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 ~~August 31, 2023~~February 29, 2024

☐	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 ~~October 2, 2023,~~April 05, 2024, the registrant had ~~730,289,573~~774,028,558 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	2927
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5250
Item 4.	Controls and Procedures	5250
PART II.	OTHER INFORMATION	5351
Item 1.	Legal Proceedings	5351
Item 1A.	Risk Factors	5452
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5553
Item 3.	Defaults Upon Senior Securities	5553
Item 4.	Mine Safety Disclosures	5553
Item 5.	Other Information	5553
Item 6.	Exhibits	5654
Signatures		5856

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended ~~August 31, 2023~~February 29, 2024 (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,” “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; our expectations regarding regulatory developments; our expectations regarding any future tax developments; 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, 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 (Unaudited).

TILRAY BRANDS, INC.

Consolidated Statements of Financial Position

(in thousands of United States dollars, unaudited)

	*August 31,*			*May 31,*			*February 29,*			*May 31,*
	*2023*			*2023*			*2024*			*2023*
Assets
Current assets
Cash and cash equivalents	$	177,519		$	206,632		$	146,253		$	206,632
Restricted cash		1,613			—
Marketable securities		287,333			241,897			79,605			241,897
Accounts receivable, net		82,076			86,227			89,542			86,227
Inventory		232,075			200,551			244,139			200,551
Prepaids and other current assets		44,943			37,722			43,034			37,722
Assets held for sale		3,696			—			28,638			—
Total current assets		829,255			773,029			631,211			773,029
Capital assets		494,619			429,667			578,783			429,667
Right-of-use assets		5,605			5,941
Operating lease, right-of-use assets								17,453			5,941
Intangible assets		967,568			973,785			930,105			973,785
Goodwill		2,009,673			2,008,843			2,009,632			2,008,843
Interest in equity investees		4,638			4,576			—			4,576
Long-term investments		7,564			7,795			8,058			7,795
Convertible notes receivable		74,681			103,401			32,000			103,401
Other assets		8,647			222			5,614			222
Total assets	$	4,402,250		$	4,307,259		$	4,212,856		$	4,307,259
Liabilities
Current liabilities
Bank indebtedness	$	14,594		$	23,381		$	15,029		$	23,381
Accounts payable and accrued liabilities		238,081			190,682			209,763			190,682
Contingent consideration		7,181			16,218			—			16,218
Warrant liability		10,015			1,817			3,182			1,817
Current portion of lease liabilities		2,324			2,423			5,424			2,423
Current portion of long-term debt		13,489			24,080			12,351			24,080
Current portion of convertible debentures payable		251,590			174,378			83,351			174,378
Total current liabilities		537,274			432,979			329,100			432,979
Long - term liabilities
Contingent consideration		13,000			10,889			14,000			10,889
Lease liabilities		7,462			7,936			73,228			7,936
Long-term debt		152,390			136,889			165,648			136,889
Convertible debentures payable		120,861			221,044			126,587			221,044
Deferred tax liabilities		169,633			167,364
Deferred tax liabilities, net								161,042			167,364
Other liabilities		74			215			210			215
Total liabilities		1,000,694			977,316			869,815			977,316
Commitments and contingencies (refer to Note 18)
Commitments and contingencies (refer to Note 19)
Stockholders' equity
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
Common stock ($0.0001 par value; 1,198,000,000 common shares authorized; 774,028,053 and 656,655,455 common shares issued and outstanding, respectively)								77			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		5,909,895			5,777,743			6,030,709			5,777,743
Accumulated other comprehensive loss		(43,561	)		(46,610	)		(43,187	)		(46,610	)
Accumulated Deficit		(2,487,032	)		(2,415,507	)		(2,628,741	)		(2,415,507	)
Total Tilray Brands, Inc. stockholders' equity		3,379,374			3,315,692			3,358,858			3,315,692
Non-controlling interests		22,182			14,251			(15,817	)		14,251
Total stockholders' equity		3,401,556			3,329,943			3,343,041			3,329,943
Total liabilities and stockholders' equity	$	4,402,250		$	4,307,259		$	4,212,856		$	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*						*Three months ended*						*Nine months ended*
	*August 31,*						*February 29,*			*February 28,*			*February 29,*			*February 28,*
	*2023*			*2022*			*2024*			*2023*			*2024*			*2023*
Net revenue	$	176,949		$	153,211		$	188,340		$	145,589		$	559,060		$	442,936
Cost of goods sold		132,753			104,597			138,944			157,288			418,059			363,139
Gross profit		44,196			48,614
Gross profit (loss)								49,396			(11,699	)		141,001			79,797
Operating expenses:
General and administrative		40,516			40,508			39,940			38,999			123,769			117,385
Selling		6,859			9,671			9,995			6,452			24,437			25,792
Amortization		22,225			24,359			21,558			23,518			65,700			71,872
Marketing and promotion		8,535			7,248			11,191			7,354			28,934			23,137
Research and development		79			166			106			171			241			502
Change in fair value of contingent consideration		(11,107	)		211			(5,983	)		352			(16,790	)		563
Litigation costs		2,034			445
Impairments								—			934,000			—			934,000
Other than temporary change in fair value of convertible notes receivable								42,681			181,376			42,681			181,376
Litigation costs, net of recoveries								3,363			(5,230	)		8,439			(1,970	)
Restructuring costs		915			—			5,178			2,663			8,748			10,727
Transaction (income) costs		8,502			(12,816	)
Transaction costs (income)								3,465			5,382			13,061			(3,882	)
Total operating expenses		78,558			69,792			131,494			1,195,037			299,220			1,359,502
Operating loss		(34,362	)		(21,178	)		(82,098	)		(1,206,736	)		(158,219	)		(1,279,705	)
Interest expense, net		(9,835	)		(4,413	)		(8,517	)		(1,040	)		(26,977	)		(8,560	)
Non-operating income (expense), net		(4,402	)		(32,992	)		(17,239	)		1,213			(20,820	)		(50,229	)
Loss before income taxes		(48,599	)		(58,583	)		(107,854	)		(1,206,563	)		(206,016	)		(1,338,494	)
Income tax expense		7,264			7,211
Income tax (recovery) expense								(2,871	)		(10,811	)		1,013			(15,313	)
Net loss	$	(55,863	)	$	(65,794	)	$	(104,983	)	$	(1,195,752	)	$	(207,029	)	$	(1,323,181	)
Total net income (loss) attributable to:
Stockholders of Tilray Brands, Inc.		(71,525	)		(73,482	)		(92,701	)		(1,170,998	)		(213,234	)		(1,313,943	)
Non-controlling interests		15,662			7,688			(12,282	)		(24,754	)		6,205			(9,238	)
Other comprehensive gain (loss), net of tax
Foreign currency translation gain (loss)		3,209			(60,292	)		(4,696	)		6,390			3,716			(78,499	)
Unrealized gain (loss) on convertible notes receivable		—			(2,525	)		—			95,345			—			75,177
Total other comprehensive loss, net of tax		3,209			(62,817	)
Total other comprehensive gain (loss), net of tax								(4,696	)		101,735			3,716			(3,322	)
Comprehensive loss	$	(52,654	)	$	(128,611	)	$	(109,679	)	$	(1,094,017	)	$	(203,313	)	$	(1,326,503	)
Total comprehensive income (loss) attributable to:
Stockholders of Tilray Brands, Inc.		(68,476	)		(132,450	)		(97,521	)		(1,092,491	)		(209,811	)		(1,336,127	)
Non-controlling interests		15,822			3,839			(12,158	)		(1,526	)		6,498			9,624
Weighted average number of common shares - basic		691,189,382			575,301,374			754,439,331			615,534,670			725,346,952			597,829,714
Weighted average number of common shares - diluted		691,189,382			575,301,374			754,439,331			615,534,670			725,346,952			597,829,714
Net loss per share - basic	$	(0.10	)	$	(0.13	)	$	(0.12	)	$	(1.90	)	$	(0.29	)	$	(2.20	)
Net loss per share - diluted	$	(0.10	)	$	(0.13	)	$	(0.12	)	$	(1.90	)	$	(0.29	)	$	(2.20	)

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*			*loss*			*Deficit*			*interests*			*Total*			*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 dividend settlement		1,529,821		1		5,063			—			—			—			5,064			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		—		—			—			—			—			—
Share issuance - RSUs exercised																					237,611		—		—			—			—			—			—
Stock-based compensation																							—		10,943			—			—			—			10,943
Share issuance - Double Diamond Holdings dividend settlement																					10,276,305		1		38,753			—			—			(32,280	)		6,474
Comprehensive income (loss) for the period																							—		—			(41,723	)		(69,463	)		7,311			(103,875	)
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 dividend settlement																					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 May 31, 2023		656,655,455	$	66	$	5,777,743		$	(46,610	)	$	(2,415,507	)	$	14,251		$	3,329,943			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			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			865,426		—		1,500			—			—			—			1,500
Share issuance - Double Diamond Holdings dividend settlement		5,004,735		—		8,146			—			—			—			8,146			5,004,735		—		8,146			—			—			—			8,146
Share issuance - HTI convertible note		17,148,541		2		49,998												50,000			17,148,541		2		49,998												50,000
Share issuance - RSUs exercised		3,912,481		—		—			—			—			—			—			3,912,481		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax		—		—		(4,860	)		—			—			—			(4,860	)		—		—		(4,860	)		—			—			—			(4,860	)
Equity component related to issuance of convertible debt, net of issuance costs		—		—		3,953			—			—			—			3,953			—		—		3,953			—			—			—			3,953
Stock-based compensation		—		—		8,257			—			—			—			8,257			—		—		8,257			—			—			—			8,257
Dividends declared to non-controlling interests				—		—			—			—			(7,891	)		(7,891	)		—		—		—			—			—			(7,891	)		(7,891	)
Comprehensive income (loss) for the period		—		—		—			3,049			(71,525	)		15,822			(52,654	)		—		—		—			3,049			(71,525	)		15,822			(52,654	)
Balance at August 31, 2023		723,292,600	$	72	$	5,909,895		$	(43,561	)	$	(2,487,032	)	$	22,182		$	3,401,556			723,292,600		72		5,909,895			(43,561	)		(2,487,032	)		22,182			3,401,556
Share issuance - HTI convertible note																					1,032,616		—		2,313			—			—			—			2,313
Share issuance - Settlement of litigation claims from MediPharm Labs Inc																					1,573,152		—		3,477			—			—			—			3,477
Share issuance - Repurchase of TLRY 23 convertible note																					7,000,000		1		20,457			—			—			—			20,458
Share issuance - Settlement of equity component of TLRY 23 convertible note																					—		—		(1,672	)		—			—			—			(1,672	)
Share issuance - RSUs exercised																					9,184		—		—			—			—			—			—
Stock-based compensation																					—		—		8,201			—			—			—			8,201
Comprehensive income (loss) for the period																					—		—		—			5,194			(49,008	)		2,834			(40,980	)
Balance at November 30, 2023																					732,907,552		73		5,942,671			(38,367	)		(2,536,040	)		25,016			3,393,353
Share issuance - Repurchase of APHA 24 convertible note																					27,228,252		3		51,380			—			—			—			51,383
Share issuance - Double Diamond Holdings dividend settlement																					13,627,391		1		28,599			—			—			(26,217	)		2,383
Share issuance - RSUs exercised																					260,567		—		—			—			—			—			—
Share issuance - options exercised																					4,291		—		—			—			—			—			—
Stock-based compensation																					—		—		8,059			—			—			—			8,059
Dividends declared to non-controlling interests																					—		—		—			—			—			(2,458	)		(2,458	)
Comprehensive income (loss) for the period																					—		—		—			(4,820	)		(92,701	)		(12,158	)		(109,679	)
Balance at February 29, 2024																					774,028,053	$	77	$	6,030,709		$	(43,187	)	$	(2,628,741	)	$	(15,817	)	$	3,343,041

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)

	*Three months ended*						*For the nine months ended*
	*August 31,*						*February 29,*			*February 28,*
	*2023*			*2022*			*2024*			*2023*
Cash used in operating activities:
Net loss	$	(55,863	)	$	(65,794	)	$	(207,029	)	$	(1,323,181	)
Adjustments for:
Deferred income tax recovery		59			796			(7,399	)		(29,537	)
Unrealized foreign exchange (gain) loss		(3,127	)		10,026			(6,622	)		13,711
Amortization		30,789			34,069			95,183			101,156
Loss on sale of capital assets		3			77
Accretion of convertible debt discount								11,463			7,941
Inventory valuation write down								—			55,000
Impairments								—			934,000
Other than temporary change in fair value of convertible notes receivable								42,681			181,376
Other non-cash items		(816	)		2,080			13,297			4,990
Stock-based compensation		8,257			9,193			24,517			29,766
Loss on long-term investments & equity investments		47			1,193
(Gain) loss on long-term investments & equity investments								4,255			2,843
Loss on derivative instruments		10,345			6,336			13,717			13,534
Change in fair value of contingent consideration		(11,107	)		211			(16,790	)		563
Change in non-cash working capital:
Accounts receivable		13,044			(3,068	)		5,578			18,053
Prepaids and other current assets		(4,654	)		(34,891	)		1,148			(32,680	)
Inventory		3,650			(232	)		(4,629	)		(11,808	)
Accounts payable and accrued liabilities		(6,469	)		(6,265	)		(30,982	)		(1,419	)
Net cash used in operating activities		(15,842	)		(46,269	)		(61,612	)		(35,692	)
Cash used in investing activities:
Investment in capital and intangible assets, net		(4,152	)		(3,000	)
Cash provided by (used in) investing activities:
Investment in capital and intangible assets								(19,539	)		(8,394	)
Proceeds from disposal of capital and intangible assets		342			1,463			1,166			2,175
Purchase of marketable securities, net		(45,436	)		—
Net cash acquired from business acquisitions		22,956			—
Net cash used in investing activities		(26,290	)		(1,537	)
Disposal (purchase) of marketable securities, net								162,292			(243,186	)
Business acquisitions, net of cash acquired								(60,626	)		(28,122	)
Net cash provided by (used in) investing activities								83,293			(277,527	)
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	)		—			(1,189	)
Proceeds from long-term debt and convertible debt		29,174			1,288
Repayment of long-term debt and convertible debt		(6,369	)		(5,196	)
Proceeds from long-term debt								32,621			1,288
Repayment of long-term debt								(17,978	)		(64,658	)
Proceeds from convertible debt								21,553			—
Repayment of convertible debt								(107,330	)		—
Repayment of lease liabilities		—			(1,035	)		(2,771	)		(1,114	)
Net increase in bank indebtedness		(8,787	)		159
Net increase (decrease) in bank indebtedness								(8,352	)		2
Net cash provided by (used in) financing activities		14,018			123,620			(82,257	)		63,922
Effect of foreign exchange on cash and cash equivalents		614			(1,080	)		197			(1,615	)
Net decrease in cash and cash equivalents		(27,500	)		74,734			(60,379	)		(250,912	)
Cash and cash equivalents, beginning of period		206,632			415,909			206,632			415,909
Cash and cash equivalents, end of period	$	179,132		$	490,643		$	146,253		$	164,997

~~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 ~~August 31, 2023~~February 29,2024. 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, 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, and unless otherwise indicated.

Certain items of the comparative figures have been changed to conform to the presentation adopted in the current period.

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 all subsidiaries are included in the condensed interim consolidated financial statements from the date that control commences until the date that control ceases. All intercompany balances and transactions have been eliminated on consolidation. A complete list of our subsidiaries that existed ~~prior to~~as of our most recent fiscal year end is included in the Annual Report, except for the entities acquired within Note 67 (Business acquisitions), during the ~~period~~nine months ended ~~August 31, 2023.~~February 29,2024.

Marketable 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), net”.

Restricted cash

We classify cash that is legally or contractually restricted as to withdrawal or usage as restricted cash. As of February 29,2024, and May 31,2023, the Company reported $nil restricted cash. During the six months ended November 31,2023, the Company acquired $1,656 of restricted cash related to letters of credit and collateral from the acquisition of HEXO Corp. as described in Note 7 (Business acquisitions). During the three months ended February 29,2024, all of the restricted cash was released and transferred to cash and cash equivalents.

Assets held for sale

We classify capital assets that are available for immediate sale in their present condition, which the Company has approved the action or plan to sell, and the sales is probable within one year, as assets held for sale. As of February 29,2024, the Company reported $28,638 assets held for sale related to the Kirkland lake property, the Quebec cultivation facility and the Fort Collins facility, see Note 3 (Capital assets). Assets held for sale are to be measured at the lower of carrying amount and the fair value less costs to sell. Disposition of assets held for sale are recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”.

When there are changes in circumstances that were previously considered unlikely to occur, and it is decided not to proceed with a sale, an asset that was previously classified as assets held for sale is reclassified as held and used. The asset is then remeasured at the lower of its carrying amount before being classified as held for sale less the amortization that would have occurred and the fair value on the date the decision not to proceed with a sale was made. Changes in the carrying amount are recorded in the statement of net loss and comprehensive loss.

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~~an individual equity ~~investments~~investment is less than its carrying ~~values.~~value. Changes in value are recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”, net”.

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 consolidated statements of ~~net~~ loss and comprehensive loss. Equity method investments are recorded at cost, 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, the 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 Fair Value Measurement at the reporting date, which establishes a new cost basis.

Convertible notes receivable

Convertible notes receivable ~~include~~includes 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 consolidated 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 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 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~~ ~~months ended~~ ~~August 31, 2023~~ ~~and~~ ~~August 31, 2022,~~ the dilutive potential common share equivalents outstanding consisted of the following: 21,202,933 and 16,989,328 common shares from RSUs, 6,325,348 and 4,741,653 common shares from share options, 7,847,219 and 6,209,000 common shares for warrants and 77,819,141 and 36,687,326 common shares for convertible debentures, respectively.

Revenue

Revenue is recognized when the control of the promised goods or services, through performance obligation, is ~~transferred/~~transferred or 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~~loss and comprehensive loss and recognized as a current liability within accounts payable and 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 services, the Company considers the effects of variable consideration and the existence of significant financing components, if any.

We may enter into certain contracts for the sale of goods or services, which provide customers with rights of return, volume discounts, bonuses for volume/quality achievement, and/or sales allowances. In addition, the Company may provide in certain circumstances, a retrospective price reduction to a customer based primarily on inventory movement. 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 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, recorded in accounts receivable, net, 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 2426 (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 67 (Business acquisitions), simultaneously terminating the advisory services arrangement and other commercial transactions.

Transaction (income) costs

The Company expenses costs net of any gains directly attributable to business acquisitions and classifies these items as transaction (income) costs. These items include among other things, legal fees to complete the acquisition, financial advisor and due diligence costs, and transaction related compensation. These items are recognized as incurred.

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 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 and similar instruments. Shares of common stock outstanding under the share lending arrangement entered into in conjunction with the TLRY 27 Notes, see Note 13 (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 arrangement to refund any dividends paid on the shares lent.

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 29,2024 and February 28,2023, the dilutive potential common share equivalents outstanding consisted of the following: 20,652,315 and 16,431,876 common shares from RSUs, 5,744,302 and 4,660,046 common shares from share options, 6,209,000 and 6,209,000 common shares for warrants and 72,653,364 and 36,388,651 common shares for convertible debentures, respectively.

New accounting pronouncements not yet adopted

In August 2023, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("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.

In October 2023, the FASB issued ASU 2023-06,Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. If by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company is currently evaluating the effect of adopting this ASU.

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis. ASU 2023-07 is effective for the Company beginning the year ended May 31, 2025. The Company is currently evaluating the effect of adopting this ASU.

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740) Improvements to Income Tax Disclosures, which requires public entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold on an annual basis. ASU 2023-09 is effective for the Company beginning the year ended June 01, 2024. 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 beginning June 1, 2023, however, it did not have any impact on our condensed interim consolidated financial statements.

Note 2. Inventory

Inventory consisted of the following:

	*August 31,*		*May 31,*		*February 29,*		*May 31,*
	*2023*		*2023*		*2024*		*2023*
Beverage alcohol inventory					$	47,606	$	27,837
Plants	$	19,152	$	10,884		18,623		10,884
Dried cannabis		102,711		89,801		102,043		89,801
Cannabis trim		-		322		—		322
Cannabis derivatives		10,406		9,229		4,385		9,229
Cannabis vapes		4,076		1,173		5,250		1,173
Packaging and other inventory items		17,932		19,997		21,782		19,997
Distribution inventory						33,466		30,144
Wellness inventory		11,788		11,164		10,984		11,164
Beverage alcohol inventory		31,434		27,837
Distribution inventory		34,576		30,144
Total	$	232,075	$	200,551	$	244,139	$	200,551

Note 3. Capital assets

Capital assets consisted of the following:

	*August 31,*			*May 31,*			*February 29,*			*May 31,*
	*2023*			*2023*			*2024*			*2023*
Land	$	36,076		$	30,635		$	45,681		$	30,635
Production facility		330,012			344,627			388,234			344,627
Equipment		271,992			185,422			253,422			185,422
Leasehold improvement		7,786			7,753			9,379			7,753
Finance lease, right-of-use assets								56,225			—
Construction in progress		9,727			8,048			10,907			8,048
	$	655,593		$	576,485		$	763,848		$	576,485
Less: accumulated amortization		(160,974	)		(146,818	)		(185,065	)		(146,818	)
Total	$	494,619		$	429,667		$	578,783		$	429,667

Assets held for sale consisted of the following:

	February 29,		May 31,
	2024		2023
Land	$	1,380	$	—
Production facility		20,821		—
Equipment		6,437		—
	$	28,638	$	—

On June 22, 2023, the Company acquired HEXO and recognized the Kirkland lake property as held for sale on the acquisition date, see Note 7 (Business combinations). It is expected that the sale of the property will close during the fiscal year ended May 31, 2024.

During the three months ended February 29,2024, the Company classified its Quebec cultivation facility and the Fort Collins extraction facility as held for sale. Through the assessment of facility capacity utilization, it was determined that these facilities would be exited and held for sale. It is expected that the sale of these assets will be completed within twelve months from the period ended February 29,2024.

Note 4. Leases

The table below presents the lease-related assets and liabilities recorded on the balance sheet.

		*February 29,*		*May 31,*
	*Classification on Balance Sheet*	*2024*		*2023*
Assets
Finance lease, right-of-use assets	Capital assets	$	56,225	$	—
Operating lease, right-of-use assets	Operating lease, right-of-use assets		17,453		5,941
Total right-of-use asset		$	73,678	$	5,941
Liabilities
Current:
Current portion of finance lease liabilities	Current portion of lease liabilities	$	1,370	$	—
Current portion of operating lease liabilities	Current portion of lease liabilities		4,054		2,423
Non-current:
Finance lease liabilities	Lease liabilities		55,674		—
Operating lease liabilities	Lease liabilities		17,554		7,936
Total lease liabilities		$	78,652	$	10,359

The following table presents the future undiscounted payment associated with lease liabilities as of February 29,2024:

	*Operating*			*Finance*
	*leases*			*leases*
2024	$	1,635		$	1,261
2025		5,715			5,043
2026		5,361			5,043
2027		4,768			5,043
Thereafter		10,161			85,336
Total minimum lease payments	$	27,640		$	101,726
Imputed interest		(6,032	)		(44,682	)
Obligations recognized	$	21,608		$	57,044

Note 5. Intangible Assets

Intangible assets consisted of the following items:

	*August 31,*			*May 31,*			*February 29,*			*May 31,*
	*2023*			*2023*			*2024*			*2023*
Customer relationships & distribution channel	$	618,672		$	614,062		$	617,143		$	614,062
Licenses, permits & applications		369,479			366,793			368,649			366,793
Non-compete agreements		12,432			12,394			12,422			12,394
Intellectual property, trademarks, knowhow & brands		592,545			583,468			594,441			583,468
		1,593,128		$	1,576,717			1,592,655		$	1,576,717
Less: accumulated amortization		(209,716	)	$	(187,088	)		(246,706	)		(187,088	)
Less: impairments		(415,844	)		(415,844	)		(415,844	)		(415,844	)
Total	$	967,568		$	973,785		$	930,105		$	973,785

~~As of~~ ~~August 31, 2023~~~~, included~~Included in licenses, permits & applications ~~is $183,660~~was $182,851 of indefinite-lived intangible ~~assets. As~~assets as of February 29,2024, compared to $181,093 as of May 31, 2023~~, there was $181,093 of indefinite-lived intangible assets included in Licenses, permits & applications.~~.

Expected future amortization expense for intangible assets as of ~~August 31, 2023~~February 29,2024 are as follows:

	*Amortization*		*Amortization*
2024 (remaining nine months)	$	55,895
2024 (remaining three months)			$	18,359
2025		73,414		73,439
2026		73,414		73,439
2027		73,414		73,439
2028		73,414		73,439
Thereafter		434,357		435,139
Total	$	783,908	$	747,254

Note 5.6. Goodwill

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

	*August 31,*			*May 31,*			*February 29,*			*May 31,*
Reporting Unit	*2023*			*2023*			*2024*			*2023*
Cannabis	$	2,640,669		$	2,640,669		$	2,640,669		$	2,640,669
Distribution		4,458			4,458			4,458			4,458
Beverage alcohol		120,802			120,802			120,802			120,802
Wellness		77,470			77,470			77,470			77,470
Effect of foreign exchange		8,705			7,875			8,664			7,875
Impairments		(842,431	)		(842,431	)		(842,431	)		(842,431	)
Total	$	2,009,673		$	2,008,843		$	2,009,632		$	2,008,843

Note 6.7. Business acquisitions

Acquisition of Montauk Brewing Company, Inc.

On November 7, 2022, Tilray acquired Montauk Brewing Company, Inc. (“Montauk”), a leading craft brewer ~~company~~ based in Montauk, New York, which expanded our distribution network with a strong brand in the tri-state region of the U.S. In consideration for the acquisition of Montauk, and after giving effect to post-closing adjustments, the Company paid an aggregate purchase price equal to $35,123, which was comprised of ~~$28,701~~$ 28,701 in cash and the remainder through the issuance of 1,708,521 shares of 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 December 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 2325 (Fair value measurements).

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

	*Amount*
Consideration
Cash	$	28,701
Shares		6,422
Contingent consideration		10,245
Net assets acquired
Current assets
Cash and cash equivalents		1,983
Accounts receivable		1,116
Prepaids and other current assets		467
Inventory		1,570
Long-term assets
Capital assets		420
Customer relationships (15 years)		18,540
Intellectual property, trademarks & brands (15 years)		13,650
Goodwill		17,803
Total assets		55,549
Current liabilities
Accounts payable and accrued liabilities		1,580
Long-term liabilities
Deferred tax liability		4,851
Other liabilities		3,750
Total liabilities		10,181
Total net assets acquired	$	45,368

In the event that the Montauk acquisition had occurred on June 1, 2022, the Company would have had additional net revenue of approximately ~~$3,000~~$3,100 and $12,100 for the three and ninemonths ended ~~August 31, 2022~~ February 28,2023, respectively, and its consolidated net loss and comprehensive net loss would have increased by approximately $600 and $1,100 for the three and ninemonths ended ~~August 31, 2022,~~ February 28,2023, respectively, 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 Montauk.

Acquisition of HEXO Corp.

On June 22, 2023, Tilray acquired HEXO, a cannabis company in Canada (the “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 HEXO Acquisition, the Company paid a total purchase price equivalent of $93,882, which consisted of stock consideration of $63,927, settlement of convertible notes receivable of $28,720, the fair value of HEXO stock-based compensation of $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 the aggregate, the Company issued 39,705,962 shares of Tilray common stock, at a share price of $1.61 per share, in connection with the HEXO Acquisition. The Company intends to sell HEXO's Kirkland lake property and the Quebec cultivation facility, and has recorded the value of the associated capital assets as ~~an asset~~assets held for ~~sale.~~ sale, see Note 3 (Capital assets).

The Company is in the process of assessing the fair value of 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*		*Amount*
Consideration
Shares	$	63,927	$	63,927
Settlement of convertible notes receivable		28,720		28,720
Warrants assumed		47		47
Estimated fair value of HEXO stock-based compensation		1,188		1,188
Net assets acquired
Current assets
Cash and cash equivalents		14,634		14,634
Restricted cash		1,657		1,656
Accounts receivable		7,855		7,855
Asset held for sale		755		755
Prepaids and other current assets		2,530		2,709
Inventory		27,495		25,947
Long-term assets
Prepaid expenses		8,384		8,384
Capital assets		70,782		70,634
Intellectual property, trademarks & brands (15 years)		2,000		2,680
Interest in equity investee		3,145		3,145
Total assets		139,237		138,399
Current liabilities
Accounts payable and accrued liabilities		45,355		44,517
Total liabilities		45,355		44,517
Total net assets acquired	$	93,882	$	93,882

Included in accounts payable and accrued liabilities was ~~$12,856~~$12,253 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 net revenue of approximately ~~$7,000~~$nil and ~~$20,000~~$7,000 for the three ~~month period~~and nine months ended ~~August 31, 2023~~February 29,2024, respectively, and $15,000 and $55,000 for the threeand ~~2022,~~nine months ended February 28,2023, respectively, and its net loss and comprehensive net loss would have increased by approximately ~~$1,800~~$nil and ~~$30,000~~$1,800 for the three ~~month~~and nine months period ended ~~August 31,~~February 29,2024, respectively, and $25,000 and $85,000 for the three and nine months period ended February 28, 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~~ from Molson Coors Canada ("Molson"). This purchase represents the equity portion of Truss that had not been previously acquired as part of the HEXO Acquisition. The ~~Company currently intends~~consideration paid by Tilray consisted of $74 (CAD$100) in cash and contingent consideration fair valued at $4,181. During the three months ended February 29,2024, the contingent consideration liability was settled in exchange for a final payment equal to $760 with the resultant gain of $3,683 recorded in change in fair value of contingent consideration, offset by $262 of foreign exchange. Tilray initially planned to divest ~~Truss's~~Truss' assets and ~~has~~ recorded the value of the associated capital assets and lease obligations as an asset held for sale. ~~The~~During the quarter ended November 30, 2023, due to a change in circumstance in the Company's ability to sell these assets, they were subsequently reclassified as capital assets as the Company has ~~agreed~~made alternative plans for their utilization. The asset was then remeasured at the lower of its carrying amount before being classified as held for sale less the amortization that would have occurred and the fair value on the date the decision not to ~~pay Molson~~proceed with a sale was made. Changes in the carrying amount were recorded in the consolidated statement of net loss and comprehensive loss as ~~contingent consideration an amount equal to~~ ~~57.5%~~amortization in cost of ~~any proceeds from any divesture, net of any costs and expenses associated with the disposition.~~goods sold.

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 as follows:

	*Amount*
Consideration
Cash consideration	$	74
Investment in equity investees		3,145
Contingent consideration		4,181
Net assets acquired
Current assets
Cash and cash equivalents		6,739
Accounts receivable		1,038
Prepaids and other current assets		78
Inventory		2,573
Asset held for sale		2,960
Long-term assets
Intangible assets		296
Total assets		13,684
Current liabilities
Accounts payable and accrued liabilities		5,408
Other liabilities		876
Total liabilities		6,284
Total net assets acquired		7,400

In the event that the Truss acquisition had occurred on June 1, 2022 the Company would have had, on an unaudited proforma basis, additional net revenue of approximately ~~$3,000~~$nil and ~~$5,000~~$3,000 for the three ~~month~~and nine months ended February 29,2024, respectively, and $4,600 and $10,900 for the three and nine months period ended ~~August 31,~~February 28, 2023, ~~and~~ ~~2022,~~respectively, and its consolidated net loss and comprehensive net loss would have increased by approximately ~~$700~~$nil and ~~$1,000~~$700 for the three ~~month~~and nine months ended February 29,2024, respectively, and $600 and $1,800 for the three and nine months period ended ~~August 31,~~February 28, 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 Truss.

Acquisition of Craft Beverage Business Portfolio

On September 29, 2023, Tilray acquired a portfolio of craft brands, assets and businesses comprising eight beer and beverage brands from Anheuser-Busch Companies, LLC, ("AB") including breweries and brewpubs associated with them (the “Craft Acquisition”). The acquired businesses/brands include Shock Top, Breckenridge Brewery, Blue Point Brewing Company, 10 Barrel Brewing Company, Redhook Brewery, Widmer Brothers Brewing, Square Mile Cider Company, and HiBall Energy. The Company paid a total purchase price equivalent of $83,658 in cash, net of a preliminary working capital adjustment at closing of $1,342, which is subject to a final working capital adjustment. As described in Note 12 (Long-term debt), $20,000 was borrowed under the ABC Group Delayed Draw Term Loan Agreement to fund part of the purchase price paid for the Craft Acquisition.

The Company is in the process of assessing the fair value of 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 Craft Acquisition at the effective acquisition date as follows:

	*Amount*
Consideration
Cash consideration	$	83,658
Net assets acquired
Current assets
Cash and cash equivalents		77
Inventory		22,493
Prepaids and other current assets		573
Long-term assets
Capital assets		62,614
Finance lease, right-of-use assets		45,496
Operating lease, right-of-use assets		7,677
Other assets		108
Total assets		139,038
Current liabilities
Accounts payable and accrued liabilities		2,206
Current portion of finance lease liabilities		1,031
Current portion of operating lease liabilities		1,408
Long - term liabilities
Finance lease liabilities		44,465
Operating lease liabilities		6,270
Total liabilities		55,380
Total net assets acquired		83,658

In the event that the Craft Acquisition had occurred on June 1, 2022, the Company would have had, on an unaudited proforma basis, additional revenue of approximately $nil and $55,000 for the three and nine months ended February 29,2024, respectively, and $33,000 and $118,000 for the three and nine months period ended February 28, 2023, respectively, and its net loss and comprehensive net loss would have increased by approximately $nil and $5,000 for the three and nine months ended February 29,2024, respectively, and $3,500 and $4,400 for the three and nine months period ended February 28, 2023, respectively. This unaudited pro forma financial information does not reflect the realization of any expected ongoing synergies relating to the integration of the Craft Acquisition.

Note 7.8. Convertible notes receivable

Convertible notes receivable is comprised of the following:

	*August 31,*		*May 31,*		*February 29,*		*May 31,*
	*2023*		*2023*		*2024*		*2023*
HEXO Convertible Note	$	-	$	28,720	$	—	$	28,720
MedMen Convertible Note		74,681		74,681		32,000		74,681
Total convertible notes receivable		74,681		103,401		32,000		103,401
Deduct - current portion		-		-		—		—
Total convertible notes receivable, non current portion	$	74,681	$	103,401	$	32,000	$	103,401

HEXO Convertible Note

On June 22, 2023, the Company completed the HEXO Acquisition as described in Note 67 (Business acquisitions). Concurrently with the closing of the HEXO Acquisition, the HEXO convertible note was converted ~~for~~into shares of HEXO.

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 ("SOFR") plus 6%, with a SOFR floor of 2.5% ~~and,~~with any accrued interest isbeing added to the outstanding principal amount. The outstanding principal amount, ~~and~~together with accrued interest is to be paid aton August 17, 2028, the maturity date 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. ~~The Company’s~~SH Acquisition’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 months ended February 29,2024, the Company recognized an other-than-temporary change in fair value, which resulted in a non-cash expense of $42,681. The MedMen Convertible Note was valued based upon the fair value of the collateral assets net of disposal ~~costs.~~costs and has been reduced to reflect recent events, including the appointment of a chief restructuring officer on January 23, 2024 and pending asset sales. 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 derive any revenue or cash from MedMen's operations, and fully complies with all limitations imposed by applicable U.S. law and regulations in connection with its ownership of the MedMen Convertible Note. In addition, the Company did not recognize any interest income on the MedMen Convertible Note for the three and ninemonths ended ~~August 31, 2023,~~February 29,2024, which would have increased its value.

Note 8.9. Long term investments

Long term investments consisted of the following:

	*August 31,*		*May 31,*		*February 29,*		*May 31,*
	*2023*		*2023*		*2024*		*2023*
Equity investments measured at fair value	$	2,064	$	2,144	$	2,558	$	2,144
Equity investments under measurement alternative		5,500		5,651		5,500		5,651
Total	$	7,564	$	7,795	$	8,058	$	7,795

~~Note~~ 9. ~~Accounts payable and accrued liabilities~~

~~Accounts payable and accrued liabilities are comprised of:~~

August 31, May 31,
2023 2023
Trade payables
$ 78,971 $ 70,819
Accrued liabilities
129,517 78,007
Accrued payroll and employment related taxes
6,826 18,772
Income taxes payable
15,727 14,934
Accrued interest
6,974 8,102
Other accruals
66 48
Total
$ 238,081 $ 190,682

Note 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 ~~August 31, 2023~~February 29,2024, 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 two operating lines of credit for €7,000 and €500 each, which bear interest at Euro Short-Term Rate ("ESTR") plus 2.50% and Euro Interbank Offered Rate ("EURIBOR") plus ~~3.75%~~4.00%, respectively. As of ~~August 31, 2023~~February 29,2024, a total of €~~6,967~~7,434 ($~~7,594)~~8,029) was drawn down from the available credit of €7,500. The operating line of credit for €7,000 ~~are~~is secured by an interest in the inventory of CC Pharma GmbH as well as the Densborn facility and underlying real property. The operating line of credit for €500 is unsecured.

American Beverage Crafts Group Inc. ("ABC Group"), formerly known as Four Twenty Corporation, (~~“420”~~), a subsidiary of the Company, has a revolving credit facility of $30,000, which bears interest at SOFR plus an applicable margin. As of ~~August 31, 2023~~February 29,2024, the Company has drawn $7,000 on the revolving line of credit. The revolving credit facility is secured by ~~all of~~ ~~420's~~ABC Group's assets and includes a corporate guarantee by a subsidiary of the Company.

Note 11. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are comprised of:

	*February 29,*		*May 31,*
	*2024*		*2023*
Trade payables	$	90,163	$	70,819
Accrued liabilities		70,744		48,394
Litigation accrual		25,153		25,000
Accrued payroll and employment related taxes		14,993		18,772
Income taxes payable		1,438		14,934
Accrued interest		3,202		8,102
Sales taxes payable		4,070		4,661
Total	$	209,763	$	190,682

Note ~~11.~~12. Long-term debt

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

	*August 31,*			*May 31,*			*February 29,*			*May 31,*
	*2023*			*2023*			*2024*			*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	$	44,400		$	45,260		$	41,440		$	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$181 including interest, due in July 2033		10,905			10,959			10,541			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$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								12,765			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		330			346			288			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		2,128			2,104			2,122			2,104
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			—			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		20,688			20,863
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
Term loan ‐ €1,200 ‐ at 4.26%, 1‐year term, repayable in monthly installments of €100 plus interest, due in December 2023								—			755
Term loan ‐ €1,500 ‐ at 2.00%, 5‐year term, repayable in quarterly installments of €94 plus interest, due in April 2025								520			819
Term loan ‐ €3,500 ‐ at 4.59%, 5‐year term, repayable in monthly installments of €52 plus interest, due in August 2028								3,326			1,706
Mortgage payable - $22,635 - EURIBOR rate plus 1.5%, 10-year term, repayable in monthly installments of $57 including interest, due in October 2030								20,225			20,863
Term loan - $90,000 - SOFR plus an applicable margin, 5-year term, repayable in quarterly installments of $875 to $1,750 due in June 2028								87,750			65,000
Carrying amount of long-term debt		166,977			161,707			178,977			161,707
Unamortized financing fees		(1,098	)		(738	)		(978	)		(738	)
Net carrying amount		165,879			160,969			177,999			160,969
Less principal portion included in current liabilities		(13,489	)		(24,080	)		(12,351	)		(24,080	)
Total noncurrent portion of long-term debt	$	152,390		$	136,889		$	165,648		$	136,889

During the quarter ended August 31, 2023, ~~Four Twenty Corporation (~~~~"420"~~~~), a wholly-owned subsidiary of the Company,~~ABC Group, repaid its $100,000 term loan and entered  into a new secured credit agreement, which is comprised of: (i) a $70,000 term loan facility, bearing interest at SOFR plus an applicable margin and having a maturity date of June 30, 2028 (the ~~"420~~"ABC Group 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~~"ABC Group Delayed Draw Term Loan" and, together with the ~~420~~ABC Group Term Loan the ~~"420~~"ABC Group Secured Credit Agreement"). The ~~420~~ABC Group Term Loan was fully drawn on June 30, 2023. The ~~420~~ABC Group Delayed Draw Term Loan was fully drawn ~~subsequent~~on September 29, 2023 to ~~August 31, 2023,~~ fund part of the purchase price for the Craft Acquisition as described in Note 257 ~~(Subsequent events)~~(Business acquisitions). Under the terms of the ~~420~~ABC Group Secured Credit Agreement, the Company pledged all of ~~Sweetwater, Breckenridge~~ABC Group and ~~Montauk’s~~its subsidiaries' assets and the related equity ~~interest,~~interests, and Tilray Brands, Inc. provided a limited ~~guarantee.~~guarantee, as well as requiring the lenders approval to transfer assets to Tilray Brands, Inc.

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

Note ~~12.~~13. Convertible debentures payable

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

August 31,

May 31,

2023

2023

5.20% Convertible Notes ("TLRY 27")
$ 120,861 $ 100,476
HTI Convertible Note
- 47,834
5.25% Convertible Notes ("APHA 24")
124,453 120,568
5.00% Convertible Notes ("TLRY 23")
127,137 126,544
Total
372,451 395,422
Deduct - current portion
251,590 174,378
Total convertible debentures payable, non current portion
$ 120,861 $ 221,044

~~HTI Convertible Note~~

August 31,

May 31,

2023

2023

4.00% Contractual debenture
$ — $ 50,000
Unamortized discount
— (2,166 )
Net carrying amount
$ — $ 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).~~

	*February 29,*		*May 31,*
	*2024*		*2023*
5.20% Convertible Notes ("TLRY 27")	$	126,587	$	100,476
HTI Convertible Note		—		47,834
5.25% Convertible Notes ("APHA 24")		83,351		120,568
5.00% Convertible Notes ("TLRY 23")		—		126,544
Total		209,938		395,422
Deduct - current portion		83,351		174,378
Total convertible debentures payable, non current portion	$	126,587	$	221,044

TLRY 27 Notes

	*August 31,*			*May 31,*			*February 29,*			*May 31,*
	*2023*			*2023*			*2024*			*2023*
5.20% Contractual debenture	$	172,500		$	150,000		$	172,500		$	150,000
Unamortized discount		(51,639	)		(49,524	)		(45,913	)		(49,524	)
Net carrying amount	$	120,861		$	100,476		$	126,587		$	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~~of $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 share lending agreement has been recorded as part of the 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 of the Borrowed Shares.

During the three and nine months ended February 29,2024, the Company recognized interest expense of $2,243 and $6,728 and accretion of amortized discount interest of $2,896 and $8,520. For the same periods in the prior year there was no interest or accretion of amortized discount.

HTI Convertible Note

	*February 29,*		May 31,
	*2024*		*2023*
4.00% Contractual debenture	$	—	$	50,000
Unamortized discount		—		(2,166	)
Net carrying amount	$	—	$	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 15 (Stockholders' equity).

APHA 24 Notes

	*August 31,*			*May 31,*			*February 29,*			*May 31,*
	*2023*			*2023*			*2024*			*2023*
5.25% Contractual debenture	$	350,000		$	350,000		$	350,000		$	350,000
Debt settlement		(213,260	)		(213,260	)		(263,970	)		(213,260	)
Fair value adjustment		(12,287	)		(16,172	)		(2,679	)		(16,172	)
Net carrying amount	$	124,453		$	120,568		$	83,351		$	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 such note, in multiples of $1 principal amount, at their option at any time between December 1, 2023 to the maturity date of June 1, 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, in multiples of~~ $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.~~

1615

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 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 plus accrued and unpaid interest to, but excluding, the redemption date.

The Company elected the fair value option under ASC 825 ~~Fair Value Measurements~~Financial Instruments 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~~During the three months ended February 29,2024, the Company ~~may~~ ~~from time to time seek to retire or purchase its~~exchanged the aggregate principal of $50,710 of 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.~~Notes for cancellation by issuing 27,228,252 shares.

The overall change in fair value of APHA 24 during the ~~quarter~~nine months ended ~~August 31, 2023~~February 29,2024 decreased by ~~$3,885,~~$13,493, this was comprised of ~~$2,147~~$12,352 of fair value changes ~~which was offset by the decrease in~~and a foreign exchange loss of ~~$1,738 (~~ ~~August 31, 2022 –~~ ~~$7,884 of fair value changes, offset by a decrease in foreign exchange of $8,367).~~$1,141.

~~As at~~ ~~August 31, 2023~~~~, there~~There was ~~$136,740~~$86,030 principal outstanding as at February 29,2024compared to on$136,740 as at May 31, ~~2023~~2023. ~~there was $136,740 of principal outstanding.~~See Note 27 (Subsequent events) for additional details.

During the three and ninemonths ended ~~August 31, 2023~~February 29, ~~and~~ ~~2022,~~2024,the Company recognized ~~total~~ interest expense of ~~$1,795~~$1,483 and ~~$3,403, respectively.~~$5,072, respectively and interest expense of $3,319 and $10,105, respectively for the same period in the prior year.

TLRY 23 Notes

	*August 31,*			*May 31,*			*February 29,*		*May 31,*
	*2023*			*2023*			*2024*		*2023*
5.00% Contractual debenture	$	277,856		$	277,856		$	—	$	277,856
Principal amount paid		(150,526	)		(150,526	)		—		(150,526	)
Unamortized discount		(193	)		(786	)		—		(786	)
Net carrying amount	$	127,137		$	126,544		$	—	$	126,544

The TLRY 23 ~~bears~~Notes bore 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~~On ~~may~~September 12, 2023, ~~accrue on~~ the Company repurchased $20,000 of its TLRY 23 ~~in specified circumstances. The TLRY~~ 23 ~~will mature on~~ ~~October 1, 2023,~~ ~~unless earlier repurchased, redeemed or converted. There are~~ noNotes for cancellation by issuing 7,000,000 shares and paying $610 of cash to settle both principal ~~payments required over the~~ ~~five-year term~~and accrued interest. Upon repurchase of the TLRY 23 ~~except~~Notes, a portion of the settlement consideration was allocated to the equity component of the instrument and was recognized as a $1,672 reduction of additional paid-in capital in the ~~case~~Consolidated Statements of ~~redemption or events~~Changes in Equity. Additionally, this repurchase resulted in a loss of ~~default.~~$1,062 which was recorded in other non-operating (losses) gains, net as shown in Note 24 (Non-operating income (expense)).

~~The TLRY~~ 23 ~~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~~After cancellation, the ~~notes; equal in right of payment with any of Tilray’s unsecured indebtedness that is~~ ~~not~~ ~~so subordinated, including TLRY~~ 27 ~~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.

~~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 ~~first~~~~365~~ ~~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 common stock, at the Company's election (the "cash conversion option"). The initial conversion rate for the convertible notes is 5.9735 shares of common stock per ~~one thousand~~ ~~dollar~~outstanding principal amount of notes, which is equivalent to an initial conversion price of approximately $167.41 per share of common stock, which represents approximately 760,588 shares of common stock, based on the $127,330 aggregate principal amount of convertible notes outstanding as of ~~August 31, 2023~~~~. Throughout the term~~balance of the TLRY 23 ~~the conversion rate~~Notes was $107,330. On ~~may~~ ~~be adjusted upon the occurrence of certain events.~~

~~Prior to the close of business on the business day immediately preceding~~ ~~April 1,~~October 2, 2023, the Company repaid the remaining principal of 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,~~Notes in ~~multiples of~~ $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).~~ cash upon maturity.

~~As of~~During the ~~August 31, 2023~~~~, the Company was in compliance with all the covenants set forth under the TLRY~~ ~~23.~~three ~~The effective interest rate on the debt is 6.9%~~and nine months ended February 29,2024, the Company recognized interest expense of ~~$1,592~~$nil and ~~amortized discount~~$2,122, respectively and interest expense of ~~$593~~$1,748 and $6,077, respectively for the ~~three~~ ~~months ended~~ ~~August 31, 2023~~.same period in the prior year.

1716

Note ~~13.~~14. Warrant liability

As of ~~August 31, 2023~~February 29,2024 and May 31, 2023, there were 6,209,000 warrants outstanding, with an original exercise price of $5.95 per warrant, expiring ~~March~~September 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 ~~three~~nine months ended ~~August 31, 2023~~February 29,2024, the Company issued shares which triggered the anti-dilution price protection feature lowering the exercise price to $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 warrants outstanding at ~~August 31, 2023~~February 29,2024 at ~~$1.613~~$0.512 per warrant using the Black Scholes pricing model (Level 3) with the following assumptions: Risk-free interest rate of ~~4.4%~~3.9%, expected volatility of 50%, expected term of ~~2.05~~1.55 years, strike price of $1.61 and fair value of common stock of ~~$2.96.~~$1.73.

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

Note ~~14.~~15. Stockholders' equity

Issued and outstanding

As of ~~August 31, 2023~~February 29,2024, the Company had ~~980,000,000~~1,198,000,000 common shares and 10,000,000 preferred shares authorized to be issued, with ~~723,292,600~~774,028,053 common shares and nil 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 ~~three~~nine months ended ~~August 31, 2023~~February 29,2024, the Company issued the following common shares:

39,705,962 shares in connection with the HEXO Acquisition, see Note 67 (Business acquisitions).

865,426 shares to settle a contractual change of control severance obligations in the aggregate amount of $1,500 incurred in connection with the HEXO Acquisition.

~~5,004,735~~18,632,126 shares to settle dividends payable to the non-controlling shareholders of 1974568 Ontario Limited (“Aphria ~~Diamond in the amount of $8,146.~~

Diamond”).

~~17,148,541~~1,032,616 shares for the settlement of the HTI Convertible Note payable see Note 1213 (Convertible debentures payable).

17,148,541 shares to HTI Investments MA LLC pursuant to the terms of a $50.0 million convertible promissory note originally issued by Tilray to HTI on July 12, 2022 and which was settled at maturity as previously disclosed.

1,573,152 shares to settle HEXO-based litigation judgement obtained by MediPharm Labs Inc. in 2022.

	e)g)	~~3,912,481~~ 7,000,000 shares to repurchase $20,000 of its TLRY 23 Notes for cancellation.
	h)	27,228,252 shares to repurchase $50,710 of its APHA 24 Notes for cancellation.

4,186,523 shares in connection with the exercise of previously awarded stock-based compensation awards.

The Company maintains stock-based compensation plans as disclosed in our Annual Financial Statements. For the three and ninemonths ended ~~August 31, 2023~~February 29, ~~and~~ ~~2022,~~2024, the total stock-based compensation was $ ~~8,257~~8,059 and ~~$9,193~~$ 24,517. For the three and nine months ended February 28,2023, total stock based compensation was $ 9,630 and $ 29,766 respectively.

During the ~~three~~nine months ended ~~August 31, 2023~~February 29, ~~and~~ ~~2022,~~2024 the Company granted 11,559,549 ~~and 5,747,938~~ time-based RSUs, ~~respectively,~~ and 7,566,146 ~~and~~ ~~2,540,394~~performance-based RSUs ~~respectively.~~( February 28, 2023 - 6,004,995 time-based RSUs and 2,634,744 performance based RSUs). The 7,566,146 performance based RSUs issued during the quarter ~~had~~contains certain performance conditions that will only be set a future date, and therefore for accounting purposes the grant date has not ~~yet finalized.~~been met. The Company's total stock-based compensation expense recognized is as follows:

	*For the three months*				*For the three months ended*				*For the nine months ended*
	*ended August 31,*				*February 29,*		*February 28,*		*February 29,*		*February 28,*
	*2023*		*2022*		*2024*		*2023*		*2024*		*2023*
Stock options	$	—	$	604		$ —		$ 20		$ —		$ 644
RSUs		8,257		8,589		8,059		9,610		24,517		29,122
Total	$	8,257	$	9,193		$ 8,059		$ 9,630		$ 24,517		$ 29,766

1817

Note ~~15.~~16. Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss includes the following components:

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

Balance May 31, 2023	$	(46,610	)	$	—		$	(46,610	)	$	(46,610	)	$	—		$	(46,610	)
Other comprehensive loss		3,049			—			3,049			3,049			—			3,049
Balance August 31, 2023	$	(43,561	)	$	—		$	(43,561	)	$	(43,561	)	$	—		$	(43,561	)
Other comprehensive loss											5,194			—			5,194
Balance November 30, 2023										$	(38,367	)	$	—		$	(38,367	)
Other comprehensive loss											(4,820	)		—			(4,820	)
Balance February 29, 2024										$	(43,187	)	$	—		$	(43,187	)

Note ~~16.~~17. 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 ~~August 31, 2023~~February 29,2024:

	SH		*CC Pharma*			*Aphria*			*ColCanna*			*August 31,*			SH		*CC Pharma*			*Aphria*			*ColCanna*			*February 29,*
	*Acquisition*		*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*			*Acquisition*		*Nordic ApS*			*Diamond*			*S.A.S.*			*2024*
Current assets	$	—	$	91		$	148,222		$	169		$	148,482		$	—	$	31		$	81,541		$	191		$	81,763
Non-current assets		74,681		—			134,351			3,730			212,762			32,000		—			129,067			3,719			164,786
Current liabilities		—		(1,198	)		(147,917	)		(6,982	)		(156,097	)		—		(14	)		(129,422	)		(6,786	)		(136,222	)
Non-current liabilities		—		—			(51,397	)		(2,072	)		(53,469	)		—		—			(48,218	)		(1,458	)		(49,676	)
Net assets	$	74,681	$	(1,107	)	$	83,259		$	(5,155	)	$	151,678		$	32,000	$	17		$	32,968		$	(4,334	)	$	60,651

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

	SH		*CC Pharma*			*Aphria*			*ColCanna*			*May 31,*
	*Acquisition*		*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*
Current assets	$	—	$	114		$	127,689		$	224		$	128,027
Non-current assets		74,681		—			135,085			3,307			213,073
Current liabilities		—		(1,166	)		(142,554	)		(6,697	)		(150,417	)
Non-current liabilities		—		—			(53,197	)		(1,428	)		(54,625	)
Net assets	$	74,681	$	(1,052	)	$	67,023		$	(4,594	)	$	136,058

1918

Summary of income statement information of the entities in which there is a non-controlling interest for the ~~three~~nine months ended ~~August 31, 2023~~February 29,2024:

	SH			*CC Pharma*			*Aphria*			*ColCanna*			*August 31,*		SH			*CC Pharma*			*Aphria*			*ColCanna*			*February 29,*
	*Acquisition*			*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*		*Acquisition*			*Nordic ApS*			*Diamond*			*S.A.S.*			*2024*
Revenue	$	—		$	—		$	39,230		$	—		$	39,230	$	—		$	—		$	76,541		$	—		$	76,541
Total expenses		—			35			15,636			216			15,887		42,681			(1,078	)		47,541			(594	)		88,550
Net (loss) income		—			(35	)		23,594			(216	)		23,343		(42,681	)		1,078			29,000			594			(12,009	)
Other comprehensive (loss) income		—			(20	)		533			(345	)		168		—			(9	)		646			(334	)		303
Net comprehensive (loss) income	$	—		$	(55	)	$	24,127		$	(561	)	$	23,511	$	(42,681	)	$	1,069		$	29,646		$	260		$	(11,706	)
Non-controlling interest %		32	%		25	%		49	%		10	%	NA			32	%		25	%		49	%		10	%	NA
Comprehensive (loss) income attributable to NCI		-			(14	)		11,822			(56	)		11,752		(13,658	)		267			14,527			26			1,162
Additional income attributable to NCI		—			—			4,070			—			4,070		—			—			5,336			—			5,336
Net comprehensive (loss) income attributable to NCI	$	—		$	(14	)	$	15,892		$	(56	)	$	15,822	$	(13,658	)	$	267		$	19,863		$	26		$	6,498

Summary of income statement information of the entities in which there is a non-controlling interest for the ~~three~~nine months ended ~~August 31, 2022~~February 28,:2023:

	SH			*CC Pharma*			*Aphria*			*ColCanna*			*August 31,*			SH			*CC Pharma*			*Aphria*			*ColCanna*			*February 28,*
	*Acquisition*			*Nordic ApS*			*Diamond*			*S.A.S.*			*2022*			*Acquisition*			*Nordic ApS*			*Diamond*			*S.A.S.*			*2023*
Revenue	$	—		$	—		$	36,401		$	—		$	36,401		$	—		$	126		$	98,960		$	—		$	99,086
Total expenses		(3,492	)		154			20,427			55,845			72,934			107,297			659			54,285			91,026			253,267
Net (loss) income		3,492			(154	)		15,974			(55,845	)		(36,533	)		(107,297	)		(533	)		44,675			(91,026	)		(154,181	)
Other comprehensive (loss) income		(7,103	)		29			(3,280	)		240			(10,114	)		70,778			(13	)		(707	)		373			70,431
Net comprehensive (loss) income	$	(3,611	)	$	(125	)	$	12,694		$	(55,605	)	$	(46,647	)	$	(36,519	)	$	(546	)	$	43,968		$	(90,653	)	$	(83,750	)
Non-controlling interest %		32	%		25	%		49	%		10	%	NA				32	%		25	%		49	%		10	%	NA
Comprehensive (loss) income attributable to NCI		(1,156	)		(31	)		6,220			(5,561	)		(528	)		(11,686	)		(137	)		21,544			(9,065	)		656
Additional income attributable to NCI		—			—			4,367			—			4,367			—			—			8,968			—			8,968
Net comprehensive (loss) income attributable to NCI	$	(1,156	)	$	(31	)	$	10,587		$	(5,561	)	$	3,839		$	(11,686	)	$	(137	)	$	30,512		$	(9,065	)	$	9,624

On January 5, 2024, Aphria Inc. (“Aphria”), a wholly-owned subsidiary of the Company, entered into an Amended and Restated Wholesale Cannabis Supply Agreement (the “Supply Agreement”) with 1974568 Ontario Limited (“Aphria Diamond”), Aphria’s joint venture with Double Diamond Holdings Ltd. The Supply Agreement amended and restated the existing supply agreement, effective as of September 1, 2023, and amended certain terms relating to pricing and product classes. Due to the terms stipulated in the Supply Agreement, the reduced transfer price will lead to a decrease in income attributable to non-controlling interest over the duration of the agreement. If this agreement had been effective June 1, 2023, the Company would have recognized approximately $15,000 in additional net income attributed to the Stockholders of Tilray Brands, Inc.

Note ~~17.~~18. 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 compensation, 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 ~~$7,264~~$(2,871) and $1,013 for the three and ninemonths ended ~~August 31, 2023~~February 29,2024, and income tax ~~expense~~recovery of ~~$7,211~~$(10,811) and $ (15,313) for the three and ninemonths ended ~~August 31, 2022~~February 28,.2023 The income tax ~~expense (benefit)~~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.

2019

Note ~~18.~~19. Commitments and contingencies

Purchase and other commitments

The Company has payments on long-term debt, refer to Note 1112 (Long-term debt), convertible notes, refer to Note 1213 (Convertible debentures payable), material purchase commitments and construction commitments as follows:

Total

2024

2025

2026

2027

Thereafter

Long-term debt repayment
$ 166,977 $ 66,829 $ 17,233 $ 6,662 $ 8,412 $ 67,841
Convertible notes
436,570 264,070 — — — 172,500
Material purchase obligations
56,525 33,484 18,491 3,675 875 —
Construction commitments
1,515 1,515 — — — —
Total
$ 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~~ ~~August 31, 2023~~:

Operating

leases

2024
$ 4,106
2025
3,295
2026
3,486
2027
3,412
Thereafter
4,012
Total minimum lease payments
$ 18,311
Imputed interest
(8,525 )
Obligations recognized
$ 9,786

	*Total*		*2024*		*2025*		*2026*		*2027*		*Thereafter*
Long-term debt repayment	$	178,977	$	12,535	$	44,319	$	8,973	$	10,335	$	102,815
Convertible debentures payable		258,530		86,030		—		—		172,500		—
Material purchase obligations		49,159		21,587		27,572		—		—		—
Construction commitments		822		822		—		—		—		—
Total	$	487,488	$	120,974	$	71,891	$	8,973	$	182,835	$	102,815

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 year ended May 31, 2023, except with respect to certain aspects of the legal proceedings disclosed below:

~~Class Action Suits and Stockholder Derivative Suits~~

~~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 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 the~~ ~~second~~ ~~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.~~

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 that the plaintiff will~~ ~~not~~ ~~be able to fix the deficiencies in its claims as part of its amended complaint.~~

~~Legal Proceedings Related to Contractual Obligations~~

420 Investments 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”~~“420 Arrangement Agreement”). Pursuant to the420 Arrangement Agreement, High Park was to acquire the securities of 420 Investments. In February 2020, Tilray and High Park gave notice of termination of the ~~Agreement.~~420 Agreement due to 420 Investment’s breach and failure to satisfy certain conditions precedent. 420 Investments alleges that the termination was unlawful and without merit and 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~~Discoveries are continuing in this litigation proceeding. 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~~deny the Plaintiff’s allegations and ~~intends~~intend to continue to vigorously defend this litigation matter, although there can be no assurance as to its outcome.

In February 2023, Tilray and High Park filed an Application for Summary Judgment to collect an unpaid C$7,000 bridge loan made to 420 Investments on August 28, ~~2019,~~2019. ~~relating to the subject transaction.~~ That debt was repayable in March 2020, but was never ~~repaid. The application is pending and a decision from~~ repaid by 420 Investments. On February 8, 2024, the Court ~~is expected on Tilray’s Application for Summary Judgment in~~granted Tilray and High Park’s summary judgment application, holding that Tilray and High Park were entitled to be paid the full amount of the C$7,000 bridge loan, see Note ~~October~~ 22or (General and administrative expenses), plus on-going interest C$2,800 and costs. Tilray intends to pursue full collection of this judgment as it continues to defend the main proceedings regarding termination of the ~~November 2023.~~420 Arrangement Agreement.

~~Docklight Litigation~~Cannfections Group Inc. / High Park Farms Ltd. (Canada, Commercial Arbitration).

On ~~November 5, 2021~~December 2, 2022 ~~Docklight Brands,~~Cannfections Group Inc. (“~~Docklight”~~Cannfections”), a joint venture that is 50% owned by High Park Farms, Ltd., delivered a Request to Arbitrate along with a Statement of Claim to Tilray’s subsidiaries High Park Farms Ltd. (“HP Farms”) ~~filed a complaint against the Company~~ and ~~its wholly-owned subsidiary,~~ High Park Holdings Ltd. (“~~High Park”~~HP Holdings”) for an arbitration to be held in ~~Superior Court of the State of Washington, King County. Docklight~~Toronto, Ontario. Cannfections claimed breach of contract against ~~High Park~~HP Farms and HP Holdings arising from a ~~2018~~2019 ~~license~~supply agreement pursuant to which ~~Docklight licensed~~Cannfections manufactured cannabis-infused chocolates and gummies. Cannfections primarily alleged that HP Farms failed to meet certain ~~Bob Marley-related brands to High Park (as amended~~minimum order volumes of products from Cannfections resulting in ~~2020~~ ~~and~~ ~~2021,~~claimed damages of C$27,500. HP Farms filed a Statement of Defense denying 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 Docklightallegations as part of an Arbitration proceeding held 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~~November 2023. ~~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 filed~~ ~~January 21, 2022,~~ ~~and discovery 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~~HP Farms believed these claims ~~are~~were without merit and ~~we intend~~vigorously defended the claims during arbitration proceeding. However, on March 5, 2024, the Arbitrator issued a Decision awarding Cannfections damages in the amount of C$19,950 plus interest. The Arbitrator also determined that HP Holdings was not a proper party to ~~continue~~the Arbitration and dismissed all claims against HP Holdings.

On April 5, 2024, HP Farms commenced a voluntary assignment in bankruptcy, naming B. Riley Farber as its licensed insolvency trustee. HP Farms’ bankruptcy filing is limited solely to ~~vigorously defend~~HP Farms, and neither Tilray nor any of its affiliates are petitioners or parties to the ~~Docklight suit. Recently,~~HP Farms bankruptcy filing. As a result of this bankruptcy filing, the ~~parties have engaged~~Company recognized $4,638 for a decrease in value of the equity investee during the three months ended February 29,2024. The Company does not expect that there will be any further impact to the Company’s financial statements. HP Farms determined to commence bankruptcy proceedings given it ceased all active ~~settlement discussions~~operations following closure of the Enniskillen facility and the termination of its supply agreement with Cannfections. The purpose of the bankruptcy filing is to ~~fully resolve Docklight’s claims.~~ensure the orderly liquidation and wind-up of HP Farms’ remaining assets and liabilities. See Note 24 (Non-operating income (expense)).

Summary of ~~Litigation~~litigation accruals

~~The~~As described in Note 11 (Accounts payable and accrued liabilities), the total litigation expense accrual included in accrued liabilities ~~for the period ended~~as of ~~August 31, 2023~~February 29,2024was ~~$35,138~~$25,153 to cover various ongoing litigation matters that are probable and estimable ( May 31, 2023 - $$25,000). During the nine months ended February 29,2024, the Company assumed $12,253 of litigation accruals from the acquisition of HEXO, several of which were settled during the nine months ended February 29,2024. The ~~increase of $10,138~~Company did not assume any litigation accruals from the ~~prior period is due to the inclusion of the HEXO liabilities assumed, net of settlements during the quarter.~~Craft Acquisition.

2220

Note ~~19.~~20. Net revenue

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

Net revenue is comprised of:

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

2023

2022

2024

2023

2024

2023

Beverage alcohol revenue
$ 58,247 $ 21,941 $ 133,237 $ 67,209
Beverage alcohol excise taxes
(3,559 ) (1,301 ) (7,882 ) (4,520 )
Net beverage alcohol revenue
54,688 20,640 125,355 62,689
Cannabis revenue
$ 96,884 $ 75,689 85,236 61,118 276,676 203,503
Cannabis excise taxes
(26,551 ) (17,119 ) (21,804 ) (13,569 ) (75,797 ) (47,486 )
Net cannabis revenue
70,333 58,570 63,432 47,549 200,879 156,017
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 56,794 65,385 193,174 186,158
Wellness revenue
13,297 13,402 13,426 12,015 39,652 38,072
Total
$ 176,949 $ 153,211 $ 188,340 $ 145,589 $ 559,060 $ 442,936


Note ~~20.~~21. Cost of goods sold

Cost of goods sold is comprised of:

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

2023

2022

2024

2023

2024

2023

Beverage alcohol costs
$ 35,836 $ 10,663 $ 77,615 $ 32,932
Cannabis costs
$ 50,517 $ 28,861 42,518 80,362 139,507 137,800
Beverage alcohol costs
11,266 10,849
Distribution costs
61,468 54,984 51,231 57,964 172,846 165,443
Wellness costs
9,502 9,903 9,359 8,299 28,091 26,964
Total
$ 132,753 $ 104,597 $ 138,944 $ 157,288 $ 418,059 $ 363,139

Note ~~21.~~22. General and administrative expenses

General and administrative expenses are comprised of:

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

2023

2022

2024

2023

2024

2023

Executive compensation
$ 3,661 $ 3,555 $ 1,585 $ 2,754 $ 4,757 $ 9,359
Office and general
8,168 5,829 4,190 6,799 20,423 20,011
Salaries and wages
13,114 14,635 19,588 13,621 52,310 38,407
Stock-based compensation
8,257 9,193 8,059 9,630 24,517 29,766
Insurance
3,849 2,703 3,569 3,159 9,917 8,588
Professional fees
1,499 2,490 656 1,165 4,658 5,385
Gain on sale of capital assets
3 77
(Gain) loss on sale of capital assets
23 (15 ) 3 (2 )
Travel and accommodation
1,107 1,161 1,246 1,104 3,727 3,484
Rent
858 865 1,024 782 3,457 2,387
Total
$ 40,516 $ 40,508 $ 39,940 $ 38,999 $ 123,769 $ 117,385
Included in office and general is $4,440 (C$6,000) of bad debt recoveries on a previously recognized credit loss provision, see Note 19 (Commitments and contingencies), 420 Investments Ltd. Litigation.

2321

Note ~~22.~~23. Restructuring charges
In connection with the execution of our acquisition strategy and strategic transactions, the Company has incurred restructuring and exit costs associated with the integration efforts of these non-recurring transactions. The Company recognized $5,178 and $8,748 of restructuring charges for the three and nine months ended February 29,2024, respectively, compared to $2,663 and $10,727 for prior year comparative periods. The Company approves detailed restructuring initiative plans at the executive level and recognizes these expenses in the period in which the plan has been committed to. All amounts incurred as of February 29,2024, have been paid.
Within the Cannabis reporting unit, three restructuring plans have been initiated as follows; HEXO acquisition related charges which is expected to take place within 24 months from the acquisition date, Truss acquisition related charges which is expected to take place within 18 months from the acquisition date and the Canadian business cost reduction plan, which concluded during the last quarter. In the nine months ended February 29,2024, the following expenses were recognized, $3,987 of employee termination benefits and other restructuring charges for the HEXO acquisition plan, $3,454 of restructuring charges related to the costs of exiting the Truss facility until the new business has resumed for the Truss acquisition plan and $475 of employee termination benefits for the Canadian business cost reduction plan.
Within the distribution reporting unit, the Company continued to execute on a cost optimization plan during the three months ended February 29,2024. It is expected that this plan will be completed within the current fiscal year. During the nine months ended February 29,2024, the Company recognized $832 related to employee termination benefits in connection with the execution of this plan.
For the three and nine months ended February 28,2023, the Company recognized $2,663 and $10,727 which was comprised of $2,663 of severance costs required to right size the Company's production, $1,599 of exit costs, and $2,758 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 of $1,512 million were incurred. The Company also incurred $2,195 million of write-offs from the exit of our medical device reprocessing business in our distribution reporting segment. These exit costs were completed in the prior year quarter ended February 28, 2023, and did not have any impacts in the nine months ended February 29,2024.
Note 24. Non-operating income (expense)

Non-operating income (expense) is comprised of:

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

2023

2022

2024

2023

2024

2023

Change in fair value of convertible debenture payable
$ (2,147 ) $ (7,884 ) $ (6,311 ) $ 207 $ (12,352 ) $ (20,375 )
Change in fair value of warrant liability
(8,198 ) 1,548 586 5,256 (1,365 ) 6,841
Foreign exchange loss (gain)
6,267 (25,573 ) (3,302 ) (1,955 ) 1,941 (26,621 )
Loss on long-term investments
(109 ) (1,008 ) 33 (925 ) 383 (2,529 )
Other non-operating (losses) gains, net
(215 ) (75 ) (8,245 ) (1,370 ) (9,427 ) (7,545 )
Total
$ (4,402 ) $ (32,992 ) $ (17,239 ) $ 1,213 $ (20,820 ) $ (50,229 )

~~Other~~Included in other non-operating (losses) gains, net for the three and ninemonths ended ~~August 31, 2023~~February 29,2024, ~~includes~~are losses of $(8,245) and $(9,427) which is comprised of $2,313 from the downside protection share issuance relating to the HTI note, as described in Note 15 (Stockholders' equity), $2,458 of amounts to settle outstanding notes with non-controlling interest ~~shareholders.~~shareholders, and $4,638 for a decrease in value of equity investee, as described in Note 19 (Commitments and contingencies), Cannfections.

Note ~~23.~~25. 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 marketable securities, accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their fair values due to their short periods to maturity.

At ~~August 31, 2023~~February 29,2024 and May 31, 2023 the Company had long-term debt of ~~$4,876~~$3,846 and ~~$nil,~~$3,280, respectively, and the principal portion of convertible debentures payable of ~~$436,570~~$258,530 and $464,070, respectively, 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.

2422

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of ~~August 31, 2023~~February 29,2024 and May 31, 2023 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

August 31, February 29,

Level 1

Level 2

Level 3
2023
Level 1

Level 2

Level 3
2024
Financial assets

Cash and cash equivalents
$ 177,519 $ — $ — $ 177,519 $ 146,253 $ — $ — $ 146,253
Restricted cash
1,613 1,613
Marketable securities
287,333 — — 287,333 79,605 — — 79,605
Convertible notes receivable
— — 74,681 74,681 — — 32,000 32,000
Equity investments measured at fair value
1,078 986 5,500 7,564 1,104 1,454 5,500 8,058
Financial liabilities

Warrant liability
— — (10,015 ) (10,015 ) — — (3,182 ) (3,182 )
Contingent consideration
— — (20,181 ) (20,181 ) — — (14,000 ) (14,000 )
APHA 24 Convertible debenture
— — (124,453 ) (124,453 ) — — (83,351 ) (83,351 )
Total recurring fair value measurements
$ 467,543 $ 986 $ (74,468 ) $ 394,061 $ 226,962 $ 1,454 $ (63,033 ) $ 165,383

May 31, May 31,

Level 1

Level 2

Level 3
2023
Level 1

Level 2

Level 3
2023
Financial assets

Cash and cash equivalents
$ 206,632 $ — $ — $ 206,632 $ 206,632 $ — $ — $ 206,632
Restricted cash
— — — —
Marketable Securities
241,897 — — 241,897 241,897 — — 241,897
Convertible notes receivable
— — 103,401 103,401 — — 103,401 103,401
Equity investments measured at fair value
1,056 1,088 5,651 7,795 1,056 1,088 5,651 7,795
Financial liabilities

Warrant liability
— — (1,817 ) (1,817 ) — — (1,817 ) (1,817 )
Contingent consideration
— — (27,107 ) (27,107 ) — — (27,107 ) (27,107 )
APHA 24 Convertible debenture
— — (120,568 ) (120,568 ) — — (120,568 ) (120,568 )
Total recurring fair value measurements
$ 449,585 $ 1,088 $ (40,440 ) $ 410,233 $ 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, convertible debentures measured at fair value, acquisition-related contingent consideration, and warrant liability.

Convertible notes receivable and long-term investments are recorded at fair value. The estimated fair value is determined using the Black Scholes option pricing model, probability of legalization and is classified as Level 3.

Convertible debentures payable are recorded at fair 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 3.

Certain equity investments recorded at fair value have quoted prices in active markets for identical assets and are classified as Level ~~1.The~~1. The Company classified securities with observable inputs as ~~level~~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~~acquisition of ~~SweetWater,~~ Montauk ~~and Truss~~ due in ~~December 2023,~~ December 2025, and upon the triggering event ~~respectively~~if met, and are payable in cash, iswas determined by discounting future expected cash outflows at a discount rate ~~in the range~~ of ~~5% - 11.4%~~11%, ~~respectively~~ and probability of achievement of ~~25% and 90%~~95%. The unobservable inputs into the future expected cash outflows result in a fair value measurement classified as Level 33. During the nine months ended February 29,2024, a decrease in fair value of $13,493, inclusive of changes in foreign exchange, was recognized and was comprised of a decrease of fair value of $16,218 for the contingent consideration from the Sweetwater acquisition as a result of not achieving the incentive targets which was offset by an increase in fair value of $3,111 for the contingent consideration from the Montauk acquisition as a result of a higher probability of achieving the incentive targets. During the quarter end, $4,181 of contingent consideration liability from the Truss acquisition has been settled in cash for $760 (CAD $1,041)

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:

2523

APHA 24 APHA 24
Convertible Equity Warrant Contingent Convertible Convertible Equity Warrant Contingent Convertible

notes receivable

Investments

Liability

Consideration

Debt

notes receivable

Investments

Liability

Consideration

Debt

Balance, May 31, 2023
$ 103,401 $ 5,651 $ (1,817 ) $ (27,107 ) $ (120,568 ) $ 103,401 $ 5,651 $ (1,817 ) $ (27,107 ) $ (120,568 )
Additions
— — — (4,181 ) —
Disposals
(28,720 ) — — — —
Additions/(Repayments)
— — — (4,181 ) 50,710
Redemption
(28,720 ) — — 760 —
Unrealized gain (loss) on fair value
— (151 ) (8,198 ) 11,107 (3,885 ) — (151 ) (1,365 ) 16,528 (13,493 )
Impairments
— — — — (42,681 ) — — — —
Balance, August 31, 2023
$ 74,681 $ 5,500 $ (10,015 ) $ (20,181 ) $ (124,453 )
Balance, February 29, 2024
$ 32,000 $ 5,500 $ (3,182 ) $ (14,000 ) $ (83,351 )

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

APHA Convertible debentures

Black-Scholes

Volatility,

50%

expected life (in years)

~~0.8~~0.3

Warrant liability

Black-Scholes

Volatility,

50%

expected life (in years)

~~1.5~~1.6

Contingent consideration

Discounted cash flows

Discount rate,
~~5% - 11%~~11 %

achievement

~~25% - 90%~~95%

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 ~~24.~~26. 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) beverage alcohol operations, which encompasses the production, marketing and sale of beverage and beverage alcohol products, (2) 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 wholesale and pharmacy customers, and (4) wellness products, which encompasses hemp foods and hemp-based cannabidiol (“CBD”) consumer 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.

2624

Segment gross profit from external customers:

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

2023

2022

2024

2023

2024

2023

Beverage alcohol

Net beverage alcohol revenue
$ 54,688 $ 20,640 $ 125,355 $ 62,689
Beverage alcohol costs
35,836 10,663 77,615 32,932
Beverage alcohol gross profit
18,852 9,977 47,740 29,757
Cannabis

Net cannabis revenue
$ 70,333 $ 58,570 63,432 47,549 200,879 156,017
Cannabis costs
50,517 28,861 42,518 80,362 139,507 137,800
Gross profit
19,816 29,709
Cannabis gross profit (loss)
20,914 (32,813 ) 61,372 18,217
Distribution

Distribution revenue
69,157 60,585 56,794 65,385 193,174 186,158
Distribution costs
61,468 54,984 51,231 57,964 172,846 165,443
Gross profit
7,689 5,601
Beverage alcohol

Net beverage alcohol revenue
24,162 20,654
Beverage alcohol costs
11,266 10,849
Gross profit
12,896 9,805
Distribution gross profit
5,563 7,421 20,328 20,715
Wellness

Wellness revenue
13,297 13,402 13,426 12,015 39,652 38,072
Wellness costs
9,502 9,903 9,359 8,299 28,091 26,964
Gross profit
$ 3,795 $ 3,499
Wellness gross profit
$ 4,067 $ 3,716 $ 11,561 $ 11,108

Channels of Cannabis revenue were as follows:

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

2023

2022

2024

2023

2024

2023

Revenue from Canadian medical cannabis
$ 6,142 $ 6,520 $ 6,363 $ 6,035 $ 18,793 $ 18,920
Revenue from Canadian adult-use cannabis
71,195 58,355 62,107 45,318 205,350 156,063
Revenue from wholesale cannabis
5,295 392 2,764 58 12,348 686
Revenue from international cannabis
14,252 10,422 14,002 9,707 40,185 27,834
Less excise taxes
(26,551 ) (17,119 ) (21,804 ) (13,569 ) (75,797 ) (47,486 )
Total
$ 70,333 $ 58,570 $ 63,432 $ 47,549 $ 200,879 $ 156,017

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 78 (Convertible notes receivable) and Note 1213 (Convertible debentures payable). In addition, the Company and HEXO entered into various commercial transaction agreements. On June 22, 2023, the Company completed the HEXO Acquisition as described in Note 67 (Business acquisitions), and thus these commercial arrangements were terminated and HEXO's financial results were consolidated in the current period results.

Included in revenue from Canadian adult-use cannabis is $nil and $1,500 of advisory services revenue for the three and ninemonths ended ~~August 31, 2023~~February 29,2024, from the aforementioned HEXO commercial transaction agreements, compared to ~~$7,753~~$8,667 and $24,302 of advisory services revenue in the prior comparative period.

2725

Geographic net revenue:

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

2023

2022

2024

2023

2024

2023

North America
$ 93,521 $ 82,192 $ 117,524 $ 70,463 $ 325,664 $ 228,866
EMEA
79,704 66,041 67,143 71,111 222,139 199,867
Rest of World
3,724 4,978 3,673 4,015 11,257 14,203
Total
$ 176,949 $ 153,211 $ 188,340 $ 145,589 $ 559,060 $ 442,936

Geographic capital assets:

August 31, May 31, February 29, May 31,
2023 2023 2024 2023
North America
$ 384,091 $ 319,173 $ 473,779 $ 319,173
EMEA
106,761 107,131 101,271 107,131
Rest of World
3,767 3,363 3,733 3,363
Total
$ 494,619 $ 429,667 $ 578,783 $ 429,667

Major customers are defined as customers that are materially significant to the Company’s annual revenues. For the three and ninemonths ended ~~August 31, 2023~~February 29,2024and ~~2022~~2023, there were no major customers representing a material contribution to our quarterly revenues.

Note ~~25.~~27. Subsequent Events

On ~~August 7, 2023,~~April 9, 2024, the Company entered into ~~a securities and asset purchase~~an 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 ~~September 12, 2023,~~ ~~the Company repurchased $20,000~~exchange $41,900 principal amount of its ~~TLRY~~APHA 2324 Notes for cancellation by issuing ~~7,000,000 shares and paying $610 of cash~~up to ~~settle both principal and accrued interest. After cancellation, the outstanding principal balance of the TLRY~~ 23 ~~Notes was $107,331.~~
On ~~October 2, 2023,~~ ~~the Company repaid the remaining $107,331 of the TLRY~~ 23 ~~Notes in cash upon maturity.~~25,000,000 shares.

2826



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 ~~August 31, 2023~~February 29, 2024 contained in this Quarterly Report on Form 10-Q and the Audited Consolidated Financial Statements and the related Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023, as well as in conjunction with the sections entitled “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023.  and in the section entitled “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading “Cautionary Note Regarding Forward-Looking Statements” in the introduction of this Form 10-Q.

Company Overview

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

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

2927

Trends and Other Factors Affecting Our Business

Beverage alcohol market trends:
The U.S. beverage alcohol category is approximately a $180 billion category per AKI Technologies encompassing beer, wine, and spirits and continues to maintain annual growth of 2% amidst shifting consumer trends, especially within the craft industry. Several key trends we expect to shape the near-term outlook for our results in this segment are in two main categories; beer and spirts:
-
Beverage Alcohol Distribution. In alignment with our strategic vision, we have reevaluated and initiated a refined craft beer strategy focused on enhancing our relevance within home markets. Through targeted efforts, we've bolstered our distribution footprint, adding approximately 1,000 points of distribution during the third quarter ended February 29, 2024. This expansion has notably increased product availability, enabling us to effectively engage with a broader yet more targeted consumer base and drive sales growth.
-
Market share. Despite a challenging environment marked by a 1.9% decline in the US Craft beer industry according to Circana, the Company’s beer category has showcased resilience in our home markets. While our overall performance trended softer due to stronger than anticipated impacts from "Dry January", our emphasis on regional market penetration yielded promising results. Notably, our legacy and acquired brands demonstrated robust performance in their respective regional strongholds, showcasing significant market share gains.
-
Innovation. Recognizing the evolving consumer landscape and the burgeoning demand for alternative beverage options, we have prioritized innovation and portfolio diversification. Our recent endeavors include expanding 10 Barrel's Pub Line to introduce Pub Ice FMB and Pub Cerveza, alongside the launch of Shock Top Mango and Blueberry variants. These strategic innovations underscore our commitment to offering high-quality options across diverse beverage categories, positioning us for sustained growth and differentiation in the competitive beverage alcohol segment.
In the spirits category, Breckenridge Distillery stands out as a beacon within the bourbon industry, making notable strides in vodka and gin markets while offering a comprehensive hospitality experience through its world-class restaurant and retail location. Our primary growth objective centers on expanding market share across the United States. To fuel future expansion, we prioritize showcasing our exceptional product quality and introducing innovative new offerings. Recent accolades, including Double Gold awards at prestigious competitions and strategic product placements, we believe underscore our brand's growing recognition and appeal. Despite prevailing challenges within the overall spirits market, our focus on whiskey—a resilient segment— we believe positions us for continued growth fueled by innovative product introductions and expanded market presence.
Canadian cannabis market trends:

The cannabis industry in Canada continues to evolve at a rapid pace ~~during~~given how nascent the ~~early periods following the~~industry is with federal legalization of adult-use ~~cannabis.~~cannabis occurring just over five years ago. Through analysis of the current market conditions, the following key trends have emerged and are anticipated to influence the near-term future in the Canadian cannabis industry:

-
Market share. Tilray continues to maintain its market leadership position in Canada. ~~During~~However, during the quarter, we experienced a ~~significant increase~~marginal dip in market share in Canada ~~with our share increasing~~ from ~~8.1%~~12.5% to ~~a 13.4%~~11.6% 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~~While our market share has increased from the prior year comparison as a result of the strategic acquisitions of HEXO and Truss, ~~during~~ the ~~quarter which contributed favorably to our increase~~current period decrease reflects the seasonal change in ~~adult use revenue. We expect that during the next fiscal year, the contribution to our market share from these acquired lines~~consumer's form factor preferences out of ~~business will fluctuate until they are fully absorbed into our distribution channels.~~areas we specialize in.

-
Price compression. ~~We have historically seen~~Historical price compression persists in the market, ~~when compared to the prior fiscal year, which was driven~~intensified by ~~intense~~fierce competition ~~from~~among the approximately ~~1,000~~1,200 Licensed Producers in Canada. ~~The~~Despite increased sales volume, year-over-year price compression ~~year over year~~ has ~~reduced the Company's~~adversely impacted revenue by approximately $3.1 million and $9.8 million for the three and nine months ended ~~August 31, 2023, which affects our~~February 29, 2024, influencing both cannabis gross margin ~~as well as our~~and the bottom line.
-
~~Excise taxes.~~ ~~Given~~The fixed impact of excise per gram, notwithstanding the ~~impacts~~decline in average selling prices, further compounds these challenges, prompting ongoing industry lobbying efforts. The Expert Panel, appointed to review the Cannabis Act legislation, recently recommended a review of the ~~above-referenced price compression,~~ excise tax 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 may result in insolvencies and may be a key element of potential consolidation in the industryframework and we ~~believe long term there is a possibility of some level of reform but it will likely not occur in~~expect the ~~near term.~~government to carefully consider changes to reduce the tax burden on licensed producers.

-
Timing difference in recognizing synergized operating results. ~~As we~~We have sought out and will continue to ~~acquire businesses such~~seek out potential acquisitions that are accretive to revenue and earnings. During the course of our evaluation and due diligence, we assess and validate profitability as well as potential synergies to drive additional profitability. Given that the vast majority of synergies are realized during the integration phase of the transaction, these saving are not realized immediately after the closing of a transaction. We are in the process of integrating our recently acquired HEXO and Truss ~~a large part~~and have identified $27 million of ~~our strategy involves removing legacy costs from these businesses as part of our acquisition strategy.~~synergies. Once we have ~~completed~~achieved the identified synergies, we expect our ~~full $27 million synergy plan for HEXO and integrated Truss's operations, we expect~~the profitability of our operating results to ~~be more profitable.~~
-
~~Change facility utilization as a result of acquisitions~~~~. We continue to assess~~increase. In addition, we have evaluated our facilities ~~for further optimization or~~and have identified cost ~~reduction to ensure utilization is prioritized~~reductions associated with selling our Quebec cultivation facility and reducing our value chain is operating at its peak efficiency. During this period of facility optimization, we expect there to be a temporary short-term negative impact on our operating results until our capacity is optimized.outdoor grow.

~~These identified trends~~Current developments related to the Excise Tax Act:
It has recently been reported that Canada Revenue Agency (CRA) has taken steps to garnish payments due to Canadian Licensed Producers (LPs), who have ~~had impacts~~failed to pay their Excise Tax in full in a timely manner. The reported garnishments by CRA were quickly followed by at least 2 LPs filing for insolvency protection. We view CRA's proactiveness on account collection as a positive step towards the consolidation of the Canadian cannabis industry. As at the date of this filing we are current with CRA on Excise Taxes owed by all of our Canadian entities that are required to pay Excise Taxes.
It has been reported that the Standing Committee of the Finance Committee has recommended to Canada’s Finance Minister that the current ~~period results~~excise tax regime be replaced with a 10% ad valorem tax regime. If the Canadian government takes this step and we encourage the various Provincial governments to resist replacing this 10% ad valorem tax regime with their own, to claim any portion of ~~operations and are discussed in greater detail in~~this savings as additional profit by their respective Cannabis boards, or to require the ~~respective sections.~~savings be passed directly to consumers, as a means to strengthening the Canadian cannabis industry.

International cannabis market ~~trends:~~updates:
30

28

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,~~(Germany, Netherlands and Switzerland) and some are debating regulations for cannabinoid-based medicine (France ~~Spain, Italy,~~ and ~~the United Kingdom)~~Spain). In Europe, we believe that, despite continuing recessionary economic conditions and the Russian conflict with Ukraine, cannabis legalization (both medicinal and adult-use) will continue to gain traction albeit more slowly than originally expected. This is evidenced by the recently adopted cannabis regulations in Germany, which we believe will serve as a catalyst for continued changes in drug policy throughout Europe. We also continue to believe that Tilray remains uniquely positioned to maintain and gain significant market share in these markets with ~~its~~our vertically-integrated infrastructure and ~~its~~well-placed investments, which is comprised of two EU-GMP cultivation facilities within Europe located in Portugal and Germany, our distribution network and our demonstrated commitment to the availability, quality and safety of our cannabinoid-based medical products. ~~Today, Germany remains the largest medical cannabis market in Europe.~~

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

Germany. ~~In late October 2022,~~Today, Germany remains the ~~German government published key details of its plan to legalize and regulate adult-use~~largest medical cannabis ~~including what Health Minister Karl Lauterbach described as “complete” cultivation within the country.~~market in Europe.

~~Recently, Mr. Lauterbach advised that~~Subsequent to the ~~proposal had been revised~~end of our third quarter, the Cannabis Act, consisting of two parts, the CanG 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~~MedCanG, passed both chambers 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~~was signed into law by the Office of the Federal President and decriminalization and MedCanG portions of the Cannabis Act became effective on April 1, 2024. It is expected that the licensing process for the cannabis social clubs will become effective on July 1, 2024.
The MedCanG provides for several important medical cannabis reforms including the abolishment of the tender for domestic production, which will be replaced with a regular licensing scheme under the authority of the Federal Institute for Drugs and Medical Devices (the “BfArM”) as well as for the reclassification of medical cannabis from a narcotic to ~~take place in~~non-narcotic. These reforms will provide medical cannabis patients with enhanced accessibility to medical cannabis as it will allow for it to be prescribed via a normal prescription instead of a narcotic prescription, and will ease the ~~Fall~~reporting and storing requirements for pharmacies and distributors.
We expect to see the cornerstone framework for the Pillar Two Regulations governing the model projects after the implementation of ~~2023.~~the Cannabis Act.

We continue to believe that Tilray is well-positioned in Germany, ~~to provide consistent~~especially in light of the enactment of MedCanG and ~~sustainable~~given that we are one of only three manufacturers of medical cannabis ~~products~~in Germany as our wholly owned subsidiary, Aphria RX, was awarded the tender for the ~~adult-use market whether only in-country~~ cultivation ~~is permitted or whether imports are also allowed given our Aphria RX facility located~~of medical cannabis in Germany ~~and~~by the BfArM. With the abolishment of the tender, we will seek to obtain a license for our ~~EU-GMP-certified production~~state-of-the-art facility in ~~Portugal,~~Neumünster, which will improve our ability to more adequately meets the needs of patients. We further believe that the reclassification of medical cannabis as ~~well as our distribution platform, which~~a non-narcotic provides usTilray with ~~access to 13,000 pharmacies in Germany.~~a larger market opportunity.

Switzerland. In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and ~~consumption. In~~consumption, and in the meantime, ~~a three-year~~it is commencing pilot ~~project commenced on January 30, 2023,~~projects in various cities, which permits selected participants to purchase cannabis for adult-use in various pharmacies in ~~Basel, and more recently in Zurich,~~order to conduct studies on the cannabis market and its impact on Swiss society. It is the first trial for the legal distribution of adult-use cannabis containing THC in Europe. Switzerland is currently running trials in the cities of Lausanne, Zürich, Liestal, Allschwil, Bern, Bienne, and Lucerne, along with the cantons of Basel-Stadt and Geneva. On March 18, 2024, Switzerland announced a new pilot study in the district of canton Zürich, which is expected to be the largest.

Spain. ~~The Spanish Congress'~~In February 2024, Spain’s Ministry of Health ~~Committee has recently approved~~announced that it had started the process to develop a ~~Medical Cannabis Report that paves~~Royal Decree with which it plans to approve the ~~way~~regulation of medical cannabis. In addition, it launched a public consultation on its proposals 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 framework in ~~community pharmacies~~the country and ~~not only in hospitals, favoring~~provided organizations and individual with the ~~access~~opportunity to ~~the patients that may need it.~~submit their comments.

France. France launched a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis. To date, ~~2,300~~over 2,500 patients are enrolled in the experiment, which has been extended for another year and ~~is now ending~~was targeted to end March 2024. Patients who have taken part in the pilot before March 27, 2024, ~~in order~~can continue their treatment as previously, but no new patients will be allowed to ~~collect more data and~~join the pilot. In October 2023, the government proposed an amendment to ~~adopt a legal framework. The first results of~~ the ~~experimentation are positive. Several independent agencies have produced reports that show the effectiveness of~~Social Security Financing Bill (PLFSS) adding medical cannabis ~~especially~~law to France's general medical framework. Under the new proposals, medical cannabis products will be granted a "temporary authorization" for five years, with a possibility of indefinite renewals. In addition, the French National Medicines Safety Agency (ANSM) recently confirmed that cannabis flower will not be included in ~~situations of chronic pain.~~its generalized medical marijuana program.

Czech Republic. The Czech Republic has discussed plans to launch a fully regulated adult-use cannabis market. It is understood that there are two separate versions of a bill to legalize adult-use cannabis, one with a fully regulated commercial market and ~~is reviewing in~~one without. These are expected to be submitted to the ~~context of the European regulations.~~Czech government to determine which model it will pursue.

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:~~Netherlands. The Netherlands launched a pilot program involving the cultivation of cannabis for adult-use. The purpose of the experiment is to determine whether and how controlled cannabis can be legally supplied to coffeeshops and what the effects of this would be. During the experiment, legally produced cannabis will be sold in coffeeshops in 10 municipalities. Coffeeshops in these municipalities may only sell legally produced cannabis. The term of the experiment is set for four years. On March 5, 2024, the Tweede Kamer, the lower house of Parliament, rejected the bill that aimed to include Amsterdam in the pilot project.

~~The beverage alcohol category, while more established, continues to shift with changes in consumer trends~~
Ukraine. In February 2024, President Zelensky signed the legislation permitting the prescription of cannabis-based medicines for conditions including pain, cancer and PTSD. It is expected that, over the next six months, Ukraine’s ministries will outline legislation allowing for the craft industry. Specifically, based on IRI data, for the last 13 weeks ended August 27, 2023, the US beer industry grew 3.14%, with craft beer growing 0.71%, a slight improvement from the immediately preceding quarter. Nationally SweetWater trends softened during the three months ended August 31, 2023, due to the timingimportation of ~~key marketing programming being pushed~~cannabis-based medicines into ~~our second quarter, while SweetWater’s home market remained in a growth trend, finishing an increased 5.9% in the quarter.~~ SweetWater is expected to return to growth nationally at the start of the second quarter through programming and innovation. Early results from the launch of SweetWater’s latest innovation, Gummies, are 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 continued growth through focused innovation, targeted marketing efforts, and gains in distribution across the portfolio of brands.
Breckenridge Distillery is a leader in the 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, including expanding the national 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. Recent media coverage includes coverage of newly released products, the expanded Denver Broncos Sponsorship, and recognition of the world class restaurant located at the distillery. The overall whiskey market continues to grow through premiumization and expanding into new target demographics. The Company expects its spirits business to continue to grow with the integration of the national distributer agreement with RNDCUkraine, as well as ~~new product offerings.~~the domestic cultivation of medical cannabis.

3129

Wellness market trends:

Manitoba Harvest’s branded hemp business continued to expand its U.S. and Canadian leading market share position ~~this year. During~~during the three and nine months ended February 29, 2024, with consumption up in both the Natural and Conventional Channels, with the brands top five customers all seeing growth. The Company continues to focus on value-added innovation within the wellness and food beverage space, with the launch of Bio-Active Fiber and protein rich Oatmeal coming to market during the three months ended February 29, 2024. In addition, during the later half of the quarter we relaunched HiBall energy drinks within the ~~Company successfully continued expansion of its Hemp Food portfolio into more accessible consumer formats with the continued launch of a breakthrough~~wellness beverages space to complement our recent Happy Flower CBD ~~wellness~~ beverage Happy Flower™. The Company will look to expand the Happy Flower™ brand with retail distribution into key markets, focusing on U.S. states with established CBD permissibility and sales momentum in future periods.launch.

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 ~~August 31, 2023,~~February 29, 2024, we incurred ~~$8.5~~$3.5 million and $13.1 million of transaction expenses, discussed further below.

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

●
HEXO acquisition:

On June 22, 2023, Tilray acquired HEXO Corp. (“HEXO”) as discussed in Note 67 (Business acquisitions). With the HEXO Acquisition, Tilray ~~expects~~initially expected to achieve additional cost savings ~~in excess~~ of ~~$27M~~$27 million on an annualized pre-tax basis ~~driven by~~and has subsequently increased this target to between $30 to $35 million. These synergies will be realized across production, sales, marketing, distribution, and corporate savings, with ~~potential~~ incremental upside resulting from consolidating packaging, procurement, freight, ~~and logistics.~~logistics in addition to our facility rationalization in Quebec. This builds on Tilray’s substantial progress optimizing its Canadian cannabis operations discussed below. During the three and nine months ended ~~August 31, 2023,~~February 29, 2024, we have achieved ~~$17.1~~$27.5 million of our synergy plan on an annualized run-rate basis, of which ~~$2.9~~$15.6 million represented actual cost savings during the period. As discussed in our trends section, these ~~saving~~cost savings initiatives take time to implement, resulting in related benefits being realized over time.

●
Craft beverage acquisition:
On September 29, 2023, Tilray acquired a portfolio of craft beer brands, assets and businesses comprising eight beer and beverage brands from Anheuser-Busch Companies, LLC, including breweries and brewpubs associated with them (the “Craft Acquisition”). The acquired businesses include Shock Top, Breckenridge Brewery, Blue Point Brewing Company, 10 Barrel Brewing Company, Redhook Brewery, Widmer Brothers Brewing, Square Mile Cider Company, and HiBall Energy.  The details of the acquisition are as described in Note 7 (Business acquisitions). The Craft Acquisition, is expected to be transformational to our beverage alcohol strategy elevating the Company to the 5th largest U.S. Craft Beer market share position from our previous 9th place market share position.
The Company further believes the Craft transaction will be accretive to our adjusted EBITDA, driven by a range of strategic benefits, including:
-
An established brand portfolio with a devoted consumer base, coupled with growth potential through integration and expanded capabilities in both alcoholic and non-alcoholic beverages.
-
The acquisition encompasses four production facilities and eight brewpub locations, further solidifying our operational presence.
-
A reinforced nationwide distribution footprint, propelling Tilray's beer sales volume from four million cases to twelve million, thereby tripling its market reach on a pro forma basis.
3230

In addition to acquisitions completed above, the Company has also completed the following cost saving strategies during the second quarter which impact results for the nine months ended February 29, 2024:

●
Cannabis business cost reduction plan:

During the fourth quarter of our fiscal year ended May 31, 2022, the Company launched a $30 million cost optimization plan of our existing cannabis business to solidify our position as an industry leading low-cost producer. As of the date of the conclusion of the plan, we achieved $22.3 million against the plan. The Company ~~took decisive action~~now considers this plan fulfilled, owing 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~~a strategic shift in our Cannabis beverage strategy. The Company's original targets involved repurposing our beverage facility; however, this initiative was altered following the ~~current period ended August 31, 2023, we have achieved $22 million of~~Truss acquisition, which required additional capacity from our ~~cost optimization plan on an annualized run-rate basis of which $21 million represented actual cost savings during the period. The amount achieved is comprised of the following items:~~existing infrastructure.
-
~~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:

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. InAs of the ~~current period ended August 31, 2023,~~date of the ~~Company~~conclusion of the plan, we achieved an annualized run-rate basis of ~~$6.8~~$7.6 million of cost savings. ~~This was driven by~~The Company concluded this savings plan as of November 30, 2023. Approximately $1.3 million of cost savings identified in connection with the ~~integration~~$8.0 million cost optimization plan were associated with a temporary furlough of certain cultivation employees, which did not occur due to an increase in the demand for our ~~Distribution and European~~medical cannabis ~~business for redundant costs including headcount consolidation~~products thereby rendering such action not necessary. Additional cost savings were identified in ~~addition~~order to ~~optimization of our facility utilization.~~
~~In addition to our cost saving strategies,~~offset the ~~Company has also executed~~unrealized savings associated with the ~~following strategic transactions during the quarter:~~
●
~~Beverage Alcohol Acquisitions:~~
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 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 to be paid to AB at closing is expected to be equal to $85.0 million in cash, subject to working capital and other applicable closing adjustments. The acquisition closed on September 29, 2023 as described in Note 25 (Subsequent events), and is expected to be transformational to our growing beverage alcohol strategy.planned furlough.

3331

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 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 three months ended

For the nine months ended

ended August 31,

Change

% Change

February 29,

February 28,

Change

% Change

February 29,

February 28,

Change

% Change

(in thousands of U.S. dollars)

2023

2022

2023 vs. 2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Net revenue
$ 176,949 $ 153,211 $ 23,738 15 % $ 188,340 $ 145,589 $ 42,751 29 % $ 559,060 $ 442,936 $ 116,124 26 %
Cost of goods sold
132,753 104,597 28,156 27 % 138,944 157,288 (18,344 ) (12 )% 418,059 363,139 54,920 15 %
Gross profit
44,196 48,614 (4,418 ) (9 )%
Gross profit (loss)
49,396 (11,699 ) 61,095 (522 )% 141,001 79,797 61,204 77 %
Operating expenses:

General and administrative
40,516 40,508 8 0 % 39,940 38,999 941 2 % 123,769 117,385 6,384 5 %
Selling
6,859 9,671 (2,812 ) (29 )% 9,995 6,452 3,543 55 % 24,437 25,792 (1,355 ) (5 )%
Amortization
22,225 24,359 (2,134 ) (9 )% 21,558 23,518 (1,960 ) (8 )% 65,700 71,872 (6,172 ) (9 )%
Marketing and promotion
8,535 7,248 1,287 18 % 11,191 7,354 3,837 52 % 28,934 23,137 5,797 25 %
Research and development
79 166 (87 ) (52 )% 106 171 (65 ) (38 )% 241 502 (261 ) (52 )%
Change in fair value of contingent consideration
(11,107 ) 211 (11,318 ) (5,364 )% (5,983 ) 352 (6,335 ) (1,800 )% (16,790 ) 563 (17,353 ) (3,082 )%
Litigation costs
2,034 445 1,589 357 %
Impairments
— 934,000 (934,000 ) (100 )% — 934,000 (934,000 ) (100 )%
Other than temporary change in fair value of convertible notes receivable
42,681 181,376 (138,695 ) (76 )% 42,681 181,376 (138,695 ) (76 )%
Litigation costs, net of recoveries
3,363 (5,230 ) 8,593 (164 )% 8,439 (1,970 ) 10,409 (528 )%
Restructuring costs
915 — 915 0 % 5,178 2,663 2,515 94 % 8,748 10,727 (1,979 ) (18 )%
Transaction (income) costs
8,502 (12,816 ) 21,318 (166 )%
Transaction costs (income)
3,465 5,382 (1,917 ) (36 )% 13,061 (3,882 ) 16,943 (436 )%
Total operating expenses
78,558 69,792 8,766 13 % 131,494 1,195,037 (1,063,543 ) (89 )% 299,220 1,359,502 (1,060,282 ) (78 )%
Operating loss
(34,362 ) (21,178 ) (13,184 ) 62 % (82,098 ) (1,206,736 ) 1,124,638 (93 )% (158,219 ) (1,279,705 ) 1,121,486 (88 )%
Interest expense, net
(9,835 ) (4,413 ) (5,422 ) 123 % (8,517 ) (1,040 ) (7,477 ) 719 % (26,977 ) (8,560 ) (18,417 ) 215 %
Non-operating (expense) income, net
(4,402 ) (32,992 ) 28,590 (87 )% (17,239 ) 1,213 (18,452 ) (1,521 )% (20,820 ) (50,229 ) 29,409 (59 )%
Loss before income taxes
(48,599 ) (58,583 ) 9,984 (17 )% (107,854 ) (1,206,563 ) 1,098,709 (91 )% (206,016 ) (1,338,494 ) 1,132,478 (85 )%
Income tax expense
7,264 7,211 53 1 % (2,871 ) (10,811 ) 7,940 (73 )% 1,013 (15,313 ) 16,326 (107 )%
Net loss
$ (55,863 ) $ (65,794 ) $ 9,931 (15 )% $ (104,983 ) $ (1,195,752 ) $ 1,090,769 (91 )% $ (207,029 ) $ (1,323,181 ) $ 1,116,152 (84 )%

3432

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 adjustments for each reporting segment (Cannabis, Beverage alcohol, ~~Distribution~~distribution and Wellness) as applicable,

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

3533

Operating Metrics and Non-GAAP Measures

We use the ~~following~~ operating metrics and non-GAAP measures set forth in the table below 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 three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,
(in thousands of U.S. dollars)

2023

2022

2024

2023

2024

2023

Net beverage alcohol revenue
$ 54,688 $ 20,640 $ 125,355 $ 62,689
Net cannabis revenue
$ 70,333 $ 58,570 63,432 47,549 200,879 156,017
Distribution revenue
69,157 60,585 56,794 65,385 193,174 186,158
Net beverage alcohol revenue
24,162 20,654
Wellness revenue
13,297 13,402 13,426 12,015 39,652 38,072
Beverage alcohol costs
35,836 10,663 77,615 32,932
Cannabis costs
50,517 28,861 42,518 80,362 139,507 137,800
Beverage alcohol costs
11,266 10,849
Distribution costs
61,468 54,984 51,231 57,964 172,846 165,443
Wellness costs
9,502 9,903 9,359 8,299 28,091 26,964
Adjusted gross profit (excluding PPA step-up) ⁽¹⁾
49,302 49,721 51,643 44,310 153,055 138,020
Beverage alcohol adjusted gross margin (excluding PPA step-up) ⁽¹⁾
38 % 53 % 42 % 53 %
Cannabis adjusted gross margin (excluding PPA step-up)⁽¹⁾
35 % 51 % 33 % 47 % 34 % 47 %
Beverage alcohol adjusted gross margin (excluding PPA step-up) ⁽¹⁾
56 % 53 %
Distribution gross margin
11 % 9 % 10 % 11 % 11 % 11 %
Wellness gross margin
29 % 26 % 30 % 31 % 29 % 29 %
Adjusted EBITDA ⁽¹⁾
$ 11,434 $ 13,531 $ 10,154 $ 13,315 30,974 $ 37,154
Cash and marketable securities⁽¹⁾as at the period ended:
464,852 490,643 225,858 408,283 225,858 408,283
Working capital as at the period ended:
$ 291,981 $ 637,623 $ 302,111 $ 288,830 $ 302,111 $ 288,830

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

Segment Reporting

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

For the three months

For the three months ended

For the nine months ended

ended August 31,

Change

% Change
February 29, February 28, Change % Change February 29, February 28, Change % Change
(in thousands of U.S. dollars)

2023

2022

2023 vs. 2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Beverage alcohol business
$ 54,688 $ 20,640 $ 34,048 165 % $ 125,355 $ 62,689 $ 62,666 100 %
Cannabis business
$ 70,333 $ 58,570 $ 11,763 20 % 63,432 47,549 15,883 33 % 200,879 156,017 44,862 29 %
Distribution business
69,157 60,585 8,572 14 % 56,794 65,385 (8,591 ) (13 )% 193,174 186,158 7,016 4 %
Beverage alcohol business
24,162 20,654 3,508 17 %
Wellness business
13,297 13,402 (105 ) (1 )% 13,426 12,015 1,411 12 % 39,652 38,072 1,580 4 %
Total net revenue
$ 176,949 $ 153,211 $ 23,738 15 % $ 188,340 $ 145,589 $ 42,751 29 % $ 559,060 $ 442,936 $ 116,124 26 %

3634

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

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

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

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Beverage alcohol business
$ 54,688 $ 20,640 $ 34,048 165 % $ 125,355 $ 62,689 $ 62,666 100 %
Cannabis business
$ 71,389 $ 58,570 $ 12,819 22 % 63,436 47,549 15,887 33 % 202,186 156,017 46,169 30 %
Distribution business
66,952 60,585 6,367 11 % 59,008 65,385 (6,377 ) (10 )% 190,462 186,158 4,304 2 %
Beverage alcohol business
24,162 20,654 3,508 17 %
Wellness business
13,459 13,402 57 0 % 13,381 12,015 1,366 11 % 39,844 38,072 1,772 5 %
Total net revenue
$ 175,962 $ 153,211 $ 22,751 15 % $ 190,513 $ 145,589 $ 44,924 31 % $ 557,847 $ 442,936 $ 114,911 26 %

Our geographic revenue is as follows:

For the three months

For the three months ended

For the nine months ended

ended August 31,

Change

% Change
February 29, February 28, Change % Change February 29, February 28, Change % Change
(in thousands of U.S. dollars)

2023

2022

2023 vs. 2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

North America
$ 93,521 $ 82,192 $ 11,329 14 % $ 117,524 $ 70,463 $ 47,061 67 % $ 325,664 $ 228,866 $ 96,798 42 %
EMEA
79,704 66,041 13,663 21 % 67,143 71,111 (3,968 ) (6 )% 222,139 199,867 22,272 11 %
Rest of World
3,724 4,978 (1,254 ) (25 )% 3,673 4,015 (342 ) (9 )% 11,257 14,203 (2,946 ) (21 )%
Total net revenue
$ 176,949 $ 153,211 $ 23,738 15 % $ 188,340 $ 145,589 $ 42,751 29 % $ 559,060 $ 442,936 $ 116,124 26 %

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

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

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

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

North America
$ 95,214 $ 82,192 $ 13,022 16 % $ 117,091 $ 70,463 $ 46,628 66 % $ 327,734 $ 228,866 $ 98,868 43 %
EMEA
75,116 66,041 9,075 14 % 66,139 71,111 (4,972 ) (7 )% 211,384 199,867 11,517 6 %
Rest of World
5,632 4,978 654 13 % 7,283 4,015 3,268 81 % 18,729 14,203 4,526 32 %
Total net revenue
$ 175,962 $ 153,211 $ 22,751 15 % $ 190,513 $ 145,589 $ 44,924 31 % $ 557,847 $ 442,936 $ 114,911 26 %

Our geographic capital assets are as follows:

August 31,

May 31,

Change

% Change

February 29,

May 31,

Change

% Change

(in thousands of U.S. dollars)

2023

2023

2023 vs. 2022

2024
��
2023

2024 vs. 2023

North America
$ 384,091 $ 319,173 $ 64,918 20 % $ 473,779 $ 319,173 $ 154,606 48 %
EMEA
106,761 107,131 (370 ) (0 )% 101,271 107,131 (5,860 ) (5 )%
Rest of World
3,767 3,363 404 12 % 3,733 3,363 370 11 %
Total capital assets
$ 494,619 $ 429,667 $ 64,952 15 % $ 578,783 $ 429,667 $ 149,116 35 %

3735

Beverage alcohol revenue
Revenue from our Beverage alcohol operations increased to $54.7 million and $125.4 million for the three and nine months ended February 29, 2024, compared to revenue of $20.6 million and $62.7 million for the prior year period. The increase observed during both the three and nine-month periods can be predominantly attributed to our recent acquisitions, particularly the newly integrated Craft Acquisition brands finalized on September 29, 2023. Specifically, the three-month increase is solely driven by the performance of these newly acquired brands, while our legacy brands have maintained consistent performance throughout the period. Furthermore, the nine-month period increase was also influenced by the newly acquired brands and by the organic growth of 9% in our legacy brand portfolio. The Company anticipates that revenue will increase for both acquired and legacy brands through our continued focus on expanding distribution points. Lastly during the three month period, the Company received a volume commitment reimbursement of $2.5 million in our spirits business which positively impacted gross margin.

Cannabis revenue

Cannabis revenue based on market channel is as follows:

For the three months

For the three months ended

For the nine months ended

ended August 31,

Change

% Change
February 29, February 28, Change % Change February 29, February 28, Change % Change
(in thousands of US dollars)

2023

2022

2023 vs. 2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Revenue from Canadian medical cannabis
$ 6,142 $ 6,520 $ (378 ) (6 )% $ 6,363 $ 6,035 $ 328 5 % $ 18,793 $ 18,920 $ (127 ) (1 )%
Revenue from Canadian adult-use cannabis
71,195 58,355 12,840 22 % 62,107 45,318 16,789 37 % 205,350 156,063 49,287 32 %
Revenue from wholesale cannabis
5,295 392 4,903 1,251 % 2,764 58 2,706 4,666 % 12,348 686 11,662 1,700 %
Revenue from international cannabis
14,252 10,422 3,830 37 % 14,002 9,707 4,295 44 % 40,185 27,834 12,351 44 %
Total cannabis revenue
96,884 75,689 21,195 28 % 85,236 61,118 24,118 39 % 276,676 203,503 73,173 36 %
Excise taxes
(26,551 ) (17,119 ) (9,432 ) 55 % (21,804 ) (13,569 ) (8,235 ) 61 % (75,797 ) (47,486 ) (28,311 ) 60 %
Total cannabis net revenue
$ 70,333 $ 58,570 $ 11,763 20 % $ 63,432 $ 47,549 $ 15,883 33 % $ 200,879 $ 156,017 $ 44,862 29 %

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

For the three months

For the three months ended

For the nine months ended

ended August 31,
February 29, February 28, February 29, February 28,

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

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Revenue from Canadian medical cannabis
$ 6,310 $ 6,520 $ (210 ) (3 )% $ 6,307 $ 6,035 $ 272 5 % $ 18,994 $ 18,920 $ 74 0 %
Revenue from Canadian adult-use cannabis
73,111 58,355 14,756 25 % 61,576 45,318 16,258 36 % 207,708 156,063 51,645 33 %
Revenue from wholesale cannabis
5,458 392 5,066 1,292 % 2,763 58 2,705 4,664 % 12,559 686 11,873 1,731 %
Revenue from international cannabis
13,777 10,422 3,355 32 % 14,390 9,707 4,683 48 % 39,609 27,834 11,775 42 %
Total cannabis revenue
98,656 75,689 22,967 30 % 85,036 61,118 23,918 39 % 278,870 203,503 75,367 37 %
Excise taxes
(27,267 ) (17,119 ) (10,148 ) 59 % (21,600 ) (13,569 ) (8,031 ) 59 % (76,684 ) (47,486 ) (29,198 ) 61 %
Total cannabis net revenue
$ 71,389 $ 58,570 $ 12,819 22 % $ 63,436 $ 47,549 $ 15,887 33 % $ 202,186 $ 156,017 $ 46,169 30 %

(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.

3836

Revenue from Canadian medical cannabis: Revenue from Canadian medical cannabis ~~decreased~~increased to ~~$6.1~~$6.4 million and $18.8 million for the three and nine months ended ~~August 31, 2023,~~February 29, 2024, compared to revenue of ~~$6.5~~$6.0 million and $18.9 million for the prior year same period. On a constant currency basis revenue from Canadian medical cannabis ~~decreased to~~was $6.3 million and $19.0 million for the three and nine months ended ~~August 31, 2023,~~February 29, 2024, compared to revenue of ~~$6.5~~$6.0 million and $18.9 million for the prior year same periods. ~~While revenue was relatively consistent period over period and on a constant currency~~On an industry basis, the ~~decrease in revenue from~~ medical ~~cannabis~~channel continues to ~~be driven by increased competition from~~experience migration of non-insured patients moving to the adult-use ~~recreational market~~market. Despite this industry trend, we have grown our assortment in Tilray medical and ~~its related price compression impacting~~maintained our sales despite the ~~medical cannabis market.~~loss in patient base.

Revenue from Canadian adult-use cannabis: During the three and nine months ended ~~August 31, 2023,~~February 29, 2024, our revenue from Canadian adult-use cannabis increased to ~~$71.2~~$62.1 million and $205.4 million, compared to revenue of ~~$58.4~~$45.3 million and $156.1 million for the prior year ~~same~~ period. Further, the prior year revenue includes advisory fees in the amount of $8.7 million and $24.3 million for the three and nine months ended February 28, 2023, compared to $nil and $1.5 million for the three and nine months ended February 29, 2024. Excluding these advisory service fees, revenue increased by $25.5 million and $72.1 million for the three and nine months ended February 29, 2024. The increase in adult-use revenue ~~was driven by organic growth from launching new product innovations from our existing brand portfolios as well as~~is due to the ~~increased revenue from the acquisition~~acquisitions of HEXO on June 22, 2023 and Truss on August 3, ~~2023. Additionally, due to the decline in the Canadian dollar, on~~2023, and our robust innovation pipeline from existing brands. On a constant currency basis, our revenue from Canadian adult-use cannabis increased to ~~$73.1~~$61.6 million and $207.7 million for the three and nine months ended August 31, 2023. Offsetting the increase in the current period, was the reduction of advisory services revenue to $1.5 million from $7.8 million in the prior year comparative period as a result of the HEXO acquisition being completed during the quarter which terminated the previous strategic arrangement that was in place.February 29, 2024.

Wholesale cannabis revenue: Revenue from wholesale cannabis increased to ~~$5.3~~$2.8 million and $12.3 million for the three and nine months ended ~~August 31, 2023,~~February 29, 2024, compared to revenue of ~~$0.4~~$0.1 million and $0.7 million for the prior year ~~same~~ period. On a constant currency basis, revenue from wholesale cannabis increased to ~~$5.5~~$2.8 million and $12.6 million for the three and nine months ended February 29, 2024 compared to revenue of $0.1 million and $0.7 million. The Company continues to believe that wholesale cannabis revenue will remain subject to quarter-to-quarter variability and is based on opportunistic sales. The wholesale transactions that occurred in the ~~period~~current year periods aided with our liquidity initiatives to increase our cash flow from operations despite having unfavorable impacts on our gross margin and ~~EBITDA of $(2.7) million.~~EBITDA.

International cannabis revenue: Revenue from international cannabis increased to ~~$14.3~~$14.0 million and $40.2 million for the three and nine months ended ~~August 31, 2023,~~February 29, 2024, compared to revenue of ~~$10.4~~$9.7 million and $27.8 million for the prior year ~~same~~ period. ~~Given~~On a constant currency basis, given the ~~increase of~~changes in the Euro against the U.S. Dollar when compared to the prior year quarter, ~~on a constant currency basis,~~ revenue from international cannabis was ~~$13.8~~$14.4 million and $39.6 million compared to ~~$10.4~~$9.7 million and $27.8 million in the prior year ~~same~~ period ~~for~~(during the ~~three~~nine months ended ~~August 31, 2023.~~February 28, 2023, the Company recognized a one-time return adjustment of $3.1 million related to a former customer in Israel that commenced bankruptcy proceedings). The increase in the period is largely driven by revenue growth in existing markets and expansion into ~~emerging~~new international medical markets.

3937

Distribution revenue

Revenue from ~~Distribution operations~~distribution decreased to $56.8 million and increased to ~~$69.2~~$193.2 million for the three and nine months ended ~~August 31, 2023~~February 29, 2024, compared to revenue of ~~$60.6~~$65.4 million and $186.2 million for the prior year ~~same~~ period. ~~Revenue was positively impacted during~~On a constant currency basis, given the ~~three month period from the increase of~~change in the Euro and Argentine Peso against the U.S. Dollar in the quarter, ~~which when the impacts are eliminated on a constant currency basis,~~ revenue from Distribution was ~~$67.0~~$59.0 million and $190.5 million for the three and nine months ended ~~August 31, 2023. The increase in~~February 29, 2024. In the ~~period~~quarter, revenue was ~~driven~~negatively impacted by ~~increased production capacity achieved through out-sourcing~~IT infrastructure outages and weather, both of which impacted revenue by approximately $3.0 million. Additionally, the Company faced short-term challenges related to ~~third party production facilities as well as leveraging~~new regulatory rebates, which caused us to lower our ~~own internal production and improved procurement processes, which has allowed CC Pharma to improve its product mix.~~
~~Beverage alcohol revenue~~
Revenue from our Beverage alcohol operations increased to $24.2 million for the three months ended August 31, 2023, compared to revenue of $20.7 million for the prior year same period. The increase in the three month period relates primarily to our acquisition of Montauk which occurred on November 7, 2022, and is not reflected in the prior year comparative period.sales activities.

Wellness revenue

Our Wellness revenue ~~from Manitoba Harvest was relatively consistent at $13.3~~showed strong growth delivering $13.4 million and $39.7 million for the three and nine months ended ~~August 31, 2023~~February 29, 2024 compared to ~~$13.4~~$12.0 million and $38.1 million from the prior year ~~same~~ period. On a constant currency basis for the three and nine months ended ~~August 31, 2023,~~February 29, 2024, Wellness revenue increased to ~~$13.5~~$13.4 million and $39.8 million from ~~$13.4~~$12.0 and $38.1 million. ~~Overall, sales remained relatively consistent period over period despite increasing pricing when compared~~The increase in revenue can be attributed to ~~prior~~our strategic focus on targeted advertising campaigns aligned with emerging trends in healthier lifestyles, particularly around the new year, ~~to combat the inflation of ingredient costs.~~coupled with our continuous innovation efforts.

4038

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 ~~August 31,~~February 29, 2024 and February 28, 2023, ~~and 2022,~~ is as follows:

For the three months

For the three months ended

For the nine months ended

(in thousands of U.S. dollars)

ended August 31,

Change

% Change
February 29, February 28, Change % Change February 29, February 28, Change % Change
Cannabis

2023

2022

2023 vs. 2022

Net revenue
70,333 58,570 11,763 20 %
Cost of goods sold
50,517 28,861 21,656 75 %
Gross profit
19,816 29,709 (9,893 ) (33 )%
Gross margin
28 % 51 % (23 )% (45 )%
Purchase price accounting step-up
4,516 — 4,516 NM
Adjusted gross profit (1)
24,332 29,709 (5,377 ) (18 )%
Adjusted gross margin (1)
35 % 51 % (16 )% (31 )%
Distribution

Net revenue
69,157 60,585 8,572 14 %
Cost of goods sold
61,468 54,984 6,484 12 %
Gross profit
7,689 5,601 2,088 37 %
Gross margin
11 % 9 % 2 % 22 %
Beverage alcohol

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Net revenue
24,162 20,654 3,508 17 % $ 54,688 $ 20,640 $ 34,048 165 % $ 125,355 $ 62,689 $ 62,666 100 %
Cost of goods sold
11,266 10,849 417 4 % 35,836 10,663 25,173 236 % 77,615 32,932 44,683 136 %
Gross profit
12,896 9,805 3,091 32 % 18,852 9,977 8,875 89 % 47,740 29,757 17,983 60 %
Gross margin
53 % 47 % 6 % 13 % 34 % 48 % (14 )% (29 )% 38 % 47 % (9 )% (19 )%
Purchase price accounting step-up
590 1,107 (517 ) (47 )% 2,073 1,009 1,064 105 % 4,426 3,223 1,203 37 %
Adjusted gross profit (1)
13,486 10,912 2,574 24 % 20,925 10,986 9,939 90 % 52,166 32,980 19,186 58 %
Adjusted gross margin (1)
56 % 53 % 3 % 6 % 38 % 53 % (15 %) (28 %) 42 % 53 % (11 %) (21 %)
Cannabis

Net revenue
63,432 47,549 15,883 33 % 200,879 156,017 44,862 29 %
Cost of goods sold
42,518 80,362 (37,844 ) (47 )% 139,507 137,800 1,707 1 %
Gross profit (loss)
20,914 (32,813 ) 53,727 (164 )% 61,372 18,217 43,155 237 %
Gross margin
33 % (69 )% 102 % (148 )% 31 % 12 % 19 % 158 %
Purchase price accounting step-up
174 — 174 NM 7,628 — 7,628 NM
Inventory valuation adjustments
— 55,000 (55,000 ) (100 )% — 55,000 (55,000 ) (100 )%
Adjusted gross profit (1)
21,088 22,187 (1,099 ) (5 )% 69,000 73,217 (4,217 ) (6 )%
Adjusted gross margin (1)
33 % 47 % (14 )% (30 )% 34 % 47 % (13 )% (28 )%
Distribution

Net revenue
56,794 65,385 (8,591 ) (13 )% 193,174 186,158 7,016 4 %
Cost of goods sold
51,231 57,964 (6,733 ) (12 )% 172,846 165,443 7,403 4 %
Gross profit
5,563 7,421 (1,858 ) (25 )% 20,328 20,715 (387 ) (2 )%
Gross margin
10 % 11 % (1 )% (9 )% 11 % 11 % 0 % 0 %
Wellness

Net revenue
13,297 13,402 (105 ) (1 )% 13,426 12,015 1,411 12 % 39,652 38,072 1,580 4 %
Cost of goods sold
9,502 9,903 (401 ) (4 )% 9,359 8,299 1,060 13 % 28,091 26,964 1,127 4 %
Gross profit
3,795 3,499 296 8 % 4,067 3,716 351 9 % 11,561 11,108 453 4 %
Gross margin
29 % 26 % 3 % 12 % 30 % 31 % (1 )% (3 )% 29 % 29 % 0 % 0 %
Total

Net revenue
176,949 153,211 23,738 15 % 188,340 145,589 42,751 29 % 559,060 442,936 116,124 26 %
Cost of goods sold
132,753 104,597 28,156 27 % 138,944 157,288 (18,344 ) (12 )% 418,059 363,139 54,920 15 %
Gross profit
44,196 48,614 (4,418 ) (9 )% 49,396 (11,699 ) 61,095 (522 )% 141,001 79,797 61,204 77 %
Gross margin
25 % 32 % (7 )% (22 )% 26 % (8 )% 34 % (425 )% 25 % 18 % 7 % 39 %
Inventory valuation adjustments
— 55,000 (55,000 ) (100 )% — 55,000 (55,000 ) (100 )%
Purchase price accounting step-up
5,106 1,107 3,999 361 % 2,247 1,009 1,238 123 % 12,054 3,223 8,831 274 %
Adjusted gross profit (1)
49,302 49,721 (419 ) (1 )% 51,643 44,310 7,333 17 % 153,055 138,020 15,035 11 %
Adjusted gross margin (1)
28 % 32 % (4 )% (13 )% 27 % 30 % (3 )% (10 )% 27 % 31 % (4 )% (13 )%

(1)
Adjusted gross profit is our Gross profit (adjusted to exclude purchase price accounting valuation ~~step-up)~~step-up and inventory valuation adjustments) and adjusted gross margin is our Gross margin (adjusted to exclude purchase price accounting valuation ~~step-up)~~step-up and inventory valuation adjustments) and are non-GAAP financial measures. See “Use of Non-GAAP Measures” ~~below~~above 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.

4139

Beverage alcohol gross margin: Gross margin of 34% and 38% for the three and nine months ended February 29, 2024 decreased from 48% and 47% from the same period in the prior year. Adjusted gross margin of 38% and 42% for the three and nine months ended February 29, 2024 decreased from 53% and 53% from the periods in the prior year. The decrease in the adjusted beverage alcohol gross margin was a result of the newly acquired Craft Acquisition brands, which have lower margins than our historical business, primarily driven by the temporary excess capacity within the acquired breweries, which we are actively evaluating for future optimization and enhanced utilization. Additionally, during the three month period this decrease was offset by a $2.5 million volume commitment reimbursement in our spirits business, which did not have any costs associated with it.
Cannabis gross margin: Gross margin ~~decreased~~increased during the three and nine months ended ~~August 31, 2023~~February 29, 2024 to ~~28%~~33% and 31% from ~~51%~~(69)% and 12% for the prior year same period. Excluding the impact of the non-cash fair value purchase price accounting step-up and inventory valuation adjustments, adjusted gross margin during the three and nine months ended ~~August 31, 2023~~February 29, 2024 decreased to ~~35%~~33% and 34% from ~~51%~~47% and 47% when comparing the same prior year period. ~~The remaining~~A portion of the decrease is a result of the termination of the HEXO advisory services agreement which contributed $nil and $1.5 million of gross profit in the current year compared to ~~$7.8~~$8.7 and $24.3 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,~~if excluded would decrease adjusted gross ~~cannabis~~ margin ~~would have been 39% compared 43% in the prior period~~to 35% and ~~the remaining decrease in gross margin is due to price compression.~~
~~Distribution gross margin:~~ ~~Gross margin of 11%~~37% for the three and nine months ended ~~August 31, 2023 increased from 9% for the same periods~~February 28, 2023. The remaining decline in the prior year. The increase in the three month period is attributed to a change in product mix as the Company continues to focus on higher margin sales and a decrease in its cost of goods driven by the outsourcing of production.
~~Beverage alcohol gross margin:~~ Gross margin of 53% for the three months ended August 31, 2023 increased from 47% from the same period in the prior year. Adjusted gross margin of 56% for the three months ended August 31, 2023 increased from 53% from the same periods in the prior year. The increase in beverage alcohol gross margin for the ~~current~~ three and nine month ~~period is~~periods was a result of a change in sales mix ~~between beer~~with a higher percentage of sales coming from wholesale.
Distribution gross margin: Gross margin of 10% and ~~spirits as well as~~11% for the ~~impacts of~~three and nine months ended February 29, 2024 decreased from 11% and 11% for the ~~Montauk acquisition that was not completed~~prior year period. While consistent for the nine month period comparison, the decrease in the ~~prior~~gross margin for the three month period ~~comparison.~~is attributed to product mix.

Wellness gross margin: Gross margin of 30% and 29% for the three and nine months ended ~~August 31, 2023 increased~~February 29, 2024 decreased from ~~26%~~31% and 29% from the same period in the prior year. The ~~increase~~decrease in ~~gross margin is~~the three month period was a result of ~~increased pricing from~~a change in sales mix towards more bulk retail sales which have a lower margin. Wellness gross margin stayed consistent during the ~~prior period, which was used to combat the impacts of higher input costs of seed ingredients as a result of inflation.~~nine month period.

4240

Operating expenses

For the three months

For the three months ended

For the nine months ended

ended August 31,

Change

% Change
February 29, February 28, Change % Change February 29, February 28, Change % Change
(in thousands of US dollars)

2023

2022

2023 vs. 2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

General and administrative
$ 40,516 $ 40,508 $ 8 0 % $ 39,940 $ 38,999 $ 941 2 % $ 123,769 $ 117,385 $ 6,384 5 %
Selling
6,859 9,671 (2,812 ) (29 )% 9,995 6,452 3,543 55 % 24,437 25,792 (1,355 ) (5 )%
Amortization
22,225 24,359 (2,134 ) (9 )% 21,558 23,518 (1,960 ) (8 )% 65,700 71,872 (6,172 ) (9 )%
Marketing and promotion
8,535 7,248 1,287 18 % 11,191 7,354 3,837 52 % 28,934 23,137 5,797 25 %
Research and development
79 166 (87 ) (52 )% 106 171 (65 ) (38 )% 241 502 (261 ) (52 )%
Change in fair value of contingent consideration
(11,107 ) 211 (11,318 ) (5,364 )% (5,983 ) 352 (6,335 ) (1,800 )% (16,790 ) 563 (17,353 ) (3,082 )%
Litigation costs
2,034 445 1,589 357 %
Impairments
— 934,000 (934,000 ) (100 )% — 934,000 (934,000 ) (100 )%
Other than temporary change in fair value of convertible notes receivable
42,681 181,376 (138,695 ) (76 )% 42,681 181,376 (138,695 ) (76 )%
Litigation costs, net of recoveries
3,363 (5,230 ) 8,593 (164 )% 8,439 (1,970 ) 10,409 (528 )%
Restructuring costs
915 — 915 NM 5,178 2,663 2,515 94 % 8,748 10,727 (1,979 ) (18 )%
Transaction (income) costs
8,502 (12,816 ) 21,318 (166 )%
Transaction costs (income)
3,465 5,382 (1,917 ) (36 )% 13,061 (3,882 ) 16,943 (436 )%
Total operating expenses
$ 78,558 $ 69,792 $ 8,766 13 % $ 131,494 $ 1,195,037 $ (1,063,543 ) (89 )% $ 299,220 $ 1,359,502 $ (1,060,282 ) (78 )%

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, other than temporary change in fair value of convertible notes receivable, litigation costs, net of recoveries, restructuring costs and transaction (income) costs. These costs ~~increased~~decreased by ~~$8.8~~($1,063.5) and ($1,060.3) million to ~~$78.6~~$131.5 and $299.2 million for the three and nine months ended ~~August 31, 2023~~February 29, 2024 as compared to ~~$69.8~~$1,195.0 and $1,359.5 million for the same period of the prior year. These changes period over period are described below.

4341

General and administrative costs

During the three and nine months ended ~~August 31, 2023,~~February 29, 2024, the changes in general and administrative costs ~~were relatively unchanged as~~when compared to the prior year ~~same periods.~~periods are described as follows:

For the three months

For the three months ended

For the nine months ended

ended August 31,

Change

% Change
February 29, February 28, Change % Change February 29, February 28, Change % Change
(in thousands of US dollars)

2023

2022

2023 vs. 2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Executive compensation
$ 3,661 $ 3,555 $ 106 3 % $ 1,585 $ 2,754 $ (1,169 ) (42 )% $ 4,757 $ 9,359 $ (4,602 ) (49 )%
Office and general
8,168 5,829 2,339 40 % 4,190 6,799 (2,609 ) (38 )% 20,423 20,011 412 2 %
Salaries and wages
13,114 14,635 (1,521 ) (10 )% 19,588 13,621 5,967 44 % 52,310 38,407 13,903 36 %
Stock-based compensation
8,257 9,193 (936 ) (10 )% 8,059 9,630 (1,571 ) (16 )% 24,517 29,766 (5,249 ) (18 )%
Insurance
3,849 2,703 1,146 42 % 3,569 3,159 410 13 % 9,917 8,588 1,329 15 %
Professional fees
1,499 2,490 (991 ) (40 )% 656 1,165 (509 ) (44 )% 4,658 5,385 (727 ) (14 )%
Gain on sale of capital assets
3 77 (74 ) (96 )%
(Gain) loss on sale of capital assets
23 (15 ) 38 (253 )% 3 (2 ) 5 (250 )%
Travel and accommodation
1,107 1,161 (54 ) (5 )% 1,246 1,104 142 13 % 3,727 3,484 243 7 %
Rent
858 865 (7 ) (1 )% 1,024 782 242 31 % 3,457 2,387 1,070 45 %
Total general and administrative costs
$ 40,516 $ 40,508 $ 8 0 % $ 39,940 $ 38,999 $ 941 2 % $ 123,769 $ 117,385 $ 6,384 5 %

Executive compensation ~~increased~~decreased by 3%42% and 49% in the three and nine months ended ~~August 31, 2023. Executive~~February 29, 2024, primarily as a result of changes in estimates related to timing of compensation ~~has remained generally consistent period over period.~~accruals.

Office and general ~~increased~~decreased by ~~40%~~38% and 2% during the three and nine months ended ~~August 31, 2023.~~February 29, 2024. The ~~increase~~decrease for the three ~~months~~month period is a result of $4.4 million of bad debt recoveries on a previously recognized credit loss provision, see Note 19 (Commitments and contingencies). The decrease is offset by the acquisition of ~~Montauk~~the newly acquired beverage alcohol business portfolio and HEXO, which did not occur in the prior period.

Salaries and wages ~~decreased~~increased by ~~10%~~44% and 36% during the three and nine months ended ~~August 31, 2023.~~February 29, 2024. The ~~decrease~~increase is primarily due to ~~our focus on optimizing our cost structure and is offset by~~ the inclusion of ~~Montauk~~newly acquired beverage alcohol business portfolio and HEXO employees, which were not in the prior period.

4442

The Company recognized stock-based compensation expense of ~~$8.3~~$8.1 and $24.5 million for the three and nine months ended ~~August 31, 2023~~February 29, 2024 compared to ~~$9.2~~$9.6 and $29.8 million for the same period in the prior year. Stock based compensation expense is based on the time-based vesting schedules and varies according to the assumptions used in the vesting model. During the three and nine months ended February 29, 2024, as a result of a change in the probability of achievement of stock price targets for certain grants issued in 2021, as well as an increased forfeiture rate, stock-based compensation decreased period over period.
Insurance expense increased by 13% and increased by 15% for the three and nine months ended February 29, 2024 to $3.6 and $9.9 million from $3.2 and $8.6 million for the same period in the prior year. The ~~balance has remained relatively consistent period over period as this is based on~~increase for the ~~time-based vesting schedules.~~three and nine months ended February 29, 2024, was driven by the expanded polices required for our newly acquired beverage alcohol business portfolio, and HEXO entities, partially offset by the Company's decision to self-insure certain of its property risks.

~~Insurance expenses~~Rent expense increased by ~~42%~~31% and 45% for the three and nine months ended ~~August 31, 2023~~February 29, 2024 to ~~$3.8~~$1.0 and $3.5 million from ~~$2.7~~$0.8 and $2.4 million for the same period in the prior year. This increase was driven by the ~~expanded polices required for our recently~~newly acquired ~~HEXO~~beverage alcohol business portfolio and ~~Montauk entities.~~HEXO.

Selling costs

For the three and nine months ended ~~August 31, 2023,~~February 29, 2024, the Company incurred selling costs of ~~$6.9~~$10.0 and $24.4 million or ~~3.9%~~5.3% and 4.4% of net revenue as compared to ~~$9.7~~$6.5 and $25.8 million and ~~6.3%~~4.4% and 5.8% of net revenue in the prior year period. These costs relate to third-party shipping costs for all segments, with the majority of the selling costs relating to the cannabis segment from distributor commissions, ~~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 increase for the three month period is a result of the increase in sales from the prior year period. The decrease in the ~~three~~nine month period was related to the renegotiation of terms in one of our distributor relationships resulting in reduced variable fees. This impact was also emphasized in the three month period as a portion of our selling fees related to our Canadian adult-use cannabis with fixed components did not increase with the increase in our revenue during the quarter.

Amortization

The Company incurred non-production related amortization charges of ~~$22.2~~$21.6 and $65.7 million for the three and nine months ended ~~August 31, 2023~~February 29, 2024 compared to ~~$24.4~~$23.5 and $71.9 million in the prior year period. The decreased amortization in the period is a result of the reduced intangible asset ~~levels.~~levels, as a result of prior year impairments.

Marketing and promotion costs

For the three and nine months ended ~~August 31, 2023,~~February 29, 2024, the Company incurred marketing and promotion costs of ~~$8.5~~$11.2 and $28.9 million as compared to ~~$7.2~~$7.4 and $23.1 million for the prior year period. The increase is due to the acquisition of ~~HEXO~~the newly acquired beverage alcohol business portfolio, and ~~Montauk in the period.~~HEXO.

Research and development

Research and development costs were $0.1 and $0.2 million during the three and nine months ended ~~August 31, 2023~~February 29, 2024 compared to $0.2 and $0.5 million in the prior year period. These relate to external costs associated with the development of new products.

Change in fair value of contingent consideration

The Company measures contingent consideration at fair value classified as Level 3, as discussed in Note 2325 (Fair value measurements). ~~The Company currently has~~During the three months ended February 29, 2024, the contingent consideration ~~liabilities~~liability that arose from the Truss acquisition of ~~$3.0 million, $13.0 million and~~ $4.2 million was settled for $0.7 million. The contingent consideration liability from the ~~Sweetwater,~~ Montauk ~~and Truss acquisitions, respectively,~~acquisition, increased to $14.0 million as of ~~August 31, 2023 compared to $16.2 million,~~February 29, 2024 from $10.9 million ~~and $nil respectively~~ as of May 31, 2023. The contingent consideration liability from the Sweetwater acquisition elapsed and there are no further obligations. The decrease in fair value of ~~$11.1~~$16.8 million was driven by the ~~lowered~~conclusion of the Sweetwater obligation, the favorable cash settlement for the Truss contingent consideration, and was offset by an increase related to the increased probability of achieving the ~~incentive targets, primarily relating to Sweetwater.~~contingent consideration from the Montauk acquisition.

4543

Litigation

For the three and nine months ended ~~August 31, 2023,~~February 29, 2024, the Company recorded ~~$2.0~~$3.4 and $8.4 million of litigation ~~cost~~settlements costs, net of favorable recoveries, and the third party fees associated with defending these claims, compared to ~~an expense~~a net benefit of ~~$0.4~~($5.2) and ($2.0) million for the prior period comparative. The increase is related to period to period variability as litigation is non-recurring in nature. Included in the three and nine months ended February 28, 2023, is proceeds of $39.9 million related to the SLC litigation settlement, offset by judgments, probable and estimable losses as well as ongoing litigation costs and fees.

Restructuring costs

In connection with ~~executing~~the execution of our acquisition strategy and strategic transactions, the Company has incurred non-recurring restructuring and exit costs associated with the integration efforts of these transactions. For the three and nine months ended ~~August 31, 2023,~~February 29, 2024, the Company incurred ~~$0.9~~$5.2 and $8.7 million of restructuring costs compared to ~~$nil~~$2.7 and $10.7 million for the prior period comparative.
The Company approves detailed restructuring initiative plans at the executive level and recognizes these expenses in the period in which the plan has been committed to. The detailed breakdown of the restructuring plans in place, inclusive of their expected timeline for completion, for the three and nine months ended February 29, 2024, is as follows:
HEXO Acquisition: Pursuant to our announced synergy program of $27 million in relation to the HEXO acquisition, we expect our HEXO restructuring plan to span the first 24 months following the acquisition. In the current nine-month period, we recognized $4.0 million related to employee termination benefits costs in relation to the conversion of our Masson facility from cannabis to produce, the optimization of our Redecan facilities and expenses associated with our Masson facility, which is currently operational although available for sale.
Truss Acquisition: In relation to the acquisition of Truss, the Company has decided to repurpose the facility for the production of non-cannabis beverages. The Company expects the timeline of completion of this program to be 18 months from date of acquisition. In the current nine-month period, we recognized $3.5 million of restructuring charges related to the costs of exiting the facility until the new business has resumed.
Canadian Business Cost Reduction Plan: As referenced in our Canadian cannabis cost optimization plan for $30 million, the Company has committed to reducing costs, which was completed during the three months ended ~~August 31, 2023 are~~November 30, 2023.  In the current nine-month period ended February 29, 2024, we recognized $0.5 million of restructuring charges related to the ~~HEXO~~relocation of our Broken Coast facility from Duncan to Nanaimo, BC, and the employee termination benefits associated with the transition of packaging finished goods to the Aphria One location.
Distribution Cost Optimization: The Company executed a cost optimization plan during the quarter to reduce costs within the distribution segment by $1.5 million annually. It is expected that this plan will be completed within the fiscal year, however the Company continues to evaluate this segment for further cost optimizations ~~occurring subsequent~~and production efficiencies. In the current nine-month period, we recognized $0.8 million related to ~~acquisition~~employee termination benefits in association with executing this plan.
For the prior period three and nine months ended February 28, 2023, the ~~operating costs~~Company recognized $2.7 and $10.7 million of restructuring charges. This was comprised of amounts related to the Tilray-Aphria Arrangement Agreement for the closure of our Canadian cannabis facility in Enniskillen of $2.7 million and $4.2 million for the three and nine months ended February 28, 2023, respectively. Additionally, $1.6 million of exit cost and $2.8 million for inventory adjustments from the termination of our producer partnership in Uruguay due to a breach of the ~~Truss facility, which is classified as assets held for sale.~~underlying contract in our International cannabis business. The Company also incurred $2.2 million of write-offs from the exit of our medical device reprocessing business in our distribution reporting segment. These exit costs were non-recurring in nature and did not have on going impacts in the current year.

Transaction (income) costs

~~Items classified as transaction~~Transaction (income) costs, ~~are non-recurring or extraordinary in nature~~which includes acquisition related income and ~~correspond largely to our acquisition~~expenses, related legal, financial advisor and ~~synergy strategy.~~due diligence cost and expenses and transaction related compensation. The three and nine months ended February 29, 2024 decrease of ~~166%~~36% and 436% from the prior year period is related to the following items:

●
the ~~current period~~nine months ended February, 29, 2024, included costs associated with ~~exit and closing costs on~~ completing the HEXO Acquisition on June 22, 2023, including, but not limited to, due diligence fees of $2.4 million, discretionary incentive compensation payments of $5.8 million, transaction income from the loan amendment agreement of $(6.0) million, and HEXO director and office runoff insurance of $5.1 million;

●
costs related to the acquisition of the beverage alcohol business portfolio;
●
refunds from outstanding government rebates of $(1.1) million claims not previously recognized as assets associated with the Aphria and Tilray Arrangement Agreement;
●
in the prior year period comparative, we recognized transaction income for a change in fair value of ~~$18.3~~$(18.3) million on the HTI Share 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 in the previous year. This did not recur in the ~~current period~~nine months ended February 29, 2024 results.

Non-operating (expense) income, net

Non-operating (expense) income is comprised of:

For the three months

For the three months ended

For the nine months ended

ended August 31,

Change

% Change
February 29, February 28, Change % Change February 29, February 28, Change % Change
(in thousands of US dollars)

2023

2022

2023 vs. 2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Change in fair value of convertible debenture payable
$ (2,147 ) $ (7,884 ) $ 5,737 (73 )% $ (6,311 ) $ 207 $ (6,518 ) (3,149 )% $ (12,352 ) $ (20,375 ) $ 8,023 (39 )%
Change in fair value of warrant liability
(8,198 ) 1,548 (9,746 ) (630 )% 586 5,256 (4,670 ) (89 )% (1,365 ) 6,841 (8,206 ) (120 )%
Foreign exchange loss (gain)
6,267 (25,573 ) 31,840 (125 )%
Foreign exchange (loss) gain
(3,302 ) (1,955 ) (1,347 ) 69 % 1,941 (26,621 ) 28,562 (107 )%
Loss on long-term investments
(109 ) (1,008 ) 899 (89 )% 33 (925 ) 958 (104 )% 383 (2,529 ) 2,912 (115 )%
Other non-operating (losses) gains, net
(215 ) (75 ) (140 ) 187 % (8,245 ) (1,370 ) (6,875 ) 502 % (9,427 ) (7,545 ) (1,882 ) 25 %
Total non-operating income (expense)
$ (4,402 ) $ (32,992 ) $ 28,590 (87 )% $ (17,239 ) $ 1,213 $ (18,452 ) (1,521 )% $ (20,820 ) $ (50,229 ) $ 29,409 (59 )%

4644

For the three and nine months ended ~~August 31, 2023,~~February 29, 2024, the Company recognized a change in fair value of its convertible debentures payable of ($~~2.1)~~6.3) million and ($12.4) million compared to $0.2 million and ($~~7.9)~~20.4) 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 ~~August 31, 2023,~~February 29, 2024, the Company recognized a change in fair value of its warrants, resulting in a gain of $0.6 million and a loss of ($~~8.2)~~1.4) million compared to ~~$1.5~~gains of $5.3 million and $6.8 million also as a result of the change in our share price and the exercise price of the instrument. For the three and nine months ended ~~August 31, 2023,~~February 29, 2024, the Company recognized a loss of ($3.3) million and a gain of ~~$6.3~~$1.9 million, resulting from the changes in foreign exchange rates during the period, compared to ~~losses~~a gain of ($~~25.6)~~2.0) million and a loss of ($26.6) million for the prior year ~~same~~ periods, largely associated with the recovery of the Euro. Lastly, included in other non-operating (losses) gains, net for the three and nine months ended ~~August 31, 2023~~February 29, 2024 was $2.3 million of the ~~disposal~~downside protection share issuance relating to the HTI note, as described in Note 15 (Stockholders' equity), $2.5 million amounts to settle outstanding notes with non-controlling interest shareholders and the decrease in value of an ~~operating entity during the period.~~equity investee for $4.6 million as described in Note 19 (Commitments and contingencies).

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/net income before income taxes, net interest expense, depreciation and amortization, equity in net loss of equity-method investees, ~~non-cash inventory valuation adjustments,~~ purchase price accounting step-up on inventory, stock-based compensation, ~~integration activities,~~inventory valuation adjustments, impairments, other than temporary change in fair value of convertible notes receivable, restructuring costs, transaction (income) costs, litigation costs net of recoveries, change in fair value of contingent consideration, unrealized currency gains and losses and other adjustments.

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.

Historically, we have included lease expenses for leases that were treated differently under IFRS 16 and ASC 842 Leases, in the calculation of adjusted EBITDA, aiming to align our definition with industry peers reporting under IFRS. The decision to include these lease expenses in the Company's definition of adjusted EBITDA was based on our efforts to maintain comparability with peers. However, as the Company has continued to diversify, particularly with strategic acquisitions such as the newly acquired beverage alcohol business portfolio, this comparison is no longer relevant, accordingly, we are no longer including this adjustment.
Had the Company continued to include lease expenses that were treated differently under IFRS 16 and ASC 842 Leases, the impact to adjusted EBITDA would have been $1.4 million and $3.2 million for the three and nine months ended February 29, 2024,. In comparison, under the previous reconciliation, the impact to adjusted EBITDA would have been $0.7 million and $2.1 million for the three and nine months ended February 28, 2023.
We do not consider ~~Adjusted~~adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of ~~Adjusted~~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~~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~~adjusted EBITDA. In order to compensate for these limitations, management presents ~~Adjusted~~adjusted EBITDA in connection with GAAP results.

For three and nine months ended ~~August 31, 2023,~~February 29, 2024, adjusted EBITDA decreased to ~~$11.4~~$10.2 million and $31.0 million compared to ~~$13.5~~$13.3 and $37.2 million from the prior year ~~same~~ period. The decrease was primarily driven by the aforementioned negative impacts to our cannabis gross margin.

4745

For the three months

For the three months ended

For the nine months ended

ended August 31,

Change

% Change
February 29, February 28, Change % Change February 29, February 28, Change % Change
Adjusted EBITDA reconciliation:

2023

2022

2023 vs. 2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Net loss
$ (55,863 ) $ (65,794 ) $ 9,931 (15 )% $ (104,983 ) $ (1,195,752 ) $ 1,090,769 (91 )% $ (207,029 ) $ (1,323,181 ) $ 1,116,152 (84 )%
Income tax expense
7,264 7,211 53 1 % (2,871 ) (10,811 ) 7,940 (73 )% 1,013 (15,313 ) 16,326 (107 )%
Interest expense, net
9,835 4,413 5,422 123 % 8,517 1,040 7,477 719 % 26,977 8,560 18,417 215 %
Non-operating income (expense), net
4,402 32,992 (28,590 ) (87 )% 17,239 (1,213 ) 18,452 (1,521 )% 20,820 50,229 (29,409 ) (59 )%
Amortization
30,789 34,069 (3,280 ) (10 )% 32,842 33,769 (927 ) (3 )% 95,183 101,156 (5,973 ) (6 )%
Stock-based compensation
8,257 9,193 (936 ) (10 )% 8,059 9,630 (1,571 ) (16 )% 24,517 29,766 (5,249 ) (18 )%
Change in fair value of contingent consideration
(11,107 ) 211 (11,318 ) (5,364 )% (5,983 ) 352 (6,335 ) (1,800 )% (16,790 ) 563 (17,353 ) (3,082 )%
Impairments
— 934,000 (934,000 ) (100 )% — 934,000 (934,000 ) (100 )%
Other than temporary change in fair value of convertible notes receivable
42,681 181,376 (138,695 ) (76 )% 42,681 181,376 (138,695 ) (76 )%
Inventory valuation adjustments
— 55,000 (55,000 ) (100 )% — 55,000 (55,000 ) (100 )%
Purchase price accounting step-up
5,106 1,107 3,999 361 % 2,247 1,009 1,238 123 % 12,054 3,223 8,831 274 %
Facility start-up and closure costs
600 1,800 (1,200 ) (67 )% 400 2,100 (1,700 ) (81 )% 1,300 6,900 (5,600 ) (81 )%
Lease expense
700 700 — 0 %
Litigation costs
2,034 445 1,589 357 %
Litigation costs, net of recoveries
3,363 (5,230 ) 8,593 (164 )% 8,439 (1,970 ) 10,409 (528 )%
Restructuring costs
915 — 915 NM 5,178 2,663 2,515 94 % 8,748 10,727 (1,979 ) (18 )%
Transaction (income) costs
8,502 (12,816 ) 21,318 (166 )%
Transaction costs (income)
3,465 5,382 (1,917 ) (36 )% 13,061 (3,882 ) 16,943 (436 )%
Adjusted EBITDA
$ 11,434 $ 13,531 $ (2,097 ) (15 )% $ 10,154 $ 13,315 $ (3,161 ) (24 )% $ 30,974 $ 37,154 $ (6,180 ) (17 )%

4846

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, a non-cash expense 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 inventory valuation adjustments;
●
Non-cash other than temporary write-down of convertible notes receivable, 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, and to fund emerging market ~~operations for our German cultivation facilities and Columbian operations. The prior period also included start up costs for SweetWater Colorado and Malta facilities;~~
●
~~Lease expense, to conform with competitors who report under IFRS;~~operations;

●
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 transaction and are excluded to evaluate ongoing operating results;

●
Restructuring charges;

●
Litigation costs, net of favorable recoveries and the third party fees associated with defending these claims, includes costs related to legacy and non-operational litigation matters, legal settlements and recoveries;

●
Amortization of purchase accounting fair value step-up in inventory value included in costs of 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.

4947

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 purchase price accounting valuation step-up) and adjusted gross margin is our Gross margin (adjusted to exclude 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 complete acquisitions. We believe that existing cash, cash equivalents, marketable securities and cash generated by operations, together with 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 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.

During the three months ended February 29, 2024, the Company exchanged $50.7 million principal of APHA 24 Notes prior to their maturity, demonstrating our commitment to optimizing our capital structure and enhancing financial flexibility. We intend to continue to opportunistically purchase or exchange additional APHA 24 Notes prior to their underlying maturity date in June 2024. We believe this demonstrates and reinforces our commitment to optimizing our capital structure and enhancing financial flexibility. See Note 27 (Subsequent events) for additional details.
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 three months ended

For the nine months ended

ended August 31,

February 29,

February 28,

Change

% Change

February 29,

February 28,

Change

% Change

2023

2022

2024

2023

2024 vs. 2023

2024

2023

2024 vs. 2023

Net cash provided by (used in) operating activities
$ (15,842 ) $ (46,269 ) $ (15,361 ) $ (18,632 ) $ 3,271 (18 )% $ (61,612 ) $ (35,692 ) $ (25,920 ) 73 %
Net cash (used in) investing activities
(26,290 ) (1,537 )
Net cash provided by (used in) investing activities
28,086 (4,592 ) 32,678 (712 )% 83,293 (277,527 ) 360,820 (130 )%
Net cash (used in) provided by financing activities
14,018 123,620 (10,909 ) (2,442 ) (8,467 ) 347 % (82,257 ) 63,922 (146,179 ) (229 )%
Effect on cash of foreign currency translation
614 (1,080 ) (512 ) 445 (957 ) (215 )% 197 (1,615 ) 1,812 (112 )%
Cash and cash equivalents, beginning of period
206,632 415,909 144,949 190,218 (45,269 ) (24 )% 206,632 415,909 (209,277 ) (50 )%
Cash and cash equivalents, end of period
$ 179,132 $ 490,643 $ 146,253 $ 164,997 $ (18,744 ) (11 )% $ 146,253 $ 164,997 $ (18,744 ) (11 )%
Marketable securities
287,333 - 79,605 243,286 (163,681 ) (67 )% 79,605 243,286 (163,681 ) (67 )%
Less: restricted cash
(1,613 ) -
Cash and marketable securities(1)
$ 464,852 $ 490,643 $ 225,858 $ 408,283 $ (182,425 ) (45 )% $ 225,858 $ 408,283 $ (182,425 ) (45 )%

(1)
Cash and marketable securities are non-GAAP financial measures. See “Use of Non-GAAP Measures” ~~below~~above 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.

5048

Cash flows from operating activities

The change in net cash ~~used in~~provided by (used in) operating activities was ($~~15.8)~~15.4) million and ($61.6) million for three and nine months ended ~~August 31, 2023~~February 29, 2024 compared to ($~~46.3)~~18.6) million and ($35.7) million for the prior year ~~same~~ period. ~~This~~The decrease in cash used in the three month period was primarily related to ~~improved operating efficiencies and increased management~~the achievement of ~~our working capital requirements.~~the previously described synergies. The increase in cash used in the nine month period was primarily related to the settlement of pre-acquisition liabilities assumed from the HEXO acquisition. Additionally, the prior period included the cash collection of the $18.3 million purchase price derivative from HTI as noted in the transaction cost section above, which did not recur in the current year.

Cash flows from investing activities

The change in net cash ~~used in~~provided by (used in) investing activities was ~~($26.3)~~$28.1 million and $83.3 million for three and nine months ended ~~August 31, 2023~~February 29, 2024 compared to ($~~1.5)~~4.6) million and ($277.5) million for the prior year ~~same~~ period, and is a result of the sale of marketable securities in the current periods compared to investing in marketable securities ~~partially offset by~~in the prior periods as well as the cash ~~acquired from~~used in the ~~HEXO Acquisition,~~acquisition of various businesses, Note 67 (Business acquisitions).

Cash flows from financing activities

The change in cash (used in) provided by financing activities was ~~$14.0~~($10.9) million and ($82.3) million for three and nine months ended ~~August 31, 2023~~February 29, 2024 compared to ~~$123.6~~($2.4) million and $63.9 million for the prior year ~~same~~ period. In the current period, cash was provided by funds from the overallotment of TLRY 27 Notes and other long term debt offset by the repurchase of convertible notes and long-term debt, while in the comparative period a larger amount of cash was provided by the ATM capital ~~raise.~~raise and smaller amounts of repurchased debt.
ABC Group Credit Agreement
As previously disclosed, on January 5, 2024, the Company’s wholly-owned subsidiary, American Beverage Crafts Group, Inc. (f/k/a Four Twenty Corporation, the “Borrower”), entered into a waiver (the “Waiver”) to that certain Credit Agreement dated as of June 30, 2023 (the “ABC Group Credit Agreement”) by and among the Borrower, Bank of America, N.A., in its capacity as Administrative Agent, and certain other guarantors and lenders thereto. The Waiver effectively eliminated a potential event of default relating to the “Consolidated Leverage Ratio” financial covenant contained in the ABC Group Credit Agreement. On March 29, 2024, and in satisfaction of the Waiver requirements, the Borrower entered into a further amendment (the "Amendment") to the ABC Group Credit Agreement to reflect certain internal subsidiary contributions and lease transfers. The foregoing description of the Waiver and Amendment does not purport to be complete and is qualified in its entirety by the full text of each of the Waiver and Amendment, which are being filed as Exhibits 10.2 and 10.5, respectively, to this quarterly report on Form 10-Q for the quarter ended February 29, 2024.

Subsequent Events

Refer to Part I, Financial Information, Note 2527 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 for the fiscal year ended May 31, 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.

5149

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in market risk from those addressed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2023 during the ~~three~~nine months ended ~~August 31, 2023.~~February 29, 2024. 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 for the fiscal year ended May 31, 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 ~~May 31, 2023,~~February 29, 2024, 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~~our recently acquired ~~on November 7, 2022, of~~businesses including: (i) HEXO Corp., ~~which we~~ acquired June 22, ~~2023 and of~~2023;, (ii) Truss Beverage Co. ~~which we~~ acquired August 3, ~~2023,~~2023; and (iii) the portfolio of craft beer brands, assets and businesses comprising eight beer and beverage brands, acquired on September 29, 2023. These acquired businesses represented ~~1.3%~~2.3%, ~~3.2%~~0.4% and ~~0.3%~~3.8% of our consolidated assets and ~~1.5%~~4.3%, 7%0.9%, and ~~0.9%~~3.2% of our consolidated net revenues respectively as of and for the ~~three~~nine months ended ~~August 31, 2023.~~February 29, 2024.

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 ~~Montauk Brewing Company, Inc. on November 7, 2022,~~ HEXO Corp. on June 22, 2023, ~~and~~ Truss Beverage Co., on August 3, 2023 and the eight beer and beverage brands on September 29, 2023. The Company is in the process of reviewing the internal control structure of ~~Montauk Brewing Company, Inc.,~~ HEXO Corp., ~~and~~ Truss Beverage Co., and the eight beer and beverage brands and if necessary, will make appropriate changes as it integrates them into the Company’s overall internal control over financial reporting process.

5250

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 for the fiscal year ended May 31, 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 1819 (Commitments and contingencies), in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

5351

Item 1A. Risk Factors.

“Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 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 for the below risk factors, there have been no material changes from the risk factors described in our Form 10-K.

●
We may not achieve the expected revenue or other benefits from the craft beer operations ~~acquired from Anheuser-Busch.~~acquired.
●
We may experience difficulties integrating HEXO’s operations and realizing the expected benefits of the HEXO arrangement.

●
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.
●
~~We may experience difficulties integrating Tilray and HEXO’s operations and realizing the expected benefits of the Arrangement.~~

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

●
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, Montauk and ~~Montauk~~our recently-acquired craft beer brands each face substantial competition in the beer industry 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 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.

We may ~~experience difficulties achieving~~have to recognize significant impairments in the ~~expected~~carrying value of our investment in the MedMen secured convertible notes as a result of MedMen’s potential restructuring or liquidation undertakings.
On August 31, 2021, we acquired an indirect interest in certain senior secured convertible notes issued by MedMen. The notes are only exercisable upon U.S. federal legalization of cannabis or in certain other limited circumstances. The notes are secured by a collateral portfolio consisting of assets and/or equity interests of numerous MedMen U.S. operating subsidiaries and intermediate holding entities. We currently record this investment in our financial statements as a convertible note receivable with a value of as February 29, 2024 of $32,000.

On January 24, 2024, MedMen disclosed that its chief executive officer had stepped down and its board had appointed a chief restructuring officer. In light of such developments, if MedMen experiences any restructuring activities, such as asset sales, liquidations, debt restructuring, foreclosures or assignments, it may lead to significant changes in MedMen’s operations and asset base, impacting the recoverability of our investment carrying values. If MedMen is unable to continue as a going concern, then the value of our investments may be significantly impacted. Restructuring and liquidation proceedings may impact the recoverability of our investments, particularly if there are competing claims on assets or if the process is subject to state and local laws rather than U.S. bankruptcy laws. While our investment in MedMen benefits ~~including revenue~~from security interests in certain of its assets, the realization of these interests could be challenging, especially in jurisdictions where U.S. bankruptcy laws do not apply. In such cases, we may be reliant on state and ~~sales growth, of acquiring certain craft beer operations~~local restructuring processes or other negotiated arrangements to recover value from ~~Anheuser-Busch (the~~ “~~ABI Acquisitions~~”).our collateral.

The ~~success~~occurrence of ~~the ABI Acquisitions will depend in part on our ability~~any restructurings or liquidations with respect to achieve the expected business opportunities, revenue and sales growth prospects from the ABI Acquisitions in an efficient and effective manner. We may also not be able to fully realize the operational efficiencies and associated cost synergiesMedMen or ~~leverage the potential business opportunities and growth prospects to the extent anticipated or at all.~~

The ABI Acquisitions were completed on September 29, 2023. Efforts to achieve expected benefits of the ABI Acquisitions may require substantial resources and divert management attention. Challenges associated with achieving such benefits may include those related to sales and marketing efforts across our expanded product portfolio, operational efficiency and production optimization, and effectively integrating the ABI Acquisitions into Tilray. If we are unable to successfully integrate certain aspects of the operations of 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. Some of these factors are outside our control, and any of ~~them~~its assets or businesses could ~~delay or increase~~lead to significant impairments in the ~~cost~~carrying value of our ~~efforts.~~investment in the MedMen convertible notes, which could materially and adversely affect our financial results and the value of our investment portfolio.

5452

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

Recent Sales of Unregistered Equity Securities

From December 15, 2023 to December 21, 2023, the Company exchanged $18,500 aggregate principal of its APHA 24 Notes for cancellation by issuing 9,601,538 shares.

On ~~June 30, 2023,~~January 9, 2024, Tilray Brands, Inc., a Delaware corporation (“Tilray”), entered into an assignment and assumption agreement with Double Diamond Holdings Ltd. (“DDH”)~~, an Ontario corporation,~~ pursuant to which, among other things, Tilray acquired from DDH a promissory note in the amount of ~~$8,057,622 (the “Note”)~~$26,135 payable by 1974568 Ontario Limited (“Aphria Diamond”). ~~DDH is a joint venturer with Aphria Inc. (Tilray’s wholly-owned subsidiary) in Aphria Diamond.~~ As consideration for ~~the Note,~~such note, Tilray issued ~~5,004,735~~13,627,391 shares of its common stock to ~~DDH.~~DDH, including any shares issued for downside protection provisions.

From January 10, 2024 to January 31, 2024, the Company exchanged $12,540 aggregate principal of its APHA 24 Notes for cancellation by issuing 6,873,001 shares.

Each of the foregoing issuances of Tilray’s 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 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.

2024 EBITDA Performance Awards

~~Not applicable.~~

On April 4, 2024, the Company’s Compensation Committee (the “Committee”) approved certain terms and conditions of previously authorized performance-based grants to certain of the Company’s named executive officers and other key employees under the Tilray, Inc. Amended and Restated 2018 Equity Incentive Plan (the “2018 Plan”). These performance-based grants represent a contingent right to receive a cash payment or its equivalent in shares of Common Stock (the “2024 Performance Award”), as determined by the Committee. The 2024 Performance Award is subject to all of the terms and conditions as set forth in the 2018 Plan and the 2024 Performance Award Agreement (the “Award Agreement”).

The percentage of the 2024 Performance Awards earned will be based on the Company’s financial performance as measured against target goals for annual and cumulative Adjusted EBITDA (the "Performance Goals"), as determined by the Committee for the period beginning on June 1, 2023 and ending on May 31, 2026 (the “Performance Period”). The 2024 Performance Awards will vest as of the end of the Performance Period ( May 31, 2026) subject to the executive officer’s Continuous Service (as defined in the 2018 Plan), but will not settle and payout until the percentage of the 2024 Performance Awards earned is determined by the Committee. The executive officer may earn between 0% and 100% of the target award value based on the Company’s achievement of the Performance Goals.

If the executive officer’s Continuous Service terminates for any reason other than: (i) without Cause (as defined in the 2018 Plan) within 3 months of the end of the Performance Period; (ii) death; (iii) Disability (as defined in the 2018 Plan); or (iv) in connection with a Change in Control (as defined in the 2018 Plan), unless the Committee determines otherwise, the 2024 Performance Award shall be forfeited and canceled immediately without consideration. If the executive officer’s Continuous Service terminates without Cause within 3 months before the end of the Performance Period, a pro rata portion of the 2024 Performance Awards (calculated based on the days elapsed in a Performance Period prior to the termination of Continuous Service divided by the total days in the Performance Period) shall vest and become payable. If the executive officer’s Continuous Service terminates due to death or Disability prior to the end of the Performance Period, the 2024 Performance Awards will vest at 100% of the target award value. If the executive officer’s Continuous Service is terminated without Cause following a Change in Control, the 2024 Performance Awards will vest at 100% of the target award value.

The foregoing description is only a summary of the terms of the 2024 Performance Awards and is qualified in its entirety by reference to the full text of the 2024 Performance Awards, which has been filed as an exhibit to this Quarterly Report on Form 10-Q for the quarterly period ending February 29,2024.

Aphria Diamond Amalgamation and Amendment to Bank of Montreal Credit Facility

On March 14, 2024, 1974568 Ontario Limited (an Ontario Corporation doing business as “Aphria Diamond”) completed an amalgamation with Tilray Canada Ltd., with the successor corporation continuing as Aphria Diamond Inc. (“Aphria Diamond”). Following this amalgamation, Tilray continues to own 51% of the equity interests in Aphria Diamond. In connection with the amalgamation transaction, Aphria Diamond also entered into the Second Amending Agreement, Consent and Waiver (the “BMO Amendment”). The BMO Amendment amended the existing Amended and Restated Credit Agreement, dated as of November 28, 2022, by and among Aphria Diamond, Aphria Inc., Tilray Brands, Inc., and Bank of Montreal, among others. The BMO Amendment provides, among other things, for lender consent to the amalgamation and customary benchmark replacement mechanics incorporating the Canadian Overnight Repo Rate Average.

APHA 24 Convertible Debt Exchange

On April 9, 2024, the Company entered into an agreement to exchange $41.9 million principal amount of its APHA 24 Notes for cancellation by issuing up to 25,000,000 shares. The foregoing issuance of Tilray’s 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, and no commission or other remuneration was paid or given directly or indirectly in connection therewith.

5553

Item 6. Exhibits.

Exhibit Number		Description

10.1* 10.1		~~Promissory note in the amount~~Fourth Amended and Restated Wholesale Cannabis Supply Agreement, dated as of ~~$8,057,622 payable~~January 5, 2024, by and between 1974568 Ontario ~~Limited.~~Limited and Aphria Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 9, 2024).

10.2		~~Amended~~Waiver to Credit Agreement, ~~effective August 31, 2023,~~dated as of January 5, 2024, by and ~~among Four Twenty Corporation, certain subsidiaries and affiliates of~~between Four Twenty Corporation, Bank of America, N.A., ~~City National Bank,~~and the ~~lenders~~Guarantors and Lenders party thereto ~~and BofA Securities, Inc.~~ (incorporated by reference to Exhibit ~~10.1~~10.2 to the Company’s ~~Current~~Quarterly Report on Form ~~8-K~~10-Q filed with the SEC on ~~September 1, 2023)~~January 9, 2024).

~~10.3~~10.3*		~~Purchase Agreement, dated August 7, 2023,~~Promissory note in the amount of $26,134,500 payable by ~~and among Tilray, Anheuser-Busch Companies, LLC, Craft USA Holdings, LLC, Craft Brew Alliance, Inc. and Tilray Beverages, LLC~~1945689 Ontario Limited.~~(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~~2024 EBITDA ~~PSU Equity Incentive~~Performance Award.

10.5†		Third Amendment and Consent to Credit Agreement, dated as of March 29, 2024, by and among American Beverage Crafts Group, Inc. (formerly known as Four Twenty Corporation), Bank of America, N.A. and the Guarantors and Lenders party thereto.

10.6†		Amended and Restated Credit Agreement, dated as of March 14, 2024, by and among Aphria Diamond Inc., Aphria Inc., the Company, Bank of Montreal and the Guarantors and Lenders party thereto.

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.

5654

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 ~~August 31, 2023,~~February 29, 2024, 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.

5755

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: ~~October 4, 2023~~April 9, 2024	By:	/s/ Irwin D. Simon
		Irwin D. Simon
		Chairman and Chief Executive Officer

Date: ~~October 4, 2023~~April 9, 2024	By:	/s/ Carl Merton
		Carl Merton
		Chief Financial Officer

5856

	For the three months						*For the three months ended*						*For the nine months ended*
	ended August 31,						*February 29,*			*February 28,*			*February 29,*			*February 28,*
	2023			2022			*2024*			*2023*			*2024*			*2023*
Beverage alcohol revenue							$	58,247		$	21,941		$	133,237		$	67,209
Beverage alcohol excise taxes								(3,559	)		(1,301	)		(7,882	)		(4,520	)
Net beverage alcohol revenue								54,688			20,640			125,355			62,689
Cannabis revenue	$	96,884		$	75,689			85,236			61,118			276,676			203,503
Cannabis excise taxes		(26,551	)		(17,119	)		(21,804	)		(13,569	)		(75,797	)		(47,486	)
Net cannabis revenue		70,333			58,570			63,432			47,549			200,879			156,017
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			56,794			65,385			193,174			186,158
Wellness revenue		13,297			13,402			13,426			12,015			39,652			38,072
Total	$	176,949		$	153,211		$	188,340		$	145,589		$	559,060		$	442,936

								*August 31,*										*February 29,*
	*Level 1*		*Level 2*		*Level 3*			*2023*			*Level 1*		*Level 2*		*Level 3*			*2024*
Financial assets
Cash and cash equivalents	$	177,519	$	—	$	—		$	177,519		$	146,253	$	—	$	—		$	146,253
Restricted cash		1,613							1,613
Marketable securities		287,333		—		—			287,333			79,605		—		—			79,605
Convertible notes receivable		—		—		74,681			74,681			—		—		32,000			32,000
Equity investments measured at fair value		1,078		986		5,500			7,564			1,104		1,454		5,500			8,058
Financial liabilities
Warrant liability		—		—		(10,015	)		(10,015	)		—		—		(3,182	)		(3,182	)
Contingent consideration		—		—		(20,181	)		(20,181	)		—		—		(14,000	)		(14,000	)
APHA 24 Convertible debenture		—		—		(124,453	)		(124,453	)		—		—		(83,351	)		(83,351	)
Total recurring fair value measurements	$	467,543	$	986	$	(74,468	)	$	394,061		$	226,962	$	1,454	$	(63,033	)	$	165,383

														*APHA 24*														*APHA 24*
	*Convertible*			*Equity*			*Warrant*			*Contingent*			*Convertible*			*Convertible*			*Equity*			*Warrant*			*Contingent*			*Convertible*
	*notes receivable*			*Investments*			*Liability*			*Consideration*			*Debt*			*notes receivable*			*Investments*			*Liability*			*Consideration*			*Debt*
Balance, May 31, 2023	$	103,401		$	5,651		$	(1,817	)	$	(27,107	)	$	(120,568	)	$	103,401		$	5,651		$	(1,817	)	$	(27,107	)	$	(120,568	)
Additions		—			—			—			(4,181	)		—
Disposals		(28,720	)		—			—			—			—
Additions/(Repayments)																	—			—			—			(4,181	)		50,710
Redemption																	(28,720	)		—			—			760			—
Unrealized gain (loss) on fair value		—			(151	)		(8,198	)		11,107			(3,885	)		—			(151	)		(1,365	)		16,528			(13,493	)
Impairments		—						—			—			—			(42,681	)		—			—			—			—
Balance, August 31, 2023	$	74,681		$	5,500		$	(10,015	)	$	(20,181	)	$	(124,453	)
Balance, February 29, 2024																$	32,000		$	5,500		$	(3,182	)	$	(14,000	)	$	(83,351	)

		*Significant*
	*Valuation*	*unobservable*
Financial asset / financial liability	*technique*	*input*	*Inputs*
APHA Convertible debentures	Black-Scholes	Volatility,	50%
		expected life (in years)	~~0.8~~0.3
Warrant liability	Black-Scholes	Volatility,	50%
		expected life (in years)	~~1.5~~1.6
Contingent consideration	Discounted cash flows	Discount rate,	~~5% - 11%~~11	%
		achievement	~~25% - 90%~~95%

	-	An established brand portfolio with a devoted consumer base, coupled with growth potential through integration and expanded capabilities in both alcoholic and non-alcoholic beverages.
	-	The acquisition encompasses four production facilities and eight brewpub locations, further solidifying our operational presence.
	-	A reinforced nationwide distribution footprint, propelling Tilray's beer sales volume from four million cases to twelve million, thereby tripling its market reach on a pro forma basis.

	For the three months												For the three months ended												For the nine months ended
	ended August 31,						Change			% Change			February 29,			February 28,			Change			% Change			February 29,			February 28,			Change			% Change
(in thousands of U.S. dollars)	2023			2022			2023 vs. 2022						2024			2023			2024 vs. 2023						2024			2023			2024 vs. 2023
Net revenue	$	176,949		$	153,211		$	23,738			15	%	$	188,340		$	145,589		$	42,751			29	%	$	559,060		$	442,936		$	116,124			26	%
Cost of goods sold		132,753			104,597			28,156			27	%		138,944			157,288			(18,344	)		(12	)%		418,059			363,139			54,920			15	%
Gross profit		44,196			48,614			(4,418	)		(9	)%
Gross profit (loss)														49,396			(11,699	)		61,095			(522	)%		141,001			79,797			61,204			77	%
Operating expenses:
General and administrative		40,516			40,508			8			0	%		39,940			38,999			941			2	%		123,769			117,385			6,384			5	%
Selling		6,859			9,671			(2,812	)		(29	)%		9,995			6,452			3,543			55	%		24,437			25,792			(1,355	)		(5	)%
Amortization		22,225			24,359			(2,134	)		(9	)%		21,558			23,518			(1,960	)		(8	)%		65,700			71,872			(6,172	)		(9	)%
Marketing and promotion		8,535			7,248			1,287			18	%		11,191			7,354			3,837			52	%		28,934			23,137			5,797			25	%
Research and development		79			166			(87	)		(52	)%		106			171			(65	)		(38	)%		241			502			(261	)		(52	)%
Change in fair value of contingent consideration		(11,107	)		211			(11,318	)		(5,364	)%		(5,983	)		352			(6,335	)		(1,800	)%		(16,790	)		563			(17,353	)		(3,082	)%
Litigation costs		2,034			445			1,589			357	%
Impairments														—			934,000			(934,000	)		(100	)%		—			934,000			(934,000	)		(100	)%
Other than temporary change in fair value of convertible notes receivable														42,681			181,376			(138,695	)		(76	)%		42,681			181,376			(138,695	)		(76	)%
Litigation costs, net of recoveries														3,363			(5,230	)		8,593			(164	)%		8,439			(1,970	)		10,409			(528	)%
Restructuring costs		915			—			915			0	%		5,178			2,663			2,515			94	%		8,748			10,727			(1,979	)		(18	)%
Transaction (income) costs		8,502			(12,816	)		21,318			(166	)%
Transaction costs (income)														3,465			5,382			(1,917	)		(36	)%		13,061			(3,882	)		16,943			(436	)%
Total operating expenses		78,558			69,792			8,766			13	%		131,494			1,195,037			(1,063,543	)		(89	)%		299,220			1,359,502			(1,060,282	)		(78	)%
Operating loss		(34,362	)		(21,178	)		(13,184	)		62	%		(82,098	)		(1,206,736	)		1,124,638			(93	)%		(158,219	)		(1,279,705	)		1,121,486			(88	)%
Interest expense, net		(9,835	)		(4,413	)		(5,422	)		123	%		(8,517	)		(1,040	)		(7,477	)		719	%		(26,977	)		(8,560	)		(18,417	)		215	%
Non-operating (expense) income, net		(4,402	)		(32,992	)		28,590			(87	)%		(17,239	)		1,213			(18,452	)		(1,521	)%		(20,820	)		(50,229	)		29,409			(59	)%
Loss before income taxes		(48,599	)		(58,583	)		9,984			(17	)%		(107,854	)		(1,206,563	)		1,098,709			(91	)%		(206,016	)		(1,338,494	)		1,132,478			(85	)%
Income tax expense		7,264			7,211			53			1	%		(2,871	)		(10,811	)		7,940			(73	)%		1,013			(15,313	)		16,326			(107	)%
Net loss	$	(55,863	)	$	(65,794	)	$	9,931			(15	)%	$	(104,983	)	$	(1,195,752	)	$	1,090,769			(91	)%	$	(207,029	)	$	(1,323,181	)	$	1,116,152			(84	)%

	August 31,		May 31,		Change			% Change			February 29,			May 31,		Change			% Change
(in thousands of U.S. dollars)	2023		2023		2023 vs. 2022						2024		��	2023		2024 vs. 2023
North America	$	384,091	$	319,173	$	64,918			20	%	$	473,779		$	319,173	$	154,606			48	%
EMEA		106,761		107,131		(370	)		(0	)%		101,271			107,131		(5,860	)		(5	)%
Rest of World		3,767		3,363		404			12	%		3,733			3,363		370			11	%
Total capital assets	$	494,619	$	429,667	$	64,952			15	%	$	578,783		$	429,667	$	149,116			35	%