Tilray Brands, Inc.

integrated facilities that produce approximately 90% of our products in-house, ensuring the highest qualities of our offerings. Tilray maintains its position as the largest cannabis business in Canada by revenue, holds a leading medical cannabis business across Europe, and operates the largest branded hemp business in North America, and is among the top five craft beer businesses in the United States in terms of scale. Tilray has diversified and expanded beyond being a solely Canadian cannabis company. We are advancing the consumer packaged good industry through the introduction of new and innovative products that shape how individuals eat, drink, and relax, and provide relief to medical conditions where other treatment options have failed. These offerings address current consumer needs, and we are prepared to meet their future demands. Our success in establishing a new era of consumer products tailored to evolving consumption habits demonstrates our commitment to delivering innovative solutions that meet modern consumer demands and drive growth across our industries. At Tilray Brands, we're committed to leverage advanced technology to advance our efficiency and drive growth. We are partnering with Microsoft and their AI platforms on a global scale to bolster our expertise, optimize our operations, achieve significant improvements, and propel our business forward. Tilray Brands is trailblazing the future of consumer products through the infrastructure we have built and the investment we've made and continue to make in our businesses, facilities, systems, and people around the world. In Q2, we achieved strong net revenue results while strengthening our operations and increasing our gross margin and gross profits across our business. Quarter two, net revenue grew 9% year-over-year to $211 million. Gross profit increased by 29%, and gross margin increased by 500 basis points compared to the prior quarter. Our beverage business, Tilray Beverages, which includes craft beer, spirits, and non-alcoholic beverages, grew 36% in net revenue year-over-year. In cannabis, we continue to lead the Canadian cannabis market by revenue. We significantly grew our international business by 25% year-over-year as we launched new commercial products and expanded our reach across Europe. Our wellness business continues to lead the hemp industry, increasing branded market share to 56% with Manitoba Harvest in the U.S. and nearly 80% share in Canada. Additionally, as Carl will discuss further, our financial profile remains strong. During the quarter, we reported an adjusted net loss of $2 million, primarily related to the investment necessary to develop the infrastructure and operating systems across our business sectors and drive industry leadership and innovation. Tilray operates with a robust balance sheet, ample cash reserves, reduced debt levels, and flexibility to explore additional potential acquisition. Our financial strength allows us to seize new opportunities and capitalize on market trends. Importantly, Tilray is not exposed to meaningful tariff risk in the U.S. Let's now dive deeper into each of our business segments. Starting with our beverage business to support the expansion of our beverage business and brands, we merged our beer and spirit operations and teams, creating Kilray Beverages under the leadership of Ty Gilmore. Killray expansion into the beverage category began in December 2020 with the acquisition of Sweetwater Brewing Company, followed by the acquisition of Green Flash, Alpine, Montauk Brewing Companies, and Breckenridge Facility, our first spirit acquisition. We significantly increased our footprint through Craft Acquisition 1 from ABI in October 2023 and Craft Acquisition 2 in September 2024 from Molson Coors. To support the growth of these acquired brands and establish a clear path to profitability, we've implemented Project 420. This comprehensive plan focuses on enhancing margins and profitability through operational optimization, cost savings and synergies, and portfolio optimization. Through Project 420, we aim to achieve $25 million in cost-saving synergies and cost-avoidance initiatives, on which we have already achieved $17 million. Today, Tilray beverages generate a third of Tilray's global revenue and includes more than 20 beverage brands, which includes 15 American craft beer brands, 10 network manufacturing facilities, over 700 distributors, 20 brewpubs and restaurants, and a single integrated sales and marketing team operating across the U.S. Our Tilray Beverage Strategy emphasizes strategic brand growth within selected states and regional markets, prioritizing product excellence and scalability. In Q2, our beverage business achieved $63 million in net revenue and increased adjusted gross margins by 400 basis points to reach a 42%. Peel Ray Beverages has established itself as a leading provider of craft beer, spirits, and non-alcoholic beverages in key U.S. regions, including the Northeast, Pacific Northwest, Colorado, Texas, Michigan, and the Southeast. From a regional brand perspective nationwide, Tilray Beverage is the number one craft supplier in Metro New York, with Montauk Brewing and Blue Point Brewing Brands, the number one craft supplier in the Pacific Northwest. Oregon and Washington with 10 Barrel Brewing, Red Hook and Riddler Brothers Brewing Brands, the number two craft supplier in the southeast, Florida and Georgia with Sweetwater Brewing and Shock Top Brands, and the number four craft supplier in Colorado, according to our data. Notably, we achieved a 10% increase in Shock Top distribution during Q2 in the southeast, securing 1,400 new placements for the brand. Within the spirits category, Breckenridge Facility is a notable brand in the bourbon sector, as it experienced higher depletions compared to others in the declining market. It also made a significant progress in the vodka and gin markets, complemented by its world-class restaurant and retail operations that enhanced the overall hospitality experience. Our primary objective for growing our spirits business is to expand our market share across the U.S. In our non-alcoholic branded product portfolio, the recently launched brand Runner's High Brewing Company will soon be available in over 1,200 public stores with plans for expansion into additional markets. The non-alcoholic craft beer segment represents a significant opportunity for growth. The total addressable market estimated to be at $37 billion worldwide. Given our scale and geographic footprint, we will continue to explore ways to capture a share of this rapidly expanding market. Within the non-ALC segment, we've also introduced hemp-derived Delta 9 THC brands and products online through our direct-to-consumer channels and in key states across the U.S., including Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Louisiana, New Jersey, and Texas. We are leveraging our established craft beer distribution network, which is enthusiastic about this growth opportunity in independent retailers, convenience stores, and packaged stores, including multi-state retailers, total wine, and more. Kilroy Beverages' strategic growth initiatives are poised to revolutionize our beverage portfolio, attracting a more diverse and expansive consumer base. We are planning to expand our beverage operations internationally, including ventures into Canada and Europe, with a vision to become a global beverage leader. By leveraging our innovation-innovating products and exceptional quality, we aim to set new standards in the industry and achieve remarkable success. Turning to cannabis, in fiscal Q2, our global cannabis business generated $66 million in net revenue and increased gross margin by 400 basis points. In Canada, Phil Ray remains the leader in Canadian cannabis market by revenue. In the second quarter, Tilray regained the number one position in the flower category, which constitutes around 35% of cannabis retail sales. With brands like Broken Coast, Redican, Good Supply, and Bake Sale increasing market share through strong innovation, good genetics, and great value. In the THC beverage category, Tilray had a leading market share of 45%, with XMG Molo THC beverages ranking the number one and number two, respectively. We also retained the number one market share in oils and capsules categories combined. Fifteen percent of Tilray's Canadian cannabis net sales revenue was from new innovation and a lot more to come. We shipped approximately 63 metric tons of cannabis biomass in Canada in Q2, representing about 22% of the implied Canadian market volume. We continue to leverage the wholesale channel, where contribution margins grow as supply tightens. In adult recreational cannabis, we shipped approximately 15 million pre-rolled cones and over 1.7 million cans of beverages. Over the past three years, we've focused on improving operational efficiency. During this period, we reduced costs by over $100 million through eliminating duplication, consolidating, packaging logistics, enhancing process with technology to lower labor costs. This effort includes emphasizing revenue quality over quantity, which will improve margins and position our business for future success. For instance, over the past year, we reduced our exposure to lower margin categories such as date and infused pre-rolls and prioritized other categories even at the expense of some market share. With a facility footprint of approximately 5 million square feet, along the optimization of our value chain and business process, Hillray is best positioned for long-term success in the Canadian cannabis market. As demand for our cannabis products increase, we possess the flexibility, capability, cost structure, and optimal growth space necessary to nearly double our output. In the U.S., Tilray is strategically well-positioned to capitalize on the anticipated $8 billion to $10 billion medical cannabis market upon federal legalization. Our advantage is our best-in-class ability to cultivate large-scale medical and pharmaceutical-grade cannabis, which requires rigorous quality control standards and processes. Additionally, our established medical brands and product innovation can be utilized in Tilray's primary legal market, such as Canada, Germany, Portugal, and various other European countries. Should the United States legalize medical cannabis, This could represent an additional $250 million opportunity for till rate, potentially capturing between 2% to 3% of the U.S. medical cannabis market. Turning to our international business, where we executed against our strategic initiative and drove significant organic growth and margin in the second quarter. In Q2, international cannabis business grew 25% over a prior year period, driven by sales growth in Germany, Poland, the UK, and Italy. In Germany, since the new Medical Cannabis Act went into effect, we grew medical cannabis flower sales by 55% and increased our medical cannabis extracts by 24%. The increased growth in the German market, especially in whole flour category, is due to the cannabis descheduling under the new regulations. In addition, we continue to see increased differentiation between the physician-led and the patient-led channels, with the patient-led channels requiring a greater emphasis on product assortment, especially in genetics, brand portfolio, segmentation, and quality. As leaders in the physician-led channel, where we have a dominant share of the medical cannabis extract category, we are now focusing on expanding within the patient-led channel. We are confident in our ability to win a sizable share of this channel given our well-placed investment with two EU DNP-certified facilities in Germany and Portugal and our route to market through Tilray Pharma. Our German cultivation facility, a free RX, was the first to be granted permission to expand our cultivation under Germany's new Medical Cannabis Act. And in a quarter, we sold our first commercial batches of medical cannabis cultivated and processed in Germany under this newly expanded license. Supplementing these assets are Canadian cultivation facilities and our deep expertise of our team. which has allowed us to establish a flexible and diverse supply chain to meet the needs of patients we serve in various countries in which we participate by introducing new medical cannabis brands and products to these markets. We believe Germany's new cannabis regulations will drive positive change in drug policy across Europe. Tilray aims to expand its global brand to Europe's 700-plus million people, leveraging our infrastructure, product portfolio, and commitment to medical cannabis, and our experienced team to enter new markets with significant revenue potential. In Poland, demand remains strong as our revenue increased both over the prior year and quarter over quarter. In Italy, we are focused on increasing awareness of the Tilray medical brand and our product portfolio, where we have market authorization for three medical cannabis extracts, as well as investing in the education of physicians regarding medical cannabis. In the UK, our revenue has increased compared to the previous year, and our Q1 results were implementing several strategic initiatives to enhance our presence in the UK market, which will serve as our European headquarters for international sales and commercial operations going forward. Turning to Australia, which is still in early stages, it is quickly emerging as a significant medical cannabis market. Similar to Germany, we see increased differentiation between the physician-led and the patient-led channels. In response, we launched Broken Coats, Redican, Good Supply Brands, and Products, which provides the patient with a segmented portfolio of products while we continue to deliver on the trust, safety, and consistency that has become expected from our Tilray medical brand. And finally, in Q2, Tilray Wellness delivered a 13% net revenue growth compared to the prior year, driven by strong core business sales, coupled with hemp innovation and the expansion into wellness beverages. A strong focus on cost helped the business unit improve margins, delivering a 200 basis point increase in gross margin. Tilray is also exploring further expansion opportunities in the wellness segment, especially focusing on protein-rich wellness products and foods that meet the growing consumer demand for healthy and nutrition options. With that, I will now turn the call over to Carl to discuss our financials in greater detail.

Carl. Thank you, Erwin. As a reminder, our financial results are presented in accordance with U.S. cap and in U.S. dollars. Let's now review our quarterly performance for the three months ended November 30th, 2024. In Q2, net revenue was $211 million, 9% growth compared to the prior year quarter, net revenue of $194 million. As Erwin stated, it was our highest Q2 net revenue ever. On a constant currency basis, net revenue grew 10% to $213 million. By segment, Feverage net revenue increased 36% to $63.1 million. Cannabis net revenue was in line with expectations at $65.7 million as a result of our strong focus on margins and strategic growth in key markets, which I will discuss in a moment. Distribution net revenue was flat, and wellness net revenue rose 13% to $14.6 million in the quarter. From a segment perspective, 30% of our net revenue was generated by our beverage business. 41% was generated by our cannabis business, 32% by our distribution business, and 7% by our wellness business. This compares to 23% in beverage, 35% in cannabis, 35% in distribution, and 7% in wellness in the prior year quarter. The year-over-year variance is due to three months of revenue from our most recent crop acquisition and one month from the prior year's crop acquisition, which we did not purchase until October 1st. Gross profit increased by 29%, $61.2 million, compared to $47.4 million in the prior year quarter. Gross margin increased 29% and over 500 basis point increase from the prior year period. demonstrating our strong focus on controlling costs, driving revenues from the most profitable SKUs, and the ongoing optimization of our production footprint. Adjusted gross profit increased 20% to $62.6 million from $52.1 million in the prior year, while adjusted gross margin increased by 300 basis points to 30%. primarily reflecting our focus on integration efforts to improve our utilizations at our beverage facilities and favorable sales mix. Net loss was $85.3 million compared to a net loss of $46.2 million in the prior year quarter, with almost $75 million of non-cash costs. Part of those non-cash costs included a $34 million foreign exchange loss, that was largely created as a function of the strengthening U.S. dollar after the U.S. presidential election. On a per share basis, this amounted to a net loss of 10 cents per share compared to 7 cents per share in the prior year quarter. Adjusted net loss was $2.2 million compared to an adjusted net loss of $2.7 million in the prior year quarter. a 17% improvement year-over-year, with adjusted net loss per share coming in at zero, a significant beat to expectations of a 3 cent loss. Adjusted EBITDA was $9 million, compared to $10.1 million in the prior year quarter. We are now approaching six consecutive years of generating positive adjusted EBITDA. The decrease in adjusted EBITDA from the prior year is primarily related to the skew rationalization in our beverage business, that Erwin spoke of earlier. Cash flow used in operations was $40.7 million compared to $30.4 million in the prior year quarter. Adjusted free cash flow was negative $43.6 million compared to $18.4 million in the prior year quarter, largely as a result of an increased demand in our working capital. Working capital increases were associated with annual payments in the quarter, increases in inventory at Telluride Pharma as it prepared the stock pharmacist inventories for the holidays, increases in inventory in beverages as we prepared for the positive impacts of the SKU rationalization plan, all offset by a significant decrease in Canadian cannabis inventory levels as it took advantage of positive pricing in the wholesale market. Turning now to our four business segments. Within our beverage segment, our $25 million synergy plan is well on its way with $17 million already realized. Part of our cost-saving initiatives were driven from implementing a product rationalization program to concentrate our product portfolio in key markets, prioritizing high-performing products and optimizing our cost structure. Year-to-date, the SKU rationalization plan lowered our revenues by $8 million, with an expectation that over the next 18 months, these impacts will be offset by the introduction of new product innovations and brand extensions, improving both sales and margins. The completion of this rationalization program will be accretive to earnings and will have positive impacts on our cash conversion cycle once complete. The average net revenue was $63.1 million, up 36% from $46.5 million in the prior year quarter as previously discussed. As Erwin discussed, we now own and operate 20 brew pubs slash restaurants in the U.S. that are in close proximity to the production of our craft brands. In the quarter, these operations contributed $10 million of the $63.1 million in revenue, and we expect them to be a key part of our strategy going forward. allowing us to increase brand visibility and gain an intimate understanding of our key consumers. Beverage gross profit increased to $25.2 million compared to $16 million, and adjusted gross profit was $26.5 million compared to $17.8 million. Our beverage gross margin was 40% compared to 34%, and adjusted gross margin was 42% from 38% in the prior year quarter. The 400 basis point improvement to adjusted gross margin was a result of our efforts in integrating and optimizing our facilities as well as a favorable product mix. The lowest cannabis revenue of $87.2 million was comprised of $59.1 million in Canadian adult use revenue, $14.9 million in international cannabis revenue, $6.7 million in Canadian medical cannabis revenue, and $6.5 million in wholesale cannabis revenue. Net cannabis revenue, which was reduced by the $21.5 million in excise taxes, was $65.7 million, essentially flat from the a year ago period. Revenue from Canadian medical cannabis grew 6%, despite the category being impacted by competition from the adult use market, while revenue from Canadian adult use decreased 18%. which was a result of our increased focus on preserving gross margin and maintaining a higher average selling price in categories with high excise tax. As a result of recent significant CapEx investments, we positioned ourselves for an improved margin opportunity once the price compression pressures start to ease in the category. Our capex investments and size advantage put us in a position to succeed as margins in high excise tax categories come under pressure. International cannabis revenue rose 25%, which was largely driven by the expanding German medical market, as well as favorable variability in the timing of receiving export permits to countries other than Germany, resulting in fluctuations on a quarterly basis. Cannabis gross profit was $23.2 million and cannabis gross margin was 35%. Adjusted cannabis gross profit was relatively flat at $23.2 million compared to $23.6 million in the prior year quarter. Distribution net revenue derived predominantly through CC Pharma was $67.6 million compared to $67.2 million in the prior year quarter. On a constant currency basis, distribution net revenue increased 3% to $69.4 million compared to $67.2 million in the prior year quarter as a result of a favorable product mix. Distribution gross profit increased to $8.4 million compared to $7.1 million in the prior year period, while distribution gross margin increased to 12% from 11% in the prior year quarter. as a result of our extensive efforts in H2 last year to focus on higher margin SKUs. Wellness net revenue grew 13% to $14.6 million from $12.9 million in the prior year quarter. The increase was driven by our strategic focus on continued innovations, including our launch of hemp-derived Delta 9 products and organic growth within our branded hemp business related to higher consumption. Wellness gross profit was $4.5 million, up from $3.7 million in the prior year quarter, and gross margin rose to 31% compared to 29%, a result of decreased input costs and continued operational efficiencies. Our cash and marketable securities balance as of November 30th was $252.1 million, down slightly from $260.5 million at year end. This change was a result of our purchase of the new craft brands, a temporary increase in working capital demands, all offset by the funds raised from our ATM. During the quarter, we raised gross proceeds of $46 million from our ATM, and subsequent to quarter end, we raised an additional $11 million. Finally, we are reaffirming our guidance for fiscal 2025. We anticipate net revenues to be between $950 and $1 billion. Let me now conclude our prepared remarks and open the lines for questions from our covering analysts. Operator, what's the first question?

Thank you. Before we get to the first question, 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. 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 Kamal Garjabala with Jefferies. Please proceed with your question.

Hey, guys. Good morning. I guess starting with the SKU rationalization, you've been talking about it for a while. We have more details today. Does it look like the rationalizations will be complete by the end of your fiscal year, or is this something that's ongoing for some amount longer?

So, good morning and thank you. I'm not sure it's going to be completed by the end of the fiscal year. We're well into it. You got to remember what we're doing here. We've taken Sweetwater, we've taken, you know, the Montauk, we've taken the ABI acquisition, the Molson acquisition as we bring them together. And we're eliminating over 300 plus SKUs and we're ultimately eliminating skates where we sold some of our brands before. So the majority will happen by the end of this fiscal year, but there absolutely will be some that will win to, you know, 2026. And the big thing here is, listen, we've taken out, you know, we look for takeout costs of $25 million. We've taken out $15 million, $16 million already. The big thing is as we introduce new SKUs to replace some of these other SKUs and as we focus on certain, you know, states that we're only going to sell our products, And it's not only us asking for this, it's retailers, it's distributors. So this is great. And you think about it as we brought, you know, how many companies together under Tilray Beverages and cleaning up the tail and cleaning up some of these lower margin products. And, you know, it shows in our cost cutting, it shows in our margin, and it shows in our growth from some of these brands that this is absolutely working. And we haven't even launched our new products yet. So just stay tuned for that.

We will. You mentioned gross margins. That was going to be my next question. It's up nicely across a series of divisions. We have a lot of details on some of the blocking and tackling. Is there something bigger going on, maybe with the input costs or perhaps price compression or anything that we should know? Because it looks like kind of across the enterprise, the trajectory is the same. Or is it as simple as the programs that you've talked about kind of starting to come to fruition?

Well, it's not coming from pricing, so that's the first thing. It's coming from just taking costs out of our system. Listen, you know, when we put Tilray and Afria together and then Hexa, we took over $100 million. You know, we can come back and in regards to share of cannabis in Canada, you know, we're focusing on margin here. We've had major price compression. So the big thing is we're really focused on gross profit. We're really focused here on profitability. And our adjusted net loss in the quarter is $2 million. The majority of it is non-cash. So there's a big, big drive here to generate cash and really focus on margins here and to invest back in our business. And you're seeing this on gross margin growth here.

Got it. Thank you, guys. Thank you.

Thank you.

Ladies and gentlemen, we ask that you each keep to one question. Our next question comes from the line of Robert Moscow with TD Cowan. Please proceed with your question.

Hi, thanks. I thought I remembered last quarter that beverage sales were a bit below your internal expectations, and it was due to timing around innovation and shipments to distributors. And I wanted to know, I didn't hear much about it on the call today, did that factor resolve itself in this quarter? And then also, maybe you can give a little bit more color on what this innovation pipeline looks like. Do you have a lot of work still to do to flesh that out? Thanks.

So, Robert, you're 100% right. In our first quarter, we had some challenges as we brought innovation. you know, the ABI businesses into our portfolio. We had some major out of stocks, bringing the ABI distributors on and taking them off the ABI system, putting them on ours in regards to supply costs and issues. There were some accounts that just stopped ordering because they were confused and just the integration. So 100%, In our first quarter, you know, we had some negative comps that came out. Since then, listen, we've seen some great stuff happen in Shock Top. We've seen, you know, our Montauk growth 9%, you know, since we bought it. We've seen some great growth on Blue Point and Breckenridge. So we're seeing those volumes come back and, you know, Ty's on the call and he can jump in there. And that's why you're seeing up 36%. Now, you know, some of that is absolutely acquisition growth. But what we're doing is we're taking these growth brands and getting rid of the products which were slow moving and running them out. In regards to innovation, and Ty jumped in here and some of the new innovation, but, you know, I'm not going to tip my hat yet, but we've got... You know, in regards to these products, we've been out there presenting to the retailers, presenting to the distributors, and there's a big focus on a lot of our new beers. There's a big focus on our non-alcohol. There's a big focus on our energy drinks. There's a big focus, you know, on our waters. And our Delta 9 drinks are a big thing that has been happening with us. Ty, you want to add anything to that?

No, I think you nailed it. With regards to innovation, absolutely. We are locked and loaded. in you know now through the next seven or eight months everything is ready to go it's been presented to retailers and distributors and there is a lot of excitement about the spaces and categories that we're going to play in which is exciting and Robert I think the big thing is that's what everybody's looking for is new innovation out there I think you know the important thing is is this here is

is taking out some of those slow-moving SKUs or taking the SKUs out of states that sold 10,000 cases a year and just plugged up the system. So that's number one. Number two is, you know, distributors are looking for innovation. You know, some of our pub beers, some of our lighter beers, some of our non-out, some of our infused drinks with, you know, with hemp. So there's a good lineup here. And the big thing which I've said is, What we're trying to do on beer is make it fun again, and I think that's what we're doing. We have no imports, so there's no tariffs coming on our beers. Our beers are all made in our facilities. We've done a great job, I think, of moving our production around. We've closed one facility in Texas. So there's a plan here. And just think about it. We produce close to 15 million cases of beer a year, over a million barrels. And as we brought all these beer brands together, over 18 beer brands, We've brought all these cases together. We've brought all these facilities together in a matter of four years. Now it's taking costs out, getting the efficiencies, working with these distributors. You know, Ty and team have put a blitz team on the street to really get out there and hit, you know, our off-premise and really sell our products there. So, you know, I'm excited to see what's happening in the beverage category. And now that we've integrated our spirits business. And listen, these aren't easy categories. So with that, innovation and putting the people behind it and getting your distributors and retailers is something that's real important. And last but not least, got to get our consumers buying our products. And that's a big thing that we're trying to do. And there's a lot of social media and there's a lot of advertising. In a quarter, we spent about $600,000, $700,000 more in advertising in a quarter back on these brands.

Thank you. Thank you.

Thank you. Our next question comes from the line of Aaron Gray with Alliance Global Partners. Please proceed with your question.

Hi, good morning, and thank you for the question here. So I just want to dive a little bit more on Delta 9 beverages, specifically around potential changes in regulation. The Farm Bill has been delayed two years now. We're not going to have Republicans controlling both chambers of Congress as well as a Republican president. So what's your anticipation in terms of the impact that could have on a Farm Bill getting done this year? impacts on THC hemp beverages. A lot of folks have been talking about potential, you know, closeouts of loopholes, but keeping a carve out for THC hemp beverages. So I'd love your outlook on that, just given right now you're one of the few players with an existing distribution system and alcohol channel that's selling THC hemp and how that could change with regulations evolving. Thank you.

Thank you. Listen, we do not, and it's good news, you know, as the Farm Bill is kicked down, They kicked the can down the road for another two years. So that's number one. Number two, a lot of distributors and a lot of the states and retailers are really excited in this product. And, you know, there was a couple million dollars of sales in this quarter that we've achieved already. And so, you know, with that, we don't see any changes. We continue. you know, think there's a big, big opportunity for us going forward. And, you know, with Happy Flower, which is with our wellness team, which is out there, you know, pushing that brand. And then, you know, we have, you know, our beverage team out there presenting and through our beer distributors distributing that product. So there's lots of opportunities for us and we have the products, we have the distribution and we have the infrastructure and salespeople that are out there pushing it and the retailers and distributors want it. That's, you know, the big thing. So there should be, you know, no change for us.

Okay. All right. Great. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Federico Gomez with ATB Capital Markets. Please proceed with your question.

Hi, good morning. Thanks for taking my question. I'm curious if you could talk about cannabis beverages in Canada. It seems like it's a very small part of the market still. So how do you see that segment? Why hasn't it become a more relevant part of the Canadian market, whereas in the U.S. we see this Delta 9 market growing quite rapidly right now?

You know, great, great question. And I have Blair on the call. You know, we have a 45% share of the market. And it's, you know, about a $25, $30 million business for us. You know, we have a facility in London, Ontario that produces that product. And I always say this here. I only sell it today in stores that sell cannabis. And, you know, there's different pricing out there and it's not cheap product. If we could sell that today in beer stores, if we could sell it on tap, how big a business that would be. But I think, you know, one of the biggest problems today is just ultimately it's only sold in cannabis stores and some of the pricing out there. But the opportunity as we sit today in January, that's when you'll see some of the biggest consumption of products. So we're ready, willing, and able. And I've said this before. If you could sell THC-infused drinks in the U.S., it's a billion-dollar-plus category out there if we could ever do that just by looking at the size and the opportunities in the 15 states that hemp-derived drinks are today. The consumer is looking for it. As a matter of fact, I was at a function last night, and the majority of people were drinking hemp-infused drinks versus alcohol drinks.

Thank you.

Thank you. Our next question comes from the line of Bill Kirk with Roth MKM. Please proceed with your question.

Hey, good morning, everyone. So I have a question on the revenue guidance to get to, in the range, the final quarters of the year need to be about $60 million or so larger than the revenue just posted in 2Q. So where does that acceleration come from?

Thanks. Thanks. You know, I think if people go back and look at our results from last year and follow the same pattern that we had, right, when you look at the base pattern, we talked about this a couple of times, you and I individually, where You know, we're doing about half of our sales. We're doing, sorry, not half of our sales, but half of our EBITDA in Q4. We're doing Q1, 2, and 3. Our EBITDA tends to be around the other half, right? And then that's earned relatively evenly between the quarters. And so if you use that as the starting point and then you work your way backwards through sales. When you look at the changes we've made this year, last year we purchased the new brands, the new craft brands, too late in the year to be involved in the spring reset. And so this year, Ty and his team and Prince have been able to get out to the distributors, to get out to our big accounts and to really be a part of that spring reset with that new innovation. And we see significant increases in the sales in Q4 for beer as part of that spring reset. We also traditionally see sales upticks in our CC Pharma business in Q4. That's predominantly as pharmacists and Germany starts stocking their inventories for the summer months as people go on vacation in Germany. And then we similarly see an uptick in things like pre-rolls and flowers, things that we're higher indexed on in terms of share in the Canadian cannabis market as people get ready for the summer.

Bill, a big part of that, you know, is just here is there's seasonality in supply and new products. So stepping back, as Carl said, As you come out of January, the next five months for us, Memorial Day and July 4th, are some of the biggest beer consumption events out there. We also have our big 420 events around beer. Plus, you heard what I said before, we have over 100 new products that get into the marketplace, and that's when a lot of the resets happen with retailers. regards to cannabis Blair how many new products do you have coming in in the back half that and you know we're from a digital place 30 30 new innovations in the back half of the year so the new innovation that will come you know from our cannabis business and then one of the big problems that happened to us in Europe was in regards to just having supply of from our European, and a lot of that's coming from Canada, and also getting the permits that we could ship in this country had slowed things down. So with that, it's going to come from new products, it's going to come from organic growth, it's going to come from new distribution in the back half of the year.

Thank you. And then, Erwin, you quantified a $250 million opportunity for Tilray if the U.S. legalizes medical I guess what gives you confidence the incoming administration will be favorable to rescheduling? And even if they were, that they would also be amenable to imports from Canada when there is so much tariff talk?

So good question, number one. And again, I want to be very clear. This is just looking at a crystal ball and looking at what it could be. And again, Number one, I step back and I say this here, it's an eight to $10 billion medical market today in the US. And with that, I think we could get somewhere between a two to three share. So a two to three share, you know, there's 160 to $250 million business. We have a good size medical business today in Canada. We have a good-sized medical business in the U.S. We have the products, you know, for pain, for anxiety, for sleep, for cancer patients, for multiple, you know, medical reasons. We have the packaging. We have the products. You know, we have the turbines. We have, you know, in regards to genetics, et cetera. So we would know how to market and package these products. You know, with that, why do I think that it would be allowed? There's not a grow facility out there that could ever supply that. It would take us about 60 metric tons, and we have available to us today about 137 metric tons that could supply, you know, the additional cannabis that we could grow. So I don't know, but just that's out there me hoping and guessing. Listen, you... If there was a duty on it, et cetera, you'd have to pay it. I'm not sure why not. We ship EU GMP products all throughout Europe coming out of Canada, and some of the best cannabis grown today comes out of Canada. You've got to remember, we have 5 million square feet. So that is, again, just all speculation. if that could happen out there. And I think the big thing, medical cannabis, if anything's going to legalize, it's medical cannabis. I think medical cannabis ultimately would be sold through drugstores, through the medical market, and would be prescribed by prescription. And I do come back and I say this here. You know, the Trump administration is into tariffs, into duty, into, you know, regulating stuff. And I think if you come back and I say it, You know, the Canadian market for us, we, you know, sell a lot of cannabis in Canada, but we pay a lot of excise tax. And, you know, there's billions of dollars paid each year in the Canadian market. You take that as a 10 times and you think about the opportunity in the U.S. for the governments here to bring in that excise tax and eliminate illicit market. It's about business. And I think, you know, that's how the Trump administration ultimately will look at it.

Thank you. Thank you.

Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.

Good morning, everyone. Maybe staying on the topic of regulation and changes, but maybe moving over to the international side of things. So you've got a solid $50 million to $60 million of annual contribution in your international line, the way that it's allocated. And I'm just wondering, I guess, two questions there. So the first is just the visibility on that line with respect to what's been recurring for some time now and growing in some of these select markets that you're in, versus maybe things that are more opportunistic and are harder to predict. So I'm just trying to get an idea of the underpinning of that current contribution you have in markets where you have exposure. And then the second side of that question would be, as I alluded to, the regulatory side of things. Anything to note outside of your prepared comments? I know Germany is the market that a lot of us always like to talk about in the last little while. I'm just wondering if there's anything else to add to that.

Thank you, Owen. So, hi, Matt. The question in terms of what is sort of the base of the business and what's reoccurring, what's opportunistic, what I would say is that we're very focused on building a sustainable, very solid foundation of profitable growth. We look at our business in terms of building out foundations. And I think if you, I'm just going to take Germany, for example, with a very strong, strong base of medical extract business, which is predominantly reimbursed by insurance and very profitable. We look at that business as sort of our foundation. And as the flower business has been proliferating through the new regulations, we are focused on also growing that as well. And you can see that in our numbers and that we've seen a 55% growth since the legalization. So we're very focused on both sides. And again, we don't believe that every dollar of revenue is created equal. And so to that end, we look at how do we create sustainable sales that are going to repeat themselves each and every quarter. And so very focused on that in Germany and Poland. We're building out our Italian market, which is very, very small at the moment. But as we build out the reputation of Tilray as a medical supplier of cannabis, it's very sustainable, consistent. We do see, in fact, that we're building a base of doctors that are, in fact, trusting the utility product.

I think the big thing here, which we come back is, number one, we have supply. Number two is each of these countries today are looking at how we do the medical cannabis. You know, France is going to go in there ultimately with, you know, certain products, okay? The UK is a big opportunity for us. So I think as you step back, Listen, there's a big focus on the countries that medical cannabis is legal today. We have a facility in Germany. We have a facility in Portugal that can supply, and we have supply available to us out of Canada. But I think, again, like the U.S., There's additional countries that are going to continuously open up. And with our infrastructure, and we have a large infrastructure in Europe today, you heard me talk about putting an office in the UK that will be our international office. We look to grow our international business. At the same time, we're looking at the same strategy in the US. Do we enter the beverage and spirits business and take some of our beverage and spirits business along with something else that we acquire in the international markets.

Okay, great. Thanks for all that. Thank you.

Thank you. Our next question comes from the line of Pablo Zwanek with Zwanek & Associates. Please proceed with your question.

Thank you. First of all, congratulations on the growth in international business. Look, I have a quick question for Ty, and then I want to follow up with you, Irwin, regarding the U.S., Ty, when I look at the HEM Delta 9 drinks market, it's mostly DTC, right? And in theory, you have an advantage with your distribution network to sell your products. But this is not a fast churning item yet. So it seems to me it's more conducive to DTC. People are selling through portals and sending and shipping across states from online orders. Any quick thoughts on that?

Yeah, thanks for the question. Actually, we see the broader opportunity in brick and mortar. When we talk to retailers and distributors, we see both convenience, liquor stores. There's a big national chain that's leaning into HD9 in a really, really strong way. We absolutely are exploring and are taking part of D2C, but we see the much bigger opportunity in brick and mortar. And when you look at the consumer and what's happening in this segment, and you can look at some big chains, you know, in Louisiana or what's happened over the last couple years in Minnesota, you can clearly see that there's a consumer demand in brick-and-mortar stores to go to be able to look at brands. There's players like us that clearly are going to be the adults in the room that have all the regulations ticked and tied. But I actually see the bigger opportunity in brick-and-mortar, not D2C.

And Pablo, we have support in many states already with HV9.

We're working with partners to educate Congress on what HCV9 is and how it should be best regulated. And we would like it to be regulated just like alcohol and sold through alcohol distributors. Today, there's total wine. You can go in and buy the product. ABC Fine Wine in Florida, you can buy the product. So, you know, brick and mortar absolutely is ultimately, you know, where we absolutely want it. But direct-to-consumer is something that, you know, we would absolutely look at, too.

Yeah, understood. Agreed. Yeah. Look, Irwin, regarding the U.S., I'm not going to make you repeat what you already said. You have this vision how medical cannabis could be federally legalized in the U.S. Of course, we'll see how that plays out. You recently appointed Stephen Cohen to your board. You know, we look at some of your peers, like Canopy Growth and S&DL, building B-chips in the U.S. with more of a REC type of focus. You know, I just want to understand, given your apparent evolving views in terms of how the U.S. may, you know, deregulate, especially with a new administration, how are you thinking about when and how to maybe, you know, follow the model of some of your peers in terms of trying to build beach hits on the reg side. You tried to do that with MedMen, and I'm wondering how you're thinking of that right now. Thank you.

Listen, good question. And I think, you know, it's like buying somewhat like a lottery ticket, Pablo. But I think, you know, my strategy so much so far is we would be ready for it and could be ready for it in a very quick period of time. You know, we have an infrastructure of a whole medical group in Canada. We have an infrastructure in Europe and put that team together. Within 90 days, we could be in the medical cannabis business in the U.S. depending upon what legalization is. And I've seen a lot of companies go out there and buy options, do things that never came to for tuition and spent a lot of money. You know, we did buy the debt of MedMen. We still own the IP for the brand MedMen. So with that, we have a close eye on it. Right now, our focus is on Delta 9 drinks, which we think is a big opportunity. Like I said, we'd love to be able to sell, you know, and let me tell you something. If we could sell our cannabis, medical cannabis in Canada, $250 million business to that at a two, 3%, you know, that would be very, you know, additive to till rate, but until legalization, until things change. And my thing is the Trump organization will look at this here just because of the dollars that will contribute to, you know, bringing in more tax dollars and also eliminating, you know, from the illicit market and eliminate, eliminating all the confusion, helping with safe bank. When do I think it will happen? As I've said before, I think it will happen during this administration, but I did say it would happen during the Biden administration too. But I think, you know, this administration is much more business opportunistic and will look at it with right regulation, and I think that's what's important here. In the meantime, you know, that's a good thing, which I've said about Tilray. We have built a really strong business in the U.S. today with our beverage business, with our Spears business, and our wellness business. And I will mention, there is a big focus today on growing our wellness business. And, you know, whether it's additional acquisitions, additional opportunities with hemp, which we think is, you know, high-protein fiber products, and that's a big, you know, opportunity for Tilray.

Got it. Thank you. Thank you.

Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Thank you. Good morning. Good morning. I just wanted to follow up on a couple things. I guess first on the Delta 9 beverages, the traction, you know, especially that you just called out, like Louisiana or Minnesota, it's proven to be strongest where there isn't adult use opportunities at the legal at the state level how much do you sort of account for that as a potential limitation and and how does that shape some of your thinking and then just on the guidance I know you went through some of that in an earlier question just want to follow up on how the skew rationalization timing fits in was that in in part of the guidance thinking all along or has it changed and if it's if it's newer and Is it the innovation that's new to offset it? Just help us think about that.

So first of all, in regards to where do I see the big states and the big opportunities, Texas, Florida, Georgia are some of the big states, and which are big beer states and big opportunistic states for us. I mean, if you come back and look at the size of those states and some of the biggest states out there, and they're some of the biggest markets where we sell beer today. So that is where I see our big opportunities from a standpoint there. In regards to our guidance and our skew rationalization, so far we've taken, you know, approximately $17, $18 million of sales. It's probably about a $2 million EBITDA hit. You know, again, there's probably another, you know, $10 million of skew rationalization there. that will come out of our top-line sales. Now, again, what you've heard us say, what's happening now, those sales that come out, we're replacing them with new products and faster-selling SKUs. It's a rotation of those products, and not everything gets on timing. but it's taking lower margin, a lot, you know, slower selling SKUs out and replacing them with new products, higher selling, you know, products and higher margin products to replace those.

And then we should understand that as your color on the spring shelf reset as having that in hand and the one-for-one swaps. I didn't understand. You broke up on that question last week. Yeah, when you were saying how the innovation would offset the skew rationalizations, you were talking about the better timing, this go-round for the shelf resets in the spring. Should we understand that you've got that in hand and already set to go? Yes.

I mean, there's a timing on that, too. You know, it's going to be approximately $20, $25 million in sales that are coming out, but we would hope, you know, with our new products, and our faster selling SKUs with more space, we would make up those sales and then sell. But there's a lag time on some of that, too. It just doesn't all happen at once.

Okay. Thanks so much.

Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Seidman for any final comments.

Well, thank you, everybody, for jumping on our call today. And first and foremost, I want to put our thoughts with everybody in Los Angeles that's gone through that horrific fires out there that lost their homes and we're here thinking of you and also what happened in New Orleans. We're living in an interesting world out there. From the standpoint of Tilray, as I sit here today and look at what we're doing and trying to understand the growth of this company, You know, you look at the cannabis industry and what we've done in cannabis over the last five years. You know, if we sit and build out facilities today, we have 5 million square feet of grow in Canada today with over a billion plus dollars that we've invested in building out those facilities. You know, in regards to our breweries today, we have 10 breweries today that produce our product, 20 brew houses. We have a distillery in Breckenridge. We have manufacturing facilities today. in Winnipeg, Canada, that produce our hemp, and then we have two facilities in Europe that produce and grow cannabis, medical cannabis for us. So we have an incredible infrastructure out there to produce us with 90% of our products. We have today over 40 different brands, whether it's in beer, whether it's in spirits, whether it's in cannabis, whether it's in our wellness products. And we have an incredible team that I get to work with to help bring all this together from a manufacturing standpoint, from an operational standpoint, from a distribution standpoint, from a sales and marketing standpoint. Last but not least, you know, we're building something different out there. There's no company out there today that's in the cannabis business, the wellness business, in the beverage business, and bringing it all together. We're, you know, handcuffed by regulation. I wish tomorrow I could start selling cannabis in the U.S. and how big an opportunity it is. Not a lot of companies just can't sell new products and go out there and do it. I wish I could sell cannabis-infused drinks in the U.S. You know, I'm limited in Canada of how much I can do in Canada in my contribution as I pay a dollar per gram in excise tax. The richest cannabis company in Canada today is the Canadian government. And, you know, we spend about $155 million in excise tax in Canada, higher than beer, higher than wine, higher than spirits, and some of the highest excise tax of anything. And that's one of the biggest challenges. You think how much we sell in Canada today, and still from a profitability standpoint, because this is a higher excise tax. The beer category is changing dramatically, and we will continue to change it. We will make beer fun again. We'll make it unique. We'll come up with new products. With RNDC and now the beer group, Brian Nolte working with Ty, lots of opportunities that we see in spirits today with our bourbon, gin, and vodka. my past, I come from wellness foods. You know, I think wellness is something that's going to be around forever. And hemp is going to be a big part as an ingredient, as a food. And we're, you know, going to look at other opportunities within the wellness area. And last but not least, international. One of our, you know, fastest growing business today, one of our most profitable business today. And you look at it, 700 million people. So there's a lot of great DNA within Tilray today. There's a lot of great businesses with Intel rate today, you know, as we reached that billion dollar mark and it's taken companies like Tesla, Amazon, you know, Microsoft long time. And we've been at it just five years and we really got a great strategic plan, a great plan to bring it together. So stay tuned. I appreciate the support. Listen, I don't like how our stock performed, but I got to tell you, Behind, a stock ought to be a great company, and that's ultimately what we're trying to build out there. I thank you for your support. Thank you very much for listening today. Just be safe out there. And, again, my thoughts go to people in L.A., my thoughts go to the people in New Orleans, and the rest of the world. Thank you very much.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.