UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
As of April 5 2022, the registrant had
Table of Contents
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Page |
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PART I. |
1 |
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Item 1. |
1 |
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1 |
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Consolidated Statements of Income (Loss) and Comprehensive Loss (Unaudited) |
2 |
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3 |
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4 |
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5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 |
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Item 3. |
41 |
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Item 4. |
41 |
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PART II. |
42 |
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Item 1. |
42 |
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Item 1A. |
43 |
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Item 2. |
45 |
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Item 3. |
45 |
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Item 4. |
45 |
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Item 5. |
45 |
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Item 6. |
46 |
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47 |
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i
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended February 28, 2022 (the “Form 10-Q”) contains forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”” might,” “plan,” “project,” “will,” “would” ”seek,” or “should,” or the negative or plural of these words or similar expressions or variations are intended to identify such forward-looking statements. Forward-looking statements include, among other things, our beliefs or expectations relating to our future performance, results of operations and financial condition; our strategic initiatives, business strategy, supply chain, brand portfolio and product performance; the COVID-19 pandemic; current or future macroeconomic trends; and future corporate acquisitions and strategic transactions.
Risks and uncertainties that may cause actual results to differ materially from forward-looking statements include: our ability to successfully complete the integration of the businesses of Tilray and Aphria; our ability to successfully complete the proposed HEXO transaction and achieve the expected production efficiencies and cost savings; challenges and uncertainty resulting from the COVID-19 pandemic; the highly regulated environment in which we operate and our dependence on regulatory approvals and licenses; our ability to manage our supply chain effectively; disruption of operations at our cultivation and manufacturing facilities; challenges and uncertainty resulting from the impact of competition; our ability to manage risks associated with our international sales and operations; our ability to successfully develop and commercialize new products; our ability to execute our strategic plan and other initiatives, including our ability to achieve $4 billion of revenue by the end of our fiscal year 2024; our dependency on significant customers, which generate a significant amount of our revenue; input cost inflation; disruptions to information technology systems; pending and future litigation; volatility in our stock; our ability to raise funds; and other risks and matters described in our most recent Annual Report on Form 10-K, this Form 10-Q and our other filings from time to time with the U.S. Securities and Exchange Commission and in our Canadian securities filings.
Forward looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and, while we believe that information provides a reasonable basis for these statements, these statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements or forward-looking information as predictions of future events.
We undertake no obligation to update forward-looking statements to reflect actual results or changes in assumptions or circumstances, except as required by applicable law.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TILRAY BRANDS, INC.
Consolidated Statements of Financial Position
(in thousands of United States dollars, unaudited)
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February 28, 2022 |
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May 31, 2021 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Inventory |
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Prepaids and other current assets |
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Convertible notes receivable |
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Total current assets |
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Capital assets |
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Right-of-use assets |
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Intangible assets |
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Goodwill |
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Interest in equity investees |
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Long-term investments |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Current liabilities |
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Bank indebtedness |
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$ |
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$ |
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Accounts payable and accrued liabilities |
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Contingent consideration |
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Warrant liability |
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Current portion of lease liabilities |
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Current portion of long-term debt |
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Total current liabilities |
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Long - term liabilities |
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Lease liabilities |
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Long-term debt |
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Convertible debentures |
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Deferred tax liability |
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Other liabilities |
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Total liabilities |
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Commitments and contingencies (refer to Note 17) |
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Stockholders' equity |
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Common stock ($ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated Deficit |
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Total Tilray Brands, Inc. stockholders' equity |
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Non-controlling interests |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
1
TILRAY BRANDS, INC.
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(in thousands of United States dollars, except for share and per share data, unaudited)
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Three months ended February 28, |
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Nine months ended February 28, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Operating expenses: |
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General and administrative |
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Selling |
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Amortization |
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Marketing and promotion |
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Research and development |
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Change in fair value of contingent consideration |
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( |
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— |
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( |
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— |
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Transaction costs |
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Total operating expenses |
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Operating loss |
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( |
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( |
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( |
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Interest expense, net |
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( |
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( |
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( |
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Non-operating income (expense), net |
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( |
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( |
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Income (loss) before income taxes |
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( |
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( |
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Income taxes (recovery) |
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( |
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( |
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( |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Total net income (loss) attributable to: |
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Stockholders of Tilray Brands, Inc. |
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( |
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( |
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Non-controlling interests |
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Other comprehensive (loss) income, net of tax |
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Foreign currency translation (loss) gain |
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( |
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( |
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( |
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Unrealized loss on convertible notes receivable |
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( |
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( |
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( |
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( |
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Change in fair value of long-term investments |
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( |
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— |
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( |
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— |
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Total other comprehensive (loss) income, net of tax |
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( |
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( |
) |
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( |
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( |
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Comprehensive income (loss) |
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( |
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( |
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( |
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Total comprehensive income (loss) attributable to: |
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Stockholders of Tilray Brands, Inc. |
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( |
) |
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( |
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( |
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Non-controlling interests |
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( |
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Weighted average number of common shares - basic |
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Weighted average number of common shares - diluted |
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Net income (loss) per share - basic |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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Net income (loss) per share - diluted |
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$ |
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$ |
( |
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$ |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
2
TILRAY BRANDS, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands of United States dollars, except for share data, unaudited)
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Number of common shares |
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Common stock |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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Accumulated Deficit |
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Non- controlling interests |
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Total |
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Balance at May 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Share issuance - legal settlement |
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— |
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— |
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— |
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— |
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Share issuance - options exercised |
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— |
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— |
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— |
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— |
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Share issuance - RSUs exercised |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Comprehensive income (loss) for the period |
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— |
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— |
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— |
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( |
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( |
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Balance at August 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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Share issuance - legal settlement |
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— |
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— |
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— |
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— |
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Share issuance - equity financing |
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— |
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— |
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— |
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Share issuance - SweetWater acquisition |
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— |
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— |
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— |
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Share issuance - options exercised |
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— |
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— |
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— |
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— |
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Share issuance - RSUs exercised |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Comprehensive income (loss) for the period |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
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Balance at November 30, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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Share issuance - options exercised |
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— |
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— |
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— |
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— |
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Share issuance - RSUs exercised |
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— |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Comprehensive income (loss) for the period |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
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Balance at February 28, 2021 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
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Balance at May 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Third party contribution to Superhero Acquisition LP |
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— |
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— |
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— |
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— |
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— |
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|
|
|
|
|
|
|
Share issuance - options exercised |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share issuance - RSUs exercised |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares effectively repurchased for employee withholding tax |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Comprehensive income (loss) for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at August 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Share issuance - Superhero Acquisition LP |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Share issuance - DDH note |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Share issuance - options exercised |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Share issuance - RSUs exercised |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Shares effectively repurchased for employee withholding tax |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Share issuance - legal settlement |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Comprehensive income (loss) for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at November 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Share issuance - Breckenridge Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Share issuance - legal settlement |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Share issuance - options exercised |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Share issuance - RSUs exercised |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Share issuance - purchase of capital and intangible assets |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Comprehensive income (loss) for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Balance at February 28, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
TILRAY BRANDS, INC.
Consolidated Statements of Cash Flows
(in thousands of United States dollars, unaudited)
|
|
|
For the nine months ended February 28, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
Deferred income tax recovery |
|
|
( |
) |
|
|
( |
) |
|
Unrealized foreign exchange loss |
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
Gain on sale of capital assets |
|
|
( |
) |
|
|
— |
|
|
Inventory valuation write down |
|
|
|
|
|
|
— |
|
|
Other non-cash items |
|
|
|
|
|
|
( |
) |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Loss (gain) on long-term investments & equity investments |
|
|
( |
) |
|
|
|
|
|
Loss (gain) on derivative instruments |
|
|
( |
) |
|
|
|
|
|
Change in fair value of contingent consideration |
|
|
( |
) |
|
|
— |
|
|
Transaction costs associated with business acquisitions |
|
|
— |
|
|
|
|
|
|
Change in non-cash working capital: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
Prepaids and other current assets |
|
|
( |
) |
|
|
|
|
|
Inventory |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable and accrued liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
Cash used in investing activities: |
|
|
|
|
|
|
|
|
|
Investment in capital and intangible assets |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from disposal of capital and intangible assets |
|
|
|
|
|
|
|
|
|
Promissory notes advances |
|
|
— |
|
|
|
( |
) |
|
Repayment of notes receivable |
|
|
— |
|
|
|
|
|
|
Proceeds from disposal of long-term investments and equity investees |
|
|
— |
|
|
|
|
|
|
Net cash acquired (paid) on business acquisitions |
|
|
|
|
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash (used in) provided by financing activities: |
|
|
|
|
|
|
|
|
|
Share capital issued, net of cash issuance costs |
|
|
— |
|
|
|
|
|
|
Proceeds (payment) from warrants and options exercised |
|
|
( |
) |
|
|
|
|
|
Proceeds from long-term debt |
|
|
— |
|
|
|
|
|
|
Repayment of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
Repayment of lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
Increase in bank indebtedness |
|
|
|
|
|
|
( |
) |
|
Dividend paid to NCI |
|
|
— |
|
|
|
( |
) |
|
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
|
Effect of foreign exchange on cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
TILRAY BRANDS, INC.
Notes to Consolidated Financial Statements
Note 1. Description of business
Tilray Brands, Inc., and its wholly owned subsidiaries (collectively “Tilray”, the “Company”, “we”, or “us”) is a leading global cannabis-lifestyle and consumer packaged goods company headquartered in Leamington, Ontario, Canada, with operations in Canada, the United States, Europe, Australia, New Zealand and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body, and soul and invoke a sense of wellbeing. Tilray’s mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and wellbeing through high-quality, differentiated brands and innovative products. A pioneer in cannabis research, cultivation and distribution, Tilray’s production platform supports over 20 brands in over 20 countries, including comprehensive cannabis offerings, hemp-based foods, and alcoholic beverages.
On April 30, 2021, Tilray acquired all of the issued and outstanding common shares of Aphria Inc. (“Aphria”), an international organization focused on building a global cannabis-lifestyle consumer packaged goods company in addition to its businesses in the marketing and manufacturing beverage alcohol products in the United States, and in the distribution of (non-Cannabis) pharmaceutical products in Germany and Argentina, pursuant to a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario).
Note 2. Basis of presentation and summary of significant accounting policies
The accompanying unaudited consolidated financial statements (the “financial statements”) reflect the accounts of the Company. The financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. The information included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2021 (the “Annual Financial Statements”). These financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company’s balance sheet in these interim financial statements was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.
These consolidated financial statements have been prepared on the going concern basis which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due, under the historical cost convention except for certain financial instruments that are measured at fair value, as detailed in the Company’s accounting policies.
As a result of the April 30, 2021 business combination with Aphria, the reported results do not include the results of operations of Tilray and its subsidiaries on and prior to April 30, 2021, in accordance with the accounting treatment applicable to the Arrangement. Accordingly, comparisons between the Company's results for the three and nine months ended February 28, 2022 and prior periods may not be meaningful.
Information about the accounting treatment of the Arrangement including details of the transaction, determination of the total fair value consideration, and allocation of the purchase price, are included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the SEC on July 28, 2021 (“Annual Report”).
The purchase price allocation for the Arrangement is open for adjustments and has been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date. In the event that more information is obtained, the purchase price allocation may change. Any future adjustments to the purchase price allocation, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement period, which is not to exceed one year from the acquisition date.
Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A complete list of our subsidiaries that existed prior to our most recent year end is included in the Annual Report.
On August 13, 2021, the Company and other unrelated persons formed Superhero Acquisition L.P., a Delaware limited partnership (“SH Acquisition”), for the purpose of acquiring certain senior secured convertible notes in the principal amount of approximately
5
$
In connection with its issuance of
Under the SH Acquisition partnership agreement, certain material events described therein require the approval of the Company, and, upon a Triggering Event, the Company has the ability to appoint two of the three members of the board of directors of the general partner of SH Acquisition. As a result, we consolidated SH Acquisition as a subsidiary of Tilray beginning on August 17, 2021. Additional information about the MM Transaction is included in Note 7 Long-term investments.
On December 1, 2021, the Company acquired all the membership interests in Cheese Grits, LLC, a Georgia limited liability company that owns the SweetWater Brewing Company brewery and taproom in Atlanta, Georgia (the “SW Acquisition”), which facility was previously leased to the Company. Cheese Grits, LLC, was owned by certain former equity holders of SweetWater and current employees. As consideration for the SW Acquisition, the Company paid a purchase price at closing equal to $
On December 7, 2021 the Company acquired all the membership interests in Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company and a leading distilled spirits brand located in Breckenridge, Colorado, known for its award-winning bourbon whiskey collection and innovative craft spirits portfolio (the “Breckenridge Acquisition”). As consideration for the Breckenridge Acquisition, the Company paid a purchase price in an aggregate amount equal to $
Long-term investments
Debt securities are classified as available-for-sale and are recorded at fair value and are subject to impairment testing. Other than impairment losses, unrealized gains and losses during the period, net of the related tax effect, are excluded from income and reflected in other comprehensive income (loss), and the cumulative effect is reported as a separate component of stockholders’ equity until realized. Upon sale, realized gain and losses are reported in net income. Debt securities are impaired when a decline in fair value is determined to be other-than-temporary. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, credit quality of debt instrument issuers, and the duration and extent to which the fair value is less than cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the statements of net loss and a new cost basis for the investment is established. The Company also evaluates whether there is a plan to sell the security or it is more likely than not that the Company will be required to sell the security before recovery. If neither of the conditions exist, then only the portion of the impairment loss attributable to credit loss is recorded in the statements of net loss and the remaining amount is recorded in other comprehensive income (loss).
Investments in equity securities of entities over which the Company does not have a controlling financial interest or significant influence are accounted for at fair value. Equity investments without readily determinable fair values are measured at cost with adjustments for observable changes in price or impairments (referred to as the “measurement alternative”). In applying the measurement
6
alternative, the Company performs a qualitative assessment on a quarterly basis and recognizes an impairment if there are sufficient indicators that the fair value of the equity investments are less than carrying values. Changes in value are recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”.
Investments in entities over which the Company does not have a controlling financial interest but has significant influence, are accounted for using the equity method, with the Company’s share of earnings or losses reported in earnings or losses from equity method investments on the statements of net loss and comprehensive loss. Equity method investments are recorded at cost, plus the Company’s share of undistributed earnings or losses, and impairment, if any, within “Interest in equity investees” on the balance sheets. The Company assesses investments in equity method investments when events or circumstances indicate that the carrying amount of the investment may be impaired. If it is determined that the current fair value of an equity method investment is less than the carrying value of the investment, the Company will assess if the shortfall is other than temporary (OTTI). Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the equity investee to sustain an earnings capacity that would justify the carrying amount of the investment. Once a determination is made that an OTTI exists, the investment is written down to its fair value in accordance with ASC 820 at the reporting date, which establishes a new cost basis.
Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing reported net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing reported net income (loss) by the sum of the weighted average number of common shares and the number of dilutive potential common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options, warrants and RSUs and the incremental shares issuable upon conversion of the convertible debentures and similar instruments.
In computing diluted earnings (loss) per share, common share equivalents are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive. For the three and nine-months ended February 28, 2022, the dilutive potential common share equivalents outstanding consist of the following:
New accounting pronouncements not yet adopted
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which amends and simplifies existing guidance in an effort to reduce the complexity of accounting for convertible instruments and to provide financial statement users with more meaningful information. ASU 2020-06 is effective for the Company beginning June 1, 2022. This update may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized as an adjustment to the opening balance of retained earnings on the date of adoption. The Company is currently evaluating the effect of adopting this ASU.
In May 2021, the FASB issued ASU 2021-04, Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”), which amends existing guidance for earnings per share (EPS) in accordance with Topic 260. ASU 2021-04 is effective for the Company beginning June 1, 2022. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Subtopic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. ASU 2021-08 is effective for the Company beginning June 1, 2023. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance, which is intended to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for the Company beginning June 1, 2022. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.
7
New accounting pronouncements recently adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The standard is effective for annual reporting periods beginning after December 15, 2020 and including interim periods within those fiscal years. The Company adopted the ASU beginning June 1, 2021 and the adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The Company adopted the ASU beginning June 1, 2021 and the adoption of ASU 2020-01 did not have a material impact on our consolidated financial statements.
Note 3. Inventory
Inventory consisted of the following:
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
Plants |
|
$ |
|
|
|
$ |
|
|
|
Dried cannabis |
|
|
|
|
|
|
|
|
|
Cannabis trim |
|
|
|
|
|
|
|
|
|
Cannabis derivatives |
|
|
|
|
|
|
|
|
|
Cannabis vapes |
|
|
|
|
|
|
|
|
|
Packaging and other inventory items |
|
|
|
|
|
|
|
|
|
Wellness inventory |
|
|
|
|
|
|
|
|
|
Beverage alcohol inventory |
|
|
|
|
|
|
|
|
|
Distribution inventory |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended February 28, 2022, the Company recorded $
Note 4. Capital assets
Capital assets consisted of the following:
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
Land |
|
$ |
|
|
|
$ |
|
|
|
Production facility |
|
|
|
|
|
|
|
|
|
Equipment |
|
|
|
|
|
|
|
|
|
Leasehold improvement |
|
|
|
|
|
|
|
|
|
ROU-assets under finance lease |
|
|
— |
|
|
|
|
|
|
Construction in progress |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Less: accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
8
Note 5. Intangible Assets
Intangible assets consisted of the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual |
|
|
|
|
|
|
|
|
|
Customer |
|
|
|
|
|
|
|
|
|
|
property, |
|
|
|
|
|
||
|
|
|
relationships |
|
|
Licenses, |
|
|
Non- |
|
|
trademarks, |
|
|
Total |
|
|||||
|
|
|
& distribution |
|
|
permits & |
|
|
compete |
|
|
know how |
|
|
intangible |
|
|||||
|
|
|
channel |
|
|
applications |
|
|
agreements |
|
|
& brands |
|
|
assets |
|
|||||
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Additions |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
At August 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange |
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
At November 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Business acquisition |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At February 28, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At February 28, 2022 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
Net book value at May 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net book value at August 31, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net book value at November 30, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Net book value at February 28, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
As of February 28, 2022, included in Licenses, permits & applications is $
Note 6. Goodwill
The following table shows the carrying amount of goodwill:
|
|
|
Segment |
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
Broken Coast Cannabis Ltd. |
|
Cannabis business |
|
$ |
|
|
|
$ |
|
|
|
Nuuvera Corp. |
|
Cannabis business |
|
|
|
|
|
|
|
|
|
LATAM Holdings Inc. |
|
Cannabis business |
|
|
|
|
|
|
|
|
|
CC Pharma GmbH |
|
Distribution business |
|
|
|
|
|
|
|
|
|
SweetWater |
|
Beverage alcohol business |
|
|
|
|
|
|
|
|
|
Tilray-provisional |
|
Cannabis business |
|
|
|
|
|
|
|
|
|
Tilray-provisional |
|
Wellness business |
|
|
|
|
|
|
|
|
|
Breckenridge-provisional |
|
Beverage alcohol business |
|
|
|
|
|
|
— |
|
|
Effect of foreign exchange |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
$ |
|
|
Arrangement agreement between Tilray Inc. and Aphria Inc.
Pursuant to the Arrangement, as described in Note 1, the Company is within the measurement period of the business acquisition. As of February 28, 2022, the fair values of assets and liabilities acquired have been prepared on a provisional basis and are subject to
9
further adjustments as the Company completes its analysis. The Company will finalize the amounts recognized by April 30, 2022.
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
|
|
|
|
|
|
Prepaids and other current assets |
|
|
|
|
|
|
|
|
|
Capital assets |
|
|
|
|
|
|
|
|
|
Right-of-use assets, operating leases |
|
|
|
|
|
|
|
|
|
Definite-lived intangible assets (estimated useful life) |
|
|
|
|
|
|
|
|
|
Distribution channel ( |
|
|
|
|
|
|
|
|
|
Customer relationships ( |
|
|
|
|
|
|
|
|
|
Know how ( |
|
|
|
|
|
|
|
|
|
Brands (10 to 25 years) |
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
Licenses |
|
|
|
|
|
|
|
|
|
Goodwill-provisional |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
|
|
Accrued lease obligations |
|
|
|
|
|
|
|
|
|
Warrant liability |
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
|
|
|
|
|
|
|
|
Convertible notes |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
|
|
|
$ |
|
|
Revenue for the Company would have been higher by approximately $
Acquisition of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery)
On December 7, 2021, the Company through its wholly-owned subsidiary Four Twenty Corporation, completed the purchase of all the membership interests of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company and a leading distilled spirits brand located in Breckenridge, Colorado (the “Breckenridge Acquisition”). As consideration for the
10
Breckenridge Acquisition, the Company paid a purchase price in an aggregate amount equal to $
The Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value of the net assets acquired may be subject to adjustments pending completion of final valuations and post-closing adjustments.
|
|
|
Amount |
|
|
|
Consideration |
|
|
|
|
|
Shares |
|
$ |
|
|
|
Net assest acquired |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
Prepaids and other current assets |
|
|
|
|
|
Inventory |
|
|
|
|
|
Lont-term assets |
|
|
|
|
|
Capital assets |
|
|
|
|
|
Customer relationships ( |
|
|
|
|
|
Intellectual property, trademarks & brands ( |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Total Assets |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
Deferred tax liability |
|
|
|
|
|
Total liabilities |
|
|
|
|
|
Total net assets acquired |
|
$ |
|
|
The goodwill of $
Note 7. Long term investments
Long term investments consisted of the following:
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
Debt securities classified under available-for-sale method |
|
$ |
|
|
|
$ |
— |
|
|
Equity investments measured at fair value level 1 |
|
|
|
|
|
|
|
|
|
Equity investments measured at fair value level 2 |
|
|
|
|
|
|
|
|
|
Equity investments under measurement alternative |
|
|
|
|
|
|
|
|
|
Total investments in debt and equity securities |
|
$ |
|
|
|
$ |
|
|
As of February 28, 2022, the Company’s debt securities under available-for-sale method are the MM Notes, described in Note 2 Basis of presentation and summary of significant accounting policies. Interest on the principal amount of the MM Notes shall accrue at an interest rate of LIBOR plus
11
The Company values debt securities under available-for-sale method using the Black-Scholes model (Level 3) with the following weighted-average assumptions:
|
Expected term |
|
0.2 to 6.2 years |
|
|
|
Expected volatility |
|
|
|
% |
|
Effective interest rate |
|
|
|
% |
|
Expected dividend yield |
|
|
|
% |
|
Probability of conversion |
|
0% to 60% |
|
|
|
Strike price |
|
$0.15 to $4.29 |
|
|
|
Fair value of common stock |
|
$ |
|
|
The Company’s equity investments at fair value consist of publicly traded shares and warrants held by the Company, including certain warrants acquired with the MM Notes and exercisable for equity securities of MedMen’s Class B subordinate voting shares. The Company’s equity investment under measurement alternative includes equity investments without readily determinable fair values.
Unrealized gains and losses recognized in non-operating income (expense) during the three and nine months ended February 28, 2022 on equity investments still held at February 28, 2022 are a loss of $
Note 8. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities are comprised of:
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
Trade payables |
|
$ |
|
|
|
$ |
|
|
|
Accrued liabilities |
|
|
|
|
|
|
|
|
|
Accrued payroll and employment related taxes |
|
|
|
|
|
|
|
|
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
|
|
|
Other accruals |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Note 9. Bank indebtedness
The Company has an operating line of credit in the amount of C$
CC Pharma GmbH, a subsidiary of the Company, has
Four Twenty Corporation (“420”), a subsidiary of the Company, has a revolving credit facility of $
12
Note 10. Long-term debt
The following table sets forth the net carrying amount of long-term debt instruments:
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
Credit facility - C$ due in November 2022 |
|
$ |
|
|
|
$ |
|
|
|
Term loan - C$ payments, due in July 2023 |
|
|
|
|
|
|
|
|
|
Term loan - C$ amortization, repayable in equal monthly instalments of $ due in April 2022 |
|
|
|
|
|
|
|
|
|
Term loan - C$ equal monthly instalments of $ |
|
|
|
|
|
|
|
|
|
Mortgage payable - C$ repayable in equal monthly instalments of $ |
|
|
|
|
|
|
|
|
|
Vendor take-back mortgage - C$ monthly instalments of $ |
|
|
— |
|
|
|
|
|
|
Term loan ‐ € quarterly instalments of € |
|
|
|
|
|
|
|
|
|
Term loan ‐ € in quarterly instalments of € |
|
|
|
|
|
|
|
|
|
Term loan ‐ € quarterly instalments of € |
|
|
|
|
|
|
|
|
|
Term loan ‐ € quarterly instalments of € |
|
|
|
|
|
|
|
|
|
Mortgage payable - $ amortization, repayable in monthly instalments of $ |
|
|
|
|
|
|
— |
|
|
Term loan - $ in quarterly instalments beginning March 31, 2021 of $ and $ |
|
|
|
|
|
|
|
|
|
Carrying amount of long-term debt |
|
|
|
|
|
|
|
|
|
Unamortized financing fees |
|
|
( |
) |
|
|
( |
) |
|
Net carrying amount |
|
|
|
|
|
|
|
|
|
Less principal portion included in current liabilities |
|
|
( |
) |
|
|
( |
) |
|
Total noncurrent portion of long-term debt |
|
$ |
|
|
|
$ |
|
|
As of February 28, 2022, the Company was in compliance with all the long-term debt covenants.
Note 11. Convertible debentures
The following table sets forth the net carrying amount of the convertible debentures:
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
5.25% Convertible Notes ("APHA 24") |
|
$ |
|
|
|
$ |
|
|
|
5.00% Convertible Notes ("TLRY 23") |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
13
APHA 24
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
5.25% Contractual debenture |
|
$ |
|
|
|
$ |
|
|
|
Debt settlement |
|
|
( |
) |
|
|
( |
) |
|
Fair value adjustment |
|
|
( |
) |
|
|
|
|
|
Net carrying amount of APHA 24 |
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
the last reported sales price of the common shares for at least |
|
|
(b) |
during the five-business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1 principal amount of the APHA 24 for each trading day of the measurement period is less than |
|
|
(c) |
the Company calls any or all of the APHA 24 for redemption or; |
|
|
(d) |
upon occurrence of a specified corporate event. |
The Company may not redeem the APHA 24 prior to June 6, 2022, except upon the occurrence of certain changes in tax laws. On or after June 6, 2022, the Company may redeem for cash all or part of the Notes, at its option, if the last reported sale price of the Company’s common shares has been at least 130% of the conversion price then in effect for at least
The Company estimated the fair value of the APHA 24 convertible debenture at February 28, 2022 at $
|
Risk-free interest rate |
|
|
|
% |
|
Expected volatility |
|
|
|
% |
|
Expected term |
|
|
|
|
|
Expected dividend yield |
|
|
|
% |
Expected volatility is based on the historical volatility of the Company's common stock.
TLRY 23
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
5.00% Contractual debenture |
|
$ |
|
|
|
$ |
|
|
|
Unamortized discount |
|
|
( |
) |
|
|
( |
) |
|
Net carrying amount of TLRY 23 |
|
$ |
|
|
|
$ |
|
|
14
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election (the “cash conversion option”). The initial conversion rate for the convertible notes is
Prior to the close of business on the business day immediately preceding April 1, 2023, the TLRY 23 will be convertible only under the specified circumstances. On or after April 1, 2023 until the close of business on the business day immediately preceding the maturity date,
Note 12. Warrant liability
Warrants outstanding at February 28, 2022:
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
Balance |
|
||
|
|
|
Classification |
|
Exercise Price |
|
May 31, 2021 |
|
|
Issued |
|
|
Exercised/Expired |
|
|
February 28, 2022 |
|
||||
|
Expiration date – September 26, 2021 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Expiration date – January 30, 2022 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Expiration date – March 17, 2025 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
February 28, 2022 |
|
|
February 28, 2021 |
|
||||||||||
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
||
|
|
|
Number of |
|
|
average |
|
|
Number of |
|
|
average |
|
||||
|
|
|
warrants |
|
|
price |
|
|
warrants |
|
|
price |
|
||||
|
Outstanding, opening |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Exercised during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired during the period |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Outstanding, ending |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
The Company estimated the fair value of the Warrant liability at February 28, 2022 at $
|
Risk-free interest rate |
|
|
|
% |
|
Expected volatility |
|
|
|
% |
|
Expected term |
|
|
|
|
|
Expected dividend yield |
|
|
|
% |
|
Strike price |
|
$ |
|
|
|
Fair value of common stock |
|
$ |
|
|
15
Note 13. Stock-based compensation
The Company operates stock-based compensation plans as disclosed in our Annual Report. For the three and nine months ended February 28, 2022, the total stock-based compensation was $
During the three and nine months ended February 28, 2022, the Company did
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Stock options |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Note 14. Accumulated other comprehensive income (loss)
Accumulated other comprehensive loss includes the following components:
|
|
|
Foreign currency translation gain (loss) |
|
|
Unrealized loss on convertible notes receivables |
|
|
Unrealized loss on available-for-sale debt securities |
|
|
Less non-controlling interests |
|
|
Total |
|
|||||
|
Balance May 31, 2021 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance August 31, 2021 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Other comprehensive loss |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance November 30, 2021 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Other comprehensive loss |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance February 28, 2022 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Note 15. Non-controlling interests
The following tables summarize the information relating to the Company’s subsidiaries, Superhero LP, CC Pharma Nordic ApS, Aphria Diamond, and ColCanna S.A.S. before intercompany eliminations. During the three and nine months ended February 28, 2022, the Company made contributions to Superhero LP of $
Summary of financial information of non-controlling interests as of February 28, 2022:
|
|
|
Superhero LP |
|
|
CC Pharma Nordic ApS |
|
|
Aphria Diamond |
|
|
ColCanna S.A.S. |
|
|
February 28, 2022 |
|
|||||
|
Current assets |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Non-current liabilities |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net assets |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
16
Summary of financial information of non-controlling interests as of May 31, 2021:
|
|
|
CC Pharma Nordic ApS |
|
|
Aphria Diamond |
|
|
ColCanna S.A.S. |
|
|
May 31, 2021 |
|
||||
|
Current assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Non-current liabilities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net assets |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Summary of financial information of non-controlling interests for the nine months ended February 28, 2022:
|
|
|
Superhero LP |
|
|
CC Pharma Nordic ApS |
|
|
Aphria Diamond |
|
|
ColCanna S.A.S. |
|
|
February 28, 2022 |
|
|||||
|
Revenue |
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Total expenses |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Net (loss) income |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net comprehensive income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Non-controlling interest % |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
NA |
|
|
|
Net comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Summary of financial information of non-controlling interests for the nine months ended February 28, 2021:
|
|
|
CC Pharma Nordic ApS |
|
|
Aphria Diamond |
|
|
ColCanna S.A.S. |
|
|
February 28, 2021 |
|
||||
|
Revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Total expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Other comprehensive (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net comprehensive income |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Non-controlling interest % |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
NA |
|
|
|
Net comprehensive (loss) income |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Note 16. Income Taxes
The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various United States federal, state, and foreign jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, valuation allowances against the deferred tax assets, stock-based compensation, and the Company’s change in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.
The Company reported income tax benefit of $(
17
Note 17. Commitments and contingencies
Purchase and other commitments
The Company has payments on long-term debt (refer to Note 10 Long-term debt), convertible notes (refer to Note 11 Convertible Debentures), material purchase commitments and construction commitments as follows:
|
|
|
Total |
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
|
Thereafter |
|
||||||
|
Long-term debt repayment |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
|
Convertible notes, principal and interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
Material purchase obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction commitments |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
$ |
|
|
Effective November 10, 2021, the Company entered into a termination and settlement agreement with ABG Intermediate Holdings 2, LLC (“ABG”) and certain of its affiliates. Pursuant to this settlement agreement, the Company terminated $
The following table presents the future undiscounted payment associated with lease liabilities as of February 28, 2022:
|
|
|
|
|
Operating |
|
|
|
|
|
|
|
leases |
|
|
|
2023 |
|
|
|
$ |
|
|
|
2024 |
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
|
$ |
|
|
|
Imputed interest |
|
|
|
|
( |
) |
|
Obligations recognized |
|
|
|
$ |
|
|
Legal proceedings
The Company is and may be a defendant in lawsuits from time to time in the normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated results of operations, financial position, cash flows or liquidity.
18
Note 18. Net revenue
The Company reports its net revenue in
Net revenue is comprised of:
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Cannabis revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cannabis excise taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net cannabis revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage alcohol revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage alcohol excise taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net beverage alcohol revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellness revenue |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Note 19. Cost of goods sold
Cost of goods sold is comprised of:
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Cannabis costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Beverage alcohol costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellness costs |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Note 20. General and administrative expenses
General and administrative expenses are comprised of:
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Executive compensation |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Office and general |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of capital assets |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
Insurance proceeds |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
Travel and accommodation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
19
Note 21. Non-operating income (expense)
Non-operating income (expense) is comprised of:
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Change in fair value of convertible debenture |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Change in fair value of warrant liability |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Foreign exchange loss |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss on long-term investments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other non-operating (losses) gains, net |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Note 22. |
Fair value measurements |
Financial instruments
The Company has classified its financial instruments as described in Note 3 Significant accounting policies in our Annual Report.
The carrying values of accounts receivable, bank indebtedness and accounts payable and accrued liabilities approximate their fair values due to their short periods to maturity.
At February 28, 2022 the Company’s long-term debt of $
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of February 28, 2022 and May 31, 2021 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
February 28, 2022 |
|
||||
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
Convertible notes receivable |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Equity investments measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities classified under available-for-sale method |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
APHA 24 Convertible debenture |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total recurring fair value measurements |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
May 31, 2021 |
|
||||
|
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
— |
|
|
— |
|
|
$ |
|
|
||
|
Convertible notes receivable |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
||
|
Equity investments measured at fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities classified under available-for-sale method |
|
— |
|
|
|
— |
|
|
— |
|
|
|
— |
|
||
|
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
||
|
Contingent consideration |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
||
|
APHA 24 Convertible debenture |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
||
|
Total recurring fair value measurements |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
20
The Company’s financial assets and liabilities required to be measured on a recurring basis are its equity investments measured at fair value, debt securities classified as available-for-sale, acquisition-related contingent consideration, and warrant liability.
Convertible notes receivable, and equity investments are recorded at fair value. The estimated fair value is determined using quoted market prices, broker or dealer quotations or discounted cash flows and is classified as Level 2. Certain equity investments recorded at fair value have quoted prices in active markets for identical assets and are classified as Level 1.
Debt securities classified as available-for sale are recorded at fair value. The estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 3. The Company classified these securities as level 2 in the period of acquisition, when the valuation was determined to reflect the recent market transaction.
The warrants associated with the warrant liability are classified as Level 3 derivatives. Consequently, the estimated fair value of the warrant liability is determined using the Black-Scholes pricing model. Until the warrants are exercised, expire, or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity, the warrant liability (which relates to warrants to purchase shares of common stock) is marked-to-market each reporting period with the change in fair value recorded in change in fair value of warrant liability. Any significant adjustments to the unobservable inputs disclosed in the table below would have a direct impact on the fair value of the warrant liability.
The contingent consideration from the acquisition of SweetWater, first due in December 2023 and payable in cash, is determined by discounting future expected cash outflows at a discount rate of
The APHA 24 Convertible debentures are recorded at fair value. The estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 3.
The balances of assets and liabilities categorized within Level 3 of the fair value hierarchy measured at fair value on a recurring basis are reconciled, as follows:
|
|
|
APHA 24 |
|
|
|
|
|
|
|
|
|
|
Debt |
|
|
|
|
|
||
|
|
|
Convertible |
|
|
Warrant |
|
|
Contingent |
|
|
Securities |
|
|
|
|
|
||||
|
|
|
Debt |
|
|
Liability |
|
|
Consideration |
|
|
AFS |
|
|
Total |
|
|||||
|
Balance, May 31, 2021 |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Additions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Disposals |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Unrealized gain (loss) on fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Balance, February 28, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
The unrealized gain (loss) on fair value for the convertible debenture, the warrant liability, contingent consideration, and debt securities classified under available-for-sale method is recognized in non-operating income (loss) using the following inputs:
|
Financial asset / financial liability |
|
Valuation technique |
|
Significant unobservable input |
|
Inputs |
|
APHA Convertible debentures |
|
Black-Scholes |
|
Volatility, expected life |
|
2.3 years |
|
Warrant liability |
|
Black-Scholes |
|
Volatility, expected life |
|
3.6 years |
|
Contingent consideration |
|
Discounted cash flows |
|
Discount rate, achievement |
|
50% |
|
Debt securities classified under available-for-sale method |
|
Black-Scholes |
|
Interest rate, conversion |
|
0% to 60% |
Items measured at fair value on a non-recurring basis
The Company's prepaids and other current assets, long lived assets, including property and equipment, goodwill and intangible assets are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.
21
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There have been no changes to the Company’s capital management approach in the period. The Company considers its cash and cash equivalents and marketable securities as capital.
|
Note 23. |
Segment reporting |
The Company operates in
Operating segments have not been aggregated and no asset information is provided for the segments because the Company’s CODM does not receive asset information by segment on a regular basis. While the Company reported “business under development” as a fifth segment in its previous Annual Report, management determined that this no longer met the definition of a reporting segment.
Segment net revenue from external customers:
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Cannabis business |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Distribution business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage alcohol business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellness business |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Segment gross profit from external customers:
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Cannabis business |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Distribution business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage alcohol business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellness business |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Channels of Cannabis revenue were as follows:
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Revenue from Canadian medical cannabis products |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Revenue from Canadian adult-use cannabis products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from wholesale cannabis products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from international cannabis products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less excise taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
22
Geographic net revenue:
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Geographic capital assets:
|
|
|
February 28, 2022 |
|
|
May 31, 2021 |
|
||
|
North America |
|
$ |
|
|
|
$ |
|
|
|
EMEA |
|
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Major customers are defined as customers that each individually account for greater than
|
Note 24. |
Subsequent Events |
On March 3, 2022, we entered into a sales agreement (the “Sales Agreement”) with Jefferies LLC and Canaccord Genuity LLC (each, an “Agent” and together, the “Agents”), pursuant to which we may offer and sell shares of Tilray’s Class 2 common stock, par value $
As of April 6, 2022, we sold an aggregate of
On March 15, 2022, the Company entered into a sale agreement for the disposition of its Nanaimo, Canada, facility for a purchase price equal to CAD $
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto for the period ended February 28, 2022 contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended May 31, 2021. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading “Cautionary Note Regarding Forward-Looking Statements” in the introduction of this Form 10-Q.
Company Overview
We are a leading global cannabis-lifestyle and consumer packaged goods company headquartered in Leamington, Ontario, with the largest global geographic footprint in the industry; including operations in Canada, the United States, Europe, Australia, New Zealand and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body, and soul and invoke a sense of wellbeing. Tilray’s mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and wellbeing through high-quality, differentiated brands and innovative products.
In the pursuit of our strategic vision and mission, we continue to leverage our scale, expertise and capabilities to drive brand awareness and market share in Canada, Europe, the United States and the rest of world, achieve industry-leading, profitable growth and build sustainable, long-term stockholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities, including in consumer and patient insights, drive category management leadership and assess growth opportunities with the introduction of innovative new products and the entry into new markets. In addition, we are relentlessly focused on managing our cost of goods and expenses in order to maintain our strong financial position and expand our profit margins.
On April 30, 2021, upon consummation of the arrangement with Aphria Inc. (“Aphria”) pursuant to a plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”), Aphria stockholders and Tilray stockholders owned approximately 61.2% and 38.8%, respectively, of the post-closing outstanding Tilray common stock resulting in the reverse acquisition of Tilray, whereby Tilray is the legal acquirer and Aphria is the acquirer for accounting purposes. Accordingly, as reported in our Annual Report and in this Form 10-Q, the assets and liabilities of Aphria are presented at their historical carrying values and the assets and liabilities of Tilray are recognized on the effective date of the business combination transaction and measured at fair value. The operating results for the comparable period, the three and nine months ended February 28, 2021, are of those of Aphria. Accordingly, comparisons between the Company's results for the three and nine months ended February 28, 2022 and prior periods may not be meaningful. In conjunction with the reverse acquisition, the Company elected to adopt Aphria’s fiscal year of June 1 to May 31.
Prior to the completion of the Arrangement, our condensed consolidated financial statements were presented under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and in Canadian Dollars (C$). All prior periods have been recast and are shown in this Form 10-Q under GAAP and in United States Dollars ($).
Trends and Other Factors Affecting Our Business
Market Dynamics.
Our cannabis business reporting segment operates in an industry that is still in its early stages of development. In Canada, the industry celebrated its third year of adult-use legalization in October 2021. As the industry continues to mature, there are a number of new entrants into the industry, which has led to increased competition. This competitive environment in the Canadian cannabis industry subjects us to the risk of loss of market share, price discounting by competitors, and to the challenge of acquiring new customers amidst the evolving market changes. The number of licenses granted, and the number of licensed producers ultimately authorized by Health Canada could have an adverse impact on our ability to compete for market share in Canada. During the three months ended February 28, 2022, we maintained our market leadership within Canada but experienced a decline in market share percent to 10.2% from the 12.8% market share we maintained for the three months ended November 30, 2021. Prior to the end of our fiscal second quarter, the Company was primarily focused on margin maintenance in Canada. With the current market dynamics and the Company’s cost advantages, the Company adjusted its focus to be more price competitive in the value, mainstream and premium plus market categories, particularly, in vape and pre-rolled products. Our price adjustments in the vape and pre-rolled markets proved successful, with the Company increasing its market share in both categories in the current quarter, as measured by HiFyre data.
24
The cannabis industry in Europe is also in its early stages of development whereby countries within Europe are at different stages of legalization of medical and adult-use cannabis as some countries have expressed a clear political ambition to broadly legalize adult-use cannabis (Germany, Portugal, Luxembourg and Malta), some are engaging in an experiment for adult-use (Netherlands, Switzerland) and some are debating regulations for cannabinoid-based medicine (France, Spain, Italy, and the United Kingdom). In Europe, we believe that, despite continuing COVID-19 pressure, and the Russian conflict with Ukraine cannabis legalization (both medicinal and adult-use) will continue to gain traction, especially following actions of the Maltese and German governments. We also continue to believe that Tilray remains uniquely positioned to win in these markets with its infrastructure being the only company with EU-GMP cultivation facilities in two countries within Europe, our distribution network and our demonstrated commitment to the availability, quality and safety of our products. Today, Germany remains the largest medical cannabis market in Europe.
The following is a summary of the state of cannabis legalization within Europe:
Germany. The new coalition government led by chancellor Olaf Schulz declared its intention to legalize adult-use cannabis use, which aims to regulate the sale of adult-use cannabis. To date, Tilray remains the sole producer among the three selected to distribute domestically grown cannabis for the BfArM through its state-of-the-art first operating medical cannabis center in Neuemunster.
Malta. In December 2021, Malta now allows its citizens to grow up to six plants at home, possess up to seven grams for personal use, establish a dedicated government authority, and allows the creation of social cannabis clubs. Although commercial sales are still forbidden, such achievement marks an important cornerstone for the cannabis industry in Europe.
Luxemburg. The government stated intentions to legalize adult-use cannabis in October 2021, thereby allowing cultivation, possession, and sale of seeds. However, legislation delays are due to the COVID-19 pandemic. The Luxemburg government has refined its draft bill, which we believe will be enacted in calendar year 2022.
Italy. Cannabis activists successfully set up a referendum to decriminalize domestic cannabis cultivation and remove penalties for cannabis possession. Although blocked by the constitutional court on other grounds, we are witnessing strong evolutions in the ways the Italian Government and administration are planning to facilitate patient access to medical cannabis. We project the market opening towards more exhaustive supply sources for flowers and extracts.
Switzerland. In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and consumption. In the meantime, a three-year pilot project will commence in the Fall 2022 to conduct scientific studies on the cannabis market and its impact on Swiss society.
Spain. A subcommittee on medical cannabis was recently created in Spanish Congress' Health Committee. Hearings started in early March 2022, with a series of national and EU experts attending. A report with recommendations for a regulation on MC in Spain is expected by the end of June 2022, which will likely lead the way for a government-sponsored bill on medical cannabis.
France. France launched a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis. To date, approximately 1,500 patients are enrolled in the experiment.
United Kingdom. Medical cannabis is legal in the United Kingdom, however, there is a need to maximize both clinical research and patient benefit in a safe, cautious and ethical manner so that those patients for whom medical cannabis is shown to be effective can access it. Currently, a new piece of legislation is in discussion, which aims to improve access to cannabinoid-based medicine through two measures: (1) expanding the ability to prescribe these products to General Practitioners (GPs) who are registered with the General Medical Council and (2) establishing a commission for the assessment of cannabinoid-based medicinal products. The bill is sitting for the session of May 6 at the House of Commons. The department of health and social care announced that trials of medical cannabis in the UK will begin “as soon as possible.” The Government's National Institute for Health Research oversees the studies, which will study the effects of medical cannabis on epilepsy.
Acquisitions and synergies.
We have grown, and strive to continue to expand our business, through a combination of organic growth and acquisition. While we continue to execute against our strategic initiatives that we believe will result the in long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to enter attractive new geographic markets and product categories. As a result, we incur transaction costs in connection with identifying and completing acquisitions and strategic transactions, as well as ongoing integration costs as we combine acquired companies and continue to achieve synergies. For the nine months ended February 28, 2022, we incurred $42.9 million of transaction costs.
25
In connection with the Arrangement, we committed to achieving at least $80 million of synergies in connection with the integration of Tilray and Aphria and developed a robust plan and timeline to achieve such synergies. In executing our integration plan, we evaluated and optimized the organizational structure, evaluated and retained the talent and capabilities we identified as necessary to achieve our longer-term growth plan and vision, reviewed contracts and arrangements, and analyzed our supply chain and our strategic partnerships. During the nine months ended February 28, 2022, we have executed on a series of synergistic actions, which included:
|
|
• |
We entered into a termination and settlement agreement with ABG Intermediate Holdings 2, LLC (“ABG”) and certain of its affiliates whereby we terminated the license to use certain trademarks and the obligation to pay associated royalties. Pursuant to this settlement agreement, we terminated $6.6 million in remaining guaranteed royalty payments owed to ABG in exchange for the payment of a $3.9 million termination fee. |
|
|
• |
We continued efforts to close down the legacy-Tilray Canadian facilities in Nanaimo and Enniskillen and integrate their forecasted demand into our Leamington facilities, thereby aligning our cost structure across our brands and products in Canada. On December 24, 2021, the Company agreed to extend the lease term of the Enniskillen facility to September 30, 2022, pursuant to a lease amendment that is intended to provide the Company with additional time to facilitate a disposition of the facility. On March 15, 2022, the Company entered into a sale agreement for the Nanaimo, Canada, facility for CAD $18.25 million with an expected closing date in June 2022 as outlined in Note 24. |
|
|
• |
We rightsized our real-estate portfolio to match our changing business needs through our site rationalizations and through the reduction of our commercial office space. Specifically, we reduced our redundant commercial office space by terminating a Toronto office lease, repudiating our Minneapolis lease and sub-leasing a portion of our Seattle office lease. Additionally, we sold two vacant land properties adjacent to our Nanaimo, Canada, facility with the first closing completed in this fiscal quarter for a purchase price of $3.7 million and the second property expected to close in May 2022 for a purchase price of CAD $1.9 million. |
Due to the Company’s decisive and impactful actions in connection with the integration of Tilray and Aphria, we are on track to achieve the identified $80 million of cost synergies 5 months earlier than previously projected. As of the date of this filing, we achieved $76 million in cost-savings on a run-rate basis and $42 million in actual cash-savings. Additionally, we have identified an additional $20 million of synergies, bringing the total identified synergies to $100 million, which we expect to achieve by the end of our fiscal year ended May 31, 2023 to drive further stockholder value.
During the nine months ended February 28, 2022, we also executed on other strategic transactions, as follows:
|
|
• |
The acquisition of Breckenridge Distillery, a leading distilled spirits brand located in Breckenridge, Colorado, widely known for its award-winning bourbon whiskey collection and innovative craft spirits portfolio. Breckenridge Distillery joins SweetWater Brewing Company as the cornerstones of Tilray’s beverage alcohol segment and further diversifies the company’s net revenue mix. In addition to acquiring a strong brand and accretive business, this strategic acquisition delivers additional scale in the beverage alcohol category and further positions Tilray with additional infrastructure and a larger footprint in the U.S. market upon federal cannabis legalization. When federally permissible, Tilray believes the acquisition of Breckenridge Distillery will enable us to commercialize new and innovative products through the development of non-alcoholic distilled spirits, including bourbon whisky, that is infused with cannabis. |
|
|
• |
The purchase of the previously leased SweetWater Brewing facility and taproom located in Atlanta, Georgia, which provides SweetWater with ownership of its state-of-the-art brewing facility and integrated restaurant and live music venue. |
|
|
• |
Building upon SweetWaters’s strategic plan to expand into all 50 states within the U.S., we acquired the Alpine and Green Flash brands, two iconic West Coast craft beer brands that boast award-winning brews. This strategic acquisition was completed shortly after SweetWater announced plans to move into a 32,450-square-foot production facility in Fort Collins, Co that it recently acquired, which also includes a 10,000-square-foot taproom. We believe that these initiatives, coupled with SweetWater’s new taproom inside Denver International Airport, will provide a launch pad for SweetWater to further distribute to the West Coast. |
Lastly, on March 3, 2022, Tilray announced a proposed agreement for a potential strategic alliance with HEXO Corp. (“HEXO”). Through this potential alliance, both companies would be expected to realize commercial benefits with production efficiencies and support services. The Company would also acquire up to $211 million of senior secured convertible notes (“Notes”) that were issued by HEXO and are currently held by funds affiliated with HT Investments MA LLC. The Notes would be amended to permit the Company to exercise conversion rights and potentially acquire a significant equity ownership position in HEXO. In connection with the proposed agreement, the Company would agree to amend and restate the indenture governing the Notes, to among other things, (i) extend the maturity date by three years, to May 1, 2026; (ii) provide for the revised interest amounts; and (iii) amend or eliminate certain affirmative and negative covenants. The Notes will also provide the Company with subscription rights and top-up rights in respect of all future
26
equity and debt issuances by HEXO following closing. The proposed transaction is subject to satisfactory completion of due diligence, negotiation of definitive agreements and satisfaction of a number of conditions precedent to closing.
The Coronavirus ("COVID-19") Pandemic, Its Impact on Us
We continuously address the effects of the COVID-19 pandemic, a discussion of which is available in sections entitled "Risk Factors" in Item 1A of Part I and “The Coronavirus ("COVID-19") Pandemic, Its Impact on Us” in Item 7 of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
During the three and nine months ended February 28, 2022, our business operations experienced the following as result of the COVID-19 pandemic:
Our Canadian adult-use cannabis business continued to experience the effect of the changes in consumer demand that were established during the onset of COVID-19 pandemic and periods of lockdown. As we previously reported, consumers shifted their demand behavior to purchasing elections based primarily on pricing. This consumer model of purchasing eroded the sales of our higher quality, higher priced brands resulting in our market share reduction during the period. Our Canadian medical cannabis business experienced a slight uptick in patient demand. In our international cannabis business, we continue to see access to physician practices remains limited due to protective measures in place throughout Germany, slowing down the adoption of medical cannabis as an innovative treatment option. Our distribution business experienced slight improvement in the global supply chain disrupted by the COVID-19 pandemic resulting in a modest increase in net revenue in its base currency but due to the impact of change in the exchange rate between the US dollar and the Euro, the Company recognized a decrease in sales from the prior year’s comparable period. Our beer and alcohol business continues to see a decline in on-premise business primarily as the on-premise industry dealt with a lack of staffing and a change demand pattern related to after work alcohol consumption. The continued impact of the COVID-19 pandemic has hampered revenue growth in our main consumer facing markets. Within the hemp food segment of our business, we continue to navigate the changes with growth in ecommerce and “click + pickup” channels offsetting declines in traditional retailer channels as consumer shopping behaviors shift.
Our business and operating results for the three and nine months ended February 28, 2022 continue to be impacted by the COVID-19 pandemic, including Delta and Omicron variants. The COVID-19 pandemic remains highly volatile, and the responses of local governments based on numbers of new cases, disease severity, risk of reinfection, and vaccine performance continue are unpredictable. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus. We will continue to assess our operations and will continue to consider the guidance of local governments throughout the world. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations.
27
Results of Operations
Our consolidated results, in thousands except for per share data, are as follows:
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
(in thousands of U.S. dollars) |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Net revenue |
|
$ |
151,871 |
|
|
$ |
123,900 |
|
|
$ |
27,971 |
|
|
|
23 |
% |
|
$ |
475,047 |
|
|
$ |
370,849 |
|
|
$ |
104,198 |
|
|
|
28 |
% |
|
Cost of goods sold |
|
|
112,042 |
|
|
|
93,444 |
|
|
|
18,598 |
|
|
|
20 |
% |
|
|
351,497 |
|
|
|
270,165 |
|
|
|
81,332 |
|
|
|
30 |
% |
|
Gross profit |
|
|
39,829 |
|
|
|
30,456 |
|
|
|
9,373 |
|
|
|
31 |
% |
|
|
123,550 |
|
|
|
100,684 |
|
|
|
22,866 |
|
|
|
23 |
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
38,445 |
|
|
|
24,491 |
|
|
|
13,954 |
|
|
|
57 |
% |
|
|
121,401 |
|
|
|
78,736 |
|
|
|
42,665 |
|
|
|
54 |
% |
|
Selling |
|
|
8,641 |
|
|
|
6,155 |
|
|
|
2,486 |
|
|
|
40 |
% |
|
|
25,283 |
|
|
|
18,051 |
|
|
|
7,232 |
|
|
|
40 |
% |
|
Amortization |
|
|
24,590 |
|
|
|
10,786 |
|
|
|
13,804 |
|
|
|
128 |
% |
|
|
84,345 |
|
|
|
19,121 |
|
|
|
65,224 |
|
|
|
341 |
% |
|
Marketing and promotion |
|
|
7,578 |
|
|
|
3,259 |
|
|
|
4,319 |
|
|
|
133 |
% |
|
|
20,163 |
|
|
|
12,436 |
|
|
|
7,727 |
|
|
|
62 |
% |
|
Research and development |
|
|
164 |
|
|
|
127 |
|
|
|
37 |
|
|
|
29 |
% |
|
|
1,464 |
|
|
|
472 |
|
|
|
992 |
|
|
|
210 |
% |
|
Transaction costs |
|
|
9,238 |
|
|
|
9,688 |
|
|
|
(450 |
) |
|
|
(5 |
%) |
|
|
42,937 |
|
|
|
30,352 |
|
|
|
12,585 |
|
|
|
41 |
% |
|
Total operating expenses |
|
|
59,591 |
|
|
|
54,506 |
|
|
|
5,085 |
|
|
|
9 |
% |
|
|
295,593 |
|
|
|
159,168 |
|
|
|
136,425 |
|
|
|
86 |
% |
|
Operating loss |
|
|
(19,762 |
) |
|
|
(24,050 |
) |
|
|
4,288 |
|
|
|
(18 |
%) |
|
|
(142,978 |
) |
|
|
(58,484 |
) |
|
|
(84,494 |
) |
|
|
144 |
% |
|
Interest expense, net |
|
|
(2,312 |
) |
|
|
(7,943 |
) |
|
|
5,631 |
|
|
|
(71 |
%) |
|
|
(22,422 |
) |
|
|
(18,511 |
) |
|
|
(3,911 |
) |
|
|
21 |
% |
|
Non-operating (expense) income, net |
|
|
72,719 |
|
|
|
(220,340 |
) |
|
|
293,059 |
|
|
|
(133 |
%) |
|
|
186,329 |
|
|
|
(306,348 |
) |
|
|
492,677 |
|
|
|
(161 |
%) |
|
Income (loss) before income taxes |
|
|
50,645 |
|
|
|
(252,333 |
) |
|
|
302,978 |
|
|
|
(120 |
%) |
|
|
20,929 |
|
|
|
(383,343 |
) |
|
|
404,272 |
|
|
|
(105 |
%) |
|
Income taxes (recovery) |
|
|
(1,830 |
) |
|
|
6,310 |
|
|
|
(8,140 |
) |
|
|
(129 |
%) |
|
|
(2,739 |
) |
|
|
(13,707 |
) |
|
|
10,968 |
|
|
|
(80 |
%) |
|
Net income (loss) |
|
|
52,475 |
|
|
|
(258,643 |
) |
|
|
311,118 |
|
|
|
(120 |
%) |
|
|
23,668 |
|
|
|
(369,636 |
) |
|
|
393,304 |
|
|
|
(106 |
%) |
28
Key Operating Metrics
We use the following key operating metrics to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. Other companies, including companies in our industry, may calculate key operating metrics with similar names differently which may reduce their usefulness as comparative measures. Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis.
|
|
|
For the three months ended February 28, |
|
|
For the nine months ended February 28, |
|
||||||||||
|
(in thousands of U.S. dollars) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net cannabis revenue |
|
$ |
55,045 |
|
|
$ |
41,721 |
|
|
$ |
184,269 |
|
|
$ |
147,689 |
|
|
Net beverage alcohol revenue |
|
|
19,597 |
|
|
|
11,942 |
|
|
|
48,765 |
|
|
|
12,652 |
|
|
Distribution revenue |
|
|
62,532 |
|
|
|
70,237 |
|
|
|
198,587 |
|
|
|
210,508 |
|
|
Wellness revenue |
|
|
14,697 |
|
|
NA |
|
|
|
43,426 |
|
|
NA |
|
||
|
Cannabis gross margin |
|
|
33 |
% |
|
|
39 |
% |
|
|
34 |
% |
|
|
45 |
% |
|
Cannabis adjusted gross margin (1) |
|
|
33 |
% |
|
|
39 |
% |
|
|
40 |
% |
|
|
45 |
% |
|
Beverage alcohol gross margin |
|
|
59 |
% |
|
|
41 |
% |
|
|
58 |
% |
|
|
42 |
% |
|
Distribution gross margin |
|
|
8 |
% |
|
|
13 |
% |
|
|
10 |
% |
|
|
14 |
% |
|
Wellness gross margin |
|
|
36 |
% |
|
NA |
|
|
|
30 |
% |
|
NA |
|
||
|
Adjusted EBITDA (1) |
|
|
10,086 |
|
|
|
9,367 |
|
|
|
36,543 |
|
|
|
27,576 |
|
|
Cash and cash equivalents |
|
|
279,214 |
|
|
|
210,591 |
|
|
|
279,214 |
|
|
|
210,591 |
|
|
Working capital |
|
|
413,358 |
|
|
|
331,923 |
|
|
|
413,358 |
|
|
|
331,923 |
|
|
Free cash flow (1) |
|
|
(47,742 |
) |
|
|
(3,372 |
) |
|
|
(173,682 |
) |
|
|
(80,290 |
) |
|
Adjusted free cash flow (1) |
|
|
(35,600 |
) |
|
|
6,316 |
|
|
|
(105,030 |
) |
|
|
(49,938 |
) |
(1) Cannabis adjusted gross margin, adjusted EBITDA, free cash flow, and adjusted free cash flow are non-GAAP financial measures. See “Use of Non-GAAP Measures” below for a reconciliation of these Non-GAAP Measures to our most comparable GAAP measure.
NA=This reporting segment did not exist in the prior year period. The related acquisition occurred thereafter.
Segment Reporting
Management updated our reporting segments during the three and nine months ended February 28, 2022. While the Company reported “business under development” as a fifth reporting segment in its previous Annual Report, management determined that this no longer met the definition of a reporting segment. Our reporting segments revenue is primarily comprised of revenues from our cannabis, distribution, beverage alcohol operations, and wellness, as follows:
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
(in thousands of U.S. dollars) |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Cannabis business |
|
$ |
55,045 |
|
|
$ |
41,721 |
|
|
$ |
13,324 |
|
|
|
32 |
% |
|
$ |
184,269 |
|
|
$ |
147,689 |
|
|
$ |
36,580 |
|
|
|
25 |
% |
|
Distribution business |
|
|
62,532 |
|
|
|
70,237 |
|
|
|
(7,705 |
) |
|
|
(11 |
%) |
|
|
198,587 |
|
|
|
210,508 |
|
|
|
(11,921 |
) |
|
|
(6 |
%) |
|
Beverage alcohol business |
|
|
19,597 |
|
|
|
11,942 |
|
|
|
7,655 |
|
|
|
64 |
% |
|
|
48,765 |
|
|
|
12,652 |
|
|
|
36,113 |
|
|
|
285 |
% |
|
Wellness business |
|
|
14,697 |
|
|
|
— |
|
|
|
14,697 |
|
|
NM |
|
|
|
43,426 |
|
|
|
— |
|
|
|
43,426 |
|
|
NM |
|
||
|
Total net revenue |
|
$ |
151,871 |
|
|
$ |
123,900 |
|
|
$ |
27,971 |
|
|
|
23 |
% |
|
$ |
475,047 |
|
|
$ |
370,849 |
|
|
$ |
104,198 |
|
|
|
28 |
% |
Our geographic revenue is, as follows:
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
(in thousands of U.S. dollars) |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
North America |
|
$ |
73,234 |
|
|
$ |
54,190 |
|
|
$ |
19,044 |
|
|
|
35 |
% |
|
$ |
236,220 |
|
|
$ |
159,857 |
|
|
$ |
76,363 |
|
|
|
48 |
% |
|
EMEA |
|
|
74,671 |
|
|
|
68,701 |
|
|
|
5,970 |
|
|
|
9 |
% |
|
|
225,596 |
|
|
|
207,492 |
|
|
|
18,104 |
|
|
|
9 |
% |
|
Rest of World |
|
|
3,966 |
|
|
|
1,009 |
|
|
|
2,957 |
|
|
|
293 |
% |
|
|
13,231 |
|
|
|
3,500 |
|
|
|
9,731 |
|
|
|
278 |
% |
|
Total net revenue |
|
$ |
151,871 |
|
|
$ |
123,900 |
|
|
$ |
27,971 |
|
|
|
23 |
% |
|
$ |
475,047 |
|
|
$ |
370,849 |
|
|
$ |
104,198 |
|
|
|
28 |
% |
29
Our geographic capital assets are, as follows:
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
% Change |
|
||
|
(in thousands of U.S. dollars) |
|
February 28, 2022 |
|
|
May 31, 2021 |
|
|
2022 vs. 2021 |
|
|||||||
|
North America |
|
$ |
472,096 |
|
|
$ |
504,575 |
|
|
$ |
(32,479 |
) |
|
|
(6 |
%) |
|
EMEA |
|
|
127,482 |
|
|
|
140,838 |
|
|
|
(13,356 |
) |
|
|
(9 |
%) |
|
Rest of World |
|
|
3,894 |
|
|
|
5,285 |
|
|
|
(1,391 |
) |
|
|
(26 |
%) |
|
Total capital assets |
|
$ |
603,472 |
|
|
$ |
650,698 |
|
|
$ |
(47,226 |
) |
|
|
(7 |
%) |
Cannabis revenue
Cannabis revenue based on market channel is, as follows:
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
(in thousands of US dollars) |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Revenue from Canadian medical cannabis products |
|
$ |
7,050 |
|
|
$ |
5,931 |
|
|
$ |
1,119 |
|
|
|
19 |
% |
|
$ |
23,353 |
|
|
$ |
18,571 |
|
|
$ |
4,782 |
|
|
|
26 |
% |
|
Revenue from Canadian adult-use cannabis products |
|
|
43,504 |
|
|
|
48,097 |
|
|
$ |
(4,593 |
) |
|
|
(10 |
%) |
|
|
162,632 |
|
|
|
163,220 |
|
|
$ |
(588 |
) |
|
|
(0 |
%) |
|
Revenue from wholesale cannabis products |
|
|
2,804 |
|
|
|
1,327 |
|
|
$ |
1,477 |
|
|
|
111 |
% |
|
|
6,763 |
|
|
|
6,559 |
|
|
$ |
204 |
|
|
|
3 |
% |
|
Revenue from international cannabis products |
|
|
15,820 |
|
|
|
347 |
|
|
$ |
15,473 |
|
|
|
4,459 |
% |
|
|
39,792 |
|
|
|
4,627 |
|
|
$ |
35,165 |
|
|
|
760 |
% |
|
Total cannabis revenue |
|
|
69,178 |
|
|
|
55,702 |
|
|
$ |
13,476 |
|
|
|
24 |
% |
|
|
232,540 |
|
|
|
192,977 |
|
|
$ |
39,563 |
|
|
|
21 |
% |
|
Excise taxes |
|
|
(14,133 |
) |
|
|
(13,981 |
) |
|
$ |
(152 |
) |
|
|
1 |
% |
|
|
(48,271 |
) |
|
|
(45,288 |
) |
|
$ |
(2,983 |
) |
|
|
7 |
% |
|
Total cannabis net revenue |
|
$ |
55,045 |
|
|
$ |
41,721 |
|
|
$ |
13,324 |
|
|
|
32 |
% |
|
$ |
184,269 |
|
|
$ |
147,689 |
|
|
$ |
36,580 |
|
|
|
25 |
% |
Revenue from Canadian medical cannabis products: Revenue from Canadian medical cannabis products increased 19% to $7.1 million and 26% to $23.4 million for the three and nine months ended February 28, 2022, compared to revenue of $5.9 million and $18.6 million for the prior year same periods. This increase in revenue from medical cannabis products is primarily driven by the contributions of legacy Tilray’s medical cannabis business resulting from the business combination of April 30, 2021. The increase is also due to new innovative product launches, including our new brand Symbios launched earlier in the year, to address unmet medical needs and to provide patients with more choices in managing their health conditions with medical products. This increase was partially offset by the limitations caused by the COVID-19 pandemic from patients unable or unwilling to see a doctor as well as increased competition from the adult-rec and the price compression therein.
Revenue from Canadian adult-use cannabis products: During the three and nine months ended February 28, 2022, our gross revenue from Canadian adult-use cannabis product decreased 10% to $43.5 million and decreased to $162.6 million compared to revenue of $48.1 million and $163.2 million for the prior year same periods. The decrease in gross revenue from Canadian adult-use cannabis is primarily driven by the following series of factors:
|
|
• |
We continued to experience the residual impact of the COVID-19 pandemic in relation to consumer behaviors through their heightened sensitivity to price and appetite for sacrificing brand loyalty to save costs; |
|
|
• |
We continued to experience disruptions to consumer’s purchasing patterns as a result of the COVID-19 pandemic. The decline was partially driven by the government lockdowns reinstated in Ontario to combat the Omicron variant, as well as vaccine passport requirements to shop in retail stores in Quebec, reducing consumer’s accessibility to our products; and |
|
|
• |
We also experienced additional declines in average gross selling price due to increased price-based competition in the more recent months from increased competition in the market. During the three months ended February 28, 2022, we maintained our market leadership but experienced a decline in market share to 10.2% from 12.8% at November 30, 2021 as a result of these factors. |
|
|
• |
These factors were partially offset by the impact of the Arrangement, by including legacy Tilray revenue. |
We continue to focus on expanding our product offerings to accommodate the changes in our adult-use customers, During the first quarter, we completed our first shipments to Nunavut, Canada. In the second quarter of 2022, we expanded the terms of our distribution partnership with Rose LifeScience, which will now represent the entire Tilray portfolio in Quebec. In addition, we expanded
30
our partnership with Great North Distributors, Inc. to represent the entire Tilray portfolio and cover all of Canada, except for Quebec, using its established network.
The Company has also announced the planned strategic alliance with HEXO. We plan to leverage this relationship to allow us to identify production efficiencies and generate cost savings.
The nine months decrease in gross revenue is attributable to the same factors as the cause for the decrease in the three months.
Wholesale cannabis revenue: Revenue from wholesale cannabis products increased 111% to $2.8 million and increased 3% to $6.8 million for the three and nine months ended February 28, 2022 compared to revenue of $1.3 million and $6.6 million for the prior year same periods. The Company continues to believe that wholesale cannabis revenue will remain subject to quarter-to-quarter variability and is based on opportunistic sales.
International cannabis revenue: Revenue from international cannabis products increased 4,459% to $15.8 million and 760% to $39.8 million for the three and nine months ended February 28, 2022 compared to revenue of $0.3 million and $4.6 million for the prior year same periods. The increase is due to the contributions of legacy Tilray’s larger international cannabis business as well as newly obtained business to business transactions. In Europe, we believe that, despite continuing COVID-19 pressure, cannabis legalization (both medicinal and adult-use) will continue to gain traction, especially following actions of the German and Maltese governments. We also continue to believe that Tilray remains uniquely positioned to win in these markets with its infrastructure being the only company with EU-GMP cultivation facilities in two countries within Europe and our demonstrated commitment to the consistency, quality and safety of our products.
Germany. During the three and nine months ended February 28, 2022, we continued to experience deceleration in the growth of our business caused by the COVID-19 pandemic, which resulted in some patients being unable or unwilling to see a doctor. Despite these impacts, we generated 19% revenue growth in connection with our medical cannabis products when compared to the prior quarter.
Portugal. We are the only approved medical cannabis product in the market, which is distributed through our distribution partners to medical stakeholders throughout Portugal.
Luxembourg. We were selected by the Luxembourg Ministry of Health as the exclusive supplier for the country’s medical cannabis program for dried flower and oils.
Switzerland. We distribute our cannabinoid-based medical extract products to Suisse patients through our partner “Lehenmatt Apotheke”.
France. We were selected as one of the four suppliers in a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis. To date, approximately 1,500 patients are enrolled in the experiment.
Italy. We are one of five distributors licensed to import medical cannabis into the Italian medical cannabis market.
United Kingdom. In the prior quarter, we completed a shipment of a wide range of dried flower products with high, medium and balanced potencies into the UK medical cannabis market.
Ireland. We are one out of only two suppliers within the Irish market whose cannabinoid-based medical products are eligible for reimbursement.
Australia. We continue to strengthen the reputation of our Tilray medical brand whereby, through a contract with the Department of Health in Victoria, 90 children are now participating in a government funded seizure program utilizing our cannabinoid-based medical products, which will continue to the end of calendar year 2024.
Malta. We completed our first sale of medical cannabis dried flower in Malta in the quarter, and then in March, we expanded the offering and launched the first EU GMP medical cannabis oil products in Malta. Our EU-GMP medical cannabis products are now available in pharmacies across Malta, providing patients with safe and reliable access to high-quality medical cannabis.
Distribution revenue
Revenue from Distribution operations decreased 11% to $62.5 million and 6% to $198.6 million for the three and nine months ended February 28, 2022 compared to revenue of $70.2 million and $210.5 million for the prior year same periods. The decrease in
31
revenue during the three months ended February 28, 2022 is primarily due to the impact of changes in the exchange rate between the Euro and USD totaling a $6.7 million and $14.6 million reduction for the three and nine months ended February 28, 2022, when compared to prior year same periods. Additionally, the decrease in revenue during the nine months ended February 28, 2022 was also the result of the negative impact of an isolated weather event in Densborn, Germany. Specifically, heavy flooding impacted CC Pharma and forced a business closure for approximately five days leading to a decrease in net revenue in the period of almost $5.0 million.
Beverage alcohol revenue
Revenue from our Beverage operations increased to $19.6 million and $48.8 million for the three and nine months ended February 28, 2022 compared to revenue of $11.9 million and $12.7 million for the prior year same periods. The increase in the three-month period relates primarily to our acquisition of Breckenridge on December 7, 2021 but also includes an increase of almost $2.0 million in revenues generated by SweetWater. The increase in the nine-month period is consistent with the increase in the three-month period.
Earlier in the year, our beverage operations began operating our new brewing facility in Colorado and opened a new taproom at the Denver International Airport in connection with its strategic expansion initiative. In addition, we released an extensive new line of innovative products, including seltzers, as well as a new beer offering developed in collaboration with our Canadian cannabis Broken Coast brand and a new vodka soda offering developed in collaboration with our Canadian cannabis Riff brand as Tilray continues to strengthen its strategic position in the U.S. by expanding its presence through acquisitions and collaboration with other Tilray cannabis brands. This strategy of leveraging our growing portfolio of brands enables the company to launch THC-based product adjacencies upon federal legalization in the U.S.
Wellness revenue
Included in Wellness revenue is $14.7 million and $43.4 million from Manitoba Harvest, for the three and nine months ended February 28, 2022. Manitoba Harvest was part of the assets acquired in the Arrangement. There are no comparable revenues in the prior year being presented.
32
Gross profit, gross margin and adjusted gross margin(1) for our reporting segments
Our gross profit and gross margin for the three and nine months ended February 28, 2022 and 2021, is as follows:
|
(in thousands of U.S. dollars) |
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
Cannabis |
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Revenue |
$ |
69,178 |
|
|
$ |
55,702 |
|
|
$ |
13,476 |
|
|
|
24 |
% |
|
$ |
232,540 |
|
|
$ |
192,977 |
|
|
$ |
39,563 |
|
|
|
21 |
% |
|
Excise taxes |
|
(14,133 |
) |
|
|
(13,981 |
) |
|
|
(152 |
) |
|
|
1 |
% |
|
|
(48,271 |
) |
|
|
(45,288 |
) |
|
|
(2,983 |
) |
|
|
7 |
% |
|
Net revenue |
|
55,045 |
|
|
|
41,721 |
|
|
|
13,324 |
|
|
|
32 |
% |
|
|
184,269 |
|
|
|
147,689 |
|
|
|
36,580 |
|
|
|
25 |
% |
|
Cost of goods sold |
|
37,042 |
|
|
|
25,373 |
|
|
|
11,669 |
|
|
|
46 |
% |
|
|
122,492 |
|
|
|
80,780 |
|
|
|
41,712 |
|
|
|
52 |
% |
|
Gross profit |
|
18,003 |
|
|
|
16,348 |
|
|
|
1,655 |
|
|
|
10 |
% |
|
|
61,777 |
|
|
|
66,909 |
|
|
|
(5,132 |
) |
|
|
(8 |
%) |
|
Gross margin |
|
33 |
% |
|
|
39 |
% |
|
|
(6 |
%) |
|
|
(17 |
%) |
|
|
34 |
% |
|
|
45 |
% |
|
|
(12 |
%) |
|
|
(26 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation adjustments |
|
— |
|
|
|
— |
|
|
|
— |
|
|
(0%) |
|
|
|
12,000 |
|
|
|
— |
|
|
|
12,000 |
|
|
(0%) |
|
||
|
Adjusted gross profit (1) |
|
18,003 |
|
|
|
16,348 |
|
|
|
1,655 |
|
|
|
12 |
% |
|
|
73,777 |
|
|
|
66,909 |
|
|
|
6,868 |
|
|
|
19 |
% |
|
Adjusted gross margin (1) |
|
33 |
% |
|
|
39 |
% |
|
|
(6 |
%) |
|
|
(17 |
%) |
|
|
40 |
% |
|
|
45 |
% |
|
|
(5 |
%) |
|
|
(12 |
%) |
|
Distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
62,532 |
|
|
$ |
70,237 |
|
|
$ |
(7,705 |
) |
|
|
(11 |
%) |
|
$ |
198,587 |
|
|
$ |
210,508 |
|
|
$ |
(11,921 |
) |
|
|
(6 |
%) |
|
Excise taxes |
|
— |
|
|
|
— |
|
|
|
— |
|
|
NM |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
NM |
|
||
|
Net revenue |
|
62,532 |
|
|
|
70,237 |
|
|
|
(7,705 |
) |
|
|
(11 |
%) |
|
|
198,587 |
|
|
|
210,508 |
|
|
|
(11,921 |
) |
|
|
(6 |
%) |
|
Cost of goods sold |
|
57,566 |
|
|
|
61,015 |
|
|
|
(3,449 |
) |
|
|
(6 |
%) |
|
|
178,093 |
|
|
|
182,048 |
|
|
|
(3,955 |
) |
|
|
(2 |
%) |
|
Gross profit |
|
4,966 |
|
|
|
9,222 |
|
|
|
(4,256 |
) |
|
|
(46 |
%) |
|
|
20,494 |
|
|
|
28,460 |
|
|
|
(7,966 |
) |
|
|
(28 |
%) |
|
Gross margin |
|
8 |
% |
|
|
13 |
% |
|
|
(5 |
%) |
|
|
(40 |
%) |
|
|
10 |
% |
|
|
14 |
% |
|
|
(3 |
%) |
|
|
(24 |
%) |
|
Beverage alcohol |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
20,473 |
|
|
$ |
12,358 |
|
|
$ |
8,115 |
|
|
|
66 |
% |
|
$ |
51,500 |
|
|
$ |
13,112 |
|
|
$ |
38,388 |
|
|
NM |
|
|
|
Excise taxes |
|
(876 |
) |
|
|
(416 |
) |
|
|
(460 |
) |
|
|
111 |
% |
|
|
(2,735 |
) |
|
|
(460 |
) |
|
|
(2,275 |
) |
|
NM |
|
|
|
Net revenue |
|
19,597 |
|
|
|
11,942 |
|
|
|
7,655 |
|
|
|
64 |
% |
|
|
48,765 |
|
|
|
12,652 |
|
|
|
36,113 |
|
|
NM |
|
|
|
Cost of goods sold |
|
8,091 |
|
|
|
7,056 |
|
|
|
1,035 |
|
|
|
15 |
% |
|
|
20,674 |
|
|
|
7,337 |
|
|
|
13,337 |
|
|
NM |
|
|
|
Gross profit |
|
11,506 |
|
|
|
4,886 |
|
|
|
6,620 |
|
|
|
135 |
% |
|
|
28,091 |
|
|
|
5,315 |
|
|
|
22,776 |
|
|
NM |
|
|
|
Gross margin |
|
59 |
% |
|
|
41 |
% |
|
|
18 |
% |
|
|
44 |
% |
|
|
58 |
% |
|
|
42 |
% |
|
|
16 |
% |
|
|
37 |
% |
|
Wellness |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
14,697 |
|
|
$ |
— |
|
|
$ |
14,697 |
|
|
NM |
|
|
$ |
43,426 |
|
|
$ |
— |
|
|
$ |
43,426 |
|
|
NM |
|
||
|
Excise taxes |
|
— |
|
|
|
— |
|
|
|
— |
|
|
NM |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
NM |
|
||
|
Net revenue |
|
14,697 |
|
|
|
— |
|
|
|
14,697 |
|
|
NM |
|
|
|
43,426 |
|
|
|
— |
|
|
|
43,426 |
|
|
NM |
|
||
|
Cost of goods sold |
|
9,343 |
|
|
|
— |
|
|
|
9,343 |
|
|
NM |
|
|
|
30,238 |
|
|
|
— |
|
|
|
30,238 |
|
|
NM |
|
||
|
Gross profit |
|
5,354 |
|
|
|
— |
|
|
|
5,354 |
|
|
NM |
|
|
|
13,188 |
|
|
|
— |
|
|
|
13,188 |
|
|
NM |
|
||
|
Gross margin |
|
36 |
% |
|
|
— |
% |
|
|
36 |
% |
|
NM |
|
|
|
30 |
% |
|
|
— |
% |
|
|
30 |
% |
|
NM |
|
||
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
$ |
166,880 |
|
|
$ |
138,297 |
|
|
$ |
28,583 |
|
|
|
21 |
% |
|
$ |
526,053 |
|
|
$ |
416,597 |
|
|
$ |
109,456 |
|
|
|
26 |
% |
|
Excise taxes |
|
(15,009 |
) |
|
|
(14,397 |
) |
|
|
(612 |
) |
|
|
4 |
% |
|
|
(51,006 |
) |
|
|
(45,748 |
) |
|
|
(5,258 |
) |
|
|
11 |
% |
|
Net revenue |
|
151,871 |
|
|
|
123,900 |
|
|
|
27,971 |
|
|
|
23 |
% |
|
|
475,047 |
|
|
|
370,849 |
|
|
|
104,198 |
|
|
|
28 |
% |
|
Cost of goods sold |
|
112,042 |
|
|
|
93,444 |
|
|
|
18,598 |
|
|
|
20 |
% |
|
|
351,497 |
|
|
|
270,165 |
|
|
|
81,332 |
|
|
|
30 |
% |
|
Gross profit |
|
39,829 |
|
|
|
30,456 |
|
|
|
9,373 |
|
|
|
31 |
% |
|
|
123,550 |
|
|
|
100,684 |
|
|
|
22,866 |
|
|
|
23 |
% |
|
Gross margin |
|
26 |
% |
|
|
25 |
% |
|
|
2 |
% |
|
|
7 |
% |
|
|
26 |
% |
|
|
27 |
% |
|
|
(1 |
%) |
|
|
(4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation adjustments |
|
— |
|
|
|
— |
|
|
|
— |
|
|
(0%) |
|
|
|
12,000 |
|
|
|
— |
|
|
|
12,000 |
|
|
(0%) |
|
||
|
Adjusted gross profit (1) |
|
39,829 |
|
|
|
30,456 |
|
|
|
9,373 |
|
|
|
31 |
% |
|
|
135,550 |
|
|
|
100,684 |
|
|
|
34,866 |
|
|
|
35 |
% |
|
Adjusted gross margin (1) |
|
26 |
% |
|
|
25 |
% |
|
|
2 |
% |
|
|
7 |
% |
|
|
29 |
% |
|
|
27 |
% |
|
|
1 |
% |
|
|
5 |
% |
|
|
(1) |
Adjusted gross profit is our Gross profit (adjusted to exclude inventory valuation adjustments) and adjusted gross margin percentage is our Gross margin adjusted to exclude inventory valuation adjustments) and are non-GAAP financial measures. See “Use of Non-GAAP Measures” below for additional discussion regarding these non-GAAP measures. The Company’s management believes that adjusted gross profit and adjusted gross margin are useful to our management to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. |
Cannabis gross margin: Gross margin decreased during the three and nine months ended February 28, 2022 to 33% and 34% from 39% and 45% versus the prior year same periods. The three months’ decrease in cannabis gross margin is primarily related to a single wholesale cannabis sale resulting in revenue of $3.0 and negative gross profit of $2.6 million, lowering the cannabis gross margin by 7% solely related to the single transaction. The transaction was a sale of aged dried cannabis that was nearing the end of its shelf life. In addition, margins were impacted by our price reduction on vape and pre-rolled products originally initiated in the prior quarter. The nine months decrease in cannabis gross margin is a result of selling the acquired legacy-Tilray brands, which had higher costs to produce, and the Company took an additional non-cash inventory write down of $12 million in November 2021. Significant efforts have been
33
taken to reduce the Company’s cultivation costs at its legacy-Tilray Canadian facilities, including announcing the shutdown of both the Enniskillen and Nanaimo Canadian facilities. In the interim and until the inventory cultivated at these facilities is depleted, we expect to report lower gross margins until the inventory cultivated at legacy Aphria facilities replaces these products. Our European operations continue to work to optimize the cost structure for their cannabis growing facilities, including working with the Canadian operations team, all in an effort to continually lower our per unit costs.
Distribution gross margin: Gross margin of 8% and 10% for the three and nine months ended February 28, 2022 decreased from 13% and 14% from the same periods in the prior year. These declines were driven by increased costs as the Company’s primary source of products were unable to ship during border closures and during periods of peak demand. The Company also experienced higher than normal discounts and returns in the three months ended February 28, 2022.
Beverage alcohol gross margin: Gross margin of 59% and 58% for the three and nine months ended February 28, 2022 increased from 41% and 42% from the same periods in the prior year. These increases are due to the addition of Breckenridge, and its higher gross margin, during the period and a resurgence of SweetWater’s on-premises activities from the return of indoor dining. Additionally, we acquired this segment in the final week of the second quarter of the prior year, which hinders a representative comparison.
Wellness gross margin: Gross margin of 36% and 30% for the three and nine months ended February 28, 2022 are consistent with the preceding fiscal quarter. We acquired the wellness business in the Arrangement and did not operate in this segment during the same periods during prior year.
Operating expenses
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
(in thousands of US dollars) |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
General and administrative |
|
$ |
38,445 |
|
|
$ |
24,491 |
|
|
$ |
13,954 |
|
|
|
57 |
% |
|
$ |
121,401 |
|
|
$ |
78,736 |
|
|
$ |
42,665 |
|
|
|
54 |
% |
|
Selling |
|
|
8,641 |
|
|
|
6,155 |
|
|
|
2,486 |
|
|
|
40 |
% |
|
|
25,283 |
|
|
|
18,051 |
|
|
|
7,232 |
|
|
|
40 |
% |
|
Amortization |
|
|
24,590 |
|
|
|
10,786 |
|
|
|
13,804 |
|
|
|
128 |
% |
|
|
84,345 |
|
|
|
19,121 |
|
|
|
65,224 |
|
|
|
341 |
% |
|
Marketing and promotion |
|
|
7,578 |
|
|
|
3,259 |
|
|
|
4,319 |
|
|
|
133 |
% |
|
|
20,163 |
|
|
|
12,436 |
|
|
|
7,727 |
|
|
|
62 |
% |
|
Research and development |
|
|
164 |
|
|
|
127 |
|
|
|
37 |
|
|
|
29 |
% |
|
|
1,464 |
|
|
|
472 |
|
|
|
992 |
|
|
|
210 |
% |
|
Change in fair value of contingent consideration |
|
|
(29,065 |
) |
|
|
— |
|
|
|
(29,065 |
) |
|
NM |
|
|
|
(29,065 |
) |
|
|
— |
|
|
|
(29,065 |
) |
|
NM |
|
||
|
Transaction costs |
|
|
9,238 |
|
|
|
9,688 |
|
|
|
(450 |
) |
|
|
(5 |
%) |
|
|
42,937 |
|
|
|
30,352 |
|
|
|
12,585 |
|
|
|
41 |
% |
|
Total operating expenses |
|
$ |
59,591 |
|
|
$ |
54,506 |
|
|
$ |
5,085 |
|
|
|
9 |
% |
|
$ |
266,528 |
|
|
$ |
159,168 |
|
|
$ |
107,360 |
|
|
|
67 |
% |
Operating expenses are comprised of general and administrative, share-based compensation, selling, amortization, marketing and promotion, research and development, and transaction costs. These costs increased by $5.1 million and $107.4 million for the three and nine months ended February 28, 2022 as compared to the same periods of the prior year. This increase was primarily due to reporting full quarters of operating expenses for the acquired SweetWater and legacy-Tilray in fiscal 2022 and Breckenridge beginning on December 7, 2021, including non-cash amortization charges associated with definite life intangible assets acquired and general and administrative expenses. These increases were partially offset by a change in fair value of contingent consideration of $29.1 million as a result of a change in the likelihood of achieving specified earn-out EBITDA targets.
34
General and administrative costs
During the three and nine months ended February 28, 2022, general and administrative costs increased by 57% and 54% as compared to prior year same periods.
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
(in thousands of US dollars) |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Executive compensation |
|
$ |
4,238 |
|
|
$ |
1,916 |
|
|
$ |
2,322 |
|
|
|
121 |
% |
|
$ |
9,565 |
|
|
$ |
6,877 |
|
|
$ |
2,688 |
|
|
|
39 |
% |
|
Office and general |
|
|
4,012 |
|
|
|
3,446 |
|
|
|
566 |
|
|
|
16 |
% |
|
|
21,755 |
|
|
|
12,285 |
|
|
|
9,470 |
|
|
|
77 |
% |
|
Salaries and wages |
|
|
14,076 |
|
|
|
8,888 |
|
|
|
5,188 |
|
|
|
58 |
% |
|
|
37,536 |
|
|
|
27,052 |
|
|
|
10,484 |
|
|
|
39 |
% |
|
Stock-based compensation |
|
|
9,355 |
|
|
|
3,075 |
|
|
|
6,280 |
|
|
|
204 |
% |
|
|
27,025 |
|
|
|
11,414 |
|
|
|
15,611 |
|
|
|
137 |
% |
|
Insurance |
|
|
4,835 |
|
|
|
3,155 |
|
|
|
1,680 |
|
|
|
53 |
% |
|
|
14,461 |
|
|
|
9,265 |
|
|
|
5,196 |
|
|
|
56 |
% |
|
Professional fees |
|
|
3,601 |
|
|
|
2,679 |
|
|
|
922 |
|
|
|
34 |
% |
|
|
9,669 |
|
|
|
8,785 |
|
|
|
884 |
|
|
|
10 |
% |
|
Gain on sale of capital assets |
|
|
(861 |
) |
|
|
— |
|
|
|
(861 |
) |
|
NM |
|
|
|
(631 |
) |
|
|
— |
|
|
|
(631 |
) |
|
NM |
|
||
|
Insurance proceeds |
|
|
(4,032 |
) |
|
|
— |
|
|
|
(4,032 |
) |
|
NM |
|
|
|
(4,032 |
) |
|
|
— |
|
|
|
(4,032 |
) |
|
NM |
|
||
|
Travel and accommodation |
|
|
1,102 |
|
|
|
654 |
|
|
|
448 |
|
|
|
69 |
% |
|
|
2,876 |
|
|
|
1,906 |
|
|
|
970 |
|
|
|
51 |
% |
|
Rent |
|
|
2,119 |
|
|
|
678 |
|
|
|
1,441 |
|
|
|
213 |
% |
|
|
3,177 |
|
|
|
1,152 |
|
|
|
2,025 |
|
|
|
176 |
% |
|
Total general and administrative costs |
|
$ |
38,445 |
|
|
$ |
24,491 |
|
|
$ |
13,954 |
|
|
|
57 |
% |
|
$ |
121,401 |
|
|
$ |
78,736 |
|
|
$ |
42,665 |
|
|
|
54 |
% |
Executive compensation increased by 121% and 39% in the three months and nine months ended February 28, 2022, primarily due to an increase in the number of directors and executive level personnel on our board of directors and executive management team following the Tilray and Aphria combination, and an increase in base salaries commensurate with the increased complexity of our Company.
Office and general increased by 16% and 77% during the three and nine months ended February 28, 2022 primarily due to the inclusion of the acquired SweetWater and legacy-Tilray entities, and the additional one-time costs associated with the upcoming closure of our Nanaimo, Canada, facility.
Salaries and wages increased 58% and 39% in the three months and nine months ended February 28, 2022. The increase is primarily due to additions associated with the aforementioned acquisitions from the prior year. The Company’s headcount increased to approximately 1,700 employees as a result of the Arrangement compared to 1,000 employees as of February 28, 2021.
The Company recognized stock-based compensation expense of $9.4 million and $27.0 million for the three and nine months ended February 28, 2022 compared to $3.1 million and $11.4 million for the same periods in the prior year. The increase is primarily driven by the increased number of employees and the accelerated vesting of certain elements of our stock-based compensation awards related to the Arrangement.
Insurance expenses increased by 53% and 56% for the three and nine months ended February 28, 2022 due primarily to our revised directors and officers’ insurance policy. This increase reflects an increase in premium rates, as the Company continued with legacy-Tilray’s rating history.
The Company recognized $4.0 million for the three and nine months ended February 28, 2022 related to insurance recoveries under the Business Interruption and Extra Expense portions of CC Pharma’s property insurance.
Selling costs
For the three months ended February 28, 2022, the Company incurred selling costs of $8.6 million or 5.7% of revenue as compared to $6.2 million and 5.3% of revenue in the prior year same period. For the nine months ended February 28, 2022, the Company incurred selling costs of $25.3 million or 5.3% of revenue as compared to $18.1 million and 4.9% of revenue in the prior year same period. These costs relate to third-party distributor commissions, shipping costs, Health Canada cannabis fees, and patient acquisition and maintenance costs. Patient acquisition and ongoing patient maintenance costs include funding to individual clinics to assist with additional costs incurred by clinics resulting from the education of patients using the Company’s products. The increase in selling costs as a percent of revenue in both the three and nine-month periods resulted from incurred costs associated with having both Great North Distributors and Rose Lifesciences as distributors in Canada, a strategic decision intended to increase Canadian cannabis revenue. The increase is mainly driven by the combination of legacy-Tilray.
35
Amortization
The Company incurred non-production related amortization charges of $24.6 million and $84.3 million for the three and nine months ended February 28, 2022 compared to $10.8 million and $19.1 million in the prior year same periods. The increase is associated with the amortization on the acquired definite life intangible assets from SweetWater, legacy-Tilray and Breckenridge.
Marketing and promotion costs
For the three and nine months ended February 28, 2022, the Company incurred marketing and promotion costs of $7.6 million and $20.2 million as compared to $3.3 million and $12.4 million in the prior year same periods. The increase is mainly driven by the combination of legacy-Tilray.
Research and development
Research and development costs were $0.2 million and $1.5 million during the three and nine months ended February 28, 2022 compared to $0.1 million and $0.5 million in the prior year same periods. These relate to external costs associated with the development of new products. Although the Company spends a significant amount on research and development, the majority of these costs remain in costs of sales, as the Company does not reclassify research and development costs related to the cost of products consumed in research and development activities.
Transaction costs
The three months decrease of 5% is associated with the closing of the SweetWater acquisition in the prior period. The nine months increase of 41% is associated with the solicitation of stockholder votes supporting an increase in the number of authorized common stock shares, transaction closing costs related to the Arrangement, the MedMen Transaction, the Breckenridge transaction and the evaluation of other potential acquisitions and one-time litigation costs.
Non-operating (expense) income, net
Non-operating (expense) income is comprised of:
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
(in thousands of US dollars) |
|
2022 |
|
|
2020 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Change in fair value of convertible debenture |
|
$ |
56,128 |
|
|
$ |
(213,538 |
) |
|
$ |
269,666 |
|
|
|
(126 |
%) |
|
$ |
151,851 |
|
|
$ |
(283,881 |
) |
|
$ |
435,732 |
|
|
|
(153 |
%) |
|
Change in fair value of warrant liability |
|
|
21,089 |
|
|
|
— |
|
|
|
21,089 |
|
|
NM |
|
|
|
58,802 |
|
|
|
— |
|
|
|
58,802 |
|
|
NM |
|
||
|
Foreign exchange loss |
|
|
(2,548 |
) |
|
|
(3,884 |
) |
|
|
1,336 |
|
|
|
(34 |
%) |
|
|
(18,452 |
) |
|
|
(23,586 |
) |
|
|
5,134 |
|
|
|
(22 |
%) |
|
Loss on long-term investments |
|
|
(3,326 |
) |
|
|
(2,733 |
) |
|
|
(593 |
) |
|
|
22 |
% |
|
|
(6,834 |
) |
|
|
(4,252 |
) |
|
|
(2,582 |
) |
|
|
61 |
% |
|
Other non-operating (losses) gains, net |
|
|
1,376 |
|
|
|
(185 |
) |
|
|
1,561 |
|
|
|
(844 |
%) |
|
|
962 |
|
|
|
5,371 |
|
|
|
(4,409 |
) |
|
|
(82 |
%) |
|
Total non-operating income (expense) |
|
$ |
72,719 |
|
|
$ |
(220,340 |
) |
|
$ |
293,059 |
|
|
|
(133 |
%) |
|
$ |
186,329 |
|
|
$ |
(306,348 |
) |
|
$ |
492,677 |
|
|
|
(161 |
%) |
For the three and nine months ended February 28, 2022, the Company recognized a change in fair value of its APHA 24 convertible debentures of $56.1 million and $151.9 million, compared to a change in fair value of $(213.5) million and $(283.9) million for the prior year same periods. The change is driven primarily by the changes in the Company’s share price and the change in the trading price of the convertible debentures. Additionally, for the three and nine months ended February 28, 2022, the Company recognized a change in fair value of its warrants, resulting in a gain of $21.1 million and $58.8 million acquired as part of the Arrangement, also as a result of the change in our share price. Furthermore, for three and nine months ended February 28, 2022, the Company recognized a loss of $(2.5) million and $(18.5) million, resulting from the changes in foreign exchange rates during the period, compared to losses of $(3.9) million and $(23.6) million for the prior year same periods, largely associated with the strengthening of the US dollar against the Canadian dollar. The remaining other losses relate to changes in fair value in the Company’s convertible notes receivable and long-term investments.
36
Use of Non-GAAP Measures
We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors. These non-GAAP measures include:
|
|
• |
adjusted gross profit (excluding inventory valuation adjustments), |
|
|
• |
adjusted gross margin percentage, |
|
|
• |
adjusted net income (loss), |
|
|
• |
free cash flow, |
|
|
• |
adjusted free cash flow, and |
|
|
• |
adjusted EBITDA. |
For each of these non-GAAP financial measures, we have provided above or are providing below a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why our management and Board of Directors believe the non-GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use the non-GAAP measures. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable GAAP measures.
All of these non-GAAP financial measures should be considered in addition, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America, (“GAAP”). These measures, which may be different than similarly titled measures used by other companies, are presented to help investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
Adjusted net income (loss) and adjusted EBITDA
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Net income (loss) |
|
$ |
52,475 |
|
|
$ |
(258,643 |
) |
|
$ |
311,118 |
|
|
|
(120 |
%) |
|
$ |
23,668 |
|
|
$ |
(369,636 |
) |
|
$ |
393,304 |
|
|
|
(106 |
%) |
|
Adjusted net income (loss) |
|
$ |
(32,666 |
) |
|
$ |
(28,458 |
) |
|
$ |
(4,208 |
) |
|
|
15 |
% |
|
$ |
(115,636 |
) |
|
$ |
(20,403 |
) |
|
$ |
(95,233 |
) |
|
|
467 |
% |
|
Adjusted EBITDA |
|
$ |
10,086 |
|
|
$ |
9,367 |
|
|
$ |
719 |
|
|
|
8 |
% |
|
$ |
36,543 |
|
|
$ |
27,576 |
|
|
$ |
8,967 |
|
|
|
33 |
% |
Adjusted net income (loss)
Adjusted net loss represents a non-GAAP financial measure that does not have any standardized meaning prescribed under GAAP and may not be comparable to similar measures presented by other companies. Adjusted net income is calculated as net (loss) income plus (minus) the unrealized loss (gain) on convertible debentures, a non-cash item, share-based compensation, foreign exchange (loss) gain, all non-cash items, and transaction costs, costs which will not necessarily continue in future periods depending on the frequency of additional M&A considered by the Company. It represents a measure management uses in evaluating operating results to reduce the impact of the volatility caused by fair value accounting of instruments associated with our capital structure, that have no impact on operations. The increase in adjusted net loss is primarily driven by higher net loss stemming from higher amortization costs associated with the definite lived assets acquired during the year, the additional general and administrative costs associated with Tilray for the full quarter and increased non-cash unrealized loss on changes to the fair value of our convertible debentures.
37
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
Adjusted net loss reconciliation: |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Net income (loss) |
|
$ |
52,475 |
|
|
$ |
(258,643 |
) |
|
$ |
311,118 |
|
|
|
(120 |
%) |
|
$ |
23,668 |
|
|
$ |
(369,636 |
) |
|
$ |
393,304 |
|
|
|
(106 |
%) |
|
Unrealized (gain) loss on convertible debentures |
|
|
(56,128 |
) |
|
|
213,538 |
|
|
|
(269,666 |
) |
|
|
(126 |
%) |
|
|
(151,851 |
) |
|
|
283,881 |
|
|
|
(435,732 |
) |
|
|
(153 |
%) |
|
Foreign exchange loss (gain) |
|
|
2,548 |
|
|
|
3,884 |
|
|
|
(1,336 |
) |
|
|
(34 |
%) |
|
|
18,452 |
|
|
|
23,586 |
|
|
|
(5,134 |
) |
|
|
(22 |
%) |
|
Change in fair value of warrant liability |
|
|
(21,089 |
) |
|
|
— |
|
|
|
(21,089 |
) |
|
NM |
|
|
|
(58,802 |
) |
|
|
— |
|
|
|
(58,802 |
) |
|
NM |
|
||
|
Stock-based compensation |
|
|
9,355 |
|
|
|
3,075 |
|
|
|
6,280 |
|
|
|
204 |
% |
|
|
27,025 |
|
|
|
11,414 |
|
|
|
15,611 |
|
|
|
137 |
% |
|
Change in fair value of contingent consideration |
|
|
(29,065 |
) |
|
|
— |
|
|
|
(29,065 |
) |
|
NM |
|
|
|
(29,065 |
) |
|
|
— |
|
|
|
(29,065 |
) |
|
NM |
|
||
|
Inventory write down |
|
|
— |
|
|
|
— |
|
|
|
- |
|
|
NM |
|
|
|
12,000 |
|
|
|
— |
|
|
|
12,000 |
|
|
NM |
|
||
|
Transaction costs |
|
|
9,238 |
|
|
|
9,688 |
|
|
|
(450 |
) |
|
|
(5 |
%) |
|
|
42,937 |
|
|
|
30,352 |
|
|
|
12,585 |
|
|
|
41 |
% |
|
Adjusted net loss |
|
$ |
(32,666 |
) |
|
$ |
(28,458 |
) |
|
$ |
(4,208 |
) |
|
|
15 |
% |
|
$ |
(115,636 |
) |
|
$ |
(20,403 |
) |
|
$ |
(95,233 |
) |
|
|
467 |
% |
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company calculates adjusted EBITDA as net (loss) income before income taxes, net interest expense, depreciation and amortization, equity in net loss of equity-method investees, inventory write downs, stock-based compensation, integration activities, transaction costs, unrealized currency gains and losses and other adjustments.
The Company’s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation.
We do not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA is that it excludes certain expenses and income that are required by GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with GAAP results.
For the period ended February 28, 2022, adjusted EBITDA increased primarily from favorable effects of new lines of business, offset by the inclusion of legacy Tilray’s cannabis business, while we work to achieve our synergies plan, as follows:
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
Adjusted EBITDA reconciliation: |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Net income (loss) |
|
$ |
52,475 |
|
|
$ |
(258,643 |
) |
|
$ |
311,118 |
|
|
|
(120 |
%) |
|
$ |
23,668 |
|
|
$ |
(369,636 |
) |
|
$ |
393,304 |
|
|
|
(106 |
%) |
|
Income taxes |
|
|
(1,830 |
) |
|
|
6,310 |
|
|
|
(8,140 |
) |
|
|
(129 |
%) |
|
|
(2,739 |
) |
|
|
(13,707 |
) |
|
|
10,968 |
|
|
|
(80 |
%) |
|
Interest expense, net |
|
|
2,312 |
|
|
|
7,943 |
|
|
|
(5,631 |
) |
|
|
(71 |
%) |
|
|
22,422 |
|
|
|
18,511 |
|
|
|
3,911 |
|
|
|
21 |
% |
|
Non-operating expense (income), net |
|
|
(72,719 |
) |
|
|
220,340 |
|
|
|
(293,059 |
) |
|
|
(133 |
%) |
|
|
(186,329 |
) |
|
|
306,348 |
|
|
|
(492,677 |
) |
|
|
(161 |
%) |
|
Amortization |
|
|
37,020 |
|
|
|
20,282 |
|
|
|
16,738 |
|
|
|
83 |
% |
|
|
113,824 |
|
|
|
43,292 |
|
|
|
70,532 |
|
|
|
163 |
% |
|
Stock-based compensation |
|
|
9,355 |
|
|
|
3,075 |
|
|
|
6,280 |
|
|
|
204 |
% |
|
|
27,025 |
|
|
|
11,414 |
|
|
|
15,611 |
|
|
|
137 |
% |
|
Change in fair value of contingent consideration |
|
|
(29,065 |
) |
|
|
— |
|
|
|
(29,065 |
) |
|
NM |
|
|
|
(29,065 |
) |
|
|
— |
|
|
|
(29,065 |
) |
|
NM |
|
||
|
Facility start-up and closure costs |
|
|
2,500 |
|
|
|
— |
|
|
|
2,500 |
|
|
NM |
|
|
|
10,400 |
|
|
|
— |
|
|
|
10,400 |
|
|
NM |
|
||
|
Lease expense |
|
|
800 |
|
|
|
372 |
|
|
|
428 |
|
|
|
115 |
% |
|
|
2,400 |
|
|
|
1,002 |
|
|
|
1,398 |
|
|
|
140 |
% |
|
Inventory write down |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
NM |
|
|
|
12,000 |
|
|
|
— |
|
|
|
12,000 |
|
|
NM |
|
||
|
Transaction costs |
|
|
9,238 |
|
|
|
9,688 |
|
|
|
(450 |
) |
|
|
(5 |
%) |
|
|
42,937 |
|
|
|
30,352 |
|
|
|
12,585 |
|
|
|
41 |
% |
|
Adjusted EBITDA |
|
$ |
10,086 |
|
|
$ |
9,367 |
|
|
$ |
719 |
|
|
|
8 |
% |
|
$ |
36,543 |
|
|
$ |
27,576 |
|
|
$ |
8,967 |
|
|
|
33 |
% |
38
Adjusted EBITDA should not be considered in isolation from, or as a substitute for, net loss. There are a number of limitations related to the use of Adjusted EBITDA as compared to net loss, the closest comparable GAAP measure. Adjusted EBITDA adjusts for the following:
|
|
• |
Current and deferred income tax expenses and recoveries, which could be a significant recurring expense or recovery in our business in the future and reduce or increase cash available to us. |
|
|
• |
Interest expense and loss on disposal of property and equipment to reflect ongoing operating activities; |
|
|
• |
Non-cash foreign exchange gains or losses, which accounts for the effect of both realized and unrealized foreign exchange transactions. Unrealized gains or losses represent foreign exchange revaluation of foreign denominated monetary assets and liabilities; |
|
|
• |
Non-cash change in fair value of warrant liability; |
|
|
• |
Non-cash amortization and amortization expenses and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; |
|
|
• |
Stock-based compensation expenses, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy; |
|
|
• |
Non-cash inventory valuation adjustments; |
|
|
• |
Non-cash loss from equity method investments; |
|
|
• |
Costs incurred to start up new facilities and/or to close facilities in Nanaimo, Canada and Enniskillen, Canada; |
|
|
• |
Lease expense; |
|
|
• |
Non-cash inventory write down; and |
|
|
• |
Transaction costs associated with current and future business acquisitions. |
Liquidity and Capital Resources
We actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, and make acquisitions. On March 3, 2021, we entered into an at the market offering arrangement (the ATM Program) pursuant to which we may offer and sell common stock having an aggregate offering price of up to $400 million. The ATM Program is intended to strengthen our balance sheet and improve our liquidity position (refer to Part I, Financial Information, Note 24 Subsequent Events of this interim report). In addition, the Company may from time to time use excess cash to repurchase its outstanding convertible debentures in open market transactions. We believe that existing cash, cash equivalents, short-term investments and cash generated by operations, together with expected proceeds from the ATM Program and access to external sources of funds, will be sufficient to meet our domestic and foreign capital needs in the foreseeable future.
The following table sets forth the major components of our statements of cash flows for the periods presented:
|
|
|
For the nine months ended February 28, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net cash used in operating activities |
|
$ |
(156,738 |
) |
|
$ |
(52,966 |
) |
|
Net cash used in investing activities |
|
$ |
(16,618 |
) |
|
$ |
(303,082 |
) |
|
Net cash (used in) provided by financing activities |
|
$ |
(33,612 |
) |
|
$ |
187,184 |
|
|
Effect on cash of foreign currency translation |
|
$ |
(2,284 |
) |
|
$ |
18,809 |
|
|
Cash and cash equivalents, beginning of period |
|
$ |
488,466 |
|
|
$ |
360,646 |
|
|
Cash and cash equivalents, end of period |
|
$ |
279,214 |
|
|
$ |
210,591 |
|
|
Decrease in cash and cash equivalents |
|
$ |
(209,252 |
) |
|
$ |
(150,055 |
) |
Cash flows from operating activities
The change in net cash used in operating activities during the nine months ended February 28, 2022 compared to the prior year same period is primarily related to payments associated with the Arrangement, income taxes at Aphria Diamond, investments in inventory and settlement of accounts payable and accrued liabilities in the period.
39
Cash flows from investing activities
The change in net cash used in investing activities in the first three fiscal quarters of 2022 as compared to the first three fiscal quarters of 2021 is primarily due to the disbursement of cash used for the SweetWater acquisition in fiscal year 2021.
Cash flows from financing activities
The change in cash used in financing activities in the first three fiscal quarters of 2022 as compared to the first three fiscal quarters of 2021 is primarily due to an early payment on SweetWater’s term loan facility in fiscal year 2022, and the share capital and debt financings completed in fiscal year 2021 that did not recur in fiscal year 2022.
Free cash flow and adjusted free cash flow
Free cash flow and adjusted free cash flow are non-GAAP measures. Free cash flow is relevant to management and investors, because it represents the cash flow available to the Company to repay creditors or potentially make distributions to investors. The measure is comprised of two GAAP amounts deducted from each other which are net cash flow used in operating activities less investments, net of proceeds from disposals, in capital and intangible assets. Adjusted free cash flow removes the cash impact of acquisitions from free cash flow. Our free cash flow and adjusted free cash flow were, as follows:
|
|
|
For the three months ended February 28, |
|
|
Change |
|
|
% Change |
|
|
For the nine months ended February 28, |
|
|
Change |
|
|
% Change |
|
||||||||||||||
|
Free cash flow |
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
|
2022 |
|
|
2021 |
|
|
2022 vs. 2021 |
|
||||||||||||||
|
Net cash provided by (used in) operating activities |
|
$ |
(46,390 |
) |
|
$ |
696 |
|
|
$ |
(47,086 |
) |
|
|
(6,765 |
%) |
|
$ |
(156,738 |
) |
|
$ |
(52,966 |
) |
|
$ |
(103,772 |
) |
|
|
196 |
% |
|
Less: investments in capital and intangible assets, net |
|
|
(1,352 |
) |
|
|
(4,068 |
) |
|
|
2,716 |
|
|
|
(67 |
%) |
|
|
(16,944 |
) |
|
|
(27,324 |
) |
|
|
10,380 |
|
|
|
(38 |
%) |
|
Free cash flow |
|
$ |
(47,742 |
) |
|
$ |
(3,372 |
) |
|
$ |
(44,370 |
) |
|
|
1,316 |
% |
|
$ |
(173,682 |
) |
|
$ |
(80,290 |
) |
|
$ |
(93,392 |
) |
|
|
116 |
% |
|
Cash expended related to acquisitions |
|
|
12,142 |
|
|
|
9,688 |
|
|
|
2,454 |
|
|
|
25 |
% |
|
|
68,652 |
|
|
|
30,352 |
|
|
|
38,300 |
|
|
|
126 |
% |
|
Adjusted free cash flow |
|
$ |
(35,600 |
) |
|
$ |
6,316 |
|
|
$ |
(41,916 |
) |
|
|
(664 |
%) |
|
$ |
(105,030 |
) |
|
$ |
(49,938 |
) |
|
$ |
(55,092 |
) |
|
|
110 |
% |
Subsequent Events
Refer to Part I, Financial Information, Note 24 Subsequent Events of this interim report.
Off Balance Sheet Arrangements
At February 28, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have had, or are likely to have, a material current or future effect on our consolidated financial statements.
Contingencies
In addition to the litigation described in the Part II, Item 1 - Legal Proceedings, the Company is and may be a defendant in lawsuits from time to time in the normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated results of operations, financial position, cash flows or liquidity.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to revenue recognition, valuation of inventory, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
40
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in “Part I, Item 1. Note 2 – Basis of presentation and summary of significant accounting policies” to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant changes in market risk from those addressed in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2021 during the nine months ended February 28, 2022. See the information set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of February 28, 2022, our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Consistent with guidance issued by the SEC, the scope of management’s assessment of the effectiveness of our disclosure controls and procedures did not include the internal controls over financial reporting of legacy Tilray and Breckenridge, which we acquired on April 30, 2021 and December 7, 2021 respectively. Legacy Tilray and Breckenridge represented 7.6% and 2.1% of our consolidated assets and 24.5% and 1.2% of our consolidated revenues as of and for the nine months ended February 28, 2022.
Changes in Internal Control over Financial Reporting
On January 1, 2022, Tilray successfully implemented a new Enterprise Resource Planning (ERP) system in the Company's SweetWater Brewery operations. As a result, financial and operating transactions are recorded utilizing modern functionality provided by the new ERP system. This new system is not in response to any identified deficiency or weakness in internal controls over financial reporting but to replace an aging system. The system implementation was designed, in part, to enhance the overall system of internal controls over financial reporting through further automation of various business processes. Except for the preceding change, there have been no changes in Tilray’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As mentioned above, the Company acquired legacy Tilray and Breckenridge on April 30, 2021 and December 7, 2022 respectively. The Company is in the process of reviewing the internal control structure of legacy Tilray and Breckenridge and, if necessary, will make appropriate changes as it integrates legacy Tilray and Breckenridge into the Company’s overall internal control over financial reporting process.
41
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
"Item 3. Legal Proceedings" of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021 includes a discussion of our legal proceedings. There have been no material changes from the legal proceedings described in our Form 10-K, except with respect to the matters disclosed below.
Class Action Suits and Stockholder Derivative Suits – U.S. and Canada
Dismissal of Authentic Brands Group Related Class Action (New York, United States)
On May 4, 2020, Ganesh Kasilingam filed a lawsuit in the U.S. District Court for the Southern District of New York, against Tilray Brands, Inc., Brendan Kennedy and Mark Castaneda, on behalf of himself and a putative class, seeking to recover damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Kasilingam litigation”). The complaint alleged that Tilray and the individual defendants overstated the anticipated advantages of the Company’s revenue sharing agreement with Authentic Brands Group (“ABG”), announced on January 15, 2019, and that the plaintiff suffered losses when Tilray’s stock price dropped after Tilray recognized an impairment with respect to the ABG deal on March 2, 2020.
On September 27, 2021, the U.S. District Court entered an Opinion & Order granting the Defendants’ motion to dismiss the complaint in the Kasilingam litigation. On December 3, 2021, the lead plaintiff filed a second amended complaint alleging similar claims against Tilray and Brendan Kennedy. The Defendants intend to file a motion to dismiss this amended complaint as well.
Tilray Brands, Inc. Reorganization Litigation (Delaware, New York) – Special Litigation Committee
On February 27, 2020, Tilray stockholders Deborah Braun and Nader Noorian filed a class action and derivative complaint in the Delaware Court of Chancery styled Braun v. Kennedy, C.A. No. 2020-0137-KSJM. On March 2, 2020, Tilray stockholders Catherine Bouvier, James Hawkins, and Stephanie Hawkins filed a class action and derivative complaint in the Delaware Court of Chancery styled Bouvier v. Kennedy, C.A. No. 2020-0154-KSJM.
On March 4, 2020, the Delaware Court of Chancery entered an order consolidating the two cases and designating the complaint in the Braun/Noorian action as the operative complaint. The operative complaint asserts claims for breach of fiduciary duty against Brendan Kennedy, Christian Groh, Michael Blue, and Privateer Evolution, LLC (the “Privateer Defendants”) for alleged breaches of fiduciary duty in their alleged capacities as Tilray’s controlling stockholders and against Kennedy, Maryscott Greenwood, and Michael Auerbach for alleged breaches of fiduciary duties in their capacities as directors and/or officers of Tilray in connection with the prior merger of Privateer Holdings, Inc. with and into a wholly owned subsidiary (the “Downstream Merger”). The complaint alleges that the Privateer Defendants breached their fiduciary duties by causing Tilray to enter into the Downstream Merger and Tilray’s Board to approve that Downstream Merger, and that Defendants Kennedy, Greenwood, and Auerbach breached their fiduciary duties as directors by approving the Downstream Merger. Plaintiffs allege that the Downstream Merger gave the Privateer Defendants hundreds of millions of dollars of tax savings without providing a corresponding benefit to Tilray and its minority stockholders and that the Downstream Merger unfairly transferred and extended Kennedy, Blue, and Groh’s control over Tilray. On July 17, 2020, the plaintiffs filed an amended complaint asserting substantially similar claims. On August 14, 2020, Tilray and the Privateer Defendants moved to dismiss the amended complaint. At the February 5, 2021 hearing on Defendants’ Motions to Dismiss, the Plaintiffs agreed that their perpetuation of control claims are moot and stated that they intend to move for a fee award in connection with those claims. On June 1, 2021, the Court denied Defendants’ Motions to Dismiss the Amended Complaint.
In August 2021, the Company’s Board of Directors established a Special Litigation Committee (the “SLC”) of independent directors to re-assert director control and investigate the derivative claims in this litigation matter. The SLC has appointed the law firm Wilson Sonsini to assist the SLC with an ongoing investigation of the underlying claim and determine whether continued prosecution of such claims is in the best interests of the Company. The SLC has successfully moved to have the Plaintiff’s discovery stayed during their investigation.
Docklight Litigation
On November 5, 2021 Docklight Brands, Inc. (“Docklight”) filed a complaint against the Company and its wholly-owned subsidiary, High Park Holdings, Ltd. (“High Park”) in Superior Court of the State of Washington, King County. Docklight claimed breach of contract against High Park arising from a 2018 license agreement pursuant to which Docklight licensed certain Bob Marley-related brands to High Park (as amended in 2020 and 2021, the “High Park License”). In addition, Docklight brought a negligent misrepresentation claim against Tilray, alleging that certain individuals at Tilray or Aphria had made false statements to Docklight in order to induce Docklight to waive Docklight’s alleged right to terminate the High Park License for change-of-control on the basis of the 2021 Tilray-Aphria merger. Docklight seeks injunctive relief as well as unspecified damages. On December 21, 2021, the Company removed the case to the United States District Court, Federal District of Washington. The Company’s answer to the complaint, denying
42
substantially all of Docklight’s allegations, was timely filed on January 21, 2022, together with numerous counterclaims. Tilray intends to vigorously defend Docklight’s claims.
Item 1A. Risk Factors.
“Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021 includes a discussion of our known material risk factors, other than risks that could apply to any issuer or offering. A summary of our risk factors is included below. There have been no material changes from the risk factors described in our Form 10-K.
|
|
• |
The proposed HEXO transaction remains subject to the Company’s satisfactory completion of confirmatory due diligence and the Company successfully negotiating and executing definitive agreements with HEXO and the other parties. We may not be able to successfully complete the HEXO transaction, and there can be no assurance that Company will be able to achieve the expected production efficiencies and potential cost saving synergies resulting from the Transaction or other proposed commercial arrangements. |
|
|
• |
Events and conditions relating to Russia’s current conflict with Ukraine have had, and may continue to have, a significant adverse impact on fuel and transportation costs and may cause supply and demand disruptions in the markets we serve, including Europe. |
|
|
• |
We are still completing our integration efforts following completion of the Arrangement between Tilray and Aphria on April 30, 2021 and may experience challenges fully achieving the expected benefits of the Arrangement. |
|
|
• |
We face ongoing risks related to the ongoing COVID-19 pandemic. The impact of the Delta, Omicron and any new variants will continue to adversely impact our operations and adversely adverse effect our business, results of operations and financial condition. |
|
|
• |
Our business is dependent upon regulatory approvals and licenses, ongoing compliance and reporting obligations, and timely renewals. |
|
|
• |
Government regulation is evolving, and unfavorable changes could impact our ability to carry on our business as currently conducted and the potential expansion of our business. |
|
|
• |
Our production and processing facilities are integral to our business and adverse changes or developments affecting our facilities may have an adverse impact on our business. |
|
|
• |
We face intense competition, and anticipate competition will increase, which could hurt our business. |
|
|
• |
We may not be able to successfully develop new products or commercialize such products. |
|
|
• |
The long-term effect of the legalization of adult-use cannabis in Canada on the medical cannabis industry is unknown, and may negatively impact our medical cannabis business. |
|
|
• |
United States regulations relating to hemp-derived CBD products are unclear and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives. |
|
|
• |
We have a limited operating history and a history of net losses, and we may not achieve or maintain profitability in the future. |
|
|
• |
We are subject to litigation, arbitration and demands, which could result in significant liability and costs, and impact our resources and reputation. |
|
|
• |
We are exposed to risks relating to the laws of various countries as a result of our international operations. |
|
|
• |
Our strategic alliances and other third-party business relationships may not achieve the intended beneficial impact and expose us to risks. |
|
|
• |
We depend on significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly. |
|
|
• |
Significant interruptions in our access to certain supply chains for key inputs such as raw materials, supplies, electricity, water and other utilities may impair our operations. |
|
|
• |
Management may not be able to successfully establish and maintain effective internal controls over financial reporting. |
|
|
• |
The price of our common stock in public markets has experienced and may continue to experience severe volatility and fluctuations. |
43
|
|
• |
The volatility of our stock and the stockholder base may hinder or prevent us from engaging in beneficial corporate initiatives. |
|
|
• |
The terms of our outstanding warrants may limit our ability to raise additional equity capital or pursue acquisitions, which may impact funding of our ongoing operations and cause significant dilution to existing stockholders. |
|
|
• |
We may not have the ability to raise the funds necessary to settle conversions of the convertible securities in cash or to repurchase the convertible securities upon a fundamental change. |
|
|
• |
We may not become the world's leading cannabis-focused consumer branded company with up to $4 billion of revenue by 2024; |
|
|
• |
We are subject to other risks generally applicable to our industry and the conduct of our business. |
44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Equity Securities
On December 1, 2021, the Company acquired all of the membership interests of Cheese Grits, LLC, a Georgia based company (the “SW Acquisition”) that owned the real estate utilized and previously leased by SweetWater Brewing Company. As consideration for the SW Acquisition, the Company paid a purchase price at closing equal to $30,665,000, which was satisfied through the assumption of outstanding debt as well as the issuance of 843,687 shares of Tilray’s Class 2 common stock. On December 17, 2021, the Company issued an additional 82,224 Class 2 common shares as consideration for the SW Acquisition.
On December 7, 2021, the Company acquired all of the membership interests of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company (the “Breckenridge Acquisition”). As consideration for the Breckenridge Acquisition, the Company paid a purchase price in an aggregate amount equal to $102,900,000, which purchase price was satisfied through the issuance of 11,245,511 shares of Tilray’s Class 2 common shares to the selling unitholders.
On December 17, 2021, the Company acquired intellectual property and inventory relating to the Alpine and Green Flash craft brew brands from WC IPA LLC (the “Alpine Acquisition”). As consideration for the Alpine Acquisition, the Company paid a purchase price in an aggregate amount equal to $5,133,000 which purchase price was satisfied through the payment of cash and the issuance of 366,308 shares of Tilray’s Class 2 common shares.
On January 11, 2022, the Company issued an additional 1,294,968 Class 2 common shares to the selling unitholders to meet its contractual obligations in connection with the Breckenridge Acquisition.
On January 11, 2022, the Company issued an additional 2,743,485 Class 2 common shares to Wyckoff Farms, Inc. to meet its contractual obligations in pursuant to certain settlement arrangements.
Each of the foregoing issuances of Tilray’s Class 2 common stock was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for the offer and sale of securities not involving a public offering. No underwriter participated in the offer and sale of the shares issued pursuant to the foregoing issuances, and no commission or other remuneration was paid or given directly or indirectly in connection therewith.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
45
Item 6. Exhibits.
|
Exhibit Number |
|
Description |
|
|
|
|
|
3.1 |
|
|
|
3.2 |
|
|
|
4.1 |
|
|
|
4.2 |
|
|
|
4.3 |
|
|
|
31.1* |
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
32.1* |
|
|
|
|
|
|
|
32.2* |
|
|
|
|
|
|
|
101* |
|
The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2022, formatted in Inline XBRL: (i) Consolidated Statements of Financial Position, (ii) Consolidated Statements of Loss and Comprehensive Loss , (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
|
|
|
|
|
104* |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
* |
Filed herewith. |
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
Tilray Brands, Inc. |
|
|
|
|
|
|
|
Date: April 6, 2022 |
|
By: |
/s/ Irwin D. Simon |
|
|
|
|
Irwin D. Simon |
|
|
|
|
Chairman and Chief Executive Officer |
|
|
|
|
|
|
Date: April 6, 2022 |
|
By: |
/s/ Carl Merton |
|
|
|
|
Carl Merton |
|
|
|
|
Chief Financial Officer |
47
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Irwin D. Simon, certify that:
|
1. |
I have reviewed this Form 10-Q of Tilray Brands, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
|
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: April 6, 2022 |
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By: |
/s/ Irwin D. Simon |
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Irwin D. Simon |
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Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carl A. Merton, certify that:
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1. |
I have reviewed this Form 10-Q of Tilray Brands, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Date: April 6, 2022 |
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By: |
/s/ Carl A. Merton |
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Carl A. Merton |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Tilray Brands, Inc. (the “Company”) on Form 10-Q for the period ending February 28, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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Date: April 6, 2022 |
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By: |
/s/ Irwin D. Simon |
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Irwin D. Simon |
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Chairman and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Tilray Brands, Inc. (the “Company”) on Form 10-Q for the period ending February 28, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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Date: April 6, 2022 |
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By: |
/s/ Carl A. Merton |
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Carl A. Merton |
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Chief Financial Officer |