10-Q: Tilray Brands Reports Q2 2025 Results: Revenue Up, Losses Persist Amid Strategic Shifts

Tilray Brands reports increased revenue but continues to experience net losses in Q2 2025 as it navigates strategic acquisitions and market challenges.

Summary

• Tilray Brands, Inc. reported its financial results for the second quarter of fiscal year 2025, ended November 30, 2024.
• Net revenue increased by 9% to $210.95 million compared to $193.77 million in the same quarter last year.
• The company experienced a net loss of $85.275 million, compared to a net loss of $46.183 million in the prior year period.
• The beverage segment saw revenue growth, while the cannabis segment experienced a slight decline in revenue.
• The company is actively managing its cost structure and expenses to maintain a strong financial position.
• Tilray is focused on developing strong capabilities in data analytics and consumer insights to drive category management leadership.
• The company is evaluating potential acquisitions and strategic transactions to complement its existing portfolio.
• Tilray is implementing Project 420 to achieve a $25 million synergy plan within its beverage segment.
• The company issued 67,210,864 shares of Common Stock pursuant to its At-the-Market (ATM) program, generating net proceeds of $111.5 million.
• The company is managing SKU performance within its portfolio to maximize SKU productivity.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While revenue increased, the company still reported a significant net loss. Strategic initiatives are underway, but their success is not yet fully reflected in the financial results.

Positives

• Net revenue increased by 9% year-over-year.
• Beverage segment revenue experienced significant growth.
• Wellness segment revenue showed strong growth due to innovation and organic growth.
• Tilray is actively managing its cost structure and expenses.
• The company is focused on strategic acquisitions and transactions to expand its business.
• The company is optimizing its capital structure by repurchasing convertible notes.
• International cannabis revenue increased due to higher sales in Germany and Poland.

Negatives

• The company experienced a net loss of $85.275 million for the quarter.
• Cannabis segment revenue experienced a slight decline.
• The company experienced a marginal dip in market share in Canada from 9.8% to 9.4% from the immediately preceding quarter.
• The company's SKU rationalization resulted in a reduction in net sales of approximately $6.0 million.
• The company's adjusted EBITDA for the three and six months ended November 30, 2024 was lower by $1.8 million and $3.2 million, respectively, as a result of our SKU rationalization.

Risks

• The cannabis industry in Canada continues to evolve given how nascent the industry is with federal legalization of adult-use cannabis occurring just over five years ago.
• Historical price compression in specific categories is expected to persist in the market, intensified by fierce competition among the approximately 1,000 Licensed Producers in Canada.
• The fixed impact of excise per gram, notwithstanding the decline in average selling prices, further compounds these challenges, and has promoted ongoing industry lobbying efforts.
• The company may not achieve the expected revenue or other benefits from the craft beer operations acquired.
• The company may have to recognize significant impairments in the carrying value of our investment in the MedMen secured convertible notes as a result of MedMens potential restructuring or liquidation undertakings.
• The company's business is dependent upon regulatory approvals and licenses, ongoing compliance and reporting obligations, and timely renewals.
• Government regulation is evolving, and unfavorable changes or lack of commercial legalization could impact our ability to carry on our business as currently conducted and the potential expansion of our business.
• The company faces intense competition, and anticipate competition will increase, which could hurt our business.
• United States regulations relating to hemp-derived products, including Delta 9 beverages, are new and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives.
• 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.

Future Outlook

Tilray intends to use the net proceeds from the ATM Program to fund strategic and accretive acquisitions or investments in businesses and capital expenditures for acquired businesses, including potential acquisitions of assets in the U.S. and internationally in order to capitalize on expected regulatory advancements or expansion opportunities. Additionally, we are committed to optimizing our capital structure and enhancing financial flexibility as we intend to continue to opportunistically purchase or exchange equity for the TLRY 27 Notes prior to their underlying maturity date in June 2027, subject to market conditions.

Management Comments

• Tilray's mission is to be a leading premium lifestyle company with a house of brands and innovative products that inspire joy, wellness and create memorable experiences.
• Our overall strategy is to leverage our brands, infrastructure, expertise and capabilities to drive revenue growth in the industries in which we compete, achieve industry-leading profitability and build sustainable, long-term shareholder value.
• In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities in data analytics and consumer insights, drive category management leadership and assess opportunities for the introduction of new categories, products and entries into new geographies.
• In addition, we are relentlessly focused on managing our cost structure and expenses in order to maintain our strong financial position.
• Finally, our experienced leadership team provides a strong foundation to accelerate our growth.

Industry Context

The report highlights trends in the beverage and cannabis markets, including distribution strategies, innovation in alternative beverages, price compression in the Canadian cannabis market, and the evolving regulatory landscape in Europe. These trends influence Tilray's strategic decisions and business performance.

Comparison to Industry Standards

• The report mentions Tilray continues to lead the Canadian market with the highest cannabis revenue in Canada.
• The report mentions Tilray is a global leader in the development, production, distribution, marketing and sale of pharmaceutical-grade medical cannabis products.
• The report mentions Tilray was one of the first players to enter the Irish market and is one of a few suppliers which has received approval for its products to be prescribed and to have been granted reimbursement status.
• The report mentions Tilray Medical holds a leading position and continues to supply a broad portfolio of whole flower and extracts products to the growing market via our distribution partner in New Zealand.

Legal Proceedings

• On November 6, 2024, Tilray disclosed in a Current Report on Form 8-K that a lawsuit was commenced against it and its directors, captioned Nabil Salama v. Tilray Brands, Inc., et. al (C.A. No. 2024-1124-JTL).
• On November 27, 2024, the Court of Chancery of the State of Delaware ruled in favor of Tilray and granted summary judgment for Tilray and its directors.
• On December 4, 2024, Plaintiff filed a notice of appeal from the Courts order granting summary judgment. Tilray intends to contest this appeal, which it believes to be without merit.

Related Party Transactions

• On September 16, 2024, Tilray entered into an assignment and assumption agreement with Double Diamond Holdings Ltd. (DDH), an Ontario corporation, pursuant to which, among other things, Tilray acquired from DDH a promissory note in the amount of $23,792 (the Note) payable by 1974568 Ontario Limited (Aphria Diamond).
• As consideration for the Note, Tilray issued 13,217,588 shares of its Common Stock to DDH.

Stakeholder Impact

• Shareholders: The report provides information on the company's financial performance, strategic initiatives, and potential risks, which can influence investment decisions.
• Employees: Restructuring activities and acquisitions may impact employee roles and job security.
• Customers: The company's focus on innovation and product quality can impact the availability and appeal of its products.
• Suppliers: Changes in supply chain management and sourcing strategies may affect supplier relationships.
• Creditors: The company's debt levels and ability to generate cash flow can impact its creditworthiness.

Next Steps

• The company intends to use the net proceeds from the ATM Program to fund strategic and accretive acquisitions or investments in businesses and capital expenditures for acquired businesses, including potential acquisitions of assets in the U.S. and internationally in order to capitalize on expected regulatory advancements or expansion opportunities.
• The company expects to transition to a new storage facility in the fourth quarter of fiscal year May 31, 2025.
• The company is in the process of reviewing the internal control structure of the eight beer and, beverage brands and if necessary, will make appropriate changes as it integrates them into the Companys overall internal control over financial reporting process.

Key Dates