Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Statements of Financial Position (Unaudited)	1
	Consolidated Statements of ~~Income (Loss)~~Loss and Comprehensive Loss (Unaudited)	2
	Consolidated Statements of Stockholders' Equity (Unaudited)	3
	Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Condensed Interim Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2425
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4142
Item 4.	Controls and Procedures	4142
PART II.	OTHER INFORMATION	4243
Item 1.	Legal Proceedings	4243
Item 1A.	Risk Factors	4344
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4547
Item 3.	Defaults Upon Senior Securities	45
~~Item 4.~~	~~Mine Safety Disclosures~~47	45
~~Item 5.~~	~~Other Information~~	45
~~Item 6.~~	~~Exhibits~~	46
~~Signatures~~Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
Signatures		49

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended ~~February 28,~~August 31, 2022 (the “Form 10-Q”) contains forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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. 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; what our revenue would have been had we completed the acquisition of Double Diamond Distillery LLX 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 ability~~include, but are not limited to, successfully complete the integration of the businesses of Tilray and Aphria; our ability to successfully complete the proposed HEXO transaction and achieve the expected production efficiencies and cost savings; 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.

Table of Contents

PART I—I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TILRAY BRANDS, INC.

Consolidated Statements of Financial Position

(in thousands of United States dollars, unaudited)

	*August 31,*			*May 31,*
	*2022*			*2022*
Assets
Current assets
Cash and cash equivalents	$	490,643		$	415,909
Accounts receivable, net		98,347			95,279
Inventory		244,654			245,529
Prepaids and other current assets		77,237			46,786
Total current assets		910,881			803,503
Capital assets		553,606			587,499
Right-of-use assets		11,884			12,996
Intangible assets		1,210,578			1,277,875
Goodwill		2,617,696			2,641,305
Interest in equity investees		4,764			4,952
Long-term investments		8,879			10,050
Convertible notes receivable		269,440			111,200
Other assets		4,754			314
Total assets	$	5,592,482		$	5,449,694
Liabilities
Current liabilities
Bank indebtedness	$	18,282		$	18,123
Accounts payable and accrued liabilities		154,663			157,431
Contingent consideration		16,218			16,007
Warrant liability		12,707			14,255
Current portion of lease liabilities		7,290			6,703
Current portion of long-term debt		64,098			67,823
Total current liabilities		273,258			280,342
Long - term liabilities
Lease liabilities		9,580			11,329
Long-term debt		114,294			117,879
Convertible debentures		444,275			401,949
Deferred tax liability		187,714			196,638
Other liabilities		179			191
Total liabilities		1,029,300			1,008,328
Commitments and contingencies (refer to Note 18)
Stockholders' equity
Common stock ($0.0001 par value; 990,000,000 shares authorized; 600,954,939 and 532,674,887 shares issued and outstanding, respectively)		60			53
Additional paid-in capital		5,641,348			5,382,367
Accumulated other comprehensive loss		(79,732	)		(20,764	)
Accumulated Deficit		(1,036,333	)		(962,851	)
Total Tilray Brands, Inc. stockholders' equity		4,525,343			4,398,805
Non-controlling interests		37,839			42,561
Total stockholders' equity		4,563,182			4,441,366
Total liabilities and stockholders' equity	$	5,592,482		$	5,449,694

February 28,
2022

May 31,
2021

Assets

Current assets

Cash and cash equivalents

$
279,214

$
488,466

Accounts receivable, net

89,895

87,309

Inventory

273,292

256,429

Prepaids and other current assets

52,211

48,920

Convertible notes receivable

1,173

2,485

Total current assets

695,785

883,609

Capital assets

603,472

650,698

Right-of-use assets

17,851

18,267

Intangible assets

1,528,962

1,605,918

Goodwill

2,835,100

2,832,794

Interest in equity investees

4,797

8,106

Long-term investments

133,155

17,685

Other assets

314

8,285

Total assets

$
5,819,436

$
6,025,362

Liabilities

Current liabilities

Bank indebtedness

$
17,496

$
8,717

Accounts payable and accrued liabilities

137,094

212,813

Contingent consideration

31,592

60,657

Warrant liability

19,366

78,168

Current portion of lease liabilities

6,703

4,264

Current portion of long-term debt

70,176

36,622

Total current liabilities

282,427

401,241

Long - term liabilities

Lease liabilities

16,211

53,946

Long-term debt

121,210

167,486

Convertible debentures

501,075

667,624

Deferred tax liability

237,208

265,845

Other liabilities

292

3,907

Total liabilities

1,158,423

1,560,049

Commitments and contingencies (refer to Note 17)

Stockholders' equity

Common stock ($0.0001 par value; 990,000,000 shares authorized; 480,737,533 and 446,440,641 shares issued and outstanding, respectively)

48

46

Additional paid-in capital

5,110,892

4,792,406

Accumulated other comprehensive income

1,010

152,668

Accumulated Deficit

(484,710
)

(486,050
)
Total Tilray Brands, Inc. stockholders' equity

4,627,240

4,459,070

Non-controlling interests

33,773

6,243

Total stockholders' equity

4,661,013

4,465,313

Total liabilities and stockholders' equity

$
5,819,436

$
6,025,362

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

Table of Contents

TILRAY BRANDS, INC.

Consolidated Statements of ~~Income (Loss)~~Loss and Comprehensive ~~Income (Loss)~~Loss

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

													*Three months ended*
	Three months ended February 28,						Nine months ended February 28,						*August 31,*
	2022			2021			2022			2021			*2022*			*2021*
Net revenue	$	151,871		$	123,900		$	475,047		$	370,849		$	153,211		$	168,023
Cost of goods sold		112,042			93,444			351,497			270,165			104,597			117,068
Gross profit		39,829			30,456			123,550			100,684			48,614			50,955
Operating expenses:
General and administrative		38,445			24,491			121,401			78,736			40,508			49,487
Selling		8,641			6,155			25,283			18,051			9,671			7,432
Amortization		24,590			10,786			84,345			19,121			24,359			30,739
Marketing and promotion		7,578			3,259			20,163			12,436			7,248			5,465
Research and development		164			127			1,464			472			166			785
Change in fair value of contingent consideration		(29,065	)		—			(29,065	)		—			211			837
Transaction costs		9,238			9,688			42,937			30,352
Litigation costs														445			1,194
Transaction (income) costs														(12,816	)		24,385
Total operating expenses		59,591			54,506			266,528			159,168			69,792			120,324
Operating loss		(19,762	)		(24,050	)		(142,978	)		(58,484	)		(21,178	)		(69,369	)
Interest expense, net		(2,312	)		(7,943	)		(22,422	)		(18,511	)		(4,413	)		(10,170	)
Non-operating income (expense), net		72,719			(220,340	)		186,329			(306,348	)		(32,992	)		49,697
Income (loss) before income taxes		50,645			(252,333	)		20,929			(383,343	)
Income taxes (recovery)		(1,830	)		6,310			(2,739	)		(13,707	)
Net income (loss)	$	52,475		$	(258,643	)	$	23,668		$	(369,636	)
Loss before income taxes														(58,583	)		(29,842	)
Income taxes														7,211			4,762
Net loss													$	(65,794	)	$	(34,604	)
Total net income (loss) attributable to:
Stockholders of Tilray Brands, Inc.		43,190			(273,519	)		1,340			(407,762	)		(73,482	)		(41,649	)
Non-controlling interests		9,285			14,876			22,328			38,126			7,688			7,045
Other comprehensive (loss) income, net of tax
Foreign currency translation (loss) gain		18,498			(4,706	)		(114,641	)		(4,231	)
Other comprehensive loss, net of tax
Foreign currency translation loss														(60,292	)		(100,772	)
Unrealized loss on convertible notes receivable		(52	)		(2,647	)		(649	)		(2,647	)		(2,525	)		(649	)
Change in fair value of long-term investments		(39,244	)		—			(55,601	)		—
Total other comprehensive (loss) income, net of tax		(20,798	)		(7,353	)		(170,891	)		(6,878	)
Comprehensive income (loss)		31,677			(265,996	)		(147,223	)		(376,514	)
Total other comprehensive loss, net of tax														(62,817	)		(101,421	)
Comprehensive loss														(128,611	)		(136,025	)
Total comprehensive income (loss) attributable to:
Stockholders of Tilray Brands, Inc.		34,605			(280,872	)		(150,318	)		(414,640	)		(132,450	)		(143,070	)
Non-controlling interests		(2,928	)		14,876			3,095			38,126			3,839			7,045
Weighted average number of common shares - basic		485,668,750			265,401,924			470,303,170			250,701,376			575,301,374			449,397,822
Weighted average number of common shares - diluted		488,546,790			265,401,924			478,050,130			250,701,376			575,301,374			449,397,822
Net income (loss) per share - basic	$	0.09		$	(1.03	)	$	0.00		$	(1.63	)
Net income (loss) per share - diluted	$	0.09		$	(1.03	)	$	0.00		$	(1.63	)
Net loss per share - basic													$	(0.13	)	$	(0.08	)
Net loss per share - diluted													$	(0.13	)	$	(0.08	)

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

	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		—		—			—			—			—			—
Stock-based compensation		—		—		3,479			—			—			—			3,479
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		—		—			—			—			—			—
Stock-based compensation		—		—		1,323			—			—			—			1,323
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
Share issuance - options exercised		79,489		—		54			—			—			—			54
Share issuance - RSUs exercised		3,450		—		—			—			—			—			—
Stock-based compensation		—		—		3,075			—			—			—			3,075
Comprehensive income (loss) for the period		—		—		—			(7,353	)		(273,519	)		14,876			(265,996	)
Balance at February 28, 2021		265,506,243	$	27	$	1,557,994		$	(12,312	)	$	(521,114	)	$	65,083		$	1,089,678
																				*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		—		—			—			—			—			—			417,489		—		—			—			—			—			—
Share issuance - RSUs exercised		3,665,337		—		—			—			—			—			—			3,665,337		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax		—		—		(5,944	)		—			—			—			(5,944	)		—		—		(5,944	)		—			—			—			(5,944	)
Stock-based compensation		—		—		9,417			—			—			—			9,417			—		—		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
Share issuance - DDH note		2,677,596		—		28,560			—			—			(28,560	)		—

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		98,044		—		4,623			—			—			—			4,623			3,777		—		—			—			—			—			—
Share issuance - RSUs exercised		470,324		—		—			—			—			—			—			950,893		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax		—		—		(2,742	)		—			—			—			(2,742	)		—		—		(1,189	)		—			—			—			(1,189	)
Share issuance - legal settlement		215,901		—		2,170			—			—			—			2,170
Stock-based compensation		—		—		8,253			—			—			—			8,253			—		—		9,193			—			—			—			9,193
Dividends declared to non-controlling interests																					—		—		—			—			—			(8,561	)		(8,561	)
Comprehensive income (loss) for the period		—		—		—			(41,652	)		(201	)		(1,022	)		(42,875	)		—		—		—			(58,968	)		(73,482	)		3,839			(128,611	)
Balance at November 30, 2021		463,802,393	$	46	$	4,954,547		$	9,595		$	(527,900	)	$	36,701		$	4,472,989
Share issuance - Breckenridge Acquisition		12,540,479		2		114,066			—			—			—			114,068
Share issuance - legal settlement		2,743,485		—		20,000			—			—			—			20,000
Share issuance - options exercised		190,620		—		778			—			—			—			778
Share issuance - RSUs exercised		170,928		—		—			—			—			—			—
Share issuance - purchase of capital and intangible assets		1,289,628		—		12,146			—			—			—			12,146
Stock-based compensation		—		—		9,355			—			—			—			9,355
Comprehensive income (loss) for the period		—		—		—			(8,585	)		43,190			(2,928	)		31,677
Balance at February 28, 2022		480,737,533	$	48	$	5,110,892		$	1,010		$	(484,710	)	$	33,773		$	4,661,013
Balance at August 31, 2022																					600,954,939	$	60	$	5,641,348		$	(79,732	)	$	(1,036,333	)	$	37,839		$	4,563,182

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

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 ~~headquartered~~with our principal executive office in Leamington, ~~Ontario, Canada,~~ 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 ~~the~~a worldwide community to live their very best life enhanced by ~~providing them with products that meet the needs~~moments 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 them~~market leading cannabis consumer products company in the world with a ~~cultivated experience~~portfolio of innovative, high-quality and ~~health and wellbeing through high-quality, differentiated~~beloved 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 all~~that address the needs of the ~~issued~~consumers, customers and ~~outstanding common shares~~patients 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 organization~~our 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 packaged~~managing our cost of goods ~~company~~and expenses in ~~addition~~order 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. ~~The~~Accordingly, they do not include all of the information ~~included in this Form 10-Q~~and 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-K~~10-K for the fiscal year ended May 31, ~~2021~~2022 (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.

All amounts in the ~~April 30, 2021 business combination with Aphria, the reported results do not include the results of operations of Tilray~~unaudited condensed interim consolidated financial statements, notes and ~~its subsidiaries on and prior to April 30, 2021, in accordance with the accounting treatment applicable~~tables have been rounded to the ~~Arrangement. Accordingly, comparisons between the Company's results for the three~~nearest thousand, except par values and ~~nine months ended February 28, 2022 and prior periods may not be meaningful.~~per share amounts, unless otherwise indicated.

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 SEC 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.

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

O~~n 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”) from~~certain 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. Long-term investments

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 payment-in-kind at a price equal to the trailing 30-day volume weighted average price of the MedMen Shares, as and when such payment-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.

~~Under the SH Acquisition partnership agreement, certain material events described therein require the approval of the Company, and, upon a Triggering Event,~~ ~~the Company has the ability to appoint two 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.~~

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. Cheese Grits, LLC, was owned by certain former equity holders of SweetWater and current employees. 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 Class 2 common stock with a fair value of $8,606. 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. As a result of the SW Acquisition, Cheese Grits, LLC has been consolidated as a subsidiary of Tilray beginning on December 1, 2021. The SW Acquisition did not meet the definition of a business under US GAAP and has been treated as an asset acquisition.

On December 7, 2021 the Company acquired all the membership interests in Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company and a leading distilled spirits brand located in Breckenridge, Colorado, 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 $114,068, which purchase price was satisfied through the issuance of 12,540,479 shares of Tilray’s Class 2 common shares. As a result, we consolidated Double Diamond Distillery LLC as a subsidiary of Tilray beginning December 7, 2021. Additional information about the Breckenridge Acquisition is included in Note 6 ~~Goodwill~~.

Debt 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 stockholders’ equity until realized. Upon sale, realized gain and losses are reported in net income. Debt securities are impaired when a decline 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 is recorded in the statements of net loss and a new cost basis for 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 comprehensive income (loss).

Investments in equity securities of entities over which the Company does not have a controlling financial interest or significant influence are 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 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).

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 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 nine-months~~ months ended ~~February 28,~~August 31, 2022, the dilutive potential common share equivalents outstanding consist of the following:~~1,870,386 and 2,256,567~~ 16,989,328 common shares from RSUs, ~~nil and 901,781~~4,741,653 common shares from share options, ~~1,007,654 and 3,119,734~~6,209,000 common shares from warrants and ~~nil and 1,468,878~~36,687,326 common shares from convertible ~~debentures, respectively.~~debentures.

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.

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.

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’s~~Entity’s Own Equity (Subtopic ~~815-40)~~815-40): Accounting for Convertible Instruments and Contracts in an ~~Entity’s~~Entity’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 Company~~2020-06 beginning June 1, ~~2022. This update may be applied retrospectively or~~2022 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’s~~Entity’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. The Company adopted the ASU ~~2021-04 is effective for the Company~~ beginning June 1, ~~2022. This update should be applied prospectively~~2022 and the adoption of ASU 2021-04 did not have an impact on ~~or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.~~our condensed interim consolidated financial statements.

In ~~October~~November 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.

~~In November~~ 2021 ~~the FASB issued ASU 2021-10,~~ -10,Government Assistance (Topic ~~832)~~832), Disclosures by Business Entities about Government Assistance, which is intended to increase the transparency of government assistance including the disclosure of ~~(1)~~(1) the types of assistance, ~~(2)~~(2) an entity’s accounting for the assistance, and ~~(3)~~(3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 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 ~~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 ~~2019-12~~2021-04 did not have ~~a material~~an impact on the disclosure in our condensed interim consolidated financial statements.

~~In January 2020, the FASB issued ASU 2020-01,~~ ~~Investments – Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)~~ (“ASU 2020-01”), which is intended to clarify the interaction 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. The Company adopted the ASU beginning June 1, 2021 and the adoption of ASU 2020-01 did not have a material impact on our consolidated financial statements.

During the three and nine months ended February 28, 2022, the Company recorded $0 and $12,000 in our cannabis segment of charges related to inventory write downs as a component of cost of goods sold (February 28, 2021-$0 and $0).

As of ~~February 28,~~August 31, 2022, included in Licenses, permits & applications is ~~$388,360~~$236,543 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.

~~Pursuant to the Arrangement, as described in Note 1, the Company is within the measurement period of the business acquisition. As of~~ ~~February 28, 2022, 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 nine months ended February 28, 2022 are reflected in the table below:

Revenue for the Company would have been higher by approximately $45,000 and $135,000 for the three and nine months ended February 28, 2021, if the acquisition had taken place on June 1, 2020. Net income and comprehensive net income would have been lower by approximately $40,000 and $100,000 for the three and nine months ended February 28, 2021, if the acquisition had taken place on June 1, 2020.

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~~,$114,068, which purchase price was satisfied through the issuance of 12,540,479 shares of Tilray’s Class 2 common shares.

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.

The goodwill of ~~$14,871~~$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 $18,000~~ for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2021, if the acquisition had taken place on June 1, ~~2020.~~ 2021. Net ~~income~~loss and comprehensive net ~~income~~loss would have ~~been lower~~increased by approximately $1,500 ~~and $4,500~~ for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2021, if the acquisition had taken place on June 1, ~~2020.~~

~~Long term investments~~ ~~consisted~~2021, primarily as a result of amortization of the ~~following~~:intangible assets acquired.

~~As of~~ ~~February 28,~~During the three months ended August 31, 2022, the ~~Company’s debt securities under available-for-sale method are the MM Notes, described~~Company acquired a secured convertible note initially issued by HEXO Corp. ("HEXO") in ~~Note 2~~ ~~Basis of presentation and summary of significant accounting policies.~~ ~~Interest on~~ 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 $2,525 and $649 for the ~~MM Notes shall accrue~~three months ended August 31, 2022 and August 31, 2021 respectively.

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”), which had a principal balance of $173,700 outstanding. The purchase price paid to HTI for the HEXO Convertible Note was $157,272. The purchase price was satisfied by Tilray to HTI in the form of a newly-issued $50,000 convertible promissory note ("HTI Convertible Note") refer to Note 12 (Convertible debentures) and the remaining balance in 33,314,412 shares of Tilray's Class 2 common stock, par value $0.0001 (“HTI Share Consideration”). The HEXO Convertible Note bears interest at ~~an interest~~a rate of ~~LIBOR~~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.

All third-party transaction costs associated with the acquisition of these notes were reimbursed by HEXO. During the three months ended August 31, 2022, in connection with the HEXO Convertible Note, the Company recognized interest revenue of $1,206 and an unrealized gain on convertible notes receivable in other comprehensive income of $4,578.

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 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 included in Other current assets as at August 31, 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 1.50%; 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 24 (Segment reporting).

On August 31, 2021, the Company issued 9,817,061 shares valued at $117,804 to acquire 68% interest in Superhero Acquisition L.P. (“SH Acquisition”), which purchased a senior secured convertible note (the "MedMen Convertible Note") together with certain associated warrants to acquire Class B subordinate voting shares of MedMen in the principal amount of $165,799. The MedMen Convertible Note bears interest at the Secured overnight financing rate ("SOFR") plus 6%, with a ~~LIBOR~~SOFR floor of 2.5% and, any accrued interest ~~shall be payment-in-kind at a price equal~~is added to the ~~trailing 30-day volume weighted average price~~outstanding principal amount, and is to be paid at maturity of the MedMen Shares, as and when such payment-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/or~~was 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 portion~~event that MedMen issues equity securities upon conversion of ~~the MM Notes and the corresponding portion of accrued and unpaid payment-in-kind interest, and/or cause the redemption of the partnership interest and/or the pro rata portion of the MM Notes held~~convertible securities that may be issued by ~~the minority interest in SH Acquisition at any time.~~ ~~The unrealized loss on available-for-sale debt securities of $39,244 and $55,601 in accumulated other comprehensive income for~~ ~~three and nine months ended February 28, 2022~~ ~~relates to the long-term available-for-sale debt securities.~~MedMen. The Company’s ~~allowance for credit losses on debt securities classified~~ability to convert the MedMen Convertible Note and exercise the Warrants is dependent upon U.S. federal legalization of cannabis (a “Triggering Event”) or Tilray’s waiver of such requirement as ~~available-for-sale is $0 at February 28, 2022 and 0 related credit loss expenses were recorded during the~~ ~~three and nine months ended February 28, 2022. 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 method~~fair value of the MedMen Convertible Note was determined using the Black-Scholes model ~~(Level 3) with~~using the following ~~weighted-average~~ assumptions: the risk-free rate of 1.43%; expected life of the convertible note; volatility of 70% based on comparable companies; forfeiture rate of nil; dividend yield of nil; probability of legalization between 0% and 60%; and, the exercise price of the respective conversion feature.

~~The Company’s equity~~Note 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) during~~Long term investments consisted of the ~~three and nine months ended February 28, 2022~~ ~~on equity investments still held at February 28, 2022 are a loss of $2,951 and a loss of $6,834 (February 28, 2021~~ ~~– loss of $1,918 and loss of $3,244). There were 0 impairments or adjustments to equity investments under the measurement alternative for the three and nine months ended February 28, 2022 and 2021.~~following:

~~The~~Aphria Inc., a subsidiary of the Company, has an operating line of credit in the amount of C$1,000 which bears interest at the lender’s prime rate plus 75 basis points. As of ~~February 28,~~August 31, 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 ~~February 28,~~August 31, 2022, a total of ~~€6,107~~€8,258 ($~~6,840)~~8,282) was drawn down from the available credit of ~~€12,000.~~€12,000. The operating lines of credit are secured by a security interest in the inventory ~~held by~~of CC Pharma GmbH.

Four Twenty Corporation (“(“420”), a subsidiary of the Company, has a revolving credit facility of $30,000 which bears interest at EURIBOR plus an applicable margin. As of ~~February 28,~~August 31, 2022, the Company has drawn $10,000 on the revolving line of credit. The revolving credit facility is secured by all of ~~420 and SweetWater’s~~420's assets and includes a corporate guarantee by a subsidiary of the Company.

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

As of ~~February 28,~~August 31, 2022, the Company was in compliance with all ~~the~~of its long-term debt covenants.

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

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 the 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 debt in cash.

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 of June 1, ~~2024.~~ 2024. The initial conversion ~~rate for~~which the ~~APHA 24 will be 89.31162364 shares of common stock, par value $0.0001 per share, of Tilray Brands, Inc. per $1,000 principal amount of Notes, which will be settled~~Company may settle in cash, or common shares of ~~Aphria~~Tilray, or a combination thereof, at ~~Tilray’s election. This~~Tilray's election, is equivalent to an initial conversion price of approximately $11.20 per common share, subject to adjustments in certain events. In addition, holders of the APHA 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:

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.

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

The TLRY 23 is an 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~~ ~~February 28, 2022~~ ~~at $887~~ ~~per convertible debenture using the Black-Scholes model (Level 3) with the following weighted-average assumptions:~~

~~Expected volatility is based on the historical volatility~~assets 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.

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 ~~1,659,737~~1,133,950 shares of common stock, based on the ~~$277,856~~$189,830 aggregate principal amount of convertible notes outstanding as of ~~February 28, 2022.~~August 31, 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. Please refer to note 25 (subsequent events) for additional transactions related to this instrument that occurred after the period ended.

~~Warrants outstanding at~~ ~~February 28,~~As of August 31, 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.

As of August 31, 2022, there are 6,209,000 warrants outstanding ( May 31, 2022 - 6,209,000), 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 August 31, 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 ~~Warrant~~warrant liability at ~~February 28,~~August 31, 2022at ~~$3.12~~$2.05 per warrant using the ~~Black-Scholes~~Black 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 $3.80.

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

At August 31, 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 600,954,939 shares issued and outstanding.

During the three months ended August 31, 2022, the Company issued the following shares:

The Company ~~operates~~maintains stock-based compensation plans as disclosed in our Annual ~~Report.~~Financial Statements. For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022, the total stock-based compensation was $~~9,355~~ ~~and $27,025 (February 28,~~$9,193, whereas for the three months ended August 31, 2021 ~~- $3,075 and $11,414).~~, total stock based compensation was $9,417.

During the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022, the Company ~~did 0t grant any further stock options or~~granted 5,747,938 time-based RSUs ~~out of Aphria’s predecessor plan.~~and 2,540,394 performance based RSUs ( August 31, 2021 - 981,229 time-based RSUs and 2,326,387 performance based RSUs). The Company's total stock-based compensation expense recognized is as follows:

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 the~~ ~~three and nine months ended February 28, 2022~~, 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$0 and C$70,000 (USD$56,630) to the stockholders 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.

~~Summary of financial information of non-controlling interests as of February 28, 2022:~~

~~Summary of financial information of non-controlling interests as of May 31, 2021:~~

Summary of ~~financial~~balance sheet information of the entities in which there is a non-controlling ~~interests for the nine months ended February 28, 2022:~~interest as of August 31, 2022:

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

Summary of income statement information of the entities in which there is a non-controlling interest for the ~~nine~~three months ended ~~February 28, 2021:~~August 31, 2022:

Summary of income statement information of the entities in which there is a non-controlling interest for the three months ended August 31, 2021:

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 ~~benefit~~expense of ~~$(1,830) and $(2,739)~~$7,211 for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 and income tax expense of ~~$6,310 and income tax benefit of $(13,707)~~$4,762 for the three ~~and nine~~ months ended ~~February 28, 2021.~~August 31, 2021. 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.

The Company has payments on long-term debt ~~(refer~~,refer to Note 10~~Long-term debt~~) (Long-term debt), convertible notes, ~~(refer~~refer to Note 11~~Convertible Debentures~~) (Convertible debentures), material purchase commitments and construction commitments as follows:

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 ~~February 28, 2022:~~August 31, 2022:

There have been no material changes from the legal proceedings since our fiscal year ended May 31, 2022, except with respect to the matters disclosed below:

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

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. The Company isstill believes the claims are without merit and ~~may~~intend to defend vigorously against them, but there can be no assurances as to the outcome.

Tilray Brands, Inc. Reorganization Litigation (Delaware, New York) – Special Litigation Committee

On February 27, 2020, Tilray stockholders Deborah Braun and Nader Noorian filed a ~~defendant in lawsuits from time to time~~class action and derivative complaint in the ~~normal course~~Delaware Court of ~~business. While~~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 ~~results~~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 ~~cannot be predicted with certainty,~~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 ~~believes~~had suffered significant damages and that the ~~reasonably possible losses~~SLC would pursue claims to recover appropriate amounts for the Company's benefit. Thereafter, the SLC, all of ~~such matters, individually~~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 parties' binding term sheet remains subject to execution of long-form settlement agreements with the respective parties and approval by the Court of Chancery. The SLC notified the Court of Chancery of the parties’ agreement in principle via letter dated July 18, 2022. As of September 30, 2022, the parties are ~~not material. Additionally,~~continuing to negotiate and finalize the ~~Company believes~~specific terms and conditions of 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.~~definitive settlement agreement.

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 intend to continue to vigorously defend the Docklight suit.

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 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 ~~February 28,~~August 31, 2022 the Company’s long-term debt of ~~$18,188 (May~~$26,272 ( May 31, ~~2021~~2022 - $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 ~~Government~~the U.S. Department of ~~Canada~~the Treasury securities of similar duration. In each period thereafter, the incremental premium is held constant while the ~~Government~~U.S. Department of ~~Canada~~the 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 ~~February 28,~~August 31, 2022 and May 31, ~~2021~~2022 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

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 ~~50%~~25%. The unobservable inputs into the future expected cash outflows result in a fair value measurement classified as Level 3.

The APHA24 Convertible debentures 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:

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) using the following inputs:

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.

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 ~~sale~~advisory 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.~~

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). 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.

Included in revenue from Canadian adult-use cannabis is $7,753 of advisory services revenue in the quarter from the aforementioned HEXO commercial transaction agreements.

Major customers are defined as customers that each individually account for greater than 10% of the Company’s annual revenues. For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 and 2021, there were 0no major customers representing greater than 10% of our ~~annual~~quarterly revenues.

On March 3, 2022, we entered into a sales agreement (the “Sales Agreement”) with Jefferies LLC and Canaccord Genuity LLC (each, an “Agent” and together, the “Agents”), pursuant to which we may offer and sell shares of Tilray’s Class 2 common stock, par value $0.0001 per share, having an aggregate offering price of up to $400 million from time to time through an at the market equity offering program under which the Agents act as sales agent (the “ATM Program”). Under the Sales Agreement, the Agents may sell shares by methods deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including but not limited to sales made directly on or through the Nasdaq Global Select Market or on any other existing trading market for Tilray’s Class 2 common stock. Each Agent will be entitled to a commission of up to three percent (3.0%) of the gross proceeds of each sale of Tilray’s Class 2 common stock made through or to such Agent from time to time under the Sales Agreement.Note 25.Subsequent Events

As of ~~April 6,~~September 15, 2022,~~, we sold an aggregate~~the Company purchased $50,000 of ~~16,941,537 shares of Tilray’s Class 2 common stock under~~its TLRY 23 convertible debenture for cancellation. After cancellation the Sales Agreement, resulting in aggregate net proceeds to us of approximately $88 million, and gross proceeds of approximately $90 million, and paid to the Agents commissions and fees of approximately $2 million, and other expenses of $0.3 million. As of ~~April 6, 2022, the remaining availability under the Sales Agreement is approximately $310 million. As a result~~outstanding principal balance of the ~~sale of shares from the ATM Program, the exercise price on the outstanding warrants have been adjusted from $5.95 to $4.91.~~

On March 15, 2022, the Company entered into a sale agreement for the disposition of its Nanaimo, Canada, facility for a purchase price equal to CAD $18.25 million, with a targeted closing date in June 2022 subject to customary terms and satisfactory of closing conditions.TLRY 23 convertible debentures is $139,830.

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

This ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Condensed Interim Consolidated Financial Statements and the related Notes thereto for the period ended ~~February 28,~~August 31, 2022 contained in this Quarterly Report on Form 10-Q and the Audited Consolidated Financial Statements and the related Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended May 31, ~~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.

We are a leading global cannabis-lifestyle and consumer packaged goods company headquartered in Leamington ~~Ontario,~~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 ~~the~~a worldwide community to live their very best life enhanced by ~~providing them with products that meet the needs~~moments 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 them~~market leading cannabis consumer products company in the world with a ~~cultivated experience~~portfolio of innovative, high-quality and ~~health~~beloved brands that address the needs of the consumers, customers and ~~wellbeing through high-quality, differentiated brands and innovative products.~~patients we serve.

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 ~~stockholder~~shareholder 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 nine months ended February 28, 2021, are of those of Aphria. ~~Accordingly, comparisons between the Company's results for the three and nine months ended February 28, 2022 and prior periods may not be meaningful.~~ ~~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$). All prior periods have been recast and are shown in this Form 10-Q under GAAP and in United States Dollars ($).

Our cannabis business reporting segment operates in an industry that is still in its early stages of development. In Canada, the industry celebrated its third year of adult-use legalization in October 2021. As the industry continues to mature, there are a number 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 February 28, 2022, we maintained our market leadership within Canada but experienced a decline in market share percent to ~~10.2%~~ from the 12.8% market share we maintained for the three months ended November 30, 2021. Prior to the end of our fiscal second quarter, the Company was primarily focused on margin maintenance in Canada. With the current market dynamics and the Company’s cost advantages, the Company adjusted its focus to be more price competitive in the value, mainstream and premium plus market categories, particularly, in vape and pre-rolled products. Our price adjustments in the vape and pre-rolled markets proved successful, with the Company increasing its market share in both categories in the current quarter, as measured by HiFyre data.

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), 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.~~traction. We also continue to believe that Tilray remains uniquely positioned to ~~win~~maintain and gain significant market share in these markets with its infrastructure, ~~being the only company with~~which 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 availability, quality and safety of our cannabinoid-based medical products. Today, Germany remains the largest medical cannabis market in Europe.

European Union. In September 2022, European Union drug coordinators met in Prague and call for the collective effort of the 27 member countries regulate the medical and adult-use cannabis markets with the view that a controlled market may be the only possible solution.

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~~controlled dispensing of ~~adult-use cannabis. To date, Tilray remains the sole producer among the three selected to distribute domestically grown~~ cannabis for adult-use consumption. It is expected that we shall see the ~~BfArM through its state-of-the-art~~ first ~~operating medical~~draft of the proposed new regulation framework in the Fall of 2022. Tilray is well-positioned in Germany to provide consistent and sustainable cannabis ~~center in Neuemunster.~~

~~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 cornerstoneproducts for the ~~cannabis industry~~adult-use market whereby we can satisfy any demand in ~~Europe.~~our Aphria RX facility located in Neumunster and our EU-GMP-certified production facility in Portugal.

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~~has been delayed 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. Although blocked by the constitutional court on other grounds, we are witnessing strong evolutions in the ways the Italian Government and administration are planning to facilitate patient access to medical cannabis. We project the market opening towards more exhaustive supply sources for flowers and extracts.

Switzerland. In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and consumption. In the meantime, a three-year pilot project ~~will commence in the Fall 2022~~is commencing imminently to conduct ~~scientific~~ studies on the cannabis market and its impact on Swiss society. In June 2022, the Swiss Government lifted the ban on cannabis for medical use commencing August 1, 2022, facilitating access to cannabis for medical use for patients who will no longer need to seek exceptional permission from the health ministry.

Spain. ~~A subcommittee on medical cannabis was recently created in~~ The Spanish Congress' Health ~~Committee. Hearings started in early March 2022, with~~Committee has recently approved a ~~series of national and EU experts attending. A report with recommendations for a regulation on MC in Spain is expected by the end of June 2022, which will likely lead~~Medical Cannabis Report that paves the way for a government-sponsored bill on medical cannabis. The Report explicitly opens the door to standardized preparations other than the drugs already approved, highlighting their advantages in relation to safety, security and stability; as well as the possibility to prescribe medical cannabis in community pharmacies and not only in hospitals, favoring the access to the patients that may need it.

France. France launched a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis. To date, approximately 1,500 patients are enrolled in the ~~experiment.~~experiment, which ends March 2023.

Czech Republic. The Czech Republic is ~~legal in the United Kingdom, however, there is~~expected to present a ~~need~~plan to maximize both clinical research and patient benefit in a safe, cautious and ethical manner so that those patients for whom medical cannabis is shown to be effective can access it. Currently, a new piece of legislation is 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. The bill is sitting for the session of May 6 at the House of Commons. The department of health and social care announced that trials of medicallegalize adult-use cannabis in ~~the UK will begin “as soon as possible.” The Government's National Institute for Health Research oversees the studies, which will study the effects~~first half of ~~medical cannabis on epilepsy.~~2023.

We have grown, and strive to continue to expand our business, through a combination of organic growth and acquisition. While we continue to execute against our strategic initiatives that we believe will result in the in long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to enter attractive new geographic markets and product ~~categories.~~categories as well as expand our existing capabilities. As a result, we incur transaction costs in connection with identifying and completing acquisitions and strategic transactions, as well as ongoing integration costs as we combine acquired companies and continue to achieve ~~synergies.~~synergies, which is offset by income generated in connection with the execution of these transactions. For the ~~nine~~three months ended ~~February 28,~~August 31, 2022, we ~~incurred $42.9~~received ($12.8) million of transaction ~~costs.~~income, discussed further below.

Our acquisition 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:

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). 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, both Tilray and HEXO are expected to achieve substantial cash savings and production efficiencies. In the current period ended August 31, 2022 the Company earned $7.8 million of adult-use cannabis revenue and $1.2 million of interest income. 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.

During our fourth quarter of our fiscal year ended May 31, 2022, the Company launched an additional $30 million cost optimization plan of our existing cannabis business to solidify our position as an industry leading low-cost producer. The Company is taking decisive action to manage gross margin 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 August 31, 2022, we have achieved $13 million of our cost optimization plan on an annualized run-rate basis of which $2 million represented actual cost savings during the period. The amount achieved is comprised of the following items:

In connection with the Tilray-Aphria Arrangement Agreement, we committed to achieving at least $80 million of synergies in connection with the integration of Tilray and Aphria and developed a robust plan and timeline to achieve such synergies. In executing our integration plan, we evaluated and optimized the organizational structure, evaluated and retained the talent and capabilities we identified as necessary to achieve our longer-term growth plan and vision, reviewed contracts and arrangements, and analyzed our supply chain and our strategic partnerships. ~~During the nine months ended February 28, 2022, we have executed on a series of synergistic actions, which included:~~

Due to the Company’s ~~decisive and impactful~~ actions in connection with the integration of Tilray and Aphria, we ~~are on track to achieve~~exceeded the identified $80 million of cost synergies ~~5 months earlier than previously projected.~~ and achieved such synergies ahead of our plan.

As of the date of this filing, we achieved ~~$76~~$95 million in ~~cost-savings~~cost-saving synergies on a run-rate basis and ~~$42~~$65 million in actual cash-savings. Additionally, we ~~have identified an additional $20~~anticipate delivering our remaining $5 million of identified synergies ~~bringing~~by the end of this fiscal year, which will bring the total identified synergies to $100 ~~million, which we expect to achieve by the end of our fiscal year ended May 31, 2023 to drive further stockholder value.~~ million.

~~During the nine months ended February 28, 2022, we also executed on other strategic transactions, as follows:~~

~~Lastly, on March 3, 2022, Tilray announced a proposed agreement for a potential strategic alliance with HEXO Corp. (“HEXO”). Through this potential alliance, both companies would~~Political and Economic Environment

Our results of operations can also be ~~expected to realize commercial benefits with production efficiencies~~affected by economic, political, legislative, regulatory, legal actions, the global volatility and ~~support services. The Company would also acquire up to $211 million of senior secured convertible notes (“Notes”) that were issued by HEXO~~general market disruption resulting from the global COVID-19 pandemic and ~~are currently held by funds affiliated with HT Investments MA LLC. The Notes would be amended to permit the Company to exercise conversion rights~~geopolitical tensions, such as Russia's incursion into Ukraine. Economic conditions, such as recessionary trends, inflation, supply chain disruptions, interest and ~~potentially acquire~~monetary exchange rates, and government fiscal policies, can have a significant equity ownership position in HEXO. In connection with the proposed agreement, the Company would agree to amend and restate the indenture governing the Notes, to among other things, (i) extend the maturity dateeffect on operations. Accordingly, we could be affected by ~~three years, to May 1, 2026; (ii) provide for the revised interest amounts; and (iii) amend~~civil, criminal, environmental, regulatory or ~~eliminate certain affirmative and negative covenants. The Notes will also provide the Company with subscription rights and top-up rights in respect of all future~~

equity and debt issuances by HEXO following closing. The proposed transaction is subject to satisfactory completion of due diligence, negotiation of definitive agreements and satisfaction of a number of conditions precedent to closing.

~~We continuously address the effects of the COVID-19 pandemic,~~administrative actions, claims or proceedings. For a discussion of ~~which is available in sections entitled "Risk Factors" in Item 1A of Part I and “~~T~~he Coronavirus ("COVID-19") Pandemic, Its Impact on Us”~~ ~~in Item 7 of~~possible adverse impacts to our ~~Annual Report on Form 10-K for the fiscal year ended May 31, 2021.~~

~~During the three and nine months ended February 28, 2022, 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 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. In our international cannabis business, we continue to see~~ ~~access to physician practices remains limited due to protective measures in place throughout Germany, slowing down the adoption of medical 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 ~~impact of change~~political and economic environment, please refer to Part II, Item 1A. Risk Factors, "We may be negatively impacted by volatility in the ~~exchange rate between the US dollar~~political and ~~the Euro, the Company recognized a decrease in sales from the prior year’s comparable period. Our beer and alcohol business continues to see a decline in on-premise business primarily~~economic environment, such as the ~~on-premise industry dealt with a lack of staffing~~crisis in Ukraine, economic downturns and increases in interest rates, and a ~~change demand pattern related to after work alcohol consumption. The continued~~period 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 nine months ended February 28, 2022 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.

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

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:

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.

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.

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.

⁽¹⁾~~Cannabis~~Adjusted EBITDA, adjusted gross profit and adjusted gross margin ~~adjusted EBITDA, free cash flow, and adjusted free cash flow~~ are non-GAAP financial measures. See ~~“Use~~“Use of Non-GAAP ~~Measures”~~Measures” below for a reconciliation of these Non-GAAP Measures to our most comparable GAAP measure.

~~NA=This reporting segment did not exist in the prior year period. The related acquisition occurred thereafter.~~

~~Management updated our reporting segments during the~~ ~~three and nine months ended February 28, 2022~~. 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:

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

Revenue from Canadian medical cannabis products: Revenue from Canadian medical cannabis products ~~increased 19%~~decreased 22% to ~~$7.1 million and 26% to $23.4~~$6.5 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022, compared to revenue of ~~$5.9 million and $18.6~~$8.4 million for the prior year ~~same periods.~~period. On a constant currency basis revenue from Canadian medical cannabis products decreased 18% to $6.8 million for the three months ended August 31, 2022, compared to revenue of $8.4 million for the prior year period. This ~~increase~~decrease 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. This increase was partially offset by the limitations caused by the COVID-19 pandemic from patients unable or unwilling to see a doctor as well as increased competition from the ~~adult-rec~~adult-use recreational market and ~~the~~related price ~~compression therein.~~compression.

Revenue from Canadian adult-use cannabis products: During the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022,, our gross revenue from Canadian adult-use cannabis ~~product~~ products decreased ~~10%~~16% to ~~$43.5 million and decreased to $162.6~~$58.4 million compared to revenue of ~~$48.1 million and $163.2~~$69.6 million for the prior year period. On a constant currency basis, our gross revenue from Canadian adult-use cannabis products decreased 13% to $60.4 million for the same ~~periods.~~period. The decrease in gross revenue from Canadian adult-use cannabis is primarily driven by the following series of factors:

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, Canada. In the second quarter of 2022, we expanded the terms of our distribution partnership with Rose LifeScience, which will now represent the entire Tilray portfolio in Quebec. In addition, we expanded

~~our partnership with Great North Distributors, Inc. to represent the entire Tilray portfolio and cover all of Canada, except for Quebec, using its established network.~~

~~The Company has also announced the planned strategic alliance with HEXO. We plan to leverage this relationship to allow us to identify production efficiencies and generate cost savings.~~

~~The nine months decrease in gross revenue is attributable to the same factors as the cause for the decrease in the three months.~~

Wholesale cannabis revenue: Revenue from wholesale cannabis products ~~increased 111%~~decreased 77% to ~~$2.8 million and increased 3% to $6.8~~$0.4 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022, compared to revenue of ~~$1.3 million and $6.6~~$1.7 million for the prior year ~~same periods.~~period 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 ~~4,459%~~2% to ~~$15.8 million and 760% to $39.8~~$10.4 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 compared to revenue of ~~$0.3 million and $4.6~~$10.3 million for the prior year ~~same periods.~~ ~~The increase is due to~~period. Given the ~~contributions~~deterioration of legacy Tilray’s larger international cannabis business as well as newly obtained business to business transactions. In Europe, we believe that, despite continuing COVID-19 pressure, cannabis legalization (both medicinal and adult-use) will continue to gain traction, especially following actions of 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 the~~ ~~three and nine months ended February 28, 2022~~, we continued to experience deceleration in the growth of our business caused by the COVID-19 pandemic, which resulted in some patients being unable or unwilling to see a doctor. Despite these impacts, w~~e generated~~ 19~~% revenue growth in connection with our medical cannabis products when compared to the prior quarter.~~

~~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. To date, approximately 1,500 patients are enrolled in the experiment.

~~Italy.~~ ~~We are one of five distributors licensed to import medical cannabis into the Italian medical cannabis market.~~

~~United Kingdom. In the prior 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 two 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.

~~Malta.~~ ~~We completed our first sale of medical cannabis dried flower in Malta~~Euro in the quarter, ~~and then in March, we expanded the offering and launched the first EU GMP medical cannabis oil products in Malta. Our EU-GMP medical~~on a constant currency basis, revenue from international cannabis products ~~are now available~~would have increased 16% to $11.9 million from $10.3 million in ~~pharmacies across Malta, providing patients with safe and reliable access to high-quality medical cannabis.~~the prior year period.

Revenue from Distribution operations decreased ~~11%~~10% to ~~$62.5 million and 6% to $198.6~~$60.6 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 compared to revenue of ~~$70.2 million and $210.5~~$67.2 million for the prior year ~~same periods.~~period. The decrease in

revenue during the ~~three months ended February 28, 2022 is primarily~~period was due to the ~~impact~~deterioration of ~~changes in the exchange rate between~~ the Euro ~~and USD totaling~~against the U.S. Dollar.,which when the impacts are eliminated, given that on a ~~$6.7~~constant currency basis revenue increased 5% to $70.6 million ~~and $14.6 million reduction for the three and nine months ended February 28, 2022,~~ when compared to prior year same periods. Additionally, the decrease in revenue during the nine months ended February 28, 2022 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.~~period.

Revenue from our Beverage operations increased 34% to ~~$19.6 million and $48.8~~$20.7 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 compared to revenue of ~~$11.9 million and $12.7~~$15.5 million for the prior year ~~same periods.~~period. The increase in the three-month period relates primarily to our acquisition of Breckenridge on December 7, ~~2021 but also includes an increase~~2021.

Our Wellness revenue from Manitoba Harvest decreased 10% to $13.4 million for three months ended August 31, 2022 compared to $14.9 million from the prior year period. On a constant currency basis for the same period, Wellness revenue decreased 8% to $13.7 million from $14.9 million. The decrease in ~~revenues generated by SweetWater. The increase~~revenue is the result of the prior year quarter including a one-off private label sale that did not recur in the ~~nine-month period is consistent with the increase in the three-month period.~~

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,current quarter, as well as a ~~new beer offering developed~~higher volume of distressed retailer sales which resulted in ~~collaboration with our Canadian cannabis Broken Coast brand and~~ a new vodka soda offering developed in collaboration with our Canadian cannabis Riff brand as Tilray continues to strengthen its strategic position in the U.S. by expanding its presence through acquisitions and collaboration with other Tilray cannabis brands. This strategyhigher volume of ~~leveraging our growing portfolio of brands enables the company to launch THC-based product adjacencies upon federal legalization in the U.S.~~

~~Included in Wellness~~ ~~revenue~~ ~~is $14.7 million and $43.4 million from Manitoba Harvest, for the~~ ~~three and nine months ended February 28, 2022. Manitoba Harvest was part of the assets acquired in the Arrangement. There are no comparable revenues~~lower-margin sales in the prior year ~~being presented.~~quarter compared to the current period. This decrease is partially offset by a meaningful one-time change in Wellness revenue net of discount sales mix in the final week of the quarter.

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

Our gross profit and gross margin for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 and 2021, is as follows:

																									For the three months
(in thousands of U.S. dollars)	For the three months ended February 28,						Change			% Change			For the nine months ended February 28,						Change			% Change			ended August 31,						Change			% Change
Cannabis	2022			2021			2022 vs. 2021						2022			2021			2022 vs. 2021						2022			2021			2022 vs. 2021
Revenue	$	69,178		$	55,702		$	13,476			24	%	$	232,540		$	192,977		$	39,563			21	%
Excise taxes		(14,133	)		(13,981	)		(152	)		1	%		(48,271	)		(45,288	)		(2,983	)		7	%
Net revenue		55,045			41,721			13,324			32	%		184,269			147,689			36,580			25	%		58,570			70,449			(11,879	)		(17	)%
Cost of goods sold		37,042			25,373			11,669			46	%		122,492			80,780			41,712			52	%		28,861			40,190			(11,329	)		(28	)%
Gross profit		18,003			16,348			1,655			10	%		61,777			66,909			(5,132	)		(8	%)		29,709			30,259			(550	)		(2	)%
Gross margin		33	%		39	%		(6	%)		(17	%)		34	%		45	%		(12	%)		(26	%)		51	%		43	%		8	%		18	%

Inventory valuation adjustments		—			—			—		(0%)				12,000			—			12,000		(0%)
Adjusted gross profit ⁽¹⁾		18,003			16,348			1,655			12	%		73,777			66,909			6,868			19	%
Adjusted gross margin ⁽¹⁾		33	%		39	%		(6	%)		(17	%)		40	%		45	%		(5	%)		(12	%)
Distribution
Revenue	$	62,532		$	70,237		$	(7,705	)		(11	%)	$	198,587		$	210,508		$	(11,921	)		(6	%)
Excise taxes		—			—			—		NM				—			—			—		NM
Net revenue		62,532			70,237			(7,705	)		(11	%)		198,587			210,508			(11,921	)		(6	%)		60,585			67,186			(6,601	)		(10	)%
Cost of goods sold		57,566			61,015			(3,449	)		(6	%)		178,093			182,048			(3,955	)		(2	%)		54,984			59,290			(4,306	)		(7	)%
Gross profit		4,966			9,222			(4,256	)		(46	%)		20,494			28,460			(7,966	)		(28	%)		5,601			7,896			(2,295	)		(29	)%
Gross margin		8	%		13	%		(5	%)		(40	%)		10	%		14	%		(3	%)		(24	%)		9	%		12	%		(3	)%		(21	)%
Beverage alcohol
Revenue	$	20,473		$	12,358		$	8,115			66	%	$	51,500		$	13,112		$	38,388		NM
Excise taxes		(876	)		(416	)		(460	)		111	%		(2,735	)		(460	)		(2,275	)	NM
Net revenue		19,597			11,942			7,655			64	%		48,765			12,652			36,113		NM				20,654			15,461			5,193			34	%
Cost of goods sold		8,091			7,056			1,035			15	%		20,674			7,337			13,337		NM				10,849			6,663			4,186			63	%
Gross profit		11,506			4,886			6,620			135	%		28,091			5,315			22,776		NM				9,805			8,798			1,007			11	%
Gross margin		59	%		41	%		18	%		44	%		58	%		42	%		16	%		37	%		47	%		57	%		(10	)%		(17	)%
Purchase price accounting step-up																										1,107			—			—			0	%)
Adjusted gross profit (1)																										10,912			8,798			2,114			24	%
Adjusted gross margin (1)																										53	%		57	%		(4	%)		(7	%)
Wellness
Revenue	$	14,697		$	—		$	14,697		NM			$	43,426		$	—		$	43,426		NM
Excise taxes		—			—			—		NM				—			—			—		NM
Net revenue		14,697			—			14,697		NM				43,426			—			43,426		NM				13,402			14,927			(1,525	)		(10	)%
Cost of goods sold		9,343			—			9,343		NM				30,238			—			30,238		NM				9,903			10,925			(1,022	)		(9	)%
Gross profit		5,354			—			5,354		NM				13,188			—			13,188		NM				3,499			4,002			(503	)		(13	)%
Gross margin		36	%		—	%		36	%	NM				30	%		—	%		30	%	NM				26	%		27	%		(1	)%		(3	)%
Total
Revenue	$	166,880		$	138,297		$	28,583			21	%	$	526,053		$	416,597		$	109,456			26	%
Excise taxes		(15,009	)		(14,397	)		(612	)		4	%		(51,006	)		(45,748	)		(5,258	)		11	%
Net revenue		151,871			123,900			27,971			23	%		475,047			370,849			104,198			28	%		153,211			168,023			(14,812	)		(9	)%
Cost of goods sold		112,042			93,444			18,598			20	%		351,497			270,165			81,332			30	%		104,597			117,068			(12,471	)		(11	)%
Gross profit		39,829			30,456			9,373			31	%		123,550			100,684			22,866			23	%		48,614			50,955			(2,341	)		(5	)%
Gross margin		26	%		25	%		2	%		7	%		26	%		27	%		(1	%)		(4	%)		32	%		30	%		2	%		6	%

Inventory valuation adjustments		—			—			—		(0%)				12,000			—			12,000		(0%)
Purchase price accounting step-up																										1,107			—			—			(0	)%
Adjusted gross profit ⁽¹⁾		39,829			30,456			9,373			31	%		135,550			100,684			34,866			35	%		49,721			50,955			(1,234	)		(2	)%
Adjusted gross margin ⁽¹⁾		26	%		25	%		2	%		7	%		29	%		27	%		1	%		5	%		32	%		30	%		2	%		7	%

(1)

~~(1)~~

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

Table of Contents

Cannabis gross margin: Gross margin ~~decreased~~increased during the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 to ~~33% and 34%~~51% from ~~39% and 45%~~43% versus the prior year ~~same periods.~~ period. The three months’ ~~decrease~~increase in cannabis gross margin is primarily related to ~~a single wholesale~~the $7.8 million of HEXO revenue included in cannabis ~~sale resulting in~~revenue. When this revenue ~~of $3.0 and negative gross profit of $2.6 million, lowering the~~is excluded from this computation, our cannabis gross margin ~~by 7% solely related~~remains consistent at 43% for the period. The Company has been able to ~~the single transaction.~~ ~~The transaction was~~maintain a sale of aged dried cannabis that was nearing the end of its shelf life. In addition, margins were impacted by our price reduction on vape and pre-rolled products originally initiated in the prior quarter. ~~The nine months decrease in cannabis~~consistent gross margin isdespite the adverse price compression faced during the quarter as a result of ~~selling the acquired legacy-Tilray brands, which had higher costs to produce,~~our focus on being a low cost producer and ~~the Company took an additional non-cash inventory write down of $12 million in November 2021. Significant efforts have been~~

taken to reduce the Company’s cultivation costs at its legacy-Tilray Canadian facilities, including announcing the shutdown of both the Enniskillen and Nanaimo Canadian facilities. In the interim and until the inventory cultivated at these facilities is depleted, we expect to report lower gross margins until the inventory cultivated at legacy Aphria facilities replaces these products. Our European operations continue to work to optimize the cost structure for their cannabis growing facilities, including working with the Canadian operations team, all in an effort to continually lower our per unit costs.other synergistic initiatives.

Distribution gross margin: Gross margin of ~~8% and 10%~~9% for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 decreased from ~~13% and 14% from~~12% the same ~~periods~~period in the prior year. These declines were driven by ~~increased costs as the Company’s primary source~~a change in consumer trends toward lower margin products.

Beverage alcohol gross margin: Gross margin of ~~products were unable to ship during border closures and during periods of peak demand. The Company also experienced higher than normal discounts and returns in~~47% for the three months ended ~~February 28, 2022.~~

~~Beverage alcohol gross margin:~~ ~~Gross margin of 59% and 58% for the~~ ~~three and nine months ended February 28,~~August 31, 2022 ~~increased~~ decreased from ~~41% and 42%~~57% from the same ~~periods~~period in the prior year. ~~These increases are due~~This decrease is a result of the current period including the Sweetwater Colorado expansion, which is still in the start-up phase of operations and thus when compared to the ~~addition~~prior quarter same period in which the expansion had not yet begun.

Wellness gross margin: Gross margin of ~~Breckenridge, and its higher gross margin, during~~26% for the ~~period and a resurgence of SweetWater’s on-premises activities~~three months ended August 31, 2022 slightly decreased from 27% from the ~~return of indoor dining. Additionally, we acquired this segment~~same period in ~~the final week of the second quarter of~~ the prior year ~~which hinders~~and has remained relatively consistent period over period despite inflationary impacts as a ~~representative comparison.~~result of the change in sales mix experienced at the end of the quarter.

~~Wellness gross margin:~~ ~~Gross margin of 36% and 30% for the~~ ~~three and nine months ended February 28, 2022~~ ~~are consistent with the preceding fiscal quarter. We acquired the wellness business in the Arrangement and did not operate in this segment during the same periods during prior year.~~

Operating expenses

																							For the three months
	For the three months ended February 28,					Change			% Change			For the nine months ended February 28,					Change			% Change			ended August 31,					Change			% Change
(in thousands of US dollars)	2022			2021		2022 vs. 2021						2022			2021		2022 vs. 2021						2022			2021		2022 vs. 2021
General and administrative	$	38,445		$	24,491	$	13,954			57	%	$	121,401		$	78,736	$	42,665			54	%	$	40,508		$	49,487	$	(8,979	)		(18	)%
Selling		8,641			6,155		2,486			40	%		25,283			18,051		7,232			40	%		9,671			7,432		2,239			30	%
Amortization		24,590			10,786		13,804			128	%		84,345			19,121		65,224			341	%		24,359			30,739		(6,380	)		(21	)%
Marketing and promotion		7,578			3,259		4,319			133	%		20,163			12,436		7,727			62	%		7,248			5,465		1,783			33	%
Research and development		164			127		37			29	%		1,464			472		992			210	%		166			785		(619	)		(79	)%
Change in fair value of contingent consideration		(29,065	)		—		(29,065	)	NM				(29,065	)		—		(29,065	)	NM				211			837		(626	)		(75	)%
Transaction costs		9,238			9,688		(450	)		(5	%)		42,937			30,352		12,585			41	%
Litigation costs																								445			1,194		(749	)		(63	)%
Transaction (income) costs																								(12,816	)		24,385		(37,201	)		(153	)%
Total operating expenses	$	59,591		$	54,506	$	5,085			9	%	$	266,528		$	159,168	$	107,360			67	%	$	69,792		$	120,324	$	(50,532	)		(42	)%

Operating expenses are comprised of general and administrative, share-based compensation, selling, amortization, marketing and promotion, research and development, ~~and transaction costs. These costs increased by $5.1 million and $107.4 million~~ ~~for the~~ ~~three and nine months ended February 28, 2022~~as compared to the same periods of the prior year. This increase was primarily due to reporting full quarters of operating expenses for the acquired SweetWater and legacy-Tilray in fiscal 2022 and Breckenridge beginning on December 7, 2021, including non-cash amortization charges associated with definite life intangible assets acquired and general and administrative expenses. These increases were partially offset by a change in fair value of contingent consideration, litigation costs and transaction (income) costs. These costs decreased by ($50.5) million to $69.8 million for the three months ended August 31, 2022 as compared to $120.3 million for the same period of ~~$29.1 million~~the prior year. This decrease was primarily a result of the transaction income recorded in the period described in detail below, where as the prior quarter included expenses related to the Tilray-Aphria Arrangement Agreement. Additionally, our amortization has decreased as a result of the reductions in our intangible assets. Lastly, our reduction in G&A is a ~~change in the likelihood~~result of ~~achieving specified earn-out EBITDA targets.~~our continual commitment to executing cost saving initiatives and exploring synergistic opportunities.

Table of Contents

General and administrative costs

During the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022,, general and administrative costs ~~increased~~decreased by ~~57% and 54%~~18% as compared to the prior year ~~same periods.~~ period.

																							For the three months
	For the three months ended February 28,					Change			% Change			For the nine months ended February 28,					Change			% Change			ended August 31,				Change			% Change
(in thousands of US dollars)	2022			2021		2022 vs. 2021						2022			2021		2022 vs. 2021						2022		2021		2022 vs. 2021
Executive compensation	$	4,238		$	1,916	$	2,322			121	%	$	9,565		$	6,877	$	2,688			39	%	$	3,555	$	3,090	$	465			15	%
Office and general		4,012			3,446		566			16	%		21,755			12,285		9,470			77	%		5,829		12,742		(6,913	)		(54	)%
Salaries and wages		14,076			8,888		5,188			58	%		37,536			27,052		10,484			39	%		14,635		15,311		(676	)		(4	)%
Stock-based compensation		9,355			3,075		6,280			204	%		27,025			11,414		15,611			137	%		9,193		9,417		(224	)		(2	)%
Insurance		4,835			3,155		1,680			53	%		14,461			9,265		5,196			56	%		2,703		4,631		(1,928	)		(42	)%
Professional fees		3,601			2,679		922			34	%		9,669			8,785		884			10	%		2,490		2,713		(223	)		(8	)%
Gain on sale of capital assets		(861	)		—		(861	)	NM				(631	)		—		(631	)	NM				77		27		50			185	%
Insurance proceeds		(4,032	)		—		(4,032	)	NM				(4,032	)		—		(4,032	)	NM
Travel and accommodation		1,102			654		448			69	%		2,876			1,906		970			51	%		1,161		790		371			47	%
Rent		2,119			678		1,441			213	%		3,177			1,152		2,025			176	%		865		766		99			13	%
Total general and administrative costs	$	38,445		$	24,491	$	13,954			57	%	$	121,401		$	78,736	$	42,665			54	%	$	40,508	$	49,487	$	(8,979	)		(18	)%

Executive compensation increased by ~~121% and 39%~~15% in the three months ~~and nine months~~ ended ~~February 28,~~August 31, 2022, primarily due to ~~an increase in~~a one-time payment of a transaction specific bonus related to the ~~number~~closure of ~~directors and executive level personnel on our board of directors and executive management team following~~ the Tilray and ~~Aphria combination, and an increase in base salaries commensurate with~~HEXO strategic alliance during the ~~increased complexity of our Company.~~quarter.

Office and general ~~increased~~decreased by ~~16% and 77%~~54% during the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 the decrease is primarily due to the inclusion of the ~~acquired SweetWater and legacy-Tilray entities, and the~~ additional one-time costs associated with the ~~upcoming~~ closure of our Nanaimo, Canada, ~~facility.~~ facility in the prior year quarter.

Salaries and wages ~~increased 58% and 39% in~~decreased by 4% during the three months ~~and nine months~~ ended ~~February 28,~~August 31, 2022. The ~~increase~~decrease is primarily due to ~~additions associated with~~ the ~~aforementioned acquisitions from~~synergy and cost saving initiatives implemented since the prior year. The Company’s headcount ~~increased~~decreased to approximately ~~1,700~~1700 employees as a result of the Tilray-Aphria Arrangement Agreement compared to ~~1,000~~2,100 employees as of ~~February 28,~~August 31, 2021.

The Company recognized stock-based compensation expense of ~~$9.4 million and $27.0~~$9.2 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 compared to ~~$3.1 million and $11.4~~$9.4 million for the same ~~periods~~period in the prior year. The ~~increase~~balance has remained consistent period over period as this is ~~primarily driven by the increased number of employees and the accelerated~~based on consent time based vesting ~~of certain elements of our stock-based compensation awards related to the Arrangement.~~schedules.

Insurance expenses ~~increased~~decreased by ~~53% and 56% for the~~ ~~three and nine months ended February 28, 2022~~ ~~due primarily to our revised directors and officers’ insurance policy. This increase reflects an increase in premium rates, as the Company continued with legacy-Tilray’s rating history.~~

~~The Company recognized $4.0 million~~42% for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 ~~related~~ to ~~insurance recoveries under~~$2.7 million from $4.6 from the ~~Business Interruption and Extra Expense portions~~same period in the prior year. This item was a target of ~~CC Pharma’s property insurance.~~the Tilray-Aphria Arrangement Agreement synergies.

Selling costs

For the three months ended ~~February 28,~~August 31, 2022, the Company incurred selling costs of ~~$8.6~~$9.7 million or ~~5.7%~~6.3% of revenue as compared to ~~$6.2~~$7.4 million and ~~5.3%~~4.4% of revenue in the prior year ~~same period. For the nine months ended February 28, 2022, the Company incurred selling costs of $25.3 million or 5.3% of revenue as compared to $18.1 million and 4.9% of revenue in the prior year same~~ period. These costs relate to third-party distributor commissions, shipping costs, Health Canada cannabis fees, and patient acquisition and maintenance costs. Patient acquisition and ongoing patient maintenance costs include funding to individual clinics to assist with additional costs incurred by clinics resulting from the education of patients using the Company’s products. The increase in selling costs as a percent of revenue in ~~both~~ the ~~three and nine-month periods~~period resulted from incurred costs associated with having ~~both Great North Distributors and Rose Lifesciences as distributors~~a portion of our selling fees with fixed components that did not decrease with the decline in ~~Canada, a strategic decision intended to increase Canadian cannabis revenue. The increase is mainly driven by~~our revenue during the ~~combination of legacy-Tilray.~~quarter.

Amortization

The Company incurred non-production related amortization charges of ~~$24.6 million and $84.3~~$24.4 million for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022 compared to ~~$10.8 million and $19.1~~$30.7 million in the prior year ~~same periods.~~period. The ~~increase~~decreased amortization is ~~associated with~~a result of the ~~amortization on the acquired definite life~~reduced intangible ~~assets from SweetWater, legacy-Tilray and Breckenridge.~~asset levels.

Table of Contents

Marketing and promotion costs

For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022,, the Company incurred marketing and promotion costs of ~~$7.6 million and $20.2~~$7.2 million as compared to ~~$3.3~~$5.5 million the prior year period. The increase is a result of the continued focus of investing in our Canadian cannabis brands by prioritizing our retail partnerships through the education of budtenders. Additionally, the prior year quarter did not include the marketing spend related to Breckenridge, as it was acquired in the second quarter of the prior year.

Research and ~~$12.4~~development

Research and development costs were $0.2 million during the three months ended August 31, 2022 compared to $0.8 million in the prior year ~~same periods. The increase is mainly driven by the combination of legacy-Tilray.~~

~~Research and development~~

~~Research~~ ~~and~~ ~~development costs were $0.2 million and $1.5 million during the~~ ~~three and nine months ended February 28, 2022~~ ~~compared to $0.1 million and $0.5 million in the prior year same periods.~~period. These relate to external costs associated with the development of new products. Although 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 costs related to the cost of products consumed in research and development activities.

Transaction (income) costs

Items classified as transaction (income) costs are non-recurring in nature and correspond largely to our acquisition and synergy strategy. The three months decrease of ~~5% is associated with the closing of the SweetWater acquisition in~~153% from the prior ~~period. The nine months increase of 41%~~year period is ~~associated with the solicitation of stockholder votes supporting an increase in the number of authorized common stock shares, transaction closing costs~~ related to the ~~Arrangement, the MedMen Transaction, the Breckenridge transaction and the evaluation of other potential acquisitions and one-time litigation costs.~~following items:

●

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 disposal of our Enniskillen facility and the restructuring of Nanaimo facility are completed;

●

the prior period 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;

●

A non-reimbursed compensation payment of $5.0 million was made as a result of the HEXO transaction in the quarter; 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 subsequent to the quarter end. This gain offsets the aforementioned items in the 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.

Non-operating (expense) income, net

Non-operating (expense) income is comprised of:

For the three months
ended February 28,

Change

% Change

For the nine months
ended February 28,

Change

% Change

(in thousands of US dollars)

2022

2020

2022 vs. 2021

2022

2021

2022 vs. 2021

Change in fair value of
   convertible debenture

$
56,128

$
(213,538
)

$
269,666

(126
%)

$
151,851

$
(283,881
)

$
435,732

(153
%)
Change in fair value of
   warrant liability

21,089

—

21,089

NM

58,802

—

58,802

NM

Foreign exchange loss

(2,548
)

(3,884
)

1,336

(34
%)

(18,452
)

(23,586
)

5,134

(22
%)
Loss on long-term
   investments

(3,326
)

(2,733
)

(593
)

22
%

(6,834
)

(4,252
)

(2,582
)

61
%
Other non-operating
   (losses) gains, net

1,376

(185
)

1,561

(844
%)

962

5,371

(4,409
)

(82
%)
Total non-operating
   income (expense)

$
72,719

$
(220,340
)

$
293,059

(133
%)

$
186,329

$
(306,348
)

$
492,677

(161
%)

	For the three months
	ended August 31,						Change			% Change
(in thousands of US dollars)	2022			2021			2022 vs. 2021
Change in fair value of convertible debenture	$	(7,884	)	$	39,370		$	(47,254	)		(120	)%
Change in fair value of warrant liability		1,548			17,535			(15,987	)		(91	)%
Foreign exchange loss		(25,573	)		(5,724	)		(19,849	)		347	%
Loss on long-term investments		(1,008	)		(1,675	)		667			(40	)%
Other non-operating (losses) gains, net		(75	)		191			(266	)		(139	)%
Total non-operating income (expense)	$	(32,992	)	$	49,697		$	(82,689	)		(166	)%

For the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022,, the Company recognized a change in fair value of its ~~APHA 24~~ convertible debentures of ~~$56.1 million and $151.9 million, compared to a change in fair value of $(213.5) million and $(283.9) million for the prior year same periods.~~($7.9) million. 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. Additionally, for the three ~~and nine~~ months ended ~~February 28,~~August 31, 2022,, the Company recognized a change in fair value of its warrants, resulting in a gain of ~~$21.1~~$1.5 million ~~and $58.8 million acquired as part of the Arrangement,~~ also as a result of the change in our share price. Furthermore, for three ~~and nine~~ months ended ~~February 28,~~August 31, 2022,, the Company recognized a loss of ~~$(2.5) million and $(18.5)~~($25.6) million, resulting from the changes in foreign exchange rates during the period, compared to losses of ~~$(3.9) million and $(23.6)~~($5.7) million for the prior year ~~same periods,~~period, largely associated with the ~~strengthening~~weakening of the ~~US dollar against the Canadian dollar.~~Euro. The remaining other losses relate to changes in fair value in the Company’s convertible notes receivable and long-term investments.

~~Use~~

Table of ~~Non-GAAP Measures~~

We have included in this report measures of financial performance that are 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:

•

~~adjusted gross profit~~ ~~(excluding inventory valuation adjustments),~~

Contents

•

~~adjusted gross margin percentage,~~

•

~~adjusted net income (loss),~~

•

~~free cash flow,~~

•

~~adjusted~~ ~~free cash flow, and~~

•

~~adjusted EBITDA~~.

For each of these non-GAAP financial measures, we have provided above or 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 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.

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

Adjusted ~~net income (loss) and adjusted~~ EBITDA

For the three months
ended February 28,

Change

% Change

For the nine months
ended February 28,

Change

% Change

2022

2021

2022 vs. 2021

2022

2021

2022 vs. 2021

Net income (loss)

$
52,475

$
(258,643
)

$
311,118

(120
%)

$
23,668

$
(369,636
)

$
393,304

(106
%)
Adjusted net income (loss)

$
(32,666
)

$
(28,458
)

$
(4,208
)

15
%

$
(115,636
)

$
(20,403
)

$
(95,233
)

467
%
Adjusted EBITDA

$
10,086

$
9,367

$
719

8
%

$
36,543

$
27,576

$
8,967

33
%

~~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 February 28,

Change

% Change

For the nine months
ended February 28,

Change

% Change

Adjusted net loss reconciliation:

2022

2021

2022 vs. 2021

2022

2021

2022 vs. 2021

Net income (loss)

$
52,475

$
(258,643
)

$
311,118

(120
%)

$
23,668

$
(369,636
)

$
393,304

(106
%)
Unrealized (gain) loss on convertible
debentures

(56,128
)

213,538

(269,666
)

(126
%)

(151,851
)

283,881

(435,732
)

(153
%)
Foreign exchange loss (gain)

2,548

3,884

(1,336
)

(34
%)

18,452

23,586

(5,134
)

(22
%)
Change in fair value of warrant liability

(21,089
)

—

(21,089
)

NM

(58,802
)

—

(58,802
)

NM

Stock-based compensation

9,355

3,075

6,280

204
%

27,025

11,414

15,611

137
%
Change in fair value of contingent consideration

(29,065
)

—

(29,065
)

NM

(29,065
)

—

(29,065
)

NM

Inventory write down

—

—

-

NM

12,000

—

12,000

NM

Transaction costs

9,238

9,688

(450
)

(5
%)

42,937

30,352

12,585

41
%
Adjusted net loss

$
(32,666
)

$
(28,458
)

$
(4,208
)

15
%

$
(115,636
)

$
(20,403
)

$
(95,233
)

467
%

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) income~~loss 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.

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For the period ended ~~February 28,~~August 31, 2022, adjusted EBITDA ~~increased~~decreased primarily ~~from favorable effects~~as a result of ~~new lines~~the decline in revenue and gross profit as a result of ~~business, offset by~~ the ~~inclusion~~weakening of ~~legacy Tilray’s cannabis business, while we work to achieve our synergies plan, as follows:~~the Euro during the quarter.

For the three months
ended February 28,

Change

% Change

For the nine months
ended February 28,

Change

% Change

Adjusted EBITDA reconciliation:

2022

2021

2022 vs. 2021

2022

2021

2022 vs. 2021

Net income (loss)

$
52,475

$
(258,643
)

$
311,118

(120
%)

$
23,668

$
(369,636
)

$
393,304

(106
%)
Income taxes

(1,830
)

6,310

(8,140
)

(129
%)

(2,739
)

(13,707
)

10,968

(80
%)
Interest expense, net

2,312

7,943

(5,631
)

(71
%)

22,422

18,511

3,911

21
%
Non-operating expense (income), net

(72,719
)

220,340

(293,059
)

(133
%)

(186,329
)

306,348

(492,677
)

(161
%)
Amortization

37,020

20,282

16,738

83
%

113,824

43,292

70,532

163
%
Stock-based compensation

9,355

3,075

6,280

204
%

27,025

11,414

15,611

137
%
Change in fair value of contingent consideration

(29,065
)

—

(29,065
)

NM

(29,065
)

—

(29,065
)

NM

Facility start-up and closure costs

2,500

—

2,500

NM

10,400

—

10,400

NM

Lease expense

800

372

428

115
%

2,400

1,002

1,398

140
%
Inventory write down

—

—

—

NM

12,000

—

12,000

NM

Transaction costs

9,238

9,688

(450
)

(5
%)

42,937

30,352

12,585

41
%
Adjusted EBITDA

$
10,086

$
9,367

$
719

8
%

$
36,543

$
27,576

$
8,967

33
%

	For the three months
	ended August 31,						Change			% Change
Adjusted EBITDA reconciliation:	2022			2021			2022 vs. 2021
Net loss	$	(65,794	)	$	(34,604	)	$	(31,190	)		90	%
Income taxes		7,211			4,762			2,449			51	%
Interest expense, net		4,413			10,170			(5,757	)		(57	)%
Non-operating income (expense), net		32,992			(49,697	)		82,689			(166	)%
Amortization		34,069			39,333			(5,264	)		(13	)%
Stock-based compensation		9,193			9,417			(224	)		(2	)%
Change in fair value of contingent consideration		211			837			(626	)		(75	)%
Purchase price accounting step-up		1,107			—			1,107			NM
Facility start-up and closure costs		1,800			6,200			(4,400	)		(71	)%
Lease expense		700			700			—			0	%
Litigation costs		445			1,194			(749	)		(63	)%
Transaction (income) costs		(12,816	)		24,385			(37,201	)		(153	)%
Adjusted EBITDA	$	13,531		$	12,697		$	834			7	%

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

●

•Non-cash inventory valuation adjustments;

●

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

●

Stock-based compensation expenses, which ~~could~~has been, and will continue to be for the foreseeable future, a significant recurring expense ~~or recovery~~ in our business ~~in the future~~ and ~~reduce or increase cash available to us.~~an important part of our compensation strategy;

●

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

●

~~Interest expense and loss on disposal of property and equipment to reflect ongoing operating activities;~~

•

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

●

•

Non-cash change in fair value of warrant liability;

●

•Interest expense, net;

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●

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

•

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

•

~~Non-cash inventory valuation adjustments;~~

•

~~Non-cash loss from equity method investments;~~

•

Costs incurred to start up new ~~facilities and/or to close facilities in Nanaimo, Canada and Enniskillen, Canada;~~facilities;

●

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

●

~~Lease expense;~~Transaction (income) costs includes acquisition related income and expenses, which vary significantly by transactions and are excluded to evaluate ongoing operating results;

●

•Litigation costs includes costs related to ongoing litigations, legal settlements and recoveries which are excluded to evaluate ongoing operating results;

●

~~Non-cash~~Amortization of purchase accounting step-up in inventory ~~write down;~~value included in costs of sales - product costs; and

●

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

~~Transaction costs associated with current and future business acquisitions.~~

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, 2021, we entered into an at the market offering arrangement (the ~~ATM Program)~~"ATM Program") pursuant to which we ~~may offer~~offered and ~~sell~~sold our common stock having an aggregate offering price of up to $400 million. The ATM Program iswas intended to strengthen our balance sheet and improve our liquidity position ~~(refer~~and was utilized to ~~Part I, Financial Information, Note 24 Subsequent Events~~offer and sell common stock having a total of ~~this interim report).~~$400 million for the period ending August 31, 2022. The Company has 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 in open market transactions. We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with ~~expected~~received proceeds from the ATM Program and access to external sources of funds, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.

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

							For the three months
	For the nine months ended February 28,						ended August 31,
	2022			2021			2022			2021
Net cash used in operating activities	$	(156,738	)	$	(52,966	)	$	(46,269	)	$	(93,227	)
Net cash used in investing activities	$	(16,618	)	$	(303,082	)		(1,537	)		(8,620	)
Net cash (used in) provided by financing activities	$	(33,612	)	$	187,184			123,620			(8,028	)
Effect on cash of foreign currency translation	$	(2,284	)	$	18,809			(1,080	)		(2,294	)
Cash and cash equivalents, beginning of period	$	488,466		$	360,646			415,909			488,466
Cash and cash equivalents, end of period	$	279,214		$	210,591			490,643			376,297
Decrease in cash and cash equivalents	$	(209,252	)	$	(150,055	)
Increase (decrease) in cash and cash equivalents							$	74,734		$	(112,169	)

Cash flows from operating activities

The change in net cash used in operating activities during the ~~nine~~three months ended ~~February 28,~~August 31, 2022 compared to the prior year ~~same~~ period is primarily related to ~~payments associated with the Arrangement, income taxes at Aphria Diamond, investments~~improved operating efficiencies realized through our synergy programs. The current period’s negative operating cash flow was largely driven by an investment in ~~inventory and settlement~~working capital.

Table of ~~accounts payable and accrued liabilities in the period.~~

Contents

Cash flows from investing activities

The change in net cash used in investing activities induring the ~~first~~ three ~~fiscal quarters of~~months ended August 31, 2022 as compared to the ~~first three fiscal quarters~~prior year period is a result of ~~2021 is primarily due to~~most of our capital expenditure projects being completed from the ~~disbursement~~prior year, with the exception of ~~cash used for the SweetWater acquisition in fiscal year 2021.~~Sweetwater Colorado.

Cash flows from financing activities

The change in cash used in financing activities in during the ~~first~~ three ~~fiscal quarters of~~months ended August 31, 2022 as compared to the ~~first three fiscal quarters of 2021~~prior year period, is primarily due to ~~an early payment on SweetWater’s term loan facility~~the funds received in ~~fiscal~~the current quarter from our ATM program that was not in place for the prior year ~~2022, and the share capital and debt financings completed in fiscal year 2021 that did not recur 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 operating activities less investments, net 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:period.

For the three months
ended February 28,

Change

% Change

For the nine months
ended February 28,

Change

% Change

Free cash flow

2022

2021

2022 vs. 2021

2022

2021

2022 vs. 2021

Net cash provided by (used in) operating
activities

$
(46,390
)

$
696

$
(47,086
)

(6,765
%)

$
(156,738
)

$
(52,966
)

$
(103,772
)

196
%
Less: investments in capital and intangible
assets, net

(1,352
)

(4,068
)

2,716

(67
%)

(16,944
)

(27,324
)

10,380

(38
%)
Free cash flow

$
(47,742
)

$
(3,372
)

$
(44,370
)

1,316
%

$
(173,682
)

$
(80,290
)

$
(93,392
)

116
%
Cash expended related to acquisitions

12,142

9,688

2,454

25
%

68,652

30,352

38,300

126
%
Adjusted free cash flow

$
(35,600
)

$
6,316

$
(41,916
)

(664
%)

$
(105,030
)

$
(49,938
)

$
(55,092
)

110
%

Subsequent Events

Refer to Part I, Financial Information, Note 24 Subsequent Events of this interim report.

Off Balance Sheet Arrangements

At ~~February 28,~~August 31, 2022, 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 condensed interim 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 for the fiscal year ended May 31, ~~2021.~~2022.

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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 for the fiscal year ended May 31, ~~2021~~2022 during the ~~nine~~three months ended ~~February 28,~~August 31, 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 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 ~~February 28,~~August 31, 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 and~~ Breckenridge Distillery, which we acquired on ~~April 30, 2021 and~~ December 7, ~~2021 respectively. Legacy Tilray and~~2021. Breckenridge Distillery represented ~~7.6% and 2.1%~~2.0% of our consolidated assets and ~~24.5% and 1.2%~~3.7% of our consolidated revenues as of and for the ~~nine~~three months ended ~~February 28,~~August 31, 2022.

Changes in Internal Control over Financial Reporting

On January 1, 2022, Tilray successfully implemented a new Enterprise Resource Planning (ERP) system in the Company's SweetWater Brewery operations. As a result, financial and operating transactions are recorded utilizing modern functionality provided by the new ERP system. This new system is not in response to any identified deficiency or weakness in internal controls over financial reporting but to replace an aging system. The system implementation was designed, in part, to enhance the overall system of internal controls over financial reporting through further automation of various business processes. Except for the preceding change, thereThere have been no changes in ~~Tilray’s internal~~our “internal control over financial ~~reporting~~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 Tilray and~~ Breckenridge Distillery on ~~April 30, 2021 and~~ December 7, ~~2022 respectively.~~2021. The Company is in the process of reviewing the internal control structure of ~~legacy Tilray and~~ Breckenridge Distillery and, if necessary, will make appropriate changes as it integrates ~~legacy Tilray and Breckenridge~~them into the Company’s overall internal control over financial reporting process.

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PART ~~II—~~II—OTHER INFORMATION

Item 1. Legal Proceedings.

"Item 3. Legal Proceedings" of our Annual Report on Form 10-K for the fiscal year ended May 31, ~~2021~~2022 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.

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~~Class Action Suits and Stockholder Derivative Suits – U.S. and Canada~~

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

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

On March 4, 2020, the Delaware Court of Chancery entered an order consolidating the two cases and designating the complaint in the Braun/Noorian action as the operative complaint. The operative complaint asserts claims for breach of fiduciary duty against Brendan Kennedy, Christian Groh, Michael Blue, and Privateer Evolution, LLC (the “Privateer Defendants”) for alleged breaches of fiduciary 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.

~~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 merger. Docklight seeks injunctive relief as well as unspecified damages. On December 21, 2021, the Company removed the case to the United States District Court, Federal District of Washington. The Company’s answer to the complaint, denying

~~substantially all of Docklight’s allegations, was timely filed on January 21, 2022, together with numerous counterclaims. Tilray intends to vigorously defend Docklight’s claims.~~

Item 1A. Risk Factors.

“Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, ~~2021~~2022 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. ~~There~~Except as noted below the summary of our risk factors, there have been no material changes from the risk factors described in our Form 10-K.

●

•

~~The proposed HEXO transaction remains subject to the Company’s satisfactory completion of confirmatory due diligence~~We recently closed on an investment and ~~the Company successfully negotiating and executing definitive agreements~~certain transactions with HEXO Corp. ("HEXO") and ~~the other parties. We may not be able~~we face uncertainty with respect to ~~successfully complete the HEXO transaction,~~our ability to realize a return on our investment and ~~there can be no assurance that Company will be able to~~ achieve ~~the~~ expected production efficiencies and ~~potential~~ cost ~~saving synergies resulting from~~savings in connection with the ~~Transaction or other proposed~~ commercial ~~arrangements.~~transactions with HEXO as well as the MedMen investment.

●

•

Events and conditions relating to Russia’s current conflict with Ukraine have had, and may continue to have, a significant adverse impact on fuel and transportation costs and may cause supply and demand disruptions in the markets we serve, including Europe.

•

We are still completing our integration efforts following completion of the Arrangement between Tilray and Aphria on April 30, 2021 and may experience challenges fully achieving the expected benefits of the Arrangement.

•

We face ongoing risks related to the ongoing COVID-19 pandemic. The impact of the Delta, Omicron and any new variants will continue to adversely impact our operations and adversely adverse effect our business, results of operations and financial condition.

•

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

●

•

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

●

•

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

●

•

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

●

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

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●

~~We may not be able to successfully develop new products or commercialize such products.~~

•

~~The long-term effect of the legalization of adult-use cannabis in Canada on the medical cannabis industry is unknown, and may negatively impact our medical cannabis business.~~

•

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

●

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

●

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

●

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

●

•

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

●

•

~~We are exposed to risks relating to the laws of various countries as a result of our international operations.~~

•

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

●

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

●

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

●

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

●

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

●

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

●

•

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

●

•

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

●

•

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

●

•

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

●

•

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

●

•

~~We may not become~~ ~~the world's leading cannabis-focused consumer branded company with up to $4 billion of revenue by 2024~~;

•

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

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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.

Table of Contents

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

Recent Sales of Unregistered Equity Securities

On ~~December 1, 2021,~~July 12, 2022, the Company acquired all of the ~~membership interests of Cheese Grits, LLC,~~outstanding principal and interest under a ~~Georgia based company~~secured convertible note (the ~~“SW Acquisition”~~"HEXO Convertible Note") ~~that owned the real estate utilized and previously leased~~issued by ~~SweetWater Brewing Company.~~HEXO Corp. ("HEXO") with certain amendments. As consideration for the SW Acquisition, the Company paid a purchase price at closing equal to $30,665,000, which was satisfied through the assumption of outstanding debt as well as the issuance of 843,687 shares of Tilray’s Class 2 common stock. On December 17, 2021, the Company issued an additional 82,224 Class 2 common shares as consideration for the SW Acquisition.

~~On December 7, 2021, the Company acquired all~~acquisition of the membership interests of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company (the “Breckenridge Acquisition”). As consideration for the Breckenridge Acquisition,HEXO Convertible Note, the Company paid a purchase price in an aggregate amount equal to ~~$102,900,000,~~$155 million, which ~~purchase price~~ was satisfied through the issuance to HTI of ~~11,245,511~~33,314,412 shares of ~~Tilray’s~~Tilray's Class 2 common ~~shares to the selling unitholders.~~

On December 17, 2021, the Company acquired intellectual property and inventory relating to the Alpine and Green Flash craft brew brands from WC IPA LLC (the “Alpine Acquisition”). As 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 cashstock and the issuance of ~~366,308 shares~~a newly issued $50 million of ~~Tilray’s Class 2 common shares.~~convertible promissory note.

On ~~January 11,~~June 30, 2022, the Company issued ~~an additional 1,294,968~~1,529,821 shares of Tilray's Class 2 common ~~shares~~stock to ~~the selling unitholders to meet its contractual obligations~~Double Diamond Holdings Ltd. ("Double Diamond") in connection with the ~~Breckenridge Acquisition.~~

~~On January 11, 2022,~~assignment from Double Diamond to the Company ~~issued an additional 2,743,485 Class 2 common shares to Wyckoff Farms, Inc. to meet its contractual obligations in pursuant to certain settlement arrangements.~~of a promissory note payable by 1974568 Ontario Limited.

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.

Item 5. Other Information.

Not applicable.

Table of Contents

Item 6. Exhibits.

Exhibit Number		Description

~~3.1~~10.1*		~~Second Certificate~~Form of ~~Amendment of~~Restricted Stock Unit Grant Notice (2022 HEXO EBITDA Award) under the Amended and Restated ~~Certificate~~2018 Equity Incentive Plan

10.2*		Assignment and Assumption Agreement, dated June 30, 2022, between Double Diamond Holdings Ltd., and Tilray Brands, Inc.

10.3*		Promissory note in the amount of ~~Incorporation of Tilray, Inc.~~$5,063,709.00 payable by 1974568 Ontario Limited.

10.4†		Transaction Agreement, dated as of ~~January 10,~~April 11, 2022, by and among and Tilray Brands, Inc., HT Investments MA LLC and HEXO Corp. (incorporated by reference to Exhibit ~~3.1~~10.1 to the Company’s Current Report on Form 8-K filed with the SEC on ~~January 10,~~April 12, 2022)
~~3.2~~		~~Amended and Restated Bylaws, as of January 10, 2022~~ (incorporated by reference to Exhibit ~~3.2~~10.1 to the Company’s Current Report on Form 8-K filed with the SEC on ~~January 10,~~July 12, 2022).
~~4.1~~
10.5		Amending Agreement ~~Of Resignation, Appointment and Acceptance,~~to Transaction Agreement, dated as of ~~January 27,~~June 14, 2022, by and among Tilray Brands, Inc., ~~Glas Trust Company~~HT Investments MA LLC and ~~Computershare Trust Company, N.A.~~HEXO Corp. (incorporated by reference to Exhibit ~~4.1~~10.1 to the Company’s Current Report on Form 8-K filed with the SEC on ~~January 28,~~June 14, 2022).
~~4.2~~
10.6		~~Agreement Of Resignation, Appointment~~Amended and ~~Acceptance,~~Restated Assignment and Assumption Agreement, dated as of ~~January 27,~~June 14, 2022, by and among Tilray Brands, Inc., ~~Glas Trust Company~~HT Investments MA LLC and ~~Computershare Trust Company, N.A.~~HEXO Corp. (incorporated by reference to Exhibit ~~4.2~~10.2 to the Company’s Current Report on Form 8-K filed with the SEC on ~~January 28,~~June 14, 2022).
~~4.3~~
10.7		Amending Agreement ~~Of Resignation, Appointment~~to Amended and ~~Acceptance,~~Restated Assignment and Assumption Agreement dated as of ~~January 27,~~July 12, 2022, by and among Tilray Brands, Inc., ~~Glas Trust Company~~HT Investments MA LLC and ~~Computershare Trust Company, N.A.~~HEXO Corp. (incorporated by reference to Exhibit ~~4.3~~10.4 to the Company’s Current Report on Form 8-K filed with the SEC on ~~January 28,~~July 12, 2022).

10.8		Convertible Promissory Note due September 1, 2023, dated July 12, 2022, issued and owing by Tilray Brands, Inc. to HT Investments MA LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on July 12, 2022).

10.9		Amended and Restated Senior Secured Convertible Note due 2026, dated July 12, 2022, issued and owing by HEXO to Tilray Brands, Inc. (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on July 12, 2022).

10.10		Indenture dated as of May 27, 2021, by and between HEXO Corp. as issuer, and GLAS Trust Company LLC, as trustee (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed with the SEC on July 12, 2022).

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

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

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

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

101*		The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~February 28,~~August 31, 2022,, formatted in Inline XBRL: (i) Consolidated Statements of Financial Position, (ii) Consolidated Statements of Loss and Comprehensive Loss , (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Condensed Interim Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

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

* Filed herewith.

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

*	~~Filed herewith.~~

Table of Contents

SIGNATURES

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

	Tilray Brands, Inc.

Date: ~~April 6,~~October 7, 2022	By:	/s/ Irwin D. Simon
		Irwin D. Simon
		Chairman and Chief Executive Officer

Date: ~~April 6,~~October 7, 2022	By:	/s/ Carl Merton
		Carl Merton
		~~Carl Merton~~Chief Financial Officer
		~~Chief Financial Officer~~

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

Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

							*For the three months*
	For the nine months ended February 28,						*ended August 31,*
	2022			2021			*2022*			*2021*
Cash used in operating activities:
Net income (loss)	$	23,668		$	(369,636	)
Net loss							$	(65,794	)	$	(34,604	)
Adjustments for:
Deferred income tax recovery		(17,296	)		(35,444	)
Deferred income tax expense (recovery)								796			(24,873	)
Unrealized foreign exchange loss		1,699			19,955			10,026			13,192
Amortization		113,824			43,292			34,069			39,333
Gain on sale of capital assets		(631	)		—
Inventory valuation write down		12,000			—
Loss on sale of capital assets								77			27
Other non-cash items		962			(490	)		2,080			165
Stock-based compensation		27,025			11,414			9,193			4,074
Loss (gain) on long-term investments & equity investments		(2,401	)		4,252			1,193			1,144
Loss (gain) on derivative instruments		(210,653	)		283,878			6,336			(57,711	)
Change in fair value of contingent consideration		(29,065	)		—			211			837
Transaction costs associated with business acquisitions		—			25,160
Change in non-cash working capital:
Accounts receivable		(458	)		(17,048	)		(3,068	)		(9,868	)
Prepaids and other current assets		(953	)		6,644			(34,891	)		(7,265	)
Inventory		(16,512	)		(15,829	)		(232	)		4,922
Accounts payable and accrued liabilities		(57,947	)		(9,114	)		(6,265	)		(22,600	)
Net cash used in operating activities		(156,738	)		(52,966	)		(46,269	)		(93,227	)
Cash used in investing activities:
Investment in capital and intangible assets		(28,470	)		(33,931	)		(3,000	)		(16,316	)
Proceeds from disposal of capital and intangible assets		11,526			6,607			1,463			7,696
Promissory notes advances		—			(2,419	)
Repayment of notes receivable		—			4,032
Proceeds from disposal of long-term investments and equity investees		—			8,429
Net cash acquired (paid) on business acquisitions		326			(285,800	)
Net cash used in investing activities		(16,618	)		(303,082	)		(1,537	)		(8,620	)
Cash (used in) provided by financing activities:
Share capital issued, net of cash issuance costs		—			102,550			129,593			—
Proceeds (payment) from warrants and options exercised		(3,149	)		144
Shares effectively repurchased for employee withholding tax								(1,189	)		—
Proceeds from long-term debt		—			102,798			1,288			—
Repayment of long-term debt		(34,570	)		(5,271	)		(5,196	)		(8,360	)
Repayment of lease liabilities		(4,672	)		(749	)		(1,035	)		(154	)
Increase in bank indebtedness		8,779			(433	)		159			486
Dividend paid to NCI		—			(11,855	)
Net cash (used in) provided by financing activities		(33,612	)		187,184			123,620			(8,028	)
Effect of foreign exchange on cash and cash equivalents		(2,284	)		18,809			(1,080	)		(2,294	)
Net decrease in cash and cash equivalents		(209,252	)		(150,055	)
Net increase (decrease) in cash and cash equivalents								74,734			(112,169	)
Cash and cash equivalents, beginning of period		488,466			360,646			415,909			488,466
Cash and cash equivalents, end of period	$	279,214		$	210,591		$	490,643		$	376,297

	February 28, 2022		May 31, 2021
Plants	$	19,523	$	23,083
Dried cannabis		125,527		118,269
Cannabis trim		2,316		2,931
Cannabis derivatives		28,367		24,158
Cannabis vapes		4,298		3,791
Packaging and other inventory items		26,318		31,462
Wellness inventory		13,398		15,171
Beverage alcohol inventory		29,136		5,402
Distribution inventory		24,409		32,162
Total	$	273,292	$	256,429

	February 28, 2022			May 31, 2021
Land	$	32,118		$	28,549
Production facility		441,593			346,510
Equipment		258,747			215,408
Leasehold improvement		8,101			17,059
ROU-assets under finance lease		—			34,726
Construction in progress		9,991			85,322
	$	750,550		$	727,574
Less: accumulated amortization		(147,078	)		(76,876	)
Total	$	603,472		$	650,698

										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
Additions		-			27			-			4,902			4,929
Business acquisition		10,950			-			-			78,250			89,200
Effect of foreign exchange		1,740			4,279			14			3,079			9,112
At February 28, 2022		236,960			390,322			11,808			1,016,264			1,655,354
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
Amortization		10,621			143			962			12,568			24,294
At February 28, 2022	$	49,293			1,548			7,282			68,269		$	126,392
Net book value at May 31, 2021	$	221,508		$	413,763		$	8,154		$	962,493		$	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		$	384,611		$	5,474		$	874,332		$	1,450,015
Net book value at February 28, 2022	$	187,667		$	388,774		$	4,526		$	947,995		$	1,528,962

	Segment	February 28, 2022		May 31, 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
Breckenridge-provisional	Beverage alcohol business		14,871		—
Effect of foreign exchange			39,820		63,713
Total		$	2,835,100	$	2,832,794

	Amount
Consideration
Shares	$	114,068
Net assest acquired
Current assets
Cash and cash equivalents		326
Accounts receivable		2,128
Prepaids and other current assets		367
Inventory		20,351
Lont-term assets
Capital assets		11,179
Customer relationships (15 years)		10,950
Intellectual property, trademarks & brands (15 years)		78,250
Goodwill		14,871
Total Assets		138,422
Current liabilities
Accounts payable and accrued liabilities		2,228
Long-term liabilities
Deferred tax liability		22,126
Total liabilities		24,354
Total net assets acquired	$	114,068

	*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

	February 28, 2022		May 31, 2021
Debt securities classified under available-for-sale method	$	122,765	$	—
Equity investments measured at fair value level 1		2,417		9,251
Equity investments measured at fair value level 2		2,263		2,934
Equity investments under measurement alternative		5,710		5,500
Total investments in debt and equity securities	$	133,155	$	17,685

Expected term	0.2 to 6.2 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	$	0.13

	February 28, 2022		May 31, 2021
Trade payables	$	70,249	$	57,706
Accrued liabilities		49,503		112,594
Accrued payroll and employment related taxes		7,943		19,390
Income taxes payable		5,530		14,764
Accrued interest		3,378		148
Other accruals		491		8,211
Total	$	137,094	$	212,813

	February 28, 2022			May 31, 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	$	55,300		$	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		12,967			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		15,346			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		487			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		2,355			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		2,240			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		2,240			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		1,375			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		1,470			1,831
Mortgage payable - $22,635 - EUROBIR rate plus 1.5%, 10-year term, with a 10-year amortization, repayable in monthly instalments of $57 plus interest, due in October 2030		21,848			—
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		77,500			98,138
Carrying amount of long-term debt		193,128			206,169
Unamortized financing fees		(1,742	)		(2,061	)
Net carrying amount		191,386			204,108
Less principal portion included in current liabilities		(70,176	)		(36,622	)
Total noncurrent portion of long-term debt	$	121,210		$	167,486

~~Risk-free interest rate~~		~~1.43~~	%
~~Expected volatility~~		70	%
~~Expected term~~	~~2.3 years~~
~~Expected dividend yield~~		~~0.0~~	%

	February 28, 2022			May 31, 2021
5.00% Contractual debenture	$	277,856		$	277,856
Unamortized discount		(6,726	)		(9,676	)
Net carrying amount of TLRY 23	$	271,130		$	268,180

			Balance							Balance
	Classification	Exercise Price	May 31, 2021		Issued		Exercised/Expired			February 28, 2022
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		—		(5,994,651	)		6,209,000

	February 28, 2022					February 28, 2021
				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		(5,994,651	)	$	8.91		0		0
Outstanding, ending		6,209,000		$	5.95		5,994,651	$	8.91

Risk-free interest rate		1.59	%
Expected volatility		70	%
Expected term	3.6 years
Expected dividend yield		0.0	%
Strike price	$	5.95
Fair value of common stock	$	6.10

	b)	33,314,412 shares to purchase the HEXO convertible notes receivable.
	c)	1,529,821 shares to settle amounts owed to the non-controlling shareholders of Aphria Diamond in the amount of $5,064.

																		*Unrealized*
															*Foreign*			*loss on*
															*currency*			*convertible*
															*translation*			*notes*
	Foreign currency translation gain (loss)			Unrealized loss on convertible notes receivables			Unrealized loss on available-for-sale debt securities			Less non-controlling interests		Total			*gain (loss)*			*receivables*			*Total*
Balance May 31, 2021	$	156,417		$	(3,749	)	$	—		$	—	$	152,668		$	156,417		$	(3,749	)	$	152,668
Other comprehensive loss		(100,772	)		(649	)		—			—		(101,421	)		(100,772	)		(649	)		(101,421	)
Balance August 31, 2021	$	55,645		$	(4,398	)	$	—		$	—	$	51,247
Balance at August 31, 2021															$	55,645		$	(4,398	)	$	51,247

Balance May 31, 2022															$	54,413		$	(75,177	)	$	(20,764	)
Other comprehensive loss		(32,367	)		52			(16,357	)		7,020		(41,652	)		(56,443	)		(2,525	)		(58,968	)
Balance November 30, 2021	$	23,278		$	(4,346	)	$	(16,357	)	$	7,020	$	9,595
Other comprehensive loss		18,498			(52	)		(39,244	)		12,213		(8,585	)
Balance February 28, 2022	$	41,776		$	(4,398	)	$	(55,601	)	$	19,233	$	1,010
Balance August 31, 2022															$	(2,030	)	$	(77,702	)	$	(79,732	)

	Superhero LP		CC Pharma Nordic ApS			Aphria Diamond			ColCanna S.A.S.			February 28, 2022
Current assets	$	—	$	568		$	91,076		$	264		$	91,908
Non-current assets		122,765		155			155,589			144,733			423,242
Current liabilities		—		(700	)		(174,750	)		(6,758	)		(182,208	)
Non-current liabilities		—		(410	)		(14,739	)		(16	)		(15,165	)
Net assets	$	122,765	$	(387	)	$	57,176		$	138,223		$	317,777

	*Superhero*		*CC Pharma*			*Aphria*			*ColCanna*			*August 31,*
	LP		*Nordic ApS*			*Diamond*			*S.A.S.*			*2022*
Current assets	$	—	$	361		$	23,250		$	229		$	23,840
Non-current assets		107,590		88			146,014			38,210			291,902
Current liabilities		—		(599	)		(57,672	)		(29	)		(58,300	)
Non-current liabilities		—		(383	)		(26,192	)		(6,665	)		(33,240	)
Net assets	$	107,590	$	(533	)	$	85,400		$	31,745		$	224,202

	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			141,929			406,073
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		$	135,532		$	326,806

	Total		2023		2024		2025		2026		Thereafter		*Total*		*2023*		*2024*		*2025*		*2026*		*Thereafter*
Long-term debt repayment	$	193,128	$	70,176	$	95,243	$	4,562	$	4,142	$	19,005	$	179,650	$	99,379	$	66,008	$	3,117	$	3,862	$	7,284
Convertible notes, principal and interest		589,716		27,503		299,570		262,643		—		—		542,528		24,602		517,926		—		—		—
Material purchase obligations		26,618		20,581		3,912		1,349		285		491		14,244		11,322		1,977		368		239		338
Construction commitments		1,221		1,221		—		—		—		—		6,781		6,781		—		—		—		—
Total	$	810,683	$	119,481	$	398,725	$	268,554	$	4,427	$	19,496	$	743,203	$	142,084	$	585,911	$	3,485	$	4,101	$	7,622

	*Operating*
	*leases*
2023	$	3,912
2024		3,097
2025		2,941
2026		3,033
Thereafter		6,193
Total minimum lease payments	$	19,176
Imputed interest		(2,306	)
Obligations recognized	$	16,870

	Operating
	leases
2023	$	4,771
2024		4,302
2025		3,588
2026		3,838
Thereafter		10,089
Total minimum lease payments	$	26,588
Imputed interest		(3,674	)
Obligations recognized	$	22,914

													For the three months
	For the three months ended February 28,						For the nine months ended February 28,						ended August 31,
	2022			2021			2022			2021			2022			2021
Cannabis revenue	$	69,178		$	55,702		$	232,540		$	192,977		$	75,689		$	89,933
Cannabis excise taxes		(14,133	)		(13,981	)		(48,271	)		(45,288	)		(17,119	)		(19,484	)
Net cannabis revenue		55,045			41,721			184,269			147,689			58,570			70,449
Beverage alcohol revenue		20,473			12,358			51,500			13,112			21,863			16,483
Beverage alcohol excise taxes		(876	)		(416	)		(2,735	)		(460	)		(1,209	)		(1,022	)
Net beverage alcohol revenue		19,597			11,942			48,765			12,652			20,654			15,461
Distribution revenue		62,532			70,237			198,587			210,508			60,585			67,186
Wellness revenue		14,697			—			43,426			—			13,402			14,927
Total	$	151,871		$	123,900		$	475,047		$	370,849		$	153,211		$	168,023

																*August 31,*
	Level 1		Level 2		Level 3		February 28, 2022		*Level 1*		*Level 2*		*Level 3*			*2022*
Financial assets
Cash and cash equivalents	$	279,214	$	—	$	—	$	279,214	$	490,643	$	—	$	—		$	490,643
Convertible notes receivable		—		1,173		—		1,173		—		—		269,440			269,440
Equity investments measured at fair value		2,417		2,263		5,710		10,390		1,563		1,629		5,687			8,879
Debt securities classified under available-for-sale method		—		—		122,765		122,765
Financial liabilities
Warrant liability		—		—		19,366		19,366		—		—		(12,707	)		(12,707	)
Contingent consideration		—		—		31,592		31,592		—		—		(16,218	)		(16,218	)
APHA 24 Convertible debenture		—		—		229,945		229,945		—		—		(216,270	)		(216,270	)
Total recurring fair value measurements	$	281,631	$	3,436	$	409,378	$	694,445	$	492,206	$	1,629	$	29,932		$	523,767

	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		169,499			58,802			29,065			(48,034	)		209,332
Balance, February 28, 2022	$	(229,945	)	$	(19,366	)	$	(31,592	)	$	122,765		$	(158,138	)

									*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		157,272		—			—			—			157,272
Unrealized gain (loss) on fair value		968		1,548			(211	)		483			2,788
Balance, August 31, 2022	$	269,440	$	(12,707	)	$	(16,218	)	$	(216,270	)	$	24,245

		*Significant*
	*Valuation*	*unobservable*
Financial asset / financial liability	*technique*	~~Valuation~~ ~~technique~~*input*	*Inputs*	~~Significant~~ ~~unobservable~~ ~~input~~	~~Inputs~~
APHA Convertible debentures	Black-Scholes	~~Black-Scholes~~Volatility,	70%
		~~Volatility,~~ expected life (in years)	1.8	~~70%~~ ~~2.3 years~~
Warrant liability	Black-Scholes	~~Black-Scholes~~Volatility,	70%
		~~Volatility,~~ expected life (in years)	2.5	~~70%~~ ~~3.6 years~~
Contingent consideration	Discounted cash flows	~~Discounted~~ ~~cash flows~~Discount rate,	5%
		~~Discount rate,~~ achievement	25%	5% ~~50%~~
~~Debt securities classified under available-for-sale method~~Convertible notes receivable	Black-Scholes	~~Black-Scholes~~Effective interest rate,	20% - 22%
		~~Interest rate,~~ conversion	~~20%~~ 0% to 60%

	For the three months
	ended August 31,
	as reported in constant currency				Change			% Change
(in thousands of U.S. dollars)	2022		2021		2022 vs. 2021
Cannabis business	$	61,579	$	70,449	$	(8,870	)		(13	)%
Distribution business		70,580		67,186		3,394			5	%
Beverage alcohol business		20,654		15,461		5,193			34	%
Wellness business		13,685		14,927		(1,242	)		(8	)%
Total net revenue	$	166,498	$	168,023	$	(1,525	)		(1	)%

					Change			% Change			August 31,		May 31,		Change			% Change
(in thousands of U.S. dollars)	February 28, 2022		May 31, 2021		2022 vs. 2021						2022		2022		2022 vs. 2021
North America	$	472,096	$	504,575	$	(32,479	)		(6	%)	$	440,639	$	464,370	$	(23,731	)		(5	)%
EMEA		127,482		140,838		(13,356	)		(9	%)		109,560		119,409		(9,849	)		(8	)%
Rest of World		3,894		5,285		(1,391	)		(26	%)		3,407		3,720		(313	)		(8	)%
Total capital assets	$	603,472	$	650,698	$	(47,226	)		(7	%)	$	553,606	$	587,499	$	(33,893	)		(6	)%