Thank you for joining today's conference call to discuss Tilray Brands' Financial Results for the Second Quarter of Fiscal Year 2024 ended November 30, 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. I will now turn the call over to Ms. Berrin Noorata, Tilray Brands' Chief Corporate Affairs and Communications Officer. Thank you. You may now begin.

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 SEDAR. 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 a reconciliation of these non-GAAP financial measures 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, who will provide opening remarks and commentary; followed by Carl Merton, Chief Financial Officer, who will review our quarterly financial results for Q2 fiscal year 2024. Also joining us for the question-and-answer segment are Denise Faltischek, Chief Strategy Officer and Head of International; Blair MacNeil, President of 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.

Thank you, Berrin, and good morning, everyone, and Happy New Year. We thank you for your continued support of Tilray Brands and for joining our call today. Over the last several quarters, we have been articulating what truly sets Tilray Brands apart, our diversified business model of cannabis CPG lifestyle brands all operating under our strategy innovation, which we believe will drive our continued growth and future success, as we demonstrated by our record revenue in Q2. With the dedication and efforts of our more than 2,300 employees worldwide, we have created a global portfolio of beloved brands and innovative high-quality products backed by best-in-class operations, facilities and robust distribution that supports our goal to become a multi-billion dollar company. Our four distinct and complementary business segments consist of: cannabis consisting of adult-use and medical cannabis across a broad portfolio of product formats, including whole flower, pre-rolls, vapes, concentrates, oils, edibles, topicals and THC-infused drinks; beverages, including craft beer, spirits, ready-to-drink flavored malt beverages, ciders and energy drinks and non-alcohol beverages; wellness, which consists of our Manitoba Harvest hemp-based food products, ingredients and snacks, as well as our hemp-based CBD infused beverages; and of course, our European medical distribution business, which distributes pharmaceuticals including medical cannabis. In Q2, we continued to focus on organic growth as well as strategic transactions. In Canada, we maintained our number one market share position with our recent HEXO and Truss acquisitions, which drove considerable cost savings and operational efficiencies. We continue to strengthen our market positions, operations, distribution network and innovation across both medical and adult-use markets. Internationally, we continue to grow our existing medical markets and strengthen our medical distribution and medical cannabis operations through a relentless focus on cost and efficiencies. And finally, we expanded our beverage alcohol business with our recent acquisition of eight iconic brands from Anheuser-Busch, which tripled our beer business from 4 million cases a year to 12 million cases on an annualized basis. We remain committed to our vision of changing people's lives for the better, one person at a time. Guided by this purpose, we are inspiring and empowering the worldwide community to live their very best life, enhanced by moments of connections and well-being. At the same time, we've earned the trust of our stakeholders, patients, consumers, communities and partners across the spectrum of our wellness and lifestyle products. In doing so, we're delivering on our mission to be the most responsible, trusted and market-leading cannabis and consumer products company across the globe. In fact, through our strategic execution and achievements, our businesses are comprised of a leading global cannabis business operating best-in-class portfolio of brands with high-quality products that pass the most rigorous quality control regulations in the world with the number one market share in Canada and leading market share in Europe; the fifth largest craft brewer in the U.S. with highly sought-after brands dominating key regions across Northeast, Pacific Northwest and Southeast; and one of the most awarded bourbon brands with Breckenridge Distillery with recent awards, including Best American Blended Whiskey, Best Whiskey Under $50 and 2003 World's Best Blended Whiskey at the World Whiskey Awards. And we are also a leader in hemp foods and snacks with our Manitoba Harvest brand. Diversifying our business beyond cannabis has put us in a very strong position today and has positioned us well for future growth opportunities. Today, we do not engage in any cannabis operations in the U.S., due to it being federally illegal. If and when rescheduling of cannabis were to happen in the U.S., for Tilray Brands, we expect this would open the opportunity for certain institutional investors to invest in Tilray, who were not previously able to invest in the cannabis industry, and potentially provide a path for Tilray to sell pharmaceutical-grade medical cannabis in the U.S., subject to doctor prescriptions. As you know, Tilray is a leading medical cannabis provider in the world. With our knowledge and expertise in medical cannabis and the regulatory compliance that applies, we're well positioned to participate in a federally legalized medical market in the U.S. Our underlying goal for Tilray Brands is to continue to deliver industry-leading profitable growth and sustainable long-term shareholder value through our focus on three fundamentals: number one, maximizing profitable revenue growth through organic growth and expansion initiatives as well as key strategic acquisitions with strong synergy opportunities; realizing the benefits of optimized asset utilization and cost management to ensure a lean, efficient cost structure across all our business segments; and continuing to strengthen our industry-leading balance sheet and our cash position. During Q2, we generated record net revenue for Tilray Brands of $194 million, which marked a 34% growth from the prior-year period, and generated gross profit of $47 million and adjusted gross profit of $52 million. We also significantly reduced our convertible debt by $127 million in the quarter, an additional $18 million after the quarter, and plan to further reduce our indebtedness, optimizing our capital structure and enhancing our financial flexibility. Now moving to our businesses. We grew our Canadian net revenue by 31% in the quarter compared to the previous year, driven by innovation across all product categories. This was achieved both organically and due to recent acquisitions despite price compression of approximately $3.6 million from the prior-year quarter, which also negatively impacts offline revenue and profitability. Tilray continues to maintain the number one market share position in Canada, the largest federally legal cannabis market in the world, with approximately 12.5% market share in adult-use cannabis. This is 570 basis points ahead of the next LP. Tilray leads Canadian adult-use cannabis sales and is number one in Ontario, Quebec and British Columbia, which represents approximately 60% of the Canadian population on a combined basis. We're also number one in cannabis flower, oils, concentrates and THC beverages, and number two in pre-rolls, number four in vape, and the top 10 in all other categories, all while operating under rigorous high-quality control standards. In Q2, Tilray sold approximately 17 million grams of cannabis flower, 19 million pre-rolls and over 1.5 million units of cannabis beverages, almost 500,000 vapes, and over 400,000 units of edibles in Canada. And we expect to sell 85 million pre-rolls by the end of fiscal 2024. Our August purchase of the remaining 57.5% equity ownership of Truss Beverage Company from Molson's Canada elevated our market share in THC beverages to approximately 40% and positions us at the forefront of the adult-use beverage sector, where we are trusted by patients, healthcare professionals, and government officials in over 20 countries and achieved early-mover advantage in new countries as medical cannabis legalization advances. During Q2, we grew our international cannabis net revenue by 55%, and we are the market leader in medical cannabis across Europe, with leading shares in Germany and Poland and other countries in which we participate. Similar to the U.S., the growth of our international cannabis business is not dependent on adult-use legalization. We continue to take an active government relations role internationally. And just recently, we met with various members of the German parliament to discuss the proposed regulation and advancing adult-use medical cannabis initiatives, which we believe will increase the accessibility of medical cannabis to patients in Germany and further work to reduce any stigma of medical cannabis as a therapeutic option. We're also optimistic about the potential abolishment of the tender procedure for in-country cultivation in favor of permit procedures, providing Tilray with the flexibility to meet the needs of patients. It is expected that these regulations will be passed in the first quarter of calendar 2024. We remain committed to advancing medical cannabis as evidenced by our investments made in Europe behind our high-quality medical cannabis products and best-in-class facilities in Portugal and Germany, where we're currently one of the only three companies in Germany that can cultivate in country as well as our medical distribution network, led by our integrated medical distribution company with access to approximately 13,000 pharmacies. We also remain committed to medical cannabis education and research. In October, we announced our support of an independent clinical trial to research the efficacy of medical cannabis as a treatment for glioblastoma. Tilray Pharma, also known as CC Pharma, is an established medical distribution platform for traditional, branded and generic pharmaceuticals, as well as medical cannabis across 13,000 pharmacies, as well as wholesalers and distributors. From a revenue perspective, it is currently equal in size to our cannabis segment, comprising of 35% of total sales. In Q2, it grew 12% from the prior-year period, driven by improved procurement of pharmaceutical products and increased demand. From a bottom-line perspective, we are laser-focused on optimizing our medical distribution platform. In the quarter, we expect the cost optimization plan to reduce costs within the medical distribution segment by $1.5 million annually. The actions to achieve these savings were already executed in the quarter, and we continue to evaluate for further cost optimization and production efficiencies. Now turning to our beverage alcohol business. Beverage alcohol revenue in Q2 was $46.5 million, representing a 117% growth year-over-year, and we're only getting started in ramping up this segment. The craft beer industry today is still a large category in beverage alcohol, with approximately $21 billion at retail in 2022. With our recent acquisition of eight iconic craft beer and beverage brands, we have anchored Tilray's leadership position as the fifth largest craft brewer in the U.S. by sales volume. Working with the Boston Consulting Group, we have developed a beverage strategy, identifying new opportunities for pockets of growth across craft beverages, focusing on brand newness, being more connected to drinkers, and by playing the leading role in driving excitement around craft beer to a broader consumer audience through product innovation, marketing sponsorships and events that connect with consumers across demographics. Tilray Brands is now uniquely positioned to become a Top 12 beer and alcohol beverage company by leveraging our portfolio to win more occasions through core products such as craft beer and beyond through innovation into categories like flavored malt beverages, ready-to-drink cocktails and spirits. This will be accomplished through a three-pronged approach. We will deploy a regional approach to scale our brands in key markets across the U.S. and maximize the potential of the portfolio to gain share from competitors. We will execute a very focused national brand strategy, revitalizing Shock Top to win as national craft brands by targeting share and connection occasions to reach mainstream male and female beer drinkers. Through one national brand and many regional brands, we will provide robust coverage across the U.S. and other countries. We will expand our innovation strategy to increase brand appeal to new consumers and occasions beyond craft beer in secondary targets. We can also leverage our regional footholds to further grow our brands in new markets by using test and learn tactics, which may include multi-brand best-of-variety packs or installing multi-brand taps and taprooms before entering the market with full distribution. We can similarly capture new consumers and increase off-premise consumption through breakneck innovations. We will build on our demonstrated success growing brands such as SweetWater and Montauk to grow our newly acquired consumer-loved brands, including Shock Top, Blue Point, Breckenridge Brewery, 10 Barrel, Redhook Brewery, Widmer Brothers, Square Mile Cider and HiBall Energy. Our strategic playbook is already in play to expand our beverage alcohol business across the U.S. and Canada, and getting our cost structure right, transforming the productivity and profitability of the breweries we acquire, we expect our beer gross margins to increase once we fully realize the cost savings achieved in connection with our fully integrated beverage alcohol platform. We are aggressively working to launch new innovation across our beer and non-alcoholic craft brands and expect to roll out new products in Q3. Retailer and distribution enthusiasm has already provided confidence in our ability to execute on our growth strategy and to achieve our ambitions to grow our beverage segment into a Top 12 business. Finally, our wellness segment is an important element of our U.S. strategy, due to strong consumer interest in better-for-you snacks and end products. Since the Tilray and Aphria business combination, we turned around the Manitoba Harvest business onto a path of growth and greater potential. Again, product innovation is a core focus, meeting the needs of Gen Z and millennial consumers through new hemp forward snack foods and supplement offerings in CBD beverages that fuel your day. While Q2 revenue was consistent and stood at $12.9 million, Manitoba Harvest branded hemp business continues to expand its U.S. and Canadian leading market share with consumption up in both natural and conventional channels with the brand's top five customers all seeing growth. To conclude, we've set the stage for continued growth in the near and long term, and consider opportunities across our diversified business both numerous and exciting, as we continue to disrupt the global CPG industry with products that fuel consumers' needs and change people's lives for the better, one person at a time. In everything that we do, we intentionally maximize profitability, sustainable revenue and ensure optimal efficiencies, all while maintaining our balance sheet strength as we invest in our industry-leading brands. With that, I will now turn the call over to Carl to discuss our financials in greater detail. Carl?

Thank you, Irwin. As a reminder, our financial results are presented in accordance with U.S. GAAP and in U.S. dollars. We are also referencing both GAAP and non-GAAP adjusted results throughout our discussion today, and our earnings press release contains a reconciliation of our reported results under GAAP to the non-GAAP measures identified during our remarks. Let's now review our quarterly performance for the three months ended November 30, 2023. Q2 total revenue rose to a record $194 million compared to the prior-year quarter at $144 million, representing 34% growth. And our legacy businesses grew 10% organically when excluding acquisitions and the HEXO advisory fee. By segment, cannabis net revenue rose 35% in total, with international cannabis up 55% and Canadian cannabis up 31%, despite $3.6 million of price compression in Canada. Price compression not only negatively impacts top-line revenue, but also profitability, as it would have dropped to the bottom line. Cannabis excise taxes, which are a reduction to revenue, totaled $27.4 million compared to $16.8 million last year. This reflected a sharp increase in cannabis revenue generated in Canada versus the year-ago period, due in part to the HEXO and Truss acquisitions and a change in our revenue mix to higher excise tax products. Note that excise tax is predominantly computed as a fixed price on grams sold rather than as a percentage of the selling price, and therefore continues to become a larger component of net revenue, particularly as current growth categories like infused pre-rolls and concentrates become the biggest part of our sales mix. While an excise tax force has been established to present these challenges to the Minister of Finance in Canada, we do not believe some level of reform is likely in the near term. Still, about two-thirds of LPs have excise taxes owed, and this could lead to additional insolvencies and even more industry consolidation, which is needed to stabilize the industry. Distribution revenue from our Tilray Pharma, also known as CC Pharma, European medical distribution business rose 12%, net beverage alcohol revenue rose 117%, and wellness revenue rose 2%. The inherent benefits of our diversified business model are reflected in this segment contributions to our overall revenue mix. We are not overly dependent on any business line from a top-line or gross profit standpoint and believe each segment, including cannabis, wellness, distribution, and beverage alcohol, are on a trajectory for sustainable growth. In Q2, our cannabis segment represented about 35% of our total revenue mix comparable to last year; distribution segment represented 35%, down from 42% last year; beverage alcohol represented 24%, up from 15% last year; and wellness represented about 7%, down from 9% last year, respectively. These percentage changes from Q2 last year are due primarily to contributions from HEXO, Truss and the new craft beverage brands acquired in early October. Next quarter, we believe the mix will balance to approximately 30% cannabis, 30% distribution, 30% beverage alcohol, and 10% wellness. Diversification is also reflected in our geographic footprint, with about 60% of our net revenue from North America and slightly less than 40% from EMEA, with the remainder from other parts of the world. Turning to profitability. Gross profit increased 11% to $47.4 million compared to $42.9 million in the prior-year quarter, while gross margin decreased to 24% from 30% in the prior-year quarter. While gross margin for U.S. GAAP purposes declined from the prior year, adjusted gross margin, exclusive of the impacts of the HEXO advisory fee which ceased after we purchased HEXO, rose to 27% compared to 26%. I will discuss adjusted gross margin by individual segment in a moment. Net loss improved to $46.2 million compared to net loss of $61.6 million in the prior-year quarter. On a per-share basis, this amounted to net loss of $0.07 versus $0.11 in the prior-year quarter. During Q2, we renegotiated a supply agreement between Aphria Inc., a wholly-owned subsidiary, and Aphria Diamond, a non-wholly-owned subsidiary, that is expected to result in $33 million annually in additional income being allocated to Tilray shareholders as opposed to the non-controlling interests. Further, as part of this renegotiation, we believe we will save more than $22 million annually in cash income taxes. The renegotiated supply agreement was effective September 1, 2023. If this amended agreement had been implemented at the onset of the fiscal year, it would have improved our loss per share attributable to Tilray shareholders by $0.02 for Q1, which would have increased the value attributable to Tilray stockholders by $15 million. Despite all of this, we still expect to pay over $140 million in Canadian excise tax this year. Beginning this quarter, we are introducing two new reporting metrics to our discussions: adjusted net income loss and adjusted earnings per share. The definitions of both are identified in the press release, along with the relevant reconciliations and calculations. For the quarter, we are reporting an adjusted net loss of $2.7 million, which when calculated on a per share basis resulted in EPS of $0 for the quarter. Adjusted EBITDA was $10.1 million, down from $11 million in the prior-year quarter. This was consistent with the termination of the HEXO advisory services contract upon our acquisition of HEXO, which represented $7.8 million of the $11 million in adjusted EBITDA in the prior-year period. During the quarter, we continued to make great progress against the HEXO synergy plan, increasing the amount of the synergy from $27 million to between $30 million and $35 million. As of the end of the quarter, we achieved $22 million in annualized savings on an annualized run rate basis, of which $14 million represented actual cost savings during the period. These synergies are being achieved via consolidating packaging, procurement, freight, and logistics. Operating cash flow was negative $30.4 million compared to positive $29.2 million in the prior-year quarter. The increase in cash used during Q2 this year was primarily related to the settlement of pre-acquisition liabilities assumed in connection with the HEXO acquisition and an increase in accounts receivable in the current period. Also, the prior period included a working capital reduction and the cash collection of $18.3 million from HTI related to the HEXO convertible note, which did not recur in the current year. Turning now to our business segments. Gross cannabis revenue of $94.6 million was comprised of $72 million in Canadian adult-use revenue, $11.9 million in international cannabis revenue, $6.3 million in Canadian medical revenue, and $4.3 million in wholesale cannabis revenue. Net cannabis revenue was $67.1 million, representing a 35% increase from the year-ago period. The positive variance related to increased organic growth of over 11% and the acquisitions of HEXO and Truss. Offsetting the increase in net cannabis revenue was the elimination of the advisory services revenue from the prior-year quarter due to the HEXO acquisition, which terminated the previous strategic arrangement that was in place. International cannabis grew 55%, largely because of the expansion into emerging international medical markets. Additionally, in the prior period, the company recognized a one-time return adjustment of $3.1 million related to a former customer in Israel. Cannabis gross profit was $20.6 million and cannabis gross margin was 31% compared to $21.3 million and 43% in the prior-year quarter. Excluding the HEXO advisory fee and return adjustment in the prior-year quarter and the wholesale sale in the current quarter, adjusted cannabis gross margin increased to 37% from 33%. As I just referenced, a portion of the decrease in gross profit was a result of the termination of the HEXO services agreement. This agreement contributed no gross profit in the current year compared to $7.8 million in the prior year. Additionally, we made a significant wholesale transaction that resulted in negative gross profit of $0.2 million. We entered into this agreement to optimize our inventory levels and prioritize the generation of positive operating cash flow. European distribution revenue, derived predominantly through CC Pharma, increased 12% to $67.2 million from $60.2 million in the prior-year quarter. The increase was driven by the strengthening of the euro relative to the U.S. dollar, increased capacity through outsourcing the third-party production facilities, as well as leveraging internal production and improved procurement processes. This has allowed Tilray Pharma to improve its product mix. We also continue to be focused on optimizing portfolio and production capacity to prevent constraints on continued revenue growth. Tilray Pharma gross profit decreased to $7.1 million compared to $7.7 million in the prior year. Tilray Pharma gross margin decreased to 11% from 13% in the prior-year quarter, which was due to product mix. Beverage alcohol revenue was $46.5 million, up 117% from $21.4 million in the prior-year quarter. The positive delta was due to contributions from increased organic growth of over 10% and our Montauk Brewery acquisition last November and the newly acquired brands acquired in early October this year. Beverage alcohol gross profit increased to $16 million compared to $10 million, while average beverage alcohol gross margin decreased to 34% from 47% in the prior-year quarter. Adjusted gross margin from beverage alcohol from our legacy business was 54.8%, up from the prior-year quarter of 47%. Adjusted gross margin from our newly acquired craft brands was 21%. Irwin has previously addressed the efforts we are extending to improve the newly acquired craft brands adjusted gross margins to levels consistent with our legacy beer adjusted gross margins. Wellness revenue was relatively consistent at $12.9 million compared to $12.7 million in the prior-year quarter, with the increase being driven by a promotional sale at a large bulk retailer. Wellness gross profit was $3.7 million, down from $3.9 million in the prior-year quarter and gross margin fell to 29% from 31% as we experienced a change in sales mix towards more bulk retail sales, which have a lower margin that is specific for this quarter. Our cash and marketable securities balance as of November 30th was $261.4 million, down from $433.5 million in the year-ago period. The majority of the decrease related to the redemption of the Tilray '23 convertible notes upon maturity in the amount of $107.3 million combined with litigation settlements inherited from acquired businesses and HEXO costs. Having now completed half of our fiscal year, we are reiterating our fiscal '24 guidance of adjusted EBITDA between $68 million and $78 million. Note that when we first issued this guidance, we projected a significant step-up in EBITDA contributions during the second half of the year, most particularly in Q4, which we continue to anticipate. This step-up is a function of our beer business, leading up to the summer, a historically busy season, the new innovation scheduled to be launched as part of the spring reset, certain volume guarantees associated with our spirits business, and our distribution business as pharmacies buy in bulk from customers ahead of them going on vacation. Recall that we also project positive adjusted free cash flow from operations, excluding our integration costs from HEXO, Truss, and the newly acquired brands, and the cash income taxes related to Aphria Diamond. We are also managing CapEx and working to strengthen our industry-leading balance sheet. Let me now conclude our prepared remarks and open the lines for questions from our covering analysts. Operator, what's the first question?

Thank you. Our first question is from the line of Andrew Carter from Stifel. Please proceed with your question, sir.

Hi. Thank you. Good morning. So, looking at back half guidance, I appreciate kind of what you just said. But if I've got my math right, then you need $16 million to $40 million of incremental EBITDA in the second half of the year. And then you've got $25 million second half last year from HEXO fees. So, $35 million to $45 million of incremental EBITDA to meet the guidance in the second half. Could you talk about kind of stepped up seasonality, how much that's going to contribute, incremental synergy capture year-over-year or making progress on kind of the ABI craft brands gross margin, how much would be in the second half? And then kind of one more within this quarter, how much was kind of one-time costs associated with the ABI, obviously not things you excluded, that could swing to profit second half and help that number? Thank you.

Thanks, Andrew. Regarding the HEXO and Truss acquisitions, we have raised our synergy target to between $30 million and $35 million. Currently, we have achieved $22 million of that, with $14 million coming from the most recent quarter. You will see this reflected in the historical HEXO figures through the end of the year. There is an increase in seasonality in the Canadian cannabis sector in Q4, which is typical except for the two COVID years. This increase is primarily due to pharmacies stocking up on medications before the summer months when many Germans go on holiday. When examining the newly acquired brands, we are observing even greater seasonality than with SweetWater, especially considering last year's performance with SweetWater and Montauk in the fourth quarter. We anticipate profitability improvements in those areas as well. Additionally, we have implemented some internal cost-saving measures that should yield about $5 million in savings during the latter half of the year. We have also made significant investments in new innovations for both ABI and SweetWater to support the spring reset in the second half of the year.

And Andrew, I think the big thing is this here, you got to remember, we closed on the ABI deal only two months ago. So, we really didn't get any benefits from it. But you got to step back. Our beer business was up 10% in this quarter, where traditional beer businesses have been down or flat. So, we're seeing some good organic growth from our beer business. We're seeing good organic growth from our cannabis business. You saw what happened in Europe. You saw what happened in our Canadian market, and that's even with price compression. So, let's step back, you heard what we said. We increased our synergies that we're going to get now from the HEXO deal, $30 million to $35 million. We are only operating that for about three months. We closed on Truss. We're consolidating that business into our London facility. And we have a major market share on that. So, we're well positioned. I think the big thing is how do we take and get organic growth is key, number one. Number two is cost savings. And we put in place very early on or just at a corporate tier, we've taken about $5 million, $6 million and then focusing on the integration of the HEXO business, the Truss business, and the ABI deal. And then last but not least, we got a lot of innovation coming out in our product line, both in beer and cannabis. So, we feel there's a good path to achieve the back half.

Regarding Canada, you've noted that price compression is ongoing, albeit at a lower rate, which continues to be a challenge for profit. You also mentioned a shift in consumer preferences that could indicate a decline in quality. Given this context, do you foresee an increase in the overall profit pool in Canada? Additionally, you highlighted that a significant portion of licensed producers are not fulfilling tax obligations. Do you anticipate any risks associated with this, such as the lack of enforcement or potential settlements that could complicate the overall value proposition of the adult-use market, prompting you to rethink your investment strategy there? Thank you.

Let's take a moment to reflect on Canada. It is currently the only country where recreational cannabis is legal, and we hold a significant market share. We are leading in Ontario, Quebec, and British Columbia, which together account for over 60% of the population. While we face challenges such as price compression and hold a 12.5% to 13% market share compared to our closest competitor at about 4.5% less, our focus should be on increasing sales and reducing costs. Recently, we have taken steps to lower expenses through renegotiating agreements with our grower, aiming to cut $35 million in total costs with the integration of HEXO. As we expand our sales, we anticipate selling 18 to 19 million pre-rolls annually, along with increased flower sales. The key will be both organic growth and continued cost reduction. The industry is relatively young at five years old, and I believe we will see more licensed producers exit the market while consumers become better informed about cannabis, leading to market expansion. I also see significant potential in the beverage and edibles sectors in Canada. With our established infrastructure, including facilities in Belleville and London, we are well-positioned to explore the beverage and craft beer markets, which will help us manage our infrastructure costs and diversify, similar to what we've accomplished in the U.S. We remain dedicated to the Canadian market and see numerous opportunities ahead.

Thanks. I'll pass it on.

Thank you.

Thank you. Our next question comes from Aaron Grey with Alliance Global Partners. Please go ahead with your question.

Hi. Good morning, and thank you for the question. So, for me, I just want to touch on some of the comments you made in terms of potential rescheduling in the U.S. and opportunities on the medical side. So, assuming if it might be Schedule III, as many people predict it might be, can you speak to how you think you'd be able to leverage your Canadian and European expertise? You spoke to prescriptions. Do you think there need to be additional steps in terms of the current existing framework of the U.S. to participate in terms of selling into pharmacies, or do you think you'd be able to utilize that in terms of the existing dispensaries where most cannabis medical sales are being done? Just if you could expand upon how you might be able to participate in the U.S. in the event of rescheduling on the medical side? Thank you.

Listen, I think as I've said, and I said in my comments, what rescheduling does and medical cannabis legalized, a couple of things. I think it brings in some additional shareholders in regards to institutional shareholders. It changes the way in regards to some of the banking reform, I think, possibly. But more important, medical cannabis now, which is legal in about 10 states, medical cannabis is, I think the opportunity to sell medical cannabis in the U.S. nationally, where today, we are the largest in Europe and we have a big business in Canada. So, taking our infrastructure and hopefully we could import products from the Canadian market or ultimately would we buy something in the U.S. that would allow us to get into the medical business. But again, we have the expertise, we have the research, we work with the doctors, we work with the doctors on writing prescriptions today, we work with multiple hospitals, as you heard us talk about doing research on brain cancers and some other sleep apnea and some other diseases out there, anxiety. I mean, we've been doing this now for the last five, six years. So, taking that knowledge, taking that research and taking the expertise and we may have to move some of our people here and set up the infrastructure to do it, but it would not be a big issue for us to do it to get into the medical business in a big way in the U.S.

Okay, great. Thanks so much for the color. I'll jump back in the queue.

Thank you.

Thank you. The next question will be from Tamy Chen with BMO Capital Markets. Please go ahead with your question.

Hi. Good morning. Thanks for the question. I just wanted to ask if you can talk a bit about how you view your current liquidity position. I think you're targeting for this fiscal year to be positive adjusted free cash flow. But that would suggest there's still be other cash outlays that you exclude from this, but it would be a burden on your cash balance. And you've highlighted a number of various innovation investments in, for example, your beverage alcohol segments. So, I'm just wondering how, at this point, you view your liquidity position. Thanks.

I view we're in a pretty good shape. At the end of the quarter, we had close to $260 million of cash. Our debt, bank debt and our subordinate debt is basically little less than $500 million and we're working off the '24. So, I view us as generating cash, investing back in our businesses. And you got to remember this here, Tamy, as we go into the back half and get more and more cost savings out of this business and generating more and more cash in our alcohol spirits business, our international business, it helps us to reinvest back in our business. So, I come back and see us being in a pretty good place.

Okay. Thank you.

Thank you.

The next question is from the line of Owen Bennett with Jefferies. Please proceed with your question.

Good morning, gents. Hope all well. Just a quick one on the international business. So, you mentioned or spoke about certain drivers into the back half, and you didn't really talk about the international business. So, I was hoping you could just touch a bit more on the expansion into new international markets you call out in the quarter. And then, assuming the new legislation gets passed in Germany, when can we expect to see a meaningful pickup in terms of number of patients in that market and can we assume that will also support in the back half of the year? Thank you.

Owen, thank you for that. I think it's important as we've talked about rescheduling in the U.S. and what our international business has done because it's all medical cannabis and our growth cannabis was over 50% internationally without, of course, any acquisitions. And the team has done a great job. I'm going to let Denise talk about that in one second. But we have spent some time in Germany meeting with the German government, and we expect some things from that. So, Denise?

Thanks, Irwin, and hi, Owen. To respond to your first question about the second half of the year, we have a strategy focused on expanding our current markets, particularly in Germany, Poland, and Luxembourg. We're also looking to grow in emerging markets like the UK, Portugal, Italy, and the Czech Republic. We're keeping a close eye on new regulations, such as the potential legalization in Ukraine and developments in the medical market in Switzerland. Our approach involves implementing our go-to-market strategy, aiming to be a first mover and gain an early advantage. We have found that doctors rely on our extensive knowledge in medical cannabis. As we enter new countries, our established reputation as experts in medical cannabis helps us engage with both medical and government professionals. We conduct educational symposiums to share our expertise and enhance Tilray's standing in these markets. Regarding your second question about upcoming legislation, we anticipate that in January, it will be presented to the German parliament again, followed by a review by the state parliamentary system in early February. We hope to see it passed in the first quarter of 2024. Subsequently, we expect the rollout of decriminalization and social clubs, along with the scheduling of medical cannabis as a narcotic. We anticipate that more doctors will become involved, and we are actively increasing our educational efforts to encourage healthcare professionals to consider medical cannabis as a therapeutic option. We're very optimistic about the future in Germany.

Great. Thanks, guys. Really helpful. Appreciate it.

Thank you.

Our next question is from the line of John Zamparo with CIBC. Please proceed with your question.

Thank you. Good morning. I wanted to get to the change in the agreement with Aphria Diamond. This sounds like a material win. So, just confirming the amounts, you now expect to save $30 million to $35 million typically paid to your JV partner and also $20-plus-million in cash taxes a year. So, $55 million a year annually, the increased value to Tilray. Just confirming that that's the change. And then, the question is how did this come about? And why did the JV partner agree to it? Did Tilray have to give up something to receive such a benefit? Thank you.

Thank you, John, for your question. I want to clarify that the accounting treatment for Aphria Diamond means that the $33 million to $35 million figure you mentioned will affect how net income or losses are allocated in a given quarter. However, this will not increase the overall net income for the consolidated entity; it simply redistributes the income between our joint venture partner and us. Regarding cash taxes, these will obviously influence our cash balance and will be reflected in our income statement. During our negotiations, both we and our partner recognized changes in the Canadian market, which necessitated modifications to the agreement. There were compromises involved, but ultimately, we've managed to revise the agreement in a way that adds value for our shareholders.

I think the most important thing is, we have a good partner that has worked with us. I think as we look at the long term of the industry. But the most important thing is when we went in there, price compression has hit this company close to $200 million over the last couple of years, and they were not sharing within the price compression. I think there is some important here that there was even though there was a time limit on this here but walking in there win-win for both and hopefully we can sell more cannabis. We've consolidated some additional cannabis into their facilities with the Tilray and some of the HEXO acquisitions and some of the other stuff we're doing. So, there were multiple parts of it that made sense. And I think part of that too was in doing that was the benefit of some tax opportunities for us that was very, very helpful. So, it was a win-win situation.

Got it. That's helpful. Thank you.

Thank you.

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

Good morning, everyone. I just wanted to follow up with some of Irwin's comments with respect to when you're asked about further value proposition out of Canada, and specifically with respect to ultimate market share, at least in the medium term. I know on the back of the sort of Tilray Aphria combination, there was a hope of maybe getting as high as 30%. So, given the fact that you're 500 basis points ahead in terms of market share, who's number two? How much of sort of increased market share is things that are in your control, whether it's through innovative products versus just continuing to wait for this market shakeout, which seems to be taking longer than everyone had anticipated?

That's a great question. Currently, we hold a 12.5% to 13% market share, with an additional 10% held by others. There are around 800 LPs with smaller shares, making the market quite crowded. We’re observing either consolidation or the decline of many smaller LPs. Initially, I aimed for market shares in the high double digits or even 20% to 25%. We are the top company in Canada, as well as in Ontario, Quebec, and British Columbia, collectively accounting for over 60% of the population. This presents solid growth opportunities for our market share. However, significant prospects also lie in the beverage, edibles, and vaping categories. The consumer market is expanding, but the number of LPs is still excessive, and costs remain high due to excise tax. Focusing on becoming a low-cost producer will be crucial. Additionally, building brands is essential in the Canadian market, but it's challenging given the advertising restrictions imposed by the government. We need to find compliant ways to market our products within Health Canada’s guidelines. Our infrastructure and leadership in Canada are strong, and with the acquisition of the Belleville facility from Molson’s, we can produce a range of non-alcoholic drinks, including energy drinks and flavored water. We are contemplating expansion into adjacent categories related to our cannabis business, with significant growth potential expected from beverages, along with continued opportunities in the vaping and edibles markets in Canada.

Okay. Thanks for that.

Thank you.

Our next question is from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Thank you. Good morning. Just wanted to come back to the beverage alcohol segment and focus on the recently acquired brands. I know you gave some of the gross margin drivers of just how you've got line of sight on improvement there, but it sounds like you're really expecting to turn the top-line around as well. It looks like those are running down close to 10% or so. Can you just get us a little more confident that you've got some plans that can make that happen? And we've seen the U.S. consumer be pretty fickle sometimes in craft beer especially. So, what is it that would excite them and get these brands back to growth?

Good question. Let's take a look at our legacy brands like SweetWater, Montauk, Alpine, Nelson, and Green Flash. As I mentioned, we experienced a 10% growth in our legacy beer businesses last quarter, which is significant. When considering the brands we acquired from ABI, there are some excellent options like Shock Top and Blue Point, as well as Breckenridge Brewery and 10 Barrel. These brands might be regionally focused, but our distributors and retail partners are enthusiastic about them. This positive reception gives me confidence as we engage with our customer base. Additionally, we have a strong pipeline of innovation, as these brands haven't seen much development in recent years. I'm optimistic about the innovation, distribution, and the energy from our distributors. With a dedicated sales and national accounts team, we're putting pressure on our distributors to drive growth. Furthermore, as we integrate these brands into our facilities and identify cost synergies, we aim to restore our margins to traditional levels. While the beer industry has faced growth challenges, I believe there are substantial opportunities in this category. Changes in alcohol preferences, non-alcoholic options, and strategies to engage younger consumers are essential. We plan to expand into waters, energy drinks, and other segments, transitioning from just beer to a broader beverage business. Our manufacturing facilities, distribution network, and sales and marketing infrastructure position us well for this shift. Moreover, we've received interest from numerous sporting venues and universities wanting us to participate in their sponsorships.

Okay. Thanks so much.

Thank you.

The next question is from the line of Frederico Gomes with ATB Capital Markets. Please proceed with your question.

Hi, good morning. My question is you mentioned key strategic acquisitions in your prepared remarks, something you look at. So, can you remind us how you look at acquisitions between your alcohol and your cannabis segments, and also geographically, whether you're focused on Canada, the West, or are you also looking at opportunities elsewhere? Thank you.

I have been reviewing strategic acquisitions as we continue to experience significant growth and have a diverse range of brands across most categories in the Canadian market. If there is a strategic opportunity that can enhance our cost structure and fit within our portfolio, we would certainly consider it. Currently, my focus in Canada is on diversifying into other categories related to the cannabis industry, such as beverage alcohol and drinks. In the U.S. market, we are concentrating on beverage alcohol and examining if there are food businesses related to our Manitoba Harvest that could complement our operations. Internationally, we are interested in expanding our beverage alcohol business and further developing our medical business, looking for potential acquisitions as opportunities arise. All strategic acquisitions need to add value and be accretive, allowing for effective integration into our existing framework. For instance, with the Tilray-Aphria acquisition, we achieved over $100 million in cost savings, and we anticipate around $35 million in savings from the HEXO business. Similarly, we expect to reduce costs in our Truss beverage business and others like ABI, SweetWater, and Montauk. The essential factor is to find businesses that align with our objectives of cost reduction while driving organic growth and optimizing our infrastructure. As a public company operating in the cannabis sector, we face higher insurance costs, making it crucial for us to find ways to offset these expenses through increased sales.

Thank you very much.

Our next question is from the line of Vivien Azer with TD Cowen. Please proceed with your question.

Good morning. This is Robin Holby on for Vivien Azer, and thank you for taking the question. I just wanted to follow-up on the international question, specifically on Australia, where we've been seeing some strong patient growth. Any updates for your plans in that market? And do you see any of these international markets becoming saturated as more competitors achieve the necessary certifications? Thank you.

Yeah. No, thank you for the question. So, in terms of Australia, we see a really great opportunity in Australia. We have more of a leading business there in both Australia and New Zealand, both with our extracts as well as our flower. What we have done is we have expanded our portfolio of flower in order to take advantage of that market, including as of last quarter, we introduced Broken Coast into the market as the market really was looking for more of a proliferation around medical cannabis flower. And we will continue to evaluate that market for new form factors. In terms of your question about competition achieving more certifications, we have been in the market with GMP certification. Our GMP certification is actually above the standards that are required in Australia. And we find that healthcare professionals and government regulators enjoy the fact that we take the higher standard approach, considering that medical cannabis we think is high standards as our key. And we will continue to grow that market and look for opportunities to partner with additional cannabis dispensaries and healthcare clinics, etc.

Got it. Thank you.

Thank you.

Thank you. At this time, we've come to the end of our question-and-answer session. And I'll hand the floor to management for closing remarks.

Thank you very much everybody, and thank you for joining us today. I sit here and am proud of where we are. We are a global company. We are a diversified company. And if you look at public companies out there today, there's very few companies that emulate or resemble what we do in cannabis, alcohol, food and sell on a global basis. We're dealing in categories today that are new to the marketplace in regards to cannabis. We're dealing with categories today where there's a lot of regulatory requirements. And that's something that we do as a company to ensure when we produce cannabis, it goes through strict regulatory and quality control before we put any product out there. And that's the same with every single product. I come back and I remember joining Aphria when we were a $50 million business, today, on the run rate, to close to $1 billion. We had record net revenue of $194 million, and that is after excise tax comes off the top. We're number one in the Canadian market. Like I said before, a tough market with a lot of LPs, still an illicit market there and still a market that's just five years old, where a lot more consumers are being educated and we're trying to build brands out there and not being able to advertise. So with that, we've accomplished a lot and we got a lot more to do. In Europe, again, we're the largest medical cannabis company in Europe with a 55% growth, which we see lots of opportunities in different countries. We see lots of change coming in Germany. And with that spending a lot of time over there and having a grow facility in Portugal and Germany gives us a leg up in a very good way. And I think the important thing is, there's a lot of sharing between the Canadian market medical business and the European market that we're doing that ultimately like I said before, if the scheduling never happened, what we could bring to the U.S. I'm really excited about our beverage alcohol business. Our beer business being the fifth largest cannabis business. I remember when we first bought SweetWater, we were selling about 2 million cases plus beer a year. Now, we'll sell close to 12 million cases, have over 12 brands, six processing facilities, 12 brew houses, and brands that have tremendous opportunity. I see a big resurgence happening in the beer category in multiple ways. And I think that's something that we're going to help evolve and change with innovation, with distribution, with new products, with education about beer. And as I've said and try to coin this, how do you make beer cool again and not from just a drinking standpoint. From a standpoint of people, I really have to say I'm very lucky to get to work with a great organization, over 2,300 people around the world. We onboarded, over the last two months, over 700 new people with the acquisition of ABI. And with that, that went seamless and I very much want to welcome them as part of the Tilray family. I was asked a question about our balance sheet. That's something that Carl and I spend a lot of time on managing our balance sheet. Something that keeps me up at night is debt, so how do we deal with our debt, how do we generate cash? And again, we're a five-year-old company that has done multiple acquisitions. We spent a lot of CapEx on growth CapEx. And how do we do that, and at the end of the day, manage our balance sheet? And last but not least, our shareholders. We're here for our shareholders. We're here to work for our shareholders. And we're here to deliver upon our shareholders who invest money in us. So, we've got lots to look forward to. The back half is a big back half for us. There's a lot of heavy lifting to do we know. But I'd tell you, we have a good plan and a path to hopefully let us get there. So, thank you very much for listening to today's call and I look forward to speaking to you in the near future. Happy New Year and have a great day.

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