UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~February 28,~~August 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38594

TILRAY BRANDS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	82-4310622
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
265 Talbot Street West, Leamington, ON	N8H 5L4
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (844) 845-7291

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

TLRY

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of ~~April 3,~~October 2, 2023, the registrant had ~~618,007,938~~730,289,573 shares of Common Stock, $0.0001 par value per share issued and outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Statements of Financial Position (Unaudited)	1
	Consolidated Statements of Loss and Comprehensive Loss (Unaudited)	2
	Consolidated Statements of Stockholders' Equity (Unaudited)	3
	Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Condensed Interim Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3229
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5752
Item 4.	Controls and Procedures	5752
PART II.	OTHER INFORMATION	5853
Item 1.	Legal Proceedings	5853
Item 1A.	Risk Factors	5954
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6255
Item 3.	Defaults Upon Senior Securities	6255
Item 4.	Mine Safety Disclosures	6255
Item 5.	Other Information	6255
Item 6.	Exhibits	6356
Signatures		6558

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended ~~February 28,~~August 31, 2023 (the “Form 10-Q”) contains forward-looking statements under Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the "safe harbor" created by those sections and other applicable laws. Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements under the Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the “safe harbor” created by those sections and other applicable laws. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” ~~“would”,~~“would,” “seek,” or “should,” or the negative or plural of these words or similar expressions or variations are intended to identify such forward-looking statements. Forward-looking statements include, among other things, our beliefs or expectations relating to our future performance, results of operations and financial condition; our intentions or expectations regarding our cost savings initiatives; our strategic initiatives, business strategy, supply chain, brand portfolio, product performance and expansion efforts; current or future macroeconomic trends; future corporate acquisitions and strategic transactions; and our synergies, cash savings and efficiencies anticipated from the integration of our completed acquisitions and strategic transactions.

Risks and uncertainties that may cause actual results to differ materially from forward-looking statements include, but are not limited to, those identified in this Form 10-Q and other risks and matters described in our most recent Annual Report on Form 10-K for the fiscal year ended May 31, ~~2022~~2023 as well as our other filings made from time to time with the U.S. Securities and Exchange Commission and in our Canadian securities filings.

Forward looking statements are based on information available to us as of the date of this Form 10-Q and, while we believe that information provides a reasonable basis for these statements, these statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements or forward-looking information as predictions of future events.

We undertake no obligation to update forward-looking statements to reflect actual results or changes in assumptions or circumstances, except as required by applicable law.

PART I—FINANCIAL INFORMATION

Item 1. Financial ~~Statements.~~Statements (Unaudited).

TILRAY BRANDS, INC.

Consolidated Statements of Financial Position

(in thousands of United States dollars, unaudited)

	*February 28,*			*May 31,*			*August 31,*			*May 31,*
	*2023*			*2022*			*2023*			*2023*
Assets
Current assets
Cash and cash equivalents	$	164,997		$	415,909		$	177,519		$	206,632
Marketable Securities		243,286			—
Restricted cash								1,613			—
Marketable securities								287,333			241,897
Accounts receivable, net		78,342			95,279			82,076			86,227
Inventory		202,800			245,529			232,075			200,551
Prepaids and other current assets		69,087			46,786			44,943			37,722
Assets held for sale								3,696			—
Total current assets		758,512			803,503			829,255			773,029
Capital assets		425,263			587,499			494,619			429,667
Right-of-use assets		6,492			12,996			5,605			5,941
Intangible assets		994,325			1,277,875			967,568			973,785
Goodwill		2,005,701			2,641,305			2,009,673			2,008,843
Interest in equity investees		4,638			4,952			4,638			4,576
Long-term investments		7,620			10,050			7,564			7,795
Convertible notes receivable		168,356			111,200			74,681			103,401
Other assets		4,993			314			8,647			222
Total assets	$	4,375,900		$	5,449,694		$	4,402,250		$	4,307,259
Liabilities
Current liabilities
Bank indebtedness	$	18,125		$	18,123		$	14,594		$	23,381
Accounts payable and accrued liabilities		163,422			157,431			238,081			190,682
Contingent consideration		16,219			16,007			7,181			16,218
Warrant liability		7,414			14,255			10,015			1,817
Current portion of lease liabilities		2,528			6,703			2,324			2,423
Current portion of long-term debt		77,892			67,823			13,489			24,080
Current portion of convertible debentures payable		184,082			—			251,590			174,378
Total current liabilities		469,682			280,342			537,274			432,979
Long - term liabilities
Contingent consideration		10,596			—			13,000			10,889
Lease liabilities		8,598			11,329			7,462			7,936
Long-term debt		89,419			117,879			152,390			136,889
Convertible debentures payable		223,087			401,949			120,861			221,044
Deferred tax liabilities		164,412			196,638			169,633			167,364
Other liabilities		3,335			191			74			215
Total liabilities		969,129			1,008,328			1,000,694			977,316
Commitments and contingencies (refer to Note 17)
Commitments and contingencies (refer to Note 18)
Stockholders' equity
Common stock ($0.0001 par value; 980,000,000 shares authorized; 617,857,031 and 532,674,887 shares issued and outstanding, respectively)		62			53
Series A Preferred Stock ($0.0001 par value; 10,000,000 shares authorized; 120,000 and nil shares issued and outstanding, respectively)		—			—
Common stock ($0.0001 par value; 980,000,000 common shares; 723,292,600 and 656,655,455 common shares issued and outstanding, respectively)								72			66
Preferred shares ($0.0001 par value; 10,000,000 preferred shares authorized; nil and nil preferred shares issued and outstanding, respectively)								—			—
Additional paid-in capital		5,723,342			5,382,367			5,909,895			5,777,743
Accumulated other comprehensive loss		(42,948	)		(20,764	)		(43,561	)		(46,610	)
Accumulated Deficit		(2,276,794	)		(962,851	)		(2,487,032	)		(2,415,507	)
Total Tilray Brands, Inc. stockholders' equity		3,403,662			4,398,805			3,379,374			3,315,692
Non-controlling interests		3,109			42,561			22,182			14,251
Total stockholders' equity		3,406,771			4,441,366			3,401,556			3,329,943
Total liabilities and stockholders' equity	$	4,375,900		$	5,449,694		$	4,402,250		$	4,307,259

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

TILRAY BRANDS, INC.

Consolidated Statements of Loss and Comprehensive Loss

(in thousands of United States dollars, except for share and per share data, unaudited)

	*Three months ended*						*Nine months ended*						*Three months ended*
	*February 28,*						*February 28,*						*August 31,*
	*2023*			*2022*			*2023*			*2022*			*2023*			*2022*
Net revenue	$	145,589		$	151,871		$	442,936		$	475,047		$	176,949		$	153,211
Cost of goods sold		157,288			112,042			363,139			351,497			132,753			104,597
Gross profit (loss)		(11,699	)		39,829			79,797			123,550
Gross profit														44,196			48,614
Operating expenses:
General and administrative		38,999			38,445			117,385			121,401			40,516			40,508
Selling		6,452			8,641			25,792			25,283			6,859			9,671
Amortization		23,518			24,590			71,872			84,345			22,225			24,359
Marketing and promotion		7,354			7,578			23,137			20,163			8,535			7,248
Research and development		171			164			502			1,464			79			166
Change in fair value of contingent consideration		352			(30,747	)		563			(29,065	)		(11,107	)		211
Impairments		1,115,376			—			1,115,376			—
Litigation (recovery) costs		(5,230	)		4,215			(1,970	)		6,489
Litigation costs														2,034			445
Restructuring costs		2,663			—			10,727			795			915			—
Transaction (income) costs		5,382			5,023			(3,882	)		35,653			8,502			(12,816	)
Total operating expenses		1,195,037			57,909			1,359,502			266,528			78,558			69,792
Operating loss		(1,206,736	)		(18,080	)		(1,279,705	)		(142,978	)		(34,362	)		(21,178	)
Interest expense, net		(1,040	)		(2,312	)		(8,560	)		(22,422	)		(9,835	)		(4,413	)
Non-operating income (expense), net		1,213			71,037			(50,229	)		186,329			(4,402	)		(32,992	)
(Loss) income before income taxes		(1,206,563	)		50,645			(1,338,494	)		20,929
Income taxes (benefit) expense		(10,811	)		(1,830	)		(15,313	)		(2,739	)
Net (loss) income	$	(1,195,752	)	$	52,475		$	(1,323,181	)	$	23,668
Loss before income taxes														(48,599	)		(58,583	)
Income tax expense														7,264			7,211
Net loss													$	(55,863	)	$	(65,794	)
Total net income (loss) attributable to:
Stockholders of Tilray Brands, Inc.		(1,170,998	)		43,190			(1,313,943	)		1,340			(71,525	)		(73,482	)
Non-controlling interests		(24,754	)		9,285			(9,238	)		22,328			15,662			7,688
Other comprehensive gain (loss), net of tax
Foreign currency translation gain (loss)		6,390			18,498			(78,499	)		(114,641	)		3,209			(60,292	)
Unrealized gain (loss) on convertible notes receivable		95,345			(39,296	)		75,177			(56,250	)		—			(2,525	)
Total other comprehensive gain (loss), net of tax		101,735			(20,798	)		(3,322	)		(170,891	)
Comprehensive (loss) income	$	(1,094,017	)	$	31,677		$	(1,326,503	)	$	(147,223	)
Total other comprehensive loss, net of tax														3,209			(62,817	)
Comprehensive loss													$	(52,654	)	$	(128,611	)
Total comprehensive income (loss) attributable to:
Stockholders of Tilray Brands, Inc.		(1,092,491	)		34,605			(1,336,127	)		(150,318	)		(68,476	)		(132,450	)
Non-controlling interests		(1,526	)		(2,928	)		9,624			3,095			15,822			3,839
Weighted average number of common shares - basic		615,534,670			485,668,750			597,829,714			470,303,170			691,189,382			575,301,374
Weighted average number of common shares - diluted		615,534,670			488,546,790			597,829,714			478,050,130			691,189,382			575,301,374
Net (loss) income per share - basic	$	(1.90	)	$	0.09		$	(2.20	)	$	0.00
Net (loss) income per share - diluted	$	(1.90	)	$	0.09		$	(2.20	)	$	0.00
Net loss per share - basic													$	(0.10	)	$	(0.13	)
Net loss per share - diluted													$	(0.10	)	$	(0.13	)

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

TILRAY BRANDS, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands of United States dollars, except for share data, unaudited)

								*Accumulated*																			*Accumulated*
	*Number of*				*Additional*			*other*						*Non-*						*Number of*				*Additional*			*other*						*Non-*
	*common*		*Common*		*paid-in*			*comprehensive*			*Accumulated*			*controlling*						*common*		*Common*		*paid-in*			*comprehensive*			*Accumulated*			*controlling*
	*shares*		*stock*		*capital*			*income (loss)*			*Deficit*			*interests*			*Total*
Balance at May 31, 2021		446,440,641	$	46	$	4,792,406		$	152,668		$	(486,050	)	$	6,243		$	4,465,313
Third party contribution to Superhero Acquisition LP		—		—		—			—			—			52,995			52,995
Share issuance - options exercised		417,489		—		—			—			—			—			—
Share issuance - RSUs exercised		3,665,337		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax		—		—		(5,944	)		—			—			—			(5,944	)
Stock-based compensation		—		—		9,417			—			—			—			9,417
Comprehensive income (loss) for the period		—		—		—			(101,421	)		(41,649	)		7,045			(136,025	)
Balance at August 31, 2021		450,523,467	$	46	$	4,795,879		$	51,247		$	(527,699	)	$	66,283		$	4,385,756
Share issuance - Superhero Acquisition LP		9,817,061		—		117,804			—			—			—			117,804
Share issuance - Double Diamond Holdings note		2,677,596		—		28,560			—			—			(28,560	)		—
Share issuance - options exercised		98,044		—		—			—			—			—			—
Share issuance - RSUs exercised		470,324		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax		—		—		(2,742	)											(2,742	)
Share issuance - legal settlement		215,901		—		2,170												2,170
Stock-based compensation		—		—		12,876			—			—			—			12,876
Comprehensive income (loss) for the period		—		—		—			(41,652	)		(201	)		(1,022	)		(42,875	)
Balance at November 30, 2021		463,802,393	$	46	$	4,954,547		$	9,595		$	(527,900	)	$	36,701		$	4,472,989
Share issuance - Breckenridge Acquisition		12,540,479	$	2	$	114,066			—			—			—			114,068
Share issuance - legal settlement		2,743,485		—		20,000			—			—			—			20,000
Share issuance - options exercised		190,620		—		778			—			—			—			778
Share issuance - RSUs exercised		170,928		—		—			—			—			—			—
Share issuance - purchase of capital and intangible assets		1,289,628		—		12,146			—			—			—			12,146
Stock-based compensation		—		—		9,355			—			—			—			9,355
Comprehensive income (loss) for the period		—		—		—			(8,585	)		43,190			(2,928	)		31,677
Balance at February 28, 2022		480,737,533	$	48	$	5,110,892		$	1,010		$	(484,710	)	$	33,773		$	4,661,013
																				*shares*		*stock*		*capital*			*loss*			*Deficit*			*interests*			*Total*
Balance at May 31, 2022		532,674,887	$	53	$	5,382,367		$	(20,764	)	$	(962,851	)	$	42,561		$	4,441,366			532,674,887	$	53	$	5,382,367		$	(20,764	)	$	(962,851	)	$	42,561		$	4,441,366
Share issuance - equity financing		32,481,149		3		129,590			—			—			—			129,593			32,481,149		3		129,590			—			—			—			129,593
Shares issued to purchase HEXO convertible note receivable		33,314,412		3		107,269			—			—			—			107,272			33,314,412		3		107,269			—			—			—			107,272
HTI Convertible Note - conversion feature		—		—		9,055			—			—			—			9,055			—		—		9,055			—			—			—			9,055
Share issuance - Double Diamond Holdings note		1,529,821		1		5,063			—			—			—			5,064
Share issuance - Double Diamond Holdings dividend settlement																					1,529,821		1		5,063			—			—			—			5,064
Share issuance - options exercised		3,777		—		—			—			—			—			—			3,777		—		—			—			—			—			—
Share issuance - RSUs exercised		950,893		—		—			—			—			—			—			950,893		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax		—		—		(1,189	)		—			—			—			(1,189	)		—		—		(1,189	)		—			—			—			(1,189	)
Stock-based compensation		—		—		9,193			—			—			—			9,193			—		—		9,193			—			—			—			9,193
Dividends declared to non-controlling interests		—		—		—			—			—			(8,561	)		(8,561	)		—		—		—			—			—			(8,561	)		(8,561	)
Comprehensive income (loss) for the period		—		—		—			(58,968	)		(73,482	)		3,839			(128,611	)		—		—		—			(58,968	)		(73,482	)		3,839			(128,611	)
Balance at August 31, 2022		600,954,939	$	60	$	5,641,348		$	(79,732	)	$	(1,036,333	)	$	37,839		$	4,563,182			600,954,939		60		5,641,348			(79,732	)		(1,036,333	)		37,839			4,563,182
Shares issued to purchase Montauk		1,708,521		—		6,422			—			—			—			6,422
Share issuance - options exercised		4,183		—		—			—			—			—			—

Balance at May 31, 2023																					656,655,455	$	66	$	5,777,743		$	(46,610	)	$	(2,415,507	)	$	14,251		$	3,329,943
Share issuance - HEXO acquisition																					39,705,962		4		65,158			—			—			—			65,162
Share issuance - settlement of contractual change of control severance incurred from HEXO acquisition																					865,426		—		1,500			—			—			—			1,500
Share issuance - Double Diamond Holdings dividend settlement																					5,004,735		—		8,146			—			—			—			8,146
Share issuance - HTI convertible note																					17,148,541		2		49,998												50,000
Share issuance - RSUs exercised		237,611		—		—			—			—			—			—			3,912,481		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax																					—		—		(4,860	)		—			—			—			(4,860	)
Equity component related to issuance of convertible debt, net of issuance costs																					—		—		3,953			—			—			—			3,953
Stock-based compensation		—		—		10,943			—			—			—			10,943			—		—		8,257			—			—			—			8,257
Share issuance - Double Diamond Holdings note		10,276,305		1		38,753			—			—			(32,280	)		6,474
Dividends declared to non-controlling interests																							—		—			—			—			(7,891	)		(7,891	)
Comprehensive income (loss) for the period		—		—		—			(41,723	)		(69,463	)		7,311			(103,875	)		—		—		—			3,049			(71,525	)		15,822			(52,654	)
Balance at November 30, 2022		613,181,559	$	61	$	5,697,466		$	(121,455	)	$	(1,105,796	)	$	12,870		$	4,483,146
Share issuance - RSUs exercised		487,192		—		—			—			—			—			—
Stock-based compensation		—		—		9,630			—			—			—			9,630
Share issuance - Double Diamond Holdings note		4,188,280		1		15,912			—			—			(8,235	)		7,678
Preferred share issuance		120,000		—		334			—			—			—			334
Comprehensive income (loss) for the period		—		—		—			78,507			(1,170,998	)		(1,526	)		(1,094,017	)
Balance at February 28, 2023		617,977,031	$	62	$	5,723,342		$	(42,948	)	$	(2,276,794	)	$	3,109		$	3,406,771
Balance at August 31, 2023																					723,292,600	$	72	$	5,909,895		$	(43,561	)	$	(2,487,032	)	$	22,182		$	3,401,556

~~Included in common stock is 120,000 of Series A preferred stock with par value of $0 as described in Note 13 (Stockholders’ equity).~~ The accompanying notes are an integral part of these condensed interim consolidated financial statements.

TILRAY BRANDS, INC.

Consolidated Statements of Cash Flows

(in thousands of United States dollars, unaudited)

	*For the nine months*						*Three months ended*
	*ended February 28,*						*August 31,*
	*2023*			*2022*			*2023*			*2022*
Cash used in operating activities:
Net (loss) income	$	(1,323,181	)	$	23,668
Net loss							$	(55,863	)	$	(65,794	)
Adjustments for:
Deferred income tax recovery		(29,537	)		(17,296	)		59			796
Unrealized foreign exchange loss		13,711			1,699
Unrealized foreign exchange (gain) loss								(3,127	)		10,026
Amortization		101,156			113,824			30,789			34,069
Loss (gain) on sale of capital assets		(2	)		(631	)
Inventory valuation write down		55,000			12,000
Impairments		1,115,376			—
Loss on sale of capital assets								3			77
Other non-cash items		12,933			962			(816	)		2,080
Stock-based compensation		29,766			27,025			8,257			9,193
Loss (gain) on long-term investments & equity investments		2,843			(2,401	)
Loss (gain) on derivative instruments		13,534			(210,653	)
Loss on long-term investments & equity investments								47			1,193
Loss on derivative instruments								10,345			6,336
Change in fair value of contingent consideration		563			(29,065	)		(11,107	)		211
Change in non-cash working capital:
Accounts receivable		18,053			(458	)		13,044			(3,068	)
Prepaids and other current assets		(32,680	)		(953	)		(4,654	)		(34,891	)
Inventory		(11,808	)		(16,512	)		3,650			(232	)
Accounts payable and accrued liabilities		(1,419	)		(57,947	)		(6,469	)		(6,265	)
Net cash used in operating activities		(35,692	)		(156,738	)		(15,842	)		(46,269	)
Cash used in investing activities:
Investment in capital and intangible assets		(8,394	)		(28,470	)
Investment in capital and intangible assets, net								(4,152	)		(3,000	)
Proceeds from disposal of capital and intangible assets		2,175			11,526			342			1,463
Purchase of marketable securities, net		(243,186	)		—			(45,436	)		—
Net cash paid for business acquisition		(28,122	)		326
Net cash acquired from business acquisitions								22,956			—
Net cash used in investing activities		(277,527	)		(16,618	)		(26,290	)		(1,537	)
Cash provided by (used in) financing activities:
Share capital issued, net of cash issuance costs		129,593			—			—			129,593
Shares effectively repurchased for employee withholding tax		(1,189	)		(3,149	)		—			(1,189	)
Proceeds from long-term debt		1,288			—
Proceeds from long-term debt and convertible debt								29,174			1,288
Repayment of long-term debt and convertible debt		(64,658	)		(34,570	)		(6,369	)		(5,196	)
Repayment of lease liabilities		(1,114	)		(4,672	)		—			(1,035	)
Net increase in bank indebtedness		2			8,779			(8,787	)		159
Net cash provided by (used in) financing activities		63,922			(33,612	)		14,018			123,620
Effect of foreign exchange on cash and cash equivalents		(1,615	)		(2,284	)		614			(1,080	)
Net decrease in cash and cash equivalents		(250,912	)		(209,252	)		(27,500	)		74,734
Cash and cash equivalents, beginning of period		415,909			488,466			206,632			415,909
Cash and cash equivalents, end of period	$	164,997		$	279,214		$	179,132		$	490,643

Included in the statement of cash flows cash and cash equivalents is $1,613 of restricted cash as of August 31, 2023, $nil as of May 31, 2023.

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

TILRAY BRANDS, INC.

Notes to Consolidated Financial Statements

Note 1. Basis of presentation and summary of significant accounting policies

The accompanying unaudited condensed interim consolidated financial statements (the “financial statements”) reflect the accounts of the Company for the quarterly period ended ~~February 28, 2023.~~ August 31, 2023. The financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP and should be read in conjunction with the audited consolidated financial statements (the “Annual Financial Statements”) included in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, ~~2022~~2023 (the “Annual Report”). These unaudited condensed interim consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

These condensed interim consolidated financial statements have been prepared on the going concern basis which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due, under the historical cost convention except for certain financial instruments that are measured at fair value, as detailed in the Company’s accounting policies.

All amounts in the unaudited condensed interim consolidated financial statements, notes and tables have been rounded to the nearest thousand, except par values and per share amounts, unless otherwise indicated.

Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. The financial statements of subsidiaries are included in the condensed interim consolidated financial statements from the date that control commences until the date that control ceases. A complete list of our subsidiaries that existed prior to our most recent year end is included in the Annual ~~Report.~~

OnReport, except for the entities acquired within Note ~~February 10, 2023,~~ 6 (Business acquisitions), during the ~~Company divested its ownership interest in ASG Pharma Ltd., a wholly-owned subsidiary incorporated in Malta, and, therefore, it is~~period ended noAugust 31, 2023. ~~longer consolidated in the Company's results. The Company recognized a gain of $312 in other non-operating (losses) gains, net as a result of the disposal.~~

Marketable ~~Securities~~securities

We classify term deposits and other investments that have maturities of greater than three months but less than one year as marketable securities. The fair value of marketable securities is based on quoted market prices for publicly traded securities. Marketable securities are carried at fair value with changes in fair value recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”.

Long-term investments

Investments in equity securities of entities over which the Company does not have a controlling financial interest or significant influence are classified as an equity investment and accounted for at fair value. Equity investments without readily determinable fair values are measured at cost with adjustments for observable changes in price or impairments (referred to as the “measurement alternative”). In applying the measurement alternative, the Company performs a qualitative assessment on a quarterly basis and recognizes an impairment if there are sufficient indicators that the fair value of the equity investments is less than carrying values. Changes in value are recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”.

Investments in entities over which the Company does not have a controlling financial interest but has significant influence, are accounted for using the equity method, with the Company’s share of earnings or losses reported in earnings or losses from equity method investments on the statements of net loss and comprehensive loss. Equity method investments are recorded at cost, ~~plus~~adjusted for the Company’s share of undistributed earnings or losses, and impairment, if any, within “Interest in equity investees” on the balance sheets. The Company assesses investments in equity method investments when events or circumstances indicate that the carrying amount of the investment may be impaired. If it is determined that the current fair value of an equity method investment is less than the carrying value of the investment, the Company will assess if the shortfall is other than temporary (OTTI). Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the equity investee to sustain an earnings capacity that would justify the carrying amount of the investment. Once a determination is made that an OTTI exists, the investment is written down to its fair value in accordance with ASC 820 at the reporting date, which establishes a new cost basis.

Convertible notes receivable

Convertible notes receivable include various investments in which the Company has the right, or potential right to convert the indenture into common stock of the investee and are classified as available-for-sale and are recorded at fair value. Unrealized gains and losses during the year, net of the related tax effect, are excluded from income and reflected in other comprehensive income (loss), and the cumulative effect is reported as a separate component of shareholders' equity until realized. We use judgement to assess convertible notes receivables for impairment at each measurement date. Convertible notes receivables are impaired when a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the statements of loss and comprehensive loss and a new cost basis for the investment is established. We also evaluate whether there is a plan to sell the security, or it is more likely than not that we will be required to sell the security before recovery. If neither of the conditions exist, then only the portion of the impairment loss attributable to credit loss is recorded in the statements of net loss and the remaining amount is recorded in other comprehensive income (loss).

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing reported net income (loss) attributable to stockholders of Tilray Brands, Inc. by the weighted average number of common shares outstanding during the ~~period.~~year. Diluted earnings (loss) per share is computed by dividing reported net income (loss) attributable to stockholders of Tilray Brands, Inc. by the sum of the weighted average number of common shares and the number of dilutive potential common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options, warrants, and RSUs and the incremental shares issuable upon conversion of the convertible debentures ~~payable~~ and similar instruments. Shares of common stock outstanding under the share lending arrangement entered into in conjunction with the TLRY 27 Notes, see Note 12 (Convertible debentures payable) are excluded from the calculation of basic and diluted earnings per share because the borrower of the shares is required under the share lending.

In computing diluted earnings (loss) per share, common share equivalents are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive. For the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2023and August 31, 2022, the dilutive potential common share equivalents outstanding ~~consist~~consisted of the following: ~~16,431,876~~21,202,933 and 16,989,328 common shares from RSUs, ~~4,660,046~~6,325,348 and 4,741,653 common shares from share options, 7,847,219 and 6,209,000 common shares ~~from~~for warrants and ~~36,388,651~~77,819,141 and 36,687,326 common shares ~~from~~for convertible debentures, ~~payable.~~

respectively.

Revenue

On ~~July 12, 2022,~~ ~~the Company and HEXO entered into various commercial transaction agreements, as described in Note~~ 23 (Segment reporting), which includes an advisory services arrangement. Revenue is recognized as the advisory services are provided to HEXO. Payments received for the services in advance of performance are recognized as a contract liability.

Revenue is recognized when the control of the promised goods or services, through performance obligation, is transferred/provided to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligations.

Excise taxes remitted to tax authorities are government-imposed excise taxes on cannabis and beer. Excise taxes are recorded as a reduction of sales in net revenue in the consolidated statements of operations and recognized as a current liability within accounts payable and ~~other current~~accrued liabilities on the consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.

In addition, amounts disclosed as net revenue are net of excise taxes, sales tax, duty tax, allowances, discounts and rebates.

In determining the transaction price for the sale of goods or ~~service,~~services, the Company considers the effects of variable consideration and the existence of significant financing components, if any.

~~Some~~We may enter into certain contracts for the sale of goods or services, ~~may~~ which provide customers with ~~a right~~rights of return, volume ~~discount,~~discounts, bonuses for volume/quality achievement, and/or sales ~~allowance.~~allowances. In addition, the Company may provide in certain circumstances, a retrospective price reduction to a customer based primarily on inventory movement. ~~These~~The inclusion of these items may give rise to variable consideration. The Company uses the expected value method to estimate the variable consideration because this method ~~best predicts~~provides the most accurate estimation of the amount of variable consideration to which the Company will be entitled. The Company uses historical evidence, current information and forecasts to estimate the variable consideration. The Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retrospective price reduction, representing its obligation to return the customer’s consideration. The estimate is updated at each reporting period date.

On July 12, 2022, the Company and HEXO Corp. ("HEXO") entered into various commercial transaction agreements, as described in Note 24 (Segment reporting), which included an advisory services arrangement. The fees associated with the advisory services arrangement were recognized as revenue when such services were provided to HEXO. Any payments that were received for such services in advance of performance were recognized as a contract liability. On June 22, 2023, the Company completed the acquisition of HEXO as described in Note 6 (Business acquisitions), simultaneously terminating the advisory services arrangement and other commercial transactions.

New accounting pronouncements not yet adopted

In August 2023, the FASB issued ASU 2023-05,Business Combination - Joint Venture Formations (Subtopic 805-60) Recognition and Initial Measurement (“ASU 2023-05”), which is intended to address the accounting for contributions made to a joint venture. ASU 2023-05 is effective for the Company beginning June 1, 2026. This update will be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.

New accounting pronouncements recently adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Subtopic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. The Company adopted the ASU 2021-08 ~~is effective for the Company~~ beginning June 1, ~~2023.~~2023, ~~This update will be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.~~

~~New accounting pronouncements recently adopted~~

In ~~August 2020,~~ ~~the FASB issued ASU~~ ~~2020~~-~~06,~~~~Debt~~—~~Debt with Conversion and Other Options (Subtopic~~ ~~470~~-20~~) and Derivatives and Hedging~~—~~Contracts in Entity~~’~~s Own Equity (Subtopic~~ ~~815~~-40~~): Accounting for Convertible Instruments and Contracts in an Entity~~’~~s Own Equity~~ ~~(“ASU~~ ~~2020~~-~~06”~~), which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for convertible instruments and to provide financial statement users with more meaningful information. The Company adopted ASU ~~2020~~-06 ~~beginning~~ ~~June 1, 2022~~ ~~and the adoption~~however, it did not have ~~material retrospective impacts on our condensed interim consolidated financial statements~~.

In ~~May 2021,~~ ~~the FASB issued ASU~~ ~~2021~~-~~04,~~~~Modifications and Extinguishments (Subtopic~~ ~~470~~-50~~), Compensation~~—~~Stock Compensation (Topic~~ ~~718~~~~), and Derivatives and Hedging~~—~~Contracts in Entity~~’~~s Own Equity (Subtopic~~ ~~815~~-40) ~~(“ASU~~ ~~2021~~-~~04”~~~~), which amends existing guidance for earnings per share (EPS) in accordance with Topic~~ ~~260.~~ ~~The Company adopted the ASU beginning~~ ~~June 1, 2022~~ ~~and the adoption of ASU~~ ~~2021~~-04 ~~did~~ ~~not~~ ~~have an~~any impact on ~~our condensed interim consolidated financial statements.~~

In ~~November 2021,~~ ~~the FASB issued ASU~~ ~~2021~~-~~10,~~~~Government Assistance (Topic~~ ~~832~~~~), Disclosures by Business Entities about Government Assistance,~~ ~~which is intended to increase the transparency of government assistance including the disclosure of (~~1~~) the types of assistance, (~~2~~) an entity’s accounting for the assistance, and (~~3~~) the effect of the assistance on an entity’s financial statements. The Company adopted the ASU beginning~~ ~~June 1, 2022~~ ~~and the adoption of ASU~~ ~~2021~~-04 ~~did~~ ~~not~~ ~~have an impact on the disclosure in~~ our condensed interim consolidated financial statements.

Note 2. Inventory

Inventory consisted of the following:

	*February 28,*		*May 31,*		*August 31,*		*May 31,*
	*2023*		*2022*		*2023*		*2023*
Plants	$	13,566	$	14,521	$	19,152	$	10,884
Dried cannabis		84,066		116,739		102,711		89,801
Cannabis trim		591		592		-		322
Cannabis derivatives		8,557		24,685		10,406		9,229
Cannabis vapes		2,631		542		4,076		1,173
Packaging and other inventory items		17,621		21,691		17,932		19,997
Wellness inventory		12,797		13,275		11,788		11,164
Beverage alcohol inventory		30,100		27,840		31,434		27,837
Distribution inventory		32,871		25,644		34,576		30,144
Total	$	202,800	$	245,529	$	232,075	$	200,551

~~During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023~~~~, the Company recorded charges of $55,000 for an inventory valuation adjustment as a component of cannabis cost of good sold, compared to~~ ~~$nil~~ ~~and $12,000 for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2022.~~ ~~This charge was driven by the decision of management to repurpose a portion of our existing supply of dried cannabis inventory.~~

Note 3. Capital assets

Capital assets consisted of the following:

February 28, May 31,
2023 2022
Land
$ 29,056 $ 31,882
Production facility
353,630 453,412
Equipment
199,453 254,486
Leasehold improvement
7,764 7,455
Construction in progress
8,909 7,505
$ 598,812 $ 754,740
Less: accumulated amortization
(173,549 ) (167,241 )
Total
$ 425,263 $ 587,499

~~The Company recorded non-cash impairments of $81,500 on its production facility in Canada and $22,500 on its equipment for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023,~~ which the Company has temporarily made idle in order to reduce cultivation costs and right-size the Company's production to align with current and projected demand. The impairment was calculated based on the excess of carrying value over fair value which was determined using a market approach. A reasonably possible change in any of the inputs within the determination of fair value would ~~not~~ ~~result in a material change to the impairment recorded.~~

	*August 31,*			*May 31,*
	*2023*			*2023*
Land	$	36,076		$	30,635
Production facility		330,012			344,627
Equipment		271,992			185,422
Leasehold improvement		7,786			7,753
Construction in progress		9,727			8,048
	$	655,593		$	576,485
Less: accumulated amortization		(160,974	)		(146,818	)
Total	$	494,619		$	429,667

Note 4. Intangible Assets

Intangible assets consisted of the following items:

	*February 28,*			*May 31,*			*August 31,*			*May 31,*
	*2023*			*2022*			*2023*			*2023*
Customer relationships & distribution channel	$	613,461		$	617,437		$	618,672		$	614,062
Licenses, permits & applications		367,649			377,897			369,479			366,793
Non-compete agreements		13,644			12,512			12,432			12,394
Intellectual property, trademarks, knowhow & brands		585,777			634,997			592,545			583,468
		1,580,531		$	1,642,843			1,593,128		$	1,576,717
Less: accumulated amortization		(170,362	)	$	(154,124	)		(209,716	)	$	(187,088	)
Less: impairments		(415,844	)		(210,844	)		(415,844	)		(415,844	)
Total	$	994,325		$	1,277,875		$	967,568		$	973,785

The Company recorded non-cash impairments of $110,000 of its customer relationships & distribution channel, $55,000 of its licenses, permits & applications and $40,000 of its intellectual property, trademarks, knowhow & brands for the ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023,~~ ~~as a result of the decline in market share in its Canadian cannabis with certain product lines and customers.~~ As of ~~February 28,~~August 31, 2023, included in licenses, permits & applications is ~~$182,009~~$183,660 of indefinite-lived intangible assets. As of May 31, ~~2022~~2023, there was ~~$248,411~~$181,093 of indefinite-lived intangible assets included in Licenses, permits & applications.

~~In calculating the impairment amount, using an income approach, the Company used a discount rate of 13.50%, increased from 11.21% used in the~~ ~~May 31, 2022~~ ~~annual assessment, a terminal growth rate of 2%-5% consistent with the rate used in the~~ ~~May 31, 2022~~ annual assessment, and an average revenue growth rate of 0%-40% over 5 years to correlate with the cash flows anticipated with the individual intangible assets that were assessed, while these assets have ~~not~~ ~~been assessed individually in the past the associated cash flows were included in the~~ ~~May 31, 2022~~ ~~goodwill annual assessment which used an average growth rate of 46%. A reasonably possible change in any of the inputs within the determination of fair value would~~ ~~not~~ ~~result in a material change to the impairment recorded.~~

Expected future amortization expense for intangible assets as of ~~February 28,~~August 31, 2023 are as follows:

	*Amortization*		*Amortization*
2023 (remaining three months)	$	19,443
2024		75,720
2024 (remaining nine months)			$	55,895
2025		72,616		73,414
2026		72,616		73,414
2027		72,616		73,414
2028				73,414
Thereafter		499,305		434,357
Total	$	812,316	$	783,908

Note 5. Goodwill

The following table shows the carrying amount of goodwill by reporting units:

February 28,

May 31,

Reporting Unit

2023

2022

Cannabis
$ 2,640,669 $ 2,640,669
Distribution
4,458 4,458
Beverage alcohol
123,325 102,999
Wellness
77,470 77,470
Effect of foreign exchange
2,210 39,640
Impairments
(842,431 ) (223,931 )
Total
$ 2,005,701 $ 2,641,305

Based upon a combination of factors including a sustained decline in the Company’s market capitalization below the Company’s carrying value, coupled with challenging macro-economic conditions, most particularly the rising interest rate environment and slower than anticipated progress in global cannabis legalization, the Company concluded that it is more likely than ~~not,~~ ~~that the fair value of our reporting units was less than their carrying amounts as at~~ ~~February 28, 2023.~~ Accordingly, the Company valued the fair value of each reporting segment by using the income approach, which estimates the fair value of each reporting unit based on the future discounted cash flows. Upon updating the Company’s forecasted cash flows there were no impairments identified from changes in management’s forecasts, however, due to the increased borrowing rates and the decline of the company’s market capitalization, the Company was led to adjust the Company specific risk premium which resulted in the non-cash impairment charges of ~~$603,500~~ ~~of cannabis goodwill and~~ ~~$15,000~~ ~~of wellness goodwill for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023.~~ ~~The non-cash charge has~~ no ~~impact on the Company’s compliance with debt covenants, its cash flows or available liquidity.~~

~~In the Company's cannabis goodwill assessment the Company used a discount rate of 13.50%, increased from 11.21% used in the~~ ~~May 31, 2022~~ ~~annual assessment, a terminal growth rate of 5% consistent with the rate used in the~~ ~~May 31, 2022~~ ~~annual assessment, and an average revenue growth rate of 40% over~~ 5 ~~years as a result of anticipated federal legalization in various countries, decreased from 46% used in the~~ ~~May 31, 2022~~ ~~annual assessment. A~~ 1% ~~increase in the discount rate would result in an additional $300,000 in impairment, a~~ 1% ~~decrease in the terminal growth rate would result in an additional $250,000 in impairment and a~~ 5% ~~decrease in the average growth rate would result in an additional $200,000 in impairment.~~

~~In the Company's wellness goodwill assessment the Company used a discount rate of 11.80%, increased from 10% used in the~~ ~~May 31, 2022~~ ~~annual assessment, a terminal growth rate of 3% consistent with the rate used in the~~ ~~May 31, 2022~~ ~~annual assessment, and an average revenue growth rate of 10% over~~ 5 ~~years, consistent with the rate used in the~~ ~~May 31, 2022~~ ~~annual assessment. A~~ 1% ~~increase in the discount rate would result in an additional $14,000 in impairment, a~~ 1% ~~decrease in the terminal growth rate would result in an additional $10,000 in impairment and a~~ 5% ~~decrease in the average growth rate would result in an additional $5,000 in impairment.~~

	*August 31,*			*May 31,*
Reporting Unit	*2023*			*2023*
Cannabis	$	2,640,669		$	2,640,669
Distribution		4,458			4,458
Beverage alcohol		120,802			120,802
Wellness		77,470			77,470
Effect of foreign exchange		8,705			7,875
Impairments		(842,431	)		(842,431	)
Total	$	2,009,673		$	2,008,843

Note 6.Business acquisitions

Acquisition of ~~Double Diamond Distillery LLC (d/b/a Breckenridge Distillery)~~Montauk Brewing Company, Inc.

On ~~December~~November 7, ~~2021,~~2022, ~~the~~Tilray acquired Montauk Brewing Company, ~~through its wholly-owned subsidiary Four Twenty Corporation, acquired all the membership interests of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery)~~Inc. (“Montauk”), a ~~Colorado limited liability~~leading craft brewer company ~~and~~based in Montauk, New York, which expanded our distribution network with a ~~leading distilled spirits~~strong brand ~~located~~ in ~~Breckenridge, Colorado (the “Breckenridge Acquisition”).~~the tri-state region of the U.S. In consideration for the ~~Breckenridge Acquisition,~~acquisition of Montauk, and after giving effect to post-closing adjustments, the Company paid an aggregate ~~amount~~purchase price equal to ~~$114,068~~$35,123, which was comprised of $28,701 in cash and the remainder through the issuance of ~~12,540,479~~1,708,521 shares of ~~Tilray’s Class~~Tilray's common stock (having a value of $6,422 at closing). In the event that Montauk achieves certain volume and/or EBITDA targets on or before 2December 31, 2025, the stockholders of Montauk shall be eligible to receive additional contingent cash consideration of up to $18,000. The Company determined that the closing date fair value of this contingent consideration was $10,245 based on the inputs disclosed in Note 23 ~~common shares.~~(Fair value measurements).

The table below summarizes ~~the~~ fair value of the assets acquired and the liabilities assumed at the effective acquisition date.

	*Amount*		*Amount*
Consideration
Cash			$	28,701
Shares	$	114,068		6,422
Contingent consideration				10,245
Net assets acquired
Current assets
Cash and cash equivalents		326		1,983
Accounts receivable		2,128		1,116
Prepaids and other current assets		367		467
Inventory		20,351		1,570
Long-term assets
Capital assets		11,179		420
Customer relationships (15 years)		9,800		18,540
Intellectual property, trademarks & brands (15 years)		69,950		13,650
Goodwill		2,797		17,803
Total Assets		116,898
Total assets				55,549
Current liabilities
Accounts payable and accrued liabilities		2,228		1,580
Long-term liabilities
Deferred tax liability		602		4,851
Other liabilities				3,750
Total liabilities		2,830		10,181
Total net assets acquired	$	114,068	$	45,368

~~The goodwill of $2,797 is primarily related to factors such as synergies and market opportunities and is reported under~~In the ~~Company’s Beverage alcohol segment. Revenue for~~ event that the Montauk acquisition had occurred on June 1, 2022, the Company would have ~~been higher by~~had additional revenue of approximately ~~$6,000 and $12,000~~$3,000 for the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2022 ~~2022,~~ ~~if the acquisition had taken place on~~ ~~June 1, 2021.~~ ~~Net~~and net loss and comprehensive net loss would have increased by approximately ~~$1,500 and $3,000~~$600 for the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2022,~~if the acquisition had taken place on~~ ~~June 1, 2021,~~ primarily as a result of amortization of the intangible assets acquired. This unaudited pro forma financial information does not reflect the realization of any expected ongoing synergies relating to the integration of ~~Breckenridge.~~Montauk.

Acquisition of ~~Montauk Brewing Company, Inc.~~HEXO Corp.

On ~~November 7, 2022,~~June 22, 2023, Tilray acquired ~~Montauk Brewing Company, Inc. ("Montauk"),~~HEXO, a ~~leading craft brewer~~cannabis company in ~~Metro New York located in Montauk, New York~~Canada (the ~~“Montauk~~“HEXO Acquisition”). for the purpose of expanding the Company’s revenue base, production capabilities around certain form factors and growth opportunities with the Redecan brand. In consideration for the ~~Montauk~~HEXO Acquisition, the Company paid ~~an initial~~a total purchase price equivalent of ~~$35,110,~~$93,882, which consisted of ~~cash consideration of $28,688 and~~ stock consideration of ~~$6,422 through~~$63,927, settlement of convertible notes receivable of $28,720, the ~~issuance~~fair value of ~~1,708,521 shares~~HEXO stock-based compensation of ~~Tilray's Class~~ 2$1,188 and the assumption of warrants of $47. In connection with the HEXO Acquisition, each outstanding HEXO common share was exchanged for 0.4352 of a share of Tilray common stock and each outstanding HEXO preferred share was exchanged for 0.7805 of a share of Tilray common stock. In ~~addition,~~ the ~~stockholders~~aggregate, the Company issued 39,705,962 shares of ~~Montauk shall be eligible~~Tilray common stock, at a share price of $1.61 per share, in connection with the HEXO Acquisition. The Company intends to ~~receive additional contingent cash consideration~~sell HEXO's Kirkland lake property and has recorded the value of ~~up to $18,000~~the associated capital assets as an asset held for sale.

The Company is in the ~~event that Montauk achieves certain volume and/or EBITDA targets on or before~~ ~~December 31, 2025.~~ ~~The Company determined that~~process of assessing the ~~closing date~~ fair value of ~~this~~the net assets acquired and, as a result, the fair value may be subject to adjustments pending completion of final valuations and post-closing adjustments. The table below summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed for the HEXO Acquisition at the effective acquisition date as follows:

	*Amount*
Consideration
Shares	$	63,927
Settlement of convertible notes receivable		28,720
Warrants assumed		47
Estimated fair value of HEXO stock-based compensation		1,188
Net assets acquired
Current assets
Cash and cash equivalents		14,634
Restricted cash		1,657
Accounts receivable		7,855
Asset held for sale		755
Prepaids and other current assets		2,530
Inventory		27,495
Long-term assets
Prepaid expenses		8,384
Capital assets		70,782
Intellectual property, trademarks & brands (15 years)		2,000
Interest in equity investee		3,145
Total assets		139,237
Current liabilities
Accounts payable and accrued liabilities		45,355
Total liabilities		45,355
Total net assets acquired	$	93,882

Included in accounts payable and accrued liabilities was $12,856 of litigation settlement accruals as of June 22, 2023.

In the event the HEXO Acquisition had occurred on June 1, 2022, the Company would have had, on an unaudited proforma basis, additional revenue of approximately $7,000 and $20,000 for the three month period ended August 31, 2023 and 2022, respectively, and its net loss and comprehensive net loss would have increased by approximately $1,800 and $30,000 for the three month period ended August 31, 2023, and 2022, respectively. This unaudited pro forma financial information does not reflect the realization of any expected ongoing synergies relating to the integration of HEXO.

Acquisition of Truss Beverage Co.

On August 3, 2023, Tilray acquired the remaining 57.5% equity interest in Truss Beverage Co. ("Truss"), a cannabis beverage company, for $74 (CAD$100) in cash and $4,181 of contingent consideration ~~was $10,245.~~from Molson Coors Canada ("Molson"). This represents the portion of Truss that had not been previously acquired as part of the HEXO Acquisition. The Company currently intends to divest Truss's assets and has recorded the value of the associated capital assets and lease obligations as an asset held for sale. The Company has agreed to pay Molson as contingent consideration an amount equal to 57.5% of any proceeds from any divesture, net of any costs and expenses associated with the disposition.

The Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value of the net assets acquired may be subject to adjustments pending completion of final valuations and post-closing adjustments. The table below summarizes preliminary estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition ~~date. During the~~ ~~three~~ ~~months ended~~ ~~February 28, 2023,~~ ~~the Company recorded measurement period adjustments to its initial allocation of purchase price~~date as ~~a result of ongoing valuation procedures on assets and liabilities assumed, included: (i) an increase in other liabilities of $3,750, related to identified unfavorable contracts with~~ ~~third~~ ~~party production companies; (ii) a decrease in deferred tax liability of~~ ~~$1,031;~~ ~~and (iii) an increase to goodwill of $2,719 due to the incremental period adjustments. The impact of measurement period adjustments to the results of operations was immaterial.~~follows:

	*Amount*		*Amount*
Consideration
Cash	$	28,688
Shares		6,422
Cash consideration			$	74
Investment in equity investees				3,145
Contingent consideration		10,245		4,181
Net assets acquired
Current assets
Cash and cash equivalents		1,983		6,739
Accounts receivable		1,116		1,038
Prepaids and other current assets		467		78
Inventory		1,570		2,573
Asset held for sale				2,960
Long-term assets
Capital assets		420
Customer relationships (15 years)		16,570
Intellectual property, trademarks & brands (15 years)		12,430
Non-compete agreements (5 years)		1,240
Goodwill		20,326
Total Assets		56,122
Intangible assets				296
Total assets				13,684
Current liabilities
Accounts payable and accrued liabilities		1,580		5,408
Long-term liabilities
Deferred tax liability		5,437
Other liabilities		3,750		876
Total liabilities		10,767		6,284
Total net assets acquired	$	45,355		7,400

~~Revenue for~~ In the event that the Truss acquisition had occurred on June 1, 2022 the Company would have ~~been higher by~~had, on an unaudited proforma basis, additional revenue of approximately ~~$3,100~~$3,000 and ~~$12,000~~$5,000 for the three month period ended August 31, 2023 and ~~nine~~2022, ~~months ended~~ ~~February 28, 2023~~~~, if the acquisition had taken place on~~ ~~June 1, 2022.~~ ~~Net~~respectively, and net loss and comprehensive net loss would have increased by approximately ~~$600~~$700 and ~~$1,100~~$1,000 for the three month period ended August 31, 2023, and ~~nine~~2022, ~~months ended~~ ~~February 28, 2023~~~~, if the acquisition had taken place on~~ ~~June 1, 2022,~~ ~~primarily as a result of amortization of the intangible assets acquired.~~respectively. This unaudited pro forma financial information does not reflect the realization of any expected ongoing synergies relating to the integration of ~~Montauk.~~Truss.

Note 6.7. Convertible notes receivable

Convertible notes receivable is comprised of the following:

	*February 28,*		*May 31,*		*August 31,*		*May 31,*
	*2023*		*2022*		*2023*		*2023*
HEXO Convertible Note	$	93,675	$	-	$	-	$	28,720
MedMen Convertible Note		74,681		111,200		74,681		74,681
Total convertible notes receivable		168,356		111,200		74,681		103,401
Deduct - current portion		-		-		-		-
Total convertible notes receivable, non current portion	$	168,356	$	111,200	$	74,681	$	103,401

HEXO ~~Corp. ("HEXO")~~Convertible Note

On ~~July 12, 2022,~~June 22,2023,the Company ~~closed a strategic alliance with HEXO, pursuant to which the Company acquired~~completed the HEXO Convertible Note from HT Investments MA LLC (“HTI”). At the time of closing, the HEXO Convertible Note had a principal balance of $173,700, which is to be repaid and or redeemed at 110% of the outstanding principal balance. The purchase price paid to HTI for the HEXO Convertible Note was $157,272. The purchase price paid to HTI was satisfied by Tilray's issuance of (i) a newly-issued $50,000 convertible promissory note ("HTI Convertible Note"), see Note 11 ~~(Convertible debentures payable~~) ~~and (ii) the remaining balance was paid through the issuance of 33,314,412 shares of Tilray's Class~~ 2 ~~common stock, par value~~ ~~$0.0001~~ (collectively, the “HTI Share Consideration”). The HEXO Convertible Note bears interest at a rate of 5.0% per annum, calculated daily, which is payable to Tilray on a semi-annual basis. Interest payments made under the HEXO Convertible Note will be paid in cash until ~~July 12, 2023~~ ~~and, thereafter, such interest shall accrue but be added to the principal amount. The HEXO Convertible Note has a maturity date of~~ ~~May 1, 2026.~~ ~~Subject to certain limitations and adjustments, the HEXO Convertible Note is convertible into HEXO Common Shares at Tilray's option at any time prior to the~~ ~~second~~ ~~scheduled trading day prior to the maturity date, at a conversion price of~~ ~~CAD$5.60~~ per HEXO Common share as determined the day before exercise, including all capitalized interest. HEXO has the ability to force the conversion if the daily VWAP per common share is equal to or exceeds $42.00 per share for ~~twenty~~ ~~consecutive trading days. The conversion price was updated on~~ ~~December 19, 2022,~~ ~~from~~ ~~CAD$0.40~~ to ~~CAD$5.60~~ ~~to reflect HEXO's~~ ~~14:1~~ ~~reverse stock split. Under the HEXO Convertible Note, the Company holds a~~ ~~first~~-priority security interest on substantially all of HEXO’s assets. In the event of a default on the HEXO Convertible Note, the Company would be entitled to exercise its rights as a secured creditor, and the Note would become redeemable at 115% of the outstanding principal balance.

~~All~~ ~~third~~~~-party transaction costs associated with the acquisition of these notes were reimbursed by HEXO. During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023~~, in connection with the HEXO Convertible Note, the Company recognized interest income of $2,171 and $5,549 respectively, and an other-than-temporary change in fair value which led to a non-cash impairment to the carrying value of the HEXO Convertible Note, which resulted in a loss of $63,597 for the ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023.~~ Due to changes in HEXO operations, which culminated in HEXO's assessment of a going concern issue regarding HEXO's ability to meet their minimum liquidity covenant, resulting in the Company increasing the forfeiture rate to 30% on the HEXO Convertible Note.

~~The HTI Share Consideration included a purchase price derivative, where the consideration paid is adjusted based on the sum of the VWAP of the Company's common stock for the~~ 44 trading days after the issuance of the shares. The purchase price derivative is settled through the issuance of additional shares of the Company if the share price declined, or a cash payment back to the Company if the share price increased over the applicable period. On issuance this was valued at ~~$nil.~~ The subsequent change in fair value resulted in a gain of $18,256 due to the share price increasing, which was recorded in Transaction (income) costs, and was collected in cash by the Company during the period ended ~~February 28, 2023~~.

~~The fair value of the HEXO Convertible Note was determined using the Black-Scholes model using the following assumptions: the risk-free rate of~~ ~~3.50%;~~ ~~expected life of the convertible note; volatility of 90% based on comparable companies; forfeiture rate of~~ ~~30%;~~ ~~dividend yield of~~ ~~nil~~ ~~and the exercise price of the respective conversion feature.~~

~~Concurrent with the aforementioned purchase of the HEXO Convertible Note, the Company and HEXO also entered into various commercial transaction agreements~~Acquisition as described in Note 236 ~~(Segment reporting)~~(Business acquisitions). Concurrently with the closing of the HEXO Acquisition, the HEXO convertible note was converted for shares of HEXO.

1312

MedMen ~~Enterprises Inc. (~~“~~MedMen~~”)Convertible Note

On August 31, 2021, the Company issued 9,817,061 shares valued at $117,804 to acquire 68% interest in Superhero Acquisition L.P. (“SH Acquisition”), which purchased a senior secured convertible note issued by MedMen (the "MedMen Convertible Note"), together with certain associated warrants to acquire Class B subordinate voting shares of MedMen, in the principal amount of $165,799. The MedMen Convertible Note bears interest at the Secured ~~overnight financing rate~~Overnight Financing Rate ("SOFR") plus 6%, with a SOFR floor of 2.5% and, any accrued interest is added to the outstanding principal amount, and is to be paid at maturity of the MedMen Convertible Note. SH Acquisition was also granted “top-up” rights enabling it (and its limited partners) to maintain its percentage ownership (on an “as-converted” basis) in the event that MedMen issues equity ~~securities upon conversion of convertible securities that~~ ~~may~~ ~~be issued by MedMen.~~securities. The Company’s ability to convert the MedMen Convertible Note and exercise the Warrants is dependent upon U.S. federal legalization of cannabis (a “Triggering Event”) or Tilray’s waiver of such requirement as well as any additional regulatory approvals. The MedMen Convertible Note has a maturity date of August 17, 2028.

~~During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023~~~~, in connection with the Medmen~~The MedMen Convertible Note was based upon the Company recognized an other-than-temporary change in fair value, which resulted in a non-cash impairment expense of $117,778 which includes the reversal of the fair value adjustments which were previously recorded in accumulated other comprehensive loss. As a result, of the deterioration of capital market conditions from increased interest rates and recent delays in US Federal cannabis legalization, the Company increased the forfeiture rate to 30% on the Medmen Convertible Note and recorded the aforementioned loss on the Medmen Convertible Notes through impairments.

~~The Company recognized interest income, which is included as part of the convertible debentures in the amount of $3,474 and $10,480 for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023.~~ ~~The Company also recognized unrealized gain (loss) on convertible notes receivable in other comprehensive income of $82,100 and $70,779 for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023, $(~~~~39,296) and $(56,250) for the~~ ~~three~~ ~~months ended~~ ~~February 28, 2022.~~

~~The~~ fair value of the ~~MedMen Convertible Note was determined using~~collateral assets net of disposal costs. In the prior year, the Company used the Black-Scholes model using the following assumptions: the risk-free rate of 3.50%; expected life of the convertible note; volatility of 70% based on comparable companies; forfeiture rate of nil; dividend yield of nil; probability of legalization between 0% and 60%; and, the exercise price of the respective conversion feature.

The Company did not recognize any interest income on the MedMen Convertible Note for the three months ended August 31, 2023, which would have increased its value.

Note 7.8. Long term investments

Long term investments consisted of the following:

	*February 28,*		*May 31,*		*August 31,*		*May 31,*
	*2023*		*2022*		*2023*		*2023*
Equity investments measured at fair value	$	1,972	$	4,347	$	2,064	$	2,144
Equity investments under measurement alternative		5,648		5,703		5,500		5,651
Total	$	7,620	$	10,050	$	7,564	$	7,795

1413

Note 8.9. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are comprised of:

	*February 28,*		*May 31,*		*August 31,*		*May 31,*
	*2023*		*2022*		*2023*		*2023*
Trade payables	$	67,065	$	68,604	$	78,971	$	70,819
Accrued liabilities		68,316		57,497		129,517		78,007
Accrued payroll and employment related taxes		14,736		17,736		6,826		18,772
Income taxes payable		9,371		6,150		15,727		14,934
Accrued interest		3,796		6,772		6,974		8,102
Other accruals		138		672		66		48
Total	$	163,422	$	157,431	$	238,081	$	190,682

Note 9.10. Bank indebtedness

Aphria Inc., a subsidiary of the Company, has an operating line of credit in the amount of C$1,000, which bears interest at the lender’s prime rate plus 75 basis points. As of ~~February 28,~~August 31, 2023, the Company has not drawn on the line of credit. The operating line of credit is secured by a security interest on that certain real property located at 265 Talbot St. West, Leamington, Ontario.

CC Pharma GmbH, a subsidiary of the Company, has ~~three~~two operating lines of credit for €~~8,000,€3,500,~~7,000 and €500 each, which bear interest at Euro ~~Over Night Index Average~~Short-Term Rate ("ESTR") plus ~~1.79%~~2.50% and Euro Interbank Offered Rate ("EURIBOR") plus ~~3.682%~~3.75%, respectively. As of ~~February 28,~~August 31, 2023, a total of €~~7,663~~6,967 ($~~8,125)~~7,594) was drawn down from the available credit of €~~12,000.~~7,500. The operating ~~lines~~line of credit for €7,000 are secured by ~~a security~~an interest in the inventory of CC Pharma ~~GmbH.~~GmbH as well as the Densborn facility and underlying real property. The operating line of credit for €500 is unsecured.

Four Twenty Corporation (“420”), a subsidiary of the Company, has a revolving credit facility of $30,000, which bears interest at ~~EURIBOR~~SOFR plus an applicable margin. As of ~~February 28,~~August 31, 2023, the Company has drawn ~~$10,000~~$7,000 on the revolving line of credit. The revolving credit facility is secured by all of 420's assets and includes a corporate guarantee by a subsidiary of the Company.

1514

Note ~~10.~~11. Long-term debt

The following table sets forth the net carrying amount of long-term debt instruments:

	*February 28,*			*May 31,*			*August 31,*			*May 31,*
	*2023*			*2022*			*2023*			*2023*
Credit facility - C$66,000 - Canadian prime interest rate plus an applicable margin, 3-year term, with a 10-year amortization, repayable in blended monthly payments, due in November 2025	$	47,630		$	53,720		$	44,400		$	45,260
Term loan - C$25,000 - Canadian prime plus 1.00%, compounded monthly, 5-year term, with a 15-year amortization, repayable in equal monthly installments of C$194 including interest, due in July 2033		11,322			12,750
Term loan - C$25,000 - Canadian prime plus 1.50%, compounded monthly, 5-year term with a 15-year amortization, repayable in equal monthly installments of C$190 including interest, due in April 2032		13,447			15,050
Term loan - C$25,000 - Canadian prime plus 1.00%, compounded monthly, 5-year term, with a 15-year amortization, repayable in equal monthly installments of C$181 including interest, due in July 2033								10,905			10,959
Term loan - C$25,000 - Canadian prime plus 1.00%, compounded monthly, 5-year term with a 15-year amortization, repayable in equal monthly installments of C$196 including interest, due in July 2033								13,105			13,092
Term loan - C$1,250 - Canadian prime plus 1.50%, 5-year term, with a 10-year amortization, repayable in equal monthly installments of C$12 including interest, due in August 2026		371			462			330			346
Mortgage payable - C$3,750 - Canadian prime plus 1.50%, 5-year term, with a 20-year amortization, repayable in equal monthly installments of C$23 including interest, due in August 2026		2,140			2,327			2,128			2,104
Term loan ‐ €5,000 ‐ EURIBOR plus 1.79%, 5‐year term, repayable in quarterly installments of €250 plus interest, due in December 2023		1,060			1,878
Term loan ‐ €1,500 ‐ EURIBOR plus 1.79%, 1‐year term, repayable in monthly installments of €100 plus interest, due in December 2023		1,064			—
Term loan ‐ €5,000 ‐ EURIBOR plus 2.68%, 5‐year term, repayable in quarterly installments of €250 plus interest, due in December 2023		1,060			1,878
Term loan ‐ €1,500 ‐ EURBIOR plus 2.00%, 5‐year term, repayable in quarterly installments of €98 including interest, due in April 2025		910			1,219
Term loan ‐ €1,500 ‐ EURIBOR plus 2.00%, 5‐year term, repayable in quarterly installments of €98 including interest, due in June 2025		994			1,307
Term loan ‐ €5,000 ‐ EURIBOR plus 2.15%, 5‐year term, repayable in quarterly installments of €250 plus interest, due in December 2023								545			803
Term loan ‐ €1,200 ‐ at fixed 4.26%, 1‐year term, repayable in monthly installments of €100 plus interest, due in December 2023								442			755
Term loan ‐ €1,500 ‐ at a fixed 2.00%, 5‐year term, repayable in quarterly installments of €94 plus interest, due in April 2025								732			819
Term loan ‐ €3,500 ‐ at a fixed rate of 4.59%, 5‐year term, repayable in monthly installments of €52 plus interest, due in August 2028								3,702			1,706
Mortgage payable - $22,635 - EURIBOR rate plus 1.5%, 10-year term, with a 10-year amortization, repayable in monthly installments of $57 plus interest, due in October 2030		21,041			21,561			20,688			20,863
Term loan - $100,000 - EURIBOR rate plus an applicable margin, 3-year term, repayable in quarterly installments of $2,500, due in December 2023		67,500			75,000
Term loan - $70,000 -SOFR plus an applicable margin, 5-year term, repayable in quarterly installments of $875 to $1,750 due in June 2028								70,000			65,000
Carrying amount of long-term debt		168,539			187,152			166,977			161,707
Unamortized financing fees		(1,228	)		(1,450	)		(1,098	)		(738	)
Net carrying amount		167,311			185,702			165,879			160,969
Less principal portion included in current liabilities		(77,892	)		(67,823	)		(13,489	)		(24,080	)
Total noncurrent portion of long-term debt	$	89,419		$	117,879		$	152,390		$	136,889

OnDuring the quarter ended ~~November 28, 2022,~~August 31, 2023, Four Twenty Corporation ("420"), a wholly-owned subsidiary of the Company, repaid its $100,000 term loan and entered into a new secured credit agreement, which comprised of: (i) a $70,000 term loan facility, bearing interest at SOFR plus an ~~Amended~~applicable margin and ~~Restated~~having a maturity date of June 30, 2028 (the "420 Term Loan"), and (ii) a $20,000 delayed draw term loan facility, issued on the same terms as the $70,000 term loan facility (the "420 Delayed Draw Term Loan" and, together with the 420 Term Loan the "420 Secured Credit Agreement"). The 420 Term Loan was fully drawn on June 30, 2023. The 420 Delayed Draw Term Loan was fully drawn subsequent to August 31, 2023, as described in Note 25 (Subsequent events). Under the terms of the 420 Secured Credit Agreement, ~~(the “Amended~~the Company pledged all of Sweetwater, Breckenridge and ~~Restated Credit Agreement”) amending~~Montauk’s assets and ~~restating~~ the ~~existing credit facility in the aggregate principal amount of~~ ~~C$66,000.~~ ~~The Amended~~related equity interest, and ~~Restated Credit Agreement extended the term of the existing credit facility to~~ ~~November 28, 2025.~~ ~~The principal amount of loans outstanding at the time of the amendment was~~ ~~C$66,000.~~Tilray Brands, Inc. provided a limited guarantee.

As of ~~February 28,~~August 31, 2023, the Company ~~was~~and its subsidiaries, were in compliance with ~~all of~~ its covenants under its long-term debt agreements.

1615

Note ~~11.~~12. Convertible debentures payable

The following table sets forth the net carrying amount of the convertible debentures payable:

	*February 28,*		*May 31,*		*August 31,*		*May 31,*
	*2023*		*2022*		*2023*		*2023*
5.20% Convertible Notes ("TLRY 27")					$	120,861	$	100,476
HTI Convertible Note	$	45,762	$	—		-		47,834
5.25% Convertible Notes ("APHA 24")		223,087		216,753		124,453		120,568
5.00% Convertible Notes ("TLRY 23")		138,320		185,196		127,137		126,544
Total		407,169		401,949		372,451		395,422
Deduct - current portion		184,082		-		251,590		174,378
Total convertible debentures payable, non current portion	$	223,087	$	401,949	$	120,861	$	221,044

HTI Convertible Note

	*February 28,*			*May 31,*		*August 31,*		*May 31,*
	*2023*			*2022*		*2023*		*2023*
4.00% Contractual debenture	$	50,000		$	—	$	—	$	50,000
Unamortized discount		(4,238	)		—		—		(2,166	)
Net carrying amount	$	45,762		$	—	$	—	$	47,834

On July 12, 2022, the Company issued a $50,000 convertible promissory note to HTI ("HTI Convertible Note"), bearing a 4% interest rate payable on a quarterly basis and having a maturity date of September 1, 2023. On August 31, 2023,the Company settled in full the HTI Convertible Note through the issuance of shares as described in Note 14 (Stockholder's equity).

TLRY 27

	*August 31,*			*May 31,*
	*2023*			*2023*
5.20% Contractual debenture	$	172,500		$	150,000
Unamortized discount		(51,639	)		(49,524	)
Net carrying amount	$	120,861		$	100,476

The TLRY 27 convertible debentures were issued on May 30, 2023 and on June 9, 2023 by way of overallotment, in the principal amount totaling $172,500 (the “TLRY 27 Notes”). The TLRY 27 Notes bear interest at a rate of 5.20% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, and mature on June 15, 2027, unless earlier converted. The TLRY 27 Notes are Tilray’s general unsecured obligations and rank senior in right of payment to all of Tilray’s indebtedness that is expressly subordinated in right of payment to the notes; equal in right of payment with any of Tilray’s unsecured indebtedness that is not so subordinated, including TLRY 23 and APHA 24, effectively junior in right of payment to any of Tilray’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations) of Tilray’s current or future subsidiaries. Noteholders will have the right to convert their TLRY 27 Notes into shares of Tilray’s common stock at their option, at any time, until the close of business on the second scheduled trading day immediately before June 15, 2027. The initial conversion rate is 376.6478 shares per $1,000 principal amount of TLRY 27 Notes, which represents a conversion price of approximately $2.66 per share. The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events.

The TLRY 27 Notes will be redeemable, in whole and not in part, at Tilray’s option at any time on or after June 20, 2025 at a cash redemption price equal to the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price of Tilray’s common stock exceeds 130% of the conversion price for a specified period of time. If certain corporate events that constitute a fundamental change occur, then, subject to a limited exception, noteholders may require Tilray to repurchase their TLRY 27 Notes for cash. The repurchase price will be equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date. In connection with the Company’s offering of the TLRY 27 Notes, the Company entered into a share lending agreement with an affiliate of Jefferies LLC (the “Share Borrower”), pursuant to which it lent to the Share Borrower 38,500,000 shares of the Company’s common stock (the "Borrowed Shares"). The Borrowed Shares were newly-issued shares, will be held as treasury shares until the expiration or early termination of the share lending agreement and may be used by purchasers of the TLRY 27 Notes to sell up to 38,500,000 shares of the Company’s common stock. The fair value of the ~~conversion feature was determined to be $9,055. Refer to Note~~ 6 ~~(Convertible notes receivable~~) ~~for additional details on this transaction. HTI~~ ~~may~~ ~~convert the HTI Convertible Note, in whole or in~~share lending agreement has been recorded as part ~~at any time prior to the~~ ~~second~~ ~~trading day immediately preceding the maturity date, into shares of Common Stock at a conversion price equal to $4.03, which is calculated as~~ ~~125%~~ of the ~~closing~~unamortized discount on the debenture. The Company expects that the selling stockholders will use their position created by such sales to establish their initial hedge with respect to their investments in the TLRY 27 Notes. The Company did not receive any proceeds from the sale ~~price as~~ of the ~~closing date (~~ ~~July 12, 2022).~~ In no ~~event will HTI be allowed to effect a conversion of the HTI Convertible Note if such conversion, along with all other shares of Common Stock beneficially owned by HTI and its affiliates, would exceed~~ ~~9.99%~~ ~~of the outstanding Common Stock (the "Beneficial Ownership Limitation"). If HTI does~~ ~~not~~ ~~elect or is unable to elect to convert under the Beneficial Ownership Limitation the Company will be responsible for repaying the HTI Convertible Note in cash.~~Borrowed Shares.

APHA 24

	*February 28,*			*May 31,*			*August 31,*			*May 31,*
	*2023*			*2022*			*2023*			*2023*
5.25% Contractual debenture	$	350,000		$	350,000		$	350,000		$	350,000
Debt settlement		(90,760	)		(90,760	)		(213,260	)		(213,260	)
Fair value adjustment		(36,153	)		(42,487	)		(12,287	)		(16,172	)
Net carrying amount	$	223,087		$	216,753		$	124,453		$	120,568

The APHA 24 convertible debentures, were entered into in April 2019, in the principal amount of $350,000, bear interest at a rate of 5.25% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, and mature on June 1, 2024, unless earlier converted (the APHA 24 Notes"). The APHA 24 Notes are Tilray’s general unsecured obligations and rank senior in right of payment to all of Tilray’s indebtedness that is expressly subordinated in right of payment to the notes; equal in right of payment with any of Tilray’s unsecured indebtedness that is not so subordinated, including TLRY 23 and TLRY 27, effectively junior in right of payment to any of Tilray’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations) of Tilray’s current or future subsidiaries.

Holders of the APHA 24 Notes may convert all or any portion of ~~their Notes,~~such note, in multiples of $1$1 principal amount, at their option at any time between December 1, 2023 to the maturity date of June 1, ~~2024~~.2024. The initial conversion which the Company may settle in cash, or common shares of Tilray, or a combination thereof, at Tilray's election, is equivalent to an initial conversion price of approximately $11.20 per common share, subject to adjustments in certain events. In addition, holders of the APHA 24 Notes may convert all or any portion of their ~~Notes,~~notes, in multiples of $1$1 principal amount, at their option at any time preceding December 1, 2023, if:

(a)

the last reported sales price of the common shares for at least 20 trading days during a period of 30 consecutive trading days immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(b)

during the five-business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1 principal amount of the APHA 24 Notes for each trading day of the measurement period is less than 98% of the product of the last reported sale price of the Company’s common shares and the conversion rate on each such trading day;

(c)

the Company calls any or all of the APHA 24 Notes for redemption or;

(d)

upon occurrence of a specified corporate event.

1716

The Company was not able to redeem the APHA 24 prior to June 6, 2022, except upon the occurrence of certain changes in tax laws. On or after June 6, 2022, the Company may redeem for cash all or part of the ~~Notes,~~APHA 24, at its option, if the last reported sale price of the Company’s common shares has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on and including trading day immediately preceding the date on which the Company provides notice of redemption. The redemption of the APHA 24 will be equal to 100% of the principal amount ~~of $259,240~~ plus accrued and unpaid interest to, but excluding, the redemption date.

The Company elected the fair value option under ASC 825Fair Value Measurements for the APHA 24. The APHA 24 was initially recognized at fair value on the balance sheet. All subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income. The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss).

The Company may from time to time seek to retire or purchase its APHA 24, in open market purchases, privately negotiated transactions or otherwise. Such purchases or exchanges, if any, will depend on prevailing market conditions, the company's liquidity requirements, contractual restrictions and other factors. During the previous fiscal year, the Company purchased $122,500 principal of APHA 24.

The overall change in fair value of APHA 24 during the quarter ended August 31, 2023 decreased by $3,885, this was comprised of $2,147 of fair value changes which was offset by the decrease in foreign exchange of $1,738 ( August 31, 2022 – $7,884 of fair value changes, offset by a decrease in foreign exchange of $8,367).

As at August 31, 2023, there was $136,740 principal outstanding as compared to on May 31, 2023 there was $136,740 of principal outstanding.

During the three months ended August 31, 2023 and 2022, the Company recognized total interest expense of $1,795 and $3,403, respectively.

TLRY 23

February 28, May 31,
2023 2022
5.00% Contractual debenture
$ 277,856 $ 277,856
Principal amount paid
(138,026 ) (88,026 )
Unamortized discount
(1,510 ) (4,634 )
Net carrying amount
$ 138,320 $ 185,196

~~During the~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023,~~ ~~the Company repurchased outstanding TLRY~~ 23 notes in the principal amount of $50,000, in exchange for a purchase price of $48,975. As a result of this transaction, the unamortized discount was reduced by $918 and a gain of $191 was recorded in non-operating income (expense), net.

	*August 31,*			*May 31,*
	*2023*			*2023*
5.00% Contractual debenture	$	277,856		$	277,856
Principal amount paid		(150,526	)		(150,526	)
Unamortized discount		(193	)		(786	)
Net carrying amount	$	127,137		$	126,544

The TLRY 23 bears interest at a rate of 5.00% per annum, payable semi-annually in arrears on April 1 and October 1 of each year. Additional interest may accrue on the TLRY 23 in specified circumstances. The TLRY 23 will mature on October 1, 2023, unless earlier repurchased, redeemed or converted. There are no principal payments required over the five-year term of the TLRY 23, except in the case of redemption or events of default.

The TLRY 23 ~~is an~~Notes are Tilray’s general unsecured ~~obligation~~obligations and ~~ranks~~rank senior in right of payment to all of ~~the Company's~~Tilray’s indebtedness that is expressly subordinated in right of payment to the ~~TLRY~~ ~~23;~~notes; equal in right of payment with any of ~~the Company's~~Tilray’s unsecured indebtedness that is not so ~~subordinated;~~subordinated, including TLRY 27 and APHA 24, effectively junior in right of payment to any of ~~the Company's~~Tilray’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations) of ~~the Company's~~Tilray’s current or future subsidiaries.

The TLRY 23 includes customary covenants and sets forth certain events of default after which the convertible notes may be declared immediately due and payable, including certain types of bankruptcy or insolvency involving the Company. To the extent the Company so elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants, for the first365 days after such event of default, consist exclusively of the right to receive additional interest on the notes. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of the ~~Company’s~~Company's common stock, at the ~~Company’s~~Company's election (the ~~“cash~~"cash conversion ~~option”~~option"). The initial conversion rate for the convertible notes is 5.9735 shares of common stock per one thousand dollar principal amount of notes, which is equivalent to an initial conversion price of approximately $167.41 per share of common stock, which represents approximately ~~835,275~~760,588 shares of common stock, based on the ~~$139,830~~$127,330 aggregate principal amount of convertible notes outstanding as of ~~February 28,~~August 31, 2023. Throughout the term of the TLRY 23, the conversion rate may be adjusted upon the occurrence of certain events.

Prior to the close of business on the business day immediately preceding April 1, 2023,, the TLRY 23 will be convertible only under the specified circumstances. On or after April 1, 2023 until the close of business on the business day immediately preceding the maturity date, September 30, 2023,, holders may convert all or any portion of their TLRY 23, in multiples of $1$1 principal amount, at the option of the holder regardless of the aforementioned circumstances. This note was repaid on maturity as described in Note 25 (Subsequent events).

As of ~~February 28,~~August 31, 2023, the Company was in compliance with all the covenants set forth under the TLRY 23. The effective interest rate on the debt is 6.9%, the Company recognized interest expense of ~~$1,748 and $6,077~~$1,592 and amortized discount interest of ~~$630 and $2,169~~$593 for the three ~~and~~ ~~nine~~months ended ~~February 28, 2023.~~August 31, 2023.

1817

Note ~~12.~~13. Warrant liability

As of ~~February 28,~~August 31, 2023 and May 31, ~~2022,~~2023, there were 6,209,000 warrants outstanding, with an original exercise price of $5.95 per warrant, expiring March 17, 2025. Each warrant is exercisable for one common share of the Company.

The warrants contain anti-dilution price protection features, which adjust the exercise price of the warrants if the Company subsequently issues common stock at a price lower than the exercise price of the warrants. In the event additional warrants or convertible debt are issued with a lower and/or variable exercise price, the exercise price of the warrants will be adjusted accordingly. During the ~~nine~~three months ended ~~February 28,~~August 31, 2023, the Company issued shares which triggered the anti-dilution price protection feature lowering the exercise price to ~~$3.15.~~$1.61. These warrants are classified as liabilities as they are to be settled in registered shares, and the registration statement is required to be active, unless such shares may be subject to an applicable exemption from registration requirements. The holders, at their sole discretion, may elect to affect a cashless exercise, and be issued exempt securities in accordance with Section 3(a)(9) of the 1933 Act. In the event the Company does not maintain an effective registration statement, the Company may be required to pay a daily cash penalty equal to 1% of the number of shares of common stock due to be issued multiplied by any trading price of the common stock between the exercise date and the share delivery date, as selected by the holder. Alternatively, the Company may deliver registered common stock purchased by the Company in the open market. The Company may also be required to pay cash if it does not have sufficient authorized shares to deliver to the holders upon exercise.

The Company estimated the fair value of ~~the warrant liability~~warrants outstanding at ~~February 28,~~August 31, 2023 at ~~$1.19~~$1.613 per warrant using the Black Scholes pricing model (Level 3) with the following assumptions: Risk-free interest rate of ~~3.94%~~4.4%, expected volatility of ~~70%~~50%, expected term of ~~2.55~~2.05 years, strike price of ~~$3.15~~$1.61 and fair value of common stock of ~~$2.83.~~$2.96.

Expected volatility is based on both historical and implied volatility of the Company’s common stock.

Note ~~13.~~14. Stockholders' equity

~~Series A Preferred Stock~~

On ~~February 21, 2023,~~ in connection with the issuance of the Consideration Shares, Tilray filed a certificate of designation (the "Certificate of Designation") with the Secretary of State of the State of Delaware, effective as of the time of filing, designating the rights, preferences, privileges and restrictions of the shares of the Series A Preferred Stock.

~~General;~~ No ~~Transferability.~~ ~~Shares of Series A Preferred Stock will be uncertificated and represented in book-entry form.~~ No ~~shares of Series A Preferred stock~~ ~~may~~ ~~be transferred by the holder thereof.~~

~~Voting Rights.~~ ~~The Certificate of Designation provides that each share of Preferred Stock will have 1,000 votes and will vote together with the outstanding shares of Class~~ 2 common stock as a single class exclusively with respect to any proposal to adopt amendments to the Company’s amended and restated certificate of incorporation (as amended) (collectively, the “Charter Amendments”) by (a) eliminating provisions relating to the Company’s Class 1 ~~common stock, par value $0.0001 per share (the “Class~~ 1 ~~Common Stock”), in connection with the previous automatic conversion of all issued and outstanding shares of Class~~ 1 ~~Common Stock into shares of Class~~ 2 ~~Common Stock, (b) reclassifying the authorized shares of Class~~ 1 ~~Common Stock as Class~~ 2 ~~Common Stock, and (c) adding a provision to automatically reclassify each issued and outstanding share of Class~~ 2 ~~Common Stock as~~ ~~one~~ ~~share of common stock, par value $0.0001, of the Company (“Common Stock”), the cumulative result being the Company having only~~ ~~two~~ ~~classes of stock authorized for issuance — common stock and preferred stock.~~

~~The Series A Preferred Stock will be voted, without action by the holder, on any such proposal in the same proportion as shares of Class~~ 2 ~~Common Stock are voted. The Series A Preferred Stock otherwise has~~ no ~~voting rights except as otherwise required by the General Corporation Law of the State of Delaware.~~

~~Dividends.~~ ~~Holders of Series A Preferred Stock are entitled to receive dividends on shares of Series A Preferred Stock equal (on an as-if-converted-to-Class-~~2~~-Common-Stock basis, disregarding for such purpose any conversion limitations hereunder) to and in the same form as dividends actually paid on shares of the Class~~ 2 ~~Common Stock when, as and if such dividends are paid on shares of the Class~~ 2 ~~Common Stock.~~ No ~~other dividends shall be paid on shares of Series A Preferred Stock.~~

~~Rank Liquidation.~~ ~~The Series A Preferred Stock ranks~~ ~~pari passu~~ ~~with the Class~~ 2 ~~Common Stock as to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily.~~

~~Automatic Conversion.~~ Upon the closing of the polls at any meeting of the Company’s stockholders held for the purpose of voting on the Charter Amendments (taking into account any adjournment or postponement thereof), each issued and outstanding share of Series A Preferred Stock will, without any further action on the part of the holder thereof or the Company, automatically be converted (the “Automatic Conversion”) into a number of fully paid and nonassessable shares of Common Stock as determined by dividing the Stated Value (as defined by the Certificate of Designation) by the Conversion Price then in effect. The conversion price per share upon an Automatic Conversion for the Series A Preferred Stock shall be the Stated Value of such share, subject to adjustment in the event that the Conversion Price then in effect is equal to or less than the Minimum Price, as defined in Nasdaq Listing Rule ~~5635~~~~(d)(~~1~~)(A) (the “Conversion Price”) see Note~~ 24 ~~(Subsequent events).~~

Issued and outstanding

As of ~~February 28,~~August 31, 2023, the Company had ~~990,000,000~~980,000,000 common shares and 10,000,000 preferred shares authorized to be issued, ~~of which 243,333,333 are Class~~ 1with 723,292,600 common shares ~~with~~and nil ~~shares issued and outstanding, 736,666,667 are Class~~ 2 ~~shares, with 613,181,559 shares issued and outstanding and 10,000,000 are Series A Preferred Stock with 120,000~~preferred shares issued and outstanding. Historically, the Company has issued shares of its common stock as consideration for business acquisitions, including the settlement of convertible notes, the settlement of litigation claims, in connection with public offerings and as payment of dividends to non-controlling interests for profit distributions.

During the ~~nine~~three months ended ~~February 28,~~August 31, 2023, the Company issued the following ~~Class~~ 2common shares:

~~32,481,149~~39,705,962 shares ~~under its At-the-Market (“ATM”) program for gross proceeds of $132,238. The Company paid $2,645~~ in ~~commissions and other fees associated~~connection with ~~these issuances for net proceeds of $129,593.~~the HEXO Acquisition, see Note 6 (Business acquisitions).

~~33,314,412~~865,426 shares to ~~purchase~~settle a contractual change of control severance in the amount of $1,500 incurred in connection with the HEXO ~~convertible notes receivable.~~Acquisition.

~~15,994,406~~5,004,735 shares to settle ~~amounts owed~~dividends payable to the non-controlling shareholders of Aphria Diamond in the amount of ~~$59,731.~~$8,146.

~~1,683,656~~17,148,541 shares for the ~~exercise~~settlement of ~~various stock-based compensation awards.~~

the HTI Convertible Note payable see Note 12 (Convertible debentures payable).

~~1,708,521~~e)

3,912,481 shares ~~issued to acquire Montauk Brewing Company Inc.~~

~~During the~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023~~~~, the Company issued the following Series A preferred stock shares:~~

~~120,000 shares to settle amounts owed to~~in connection with the ~~non-controlling shareholders~~exercise of ~~Aphria Diamond in the amount of $334~~

previously awarded stock-based compensation awards.

The Company maintains stock-based compensation plans as disclosed in our Annual Financial Statements. For the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2023, and 2022, the total stock-based compensation was $ ~~9,630~~8,257 and ~~$ 29,766, whereas for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2022~~~~, total stock based compensation was $9,355 and $27,025~~$9,193 respectively.

During the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2023, and 2022, the Company granted ~~nil~~11,559,549 and ~~6,004,995~~5,747,938 time-based RSUs, respectively, and ~~nil~~7,566,146 and ~~2,634,744~~2,540,394 performance-based RSUs, respectively. The 7,566,146 performance based RSUs (issued during the quarter had performance conditions ~~February 28, 2022~~not - ~~nil~~ ~~and 69,508 time-based RSUs and~~ ~~nil~~ ~~and 1,414,666 performance based RSUs).~~yet finalized. The Company's total stock-based compensation expense recognized is as follows:

	*For the three months*				*For the nine months*				*For the three months*
	*ended February 28,*				*ended February 28,*				*ended August 31,*
	*2023*		*2022*		*2023*		*2022*		*2023*		*2022*
Stock options	$	20	$	273	$	644	$	4,968	$	—	$	604
RSUs		9,610		9,082		29,122		22,057		8,257		8,589
Total	$	9,630	$	9,355	$	29,766	$	27,025	$	8,257	$	9,193

2018

Note ~~14.~~15. Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss includes the following components:

Unrealized

Foreign

loss on

currency

convertible

translation

notes

gain (loss)

receivables

Total

Balance May 31, 2022
$ 54,413 $ (75,177 ) $ (20,764 )
Other comprehensive loss
(56,443 ) (2,525 ) (58,968 )
Balance August 31, 2022
$ (2,030 ) $ (77,702 ) $ (79,732 )
Other comprehensive loss
(24,080 ) (17,643 ) (41,723 )
Balance November 30, 2022
$ (26,110 ) $ (95,345 ) $ (121,455 )
Other comprehensive (loss) reversal
(16,838 ) 95,345 78,507
Balance February 28, 2023
$ (42,948 ) $ — $ (42,948 )

				*Unrealized*
	*Foreign*			*loss on*
	*currency*			*convertible*
	*translation*			*notes*
	*gain (loss)*			*receivables*			*Total*
Balance May 31, 2022	$	54,413		$	(75,177	)		(20,764	)
Other comprehensive loss		(56,443	)		(2,525	)		(58,968	)
Balance at August 31, 2022	$	(2,030	)	$	(77,702	)	$	(79,732	)

Balance May 31, 2023	$	(46,610	)	$	—		$	(46,610	)
Other comprehensive loss		3,049			—			3,049
Balance August 31, 2023	$	(43,561	)	$	—		$	(43,561	)

Note ~~15.~~16. Non-controlling interests

The following tables summarize the information relating to the Company’s subsidiaries, SH Acquisition (68%), CC Pharma Nordic ApS (75%), Aphria Diamond (51%), and ColCanna S.A.S. (90%) before intercompany eliminations.

Summary of balance sheet information of the entities in which there is a non-controlling interest as of ~~February 28,~~August 31, 2023:

	SH		*CC Pharma*			*Aphria*			*ColCanna*			*February 28,*			SH		*CC Pharma*			*Aphria*			*ColCanna*			*August 31,*
	*Acquisition*		*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*			*Acquisition*		*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*
Current assets	$	—	$	163		$	94,103		$	157		$	94,423		$	—	$	91		$	148,222		$	169		$	148,482
Non-current assets		74,681		—			139,749			3,025			217,455			74,681		—			134,351			3,730			212,762
Current liabilities		—		(713	)		(13,468	)		(39	)		(14,220	)		—		(1,198	)		(147,917	)		(6,982	)		(156,097	)
Non-current liabilities		—		(405	)		(176,071	)		(6,455	)		(182,931	)		—		—			(51,397	)		(2,072	)		(53,469	)
Net assets	$	74,681	$	(955	)	$	44,313		$	(3,312	)	$	114,727		$	74,681	$	(1,107	)	$	83,259		$	(5,155	)	$	151,678

Summary of balance sheet information of the entities there is a non-controlling interest as of May 31, ~~2022~~2023:

	SH		*CC Pharma*			*Aphria*			*ColCanna*			*May 31,*			SH		*CC Pharma*			*Aphria*			*ColCanna*			*May 31,*
	*Acquisition*		*Nordic ApS*			*Diamond*			*S.A.S.*			*2022*			*Acquisition*		*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*
Current assets	$	—	$	485		$	20,546		$	193		$	21,224		$	—	$	114		$	127,689		$	224		$	128,027
Non-current assets		111,200		158			152,786			93,738			357,882			74,681		—			135,085			3,307			213,073
Current liabilities		—		(642	)		(63,196	)		(53	)		(63,891	)		—		(1,166	)		(142,554	)		(6,697	)		(150,417	)
Non-current liabilities		—		(410	)		(29,653	)		(6,537	)		(36,600	)		—		—			(53,197	)		(1,428	)		(54,625	)
Net assets	$	111,200	$	(409	)	$	80,483		$	87,341		$	278,615		$	74,681	$	(1,052	)	$	67,023		$	(4,594	)	$	136,058

2119

Summary of income statement information of the entities in which there is a non-controlling interest for the ~~nine~~three months ended ~~February 28,~~August 31, 2023:

	SH			*CC Pharma*			*Aphria*			*ColCanna*			*February 28,*			SH			*CC Pharma*			*Aphria*			*ColCanna*			*August 31,*
	*Acquisition*			*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*			*Acquisition*			*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*
Revenue	$	—		$	126		$	98,960		$	—		$	99,086		$	—		$	—		$	39,230		$	—		$	39,230
Total expenses		107,297			659			54,285			91,026			253,267			—			35			15,636			216			15,887
Net (loss) income		(107,297	)		(533	)		44,675			(91,026	)		(154,181	)		—			(35	)		23,594			(216	)		23,343
Other comprehensive (loss) income		70,778			(13	)		(707	)		373			70,431			—			(20	)		533			(345	)		168
Net comprehensive (loss) income	$	(36,519	)	$	(546	)	$	43,968		$	(90,653	)	$	(83,750	)	$	—		$	(55	)	$	24,127		$	(561	)	$	23,511
Non-controlling interest %		32	%		25	%		49	%		10	%	NA				32	%		25	%		49	%		10	%	NA
Comprehensive (loss) income attributable to NCI		(11,686	)		(137	)		21,544			(9,065	)		656			-			(14	)		11,822			(56	)		11,752
Additional income attributable to NCI		—			—			8,968			—			8,968			—			—			4,070			—			4,070
Net comprehensive (loss) income attributable to NCI	$	(11,686	)	$	(137	)	$	30,512		$	(9,065	)	$	9,624		$	—		$	(14	)	$	15,892		$	(56	)	$	15,822

Summary of income statement information of the entities in which there is a non-controlling interest for the ~~nine~~three months ended ~~February 28,~~August 31, 2022:

	SH			*CC Pharma*			*Aphria*			*ColCanna*			*February 28,*			SH			*CC Pharma*			*Aphria*			*ColCanna*			*August 31,*
	*Acquisition*			*Nordic ApS*			*Diamond*			*S.A.S.*			*2022*			*Acquisition*			*Nordic ApS*			*Diamond*			*S.A.S.*			*2022*
Revenue	$	—		$	354		$	88,470		$	—		$	88,824		$	—		$	—		$	36,401		$	—		$	36,401
Total expenses		(7,568	)		431			47,841			(192	)		40,512			(3,492	)		154			20,427			55,845			72,934
Net (loss) income		7,568			(77	)		40,629			192			48,312			3,492			(154	)		15,974			(55,845	)		(36,533	)
Other comprehensive (loss) income		(55,601	)		30			(2,509	)		(2,203	)		(60,283	)		(7,103	)		29			(3,280	)		240			(10,114	)
Net comprehensive (loss) income	$	(48,033	)	$	(47	)	$	38,120		$	(2,011	)	$	(11,971	)	$	(3,611	)	$	(125	)	$	12,694		$	(55,605	)	$	(46,647	)
Non-controlling interest %		32	%		25	%		49	%		10	%	NA				32	%		25	%		49	%		10	%	NA
Net comprehensive (loss) income	$	(15,371	)	$	(12	)	$	18,679		$	(201	)	$	3,095
Comprehensive (loss) income attributable to NCI																	(1,156	)		(31	)		6,220			(5,561	)		(528	)
Additional income attributable to NCI																	—			—			4,367			—			4,367
Net comprehensive (loss) income attributable to NCI																$	(1,156	)	$	(31	)	$	10,587		$	(5,561	)	$	3,839

Note ~~16.~~17. Income taxes

The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various United States federal, state, and foreign jurisdictions. Tax law changes, increases, and decreases in temporary and permanent differences between book and tax items, valuation allowances against the deferred tax assets, ~~stock-based~~stock compensation, ~~amortization of intangibles,~~ and the Company’s change in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.

The Company reported income tax ~~recovery~~expense of ~~$(10,811) and $(15,313)~~$7,264 for the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2023, and income tax ~~recovery~~expense of ~~$(1,830) and $(2,739)~~$7,211 for the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2022. The income tax expense (benefit) in the current period varies from the US statutory income tax rate and prior period primarily due to the geographical mix of earnings and losses with no tax benefit resulting from valuation allowances in certain jurisdictions.

2220

Note ~~17.~~18. Commitments and contingencies

Purchase and other commitments

The Company has payments on long-term debt, refer to Note 1011 (Long-term debt), convertible notes, refer to Note 1112 (Convertible debentures payable), material purchase commitments and construction commitments as follows:

	*Total*		*2024*		*2025*		*2026*		*2027*		*Thereafter*		*Total*		*2024*		*2025*		*2026*		*2027*		*Thereafter*
Long-term debt repayment	$	168,539	$	77,892	$	11,157	$	40,435	$	4,743	$	34,312	$	166,977	$	66,829	$	17,233	$	6,662	$	8,412	$	67,841
Convertible notes		449,070		189,830		259,240		—		—		—		436,570		264,070		—		—		—		172,500
Material purchase obligations		26,878		19,946		5,515		840		239		338		56,525		33,484		18,491		3,675		875		—
Construction commitments		5,433		5,433		—		—		—		—		1,515		1,515		—		—		—		—
Total	$	649,920	$	293,101	$	275,912	$	41,275	$	4,982	$	34,650	$	661,587	$	365,898	$	35,724	$	10,337	$	9,287	$	240,341

The following table presents the future undiscounted payment associated with lease liabilities as of ~~February 28,~~August 31, 2023:

	*Operating*			*Operating*
	*leases*			*leases*
2023	$	3,979
2024		3,337		$	4,106
2025		3,521			3,295
2026		3,417			3,486
2027					3,412
Thereafter		4,928			4,012
Total minimum lease payments	$	19,182		$	18,311
Imputed interest		(8,056	)		(8,525	)
Obligations recognized	$	11,126		$	9,786

Legal proceedings

In the ordinary course of business, we are at times subject to various legal proceedings and disputes, including the proceedings specifically discussed below. We assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of loss is not estimable, we do not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently available and available insurance coverage, our management believes that it has established appropriate legal reserves. Any incremental liabilities arising from pending legal proceedings are not expected to have a material adverse effect on our consolidated financial position, consolidated results of operations, or consolidated cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to our consolidated financial position, consolidated results of operations, or consolidated cash flows.

There have been no material changes from the legal proceedings since our Annual Report on Form 10-K for the fiscal ~~quarter~~year ended ~~November 30, 2022,~~ May 31, 2023, except with respect to certain aspects of the legal proceedings disclosed below:

Class Action Suits and Stockholder Derivative Suits

~~Approved Settlement of Tilray Brands, Inc. Reorganization Litigation (Delaware, New York)~~ – ~~Special Litigation Committee~~

On ~~February 27, 2020,~~ ~~Tilray stockholders Deborah Braun and Nader Noorian filed a class action and derivative complaint in the Delaware Court of Chancery styled Braun v. Kennedy, C.A.~~ ~~No.~~~~2020~~-~~0137~~~~-KSJM. On~~ ~~March 2, 2020,~~ ~~Tilray stockholders Catherine Bouvier, James Hawkins, and Stephanie Hawkins filed a class action and derivative complaint in the Delaware Court of Chancery styled Bouvier v. Kennedy, C.A.~~ ~~No.~~~~2020~~-~~0154~~~~-KSJM.~~

On ~~March 4, 2020,~~ ~~the Delaware Court of Chancery entered an order consolidating the~~ ~~two~~ cases and designating the complaint in the Braun/Noorian action as the operative complaint. The operative complaint asserts claims for breach of fiduciary duty against Brendan Kennedy, Christian Groh, Michael Blue, and Privateer Evolution, LLC (the “Privateer Defendants”) for alleged breaches of fiduciary duty in their alleged capacities as Tilray’s controlling stockholders and against Kennedy, Maryscott Greenwood, and Michael Auerbach for alleged breaches of fiduciary duties in their capacities as directors and/or officers of Tilray in connection with the prior merger of Privateer Holdings, Inc. with and into a wholly owned subsidiary (the “Downstream Merger”). The complaint alleges that the Privateer Defendants breached their fiduciary duties by causing Tilray to enter into the Downstream Merger and Tilray’s Board to approve that Downstream Merger, and that Defendants Kennedy, Greenwood, and Auerbach breached their fiduciary duties as directors by approving the Downstream Merger. Plaintiffs allege that the Downstream Merger gave the Privateer Defendants hundreds of millions of dollars of tax savings without providing a corresponding benefit to Tilray and its minority stockholders and that the Downstream Merger unfairly transferred and extended Kennedy, Blue, and Groh’s control over Tilray.

In ~~August 2021,~~ the Company’s Board of Directors established a Special Litigation Committee (the “SLC”) of independent directors to re-assert director control and investigate the derivative claims in this litigation matter. The SLC has appointed the law firm Wilson Sonsini to assist the SLC with an ongoing investigation of the underlying claim and determine whether continued prosecution of such claims was in the best interests of the Company.

On ~~May 27, 2022,~~ ~~the SLC informed the Court that it had completed its investigation; determined~~ ~~not~~ to seek dismissal of the Action; and confirmed its determination that the Company had suffered significant damages and that the SLC would pursue claims to recover appropriate amounts for the Company's benefit. Thereafter, the SLC, all of the Defendants, and certain non-parties participated in ~~two~~ ~~mediation sessions before former Chancellor of the Delaware Court of Chancery Andre G. Bouchard.~~

On ~~July 15, 2022,~~ the SLC reached an agreement in principle with the Defendants and certain of the non-parties, and their respective insurers, to resolve the claims asserted in the Action in exchange for an aggregate amount of $26,900 to be paid to Tilray plus mutual releases. The SLC subsequently reached a further agreement with an additional non-party and plaintiffs to settle the entire Action. On ~~December 20, 2022,~~ the parties submitted to the Delaware Court of Chancery a Stipulation and Agreement of Compromise, Settlement, and Release ("SLC Settlement") which provided for, among other things, an aggregate cash amount of $39,900 to be paid to Tilray in exchange for mutual releases. Tilray stockholders will ~~not~~ ~~receive any direct payment from the SLC Settlement. The SLC Settlement was formally approved by the Delaware Court following a hearing on~~ ~~February 27, 2023,~~ ~~and Tilray received the settlement proceeds following such approval.~~

Authentic Brands Group Related Class Action (New York, United States)

On May 4, 2020, Ganesh Kasilingam filed a lawsuit in the United States District Court for the Southern District of New York (“SDNY”), against Tilray Brands, Inc., Brendan Kennedy and Mark Castaneda, on behalf of himself and a putative class, seeking to recover damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Kasilingam litigation”). The complaint alleges that Tilray and the individual defendants overstated the anticipated advantages of the Company’s revenue sharing agreement with Authentic Brands Group (“ABG”), announced on January 15, 2019, and that the plaintiff suffered losses when Tilray’s stock price dropped after Tilray recognized an impairment with respect to the ABG deal on March 2, 2020. On August 6, 2020, SDNY entered an order appointing Saul Kassin as Lead Plaintiff and The Rosen Law Firm, P.A. as Lead Counsel. Lead Plaintiff filed an amended complaint on October 5, 2020, which asserts the same Sections 10(b) and 20(a) claims against the same defendants on largely the same theory, and includes new allegations that Tilray’s reported inventory, cost of sales, and gross margins in its financial reports during the class period were false and misleading because Tilray improperly recorded unsellable “trim” as inventory and understated the cost of sales for its products.

On September 27, 2021, the U.S. District Court entered an Opinion & Order granting the Defendants’ motion to dismiss the amended complaint in the Kasilingam ~~litigation.~~litigation without prejudice. On December 3, 2021, the lead plaintiff filed a second amended complaint alleging similar claims against Tilray and Brendan Kennedy. The defendants moved to dismiss thesecond amended complaint on February 2, 2022. On September 28, 2022, the Court granted in part and denied in part the defendants’ motion to dismiss the second amended complaint. On October 12, 2022, the Company filed a motion for reconsideration and/or interlocutory appeal of this Court decision. ~~The Company still believes~~

On August 21, 2023, the U.S. District Court granted Tilray’s motion for reconsideration and dismissed the second amended complaint with leave to amend one final time. Tilray continues to believe that all of the underlying claims are without merit, and ~~intends to defend vigorously against them, but there can be~~ no ~~assurances as to the outcome.~~

~~Aphria Inc. Securities Litigation (New York, United States)~~

On ~~December 5, 2018,~~ ~~a putative securities class action was commenced in SDNY against a number of defendants including Aphria and certain current and former officers and directors. The action claims~~ that the ~~defendants misrepresented~~plaintiff will not be able to fix the ~~value of~~ ~~three~~ ~~cannabis-producing properties Aphria acquired~~deficiencies in ~~Jamaica, Colombia, and Argentina (the “LATAM Assets”). On~~ ~~December 3, 2018,~~ ~~two~~ ~~notorious short-sellers issued a report about the acquisitions, claiming the LATAM Assets were non-functional or non-existent, which allegedly caused Aphria’s stock price to fall. On~~ ~~April 15, 2019,~~ ~~Aphria took impairment charges on the LATAM Assets, which also allegedly caused Aphria’s stock price to decline. The putative class action~~its claims ~~that Aphria artificially inflated the price~~as part of its ~~publicly-traded stock by making false statements about the LATAM Assets, and when the purported truth was revealed by a short-seller report and write-down, the stock price declined, harming investors.~~

On ~~September 30, 2020,~~ the Court denied the motion to dismiss the complaint as to Aphria, Vic Neufeld, and Carl Merton, and granted the motion as to Cole Cacciavillani, John Cervini, Andrew DeFrancesco, and SOL Global Investments. On ~~October 1, 2020,~~ ~~Plaintiffs moved for reconsideration of the order dismissing DeFrancesco and SOL or, in the alternative, to amend their~~amended complaint. On ~~October 14, 2020,~~ ~~Aphria, Neufeld, and Merton moved for reconsideration of the order denying their motion to dismiss.~~

2421

On ~~September 29, 2021,~~ ~~the U.S. District Court issued an Order that (i) permitted the plaintiffs~~Legal Proceedings Related to amend their lawsuit to revive the claims against Andy DeFrancecso; and (ii) declined to revisit his decision that claims could proceed against Aphria/Tilray, Vic Neufeld, and Carl Merton. Plaintiffs declined to amend their complaint, however, and so the action is proceeding solely against Aphria/Tilray, Neufeld, and Merton. On ~~December 5, 2022,~~ ~~the parties engaged in a mediation session with an independent mediator. However,~~ no ~~settlement agreement was reached.~~Contractual Obligations

~~It is too early~~420Investments Ltd. Litigation

On February 21, 2020, 420 Investments Ltd., as Plaintiff (“420 Investments”), filed a lawsuit against Tilray Brands, Inc. and High Park Shops Inc. (“High Park”), as Defendants, in Calgary, Alberta in the Court of Queen’s Bench of Alberta. In August 2019, Tilray and High Park entered into an Arrangement Agreement with 420 Investments and others (the “Agreement”). Pursuant to ~~determine any potential damages from this proceeding. The Company~~the Agreement, High Park was to acquire the securities of 420 Investments. In February 2020, Tilray and High Park gave notice of termination of the ~~individual defendants believe~~Agreement. 420 Investments alleges that the ~~claims are~~termination was unlawful and without merit and ~~intend~~further alleges that the Defendants had no legal basis to terminate. 420 Investments alleges that the Defendants did not meet their contractual and good faith obligations under the Agreement. 420 Investment seeks damages in the stated amount of C$110,000, plus C$20,000 in aggravated damages. The Tilray and High Park Statement of Defense and counterclaim were both filed on March 20, 2020. 420 Investment’s Statement of Defense to our counterclaim was filed on April 20, 2020. Respectively, 420 Investments and Tilray / High Park served each other with their Affidavits of Records (“AOR”) on August 25, 2020 and November 30, 2020. Tilray and High Park cross-examined the litigation representative of 420 Investments about its AOR with 420 Investments producing supplemental documents in August 2021 and 2022. Additional discovery may take place in the Fall of 2023. The Company denies the Plaintiff’s allegations and intends to vigorously defend ~~against the claims, but~~this litigation matter, although there can be no ~~assurances~~assurance as to ~~the~~its outcome.

~~LATAM~~In February 2023, Tilray and ~~Nuuvera Class Actions and Individual Actions (Canada)~~

OnHigh Park filed an Application for Summary Judgment to collect an unpaid C$7,000 bridge loan made to ~~January 29, 2018,~~ ~~Aphria announced the acquisition of Nuuvera Inc. On~~ ~~July 17, 2018,~~ ~~Aphria announced a planned expansion into Latin America and the Caribbean with the acquisition of LATAM Holdings Inc. The following class actions and~~ ~~four~~420 ~~individual proceedings have been commenced in Canada against Aphria and several current or former officers~~ Investments on August 28, 2019, relating to the ~~Nuuvera~~subject transaction. That debt was repayable in March 2020, but was never repaid. The application is pending and ~~LATAM transactions:~~

~~(i)~~ a ~~proposed class action (the "Vecchio Action") commenced in the Ontario Superior Court in~~ ~~February 2019,~~ and amended thereafter, alleging statutory and common law misrepresentations and oppression relating to the Nuuvera and LATAM transactions. The Vecchio Action names Aphria, Merton, Neufeld, Cacciavillani and 5 ~~underwriters as defendants;~~

~~(ii)~~ ~~four~~ individual actions (the "Individual Actions") commenced by Wan, Bergerson, Landry, and Profinsys in the Ontario Superior Court alleging statutory and common law misrepresentations relating to the LATAM and Nuuvera transactions. The Individual Actions name Aphria, Merton, Neufeld, and Cacciavillani as defendants.

~~In the Vecchio Action a motion for certification and leave was heard. For Reasons for Decision released~~ ~~August 6, 2021,~~ ~~and with the consent of Aphria and the individually named Defendants,~~decision from the Court ~~granted leave to proceed with the secondary market statutory cause of action, and certified the Action~~is expected on behalf of a defined class of purchasers. Also, on consent, the Court dismissed the claims of oppression and common law misrepresentation against Aphria and the individual defendants, as well as all claims against Carl Merton. The Court granted certification of the primary market statutory cause of action against all remaining Defendants but made it conditional on a successful motion by the Plaintiff to have the Court appoint aTilray’s Application for Summary Judgment in ~~second~~October ~~Plaintiff for that aspect of the Claim. The defendant underwriters are appealing~~or ~~one~~November 2023. ~~term of that final aspect of the Court's decision. We continue to believe that these claims are without merit and plan to vigorously defend against this action.~~

Docklight Litigation

On November 5, 2021 Docklight Brands, Inc. (“Docklight”) filed a complaint against the Company and its wholly-owned subsidiary, High Park Holdings, Ltd. (“High Park”) in Superior Court of the State of Washington, King County. Docklight claimed breach of contract against High Park arising from a 2018 license agreement pursuant to which Docklight licensed certain Bob Marley-related brands to High Park (as amended in 2020 and 2021, the “High Park License”). In addition, Docklight brought a negligent misrepresentation claim against Tilray, alleging that certain individuals at Tilray or Aphria had made false statements to Docklight in order to induce Docklight to waive Docklight’s alleged right to terminate the High Park License for change-of-control on the basis of the 2021 Tilray-Aphria Arrangement Agreement. Docklight seeks injunctive relief as well as unspecified damages. On December 17, 2021, Defendants removed the case to the United States District Court, Federal District of Washington. Defendants’ answer to the complaint was ~~timely~~ filed by January 21, 2022, and discovery ~~in this litigation matter~~ is ongoing. Mediation was held April 2023, but the parties were unable to reach a resolution. Tilray and High Park continue to believe that the claims are without merit and we intend to continue to vigorously defend the Docklight suit. Recently, the parties have engaged in active settlement discussions to fully resolve Docklight’s claims.

~~Included~~Summary of Litigation accruals

The total litigation expense accrual included in ~~Litigation (recovery) costs is $33,000 relating to~~accrued liabilities for the ~~SLC Settlement (net of costs) and expense accruals equaling $25,000~~period ended August 31, 2023 was $35,138 to cover various ongoing litigation matters that are probable and estimable ~~for~~( May 31, 2023 - $25,000). The increase of $10,138 from the ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~February 28, 2023.~~prior period is due to the inclusion of the HEXO liabilities assumed, net of settlements during the quarter.

2522

Note ~~18.~~19. Net revenue

The Company reports its net revenue in four reporting segments: cannabis, distribution, beverage alcohol and wellness.

Net revenue is comprised of:

For the three months

For the nine months

ended February 28,

ended February 28,

2023

2022

2023

2022

Cannabis revenue
$ 61,118 $ 69,178 $ 203,503 $ 232,540
Cannabis excise taxes
(13,569 ) (14,133 ) (47,486 ) (48,271 )
Net cannabis revenue
47,549 55,045 156,017 184,269
Beverage alcohol revenue
21,941 20,473 67,209 51,500
Beverage alcohol excise taxes
(1,301 ) (876 ) (4,520 ) (2,735 )
Net beverage alcohol revenue
20,640 19,597 62,689 48,765
Distribution revenue
65,385 62,532 186,158 198,587
Wellness revenue
12,015 14,697 38,072 43,426
Total
$ 145,589 $ 151,871 $ 442,936 $ 475,047

	For the three months
	ended August 31,
	2023			2022
Cannabis revenue	$	96,884		$	75,689
Cannabis excise taxes		(26,551	)		(17,119	)
Net cannabis revenue		70,333			58,570
Beverage alcohol revenue		25,339			21,863
Beverage alcohol excise taxes		(1,177	)		(1,209	)
Net beverage alcohol revenue		24,162			20,654
Distribution revenue		69,157			60,585
Wellness revenue		13,297			13,402
Total	$	176,949		$	153,211

Note ~~19.~~20. Cost of goods sold

Cost of goods sold is comprised of:

	*For the three months*				*For the nine months*				*For the three months*
	*ended February 28,*				*ended February 28,*				*ended August 31,*
	*2023*		*2022*		*2023*		*2022*		*2023*		*2022*
Cannabis costs	$	80,362	$	37,042	$	137,800	$	122,492	$	50,517	$	28,861
Beverage alcohol costs		10,663		8,091		32,932		20,674		11,266		10,849
Distribution costs		57,964		57,566		165,443		178,093		61,468		54,984
Wellness costs		8,299		9,343		26,964		30,238		9,502		9,903
Total	$	157,288	$	112,042	$	363,139	$	351,497	$	132,753	$	104,597

Note ~~20.~~21. General and administrative expenses

General and administrative expenses are comprised of:

	*For the three months*						*For the nine months*						For the three months
	*ended February 28,*						*ended February 28,*						ended August 31,
	*2023*			*2022*			*2023*			*2022*			2023		2022
Executive compensation	$	2,754		$	4,238		$	9,359		$	9,565		$	3,661	$	3,555
Office and general		6,799			4,012			20,011			21,755			8,168		5,829
Salaries and wages		13,621			14,076			38,407			37,536			13,114		14,635
Stock-based compensation		9,630			9,355			29,766			27,025			8,257		9,193
Insurance		3,159			4,835			8,588			14,461			3,849		2,703
Professional fees		1,165			3,601			5,385			9,669			1,499		2,490
Gain on sale of capital assets		(15	)		(861	)		(2	)		(631	)		3		77
Insurance proceeds		-			(4,032	)		-			(4,032	)
Travel and accommodation		1,104			1,102			3,484			2,876			1,107		1,161
Rent		782			2,119			2,387			3,177			858		865
Total	$	38,999		$	38,445		$	117,385		$	121,401		$	40,516	$	40,508

2623

Note ~~21.~~22. Non-operating income (expense)

Non-operating income (expense) is comprised of:

	*For the three months*						*For the nine months*						For the three months
	*ended February 28,*						*ended February 28,*						ended August 31,
	*2023*			*2022*			*2023*			*2022*			2023			2022
Change in fair value of convertible debenture payable	$	207		$	56,128		$	(20,375	)	$	151,851		$	(2,147	)	$	(7,884	)
Change in fair value of warrant liability		5,256			21,089			6,841			58,802			(8,198	)		1,548
Foreign exchange loss		(1,955	)		(2,548	)		(26,621	)		(18,452	)
Foreign exchange loss (gain)														6,267			(25,573	)
Loss on long-term investments		(925	)		(3,326	)		(2,529	)		(6,834	)		(109	)		(1,008	)
Other non-operating (losses) gains, net		(1,370	)		(306	)		(7,545	)		962			(215	)		(75	)
Total	$	1,213		$	71,037		$	(50,229	)	$	186,329		$	(4,402	)	$	(32,992	)

Other non-operating (losses) gains, net for the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2023, includes amounts to settle outstanding notes with non-controlling interest shareholders.

Note ~~22.~~23. Fair value measurements

Financial instruments

The Company has classified its financial instruments as described in Note 3 Significant accounting policies in our Annual Financial Statements.

The carrying values of accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their fair values due to their short periods to maturity.

At ~~February 28,~~August 31, 2023 and May 31, 2023 the Company had long-term debt of $4,876 and $nil, ( ~~May 31, 2022~~ ~~- $20,358)~~respectively, and the principal portion of convertible debentures payable of $436,570 subject to fixed interest rates. The Company’s long-term debt is valued based on discounting the future cash outflows associated with the long-term debt. The discount rate is based on the incremental premium above market rates for the U.S. Department of the Treasury securities of similar duration. In each period thereafter, the incremental premium is held constant while the U.S. Department of the Treasury security is based on the then current market value to derive the discount rate.

2724

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of ~~February 28,~~August 31, 2023 and May 31, ~~2022~~2023 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

								*February 28,*										*August 31,*
	*Level 1*		*Level 2*		*Level 3*			*2023*			*Level 1*		*Level 2*		*Level 3*			*2023*
Financial assets
Cash and cash equivalents	$	164,997	$	—	$	—		$	164,997		$	177,519	$	—	$	—		$	177,519
Marketable Securities		243,286		—		—			243,286
Restricted cash												1,613							1,613
Marketable securities												287,333		—		—			287,333
Convertible notes receivable		—		—		168,356			168,356			—		—		74,681			74,681
Equity investments measured at fair value		376		1,596		5,648			7,620			1,078		986		5,500			7,564
Financial liabilities
Warrant liability		—		—		(7,414	)		(7,414	)		—		—		(10,015	)		(10,015	)
Contingent consideration		—		—		(26,815	)		(26,815	)		—		—		(20,181	)		(20,181	)
APHA 24 Convertible debenture		—		—		(223,087	)		(223,087	)		—		—		(124,453	)		(124,453	)
Total recurring fair value measurements	$	408,659	$	1,596	$	(83,312	)	$	326,943		$	467,543	$	986	$	(74,468	)	$	394,061

								*May 31,*										*May 31,*
	*Level 1*		*Level 2*		*Level 3*			*2022*			*Level 1*		*Level 2*		*Level 3*			*2023*
Financial assets
Cash and cash equivalents	$	415,909	$	—	$	—		$	415,909		$	206,632	$	—	$	—		$	206,632
Restricted cash												—		—		—			—
Marketable Securities												241,897		—		—			241,897
Convertible notes receivable		—		—		111,200			111,200			—		—		103,401			103,401
Equity investments measured at fair value		1,878		2,469		5,703			10,050			1,056		1,088		5,651			7,795
Financial liabilities
Warrant liability		—		—		(14,255	)		(14,255	)		—		—		(1,817	)		(1,817	)
Contingent consideration		—		—		(16,007	)		(16,007	)		—		—		(27,107	)		(27,107	)
APHA 24 Convertible debenture		—		—		(216,753	)		(216,753	)		—		—		(120,568	)		(120,568	)
Total recurring fair value measurements	$	417,787	$	2,469	$	(130,112	)	$	290,144		$	449,585	$	1,088	$	(40,440	)	$	410,233

The Company’s financial assets and liabilities required to be measured on a recurring basis are its convertible notes receivable, equity investments measured at fair value, ~~debt securities classified as available-for-sale,~~convertible debentures measured at fair value, acquisition-related contingent consideration, and warrant liability.

Convertible notes receivable and ~~equity~~long-term investments are recorded at fair value. The estimated fair value is determined using ~~quoted market prices, broker or dealer quotations or discounted cash flows~~the Black Scholes option pricing model, probability of legalization and is classified as Level 3.

~~Debt securities classified as available-for sale~~Convertible debentures payable are recorded at fair ~~value. The~~value when elected or required under US GAAP. Specifically, the APHA 24 instrument's estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 2.3.

Certain equity investments recorded at fair value have quoted prices in active markets for identical assets and are classified as Level 1.The Company classified securities with observable inputs as level 2 and without a quoted market price as Level 3.

The warrants associated with the warrant liability are classified as Level 3 derivatives. Consequently, the estimated fair value of the warrant liability is determined using the Black-Scholes pricing model. Until the warrants are exercised, expire, or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity, the warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded in change in fair value of warrant liability. Any significant adjustments to the unobservable inputs disclosed in the table below would have a direct impact on the fair value of the warrant liability.

The contingent consideration from the acquisitions of SweetWater, Montauk, and ~~Montauk,~~Truss due in December 2023, ~~and~~ December 2025, and upon the triggering event respectively and are payable in cash, is determined by discounting future expected cash outflows at a discount rate in the range of 5%~~, and~~ - 11.4%, respectively and probability of achievement of 25% and ~~80%~~90%. The unobservable inputs into the future expected cash outflows result in a fair value measurement classified as Level 3.

~~The APHA~~ 24 ~~Convertible debentures payable are recorded at fair value. The estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level~~ 3.3

The balances of assets and liabilities categorized within Level 3 of the fair value hierarchy measured at fair value on a recurring basis are reconciled, as follows:

APHA 24

Convertible

Warrant

Contingent

Convertible

notes receivable

Liability

Consideration

Debt

Total

Balance, May 31, 2022
$ 111,200 $ (14,255 ) $ (16,007 ) $ (216,753 ) $ (135,815 )
Additions
167,752 — (10,245 ) — 157,507
Unrealized gain (loss) on fair value
70,779 6,841 (563 ) (6,334 ) 70,723
Impairments
(181,375 ) — — — (181,375 )
Balance, February 28, 2023
$ 168,356 $ (7,414 ) $ (26,815 ) $ (223,087 ) $ (88,960 )

														*APHA 24*
	*Convertible*			*Equity*			*Warrant*			*Contingent*			*Convertible*
	*notes receivable*			*Investments*			*Liability*			*Consideration*			*Debt*
Balance, May 31, 2023	$	103,401		$	5,651		$	(1,817	)	$	(27,107	)	$	(120,568	)
Additions		—			—			—			(4,181	)		—
Disposals		(28,720	)		—			—			—			—
Unrealized gain (loss) on fair value		—			(151	)		(8,198	)		11,107			(3,885	)
Impairments		—						—			—			—
Balance, August 31, 2023	$	74,681		$	5,500		$	(10,015	)	$	(20,181	)	$	(124,453	)

The unrealized gain (loss) on fair value for the convertible debenture, the warrant liability, contingent consideration, and debt securities classified under available-for-sale method is recognized in the consolidated statements of loss and comprehensive loss using the following inputs:

		*Significant*
	*Valuation*	*unobservable*
Financial asset / financial liability	*technique*	*input*	*Inputs*
		~~Volatility,~~	~~70%~~
APHA Convertible debentures	Black-Scholes	~~forfeiture rate,~~Volatility,	~~30%~~50%
		expected life (in years)	~~1.3~~0.8
Warrant liability	Black-Scholes	Volatility,	~~70%~~50%
		expected life (in years)	~~2.0~~1.5
Contingent consideration	Discounted cash flows	Discount rate,	5% - 11%
		achievement	25% - ~~80%~~
~~Convertible notes receivable~~	~~Black-Scholes~~	~~Effective interest rate,~~	~~17% - 22%~~
		~~conversion~~	~~0% - 60%~~90%

Items measured at fair value on a non-recurring basis

The Company's prepaids and other current assets, long lived assets, including property and equipment, goodwill and intangible assets are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There have been no changes to the Company’s capital management approach in the period. The Company considers its cash and cash equivalents and marketable securities as capital.

Note ~~23.~~24. Segment reporting

Information reported to the Chief Operating Decision Maker (“CODM”) for the purpose of resource allocation and assessment of segment performance focuses on the nature of the operations. The Company operates in four reportable segments: (1) cannabis operations, which encompasses the production, distribution, sale, co-manufacturing and advisory services of both medical and adult-use cannabis, (2) beverage alcohol operations, which encompasses the production, marketing and sale of beverage alcohol products, (3) distribution operations, which encompasses the purchase and resale of pharmaceuticals products to customers, and (4) wellness products, which encompasses hemp foods and cannabidiol (“CBD”) products. This structure is in line with how our Chief Operating Decision Maker (“CODM”) assesses our performance and allocates resources.

Operating segments have not been aggregated and no asset information is provided for the segments because the Company’s CODM does not receive asset information by segment on a regular basis.

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Segment gross profit from external customers:

	*For the three months*					*For the nine months*				*For the three months*
	*ended February 28,*					*ended February 28,*				*ended August 31,*
	*2023*			*2022*		*2023*		*2022*		*2023*		*2022*
Cannabis
Net cannabis revenue	$	47,549		$	55,045	$	156,017	$	184,269	$	70,333	$	58,570
Cannabis costs		80,362			37,042		137,800		122,492		50,517		28,861
Gross profit (loss)		(32,813	)		18,003		18,217		61,777
Gross profit											19,816		29,709
Distribution
Distribution revenue		65,385			62,532		186,158		198,587		69,157		60,585
Distribution costs		57,964			57,566		165,443		178,093		61,468		54,984
Gross profit		7,421			4,966		20,715		20,494		7,689		5,601
Beverage alcohol
Net beverage alcohol revenue		20,640			19,597		62,689		48,765		24,162		20,654
Beverage alcohol costs		10,663			8,091		32,932		20,674		11,266		10,849
Gross profit		9,977			11,506		29,757		28,091		12,896		9,805
Wellness
Wellness revenue		12,015			14,697		38,072		43,426		13,297		13,402
Wellness costs		8,299			9,343		26,964		30,238		9,502		9,903
Gross profit	$	3,716		$	5,354	$	11,108	$	13,188	$	3,795	$	3,499

Channels of Cannabis revenue were as follows:

For the three months

For the nine months

ended February 28,

ended February 28,

2023

2022

2023

2022

Revenue from Canadian medical cannabis products
$ 6,035 $ 7,050 $ 18,920 $ 23,353
Revenue from Canadian adult-use cannabis products
45,318 43,504 $ 156,063 162,632
Revenue from wholesale cannabis products
58 2,804 $ 686 6,763
Revenue from international cannabis products
9,707 15,820 $ 27,834 39,792
Less excise taxes
(13,569 ) (14,133 ) $ (47,486 ) (48,271 )
Total
$ 47,549 $ 55,045 $ 156,017 $ 184,269

	*For the three months*
	*ended August 31,*
	*2023*			*2022*
Revenue from Canadian medical cannabis	$	6,142		$	6,520
Revenue from Canadian adult-use cannabis		71,195			58,355
Revenue from wholesale cannabis		5,295			392
Revenue from international cannabis		14,252			10,422
Less excise taxes		(26,551	)		(17,119	)
Total	$	70,333		$	58,570

On July 12, 2022, Tilray acquired the HEXO Convertible Note from HTI and also entered into a strategic alliance with HEXO Corp. (“HEXO”) as discussed in Note 67 (Convertible notes receivable) and Note 1112 (Convertible debentures payable). In addition, the Company and HEXO entered into various commercial transaction ~~agreements, including (i) an advisory services agreement regarding Tilray’s provision of advisory services to~~agreements. On June 22, 2023, the Company completed the HEXO Acquisition as described in ~~exchange for an $18 million annual advisory fee payable to Tilray; (ii) a co-manufacturing agreement providing for~~Note ~~third~~6~~-party manufacturing services between~~ (Business acquisitions), and thus these commercial arrangements were terminated and HEXO's financial results were consolidated in the parties and setting forth the terms of Tilray’s international bulk supply to HEXO; and (iii) a procurement and cost savings agreement for shared savings related to specified optimization activities, procurement, and other similar cost savings realized by the parties as a result of the foregoing commercial arrangements.current period results.

Included in revenue from Canadian adult-use cannabis is ~~$8,667 and $24,302~~$1,500 of advisory services revenue for the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2023from the aforementioned HEXO commercial transaction ~~agreements.~~agreements, compared to $7,753 in the prior comparative period.

Geographic net revenue:

	*For the three months*				*For the nine months*				*For the three months*
	*ended February 28,*				*ended February 28,*				*ended August 31,*
	*2023*		*2022*		*2023*		*2022*		*2023*		*2022*
North America	$	70,463	$	73,234	$	228,866	$	236,220	$	93,521	$	82,192
EMEA		71,111		74,671		199,867		225,596		79,704		66,041
Rest of World		4,015		3,966		14,203		13,231		3,724		4,978
Total	$	145,589	$	151,871	$	442,936	$	475,047	$	176,949	$	153,211

Geographic capital assets:

	*February 28,*		*May 31,*		*August 31,*		*May 31,*
	*2023*		*2022*		*2023*		*2023*
North America	$	313,233	$	464,370	$	384,091	$	319,173
EMEA		108,944		119,409		106,761		107,131
Rest of World		3,086		3,720		3,767		3,363
Total	$	425,263	$	587,499	$	494,619	$	429,667

Major customers are defined as customers that ~~each individually account for greater than~~ ~~10%~~ ofare materially significant to the Company’s annual revenues. For the three ~~and~~ ~~nine~~months ended ~~February 28,~~August 31, 2023 and 2022, there were no major customers representing ~~greater than~~ ~~10%~~ ofa material contribution to our quarterly revenues.

Note ~~24.~~25. Subsequent Events

~~Charter Amendments~~On August 7, 2023, the Company entered into a securities and asset purchase agreement (the “Purchase Agreement”) by and among Anheuser-Busch Companies, LLC, Craft USA Holdings, LLC, Craft Brew Alliance, Inc. (collectively, “AB”), the Company and Tilray Beverages, LLC. Pursuant to the Purchase Agreement, Tilray will acquire from AB a portfolio of craft beer and beverage brands, assets and businesses related to Breckenridge Brewery, Blue Point, 10 Barrel, Redhook, Widmer Brothers, Square Mile, Shock Top and HiBall. The purchase price paid to AB at closing was equal to $85,000 in cash and is subject to working capital and other applicable closing adjustments. The acquisition closed on September 29, 2023 and $20,000 was borrowed under the 420 Delayed Draw Term Loan Agreement to fund part of the purchase price paid for the AB Transaction.

On ~~March 16,~~September 12, 2023, the ~~Company's stockholders formally approved~~Company repurchased $20,000 of its TLRY 23 Notes for cancellation by issuing 7,000,000 shares and paying $610 of cash to settle both principal and accrued interest. After cancellation, the ~~Company's proposal to amend its certificate of incorporation (the "Charter Amendments"). The Charter Amendments modified the Company's existing certificate of incorporation by canceling the Class~~ 1 ~~Common Stock and re-allocating such authorized shares to Class~~ 2 ~~Common Stock. In addition, the Charter Amendments reclassified each issued and~~ outstanding ~~share of Class~~ 2 ~~Common Stock as~~ ~~one~~ ~~share of Common Stock, par value $0.0001,~~principal balance of the ~~Company (“Common Stock”). The cumulative effect of the Charter Amendments is that the Company currently has~~TLRY ~~two~~23 classes of authorized stock — Common Stock and preferred stock. All of the issued and outstanding Series A Preferred Stock automatically converted into the Company’s common stock following the approval of the Charter Amendments by the vote of the Company’s stockholders. There are no outstanding Series A Preferred Stock following such automatic conversion.

~~Arrangement Agreement with HEXO Corp.~~Notes was $107,331.

On ~~April 10,~~October 2, 2023, ~~we entered into an Arrangement Agreement (the “Arrangement Agreement”) with HEXO Corp. (“HEXO”), pursuant to which Tilray agreed to acquire all~~the Company repaid the remaining $107,331 of the issued and outstanding common shares of HEXO pursuant to a plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”). Under the terms of the Arrangement Agreement, each outstanding common share of HEXO outstanding immediately prior to the effective time of the Arrangement is expected to be transferred to TilrayTLRY 23 Notes in ~~exchange for 0.4352 of a share of Tilray Common Stock.~~ cash upon maturity.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Interim Consolidated Financial Statements and the related Notes thereto for the period ended ~~February 28,~~August 31, 2023 contained in this Quarterly Report on Form 10-Q and the Audited Consolidated Financial Statements and the related Notes thereto contained in our Annual Report on Form 10-K ~~as amended~~ for the fiscal year ended May 31, ~~2022.~~ 2023, as well as in conjunction with the sections entitled “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-Kfor the fiscal year ended May 31, 2023. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading “Cautionary Note Regarding Forward-Looking Statements” in the introduction of this Form 10-Q.

Company Overview

We are a leading global cannabis-lifestyle and consumer packaged goods company headquartered in Leamington and New York, with operations in Canada, the United States, Europe, Australia, and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering a worldwide community to live their very best life, enhanced by moments of connection and wellbeing. Tilray’s mission is to be the most responsible, trusted and market leading cannabis consumer products company in the world with a portfolio of innovative, high-quality and beloved brands that address the needs of the consumers, customers and patients we serve.

Our overall strategy is to leverage our ~~scale,~~brands, infrastructure, expertise and capabilities to drive market share in ~~Canada and internationally,~~the industries in which we compete, achieve industry-leading, profitable growth and build sustainable, long-term shareholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities in consumer insights, drive category management leadership and assess growth opportunities with the introduction of new ~~products.~~products and entries into new geographies. In addition, we are relentlessly focused on managing our cost of goods and expenses in order to maintain our strong financial position.

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Trends and Other Factors Affecting Our Business

Canadian cannabis market trends:

The cannabis industry in Canada continues to evolve at a rapid pace during the early periods following the federal legalization of adult-use cannabis. Through analysis of the current market conditions, the following key trends have emerged and are anticipated to influence the near-term future in the industry:

Market share. Tilray continues to maintain its market leadership position in Canada. During the quarter, we experienced a significant increase in market share in Canada, with our share increasing from 8.1% to a 13.4% from the immediately preceding quarter, as reported by Hifyre data for all provinces excluding Quebec where Weedcrawler was deemed more accurate. This increase was driven by the strategic acquisitions of HEXO and Truss during the quarter which contributed favorably to our increase in adult use revenue. We expect that during the next fiscal year, the contribution to our market share from these acquired lines of business will fluctuate until they are fully absorbed into our distribution channels.

Price compression. We have historically seen price compression in the market, when compared to the prior fiscal year, which was driven by intense competition from the approximately 1,000 Licensed Producers in Canada. The price compression year over year has reduced the Company's revenue by approximately ~~$3 million and $28~~$3.1 million for the three ~~and nine~~ months ended ~~February 28, 2023.~~August 31, 2023, which affects our cannabis gross margin as well as our bottom line.

Excise taxes. Given the impacts of the above-referenced price compression, excise tax ~~has grown~~continues to become a larger component of net revenue as it is predominantly computed as a fixed price on grams sold rather than as a percentage of the selling price. The Cannabis Council of Canada has formed an Excise Task Force to present these challenges to the Ministry of Finance in Canada and continues to pursue reform. Additionally, as many as two-thirds of Canadian licensed producers had excise tax deficits owed, which they were unable to pay on time. The Company believes this ~~will~~may result in insolvencies and may be a key element of potential consolidation in the industry and we believe long term there is a possibility of some level of reform but it will likely not occur in the ~~next 12 months;~~near term.

~~Market share~~Timing difference in recognizing synergized operating results. ~~Tilray continues~~As we continue to maintain its market leadership position in Canada. However, we experienced a minor decline from 8.3% to an 8.1% market share, from the immediately preceding quarter, as reported by Hifyre data for all provinces excluding Quebec where Weedcrawler was deemed more accurate. The Company continues to experience challenges in Quebec as the product listing submissions made in the last quarter were accepted but offset by further product rationalizations by the board due to increased competition of new entrants in the Quebec market. As a result, the Company is continuing to focus on growing its share in more efficient marketsacquire businesses such as ~~Ontario~~HEXO and ~~British Columbia where share has already begun~~Truss, a large part of our strategy involves removing legacy costs from these businesses as part of our acquisition strategy. Once we have completed our full $27 million synergy plan for HEXO and integrated Truss's operations, we expect our operating results to ~~increase; and~~be more profitable.

Change ~~in potency preferences~~facility utilization as a result of acquisitions. ~~Evolving consumer demand for higher potency products has caused a substantial shift in consumer purchasing patterns.~~ We ~~revised our flower strategy to remain innovative and evolve with the industry, launching a large volume of new beta flower strains in the current year which~~ continue to assess our facilities for further optimization or cost reduction to ensure utilization is prioritized and our value chain is operating at its peak efficiency. During this period of facility optimization, we expect there to be ~~newly listed in the provinces during the remainder of the fiscal year to contend with this change in demand.~~a temporary short-term negative impact on our operating results until our capacity is optimized.

These identified trends have had impacts on the current period results of operations and are discussed in greater detail in the respective ~~section.~~sections.

International cannabis market trends:

The cannabis industry in Europe is in its early stages of development whereby countries within Europe are at different stages of legalization of medical and adult-use cannabis as some countries have expressed a clear political ambition to legalize adult-use cannabis (Germany, Portugal, Luxembourg and Czech Republic), some are engaging in an experiment for adult-use (Netherlands, Switzerland) and some are debating regulations for cannabinoid-based medicine (France, Spain, Italy, and the United Kingdom). In Europe, we believe that, despite continuing ~~COVID-19 pressure~~recessionary economic conditions and the Russian conflict with Ukraine, cannabis legalization (both medicinal and adult-use) will continue to gain traction albeit more slowly than originally expected. We also continue to believe that Tilray remains uniquely positioned to maintain and gain significant market share in these markets with its infrastructure and its investments, which is comprised of two EU-GMP cultivation facilities within Europe located in Portugal and Germany, our distribution network and our demonstrated commitment to the availability, quality and safety of our cannabinoid-based medical products. Today, Germany remains the largest medical cannabis market in Europe.

The following is a summary of the state of cannabis legalization within Europe:

Germany. The new coalition government led by chancellor Olaf Schulz declared its intention to legalize adult-use cannabis use, which aims to regulate the controlled dispensing of cannabis for adult-use consumption. In late October 2022, the German government published key details of its plan to legalize and regulate adult-use cannabis, including what Health Minister Karl Lauterbach described as “complete” cultivation within the country. Subsequently, Lauterbach announced that a first draft of the proposed regulations shall be issued in the first quarter of calendar year 2023, which will be evaluated by the European Union Commission in a formal notification procedure. To date, a draft of the proposed regulations has not yet been issued.

Recently, Mr. Lauterbach advised that the proposal had been revised and that the new plan is a two-part model, which appears to be designed in order to legalize cannabis as broadly as possibly without running afoul of European Union rules. On July 6, 2023, it was announced that the draft regulations pertaining to decriminalization, home cultivation and non-commercial “cultivation associations” (i.e., social clubs) had been finalized by the health ministry and was ready to be delivered to the German parliament, which is expected to take place in the Fall of 2023.

We continue to believe that Tilray is well-positioned in Germany to provide consistent and sustainable cannabis products for the adult-use market whether only in-country cultivation is permitted or whether imports are also allowed given our Aphria RX facility located in Germany and our EU-GMP-certified production facility in ~~Portugal.~~Portugal, as well as our distribution platform, which provides us with access to 13,000 pharmacies in Germany.

Switzerland.In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and consumption. In the meantime, a three-year pilot project commenced on January 30, 2023, which permits selected participants to purchase cannabis for adult-use in various pharmacies in Basel, and more recently in Zurich, to conduct studies on the cannabis market and its impact on Swiss society. It is the first trial for the legal distribution of adult-use cannabis containing THC in Europe.

Spain. The Spanish Congress' Health Committee has recently approved a Medical Cannabis Report that paves the way for a government-sponsored bill on medical cannabis. The Report explicitly opens the door to standardized preparations other than the drugs already approved, highlighting their advantages in relation to safety, security and stability; as well as the possibility to prescribe medical cannabis in community pharmacies and not only in hospitals, favoring the access to the patients that may need it.

France. France launched a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis. To date, 2,300 patients are enrolled in the experiment, which has been extended for another year and is now ending March 2024 in order to collect more data and to adopt a legal framework. The first results of the experimentation are positive. Several independent agencies have produced reports that show the effectiveness of medical cannabis, especially in situations of chronic pain.

Czech Republic. The Czech Republic has discussed plans to launch a fully regulated adult-use cannabis market and is reviewing in ~~first half~~the context of ~~calendar year 2023.~~the European regulations.

Malta. In 2021, became the first country in the European Union to legalize personal possession of the drug and permit private “cannabis clubs,” where members can grow and share the drug.

Beverage alcohol market trends:

The beverage alcohol category, while more established, continues to shift with changes in consumer trends for the craft industry. Specifically, based on IRI data, for the last 13 weeks ended ~~February 26,~~August 27, 2023, the US beer industry grew ~~3.3%~~3.14%, with craft beer ~~down 2.9%~~growing 0.71%, a slight improvement from the immediately preceding quarter. Nationally SweetWater trends softened during the ~~same period Sweetwater however, outperformed both~~three months ended August 31, 2023, due to the ~~US craft beer~~timing of key marketing programming being pushed into our second quarter, while SweetWater’s home market ~~and the US beer industry~~remained in a growth trend, finishing an increased 5.9% in the ~~same period in its core market increasing increased sales 4.8% across~~quarter. SweetWater is expected to return to growth nationally at the ~~Southeast region, where approximately 70%~~start of the second quarter through programming and innovation. Early results from the launch of SweetWater’s ~~national beer sales~~latest innovation, Gummies, are ~~currently derived.~~encouraging, with the brand quickly becoming a top 3 offering in activated markets. Additionally, Montauk finished the period with an increased 9.2% growth based on IRI data for the aforementioned period, through sustained success in home markets and new market expansion. The Company anticipates ~~continuing to grow its beer sales by expanding~~continued growth through focused innovation, targeted marketing efforts, and gains in distribution ~~points~~across the portfolio of its SweetWater, Green Flash, Alpine and Montauk brands as well as launching innovative products such as hard seltzers, rose beer, lager, hazy IPAs and pale ales to continue to be a market leader in the craft beer industry.

brands.

Breckenridge Distillery is a leader in the ~~Colorado~~ bourbon industry and continues to gain market share in both the vodka and gin markets. A primary growth objective is to continue expansion of market share across the United States, ~~as well as~~including expanding the national ~~chains~~chain's footprint, to maintain a double-digit annual top-line growth. To ensure continued growth in the future, the company is focused on expanding the marketing strategy, highlighting its quality products. ~~Breckenridge Distillery’s commitment to quality has been recognized in recent awards by Whisky Magazine as~~Recent media coverage includes coverage of newly released products, the ~~World's Best Blended, Best American Blended Malt, Best American Blended Limited Release,~~expanded Denver Broncos Sponsorship, and ~~Best American Blended.~~recognition of the world class restaurant located at the distillery. The overall ~~bourbon~~whiskey market continues to grow ~~although competition from tequila~~through premiumization and ~~RTD’s remains a challenge.~~expanding into new target demographics. The Company expects its spirits business to continue to grow with the integration of the national distributer agreement ~~signed~~ with RNDC ~~in Fall 2022 has been slow, but will also be a growth driver for the business.~~as well as new product offerings.

3431

Wellness market trends:

Manitoba ~~harvest’s~~Harvest’s branded hemp business ~~continues~~continued to expand its U.S. and Canadian leading market share ~~position. These market share gains were offset by many customers reducing inventory levels amidst the current economic climate to conserve cash.~~position this year. During the quarter, ~~we launched~~the Company successfully continued expansion of its Hemp Food portfolio into more accessible consumer formats with the continued launch of a ~~new~~breakthrough CBD wellness beverage, Happy ~~Flower, during “Dry January” via a direct-to-consumer e-commerce platform. We~~Flower™. The Company will look to expand the Happy Flower™ brand with retail distribution into key markets, ~~throughout the remainder of 2023,~~ focusing on U.S. states with established CBD permissibility and ~~established CBD sales.~~sales momentum in future periods.

Acquisitions, Strategic Transactions and Synergies

We strive to continue to expand our business on a consolidated basis, through a combination of organic growth and acquisition. While we continue to execute against our strategic initiatives that we believe will result in the long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to enter attractive new geographic markets and product categories as well as expand our existing capabilities. In addition, we have exited certain businesses and continue to evaluate certain businesses within our portfolio that are dilutive to profitability and cash flow. As a result, we incur transaction costs in connection with identifying and completing acquisitions and strategic transactions, as well as ongoing integration costs as we combine acquired companies and continue to achieve synergies, which is offset by income generated in connection with the execution of these transactions. For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, we incurred ~~$5.4~~$8.5 million of transaction expenses, ~~and earned ($3.9) million of transaction income,~~ discussed further below.

Our acquisition ~~and wind down~~ strategy has had a material impact on the Company’s results in the current quarter and we expect will continue ~~to persist~~ into future periods generating accretive impacts for our stockholders. There are currently three primary cost saving initiatives as follows:

●

~~Tilray and~~ HEXO ~~strategic alliance:~~acquisition:

On ~~July 12, 2022,~~June 22, 2023, Tilray acquired ~~the HEXO Convertible Note from HTI and entered into a strategic alliance with~~ HEXO Corp. (“HEXO”) as discussed in Note 6 ~~(Convertible notes receivable) and Note 11 (Convertible debentures payable)~~(Business acquisitions). ~~In addition, Tilray and~~With the HEXO entered into various commercial transaction agreements, including (i) an advisory services agreement regarding Tilray’s provision of advisory services to HEXO in exchange for an $18 million annual advisory fee payable to Tilray; (ii) a co-manufacturing agreement providing for third-party manufacturing services between the parties and setting forth the terms of Tilray’s international bulk supply to HEXO; and (iii) a procurement and cost savings agreement for shared savings related to specified optimization activities, procurement, and other similar cost savings realized by the parties as a result of the foregoing commercial arrangements.

~~Through this strategic alliance,~~Acquisition, Tilray expects to achieve additional cost savings in excess of $27M on an annualized pre-tax basis, driven by synergies across production, sales, marketing, distribution, and corporate savings, with potential incremental upside resulting from consolidating packaging, procurement, freight, and logistics. This builds on Tilray’s substantial ~~cash savings and production efficiencies. In~~progress optimizing its Canadian cannabis operations discussed below. During the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, ~~the Company recognized $8.7 million and $24.3~~we have achieved $17.1 million of ~~advisory services revenue included in Canadian adult-use cannabis revenue. Included in interest expense, net is $2.2 and $5.6~~our synergy plan on an annualized run-rate basis of which $2.9 million ~~of interest income for three and nine months ended February 28, 2023. The Company expects to earn approximately $40 million~~represented actual cost savings during the ~~first 12 month period~~period. As discussed in ~~connection with the HEXO Convertible Note,~~our trends section, these saving initiatives take time to ~~be reported as $31 million of adult-use cannabis revenue and $9 million of interest income.~~implement, resulting in related benefits being realized over time.

3532

●

Cannabis business cost reduction plan:

During ~~our~~the fourth quarter of our fiscal year ended May 31, 2022, the Company launched a $30 million cost optimization plan of our existing cannabis business to solidify our position as an industry leading low-cost producer. The Company took decisive action to manage cash flow amid an evolving retail environment by identifying opportunities to leverage technology, supply chain, procurement, and packaging efficiencies while driving labor savings. In the current period ended ~~February 28,~~August 31, 2023, we have achieved ~~$22.0~~$22 million of our cost optimization plan on an annualized run-rate basis of which ~~$12.0~~$21 million represented actual cost savings during the period. The amount achieved is comprised of the following items:

Optimizing cultivation. We made impactful strides to right-size our cultivation footprint by maximizing our yield per plant and by honing the ability to flex production during optimal growing seasons to manage our cost to grow.

Refining selling fees. We assessed our current product-to-market strategy to optimize our direct and controllable selling fees as a percentage of revenue without compromising our sales strategy on a go-forward basis.

Reducing general and administrative costs. We remain focused on reducing operating expenses by leveraging innovative solutions to maintain a lean organization. We plan to further automate processes, reducing outside spend where efficient, and ensuring we are obtaining competitive pricing on our administrative services.

●

International Cannabis business cost reduction plan~~Tilray-Aphria Arrangement Agreement:~~:

During our fiscal year ended May 31 2023, the Company launched an $8.0 million cost optimization plan for our international cannabis business to adapt to changing market dynamics and slower than anticipated legalization in Europe. In ~~connection with~~ the ~~Tilray-Aphria Arrangement Agreement, we committed to achieving $80 million, subsequently increased to $100~~current period ended August 31, 2023, the Company achieved an annualized run-rate basis of $6.8 million of ~~synergies in connection with~~cost savings. This was driven by the integration of ~~Tilray~~our Distribution and ~~Aphria and developed a robust plan and timeline~~European cannabis business for redundant costs including headcount consolidation in addition to achieve such synergies. In executing our integration plan, we evaluated and optimized the organizational structure, evaluated and retained the talent and capabilities we identified as necessary to achieve our longer-term growth plan and vision, reviewed contracts and arrangements, and analyzed our supply chain and our strategic partnerships. Due to the Company’s actions in connection with the integration of Tilray and Aphria, we exceeded the identified $80 million of cost synergies and achieved such synergies aheadoptimization of our ~~plan.~~

As disclosed in the preceding quarter, the Company achieved the remainder of the targeted $100 million in cost-saving synergies on an annualized run-rate basis. While this milestone marks the completion of the Tilray and Aphria Arrangement Agreement synergy plan, the Company intends to continue to prioritize cost saving initiatives in the future while remaining committed to our growth plan and vision.facility utilization.

In addition to our cost saving strategies, the Company has also executed the following strategic transactions during the quarter:

●

Beverage Alcohol Acquisitions:

On ~~November~~August 7, ~~2022, Tilray acquired Montauk Brewing Company, Inc. (“Montauk”), a leading craft brewer company based in Montauk, New York. As consideration for the acquisition of Montauk,~~2023, the Company ~~paid an initial~~entered into a securities and asset purchase agreement (the “Purchase Agreement”) by and among Anheuser-Busch Companies, LLC, Craft USA Holdings, LLC, Craft Brew Alliance, Inc. (collectively, “AB”), the Company and Tilray Beverages, LLC. Pursuant to the Purchase Agreement, Tilray will acquire a portfolio of craft beer brands, assets and businesses from AB that includes Breckenridge Brewery, Blue Point, 10 Barrel, Redhook, Widmer Brothers, Square Mile, Shock Top and HiBall. The purchase price ~~of $35.1 million, which was~~to be paid ~~with $28.7~~to AB at closing is expected to be equal to $85.0 million in cash, subject to working capital and ~~$6.4 million from the issuance of 1,708,521 shares of Tilray's Class 2 common stock. In the event that Montauk achieves certain volume and/or EBITDA targets~~other applicable closing adjustments. The acquisition closed on ~~or before December 31, 2025, the stockholders of Montauk shall~~September 29, 2023 as described in Note 25 (Subsequent events), and is expected to be ~~eligible~~transformational to receive as additional contingent cash consideration of up to $18 million. The Company, determined that the closing date fair value of this contingent consideration was $10.2 million. In connection with this transaction, the Company intends to leverage SweetWater’s existing nationwide infrastructure and Montauk’s northeast influence to significantly expand our distribution network and drive profitable growth in our beverage-alcohol segment. This distribution network is part of Tilray’s strategy to leverage our growing ~~portfolio of CPG brands and ultimately to launch THC-based product adjacencies upon federal legalization in the U.S.~~beverage alcohol strategy.

3633

●

~~Strategic transactions related to facility closures and exits:~~

In connection with evaluating the profitability of our CC Pharma distribution business, Tilray decided to discontinue its partnership in a medical device reprocessing business given it was not core to CC Pharma's business and was both dilutive from a profitability and cash flow perspective. In connection with evaluating the profitability of our international cannabis business, Tilray also discontinued transactions with one of its customers in Israel as we focus on markets which we believe are more accretive to our profitability and cash flow. In addition, Tilray terminated its relationship with a supplier in Uruguay due to a breach of the underlying contract. During the quarter ended February 28, 2023, the Company sold its interest in ASG Pharma Ltd., a wholly-owned subsidiary incorporated in Malta.

As a result of these strategic business decisions, there were the following impacts on the results for the three and nine months ended February 28, 2023 through the aggregate increase of net loss by $9.3 million, summarized as follows:

~~we recognized a one-time return adjustment of $3.1 million in our international cannabis revenue from a customer in Israel;~~

~~we recognized a decrease in gross profit of $1.4 million which related to the above mentioned return from a customer in Israel;~~

We recognized restructuring charges of $1.6 million of exit costs and $2.8 million for inventory adjustments from the termination of our producer partnership in Uruguay due to a breach of the underlying contract;

~~there was an increase to office and general expenses of $1.6 million for a bad debt expense related to the aforementioned customer in Israel; and~~

~~the Company recognized a $2.2 million of restructuring costs as a result of CC pharma discontinuing its partnership in the medical reprocessing business.~~

~~the Company recognized a $0.3 million gain on the disposal of our investment in ASG Malta in other non-operating (loss) gain, net.~~

~~The impacts of the items discussed in this section are assessed further in our analysis of the results of operations below.~~

Political and Economic Environment

Our results of operations can also be affected by economic, political, legislative, regulatory, legal actions, the global volatility and general market disruption resulting from ~~the global COVID-19 pandemic and~~ geopolitical tensions, such as Russia's incursion into Ukraine. Economic conditions, such as recessionary trends, inflation, supply chain disruptions, interest and monetary exchange rates, and government fiscal policies, and the recent banking credit crises, can have a significant effect on operations. Accordingly, we could be affected by civil, criminal, environmental, regulatory or administrative actions, claims or proceedings.

Results of Operations

Our consolidated results, in thousands except for per share data, are as follows:

	For the three months												For the nine months												For the three months
	ended February 28,						Change			% Change			ended February 28,						Change			% Change			ended August 31,						Change			% Change
(in thousands of U.S. dollars)	2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022
Net revenue	$	145,589		$	151,871		$	(6,282	)		(4	)%	$	442,936		$	475,047		$	(32,111	)		(7	)%	$	176,949		$	153,211		$	23,738			15	%
Cost of goods sold		157,288			112,042			45,246			40	%		363,139			351,497			11,642			3	%		132,753			104,597			28,156			27	%
Gross profit (loss)		(11,699	)		39,829			(51,528	)		(129	)%		79,797			123,550			(43,753	)		(35	)%
Gross profit																										44,196			48,614			(4,418	)		(9	)%
Operating expenses:
General and administrative		38,999			38,445			554			1	%		117,385			121,401			(4,016	)		(3	)%		40,516			40,508			8			0	%
Selling		6,452			8,641			(2,189	)		(25	)%		25,792			25,283			509			2	%		6,859			9,671			(2,812	)		(29	)%
Amortization		23,518			24,590			(1,072	)		(4	)%		71,872			84,345			(12,473	)		(15	)%		22,225			24,359			(2,134	)		(9	)%
Marketing and promotion		7,354			7,578			(224	)		(3	)%		23,137			20,163			2,974			15	%		8,535			7,248			1,287			18	%
Research and development		171			164			7			4	%		502			1,464			(962	)		(66	)%		79			166			(87	)		(52	)%
Change in fair value of contingent consideration		352			(30,747	)		31,099			(101	)%		563			(29,065	)		29,628			(102	)%		(11,107	)		211			(11,318	)		(5,364	)%
Impairments		1,115,376			—			1,115,376			NM			1,115,376			—			1,115,376			NM
Litigation (recovery) costs		(5,230	)		4,215			(9,445	)		(224	)%		(1,970	)		6,489			(8,459	)		(130	)%
Litigation costs																										2,034			445			1,589			357	%
Restructuring costs		2,663			—			2,663			0	%		10,727			795			9,932			1,249	%		915			—			915			0	%
Transaction (income) costs		5,382			5,023			359			7	%		(3,882	)		35,653			(39,535	)		(111	)%		8,502			(12,816	)		21,318			(166	)%
Total operating expenses		1,195,037			57,909			1,137,128			1,964	%		1,359,502			266,528			1,092,974			410	%		78,558			69,792			8,766			13	%
Operating loss		(1,206,736	)		(18,080	)		(1,188,656	)		6,574	%		(1,279,705	)		(142,978	)		(1,136,727	)		795	%		(34,362	)		(21,178	)		(13,184	)		62	%
Interest expense, net		(1,040	)		(2,312	)		1,272			(55	)%		(8,560	)		(22,422	)		13,862			(62	)%		(9,835	)		(4,413	)		(5,422	)		123	%
Non-operating (expense) income, net		1,213			71,037			(69,824	)		(98	)%		(50,229	)		186,329			(236,558	)		(127	)%		(4,402	)		(32,992	)		28,590			(87	)%
Income (loss) before income taxes		(1,206,563	)		50,645			(1,257,208	)		(2,482	)%		(1,338,494	)		20,929			(1,359,423	)		(6,495	)%
Income taxes (recovery)		(10,811	)		(1,830	)		(8,981	)		491	%		(15,313	)		(2,739	)		(12,574	)		459	%
Net income (loss)	$	(1,195,752	)	$	52,475		$	(1,248,227	)		(2,379	)%	$	(1,323,181	)	$	23,668		$	(1,346,849	)		(5,691	)%
Loss before income taxes																										(48,599	)		(58,583	)		9,984			(17	)%
Income tax expense																										7,264			7,211			53			1	%
Net loss																									$	(55,863	)	$	(65,794	)	$	9,931			(15	)%

3834

Use of Non-GAAP Measures

Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q, we discuss non-GAAP financial measures, including reference to:

●

adjusted gross profit (excluding purchase price allocation (“PPA”) fair value step ~~up and inventory valuation allowance)~~up) for each reporting segment (Cannabis, Beverage alcohol, Distribution and Wellness), as applicable,

●

adjusted gross margin (excluding purchase price allocation (“PPA”) fair value step ~~up and inventory valuation allowance)~~up) for each reporting segment (Cannabis, Beverage alcohol, Distribution and Wellness), as applicable,

●

adjusted EBITDA,

●

cash and marketable securities, and

●

constant currency presentation of net revenue.

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

Constant Currency Presentation

We believe that this measure provides useful information to investors because it provides transparency to underlying performance in our consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on period-to-period comparability given the volatility in foreign currency exchange markets. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. Dollar are translated into U.S. Dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

Cash and Marketable Securities

The Company combines the Cash and cash equivalent financial statement line item and the Marketable securities financial statement line item as an aggregate total as reconciled in the liquidity and capital resource section below. The Company’s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its short-term liquidity position by combining these three GAAP metrics.

3935

Operating Metrics and Non-GAAP Measures

We use the following operating metrics and non-GAAP measures to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. Other companies, including companies in our industry, may calculate operating metrics and non-GAAP measures with similar names differently which may reduce their usefulness as comparative measures. Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis.

	For the three months						For the nine months						For the three months
	ended February 28,						ended February 28,						ended August 31,
(in thousands of U.S. dollars)	2023			2022			2023			2022			2023			2022
Net cannabis revenue	$	47,549		$	55,045		$	156,017		$	184,269		$	70,333		$	58,570
Distribution revenue		65,385			62,532			186,158			198,587			69,157			60,585
Net beverage alcohol revenue		20,640			19,597			62,689			48,765			24,162			20,654
Wellness revenue		12,015			14,697			38,072			43,426			13,297			13,402
Cannabis costs		77,604			37,042			137,800			122,492			50,517			28,861
Beverage alcohol costs		10,663			8,091			32,932			20,674			11,266			10,849
Distribution costs		57,964			57,566			165,443			178,093			61,468			54,984
Wellness costs		8,299			9,343			26,964			30,238			9,502			9,903
Adjusted gross profit (excluding PPA step-up and inventory valuation adjustments) ⁽¹⁾		44,310			39,829			138,020			135,550
Cannabis adjusted gross margin (excluding inventory valuation adjustments) ⁽¹⁾		47	%		33	%		47	%		40	%
Adjusted gross profit (excluding PPA step-up) ⁽¹⁾														49,302			49,721
Cannabis adjusted gross margin (excluding PPA step-up)⁽¹⁾														35	%		51	%
Beverage alcohol adjusted gross margin (excluding PPA step-up) ⁽¹⁾		53	%		59	%		53	%		58	%		56	%		53	%
Distribution gross margin		11	%		8	%		11	%		10	%		11	%		9	%
Wellness gross margin		31	%		36	%		29	%		30	%		29	%		26	%
Adjusted EBITDA ⁽¹⁾	$	14,015		$	10,086			39,254		$	36,543		$	11,434		$	13,531
Cash and cash equivalents and marketable securities		408,283			279,214			408,283			279,214
Working capital		288,830			413,358			288,830			413,358
Cash and marketable securities⁽¹⁾as at the period ended:														464,852			490,643
Working capital as at the period ended:													$	291,981		$	637,623

⁽¹⁾Adjusted EBITDA, adjusted gross profit (excluding PPA step-up) and adjusted gross margin (excluding PPA step-up) for each of our segments, and cash and marketable securities are non-GAAP financial measures. See “Use of Non-GAAP Measures” below for a reconciliation of these Non-GAAP Measures to our most comparable GAAP measure.

Segment Reporting

Our reporting segments revenue is comprised of revenues from our cannabis, distribution, beverage alcohol, and wellness operations, as follows:

	For the three months										For the nine months										For the three months
	ended February 28,				Change			% Change			ended February 28,				Change			% Change			ended August 31,				Change			% Change
(in thousands of U.S. dollars)	2023		2022		2023 vs. 2022						2023		2022		2023 vs. 2022						2023		2022		2023 vs. 2022
Cannabis business	$	47,549	$	55,045	$	(7,496	)		(14	)%	$	156,017	$	184,269	$	(28,252	)		(15	)%	$	70,333	$	58,570	$	11,763			20	%
Distribution business		65,385		62,532		2,853			5	%		186,158		198,587		(12,429	)		(6	)%		69,157		60,585		8,572			14	%
Beverage alcohol business		20,640		19,597		1,043			5	%		62,689		48,765		13,924			29	%		24,162		20,654		3,508			17	%
Wellness business		12,015		14,697		(2,682	)		(18	)%		38,072		43,426		(5,354	)		(12	)%		13,297		13,402		(105	)		(1	)%
Total net revenue	$	145,589	$	151,871	$	(6,282	)		(4	)%	$	442,936	$	475,047	$	(32,111	)		(7	)%	$	176,949	$	153,211	$	23,738			15	%

4036

Our reporting segments revenue using a constant currency⁽¹⁾ are as follows:

	For the three months										For the nine months										For the three months
	ended February 28,										ended February 28,										ended August 31,
	as reported in constant currency				Change			% Change			as reported in constant currency				Change			% Change			as reported in constant currency				Change		% Change
(in thousands of U.S. dollars)	2023		2022		2023 vs. 2022						2023		2022		2023 vs. 2022						2023		2022		2023 vs. 2022
Cannabis business	$	51,007	$	55,045	$	(4,038	)		(7	)%	$	164,746	$	184,269	$	(19,523	)		(11	)%	$	71,389	$	58,570	$	12,819		22	%
Distribution business		70,144		62,532		7,612			12	%		211,676		198,587		13,089			7	%		66,952		60,585		6,367		11	%
Beverage alcohol business		20,640		19,597		1,043			5	%		62,689		48,765		13,924			29	%		24,162		20,654		3,508		17	%
Wellness business		12,385		14,697		(2,312	)		(16	)%		39,144		43,426		(4,282	)		(10	)%		13,459		13,402		57		0	%
Total net revenue	$	154,176	$	151,871	$	2,305			2	%	$	478,255	$	475,047	$	3,208			1	%	$	175,962	$	153,211	$	22,751		15	%

Our geographic revenue is as follows:

	For the three months										For the nine months										For the three months
	ended February 28,				Change			% Change			ended February 28,				Change			% Change			ended August 31,				Change			% Change
(in thousands of U.S. dollars)	2023		2022		2023 vs. 2022						2023		2022		2023 vs. 2022						2023		2022		2023 vs. 2022
North America	$	70,463	$	73,234	$	(2,771	)		(4	)%	$	228,866	$	236,220	$	(7,354	)		(3	)%	$	93,521	$	82,192	$	11,329			14	%
EMEA		71,111		74,671		(3,560	)		(5	)%		199,867		225,596		(25,729	)		(11	)%		79,704		66,041		13,663			21	%
Rest of World		4,015		3,966		49			1	%		14,203		13,231		972			7	%		3,724		4,978		(1,254	)		(25	)%
Total net revenue	$	145,589	$	151,871	$	(6,282	)		(4	)%	$	442,936	$	475,047	$	(32,111	)		(7	)%	$	176,949	$	153,211	$	23,738			15	%

Our geographic revenue using a constant currency⁽¹⁾ is as follows:

	For the three months									For the nine months										For the three months
	ended February 28,									ended February 28,										ended August 31,
	as reported in constant currency				Change		% Change			as reported in constant currency				Change			% Change			as reported in constant currency				Change		% Change
(in thousands of U.S. dollars)	2023		2022		2023 vs. 2022					2023		2022		2023 vs. 2022						2023		2022		2023 vs. 2022
North America	$	73,728	$	73,234	$	494		1	%	$	234,951	$	236,220	$	(1,269	)		(1	)%	$	95,214	$	82,192	$	13,022		16	%
EMEA		75,091		74,671		420		1	%		225,075		225,596		(521	)		(0	)%		75,116		66,041		9,075		14	%
Rest of World		5,357		3,966		1,391		35	%		18,229		13,231		4,998			38	%		5,632		4,978		654		13	%
Total net revenue	$	154,176	$	151,871	$	2,305		2	%	$	478,255	$	475,047	$	3,208			1	%	$	175,962	$	153,211	$	22,751		15	%

Our geographic capital assets are as follows:

	February 28,		May 31,		Change			% Change			August 31,		May 31,		Change			% Change
(in thousands of U.S. dollars)	2023		2022		2023 vs. 2022						2023		2023		2023 vs. 2022
North America	$	313,233	$	464,370	$	(151,137	)		(33	)%	$	384,091	$	319,173	$	64,918			20	%
EMEA		108,944		119,409		(10,465	)		(9	)%		106,761		107,131		(370	)		(0	)%
Rest of World		3,086		3,720		(634	)		(17	)%		3,767		3,363		404			12	%
Total capital assets	$	425,263	$	587,499	$	(162,236	)		(28	)%	$	494,619	$	429,667	$	64,952			15	%

4137

Cannabis revenue

Cannabis revenue based on market channel is as follows:

	For the three months												For the nine months												For the three months
	ended February 28,						Change			% Change			ended February 28,						Change			% Change			ended August 31,						Change			% Change
(in thousands of US dollars)	2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022
Revenue from Canadian medical cannabis products	$	6,035		$	7,050		$	(1,015	)		(14	)%	$	18,920		$	23,353		$	(4,433	)		(19	)%
Revenue from Canadian adult-use cannabis products		45,318			43,504			1,814			4	%		156,063			162,632			(6,569	)		(4	)%
Revenue from wholesale cannabis products		58			2,804			(2,746	)		(98	)%		686			6,763			(6,077	)		(90	)%
Revenue from international cannabis products		9,707			15,820			(6,113	)		(39	)%		27,834			39,792			(11,958	)		(30	)%
Revenue from Canadian medical cannabis																									$	6,142		$	6,520		$	(378	)		(6	)%
Revenue from Canadian adult-use cannabis																										71,195			58,355			12,840			22	%
Revenue from wholesale cannabis																										5,295			392			4,903			1,251	%
Revenue from international cannabis																										14,252			10,422			3,830			37	%
Total cannabis revenue		61,118			69,178			(8,060	)		(12	)%		203,503			232,540			(29,037	)		(12	)%		96,884			75,689			21,195			28	%
Excise taxes		(13,569	)		(14,133	)		564			(4	)%		(47,486	)		(48,271	)		785			(2	)%		(26,551	)		(17,119	)		(9,432	)		55	%
Total cannabis net revenue	$	47,549		$	55,045		$	(7,496	)		(14	)%	$	156,017		$	184,269		$	(28,252	)		(15	)%	$	70,333		$	58,570		$	11,763			20	%

Cannabis revenue based on market channel using a constant currency⁽¹⁾ is as follows:

	For the three months												For the nine months												For the three months
	ended February 28,												ended February 28,												ended August 31,
	as reported in constant currency						Change			% Change			as reported in constant currency						Change			% Change			as reported in constant currency						Change			% Change
(in thousands of US dollars)	2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022
Revenue from Canadian medical cannabis products	$	6,442		$	7,050		$	(608	)		(9	)%	$	20,093		$	23,353		$	(3,260	)		(14	)%
Revenue from Canadian adult-use cannabis products		48,721			43,504			5,217			12	%		162,777			162,632			145			0	%
Revenue from wholesale cannabis products		62			2,804			(2,742	)		(98	)%		726			6,763			(6,037	)		(89	)%
Revenue from international cannabis products		10,269			15,820			(5,551	)		(35	)%		31,627			39,792			(8,165	)		(21	)%
Revenue from Canadian medical cannabis																									$	6,310		$	6,520		$	(210	)		(3	)%
Revenue from Canadian adult-use cannabis																										73,111			58,355			14,756			25	%
Revenue from wholesale cannabis																										5,458			392			5,066			1,292	%
Revenue from international cannabis																										13,777			10,422			3,355			32	%
Total cannabis revenue		65,494			69,178			(3,684	)		(5	)%		215,223			232,540			(17,317	)		(7	)%		98,656			75,689			22,967			30	%
Excise taxes		(14,487	)		(14,133	)		(354	)		3	%		(50,477	)		(48,271	)		(2,206	)		5	%		(27,267	)		(17,119	)		(10,148	)		59	%
Total cannabis net revenue	$	51,007		$	55,045		$	(4,038	)		(7	)%	$	164,746		$	184,269		$	(19,523	)		(11	)%	$	71,389		$	58,570		$	12,819			22	%

(1)

The constant currency presentation of our Cannabis revenue based on market channel is a non-GAAP financial measure. See “Use of Non-GAAP Measures –Constant Currency Presentation” above for a discussion of these Non-GAAP Measures.

4238

Revenue from Canadian medical ~~cannabis products:~~cannabis: Revenue from Canadian medical cannabis ~~products~~ decreased to ~~$6.0 million and $18.9~~$6.1 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, compared to revenue of ~~$7.1 million and $23.4~~$6.5 million for the prior year same ~~periods.~~period. On a constant currency basis revenue from Canadian medical cannabis ~~products~~ decreased to ~~$6.4 million and $20.1~~$6.3 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, compared to revenue of ~~$7.1 million and $23.4~~$6.5 million for the prior year same periods. ~~This~~While revenue was relatively consistent period over period and on a constant currency basis, the decrease in revenue from medical cannabis ~~products is primarily~~continues to be driven by increased competition from the adult-use recreational market and its related price compression impacting the medical cannabis market.

Revenue from Canadian adult-use ~~cannabis products:~~cannabis: During the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, our revenue from Canadian adult-use cannabis ~~products~~ increased to ~~$45.3 million and decreased to $156.1~~$71.2 million compared to revenue of ~~$43.5~~$58.4 million and ~~$162.6 million~~ for the prior year same ~~periods. Due~~period. The increase in adult-use revenue was driven by organic growth from launching new product innovations from our existing brand portfolios as well as the increased revenue from the acquisition of HEXO on June 22, 2023, and Truss on August 3, 2023. Additionally, due to the decline in the Canadian dollar, on a constant currency basis, our revenue from Canadian adult-use cannabis ~~products~~ increased to ~~$48.7 million and increased to $162.8~~$73.1 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023. ~~Included~~Offsetting the increase in the current period, ~~results~~ was the ~~favorable impact of the HEXO arrangement which resulted in $8.7 million and $24.3 million~~reduction of advisory services revenue ~~for the three and nine months ended February 28, 2023 that did not occur~~to $1.5 million from $7.8 million in the prior year comparative period ~~comparative. This increase~~as a result of the HEXO acquisition being completed during the quarter which terminated the previous strategic arrangement that was ~~offset by the negative impacts of price compression, challenges~~ in ~~the province of Quebec and change in potency preferences for both the three and nine months ended.~~place.

Wholesale cannabis revenue: Revenue from wholesale cannabis ~~products decreased~~increased to ~~$0.1 million and $0.7~~$5.3 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, compared to revenue of ~~$2.8 million and $6.8~~$0.4 million for the prior year same ~~periods which is consistent on~~period. On a constant currency ~~basis.~~basis, revenue from wholesale cannabis increased to $5.5 million. The Company continues to believe that wholesale cannabis revenue will remain subject to quarter-to-quarter variability and is based on opportunistic sales. The wholesale transactions that occurred in the period aided with our liquidity initiatives to increase our cash flow from operations despite having unfavorable impacts on our gross margin and EBITDA of $(2.7) million.

International cannabis revenue: Revenue from international cannabis ~~products decreased~~increased to ~~$9.7 million and $27.8~~$14.3 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, compared to revenue of ~~$15.8 million and $39.8~~$10.4 million for the prior year same ~~periods.~~period. Given the ~~deterioration~~increase of the Euro against the U.S. Dollar inwhen compared to the prior year quarter, on a constant currency basis, revenue from international cannabis ~~products decreased~~was $13.8 million compared to ~~$10.3 million and $31.6 million from $15.8 million and $39.8~~$10.4 million in the prior year same ~~periods~~period for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023. ~~During the nine month period, the Company recognized a one-time return adjustment of $3.1 million related to a customer in Israel. In addition, the Company had $5.1 million and $9.7 million of revenue~~The increase in the ~~three and nine months ended February 28, 2022, to Israel, which did not repeat in the current~~ period ~~results given the challenging and severe deterioration of market conditions in Israel.~~is largely driven by expansion into emerging international medical markets.

4339

Distribution revenue

Revenue from Distribution operations increased to ~~$65.4 million and decreased to $186.2~~$69.2 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 compared to revenue of ~~$62.5 million and $198.6~~$60.6 million for the prior year same ~~periods.~~period. Revenue was ~~negatively~~positively impacted during ~~both~~ the three ~~and nine~~ month ~~periods~~period from the ~~deterioration~~increase of the Euro against the U.S. Dollar in the quarter, which when the impacts are eliminated on a constant currency basis, revenue ~~increased to $70.1 million and $211.7~~was $67.0 million for the three ~~and nine~~ months ended ~~February 28, 2023 when compared to prior year same periods. However, this impact is offset~~August 31, 2023. The increase in the ~~nine month~~ period ~~increase~~was driven by increased production capacity achieved through out-sourcing to third party production facilities as ~~there was a flood that occurred in the comparative prior period~~well as leveraging our own internal production and ~~forced a business closure for approximately five days leading~~improved procurement processes, which has allowed CC Pharma to a decrease in net revenue in the prior period of almost $5.0 million, which did not recur in the current nine-month period. Additionally, the Company is continuing to prioritize higher margin sales, and as a result of our focus on higher margin sales and capacity constraints, management believes in future periods we can continue to drive larger profit margins despite not increasing revenue in our distribution business as we approach full utilization of our facility.improve its product mix.

Beverage alcohol revenue

Revenue from our Beverage alcohol operations increased to ~~$20.6 million and $62.7~~$24.2 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, compared to revenue of ~~$19.6 million and $48.8~~$20.7 million for the prior year same ~~periods.~~period. The increase in the three ~~month and nine~~ month period relates primarily to our acquisition of Montauk which occurred on November 7, ~~2022.~~2022, and is not reflected in the prior year comparative period.

Wellness revenue

Our Wellness revenue from Manitoba Harvest ~~decreased to $12.0 million and $38.1~~was relatively consistent at $13.3 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 compared to ~~$14.7 million and $43.4~~$13.4 million from the prior year same ~~periods.~~period. On a constant currency basis for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, ~~same periods,~~ Wellness revenue ~~decreased~~increased to ~~$12.4 million and $39.1~~$13.5 million from ~~$14.7 million and $43.4~~$13.4 million. ~~The decrease in revenue for the three months ended related~~Overall, sales remained relatively consistent period over period despite increasing pricing when compared to ~~continual changes of inventory management by one of our customers based on a warehousing strategy as well as a decline in sales velocity from a recent price increase required~~prior year to ~~protect our margin given~~combat the inflation ~~on our~~of ingredient costs. ~~The nine month decrease is impacted by the aforementioned items as well as the prior year comparison including a one-off private label sale that did not recur in the current quarter.~~

4440

Gross profit, gross margin and adjusted gross margin⁽¹⁾ for our reporting segments

Our gross profit and gross margin for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 and 2022, is as follows:

	For the three months												For the nine months												For the three months
(in thousands of U.S. dollars)	ended February 28,						Change			% Change			ended February 28,						Change			% Change			ended August 31,						Change			% Change
Cannabis	2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022
Net revenue		47,549			55,045			(7,496	)		(14	)%		156,017			184,269			(28,252	)		(15	)%		70,333			58,570			11,763			20	%
Cost of goods sold		80,362			37,042			43,320			117	%		137,800			122,492			15,308			12	%		50,517			28,861			21,656			75	%
Gross profit (loss)		(32,813	)		18,003			(50,816	)		(282	)%		18,217			61,777			(43,560	)		(71	)%
Gross profit																										19,816			29,709			(9,893	)		(33	)%
Gross margin		(69	)%		33	%		(102	)%		(309	)%		12	%		34	%		(22	)%		(65	)%		28	%		51	%		(23	)%		(45	)%
Inventory valuation adjustments		55,000			—			55,000			NM			55,000			12,000			43,000			358	%
Purchase price accounting step-up																										4,516			—			4,516			NM
Adjusted gross profit ⁽¹⁾		22,187			18,003			4,184			23	%		73,217			73,777			(560	)		(1	)%		24,332			29,709			(5,377	)		(18	)%
Adjusted gross margin ⁽¹⁾		47	%		33	%		14	%		42	%		47	%		40	%		7	%		18	%		35	%		51	%		(16	)%		(31	)%
Distribution
Net revenue		65,385			62,532			2,853			5	%		186,158			198,587			(12,429	)		(6	)%		69,157			60,585			8,572			14	%
Cost of goods sold		57,964			57,566			398			1	%		165,443			178,093			(12,650	)		(7	)%		61,468			54,984			6,484			12	%
Gross profit		7,421			4,966			2,455			49	%		20,715			20,494			221			1	%		7,689			5,601			2,088			37	%
Gross margin		11	%		8	%		3	%		38	%		11	%		10	%		1	%		10	%		11	%		9	%		2	%		22	%
Beverage alcohol
Net revenue		20,640			19,597			1,043			5	%		62,689			48,765			13,924			29	%		24,162			20,654			3,508			17	%
Cost of goods sold		10,663			8,091			2,572			32	%		32,932			20,674			12,258			59	%		11,266			10,849			417			4	%
Gross profit		9,977			11,506			(1,529	)		(13	)%		29,757			28,091			1,666			6	%		12,896			9,805			3,091			32	%
Gross margin		48	%		59	%		(11	)%		(19	)%		47	%		58	%		(11	)%		(19	)%		53	%		47	%		6	%		13	%
Purchase price accounting step-up		1,009			—			1,009			NM			3,223			—			3,223			NM			590			1,107			(517	)		(47	)%
Adjusted gross profit ⁽¹⁾		10,986			11,506			(520	)		(5	)%		32,980			28,091			4,889			17	%		13,486			10,912			2,574			24	%
Adjusted gross margin ⁽¹⁾		53	%		59	%		(6	%)		(10	%)		53	%		58	%		(5	%)		(9	%)		56	%		53	%		3	%		6	%
Wellness
Net revenue		12,015			14,697			(2,682	)		(18	)%		38,072			43,426			(5,354	)		(12	)%		13,297			13,402			(105	)		(1	)%
Cost of goods sold		8,299			9,343			(1,044	)		(11	)%		26,964			30,238			(3,274	)		(11	)%		9,502			9,903			(401	)		(4	)%
Gross profit		3,716			5,354			(1,638	)		(31	)%		11,108			13,188			(2,080	)		(16	)%		3,795			3,499			296			8	%
Gross margin		31	%		36	%		(5	)%		(14	)%		29	%		30	%		(1	)%		(3	)%		29	%		26	%		3	%		12	%
Total
Net revenue		145,589			151,871			(6,282	)		(4	)%		442,936			475,047			(32,111	)		(7	)%		176,949			153,211			23,738			15	%
Cost of goods sold		157,288			112,042			45,246			40	%		363,139			351,497			11,642			3	%		132,753			104,597			28,156			27	%
Gross profit (loss)		(11,699	)		39,829			(51,528	)		(129	)%		79,797			123,550			(43,753	)		(35	)%
Gross profit																										44,196			48,614			(4,418	)		(9	)%
Gross margin		(8	)%		26	%		(34	)%		(131	)%		18	%		26	%		(8	)%		(31	)%		25	%		32	%		(7	)%		(22	)%
Inventory valuation adjustments		55,000			—			55,000			NM			55,000			12,000			43,000			358	%
Purchase price accounting step-up		1,009			—			1,009			NM			3,223			—			3,223			NM			5,106			1,107			3,999			361	%
Adjusted gross profit ⁽¹⁾		44,310			39,829			4,481			11	%		138,020			135,550			2,470			2	%		49,302			49,721			(419	)		(1	)%
Adjusted gross margin ⁽¹⁾		30	%		26	%		4	%		15	%		31	%		29	%		2	%		7	%		28	%		32	%		(4	)%		(13	)%

(1)

Adjusted gross profit is our Gross profit (adjusted to exclude ~~inventory valuation adjustment and~~ purchase price accounting valuation step-up) and adjusted gross margin is our Gross margin (adjusted to exclude ~~inventory valuation adjustment and~~ purchase price accounting valuation step-up) and are non-GAAP financial measures. See “Use of Non-GAAP Measures” below for additional discussion regarding these non-GAAP measures. The Company’s management believes that adjusted gross profit and adjusted gross margin are useful to our management to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. We do not consider adjusted gross profit and adjusted gross margin in isolation or as an alternative to financial measures determined in accordance with GAAP.

4541

Cannabis gross margin: Gross margin decreased during the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 to ~~-69% and 12%~~28% from ~~33% and 34%~~51% for the prior year same ~~periods. The three and nine month decrease in cannabis gross margin is primarily related to~~period. Excluding the impact of the non-cash ~~inventory valuation allowance that occurred in the current year which was lower in the prior year. Excluding this valuation allowance,~~fair value purchase price accounting step-up, adjusted gross margin during the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 ~~increased~~decreased to ~~47%~~35% from ~~33% and increased to 47% from 40%~~51% when comparing the same prior year ~~periods.~~period. The ~~largest impact on~~remaining decrease is a result of the termination of the HEXO advisory services agreement which contributed $1.5 million of gross profit in the current ~~period~~year compared to $7.8 million in the prior year and a significant wholesale transaction with a negative gross profit of $(2.7) million, which was entered into to optimize our inventory levels and prioritize the generation of positive operating cash flow. Combining these factors, adjusted gross ~~margin is the inclusion of the $8.7 million and $24.3 million of HEXO advisory fee revenue included in~~ cannabis ~~revenue for the three and nine month periods. When this revenue is excluded from this computation, our adjusted cannabis gross~~ margin would have been ~~35% and 37% for the three and nine month periods. The reason for the decline~~39% compared 43% in the ~~three month~~prior period ~~when excluding~~and the ~~impacts from HEXO is attributed to the impacts of price compression as well as a~~remaining decrease in utilization of our cannabis facilities to manage demand requirements. Additionally during the nine month period, the Company recognized a one-time return as discussed in the international cannabis revenue section that reduced our top line revenue as well as a one-time inventory disposals incurred as exit costs from Israel for a combined impact of reducing gross profit by $1.4 million. Additionally, in the immediately preceding quarter the inventory adjustment of $2.8 million related to Uruguay was reclassified to restructuring costs in the current period. Further impacting the decrease in the adjusted gross cannabis margin is ~~a shift in strategic priorities~~due to focus on pursuing cash flow generating activities. The Company has made the business decision to lower production in our cannabis facilities as a result of slower than anticipated legalization globally. We will continue to prioritize reductions in operational costs as we continue to assess additional potential cost saving initiatives.price compression.

Distribution gross margin: Gross margin of 11% ~~and 11%~~ for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 increased from ~~8% and 10%~~9% for the same periods in the prior year. The increase in the three ~~and nine~~ month period is attributed to a change in product mix as the Company continues to focus on higher margin ~~sales.~~sales and a decrease in its cost of goods driven by the outsourcing of production.

Beverage alcohol gross margin: Gross margin of ~~48% and 47%~~53% for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 ~~decreased~~increased from ~~59% and 58%~~47% from the same ~~periods~~period in the prior year. Adjusted gross margin of ~~53% and 53%~~56% for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 ~~decreased~~increased from ~~59% and 58%~~53% from the same periods in the prior year. The ~~decrease~~increase in beverage alcohol gross margin for the current three month period is a result of a change in sales mix between beer and spirits as well as the impacts of the Montauk acquisition that was not completed in the prior period comparison. The decrease in beverage alcohol gross margin for the nine month period is a result of the Breckenridge and Montauk acquisitions that were not completed in the prior period comparison. Both acquired companies operate at a slightly lower margin than Sweetwater, which contributed to the decrease. Additionally, Sweetwater has expanded operations in Colorado in the current period which has had negative impacts on the margin as it is still in the start-up phase.

Wellness gross margin: Gross margin of ~~31% and~~ 29% for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 ~~decreased~~increased from ~~36% and 30%~~26% from the same ~~periods~~period in the prior year. The ~~three and nine month decrease~~increase in gross margin is ~~related~~a result of increased pricing from the prior period, which was used to combat the impacts of higher input costs of seed ingredients as a result of inflation. ~~The Company increased prices in the second quarter to combat the impacts of this inflation and as a result the gross margin has remained consistent from the immediately preceding quarter.~~

4642

Operating expenses

	For the three months												For the nine months												For the three months
	ended February 28,						Change			% Change			ended February 28,						Change			% Change			ended August 31,						Change			% Change
(in thousands of US dollars)	2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022
General and administrative	$	38,999		$	38,445		$	554			1	%	$	117,385		$	121,401		$	(4,016	)		(3	)%	$	40,516		$	40,508		$	8			0	%
Selling		6,452			8,641			(2,189	)		(25	)%		25,792			25,283			509			2	%		6,859			9,671			(2,812	)		(29	)%
Amortization		23,518			24,590			(1,072	)		(4	)%		71,872			84,345			(12,473	)		(15	)%		22,225			24,359			(2,134	)		(9	)%
Marketing and promotion		7,354			7,578			(224	)		(3	)%		23,137			20,163			2,974			15	%		8,535			7,248			1,287			18	%
Research and development		171			164			7			4	%		502			1,464			(962	)		(66	)%		79			166			(87	)		(52	)%
Change in fair value of contingent consideration		352			(30,747	)		31,099			(101	)%		563			(29,065	)		29,628			(102	)%		(11,107	)		211			(11,318	)		(5,364	)%
Impairments		1,115,376			—			1,115,376			0	%		1,115,376			—			1,115,376			NM
Litigation (recovery) costs		(5,230	)		4,215			(9,445	)		(224	)%		(1,970	)		6,489			(8,459	)		(130	)%
Litigation costs																										2,034			445			1,589			357	%
Restructuring costs		2,663			—			2,663			0	%		10,727			795			9,932			1,249	%		915			—			915			NM
Transaction (income) costs		5,382			5,023			359			7	%		(3,882	)		35,653			(39,535	)		(111	)%		8,502			(12,816	)		21,318			(166	)%
Total operating expenses	$	1,195,037		$	57,909		$	1,137,128			1,964	%	$	1,359,502		$	266,528		$	1,092,974			410	%	$	78,558		$	69,792		$	8,766			13	%

Operating expenses are comprised of general and administrative, share-based compensation, selling, amortization, marketing and promotion, research and development, change in fair value of contingent consideration, impairments, litigation ~~(recovery)~~ costs, restructuring costs and transaction (income) costs. These costs increased by ~~$1,137.1~~$8.8 million to ~~$1,195.0 million and increased by $1,093.0 million to $1,359.5~~$78.6 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 as compared to ~~$57.9 million and $266.5~~$69.8 million for the same ~~periods~~period of the prior year. ~~This nine month increase was primarily a result of the non-cash impairments recorded in the~~These changes period over period are described ~~in detail~~ below.

4743

General and administrative costs

During the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, general and administrative costs ~~increased by 1% and decreased by 3%~~were relatively unchanged as compared to the prior year same periods.

	For the three months												For the nine months												For the three months
	ended February 28,						Change			% Change			ended February 28,						Change			% Change			ended August 31,				Change			% Change
(in thousands of US dollars)	2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022						2023		2022		2023 vs. 2022
Executive compensation	$	2,754		$	4,238		$	(1,484	)		(35	)%	$	9,359		$	9,565		$	(206	)		(2	)%	$	3,661	$	3,555	$	106			3	%
Office and general		6,799			4,012			2,787			69	%		20,011			21,755			(1,744	)		(8	)%		8,168		5,829		2,339			40	%
Salaries and wages		13,621			14,076			(455	)		(3	)%		38,407			37,536			871			2	%		13,114		14,635		(1,521	)		(10	)%
Stock-based compensation		9,630			9,355			275			3	%		29,766			27,025			2,741			10	%		8,257		9,193		(936	)		(10	)%
Insurance		3,159			4,835			(1,676	)		(35	)%		8,588			14,461			(5,873	)		(41	)%		3,849		2,703		1,146			42	%
Professional fees		1,165			3,601			(2,436	)		(68	)%		5,385			9,669			(4,284	)		(44	)%		1,499		2,490		(991	)		(40	)%
Gain on sale of capital assets		(15	)		(861	)		846			(98	)%		(2	)		(631	)		629			(100	)%		3		77		(74	)		(96	)%
Insurance proceeds		—			(4,032	)		4,032			(100	)%		—			(4,032	)		4,032			(100	)%
Travel and accommodation		1,104			1,102			2			0	%		3,484			2,876			608			21	%		1,107		1,161		(54	)		(5	)%
Rent		782			2,119			(1,337	)		(63	)%		2,387			3,177			(790	)		(25	)%		858		865		(7	)		(1	)%
Total general and administrative costs	$	38,999		$	38,445		$	554			1	%	$	117,385		$	121,401		$	(4,016	)		(3	)%	$	40,516	$	40,508	$	8			0	%

Executive compensation ~~decreased~~increased by ~~35% and 2%~~3% in the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023. ~~The three month decrease is due to a change in the executive team structure during the quarter, while the nine month period~~Executive compensation has remained ~~consistent.~~generally consistent period over period.

Office and general increased by ~~69% and decreased by 8%~~40% during the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023. The increase for the three months is a result of the acquisition of Montauk ~~increased operations~~ and ~~some reclassification of other expenses during the period. The offset to this was that~~HEXO, which did not occur in the nine month period, there was a necessary one-time exit costs incurred in our international cannabis business to terminate operations that were no longer accretive to our focus of being free cash flow positive. Specifically, $1.6 million of bad debt expenses were incurred in the period from the discontinuance of business with our aforementioned Israel customer. The Company took this necessary step in order to continue pursuing sustainable growth by focusing on areas of the business that generate positive cash flows. Additionally, $1.6 million of exit costs recognized in the immediately proceeding quarter from our producer partnership in Uruguay were reclassified to restructuring costs in the currentprior period.

Salaries and wages decreased by ~~3% and increased by 2%~~10% during the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023. The decrease is primarily due to our focus on optimizing our cost structure and is offset by the inclusion of ~~Breckenridge~~Montauk and HEXO employees, ~~who~~which were ~~partially included~~not in the prior period comparison and Montauk employees, who were not included in the prior period comparatives. The Company’s headcount remained consistent with approximately 1,700 employees compared to 1,800 employees as of February 28, 2022.period.

4844

The Company recognized stock-based compensation expense of ~~$9.6 million and $29.8~~$8.3 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 compared to ~~$9.4~~$9.2 million ~~and $27.0~~ for the same ~~periods~~period in the prior year. The balance has remained relatively consistent period over period as this is based on the ~~time based~~time-based vesting schedules.

Insurance expenses ~~decreased~~increased by ~~35% and 41%~~42% for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 to ~~$3.2 million and $8.6~~$3.8 million from ~~$4.8~~$2.7 million ~~and $14.5 million from~~for the same ~~periods~~period in the prior year. This ~~item~~increase was ~~a target of~~driven by the ~~Tilray-Aphria Arrangement Agreement synergies.~~

~~Gain on sale of capital assets decreased to ($0.0) million~~expanded polices required for our recently acquired HEXO and ($0.0) million for the three and nine months ended February 28, 2023 compared to ($0.6) million and ($0.9) million for the prior year same periods. There were minimal disposals in the three and nine month periods in the current year, which did not recur from the comparative prior period. Additionally, the capital asset disposal of $2.2 million recorded in the immediately preceding quarter has been reclassified in the current period to restructuring costs.Montauk entities.

Selling costs

For the three months ended ~~February 28,~~August 31, 2023, the Company incurred selling costs of ~~$6.5 million and $25.8~~$6.9 million or ~~4.4% and 5.8%~~3.9% of net revenue as compared to ~~$8.6~~$9.7 million and ~~$25.3 million and 5.7% and 5.3%~~6.3% of net revenue in the prior year ~~periods.~~period. These costs relate to third-party distributor commissions, shipping costs, Health Canada cannabis fees, and patient acquisition and maintenance costs. Patient acquisition and ongoing patient maintenance costs include funding to individual clinics to assist with additional costs incurred by clinics resulting from the education of patients using the Company’s products. The decrease in the three month period was related to the renegotiation of terms in one of our distributor relationships resulting in ~~a one-time credit during the period.~~reduced variable fees. This impact was ~~offset~~also emphasized in the three ~~and nine~~ month period as a portion of our selling fees related to our Canadian adult-use cannabis with fixed components did not ~~decrease~~increase with the ~~decline~~increase in our revenue during the quarter. ~~Additionally, there are no selling fees associated with our advisory fee revenue and thus there is no correlation between selling fees and this stream of revenue.~~

Amortization

The Company incurred non-production related amortization charges of ~~$23.5 million and $71.9~~$22.2 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 compared to ~~$24.6 million and $84.4~~$24.4 million in the prior year period. The decreased amortization in ~~both~~ the ~~three and nine month periods,~~period, is a result of the reduced intangible asset levels.

Marketing and promotion costs

For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, the Company incurred marketing and promotion costs of ~~$7.4 million and $23.1~~$8.5 million as compared to ~~$7.6 million and $20.2~~$7.2 million for the prior year ~~periods.~~period. The increase is due to the acquisition of HEXO and Montauk in the nine month period is a result of the continued focus of investing in our Canadian cannabis brands by prioritizing our retail partnerships through the education of budtenders. Additionally, the prior year comparative did not include the marketing spend related to Breckenridge for a portion of the prior quarter and Montauk for the full quarter.period.

Research and development

Research and development costs were ~~$0.2 million and $0.5~~$0.1 million during the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 compared to $0.2 ~~million and $1.5~~ million in the prior year period. These relate to external costs associated with the development of new products.

Change in fair value of contingent consideration

The Company measures contingent consideration at fair value classified as Level 3, as discussed in Note 23 (Fair value measurements). The Company currently has three contingent consideration liabilities of $3.0 million, $13.0 million and $4.2 million for the Sweetwater, Montauk, and Truss acquisitions, respectively, as of August 31, 2023 compared to $16.2 million, $10.9 million and $nil respectively as of May 31, 2023. The decrease in fair value of $11.1 million was driven by the lowered probability of achieving the incentive targets, primarily relating to Sweetwater.

4945

~~Impairments~~

●

Capital asset impairments of $81.5 million on a production facility in Canada and $22.5 million on equipment which the Company has temporarily made idle in order to reduce cultivation costs and right-size the Company's production to align with current and projected demand, as references in Note 3 (Capital assets), and;

●

Intangible asset impairments of $110.0 million on customer relationships & distribution channels, $55.0 million of its licenses, permits & applications and $40.0 million of its intellectual property, trademarks, knowhow & brands, as a result of the decline in market share in its Canadian cannabis with certain product lines and customers, as referenced in Note 4 (Intangible assets), and;

●

Goodwill impairments of $603.5 million in cannabis goodwill and $15.0 million in wellness goodwill, as a result of the increased Company specific risk premium which was driven by increased borrowing rates and the decline of the company’s market capitalization, as referenced in Note 5 (Goodwill), and;

●

Convertible notes receivable impairments of $63.6 million on the HEXO Convertible Notes Receivables due to changes in the HEXO operations, which culminated in HEXO's assessment of a going concern issue primarily surrounding their ability to meet their minimum liquidity covenant and $117.8 million on the Medmen Convertible Notes due to the deterioration of capital market conditions from increased interest rates and recent delays in US Federal cannabis legalization, as referenced in Note 6 (Convertible Notes Receivable), and;

●

~~Other current assets impairments of $6.5 million.~~

~~This non-cash impairment expense has no impact on the Company’s compliance with debt covenants, its cash flows or available liquidity.~~

Litigation

For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, the Company recorded ~~($5.2)~~$2.0 million ~~net and ($2.0) million, net,~~ of litigation ~~recovery~~cost compared to an expense of ~~$4.2 million and $6.5~~$0.4 million for the ~~three and nine months ended February 28, 2022.~~prior period comparative. The ~~recovery~~increase is ~~a result of the proceeds received and accrued for the SLC~~related to period to period variability as litigation ~~of $39.9 million, which was received subsequent to quarter-end. These SLC litigation proceeds were offset by judgements, probable and estimated losses as well as ongoing litigation fees.~~is non-recurring in nature.

Restructuring costs

In connection with executing our acquisition strategy and strategic transactions, the Company has incurred non-recurring restructuring and exit costs associated with the integration efforts of these transactions. For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, the Company incurred ~~$2.7 million and $10.7~~$0.9 million of restructuring costs compared to $nil ~~and $0.8 million~~ for the ~~three and nine months ended February 28, 2022.~~prior period comparative. The ~~breakdown of the~~ restructuring charges for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 are ~~as follows:~~

~~In the three month period, the Company incurred $2.7 million of expenses related to severance costs required to right size the Company's production to better align with current demand requirements.~~

In the nine month period, the Company incurred $1.6 million of exit cost and $2.8 million for inventory adjustments from the termination of our producer partnership in Uruguay due to a breach of the underlying contract in our International cannabis business. Additionally, amounts related to the ~~Tilray-Aphria arrangement agreement for the closure of our Canadian cannabis facility in Enniskillen were reclassified from transaction costs~~HEXO cost optimizations occurring subsequent to restructuring costs during the quarter in the amount of $1.4 million. It is anticipated that there will continue to be additional costs associated with this transaction until the resolution of our lease termination for our Enniskillen facilityacquisition and the ~~restructuring~~operating costs of ~~Nanaimo~~the Truss facility, are completed. The Company also incurred $2.2 million of write-offs from the exit of our medical device reprocessing business in our distribution reporting segment. These one-time non-cash charges were a required exit costwhich is classified as ~~we determined this business venture was no longer accretive to our focus of being free cash flow positive and is not anticipated to have ongoing expenses.~~assets held for sale.

Transaction (income) costs

Items classified as transaction (income) costs are non-recurring or extraordinary in nature and correspond largely to our acquisition and synergy strategy. The three ~~and nine~~ months decrease of ~~7% and 111%~~166% from the prior year period is related to the following items:

●

the ~~prior~~current period ~~comparatives~~ included ~~fees related~~costs associated with exit and closing costs on completing the HEXO Acquisition on June 22, 2023, including, but not limited to, discretionary incentive compensation payments of $5.8 million, transaction income from the ~~MedMen transaction, which has been completed~~loan amendment agreement of $(6.0) million, and ~~thus there are no further expected costs to be incurred unless the Triggering Event arises;~~HEXO director and office runoff insurance of $5.1 million;

●

~~the fees associated with amending our charter incurred in the current three month period;~~

●

~~a non-reimbursed compensation payment of $5.0 million was made as a result of the HEXO transaction in the nine month period;~~

	●	partially offsetting the decrease in the period were the fees incurred for the Montauk acquisition in the current quarter which differed from the fees incurred for the Breckenridge acquisitions which occurred in the prior year period ~~comparative; and~~

	●	comparative, we recognized transaction income for a change in fair value of $18.3 million on the HTI Share ~~Consideration's~~Consideration’s purchase price derivative as a result of an increase in our share price on the shares paid for the HEXO convertible note receivable ~~Note 6 (Convertible notes receivable). This gain was payable to the Company from HTI and was collected in cash during the nine month period. This gain offsets the aforementioned items~~ in the ~~nine month~~previous year. This did not recur in the current period and contributes to the period over period changes. The Company does not anticipate there to be additional transaction costs related to the HEXO Convertible Note transaction. However, additional costs may be incurred should the Company pursue additional arrangements with HEXO.results.

Non-operating (expense) income, net

Non-operating (expense) income is comprised of:

	For the three months												For the nine months												For the three months
	ended February 28,						Change			% Change			ended February 28,						Change			% Change			ended August 31,						Change			% Change
(in thousands of US dollars)	2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022						2023			2022			2023 vs. 2022
Change in fair value of convertible debenture payable	$	207		$	56,128		$	(55,921	)		(100	)%	$	(20,375	)	$	151,851		$	(172,226	)		(113	)%	$	(2,147	)	$	(7,884	)	$	5,737			(73	)%
Change in fair value of warrant liability		5,256			21,089			(15,833	)		(75	)%		6,841			58,802			(51,961	)		(88	)%		(8,198	)		1,548			(9,746	)		(630	)%
Foreign exchange loss		(1,955	)		(2,548	)		593			(23	)%		(26,621	)		(18,452	)		(8,169	)		44	%
Foreign exchange loss (gain)																										6,267			(25,573	)		31,840			(125	)%
Loss on long-term investments		(925	)		(3,326	)		2,401			(72	)%		(2,529	)		(6,834	)		4,305			(63	)%		(109	)		(1,008	)		899			(89	)%
Other non-operating (losses) gains, net		(1,370	)		(306	)		(1,064	)		348	%		(7,545	)		962			(8,507	)		(884	)%		(215	)		(75	)		(140	)		187	%
Total non-operating income (expense)	$	1,213		$	71,037		$	(69,824	)		(98	)%	$	(50,229	)	$	186,329		$	(236,558	)		(127	)%	$	(4,402	)	$	(32,992	)	$	28,590			(87	)%

5146

For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, the Company recognized a change in fair value of its convertible debentures payable of ~~$0.2 million and~~ ($~~20.4)~~2.1) million compared to ~~$56.1 million and $151.9~~($7.9) million in the prior year same periods. The change is driven primarily by the changes in the Company’s share price and the change in the trading price of the convertible debentures payable. Additionally, for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, the Company recognized a change in fair value of its warrants, resulting in a ~~gain~~loss of ~~$5.3 million and $6.8~~($8.2) million compared to ~~$21.1 million and $58.8~~$1.5 million also as a result of the change in our share ~~price.~~price and the exercise price of the instrument. For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, the Company recognized a ~~loss~~gain of ~~($2.0) million and ($26.6)~~$6.3 million, resulting from the changes in foreign exchange rates during the period, compared to losses of ($~~2.5) million and ($18.5)~~25.6) million for the prior year same periods, largely associated with the ~~weakening~~recovery of the Euro. Lastly, included in other non-operating (losses) gains, net for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 was ~~($1.2) million and ($7.4) million related to a change in fair value on a derivative liability recognized in~~ the ~~three month period that did not occur in~~disposal of an operating entity during the ~~comparative periods.~~period.

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company calculates adjusted EBITDA as net ~~loss~~loss/net income before income taxes, net interest expense, depreciation and amortization, equity in net loss of equity-method investees, non-cash inventory ~~write downs,~~valuation adjustments, purchase price accounting step-up on inventory, stock-based compensation, integration activities, transaction (income) costs, litigation costs, change in fair value of contingent consideration, unrealized currency gains and losses and other adjustments.

~~The Company’s management believes~~We believe that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation.

We do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by U.S. GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with GAAP results.

For three ~~and nine~~ months ended ~~February 28,~~August 31, 2023, adjusted EBITDA ~~increased~~decreased to ~~$14.0 and $39.3~~$11.4 million compared to ~~$10.1 million and $36.5~~$13.5 million from the prior year same ~~periods.~~period. The decrease was primarily driven by the aforementioned negative impacts to our cannabis gross margin.

5247

For the three months

For the nine months

ended February 28,

Change

% Change

ended February 28,

Change

% Change

Adjusted EBITDA reconciliation:

2023

2022

2023 vs. 2022

2023

2022

2023 vs. 2022

Net (loss) income
$ (1,195,752 ) $ 52,475 $ (1,248,227 ) (2,379 )% $ (1,323,181 ) $ 23,668 $ (1,346,849 ) (5,691 )%
Income taxes (benefit) expense
(10,811 ) (1,830 ) (8,981 ) 491 % (15,313 ) (2,739 ) (12,574 ) 459 %
Interest expense, net
1,040 2,312 (1,272 ) (55 )% 8,560 22,422 (13,862 ) (62 )%
Non-operating income (expense), net
(1,213 ) (71,037 ) 69,824 (98 )% 50,229 (186,329 ) 236,558 (127 )%
Amortization
33,769 37,020 (3,251 ) (9 )% 101,156 113,824 (12,668 ) (11 )%
Stock-based compensation
9,630 9,355 275 3 % 29,766 27,025 2,741 10 %
Change in fair value of contingent consideration
352 (30,747 ) 31,099 (101 )% 563 (29,065 ) 29,628 (102 )%
Impairments
1,115,376 — 1,115,376 NM 1,115,376 — 1,115,376 NM
Inventory valuation adjustments
55,000 — 55,000 NM 55,000 12,000 43,000 358 %
Purchase price accounting step-up
1,009 — 1,009 NM 3,223 — 3,223 NM
Facility start-up and closure costs
2,100 2,500 (400 ) (16 )% 6,900 10,400 (3,500 ) (34 )%
Lease expense
700 800 (100 ) (13 )% 2,100 2,400 (300 ) (13 )%
Litigation (recovery) costs
(5,230 ) 4,215 (9,445 ) (224 )% (1,970 ) 6,489 (8,459 ) (130 )%
Restructuring costs
2,663 — 2,663 NM 10,727 795 9,932 1,249 %
Transaction (income) costs
5,382 5,023 359 7 % (3,882 ) 35,653 (39,535 ) (111 )%
Adjusted EBITDA
$ 14,015 $ 10,086 $ 3,929 39 % $ 39,254 $ 36,543 $ 2,711 7 %

	For the three months
	ended August 31,						Change			% Change
Adjusted EBITDA reconciliation:	2023			2022			2023 vs. 2022
Net loss	$	(55,863	)	$	(65,794	)	$	9,931			(15	)%
Income tax expense		7,264			7,211			53			1	%
Interest expense, net		9,835			4,413			5,422			123	%
Non-operating income (expense), net		4,402			32,992			(28,590	)		(87	)%
Amortization		30,789			34,069			(3,280	)		(10	)%
Stock-based compensation		8,257			9,193			(936	)		(10	)%
Change in fair value of contingent consideration		(11,107	)		211			(11,318	)		(5,364	)%
Purchase price accounting step-up		5,106			1,107			3,999			361	%
Facility start-up and closure costs		600			1,800			(1,200	)		(67	)%
Lease expense		700			700			—			0	%
Litigation costs		2,034			445			1,589			357	%
Restructuring costs		915			—			915			NM
Transaction (income) costs		8,502			(12,816	)		21,318			(166	)%
Adjusted EBITDA	$	11,434		$	13,531		$	(2,097	)		(15	)%

5348

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, net loss. There are a number of limitations related to the use of Adjusted EBITDA as compared to net loss, the closest comparable GAAP measure. Adjusted EBITDA adjusts for the following:

●

Non-cash inventory valuation adjustments;

●

Non-cash amortization and amortization expenses and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;

●

Stock-based compensation expenses, ~~which have been,~~a non-cash expense and ~~will continue to be for the foreseeable future, a significant recurring expense in our business and~~are an important part of our compensation strategy;

●

Non-cash impairment charges, as the charges are not expected to be a recurring business activity;

●

Non-cash foreign exchange gains or losses, which accounts for the effect of both realized and unrealized foreign exchange transactions. Unrealized gains or losses represent foreign exchange revaluation of foreign denominated monetary assets and liabilities;

●

Non-cash change in fair value of warrant liability;

●

Interest expense, net;

●

Costs incurred to start up new facilities, ~~such as Sweetwater Colorado,~~ and to fund emerging market operations ~~such as Malta and~~for our German cultivation facilities and ~~closure~~Columbian operations. The prior period also included start up costs ~~to run facilities through the wind-down of operations;~~for SweetWater Colorado and Malta facilities;

●

Lease expense, to conform with competitors who report under IFRS;

●

Transaction (income) costs, which includes acquisition related income and expenses, related legal, financial advisor and due diligence cost and expenses and transaction related compensation, which vary significantly by ~~transactions~~transaction and are excluded to evaluate ongoing operating results;

●

Restructuring charges;

●

Litigation costs includes costs related to ~~ongoing litigations,~~legacy and non-operational litigation matters, legal settlements and ~~recoveries which are excluded to evaluate ongoing operating results;~~recoveries;

●

Amortization of purchase accounting fair value step-up in inventory value included in costs of ~~sales - product costs;~~goods sold; and

●

Current and deferred income tax expenses and recoveries, which could be a significant recurring expense or recovery in our business in the future and reduce or increase cash available to us.

5449

Adjusted Gross Profit and Adjusted Gross Margin

Adjusted gross profit and adjusted gross margin are non-GAAP financial measures and may not be comparable to similar measures presented by other companies. Adjusted gross profit is our Gross profit (adjusted to exclude ~~inventory valuation adjustment and~~ purchase price accounting valuation step-up) and adjusted gross margin is our Gross margin (adjusted to exclude ~~inventory valuation adjustment and~~ purchase price accounting valuation step-up) and are non-GAAP financial measures. The Company’s management believes that adjusted gross profit and adjusted gross margin are useful to our management to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. We do not consider adjusted gross profit and adjusted gross margin percentage in isolation or as an alternative to financial measures determined in accordance with GAAP.

Liquidity and Capital Resources

We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, and ~~make~~complete acquisitions. On March 3, 2022, we entered into an at the market offering arrangement (the "ATM Program") pursuant to which we offered and sold our common stock having an aggregate offering price of up to $400 million. The ATM Program was intended to strengthen our balance sheet and improve our liquidity position and was utilized to offer and sell common stock having a total of $400 million for the period through February 28, 2023. The Company fully completed its sales of shares under the ATM Program. In addition, the Company may from time to time use excess cash to repurchase its outstanding convertible debentures payable in open market transactions. We believe that existing cash, cash equivalents, ~~short-term investments~~marketable securities and cash generated by operations, together with ~~received proceeds from the ATM Program and~~ access to external sources of funds, will be sufficient to meet our domestic and foreign capital needs for a short and long term outlook.

For the Company's short-term liquidity requirements, we are focused on generating positive cash flows from operations and being free cash flow positive. As a result of delays in legalization across multiple markets, management continues to ~~reduce operations,~~optimize our operating structure, headcount, as well as the elimination of other discretionary operational costs. Some of these actions may be less accretive to our adjusted EBITDA in the short term, however we believe that they will be required for our liquidity aspirations in the near term future. Additionally, the Company continues to invest our excess cash in the short-term in marketable securities which are comprised of U.S. treasury bills and term deposits with major Canadian banks.

For the Company's long-term liquidity requirements, we will be focused on funding operations through profitable organic and inorganic growth through acquisitions. We may need to take on additional debt or equity financing arrangements in order to achieve these ambitions on a long-term basis.

The following table sets forth the major components of our statements of cash flows for the periods presented:

	For the three months						For the nine months						For the three months
	ended February 28,						ended February 28,						ended August 31,
	2023			2022			2023			2022			2023			2022
Net cash provided by (used in) operating activities	$	(18,632	)	$	(46,390	)	$	(35,692	)	$	(156,738	)	$	(15,842	)	$	(46,269	)
Net cash (used in) investing activities		(4,592	)		(1,026	)		(277,527	)		(16,618	)		(26,290	)		(1,537	)
Net cash (used in) provided by financing activities		(2,442	)		(5,565	)		63,922			(33,612	)		14,018			123,620
Effect on cash of foreign currency translation		445			412			(1,615	)		(2,284	)		614			(1,080	)
Cash and cash equivalents, beginning of period		190,218			331,783			415,909			488,466			206,632			415,909
Cash and cash equivalents, end of period		164,997			279,214			164,997			279,214		$	179,132		$	490,643
Increase (decrease) in cash and cash equivalents	$	(25,221	)	$	(52,569	)	$	(250,912	)	$	(209,252	)
Marketable securities														287,333			-
Less: restricted cash														(1,613	)		-
Cash and marketable securities(1)													$	464,852		$	490,643

(1)

Cash and marketable securities are non-GAAP financial measures. See “Use of Non-GAAP Measures” below for additional discussion regarding these non-GAAP measures. The Company combines the Cash and cash equivalent financial statement line item, and the Marketable securities financial statement line item as an aggregate total as reconciled in the liquidity and capital resource section below. The Company’s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its short-term liquidity position by combing these three GAAP metrics.

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Cash flows from operating activities

The change in net cash used in operating activities was ($~~18.6) million and was ($35.7)~~15.8) million for three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 compared to ($~~63.5) million and ($156.7)~~46.3) million for the prior year same ~~periods.~~period. This decrease in cash used in the three ~~and nine~~ month ~~periods~~period was primarily related to improved operating efficiencies ~~realized through our synergy programs,~~and increased management of our working capital ~~requirements and for the nine months ended February 28, 2023, the $18.3 million of the cash collected from the HTI Share Consideration's purchase price derivative.~~requirements.

Cash flows from investing activities

The change in net cash used in investing activities was ($~~4.6) million and ($277.5)~~26.3) million for three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 compared to ($~~8.0) million and ($16.6)~~1.5) million for the prior year same ~~periods,~~period, and is a result of ~~our purchase of $243.1 million of~~investing in marketable securities ~~and our acquisition of Montauk Brewing Company~~partially offset by cash acquired from the HEXO Acquisition, Note ~~5 (Goodwill) which did not occur in the comparative periods~~6 (Business acquisitions).

Cash flows from financing activities

The change in cash ~~used in financing activities was ($2.4) million and the change in cash~~ provided by financing activities was ~~$63.9~~$14.0 million for three ~~and nine~~ months ended ~~February 28,~~August 31, 2023 compared to ~~($25.6) million and ($33.6)~~$123.6 million for the prior year same ~~periods. The nine month net~~period. In the current period, cash was provided by ~~financing activities was primarily due to~~funds from the ~~funds received~~overallotment of TLRY 27 Notes and other long term debt, while in the ~~current quarter from our~~comparative period a larger amount of cash was provided by the ATM ~~program that was not in place for the prior year period. The three month change in cash used in financing activities was from the repurchase of our outstanding convertible debentures payable.~~capital raise.

Subsequent Events

Refer to Part I, Financial Information, Note 2425 Subsequent Events.

Contingencies

In addition to the litigation described in the Part II, Item 1 - Legal Proceedings, the Company is and may be a defendant in lawsuits from time to time in the normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated results of operations, financial position, cash flows or liquidity.

Critical Accounting Estimates

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting estimates that have been identified as critical to our business operations and to understanding the results of our operations pertain to revenue recognition, valuation of inventory, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K ~~as amended~~ for the fiscal year ended May 31, ~~2022.~~2023.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in “Part I, Item 1. Note 1 – Basis of presentation and summary of significant accounting policies” to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no ~~significant~~material changes in market risk from those addressed in the Company’s Annual Report on Form 10-K ~~as amended~~ for the fiscal year ended May 31, ~~2022~~2023 during the ~~nine~~three months ended ~~February 28,~~August 31, 2023. See the information set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s Annual Report on Form 10-K ~~as amended~~ for the fiscal year ended May 31, ~~2022.~~2023.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~February 28,~~May 31, 2023, our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Consistent with guidance issued by the SEC, the scope of management’s assessment of the effectiveness of our disclosure controls and procedures did not include the internal controls over financial reporting of Montauk Brewing Company, Inc., which we acquired on November 7, ~~2022. Montauk Brewing Company, Inc.~~2022, of HEXO Corp., which we acquired June 22, 2023 and of Truss Beverage Co. which we acquired August 3, 2023, and represented ~~1.1%~~1.3%, 3.2% and 0.3% of our consolidated assets and ~~0.6%~~1.5%, 7% and 0.9% of our consolidated revenues respectively as of and for the ~~nine~~three months ended ~~February 28,~~August 31, 2023.

Changes in Internal Control over Financial Reporting

There have been no changes in our “internal control over financial reporting” (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As mentioned above, the Company acquired ~~Breckenridge Distillery on December 7, 2021 and~~ Montauk Brewing Company, Inc. on November 7, ~~2022.~~2022, HEXO Corp. on June 22, 2023 and Truss Beverage Co., on August 3, 2023. The Company is in the process of reviewing the internal control structure of ~~Breckenridge Distillery and~~ Montauk Brewing Company, Inc., HEXO Corp., and Truss Beverage Co., if necessary, will make appropriate changes as it integrates them into the Company’s overall internal control over financial reporting process.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of business, we are at times subject to various legal proceedings and disputes, including the proceedings specifically discussed below. We assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of loss is not estimable, we do not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently available, our management believes that it has established appropriate legal reserves. Any liabilities arising from pending legal proceedings are not expected to have a material adverse effect on our consolidated financial position, consolidated results of operations, or consolidated cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to our consolidated financial position, consolidated results of operations, or consolidated cash flows.

“Item 3. Legal Proceedings” of our Annual Report on Form 10-K ~~as amended~~ for the fiscal year ended May 31, ~~2022~~2023 includes a discussion of our legal proceedings. There have been no material changes from the legal proceedings described in our Form 10-K, except with respect to the matters disclosed and incorporated herein by reference to Note ~~17,~~ ~~Commitments~~18 (Commitments and ~~contingencies~~contingencies), in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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Item 1A. Risk Factors.

“Item 1A. Risk Factors” of our Annual Report on Form 10-K ~~as amended~~ for the fiscal year ended May 31, ~~2022~~2023 includes a discussion of our known material risk factors, other than risks that could apply to any issuer or offering. A summary of our risk factors is included below. Except ~~as noted~~for the below ~~in the summary of our~~ risk factors, there have been no material changes from the risk factors described in our Form ~~10-K as amended.~~10-K.

●

~~In July 2022, we closed on an investment~~We may not achieve the expected revenue or other benefits from the craft beer operations acquired from Anheuser-Busch.

●

Additional impairments of our goodwill, impairments of our intangible and ~~certain transactions with HEXO Corp. ("HEXO")~~other long-lived assets, and ~~we face uncertainty with respect to our ability to realize~~changes in the estimated useful lives of intangible assets could have a ~~return~~material adverse impact on our ~~investment~~financial results.

●

We may experience difficulties integrating Tilray and ~~achieve~~HEXO’s operations and realizing the expected ~~production efficiencies and cost savings in connection with~~benefits of the ~~commercial transactions with HEXO as well as the Montauk Brewing acquisition.~~Arrangement.

●

Our business is dependent upon regulatory approvals and licenses, ongoing compliance and reporting obligations, and timely renewals.

●

~~We are subject to litigation, arbitration and demands, which could result in significant liability and costs, and impact our resources and reputation.~~

●

Government regulation is evolving, and unfavorable changes or lack of commercial legalization could impact our ability to carry on our business as currently conducted and the potential expansion of our business.

●

Our production and processing facilities are integral to our business and adverse changes or developments affecting our facilities may have an adverse impact on our business.

●

We face intense competition, and anticipate competition will increase, which could hurt our business.

●

Regulations constrain our ability to market and distribute our products in Canada.

●

United States regulations relating to hemp-derived CBD products are new and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives.

●

Changes in consumer preferences or public attitudes about alcohol could decrease demand for our beverage alcohol products.

●

SweetWater, Breckenridge and Montauk each face substantial competition in the beer industry ~~and~~or the broader market for alcoholic beverage products which could impact our business and financial results.

●

We have a limited operating history and a history of net losses, and we may not achieve or maintain profitability in the future.

●

We are subject to litigation, arbitration and demands, which could result in significant liability and costs, and impact our resources and reputation.

●

Our strategic alliances and other third-party business relationships may not achieve the intended beneficial impact and expose us to risks.

●

We may not be able to successfully identify and execute future acquisitions, dispositions or other equity transactions or to successfully manage the impacts of such transactions on our operations.

●

We are subject to risks inherent in an agricultural business, including the risk of crop failure.

●

We may be negatively impacted by volatility in political and economic environment, factors including the war in Ukraine, economic downturns and increases in interest rates, and a period of sustained inflation across the markets in which we operate could result in higher operating costs and may negatively impact our business and financial performance.

●

We depend on significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly.

●

Our products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources.

●

Significant interruptions in our access to certain supply chains for key inputs such as raw materials, supplies, electricity, water and other utilities may impair our operations.

●

Management may not be able to successfully establish and maintain effective internal controls over financial reporting.

●

The price of our common stock in public markets has experienced and may continue to experience severe volatility and fluctuations.

●

The volatility of our stock and the stockholder base may hinder or prevent us from engaging in beneficial corporate initiatives.

●

The terms of our outstanding warrants may limit our ability to raise additional equity capital or pursue acquisitions, which may impact funding of our ongoing operations and cause significant dilution to existing stockholders.

●

We may not have the ability to raise the funds necessary to settle conversions of the convertible securities in cash or to repurchase the convertible securities upon a fundamental change.

●

We are subject to other risks generally applicable to our industry and the conduct of our business.

Additional impairments of our goodwill, impairments of our intangible and other long-lived assets, and changes in the estimated useful lives of intangible assets could have a material adverse impact on our financial results.

Goodwill, intangible and other long-lived assets comprise a significant portion of our total assets. As of February 28, 2023, our goodwill and intangible assets totaled $2.01 billion and $994.3 million, respectively. We assess or test goodwill for impairment in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”), while our other long-lived assets, including our finite-lived intangible assets, are tested for impairment when circumstances indicate that the carrying amount may not be recoverable. A decrease in our market capitalization or profitability, or unfavorable changes in market, economic or industry conditions could increase the risk of additional impairment. Any resulting additional impairments could have a negative impact on our stock price.

For the three and nine months ended February 28, 2023, the Company recognized non-cash impairment charges of $603.5 million in cannabis goodwill and $15 million in wellness goodwill, $205 million in intangible assets and $104 million in capital assets. These non-cash impairment charges were a result of a decline in the Company's market value which was determined to be other than temporary, as well as increased borrowing rates which forced the Company to adjust the company specific risk premium.

We will continue to monitor key assumptions and other factors utilized in our goodwill, intangible and other long-lived assets impairment analysis, and if business or other market conditions develop that are materially different than we currently anticipate, we will conduct an additional impairment evaluation. Any reduction in or impairment of the value of goodwill, intangible assets and long-lived assets will result in a charge against earnings, which could have a material adverse impact on our reported financial results.

We may experience difficulties ~~closing the Arrangement and integrating Tilray and HEXO~~’~~s operations and realizing~~achieving the expected benefits, including revenue and sales growth, of ~~the Arrangement.~~acquiring certain craft beer operations from Anheuser-Busch (the “ABI Acquisitions”).

The success of the ~~Arrangement~~ABI Acquisitions will depend in part on our ability to ~~realize~~achieve the expected ~~operational efficiencies and associated cost synergies and anticipated~~ business opportunities, revenue and sales growth prospects from ~~combining Tilray and HEXO~~the ABI Acquisitions in an efficient and effective manner. We may also not be able to fully realize the operational efficiencies and associated cost synergies or leverage the potential business opportunities and growth prospects to the extent anticipated or at all. ~~Additionally, closing of the Arrangement transactions remains subject to the satisfaction of various closing conditions set forth in the Arrangement Agreement.~~

The ~~Arrangement Agreement was entered into~~ABI Acquisitions were completed on ~~April 10, 2023, and we are in~~September 29, 2023. Efforts to achieve expected benefits of the early stages of preparing for our anticipated integration efforts assuming the Arrangement is successfully completed. If so, the integration of operations and corporate and administrative infrastructuresABI Acquisitions may require substantial resources and divert management attention. Challenges associated with ~~the integration~~achieving such benefits may include those related to ~~retaining~~sales and ~~motivating executives~~marketing efforts across our expanded product portfolio, operational efficiency and ~~other key employees, blending corporate cultures, eliminating duplicative operations,~~production optimization, and making necessary modifications to internal control over financial reporting and other policies and procedures in accordance with applicable laws. Some of these factors are outside our control, and any of them could delay or increaseeffectively integrating the ~~cost of our integration efforts.~~

The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, increased tax costs, inefficiencies, and inconsistencies in standards, controls, information technology systems, policies and procedures, any of which could adversely affect our ability to maintain relationships with employees, customers or other third parties, or our ability to achieve the anticipated benefits of the transaction, and could harm our financial performance.ABI Acquisitions into Tilray. If we are unable to successfully integrate certain aspects of the operations of ~~Tilray and HEXO~~the ABI Acquisitions or experience delays, we may incur unanticipated liabilities and be unable to fully realize the potential benefit of the revenue growth, synergies and other anticipated benefits resulting from the arrangement, and our business, results of operations and financial condition could be adversely affected. ~~Even if we~~Some of these factors are ~~able to successfully close~~outside our control, and any of them could delay or increase the ~~Arrangement transactions, the foregoing risks for the Company would still exist.~~cost of our efforts.

6154

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Equity Securities

On ~~December 5, 2022, the Company issued 1,979,541 shares of Tilray's Class 2 common stock to~~June 30, 2023, Tilray entered into an assignment and assumption agreement with Double Diamond Holdings Ltd. ~~("Double Diamond"~~(“DDH”) ~~in connection with the assignment~~, an Ontario corporation, pursuant to which, among other things, Tilray acquired from ~~Double Diamond to the Company of~~DDH a promissory note in the amount of $8,057,622 (the “Note”) payable by 1974568 Ontario ~~Limited.~~

~~On February 21, 2023,~~Limited (“Aphria Diamond”). DDH is a joint venturer with Aphria Inc. (Tilray’s wholly-owned subsidiary) in Aphria Diamond. As consideration for the ~~Company~~Note, Tilray issued ~~(i) 2,208,739~~5,004,735 shares of ~~Tilray's Class 2~~its common stock ~~and (ii) 120,000 shares of Tilray Series A preferred stock~~ to ~~Double Diamond in connection with the assignment from Double Diamond to the Company of a promissory note payable by 1974568 Ontario Limited.~~DDH.

Each of the foregoing issuances of Tilray’s ~~Class 2~~ common stock was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for the offer and sale of securities not involving a public offering. No underwriter participated in the offer and sale of the shares issued pursuant to the foregoing issuances, and no commission or other remuneration was paid or given directly or indirectly in connection therewith. Additionally, each of the foregoing issuance of Tilray's ~~Class 2~~ common stock was reported on a Form 8-K filed by the Company with the U.S. Securities and Exchange Commission.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

6255

Item 6. Exhibits.

Exhibit Number		Description

3.110.1		~~Third Amended and Restated Certificate of Incorporation, dated as of March 16, 2023.~~

~~3.2~~		Certificate of Designation of Series A Preferred Stock, dated February 21, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 21, 2023).

10.1*		Promissory note in the amount of ~~$9,264,249.68~~$8,057,622 payable by 1974568 Ontario Limited.

10.2*10.2		~~Promissory note in the amount of $6,648,304 payable by 1974568 Ontario Limited.~~

~~10.3~~		~~Voting~~Amended Credit Agreement, ~~dated as of February 21,~~effective August 31, 2023, by and ~~between~~among Four Twenty Corporation, certain subsidiaries and affiliates of Four Twenty Corporation, Bank of America, N.A., City National Bank, the ~~Company~~lenders party thereto and ~~Double Diamond Holdings Ltd.~~BofA Securities, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on ~~February 21,~~September 1, 2023)

10.3		Purchase Agreement, dated August 7, 2023, by and among Tilray, Anheuser-Busch Companies, LLC, Craft USA Holdings, LLC, Craft Brew Alliance, Inc. and Tilray Beverages, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 7, 2023).

10.4*		Form of 2023 EBITDA PSU Equity Incentive Award.

31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

6356

Exhibit Number		Description

32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*		The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~February 28,~~August 31, 2023, formatted in Inline XBRL: (i) Consolidated Statements of Financial Position, (ii) Consolidated Statements of Loss and Comprehensive Loss , (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Condensed Interim Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

† Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

6457

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Tilray Brands, Inc.

Date: ~~April 10,~~October 4, 2023	By:	/s/ Irwin D. Simon
		Irwin D. Simon
		Chairman and Chief Executive Officer

Date: ~~April 10,~~October 4, 2023	By:	/s/ Carl Merton
		Carl Merton
		Chief Financial Officer

6558