Tilray Brands, Inc.

Thank you for joining today's conference call to discuss Tilbury Brand's financial results for the first quarter fiscal year 2026, ended August 31, 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 conducted via audio. I'll now turn the call over to Ms. Barron Narada, Tilbury Brand's Chief Corporate 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 CETA. Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties which may prove to be incorrect. Actual results could differ materially from those described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements. Today, we will be hearing from key members of our senior leadership team, beginning with Erwin Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary, followed by Carl Merton, Chief Financial Officer, who will review our financial results for the first quarter of fiscal year 2026. And now, I'd like to turn the call over to Tilray Brands Chairman and CEO, Erwin Simon.

Thank you, Barron, and good morning, everyone, and thank you for being here for Q1 results. Q1 of fiscal 2026 was a testament to the significant momentum Tilray has built across our businesses over the years. I'm proud to report that our strategic focus is continuing to strengthen our profitability, our balance sheet, and leveraging our global platform to drive innovation in cannabis, beverage, and wellness and continue to deliver solid results for our shareholders. I want to extend my sincere gratitude to our shareholders for their ongoing support and belief in Tilray's vision. It is encouraging to see our stock regain strength this quarter and return to full NASDAQ compliance. Notably, in the months of August and September, Tilray traded well over 1 billion shares each month, highlighting the tremendous interest in our company. And not a lot of companies have a billion shares trading on a monthly basis. We sincerely thank our shareholders for their continued confidence in our strategy and their commitment to investing in our company. Your belief in our long-term vision and what drives us forward. Now go out there and buy some of our products. Notably, during the quarter, we achieved net income of $1.5 million and earnings per share of zero, highlighting our commitment to sustainable growth and operational efficiency. We achieved revenue growth across all our business segments, with the exception of the beverage segment, which we remained flat because of deliberate decisions to optimize our craft beer SKU portfolio under Project 420. Overall, total revenue increased by 5% year-over-year to a Q1 record net revenue of $210 million, fueled by double-digit growth in our Canadian adult use and our international cannabis business, which delivered 12% and 10% growth respectively. We also continue to strengthen our balance sheet by reducing our outstanding debt by $7.7 million this quarter. bringing our net debt to EBITDA ratio a 00.7 times cash to, and our cash equivalent to $265 million. Our results are underpinned by our deep understanding of product innovation and evolving what consumers prefer. This expertise allows us to shape innovative offerings and not only meet current demand, but anticipate future needs, keeping Tilray at the forefront of the cannabis, beverage, and wellness markets. Today, Tilray owns and operates more than 40 unique brands in over 20 countries, and we are the predominant global cannabis leader trusted by patients, medical professionals, and governments in over 20 countries, and number one Canadian cannabis producer by revenue. The fourth largest craft beer producer in the United States, and a market leader in branded hemp products across North America with our portfolio of high-protein hemp snacks and Better For You products, holding nearly a 60% market share, and now a leader in the new, exciting hemp-derived Delta 9 THC beverages across the U.S. We have built a diversified global platform that is a leader in every industry which we compete, Let me briefly review each business. Our cannabis business, as I said, grew 5% year-over-year to $65 million. Globally, the cannabis industry continues to evolve, and Tilray has the cultivation and manufacturing agility at the right cost to compete and lead in any commercial markets around the world. Recent developments in the U.S. have strengthened our optimism around rescheduling of medical cannabis. and we've seen in other countries as we've seen in other countries around the world. We believe rescheduling would enhance our patient access and improve the quality of patient care, promote scientific research, and support responsible regulatory framework. The medical cannabis industry in the U.S. currently estimated to be at least a $10 billion market, which would create a potential opportunity for Tilray to capture at least a 3% to 5% market share. representing a significant $300 to $500 million business opportunity. We've identified multiple pathways to participate in the U.S. medical cannabis industry, positioning ourselves to take advantage of this substantial growth potential when it happens. In Q1, our Canadian cannabis business delivered strong results. Tilray reinforced its position as Canada's largest legal cannabis company by revenues. with Q1 revenue of 4% year over year to $51 million. In the adult use channel, Tilray was the top five licensed producer. We grew in market share, closing the gap to the number one LP in market share by 53 basis points. We held the number one position in key categories such as free rolls, beverages, oils, chocolate edibles, and by the end of the quarter, we also reached the number one spot in flour, while maintaining our top 10 positions across all categories. Congratulations to Blair and his team. We believe our extensive scale represents a significant competitive advantage within the Canadian market, where we manage approximately 5 million square feet of cultivation space and currently maintain 210 metric tons of cannabis in production, with additional capacity readily available. This positioned us to effectively meet future demand. Furthermore, Tilray is well prepared to supply both European and U.S. markets as regulatory framework develops these markets and it continues to expand. In Canada, we also foresee substantial potential as regulatory reforms may lead to transformative developments such as expanding cannabis in healthcare, unlocking new opportunities through proposed cannabis health products and broader insurance companies, making medical cannabis more accessible to patients. On-premise consumption for THC beverages, which I believe is big. A rollout of on-site consumption to drive responsible use and create a vibrant experimental cannabis beverage market. And of course, regulatory modernization, which we've been talking about. Updating the outdated policies that restrict competitiveness and paving the way for innovation and growth in Canadian cannabis industry. Turning to our international business, our international cannabis revenue grew 10% year over year to $13.4 million. And this is with not being able to obtain permits in Portugal to allow us to ship around the rest of the countries. And we remain uniquely positioned to gain market share as a global consumer preferences and the regulations evolve. In Germany, we continue to expand our commercial medical cannabis portfolio and are actively leveraging our Tilray Medical and CC Pharma distribution network across pharmacies throughout the country to drive further growth. Looking ahead, we expect to increase our medical cannabis distribution footprint by threefold in fiscal 2026, significantly enhancing our reach and impact within the German pharmaceutical market. And we have that access through CC Pharma. In Italy, our Italian subsidiary, FL Group, received the first license from the Italian Ministry of Health to distribute medical cannabis flower for therapeutic use. We also partner with Molteni, a leading Italian pharmaceutical company, to expand access to medical cannabis extracts. and provide targeted education through their national network of medical and scientific professionals. We continue to expand our growing capabilities in both Portugal and Germany, strengthening our EU GMP certified cultivation infrastructure and to meet evolving global demand. Currently, we produce 21 metric tons of medical cannabis flower in Europe, and have the capacity to significantly increase the amount as demand continues to grow. Our expanded growing operations not only supports our leadership in established markets, but also positions us to rapidly respond to the regulatory environments open across Europe and way beyond. European cannabis reform continues to progress, and we're seeing that. And we're excited to witness important developments like the European Union's Cannibal Project and Spain's recent approval of medical cannabis. Tilray is proud to already be involved in medical cannabis research in Spain through a partnership with the University of Madrid, supporting advancements in patient care and responsible regulations across Europe. Now onto our distribution, our European medical distribution business CC Pharma continues to grow with revenue increasing 9% year over year to $74 million. The segment remains a significant driver of our European cannabis operations and our infrastructure provides a strategic advantage that enable us to capture increased market share as both the regulatory environment and industry landscape evolves across Europe. And as I said before, we have access to over 13,000 drug stores within the German market. We remain confident in our global expansion strategy with Tilray well positioned to drive international growth and leveraging emerging opportunities across cannabis, beverage, and our wellness business. International beverage, which is a new business for us, building on our international footprint, our infrastructure, Our growth strategy, we will be accelerating the expansion of our non-alcoholic beverages portfolio across multiple international markets. We expect our brands, Highball, Liquid Love, Runner's High, to gain traction with consumer opportunities. We built a dedicated team focused exclusively on servicing our international customers. This specialized team will ensure that our portfolio of leading craft brands is tailored to the taste and expectations of our global consumers, while also supporting our long-term growth in high potential markets worldwide. By leveraging our established distribution networks and brand-building expertise, we are well-positioned to capture growth opportunities in this fast-emerging category. and delivering exciting new products to the international markets, and the demand for them is high. Notably, we've already secured a distribution partner in the U.K. for High Vault, ensuring rapid market entry and strong support for the brand in this key region. Additionally, on the beer side, we recognize the growing demand for American craft beers in the international market. To further capitalize on this momentum, we're actively exploring all opportunities to grow this business, including international manufacturing opportunities, potential acquisitions to expand our reach and better serve our global customers. In our U.S. beverage business, we continue to make progress against our beer integration, optimizing our strategy and our Project 420. We see long-term potential for the beverage category. based on the diversification of our offerings and the superior products we produce. We've improved operations, leveraged acquired brands, supporting positive performance. Notably, many of these brands still reacquired were previously in decline and are now showing promising results with healthier growth trends and improved overall performance, as we move to regain sales authorizations at retail that were lost. This turnaround underscores the success of our focus strategy and our commitment to revitalizing and growing our beverage beer portfolio. Through Project 420, we've realized $25 million in annual savings, moving closer to our goal of $33 million. We've continued to work closely with our distributors to concentrate on promoting strong brands in each of our markets. In the quarter, we experienced growth across key brands and regions. Shock Up, the company's third largest brand, was among the fastest growing craft brand with notable increase in both dollar sales and market share, driven in part by the successful launch of its variety pack, which has grown to be the number eight most popular new craft beer nationally. Trends continue to improve for Shock Top, with a $30 trend improvement since Tilray acquired the brand in 2023. In the Southeast, Shock Top excelled with a 49% jump in dollar sales. Sweetwater Day Trip IPA stood out as one of the top new items in the region. In Northeast, Montauk maintained its leading position in Metro New York and gained market share nationally with continued demand for its Wave Chaser IPAs. Breckenridge Brewery led craft share gains in Colorado with its top Avalanche seasonal and juice drop and brands positioning double-digit growth. And last but not least, Red Hook outperformed regional craft beer brands propelled by Big Valor, Imperial IPA strong volumes, and our velocity gains, while 10-barrel pub beer, 18-pack, dominated craft sales in Oregon and 5% of all craft volumes. We also expanded our partnerships, including co-brand craft beer with the Oregon Ducks, perfect for college football season, and a new partnership with Auntie Anne's for the launch of Shock Top Twisted Pretzel Wheat Beer. You've got to try it. It's great. We're making beer fun again, and these partnerships and co-branding opportunities offer significant runway for us to widen our markets. In spirits category, which has been tough? We have introduced several world-class innovation, including Mach 1, our new line of non-alcohol spirits, and Casa Breck in the tequila space. We've also introduced Mountain Shot, a unique beverage blend which may take mushrooms available in pouches, which is a unique packaging format to enhance the shot experience and capture the free spirit essence of the Rocky Mountains just in time for ski season. We also kicked off our fifth year partnership with the Denver Broncos with a new line of spirits, including limited editions, Broncos honey whiskey, and Broncos orange creamsicle ready-to-drink cocktail. In the non-out category, we're proud that our non-out beer brand, Runner's High, which we only launched in fiscal 2025, is now recognized as one of the top 15 brands in non-out beer and ranks the fourth fastest-growing non-out beer in in a hot category in the Southeast, selling across 4,500 distribution points. Following the success of our ham-derived Delta 9 THC beverages, we've expanded Fizzy Jane and Happy Flower product line to include 10 milligram formats, complementing the existing 5 milligrams offerings, and the consumers want these products. The innovative HD9 category leveraging our craft beer infrastructure and distribution networks, enabling us to deliver high quality products to consumers across 14 states. Whether they're new to the category or seeking to enhance experience, we have established partnership with retailers nationwide for HD9 brands and now offer distribution to prominent wine, liquor outlets such as Total Wine and more, ABC Fine Wine and Spirits. In addition, in Q1, we saw further growth in regional grocery channels, including ShopRite, Stu Leonard's, and Winn-Dixie. We continue on building on this positive trajectory as we move into Q2 and the rest of the year. Today, our beverage business operates more than 20 brands, including 15 American craft beer brands across seven network manufacturing facilities and 16 brew pubs. We're well diversified across craft beer, spirits, non-alcoholic and now HD9 and energy drinks. We know that there is plenty of opportunity for growth in the beverage category. We have the right leadership and we're pursuing the right growth strategy. And I'm tremendously excited about the future and the opportunities in the large beverage category. Last but not least, now turning to our wellness business, which is near and dear to my heart. Our wellness business had a strong quarter, growing revenues to over $15 million. We continue to expand our wellness portfolio with many launches of new offerings, new crackers, new hemp portfolios, new other products that are available at Whole Foods and other retailers. We are now in over 17,000 retailers across the U.S. These offerings are also launched in Amazon, and many other online retailers. I'm highly confident in Tilray's outlook for the remainder of 2026 and beyond. With regulatory environments in our industry poised for medieval evolution, I fully expect positive change ahead, and I'm certain in our ability to adapt swiftly, and we will strategically. Our proven approach, robust product portfolio, and exceptional team position us to seize every single opportunity, especially in wellness, where we see us with significant expansive opportunities, and we're committed to unlocking new possibilities through continuous innovation, portfolio expansion, target investments, including the opportunities when strategic acquisitions happen. While we've made considerable progress, we recognize we have not yet reached our full potential, and we're far from it in the wellness space. And that is the same with our cannabis business and our beverage business. There's lots of room and lots of white space for us. With that, I will now turn the call over to Carl for an in-depth look at our financials. Carl.

Thank you, Aaron. Please note that we present our financials in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussions, we will be referring to both GAAP and non-GAAP adjusted results, and we encourage you to review the reconciliation contained within the press release of our reported results under GAAP with the corresponding non-GAAP measures. Now looking at our results, we are reporting record first quarter net revenue, net income, and a significantly improved adjusted free cash flow for the period. Further, we are reaffirming our 2026 guidance for adjusted EBITDA. Net revenue for the first quarter was a record $210 million, a 5% increase year over year. This growth was driven primarily by increased cannabis sales in both Canada and our international markets and increased revenue in our distribution segment. Cannabis revenue increased 5% year over year to $64.5 million, driven by 12% growth of adult use gross revenue and 10% growth in international cannabis. Higher excise taxes and declines in wholesale cannabis offset those double-digit results. We see material potential for the international segment and expect continued growth once we receive several permits that are currently backlogged in a few European countries. Beverage revenue reached $55.7 million. driven by innovation and impacted by continued skew rationalization. We advanced Project 420 and integrated acquired brands. Although craft brands and spirits face challenges, new products contributed 2% to Q1 revenue, supporting our belief in the beverage category's long-term growth. Wellness revenue increased 3% year-over-year to $15.2 million because of our strategic focus on continued innovations with high ball energy, our natural energy drink, high protein super seeds, and better for you breakfast and snacking, including the launch of two new offerings from Manitoba Harvest at Whole Foods. Distribution revenue increased 9% year over year to $74 million in the quarter, primarily as a result of the stronger euro. From a contribution perspective, 31% of net revenue was generated by our cannabis business, 27% was generated by our beverage business, 7% was generated by our wellness business, and 35% was generated by our distribution business. This compares to contributions of approximately 31% for cannabis, 28% for beverage, 7% for wellness, and 34% for distribution in the last fiscal quarter. As our international cannabis business continues to expand, we expect to see higher contributions from our cannabis segment over the remainder of the year. Gross profit for the quarter was $57.5 million compared to $59.7 million in the prior year period. Gross margin was 27% as compared to 30% last year. This decline was driven by lower margins in our beverage and cannabis businesses. Looking at gross margin by segment, Cannabis gross margin was 36% compared to 40% last year as a result of a higher mix of sales in lower margin categories, such as infused pre-rolls and vapes, where we re-entered some previously margin-prohibitive categories. We believe the decline this quarter is temporary, and the actions we have taken to drive profitability and improve margins will be effective in the long term. Beverage gross margin was 38% compared to 41% last year. The decrease in gross margin is due to the inclusion of craft acquisition to sales, which have generally been lower margin. Wellness gross margin was flat year over year at 32%. Distribution gross margin was 11% compared to 12% last year, based on changes in product mix. Net income, was $1.5 million or 0 cents per share compared to a net loss of 34.7 million or negative 4% per share in the prior year period. Adjusted net income improved to $3.9 million or 0 cents per share compared to an adjusted net loss of $6 million or negative 1 cent per share in the prior year. Improvements in both metrics were a function of reduced SG&A costs including amortization. Adjusted EBITDA for the quarter was $10.2 million compared to $9.3 million last year. Cash flow used in operations improved significantly to negative 1.3 million for the quarter from negative 35.3 million last year, representing a positive change of almost $35 million. We continue to strengthen our balance sheet this quarter in terms of debt and cash positions. During the quarter, we raised $22.5 million under our ATM program, primarily after our stock increased to over a dollar per share. Further, we exchanged $5 million of our convertible notes for equity early in the quarter, as we already discussed during our last earnings call. During the quarter, we reduced our outstanding debt by $7.7 million, bringing our net debt position down to $3.9 million. and our net debt to trailing 12 months adjusted EBITDA ratio to 0.07 times, all while ending the quarter with $265 million in cash, plus another $1 million in digital assets. These stronger debt and cash positions provide Tilray with greater flexibility for strategic opportunities, and we intend to continue reducing our debt and further strengthen our balance sheet as the year progresses. As already discussed, Our confidence in our business, our strategy, and our team has never been higher, and we are pleased to reaffirm our 2026 guidance, anticipating adjusted EBITDA between $62 and $72 million. We can now open the line for Q&A.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Aaron Gray with Alliance Global Partners. Please proceed with your question.

Hi, good morning, and thank you very much for your questions here today. First question for me, I just want to talk a little bit about international growth opportunities in the near term. You offered some commentary in your prepared remarks. I just wanted to make sure I was understanding them correctly. So first of all, just further understanding in terms of where we stand today in terms of the impact on some of the permit delays that you've been having. And then some commentary you provided in terms of the growth. Specifically, I think you were referring to medical cannabis is up 3x in fiscal year 2026 and talks about leveraging CC Pharma potentially. I just want to make sure I was understanding that correctly. Were there some things that you're looking to leverage with CC Pharmabiz that you were not, you know, historically? So just any additional commentary on that would be helpful. Thank you.

Great. So a couple of your questions. Number one, in regards to permits, we spent a lot of time with the Portuguese government. We spent a lot of time in Portugal. We're finally seeing permits coming through. And I feel good about that. Where, you know, the next big issue that we run into is the quota in Germany and just Germany opening up and increasing, you know, more imports into the German market, which we think ultimately that will happen. But, you know, it's not business going away. It just may shift from, you know, second quarter into third quarter. as the new quotas move into place in 2026. So with that, I feel we've made a lot of headway into the Portuguese permit situation. And we got more permits in the last two weeks than we probably got in the last two months or so. In regards to a couple of things, the demand in Europe is there. And with that, it's the availability and the growth. And with the team, and now we have moved some of the Canadian team into international, we look to grow in our facility today in Portugal is running about 50%. We have the opportunity to double that at 40 metric tons, and that's something we're working on. The other thing is to really increase our growth to probably six or eight metric tons in our German facility, and also where the opportunity is in regards to, you know, bringing product, EU GMP product in from the Canadian market. In regards to Germany, what I've said and what I was working through, you know, CC Pharma, when we acquired it, it was a big part of our license, and it was – It was something that there was an opportunity. And what we're seeing is some great expansion with CC Pharma. CC Pharma delivers to 13,000 drugstores today, and that is regular medicines. And the good thing is we're also seeing some good price increase and some good opportunities on the CC Pharma distribution business. But more importantly, as we integrate these businesses, whether it is – On the sales side and the distribution side, we see CC Pharma being vertically integrated and distributing our medical cannabis to a lot more of these drugstores in the German market, and that's a big opportunity for us.

Thanks, everyone. That's a helpful call there. Second question may just in terms of rescheduling opportunities in the U.S., You offered some commentary, talking about seeing a number of different avenues that you guys are evaluating. Just curious, could you provide some color there? If things were to open up and cannabis was rescheduled to Schedule 3, do you feel like you already have the infrastructure within the existing business to be able to capture some of the opportunity organically, or do you feel like some things might need to be done vis-a-vis acquisition? To capture on that opportunity, I know there's a lot in flux in terms of how that could actually look in a scheduler scenario, but just any comments here on that would be greatly appreciated. Thank you.

Well, listen, as I said before, we have, you know, 5 million square feet. We have today over 200 plus million metric tons of cannabis grow in Canada. um we have a great canadian medical infrastructure in canada already servicing the canadian market canadian market is 40 million people so we service clinics up there we have a group of an infrastructure that sells to the canadian market today um talking about europe um you know as we look to sell and objective is to sell close to 100 million dollars of medical cannabis in europe which is all medical cannabis And there's plenty of research that we're doing over there for anxiety, for sleep, for cancer, for epilepsy. So taking that know-how and transferring to the U.S. is something that's readily available. And last but not least, if there was an opportunity to partner with a pharma company, there was something opportunity for us to buy we'd be ready and willing to enable to do that as we have the balance sheet potentially you know as we have the balance sheet to do that so whether it's taking our current infrastructure our current people our current know-how our current growth our current research you know our current genetics for medicine or partnering with a pharma company or buying something is something we're, you know, open and ready to do.

Okay, great. Thanks for that, Erwin. I'll jump back into the queue. Thank you.

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

Hey, good morning, everyone. On the balance sheet, I see the $1 million in digital assets. I guess, were those investments you made or was it crypto that came in from customer payments? And then taking a step back on the topic, I guess, which coins, tokens, currencies do you prefer? And what are your cash allocation plans to the strategy given your cash generation and your equity issuance history?

So that is acquisition of Bitcoin that we acquired. three, four months ago. And with that, I'm going to let Lloyd Rathwright just take you through some of our strategies that we're looking at from Bitcoin today as we see relevance with our current investors, our current users are also, you know, Bitcoin users. And we see opportunities, as I said in previous episodes, as I said in previous meetings and previous releases, that we see opportunities with Bitcoin in purchasing our products, in purchasing our beer products, and we see opportunities with our current investors. Lloyd?

Hi, everyone. Good morning. So, yeah, we actually invested in Bitcoin, and we're also looking at some other assets such as Ethereum and Solana. One of the things, part of our strategy that's core is enabling our websites so that we can actually accept Bitcoin. So that's going to be part of our strategy later this year. Additionally, we're looking at some investment opportunities from a marketing perspective, as well as looking at tokenizing potentially some stock.

And with that, I just want to make sure, and listen, we're We see the opportunities, we see the synergies with our products, with our investors, and we're not becoming that crypto company out there, but we see tremendous synergies as we expand Tilray into many new markets and many opportunities from that. And we're working with a lot of partners out there and making sure we have the right people that understand crypto and how to do it.

Thank you. And going back to Germany, Europe, I guess when you're servicing those markets, how much of the product is grown today in Portugal? How much is coming from your Broken Coast GMP facility in Canada? And how much that ends up being sold in Germany and Europe is coming from a non-GMP facility of yours in Canada? And then I guess the bigger question, what are the risks that Germany changes the way they treat product conversion or product coming from Portugal?

So listen, number one, the majority of our product today that is sold in Europe is coming from our facilities in Europe, okay? And when product does come from Canada, it goes into Portugal. It then goes to an EU GMP certified facility. So everything sold there is EU GMP certified, okay? With that, again, you know, there's lots of possibilities. We do have a good size, you know, German facility that can grow cannabis. We're one of the few. And I'm not sure. why in the EU that Germany would not allow European products to be shipped into, you know, the German marketplace. So, you know, that ultimately is something we're continuously talking to the German, you know, government about. And if they did that, there's not enough growth in German market today to be able to supply the market. So it's something that it'd be very difficult if the German authorities changed the market, changed the way products come into Germany.

Thank you for that.

Okay.

Thank you. Our next question comes from the line of Robert Mosco with TD Calum. Please proceed with your question.

Hi. Good morning, guys. This is Victor. I'm for Rob Mosco. Two questions for me, please. First, can you give us a state in the union for the Canadian adult use market? Curious in your thoughts on market maturity and your present power in the context growth you saw this quarter, how much of that maybe was like volume versus price?

So, and Blair, you're on the line, Phil, Blair McNeil, our head of our Canadian market. Blair, do you want to jump in and take that and I can add to it?

Yeah, absolutely. Thanks, Erwin. Yeah, so in the quarter, we saw overall market pricing down 1.3% and volume was up 6.5%. For us, our pricing was actually up 2% and our volume was ahead of the market. So it was a really strong quarter for us, both on the pricing side and on the volume side. As you saw, we were the only LP in the top five to grow share in the quarter. So very, very strong results. In terms of market maturity, what I would tell you is in the current regulatory environment, yes. you know, volume has slowed in terms of growth rate, but still very healthy growth rates in the market. And I think what you'll see is over the next few, you know, quarters is that, and Erwin kind of referenced this, is that you will see the regulatory environment improve, and I think you'll see growth continue to go. Overall, household penetration on cannabis in Canada is still at a very low level. number. So we see tremendous runway for growth in Canada within the regulatory framework.

And listen, I think I'll just jump on that for a second. You know, the Canadian market was the first. And, you know, as we go into our sixth year, with that, again, from a regulatory standpoint, And what are we still sitting with? We're still sitting with a high excise tax. We're still sitting with lots of regulations. We've been through price compression. We've been through COVID. We've been through an illicit market. We've been through over 1,800 LPs that are out there. A lot of them have gone away. A lot of growth facilities. And we've gone through educating the Canadian consumer on the benefits of cannabis. and the legality of cannabis without in actuality being able to advertise. And we have built our good supply today, Blair, which is at retail about a $250 million brand. And from that, that's what we built over the last, you know, five, six years. We have over 5 million square feet of grow. We have the largest growth facility in Canada with 237 metric tons and maybe even more. So, you know, the Canadian market has been a great pivotal point for us. Now, what we're hoping for is an excise tax. There's some concessions. We're hoping that the Canadian provincial governments allow us to sell our drinks into other retail outlets, like restaurants that need help or, you know, independent retailers or liquor stores. We're looking for changes in regards to where medical cannabis sold. We're sold directly in through drugstores. And that would change a lot, you know, for our Canadian market. So we look now for some big opportunities coming to the Canadian market. And, you know, Blair and his team have really put us in a good space there to really move beyond and a good role in regards to our products.

Got it. Thanks for the color. And then my second question is, so beverage gross margin was about 50 bits lighter than kind of we expected. Can you remind us of your plan on improving profitability in that segment? And also, where are you on that path, that 420, you know, path, and what still needs to be done?

So, as you saw, we've taken $25 million of cost out, and there's more to go. We've gone through, and I think skew rationalization, You know, $20 million of skew rationalization, and there's more to go. We've closed three facilities so far. So, come back, you know, in acquisitions, we have acquired close to 12, we closed 12 brands. We, you know, had close, we had 10 facilities. We've had 18 brewpubs. And also, we have over 900 plus distributors out there. So bringing this all together under, you know, one management, one infrastructure, and, you know, we're seeing progress, but there's a lot of wood to chop there yet to get those margins to where we need to do. And whether it's the procurement of cans, the procurement of hops. And one of the biggest things, which you heard me mention, you know, in my remarks, you know, a lot of these brands, as we were buying them and decisions were made by the previous owners, We were delisted in a lot of retailers out there. So with that, you saw major declines in these businesses, and we missed the windows of getting these products in the stores. Now these windows have opened up, and getting these products now relisted in these retailers is something that we've been doing, and that's why, you know, whether it's Shock Top, whether it's Red Hook, whether it's some of our other brands, you're seeing the growth there. And that's what's going to happen, you know, to get our gross margins up here. And listen, let's all face it, the beer category is not one of the easiest categories out there right now. And, you know, we're fighting through it both on growth side, innovation side. And I've said it from the beginning, how do I make beer fun again? And that's something we're trying to do. along the way, make money with the two.

Got it. Thanks, guys.

Thank you. Ladies and gentlemen, our final question comes from the line at Federico Gomes with ATB Capital Markets. Please proceed with your question.

Hi, Morni. Thanks for taking my questions. First question, just thinking about the issues in Portugal, I'm curious how do you see that in terms of managing future risk in terms of your international strategy, you know, whether you're taking steps to diversify your supply chain there, and how would you go about doing that? Thanks.

So, number one, you know, we got a million and a half square foot facility in Portugal. We're not picking up and moving it, okay? I mean, over a couple hundred million dollars was built, and it's a state-of-the-art facility. So, I'm in Portugal. I got to stay there. So, I got to figure out how to work within those confinements. And I must tell you, I've had some great meetings with two ministers in Portugal at the highest levels. And they're very open in Portugal, you know, there's a new government in Portugal, and they're want business, they don't want us leaving. They want to build upon our business there. And they've been very, very supportive of working with us. And since my meetings, with our people, we've seen lots of changes and been getting our permits. So I feel good. On the other hand, listen, we do have a facility in Germany, nowhere near what we have in Portugal. We do have the ability to ship from Canada. and, you know, where we would ship it directly into the UK and directly into other markets to insure GMP. So we have options. But first and foremost, we are far from giving up on the Portuguese market.

Thanks for that. And the other question here, just on Germany, could you talk about the proposed change there in legislation in terms of prescriptions and how the market works? How do you think that could impact that market? And, you know, whether you think that draft that's going there may be approved or not as is, or you expect changes to that draft? And in terms of timing as well, when do you think, you know, the market there could change in terms of the legislation? Thank you.

Listen, we're supportive of change. But again, you know, I don't want to go there and speculate until I know what the change is, okay? And I think so far, the good news is what we're seeing is a continuous demand. And online prescription has not been one of the biggest, you know, drivers here. So if there is change, I think patients will find other ways to go out there and purchase cannabis. And, you know, it's interesting because Germany has a strong independent drug chains out there. There's no... You know, CVSs, there's no Walgreens. You know, individuals are allowed to own like six drugstores. They're all independent. So like I said, there is multiple stores out there. It's not online. So I see even if it did change that you can't buy it online, there's still the retail outlets to go to out there. And I would like to see some of the changes. There's lots of changes that we continuously talk about that didn't happen. And we, with our lobby groups, are out there working with the German government on what's the right thing for the patients. Because this here is important, too. The difference in medical cannabis is like medicine. If you didn't give patients access to get medicine, that's a problem. If you couldn't get your medicine and didn't have access... Patients that are sick or dependent on it, that's an issue. So, this is being sold as medicine, a medical standpoint, not from a recreational. If you don't get your cannabis from a recreational standpoint, that may not be as an issue. But you're not getting your medicine, and the government has to take that, you know, into view when they're deciding what they're going to do here.

Thank you very much. Great.

Let me just say this here. I know a lot of have joined now. Unfortunately, not us, there was a technical problem with our provider. And those that were online did not hear my comments. Sorry about that, guys. You missed some great comments and Carl's comments, okay? If you want to hear me again, say it, you can go online and listen and I encourage you to do that because there's some really good information that both Carl and I delivered today and I apologize. And the carrier, they'll hear from us and definitely disappointed. I know you heard music. So we had a lot more to say than the music. But please, it has been recorded. It is online. And you'll get every bit of it. And for some reason, there's an issue, let Barron know, and we'll make sure you get it. I'm really sorry about that. In regards to the analyst questions, I think you heard most of those. So you'll be able to get those, the analysts that were here. you know, we're able to hear Carl in our remarks, so I apologize profusely for that. With that, thank you very much for your time today. I hope some of it wasn't wasted by not hearing our comments, but now you'll have to go online and listen to it. It's only Q1 in 2026. You know, one of our smaller quarters, there's a lot to do. And as you can see, We have a lot of good things in place, and trust me, there has been times like you look at it and sort of say, you know, what the heck are we doing here? When you look at your stock price, you look at different things. But this team in over five years really have brought a lot together here in rebuilding a Canadian cannabis business basically from scratch, building facilities, building brands, building products, building different strains, genetics, new innovation and some of the new innovation that's coming out of there, building infrastructure and sales and marketing teams. And again, going through price compression, going through COVID, going through the illicit market as one of your biggest competitors out there. And I really want to commend the Canadian team and what they've been able to do. In regards to our international cannabis business, Same thing. It has come together basically with the acquisition of Tilray. And it is, you know, really a business that I see tremendous opportunities. And we now are getting requests, you know, in different countries, whether India, Middle East and places like that in regards to medical cannabis and the opportunities there. And there's a lot of countries and there are a lot of different you know, countries out there that are realizing the benefits of that and also realizing the benefits of medical cannabis versus medicines and the cost of drugs and that out there today and what the benefits will be. So I see big opportunities for us today. You know, Rajni's order has joined us as now head of Europe. and is bringing the teams together. And we've done a lot with our Canadian teams to integrate these businesses to get synergies and savings and to get a lot of the know-how. Because one of the things, cannabis is agriculture. It's growing. It yields. It's the size of the flower. It's the potency. And that is something that's important out there. And this is not an industry that's been around the illicit market for many, many years, but it's not an industry that's been around from a legalized market. It's not industries that have been around from a grow, from a research and development that's all coming together. And countries are realizing the opportunities and what they're doing, you know, not allowing their citizens and patients to be able to buy these products. The other thing they're realizing is there's tax dollars that they're missing, and the tax dollars are being sold through an illicit market. In regards to rescheduling, President Trump, with his different tweets and his different comments, I think realizes that something has to happen here in rescheduling. Last week with his tweet or two weeks ago in regards to CBD, you know, in regards to senior citizens, and I can't tell you how many people tell me and using CBD and THC products, you know, in regards to pain and anxiety and that and the benefits for it. What we're seeing today on our Delta 9 products and being sold in limited states and the demand for it, again, what Blair has seen in the Canadian market with building a $40-plus million business and today just being sold within cannabis stores and, again, at prices that are not the cheapest prices out there. So we see tremendous opportunity in the beverage business. In regards to our beverage business, It's work, you know, it's work we got to do. And again, we got into it in 2020 with the acquisition of Sweetwater, you know, acquired Montauk, acquired other brands and the businesses from ABI and then the business in Molson's. We got some great brands, but bringing it all together is a lot of work. bringing the facilities together, getting the costs out, getting the margins out, getting the right facilities. And that is something that, you know, Tilray is doing and the team is doing out of Atlanta to bring all this together. And as I said before, not an easy business today with changes happening. But we will be in the beverage business, not just the beer business. And with that, there's a lot of interesting products we're working on. In regards to our spirits business, The team is working with our distributor, RNDC, and we really put a plan in place with RNDC to be in our major markets. Yes, the bourbon category is a tougher category today than it was, but Breckenridge bourbon is a great tasting product out there, and there's great demand in certain markets. At the same time, our vodka has great demand, and our gin and some of our new products that we've come out with are really, really good products, and some of the first-time are innovation. And last but not least, you hear me talk about our wellness business, what Jared and team have done on wellness business, where we acquired this, it was a negative EBITDA, about $5, $6 million, and where it's turned around to today. And somebody that's been part of the wellness category since 1992, 1993, and see the growth. And that's all we talk about is wellness, wellness of food. In regards to, you know, the Trump administration and taking colorings out of food today, higher protein, protein, protein, protein, and some of the highest protein is in hemp foods because it's a plant that's grown. So we're in a lot of different categories. We're in a lot of unique places. You look at our balance sheet in regards to our debt to equity. It's in a great place. We ended the quarter with $260 million of cash. So there's a lot of good things happening, but there's a lot of work to do. I really want to thank our team. That really makes this happen and rolls up our sleeves. Even though there's 2,500 employees around the world here, not a lot for a lot we've got to get done. So with that, I want to thank everybody for listening. Please go back and re-listen to our comments. There's a lot of good comments that came out of today. Thank you to our shareholders for your support. And get out there and vote as we have our AGM coming up. With that, have a great Thursday and look forward to speaking to you in the new year with our Q2 results. Thank you.

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