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Back

Tilray Brands Reports Third Quarter Fiscal Year 2023 Financial Results and Announces Accretive Acquisition of 100% of HEXO Corp.

Apr 10, 2023 • 9:56 PM EDT
20 MIN READ  •  By Michael Berger
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LEAMINGTON, Ontario and NEW YORK, April 10, 2023 (GLOBE NEWSWIRE) — In a release issued under the same headline earlier today by Tilray Brands, Inc. (Nasdaq: TLRY; TSX: TLRY), please note that the first table, the Consolidated Statement of Financial Positions was missing the entry for “Contingent consideration” under “Long-term liabilities.” In addition, the table “Other Financial Information: Adjusted Earnings Before Interest, Taxes and Amortization” was missing the entry “Inventory valuation adjustment.” The corrected release follows:

Tilray Brands, Inc. (“Tilray” or the “Company”) (Nasdaq: TLRY; TSX: TLRY), a leading global cannabis-lifestyle and consumer packaged goods company inspiring and empowering the worldwide community to live their very best life, today reported financial results for the third fiscal quarter ended February 28, 2023. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

Tilray also announces today that it entered into a definitive agreement to acquire HEXO Corp. (NASDAQ: HEXO; TSX: HEXO) for an aggregate purchase price of approximately US$56 million, to be satisfied through the issuance of 0.4352 of Tilray Common Stock for each outstanding HEXO share. The acquisition, which is structured as an arrangement under applicable Canadian laws (the “Arrangement”), builds on the successful strategic alliance between the two companies and positions Tilray for continued strong growth and market leadership in Canada, the largest federally legal cannabis market in the world.

The completion of the Arrangement is subject to customary and negotiated closing conditions, including HEXO shareholder approval and court approval, and is expected to close in June 2023. Further information about the HEXO transaction is included in an investor presentation available on the investor section of Tilray.com and in our Current Report on Form 8-K filed today.

Financial Highlights

  • Net revenue increased to $145.6 million compared to $144.1 million in the prior quarter. On a constant currency basis, net revenue was $154.2 million in the third quarter of 2023, up 2% from the prior year quarter.
  • Distribution revenue increased 5% to $65.4 million, from the prior year quarter. On a constant currency basis, distribution revenue increased 12% to $70.1 million.
  • Gross Profit (Loss) was ($11.7) million, while adjusted gross profit was $44.3 million. Gross margin was negative 8%, while adjusted gross margin rose to 30% from 26% in the year-ago quarter.
  • Adjusted cannabis gross profit increased to $22.2 million from $18.0 million in the prior year quarter, while adjusted gross margin percentage increased to 47% from 33%.
  • Achieved $22 million in annualized run-rate savings (and $12 million in actual cost savings) as part of $30 million cost optimization plan announced in Q4 of 2022; total annualized cash cost-savings since the closing of the Tilray-Aphria transaction reached $122 million.
  • Adjusted EBITDA of $14.0 million, marking 16th consecutive quarter of positive adjusted EBITDA. Currently expecting Adjusted EBITDA in the range of $60 to $66 million, a greater than 30% increase from the prior year.
  • Strong financial position with $408.3 million in cash and marketable securities.
  • Reiterated expectation to deliver positive free cash flow from operating segments in fiscal 2023.
  • Recorded non-cash $1.1 billion net asset reduction resulting from higher interest rates and a decline in market capitalization. This non-cash net asset reduction has no impact on the Company’s compliance with debt covenants, its cash flows or available liquidity.

Irwin D. Simon, Tilray Brands’ Chairman and Chief Executive Officer, stated, “During the quarter, we continued to focus on our highest priorities: sustaining and growing the top-line across core markets and geographies while optimizing the platform to achieve positive free cash flow on an accelerated timeline. We are executing on both fronts and delivered revenue growth despite challenging market dynamics across Canada, Europe, and the U.S, as well as our 16th consecutive quarter of positive adjusted EBITDA.”

Mr. Simon continued, “Looking ahead, we are focused on being the leading, most diversified cannabis lifestyle and CPG company in the world. Our strategy to deliver on this vision is centered on pursuing targeted growth opportunities, as reflected in our opportunistic acquisitions of both Montauk Brewing Company and HEXO, which has made significant strides in driving operating efficiency and improving profitability while continuing to invest in industry-leading brands. We are incredibly excited about our combined prospects moving forward with HEXO and expect a seamless integration of HEXO’s business into our efficient, built-to-last platform. At the same time, we will continue our relentless focus on cost and operational efficiencies and strengthening our industry-leading balance sheet to deliver sustained, profitable growth and shareholder value.”

Mark Attanasio, Chairman of HEXO, said, “Over the past year, HEXO established and has been executing on a rigorous cost-cutting and balance sheet optimization plan.  As we began working with Tilray last year, the value that could be achieved through the combination of our businesses in order to compete and drive profitable growth in the highly fragmented Canadian market was immediately clear. With the recent headwinds in the cannabis industry, our Board determined that HEXO shareholders would benefit from being part of Tilray’s diversified business and from the strong plan in place they have to reinforce their industry leadership, continue to strengthen the top and bottom lines, and to drive value creation. With Irwin and his leadership team, we are confident that our brands will continue to grow and thrive as part of Tilray Brands.”

Operating Highlights

Leadership in Global Cannabis Operations, Brands, and Market Share:

  • In Canada, despite ongoing challenging cannabis market conditions, quarter over quarter, Tilray maintained its #1 cannabis market share position. With the addition of HEXO’s leading high-growth brands, the Company expects to significantly bolster its position supported by low-cost operations and complimentary distribution across all Canadian geographies. The combined company is expected to strengthen Tilray’s existing Canadian position with 12.9% pro-forma market share and #1 market position across all major markets and a leading share across most product categories. This includes anticipated pro-forma net sales of approximately US$215M and the leading low-cost operations with distribution across all Canadian geographies.
  • Capitalizing on the unrivaled platform provided by its cultivation and distribution operations across Portugal and Germany and the leadership team’s depth of commercial and regulatory expertise, Tilray is focused on growing its leading market share in medical cannabis in the countries in which it distributes today and achieving early-mover advantage in new countries as cannabis legalization continues to proliferate across Europe.

Maximizing the High-Growth Potential of U.S. CPG and Craft-Beverage Portfolio:

  • In the third quarter, Tilray made substantial strides across its five craft-beverage brands including leaders SweetWater Brewing Company, Breckenridge Distillery, and Montauk Brewing Company, and its wellness brand Manitoba Harvest. By expanding recognition and distribution, Tilray will be well positioned to immediately leverage these brands to drive significant additional revenue in adult-use cannabis, pending federal legalization.

Strategic Growth Actions

  • April 2023 – Tilray Medical Expands Footprint in Europe and Broadens Distribution Across the Czech Republic
  • April 2023 – SweetWater Brewing Company Expands Across 44 States with Nevada Launch
  • April 2023 – Manitoba Harvest Expands Whole Foods Market Distribution
  • April 2023 – Breckenridge Distillery Wins Big at Whisky Magazine’s 2023 World Whiskies Awards
  • March 2023 – Alpine Beer Opens Taproom at Petco Park Stadium in San Diego
  • March 2023 – Breckenridge Distillery Establishes March 31st as National Après Day
  • March 2023 – Montauk Brewing Expands Distribution Across the Northeast
  • March 2023 – Tilray Brands Stockholders Approve Charter Amendment to Enhance Corporate Governance and Support Strategic Growth Plan
  • March 2023 – SweetWater Brewing Company Brings Back Popular Triple Tail Tropical India Pale Ale
  • March 2023 – SweetWater Brewing Company Introduces New West Coast Style India Pale Ale
  • March 2023 – Potently Canadian Cannabis Brand, CANACA, Introduces New Collection of Terpene Rich Products Across Canada
  • February 2023 – Good Supply Cannabis Brand Launches Canada’s Strongest Infused Pre-Rolls
  • February 2023 – Breckenridge Distillery Strikes Gold at 2023 World Whiskies Awards
  • February 2023 – Good Supply Cannabis Brand Launches New Product Lineup
  • February 2023 – SweetWater Announces 420 Fest 2023 Lineup and Venue
  • February 2023 – Breckenridge Distillery Launches Limited-Edition Sexy Motor Oil Whiskey for Valentine’s Day
  • February 2023 – SweetWater Brewing Company Introduces New Crisp Lager to Year-Round Lineup
  • January 2023 – Alpine Beer Launches INFINITE HAZE Hazy IPA
  • January 2023 – Solei Cannabis Brand Introduces New Approach to Wellness with New Product Lineup and Brand Refresh
  • January 2023 – SweetWater Brewing Company Celebrates 26 Years of Brewing with Throwback Beers, Jam Bands

Live Conference Call and Audio Webcast
Tilray Brands will host a webcast to discuss these results today at 5:00 p.m. ET. Investors may join the live webcast available on the Investors section of the Company’s website at www.tilray.com. The webcast will also be archived after the call concludes.

About Tilray Brands
Tilray Brands, Inc. (Nasdaq: TLRY; TSX: TLRY), is a leading global cannabis-lifestyle and consumer packaged goods company with operations in Canada, the United States, Europe, Australia, and Latin America that is changing people’s lives for the better – one person at a time. Tilray Brands delivers on this mission by inspiring and empowering the worldwide community to live their very best life, enhanced by moments of connection and wellbeing. Patients and consumers trust Tilray Brands to be the most responsible, trusted and market leading cannabis consumer products company in the world with a portfolio of innovative, high-quality and beloved brands that address the needs of the consumers, customers and patients we serve. A pioneer in cannabis research, cultivation, and distribution, Tilray Brands’ unprecedented production platform supports over 20 brands in over 20 countries, including comprehensive cannabis offerings, hemp-based foods, and craft beverages.

For more information on Tilray Brands, visit www.Tilray.com and follow @Tilray

Cautionary Statement Concerning Forward-Looking Statements

Certain statements in this press release constitute forward-looking information or forward-looking statements (together, “forward-looking statements”) under Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the “safe harbor” created by those sections and other applicable laws. Forward-looking statements can be identified by words such as “forecast,” “future,” “should,” “could,” “enable,” “potential,” “contemplate,” “believe,” “anticipate,” “estimate,” “plan,” “expect,” “intend,” “may,” “project,” “will,” “would” and the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. Certain material factors, estimates, goals, projections or assumptions were used in drawing the conclusions contained in the forward-looking statements throughout this communication.

Forward-looking statements include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things: the Company’s ability to become the world’s leading cannabis-focused consumer branded company; the Company’s ability to generate its targeted amount of Adjusted EBITDA for the fiscal year ending May 31, 2023; the Company’s expectation to be free-cash flow positive in its operating business units; the Company’s ability to achieve long term profitability; the Company’s ability to achieve operational scale, market share, distribution, profitability and revenue growth in particular business lines and markets; the Company’s ability to successfully complete the acquisition of HEXO; the Company’s ability to successfully achieve revenue growth, production and supply chain efficiencies, synergies and cost savings, including with respect to the HEXO acquisition; expansion of medical and recreational sales legalization across the global cannabis industry, including in Europe; and the Company’s anticipated investments and acquisitions, including in organic and strategic growth, partnership efforts, product offerings and other initiatives.

Many factors could cause actual results, performance or achievement to be materially different from any forward-looking statements, and other risks and uncertainties not presently known to the Company or that the Company deems immaterial could also cause actual results or events to differ materially from those expressed in the forward-looking statements contained herein. For a more detailed discussion of these risks and other factors, see the most recently filed annual information form of the Company and the Annual Report on Form 10-K (and other periodic reports filed with the SEC) of the Company made with the SEC and available on EDGAR. The forward-looking statements included in this communication are made as of the date of this communication and the Company does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless required by applicable securities laws.

Use of Non-U.S. GAAP Financial Measures
This press release and the accompanying tables include non-GAAP financial measures, including adjusted gross margin, Adjusted gross profit, Adjusted EBITDA, Adjusted net income and free cash flow. Management believes that the non-GAAP financial measures presented provide useful additional information to investors about current trends in the Company’s operations and are useful for period-over-period comparisons of operations. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded. They should be read only in connection with the Company’s Consolidated Statements of Operations and Cash Flows presented in accordance with GAAP.

Certain forward-looking non-GAAP financial measures included in this press release are not reconciled to the comparable forward-looking GAAP financial measures. The Company is not able to reconcile these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures without unreasonable efforts because the Company is unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures but would not impact the non-GAAP measures. Such items may include litigation and related expenses, transaction costs, impairments, foreign exchange movements and other items. The unavailable information could have a significant impact on the Company’s GAAP financial results.

The Company believes presenting net sales at constant currency provides useful information to investors because it provides transparency to underlying performance in the Company’s 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.

Adjusted EBITDA is calculated as net income (loss) before income tax expense (recovery); interest expense, net; non-operating income (expense), net; amortization; stock-based compensation; change in fair value of contingent consideration; impairments; purchase price accounting step-up; facility start-up and closure costs; lease expense; litigation (recovery) costs; restructuring costs; and transaction (income) costs. A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Adjusted gross profit, is calculated as gross profit adjusted to exclude the impact of inventory valuation adjustment and purchase price accounting valuation step-up. A reconciliation of Adjusted gross profit, excluding inventory valuation adjustments and purchase price accounting valuation step-up, to gross profit, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Adjusted gross margin, excluding inventory valuation adjustments and purchase price accounting valuation step-up, is calculated as revenue less cost of sales adjusted to add back inventory valuation adjustments and amortization of inventory step-up, divided by revenue. A reconciliation of Adjusted gross margin, excluding inventory valuation adjustments and purchase price accounting valuation step-up, to gross margin, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Adjusted net income is calculated as net (loss) income plus (minus) non-operating income (expense), net, change in fair value of contingent consideration, impairments; inventory write down, litigation (recovery) costs, restructuring costs, and transaction (income) costs. A reconciliation of Adjusted net income, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Free cash flow is comprised of two GAAP measures deducted from each other which are net cash flow provided by (used in) operating activities less investments in capital and intangible assets. A reconciliation of net cash flow provided by (used in) operating activities to free cash flow, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release.

For further information:

Media: Berrin Noorata, news@tilray.com
Investors: Raphael Gross, +1-203-682-8253, Raphael.Gross@icrinc.com

 

Consolidated Statements of Financial Position    
  February 28, May 31,
(in thousands of US dollars)  2023   2022 
Assets    
Current assets    
Cash and cash equivalents $164,997  $415,909 
Marketable Securities  243,286    
Accounts receivable, net  78,342   95,279 
Inventory  202,800   245,529 
Prepaids and other current assets  69,087   46,786 
Total current assets  758,512   803,503 
Capital assets  425,263   587,499 
Right-of-use assets  6,492   12,996 
Intangible assets  994,325   1,277,875 
Goodwill  2,005,701   2,641,305 
Interest in equity investees  4,638   4,952 
Long-term investments  7,620   10,050 
Convertible notes receivable  168,356   111,200 
Other assets  4,993   314 
Total assets $4,375,900  $5,449,694 
Liabilities    
Current liabilities    
Bank indebtedness $18,125  $18,123 
Accounts payable and accrued liabilities  163,422   157,431 
Contingent consideration  16,219   16,007 
Warrant liability  7,414   14,255 
Current portion of lease liabilities  2,528   6,703 
Current portion of long-term debt  77,892   67,823 
Current portion of convertible debentures payable  184,082    
Total current liabilities  469,682   280,342 
Long – term liabilities    
Contingent consideration  10,596    
Lease liabilities  8,598   11,329 
Long-term debt  89,419   117,879 
Convertible debentures payable  223,087   401,949 
Deferred tax liabilities  164,412   196,638 
Other liabilities  3,335   191 
Total liabilities  969,129   1,008,328 
Commitments and contingencies (refer to Note 17)    
Stockholders’ equity    
Common stock ($0.0001 par value; 980,000,000 shares authorized; 617,857,031 and 532,674,887 shares issued and outstanding, respectively)  62   53 
Series A Preferred Stock ($0.0001 par value; 10,000,000 shares authorized; 120,000 and nil shares issued and outstanding, respectively)      
Additional paid-in capital  5,723,342   5,382,367 
Accumulated other comprehensive loss  (42,948)  (20,764)
Accumulated Deficit  (2,276,794)  (962,851)
Total Tilray Brands, Inc. stockholders’ equity  3,403,662   4,398,805 
Non-controlling interests  3,109   42,561 
Total stockholders’ equity  3,406,771   4,441,366 
Total liabilities and stockholders’ equity $4,375,900  $5,449,694 
     

 

Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)           
  For the three months     For the nine months     
  ended February 28, Change % Change ended February 28, Change % Change 
(in thousands of U.S. dollars, except for per share data)  2023   2022  2023 vs. 2022  2023   2022  2023 vs. 2022 
Net revenue $145,589  $151,871  $(6,282) (4)% $442,936  $475,047  $(32,111) (7)% 
Cost of goods sold  157,288   112,042   45,246  40%  363,139   351,497   11,642  3% 
Gross profit (loss)  (11,699)  39,829   (51,528) (129)%  79,797   123,550   (43,753) (35)% 
Operating expenses:                 
General and administrative  38,999   38,445   554  1%  117,385   121,401   (4,016) (3)% 
Selling  6,452   8,641   (2,189) (25)%  25,792   25,283   509  2% 
Amortization  23,518   24,590   (1,072) (4)%  71,872   84,345   (12,473) (15)% 
Marketing and promotion  7,354   7,578   (224) (3)%  23,137   20,163   2,974  15% 
Research and development  171   164   7  4%  502   1,464   (962) (66)% 
Change in fair value of contingent consideration  352   (30,747)  31,099  (101)%  563   (29,065)  29,628  (102)% 
Impairments  1,115,376      1,115,376  NM  1,115,376      1,115,376  NM 
Litigation (recovery) costs  (5,230)  4,215   (9,445) (224)%  (1,970)  6,489   (8,459) (130)% 
Restructuring costs  2,663      2,663  0%  10,727   795   9,932  1249% 
Transaction (income) costs  5,382   5,023   359  7%  (3,882)  35,653   (39,535) (111)% 
Total operating expenses  1,195,037   57,909   1,137,128  1964%  1,359,502   266,528   1,092,974  410% 
Operating loss  (1,206,736)  (18,080)  (1,188,656) 6574%  (1,279,705)  (142,978)  (1,136,727) 795% 
Interest expense, net  (1,040)  (2,312)  1,272  (55)%  (8,560)  (22,422)  13,862  (62)% 
Non-operating income (expense), net  1,213   71,037   (69,824) (98)%  (50,229)  186,329   (236,558) (127)% 
(Loss) income before income taxes  (1,206,563)  50,645   (1,257,208) (2,482)%  (1,338,494)  20,929   (1,359,423) (6,495)% 
Income taxes (benefit) expense  (10,811)  (1,830)  (8,981) 491%  (15,313)  (2,739)  (12,574) 459% 
Net (loss) income $(1,195,752) $52,475  $(1,248,227) (2,379)%  (1,323,181)  23,668   (1,346,849) (5,691)% 
Net loss per share – basic and diluted $(1.90) $0.09  $(1.99) (2,214)% $(2.20) $0.00  $(2.20) (77,239)% 
                  
Condensed Consolidated Statements of Cash Flows         
  For the nine months     
  ended February 28, Change % Change 
(in thousands of US dollars)  2023   2022  2023 vs. 2022 
Cash used in operating activities:         
Net (loss) income $(1,323,181) $23,668  $(1,346,849) (5691)% 
Adjustments for:         
Deferred income tax recovery  (29,537)  (17,296)  (12,241) 71% 
Unrealized foreign exchange loss  13,711   1,699   12,012  707% 
Amortization  101,156   113,824   (12,668) (11)% 
Loss (gain) on sale of capital assets  (2)  (631)  629  (100)% 
Inventory valuation write down  55,000   12,000   43,000  358% 
Impairments  1,115,376      1,115,376  0% 
Other non-cash items  12,933   962   11,971  1244% 
Stock-based compensation  29,766   27,025   2,741  10% 
Loss (gain) on long-term investments & equity investments  2,843   (2,401)  5,244  (218)% 
Loss (gain) on derivative instruments  13,534   (210,653)  224,187  (106)% 
Change in fair value of contingent consideration  563   (29,065)  29,628  (102)% 
Change in non-cash working capital:         
Accounts receivable  18,053   (458)  18,511  (4042)% 
Prepaids and other current assets  (32,680)  (953)  (31,727) 3329% 
Inventory  (11,808)  (16,512)  4,704  (28)% 
Accounts payable and accrued liabilities  (1,419)  (57,947)  56,528  (98)% 
Net cash used in operating activities  (35,692)  (156,738)  121,046  (77)% 
Cash used in investing activities:         
Investment in capital and intangible assets  (8,394)  (28,470)  20,076  (71)% 
Proceeds from disposal of capital and intangible assets  2,175   11,526   (9,351) (81)% 
Purchase of marketable securities, net  (243,186)     (243,186) 0% 
Net cash paid for business acquisition  (28,122)  326   (28,448) (8726)% 
Net cash used in investing activities  (277,527)  (16,618)  (260,909) 1570% 
Cash provided by (used in) financing activities:         
Share capital issued, net of cash issuance costs  129,593      129,593  0% 
Shares effectively repurchased for employee withholding tax  (1,189)  (3,149)  1,960  (62)% 
Proceeds from long-term debt  1,288      1,288  0% 
Repayment of long-term debt and convertible debt  (64,658)  (34,570)  (30,088) 87% 
Repayment of lease liabilities  (1,114)  (4,672)  3,558  (76)% 
Net increase in bank indebtedness  2   8,779   (8,777) (100)% 
Net cash provided by (used in) financing activities  63,922   (33,612)  97,534  (290)% 
Effect of foreign exchange on cash and cash equivalents  (1,615)  (2,284)  669  (29)% 
Net decrease in cash and cash equivalents  (250,912)  (209,252)  (41,660) 20% 
Cash and cash equivalents, beginning of period  415,909   488,466   (72,557) (15)% 
Cash and cash equivalents, end of period $164,997  $279,214  $(114,217) (41)% 
          

 

Other Financial Information: Key Operating Metrics        
  For the three months For the nine months
  ended February 28, ended February 28,
(in thousands of U.S. dollars)  2023   2022   2023   2022 
Net cannabis revenue $47,549  $55,045  $156,017  $184,269 
Distribution revenue  65,385   62,532   186,158   198,587 
Net beverage alcohol revenue  20,640   19,597   62,689   48,765 
Wellness revenue  12,015   14,697   38,072   43,426 
Cannabis costs  77,604   37,042   137,800   122,492 
Beverage alcohol costs  10,663   8,091   32,932   20,674 
Distribution costs  57,964   57,566   165,443   178,093 
Wellness costs  8,299   9,343   26,964   30,238 
Adjusted gross profit (excluding PPA step-up and inventory valuation adjustments) (1)  44,310   39,829   138,020   135,550 
Cannabis adjusted gross margin (excluding inventory valuation adjustments) (1)  47%  33%  47%  40%
Beverage alcohol adjusted gross margin (excluding PPA step-up) (1)  53%  59%  53%  58%
Distribution gross margin  11%  8%  11%  10%
Wellness gross margin  31%  36%  29%  30%
Adjusted EBITDA (1)  14,015   10,086   39,254   36,543 
Cash and cash equivalents and marketable securities  408,283   279,214   408,283   279,214 
Working capital  288,830   413,358   288,830   413,358 
         

 

Net Revenue by Operating Segment                
  For the three months % of Total Revenue  For the three months % of Total Revenue  For the nine months % of Total Revenue  For the nine months % of Total Revenue
(In thousands of U.S. dollars) February 28, 2023  February 28, 2022  February 28, 2023  February 28, 2022 
Cannabis business $47,549  33%  $55,045  36%  $156,017  35%  $184,269  39% 
Distribution business  65,385  45%   62,532  41%   186,158  42%   198,587  42% 
Beverage alcohol business  20,640  14%   19,597  13%   62,689  14%   48,765  10% 
Wellness business  12,015  8%   14,697  10%   38,072  9%   43,426  9% 
Total net revenue $145,589  100%  $151,871  100%  $442,936  100%  $475,047  100% 
                 
Net Revenue by Operating Segment in Constant Currency              
                 
  For the three months   For the three months   For the nine months   For the nine months  
  February 28, 2023   February 28, 2022   February 28, 2023   February 28, 2022  
(In thousands of U.S. dollars) as reported in constant currency % of Total Revenue  as reported in constant currency % of Total Revenue  as reported in constant currency % of Total Revenue  as reported in constant currency % of Total Revenue
Cannabis business $51,007  33%  $55,045  36%  $164,746  34%  $184,269  39% 
Distribution business  70,144  45%   62,532  41%   211,676  44%   198,587  42% 
Beverage alcohol business  20,640  14%   19,597  13%   62,689  13%   48,765  10% 
Wellness business  12,385  8%   14,697  10%   39,144  8%   43,426  9% 
Total net revenue $154,176  100%  $151,871  100%  $478,255  99%  $475,047  100% 
                 
                 
Net Cannabis Revenue by Market Channel                
  For the three months % of Total Revenue  For the three months % of Total Revenue  For the nine months % of Total Revenue  For the nine months % of Total Revenue
(In thousands of U.S. dollars) February 28, 2023  February 28, 2022  February 28, 2023  February 28, 2022 
Revenue from Canadian medical cannabis products $6,035  13%  $7,050  13%  $18,920  12%  $23,353  13% 
Revenue from Canadian adult-use cannabis products 45,318  96%   43,504  79%   156,063  100%   162,632  87% 
Revenue from wholesale cannabis products  58  0%   2,804  5%   686  0%   6,763  4% 
Revenue from international cannabis products  9,707  20%   15,820  29%   27,834  18%   39,792  22% 
Less excise taxes  (13,569) -29%   (14,133) -26%   (47,486) -30%   (48,271) -26% 
Total $47,549  100%  $55,045  100%  $156,017  100%  $184,269  100% 
                 
                 
Net Cannabis Revenue by Market Channel in Constant Currency              
  For the three months   For the three months   For the nine months   For the nine months  
  February 28, 2023   February 28, 2022   February 28, 2023   February 28, 2022  
(In thousands of U.S. dollars) as reported in constant currency % of Total Revenue  as reported in constant currency % of Total Revenue  as reported in constant currency % of Total Revenue  as reported in constant currency % of Total Revenue
Revenue from Canadian medical cannabis products $6,442  13%  $7,050  13%  $20,093  12%  $23,353  13% 
Revenue from Canadian adult-use cannabis products 48,721  96%   43,504  79%   162,777  99%   162,632  87% 
Revenue from wholesale cannabis products  62  0%   2,804  5%   726  0%   6,763  4% 
Revenue from international cannabis products  10,269  20%   15,820  29%   31,627  19%   39,792  22% 
Less excise taxes  (14,487) -28%   (14,133) -26%   (50,477) -31%   (48,271) -26% 
Total $51,007  100%  $55,045  100%  $164,746  100%  $184,269  100% 
                 
Other Financial Information: Gross Margin and Adjusted Gross Margin      
  For the three months ended February 28, 2023
(In thousands of U.S. dollars) Cannabis Beverage Distribution Wellness Total
Net revenue $47,549  $20,640  $65,385  $12,015  $145,589 
Cost of goods sold  80,362   10,663   57,964   8,299   157,288 
Gross profit  (32,813)  9,977   7,421   3,716   (11,699)
Gross margin  -69%   48%   11%   31%   -8% 
Adjustments:          
Inventory valuation adjustments  55,000            55,000 
Purchase price accounting step-up     1,009         1,009 
Adjusted gross profit  22,187   10,986   7,421   3,716   44,310 
Adjusted gross margin  47%   53%   11%   31%   30% 
           
  For the three months ended February 28, 2022
(In thousands of U.S. dollars) Cannabis Beverage Distribution Wellness Total
Net revenue $55,045  $19,597  $62,532  $14,697  $151,871 
Cost of goods sold  37,042   8,091   57,566   9,343   112,042 
Gross profit  18,003   11,506   4,966   5,354   39,829 
Gross margin  33%   59%   8%   36%   26% 
           
  For the nine months ended February 28, 2023
(In thousands of U.S. dollars) Cannabis Beverage Distribution Wellness Total
Net revenue $156,017  $62,689  $186,158  $38,072  $442,936 
Cost of goods sold  137,800   32,932   165,443   26,964   363,139 
Gross profit  18,217   29,757   20,715   11,108   79,797 
Gross margin  12%   47%   11%   29%   18% 
Adjustments:          
Inventory valuation adjustments  55,000            55,000 
Purchase price accounting step-up     3,223         3,223 
Adjusted gross profit  73,217   32,980   20,715   11,108   138,020 
Adjusted gross margin  47%   53%   11%   29%   31% 
           
  For the nine months ended February 28, 2022
(In thousands of U.S. dollars) Cannabis Beverage Distribution Wellness Total
Net revenue $184,269  $48,765  $198,587  $43,426  $475,047 
Cost of goods sold  122,492   20,674   178,093   30,238   351,497 
Gross profit  61,777   28,091   20,494   13,188   123,550 
Gross margin  34%   58%   10%   30%   26% 
Adjustments:          
Inventory valuation adjustments  12,000            12,000 
Adjusted gross profit  73,777   28,091   20,494   13,188   135,550 
Adjusted gross margin  40%   58%   10%   30%   29% 
           
Other Financial Information: Adjusted Earnings Before Interest, Taxes and Amortization          
  For the three months     For the nine months    
  ended February 28, Change % Change ended February 28, Change % Change
(In thousands of U.S. dollars)  2023   2022  2023 vs. 2022  2023   2022  2023 vs. 2022
Net (loss) income $(1,195,752) $52,475  $(1,248,227) (2,379)% $(1,323,181) $23,668  $(1,346,849) (5,691)%
Income taxes (benefit) expense  (10,811)  (1,830)  (8,981) 491%  (15,313)  (2,739)  (12,574) 459%
Interest expense, net  1,040   2,312   (1,272) (55)%  8,560   22,422   (13,862) (62)%
Non-operating income (expense), net  (1,213)  (71,037)  69,824  (98)%  50,229   (186,329)  236,558  (127)%
Amortization  33,769   37,020   (3,251) (9)%  101,156   113,824   (12,668) (11)%
Stock-based compensation  9,630   9,355   275  3%  29,766   27,025   2,741  10%
Change in fair value of contingent consideration  352   (30,747)  31,099  (101)%  563   (29,065)  29,628  (102)%
Impairments  1,115,376      1,115,376  NM  1,115,376      1,115,376  NM
Inventory valuation adjustments  55,000      55,000  NM  55,000   12,000   43,000  358%
Purchase price accounting step-up  1,009      1,009  NM  3,223      3,223  NM
Facility start-up and closure costs  2,100   2,500   (400) (16)%  6,900   10,400   (3,500) (34)%
Lease expense  700   800   (100) (13)%  2,100   2,400   (300) (13)%
Litigation (recovery) costs  (5,230)  4,215   (9,445) (224)%  (1,970)  6,489   (8,459) (130)%
Restructuring costs  2,663      2,663  NM  10,727   795   9,932  1249%
Transaction (income) costs  5,382   5,023   359  7%  (3,882)  35,653   (39,535) (111)%
Adjusted EBITDA $14,015  $10,086  $3,929  39% $39,254  $36,543  $2,711  7%
                 
                 
Other Financial Information: Adjusted Net Loss                
  For the three months     For the nine months    
  ended February 28, Change % Change ended February 28, Change % Change
(In thousands of U.S. dollars)  2023   2022  2023 vs. 2022  2023   2022  2023 vs. 2022
Net (loss) income $(1,195,752) $52,475  $(1,248,227) (2,379)% $(1,323,181) $23,668  $(1,346,849) (5,691)%
Non-operating income (expense), net  (1,213)  (71,037)  69,824  (98)%  50,229   (186,329)  236,558  (127)%
Change in fair value of contingent consideration  352   (30,747)  31,099  (101)%  563   (29,065)  29,628  (102)%
Impairments  1,115,376      1,115,376  NM  1,115,376      1,115,376  NM
Inventory valuation adjustments  55,000      55,000  NM  55,000   12,000   43,000  358%
Litigation (recovery) costs  (5,230)  4,215   (9,445) (224)%  (1,970)  6,489   (8,459) (130)%
Restructuring costs  2,663      2,663  NM  10,727   795   9,932  1249%
Transaction (income) costs  5,382   5,023   359  7%  (3,882)  35,653   (39,535) (111)%
Adjusted net loss $(23,422) $(40,071) $16,649  (42)% $(97,138) $(136,789) $39,651  (29)%
Adjusted net loss per share – basic and diluted $(0.04) $(0.08) $0.04  (54)% $(0.16) $(0.29) $0.13  (44)%
                 
                 
Other Financial Information: Free Cash Flow                
  For the three months     For the nine months    
  ended February 28, Change % Change ended February 28, Change % Change
(In thousands of U.S. dollars)  2023   2022  2023 vs. 2022  2023   2022  2023 vs. 2022
Net cash used in operating activities $(18,632) $(46,390) $27,758  (60)% $(35,692) $(156,738) $121,046  (77)%
Less: investments in capital and intangible assets, net  (842)  (1,352)  510  (38)%  (6,219)  (16,944)  10,725  (63)%
Free cash flow $(19,474) $(47,742) $28,268  (59)% $(41,911) $(173,682) $131,771  (76)
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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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