Tilray Brands Inc

NASDAQ:TLRY

Earnings Call Analysis

Tilray Reports 13% Revenue Growth with Strong Margin Improvements

In Q1, Tilray achieved a record $200 million in net revenue, reflecting a 13% growth year-over-year. The beverage alcohol segment soared by 132% to $56 million. Cannabis revenue was stable at $61.2 million despite a focus on margin preservation. Gross profit climbed 35% to $59.7 million, raising gross margins by over 500 basis points to 30%. Adjusted net loss improved by 78% to $6.1 million. The company expects significant opportunities in hemp-derived Delta-9 beverages, targeting $30 million in additional revenue by FY2025 and aiming for overall revenues between $950 million and $1 billion.

Tilray Brands: A Pioneering Journey in Consumer Products

Tilray Brands has evolved tremendously over the last five years, transitioning from a Canadian cannabis company to a diversified consumer products giant. The company operates in over 20 countries and five continents, boasting a portfolio of 44 lifestyle brands. Its vertical integration allows Tilray to produce approximately 90% of its products in-house, maintaining high quality across products. This strategic direction illustrates Tilray's appealing market position as a leader in cannabis and beverage sectors.

Strong First Quarter Performance

For the first quarter, Tilray reported record net revenues of $200 million, marking a 13% growth from $177 million in the same quarter last year. In constant currency, net revenue reached $204 million. The beverage alcohol segment soared with an impressive 132% year-over-year increase, generating $56 million. In the cannabis segment, net revenue amounted to $61.2 million, while wellness grew by 11%. This reflects strong operational focus and strategic growth in key markets.

Improved Margins and Profitability

Gross profit increased by 35% to $59.7 million, with gross margin rising to 30%, representing a more than 500 basis point improvement compared to the previous year. The adjusted gross profit and margins also showed significant growth. Moreover, Tilray's net loss decreased by 38% to $34.7 million, highlighting operational efficiency improvements as the company balanced profitability with market share. The adjusted net loss was reduced by 78%. This solid financial performance contributes positively to Tilray's robust balance sheet.

Strategic Focus on Growth Segments

Tilray's beverage segment is experiencing rapid expansion, with craft beer being a significant driver. Increased distribution, including the opening of new brew pubs and strategic acquisitions like ABI’s craft brands, consolidate Tilray's position as the fifth-largest craft beer producer in the U.S. The positive momentum in revenues can be traced back to effective branding and marketing initiatives in various regions, with brands like SweetWater and 10 Barrel leading the way.

Adjustments in Cannabis Strategy

While cannabis revenue faced a slight year-over-year decline of 13%, the focus has shifted towards improving gross margins through selective market share management and maintaining a higher average selling price. This shift aims to capitalize on the more profitable segments, adhering to a strategy of profitable growth over sheer volume. Thus, cannabis gross profit increased nominally, with margins climbing over 500 basis points, exemplifying a sustainable business model.

International Market Engagement and Future Outlook

Internationally, particularly in Europe, Tilray is strategically poised to benefit from burgeoning medical markets, with Germany showcasing a promising 50% increase in flower revenues. The European medical cannabis market is projected to be approximately $45 billion over the long term, representing a significant opportunity for revenue growth. Tilray's commitment to expanding its cultivation capabilities through new licenses reinforces its competitive advantage in the region.

Diverse Innovations in Wellness and Beverage Products

The company is also actively innovating in the wellness sector, leveraging its Manitoba Harvest brand to maintain a leading position in the hemp market. Wellness revenues grew 11% fueled by strong sales and innovative product offerings. Recently launched alternative beverages further enhance Tilray’s product range, ensuring adaptability to market trends.

Looking Ahead: Guidance and Market Strategy

Tilray maintains a full-year revenue guidance of $950 million to $1 billion, anticipating ongoing growth derived from existing market expansions and potential future acquisitions. This focus on strategic growth aligns with the company's trajectory toward maximizing shareholder value and sustaining its leadership position in the consumer goods space. The management's approach suggests a deliberate balance between grabbing market share and ensuring profitability.

Earnings Call Transcript 2025-Q1

[Operator]

Thank you for joining today's conference call to discuss Tilray Brands financial results for the first quarter ended August 31, 2024. [Operator Instructions] I will now turn the call over to Ms. Berrin Noorata, Tilray Brands Chief Communications and Corporate Affairs Officer.

Thank you. You may begin.

[Berrin Noorata, executive]

Thank you, operator, and good morning, everyone. By now, you should have access to the earnings press release, which is available on the Investors section of the Tilray Brands website at tilbray.com and has been filed with the SEC and the CSA. Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.

In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may provide to be incorrect. Actual results could differ materially from those described in those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements.

Today, we will be hearing from key members of our senior leadership team, beginning with Irwin Simon, Chairman and Chief Executive Officer; who will provide opening remarks and commentary, followed by Carl Merton, Chief Financial Officer, will review our first quarter financial results for the fiscal year 2025.

Also joining us for the question-and-answer segment are Denise Faltischek, Chief Strategy Officer and Head of International; Blair MacNeil, President of Tilray Canada; and Ty Gilmore, President of Tilray Beverages North America.

And now I'd like to turn the call over to Tilray Brands Chairman and CEO, Irwin Simon.

[Irwin Simon, executive]

Thank you, Berrin, and good morning, everyone, and thank you for joining us today. In the last 5 years, Tilray brands has evolved into a new company. We no longer are just a Canadian cannabis LP, Tilray brands has grown tremendously, and we're setting a new precedent for the CPG industry. Not only have we set the stage for a new era of consumer habits, Tilray brands has pushed forward, disrupting the global CPG industry and revolutionizing consumer products.

Tilray is at the forefront of innovation, pioneering and leading the convergence of beverages, cannabis hemp wellness and distribution industries on a global scale. Our operations span over 20 countries and 5 continents with 44 consumer connected lifestyle brands and 20 vertically integrated facilities that produce approximately 90% of our products in-house, ensuring the highest quality of our products. Tilray continues to lead with the #1 cannabis business in Canada, a leading medical cannabis business across Europe the #1 branded hemp business in North America and the fifth largest craft beer business in the U.S..

Our success in building a new era of consumer products that resonates with today's discerning consumers and caters to their ever-evolving consumption habits and transform the way consumers eat, drink and unwind with cannabis, hemp and beverage products. is a testament to our commitment on delivering innovative products that meet the needs of the modern consumer and drive growth across industries.

Moving on to Q1. We achieved our record first quarter net revenue results while strengthening our operations, increasing gross margin and increasing our gross profit. we hit net revenue of $200 million, representing a 13% growth year-over-year. Our gross profit increased by 35% and gross margin increased by over 500 basis points compared to the prior year quarter.

Our beverage business, including craft beer, spirits and our new non-alc beers and other nonalcoholic drinks grew 132% in net revenue year-over-year. we strengthened our leadership position as the fifth largest U.S. craft beer brewer with a 5% market share as a result of our craft acquisition from ABI.

We recently launched a new beverage division called Tilray Alternative Beverages, focused on [indiscernible] key markets across the U.S. with innovative federal legal hemp-derived Delta-9 EHC branded and branded products. This is an exciting new segment for us and our network of distributors, which I'll get into in more detail shortly. We focused our cannabis business on strengthening our operations and increasing our margins, leading to a gross profit increasing by 22%. We continue to lead the branded hemp food industry with a 52% branded market share with Manitoba Harvest in the U.S. and the Canadian market share of nearly 80%.

And our financial foundation remains strong with a robust balance sheet, ample cash reserves, reduced debt levels and flexibility to explore potential new acquisitions. Our financial strength enables us to pursue new opportunities and capitalize on emerging trends in the market.

Let's now dive deeper into each of our business segments. Starting with Tilray Beverages. Today, our beverage division leads with 19 iconic brands, 10 network manufacturing facilities and over 700 distributors, 20 brew pubs and restaurants and leading sales and marketing teams across the U.S. Our beverage strategy is focused on growing our portfolio of brands in selected states, regional markets and ensuring product excellence and innovation. Driving focused scale, expanding targeted distribution to increase our market [ prenetation ] and consumer access. In our Beverage segment, we generated $56 million of net revenue in Q1.

Across our growing craft brands, SweetWater is the #1 volume brand family in Georgia, multi-outlet and convenience stores. Montauk is the #1 branded family in New York Metro have an increase at a rate of sale of 240 basis points year-over-year, and Tilray is the #1 craft supplier in the Pacific Northwest thanks in part to the continued success of 10 barrels pub beer. Shock Top remains a leading priority as we relaunched the brand's #1 seasonal offering, Shock Top Pretzel, during Q1 and Q2, we're driving an additional 5,000 distribution points in the last 45 days.

The Pacific Northwest grew overall Shock Top distribution by 42% during the Q1. We adding 1,100 new placements for the brand. In the Northeast, Montauk's flagship, Wave chaser IPA continues to post positive year-over-year volume distribution gains, adding a net of 139 off-premise accounts during Q1, 3 of SweetWater's top 12-pack SKUs, [indiscernible], OG IPA and the Hazy IPA, all posted positive trends for Q1, trending a plus 7%, a plus 24% and a plus 17%, respectively.

As we've mentioned before, our ambition is far beyond our current reach as we continue our focus to become a dominant leading beverage business by leveraging and are strengthening our portfolio of the Love It local craft brands, recruiting new customers and activating more occasions, driving new growth across these brands. Additionally, we are innovating across adjacent categories, including flavored malt beverages, ready-to-drink cocktails, spirits and also be on alcohol, we will grow our non-alc beer category and expand further into water, energy and other categories. Our powerful college sports partnerships across the country. will be leveraged to bring new LDA consumers and fans into different brand families, especially Shock Top.

Separately, our MLS music events and multiple community partnerships allow our brands to recruit and retain our core customers across different age groups. We have the manufacturing facilities, the distribution, the sales and marketing infrastructure to drive tremendous growth in the Tilray beverage business. In the nonalcoholic segment, Montauk non-alc beers has now sold in 650 accounts and new brand, Runners High Brewing Company has launched in the Southeast with 3 brews, Runners High Golden wheat, raspberry wheat and dark chocolate with several expansion markets to follow. With over 700 beer distributors, Tilray is now a leading supplier in key regions across the U.S. with regional jewels in the Northeast, Pacific Northwest, Colorado, Texas, Michigan and the Southeast. With each Fever acquisition we've made over the past few years SweetWater, Green Flash, Alpine, Montauk [indiscernible], the craft acquisitions from ABI and most recently, the acquisitions of our 4 brands in Molson Coors.

We are laser focused on operational efficiency, optimizing cost structure and getting the margins of acquired brands up above 40%, like sweet water and our other legacy businesses. We've identified additional growth opportunities in our beverage business. Tilray Beverage is going after category diversification, and we've identified core categories we expect to generate $30 million in revenue by the end of fiscal 2025. These 4 categories include Light loggers $117 million category. Flavored malt beverages, a $4.7 billion category, sparkling water, a $12 billion category and the non-alc [indiscernible] of $445 million category. With our recent launch of Tilray alternative beverages, we are focused on fueling the U.S. with hemp-derived Delta-9 beverages, which is an estimated $2.8 billion market in the U.S. we're beginning to launch our hemp-derivative Delta-9 PAC brands and products in key states, including Florida, Texas, Louisiana, Minnesota, North Carolina, South Carolina, Ohio, Georgia, Alabama, Oklahoma and Tennessee with distribution driven by our existing and robust beer distribution network.

Our initial portfolio of HDD 9 brands include Happy flower, Urban Bloom, 420 Hops, [ Pizza ], and we expect to launch additional brands by the end of this calendar year. Happy flower is currently available online through drink Happy Flower. The growth of hemp-derived Delta-9 THC drink business in the U.S. is remarkable and we are excited to see its potential for our beer distribution network, who are eager to jump into the business and already have begun placing orders. We look forward to sharing more updates on this development [indiscernible].

Turning to Tilray cannabis. In Canada, Tilray's continues to lead the Canadian market share by almost 170 bps over the next competitor and have been consistently at the top of the industry for the past 3 years. From a regional perspective, Tilray is #1 across British Columbia, Alberta, Ontario and Quebec. These provinces combined include over 86% of the Canadian population. We've also led in all other markets combined. In adult use recreational cannabis, we focus on margin improvement across our portfolio of brands and products, resulting in improved adjusted gross margin by 500 basis points in Q1 versus last year.

The margin improvement partnered with efficient utilization, production and further cost savings initiatives will allow us to grow our revenue, profitability, sustainability well into the future. In Q1, 20% of our net sales revenue came from new innovation, our mainstream flower business continue to grow because of our strong genetics. Our Redecan brand moved up to the #6 position brand in Canada as reported by high-fire data. In beverages, Tilray continues to dominate the beverage category with a 45% market share. And at the end of August with XMG, Mollo, THC beverage brands being the #1 and #2 brands, respectively.

Tilray shipped 78 metric tons of biomass or approximately 25% of the implied Canadian market volume in Q1. We continue to leverage the wholesale channel where contribution margins are better and supply is starting to balance on an adult rec, we shipped 16 million pre-rolled cones and over 2.1 million cans of beverages in Q1.

Turning to our international business in Q1, we continued to execute against our 3 basic initiatives: first, the acceleration of growth in Germany. In Germany, since the Cannabis Act went into effect on April 1, 2024, we've seen a 50% increase in medical flower sales as well as a 22% increase in medical cannabis extracts, where we already have a dominant share of the market, and we believe that our current positioning in Germany provides us with several unique competitive advantages to capture a significant share of the expected medical cannabis market, which is projected to be approximately $3 billion in the medium term.

We expect to continue our growth in this very important market through commercial excellence and increased supply. We will continue to leverage the expertise and relationship of our CC Pharma, Tilray Pharma Distribution business in Germany, which supports our medical cannabis business to its network of [ 40,000 ] pharmacy and wholesalers.

Second, the bifurcation and differentiation of physician-led and patient-led channels as a market leader in the physician-led channel, we're turning our focus to accelerating our growth in the patient-led channel. One of our major initiatives in this regard is improving the availability and the quality of our medical cannabis supply to meet needs of patients lead channels. by creating a flexible and diversified supply chain focused on high-quality flower and new innovation.

At Aphria RX, our German cultivation and processing facility we received the very first commercial cannabis cultivation license and commercial distribution license issued in Germany under the new regulations. These new license granted Tilray, the ability to cultivate, produce and distribute pruning quality medical cannabis with the ability to increase our production by approximately 5 times. Aphria RX can now fully utilize and maximize its growing capacity while also expanding its genetics to a total 31 approved strains from the previously approved 3 streams.

We've already completed our first harvest under new cultivation license. We expect to commercialize these products in Q2. We've also begun to supply our international markets with EU GMP certified medical cannabis products from our Canadian facilities with medical cannabis from Aphria Diamond launching in Poland and Broken Coast and Redecan launching in Australia. We expect to launch additional cultivation from Broken Coast and a free a diamond in the coming months. And finally, we'll continue to identify and enter new markets with the potential to generate material revenue and profit opportunities. We expect the European opportunities could represent a potential $45 billion medical market over the long term. And with their presence in Europe, it allows Tilray to grow our global brand portfolio to a base of over 700 million people in Europe, which is twice the population in the U.S.

Finally, let's discuss our Tilray Wellness business, focused on improving people's lives through the power of him. Tilray wellness is represented mainly by Manitoba Harvest, our leading hemp brand with over a 53% market share in branded hemp products. Wellness is also comprised of happy flower beverages and high-vol energy drinks. In Q1, Tilray wellness delivered 11% net revenue growth compared to the prior year. driven by strong core business sales, coupled with hemp innovation and the expansion into wellness beverages.

A strong focus on costs to help the business improve margins, delivering a 300 basis point increase in gross margin to 32%. As Tilray brands has transformed, expanded and completed numerous acquisitions to get where we are today, our mission has evolved to be a leading premium lifestyle company with a house of brands and innovation of products that inspire joy, wellness and create memorable experience.

With that, I'll now turn the call over to Carl to discuss our financial results in greater detail. Carl?

[Carl Merton, executive]

Thank you, Irwin. As a reminder, our financial results are presented in accordance with U.S. GAAP and in U.S. dollars. Let's now review our quarterly performance for the 3 months ended August 31, 2024. In Q1, net revenue was $200 million, a 13% growth rate compared to the previous year quarter net revenue of $177 million.

As Irwin stated, our Q1 net revenue was a record amount. In constant currency, net revenue grew to $204 million. By segment, beverage alcohol net revenue increased 132% to $56 million. Cannabis net revenue was in line with expectations at $61.2 million as a result of our strong focus on margins and strategic growth in key markets, which I will discuss in a moment. Distribution net revenue was flat and wellness net revenue rose 11% in the quarter.

From a segment perspective, 28% of our net revenue was generated by our beverage alcohol business. 31% was generated by our cannabis business, 34% by our distribution business, and 7% by our wellness business. This compares to 13% in beverage alcohol, 40% in cannabis, 39% in distribution and 8% in wellness in the prior year quarter. The year-over-year variance is due to our craft beverage acquisition, which occurred in Q2 of last year.

Gross profit increased by 35% to $59.7 million compared to $44.2 million in the prior year quarter. Gross margin increased to 30% and over 500 basis point increase from the prior year period. Adjusted gross profit increased 21% to $59.9 million from $49.3 million in the prior year, while adjusted gross margin increased by 200 basis points to 30%. The primarily reflecting our focus on improving our utilizations at our beverage alcohol facilities and favorable sales mix.

Net loss improved by 38% to $34.7 million compared to a net loss of $55.9 million in the prior year quarter. On a per share basis, this amounted to a net loss of $0.04 per share, which was a 60% improvement compared to a net loss of $0.10 per share in the prior year quarter. Adjusted net loss was $6.1 million compared to an adjusted net loss of $27.1 million in the prior year quarter, a 78% improvement year-over-year with adjusted net loss per share coming in at negative $0.01 per share, a significant beat compared to expectations of negative $0.05.

Adjusted EBITDA was $9.3 million compared to $10.7 million in the prior year quarter. We are now approaching 6 consecutive years of generating positive adjusted EBITDA. The decrease in adjusted EBITDA from the prior year quarter is primarily related to building infrastructure and an increased investment in marketing and promotions at Tilray Beverages. Cash flow used in operations was $35.3 million compared to $15.8 million in the prior year quarter.

Adjusted free cash flow was negative $39.5 million compared to negative $6.3 million in the prior year quarter as a result of an increased demand on our working capital in our beverage operations as we move from the payment terms under the co-manufacturing agreements to our own payment terms after integrating production.

Turning now to our 4 business segments. Beverage alcohol net revenue was $56 million, up 132% from $24.2 million in the prior year. The positive delta was due to contributions from the craft brands, which were purchased during Q2 of last year and new innovations across our brand portfolio. Through our expanding footprint, we now own and operate 20 brew pub/restaurant in the U.S. that are in close proximity to the production of our craft brands.

In the quarter, these operations contributed $11 million of revenue, and we expect them to be a key part of our strategy going forward, allowing us to increase brand visibility and gain an intimate understanding of our key consumers. Beverage alcohol gross profit increased to $22.9 million compared to $12.9 million and adjusted gross profit was $23.1 million compared to $13.5 million, while beverage alcohol gross margin was 41% compared to 53% and adjusted gross margin was 41% from 56% from the prior year quarter. Due to the seasonality of our beverage business, our third quarter ended February 29, 2024, is our most comparable period, reflecting the newly acquired craft brands to which we improved adjusted gross margin by over 300 basis points, as a result of our efforts in integrating and optimizing our facilities as well as a favorable product base.

As we mentioned at year-end, the new craft brands were initially subject to co-manufacturing agreements, inhibiting our ability to optimize production and control costs in a manner sufficient to increase our gross profit and margin. effective May 31, all the co-manufacturing agreements except for production of Shock Top ended and the production of the brands were in-house with shock top production expected to be integrated into our production facilities in Q2.

As we integrate production in-house, we are able to better optimize production utilization in our facilities, decreasing unabsorbed overheads as well as achieving purchase price synergies now that we are purchasing the wrong ingredients. Gross cannabis revenue of $81.2 million was comprised of $57.2 million in Canadian adult-use revenue, $12.2 million in international cannabis revenue. $6.3 million in Canadian medical cannabis revenue and $5.5 million in wholesale cannabis revenue.

Net cannabis revenue, which includes $20 million in excise taxes, was $61.2 million, representing a 13% decrease from the year ago period. Revenue from Canadian medical cannabis grew 2% despite the category being impacted by competition from the adult use market, while revenue from Canadian adult use decreased 20%, which was a result of our increased focus on preserving gross margin and maintaining a higher average selling price in categories that have experienced a high degree of price compression.

International cannabis revenue decreased by 14%, which was largely driven by variability on the timing in countries other than Germany are receiving import and export [indiscernible] resulting in fluctuations on a quarterly basis. as Irwin said already, in the 5 months since utilization versus the 5 months before legalization, our flower revenues in Germany are up 50%, and our extract sales are up 22%.

As I mentioned, cannabis net revenue was in line with expectations at $61.2 million, but down $9.1 million versus the prior year. As we focus on our goal of improving cannabis gross margins we are intentionally less focused on share and revenue in certain categories, particularly those categories facing the most price compression, including infused [ pre-roll ] in [indiscernible]. Despite the decline in net revenue and share in those categories, we increased cannabis gross profit by $4.4 million, an increased adjusted cannabis gross margin by over 500 basis points from the prior year period.

Cannabis gross profit was $24.2 million and cannabis gross margin was 40%. Adjusted cannabis gross profit was $24.2 million compared to $24.3 million in the prior year quarter. The gross margin increase was driven by our international cannabis business and in Canada, our continued focus on maintaining a higher average selling price and selling a favorable product mix to improve adjusted gross margins by 500 basis points.

Distribution net revenue derived predominantly through Tilray Pharma was $68.1 million compared to $69.2 million in the prior year quarter. The decrease in net revenue is attributed to the effects of foreign exchange. On a [indiscernible] currency basis, revenue from distribution increased to $70.4 million for the 3 months ended August 31, 2024, compared to revenue of [ $69.2 ] million for the prior year period. Distribution gross profit increased to $7.9 million compared to $7.7 million in the prior year period, while distribution gross margin increased to 12% from 11% in the prior year quarter because of product mix.

Wellness net revenue grew 11% to $14.8 million from $13.3 million in the prior year quarter. The increase was driven by our strategic focus on continued innovations and strong organic growth within our branded hemp business related to higher consumption. Wellness gross profit was $4.7 million, up from $3.8 million in the prior year quarter, and gross margin rose to 32% compared to 29%, a result of decreased input costs and continued operational efficiencies.

Our cash and marketable securities balance as of October 31 was $280.1 million, up from $260.5 million at year-end. This change was a result of our temporary increase in working capital demands, offset by the funds raised from our ATM. Since its initiation, we have raised $94.5 million on our ATM which we intend to use for strategic and accretive acquisitions, including capital expenditures for acquired businesses.

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

[Operator]

[Operator Instructions] Our first question comes from the line of Kaumil Gajrawala with Jefferies.

[Kaumil Gajrawala, analyst]

I ask a bit about the Canadian adult-use market and just how volumes are trending?

[Irwin Simon, executive]

I missed that last comment.

[Kaumil Gajrawala, analyst]

How volume, yes, how volumes are trending in Canada?

[Irwin Simon, executive]

Blair is on the phone, I'll let him jump in a second. But I think the big thing which you see in Canada, how we've improved our margins there tremendously. And with Canada now being legal for 5 years, there's a lot of LPs that have come and gone and with us having 5 million square feet in Canada and being one of the largest and being the #1, there's a lot of volume, but the volume we're going to go after is profitable low volume, and there's sales that we'll give up for.

In the period, we introduced a lot of new products, a lot of new innovation. And what we've done with our facilities in regards to our yields in regards to some of the products that we're doing today and the amount of pre-rolls, we saw over 80 million pre-rolls a year. we sell over 350 metric tons of flower year. So volume is absolutely dependent, but it's profitable volume. Blair, do you want to add anything to it?

[Blair MacNeil, executive]

Yes. Thanks, Irwin. And yes, no, good question. In the industry, overall, I would say, dollar volume is, as Irwin just talked about compressed by some of the growth in those categories.

But dollar volume is up 4.5% to 5% overall. If you look at the KG shipped or the volume overall, the category is growing at 9% to 10%. So we're still seeing healthy amounts of consumers come into the categories. We're seeing healthy amounts of growth in the business. I think what you're seeing is the offset of price compression. What we've made on choices that you heard in the results from Irwin and Carl is to not play as aggressively in those distillate and distillate infused categories, which are margin challenge.

So overall, I would say the business is very healthy on the overall industry from a volume standpoint and a dollar volume standpoint still growing at about 5% on the dollar side. And then on the Tilray side, we're being very choiceful on how we balance our margin and our volume.

[Irwin Simon, executive]

I think the big important thing is to realize is a couple of things. Number one, you still pay a flat excise tax in Canada. You heard Carl say, we pay over $20 million in excise back in the quarter. We paid close to $150 million for a full year. There's still definitely some price compression, but we're not going to play in areas where it's just all about price, and that's the big focus.

And the other thing is our teams have done a great job in taking cost out and getting the yields on our growth, getting the yields on our products and educating consumers, they're going to have to pay a little more for the quality of products they're getting.

[Kaumil Gajrawala, analyst]

Got it. Useful. And then any -- maybe just update on where we are on price compression and maybe the balance of supply?

[Irwin Simon, executive]

So let me just come back and say, is this here. The interesting thing is you go back and luck over the last 3 years, we probably in Canada lost well over $200 million on price compression. And making excuses. That number drops to your bottom line. If you come back and look at ultimately excise tax being cut, and it was half, there's an extra $50 million, $70 million, so I think we're seeing price compression stabilize.

In regards to inventories, with our growth today in our yields, and us ultimately balancing and rightsizing our facilities. I think we're in a great state, a great place today in regards to what our inventories are. And the market continues to change dramatically in regards to potency. And that is a big thing today. It's amazing. They're looking for 30% plus potencies today. And if you can grow it, you can sell it. And I think that is important. And we got caught a little on [indiscernible] on our good supply, and we saw some great growth in the quarter in regards to higher potencies in our Good Supply brand.

And the last thing, just let me add there. It's 5 years now that cannabis is legal in Canada. Actually, it's 5 years out October 18 or something like that, coming up at the anniversary. The consumer now is educating and we've had to build these brands from scratch. So these brands were brands that have been built from scratch, Good Supply is over $200-plus million brand at retail. And the consumer there is educated today about quality, [indiscernible], genetics and where the product comes from. And that's something Tilray has done an incredible job in making sure that we put great products out there. And listen, we still have a lot of restrictions in the packaging, how we advertise the products, how we communicate to our consumers.

[Operator]

Our next question comes from the line of Aaron Grey with Alliance Global Partners.

[Aaron Grey, analyst]

Thank you for the question. So first, I just want to talk a high level one in terms of how you're thinking about investing in the business and also driving profitable growth. You laid out a number of initiatives throughout the business. So I wanted to talk about how you're thinking about that and then EBITDA growth throughout the year was down a bit in the first quarter? So how best to think about the levers and the cadence of EBITDA and what we should be thinking about for the rest of the year?

[Irwin Simon, executive]

So number one, we come back and this probably is one of our lowest quarters in the year. There's seasonality, which I don't think everybody looks at. There's also acquisitions like in this quarter, there's nothing on the Molson Coors acquisition that we closed in early September. And in regards to rolling out new products, there's timing on that. in regards to our Delta-9 products in our beverage division in regards to our non-alc in regards to our Liquid Love in regards to some of our other new products.

So again, there is seasonality and there's timing on a lot of the new products in regards to the distribution of white space. The other big thing that's not in here is a lot of the costs that we're still taking out of this business with the integration of the ABI brands A lot of costs still coming out in regards to our Canadian business. And in Europe, there's a lot happening there with Germany our flower business was up since the announcement of the new regulations in Flower Germany, almost 50%, there's a timing lapse of when we get products into the marketplace. There's a timing lapse when products are shipped into the Poland market and some of the other ones. So, a lot of it is just from a timing standpoint and the seasonality and our new products rolling out.

[Aaron Grey, analyst]

Okay. That's helpful color. Second question for me, just on the hemp-derived THC beverages. You laid out a number of states in your prepared remarks. You had previously said, 2 states. I just want to clarify those states in your prepared remarks. Are there those where you'll be distributing at brick-and-mortar or just DTC?

And then secondly, just on hemp-derived beverages how best to think about the ramping with brick-and-mortar and the impact of bills that have been introduced and the broader farm bill, which looks like it might be delayed another year and how that's impacting broader distribution?

[Irwin Simon, executive]

So in regards to Delta-9, it's basically going to be brick-and-mortar. We've already received our first orders. And the majority of it will be rolled out into retailers and through our beer distributors that can sell it.

Some will be definitely direct-to-consumer, but there's 19 states today that will allow this product. And we're pretty excited about the orders already and the demand for the product. And a lot more to come. We have 5 great products that we're going to roll out. So it will be basically sold direct -- it was basically sold at retail these products and through our beer distributors. Some will go through what our Happy flower will be direct-to-consumer.

[Operator]

Our next question comes from the line of Matt Bottomley with Canaccord Genuity.

[Matt Bottomley, analyst]

I appreciate a lot of the commentary on sort of individual markets in Europe and how things are progressing on the regulatory front and even with respect to some demand. But I'm just curious, without getting into too specific to the nitty gritty of any numbers or anything.

But if you look at your international contribution, both exports boots on the ground, it's been run rating at close to about $50 million for a little while now. And I'm just wondering if any of these changes the regulatory front are expected to have a meaningful impact on that contribution by the end of your fiscal year?

[Irwin Simon, executive]

Well, I'll let Denise jump in here for a second, but I got to tell you, you heard what I said. In Germany, since the changes in regulations, our flower business was up almost 50%. And in regards to supply, and that's been some of our biggest constraints here, some supply, we supply from our Canadian operations, we supply from our Portugal and some of the changes that we now have in Germany, where we can sell out of our German facility where before we only could sell it through the German government.

So there's a lot of pieces in place. But listen, there's only 20 different countries that allow medical cannabis in Europe. And I think there's some tremendous opportunity to see the size of the category and billions, the demand is there. Denise, do you want to add to what I said?

[Denise Faltischek, executive]

Yes, sure. Thanks, Irwin. And I just -- I do thank you for the question. I just want to challenge like the one part about going at $50 million for a few years now because actually, I think -- if you look back over the progression, we actually have seen a pretty significant growth year-over-year.

If you look basically from the point of time of the Tilray acquisition, up until our reported numbers from last year, and we're expecting very, very significant growth in this year's market as we look to our fiscal year '25. As Irwin mentioned, we had 50% growth in our flower business, 22% in our Extract business, where we already have a sizable market share. We do have some, as Irwin mentioned in the previous question, we have some timing with import export permits receiving in certain countries where we ship directly to distributor versus our own warehouses and therefore, servicing markets through third-party distributors. So there will be some lumpiness. So it's really important to look at the business on a year basis, not necessarily on a quarter basis, you had a full picture.

[Matt Bottomley, analyst]

Okay. Got it. Appreciate all that. And then I just wanted -- just sort of more of a general question, but just given some of the growth headwinds in the domestic Canadian market, obviously, there's been a lot of attention paid and I guess I've done a lot of good strategic initiatives, whether it's international or beverage alcohol. But on the wellness side of things, I'm just curious if there's any sort of M&A opportunities you think within there? Or do you think this is more of a sort of an organic growth story from the exposure you guys already have?

[Irwin Simon, executive]

Well, in regards to wellness, I think, listen, there's a lot of the medical in Canada that's coming over and they're going into the red, going into recreational and buying it there. But medical is something that we're focused on.

We see tremendous use for the product, whether it's anxiety, sleep pain epilepsy. So there's a big medical opportunity for us. Is there acquisitions for us in that area. That is an area that we are focused on in regards to the medical part of the [indiscernible] business. But I think the whole thing is, again, is our research that we're focused on medical, which is a big commitment for us. And being the #1 medical producer in Europe, there's a lot we're learning there, and there's a lot as we work with universities and research that we're sharing back and forth.

As a matter of fact, we're in Europe next week with our Canadian teams and our European teams working on multiple things there. So yes, medical is a big part of our growth, and medical is something that's very, very important to us in the Canadian market.

[Operator]

Our next question comes from the line of [ Bill Kirk ] with Roth MKM.

[Unknown Analyst]

I don't think I heard the fiscal '25 revenue guidance, which had been $950 million to $1 billion. Is that still the expectation for the year? And then if I recall, that guidance had included some M&A, some expectation for some M&A. Was the recent acquisition of the brands from Molson Coors, the M&A that was contemplated in that guidance? Or is there still more implied?

[Irwin Simon, executive]

So that was the guidance for the year. There is some M&A in there. We have not updated our guidance to include the Molson's acquisition.

[Unknown Analyst]

Okay. So the range is still $950 million to $1 billion?

[Irwin Simon, executive]

Exactly.

[Unknown Analyst]

Okay. And then on the international side, like I understand that it's up over a few years. it has been in that like $11 million to $14 million on a per quarter basis for a little while, despite new positive development. So like what's offsetting the new positive developments in kind of on a more narrow time frame?

[Denise Faltischek, executive]

Thank you for the question. The international business, basically, if you remember, we used to actually -- there's been some ins and outs, I think, in terms of the business. So it's not exactly not apples-to-apples. If you recall a couple of years ago, Israel was actually a very big part of our revenue number. And if you might remember that it's been about 1.5 years ago, 2 years ago, we discontinued our business in Israel.

Just given the state of the market there given the influx of product the price compression, we just didn't feel that it was a profitable market for us to continue. So we discontinued those sales, which were quite sizable. However, in replacing that, we have sought out additional new countries. We entered Poland, we entered the U.K., Italy and Portugal. We've also identified a bunch of other countries, which we will be entering, so stay tuned for that in future quarters.

This business, as Irwin mentioned before, the Canadian business is just a few years old. The business in Europe is even more underdeveloped and immature at this point. And so in essence, it really is just starting to grow and take off now. And so I think it's still early innings for this business. we are very bullish about it going forward. And as Irwin mentioned, we look to invest -- we've already invested and we will continue to invest.

[Irwin Simon, executive]

I just think, again, you got to come back. There's been some currency effect in Europe that affected us as you look at it. But -- and Denise mentioned as we look at this from a profitability, Europe is very profitable for us. And I think that's what's very important as we focus on profitability. The other thing is Germany being the biggest market there, and we were restricted with our facility in Germany that we only could sell to the German government at a loss, that has changed.

So we were losing money in regards to a tender that was awarded 5 years ago, and we've been able to renegotiate that tender and renegotiate the terms of that. The second thing is, as each country legalizes, and we're not dealing with state here. We're dealing with different countries with different regulatory. So building out the European market. absolutely has been difficult. And there's markets that we've abandoned. We are not selling into the Israeli market, which used to be one of the biggest markets [indiscernible].

So what I can reassure you is there's tremendous opportunities in growth. We only really sell flower and [indiscernible]. It's not like we're selling pre-rolls and we're selling multiple different products here. we're selling over some of our 100 different products, but it's basically flower and [indiscernible] and that's it.

So we look for Europe to be a big opportunity. We are the largest grower of cannabis in Europe today. We have the infrastructure on the ground, taking a little time. But what's important to us is the profitability there. The other thing is we're vertically integrated with our CC Pharma or Tilray Pharma there in regards to distributing through the growth stores. So yes, is not growing as fast, but it is a very profitable business for us.

[Operator]

Our next question comes from the line of Michael Lavery with Piper Sandler.

[Michael Lavery, analyst]

Just wanted to come back to the Delta-9 beverages. It's been tough in the cannabis phase, at least really building brands that kind of parallel to how they've developed in other categories. And so this is an interesting case to see how it plays out. But I guess with that in mind, have 4 brands. I think you mentioned you've got teed up and more to come. Why so many? And how do you plan to develop those and set them up for sustainable growth.

[Irwin Simon, executive]

So number one, the brands are developed. And again, we've had Happy flower out there for a long time with CBD 420 is one of our brands that are known.

2 or 3 of our other brands have some unique [indiscernible]. So again, with our 5 different products out there, it gives us differentiation in products. It allows us to have multiple products out there. And so far, everything we have shown retailers, distributors, they'd like and we've got quite a few orders.

So yes, 420 is a brand that's well known out there. Happy flower has been out there. We have to build some of our other brands out there, and we've done that before. as we've come out with new products in regards to Runners High, which is our non-alc beer and our Montauk non-alc beer, our liquid love is our water brand that's coming out there. our Delta-9, our new brands.

Listen, the big thing is out there. We got products. We've developed these flavors. We develop these products from scratch. We got 700 distributors out there, and these distributors want it. Now we want to on sell it in the states as legal. And we got field salespeople out there on the street that will make sure we get this product in the hands, but last but not least, which is important, how do we market that to the consumer. And that's what's important for us to make sure we're getting the message across the consumer. There's some really good products that we're coming up with.

[Michael Lavery, analyst]

Yes. No, that's helpful. And then just on some of the -- you touched on some of the integration of beer production and how you've got more flexibility now, how significant can that be? And how quickly could it come in terms of just -- would we be right to think that you could consolidate some facilities? Or how do we just think about what to expect in the next several quarters for how that impacts your numbers?

[Irwin Simon, executive]

So good question there. Listen, we're in a category today where the craft beer industry is declining 3% but there's $100 billion worth of beer sold out there. So it's not like a small category. So there is tremendous opportunities in the craft beer business, okay?

And with that, we think we can go up there and take share with innovation with some of the new products that we've launched. We think we come back and look at whether it's the non-alc industry that's growing tremendously with in Delta-9. The other thing is we're going back to each of our brands today. We have 19 brands out there, and we're looking at these brands where they should be sold regionally and what should be a national brand. Shock Top definitely should be a national brand. But if you take Montauk, you take Newpoint and take SweetWater and you focus on sort of in the Northeast New York, New Jersey, Connecticut, Pennsylvania, maybe Florida. That's over 100 million people that we can market our brands too.

We don't need to be in every single state out there and ship 10,000, 20,000 cases there, spend money on it where we're not going to get the lift. If you come back and look at SweetWater, SweetWater rule out a 2.5 million, 3 million case brand. But it went into certain states, whether it's Ohio or Illinois that didn't make sense in those states, California, so what we're going to do is take these brands, focus on 3, 4 or 5 states, put our money behind them, work with the distributors, educate the consumers about them and then take our national brands like a Shock Top and the other thing that we're going to look at this here, if we have a pumped in beer, we'll have pumpkin beer in similar flavors for Montauk for BluePoint. We're not going to have all these multiple different formulas out there with a lot of complexity. So we're looking at how we take our tail of our brands. We're looking at how to take complexity out of our business, we're going to do some SKU rationalization. And with this, it will optimize and rightsize our footprint and the buying power today with over 15 million cases of beer that we're buying.

And if we have to consolidate some of our facilities, which we're right now looking at, we ultimately will. But we really feel within a matter since 2020, we're now the fifth largest craft brew right there with a 5% share out there. And we think we can get this category growing again through our innovation, through our distribution. And I got to tell you, working with distributors out there, they all want to see growth. They all want to see new innovation. They want to see products and the same with the retailers. The retailers are looking at there's way too many brands, way too many products how do we ultimately get this category growing because it takes up too much space in the stores.

[Operator]

Our next question comes from the line of Pablo Zuanic with [ Swann Associates ].

[Pablo Zuanic, analyst]

Irwin, maybe can you give us an update in terms of how you're thinking about U.S. plant-touching assets, we are seeing other companies that set up ring-fenced structures, cannabis of U.S.A., SDL with Sunstream. OGI has talked about that also I mean there's been more consolidation, and we would come to a point that there won't be much left to buy. So how do you handicap that? And how do you think about doing something similar in the current context of regulation?

[Irwin Simon, executive]

So I step back and listen, the good news is the 2 presidential candidates are in favor of legalization. And I think in regards to rescheduling, there's in December, the recommendations are going to come up on that.

So Pablo, I think something will happen. In regards to rescheduling and something will happen in regards to federal regularization, whether it's medical cannabis, that will be legalized and ultimately leave it up to the states for everything else. If you come back and look at what we can do, remember, we've gone in, once Canada was legalized, 5 years ago, they told me 6 years ago, but I think it's still 5, it was 2018, so I guess that is 6 years ago. If you come back and look at it, we built our Canadian business to a $300-plus million business from scratch.

And we built grow facilities. We build brands. We've built vertical integration. And today, as being one of the largest growers up there with almost 5 million square feet, we know how to grow cannabis. We know we have the genetic base. We know how to make pre-rolls. We know how to make [indiscernible]. We know how to make drink. We'll sell this year close to 9 million cans of cannabis in few [ strips ]. So we have the DNA. We have the know-how. We're one of the largest medical cannabis companies in Canada and in Europe. So with that, we're ready to do it on our own in the U.S. depending upon what the guidelines and the parameters are.

And on the other hand, with our balance sheet where it is today, we have the ability to go out and acquire a great strategic partner that could help us if that makes sense. The other thing in the U.S. today we have 18 beer brands or 19 beer brands. We have multiple brands in our spirits business, and we have our wellness brand in Manitoba Harvest. Can these brands parlay over into the cannabis category like we're doing with some of these in Delta-9. So again, I think with cannabis going to legalize, that's my opinion. I have nothing else any other insight, we will be ready to jump in to which way we can jump in there and be ready for it.

[Pablo Zuanic, analyst]

And one last one maybe for Denise, just going back to a discussion in Germany, maybe using some Michael [indiscernible] terms here, but maybe remind us of your competitive advantage there are your competitive assets. your asset strengths, what are the values to entry?

Because what I hear, there's all these licensing importers that are able to bring products. We saw a big jump up apparently [indiscernible] imports in the second and third quarter and then they are able to go to doctors, promote those products and sell them to the consumers, right?

So I don't know if I'm going to see more fragmentation as opposed to consolidation in Germany. But I'm sure you have assets on the ground that give you an advantage. But I'm just trying to understand how the German market plays out in terms of fragmentation versus consolidation, just importers versus local producers and what's your edge? And why should we assume that you are better positioned than others? If you can just mention that. And as part of that, a quick reminder, if you produce, if you jump production in Germany by 5x, I supposed that replaces Portugal or Canada, doesn't mean that you end up with a higher cost structure.

[Denise Faltischek, executive]

Thanks, Pablo. And thank you for the question. I think also, I just want to also bring back to the previous question that was asked because I think I was [ remiss ] in not stating the fact that -- if you look at our year-over-year growth between FY '24 and FY '23 in terms of the European market, we grew that market 34%.

So I just wanted to actually finish off that last question, which I didn't do the last -- in terms of Germany, I think you are 100% right in terms of our uniquely positioned in Germany and in York, in particular. Mentioned Aphria RX facility with our ability under our newly issued license, we have the ability to produce to full capacity, which basically allows us to produce 5x what we were able to produce under the tender.

In addition, we expanded that license. Under the tender, we are permitted to produce 3 stream, today, we now are able to do 31 cultivars. And I'm proud to say that actually that just landed at [ Norminter ] is a bunch of cultivars from our radian facilities, where we look at cultivars that perform best in market in Canada, and we've shifted those cultivar over to both Portugal and Aphria RX in order to provide ourselves with the maximum flexibility, both in supply chain as well as the availability of products to patients.

Having that facility as well as our Portugal facility as well as we've opened up the ability to deliver product from Canada. We have -- probably what I would classify as the most flexible supply chain of any cannabis company in Europe where we see many of -- and you mentioned about whether there's segmentation consolidation. And as you know, there's a few larger players in the German market, but there's -- and then there's a proliferation of a lot of smaller companies that are coming online and starting in the German market.

I do think at some point, there will be consolidation just because if you have a lot of players in a market, you will start to see consolidation of those players. But going back to our unique position, we have the most flexible supply chain. We have a great cost structure given the work that we've done in order to make sure that we always keep our cost to produce very low, and we're very efficient. In addition, we have a terrific first-class commercial team located in Europe and with boots on the ground in Germany.

We have a sales team that is very well positioned in terms of their knowledge, their reputation with doctors, their reputation with government officials. And the fact of the matter being one of the first in Germany has given us a reputation of being trusted and having the expertise. So as doctors want to learn more and more about medical cannabis in light of the new regulations, we are one of the first that they seek out in order to get that information because they want to know how to prescribe and they want to know how to continue in the market.

[Operator]

Our final question comes from the line of Robert Moskow with TD Cowen.

[Robert Moskow, analyst]

I just wanted to ask about the quarterly results in beverage. I didn't hear whether you said that those -- the sales were in line or a little below expectations. I think you said cannabis was in line or better. So can you just tell us like just how did beverage do versus your thought? The tracking data shows the brands are down a bit do they just need like -- is it a matter of timing before your new marketing efforts and your consolidation efforts take hold before the retail sales get a little bit better?

[Irwin Simon, executive]

So Robert, thank you. We don't give guidance out there by the major businesses, but we have definitely internal guidance and internal budgets. The beverage business was off a bit and a lot of that is just timing on some of the new products. And a lot of it is the products are ready. It's when the distributors ultimately take them, and that was the biggest thing. The other thing which you heard me talk about earlier is rightsizing the business here and going through our SKU rationalization, going through our brand rationalization and going through our distribution white space.

Also, there's timing in regards to customers taking new products in products for Halloween products or pumping products and some of the different things like that. So just a timing standpoint. By the -- the other one was integration of some of the ABI brands back into our facilities and supplies. So it's just from a timing standpoint, it's a timing standpoint. If you look at our quarterly, we look at our numbers here, our SG&A is way up in regards to our beverage business.

But as we build out the infrastructure build out people and take over the ABI business and do some of the spending, we expect to get the benefits from that over the year. So with that, we are excited to what we see what's happening out there. We think we're well positioned with our brands, with our products, with our innovation. Our customers are giving us good feedback. We have a lot of high hopes for Delta-9. We have a lot of high hopes for our not out. We have a lot of hopes for our Liquid Love. We have a lot of hopes for some of the new innovation that's coming out under SweetWater, Montauk and 10-barrel and which, again, which is not really in our numbers, with the acquisition that we just acquired the 4 brands from Molson Coors and getting our hands around them and seeing the growth opportunities with that. So with that, it's just early timing in regards to our beverage business. But there's a real, real, real good plan in place there rather.

[Operator]

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Simon for any final comments.

[Irwin Simon, executive]

Thank you very much, everybody, and thank you for joining us today. I'm incredibly proud and excited of what we've been able to put together over the last 5-plus years. As you've heard, our guidance out there is $950 million to $1 billion of size, and that's coming from a start-up basically at $50 million.

Today, we have over 44 brands. We have 2,700 people that worked within this company today. We have plenty facilities, we sell in over 20 countries, 6 different continents. And again, we are dealing in categories where regulation is important. There is no one company out there that does what we do as diversified as us. So it's not easy. And there's a lot of noise and a lot of news every day coming out about cannabis as we sit here and wait, there's a lot of changes that got to happen.

But again, the cannabis industry in the U.S. is over $40-plus billion in total size. So there's a big, big, big market out there. you look at the total beer industry out there and the size just of the craft industry, there's a big business out there. If you look at the wellness of the industry and some of the stuff that we're doing with Hampton back grew 11% in the quarter. So we're well positioned. If you come back and look at our balance sheet, and that's something I think that's hurt a lot of other companies out there in the cannabis industry is we really advantaged our balance sheet managed our cash situation.

Many is paying down debt. In the last quarter, we paid down over $300 million of our convertible debt. So we're focused on this and pulling all this together. Are we totally happy with our stock performance No. But I don't think it reflects what this company has done over the last 5 years and how we put together some great brands, great people, a great strategy and how we're diversified out there.

And we're a global company in the CPG industry. So I feel there's exciting times ahead. You have great brands, you have a really committed team. We have a tight, tight strategy out there. We have great partners with our distributors, our retailers, our consumers who we're marketing to, and last but not least, our aim is to please our shareholders and reward our shareholders. With that, thank you very much and enjoy your day. [indiscernible] Yankees. And you go to City field, you'll find our beer, you go to San Diego, you'll find our beers. So we want stadiums that are in the play offset or selling our beers. So with that, be safe out there, and thank you for joining us.

[Operator]

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