Tilray Brands, Inc.

Thank you for joining today's conference call to discuss Tilray Brand's financial results for the third quarter of fiscal year 2026, ended February 28, 2026. 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. Baron Norada, Tilray Brand's Chief Communications and Corporate Affairs Officer. Thank you. You may now begin.

Thank you, Operator, and good morning, everyone. By now, you should have access to the earnings press release, which is available on the investor section of the Tilray Brands website at tilray.com and has been filed with the SEC and OFC. 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 these 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 Martin, Chief Financial Officer, who will review our financial results for the third 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. It's been an exciting year at Tilray Brands. We delivered a record quarter with continued international expansion across our platforms. I also want to briefly highlight our BrewDog acquisition. When you have good news, you go to the tallest building and scream it. And don't wait. This transaction positioned Tilray at approximately $1.2 billion global revenue company on an annualized basis and meaningfully strengthens our long-term growth profile. I've done over 100 acquisitions in my life, and I've never received more calls, congratulations, and a brand with more awareness on a global basis, which helps Tilray to be at the forefront around the world. Since 2019, we have transformed the company from a Canadian cannabis business with approximately $50 million in revenue to a global lifestyle consumer products company approaching over $1 billion in revenue on an annualized basis, providing the strength and effectiveness of our strategy and our execution going forward. We are building a diversified global platform, grounded in a long-term vision of bringing people together through meaningful connection. With a strong team and clear priorities, we remain confident in our path forward. Today, Tilray leads its global platform as the number one cannabis company in Canada by revenue, the fourth largest craft brewer in the U.S., a global leader in medical cannabis, and a wellness leader in North America. And now with BrewDog, the number one craft brewer in the UK. Transforming this business has not been easy. We operate in highly regulated environments globally, face cannabis regulatory reform in the US, and navigate constraints across international markets. At the same time, we strengthen our global brand portfolio, scale and optimize our cultivation capabilities and our brewing capabilities, built a half a billion dollar beverage platform within a long established category and established a meaningful wellness strategy. This level of progress reflects both the pace of our execution and the strength of our strategic foundation and the teams that we have in place. Yes, there have been challenges along the way, particularly with integration, and there will continue to be challenges. This takes time, but today we see the pieces coming together, the way that few businesses can replicate, and we're building something truly differentiated. And our Q3 results reflect this. In the third quarter, and consecutively from Q2 to Q3, we delivered record results with net revenue reaching $207 million. reflecting 11% organic growth year over year and gross profit increasing to 55 million, up 6% from the prior year. Despite ongoing industry and macroeconomic headwinds, we also obtained a strong financial position ending the quarter with $265 million in cash, restricted cash, and marketable securities, and approximately $3.5 million in net cash, providing the flexibility to invest in growth while maintaining financial discipline. Our Q3 results reinforce the momentum we outlined last quarter, improving fundamentals, sharper execution, and increasing leverage from our diversified global platform. Turning first to our cannabis business, we delivered strong results this quarter across our global platform with continuous momentum in both Canada and our international markets. As the regulatory environment evolves, particularly in the U.S., we're well positioned with scaled infrastructure and experience to expand this business globally. We've built this platform deliberately and we're ready to execute as opportunities develop. Q3 was the largest quarter ever for international cannabis growth. We generated 24.1 million in net sales with 73% year-over-year growth and 20% substantial growth. This was driven by exceptional sales volume growth. Medical cannabis flower volume was up 100% year over year, and medical cannabis oil volume was up 90% year over year. Tilray holds top position by a significant margin in the medical cannabis oil category across leading international medical markets, while we leverage our expertise and reputation in the doctor-led distribution channels. Germany, our largest international market, grew 43% year-over-year, an important achievement for our international team as they continue to navigate evolving regulatory framework and significant price compression across global markets. Notably, we overcame $7 million in price pressure that flows directly to the bottom line. Turning to our medical distribution business in Europe, I'm extremely proud to say that CC Pharma was recognized as one of the top 100 innovators, leaders, and trusted partners in the European pharmaceutical market. Congratulations to the team on a great accomplishment for continuously driving our business forward. Our Tilray Pharma business grew 35% year over year to $83 million, making it our highest ever third quarters for sales and profitability. The increase in distribution revenue in the period was driven by portfolio optimization, mixed positive market trends, and increased medical device sales. Our recently announced partnership with Alliance Healthcare further strengthens our leadership in Germany, expanding our reach to more than 16,000 pharmacies, up from 13,000 previously. In addition, we entered into a partnership with Smartway, a leading UK-based pharmaceutical distribution company, to expand the availability of our pharmaceutical products across the United Kingdom. Together, these partnerships speak to the strength of Tilray Pharma as a valuable strategic asset within our global medical cannabis platform. Looking ahead, our distribution business is laser-focused and driving future operational efficiencies via automation, centralized sourcing, harmonized packaging, and label that sets us up with vertical integration for our cannabis business. Turning to Canada, our Canadian cannabis business continues to deliver strong results. We reinforced our position as Canada's leading cannabis company by revenue on a trailing 12-month basis, and our adult use medical grew 8% year-over-year to almost $40 million of net revenue. This performance speaks to the strength of our portfolio and the resilience of our commercial execution and the team that we have in place today. From a market share perspective, Tilray maintained the number one market share position in cannabis dried flower, pre-rolls, beverages, oils, and chocolate edibles. Importantly, this leadership reflects the strength of our tiered brand strategy in dried flower. Tilray is the only licensed producer with three brands in the top ten. In pre-rolls, we hold two of the top three brands, and in beverages, we deliver the top two brands in the market during quarter three. This approach diversifies our reliance across brands and facilities while allowing us to serve the state consumer segments with clearly differentiated offerings. From a brand portfolio perspective, Broken Coast delivered its strongest quarter in the past two fiscal years, growing 16% year-over-year. We also continue to innovate with our core categories, launching Good Supply, Where's My Bike?, and Blueberry Donuts Cannabis Strange during the quarter. Both of which finished a quarter among the top 10 dry flower skews in British Columbia, and we plan to scale them nationally and introduce additional genetics in Q4 and into fiscal 2027. Finally, we also introduced a new brand, Portal, featuring vapes, infused pre-rolls late in the quarter. While still early, we're beginning the national rollout. We expect to launch a portal to build upon our momentum and drive meaningful growth in these key categories going forward. And we're also making clear progress in high-growth, price-sensitive categories, such as vapes. Quarter 3 marked our strongest vape quarter in the past two fiscal years, reestablishing Tilray as a top 10 player in the category. Importantly, this performance reflects our disciplined approach to revenue generation. We intentionally scaled back our vape volume until we achieved the right cost structure and returned the category to profitability. After seven years of federal cannabis legalization in Canada, we are modernizing the store. We've built a strong foundation on Canadian cannabis, and we're now advancing to the next phase, transforming our cultivation platform through AI-driven growing systems, next-generation genetics, and improved yields across our operations. We're executing a comprehensive end-to-end upgrade of our cultivation capabilities, And while this transition is still underway, we're already seeing progress as we move towards more consistent, higher quality, and more efficient production. This evolution is designed to enhance margins, strengthen product quality, and position us ahead of the curve as the industry continues to mature. In the U.S., we continue to monitor the rescheduling of medical cannabis and are actively engaged with legislators and regulators. We're also evaluating our participation in the Center for Medicare and Medicaid Innovation pilot programs. Tilray is well positioned to contribute to the pilot program with its proven track record of operating at a scale in a highly regulated medical cannabis globally. Moving to our beverage business, this quarter and shortly after the quarter end, we successfully executed against our key strategic priority to expand our global beverage platform through a strategic licensing partnership with Carlsberg and the targeted acquisition of BrewDog, strengthening our portfolio, improving utilization, and advancing our global growth strategy. We are honored and proud to begin our partnership with Carlsberg, one of the world's leading brewers, starting in January of 2027. Through this partnership, we'll produce, market, and distribute a portfolio of leading Carlsberg brands across the U.S., leveraging our brewing network, commercial capabilities, and our national distribution footprint. We expect this to drive immediate scale, accretive to revenue, supported by increased volumes, expanded shelf presence, and a more favorable product base. Following the Carlsberg announcement and post-quarter close, we acquired craft beer icon BrewDog, creating an approximately 500 million global craft beverage platform on a pro forma basis. We acquired BrewDog's global IP, strategic brewing, and brewpub assets across the UK, Ireland, Australia, and the US, creating an immediate scale, strengthening our infrastructure, and broadening our international reach. This positions us to extend our reach into previously untapped markets, such as the Middle East, Asia Pacific, and take our U.S. brands globally while strengthening their portfolio with a highly recognized craft brand. We acquired this platform for approximately 40 million pounds, which reflects a fraction of its replacement cost. This strategic acquisition has significantly accelerated the implementation of our global strategy by several years. Now turning to the results of our beverage business, we're making disciplined progress on the integration of our beverage acquisitions while staying focused on the work still ahead to generate growth and profitability. As expected, beverage net revenue of $43 million in Q3 was impacted by margin-focused actions as well as industry-wide softness. These margin-focused initiatives are deliberate and necessary to reset the business for profitable long-term growth. What's important is that the underlying fundamentals are improving. Through Project 420, we rationalize the portfolio, removing non-strategic skews to improve velocity, margin, and execution. We continue to focus on cost discipline, deliver over $6.2 million in annualized savings during the quarter, completing our target synergy program of $33 million, enabling us to achieve approximately 32% gross margins, despite significant input costs and headwinds. Without these decisive actions taken, margin would have been more significantly impacted. Operationally, we're building a more focused, higher performing portfolio. We're prioritizing fewer, bigger, better innovations aligned with consumer demand. Products like Publite are expanding distribution and are ready to drink cocktails on the rest coast are delivering margin accretive growth. We're also starting to see sequential improvement across our core brands, including Sweetwater, Chalk Top, Blue Point, Revolver, and Montauk. Looking ahead, we expect continued momentum improving fundamentals and a stronger path to growth. Within the spirits category, in Q3, we focused on enhancing our commercial plan. Wholesale completions were 160 basis points above the national spirits trends, demonstrating strong consumer demand and awareness. Our ongoing efforts remain focused on expanding product distribution to additional states and beyond. Regarding our U.S. hemp-derived THC beverage business, we continue to offer Fizzy Jane, Happy Flower hemp-derived THC beverages in 5-milligram and 10-milligram formats through nationwide retail partnerships, including major wine, liquor, and grocery outlets across the country. While federal regulatory changes may affect HDD9 products after November 2026, we continue to stay engaged with legislators and regulators. We're closely monitoring development in Washington. Turning to wellness, net revenue increased by 16% to $16.4 million in the quarter, driven by our focus on value-added innovation across supersedes, better-for-you breakfasts and snacking, and continued momentum in the high-volume energy drink. We'll continue to focus on distribution expansion, broader assortment, promotional improvements, while continuing to strengthen the profitability profile of wellness business. With that, I will now turn that over to Carl. Carl?

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 achieved record third quarter revenue and strong year-over-year improvements in gross profit and adjusted EBITDA and we are reaffirming our adjusted EBITDA guidance for fiscal 2026. net revenue was a third quarter record of 206.7 million dollars an 11 increase year over year revenue growth was across multiple businesses Cannabis net revenue increased 19% year-over-year to $64.8 million during the quarter, driven by strong growth in gross international cannabis revenue of 73% and 8% in net Canadian adult use and medical cannabis. The exceptional revenue performance of our international cannabis business solidifies our point from the last conference call that Q4 2025 and Q2 and Q3 of this year's performance are more indicative of what investor expectations should be going forward. Growth in international cannabis accelerated based on an enhanced supply chain, increased patient adoption in certain markets, and our targeted expansion into emerging markets. This quarter, we continue to strategically reallocate supply from the Canadian wholesale market to higher margin international markets, and we'll maintain this approach as those markets continue to scale. Year-to-date, we allocated approximately six metric tons of product from Canada's international markets, which continues to supplement our ever-increasing cultivation in CanYed. Distribution net revenue increased 35% to $83 million based on a focus on higher velocity and margin skews and positive impacts from foreign exchange rates. We expect distribution to continue to be a strong contributor as it complements and scales alongside our international business. Average net revenue for the quarter was $42.6 million compared to $55.9 million in the prior year. However, the results do not fully reflect the operational progress we have made in the segment. During the quarter, we successfully completed Project 420, closing and delivering $33 million in annualized cost savings, which improved the underlying cost structure of the business. Those cost savings are not always visible in our margin results, as they've been largely offset by almost $2.9 million in higher aluminum costs year-to-date, and lower overhead utilization rates. Getting our cost structure right in beverage has been and will continue to be a key focus area for us. Looking ahead, Carlsberg represents a compelling opportunity for us through a partnership with one of the largest global brewers. The relationship enables us to improve overhead utilization without deploying capital to acquire a brand while creating meaningful operational leverage. It also provides multiple avenues to strengthen the platform, including increased scale with key global raw material suppliers and the ability to collaborate and learn from one another on innovation and best practices to support long-term growth. BrewDog represents an equally compelling opportunity to strengthen our beverage business in the future, but for different reasons as it is more about an international opportunity. The BrewDog transaction was unique because it represented a chance for the business to start with a clean piece of paper and hand-select the best and most important elements of a strong business that was placed in administration for reasons other than its core business. After this transaction, Tilray strengthens BrewDog. BrewDog strengthens Tilray. Lastly, wellness net revenue in the quarter was $16.4 million, growing 16% year-over-year based on our focus on high-value innovations, the continued strength of Highball, and growth in the ingredient sales channel. In terms of contribution, cannabis accounted for 31% of revenue, beverage revenue was 21%, distribution was 40%, and wellness was 8%. Moving on to profitability, we achieved a record third quarter gross profit of $55 million, a 6% year-over-year increase. Gross margin was 27% compared to 28% last year. By segment, cannabis gross margin was 40% for the quarter compared to 41% year-over-year and remained largely flat, primarily due to price compression in international markets. which reduced international cannabis revenue by approximately $7 million despite higher gram equivalents sold. Distribution gross margin increased to 12% this quarter compared to 9% year over year due to favorable changes in product mix and increases in average selling price during the quarter. Average gross margin was 32% this quarter compared to 36% in the prior year quarter. This change was a function of lower overhead absorption rates and higher input costs, including the previously discussed aluminum costs. Wellness gross margin increased to 33% during the quarter from 32% year over year as strategic price increases largely offset an unfavorable change in sales mix. Net loss was $25.2 million, a $768.3 million improvement compared to a $793.5 million loss year over year, or a net loss per share of $0.24 compared to a net loss per share of $8.69. The improvement in both net loss and net loss per share is primarily driven by the one-time non-cash impairment we reported in the prior year quarter. Adjusted net income and adjusted net income per share, which both exclude the non-cash impacts of amortization, stock-based compensation, impairments, and non-recurring charges, improve $5.3 million year-over-year to $2.4 million and 2 cents per share, compared to an adjusted net loss of $2.9 million and adjusted net loss per share of 3 cents. Our adjusted cash operating income for the quarter was $4.1 million, compared to a loss of $3.1 million last year. Adjusted EBITDA for the quarter increased 19% to $10.7 million, compared to $9 million last year, reflecting continued execution against our strategic plan, particularly from our international cannabis business. Cash flow used in operations was $21.9 million compared to $5.8 million last year. The increase in cash used in operations was largely related to inventory ahead of our seasonally stronger fourth quarter and accounts receivable for our growing international cannabis business. Excluding the impact of working capital, cash generated from operations was $3.4 million compared to cash used in operations of $9.3 million in the prior year. We ended the quarter with cash, restricted cash, and marketable securities of $264.8 million and a net cash position of $3.5 million, which improved $40.2 million from a net debt position year over year. As we have recently demonstrated, our strong liquidity position has enabled us to act decisively in a dynamic environment and provides continuing flexibility to pursue strategic opportunities. We remain focused on managing and strengthening our balance sheet throughout the remainder of the year and beyond. Lastly, we are reaffirming our fiscal 2026 adjusted EBITDA guidance of $62 to $72 million. Operator, we can now open the call for Q&A.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 from your telephone keypad. and a confirmation tone to indicate your line is in the question queue. You may press star 2 if you'd like to withdraw 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, and the first question is from the line of Camille Gargiwala with Jefferies.

Please proceed with your questions. Morning. Sorry about that. You guys hear me now?

Yeah.

Great. I wanted to first maybe ask about supporting the international business in the context of Canada looks like it's also stabilizing. So you have a lot of growth and great margins in one. But on the other hand, you've got stabilization in your bigger market. So I How are you managing the balance between those two?

You broke up the last piece, the cannibalization.

Not cannibalization, but just managing the balance between supporting your international business and what looks like stabilization in Canada.

And you're talking cannabis right now, right?

Yeah, cannabis. I'm sorry, this is about cannabis.

Yeah, okay. So listen, I think the big thing is, number one, we are bringing on our Mason Grove facility in Gatineau, which increases our, you know, we're going from 137 metric tons of grove to almost 200 metric tons of grove. And also we're bringing on outdoor grove in Cayuga. So number one, we now have plenty of grove. And, you know, this has been a tougher year on yields in that, and that's sort of what you heard me say as we're overhauling things and modernizing things on better yields in the Canadian market. On the other hand, the good news is our Canton Edge facility in Portugal – And our Germany facility is probably producing some of the best yields and some of the best flour that we ever had. So the most important thing is we have plenty of supply to supply the European market. The other thing, as we're seeing price compression, which I talked about, with the growth that we're having with yields, You know, we'll be able to support that. And I think the most important thing in Europe is this year, consistent supply. We've not had consistent supply, number one. Number two, you know, one of the things in Europe, you have to wait for permits to And that has slowed down to getting our sales out there. We've seen a real big improvement in the Portuguese government. I want to thank them. They've modernized this now where sometimes it'll take a month. You know, you can see three days now. So being able to get product, you know, to our customers is something very important. And then with that, we have perfected our grow and our yields that will help our margins continuously and deal with the price compression. And I think the important thing is From a Tilray standpoint, with our Tilray products, with our innovation, with our brands, you know, the big opportunity for us is if we got consistent product, we're going to get the volumes. And how do we deal with price compression? If price compression consistently happens, you know, we have supply, and I think we have more supply than anybody there. So it's something that we're aware of. Hey, we dealt with it in Canada. We've had $250 million of price compression over five years in Canada and dealt with that. So not that I want to see that in Europe, but it's something we can deal with either now having supply, now having good yields, now having good growth over there to do with both in Canada and Europe. And there's no one else out there that has the supply that we have both from the Canadian market today and the European market.

Got it. Thank you. And on Project 420, you'll know that I guess it's coming sort of towards the end or at completion. Is there a new project or is it sort of more ongoing business as usual as we look forward from a productivity standpoint?

That's a good question. I mean, there is absolutely a project ongoing. We never just say, okay, we made our $33, $35 million cost savings, stop. Now with BrewDog in the mix and bringing that together, both, you know, internationally and domestically in regards to buying hops, cans, labels, et cetera. And, you know, it's definitely successful. something as we combine now. And just remember, we've gone from, you know, a $200-plus million beer business almost to a half a billion dollars in our own size. So on scale, that's going to help us. And as we look at, you know, rationalization continuously on our plants, we look at rationalization on distributors. We just said, how do we bring, you know, all the organizations together? There will definitely be additional cost savings available to us.

Okay, got it. Thank you. Thank you.

Our next question is from the line of Robert Moscow with TD Securities. Please receive your questions.

Hey, good morning. This is Victor Ma on for Robert Moscow. Thanks for taking the questions. So I just want to ask about international first. International grew 73%. Germany grew 43%. What drove this delta? Was it shipment timing or permit delays from the previous quarter that will fix this quarter? And in terms of kind of looking at growth going forwards, is that 43% growth rate for Germany, is that kind of a good run rate to use in looking at growth for the segment?

So, number one, there was some, you know, products that did not get shipped in the second quarter because of permits, but there's products that did not get shipped in the third quarter because of permits. So, you know, it equals out. In regards to, you know, what was the growth? The growth was based on us having supply and demand. And, you know, I'm not sure, again, we have a big fourth quarter. What is the true run rate there? And the big thing is what I said before. But the market is realizing what patients and what doctors are realizing is that we will have supply. We will have good flour. We'll have lots of innovation. We'll have some good oils. And, again, we will be price competitive. So, you know, what is the right growth number? I'm not ready to give that yet. But, again, there's big opportunities for us in the international markets, not only in Germany and Poland. The UK and other markets, it's additionally other markets that we're looking at to open up and what will happen in Spain, what will happen in France. And, you know, so we're really excited. The other thing that we have there with our CC farm and Tilray farm and some of the stuff that we're doing in the UK, you know, and being vertical integrated as we sell through our distributors. and sell directly through our distributor into these drugstores, you know, helps us that way. We're a grower, we've got the brand. And then we have, you know, the third part of it is where we have from a vertical integration, the distribution going to the drugstore. So that helps us tremendously too.

Got it. Thanks for the color. And then my second question is on the beverage segment. So in terms of, just rising aluminum costs from the Midwest premium related to the tariffs and then additional supply shocks from the Iran conflict. Can you offer any color in terms of how hedged you are on your aluminum exposure and what's the benefit in terms of scale that adding curls of work into the U.S. portfolio give towards managing that cost impact.

So, number, I'm going to let Carl talk about the hedge in a second because we are hedging on some things. But, listen, adding Carlsberg in there with a good-sized business, adding, you know, BrewDog in there, and then being able to buy on global contracts is going to be very, very helpful for us. You know, right now, a lot of our hops, you know, for BrewDog internationally come from you know, Washington State. But we right now, as we put this together, and listen, having Carlsberg, who is one of the largest, you know, rovers in the world, and possibly buying into their contract, and, you know, we still have leftover, whether there's shops and that from our ABI stuff. So, buying, you know, hops and cans, and that's the big one to watch out for is those aluminum prices have gone up a lot of the hedges. Listen, the big watch out there is what, you know, what happens with fuel, you know, and from a standpoint there is the unknown. Carl, from where we're hedged out, do you want to just talk about that?

Yeah, I mean, you answered most of it, but just specifically on the hedge for aluminum, we're currently hedging 65% to 75% of our buy on a month-to-month basis, and we're hedging it a year out.

Got it. Thank you for that, Kohler. And just one last question, if I can. In terms of just the distribution gains, you know, from the shelf resets, that typically happen in the spring, you know, how are those conversations going? How is that tracking? Any color you can share there?

So going well, I will say this here, we gained and we lost. And I think part of it is this here, you know, we're in the craft beer category, lost some space out there. But, you know, I think the big thing is this here. Where we didn't, when we bought the Molson's piece and prior to that when we bought the ABI piece, you know, from a timing standpoint, you know, we lost a lot of skews where we had no influence in no part of it. So, again, it goes against us. Now, you know, we've gained a lot of distribution. And the big thing is this here, just because we gained distribution, I'm not sure the products sell. So, you know, plus plus, we probably lost... More, but again, it's okay because it was SKUs that were not part of us at the time. And the new SKUs, the new products, the new innovation is what we're excited about and where we've gained. And we had some big gains at Walmart. We had some big gains at Kroger, Albertsons, and some other ones across Stop and Shop across the board. So all in all, you know, we're happy with what we got. And listen, I'd rather the set get smaller and us be a bigger player in a smaller set than, you know, just to have a big set out there. So there's a lot of resetting happening within the craft beer industry in regards to the size and what retailers get out there.

Just to supplement that a little, when we talked about the acquisitions, it was more about the timing of the acquisitions because we bought those brands after the initial discussions on spring resets had already happened.

And we were not the ones presenting those spring resets. and that's sort of where we'll be next year in January as we take on Carleford. We'll be up there presenting in February, January, February for the next spring set for Carleford.

Got it. Thanks, Paul, for the color. I'll jump up to the queue.

Thank you. Our next question is in the line of Bill Kirk with Ross Capital Partners. Please cease your question.

Hey, good morning, everybody. I want to spend a little time on the improvements at Tilray Pharma. Carl, you mentioned a focus on the highest velocity SKUs. So what SKUs or product types are those that are leading the way? And then maybe more importantly, how can you or how are you leveraging this improved CC Pharma for your cannabis business in Germany?

So I'm going to ride this. You're on the call. I'm going to let you jump in here because you're the one managing this. I think there's three things here. Number one, it's the buying that our guys are doing over there. Number two is our assortment. And number three, as we've now looked to sell our products into Italy and, you know, we sell our products in the UK. Rajesh, do you want to go into the specific of what the products are that we've really seen the increase in sales?

I mean, there is a group of products, we have about 2,800 SKUs. So what we have done is basically identified SKUs which have higher velocity to go. So there is a bunch of about 50 top SKUs which are right now working where there is a high velocity, which we focus on, not just on velocity, but also on the cross margins. So these are the two criteria for us to look at in terms of the growth. And then we are adding the medical cannabis portfolio. I mean, the medical cannabis portfolio is helping us to grow both in margins as well as in revenue because per unit revenue is much higher and margins are better. So these are the two big things in terms of the selling side of the business. And of course, on distribution, we are now with our new alliances, which are coming forward, we are now actually increasing our distribution across the pharmacy channel, which helps us to grow not just per unit, but also in the depth of distribution and and the width of coverage of pharmacy. So this is really on the seller side, but more importantly, also on the buyer side, I think we are now, our purchasing is becoming much more robust in terms of the timely decision. We've implemented automation in our purchasing system, which predicts the pricing patterns, and then it helps us to take decisions quicker. So I mean, these are a few things which in the pharmacy distribution is helping us to grow. And then of course, On the operation side, a lot of our business, we are also looking at in-house packaging to out-house packaging. And whichever way is working for us, there's a big team which is working to make sure that there is a consistency in supply from the operators, both in-house and out-house. And that's also helping us to improve the margins.

You know, when we bought CC Pharma, that was a big part of it. But again, it was bought during the Afria time, was for a tender, and was the age of sub-pharmacies. That was not really happening, number one. Now, and there was challenges with getting different medicines, as we're buying all different types of medicines. But as Rodney said, we're focused on the core medicines with the higher margins. Yeah, and, you know, we've done a lot of automation at CC Pharma. The other thing is what's happened, we've gone from servicing 13,000 drugstores now to 16,000 drugstores. So we've expanded the amount of drugstores in Germany. The other, you know, major thing is as we expand now CC Pharma into Italy and into the U.K. is a bigger platform that we'll be selling through. Not the highest margins. But again, as the volume grows, there's a lot more contribution. And as we put a lot more cannabis through it with much higher margin, you're going to see the margin grow there dramatically.

Awesome. Thank you for those detailed answers. A second question, Erwin, in the opening comments, you talked about now being a run rate of $1.2 billion in revenue. You know, the last 12 months, I think it's something like $850 million. So is the bridge between the two, is that mostly the revenue from acquired BrewDog assets? And I ask because you didn't take all the assets. So how much of the BrewDog revenue that they've released in their annual reports is generated by the assets that you took on and now have? And how much of their annual revenue was tied to assets that you didn't take?

So let's say between $225,000 to $250,000 is what we've taken, okay? And again, we took, you know, all the UK, Ireland, Scotland distribution through retail. We've taken it through on-premise, and we've taken 16 blue bulbs in UK, Ireland, and Scotland. We've taken the brew pubs in Australia. We've taken the distribution in Australia. We've taken three brew pubs ourselves, or two brew pubs ourselves, and there's three franchises. There's 15 other franchises out there today around the world that we sell them beer to and we get some. We've taken the distribution, the manufacturing in the U.S., and we've taken with them Las Vegas, Columbus, St. Albany, and Cincinnati, Cleveland, I'm sorry, and the airport in Columbus. That's what we've taken there. So it's somewhere between $225 million and $250 million in sales that we have taken. In regards to the other piece, A bill, it's all coming from growth, and that's where it's going to come from. And don't forget, you saw from a standpoint there, what we've gone through is skew rationalization in regards to our beer business. If you take what we're down this year and what was skew rationalization, what was distributor rationalization, and what was product rationalization, I mean, quite a bit of the sales come out of our business.

Thank you. That was exactly what I was looking for. Thank you.

Thank you. Our next question is coming from the line of Aaron Gray with Alliance Global Partners. Please receive your question.

Hi, good morning, and thank you for the questions. First question for me, I just want to dig a little bit more in terms of hemp. So in terms of your outlook potentially for changes to come before The ban on any products is more than 0.4% THC coming to fruition in November. And then taking that into context, you know, how you're looking at the CMS program, you mentioned potentially looking to enter into that. So how are you looking at the potential opportunity there, particularly if there is a restriction on THC products and how appealing that program will be for patient, you know, adoption or rejection? And then it's how you think about that longer term opportunity there. Thanks.

Number one, let me go back to AC9 and how we're looking at that. We're looking at it three ways. Number one, it gets extended and stays as is. Number two, there is some type of new legislation that regulates it, either three, four, or five milligrams, which would be great, and that way we can sell it, or three, you know, the ban in November of 2026 happened and it completely stops. Listen, I think it's going to be one or two. That will be my opinion. You know, in regards to, you know, our CBD drinks into Medicare and that within the U.S., listen, we have Happy Flower. We have the drinks. We're prepared for that now. It's just talk to them that how we go about it and how we do it so we're able to do it we have the products to do it it's just making sure the right approvals and you know we have a team that is working on this within the u.s you know regulations and what can happen here so stay tuned for that okay great appreciate that color erwin

Second question for me, I just want to go back in terms of alcohol gross margin and outlook. Carl, I know you mentioned in terms of how you guys are hedging some of the aluminum, but it's taking a step back. There's been some lumpiness. You guys now have product 420 now completed. So how should we think about that margin for the segment going forward? 4Q, I imagine, obviously, would be higher just given the higher sales flow through, but just on a full-year basis, how best to think about the gross margin there? Thanks.

So Erin, good question. If you look at where we are right now, I think this represents the bottom. We have done a significant amount of work and will continue to do work to manage costs and to keep costs at a reasonable level versus where our volume is. As we said on the call, we've got some headwinds with aluminum costs and there's potential for headwinds with fuel surcharges and things like that that we're going to keep a close eye on. But the key is really in the overhead utilization rates. And as we've adjusted to that and we continue to make adjustments going forward, like we'll see, we'll see that start to come up over time. And, and right now we think this is, this is the bottom of the truck.

And Aaron, I think there's, again, you know, you remember we get into beer business in late 2020 with Sweetwater and the acquisitions of the three brands in the West Coast and Montauk, and then the ABI pieces and, in the Molson pieces. You know, we at one time had 10, 11 manufacturing facilities. And since then, now with Carlsberg coming on, with, you know, the rescaling of the beer business and the skew rationalization, It hasn't been the easiest road for us, but nothing was similar that was cannabis in regards to as we opened up these growth facilities and we had to go deal with it. But now we've got time. We now have the right sets in place. We have the right technology. new products in place. We had some new products out there that didn't do as well as we thought. So as Carl said, now with the purchasing power between BrewDog International, between bringing Carlsberg on with us, um you know we feel good about moving forward where we've done a lot of the overhauling we're now down to seven manufacturing facilities we might even get smaller um you know in regards to that in regards to you know the facility in columbus ohio which is a beautiful facility and what are we moving there from hd9 if that you know is a product that's able to stay within the We have a great energy drink called Highball that's growing in leaps and bounds. Some of the other non-out products that we have out there today that we will move into our facilities. And as we introduce a lot of vodka seltzers and some of the other drinks that we're doing, we'll look to bring most of that in-house. And we will have capacity, as we have a great plan to grow Carlsberg, We think the growth opportunity of Carlsberg is tremendous of what we can do with that brand. So, again, we've only been at this five years where most craft brewers have been out there a long, long, long time. And, you know, we've had some pain. But we've managed through it, and I think we've really got it in a good place now from a scale standpoint. You know, I don't – and I could be wrong. I think we'll combine with BrewDog and what we're doing today. You know, it's almost 80 million cases of beer that we'll be selling. That's between, you know, the worldwide. So we're buying lots of cans. We're buying lots of hops. We're buying lots of ingredients here. And, yes – Some of it is across the water. We're buying lots of kegs. But how do we utilize that? We're just not a little craft brewer anymore from the standpoint there.

Okay, great. Thanks for that, Collar.

I'll go and jump back in the queue. Thanks.

Our next questions are from the line of Pablo Swanick with Swanick Associates. Please proceed with your questions.

Yes, good morning, everyone, and congratulations on the very strong international growth, and also very nice to see the share count being stable quarter on quarter. Look, I have three questions on Germany specifically, and I'll try to give it brief. The first question I want to get your take in terms of the advantage of being vertically integrated versus the many distributors out there. I mean, for a while, we saw that the distributors were growing faster. We saw consolidation could release by 4.20%. high tide by Remaxian more recently. But now with lower prices, some of the distributors are being squeezed out and they don't seem to have very stable supply chain. So I'm just trying to understand if you can remind people of the advantages in Germany, especially the way the market is evolving or being vertically integrated versus the distributor model. The second question is that it would help if you can expand on your route to market. Like how many people do you have on the ground? How many people are visiting doctors? You know, how many people are, what are the efforts in terms of reaching out to patients given all the restrictions? But just if you can give more color on your route to market in Germany. And the third, which is related to all of this, I could make the argument, blame devil's advocate, that pharmacy reach does not matter too much, right? That all these numbers that we hear about CC Pharma and Alliance now are not so relevant when the doctors and the patients are making the decision and the 80-20 rule applies, right? We know that maybe 50 pharmacies, especially online, account for the bulk of sales, and only one of seven pharmacies sell medical cannabis. So why does pharmacy reach matter in the short term and in the long term? I know there's a lot there, but there are three questions on international that would help if you can cover. Thank you.

I hope I can remember all three, okay? And number one, to your point, and I stressed this before, From a grow standpoint of having, you know, our Canton Yet facility and that up and going the way it is today and growing some of the best cannabis that it ever has and having the permits to get out of. Portugal into Germany is a major, major advantage to us, and this is what helped us in the quarter to get the sales. And again, as we're getting yields of flour to become that low-cost seller in there in the marketplace and deal with price compression. Number two, you heard me talk about now, as we bring on our facility in Gatineau, Quebec, That is a GNP facility, and that, from a supply standpoint, and I've got to tell you, because originally we were going to sell that, and thank God we didn't because from electricity costs, from labor costs, that is an excellent facility, and it's an excellent facility for us to have and supply the international market, and that's what it will do because it's GNP because it's a lower-cost facility. And then our German facility, which, you know, originally – We were selling two to three metric tons out of there. And Rajnus and the team has done a great job of getting that up into additional metric tons than before that we were only allowed to sell into the German government there. So to your point, you know, Pablo, yes, we have supply. Yes, we can be that lowest cost producer. And yes, the big thing is we can be consistent producers. in regards to the customers that we're selling to. I'm going to let Rajneesh talk about what we have on the ground there and the infrastructure in a minute, but just going to the pharmacies, you may not agree that having a vertical integration. So number one, having CC Pharma, the big part of CC Pharma today's business is not the canvas business, but there's three things CC Pharma does. It has 16,000 pharmacies, and a lot of these pharmacies are buying medical cannabis. So now they have the ability, and at the end, to sell. It has the ability to go to pharmacies, number one. Number two, there's a lot they can do in regards to online and selling online through CC Pharma, and that is something that we're working on. And again, as we look at expanding our product lines in Germany, whether it is base, whether it is pre-rolls, CC Pharma has medical license and an application that they can do these things for. And we're looking at numerous things with CC Pharma. So today, having it. It's, you know, it is very important for us. You know, it has a tremendous network too with other, you know, CC Pharma types of distributors that we can sell products through them too. So CC Pharma has a relevance to us and it's a big relevance for us in the cannabis growth market where no one else really has a CC Pharma today. Raj, just... In regards to your sale organization on the ground, go ahead.

Yeah, so two things here. So there is a price compression in Germany which is kind of changing the route to market and the route to market is becoming more integrated. The distributor is now getting squeezed out because of the margins, etc. So I think we don't see it now, but we do see it going forward that the route to market will become more direct to pharmacies and through the channels of prescriptions to doctors, et cetera. So CC Pharma and our medical team there is presently working along with the prescribers and also in the pharmacies to work and build this integrated supply chain to reach the patients. So that's number one. Number two, to your question of what's the feet on street, we have today two teams which work on the street. One is the one which work with the prescribers. This is a team of about 20 plus people who are medical representatives and medical advisors who work on with the prescribers. And then we have a team with CC Pharma, which is also about seven to eight people who are basically telecoil services people who continuously to work with pharmacies to make sure that the prescriptions which reach there and the stocks are available for them. So there is a twin approach there, both at the pharmacy and at the prescriber level at the ground in Germany. And as we go and see this forward, I think, and these are signs which we see in the market today, that the route to market is going more direct than through the distribution. So with CC Pharma and our treatment medical team, I think this change we are seeing, and we also see data coming to us, which is telling us that the pharmacy sales are improving, still small, but improving compared to what the distribution sales have been.

Thank you, Pablo. Not only that, what we have internationally today, I mean, basically we have marketing teams, we have R&D teams, we have quality teams, we have research that's working on our different cannabis strains and genetics over there from a medical standpoint that when doctors prescribe for pain, for anxiety, for cancer, we can go and support it. So in the marketplace. I mean, as Raju said, we have a big infrastructure in Canada and Portugal. We have in Germany. And then we have a team to support it in London in regards to a marketing team. And there's a whole supply team. And the good news is we have moved a lot of our Canadian colleagues over there to help us with this growth.

You were going to ask something else. Go ahead. Can I add, I mean, that's very color. Can I add just one more quickly? You mentioned that you're keeping an eye on the CMMS program in the U.S. for full-spectrum CBD. Does that mean that you would be considering or looking at buying a U.S. CBD brand?

So we have a brand today called Happy Flower, okay? We produce CBD products internationally. So we have formulations. We have products. You know, it just got a fit to what the U.S. standards are and the regs are here. But, listen, I've always liked it. It made sense to buy something that gives you a foothold in there. But, like anything, we have the ability today to do our own with CBD products.

That's good. Thank you. Thank you.

Our next question is from the line of Kenric Tai with Canaccord Genuity. Please proceed with your question.

Thank you and good morning. The majority of my questions have been asked for just a couple of quick follow-ups. With respect to the beverage segment, you called out trough margins in quarter. Is that including or excluding the BrewDog integration? Just trying to get a handle on whether that's trough on legacy or trough on go forward and how we should think about that evolution of the margins.

No, BrewDog, from these margins, BrewDog was acquired March 2nd, so there's nothing in here in regards to BrewDog, and there's nothing in here in regards to Carlsberg. from a margin standpoint. And again, from a procurement, from a sales, from an infrastructure, from a manufacturing, you know, again, I'm not going to, you know, come over there with numbers, but I would think there would be upside just putting volume.

Great. Thank you. And that was the gist of the question was just on that evolution from here forward with Carlsberg and BrewDog, but I can leave it there. Just follow up with respect to the brew pubs and that footprint. Just with how consumer trends and consumption patterns have changed, how are you thinking about that footprint going forward? And is it becoming more important to you as a sort of a strategic buffer on the consumption side? Any color around the brew dog, sorry, around the brew pub footprint would be useful.

Listen, good question. You know, it's something today within Tilray, we have 18 of our own brew pubs here in the U.S. It's something we understand in regards to the U.K., you know, Ireland, Scotland, and the other markets. Listen, I'm big on blue clubs to look at them from a marketing tool and to build our brand out there, to bring, you know, people together. And that's the whole thing on longevity today to bring people together. And a big part, and I plan to spend a lot of time looking at our blue pubs in regards to what we got to do to interact with our customers that come there. How do we serve that good food and good value? I've also talked about whether it's Carlsberg, Guinness, or our other beers of how we bring customers other beers into there because if they don't want BrewDog, we want them to come to our brew pubs at least to enjoy our food, enjoy the environment, and maybe we convince them to, you know, have BrewDog. You know, is that going to be a big part of our growth? Is it part of our strategic plan to open up another hundred of those? No. Is it a big part of those to look to upgrade them, to put more TVs, more interactive things types of communications in regards to getting more and more of our consumers to that and something, yes. Is there an opportunity for us to franchise more and more BrewDogs where we did not take them and make them franchisees? Absolutely, yes. So there's some exciting things here as we look to grow, you know, from a franchise model, as we look to increase the sales with the ones we own, and where do we license the brand today in airports? And that's something that we're looking at, too, because there's, you know, with airports today, you license your brand name, you collect a royalty, and you sell a product. So that's how we're looking, you know, at these group ups.

Great. Thanks for that insight. I'll get back in here. Thank you.

Thank you. At this time, I'll turn the floor back to management for closing remarks.

Well, thank you, everybody. Number one, it's April Fool's, and our numbers are not an April Fool's joke, so that's the good news, okay? Our numbers are some real strong numbers out there, and congratulations to the team on the growth. And, you know, not one of these, you know, businesses, nothing has been easy out there in regards to what we deal from a regulatory standpoint, what we deal, you know, in regards and just looking at the consumer today. And again, you know, you stop and look at Tilray from 2019 to hitting over that billion-dollar mark with the acquisition of Blue Dot. It's a very exciting time for us. In regards to where we're going in 2027 and with two months left in our quarter of 2026, you know, there's a lot to be proud of here. And as I heard me talk about the big overhaul that we're going to do in the Canadian market in regards to our genetics, in regards to... to how we modernize those facilities and take out lots of costs. And Blair and the team have done a tremendous job in doing that. And again, as you come back and think about what we have in growth today and how we converted these facilities to much more economical and dealt with the challenges of the cost of utilities in Ontario. So, again, we've accomplished a lot in the Canadian market and the only market where recreational cannabis is legal in the world and at the same time dealing with and growing our medical market and introducing more and more patients and consumers to the product. In regards to the U.S., Listen, again, you know, I'd like to see some better results coming out of our beverage business. But on the other hand, as you bring everything together since late 2020 and we're here where we are today, I see some good light at the end of the tunnel here of what we're building here and being the fourth largest craft brewer out there and the fourth largest craft beer business. is I really feel we got the footprint right, we got the model right, and now we got the products right. We brought up a lot of SKUs. We have over 18 brands. We have over 900 distributors. We've had multiple people, multiple contracts out there that we had to deal with, whether it's buying kegs, cans, hot, In regards to our spirits business, you heard me talk about our depletions on Breckenridge being up. You know, we've dealt with lots of distributor transition out there with R&DC now being acquired by Reyes, which is good news for us, and it's something that we will consolidate into the new Reyes distribution system. You know, in regards to some other changes in the market, it's something we're going to do. But what I'm really... happy about and seeing our breaking ridges, some of the new stuff that we're really coming out with in regards to our, our tequilas, our drinks with moonshot, our mountain shot, uh, it is a moonshot, some of our non-out drinks, um, and some of our products there, but it's great to see some of the stabilization that's going to happen in regard to the and you can have the greatest products, but it's the distribution that you need. In regards to international, again, Rochester and Tea have done some great things in regards to the international consumer growth and dealing with a regulated market in regards to medical cannabis, dealing with permits when you ship out of the country. And again, what we've had to do to get our Cantonese facility up to the yields and up to the growth that we've done in Canada and up to being able to supply consistent product to the marketplace. And back to Pablo's point before, that's something that Tilray now is going to be known for because if you think about it, look where our volumes are today and look where they were a year ago and how we've doubled, you know, in the quarter. So a lot to be, you know, proud of there. And again, there's a lot more that we're going to do in those marketplace. We had to overcome. which were losing money and almost doubling the amount of production coming out of that facility. And now, you know, we're running Canton Yard probably at 50%, 60% capacity, and we have tremendous opportunities to grow more and more in our Canton Yard market. Really, you know, the highlight is where we've come with CC Pharma, where we are at 2%, 3% margins and closer to 5%, 6% margins now, and really see the opportunity, you know, in that business. and last you know uh not well our wellness business in regards to manitoba harvest and the growth within that business and the growth in regards to some of the beverage businesses that Um, you know, listen, we'll see what happens in regards to Delta nine. Um, I think as you heard me say, there's three options out there, either one or two will happen. I'll be disappointed if it's three, but again, we're out there in full force selling, you know, our products today that we have in the marketplace and sticking with it and out there lobbying the governments to really take a hard look at that. So last but not least, you know, on March 2nd, um, You know, I just sort of want to step back one second in regards to Carlsberg as we announced our partnership with Carlsberg. And it's something I'm very proud of because I grew up in Carlsberg. It's a worldwide brand. out there, what a class organization to be associated with. I spent lots of time with the Carlsberg team, and it's tremendous what we can learn from Carlsberg. And, you know, what we have the ability to tap into their, you know, knowledge base, tap into their new products, tap into their marketing things. And I always say this here, when I grow up, I'd like just to be like Carlsberg. It's something that we aspire to, and having that for the U.S., and the U.S. being the biggest beer market, You know, in the world, Carlsberg is looking for some big things for us, and I promise we're not going to let them down. Last but not least, in regards to BrewDog, listen, I looked at BrewDog numerous times. You know, throughout the years in acquisition, I congratulate the founders for what they did in regards to building this brand and what they did in regards to opening up these beautiful brew pubs, you know, around the world today. And since 2015 and, you know, basically 10, 11 years worth of build. Unfortunately, not everything goes as planned, and Tilray, when it had the opportunity to participate in the administration to buy this without being able to do due diligence, the way we could, but we knew of the brand. Without being able to go into data rooms and ending up buying this at a little over 40 million pounds is something that I'm excited about. But I always say, it's not what you bought it for, it's what you do with it. And with that, there's a lot to do. This changes a lot within Tilray in regards to our beverage business, our worldwide known of who Tilray is. You heard me say in my comments that, you know, I've done lots of acquisitions, whether it's a pain holder or here, and I've never had so many reach outs about the brand BrewDog and the excitement that is. So we're pretty excited. It's just a month that we own the business. We're in the midst of getting our hands around this. as it was going through and in administration, was in the midst of either being shut down or sold in pieces or sold as a whole like us. So it's almost like we're starting this back up again and getting it back up to capacity, getting the factories back up, making sure we have hops where suppliers didn't get paid and they're ransom suppliers that we got to do that. There was employees that had their resume on the streets that didn't know if they were going to have a job or not. And that's something that we've got to make sure. So stabilization, as I keep saying, is the key to this here. And With that, we will have in place great strategic plans to grow the business in the U.K., Ireland. We'll have great plans in place for Australia. In Europe, markets will have plans in place for franchise and what we will do with our current group ups and what we're going to do in the U.S. So there's a lot of exciting things with BrewDog that we can do and will do. And remember, there's a lot of heavy lifting there and how do we integrate it within our business. you already. Let me tell you, as I always say, there's two by fours that hit you in the head every day, and that's something we live by, and how do we deal with it? I want to thank everybody for getting on our call today and listening to us. Happy Passover, happy Easter to everybody, and enjoy some good beer out there. Enjoy some of our good cannabis, and to March Madness, hey, when you're watching March Madness this weekend, make sure you have one of our great beers that we've news out there. Thank you very much for listening to us today.

This will conclude today's conference. We disconnect your lines at this time. Thank you for your participation. Have a wonderful day.