TILRAY-BRANDS Earningcall Transcript Of Q2 of 2024


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provide opening remarks and commentary; followed by Carl Merton, chief financial officer, who will

review  our  financial  results  for  fiscal  year  2024  and  fourth  quarter.  Also,  joining  us  for  the

question-and-answer segment are Denise Faltischek, chief strategy officer and head of international;

Blair  MacNeil,  president  of  Tilray  Canada;  and  Ty  Gilmore,  president  of  Tilray  Beverages  North

America.

And now, I'd like to turn the call over to Tilray Brands' chairman and CEO, Irwin D. Simon. 

Irwin Simon -- Chairman and Chief Executive Officer

Thank you, Berrin, and good afternoon, everyone, and thank you for joining us today. Before diving

into  our  fiscal  2024  results,  I'd  like  to  take  a  moment  to  reflect  on  the  evolution  of  Tilray  Brands.

Back  in  2019,  Aphria  was  a  cannabis-focused  Canadian  LP  with  only  $50  million  in  revenue  and

minimal cash reserves. Since then, we've taken a strategic approach to diversifying our operations

and growing our global businesses.

Through  a  combination  of  organic  growth,  strategic  acquisitions,  we  have  disrupted  the  CPG

industry  by  expanding  our  footprint  into  new  markets  and  adjacent  business  categories.  Today,

Tilray  Brands  is  a  leading  global  lifestyle  company,  spearheading  the  conversion  of  cannabis,

beverages,  and  wellness  products  and  is  elevating  lives  through  moments  of  connection.  We  are

operating  in  more  than  20  countries  across  North  America,  Europe,  Australia  and  Latin  America,

with  five  businesses  in  medical  adult-use  cannabis,  beverages,  spirits,  wellness  products  and  44

consumer-connected lifestyle brands. As a vertically integrated company, we have 20 facilities that

service  our  collective  businesses  allowing  us  to  produce  approximately  90%  of  our  products

internally, ensuring the high quality of our products.

This  is  a  testament  to  our  success  in  building  a  diversified  global  business  that  is  dedicated  to

providing  the  best  possible  products  for  our  consumers.  We're  incredibly  proud  of  the  progress

we've made in the short time and are excited to continue driving innovation and growth in the years

ahead.  Fiscal  2024  marked  a  year  of  significant  accomplishments  for  Tilray  Brands,  achieving  our

best financial results to date. We achieved 26% net revenue growth with annual record net revenue

of  $789  million,  record  adjusted  gross  profit  of  $236  million,  record  adjusted  EBITDA  of  $60.5

million, adjusted net income of $6.2 million and positive adjusted free cash flow.

We  also  strengthened  our  balance  sheet  by  significantly  reducing  our  net  convertible  debt  by

approximately $300 million, reducing our net debt-to-EBITDA ratio to 1.73x. We also see exceeded

our  cost  saving  synergy  target  by  31%,  delivering  $35  million  of  savings.  Additionally,  not  only  we

met our revised annual guidance for adjusted EBITDA, but also generated adjusted free cash flow of

approximately  $7  million  for  the  year.  Our  record  financial  results  were  achieved  despite  the

challenges  we  faced  in  the  fiscal  year,  absorbing  approximately  $10  million  in  cannabis  price

compression,  paying  approximately  $100  million  in  excise  tax  and  regulatory  fees  in  Canada,  and

paying  higher  operating  insurance  rates  of  nearly  $7  million  because  of  our  cannabis  businesses,

which, together, equate to approximately $120 million that directly hit our bottom line.

Our ability to deliver record financial results while navigating these challenges is a testament to the

resilience  and  dedication  of  our  team  who  have  worked  tirelessly  to  ensure  the  success  of  our

businesses.  Over  the  past  fiscal  year,  our  strategic  acquisitions  have  significantly  benefited  our

financial results, which we expect will continue to benefit us well into the future. In June 2023, we

acquired  HEXO  and  Redecan  expand  our  cannabis  business,  our  productions  and  capability  and

brand  growth  and  opportunities  in  Canada  and  internationally.  Since  then,  we  have  broadened

Tilray's  cannabis  product  portfolio  across  multiple  form  factors,  including  an  85%  year-over-year

increase in mainstream flower sales in adult-use cannabis.

The  addition  of  Redecan  brand  has  further  strengthened  our  categories  such  as  pre-rolls,  oils,

capsules.  Today,  Tilray  is  the  No.  1  player  in  the  straight-edge  pre-rolled  category  with  a  46%

market  share  and  a  top  player  in  the  oils  and  capsules  category  combined  with  a  21.5%  market

share in the adult-use business in Canada. In August 2023, we acquired Truss Beverages, fortified

Tilray's leadership in the Canadian cannabis beverage market.

This acquisition increased our market share in the beverage category by 400%, growing our market

share in the THC beverage category to 41% at the end of fiscal year 2024. In September 2023, we

acquired eight iconic beer and beverage brands from ABI, along with related breweries and group

hubs. As a result, we're now the fifth-largest craft brewer in the U.S., with a 4.5% share of the craft

beer  market.  Our  growing  beverage  portfolio  now  includes  craft  beers,  spirits,  ready-to-drink

cocktail, ciders, and nonalcoholic beverages.

The  combination  of  our  legacy  businesses  and  these  acquisitions  resulted  in  our  best  fiscal  year

results. Let's now dive deeper into each of our business segments. Tilray Cannabis, global cannabis

net  revenue  increased  by  24%  during  fiscal  2024.  In  Canada,  our  quarter  four  marked  the

culmination of transformative year in Canadian cannabis.

It was the highest revenue quarter of the year at $58.8 million, and it marked the completion of our

HEXO  and  Truss  Beverages  integration,  a  significant  operation  overhaul,  resulting  in  extensive

improvements  in  our  facility  utilization.  We  continue  to  lead  Canadian  cannabis  market  share  by

almost 200 bps over the next competitor and have consistently been at the top of the industry for the

past three years. From a regional perspective, Tilray was No. 1 across British Columbia, Alberta and

Ontario, and Quebec provinces combined, which include over 80% of the Canadian population.

And  we've  also  led  in  all  secondary  markets.  In  Canadian  cannabis  volume,  Tilray  shipped

approximately 60% more in kgs, reaching 140 metric tons. Our unit sales grew approximately 130%

to almost 35 million units. In fiscal 2024, approximately 27% of our Canadian adult-use cannabis net

sales revenue came from new innovation, which is a testament to our successful ability to innovate

and launch new products.

Cannabis  consumers  have  a  unique  attribute  of  being  open  to  trying  new  products.  And  in  fiscal

2024,  we  capitalized  on  this  by  launching  over  150  new  SKUs.  Looking  ahead  to  next  year,  we

anticipate that innovation will continue to play a significant role in driving our net sales, brands such

as Broken Coast, Redecan, XMG, Mollo, and Good Supply will be launching exciting new products

based on feedback from our consumers and our bartenders. Our strategic acquisition of HEXO and

Redecan aim to integrate their sales plan into our infrastructure and expand our brand portfolio and

product mix.

In fiscal '24, we almost doubled the Redecan flower share with the launch of three popular genetics:

Animal RNTZ; Space Age Cake; and Purple Churro. In Ontario, Animal RNTZ became the No. 1 and

No. 3 selling genetic for 14g and 3.5g pack types, respectively.

Space Age Cake was No. 8 in the 14g flower segment, despite limited availability. In fiscal '25, we

expect  these  genetics  will  continue  to  be  within  the  top  10  performing  genetics  in  the  mainstream

flower. In 2024, we made significant steps to rightsize our operational footprint in Canada to balance

supply and demand.

We  sold  the  Truss  facility  and  transitioned  all  our  cannabis  beverage  production  to  our  London,

Ontario  drinks  facility,  pushing  the  London  facilities  utilization  above  70%  and  improving  our

cannabis gross margins. These cannabis beverages are phenomenal. I wish we could sell them in

the U.S. today.

We centralized all our HEXO brand packaging and logistics into Leamington, Ontario, lowering our

labor cost per unit by 35% and delivering $35.4 million in synergies and exceeding our initial target

of  $27  million  by  37  --  by  31%.  We  successfully  transitioned  our  Broken  Coast  cultivation  to  our

Nanaimo, B.C. facility, increasing yields by 30% and lowering our cost per gram by 15%. We also

paused the growing during the year at our Cayuga facility that will drive additional savings of $4.5

million on an annual basis.

Finally, we transitioned a large portion of our Quebec cultivation facilities as vegetables, which we

expect  to  contribute  over  $5  million  annually  to  offset  the  cost  of  the  facility,  improving  the

marketability  and  the  value  of  the  facility  and  continue  to  grow  cannabis  in  smaller  portions  of  the

facility to meet the needs we want for our Quebec consumers. All of these initiatives were designed

to significantly lower the cost of growth to manufacture and package and ship our leading cannabis

brands  to  market.  These  consumer  and  operational  initiatives  are  entirely  leverageable  in  markets

around  the  world  for  years  to  come.  In  fact,  early  in  fiscal  '25,  we  shared  significant  learnings  in

cultivation and genetics with our teams in Europe.

Turning to our international cannabis, we grew net revenue by 22% year over year to approximately

$53 million and remained the No. 1 market leader in medical cannabis across Europe. Our annual

growth during the fiscal 2024 was driven by increased sales in Germany, Poland, the U.K., Australia,

and  New  Zealand.  In  Germany,  we  believe  we're  best  positioned  to  capture  a  majority  of  the

expected incremental growth in the cannabis medical market, which is projected to be approximately

$3 billion in the medium term.

On  April  1st,  the  Cannabis  Act  became  effective  in  Germany,  which  declassified  cannabis  to  a

nonnarcotic,  expanding  Tilray's  market  opportunity  in  Germany.  Since  the  Cannabis  Act  went  into

effect, we have already seen a 65% increase in sales, and we believe that our current positioning in

Germany  provides  us  with  several  unique  competitive  advantages.  Our  cultivation  facilities  in

Germany  and  Portugal,  combined  with  our  Tilray  Pharma  medical  distribution  network,  provides

Tilray  with  a  critical  vertical  integration,  allowing  us  to  consistently  supply  the  market  with

high-quality and a reliable source of medical cannabis. Aphria RX was a first facility in Germany to

receive both its cannabis cultivation license and commercial distribution license for medical cannabis

under the new regulations, allowing Tilray to cultivate, produce, distribute premium quality medical

cannabis, increasing its production by five times.

Aphria RX can now fully utilize and maximize its growing capacity while also expanding its genetics

to  a  total  of  31  approved  strain  from  the  previously  approved  three  strains.  We  believe  that  this,

coupled with the steps being taken by Germany to liberalize the reimbursement of medical cannabis,

significantly  increases  the  opportunity  in  the  German  market.  We  believe  that  Germany  is

declassifying  cannabis  as  a  nonnarcotic  will  also  have  a  far-reaching  impact  on  the  drug  policy

throughout Europe. The European opportunity could represent a potential $45 billion medical market

alone over the long term, and our presence in Europe allows Tilray to grow our global brand portfolio

to a base of 700 million people, which is twice the population in the U.S.

Turning  to  another  promising  international  market.  This  fiscal  year,  we  launched  Broken  Coast

medical cannabis products in Australia. Medical cannabis patients in Australia now have access to

Broken Coast through now cannabis strains cultivation from our facility in Canada. This launch came

in response to the feedback we received in Australia and leveraged our insights from our operations

in Canada and Europe.

Now, briefly on our CC Pharma, Tilray Pharma distribution business in Germany, which represents

our medical cannabis business through its network of 13,000 pharmacies. CC Pharma revenue was

nearly  flat  at  $259  million,  both  in  fiscal  2024  and  fiscal  2023,  but  our  gross  margin  held  at  11%

during both periods, but may fluctuate with change in product mixes as we focus on higher-margin

sales in future periods. Moving on to Tilray Beverages. In the U.S., we operate the fifth-largest craft

brewery  by  sales  with  six  manufacturing  facilities  over  500  distributors,  11  brew  hubs,  and  one

distillery restaurant, and a sales and marketing team across the country.

Our  Tilray  beverage  strategy  focused  on  growing  our  portfolio  of  iconic  craft  brands,  ensuring  the

product's excellence and innovation, driving scale, expanding distribution to increase market reach

and consumer access. In our beverage segment, we generated $200 million in fiscal 2024. On an

annualized  basis,  we'll  quickly  approach  $300  million  as  we  ramp  up.  Across  our  growing  brands,

SweetWater remains the No.

1 brand family in Georgia, multi-outlet. Montauk remains the No. 1 brand family in Metro New York,

having increased its distribution by 570 basis points over last year. Tilray is now the No.

1  craft  supplier  year-to-date  in  the  Pacific  Northwest.  10  Barrel's  volume  growth  increased  by  640

basis  points  since  Tilray  took  over  the  brand,  and  we're  capitalizing  on  the  success  of  10  Barrel's

Pub  Beer  brand  extension  with  Pub  Ice,  Pub  Cerveza  line  extension.  Both  innovations  have  done

extremely well in the market with 4,200 new distribution points, growing 18%. Pub Beer is now the

11th  largest  brand  on  the  West  Coast  with  only  half  the  distribution  of  top  competitors  due  to  its

focus on the Pacific Northwest states.

Since  Tilray  acquired  Shock  Top  in  2023,  we  have  made  significant  progress  in  turning  the  brand

around.  In  just  eight  months,  we  have  cut  total  Shock  Top  declines  in  half,  and  our  top  10

distributors have shown a remarkable 35% basis-point improvement. As a result, Shock Top finished

quarter  four  with  13.5%  growth  year  over  year  since  we  acquired  the  brand,  a  testament  to  our

team's  hard  work  and  a  commitment  to  delivering  outstanding  results.  We're  excited  to  continue

building on this momentum and driving growth for Shock Top in the years ahead.

As we have mentioned before, our vision is far beyond our current reach as we continue our focus

to become a dominant leading beverage business by leveraging our portfolio of beloved local craft

brand to win more hearts and occasions and bring these brands back to growth with innovation into

new  categories,  including  our  nonalc  beers,  flavored  malt  beverages,  ready-to-drink  cocktails,

spirits, and beyond alcohol, as we expand further into water, energy drinks and other categories. We

have the manufacturing facilities, the distribution, and the sales and marketing infrastructure to drive

growth  in  Tilray's  beverage  businesses.  In  the  nonalcoholic  segment,  we  launched  a  new  brand,

Runner's  High  Brewing  Company.  For  those  who  love  a  great  beer  flavor  without  the  buzz,  this

brand seeks to be the beer choice of runner's and their community of social and casual runner's, not

just elite athletes.

There  are  currently  three  brews,  Runner's  High  Golden,  wheat,  raspberry  wheat,  and  dark

Chocolate, with several expansion markets to follow. In April, we celebrated high honors and awards

at  the  2024  Craft  Brewer  Conference  and  the  World  Beer  Cup.  10  Barrel  Brewing  won  four  craft

beer awards, and 10 Barrel Brewmaster was recognized for innovation in craft brewing. Green Flash

Brewing also took home honors for their world-class Hazy West Coast IPA.

I'm  incredibly  proud  of  Tilray  Beverages'  team  for  these  outstanding  achievements.  With  over  500

beer and beverage distributors, Tilray is now a leading supplier in key regions across the U.S. with

regional  jewels  in  Northeast,  Pacific  Northwest,  Colorado,  and  Southeast.  Per  BI  shipments  for

retail, Tilray has increased its market share of total craft beer in seven states, including key markets

such as Oregon, Washington, Florida, Colorado, and Arizona, when comparing share and after the

acquisition of our eight craft brands.

With each beverage acquisition, we have made over the past few years, we have optimized our cost

structure, operational efficiencies, and we brought these back to our beloved brand of growth. As we

complete our integration process, we expect to get the margin of these eight craft brands to a gross

margin shared by SweetWater and our other legacy businesses. We also relaunched HiBall Energy

Drinks on Amazon and plan to launch new hemp-derived delta-9 beverages strategically in selected

markets, including Texas and New Jersey, where we can leverage our existing beverage distribution

network.  Our  hemp-derived  delta-9  formulations  are  complete,  and  we're  actively  developing  a

target launch strategy to ensure maximum impact.

We look forward to sharing more updates on this exciting development soon. With their operational

strength, Tilray is on a path to become a lightning rod for the beverage industry, rejuvenating growth

into these brands. In Tilray's spirits, Breckenridge Distillery continues to win accolades as the best

American whiskey two years in a row, and now is one of the most awarded craft distilleries in the

U.S. In addition to its awards-winning Bourbon, Breckenridge Distillery also produces highly coveted

gin and vodka.

Finally, let's discuss our Tilray Wellness businesses' focus on improving people's lives through the

power  of  hemp.  Tilray  Wellness  is  represented  mainly  by  Manitoba  Harvest,  our  leading  hemp

brand,  with  over  a  53%  market  share  in  branded  hemp  products,  Happy  Flower,  CBD-infused

beverages,  and  HiBall  Energy  Drinks.  In  Quarter  4,  our  Tilray  Wellness  business  saw  impressive

growth, with a 6% increase in revenue to 15.7 million. For fiscal 2024, the business generated 5%

growth,  bringing  in  55.3  million,  with  stable  improvements  to  gross  margins  of  30%  from  29%  last

year.

Tilray  wellness  strengthened  its  leading  market  share  positions  in  both  the  U.S.  and  Canada  over

the past year, with consumption increasing both in the natural and conventional channels. As Tilray

Brands has transformed, expanded, and completed numerous acquisitions to get to where we are

today,  our  mission  has  evolved  to  be  a  leading  premium  lifestyle  company  with  a  house  of  brand,

innovative products that inspire joy, wellness, and create memorable experience. With that, I'll now

turn the call over to Carl, to discuss our financial results in greater detail.

Carl?

Carl Merton -- Chief Financial Officer

Thank you, Irwin. I'll begin with a brief overview of our annual results for fiscal 2024 before moving

on  to  a  more  in-depth  review  of  Q4.  Note  that  we  present  our  financials  in  accordance  with  U.S.

GAAP and in U.S.

dollars.  Throughout  our  discussion,  we  will  be  referring  to  both  GAAP  and  non-GAAP  adjusted

results, and we encourage you to review the reconciliation contained within our press release of our

reported  results  under  GAAP  with  the  corresponding  non-GAAP  measures.  Net  revenue  for  fiscal

2024  grew  26%  to  $788.9  million  compared  to  the  prior  year  at  $627.1  million,  which,  as  Irwin

stated,  was  a  record  outcome.  By  segment,  beverage  alcohol  revenue  increased  113%,  largely

attributed to the acquired brands.

Cannabis net revenue rose 24% year over year, inclusive of $9.8 million due to price compression in

Canada,  of  which  nearly  all  represented  a  reduction  in  EBITDA.  Distribution  net  revenue  was  flat,

and  wellness  net  revenue  rose  5%  for  the  year.  From  a  segment  perspective,  25%  of  our  net

revenue  was  generated  by  our  beverage  alcohol  business,  35%  was  generated  by  our  cannabis

business,  33%  by  our  distribution  business,  and  7%  by  our  wellness  business.  This  compares  to

15% beverage alcohol, 35% cannabis, 41% distribution, and 9% wellness last fiscal year.

The  year-over-year  variance  is  due  to  our  acquisition  of  HEXO,  the  new  craft  brands,  and  the

remainder of the Truss Beverage brands. Further, as we progress through a full year with the new

beverage  alcohol  brands,  we  anticipate  these  ratios  to  converge  around  30%  beverage  alcohol,

30% cannabis, 30% distribution, and 10% wellness. Gross profit for fiscal 2024 increased 52%, to

$223.4 million, another record, compared to the prior year at $147 million. Gross margin increased

28% from 23% in the prior year.

Adjusted  gross  profit  increased  14%  to  $235.6  million  from  $206.4  million  in  the  prior  year,  while

adjusted gross margin, declined by 300 basis points to 30%, primarily reflecting the removal of the

HEXO advisory service revenue in the prior year with their initially lowered margins, and the impact

from  the  recently  acquired  craft  brands.  By  segment,  beverage  alcohol  gross  margin  was  44%

compared to 49% in the prior year due to lower cost margin contributions from the craft acquisitions,

which  is  the  result  of  temporary  excess  capacity  that  we  are  in  the  process  of  optimizing  and

enhancing. Beverage alcohol adjusted gross margin was 46% compared to 53%. This was offset by

a $2.5 million volume commitment reimbursement in our spirits business, with no associated costs.

For greater context, adjusted gross margin for our legacy beverage business was 58%, compared to

the prior year of 53%, primarily as a result of an agreement with the distributor related to our spirits

business and more volume flowing through the facilities as we ramped up production in March and

April to meet seasonally strong April and May sales. Adjusted gross margin for the newly acquired

craft brands was 33%. The improvement of gross margins in beverage alcohol, primarily in the beer

portion  of  our  business,  as  Irwin  said  earlier,  is  a  major  focus  of  ours.  And  we  should  begin  to

demonstrate improvements in Q1 of fiscal 2025.

As of the end of our fiscal year, we successfully integrated production of all the acquired brands into

our production facilities and exited their related co-manufacturing agreements with the exception of

Shock Top. As a result of this production integration, we will no longer separate the gross margins

between legacy products and the new craft products starting next quarter. Cannabis gross margin

was  33%  compared  to  26%  in  the  prior  year.  And  adjusted  gross  margin  was  36%,  compared  to

51%, primarily due to the termination of the HEXO advisory services agreement, which contributed

only $1.5 million of gross profit in the current year compared to $40.4 million in the prior year.

We  also  experienced  a  change  in  sales  mix,  with  a  higher  percentage  of  sales  coming  from

wholesale,  compounded  by  the  price  compression  in  the  Canadian  adult-use  market,  as  I  will

explain  in  further  detail  shortly.  Distribution  gross  margin  held  steady  at  11%,  although  it  was

expected  to  improve  with  changes  in  product  mix  as  we  focus  on  higher-margin  sales  in  future

periods.  And  wellness  adjusted  gross  margin  was  up  slightly  at  30%  compared  to  29%,  driven  by

lower material costs and overhead optimization. Net loss for fiscal 2024 improved to $222.4 million

or $0.33 per share, compared to $1.4 billion in the prior year, or $2.35 per share, with the latter tied

to noncash goodwill impairment in the prior year.

From  an  adjusted  perspective,  we  are  reporting  adjusted  net  income  of  $6.1  million,  or  $0.01  per

share,  compared  to  $0.4  million,  or  $0.0  per  share,  in  the  prior  year.  Under  the  current  year's

adjusted EBITDA definition, fiscal 2024 improved to a record $60.5 million, up 3% from $58.7 million

in the prior year. Under the prior year's definition, we would have reported adjusted EBITDA of $65.1

million  in  the  current  year  while  reporting  $61.5  million  in  the  prior  year.  We  have  now  generated

positive adjusted EBITDA for five consecutive years.

Cash  flow  used  in  operations  was  $30.9  million,  compared  to  $7.9  million  of  cash  generated  by

operations in the prior year. Adjusted free cash flow was $6.6 million for the year, which we view as

a  very  positive  outcome,  considering  that  just  last  quarter  we  had  communicated  that,  we  did  not

believe we would achieve our goal of reaching positive free cash flow in fiscal 2024. But we had still

expected a very strong Q4 that proved to be stronger than we had anticipated. Over this past year,

we reduced our convertible debt by almost $300 million, decreasing our net debt to approximately

$61.3 million, and leaving us with a net debt to EBITDA ratio of 1.73.

Our intention is to continue lowering our indebtedness, optimize our capital structure, and enhance

our  financial  flexibility.  The  net  reduction  in  our  convertible  debt  will  decrease  our  annual  interest

expense  by  $14.4  million,  which  flows  directly  to  net  income  and  free  cash  flow.  Let's  now  review

our quarterly performance. Q4 total net revenue rose by $45.7 million to $229.9 million compared to

the prior year quarter of $184.2 million, representing almost 25% growth.

The diversification of our business through our adjacency model really came into play during Q2. For

the  first  time,  our  beverage  alcohol  segment  exceeded  the  size  of  our  cannabis  segment  in  Q4,

representing  33%  of  our  total  revenue  mix  compared  to  only  18%  in  Q4  during  the  previous  fiscal

year. In Q4, compared to the prior-year period, net beverage alcohol revenues rose 137% to $76.7

million. Net cannabis revenue rose 12% to $71.9 million.

Distribution revenue decreased 10% to $65.6 million. And finally, wellness revenue rose 6% to $15.7

million.  We  are  disappointed  that  the  Canadian  government  did  not  resolve  the  issue  of  cannabis

excise  taxes  during  their  last  budget  and  maintain  our  view  that  reform  is  essential  to  long-term

viability of the Canadian cannabis industry. The current fixed price tax structure is inherently unfair,

as  it  has  allowed  taxes  as  a  percentage  of  revenue,  to  spike  even  as  the  price  of  cannabis  has

declined by more than 50% since legalization.

Still, as Irwin mentioned, as a result of this, we paid over $100 million in excise taxes last year and

will continue to do so every year in the future, until it is changed. We are encouraged that CRA is

beginning  to  crack  down  on  delinquent  LPs,  asserting  cash  flow  pressures  on  our  less  financially

strong  competitors,  potentially  forcing  an  industry-needed  LP  rationalization.  We  incurred  $22.1

million in Canadian cannabis excise taxes during Q4, which are a reduction to revenue, compared to

$16.4 million last year. But due to a change in our revenue mix to higher excise tax products, and

without  the  advisory  fee,  which  is  not  taxed,  excise  tax  amounted  to  33%  of  gross  Canadian

cannabis revenue, excluding wholesale in Q4, compared to 25% in the same quarter last year.

Gross  profit  was  $82.4  million  compared  to  $67.2  million  in  the  prior-year  quarter.  Gross  margin

remained  consistent  at  36%,  while  adjusted  gross  margin  decreased  100  basis  points  to  36%

compared  to  the  prior-year  quarter.  Most  of  the  variance  was  related  to  cannabis,  which  included

significantly higher HEXO advisory fees in the prior year, along with higher sales from wholesale and

price compression in the Canadian adult-use market in the current year. Net loss improved to $15.4

million compared to a net loss of $119.8 million in the prior year quarter.

On a per share basis, this amounted to a net loss of $0.04 per share versus $0.15 per share in the

prior year quarter. Adjusted net income in the quarter was $35.1 million, which when calculated on a

per share basis, resulted in an adjusted EPS of $0.04 for the quarter, a $0.06 improvement from the

prior-year quarter. Adjusted EBITDA was $29.5 million, up 37% from $21.5 million in the prior-year

quarter,  representing  a  new  record  level  of  quarterly  adjusted  EBITDA.  On  synergies  and  cost

reductions, recall that our revised HEXO synergy plan targeted between $30 million and $35 million

in savings.

We exceeded that by achieving $35.4 million of savings on an annualized run rate basis, of which

$26.2 million represented actual cost savings during the year. Operating cash flow was $30.7 million

compared to $43.6 million in the prior year quarter. This decrease in operating cash flow is primarily

a function of restructuring in HEXO exit costs, as we complete the integration of HEXO's operations

into our operations. Adjusted free cash flow was $30.6 million compared to $48.3 million in the prior

year quarter, consistent with the changes in operating cash flow.

Turning now to our four business segments, beverage alcohol revenue was $76.7 million, up 137%

from $32.4 million in the prior-year quarter. The positive delta was due to contributions from the craft

brands, which were purchased last fall. A strong beer business leading up to the summer, which is a

historically  busy  season.  And  new  innovations  across  the  portfolio  launched  as  part  of  the  spring

reset.

Beverage  alcohol  gross  profit  increased  to  $40.8  million  compared  to  $16.6  million.  And  adjusted

gross  profit  increased  to  $41  million  compared  to  $17.8  million.  While  beverage  alcohol  gross

margin  increased  to  53%,  compared  to  51%.  And  adjusted  gross  margin  decreased  to  53%,  from

55% in the prior year quarter.

Gross  cannabis  revenue  of  $94  million  was  comprised  of  $61.5  million  in  Canadian  adult  use

revenue, $13.1 million in international cannabis revenue, $6.4 million in Canadian medical cannabis

revenue, and $13 million in wholesale revenue. Net cannabis revenue, which excludes $22.1 million

in  excise  taxes,  was  $71.9  million,  representing  a  12%  increase  from  the  year-ago  period.  The

positive variances related to increased organic growth, excluding the HEXO advisory fee, combined

with contributions from the acquisition of HEXO and Truss. Offsetting the increase in net cannabis

revenue, was the elimination of advisory services revenue, totaling $16.1 million from the prior-year

quarter, due to the HEXO acquisition, which terminated the previous strategic arrangement that was

in place.

Revenue  from  Canadian  medical  cannabis  grew  6%,  despite  the  category  being  impacted  by

competition  from  the  adult  use  market,  and  its  related  price  compression.  Wholesale  revenue

increased  to  $13  million,  from  $0.8  million  last  year.  The  Canadian  cannabis  industry  is  currently

experiencing  an  interesting,  previously  unexperienced  phenomenon  that  we  took  advantage  of  in

the  current  quarter.  As  many  in  the  industry  moved  to  asset-light  business  models,  a  significant

portion of previous production capacity in the industry has disappeared.

This, in turn, has resulted in previous excess inventory levels in the industry dissipating. With lower

inventory  levels,  securing  supply  appears  to  have  become  more  difficult,  and  pricing  in  the

wholesale  market  is  increasing,  as  much  as  5x  in  some  product  categories.  Against  this  new

backdrop,  we  took  advantage  of  advantageous  pricing  in  the  quarter,  resulting  in  a  significant

increase  in  our  wholesale  revenue.  While  opportunities  related  to  wholesale  product  demand  from

asset-light Canadian LPs is expected to remain in the short-term, we do not anticipate this level of

quarterly wholesale revenues to be the new norm.

International cannabis net revenue was $13.1 million in the quarter compared to $15.7 million in the

prior  year  due  to  timing  differences  of  shipments  in  the  international  markets  to  various  countries.

Cannabis  gross  profit  was  $28.8  million  and  cannabis  gross  margin  was  40%  compared  to  $39.5

million and 61% in the prior year quarter. Distribution revenue, derived predominantly through Tilray

Pharma,  decreased  to  $65.6  million  from  $72.6  million  in  the  prior-year  quarter.  Distribution  gross

profit increased to $7.8 million, compared to $6.7 million in the prior year quarter, while distribution

gross margin increased to 12%, from 9% in the prior year quarter, driven by our increased focus on

margin.

Wellness  revenue  grew  6%  to  $15.7  million  from  $14.8  million  in  the  prior-year  quarter.  Wellness

gross profit was $4.9 million, up from $4.4 million in the prior-year quarter, and gross margin rose to

31%,  compared  to  30%.  Our  cash  and  marketable  securities  balance  as  of  May  31,  was  $260.5

million, down from $448.5 million in the year-ago period. The majority of the variance was related to

the repayment of the Tilray '23s, the cash purchase price of our acquisition of the craft brands, and

settling assumed liabilities and exit costs from HEXO, including the unpaid excise tax we inherited

as part of the transaction, as well as legacy litigation settlements.

Fiscal  2024  was  a  year  marked  by  major  acquisitions  in  both  the  beverage  alcohol  and  cannabis

segments. In addition to the revenue increases we enjoyed from these acquisitions, we also made

significant progress in integrating those acquisitions into our existing infrastructure. For the cannabis

segment,  this  integration  is  largely  complete,  with  redundant  assets  available  for  sale,  the  largest

pieces remaining in our integration plan. For the beverage alcohol segment, there is still work to be

done on the integration.

As  I  said  previously,  all  brands,  except  for  Shock  Top,  have  exited  their  co-manufacturing

agreements  and  are  now  being  produced  in  our  facilities.  Our  integration  work  will  continue  to

ensure  we  are  maximizing  low-cost  production  footprints  and  their  related  utilizations,  fully

integrating purchasing decisions across all brands to take advantage of pricing commensurate with

our  status,  as  the  fifth-largest  craft  producer  in  the  U.S.,  and  fine-tweaking  all  our  production

activities, all to bring our consolidated beverage alcohol margins back up above 40%. Finally, we are

pleased to provide the following guidance for fiscal 2025. We anticipate net revenues to be between

$950 million and $1 billion, with mid single digits of organic growth.

Let  me  now  conclude  our  prepared  remarks  and  open  the  lines  for  questions  from  our  covering

analysts. Operator, what's the first question?

Operator

Questions & Answers:



Tilray-brands