Tilray Brands, Inc.

Good afternoon, everyone. Thank you for joining us to discuss Tilray Brands Inc.' 's financial results for the fiscal year 2023, third quarter ended February 28, 2023. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session for analysts and investment firms conducted via audio and participating retail shareholders conducted through the Say Technologies platform. Question submission and uploading through the Safe Technologies platform has already concluded, and the company will read aloud and answer the top questions. Ms. Narada, you may now begin the conference.

Thank you, and good afternoon. By now, everyone should have access to the earnings press release, which is available on the Investors 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 non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in these forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements. Note that we have also posted a presentation on the HEXO transaction to the Investors section of the Tilbury Brands website. Today, you will hear from key members of our senior leadership team, Erwin Simon, Chairman and Chief Executive Officer, Tilbury Brands, Inc., and Carl Merton, Chief Financial Officer, who will provide a quarterly financial review and update our annual guidance. Also joining us for the question and answer segment of this call is Denise Falcicek, Chief Strategy Officer and Head of International, Blair McNeil, President, Tilray Canada, and Ty Gilmore, President of our U.S. Beer Business. And now, I'd like to turn the call over to Tilray Brands, Chairman and CEO, Erwin Simon.

Good afternoon, everyone, and thank you, Bear, and hello, everyone. Thank you for joining us for a report on our Q3 financial results. as well as our exciting announcement that we've reached an agreement to acquire 100% of the common shares of Hexo. Let me begin by stating the obvious. The global cannabis industry continues to be challenging with both industry-specific and macro headwinds. The Tilray Brands team has demonstrated adaptability, strong execution skills, and operation excellence throughout. in response to diversify our business and built a strong, durable balance sheet. This diversification in particular has been an absolute necessity given the ongoing delays in U.S. federal cannabis legalization and the delay in Safe Banking Act, as well as delays in adult use legalization in Germany, all of which have fundamentally impacted cannabis industry business models. built around the promise of legalization. These industry conditions have compelled us to challenge previous assumptions, adapt and execute. As a result, we built the most diversified global cannabis lifestyle and CPG company with a clear vision and a strategy to deliver sustainable long-term stockholder value and growth. Throughout it all, we have remained focused on the core business fundamentals such as maximizing our revenue growth and profitability, cost management, and of course, cash generation. And while due to the current macroeconomic climate, we do not believe the value of the opportunities we've created within our diversified business are fully reflected in our current stock price. We begin that these opportunities will generate significant stockholder value in the long term, and that our efforts that we've delivered will suit these following accomplishments. We've repositioned Afria, optimized operations and cost efficiencies, and built the leading Canadian cannabis LP with the Tilray transaction, and now with the Hexo transaction. Today, Tilray Brands continues to lead with the number one cannabis market share across Canada. which we've accomplished as a low-cost producer while achieving $122 million in cost savings. We've strengthened and expanded our international cannabis business in over 20 countries and new markets and territories around the globe, and today we have the leading medical cannabis market share across Europe. As an adaptation to delay in the U.S. federal cannabis legalization, We built a strong and profitable U.S. beverage alcohol business, including repositioning Sweetwater into the number one craft brewer in Georgia, the number two craft brewer in the Southeast, and the 10th largest craft brewer in the U.S. We acquired Montauk Brewing Company and grew its points of distribution by 10% within the first four months of operating this business. Today, Montauk is the fastest-selling craft brewer in New York. Our highly awarded bourbon brand, Breckenridge Distillery, was recently awarded the world's best blended whiskey by Whiskey Magazine. You've got to try this product. We've also stabilized Manitoba Harvest into a profitable business, creating the world's leading hemp food brand with over 50% of branded hemp market share in the U.S. and Canada. When federal cannabis legalization does occur, We will leverage these U.S. businesses into beverage, alcohol, and wellness, including their distribution and marketing networks, to capture new, expansive opportunities across the U.S. and throughout the creation of a broad set of cannabis-infused CPG brands. Now, let's discuss our agreement to acquire Hexacorp. Please refer to the Tilray and Hexo investor presentation available on our website, www.tilray.com, for greater details. We view this transaction as building on strength in that it takes the proven value proposition of the successful strategic partnership that we forged with the HEXO team last year, and this enables us to fully leverage the combined power of our businesses. Together, we have the assets and the operating expertise to build a stronger Canadian platform that takes advantage of clear opportunities to deliver stronger top-line growth and increase our market share, deliver an enhanced margin contribution, accelerating our drive to profitability through operating and cost synergies, and ultimately enhancing value creation for our shareholders. To provide some further detail, we expect three immediate benefits. First, we expect a combination of our businesses to enable us to grow and strengthen our number one share even further across all major Canadian cannabis markets. Anticipate pro forma combined cannabis market share would rise 480 basis points to 12.9%, and pro forma net sales would rise to approximately U.S. $215 million, supported by leading low-cost operations and complementary distribution across all Canadian geographies. Second, it will broaden our portfolio of high-growth brands, expanding Canadian adult use opportunities with the addition of HEXO's top brands, including Redican, the number seven brand in Canada, and add new Canadian medical opportunities from HEXO's assortments, which would bring a new diversified group of consumers and patients, in addition to adding capabilities across multiple product categories while leveraging a robust supply chain. And third, we are confident it will enable us to take greater advantage of the complementary operational and cost synergies that exist between our businesses. Since we purchased the convertible notes in HEXO in July of last year, the HEXO team has made significant strides in reducing cost, improving profitability by making changes to their operations, and participating in our joint cost savings efforts. Upon completion of the next phase of this transaction, we intend to achieve additional cost savings and synergies in excess of $25 million on an annualized basis. The HEXO transaction, which we expect to be accreted to earnings upon achieving synergies and savings, is expected to close in June 2023 and will consist of a purchase price of approximately $56 million payable through the issuance of Tilray's common stock. Upon the expected closing in June of 23, we will integrate HEXO operations into Tilray's Canadian infrastructure across manufacturing, cultivation, operations, sales, and marketing, and corporate. We also expect to leverage Redican's state-of-the-art grow facility for our low-cost production business, and we are evaluating the utilization and the optimization of Maison in Gatineau, Quebec, for new opportunities, including the premium berry and vegetable business. Our management team has a proven track record optimizing operations and setting and achieving synergy targets. So, our confidence in our ability to deliver the synergies we've identified in HEXO acquisition is very strong. Turning now to how we executed in the third quarter, Tilray Brands sustained and grew the top line while continuing to strengthen our balance sheet through cost-cutting initiatives and related steps to optimizing the platform amid complicated market dynamics across Canada, Europe, and the U.S., This work includes a very deliberate decision to accelerate our path to positive free cash flow driven by the following priorities. First, maximizing revenue and growth in our profitable core business, which entails maintaining our number one leading position across Canada, and that has been since 2020, and continuing to expand and grow our cannabis market share across Canada, the largest federally legal cannabis market in the world. We anticipated the HEXO acquisition will continue to contribute substantially to this objective. Solidifying our leadership status and growing market share in medical cannabis across our international markets, establishing new market opportunities as medical legalizations continues to take hold, and setting our business up to capture the adult use market when legalization occurs. and winning in the U.S. through our leading and profitable portfolio of craft beverage alcohol and wellness consumer products brands, which resonates powerfully with consumers and our daily position in key markets. When federal cannabis legalization does occur, we will leverage these U.S. businesses and their distribution and marketing networks to capture new expansive opportunities across the U.S., and through the creation of a broad set of cannabis infused CPG brands. Second, we are diligently optimizing the efficiencies of our global operations and driving the disciplines and accountability that ensure we remain a low cost producer in the cannabis business and our other businesses. This includes realizing substantial cost savings and synergies in our business, discontinuing certain partnerships, and exiting certain unprofitable businesses in order to focus our resources on the businesses that are driving profitability and cash flow. These aren't easy decisions, but we made them early, and they're unquestionably the right ones to make. And third, we are strengthening our industry-leading balance sheet and cash position, which enables us to pursue target opportunities for growth and expansion within the context of economically uncertain environment. This balance sheet strength is a distinct competitive advantage in this environment and should enable us to achieve the kind of scale and superior competitive positioning that we believe will deliver profitability and stockholder returns in the long term. Now to review our performance in Canada over the past quarter. In Canada, the most notable challenge is price compression, which impacted us by approximately $28 million year to date. almost all which drops to the bottom line and negatively impacted EBITDA by approximately $26 million for the nine months. Because of price compression, excise tax has become a larger percentage of each sale and is exasperating the cost of excise tax, which is calculated largely as a fixed price per gram versus a percentage of purchase price. Tilray, has paid approximately $120 million Canadian in excise tax and corporate income tax in the last 12 months of the Canadian government, with the majority coming off the top line sales and impacting the bottom line. No question, the Canadian government has been the most profitable cannabis business in our industry. In order to rectify this imbalance, we continue to work with the government to reduce inequitable taxes between the legal and the illicit cannabis industry. In short, the difficult operating conditions in Canada that we've described in recent quarters persist, including ongoing price compression, strained retailer cash flows, and exorbitant excise taxes. There also continues to be almost 1,000 LPs up 300 since we started to report numbers last year in the market, but we are starting to see some consolidation as both the LPs and the retail store levels, as well as some inventory levels normalization across the retail market. Against this backdrop, the strength of our brands has enabled us to maintain our number one market share position. In Q3, which was 73 basis points ahead of the number two LP, Our adult-use recreational brand, Good Supply, continues to be the number one brand in Canada, with 6% of the market. In Q3, excluding Quebec, our share across Canada was up 43 basis points in Q3 versus Q2, with solid improvements in Ontario and British Columbia. And we're seeing this trend continue as we've entered Q4. To provide some further insight in performance of Canada, volume deliver was flat in Q3 versus Q2, reflecting continued price compression in the marketplace. Taken together, we saw $3 million of price compression in Q3 results. This has slowed significantly from Q2, where there was a $12 million of price compression. We do believe we're starting to see the floor on price compression in the marketplace. From a category standpoint, dried flour continues to be a standout, up almost 7% from Q2 and double the industry performance. However, we're not resting on this achievement. Our beta program continues to provide us with a pipeline of new strains, and we have recently made changes to our post-harvesting processes, which will ensure our good supply brand continues to provide consumers strong value at competitive price points. In our international businesses, we're focused on three strategic priorities. Solidifying our leadership position and growing market share in medical cannabis in the countries around the world in which we participate today. Achieving early mover advantage in new countries as medical legalization continues to take hold. And, of course, ensuring strong positioning to capture the adult use market upon adult use cannabis legalization. As we do this, we're optimizing our international platform, including working to remove approximately $8 million of costs from our European businesses, of which we've already achieved $2.6 million to date. In order to achieve long-term profitable growth in the event that only medical cannabis legalization continues to proliferate, we believe that we're well-positioned for success, driven by the following competitive differentiationers. our high-quality medical cannabis brands, which are trusted by patients, healthcare professionals, and government officials around the world, our unrivaled platform of assets resourced through our cultivation facilities in both Portugal and Germany, and our medical distribution network led by our integrated CC Pharma and medical cannabis teams with relationships across 13,000 pharmacies. Based on these strengths to date, we've built upon momentum in Poland with a rapid and substantial increase in our sales of medical cannabis. Received market authorization for two additional medical cannabis extracts in Italy, which we'll distribute through our wholly-owned subsidiary, FL Group, one of the only five companies in Italy that is authorized by the Italian Ministry of Health to import and distribute medical cannabis. and we've expanded our European footprint across the Czech Republic through a new export and distribution partnership. In the event of adult-use cannabis legalization, we believe we're strongly positioned to seize on the opportunity based on our differentiators and the industry-leading expertise we have as a market leader in Canada and through the deep CPG experience in our management team. Turning now to the U.S., and our CPG portfolio. In the U.S., participation in the adult-use cannabis markets is integral to our long-term strategy. However, as we've said in the past, we will not engage businesses that touch cannabis plants if cannabis remains federally illegal in the U.S. In the meantime, we're optimizing the value of our existing high-potential U.S. businesses, which consist of five craft beverage alcohol brands and wellness brands. The largest of our beverage brand is Sweetwater, headquartered in Atlanta, Georgia. With a nationwide infrastructure spanning 44 states and innovation-driven culture, Sweetwater is now growing into a true national leading craft beer brand. Building on innovation, earlier this year, the brand launched a new consumer-focused brewers, including a new crisp lager, Gone Trippin', a West Coast-style IPA, both of which are now available across Sweetwater's national footprint. We're also excited to continue our largest music event in the Southeast, Sweetwater 425th, which will be held at our flagship brewery in Atlanta this year on April 22nd and April 23rd. Come visit. In addition to growing Sweetwater, we're extremely proud to expand our two iconic Southern California brands, Alpine Beer, which just opened a stadium anchoring taproom at Petco Park, and Green Flash. We vastly expanded distribution of both through our partnerships with Reyes, the largest beer distributor in the U.S., and we're confident by their position for on-growing growth. And Montauk Brewing Company, which we acquired last year, is the fastest-selling craft beer brand and the number one craft brewer in New York. We were recently able to expand its distribution by approximately 10% in the first four months since our acquisition. It is now available in over 3,500 retail locations across the Northeast, including expanded distribution across New York, New Jersey, entrance into Connecticut and Rhode Island. We are confident that Montauk Brewing has the potential to grow in true national brand, which we'll accomplish by leveraging Sweetwater's infrastructure to significantly expand Montauk Brewing, including entry into markets outside of its existing footprint. Finally, our bourbon and spirits brand Breckenridge Distillery continues to firmly establish its position as a category leader winning key influential awards, including Best American Blended Whiskey, Best American Blended Limited Release, Best American Blended Malt, and most recently, World's Best Blended Whiskey in Whiskey Magazines. 2023 World Whiskey Awards. Today, Breckenridge Distillery is distributed all 50 states and aligned nationally with RNDC with a distribution contract guaranteeing nearly 30% sales growth annually. Breckenridge Distillery continues to build momentum for continued strong performance. Turning now to our wellness segment, focusing on Manitoba Harvest branded hemp business, the brand continues to expand in the U.S. and Canada, leading market share positions, including a better than 50% dollar share within branded hemp seed, strong dollar growth in the MULO and natural channels. And in the latest 12 weeks reporting period, it also continues to deliver dollar growth of each of its top eight measure U.S. retailers, including Sprouts, Walmart, Kroger, and its market share in Canada remains at nearly 80%. The drivers of growth include distribution expansion, a strong innovation pipeline, and new pricing actions to offset cost inflation coupled with an ever-increasing consumer interest in hemp products. Given the key role they can play in plant-based, low-carb, and keto diets, which are very popular today. In Q3, Tilray Wellness also introduced a new CBD wellness beverage, Happy Flower, during the dry January period. Via a direct-to-consumer e-commerce platform, Happy Flower offers non-alcoholic cocktails infused with CBD that meets the needs of Gen Z and millennial consumers. We'll look to efficiently launch and expand the brand in key markets throughout the remainder of 2023, focusing on states with CBD permissibility and established CBD sales. And as announced last week, We're expanding our distribution with Whole Foods Market with the launch of the brand's first regenerated organic certified hemp hearts. We believe our wellness platform continues to be an important part of our U.S. strategy, providing us with deep connection to our consumers and our customers. We look forward to building even a greater scale of our wellness business in the near and long term. Now, before I turn the call over to our CFO, Carl Merton, I want to provide some context around the reduction in our net assets reported in Q3, which includes a non-cash $1.1 billion impairment charge resulting from higher interest rates and a decline in our market cap in recent quarters. This non-cash accounting charge does not at all change our strong convictions in our ability to accelerate our path to positive free cash flow, positions our company for profitable growth across the markets we serve, and delivers on our foremost priority, generating value for our shareholders. The market is challenging right now, but we have the right strategy in place to preserve the strong position we are in across our markets, as well as our financial flexibility that we're executing on. With that, I now will turn the call over to Carl to discuss the financials in greater detail. Carl?