Tilray, Inc. Series 2 Aktie

Thank you for joining today's conference call to discuss Tilray Brands' financial results for the Third Quarter of Fiscal Year 2026 ended February 28, 2026. [Operator Instructions]

I'll now turn the call over to Ms. Berrin Noorata, Tilray Brands' Chief Communications and Corporate Affairs Officer. Thank you. You may now begin.

Thank you, operator, and good morning, everyone. By now, you should have access to the earnings press release, which is available on the Investors section of the Tilray Brands website at tilray.com and has been filed with the SEC and OSC.

Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.

In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from these described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements.

Today, we will be hearing from key members of our senior leadership team, beginning with Irwin Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary followed by Carl Merton, Chief Financial Officer, who will review our financial results for the third quarter of fiscal year 2026.

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

Thank you, Berrin, and good morning, everyone. It's been an exciting year at Tilray Brands. We delivered a record quarter with continued international expansion across our platforms. I also want to briefly highlight our BrewDog acquisition. When you have good news, you go to the tallest building and scream it and don't wait. This transaction positions Tilray at approximately $1.2 billion global revenue company on an annualized basis and meaningfully strengthens our long-term growth profile.

I've done over 100 acquisitions in my life, and I've never received more calls, congratulations and a brand with more awareness on a global basis, which helps Tilray to be at the forefront around the world. Since 2019, we have transformed the company from a Canadian cannabis business with approximately $50 million in revenue to a global lifestyle consumer products company approaching over $1 billion in revenue on an annualized basis, providing the strength and effectiveness of our strategy and our execution going forward.

We are building a diversified global platform grounded in a long-term vision of bringing people together through meaningful connection. With a strong team and clear priorities, we remain confident in our path forward. Today, Tilray leads its global platform as the #1 cannabis company in Canada by revenue, the fourth largest craft brewer in the U.S., a global leader in medical cannabis and a wellness leader in North America.

And now with BrewDog, the #1 craft brewer in the U.K. Transforming this business has not been easy. We operate in highly regulated environments globally. Face cannabis regulatory reform in the U.S. and navigate constraints across international markets. At the same time, we've strengthened our global brand portfolio, scale and optimize our cultivation capabilities and our brewing capabilities, built a $0.5 billion beverage platform within a long-established category and established a meaningful wellness strategy. This level of progress reflects both the pace of our execution and the strength of our strategic foundation and the teams that we have in place.

Yes, there have been challenges along the way, particularly with integration, and there will continue to be challenges. This takes time. But today, we see the pieces coming together in the way that few businesses can replicate, and we're building something truly differentiated. And our Q3 results reflect this in the third quarter and consecutively from Q2 to Q3, we delivered record results with net revenue reaching $207 million, reflecting 11% organic growth year-over-year and gross profit increasing to $55 million, up 6% from the prior year despite ongoing industry and macroeconomic headwinds, we also maintained a strong financial position ended the quarter with $265 million in cash, restricted cash and marketable securities and approximately $3.5 million in net cash, providing the flexibility to invest in growth while maintaining financial discipline.

Our Q3 results reinforce the momentum we outlined last quarter, improving fundamentals, sharper execution and increasing leverage from our diversified global platform.

Turning first to our cannabis business. We delivered strong results this quarter across our global platform, with continuous momentum in both Canada and our international markets. As the regulatory environment evolves, particularly in the U.S., we're well positioned with scale infrastructure and experience to expand this business globally, we've built this platform deliberately, and we're ready to execute as opportunities develop. Q3 was the largest quarter ever for international cannabis growth. We generated $24.1 million in net sales with 73% year-over-year growth and 20% sequential growth. This was driven by exceptional sales volume growth.

Medical cannabis flower volume was up 100% year-over-year and medical cannabis oil volume was up 90% year-over-year. Tilray holds top position by a significant margin in the medical cannabis oil category across leading international medical markets while we leverage our expertise and reputation in the doctor-led distribution channels.

Germany, our largest international market grew 43% year-over-year, an important achievement for our international team as they continue to navigate evolving regulatory framework and significant price compression across global markets. Notably, we overcame $7 million in price pressure that flows directly to the bottom line.

Turning to our medical distribution business in Europe. I'm extremely proud to say that CC Pharma was recognized as one of the top 100 innovators, leaders and trusted partners in the European pharmaceutical market. Congratulations to the team on a great accomplishments for continuously driving our business forward. Our Tilray Pharma business grew 35% year-over-year to $83 million, making it our highest ever third quarter for sales and profitability. The increase in distribution revenue in the period was driven by portfolio optimization, mix, positive market trends and increased medical device sales.

Our recently announced partnership with Alliance Healthcare further strengthens our leadership in Germany, expanding our reach to more than 16,000 pharmacies, up from 13,000 previously. In addition, we entered into a partnership with Smartway, a leading U.K.-based pharmaceutical distribution company to expand the availability of our pharmaceutical products across the United Kingdom. Together, these partnerships speak to the strength of Tilray Pharma as a valuable strategic asset within our global medical cannabis platform.

Looking ahead, our distribution business is laser-focused and driving future operational efficiencies, be automation, centralized sourcing, harmonized packaging and label that sets us up with vertical integration for our cannabis business.

Turning to Canada. Our Canadian cannabis business continues to deliver strong results. We reinforced our position as Canada's leading cannabis company by revenue on a trailing 12-month basis, and our adult-use medical grew 8% year-over-year to almost $40 million of net revenue. This performance speaks to the strength of our portfolio and the resilience of our commercial execution and the team that we have in place today.

From a market share perspective, Tilray maintained the #1 market share position in cannabis dried flower, pre-rolls, beverages, oils and chocolate edibles. Importantly, this leadership reflects the strength of our tiered brand strategy in dried flower, Tilray is the only licensed producer with 3 brands in the top 10. In pre-rolls, we hold 2 of the top 3 brands. And in beverages, we delivered the top 2 brands in the market during quarter 3. This approach diversifies our reliance across brands and facilities while allowing us to serve the seed consumer segments with clearly differentiated offerings.

From a brand portfolio perspective, Broken Coast delivered its strongest quarter in the past 2 fiscal years, growing 16% year-over-year. We also continue to innovate with our core categories launching Good Supply, Where's My Bike and Blueberry Donuts cannabis strains during the quarter. both of which finished the quarter among the top 10 dried flower SKUs in British Columbia, and we plan to scale them nationally and introduce additional genetics in Q4 and into fiscal 2027.

Finally, we also introduced a new brand, Portal, featuring vapes, infused pre-rolls late in the quarter. While still early, we're beginning the national rollout. We expect to launch a Portal to build upon our momentum and drive meaningful growth in these key categories going forward. And we're also making clear progress in high-growth price-sensitive categories such as vapes. Quarter 3 marked our strongest vape quarter in the past 2 fiscal years, reestablishing Tilray as a top 10 player in the category. Importantly, this performance reflects our disciplined approach to revenue generation. We intentionally scaled back our vapes volume until we achieve the right cost structure and return the category to profitability.

After 7 years of federal cannabis legalization in Canada, we are modernizing the store. We built a strong foundation on Canadian cannabis, and we're now advancing to the next phase transforming our cultivation platform through AI-driven growing systems, next-generation genetics and improved yields across our operations. We're executing a comprehensive end-to-end upgrade of our cultivation capabilities.

And while this transition is still underway, we're already seeing progress as we move towards more consistent, higher quality and more efficient production. This evolution is designed to enhance margins, strengthen product quality and position us ahead of the curve as the industry continues to mature.

In the U.S., we continue to monitor the rescheduling of medical cannabis and are actively engaged with legislators and regulators. We're also evaluating our participation in the center for Medicare and Medicaid Innovation pilot programs. Tilray is well positioned to contribute to the pilot program with its proven track record of operating at a scale in a highly regulated medical cannabis globally.

Moving to our beverage business. This quarter and shortly after the quarter end, we successfully executed against our key strategic priority to expand our global beverage platform through a strategic licensing partnership with Carlsberg and the targeted acquisition of BrewDog, strengthening our portfolio, improving utilization and advancing our global growth strategy. We are honored and proud to begin our partnership with Carlsberg, one of the world's leading brewers starting in January of 2027. Through this partnership, we'll produce, market and distribute a portfolio of leading Carlsberg brands across the U.S., leveraging our brewing network, commercial capabilities and our national distribution footprint. We expect this to drive immediate scale accretive to revenues, supported by increased volumes, expand shelf presence and a more favorable product base.

Following the Carlsberg announcement and post quarter close, we acquired craft beer icon, BrewDog, creating approximately $500 million global craft beverage platform on a pro forma basis. We acquired BrewDog's global IP, strategic brewing and brewpub assets across the U.K. Ireland, Australia and the U.S., creating immediate scale, strengthening our infrastructure and broadening our international reach. This positions us to extend our reach into previously untapped markets such as the Middle East, Asia Pacific and take our U.S. brands globally while strengthening their portfolio with a highly recognized craft brand. We acquired this platform for approximately EUR 40 million, which reflects a fraction of its replacement cost. This strategic acquisition has significantly accelerated the implementation of our global strategy by several years.

Now turning to the results of our beverage business. We're making disciplined progress on the integration of our beverage acquisitions, while staying focused on the work still ahead to generate growth and profitability. As expected, beverage net revenue of $43 million in Q3 was impacted by margin-focused actions as well as industry-wide softness. These margin-focused initiatives are delivered and necessary to reset the business for profitable long-term growth.

What's important is that the underlying fundamentals are improving. Through Project 420, we rationalized the portfolio, removing nonstrategic SKUs to improve velocity, margin and execution. We continue to focus on cost discipline, delivered over $6.2 million in annualized savings during the quarter, completing our target synergy program of $33 million enabling us to achieve approximately 32% gross margins despite significant input costs and headwinds. Without these decisive actions taken, margin would have been more significantly impacted.

Operationally, we're building a more focused, higher performing portfolio, we're prioritizing fewer, bigger, better innovations aligned with consumer demand. Products like Pub Light are expanding distribution and our ready-to-drink cocktails on the West Coast are delivering margin accretive growth. We're also starting to see sequential improvement across our core brands, including Sweetwater, Shock Top, Blue Point, Revolver and Montauk.

Looking ahead, we expect continued momentum on improving fundamentals and a stronger path to growth. Within the spirits category, in Q3, we focused on enhancing our commercial plan. Wholesale completions were 160 basis points above the national spirits trends, demonstrating strong consumer demand and awareness. Our ongoing efforts remain focused on expanding product distribution to additional states and beyond.

Regarding our U.S. hemp-derived THC beverage business, we continue to offer Fizzy Jane's, Happy Flower, hemp-derived THC beverages in 5-milligram and 10-milligram formats through nationwide retail partnerships, including major wine, liquor and grocery outlets across the country. While federal and regulatory changes may affect HDD9 products after November 2026, we continue to stay engaged with legislators and regulators who are closely monitoring the development in Washington.

Turning to wellness. Net revenue increased by 16% to $16.4 million in the quarter, driven by our focus on value-added innovation across superseed, better-for-you breakfast and snacking and continued momentum in the high-vol energy grade. We'll continue to focus on distribution expansion broader assortment and promotional improvements while continuing to strengthen the profitability profile of wellness business.

With that, I will now turn that over to Carl. Carl?

Thank you, Irwin. Before I begin, please note that we present our financials in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussions, we will be referring to both GAAP and non-GAAP adjusted results and we encourage you to review the reconciliation contained within the press release of our reported results under GAAP with the corresponding non-GAAP measures.

This quarter, we achieved record third quarter revenue and strong year-over-year improvements in gross profit and adjusted EBITDA and we are reaffirming our adjusted EBITDA guidance for fiscal 2026. Net revenue was a third quarter record of $206.7 million, an 11% increase year-over-year. Revenue growth was across multiple businesses.

Cannabis net revenue increased 19% year-over-year to $64.8 million during the quarter, driven by strong growth in gross international cannabis revenue of 73% and 8% in net Canadian adult-use and medical cannabis. The exceptional revenue performance of our international cannabis business solidifies our point from the last conference call that Q4 2025 and Q2 and Q3 of this year's performance are more indicative of what investor expectations should be going forward.

Growth in international cannabis accelerated based on an enhanced supply chain, increased patient adoption in certain markets and our targeted expansion into emerging markets. This quarter, we continue to strategically reallocate supply from the Canadian wholesale market to higher-margin international markets and we'll maintain this approach as those markets continue to scale. Year-to-date, we allocated approximately 6 metric tonnes of product from Canada to international markets, which continues to supplement our ever-increasing cultivation in [indiscernible].

Distribution net revenue increased 35% to $83 million based on a focus on higher velocity and margin SKUs and positive impacts from foreign exchange rates. We expect distribution to continue to be a strong contributor as it complements and scales alongside our international business.

Beverage net revenue for the quarter was $42.6 million compared to $55.9 million in the prior year. However, the results do not fully reflect the operational progress we have made in the segment. During the quarter, we successfully completed Project 420, closing and delivering $33 million in annualized cost savings, which improved the underlying cost structure of the business. Those cost savings are not always visible in our margin results as they've been largely offset by almost $2.9 million of higher aluminum costs year-to-date and lower overhead utilization rates. Getting our cost structure right in beverage has been and will continue to be a key focus area for us.

Looking ahead, Carlsberg represents a compelling opportunity for us through a partnership with one of the largest global brewers. The relationship enables us to improve overhead utilization without deploying capital to acquire a brand while creating meaningful operational leverage. It also provides multiple avenues to strengthen the platform including increased scale with key global raw material suppliers and the ability to collaborate and learn from one another on innovation and best practices to support long-term growth.

BrewDog represents an equally compelling opportunity to strengthen our beverage business in the future, but for different reasons as it is more about an international opportunity. The BrewDog transaction was unique because it represented a chance for the business to start with a clean piece of paper and hand select the best and most important elements of a strong business that was placed in administration for reasons other than its core business. After this transaction, Tilray strengthens BrewDog, BrewDog strengthens Tilray.

Lastly, wellness net revenue in the quarter was $16.4 million, growing 16% year-over-year based on our focus on high-value innovations the continued strength of high-vol and growth in the ingredient sales channel. In terms of contribution, cannabis accounted for 31% of revenue, beverage revenue was 21%, distribution was 40% and wellness was 8%.

Moving on to profitability. We achieved a record third quarter gross profit of $55 million, a 6% year-over-year increase. Gross margin was 27% compared to 28% last year. By segment, cannabis gross margin was 40% for the quarter compared to 41% year-over-year and remained largely flat, primarily due to price compression in international markets, which reduced international cannabis revenue by approximately $7 million despite higher gram equivalent sold.

Distribution gross margin increased to 12% this quarter compared to 9% year-over-year due to favorable changes in product mix and increases in average selling price during the quarter.

Beverage gross margin was 32% this quarter compared to 36% in the prior year quarter. This change was a function of lower overhead absorption rates and higher input costs, including the previously discussed aluminum costs.

Wellness gross margin increased to 33% during the quarter from 32% year-over-year as strategic price increases largely offset an unfavorable change in sales mix.

Net loss was $25.2 million, a $768.3 million improvement compared to a $793.5 million loss year-over-year or a net loss per share of $0.24 compared to a net loss per share of $8.69. The improvement in both net loss and net loss per share is primarily driven by the onetime noncash impairment we reported in the prior year quarter.

Adjusted net income and adjusted net income per share, which both exclude the noncash impacts of amortization, stock-based compensation, impairments and nonrecurring charges, improved $5.3 million year-over-year to $2.4 million and $0.02 per share, compared to an adjusted net loss of $2.9 million and adjusted net loss per share of $0.03.

Our adjusted cash operating income for the quarter was $4.1 million compared to a loss of $3.1 million last year. Adjusted EBITDA for the quarter increased 19% to $10.7 million compared to $9 million last year, reflecting continued execution against our strategic plan, particularly from our international cannabis business.

Cash flow used in operations was $21.9 million compared to $5.8 million last year. The increase in cash used in operations was largely related to inventory ahead of our seasonally stronger fourth quarter and accounts receivable for our growing international cannabis business. Excluding the impacts of working capital, cash generated from operations was $3.4 million compared to cash used in operations of $9.3 million in the prior year. We ended the quarter with cash, restricted cash and marketable securities of $264.8 million and a net cash position of $3.5 million, which improved $40.2 million from a net debt position year-over-year.

As we have recently demonstrated our strong liquidity position has enabled us to act decisively in a dynamic environment and provides continuing flexibility to pursue strategic opportunities. We remain focused on managing and strengthening our balance sheet throughout the remainder of the year and beyond. Lastly, we are reaffirming our fiscal 2026 adjusted EBITDA guidance of $62 million to $72 million.

Operator, we can now open the call for Q&A.

[Operator Instructions] And the first question is from the line of Kaumil Gajrawala with Jefferies.

Can you guys hear me now?

Yes.

Yes.

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

What was the line? I didn't hear. You broke up the last piece, the cannibalization?

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

And you're talking cannabis right now for us, right?

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

Yes. Yes. Okay. So listen, I think the big thing is, number one, we are bringing on our Masson grow facility in Gatineau, which is increases our -- we're going from 137 metric tonnes of grow to almost 200 metric tonnes of grow. And also, we're bringing on outdoor grow in Cayuga. So number one, when we now have plenty of growth, and this has been a tougher year on yields in that, and that's sort of what you heard me say as we're overhauling things and modernizing things on better yields in the Canadian market.

On the other hand, the good news is our Cantanhede facility in Portugal and our Germany facility is probably producing some of the best yields and some of the best flower that we ever had. So the number -- the most important thing is we have plenty of supply to supply the European market. The other thing is we're seeing price compression, which I talked about, with the growth that we're having with yields, we'll be able to support that. And I think the most important thing in Europe is this here, consistent supply. We've not had consistent supply. Number one.

Number two, one of the things in Europe, you have to wait for permits, and that has slowed down to getting our sales out there. We've seen a real big improvement in the Portuguese government. I want to thank them. They modernize this now, where sometimes it'll take a month, you can see 3 days now. So being able to get product to our customers is something very important.

And then with that, we have perfected our grow and our yields, that will help our margins continuously, and deal with price compression. And I think the important thing is from Tilray standpoint, with our Tilray products with our innovation, with our brands, the big opportunity for us is if we got consistent product, we're going to get the volumes and how do we deal with price compression? If price compression consistently happens, we have supply, and I think we have more supply than anybody there.

So it's something that we're aware of. We dealt with it in Canada. We've had $250 million of price compression over 5 years in Canada, and we dealt with that. So not that I want to see that in Europe, but it's something we can deal with either now having supply, now having good yields, now having good grow over there to do it both in Canada and Europe. And there's no one else out there that has the supply that we have, both from the Canadian market today and the European market.

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

This is a good question. I mean there is absolutely project ongoing. We never just say, okay, we made a $33 million, $35 million of cost savings, stop. Now with BrewDog in the mix and bringing that together, both internationally and domestically in regards to buying hops, cans, labels, et cetera. And it's definitely something as we combine now.

And just remember, we've gone from a $200-plus million beer business, almost $0.5 billion now in size. So from scale, that's going to help us. And as we look at rationalization continuously on our plants, we look at rationalization on distributors. We just said, how do we bring all the organizations together, there'll definitely be additional cost savings available to us.

Our next question is from the line of Robert Moskow with TD Securities.

This is Victor Ma on for Robert Moskow. So I just want to ask about international first. International grew 73%, Germany grew 43%. What drove this delta? Was it shipment timing or permit delays that -- from the previous quarter that were fixed this quarter? And in terms of kind of looking at growth going forward, is that 43% growth rate for Germany? Is that kind of a good run rate to use and looking at growth for the segment?

So number one, there was some products that did not get shipped in the second quarter because of permits, but there's products that did not get shipped in the third quarter because of the permit. So it equals out. In regards to what was the growth? The growth was based on us having supply and demand. And I'm not sure, again, we have a big fourth quarter, what is the true run rate there.

And the big thing is what I said before, what the market is realizing, what patients and what doctors are realizing is that we will have supply. We will have good flower, we will have lots of innovation, we'll have some good oils. And again, we will be price competitive.

So what is the right growth number? I'm not ready to give that yet. But again, there's big opportunities for us in the international markets, not only in Germany and Poland, the U.K. and other markets, it's additionally other markets that we're looking at to open up and what will happen in Spain, what will happen in France. And so we're really excited.

The other thing that we have there with our CC Pharma, Tilray Pharma and some of the stuff that we're doing in the U.K. and being vertically integrated as we sell through our distributor and sell directly through our distributor into the drug stores, helps us that where we're a grower, where we've got a brand. And then we have -- the third part of it is where we have from a vertical integration, the distribution going to the drugstores. So that helps us tremendously, too.

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

So I'm going to let Carl talk about the hedge in a second because we are hedging on some things. But listen, adding Carlsberg in there with a good-sized business, adding BrewDog in there and then being able to buy on global contracts is going to be very, very helpful for us.

Right now, a lot of our hops for BrewDog internationally come from Washington State. But we, right now, as we put this together and listened, having Carlsberg, who is one of the largest brewers in the world and possibly buying into their contract, and we still have left over whether there are hops in that from our ABI stuff. So there's lots of opportunities from a scale to be buying hops and cans, and that's the big one to watch out for is as aluminum prices have gone up and Carl, will talk about hedges. Listen, the big watch out there is what happens with fuel and from a standpoint there is the unknown. But Carl, from where we're hedged -- Carl, do you want to talk about that?

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

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

So going well. I will say this here, we gained and we lost. And the big part of it is this here, we're in the craft beer category, lost some space out there. But I think the big thing is this here, where we didn't -- when we bought the Molson's piece and prior to that when we bought the ABI piece, from a timing standpoint, we lost a lot of SKUs where we had no influence in no part of it. So again, it goes against us.

Now we've gained a lot of distribution. And the big thing is this here just because we gain distribution and make sure the product sale. So plus-plus, we probably lost more. But again, it's okay because it was the SKUs that were not part of us at the time. And the new SKUs and the new products and new innovation is what we're excited about and where we've gained. And we had some big days at Walmart. We had some big days at Kroger, Albertsons and some other ones across Shop & Shop across the board.

So all in all, we're happy with what we got. And listen, I'd rather the set get smaller and us be a bigger player in a smaller set than just have a big set out there. So there's a lot of resetting happening within the craft beer industry in regards to the size and what retailers need out there.

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

And we were not the ones presenting those spring resets. But now whether it's the Molson or the ABI, and that's sort of where we'll be next year in January as we take on Carlsberg, we'll be out there presenting in February -- January, February for the next spring resets for Carlsberg.

Our next question is from the line of Bill Kirk with ROTH Capital Partners.

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

So I'm going to -- Rajnish, since you're on the call, I'm going to let you jump in here because you're the one managing this. I think there's three things here. Number one, it's the buying that our guys are doing over there. Number two is our assortment. And number three, as we now look to sell our products into Italy and we sell our products into the U.K.

Rajnish, do you want to go into the specifics of what the products are that we've really seen the increase in sales?

I mean, there is a group of products revenues, we have about 2,800 SKUs. So what we have done is basically identified SKUs which have higher velocity to go. So there is a bunch of about 50 top SKUs which are right now working where there is a high velocity which we focus on, not just on velocity, but also on the gross margins. So these are the two criteria for us to look at in terms of the growth.

And then we are adding the medical cannabis portfolio. I mean, the medical cannabis portfolio is helping us to grow both in margins as well as in revenue because per unit revenue is much higher and margins are better. So these are the two big things in terms of the selling side of the business. And of course, on distribution, we are now -- with our new alliances, which are coming forward, we are now actually increasing our distribution across the pharmacy channel, which helps us to grow not just per unit, but also in the depth of distribution and the width of coverage of pharmacy. So this is really on the seller side.

But more importantly, also on the buy side, I think we are now -- our purchasing is becoming much more robust in terms of the timely decisions. We've implemented automation in our purchasing system, which predicts the pricing patterns and then it helps us to take decisions quicker.

So I mean these are a few things which in the pharmacy distribution is helping us to grow. And then, of course, on the operations side, a lot of our business, we are also looking at in-house packaging to out-house packaging and whichever way is working for us, there's a big team, which is working to make sure that there is a consistency in supply from the operators, both in-house and out-house, and that's also helping us to improve the margins.

When we bought CC Pharma, that was a big part of it. But again, it was bought during the Aphria time was for a tender, and was the age of sub-pharmacies. That was not really happening, number one.

Now -- and there was challenges with getting different medicines as we're buying all different types of medicines. But as Rajnish said, we're focused on the core medicines with the higher margins. And we've done a lot of automation at CC Pharma. The other thing is what's happened, we've gone from servicing 13,000 drugstores now to 16,000 drugstores. So we've expanded the amount of drugstores in Germany.

The other major thing is as we expand out CC Pharma into Italy and into the U.K. is a bigger platform that we'll be selling through. Not the highest margins, but again, as the volume grows, there's a lot more contribution. And as we put a lot more cannabis through it with much higher margin, you're going to see the margin grow there dramatically.

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

So let's say between $225 million to $250 million is what we have taken, okay? And again, we took all the U.K., Ireland, Scotland distribution through retail, we've taken it through on-premise. And we've taken 16 brewpubs in U.K., Ireland and Scotland. We've taken the brewpubs in Australia, we've taken the distribution in Australia. We've taken three brewpubs ourselves, and -- 2 brewpubs ourselves and there's three franchises. There's 15 other franchises out there today around the world that we sell them beer to and we get some type of royalty.

In regards to the U.S., we've taken the distribution, the manufacturing in the U.S., and we've taken with them Las Vegas, Columbus, St. Albany and Cincinnati is -- and Cleveland, I'm sorry, and the airport in Columbus. That's what we've taken there. So it's somewhere between $225 million and $250 million in sales that we have taken.

In regards to the other piece, Bill, it's all coming from growth, and that's where it's going to come from. And don't forget, you saw from a standpoint there, what we've gone through is SKU rationalization in regards to our beer business. If you take what we're down this year and what was SKU rationalization, what was distributor rationalization, and what was product rationalization, I mean quite a bit of sales come out of our business.

Our next question comes from the line of Aaron Grey with Alliance Global Partners.

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

So number one, let me go back to HDD9 and how we're looking at that. We're looking at it three ways. Number one, it gets extended and stays as is. Number two, there is some type of new legislation that comes out that regulates it either 3, 4 or 5 milligrams, and which would be great and that way we can sell it or the ban in November of 2026 happened, and it completely stops. Listen, I think it's going to be one or two. That will be my opinion.

In regards to our CBD drinks into Medicare and that within the U.S. Listen, we have Happy Flower, we have the drinks, we're prepared for that now. It's just making sure that as we talk to the FDA, and we talk to them that how we go about it and how we do it. So we're able to do it. We have the products to do it. It's just making sure the right approvals, and we have a team that is working on this within the U.S. regulations and what could happen here. So stay tuned for that.

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

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

And Aaron, I think there's -- once again, you remember, we get in the beer business in late 2020, with Sweetwater and the acquisitions of the three brands in the West Coast and Montauk and then the ABI pieces and the Molson pieces. We had a onetime had 10, 11 manufacturing facilities. And since then, now with Carlsberg coming on, with the rescaling of the beer business and the SKU rationalization. It hasn't been the easiest road for us, but nothing dissimilar that was cannabis in regards to as we opened up the grow facilities, and we had to go deal with it.

But now we got time. We now have the right sets in place. We have the right new products in place. We had some new products out there that didn't do as well as we thought. So as Carl said, now with the purchasing power between BrewDog International, between bringing Carlsberg on with us, we feel good about moving forward where we've done a lot of the overhauling. We're now down to 7 manufacturing facilities. We might even get smaller in regards to that.

In regards to the facility in Columbus, Ohio, which is a beautiful facility. And what are we moving there from HDD9, if that is a product that's able to stay within the portfolio. We have a great energy drink called, High Voltage, that's growing in leaps and bounds. Some of the other non-alc products that we have out there today that we will move into our facilities. And as we introduce a lot of Vodka Seltzers and some of the other drinks that we're doing, we'll look to bring most of that in-house. And we will have capacity, as we have a great plan to grow Carlsberg. We think the growth opportunity of Carlsberg is tremendous of what we can do with that brand.

So again, it's -- we've only been at this 5 years where most craft brewers have been out there a long, long, long time. And we've had some pain, but we've managed through it. And I think we've really got it in a good place now from a scale standpoint. I don't -- I know, I could be wrong, I think we'll combine with BrewDog and what we're doing today, it's almost 18 million cases of beer that we'll be selling that's between the worldwide. So we're buying lots of cans, we're buying lots of hops, we're buying lots of ingredients here. And yes, some of it is across the water. We're buying lots of kegs, but how do we utilize that? We're just not a little craft brewer anymore from a standpoint there.

Our next questions are from the line of Pablo Zuanic with Zuanic & Associates.

Yes, congratulations on the very strong international growth and also very nice to see the share count being stable quarter-on-quarter. Look, I have three questions on Germany specifically, and I'll try to keep it brief.

The first question I want to get your take in terms of the advantage of being vertically integrated versus the many distributors out there, I mean for a while, we saw that the distributors were growing faster. We saw consolidation, Curaleaf by Four 20, High Tide by Remexian, more recently. But now with lower prices, some of the distributors are being squeezed out and they don't seem to have a very stable supply chain. So I'm just trying to understand if you can remind people of the advantages in Germany, especially where the market is evolving or being vertically integrated versus the distributor model.

The second question is that it would help if you can expand on your route to market? Like how many people do you have on the ground? How many people are visiting doctors? How many people -- what are the efforts in terms of reaching out to patients given all the restrictions. But just if you can give more color on your route to market in Germany.

And the third, which is related to all of this, I could make the argument, playing devil's advocate, that pharmacy reach does not matter too much, right, that all these numbers that we hear about CC Pharma and Alliance now are not so relevant when the doctors and the patients are making the decision and the 80/20 rule applies, right? We know that maybe 50 pharmacies, especially online account for the bulk of sales and only 1 of 7 pharmacies sell medical cannabis. So why does pharmacy reach matter in the short term and in the long term? I know there's a lot there, but there are three questions on international that would help if you can cover.

I hope I can remember all three, okay? And number one, to your point, and I stressed this before, from a growth standpoint of having our Cantanhede facility and that up and going the way it is today and growing some of the best cannabis that it ever has and having the permits to get out of Portugal into Germany is a major, major advantage to us, and this is what helped us in the quarter to get the sales. And again, as we're getting yields and flower to become that low-cost, that low-cost seller in there in the marketplace and deal with price compression.

Number two, you heard me talk about now as we bring on our facility in Gatineau, Quebec, that is a GMP facility. And that from a supply standpoint, and I got to tell you, because originally, we were going to sell that and thank God, we didn't because from electricity costs, from labor cost, that is an excellent facility and it's an excellent facility for us to have and supply the international market, and that's what it will do because it's GMP, because it's a lower cost facility.

And then our German facility, which originally we were selling 2 to 3 metric tonnes that are there and Rajnish and the team has done a great job of getting that up into additional metric tonnes and before that we were only allowed to sell into the German government there.

So to your point, Pablo, yes, we have supply. Yes, we can be that lowest cost producer. And yes, the big thing is we can be consistent. In regards to the customers that we're selling to. I'm going to let Rajnish talk about what we have on the ground there and the infrastructure in a minute, but just going through the pharmacies, you may not agree that having a vertical integration.

So number one, having CC Pharma. The big part of the CC Pharma today's business is not the cannabis business. But there's 3 things CC Pharma does. It has 16,000 pharmacies and a lot of these pharmacies, Pablo, are buying medical cannabis. So now they have the ability and at the end to sell, it has the ability to go to pharmacies, number one.

Number two, there's a lot they can do in regards to online and selling online through CC Pharma, and that is something that we're working on. And again, as we look at expanding our product lines in Germany, whether it is vapes, whether it is pre-rolls, CC Pharma has medical license and an application that they can do these things for, and we're looking at numerous things with the CC Pharma.

So today, having it, it's very important for us. It has a tremendous network too with other CC Pharma types of distributors that we can sell products through them too. So CC Pharma has a relevance to us, and it's a big relevant for us in the cannabis grow market where no one else really had a CC Pharma today.

Rajnish, in regards to your sales organization on the ground, go ahead.

Yes. So two things here. I mean, so there is a price compression in Germany, which is kind of changing the route to market and the route to market is diverting, becoming more integrated. The distributor is now getting squeezed out because of the margins, et cetera. So I think -- we don't see it now, but we do see it going forward that the route to market will become more direct to pharmacies and through the channels of prescriptions to doctors, et cetera. So CC Pharma and our medical team there is presently working along with the prescribers and also in the pharmacies to work and build this integrated supply chain to reach the patients. So that's number one.

Number two, to your question of what's the feet on street we have today 2 teams which work on the street. One is the one which work with the prescribers. This is a team of about 20-plus people who are medical representatives and medical advisers, who work on with the prescribers. And then we have a team with CC Pharma, which is also about 7 to 8 people who are basically telecall services people who continuously to work with pharmacies to make sure that the prescriptions, which we reach there and the stocks are available for them. So there is a twin approach there, both at the pharmacy and at the prescriber level at the ground in Germany.

And as we go and see this forward, I think -- and these are signs which we see in the market today that the route to market is going more direct than through the distribution. So with CC Pharma and Tilray Medical team, I think this change we are seeing, and we also see data coming to us, which is telling us that the pharmacy sales are improving, still small, but improving compared to what the distribution sales have been.

And Pablo, not only that, what we have internationally today, I mean, basically, we have marketing teams, we have R&D teams, we have quality teams. We have a researchers working on our different cannabis streams and genetics over there from a medical standpoint that when doctors prescribe for pain, for anxiety, for cancer we can grow and support it.

So again, what we're not is just somebody selling into the marketplace. I mean, as Rajnish said, we have a big infrastructure in Canada and Portugal, we have in Germany. And then we have a team that support it in London in regards to the marketing team, and there's a whole supply team. And the good news is we have moved a lot of our Canadian colleagues over there to help us with this grow.

You were going to ask something else. Go ahead, Pablo.

I mean, that's great color. Can I add just one more quickly? You mentioned that you're keeping an eye on the CMS program in the U.S. for a full-spectrum CBD. Does that mean that you would be considering or looking at buying a U.S. CBD brand?

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

Our next question is from the line of Kenric Tyghe with Canaccord Genuity.

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

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

Great. And that was the gist of the question was just on that evolution from here forward with Carlsberg and BrewDog, but I can leave it there.

Just a follow-up with respect to the brewpubs and that footprint. Just with how consumer trends and consumption patterns have changed. How are you thinking about that footprint going forward? And is it becoming more important to you as a sort of a strategic buffer on the consumption side? Any color around the BrewDog -- sorry, around the brewpub footprint would be useful.

Listen, good question. It's something today within Tilray, we have 18 of our own brewpubs here in the U.S. So again, it's something we understand. In regard to the U.K., Ireland, Scotland and the other markets, listen, I'm big on brewpubs to look at them from a marketing tool and to build our brand out there. So bringing people together. And that's the whole thing on longevity today to bring people together.

And a big part, and I plan to spend a lot of time looking at our brewpubs in regards to what we got to do to interact with our customers that come there, how do we serve them good food and good value. I've also talked about whether it's Carlsberg, Guinness or our other beers of how we bring other beers into there because if they don't want BrewDog, we want them to come to our brewpubs at least to enjoy our food, enjoy the environment, and maybe we can convince them to have BrewDog.

Is that going to be a big part of our growth as a part of our strategic plan to open up another 100 of those? No. It's a big part of those to look to upgrade them, to put more TVs, more interactive types of communications in regards to getting more and more of our consumers to that and is something, yes. Is there an opportunity for us to franchise more and more BrewDogs, where we did not take them and make them franchisees? Absolutely, yes.

So there's some exciting things here as we look to grow from a franchise model as we look to increase the sales with the ones we own and where we license the brand today in airports. And that's something that we're looking at too because there's -- with airports today, you license your brand name, you collect a royalty and you sell product. So that's how we're looking at these brewpubs.

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

Well, thank you, everybody. Number one, it April Fools' and our numbers are not April Fools' joke. So that's the good news, okay. Our numbers are some real strong numbers out there. Congratulations to the team on the growth. And not one of these businesses, nothing has been easy out there, in regards to what we deal from a regulatory standpoint, what we deal in regards to pricing, in regards to tariffs and just looking at the consumer today. And again, if you stop and look at Tilray from 2019 to hitting over that $1 billion mark with the acquisition of BrewDog, it's a very exciting time for us.

In regards to where we're going in 2027 and with 2 months left in our quarter of 2026, there's a lot to be proud of here. And as you heard me talk about the big overall that we're going to do in the Canadian market in regards our genetics, in regards to our strains, in regards to using AI to help us there, in regards to how we modernize those facilities and take out lots of costs. And Blair and the team have done a tremendous job in doing that.

And again, as you come back and think about what we have in grow today and how we've converted these facilities to much more economical and dealt with the challenges of the cost of utilities in Ontario. So again, we've accomplished a lot in the Canadian market and the only market where recreational cannabis is legal in the world and at the same time, dealing with and growing our medical market and introducing more and more patients and consumers to the product.

In regards to the U.S., listen, again, I'd like to see some better results coming out of our beverages business. But on the other hand, as you bring everything together since late 2020, and we're here where we are today, I see some good light at the end of the tunnel here of what we're building here and being the fourth largest craft brewer out there and the fourth largest craft beer business. There's been a lot of changes in the craft beer business, it's been a lot of changes in the beer business.

And one thing I can tell you is I really feel we got the footprint right, we got the model right, and now we got the product right because we brought up a lot of SKUs. We have over 18 brands. We have over 900 distributors. We've had multiple people, multiple contracts out there that we had to deal with, whether it's buying kegs, cans, hops, et cetera. So as we bring all that together.

In regards to our spirits business, you heard me talk about our depletions on Breckenridge being up. We've dealt with lots of distributor transition out there with RNDC, now being acquired by Reyes, which is good news for us, and it's something that we will consolidate into the new Reyes distribution system.

In regards to some other changes in the market, it's something we're going to do. But what I'm really happy about and seeing our Breckenridge, some of the new stuff that we're really coming out with in regards to our tequilas, our drinks with moonshot -- our Mountain Shot, it isn't moonshot. Some of our non-alc drinks and some of our products there. But it's great to see some of the stabilization that's going to happen in regard to the distribution business.

Listen, this industry is a difficult industry with a 3-tier system, and you can have the greatest products, but it's the distribution that you need. In regards to international, again, Rajnish and team have done some great things in regards to the international piece and the grower and dealing with the regulated market in regards to medical cannabis, dealing with permits when you ship out of the country or permits when you ship into the countries.

And again, what we've had to do to get our Cantanhede facility up to the yields and up to the grow that we've done in Canada and up to being able to supply consistent product to the marketplace and back to Pablo's point before, that's something that Tilray now is going to be known for because if you think about it, look where our volumes are today and look where they were a year ago and how we've doubled in the quarter. So a lot to be proud of there.

And again, there's a lot more that we're going to do in those marketplaces. We had to overcome Germany being only sold into the German government, which we're losing money and almost doubling the amount of production coming out of that facility. And now we're running Cantanhede probably at 50%, 60% capacity, and we have tremendous opportunities to grow more and more in our Cantanhede market.

Really, the highlight is where we've come with CC Pharma. Where we are at 2%, 3% margins and closer to 5%, 6% margins now and really see the opportunity in that business and see opportunities from an integration standpoint and even seeing it grow throughout the rest of Europe.

And last not -- well, our wellness business in regards to Manitoba Harvest, and the growth within that business and the growth in regards to some of the beverage businesses that's been in that business. Listen, we'll see what happens in regards to Delta-9, I think as you heard me say, there's three options out there, either 1 or 2 will happen. I'll be disappointed if it's 3. But again, we're out there in full force selling our products today that we have in the marketplace and sticking with it and out there lobbying the government to really take a hard look at that.

So last but not least, on March 2, I just sort of want to step back one second in regards to Carlsberg as we announced our partnership with Carlsberg. And it's something I'm very proud of because I grew up in Carlsberg. It's a worldwide brand. It's one of the largest brewers out there. What a class organization to be associated with. I spent lots of time with the Carlsberg team. And it's tremendous what we can learn from Carlsberg. And what we have the ability to tap into their knowledge base, tap into their new products, tap into their marketing things. And I always say this here, when I grow up, I like just to be like Carlsberg. It's something that we aspire to, and having that for the U.S. and the U.S. being the biggest beer market in the world, Carlsberg is looking for some big things for us, and I promise we're not going to let them down.

Last but not least, in regards to BrewDog. Listen, I looked at BrewDog numerous times throughout the years in the acquisition, I congratulate the founders for what they did in regards to building this brand and what they did in regards to opening up these beautiful brewpubs around the world today. And since 2015, and basically 10, 11 years what they've built.

Unfortunately, not everything goes as planned. And Tilray, when it had the opportunity to participate in the administration to buy this without being able to do due diligence, the way we could, but we knew the brand, without being be able to go into data rooms and ended up buying this at a little over EUR 40 million is something that I'm excited about. But I always say it's not what you bought it for, it's what you do with it. And with that, there's a lot to do.

And this changes a lot within Tilray in regards to our beverage business, our worldwide known of who Tilray is. You heard me say in my comments, that I've done lots of acquisitions, whether it's at Anheuser or here, and I've never had so many reach outs about the brand, BrewDog and the excitement that is. So we're pretty excited. It's just a month that we owned the business. We're in the midst of getting our hands around this. And one of the big things, this business as it was going through in administration was in the midst of either being shut down or sold in pieces or sold as a whole like us.

So it's almost like we're starting this back up again, and getting it back up to capacity, getting the factories back up, making sure we have hops, where suppliers didn't get paid and there are ransom suppliers that we've got to do that. There was employees that had their resume on the streets that didn't know if they were going to have a job or not, and that's something that we've got to make sure. So stabilization, as I keep saying, is the key to this here.

And with that, we will have in place great strategic plans to grow the business in the U.K., Ireland, we'll have great plans in place for Australia. In Europe markets, we'll have plans in place for a franchise and what we will do with our current brewpubs, and what we're going to do in the U.S. So there's a lot of exciting things with BrewDog that we can do and will do. And remember, there's a lot of heavy lifting there and how do we integrate it within our business.

So with that, some exciting things happen at Tilray. Let me tell you, as I always say, there's 2x4s that hits you in the head every day. And that's something we live by and how do we deal with it. I want to thank everybody for getting on our call today and listening to us. Happy Passover, Happy Easter to everybody, and enjoy some good beer out there, enjoy some of our good cannabis and to March Madness. Hey, when you're watching March Madness this weekend, make sure you have one of our great beers that we produce out there. Thank you very much for listening to us today.

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

Thank you for joining Tilray Brands conference call [Operator Instructions] I will now turn the call over to Tilray Brands' Chairman and CEO, Irwin Simon.

Thank you, operator. Good morning, everyone. Good afternoon for those listening internationally, and thank you for joining today's conference call. I'm excited to discuss the strategic acquisition of BrewDog, an iconic global brand in the beer business that will join Tilray's portfolio. The acquisition included BrewDog's worldwide brand intellectual property, certain assets from its profitable U.K. operations, including the scaled brewing facility in Ellon, where I am today, along with 11 bars across the United Kingdom and Ireland for GBP 33 million.

I'm here today at the Ellon facility, as I just mentioned, and what an unbelievable and exciting facility. I can't tell you how impressed I am with the facility, the team and of course, they brew great beer. We're also progressing towards the acquisition of certain U.S. and Australia BrewDog assets, which we expect to close in a later date very shortly. Before I get into the transaction details, it's important to step back and look what we built at Tilray since 2019.

Over the past several years, we've transformed Tilray from just a $50 million business into a global consumer packaged goods platform with well over $1 billion of revenue operating with more than 40 brands in over 21 countries through disciplined investments, operational execution and strategic partnerships and watching our balance sheet. We've established a reputable craft beverage platform across beer, spirits, energy drinks and emerging categories earning the trust of major global partners such as Carlsberg.

With the recent addition of BrewDog, our beverage business is projected to generate approximately $500 million in annual revenue. I personally admired the BrewDog brand for many years, watching its evolution across multiple valuation cycles, including when the company was valued well over $2 billion in 2021. Our approach has always been to be patient and disciplined and wait for the opportunities and waiting until we have built the scale and infrastructure and operating expertise required to be the right long-term steward for a brand if this became available.

Today, Tilray is recognized globally as a meaningful player in the beverage industry with our craft beer portfolio increasingly present across major national and international channels, including leading airlines you can find in on such as JetBlue, Delta and British Airways. The acquisition of BrewDog represents a fresh start for the brand and natural steps in the execution of a global beverage vision, which we set in motion several years ago.

And it's clear -- and it's a clear win for Tilray, our shareholders, our consumers and for BrewDog and their employees. First, it immediately strengthens Tilray's global beverage platform by adding a scaled international brewing capacity, established an infrastructure and one of the most recognizable international craft beer brands in the world. Second, the purchase price reflects disciplined capital allocation with a clear pathway to accretive value creation supported by multiple operation and commercial growth levers and ultimately additional levers that we will pull.

Third, it provides BrewDog with the operational expertise, capital and long-term stability needed to refocus the business and return the brand to sustainable and organic growth as we plan to invest additional working capital into the brand, into the business and into our people. And fourth, we acquired a world-class brewing infrastructure, a high-quality craft beer portfolio and strategic real estate at a fraction of the capital and a time required to replicate this footprint from the ground up.

And we expect it to be cash flow positive and accretive to EBITDA in 2020 -- in our fiscal 2027. This is a great deal for Tilray, our shareholders and BrewDog. You could not simply build this platform in Europe today for the amount of money we pay. Importantly, we're acquiring select operating assets that already delivered meaningful scale, strong brand equity and establish a route to market. BrewDog's Ellon Brewing facility currently produces 800,000 hectoliters annually and has the capacity up to 2.4 million.

So we have a job. We have to double the capacity here. This available capacity immediately enhances Tilray international operating footprint and allows us to efficiently expand distribution of our craft beer beverage across key international markets, including introducing craft U.S. brands like Shock Top, SweetWater, Montauk and Ten Barrel. Simply put, this is a disciplined, highly strategic, financially compelling fit for Tilray. BrewDog has built on the bold ideas and innovation strong quality standards and entrepreneurial spirit, which we will continue.

Its core craft lineup includes globally recognized brands such as Punk IPA, Hazy Jane and Wingman, each supported by strong consumer loyalty, complementing the core craft brews are more mainstream brands like Lost Lager, Black Heart, which broaden consumer accessibility. BrewDog has also provided an expanding range of low and nonalcoholic beverages, including Punk AF, Hazy Jane, Cold Beer and a Lower ABV Lager.

This portfolio strategically positions the company and one of the beverage -- in the company's fastest-growing industry. This is a brand requiring -- this is not a brand requiring reinnovation. It's a strong brand that will benefit from our expertise, operational execution and brand-building capabilities, working within the existing team and areas where Tilray has demonstrated success in the past. What BrewDog adds to us in the media? International distribution. The Ellon Brewing operation alone represents over GBP 100 million of invested capital.

This gives Tilray the infrastructure to introduce our leading U.S. craft brands into Europe through an existing production and hospitality platform. We are not entering Europe from scratch. We are not leasing capacity, and we're not testing distribution relationships market by market. We now own a proven scale European beverage platform, accelerating our beverage strategy by years. This is both a strategic and financial win for Tilray.

From a financial perspective, BrewDog represents a compelling transaction and win for our shareholders. As a result of license transfer time lines from the administrator to us, we expect minimal impact from brewing operations on the revenue and EBITDA side in our fourth quarter, beginning fiscal year 2027, BrewDog is expected to generate approximately $200 million in annual revenue and split 67% from brewing operations and 33% from brew pub operations.

And approximately $6 million to $8 million in annual EBITDA, we expect the acquisition to be accretive with the business becoming cash flow positive beginning in the first quarter of 2027. Importantly, this is a playbook we have successfully executed across our global platform, and it is a proven repeatable model following our leadership team has the operational expertise and discipline to execute it again as we unlock BrewDog's next phase of growth.

Now I want to speak directly to BrewDog employees and to the equity punk community about why this is a win for you as well. I know the past several months and especially today have been challenging. Administration creates uncertainty. It impacts teams. It impacts confidence. And I promise you, today brings clarity. My commitment to you is to continue clarity and communications going forward.

BrewDog now has a long-term capital global infrastructure, operation scale behind us, creating a strong foundation for the future called Tilray Brands. This brand was built through creativity, passion and willingness to challenge convention. That entrepreneurial spirit is exactly what made BrewDog a great brand and is something we respect and intend to preserve. We are not here to corporize BrewDog. As I continuously said, beer is not going away, and we're fully committed to making beer fun again like we've had with a lot of our other brands.

We're here to strengthen the business fundamentals that allow us to grow sustainably to you and can join the beer you love for years. That means stabilizing operations, improving efficiency, investing behind core SKUs and expanding international distribution. To the equity punks, you've helped build this brand to what it is today. Your belief and support shape this brand. We respect your community. Our objective is to preserve what makes BrewDog different from what's strengthening the business model and what supports it in the long term.

Before we go to questions, I'd like to ask Rajnish Ohri, President of our International business, to join us on this call. Rajnish, who is here with me today, is based in London and Dubai. He joined the Tilray team a year ago and will lead the BrewDog business together with the BrewDog team. With his deep CPG and international operation expertise, Rajnish has already played a critical role in accelerating our international growth strategy and building the groundwork for our international beverage business and up-and-coming U.K. launch of [indiscernible] Energy. I am confident in Rajnish's ability to expand our international beverage operation. Rajnish, go ahead.

Thank you, Irwin. I'm incredibly excited to lead BrewDog's operation as a part of Tilray's International beverage business. BrewDog is an iconic brand spirit by passionate people, a strong brew pub culture and a loyal community of beer lovers. And our focus moving forward is to strengthen that foundation. My priority is to return the business firmly to its core, great beer, great people and an exceptional brew pub experience while improving operational execution across brewing, distribution and hospitality.

We see meaningful opportunity to grow BrewDog by investing behind its beer first heritage, supporting the teams that make the brand special and expanding thoughtfully across international markets where demand for premium craft beer continues to grow, including some of the opportunities we see in the Middle East, Asia and Asia Pacific. Thank you.

Thank you, Rajnish. We'll now turn this over to questions. Baron, can you manage that?

[Operator Instructions] Our first question comes from Pablo Zuanic with Zuanic & Associates.

And of course, congratulations to Irwin and team on this transaction. So the first question, can you talk about the state of the business? What were peak revenues historically? I know you spoke about $200 million. I think you talked about an administrator handling the business right now. I read the Financial Times talk about a $37 million loss in 2024. Just talk about the state of the business, where are we versus peak? What went wrong in your opinion? And how are you going to fix it?

Thank you, Pablo, and great questions. Number one, listen, the state of the business, and we wouldn't step into something unless we felt the state of the business still had strong fundamentals. So number one, the fundamentals absolutely are still very strong. The brand has still very strong brand recognition. The brand has still strong distribution. I visit supermarkets here in Scotland and the U.K. and has a strong presence.

In regards to the sales, where they got off track, in my opinion and the team's opinion is this here. BrewDog at one time had close to 60 brew pubs with a lot of capital invested in that. And again, I don't think brew pubs were the right way to go in some of the markets they did, in which today we'll end up with about 13 brew pubs. And they've been closed or will be closed or will be sold off and will not be part of this deal.

In regards to the people, there was a lot of uncertainty here and a lot of uncertainty what would happen with the facility, a lot of uncertainty who would end up owning this and it would be gobbled up and there would be no more infrastructure than that behind it. So again, Pablo, this business needs some love. This business needs some innovation. And with that, I think we can easily get this business back to growth.

You heard what I said in regards to EBITDA between $6 million to $8 million in 2027. That's our next fiscal year, being cash flow positive. There's a lot of cost to take out of this business. And the important thing is, again, what we ended up acquiring this business for, and you could never replace these assets. This facility where I am today in Ellon, you couldn't replace this for GBP 100 million today. What's in the U.S. So there is work to do on the brand. There is work to turn this around. There's opportunities with us in regards to what we can do with our products.

And it's amazing once this press release come out, the calls that we're getting from around the world of how do we partner with you guys, how do we franchise. And it's just even with our retailers now that if it's stabilized, how we'd like to see you to do more with Tilray. So there's a lot of work to do, Pablo, here, but I feel there's a good trajectory of what could be done.

And just I know you're still negotiating on the U.S. and Australian assets. But can you talk about the size of that business just to have a reference in terms of sales or revenues?

So in Australia, Total sales is about -- in U.S., in regards to sales, it's about a $20 million business. And that comes from the brew pub in Las Vegas, the brew pub that's in Columbus. There's one in Cleveland, and there's one other one. And again, it's about a $10 million brand at retail. We do have a strategic plan for that of where BrewDog will be sold within the U.S. and what we can ultimately utilize that facility for. It's an unbelievable facility they built in Columbus, Ohio on 20, 25-plus acres along with a hotel. So -- and then Australia, which is high consumer of beer there. Again, we're taking 4...

2 pubs.

2 pubs and there is distribution going into ALDI and some of the other supermarkets within Australia. Not a big business. But today, there's also franchise in Dubai. There's franchise in India, franchise in Japan that are out there, and that's some of the stuff that we'll continue to look at where we can franchise this brand.

And one very last one, if I may. I mean, obviously, your alcohol business, as you said in the call, in the press release, now approaching $500 million. That's a long way from where you started. So congratulations on that. But compared to, say, Boston Beer, $2 billion, Guinness and a number of other companies, they're still relatively small. So just trying to understand in that context, where do you stop? Do you stop at $500 million? Or is M&A and expanding the alcohol business via M&A is still a big part of the strategy for deal? That's all.

So first of all, we only got in the beer business in 2020. They've been around much longer than we have, Pablo. So I think we've done a lot. It's not how big you are. It's how profitable you can get these businesses in a tougher category today. And I think what we've done in a short period of time and acquired, integrate, taking costs out is great. But again, I think this creates a lot of opportunity for our domestic brands to bring internationally.

I think, again, is the brew pubs that we're acquiring today gives us the opportunity to turn them into brew pubs that sell multiple beers. I'm quite excited about the Carlsberg business that we just partnered up with Carlsberg within the U.S. So there's lots of opportunity for growth, and there's lots of opportunities for strategic acquisitions. As we've done in the U.S., we've acquired brands where we've built out these regional brands, whether Montauk in the Northeast, SweetWater in the Southeast.

So we'll continue to do that and continue to utilize the strength of purchasing, procurement and distribution. But I think, again, the brands you mentioned have been around for a long time. We've only been around in this business for 5 years.

The next question comes from the line of Bill Kirk with ROTH Capital Partners.

Irwin, you talked about filling the excess capacity of BrewDog, which of your U.S. brands do you envision have the best international opportunity with that capacity? And then how do you begin marketing those brands in places that are probably today largely unfamiliar with them?

Good question. I think, again, number one, it would be Shock Top, it would be Montauk and probably SweetWater, okay? They would be the 3 brands. We're also, as you heard us say before, well before this, the team was in the midst of introducing high ball into the marketplace. We're looking at multiple areas in the seltzer area that ultimately we're looking at. So they're the brands that we would focus on and probably because of the infrastructure, the sales team, having our own brew pubs out there and brew pubs are great sampler, great testing.

So number one, we would immediately get those brands into our brew pubs. We would look to go ahead and partner with one of the major retailers on some new unique products. And of course, we'd have to spend some marketing dollars on that. So that is some of the things that we would plan to do. The other thing is, like I said, this facility here, again, how do we fill up this facility with growing the brands. If we look to franchise the BrewDog name and selling kegs in that around the world, we would do that. And would we potentially look to do some co-packing for some other brands out there with this facility.

Excellent. And then I think you mentioned -- so maybe a point of clarity first, but I think you mentioned 33% of the business was in the brew pubs or on-premise. I guess is that -- did I hear that right first? And then second, when you're looking at those opportunities to get BrewDog back to growth, is it more in the pubs? Or is it more off-premise?

It's more off-premise, of course. But here's the thing. BrewDog, one of the things we ran into when you're a competitor with a brew pub, would you bring this into your pub within the U.K. and there's a lot of beer consumed. We're going to look at bringing BrewDog into the pub market, which was not something that BrewDog did before. So you don't walk into a regular pub in the U.K. today and find BrewDog on tap.

So that is something we're going to look to do how do we push BrewDog through some of these pubs within the U.K. And how are we going to be part of events and whether it's sporting events, et cetera. And again, we do have today Dubai, which is a franchise, which is an exceptional franchise. We do have Japan, which we have a joint venture there. The Middle East with our nonalcoholic drinks there. So how do we ultimately look to expand into those markets.

The next question comes from the line of Frederico Gomes with ATB Capital Markets.

Congrats on the transaction. You mentioned $6 million to $8 million adjusted EBITDA for fiscal year 2027, but you also mentioned, Irwin, that there are costs to take out of the business. So I'm curious what does that guidance for adjusted EBITDA implies in terms of what the business is actually doing today and what's related to cost savings that you need to implement?

So Frederico, it's Carl. That's why we -- that's one of the reasons why we said there'll be minimal impact in Q4. So part of that issue has to do with licensing transfers and those are going to -- there's some time that has to happen for those to occur. And then once the licenses are officially transferred and we can start recording revenue, we can start recording EBITDA on it, we're expecting to have the exit costs roughly equal the EBITDA in that quarter. So we're looking at 2027 as more of a clean year.

Perfect. And then a second question on the guidance there for, I guess, the top line $200 million in annualized sales. Does that include the additional assets in the U.S. and Australia that's still being negotiated? Or is that upside to that guidance?

That's outside of the existing guidance we've given in this release.

This now concludes our question-and-answer session. I would like to turn the floor back over to Irwin Simon for closing comments.

Thank you very much, operator, and thank you to those who jumped on this call in short notice. As it's been a crazy day and again, as we had to go through a process with the administrator, which had to go through the courts and get that approval before ultimately it was signed off. And that's why there was a halt on the stock, and that's why there was a delay with the 5-hour time difference and letting the employees know here.

And again, we've met with the employees, a lot of excitement, a lot of good energy here. And I got to tell you, sitting here last night, and we didn't know until last night that we ultimately were going to be the successor behind this. But being here, being with the employees, being in stores, I really feel good. And I really feel good about the opportunity. I feel good about what this brings to Tilray and its shareholders. I feel what we can do with this brand with consumers. I feel good what we paid for this brand and knowing multiple times when I've had meetings and what the expectations were.

Again, it's only then what we can do with it. And with the team that I work with and some of the team members that I met here, I'm excited about what this ultimately will do for Tilray. So look forward to speaking to you on our earnings call and sometimes in April. And thank you very much for getting on the call in such a short order. Have a great day, everybody.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines, and have a wonderful day.

Thank you for joining today's conference call to discuss Tilray Brands' financial results for the second quarter fiscal year 2026 ended November 30, 2025. [Operator Instructions]

Now I'll turn over the call to Ms. Berrin Noorata, Tilray Brands' Chief Corporate Affairs and Communications Officer. Thank you. You may begin.

Thank you, operator, and good afternoon, everyone. By now, you should have access to the earnings press release, which is available on the Investors section of the Tilray Brands website at tilray.com and has been filed with the SEC and SEDAR.

Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.

In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements.

Today, we will be hearing from key members of our senior leadership team, beginning with Irwin Simon, Chairman and Chief Executive Officer who will provide opening remarks and commentary; followed by Carl Merton, Chief Financial Officer, who will review our financial results for the second quarter of fiscal year 2026.

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

Thank you very much, Berrin, and good afternoon, everyone, and happy new year. Thank you so much for joining us today. We delivered a strong second quarter marked by record results and a beat against analyst expectations in the face of strong headwinds. We recorded our highest ever Q2 net revenue of $218 million achieved in an adjusted EBITDA of $8.4 million, and a reported reverse stocks with adjusted EPS loss of $0.02, all while generating an adjusted cash operating income of $6 million.

More importantly, the quality of our performance continues to improve. Highlights this quarter include a 51% sequential growth in the international cannabis revenue and a meaningful year-over-year improvement in both net income and free cash flow.

We also continue to strengthen our balance sheet. We ended the quarter with approximately $292 million in cash and marketable securities and reduced our debt by approximately $4 million during Q2, leading to a strong net cash position exceeding our debt by almost $30 million.

In a rapidly evolving global cannabis regulatory environment, particularly in the U.S., our liquidity and balance sheet strength remains a clear strategic advantage. Today, Tilray operates more than 40 brands in more than 20 countries. We are a global leader in cannabis trusted by patients, health care professionals and regulators worldwide. We are the #1 cannabis producer in Canada revenue, the fourth largest craft beer brewer in the United States and a market leader in branded hemp wellness products across North America, where our high-protein hemp food portfolio holds a nearly 60% market share.

Our Q2 results reinforces the momentum we discussed last quarter, improving fundamentals, sharper execution and increasing leverage from our diversified global platform across cannabis, beverage and wellness. Let's turn to our cannabis business, which is strategically positioned for its next phase of growth.

While global cannabis markets continue to evolve, we believe the industry remains early in its long-term development cycle. The decision by President Trump to federally reschedule cannabis in the U.S. represents one of the most consequential regulatory shifts that the industry has seen in decades. Thank you, President Trump, if you're listening today. This is a moment Tilray has been preparing for methodically for years. And guess what, we are ready to go. We believe that cannabis rescheduling for Schedule III will lead the U.S. towards a federally compliant medical cannabis brainwork consistent with our other developed international markets, Tilray is positioned to act immediately. We already have the platform, regulatory experience, operating capabilities and leadership team in place with Tilray Medical U.S. to execute responsibly and to scale.

Globally, Tilray Medical is expected to generate approximately $150 million in revenue on an annual run rate. We offer over 200 medical cannabis products, serving more than 500,000 registered patients worldwide. We have participated more than 25 medical cannabis studies and clinical trials conducted in the U.S., Canada, Australia, Argentina and across Europe with leading hospitals, physicians addressing conditions such as pediatric epilepsy, cancer-related nausea, PTSD, chronic pain, anxiety, essential tremors, alcohol use disorders, glioblastomas, cannabinoid impairment and driving performance. These initiatives reinforce Tilray's reputation as a science-driven evident-based medical cannabis company and they underscore the trust placed in us by health care professionals, patients and regulators globally. We also possess one of the largest banks of cannabis genetics, which we intend to study in order to support research on the endocannabinoid system and advance medical cannabis science further.

Now let's turn to Q2 cannabis performance. Global cannabis revenue increased to $68 million, our high-margin international cannabis business led the growth, increasing 36% year-over-year and 51% substantially to $20 million, marking one of our strongest international quarters to date, and we fully expect this momentum to continue as we expand our global footprint. This performance is particularly notable given ongoing permit challenges, regular transitions in Portugal and Germany and continued price compression, especially in flower.

I'd like to acknowledge and thank the international team for their focused execution under these circumstances. I also want to recognize our Canadian cannabis team for their expertise, support and supply contribution. Additionally, I appreciate the cooperation of Infarmed and the Portuguese regulators to facilitating improvements to permission approval time lines.

Looking ahead, Europe, particularly the U.K. and Poland represents a significant growth opportunity for us. Execution will be driven by operational disciplines, including process improvement, automation, cross-functional coordination and increased utilization at our cultivation facilities in Portugal and Germany and utilizing our Canadian facilities. Tilray operates one of the largest cannabis footprints in Europe which we're continuing to expand and our advantage lies in scale, speed to market data-driven decisions making and experience gained from our Canadian operation.

Moving on to Tilray Pharma and our distribution business. As discussed last quarter, we're expanding our pharmacy reach in Germany, utilizing Tilray's Pharma expansive pharmacy network and salespeople and expect to triple our medical cannabis distribution footprint in fiscal 2026. We remain on track to achieve these objectives.

In terms of Q2 performance, revenue grew by 26% year-over-year and 15% sequentially to $85 million, making it our biggest quarter ever, while improving our gross margins. The increase in distribution revenue in the period was driven by competitive pricing, portfolio optimization and increased focus on medical device sales. Looking ahead, Tilray Pharma is laser focused on enhancing operational efficiency to support its commercial expansion into 3,000 additional pharmacies through strategic partnerships.

As medical cannabis continues to expand globally, Tilray Pharma is positioned to play a significant role in our overall growth by utilizing insights gaining through integrating our medical operations Tilray Pharma aims to strengthen its business value and create new growth opportunities within both the European medical market and the U.S. International markets remain one of Tilray's most compelling long-term growth drivers as we expect market opportunities, revenue, profitability continues to grow.

In Canada, our cannabis business continues to reinforce its leadership position. During Q2, our adult-use medical sales channel, net of excise tax, grew to $46 million with recreational cannabis growing 6% in the quarter. Tilray continues to hold a leading market position in dried flower, non-infused free rolls, beverages, oils and chocolate edibles. Our disciplined approach to product mix, margin management and premium pricing has supported our strategic reentry into the high-growth segments as base and induced pre-rolls with a focus on accretive margins. In Q2, we advanced our innovation pipeline with the launch of Redecan amped live resin liquid diamond vapes, addressing consumers' demand for the full spectrum of [indiscernible] strain-specific [indiscernible] that deliver in a [indiscernible] profile. This product combines 80% of live resin with 20% of liquid diamonds, maximizing potency while maintaining natural flavor integrity.

In addition, we entered the Quebec market with [ dates ] with a good supply brand, rapidly achieving that top 3 SKU positions in the province while underscoring effective execution and strong consumer update. Operationally, we hit our highest quarterly volume in 2 years with over 5.5 million units shipped in Canada in Q2. We also completed our first harvest from our restarted outdoor cannabis [indiscernible] in Cayuga, Ontario, exceeding expectations on the THC content. With this extra biomass, our cannabis cultivation capacity rises to 200 metric tons annually but this boost not only allows us to provide high-quality products at reduced costs and improve our profit margin, but also helps us expand into fast-growing markets, supplying both Canadian and international customers, including those in Europe to meet increasing global demand. The positive momentum of the past two quarters reflect the trajectory of Canadian cannabis business. With the right product mix, healthy margins, we're well positioned to elevate this business in the second half of 2026 and beyond.

With the reschedule of cannabis in the U.S. now is the time for Canada to modernize its regulation and secure its position as a global cannabis leader, including excise tax reform, marketing flexibility, health care integration and on-premise consumption. Without modernization, Canada risks becoming an exporter of raw products while value creation, intellectual property and long-term economic growth moves elsewhere. As a global policy accelerates, the choice is clear, modernized Canada's cannabis regulation to support economic competitiveness, consumer education, sustainable growth or risk being left behind in an industry Canada helped to create.

Prime Minister Carney, I hope you're listening to this call, the Canadian cannabis industry has generated a significant amount of jobs, contribute billions of dollars in tax revenues of both federal and provincial governments. However, the lack of regulatory reform is resulting in Canadian producers redirecting their investments and attention towards international markets where excise tax can be circumvented. Given the declining [indiscernible] industry in Canada, excise tax should be reduced, cannabis drinks should be permitted in liquor stores and on-premise location, medical cannabis sales in drug stores with lower excise tax burden while boosting overall tax revenues as the industry grows.

Turning to our beverage business in Q2. Beverage revenue totaled $50 million. We continue to make progress executing our integration and optimization strategy. We delivered $27 million in annualized cost savings in the first half of the year and remain on track towards our $33 million target. We're making meaningful progress in improving performance. However, there is more to be done as we continue to integrate our brands, streamline operations and optimize processes. We acquired brands with the understanding that significant improvements and comprehensive turnaround would be necessary. A process that is currently underway through our integration plan, we recognize this transformation will take time. And while we have not achieved all our objectives. We are on track and encouraged by the positive momentum gained so far. We look forward to the up-and-coming spring product resets with our retail partners and the introduction of some of the new innovations in the market. These changes are anticipated to have a positive impact on revenue in the fourth quarter. Our outlook may seem bullish but conviction is essential for success, which remains our primary focus revitalizing the craft beer category, making beer fun again, bringing people together, fostering meaningful connections and generating long-term value for our shareholders.

We've established brands, breweries, a major distribution system. Tilray is here to stay and not going anywhere. Tilray aims to expand its regional national and global presence through strategic partnerships with leading U.S. and international brands. We expect to share more about this in the future, but we believe these partnerships validate the strength of our platform and our strategic vision. This approach also position us for future opportunities, should cannabis THC drinks become federally legal in the U.S. We're ready to produce and sell as we're currently operating a leading THC beverage operation across Canada with over 45% of the THC beverage market share.

Regarding our U.S. hemp-derived THC business, we continue to offer [indiscernible] flower hemp-derived THC beverages with 5-milligram and 10-milligram format through nationwide retailer partnership. Distribution foods, nature wine, liquor grocery outlets across the country. While regulatory changes may affect [indiscernible] products after 2026, we anticipate compliant participation under new federal laws, if it happens. We're also pursuing international growth by expanding our beverage business into new markets worldwide, we're expect to leverage our future strategic partnerships. Our strategy for beverage abroad is evolving with an emphasis on craft beer and nonalcoholic drinks, including energy beverages that meet the demands of consumers in this expanding sector where brands such as Hi*Ball, our clean energy drink, Liquid Love our sparkling water brand. Hi*Ball has set the launch in the U.K. in Q4 for the expansion plans also underway for the Middle East and Africa.

Beyond nonalcoholic beverages and the energy drinks, we continue to explore opportunities to build on our global craft beer segment. Tilray recently participated in the American Craft Beer Expo in Japan and gain valuable insight which the team will pursue in the future.

Rounding out our beverage strategy, we're also focused on expanding our nonalcoholic beverages in the U.S. and across international markets. our recent innovations, including non-Alc under Montauk, 10 Barrel and our non-Alc ready-to-drink canned beverages and distilled spirits, including [indiscernible]. Within the spirits category, despite market challenges in Q2, we focus on enhancing our commercial strategy, resulting in a 9.2% increase in depletions across Vodka, bourbon and gin with Vodka leading by double digit for the quarter. While the Bronco seasonal release sold out rapidly, our ongoing efforts to remain focused on expanding product distribution to additional states and beyond. With 5 years experience in the beverage alcohol industry, we remain confident in our future trajectory as we continue to enhance operational efficiency.

Now turning to our wellness business. We generated revenue of $14.6 million, driven by a strategic focus on value-added innovation including high-protein, super seats, better-for-you breakfast products, better-for-you snacking and the continued success of our Hi*Ball clean energy drinks. Within our ingredient sales business, we've expanded our range of offerings in hemp protein and [ oil ], helping us further develop our business in North America and Asia. Our hemp food business remains fully insulated from proposed HAM THC regulation as these products contain zero THC and are broadly distributed across mainstream retail.

In closing, we are confident in Tilray's trajectories for the second half of fiscal 2026 and beyond with a diversified, scalable platform, improving fundamentals strong liquidity, regulatory tailwinds developing globally, Tilray is well positioned to capitalize on the next phase of growth across cannabis, beverage and wellness products. Thank you to our shareholders for your continued support and confidence in Tilray's long-term strategy.

I will now turn the call over to Carl to walk through our financial results in more detail. Carl, are you ready?

Thank you, Irwin. Before I begin, please note that we present our financials in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussions, we will be referring to both GAAP and non-GAAP adjusted results and we encourage you to review the reconciliation contained within the press release of our reported results under GAAP with the corresponding non-GAAP measures. This quarter, we are reporting record second quarter net revenue and strong year-over-year improvements in profitability, and we are reaffirming our full year 2026 adjusted EBITDA guidance. Net revenue for the quarter was a record $217.5 million. Revenue growth was primarily driven by strong results in our international operations, both international cannabis and Tilray Pharma. Additionally, Canadian adult-use revenue grew year-over-year. Cannabis net revenue increased year-over-year to $67.5 million during the quarter driven by a strong 36% increase in revenue from international cannabis and a 6% increase in Canadian adult-use cannabis. The continued year-over-year growth in our international cannabis business reinforces our view that Q1 results were temporarily affected by the timing of import and export permits. As a result, Q4 2025 and Q2 of this year provide a more accurate reflection of our ongoing performance expectations for the duration of the fiscal year.

With the continued growth of international cannabis, we deliberately chose to scale back supply into the Canadian wholesale market in the quarter and redeploy that supply, along with new growth into the higher-margin international cannabis markets over the remainder of the year.

Beverage net revenue for the quarter was $50.1 million. Beverage revenue was impacted by category-wide headwinds in the craft beer segment and our own portfolio optimization efforts under Project 420 where SKU rationalization and margin-focused initiatives continue to impact revenue. However, we expect spring retailer product resets to help mitigate industry trends. These upcoming changes should improve brand visibility and align product mix with consumer preferences, which we expect to benefit better revenue and gross margins in the fourth fiscal quarter.

Wellness net revenue was flat year-over-year at $14.6 million based on our strategic focus on value-added innovation and continued growth in Hi*Ball and the ingredient channel. Results were offset by challenges in the club retail channel, which we are addressing through targeted initiatives.

Distribution net revenue increased 26% year-over-year to $85.3 million based on our focus on competitive pricing, the prioritization of high-margin SKUs and favorable impacts from foreign exchange. We believe our distribution business will continue to complement and strengthen our international cannabis segment as we grow both in tandem.

In terms of contribution, cannabis revenue accounted for 31% of revenue. Beverage revenue was 23%, distribution was 39% and wellness accounted for the final 7%. Gross profit during the quarter was $57.5 million, and gross margin for the quarter was 26%, while margins increased in cannabis, distribution and wellness. Margin construction in the beverage segment negatively impacted the gross margin for the quarter. By segment, beverage gross margin reached 31% this quarter. While this represents a temporary decrease from last year, we are confident that the ongoing implementation of Project 420 will deliver significant improvements while also actively working on additional cost savings to improve overhead utilization as well as SG&A.

As these initiatives progress and sales volumes recover, we anticipate stronger overhead utilization and a return to higher margins. Importantly, we remain on track to achieve $33 million in annualized cost savings from Project 420 by the fourth quarter of 2026, positioning our beverage segment for long-term success. Cannabis gross margin increased to 39% compared to 35% last year. The increase was due to a greater proportion of sales being generated in the higher-margin international markets but was offset by increased sales in lower margin price competitive categories in the Canadian adult-use market like vapes and [indiscernible].

Distribution gross margin increased to 13%, up from 12% last year, while continuing to grow top line revenue. In wellness, gross margin rose to 32% from 31% as we successfully managed input costs and enhanced operational efficiencies. Our adjusted cash operating income for the quarter was positive $6 million, which excludes the noncash impacts of amortization and stock-based compensation. Net loss for the quarter was $43.5 million, a 49% improvement year-over-year compared to $85.3 million or $0.41 per share compared to $0.99 per share. It should be noted that EPS was impacted tenfold by the reverse stock split and has been reflected in both periods. Adjusted EBITDA for the quarter was $8.4 million compared to $9 million last year. Cash flow used in operations was down to $8.5 million compared to $40.7 million last year. The $32.2 million improvement in cash used in operations was almost entirely related to reductions in working capital. We ended the quarter with cash and cash equivalents and marketable securities of $291.6 million, $0.8 million in digital assets and improved from a net debt position of approximately $4 million in the prior quarter to a net cash position of almost $30 million at the end of the period. Additionally, during the quarter, we also completed our ATM program in the market. Our strong cash position provides us with the flexibility we need to execute on strategic opportunities and take advantage of it's changing regulatory landscape and we intend to work to further strengthen our balance sheet throughout the remainder of the year.

Finally, we remain confident in our business, our strategy, and our opportunity, and we are reaffirming our 2026 adjusted EBITDA guidance of $62 million to $72 million. We can now open the call for Q&A.

[Operator Instructions] The first question comes from the line of Bill Kirk with ROTH Capital Partners.

On the intoxicating hemp bands for November implementation, is there anything Irwin that the industry can do to try to help improve the regulatory outcome? Is there any way to kind of extend the grace period, reverse the band, carve-out particular categories? Like what can you do or what can the industry do to get a better outcome there?

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

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

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

So what I said was that we held back from the Canadian wholesale market at lower pricing than what we did in the prior year. And so last year, we did about $5 million. We obviously have the inventory levels that we have that are on the balance sheet that we could have -- that we can redeploy into European markets over the next 6 months of this year.

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

Our next question comes from the line of Robert Moskow with TD Securities.

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

So number one, absolutely, there was not price. Some of it came from new distribution of anything. It was a strike in British Columbia that ultimately hurt us. And we did gain a little bit of share, not a lot in the quarter. So it's demand. I think there's a lot we did in different markets. A lot of our new products started to roll out. And -- so that was the big reason from our growth, having supply. And I think just the team has done a great job. This is the highest quarter in us in selling the units 5.5 million units that we sold in the quarter. So again, if anything, throughout the rest of the prior years, we saw lots of price compression. I think the good news is we're not seeing that price compression right now. But we're seeing demand continuously growing and we're seeing all the Tilray different brands growing in the marketplace. And again, what I'm talking about is all our products, it's our flowers, our pre-rolls, our edibles, our vapes, our infused vapes and our drinks.

Sorry, in regards to CC Pharma, listen, I think CC Pharma has been part of Tilray since 2019. and trying to figure out what is the right position is one of our largest business. And we have the [ Euro ] team and with the growth and the opportunities in Germany have realized a couple of things. Number one, they're selling into pharmacies today. We're using the CC Pharma team to sell cannabis also into the pharmacy and also to deliver.

The other thing is this year, we're able, from our buying power and get better margins and demand for regular medicines, and we're seeing some great growth. It's the biggest quarter we've ever had with CC Pharma and some of the most profitable quarters we've ever had. So we're looking at how we really take this business for online. We're looking at how we're going to expand this business and take this model into other countries. And again, it's how we utilize the sales organization of CC Pharma or now named tilray Pharma and using that organization to sell more and more cannabis into the drugstores that it sells into.

Our next question comes from the line of Aaron Grey with Alliance Global Partners.

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

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

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

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

Our next question comes from the line of Pablo Zuanic with Zuanic & Associates.

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

So number one, as I said, we've owned CC Pharma for since 2019, Pablo, and it was finding the right way to operate this business. And originally, we acquired it as part of tenders for Germany. And we've been a part of the German drugstore business in Germany since then. We have now changed a lot within CC Pharma where we ultimately modernized, we put money into technology there. We've taken labor costs out of there. We've been able to buy medicines and regular medicines from some of the pharmaceutical companies at much better prices and made some big investments. And that is a big -- is where they're buying medicines and making sure we're buying them at the right price and selling them at less higher margins. So we have focused on that business. But back to your point, is today, we have the ability to win to more and more pharmacies. The CC Pharma or Tilray Pharma has its old sales organization. And you don't see today cannabis, medical cannabis sales go through CC Pharma, it goes through our medical cannabis business internationally. So there is a big focus to use that sales organization to sell more and more cannabis, medical cannabis in Germany. And with that, with the regulations and everybody has to go direct to a pharmacy, it can't buy online, there's bigger opportunities for us because more patients have to visit the pharmacy.

The second question is would I sell other company's product? Great question. We're in the business to sell and make profit. But again, why would we want to sell someone else's products that we can deliver what the needs are for patients. But again, some patients may want some other competitors' products, and it's something we should look at from a standpoint, does it make sense for us to carry some other products, I don't know. And that's not something we've looked at, but it's something we definitely should look at.

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

So number one, there's many, many companies out there that have diversified business portfolios. And if you look at most companies, some have food, some have personal care, some have beverages. You look at Pepsi, they have snacks, they have food, they have drinks. If you look at other companies, they have personal care, they have food. So I think it's important to be a diversified consumer packaged goods company, which we are, and we're -- Tilray brands. I come back and look at -- we got in the beer business in late 2020, COVID came along where our first acquisition of SweetWater and then multiple acquisitions. It's taken us time to integrate these businesses. We went from only 1 plant to 10 plants now we're down to 8. We went from only 1 brand to 18 brands. We went from probably being the tenth or 11th largest [indiscernible] now down to the fourth largest [indiscernible]. So there's a lot that's happened over the last 4 to 5 years. And with that, there's been a lot of integrations. And these brands that we bought from ABI and from Molsons, they were not some of the best-performing brands at the time, and it took some time to turn them around. So yes, I have a lot of confidence.

Listen, beer is not going away. Beverages is not going away. And just like CC Pharma, here we are from a vertically integrated business, we have manufacturing, we have brands, we have a distribution. We have an infrastructure, salespeople. And it is taking probably some more time. And the other thing is at the same time, the industry has had its decline. But I'll tell you what, as you come back and see a lot potentially will happen in regards to [indiscernible] and Hemp infused drinks, and who are they looking at to be the leader in that is Tilray because of our beverage business and our cannabis business. I say this, and I'm not making projections, but if I could sell cannabis infused drinks, in the U.S. tomorrow. If I look what I have a 50% share in Canada, and I multiply that from a 10x what I would have here it's $0.5 billion business for us here. And someday, we're going to be able to sell drinks in the U.S. infused with something and whether it's CBD and cannabis, in regards to President Trump new rescheduling in regards to drinks that will get approved by the FDA for -- whether it's for anxiety, for pain, for sleep et cetera. So the infrastructure is there for future opportunities, which is important. But to the point, we're in the beverage business today. We're in the beer business. We're in the energy drink business. We're in the water business, we're in vodka Seltzers business. And I'll tell you what. The other thing is this here, there's a lot of companies talking to us involved and to get us involved with different aspects of beverages because of what we have and how we're vertically integrated. So yes, am I totally doing the dance with our results today, coming out of there, No. But do I feel good about what we will do with this business? And what we'll do with these brands, absolutely on what our strategy is. Unfortunately, it just is taking a little more time. And if you go back and look at the big companies, Molsons, ABI, Constellation Brands. They weren't created within 5 years. And it's basically 5 years and we're #4 within the craft beer business. A lot of brands have gone away in the craft beer business which gives more and more opportunities. So I am really bullish on the beverage business. And if you look at the supermarkets today and you look elsewhere, Beverages is the biggest category out there. And I think probably the big thing, we are not just depending upon the resets that are happening in the next 2 months, gaining share in C-stores gaining share on premise, gaining share in general. And that's what I'm excited about.

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

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

The last question comes from Frederico Gomes with ATB Capital Markets.

Just the first question, just going back to the rescheduling comment there with potential rescheduling in the U.S. I'm just curious, does that change the way you see potential investments in the state legal cannabis businesses like you've done in the past with [indiscernible].

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

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

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

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

Thank you very much, operator, and thank you very much for everybody joining us today. As you can see, there is a lot happening at Tilray. And as a diversified consumer packaged goods company that today sells products into the recreational cannabis market in Canada, sells medical cannabis in Canada, sells drinks in Canada, sells beverages in the U.S. spirits and our hemp-infused -- our hemp foods, our wellness products and then our international products with international medical products and our Tilray Pharma. So there's a lot within Tilray today. there's a lot of science. There's a lot of research, there's a lot of genetics that we're doing. And as a 5-, 6-year-old company today that's really pulling this all together, and there's no one out there today that is diversified like us. One of our strengths is our balance sheet. It's -- where in the net cash position. So we're able to invest in research. We're able to invest in trial. We're able to invest in clinicals today.

So you can't look at us today as a recreational cannabis company. You can't look at us as just a beer company. And you've got to look at us today as a consumer company that looks at products and looks at different ways to help bring consumers together, help bring people together. And that is some of the stuff we're doing. At the end of the day, as you can see what we've done this quarter in regards to our profitability for our shareholders. And again, it's been 5 years and putting this together piece by piece, and there's a lot to do. The question asked by Pablo in regards to our beverage business. Yes, there's a lot to do in the acquisitions that we've done. And one of the proof is in here, look at the acquisitions we've done on cannabis as we put these cannabis facilities and brands together took out costs, integrated the businesses, and we're seeing the performance of that today. It's no different. We've really only got into the international cannabis business over the last year or so, and that's on the run rate to be a $100 million business.

So there's a lot to do within Tilray. There's a lot of great assets within Tilray, whether it's facilities, whether it's brands, whether it's distribution, whether it's know-how. And there's a lot of AI coming into Tilray today to help us implement a lot of what's happening. I appreciate those that have stayed with us as shareholders I know there's times you're frustrated and there's times probably I'm frustrated more than you are. But I do see a good path with a lot that's happening coming together. I got to tell you, we deal with a tough regulatory environment out there. We pay some of the highest excise tax in Canada and I hope Prime Minister Carney heard me how important this industry is for the Canadian market, the jobs that created the tax dollars, and we don't want to see this run away from Canada. I commend President Trump for rescheduling. He was the first President that really took this on. Everybody else sort of ran away from it. And it's up to us now to show what this really can do. So thank you very much for getting on our call today, and happy New Year to everybody.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Thank you for joining today's conference call to discuss Tilray Brands' financial results for the first quarter fiscal year 2026 ended August 31, 2025. I'll now turn the call over to Ms. Berrin Noorata, Tilray Brands' Chief Corporate Officer. Thank you. You may now begin.

Thank you, operator, and good morning, everyone. By now, you should have access to the earnings press release, which is available on the Investors section of the Tilray Brands website at tilray.com and has been filed with the SEC and SEDAR.

Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.

In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements.

Today, we will be hearing from key members of our senior leadership team, beginning with Irwin Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary, followed by Carl Merton, Chief Financial Officer, who will review our financial results for the first quarter of fiscal year 2026. And now I'd like to turn the call over to Tilray Brands' Chairman and CEO, Irwin Simon.

Thank you, Baron, and good morning, everyone, and thank you for being here for our Q1 results. Q1 of fiscal 2026 was a testament to the significant momentum Tilray has built across our businesses over the years. I'm proud to report that our strategic focus is continuing to strengthen our profitability, our balance sheet and leveraging our global platform to drive innovation in cannabis, beverage and wellness and continue to deliver solid results for our shareholders.

I want to extend my sincere gratitude to our shareholders for their ongoing support and belief in Tilray's vision. It is encouraging to see our stock regain strength this quarter and return to full NASDAQ compliance. Notably, in the months of August and September, Tilray traded well over 1 billion shares each month, highlighting the tremendous interest in our company and not a lot of companies have 1 billion shares trading on a monthly basis. We sincerely thank our shareholders for their continued confidence in our strategy and their commitment to investing in our company, your belief in our long-term vision and what drives us forward. Now go out there and buy some of our products.

Notably, during the quarter, we achieved net income of $1.5 million and earnings per share of 0, highlighting our commitment to sustainable growth and operational efficiency. We achieved revenue growth across all our business segments with the exception of the Beverage segment, which we remain flat because of deliberate decisions to optimize our craft beer SKU portfolio under Project 420. Overall, total revenue increased by 5% year-over-year to a Q1 record net revenue of $210 million, fueled by double-digit growth in our Canadian adult-use and our international cannabis business, which delivered 12% and 10% growth, respectively. We also continue to strengthen our balance sheet by reducing our outstanding debt by $7.7 million this quarter. bringing our net debt-to-EBITDA ratio of 0.7x cash to and our cash equivalent to $265 million.

Our results are underpinned by our deep understanding of product innovation and evolving what consumers prefer. This expertise allows us to shape innovative offerings and not only meet current demand, but anticipate future needs, keeping Tilray at the forefront of the cannabis, beverage and wellness markets. Today, Tilray owns and operates more than 40 unique brands in over 20 countries, and we are the predominant global cannabis leader trusted by patients, medical professionals and governments in over 20 countries and #1 Canadian cannabis producer by revenue. the fourth largest craft beer producer in the United States and a market leader in branded hemp products across North America with our portfolio of high-protein hemp snacks and better-for-you products, holding nearly a 60% market share and now a leader in the new exciting hemp-derived Delta 9 THC beverages across the U.S. We have built a diversified global platform that is a leader in every industry which we compete.

Let me briefly review each business. Our cannabis business, as I said, grew 5% year-over-year to $65 million. Globally, the cannabis industry continues to evolve, and Tilray has the cultivation and manufacturing agility at the right cost to compete and lead in any commercial markets around the world. Recent developments in the U.S. have strengthened our optimism around rescheduling of medical cannabis, and we've seen in other countries as we've seen in other countries around the world. We believe rescheduling would enhance our patient access and improve the quality of patient care, promote scientific research and support responsible regulatory framework. The medical cannabis industry in the U.S. currently estimated to be at least a $10 billion market, which would create a potential opportunity for Tilray to capture at least a 3% to 5% market share, representing a significant $300 million to $500 million business opportunity.

We've identified multiple pathways to participate in the U.S. medical cannabis industry, positioning ourselves to take advantage of the substantial growth potential when it happens. In Q1, our Canadian cannabis business delivered strong results. Tilray reinforced its position as Canada's largest legal cannabis company by revenue with Q1 revenue up 4% year-over-year to $51 million. In the adult-use channel, Tilray was the top 5 licensed producer. We grew in market share, closing the gap to the #1 LP in market share by 53 basis points. We held the #1 position in key categories such as pre-rolls, beverages, oils, chocolate edibles. And by the end of the quarter, we also reached the #1 spot in flower while maintaining our top 10 positions across all categories.

Congratulations to Blair and his team. We believe our extensive scale represents a significant competitive advantage within the Canadian market, where we manage approximately 5 million square feet of cultivation space and currently maintain 210 metric tons of cannabis in production with additional capacity readily available. This position us to effectively meet future demand. Furthermore, Tilray is well prepared to supply both European and U.S. markets as regulatory framework develops these markets and it continues to expand. In Canada, we also foresee substantial potential as regulatory reforms may lead to transformative developments such as expanding cannabis in health care, unlocking new opportunities through proposed cannabis health products and broader insurance coverage, making medical cannabis more accessible to patients. on-premise consumption for THC beverages, which I believe is big, a rollout of on-site consumption to drive responsible use and create a vibrant experimental cannabis beverage market. And of course, regulatory modernization, which we've been talking about, updating the outdated policies that restrict competitiveness and paving the way for innovation and growth in Canadian cannabis industry.

Turning to our International business. Our international cannabis revenue grew 10% year-over-year to $13.4 million. And this is with not being able to obtain permits in Portugal to allow us to ship around the rest of the countries. And we remain uniquely positioned to gain market share as the global consumer preferences and the regulations evolve. In Germany, we continue to expand our commercial medical cannabis portfolio and are actively leveraging our Tilray Medical and CC Pharma distribution network across pharmacies throughout the country to drive further growth. Looking ahead, we expect to increase our medical cannabis distribution footprint by threefold in fiscal 2026, significantly enhancing our reach and impact within the German pharmaceutical market, and we have that access through CC Pharma. In Italy, our Italian subsidiary, FL Group received the first license from the Italian Ministry of Health to distribute medical cannabis flower for therapeutic use.

We also partnered with [indiscernible], a leading Italian pharmaceutical company to expand access to medical cannabis extracts and provide targeted education through their national network of medical and scientific professionals. We continue to expand our growing capabilities in both Portugal and Germany, strengthening our EU GMP certified cultivation infrastructure and to meet evolving global demand. Currently, we produce 21 metric tons of medical cannabis flower in Europe and have the capacity to significantly increase the amount as demand continues to grow. Our expanded growing operations not only supports our leadership in established markets, but also positions us to rapidly respond to the regulatory environments open across Europe and way beyond.

European cannabis reform continues to progress, and we're seeing that. And we're excited to witness important developments like the European Union Canapult project and Spain's recent approval of medical cannabis. Tilray is proud already to be involved in medical cannabis research in Spain through a partnership with the University of Madrid, supporting advancements in patient care and responsible regulations across Europe. Now on to our distribution. Our European medical distribution business, CC Pharma continues to grow with revenue increasing 9% year-over-year to $74 million. This segment remains a significant driver of our European cannabis operations. and our infrastructure provides a strategic advantage that enable us to capture increased market share as both the regulatory environment and industry landscape evolves across Europe. And as I said before, we have access to over 13,000 drug stores within the German market.

We remain confident in our global expansion strategy with Tilray well positioned to drive international growth and leveraging emerging opportunities across cannabis beverage and our wellness business. International beverage, which is a new business for us, building on our international footprint, our infrastructure, our growth strategy, we will be accelerating the expansion of our nonalcoholic beverages portfolio across multiple international markets. We expect our brands, HighBol, Liquid Love, Runners High to gain traction with consumer opportunities. We built a dedicated team focused exclusively on servicing our international customers. This specialized team will ensure that our portfolio of leading craft brands is tailored to the taste and expectations of our global consumers while also supporting our long-term growth in high potential markets worldwide. By leveraging our established distribution networks and brand-building expertise, we are well positioned to capture growth opportunities in this fast emerging category and delivering exciting new products to the international markets, and the demand for them is high. Notably, we've already secured a distribution partner in the U.K. for HighBol, ensuring rapid market entry and strong support for the brand in this key region.

Additionally, on the beer side, we recognize the growing demand for American craft beers in the international market. To further capitalize on this momentum, we're actively exploring all opportunities to grow this business, including international manufacturing opportunities, potential acquisitions to expand our reach and better serve our global customers. In our U.S. beverage business, we continue to make progress against our beer integration, optimizing our strategy and our Project 420. We see long-term potential for the beverage category based on the diversification of our offerings and the superior products we produce. We've improved operations, leveraged acquired brands, supporting positive performance. Notably, many of these brands Tilray acquired were previously in decline and are now showing promising results with healthier growth trends and improved overall performance as we move to regain sales authorizations at retail that were lost. This turnaround underscores the success of our focused strategy and our commitment to revitalizing and growing our beverage beer portfolio.

Through Project 420, we've realized $25 million in annual savings, moving closer to our goal of $33 million. We continue to work closely with our distributors to concentrate on promoting strong brands in each of our markets. In the quarter, we experienced growth across key brands and regions. Shotop, the company's third largest brand, was among the fastest-growing craft brand with notable increase in both dollar sales and market share, driven in part by the successful launch of its Ridy pack, which has grown to be the #8 most popular new craft beer nationally. Trends continue to improve for Shotop with a 30-point dollar trend improvement since Tilray acquired the brand in 2023. In the Southeast, Shot Top excelled with a 49% jump in dollar sales. SweetWater Day Trip IPA stood out as one of the top new items in the region.

In Northeast, Montauk maintained its leading position in Metro New York and gained market share nationally with continued demand for its Wave Chaser IPA. Breckenridge Brewery led craft share gains in Colorado with its top Avalanche seasonal and juice drop and brands positioning double-digit growth. And last but not least, Redhook outperformed regional craft beer brands propelled by Big Ballard Imperial IPA strong volumes and our velocity gains, while 10-barrel pub beer 18-packs dominated craft sales in Oregon and 5% of all craft volumes. We also expanded our partnerships, including co-brand craft beer with the Oregon Ducks -- perfect for college football season and a new partnership with INT -- as for the launch of Shock Top Twisted Pretzel Wheat beer, -- you got to try it. It's great. We are making beer fun again, and these partnerships and co-branding opportunities offer significant runway for us to widen our markets. In spirits category, which has been tough, we have introduced several world-class innovation, including Mach 1, our new line of nonalcohol spirits and Casarec in the tequila space.

We've also introduced Mountain Shop, a unique beverage blend, which may take mushrooms available in pouches, which is a unique packaging format to enhance the shot experience and capture the free spirit essence of the Rocky Mountains just in time for ski season. We also kicked off our fifth year partnership with the Denver Broncos with a new line of spirits, including limited editions, Bronco's Honey Whiskey and Bronco's Orange Creamsco ready-to-drink cocktail. In the non-alc category, we're proud that our non-outut beer brand, Runners High, which we only launched in fiscal 2025 is now recognized as one of the top 15 brands in non-out beer and ranks the fourth fastest-growing non-al beer in a hot category in the Southeast, selling across 4,500 distribution points. Following the success of our hemp-derived Delta 9 THC beverages, we've expanded PhizzyJane and Happy Flower product lines to include 10-milligram formats, complementing the existing 5-milligram offerings and the consumers want these products. The innovative HD9 category, leveraging our craft beer infrastructure and distribution networks, enabling us to deliver high-quality products to consumers across 14 states. whether they're new to the category or seeking enhanced experience. We have established partnership with retailers nationwide for HDD 9 brands and now offer distribution to prominent wine, liquor outlets such as Total Wine and more, ABC Fine Wine and Spirits. In addition, in Q1, we saw further growth in regional grocery channels, including Shoprite, Stew Leonards and Winn-Dixie.

We continue on building on this positive trajectory as we move into Q2 and the rest of the year. Today, our beverage business operates more than 20 brands, including 15 American craft beer brands across 7 network manufacturing facilities and 16 brew hubs. We're well diversified across craft beer, spirits, non-alchol and now HD9. -- and energy drinks, we know that there is plenty of opportunity for growth in the beverage category. We have the right leadership, and we're pursuing the right growth strategy, and I'm tremendously excited about the future and the opportunities in the large beverage category. Last but not least, now turning to our wellness business, which is near and dear to my heart. Our Wellness business had a strong quarter, growing revenues to over $15 million. We continue to expand our wellness portfolio with many launches of new offerings, new crackers, new hemp portfolio, new other products that are available at Whole Foods and other retailers. We are now in over 17,000 retailers across the U.S.

These offerings are also launched in Amazon and many other online retailers. I'm highly confident in Tilray's outlook for the remainder of 2026 and beyond with regulatory environments in our industry poised for meaningful evolution. I fully expect positive change ahead, and I'm certain in our ability to adapt swiftly and we will strategically.

Our proven approach, robust product portfolio and exceptional team position us to seize every single opportunity, especially in wellness, where we see us with significant expansive opportunities, and we're committed to unlocking new possibilities through continuous innovation, portfolio expansion, targeted investments, including the opportunities when strategic acquisitions happen. While we've made considerable progress, we recognize we have not yet reached our full potential, and we're far from it in the wellness space. And that is the same with our cannabis business and our beverage business. There's lots of room and lots of white space for us. With that, I will now turn the call over to Carl for an in-depth look at our financials. Carl?

Thank you, Erin. Please note that we present our financials in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussions, we will be referring to both GAAP and non-GAAP adjusted results, and we encourage you to review the reconciliation contained within the press release of our reported results under GAAP with the corresponding non-GAAP measures. Now looking at our results, we are reporting record first quarter net revenue, net income and a significantly improved adjusted free cash flow for the period. Further, we are reaffirming our 2026 guidance for adjusted EBITDA.

Net revenue for the first quarter was a record $210 million, a 5% increase year-over-year. This growth was driven primarily by increased cannabis sales in both Canada and our international markets and increased revenue in our distribution segment. Cannabis revenue increased 5% year-over-year to $64.5 million, driven by 12% growth of adult-use gross revenue and 10% growth in international cannabis. Higher excise taxes and declines in wholesale cannabis offset those double-digit results.

We see material potential for the International segment and expect continued growth once we receive several permits that are currently backlogged in a few European countries. Beverage revenue reached $55.7 million, driven by innovation and impacted by continued SKU rationalization. We advanced Project 420 and integrated acquired brands. Although craft brands and spirits faced challenges, new products contributed 2% to Q1 revenue, supporting our belief in the beverage category's long-term growth. Wellness revenue increased 3% year-over-year to $15.2 million because of our strategic focus on continued innovations with high ball energy, our natural energy drink, high-protein super seeds and better-for-you breakfast and snacking, including the launch of 2 new offerings from Manitoba Harvest at Whole Foods. Distribution revenue increased 9% year-over-year to $74 million in the quarter, primarily as a result of the stronger euro.

From a contribution perspective, 31% of net revenue was generated by our cannabis business, 27% was generated by our beverage business, 7% was generated by our wellness business and 35% was generated by our distribution business. This compares to contributions of approximately 31% for cannabis, 28% for beverage, 7% for wellness and 34% for distribution in the last fiscal quarter. As our international cannabis business continues to expand, we expect to see higher contributions from our cannabis segment over the remainder of the year. Gross profit for the quarter was $57.5 million compared to $59.7 million in the prior year period. Gross margin was 27% as compared to 30% last year. This decline was driven by lower margins in our beverage and cannabis businesses. Looking at gross margin by segment.

Cannabis gross margin was 36% compared to 40% last year as a result of a higher mix of sales in lower-margin categories such as infused pre-rolls and vapes, where we reentered some previously marginprohibitive categories. We believe the decline this quarter is temporary and the actions we have taken to drive profitability and improve margins will be effective in the long term. Beverage gross margin was 38% compared to 41% last year. The decrease in gross margin is due to the inclusion of Craft acquisition 2 sales, which have generally been lower margin. Wellness gross margin was flat year-over-year at 32%. Distribution gross margin was 11% compared to 12% last year based on changes in product mix. Net income was $1.5 million or $0.00 per share compared to a net loss of $34.7 million or negative 4% per share in the prior year period. Adjusted net income improved to $3.9 million or $0.00 per share compared to an adjusted net loss of $6 million or negative $0.01 per share in the prior year.

Improvements in both metrics were a function of reduced SG&A costs, including amortization. Adjusted EBITDA for the quarter was $10.2 million compared to $9.3 million last year. Cash flow used in operations improved significantly to negative $1.3 million for the quarter from negative $35.3 million last year, representing a positive change of almost $35 million. We continue to strengthen our balance sheet this quarter in terms of debt and cash positions. During the quarter, we raised $22.5 million under our ATM program, primarily after our stock increased to over $1 per share.

Further, we exchanged $5 million of our convertible notes for equity early in the quarter, as we already discussed during our last earnings call. During the quarter, we reduced our outstanding debt by $7.7 million, bringing our net debt position down to $3.9 million and our net debt to trailing 12 months adjusted EBITDA ratio to 0.07x, all while ending the quarter with $265 million in cash plus another $1 million in digital assets.

These stronger debt and cash positions provide Tilray with greater flexibility for strategic opportunities, and we intend to continue reducing our debt and further strengthening our balance sheet as the year progresses. As already discussed, our confidence in our business, our strategy and our team has never been higher, and we are pleased to reaffirm our 2026 guidance, anticipating adjusted EBITDA between $62 million and $72 million. We can now open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Aaron Grey with Alliance Global Partners.

First question for me. I just want to talk a little bit about international growth opportunities in the near term. You offered some commentary in your prepared remarks. I just want to make sure I was understanding them correctly. So first of all, just further understanding in terms of where we stand today in terms of the impact on some of the permit delays that you've been having. And then some commentary you provided in terms of the growth, specifically, I think you're referring to medical cannabis business up 3x in fiscal year 2026 and talked about leveraging CC Pharma potential.

I just want to make sure I was understanding that correctly. Were there some things that you're looking to leverage with CC Pharma business that you were not historically -- so just any additional commentary on that would be helpful.

Great. So a couple of your questions. Number one, in regards to permits, we spent a lot of time with the Portuguese government. We've spent a lot of time in Portugal. We're finally seeing permits coming through. And I feel good about that. Where the next big issue that we run into is the quota in Germany and just Germany opening up and increasing more imports into the German market, which we think ultimately, that will happen. But it's not business going away. It just may shift from second quarter into third quarter, as the new quotas move into place in 2026.

So with that, I feel we've made a lot of headway into the Portuguese permit situation. And we got more permits in the last 2 weeks than we've probably got in the last 2 months or so. In regards to a couple of things, the demand in Europe is there. And with that, it's the availability and the growth. And with the team, and now we have moved some of the Canadian team into international. We look to grow in our facility today in Portugal is running about 50%. We have the opportunity to double that at 40 metric tons, and that's something we're working on. The other thing is to really increase our growth to probably 6 or 8 metric tons in our German facility. And also where the opportunity is in regards to bringing product, EU GMP product in from the Canadian market.

In regards to Germany, what I've said and what I was working through CC Pharma, when we acquired it, it was a big part of our license and it was something that there was an opportunity. And what we're seeing is some great expansion with CC Pharma. CC Pharma delivers to 13,000 drug stores today, and that is regular medicines, and the good thing is we're also seeing some good price increase and some good opportunities on the CC Pharma Distribution business.

But more importantly, as we integrate these businesses, whether it is on the sales side and the Distribution side, we see CC Pharma being vertically integrated and distributing our medical cannabis, to a lot more of these drug stores in the German market, and that's a big opportunity for us.

That's helpful color there. Second question for me, just in terms of rescheduling opportunities in the U.S.. You offered some commentary talking about seeing a number of different avenues that you guys are evaluating. Just curious, could you provide some color there? If things were to open up and cannabis was rescheduled to Schedule III. Do you feel like you already have the infrastructure within the existing business to be able to capture some of the opportunity organically? Or do you like some things that might need to be done vis-a-vis acquisition, to capture on that opportunity? I know there's a lot in flux in terms of how that could actually look in a Schedule III scenario, but just any commentary on that would be greatly appreciated.

Well, listen, as I've said before, we have [indiscernible], we have today over 200-plus million metric tons of cannabis grown in Canada. We have a great Canadian medical infrastructure in Canada already servicing the Canadian market. Canadian market is 40 million people. So we service clinics up there. We have a group and an infrastructure that sells to the Canadian market today. Talking about Europe, as we look to sell and our objective is to sell those to $100 million of medical cannabis in Europe, which is all medical cannabis, and there's plenty of research that we're doing over there for anxiety, for sleep, for cancer, for epilepsy. So taking that know-how and transferring into the U.S. is something that's readily available.

And last but not least, if there was an opportunity to partner with pharma company or there was something opportunity for us to buy, we'd be ready and willing to enable to do that as we have the balance sheet potentially as we have the balance sheet to do that. So whether it's taking our current infrastructure, our current people, our current know-how, our current growth, our current research our current genetics for medicine or partnering with a pharma company or buying something is something we're open and ready to do.

Our next question comes from the line of Bill Kirk with ROTH Capital Partners.

On the balance sheet, I see the $1 million in digital assets. I guess, were those investments you made? Or was it crypto that came in from customer payments?

And then taking a step back on the topic, I guess, which coins tokens currencies do you prefer? And what are your cash allocation plans to the strategy given your cash generation and your equity issue in history?

So that is acquisition of a Bitcoin that we acquired 3, 4 months ago. And with that, I'm going to let [ Lloyd Brathright ] just take you through some of our strategies that we're looking at from Bitcoin today as we see relevance with our current investors. Our current users are also Bitcoin users, and we see opportunities, as I've said in previous , as I said in previous meetings and previous releases that we see opportunities with Bitcoin and purchasing our products and purchasing our beer products and we see opportunities with our current investors. Lloyd?

Hi, everyone. So yes, we actually invested in Bitcoin, and we're also looking at some other assets such as Ethereum and Solana. One of the things part of our strategy that's core is enabling our websites so that we can actually accept that coin. So that's going to be part of our strategy later this year. Additionally, we're looking at some investment opportunities from a margin perspective, as well as looking at tokenizing potentially some stock.

And with that, I just want to make sure, listen, we're we see the opportunities, we see the synergies with our products, with our investors, and we're not becoming the crypto company out there, but we see tremendous synergies as we expand Tilray into many new markets and many opportunities from that. And we're working with a lot of partners out there and make sure we have the right people that understand and how to do it.

And then going back to Germany and Europe. I guess when you're servicing those markets, how much of the product has grown today in Portugal? How much is coming from your Broken Coast GMP facility in Canada? And how much that ends up in being sold in Germany and Europe is coming from a non-GMP facility of yours in Canada?

And then I guess the bigger question, what are the risks that Germany changes the way they treat product conversion or product coming from Portugal?

So listen, number one, the majority of our product today is sold in Europe is coming from our facility in Europe, okay? And when product does come from Canada, it goes into Portugal, it then goes to an EU GMP certified facility. So everything sold there is EU GMP certified, okay. With that, again, there's lots of possibilities.

We do have a good-sized German facility that can grow cannabis. We're one of the few, and I'm not sure why in the EU, that Germany would not allow European products to be shipped into the German marketplace. So that ultimately is something we're continuously talking to the German government about. And if they did that, there's not enough grow in German market today to be able to supply the market. So it's something that it'd be very difficult if the German authorities change the market -- change the way products come into Germany.

Our next question comes from the line of Robert Moskow with TD Cowen.

This is Victor on for Rob Moskow. Two questions for me, please. First, can you give us a [indiscernible] for the Canadian adult-use market. Curious on your thoughts on market maturity and your pricing power in the context of the 10% growth you saw this quarter. How much of that maybe looks like volume versus price?

And Blair is on the line, Head of our Canadian market. Blair, do you want to jump in and take that and I can add to it?

Yes, absolutely. Thanks, everyone. Yes, so in the quarter, we saw overall market pricing down 1.3% and volume was up 6.5%. For us, our pricing was actually up 2%, and our volume was ahead of the market. So it was a really strong quarter for us, both on the pricing side and on the volume side. As you saw, we were the only LP in the top 5 to grow share in the quarter. So very, very strong results.

In terms of market maturity, what I would tell you is, in the current regulatory environment, yes, volume has slowed in terms of growth rate, but still very healthy growth rates in the market. And I think what you'll see is over the next few quarters is that -- and Irwin kind of referenced this, is that you will see the regulatory environment improve, and I think you'll see growth continue to go. Overall household penetration on cannabis in Canada is still at a very low number. So we see tremendous runway for growth in Canada within the regulatory framework.

I think I'll jump -- just jump on that for a second. The Canadian market was first. And as we go into our sixth year. With that, again, from a regulatory standpoint, and what are we still sitting with -- still sitting with a high excise tax. We're still sitting with lots of regulation. We've been through price compression. We've been through COVID. We've been through an illicit market. We've been through over 1,800 LPs that are out there, a lot of them have gone away, a lot of growth facilities. And we've gone through educating the Canadian consumer on the benefits of cannabis, and the legality of cannabis without an actuality being able to advertise.

And we have built our good supply today, Blair, which is at retail about a $250 million brand. And from that, that's what we've built over the last 5, 6 years. We have over 5 million square feet to grow. We have the largest growth facility in Canada with 237 metric tons and maybe even more. So the Canadian market has been a great pivotal point for us. Now what we're hoping for is on excise tax, there are some concessions. We're hoping that the Canadian provincial governments allow us to sell our drinks into other retail outlets -- like restaurants that need help or independent retailers or liquor stores. We're looking for changes in regards to where medical cannabis sold versus sold directly through drugstores. And that would change a lot for our Canadian market. So we [indiscernible] now for some big opportunities coming to the Canadian market, and Blair and his team have really put us in a good space there to really move beyond and a good role in regards to our products.

And then my second question is, so leverage gross margin was about 50 bps later than kind of we expected. Can you remind us of your plan on improving profitability in that segment? And also, where are you on that path that 420 path? And what still needs to be done?

So as you saw, we've taken $25 million of cost out, I mean, there's more to go. We've gone through and I think SKU rationalization, $20 million of SKU rationalization and there's more to go. We've closed three facilities so far. So come back in acquisitions, we have acquired close to 12 brands. We have closed -- we had 10 facilities. We've had 18 brew pubs, and also, we have over 900-plus distributors out there. So bringing this all together under one management, one infrastructure, and we're seeing progress, but there's a lot of wood to chop there yet to get those margins to where we need to do.

And whether it's the procurement of cans, the procurement of hops, and one of the biggest things, which you heard me mention in my remarks, a lot of these brands, as we were buying them and decisions were made by the previous owners, we were delisted in a lot of retailers out there. So with that, you saw major declines in these businesses, and we missed the windows of getting these products in the stores. Now these windows have opened up, and getting these products now relisted in these retailers is something that we've been doing. And that's why whether it's Shock Top, whether it's Red Hook, whether it's some of our other brands you're seeing the growth there. And that's what's going to happen -- to get our gross margins up here.

And listen, let's all face it, the beer category is not one of the easiest categories out there right now. And we're fighting through it, both on growth side, innovation side. And I've said it from the beginning, how do I make beer, fun again. That's something we're trying to do. Along the way, make money with it too.

Ladies and gentlemen, our final question comes from the line of Frederico Gomes with ATB Capital Markets.

First question, just thinking about the issues in Portugal. I'm curious how do you see that in terms of managing future risk in terms of your international strategy, whether you're taking steps to diversify your supply chain there? And how would you go about doing that?

So number one, we've got 1.5 million square foot facility in Portugal. We're not picking up and moving it, okay? I mean over a couple of hundred million dollars, it was built and it's a state-of-the-art facility. So I'm in Portugal, I got to stay there. So I got to figure out how to work within those confinements.

And I must tell you, I've had some great meetings with two Ministers in Portugal at the highest levels, and they're very open. There's a new government in Portugal, and they want business. They don't want us leaving. They want to build upon our business there, and they've been very, very supportive of working with us. And since my meetings with our people, we've seen lots of changes and been getting our permits. So I feel a bit on the other hand, listen, we do have a facility in Germany, nowhere near what we have in Portugal. We do have the ability to ship from Canada, and where we would ship it directly into the U.K. and directly into other markets to ensure GMP. So we have options. But first and foremost, we are far from giving up on the Portuguese market.

And other question here, just on Germany. Could you talk about the proposed change there in legislation in terms of prescriptions and how the market works? How do you think that could impact that market? And whether you think that draft that's going there may be approved or not as is? Or you expect changes to that draft? And in terms of timing as well, when do you think the market there could change in terms of the legislation?

Listen, we're supportive of change. But again, I don't want to go there and speculate until I know what the change is, okay. And I think so far, the good news is what we're seeing is the continuous demand and online prescription has not been one of the biggest drivers here. So if there is change, I think patients will find other ways to go out there and purchase cannabis. And it's interesting because Germany has a strong independent drug chains out there. There's no CVSs, there's no wall greens. Individuals are allowed to own like 6 drug stores, are all independent. So like I said, there is multiple stores out there, it's not online. So I see even if it did change, if you can't buy it online, there's still the retail outlets that go to out there.

And I'd like to see some of the change. There's lots of changes -- as we continuously talked about that happening. And we, with our lobby groups are out there working with the German government on what's the right thing for the patients because -- this here is important, too. The difference in medical cannabis is like medicine. If you didn't give patients access to get medicine, that's a problem. If you could [indiscernible] your medicine and didn't have access or patients that sick are dependent on, that's an issue.

So this is being sold as medicine, from a medical standpoint, not from a recreational if you don't get your cannabis from a recreational standpoint that may not be as an issue, but you're not getting your medicine and the government has to take that into view when they're deciding what they're going to do here.

Great. Let me just say this here. I know a lot of have joined now. Unfortunately, not us, there was a technical problem with our provider. And those that were online, did not hear my comments. Sorry about that, guys. You missed some great comments and Carl's comments, okay? If you want to hear me again say it, you can go online and listen, and I encourage you to do that because there's some really good information that both Carl and I deliver today. And I apologize and the carrier they'll hear from us and definitely disappointed. I know you heard music. So we had a lot more to say than the music. But please, it has been recorded. It is online, and you'll get every bit of it. And for some reason, there's an issue, let Berrin know and we'll make sure you get it, and I'm really sorry about that.

In regards to the analyst questions, I think you heard most of those. So you'll be able to get those, the analysts that were here, we're able to hear Carl in our remarks. So I apologize profusely for that.

With that, thank you very much for your time today. I hope some of it wasn't wasted but not hearing our comment. But now you'll have to go online and listen to it. It's only Q1 in 2026. One of our smaller quarters. There's a lot to do. And as you can see, we have a lot of good things in place and trust me, there has been times like you look at and sort of say, what the heck are we doing here, when you look at your stock price, you'll get different things. But this team in over 5 years really have brought a lot together here, in rebuilding a Canadian cannabis business basically from scratch, building facilities, building brands, building products, building different strains, genetics, new innovation and some of the new innovation that's coming out of there, building infrastructure and sales and marketing teams. And again, going through price compression, going through COVID, going through the illicit market as one your biggest competitor out there, and I really want to commend in the Canadian team and what they've been able to do.

In regards to our International Cannabis business. Same thing. It has come together basically with the acquisition of Tilray, and it is really a business I see tremendous opportunities. And we now are getting requests in different countries, whether India, Middle East and places like that in regards to medical cannabis and the opportunities there, and there's a lot of countries and there are a lot of different countries out there that are realizing the benefits of that and also realizing the benefits of medical cannabis versus medicines and cost of drugs that are out there today, and what the benefits will be. So I see big opportunities for us today.

Rajnish Ohri has joined us as new Head of Europe, and is bringing the teams together. And we've done a lot with our Canadian teams to integrate these businesses to get synergies and savings and to get a lot of the know-how because one of the things -- cannabis is agriculture. It's growing, it's yield, it's the size of the flower, it's the potency, and that is something that's important out there. And this is not an industry that -- it's an industry that's spread around the illicit market for many, many years, but it's not an industry that's been around from a legalized market. It's not an industries that's been around from a growth, from a research and development that's all coming together. And countries are realizing the opportunities and what they're doing, not allowing their citizens and patients to be able to buy these products.

The other thing they're realizing is there's tax dollars, that they're missing. And if tax dollars are being sold through an illicit market. In regards to rescheduling, President Trump with his different tweets and his different comments, I think, realizes that has to happen here in rescheduling. Last week with his tweet or 2 weeks ago in regards to CBD in regards to senior citizens, and I can't tell you how many people tell me in using CBD and THC products in regards to pain and anxiety and that and the benefits. What we're seeing today on our Delta 9 products and being sold in limited states and the demand for it. Again, what Blair has seen in the Canadian market with building a $40-plus million business and today, just being sold within cannabis stores. And again, at prices that are not the cheapest prices out there. So we see tremendous opportunity in the Beverage business.

In regards to our Beverage business, it's work we got to do. And again, we got into it in 2020 with the acquisition of SweetWater, acquired [ Montag ], acquired other brands and the businesses from ABI and then the business from [ Molsons ]. We got some great brands, but bringing it all together is a lot of work, bringing the facilities together, getting the cost out, getting the margins up, getting the right facilities. And that's something that Tilray is doing and the team is doing out of Atlanta to bring all this together. And as I said before, not an easy business today with change happening, but we will be in the Beverage business, not just the beer business. And with that, there's a lot of interest in products we're working on.

In regards to our Spirits business. The team is working with our distributor, RNDC. And we've really put a plan in place with RNDC to be in our major markets. Yes, the Bourbon category is a tougher category today than it was, but Breckenridge Bourbon is a great tasting product out there, and there's great demand in certain markets. At the same time, our Vodka has great demand and our Gin and some of our new products that we've come out with are really, really good products and some of the first timer innovation.

And last but not least, you hear me talk about our Wellness business. What Jared and team have done on wellness where we acquired this, there was a negative EBITDA of about $5 million, $6 million and where it's turned around to today, and somebody that's been part of the Wellness category since 1992, '93 and see the growth. And it's all we talk about Wellness. Wellness and Food in regards to the Trump Administration and taking colorings out of food today, higher protein, protein, protein, protein and some of the highest protein is in hemp foods because it's a plant that's grown. So we're in a lot of different categories. We're in a lot of unique places. You look at our balance sheet in regards to our debt-to-equity. It's in a great place. We ended the quarter with $260 million of cash. So there's a lot of good things happening, but there's a lot of work to do.

I really want to thank our team that really makes this happen and roll up our sleeves. Even though there's 2,500 employees around the world here, not a lot for a lot, we got to get done. So with that, I want to thank everybody for listening. Please go back and re-listen to our comments. There's a lot of good comments that come out of today. Thank you to our shareholders for your support and get out there and vote as we have our AGM coming up. With that, have a great Thursday, and look forward to speaking to you in the new year with our Q2 results. Thank you.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Thank you for joining today's conference call to discuss Tilray Brands' financial results for the fourth quarter and fiscal year 2025 ended May 31, 2025. [Operator Instructions]

I will now turn the call over to Ms. Berrin Noorata, Tilray Brands' Chief Corporate Affairs and Communications Officer. Thank you. You may now begin.

Thank you, operator, and good afternoon, everyone. By now, you should have access to the earnings press release, which is available on the Investors section of the Tilray Brands website at tilray.com and has been filed with the SEC and SEDAR.

Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties which may prove to be incorrect. Actual results could differ materially from those described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements.

Today, we will be hearing from key members of our senior leadership team, beginning with Irwin Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary, followed by Carl Merton, Chief Financial Officer, who will review our financial results for the fourth quarter and fiscal year 2025. Also joining us for the question-and-answer segment are Denise Faltischek, Chief Strategy Officer and Head of M&A; Blair MacNeil, President of Tilray Canada; Rajnish Ohri, Managing Director, International; and Prinz Pinakatt, Chief Growth Officer of Tilray Beverages.

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

Thank you, Berrin, and good afternoon, everyone, and thank you for joining us today. In fiscal 2025, we continue to execute on our long-term strategy of solidifying our global leadership in cannabis and expanding our beverage and wellness business with new innovation, strategic bolt-on acquisitions and geographic expansion. We are in categories that are emerging quickly like cannabis, as well as categories that have been around for years, but are evolving and changing like our beer and spirits and [ hemp ] businesses.

As we bring our businesses together, we are creating a unique and scalable global platform while remaining laser focused on profitability and cash flow. Our strategy is paying off, and I want to start by highlighting 3 key points. We reached a record revenue of $22.4 million in the international cannabis business in Q4, up 71% year-over-year. Total cannabis gross margin increased by 400 basis points and reached to 44% in Q4, and cannabis gross margin increased by 700 basis points in the fiscal year. And in Q4, we also achieved our second highest ever quarterly consolidated adjusted EBITDA of almost $28 million.

In terms of full year consolidated fiscal financial metrics, in fiscal '25, Tilray achieved record annual revenue of $821 million, a 4% increase year-over-year on a constant currency basis, and $834 million, a 6% increase year-over-year. During the fiscal year, we implemented strategic initiatives aimed at enhancing business operations by improving margin and our profitability. However, these decisions impacted our revenue by $35 million. If we eliminated these onetime impacts of these strategic decisions and currency fluctuations, revenue would have been approximately $870 million for a 10% growth year-over-year.

Importantly, Tilray delivered its highest gross profit to date at $241 million, an 8% increase year-over-year. All this was achieved while maintaining a strong balance sheet with approximately $256 million in cash, reducing our debt by approximately $100 million to date and improving our net debt-to-EBITDA ratio to 0.3x from 1.7x last year. We aim to continue strengthening our balance sheet through further strategic debt restructuring in our fiscal year 2026.

Over the past 5 years, Tilray has experienced significant growth through both organic expansion and strategic acquisitions and geographic expansion. We generated revenues from over 21 countries and operate a portfolio of over 40 brands in 4 diversified business units. As Carl is going to explain in further detail, we booked a noncash impairment this quarter. To offer some color, in 2021 when we completed the reverse takeover at Tilray, where there was lots of excitement in the market regarding the acquisition and the potential for U.S. cannabis legalization, the growth in our share price reflected that enthusiasm at the time as the deal closing. Since then, U.S. regulatory changes have not advanced the way we'd hoped, which has impacted our share price and in turn, our market cap. From an accounting standpoint, that meant we need to recognize a noncash impairment charge this quarter.

Let me be very clear. Despite recording this noncash accounting charge, it does not change how we feel about the future of our business today, including the intrinsic value of our tangible assets, our liquidity and, of course, our brand equity. We remain incredibly optimistic and we believe we have the right long-term strategy to deliver for our shareholders.

We have transformed Tilray Brands into a company generating nearly $1 billion in annual revenue, established ourselves as a leading global cannabis business outside the United States, the fourth largest craft beer producer in the U.S. and a dominant force in the global market for high-protein hemp foods, snacks and wellness [ drinks ]. Our progress is rooted in deep understanding of product, innovation, evolving consumer needs, shaping offerings not only reflect but anticipate how people choose to eat, drink, relax and address their health and well-being.

In fiscal 2025, we led the Canadian cannabis market with over $185 million in revenue. We operate a leading international medical cannabis business outside North America, generating almost $65 million in annual cannabis revenue, totaling to be approximately [ $250 million ] in cannabis sales worldwide and over $270 million in medical pharma distribution revenue.

Our U.S. Beverage division generated approximately $240 million in sales, and our Wellness division, which continues to dominate the hemp industry with nearly 60% branded market share in the U.S. and 80% in Canada contributing $60 million in revenue.

Now let's look at our performance by divisions, beginning with our international cannabis business. As a result of our industry-leading international infrastructure, international cannabis revenue grew, and Q4 was up 71% year-over-year. And excluding Australia, European cannabis revenue increased organically 112% in Q4 compared to the prior year's quarter. In fiscal year 2025, our international cannabis business revenue grew approximately 20% year-over-year. This top line improvement is evidence that our growth in our international markets is accelerating and will continue, particularly in Germany, where we maintained our #1 leadership position in the [ reimbursed ] market and increased our sales in self-pay market. Tilray is well positioned to expand its market share across Europe, supported by vertically integrated operations, EU GMP cultivation facilities in Portugal and Germany and a comprehensive sales and distribution infrastructure.

Let me take a moment to spotlight our progress in Germany, where in Q4, we achieved revenue growth of 134% over the prior year quarter and 54% revenue growth in fiscal year 2025 when compared with the prior fiscal year. Our wholly owned subsidiary, Aphria RX, remains at the forefront as 1 of the just 3 licensed cultivators of medical cannabis. This license positions us to better serve patients' needs and expand access to the highest quality cannabis products across broader market. It also serves as a significant competitive advantage, as we are not required to procure import and export permits to sell and distribute Aphria RX products in Germany.

In addition to increasing our revenue in existing markets, we're also laser-focused on entering and expanding developing markets. In June, our wholly owned subsidiary, FL Group, received from the Ministry of Health, an extension to its license to import and distribute 3 medical cannabis flowers which are cultivated and produced in our EU GMP-certified facility in Portugal.

Moving on to our pharmaceutical distribution segment in Europe. CC Pharma continues to be a consistent performer and a key enabler of our international cannabis performance. It continues to serve as a competitive differentiator, as it allow us to provide excellent service to our customers throughout our order fulfillment and quick delivery to our customers. The infrastructure we have in place positions us for success as regulations continue to change across Europe.

As we look ahead, our experiences, portfolio and infrastructure keeps us exceptionally well positioned to lead our scale of medical cannabis business not only across Europe, but in every market that regulation evolves. I am confident that our team, our vision and our execution will continue to drive Tilray's growth and our ability to deliver value for medical cannabis patients worldwide.

Turning to our cannabis operations in Canada. After 6 years, we're seeing stabilization within the Canadian cannabis market alongside new growth opportunities. With continued consolidation on both the producer and retail sides, we are starting to see signs of industry normalizations and balancing inventories. The Canadian cannabis sector continues to evolve at a rapid pace, with a goal of combating the illegal market and putting safe products in the hands of our consumers to meet their needs and wants. Tilray continues to lead revenues as the largest cannabis business in Canada, which remains the largest federally legal cannabis market.

In fiscal year 2025, our Canadian cannabis revenue totaled $186 million and $191 million on a constant currency basis. Excluding the impact of strategic decisions made to enhance margin performance, revenue would have reached $206 million when excluding currency fluctuations. In Q4, Tilray maintained a 9.3% market share in the adult recreational segment, distinguishing itself as the only top 5 licensed producer to do this. We maintained the #1 position in THC beverages, chocolate edibles, oils and capsules combined and non-infused pre-rolls. We also held a top 10 position in all other categories.

In the cannabis flower category, we regained the #1 market share in Q4 and as a result of strong innovation and launches under the Redecan and Broken Coast brand. Tilray operates as a vertically integrated company, manufacturing 90% of its products internally to maintain high standards of quality and reliability.

Operationally, we remain laser-focused on cost optimization through labor balancing production improvements and contract streamlining. As a result, we continue to improve our cost per unit. On the cultivation side, we have the most flexible footprint in the global cannabis industry, which we have strategically optimized to maximize efficiency. With a facility footprint of approximately 5 million square feet, our value chain and business processes are recognized as an industry-leading business.

In fiscal 2025, we put the building blocks in place to transition cultivation from 150 metric tons to over 200 metric tons as a result of increase in volume demand in Canada and internationally. We have the capacity for continuous growth. We are confident in the industry outlook and the strength of our brands. Our product portfolio serves as a wide range of consumer segments, offering options that appeal to various taste profiles.

We sharpen our product mix to focus on higher-margin SKUs, which has had a direct impact on improving gross margins across the board. The strategic shift is yielding in real benefits. We're generating more profits per gram, while aligning with consumers' preferences for quality and consistency. Those that follow the Hifyre data may have already noticed our double-digit percent gains in revenue per gram in flower. We have great products and a major new innovations coming up that will hit every market in Canada in the next 3 quarters.

Globally, the cannabis industry continues to evolve, and Tilray has the cultivation and manufacturing agility at the right cost to compete in the market commercially, both in Canada and around the world, and hopefully one day in the U.S. And with the recent appointment of the new administrator, the [ US DEA ], we anticipate he will play a significant role in potential rescheduling of cannabis in the United States, which should open up new opportunities for Tilray in the U.S. market.

Also in the Canadian market, the future holds significant promise as regulatory reform to bring about pivotal changes including medical cannabis available one day through pharmacies, enhance enforcement to reduce the illicit market, authorization for cannabis beverages to be sold outside dispensaries, reformation of excise tax policy, and last but not least, broad accessibility of CBD products and beverages.

Turning to our Beverage business. Fiscal 2025 was a total year of transition and rebuilding for our Beverage business, which includes beer and spirits highlighted by the acquisition of 4 craft brands from Molson Coors to expand our portfolio and the continued integration of several other beer brands. We launched Project 420 to integrate operations and optimize process and revitalized brands, resulting in $24 million in annualized savings towards a $33 million goal, which we will continue to work on. By working closely with our distributors in various markets, we streamlined our portfolio to eliminate duplicate and slower growth products and concentrate our brands in the region where they have the most strength.

The strategic initiatives impacted revenue to date by approximately $20 million and an adjusted EBITDA of $6 million. We expect the offset to come in future quarters. These efforts also led to a 100 basis point improvement in beverage gross profit for the year. So while we grew our Beverage business 19% in fiscal '25, like the rest of the beer industry, our business was impacted by softer consumer demand. We attribute this to lower demand and short-term influences and broader category-related challenges, including adverse weather integration process and delayed innovation.

In Q4, the Beverage segment reported net revenue of $65.6 million. Q4 traditionally represents the peak sales period for this business. However, this year [ outcomes diversions ] from previous projections. The beer business was primarily affected by SKU rationalization initiatives and generally softer consumer demand observed across the sector due to the factors I just mentioned.

Following our acquisition from ABI, we encountered unexpected distribution headwinds at retail due to missed reset windows that occurred prior to the closing of the acquisition. We also saw a shift on premise dynamics. And while we introduced new products, not all met our expectations. Additionally, although our SKU rationalization made strategic sense, there's a natural time lag before higher-performing SKUs could replace those phased out. Now with substantially revitalized brands, a refreshed innovation pipeline, SKU rationalization behind us, we are well positioned to recapture revenue and secure more points of distribution in the up-and-coming resets.

During the quarter, we implemented several measures, including leadership changes, restructuring of the sales and marketing teams and the launch of targeted initiatives to design and reinforce what our beer portfolio is and what it can be. Our beer operations are now under the directions of Tilray's Chief Growth Officer, Prinz Pinakatt. We are confident that our prompt and strategic corrective actions, which yield improved gross margins year-over-year, position us for [ favorably ] success in fiscal year 2026.

Today, Tilray Beverages operates more than 20 beverage brands, including 15 American craft beer brands across 8 network manufacturing facilities and 18 brew [ pubs ]. In the spirits category, Breckenridge Distillery has proven its strength in the bourbon sector, experienced higher depletions compared to others in declining market. It also made a significant progress in the [ bock ] and gin in markets, complemented by its world-class restaurant and retail operations that provide an immersive brand experience.

We've introduced several world-class innovations, including Mock One, our new line of non-alc spirits, and Mountain Shot, which aims to disrupt the shot occasion and Casa Breck in the tequila space. Our national distributor for spirits, RNDC, had experienced several changes within the fiscal year, as we have. We maintain and are committed to working in major markets while also working with other distributors in the California and the additional markets.

Regarding our nonalcoholic beverage portfolio, Runner's High, our new non-alc beer brand, which we launched in fiscal 2025, is now recognized as a top 15 brand and ranks as the fourth fastest-growing non-alcohol beer in the Southeast, now sold across 4,500 distribution points. In the fiscal year within 3 months, Tilray launched hemp-derived THC beverage sales and expanded the distribution of those drinks to over 1,300 distribution points across 13 states as well as through online and direct-to-consumer channels, leveraging our established national beverage distribution network, which spans independent retailers, convenience stores and packaged stores, including multistate retailers such as Total Wine and ABC. We see this category evolving continuously and expect it to be a significant part of our growth in 2026.

Unlike other newcomers to the sector, we have an edge with our established beer network. Looking ahead to 2026, we see strong opportunities and anticipate increased demand for beer. Beer is not going away. With continued consolidation in the craft beer industry and exits of smaller craft brewers and consumer demand continuing, we see opportunities within this business where we have several new exciting innovation plan and are committed to driving Tilray's beverage growth under our new leadership.

Our Tilray Wellness business delivered strong financial results in 2025 as consumers continue to seek out better-for-you functional foods and beverages made with clean ingredients. Tilray Wellness has a portfolio of products that meet their needs. Tilray Wellness net revenue was over $60 million in fiscal 2025, representing a 9% growth year-over-year and 11% growth on a constant currency basis. This growth was driven by continued expansion of our Manitoba Harvest hemp [ parts ] and alongside our new [ super seed ] innovation, including snacks, breakfast items and smoothie blends.

Tilray Wellness successfully launched relaunched HiBall Energy on Amazon and at retailer Whole Foods Markets in the fiscal year and experienced a 68% growth. HiBall Energy is a brand of functional better-for-you energy drinks known for being a premium alternative to traditional energy drinks. It's formulated with clean ingredients and has 0 calories, 0 sugar, no artificial sweetener and packed with vitamin D and tastes great. In addition to delivering strong top line growth, Tilray Wellness expanded its margins to 32% in fiscal 2025, up from 30% in 2024, driven by favorable sales mix and productivity savings generated in our manufacturing facilities.

Tilray will look to expand its Wellness segment in fiscal 2026, both in wellness and functional foods and beverages. We'll continue to diversify and expand the Manitoba Harvest portfolio in the North American area and better-for-you and high protein categories and begin to bring the brand into new international markets. We see the success of HiBall as a validation that Tilray Wellness has the right infrastructure and experience to build and acquire more broad-based wellness beverage portfolio.

In terms of our management team, we have strengthened our leadership by appointing Rajnish Ohri as a Managing Director of International. Based in London and Dubai, Rajnish will drive growth across international markets and medical cannabis beverages and wellness. And in regions like Asia, the Middle East, India and Turkey, we will focus on strategic opportunities in nonalcoholic beer and hemp-based products. I am confident that with Rajnish's leadership and deep industry experience, Tilray is strongly positioned to accelerate our international growth and capitalize on emerging opportunities. His innovative mindset and strategic approach perfectly aligns with our vision for global expansion. I look forward to working closely with Rajnish.

I'll close this with fiscal '25 as a big year for Tilray across the board. It would not have been possible without the tireless work and dedication of our employees around the world, and I want to thank each and every one of you. We've built a unique business at the forefront of the beverage, cannabis and wellness industries on a global scale. And guess what, we're just getting started.

With that, I will now turn the call over to Carl to discuss our financials in greater detail. Carl, are you ready?

Thank you, Irwin. Please note that we present our financials in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussion, we will be referring to both GAAP and non-GAAP adjusted results, and we encourage you to review the reconciliation contained within our press release of our reported results under GAAP with the corresponding non-GAAP measures.

Focusing on our fiscal year results first. Net revenue for fiscal 2025 grew by 4%, reaching a record $821.3 million or $833.7 million on a constant currency basis. This growth was primarily driven by a 71% increase in international revenue during the fourth quarter. While this figure represents an improvement over the prior year's $788.9 million, it is below the lower end of our revised guidance of $850 million. This was mainly due to reduced beverage volumes and delayed export permits, which led to lower-than-expected international revenue in the fourth quarter.

Typically, our beverage business sees its highest revenue in Q4, but this year's results did not meet expectations. As Irwin mentioned, we took corrective actions to improve future performance in our Beverage business. In response to challenging and evolving market conditions, we took this divisive action -- decisive action. Our results reflect an approximate $35 million revenue impact from deliberate strategic decisions. This includes a $15 million reduction in cannabis revenue due to our decision to scale back in the vape and infused pre-roll categories, which at the time were margin dilutive. Additionally, there was a $20 million impact associated with our beer SKU rationalization initiative aimed at enhancing the long-term performance of our beverage portfolio. Had these actions not been taken and excluding the effects of currency fluctuations, our revenue would have been approximately $870 million for the year.

These were necessary steps to position the business for sustainable profitable growth. Although international cannabis saw strong Q4 growth, cannabis net revenue decreased 9% year-over-year, largely due to our focus on maintaining and growing gross margin and a higher average selling price. Specifically, in Canada, vapes and infused pre-rolls experienced a high degree of price compression, which led to a $15 million reduction in our revenue as we instead focused on maintaining and growing margin.

Additionally, we redirected inventories to international cannabis markets to capitalize on higher margins abroad, only to have a portion of those inventories trapped due to unexpected regulatory challenges in obtaining export permits. The resulting impact of this strategic decision caused a temporary decline in gross adult-use cannabis revenue, international cannabis revenue and cannabis revenue overall until their eventual sale. It should be noted that we have expanded our cultivation footprint for fiscal '26 to be able to satisfy the growing demand in both Canadian and international cannabis markets in the coming year.

Beverage revenue increased 19% year-over-year, primarily driven by acquisitions. The increase in sales from acquisitions were offset by the SKU rationalization implemented in connection with Project 420, which resulted in a reduction of revenue of $20 million for the year ended May 31, 2025 and an overall softness in consumer demand for craft beer.

Wellness net revenue increased 9% for the year. The increase in revenue was primarily attributable 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. Distribution net revenue increased 5%, primarily as a result of a change in product mix.

From a revenue contribution perspective, 30% of our net revenue was generated by our cannabis business, 29% was generated by our beverage business, 8% by our wellness business and 33% by our distribution business. This compares to 35% in cannabis, 25% in beverage, 7% in wellness and 33% in distribution last fiscal year. We expect to see continued growth in contribution from our higher-margin segments in future periods.

Gross profit for fiscal 2025 increased 8% to $240.6 million compared to the prior year at $223.4 million, also representing our highest level ever. Gross margin increased 100 basis points to 29% from 28% in the prior year.

Turning to our gross margin by segment. Cannabis gross margin increased to 40% from 33% in the prior year, which 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.

Beverage gross margin was 39% compared to 44% in the prior year. The decrease in gross margin is primarily a result of the decrease in demand in the fourth quarter and its resulted impact on overhead absorption, as well as the lower margin contribution from our recently acquired brands from Molson Coors. Wellness gross margin increased to 32% from 30% in the prior year. This increase was driven by strong operational efficiencies, lower input costs and the culmination of a change in sales mix towards higher-margin product offerings, including HiBall energy drinks. Distribution gross margin remained steady at 11% and consistent with the prior year despite shortages in key pharmaceutical product lines in the third quarter as well as price reductions.

Net loss for fiscal 2025 increased to $2.2 billion or $2.46 per share compared to a loss of approximately $220 million in the prior year or $0.33 per share. From an adjusted perspective, we are reporting adjusted net income of $9 million or $0.01 per share compared to $6.2 million or $0.01 per share in the prior year, an approximate 45% increase. Our net loss was principally driven by noncash impairment charges of approximately $2 billion in the fiscal year, comprised of almost $700 million in the third quarter and almost $1.4 billion in the fourth quarter. The noncash impairment charges during the fourth quarter includes $661.3 million of depreciable intangibles, $186.6 million of indefinite [ live ] intangibles and $549 million of goodwill.

Our consecutive noncash impairment charges are the result of a combination of factors, including a sustained decline in the company's market capitalization from February 28 to May 31 stemming from the uncertainty around certain changes in U.S. global economic policy, slower-than-anticipated progress in global cannabis regulatory change and a change in the nondiscretionary inputs in the company's discount rate in the latest quarter. The impairments represent numerical calculations based solely on accounting rules related to impairment calculations and do not reflect our views on our business. We continue to have full confidence in the intrinsic value of these assets, and these noncash charges do not reflect any change in our long-term strategy for the business.

Further, approximately $1.1 billion of the $1.4 billion impairment relates to intangible assets acquired as part of the Tilray business combination in 2021. Under U.S. GAAP accounting rules, the over 50% increase in the value of Aphria shares from the date of announcement of the transaction until the transaction closed became part of the accounting purchase prices, even though both companies had made the decision to transact at the consideration to be given on the date of announcement. We believe that increase was caused almost entirely by temporary increased expectations of cannabis legalization in the U.S. as a result of the Blue Wave in the U.S. Senate bi-elections in January 2020 -- this -- January 2021. This run up in our stock price created a purchase price of $3.2 billion or an almost $1.1 billion increase in the purchase price versus if the transaction had occurred on the date of announcement.

After recording the impacts of the impairment, we anticipate that our net income will improve by approximately $70 million next year as a result of no longer recording amortization on the impaired intangibles. Adjusted EBITDA for fiscal 2025 was $55 million compared to $60.5 million in the prior year. For the year ended May 31, 2025, our SKU and geographic rationalization resulted in a reduction in net sales of approximately $20 million and an adjusted EBITDA impact of $6 million. We believe this temporary reduction will be offset by the growth of our new product innovation, including new beverage categories and future brand extensions.

Cash flow used in operations in fiscal 2025 was $94.6 million compared to $30.9 million in the prior year. Adjusted free cash flow was negative $114.2 million as compared with $6.6 million in the prior year period. The $114.2 million includes approximately $63 million of working capital increases, $20 million in CapEx, net of growth CapEx, and approximately $31 million of cash losses from operating the businesses. The cash losses from operating the businesses primarily relate to nonrecurring restructuring, litigation and transaction costs, as well as the investments in the beverage business as we rebuild the craft brands purchased from ABI and Molson Coors. The CapEx spend includes approximately $7 million on sports sponsorships, reflecting the full multiyear cost of the license agreements, and $6 million in CapEx in the beverage segment as we invested in infrastructure at key facilities to increase production.

The working capital increase relates to increases in accounts receivable late in the year in our international cannabis and beverage segments, increases in inventory related to the trapped permit inventory in Portugal, inventory in the wellness segment to manage tariff risks and to reflect the increased demand on certain products, including HiBall.

Over the past fiscal year, we reduced our convertible debt outstanding by $67.8 million and reduced it by a further $5 million shortly after year-end. Our intention is to continue lowering our indebtedness, optimize our capital structure and enhance our financial flexibility. The net reduction in our convertible debt will decrease our annual interest expense by over $4 million, which flows directly to net income and free cash flow.

Switching to our quarterly performance. Q4 total net revenue was $224.5 million compared to $229.9 million in the prior year quarter, with the softness in the beer business offsetting a 71% increase year-over-year in international cannabis revenue. In Q4, net cannabis revenue was $67.8 million. Net average revenue was $65.6 million, but would have been over $71.6 million if we had not made the strategic decisions previously discussed. Wellness revenue was increased to $17 million. And finally, distribution revenue increased to $74.1 million.

Gross profit was $67.6 million compared to $82.4 million in the prior year quarter. Gross margin was 30% compared to 36% in the prior year quarter. Most of the variance was related to the decreased demand in the beverage revenue in the quarter, impacting overhead absorption, combined with investments in the acquired brands.

As I previously mentioned, in the fourth quarter, we reported a $1.4 billion noncash impairment related to the decrease in our share price at May 31. May 31. The perception of the reduced likelihood of U.S. and/or cannabis regulatory changes in the short term and an increase in the nondiscretionary inputs in our discount rates utilized in the accounting exercise that is impairment. As a result of this noncash impairment, we're reporting a net loss of $1.3 billion compared to a net loss of $15.4 million in the prior year quarter. On a per share basis, this amounted to a net loss of $1.30 per share compared to $0.04 per share in the prior year quarter. The noncash impairment charge had no impact on the company's tangible assets, compliance with debt covenants, its cash flows or available liquidity.

Adjusted net income was $20.2 million compared to $35.1 million in the prior year period. On a per share basis, this resulted in an adjusted EPS of $0.02 as compared to $0.04 in the prior year period. Adjusted EBITDA was $27.6 million compared to $29.5 million in the prior year quarter. Again, the decline in adjusted EBITDA is a result of our SKU and geographic rationalization efforts.

Operating cash flow was negative $12.8 million compared to $30.7 million in the prior year quarter. The decrease in operating cash flow was primarily a function of investments in our beverage segment, combined with investments in working capital associated with demand for our products. Adjusted free cash flow was negative $12.9 million compared to $30.6 million in the prior year quarter, consistent with the changes in operating cash flow.

Moving to our 4 business segments. Gross cannabis revenue of $89.2 million was comprised of $58.4 million in Canadian adult-use revenue, up from $49.3 million in Q3; $22.4 million in international cannabis revenue, up from $13.9 million in Q3 or 60%; $6.2 million in Canadian medical cannabis revenue; and $2.2 million in wholesale revenue. Net cannabis revenue, which excludes $21.4 million in excise taxes, was $67.8 million, down from $71.9 million in the prior year quarter. Again, we want to highlight. International revenues would have been even higher if not for delays in export permits.

The year-over-year decline in cannabis revenue was primarily driven by focusing on margin-accretive SKUs, which resulted in a temporary drag on revenue. As mentioned, we paused vape and infused pre-roll categories to focus on improving profitability, but are expecting to be able to participate more in this growing category in fiscal year '26 given the improvements in our cost structure. As a result of our efforts, cannabis gross profit increased to $29.6 million, and cannabis gross margin increased to 44%, compared to $28.8 million and 40% in the prior year quarter.

Beverage revenue was $65.6 million compared to $76.7 million in the prior year quarter. Beverage gross profit was $25 million compared to $40.8 million. This underperformance was principally due to unusually weak consumer demand in the fourth quarter. The fourth quarter is typically our highest revenue quarter. However, this year, it did not meet our expectations. While our fourth quarter revenue and beverage did not meet our expectations, our late Q4 launch of new innovations have been stronger than the prior year. Innovation PODs are up over 14% from the prior year. Revenue from innovation is up 50%, and velocity is up over 30%. More specifically, when compared to last year's lead innovation in the Southeast, which was gummies, this year's innovation, SweetWater Daytrip IPA, is the #1 new craft brand in the Southeast and the #7 new craft brand in all of the U.S. despite only being available in 8 states.

Further, we are extremely encouraged by the initial orders of Breckenridge's new innovation, Mountain Shot, an occasion-centric bourbon and malt-based shot with its own unique packaging. Wellness revenue grew 9% to $17 million from $15.7 million in the prior year quarter. The increase was driven by our strategic focus on targeted advertising campaigns aligned with emerging trends in favor of healthier lifestyle, coupled with our continuous innovation efforts. Wellness gross profit increased to $5.6 million, up from $4.9 million in the prior year quarter, and gross margin rose to 33% compared to 31%.

Distribution revenue, derived predominantly through Tilray Pharma, increased to $74.1 million from $65.6 million in the prior year quarter. Distribution gross profit was $7.4 million compared to $7.8 million in the prior year quarter and distribution gross margin was 10% compared to 12% in the prior year quarter.

Our cash and marketable securities balance as of May 31 was $256 million. During the year and through to today, we continue to strengthen our balance sheet, net repaying $22.9 million in our long-term debt and bank indebtedness and repurchasing [ $67.8 million ] in outstanding convertible notes. After taking into consideration these actions, we reduced our net debt position to approximately $19 million, which when combined with our trailing 12 months adjusted EBITDA, puts our net debt to adjusted EBITDA leverage ratio at approximately 0.3x and should lead to approximately $4.2 million in net interest expense savings next fiscal year.

Fiscal year 2025 was a year marked by the strengthening in both Canadian and international cannabis businesses, the continued steady improvement of our wellness business and headwinds in the beverage business, with the latter a key area of focus under new leadership. Across each of our businesses, we employed a relentless focus on our strategy. We increased gross profit in each of our businesses year-over-year and increased total margin by 100 basis points, albeit with beverages increase tied to acquisitions.

As Irwin mentioned, there is a significant opportunity for Tilray in international markets. And the work that we are doing now to improve profitability and streamline our operations will position us well to capture the global opportunity.

Finally, we are pleased to provide the following guidance for fiscal 2026. We anticipate adjusted EBITDA between $62 million and $72 million.

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

Thank you. [Operator Instructions] Our first question is from Kaumil Gajrawala with Jefferies.

I guess a couple of questions. First, on timing of the importing rights and some of the delays. Where are we now? Do you have a line of sight on if they come through, when they come through and sort of what contribution they're going to have?

So absolutely have a line of sight, and there was some issues from a legal standpoint in Portugal. And I'm in the midst of working with the Portuguese government and our legal people there to get meetings. But right now, we're seeing that lightening up and we're able to start shipping product.

The other issue we had was in Spain in regards to shipping some of our products to Spain and getting permits. So I feel good about that. I feel we'll see the pickup within our first and second quarter. So I feel good. That's mostly behind us now. But for the fourth quarter, there was approximately $8-plus million that we just could not get permits. And when we ship product out of Portugal, we need a Portuguese permit to ship it, and we weren't getting it. But the government is now working with us both in Portugal and Spain, and we see that primarily behind us. Denise, Raj, you agree?

Yes.

Yes.

Okay. Great. And then you mentioned Canada sort of hitting equilibrium, maybe price pressure is starting to abate. Can you just give us some more color on exactly what you're seeing and maybe how you expect it to play out over the course of the year?

Well, I think a couple of things happening in Canada. Number one, it's 6 years into legalization. And I think there's more and more retail stores opening up. I think the consumer now is now skewed to go into Canada stores and not buying from the illicit market. And some of the great innovation that's coming out before it was predominantly flower, where 80% of the market was flower. Now whether it's pre-rolls, diffused pre-rolls, vapes, drinks and edibles. I also see there's consolidation at retail more and more stores.

The Quebec market, which is controlled by the government there, has about 110 stores today. More and more stores will open up in Quebec. So with that, I really see the market, you're seeing consumers now enjoying more and more, cannabis products. You see it cannibalizing some of the beer and the spirits industry up there. Also, originally, there was probably between 1,800 and 2,000 licenses that were given out. You're seeing either consolidation or some of these licenses just folding up.

So you saw in my prepared remarks, I see there's some light potentially to lightening up on some of these excise tax. I see a national stamp, which means you don't have from shipping each product, a province. I see potentially seeing drinks sold not only in cannabis stores, potentially in restaurants and maybe on-premise. And I also see the potential, whether it's CBD products or other products sold with -- in drugstores. So I'm really seeing a change in the whole regulatory piece in regards to cannabis in Canada. And after 5, 6 years, it's something that I'm excited to see because as you've heard me complain about, in the Canadian market, we pay over $135-plus million just in excise tax. And as price compression happened -- and over the 5 years, we've probably -- price compression probably cost us about $250-plus million. So I'm seeing that, and that's why we're taking our grow up from 130 metric tons up to 150 metric tons because of demand. And the team has done a great job in regards to some of the innovation that's come up.

Our next question is from Rob Moskow with TD Securities.

This is Victor on for Rob. So a couple of things. The growth in our international in 4Q was nice to see, but how should we view the growth next year, understanding that the timing is -- it's kind of lumpy around timing and shipments. And did I hear you correctly that you said $6 million in sales was from trapped shipments in Portugal? So that should be recognized [indiscernible]?

So it's $8 million, not $6 million, and it was tracked shipments, and you should see that predominantly in Q1 and also we'll start to see maybe there's a little in Q2. But we see tremendous -- just like I talked about the Canadian market as the market continues to evolve and change and the demand for medical cannabis. In Germany, you saw growth there.

But in regards to Poland, the U.K., the Czech Republic, just now and now in Turkey, we're working on some stuff in India. We think there's some strong opportunities back in Australia, and we're we looking at some things in New Zealand. What's that?

Italy.

And Italy, we just as we -- 3 licenses or 3 different [ both of ours ] that we just got in Italy. And again, as you go back and look, Tilray, from a share standpoint, our 5%, 6% share of the market was a smaller share, but we provided a lot of other companies with products. So we see some big, big opportunities. And I will tell you what I would give you guidance, there's some pretty big numbers built into our plans for Europe for next year for us.

And that -- we haven't even ultimately -- and that is just based on flower. There's stuff we're doing to see if we can sell pre-rolls there in regards from a medical standpoint. You got to remember, everything sold in Europe has to be prescribed by doctors and is sold from a medical standpoint. So we have some pretty big plans of how to get to a good growth number. And the great thing about Europe is we're not paying anywhere near the excise tax, you see what our margins are in our European markets.

Okay. That's helpful. And then just a follow-up. I noticed that you mentioned that the cost savings initiative, Project 420, is expected to be completed by fiscal 3Q '26. Can you walk through just some of the different things that still need to be done for that program?

So number one, we started off with 10 manufacturing facilities. We're now down to 7. So as we consolidate manufacturing facilities, as we consolidate warehouses, we went through a SKU rationalization where we took $20 million of SKUs out, and that hit us by $6 million of EBITDA. We didn't see the benefits from it as we looked at replacing them with faster moving SKUs and some new SKUs.

We're also going through some distributor consolidation. We have 800, 900 distributors out there. And from a standpoint of freight, as we brought organizations together where there was some of the original Molson's organization or the ABI organization in regards to 1 sales force and marketing force. We also, as we look at our 18 brew pubs that are out there, how we can make them more efficient from a labor standpoint. We also consolidated procurement agreements with [ Cisco ] in buying our food. So there's multiple things we've put in place. We've really looked at our inventories. We really looked at buying our hubs. So there's numerous costs that we've taken out of here.

The other thing is, as you heard me say before, talked about timing as we did these acquisitions in regards to the categories being set in May and June. As we were in front of the buyers, we lost distribution, we lost space. And now that we're in front of these buyers, we're getting a lot of that back. We also did not have the growth and the emphasis on convenience stores, where convenience stores is 1 of the biggest sellers of beer out there.

So it's -- last year was a lot of resets. A lot of things happened, but there's some great plans in place of how to get a lot of this volume back, how to take a lot of costs out of these businesses. And don't forget, we've been doing this since 2020 in the beer industry. Now we're the fourth largest craft brewer. And similarly, there's a lot of the smaller craft brewers that have gone out of the business. There's a lot of opportunities, and consumers are looking for new unique beer products out there, whether it's a non-alc, whether it's the light beers, whether it's some of the flavored stuff we're doing, whether some of the stuff we look to do with protein. So we're pretty excited about our beer business. You heard me talk about consolidating distributor networks. We have a Molson distributor network. We have an ABI distributor network, so we have to look at some things there.

Our next question is from Aaron Grey with Alliance Global Partners.

Good evening. Thank you for the questions. So first, for the 2026 EBITDA guide, could you maybe offer some color in terms of how best to think about some of the key drivers there, even if not specific, how much of that's going to be driven by sales growth and some SG&A leverage or gross margin expansion versus cost cuts? And then also, if it's fair to think about the seasonality to be similar to what we've seen in past years in terms of being somewhat similar with the strong 4Q?

In terms of seasonality, yes, you're going to -- we continue to expect to see a stronger Q4 than Qs 1, 2 and 3, primarily related to the seasonality of our beverages but also a little bit of seasonality inside of the cannabis business. With respect to the increases in the guide, I think a bigger portions of it are expected from our international business. We see some improvements happening inside of our Canadian business. And beverage as well, along with wellness. Wellness, I think you're going to see that driven by some of the new categories and new innovations that they're getting into. On the beverage side, you're going to see some of it related to revenue, but you're also going to see pieces related to Project 420, the cost savings flow through. Remember, a lot of those savings were achieved in '25, but the cash flow impact of them takes longer to work its way through the income statement.

But I think -- just, Carl, I'm sorry, we've done lots of acquisitions. And as we get close to that $1 billion revenue, it's called scale. So number one, it's a much bigger company. There's more gross margin that will contribute. But just as you look at our businesses, as I said before, on the cannabis business, we're starting to hit strides. And when you go from metric tons and the increase of metric tons of growth, our costs are absolutely going to come down as you come back with our beer business, as we put the multiple acquisitions together and from a scalable standpoint. And today, we have close to a $250 million beverage business.

So I think what we've shown -- and this year was a challenging year in our beverage beer business as we put the ABI acquisition together, the Molson's acquisitions and SweetWater and Montauk. But as we take costs out, as we get efficiencies, as we consolidate facilities. And the good news is 90% of our products today, maybe a little more come from our own facilities, so we control the growth. We can control the cost. We're not necessarily affected by tariffs out there other than maybe buying cans.

So again, after 5, 6 years, as maturation comes into place, I feel good about the top line growth. We feel good about the top line growth. We feel good about the scalability. And one of the things we've always had to deal with as you build out this corporation from a public company standpoint, there's an infrastructure that put in place, whether it's insurance, whether it's public accounting, whether it's legal that we have to fund and as we have a bigger business we can support the overheads to make sure that we have the right processes in place to build Tilray beyond and then some. And again, we as a company today, sell in 21 different countries around the world. We're dealing with multiple currencies. So there's a lot within here, but it's all starting to come together.

That's really helpful color there. Second quick one for me. I know you guys seem pretty constructive and optimistic on international growth opportunity, good to see that in the fourth quarter. But just -- if you could dive a little bit into Germany. Can you talk a little bit maybe about the dynamics of supply-demand equilibrium, where we are at and any potential impact you might have on pricing there? I know there's been a lot of operators in Canada and otherwise kind of allocating more of the product to international markets like Germany because of the higher margin. So just wanted to get some color on that. Are there any concerns there potentially with the new government in Germany potentially disrupting the current medical market there?

It's Denise. Thanks for the question. So in terms of growth in Germany, what we see is -- or when talked about enhancing supply chain, so we've ramped up our volumes in [ Gatineau ], basically increasing our production about 2.5x what it was in fiscal year 2025. We also have been sourcing from our Canadian facilities, and Irwin talked about the fact that we're increasing our supply chain there.

And then as well, we have Aphria RX, which is in-country, producing high-quality cannabis from cultivars that we've transferred from Canada. And one of the great things about Aphria RX is already in Germany. So supply chain and getting that right, having the right product in market -- you talked about the price compression. Yes, we are seeing price compression, but that is why we are so focused on our cost. And one of the things we spent a lot of time in 2025, and this shows in our margins, is the fact that we have taken our costs down tremendously. And as Irwin mentioned, as we continuously ramp up, those costs will come down even further. So we're prepared for price compression.

And you got to remember, we have built the international business almost from scratch. When we acquired the Tilray business, I think it was probably $10 million in size, and we acquired that during COVID, couldn't even get to visit. So again, we're building out -- we have 1 of the largest growth facilities in [ Gatineau ] and now with the German facility. So we have access to growth. And back to your earlier question, is shipping product from Canada, which we can do, which is much, much higher margin, it's probably 10x the contribution margin when it's coming from Canada to the international.

So again, our hope and wish is more and more markets open up. I'd be excited to see India, which Raj is quite familiar with, markets there opening, and there are some things we're seeing there. I'm excited about some stuff in Turkey, the Czech Republic. I think Italy is going to be a big market. I think U.K. has some big opportunities, and then to continuously expand upon Poland and Germany. And just again, with Europe, we think there's tremendous opportunities for our hemp business there, our high protein and which we've talked about is going into the Middle East with our nonalcoholic drinks and now we can with our beverage business.

So the infrastructure is there to do it. The growth facilities are there to do it, and the investment over the last 4, 5 years is there. And we have quite a bit of the know-how of how to go about it.

That's helpful detail there. I appreciate that. I'll go back to the queue.

Our next question is from Pablo Zuanic with Zuanic & Associates.

Irwin, you made mention of rescheduling in the U.S. with the new DEA head. Can you explain to us how would Tilray benefit directly from rescheduling given that you do not have U.S. cannabis operations right now?

So again, we could quickly enter that market with our medical business, Pablo. As you know, we sell quite a bit of medical cannabis in Canada, and we have a big international. So from a standpoint of that, we could ultimately do something from a medical cannabis. But from a rescheduling, Pablo, I think the big thing is get the uncertainty out of the way here, okay? And from a rescheduling, it would allow institutional investors to come into the market. That would allow in regards to retail banking come into the market.

So it's just not about the sales. And ultimately, does it open up the opportunity to sell our cannabis drinks or our beverage -- our hemp business. So again, there's not a direct one that I could point to, but I'll tell you what. There's a lot of things that it would do for Tilray off the rescheduling if that happens within the U.S. markets. And I think if one thing happens with rescheduling, I think there is a great possibility do they move to legalizing from a medical cannabis standpoint. And there's always would be the opportunities to buy something, Pablo, if that happened. Because right now, we cannot do anything with cannabis in the U.S.

Right. That's good color. Look, just one on beverages. I guess the big picture question for me in beverages is how much is under your control? And how much is just the industry, right? So we can make adjustments on a pro forma basis of what the decline might have been in the fourth quarter versus last year. But whatever the numbers are, there seem to be a steep decline, right? And I'm trying to understand how much of that was like own goals versus just industry challenges. I mean own goals, you can fix, you have new leadership. Industry challenges are tougher, right? So I don't know if you can -- tough to quantify, but if you can just walk us through that in a way.

So I would come back and say it was the industry from a craft beer industry is down 4% or 5%. I think you see from a craft business, when there's a lot of small players out there, there's a lot of them going away. There's a lot of consolidation. So number one, there's still a big beer business out there and the craft beer business is a good size. And we're number four, and we only got into this business in late 2020 and then you had 2 years of COVID.

In regards to our decline this year, we're up, and most of that is coming from acquisitions. But some of that was self-inflicted. We're just having -- us making some mistakes. Some of that was, as you heard me say, in timing in regards to authorizations and not getting the placements at supermarket. And some of that was just bringing all those organizations together with acquisitions. And some of it was -- that's why there's leadership change. And that's why a lot of things happen in place.

But again, I will say it. The beverage business as a whole is 1 of the biggest categories out there. And what I aim Tilray to be is not just a beer business, it's a beverage business, and you see some of the valuations out there in regards to what's happening with energy drinks, and HiBall is 1 example. When we acquired it, it was 0. And this year, the opportunity for growth. I think there is tremendous opportunity in the Delta-9 business for us. I think there's opportunities in regards to the non-alc industry for us, whether it's in the U.S., whether it's in other countries in the Middle East. And I think there's still lots of opportunities in the cocktail business and the seltzer drinks. And again, beer will not go away. And I think the opportunity is going to be as we will take share away from some of the smaller craft beer businesses.

And if you look at some of the craft beer businesses, Pablo, [ Boston ] beer growth is not coming from their beer business. It's coming from their [ Sun Cruisers ] and some of their other drinks. So again, we're not a one-trick pony out there, and we're focused on the category in many different ways. But we're big in the Delta-9. We're big into energy drinks. We're going to be bigger into non-alc. We're going to be bigger in the seltzer drinks. We're going to be bigger into lighter beers. And we'll stay within the craft beer industry.

The other thing is some of the unique stuff that we're coming out with in our spirits business and some great different drinks that we're coming out with some of the nonalcoholic drinks. So I think we got some good things set up within our industry, and it's going to depend on leadership timing, innovation here from a standpoint.

Our next question is from Frederico Gomes with ATB Capital Markets.

First question, just on the beverage and wellness expansion that you mentioned, international in Europe and Asia. Could you talk more about that? Which categories you're most excited about in parts of that potential expansion? What could be the timing of that? And would that happen organically or through M&A?

So number one, timing is now. Raj, who is sitting in this room with me, who is based today in Dubai and London, knows that market well and has built businesses in those markets. So that is immediately that we're focused on that. We have a team that's focused on it immediately, and we're talking to both manufacturers and distributors. If there is an acquisition, we would look at it.

The other thing we're interested in talking to is -- with President Trump talking about all his tariffs and you have a lot of import beers coming in and imports coming in from Europe, there's potentially -- we're talking to people today that want to manufacture their products in the U.S., and we have capacity to do that on import products. And vice versa, we look at potential acquisitions and bringing, whether it's Montauk and some of our brands into the international market. So that is imminent right now.

The other thing is we think everybody today is into protein. And it's all you hear about protein, protein, protein. And there's a lot of protein within hemp, in our hemp food products, in our seeds. So there's discussions in looking to bring that into the Middle East. Rice is a big business in the Middle East, and what are we doing in regards to supplementing the rice business with some of our hemp business. So that is a big, big focus for us as we speak.

Perfect. And then just second question on your cultivation expansion in Canada. How far along are you in ramping that? And how should we think about where that product expansion is going to in terms of exports or staying in Canada?

So some of it -- I think it's what, about 2.5, 3 metric tons will go internationally. And Blair is on the phone here. But the majority of that will stay within Canada. And the interesting thing is, and you see our revenue down on cannabis in Canada, and that was mostly us deciding not to sell wholesale. But the majority of that now is going into some of our new products, whether it's infused pre-rolls or pre-rolls. Some of our oils are baked products, but majority of that is going into the Canadian market. And that is expanding our outdoor grow in Cayuga, and that is expanding our [ Masson ] facility today, which is -- which we acquired from HEXO. So that's where that grow will come from. And I don't think anybody has anywhere near 5 million square feet within our growth facilities within the Canadian market.

And there's continuously requests from us to buy cannabis from us because as oversupply happened in the Canadian market, a lot of these facilities have closed and have sold off. So there is demand for us to be a third-party supplier, but that's not what we're interested in. We're interested in supplying our own facilities. And that's why we had to increase our growth capabilities in the Canadian market.

Our next question is from Bill Kirk with ROTH Capital Partners.

Yes. This is Nick on for Bill. First one for me, just wanted to expand on Germany and the potential changes coming over there. It looks like some of the proposed legislation could potentially inhibit the telemedicine opportunity? So I guess just a couple of questions there. What do you expect to come on these proposals? And is there anything you can kind of do to prepare for a potentially different selling environment over there?

So in terms of there has been a proposed legislation, but this is simply a proposed legislation. What we -- until, right, we take very seriously is patient safety and of course, of course, looking at how do we continue to service our patients in the right way. And when we -- the legislation definitely was a bit of a surprise, and we're taking it very seriously along with our industry group. There's a long way between here and actually looking at what ultimately could be a change in legislation. And through our industry group, we're taking this very seriously. We are putting forward various proposals in terms of how to address it.

And when they talk about the removal of telemedicine and the mail order, we do have to remind government that, in fact, the [ MedCanG EU ] rule was put in place because they wanted to look after patient safety, patient health and provide accessibility of the patients. And the current legislation accomplishes all of those things. And we believe that by pushing through changes in telemedicine and in mail order, essentially, you're just going to push the patient into the black market. And that is exactly what the German government doesn't want to do.

So we believe that there is plenty of room here and a path forward to negotiate and look at really what is the right thing for German patients and the right thing for industry. We also need to remind the government that many companies have invested very heavily in these new reforms that were put forth. And in essence, by kind of taking a step back, it would really persuade investors in other industries, not just medical cannabis, but other industries, well, why would I invest in Germany if I can't rely on basically legislation that moves forward? So we are very much very actively going after this and working with our government relations group to come out with the right outcome.

And I think as Denise said, it's a long way away from anything being effective there. And it's something that was put out there. It's not anything that's a proposal. It's not any legislation. So it's a long way of anything happening. And I think everybody is out there doing something about it. And personally, I think the government put it out there to test it. And I think there will be a lot of pushback on it. So I would not sit here and say I don't worry about it. Absolutely, we'll be focused on it. But it's not something that's happening imminently.

No, that makes sense. I appreciate that color. Second one for me, just on the U.S. landscape. We've seen discussions kind of picking up here and some more news flow from outside kind of the traditional echo chamber. My question is, are you becoming kind of incrementally more bullish on the U.S. reform opportunity? Or are you still kind of in wait and see mode? Just how are you evaluating kind of the uptick in news flow around U.S. cannabis just over the last month or so?

Listen, I think some -- as I said before, I think President Trump is about how we enhance business and what can we do. And as they look right now, tariffs have sort of taken the time on all of this here, but the new appointment in regards to rescheduling, I think, is a good step in the right direction. I feel good that something will happen. But the big thing is Tilray is so well diversified, it will be a big lift for Tilray when it does. But if it doesn't, we have a lot of opportunities out there, and we got a lot of things happen. But I think we're hearing more and more about changes coming in regards to regulatory of cannabis in the U.S. But I've been there before. So...

Correct. I appreciate the color.

I think we're dealing with a different government today that's interested in business and interested how to bring more and more jobs and how to get rid of an illicit market.

Understood. Appreciate the color.

Thank you very much. I think that is our last question. So I want to thank everybody for joining us on this last or second last or third last day of July. We got a lot happening at Tilray. And as we brought this company together over the last 5 to 6 years, as you can see, we are a very well-diversified business. We have a strong balance sheet. We have over 40 brands. We have multiple beverage facilities. We have a distillery. We have within 5 million square feet of grow in Canada. We have 2 great growth facilities in Europe. We have great facilities that are producing our wellness products of Manitoba Harvest.

And with that, it's interesting because what holds back our stock price today is very much focused on the U.S. and legalization in the U.S. But looking at our growth in regards to being close to $1 billion, yes, if U.S. cannabis was legalized, as I looked at it 4 years ago, I expected it to happen. And I thought we'd be a lot different. But as I've always gone back and said, if I could sell cannabis drinks throughout the U.S. today, the sales opportunity that would be. If I go sell drinks in Canada, just in restaurants, the opportunities that would be. If I could sell medical cannabis in a legalized market in Canada, how big that would be. If I could sell pre-rolls from a medical standpoint in Europe, where that would be.

We're new within the beer business and the opportunities there. The spirits business, there will be more consolidation. You've seen some of the things with the bigger spirits companies. And in regards to international and imports, I think there's an opportunity for Tilray to play a role in that. And I think with our balance sheet, how strong it is and our free cash flow, I think there's continuous opportunities for us in regards to future acquisitions, and that's something that we'll be focused on.

And last but not least, geographic expansion. I've been part of growth in the Middle East, have been part of growth in India, been part of growth in Europe. And with Rajnish joining the team and rounding that out and us opening an office in London and looking to grow in the Middle East, we're well positioned.

Last but not least, we have a team in place that over the last years has been here building that. And I must say I'm very lucky to get to work with my team, and I want to thank each and everyone for what they contribute.

So I'm glad fiscal 2025 is behind us. It was not one of our easiest years, but there's no years out there that are easy. I think we have a lot of good strategic plans, and we just went through our Board meetings and strategic plans for 2026 and a recap of 2025. And I must say that I'm excited about some of the things in front of us. And I will tell you, there'll be some of the great things that will happen. There will be some challenges, but I never want us to be flatlined because that's not a good place in life to ever be is to be a flat line in place. And I expect growth on the top line, expect growth in the margin, expect growth in EBITDA. And I expect free cash flows coming from our businesses to offset that.

So enjoy the rest of your summer. Be safe out there. On a nice warm day like this year, it's great to enjoy a great cold beer. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

So thank you for sitting in on our fireside chat today with Tilray. I'm Robert Moskow. I'm the Senior Analyst Equity Research at TD Cowen covering Consumer Staples. And very happy to have Irwin Simon, CEO of Tilray; and Carl Merton, who's the CFO, with us today.

Tilray is a company that is truly the epitome of the convergence of beverages, cannabis and wellness. It started out as a cannabis company, but it's evolved into something much more.

So I'm going to ask a bunch of questions. I'll also put it to the audience to see if anyone has questions at the end. But today, Tilray is a $400 million market cap company, $800 million in sales and has been growing through M&A.

So Irwin, maybe we can start. Tell us a little bit about the diversification strategy that you've been executing. And some of it was out of necessity, I'd imagine, because the regulatory environment for cannabis hasn't turned out as we would have liked.

So good morning, everybody, and Robert, thank you, and good to be here.

Number one, Tilray is unique in many ways. I think we're different than so many other companies. And I think in one how, what I would say, the reflection of our stock price is no reflection of what the company is today.

As I walk here to this conference, I smell a lot of cannabis on the way. And I'd tell you what, people are drinking a lot of beer and alcohol. So whoever says beer and alcohol are going away, it's absolutely not.

After 25 years building a natural organic food, wellness, personal care company, my next venture very quickly afterwards, I got into the cannabis business with a little company called Aphria. We are about a $50 million business. Cannabis just legalized in Canada. And Canada is the only country in the world where recreational cannabis is legal from a federal standpoint.

And with that, with regulatory in Canada with high excise tax, Canada being a smaller country where 40 million people, half the population is 21 and over. So that's only 20 million people and only 20% are users. I realized, hey, we need to diversify. Now my first thing was to get Canada right, because it's legal. And how do we get that right? And at the time, Aphria had its challenges.

So with that, very quickly, I went on to do acquisitions in Canada. We acquired Tilray. We did a reverse merger at Tilray, and then we acquired a company called HEXO. And today, Tilray is a $200 million U.S. cannabis business in Canada. We're the largest in sales. We have 5 million square feet of grow. We sell flower, we sell pre-rolls, we sell edibles, we sell drinks, we sell tinctures. So we're, if not the largest company from a sales standpoint, and with a lot of technology, a lot of research, a lot of work on medical cannabis.

But again, we today pay over $125 million in excise tax, the highest excise tax paid on any product in the Canadian market. So our limitations to grow in Canada are limited because of the size of the country, the excise tax there and just the size of the market. So diversification is something that was very, very important. And with that, we could not move into the U.S. market with cannabis, because cannabis is not legal from a federal standpoint.

So the stuff you smell in New York, we can't sell, because we trade on NASDAQ, and we're a company that has banks and banks do not allow, because it's not federally legal.

With that, in 2020, I went out and started to acquire beer companies. The first company was SweetWater, then went on and bought some West Coast brands, bought Montauk Brewery and recently bought eight brands from Anheuser-Busch and then bought four brands from Molson. I also, along the way, acquired Spirits business, Breckenridge Bourbon, Vodka and Gin, along with the Tilray acquisition came Manitoba Harvest. And our U.S. assets today are about $300 million, $350 million with all our assets in our U.S. business. So again, we sell no cannabis in the U.S. at all.

What we're selling today, which has some great opportunities, and we're seeing a lot of excitement is these Delta-9 drinks, where they derive from hemp and 5% is from hemp and infused available in about 13 states today.

I say this, if we could sell hemp drinks or we could sell cannabis drinks in the U.S., it's a $1 billion-plus business. In Canada today, we have about a 45% share of the Canadian market, do about $25 million, $30 million in Canada and only can sell them in cannabis stores. Again, if we could sell them to restaurants, we could sell them to the beer stores, it's a $100-plus million business in the Canadian market.

And then in Europe, which is a real interesting market, we today have grow facilities in Portugal and Germany. And we sell on a run rate. And I'll say on a run rate, about $100 million of medical cannabis in Europe. And that has to be prescribed by a doctor. We sell in 20 countries, and we grow it in Portugal, we grow it in Germany, and we ship some from Canada.

Also in Europe, we have a medical distribution company called Tilray Pharma, which sells medicines, regular medicines into 13,000 drug stores in the German market. They also distribute our cannabis in those markets.

So we're diversified. We're a global business. And with that, the company is 5 years old and it came together with all these acquisitions. And ultimately, as cannabis legalizes, which I believe one day in the U.S. from a medical standpoint, we're well positioned with our Canadian business in regards to medical business or research, and we're well positioned to bring a lot of the medical findings in Europe to the U.S. once ultimately, if that happened here.

Also, as I said before, the drink business, which is a big business. With our beer business today, we have over 800, 900 distributors out there that have the infrastructure to sell. We're in every retailer within the U.S. today, whether it's with our beer, whether it's with our Manitoba Harvest. We have sales infrastructure. We have eight manufacturing facilities that produce beer and canned goods today, and we have a spirits distillery that produces alcohol and beverage.

So we have the infrastructure. We have the diversification. We are handcuffed a lot by regulatory, whether it's in Canada, whether it's in the U.S. and whether it's in Europe. In Europe, by the way, we only can sell flower. We can't sell pre-rolls or anything there. So that's the good things about Tilray, and that's some of the restrictions that we have from a regulatory standpoint.

Right. And maybe just level set us. So what percent of your sales are today are alcohol beverage, what percent is cannabis related?

Carl, I'll let you.

It's about 30% cannabis, 30% beverage, 30% distribution in the U.S. -- sorry, the U.K. medical business, the EU medical business and 10% Manitoba Harvest.

Okay. And maybe we could start with beverage. You acquired a lot of craft brands. Craft beer had a long period of structural growth and then it kind of hit a wall. But these brands are a great collection of brands. So what have you been able to do from a marketing and operational standpoint with these brands that their prior owners were not able to do?

So, so far, not everything that we wanted to do. Listen, -- we acquired SweetWater and then something COVID comes along. So we had to deal with that. Then we acquired Nelson's Green Flash and Alpine West Coast businesses and expand the distribution where it was owned by private equity. We acquired Montauk, which was owned by a group of investors, and that's been just a great brand from an expansion standpoint.

Listen, the eight brands that we acquired from Anheuser-Busch got lost within the ABI distribution system. Most of them were declining. I was asked about HiBall here before, which is a great energy drink, one of the natural energy drinks out there. And basically, ABI had shut that down, and we expect some great growth. It's now listed in Whole Foods on a national basis.

So one of the big things we're trying to do here is regionalize these brands, and focus on three or four states with them with Shock Top, which we acquired, which basically had no marketing people, no marketing dollars against it, that we're taking that national.

One of the big things being in the ABI system, you have a big distribution system out there. So they bundle it with a lot of their brands. And even though they don't spend any money, they push it out into stores. Tilray does not have that. But one of the big things that we're focused on how we'll sell these in three or four states, how we'll have one or two national brands and how we pay attention to them.

And our marketing is different. We're doing a lot with social media. We're doing a lot with event marketing. And the big thing today, Robert, is innovation. What is new out there in light beers, non-alcoholic beers, some of the seltzer drinks that we're doing. And right now, we're cleaning a lot up as we integrate. We've closed two of the breweries since we acquired it.

And the question is, you don't want to be running capacity today at 50%. And ABI or Molson' has long runs, and they can produce beer at $30, $40 a barrel where it's much more expensive for us. So we got to get the efficiencies of our breweries, and that's some of the stuff that we're in the midst of doing today.

So what are we doing different? We're going to give them love and attention where they got lost within the ABI system and get lost within the Molson' system.

Okay. And your route to market, like what is your -- did you -- you have your own distributor network, like there are independents that you align with or?

So with the ABI for 2 years, we had to stay within the ABI distribution system. And 2 years is up. But there's a lot of good independent distributors that are both ABI and Molson distributors out there that are looking for growth and are looking for craft brands. Craft beer is not going away.

And the winner is going to be those that come out with innovation and those that come out with new products. So basically, what we're doing right now, we have 900 distributors out there. And it's not 900 because some of the distributors have three or four locations. But let's say, we got 700 or 800 distributors. We got to make some of the decisions of consolidating these distributors where we're going to be important to these and bring all our brands together, and we're in the midst of going through that right now.

Right. And as you do that, do you have to buy out the contracts for this couple of hundred?

Listen, good question, and we're looking at that right now and what's the cost to do it? Or is there some trading going on? And that's -- we have a team that's just dedicated on that right now.

Right. Okay. You did have to lower your revenue guidance for this year after first quarter. Was that mostly on the beverage side? Or was it on the cannabis side?

So it was basically three things: Number one, it was the beverage side, and part of it is what we decided on the beverage side was to go through a SKU rationalization, where we had a lot of these small brands out there. And so number one, to include the SKU rationalization.

Number two is just on currency, which dropped tremendously because of the Canadian currency and the U.S. or European.

And number three, it was just ultimately, in Europe, when we're selling products, we cannot ship at a Portugal until we get a permit from the country. And some of this was just timing on getting permits from countries. And that's why we took our guidance down for those three main things.

Okay.

And there are other -- listen, there was new products that we were launching. And one of the things in the beer business, the sets happen in -- there's the spring sets and the fall sets. And if you miss these sets, you just don't get in there, and there was a timing on some of the new products and when the sets were coming into play for us.

Got it. Okay. You mentioned non-alcohol. I mean, if I look at the segments of the market that are really growing, I mean, this is really at the top. You must have capabilities to be able to participate. But are there any special skill sets to making non-alcohol taste good that are unique? Or do you feel confident you can do all that yourself?

So I think there's a lot of special skills. Number one, if you're going to drink a non-alc drink -- and it doesn't taste good. It doesn't feel like you're having a beer. It doesn't feel like you're having one. Drink Ginger Ale, drink Diet Coke, drink Club Soda, okay? And we've come out with three of them: number one, under Montauk Zero, which I would blindfold anybody in this room and put both of them there, and you will not tell me the difference between a Montauk surf beer and our non-alc beer.

Number two, we've come out with a product called Runner's High, which is after running, you want a non-alcoholic drink. So we've come out with one that tastes really good. And we've come out with one other under one of our other brands, our 10 Barrel. And -- but again, it's the extraction and having the product taste good, having the foam and having it look like you're drinking a beer and you're not some person that's just sitting there and not drinking not having any fun. You got to feel like you're having fun and there's something about it. So I would challenge anybody to try one of ours and tell me it does not taste like you're drinking a beer.

Okay.

We had a big win in the last couple of months on distribution on that side with Runner's High. We're in 4,500 locations in Public. And so we think that will help bring awareness to that brand and also give us the data to support to go to other big retailers to show them how well the brand does against its competition.

And listen, the non-alc is a category that's out there. But I think the big thing, too, is light beers. And Long Island Light is something we've launched, with 90 calorie 2 carbs. So there's a lot we're doing in regards to the light side of beers, too, which we didn't have before. We have some great beers within Montauk with our surf beer and our summer ales and stuff like that.

So again, we've come out with products. We had a great product out there called SweetWater called Gummies, which was a high alc, not the greatest tasting beer. It took off when it came out and it died. So it's getting it right on this new product and new innovation, and there are so many different products that are coming out there today.

But again, consumers want product that's taste good, lighter and that they're going to feel they're getting -- whether it's a buzz, whether they're getting something from it, there's a good benefit for it. And what are we doing something unique. We just don't need another IPA out there. There's multiple IPAs, multiple ambers. What are we doing that's different.

The other big thing out there, Robert, too, is branding. Montauk, Shock Top, some of these brands that we're doing stuff with today have tremendous brand equity. One of the things that we've done as a company is tied into sponsorships, whether it's with sports teams, whether it's with universities, expensive to do, but getting that brand out in front of them is something important to us.

Okay. I'd like to dig a little deeper on Delta-9, because this is -- this seems like the perfect marriage of all of your skill sets. But there are, I would imagine, obstacles on a state-by-state level as to how you can go to market. So how big is your -- do you have a couple of brands right now in the U.S.? And what is your approach to getting it on the shelf?

Listen, we have three brands right now. Our approach is getting it on the shelf. And it's interesting because we put a team against this, not necessarily with our beer team, but we're using the beer team's distribution system out there. Some of it is direct-to-consumer, whether it's ABC, total wine, we're selling direct to them. But I would say today, half of our business is going through beer distributors and the other half would be going direct right to retail with like an ABC or with a total wine.

And again, the product, is it too sweet? How's the product taste? With 5 milligrams, we have 5 milligrams of THC, hemp THC and 10 milligrams out there. Am I getting the benefits from it? 60 calories, and I think we have some great products out there with it today.

I think it's a big, big opportunity, but you're right. We just ran into some headwinds in Texas. And we're waiting to hear there. But there's, what, 13 states today that allow us to sell. And within our numbers next year, we're going to have to spend some marketing dollars. We're going to have to spend some money on it. But we think it could be in the millions of size next year for our business, which is all new business and all new innovation.

Okay. So 13 states where you're allowed, does that mean there's 37 states where like there's a hard no and because it has 5 milligrams or 10 milligrams, just not allowed to go on to the shelf?

Yes. Yes.

Okay. Do you see any other chance of those other 37? Or is there any legislation underway? Or do you see any like easy wins in the near future?

We're lobbying. Listen, like I said before, with regulatory, I hate making predictions, because I've been wrong all the time, okay? I thought today cannabis would be legal in the U.S. So I think if I can keep these 13 states right now, I'll be happy. And I get any more, I'll be real happy.

Got it. Do the beer companies, how do they feel about Delta-9? You have your own distributors and they're putting it on the shelves. Like how do the other beer companies like view it? Are they lobbying against you?

So Sam Adams just recently come out with one. Okay. I think the smaller craft beer are on our side. The big guys, I mean, originally, you come back and look at it. It's interesting because, back when, when we acquired Tilray, Tilray and ABI had a deal together, and that's how we got into the cannabis drink business in Canada.

We acquired from Molson, a company called Truss, where they had a joint venture with HEXO. I think the big companies are waiting for regulation and cannabis to be approved before they'll touch it, okay? And we're going to make sure we do everything right, have every I dotted and every T crossed in every state that we do it. But I think you'll see, as you just saw, Sam Adams and some of the other craft businesses get into it. I don't think you see the big guys get into it so quickly.

Because in a way, like we are seeing the beer distributor lobby is pushing for greater clarity of the rules across all the U.S. And I think that's a huge win for the industry to have them support it.

And the beer distributors want this. Because as they see consumption and decline in the beer industry today. Every beer distributor today is looking -- if you're down 3%, 4% on your business today, every beer distributor, they still got their same trucks, the distribution out there. What am I bringing in here, that's going to grow, that's going to ultimately help my volume.

Right. And I would imagine like they're your competitors, these big beer companies, but the more it's mainstream to the concept, they could actually help you grow a category if they were successful in putting it -- getting it through?

Listen, I think they can help absolutely. But I think those who get the head start with whether it's our Happy Flower, Fizzy Jane or 420 out there, getting those brands out there. Now there's a lot of small guys out there that are going to just put stuff out there are not going to follow the regulatory like we have to and some of the big guys. But listen, it would be great if ABI or Molsons got into this category, to your point, and legitimizes the category in a bigger way.

Okay. Speaking of smaller players, it's an issue in your Canadian market from what I recall is that you have certain illicit competitors in Canada who have their own pricing structure, very different from yours. They're not paying any excise taxes. Is there any chance of change in the regulatory environment in Canada that you're watching?

So good question. And there's a new Prime Minister in Canada today. I, last week, met with a minister to talk about the taxation in the industry in Canada. And ultimately, there was 1,800 LPs in Canada today and how that has dwindled down, because a lot of them have gone bankrupt or gone out of business.

So in Canada today, it would change dramatically if my excise tax got cut in half. If we're paying $125 million in excise tax today, and ultimately, half that came back to us in some of the provinces that changes dramatically.

In Canada today, if they tightened up the illicit market, which is still out there that has no regulatory, just gross product and can sell and pay no excess tax.

And the biggest thing, the third thing, and I met with a premier in Canada just recently about selling our cannabis drinks outside the cannabis stores. So if you could put it on tap in a bar, you could sell it in a restaurant, what kind of volume and what that could bring, a, to the restaurant industry and what it can help the industry in the Canadian market. So that is something from a big change that I hope could happen.

I'm hoping and we're looking at it right now, could we compound and could we sell pre-rolls in Europe, which would help tremendously from a standpoint with us. And in the U.S. market, if we could sell our Delta-9 drinks in all 50 states, and we haven't disclosed what we think this business will be this year. But if I could take those 13 states and multiply that and get to 52, it would be a good-sized business for us within the U.S. next year.

Okay. So I'm going to ask if there's any questions from the audience or if you want to think it through, I'm going to ask one. Yes, please. You have a microphone.

Can you speak to kind of run rate cash flow, kind of how the company is doing given all the challenges you mentioned?

So from a cash flow standpoint, all our businesses, our cannabis business and from a cash flow standpoint, running cash flow positive are European. We've invested a lot of money into the beer business and our spirits business.

And again, you have to, as we acquire these businesses, to grow these businesses, to rightsize these businesses. And ultimately, there, we got some work to do as we close facilities and take costs out. We took about $25 million of costs out so far this year. We look to take more. So there's some work to do on our beverage business, and it's a 5-year-old business, and we've brought these together.

In regards to the rest of the company, listen, as we said in our last quarter, we have $250 million of cash. We probably have 1x debt. And the company is 5 years old, which I'm trying to build out. So some of the biggest -- my cash outlay has been cleaning up legacy lawsuits that I inherited from Tilray or inherited from Aphria and cleaning a lot of that stuff up. Also the investment in CapEx of how to improve these plants and put bigger tanks in, if I can get longer runs and efficiency.

So I'm big on cash. I'm big on debt. I'm big on positive free cash flow. And that's something that's a big, big focus on us is our cash conversion and how our cash -- we use our cash. And listen, we're close to where we need to be on cash flow positive. Carl?

I just -- I would add the last 2 fiscal years, we were positive free cash flow. As Irwin said, this year, we're investing in the beer business behind the two acquisitions that we did at relatively cheap valuations and supporting those businesses that way.

And we bought these businesses with facilities and brands very cheap. But when you buy something at a good price, you're going to let them die or you got to invest in them. And you and I talked before about HiBall.

HiBall was dead, no sales. You don't put it into Whole Foods and bring consumer awareness to it. Shock Top, which was basically no money, no attention to it, no innovation, and we inherited all these facilities. So there's capital we've had to put into these businesses to really to rightsize them and get them right and spend on the brands. We've spent in regards to advertising on our sports brands and our licensing deals there. So we've had to invest probably more money than I thought we would back into the brands. And ultimately, we'll see the benefits from them.

And I expect some of the declines that would happen within the beer category. But I got to tell you something, we keep hearing about declines in the alcohol spirits category. I got four kids, and they're all over 21. And I had 100 kids at my house for a party last week, and I didn't see one of them walking around, not with a drink in their hand. And they weren't drinking not to my dismay, they weren't drinking non-alc, okay?

So -- and I was with Carl last night. And when I go to restaurants, I walk every table to see who has a drink on their table. And it was a Monday night and everybody had a drink on their table. So it's not dry Monday yet out there.

I think, the other thing on the sports sponsorships, if you take the example of what we did with the University of Florida Gators and the success we've had with Shock Top in the State of Florida as a result of that, I think, speaks volumes for what's available to do. You just have to make sure you're spending that money wisely in the right places.

And listen, you got to be scrappy out there today and where the big companies are. Walk into a store today and see the beer displays. And look, there is craft beer, there is local beer and then there's the national brands. And that's the big thing is getting those displays. And the big thing is getting the placements out there.

The other major, major thing and one of the things we did lose in some of this transition is these tap handles. When you go into an on-premise bar today and see whose bars on draft and stuff like that, that's real important for us. We also have 20 brew houses out there, which sell food, sell our beer and bring people together for events and occasions, which is important for us to help build our brand.

Okay. We hit our time. So Irwin and Carl, thank you very much for joining us, and please round of applause for Tilray.

Thank you very much, Rob. Thank you.