Good afternoon, everyone. Thank you for joining us to discuss Tilray Brands, Inc.'s Financial Results for the Full Year 2023 Third Quarter Ended February 28, 2023. 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 and participating retail shareholders conducted through the Say Technologies platform. Question submission and uploading through the Say Technologies platform has already concluded and the company will read aloud and answer the top questions. Ms. Noorata, you may now begin the conference.

Thank you, and good morning. By now, everyone 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 SEDAR. On today's call, we will be referring to various non-GAAP financial measures, which 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 a 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 these forward-looking statements. The text in our press release issued today includes many of the risks and uncertainties associated with such forward-looking statements. Note, that we have also posted a presentation on the HEXO transaction to the Investors section of the Tilray Brands website. Today, you will hear from key members of our senior leadership team. Irwin Simon, Chairman and Chief Executive Officer, Tilray Brands, Inc.; and Carl Merton, Chief Financial Officer, who will provide a quarterly financial review and update our annual guidance. Also joining us for the question-and-answer segment of this call is Denise Faltischek, Chief Strategy Officer and Head of International; Blair McNeill, President, Tilray Canada; and Ty Gilmore, President of our U.S. Beer Business. And now, I'd like to turn the call over to Tilray Brands' Chairman and CEO, Irwin Simon.

Good afternoon, everyone. And thank you, Berrin. And hello, everyone. Thank you for joining us for our report on our Q3 financial results, as well as our exciting announcement that we reached an agreement to acquire 100% of the common shares of HEXO. Let me begin by stating the obvious, the global cannabis industry continues to be challenging with both industry-specific and macro headwinds. The Tilray Brands team has demonstrated adaptability, strong execution skills, and operational excellence throughout in response to diversify our business and build a strong, durable balance sheet. This diversification, in particular, has been an absolute necessity given the ongoing delays in U.S. Federal cannabis legalization and the delayed SAFE Banking Act, as well as delays in adult-use legalization in Germany. All of which have fundamentally impacted cannabis industry business models built around the promise of legalization. These industry conditions have compelled us to challenge previous assumptions, adapt, and execute. As a result, we built the most diversified global cannabis lifestyle and CPG company with a clear vision and a strategy to deliver sustainable long-term stockholder value and growth. Throughout it all, we have remained focused on the core business fundamentals such as maximizing our revenue growth and profitability, cost management, and, of course, cash generation. And while due to the current macroeconomic climate, we do not believe the value of the opportunities we've created within our diversified business is fully reflected in our current stock price. We believe that these opportunities will generate significant stockholder value in the long-term, and that our efforts that we've delivered will suit the following accomplishments. We've repositioned Aphria, optimized operations and cost efficiencies, and built the leading Canadian cannabis LP with the Tilray transaction and now with the HEXO transaction. Today, Tilray Brands continues to lead with the #1 cannabis market share across Canada, which we've accomplished as a low-cost producer, while achieving $122 million in cost savings. We've strengthened and expanded our international cannabis business in over 20 countries and new markets and territories around the globe. And today, we have the leading medical cannabis market share across Europe. As an adaptation to the delay in U.S. Federal cannabis legalization, we built a strong and profitable U.S. beverage alcohol business including repositioning SweetWater into the #1 craft brewer in Georgia, the #2 craft brewer in the Southeast, and the 10th largest craft brewer in the U.S. We acquired Montauk Brewing Company and grew its points of distribution by 10% within the first four months of operating this business. Today, Montauk is the fastest selling craft brewer in New York. Our highly awarded bourbon brand, Breckenridge Distillery, was recently awarded the World's Best Blended Whiskey by Whiskey Magazine. You must try this product. We've also stabilized Manitoba Harvest into a profitable business, creating the world's leading hemp food brand with over 50% of branded hemp market share in the U.S. and Canada. When Federal cannabis legalization does occur, we will leverage these U.S. businesses into beverage alcohol and wellness, including their distribution and marketing networks to capture new expansive opportunities across the U.S. and throughout the creation of a broad set of cannabis-infused CPG brands. Now let's discuss our agreement to acquire HEXO Corp. Please refer to the Tilray and HEXO investor presentation available on our website for greater details...

Thank you, Irwin. Given the challenging environment affecting the economy as a whole and our industry in particular, we are staying focused on what we can control. Namely: improving our operating efficiencies and realizing cost savings within our business model, reevaluating partnerships in markets that no longer meet our criteria, strengthening our balance sheet, and working towards generating positive free cash flow; even if it inhibited generating additional adjusted EBITDA in the near-term. For our financial review, we present our results in accordance with U.S. GAAP and in U.S. dollars, and will reference both GAAP and non-GAAP adjusted results throughout our discussion. Our earnings press release contains a reconciliation of our reported results under GAAP to the non-GAAP measures identified during our remarks. Let's begin with a significant noncash reduction in our net assets we took during the quarter, a situation that has become very common in the CPG and cannabis industries over the last 12 months. Importantly, the review of our net assets and the calculation of the noncash reduction was not a function of our belief in our business plan or changes in our view as to the future of our business. As noted by Irwin, this noncash accounting charge was almost entirely led by changes in our market cap. To explain further. Due to the decline in our market cap between the last day of our fiscal Q2 and the last day of our fiscal Q3, together with the rising interest rate environment, particularly in risk-free interest rates, the accounting test for indicators of impairment was triggered...

I'm sure it's a long queue, so I'll just keep it to one. Irwin, on the HEXO deal, I really wanted to focus on why now. You guys have clearly had the strategic relationship in place, shared cost savings already incurred. So I'm really curious, is this more top line motivated or more cost-cutting motivated? Because on the top line, it seems like the market share gap between you and number two HEXO shrunk about over 100 basis points sequentially. So I'm wondering how much of a factor that plays into the timing versus just the cost-cutting and whether it kind of ran its course and consolidation was the next logical step? So if you can comment on the why now? I'd appreciate it. Thank you.

Good afternoon, Vivien. And thank you. I think Vivien, there are multiple reasons here. Number one, I think the Canadian market has to consolidate. You heard me talk about price compression where we have lost $28 million in the first nine months and that comes right off the bottom line, affects our earnings, affects our EBITDA. Secondly is, listen, there is still a big illicit market there. The market out there is fragmented with over 1,000 LPs. The market has multiple retail stores. So with this, this gives us close to a 13% share. And as we spent time with the Redecan team or the HEXO team, Redecan, which we think is a great asset, the Masson facility is a great asset. We think there are lots of opportunities there. Just think about how hard it is for us to achieve earnings in Canada. And with that putting these three companies together Aphria, Tilray, and now HEXO, there will be over $25 million, $30 million of savings over the next couple of years. We think we can really grow the Redecan brand in the flower, the oil business, and their readies. We think there are lots of opportunities. So it made sense and where the stock was it ultimately made sense for Tilray shareholders. Well, I think cost again, as I said before is, consolidation is something that has to happen here. And I think they are moving some of the growth of Masson into our Leamington facilities, utilizing the same infrastructure, the sales organization, the marketing organization, the distribution organization, and the purchasing organization. So listen, Vivien, if we can get $25 million to $30 million of cost savings each year, get an additional $25 million to $30 million in gross margin from this business. And at the end of the day, we think for Tilray shareholders, we paid about $55 million, $56 million for this business, and if you think about it ultimately what Redecan and you think about what other assets have sold for. It's a great deal out there for shareholders and it's a great deal out there for future earnings. Listen, the Canadian market has to change. And I think today with Tilray taking that leading position out there. And the biggest winner in Canada today is the Canadian government, where we pay over $120 million between excise tax and taxes and HEXO pays $35 million. So ultimately, it will also give us some clout to now to go to the Canadian government and say something has to change here in this marketplace. And you know what, Vivien, one day legalization will happen in the U.S. And with the facilities that we have in Leamington, what we now have in Gatineau, what we have in the Redecan facility regarding its slims and its flowers and its craft growing that, we are really set up for U.S. whether we can NAFTA with free trade and ship into U.S. We're really set up for our international business. So it takes Tilray to the next level and we are ready for the cannabis business in a big way whether legalization happens or not in the U.S. or happens in Europe. So I think it's a great deal. And the other thing is, not too many times you get to look at a company and spend the last 9 months to 11 months being their partner here. And we should be able to integrate this pretty easily and get all the synergies and savings. So I'm really excited about this.

I want to expand on Vivien's question regarding the timing for HEXO. In completing this transaction and merging Aphria and Tilray, there may have been a period when new competitors were entering the market swiftly. However, please correct me if I'm mistaken, but it seems that when approaching the provinces, they viewed your company as a single entity rather than a collection of brands and were willing to engage with you to a limited extent. Do you consider this a potential risk, with provinces possibly determining that the merger could be dilutive, suggesting that they perceive it as one entity with a capped demand? Or have the market dynamics evolved?

I think it's an excellent question. And when we looked at it, I think it's very complementary. Redecan has its slims, Redecan has its craft grow flower out there, Redecan has its oils. HEXO has a strong platform in the Quebec market out there. So it's very complementary to us out there. HEXO does not have really an international business. And some of the things I've said the Redecan facility is an incredible facility that's out there. And we can do a lot in the midst of moving some of our edibles there, some of our oil business there, moving some of our drinks into our London facility. So, with that, ultimately, to become that low-cost producer, you got to remember, in Canada, no matter if there's price compression, excise tax remains the same. For us to get the profitability you want, you got to get bigger. And with 1,000 LPs out there, it's harder to get bigger by just stealing share or you wait for a lot and go out of business. But the big thing here is consolidation is key. And I think this really sets us up. It sets us up to talk to the Canadian government regarding excise tax. It comes back and sort of with certain provinces. And like I said before to Vivien, we had the ability to be 49% owner of HEXO. And I think it's no shock to anybody that this has happened now. And it's nine months, and it's the right thing for both companies.

Just have one question maybe just moving away from the HEXO deal. Just on the international side, we've seen some news out of Germany recently that could mean a delay in terms of full scale legalization in that country. I am just curious to know what sort of feedback you believe that that could have in other countries legalizing cannabis in Europe? Will that delay that and how does that impact your view of those markets and your international strategy?

Frederico, good afternoon. I will let Denise address that shortly. I just want to mention that, yes, there is a delay, but there are still many discussions taking place. It's important to note that in the marketplace, even within medical cannabis, a significant portion of consumers are obtaining medical cards or prescriptions for recreational use, and that trend is growing rapidly. Ultimately, I believe something will happen in Germany. We are observing that medical cannabis will eventually be legalized in France, and we see significant growth in countries like Poland. Denise?

So just building on Irwin's answer. So you are right, there seems like there is a little bit of a delay as Germany works with the EU in order to determine a framework that works both for Germany as well as the rest of the European Union. And we've recently heard from Health Minister Lauterbach, that they're working on a legislative scheme that would provide legalization as broadly as possible, but really trying to not run afoul of the EU rules. So we're waiting to hear what that framework looks like. They were supposed to release something last week. That got a little bit delayed. We're hoping to see something soon. But as Irwin mentioned, we're not waiting for adult-use legalization in order to continue to grow and look to expand our business. Yes, we are very well positioned for adult use, depending upon when it happens. And I would say when it will happen at some point, because we do have our two EU GMP facilities. One in Germany, one in Portugal, we have our distribution network. And we also have the expertise that we leverage from our Canadian colleagues who have been living in an adult use Federal legalization market for several years now. And if the scheme says that only in-country cultivation is allowed in Germany, we are only one of three companies that actually have a facility in Germany today. So we're set up depending upon several different ways the regulations could shake out. But as Irwin mentioned, even if we never have adult use, we are very well set up for medical. We have a brand that is considered to be highly reputable based on the feedback we receive from healthcare professionals, from government regulators, from patients, we are synonymous with very high quality, sustainable, consistent medical cannabis. We will continue to grow that business and look to see how do we continue to succeed without the legalization of adult use.

I think the big thing is today, we have facilities both in Portugal and Germany, to go and really build out facilities and have that catalyst there would take anybody else a long, long time. So we have infrastructure, we have distribution with CC Pharma. We have as Denise said, the brands in place, we have the know-how. We have relationships with the government. So it's just a matter of time. But in the meantime, the growth today is coming from the medical business, quasi-legal recreational business. And that's ultimately what's happening in that marketplace.

I'll stick to one also, since we're past an hour, and it's back to the HEXO deal. I think most of us or maybe all of us are of the view, there needs to be more consolidation in the sector. But at the same time, acquisitions in Canadian cannabis, historically haven't really lived up to expectations. Typically, that seems to be because sales fall at acquired brands post-acquisition. And I think about the Aphria-Tilray merger, even with the $100 million plus with cost synergies, EBITDA is similar to where it was before that merger and the Tilray legacy brands retail sales have declined meaningfully. So I wonder why you expect this deal to be different and specifically, what can you share that you've learned from the Aphria-Tilray merger that you think can help avoid HEXO's revenues from falling off and help you make the HEXO deal more successful?

So every time we do a deal we learned from John and I think that's important. I think going back and looking at the Tilray-Aphria deal at the time. Number one, there was a lot less LPs out there. Secondly, it was during COVID it happened. And purposely we eliminated a lot of strains, we eliminated a lot of SKUs out there to go ahead with it. And I think, the big thing on Tilray was ultimately its medical business, its European business. Its canning business, there were just other attributes that complemented the businesses. Now with that, we had price compression this year of close to $30 million price compression last year and you didn't have 1,000 LPs. So, I think it's just different times. Ultimately, you come back and look at value. I mean, again, Tilray shareholders are getting great value here. If you compare it to what ultimately Redecan can sold for HEXO at one time, and you come back and look at multiples that have been paid for other deals out there, and what we're paying, Tilray shareholders are getting the incredible value here. Listen, we have to execute. We have to make sure we get beyond 13%, 14% share. We have to get the synergies and savings. But ultimately, it's there for us to go get and do. And I have said in previous calls, I wanted a 15% to 20% share. You're not getting a 15% to 20% share without buying someone with so many LPs. I was talking through it with Carl today how hard it used to be to get a license. It's much easier to get a license today in the Canadian market to produce cannabis. So I think that's going to change. And I think ultimately, it's going to deter a lot of the smaller growers out there when you see someone today with the size of Tilray out there, that's well capitalized on the balance sheet, got the brands that it does, got the growth facilities and processing facilities to be out there. Listen, there's always opportunities out there for craft growers. There are always opportunities out there for small growers and small companies. But again, we got to make it happen. It's just not going to be handed to us on a silver platter either. And as we go into the different provinces, we got to make sure we got our strategies and story right. And we got to make sure consumers want our brands. And I got to tell you, the Redecan brand, great brand, a lot of the HEXO brands are great brands. So I think the three of us coming together as one is a big thing for the Canadian market.

Thank you. Good evening. I wanted to revisit guidance to ensure clarity. It appears that achieving a significant increase in margins in the fourth quarter would be necessary. While there is some momentum, it would exceed anything you've accomplished recently. Can you provide reassurance that this is attainable?

Thank you, Michael. That's a great question. Firstly, it's important to note that the fourth quarter is typically the largest for the beverage alcohol category, particularly within the beer division, rather than just Breckenridge. This period also sets the stage for summer pipeline fills. We've seen this pattern reflected in Montauk's revenue, and it's been consistent since acquiring SweetWater. Therefore, we anticipate a significant improvement in EBITDA for the beverage alcohol division in Q4. Regarding the cannabis division, several factors are coming into play this quarter. Firstly, as we've been reducing costs, many of these savings have just started to materialize in Q3, and their impact will be felt even more in Q4. Secondly, Q4 is our peak quarter for cultivation, which annually leads to better gross margins. Additionally, there are developments involving HEXO mentioned in today's press release that will also unfold in the fourth quarter. When we merge all these factors— the distribution business performance we've seen improve significantly in recent quarters, driven by restructuring and product line adjustments— we are confident in our revised guidance.

And I think some of the biggest thing Carl said, as we started the cost savings, we are starting to see those cost savings come into effect. The second thing is price compression. The big price compression basically was $24 million during the first two months. Now those prices are in place, but you are seeing a lot less price compression that's out there today. And price compression comes right off EBITDA and comes right off the bottom line. So with that, we don't expect to see price compression out there. Listen, we are looking at is there an opportunity for price increases out there where we could get it if it made sense? So there is a lot in the fourth quarter. A lot of great things happening at SweetWater we get to a full quarter of Montauk and growing the distribution there. We just rolled out our Breckenridge distillery products through RNDC and getting a full benefit of that. So there's a lot of things in place, as I talked about. Europe, we had some bumps in Europe. Europe is really hitting on all cylinders today. I think there's some great things happening at our CC Pharma business. You heard me talking about Poland, you heard just talked about some of the other growth that's happening there. Denise and team have done a great job of taking costs out of Europe. We're looking for $8 million of costs. We got $3 million to $4 million of it already. So we'll see the benefits of that. So there's a lot of moving pieces. And there's a lot yes happening in our fourth quarter.

And our first question is from Vivien Azer with TD Cowen.

Thank you, operator. And the first question from the Say Technologies platform is what are you doing to improve shareholder value?

So number one, I am not happy at all about our stock price. And I don't think it truly reflects what the value is that we're building for our shareholders today. And you think about Tilray, Aphria, now HEXO, ultimately, we've been around four years. And you think about the assets that we own, the countries that we're in from a global and what we're building out in brands. And I think we're doing everything we can. I have an incredible team that I work with. We have some great brands. We have a really good strategy in place. Not everything has worked out on time in regards to legalization, SAFE Bank Act, and these are things that sometimes are out of our control. But with that we are trying to build out with those shareholder value. And as I've said before, we have the number one share in Canada. We're the #1 cannabis company in Europe. We have some of the top beers in craft beer in the Southeast, and Georgia, and #10 in the country. We got some great growth going on with Montauk, and to be named the world's best whiskey out there is a major, major accomplishment. And then we have a great wellness brand, that when we acquired it was losing money. And now the team has turned that around. So I think there's a lot in place we're doing to really improve our shareholder value. And I will tell you, this team is working hard for our shareholders.

Thank you. And the second and last question is, Mr. Irwin, the CEO holds around 108,000 shares of Tilray and others on the Board only hold around 10,000 shares? Why does the CEO and Board have such a lack of holding in their own company?

I think somebody's got the wrong numbers there. First of all, it's Mr. Simon, not Mr. Irwin. And right now, between vested and unvested shares, I think I hold about 3.6 million shares in stock options. I've never sold a share, not my intention to sell shares. One of the big things to compensate our employees is part of owning stock and being part of a stock ownership plan. So that is very much what our plan is. I know, there's a lot of why aren't we buying back stock, but I think right now as a growth company, investing our money back into acquisitions, back into the business to get the growth to return to our shareholders. Thank you all for joining us today. There has been a lot of news coming out of this meeting. As always, I want to highlight the positive developments. We acknowledge the challenges in today's environment. I can tell you from my experience that the cannabis industry is tough, but all industries have their difficulties. However, considering where Aphria was in 2019 and how it has evolved into Aphria-Tilray and now HEXO is a significant achievement for us. We are that low-cost producer with established brands and the necessary infrastructure to operate in the market and grow. The industry is changing dramatically, and looking at Tilray today, we are focused on diversification. We knew we couldn't enter the U.S. market and touch a plant, but we have built a successful consumer packaged goods business with our beer, bourbon, and wellness food lines. Our business in Europe through CC Pharma, which initially raised questions, has proven itself by selling into 13,000 drugstores and being EBITDA positive. Europe is undergoing significant changes, and our team has worked hard to cut costs and expand into new markets like Poland and the Czech Republic. Eventually, more countries in Europe will legalize cannabis, allowing for a shift into the recreational market. I'm excited about the opportunities before us and our diversified businesses. We have a strong balance sheet with over $400 million in cash, and as Carl mentioned, we anticipate becoming free cash flow positive this year. We are committed to cost containment and have avoided announcing layoffs or cutbacks as we focus on efficient operations. We truly value our shareholders and appreciate their support. We want to reward you, and although the stock price fluctuations can be challenging, we are dedicated to providing value. To our consumers, we commit to maintaining high quality across all our products, whether beer, bourbon, food, or cannabis. Quality is our top priority. We have accomplished a lot in our four years, building a well-known brand with more to come. I'm particularly excited about the opportunities with HEXO, and I've had the chance to work closely with their team over the past nine months. I welcome all HEXO employees to Tilray when the deal closes. The integration of HEXO, Tilray, and Aphria will be exciting, and I want to recognize the tireless efforts of all Tilray employees who ensured this deal was done right, including the Board of Directors and the HEXO Board, who worked diligently for their shareholders. Thank you, Mark Attanasio, and Charlie Bowman, along with the many HEXO employees who contributed to this success. I hope by the next time I speak with you, the HEXO deal will be finalized, and I look forward to our continued discussions. Have a wonderful evening, enjoy the Easter holiday, and thank you for your support. Good night.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.