Tilray Brands, Inc.

Greetings. Welcome to Tilray's second quarter 2023 earnings call. This time, all participants will be in listen-only mode. Any question and answer sessions will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Barron Narada, Chief Corporate Affairs Officer. Barron, you may now begin.

Thank you and good morning. By now, everyone should have access to the earnings press release, which is available on the investor's section of the Tilray Brands website at tilray.com and has been filed with the SEC and CDAR. On today's call, we will be referring to various non-GAAP financial measures which can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute. for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties which may prove to be incorrect. Actual results could differ materially from those described in these forward-looking statements. The text in our press release issued today includes many of the risks and uncertainties associated with such forward-looking statements. Today, you will hear from key members of our senior leadership team, Erwin Simon, Chairman and Chief Executive Officer, Tilray Brands, Inc., and Carl Merton, Chief Financial Officer, who will provide a quarterly financial review as as well as reaffirm our full-year free cash flow and adjusted EBITDA guidance. Also joining for the question segment of this call are Denise Faltacek, Chief Strategy Officer and Head of International, Blair McNeil, President, Tilray Canada, and Ty Gilmore, who recently joined the team as President of our U.S. Beard business. And now I'd like to turn the call over to Tilray Brands Chairman and CEO, Erwin Simons.

thank you baron and hello everyone we appreciate you joining this morning and hope everyone had a nice holiday season and a great start to 2023 we head into this new year with momentum and a real line platform centered around three priorities to create the world's leading and most diversified cannabis lifestyle and consumer package good company in the world across adult use medical cannabis, beverage alcohol, and wellness consumer products. These priorities include pursuing our most profitable core business to drive growth now and over the long term, which we're well on our way to realizing this. Maintaining our number one leadership position and growing market share in recreational cannabis in Canada, the largest federated legal market in the world. Maintaining our leadership position and growing market share in medical cannabis across Europe and a strong position to capture the adult use market when legalization does occur. And winning in the U.S. despite delayed federal cannabis legalization, which we do not expect to happen at any time in the near future. We've invested in leading and profitable cannabis adjacent CPG lifestyle brands across craft beverage alcohol and wellness consumer products that resonates powerfully with consumers that are ideally positioned in key markets. When federal cannabis legalization does occur, we will leverage our U.S. brands and business, their distribution and marketing networks to enter and capture opportunities by essentially creating a broad set of cannabis infused and focused CPG brands. We are also, of course, diligently focused on optimizing our global operations while remaining that low cost producer. And last but not least, strengthening our industry leading balance sheet and driving our cash position because it affords us opportunities for growth, expansion, including through cannabis adjacencies within the context of economically uncertain environment. I want to emphasize the value potential of Tilray Brands, built on growth opportunities and our foresight to diversify, both organic and acquisitive. I am confident in the fundamental potential of Tilray Brands as the most diversified cannabis lifestyle company and consumer package good leader. We have already made notable progress in quarter two, exceeding against these priorities, as it is evident by significant improvements in operating cash flow, despite a challenging top line performance. We have, of course, a long view generating free cash as an integral part of our business model, in turn, enable us to deliver on our highest priority, delivering sustained, durable shareholder value. Close observers of Tilray Brands and our team know one thing. We move quickly and decisively to adapt to the market changes. And I'm proud to highlight that even with the breadth of the platform and our sheer scale, we remain agile, pivoted quickly, making smart strategic decisions, and executed against them with our free cash flow objective accomplished. For example, during the quarter, we opt to build cash by temporarily slowing down production in our cannabis facilities because of the longer-than-anticipated march-to-war legalization in key markets. This included cutting headcount and reducing other operational costs. I want to highlight at the outset our bottom-line initiatives first and our top-line initiatives second. This is appropriate given the market and the incredible progress we have made to drive efficiencies and a lean built to last platform. I want to start this discussion with our cost optimization plan. We have already removed over $100 million of cash costs when compared to a year ago. These cost reductions, which I'll detail shortly, have guided us to achieving over $29 million of positive operating cash flow and $25 million of positive free cash flow this quarter. The components of this effort include cost synergies realized from the Afria-Tilray business combination, which closed nearly two years ago, represents the starting point for building an efficient and agile foundation. Recall that our revised post-closure target was increased to $100 million from $80 million in cost savings, which as of Q2 has been completed. Beyond the Afria-Tilray synergies, we launched an additional $30 million cost optimization plan, of which we have already achieved $19.6 million. on an annualized run rate basis to further solidify our status as the industry leading low cost producer. And finally, our robust balance sheet consists of approximately $433 million of cash and marketable securities with over 70% of our debt set with fixed interest rates. The solid financial foundation enables us to be opportunistic in capturing market share across global cannabis and CPG adjacencies as we watch what unfolds with respect to legalization in the U.S. and elsewhere. Having discussed cost-structured initiatives and our commitment to maintaining a strong balance sheet, I would now like to focus your attention to our potential to seize top-line opportunities across both geographies and business lines specifically. In Canada, we maintained our number one market share position in recreational cannabis despite pressures caused by difficult operating conditions, ongoing price compressions, and high excise tax, forcing both industry consolidation and a reduction in roughly 925 licensed producers that are operating today. Despite these challenging conditions, Tilray remains the number one cannabis market share position with an 8.3% market share in Q2. In Q1, Tilray led the next largest licensed producer by 54 basis points, while in Q2, we expanded the lead to 176 basis points. Our share was up 28 basis points outside of Quebec. Recall that this data is sourced from HIFIRE for all markets except Quebec, where we utilized WeedCrawler for more accurate reflection of the marketplace. We continue to build a thoughtful approach to innovation, quality over quantity. In Q2, we launched products in regions, segments, and categories where we had gaps in our portfolio. We leverage our leading proprietary consumer research to ensure we understand clearly what consumer values are in those regions, segments, and products. As an example of this, we relaunched RIP flour, focusing on a segment where we had gaps in our portfolio. Moving forward, our thoughtful innovation will also be easier on the environment. In 2023, Tillway will convert all flour, vape, pre-roll packaging to hemp, diverting 158,000 kilos of plastic away from landfill sites. In Canada today, we have the leading internal capabilities in low-cost flower production, infused and non-infused pre-roll automation, BHO, live resin distillate, vape production, and state-of-the-art beverage formulation and production. And further, manage overhead more efficiently helps stabilization and sustain Canadian cannabis industry. We have reached out to numerous industry partners, to leverage our expertise, low-cost environment, and existing capacity in coal manufacturing partnerships. We understand the challenging nature of cannabis in Canada. Our investment in consumer insights, innovation, cost optimization, and market-leading sales coverage have allowed us to be stable during a time of instability. From our vantage points, we think we're best situated to thrive as these dynamic playouts, and we intend to stay the course for the long term. In Europe, we are seeing momentum across the continent that we expect to result in 27 countries working together to establish a collaborative effort on cannabis regulations. The EU has already embraced medical cannabis with broad-scale adult use legalization expect to follow over the next couple of years. When this happens, we're strongly positioned to further seize on the opportunity European cannabis business offers, having built a non-rival platform through our growing facilities in Portugal and Germany. The shift is supported by growing acceptance of medical cannabis for treatment of numerous conditions and followed by growing support for cannabis legalization of adult use as well. We believe we're exceptionally positioned to benefit from the meaningful economic growth that will come to our industry as a result of these positive changes because of our end-to-end EU GMP supply which enables us to leverage existing assets to meet demand for medical and adult-use cannabis when legalization does happen. However, in the near term, our industry, along with almost all others, are contending with a difficult economic environment in Europe because of soaring inflation, which is due at least in part to the ongoing war in Ukraine. This is affecting all key cost inputs, but particularly energy prices, and is doing so negatively affecting consumer behavior. In Germany, artillery-branded medical business increased in the second quarter over the prior year quarter by 4% and 20% on a constant currency basis. In Poland, we completed our first two shipments of medical cannabis in Q2 and submitted, additional dossiers for new products. In Italy, we expect to commence the distribution of our T25 medical cannabis extracts in quarter three. Consistent with our approach of all our businesses, we are relentless focus on both improving the quality and consistency of our medical cannabis products, as well as our cost structure in order to be that low-cost producer in Europe. Therefore, we have developed a plan to take approximately $7 million of cost out of our European business. We strongly believe that our competitive differentiators in Europe are being that low-cost producer of high-quality, consistent cannabis. Our integration of CC Pharma, our medical cannabis teams to enhance and improve our sales function with CC Pharma's strong pharma relationships, both in Germany and throughout Europe, bringing credibility to cannabis. Our regulatory expertise to navigate the challenging regulatory landscape throughout Europe will continue to solidify our leadership position. In summary, while there's some near-term headwinds, we view this as an exciting time for us across Europe, anchored by our strategy, our people, assets and resources, and the tremendous opportunity we see ahead. Turning now to the U.S. and our CPG portfolio, in the U.S., participation in the adult-use cannabis market has always been very important to us and integral to our long-term strategy. However, as long as cannabis remains federally illegal in the U.S., we will not engage directly in business that touch the cannabis plant. To fully optimize the value and strength of our U.S. business, We appointed veteran beer and beverage industry executive Ty Gilmore as president of Tilray's U.S. beer business, a newly created position. Ty joined us from Glazer Beer and Beverage, where he served as an executive vice president since 2020. And prior to that, he spent the majority of his career at Diageo. As you may already know, Sweetwater is the 10th largest craft brewery in the U.S., now available in 42 states. including most recently California. Our past year, Sweetwater and our two iconic Southern California brands, Green Flash and Alpine, have vastly expanded distribution throughout our partnership with Reyes, the largest beer distributor in the U.S. In November, we acquired Montauk Brewing Company, the fastest craft-growing beer and number one craft brewer in Metro New York. Its success has been driven by its beloved product portfolio, premium price point, and over 4,700 points of distribution, including top national retailers, including Target, Whole Foods, Trader Joe's, Stop and Shop, King Cullen, Walmart, and 7-Eleven, also Costco, BJ's, and Speedway convenience stores. The Montauk Brewing transaction was immediately accretive to EBITDA, and we expect it will deliver strong revenue and adjusted EBITDA growth. as we move forward. Additionally, we are already leveraging Sweetwater's existing national infrastructure to significantly expand Montauk Brewing Distribution Network beyond its concentrated presence in the Northeast, further driving Montauk growth across key national markets, including California, Georgia, Florida, Connecticut, and while rounding out the presence of our craft beverage portfolio across the U.S. I'd like to briefly discuss our leading lifestyle bourbon and spirit brand business, Breckenridge Distillery. Despite headwinds in the spirits industry, this brand is poised for accelerated growth through Republic National Distributing Company with expansive distribution network on and off-premise retailers and customers across 38 states and the District of Columbia. Now turning to our wellness segment, which is a very important segment for us as we move forward. Our wellness segment continues to grow. It's branded hemp food business, Manitoba Harvest, in quarter two. Manitoba Harvest is the world's leader in hemp-based foods with product distribution across 17,000 North American stores and present in 15 established international markets. The Manitoba Harvest brand expanded its U.S. market share leadership position in quarter two, continuing to deliver a better than 50% dollar share within branded hemp seed and growing over 10% in multi-outlet retailers in the last 12 weeks, reporting. Manitoba Harvest is now delivering dollar growth in each of its top 10 U.S. retailers. Whole Foods, Sprouts, Walmart, and Kroger. Manitoba Harvest market share in Canada remains near 80%. The drivers of growth include distribution expansion, a strong innovation pipeline, and pricing put in place in quarter two, coupled with our increasing consumer interest in hemp products, given the key role they can play in plant-based, low-carb, and keto diets. Tilray Wellness will be launching a new CBD wellness beverage, Happy Flower. via direct-to-consumer e-commerce platform in early 2023. Through our partnership with Southern Glazer, the leading distributor of beverage alcohol and CBD beverages in the U.S., we will look to expand the brand into key markets throughout 2023, focusing on states where CBD is permissible. In short, we continue to build out our wellness business of hemp foods and beverages with more to come. And with that, I will now turn the call over to Carl Martin, our Chief Financial Officer, to discuss financials in greater detail.