Tilray Brands Inc

Previous wording

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 wording

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 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.

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 such as Breckenridge Reserve Port Cask Finish being named the 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, we believe our focus on whiskey—a resilient segment— 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 Breckenridge Reserve Port Cask Finish being named the World’s best finished Bourbon at the 2024 World Whiskies Awards, we believe underscore our brand's growing recognition and appeal. Despite prevailing challenges within the overall spirits market, we believe our focus on whiskey—a resilient segment— positions us for continued growth fueled by innovative product introductions and expanded market presence.

Previous wording

We are a global leader in the development, production, distribution, marketing and sale of pharmaceutical-grade medical cannabis products. The cannabis industry in Europe is still in its early stages of development and countries within Europe are at different stages of medical and adult-use cannabis legalization. The most meaningful progress to date has been the legalization and regulation of cannabis for medical purposes which has now taken place in more than 15 countries representing a population of more than 350 million people (Germany, UK, Italy, Poland, Netherlands, Czech Republic, Greece, Portugal, Austria, Switzerland, Denmark, Croatia, Malta, Luxembourg, Ukraine, Ireland, and Israel). Beyond this, some countries have expressed a clear political ambition to legalize adult-use cannabis (Germany, Portugal, Luxembourg and Czech Republic), some are engaging in experiments for adult-use legalization (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, political uncertainty in various countries and the continuing 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. Outside of Europe and North America, the cannabis industry is also in its early stages of development with Australia and New Zealand representing some of the larger markets.

Current wording

We are a global leader in the development, production, distribution, marketing and sale of pharmaceutical-grade medical cannabis products. The cannabis industry in Europe is still in its early stages of development and countries within Europe are at different stages of medical and adult-use cannabis legalization. The most meaningful progress to date has been the legalization and regulation of cannabis for medical purposes, which has now taken place in more than 15 countries representing a population of more than 350 million people (Germany, UK, Italy, Poland, Netherlands, Czech Republic, Greece, Portugal, Austria, Switzerland, Denmark, Croatia, Malta, Luxembourg, Ukraine, Ireland, and Israel). Beyond this, some countries have expressed a clear political ambition to legalize adult-use cannabis (Germany, Portugal, Luxembourg and Czech Republic), some are engaging in experiments for adult-use legalization (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, political uncertainty in various countries and the continuing 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 cannabis regulations in Germany adopted on April 1, 2024, which we believe will serve as a catalyst for continued changes in drug policy throughout Europe. Outside of Europe and North America, the cannabis industry is also in its early stages of development with Australia representing one of the larger markets.

Previous wording

We continue to believe that Tilray remains uniquely positioned to maintain and gain significant market share in the markets in which we participate. We benefit from our end-to-end vertically-integrated infrastructure and well-placed investments, which are comprised of two EU-GMP cultivation facilities within Europe located in Portugal and Germany; our fully owned route-to-market encompassing sales, marketing and distribution infrastructure in Germany, Australia and Italy; a network of leading distributors who we work with in the various other countries in which we participate; and, our extensive genetics portfolio and demonstrated commitment and expertise related to the cultivation and production of high-quality, safe cannabis products. Tilray’s International business also benefits from the depth and breadth of knowledge, experience, relationships and infrastructure we have gleaned from our leading participation and investment into the Canadian medical and adult-use markets. We believe that these assets and attributes, combined with our ability to navigate complex regulatory environments, will continue to drive our leadership in international medical markets and allow us to successfully enter new markets as they adopt medical cannabis and potentially adult-use regulations and may also serve to support a potential U.S. participation in the event of federal legalization.

Current wording

We continue to believe that Tilray remains uniquely positioned to maintain and gain significant market share in the markets in which we participate. We benefit from our end-to-end vertically-integrated infrastructure and well-placed investments, which are comprised of two EU-GMP cultivation facilities located in Portugal and Germany; our fully owned route-to-market encompassing sales, marketing and distribution infrastructure in Germany, Australia and Italy; a network of leading distributors who we work with in the various other countries in which we participate; and, our extensive genetics portfolio and demonstrated commitment and expertise related to the cultivation and production of high-quality, safe cannabis products. Tilray’s International business also benefits from the depth and breadth of knowledge, experience, relationships and infrastructure we have gleaned from our leading participation and investment into the Canadian medical and adult-use markets. We believe that these assets and attributes, combined with our ability to navigate complex regulatory environments, will continue to drive our leadership in international medical markets and allow us to successfully enter new markets as they adopt medical cannabis and potentially adult-use regulations and may also serve to support a potential U.S. participation in the event of federal legalization.

Previous wording

Poland. In Poland, cannabis was legalized for medical use in 2018 and is prescribed to patients by a physician and dispensed by pharmacies. Today, all doctors in Poland are allowed to prescribe medical cannabis and it is a self-pay market as med‐ical cannabis is not refundable by the Polish health service. Tilray is a leading supplier of medical cannabis in Poland through our network of distributor partnerships. We predominantly supply the market with whole flower medical cannabis products.

Current wording

Poland. In Poland, cannabis was legalized for medical use in 2018 and is prescribed to patients by a physician and dispensed by pharmacies. Today, all doctors in Poland are allowed to prescribe medical cannabis and it is a self-pay market as medical cannabis is not refundable by the Polish health service. In November 2024, Poland implemented strict restrictions on telemedicine, which have significantly impacted the growth of the market with prescription numbers decreasing from 68,000 in October 2024 to 28,000 in December 2024. Tilray is a leading supplier of medical cannabis in Poland through our network of distributor partnerships. We predominantly supply the market with whole flower medical cannabis products.

Previous wording

United Kingdom. Since November 2018, doctors in the UK have been able to prescribe medical cannabis for medicinal use for patients with medical conditions that had failed to respond to first-line medications. The market today is predominantly all self-pay and prescriptions are facilitated by private clinics. Today, we supply the UK market with mainly whole flower products through our distributor partner.

Current wording

United Kingdom. Since November 2018, doctors in the UK have been able to prescribe medical cannabis for medicinal use for patients with medical conditions that had failed to respond to first-line medications. The market today is predominantly all self-pay and prescriptions are facilitated by private clinics. Today, we supply the UK market with mainly whole flower products through our distributor partners.

Previous wording

Manitoba Harvest’s US branded business grew 6.2% in multi-outlet consumption during the six months ended November 30, 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 launch of Superseed Snack Clusters in partnership with Whole Foods Market as well as continued emphasis on The Humble Seed, a seed-forward cracker brand which was purchased earlier this year.

Current wording

Tilray Wellness’s branded business continues to grow across brick-and-mortar retail as well as ecommerce, further establishing its leading market share position in better for you categories. The Company continues to focus on value-added innovation within the wellness space with the launch of branded Whole Flaxseed and Ground Flaxseed and Superseed Snack Clusters in partnership with Whole Foods Market as well as continued emphasis on The Humble Seed, a seed-forward cracker brand which was purchased earlier this year.

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 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 six months ended November 30, 2024, we incurred $2.0 million of transaction expenses, as 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 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 nine months ended February 28, 2025, we incurred $2.6 million of transaction expenses, as discussed further below.

Previous wording

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 7 (Business Acquisition). We expect that this recent acquisition furthers the execution of our beverage strategy, which we believe will have positive impacts on our beverage segment leading to increased revenues and whitespace penetration.

Current wording

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 7 (Business Acquisition). We expect this acquisition to further the execution of our beverage strategy, which we believe will have positive impacts on our beverage segment leading to increased revenues and whitespace penetration.

Previous wording

With Craft Acquisition I and Craft Acquisition II, we capitalized on opportunities to acquire additional beverage businesses that consisted of strong brands in decline and in need of investment in order to promote growth. To support the growth of these acquired brands and establish a clear path to profitability, we implemented Project 420, which is a comprehensive plan through which we expect to achieve our $25 million synergy plan based on the following initiatives:

Current wording

With Craft Acquisition I and Craft Acquisition II, we capitalized on opportunities to acquire additional beverage businesses that consisted of strong brands in decline and in need of investment in order to promote growth at a significantly reduced price. To support the growth of these acquired brands and establish a clear path to profitability, we implemented Project 420, which is a comprehensive plan covering (i) SKU rationalization; (ii) Geographic rationalization; (iii) Distributor rationalization; and (iv) synergy optimization plan through which we expect to invest in the acquired brands for growth and improve profitability:

Previous wording

Our results of operations may be affected by economic, political, legislative, regulatory, legal actions, global volatility and general market disruption resulting from geopolitical tensions, such as Russia's continued incursion into Ukraine, the ongoing events in the Middle East and political uncertainty in certain countries in Europe. Economic conditions, such as recessionary trends, inflation, supply chain disruptions, interest and monetary exchange rates, government fiscal policies, and the recent banking credit crises can have a significant effect on operations.

Current wording

Our results of operations may be affected by economic, political, legislative, regulatory, legal actions, global volatility and general market disruption resulting from geopolitical tensions, such as Russia's continued incursion into Ukraine, the ongoing events in the Middle East and political uncertainty in certain countries in Europe. Economic conditions, such as recessionary trends, inflation, supply chain disruptions, interest and monetary exchange rates, government fiscal policies, and the recent economic uncertainties resulting from certain changes in U.S. global economic policy, including changes on global trade policies can have a significant effect on operations. More specifically, there are no expected impacts on revenue from the recently enacted U.S. tariffs and foreign enacted retaliatory tariffs (“Tariffs”). From a cost perspective, we believe the recently enacted tariffs could impact input materials such as aluminum, hops, barley, malt and vape componentry which are partially imported but will be mitigated to the extent possible.

Previous wording

These non-GAAP financial measures should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with generally accepted accounting principles in the United States of America, ("GAAP"). These financial measures, which may be different than similarly titled financial measures used by other companies, are presented to help investors' overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Please see "Reconciliation of Non-GAAP Financial Measures to GAAP Measures" below for reconciliation of such non-GAAP Measures to the most directly comparable GAAP financial measures, as well as a discussion of our adjusted gross margin, adjusted gross profit and adjusted EBITDA measures and the calculation of such measures.

Current wording

These non-GAAP financial measures should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with generally accepted accounting principles in the United States of America, (“GAAP”). These financial measures, which may be different than similarly titled financial measures used by other companies, are presented to help investors' overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Please see “Reconciliation of Non-GAAP Financial Measures to GAAP Measures” below for reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as a discussion of our adjusted gross margin, adjusted gross profit and adjusted EBITDA measures and the calculation of such measures.

Previous wording

Revenue from our Beverage segment increased to $63.1 million and $119.1 million for the three and six months ended November 30, 2024, compared to revenue of $46.5 million and $70.7 million for the prior year period. This growth was primarily driven by our recent Craft Acquisition II, effective September 1, 2024, which included the brands and breweries of Hop Valley Brewing Company, Terrapin Beer Company, Revolver Brewing, and Atwater Brewery. Further, the prior year period did not reflect a full period of revenue from the initial Craft Acquisition, completed on September 29, 2023. The growth in our Beverage segment was partially offset by the SKU rationalization implemented in connection with Project 420, which resulted in a reduction of revenue during the three and six months ended November 30, 2024.

Current wording

Revenue from our Beverage segment increased to $55.9 million and to $175.0 million for the three and nine months ended February 28, 2025, compared to revenue of $54.7 million and $125.4 million for the prior year period. The three and nine months increase in beverage revenue was primarily driven by our newly launched innovation in the HD-D9 product category and our recent Craft Acquisition II, effective September 1, 2024, which included the brands and breweries of Hop Valley Brewing Company, Terrapin Beer Company, Revolver Brewing, and Atwater Brewery. Further, the prior year period did not reflect a full period of revenue from the initial Craft Acquisition, completed on September 29, 2023. These impacts to beverage revenue were offset by the SKU rationalization implemented in connection with Project 420, which resulted in a reduction of revenue of $6.0 million and $14.0 million for the three and nine months ended February 28, 2025, respectively.

Previous wording

***Revenue from Canadian medical cannabis:***Revenue from Canadian medical cannabis increased to $6.7 million and $12.9 million for the three and six months ended November 30, 2024 compared to revenue of $6.3 million and $12.4 million for the prior year period. On a constant currency basis, revenue from Canadian medical cannabis was $6.7 million and $13.1 million for the three and six months ended November 30, 2024 compared to revenue of $6.3 million and $12.4 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.

Current wording

***Revenue from Canadian medical cannabis:***Gross revenue from Canadian medical cannabis decreased to $5.8 million and remained consistent at $18.8 million for the three and nine months ended February 28, 2025 compared to gross revenue of $6.4 million and $18.8 million for the prior year period. On a constant currency basis, gross revenue from Canadian medical cannabis was $6.3 million and $19.4 million for the three and nine months ended February 28, 2025 compared to gross revenue of $6.4 million and $18.8 million for the prior year period. The nine months increase in gross revenue from medical cannabis on a constant currency basis 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

***Revenue from Canadian adult-use cannabis:***During the three and six months ended November 30, 2024, our revenue from Canadian adult-use cannabis decreased to $59.1 million and $116.3 million, compared to revenue of $72.0 million and $143.2 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 and six months ended November 30, 2024. On a constant currency basis, our revenue from Canadian adult-use cannabis decreased to $59.3 million and $118.2 million for the three and six months ended November 30, 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 growing categories such as vapes that have experienced a high degree of price compression. We expect to be able to increase our participation in these categories as a result of our capex investments in the fourth quarter ended May 31, 2025, to improve these trends.

Current wording

***Revenue from Canadian adult-use cannabis:***During the three and nine months ended February 28, 2025, our gross revenue from Canadian adult-use cannabis decreased to $49.3 million and $165.6 million, compared to gross revenue of $62.1 million and $205.4 million for the prior year period. Gross revenue in the prior year period included $1.5 million in advisory fees, which did not repeat during the three and nine months ended February 28, 2025. On a constant currency basis, our gross revenue from Canadian adult-use cannabis decreased to $52.8 million and $171.0 million for the three and nine months ended February 28, 2025. The decrease in gross adult-use revenue was driven by our renewed focus on preserving gross margin and maintaining a higher average selling price in growing categories such as vapes that have experienced a high degree of price compression. We expect to be able to increase our participation in these categories as a result of our capex investments in the fourth quarter ended May 31, 2025, to improve these trends. Additionally, we have shifted our strategic focus to redirect inventories to international cannabis markets to take advantage of the higher margin sales available in these markets. We expect these inventories to be sold during the fourth fiscal quarter ended May 31, 2025, however this caused a temporary decline in gross adult-use cannabis revenue and cannabis revenue overall until their eventual sale. We intend to enhance our global supply chain through Phase II of our accelerated growth plan and increase our cultivation footprint to support the growing demand in both the Canadian and international markets.

Previous wording

Wholesale cannabis revenue: Revenue from wholesale cannabis increased to $6.6 million and $12.1 million for the three and six months ended November 30, 2024 compared to revenue of $4.3 million and $9.6 million for the prior year period. On a constant currency basis, revenue from wholesale cannabis increased to $6.7 million and $12.4 million for the three and six months ended November 30, 2024 compared to revenue of $4.3 million and $9.6 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 standards required for our branded product. In the near-term, we anticipate continued volatility and fluctuation in the wholesale market, and we will assess market conditions on a quarterly basis.

Current wording

***Wholesale cannabis revenue:***Gross revenue from wholesale cannabis increased to $3.9 million and $16.0 million for the three and nine months ended February 28, 2025 compared to gross revenue of $2.8 million and $12.3 million for the prior year period. On a constant currency basis, gross revenue from wholesale cannabis increased to $4.2 million and $16.5 million for the three and nine months ended February 28, 2025 compared to gross revenue of $2.8 million and $12.3 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 standards required for our branded product. In the near-term, we anticipate continued volatility and fluctuation in the wholesale market, and we will assess market conditions on a quarterly basis.

Previous wording

International cannabis revenue:** **Revenue from International cannabis increased to $14.9 million and $27.1 million for the three and six months ended November 30, 2024 compared to revenue of $11.9 million and $26.2 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 $14.8 million and $27.1 million compared to $11.9 million and $26.2 million in the prior year period. The increase during the period was primarily driven by higher sales in Germany, attributed to the expanding German medical market, and Poland. This growth was partially offset by lower revenue in Australia, which was impacted by regulatory actions affecting certain prescribers. International cannabis revenue may fluctuate from quarter to quarter based upon the timing of the receipt of export/import permits as well as the timing of shipments from one quarter to the next.

Current wording

International cannabis revenue:** **Net revenue from International cannabis was consistent at $13.9 million and increased to $41.0 million for the three and nine months ended February 28, 2025 compared to net revenue of $14.0 million and $40.2 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, net revenue from international cannabis increased to $14.3 million and $41.4 million compared to $14.0 million and $40.2 million in the prior year period. The increase during the period was primarily driven by higher sales in Germany, attributed to the expanding German medical market. This growth was partially offset by lower revenue in Poland driven by the timing of export/import permits and lower prescriptions due to restrictions placed on telemedicine in November 2024 as well as lower revenue in Australia and the strategic decision to exit the New Zealand medical market. Net international cannabis revenue may fluctuate from quarter to quarter based upon the timing of the receipt of export/import permits as well as the timing of shipments from one quarter to the next. We anticipate that the redirected product from the Canadian cannabis market will be sold in our fourth fiscal quarter through these international markets.

Previous wording

Revenue from our Distribution segment increased to $67.6 million and $135.7 million for the three and six months ended November 30, 2024, compared to revenue of $67.2 million and $136.4 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 $69.4 million and $139.8 million for the three and six months ended November 30, 2024, compared to $67.2 million and $136.4 million for the prior year period. Although revenue remained relatively consistent, the period-over-period variability was primarily influenced currency fluctuations.

Current wording

Revenue from our Distribution segment increased to $61.5 million and $197.2 million for the three and nine months ended February 28, 2025, compared to revenue of $56.8 million and $193.2 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 $65.1 million and $204.9 million for the three and nine months ended February 28, 2025, compared to $56.8 million and $193.2 million for the prior year period. The increase in distribution revenue for both the three and nine months periods was driven by a change in product mix offset by the impacts of foreign exchange and that, during the prior year period, there were IT infrastructure outages and weather complications that negatively impacted our sales activities.

Previous wording

Our Wellness segment revenue showed strong growth delivering $14.6 million and $29.4 million for the three and six months ended November 30, 2024 compared to $12.9 million and $26.2 million from the prior year period. On a constant currency basis for the three and six months ended November 30, 2024, Wellness segment revenue increased to $14.6 million and $29.6 million from $12.9 million and $26.2 million. The increase in revenue was primarily attributed to our strategic focus on continued innovations, including the launch of our HD-D9 products and strong organic growth within our branded hemp food business related to higher consumption.

Current wording

Our Wellness segment revenue increased to $14.1 million and $43.5 million for the three and nine months ended February 28, 2025 compared to $13.4 million and $39.7 million from the prior year period. On a constant currency basis for the three and nine months ended February 28, 2025, Wellness segment revenue increased to $14.5 million and $44.1 million from $13.4 million and $39.7 million. The increase in revenue was primarily attributed to our strategic focus on continued innovations, including the relaunch of HiBall Energy and organic growth within our branded hemp food business related to higher consumption.

Previous wording

Our gross profit and gross margin for the three and six months ended November 30, 2024 and November 30, 2023, respectively, was as follows:

Current wording

Our gross profit and gross margin for the three and nine months ended February 28, 2025 and February 29, 2024, respectively, was as follows:

Previous wording

Beverage gross margin: Gross margin of 40% and 40% for the three and six months ended November 30, 2024 increased from 34% and decreased from 41% in the prior year period. Adjusted gross margin of 42% and 42% for the three and six months ended November 30, 2024 increased from 38% and decreased from 44% in the prior year period. The change in the adjusted beverage gross margin during the three and six months ended November 30, 2024 was driven by several factors. Our continued integration efforts of our Craft Acquisition, increased utilization of our facilities and improvements in our product mix as part of our strategic initiatives under Project 420 have had favorable impacts on our adjusted gross margin. However, these improvements were partially offset by the impacts from the Craft Acquisition II, which has lower margins than our historical business. Overall the culmination of these factors during the three months ended November 30, 2024, resulted in a 400 basis point improvement to our adjusted beverage gross margin as a result of our aforementioned cost savings initiatives.

Current wording

Beverage gross margin: Gross margin of 36% and 39% for the three and nine months ended February 28, 2025 increased from 34% and 38% in the prior year period. Adjusted gross margin of 36% and 40% for the three and nine months ended February 28, 2025 decreased from 38% and 42% in the prior year period. The change in the adjusted beverage gross margin during the three and nine months ended February 28, 2025 was driven by several factors. Our continued integration efforts of our Craft Acquisition, increased utilization of our facilities and improvements in our product mix as part of our strategic initiatives under Project 420 have had favorable impacts on our adjusted gross margin. However, these improvements were partially offset by the impacts from the Craft Acquisition II, which has lower margins than our historical business.

Previous wording

Cannabis gross margin: Gross margin increased during the three and six months ended November 30, 2024 to 35% and 37% from 31% and 29% 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 and six months ended November 30, 2024 remained consistent at 35% and increased to 37% from 35% and 35% in the prior year period. The improvement in adjusted gross margin for the six months ended November 30, 2024 was driven by our increased international cannabis revenue as well as a continued focus on maintaining a higher average selling price and favorable product mix to improve gross margins in Canada despite lower sales in the Canadian adult-use market. 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 wording

Cannabis gross margin: Gross margin increased during the three and nine months ended February 28, 2025 to 41% and 38% from 33% and 31% 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 and nine months ended February 28, 2025 increased to 41% and 38% from 33% and 34% in the prior year period. The improvement in gross margin and adjusted gross margin for the three and nine months ended February 28, 2025 was driven by our increased international cannabis revenue as a proportion of total cannabis revenue given its higher margin, as well as a continued focus on maintaining a higher average selling price and favorable product mix to improve gross margins in Canada despite lower sales in the Canadian adult-use market. Additionally, the prior year period also included $1.5 million of HEXO advisory services revenue, which did not recur in the current year period.

Previous wording

Distribution* gross margin:* Gross margin increased to 12% and 12% for the three and six months ended November 30, 2024 from 11% and 11% for the prior year period, which was attributed to favorable product mix as we continued to prioritize higher margin product offerings.

Current wording

Distribution* gross margin:* Gross margin decreased to 9% and remained consistent at 11% for the three and nine months ended February 28, 2025 from 10% and 11% for the prior year period, which was attributed to shortages in key pharmaceutical product lines as well as price reductions.

Previous wording

Wellness gross margin: Gross margin increased to 31% and 31% for the three and six months ended November 30, 2024 from 29% and 29% from the prior year period, which was a result of strong operational efficiencies, lower input costs and the culmination of a change in sales mix towards higher margin product offerings.

Current wording

Wellness gross margin: Gross margin increased to 32% and 31% for the three and nine months ended February 28, 2025 from 30% and 29% from the prior year period, which was a result of strong operational efficiencies, lower input costs and the culmination of a change in sales mix towards higher margin product offerings including HiBall energy drinks.

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, litigation costs, net of recoveries, restructuring costs and transaction (income) costs, net. These costs increased by $14.2 million and $32.0 million to $103.4 million and $199.7 million for the three and six months ended November 30, 2024 compared to $89.2 million and $167.7 million for the prior year period. Of the $14.2 million and $32.0 million increase recognized during the three and six months ended November 30, 2024, $9.1 million and $18.8 million was attributed to the inclusion of expenses from our recent Craft Acquisition II, effective September 1, 2024, and that the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023.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, impairments, other than temporary change in fair value of convertible notes receivable, litigation costs, net of recoveries, restructuring costs and transaction costs (income), net. These costs increased by $680.4 million and $712.4 million to $811.9 million and $1,011.7 million for the three and nine months ended February 28, 2025 compared to $131.5 million and $299.2 million for the prior year period. This nine months increase was primarily a result of the non-cash impairments recorded in the period described in detail below. Additionally, of the $680.4 million and $712.4 million increase recognized during the three and nine months ended February 28, 2025, $1.0 million and $19.8 million was attributed to the inclusion of expenses from our recent Craft Acquisition II, effective September 1, 2024, and the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023. These changes period over period are described below.

Previous wording

During the three and six months ended November 30, 2024, the changes in general and administrative costs when compared to the prior year period are as follows:

Current wording

During the three and nine months ended February 28, 2025, the changes in general and administrative costs when compared to the prior year period are as follows:

Previous wording

Salaries and wages increased by 19% and 23% during the three and six months ended November 30, 2024. The increase during the three and six months ended November 30, 2024 was primarily due to the inclusion of employees from our recent Craft Acquisition II, effective September 1, 2024, and that the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023. Additionally, included in the six month period ended November 30, 2024, there was $1.7 million of retention payments that did not occur in the prior year period.

Current wording

Salaries and wages increased by 3% and 16% during the three and nine months ended February 28, 2025. The increase during the three and nine months ended February 28, 2025 was primarily due to the inclusion of employees from our recent Craft Acquisition II, effective September 1, 2024, and the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023. Additionally, included in the nine months period ended February 28, 2025, there was $3.2 million of retention payments that did not occur in the prior year period.

Previous wording

Office and general increased by 17% and 15% during the three and six months ended November 30, 2024. The increase was primarily due to the inclusion of expenses from our recent Craft Acquisition II, effective September 1, 2024, and that the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023.

Current wording

Office and general increased by 76% and 28% during the three and nine months ended February 28, 2025. The increase was primarily due to the inclusion of bad debt recoveries of $4.4 million in the prior year period ended February 29, 2024, that did not recur and expenses from our recent Craft Acquisition II, effective September 1, 2024, and the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023. These impacts were partially offset by our continued cost saving initiatives.

Previous wording

The Company recognized stock-based compensation expense of $7.2 million and $14.2 million for the three and six months ended November 30, 2024 compared to $8.2 million and $16.5 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 and six months ended November 30, 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 Form 10-K for the fiscal year ended May 31, 2024, that have fully vested, stock-based compensation decreased period over period.

Current wording

The Company recognized stock-based compensation expense of $4.0 million and $18.2 million for the three and nine months ended February 28, 2025 compared to $8.1 million and $24.5 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 and nine months ended February 28, 2025, 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 Form 10-K for the fiscal year ended May 31, 2024, that have fully vested, stock-based compensation decreased period over period. Additionally, the decrease for the three months ended February 28, 2025 was driven by the cancellation of certain performance-based RSUs.

Previous wording

Insurance expense increased by 26% and decreased by 12% for the three and six months ended November 30, 2024 to $3.2 million and $5.6 million from $2.5 million and $6.3 million for the prior year period. The change for the three and six months ended November 30, 2024 was driven by lower premiums, offset by the additional polices required for our newly acquired beverage business portfolio for both the Craft Acquisition and Craft Acquisition II. For the three and six months ended November 30, 2024, as a percentage of revenue insurance was 1.5% and 1.4% compared to 1.3% and 1.7% in the prior year period, demonstrating our ability to manage our policy costs despite growing the business.

Current wording

Insurance expense decreased by 18% and decreased by 14% for the three and nine months ended February 28, 2025 to $2.9 million and $8.6 million from $3.6 million and $9.9 million for the prior year period. The change for the three and nine months ended February 28, 2025 was driven by lower premiums, offset by the additional polices required for our newly acquired beverage business portfolio for both the Craft Acquisition and Craft Acquisition II. For the three and nine months ended February 28, 2025, as a percentage of revenue insurance was 2% and 1% compared to 2% and 2% in the prior year period, demonstrating our ability to manage our policy costs despite growing the business.

Previous wording

Rent expense decreased by 34% and 5% for the three and six months ended November 30, 2024 to $1.0 million and $2.3 million from $1.6 million and $2.4 million for the prior period. Rent expense is predominantly comprised of operating lease costs for our Brewpubs and office spaces. The six month increase was driven by the inclusion of expenses from our recent Craft Acquisition II, effective September 1, 2024, and that the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023. Additionally, the three month decrease was driven by the exit from the Truss Lease in the current year and a reduction in lease payments, which was previously included in the prior period results.

Current wording

Rent expense decreased by 29% and 12% for the three and nine months ended February 28, 2025 to $0.7 million and $3.0 million from $1.0 million and $3.5 million for the prior period. Rent expense is predominantly comprised of operating lease costs for our brew pubs and office spaces. The decrease was driven by the exit from the Truss lease in the current year and a reduction in lease payments, which was previously included in the prior period results, offset by the inclusion of expenses from our recent Craft Acquisition II, effective September 1, 2024, and the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023.

Previous wording

For the three and six months ended November 30, 2024, the Company incurred selling costs of $16.2 million and $27.9 million or 7.7% and 6.8% of net revenue as compared to $7.6 million and $14.4 million or 3.9% and 3.9% of net revenue in the prior year period. These costs relate to third-party shipping costs for all segments, in addition to distributor commission incurred by the cannabis segment, Health Canada cannabis fees, and patient acquisition and maintenance costs. The increase for the three and six months ended November 30, 2024, is predominately due to the higher freight costs experienced in the beverage segment as well as proportionate increase for the higher sales associated with the recent Craft Acquisition II, effective September 1, 2024, and that the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023. Additionally, in the six month period ended November 30, 2023, the Company received a refund of $1.2 million on cannabis selling fees related to an amended fee calculation and a commission refund that did not recur in the current period.

Current wording

For the three and nine months ended February 28, 2025, the Company incurred selling costs of $13.9 million and $41.8 million or 7.5% and 7.0% of net revenue as compared to $10.0 million and $24.4 million or 5.3% and 4.4% of net revenue in the prior year period. These costs relate to third-party shipping costs for all segments, in addition to distributor commission incurred by the cannabis segment, Health Canada cannabis fees, and patient acquisition and maintenance costs. The increase for the three and nine months ended February 28, 2025, is predominately due to the higher freight costs experienced in the beverage segment. Additionally, during the three and nine months period ended February 29, 2024, the Company received a refund of $2.1 million and $3.3 million on cannabis selling fees related to an amended fee calculation and a commission refund that did not recur in the current period.

Previous wording

The Company incurred non-production related amortization charges of $22.9 million and $44.7 million for the three and six months ended November 30, 2024 compared to $21.9 million and $44.1 million in the prior year period based on depreciable capital and intangible assets useful lives.

Current wording

The Company incurred non-production related amortization charges of $23.2 million and $67.9 million for the three and nine months ended February 28, 2025 compared to $21.6 million and $65.7 million in the prior year period based on depreciable capital and intangible assets useful lives.

Previous wording

For the three and six months ended November 30, 2024, the Company incurred marketing and promotion costs of $9.7 million and $21.3 million as compared to $9.2 million and $17.7 million for the prior year period, which was primarily due to the inclusion of expenses from our recent Craft Acquisition II, effective September 1, 2024, and that the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023. Additionally, there was quarterly variability in discretionary marketing expenses.

Current wording

For the three and nine months ended February 28, 2025, the Company incurred marketing and promotion costs of $6.8 million and $28.1 million as compared to $11.2 million and $28.9 million for the prior year period. The current period change was primarily due to the inclusion of expenses from our recent Craft Acquisition II, effective September 1, 2024, and that the prior year period did not reflect a full period of results from the initial Craft Acquisition, completed on September 29, 2023, offset by the quarterly variability in discretionary marketing expenses.

Previous wording

Research and development costs were $0.1 million and $0.2 million during the three and six months ended November 30, 2024, compared to $0.1 million and $0.1 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 and $0.3 million during the three and nine months ended February 28, 2025, compared to $0.1 million and $0.2 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 and six months ended November 30, 2024, the Company recognized $nil and $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 $0.3 million and a gain of $10.8 million in the prior period for the contingent consideration from the SweetWater acquisition as a result of not achieving the earnout targets.

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 and nine months ended February 28, 2025, the Company recognized $nil and $nil change in fair value of contingent consideration as there were no changes to the likelihood achievement for Montauk Brewing compared to a gain of $6.0 million and a gain of $16.8 million in the prior period from 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.

Previous wording

For the three and six months ended November 30, 2024, the Company recorded $0.9 million and $2.5 million of litigation settlements costs and third-party fees incurred in defending these claims, net of favorable recoveries compared to $3.0 million and $5.1 million in the prior period. The decrease is related to period-to-period variability as litigation costs and expenses are non-recurring in nature.

Current wording

For the three and nine months ended February 28, 2025, the Company recorded $2.8 million and $5.3 million of litigation settlements costs and third-party fees incurred in defending these claims, net of favorable recoveries compared to $3.4 million and $8.4 million in the prior period. The decrease is related to period-to-period variability as litigation and settlement costs 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. In connection with these efforts, the Company recognized three and six months ended November 30, 2024, the Company incurred $6.9 million and $11.1 million of restructuring charges compared to $2.7 million and $3.6 million for the prior year period. All restructuring plans are approved at the executive level, and their associated expenses are recognized in the period in which the plan is committed. All amounts incurred as of November 30, 2024 have been paid.

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. In connection with these efforts, during the three and nine months ended February 28, 2025, the Company incurred $6.1 million and $17.2 million of restructuring charges compared to $5.2 million and $8.7 million for the prior year period. All restructuring plans are approved at the executive level, and their associated expenses are recognized in the period in which the plan is committed. All amounts incurred as of February 28, 2025 have been paid.

Previous wording

Within the Cannabis segment, our restructuring costs predominantly related to the HEXO acquisition, which are expected to be completed within 24 months from the original acquisition, which occurred June 2023. In the six months ended November 30, 2024, we recognized $5.9 million of expenses related to employee termination severance and benefits and other costs related to the conversion of the HEXO Quebec cultivation facility from cannabis to produce (which is currently held for sale), the optimization of our Redecan facilities, and $0.6 million of restructuring charges related to the remaining costs of exiting the Truss facility following its sale to a third party in the fiscal year ended May 31, 2024. Additionally, the Company recognized $0.4 million of cost associated winding down the Fort Collins warehouse (which is currently held for sale), and $0.6 million of cost associated with the winding down of our Avanti facility, the closure of which was announced during the quarter ended November 30, 2024.

Current wording

Within the Cannabis segment, our restructuring costs predominantly related to the HEXO acquisition, which are expected to be completed within 24 months from the original acquisition, which occurred June 2023. In the nine months ended February 28, 2025, we recognized $7.9 million of expenses related to employee termination severance and benefits and other costs related to the conversion of the HEXO Quebec cultivation facility from cannabis to produce (which is currently held for sale), the optimization of our Redecan facilities, and $0.8 million of restructuring charges related to the remaining costs of exiting the Truss facility following its sale to a third party in the fiscal year ended May 31, 2024. Additionally, the Company recognized $1.1 million of cost associated with the winding down of our Avanti facility, the closure of which was announced during the quarter ended November 30, 2024. Lastly, the Company recognized $0.3 million of restructuring charges related to our decision to exit from the New Zealand medical cannabis market announced during the quarter ended February 28, 2025.

Previous wording

Within the beverage segment, the Company recognized $1.0 million of expenses related to employee termination severance and benefits and $0.8 million of costs associated with the consolidation of production sites through the integration of the Craft Acquisition and the Craft Acquisition II. Additionally, the Company recognized $0.5 million of restructuring charges related to terminating a legacy storage agreement from the Craft Acquisition. We expect to transition to a new storage facility in the fourth quarter of fiscal year 2025, consistent with our announced cost savings initiatives.

Current wording

Within the Beverage segment, the Company recognized $1.0 million of expenses related to employee termination severance and benefits and $2.8 million of costs associated with the consolidation of production sites through the integration of the Craft Acquisition and the Craft Acquisition II. Additionally, the Company recognized $0.8 million of restructuring charges related to terminating a legacy storage agreement from the Craft Acquisition. We expect to transition to a new storage facility in the fourth quarter of fiscal year ending May 31, 2025, consistent with our announced cost savings initiatives.