Tilray Brands Inc
For the period ended Aug 31, 2024. Filed Oct 10, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 31, 2024 · Filed Oct 10, 2024
TLRY$2.92+3.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-02-29; filed 2024-04-09.
0001437749-24-011541
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-08-31; filed 2024-10-10.
0001437749-24-031042
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 147 previous paragraphs and 136 current paragraphs.
66 unchanged; 48 reworded; 22 added; 32 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 52 previous and 42 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (22)
Current report
Tilray Brands, Inc., a Delaware corporation (collectively, along with its subsidiaries, the “Company”, “Tilray”, “we”, “us” and “our”) is a leading global lifestyle consumer products company, which was incorporated on January 24, 2018 and is headquartered in Leamington and New York, with operations in Canada, the United States, Europe, Australia, New Zealand and Latin America that is leading as a transformative force at the nexus of cannabis, beverage, wellness, and entertainment, elevating lives through moments of connection. Tilray’s mission is to be a leading premium lifestyle company with a house of brands and innovative products that inspire joy, wellness and create memorable experiences.
Current report
Due to the short remainder of the legislative term until September 2025, we expect a regulatory solution for the framework of the Pillar Two Regulations (“model projects”) via two administrative ordinances. One – of which the draft version is known – is to be transferred from the Ministry of Health into the Ministry of Food and Agriculture. A second one will likely define the framework of the model projects. Both are expected after the parliamentary approval of the federal budget in late November 2024.
Current report
Manitoba Harvest’s US branded business grew 5.2% in Multi-Outlet consumption during the three months ended August 31, 2024 from the prior year period, further establishing its leading market share position with the brand’s top five customers all seeing growth. The Company continues to focus on value-added innovation within the wellness space with the acquisition of The Humble Seed, a seed-forward cracker company with snacking distribution in key US retailers, along with the launch of two new flavors of BioActive Fiber within the current quarter.
Current report
Effective September 1, 2024, Tilray acquired a portfolio of four craft brands and breweries comprised of Atwater Brewery, Hop Valley Brewing Company, Terrapin Beer Co., and Revolver Brewing from Molson, see Note 27 (Subsequent Events). We expect that this recent acquisition furthers the execution of our beverage strategy and will have positive impacts on our beverage segment leading to increased revenues and whitespace penetration.
Current report
Our reporting segment revenue on a constant currency(1) basis is as follows:
Current report
Our geographic revenue on a constant currency(1) basis is as follows:
Current report
***Revenue from Canadian adult-use cannabis:***During the three months ended August 31, 2024, our revenue from Canadian adult-use cannabis decreased to $57.2 million, compared to revenue of $71.2 million for the prior year period. Revenue in the prior year period included $1.5 million in advisory fees which did not repeat during the three months ended August 31, 2024. On a constant currency basis, our revenue from Canadian adult-use cannabis decreased to $58.8 million for the three months ended August 31, 2024. The decrease in adult-use revenue was driven by our renewed focus on preserving gross margin and maintaining a higher average selling price in categories that have experienced a high degree of price compression.
Current report
Wholesale cannabis revenue: Revenue from wholesale cannabis increased to $5.5 million for the three months ended August 31, 2024 compared to revenue of $5.3 million for the prior year period. On a constant currency basis, revenue from wholesale cannabis increased to $5.7 million for the three months ended August 31, 2024 compared to revenue of $5.3 million for the prior year period. Due to the transition to asset-light business models, the Canadian cannabis industry has experienced a reduction in excess inventory resulting in price increases in the B2B market. This shift in market dynamics and demand enabled us to strategically sell inventory that was sought after in the wholesale market during the quarter but does not meet the high standard of our branded product. In the near-term future, we anticipate continued volatility and fluctuation in the wholesale market, and we will assess market conditions on a quarterly basis.
Current report
Cannabis gross margin: Gross margin increased during the three months ended August 31, 2024 to 40% from 28% in the prior year period. Excluding the impact of the non-cash fair value purchase price accounting step-up, adjusted gross margin during the three months ended August 31, 2024 increased to 40% from 35% in the prior year period. The increase in the adjusted gross margin for the three months ended August 31, 2024 was driven by our international cannabis revenue as well as a continued focus on maintaining a higher average selling price and selling a favorable product mix to improve gross margins in Canada. Additionally, the prior year period also included $1.5 million of HEXO advisory services revenue, which did not recur in the current year period.
Current report
Distribution* gross margin:* Gross margin increased to 12% for the three months ended August 31, 2024 from 11% for the prior year period, which was attributed to favorable product mix as we continued to prioritize higher margin product offerings.
Current report
Office and general increased by 13% during the three months ended August 31, 2024. This increase was driven by the acquisition of the newly acquired craft beverage portfolio.
Current report
The Company incurred non-production related amortization charges of $21.8 million for the three months ended August 31, 2024 compared to $22.2 million in the prior year period. The three month decrease was driven by the assets acquired from craft beverage acquisition, offset by the assets that are held for sale and are no longer depreciated, see Note 3 (Capital assets).
Current report
Within the Cannabis segment, restructuring costs predominantly related to the HEXO acquisition-related charges, which are expected to take place within 24 months from the acquisition date. In the three months ended August 31, 2024 we recognized $2.6 million of employee termination benefits and costs for the conversion from cannabis to produce at HEXO's Quebec cultivation facility (which is currently held for sale), the optimization of our Redecan facilities and $0.3 million of restructuring charges related to the remaining costs of exiting the Truss facility following its sale to a third party in the previous fiscal year ended May 31, 2024. Additionally, the Company recognized $0.1 million of cost associated with winding down the Fort Collins, CO warehouse currently held for sale.
Current report
Within the Beverage alcohol segment, the Company recognized $0.1 million of employee termination benefits through the integration of the Craft acquisition.
Current report
Within the Distribution segment, the Company recognized $0.1 million of restructuring charges for its Argentinean pharmacy business.
Current report
Lastly, for the three months ended August 31, 2024, the Company recognized $1.1 million of cost associated with the investment held in Superhero (SH) as a result of MedMen’s ongoing restructuring or liquidation undertakings.
Current report
Transaction (income) costs, net
Current report
Non-operating (expense), net income was comprised of:
Current report
For three months ended August 31, 2024, adjusted EBITDA decreased to $9.3 million compared to $10.7 million for the prior year period.
Current report
On May 17, 2024, the Company entered into an equity distribution agreement with TD Securities (USA) LLC (“TD Securities”) and Jefferies LLC (“Jefferies”) in connection with an aggregate offering value of up to $250 million from time to time through an at-the-market equity program (“ATM Program”). During the three months ended August 31, 2024, the Company issued 36,693,307 shares under its At-the-Market (“ATM”) program generating gross proceeds of $68.3 million. The Company paid $1.8 million in commissions and other fees associated with these issuances generating net proceeds of $66.5 million. See Note 27 (Subsequent events) for additional transactions. The Company intends to use net proceeds from the ATM Program to fund strategic and accretive acquisitions or investments in businesses, including potential acquisitions of assets in the U.S. and internationally in order to capitalize on expected regulatory advancements or expansion opportunities.
Current report
The change in net cash used in operating activities was ($35.3) million for three months ended August 31, 2024 compared to ($15.8) million for the prior year period and was a result of additional working capital requirements as we continued to scale up our operations.
Current report
The change in cash provided by financing activities was $60.6 million for three months ended August 31, 2024 compared to $14.0 million for the prior year period. In the current period, cash was provided by funds from the ATM program that did not occur in the prior year period. Additionally, in the prior year period ended, August 31, 2023, the Company also received proceeds of $21.6 million for the overallotment issuance of TLRY 27 Notes.
Removed paragraphs (32)
Previous report
We are a leading global cannabis-lifestyle and consumer products company headquartered in Leamington and New York, with operations in Canada, the United States, Europe, Australia, and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering a worldwide community to live their very best life, enhanced by moments of connection and wellbeing. Tilray’s mission is to be the most responsible, trusted and market leading cannabis and consumer products company in the world with a portfolio of innovative, high-quality and beloved brands that address the needs of the consumers, customers and patients we serve.
Previous report
It has been reported that the Standing Committee of the Finance Committee has recommended to Canada’s Finance Minister that the current excise tax regime be replaced with a 10% ad valorem tax regime. If the Canadian government takes this step and we encourage the various Provincial governments to resist replacing this 10% ad valorem tax regime with their own, to claim any portion of this savings as additional profit by their respective Cannabis boards, or to require the savings be passed directly to consumers, as a means to strengthening the Canadian cannabis industry.
Previous report
We expect to see the cornerstone framework for the Pillar Two Regulations governing the model projects after the implementation of the Cannabis Act.
Previous report
Manitoba Harvest’s branded hemp business continued to expand its U.S. and Canadian leading market share position during the three and nine months ended February 29, 2024, with consumption up in both the Natural and Conventional Channels, with the brands top five customers all seeing growth. The Company continues to focus on value-added innovation within the wellness and food beverage space, with the launch of Bio-Active Fiber and protein rich Oatmeal coming to market during the three months ended February 29, 2024. In addition, during the later half of the quarter we relaunched HiBall energy drinks within the wellness beverages space to complement our recent Happy Flower CBD beverage launch.
Previous report
Our acquisition strategy has had a material impact on the Company’s results in the current quarter and we expect will continue into future periods, generating accretive impacts for our stockholders. A summary of their impacts are as follows:
Previous report
On June 22, 2023, Tilray acquired HEXO Corp. (“HEXO”) as discussed in Note 7 (Business acquisitions). With the HEXO Acquisition, Tilray initially expected to achieve additional cost savings of $27 million on an annualized pre-tax basis and has subsequently increased this target to between $30 to $35 million. These synergies will be realized across production, sales, marketing, distribution, and corporate savings, with incremental upside resulting from consolidating packaging, procurement, freight, logistics in addition to our facility rationalization in Quebec. This builds on Tilray’s substantial progress optimizing its Canadian cannabis operations discussed below. During the three and nine months ended February 29, 2024, we have achieved $27.5 million of our synergy plan on an annualized run-rate basis, of which $15.6 million represented actual cost savings during the period. As discussed in our trends section, these cost savings initiatives take time to implement, resulting in related benefits being realized over time.
Previous report
On September 29, 2023, Tilray acquired a portfolio of craft beer brands, assets and businesses comprising eight beer and beverage brands from Anheuser-Busch Companies, LLC, including breweries and brewpubs associated with them (the “Craft Acquisition”). The acquired businesses include Shock Top, Breckenridge Brewery, Blue Point Brewing Company, 10 Barrel Brewing Company, Redhook Brewery, Widmer Brothers Brewing, Square Mile Cider Company, and HiBall Energy. The details of the acquisition are as described in Note 7 (Business acquisitions). The Craft Acquisition, is expected to be transformational to our beverage alcohol strategy elevating the Company to the 5th largest U.S. Craft Beer market share position from our previous 9th place market share position.
Previous report
The Company further believes the Craft transaction will be accretive to our adjusted EBITDA, driven by a range of strategic benefits, including:
Previous report
In addition to acquisitions completed above, the Company has also completed the following cost saving strategies during the second quarter which impact results for the nine months ended February 29, 2024:
Previous report
During the fourth quarter of our fiscal year ended May 31, 2022, the Company launched a $30 million cost optimization plan of our existing cannabis business to solidify our position as an industry leading low-cost producer. As of the date of the conclusion of the plan, we achieved $22.3 million against the plan. The Company now considers this plan fulfilled, owing to a strategic shift in our Cannabis beverage strategy. The Company's original targets involved repurposing our beverage facility; however, this initiative was altered following the Truss acquisition, which required additional capacity from our existing infrastructure.
Previous report
During our fiscal year ended May 31, 2023, the Company launched an $8.0 million cost optimization plan for our international cannabis business to adapt to changing market dynamics and slower than anticipated legalization in Europe. As of the date of the conclusion of the plan, we achieved an annualized run-rate basis of $7.6 million of cost savings. The Company concluded this savings plan as of November 30, 2023. Approximately $1.3 million of cost savings identified in connection with the $8.0 million cost optimization plan were associated with a temporary furlough of certain cultivation employees, which did not occur due to an increase in the demand for our medical cannabis products thereby rendering such action not necessary. Additional cost savings were identified in order to offset the unrealized savings associated with the planned furlough.
Previous report
Our reporting segments revenue using a constant currency(1) are as follows:
Previous report
Our geographic revenue using a constant currency(1) is as follows:
Previous report
***Revenue from Canadian adult-use cannabis:***During the three and nine months ended February 29, 2024, our revenue from Canadian adult-use cannabis increased to $62.1 million and $205.4 million, compared to revenue of $45.3 million and $156.1 million for the prior year period. Further, the prior year revenue includes advisory fees in the amount of $8.7 million and $24.3 million for the three and nine months ended February 28, 2023, compared to $nil and $1.5 million for the three and nine months ended February 29, 2024. Excluding these advisory service fees, revenue increased by $25.5 million and $72.1 million for the three and nine months ended February 29, 2024. The increase in adult-use revenue is due to the acquisitions of HEXO on June 22, 2023 and Truss on August 3, 2023, and our robust innovation pipeline from existing brands. On a constant currency basis, our revenue from Canadian adult-use cannabis increased to $61.6 million and $207.7 million for the three and nine months ended February 29, 2024.
Previous report
Wholesale cannabis revenue: Revenue from wholesale cannabis increased to $2.8 million and $12.3 million for the three and nine months ended February 29, 2024, compared to revenue of $0.1 million and $0.7 million for the prior year period. On a constant currency basis, revenue from wholesale cannabis increased to $2.8 million and $12.6 million for the three and nine months ended February 29, 2024 compared to revenue of $0.1 million and $0.7 million. The Company continues to believe that wholesale cannabis revenue will remain subject to quarter-to-quarter variability and is based on opportunistic sales. The wholesale transactions that occurred in the current year periods aided with our liquidity initiatives to increase our cash flow from operations despite having unfavorable impacts on our gross margin and EBITDA.
Previous report
Cannabis gross margin: Gross margin increased during the three and nine months ended February 29, 2024 to 33% and 31% from (69)% and 12% for the prior year same period. Excluding the impact of the non-cash fair value purchase price accounting step-up and inventory valuation adjustments, adjusted gross margin during the three and nine months ended February 29, 2024 decreased to 33% and 34% from 47% and 47% when comparing the same prior year period. A portion of the decrease is a result of the termination of the HEXO advisory services agreement which contributed $nil and $1.5 million of gross profit in the current year compared to $8.7 and $24.3 million in the prior year, which if excluded would decrease adjusted gross margin to 35% and 37% for the three and nine months ended February 28, 2023. The remaining decline in gross margin for the three and nine month periods was a result of a change in sales mix with a higher percentage of sales coming from wholesale.
Previous report
Distribution* gross margin:* Gross margin of 10% and 11% for the three and nine months ended February 29, 2024 decreased from 11% and 11% for the prior year period. While consistent for the nine month period comparison, the decrease in the gross margin for the three month period is attributed to product mix.
Previous report
Executive compensation decreased by 42% and 49% in the three and nine months ended February 29, 2024, primarily as a result of changes in estimates related to timing of compensation accruals.
Previous report
Office and general decreased by 38% and 2% during the three and nine months ended February 29, 2024. The decrease for the three month period is a result of $4.4 million of bad debt recoveries on a previously recognized credit loss provision, see Note 19 (Commitments and contingencies). The decrease is offset by the acquisition of the newly acquired beverage alcohol business portfolio and HEXO, which did not occur in the prior period.
Previous report
The Company incurred non-production related amortization charges of $21.6 and $65.7 million for the three and nine months ended February 29, 2024 compared to $23.5 and $71.9 million in the prior year period. The decreased amortization in the period is a result of the reduced intangible asset levels, as a result of prior year impairments.
Previous report
The Company approves detailed restructuring initiative plans at the executive level and recognizes these expenses in the period in which the plan has been committed to. The detailed breakdown of the restructuring plans in place, inclusive of their expected timeline for completion, for the three and nine months ended February 29, 2024, is as follows:
Previous report
HEXO Acquisition: Pursuant to our announced synergy program of $27 million in relation to the HEXO acquisition, we expect our HEXO restructuring plan to span the first 24 months following the acquisition. In the current nine-month period, we recognized $4.0 million related to employee termination benefits costs in relation to the conversion of our Masson facility from cannabis to produce, the optimization of our Redecan facilities and expenses associated with our Masson facility, which is currently operational although available for sale.
Previous report
Truss Acquisition: In relation to the acquisition of Truss, the Company has decided to repurpose the facility for the production of non-cannabis beverages. The Company expects the timeline of completion of this program to be 18 months from date of acquisition. In the current nine-month period, we recognized $3.5 million of restructuring charges related to the costs of exiting the facility until the new business has resumed.
Previous report
Canadian Business Cost Reduction Plan: As referenced in our Canadian cannabis cost optimization plan for $30 million, the Company has committed to reducing costs, which was completed during the three months ended November 30, 2023. In the current nine-month period ended February 29, 2024, we recognized $0.5 million of restructuring charges related to the relocation of our Broken Coast facility from Duncan to Nanaimo, BC, and the employee termination benefits associated with the transition of packaging finished goods to the Aphria One location.
Previous report
Distribution* Cost Optimization:* The Company executed a cost optimization plan during the quarter to reduce costs within the distribution segment by $1.5 million annually. It is expected that this plan will be completed within the fiscal year, however the Company continues to evaluate this segment for further cost optimizations and production efficiencies. In the current nine-month period, we recognized $0.8 million related to employee termination benefits in association with executing this plan.
Previous report
For the prior period three and nine months ended February 28, 2023, the Company recognized $2.7 and $10.7 million of restructuring charges. This was comprised of amounts related to the Tilray-Aphria Arrangement Agreement for the closure of our Canadian cannabis facility in Enniskillen of $2.7 million and $4.2 million for the three and nine months ended February 28, 2023, respectively. Additionally, $1.6 million of exit cost and $2.8 million for inventory adjustments from the termination of our producer partnership in Uruguay due to a breach of the underlying contract in our International cannabis business. The Company also incurred $2.2 million of write-offs from the exit of our medical device reprocessing business in our distribution reporting segment. These exit costs were non-recurring in nature and did not have on going impacts in the current year.
Previous report
Transaction (income) costs
Previous report
For three and nine months ended February 29, 2024, adjusted EBITDA decreased to $10.2 million and $31.0 million compared to $13.3 and $37.2 million from the prior year period. The decrease was primarily driven by the aforementioned negative impacts to our cannabis gross margin.
Previous report
The change in net cash provided by (used in) operating activities was ($15.4) million and ($61.6) million for three and nine months ended February 29, 2024 compared to ($18.6) million and ($35.7) million for the prior year period. The decrease in cash used in the three month period was primarily related to the achievement of the previously described synergies. The increase in cash used in the nine month period was primarily related to the settlement of pre-acquisition liabilities assumed from the HEXO acquisition. Additionally, the prior period included the cash collection of the $18.3 million purchase price derivative from HTI as noted in the transaction cost section above, which did not recur in the current year.
Previous report
The change in cash (used in) provided by financing activities was ($10.9) million and ($82.3) million for three and nine months ended February 29, 2024 compared to ($2.4) million and $63.9 million for the prior year period. In the current period, cash was provided by funds from the overallotment of TLRY 27 Notes and other long term debt offset by the repurchase of convertible notes and long-term debt, while in the comparative period a larger amount of cash was provided by the ATM capital raise and smaller amounts of repurchased debt.
Previous report
ABC Group Credit Agreement
Previous report
As previously disclosed, on January 5, 2024, the Company’s wholly-owned subsidiary, American Beverage Crafts Group, Inc. (f/k/a Four Twenty Corporation, the “Borrower”), entered into a waiver (the “Waiver”) to that certain Credit Agreement dated as of June 30, 2023 (the “ABC Group Credit Agreement”) by and among the Borrower, Bank of America, N.A., in its capacity as Administrative Agent, and certain other guarantors and lenders thereto. The Waiver effectively eliminated a potential event of default relating to the “Consolidated Leverage Ratio” financial covenant contained in the ABC Group Credit Agreement. On March 29, 2024, and in satisfaction of the Waiver requirements, the Borrower entered into a further amendment (the "Amendment") to the ABC Group Credit Agreement to reflect certain internal subsidiary contributions and lease transfers. The foregoing description of the Waiver and Amendment does not purport to be complete and is qualified in its entirety by the full text of each of the Waiver and Amendment, which are being filed as Exhibits 10.2 and 10.5, respectively, to this quarterly report on Form 10-Q for the quarter ended February 29, 2024.
Reworded paragraphs (48)
Previous wording
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Interim Consolidated Financial Statements and the related Notes thereto for the period ended February 29, 2024 contained in this Quarterly Report on Form 10-Q and the Audited Consolidated Financial Statements and the related Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023, as well as in conjunction with the sections entitled“Item 1A. Risk Factors”* and*“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”* in our Annual Report on Form 10-K* for the fiscal year ended May 31, 2023 and in the section entitled “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading“Cautionary Note Regarding Forward-Looking Statements”* in the introduction of this Form 10-Q.*
Current wording
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Unaudited Condensed Interim Consolidated Financial Statements and the related Notes thereto for the period ended August 31, 2024 contained in this Quarterly Report on Form 10-Q and the Audited Consolidated Financial Statements and the related Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024, as well as in conjunction with the sections entitled“Item 1A. Risk Factors”* and*“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”* in our Annual Report on Form 10-K* for the fiscal year ended May 31, 2024 and in the section entitled “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading“Cautionary Note Regarding Forward-Looking Statements”* in the introduction of this Form 10-Q.*
Previous wording
Our overall strategy is to leverage our brands, infrastructure, expertise and capabilities to drive market share in the industries in which we compete, achieve industry-leading, profitable growth and build sustainable, long-term shareholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities in consumer insights, drive category management leadership and assess growth opportunities with the introduction of new products and entries into new geographies. In addition, we are relentlessly focused on managing our cost of goods and expenses in order to maintain our strong financial position.
Current wording
Our overall strategy is to leverage our brands, infrastructure, expertise and capabilities to drive revenue growth in the industries in which we compete, achieve industry-leading, profitability and build sustainable, long-term shareholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities in data analytics and consumer insights, drive category management leadership and assess opportunities for the introduction of new categories, products and entries into new geographies. In addition, we are relentlessly focused on managing our cost structure and expenses in order to maintain our strong financial position. Finally, our experienced leadership team provides a strong foundation to accelerate our growth. Our management team is complemented by experienced operators, cannabis industry experts, veteran beer and beverage industry leaders and leaders that are well-established in wellness foods, all of whom apply an innovative and consumer-centric approach to our businesses.
Previous wording
The U.S. beverage alcohol category is approximately a $180 billion category per AKI Technologies encompassing beer, wine, and spirits and continues to maintain annual growth of 2% amidst shifting consumer trends, especially within the craft industry. Several key trends we expect to shape the near-term outlook for our results in this segment are in two main categories; beer and spirts:
Current wording
The U.S. beverage alcohol category is approximately a $180 billion category per AKI Technologies encompassing beer, wine, and spirits and continues to maintain annual growth of 2% amid shifting consumer trends, especially within the craft industry. Several key trends we expect to shape the near-term outlook in this segment, which primarily are in two main categories: beer and spirits:
Previous wording
In the spirits category, Breckenridge Distillery stands out as a beacon within the bourbon industry, making notable strides in vodka and gin markets while offering a comprehensive hospitality experience through its world-class restaurant and retail location. Our primary growth objective centers on expanding market share across the United States. To fuel future expansion, we prioritize showcasing our exceptional product quality and introducing innovative new offerings. Recent accolades, including Double Gold awards at prestigious competitions and strategic product placements, we believe underscore our brand's growing recognition and appeal. Despite prevailing challenges within the overall spirits market, our focus on whiskey—a resilient segment— we believe positions us for continued growth fueled by innovative product introductions and expanded market presence.
Current wording
In the spirits category, Breckenridge Distillery stands out as a beacon within the bourbon industry, making notable strides in vodka and gin markets while offering a comprehensive hospitality experience through its world-class restaurant and retail location. Our primary growth objective centers on expanding market share across the United States. To fuel future expansion, we prioritize showcasing our exceptional product quality and introducing innovative new offerings. Recent accolades, including Double Gold awards at prestigious competitions such as Port Cask Finish being named World’s best finished Bourbon at the 2024 World Whiskies Awards and strategic product placements, we believe underscore our brand's growing recognition and appeal. Despite prevailing challenges within the overall spirits market, our focus on whiskey—a resilient segment— we believe positions us for continued growth fueled by innovative product introductions and expanded market presence.
Previous wording
The cannabis industry in Canada continues to evolve at a rapid pace given how nascent the industry is with federal legalization of adult-use cannabis occurring just over five years ago. Through analysis of the current market conditions, the following key trends have emerged and are anticipated to influence the near-term future in the Canadian cannabis industry:
Current wording
The cannabis industry in Canada continues to evolve given how nascent the industry is with federal legalization of adult-use cannabis occurring just over five years ago. Through analysis of the current market conditions, the following key trends have emerged and are anticipated to influence the near-term future in the Canadian cannabis industry:
Previous wording
It has recently been reported that Canada Revenue Agency (CRA) has taken steps to garnish payments due to Canadian Licensed Producers (LPs), who have failed to pay their Excise Tax in full in a timely manner. The reported garnishments by CRA were quickly followed by at least 2 LPs filing for insolvency protection. We view CRA's proactiveness on account collection as a positive step towards the consolidation of the Canadian cannabis industry. As at the date of this filing we are current with CRA on Excise Taxes owed by all of our Canadian entities that are required to pay Excise Taxes.
Current wording
It has recently been reported that Canada Revenue Agency (CRA) has taken steps to garnish payments due to Canadian Licensed Producers (LPs), who have failed to pay their Excise Tax in full in a timely manner. The reported garnishments by CRA were quickly followed by LPs filing for insolvency protection. We view CRA's proactiveness on account collection as a positive step towards the consolidation of the Canadian cannabis industry. This proactiveness in creating cash flow pressure for those LPs that were behind on Excise Taxes increases the risk of future insolvencies in the LP market. As at the date of this filing we are current with CRA on Excise Taxes owed by all of our Canadian entities that are required to pay Excise Taxes.
Previous wording
The cannabis industry in Europe is in its early stages of development whereby countries within Europe are at different stages of legalization of medical and adult-use cannabis as some countries have expressed a clear political ambition to legalize adult-use cannabis (Germany, Portugal, Luxembourg and Czech Republic), some are engaging in an experiment for adult-use (Germany, Netherlands and Switzerland) and some are debating regulations for cannabinoid-based medicine (France and Spain). In Europe, we believe that, despite continuing recessionary economic conditions and the Russian conflict with Ukraine, cannabis legalization (both medicinal and adult-use) will continue to gain traction albeit more slowly than originally expected. This is evidenced by the recently adopted cannabis regulations in Germany, which we believe will serve as a catalyst for continued changes in drug policy throughout Europe. We also continue to believe that Tilray remains uniquely positioned to maintain and gain significant market share in these markets with our vertically-integrated infrastructure and well-placed investments, which is comprised of two EU-GMP cultivation facilities within Europe located in Portugal and Germany, our distribution network and our demonstrated commitment to the availability, quality and safety of our cannabinoid-based medical products.
Current wording
The cannabis industry in Europe is in its early stages of development whereby countries within Europe are at different stages of legalization of medical and adult-use cannabis as some countries have expressed a clear political ambition to legalize adult-use cannabis (Germany, Portugal, Luxembourg and Czech Republic), some are engaging in an experiment for adult-use (Germany, Netherlands and Switzerland) and some are debating regulations for cannabinoid-based medicine (France and Spain). In Europe, we believe that, despite continuing recessionary economic conditions and the Russian conflict with Ukraine, cannabis legalization (both medicinal and adult-use) will continue to gain traction albeit more slowly than originally expected. This is evidenced by the recently adopted cannabis regulations in Germany, which we believe will serve as a catalyst for continued changes in drug policy throughout Europe. We also continue to believe that Tilray remains uniquely positioned to maintain and gain significant market share in these markets with our vertically-integrated infrastructure and well-placed investments, which is comprised of two EU-GMP cultivation facilities within Europe located in Portugal and Germany, our distribution network and our demonstrated commitment and expertise related to the availability, quality and safety of our cannabinoid-based medical products.
Previous wording
Subsequent to the end of our third quarter, the Cannabis Act, consisting of two parts, the CanG and MedCanG, passed both chambers of the German parliament, was signed into law by the Office of the Federal President and decriminalization and MedCanG portions of the Cannabis Act became effective on April 1, 2024. It is expected that the licensing process for the cannabis social clubs will become effective on July 1, 2024.
Current wording
Subsequent to the end of our third quarter, the Cannabis Act, consisting of two parts, the CanG and MedCanG, passed both chambers of the German parliament, was signed into law by the Office of the Federal President and decriminalization and MedCanG portions of the Cannabis Act became effective on April 1, 2024. The licensing process for the cannabis social clubs commenced on July 1, 2024 and is expected to provide first legal supply of adult-use cannabis outside of home-growing between November and January 2025. As of October 1, 2024, 16 licenses were issued out of 315 applications.
Previous wording
The MedCanG provides for several important medical cannabis reforms including the abolishment of the tender for domestic production, which will be replaced with a regular licensing scheme under the authority of the Federal Institute for Drugs and Medical Devices (the “BfArM”) as well as for the reclassification of medical cannabis from a narcotic to non-narcotic. These reforms will provide medical cannabis patients with enhanced accessibility to medical cannabis as it will allow for it to be prescribed via a normal prescription instead of a narcotic prescription, and will ease the reporting and storing requirements for pharmacies and distributors.
Current wording
The MedCanG provides for several important medical cannabis reforms including the abolishment of the tender for domestic production, which has been replaced with a regular licensing scheme under the authority of the Federal Institute for Drugs and Medical Devices (the “BfArM”) as well as for the reclassification of medical cannabis from a narcotic to non-narcotic, with Tilray receiving the first one. Three licenses for domestic cultivation have been issued, of which Tilray holds one. The foreseen enhanced accessibility to medical cannabis due to non-narcotic prescriptions has had the desired effect. The prescription numbers have risen since April 1, 2024.
Previous wording
We continue to believe that Tilray is well-positioned in Germany, especially in light of the enactment of MedCanG and given that we are one of only three manufacturers of medical cannabis in Germany as our wholly owned subsidiary, Aphria RX, was awarded the tender for the cultivation of medical cannabis in Germany by the BfArM. With the abolishment of the tender, we will seek to obtain a license for our state-of-the-art facility in Neumünster, which will improve our ability to more adequately meets the needs of patients. We further believe that the reclassification of medical cannabis as a non-narcotic provides Tilray with a larger market opportunity.
Current wording
We continue to believe that Tilray is well-positioned in Germany, especially considering the enactment of MedCanG and given that we are one of only three manufacturers of medical cannabis in Germany as our wholly owned subsidiary, Aphria RX, was awarded the first license for the cultivation of medical cannabis in Germany by the BfArM under the liberalized regime. Said license will improve our ability to meet the needs of patients and provide cannabis of the utmost quality and enhanced availability to a broader market.
Previous wording
Switzerland. In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and consumption, and in the meantime, it is commencing pilot projects in various cities, which permits selected participants to purchase cannabis for adult-use in various pharmacies in order to conduct studies on the cannabis market and its impact on Swiss society. It is the first trial for the legal distribution of adult-use cannabis containing THC in Europe. Switzerland is currently running trials in the cities of Lausanne, Zürich, Liestal, Allschwil, Bern, Bienne, and Lucerne, along with the cantons of Basel-Stadt and Geneva. On March 18, 2024, Switzerland announced a new pilot study in the district of canton Zürich, which is expected to be the largest.
Current wording
Switzerland. In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and consumption, and in the meantime, it is commencing pilot projects in various cities, which permits selected participants to purchase cannabis for adult-use in various pharmacies in order to conduct studies on the cannabis market and its impact on Swiss society. It is the first trial for the legal distribution of adult-use cannabis containing THC in Europe. Switzerland is currently running trials in the cities of Lausanne, Zürich, Liestal, Allschwil, Bern, Bienne, and Lucerne, along with the cantons of Basel-Stadt and Geneva. A new pilot study in the district of canton Zürich has commenced, making it four model projects in total.
Previous wording
Spain. In February 2024, Spain’s Ministry of Health announced that it had started the process to develop a Royal Decree with which it plans to approve the regulation of medical cannabis. In addition, it launched a public consultation on its proposals for a medical cannabis framework in the country and provided organizations and individual with the opportunity to submit their comments.
Current wording
Spain. In February 2024, Spain’s Ministry of Health announced that it had started the process to develop a Royal Decree with which it plans to approve the regulation of medical cannabis. In addition, it launched a public consultation on its proposals for a medical cannabis framework in the country and provided organizations and individual with the opportunity to submit their comments. This process is ongoing.
Previous wording
Ukraine. In February 2024, President Zelensky signed the legislation permitting the prescription of cannabis-based medicines for conditions including pain, cancer and PTSD. It is expected that, over the next six months, Ukraine’s ministries will outline legislation allowing for the importation of cannabis-based medicines into Ukraine, as well as the domestic cultivation of medical cannabis.
Current wording
Ukraine. In February 2024, President Zelensky signed the legislation permitting the prescription of cannabis-based medicines for conditions including pain, cancer and PTSD. The distribution of cannabis for recreational purposes is still prohibited, and the government will strictly control the sale and distribution of medical cannabis. Only patients with a prescription from a doctor are able to buy the drug legally, mainly related to the indication of PTSD.
Previous wording
We strive to continue to expand our business on a consolidated basis, through a combination of organic growth and acquisition. While we continue to execute against our strategic initiatives that we believe will result in the long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to enter attractive new geographic markets and product categories as well as expand our existing capabilities. In addition, we have exited certain businesses and continue to evaluate certain businesses within our portfolio that are dilutive to profitability and cash flow. As a result, we incur transaction costs in connection with identifying and completing acquisitions and strategic transactions, as well as ongoing integration costs as we combine acquired companies and continue to achieve synergies, which is offset by income generated in connection with the execution of these transactions. For the three and nine months ended February 29, 2024, we incurred $3.5 million and $13.1 million of transaction expenses, discussed further below.
Current wording
We strive to continue to expand our business on a consolidated basis, through a combination of organic growth and acquisition. While we continue to execute against our strategic initiatives that we believe will result in the long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to enter attractive new geographic markets and product categories as well as expand our existing capabilities. In addition, we have exited certain businesses and continue to evaluate certain businesses within our portfolio that are dilutive to profitability and cash flow. As a result, we incur transaction costs in connection with identifying and completing acquisitions and strategic transactions, as well as ongoing integration and restructuring costs as we combine acquired companies and continue to achieve synergies, which is offset by income generated in connection with the execution of these transactions. For the three months ended August 31, 2024, we incurred $1.2 million of transaction expenses, discussed further below.
Previous wording
Our results of operations can also be affected by economic, political, legislative, regulatory, legal actions, the global volatility and general market disruption resulting from geopolitical tensions, such as Russia's incursion into Ukraine. Economic conditions, such as recessionary trends, inflation, supply chain disruptions, interest and monetary exchange rates, and government fiscal policies, and the recent banking credit crises, can have a significant effect on operations. Accordingly, we could be affected by civil, criminal, environmental, regulatory or administrative actions, claims or proceedings.
Current wording
Our results of operations may be affected by economic, political, legislative, regulatory, legal actions, the global volatility and general market disruption resulting from geopolitical tensions, such as Russia's incursion into Ukraine and the ongoing events in the Middle East. Economic conditions, such as recessionary trends, inflation, supply chain disruptions, interest and monetary exchange rates, and government fiscal policies, and the recent banking credit crises can have a significant effect on operations. Accordingly, we could be affected by civil, criminal, environmental, regulatory or administrative actions, claims or proceedings.
Previous wording
(1)Adjusted EBITDA, adjusted gross profit (excluding PPA step-up) and adjusted gross margin (excluding PPA step-up) and inventory valuation adjustments for each of our segments, and cash and marketable securities are non-GAAP financial measures. See“Use of Non-GAAP Measures” above for a discussion of these Non-GAAP measures and “Reconciliation of Non-GAAP Financial Measures to GAAP Measures” below for a reconciliation of these Non-GAAP Measures to our most comparable GAAP measure.
Current wording
(1)Adjusted EBITDA, adjusted gross profit (excluding PPA step-up) and adjusted gross margin (excluding PPA step-up) for each of our segments, and cash and marketable securities are non-GAAP financial measures. See“Use of Non-GAAP Measures” above for a discussion of these Non-GAAP measures and “Reconciliation of Non-GAAP Financial Measures to GAAP Measures” below for a reconciliation of these Non-GAAP Measures to our most comparable GAAP measureand the discussion above captioned “Cash and Marketable Securities.”
Previous wording
Revenue from our Beverage alcohol operations increased to $54.7 million and $125.4 million for the three and nine months ended February 29, 2024, compared to revenue of $20.6 million and $62.7 million for the prior year period. The increase observed during both the three and nine-month periods can be predominantly attributed to our recent acquisitions, particularly the newly integrated Craft Acquisition brands finalized on September 29, 2023. Specifically, the three-month increase is solely driven by the performance of these newly acquired brands, while our legacy brands have maintained consistent performance throughout the period. Furthermore, the nine-month period increase was also influenced by the newly acquired brands and by the organic growth of 9% in our legacy brand portfolio. The Company anticipates that revenue will increase for both acquired and legacy brands through our continued focus on expanding distribution points. Lastly during the three month period, the Company received a volume commitment reimbursement of $2.5 million in our spirits business which positively impacted gross margin.
Current wording
Revenue from our Beverage alcohol operations increased to $56.0 million for the three months ended August 31, 2024, compared to revenue of $24.2 million for the prior year period. The increase during the period was predominantly attributed to our recent Craft Acquisition completed on September 29, 2023 and, thus, was not reflected in the prior year comparison. Specifically, the increase was largely driven by the performance of the newly acquired brands, while our legacy brands have maintained consistent performance throughout the period.
Previous wording
Cannabis revenue based on market channel is as follows:
Current wording
Cannabis revenue based on market channel was as follows:
Previous wording
Cannabis revenue based on market channel using a constant currency(1) is as follows:
Current wording
Cannabis revenue based on market channel on a constant currency(1) basis was as follows:
Previous wording
***Revenue from Canadian medical cannabis:***Revenue from Canadian medical cannabis increased to $6.4 million and $18.8 million for the three and nine months ended February 29, 2024, compared to revenue of $6.0 million and $18.9 million for the prior year same period. On a constant currency basis revenue from Canadian medical cannabis was $6.3 million and $19.0 million for the three and nine months ended February 29, 2024, compared to revenue of $6.0 million and $18.9 million for the prior year same periods. On an industry basis, the medical channel continues to experience migration of non-insured patients moving to the adult-use market. Despite this industry trend, we have grown our assortment in Tilray medical and maintained our sales despite the loss in patient base.
Current wording
***Revenue from Canadian medical cannabis:***Revenue from Canadian medical cannabis increased to $6.3 million for the three months ended August 31, 2024 compared to revenue of $6.1 million for the prior year period. On a constant currency basis, revenue from Canadian medical cannabis was $6.4 million for the three months ended August 31, 2024 compared to revenue of $6.1 million for the prior year period. This increase in revenue from medical cannabis was primarily driven by growth in the insured patient category exceeding the decline in un-insured patient attrition to the adult-use recreational market.
Previous wording
International cannabis revenue:** **Revenue from international cannabis increased to $14.0 million and $40.2 million for the three and nine months ended February 29, 2024, compared to revenue of $9.7 million and $27.8 million for the prior year period. On a constant currency basis, given the changes in the Euro against the U.S. Dollar when compared to the prior year quarter, revenue from international cannabis was $14.4 million and $39.6 million compared to $9.7 million and $27.8 million in the prior year period (during the nine months ended February 28, 2023, the Company recognized a one-time return adjustment of $3.1 million related to a former customer in Israel that commenced bankruptcy proceedings). The increase in the period is largely driven by revenue growth in existing markets and expansion into new international medical markets.
Current wording
International cannabis revenue:** **Revenue from international cannabis decreased to $12.2 million for the three months ended August 31, 2024 compared to revenue of $14.3 million for the prior year period. On a constant currency basis, given the changes in the Euro against the U.S. Dollar when compared to the prior year quarter, revenue from international cannabis was $12.4 million compared to $14.3 million in the prior year period. The decrease in the period was driven in part by the extended time periods to receive import and export permits in Europe, which resulted in variability on a quarterly basis and, to a larger extent, lower revenue in Australia driven by certain regulatory actions on certain prescribers.
Previous wording
Revenue from distribution decreased to $56.8 million and increased to $193.2 million for the three and nine months ended February 29, 2024, compared to revenue of $65.4 million and $186.2 million for the prior year period. On a constant currency basis, given the change in the Euro and Argentine Peso against the U.S. Dollar in the quarter, revenue from Distribution was $59.0 million and $190.5 million for the three and nine months ended February 29, 2024. In the quarter, revenue was negatively impacted by IT infrastructure outages and weather, both of which impacted revenue by approximately $3.0 million. Additionally, the Company faced short-term challenges related to new regulatory rebates, which caused us to lower our sales activities.
Current wording
Revenue from distribution decreased to $68.1 million for the three months ended August 31, 2024, compared to revenue of $69.2 million for the prior year period. On a constant currency basis, given the change in the Euro and Argentine Peso against the U.S. Dollar in the quarter, revenue from Distribution increased to $70.4 million for the three months ended August 31, 2024 compared to $69.2 million for the prior year period. The decrease in revenue was attributed to the effects of foreign exchange.
Previous wording
Our Wellness revenue showed strong growth delivering $13.4 million and $39.7 million for the three and nine months ended February 29, 2024 compared to $12.0 million and $38.1 million from the prior year period. On a constant currency basis for the three and nine months ended February 29, 2024, Wellness revenue increased to $13.4 million and $39.8 million from $12.0 and $38.1 million. The increase in revenue can be attributed to our strategic focus on targeted advertising campaigns aligned with emerging trends in healthier lifestyles, particularly around the new year, coupled with our continuous innovation efforts.
Current wording
Our Wellness revenue showed strong growth delivering $14.8 million for the three months ended August 31, 2024 compared to $13.3 million from the prior year period. On a constant currency basis for the three months ended August 31, 2024, Wellness revenue increased to $14.9 million from $13.3 million. The increase in revenue was primarily attributed to our strategic focus on continued innovations and strong organic growth within our branded hemp business related to higher consumption.
Previous wording
Our gross profit and gross margin for the three and nine months ended February 29, 2024 and February 28, 2023, is as follows:
Current wording
Our gross profit and gross margin for the three months ended August 31, 2024 and August 31, 2023, was as follows:
Previous wording
Beverage alcohol gross margin: Gross margin of 34% and 38% for the three and nine months ended February 29, 2024 decreased from 48% and 47% from the same period in the prior year. Adjusted gross margin of 38% and 42% for the three and nine months ended February 29, 2024 decreased from 53% and 53% from the periods in the prior year. The decrease in the adjusted beverage alcohol gross margin was a result of the newly acquired Craft Acquisition brands, which have lower margins than our historical business, primarily driven by the temporary excess capacity within the acquired breweries, which we are actively evaluating for future optimization and enhanced utilization. Additionally, during the three month period this decrease was offset by a $2.5 million volume commitment reimbursement in our spirits business, which did not have any costs associated with it.
Current wording
Beverage alcohol gross margin: Gross margin of 41% for the three months ended August 31, 2024 decreased from 53% in the prior year period. Adjusted gross margin of 41% for the three months ended August 31, 2024 decreased from 56% in the prior year period. The decrease in the adjusted beverage alcohol gross margin during the three months ended August 31, 2024 was a result of the newly acquired brands in our Craft Acquisition, which have lower margins than our historical business. We are continuing to manage the temporary excess capacity within the acquired breweries, which have already begun seeing optimization and enhanced utilization as well as favorable sales mix. As a result of the seasonality of our beverage business, our third quarter ended February 29, 2024 is our most comparable period reflecting the newly acquired craft brands, to which we improved gross margin by 300 basis points for the aforementioned reasons.
Previous wording
Wellness gross margin: Gross margin of 30% and 29% for the three and nine months ended February 29, 2024 decreased from 31% and 29% from the same period in the prior year. The decrease in the three month period was a result of a change in sales mix towards more bulk retail sales which have a lower margin. Wellness gross margin stayed consistent during the nine month period.
Current wording
Wellness gross margin: Gross margin increased to 32% for the three months ended August 31, 2024 from 29% from the prior year period. The increase in the three month period was a result of strong operational efficiency, combined with a change in sales mix towards higher margin product offering.
Previous wording
Operating expenses are comprised of general and administrative, selling, amortization, marketing and promotion, research and development, change in fair value of contingent consideration, impairments, other than temporary change in fair value of convertible notes receivable, litigation costs, net of recoveries, restructuring costs and transaction (income) costs. These costs decreased by ($1,063.5) and ($1,060.3) million to $131.5 and $299.2 million for the three and nine months ended February 29, 2024 as compared to $1,195.0 and $1,359.5 million for the same period of the prior year. These changes period over period are described below.
Current wording
Operating expenses are comprised of general and administrative, selling, amortization, marketing and promotion, research and development, change in fair value of contingent consideration, other than temporary change in fair value of convertible notes receivable, litigation costs, net of recoveries, restructuring costs and transaction (income) costs, net. These costs increased by $17.7 million to $96.3 million for the three months ended August 31, 2024 as compared to $78.6 million for the prior year period. These changes period over period are described below.
Previous wording
During the three and nine months ended February 29, 2024, the changes in general and administrative costs when compared to the prior year periods are described as follows:
Current wording
During the three months ended August 31, 2024, the changes in general and administrative costs when compared to the prior year period are as follows:
Previous wording
Salaries and wages increased by 44% and 36% during the three and nine months ended February 29, 2024. The increase is primarily due to the inclusion of newly acquired beverage alcohol business portfolio and HEXO employees, which were not in the prior period.
Current wording
Salaries and wages increased by 29% during the three months ended August 31, 2024. The increase was primarily due to the inclusion of newly acquired craft beverage portfolio, which were not in the prior year period.
Previous wording
The Company recognized stock-based compensation expense of $8.1 and $24.5 million for the three and nine months ended February 29, 2024 compared to $9.6 and $29.8 million for the same period in the prior year. Stock based compensation expense is based on the time-based vesting schedules and varies according to the assumptions used in the vesting model. During the three and nine months ended February 29, 2024, as a result of a change in the probability of achievement of stock price targets for certain grants issued in 2021, as well as an increased forfeiture rate, stock-based compensation decreased period over period.
Current wording
The Company recognized stock-based compensation expense of $6.9 million for the three months ended August 31, 2024 compared to $8.3 million for the prior year period. Stock based compensation expense is based on the time-based vesting schedules and varies according to the assumptions used in the vesting model. During the three months ended August 31, 2024, as a result of previously issued stock options, restricted stock units (“RSUs”) and stock appreciation rights (“SARs”) under Tilray 2018 Equity Incentive Plan and Original Plan, as described in the Annual Report on the May 31, 2024 Form 10-K, that have fully vested, stock-based compensation decreased period over period.
Previous wording
Insurance expense increased by 13% and increased by 15% for the three and nine months ended February 29, 2024 to $3.6 and $9.9 million from $3.2 and $8.6 million for the same period in the prior year. The increase for the three and nine months ended February 29, 2024, was driven by the expanded polices required for our newly acquired beverage alcohol business portfolio, and HEXO entities, partially offset by the Company's decision to self-insure certain of its property risks.
Current wording
Insurance expense decreased by 36% for the three months ended August 31, 2024 to $2.5 million from $3.8 million for the prior year period. The decrease for the three months ended August 31, 2024 was driven by lower premiums, offset by the additional polices required for our newly acquired beverage alcohol business portfolio.
Previous wording
Rent expense increased by 31% and 45% for the three and nine months ended February 29, 2024 to $1.0 and $3.5 million from $0.8 and $2.4 million for the same period in the prior year. This increase was driven by the newly acquired beverage alcohol business portfolio and HEXO.
Current wording
Rent expense increased by 48% for the three months ended August 31, 2024 to $1.3 million from $0.9 million for the prior year period. This increase was driven by the acquisition of the newly acquired beverage alcohol business portfolio.
Previous wording
For the three and nine months ended February 29, 2024, the Company incurred selling costs of $10.0 and $24.4 million or 5.3% and 4.4% of net revenue as compared to $6.5 and $25.8 million and 4.4% and 5.8% of net revenue in the prior year period. These costs relate to third-party shipping costs for all segments, with the majority of the selling costs relating to the cannabis segment from distributor commissions, Health Canada cannabis fees, and patient acquisition and maintenance costs. Patient acquisition and ongoing patient maintenance costs include funding to individual clinics to assist with additional costs incurred by clinics resulting from the education of patients using the Company’s products. The increase for the three month period is a result of the increase in sales from the prior year period. The decrease in the nine month period was related to the renegotiation of terms in one of our distributor relationships resulting in reduced variable fees.
Current wording
For the three months ended August 31, 2024, the Company incurred selling costs of $11.7 million and or 5.8% of net revenue as compared to $6.9 million and 3.9% of net revenue in the prior year period. These costs relate to third-party shipping costs for all segments, with the majority of the selling costs relating to distributor commission incurred by the cannabis segment, Health Canada cannabis fees, and patient acquisition and maintenance costs. Patient acquisition and ongoing patient maintenance costs including funding to individual clinics to assist with additional costs incurred by such clinics for the education of patients using the Company’s products. The three month increase for the period ended August 31, 2024 is predominately due to the acquisition of the newly acquired craft beverage portfolio, which did not occur in the prior year period. Additionally, in the period ended August 31, 2023, the Company received a refund of $1.2 million on cannabis selling fees related to an amended fee calculation.
Previous wording
For the three and nine months ended February 29, 2024, the Company incurred marketing and promotion costs of $11.2 and $28.9 million as compared to $7.4 and $23.1 million for the prior year period. The increase is due to the acquisition of the newly acquired beverage alcohol business portfolio, and HEXO.
Current wording
For the three months ended August 31, 2024, the Company incurred marketing and promotion costs of $11.6 million as compared to $8.5 million for the prior year period, which is due to the acquisition of the newly acquired craft beverage portfolio and quarterly variability in discretionary marketing.
Previous wording
Research and development costs were $0.1 and $0.2 million during the three and nine months ended February 29, 2024 compared to $0.2 and $0.5 million in the prior year period. These relate to external costs associated with the development of new products.
Current wording
Research and development costs were $0.1 million during the three months ended August 31, 2024 compared to $0.1 million in the prior year period. These relate to external costs associated with the development of new products.
Previous wording
The Company measures contingent consideration at fair value classified as Level 3, as discussed in Note 25 (Fair value measurements). During the three months ended February 29, 2024, the contingent consideration liability that arose from the Truss acquisition of $4.2 million was settled for $0.7 million. The contingent consideration liability from the Montauk acquisition, increased to $14.0 million as of February 29, 2024 from $10.9 million as of May 31, 2023. The contingent consideration liability from the Sweetwater acquisition elapsed and there are no further obligations. The decrease in fair value of $16.8 million was driven by the conclusion of the Sweetwater obligation, the favorable cash settlement for the Truss contingent consideration, and was offset by an increase related to the increased probability of achieving the contingent consideration from the Montauk acquisition.
Current wording
The Company measures contingent consideration at fair value classified as Level 3, as discussed in Note 25 (Fair value measurements). During the three months ended August 31, 2024, the Company recognized $nil change in fair value of contingent consideration as there were no changes to the likelihood achievement for Montauk Brewing compared to a loss of $11.1 million in the prior year period for the contingent consideration from the SweetWater acquisition as a result of not achieving the earnout targets.
Previous wording
For the three and nine months ended February 29, 2024, the Company recorded $3.4 and $8.4 million of litigation settlements costs, net of favorable recoveries, and the third party fees associated with defending these claims, compared to a net benefit of ($5.2) and ($2.0) million for the prior period comparative. The increase is related to period to period variability as litigation is non-recurring in nature. Included in the three and nine months ended February 28, 2023, is proceeds of $39.9 million related to the SLC litigation settlement, offset by judgments, probable and estimable losses as well as ongoing litigation costs and fees.
Current wording
For the three months ended August 31, 2024, the Company recorded $1.6 million of litigation settlements costs and third-party fees incurred in defending these claims, net of favorable recoveries. This quarterly amount in 2024 decreased compared to $2.0 million for the period ended August, 31 2023. The decrease is related to period-to-period variability as litigation costs and expenses are non-recurring in nature.
Previous wording
In connection with the execution of our acquisition strategy and strategic transactions, the Company has incurred non-recurring restructuring and exit costs associated with the integration efforts of these transactions. For the three and nine months ended February 29, 2024, the Company incurred $5.2 and $8.7 million of restructuring costs compared to $2.7 and $10.7 million for the prior period comparative.
Current wording
In connection with the execution of our acquisition strategy and strategic transactions, the Company has incurred non-recurring restructuring and exit costs associated with the integration efforts of these transactions. For the three months ended August 31, 2024, the Company incurred $4.2 million of restructuring costs compared to $0.9 million for the prior year period.
Previous wording
Transaction (income) costs, which includes acquisition related income and expenses, related legal, financial advisor and due diligence cost and expenses and transaction related compensation. The three and nine months ended February 29, 2024 decrease of 36% and 436% from the prior year period is related to the following items:
Current wording
Transaction (income) costs net, which includes acquisition related income and expenses, related legal, financial advisor and due diligence cost and expenses and transaction related compensation. The three months ended August 31, 2024 decrease of 86% from the prior year period was a result of the HEXO and Truss acquisitions taking place in the previous year which did not recur. The expenses incurred in the current period largely related the acquisition of the four craft beer brands and breweries from Molson that was completed subsequent to the quarter end, see Note 27 (Subsequent Events).
Previous wording
For the three and nine months ended February 29, 2024, the Company recognized a change in fair value of its convertible debentures payable of ($6.3) million and ($12.4) million compared to $0.2 million and ($20.4) million in the prior year periods. The change is driven primarily by the changes in the Company’s share price, the change in the trading price of the convertible debentures payable. Additionally, for the three and nine months ended February 29, 2024, the Company recognized a change in fair value of its warrants, resulting in a gain of $0.6 million and a loss ($1.4) million compared to gains of $5.3 million and $6.8 million also as a result of the change in our share price and the exercise price of the instrument. For the three and nine months ended February 29, 2024, the Company recognized a loss of ($3.3) million and a gain of $1.9 million, resulting from the changes in foreign exchange rates during the period, compared to a gain of ($2.0) million and a loss of ($26.6) million for the prior year periods, largely associated with the recovery of the Euro. Lastly, included in other non-operating (losses) gains, net for the three and nine months ended February 29, 2024 was $2.3 million of the downside protection share issuance relating to the HTI note, as described in Note 15 (Stockholders' equity), $2.5 million amounts to settle outstanding notes with non-controlling interest shareholders and the decrease in value of an equity investee for $4.6 million as described in Note 19 (Commitments and contingencies).
Current wording
For the three months ended August 31, 2024, the Company recognized a change in fair value of its convertible debentures payable of $nil million compared to ($2.1) million in the prior year period. The change was driven primarily by the settlement of APHA 24 convertible debenture upon maturity. Additionally, for the three months ended August 31, 2024, the Company recognized a change in fair value of its warrants, resulting in a gain of $0.7 million compared to a loss of ($8.2) million as a result of the change in our share price and the exercise price of the instrument. For the three months ended August 31, 2024, the Company recognized a gain of $11.9 million resulting from the changes in foreign exchange rates during the period compared a gain of $6.3 million for the prior year period.
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Non-operating (expense) income is comprised of: