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.