Tilray Brands, Inc. (NASDAQ:TLRY) Q3 2025 Earnings Conference Call April 8, 2025 8:30 AM ET

Company Participants

Berrin Noorata - Chief Corporate Affairs & Communications Officer
Irwin Simon - Chairman & Chief Executive Officer
Ty Gilmore - President, Tilray Beverages North America
Carl Merton - Chief Financial Officer
Denise Faltischek - Chief Strategy Officer & Head, International
Jared Simon - President, Manitoba Harvest & Tilray Wellness at Manitoba Harvest Hemp Foods.

Conference Call Participants

Aaron Grey - Alliance Global Partners
Victor Ma - TD Securities
Frederico Gomes - ATB Capital Markets
Pablo Zuanic - Zuanic & Associates
Matt Bottomley - Canaccord Genuity
Michael Lavery - Piper Sandler

Operator

Thank you for joining today's conference call to discuss Tilray Brands' financial results for the fiscal 2025 third quarter ended February 28, 2025. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session for analysts and investment firms conducted via audio.

I will now turn the call over to Ms. . Berrin Noorata, Tilray Brands' Chief Communications and Corporate Affairs Officer. Thank you. You may now begin.

Berrin Noorata

Thank you, operator, and good morning, everyone. By now, you should have access to the earnings press release which is available on the Investors section of the Tilray Brands website at tilray. com and has been filed with the SEC and the CSA.

Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.

In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties which may prove to be incorrect. Actual results could differ materially from those described in those forward-looking statements.

The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements. Today, we will be hearing from key members of our senior leadership team beginning with Irwin Simon, Chairman and Chief Executive Officer. Ty Gilmore, President of Tilray Beverage North America, who will provide an update on our beverage business and Carl Merton, Chief Financial Officer, who will review our third quarter financial results for the fiscal year 2025.

Also joining us for the question and answer segment are Denise Faltischek, Chief Strategy Officer and Head of International, and Blair MacNeil, President. And now, I'd like to turn the call over to Tilray Brands' Chairman and CEO, Irwin Simon.

Irwin Simon

Thank you, Berrin. Good morning, everyone, and thank you for joining us today. Tilray Brands is at the forefront of the beverage, cannabis, and wellness industries on a global basis.

We are expanding into new markets developing innovative consumer products that reflect how people eat, drink, relax, and receive relief from medical conditions where other treatments have not been effective. In five years, our team has transformed Tilray from a business relying on cannabis legalization for growth into a diversified consumer products company providing specialty beverages, cannabis, and wellness products worldwide. Beer and cannabis have been sold for thousands of years.

These industries and their consumers are here to stay. They are not going anywhere. And neither is Tilray.

We are here to stay with our strengthened balance sheet, our strong brands, our strong businesses, and our global operations. There's a lot of value in Tilray today that is not reflected in our current market cap and stock price. Tilray is uniquely positioned as the only consumer company with a diversified portfolio of beer, spirits, cannabis, and wellness products.

I personally do not think people understand the value platform that we have created and have today. In a recent analyst report, it was identified that the increasing dual past month use of cannabis and alcohol is heightened among young adults with 36% of legal alcohol users in their twenties, Gen Z, also consuming cannabis. Up 14 points the past decade and on page for 50% of young adult users to dual use cannabis within the next ten years.

Staggering numbers. Tilray continues to advance in the sectors of beverage, spirits, cannabis, and wellness by innovating products, managing cost efficiently, and expanding internationally at a competitive pace. While other companies are adopting similar models, Tilray remains ahead in several areas including vertically integrated operations, an established portfolio of diversified brands, and a comprehensive distribution network with a global reach.

Regarding tariffs, Tilray confirms no current impact. After analyzing the recently announced tariffs on international trade, we conclude that they are unlikely to substantially affect our sales and costs. In the US, our American craft beer and beverage brands are manufactured in the U.S. and distributed in the US market.

In Canada, where a majority of our cannabis cultivation is grown, our Canadian cannabis brands are produced in Canada for Canadian consumers. In international markets, our medical cannabis brands and products are produced for local patients. And in our wellness business, we have received confirmation that Manitoba Harvest is exempt from the new tariff.

Since 2020, we have made seven acquisitions in the beverage, craft beer, and spirit sectors. We've introduced new categories including non-alcoholic beverages, non-alcoholic beers, waters, and hemp-derived THC drinks. In the U.S., we have ten beverage facilities and over five hundred distributors.

When we acquired the ABI and Molson Craft brands, they were not profitable. We have built a new platform and infrastructure capable of revolutionizing the beer, spirits, and beverage industries. And we are focused on capturing every opportunity to attract a broader consumer base including new opportunities in the international markets, such as new ventures into Europe that will introduce our brands to the United Kingdom and other regions with local operations leveraging the infrastructure that we had built in the US.

Ty will provide further details regarding our beverage businesses and its execution. Importantly, we are laser-focused on building a sustainable global business platform in terms of profitable sales growth, improving profit margins, and cash flow generation, and maintaining a solid balance sheet that can help Tilray navigate market challenges and make use of strategic opportunities. As Carl will discuss in detail, in the third quarter, we delivered our highest cannabis gross margin in almost two years, and our net debt is less than one times EBITDA.

We will not see sales growth just for the sake of growth. It is not additive to our bottom line and accretive to our shareholders. In the third quarter, we generated $186 million in net revenue or $193 million on a constant currency basis.

In the quarter, we implemented strategic initiatives aimed at enhancing our business operations over the mid and long term. These measures focus on improving margin and profitability, as well as driving long-term operational efficiencies rather than pursuing revenue growth at any cost or in a non-sustainable manner. However, these decisions came with short-term impact in the third quarter and impacted our revenue by about $13 million. If we eliminated the impact of these strategic decisions in cannabis and SKU rationalization in our beer business, adjusted net revenue increased 10% to $206 million in the quarter.

Our margin expansion efforts across each of our businesses, including beverage, cannabis, and wellness, led to a 5% increase in gross profit and a 200 basis point increase in gross margin to 28% compared with the prior year period. Our balance sheet remains strong with ample cash and marketable securities totaling $48 million. During the fiscal year to date, we also reduced debt levels by $58 million, positioning us to pursue strategic acquisitions, new opportunities, and capitalize on market trends.

Our cash burn has primarily resulted from investments in beverage, settling legacy lawsuits, and capital expenditures aimed at operational growth opportunities. We're committed to expanding our business while managing our debt responsibly. Our cannabis, wellness, and distribution segments are generating positive operating cash flow and we're on track to drive growth in our beverage businesses.

Tilray Brands has demonstrated remarkable resilience and maintained its fundamental strength despite market challenges, including a tougher February than expected across both cannabis and beverage alcohol industry. Tilray continues to operate the largest legal cannabis business in Canada by revenue, lead the medical cannabis business in Europe, and continue to dominate in the branded hemp high protein food sector in North America, with nearly a 60% market share in the US and 80% in Canada. We ranked as the fifth largest craft beer business in the United States.

We are also leveraging advanced technology to align with our shareholders' interest. The consumer of tomorrow, enhancing efficiency and driving growth. AI is being implemented across our global platforms.

We're combining AI-driven data insights with advanced horticulture automation technology in global greenhouse operation. This integration allows real-time management of greenhouse conditions leading to increased efficiency, higher output, improved quality, and reduced cost per resources such as labor, water, and energy. Additionally, Tilray plans to accept cryptocurrency as a payment method in its online operation and is exploring strategic initiatives related to cryptocurrency that aligns with our business goals.

That is just the beginning. Tilray Brands is at a transformational point in its journey. Our strategic initiatives, innovative product development, and robust infrastructure are propelling us towards unprecedented growth.

We have harnessed efficiency across our businesses, facilities, and systems, and our workforce globally. Ensuring we're prepared to capitalize on every opportunity. I also like to add, being one of the largest individual shareholders in we along with my team combined we own approximately one percent of Tilray Brands stock.

We along with our shareholders are impacted by the decline in our stock price and we are one hundred percent fully invested in the positive trajectory performance of our stock price Again, we are laser focused on building sustainable global business platform and believe our further growth performance will recognize and reward our shareholders. Now turning to cannabis. In fiscal Q3, our global cannabis business generated of net revenue and fifty seven million dollars on a constant currency basis an increased gross margin by eight hundred basis points year over year.

Our gross margin of forty one percent the highest in almost two years. Growth in our international and our strategic decision not to participate in margin dilutive categories in the Canadian adult use market has driven margin improvements. In fact, our global medical business when combining international Canada now accounts for approximately eighty percent of our cannabis of our total cannabis profits even though they contribute only approximately thirty five percent of sales.

As a side point, we would say to investors, only focus on reported sales figure to pay more attention to gross profit dollars and potential drivers of profitable growth in If the United States legalized medical cannabis, it can mean an additional two hundred and fifty million dollar for Tilray, potentially capturing two percent to three percent of the US medical cannabis market. Tilray is not subject to any of the two eighty tax obligations in the US. Tilray's cannabis advantage lies in its global scale and experience.

Our top tier ability to cultivate large scale pharmaceutical grade cannabis with strict quality control standards. Our established medical brands of product innovation are already improving patient's lives in legal markets such as Canada, Germany, Portugal, and various other European countries. Regarding our international business, in Q3, we saw quarter over quarter and year over year revenue growth in Germany, Italy, Luxembourg, and Portugal.

Our medical cannabis sales in Germany grew significantly with flower sales increasing seventy nine percent, pulp post legalization and extract sales increasing thirty one percent post legalization. This is a significant increase from the end of our second quarter where we saw our post legalization flower and ex extracts increase fifty five percent and twenty four percent respectively. This growth was driven by higher patient demand in the market, As I mentioned earlier, a large focus of our strategic growth initiatives from our cannabis segment is redirecting inventories to international medical cannabis markets in order to capitalize on the higher margins available in such markets.

Taking this one step further, given the increasing demand in Germany and the margins in Germany are the highest in the international markets, we're also allocating more of our inventory to that market to further enhance our profitability. At the end of q three, we introduced Tilray Craft, a new brand extension of the Tilray Medical brand in Germany. Which aims to offer unique flower operations with higher THC and higher terpene content, and are derived from novel genetics in order to address the evolving needs of patients.

We are cultivating high quality medical cannabis at our FreeRx facility in Germany using prize cultivators from Canada exclusively for the German market. We're excited to launch our new medical cannabis flower which is expected to be in the fourth quarter. Today, we are now providing high quality medical cannabis flower to Germany from our global facility.

In Canada, Portugal, and Germany. Which is allowing us to be laser focused on product quality genetics, cost per gram for our international markets. This coupled with our regulatory direct distribution to wholesaler and pharmacies with our CC Pharma medical distribution business continues to differentiate us from competitors and allows us to quickly service our customers and patients.

Turning now to Canada. We continue our focus on quality of revenue and it has showed in our margins. In the quarter, we shipped three point two metric tons of flour to support the international market as I previously said.

Where margins are stronger than in the Canadian market. However, international sales and margin earned on them will not be recognized until ship for a customer predominantly in the q four as a temporary timing delay on all our overall cannabis sales of three point two million dollars during the quarter. As I mentioned earlier, remain the leader in the Canadian cannabis market by revenue, is still the largest federal legal cannabis market in the world.

We maintain the number one position in beverages, chocolate edibles, oils, capsules, and straight edge pre roll. In the cannabis flower category, we were the number two market share position despite giving up share on lower margin SKUs in favor of higher margin opportunities. An environment where constrained by tight regulation price compression, and excise taxes, we remain laser focused on utilizing process improvement investing in CapEx to drive margin improvement.

Since fiscal twenty twenty four, we have reduced our cost per unit by forty percent and expect an additional twenty percent cost reduction by the end of fiscal twenty five. In parallel, our operations teams have been working hard on optimizing our extraction capability by leveraging our state of the art extraction chamber so that all our remaining biomass gets utilized at a significantly reduced cost. As a result, we can expect healthier margins in our baseline business and growth in two of the fastest growing categories in vapes and infused pre rollers.

On the cultivation side, we have the most flexible footprint in the global cannabis industry. On our product range, caters to diverse consumer segments, including premium, with broken coast mainstream with Redican and with value with good supply was the fastest growing flower brand in Canada. Growing by forty bps in the third quarter.

Over the past couple of years, we have built a strong genetic pipeline across all our facilities totaling over four hundred unique genetics. We have cultivars across all our consumer taste profiles. Additionally, we can add an additional seventy metric tons to our capacity when the market requires it.

In the t h beverage category, Tilray had a leading market share of forty five percent. With XMG and Molo brands ranking number one and number two respectively. With multipack formats poised to enter the marketplace we remain confident that beverages are significantly underrepresented in Canada.

We anticipate capturing additional market share in this category which is projected to experience substantial growth as regulatory environments improve. Tilray is well positioned for long term success the Canadian cannabis market. With a facility footprint of approximately five million square feet and the capacity to produce over two hundred metric tons of canvas.

Our value chain and business process are the best in the industry. And are optimized to enhance efficiency. If the Canadian cannabis excise tax will reduce by one dollar per gram to fifty cents per gram and as cannabis streets were sold at the LCBO and convenience stores, we foresee a tremendous amount of annual revenue opportunity that Tilray is positioned to tackle.

Turning to our Tilray wellness business as consumers become increasingly health conscious we continue to see steady growth as our revenue was fourteen million dollars in the quarter, We delivered an eight percent net revenue growth compared to the prior year on a constant currency basis. This growth was driven by Manitoba Harvest supersede innovation and the expansion of our wellness beverages including High Vol energy, Highball Energy is a zero calorie caffeinated seltzer with a clean label. Available on Amazon, we're experienced sixty eight percent growth in the last six months, and available nationwide at whole food market retail stores later this month.

A strong focus on cost helped the business unit improve margin, delivering one hundred and eighty basis points, increasing gross margin year over year The margins were driven by a more favorable sales mix and productivity savings generated at our manufacturing facilities. Tilray is exploring further expansion opportunities in the wellness section both in wellness foods and wellness beverages. In the months to come, we'll continue to diversify and expand the Manitoba Harvest portfolio in North America and to begin to bring brand new international sales.

We see the success of Highball as a validation that Tilray Wellness has the right infrastructure and experience to build and acquire a more broad based wellness beverage portfolio. With that, I will turn the call over to Ty Gilmore, President of Tilray Beverages of North America to tell you more about what's happening at Tilray Beverages. Todd.

Thank you, Erwin. Building on Erwin's points, in Q3, our beverage business generated fifty six million dollars in net revenue and increased gross margin to thirty six percent compared to thirty four percent in the prior year quarter. Today, Tilray Beverages operates more than twenty beverage brands, including fifteen American craft beer brands, across ten network manufacturing facilities, twenty brew pubs, restaurants, and a single integrated sales and marketing team operating nationwide.

We are focused on profitable expansion. Last quarter, we announced Project four twenty, our strategic plan to integrate our craft beer businesses optimize operations, revitalize the growth of our acquired brands, This comprehensive initiative focuses on SKU rationalization, geographic and distribution consolidation, all aimed at enhancing margins and profitability through portfolio optimization operational synergies, and cost savings. In q three, we increased our project four twenty cost savings target to thirty three million.

Of which we have already achieved twenty point six million on an annualized basis. By working closely with our distributors and various markets, we streamlined our portfolio to eliminate duplicate and slower growth products as well as the decision to concentrate our brands in the regions that they have the most strength. Impacting revenue to date by approximately fourteen million.

Together, we are poised to meet consumer preferences head on and drive growth and innovation in the beverage alcohol category. Tilray Beverages has successfully established itself as the number one craft supplier in metro New York with Montauk Brewing and Blue Point Brewing Brands. The number one craft supplier in the Pacific Northwest across Oregon, Washington, and Idaho.

With our ten barrel brewing, Redhook Hop Valley, and Widmer Brothers Brewing brands. Delray is the number two craft supplier in the southeast in Florida and Georgia. With Sweetwater Brewing Terrapin, and Shocktop.

And the number four craft supplier in Colorado according to CERKANA data. Our strategic execution has led to focus on strategic brand growth with Shocktop increasing forty four point eight percent in the Southeast food channels, Sweetwater growing one percent in Southeast food channels, Breckenridge Brewing growing two point seven percent in Colorado, and Montauk Brewing showing steady growth with one point seven percent growth in New York metro area and ten point five percent growth the northeast. Across strategic channels, Red Book Big Ballard is growing seven percent across the convenience channel Terrapin hopscotchurener growing three point four percent, and and Alpine and Green Flash growing thirty five point five percent in California Convenience Channel for the quarter.

And we are not done. As we continue to seek profitable sales growth to meet the consumer demand for value trusted brands and disruptive innovation, we are focused on investments across the following segments. One, we created a new consumer segment craft lite lagers with the introduction of pub beer at below core price points.

We are now scaling this proposition across regions, including sweet water, dye beer in the southeast, Long Island Light from Blue Point Brewing Company, in New York, Atwater Light Michigan, and soon Revalvors Yalsbere in Texas. This strategic move has positioned us to capture a broader consumer base in line with the trends mentioned earlier. Two, our non alcoholic beer brands and product portfolio is also showing promising momentum.

We've recently introduced a second Montauk SKU for New Yorkers, with our NA IPA Runner's High has recently increased distribution across forty five hundred retailers demonstrating our ability to capitalize on the growth trend of the non alcoholic craft beer segment. Three, the spirits category, Breckenridge Distillery has proven its strength in the bourbon sector. Experiencing higher depletions compared to others in a declining market.

It has also made significant progress in the vodka and gin markets complemented by the world class restaurant and retail operation that provide an immersive brand experience. Our primary objectives were growing our spirits business are to expand distribution of Breckenridge bourbon, vodka, and gin and to launch world class innovation across tequila, non op spirits, and to capitalize on the evolving shot segment with innovative branding and packaging. And fourth, and last but not least, in the hemp derived THC drink segment, Gilray alternative beverage business is uniquely positioned to leverage the of our hemp wellness business and our cannabis business to formulate great tasting beverages responsibly infused with five and ten milligram of hemp derived THC.

In the quarter, Tilray expanded distribution of hemp derived THC across ten states including Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Minnesota, and New Jersey. An online direct to consumer. We estimate that our HDD nine drinks portfolio is sold across one thousand distribution points.

In addition to Happy Flower, Busy Jane, and Urban Bloom, our mocktails and seltzer brands we are introducing four twenty Fizz a low calorie sweet and flavor flavor soda proposition. Delray is also leveraging our established robust national beverage distribution network across our independent retailers, convenient stores, packaged stores, including multistate retailers such as Total Wine, and ABC. Who are very excited about this category and new growth opportunity.

And with that, I'd like to turn the call over to Carl to discuss q three financials. Carl. Thank you, Kai.

As a reminder, our financial results are presented in accordance with US GAAP and in US dollars.

Carl Merton

Let's now review our quarterly performance for the three months ended February 28, 2025. In q three, which is one of our seasonally lowest quarters, we net revenue was one hundred and eighty five point eight million dollars compared to the previous year quarter net revenue of one hundred and eighty eight point three million dollars However, on a constant currency basis, net revenue was a hundred and ninety three million or up two percent. Further, as Erwin already mentioned, we made several strategic decisions during the year which impacted Q3 revenues including the decision to allocate three point two metric tons of cannabis from the Canadian market international markets.

Where the revenue from that allocation plus an incremental two point five metric tons will be earned predominantly in q four. The decision to focus on margin and not revenue temporarily in the vape and infused pre rolled space while we completed significant improvements to our industrial extraction process and the decision to engage in SKU rationalization program in the beverage business. The q three revenue impact of the allocation of cannabis to international markets pushed approximately three point two million dollars in Canadian sales in q three to later quarters. Illustratively, three point two metric tons of cannabis sold in the international market should result in at least ten million dollars of revenue.

The q three revenue impact of focusing on margins within with vape and infused pre rolls resulted in a decrease in year over year revenue of approximately four million dollars The q three impact of of the beverages If those elements were included in our constant currency revenue number for the quarter, we would have reported two hundred and six million dollars. By segment. Beverage net revenue was fifty five point nine million dollars, but would have been over sixty million dollars if we had not made this strategic decisions previously discussed. Cannabis net revenue was fifty four point three million dollars would also have been over sixty million dollars if we had not made the strategic decisions previously discussed.

Distribution net revenue was sixty one point five million dollars and wellness net revenue was fourteen point one million dollars in the quarter. Gross profit increased by five percent to fifty two million dollars compared to forty nine point four million in the prior year quarter. Gross margin increased two hundred basis points to twenty eight percent from twenty six percent the prior year quarter.

Selling, general and administrative costs decreased one point two million dollars from the prior year when excluding an increase of four point four million in bad debts that was a result of us reversing a previous bad debt in the prior year. Like many industries and businesses, impact by the decline in the stock market since November, we are reporting a seven hundred million dollar non cash impairment related to macroeconomic conditions including market volatility, and the perception of the reduced likelihood of US and or European cannabis regulatory change in the short term. Primarily, as a result of this non cash impairment, we are reporting a net loss of seven hundred and ninety three point five million dollars compared to a net loss of a hundred and five million dollars in the prior year quarter. With almost seven hundred and seventy nine point one million of noncash costs including the seven hundred million dollar non cash impairment twenty million dollars of non cash fair value changes on our previous MedMen notes, and twenty two point three million dollars of non cash foreign exchange losses.

On a per share basis, this amounted to a net loss of zero point eight seven dollars per share, which was a net loss of zero point eight seven dollars per share, which was a loss of zero point eight seven dollars per share, per share. Compared to twelve cents per share in the prior year quarter. On an adjusted net loss basis, the loss was close to breakeven at two point nine million dollars. Compared to an adjusted net income of zero point nine million dollars in the prior year quarter.

On a per share basis, this resulted in an an adjusted EPS of zero cents per share for both periods. Adjusted EBITDA was nine million dollars compared to ten point two million dollars in the prior year quarter. The decrease in adjusted EBITDA from the prior year is primarily due to the of zero point six million dollars and the skew rationalization in our beverage business of one million dollars. Cash flow used in operations was five point eight million dollars compared to fifteen point four million dollars in the prior year quarter. Adjusted free cash flow was negative eighteen point two million dollars compared to positive zero point six million dollars in the prior year quarter.

Largely as a result of an increased demand on our working capital. Including settling multiple litigation matters increases in inventory at Tilray Partners and prepared to stock pharmacist inventories for the summer holidays, increases in inventory in beverages as we prepared for the seasonality of beverage sales in the fourth quarter all offset by a significant decrease in Canadian cannabis inventory levels. In addition, we invested seven point eight million dollars in capex within the beverage segment investing in the business to grow future revenues and reduce our cost structure.

For the year, we settled several legacy lawsuits inherited from acquisitions and the Apria class action for a total of eleven point one million dollars. Those lawsuits had original claims of over two hundred and sixty five million dollars. Turning now to our four business segments.

Despite recent skepticism on the industry, we believe that the beer and spirit markets are not going away. But rather are in flux based on changes in consumer preferences and purchasing patterns. To capitalize on those trends, we created project four twenty.

Which focuses on four key elements. A SKU rationalization focused on our best performing brands, introduction of key innovation and extension into adjacent beverage categories like water, non alcoholic drinks, and h t d nine drinks. A geographic rationalization focused on our regional jewel strategy, a distributor rationalization to reduce our over seven hundred distributors to approximately five hundred distributors.

And a synergy plan to optimize our cost structure. During the quarter, we increased our synergy plan to thirty three million dollars up eight million dollars from the previous quarter. And we are well on our way with twenty point six million dollars already achieved.

Fiscal year to date, the SKU rationalization plan lowered our revenues by fourteen million dollars. For the fiscal year ended May thirty first twenty twenty five, it is anticipated that the cumulative impact of these initiatives will result in a reduction of approximately twenty million dollars in net revenue which we believe will be offset by the growth of our new product innovation including the new beverage categories and brand extensions over the next twelve months. For the quarter, beverage net revenue was fifty five point nine million dollars a two percent growth compared to fifty four point seven million in the prior year quarter.

As previously discussed, without the impact of the strategic decisions identified earlier, beverage net revenue would have been over sixty million dollars. Beverage gross profit increased to twenty million dollars compared to eighteen point nine million Average gross margin was thirty six percent compared to thirty four percent in the prior year quarter. The improvement in gross margin was a result of our efforts integrating and optimizing our facilities, as well as a favorable product mix.

Gross cannabis revenue of seventy three million was comprised of forty nine point three million dollars in Canadian adult use revenue, thirteen point nine million in international cannabis revenue, five point eight million in Canadian medical cannabis revenue, three point nine million in wholesale cannabis revenue, all offset by eighteen point seven million dollars in excise taxes. Net cannabis revenue was fifty four point three million and fifty seven point five million on a constant currency basis, compared to sixty three point four million in the year ago period. As previously discussed, the strategic decision to focus on margins in base and infused pre rolls impacted revenue by four million dollars in the quarter, and the decision to ship three point two metric tons of cannabis that would have been sold in Canada in q three to international markets for sale in later quarters impacted revenue by approximately three point two million dollars.

But for these items, net cannabis revenue would have been sixty four point seven million dollars on a constant currency basis. The decision to preserve margin on vape and infused pre rolls also had an impact on cannabis gross margins. And we actively participated in those markets selling the incremental four million dollars in the quarter it would have had an over three million dollar negative impact on the gross profit we are reporting.

Now that our extraction capital projects are completed, and will be able to participate more aggressively in vapes and infused pre rolls, We do not anticipate a revenue impact continuing past the midpoint of the fourth quarter From that point forward, the positive gross margin impact of sales in this category would be expected to generate a swing of almost five million dollars on gross profits versus what we would have reported in the current quarter. Cannabis gross profit increased five percent to twenty two million and cannabis gross margin increased to forty one percent compared to thirty three percent from the prior year period. An eight hundred basis point improvement.

Distribution net revenue derived predominantly through two or three pharma increased about eight percent to sixty one point five million and almost fifteen percent to sixty five point one million in constant currency compared to fifty six point eight million in the prior year quarter, all as a result of favorable Distribution gross profit was flat at five point six million dollars in both the current year and the prior year period. Wellness net revenue grew five percent to fourteen point one million from thirteen point four million dollars in the prior year quarter and eight percent on a constant currency basis to fourteen point five million. The increase was driven by our strategic focus on continued innovations.

Wellness gross profit was four point five million dollars up from four point one million in the prior year quarter and gross margin rose to thirty two percent compared to thirty percent in the prior year quarter. A result of continued operational efficiencies. Our cash and marketable securities balances of February twenty eight twenty twenty five was two hundred forty eight point four million dollars up from two hundred twenty five point nine million in the prior year period.

During the year and through to today, we continued to strengthen our balance sheet, including raising approximately a hundred and forty million dollars on our in ATM, repaying approximately fifteen million dollars on our long term debt, and repurchasing approximately sixty million dollars in outstanding convertible notes. After taking into consideration these actions, we reduced our net debt position to approximately fifty million dollars. Which when combined with our trailing twelve months adjusted EBITDA, puts our net debt to adjusted EBITDA leverage ratio below one.

Today, we are revising our fiscal twenty twenty five guidance for net revenue to eight hundred and fifty million dollars to nine hundred million dollars. Adjustments for constant currency and the impacts of this strategic initiatives and skew rationalization which totaled fifty million dollars. Would have resulted in expected net revenue of nine hundred to nine hundred and fifty million.

Let me now conclude our prepared remarks and open the lines for questions from our covering analysts. Operator, what's the first question.

Operator

Thank you. Before we get to the first question, I'd like to remind everyone that if you'd like to ask a question, Our first question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.

Aaron Grey

Hi. Good morning, and thank you for the questions. So first question for me, I just wanna talk about allocation of cannabis product.

Can understand how the higher profitability makes international appealing, but as you redirect product international, you know, would you be fine with this leading to some share loss in Canada as long as it's more profitable, share segments you know, any color in terms of your share aspirations now for Canada would be appreciated just now as you're allocating more product international. Thank you.

Irwin Simon

Good morning, Aaron. Good question. Number one, you know, what's important for us as sales in Canada and having, you know, pre rolls, flowers, edibles, and drinks you know, it will be an important part of our market.

And always profitability. So sales are important, You know, we don't report you share something that is reported, but everybody looks at share differently. So the number one thing for us is how we grow our business, how we grow sales, And, you know, with five million square feet to grow, we have plenty of capacity.

When we ship product now internationally, we don't have to pay excise tax and there's much higher margin in the medical business. So, you know, we look at Tilray today from a total company standpoint. And just don't look at Canada, just don't look at, you know, international.

And in the cannabis industry.

Aaron Grey

Thanks, Irwin. That's helpful color there. Have my second question on hemp dry beverages.

I know a small part of your business today, but a lot of potential there. So believe you mentioned hept dry beverages are across one thousand brick and mortar distribution points. So any targets that you can point to in the near to medium term that you hope to get to, and then can you comment on any initiatives you have to help drive velocity, maybe any marketing plans you have to speak of the spring and summer, particularly given you do have a house of brands versus just focusing on on one brand in that segment.

Thank you.

Irwin Simon

So I think, you know, listen, as as Ty has talked about, in regards to and I think what you said is to you broke up there on the hemp brands. You know, we're across thousand stores today. We're selling in ten different states.

And, you know, the demand and through our wellness team and through our beverage team, you know, we have infrastructure salespeople on the street and we're selling through a lot of the beer distributors and selling it direct to consumer. There's multiple marketing programs in place to drive consumption with different retailers and different retailers with outlets. So and and I think a big thing, Aaron, is educating the consumer what hemp derived drinks are and what Delta nine drinks are and the benefits from them.

And if anybody can do that, we are. We're in the beverage business. So that's a big, big opportunity for us. Listen, we have aspirations for that to be in the multimillion dollar business for us and also it's a great margin business.

In regards to our beverage business and our beer business, like Ty has said, I today with eighteen different beer brands, as we look at it, you know, state by state and geography, how do we focus on growing our beer in certain geographic Pennsylvania, You you know, you're we talked about Montauk and if it's New York, you know, or New Jersey, there's a hundred million people there. And really going after share with Montauk and that instead of going national. So there's a lot of regional marketing that we're doing.

Listen, sponsorships. Hey, Florida Gators. We are the beer of Florida Gators.

Congratulations with Choctaw. And, you know, that's a big win for us in regards to sponsorships. So there's a lot we're doing with sponsorships.

Next week, four twenty, not next week, in two weeks. We are holding some major concerts down in Atlanta, Georgia. And some other places in regards to four twenty selling our our beers.

So there's a lot of regional stuff that we're doing. A lot of sports sponsorships that we're doing, getting involved with the community and a lot of different concerts. So that's how we're marketing our beers.

And with that, we're tying that in with our retailers and tying that in with our distributors on displays. And also, you know, we're tying it into our you know, off premise in regards to making sure on top We have pretty you know, a lot of handles out there. I test anybody to go to New York City right now and get around to a lot of the bars out there and see who doesn't have a Montauk or a Blue Point handle out there.

Aaron Grey

Okay. Great. Really appreciate that color, Orin.

I'll go ahead and jump back into the queue.

Irwin Simon

Thank you.

Operator

Thank you. Our next question comes from the line of Robert Moskow with TD Securities. Please proceed with your question.

Robert Moskow

Hi. This is Victor Ma on for Rob Moskow, and thanks for the questions. I guess, first, so cannabis gross margins at forty one percent for the quarter was a positive surprise.

I think. So what were the building blocks for that eight hundred bit margin expansion. You know, how much of it was from positive mix from not participating in base and infused spritos. How much of it was from cost savings and efficiencies.

Carl Merton

So, Victor, the the majority of the hundred million is is mix. A portion of that mix is more international. But a but a big chunk of it is this concept of know, being very careful with what places we're playing in.

Particularly in vape and infused pre rolls to focus on margin. And and and going back to the last question, I you know, in infused pre rolls and vapes, if we would've sold know, in the quarter, we gave up about seven million dollars or so in sales or something, Four million dollars. Four four and a half million, but we gave up more.

That could have been anywhere from ten to eleven million dollars a hit on EBITDA. So again, we are not going out there just for sales. We are focused on profitability. We're focused, you know, on margins. And just coming back in regards internationally, you know, again, we're not paying, you know, excise tax.

Mean, throughout the year, we pay about a hundred and fifty million dollars of excise tax you know, in the Canadian market. We're not paying that, you know, internationally and where we see the opportunity. But let me tell you, we're aggressively looking at how we take cost out, and that's something Blair and team are doing.

And we're not abandoning by no means that they've been pre rolled category, which are some big growth categories. And, you know, Blair, in regards to our center of excellence, have come up with ways to take tremendous amount of cost out. And coming up next quarter, we have a tremendous, you know, plan in regards how to get more pre rolls and or pre infused pre rolls and vapes into the marketplace.

So there's a big focus, you know, on our margins there's a big focus on driving sales too.

Robert Moskow

Got it. Appreciate the color. And then my second question is on on the beverage side.

So our our tracking data indicates sales and volumes for the craft beer brands are are down about mid teens in third quarter. Is that what you're seeing on your end. And can you help dimensionalize that number.

You know, how much how much combined growth do your craft portfolio see in their home markets, you know, versus their away markets. I know you gave some numbers in the in the in the call, but, like, what what would be, like, the total split between, you know, the total whole markets and the total away markets for your brands. And then just to squeeze another question.

On on project four twenty, what is the brand hierarchy here when it comes to, you know, allocating the next know, marketing dollar. Is it is it on prioritizing, you know, your biggest brands, your biggest markets. Or is it on newer brands for potentially higher, you know, on a percent basis.

Irwin Simon

So number one, you know, when you come back and look at your data here, I mean, one of the things in there as you go through a a skew rationalization, we're taking out a lot of the brands, so it's not really giving you a true picture. And as Todd took you through know, different different states and different geographies on growth, And that's why I come back and say this here. You know, you gotta look at it.

We're probably on an aggregate, as you say, down. But if if following our plan, and looking at the geographies of three, four state, Certain states were up, certain states were down. So your numbers are are probably right, but again, you gotta pull out of their SKU rationalization and part of it is is this here.

As we introduce, you know, new products are not in there, and, you know, off premise or on premise is something that there's a big focus on too and where we pulled out you know, a lot of the caps in that that we lost You know, there's another big focus on that. So I wouldn't look at the craft beer data that's out there. Right now, what we're trying to do is focus on sales and how we bring these brands together.

You remember what I said in my remarks. As we acquired these brands from ABI and from Molson, we a lot of these brands were mostly in negative territory. And what we're trying to do is reverse them.

We're in the midst of going through right now looking at distributors. We have over seven hundred distributors out there today both Molson Coors ABI, and Independence. How do we consolidate them and how are we a bigger focus for them. And how are we more important.

We haven't done that yet. That's a big part of know, four twenty and that's a big part of the cost savings that we're looking at. Your last question was what.

On the savings on four twenty.

Robert Moskow

Yeah. It was on just in allocate an incremental marketing dollars. Is the focus here on, you know, prioritizing the next dollar on, you know, your bigger brands and your biggest markets, or is it on just the newer, you know, acquired brands to that offer, you know, potentially higher growth on a percent basis.

Irwin Simon

So listen, from a standpoint is as we look at it today, where we allocating our marketing dollars is the bigger brands and number one, Choctaw, is a brand that we would, you know, look to go national with. Sweetwater, you know, is one of our bigger brands. Bluepointe is is is one of our, you know, major growth brands.

But if you come back and look at the Pacific Northwest with Ten Bear or Windmere, you know, they are brands that we're gonna focus on in their territory. So you know, you you love all your kids equal. You love all your brands equal here.

There's certain brands that we're gonna focus on as you'd heard us say in Florida. Know, with the Gators, we're focused on Shop Top there. In New York, we're focused on Montauk, then blue you know, then Blue Point.

So and and there is a lot of opportunities coming to us right now in regards to sponsor part of it, being on JetBlue with Montage is something, you know, that's been great for us. Being on Delta has been great for us. So there's a lot of unique opportunities in regards to sponsorships being part of the community from a regional standpoint, you know, with our selection of beers that we have.

Operator

Thank you. Our next question comes from the line of Frederico Gomes with ATB Capital Markets. Please proceed with your question.

Frederico Gomes

Hi. Good morning. Thanks for taking my question.

First question on international markets, specifically Poland, I believe there were some changes there in telemedicine. So curious if you've seen any know, impact from that, but also if you would expect changes in Germany in regards to telemedicine as well.

Irwin Simon

So I'm gonna let Denise answer that. Go ahead.

Denise Faltischek

Yeah. Thanks. And and great question.

So in Poland, in November, there was a change where telemedicine restrictions were put in place. And as a result, we saw some prescription drops from basically around, like, sixty eight thousand prescriptions in the month of October to twenty eight month of December. And as a result, we definitely saw, I would say, you know, demand come down a bit as patients are looking for new avenues to find prescriptions.

However, in our q four, we're starting to see things pick back up again. We believe that there was some oversupply potentially in the third quarter where distributors were working that through. But we are pretty bullish on that market still. We have a very, very large share in that market.

We have multiple distributors that are very strong in the market with physical clinics. So we believe that we have the right infrastructure and the right partners to really win in that market. In terms of your question, in terms of Germany, we have been very focused on the German market as we reported We also spent a lot of time evaluating from a government perspective and speaking with members of parliament around, you know, the change in government and whether there's going to be any change in the landscape of either MedKangi or Kanji.

And what we find in terms of those conversations that we've been having and working for our industry group is that there are potentially changes on the Kanji, and that means social clubs, and the model experiments. What we've been assured of is that there is really gonna be no changes in terms of the medKangi, which is the market that we are We are keeping an eye on the telemedicine, you know, aspect of the law. And working with government officials to to really support why that is necessary especially for rural patients.

We still remain very, very bullish about our our business in Germany. And in fact, saw some of the highest numbers that we've seen in history for our business in Germany this past quarter.

Frederico Gomes

Yeah. Thanks, Denise. Appreciate that.

Second question, just just follow-up on Germany. If you could just comment on on pricing in Germany, you know, has anything changed recently. Are you seeing any impact, I guess, from competition in that market and also growing market, but we also see some Yeah.

Other companies investing there. So any any changes in pricing.

Denise Faltischek

There there's definitely a lot of competition coming into the German market because I think just like we see the the opportunities in Germany, both in terms of demand on patient growth and also the higher margins. I think others are seeing that as well. And I think there were some of the highest imports into Germany from Canada, a a Basically, around fifty one percent of the imports going into Germany are coming from Canada.

And so there is definitely a lot of competition. We do see what we see in terms of pricing is more of a segmented market. Coming about where patients are focused on different levels of quality and value.

And so higher quality products are still commanding much higher prices. There's also a value segment, though, and that value segment is really being positioned toward patients who are really looking for a lower price product. I think, as you know, the German market today is split between the patient led side, which is really self pay market and the doctor led side, which is more of an insurance based market.

So on the insurance based side, which is at this point predominantly medical extracts, we see pricing remaining pretty secure because of that insurance coverage. But on the flower side, where is that segmentation. We are seeing differences of pricing based on patient's demand.

Irwin Simon

I think the big thing also which is important is supply. You consistent supply, and that's something that Tilray can either supply it of our Canadian facilities or can supply it of our Portugal or German facility, and I think that's what everybody's looking at. And one big thing to mention is we're vertically integrated there with CC Pharma or Tilray Pharma.

Our distribution business that actually, you know, has been very helpful and a big part of our growth there that we distribute directly through to to drugstores today. So that's important to us.

Frederico Gomes

Thank you. Appreciate that. I'll hop back in the queue.

Irwin Simon

Thank you.

Operator

Thank you. Our next question comes from the line of Pablo Zuanic with Zuanic and Associates. Please proceed with your question.

Pablo Zuanic

Thank you and good morning everyone. Look, my question is more for Denise. Look, I'm very impressed with the growth in your extracts business.

I think you said thirty one percent since April first. My impression was that the reimbursed business was not growing much. So is this that you're it's saying that you're gaining share, or or or are more doctors prescribing to the reimbursed market.

I'm just trying to understand that. Thank you.

Denise Faltischek

Yeah. Thanks, Pablo. So so we do see we do see more and more doctors prescribing, and I think you might have recall that after the passage of MedKangi, the government also took steps to clear out some of the restrictions that we saw on the reimbursement part of that market.

Whereas before, it was a there was waiting periods and there wasn't it's wasn't clear if there was a reimbursement. And now there actually are a much faster, more facilitated way to get reimbursed for medical cannabis. And we also have really, you know, stepped up our efforts in terms of our team on the street with education.

So doctors are more and more interested in learning about the benefits of medical cannabis. For patients with certain conditions, including chronic pain. And along with that that increased interest, I think stigma is starting to fall away even more so.

And so we do see increased patients increased doctors, coming to seminars wanting to learn more. So I do believe it's it's share as well as increased prescriptions to answer your question.

Pablo Zuanic

That's great. And just on on the same point, I mean, we we are hearing more about clinical studies or trials as a way to convey the message to doctors. You still were involved in any any any of those psycho studies in Europe right now.

Denise Faltischek

We are involved in a glioblastoma study in Spain. That is basically into its second year of the study. We also recently completed a study with the University of Sydney cancer induced nausea and vomiting.

And so it is something that we will continuously look at. You know, where does it make sense We have had some conversations in Germany about doing studies Also working with local universities, as we build out programs to really bring the expertise of cannabis cultivation and processing to Germany because I think we've all seen the fact that there's been a lack of expertise in Germany. So we at Tilray have had to import a lot of our expertise from Canada.

And, we'll we would really need to be able to build out that market.

Irwin Simon

And, Pablo, that's something we support. Is in regard to an investing in research here because we think there's a lot of good research that will come out that ultimately benefits the growth of the medical cannabis business and growth in other countries. As they see the benefits from this here.

So and, you know, Europe being basic basically only a medical cannabis business, It's important and it's important, you know, for the future of this industry. So that's something that Tilray wants to be a part of.

Pablo Zuanic

Thank you. Let let me just I have just one more here. The we're already focused, of course, on Germany, and you mentioned Poland.

Denise, I mean, when you think of Europe, what what's the other next big market that you're looking at right now. What what's the one that can we are hearing some news from France, Czech, what what do you think about the other European markets right now in terms of opportunity. Unrelated but separate but still reconsidering entering the Dutch file.

Mean, that I think there are ten licenses, some licenses maybe are for sale, I know that's more break, but what are your thoughts on that. That's it. Thank you.

Denise Faltischek

If if so in terms of markets, you mentioned Germany and Poland. Two of our primary markets, also the UK. We've invested in the UK.

With both infrastructure and a Salesforce and working with additional distribution partners. We're both very focused also on Italy. It is a very good medical market.

A lot of support from the government there. In terms of growing a medical cannabis market, and doctors are very interested So we're seeing really, really good good growth and good interest coming out of Italy. We just had a few Italian doctors from a very prominent cancer hospital visit our Portugal facility to learn more about medical cannabis, And you mentioned France.

We are very we're keeping an eye on France. I think you might remember that we participated in the experiment in France when it first began, we continue to keep a foothold in that market, and we've been having conversations at the government level to really understand where it's going. We believe that there will be market authorizations available We don't believe that, really, there would be potentially any sales coming out of there until January of twenty twenty six.

But it's a big market and a big medical market, and we we believe that we really can be very successful there. And then in terms of your question about the experiments in the Netherlands, I I we just at this point, I think we're very focused on activities and opportunities that really have a strong ROI. And we look at some of the experiments as very interest sense sense that it potentially generates data the marketplace, but we don't really see a large commercial opportunity.

And so we'll we'll wait and see. And then see where the market goes. And then at that point, as you mentioned, we could either look to acquire something or enter the market ourselves.

Self using our well proven roadmap and strategic plans for entering new markets.

Pablo Zuanic

Thank you. Thank you.

Operator

Thank you. Our next question comes from the line of Bill Kirk with ROTH Capital Partners.

Bill Kirk

Yeah. Good morning. This is Nick on for Bill.

Thanks for taking the question. First one for me, just wanted to follow-up on the beverage side with the cost of aluminum potentially higher here. Just wondering how you kinda see beverage margins playing out if that'll have any impact on your business.

I know you mentioned you're not impacted by tariffs, but any color on how you're working around that would be helpful. Thank you.

Irwin Simon

So, like, everyone, you know, ultimately, know, we have contracts in place with suppliers You know, aluminum could go up, which is a know, input cost. But, hopefully, with some of the cost savings and the cost that we're taking out of those businesses right now, we can off that. So right now, it's minimal on lumen.

But, you know, it's kind of wait and see and what happens there. What's what's happening because I think everybody's getting in there to try and buy you know, cans in that right now. Prices are going up.

But so far, you know, we're we're managing it. But trying to offset any of those prices with cost that we're trying to take out of the business.

Bill Kirk

Okay. I appreciate that color. Second one from me is just on the Canadian cannabis gross margins.

With international demand ramping and a large amount of this being met from Canadian suppliers, have you seen any determinable changes in supply demand economics. In Canada recently. Just your sense of the supply environment in Canada would be helpful.

Irwin Simon

So and and I think Blair's on the call. I mean, number one, because we're probably the largest grower of cannabis in Canada today, The demand for us and the calls that we're getting to supply third parties with cannabis is tremendous. And, you know, right now, we have had to increase grow in a free up one, We're at full capacity of free of diamond. We have you know, our outdoor grow. We're now growing outdoor grow.

And we're looking at our facility in Gatineau that, you know, there's partially vegetables and partially cannabis, you know, do we convert that back. So there is a a major demand right now in Canada for supply because a lot of these growth facilities have either closed or, you know, gone into business. So there is a big demand for cannabis in in in Canada.

Our plan, supplier sells first, supply, you know, Canada, supply Europe, where we can, and then if there's an opportune opportunity for third party we'll work with a third party partner.

Bill Kirk

Great. That's it for me. I appreciate the color.

Operator

Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.

Matt Bottomley

Good morning, everyone. Just I know you've talked a lot already on the call on the hemp drive space. So I guess the only other question I would have on it is just given the the pretty impressive growth that the overall market has, particularly in some of these southern states, where you have distribution.

You know, I know it's not material today, but I'm just curious if there is you know, some sort of scenario where a farm bill goes and and sort of you know, rips disability out and the market kinda has to close overnight, you know, what sort of the in that, you know, isn't synergistic already with your other beverages or or maybe not at all, but I'm just curious, you know, what that would mean for you guys strategically if if the plug was sort of pulled from a regulatory standpoint.

Irwin Simon

I know that Jared answered that, but first of all, number one, all our productions happens at a third party facility. And number two is, you know, we have in place you know, a production schedule, so we're not sitting out there with tons and tons of inventory and got big infrastructure and people against us. Number three, we don't believe that every state would close-up and go out of business, and and and, you know, end this.

So Jared, you wanna.

Jared

Yeah. Yeah. I'll answer that.

I think Erwin's right, and and we're doing this smart and steady. I think we are going into select number of states. We're putting out a select number of SKUs, and we're going with the right retailers as we go and launch this platform.

So I think we're being cautious. We're not over inventorying on this. We're we're going out to the marketplace, and we're going to places where we think we'll succeed.

I think, furthermore, as as Erwin was saying, there's a lot of business going on in key states, particularly in the southeast. And it's become nice business for these states. And the legislatures are working to codify rule making so that this industry can continue and thrive within those states.

And so I agree. I I think the more we can do to advocate for smart regulation, and that's something that we are doing through our own efforts and through CABA, the coalition for adult beverage alternatives, in which we have an active participation. I think that's something that will enable this market to continue to succeed and thrive.

Irwin Simon

And I think the important thing is, though, out there is this here. Consumers want this product. There's much demand out there for this product.

There's a real category. So I think know, the farm bill is in place. And it's in place for another, what, two years.

And, you know, and there's ten states right now and hopefully, this is something that we hope you know, is legal in all fifty states.

Matt Bottomley

Got it. Appreciate it. And then staying on the sort of THC beverage side of things, but in the Canadian market now, can you give us a little more color, like, independent of your performance in in the beverage segment.

How is that grown as sort of an innovative SKU, you know, relative to, you know, there's been a few pre rolls and some others more on a macro level just because know there's been some changes over the years from a regulatory standpoint, you know, very minor. But still the the distribution of this is in the dispensaries. I know a lot of these fridges are locked and the access to product in Canada is still a little archaic terms of how they do it.

So just how that segment has grown, you know, again,.

Irwin Simon

So again, coming back to beverage industry in Canada, and I come back and I say this here, we have forty five percent share. It's somewhere around a twenty five, thirty million dollar Canadian business for us today. And you're right.

It's sold in refrigerators only in cannabis stores. And now they're going to a six pack from a standpoint there. And, you know, they're not cheap either.

I always say this here. If tomorrow and there's motions that we are trying, if we could sell this in the LCBO in Canada, or we could sell this in, you know, convenience stores or beer stores, etcetera, You take it. If it's a twenty five, thirty million dollar business, for us, I would take a ten multiple and say it's a two to three hundred million dollar business for us because you know, the big time growth is in the beverage industry.

So tremendous demand for a limited amount of stores that it's sold in today. And you think about it at the size of the category where it's only sold cannabis stores, how big this would be. If it could be sold in the LCBO or beer stores or on tap at bars.

And that's something that, you know, we're pushing for and hopefully something, you know, can change there.

Operator

Thank you. Our final question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Michael Lavery

Thank you. Good morning. Just wanted to come back to your comments about looking to consolidate beer distribution I guess my sense is typically that's quite localized Do you have any cases maybe where there's overlap that you could drive efficiencies or maybe just help us understand some of the strategic rationale a little bit better.

And then have you taken a look at at what transition cost there might be from from buying out a distributor to to move it somewhere else.

Irwin Simon

So number one, we did our ABI deal, you know, we had a two year where we have to stick with all the ABI distributors and so that's number one. Number two is know, for instance, here in New York, we have certain distributors distributing Montauk and distributors that are distributing, you know, Blue Point and Sweetwater and Shocktop. So again, as we look at it today, what makes sense.

Where are we obligated by distributor contracts, where are the potential buyouts. There's tremendous savings on freight There's tremendous savings where our salespeople are making two know, stops in working with distributors and there's tremendous marketing costs. So you know, we we've got our analysis in place.

We know what the potential cost savings are. And it's sort of like picking the best of the best out there and where we're gonna be important to And I will say this here, what distributors like about having Tilray brands is they see what we're doing, that we're growing, we're investing, we're coming up with new products and think we'll buy more you know, craft breweries so wanna stay with us. But we're gonna have to look at, you know, some types of consolidation because you can't have five, six hundred distributors, and it's actually even more When you look at certain distributors, got three or four different branches that we're shipping to up there.

So, yes, the answer is we've done a lot of analysis. We are obligated, you know, because we're contractual to stay with certain distributors. And it's something that, you know, Ty and team that we're working within, you know, would work with potentially a third party group to help us get all the costs and the efficiencies and make some of the right moves.

Michael Lavery

Okay. That's helpful. And just on the Canvas side, maybe help us understand your capacity approach a little bit because I know you've talked about reallocation to improve mix and and take advantage of the better opportunities in the EU.

But it sounds like you've also dusted off some some dormant facilities and and have your eye on on maybe where you can add more But yet the you know, revenue growth hasn't really been there. So how much is there a cost you're willing to carry to lean in to to to that even if the the you're not already seeing the the growth momentum. I know you had some sales that got shifted into four q, but, you know, obviously, Canvas revenues were down.

So help us square a little bit how to put all that together.

Irwin Simon

So number one, cannabis right revenues are down as we said. You know, some of them were decisions to make strategically. Just because of margins.

Some of them are timing where our new products don't come into place until the fourth quarter. And some of them is we just didn't have supply. So you come back and look at we woulda had supply for our international markets and additional supply for the Canadian team, that's for from a revenue growth.

Other thing is is this here, you know. There's many wholesale out there that you know, wanna buy products from us, so we just don't have product to sell. So bringing on our Cayuga Outdoor Grow is something that's happening.

We brought and we brought on a free of one our phase four, which is the first time that has been operating in quite a few years. So basically, today, I think it's a hundred and thirty seven metric tons that we're growing in Canada. We have the ability for another seven it's about another seventy three to a hundred metric tons that we could grow there.

And some of that is, you know, to support our own growth. Some of that is to support international. And if there is certain strategic partners out there that we'll supply with that is profitable, and, you know, one of the things is you know, their competitors if we're gonna sell sell wholesale, so we gotta look at that too.

So, you know, again, as you see, why are our margins growing. We're focused on profitability here. But I think the difference is is is here.

As you looked at a lot of these cannabis businesses, they decided to go with the asset light model. Where they don't have grow and they gotta buy consistently from different growers, getting different strains, different qualities, different timing, different pricing out there. That's not what Tilray is.

Tilray is a vertically integrated company where we have five million square feet to grow. We have our brands. We have our infrastructure.

And that's how we're gonna grow our business. And, ultimately, it will come to roost that we'll get the growth for. And whether it's supplying Canada, and whether it's supplying, you know, international markets, and the question asked before, You know, additionally, whether it's the UK, you know, there's talk about other international markets whether it's Japan, whether it's India, whether it's other countries, we have supply other g n p, you know, sourced or or or Canadian markets.

So I think that's what's important here as we look at it. Where we have these infrastructure to do it. You know, listen, the drink business decides what I talked about before.

We have supply for drink now with the whole vape industry. We have supply for vape. You know, in infused pre rolls, we have supply.

I think that's what the important thing is for us to measure where we're gonna supply ourselves where we're gonna supply ourselves internationally, and then who else we wanna supply and sell product to on a wholesale basis that makes sense to.

Operator

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr.

. Simon for any final comments.

Irwin Simon

Thank you very much, operator, and thank you very much everybody, for joining our call today. It's not an easy world out there. And, you know, we've seen this as we come back and look at look at what Tilray has done.

We've generated net revenue in the quarter of one hundred and eighty six million dollars one hundred and ninety three and we've decided between SKU rationalization and where we want to ship product to. You know, a pullback on thirteen million dollars. And again, what we focused on margins, profitability, We have diversified this company in over five years.

You know, we've got this, you know, close to nine hundred plus million dollars in sales. If you can look at categories today where we diversified in cannabis, in the Canadian market, being the largest grower with an infrastructure to support it out there, with innovation, with r and d. If you come back and look how we pivoted into the beverage business, Tilray is a beverage company today.

With our beer, with our spirits business, with our non out business, with our liquid love water, and our hemp infused drinks. So we pivoted in that. And remember, we just started that in twenty, twenty five years ago today.

And look where we are, the fifth largest craft brewer. We get some of the top spirit brands out there with Breckinridge. And entries into these new categories with non out with our water business and with our energy drink, Highball, which you'll be able find in every Whole Foods in the US, right now, which which you can do.

And actually, when we acquired that from ABI, there was no sales from that product. And it's one of the only clean you know, energy drinks that are out there. In regards to margin, we're focused on margin, margin, margin, margin.

I understand Margin drops profits to the bottom line. In regards to our balance sheet, and that's something today there's a lot of cannabis companies out there sitting with a lot of debt at high interest rates. There's a lot of cannabis company out there that own some significant taxes and excise taxes.

And and a lot of things can change until right if Canada decide to cut its excise tax. If US legalization happened for medical cannabis, if we could sell cannabis drinks in Canada or we could sell cannabis drinks in the US, I think it's billions of dollars of sales. In regards to internationally, I mean, that is a business that basically we started from scratch I think when we acquired Tilray, we were doing about ten million dollars of cannabis sales with with Tilray, very little you know, in regards to a free up.

And, you know, we did have CC Pharma. What what we've turned that into And with their growth and with their margins at some of our bone profitable businesses today within the Tilray business. So from a standpoint, yes, we're focused on cash flow.

Yes. We're focused on profitability, but you've got to invest to get there. And that is a big thing for us.

We've had to invest in our beverage business to get it where it is. You know, a lot of these frac businesses have been around for years and years and years. And fortunately, you know, within the beer business, listen, if you watch every sporting event, you know, Bud Light, Bud Miller, a lot of these CORS have big sponsorships out there. There's a lot of beers out there, and what we've done to become you know, prominent in these markets is is pretty amazing and how we're a big player out there, and that's what we have to do.

If you come back and look at the cannabis industry in Canada, it's five years old. And how we've invested you know, in the cannabis business to create close to a two hundred million dollar US business in there. And build brands from scratch.

Same with Europe. You know, it's five years since Germany know, from the legal well, it's not even five years from the legalization and tender in that. So we built all this from scratch to get it where it is today.

Takes money, takes time, takes infrastructure, it takes people. And, of course, there's gonna be some loss along the way. But where I sit here today with Tilray, is I'm very proud of the people that we have in place.

In regards to our organization and a big focus with this here, is our balance sheet. And we are focused on debt. We are focused on balance sheet. We're focused on generating cash, and we're focused on our cash situation.

We are shareholders. We're just not employees here. A big part of our compensation is in equity. A big part of all our net worth is in our stock.

No. We're not happy where our stock is. But nobody has given up.

Nobody's going away and we're working hard to change that course on our stock And you're seeing some of the results that we're putting out there today. So I wanna thank everybody for your support. Understanding.

You know, we we we have the naysayers out there and we have the support out there. But I'll tell you what, there's a team here that is focused. And we think we have a unique business.

No. We're not building an electric car. But you heard what Denise talked about research that we're doing in regards to cannabis and some of the medical stuff that we're doing there.

Know, consumers are changing habits every day. You heard me talk about where our Gen Z and millennials in regards to cannabis use and drinking use. And you look at that, we are there.

In regards to our wellness business and our hemp infused business, When we acquired Manitoba Harvest along with Tilray, it was losing about six million dollars EBITDA. There's a complete reversal with eight percent growth and it's become a very profitable business. For us in the wellness business is something that we're gonna focus on.

So yes, we've had a lot of successes. We've had some challenges. We've had some failures.

But within five years, there's a lot of points that we put on the board. So thank you very much for your support. Thank you very much for listening to us today.

And like I say, hang in there with us. And we'll be there. Have a good day.