would have been sold in Canada in Q3, the international markets for sale in later quarters impacted revenue by approximately.

Irwin Simon: $3 2 million.

Irwin Simon: But for these items net cannabis revenue would have been $64 $7 million on a constant currency basis.

Irwin Simon: A decision to preserve margin on vapor and infuse pre rules also had an impact on candidates gross margins and we actively participated in those markets. Following the incremental $4 million in the quarter. It would have had in over $3 million negative impact on the gross profit we are reporting.

Irwin Simon: Now that our extraction capital projects are completed and we will be able to participate more aggressively in <unk> and infused III rules, we do not anticipate a revenue impact continuing past the midpoint of the fourth quarter.

Irwin Simon: From that point forward to positive gross margin impact of sales in this category would be expected to generate a swing of almost $5 million on gross profit versus what we would have reported in the current quarter.

Irwin Simon: Cannabis gross profit increased 5% to $22 million in Canada's gross margin increased to 41% compared to 33% from the prior year period.

Irwin Simon: And 800 basis point improvement.

Irwin Simon: Abuse in net revenue.

<unk> predominantly <unk> pharma increased about 8% to $61 5 million and almost 15% to $65 1 million in constant currency compared to $56 8 million in the prior year quarter, all as a result of favorable product mix.

Irwin Simon: Distribution gross profit was flat at $5 $6 million in both the current year and the prior year period.

Irwin Simon: <unk> net revenue grew 5% to $14 1 million from $13 4 million in the prior year quarter, and 8% on a constant currency basis to $14 5 million.

Irwin Simon: The increase was driven by our strategic focus on continued innovations.

Irwin Simon: <unk> gross profit was $4 5 million up from $4 1 million in the prior year quarter, and gross margin rose to 32% compared to 30% in the prior year quarter. A result of continued operational efficiencies.

Irwin Simon: Our cash and marketable securities balance as of February 28, 2025 was $248 4 million.

Irwin Simon: Up from $225 9 million in the prior year period.

Irwin Simon: During the year and through to today, we continued to strengthen our balance sheet, including raising approximately $140 million on our ATM.

Irwin Simon: Repaying approximately $15 million on our long term debt and.

Irwin Simon: And repurchasing approximately $60 million in outstanding convertible notes.

Irwin Simon: After taking into consideration these actions, we reduced our net debt position to approximately $50 million.

Irwin Simon: Which when combined with our trailing 12 months adjusted EBITDA.

Irwin Simon: Our net debt to adjusted EBITDA leverage ratio below one.

Irwin Simon: Today, we are revising our fiscal 2025 guidance for net revenue to $850 to $900 million.

Irwin Simon: Adjustments for constant currency and the impact of the strategic initiatives and SKU rationalization, which totaled $50 million would have resulted in expected net revenue of $900 million to $950 million.

Irwin Simon: Let me now conclude our prepared remarks and open the lines for questions from our covering analysts.

Speaker Change: Operator, what's the first question.

Speaker Change: Thank you before we get to the first question I'd like to remind everyone that 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. Kim 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.

Speaker Change: Before question Ms Darkies.

Speaker Change: Our first 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 questions. So first question for me I just want to talk about allocation of canvas product can understand how the.

Aaron Grey: The higher profitability makes international appealing, but as you redirect product international.

Aaron Grey: Would you be fine with this leading to some share loss in Canada as long as it's more profitable share segments any color in terms of your share aspirations now for Canada would be appreciated just now as youre allocating more product international Thank you.

Speaker Change: Good morning, Erinn good question number one.

Aaron Grey: What's important for us as sales in.

Speaker Change: In Canada, and having pre rolls flowers edibles and drinks.

Speaker Change: It will be an important part of our market and always profitability. So sales are important.

Speaker Change: We don't report <unk> share as some of them that is reported but everybody looks at share differently. So the number one thing for US is how we grow our business, how we grow sales and with 5 million square feet of grow we have plenty of capacity.

Speaker Change: When we shift product now internationally.

Speaker Change: We don't have to pay excise tax and there is much higher margin and the medical business. So we look at til rate today from a total company standpoint.

Speaker Change: Don't look at Canada, just don't look at international So we look as totality in the cannabis industry.

Speaker Change: Thanks, Ron that's helpful color there.

Speaker Change: One of my second question on have drive beverages that no small part of your business today, but a lot of potential there. So I believe you mentioned have drive beverages are across 1000 brick and mortar distribution points. So any targets that you can point to and Theyre near to medium term that you hope to get to and then can you comment on any initiatives you have to help drive velocity.

Speaker Change: Maybe any marketing plans you have to speak of in the spring and summer, particularly given you do have a house of brands versus just focusing on one brand that segment. Thank you.

Speaker Change: So I think listen.

Speaker Change: <unk> talked about in regards to and I think what you said.

Speaker Change: You broke up there on the hemp brands.

Speaker Change: We're across 1000 stores today.

Speaker Change: We're selling in 10 different states.

Speaker Change: And the demand and through our wellness team and through our beverage team, we have infrastructure salespeople on the street and we're selling it through a lot of the beer distributors and selling it direct to consumer.

Speaker Change: There's multiple marketing programs in place to drive consumption with different retailers and different retailers with multi outlet. So.

Aaron Grey: And I think a big thing Aaron is educating the consumer what hemp derived drinks are and what delta nine drinks are and the benefits from them and.

Aaron Grey: If anybody can do that we are we're in the beverage business. So that's a big big opportunity for us listen we have aspirations for that to be in the multimillion dollar business for us and also it's a great margin business.

Speaker Change: In regards to our beverage business and our beer business like Tai has said.

Speaker Change: Today with 18 different beer brands as we look at it Steve.

Speaker Change: State by state and geography, how do we focus on growing our beer in certain geographic.

We talked about manta.

Speaker Change: It's New York, Pennsylvania.

Speaker Change: Our new Jersey.

Speaker Change: There's 100 million people, there and really going after share with montage and that instead of going national So theres a lot of regional marketing that we're doing this in sponsorship say, Florida Gators. We are the official beer of Florida Gators congratulations with shock top and that's a big win for US in regards to sponsorships. So there's a lot we're doing well.

Speaker Change: Sponsorships next week or $4 20, not next week in two weeks, we are holding some major concerts down in Atlanta, Georgia.

Speaker Change: And some other places in regards to support <unk> selling our beers. So theres a lot of regional stuff that we're doing a lot of sports sponsorships that we are doing getting involved with the community and a lot of different concerts. So that's how we're marketing our beers and with that we're tying that in with our retailers and tying that in with our distributors on display.

Speaker Change: And also we're tying it into our.

Speaker Change: Off premise in regards to making sure on tap we are pretty a lot of handles out there.

Speaker Change: Test anybody to go to New York City, right now and get around to love the bars out there and see who doesn't have a montage for our bluepoint handle OCA.

Speaker Change: Okay.

Speaker Change: Okay, Great really appreciate that color on I'll go and jump back into the queue.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Robert Moskow with TD Securities. Please proceed with your question.

Speaker Change: Hi, This is <unk> on for Rob Moskow and thanks for the questions.

Speaker Change: I guess first.

Speaker Change: So Canada gross margins at 41% for the quarter was a positive surprise.

I think so what would the building blocks for that 800 bps margin expansion how much of it was from positive mix from not participating banks and infuse pre rolls.

Speaker Change: Much of it was from cost savings and efficiencies.

Karl: I will let Karl Karl with it so so Victor the majority of the $800 million is mix.

Speaker Change: Portion of that mix is more international.

Speaker Change: But a big chunk of it is this concept of being very careful with what places we're playing in particularly in vape and infused pre rolls to focus on margin and going back to the last question.

Speaker Change: Infused pre rolls and beeps, if we would have sold in the quarter and we gave up about $7 million or so in sales or $4 million or $4 $5 million, but we gave up more that could have been anywhere from $10 million to $11 million of kit on EBITDA. So again, we are not going out there just for sales we are focused on profitability.

Speaker Change: We're focused on margins and just coming back in regards internationally.

Speaker Change: Again, we're not paying.

Speaker Change: <unk> taxed I mean throughout the year, we pay about $150 million of excise tax and the Canadian market, we're not paying that internationally and where we see the opportunities, but let me tell you that we're aggressively looking at how we take costs out and Thats something Blair and team are doing and we're not abandoned by known.

Speaker Change: Means that they've been pre roll category, which are some big growth categories and Blair in regards to our centre of excellence have come up with ways to take tremendous amount of cost out and coming up next quarter, we have a tremendous.

Speaker Change: Planned in regards how to get more pre rolls and our premium.

Speaker Change: Jews pre rolls and baked into the marketplace. So there is a big focus.

Speaker Change: On our margins, but there's a big focus on driving sales too.

Speaker Change: Got it I appreciate the color.

Speaker Change: And then my second question is on the beverage side so.

Speaker Change: Our tracking data indicates that sales and volumes for craft beer brands are down about mid teens in third quarter.

Speaker Change: Is that what youre seeing on your end and can you help dimensionalize the number how much how much combined growth for your craft portfolio.

Speaker Change: In their home markets versus the OE markets I know you gave some numbers.

Speaker Change: In the call, but like what would be like the total split between the total home markets in the total wind markets for your brands.

Speaker Change: Just to squeeze another question on project for 'twenty.

Speaker Change: What does the brand hierarchy here when it comes to allocating the next marketing dollar is it on prioritizing your biggest brands your biggest markets.

Speaker Change: Or is it on newer brands for potentially higher growth on a percent basis.

Speaker Change: So number one.

Speaker Change: You come back and look at your data here.

Speaker Change: One of the things in there as you go through the SKU rationalization.

Speaker Change: <unk> taken out a lot of the brands. So it's not really giving you a true picture and is tied took you through different different states and different geographies on growth and that's why I come back and say this here.

Speaker Change: You've got to look at it we're probably have an aggregate as you say down.

Speaker Change: But is it following our plan and looking at the geographies to three four state certain states were up certain states were down. So your numbers are probably right, but again, you've got to pull out of their SKU rationalization and part of it is is this here as we introduce new product.

Speaker Change: So not in there and.

Speaker Change: Off premise or on premise is something that theres, a big focus on two and where we pulled out.

A lot of the tap some that we lost there is another big focus on that so.

Speaker Change: I wouldn't look at.

Speaker Change: At the craft beer data that's out there right now what we're trying to do is focus on sales and how we bring these brands together and you remember what I said in my remarks as.

Speaker Change: As we acquired these brands from Abi and from Molson.

Speaker Change: Lot of these brands were mostly a negative territory and what we're trying to do is reverse the we're in the midst of going through right now looking at distributors, we have over 700 distributors out there today, both Molson Coors.

Speaker Change: And independents, how do we consolidate them and how are we a bigger focus for them and how are we more important we haven't done that yet that's a big part of $4 20, and Thats a big part of the cost savings that we're looking at.

Speaker Change: Your last question was what on the savings in 2020.

Speaker Change: Yes. It was all just allocating incremental marketing dollars to focus here on prioritizing the next dollar.

Speaker Change: Your bigger brands and your biggest markets or is it on just the newer acquired brands to that offer potentially higher growth on a percent basis.

Speaker Change: So listen.

Speaker Change: From our standpoint is as we look at it today, where are we allocating our marketing dollars is the bigger brands and number one shock top as a brand that we would look to go national with Sui.

Speaker Change: Sweetwater is one of our bigger brands Bluepoint is one of our major growth plans, but if you come back and look at the Pacific Northwest with 10 barrel widmayer their brands that we're going to focus on in their territory. So.

Speaker Change: You Love all your kids equal you love all your brands equal here, but there are certain brands that we're going to focus on as you've heard us say in Florida with the Gators were focus on shocked up there in New York, we're focused on manta.

Speaker Change: Then bluepoint, so and there is a lot of opportunities coming to US right now in regards to sponsorships and being part of it being on Jetblue with montage to something that's been great for us being on Delta has been great for us. So there's a lot of unique opportunities in regards to sponsorships fee.

Speaker Change: Part of the community from a regional standpoint, with our selection of beers that we have.

Speaker Change: Thank you. Our next question comes from the line of Frederico Combs with ATB capital markets. Please proceed with your question.

Frederico Combs: Hi, good morning, Thanks for taking my question.

Frederico Combs: First question on international markets, specifically, Poland I believe there were some changes there and telemedicine.

Frederico Combs: So curious if you've seen any.

Frederico Combs: The impact from that but also if you would expect changes in Germany in regards to telemedicine as well.

Frederico Combs: So I'm going to let Denise answer that yes.

Speaker Change: Yes, Thanks, and great question, so in Poland. In November there was a change where telemedicine restrictions were put in place and as a result, we saw some prescription drops.

Speaker Change: Basically around like 68000 prescriptions in the month of October.

Speaker Change: 28 months of December and as a result, we definitely thought.

Speaker Change: I would say demand come down a bit applications are looking for new avenues to find prescription. However in our Q4, we're starting to see things pick back up again, and we believe that there was some oversupply potentially in the third quarter, where distributors are working at Mayo.

Speaker Change: We are pretty bullish on that market. So we have a very very large share in that market. We had multiple distributors that are very strong in the market.

Speaker Change: Physical <unk>.

Speaker Change: Clinics. So we believe that we have the right infrastructure the right partners to really win in that market in terms of your question in terms of Germany. We have been very focused on the German market. As we reported we also have spent a lot of time evaluating from a government perspective and speaking with members of Parliament.

Speaker Change: Around the.

Speaker Change: The change in government and whether there's going to be any change in the landscape of either <unk> or <unk> and what we find in terms of the conversations that we've been having and working for our industry, but it.

Speaker Change: Is that there are potentially changes on the PNG and that means social clubs.

Speaker Change: The model experiment, what we've been assured though does that there is really going to be no changes in terms of the <unk>, which is the market that we're participating in today and where we see all the Niobrara, we are keeping an eye on the telemedicine.

Speaker Change: Aspects of the law and working with government officials to.

Speaker Change: To really support why that is necessary, especially from relocation.

Speaker Change: We still remain very very bullish about our business in Germany and in fact saw some of the highest numbers that we've seen in history and for our business in Germany. This past quarter.

Speaker Change: Yes.

Denise Faulty: Great. Thank you Denise.

Speaker Change: Yes. Thanks, I appreciate that second question.

Speaker Change: Just to follow up on Germany.

Speaker Change: If you could just comment on pricing in Germany.

Speaker Change: Anything changed recently or are you seeing any impact I guess from increased competition in that market I know, it's a broad market.

Speaker Change: I also see some other companies invest in there so any changes in pricing.

Speaker Change: There's definitely a lot of competition coming into the German market, because I think just like we see the opportunities in Germany, both in terms of demand on patient care.

Speaker Change: And also the higher margins I think others are seeing that as well and I think there were some of the highest.

Speaker Change: Imports into Germany from Canada.

Speaker Change: Basically around 51% of the imports going into Germany are coming from Canada, and so there is definitely a lot of competition.

Speaker Change: We do see what we see in terms of pricing is more of a segmented market coming about where patients are focused on different levels of quality and value and so higher quality products are still commanding much higher prices. There is also a value segment, though in that value segment.

Speaker Change: Is really being positioned toward patients who are really looking for a lower priced product I think as you know determined market today is split between the patient led side, which is really self pay market and the Doctor lab side, which is more of an insurance base Mark is still on the insurance base side, which is.

Speaker Change: At this point predominantly medical X shacks, we see pricing remaining pretty secure.

Speaker Change: Cause of that insurance coverage, but on the flower side, where is that segmentation we are seeing.

Speaker Change: Differences in pricing based on patient demand.

Speaker Change: I think the Big thing also which is important as supply and consistent supply and thats something that <unk> can either supply out of our Canadian facilities can supply out of our Portugal, or Germany facility and I think thats what everybody is looking at in one big thing to mention is we're vertically integrated there with cc firm artillery.

Speaker Change: Pharma our distribution business.

Speaker Change: Actually it's been very helpful and a big part of our growth there that we distribute directly through two drugstores today, So that's important to us.

Speaker Change: Thank you I appreciate that I'll hop back in the queue.

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 and good morning, everyone. My question is more photo for Denise.

Speaker Change: I'm very impressed with the growth in your <unk> business I think you said, 71% since April one.

Speaker Change: My impression was that the reimburse business was not growing much. So is this a sign that you're gaining share or add more doctors prescribing to reimburse market I'm just trying to understand it. Thank you.

Speaker Change: Yes, Thanks, Pablo So we do see.

Speaker Change: We do see more and more doctors prescribe me and I think you might have a recall that after the passage of Mac Kenzie. The government also took steps to clear out some of the restrictions that we saw on the reimbursement part of that market.

Speaker Change: Before it was a.

Speaker Change: Waiting periods and there wasn't it wasn't clear authority reimbursement and now they actually are a much faster more facilitated way to get reimbursed for medical cannabis and we also have really.

Speaker Change: Stepped up our efforts in terms of our team on the street with education. So doctors are more and more interested in learning about the benefits of medical cannabis for patients with certain conditions, including chronic pain.

Speaker Change: Along with that.

Speaker Change: That increased interest I think stigma is starting to fall away, even more so and so we do see increased patients increased doctors coming to seminars wanting to learn more so I do believe its share as well as increased prescriptions to answer your question.

Speaker Change: That's great and just on the same point I mean, we are sharing more of our clinical studies with trials, that's the way to <unk>.

Speaker Change: <unk> message to doctors is still very involved in any of those type of studies in Europe right now.

Speaker Change: We are involved in the Glioblastoma study in Spain that is basically into its second year of the study. We also recently completed.

Speaker Change: <unk> with the University of Sydney on cancer induced nausea, and vomiting, and so it is something that we will continuously look at where does it make sense. We have had some conversations in Germany about doing studies also working with local universities as we build out programs too.

Speaker Change: Really bringing the expertise of cannabis cultivation and processing to Germany, because I think.

Speaker Change: We've all seen the fact that there's been a lack of expertise in Germany. So we are told they have had to import a lot of our expertise from Canada.

Speaker Change: Well.

Speaker Change: Look to be able to build out that market and Pablo that's something we support.

Speaker Change: As with regard to investing in research here, because we think there's a lot of good research that will come out that ultimately benefits the growth of the medical cannabis business and growth in other countries as they see the benefits from this here so.

Speaker Change: And Europe, being basically basically only a medical cannabis business.

Speaker Change: As important and it's important for the future of this industry. So that's something that until really wants to be a part of.

Speaker Change: Thank you Amit let me just one more here.

Speaker Change: We're very focused of course on Germany, you mentioned, Poland, Dennis I mean, when you think of Europe, What's the next big market that Youre looking at right now what's the one that.

Speaker Change: We are hearing some news from France check.

Speaker Change: How do you think about the other European market right now in terms of opportunity and related but separate it's still way considering entering the Dutch five months I mean that I think that Amgen licensees signed licensees may be up for sale I know that his moored rig, but what are your thoughts on that thank you.

Speaker Change: Yes.

Speaker Change: In terms of markets, and you mentioned, Germany, and Poland two of our primary markets also the UK, we've invested in the UK with both infrastructure and Salesforce and working with additional distribution partners.

Speaker Change: Very focused also on Italy.

Speaker Change: He is a very good medical market a lot of support from the government. There in terms of growing a medical cannabis market and doctors are very interested so we're seeing really really good.

Speaker Change: Good growth and good interest coming out of Italy, We just had a few Italian doctors from a very prominent cancer hospital visit our Portugal facility to learn more about medical candidates.

Speaker Change: You mentioned, France, we are very we are keeping an eye on France, I think you might remember that we participated in the experiment in France when it first began.

Speaker Change: We continue to keep a foothold in that market and we've been having conversations at the government level to really understand.

Speaker Change: Where it's going we believe that there will be market authorizations available. We don't believe that really there will be potentially any sales coming out of there until January of 2026, but it's a big market and the big medical market and we believe that we really can be very successful there.

Speaker Change: In terms of your question about the experiments in the Netherlands, We just at this point.

Speaker Change: We're very focused on.

Speaker Change: Activities and opportunity that really have a strong ROI and we look at some of the experiments is very interesting in the sense that it potentially generate data for the marketplace, but we don't really see a large commercial opportunity and so we'll wait and see and then see where the market goes and then at that point.

Speaker Change: As you mentioned, we could either look to acquire something or enter the market ourselves using our well proven roadmap and strategic plans for entering new markets.

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you. Our next question comes from the line of Bill Kirk with Roth Capital Partners. Please proceed with your question.

Speaker Change: Yes. Good morning. This is Nick on for Bill. Thanks for taking the questions first one for me just wanted to follow up on the beverage side with the cost of aluminum potentially higher here I'm. Just wondering how you kind of see beverage margins playing out and if that will have any impact on your business. I know you mentioned you are not impacted by tariffs, but any color on how you're working around that would be helpful. Thank you.

Speaker Change: So like everyone ultimately we have contracts in place with suppliers.

Speaker Change: Aluminum could go up which is input cost, but hopefully with some of the cost savings and the costs that were taken out of those businesses right now we can offset that so.

Speaker Change: Right now.

Speaker Change: It's minimal on aluminum.

Speaker Change: But.

Speaker Change: It's kind of wait and see what happens there.

Speaker Change: What's happening because I think everybody is getting in there to try and buy cans of that right now prices are going up but.

Speaker Change: So far.

Speaker Change: We're managing it but trying to offset any of those prices with costs that we're trying to take out of the business.

Speaker Change: Okay. I appreciate that color second one from me is just on the Canadian cannabis gross margins with international demand ramping in a large amount of it is being met from Canadian suppliers have you seen any discernible changes in supply demand economics in Canada recently, and just your sense of the supply environment in Canada would be helpful.

So and I.

Speaker Change: I think players on the call would be number one because we're probably the largest grower candidates in Canada today.

Speaker Change: The demand for us in the calls that we're getting to supply.

Speaker Change: Third parties with cannabis is tremendous.

Speaker Change: And right now we have had to increase grow in a free tier one.

Speaker Change: We're at full capacity of free at Diamond.

Speaker Change: We have our outdoor grow we're now growing outdoor grow.

Speaker Change: And we're looking at our facility.

Speaker Change: In Gatineau that partially vegetables, and partially cannabis do we convert that back. So there is a major demand right now in Canada, where supply is a lot of these facilities have either closed or going to the business. So.

Speaker Change: There is a big demand for cannabis.

Speaker Change: In Canada, our plan supplier sells first supply.

Speaker Change: Canada supply Europe.

Speaker Change: Where we can and then if there is an opportunity opportunities for third party, we will work with a third party partner.

Speaker Change: Great Thats it from me I appreciate the color.

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. Just I know you've talked a lot already on the call on the hemp derived space. So I guess the only other question I would have on it just given the pretty impressive growth that the overall market has particularly in some of the southern States, where you have distribution I know, it's not material today, but I'm. Just curious if there is some sort of a scenario where a farmville goes in.

And sort of.

Matt Bottomley: Rips disability out in the market kind of has to close overnight, what sort of the infrastructure investment or anything else that you've sort of spent that isn't synergistic already with your other beverages or maybe it's not at all but I'm just curious what that would mean for you guys strategically if it if the plug was pulled from a regulatory standpoint.

Speaker Change: I'm going to let Jarrett answer that but first of all number one all our productions happens at a third party facility.

Speaker Change: And number two as we have in place.

Speaker Change: Our production schedule, so were not sitting out there with tons and tons of inventory in the big infrastructure and people against this.

Speaker Change: Number three we don't believe that every state would close up and go out of business and an endless Jerry do you want to yeah, I'll add to that I think Irwin is right and we're doing this smart and steady I think we are going into select number of states.

Speaker Change: We're putting out a select number of Skus and we're going with the right retailers as we go and launch this platform. So I think we're being cautious we're not over inventory on this where we're going out to the marketplace and we're going to places, where we think will succeed I think Furthermore, as everyone was saying.

Speaker Change: There is a lot of business going on in key states, particularly in the southeast and its become nice business from these states in the legislatures are working to codify rulemaking. So that this industry can continue and thrive within those states and so I agree I think the more we can do to advocate for smart regulation and Thats something that we are due.

Speaker Change: Through our own efforts and through <unk> the coalition for adult beverage alternatives in which we have an active participation I think thats something that will enable this market to continue to succeed and thrive.

Speaker Change: And I think the important thing is out there is this year consumers want this product there is much demand out there for this product.

Speaker Change: There is a real category. So I think the farm Bill is in place and it's in place for another one or two years.

Speaker Change: And Theres 10 states right now and hopefully this is something that we hope.

Speaker Change: Is legal in all 50 states.

Speaker Change: Got it I appreciate it and then staying on the sort of THC beverage side of things, but.

Speaker Change: In the Canadian market now can you give us a little more color like independent of your performance.

Speaker Change: And in the beverage segment.

Speaker Change: Has that grown as sort of an innovative SKU.

Speaker Change: Relative to you know theres been infused pre rolls and some others more on a macro level, just because I know theres been some changes over the years from a regulatory standpoint, very minor, but still the distribution of this isn't the dispensaries and I know a lot of these fridges are locked in the access to product in Canada is still a little archaic in terms of how they do it. So just how that segment has grown.

Speaker Change: Again independent of your own brands.

Speaker Change: So again coming back to the beverage industry in Canada, and I come back and I say this here, we have a 45% share.

Speaker Change: It's somewhere around a $25 $30 million Canadian business for us today.

Speaker Change: And Youre right. It is sold in refrigerators only cannabis stores.

Speaker Change: Now they are going to a six pack from our standpoint, there and theyre not cheap either I always say this year, if tomorrow and there's motions that we are trying it if we could sell this in the LCBO in Canada, or we could sell this in convenience stores or beer stores et cetera.

Speaker Change: You take it if it's a 25 $30 million business for US I would take a 10 multiple and say, it's a $2 million to $300 million business for us because.

Speaker Change: The big time growth is in the beverage industry. So tremendous demand for the limited amount of stores that it sold in today and you think about it at the size of the category, where it's only sold in Canada stores, how big this would be it.

Speaker Change: If it can be sold to the LCBO or beer stores are on tap at bars, and that's something that.

Speaker Change: We're pushing for and hopefully something can change there.

Speaker Change: Thank you. Our final question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Michael Lavery: Thank you good morning.

Michael Lavery: Just wanted to come back to your comments about.

Speaker Change: Looking to consolidate your distribution.

Michael Lavery: I guess my sense is typically that's quite localized do you have any cases, maybe where there's overlap.

Michael Lavery: You could drive efficiencies or maybe just help us understand some of the strategic rationale a little bit better and then have you taken a look at what transition costs, there might be from from buying out a distributor to move it somewhere else.

Michael Lavery: So number one we did or Abi deal, we had a two year, where we have to stick with all the Abi distributors.

Michael Lavery: So thats number one number two is.

Michael Lavery: For instance, here in New York.

Michael Lavery: We have certain distributors distributing montoc certain distributors that are distributing.

Michael Lavery: Bluepoint and.

Michael Lavery: Sweetwater and shock top so.

Michael Lavery: Again, as we look at it today.

Michael Lavery: What makes sense, where are we obligated by distributor contracts, where the potential buyouts theres tremendous savings on freight there's tremendous savings, where our salespeople are making too.

Michael Lavery: Stops in working with distributors and there's tremendous marketing costs. So we've got our analysis in place we know what the potential cost savings are and it's sort of like picking the best of the best out there and where we're going to be important too and I will say this here with distributors like about having till right brands.

Michael Lavery: As they see what we're doing that we're growing we're investing we're coming up with new products and they will buy more craft Brewers, so want to stay with us but.

Michael Lavery: We're going to have to look at some types of consolidation because you can't have five or 600 distributors and it's actually even more because when you look at certain distributors, they've got three or four different branches that were shipping to out there. So.

Michael Lavery: Yes. The answer is we've done a lot of analysis.

Michael Lavery: We are obligated because of contractual to stay with certain distributors.

Michael Lavery: It's something that tie and team that we're working with and would work with essentially a third party.

Michael Lavery: Group to help us get all the cost and the efficiencies it makes him the right moves.

Michael Lavery: Okay. That's helpful.

Michael Lavery: Just on the canvas side, maybe help us understand your.

Michael Lavery: Capacity approach, a little bit because I know you've talked about reallocation to improve mix and take advantage of the better opportunities in the EU.

Michael Lavery: But it sounds like you've also dusted it off some some dorman facilities.

Michael Lavery: Your eye on maybe where you can add more.

Michael Lavery: But yet.

Michael Lavery: Revenue growth hasn't really been there so how much.

Michael Lavery: Is there a cost youre willing to carry to lean in to that even if.

Michael Lavery: You are not already seeing that.

Michael Lavery: The growth momentum I know you had some sales that got shifted into <unk>, but obviously the canvas revenues were down so help us square a little bit how to put all that together.

Michael Lavery: So number one canvas right.

Michael Lavery: Revenues are down as we said.

Michael Lavery: Some of them were.

Michael Lavery: Decisions to make strategically.

Michael Lavery: Just because of margins some of them are timing, where our new products don't come into place until the fourth quarter and some of them is we just didn't have supply. So if you come back and look at it we would've had supply for our international markets and additional supply for the Canadian team that's for from a revenue growth. The other thing is is this here.

Michael Lavery: Theres, many wholesale out there that want a byproduct.

Michael Lavery: Products from US, we just don't have product to sell so bringing on <unk> outdoor grow with something thats happening.

Michael Lavery: We brought in we brought on are free of one our phase four which is the first time that has been operating in quite a few years. So basically today I think it is a 137 metric tons that we're growing in Canada.

Michael Lavery: We have the ability for another seven it's about another 73 to 100 metric tons that we could grow there.

Michael Lavery: And some of that is to support our own growth. Some of that is to support international and if there is certain strategic partners out there that will supply with that is profitable and one of the things as they are competitors. If we're going to sell wholesale so we've got to look at that too.

Michael Lavery: Again as you see wire our margins growing we're focused on profitability here, but I think the differences as the series you looked at a lot of these candidates businesses. They decided to go with the asset light model where.

Michael Lavery: Where they don't have grow and they've got to buy consistently from different growers youre getting different strange different qualities different timing different pricing out there that's not what til rate is till right as a vertically integrated company, where we have 5 million square feet of grow we have our brands we have our infrastructure.

Michael Lavery: And that's how we're going to grow our business and ultimately it will come to roost that we'll get the growth part.

Michael Lavery: And whether it's supply in Canada, and whether it's supply international markets and the question asked before.

Michael Lavery: <unk>, whether it's the U K.

Michael Lavery: <unk> talked about other international markets, whether it's Japan, whether it's India, whether it's other countries, we have supply other GNP source tours.

Michael Lavery: Or Canadian market, So I think thats whats important here as we look at it where we have these infrastructure to do it.

Michael Lavery: Listen the drink business decides what I talked about before we have supply for drink now with the whole vape industry, we have supply for <unk>.

Michael Lavery: Infuse pre rolls, we have supply and I think that's what the important thing is for us to measure where were going to supply ourselves, where we're going to supply yourself internationally, and then who else we want to supply and sell product to on a wholesale basis that makes sense too.

Michael Lavery: Okay.

Speaker Change: Thank you, ladies and gentlemen that concludes our time allowed for questions I'll turn the floor back to Mr. Simon for any final comments.

Irwin Simon: Thank you very much operator, and thank you very much everybody for joining our call today.

Speaker Change: It's not an easy world out there.

Irwin Simon: And we've seen this.

Speaker Change: As we come back and look at look at what <unk> has done.

Irwin Simon: We generated net revenue.

Irwin Simon: Quarter of $186 million 193, and we've decided between SKU rationalization, and where we wanted to shift product too.

Irwin Simon: A pullback on $13 million and again, what we've focused on margins profitability.

Irwin Simon: We have diversified this company in over five years, we've got this close to $900 plus million dollars in sales.

Irwin Simon: If you can look at categories today, where we've diversified the cannabis in the Canadian market and being the largest grower within its structure to support it out there with innovation with R&D. If you come back and look how we pivoted into the beverage business right is a beverage company today with our beer.

Irwin Simon: With our spirits business with our non op business with our liquid love water and our hemp infused drink. So we pivoted in that and remember we just started that in 2025 years ago today and look where we are the fifth largest craft brewer, we got some of the top <unk>.

Irwin Simon: <unk> brands out there with Breckenridge and entries into these new categories with non out with our water business and with our energy drink high ball, which you'll be able to find in every whole foods in the U S.

Irwin Simon: Now what you can do and actually when we acquired that maybe there was no sales from that product and it's one of the only clean.

Irwin Simon: Energy drinks that are out there.

Irwin Simon: In regards to margin we're focused on margin margin margin margin I understand share I understand everything else, but that's a big thing margin drops profits to the bottom line.

Irwin Simon: In regards to our balance sheet and that's something today, there's a lot of cannabis companies out there sitting with a lot of that at high interest rates.

Irwin Simon: There is a lot of cannabis companies out there that own some significant taxes in excise taxes.

Irwin Simon: And a lot of things can change until rake, if Canada decided to cut its excise tax.

Irwin Simon: U S legalization happen for medical cannabis, if we could sell cannabis strengths in Canada, or we could sell cannabis drinks in the U S. I think it's billions of dollars of sales.

Irwin Simon: In regards to internationally.

Irwin Simon: I mean that is a business that basically we started from scratch I think when we acquired kill rate, we were doing about $10 million.

Irwin Simon: Canada sales with til Ray very little.

In regards to free up and we did have cc pharma, but we've turned that into and with their growth and with their margins at some of our most profitable businesses today within the <unk> business.

Irwin Simon: So from our standpoint, yes, we're focused on cash flow, yes, we're focused on profitability, but you've got to invest to get there and that is a big thing for us we've had to invest in our beverage business to get it where it is a lot of these craft businesses have been around for years and years and years and <unk>.

Irwin Simon: Kelly.

Irwin Simon: Within the beer business listen if you watch every sporting event.

Irwin Simon: Bud light Bud Miller.

Irwin Simon: A lot of these cores are big sponsorships out there theres a lot of beers out there and what we've done to become.

Irwin Simon: Prominent in these markets is pretty amazing and how we're a big player out there and Thats, what we have to do if you come back and look at the cannabis industry and candidates five years old and how we've invested in the cannabis business to create close to a $200 million U S business in there and build brands from scratch same with Europe.

Irwin Simon: It's five years since Germany.

Irwin Simon: From a legal as it was not even five years from a legalization that tender and that so we built.

Irwin Simon: All of this from scratch to get it where it is today. It takes money takes time. It takes infrastructure. It takes people and of course theres going to be some losses, along the way, but where I sit here today with two rate is I'm very proud of the people that we have in place.

Irwin Simon: In regards to our organization and our big focus with this here is our balance sheet and we are focused on that we're focused on balance sheet. We're focused on generating cash and we're focused on our cash situation. We are shareholders. We're just not employees here a big part of our call.

Irwin Simon: <unk> is an equity a big part of all our net worth is in our stock no. We're not happy where our stock is but nobody has given up nobody's going away and we are working hard to change that course on our stock and Youre seeing some of the results that we're putting out there today, so I want to thank everybody for.

Irwin Simon: Your support understanding.

Speaker Change: We have the naysayers out there and we have the support out there, but I'll tell you what they are as a team here that is focused and we think we have a unique business no. We're not building an electric car, but you heard what Denise talked about research that we're doing in regards to cannabis in some of the medical stuff that we're doing there.

Speaker Change: Consumers are changing habits everyday and you heard me talk about where our Gen Z and millennials in regards to cannabis use in drinking use and you look at that we are there in regards to our wellness business and our Hampton fuse business. When we acquired Manitoba harvest along with til rate it was losing about <unk>.

Speaker Change: $6 million EBITDA, there is a complete reversal with 8% growth and it's become a very profitable business for us in the wellness business is something that we're going to focus on so yes. We've had a lot of successes. We've had some challenges we've had some failures, but within five years, there's a lot of points that we put on the board.

Speaker Change: So thank you very much for your support thank you very much for listening to us today and like I say hang in there with us.

And.

Speaker Change: We'll be there have a good day.

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