Tilray Brands, Inc.

Thank you for joining today's conference call to discuss Tilray Brand's financial results for the fiscal 2025 third quarter and in February 28, 2025. 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 Communications and Corporate Affairs Officer. Thank you. You may now begin.

Thank you, operator, and good morning, everyone. By now, you should have access to the earnings press release, which is available on the investors section of the Tilray Brands website at Tilray.com and has been filed with the SEC and the CSA. 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 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, Ty Gilmore, President, Tilray Beverage North America, who will provide an update on our beverage business, and Carl Merton, Chief Financial Officer, who will review our third quarter financial results for the fiscal year 2025. Also joining us for the question and answer segment are Denise Faltacek, Chief Strategy Officer and Head of International, and Blair McNeil, President of Tilray Canada. And now, I'd like to turn the call over to Tilray Brands Chairman and CEO, Erwin Simon.

Thank you, Barron. Good morning, everyone, and thank you for joining us today. Tilray Brands is at the forefront of the beverage, cannabis, and wellness industries on a global basis. We are expanding into new markets, developing innovative consumer products that reflect how people eat, drink, relax, and receive relief from medical conditions where other treatments have not been effective. In five years, our team has transformed Tilray from a business relying on cannabis legalization for growth into a diversified consumer products company providing specialty beverages, cannabis, and wellness products worldwide. Beer and cannabis have been consumed for thousands of years. These industries and their consumers are here to stay. They are not going anywhere, and neither is Tilray. We are here to stay with our strength and balance sheet, our strong brands, our strong businesses, and our global operations. There's a lot of value in Tilray today that is not reflected in our current market cap and stock price. Tilray is uniquely positioned as the only consumer company with a diversified portfolio of beer, spirits, cannabis, and wellness products. I personally don't think people understand the value platform that we have created and have today. In a recent analyst report, it was identified that the increasing dual past month use of cannabis and alcohol, which is heightened among young adults, with the 36% of legal alcohol users in their 20s, Gen Z, also consuming cannabis, up 14 points the past decade, and on pace for 50% of young adult users to dual-use cannabis within the next 10 years. Staggering numbers. Tilray continues to advance in the sectors of beverage, spirits, cannabis, and wellness by innovating products, managing cost efficiently, and expanding internationally at a competitive pace. While other companies are adopting similar models, Tilray remains ahead in several areas, including vertically integrated operations, established portfolio of diversified brands, and a comprehensive distribution network with a global reach. Regarding tariffs, Tilray confirms no current impact. After analyzing the recently announced tariffs on international trade, we conclude that they are unlikely to substantially affect our sales and costs. In the U.S., our American craft beer and beverage brands are manufactured in the U.S. and distributed in the U.S. market. In Canada, where a majority of our cannabis cultivation is grown, our Canadian cannabis brands are produced in Canada for Canadian consumers. In international markets, our medical cannabis brands and products are produced for local patients. And in our wellness business, we have received confirmation that Manitoba Harvest is exempt from the new tariff. Since 2020, we have made seven acquisitions in the beverage, craft, beer, and spirit sectors. We've introduced new categories, including non-alcoholic beverages, non-out beers, waters, and hemp-derived THC drinks. In the U.S., we have 10 beverage facilities and over 500 distributors. When we acquired the ABI and Molson Craft brands, they were not profitable. We have built a new platform and infrastructure capable of revolutionizing the beer, spirits, and beverage industries. And we're focused on capturing every opportunity to attract a broader consumer base, including new opportunities in the international markets. such as new ventures into Europe that will introduce our brands to the United Kingdom and other regions with local operations leveraging the infrastructure that we have built in the U.S. Pai will provide further details regarding our beverage businesses and its execution. Importantly, we are laser focused on building a sustainable global business platform in terms of profitable sales growth, improving profit margins and cash flow generation, and maintaining a solid balance sheet that can help pill rate, navigate market challenges, and make use of strategic opportunities. As Carl will discuss in detail, in the third quarter, we delivered our highest cannabis gross margin in almost two years, and our net debt is less than one times EBITDA. We will not seek sales growth just for the sake of growth. It is not additive to our bottom line and accretive to our shareholders. In the third quarter, we generated $186 million in net revenue, or $193 million on a constant currency basis, In the quarter, we implemented strategic initiatives aimed at enhancing our business operations over the mid- and long-term. These measures focused on improving margin and profitability, as well as driving long-term operational efficiencies, rather than pursuing revenue growth at any cost or in a non-sustainable manner. However, these decisions came with short-term impact in the third quarter and impacted our revenue by about $13 million. If we eliminated the impact of these strategic decisions in cannabis and skew rationalization in our beer business, adjusted net revenue increased 10% to $206 million in the quarter. Our margin expansion efforts across each of our businesses, including beverage, cannabis, and wellness, led to a 5% increase in gross profit and a 200 basis point increase in gross margin to 28% compared with the prior year period. Our balance sheet remains strong, with ample cash and marketable securities totaling $248 million. During the fiscal year to date, we've also reduced debt levels by $58 million, positioning us to pursue strategic acquisitions, seize new opportunities, and capitalize on market trends. Our cash burn is primarily resulted from investments in beverage, settling legacy lawsuits, and capital expenditures aimed at operational growth opportunities. We're committed to expanding our business while managing our debt responsibly. Our cannabis wellness and distribution segments are generating positive operating cash flow, and we're on track to drive growth in our beverage businesses. Tilray Brands has demonstrated remarkable resilience and maintained its fundamental strength despite market challenges. including a tougher February than expected across both cannabis and beverage alcohol industry. Tilray continues to operate the largest legal cannabis business in Canada by revenue, lead the medical cannabis business in Europe, and continue to dominate in the branded hemp high-protein food sector in North America, with nearly a 60% market share in the U.S. and 80% in Canada. We rank as the fifth largest craft beer business in the United States. We are also leveraging advanced technology to align with our shareholders' interests. The consumer of tomorrow, enhancing efficiency and driving growth. AI is being implemented across our global platforms. We're combining AI-driven data insights with advanced horticulture automation technology in global greenhouse operations. This integration allows real-time management of greenhouse conditions, leading to increased efficiency, higher output, improved quality, and reduced costs for resources such as labor, water, and energy. Additionally, Tilray plans to accept cryptocurrency as a payment method in its online operation and is exploring strategic initiatives related to cryptocurrency that aligns with our business goals. That is just the beginning. Tilray Brands is at a transformational point in its journey. Our strategic initiatives, innovative product development, and robust infrastructure are propelling us towards unprecedented growth. We have harnessed efficiency across our businesses, facilities, and systems, and our workforce globally, ensuring we're prepared to capitalize on every opportunity. I also like to add, being one of the largest individual shareholders in Tilray Brands, along with my team combined, we own approximately 1% of Tilray Brands' stock. We, along with our shareholders, are impacted by the decline in our stock price, and we are 100% fully invested in the positive trajectory performance of our stock price. Again, we are laser-focused on building sustainable global business platforms and believe our further growth performance will recognize and reward our shareholders. Now turning to cannabis. In fiscal Q3, our global cannabis business generated $54 million of net revenue and $57 million on a constant currency basis, an increased gross margin by 800 basis points year over year. Our gross margin of 41% were the highest in almost two years. Growth in our international and our strategic decision not to participate in margin-deluded categories in the Canadian adult use market has driven margin improvements. In fact, our global medical business, when combining international and Canada, now accounts for approximately 80% of our total cannabis profits, even though they contribute only approximately 35% of sales. As a side point, we would say to investors, only focus on a reported sales figure to pay more attention to gross profit dollars and potential drivers of profitable growth in the future. If the United States legalized medical cannabis, it could mean an additional $250 million for Tilray, potentially capturing 2-3% of the U.S. medical cannabis market. Tilray is not subject to any of the 280e tax obligations in the U.S. Tilray's cannabis advantage lies in its global scale and experience. Our top-tier ability to cultivate large-scale pharmaceutical-grade cannabis with strict quality control standards. Our established medical brands of product innovation are already improving patients' lives in legal markets such as Canada, Germany, Portugal, and various other European countries. Regarding our international business, in Q3 we saw quarter-over-quarter and year-over-year revenue growth in Germany, Italy, Luxembourg, and Portugal. Our medical cannabis sales in Germany grew significantly, with flower sales increasing 79% post-legalization and extract sales increasing 31% post-legalization. This is a significant increase from the end of our second quarter, where we saw our post-legalization flower and extracts increase 55% and 24% respectively. This growth was driven by higher patient demand in the market. As I mentioned earlier, a large focus of our strategic growth initiatives from our cannabis segment is redirecting inventories to international medical cannabis markets in order to capitalize on the higher margins available in such markets. Taking this one step further, given the increasing demand in Germany and the margins in Germany are the highest in the international markets, we are also allocating more of our inventory to that market to further enhance our profitability. At the end of Q3, we introduced Tilray Craft, a new brand extension of the Tilray Medical brand in Germany. which aims to offer unique flower operations with higher THC and higher terpene content and are derived from novel genetics in order to address the evolving needs of patients. We are cultivating high-quality medical cannabis at our free RX facility in Germany using prized cultivars from Canada exclusively for the German market. We're excited to launch our new medical cannabis flower, which is expected to be in the fourth quarter. Today, we are now providing high-quality medical cannabis flower to Germany from our global facility in Canada, Portugal, and Germany, which is allowing us to be laser-focused on product quality, genetics, cost per gram for our international markets. This coupled with our regulatory direct distribution to wholesaler and pharmacies with our CC Pharma medical distribution business continues to differentiate us from competitors and allows us to quickly service our customers and patients. Turning now to Canada, we continue our focus on quality of revenue. And it is shown in our margins. In the quarter, we shipped 3.2 metric tons of flour to support the international market, as I previously said, where margins are stronger than in the Canadian market. However, international sales and margin earned on them will not be recognized until shipped to our customer predominantly in the Q4 because of temporary timing delay on all or overall cannabis sales of $3.2 million during the quarter. As I mentioned earlier, we remain the leader in the Canadian cannabis market by revenue, which is still the largest federal legal cannabis market in the world. We maintain the number one position in beverages, chocolate edibles, oils, capsules, and straight edge pre-roll. In the cannabis flower category, we were the number two market share position despite giving up share on lower margin SKUs in favor of higher margin opportunities. In an environment where constraint by tight regulation, price compression, and excise taxes, we remain laser focused on utilizing process improvement and investing in CapEx to drive margin improvement. Since fiscal 2024, we have reduced our cost per unit by 40% and expect an additional 20% cost reduction by the end of fiscal 25. In parallel, our operations teams have been working hard on optimizing our extraction capability by leveraging our state-of-the-art extraction chamber so that all our remaining biomass gets utilized at a significantly reduced cost. As a result, we can expect healthier margins in our baseline business and growth in two of the fastest-growing categories in vapes and infused pre-rolls. On the cultivation side, we have the most flexible footprint in the global cannabis industry. On our product range, caters to diverse consumer segments, including premium with Broken Coast, mainstream with Redican, and with value with Good Supply was the fastest growing flower brand in Canada, growing by 40 bps in the third quarter. Over the past couple of years, we have built a strong genetic pipeline across all our facilities, totaling over 400 unique genetics. We have cultivars across all our consumer taste profiles. Additionally, we can add an additional 70 metric tons to our capacity when the market requires it. In the TH beverage category, Tilray had a leading market share of 45%. With XMG and Molo Brands ranking number one and number two respectfully, with multi-pack formats poised to enter the marketplace, we remain confident that beverages are significantly underrepresented in Canada. We anticipate capturing additional markets during this category, which is projected to experience substantial growth as regulatory environments improve. Tilray is well positioned for long-term success in the Canadian cannabis market, with a facility footprint of approximately 5 million square feet and the capacity to produce over 200 metric tons of cannabis. Our value chain and business process are the best in the industry and are optimized to enhance efficiency. If the Canadian cannabis excise tax were reduced by $1 per gram to $0.50 per gram, and if cannabis drinks were sold at the LCBO and convenience stores, we foresee a tremendous amount of annual revenue opportunity that Tilray is positioned to capture. Turning to our Tilray Wellness business, as consumers become increasingly health-conscious, we continue to see steady growth as our revenue was $14 million in the quarter. We delivered an 8% net revenue growth compared to the prior year on a constant currency basis. This growth was driven by Manitoba Harvest's supersede innovation and the expansion of our wellness beverages, including Highball Energy, Highball Energy is a zero-calorie caffeinated seltzer with a clean label. Available on Amazon, we're experiencing 68% growth in the last six months and available nationwide at Whole Food Market retail stores later this month. A strong focus on cost helped the business unit improve margin, delivering 180 basis points, increasing gross margin year over year. The margins were driven by a more favorable sales mix and productivity savings generated at our manufacturing facilities. Tilray is exploring further expansion opportunities in the wellness section, both in wellness foods and wellness beverages. In the months to come, we'll continue to diversify and expand the Manitoba Harvest Portfolio in North America and to begin to bring brand new international sales. We see the success of Hibol as a validation that Tilray Wellness has the right infrastructure and experience to build and acquire a more broad-based wellness beverage portfolio. With that, I will turn the call over to Ty Gilmore, President of Tilray Beverages of North America, to tell you more about what's happening at Tilray Beverages. Ty?