Tilray Brands - Earnings Call - Q3 2025

Executive Summary

• Net revenue was $185.8M, down 1% YoY and below consensus; adjusted EPS was $0.00 (breakeven) versus a consensus loss, and adjusted EBITDA was $9.0M, as management prioritized margin over volume.
• Reported GAAP net loss of $(793.5)M driven by ~$700M non‑cash impairments tied to market cap declines and macro conditions; gross margin improved 200bps to 28% on mix shifts and price discipline.
• Cannabis gross margin rose to 41% (+800bps YoY) aided by redirecting inventory to higher‑margin international markets and pausing margin‑dilutive vapes/infused pre‑rolls; beverage margin increased to 36% despite Project 420 SKU rationalization.
• FY25 net revenue guidance cut to $850–$900M (from $950M–$1B), with management noting constant currency and strategic impacts would imply $900–$950M; Project 420 cost‐savings plan raised to $33M, with $20.6M achieved.
• Management emphasized “no current impact” from tariffs; expanded U.S. hemp‑derived THC beverages to ~1,000 points of distribution across 10 states; cash and marketable securities stood at $248M.

What Went Well and What Went Wrong

• What Went Well
  • Cannabis margin expansion: Cannabis gross margin reached 41% (highest in ~2 years) on mix shift to international medical markets and exiting margin‑dilutive SKUs.
  • Beverage margin and footprint: Beverage gross margin rose to 36% (34% prior year) while executing Project 420, achieving $20.6M toward the expanded $33M savings target.
  • Capital structure: Reduced total debt by $71M (including $58M of convert reduction), net debt <1x trailing 12‑month EBITDA; liquidity of $248M cash and marketable securities.
  • Quote: “We will not seek sales growth merely for the sake of sales… we are laser‑focused on profitable sales growth” — Irwin Simon.
• What Went Wrong
  • Top‑line pressure: Net revenue of $185.8M was impacted by SKU rationalization (~$6M) and timing from reallocating Canada inventory to international markets (~$3.2M), leading to a consensus miss.
  • Impairment and GAAP loss: ~$700M non‑cash impairment and FX losses drove GAAP net loss per diluted share of $(0.87), overshadowing operating progress.
  • Cannabis revenue decline: Cannabis net revenue fell to $54.3M from $63.4M YoY, reflecting the strategic pause in vapes/infused pre‑rolls (~$4M revenue impact) and timing of international shipments.

Transcript

Operator (participant)

Thank you for joining today's conference call to discuss Tilray Brands' financial results for the Fiscal 2025 3rd Quarter end of February 28, 2025. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session for analysts and investment firms conducted via audio. I will now turn the call over to Ms. Berrin Noorata, Tilray Brands' Chief Communications and Corporate Affairs Officer. Thank you. You may now begin.

Berrin Noorata (Chief Communications and Corporate Affairs Officer)

Thank you, Operator, and good morning, everyone. By now, you should have access to the earnings press release, which is available on the Investors section of the Tilray Brands website at tilray.com and has been filed with the SEC and 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 reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions.

These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in 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, Ty Gilmore, President of Tilray Beverage North America, who will provide an update on our beverage business, and Carl Merton, Chief Financial Officer, who will review our third 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, and Blair MacNeil, President of Tilray Canada.

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

Irwin Simon (Chairman and CEO)

Thank you, Berrin. Good morning, everyone, and thank you for joining us today. Tilray Brands is at the forefront of the beverage, cannabis, and wellness industries on a global basis. We are expanding into new markets, developing innovative consumer products that reflect how people eat, drink, relax, and receive relief from medical conditions where other treatments have not been effective. In five years, our team has transformed Tilray from a business relying on cannabis legalization for growth into a diversified consumer products company, providing specialty beverages, cannabis, and wellness products worldwide. Beer and cannabis have been consumed for thousands of years. These industries and their consumers are here to stay. They are not going anywhere, and neither is Tilray. We are here to stay with our strength and balance sheet, our strong brands, our strong businesses, and our global operations.

There's a lot of value in Tilray today that is not reflected in our current market cap and stock price. Tilray is uniquely positioned as the only consumer company with a diversified portfolio of beer, spirits, cannabis, and wellness products. I personally don't think people understand the value platform that we have created and have today. In a recent analyst report, it was identified that the increasing dual past month use of cannabis and alcohol, which is heightened among young adults with 36% of legal alcohol users in their 20s, Gen Z, also consuming cannabis, up 14 percentage points the past decade and on pace for 50% of young adult users to dual use cannabis within the next 10 years, staggering numbers. Tilray continues to advance in the sectors of beverage, spirits, cannabis, and wellness by innovating products, managing costs efficiently, and expanding internationally at a competitive pace.

While other companies are adopting similar models, Tilray remains ahead in several areas, including vertically integrated operations, established portfolio of diversified brands, and a comprehensive distribution network with a global reach. Regarding tariffs, Tilray confirms no current impact. After analyzing the recently announced tariffs on international trade, we conclude that they are unlikely to substantially affect our sales and costs. In the U.S., our American craft beer and beverage brands are manufactured in the U.S. and distributed in the U.S. market. In Canada, where a majority of our cannabis cultivation is grown, our Canadian cannabis brands are produced in Canada for Canadian consumers. In international markets, our medical cannabis brands and products are produced for local patients. In our wellness business, we have received confirmation that Manitoba Harvest is exempt from the new tariff. Since 2020, we have made seven acquisitions in the beverage, craft beer, and spirits sectors.

We've introduced new categories, including non-alcoholic beverages, non-alc beers, waters, and hemp-derived THC drinks. In the U.S., we have 10 beverage facilities and over 500 distributors. When we acquired the ABI and Molson craft brands, they were not profitable. We have built a new platform and infrastructure capable of revolutionizing the beer, spirits, and beverage industries. We are focused on capturing every opportunity to attract a broader consumer base, including new opportunities in the international markets, such as new ventures into Europe that will introduce our brands to the United Kingdom and other regions, with local operations leveraging the infrastructure that we have built in the U.S. Ty will provide further details regarding our beverage businesses and its execution.

Importantly, we are laser-focused on building a sustainable global business platform in terms of profitable sales growth, improving profit margins and cash flow generation, and maintaining a solid balance sheet that can help Tilray navigate market challenges and make use of strategic opportunities. As Carl will discuss in detail, in the third quarter, we delivered our highest cannabis gross margin in almost two years, and our net debt is less than one times EBITDA. We will not seek sales growth just for the sake of growth. It is not additive to our bottom line and accretive to our shareholders. In the third quarter, we generated $186 million in net revenue, or $193 million on a constant currency basis. In the quarter, we implemented strategic initiatives aimed at enhancing our business operations over the mid and long term.

These measures focus on improving margin and profitability, as well as driving long-term operational efficiencies rather than pursuing revenue growth at any cost or in a non-sustainable manner. However, these decisions came with short-term impact in the third quarter and impacted our revenue by about $13 million. If we eliminated the impact of these strategic decisions in cannabis and SKU rationalization in our beer business, adjusted net revenue increased 10% to $206 million in the quarter. Our margin expansion efforts across each of our businesses, including beverage, cannabis, and wellness, led to a 5% increase in gross profit and a 200 basis point increase in gross margin to 28% compared with the prior year period. Our balance sheet remains strong, with ample cash and marketable securities totaling $248 million.

During the fiscal year to date, we've also reduced debt levels by $58 million, positioning us to pursue strategic acquisitions, seize new opportunities, and capitalize on market trends. Our cash burn has primarily resulted from investments in beverage, settling legacy lawsuits, and capital expenditures aimed at operational growth opportunities. We're committed to expanding our business while managing our debt responsibly. Our cannabis, wellness, and distribution segments are generating positive operating cash flow, and we're on track to drive growth in our beverage businesses. Tilray Brands has demonstrated remarkable resilience and maintained its fundamental strength despite market challenges, including a tougher February than expected across both cannabis and beverage alcohol industry.

Tilray continues to operate the largest legal cannabis business in Canada by revenue, lead the medical cannabis business in Europe, and continue to dominate in the branded hemp high-protein food sector in North America, with nearly a 60% market share in the U.S.dd and 80% in Canada. We ranked as the 5th largest craft beer business in the United States. We are also leveraging advanced technology to align with our shareholders' interests, the consumer of tomorrow, enhancing efficiency and driving growth. AI is being implemented across our global platforms. We're combining AI-driven data insights with advanced horticulture automation technology in global greenhouse operation. This integration allows real-time management of greenhouse conditions, leading to increased efficiency, higher output, improved quality, and reduced costs for resources such as labor, water, and energy.

Additionally, Tilray plans to accept cryptocurrency as a payment method in its online operation and is exploring strategic initiatives related to cryptocurrency that aligns with our business goals. That is just the beginning. Tilray Brands is at a transformational point in its journey. Our strategic initiatives, innovative product development, and robust infrastructure are propelling us towards unprecedented growth. We have harnessed efficiency across our businesses, facilities, and systems, and our workforce globally, ensuring we're prepared to capitalize on every opportunity. I also like to add, being one of the largest individual shareholders in Tilray Brands, along with my team combined, we own approximately 1% of Tilray Brands' stock. We, along with our shareholders, are impacted by the decline in our stock price, and we are 100% fully invested in the positive trajectory performance of our stock price.

Again, we are laser-focused on building a sustainable global business platform and believe our further growth performance will recognize and reward our shareholders. Now, turning to cannabis. In Fiscal Q3, our global cannabis business generated $54 million of net revenue and $57 million on a constant currency basis and increased gross margin by 800 basis points year-over-year. Our gross margin of 41% was the highest in almost two years. Growth in our international and our strategic decision not to participate in margin-diluted categories in the Canadian adult use market has driven margin improvements. In fact, our global medical business, when combining international and Canada, now accounts for approximately 80% of our total cannabis profits, even though they contribute only approximately 35% of sales.

As a side point, we would say to investors, only focus on a reported sales figure to pay more attention to gross profit dollars and potential drivers of profitable growth in the future. If the United States legalized medical cannabis, it could mean an additional $250 million for Tilray, potentially capturing 2% to 3% of the U.S. medical cannabis market. Tilray is not subject to any of the 280 tax obligations in the U.S. Tilray's cannabis advantage lies in its global scale and experience, our top-tier ability to cultivate large-scale pharmaceutical-grade cannabis with strict quality control standards. Our established medical brands of product innovation are already improving patients' lives in legal markets such as Canada, Germany, Portugal, and various other European countries. Regarding our international business, in Q3, we saw quarter-over-quarter and year-over-year revenue growth in Germany, Italy, Luxembourg, and Portugal.

Our medical cannabis sales in Germany grew significantly, with flower sales increasing 79% post-legalization and extract sales increasing 31% post-legalization. This is a significant increase from the end of our second quarter, where we saw our post-legalization flower and extracts increase 55% and 24%, respectively. This growth was driven by higher patient demand in the market. As I mentioned earlier, a large focus of our strategic growth initiatives from our cannabis segment is redirecting inventories to international medical cannabis markets in order to capitalize on the higher margins available in such markets. Taking this one step further, given the increasing demand in Germany and the margins in Germany are the highest in the international markets, we are also allocating more of our inventory to that market to further enhance our profitability.

At the end of Q3, we introduced Tilray Craft, a new brand extension of the Tilray Medical brand in Germany, which aims to offer unique flower operations with higher THC and higher terpene content and are derived from novel genetics in order to address the evolving needs of patients. We are cultivating high-quality medical cannabis at our FreeRx facility in Germany using prized cultivars from Canada exclusively for the German market. We're excited to launch our new medical cannabis flower, which is expected to be in the fourth quarter. Today, we are now providing high-quality medical cannabis flower to Germany from our global facility in Canada, Portugal, and Germany, which is allowing us to be laser-focused on product quality, genetics, cost per gram for our international markets.

This, coupled with our regulatory direct distribution to wholesaler and pharmacies with our CC Pharma medical distribution business, continues to differentiate us from competitors and allows us to quickly service our customers and patients. Turning now to Canada, we continue our focus on quality of revenue, and it is shown in our margins. In the quarter, we shipped 3.2 metric tons of flower to support the international market, as I previously said, where margins are stronger than in the Canadian market. However, international sales and margin earned on them will not be recognized until shipped to our customer predominantly in the Q4, causing a temporary timing delay on all our overall cannabis sales of $3.2 million during the quarter. As I mentioned earlier, we remain the leader in the Canadian cannabis market by revenue, which is still the largest federally legal cannabis market in the world.

We maintain the number one position in beverages, chocolate edibles, oils, capsules, and straight-edge pre-roll. In the cannabis flower category, we were the number two market share position despite giving up share on lower margin SKUs in favor of higher margin opportunities. In an environment where constraints by tight regulation, price compression, and excise taxes, we remain laser-focused on utilizing process improvement and investing in CapEx to drive margin improvement. Since Fiscal 2024, we have reduced our cost per unit by 40% and expect an additional 20% cost reduction by the end of Fiscal 2025. In parallel, our operations teams have been working hard on optimizing our extraction capability by leveraging our state-of-the-art extraction chamber so that all our remaining biomass gets utilized at a significantly reduced cost.

As a result, we can expect healthier margins in our baseline business and growth in two of the fastest-growing categories in vapes and infused pre-rolls. On the cultivation side, we have the most flexible footprint in the global cannabis industry. Our product range caters to diverse consumer segments, including premium with Broken Coast, mainstream with Redecan, and value with Good Supply, which was the fastest-growing flower brand in Canada, growing by 40 basis points in the third quarter. Over the past couple of years, we have built a strong genetic pipeline across all our facilities, totaling over 400 unique genetics. We have cultivars across all our consumer taste profiles. Additionally, we can add an additional 70 metric tons to our capacity when the market requires it.

In the THC beverage category, Tilray had a leading market share of 45%, with XMG and Molo Brands ranking number one and number two, respectively. With multi-pack formats poised to enter the marketplace, we remain confident that beverages are significantly underrepresented in Canada. We anticipate capturing additional market share in this category, which is projected to experience substantial growth as regulatory environments improve. Tilray is well-positioned for long-term success in the Canadian cannabis market, with a facility footprint of approximately 5 million sq ft and the capacity to produce over 200 metric tons of cannabis. Our value chain and business process are the best in the industry and are optimized to enhance efficiency.

If the Canadian cannabis excise tax were reduced by $1 per gram to $0.50 per gram, and if cannabis drinks were sold at the LCBO and convenience stores, we foresee a tremendous amount of annual revenue opportunity that Tilray is positioned to capture. Turning to our Tilray Wellness business, as consumers become increasingly health-conscious, we continue to see steady growth as our revenue was $14 million in the quarter. We delivered an 8% net revenue growth compared to the prior year on a constant currency basis. This growth was driven by Manitoba Harvest Super Seed Innovation and the expansion of our wellness beverages, including Highball Energy. Highball Energy is a zero-calorie caffeinated seltzer with a clean label. Available on Amazon, we experienced 68% growth in the last six months and is available nationwide at Whole Foods market retail stores later this month.

A strong focus on cost helped the business unit improve margin, delivering 180 basis points, increasing gross margin year over year. The margins were driven by a more favorable sales mix and productivity savings generated at our manufacturing facilities. Tilray is exploring further expansion opportunities in the wellness section, both in wellness foods and wellness beverages. In the months to come, we'll continue to diversify and expand the Manitoba Harvest portfolio in North America and begin to bring brand new international sales. We see the success of Highball as a validation that Tilray Wellness has the right infrastructure and experience to build and acquire a more broad-based wellness beverage portfolio. With that, I will turn the call over to Ty Gilmore, President of Tilray Beverages of North America, to tell you more about what's happening at Tilray Beverages. Ty?

Ty Gilmore (President)

Thank you, Irwin. Building on Irwin's points, in Q3, our beverage business generated $56 million in net revenue and increased gross margin to 36% compared to 34% in the prior year quarter. Today, Tilray Beverages operates more than 20 beverage brands, including 15 American craft beer brands, across 10 networked manufacturing facilities, 20 brewpubs, restaurants, and a single integrated sales and marketing team operating nationwide. We are focused on profitable expansion. Last quarter, we announced Project 420, our strategic plan to integrate our craft beer businesses, optimize operations, and revitalize the growth of our acquired brands. This comprehensive initiative focuses on SKU rationalization, geographic and distribution consolidation, all aimed at enhancing margins and profitability through portfolio optimization, operational synergies, and cost savings. In Q3, we increased our Project 420 cost savings target to $33 million, of which we have already achieved $20.6 million on an annualized basis.

By working closely with our distributors in various markets, we streamlined our portfolio to eliminate duplicate and slower-growth products, as well as the decision to concentrate our brands in the regions that they have the most strength, impacting revenue to date by approximately $14 million. Together, we are poised to meet consumer preferences head-on and drive growth and innovation in the beverage alcohol category. Tilray Beverages has successfully established itself as the number one craft supplier in Metro New York with Montauk Brewing and Blue Point Brewing brands, the number one craft supplier in the Pacific Northwest across Oregon, Washington, and Idaho with our Tin Barrel Brewing, Red Hook, Hop Valley, and Widmer Brothers Brewing brands. Tilray is the number two craft supplier in the Southeast in Florida and Georgia with Sweetwater Brewing, Terrapin, and Shock Top, and the number four craft supplier in Colorado, according to Circana data.

Our strategic execution has led to focus on strategic brand growth, with Shock Top increasing 44.8% in the Southeast food channels, Sweetwater growing 1% in Southeast food channels, Breckenridge Brewing growing 2.7% in Colorado, and Montauk Brewing showing steady growth with 1.7% growth in the New York Metro area and 10.5% growth in the Northeast. Across strategic channels, Red Hook Big Ballard is growing 7% across the convenience channel, Terrapin Hops Executioner growing 3.4% in Georgia food, and Alpine and Green Flash growing 35.5% in California convenience channel for the quarter. We are not done, as we continue to seek profitable sales growth. To meet the consumer demand for value, trusted brands, and disruptive innovation, we are focused on investments across the following segments. One, we created a new consumer segment, Craft Light Lagers, with the introduction of Pub Beer at below-core price points.

We are now scaling this proposition across regions, including Sweetwater Dye Beer in the Southeast, Long Island Light from Blue Point Brewing in New York, Atwater Light in Michigan, and soon Revolvers Y'all's Beer in Texas. This strategic move has positioned us to capture a broader consumer base in line with the trends mentioned earlier. Two, our non-alcoholic beer brands and product portfolio is also showing promising momentum. We recently introduced a second Montauk SKU for New Yorkers with our N.A. IPA. Runners High has recently increased distribution across 4,500 retailers, demonstrating our ability to capitalize on the growth trend of the non-alcoholic craft beer segment. Three, in the spirits category, Breckenridge Distillery has proven its strength in the bourbon sector, experiencing higher depletions compared to others in a declining market.

It has also made significant progress in the vodka and gin markets, complemented by the world-class restaurant and retail operation that provide an immersive brand experience. Our primary objectives for growing our spirits business are to expand distribution of Breckenridge bourbon, vodka, and gin, and to launch world-class innovation across tequila, non-alc spirits, and to capitalize on the evolving shot segment with innovative branding and packaging. Fourth, and last but not least, in the hemp-derived THC drink segment, Tilray Alternative Beverage business is uniquely positioned to leverage the expertise of our hemp wellness business and our cannabis business to formulate great-tasting beverages responsibly infused with 5 and 10 mg of hemp-derived THC. In the quarter, Tilray expanded distribution of hemp-derived THC across 10 states, including Florida, Alabama, Georgia, North Carolina, South Carolina, Tennessee, Minnesota, and New Jersey, and online direct-to-consumer.

We estimate that our HDD9 drink portfolio is sold across 1,000 distribution points. In addition to Happy Flower, Busy Jane, and Urban Bloom, our mocktails and seltzer brands, we are introducing 420 Fizz, a low-calorie, sweet, and flavorful soda proposition. Tilray is also leveraging our established, robust national beverage distribution network across our independent retailers, convenience stores, package stores, including multi-state retailers such as Total Wine and ABC, who are very excited about this category and new growth opportunity. With that, I'd like to turn the call over to Carl to discuss Q3 Financials. Carl?

Carl Merton (CFO)

Thank you, Ty. 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 three months ended February 28, 2025.

In Q3, which is one of our seasonally lowest quarters, net revenue was $185.8 million compared to the previous year quarter net revenue of $188.3 million. However, on a constant currency basis, net revenue was $193 million, or up 2%. Further, as Irwin already mentioned, we made several strategic decisions during the year which impacted our Q3 revenues, including the decision to allocate 3.2 metric tons of cannabis from the Canadian market to international markets, where the revenue from that allocation, plus an incremental 2.5 metric tons, will be earned predominantly in Q4. The decision to focus on margin and not revenue temporarily in the vape and infused pre-roll space while we completed significant improvements to our industrial extraction process, and the decision to engage in SKU rationalization program in the beverage business.

The Q3 revenue impact of the allocation of cannabis to international markets pushed approximately $3.2 million in Canadian sales in Q3 to later quarters. Illustratively, 3.2 metric tons of cannabis sold in the international market should result in at least $10 million of revenue. The Q3 revenue impact of focusing on margins with vape and infused pre-rolls resulted in a decrease in year-over-year revenue of approximately $4 million. The Q3 impact of the beverage SKU rationalization was approximately $6 million. If those elements were included in our constant currency revenue number for the quarter, we would have reported $206 million. By segment, beverage net revenue was $55.9 million, but would have been over $60 million if we had not made the strategic decisions previously discussed. Cannabis net revenue was $54.3 million, which would also have been over $60 million if we had not made the strategic decisions previously discussed.

Distribution net revenue was $61.5 million, and wellness net revenue was $14.1 million in the quarter. Gross profit increased by 5% to $52 million compared to $49.4 million in the prior year quarter. Gross margin increased 200 basis points to 28% from 26% in the prior year quarter. Selling general and administrative costs decreased $1.2 million from the prior year when excluding an increase of $4.4 million in bad debt that was a result of us reversing a previous bad debt in the prior year. Like many industries and businesses impacted by the decline in the stock market since November, we are reporting a $700 million non-cash impairment related to macroeconomic conditions, including market volatility and the perception of the reduced likelihood of U.S. and/or European cannabis regulatory change in the short term.

Primarily as a result of this non-cash impairment, we are reporting a net loss of $793.5 million compared to a net loss of $105 million in the prior year quarter, with almost $779.1 million of non-cash costs, including the $700 million non-cash impairment, $20 million of non-cash fair value changes on our previous MedBed notes, and $22.3 million of non-cash foreign exchange losses. On a per-share basis, this amounted to a net loss of $0.87 per share compared to $0.12 per share in the prior year quarter. On an adjusted net loss basis, the loss was close to break-even at $2.9 million compared to an adjusted net income of $0.9 million in the prior year quarter. On a per-share basis, this resulted in an adjusted EPS of $0.00 per share for both periods. Adjusted EBITDA was $9 million compared to $10.2 million in the prior year quarter.

The decrease in adjusted EBITDA from the prior year is primarily related to the impact of allocating cannabis to international markets of $0.6 million and the SKU rationalization in our beverage business of $1 million. Cash flow used in operations was $5.8 million compared to $15.4 million in the prior year quarter. Adjusted free cash flow was negative $18.2 million compared to positive $0.6 million in the prior year quarter, largely as a result of an increased demand on our working capital, including settling multiple litigation matters, increases in inventory at Tilray Pharma as it prepared to stock pharmacist inventories for the summer holidays, increases in inventory in beverages as we prepared for the seasonality of beverage sales in the fourth quarter, all offset by a significant decrease in Canadian cannabis inventory levels.

In addition, we invested $7.8 million in CapEx within the beverage segment, investing in the business to grow future revenues and reduce our cost structure. For the year, we settled several legacy lawsuits inherited from acquisitions and the Aphria Class Action for a total of $11.1 million. Those lawsuits had original claims of over $265 million. Turning now to our four business segments, despite recent skepticism on the industry, we believe that the beer and spirit markets are not going away, but rather are in flux based on changes in consumer preferences and purchasing patterns.

To capitalize on those trends, we created Project 420, which focuses on four key elements: a SKU rationalization focused on our best-performing brands, introduction of key innovation, and extension into adjacent beverage categories like water, non-alcoholic drinks, and HDD9 drinks, a geographic rationalization focused on our regional jewel strategy, a distributor rationalization to reduce our over 700 distributors to approximately 500 distributors, and a synergy plan to optimize our cost structure. During the quarter, we increased our synergy plan to $33 million, up $8 million from the previous quarter, and we are well on our way with $20.6 million already achieved. Fiscal Year to date, the SKU rationalization plan lowered our revenues by $14 million.

For the fiscal year ended May 31st, 2025, it is anticipated that the cumulative impact of these initiatives will result in a reduction of approximately $20 million in net revenue, which we believe will be offset by the growth of our new product innovation, including the new beverage categories and brand extensions over the next 12 months. For the quarter, beverage net revenue was $55.9 million, a 2% growth compared to $54.7 million in the prior year quarter. As previously discussed, without the impact of the strategic decisions identified earlier, beverage net revenue would have been over $60 million. Beverage gross profit increased to $20 million compared to $18.9 million. Beverage gross margin was 36% compared to 34% in the prior year quarter. The improvement in gross margin was a result of our efforts in integrating and optimizing our facilities, as well as a favorable product mix.

Gross cannabis revenue of $73 million was comprised of $49.3 million in Canadian adult use revenue, $13.9 million in international cannabis revenue, $5.8 million in Canadian medical cannabis revenue, $3.9 million in wholesale cannabis revenue, all offset by $18.7 million in excise taxes. Net cannabis revenue was $54.3 million and $57.5 million on a constant currency basis compared to $63.4 million in the year-ago period. As previously discussed, the strategic decision to focus on margins in vapes and infused pre-rolls impacted revenue by $4 million in the quarter, and the decision to ship 3.2 metric tons of cannabis that would have been sold in Canada in Q3 to international markets for sale in later quarters impacted revenue by approximately $3.2 million. For these items, net cannabis revenue would have been $64.7 million on a constant currency basis.

The decision to preserve margin on vape and infused pre-rolls also had an impact on cannabis gross margins. Had we actively participated in those markets, selling the incremental $4 million in the quarter, it would have had an over $3 million negative impact on the gross profit we are reporting. Now that our extraction capital projects are completed and we'll be able to participate more aggressively in vapes and infused pre-rolls, we do not anticipate a revenue impact continuing past the midpoint from the fourth quarter. From that point forward, the positive gross margin impact of sales in this category would be expected to generate a swing of almost $5 million on gross profits versus what we would have reported in the current quarter.

Cannabis gross profit increased 5% to $22 million, and cannabis gross margin increased to 41% compared to 33% from the prior year period, an 800 basis point improvement. Distribution net revenue, derived predominantly through Tilray Pharma, increased about 8% to $61.5 million and almost 15% to $65.1 million in constant currency compared to $56.8 million in the prior year quarter, all as a result of favorable profits. Distribution gross profit was flat at $5.6 million in both the current year and the prior year period. Wellness net revenue grew 5% to $14.1 million from $13.4 million in the prior year quarter and 8% on a constant currency basis to $14.5 million. The increase was driven by our strategic focus on continued innovations.

Wellness gross profit was $4.5 million, up from $4.1 million in the prior year quarter, and gross margin rose to 32% compared to 30% in the prior year quarter, a result of continued operational efficiencies. Our cash and marketable securities balance as of February 28, 2025, was $248.4 million, up from $225.9 million in the prior year period. During the year and through to today, we continued to strengthen our balance sheet, including raising approximately $140 million on our open ATM, repaying approximately $15 million on our long-term debt, and repurchasing approximately $60 million in outstanding convertible notes. After taking into consideration these actions, we reduced our net debt position to approximately $50 million, which, when combined with our trailing 12-month adjusted EBITDA, puts our net debt to adjusted EBITDA leverage ratio below 1. Today, we are revising our Fiscal 2025 guidance for net revenue to $850-$900 million.

Adjustments for constant currency and the impacts of the strategic initiatives and SKU rationalization, which total $50 million, would have resulted in expected net revenue of $900 to $950 million. Let me now conclude our prepared remarks and open the lines for questions from our covering analysts. Operator, what's the first question?

Operator (participant)

Thank you. Before we get to the first question, I'd like to remind everyone that if you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Aaron Gray with Alliance Global Partners. Please proceed with your question.

Aaron Grey (Head Consumer Research)

Hi, good morning, and thank you for the questions. First question for me, I just want to talk about allocation of cannabis product. I can understand how the higher profitability makes international appealing, but as you redirect product international, would you be fine with this leading to some share loss in Canada as long as it's more profitable, share segments, any color in terms of your share aspirations now for Canada would be appreciated just now as you're allocating more product international. Thank you.

Irwin Simon (Chairman and CEO)

Good morning, Aaron. Good question. Number one, what's important for us is sales in Canada and having pre-rolls, flowers, edibles, and drinks. It will be an important part of our market and always profitability. Sales are important. We do not report share of something that is reported, but everybody looks at share differently.

The number one thing for us is how we grow our business, how we grow sales. With 5 million sq ft of grow, we have plenty of capacity. When we ship product now internationally, we do not have to pay excise tax, and there is much higher margin in the medical business. We look at Tilray today from a total company standpoint and do not look at Canada, do not just look at international. We look at totality in the cannabis industry.

Aaron Grey (Head Consumer Research)

Thanks, Irwin. That is helpful color there. I want to have my second question on hemp-derived beverages. I know it is a small part of your business today, but a lot of potential there. I believe you mentioned hemp-derived beverages are across 1,000 brick-and-mortar distribution points. Are there any targets that you can point to in the near to medium term that you hope to get to?

Can you comment on any initiatives you have to help drive velocity, maybe any marketing plans you have to speak of in the spring and summer, particularly given you do have a house of brands versus just focusing on one brand in that segment? Thank you.

Irwin Simon (Chairman and CEO)

I think, listen, as Ty has talked about in regards to, and I think what you said is you broke up there on the hemp brands. We are across 1,000 stores today. We are selling in 10 different states. The demand, and through our wellness team and through our beverage team, we have infrastructure salespeople on the street, and we are selling it through a lot of the beer distributors and selling it direct to consumer. There are multiple marketing programs in place to drive consumption with different retailers and different retailers with multi-outlets.

I think a big thing, Aaron, is educating the consumer what hemp-derived drinks are and what Delta-9 drinks are and the benefits from them. If anybody can do that, we are. We're in the beverage business. That's a big, big opportunity for us. Listen, we have aspirations for that to be in the multi-million dollar business for us, and also it's a great margin business. In regards to our beverage business and our beer business, like Ty has said, today, with 18 different beer brands, as we look at it state by state and geography, how do we focus on growing our beer in certain geographic? We talked about Montauk, and if it's New York, Pennsylvania, or New Jersey, there's 100 million people there. Really going after share with Montauk in that instead of going national. There's a lot of regional marketing that we're doing.

Listen, sponsorships. Hey, Florida Gators, we are the official beer of Florida Gators. Congratulations with Choctaw. That's a big win for us in regards to sponsorships. There is a lot we're doing with sponsorships. Next week, our 420, not next week, in two weeks, we are holding some major concerts down in Atlanta, Georgia, and some other places in regards to 420 and selling our beers. There is a lot of regional stuff that we're doing, a lot of sports sponsorships that we're doing, getting involved with the community and a lot of different concerts. That's how we're marketing our beers. With that, we're tying that in with our retailers and tying that in with our distributors on displays. Also, we're tying it into our off-premise in regards to making sure on tap. We have a lot of handles out there.

I'd test anybody to go to New York City right now and get around to a lot of the bars out there and see who doesn't have a Montauk or a Blue Point handle out there.

Aaron Grey (Head Consumer Research)

Okay, great. Really appreciate that color, Irwin. I'll go ahead and jump back into the queue.

Irwin Simon (Chairman and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Lynn, a Robert Moscow with TD Securities. Please proceed with your question.

Victor Ma (VP of Equity Research)

Hi, this is Victor Ma, on for Rob Moscow, and thanks for the questions. I guess first, cannabis gross margins at 41% for the quarter was a positive surprise, I think. What were the building blocks for that 800 basis point margin expansion? How much of it was from positive mix from not participating in vapes and infused pre-rolls? How much of it was from cost savings and efficiencies?

Irwin Simon (Chairman and CEO)

I'm going to let Carl go ahead.

Carl Merton (CFO)

Victor, the majority of the $800 million is mix. A portion of that mix is more international, but a big chunk of it is this concept of being very careful with what places we're playing in, particularly in vape and infused pre-rolls to focus on margin.

Irwin Simon (Chairman and CEO)

Going back to the last question, in infused pre-rolls and vapes, if we would have sold in the quarter and we gave up about $7 million or so in sales or something.

Carl Merton (CFO)

$4 million.

Irwin Simon (Chairman and CEO)

$4.5 million, but we gave up more, that could have been anywhere from $10 to $11 million that hit on EBITDA. Again, we are not going out there just for sales. We are focused on profitability. We're focused on margins. Just coming back in regards internationally, again, we're not paying excise tax.

I mean, throughout the year, we pay about $150 million of excise tax in the Canadian market. We're not paying that internationally and where we see the opportunity. Let me tell you, we're aggressively looking at how we take costs out, and that's something Blair and team are doing. We're not abandoning by no means the vape and pre-roll category, which are some big growth categories. Blair, in regards to our center of excellence, have come up with ways to take a tremendous amount of cost out. Coming up next quarter, we have a tremendous plan in regards to how to get more pre-rolls and infused pre-rolls and vapes into the marketplace. There's a big focus on our margins, but there's a big focus on driving sales too.

Victor Ma (VP of Equity Research)

Got it. Appreciate the color. My second question is on the beverage side.

Our tracking data indicates that sales and volumes for the craft beer brands are down about mid-teens in the third quarter. Is that what you're seeing on your end? Can you help dimensionalize that number? How much combined growth do your craft portfolios see in their home markets versus their away markets? I know you gave some numbers in the call, but what would be the total split between the total home markets and the total away markets for your brands? Just to squeeze another question. On Project 420, what is the brand hierarchy here when it comes to allocating the next marketing dollar? Is it on prioritizing your biggest brands, your biggest markets, or is it on newer brands for potentially higher growth on a percent basis?

Irwin Simon (Chairman and CEO)

Number one, when you come back and look at your data here, I mean, one of the things in there, as you go through a SKU rationalization, we're taking out a lot of the brands. It is not really giving you a true picture. As Ty took you through different states and different geographies on growth, that is why I come back and say this here. You got to look at it. We are probably on an aggregate, as you say, down. Following our plan and looking at the geographies of three, four states, certain states were up, certain states were down. Your numbers are probably right. Again, you got to pull out of there SKU rationalization.

Part of it is, as this here, as we introduce new products that are not in there, and off-premise or on-premise is something that there's a big focus on too, and where we pulled out a lot of the taps in that that we lost. There's another big focus on that. I would not look at the craft beer data that's out there. Right now, what we're trying to do is focus on sales and how we bring these brands together. Remember what I said in my remarks. As we acquired these brands from ABI and from Molson, a lot of these brands were mostly in negative territory. What we're trying to do is reverse them. We're in the midst of going through right now looking at distributors. We have over 700 distributors out there today, both Molson Coors, ABI, and Independence.

How do we consolidate them, and how are we a bigger focus for them, and how are we more important? We haven't done that yet. That's a big part of 420, and that's a big part of the cost savings that we're looking at. Your last question was what? On the savings on 420?

Victor Ma (VP of Equity Research)

Yeah, it was on just allocating incremental marketing dollars. Is the focus here on prioritizing the next dollar on your bigger brands and your biggest markets, or is it on just the newer acquired brands that offer potentially higher growth on a percent basis?

Irwin Simon (Chairman and CEO)

Listen, from a standpoint, as we look at it today, where we allocate our marketing dollars is the bigger brands. Number one, Shock Top is a brand that we would look to go national with. Sweetwater is one of our bigger brands. Blue Point is one of our major growth brands.

If you come back and look at the Pacific Northwest with Tin Barrel or Widmer, they are brands that we're going to focus on in their territory. You love all your kids equal. You love all your brands equal here, but there are certain brands that we're going to focus on. As you heard us say in Florida, with the Gators, we're focused on Shock Top there. In New York, we're focused on Montauk, then Blue Point. There is a lot of opportunities coming to us right now in regards to sponsorships and being part of it. Being on JetBlue with Montauk is something that's been great for us. Being on Delta has been great for us. There are a lot of unique opportunities in regards to sponsorships, being part of the community from a regional standpoint with our selection of beers that we have.

Operator (participant)

Thank you. Our next question comes from Frederico Gomes with ATB Capital Markets. Please proceed with your question.

Frederico Gomes (Director of Institutional Research)

Hi, good morning. Thanks for taking my question. First question on international markets, specifically Poland. I believe there were some changes there in telemedicine. Curious if you've seen any impact from that, but also if you would expect changes in Germany in regards to telemedicine as well.

Irwin Simon (Chairman and CEO)

I'm going to let Denise answer that. Go ahead.

Denise Faltischek (Chief Strategy Officer and Head of Mergers and Acquisitions)

Yeah, thanks. Great question. In Poland, in November, there was a change where telemedicine restrictions were put in place. As a result, we saw some prescription drops from basically around 68,000 prescriptions in the month of October to 28,000 in the month of December. As a result, we definitely saw, I would say, demand come down a bit as patients are looking for new avenues to find prescriptions.

However, in our Q4, we're starting to see things pick back up again. We believe that there was some oversupply potentially in the third quarter where distributors were working that through. We are pretty bullish on that market still. We have a very, very large share in that market. We have multiple distributors that are very strong in the market with physical clinics. We believe that we have the right infrastructure and the right partners to really win in that market. In terms of your question, in terms of Germany, we have been very focused on the German market as we reported. We also have spent a lot of time evaluating from a government perspective and speaking with members of parliament around the change in government and whether there's going to be any change in the landscape of either MedCANG or CANG.

What we find in terms of those conversations that we've been having and working for our industry group is that there are potentially changes on the CANG, and that means social clubs and the model experiments. What we've been assured of is that there is really going to be no changes in terms of the MedCANG, which is the market that we are participating in today and where we see all of our growth. We are keeping an eye on the telemedicine aspect of the law and working with government officials to really support why that is necessary, especially for rural patients. We still remain very, very bullish about our business in Germany and, in fact, saw some of the highest numbers that we've seen in history for our business in Germany this past quarter.

Irwin Simon (Chairman and CEO)

Great. Thank you, Denise.

Frederico Gomes (Director of Institutional Research)

Yeah, thanks, Denise. Appreciate that.

Second question, just to follow up on Germany, if you could just comment on pricing in Germany, has anything changed recently? Are you seeing any impact, I guess, from increased competition in that market? I know it's a growing market, but we also see some other companies investing there. Any changes in pricing?

Denise Faltischek (Chief Strategy Officer and Head of Mergers and Acquisitions)

There's definitely a lot of competition coming into the German market because I think just like we see the opportunities in Germany, both in terms of demand on patient growth and also the higher margins, I think others are seeing that as well. I think there were some of the highest imports into Germany from Canada, basically around 51% of the imports going into Germany are coming from Canada. There is definitely a lot of competition.

Irwin Simon (Chairman and CEO)

We do see what we see in terms of pricing is more of a segmented market coming about where patients are focused on different levels of quality and value. Higher quality products are still commanding much higher prices. There is also a value segment, though, and that value segment is really being positioned toward patients who are really looking for a lower-priced product. I think, as you know, the German market today is split between the patient-led side, which is really self-pay market, and the doctor-led side, which is more of an insurance-based market. On the insurance-based side, which is at this point predominantly medical extracts, we see pricing remaining pretty secure because of that insurance coverage. On the flower side, where is that segmentation, we are seeing differences of pricing based on patient demand.

I think the big thing also, which is important, is supply and consistent supply. That is something that Tilray can either supply out of our Canadian facilities, can supply out of our Portugal or German facility. I think that is what everybody is looking at. One big thing to mention is we are vertically integrated there with CC Pharma or Tilray Pharma, our distribution business that actually has been very helpful and a big part of our growth there, that we distribute directly through to the drug stores today. That is important to us.

Frederico Gomes (Director of Institutional Research)

Thank you. Appreciate that. I will have back. Thank you.

Irwin Simon (Chairman and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Pablo Zuanic with Zuanic & Associates. Please proceed with your question.

Pablo Zuanic (Managing Partner)

Thank you. Good morning, everyone. Look, my question is more for Denise. Look, I am very impressed with the growth in your extracts business.

I think you said 31% since April 1. My impression was that the reimbursed business was not growing much. Is this a sign that you're gaining share, or are more doctors prescribing to the reimbursed market? I'm just trying to understand that. Thank you.

Denise Faltischek (Chief Strategy Officer and Head of Mergers and Acquisitions)

Yeah, thanks, Pablo. We do see more and more doctors prescribing. I think you might have recalled that after the passage of MedCANG, the government also took steps to clear out some of the restrictions that we saw on the reimbursement part of that market. Whereas before, there were waiting periods, and it was not clear if there would be reimbursement. Now there actually is a much faster, more facilitated way to get reimbursed for medical cannabis. We also have really stepped up our efforts in terms of our team on the street with education.

Doctors are more and more interested in learning about the benefits of medical cannabis for patients with certain conditions, including chronic pain. Along with that increased interest, I think stigma is starting to fall away even more so. We do see increased patients, increased doctors coming to seminars wanting to learn more. I do believe it's share as well as increased prescriptions to answer your question.

Pablo Zuanic (Managing Partner)

That's great. Just on the same point, I mean, we are hearing more about clinical studies or trials as a way to convey the message to doctors. Is Tilray involved in any of those types of studies in Europe right now?

Denise Faltischek (Chief Strategy Officer and Head of Mergers and Acquisitions)

We are involved in a glioblastoma study in Spain that is basically into its second year of the study. We also recently completed a study with the University of Sydney on cancer-induced nausea and vomiting.

It is something that we will continuously look at. Where does it make sense? We have had some conversations in Germany about doing studies, also working with local universities as we build out programs to really bring the expertise of cannabis cultivation and processing to Germany because I think we've all seen the fact that there's been a lack of expertise in Germany. We at Tilray have had to import a lot of our expertise from Canada. We really look to build out that market.

Irwin Simon (Chairman and CEO)

Pablo, that's something we support in regard to investing in research here because we think there's a lot of good research that will come out that ultimately benefits the growth of the medical cannabis business and growth in other countries as they see the benefits from this here.

Europe being basically only a medical cannabis business, it's important, and it's important for the future of this industry. That's something that Tilray wants to be a part of.

Pablo Zuanic (Managing Partner)

Thank you. Just one more here. We're very focused, of course, on Germany, and you mentioned Poland. Denise, I mean, when you think of Europe, what's the other next big market that you're looking at right now? What's the one that can we are hearing some news from France, Czech? How do you think about the other European markets right now in terms of opportunity? Related but separate, is Tilray considering entering the Dutch pilot? I mean, I think there are 10 licensees, some licensees maybe are for sale. I know that's more REC, but what are your thoughts on that? That's it. Thank you.

Denise Faltischek (Chief Strategy Officer and Head of Mergers and Acquisitions)

Yep. In terms of markets, you mentioned Germany and Poland, two of our primary markets. Also the U.K. We've invested in the U.K. with both infrastructure and a salesforce and working with additional distribution partners. We're very focused also on Italy. It is a very good medical market, a lot of support from the government there in terms of growing a medical cannabis market. And doctors are very interested. We're seeing really, really good growth and good interest coming out of Italy. We just had a few Italian doctors from a very prominent cancer hospital visit our Portugal facility to learn more about medical cannabis. You mentioned France. We're keeping an eye on France. I think you might remember that we participated in the experiment in France when it first began. We continue to keep a foothold in that market.

We have been having conversations at the government level to really understand where it is going. We believe that there will be market authorizations available. We do not believe that really there would be potentially any sales coming out of there until January of 2026. It is a big market and a big medical market. We believe that we really can be very successful there. In terms of your question about the experiments in the Netherlands, at this point, I think we are very focused on activities and opportunities that really have a strong ROI. We look at some of the experiments as very interesting in the sense that it potentially generates data for the marketplace, but we do not really see a large commercial opportunity. We will wait and see and then see where the market goes.

At that point, as you mentioned, we could either look to acquire something or enter the market ourselves using our well-proven roadmap and strategic plans for entering new markets.

Pablo Zuanic (Managing Partner)

Thank you.

Irwin Simon (Chairman and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Bill Kirk with Roth Capital Partners. Please proceed with your question.

Nick Pope (Senior Research Analyst)

Yeah, good morning. This is Nick on for Bill. Thanks for taking the question. First one for me, just wanted to follow up on the beverage side with the cost of aluminum potentially higher here. Just wondering how you kind of see beverage margins playing out and if that'll have any impact on your business. I know you mentioned you're not impacted by tariffs, but any color on how you're working around that would be helpful. Thank you.

Irwin Simon (Chairman and CEO)

Like everyone, ultimately, we have contracts in place with suppliers. Aluminum could go up, which is an input cost. Hopefully, with some of the cost savings and the costs that we're taking out of those businesses right now, we can offset that. Right now, it's minimal on aluminum, but it's kind of wait and see what happens there. What's happening, because I think everybody's getting in there to try and buy cans of that right now. Prices are going up. So far, we're managing it, but trying to offset any of those prices with costs that we're trying to take out of the business.

Nick Pope (Senior Research Analyst)

Okay. I appreciate that color. Second one for me, just on the Canadian cannabis gross margins. With international demand ramping and a large amount of this being met from Canadian suppliers, have you seen any discernible changes in supply-demand economics in Canada recently?

Just your sense of the supply environment in Canada would be helpful.

Irwin Simon (Chairman and CEO)

I think Blair's on the call. I mean, number one, because we're probably the largest grower of cannabis in Canada today, the demand for us and the calls that we're getting to supply third parties with cannabis is tremendous. Right now, we have had to increase grow in a Fria One. We're at full capacity at Fria Diamond. We have our outdoor grow. We're now growing outdoor grow. We're looking at our facility in Gatineau that is partially vegetables and partially cannabis. Do we convert that back? There is a major demand right now in Canada for supply because a lot of these grow facilities have either closed or gone out of business. There is a big demand for cannabis in Canada.

Our plan, supply ourselves first, supply Canada, supply Europe where we can. If there is an opportunity for a third party, we will work with a third-party partner.

Nick Pope (Senior Research Analyst)

Great. That is it for me. I appreciate the color.

Irwin Simon (Chairman and CEO)

Thank you.

Operator (participant)

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

Matt Bottomley (Wall Street Analyst)

Good morning, everyone. I know you have talked a lot already on the call on the hemp drive space. I guess the only other question I would have on it is just given the pretty impressive growth that the overall market has, particularly in some of these southern states where you have distribution. I know it is not material today, but I am just curious if there is some sort of scenario where a farm bill goes and sort of rips this ability out and the market kind of has to close overnight.

What sort of the infrastructure investment or anything else that you've sort of spent that isn't synergistic already with your other beverages? Or maybe it's not at all, but I'm just curious what that would mean for you guys strategically if the plug was sort of pulled from a regulatory standpoint.

Irwin Simon (Chairman and CEO)

I'll let Jared answer that, but first of all, number one, all our productions happen at a third-party facility. And number two is we have in place a production schedule. So we're not sitting out there with tons and tons of inventory and got big infrastructure and people against us. Number three, we don't believe that every state would close up and go out of business and end this. Jared, do you want to?

Jared Simon (President)

Yeah, yeah. I'll add to that. I think Irwin's right. And we're doing this smart and steady.

I think we are going into a select number of states. We're putting out a select number of SKUs, and we're going with the right retailers as we go and launch this platform. I think we're being cautious. We're not over-inventorying on this. We're going out to the marketplace, and we're going to places where we think we'll succeed. I think furthermore, as Irwin was saying, there's a lot of business going on in key states, particularly in the Southeast, and it's become nice business for these states. The legislatures are working to codify rulemaking so that this industry can continue and thrive within those states. I agree.

I think the more we can do to advocate for smart regulation, and that's something that we are doing through our own efforts and through CABA, the Coalition for Adult Beverage Alternatives, in which we have an active participation, I think that's something that will enable this market to continue to succeed and thrive.

Irwin Simon (Chairman and CEO)

I think the important thing out there is this here. Consumers want this product. There's much demand out there for this product. There's a real category. I think the farm bill is in place, and it's in place for another, what, two years. There's 10 states right now. Hopefully, this is something that we hope is legal in all 50 states.

Matt Bottomley (Wall Street Analyst)

Got it. Appreciate it.

Staying on the sort of THC beverage side of things, but in the Canadian market now, can you give us a little more color, independent of your performance in the beverage segment? How has that grown as sort of an innovative SKU relative to there's been a few pre-rolls and some others more on a macro level? Just because I know there's been some changes over the years from a regulatory standpoint, very minor, but still the distribution of this is in the dispensaries. I know a lot of these fridges are locked, and the access to product in Canada is still a little archaic in terms of how they do it. Just how that segment has grown, again, independent of your own brands.

Irwin Simon (Chairman and CEO)

Again, coming back to the beverage industry in Canada, and I come back and I say this here, we have a 45% share. It's somewhere around a CAD 25 million to CAD 30 million business for us today. You're right. It's sold in refrigerators only in cannabis stores. Now they're going to a six-pack from a standpoint there. They're not cheap either. I always say this here, if tomorrow, and there's motions that we are trying, if we could sell this in the LCBO in Canada, or we could sell this in convenience stores or beer stores, etc., you take it, if it's a CAD 25 million-CAD 30 million business for us, I would take a 10 multiple and say it's a CAD 200 million-CAD 300 million business for us because the big-time growth is in the beverage industry.

Tremendous demand for a limited amount of stores that it's sold in today. You think about it, at the size of the category where it's only sold in cannabis stores, how big this would be if it could be sold in the LCBO or beer stores or on tap at bars. That's something that we're pushing for, and hopefully, something can change there.

Operator (participant)

Thank you. Our final question comes from the line of Michael Laverty with Piper Sandler. Please proceed with your question.

Michael Laverty (Analyst)

Thank you. Good morning. Just wanted to come back to your comments about looking to consolidate beer distribution. I guess my sense is typically that's quite localized. Do you have any cases maybe where there's overlap that you could drive efficiencies or maybe just help us understand some of the strategic rationale a little bit better?

Have you taken a look at what transition costs there might be from buying out a distributor to move it somewhere else?

Irwin Simon (Chairman and CEO)

Number one, when we did our ABI deal, we had a two-year where we would have to stick with all the ABI distributors. That is number one. Number two is, for instance, here in New York, we have certain distributors distributing Montauk and certain distributors that are distributing Blue Point and Sweetwater and Shock Top. As we look at it today, what makes sense? Where are we obligated by distributor contracts? Where are the potential buyouts? There are tremendous savings on freight. There are tremendous savings where our salespeople are making two stops and working with distributors, and there are tremendous marketing costs. We have our analysis in place. We know what the potential cost savings are.

It is sort of like picking the best of the best out there and where we are going to be important to. I will say this here. What distributors like about having Tilray Brands is they see what we are doing, that we are growing, we are investing, we are coming up with new products, and think we will buy more craft breweries. They want to stay with us. We are going to have to look at some types of consolidation because you cannot have 500-600 distributors. It is actually even more because when you look at certain distributors, they have three or four different branches that we are shipping to out there. Yes, the answer is we have done a lot of analysis. We were obligated because of contractual to stay with certain distributors.

It is something that Ty and team that we are working with and would work with potentially a third-party group to help us get all the costs and the efficiencies and make some of the right moves.

Michael Laverty (Analyst)

Okay. That is helpful. Just on the cannabis side, maybe help us understand your capacity approach a little bit because I know you have talked about reallocation to improve mix and take advantage of the better opportunities in the EU. It sounds like you have also dusted off some dormant facilities and have your eye on maybe where you can add more. Yet, the revenue growth has not really been there. How much is there a cost you are willing to carry to lean into that even if you are not already seeing the growth momentum? I know you had some sales that got shifted into 4Q, but obviously, cannabis revenues were down. Help us square a little bit how to put all that together.

Irwin Simon (Chairman and CEO)

Number one, cannabis revenues are down, as we said. Some of them were decisions to make strategically just because of margins. Some of them are timing where our new products do not come into place until the fourth quarter. Some of them is we just did not have supply. If you come back and look at it, we would have had supply for our international markets and additional supply for the Canadian team. That is from our revenue growth. The other thing is this here. There are many wholesale out there that want to buy products from us, and we just do not have product to sell. Bringing on our Cayuga Outdoor Grow is something that is happening.

We brought on a Fria One, our phase four, which is the first time that has been operating in quite a few years. Basically, today, I think it is 137 metric tons that we are growing in Canada. We have the ability for another seven; it is about another 73-100 metric tons that we could grow there. Some of that is to support our own growth. Some of that is to support international. If there are certain strategic partners out there that we will supply with, that is profitable. One of the things is they are competitors, if we are going to sell wholesale, so we have to look at that too. As you see, why are our margins growing? We are focused on profitability here. I think the difference is this here.

As you looked at a lot of these cannabis businesses, they decided to go with the asset light model where they do not have grow, and they got to buy consistently from different growers. You are getting different strains, different qualities, different timing, different pricing out there. That is not what Tilray is. Tilray is a vertically integrated company where we have 5 million sq ft of grow. We have our brands. We have our infrastructure. That is how we are going to grow our business. Ultimately, it will come to roost that we will get the growth for it. Whether it is supplying Canada and whether it is supplying international markets and the question asked before, additionally, whether it is the U.K., there is talk about other international markets, whether it is Japan, whether it is India, whether it is other countries, we have supply, either GNP-sourced or Canadian markets.

I think that's what's important here as we look at it where we have these infrastructure to do it. Listen, the drink business, besides what I talked about before, we have supply for drink. Now, with the whole vape industry, we have supply for vape infused pre-rolls. We have supply. I think that's what the important thing is for us to measure where we're going to supply ourselves, where we're going to supply ourselves internationally, and then who else we want to supply and sell product to on a wholesale basis that makes sense to.

Operator (participant)

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Simon for any final comments.

Irwin Simon (Chairman and CEO)

Thank you very much, operator. Thank you very much, everybody, for joining our call today. It's not an easy world out there. We've seen this.

As we come back and look at what Tilray has done, we've generated net revenue in the quarter of $186 million, $193 million. We have decided between SKU rationalization and where we want to ship product to, a pullback on $13 million. What we focused on is margins, profitability. We have diversified this company in over five years. We've got this close to $900 million plus in sales. If you can look at categories today where we diversified in cannabis in the Canadian market and being the largest grower with an infrastructure to support it out there with innovation, with R&D. If you come back and look how we pivoted into the beverage business, Tilray is a beverage company today with our beer, with our spirits business, with our non-alc business, with our liquid love water, and our hemp-infused drinks. We pivoted in that.

Remember, we just started that in 2020, five years ago today. Look where we are, the 5th largest craft brewer. We got some of the top spirit brands out there with Breckenridge and entries into these new categories with non-alc with our water business and with our energy drink Highball, which you'll be able to find in every Whole Foods in the U.S. right now, which you can do. Actually, when we acquired that from ABI, there was no sales from that product. It's one of the only clean energy drinks that are out there. In regards to margin, we're focused on margin, margin, margin, margin. I understand share. I understand everything else, but that's a big thing. Margin drops profits to the bottom line.

In regards to our balance sheet, and that's something today, there's a lot of cannabis companies out there sitting with a lot of debt at high interest rates. There's a lot of cannabis companies out there that own some significant taxes and excise taxes. A lot of things can change in Tilray if Canada decides to cut its excise tax. If the U.S. legalization happened for medical cannabis, if we could sell cannabis drinks in Canada or we could sell cannabis drinks in the U.S., I think it's billions of dollars of sales. In regards to internationally, I mean, that is a business that basically we started from scratch. I think when we acquired Tilray, we were doing about $10 million of cannabis sales with Tilray, very little in regards to Aphria.

We did have CC Pharma, but we've turned that into, and with their growth and with their margins, at some of our most profitable businesses today within the Tilray business. From a standpoint, yes, we're focused on cash flow. Yes, we're focused on profitability, but you've got to invest to get there. That is a big thing for us. We've had to invest in our beverage business to get it where it is. A lot of these craft businesses have been around for years and years and years. Fortunately, within the beer business, listen, if you watch every sporting event, Bud Light, Bud, Miller, a lot of these Coors have big sponsorships out there. There's a lot of beers out there. What we've done to become prominent in these markets is pretty amazing and how we're a big player out there.

That's what we have to do. If you come back and look at the cannabis industry in Canada, it's five years old and how we've invested in the cannabis business to create close to a $200 million US business in there and build brands from scratch. Same with Europe. It's five years since Germany from a legalization, well, it's not even five years from a legalization and tender in that. We have built all this from scratch to get it where it is today. It takes money, takes time, takes infrastructure. It takes people. Of course, there's going to be some losses along the way. Where I sit here today with Tilray is I'm very proud of the people that we have in place. In regards to our organization and a big focus with this here is our balance sheet. We are focused on debt.

We are focused on balance sheet. We're focused on generating cash, and we're focused on our cash situation. We are shareholders. We're just not employees here. A big part of our compensation is in equity. A big part of all our net worth is in our stock. No, we're not happy where our stock is, but nobody has given up. Nobody's going away. We're working hard to change that course on our stock. You're seeing some of the results that we're putting out there today. I want to thank everybody for your support, understanding. We have the naysayers out there, and we have the support out there. I'll tell you what, there's a team here that is focused. We think we have a unique business. No, we're not building an electric car.

You heard what Denise talked about, research that we're doing in regards to cannabis and some of the medical stuff that we're doing there. Consumers are changing habits every day. You heard me talk about where our Gen Z and millennials in regards to cannabis use and drinking use. You look at that, we are there. In regards to our wellness business and our hemp-infused business, when we acquired Manitoba Harvest along with Tilray, it was losing about $6 million EBITDA. There's a complete reversal with 8% growth, and it's become a very profitable business for us and the wellness business is something that we're going to focus on. Yes, we've had a lot of successes. We've had some challenges. We've had some failures. Within five years, there's a lot of points that we put on the board.

Thank you very much for your support. Thank you very much for listening to us today. Like I say, hang in there with us. We'll be there. Have a good day.

Operator (participant)

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