Tilray Brands, Inc.

Thank you for joining today's conference call to discuss Tilray Brand's financial results for the second quarter of fiscal year 2024, ended November 30, 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. I will now turn the call over to Ms. Barron Narada, Tilray Brand's Chief Corporate Affairs and Communications Officer. Thank you. You may now begin.

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 Tilbury Brands website at tilbury.com and has been filed with the SEC and CDAR. 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. The earnings 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 as we've described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements. Today, we will be hearing from key members of our senior leadership team, beginning with Erwin Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary, followed by Carl Mertens, Chief Financial Officer, who will review our quarterly financial results for Q2 fiscal year 2024. Also joining us for the question and answer segment are Denise Faltacek, Chief Strategy Officer and Head of International, Blair McNeil, President of 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.

Thank you, Barron, and good morning, everyone, and Happy New Year. We thank you for your continued support of Tilray Brands and for joining our call today. Over the last several quarters, we have been articulating what truly sets Hillray Brands apart, our diversified business model of cannabis, EPG lifestyle brands, all operating under a strategy and a vision which we believe will drive our continued growth and future success as we demonstrate it by our record revenue in Q2. With the dedication and efforts of our more than 2,300 employees worldwide, we have created a global portfolio of beloved brands and innovative high-quality products backed by best-in-class operations, facilities, and robust distribution that supports our goal of becoming a multi-billion-dollar company. Our four distinct and complementary business segments consist of Cannabis consisting of adult use and medical cannabis across a broad portfolio of product formats, including whole flour, free rolls, dates, concentrates, oils, edibles, topicals, and THC-infused drinks. Beverages, including craft beer, spirits, ready-to-drink flavored malt beverages, ciders and energy drinks, and non-alcohol beverages. Wellness, which consists of our Manitoba Harvest hemp-based food products, ingredients and snacks, as well as our hemp-based CBD-infused beverages. And of course, our European medical distribution business, which distributes pharmaceuticals, including medical cannabis. In Q2, we continue to focus on organic growth, as well as strategic transactions. In Canada, we maintained our number one market share position with our recent HEXO and Trust acquisitions, which drove considerable cost savings and operational efficiencies. We continue to strengthen our market positions, operations distribution network, and innovation across both medical and adult use markets. Internationally, we continue to grow our existing medical markets and strengthen our medical distribution and medical cannabis operations through a relentless focus on cost and efficiency. And finally, we've expanded our beverage alcohol business with a recent acquisition of eight iconic brands and Anheuser-Busch. which tripled our beer business from 4 million cases a year to 12 million cases on an annualized basis. We remain committed to our vision of changing people's lives for the better, one person at a time. Guided by this purpose, we are inspiring and empowering the worldwide community to live their very best life, enhanced by moments of connections and well-being. At the same time, we've earned the trust of our stakeholders across the spectrum of wellness and lifestyle products. In doing so, we're delivering on our mission to be the most responsible, trusted, and market-leading cannabis and consumer products company across the globe. In fact, through our strategic execution and achievements, our business are comprised of a leading global cannabis business operating best-in-class portfolio brands with high-quality products that passed the most rigorous quality control regulations in the world with the number one market share in Canada and leading market share in Europe. The fifth largest craft brewer in the U.S. with highly style actor brand dominating key regions across Northeast, Pacific Northwest, and Southeast. And one of the most awarded bourbon brands with Breckenridge distillery with recent awards including best American blended whiskey Best Whiskey Under $50, and 2003 World's Best Blended Whiskey at the World Whiskey Awards. And we're also leader in hemp foods and snacks with our Manitoba Harvest brand. Diversifying our business beyond cannabis has put us in a very strong position today and has positioned us well for future growth opportunities. Today, we do not engage in any cannabis operations in the U.S., due to it being federally illegal. If that and when rescheduling of cannabis were to happen in the U.S. for Tilray brands, we expect this would open the opportunity for certain institutional investors to invest in Tilray and that were not previously able to invest in the cannabis industry and potentially provide a path for Tilray to sell pharmaceutical grade medical cannabis in the U.S. subject to doctor prescriptions. As you know, Hillway is a leading medical cannabis provider in the world. With our knowledge and expertise in medical cannabis and the regulatory compliance that applies, we're well positioned to participate in a federally legalized medical market in the U.S., Our underlining goal for Tilray Brain is to continue to deliver industry-leading profitable growth and sustainable long-term shareholder value through our focus on three fundamentals. Number one, maximizing profitable revenue growth through organic growth and expansion initiatives as well as key strategic acquisitions with strong synergy opportunities. realizing the benefits of optimized asset utilization and cost management to ensure a lead-efficient cost structure across all our business segments, and continuing to strengthen our industry-leading balance sheet and our cash position. During Q2, we generated record net revenue for Tilray Brands of $194 million, which marked a 34% growth from the prior year period, and generated gross profit of $47 million and adjusted gross profit of $52 million. We also significantly reduced our convertible debt by $127 million in the quarter, an additional $18 million after the quarter, and plan to further reduce our indebtedness, optimizing our capital structure and enhancing our financial flexibility. Now moving to our businesses, we grew our Canadian net revenue by 31% in the quarter compared to the previous year, driven by innovation across all product categories. This was achieved both organically and due to recent acquisition, despite price compression of approximately $3.6 million from the prior year quarter, which also negatively impacts top line revenue and profitability. Kilray continues to maintain the number one market share position in Canada, the largest federally legal cannabis market in the world, with approximately 12.5% market share in adult-use cannabis. This is 570 basis points ahead of the next LP. Canadian adult use cannabis sales and is number one in Ontario, Quebec, and British Columbia, which represents approximately 60% of the Canadian population on a combined basis. We're also number one in cannabis flowers, oils, concentrates, and THC beverages, and number two in pre-rolls, number four in vapes, and the top 10 in all other categories. all while operating under rigorous, high-quality control standards. In Q2, Tilray sold approximately 17 million grams of cannabis flower, 19 million pre-rolls, and over 1.5 million units of cannabis beverages, almost 500,000 vapes, and over 400,000 units of edibles in Canada. And we expect to sell 85 million pre-rolls by the end of fiscal 2024. Our August purchase of the remaining 57.5% equity ownership of Trust Beverage Company from Molson's Canada elevated our market share in THC beverages to approximately 40%. and positions us at the forefront of adult use beverage sector, where we're trusted by patients, healthcare professionals, and government officials in over 20 countries, and achieve early mover advantage in new countries as medical cannabis legalization advances. During Q2, we grew our international cannabis net revenue by 55% and are the market leader in medical cannabis across Europe. with leading chairs in Germany and Poland and other countries in which we participate. Similar to the U.S., the growth of our international cannabis business is not dependent on adult use legalization. We continue to take an active government relations role internationally. And just recently, we met with various members of German Parliament to discuss the proposed regulation and advancing adult use medical cannabis initiatives. which we believe will increase the accessibility of medical cannabis to patients in Germany and further work to reduce any stigma of medical cannabis as a therapeutical option. We're also optimistic about the potential abolishment of the tender procedure for in-country cultivation in favor of permit procedures, providing Tilray with the flexibility to meet the needs of patients. It is expected that these regulations will be passed in the first quarter of calendar 2024. We remain committed to advancing medical cannabis as evidenced by our investments made in Europe behind our high-quality medical cannabis products and best-in-class facilities in Portugal, Germany, where we're currently one of the only three companies in Germany that can cultivate in-country, as well as our medical distribution network led by our integrated medical distribution company with access to approximately 13,000 pharmacies. We also remain committed to medical cannabis education and research. In October, we announced our support of an independent clinical trial to research the efficacy of medical cannabis as a treatment for glioblastoma. Delray Pharma, also known as CC Pharma, is an established medical distribution platform for traditional branded and generic pharmaceuticals, as well as medical cannabis across 13,000 pharmacies, as well as wholesales and distributors. From a revenue perspective, it is currently equal in size to our cannabis segment, comprising of 35% of total sales. In Q2, it grew 12% from the prior year period, driven by improved procurement of pharmaceutical products and increased demand. From a bottom line perspective, we're laser focused on optimizing our medical distribution platform. In the quarter, we expect a cost optimization plan to reduce costs with a medical distribution segment by $1.5 million annually. The actions to achieve these savings were already executed in the quarter, and we continue to evaluate for further cost optimization and production efficiencies. Now turning to our beverage alcohol business. Beverage alcohol revenue Q2 was $46.5 million, representing 117% growth year over year. And we're only getting started in ramping up this segment. The craft beer industry today is still a large category in beverage alcohol with approximately $21 billion at retail in 2022. With a recent acquisition of eight iconic craft beer and beverage brands, We have anchored Tilray's leadership position as the fifth largest craft brewer in the U.S. by sales volume. Working with the Boston Consulting Group, we have developed a beverage strategy, identifying new opportunities for pockets of growth across craft beverages, focusing on brand newness, being more connected to drinkers, and by playing the leading role in driving excitement around craft beer to a broader consumer audience through product innovation, marketing sponsorships, and events that connect with consumers across demographics. Delray Brands is now uniquely positioned to become a top 12 beer and alcohol beverage company. By leveraging our portfolio to win more occasions through core products such as craft beer and beyond, through innovation to categories like flavored malt beverages, ready-to-drink cocktails in spirit, this will be accomplished through a three-pronged approach. We will deploy a regional approach to scale our brands in key markets across the U.S. and maximize potential of the portfolio to gain share from competitors. We will execute a very focused national brand strategy, revitalizing Chaka to win as national craft brand by targeting share and connection occasion to reach mainstream male and female beer drinkers. Through one national brand and many regional brands, we will provide robust coverage across the U.S. and other countries. We'll expand our innovation strategy to increase brand appeal to new consumers and occasions beyond craft beer and secondary targets. We can also leverage our regional footholds to further grow our brands in new markets by using test and learn tactics, which may include multi-brand, best of variety packs, or installing multi-brand taps and tap rooms before entering the market with full distribution. We can similarly capture new consumers and increase off-premise consumption through breakneck innovations. We will build on our demonstrated success, growing brands such as Sweetwater and Montauk to grow our newly acquired consumer-loved brands, including Dock Top, Blue Point, Breckenridge Brewery, Penn Barrel, Red Heap Brewery, Widener Brothers, Square Mile Cider, and High Vault Energies. Our strategic playbook is already in play to expand our beverage alcohol business across the U.S. and Canada. In getting our cost structure right, transforming the productivity and profitability of the breweries we acquire, we expect our beer gross margins to increase once we fully realize the cost savings achieved in connection with our fully integrated beverage alcohol platform. We are aggressively working to launch new innovations across our beer and non-alcoholic craft brands and expect to roll out new products in Q3. Retailer and distribution enthusiasms already provided confidence in our ability to execute on our growth strategy and to achieve our ambitions to grow our beverage segment into a top 12 business. Finally, our wellness segment is an important element of our U.S. strategy. We need a strong consumer interest in better-for-you snacks and end products. Since the Tirana-Fria business combination, we've turned around the Manitoba Harvest business onto a path of growth and greater potential. Again, product innovation is a core focus. We need the needs of Gen Z and millennial consumers to new hemp products. forward snack foods, and supplements offering in CBD beverages that fuel your day. While Q2 revenue was consistent of $12.9 million, Manitoba Harvest's branded hemp business continues to expand its U.S. and Canadian-leaded market share, its consumption up in both natural and conventional channels, with the brand's top five customers all seeing growth. To conclude... We've set the stage for continued growth in the near and long term and consider opportunities across our diversified business both numerous and exciting as we continue to disrupt the global CPG industry with products that fuel consumers' needs and change people's lives for the better, one person at a time. In everything that we do, we intentionally do to maximize profitability, sustainable revenue, and ensure optimal efficiencies, all while maintaining our balance sheet strength as we invest in our industry-leading brands. With that, I will now turn the call over to Carl to discuss our financials in greater detail.