Tilray Brands, Inc.

Thank you for joining today's conference call to discuss Tilray's brand's financial results for the second quarter fiscal year 2026, ended November 30th, 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 to conduct via audio. Now I'll turn over the call to Mrs. Baran Narada, Tilray Brand's Chief Corporate Affairs and Communications Officer. Thank you. You may begin.

Thank you, Operator, and good afternoon, everyone. By now, you should have access to the earnings press release, which is available on the Investors section of the Tilray Brands website at tilray.com and has been filed with the SEC and CDAR. Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements. Today, we will be hearing from key members of our senior leadership team, beginning with Erwin Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary, followed by Carl Merton, Chief Financial Officer, who will review our financial results for the second 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 very much, Barron, and good afternoon, everyone, and Happy New Year. Thank you so much for joining us today. We delivered a strong second quarter marked by record results and a beat against analyst expectations in the face of strong headwinds. We recorded our highest ever Q2 net revenue of $218 million, achieving an adjusted EBITDA of $8.4 million, and a reported reverse stock split adjusted EPS loss of $0.02 million. all while generating an adjusted cash operating income of six million dollars more importantly the quality of our performance continues to improve highlights this quarter include a 51 percent sequential growth in the international cannabis revenue and a meaningful year-over-year improvement in both net income and free cash flow We also continue to strengthen our balance sheet. We ended the quarter with approximately $292 million in cash and marketable securities and reduced our debt by approximately $4 million during Q2, leading to a strong net cash position, exceeding our debt by almost $30 million. In a rapidly evolving global cannabis regulatory environment, particularly in the U.S., our liquidity and balance sheet strength remains a clear strategic advantage. Today, Tilray operates more than 40 brands in more than 20 countries. We are a global leader in cannabis, trusted by patients, healthcare professionals, and regulators worldwide. We are the number one cannabis producer in Canada by revenue, the fourth largest craft beer brewer in the United States, and a market leader in branded hemp wellness products across North America, where our high-protein hemp food portfolio holds nearly a 60% market share. Our Q2 results reinforces the momentum we discussed last quarter in proving fundamentals increasing leverage from our diversified global platform across cannabis, beverage, and wellness. Let's turn... for its next phase of growth. While global cannabis markets continue to evolve, we believe the industry remains early in its long-term development cycle. The decision by President Trump to federally reschedule cannabis in the U.S. represents one of the most consequential regulatory shifts that industry has seen in decades. Thank you, President Trump, if you're listening today. This is a moment Tilray has been preparing for methodically for years. And guess what? We are ready to go. We believe that cannabis rescheduling to a Schedule III will lead the U.S. towards a federally compliant medical cannabis framework. Consistent with our other developed international markets, Tilray is positioned to act immediately. We already have the platform, regulatory experience, operating capabilities, and leadership team in place with Tilray Medical U.S. to execute responsibly and to scale. Globally, Tilray Medical is expected to generate approximately $150 million in revenue on an annual run rate. We offer over 200 medical cannabis products serving more than 500,000 registered patients worldwide. We have participated in more than 25 medical cannabis studies and clinical trials conducted in the U.S., Canada, Australia, Argentina, and across Europe with leading hospitals, physicians addressing conditions such as pediatric epilepsy. cancer-related nausea, PTSD, chronic pain, anxiety, essential tremors, alcohol use disorders, glioblastomas, cannabinoid impairment, and driving performance. These initiatives reinforce Tilray's reputation as a science-driven, evidence-based medical cannabis company. and they underscore the trust placed in us by healthcare professionals, patients, and regulators globally. We also possess one of the largest banks of cannabis genetics, which we intend to study in order to support research on the endocannabinoid system and advanced medical cannabis science further. Now let's turn to Q2 cannabis performance. Global cannabis revenue increased to $68 million. Our high-margin international cannabis business led to growth increasing 36% year-over-year and 51% substantially to $20 million, marking one of our strongest international quarters to date. And we fully expect this momentum to continue as we expand our global footprint. This performance is particularly notable given ongoing permit challenges, regulatory transitions in Portugal and Germany, and continued price compression, especially in flour. I'd like to acknowledge and thank the international team for their focused execution under these circumstances. I also want to recognize our Canadian cannabis team. for their expertise, support, and supply contribution. Additionally, I appreciate the cooperation of Inframed and the Portuguese regulators in facilitating improvements to permitting approval timelines. Looking ahead, Europe, particularly Germany, the UK, and Poland, represents a significant growth opportunity for us. disciplines, including process improvement, automation, cross-functional coordination, and increased utilization at our cultivation facilities in Portugal and Germany and utilizing our Canadian facilities. Tilray operates one of the largest cannabis footprints in Europe, which we're continuing to expand and our advantage lies in scale, speed, to market data, driven decisions, making, and experience gained from our Canadian operation. Moving on to Tilray Pharma and our distribution business, as discussed last quarter, we're expanding our pharmacy reach in Germany, utilizing Tilray Pharma's expansive pharmacy network and salespeople, and expect to triple our medical cannabis distribution footprint in fiscal 2026. We remain on track. In terms of Q2 performance, revenue grew by 26% year-over-year and 15% sequentially to $85 million, making it our biggest quarter ever, while improving our gross margins. The increase in distribution revenue in the period was driven by competitive pricing, portfolio optimization, and increased focus on medical device sales. Looking ahead, Tilray Pharma is laser focused on enhancing operational efficiency to support its commercial expansion into 3,000 additional pharmacies through strategic partnerships. As medical cannabis continues to expand globally, Tilray Pharma is positioned to play a significant role in our overall growth. By utilizing insights gained through integrating our medical operations, Tilray Pharma aims to strengthen its business value and create new growth opportunities within both the European medical market and the U.S. International markets remain one of Tilray's most compelling long-term growth drivers. As we expect, market opportunities, revenue, profitability continue to grow. In Canada, our cannabis business continues to reinforce its leadership position. During Q2, our adult use medical sales channel net of excise tax grew to $46 million, with recreational cannabis growing 6% in the quarter. Tilray continues to hold a leading market position in dried flour, non-infused pre-rolls, beverages, oils, and chocolate edibles. Our disciplined approach to product mix, margin management, and premium pricing has supported our strategic reentry into the high-growth segments as baked and infused pre-rolls with a focus on accretive margins. In Q2, we advanced our innovation pipeline with the launch of Redican Amp Live Resin Liquid Diamond Vapes, addressing consumers' demand for the full spectrum of cannabinoid strain-specific terpenes that deliver an authentic plant profile. This product combines 80% of live resin with 20% of liquid diamonds, maximizing potency while maintaining natural flavor integrity. In addition, we entered the Quebec market with vapes with a good supply brand, rapidly achieving a top three skew position in the province while underscoring effective execution and strong consumer uptake. Operationally, we hit our highest quarterly volume in two years with over 5.5 million units shipped in Canada in Q2. We also completed our first harvest from a restarted outdoor cannabis grow in Cayuga, Ontario, exceeding expectations on the THC content. With this extra biomass, our cannabis cultivation capacity rises to 200 metric tons annually. This boost not only allows us to provide high-quality products at reduced cost and improve our profit margin, but also helps us expand into fast-growing markets, supplying both Canadian and international customers, including those in Europe, to meet increasing global demand. The positive momentum of the past two quarters reflect the trajectory of Canadian cannabis business. With the right product mix, healthy margins were well positioned to elevate this business in the second half of 2026 and beyond. With rescheduling of cannabis in the U.S., now is the time for Canada to modernize its regulation and secure its position as a global cannabis leader, including excise tax reform, marketing flexibility, healthcare integration, and on-premise consumption. Without modernization, Canada risks becoming an exporter of raw products while value creation, intellectual property, and long-term economic growth moves elsewhere. As a global policy accelerates, the choice is clear. Modernize Canada's cannabis regulation to support economic competitiveness, consumer education, sustainable growth, or risk being left behind in an industry Canada helped to create. Prime Minister Carney, I hope you're listening to this call. The Canadian cannabis industry has generated a significant amount of jobs, contributed billions of dollars in tax revenue to both federal and provincial governments. However, the lack of regulatory reform has resulted in Canadian producers redirecting their investments and attention towards international markets where excise tax can be circumvented. Given the declining spirits industry in Canada, excise tax should be reduced. Cannabis drinks should be permitted in liquor stores and on-premise locations. Medical cannabis sales in drugstores would lower excise tax burden while boosting overall tax revenues as the industry grows. Turning to our beverage business in Q2, beverage revenue totaled $50 million. We continue to make progress, executing our integration and optimization strategy. We delivered $27 million in annualized cost savings in the first half of the year and remain on track towards our $33 million target. We're making meaningful progress in improving performance. However, there's more to be done as we continue to integrate our brands, streamline operations, and optimize processes. We acquire brands with the understanding that significant improvements and comprehensive turnaround would be necessary, a process that is currently underway through our integration plan. We recognize this transformation will take time. And while we have not achieved all our objectives, We are on track and encouraged by the positive momentum gained so far. We look forward to the up-and-coming spring product resets with our retail partners and the introduction of some of the new innovations in the market. These changes are anticipated to have a positive impact on revenue in the fourth quarter. Our outlook may seem bullish, but conviction is essential for success. which remains our primary focus, revitalizing the craft beer category, making beer fun again, bringing people together, fostering meaningful connections, and generating long-term value for our shareholders. We've established brands, breweries, a major distribution system. Beer is here to stay and not going anywhere. Tilray aims to expand its regional, national, and global presence through strategic partnerships with leading US and international brands. We expect to share more about this in the future, but we believe these partnerships validate the strength of our platform and our strategic vision. This approach also positions us for future opportunities should cannabis THC drinks become federally legal in the U.S. We're ready to produce and sell as we're currently operating a leading THC beverage operation across Canada with over 45% of the THC beverage market share. Regarding our U.S. hemp-derived THC business, we continue to offer Fizzy Jane happy flower hemp-derived THC beverages in 5 mg and 10 mg formats through nationwide retailer partnership. Distribution includes major wine, liquor, grocery outlets across the country. While regulatory changes may affect HDD9 products after 2026, we anticipate compliant participation under new federal laws if it happens. We're also pursuing international growth by expanding our beverage business into new markets worldwide. We expect to leverage our future strategic partnerships. Our strategy for beverage abroad is evolving with an emphasis on craft beer and non-alcoholic drinks, including energy beverages that meet the demands of consumers in this expanding sector where brands such as Highball, our clean energy drink, Liquid Love, our sparkling water brand. Highball is set to launch in the UK in Q4, with expansion plans also underway for the Middle East and Africa. Beyond non-alcoholic beverages and energy drinks, we continue to explore opportunities to build on our global craft beer segment. Tilray recently participated in the American Craft Beer Expo in Japan and gained valuable insight, which the team will pursue in the future. Rounding out our beverage strategy, we're also focused on expanding our non-alcoholic beverages in the U.S. and across international markets. Our recent innovations, including non-alcoholic beers under Montauk 10-barrel and our non-alcoholic ready-to-drink canned beverages and distilled spirits, including Mach 1. Within the spirits category, despite market challenges in Q2, we focus on enhancing our commercial strategy, resulting in a 9.2% increase in depletions across vodka, bourbon, and gin, with vodka leading by double digit for the quarter. While the Bronco seasonal release sold out rapidly, our ongoing efforts remain focused on expanding product distribution to additional states and beyond. With five years experience in the beverage alcohol industry, we remain confident in our future trajectory as we continue to enhance operational efficiency. Now turning to our wellness business, we generate a revenue of $14.6 million driven by a strategic focus on value-added innovation, including high-protein super seeds, better-for-you breakfast products, better-for-you snacking, and the continued success of our highball clean energy drinks. Within our ingredient sales business, we've expanded our range of offerings in hemp protein, hemp oil, helping us further develop our business in North America and Asia. Our hemp food business remains fully insulated from proposed hemp THC regulation as these products contain zero THC and are broadly distributed across mainstream retail. In closing, we are confident in Tilray's trajectory for the second half of fiscal 2026 and beyond. With a diversified, scalable platform, improving fundamentals, strong liquidity, regulatory tailwinds developing globally, Tilray is well positioned to capitalize on the next phase of growth across cannabis, beverage, and wellness products. Thank you to our shareholders for your continued support and confidence in Tilray's long-term strategy. I will now turn the call over to Carl to walk through our financial results in more detail. Carl, are you ready?

Thank you, Erwin. Before I begin, 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. This quarter, we are reporting record second quarter net revenue and strong year-over-year improvements in profitability, and we are reaffirming our full-year 2026 adjusted EBITDA guidance. Net revenue for the quarter was a record $217.5 million. Revenue growth was primarily driven by strong results in our international operations, both international cannabis and Tilray Pharma. Additionally, Canadian adult use revenue grew year-over-year. Cannabis net revenue increased year-over-year to $67.5 million during the quarter, driven by a strong 36% increase in revenue from international cannabis and a 6% increase in Canadian adult use cannabis. The continued year-over-year growth in our international cannabis business reinforces our view that Q1 results were temporarily affected by the timing of import and export permits. As a result, Q4 2025 and Q2 of this year provide a more accurate reflection of our ongoing performance expectations for the duration of the fiscal year. With the continued growth of international cannabis, we deliberately chose to scale back supply into the Canadian wholesale market in the quarter and redeploy that supply along with new growth into the higher margin international cannabis markets over the remainder of the year. Beverage net revenue for the quarter was $50.1 million. Beverage revenue was impacted by category-wide headwinds in the craft beer segment and our own portfolio optimization efforts under Project 420, where skew rationalization and margin-focused initiatives continued to impact revenue. However, we expect spring retailer product resets to help mitigate industry trends. These upcoming changes should improve brand visibility and align product mix with consumer preferences, which we expect to benefit beverage revenue and gross margins in the fourth fiscal quarter. Wellness net revenue was flat year-over-year at $14.6 million, based on our strategic focus on value-added innovation and continued growth in highball and the ingredient channel. Results were offset by challenges in the club retail channel, which we are addressing through targeted initiatives. Distribution net revenue increased 26% year-over-year to $85.3 million based on our focus on competitive pricing, the prioritization of high-margin SKUs, and favorable impacts from foreign exchange. We believe our distribution business will continue to complement and strengthen our international cannabis segment as we grow both in tandem. In terms of contribution, cannabis revenue accounted for 31% of revenue, beverage revenue was 23%, distribution was 39%, and wellness accounted for the final 7%. Gross profit during the quarter was $57.5 million. and gross margin for the quarter was 26%. While margins increased in cannabis, distribution, and wellness, margin constriction in the beverage segment negatively impacted the gross margin for the quarter. By segment, beverage gross margin reached 31% this quarter. While this represents a temporary decrease from last year, we are confident that the ongoing implementation of Project 420 will deliver significant improvements while also actively working on additional cost savings to improve overhead utilizations as well as SG&A. As these initiatives progress and sales volumes recover, we anticipate stronger overhead utilization and a return to higher margins. Importantly, we remain on track to achieve $33 million in annualized cost savings from Project 420 by the fourth quarter of 2026, positioning our beverage segment for long-term success. Cannabis gross margin increased to 39% compared to 35% last year. The increase was due to a greater proportion of sales being generated in the higher margin international markets. but was offset by increased sales in lower margin price competitive categories in the Canadian adult use market like vapes and pre-rolls. Distribution gross margin increased to 13% up from 12% last year while continuing to grow top line revenue. In wellness, gross margin rose to 32% from 31% as we successfully managed input costs and enhanced operational efficiencies. Our adjusted cash operating income for the quarter was positive $6 million, which excludes the non-cash impacts of amortization and stock-based compensation. Net loss for the quarter was $43.5 million, a 49% improvement year over year compared to $85.3 million, or $0.41 per share compared to $0.99 per share. It should be noted that EPS was impacted tenfold by the reverse stock split and has been reflected in both periods. Adjusted EBITDA for the quarter was $8.4 million compared to $9 million last year. Cash flow used in operations was down to $8.5 million compared to $40.7 million last year. The $32.2 million improvement in cash used in operations was almost entirely related to reductions in working capital. We ended the quarter with cash and cash equivalents and marketable securities of $291.6 million, $0.8 million in digital assets, and improved from a net debt position of approximately $4 million in the prior quarter to a net cash position of almost $30 million at the end of the period. Additionally, during the quarter, we also completed our ATM program in the market. Our strong cash position provides us with the flexibility we need to execute on strategic opportunities and take advantage of the changing regulatory landscape, and we intend to work to further strengthen our balance sheet throughout the remainder of the year. Finally, we remain confident in our business, our strategy, and our opportunity, and we are reaffirming our 2026 adjusted EBITDA guidance of $62 to $72 million.

We can now open the call for Q&A.

Thank you. We will now be conducting a question and answer session. If you would 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 would 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.

One moment, please, while we poll for questions. Thank you.

The first question comes from the line of Bill Kirk with Roth Capital Partners. Please proceed.

Hey, good afternoon, everybody. On the intoxicating hemp bans for November implementation, is there anything, Erwin, that the industry can do to try to help improve the regulatory outcome? Is there any way to kind of extend the grace period, reverse the ban, carve out particular categories? Like, what can you do or what can the industry do to get a better outcome there?

Good afternoon and thank you, Bill. Great question. As you know, this for us was a growing business and there is a lot of demand for these products. And we are working with some congressmen, senators, lobbyists to either extend the deadline or to change some of the regulatory that would have a regulated amount of milligrams, whether it's 5 or 10 milligrams, and to be sold on a national basis. And I tell you, so far I have a really good feeling because we're talking to the different associations. Other than Senator McConnell and whoever backed him, there's no one out here against this and thinks this is something that should be banned.

Thank you.

And then the other thing, Bill, just the other thing, I mean, there's a lot of jobs that will be lost if this happens, which is something very important too.

Yeah, for sure. Carl, you had some comments about holding back supply and shifting it into international markets. Am I hearing that right, that that would mean sales that could have been in this quarter simply come later? And is there a way to quantify how much was held back?

So what I said was that we held back from the Canadian wholesale market. at lower pricing than what we did in the prior year. And so last year we did about $5 million. We obviously have the inventory levels that we have that are on the balance sheet that we can redeploy into European markets over the next six months of this year.

So it's just redeploying better margin sales, Bill, where we can sell it into Europe. and get much higher margin for it than selling it into the wholesale market where we don't get the margins, and in some cases, we're even selling to competitors. So that's what it is.

Okay. That makes sense to me. Thank you. I'll jump back in the queue. Thank you.

Thank you. Our next question comes from the line of Robert Mosko with TD Securities. Please proceed.

Hi, this is Victor Ma on for Rob Moscow. Thank you for the questions. Two for me, please. First, I wanted to ask about Canadian adult use cannabis. Growth in the quarter was about 6%. How much of that was volume growth versus price mix? Did you gain market share in the quarter? And then second, can you give a little more color on what drove the substantial increase in distribution sales? Was there any timing benefit that was realized in the quarter? Thank you.

So number one, absolutely there was not price. Some of it came from new distribution. If anything, there was a strike in British Columbia that ultimately hurt us. And we did gain a little bit of share, not a lot in the quarter. So it's demand. I think there's a lot we did in different markets. A lot of our new products started to roll out. And so that was the big reason from, you know, our growth, having supply. And I think just, you know, the team, you know, has done a great job. This is the highest quarter in us in selling of units, 5.5 million units that we sold in the quarter. So, again, if anything, you know, throughout the rest of the Prior years, we saw lots of price compression. I think the good news is we're not seeing that price compression right now, but we're seeing demand continuously grow, and we're seeing all the Tilray different brands growing in the marketplace. And again, what I'm talking about is all our products. It's our flowers, our pre-rolls, our edibles, our vapes, our infused vapes, and our drinks. Oh, sorry. In regards to CC Pharma, listen, I think, you know, CC Pharma has been part of Tilray, you know, since 2019. And trying to figure out what is the right position is one of our largest businesses. And the European team, and with the growth and the opportunities in Germany, have realized a couple of things. Number one, they're selling into pharmacies today. We're using the CC Pharma team to sell cannabis also into the pharmacy and also to deliver. The other thing is here, we're able from our buying power and get better margins and demand for regular medicines. And we're seeing some great growth. It's the biggest quarter we've ever had with CC Pharma and some of the most profitable quarters we've ever had. So we're looking at how we really take this business for online. We're looking at how we're going to expand this business and take this model into other countries. And again, it's how we utilize the sales organization of CC Pharma or now named Tilray Pharma and using that organization to sell more and more cannabis into the drugstores that it sells into.

Got it. Thank you. Thank you.

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

Good evening. Thank you for the questions. First one for me. You mentioned the expectation for Tilray Global Medical to approach 150 million, I believe. So just any color you could provide maybe on the timing of that expectation. And then you also mentioned some commentary briefly regarding potential regulatory changes in Germany as well as pricing pressure. So could you help to maybe quantify how big a risk you're seeing from each of those potentially for 2026? Thanks.

So in regards to, listen, I think from an annualized basis right now, we're on a run rate for that $150 million, and that is both Canada and international markets. And the majority of that is coming from international markets. um in regards to you know regulatory change um not seeing and not concerned with regulatory changes in europe and germany and i think if anything um you know we like what has ultimately committed the german government and in regards to you know demand um we see more and more demand as far as price compression and you heard what i said before And this is where Canada better watch out. You look at a lot of the Canadian LPs, there's a lot more than Canadian LPs. There's Israeli companies. There's a lot more companies selling product today into Germany. But Tilray has been in Germany since 2019, 2020 with Tilray Medical. We are the only one or one of the only ones with a growth facility there. And we work very, very closely with the doctors in Germany. You heard what I said before about having Tilray Pharma, where we are vertically integrated from our grow with our salespeople and have our own distribution piece there. So yes, a lot of product coming into Germany, which forces price compression, but what they're going to realize is the quality of product. You get what you're paid for, and I think that's what's important is they recognize that the Tilray medical products stand for quality.

I appreciate that. Second question for me, just turning back to the Canadian market, we had some commentary. More broadly, I just wanted to get some color in terms of what are your expectations for growth within the Canadian market? Looks like we finished about mid-single-digit growth for 2025. So what's your expectation now for 2026? You talked about some of the strong volumes there, but it does seem like volume growth has tempered a bit despite pricing pressure stabilizing for the Canadian market. So I wanted to hear more about your expectations for growth in the Canadian market, and if a slowdown in growth also led to your decision to shift some of that product international. Thanks.

Well, first of all, it didn't slow down in growth. I had a 6% growth, and I had the highest quarter ever in selling units, okay? You know, I think one of the things we're looking, continuously looking at is how we grow this to more and more profitable business. And we can sell tons of wholesale product, you know, that's considered growth, but we're not going to do that. But what we're looking continuously at is how we're coming out with added value products and premium products. And today we have a 50% share on our drinks, which continuously is growing in the demand in that marketplace. We also have the highest share of flour in the marketplace. We sell over 80 million pre-rolls. We sort of backed away from the vape category because of the margins, and we're not making money on it. So I see the categories from us. If I get mid to high single-digit growth, I'll be very, very happy in the Canadian market. Now, with that, I got to tell you, Blair's on the phone, and he can jump in here any time. I have seen some of the best lineup of new products coming out that this company has ever had. And I think that's going to help. New products are key. The other thing is, listen, Porter and that British Columbia had a strike. And I think if other Canadian LPs decide they want to sell product in Europe is just going to be supplied. Tilray today has close to 7 million square feet of grow in Canada and has the ability to grow 270 metric tons. I think the number in the border is we grow close to 200 metric tons. So we have plenty of supply. And not only that is we have supply and ample product available to ship internationally. which is we're not paying excise tax in much higher margins for. So the opportunities are there for us. Canada is a small country, but it's a country where cannabis is legal from a recreational, from a federal standpoint, is the only country in the world. And there's more and more users are seeing the benefit of buying cannabis by going into federally legal cannabis stores.

That's helpful color. Thanks for that, Erwin. I'll jump back in the queue.

Thank you.

Thank you. Our next question comes from the line of Pablo Zuanek with Zuanek and Associates. Please proceed.

Thank you, and good afternoon, everyone. Look, let me start with CC Pharma. Maybe you can give more color on that business. I think in the past you said that you reached 13,000 pharmacists. Now you're talking about tripling your distribution reach. I'm trying to understand that better. And also, you know, if the new regulations in Germany stop delivery, your CC Pharma reach could be a big asset in terms of pharmacy reach. Would you be willing to also sell other people's products besides Tilray brand through CC Pharma? Thanks.

So number one, as I said, we've owned CC Pharma since 2019, Pablo, and it was finding the right way to operate this business. And originally, we acquired it as part of tenders for Germany. And we've been a part of the German drugstore business in Germany since then. We have now changed a lot within CC Pharma where we've ultimately modernized. We've put money into technology there. We've taken labor costs out of there. We've been able to, you know, buy medicines and regular medicines from, you know, some of the pharmaceutical companies at much better prices and made some big investments. And I'll tell you, you know, That is a big is we're out there buying medicines and making sure we're buying them at the right price and selling them at less higher margins. So we have focused on that business. But back to your point is today we have the ability to go into more and more pharmacies. The CC Pharma or Tilray Pharma has its own sales organization. And you don't see today cannabis, medical cannabis sales go through CC Farm. They go through our medical cannabis business internationally. So there is a big focus to use that sales organization to sell more and more cannabis, medical cannabis in Canada. Germany. And with that, with the regulations and everybody has to go direct to a pharmacy and can't buy online, there's, you know, bigger opportunities for us because more, you know, patients have to visit the pharmacy. You know, the second question is, would I sell other, you know, companies' products? You know, great question. We're in the business to sell and make profit. But again, Why would we want to sell someone else's products if we can deliver what the needs are for patients? But again, some patients may want some other competitors' products, and it's something we should look at. From a standpoint, does it make sense for us to carry some other products? I don't know, and that's not something we've looked at, but it's something we definitely should look at.

Okay, thank you. And then just to follow up in terms of beverages, obviously this quarter you had very strong performance in cannabis, but a steep decline in sales in beer and profit margins. Maybe just give more color in terms of what is it that has not worked there. You talked about positive momentum, but the numbers don't show that momentum. And why put so much hope on just the spring recess? I mean, is it just about that? I mean, more color would help. And then just long-term, a reminder about your confidence that the beer business really fits your cannabis strategy longer term, or they just play together and we should think of them as a diversified portfolio anyway. Thanks.

So number one, there's many, many companies out there that have diversified business portfolios. And if you look at most companies, some have food, some have personal care, some have beverages. You know, you look at Pepsi, they have snacks, they have food, they have drinks. You look at other companies, you know, they have personal care, they have food. So I think it's important to be a diversified business. consumer packaged goods company, which we are, and we're Tilray Brands. I come back and look at, you know, we got in the beer business in late 2020, COVID came along, you know, where our first acquisition was Sweetwater and then, you know, multiple acquisitions. It's taken us time to integrate these businesses. We went from only one plant to 10 plants. Now we're down to eight. We went from only one brand to 18 brands. We went from probably being the 10th or 11th largest craft brewer now down to the fourth largest craft brewer. So there's a lot that's happened over the last four to five years. And with that, there's been a lot of integrations. And these brands that we bought from ABI and from Molson's, they were not some of the best performing brands at the time. And it took some time to turn them around. So, yes, I have a lot of confidence. Listen, beer is not going away. Beverages is not going away. And just like CC Pharma, here we are from a vertical integrated business. We have manufacturing, we have brands, we have a distribution, we have an infrastructure salespeople. And it is taking probably some more time. And the other thing is at the same time, you know, the industry has had its decline, but I'll tell you what, as you come back and seeing a lot, you know, potentially will happen in regards to Delta nine and hemp infused drinks. And who are they looking at to be the leader in that is Tilray because of our beverage business and our cannabis business. I say this and I'm not making projections, but if I could sell cannabis infused drinks, in the U.S. tomorrow. If I, you know, look what I have a 50% share in Canada, and I multiply that, you know, from a 10 times what I would have here, it's a half a billion dollar business for us here. And someday we're going to be able to sell drinks in the U.S. infused with something. And whether it's CBD and cannabis in regards to, you know, President Trump new rescheduling in regards to drinks that will get approved by the FDA for, you know, whether it's for anxiety, for pain, for sleep, etc. So the infrastructure is there for future opportunities, which is important. But to the point, we're in the beverage business today. We're in the beer business. We're in the energy drink business. We're in the water business. We're in vodka seltzer business. And I'll tell you what, the other thing is here. There's a lot of companies talking to us to get us involved with different aspects of beverages because of what we have and how we're vertically integrated. So yes, am I totally doing a dance with our results today? Coming out of there? No. But do I feel good about what we will do with this business? and what we'll do with these brands absolutely and what our strategy is unfortunately it just has taken a little more time and if you go back and look at the big companies molson's abi you know constellation brands they weren't created within five years and it's you know basically five years and we're number four within the craft beer business a lot of business a lot of brands have gone away in the craft beer business which gives more and more opportunities. So I am real bullish on the beverage business. And if you look in the supermarkets today and you look, you know, elsewhere, beverage is the biggest category out there. And I think probably the big thing, we are not just depending upon the resets that are happening in the next two months. Gaining share in C stores. Gaining share on premise. Gaining share in general. And that's what I'm, you know, excited about.

That's great, Carter. Thank you. Look, if I may, I'm going to squeeze one more, if you don't mind. But just a short answer. In your press release, you talk about U.S. federally rescheduling cannabis. But I think my understanding and most people's understanding would be that if they reschedule cannabis, It will still be a state-by-state program. It will not be federally rescheduled. But I guess your interpretation that it will be federally rescheduled. And I think that's a big distinction. Did you want to just share some color on that? But just briefly. Thank you.

You know, our plan is what I've said. If we reschedule, what we're focused on, and I think a lot of other companies are focused on recreation, we are focused on medical cannabis. And our plan is to leverage the infrastructure and expertise and know how that we've developed that we got $150 million business in Tilray today. And, you know, with that, our $300 million distribution platform is something that we utilize in Europe. And how do we ultimately do that here? And again, engage, you know, with the outreach of the government, with the FDA, and with our working with hospitals, working with research, doing clinical studies. And that's what we're looking to do there in regards to our U.S. entry into Tilray U.S., not looking at it today of how we do state by state from a recreational standpoint. And ultimately, what are we going to do? And we have so much research in pain, anxiety, you know, cancer-related drugs, cancer anti-vomiting drugs, PTSD. And taking that science and taking those and taking our genetics and strains and working with hospitals and potentially strategically aligning with a pharma company to execute that within the U.S.

is what we're looking to do. Thank you. Thank you.

Thank you. Our last question comes from the mind of Federico Gomez with ATV Capital Markets. Please proceed.

Hi, thanks for taking my questions. Just the first question, just go back to the risk scheduling comment there, you know, with potential risk scheduling in the U.S. I'm just curious, does that change the way you see Potential investments in the state legal cannabis businesses like you've done in the past with Mad Men?

It does in anything with the state. But again, as I said, Tilray is committed to invest in research. Tilray is committed to invest in clinicals. to working with the FDA, the DEA, is coming up with approved cannabis drugs that can be used and sold for some of the conditions that I mentioned before. But it's not, you know, state by state where we're looking at recreational. We are totally looking at this from a total medical standpoint.

Got it. Thank you. And then just a second question, international cannabis, could you help us understand outside of Germany, what are the main international markets you have right now? And do you anticipate any other international market where we could see some sort of regulatory change near term this year that could lead to growth like we saw in Germany since April 2024?

So listen, there's Poland, there's today Italy, markets, there's the UK markets. You know, we're looking at oils for France and Spain. And I will tell you this here, without going into names and countries, there's a lot of stuff happening in the Middle East. in regards to working with CBD and THC from a Middle East standpoint. There's some stuff and testing going on in India in regards to hemp and hemp infused THC products. So again, and I will say this here, and that's why I thank President Trump from a rescheduling standpoint. rescheduling cannabis from a schedule one to a schedule three has opened up the eyes and the legality of a lot of other countries here. And I think that's what was important too. Once the U S did it, there's a lot of other countries now are saying this stuff is not taboo. It's something that's really benefit. It can be really helpful in a lot of different diseases and can be very helpful as a medicine.

Thank you very much. Thank you.

Thank you. I'd like to pass the call back over to management for any closing remarks.

Thank you very much, operator, and thank you very much for everybody joining us today. As you can see, there's a lot happening at Tilray. And as a diversified consumer packaged goods company, that today sells products into the recreational cannabis market in Canada, sells medical cannabis in Canada, sells drinks in Canada, sells beverages in the US, spirits and our hemp infused, our hemp foods, our wellness products, and then our international products with, our international medical products and our Tilray Pharma. So there's a lot within Tilray today. There's a lot of science. There's a lot of research. There's a lot of genetics that we're doing. And as a five-, six-year-old company today that's really pulling this all together, and there's no one out there today that is diversified like us, one of our strengths is our balance sheet. it's you know we're in a net cash position so we're able to invest in research we're able to invest in trials we're able to invest in clinicals today so you can't look at us today as a recreational cannabis company you can't look at us as just a beer cup and you got to look at us today as a consumer company that looks at products and looks at different ways to help bring consumers together help bring people together and that is some of the stuff we're doing at the end of the day as you can see what we've done this quarter in regards to our profitability for our shareholders and again you know it's been five years and putting this together piece by piece and there's a lot to do the question asked by Pablo in regards to our beverage business yes there's a lot to do in the acquisitions that we've done And one of the proofs is here. Look at the acquisitions we've done on cannabis as we put these cannabis facilities and brands together, took out costs, integrated the businesses, and we're seeing the performance of that today. It's no different. We've really only got into the international cannabis business over the last year or so, and that's on the run rate to be a $100 million business. So there's a lot to do within Tilray. There's a lot of great assets within Tilray, whether it's facilities, whether it's brands, whether it's distribution, whether it's know-how. And there's a lot of AI coming into Tilray today to help us implement a lot of what's happening. I appreciate those that have stayed with us as shareholders. I know there's times you're frustrated and there's times probably I'm frustrated more than you are. But I do see a good path with a lot that's happening coming together. I got to tell you. We deal with a tough regulatory environment out there. We pay some of the highest excise tax in Canada, and I hope Prime Minister Carney heard me, how important this industry is for the Canadian market, the jobs it created, the tax dollars, and we don't want to see this run away from Canada. I commend President Trump. for rescheduling. He was the first president that really took this on. Everybody else sort of ran away from it. And it's up to us now to show what this really can do. So thank you very much for getting on our call today, and Happy New Year to everybody.

This concludes today's teleconference.

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