UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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For the quarterly period ended November 30, 20212022
OR
☐ |
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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 |
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(Address of principal executive offices) | (Zip Code) |
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Registrant’s
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 | ||
Class 2 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 January 4, 2022,5, 2023, the registrant had 466,522,611615,494,626 shares of common stock,Common Stock, $0.0001 par value per share, issued and outstanding.
i
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended November 30, 20212022 (the “Form 10-Q”) contains forward-looking statements under Canadian securities laws and within the meaning of safe harbor provisionsSection 27A of the Private Securities Litigation Reform Act of 1995.1933, 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.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. 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 regarding our cost savings initiatives; what our revenue would have been had we completed the acquisition of Double Diamond Distillery LLC and Montauk Brewing Company each on June 1, 2021; our strategic initiatives, business strategy, supply chain, brand portfolio, product performance and product performance; the COVID-19 pandemic;expansion efforts; current or future macroeconomic trends; and future corporate acquisitions and strategic transactions; and our synergies, cash savings and efficiencies anticipated from our completed acquisitions and strategic transactions.
Risks and uncertainties that may cause actual results to differ materially from forward-looking statements include: our abilityinclude, but are not limited to, successfully complete the integration of the businesses of Tilray and Aphria; challenges and uncertainty resulting from the COVID-19 pandemic; the highly regulated environmentthose identified in which we operate and our dependence on regulatory approvals and licenses; our ability to manage our supply chain effectively; disruption of operations at our cultivation and manufacturing facilities; challenges and uncertainty resulting from the impact of competition; our ability to manage risks associated with our international sales and operations; our ability to successfully develop and commercialize new products; our ability to execute our strategic plan and other initiatives, including our ability to achieve $4 billion of revenue by the end of our fiscal year 2024; our dependency on significant customers, which generate a significant amount of our revenue; input cost inflation; disruptions to information technology systems; pending and future litigation; volatility in our stock; our ability to raise funds;this Form 10-Q and other risks and matters described in our most recent Annual Report on Form 10-K this Form 10-Q and our other filings 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 Quarterly Report on 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.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TILRAY BRANDS, INC.
Consolidated Statements of Financial Position
(in thousands of United States dollars, unaudited)
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 190,218 | $ | 415,909 | ||||
Marketable Securities | 243,286 | — | ||||||
Accounts receivable, net | 89,705 | 95,279 | ||||||
Inventory | 240,946 | 245,529 | ||||||
Prepaids and other current assets | 50,550 | 46,786 | ||||||
Total current assets | 814,705 | 803,503 | ||||||
Capital assets | 539,124 | 587,499 | ||||||
Right-of-use assets | 11,351 | 12,996 | ||||||
Intangible assets | 1,214,842 | 1,277,875 | ||||||
Goodwill | 2,621,401 | 2,641,305 | ||||||
Interest in equity investees | 4,638 | 4,952 | ||||||
Long-term investments | 8,211 | 10,050 | ||||||
Convertible notes receivable | 255,310 | 111,200 | ||||||
Other assets | 4,797 | 314 | ||||||
Total assets | $ | 5,474,379 | $ | 5,449,694 | ||||
Liabilities | ||||||||
Current liabilities | ||||||||
Bank indebtedness | $ | 15,304 | $ | 18,123 | ||||
Accounts payable and accrued liabilities | 162,900 | 157,431 | ||||||
Contingent consideration | 26,463 | 16,007 | ||||||
Warrant liability | 12,670 | 14,255 | ||||||
Current portion of lease liabilities | 6,976 | 6,703 | ||||||
Current portion of long-term debt | 20,681 | 67,823 | ||||||
Current portion of convertible debentures payable | 181,511 | — | ||||||
Total current liabilities | 426,505 | 280,342 | ||||||
Long - term liabilities | ||||||||
Lease liabilities | 8,999 | 11,329 | ||||||
Long-term debt | 152,150 | 117,879 | ||||||
Convertible debentures payable | 223,295 | 401,949 | ||||||
Deferred tax liabilities | 180,099 | 196,638 | ||||||
Other liabilities | 185 | 191 | ||||||
Total liabilities | 991,233 | 1,008,328 | ||||||
Commitments and contingencies (refer to Note 18) | ||||||||
Stockholders' equity | ||||||||
Common stock ($0.0001 par value; 990,000,000 shares authorized; 613,181,559 and 532,674,887 shares issued and outstanding, respectively) | 61 | 53 | ||||||
Additional paid-in capital | 5,697,466 | 5,382,367 | ||||||
Accumulated other comprehensive loss | (121,455 | ) | (20,764 | ) | ||||
Accumulated Deficit | (1,105,796 | ) | (962,851 | ) | ||||
Total Tilray Brands, Inc. stockholders' equity | 4,470,276 | 4,398,805 | ||||||
Non-controlling interests | 12,870 | 42,561 | ||||||
Total stockholders' equity | 4,483,146 | 4,441,366 | ||||||
Total liabilities and stockholders' equity | $ | 5,474,379 | $ | 5,449,694 |
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| November 30, 2021 |
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| May 31, 2021 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 331,783 |
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| $ | 488,466 |
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Accounts receivable, net |
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| 84,575 |
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| 87,309 |
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Inventory |
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| 233,020 |
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| 256,429 |
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Prepaids and other current assets |
|
| 57,340 |
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| 48,920 |
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Convertible notes receivable |
|
| 1,560 |
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|
| 2,485 |
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Total current assets |
|
| 708,278 |
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| 883,609 |
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Capital assets |
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| 604,249 |
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| 650,698 |
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Right-of-use assets |
|
| 13,933 |
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| 18,267 |
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Intangible assets |
|
| 1,450,015 |
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| 1,605,918 |
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Goodwill |
|
| 2,814,163 |
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| 2,832,794 |
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Interest in equity investees |
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| 4,440 |
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| 8,106 |
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Long-term investments |
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| 168,244 |
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| 17,685 |
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Other assets |
|
| 164 |
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| 8,285 |
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Total assets |
| $ | 5,763,486 |
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| $ | 6,025,362 |
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Liabilities |
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Current liabilities |
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Bank indebtedness |
| $ | 8,736 |
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| $ | 8,717 |
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Accounts payable and accrued liabilities |
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| 168,300 |
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| 212,813 |
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Contingent consideration |
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| 62,339 |
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| 60,657 |
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Warrant liability |
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| 40,455 |
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| 78,168 |
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Current portion of lease liabilities |
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| 3,588 |
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| 4,264 |
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Current portion of long-term debt |
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| 31,510 |
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| 36,622 |
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Total current liabilities |
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| 314,928 |
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| 401,241 |
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Long - term liabilities |
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Lease liabilities |
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| 49,265 |
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| 53,946 |
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Long-term debt |
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| 151,819 |
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| 167,486 |
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Convertible debentures |
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| 554,854 |
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| 667,624 |
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Deferred tax liability |
|
| 219,311 |
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| 265,845 |
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Other liabilities |
|
| 320 |
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| 3,907 |
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Total liabilities |
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| 1,290,497 |
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| 1,560,049 |
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Commitments and contingencies (refer to Note 17) |
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Shareholders' equity |
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Common stock ($0.0001 par value; 990,000,000 shares authorized; 463,802,393 and 265,423,304 shares issued and outstanding, respectively) |
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| 46 |
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| 46 |
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Additional paid-in capital |
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| 4,954,547 |
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| 4,792,406 |
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Accumulated other comprehensive income |
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| 9,595 |
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| 152,668 |
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Accumulated Deficit |
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| (527,900 | ) |
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| (486,050 | ) |
Total Tilray shareholders' equity |
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| 4,436,288 |
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| 4,459,070 |
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Non-controlling interests |
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| 36,701 |
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| 6,243 |
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Total shareholders' equity |
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| 4,472,989 |
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| 4,465,313 |
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Total liabilities and shareholders' equity |
| $ | 5,763,486 |
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| $ | 6,025,362 |
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The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Consolidated Statements of Income (Loss)Loss and Comprehensive Loss
(in thousands of United States dollars, except for share and per share data, unaudited)
Three months ended | Six months ended | |||||||||||||||||||||||||||||||
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| Three months ended November 30, |
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| Six months ended November 30, |
| November 30, | November 30, | ||||||||||||||||||||||||
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Net revenue |
| $ | 155,153 |
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| $ | 129,459 |
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| $ | 323,176 |
|
| $ | 246,949 |
| $ | 144,136 | $ | 155,153 | $ | 297,347 | $ | 323,176 | ||||||||
Cost of goods sold |
|
| 122,387 |
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| 94,176 |
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| 239,455 |
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| 176,721 |
| 104,012 | 122,387 | 208,609 | 239,455 | ||||||||||||
Gross profit |
|
| 32,766 |
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| 35,283 |
|
|
| 83,721 |
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|
| 70,228 |
| 40,124 | 32,766 | 88,738 | 83,721 | ||||||||||||
Operating expenses: |
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General and administrative |
|
| 33,469 |
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| 28,273 |
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|
| 82,956 |
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| 54,245 |
| 41,672 | 33,469 | 82,180 | 82,956 | ||||||||||||
Selling |
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| 9,210 |
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| 6,079 |
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| 16,642 |
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|
| 11,896 |
| 9,669 | 9,210 | 19,340 | 16,642 | ||||||||||||
Amortization |
|
| 29,016 |
|
|
| 4,208 |
|
|
| 59,755 |
|
|
| 8,335 |
| 23,995 | 29,016 | 48,354 | 59,755 | ||||||||||||
Marketing and promotion |
|
| 7,120 |
|
|
| 4,252 |
|
|
| 12,585 |
|
|
| 9,177 |
| 8,535 | 7,120 | 15,783 | 12,585 | ||||||||||||
Research and development |
|
| 515 |
|
|
| 225 |
|
|
| 1,300 |
|
|
| 345 |
| 165 | 515 | 331 | 1,300 | ||||||||||||
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| 33,699 |
|
|
| 20,664 |
| ||||||||||||||||
Change in fair value of contingent consideration | — | 845 | 211 | 1,682 | ||||||||||||||||||||||||||||
Litigation costs | 2,815 | 1,080 | 3,260 | 2,274 | ||||||||||||||||||||||||||||
Transaction (income) costs | 5,064 | 7,040 | (7,752 | ) | 31,425 | |||||||||||||||||||||||||||
Total operating expenses |
|
| 87,450 |
|
|
| 61,243 |
|
|
| 206,937 |
|
|
| 104,662 |
| 91,915 | 88,295 | 161,707 | 208,619 | ||||||||||||
Operating loss |
|
| (54,684 | ) |
|
| (25,960 | ) |
|
| (123,216 | ) |
|
| (34,434 | ) | (51,791 | ) | (55,529 | ) | (72,969 | ) | (124,898 | ) | ||||||||
Interest expense, net |
|
| (9,940 | ) |
|
| (4,832 | ) |
|
| (20,110 | ) |
|
| (10,568 | ) | (3,107 | ) | (9,940 | ) | (7,520 | ) | (20,110 | ) | ||||||||
Non-operating income (expense), net |
|
| 64,750 |
|
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| (72,649 | ) |
|
| 113,610 |
|
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| (86,008 | ) | (18,450 | ) | 65,595 | (51,442 | ) | 115,292 | ||||||||||
Income (loss) before income taxes |
|
| 126 |
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| (103,441 | ) |
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| (29,716 | ) |
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| (131,010 | ) | ||||||||||||||||
Income taxes (recovery) |
|
| (5,671 | ) |
|
| (14,192 | ) |
|
| (909 | ) |
|
| (20,017 | ) | ||||||||||||||||
Net income (loss) |
| $ | 5,797 |
|
| $ | (89,249 | ) |
| $ | (28,807 | ) |
| $ | (110,993 | ) | ||||||||||||||||
(Loss) income before income taxes | (73,348 | ) | 126 | (131,931 | ) | (29,716 | ) | |||||||||||||||||||||||||
Income taxes (benefit) expense | (11,713 | ) | (5,671 | ) | (4,502 | ) | (909 | ) | ||||||||||||||||||||||||
Net (loss) income | $ | (61,635 | ) | $ | 5,797 | $ | (127,429 | ) | $ | (28,807 | ) | |||||||||||||||||||||
Total net income (loss) attributable to: |
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Shareholders of Tilray Inc. |
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| (201 | ) |
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| (99,900 | ) |
|
| (41,850 | ) |
|
| (134,243 | ) | ||||||||||||||||
Stockholders of Tilray Brands, Inc. | (69,463 | ) | (201 | ) | (142,945 | ) | (41,850 | ) | ||||||||||||||||||||||||
Non-controlling interests |
|
| 5,998 |
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| 10,651 |
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|
| 13,043 |
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|
| 23,250 |
| 7,828 | 5,998 | 15,516 | 13,043 | ||||||||||||
Other comprehensive (loss) income, net of tax |
|
|
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Foreign currency translation (loss) gain |
|
| (32,367 | ) |
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| (910 | ) |
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| (133,139 | ) |
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| 475 |
| ||||||||||||||||
Other comprehensive loss, net of tax | ||||||||||||||||||||||||||||||||
Foreign currency translation loss | (24,597 | ) | (32,367 | ) | (84,889 | ) | (133,139 | ) | ||||||||||||||||||||||||
Unrealized loss on convertible notes receivable |
|
| 52 |
|
|
| — |
|
|
| (597 | ) |
|
| — |
| (17,643 | ) | (16,305 | ) | (20,168 | ) | (16,954 | ) | ||||||||
Change in fair value of long-term investments |
|
| (16,357 | ) |
|
| — |
|
|
| (16,357 | ) |
|
| — |
| ||||||||||||||||
Total other comprehensive (loss) income, net of tax |
|
| (48,672 | ) |
|
| (910 | ) |
|
| (150,093 | ) |
|
| 475 |
| ||||||||||||||||
Total other comprehensive loss, net of tax | (42,240 | ) | (48,672 | ) | (105,057 | ) | (150,093 | ) | ||||||||||||||||||||||||
Comprehensive loss |
|
| (42,875 | ) |
|
| (90,159 | ) |
|
| (178,900 | ) |
|
| (110,518 | ) | $ | (103,875 | ) | $ | (42,875 | ) | $ | (232,486 | ) | $ | (178,900 | ) | ||||
Total comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Shareholders of Tilray Inc. |
|
| (41,853 | ) |
|
| (100,810 | ) |
|
| (184,923 | ) |
|
| (133,768 | ) | ||||||||||||||||
Stockholders of Tilray Brands, Inc. | (111,186 | ) | (41,853 | ) | (243,636 | ) | (184,923 | ) | ||||||||||||||||||||||||
Non-controlling interests |
|
| (1,022 | ) |
|
| 10,651 |
|
|
| 6,023 |
|
|
| 23,250 |
| 7,311 | (1,022 | ) | 11,150 | 6,023 | |||||||||||
Weighted average number of common shares - basic |
|
| 460,254,275 |
|
|
| 243,477,655 |
|
|
| 454,797,598 |
|
|
| 242,207,388 |
| 611,711,377 | 460,254,275 | 589,122,358 | 454,797,598 | ||||||||||||
Weighted average number of common shares - diluted |
|
| 460,254,275 |
|
|
| 243,477,655 |
|
|
| 454,797,598 |
|
|
| 242,207,388 |
| 611,711,377 | 460,254,275 | 589,122,358 | 454,797,598 | ||||||||||||
Net income (loss) per share - basic |
| $ | (0.00 | ) |
| $ | (0.41 | ) |
| $ | (0.09 | ) |
| $ | (0.55 | ) | ||||||||||||||||
Net income (loss) per share - diluted |
| $ | (0.00 | ) |
| $ | (0.41 | ) |
| $ | (0.09 | ) |
| $ | (0.55 | ) | ||||||||||||||||
Net loss per share - basic | $ | (0.11 | ) | $ | 0.00 | $ | (0.24 | ) | $ | (0.09 | ) | |||||||||||||||||||||
Net loss per share - diluted | $ | (0.11 | ) | $ | 0.00 | $ | (0.24 | ) | $ | (0.09 | ) |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Consolidated Statements of Stockholders’Stockholders’ Equity
(in thousands of United States dollars, except for share data, unaudited)
|
| Number of common shares |
|
| Common stock |
|
| Additional paid-in capital |
|
| Accumulated other comprehensive income (loss) |
|
| Accumulated Deficit |
|
| Non- controlling interests |
|
| Total |
| Accumulated | ||||||||||||||||||||||||||||||||||
Balance at May 31, 2020 |
|
| 240,132,635 |
|
| $ | 24 |
|
| $ | 1,366,736 |
|
| $ | (5,434 | ) |
| $ | (113,352 | ) |
| $ | 26,957 |
|
| $ | 1,274,931 |
| ||||||||||||||||||||||||||||
Share issuance - legal settlement |
|
| 1,389,884 |
|
|
| — |
|
|
| 7,018 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,018 |
| ||||||||||||||||||||||||||||
Share issuance - options exercised |
|
| 41,065 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
| ||||||||||||||||||||||||||||
Share issuance - RSUs exercised |
|
| 429,280 |
|
|
| — |
|
|
| 2,246 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,246 |
| ||||||||||||||||||||||||||||
Share-based payments |
|
| — |
|
|
| — |
|
|
| 1,233 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,233 |
| ||||||||||||||||||||||||||||
Comprehensive income (loss) for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,385 |
|
|
| (34,343 | ) |
|
| 12,599 |
|
|
| (20,359 | ) | ||||||||||||||||||||||||||||
Balance at August 31, 2020 |
|
| 241,992,864 |
|
| $ | 24 |
|
| $ | 1,377,237 |
|
| $ | (4,049 | ) |
| $ | (147,695 | ) |
| $ | 39,556 |
|
| $ | 1,265,073 |
| ||||||||||||||||||||||||||||
Share issuance - legal settlement |
|
| 503,974 |
|
|
| — |
|
|
| 3,436 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,436 |
| ||||||||||||||||||||||||||||
Share issuance - equity financing |
|
| 14,610,496 |
|
|
| 2 |
|
|
| 103,594 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 103,596 |
| ||||||||||||||||||||||||||||
Share issuance - SweetWater acquisition |
|
| 8,232,810 |
|
|
| 1 |
|
|
| 69,189 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 69,190 |
| ||||||||||||||||||||||||||||
Share issuance - options exercised |
|
| 74,337 |
|
|
| — |
|
|
| 86 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 86 |
| ||||||||||||||||||||||||||||
Share issuance - RSUs exercised |
|
| 8,823 |
|
|
| — |
|
|
| 306 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 306 |
| ||||||||||||||||||||||||||||
Share-based payments |
|
| — |
|
|
| — |
|
|
| 1,017 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,017 |
| ||||||||||||||||||||||||||||
Comprehensive income (loss) for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (910 | ) |
|
| (99,900 | ) |
|
| 10,651 |
|
|
| (90,159 | ) | ||||||||||||||||||||||||||||
Balance at November 30, 2020 |
|
| 265,423,304 |
|
| $ | 27 |
|
| $ | 1,554,865 |
|
| $ | (4,959 | ) |
| $ | (247,595 | ) |
| $ | 50,207 |
|
| $ | 1,352,545 |
| ||||||||||||||||||||||||||||
Number of | Additional | other | Non- | |||||||||||||||||||||||||||||||||||||||||||||||||||||
common | Common | paid-in | comprehensive | Accumulated | controlling | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| shares | stock | capital | income (loss) | Deficit | interests | Total | |||||||||||||||||||||
Balance at May 31, 2021 |
|
| 446,440,641 |
|
| $ | 46 |
|
| $ | 4,792,406 |
|
| $ | 152,668 |
|
| $ | (486,050 | ) |
| $ | 6,243 |
|
| $ | 4,465,313 |
| 446,440,641 | $ | 46 | $ | 4,792,406 | $ | 152,668 | $ | (486,050 | ) | $ | 6,243 | $ | 4,465,313 | ||||||||||||||
Third party contribution to Superhero Acquisition LP |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 52,995 |
|
|
| 52,995 |
| — | — | — | — | — | 52,995 | 52,995 | |||||||||||||||||||||
Share issuance - options exercised |
|
| 417,489 |
|
|
| — |
|
|
| 2,756 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,756 |
| 417,489 | — | — | — | — | — | — | |||||||||||||||||||||
Share issuance - RSUs exercised |
|
| 3,665,337 |
|
|
| — |
|
|
| 6,661 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,661 |
| 3,665,337 | — | — | — | — | — | — | |||||||||||||||||||||
Share-based payments, net |
|
| — |
|
|
| — |
|
|
| (5,944 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,944 | ) | ||||||||||||||||||||||||||||
Shares effectively repurchased for employee withholding tax | — | — | (5,944 | ) | — | — | — | (5,944 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 9,417 | — | — | — | 9,417 | |||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (101,421 | ) |
|
| (41,649 | ) |
|
| 7,045 |
|
|
| (136,025 | ) | — | — | — | (101,421 | ) | (41,649 | ) | 7,045 | (136,025 | ) | ||||||||||||||||||
Balance at August 31, 2021 |
|
| 450,523,467 |
|
| $ | 46 |
|
| $ | 4,795,879 |
|
| $ | 51,247 |
|
| $ | (527,699 | ) |
| $ | 66,283 |
|
| $ | 4,385,756 |
| 450,523,467 | $ | 46 | $ | 4,795,879 | $ | 51,247 | $ | (527,699 | ) | $ | 66,283 | $ | 4,385,756 | ||||||||||||||
Share issuance - Superhero Acquisition LP |
|
| 9,817,061 |
|
|
| — |
|
|
| 117,804 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 117,804 |
| 9,817,061 | — | 117,804 | — | — | — | 117,804 | |||||||||||||||||||||
Share issuance - DDH note |
|
| 2,677,596 |
|
|
| — |
|
|
| 28,560 |
|
|
| — |
|
|
| — |
|
|
| (28,560 | ) |
|
| — |
| ||||||||||||||||||||||||||||
Share issuance - Double Diamond Holdings note | 2,677,596 | — | 28,560 | — | — | (28,560 | ) | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Share issuance - options exercised |
|
| 98,044 |
|
|
| — |
|
|
| 1,939 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,939 |
| 98,044 | — | — | — | — | — | — | |||||||||||||||||||||
Share issuance - RSUs exercised |
|
| 470,324 |
|
|
| — |
|
|
| 6,314 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,314 |
| 470,324 | — | — | — | — | — | — | |||||||||||||||||||||
Share-based payments, net |
|
| 215,901 |
|
|
| — |
|
|
| 4,051 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,051 |
| ||||||||||||||||||||||||||||
Shares effectively repurchased for employee withholding tax | — | — | (2,742 | ) | (2,742 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Share issuance - legal settlement | 215,901 | — | 2,170 | 2,170 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 12,876 | — | — | — | 12,876 | |||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (41,652 | ) |
|
| (201 | ) |
|
| (1,022 | ) |
|
| (42,875 | ) | — | — | — | (41,652 | ) | (201 | ) | (1,022 | ) | (42,875 | ) | |||||||||||||||||
Balance at November 30, 2021 |
|
| 463,802,393 |
|
| $ | 46 |
|
| $ | 4,954,547 |
|
| $ | 9,595 |
|
| $ | (527,900 | ) |
| $ | 36,701 |
|
| $ | 4,472,989 |
| 463,802,393 | $ | 46 | $ | 4,954,547 | $ | 9,595 | $ | (527,900 | ) | $ | 36,701 | $ | 4,472,989 | ||||||||||||||
Balance at May 31, 2022 | 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 | |||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued to purchase HEXO convertible note receivable | 33,314,412 | 3 | 107,269 | — | — | — | 107,272 | |||||||||||||||||||||||||||||||||||||||||||||||||
HTI Convertible Note - conversion feature | — | — | 9,055 | — | — | — | 9,055 | |||||||||||||||||||||||||||||||||||||||||||||||||
Share issuance - Double Diamond Holdings note | 1,529,821 | 1 | 5,063 | — | — | — | 5,064 | |||||||||||||||||||||||||||||||||||||||||||||||||
Share issuance - options exercised | 3,777 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Share issuance - RSUs exercised | 950,893 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Shares effectively repurchased for employee withholding tax | — | — | (1,189 | ) | — | — | — | (1,189 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 9,193 | — | — | — | 9,193 | |||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared to non-controlling interests | — | — | — | — | — | (8,561 | ) | (8,561 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income (loss) for the period | — | — | — | (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 | |||||||||||||||||||||||||||||||||||||||||
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 note | 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 |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Consolidated Statements of Cash Flows
(in thousands of United States dollars, unaudited)
For the six months | ||||||||||||||||
|
| For the six months ended November 30, |
| ended November 30, | ||||||||||||
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||
Cash used in operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net loss |
| $ | (28,807 | ) |
| $ | (110,993 | ) | $ | (127,429 | ) | $ | (28,807 | ) | ||
Adjustments for: |
|
|
|
|
|
|
|
| ||||||||
Deferred income tax recovery |
|
| (11,228 | ) |
|
| (36,175 | ) | (12,941 | ) | (11,228 | ) | ||||
Unrealized foreign exchange (gain) loss |
|
| (6,530 | ) |
|
| 6,648 |
| ||||||||
Unrealized foreign exchange loss | 2,261 | (6,530 | ) | |||||||||||||
Amortization |
|
| 76,804 |
|
|
| 23,010 |
| 67,387 | 76,804 | ||||||
Loss on sale of capital assets |
|
| 230 |
|
|
| — |
| 2,208 | 230 | ||||||
Inventory valuation write down |
|
| 12,000 |
|
|
| — |
| — | 12,000 | ||||||
Other non-cash items |
|
| 3,739 |
|
|
| (134 | ) | 8,177 | 3,739 | ||||||
Stock-based compensation |
|
| 17,670 |
|
|
| 8,339 |
| 20,136 | 17,670 | ||||||
Loss on long-term investments & equity investments |
|
| 2,197 |
|
|
| 1,519 |
| 1,918 | 2,197 | ||||||
Loss (gain) on derivative instruments |
|
| (133,436 | ) |
|
| 70,342 |
| 18,997 | (133,436 | ) | |||||
Loss on contingent consideration |
|
| 1,682 |
|
|
| — |
| ||||||||
Transaction costs associated with business acquisitions |
|
| — |
|
|
| 13,897 |
| ||||||||
Change in fair value of contingent consideration | 211 | 1,682 | ||||||||||||||
Change in non-cash working capital: |
|
|
|
|
|
|
|
| ||||||||
Accounts receivable |
|
| 2,734 |
|
|
| (28,570 | ) | 6,690 | 2,734 | ||||||
Prepaids and other current assets |
|
| (6,299 | ) |
|
| (4,019 | ) | (7,780 | ) | (6,299 | ) | ||||
Inventory |
|
| 3,409 |
|
|
| (18,352 | ) | 5,046 | 3,409 | ||||||
Accounts payable and accrued liabilities |
|
| (44,513 | ) |
|
| 20,827 |
| (1,941 | ) | (44,513 | ) | ||||
Net cash used in operating activities |
|
| (110,348 | ) |
|
| (53,662 | ) | (17,060 | ) | (110,348 | ) | ||||
Cash used in investing activities: |
|
|
|
|
|
|
|
| ||||||||
Investment in capital and intangible assets |
|
| (23,856 | ) |
|
| (29,863 | ) | (7,537 | ) | (23,856 | ) | ||||
Proceeds from disposal of capital and intangible assets |
|
| 8,264 |
|
|
| 6,607 |
| 2,160 | 8,264 | ||||||
Promissory notes advances |
|
| — |
|
|
| (2,419 | ) | ||||||||
Repayment of notes receivable |
|
| — |
|
|
| 4,032 |
| ||||||||
Proceeds from disposal of long-term investments and equity investees |
|
| — |
|
|
| 2,676 |
| ||||||||
Net cash paid on business acquisitions |
|
| — |
|
|
| (275,603 | ) | ||||||||
Purchase of marketable securities | (243,186 | ) | — | |||||||||||||
Net cash paid for business acquisition | (24,372 | ) | — | |||||||||||||
Net cash used in investing activities |
|
| (15,592 | ) |
|
| (294,570 | ) | (272,935 | ) | (15,592 | ) | ||||
Cash (used in) provided by financing activities: |
|
|
|
|
|
|
|
| ||||||||
Cash provided by (used in) financing activities: | ||||||||||||||||
Share capital issued, net of cash issuance costs |
|
| — |
|
|
| 102,559 |
| 129,593 | — | ||||||
Proceeds (payment) from warrants and options exercised |
|
| (3,927 | ) |
|
| 90 |
| ||||||||
Shares effectively repurchased for employee withholding tax | (1,189 | ) | (3,927 | ) | ||||||||||||
Proceeds from long-term debt |
|
| — |
|
|
| 1,881 |
| 1,288 | — | ||||||
Repayment of long-term debt |
|
| (20,779 | ) |
|
| (2,210 | ) | ||||||||
Repayment of long-term debt and convertible debt | (59,395 | ) | (20,779 | ) | ||||||||||||
Repayment of lease liabilities |
|
| (3,360 | ) |
|
| (71 | ) | (1,114 | ) | (3,360 | ) | ||||
Increase in bank indebtedness |
|
| 19 |
|
|
| 3,689 |
| ||||||||
Net cash (used in) provided by financing activities |
|
| (28,047 | ) |
|
| 105,938 |
| ||||||||
Net (decrease) increase in bank indebtedness | (2,819 | ) | 19 | |||||||||||||
Net cash provided by (used in) financing activities | 66,364 | (28,047 | ) | |||||||||||||
Effect of foreign exchange on cash and cash equivalents |
|
| (2,696 | ) |
|
| 29,853 |
| (2,060 | ) | (2,696 | ) | ||||
Net decrease in cash and cash equivalents |
|
| (156,683 | ) |
|
| (212,441 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | (225,691 | ) | (156,683 | ) | ||||||||||||
Cash and cash equivalents, beginning of period |
|
| 488,466 |
|
|
| 360,646 |
| 415,909 | 488,466 | ||||||
Cash and cash equivalents, end of period |
| $ | 331,783 |
|
| $ | 148,205 |
| $ | 190,218 | $ | 331,783 |
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
TILRAY BRANDS, INC.
NotesNot
es to Consolidated Financial Statements
Note 1. Description of business
Tilray Brands, Inc., and its wholly owned subsidiaries (collectively “Tilray”"Tilray", the “Company”"Company", “we”"we", or “us”"us") is a leading global cannabis-lifestyle and consumer packaged goods company headquarteredwith our principal executive office in New York,Leamington, with operations in Canada, the United States, Europe, Australia New Zealand and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering thea worldwide community to live their very best life enhanced by providing them with products that meet the needsmoments of their mind, body,connection and soul and invoke a sense of wellbeing. Tilray’s mission is to be the most responsible, trusted partner for its patients and consumers by providing themmarket leading cannabis consumer products company in the world with a cultivated experienceportfolio of innovative, high-quality and health and wellbeing through high-quality, differentiatedbeloved brands and innovative products. A pioneer in cannabis research, cultivation and distribution, Tilray’s production platform supports over 20 brands in over 20 countries, including comprehensive cannabis offerings, hemp-based foods, and alcoholic beverages.
On April 30, 2021, Tilray acquired allthat address the needs of the issuedconsumers, customers and outstanding common sharespatients we serve.
Our overall strategy is to leverage our scale, expertise and capabilities to drive market share in Canada and internationally, achieve industry-leading, profitable growth and build sustainable, long-term shareholder value. In order to ensure the long-term sustainable growth of Aphria Inc. (“Aphria”), an international organizationour Company, we continue to focus on developing strong capabilities in consumer insights, driving category management leadership and assessing growth opportunities with the introduction of new products. In addition, we are relentlessly focused on building a global cannabis-lifestyle consumer packagedmanaging our cost of goods companyand expenses in additionorder to its businesses in the marketing and manufacturing beverage alcohol products in the United States, and in the distribution of (non-Cannabis) pharmaceutical products in Germany and Argentina, pursuant to a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario).maintain our strong financial position.
Note 2. 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. 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. TheAccordingly, they do not include all of the information included in this Form 10-Qand notes required by U.S. GAAP and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended May 31, 20212022 (the “Annual Financial Statements”). 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. The Company’s balance sheet in these interim financial statements was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.
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.
As a result of
All amounts in the April 30, 2021 business combination with Aphria, the reported results do not include the results of operations of Tilrayunaudited condensed interim consolidated financial statements, notes and its subsidiaries on and prior to April 30, 2021, in accordance with the accounting treatment applicabletables have been rounded to the Arrangement. Accordingly, comparisons between the Company's results for the threenearest thousand, except par values and six months ended November 30, 2021 and prior periods may not be meaningful.
Information about the accounting treatment of the Arrangement including details of the transaction, determination of the total fair value consideration, and allocation of the purchase price, are included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).
The purchase price allocation for the Arrangement is open for adjustments and has been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date. In the event that more information is obtained, the purchase price allocation may change. Any future adjustments to the purchase price allocation, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement period, which is not to exceed one year from the acquisition date.per share amounts, unless otherwise indicated.
Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. The financial statements of subsidiaries are included in the condensed interim consolidated financial statements from the date that control commences until the date that control ceases. A complete list of our subsidiaries that existed prior to our most recent year end is included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”). Financial Statements.
On August 13, 2021, the Company and other unrelated persons formed Superhero Acquisition L.P., a Delaware limited partnership (“SH Acquisition”), for the purpose of acquiring certain senior secured convertible notes in the principal amount of approximately $165.8 million (the “MM Notes”) originally issued by MedMen Enterprises Inc. (“MedMen”) together with certain associated warrants (the “MM Warrants”) to acquire Class B subordinate voting shares of Medmen (the “MedMen Shares”) fromcertain funds affiliated with Gotham Green Partners (the “MM Transaction”). The MM Notes mature onAugust 17, 2028. On August 17, 2021, SH Acquisition completed the MM Transaction and issued 9,817,061 shares of its common stock as partial consideration for the MM Transaction. The balance of the consideration for the MM Transaction was paid in cash by the other unrelated investors of SH Acquisition.
In connection with its issuance of 9,817,061 shares of its common stock, the Company’s received an interest in SH Acquisition equal to approximately 68% of the interests in SH Acquisition and, therefore, indirectly acquired a right to 68% of the MM Notes and related MM Warrants, which were convertible into approximately 21% of the MedMen Shares outstanding (if such MM Notes and MM Warrants were converted and exercised upon closing the MM Transaction). In addition, interest on the principal amount of the MM Notes shall accrue at an interest rate of LIBOR plus 6%, with a LIBOR floor of 2.5% and, any accrued interest shall be pay-in-kind at a price equal to the trailing 30-day volume weighted average price of the MedMen Shares, as and when such pay-in-kind interest becomes due and payable. SH Acquisition was also granted “top-up” rights enabling it (and its limited partners) to maintain its percentage ownership (on an “as-converted” basis) in the event that MedMen issues equity securities upon conversion of convertible securities that may be issued by MedMen. Tilray’s ability to convert the Notes 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.
Marketable Securities
Under the SH Acquisition partnership agreement, certain material events described therein require the approvalWe classify time deposits and other investments that have maturities of the Company, and, upon a Triggering Event, the Company has the ability to appoint twogreater than three months but less than one year as marketable securities. The fair value of the three members of the board of directors of the general partner of SH Acquisition. As a result, we consolidated SH Acquisition as a subsidiary of Tilray beginning on August 17, 2021. Additional information about the MM Transaction is included in Note 7 Long-term investments.
Long-term investments
Debtmarketable securities are classified as available-for-sale and are recorded at fair value and are subject to impairment testing. Other than impairment losses, unrealized gains and losses during the period, 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. Upon sale, realized gain and losses are reported in net income. Debt securities are impaired when a declinebased on quoted market prices for publicly traded securities. Changes in fair value is determined to be other-than-temporary. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, and the duration and extent to which the fair value is less than cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge isare recorded in the statementsstatement of net loss and a new cost basis forcomprehensive loss, within the investment is established. The Company also evaluates whether there is a plan to sell the security or it is more likely than not that the Company 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 comprehensiveline, “Non-operating income (loss)(expense)”.
Long-term investments
Investments in equity securities of entities over which the Company does not have a controlling financial interest or significant influence are classified as an equity investment and accounted for at fair value. Equity investments without readily determinable fair values are measured at cost with adjustments for observable changes in price or impairments (referred to as the “measurement alternative”). In applying the measurement alternative, the Company performs a qualitative assessment on a quarterly basis and recognizes an impairment if there are sufficient indicators that the fair value of the equity investments are less than carrying values. Changes in value are recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”.
Investments in entities over which the Company does not have a controlling financial interest but has significant influence, are accounted for using the equity method, with the Company’s share of earnings or losses reported in earnings or losses from equity method investments on the statements of net loss and comprehensive loss. Equity method investments are recorded at cost, plus the Company’s share of undistributed earnings or losses, and impairment, if any, within “Interest in equity investees” on the balance sheets. The Company assesses investments in equity method investments when events or circumstances indicate that the carrying amount of the investment may be impaired. If it is determined that the current fair value of an equity method investment is less than the carrying value of the investment, the Company will assess if the shortfall is other than temporary (OTTI). Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the equity investee to sustain an earnings capacity that would justify the carrying amount of the investment. Once a determination is made that an OTTI exists, the investment is written down to its fair value in accordance with ASC 820 at the reporting date, which establishes a new cost basis.
Convertible notes receivable
Convertible notes receivables include various investments in which the Company has the right, or potential right to convert the indenture into common stock shares of the investee and are classified as available-for-sale and are recorded at fair value. Unrealized gains and losses during the year, net of the related tax effect, are excluded from income and reflected in other comprehensive income (loss), and the cumulative effect is reported as a separate component of shareholders' equity until realized. We use judgement to assess convertible notes receivables for impairment at each measurement date. Convertible notes receivables are impaired when a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the statements of loss and comprehensive loss and a new cost basis for the investment is established. We also evaluate whether there is a plan to sell the security, or it is more likely than not that we will be required to sell the security before recovery. If neither of the conditions exist, then only the portion of the impairment loss attributable to credit loss is recorded in the statements of net loss and the remaining amount is recorded in other comprehensive income (loss).
Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing reported net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing reported net income (loss) by the sum of the weighted average number of common shares and the number of dilutive potential common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options, warrants and RSUs and the incremental shares issuable upon conversion of the convertible debentures payable and similar instruments.
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 six months ended November 30, 2022, the dilutive potential common share equivalents outstanding consist of the following: 16,884,493 common shares from RSUs, 4,674,512 common shares from share options, 6,209,000 common shares from warrants and 23,981,704 common shares from convertible debentures payable.
Revenue
On July 12, 2022, the Company and HEXO entered into various commercial transaction agreements, as described in Note 24 (Segment reporting), which includes an advisory services arrangement. Revenue is recognized as the advisory services are provided to HEXO. Payments received for the services in advance of performance are recognized as a contract liability.
Revenue is recognized when the control of the promised goods or services, through performance obligation, is transferred/provided to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligations.
Excise taxes remitted to tax authorities are government-imposed excise taxes on cannabis and beer. Excise taxes are recorded as a reduction of sales in net revenue in the consolidated statements of operations and recognized as a current liability within accounts payable and other current liabilities on the consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.
In addition, amounts disclosed as net revenue are net of excise taxes, sales tax, duty tax, allowances, discounts and rebates.
In determining the transaction price for the sale of goods or service, the Company considers the effects of variable consideration and the existence of significant financing components, if any.
Some contracts for the sale of goods or services may provide customers with a right of return, volume discount, bonuses for volume/quality achievement, or sales allowance. In addition, the Company may provide in certain circumstances, a retrospective price reduction to a customer based primarily on inventory movement. These items give rise to variable consideration. The Company uses the expected value method to estimate the variable consideration because this method best predicts the amount of variable consideration to which the Company will be entitled. The Company uses historical evidence, current information and forecasts to estimate the variable consideration. The Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retrospective price reduction, representing its obligation to return the customer’s consideration. The estimate is updated at each reporting period date.
New accounting pronouncements not yet adopted
In August 2020, October 2021, the FASB issued ASU 2020-06, Debt—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. ASU 2021-08 is effective for the Company beginning June 1, 2023. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.
New accounting pronouncements recently adopted
In August 2020, the FASB issued ASU 2020-06,Debt—Debt with Conversion and Other Options (Subtopic 470-20)470-20) and Derivatives and Hedging—Hedging—Contracts in Entity’sEntity’s Own Equity (Subtopic 815-40)815-40): Accounting for Convertible Instruments and Contracts in an Entity’sEntity’s Own Equity (“ASU 2020-06”2020-06”), which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for convertible instruments and to provide financial statement users with more meaningful information. The Company adopted ASU 2020-06 is effective for the Company2020-06 beginning June 1, 2022. This update may be applied retrospectively or2022 and the adoption did not have material retrospective impacts on a modified retrospective basis with the cumulative effect recognized as an adjustment to the opening balance of retained earnings on the date of adoption. The Company is currently evaluating the effect of adopting this ASU.our condensed interim consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, 2021-04,Modifications and Extinguishments (Subtopic 470-50)470-50), Compensation—Compensation—Stock Compensation (Topic 718)718), and Derivatives and Hedging—Hedging—Contracts in Entity’sEntity’s Own Equity (Subtopic 815-40) 815-40) (“ASU 2021-04”2021-04”), which amends existing guidance for earnings per share (EPS) in accordance with Topic 260. ASU 2021-04 is effective for the Company beginning June 1, 2022. This update should 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 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. ASU 2021-08 is effective for the Company beginning June 1, 2023. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.
New accounting pronouncements recently adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The standard is effective for annual reporting periods beginning after December 15, 2020 and including interim periods within those fiscal years. The Company adopted the ASU beginning June 1, 2021 2022 and the adoption of ASU 2019-122021-04 did not have a materialan impact on our condensed interim consolidated financial statements.
In January 2020, November 2021, the FASB issued ASU 2020-01, Investments – Equity Securities2021-10,Government Assistance (Topic 321)832), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”),Disclosures by Business Entities about Government Assistance, which is intended to clarifyincrease the interactiontransparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.assistance on an entity’s financial statements. The Company adopted the ASU beginning June 1, 2021 2022 and the adoption of ASU 2020-012021-04 did not have a materialan impact on the disclosure in our condensed interim consolidated financial statements.
Note 3. Inventory
Note 3. Inventory
Inventory consisted of the following:
|
| November 30, 2021 |
|
| May 31, 2021 |
| ||
Plants |
| $ | 19,935 |
|
| $ | 23,083 |
|
Dried cannabis |
|
| 115,970 |
|
|
| 118,269 |
|
Cannabis trim |
|
| 3,725 |
|
|
| 2,931 |
|
Cannabis derivatives |
|
| 28,215 |
|
|
| 24,158 |
|
Cannabis vapes |
|
| 3,193 |
|
|
| 3,791 |
|
Packaging and other inventory items |
|
| 22,768 |
|
|
| 31,462 |
|
Wellness inventory |
|
| 12,412 |
|
|
| 15,171 |
|
Beverage alcohol inventory |
|
| 4,792 |
|
|
| 5,402 |
|
Distribution inventory |
|
| 22,010 |
|
|
| 32,162 |
|
Total |
| $ | 233,020 |
|
| $ | 256,429 |
|
|
|
|
|
|
|
|
|
|
During the three and six months ended November 30, 2021, the Company recorded $12,000 and $12,000 in our cannabis segment of charges related to inventory write downs as a component of cost of goods sold (November 30, 2020-$0 and $0).
Note 4. Capital assets
Capital assets consisted of the following:
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
Plants | $ | 12,460 | $ | 14,521 | ||||
Dried cannabis | 123,871 | 116,739 | ||||||
Cannabis trim | 1,249 | 592 | ||||||
Cannabis derivatives | 15,728 | 24,685 | ||||||
Cannabis vapes | 2,815 | 542 | ||||||
Packaging and other inventory items | 20,781 | 21,691 | ||||||
Wellness inventory | 12,921 | 13,275 | ||||||
Beverage alcohol inventory | 27,250 | 27,840 | ||||||
Distribution inventory | 23,871 | 25,644 | ||||||
Total | $ | 240,946 | $ | 245,529 |
|
| November 30, 2021 |
|
| May 31, 2021 |
| ||
Land |
| $ | 26,779 |
|
| $ | 28,549 |
|
Production facility |
|
| 411,611 |
|
|
| 346,510 |
|
Equipment |
|
| 236,239 |
|
|
| 215,408 |
|
Leasehold improvement |
|
| 7,444 |
|
|
| 17,059 |
|
ROU-assets under finance lease |
|
| 34,798 |
|
|
| 34,726 |
|
Construction in progress |
|
| 14,949 |
|
|
| 85,322 |
|
|
| $ | 731,820 |
|
| $ | 727,574 |
|
Less: accumulated amortization |
|
| (127,571 | ) |
|
| (76,876 | ) |
Total |
| $ | 604,249 |
|
| $ | 650,698 |
|
Note 4. Capital assets
Capital assets consisted of the following:
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
Land | $ | 28,967 | $ | 31,882 | ||||
Production facility | 430,631 | 453,412 | ||||||
Equipment | 219,282 | 254,486 | ||||||
Leasehold improvement | 7,772 | 7,455 | ||||||
Construction in progress | 8,421 | 7,505 | ||||||
$ | 695,073 | $ | 754,740 | |||||
Less: accumulated amortization | (155,949 | ) | (167,241 | ) | ||||
Total | $ | 539,124 | $ | 587,499 |
Note 5. Intangible Assets
Intangible assets consisted of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Intellectual |
|
|
|
|
| |
|
| Customer |
|
|
|
|
|
|
|
|
|
| property, |
|
|
|
|
| ||
|
| relationships |
|
| Licenses, |
|
| Non- |
|
| trademarks, |
|
| Total |
| |||||
|
| & distribution |
|
| permits & |
|
| compete |
|
| know how |
|
| intangible |
| |||||
|
| channel |
|
| applications |
|
| agreements |
|
| & brands |
|
| assets |
| |||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2021 |
| $ | 239,810 |
|
|
| 414,930 |
|
|
| 12,453 |
|
|
| 990,917 |
|
| $ | 1,658,110 |
|
Additions |
|
| — |
|
|
| 182 |
|
|
| — |
|
|
| 856 |
|
|
| 1,038 |
|
Effect of foreign exchange |
|
| (9,300 | ) |
|
| (17,346 | ) |
|
| (659 | ) |
|
| (51,738 | ) |
|
| (79,043 | ) |
At August 31, 2021 |
| $ | 230,510 |
|
|
| 397,766 |
|
|
| 11,794 |
|
|
| 940,035 |
|
| $ | 1,580,105 |
|
Additions |
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 97 |
|
|
| 123 |
|
Effect of foreign exchange |
|
| (6,240 | ) |
|
| (11,776 | ) |
|
| — |
|
|
| (10,099 | ) |
|
| (28,115 | ) |
At November 30, 2021 |
| $ | 224,270 |
|
|
| 386,016 |
|
|
| 11,794 |
|
|
| 930,033 |
|
| $ | 1,552,113 |
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2021 |
| $ | 18,302 |
|
|
| 1,167 |
|
|
| 4,299 |
|
|
| 28,424 |
|
| $ | 52,192 |
|
Amortization |
|
| 9,466 |
|
|
| 116 |
|
|
| 833 |
|
|
| 14,684 |
|
|
| 25,099 |
|
At August 31, 2021 |
| $ | 27,768 |
|
|
| 1,283 |
|
|
| 5,132 |
|
|
| 43,108 |
|
| $ | 77,291 |
|
Amortization |
|
| 10,904 |
|
|
| 122 |
|
|
| 1,188 |
|
|
| 12,593 |
|
|
| 24,807 |
|
At November 30, 2021 |
| $ | 38,672 |
|
|
| 1,405 |
|
|
| 6,320 |
|
|
| 55,701 |
|
| $ | 102,098 |
|
Net book value at May 31, 2021 |
| $ | 221,508 |
| 0 | $ | 413,763 |
| 0 | $ | 8,154 |
| 0 | $ | 962,493 |
| 0 | $ | 1,605,918 |
|
Net book value at August 31, 2021 |
| $ | 202,742 |
|
| $ | 396,483 |
|
| $ | 6,662 |
|
| $ | 896,927 |
|
| $ | 1,502,814 |
|
Net book value at November 30, 2021 |
| $ | 185,598 |
| 0 | $ | 384,611 |
| 0 | $ | 5,474 |
| 0 | $ | 874,332 |
| 0 | $ | 1,450,015 |
|
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
Customer relationships & distribution channel | $ | 610,401 | $ | 617,437 | ||||
Licenses, permits & applications | 365,695 | 377,897 | ||||||
Non-compete agreements | 13,626 | 12,512 | ||||||
Intellectual property, trademarks, knowhow & brands | 623,629 | 634,997 | ||||||
1,613,351 | $ | 1,642,843 | ||||||
Less: accumulated amortization | (187,665 | ) | $ | (154,124 | ) | |||
Less: impairments | (210,844 | ) | (210,844 | ) | ||||
Total | $ | 1,214,842 | $ | 1,277,875 |
As of November 30, 2021,2022, included in Licenses, permits & applications is $383,445$235,391 of indefinite-lived intangible assets. As of May 31, 2022, there was $248,411 of indefinite-lived intangible assets (May 31, 2021 - $412,000).included in Licenses, permits & applications.
Expected future amortization expense for intangible assets as of November 30, 2021 2022 are as follows:
|
| Amortization |
| |
2022 (remaining six months) |
| $ | 35,746 |
|
2023 |
|
| 63,770 |
|
2024 |
|
| 57,094 |
|
2025 |
|
| 56,091 |
|
2026 |
|
| 56,091 |
|
Thereafter |
|
| 797,778 |
|
Total |
| $ | 1,066,570 |
|
Amortization | ||||
2023 (remaining six months) | $ | 62,464 | ||
2024 | 84,013 | |||
2025 | 84,013 | |||
2026 | 84,013 | |||
2027 | 59,207 | |||
Thereafter | 605,741 | |||
Total | $ | 979,451 |
Note 6. Goodwill
Note 6. Goodwill
The following table shows the carrying amount of goodwill:
|
|
|
| November 30, |
|
| May 31, |
| ||
|
| Segment |
| 2021 |
|
| 2021 |
| ||
Broken Coast Cannabis Ltd. |
| Cannabis business |
| $ | 105,963 |
|
| $ | 105,963 |
|
Nuuvera Corp. |
| Cannabis business |
|
| 273,606 |
|
|
| 273,606 |
|
LATAM Holdings Inc. |
| Cannabis business |
|
| 63,239 |
|
|
| 63,239 |
|
CC Pharma GmbH |
| Distribution business |
|
| 4,458 |
|
|
| 4,458 |
|
SweetWater |
| Beverage alcohol business |
|
| 100,202 |
|
|
| 100,202 |
|
Tilray-provisional |
| Cannabis business |
|
| 2,155,471 |
|
|
| 2,144,143 |
|
Tilray-provisional |
| Wellness business |
|
| 77,470 |
|
|
| 77,470 |
|
Effect of foreign exchange |
|
|
|
| 33,754 |
|
|
| 63,713 |
|
Total |
|
|
| $ | 2,814,163 |
|
| $ | 2,832,794 |
|
November 30, | May 31, | |||||||
Segment | 2022 | 2022 | ||||||
Cannabis | $ | 2,640,669 | $ | 2,640,669 | ||||
Distribution | 4,458 | 4,458 | ||||||
Beverage alcohol | 120,606 | 102,999 | ||||||
Wellness | 77,470 | 77,470 | ||||||
Effect of foreign exchange | 2,129 | 39,640 | ||||||
Impairments | (223,931 | ) | (223,931 | ) | ||||
Total | $ | 2,621,401 | $ | 2,641,305 |
Pursuant
Acquisition of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery)
On December 7, 2021, the Company through its wholly-owned subsidiary Four Twenty Corporation, completed the purchase of all the membership interests of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company and a leading distilled spirits brand located in Breckenridge, Colorado (the “Breckenridge Acquisition”). As consideration for the Breckenridge Acquisition, the Company paid a purchase price in an aggregate amount equal to $114,068, which purchase price was satisfied through the issuance of 12,540,479 shares of Tilray’s Class 2 common shares.
The table below summarizes the fair value of the assets acquired and the liabilities assumed at the effective acquisition date.
Amount | ||||
Consideration | ||||
Shares | $ | 114,068 | ||
Net assets acquired | ||||
Current assets | ||||
Cash and cash equivalents | 326 | |||
Accounts receivable | 2,128 | |||
Prepaids and other current assets | 367 | |||
Inventory | 20,351 | |||
Long-term assets | ||||
Capital assets | 11,179 | |||
Customer relationships (15 years) | 9,800 | |||
Intellectual property, trademarks & brands (15 years) | 69,950 | |||
Goodwill | 2,797 | |||
Total Assets | 116,898 | |||
Current liabilities | ||||
Accounts payable and accrued liabilities | 2,228 | |||
Long-term liabilities | ||||
Deferred tax liability | 602 | |||
Total liabilities | 2,830 | |||
Total net assets acquired | $ | 114,068 |
The goodwill of $2,797 is primarily related to factors such as synergies and market opportunities and is reported under the Company’s Beverage alcohol segment. Revenue for the Company would have been higher by approximately $6,000 and $12,000 for the three and six months ended November 30, 2022, if the acquisition had taken place on June 1, 2022. Net loss and comprehensive net loss would have increased by approximately $1,500 and $3,000 for the three and six months ended November 30, 2022, if the acquisition had taken place on June 1, 2022, 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 Arrangement,integration of Breckenridge.
Acquisition of Montauk Brewing Company, Inc.
On November 7, 2022, Tilray acquired 100% ownership of Montauk Brewing Company, Inc. ("Montauk"), a leading craft brewer in Metro New York located in Montauk, New York (the “Montauk Acquisition”). As consideration for the Montauk Acquisition, the Company paid an initial purchase price in an aggregate amount equal to $35,110, which consisted of cash consideration of $28,688 and stock consideration of $6,422 through the issuance of 1,708,521 shares of Tilray's Class 2 common stock. In the event that Montauk achieves certain volume and/or EBITDA targets 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.
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.
Amount | ||||
Consideration | ||||
Cash | $ | 28,688 | ||
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) | 16,570 | |||
Intellectual property, trademarks & brands (15 years) | 12,430 | |||
Non-compete agreements (5 years) | 1,240 | |||
Goodwill | 17,607 | |||
Total Assets | 53,403 | |||
Current liabilities | ||||
Accounts payable and accrued liabilities | 1,580 | |||
Long-term liabilities | ||||
Deferred tax liability | 6,468 | |||
Total liabilities | 8,048 | |||
Total net assets acquired | $ | 45,355 |
Revenue for the Company would have been higher by approximately $3,100 and $9,000 for the three and six months ended November 30, 2022, if the acquisition had taken place on June 1, 2022. Net loss and comprehensive net loss would have increased by approximately $600 and $500 for the three and six months ended November 30, 2022, if the acquisition had taken place on June 1, 2022, 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.
Note 7. Convertible notes receivable
Convertible notes receivable is comprised of the following:
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
HEXO Convertible Note | $ | 148,425 | $ | - | ||||
MedMen Convertible Note | 106,885 | 111,200 | ||||||
Total convertible notes receivable | 255,310 | 111,200 | ||||||
Deduct - current portion | - | - | ||||||
Total convertible notes receivable, non current portion | $ | 255,310 | $ | 111,200 |
During the six months ended November 30, 2022, the Company acquired a secured convertible note initially issued by HEXO Corp. ("HEXO") in the principal amount of $173,700 for an aggregate purchase price of $157,272 (the "HEXO Convertible Note").
The unrealized loss on convertible notes receivable recognized in other comprehensive income amounts to $(17,643) and $(20,168) and $(16,305) and $(16,954) for the three and six months ended November 30, 2022 and November 30, 2021 respectively. The Company recognized interest income which is included as part of the convertible debentures in the amount of $3,514 and $7,006 for the three and six months ended November 30, 2022
HEXO Corp. ("HEXO")
On July 12, 2022, the Company closed a strategic alliance with HEXO, pursuant to which the Company acquired the HEXO Convertible Note from HT Investments MA LLC (“HTI”). At the time of closing, the HEXO Convertible Note had a principal balance of $173,700, which is to be repaid and or redeemed at 110% of the outstanding principal balance. The purchase price paid to HTI for the HEXO Convertible Note was $157,272. The purchase price paid to HTI was satisfied by Tilray's issuance of (i) a newly-issued $50,000 convertible promissory note ("HTI Convertible Note") see Note 12 (Convertible debentures payable) and (ii) the remaining balance was paid through the issuance of 33,314,412 shares of Tilray's Class 2 common stock, par value $0.0001 (collectively, the “HTI Share Consideration”). The HEXO Convertible Note bears interest at a rate of 5.0% per annum, calculated daily, which is payable to Tilray on a semi-annual basis. Interest payments made under the HEXO Convertible Note will be made in the form of cash until July 12, 2023. The HEXO Convertible Note has a maturity date of May 1, 2026. Subject to certain limitations and adjustments, the HEXO Convertible Note is convertible into HEXO Common Shares at Tilray's option at any time prior to the second scheduled trading day prior to the maturity date, at a conversion price of CAD$0.40 per HEXO Common share as determined the day before exercise, including all capitalized interest. HEXO has the ability to force the conversion if the daily VWAP per common share is equal to or exceeds $3.00 per share for twenty consecutive trading days. Under the HEXO Convertible Note, the Company holds a first-priority security interest on substantially all of HEXO’s assets. In the event of a default on the HEXO Convertible Note, the Company would be entitled to exercise its rights as a secured creditor, and the Note would become redeemable at 115% of the outstanding principal balance.
All third-party transaction costs associated with the acquisition of these notes were reimbursed by HEXO. During the three and six months ended November 30, 2022, in connection with the HEXO Convertible Note, the Company recognized interest income of $2,172 and $3,378, and an unrealized loss on convertible notes receivable in other comprehensive income of $13,425 and $8,847 respectively.
The HTI Share Consideration included a purchase price derivative, where the consideration paid is adjusted based on the sum of the VWAP of the Company's common stock for the 44 trading days after the issuance of the shares. The purchase price derivative is settled through the issuance of additional shares of the Company if the share price declined, or a cash payment back to the Company if the share price increased over the applicable period. On issuance this was valued at $nil. The subsequent change in fair value resulted in a gain of $18,256 due to the share price increasing, which was recorded in Transaction (income) costs, and was collected in cash by the Company during the period ended November 30, 2022.
The fair value of the HEXO Convertible Note was determined using the Black-Scholes model using the following assumptions: the risk-free rate of 3.50%; expected life of the convertible note; volatility of 90% based on comparable companies; forfeiture rate of nil; dividend yield of nil and the exercise price of the respective conversion feature.
Concurrent with the aforementioned purchase of the HEXO Convertible Note, the Company and HEXO also entered into various commercial transaction agreements as described in Note 1, the Company is within the measurement period of the business acquisition. As of November 30, 2021, the fair values of assets and liabilities acquired have been prepared on a provisional basis and are subject to further adjustments as the Company completes its analysis. The Company will finalize the amounts recognized by April 30, 2022. The fair value adjustments made during the three and six months ended November 30, 2021 are not significant and are reflected in the table below:24 (Segment reporting).
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 375,673 |
|
| $ | 375,673 |
|
Accounts receivable |
|
| 28,054 |
|
|
| 28,054 |
|
Inventory |
|
| 68,547 |
|
|
| 76,547 |
|
Prepaids and other current assets |
|
| 2,960 |
|
|
| 8,960 |
|
Capital assets |
|
| 136,637 |
|
|
| 136,637 |
|
Right-of-use assets, operating leases |
|
| 12,606 |
|
|
| 12,606 |
|
Definite-lived intangible assets (estimated useful life) |
|
|
|
|
|
|
|
|
Distribution channel (15 years) |
|
| 404,000 |
|
|
| 404,000 |
|
Customer relationships (15 years) |
|
| 59,000 |
|
|
| 59,000 |
|
Know how (5 years) |
|
| 115,000 |
|
|
| 115,000 |
|
Brands (10 to 25 years) |
|
| 301,000 |
|
|
| 301,000 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
Licenses |
|
| 200,000 |
|
|
| 200,000 |
|
Goodwill-provisional |
|
| 2,232,941 |
|
|
| 2,221,613 |
|
Other assets |
|
| 22,879 |
|
|
| 22,879 |
|
Total assets |
|
| 3,959,297 |
|
|
| 3,961,969 |
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 62,292 |
|
|
| 62,292 |
|
Accrued expenses and other current liabilities |
|
| 85,120 |
|
|
| 85,120 |
|
Accrued lease obligations |
|
| 21,962 |
|
|
| 21,962 |
|
Warrant liability |
|
| 79,402 |
|
|
| 79,402 |
|
Deferred tax liability |
|
| 233,719 |
|
|
| 236,391 |
|
Convertible notes |
|
| 267,862 |
|
|
| 267,862 |
|
Other liabilities |
|
| 4,034 |
|
|
| 4,034 |
|
Total liabilities |
|
| 754,391 |
|
|
| 757,063 |
|
Net assets acquired |
| $ | 3,204,906 |
|
| $ | 3,204,906 |
|
MedMen Enterprises Inc. (“MedMen”)
Note 7. Long term investments
Long term investments consistedOn 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 (the "MedMen Convertible Note") together with certain associated warrants to acquire Class B subordinate voting shares of the following:
|
| November 30, 2021 |
|
| May 31, 2021 |
| ||
Debt securities classified under available-for-sale method |
| $ | 154,442 |
|
| $ | — |
|
Equity investments measured at fair value level 1 |
|
| 5,918 |
|
|
| 9,251 |
|
Equity investments measured at fair value level 2 |
|
| 2,384 |
|
|
| 2,934 |
|
Equity investments under measurement alternative |
|
| 5,500 |
|
|
| 5,500 |
|
Total investments in debt and equity securities |
| $ | 168,244 |
|
| $ | 17,685 |
|
As of November 30, 2021, the Company’s debt securities under available-for-sale method include the MM Notes, describedMedMen in Note 2 Basis of presentation and summary of significant accounting policies. Interest on the principal amount of $165,799. The MedMen Convertible Note bears interest at the MM Notes shall accrue at an interestSecured overnight financing rate of LIBOR("SOFR") plus 6%, with a LIBORSOFR floor of 2.5% and, any accrued interest shall be pay-in-kind at a price equalis added to the trailing 30-day volume weighted average priceoutstanding principal amount, and is to be paid at maturity of the MedMen Shares, as and when such pay-in-kind interest becomes due and payable. The MM Notes, which mature in 2028, are indirectly held by the Company through its majority-owned subsidiary, SH Acquisition. The Company has the ability, in its sole discretion, to transfer its partnership interest inConvertible Note. SH Acquisition and/orwas also granted “top-up” rights enabling it (and its limited partners) to maintain its percentage ownership (on an “as-converted” basis) in the pro rata portionevent that MedMen issues equity securities upon conversion of the MM Notes and the corresponding portion of accrued and unpaid pay-in-kind interest, and/or cause the redemption of the partnership interest and/or the pro rata portion of the MM Notes heldconvertible securities that may be issued by the minority interest in SH Acquisition at any time. The total unrealized loss of $16,357 in accumulated other comprehensive income at November 30, 2021 relates to the long-term available-for-sale debt securities.MedMen. The Company’s allowance for credit losses on debt securities classifiedability 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 available-for-sale is $0 at November 30, 2021 and 0 related credit loss expenses were recorded during the three and six months ended November 30, 2021. Comparisons are not provided for the comparable prior year periods given the MM Transaction did not close until well as any additional regulatory approvals. The MedMen Convertible Note has a maturity date of August 17, 2021.2028.
The Company values debt securities under available-for-sale methodfair value of the MedMen Convertible Note was determined using the Black-Scholes model (Level 3) withusing the following weighted-average 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.
Expected term |
| 0.4 to 6.7 years |
| |
Expected volatility |
|
| 70 | % |
Effective interest rate |
|
| 20.4 | % |
Expected dividend yield |
|
| 0.0 | % |
Probability of conversion |
| 0% to 60% |
| |
Strike price |
| $0.15 to $4.29 |
| |
Fair value of common stock |
| $ | 0.22 |
|
The Company’s equityNote 8. Long term investments at fair value consist of publicly traded shares and warrants held by the Company, including certain warrants acquired with the MM Notes and exercisable for equity securities of MedMen’s Class B subordinate voting shares. The Company’s equity investment under measurement alternative includes equity investments without readily determinable fair values.
Unrealized gains and losses recognized in non-operating income (expense) duringLong term investments consisted of the three and six months ended November 30, 2021 on equity investments still held at November 30, 2021 are a loss of $1,806 and a loss of $3,883 (2020 – loss of $399 and loss of $1,326). There were 0 impairments or adjustments to equity investments under the measurement alternative for the three and six months ended November 30, 2021 and November 30, 2020.following:
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
Equity investments measured at fair value | $ | 2,522 | $ | 4,347 | ||||
Equity investments under measurement alternative | 5,689 | 5,703 | ||||||
Total | $ | 8,211 | $ | 10,050 |
Note 8.9. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities are comprised of:
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
Trade payables | $ | 75,725 | $ | 68,604 | ||||
Accrued liabilities | 63,545 | 57,497 | ||||||
Accrued payroll and employment related taxes | 12,933 | 17,736 | ||||||
Income taxes payable | 3,245 | 6,150 | ||||||
Accrued interest | 7,258 | 6,772 | ||||||
Other accruals | 194 | 672 | ||||||
Total | $ | 162,900 | $ | 157,431 |
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
Trade payables |
| $ | 64,980 |
|
| $ | 57,706 |
|
Accrued liabilities |
|
| 62,915 |
|
|
| 112,594 |
|
Accrued payroll and employment related taxes |
|
| 18,403 |
|
|
| 19,390 |
|
Income taxes payable |
|
| 14,957 |
|
|
| 14,764 |
|
Accrued interest |
|
| 6,764 |
|
|
| 148 |
|
Other accruals |
|
| 281 |
|
|
| 8,211 |
|
Total |
| $ | 168,300 |
|
| $ | 212,813 |
|
Note 10. Bank indebtedness
Note 9. Bank indebtedness
TheAphria 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 November 30, 2021,2022, the Company has 0tnot drawn on the line of credit. The operating line of credit is secured by a security interest on that certain real property at 265 Talbot St. West, Leamington, Ontario.
CC Pharma GmbH, a subsidiary of the Company, has 3three operating lines of credit for €8,000, €3,500,€8,000,€3,500, and €500€500 each, which bear interest at Euro Over Night Index Average plus 1.79% and Euro Interbank Offered Rate ("EURIBOR") plus 3.682% respectively. As of November 30, 2021,2022, a total of €7,353€5,100 ($8,264)5,306) was drawn down from the available credit of €12,000.€12,000. The operating lines of credit are secured by a security interest in on the inventory held byof CC Pharma GmbH.
Four Twenty Corporation (“(“420”), a subsidiary of the Company, has a revolving credit facility of $20,000$30,000 which bears interest at EURIBOR plus an applicable margin. As of November 30, 2021,2022, the Company has 0t drawn any amount$10,000 on the revolving line of credit. The revolving credit facility is secured by all of 420 and SweetWater’s420's assets and includes a corporate guarantee by a subsidiary of the Company.
Note 11. Long-term debt
Note 10. Long-term debt
The following table sets forth the net carrying amount of long-term debt instruments:
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
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 | $ | 48,840 | $ | 53,720 | ||||
Term loan - C$25,000 - Canadian prime plus 1.00%, compounded monthly, 5-year term, with a 15-year amortization, repayable in equal monthly installments of C$194 including interest, due in July 2033 | 11,533 | 12,750 | ||||||
Term loan - C$25,000 - Canadian prime plus 1.50%, compounded monthly, 5-year term with a 15-year amortization, repayable in equal monthly installments of C$190 including interest, due in April 2032 | 13,631 | 15,050 | ||||||
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 | 391 | 462 | ||||||
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 | 2,147 | 2,327 | ||||||
Term loan ‐ €5,000 ‐ EURIBOR plus 1.79%, 5‐year term, repayable in quarterly installments of €250 plus interest, due in December 2023 | 1,300 | 1,878 | ||||||
Term loan ‐ €1,500 ‐ EURIBOR plus 1.79%, 1‐year term, repayable in monthly installments of €100 plus interest, due in December 2023 | 1,560 | — | ||||||
Term loan ‐ €5,000 ‐ EURIBOR plus 2.68%, 5‐year term, repayable in quarterly installments of €250 plus interest, due in December 2023 | 1,300 | 1,878 | ||||||
Term loan ‐ €1,500 ‐ EURBIOR plus 2.00%, 5‐year term, repayable in quarterly installments of €98 including interest, due in April 2025 | 1,041 | 1,219 | ||||||
Term loan ‐ €1,500 ‐ EURIBOR plus 2.00%, 5‐year term, repayable in quarterly installments of €98 including interest, due in June 2025 | 1,021 | 1,307 | ||||||
Mortgage payable - $22,635 - EURIBOR rate plus 1.5%, 10-year term, with a 10-year amortization, repayable in monthly installments of $57 plus interest, due in October 2030 | 21,217 | 21,561 | ||||||
Term loan - $100,000 - EURIBOR rate plus an applicable margin, 3-year term, repayable in quarterly installments of $2,500, due in March 2024 | 70,000 | 75,000 | ||||||
Carrying amount of long-term debt | 173,981 | 187,152 | ||||||
Unamortized financing fees | (1,150 | ) | (1,450 | ) | ||||
Net carrying amount | 172,831 | 185,702 | ||||||
Less principal portion included in current liabilities | (20,681 | ) | (67,823 | ) | ||||
Total noncurrent portion of long-term debt | $ | 152,150 | $ | 117,879 |
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
Credit facility - C$80,000 - Canadian prime interest rate plus an applicable margin, 3-year term, with a 10-year amortization, repayable in blended monthly payments, due in November 2022 |
| $ | 56,160 |
|
| $ | 62,964 |
|
Term loan - C$25,000 - Canadian 5-year bond interest rate plus 2.73% with a minimum 4.50%, 5-year term, with a 15-year amortization, repayable in blended monthly payments, due in July 2023 |
|
| 13,015 |
|
|
| 14,335 |
|
Term loan - C$25,000 - 3.95%, compounded monthly, 5-year term with a 15-year amortization, repayable in equal monthly instalments of $188 including interest, due in April 2022 |
|
| 15,446 |
|
|
| 17,117 |
|
Term loan - C$1,250 - 3.85%, 5-year term, with a 10-year amortization, repayable in equal monthly instalments of $13 including interest, due in August 2026 |
|
| 505 |
|
|
| 587 |
|
Mortgage payable - C$3,750 - 3.85%, 5-year term, with a 20-year amortization, repayable in equal monthly instalments of $23 including interest, due in August 2026 |
|
| 2,354 |
|
|
| 2,562 |
|
Vendor take-back mortgage - C$2,850 - 6.75%, 5-year term, repayable in equal monthly instalments of $56 including interest, due in June 2021 |
|
| — |
|
|
| 92 |
|
Term loan ‐ €5,000 ‐ Euro Interbank Offered Rate plus 1.79%, 5‐year term, repayable in quarterly instalments of €250 plus interest, due in December 2023 |
|
| 2,543 |
|
|
| 3,356 |
|
Term loan ‐ €5,000 ‐ Euro Interbank Offered Rate plus 2.68%, 5‐year term, repayable in quarterly instalments of €250 plus interest, due in December 2023 |
|
| 2,543 |
|
|
| 3,356 |
|
Term loan ‐ €1,500 ‐ Euro Interbank Offered Rate plus 2.00%, 5‐year term, repayable in quarterly instalments of €98 including interest, due in April 2025 |
|
| 1,491 |
|
|
| 1,831 |
|
Term loan ‐ €1,500 ‐ Euro Interbank Offered Rate plus 2.00%, 5‐year term, repayable in quarterly instalments of €98 including interest, due in June 2025 |
|
| 1,589 |
|
|
| 1,831 |
|
Term loan - $100,000 - EUROBIR rate plus an applicable margin, 3-year term, repayable in quarterly instalments beginning March 31, 2021 of $7,500 in its first twelve months and $10,000 in each of the next two years, due in March 2024 |
|
| 89,375 |
|
|
| 98,138 |
|
Carrying amount of long-term debt |
|
| 185,021 |
|
|
| 206,169 |
|
Unamortized financing fees |
|
| (1,692 | ) |
|
| (2,061 | ) |
Net carrying amount |
|
| 183,329 |
|
|
| 204,108 |
|
Less principal portion included in current liabilities |
|
| (31,510 | ) |
|
| (36,622 | ) |
Total noncurrent portion of long-term debt |
| $ | 151,819 |
|
| $ | 167,486 |
|
On November 28, 2022, the Company entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) amending and restating the existing credit facility in the aggregate principal amount of C$66,000. The Amended and Restated Credit Agreement extended the term of the existing credit facility to November 28, 2025. The principal amount of loans outstanding at the time of the amendment was C$66,000, which amount is equal to the principal outstanding as of November 30, 2022.
As of November 30, 2021,2022, the Company was in compliance with all theof its covenants under its long-term debt covenants.agreements.
Note 11.12. Convertible debentures payable
The following table sets forth the net carrying amount of the convertible debentures:debentures payable:
|
| November 30, |
|
| May 31, |
| November 30, | May 31, | ||||||||
|
| 2021 |
|
| 2021 |
| 2022 | 2022 | ||||||||
5.25% Convertible Notes ("APHA 24") |
| $ | 284,724 |
|
| $ | 399,444 |
| ||||||||
5.00% Convertible Notes ("TLRY 23") |
|
| 270,130 |
|
|
| 268,180 |
| ||||||||
HTI Convertible Note | $ | 43,822 | $ | — | ||||||||||||
5.25% Convertible Notes ("APHA 24") | 223,295 | 216,753 | ||||||||||||||
5.00% Convertible Notes ("TLRY 23") | 137,689 | 185,196 | ||||||||||||||
Total |
| $ | 554,854 |
|
| $ | 667,624 |
| 404,806 | 401,949 | ||||||
Deduct - current portion | 181,511 | - | ||||||||||||||
Total convertible debentures payable, non current portion | $ | 223,295 | $ | 401,949 |
HTI Convertible Note
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
4.00% Contractual debenture | $ | 50,000 | $ | — | ||||
Unamortized discount | (6,178 | ) | — | |||||
Net carrying amount | $ | 43,822 | $ | — |
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. The fair value of the conversion feature was determined to be $9,055. Refer to Note 7 (Convertible notes receivable) for additional details on this transaction. HTI may convert the HTI Convertible Note, in whole or in part, at any time prior to the second trading day immediately preceding the maturity date, into shares of Common Stock at a conversion price equal to $4.03, which is calculated as 125% of the closing sale price as of the closing date ( July 12, 2022). In no event will HTI be allowed to effect a conversion of the HTI Convertible Note if such conversion, along with all other shares of Common Stock beneficially owned by HTI and its affiliates, would exceed 9.99% of the outstanding Common Stock (the "Beneficial Ownership Limitation"). If HTI does not elect or is unable to elect to convert under the Beneficial Ownership Limitation the Company will be responsible for repaying the HTI Convertible Note in cash.
APHA 24
|
| November 30, |
|
| May 31, |
| November 30, | May 31, | ||||||||
|
| 2021 |
|
| 2021 |
| 2022 | 2022 | ||||||||
5.25% Contractual debenture |
| $ | 350,000 |
|
| $ | 350,000 |
| ||||||||
5.25% Contractual debenture | $ | 350,000 | $ | 350,000 | ||||||||||||
Debt settlement |
|
| (90,760 | ) |
|
| (90,760 | ) | (90,760 | ) | (90,760 | ) | ||||
Fair value adjustment |
|
| 25,484 |
|
|
| 140,204 |
| (35,945 | ) | (42,487 | ) | ||||
Net carrying amount of APHA 24 |
| $ | 284,724 |
|
| $ | 399,444 |
| ||||||||
Net carrying amount | $ | 223,295 | $ | 216,753 |
Holders of the APHA 24may convert all or any portion of their Notes, in multiples of $1 principal amount, at their option at any time between December 1, 2023to the maturity date. date of June 1, 2024. The initial conversion rate forwhich the APHA 24 will be 89.31162364 shares of common stock, par value $0.0001 per share, of Tilray, Inc. per $1,000 principal amount of Notes, which will be settledCompany may settle in cash, or common shares of AphriaTilray, or a combination thereof, at Tilray’s election. ThisTilray'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 24may 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 |
(b) | during the |
(c) | the Company calls any or all of the APHA 24 for redemption or; |
(d) | upon occurrence of a specified corporate event. |
The Company may not redeem the APHA 24 prior to June 6, 2022, except upon the occurrence of certain changes in tax laws. On or after June 6, 2022, the Company may redeem for cash all or part of the Notes, at its option, if the last reported sale price of the Company’s common shares has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period ending on and including trading day immediately preceding the date on which the Company provides notice of redemption. The redemption of the APHA 24 will be equal to 100% of the principal amount of $259,240 plus accrued and unpaid interest to, but excluding, the redemption date.
TLRY 23
November 30, | May 31, | |||||||
2022 | 2022 | |||||||
5.00% Contractual debenture | $ | 277,856 | $ | 277,856 | ||||
Principal amount paid | (138,026 | ) | (88,026 | ) | ||||
Unamortized discount | (2,141 | ) | (4,634 | ) | ||||
Net carrying amount | $ | 137,689 | $ | 185,196 |
During the three months ended November 30, 2022, the Company repurchased outstanding TLRY 23 notes in the principal amount of $50,000, in exchange for a purchase price of $48,975. As a result of this transaction, the unamortized discount was reduced by $918 and a gain of $191 was recorded in non-operating income (expense), net.
The Company estimatedTLRY 23 bears interest at a rate of 5.00% per annum, payable semi-annually in arrears on April 1 and October 1 of each year. Additional interest may accrue on the fairTLRY 23 in specified circumstances. The TLRY 23 will mature on October 1, 2023, unless earlier repurchased, redeemed or converted. There are no principal payments required over the five-year term of the TLRY 23, except in the case of redemption or events of default.
The TLRY 23 is an unsecured obligation and ranks senior in right of payment to all of the Company's indebtedness that is expressly subordinated in right of payment to the TLRY 23; equal in right of payment with any of the Company's unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company's secured indebtedness to the extent the value of the APHA 24 convertible debenture at November 30, 2021 at $1,098 per convertible debenture using the Black-Scholes model (Level 3) with the following weighted-average assumptions:
|
|
| ||
|
|
| ||
|
| |||
|
|
|
Expected volatility is based on the historical volatilityassets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations) of the Company's common stock.current or future subsidiaries.
TLRY 23
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
5.00% Contractual debenture |
| $ | 277,856 |
|
| $ | 277,856 |
|
Unamortized discount |
|
| (7,726 | ) |
|
| (9,676 | ) |
Net carrying amount of TLRY 23 |
| $ | 270,130 |
|
| $ | 268,180 |
|
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 principal amount of notes, which is equivalent to an initial conversion price of approximately $167.41 per share of common stock, which represents approximately 1,659,737835,275 shares of common stock, based on the $277,856$139,830 aggregate principal amount of convertible notes outstanding as of May 31, 2021 (2020 - $nil)November 30, 2022. Throughout the term of the TLRY 23, the conversion rate may be adjusted upon the occurrence of certain events.
Prior to the close of business on the business day immediately preceding April 1, 2023, the TLRY 23 will be convertible only under the specified circumstances. On or after April 1, 2023 until the close of business on the business day immediately preceding the maturity date, September 30, 2023, holders may convert all or any portion of their TLRY 23, in multiples of $1 principal amount, at the option of the holder regardless of the aforementioned circumstances.
Note 12. Warrant liability
Warrants outstanding at As of November 30, 2021:2022, the Company was in compliance with all the covenants set forth under the TLRY 23. The effective interest rate on the debt is 6.9%, the Company recognized interest expense of $2,373 and amortized discount interest of $866.
|
|
|
|
|
| Balance |
|
|
|
|
|
|
|
|
|
| Balance |
| ||
|
| Classification |
| Exercise Price |
| May 31, 2021 |
|
| Issued |
|
| Exercised/Expired |
|
| November 30, 2021 |
| ||||
Expiration date – September 26, 2021 |
| Equity |
| 3.08 |
|
| 166,000 |
|
|
| — |
|
|
| (166,000 | ) |
|
| — |
|
Expiration date – January 30, 2022 |
| Equity |
| 9.08 |
|
| 5,828,651 |
|
|
| — |
|
|
| — |
|
|
| 5,828,651 |
|
Expiration date – March 17, 2025 |
| Liability |
| 5.95 |
|
| 6,209,000 |
|
|
| — |
|
|
| — |
|
|
| 6,209,000 |
|
|
|
|
|
|
|
| 12,203,651 |
|
|
| — |
|
|
| (166,000 | ) |
|
| 12,037,651 |
|
Note 13. Warrant liability
|
| November 30, 2021 |
|
| November 30, 2020 |
| ||||||||||
|
|
|
|
|
| Weighted |
|
|
|
|
|
| Weighted |
| ||
|
| Number of |
|
| average |
|
| Number of |
|
| average |
| ||||
|
| warrants |
|
| price |
|
| warrants |
|
| price |
| ||||
Outstanding, opening |
|
| 12,203,651 |
|
| $ | 7.41 |
|
|
| 5,994,651 |
|
| $ | 8.91 |
|
Exercised during the period |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Issued during the period |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Cancelled during the period |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Expired during the period |
|
| (166,000 | ) |
| $ | 3.08 |
|
|
| 0 |
|
|
| 0 |
|
Outstanding, ending |
|
| 12,037,651 |
|
| $ | 7.47 |
|
|
| 5,994,651 |
|
| $ | 8.91 |
|
As of November 30, 2022 and May 31, 2022, there were 6,209,000 warrants outstanding and 6,209,000 warrants outstanding respectively, with an original exercise price of $5.95 per warrant, expiring March 17, 2025. Each warrant is exercisable for one common share of the Company.
The warrants contain anti-dilution price protection features, which adjust the exercise price of the warrants if the Company subsequently issues common stock at a price lower than the exercise price of the warrants. In the event additional warrants or convertible debt are issued with a lower and/or variable exercise price, the exercise price of the warrants will be adjusted accordingly. During the quarter ended November 30, 2022, the Company issued shares which triggered the anti-dilution price protection feature lowering the exercise price to $3.15. These warrants are classified as liabilities as they are to be settled in registered shares, and the registration statement is required to be active, unless such shares may be subject to an applicable exemption from registration requirements. The holders, at their sole discretion, may elect to affect a cashless exercise, and be issued exempt securities in accordance with Section 3(a)(9) of the 1933 Act. In the event the Company does not maintain an effective registration statement, the Company may be required to pay a daily cash penalty equal to 1% of the number of shares of common stock due to be issued multiplied by any trading price of the common stock between the exercise date and the share delivery date, as selected by the holder. Alternatively, the Company may deliver registered common stock purchased by the Company in the open market. The Company may also be required to pay cash if it does not have sufficient authorized shares to deliver to the holders upon exercise.
The Company estimated the fair value of the Warrantwarrant liability at November 30, 20212022 at $6.51$2.04 per warrant using the Black-ScholesBlack Scholes pricing model (Level 3)3) with the following weighted-average assumptions:assumptions: Risk-free interest rate of 3.59%, expected volatility of 70%, expected term of 3.05 years, strike price of $3.15 and fair value of common stock of $3.87.
Expected volatility is based on both historical and implied volatility of the Company’s common stock.
Risk-free interest rate |
|
| 1.40 | % |
Expected volatility |
|
| 70 | % |
Expected term |
| 3.80 years |
| |
Expected dividend yield |
|
| 0.0 | % |
Strike price |
| $ | 5.95 |
|
Fair value of common stock |
| $ | 10.12 |
|
Note 14. Stockholders' equity
Note 13. Stock-based compensationIssued and outstanding
At November 30, 2022, the Company had 990,000,000 shares authorized to be issued, of which 243,333,333 are Class 1 shares, with nil shares issued and outstanding and 746,666,667 are Class 2 shares, with 613,181,559 shares issued and outstanding.
During the six months ended November 30, 2022, the Company issued the following Class 2 shares:
a) | 32,481,149 shares under its At-the-Market (“ATM”) program for gross proceeds of $132,238. The Company paid $2,645 in commissions and other fees associated with these issuances for net proceeds of $129,593. |
b) | 33,314,412 shares to purchase the HEXO convertible notes receivable. | |
c) | 11,806,126 shares to settle amounts owed to the non-controlling shareholders of Aphria Diamond in the amount of $43,818. |
d) | 1,196,464 shares for the exercise of various stock-based compensation awards. |
e) | 1,708,521 shares issued to acquire Montauk Brewing Company Inc. |
The Company operatesmaintains stock-based compensation plans as disclosed in our Annual Report.Financial Statements. For the three and six months ended November 30, 2021,2022, the total stock-based compensation was $8,253 10,943 and $ 20,136, whereas for the three and six months ended November 30, 2021, total stock based compensation was $8,253 and $17,670 (2020 - $5,489 and $8,339).respectively.
During the three and six months endedNovember 30, 2022, the Company granted 6,004,995 time-based RSUs and 2,634,744 performance based RSUs ( November 30, 2021 the Company did 0t grant any further stock options or - 69,508 time-based RSUs out of Aphria’s predecessor plan.and 1,414,666 performance based RSUs). The Company's total stock-based compensation expense recognized is as follows:
For the three months | For the six months | |||||||||||||||||||||||||||||||
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ended November 30, | ended November 30, | ||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Stock options |
| $ | 1,939 |
|
| $ | 879 |
|
| $ | 4,695 |
|
| $ | 2,250 |
| $ | 20 | $ | 1,939 | $ | 624 | $ | 4,695 | ||||||||
RSUs |
|
| 6,314 |
|
|
| 4,610 |
|
|
| 12,975 |
|
|
| 6,089 |
| 10,923 | 6,314 | 19,512 | 12,975 | ||||||||||||
Total |
| $ | 8,253 |
|
| $ | 5,489 |
|
| $ | 17,670 |
|
| $ | 8,339 |
| $ | 10,943 | $ | 8,253 | $ | 20,136 | $ | 17,670 |
For the three and six months ended November 30, 2021, the Company granted 69,508 and 1,414,666 performance-based RSUs, with NaN vesting in the period (2020 – NaN and NaN). During the three and six months ended November 30, 2021, the Company accelerated the vesting of NaN and 679,000 RSUs to fully vested (2020 – NaN and NaN)
Note 14. 15.Accumulated other comprehensive income (loss)
Accumulated other comprehensive loss includes the following components:
Unrealized | ||||||||||||
Foreign | loss on | |||||||||||
currency | convertible | |||||||||||
translation | notes | |||||||||||
gain (loss) | receivables | Total | ||||||||||
Balance May 31, 2022 | $ | 54,413 | $ | (75,177 | ) | $ | (20,764 | ) | ||||
Other comprehensive loss | (56,443 | ) | (2,525 | ) | (58,968 | ) | ||||||
Balance August 31, 2022 | $ | (2,030 | ) | $ | (77,702 | ) | $ | (79,732 | ) | |||
Other comprehensive loss | (24,080 | ) | (17,643 | ) | (41,723 | ) | ||||||
Balance November 30, 2022 | $ | (26,110 | ) | $ | (95,345 | ) | $ | (121,455 | ) |
|
| Foreign currency translation gain (loss) |
|
| Unrealized loss on convertible notes receivables |
|
| Unrealized loss on available-for-sale debt securities |
|
| Less non-controlling interests |
|
| Total |
| |||||
Balance May 31, 2021 |
| $ | 156,417 |
|
| $ | (3,749 | ) |
| $ | — |
|
| $ | — |
|
| $ | 152,668 |
|
Other comprehensive loss |
|
| (100,772 | ) |
|
| (649 | ) |
|
| — |
|
|
| — |
|
|
| (101,421 | ) |
Balance August 31, 2021 |
| $ | 55,645 |
|
| $ | (4,398 | ) |
| $ | — |
|
| $ | — |
|
| $ | 51,247 |
|
Other comprehensive loss |
|
| (32,367 | ) |
|
| 52 |
|
|
| (16,357 | ) |
|
| 7,020 |
|
|
| (41,652 | ) |
Balance November 30, 2021 |
| $ | 23,278 |
|
| $ | (4,346 | ) |
| $ | (16,357 | ) |
| $ | 7,020 |
|
| $ | 9,595 |
|
Note 16. Non-controlling interests
Note 15. Non-controlling interests
The following tables summarize the information relating to the Company’s subsidiaries, Superhero LP,SH Acquisition (68%), CC Pharma Nordic ApS (75%), Aphria Diamond (51%), and ColCanna S.A.S. (90%) before intercompany eliminations. During
Summary of balance sheet information of the three and six months ended entities in which there is a non-controlling interest as of November 30, 2021, the Company made contributions to Superhero LP of $0 and $117,804 in the form of Tilray Class 2 common shares, the Company paid dividends of C$70,000 and C$70,000 (USD$56,630) to the shareholders of Aphria Diamond (“DDH note”), with the portion allocated to the non-controlling partner settled via issuance of Tilray Class 2 common shares. There were no other contributions or distributions during the period.
Non-controlling interests as of November 30, 2021:2022:
|
| Superhero |
|
| CC Pharma |
|
| Aphria |
|
| ColCanna |
|
| November 30, |
| |||||
|
| LP |
|
| Nordic ApS |
|
| Diamond |
|
| S.A.S. |
|
| 2021 |
| |||||
Current assets |
| $ | — |
|
| $ | 629 |
|
| $ | 82,882 |
|
| $ | 359 |
|
| $ | 83,870 |
|
Non-current assets |
|
| 154,442 |
|
|
| 134 |
|
|
| 156,004 |
|
|
| 141,952 |
|
|
| 452,532 |
|
Current liabilities |
|
| — |
|
|
| (709 | ) |
|
| (133,360 | ) |
|
| (6,639 | ) |
|
| (140,708 | ) |
Non-current liabilities |
|
| — |
|
|
| (410 | ) |
|
| (62,853 | ) |
|
| (16 | ) |
|
| (63,279 | ) |
Net assets |
| $ | 154,442 |
|
| $ | (356 | ) |
| $ | 42,673 |
|
| $ | 135,656 |
|
| $ | 332,415 |
|
Non-controlling interests as of May 31, 2021:
|
| CC Pharma |
|
| Aphria |
|
| ColCanna |
|
| May 31, |
| SH | CC Pharma | Aphria | ColCanna | November 30, | |||||||||||||||||||
|
| Nordic ApS |
|
| Diamond |
|
| S.A.S. |
|
| 2021 |
| Acquisition | Nordic ApS | Diamond | S.A.S. | 2022 | |||||||||||||||||||
Current assets |
| $ | 919 |
|
| $ | 19,531 |
|
| $ | 315 |
|
| $ | 20,765 |
| $ | — | $ | 254 | $ | 24,207 | $ | 152 | $ | 24,613 | ||||||||||
Non-current assets |
|
| 103 |
|
|
| 153,696 |
|
|
| 146,587 |
|
|
| 300,386 |
| 106,885 | 23 | 142,007 | 37,914 | 286,829 | |||||||||||||||
Current liabilities |
|
| (956 | ) |
|
| (28,511 | ) |
|
| (62 | ) |
|
| (29,529 | ) | — | (652 | ) | (10,547 | ) | (35 | ) | (11,234 | ) | |||||||||||
Non-current liabilities |
|
| (406 | ) |
|
| (69,332 | ) |
|
| (6,606 | ) |
|
| (76,344 | ) | — | (397 | ) | (124,635 | ) | (6,439 | ) | (131,471 | ) | |||||||||||
Net assets |
| $ | (340 | ) |
| $ | 75,384 |
|
| $ | 140,234 |
|
| $ | 215,278 |
| $ | 106,885 | $ | (772 | ) | $ | 31,032 | $ | 31,592 | $ | 168,737 |
Non-controlling interestsSummary of balance sheet information of the entities there is a non-controlling interest as of May 31, 2022:
SH | CC Pharma | Aphria | ColCanna | May 31, | ||||||||||||||||
Acquisition | Nordic ApS | Diamond | S.A.S. | 2022 | ||||||||||||||||
Current assets | $ | — | $ | 485 | $ | 20,546 | $ | 193 | $ | 21,224 | ||||||||||
Non-current assets | 111,200 | 158 | 152,786 | 93,891 | 358,035 | |||||||||||||||
Current liabilities | — | (642 | ) | (63,196 | ) | (53 | ) | (63,891 | ) | |||||||||||
Non-current liabilities | — | (410 | ) | (29,653 | ) | (6,537 | ) | (36,600 | ) | |||||||||||
Net assets | $ | 111,200 | $ | (409 | ) | $ | 80,483 | $ | 87,494 | $ | 278,768 |
Summary of income statement information of the entities in which there is a non-controlling interest for the six months ended November 30, 2021:2022:
|
| Superhero |
|
| CC Pharma |
|
| Aphria |
|
| ColCanna |
|
| November 30, |
| SH | CC Pharma | Aphria | ColCanna | November 30, | ||||||||||||||||||||
|
| LP |
|
| Nordic ApS |
|
| Diamond |
|
| S.A.S. |
|
| 2021 |
| Acquisition | Nordic ApS | Diamond | S.A.S. | 2022 | ||||||||||||||||||||
Revenue |
| $ | — |
|
| $ | 136 |
|
| $ | 53,101 |
|
| $ | — |
|
| $ | 53,237 |
| $ | — | $ | 108 | $ | 65,437 | $ | — | $ | 65,545 | ||||||||||
Total expenses |
|
| — |
|
|
| 178 |
|
|
| 26,367 |
|
|
| 458 |
|
|
| 27,003 |
| (7,006 | ) | 471 | 39,039 | 56,265 | 88,769 | ||||||||||||||
Net (loss) income |
|
| — |
|
|
| (42 | ) |
|
| 26,734 |
|
|
| (458 | ) |
|
| 26,234 |
| 7,006 | (363 | ) | 26,398 | (56,265 | ) | (23,224 | ) | ||||||||||||
Other comprehensive (loss) income |
|
| (16,357 | ) |
|
| 26 |
|
|
| (2,817 | ) |
|
| (4,120 | ) |
|
| (23,268 | ) | (11,321 | ) | — | (1,590 | ) | 363 | (12,548 | ) | ||||||||||||
Net comprehensive income |
| $ | (16,357 | ) |
| $ | (16 | ) |
| $ | 23,917 |
|
| $ | (4,578 | ) |
| $ | 2,966 |
| ||||||||||||||||||||
Net comprehensive (loss) income | $ | (4,315 | ) | $ | (363 | ) | $ | 24,808 | $ | (55,902 | ) | $ | (35,772 | ) | ||||||||||||||||||||||||||
Non-controlling interest % |
|
| 32 | % |
|
| 25 | % |
|
| 49 | % |
|
| 10 | % |
| NA |
| 32 | % | 25 | % | 49 | % | 10 | % | NA | ||||||||||||
Net comprehensive (loss) income |
| $ | (5,234 | ) |
| $ | (4 | ) |
| $ | 11,719 |
|
| $ | (458 | ) |
| $ | 6,023 |
| ||||||||||||||||||||
Comprehensive (loss) income attributable to NCI | (1,381 | ) | (91 | ) | 12,156 | (5,590 | ) | 5,094 | ||||||||||||||||||||||||||||||||
Additional income attributable to NCI | — | — | 6,056 | — | 6,056 | |||||||||||||||||||||||||||||||||||
Net comprehensive (loss) income attributable to NCI | $ | (1,381 | ) | $ | (91 | ) | $ | 18,212 | $ | (5,590 | ) | $ | 11,150 |
Non-controlling interestsSummary of income statement information of the entities in which there is a non-controlling interest for the six months ended November 30, 2020:2021:
|
| CC Pharma |
|
| Aphria |
|
| ColCanna |
|
| November 30, |
| SH | CC Pharma | Aphria | ColCanna | November 30, | |||||||||||||||||||
|
| Nordic ApS |
|
| Diamond |
|
| S.A.S. |
|
| 2020 |
| Acquisition | Nordic ApS | Diamond | S.A.S. | 2021 | |||||||||||||||||||
Revenue |
| $ | 368 |
|
| $ | 79,515 |
|
| $ | — |
|
| $ | 79,883 |
| $ | — | $ | 136 | $ | 53,101 | $ | — | $ | 53,237 | ||||||||||
Total expenses |
|
| 703 |
|
|
| 31,791 |
|
|
| 500 |
|
|
| 32,994 |
| — | 178 | 26,367 | 458 | 27,003 | |||||||||||||||
Net (loss) income |
|
| (335 | ) |
|
| 47,724 |
|
|
| (500 | ) |
|
| 46,889 |
| — | (42 | ) | 26,734 | (458 | ) | 26,234 | |||||||||||||
Other comprehensive (loss) income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| (16,357 | ) | 26 | (2,817 | ) | (4,120 | ) | (23,268 | ) | |||||||||||
Net comprehensive income |
| $ | (335 | ) |
| $ | 47,724 |
|
| $ | (500 | ) |
| $ | 46,889 |
| ||||||||||||||||||||
Net comprehensive (loss) income | $ | (16,357 | ) | $ | (16 | ) | $ | 23,917 | $ | (4,578 | ) | $ | 2,966 | |||||||||||||||||||||||
Non-controlling interest % |
|
| 25 | % |
|
| 49 | % |
|
| 10 | % |
| NA |
| 32 | % | 25 | % | 49 | % | 10 | % | NA | ||||||||||||
Net comprehensive (loss) income |
| $ | (85 | ) |
| $ | 23,385 |
|
| $ | (50 | ) |
| $ | 23,250 |
| $ | (5,234 | ) | $ | (4 | ) | $ | 11,719 | $ | (458 | ) | $ | 6,023 |
Note 17. Income taxes
Note 16. Income Taxes
The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various United States federal, state, and foreign jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, valuation allowances against the deferred tax assets, stock-based 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 benefitrecovery of $(11,713) and expense of $(4,502) for the three and six months ended November 30, 2022 and income tax recovery of $(5,671) and $(909) for the three and six months ended November 30, 2021 and income tax benefit of $(14,192) and $(20,017) for the three and six months ended November 30, 2020.. The income tax expense (benefit) in the current period varies from the US statutory income tax rate and prior period primarily due to the geographical mix of earnings and losses with no tax benefit resulting from valuation allowances in certain jurisdictions.jurisdictions.
Note 17.18. Commitments and contingencies
Purchase and other commitments
The Company has payments on long-term debt, (referrefer to Note 10 Long-term debt)11 (Long-term debt), convertible notes, (referrefer to Note 11 Convertible Debentures)12 (Convertible debentures payable), material purchase commitments and construction commitments as follows:
|
| Total |
|
| 2022 (remaining six months) |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
| Total | 2023 | 2024 | 2025 | 2026 | Thereafter | |||||||||||||||||||||||||
Long-term debt repayment |
| $ | 185,021 |
|
| $ | 34,201 |
|
| $ | 75,242 |
|
| $ | 72,045 |
|
| $ | 1,602 |
|
| $ | 990 |
|
| $ | 941 |
| $ | 173,981 | $ | 20,681 | $ | 70,106 | $ | 40,234 | $ | 4,743 | $ | 36,405 | ||||||||||||
Convertible notes, principal and interest |
|
| 599,090 |
|
|
| 13,756 |
|
|
| 27,512 |
|
|
| 298,422 |
|
|
| 259,400 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Convertible notes | 449,070 | 189,830 | 259,240 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Material purchase obligations |
|
| 28,951 |
|
|
| 12,024 |
|
|
| 14,741 |
|
|
| 1,101 |
|
|
| 407 |
|
|
| 254 |
|
|
| 424 |
| 26,878 | 19,946 | 5,515 | 840 | 239 | 338 | ||||||||||||||||||
Construction commitments |
|
| 3,534 |
|
|
| 3,534 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| 5,433 | 5,433 | — | — | — | — | ||||||||||||||||||
Total |
| $ | 816,596 |
|
| $ | 63,515 |
|
| $ | 117,495 |
|
| $ | 371,568 |
|
| $ | 261,409 |
|
| $ | 1,244 |
|
| $ | 1,365 |
| $ | 655,362 | $ | 235,890 | $ | 334,861 | $ | 41,074 | $ | 4,982 | $ | 36,743 |
Effective November 10, 2021, the Company entered into a termination and settlement agreement with ABG Intermediate Holdings 2, LLC (“ABG”) and certain of its affiliates. Pursuant to this settlement agreement, the Company terminated $6,600 in remaining guaranteed royalty payments owed to ABG in exchange for the payment of $3,925 as a termination fee. The termination fee was comprised of a $1,500 cash payment plus the issuance of 215,901 Class 2 common shares.
The following table presents the future undiscounted payment associated with lease liabilities as of November 30, 2021:2022:
Operating | ||||
leases | ||||
2023 | $ | 4,086 | ||
2024 | 2,971 | |||
2025 | 3,148 | |||
2026 | 3,038 | |||
Thereafter | 5,369 | |||
Total minimum lease payments | $ | 18,612 | ||
Imputed interest | (2,637 | ) | ||
Obligations recognized | $ | 15,975 |
Legal proceedings
There have been no material changes from the legal proceedings since our fiscal year ended May 31, 2022, except with respect to certain aspects of the legal proceedings disclosed below:
Class Action Suits and Stockholder Derivative Suits – U.S. and Canada
Settlement of Tilray Brands, Inc. Reorganization Litigation (Delaware, New York) – Special Litigation Committee
On February 27, 2020, Tilray stockholders Deborah Braun and Nader Noorian filed a class action and derivative complaint in the Delaware Court of Chancery styled Braun v. Kennedy, C.A. No.2020-0137-KSJM. On March 2, 2020, Tilray stockholders Catherine Bouvier, James Hawkins, and Stephanie Hawkins filed a class action and derivative complaint in the Delaware Court of Chancery styled Bouvier v. Kennedy, C.A. No.2020-0154-KSJM.
|
| Operating |
|
| Finance |
| ||
|
| leases |
|
| leases |
| ||
2022 (remaining six months) |
|
| 2,071 |
|
|
| 1,114 |
|
2023 |
|
| 3,845 |
|
|
| 7,026 |
|
2024 |
|
| 3,236 |
|
|
| 2,061 |
|
2025 |
|
| 2,681 |
|
|
| 2,122 |
|
2026 |
|
| 2,898 |
|
|
| 2,186 |
|
Thereafter |
|
| 7,242 |
|
|
| 39,586 |
|
Total minimum lease payments |
| $ | 21,973 |
|
| $ | 54,095 |
|
Imputed interest |
|
| (4,240 | ) |
|
| (18,975 | ) |
Obligations recognized |
| $ | 17,733 |
|
| $ | 35,120 |
|
On March 4, 2020, the Delaware Court of Chancery entered an order consolidating the two cases and designating the complaint in the Braun/Noorian action as the operative complaint. The operative complaint asserts claims for breach of fiduciary duty against Brendan Kennedy, Christian Groh, Michael Blue, and Privateer Evolution, LLC (the “Privateer Defendants”) for alleged breaches of fiduciary dutyin their alleged capacities as Tilray’s controlling stockholders and against Kennedy, Maryscott Greenwood, and Michael Auerbach for alleged breaches of fiduciary duties in their capacities as directors and/or officers of Tilray in connection with the prior merger of Privateer Holdings, Inc. with and into a wholly owned subsidiary (the “Downstream Merger”). The complaint alleges that the Privateer Defendants breached their fiduciary duties by causing Tilray to enter into the Downstream Merger and Tilray’s Board to approve that Downstream Merger, and that Defendants Kennedy, Greenwood, and Auerbach breached their fiduciary duties as directors by approving the Downstream Merger. Plaintiffs allege that the Downstream Merger gave the Privateer Defendants hundreds of millions of dollars of tax savings without providing a corresponding benefit to Tilray and its minority stockholders and that the Downstream Merger unfairly transferred and extended Kennedy, Blue, and Groh’s control over Tilray.
Legal proceedingsIn August 2021, the Company’s Board of Directors established a Special Litigation Committee (the “SLC”) of independent directors to re-assert director control and investigate the derivative claims in this litigation matter. The SLC has appointed the law firm Wilson Sonsini to assist the SLC with an ongoing investigation of the underlying claim and determine whether continued prosecution of such claims is in the best interests of the Company. The SLC has successfully moved to have the Plaintiff’s discovery stayed during their investigation.
On May 27, 2022, the SLC informed the Court that it had completed its investigation; determined not to seek dismissal of the Action; and confirmed its determination that the Company had suffered significant damages and that the SLC would pursue claims to recover appropriate amounts for the Company's benefit. Thereafter, the SLC, all of the Defendants, and certain non-parties participated in two mediation sessions before former Chancellor of the Delaware Court of Chancery Andre G. Bouchard on June 27 and July 14, 2022.
On July 15, 2022, the SLC reached an agreement in principle with the Defendants and certain of the non-parties, and their respective insurers, to resolve the claims asserted in the Action in exchange for an aggregate amount of $26.9 million to be paid to Tilray plus mutual releases. The SLC subsequently reached a further agreement with an additional non-party and plaintiffs to settle the entire Action. On December 20, 2022, the parties submitted to the Delaware Court of Chancery a Stipulation and Agreement of Compromise, Settlement, and Release ("Settlement Stipulation") which provides for, among other things, an aggregate cash amount of $39.9 million to be paid to Tilray and mutual releases. The Settlement is subject to approval by the Delaware Court of Chancery, which has scheduled a hearing for February 27, 2023. Tilray stockholders will not receive any direct payment from the Settlement Stipulation.
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 complaint in the Kasilingam litigation. 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 amended complaint on February 2, 2022. On September 28, 2022, the Court granted in part and denied in part the defendants’ motion to dismiss the second amended complaint. On October 12, 2022, the Company filed a motion for reconsideration and/or interlocutory appeal of this Court decision. The Company isstill believes the claims are without merit and mayintends to defend vigorously against them, but there can be no assurances as to the outcome.
Aphria Inc. Securities Litigation (New York, United States)
On December 5, 2018, a defendantputative securities class action was commenced in lawsuits from timeSDNY against a number of defendants including Aphria and certain current and former officers and directors. The action claims that the defendants misrepresented the value of three cannabis-producing properties Aphria acquired in Jamaica, Colombia, and Argentina (the “LATAM Assets”). On December 3, 2018, two notorious short-sellers issued a report about the acquisitions, claiming the LATAM Assets were non-functional or non-existent, which allegedly caused Aphria’s stock price to timefall. On April 15, 2019, Aphria took impairment charges on the LATAM Assets, which also allegedly caused Aphria’s stock price to decline. The putative class action claims that Aphria artificially inflated the price of its publicly-traded stock by making false statements about the LATAM Assets, and when the purported truth was revealed by a short-seller report and write-down, the stock price declined, harming investors.
On September 30, 2020, the Court denied the motion to dismiss the complaint as to Aphria, Vic Neufeld, and Carl Merton, and granted the motion as to Cole Cacciavillani, John Cervini, Andrew DeFrancesco, and SOL Global Investments. On October 1, 2020, Plaintiffs moved for reconsideration of the order dismissing DeFrancesco and SOL or, in the normal coursealternative, to amend their complaint. On October 14, 2020, Aphria, Neufeld, and Merton moved for reconsideration 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.order denying their motion to dismiss.
On September 29, 2021, the U.S. District Court issued an Order that (i) permitted the plaintiffs to amend their lawsuit to revive the claims against Andy DeFrancecso; and (ii) declined to revisit his decision that claims could proceed against Aphria/Tilray, Vic Neufeld, and Carl Merton. Plaintiffs declined to amend their complaint, however, and so the action is proceeding solely against Aphria/Tilray, Neufeld, and Merton. On December 5, 2022, the parties engaged in a mediation session with an independent mediator. However, no settlement agreement was reached.
It is too early to determine any potential damages from this proceeding. The Company and the individual defendants believe the claims are without merit, and intend to vigorously defend against the claims, but there can be no assurances as to the outcome.
LATAM and Nuuvera Class Actions and Individual Actions (Canada)
On January 29, 2018, Aphria announced the acquisition of Nuuvera Inc. On July 17, 2018, Aphria announced a planned expansion into Latin America and the Caribbean with the acquisition of LATAM Holdings Inc. The following class actions and four individual proceedings have been commenced in Canada against Aphria and several current or former officers relating to the Nuuvera and LATAM transactions:
(i) a proposed class action (the "Vecchio Action") commenced in the Ontario Superior Court in February 2019, and amended thereafter, alleging statutory and common law misrepresentations and oppression relating to the Nuuvera and LATAM transactions. The Vecchio Action names Aphria, Merton, Neufeld, Cacciavillani and 5 underwriters as defendants;
(ii) four individual actions (the "Individual Actions") commenced by Wan, Bergerson, Landry, and Profinsys in the Ontario Superior Court alleging statutory and common law misrepresentations relating to the LATAM and Nuuvera transactions. The Individual Actions name Aphria, Merton, Neufeld, and Cacciavillani as defendants.
In the Vecchio Action a motion for certification and leave was heard. For Reasons for Decision released August 6, 2021, and with the consent of Aphria and the individually named Defendants, the Court granted leave to proceed with the secondary market statutory cause of action, and certified the Action on behalf of a defined class of purchasers. Also, on consent, the Court dismissed the claims of oppression and common law misrepresentation against Aphria and the individual defendants, as well as all claims against Carl Merton. The Court granted certification of the primary market statutory cause of action against all remaining Defendants but made it conditional on a successful motion by the Plaintiff to have the Court appoint a second Plaintiff for that aspect of the Claim. The defendant underwriters are appealing one term of that final aspect of the Court's decision. We continue to believe that these claims are without merit and plan to vigorously defend against this action.
Docklight Litigation
On November 5, 2021 Docklight Brands, Inc. (“Docklight”) filed a complaint against the Company and its wholly-owned subsidiary, High Park Holdings, Ltd. (“High Park”) in Superior Court of the State of Washington, King County. Docklight claimed breach of contract against High Park arising from a 2018 license agreement pursuant to which Docklight licensed certain Bob Marley-related brands to High Park (as amended in 2020 and 2021, the “High Park License”). In addition, Docklight brought a negligent misrepresentation claim against Tilray, alleging that certain individuals at Tilray or Aphria had made false statements to Docklight in order to induce Docklight to waive Docklight’s alleged right to terminate the High Park License for change-of-control on the basis of the 2021 Tilray-Aphria Arrangement Agreement. Docklight seeks injunctive relief as well as unspecified damages. On December 17, 2021, Defendants removed the case to the United States District Court, Federal District of Washington. Defendants’ answer to the complaint was timely filed by January 21, 2022, and discovery in this litigation matter is ongoing. Tilray and High Park continue to believe that the claims are without merit and we intend to continue to vigorously defend the Docklight suit.
Note 18.19. Net revenue
The Company reports its net revenue in 4four reporting segments: cannabis, distribution, beverage alcohol and wellness, in accordance with ASC 280 Segment Reporting. The Company generates revenues from these segments through contracts and purchase orders with customers, each with a single performance obligation, being the sale of products.
Net revenue is comprised of:
For the three months | For the six months | |||||||||||||||
ended November 30, | ended November 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cannabis revenue | $ | 66,696 | $ | 73,429 | $ | 142,385 | $ | 163,362 | ||||||||
Cannabis excise taxes | (16,798 | ) | (14,654 | ) | (33,917 | ) | (34,138 | ) | ||||||||
Net cannabis revenue | 49,898 | 58,775 | 108,468 | 129,224 | ||||||||||||
Beverage alcohol revenue | 23,405 | 14,544 | 45,268 | 31,027 | ||||||||||||
Beverage alcohol excise taxes | (2,010 | ) | (837 | ) | (3,219 | ) | (1,859 | ) | ||||||||
Net beverage alcohol revenue | 21,395 | 13,707 | 42,049 | 29,168 | ||||||||||||
Distribution revenue | 60,188 | 68,869 | 120,773 | 136,055 | ||||||||||||
Wellness revenue | 12,655 | 13,802 | 26,057 | 28,729 | ||||||||||||
Total | $ | 144,136 | $ | 155,153 | $ | 297,347 | $ | 323,176 |
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cannabis revenue |
| $ | 73,429 |
|
| $ | 70,155 |
|
| $ | 163,362 |
|
| $ | 137,275 |
|
Cannabis excise taxes |
|
| (14,654 | ) |
|
| (15,389 | ) |
|
| (34,138 | ) |
|
| (31,307 | ) |
Net cannabis revenue |
|
| 58,775 |
|
|
| 54,766 |
|
|
| 129,224 |
|
|
| 105,968 |
|
Beverage alcohol revenue |
|
| 14,544 |
|
|
| 754 |
|
|
| 31,027 |
|
|
| 754 |
|
Beverage alcohol excise taxes |
|
| (837 | ) |
|
| (44 | ) |
|
| (1,859 | ) |
|
| (44 | ) |
Net beverage alcohol revenue |
|
| 13,707 |
|
|
| 710 |
|
|
| 29,168 |
|
|
| 710 |
|
Distribution revenue |
|
| 68,869 |
|
|
| 73,983 |
|
|
| 136,055 |
|
|
| 140,271 |
|
Wellness revenue |
|
| 13,802 |
|
|
| — |
|
|
| 28,729 |
|
|
| — |
|
Total |
| $ | 155,153 |
|
| $ | 129,459 |
|
| $ | 323,176 |
|
| $ | 246,949 |
|
Note 19.20. Cost of goods sold
Cost of goods sold is comprised of:
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cannabis costs |
| $ | 45,259 |
|
| $ | 29,632 |
|
| $ | 85,450 |
|
| $ | 55,407 |
|
Beverage alcohol costs |
|
| 5,921 |
|
|
| 281 |
|
|
| 12,583 |
|
|
| 281 |
|
Distribution costs |
|
| 61,237 |
|
|
| 64,263 |
|
|
| 120,527 |
|
|
| 121,033 |
|
Wellness costs |
|
| 9,970 |
|
|
| — |
|
|
| 20,895 |
|
|
| — |
|
Total |
| $ | 122,387 |
|
| $ | 94,176 |
|
| $ | 239,455 |
|
| $ | 176,721 |
|
For the three months | For the six months | |||||||||||||||
ended November 30, | ended November 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cannabis costs | $ | 31,335 | $ | 45,259 | $ | 60,196 | $ | 85,450 | ||||||||
Beverage alcohol costs | 11,420 | 5,921 | 22,269 | 12,583 | ||||||||||||
Distribution costs | 52,495 | 61,237 | 107,479 | 120,527 | ||||||||||||
Wellness costs | 8,762 | 9,970 | 18,665 | 20,895 | ||||||||||||
Total | $ | 104,012 | $ | 122,387 | $ | 208,609 | $ | 239,455 |
Note 20.21. General and administrative expenses
General and administrative expenses are comprised of:
For the three months | For the six months | |||||||||||||||||||||||||||||||
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ended November 30, | ended November 30, | ||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Executive compensation |
| $ | 2,237 |
|
| $ | 2,711 |
|
| $ | 5,327 |
|
| $ | 4,961 |
| $ | 3,050 | $ | 2,237 | $ | 6,605 | $ | 5,327 | ||||||||
Office and general |
|
| 5,206 |
|
|
| 4,418 |
|
|
| 17,973 |
|
|
| 8,839 |
| 8,982 | 5,003 | 14,811 | 17,743 | ||||||||||||
Salaries and wages |
|
| 8,149 |
|
|
| 8,821 |
|
|
| 23,460 |
|
|
| 18,164 |
| 10,151 | 8,149 | 24,786 | 23,460 | ||||||||||||
Stock-based compensation |
|
| 8,253 |
|
|
| 5,489 |
|
|
| 17,670 |
|
|
| 8,339 |
| 10,943 | 8,253 | 20,136 | 17,670 | ||||||||||||
Insurance |
|
| 4,995 |
|
|
| 2,904 |
|
|
| 9,626 |
|
|
| 6,110 |
| 2,726 | 4,995 | 5,429 | 9,626 | ||||||||||||
Professional fees |
|
| 3,355 |
|
|
| 3,171 |
|
|
| 6,068 |
|
|
| 6,106 |
| 1,730 | 3,355 | 4,220 | 6,068 | ||||||||||||
Loss on sale of capital assets | 2,131 | 203 | 2,208 | 230 | ||||||||||||||||||||||||||||
Travel and accommodation |
|
| 982 |
|
|
| 525 |
|
|
| 1,774 |
|
|
| 1,252 |
| 1,219 | 982 | 2,380 | 1,774 | ||||||||||||
Rent |
|
| 292 |
|
|
| 234 |
|
|
| 1,058 |
|
|
| 474 |
| 740 | 292 | 1,605 | 1,058 | ||||||||||||
Total |
| $ | 33,469 |
|
| $ | 28,273 |
|
| $ | 82,956 |
|
| $ | 54,245 |
| $ | 41,672 | $ | 33,469 | $ | 82,180 | $ | 82,956 |
Note 21. 22.Non-operating income (expense)
Non-operating income (expense) is comprised of:
For the three months | For the six months | |||||||||||||||||||||||||||||||
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ended November 30, | ended November 30, | ||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Change in fair value of convertible debenture |
| $ | 56,353 |
|
| $ | (70,683 | ) |
| $ | 95,723 |
|
| $ | (70,343 | ) | $ | (12,698 | ) | $ | 56,353 | $ | (20,582 | ) | $ | 95,723 | ||||||
Change in fair value of warrant liability |
|
| 20,178 |
|
|
| — |
|
|
| 37,713 |
|
|
| — |
| 37 | 20,178 | 1,585 | 37,713 | ||||||||||||
Foreign exchange loss |
|
| (10,180 | ) |
|
| (3,371 | ) |
|
| (15,904 | ) |
|
| (19,702 | ) | 907 | (10,180 | ) | (24,666 | ) | (15,904 | ) | |||||||||
Loss on long-term investments |
|
| (1,833 | ) |
|
| (399 | ) |
|
| (3,508 | ) |
|
| (1,519 | ) | (596 | ) | (1,833 | ) | (1,604 | ) | (3,508 | ) | ||||||||
Gain from equity investees |
|
| — |
|
|
| — |
|
|
| 1,356 |
|
|
| — |
| ||||||||||||||||
Other non-operating (losses) gains, net |
|
| 232 |
|
|
| 1,804 |
|
|
| (1,770 | ) |
|
| 5,556 |
| (6,100 | ) | 1,077 | (6,175 | ) | 1,268 | ||||||||||
Total |
| $ | 64,750 |
|
| $ | (72,649 | ) |
| $ | 113,610 |
|
| $ | (86,008 | ) | $ | (18,450 | ) | $ | 65,595 | $ | (51,442 | ) | $ | 115,292 |
Other non-operating (losses) gains, net for the three and six months ended November 30, 2022 includes amounts to settle outstanding notes with non-controlling interest shareholders.
Note 23.Fair value measurements |
|
Financial instruments
The Company has classified its financial instruments as described in Note 3Significant accounting policies in our Annual Report.Financial Statements.
The carrying values of accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their fair values due to their short periods to maturity.
At November 30, 20212022 the Company’sCompany had long-term debt of $18,305 (May$nil ( May 31, 20212022 - $20,358) is 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 Governmentthe U.S. Department of Canadathe Treasury securities of similar duration. In each period thereafter, the incremental premium is held constant while the GovernmentU.S. Department of Canadathe Treasury security is based on the then current market value to derive the discount rate.
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of November 30, 20212022 and May 31, 20212022 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
| November 30, |
| November 30, | ||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| 2021 |
| Level 1 | Level 2 | Level 3 | 2022 | ||||||||||||||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and cash equivalents |
| $ | 331,783 |
|
| $ | — |
|
| $ | — |
|
| $ | 331,783 |
| $ | 190,218 | $ | — | $ | — | $ | 190,218 | ||||||||
Marketable Securities | 243,286 | — | — | 243,286 | ||||||||||||||||||||||||||||
Convertible notes receivable |
|
| — |
|
|
| 1,560 |
|
|
| — |
|
|
| 1,560 |
| — | — | 255,310 | 255,310 | ||||||||||||
Equity investments measured at fair value |
|
| 5,918 |
|
|
| 2,384 |
|
|
| — |
|
|
| 8,302 |
| 893 | 1,629 | 5,689 | 8,211 | ||||||||||||
Debt securities classified under available-for-sale method |
|
| — |
|
|
| — |
|
|
| 154,442 |
|
|
| 154,442 |
| ||||||||||||||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Warrant liability |
|
| — |
|
|
| — |
|
|
| 40,455 |
|
|
| 40,455 |
| — | — | (12,670 | ) | (12,670 | ) | ||||||||||
Contingent consideration |
|
| — |
|
|
| — |
|
|
| 62,339 |
|
|
| 62,339 |
| — | — | (26,463 | ) | (26,463 | ) | ||||||||||
APHA 24 Convertible debenture |
|
| — |
|
|
| — |
|
|
| 284,724 |
|
|
| 284,724 |
| — | — | (223,295 | ) | (223,295 | ) | ||||||||||
Total recurring fair value measurements |
| $ | 337,701 |
|
| $ | 3,944 |
|
| $ | 541,960 |
|
| $ | 883,605 |
| $ | 434,397 | $ | 1,629 | $ | (1,429 | ) | $ | 434,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 31, |
| May 31, | ||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| 2021 |
| Level 1 | Level 2 | Level 3 | 2022 | ||||||||||||||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and cash equivalents |
| $ | 488,466 |
|
| — |
|
| — |
|
| $ | 488,466 |
| $ | 415,909 | $ | — | $ | — | $ | 415,909 | ||||||||||
Convertible notes receivable |
| — |
|
|
| 2,485 |
|
| — |
|
|
| 2,485 |
| — | — | 111,200 | 111,200 | ||||||||||||||
Equity investments measured at fair value |
|
| 9,251 |
|
|
| 2,934 |
|
| — |
|
|
| 12,185 |
| 1,878 | 2,469 | 5,703 | 10,050 | |||||||||||||
Debt securities classified under available-for-sale method |
| — |
|
|
| — |
|
| — |
|
|
| — |
| ||||||||||||||||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Warrant liability |
| — |
|
| — |
|
|
| 78,168 |
|
|
| 78,168 |
| — | — | (14,255 | ) | (14,255 | ) | ||||||||||||
Contingent consideration |
| — |
|
| — |
|
|
| 60,657 |
|
|
| 60,657 |
| — | — | (16,007 | ) | (16,007 | ) | ||||||||||||
APHA 24 Convertible debenture |
| — |
|
| — |
|
|
| 399,444 |
|
|
| 399,444 |
| — | — | (216,753 | ) | (216,753 | ) | ||||||||||||
Total recurring fair value measurements |
| $ | 497,717 |
|
| $ | 5,419 |
|
| $ | 538,269 |
|
| $ | 1,041,405 |
| $ | 417,787 | $ | 2,469 | $ | (130,112 | ) | $ | 290,144 |
TheCompany’s financial assets and liabilities required to be measured on a recurring basis are its equity investments measured at fair value, debt securities classified as available-for-sale, acquisition-related contingent consideration, and warrant liability.
Convertible notes receivable, and equity investments are recorded at fair value. The estimated fair value is determined using quoted market prices, broker or dealer quotations or discounted cash flows and is classified as Level 2. Certain equity investments recorded at fair value have quoted prices in active markets for identical assets and are classified as Level 1.
Debt securities classified as available-for sale are recorded at fair value. The estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 3. The Company classified these securities as level 2 in the period of acquisition, when the valuation was determined to reflect the recent market transaction.
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 acquisition of SweetWater, first due in December 2023 and payable in cash, is determined by discounting future expected cash outflows at a discount rate of 5%, and probability of achievement of 25%. The unobservable inputs into the future expected cash outflows areresult in a fair value measurement classified as Level 3.
The contingent consideration from the acquisition of Montauk, due in December 2025 and payable in cash, is determined by discounting future expected cash outflows at a discount rate of 11.4%, and probability of achievement of 80%.The unobservable inputs into the future expected cash outflows result in a fair value measurement classified as Level 3.
The APHA24 Convertible debentures payable are recorded at fair value. The estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 3.
The balances of assets and liabilities categorized within Level 3 of the fair value hierarchy measured at fair value on a recurring basis are reconciled, as follows:
|
| APHA 24 |
|
|
|
|
|
|
|
|
|
| Debt |
|
|
|
|
| ||
|
| Convertible |
|
| Warrant |
|
| Contingent |
|
| Securities |
|
|
|
|
| ||||
|
| Debt |
|
| Liability |
|
| Consideration |
|
| AFS |
|
| Total |
| |||||
Balance, May 31, 2021 |
|
| (399,444 | ) |
|
| (78,168 | ) |
|
| (60,657 | ) |
|
| — |
|
|
| (538,269 | ) |
Additions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 170,799 |
|
|
| 170,799 |
|
Disposals |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Unrealized gain (loss) on fair value |
|
| 114,720 |
|
|
| 37,713 |
|
|
| (1,682 | ) |
|
| (16,357 | ) |
|
| 134,394 |
|
Balance, November 30, 2021 |
| $ | (284,724 | ) |
| $ | (40,455 | ) |
| $ | (62,339 | ) |
| $ | 154,442 |
|
| $ | (233,076 | ) |
APHA 24 | ||||||||||||||||||||
Convertible | Warrant | Contingent | Convertible | |||||||||||||||||
notes receivable | Liability | Consideration | Debt | Total | ||||||||||||||||
Balance, May 31, 2022 | $ | 111,200 | $ | (14,255 | ) | $ | (16,007 | ) | $ | (216,753 | ) | $ | (135,815 | ) | ||||||
Additions | 164,278 | — | (10,245 | ) | — | 154,033 | ||||||||||||||
Unrealized gain (loss) on fair value | (20,168 | ) | 1,585 | (211 | ) | (6,542 | ) | (25,336 | ) | |||||||||||
Balance, November 30, 2022 | $ | 255,310 | $ | (12,670 | ) | $ | (26,463 | ) | $ | (223,295 | ) | $ | (7,118 | ) |
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 non-operating income (loss)the consolidated statements of loss and comprehensive loss using the following inputs:
Significant | |||||||||
Valuation | unobservable | ||||||||
Financial asset / financial liability | technique |
| Inputs |
|
| ||||
APHA Convertible debentures | Black-Scholes |
| 70% | ||||||
expected life (in years) | 1.5 |
| |||||||
Warrant liability | Black-Scholes |
| 70% | ||||||
expected life (in years) | 2.3 |
| |||||||
Contingent consideration | Discounted cash flows |
| 5% - 11% | ||||||
achievement |
|
| |||||||
| Black-Scholes |
| 20% - 22% | ||||||
conversion | 0% - 60% |
|
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.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 4 reporting segments. 1)four reportable segments: (1) cannabis operations, which encompasses the production, distribution, sale, co-manufacturing and saleadvisory services of both medical and adult-use cannabis, 2)(2) beverage alcohol operations, which encompasses the production, marketing and sale of beverage alcohol products, 3)(3) distribution operations, which encompasses the purchase and resale of pharmaceuticals products to customers, and 4)(4) wellness products, which encompasses hemp foods and cannabidiol (“CBD”) products. This structure is in line with how our Chief Operating Decision Maker (“CODM”) assesses our performance and allocates resources.
Operating segments have not been aggregated and no asset information is provided for the segments because the Company’s CODM does not receive asset information by segment on a regular basis. While the Company reported “business under development” as a fifth segment in its previous Annual Report, management determined that this no longer met the definition of a reporting segment.
Segment net revenue from external customers:
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
|
| 2021 |
|
|
| 2020 |
|
|
| 2021 |
|
|
| 2020 |
|
Cannabis business |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 129,224 |
|
| $ | 105,968 |
|
Distribution business |
|
| 68,869 |
|
|
| 73,983 |
|
|
| 136,055 |
|
|
| 140,271 |
|
Beverage alcohol business |
|
| 13,707 |
|
|
| 710 |
|
|
| 29,168 |
|
|
| 710 |
|
Wellness business |
|
| 13,802 |
|
|
| — |
|
|
| 28,729 |
|
|
| — |
|
Total |
| $ | 155,153 |
|
| $ | 129,459 |
|
| $ | 323,176 |
|
| $ | 246,949 |
|
Segment gross profit from external customers:
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cannabis business |
| $ | 13,516 |
|
| $ | 25,134 |
|
| $ | 43,774 |
|
| $ | 50,561 |
|
Distribution business |
|
| 7,632 |
|
|
| 9,720 |
|
|
| 15,528 |
|
|
| 19,238 |
|
Beverage alcohol business |
|
| 7,786 |
|
|
| 429 |
|
|
| 16,585 |
|
|
| 429 |
|
Wellness business |
|
| 3,832 |
|
|
| — |
|
|
| 7,834 |
|
|
| — |
|
Total |
| $ | 32,766 |
|
| $ | 35,283 |
|
| $ | 83,721 |
|
| $ | 70,228 |
|
For the three months | For the six months | |||||||||||||||
ended November 30, | ended November 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cannabis | ||||||||||||||||
Net cannabis revenue | $ | 49,898 | $ | 58,775 | $ | 108,468 | $ | 129,224 | ||||||||
Cannabis costs | 31,335 | 45,259 | 60,196 | 85,450 | ||||||||||||
Gross Profit | 18,563 | 13,516 | 48,272 | 43,774 | ||||||||||||
Distribution | ||||||||||||||||
Distribution revenue | 60,188 | 68,869 | 120,773 | 136,055 | ||||||||||||
Distribution costs | 52,495 | 61,237 | 107,479 | 120,527 | ||||||||||||
Gross Profit | 7,693 | 7,632 | 13,294 | 15,528 | ||||||||||||
Beverage alcohol | ||||||||||||||||
Net beverage alcohol revenue | 21,395 | 13,707 | 42,049 | 29,168 | ||||||||||||
Beverage alcohol costs | 11,420 | 5,921 | 22,269 | 12,583 | ||||||||||||
Gross Profit | 9,975 | 7,786 | 19,780 | 16,585 | ||||||||||||
Wellness | ||||||||||||||||
Wellness revenue | 12,655 | 13,802 | 26,057 | 28,729 | ||||||||||||
Wellness costs | 8,762 | 9,970 | 18,665 | 20,895 | ||||||||||||
Gross Profit | $ | 3,893 | $ | 3,832 | $ | 7,392 | $ | 7,834 |
Channels of Cannabis revenue were as follows:
For the three months | For the six months | |||||||||||||||
ended November 30, | ended November 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue from Canadian medical cannabis products | $ | 6,365 | $ | 7,929 | $ | 12,885 | $ | 16,303 | ||||||||
Revenue from Canadian adult-use cannabis products | 52,390 | 49,535 | $ | 110,745 | 119,128 | |||||||||||
Revenue from wholesale cannabis products | 236 | 2,259 | $ | 628 | 3,959 | |||||||||||
Revenue from international cannabis products | 7,705 | 13,706 | $ | 18,127 | 23,972 | |||||||||||
Less excise taxes | (16,798 | ) | (14,654 | ) | $ | (33,917 | ) | (34,138 | ) | |||||||
Total | $ | 49,898 | $ | 58,775 | $ | 108,468 | $ | 129,224 |
On July 12, 2022, Tilray acquired the HEXO Convertible Note from HTI closed the transaction for a strategic alliance with HEXO Corp. (“HEXO”) as discussed in Note 7 (Convertible notes receivable) and Note 12 (Convertible debentures payable). In addition, the Company and HEXO entered into various commercial transaction agreements, including (i) an advisory services agreement regarding Tilray’s provision of advisory services to HEXO in exchange for an $18 million annual advisory fee payable to Tilray; (ii) a co-manufacturing agreement providing for third-party manufacturing services between the parties and setting forth the terms of Tilray’s international bulk supply to HEXO; and (iii) a procurement and cost savings agreement for shared savings related to specified optimization activities, procurement, and other similar cost savings realized by the parties as a result of the foregoing commercial arrangements.
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenue from Canadian medical cannabis products |
| $ | 7,929 |
|
| $ | 6,260 |
|
| $ | 16,303 |
|
| $ | 12,640 |
|
Revenue from Canadian adult-use cannabis products |
|
| 49,535 |
|
|
| 58,175 |
|
|
| 119,128 |
|
|
| 115,123 |
|
Revenue from wholesale cannabis products |
|
| 2,259 |
|
|
| 1,440 |
|
|
| 3,959 |
|
|
| 5,232 |
|
Revenue from international cannabis products |
|
| 13,706 |
|
|
| 4,280 |
|
|
| 23,972 |
|
|
| 4,280 |
|
Less excise taxes |
|
| (14,654 | ) |
|
| (15,389 | ) |
|
| (34,138 | ) |
|
| (31,307 | ) |
Total |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 129,224 |
|
| $ | 105,968 |
|
Included in revenue from Canadian adult-use cannabis is $7,882 and $15,635 of advisory services revenue for the three and six months ended November 30, 2022 from the aforementioned HEXO commercial transaction agreements.
Geographic net revenue:
For the three months | For the six months | |||||||||||||||||||||||||||||||
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ended November 30, | ended November 30, | ||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
North America |
| $ | 72,443 |
|
| $ | 54,475 |
|
| $ | 162,986 |
|
| $ | 105,667 |
| $ | 76,211 | $ | 72,443 | $ | 158,403 | $ | 162,986 | ||||||||
EMEA |
|
| 74,916 |
|
|
| 73,714 |
|
|
| 150,925 |
|
|
| 138,791 |
| 62,715 | 74,916 | 128,756 | 150,925 | ||||||||||||
Rest of World |
|
| 7,794 |
|
|
| 1,270 |
|
|
| 9,265 |
|
|
| 2,491 |
| 5,210 | 7,794 | 10,188 | 9,265 | ||||||||||||
Total |
| $ | 155,153 |
|
| $ | 129,459 |
|
| $ | 323,176 |
|
| $ | 246,949 |
| $ | 144,136 | $ | 155,153 | $ | 297,347 | $ | 323,176 |
Geographic capital assets:
November 30, | May 31, | |||||||||||||||
|
| November 30, 2021 |
|
| May 31, 2021 |
| 2022 | 2022 | ||||||||
North America |
| $ | 467,646 |
|
| $ | 504,575 |
| $ | 424,769 | $ | 464,370 | ||||
EMEA |
|
| 132,666 |
|
|
| 140,838 |
| 111,264 | 119,409 | ||||||
Rest of World |
|
| 3,937 |
|
|
| 5,285 |
| 3,091 | 3,720 | ||||||
Total |
| $ | 604,249 |
|
| $ | 650,698 |
| $ | 539,124 | $ | 587,499 |
Major customers are defined as customers that each individually account for greater than 10% of the Company’s annual revenues. For the three and six months ended November 30, 2021 2022 and 2020,2021, there were 0no major customers representing greater than 10% of our annualquarterly revenues.
|
|
On December 1, 2021, the Company acquired all the membership interests in Cheese Grits, LLC, a Georgia limited liability company that owns the SweetWater Brewing Company brewery and taproom in Atlanta, Georgia (the “SW Acquisition”), which facility was previously leased to the Company. As consideration for the SW Acquisition, the Company paid a purchase price at closing equal to $30,665, which purchase price was satisfied through the assumption of outstanding debt as well as the issuance of 843,687 shares of Tilray’s Class 2 common stock with a fair value of $8,741. On December 17, 2021, the Company issued an additional 82,224 Class 2 common shares with a fair value at issuance of $776 to satisfy its contractual obligations under the SW Acquisition.
On December 7, 2021, the Company acquired all the membership interests in of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company and a leading distilled spirits brand located in Breckenridge, Colorado, widely known for its award-winning bourbon whiskey collection and innovative craft spirits portfolio (the “Breckenridge Acquisition”). As consideration for the Breckenridge Acquisition, the Company paid a purchase price in an aggregate amount equal to $102,900, which purchase price was satisfied through the issuance of 11,245,511 shares of Tilray’s Class 2 common shares.
On December 7, 2021, the Company entered into the Second Amendment to Credit Agreement (the “Amendment”) with the Bank of Montreal (as amended, the “Credit Agreement”). The Amendment reduced our total outstanding long-term debt under the Credit Agreement to $79,375 and increased our current line of credit to $30,000. On December 7, 2021, the Company drew $10,000 borrowed on the line of credit.
On December 17, 2021, the Company acquired certain assets from WC IPA LLC, consisting of certain intellectual property, inventory and other assets relating to the Alpine and Green Flash brands (the “Alpine Acquisition”). As consideration for the Alpine Acquisition, the Company paid a purchase price in an aggregate amount equal to $5,133, which purchase price was satisfied through the payment of cash and the issuance of 366,308 shares of Tilray’s Class 2 common shares with a fair value of $3,000.
Item 2. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’sManagement’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 November 30, 20212022 contained in this Quarterly Report on Form 10-Q and the Audited Consolidated Financial Statements and the related Notes thereto contained in our Annual Report on Form 10-K as amended for the fiscal year ended May 31, 2021.2022. 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“Cautionary Note Regarding Forward-Looking Statements”Statements” in the introduction of this Form 10-Q.
Company Overview
We are a leading global cannabis-lifestyle and consumer packaged goods company headquartered in New York,Leamington and New York, with the largest global geographic footprint in the industry; including operations in Canada, the United States, Europe, Australia New Zealand and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering thea worldwide community to live their very best life enhanced by providing them with products that meet the needsmoments of their mind, body,connection and soul and invoke a sense of wellbeing. Tilray’s mission is to be the most responsible, trusted partner for its patients and consumers by providing themmarket leading cannabis consumer products company in the world with a cultivated experienceportfolio of innovative, high-quality and healthbeloved brands that address the needs of the consumers, customers and wellbeing through high-quality, differentiated brands and innovative products.patients we serve.
In the pursuit of our strategic vision and mission, we continue
Our overall strategy is to leverage our scale, expertise and capabilities to drive brand awareness and market share in Canada Europe, the United States and the rest of world,internationally, achieve industry-leading, profitable growth and build sustainable, long-term stockholdershareholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities including in consumer and patient insights, drive category management leadership and assess growth opportunities with the introduction of innovative new products and the entry into new markets.products. In addition, we are relentlessly focused on managing our cost of goods and expenses in order to maintain our strong financial position and expand our profit margins.position.
On April 30, 2021, upon consummation of the arrangement with Aphria Inc. (“Aphria”) pursuant to a plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”), Aphria stockholders and Tilray stockholders owned approximately 61.2% and 38.8%, respectively, of the post-closing outstanding Tilray common stock resulting in the reverse acquisition of Tilray, whereby Tilray is the legal acquirer and Aphria is the acquirer for accounting purposes. Accordingly, as reported in our Annual Report and in this Form 10-Q, the assets and liabilities of Aphria are presented at their historical carrying values and the assets and liabilities of Tilray are recognized on the effective date of the business combination transaction and measured at fair value. The operating results for the comparable period, the three and six months ended November 30, 2020, are of those of Aphria. In conjunction with the reverse acquisition, the Company elected to adopt Aphria’s fiscal year of June 1 to May 31.
Prior to the completion of the Arrangement, our condensed consolidated financial statements were presented under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and in Canadian Dollars (C$). All prior periods have been recast and are shown in this Form 10-Q under GAAP and in United States Dollars ($).
Trends and Other Factors Affecting Our Business
Market Dynamics.
OurCanadian cannabis business reporting segment operatesmarket trends:
The cannabis industry in an industry that is still in itsCanada continues to evolve at a rapid pace during the early stages of development. In Canada,periods following the industry celebrated its third yearfederal legalization of adult-use legalization in October 2021. As the industry continues to mature, there are a numbercannabis. Through analysis of new entrants into the industry, which has led to increased competition. This competitive environment in the Canadian cannabis industry subjects us to the risk of loss of market share, price discounting by competitors, and to the challenge of acquiring new customers amidst the evolving market changes. The number of licenses granted, and the number of licensed producers ultimately authorized by Health Canada could have an adverse impact on our ability to compete for market share in Canada. During the three months ended November 30, 2021, we maintained our market leadership within Canada but experienced a decline in market share percent to 12.8% from the 15.7% market share we maintained at May 31, 2021. Prior to the end of our fiscal second quarter, the Company was primarily focused on margin maintenance in Canada. With the current market dynamicsconditions, the following key trends have emerged and are anticipated to influence the Company’s cost advantages, the Company adjusted its focus to be more price competitivenear-term future in the value, mainstreamindustry:
- | Price compression. We have historically seen price compression in the market, when compared to the prior fiscal year, which was driven by intense competition from the approximately 1,000 Licensed Producers in Canada. However, the Company believes that a floor on pricing has begun to stabilize in all categories excluding vapes; |
- | Excise taxes. Given the impacts of this price compression, excise tax has grown to become a larger component of net revenue as it is predominantly computed on grams sold rather than as a percentage of the selling price. The Cannabis Council of Canada has formed an Excise Task Force to present these challenges to the Ministry of Finance in Canada and continues to pursue reform. Additionally, as many as two-thirds of Canadian licensed producers had excise tax deficits owed, which they were unable to pay on time. The Company believes this will be a key element of potential consolidation in the industry and we believe long term there is a possibility of some level of reform but it will likely not occur in the next 12 months; |
- | Market share. Tilray continues to maintain its market leadership position in Canada. However, we experienced a minor decline from 8.5% to an 8.3% market share, from the immediately preceding quarter, as reported by Hifyre data for all provinces excluding Quebec where Weedcrawler was deemed more accurate. The Company increased market share in Ontario and Alberta, which were offset by a decrease in market share in Quebec. Our decline in Quebec was the result of our top two selling products being discontinued in the quarter, in the province's effort to manage the average selling price. The Company has already submitted new product listings with the control board of Quebec, and expects to recover its sales volume in the second half of the fiscal year. We believe with our current strategy in place we will continue to maintain a market leadership position; and |
- | Change in potency preferences. Evolving consumer demand for higher potency products has caused a substantial shift in consumer purchasing patterns. We revised our flower strategy to remain innovative and evolve with the industry, launching a large volume of new beta flower strains in the current period which we expect to be listed in the provinces in the second half of the fiscal year to contend with this change in demand. |
These identified trends have had impacts on the current period results of operations and premium plusare discussed in greater detail in the respective section.
International cannabis market categories, particularly, in vape and pre-rolled products. Management continues to explore key partnerships and acquisitions as a strategy to maintain and expand our market share position.trends:
The cannabis industry in Europe is also 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 broadly legalize adult-use cannabis (Germany, Portugal, Luxembourg and Malta)Czech Republic), some are engaging in an experiment for adult-use (Netherlands, Switzerland) and some are debating regulations for cannabinoid-based medicine (France, Spain, Italy, and the United Kingdom). In Europe, we believe that, despite continuing COVID-19 pressure and the Russian conflict with Ukraine, cannabis legalization (both medicinal and adult-use) will continue to gain traction especially following actions of the Maltese and German governments.albeit more slowly than originally expected. We also continue to believe that Tilray remains uniquely positioned to winmaintain and gain significant market share in these markets with its infrastructure, being the only company withwhich is comprised of two EU-GMP cultivation facilities in two countries within Europe located in Portugal and Germany, our distribution network and our demonstrated commitment to the consistency,availability, quality and safety of our cannabinoid-based medical products. Today, Germany remains the largest medical cannabis market in Europe. We are the market leader in medical cannabis within Germany with a market share of approximately 19.7% with our dried flower, extracts and Dronabinol products.
The following is a summary of the state of cannabis legalization within Europe:
Germany. The new coalition government led by chancellor Olaf Schulz declared its intention to legalize adult-use cannabis use, which aims to regulate the sale of adult-use cannabis.
Malta. In December 2021, Malta now allows its citizens to grow up to six plants at home, possess up to seven grams for personal use, establish a dedicated government authority, and allows the creation of social cannabis clubs. Although commercial sales are still forbidden, such achievement marks an important cornerstone for the cannabis industry in Europe.
Luxemburg. The government stated intentions to legalize adult-use cannabis in October 2021, thereby allowing cultivation, possession, and sale of seeds. However, legislation delays are due to the COVID-19 pandemic. The Luxemburg government has refined its draft bill, which we believe will be enacted in calendar year 2022.
Italy. Cannabis activists successfully set up a referendum to decriminalize domestic cannabis cultivation and remove penalties for cannabis possession through the amendment of several articles of narcotics law, which may come to a vote in calendar year 2022.
Portugal. There are currently two draft bills to allow for the consumption, cultivation, and possessioncontrolled dispensing of cannabis for adult use.adult-use consumption. In late October 2022, the German government published key details of its plan to legalize and regulate adult-use cannabis, including what Health Minister Karl Lauterbach described as “complete” cultivation within the country. Subsequently, Lauterbach announced that a first draft of the proposed regulations shall be issued in the first quarter of calendar year 2023, which will be evaluated by the European Union Commission in a formal notification procedure. We continue to believe that Tilray is well-positioned in Germany to provide consistent and sustainable cannabis products for the adult-use market whether only in-country cultivation is permitted or whether imports are also allowed given our Aphria RX facility located in Germany and our EU-GMP-certified production facility in Portugal.
Switzerland. In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and consumption. In the meantime, Zurich, Switzerland's largest city, will be the location of a three-year pilot project starting in the Fall 2022is scheduled to start on January 30, 2023 to conduct scientific studies on the cannabis market and its impact on Swiss society.society and is the first trial for the legal distribution of adult-use cannabis containing THC in Europe.
Spain.The Netherlands. The Dutch government aims to initiate an experiment involving the cultivation of cannabis for adult use to determine whether and how regulated cannabis can be legally supplied to coffee shops and what the resulting effects.
Spain. A subcommittee on cannabis wasSpanish Congress' Health Committee has recently created and will commence its work in early February 2022 onapproved a report leadingMedical Cannabis Report that paves the way for a government sponsoredgovernment-sponsored bill on medical cannabis. The Report explicitly opens the door to standardized preparations other than the drugs already approved, highlighting their advantages in relation to safety, security and stability; as well as the possibility to prescribe medical cannabis in community pharmacies and not only in hospitals, favoring the access to the patients that may need it.
France. France launched a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis. To date, approximately 1,0002,300 patients are enrolled in the experiment.
United Kingdom. Medical cannabisexperiment, which has been extended for another year and is now ending March 2024 in order to collect more data and to adopt a legal inframework. The first results of the United Kingdom, however, there is a need to maximize both clinical research and patient benefit in a safe, cautious and ethical manner soexperimentation are positive. Several independent agencies have produced reports that those patients for whomshow the effectiveness of medical cannabis, is shownespecially in situations of chronic pain.
Czech Republic. The Czech Republic has discussed plans to be effective can access it. Currently,launch a new piecefully regulated adult-use cannabis market in first half of legislation iscalendar year 2023.
Malta: Malta has announced its intentions to launch the opening process for Cannabis Social Clubs in discussion, which aims to improve access to cannabinoid-based medicine through two measures: (1) expanding the ability to prescribe these products to General Practitioners (GPs) who are registered with the General Medical Council and (2) establishing a commission for the assessment of cannabinoid-based medicinal products.February 2023.
Acquisitions, Strategic Transactions and synergies.Synergies
We have grown, and expectstrive to continue to grow,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 alsocontinue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing businessesportfolio, infrastructure and capabilities or provide us with the opportunity to enter attractive new geographic markets and/orand product categories as well as expand our productsexisting capabilities. In addition, we have exited certain businesses and continue to evaluate certain businesses within our portfolio that are dilutive to profitability and capabilities. Wecash 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 integratecombine acquired companies and seekcontinue to achieve synergies.synergies, which is offset by income generated in connection with the execution of these transactions. For the three and six months ended November 30, 2021,2022, we incurred $33.7$5.1 million of transaction costs.expenses and earned ($7.8) million of transaction income, discussed further below.
Our acquisition and wind down strategy has had a profound impact on the Company’s results in the current quarter and we expect will continue to persist into future periods generating accretive impacts for our stockholders. There are currently three primary cost saving initiatives as follows:
● | Tilray and HEXO strategic alliance: |
On July 12, 2022, Tilray acquired the HEXO Convertible Note from HTI and entered into a strategic alliance with HEXO Corp. (“HEXO”) as discussed in Note 7 (Convertible notes receivable) and Note 12 (Convertible debentures payable). In addition, Tilray and HEXO entered into various commercial transaction agreements, including (i) an advisory services agreement regarding Tilray’s provision of advisory services to HEXO in exchange for an $18 million annual advisory fee payable to Tilray; (ii) a co-manufacturing agreement providing for third-party manufacturing services between the parties and setting forth the terms of Tilray’s international bulk supply to HEXO; and (iii) a procurement and cost savings agreement for shared savings related to specified optimization activities, procurement, and other similar cost savings realized by the parties as a result of the foregoing commercial arrangements.
Through this strategic alliance, Tilray expects to achieve substantial cash savings and production efficiencies. In the three and six months ended November 30, 2022, the Company recognized $7.9 million and $15.7 million of advisory services revenue included in Canadian adult-use cannabis revenue. Included in interest expense, net is $2.2 and $3.4 million of interest income for the three and six months ended November 30, 2022. The Company expects to earn approximately $40 million during the first 12 month period in connection with the HEXO Convertible Note, to be reported as $31 million of adult-use cannabis revenue and $9 million of interest income.
● | Cannabis business cost reduction plan: |
During our fourth quarter of our fiscal year ended May 31, 2022, the Company launched a $30 million cost optimization plan of our existing cannabis business to solidify our position as an industry leading low-cost producer. The Company took decisive action to manage cash flow amid an evolving retail environment by identifying opportunities to leverage technology, supply chain, procurement, and packaging efficiencies while driving labor savings. In the current period ended November 30, 2022, we have achieved $19.6 million of our cost optimization plan on an annualized run-rate basis of which $6.3 million represented actual cost savings during the period. The amount achieved is comprised of the following items:
- | Optimizing cultivation. We made impactful strides to right-size our cultivation footprint by maximizing our yield per plant and by honing the ability to flex production during optimal growing seasons to manage our cost to grow. |
- | Refining selling fees. We assessed our current product-to-market strategy to optimize our direct and controllable selling fees as a percentage of revenue without compromising our sales strategy on a go-forward basis. |
- | Reducing general and administrative costs. We remain focused on reducing operating expenses by leveraging innovative solutions to maintain a lean organization. We plan to further automate processes, reducing outside spend where efficient, and ensuring we are obtaining competitive pricing on our administrative services. |
● | Tilray-Aphria Arrangement Agreement: |
In connection with the Tilray-Aphria Arrangement Agreement, we committed to achieving at least $80 million, subsequently increased to $100 million, of synergies in connection with the integration of Tilray and Aphria and developed a robust plan and timeline to achieve such synergies. In connection with the development ofexecuting our integration plan, we evaluated and optimized the organizational structure, evaluated and retained the talent and capabilities we identified as necessary to achieve our longer-term growth plan and vision, evaluatedreviewed contracts and arrangements, and evaluatedanalyzed our supply chain and our strategic partnerships. DuringDue to the six months ended November 30, 2021,Company’s actions in connection with the integration of Tilray and Aphria, we have executed on a seriesexceeded the identified $80 million of synergistic actions which included:cost synergies and achieved such synergies ahead of our plan.
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As of the date of this filing, we havethe Company achieved $70the remainder of the targeted $100 million in cost-savingscost-saving synergies on an annualized run-rate basis. While this milestone marks the completion of the Tilray and Aphria Arrangement Agreement synergy plan, the Company intends to continue to prioritize cost saving initiatives in the future while remaining committed to our growth plan and vision.
In additional to our cost saving strategies, the Company has also executed the following strategic transactions during the quarter:
● | Beverage Alcohol Acquisitions: |
On November 7, 2022, Tilray acquired 100% ownership of Montauk Brewing Company, Inc. (“Montauk”), a run-rate basis and $36leading craft brewer company based in Montauk, New York. As consideration for the acquisition of Montauk, the Company paid an initial purchase price in an aggregate amount equal to $35.1 million, which was satisfied through the payment of $28.7 million in actual cash-savings.cash and $6.4 million from the issuance of 1,708,521 shares of Tilray's Class 2 common stock. In the event that Montauk achieves certain volume and/or EBITDA targets on or before December 31, 2025, the stockholders of Montauk shall be eligible to receive as additional contingent cash consideration of up to $18 million. The Company, determined that the closing date fair value of this contingent consideration was $10.2 million. In connection with this transaction, the Company intends to leverage SweetWater’s existing nationwide infrastructure and Montauk’s northeast influence to significantly expand our distribution network and drive profitable growth in our beverage-alcohol segment. This distribution network is part of Tilray’s strategy to leverage our growing portfolio of CPG brands and ultimately to launch THC-based product adjacencies upon federal legalization in the U.S.
During
● | Strategic transactions related to facility closures and exits: |
In connection with evaluating the six months ended November 30, 2021, we also executed on other strategic transactions, which completed after the endprofitability of our fiscalCC Pharma distribution business, Tilray decided to discontinue its partnership in a medical device reprocessing business given it was not core to CC Pharma's business and was both dilutive from a profitability and cash flow perspective. In connection with evaluating the profitability of our international cannabis business, Tilray also discontinued transactions with one of its customers in Israel as we focus on markets which we believe are more accretive to our profitability and cash flow. In addition, Tilray terminated its relationship with a supplier in Uruguay due to a breach of the underlying contract.
As a result of these strategic business decisions, there was an unfavorable impact on the current period results through the aggregate increase of net loss by $9.6 million in the quarter ended November 30, 2021 but before the filing of this Form 10-Q,2022, summarized as follows (Refer to Part I, Financial Information, Note 24 Subsequent Events):follows:
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- | there was an increase to office and general expenses of $3.2 million, which was composed of $1.6 million of exit costs from the termination of our producer partnership in Uruguay and $1.6 million of a bad debt expense related to the aforementioned customer in Israel; and |
- | the Company recognized a $2.2 million loss on the write-off of capital assets as a result of CC pharma discontinuing its |
medical reprocessing business. |
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The Coronavirus ("COVID-19") Pandemic, Its Impact on Usimpacts of the items discussed in this section are assessed further in our analysis of the results of operations below.
Political and Economic Environment
We continuously addressOur results of operations can also be affected by economic, political, legislative, regulatory, legal actions, the effects ofglobal volatility and general market disruption resulting from the global COVID-19 pandemic and geopolitical tensions, such as Russia's incursion into Ukraine. Economic conditions, such as recessionary trends, inflation, supply chain disruptions, interest and monetary exchange rates, and government fiscal policies, can have a significant effect on operations. Accordingly, we could be affected by civil, criminal, environmental, regulatory or administrative actions, claims or proceedings. For a discussion of which is available in sections entitled "Risk Factors" in Item 1A of Part I and “The Coronavirus ("COVID-19") Pandemic, Its Impact on Us” in Item 7 ofpossible adverse impacts to our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
During the three and six months ended November 30, 2021, our business operations experienced the following as result of the COVID-19 pandemic:
Our Canadian adult-use cannabis business continued to experience the effect of the changes in consumer demand that were established during the onset of COVID-19 pandemic and periods of lockdown. As we have previously reported, consumers shifted their demand behavior to purchasing elections based primarily on pricing. This consumer model of purchasing eroded the sales of our higher quality, higher priced brands resulting in our market share reduction during the period. Our Canadian medical cannabis business experienced a slight uptick in patient demand. Our international cannabis business continued to experience delays from regulatory authorities overseeing access to medical cannabis in several European jurisdictions. In accessible markets, the access to physician practices remains limited due to protective measures in place throughout Germany, slowing down the adoption of cannabis as an innovative treatment option. Our distribution business experienced slight improvement in the global supply chain disrupted by the COVID-19 pandemic resulting in a modest increase in net revenue in its base currency but due to the weakening ofpolitical and economic environment, please refer to Part II, Item 1A. Risk Factors, "We may be negatively impacted by volatility in the US dollar against the Euro resulted in a decrease in sales from the prior year’s comparable period. Our beerpolitical and alcohol business continues to see a decline in on-premise business primarilyeconomic environment, such as the on-premise industry dealt with a lack of staffingcrisis in Ukraine, economic downturns and increases in interest rates, and a change demand pattern related to after work alcohol consumption. The continuedperiod of sustained inflation across the markets in which we operate could result in higher operating costs and may negatively impact of the COVID-19 pandemic has hampered revenue growth in our main consumer facing markets. Within the hemp food segment of our business we continue to navigate the changes with growth in ecommerce and “click + pickup” channels offsetting declines in traditional retailer channels as consumer shopping behaviors shift.financial performance."
Our business and operating results for the three and six months ended November 30, 2021 continue to be impacted by the COVID-19 pandemic,including Delta and Omicron variants. The COVID-19 pandemic remains highly volatile, and the responses of local governments based on numbers of new cases, disease severity, risk of reinfection, and vaccine performance continue are unpredictable. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus. We will continue to assess our operations and will continue to consider the guidance of local governments throughout the world. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations.
Results of Operations
Our consolidated results, in thousands except for per share data, are as follows:
For the three months | For the six months | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| For the three months November 30, |
|
| Change |
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| % Change |
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| For the six months November 30, |
|
| Change |
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| % Change |
| ended November 30, | Change | % Change | ended November 30, | Change | % Change | ||||||||||||||||||||||||||||||||||||||||
(in thousands of U.S. dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||
Net revenue |
| $ | 1,55,153 |
|
| $ | 1,29,459 |
|
| $ | 25,694 |
|
|
| 20 | % |
| $ | 3,23,176 |
|
| $ | 2,46,949 |
|
| $ | 76,227 |
|
|
| 31 | % | $ | 144,136 | $ | 155,153 | $ | (11,017 | ) | (7 | )% | $ | 297,347 | $ | 323,176 | $ | (25,829 | ) | (8 | )% | ||||||||||||||
Cost of goods sold |
|
| 1,22,387 |
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|
| 94,176 |
|
|
| 28,211 |
|
|
| 30 | % |
|
| 2,39,455 |
|
|
| 1,76,721 |
|
|
| 62,734 |
|
|
| 35 | % | 104,012 | 122,387 | (18,375 | ) | (15 | )% | 208,609 | 239,455 | (30,846 | ) | (13 | )% | ||||||||||||||||||||
Gross profit |
|
| 32,766 |
|
|
| 35,283 |
|
|
| (2,517 | ) |
|
| (7 | %) |
|
| 83,721 |
|
|
| 70,228 |
|
|
| 13,493 |
|
|
| 19 | % | 40,124 | 32,766 | 7,358 | 22 | % | 88,738 | 83,721 | 5,017 | 6 | % | ||||||||||||||||||||||
Operating expenses: |
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General and administrative |
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| 33,469 |
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| 28,273 |
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| 5,196 |
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| 18 | % |
|
| 82,956 |
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| 54,245 |
|
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| 28,711 |
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| 53 | % | 41,672 | 33,469 | 8,203 | 25 | % | 82,180 | 82,956 | (776 | ) | (1 | )% | |||||||||||||||||||||
Selling |
|
| 9,210 |
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| 6,079 |
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| 3,131 |
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| 52 | % |
|
| 16,642 |
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| 11,896 |
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| 4,746 |
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|
| 40 | % | 9,669 | 9,210 | 459 | 5 | % | 19,340 | 16,642 | 2,698 | 16 | % | ||||||||||||||||||||||
Amortization |
|
| 29,016 |
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| 4,208 |
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| 24,808 |
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| 590 | % |
|
| 59,755 |
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|
| 8,335 |
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| 51,420 |
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| 617 | % | 23,995 | 29,016 | (5,021 | ) | (17 | )% | 48,354 | 59,755 | (11,401 | ) | (19 | )% | ||||||||||||||||||||
Marketing and promotion |
|
| 7,120 |
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| 4,252 |
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| 2,868 |
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| 67 | % |
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| 12,585 |
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| 9,177 |
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| 3,408 |
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| 37 | % | 8,535 | 7,120 | 1,415 | 20 | % | 15,783 | 12,585 | 3,198 | 25 | % | ||||||||||||||||||||||
Research and development |
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| 515 |
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| 225 |
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| 290 |
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|
| 129 | % |
|
| 1,300 |
|
|
| 345 |
|
|
| 955 |
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| 277 | % | 165 | 515 | (350 | ) | (68 | )% | 331 | 1,300 | (969 | ) | (75 | )% | ||||||||||||||||||||
Transaction costs |
|
| 8,120 |
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| 18,206 |
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| (10,086 | ) |
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| (55 | %) |
|
| 33,699 |
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| 20,664 |
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| 13,035 |
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|
| 63 | % | ||||||||||||||||||||||||||||||||
Change in fair value of contingent consideration | — | 845 | (845 | ) | (100 | )% | 211 | 1,682 | (1,471 | ) | (87 | )% | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Litigation costs | 2,815 | 1,080 | 1,735 | 161 | % | 3,260 | 2,274 | 986 | 43 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction (income) costs | 5,064 | 7,040 | (1,976 | ) | (28 | )% | (7,752 | ) | 31,425 | (39,177 | ) | (125 | )% | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total operating expenses |
|
| 87,450 |
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| 61,243 |
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| 26,207 |
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| 43 | % |
|
| 2,06,937 |
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| 1,04,662 |
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| 1,02,275 |
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| 98 | % | 91,915 | 88,295 | 3,620 | 4 | % | 161,707 | 208,619 | (46,912 | ) | (22 | )% | |||||||||||||||||||||
Operating loss |
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| (54,684 | ) |
|
| (25,960 | ) |
|
| (28,724 | ) |
|
| 111 | % |
|
| (1,23,216 | ) |
|
| (34,434 | ) |
|
| (88,782 | ) |
|
| 258 | % | (51,791 | ) | (55,529 | ) | 3,738 | (7 | )% | (72,969 | ) | (124,898 | ) | 51,929 | (42 | )% | ||||||||||||||||||
Interest expense, net |
|
| (9,940 | ) |
|
| (4,832 | ) |
|
| (5,108 | ) |
|
| 106 | % |
|
| (20,110 | ) |
|
| (10,568 | ) |
|
| (9,542 | ) |
|
| 90 | % | (3,107 | ) | (9,940 | ) | 6,833 | (69 | )% | (7,520 | ) | (20,110 | ) | 12,590 | (63 | )% | ||||||||||||||||||
Non-operating (expense) income, net |
|
| 64,750 |
|
|
| (72,649 | ) |
|
| 1,37,399 |
|
|
| (189 | %) |
|
| 1,13,610 |
|
|
| (86,008 | ) |
|
| 1,99,618 |
|
|
| (232 | %) | (18,450 | ) | 65,595 | (84,045 | ) | (128 | )% | (51,442 | ) | 115,292 | (166,734 | ) | (145 | )% | ||||||||||||||||||
Income (loss) before income taxes |
|
| 126 |
|
|
| (1,03,441 | ) |
|
| 1,03,567 |
|
|
| (100 | %) |
|
| (29,716 | ) |
|
| (1,31,010 | ) |
|
| 1,01,294 |
|
|
| (77 | %) | (73,348 | ) | 126 | (73,474 | ) | (58,313 | )% | (131,931 | ) | (29,716 | ) | (102,215 | ) | 344 | % | |||||||||||||||||
Income taxes (recovery) |
|
| (5,671 | ) |
|
| (14,192 | ) |
|
| 8,521 |
|
|
| (60 | %) |
|
| (909 | ) |
|
| (20,017 | ) |
|
| 19,108 |
|
|
| (95 | %) | (11,713 | ) | (5,671 | ) | (6,042 | ) | 107 | % | (4,502 | ) | (909 | ) | (3,593 | ) | 395 | % | ||||||||||||||||
Net income (loss) |
|
| 5,797 |
|
|
| (89,249 | ) |
|
| 95,046 |
|
|
| (106 | %) |
|
| (28,807 | ) |
|
| (1,10,993 | ) |
|
| 82,186 |
|
|
| (74 | %) | $ | (61,635 | ) | $ | 5,797 | $ | (67,432 | ) | (1,163 | )% | (127,429 | ) | (28,807 | ) | (98,622 | ) | 342 | % |
Key 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”) step up and inventory valuation allowance) for each reporting segment (Cannabis, Beverage alcohol, Distribution and Wellness), |
● | adjusted gross margin (excluding purchase price allocation (“PPA”) step up and inventory valuation allowance) for each reporting segment (Cannabis, Beverage alcohol, Distribution and Wellness), |
● | adjusted EBITDA, 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.
Operating Metrics and Non-GAAP Measures
We use the following key operating metrics and non-GAAP measures to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. Other companies, including companies in our industry, may calculate key 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 six months | |||||||||||||||||||||||||||||||
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ended November 30, | ended November 30, | ||||||||||||||||||||||||
(in thousands of U.S. dollars) |
| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
Net cannabis revenue |
| $ | 58,775 |
|
| $ | 54,766 |
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| $ | 1,29,224 |
|
| $ | 1,05,968 |
| $ | 49,898 | $ | 58,775 | $ | 108,468 | $ | 129,224 | ||||||||
Distribution revenue | 60,188 | 68,869 | 120,773 | 136,055 | ||||||||||||||||||||||||||||
Net beverage alcohol revenue |
|
| 13,707 |
|
|
| 710 |
|
|
| 29,168 |
|
|
| 710 |
| 21,395 | 13,707 | 42,049 | 29,168 | ||||||||||||
Distribution revenue |
|
| 68,869 |
|
|
| 73,983 |
|
|
| 1,36,055 |
|
|
| 1,40,271 |
| ||||||||||||||||
Wellness revenue |
|
| 13,802 |
|
|
| — |
|
|
| 28,729 |
|
|
| — |
| 12,655 | 13,802 | 26,057 | 28,729 | ||||||||||||
Cannabis gross margin |
|
| 23 | % |
|
| 46 | % |
|
| 34 | % |
|
| 48 | % | ||||||||||||||||
Cannabis adjusted gross margin |
|
| 43 | % |
|
| 46 | % |
|
| 43 | % |
|
| 48 | % | ||||||||||||||||
Beverage alcohol gross margin |
|
| 57 | % |
|
| 60 | % |
|
| 57 | % |
|
| 60 | % | ||||||||||||||||
Cannabis costs | 31,335 | 45,259 | 60,196 | 85,450 | ||||||||||||||||||||||||||||
Beverage alcohol costs | 11,420 | 5,921 | 22,269 | 12,583 | ||||||||||||||||||||||||||||
Distribution costs | 52,495 | 61,237 | 107,479 | 120,527 | ||||||||||||||||||||||||||||
Wellness costs | 8,762 | 9,970 | 18,665 | 20,895 | ||||||||||||||||||||||||||||
Adjusted gross profit (excluding PPA step-up and inventory valuation adjustments) (1) | 41,231 | 44,766 | 90,952 | 95,721 | ||||||||||||||||||||||||||||
Cannabis adjusted gross margin (excluding inventory valuation adjustments) (1) | 37 | % | 43 | % | 45 | % | 43 | % | ||||||||||||||||||||||||
Beverage alcohol adjusted gross margin (excluding PPA step-up) (1) | 52 | % | 57 | % | 52 | % | 57 | % | ||||||||||||||||||||||||
Distribution gross margin |
|
| 11 | % |
|
| 13 | % |
|
| 11 | % |
|
| 14 | % | 13 | % | 11 | % | 11 | % | 11 | % | ||||||||
Wellness gross margin |
|
| 28 | % |
| NA |
|
|
| 27 | % |
| NA |
| 31 | % | 28 | % | 28 | % | 27 | % | ||||||||||
Adjusted EBITDA |
|
| 13,760 |
|
|
| 10,139 |
|
|
| 26,457 |
|
|
| 18,209 |
| ||||||||||||||||
Cash and cash equivalents |
|
| 3,31,783 |
|
|
| 1,48,205 |
|
|
| 3,31,783 |
|
|
| 1,48,205 |
| ||||||||||||||||
Adjusted EBITDA (1) | $ | 11,708 | $ | 13,760 | 25,239 | $ | 26,457 | |||||||||||||||||||||||||
Cash and cash equivalents and marketable securities | 433,504 | 331,783 | 433,504 | 331,783 | ||||||||||||||||||||||||||||
Working capital |
|
| 3,93,350 |
|
|
| 3,21,904 |
|
|
| 3,93,350 |
|
|
| 3,21,904 |
| 388,200 | 393,350 | 388,200 | 393,350 | ||||||||||||
Free cash flow |
|
| (24,093 | ) |
|
| (6,863 | ) |
|
| (1,25,940 | ) |
|
| (76,918 | ) | ||||||||||||||||
Adjusted free cash flow |
|
| (15,973 | ) |
|
| 11,343 |
|
|
| (69,430 | ) |
|
| (56,254 | ) |
NA=This reporting segment did not exist in the prior year period. The related acquisition occurred thereafter.(1) Adjusted EBITDA, adjusted gross profit and adjusted gross margin for each of our segments are non-GAAP financial measures. See “Use of Non-GAAP Measures” below for a reconciliation of these Non-GAAP Measures to our most comparable GAAP measure.
Segment Reporting
Management updated our reporting segments during the six months ended November 30, 2021. While the Company reported “business under development” as a fifth reporting segment in its previous Annual Report, management determined that this no longer met the definition of a reporting segment.
Our reporting segments revenue is primarily comprised of revenues from our cannabis, distribution, beverage alcohol, operations, and wellness operations, as follows:
For the three months | For the six months | |||||||||||||||||||||||||||||||
ended November 30, | Change | % Change | ended November 30, | Change | % Change | |||||||||||||||||||||||||||
(in thousands of U.S. dollars) | 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||
Cannabis business | $ | 49,898 | $ | 58,775 | $ | (8,877 | ) | (15 | )% | $ | 108,468 | $ | 129,224 | $ | (20,756 | ) | (16 | )% | ||||||||||||||
Distribution business | 60,188 | 68,869 | (8,681 | ) | (13 | )% | 120,773 | 136,055 | (15,282 | ) | (11 | )% | ||||||||||||||||||||
Beverage alcohol business | 21,395 | 13,707 | 7,688 | 56 | % | 42,049 | 29,168 | 12,881 | 44 | % | ||||||||||||||||||||||
Wellness business | 12,655 | 13,802 | (1,147 | ) | (8 | )% | 26,057 | 28,729 | (2,672 | ) | (9 | )% | ||||||||||||||||||||
Total net revenue | $ | 144,136 | $ | 155,153 | $ | (11,017 | ) | (7 | )% | $ | 297,347 | $ | 323,176 | $ | (25,829 | ) | (8 | )% |
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of U.S. dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Cannabis business |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 4,009 |
|
|
| 7 | % |
| $ | 1,29,224 |
|
| $ | 1,05,968 |
|
| $ | 23,256 |
|
|
| 22 | % |
Distribution business |
|
| 68,869 |
|
|
| 73,983 |
|
|
| (5,114 | ) |
|
| (7 | %) |
|
| 1,36,055 |
|
|
| 1,40,271 |
|
|
| (4,216 | ) |
|
| (3 | %) |
Beverage alcohol business |
|
| 13,707 |
|
|
| 710 |
|
|
| 12,997 |
|
| NM |
|
|
| 29,168 |
|
|
| 710 |
|
|
| 28,458 |
|
| NM |
| ||
Wellness business |
|
| 13,802 |
|
|
| — |
|
|
| 13,802 |
|
| NM |
|
|
| 28,729 |
|
|
| — |
|
|
| 28,729 |
|
| NM |
| ||
Total net revenue |
| $ | 1,55,153 |
|
| $ | 1,29,459 |
|
| $ | 25,694 |
|
|
| 20 | % |
| $ | 3,23,176 |
|
| $ | 2,46,949 |
|
| $ | 76,227 |
|
|
| 31 | % |
Our reporting segments revenue using a constant currency are as follows:
For the three months | For the six months | |||||||||||||||||||||||||||||||
ended November 30, | ended November 30, | |||||||||||||||||||||||||||||||
as reported in constant currency | Change | % Change | as reported in constant currency | Change | % Change | |||||||||||||||||||||||||||
(in thousands of U.S. dollars) | 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||
Cannabis business | $ | 52,160 | $ | 58,775 | $ | (6,615 | ) | (11 | )% | $ | 113,739 | $ | 129,224 | $ | (15,485 | ) | (12 | )% | ||||||||||||||
Distribution business | 70,952 | 68,869 | 2,083 | 3 | % | 141,532 | 136,055 | 5,477 | 4 | % | ||||||||||||||||||||||
Beverage alcohol business | 21,395 | 13,707 | 7,688 | 56 | % | 42,049 | 29,168 | 12,881 | 44 | % | ||||||||||||||||||||||
Wellness business | 13,074 | 13,802 | (728 | ) | (5 | )% | 26,759 | 28,729 | (1,970 | ) | (7 | )% | ||||||||||||||||||||
Total net revenue | $ | 157,581 | $ | 155,153 | $ | 2,428 | 2 | % | $ | 324,079 | $ | 323,176 | $ | 903 | 0 | % |
Our geographic revenue is as follows:
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of U.S. dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
North America |
| $ | 72,443 |
|
| $ | 54,475 |
|
| $ | 17,968 |
|
|
| 33 | % |
| $ | 1,62,986 |
|
| $ | 1,05,667 |
|
| $ | 57,319 |
|
|
| 54 | % |
EMEA |
|
| 74,916 |
|
|
| 73,714 |
|
|
| 1,202 |
|
|
| 2 | % |
|
| 1,50,925 |
|
|
| 1,38,791 |
|
|
| 12,134 |
|
|
| 9 | % |
Rest of World |
|
| 7,794 |
|
|
| 1,270 |
|
|
| 6,524 |
|
|
| 514 | % |
|
| 9,265 |
|
|
| 2,491 |
|
|
| 6,774 |
|
|
| 272 | % |
Total net revenue |
| $ | 1,55,153 |
|
| $ | 1,29,459 |
|
| $ | 25,694 |
|
|
| 20 | % |
| $ | 3,23,176 |
|
| $ | 2,46,949 |
|
| $ | 76,227 |
|
|
| 31 | % |
For the three months | For the six months | |||||||||||||||||||||||||||||||
ended November 30, | Change | % Change | ended November 30, | Change | % Change | |||||||||||||||||||||||||||
(in thousands of U.S. dollars) | 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||
North America | $ | 76,211 | $ | 72,443 | $ | 3,768 | 5 | % | $ | 158,403 | $ | 162,986 | $ | (4,583 | ) | (3 | )% | |||||||||||||||
EMEA | 62,715 | 74,916 | (12,201 | ) | (16 | )% | 128,756 | 150,925 | (22,169 | ) | (15 | )% | ||||||||||||||||||||
Rest of World | 5,210 | 7,794 | (2,584 | ) | (33 | )% | 10,188 | 9,265 | 923 | 10 | % | |||||||||||||||||||||
Total net revenue | $ | 144,136 | $ | 155,153 | $ | (11,017 | ) | (7 | )% | $ | 297,347 | $ | 323,176 | $ | (25,829 | ) | (8 | )% |
Our geographic revenue using a constant currency is as follows:
For the three months | For the six months | |||||||||||||||||||||||||||||||
ended November 30, | ended November 30, | |||||||||||||||||||||||||||||||
as reported in constant currency | Change | % Change | as reported in constant currency | Change | % Change | |||||||||||||||||||||||||||
(in thousands of U.S. dollars) | 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||
North America | $ | 77,121 | $ | 72,443 | $ | 4,678 | 6 | % | $ | 161,223 | $ | 162,986 | $ | (1,763 | ) | (1 | )% | |||||||||||||||
EMEA | 73,557 | 74,916 | (1,359 | ) | (2 | )% | 149,984 | 150,925 | (941 | ) | (1 | )% | ||||||||||||||||||||
Rest of World | 6,903 | 7,794 | (891 | ) | (11 | )% | 12,872 | 9,265 | 3,607 | 39 | % | |||||||||||||||||||||
Total net revenue | $ | 157,581 | $ | 155,153 | $ | 2,428 | 2 | % | $ | 324,079 | $ | 323,176 | $ | 903 | 0 | % |
Our geographic capital assets are as follows:
November 30, | May 31, | Change | % Change | |||||||||||||
(in thousands of U.S. dollars) | 2022 | 2022 | 2022 vs. 2021 | |||||||||||||
North America | $ | 424,769 | $ | 464,370 | $ | (39,601 | ) | (9 | )% | |||||||
EMEA | 111,264 | 119,409 | (8,145 | ) | (7 | )% | ||||||||||
Rest of World | 3,091 | 3,720 | (629 | ) | (17 | )% | ||||||||||
Total capital assets | $ | 539,124 | $ | 587,499 | $ | (48,375 | ) | (8 | )% |
(in thousands of U.S. dollars) |
| November 30, 2021 |
|
| May 31, 2021 |
|
| 2021 vs. 2020 |
| |||||||
North America |
| $ | 4,67,646 |
|
| $ | 5,04,575 |
|
| $ | (36,929 | ) |
|
| (7 | %) |
EMEA |
|
| 1,32,666 |
|
|
| 1,40,838 |
|
|
| (8,172 | ) |
|
| (6 | %) |
Rest of World |
|
| 3,937 |
|
|
| 5,285 |
|
|
| (1,348 | ) |
|
| (26 | %) |
Total capital assets |
| $ | 6,04,249 |
|
| $ | 6,50,698 |
|
| $ | (46,449 | ) |
|
| (7 | %) |
Cannabis revenue
Cannabis revenue based on market channel is as follows:
For the three months | For the six months | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ended November 30, | Change | % Change | ended November 30, | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of US dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||
Revenue from Canadian medical cannabis products |
| $ | 7,929 |
|
| $ | 6,260 |
|
| $ | 1,669 |
|
|
| 27 | % |
| $ | 16,303 |
|
| $ | 12,640 |
|
| $ | 3,663 |
|
|
| 29 | % | $ | 6,365 | $ | 7,929 | $ | (1,564 | ) | (20 | )% | $ | 12,885 | $ | 16,303 | $ | (3,418 | ) | (21 | )% | ||||||||||||||
Revenue from Canadian adult-use cannabis products |
|
| 49,535 |
|
|
| 58,175 |
|
| $ | (8,640 | ) |
|
| (15 | %) |
|
| 1,19,128 |
|
|
| 1,15,123 |
|
| $ | 4,005 |
|
|
| 3 | % | 52,390 | 49,535 | 2,855 | 6 | % | 110,745 | 119,128 | (8,383 | ) | (7 | )% | |||||||||||||||||||||
Revenue from wholesale cannabis products |
|
| 2,259 |
|
|
| 1,440 |
|
| $ | 819 |
|
|
| 57 | % |
|
| 3,959 |
|
|
| 5,232 |
|
| $ | (1,273 | ) |
|
| (24 | %) | 236 | 2,259 | (2,023 | ) | (90 | )% | 628 | 3,959 | (3,331 | ) | (84 | )% | ||||||||||||||||||||
Revenue from international cannabis products |
|
| 13,706 |
|
|
| 4,280 |
|
| $ | 9,426 |
|
|
| 220 | % |
|
| 23,972 |
|
|
| 4,280 |
|
| $ | 19,692 |
|
|
| 460 | % | 7,705 | 13,706 | (6,001 | ) | (44 | )% | 18,127 | 23,972 | (5,845 | ) | (24 | )% | ||||||||||||||||||||
Total cannabis revenue |
|
| 73,429 |
|
|
| 70,155 |
|
| $ | 3,274 |
|
|
| 5 | % |
|
| 1,63,362 |
|
|
| 1,37,275 |
|
| $ | 26,087 |
|
|
| 19 | % | 66,696 | 73,429 | (6,733 | ) | (9 | )% | 142,385 | 163,362 | (20,977 | ) | (13 | )% | ||||||||||||||||||||
Excise taxes |
|
| (14,654 | ) |
|
| (15,389 | ) |
| $ | 735 |
|
|
| (5 | %) |
|
| (34,138 | ) |
|
| (31,307 | ) |
| $ | (2,831 | ) |
|
| 9 | % | (16,798 | ) | (14,654 | ) | (2,144 | ) | 15 | % | (33,917 | ) | (34,138 | ) | 221 | (1 | )% | |||||||||||||||||
Total cannabis net revenue |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 4,009 |
|
|
| 7 | % |
| $ | 1,29,224 |
|
| $ | 1,05,968 |
|
| $ | 23,256 |
|
|
| 22 | % | $ | 49,898 | $ | 58,775 | $ | (8,877 | ) | (15 | )% | $ | 108,468 | $ | 129,224 | $ | (20,756 | ) | (16 | )% |
Cannabis revenue based on market channel using a constant currency is as follows:
For the three months | For the six months | |||||||||||||||||||||||||||||||
ended November 30, | ended November 30, | |||||||||||||||||||||||||||||||
as reported in constant currency | Change | % Change | as reported in constant currency | Change | % Change | |||||||||||||||||||||||||||
(in thousands of US dollars) | 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||
Revenue from Canadian medical cannabis products | $ | 6,820 | $ | 7,929 | $ | (1,109 | ) | (14 | )% | $ | 13,651 | $ | 16,303 | $ | (2,652 | ) | (16 | )% | ||||||||||||||
Revenue from Canadian adult-use cannabis products | 53,635 | 49,535 | 4,100 | 8 | % | 114,056 | 119,128 | (5,072 | ) | (4 | )% | |||||||||||||||||||||
Revenue from wholesale cannabis products | 252 | 2,259 | (2,007 | ) | (89 | )% | 664 | 3,959 | (3,295 | ) | (83 | )% | ||||||||||||||||||||
Revenue from international cannabis products | 9,489 | 13,706 | (4,217 | ) | (31 | )% | 21,358 | 23,972 | (2,614 | ) | (11 | )% | ||||||||||||||||||||
Total cannabis revenue | 70,196 | 73,429 | (3,233 | ) | (4 | )% | 149,729 | 163,362 | (13,633 | ) | (8 | )% | ||||||||||||||||||||
Excise taxes | (18,036 | ) | (14,654 | ) | (3,382 | ) | 23 | % | (35,990 | ) | (34,138 | ) | (1,852 | ) | 5 | % | ||||||||||||||||
Total cannabis net revenue | $ | 52,160 | $ | 58,775 | $ | (6,615 | ) | (11 | )% | $ | 113,739 | $ | 129,224 | $ | (15,485 | ) | (12 | )% |
Revenue from Canadian medical cannabis products: Revenue from Canadian medical cannabis products increased 27%decreased to $7.9$6.4 million and 29% to $16.3$12.9 million for the three and six months ended November 30, 2021,2022, compared to revenue of $6.3$7.9 million and $12.6$16.3 million for the prior year same periods. On a constant currency basis revenue from Canadian medical cannabis products decreased to $6.8 million and $13.7 million for the three and six months ended November 30, 2022, compared to revenue of $7.9 million and $16.3 million for the prior year same periods. This increasedecrease in revenue from medical cannabis products is primarily driven by the contributions of legacy Tilray’s medical cannabis business resulting from the business combination of April 30, 2021. The increase is also due to new innovative product launches, including our new brand Symbios launched earlier in the year, to address unmet medical needs and to provide patients with more choices in managing their health conditions with medical products. There has been some offset from downward pressure caused by the COVID-19 pandemic from patients unable or unwilling to see a doctor as well as increased competition from the adult-recadult-use recreational market and therelated price compression therein.compression.
Revenue from Canadian adult-use cannabis products: During the three and six months ended November 30, 2021,2022, our gross revenue from Canadian adult-use cannabis product products increased to $52.4 million and decreased 15% to $110.7 million compared to revenue of $49.5 million and $119.1 million for the prior year same periods. Due to the decline in the Canadian dollar, on a constant currency basis, our gross revenue from Canadian adult-use cannabis products increased 3% to $119.1$53.6 million and decreased to $114.1 million for the three and six months ended November 30, 2021 compared to revenue2022. Included in the current period results was the favorable impact of $58.2the recently executed HEXO arrangement which resulted in $7.9 million and $115.1$15.6 million of advisory services revenue for the three and six months ended November 30, 2022 that did not occur in the prior year same periods.Theperiod comparative. This increase was offset by the negative impacts of price compression and change in potency preferences for both the three and six months ended, as well as the challenges experienced in the province of Quebec which impacted the three month decreases in gross revenue is primarily due to a series of factors, as follows:
|
|
|
|
|
|
We continue to focus on expanding our product offerings to accommodate the changes in our adult-use customers, During the first quarter, we completed our first shipments to Nunavut. In the second quarter we expanded the terms of our distribution partnership with Rose LifeScience, which will now represent the entire Tilray portfolio; and expanded our partnership with Great North Distributors, Inc. to cover all of Canada, except for Quebec, using its established network.period.
The six months increase in gross revenue is attributable to the inclusion of Tilray legacy products in our brand portfolio offerings.
Wholesale cannabis revenue: Revenue from wholesale cannabis products increased 57%decreased to $2.3$0.2 million and decreased 24% to $4.0$0.6 million for the three and six months ended November 30, 20212022, compared to revenue of $1.4$2.3 million and $5.2$4.0 million for the prior year same periods.periods which is consistent on a constant currency basis. The Company continues to believe that wholesale cannabis revenue will remain subject to quarter-to-quarter variability and is based on opportunistic sales.
International cannabis revenue:Revenue from international cannabis products increased 220%decreased to $13.7$7.7 million and 460% to $24.0$18.1 million for the three and six months ended November 30, 20212022, compared to revenue of $4.3$13.7 million and $4.3$24.0 million for the prior year same periods. The increase is due to Given the contributionsdeterioration of legacy Tilray’s largerEuro in the quarter, on a constant currency basis, revenue from international cannabis business as well as newly obtained businessproducts would have decreased to business transactions. In Europe, we believe that, despite continuing COVID-19 pressure, cannabis legalization (both medicinal$9.5 million and adult-use) will continue to gain traction, especially following actions of$21.4 million from $13.7 million and $24.0 million in the German and Maltese governments. We also continue to believe that Tilray remains uniquely positioned to win in these markets with its infrastructure being the only company with EU-GMP cultivation facilities in two countries within Europe and our demonstrated commitment to the consistency, quality and safety of our products.
Germany. During theprior year same periods for three and six months ended November 30, 2021, we continued2022. During the quarter, the Company recognized a one-time return adjustment of $3.1 million related to experience some decelerationa customer in Israel. In addition, the Company had $4.6 million of revenue in the growthprior year quarter to Israel, which did not repeat given the challenging and severe deterioration of our business caused by the COVID-19 pandemic, which resultedmarket conditions in some patients unable or unwilling to see a doctor. Despite these impacts,Israel.
|
|
|
|
|
|
Portugal. We are the only approved medical cannabis product in the market, which is distributed through our distribution partners to medical stakeholders throughout Portugal.
Luxembourg. We were selected by the Luxembourg Ministry of Health as the exclusive supplier for the country’s medical cannabis program for dried flower and oils.
Switzerland. We distribute our cannabinoid-based medical extract products to Suisse patients through our partner “Lehenmatt Apotheke”.
France. We were selected as one of the four suppliers in a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis.
Italy. We are one of five distributors licensed to import medical cannabis into the Italian medical cannabis market.
United Kingdom. In the quarter, we completed a shipment of a wide range of dried flower products with high, medium and balanced potencies into the UK medical cannabis market.
Ireland. We are one out of only three suppliers within the Irish market whose cannabinoid-based medical products are eligible for reimbursement.
Australia. We continue to strengthen the reputation of our Tilray medical brand whereby, through a contract with the Department of Health in Victoria, 90 children are now participating in a government funded seizure program utilizing our cannabinoid-based medical products, which will continue to the end of calendar year 2024.
Distribution revenue
Revenue from Distribution operations decreased 7% to $68.9$60.2 million and 3% to $136.1$120.8 million for the three and six months ended November 30, 20212022 compared to revenue of $74.0$68.9 million and $140.3$136.1 million for the prior year same periods.Included in distribution revenue is $68.0 million and $133.0 million of revenue from CC Pharma, and $0.9 million and $3.1 million of revenue from other distribution companies for the three and six months ended November 30, 2021 versus $72.0 million and $136.2 million from CC Pharma and $2.0 million and $4.1 million from other distribution companies, respectively, in the prior year same periods.
The decrease in revenue during both the three-months ended November 30, 2021 is primarilythree and six month periods was due to the impactdeterioration of changes in the exchange rate between the Euro and USD totalingagainst the U.S. Dollar, which when the impacts are eliminated on a $5.3 million reduction to the comparable prior period. Additionally, the decrease inconstant currency basis, revenue during the six-months ended November 30, 2021 was also the result of the negative impact of an isolated weather event in Densborn, Germany. Specifically, heavy flooding impacted CC Pharma and forced a business closure for approximately five days leading to a decrease in net revenue in the period of almost $5.0 million.
Beverage alcohol revenue
Revenue from our Beverage operations increased to $13.7$71.0 million and $29.2$141.5 million for the three and six months ended November 30, 20212022 when compared to revenue of $0.7 million for the prior year same periods. SweetWater operates on-premises, wholesale,periods which has remained consistent. The Company is continuing to prioritize higher margin sales, and specialty sales. Revenues continued to be negatively affected by the COVID-19 pandemic impacting on-premise consumers. The increase is substantially related to our acquisition of SweetWater on November 20, 2020.
Earlier in the year, our beverage operations began operating our new brewing facility in Colorado and opened a new taproom at the Denver International Airport in connection with its strategic expansion initiative. In addition, we released an extensive new line of innovative products, including seltzers, as well as a new beer offering developedresult of our focus on higher margin sales and capacity constraints, management believes in collaboration withfuture periods we can continue to drive larger profit margins despite not increasing revenue in our Canadian cannabis Broken Coast brand and a new vodka soda offering developed in collaboration withdistribution business as we approach full utilization of our Canadian cannabis Riff brand as Tilray continuesfacility.
Beverage alcohol revenue
Revenue from our Beverage operations increased to strengthen its strategic position in the U.S. by expanding its presence through acquisitions and collaboration with other Tilray cannabis brands. This strategy of leveraging our growing portfolio of brands enables the company to launch THC-based product adjacencies upon federal legalization in the U.S.
Wellness revenue
Included in Wellness revenue is $13.8$21.4 million and $28.7$42.0 million from Manitoba Harvest, for the three and six months ended November 30, 2021. Manitoba Harvest was part2022, compared to revenue of the assets acquired in the Arrangement. There are no comparable revenues in$13.7 million and $29.2 million for the prior year being presented.same periods. The increase in the three month and six month period relates primarily to our acquisition of Breckenridge on December 7, 2021 as well as the acquisition of Montauk on November 7, 2022.
Wellness revenue
Our Wellness revenue from Manitoba Harvest decreased to $12.7 million and $26.1 million for three and six months ended November 30, 2022 compared to $13.8 million and $28.7 million from the prior year same periods. On a constant currency basis for the three and six months ended November 30, 2022 same periods, Wellness revenue decreased to $13.1 million and $26.8 million from $13.8 million and $28.7 million. The decrease in revenue for the three months ended related to a one-time inventory reduction by one of our customers based on a warehousing strategy change that is not anticipated to recur in future periods. The six month decrease is impacted by the aforementioned items as well as the prior year quarter including a one-off private label sale that did not recur in the current quarter.
Gross profit, gross margin and adjusted gross margin(1) for our reporting segments
Our gross profit and gross margin for the three and six months ended November 30, 20212022 and 2020,2021, is as follows:
For the three months | For the six months | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of U.S. dollars) | For the three months ended November 30, |
|
| Change |
|
| % Change |
|
| For the six months ended November 30, |
|
| Change |
|
| % Change |
| ended November 30, | Change | % Change | ended November 30, | Change | % Change | ||||||||||||||||||||||||||||||||||||||||
Cannabis | 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||
Revenue | $ | 73,429 |
|
| $ | 70,155 |
|
| $ | 3,274 |
|
|
| 5 | % |
| $ | 163,362 |
|
| $ | 137,275 | �� |
| $ | 26,087 |
|
|
| 19 | % | ||||||||||||||||||||||||||||||||
Excise taxes |
| (14,654 | ) |
|
| (15,389 | ) |
|
| 735 |
|
|
| (5 | %) |
|
| (34,138 | ) |
|
| (31,307 | ) |
|
| (2,831 | ) |
|
| 9 | % | ||||||||||||||||||||||||||||||||
Net revenue |
| 58,775 |
|
|
| 54,766 |
|
|
| 4,009 |
|
|
| 7 | % |
|
| 129,224 |
|
|
| 105,968 |
|
|
| 23,256 |
|
|
| 22 | % | 49,898 | 58,775 | (8,877 | ) | (15 | )% | 108,468 | 129,224 | (20,756 | ) | (16 | )% | ||||||||||||||||||||
Cost of goods sold |
| 45,259 |
|
|
| 29,632 |
|
|
| 15,627 |
|
|
| 53 | % |
|
| 85,450 |
|
|
| 55,407 |
|
|
| 30,043 |
|
|
| 54 | % | 31,335 | 45,259 | (13,924 | ) | (31 | )% | 60,196 | 85,450 | (25,254 | ) | (30 | )% | ||||||||||||||||||||
Gross profit |
| 13,516 |
|
|
| 25,134 |
|
|
| (11,618 | ) |
|
| (46 | %) |
|
| 43,774 |
|
|
| 50,561 |
|
|
| (6,787 | ) |
|
| (13 | %) | 18,563 | 13,516 | 5,047 | 37 | % | 48,272 | 43,774 | 4,498 | 10 | % | ||||||||||||||||||||||
Gross margin |
| 23 | % |
|
| 46 | % |
|
| (23 | %) |
|
| (50 | %) |
|
| 34 | % |
|
| 48 | % |
|
| (14 | %) |
|
| (29 | %) | 37 | % | 23 | % | 14 | % | 62 | % | 45 | % | 34 | % | 11 | % | 31 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Inventory valuation adjustments |
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| (0%) |
|
|
| 12,000 |
|
|
| — |
|
|
| — |
|
| (0%) |
| — | 12,000 | (12,000 | ) | (100 | )% | — | 12,000 | (12,000 | ) | (100 | )% | ||||||||||||||||||||||
Adjusted gross profit (1) |
| 25,516 |
|
|
| 25,134 |
|
|
| 382 |
|
|
| 10 | % |
|
| 55,774 |
|
|
| 50,561 |
|
|
| 5,213 |
|
|
| 22 | % | 18,563 | 25,516 | (6,953 | ) | (27 | )% | 48,272 | 55,774 | (7,502 | ) | (13 | )% | ||||||||||||||||||||
Adjusted gross margin (1) |
| 43 | % |
|
| 46 | % |
|
| 10 | % |
|
| (3 | %) |
|
| 43 | % |
|
| 48 | % |
|
| 22 | % |
|
| 47 | % | 37 | % | 43 | % | (6 | )% | (14 | )% | 45 | % | 43 | % | 2 | % | 5 | % | ||||||||||||||||
Distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Revenue | $ | 68,869 |
|
| $ | 73,983 |
|
| $ | (5,114 | ) |
|
| (7 | %) |
| $ | 136,055 |
|
| $ | 140,271 |
|
| $ | (4,216 | ) |
|
| (3 | %) | ||||||||||||||||||||||||||||||||
Excise taxes |
| — |
|
|
| — |
|
|
| — |
|
| NM |
|
|
| — |
|
|
| — |
|
|
| — |
|
| NM |
| ||||||||||||||||||||||||||||||||||
Net revenue |
| 68,869 |
|
|
| 73,983 |
|
|
| (5,114 | ) |
|
| (7 | %) |
|
| 136,055 |
|
|
| 140,271 |
|
|
| (4,216 | ) |
|
| (3 | %) | 60,188 | 68,869 | (8,681 | ) | (13 | )% | 120,773 | 136,055 | (15,282 | ) | (11 | )% | ||||||||||||||||||||
Cost of goods sold |
| 61,237 |
|
|
| 64,263 |
|
|
| (3,026 | ) |
|
| (5 | %) |
|
| 120,527 |
|
|
| 121,033 |
|
|
| (506 | ) |
|
| (0 | %) | 52,495 | 61,237 | (8,742 | ) | (14 | )% | 107,479 | 120,527 | (13,048 | ) | (11 | )% | ||||||||||||||||||||
Gross profit |
| 7,632 |
|
|
| 9,720 |
|
|
| (2,088 | ) |
|
| (21 | %) |
|
| 15,528 |
|
|
| 19,238 |
|
|
| (3,710 | ) |
|
| (19 | %) | 7,693 | 7,632 | 61 | 1 | % | 13,294 | 15,528 | (2,234 | ) | (14 | )% | |||||||||||||||||||||
Gross margin |
| 11 | % |
|
| 13 | % |
|
| (2 | %) |
|
| (2 | %) |
|
| 11 | % |
|
| 14 | % |
|
| (2 | %) |
|
| (17 | %) | 13 | % | 11 | % | 2 | % | 15 | % | 11 | % | 11 | % | (0 | )% | (4 | )% | ||||||||||||||||
Beverage alcohol |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Revenue | $ | 14,544 |
|
| $ | 754 |
|
| $ | 13,790 |
|
| NM |
|
| $ | 31,027 |
|
| $ | 754 |
|
| $ | 30,273 |
|
| NM |
| ||||||||||||||||||||||||||||||||||
Excise taxes |
| (837 | ) |
|
| (44 | ) |
|
| (793 | ) |
| NM |
|
|
| (1,859 | ) |
|
| (44 | ) |
|
| (1,815 | ) |
| NM |
| ||||||||||||||||||||||||||||||||||
Net revenue |
| 13,707 |
|
|
| 710 |
|
|
| 12,997 |
|
| NM |
|
|
| 29,168 |
|
|
| 710 |
|
|
| 28,458 |
|
| NM |
| 21,395 | 13,707 | 7,688 | 56 | % | 42,049 | 29,168 | 12,881 | 44 | % | ||||||||||||||||||||||||
Cost of goods sold |
| 5,921 |
|
|
| 281 |
|
|
| 5,640 |
|
| NM |
|
|
| 12,583 |
|
|
| 281 |
|
|
| 12,302 |
|
| NM |
| 11,420 | 5,921 | 5,499 | 93 | % | 22,269 | 12,583 | 9,686 | 77 | % | ||||||||||||||||||||||||
Gross profit |
| 7,786 |
|
|
| 429 |
|
|
| 7,357 |
|
| NM |
|
|
| 16,585 |
|
|
| 429 |
|
|
| 16,156 |
|
| NM |
| 9,975 | 7,786 | 2,189 | 28 | % | 19,780 | 16,585 | 3,195 | 19 | % | ||||||||||||||||||||||||
Gross margin |
| 57 | % |
|
| 60 | % |
|
| (4 | %) |
| NM |
|
|
| 57 | % |
|
| 60 | % |
|
| (4 | %) |
| NM |
| 47 | % | 57 | % | (10 | )% | (18 | )% | 47 | % | 57 | % | (10 | )% | (17 | )% | ||||||||||||||||||
Purchase price accounting step-up | 1,107 | — | 1,107 | NM | 2,214 | — | 2,214 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted gross profit (1) | 11,082 | 7,786 | 3,296 | 42 | % | 21,994 | 16,585 | 5,409 | 33 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted gross margin (1) | 52 | % | 57 | % | (5% | ) | (9% | ) | 52 | % | 57 | % | (5% | ) | (8% | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Wellness |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Revenue | $ | 13,802 |
|
| $ | — |
|
| $ | 13,802 |
|
| NM |
|
| $ | 28,729 |
|
| $ | — |
|
| $ | 28,729 |
|
| NM |
| ||||||||||||||||||||||||||||||||||
Excise taxes |
| — |
|
|
| — |
|
|
| — |
|
| NM |
|
|
| — |
|
|
| — |
|
|
| — |
|
| NM |
| ||||||||||||||||||||||||||||||||||
Net revenue |
| 13,802 |
|
|
| — |
|
|
| 13,802 |
|
| NM |
|
|
| 28,729 |
|
|
| — |
|
|
| 28,729 |
|
| NM |
| 12,655 | 13,802 | (1,147 | ) | (8 | )% | 26,057 | 28,729 | (2,672 | ) | (9 | )% | ||||||||||||||||||||||
Cost of goods sold |
| 9,970 |
|
|
| — |
|
|
| 9,970 |
|
| NM |
|
|
| 20,895 |
|
|
| — |
|
|
| 20,895 |
|
| NM |
| 8,762 | 9,970 | (1,208 | ) | (12 | )% | 18,665 | 20,895 | (2,230 | ) | (11 | )% | ||||||||||||||||||||||
Gross profit |
| 3,832 |
|
|
| — |
|
|
| 3,832 |
|
| NM |
|
|
| 7,834 |
|
|
| — |
|
|
| 7,834 |
|
| NM |
| 3,893 | 3,832 | 61 | 2 | % | 7,392 | 7,834 | (442 | ) | (6 | )% | |||||||||||||||||||||||
Gross margin |
| 28 | % |
|
| — | % |
|
| 28 | % |
| NM |
|
|
| 27 | % |
|
| — | % |
|
| 27 | % |
| NM |
| 31 | % | 28 | % | 3 | % | 11 | % | 28 | % | 27 | % | 1 | % | 4 | % | ||||||||||||||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Revenue | $ | 170,644 |
|
| $ | 144,892 |
|
| $ | 25,752 |
|
|
| 18 | % |
| $ | 359,173 |
|
| $ | 278,300 |
|
| $ | 80,873 |
|
|
| 29 | % | ||||||||||||||||||||||||||||||||
Excise taxes |
| (15,491 | ) |
|
| (15,433 | ) |
|
| (58 | ) |
|
| 0 | % |
|
| (35,997 | ) |
|
| (31,351 | ) |
|
| (4,646 | ) |
|
| 15 | % | ||||||||||||||||||||||||||||||||
Net revenue |
| 155,153 |
|
|
| 129,459 |
|
|
| 25,694 |
|
|
| 20 | % |
|
| 323,176 |
|
|
| 246,949 |
|
|
| 76,227 |
|
|
| 31 | % | 144,136 | 155,153 | (11,017 | ) | (7 | )% | 297,347 | 323,176 | (25,829 | ) | (8 | )% | ||||||||||||||||||||
Cost of goods sold |
| 122,387 |
|
|
| 94,176 |
|
|
| 28,211 |
|
|
| 30 | % |
|
| 239,455 |
|
|
| 176,721 |
|
|
| 62,734 |
|
|
| 35 | % | 104,012 | 122,387 | (18,375 | ) | (15 | )% | 208,609 | 239,455 | (30,846 | ) | (13 | )% | ||||||||||||||||||||
Gross profit |
| 32,766 |
|
|
| 35,283 |
|
|
| (2,517 | ) |
|
| (7 | %) |
|
| 83,721 |
|
|
| 70,228 |
|
|
| 13,493 |
|
|
| 19 | % | 40,124 | 32,766 | 7,358 | 22 | % | 88,738 | 83,721 | 5,017 | 6 | % | ||||||||||||||||||||||
Gross margin |
| 21 | % |
|
| 27 | % |
|
| (6 | %) |
|
| (1 | %) |
|
| 26 | % |
|
| 28 | % |
|
| (3 | %) |
|
| 62 | % | 28 | % | 21 | % | 7 | % | 33 | % | 30 | % | 26 | % | 4 | % | 15 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Inventory valuation adjustments |
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| (0%) |
|
|
| 12,000 |
|
|
| — |
|
|
| — |
|
| (0%) |
| — | 12,000 | (12,000 | ) | (100 | )% | — | 12,000 | (12,000 | ) | (100 | )% | ||||||||||||||||||||||
Purchase price accounting step-up | 1,107 | — | 1,107 | NM | 2,214 | — | 2,214 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted gross profit (1) |
| 44,766 |
|
|
| 35,283 |
|
|
| 9,483 |
|
|
| 27 | % |
|
| 95,721 |
|
|
| 70,228 |
|
|
| 25,493 |
|
|
| 36 | % | 41,231 | 44,766 | (3,535 | ) | (8 | )% | 90,952 | 95,721 | (4,769 | ) | (5 | )% | ||||||||||||||||||||
Adjusted gross margin (1) |
| 29 | % |
|
| 27 | % |
|
| 37 | % |
|
| 2 | % |
|
| 30 | % |
|
| 28 | % |
|
| 33 | % |
|
| 118 | % | 29 | % | 29 | % | — | % | — | % | 31 | % | 30 | % | 1 | % | 3 | % |
(1) |
| Adjusted gross profit is our Gross profit |
Cannabis gross margin: Gross margin decreasedincreased during the three and six months ended November 30, 20212022 to 37%& and 45% from 23% and 34% from 46% and 48% versusfor the prior year same periods, reflectingperiods. The three and six month increases in cannabis gross margin are primarily related to the addition of sales of Tilray brands that have higher costs to produce than our legacy brands and a non-cash inventory write downvaluation allowance that was recorded in the same periods of $12the prior year. Excluding this valuation allowance, adjusted gross margin during the three and six months ended November 30, 2022 decreased to 37% from 43% and increased to 45% from 43% when comparing the prior year same periods. The largest impact on the current period adjusted gross margin is the inclusion of the $7.9 million and $15.6 million of HEXO advisory fee revenue included in November 2021. Significant effortscannabis revenue for the three and six month periods. When this revenue is excluded from this computation, our adjusted cannabis gross margin would have been taken25% and 35% for the three and six month periods. During the three month period, the Company recognized a one-time return as discussed in the international cannabis revenue section that reduced our top line revenue as well as a one-time inventory disposals incurred as exit costs from both Israel and Uruguay for a combined impact of reducing gross profit by $4.2 million or gross margin by 8.2%. Specifically, the portion of the adjustment that related to reduceUruguay was $2.8 million of which this exit cost has been included in our adjusted EBITDA reconciliation under facility closure and exit costs. Further impacting the Company’s cultivation costs at its legacy Tilray Canadiandecrease in the adjusted gross cannabis margin is a shift in strategic priorities to focus on pursuing cash flow generating activities. The Company has made the business decision to lower production in our cannabis facilities including announcing the shutdownas a result of both the Enniskillen and Nanaimo facilities. In the interim and until the inventory cultivated at these facilities work their way through inventory, we expect to report lower gross margins until all inventory is cultivated at legacy Aphria facilities. Our European operationsslower than anticipated legalization globally. We will continue to workprioritize reductions in operational costs as we continue to optimize theassess additional potential cost structure for their cannabis growing facilities, including working with the Canadian operations team, all in an effort to continually will lower our per unit costs.saving initiatives.
Distribution gross margin: Gross margin of 11%13% and 11% for the three and six months ended November 30, 2021 slightly decreased versus2022 increased from 11% and 11% the same periods in the prior year driven by increased costsyear. The increase in the three month period is attributed to a change in product mix as the Company’s primary source of products were unableCompany continues to ship during border closures and during periods of peak demand.focus on higher margin sales. On a six month basis, the gross margin has remained consistent.
Beverage alcohol gross margin: Gross margin of 57%47% and 57%47% for the three and six months ended November 30, 2021 are2022 decreased from 57% and 57% from the same periods in line with our expectations. We did not operate in this segment until the final week of the second quarter of the prior year.
Wellness Adjusted gross margin: Gross margin of 28%52% and 27%52% for the three and six months ended November 30, 2021 are in line with our expectations2022 decreased from 57% and consistent with the preceding fiscal quarter. We acquired the wellness business in the Arrangement and did not operate in this segment during57% from the same periods duringin the prior year. This decrease in beverage alcohol gross margin for both the three and six month periods is a result of the Breckenridge and Montauk acquisitions that were not completed in the prior period comparisons. Both companies operate at a slightly lower margin than Sweetwater, which contributed to the decrease. Additionally, Sweetwater has expanded operations in Colorado in the current period which has had negative impacts on the margin as it is still in the start-up phase.
Wellness gross margin: Gross margin of 31% and 28%for the three and six months ended November 30, 2022 increased from 28% and 27% from the same periods in the prior year. On a three month basis the wellness gross margin has increased as a result of increased sales prices on the Company's branded products to compensate for the inflationary impacts on our input materials. The company saw an increase in gross margin for the three month period to 31% from the 26% in the immediately preceding quarter as a result of this change in pricing strategy. On a six month basis gross margin remained relatively consistent period over period despite inflationary impacts.
Operating expenses
For the three months | For the six months | |||||||||||||||||||||||||||||||
ended November 30, | Change | % Change | ended November 30, | Change | % Change | |||||||||||||||||||||||||||
(in thousands of US dollars) | 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||
General and administrative | $ | 41,672 | $ | 33,469 | $ | 8,203 | 25 | % | $ | 82,180 | $ | 82,956 | $ | (776 | ) | (1 | )% | |||||||||||||||
Selling | 9,669 | 9,210 | 459 | 5 | % | 19,340 | 16,642 | 2,698 | 16 | % | ||||||||||||||||||||||
Amortization | 23,995 | 29,016 | (5,021 | ) | (17 | )% | 48,354 | 59,755 | (11,401 | ) | (19 | )% | ||||||||||||||||||||
Marketing and promotion | 8,535 | 7,120 | 1,415 | 20 | % | 15,783 | 12,585 | 3,198 | 25 | % | ||||||||||||||||||||||
Research and development | 165 | 515 | (350 | ) | (68 | )% | 331 | 1,300 | (969 | ) | (75 | )% | ||||||||||||||||||||
Change in fair value of contingent consideration | — | 845 | (845 | ) | (100 | )% | 211 | 1,682 | (1,471 | ) | NM | |||||||||||||||||||||
Litigation costs | 2,815 | 1,080 | 1,735 | 161 | % | 3,260 | 2,274 | 986 | 43 | % | ||||||||||||||||||||||
Transaction (income) costs | 5,064 | 7,040 | (1,976 | ) | (28 | )% | (7,752 | ) | 31,425 | (39,177 | ) | (125 | )% | |||||||||||||||||||
Total operating expenses | $ | 91,915 | $ | 88,295 | $ | 3,620 | 4 | % | $ | 161,707 | $ | 208,619 | $ | (46,912 | ) | (22 | )% |
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of US dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
General and administrative |
| $ | 33,469 |
|
| $ | 28,273 |
|
| $ | 5,196 |
|
|
| 18 | % |
| $ | 82,956 |
|
| $ | 54,245 |
|
| $ | 28,711 |
|
|
| 53 | % |
Selling |
|
| 9,210 |
|
|
| 6,079 |
|
|
| 3,131 |
|
|
| 52 | % |
|
| 16,642 |
|
|
| 11,896 |
|
|
| 4,746 |
|
|
| 40 | % |
Amortization |
|
| 29,016 |
|
|
| 4,208 |
|
|
| 24,808 |
|
|
| 590 | % |
|
| 59,755 |
|
|
| 8,335 |
|
|
| 51,420 |
|
|
| 617 | % |
Marketing and promotion |
|
| 7,120 |
|
|
| 4,252 |
|
|
| 2,868 |
|
|
| 67 | % |
|
| 12,585 |
|
|
| 9,177 |
|
|
| 3,408 |
|
|
| 37 | % |
Research and development |
|
| 515 |
|
|
| 225 |
|
|
| 290 |
|
|
| 129 | % |
|
| 1,300 |
|
|
| 345 |
|
|
| 955 |
|
|
| 277 | % |
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 33,699 |
|
|
| 20,664 |
|
|
| 13,035 |
|
|
| 63 | % |
Total operating expenses |
| $ | 87,450 |
|
| $ | 61,243 |
|
| $ | 26,207 |
|
|
|
|
|
| $ | 2,06,937 |
|
| $ | 1,04,662 |
|
| $ | 1,02,275 |
|
|
|
|
|
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, litigation costs and transaction (income) costs. These costs increased by $26.2$3.6 million to $91.9 million and $102.3decreased by ($46.9) million to $161.7 million for the three and six months ended November 30, 2021 2022 as compared to $88.3 million and $208.6 million for the same periods of the prior year same periods.year. This six month decrease was primarily duea result of the transaction income recorded in the period described in detail below, where as the prior period comparative included expenses related to reporting full quartersthe Tilray-Aphria Arrangement Agreement. Additionally, our amortization has decreased as a result of operating expenses for SweetWater and Tilray, including non-cash amortization charges associated with definite lifethe reductions in our intangible assets acquirednoted in our 10-K. The three month increase related to one-time expenses in office and general and administrative expenses. The remaining increase is from transaction costs related to non-recurring expenses associated with our current acquisitions and evaluation of future potential acquisition, and one-time litigation costs associated withdescribed below offset by the acquired net assets.decreased amortization as discussed in the six month decrease.
General and administrative costs
During the three and six months ended November 30, 2021,2022, general and administrative costs increased by 18%25% and 53%decreased by 1% as compared to the prior year same periods.
For the three months | For the six months | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ended November 30, | Change | % Change | ended November 30, | Change | % Change | ||||||||||||||||||||||||||||||||||||||||||||||
(in thousands of US dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||||||||||||||||
Executive compensation |
| $ | 2,237 |
|
| $ | 2,711 |
|
| $ | (474 | ) |
|
| (17 | %) |
| $ | 5,327 |
|
| $ | 4,961 |
|
| $ | 366 |
|
|
| 7 | % | $ | 3,050 | $ | 2,237 | $ | 813 | 36 | % | $ | 6,605 | $ | 5,327 | $ | 1,278 | 24 | % | ||||||||||||||||
Office and general |
|
| 5,206 |
|
|
| 4,418 |
|
|
| 788 |
|
|
| 18 | % |
|
| 17,973 |
|
|
| 8,839 |
|
|
| 9,134 |
|
|
| 103 | % | 8,982 | 5,003 | 3,979 | 80 | % | 14,811 | 17,743 | (2,932 | ) | (17 | )% | |||||||||||||||||||||
Salaries and wages |
|
| 8,149 |
|
|
| 8,821 |
|
|
| (672 | ) |
|
| (8 | %) |
|
| 23,460 |
|
|
| 18,164 |
|
|
| 5,296 |
|
|
| 29 | % | 10,151 | 8,149 | 2,002 | 25 | % | 24,786 | 23,460 | 1,326 | 6 | % | ||||||||||||||||||||||
Stock-based compensation |
|
| 8,253 |
|
|
| 5,489 |
|
|
| 2,764 |
|
|
| 50 | % |
|
| 17,670 |
|
|
| 8,339 |
|
|
| 9,331 |
|
|
| 112 | % | 10,943 | 8,253 | 2,690 | 33 | % | 20,136 | 17,670 | 2,466 | 14 | % | ||||||||||||||||||||||
Insurance |
|
| 4,995 |
|
|
| 2,904 |
|
|
| 2,091 |
|
|
| 72 | % |
|
| 9,626 |
|
|
| 6,110 |
|
|
| 3,516 |
|
|
| 58 | % | 2,726 | 4,995 | (2,269 | ) | (45 | )% | 5,429 | 9,626 | (4,197 | ) | (44 | )% | ||||||||||||||||||||
Professional fees |
|
| 3,355 |
|
|
| 3,171 |
|
|
| 184 |
|
|
| 6 | % |
|
| 6,068 |
|
|
| 6,106 |
|
|
| (38 | ) |
|
| (1 | %) | 1,730 | 3,355 | (1,625 | ) | (48 | )% | 4,220 | 6,068 | (1,848 | ) | (30 | )% | ||||||||||||||||||||
Loss on sale of capital assets | 2,131 | 203 | 1,928 | 950 | % | 2,208 | 230 | 1,978 | 860 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Travel and accommodation |
|
| 982 |
|
|
| 525 |
|
|
| 457 |
|
|
| 87 | % |
|
| 1,774 |
|
|
| 1,252 |
|
|
| 522 |
|
|
| 42 | % | 1,219 | 982 | 237 | 24 | % | 2,380 | 1,774 | 606 | 34 | % | ||||||||||||||||||||||
Rent |
|
| 292 |
|
|
| 234 |
|
|
| 58 |
|
|
| 25 | % |
|
| 1,058 |
|
|
| 474 |
|
|
| 584 |
|
|
| 123 | % | 740 | 292 | 448 | 153 | % | 1,605 | 1,058 | 547 | 52 | % | ||||||||||||||||||||||
Total general and administrative costs |
| $ | 33,469 |
|
| $ | 28,273 |
|
| $ | 5,196 |
|
|
| 18 | % |
| $ | 82,956 |
|
| $ | 54,245 |
|
| $ | 28,711 |
|
|
| 53 | % | $ | 41,672 | $ | 33,469 | $ | 8,203 | 25 | % | $ | 82,180 | $ | 82,956 | $ | (776 | ) | (1 | )% |
Executive compensation decreasedincreased by 36% and 24% in the three months and increased the six months ended November 30, 2021.2022. The slight decrease in the three months compared to the prior periodmonth increase is primarily related to one-time changes in the overall compensation structure. The increase for the six month period compared to the prior period is primarily due to an increase in theincreased number of directors and executive level personnel on our board of directors and executive management team, respectively, and an increase in base salaries commensurate withemployees as well as more competitive compensation to reflect the increased complexity of our Company.the organization as it evolves. The six month increase is consistent with the three month increase.
Office and general increased by 80% and decreased by 17% during the three and six months ended November 30, 20212022. The increase in the three month period, was driven by necessary one-time exit costs incurred in our international cannabis business to terminate operations that were no longer accretive to our focus of being free cash flow positive. Specifically, there was $1.6 million of exit costs related to the termination of our producer partnership in Uruguay due to a breach of the underlying contract. This exit cost has been included in our adjusted EBITDA reconciliation under facility closure and exit costs. Additionally, $1.6 million of bad debt expenses were incurred in the period from the discontinuance of business with our aforementioned Israel customer. The Company took this necessary step in order to continue pursuing sustainable growth by focusing on areas of the business that generate positive cash flows. The six month decrease is primarily due to reporting SweetWater and Tilray for the periods andinclusion of the additional one-time costs associated with the upcoming closurerestructuring of our Nanaimo, facility. Canada, facility in the prior year comparative offset by the items discussed in the three month increase.
Salaries and wages decreased inincreased by 25% and increased by 6% during the three months and increased the six months ended November 30, 2021. The slight decrease from the prior period is primarily related to one-time changes in the overall compensation structure.2022. The increase is primarily due to additions associated with new acquisitions fromthe inclusion of Breckenridge and Montauk employees who were not included in the prior year.period comparatives. The Company’s headcount increased toremained consistent with approximately 1,8001,750 employees as a result of the Arrangement compared to 1,0001,800 employees as of November 30, 2020.2021.
The Company recognized stock-based compensation expense of $8.3$10.9 million and $17.7$20.1 million for the three and six months ended November 30, 20212022 compared to $5.5$8.3 million and $8.3 million$17.7 for the same periods in the prior year. The increasebalance has remained relatively consistent period over period as this is primarily due to increased number of employees and the accelerated vesting of certain of our stock-based compensation awards tied to the Arrangement. Stock options are valued using the Black-Scholes valuation model and represents a non-cash expense, restricted share units (“RSUs”) are valued based on the gradedtime based vesting and the grant date fair value.schedules.
Insurance expenseexpenses decreased by 45% and 44% for the three and six months ended November 30, 20212022 to $2.7 million and $5.4 million from $5.0 million and $9.6 million from the same periods in the prior year. This item was a target of the Tilray-Aphria Arrangement Agreement synergies.
Loss on sale of capital assets increased due primarilyto $2.1 million and $2.2 million for the three and six months ended November 30, 2022 compared to $0.2 million and $0.2 million for the prior year same periods. The Company incurred $2.2 million of write-offs from the exit of our medical device reprocessing business in our distribution reporting segment. These one-time non-cash charges were a required exit cost as we determined this business venture was no longer accretive to our directorsfocus of being free cash flow positive. This exit cost has been included in our adjusted EBITDA reconciliation under facility closure and officers’ insurance policy. This increase reflects an increase in premium rates, as the Company continued with legacy Tilray’s rating history.exit costs.
Selling costs
For the three months ended November 30, 2021,2022, the Company incurred selling costs of $9.2$9.7 million and $19.3 million or 5.9%6.7% and 6.5% of revenue as compared to $6.1$9.2 million and 4.2%$16.6 million and 5.9% and 5.1% of revenue in the prior year same period. For the six months ended November 30, 2021, the Company incurred selling costs of $16.6 million or 5.1% of revenue as compared to $11.9 million and 4.3% of revenue in the prior year same period.periods. These costs relate to third-party distributor commissions, shipping costs, Health Canada cannabis fees, and patient acquisition and maintenance costs. Patient acquisition and ongoing patient maintenance costs include funding to individual clinics to assist with additional costs incurred by clinics resulting from the education of patients using the Company’s products. The increase in selling costs as a percent of revenue in both the three and six-month periods resulted from incurred costshaving a portion of our selling fees with fixed components that did not decrease with the decline in our revenue during the quarter. Additionally, there are no selling fees associated with multiple distributors in the same location, which represent a duplicationour advisory fee revenue and thus there is no correlation between selling fees and this stream of costs that will be reduced upon achievement of synergies. The increase is mainly driven by the combination of legacy Tilray.revenue.
Amortization
The Company incurred non-production related amortization charges of $29.0$24.0 million and $59.8$48.4 million for the three and six months ended November 30, 20212022 compared to $4.2$29.0 million and $8.3$59.8 million in the prior year same periods.period. The increasedecreased amortization in both the three and six month periods, is associated witha result of the amortization on the acquired definite lifereduced intangible assets from SweetWater and Tilray.asset levels.
Marketing and promotion costs
For the three and six months ended November 30, 2021,2022, the Company incurred marketing and promotion costs of $8.5 million and $15.8 million as compared to $7.1 million and $12.6 million as compared to $4.3 million and $9.2 million infor the prior year same periods. The increase is mainly drivena result of the continued focus of investing in our Canadian cannabis brands by prioritizing our retail partnerships through the combinationeducation of legacy Tilray.budtenders. Additionally, the prior year comparative did not include the marketing spend related to Breckenridge and Montauk, as they were acquired in the second quarter of the prior year.
Research and development
Research and development costs were $0.5$0.2 million and $1.3$0.3 million during the three and six months ended November 30, 20212022 compared to $0.2$0.5 million and $0.3$1.3 million in the prior year same periods.period. These relate to external costs associated with the development of new products. Although
Transaction (income) costs
Items classified as transaction (income) costs are non-recurring in nature and correspond largely to our acquisition, restructuring and synergy strategy. The three and six months decrease of 28% and 125% from the Company spends a significant amount on research and development, the majority of these costs remain in costs of sales, as the Company does not reclassify research and development costsprior year period is related to the cost of products consumed in research and development activities.following items:
Transaction
● | we incurred minimal transaction costs related to the Tilray-Aphria Arrangement Agreement in the current quarter, however, we do anticipate that there will continue to be additional costs associated with this transaction until the resolution of our lease termination for our Enniskillen facility and the restructuring of Nanaimo facility are completed; |
● | the prior period comparatives included fees related to the MedMen transaction, which has been completed and thus there are no further expected costs to be incurred unless the Triggering Event arises; |
● | the fees associated with amending our charter incurred in the three month period; |
● | a non-reimbursed compensation payment of $5.0 million was made as a result of the HEXO transaction in the six month period; |
● | partially offsetting the decrease in the period were the fees incurred for the Montauk acquisition in the current quarter which differed from the fees incurred for the Breckenridge acquisitions which occurred in the prior period comparative; and | |
● | we recognized a change in fair value of $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 Note 7 (Convertible notes receivable). This gain was payable to the Company from HTI and was collected in cash during the six month period. This gain offsets the aforementioned items in the six month period and contributes to the period over period decrease. The Company does not anticipate there to be additional transaction costs related to the HEXO transaction as it is complete at this time, however, should the Company pursue additional arrangements with HEXO than additional costs may be incurred. |
The three month decrease is associated with the closing of the SweetWater acquisition in the prior period. This six month increase is associated with the solicitation of shareholder votes supporting an increase in the number of authorized common stock shares, transaction closing costs related to the Arrangement, the MM Transaction and the evaluation of other potential acquisitions and one-time litigation costs.
Non-operating (expense) income, net
Non-operating (expense) income is comprised of:
For the three months | For the six months | |||||||||||||||||||||||||||||||
ended November 30, | Change | % Change | ended November 30, | Change | % Change | |||||||||||||||||||||||||||
(in thousands of US dollars) | 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||
Change in fair value of convertible debenture | $ | (12,698 | ) | $ | 56,353 | $ | (69,051 | ) | (123 | )% | $ | (20,582 | ) | $ | 95,723 | $ | (116,305 | ) | (122 | )% | ||||||||||||
Change in fair value of warrant liability | 37 | 20,178 | (20,141 | ) | (100 | )% | 1,585 | 37,713 | (36,128 | ) | (96 | )% | ||||||||||||||||||||
Foreign exchange loss | 907 | (10,180 | ) | 11,087 | (109 | )% | (24,666 | ) | (15,904 | ) | (8,762 | ) | 55 | % | ||||||||||||||||||
Loss on long-term investments | (596 | ) | (1,833 | ) | 1,237 | (67 | )% | (1,604 | ) | (3,508 | ) | 1,904 | (54 | )% | ||||||||||||||||||
Other non-operating (losses) gains, net | (6,100 | ) | 1,077 | (7,177 | ) | (666 | )% | (6,175 | ) | 1,268 | (7,443 | ) | (587 | )% | ||||||||||||||||||
Total non-operating income (expense) | $ | (18,450 | ) | $ | 65,595 | $ | (84,045 | ) | (128 | )% | $ | (51,442 | ) | $ | 115,292 | $ | (166,734 | ) | (145 | )% |
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of US dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Change in fair value of convertible debenture |
| $ | 56,353 |
|
| $ | (70,683 | ) |
| $ | 1,27,036 |
|
|
| (180 | %) |
| $ | 95,723 |
|
| $ | (70,343 | ) |
| $ | 1,66,066 |
|
|
| (236 | %) |
Change in fair value of warrant liability |
|
| 20,178 |
|
|
| — |
|
|
| 20,178 |
|
| NM |
|
|
| 37,713 |
|
|
| — |
|
|
| 37,713 |
|
| NM |
| ||
Foreign exchange loss |
|
| (10,180 | ) |
|
| (3,371 | ) |
|
| (6,809 | ) |
|
| 202 | % |
|
| (15,904 | ) |
|
| (19,702 | ) |
|
| 3,798 |
|
|
| (19 | %) |
Loss on long-term investments |
|
| (1,833 | ) |
|
| (399 | ) |
|
| (1,434 | ) |
|
| 359 | % |
|
| (3,508 | ) |
|
| (1,519 | ) |
|
| (1,989 | ) |
|
| 131 | % |
Gain from equity investees |
|
| — |
|
|
| — |
|
|
| — |
|
| NM |
|
|
| 1,356 |
|
|
| — |
|
|
| 1,356 |
|
| NM |
| ||
Other non-operating (losses) gains, net |
|
| 232 |
|
|
| 1,804 |
|
|
| (1,572 | ) |
|
| (87 | %) |
|
| (1,770 | ) |
|
| 5,556 |
|
|
| (7,326 | ) |
|
| (132 | %) |
Total non-operating income (expense) |
| $ | 64,750 |
|
| $ | (72,649 | ) |
| $ | 1,37,399 |
|
|
|
|
|
| $ | 1,13,610 |
|
| $ | (86,008 | ) |
| $ | 1,99,618 |
|
|
|
|
|
For the three and six months ended November 30, 2021,2022, the Company recognized a change in fair value of its APHA 24 convertible debentures payable of ($12.7) million and ($20.6) million compared to $56.4 million and $95.7 million compared to a decrease in value of $70.7 million and $70.3 million for 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.debentures payable. Additionally, for the three and six months ended November 30, 20212022, the Company recognized a change in fair value of its warrants, of resulting in a gain of $0.04 million and $1.6 million compared to $20.2 million and $37.7 million acquired as part of the Arrangement, also as a result of the decreasechange in our share price. Furthermore, for three and six months ended November 30, 20212022, the Company recognized a loss of $9.5$0.9 million and $15.2($24.7) million, resulting from the changes in foreign exchange rates during the period, compared to losses of $3.4($10.2) million and $19.7($15.9) million for the prior year same periods, largely associated with the strengtheningweakening of the US dollar againstEuro. Lastly, included in other non-operating (losses) gains, net for the Canadian dollar. The remaining other losses relatethree and six months ended November 30, 2022 was ($6.1) million and ($6.2) millions related to changesa change in fair value on a derivative liability recognized in the Company’s convertible notes receivable and long-term investments.
Use of Non-GAAP Measures
We have included in this report measures of financial performancethree month period that aredid not defined by GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors. These non-GAAP measures include:
|
|
|
|
|
|
|
|
|
|
|
|
For each of these non-GAAP financial measures, we are providing below a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why our management and Board of Directors believe the non-GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use the non-GAAP measures. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measures.
All of these non-GAAP financial measures should be considered in addition, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally acceptedoccur 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.comparative periods.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
Adjusted net income (loss) and adjusted EBITDA
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net income (loss) |
| $ | 5,797 |
|
| $ | (89,249 | ) |
| $ | 95,046 |
|
|
| (106 | %) |
| $ | (28,807 | ) |
| $ | (1,10,993 | ) |
| $ | 82,186 |
|
|
| (74 | %) |
Adjusted net income (loss) |
| $ | (32,181 | ) |
| $ | 8,500 |
|
| $ | (40,681 | ) |
|
| (479 | %) |
| $ | (82,970 | ) |
| $ | 8,055 |
|
| $ | (91,025 | ) |
|
| (1,130 | %) |
Adjusted EBITDA |
| $ | 13,760 |
|
| $ | 10,139 |
|
| $ | 3,621 |
|
|
| 36 | % |
| $ | 26,457 |
|
| $ | 18,209 |
|
| $ | 8,248 |
|
|
| 45 | % |
Adjusted net income (loss)
Adjusted net loss represents a non-GAAP financial measure that does not have any standardized meaning prescribed under GAAP and may not be comparable to similar measures presented by other companies. Adjusted net income is calculated as net (loss) income plus (minus) the unrealized loss (gain) on convertible debentures, a non-cash item, share-based compensation, foreign exchange (loss) gain, all non-cash items, and transaction costs, costs which will not necessarily continue in future periods depending on the frequency of additional M&A considered by the Company. It represents a measure management uses in evaluating operating results to reduce the impact of the volatility caused by fair value accounting of instruments associated with our capital structure, that have no impact on operations. The increase in adjusted net loss is primarily driven by higher net loss stemming from higher amortization costs associated with the definite lived assets acquired during the year, the additional general and administrative costs associated with Tilray for the full quarter and increased non-cash unrealized loss on changes to the fair value of our convertible debentures.
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
Adjusted net loss reconciliation: |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net income (loss) |
| $ | 5,797 |
|
| $ | (89,249 | ) |
| $ | 95,046 |
|
|
| (106 | %) |
| $ | (28,807 | ) |
| $ | (1,10,993 | ) |
| $ | 82,186 |
|
|
| (74 | %) |
Unrealized (gain) loss on convertible debentures |
|
| (56,353 | ) |
|
| 70,683 |
|
|
| (1,27,036 | ) |
|
| (180 | %) |
|
| (95,723 | ) |
|
| 70,343 |
|
|
| (1,66,066 | ) |
|
| (236 | %) |
Foreign exchange loss (gain) |
|
| 10,180 |
|
|
| 3,371 |
|
|
| 6,809 |
|
|
| 202 | % |
|
| 15,904 |
|
|
| 19,702 |
|
|
| (3,798 | ) |
|
| (19 | %) |
Change in fair value of warrant liability |
|
| (20,178 | ) |
|
| — |
|
|
| (20,178 | ) |
| NM |
|
|
| (37,713 | ) |
|
| — |
|
|
| (37,713 | ) |
| NM |
| ||
Stock-based compensation |
|
| 8,253 |
|
|
| 5,489 |
|
|
| 2,764 |
|
|
| 50 | % |
|
| 17,670 |
|
|
| 8,339 |
|
|
| 9,331 |
|
|
| 112 | % |
Inventory write down |
|
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| NM |
|
|
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| NM |
| ||
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 33,699 |
|
|
| 20,664 |
|
|
| 13,035 |
|
|
| 63 | % |
Adjusted net income (loss) |
| $ | (32,181 | ) |
| $ | 8,500 |
|
| $ | (40,681 | ) |
|
|
|
|
| $ | (82,970 | ) |
| $ | 8,055 |
|
| $ | (91,025 | ) |
|
|
|
|
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) incomeloss before income taxes, net interest expense, depreciation and amortization, equity in net loss of equity-method investees, inventory write downs, stock-based compensation, integration activities, transaction (income) costs, litigation costs, unrealized currency gains and losses and other adjustments.
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 results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation.
We do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by U.S. GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with GAAP results.
For the periodthree and six months ended November 30, 2021,2022 adjusted EBITDA increaseddecreased to $11.7 and $25.2 million compared to $13.8 million and $26.5 million from the prior year same periods. The decrease was primarily from favorable effects of new lines of business, offsetdriven by the inclusionaforementioned negative impacts to our cannabis gross margin, as well as the increase of legacy Tilray’s cannabis business, while we workbad debt expenses recognized in the period. The Company continues to achievefocus on being free cash flow positive as noted by our synergies plan, as follows:improved operating cash flow in the quarter despite this decrease in adjusted EBITDA in the current period.
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
Adjusted EBITDA reconciliation: |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net income (loss) |
| $ | 5,797 |
|
| $ | (89,249 | ) |
| $ | 95,046 |
|
|
| (106 | %) |
| $ | (28,807 | ) |
| $ | (1,10,993 | ) |
| $ | 82,186 |
|
|
| (74 | %) |
Income taxes |
|
| (5,671 | ) |
|
| (14,192 | ) |
|
| 8,521 |
|
|
| (60 | %) |
|
| (909 | ) |
|
| (20,017 | ) |
|
| 19,108 |
|
|
| (95 | %) |
Interest expense, net |
|
| 9,940 |
|
|
| 4,832 |
|
|
| 5,108 |
|
|
| 106 | % |
|
| 20,110 |
|
|
| 10,568 |
|
|
| 9,542 |
|
|
| 90 | % |
Non-operating expense (income), net |
|
| (64,750 | ) |
|
| 72,649 |
|
|
| (1,37,399 | ) |
|
| (189 | %) |
|
| (1,13,610 | ) |
|
| 86,008 |
|
|
| (1,99,618 | ) |
|
| (232 | %) |
Amortization |
|
| 37,471 |
|
|
| 12,031 |
|
|
| 25,440 |
|
|
| 211 | % |
|
| 76,804 |
|
|
| 23,010 |
|
|
| 53,794 |
|
|
| 234 | % |
Stock-based compensation |
|
| 8,253 |
|
|
| 5,489 |
|
|
| 2,764 |
|
|
| 50 | % |
|
| 17,670 |
|
|
| 8,339 |
|
|
| 9,331 |
|
|
| 112 | % |
Facility start-up and closure costs |
|
| 1,700 |
|
|
| — |
|
|
| 1,700 |
|
| NM |
|
|
| 7,900 |
|
|
| — |
|
|
| 7,900 |
|
| NM |
| ||
Lease expense |
|
| 900 |
|
|
| 373 |
|
|
| 527 |
|
|
| 141 | % |
|
| 1,600 |
|
|
| 630 |
|
|
| 970 |
|
|
| 154 | % |
Inventory write down |
|
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| NM |
|
|
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| NM |
| ||
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 33,699 |
|
|
| 20,664 |
|
|
| 13,035 |
|
|
| 63 | % |
Adjusted EBITDA |
| $ | 13,760 |
|
| $ | 10,139 |
|
| $ | 3,621 |
|
|
|
|
|
| $ | 26,457 |
|
| $ | 18,209 |
|
| $ | 8,248 |
|
|
|
|
|
For the three months | For the six months | |||||||||||||||||||||||||||||||
ended November 30, | Change | % Change | ended November 30, | Change | % Change | |||||||||||||||||||||||||||
Adjusted EBITDA reconciliation: | 2022 | 2021 | 2022 vs. 2021 | 2022 | 2021 | 2022 vs. 2021 | ||||||||||||||||||||||||||
Net (loss) income | $ | (61,635 | ) | $ | 5,797 | $ | (67,432 | ) | (1,163 | )% | $ | (127,429 | ) | $ | (28,807 | ) | $ | (98,622 | ) | 342 | % | |||||||||||
Income taxes (benefit) expense | (11,713 | ) | (5,671 | ) | (6,042 | ) | 107 | % | (4,502 | ) | (909 | ) | (3,593 | ) | 395 | % | ||||||||||||||||
Interest expense, net | 3,107 | 9,940 | (6,833 | ) | (69 | )% | 7,520 | 20,110 | (12,590 | ) | (63 | )% | ||||||||||||||||||||
Non-operating income (expense), net | 18,450 | (65,595 | ) | 84,045 | (128 | )% | 51,442 | (115,292 | ) | 166,734 | (145 | )% | ||||||||||||||||||||
Amortization | 33,318 | 37,471 | (4,153 | ) | (11 | )% | 67,387 | 76,804 | (9,417 | ) | (12 | )% | ||||||||||||||||||||
Stock-based compensation | 10,943 | 8,253 | 2,690 | 33 | % | 20,136 | 17,670 | 2,466 | 14 | % | ||||||||||||||||||||||
Change in fair value of contingent consideration | — | 845 | (845 | ) | (100 | )% | 211 | 1,682 | (1,471 | ) | (87 | )% | ||||||||||||||||||||
Purchase price accounting step-up | 1,107 | — | 1,107 | NM | 2,214 | — | 2,214 | NM | ||||||||||||||||||||||||
Facility start-up costs | 3,000 | 1,700 | 1,300 | 76 | % | 4,800 | 2,900 | 1,900 | 66 | % | ||||||||||||||||||||||
Facility closure and exit costs | 6,552 | — | 6,552 | NM | 6,552 | 5,000 | 1,552 | 31 | % | |||||||||||||||||||||||
Lease expense | 700 | 900 | (200 | ) | (22 | )% | 1,400 | 1,600 | (200 | ) | (13 | )% | ||||||||||||||||||||
Litigation costs | 2,815 | 1,080 | 1,735 | 161 | % | 3,260 | 2,274 | 986 | 43 | % | ||||||||||||||||||||||
Inventory write down | — | 12,000 | (12,000 | ) | (100 | )% | — | 12,000 | (12,000 | ) | (100 | )% | ||||||||||||||||||||
Transaction (income) costs | 5,064 | 7,040 | (1,976 | ) | (28 | )% | (7,752 | ) | 31,425 | (39,177 | ) | (125 | )% | |||||||||||||||||||
Adjusted EBITDA | $ | 11,708 | $ | 13,760 | $ | (2,052 | ) | (15 | )% | $ | 25,239 | $ | 26,457 | $ | (1,218 | ) | (5 | )% |
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:
● |
|
● |
|
● | Stock-based compensation expenses, which |
● |
|
● |
|
| 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; |
● |
|
● |
|
|
|
|
|
|
|
| Costs incurred to start up new facilities |
● | Costs incurred to close facilities |
● |
|
● |
|
● |
|
● |
|
● |
|
|
Adjusted Gross Profit and Adjusted Gross Margin
Adjusted gross profit and adjusted gross margin are non-GAAP financial measures and may not be comparable to similar measures presented by other companies. Adjusted gross profit is our Gross profit (adjusted to exclude inventory valulation adjustment and purchase price accounting valuation step-up) and adjusted gross margin is our Gross margin (adjusted to exclude inventory valulation adjustment and purchase price accounting valuation step-up) and are non-GAAP financial measures. The Company’s management believes that adjusted gross profit and adjusted gross margin are useful to our management to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. We do not consider adjusted gross profit and adjusted gross margin percentage in isolation or as an alternative to financial measures determined in accordance with GAAP.
Liquidity and Capital Resources
We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, and make acquisitions. On March 3, 2022, we entered into an at the market offering arrangement (the "ATM Program") pursuant to which we offered and sold our common stock having an aggregate offering price of up to $400 million. The ATM Program was intended to strengthen our balance sheet and improve our liquidity position and was utilized to offer and sell common stock having a total of $400 million for the period through November 30, 2022. The Company fully completed its sales of shares under the ATM Program. In addition, the Company may from time to time use excess cash to repurchase its outstanding convertible debentures payable in open market transactions. We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with received proceeds from the ATM Program and access to external sources of funds, will be sufficient to meet our domestic and foreign capital needs for a short and long term outlook.
For the Company's short-term liquidity requirements, we are focused on generating positive cash flows from operations and being free cash flow positive. As a result of delays in legalization across multiple markets, management continues to reduce operations, 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 foreseeableshort term, however we believe that they will be required for our liquidity aspirations in the near term future.
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 six months ended November 30, |
| For the three months | For the six months | |||||||||||||||||||
|
| 2021 |
|
| 2020 |
| ended November 30, | ended November 30, | ||||||||||||||||
Net cash used in operating activities |
| $ | (110,348 | ) |
| $ | (53,662 | ) | ||||||||||||||||
Net cash used in investing activities |
| $ | (15,592 | ) |
| $ | (294,570 | ) | ||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 29,209 | $ | (17,121 | ) | $ | (17,060 | ) | $ | (110,348 | ) | |||||||||||||
Net cash (used in) investing activities | (271,398 | ) | (6,972 | ) | (272,935 | ) | (15,592 | ) | ||||||||||||||||
Net cash (used in) provided by financing activities |
| $ | (28,047 | ) |
| $ | 105,938 |
| (57,256 | ) | (20,019 | ) | 66,364 | (28,047 | ) | |||||||||
Effect on cash of foreign currency translation |
| $ | (2,696 | ) |
| $ | 29,853 |
| (980 | ) | (402 | ) | (2,060 | ) | (2,696 | ) | ||||||||
Cash and cash equivalents, beginning of period |
| $ | 488,466 |
|
| $ | 360,646 |
| 490,643 | 376,297 | 415,909 | 488,466 | ||||||||||||
Cash and cash equivalents, end of period |
| $ | 331,783 |
|
| $ | 148,205 |
| 190,218 | 331,783 | 190,218 | 331,783 | ||||||||||||
Decrease in cash and cash equivalents |
| $ | (156,683 | ) |
| $ | (212,441 | ) | ||||||||||||||||
Increase (decrease) in cash and cash equivalents | $ | (300,425 | ) | $ | (44,514 | ) | $ | (225,691 | ) | $ | (156,683 | ) |
Cash flows from operating activities
The changeschange in net cash provided by operating activities was $29.2 million and the change in net cash used in operating activities during thewas ($17.1) million for three and six months ended November 30, 20212022 compared to ($17.1) million and ($110.3) million for the prior year same period isperiods. This increase in cash generated in the three and six month periods was primarily related to payments associated withimproved operating efficiencies realized through our synergy programs, increased management of our working capital requirements and the Arrangement, income taxes at Aphria Diamond and accounts payable and accrued liabilities decreases in$18.3 million of the period. This net cash used in operating activities was positively impacted by reductions in inventory and collections of accounts receivable.collected from the HTI Share Consideration's purchase price derivative.
Cash flows from investing activities
The change in net cash used in investing activities was ($271.4) million and ($272.9) million for three and six months ended November 30, 2022 compared to ($6.9) million and ($15.6) million for the prior year same periods, and is a result of our purchase of $243.1 million of marketable securities and our acquisition of Montauk Brewing Company Note 6 (Goodwill) which did not occur in the first two fiscal quarters of 2022 as compared to the first two fiscal quarters of 2021 is primarily due to cash paid for the SweetWater acquisition in fiscal year 2021.comparative periods
Cash flows from financing activities
Cash
The change in cash used in financing activities was ($57.3) million and the change in the first two fiscal quarters ofcash provided by financing activities was $66.4 million for three and six months ended November 30, 2022 as compared to ($20.0) million and ($28.0) million for the first two fiscal quarters of 2021 isprior year same periods. The six month net cash provided by financing activities was primarily due to an early payment on SweetWater’s term loan facility and the share capital financing completedfunds received in fiscalthe current quarter from our ATM program that was not in place for the prior year 2021 that did not recurperiod. The three month change in fiscal year 2022.
Free cash flow and adjusted free cash flow
Free cash flow and adjusted free cash flow are non-GAAP measures. Free cash flow is relevant to management and investors, because it represents the cash flow available to the Company to repay creditors or potentially make distributions to investors. The measure is comprised of two GAAP amounts deducted from each other which are net cash flow used in operatingfinancing activities less investments, netwas from the repurchase of proceeds from disposals, in capital and intangible assets. Adjusted free cash flow removes the cash impact of acquisitions from free cash flow. Our free cash flow and adjusted free cash flow were, as follows:our outstanding convertible debentures payable.
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
Free cash flow |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net cash provided by (used in) operating activities |
| $ | (17,121 | ) |
| $ | 2,438 |
|
| $ | (19,559 | ) |
|
| (802 | %) |
| $ | (1,10,348 | ) |
| $ | (53,662 | ) |
| $ | (56,686 | ) |
|
| 106 | % |
Less: investments in capital and intangible assets, net |
|
| (6,972 | ) |
|
| (9,301 | ) |
|
| 2,329 |
|
|
| (25 | %) |
|
| (15,592 | ) |
|
| (23,256 | ) |
|
| 7,664 |
|
|
| (33 | %) |
Free cash flow |
| $ | (24,093 | ) |
| $ | (6,863 | ) |
| $ | (17,230 | ) |
|
| 251 | % |
| $ | (1,25,940 | ) |
| $ | (76,918 | ) |
| $ | (49,022 | ) |
|
| 64 | % |
Cash expended related to acquisitions |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 56,510 |
|
|
| 20,664 |
|
|
| 35,846 |
|
|
| 173 | % |
Adjusted free cash flow |
| $ | (15,973 | ) |
| $ | 11,343 |
|
| $ | (27,316 | ) |
|
| (241 | %) |
| $ | (69,430 | ) |
| $ | (56,254 | ) |
| $ | (13,176 | ) |
|
| 23 | % |
Subsequent Events
Refer to Part I, Financial Information, Note 24 Subsequent Events of this interim report.
Off Balance Sheet ArrangementsNot applicable.
At November 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have had, or are likely to have, a material current or future effect on our consolidated financial statements.
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 Policies
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 policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to revenue recognition, valuation of inventory, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K as amended for the fiscal year ended May 31, 2021.2022.
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 2 – Basis of presentation and summary of significant accounting policies” to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant changes in market risk from those addressed in the Company’s Annual Report on Form 10-K as amended for the fiscal year ended May 31, 20212022 during the threesix months ended November 30, 2021.2022. See the information set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s Annual Report on Form 10-K as amended for the fiscal year ended May 31, 2021.2022.
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 November 30, 2021,2022, 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 legacy Tilray,Breckenridge Distillery and Montauk Brewing Company, Inc., which we acquired on April 30, 2021. Legacy TilrayDecember 7, 2021 and November 7, 2022 respectively. Breckenridge Distillery and Montauk Brewing Company, Inc. represented 8.9%2.1% and 0.9% of our consolidated assets and 25.8%4.4% and 0.2% of our consolidated revenues respectively as of and for the quartersix months ended November 30, 2021.2022.
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 legacy TilrayBreckenridge Distillery on April 30, 2021.December 7, 2021 and Montauk Brewing Company, Inc. on November 7, 2022. The Company is in the process of reviewing the internal control structure of legacy TilrayBreckenridge Distillery and Montauk Brewing Company, Inc., if necessary, will make appropriate changes as it integrates legacy Tilraythem into the Company’s overall internal control over financial reporting process.
"
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"Proceedings” of our Annual Report on Form 10-K as amended for the fiscal year ended May 31, 20212022 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 below.and incorporated herein by reference to Note 18, Commitments and contingencies, in the Notes to the Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Class Action Suits and Shareholder Derivative Suits – U.S. and Canada
Authentic Brands Group Related Class Action (New York, United States)
On May 4, 2020, Ganesh Kasilingam filed a lawsuit in the U.S. District Court for the Southern District of New York, against Tilray, 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 alleged 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 September 27, 2021, the U.S. District Court entered an Opinion & Order granting the Defendants’ motion to dismiss the complaint in the Kasilingam litigation.On December 3, 2021, the lead plaintiff filed a second amended complaint alleging similar claims against Tilray and Brendan Kennedy. The Defendants intend to file a motion to dismiss this amended complaint as well.
Tilray, Inc. Reorganization Litigation (Delaware, New York)
On February 27, 2020, Tilray stockholders Deborah Braun and Nader Noorian filed a class action and derivative complaint in the Delaware Court of Chancery styled Braun v. Kennedy, C.A. No. 2020-0137-KSJM. On March 2, 2020, Tilray stockholders Catherine Bouvier, James Hawkins, and Stephanie Hawkins filed a class action and derivative complaint in the Delaware Court of Chancery styled Bouvier v. Kennedy, C.A. No. 2020-0154-KSJM.
On March 4, 2020, the Delaware Court of Chancery entered an order consolidating the two cases and designating the complaint in the Braun/Noorian action as the operative complaint. The operative complaint asserts claims for breach of fiduciary duty against Brendan Kennedy, Christian Groh, Michael Blue, and Privateer Evolution, LLC (the “Privateer Defendants”) for alleged breaches of fiduciary dutyin their alleged capacities as Tilray’s controlling stockholders and against Kennedy, Maryscott Greenwood, and Michael Auerbach for alleged breaches of fiduciary duties in their capacities as directors and/or officers of Tilray in connection with the prior merger of Privateer Holdings, Inc. with and into a wholly owned subsidiary (the “Downstream Merger”). The complaint alleges that the Privateer Defendants breached their fiduciary duties by causing Tilray to enter into the Downstream Merger and Tilray’s Board to approve that Downstream Merger, and that Defendants Kennedy, Greenwood, and Auerbach breached their fiduciary duties as directors by approving the Downstream Merger. Plaintiffs allege that the Downstream Merger gave the Privateer Defendants hundreds of millions of dollars of tax savings without providing a corresponding benefit to Tilray and its minority stockholders and that the Downstream Merger unfairly transferred and extended Kennedy, Blue, and Groh’s control over Tilray. On July 17, 2020, the plaintiffs filed an amended complaint asserting substantially similar claims. On August 14, 2020, Tilray and the Privateer Defendants moved to dismiss the amended complaint. At the February 5, 2021 hearing on Defendants’ Motions to Dismiss, the Plaintiffs agreed that their perpetuation of control claims are moot and stated that they intend to move for a fee award in connection with those claims. On June 1, 2021, the Court denied Defendants’ Motions to Dismiss the Amended Complaint.
In August 2021, the Company’s Board of Directors established a Special Litigation Committee (the “SLC”) of independent directors to re-assert director control and investigate the derivative claims in this litigation matter. The SLC has appointed the law firm Wilson Sonsini to assist the SLC with an ongoing investigation of the underlying claim and determine whether continued prosecution of such claims is in the best interests of the Company. The SLC has successfully moved to have the Plaintiff’s discovery stayed during their investigation.
“Item 1A. Risk Factors” of our Annual Report on Form 10-K as amended for the fiscal year ended May 31, 20212022 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. ThereExcept as noted below in the summary of our risk factors, there have been no material changes from the risk factors described in our Form 10-K.10-K as amended.
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| Our business is dependent upon regulatory approvals and licenses, ongoing compliance and reporting obligations and timely renewals. |
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● | 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. |
● | We may not receive sufficient shareholder votes to amend our Certificate of Incorporation for the purpose of providing equal voting rights for each share of our common stock by canceling our authorized and unissued shares of supermajority voting Class 1 common stock and re-allocating such shares into our publicly traded Class 2 common stock. |
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| 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. |
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| We face intense competition, and anticipate competition will increase, which could hurt our business. |
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| United States regulations relating to hemp-derived CBD products are |
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● | SweetWater, Breckenridge and Montauk each face substantial competition in the beer industry and the broader market for alcoholic beverage products which could impact our business and financial results. |
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| Our strategic alliances and other third-party business relationships may not achieve the intended beneficial impact and expose us to risks. |
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● | We are subject to risks inherent in an agricultural business, including the risk of crop failure. |
● | We may be negatively impacted by volatility in political and economic environment, factors including the war in Ukraine, economic downturns and increases in interest rates, and a period of sustained inflation across the markets in which we operate could result in higher operating costs and may negatively impact our business and financial performance. |
● | We depend on significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly. |
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● | 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. |
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| Management may not be able to successfully establish and maintain effective internal controls over financial reporting. |
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| The price of our common stock in public markets has experienced and may continue to experience severe volatility and fluctuations. |
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| The volatility of our stock and the stockholder base may hinder or prevent us from engaging in beneficial corporate initiatives. |
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| 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. |
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| 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. |
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| We are subject to other risks generally applicable to our industry and the conduct of our business. |
We may be negatively impacted by volatility in the political and economic environment, such as the crisis in Ukraine, economic downturns and increases in interest rates, and a period of sustained inflation across the markets in which we operate could result in higher operating costs and may negatively impact our business and financial performance.
Trade, monetary and fiscal policies, and political and economic conditions may substantially change, and credit markets may experience periods of constriction and variability. These conditions may impact our business. Further rising inflation may negatively impact our business, raise cost and reduce profitability. While we would take actions, wherever possible, to reduce the impact of the effects of inflation, in the case of sustained inflation across several of the markets in which we operate, it could become increasingly difficult to effectively mitigate the increases to our costs. In addition, the effects of inflation on consumers' budgets could result in the reduction of our customers' spending habits. If we are unable to take actions to effectively mitigate the effect of the resulting higher costs, our profitability and financial position could be negatively impacted.
The Federal Reserve recently raised interest rates multiple times in response to concerns about inflation and it may raise them again. Higher interest rates, coupled with reduced government spending and volatility in financial markets may increase economic uncertainty and affect consumer spending. Similarly, the ongoing military conflict between Russia and Ukraine has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may adversely affect our business or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates can adversely affect us by increasing our costs, including labor and employee benefit costs. In addition, higher inflation and macro turmoil and uncertainty could also adversely affect our customers, which could reduce demand for our products.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Equity Securities
On October 13, 2021, 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 inSeptember 3, 2022, the amount of CAD$34,300,000 (the “Note”) 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, TilrayCompany issued 2,677,59610,276,305 shares of itsTilray's Class 2 common stock to DDH.
Effective November 10, 2021, Tilray entered into a termination and settlement agreementDouble Diamond Holdings Ltd. ("Double Diamond") in connection with ABG Intermediate Holdings 2, LLC (“ABG”) and certain of its affiliates. Pursuantthe assignment from Double Diamond to this settlement agreement, the Company issued 215,901 shares of its Class 2 common stock to ABG in exchange for the release of certain claims.a promissory note payable by 1974568 Ontario Limited.
On December 1, 2021,October 7, 2022, the Company acquired allsubmitted a shelf registration statement to the SEC on Form S-3, consisting of (i) a base prospectus which covers the membership interestspotential offering, issuance and sale of Cheese Grits, LLC, a Georgia based company (the “SW Acquisition”) that owned the real estate utilized and previously leasedsecurities by SweetWater Brewing Company. . As consideration for the SW Acquisition, the Company paidfrom time to time in one or more future offerings and (ii) a purchase price at closing equalresale prospectus covering the resale from time to $30,665,000, which was satisfied through the assumptiontime by certain selling shareholders as named in such prospectus of outstanding debt as well as the issuance of 843,687up to 138,528 shares of Tilray’s Class 2 common stock. On December 17, 2021, the Company issued an additional 82,224 Class 2 common shares as considerationThe registration number for the SW Acquisition.registration statement is 333-267788.
On DecemberNovember 7, 2021,2022, the Company acquired all100% ownership of the membership interests of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company (the “Breckenridge Acquisition”Montauk Brewing Company, Inc. (“Montauk”). As consideration for the Breckenridge Acquisition,acquisition of Montauk, the Company paid aan initial purchase price in an aggregate amount equal to $102,900,000,$35,110, which purchase price was satisfiedconsisted of cash consideration of $28,688 and stock consideration of $6,422 through the issuance of 11,245,5111,708,521 shares of Tilray’sTilray's Class 2 common shares tostock. In the event that Montauk achieves certain volume and/or EBITDA targets on or before December 31, 2025, the selling unitholders.
On December 17, 2021,stockholders of Montauk will be eligible to receive additional contingent cash consideration in the form of an earnout of up to $18,000. The Company acquired intellectual property and inventory relating todetermined that the Alpine and Green Flash craft brew brands from WC IPA LLC (the “Alpine Acquisition”). Asclosing date fair value of this contingent consideration for the Alpine Acquisition, the Company paid a purchase price in an aggregate amount equal to $5,133,000 which purchase price was satisfied through the payment of cash and the issuance of 366,308 shares of Tilray’s Class 2 common shares.$10,245.
Each of the foregoing issuances of Tilray’s Class 2 common stock was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for the offer and sale of securities not involving a public offering.offering. No underwriter participated in the offer and sale of the shares issued pursuant to the foregoing issuances, and no commission or other remuneration was paid or given directly or indirectly in connection therewith. Additionally, each of the foregoing issuance of Tilray's Class 2 common stock was reported on a Form 8-K filed by the Company with the U.S. Securities and Exchange Commission.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Not applicable.
Exhibit Number | Description | |
32.2* |
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101* | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
† Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
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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.
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| Tilray Brands, Inc. | |
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Date: January |
| By: | /s/ Irwin D. Simon |
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| Irwin D. Simon |
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| Chairman and Chief Executive Officer |
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Date: January |
| By: | /s/ Carl Merton |
Carl Merton | |||
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