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spk13: Once again, we thank you for dialing in. Please continue to hold. The conference will begin shortly. Thank you for joining today's conference call to discuss Tilray Brand's financial results for the third quarter of fiscal year 2024. Ended February 29, 2024. 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.
spk12: 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 Tilray Brands website at tilray.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 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 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 Merton, Chief Financial Officer, who will review our quarterly financial results for the third quarter and update our financial guidance for the fiscal year 2024. Also joining us for the question and answer segment are Denise Falcicek, 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.
spk07: Thank you, Barron. Good morning, everyone, and thank you for joining us. At Tilray Brands, we take great pride in our mission to be the most responsible, trusted, and market-leading cannabis and consumer products company across the globe. Today, with our complimentary business units, we believe Tilray Brands is the best positioned company in the world to take advantage of all the positive regulatory tailwinds happening globally with cannabis legalization and drug policy reform. In Canada, Tilray continues to lead the cannabis industry with the leading portfolio of adult use brands and the number one market share. In the event the current excise tax regime were to be replaced with a 10% ad valorem tax based on the value of the product sold and not a per gram tax, we expect an annual savings of $80 million. We also expect to benefit from additional cannabis-related regulatory reforms around marketing and THC potencies. I'll take a deeper dive in the Canadian market shortly. In Germany, Tilray has the leading cannabis market share by revenue for the trailing 12 months, and we believe we are best positioned to capture a large portion of the expected growth in the medical market with both our in-country cultivation facility in Germany and our state-of-the-art facility in Portugal. We also have the ability to ship products from Canada to Germany. In the U.S., Tilray has multiple options, and in particular is well-positioned to benefit from the federal legalization of medical cannabis as a result of rescheduling. Yes, we believe that the rescheduling of cannabis from Schedule 1 to Schedule 3 in the U.S. would provide a path for Tilray to sell pharmaceutical-grade medical cannabis in the U.S., subject to doctor prescriptions. This is a different strategy from what MSOs are doing today. We believe there's an opportunity to supply medical cannabis products from our existing operations into the U.S. for medical purposes. Further, in the event of a future federal adult use and medical cannabis legalization in the U.S., we believe Hill Ray is well-positioned to immediately leverage its strong global leadership position, know-how, and strategic strengths across operations, distribution, and brands to sell EHE-infused products across its robust distribution network and sales channels in the U.S. Today, Tilray is a clear outlier in the global cannabis industry because we're the only company with global expertise in both adult use and medical cannabis. Our innovation comes from GMP certified pharmaceutical grade medicines to all recreational cannabis formats, including THC infused beverages, which also parlays into our beverage strategy. We have rigorous cannabis quality control, regulatory affairs, branding, marketing, sales, and distribution. We also have the number one cannabis market share in Canada, the number one cannabis market share in Germany, as measured by revenue. And we distribute medical cannabis in over 20 countries around the world. Since 2019, we quickly developed a diversified and award-winning portfolio of brands, backed by best-in-class operations in Canada, the U.S., Europe, Australia, and Latin America, that supports our goals of becoming a multibillion-dollar cannabis and consumer products company that addresses the needs of consumers and patients we serve today. As you know, the leadership team at Tilray has the expertise of buying TPG brands and building them into somewhat greater than they were before. Our creative portfolio of beverage brands includes craft beers, spirits, ready-to-drink cocktails, ciders, and non-alcoholic beverages. We are now the fifth largest craft brewer in the U.S., with a 4.5% share of the craft beer market. With over 500 beer distributors alone, Tilray is now dominating key regions across the U.S. with our craft beer brands in the Northeast, Pacific Northwest, Midwest, and Southeast, along with one of the most awarded bourbon brands with Breckenridge Distillery, which continues to gain market share across whiskey, vodka, and gin products. Our wellness brands include Manitoba Harvest, Hemp-based food products, ingredients and snacks, as well as our happy flower, our CBD-infused beverages, and our recently relaunched highball energy drinks, which in its first month on Amazon received over $1 million in orders. With appropriate approvals, we're also looking to introduce hemp-based Delta 9 beverages and products with our happy flower brand and across other wellness brands in the U.S. And finally, we own and operate a European medical cannabis and pharmaceutical distribution business in Germany, DC Pharma, also known as Tilray Pharma, with a robust footprint reaching 13,000 pharmacies in Germany alone. With broader medical cannabis use, doctor prescriptions in Germany, we expect there to be tremendous demand for medical cannabis within pharmacies. I can't predict the future. But my belief is there will be a lot of cannabis regulatory changes we've seen with Germany in Canada and the U.S. And Tilray is best equipped to reach these underlying opportunities. And we have the assets and the tools to reach our goal for Tilray Brands to deliver industry-leading profitable growth and sustainable long-term shareholder value through our focus on these three fundamentals. maximizing profitable revenue growth through organic growth and strategic acquisitions with strong synergy opportunities, realizing the benefits of optimized asset utilization and cost management to ensure an efficient cost structure across all our business segments, and to strengthen our industry-leading balance sheet and cash position. During Q3, we achieved net revenue of $188 million, representing approximately 30% growth over the previous year. We grew our revenue across our core business segments. This was achieved by focusing on organic growth of legacy brands and enhancing the performance of our more recent strategic acquisitions. Gross profit was $49.4 million, despite impact of the newly acquired craft beverage brands, which have a lower margin. Our net loss was $105 million, which only $4.5 million represented lost from operations, and cash used in operating activities was $15.6 million. Adjusted gross profit was $51.6 million. Adjusted EBITDA was $10.2 million. Adjusted net income of $900,000 and adjusted EPS of zero cents. We delivered positive adjusted free cash flow for the quarter. Over the last three quarters, we significantly reduced our convertible debt by $205 million, decreasing our net debt to approximately $175 million, and we'll work to continue reducing our indebtedness, optimizing our capital structure, and enhancing our financial flexibility. The net reduction in our convertible debt will decrease our annual interest expense by $9.8 million, which flows directly to adjusted net loss and adjusted free cash flow. Let's now dive deeper into each of our business segments. We grew our global cannabis net revenue by 33% to $63.4 million in Q3, compared to the previous year quarter, driven by our acquisition of Hexo and Trust, as well as our international business and innovation in the Canadian markets. Net Canadian cannabis revenue grew 31%, to $49.4 million in Q3 compared to the previous year. We achieved this growth with the HEXO acquisition despite price compression totaling $3.1 million from a prior year quarter and a crippling tax structure that has allowed taxes to spike while prices declined by more than 50%. Excise tax increased by $8.2 million and amounted to $21.8 million or 32% of our gross Canadian cannabis revenue in Q3, compared to $13.6 million or 26% in the same quarter last year. Recent enforcement efforts by Canada Revenue Agency, garnishing LP payments from the provincial boards, is already having an impact on our competitors, over 1,000 of whom have negligible market share. The continued enforcement by CRA, we believe, will lead to further and necessary industry consolidation, perhaps on a mass level. Canada continues to be the largest federal legal and commercial adult use cannabis market in the world. And Tilray Brands maintains that number one market share position in the country. We are number one in Ontario, number one in Quebec, number one in British Columbia, which together represents over 60% of the population of Canada. We're also number one in cannabis flour, oils, concentrates, and THC beverages, number two in pre-rolls, and number four in vapes, and in the top ten in all other categories, all while operating under rigorous, high-quality control standards. Our focus in Canada is on two things. First, growing sales primarily through continuous launches of new product innovation, and second, taking more and more costs out of our businesses. On the latter, a large part of our acquisition strategy for Hexo and Trust involves removing legacy costs and skew rationalization from these businesses. For Hexo, we originally target $27 million, but then increased that to between $30 and $35 million, of which we've already achieved $27.5 million in savings on an annualized run rate basis, of which $15.6 million is realized cost savings during the period. Our HEXO integration plan includes dreamlining our Canadian operations, improving utilization of our core facilities, improving margins, and maximizing cash opportunities by pursuing divestitures and consolidating facilities. We plan to close the Cayuga facility and move its cannabis cultivation to our existing Canadian production lines, sell our Maison facility in Quebec, which is currently cultivating cucumbers as a vegetable operator, and sell the Belleville facility and move our manufacturing to our London facility for our beverages. We expect this plan to result in one-time $70 to $85 million of Canadian cash inflow opportunity and accretive to margins and net income by $5 to $7 million on an annual basis. From a regulatory standpoint, the expert panel appointed by the federal government clearly highlights three areas of focus which Tilray would benefit from once implemented. First, excise tax reduction, which I've talked about, both in adult recreation and medical, would benefit Hill Ray $80 million. Secondly, there is a proposed opportunity for pharmacies to carry CBD and medical cannabis for medical patients, which would move plant-based medicines into the mainstream as an option for patients to treat ailments. And finally, enforcement against illicit websites, dispensaries that don't contribute to excise tax, and put you at risk through unregulated product channels available easily online with e-transfer and Canadian Post email. We think Canada Post and the Canadian banking systems are responsible for shutting down access to these unlawful establishments. Turning to international cannabis, we grew net revenue organically by 44% year over year to $14 million, and we remain the number one market leader in medical cannabis across Europe with a leading market share in Germany and Poland. Hill Ray's international growth has also been driven by increased sales in our existing markets such as Portugal, Italy, the UK, Australia, and New Zealand. The new German medical market opportunity is projected to be approximately $3 billion in the medium term, while the European opportunity could represent a potential $45 billion medical market alone in the long term. Our presence in Europe allows Tilray to grow our global brand portfolio to a base of over 700 million people in Europe, which is twice the population of the U.S., While much of the media attention related to the new cannabis reform in Germany has been centered around cultivation for personal use and the establishment of cannabis social clubs, the new opportunities for Tilray flow mostly from the removal of medical cannabis from the Narcotics Act. This descheduled change is expected to significantly expand the medical cannabis market in Germany as it would allow for more doctors to prescribe medical cannabis more easily to patients and potentially allow for broader health insurance coverage. We will therefore be increasing our educational efforts to bring more and more health professionals on board with medical cannabis as therapeutic options. We estimate that in less than 0.4% of the population in Germany are presently buying medical cannabis compared with 4% in states like Pennsylvania. In Germany, we also stand to benefit from the abolishment of the tender process for in-country cultivation of medicinal cannabis, which is being replaced with a licensing scheme. We are currently one of the only three in-country cultivation facilities in Germany today. And these legislative changes would allow us to better meet patients' needs by expanding our medical cannabis product offerings. This would, in turn, significantly increase our cannabis production in Germany by five times more than double our revenue opportunities. Tilray opportunities in U.S. cannabis remain strong. Over the past several years, our playbook of expanding our business beyond cannabis to adjacencies and complementary markets has positioned Tilray well for the current environment as well for future growth opportunities. While we currently do not engage in any U.S. cannabis operations because of federal regulations, We're well positioned to participate and win in a federally legalized market when that changes either rescheduling or medical cannabis or the passage of federal cannabis legalization. Given our deep knowledge, global expertise in medical and adult use cannabis, and the regulatory compliance implied, Tilray's playbook in the U.S. is to build and deliver iconic sought-off brands in the beverage alcohol and the CPG backed by product excellence and innovation. Educate consumers about our brands and our stringent quality standards to encourage trial and foster loyalty. And last but not least, to drive and scale and distribute to get our brands into consumer hands to grow our market share. Moving to our beverage segment, which is quickly approaching approximately $300 million annualized. As mentioned earlier, Hillary Brands is now the fifth largest craft brewer in the U.S. with a 4.5% craft beer market share, and we aspire to be a top 12 beverage company in the U.S., Q3 beverage alcohol net revenue was $54.7 million, representing 165% growth year-over-year. Kilray now holds 4.5% of the craft beer market share in the U.S., and we're just getting started and ramping up. Of this are legacy brands of Sweetwater, Montauk, Alpine, Nelson, and Green Flush. Demonstrates our ability to successfully grow existing brands along with our recent acquisition of 12 craft brands from ABI InBev. We have gained in scale and see further expansion opportunities. Wheatwater remains the number one brand family in Georgia, multi-outlets. Montauk remains the number one brand family in Metro New York, having increased its distribution by 28% versus last year. Tilray is now the number one craft supplier year-to-date in the Pacific Northwest. 10 Barrel's volume growth increased by 413 basis points since Tilray took over the brand, and we're now capitalizing on the success of 10 Barrel pub beer brand extensions by adding pub ice, pub cerveza line extensions. Both innovations we're extremely excited to launch. Growing 24% of beer is now of a top 20 brand on the West Coast, with only half the distribution of top competitors due to its focus on the Pacific Northwest states. Still, our ambition is to be much higher as we're aiming and uniquely positioned to become a top 12 beverage alcohol business. This will be accomplished 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, and spirits. But ultimately, our plans go beyond alcohol, as we will be expanding into sparkling water, energy drinks, and other categories. This is important because we have the manufacturing facilities, the distribution, and the sales and marketing infrastructure to drive tail-rated businesses. Working with BCG, we developed a clear and focused strategy to drive top-line and bottom-line growth for our beverage businesses. The three-pronged approach will deploy a regional strategy called Dual to stabilize scale brands such as Sweetwater, Montauk, Bluepoint in their respective key adjacent regional markets across the U.S. and maximize their potential to gain market share from competitors. Juul is already paying off. According to BI sales to retail data, Hill Ray has increased its market share of total beer in 13 states, including key beer markets such as Oregon, Washington, Colorado, Idaho, Minnesota, and Arizona, when comparing share before and after the craft acquisition. In the southeast alone, we've improved trends by 4.6% post-acquisition. For Q3, Ken Barrow has seen a 12.3% increase in distribution amongst our top 10 distributors when compared to the same time last year. And when comparing six months pre-acquisition with the five months post-acquisition, overall trends have improved 3.5%. Overall trends for Blue Point have improved 1.3%, while its number one distributor has improved trends by 3.8%, and those are just a few examples. We are also executing a national brand strategy, beginning with revitalizing Shock Top to win as a national craft beer over time by targeting share and connect occasions to reach mainstream male and female drinkers. We think there is tremendous upside with Shock Top, as according to our qualitative research, Shock Top has the highest purchase intent among 12 of the largest beer brands. This is why we're focused on increasing distribution and getting this brand back into the hands of consumers. We are already on our way in Q3, Shock Top's number one distributor. has increased distribution 24% versus last year, while on-premise distribution has increased 0.5% over last year among ShopTalk's top 10 distributors. We are aggressively launching new and often disruptive innovation across our beer and non-alcoholic craft to increase portfolio brand appeal to new consumers and new occasions. Many of our newly acquired brands have not had innovation in the last couple of years. Among many others, recent examples include Liquid Love for heartfelt hydration, Runner's High, a non-alcoholic craft brew for athletes. Eyeball and Hardball, a non-carbonated 10% ABV product sold in 16.9-ounce plastic resealable containers, and non-carbonated shock top LitRT. Let me say that we're working to get the cost structure right. transforming the productivity and profitability of the breweries we acquire. We expect that our beer gross margins will increase once we fully realize the cost savings achieved in connection with the fully integrated beverage alcohol platform as we move away from the existing co-packing manufacturing agreements with ABI and increase our productivity in our newly acquired breweries and 13 brew pubs. Finally, let's discuss our wellness segment, represented mostly by Manitoba Harvest, which is fostering a positive impact on people and the planet through hemp by making ongoing commitments to sustainability with breakthrough initiatives such as investment in regenerative agriculture. Revenue grew 12% in Q3 to $13.4 million compared to last year. We partnered with Bioactive's company, Bright Sea, to revolutionize the functional fiber market and breakthrough product, Manitoba Harvest Bioactive Fiber, which is now exclusively available at Whole Foods markets nationwide. Incredibly, 95% of Americans do not consume the recommended daily intake of fiber. This product provides six grams of both soluble and insoluble fiber per serving and is the only fiber solution containing two powerful hemp-based bioactives for gut health. Moving forward, the team continues to assess the opportunity to bring hemp-derivative Delta-9 beverages to market under Happy Flower and Tilray Brands. With that, I now turn the call over to Carl to discuss our financials in greater detail. Carl?
spk10: Thank you, Erwin. Recall that we present our financial results in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussion, we will be referring to both GAAP and non-GAAP adjusted results, and we encourage you to review the reconciliation contained within our press release of our reported results under GAAP to the corresponding non-GAAP measures. Let's now review our quarterly performance for the three months ended February 29, 2024. Q3 total net revenue rose to $188.3 million compared to the prior year quarter of $145.6 million, representing almost 30% growth. Excluding acquisitions completed within the fiscal year, and the $8.7 million HEXO advisory fee captured in the prior year quarter, our legacy businesses remain consistent despite a 13% revenue decline in our lowest margin segment. We continuously emphasize the strategic importance of our adjacency business model, which is a key differentiator for us. This is best reflected by the contribution of our four segments to our overall results which shows that we are not too dependent on any individual segment having a disproportionate impact on our sales or profit growth. Each segment is also, in our view, on a path to sustainable long-term growth. Looking at each segment now, during Q3 and compared against the prior year period, net beverage alcohol rose 165% and represented 25% of our total revenue mix. more than double relative to last year's 14% of total mix. Net cannabis revenue rose 33% and represented 34% of total mix, up slightly from 33% last year. Distribution revenue decreased 13% and represented 30% of total mix, down from 45% last year. And wellness revenue rose 12% and represented about 7% of total mix, down only slightly from 8% last year, respectively. Diversification is also reflected in our geographic footprint. During Q3, more than 62% of our net revenue was generated in North America, roughly 36% was generated in EMEA, and the remaining 2% coming from other parts of the world. This compares to about half from North America and EMEA in Q3 last year, with the variance related to the North American acquisitions we completed since that time, mainly HEXO, the Kraft acquisition brands, and the remainder of Trust Beverages. Let me first touch on the key current item related to cannabis before moving on to a discussion on profitability. We incurred $21.8 million in Canadian cannabis excise taxes during Q3, which are a reduction to revenue, compared to only $13.6 million last year. The increase in excise taxes is reflected by a sharp increase in cannabis revenue generated in Canada versus the year-ago period due in part to the HECSA and trust acquisitions and a change in our revenue mix to higher excise tax products. Through the first three quarters of our fiscal year, we've incurred more than $75 million in excise taxes versus $47 million for the year-ago nine-month period. For many quarters, we have been on the record with respect to the inherent unfairness as to how the excise tax is predominantly computed, which is largely a fixed price on grams sold rather than as a percentage of the selling price. Because the selling price has declined meaningfully since the law was first enacted in 2018, it has made the excise tax a larger and larger component of net revenue over time. particularly as current growth categories like infused pre-rolls and concentrates become the biggest part of our sales mix. To prove this point further, excise tax amounted to 32% of gross Canadian cannabis revenue in Q3 compared to 26% in the same quarter last year. While through the first three quarters of the year, excise tax came to 34% of gross cannabis revenue versus 27% for the first nine months of fiscal 2023. In our view, and in the view of so many others, this price-based tax structure is crippling as it has allowed taxes to spike as the price of cannabis has declined by more than 50% since legalization. In late February, the Canadian House of Commons Standing Committee on Finance issued a report outlining several recommendations regarding the regulated adult-use cannabis industry, including the recommendation to adjust the tax structure. Recommendation 329 in particular calls on legislators to make adjustment to the excise duty formula for cannabis so that it is limited to a 10% ad valorem rate. If enacted, this would be a welcome change that could result in $80 million in annualized revenue for our cannabis business, which would largely fall to the bottom line. The key to the government's plan and needed relief for our industry is that the provinces not enact their own excise tax to reflect the loss in taxes they are reaping from the status quo, increase their profits at the boards, or mandate that the tax savings are passed on directly to the consumer in the form of lower pricing. The budget announcement is next week and we'll be following developments closely. but are resolute in our view that reform is greatly needed and measures must be enacted to stabilize the Canadian cannabis industry. Turning back to our performance, gross profit was $49.4 million compared to a loss of $11.7 million in the prior year quarter, while gross margin increased to 26% from negative 8% in the prior year quarter. Adjusted gross margin decreased to 27% compared to 30% in the prior year quarter. I will discuss adjusted gross margin by individual segment in a moment. However, the majority of the decrease relates to the addition of the new craft brands, which are subject to a co-manufacturing agreement with ABI until at least the end of Q1 next year, and the prior year figure, including the HEXO advisory fees. Net loss improved to $105 million compared to a net loss of 1.2 billion in the prior year quarter, which included $934 million of impairments. On a per share basis, this amounted to a net loss of 12 cents versus $1.90 in the prior year quarter. Recall that last quarter we introduced two new reporting metrics to our discussions, adjusted net income loss and adjusted earnings per share. The definitions of both are identified in the press release, along with the relevant reconciliations and calculations. For Q3, we are reporting an adjusted net income of $900,000, which, when calculated on a per share basis, results in EPS of zero for the quarter. Adjusted EBITDA was $10.2 million, down from $13.3 million in the prior year quarter. This is mainly a consequence of the negative impact the cannabis gross margin related to wholesale revenue, the termination of the HEXO Advisory Services contract on our acquisition of HEXO in June, and the co-manufacturing agreements with the new craft brands, as I will explain shortly. During the quarter, we made great progress against the HEXO Synergy Plan, which we had previously increased to between $30 and $35 million. As of the end of Q3, we achieved $27.5 million in savings on an annualized run rate basis, of which 15.6 represented actual cost savings during the period. Operating cash flow was negative $15.4 million compared to negative $18.6 million in the prior year quarter. This improvement in cash used during Q3 this year was primarily related to achieved synergies of previously identified cost savings plans. Turning now to our four big business segments, beverage alcohol revenue was $54.7 million, up 165% from $20.6 million in the prior year quarter. The positive delta was due to contributions from the craft brands, which were purchased last fall. However, we note that the impact of dry January was far more of a headwind than it was for the industry in previous years. Beverage alcohol gross profit increased to $18.9 million compared to $10 million, while beverage alcohol gross margin decreased to 34% from 48% in the prior year quarter. Adjusted gross margin fell to 38% from 53%. Both of these outcomes were a result of the craft grants, which currently have lower margins than our historical business. This is primarily due to the co-manufacturing agreements for brewing. For greater context, adjusted gross margin for our legacy beverage business was 59%, compared to the prior year quarter of 53%, primarily as a result of an agreement with a distributor related to our spirits business. Adjusted gross margin from the craft brands was 26%. The improvement of gross margins in the beverage alcohol business, primarily in the beer portion of the business, represents a major focus for the organization. Gross cannabis revenue of 85.2 million was comprised of 62.1 million in Canadian adult use revenue, 14 million in international cannabis revenue, 6.4 million in Canadian medical cannabis revenue, and 2.8 million in wholesale cannabis revenue. Net cannabis revenue, which excludes the aforementioned 21.8 million in excise taxes, was $63.4 million, representing a 33% increase from the year-ago period. The positive variance is related to the increased organic growth of over 14%, combined with contributions from the acquisitions of HEXO and Trust. Offsetting the increase in net cannabis revenue was the elimination of advisory services revenue, totaling $8.7 million from the prior year quarter due to the HEXO acquisition, which terminated the previous strategic arrangement that was in place. While revenue from Canadian medical cannabis grew only slightly, as the category is being impacted by competition from the adult use market and its related price compression, revenue from Canadian adult use rose 37%, which was driven by new product innovation and increased revenue from HEXO and Trust. International cannabis grew 44%, largely because of growth in our existing markets and the expansion into emerging international medical markets. Wholesale cannabis revenue increased to $2.8 million from essentially zero last year as these sales are opportunistic and variable. We entered into this wholesale agreement to optimize our inventory levels and prioritize the generation of positive operating cash flow. However, it unfavorably impacted our gross profit and EBITDA. Cannabis gross profit was $20.9 million, and cannabis gross margin was 33%, compared to negative $32.8 million and negative 69% in the prior year quarter. Excluding the impact of the non-cash fair value purchase price accounting step-up and inventory valuation adjustments, adjusted gross margin decreased to 33% from 47%. As I said earlier, a portion of the margin decrease is a result of the termination of the HECSA Advisory Services Agreement, which contributed zero gross profit in the current year compared to 8.7 million in the prior year, which if excluded, would decrease adjusted gross margin to 35%, essentially meaning that our cannabis gross margin was largely flat year over year. Distribution revenue derived predominantly through Tilray Pharma, decreased 13% to 56.8 million from 65.4 million in the prior year quarter. Revenue was negatively impacted by infrastructure outages and weather, which impacted revenue by just over $3 million, and short-term challenges related to new rebate regulations. Tilray Pharma gross profit decreased to 5.6 million compared to 7.5 million in the prior year period. There were a pharma gross margin decrease to 10% from 11% in the prior year quarter because of product mix. Wellness revenue grew to 12% at $13.4 million from $12 million in the prior year quarter. The increase was driven by our strategic focus on targeted advertising campaigns aligned with emerging trends in healthier lifestyles, particularly around the new year, coupled with our continuous innovation efforts. wellness gross profit was $4.1 million, up from 3.7 million in the prior year quarter, and gross margin held at 30% compared to 31% in the prior year period, as we experienced a change in sales mix towards more bulk retail sales. Our cash and marketable securities balance as of February 29th was $225.9 million, down from $408.3 million in the year-ago period, The majority of the variance was related to the payment on maturity of the Tilray 23s, our cash acquisition of the new Kraft brands, and settling assumed liabilities from HEXO, including unpaid excise tax, as well as legacy litigation settlements. Having now completed three quarters of our fiscal year, it is clear that our prior fiscal 2024 guidance of adjusted EBITDA between 68 and 78 million is no longer feasible. We have therefore lowered our adjusted EBITDA range to be between $60 and $63 million, which takes into consideration our performance through the three quarters, over $12 million year-to-date in price compression in the cannabis business, and continued expectations for the fourth quarter. Still, the fourth quarter represents a major increase from the current quarter, which is traditionally our lowest quarter due to the seasonality within our segment. The fourth quarter seasonality improvement is a function of our beer business leading up to the summer, a historically busy season. New innovation scheduled to be launched as part of the spring reset. New innovation in our cannabis business along with expected wholesale sales. And in our distribution businesses, pharmacies buying bulk for their customers ahead of them going on summer vacation. Recall that we also projected positive adjusted free cash flow from operations for the entire fiscal year. excluding our integration costs for Hexo Trust, the new Kraft brands, and the cash income taxes associated with Afria Diamond. Due to the timing of collecting the cash on the various asset sales mentioned, we now do not expect to achieve this prior adjusted free cash flow guidance. While we were adjusted free cash flow positive in the current quarter, our current expectations are for a very strong fourth quarter of adjusted positive free cash flow. Of course, we will continue managing CapEx as part of our efforts to strengthen our industry-leading balance sheet. Let me now conclude our prepared remarks and open the lines for questions from our covering analysts. Operator, what's the first question?
spk13: Thank you. Just as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 before pressing the star keys. Our first question comes from the line of Andrew Carter with Stifel. Please proceed with your question.
spk00: Hey, thank you. Good morning. I wanted to ask about the German changes. I mean, obviously, it's going to likely manifest in a big uptick in patients with doctors now having more freedom to prescribe cannabis. But kind of thinking through this competitively, how do you see this as your position unique in being able to attack this market? I know that for the past five years, we've seen a lot of decks with Germany circled and capacity to hit that market. Is that capacity still out there? How expensive it is to maintain this? And can you give us a reminder of kind of the stringent quality standards you have to have in place to serve the German market? Thanks.
spk07: Thank you. And great question. Number one, listen, we see the opportunities in Germany in multiple ways. We have a facility in Germany today and that Germany before only would serve as a tender to the German government. Now that tender process will go away. and we'll be able to sell product into the marketplace. So that's number one. Number two is before only a certain amount of doctors were able to prescribe cannabis. And it was a very small amount for specialty reasons. And now every doctor, because it's no longer a narcotic, will be able to prescribe cannabis. Number three, you know, we also have a facility in Portugal Which will be able to supply Germany. Number four is we have something called Telluride Pharma, CC Pharma, which is a distribution company that distributes cannabis and other medicines to over 13,000 drugstores. We have a team based in Germany. We have a sales team based in Germany. We have R&D, we have quality insurance. So we've been there for four or five years. And we've had some tough four or five years because of what's happening. The other big thing here is, you know, Europe is a big country. And, you know, with... no longer being a narcotic and decriminalized, we see lots of other places, you know, countries opening up. I have Denise Haltacek here as head of Europe. Denise, is there anything I missed here or anything that, you know, you should add?
spk17: Yeah, no, Erwin, you did not miss anything. Just to add a little bit more in terms of facts, so in terms of that abolishment of the tender that Erwin spoke about and the fact that under the new regulations, we'll be able to apply for a license with our facility in Nuremberg. So today, just to refresh everyone's memory, we are subject to a tender contract. capped at about 1,000 kilograms that we can grow every year, and that is done pursuant to certain pricing. So with the abolishment of a tender, we now open up into a licensing process where we are now subject to just market conditions as it relates to patient demand. And so we can utilize that facility to meet that demand, which would allow us to increase our capacity. We have the ability to today grow up to about 5,000 to 6,000 kilograms. without any additional capex. And we can basically then also have pricing that is subject to market demand today. So that is an immediate benefit there. In terms of the ability to prescribe, we are amping up our ability to be in front of doctors and working on symposiums and educational platforms. One of the things we've done on the prescription platform software, if a doctor wants to prescribe medical cannabis, they go to that page and there's a Tilray banner at the bottom which shows all of our portfolio of products, what the conditions are, how to prescribe. So we are out there also providing basically information for doctors who are willing to prescribe and want to prescribe.
spk07: I think the big thing is, Andrea, we do have a brand, a Tilray brand, but the whole thing of socialized medicine and prescription and paying for it, we see lots of changes happening. So You know, we have been working in the German market in regards to, you know, products for pain, for anxiety, for sleep, for cancer, for epilepsy. So we've been all over that and take our expertise of what we do at medical cannabis in Canada and translate it there. And secondly, like I said, There is a market out there that will be looking for medical cannabis, but ultimately using it for recreational cannabis. So from a standpoint, we really are excited about what's happening in Germany. It does not affect us in regards to the social measures that have come in place there. And, you know, we have the team, we have the grow, we have the infrastructure, the research and development ready to go here. And it's, you know, effective now.
spk03: Thanks. I'll pass it on. Thank you.
spk13: Thank you. Our next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question.
spk18: Hi. Thank you. Two for me, please. First, on the guidance, I appreciate the added color that you gave. Could you be a little bit more specific in perhaps what exactly has changed versus last quarter? And this quarter, what sort of surprised to the downside? And how do you see that progressing over the quarters to come? And then my second question, I know you guys called out your number one position in Canadian cannabis. So looking at the market share numbers you guys quote in the press release, I think that's on the downward trend for the last couple of quarters. So could you break down what's driving that? And if you think you can regain that over the quarters to come? And if so, how do you anticipate doing that? Thank you.
spk07: So I'm going to take the start part of it. Um, number one, not all quarters are equal. This third quarter being one of our lowest quarters in regards to that alcohol and our cannabis business, our fourth quarters and our first quarter, second quarter. So, um, that's, you know, as you look at our quarters and absolutely their seasonality within all these businesses. Secondly, we, you know, we did lose some share in Canada. Some of it was, again, coming back to price compression, and some of it was coming back to some of the prices in regards to our flour. The other thing that happened is we had a lot of innovation that was coming into the marketplace that we didn't get into the market in our third quarter, which we expect to get back in our fourth quarter. I think what's important here is again there's been lots of price compression in canada there in regards to we talked about our percentage in excise tax and the market is changing dramatically there in regards to potencies um and being you know infused pre-rolls etc so some of it is just timing and do i expect to get it back um larry you're on the line do you expect to get your your share back
spk09: Yeah, thanks, Erwin, and thanks, Nadine, for the call. Just to add a little bit more color to what Erwin was talking about, Q2 and Q3 were our most operational complex periods. So in addition to what Erwin talked about, what we also saw is when you are moving the location of SKUs and where they're going to be distributed from, and one of the things we've done is centralized all our packaging and logistics out of Leamington, That requires us to draw down inventories in each of the boards and then rebuild that inventory once we've changed the source location. So what you're seeing in some of the numbers is, in addition to the price compression Erwin talked about and the innovation side, is just a reflection of the operational complexity we implemented in Q2 and Q3. Once that is completed and it was all completed inside of Q3, that will generate very strong operational efficiencies for us moving forward as everything outside of beverages will be shipped out of one location.
spk03: Carol?
spk10: Yeah, so just a couple things to the explanation as well. You know, in our beverage alcohol business, and I think in the entire industry, was hit a little bit harder than it has in the past in terms of dry January. So that took away a bit of a portion of our sales expectation for the year. You know, the beverage alcohol business with the new acquisition of the new brands, those brands are at a lower gross margin than the rest of our businesses. We're working very hard to bring those pieces up and we will get that over time, as I said in the script. you know we expect to be able to bring those up much closer to uh to the historical margins that we've achieved but it's going to take it's going to take a few quarters and so it's just it's it's coming it's really a function of the co-manufacturing agreements that we have um and getting that production moved and into our facilities and organized and in an effective manner while not calling operational problems during during that move And in terms of the free cash flow guidance, we had some expectations on cash receipts on some of the bigger things, including some of the make-whole provisions inside of the spirits business, which we now see coming in in June or July as opposed to in May, and that's really what's led to that change.
spk07: I think the big thing here is just timing, and that's, you know, I can't always predict things. And, you know, with our beer businesses, You know, the ABI businesses bought lower margins, but just from an integration standpoint, we had a transfer service agreement, you know, with ABI. We're moving away from that at the end of May, moving it into our facilities. You know, we expect to get our margins up into the high 30s, low 40s. Today, with our Sweetwater and our legacy businesses, we're running margins at that rate. So, you know, with that, we look to those margins. In regards to, you know, the Canadian cannabis businesses, As Blair said, integrating HEXO with skew rationalization, with some of the strains, and looking at some of the potencies and timing. And when you're dealing with agriculture products, not everything moves accordingly here. You know, we've made some moves in regards to, you know, our Cayuga, in regards to Maison, in regards to Belleville, and consolidating our businesses there, taking out costs. So... Again, as we look at guidance, yes, there's guidance out there, but a lot of it is just timing. And as we move forward, you know, we have four quarters, not six quarters. If it were six quarters, it would be different.
spk03: Understood. Thank you. Thank you.
spk02: Thank you. Our next question comes in line of Aaron Gray with Alliance Global Partners. Please proceed with your question.
spk03: Good morning. Thank you for the questions.
spk16: This is Remington Smith on for Aaron Gray. My first question is, in terms of the CRA having the provinces garnish wages, have you started to see any changes in purchase habits from provinces or the overall competitive environment yet? And then with kind of greater focus on those LPs paying their taxes?
spk10: I don't think we've necessarily seen changes in purchasing patterns. I think we saw very quickly after CRA started garnishing those wages, a couple of LPs filed for protection within the same week. And then I think there's been a few more that have filed since that period of time. And so someone who's excessively behind on their excise tax and having their payments garnished are looking at four, five, maybe six months of time before they're going to get their next payment. They just don't have a lot of choices, and so they're having to file for that protection. You know, I don't think the boards are actually changing those patterns yet. I think that'll probably happen over the next three or four months as more of these LPs realize and get caught up in the garnishment.
spk07: But there's a lot of the boards out there that have been asked by the CRA to garnish excise tax when they sell into it. I think the big thing for us is we're finally seeing the Canadian government taking this serious. And those that weren't paying excise tax could keep going and putting the rest of us at a disadvantage. So I think we're going to continuously see changes. And we've talked about the study that's come out there in regards to changes in regards to excise tax and marketing. you know, medical cannabis, et cetera, I think there's some major things here that could really benefit the Canadian cannabis industry.
spk03: Great. Thank you. I appreciate the call there. And then my second question. Go ahead.
spk16: No, go ahead. My second question is just in regards to the excise change, excise tax changes that you mentioned that could potentially occur in the budget that's released next week. You mentioned tax savings potentially of $80 million for Tilray. So I guess with those savings, do you expect it to mostly be realized by the LPs, or could there be some benefit realized from the provinces and the retailers as well? If any call it, that would be helpful.
spk07: Good question. I think as we know provinces and we know governments, I'm sure they're going to try and grab some of that. But I think, listen, as we've said and we've openly said, it's about $80 million to Tilray. And the big thing is you've got price compression and you still have the same amount of excise tax that you're paying. and uh you know i think in this quarter was 32 33 percent of our sales was going to excise tax so something has to be done i don't mind if some of it goes back to the government on education and promoting the safety bringing awareness marketing and allow us to do these things so again if we got half of it 40 million dollars back, invest back in the business. I think it'd be tremendous beneficial, you know, to TILA and other LPs.
spk10: Yeah, and I think the key in this piece is that if the government's making the change to strengthen the industry because the tax became in a way oppressive, they need to avoid creating new things that pull that money back. And they need to allow it to go to the industry to help the industry continue to grow and strengthen.
spk03: Thank you for the answer.
spk13: Thank you. Our next question comes from the line of Bill Kirk with Roth MKM. Please proceed with your question.
spk01: Thank you for taking the questions. Maybe I missed it in the prepared remarks, but what is the $29 million in assets that have been moved to held for sale? I imagine some of it might be facilities that you mentioned earlier, but what specifically is in that number and how is it determined?
spk10: So that number is the Cayuga facility, it's Misson, and it's the Belleville facility that we acquired as part of trust. And so in each case, it's a facility, it isn't the business. The business is being reorganized within our existing footprints. And then we're releasing or selling what becomes redundant assets at that point in time.
spk01: Okay, got it. That's what I was looking for on not the businesses. Okay, and then in the third quarter compared to 2Q, selling marketing expenses up a little bit,
spk03: Did we lose you, Bill?
spk13: I'm sorry. It seems that his line may have a technical difficulty. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
spk14: Thank you. Good morning. wanted to touch on the U.S. and I understand at the moment it's strictly speaking a little bit hypothetical still but if rescheduling occurs you laid out at a high level how you're thinking about it and a more pharmaceutical approach I guess a couple questions is it just maybe what's your patient's level if it does come to that just because the FDA certainly is known not for its speed and so You know, is your understanding just, you know, that obviously if that door opens, it could still take quite some time or how are you thinking about that? And in the release as well, you reminded us about the connection to MedMen and how would that fit into that potentially? Is that something that would still stay separate or could potentially become sort of like pharmacies? I guess just maybe lay out some of how you're thinking about potential U.S. opportunities should regulatory change come through.
spk07: So as I said, within the U.S., if medical cannabis is rescheduled and medical cannabis becomes legal, we being a large medical cannabis producer in Canada and Europe and have the expertise and have the research, not knowing what the FDA and not knowing in regards to what the guidelines will be, Tilray is ready to capitalize on all our expertise. Is there a possibility with NAFTA or with other rules that we can export cannabis from Canada that's GMP certified? Today, you can export cannabis from Canada to other countries around the world if it's GMP certified. So I'm not sure why that wouldn't be the case in the U.S. if that happens. My personal belief, if it's rescheduled from a medical cannabis standpoint, and they leave it up to each of the states on a recreational standpoint, then, you know, that is something different. So I think the big thing is I look into a crystal ball not knowing where this is going. I think something happens from a rescheduling standpoint. And, you know, Tobay is ready to move. From a medical standpoint, if there was an acquisition for us, we're ready to move. We hold the debt of MedMed. We think the MedMed name still has a strong brand name, even though it's had its challenges and it's going through some changes right now to get rid of some of those liabilities and that. And there's an opportunity that, you know, we could execute with the MedMed name across the U.S. The other thing is depending, and I think one of the biggest opportunities, and we're seeing, you know, some opportunities with Delphin Dine, which is infused drinks, with hemp-infused THC. I think the biggest opportunity is in drinks. And with our distribution systems, with our brands within our beer business and spirits, you know, Tilray can get into that. So You know, not knowing and not, you know, what's going to happen. I think, as I said, Tilray is circled in the U.S., and it's not like we'd have to change our model being an MSO where we're, you know, restricted to each state. Right now, we can take our expertise from around the world. We can take our medical expertise. We can take our beverage expertise and bring it to the U.S. once we know which way rescheduling happens and it goes. So that's what I'm excited about is once we know what the guidelines are, once we know what the opportunities are, we could easily jump in there without undoing something that we own today.
spk14: Okay, thanks. And just on the beverage side, you touched on your hopes for distribution upside on a lot of the, especially recently acquired brands, but do you have a sense how you coming into this spring shelf resets and what sort of shelf space gains you're positioned for that are already in hand?
spk07: So I have, hey, Ty, you're on the call, right? Do you want to jump in there? Listen, I got to tell you, in a short period of time, you know, a lot of these brands were just starved on innovation, starved on distribution. We have 500 distributors out there, and I always say to Ty, if each distributor could do a million dollars more, which is not a lot, that's $500 million, right? So I think the upside on beer is tremendous. You know, as you look at pricing, you look in regards to the whole spirits industry. I think we're so well positioned on beer, on innovation that we're coming out with, you know, moving into water, moving into some energy drinks, moving into some other infused drinks. So we're well positioned with our distributors. We have over 100 salespeople and you know, headquarter people between marketing. So, Ty, you want to just talk about some of the stuff that's happening?
spk15: Yeah. Yeah, no, thanks, Erwin, and thanks for the question, Michael. Yeah, no, we feel really solid about some of the distribution gains, not only that we've made in the third quarter, but we also feel solid about the conversations we're having with, you know, several national and regional retailers across on and off premise with our brands. Specifically, if I look over Q3, we've gained north of 1,200 new effective placements on our existing brands. And with the innovation, we continue to see uptick every day with our distributor network and how they're leaning in with us and helping drive distribution. So, you know, chains... are going to continue to play a critical role in our success, and we're well-suited, as Erwin said, to leverage our partnerships with our distributors and the relationships that we have across the U.S.
spk03: Okay, thanks so much.
spk13: Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.
spk11: Good morning, everyone. This one's for Carl. I just wanted to go back to the revised guidance here on adjusted EBITDA going into fiscal Q4 here. So I'm just wondering if you could give a little more color on the dynamic between overall revenue progression versus margin expansion. There's obviously quite still a big step up expected, even in the revised guidance. And then specifically within that, I'm wondering how much of that is beverage related, given that I think you had commented that you're close to about a $300 million business now in all your beverage portfolios. If you run rate this quarter, and I understand their seasonality, it's closer to 200 to 225. So I'm just wondering if there's some step up on the revenue side, specifically in Q4 when it comes to your alcohol contribution.
spk10: So thanks, Matt. They're very significant. increase in sales in Q4 in beer. I think we've talked a little bit already on the call in terms of the spring reset and hitting those, you know, the key summer selling season, which is really driven in our April and May sales results for the organization, particularly in beer. We've also talked a few times about challenges in the spirits business with sales growth and that we were going to get resolution of that in Q4 of this year. So that's also reflected inside of that expectation on even diets potentially driving both revenue and margins during that time period. I think on the beer businesses margin side, you are going to see an increase in margins Q4 that'll be driven by just more volume flowing through the facilities as we ramp up production in March and April to hit those April and May sales because there's such quick turnaround time and lack of inventory inside that segment. You've also got the build up on the cannabis business to the summer period. of time and increases in things like pre-rolls and other product forms in the cannabis business that are consumed on a more of a, let's call it a shared basis, either in a shared setting or actually shared on its own. And so that's a part of it. And with that increased sales level comes increases in margins just because of the efficiency on the production side.
spk03: Okay, very helpful. Thank you.
spk13: Thank you. Our next question comes from the line of Doug Mann with RBC Capital Markets. Please proceed with your question.
spk06: Thank you, and good morning. The question just has to do with, again, the excise tax and going back to this. There's obviously an opportunity for your company, but I am curious if these changes were to go through and you benefit somewhere between $40 and $80 million the way you expected. What's your thinking on the other companies? Because we're starting to lose some of the smaller companies, but is this going to provide the smaller companies with another year or two of life? And I'd say the other thing that I'm curious about as it relates to this, could this result in another leg of downward pricings? as they try to maintain market share?
spk07: I think a couple of things. Yes, I think if companies don't have to pay the same amount of excise tax that everybody is, I think some of these companies absolutely will survive. Listen, I think at the end of the day, we all want a strong cannabis market in Canada. um the big thing is again what's got to change is the excise tax and yes if you know we probably are the highest we are the highest payer of excise tax in canada so for us to receive back with 80 million dollars it's a lot of money but at the end of the day it's money that we're going to put into building our brands building our products our innovation and hopefully marketing and building a bigger category out there And I think that's ultimately the benefit, that the money's not going back to taxes. It's going back into build a marketplace and back into continuously grow the industry. So, yes, will more competition be out there? Could there be price compression? Absolutely. But I'll tell you what, I don't mind some more competition. Price compression. I don't mind some more LPs being in there. I wouldn't mind that $80 million coming into our, you know, into our company where we can invest it back in our business and drive growth, drive, you know, innovation and drive marketing to brands so much bigger category.
spk10: I think it's also important to understand that different entities are going to have different amounts of a win-win to this. And as you get closer to the tail end of share, the impact for a lot of those companies is going to be a lot less. And if they're behind on their excise taxes, you know, the excise tax garnishment may have a bigger impact for them. As Erwin said, we're on the opposite end of that tail because we're the largest. And then you've got a bunch of companies in the middle where, you know, I think that is more towards where your question was, where you're going to see some people who will be able to survive a little bit easier.
spk07: And I don't think excise tax is going to keep everybody in business here, okay? I hope not. I continuously see more consolidation in the Canadian market. I see some of the smaller players ultimately going away, and I think that's what happens there. As a new industry, there's just a filtration of these LPs. If you come back and look at it today, 25 LPs make up about 50% of the market share. There's about another 1,000 LPs that make up the other 50% market share. So, A, you see some consolidation. You see companies going away. And I think what this creates is a much stronger cannabis industry within the Canadian market. And if what happens also, as I said before, there could be opportunities for growing Canada to be shipped into the U.S. and other parts of the world, which could, you know, enhance the Canadian cannabis industry. Okay. Excellent. Thank you.
spk03: Thank you.
spk13: Thank you. Our next question comes from the line of John Zamparo with CIBC. Please proceed with your question.
spk08: Thank you. Good morning. My question is on the cost side, both COGS and SG&A. And there's just a lot of moving parts here. And I wonder how much SQ3 represents a run rate, because you've got additional synergies coming from HEXO. It sounds like you have savings on the beverage side as you move away from co-packing agreements. But you're also investing in innovation and product extensions And it sounds like another variable is selling the production facilities, which I think you said saves $5 to $7 million annually. So I wonder, when you think about all of this in aggregate, is there a net benefit on the cost side? And do you expect to see total costs come down from FQ3? Because it seems like organic revenue growth is a bit more difficult to achieve in the near term. Thank you.
spk10: So, first off, I think organic growth is going to come, particularly in the fourth quarter, as we see the new launches and the new innovation hit the market, particularly in some of these new categories that we're doing on the beverage alcohol side, including the water and the non-alcoholic. playing in that space, playing in the FMV party space, things like that are new categories for us. And so I think there are opportunities for organic growth. But if you're using Q3 as a baseline, I don't think that's the right way to look at it. And similarly, I don't think Q4 is necessarily the right baseline for the exact polar opposite reasons. Q3 is traditionally our lowest quarter in terms of revenue and production, and Q4 is traditionally our highest quarter in terms of revenue and production. So we're going to get an uptick on margins as a result of that incremental volume, particularly in beverage alcohol in our legacy business. And that's going to be what drives a chunk of the earnings guidance and it's going to be what drives our results.
spk07: I think the big thing here is too, you heard me say before, the savings we're getting from the integration of HEXO and Trusts. and somewhere between, you know, close to $35 million. We don't get that immediately. You know, it evens out over the quarter, so it takes us a full year to get that amount. The second thing is, you know, as we've just owned the ABI businesses for two months and just, you know, I've had two quarters, as we integrate them into our businesses, and start from the procurement, from the distribution standpoint. I mean, there's a lot for us to get done here, but we're focused on organic growth, and we're starting to see that already. We're focused on which facilities to integrate these products to, which states we're going to focus on. We also have 13 brew pubs out there that were focused on growing a brand through these brew pubs. You know, big event for us, 4-20, coming up April 20. You know, we have two big events, one in Atlanta and one in Long Island. And there's also, in every retailer, there's displays built out. So July 4th is one of the biggest, you know, beer category months that is sold out there from occasion. You know, right now, as we bring this together and our aspirations is to grow our beer business to a $300 million business. And you gotta remember in 2020, we sold two and a half million cases. When we first acquired the Sweetwater brand, you know, today we're on a run rate to 12.5 million cases with tremendous opportunity with, you know, all the innovation that's happening. So there's just a lot of evening out here, and there's a lot of moving pieces to bring all this together. And I think the big thing is, as we look at it, when we get a full year behind all these acquisitions with HEXA, with Trust, and the integration there, we get all this, you know, full year together with all the ABI stuff. We're seeing some great stuff. And listen, just with Montauk, we've owned it over a year. One of the fastest growing beer within New York today. Some of the stuff we're seeing on the West Coast with Green Flash, Nelson's, and Alpine. So the legacy stuff that we've already bought and owned a year, we're seeing good results for it. It just takes us some time here to get these things integrated.
spk03: Okay. I appreciate the call. I'll pass it on. Thank you.
spk13: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Simon for any final comments.
spk07: Thank you, everybody, for joining us today. Listen, I wish I could predict what's going to happen in the cannabis industry. There's going to be one thing for sure I can predict. There will be change. And we've been waiting for change for a long time, you know, in the German market. It finally came to foreclosure. And there's going to be a lot of execution to get it where it needs to be. But it's happening. I do think we've been sitting and waiting through the Biden administration before that change happened within the cannabis industry. There's lots of Discussion about rescheduling. And again, it's not something we have control of. But one thing we do have control of, we do know how to grow cannabis. We do know how to sell medical cannabis. We know about research. We do have within Canada today over 5 million square feet of growth. We do have in Europe two major facilities. And with that, depending what happens in the U.S., we will be ready to launch what needs to be launched in the U.S., whether it's taking from our existing businesses, acquiring, putting something together, we'll have the opportunity to do that. You know, as I've said, our aspirations is to grow our beer business to a $300 million beer business. We already are the fifth largest craft brewer today within the U.S. We have a great business within Breckenridge Distillery. We've been named some of the number one whiskeys within the world, within the U.S., and some exciting things happening. I'm also real excited about what's happening in you know, in our wellness business in regards to Manitoba Harvest and what's happening with hemp from a high-protein food and now the perception of hemp as a great product and a healthy product. So, you know, as Tilray Brands comes together over the last five years, there's a lot of real good pieces that ultimately will come together. There's tremendous opportunities with our products. There's tremendous opportunities with our distribution. There's tremendous opportunities as we build out our global market. So as I look at Tilray, we've circled a lot of the right wagons. And, again, that dealing with regulatory, dealing with unknowns in regards to rescheduling. But Tilray is there. I'm real happy with the team that I have in place and excited to work with the team. We've done a great job in an industry in regards to banking, what we've done with our balance sheet, and we continue to work on that balance sheet. I'm someone personally that does not like debt. So how do we focus on our balance sheet? very much in favor and as I push with Carl and the rest of the team, cash flow and taking costs out of our business. And there's not too many other industries out there that are taxed the way we are on cannabis, on beer and on spirits. And I wish I was, Tilray was earning the amount of money that we're providing the governments of Canada U.S. and Europe from our taxes that we generate from our business. With that, I look forward to talking to you again soon. Appreciate getting on the call and have a great week. Thank you.
spk13: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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