Tilray Brands, Inc. (TLRY) Earnings

Management highlights

- **Strategic Transformation & Diversification** * Tilray has transformed from a single-focus cannabis business to a diversified global consumer products and pharmaceutical distribution company with leading positions across cannabis, beverage, hospitality, and wellness. * The company ended fiscal 2026 with ~$235 million in cash and marketable securities, net debt of less than $1 million (a 95% improvement year-over-year after reducing total debt by ~$60 million during the year), and ~$700 million in operating assets. It operates across 20+ countries with 40+ brands, 22 production facilities, 53 total pubs, and 3 hotels, with 93% of products manufactured in-house. * The interconnected, diversified model provides operational flexibility: capital can be allocated to the highest return opportunities, brands can be expanded into new channels, and the hospitality footprint enables direct consumer engagement. - **Cannabis Business Highlights** * Tilray is the largest cannabis cultivator globally with over 6 million square feet of cultivation capacity, the revenue leader in Canadian cannabis (with the #1 market share in pre-rolls, THC beverages, oils, and chocolate edibles), and the leading medical cannabis provider in Germany with 45% market share for medical cannabis oils. * The Portugal cultivation facility (supplying 85% of international medical cannabis) reached ~80% utilization in fiscal 2026, with an annualized harvest rate of over 30 metric tons, up from 4 metric tons 24 months prior. The Germany Freya RX facility is fully utilized, and the new ARX brand launch has seen strong early patient demand. * Full vertical integration across international medical cannabis delivers consistent quality, genetics, and cost control, eliminating reliance on volatile spot markets. - **Beverage & Hospitality Business Highlights** * Tilray acquired BrewDog out of administration for ~$54 million, a strategically priced acquisition that adds a globally recognized brand, a 53-pub hospitality footprint, and over $200 million in annual run-rate revenue, creating a ~$500 million total beverage platform. * Early integration of BrewDog has gone well: 23 American craft beer brands from Tilray's portfolio launched in the UK during the 2026 World Cup, all selling out in less than two weeks. BrewDog's flagship Waterloo pub generated ~£412,000 in incremental revenue above budget during the six-week tournament, demonstrating the power of the hospitality-consumer engagement model. * Tilray is the 4th largest craft brewer in the U.S. and a top 100 global beverage company, and has secured an exclusive long-term U.S. partnership with Carlsberg (starting January 1, 2027) to brew, market, and sell Carlsberg's portfolio across the U.S. * The existing beverage manufacturing, distribution, and sales infrastructure is already in place to launch THC or hemp-derived CBD beverages at scale across the U.S. if federal regulations allow. - **Wellness Business Highlights** * The wellness segment is positioned to capitalize on growing global consumer demand for better-for-you, functional nutrition products, with Highball Energy already tripling in size since acquisition. * Management is targeting expansion into high-growth markets including India, the Middle East, and Asia to drive long-term growth. - **Operational Progress** * Full year 2026 record GAAP revenue of $915.5 million (+11% YoY), with an annualized pro forma run rate of ~$1.2 billion. Record adjusted EBITDA of $61.1 million (+11% YoY, $63.4 million excluding temporary fuel surcharges). Positive operating cash flow (excluding working capital) of ~$18 million, a $50 million improvement year-over-year. Adjusted net income improved 87% to $12.2 million.

Guidance

- For fiscal 2027, management expects combined international business revenue to reach ~$700 million, representing 60% of total consolidated revenue, consistent with Tilray's current annualized $1.2 billion revenue run rate. - Management guides full year 2027 adjusted EBITDA to a range of $68 million to $75 million, representing a double-digit percentage increase from fiscal 2026's adjusted EBITDA. - Tilray has no near-term debt maturities (all outstanding debt matures in 2028) and will continue to pay down the $70 million outstanding debt balance ahead of maturity. - Long-term, management has an aspirational target of 15% to 18% consolidated EBITDA margins (including the lower-margin distribution business), to be achieved over the next 2-3 years as margins improve across existing segments. - Management plans to use proceeds from its ATM program (which raised $84.9 million net of fees in fiscal 2026) for strategically accretive acquisitions and high-return capital expenditures, particularly in the U.S. and European markets.

Segment performance

For full fiscal 2026: 1. **Cannabis**: Total net revenue of $268.3 million, a 8% increase year-over-year. This segment contributed 29% of total net revenue. Gross margin held steady at 40%, with international cannabis price compression offset by higher volumes. Canadian adult-use cannabis revenue grew 5% to $236.4 million, driven by strong growth in fast-growing formats (pre-rolls +38%, edibles +39%, vapes +28%, THC beverages +6% in Q4). International cannabis revenue grew 34% to $84.9 million, with 34% overall growth driven by expanded distribution across Europe (Germany +25%, Poland +73%, Italy +53), even after absorbing $21.1 million in price compression. Canadian medical revenue decreased 5% to $23.7 million due to Veterans Affairs reimbursement changes, and wholesale revenue dropped 60% to $7.3 million as Tilray reallocated inventory to higher-margin international markets. 2. **Distribution**: Revenue grew 21% to $327.2 million, contributing 36% of total net revenue. Gross margin increased to 12% from 11% year-over-year, driven by favorable product mix and higher average selling prices. This segment (led by CC Pharma in Germany) reaches ~16,000 European pharmacies and is a core part of Tilray's vertically integrated European medical cannabis platform. 3. **Beverage**: Revenue grew 6% to $254 million, including $51.1 million from the Q4 2026 acquisition of BrewDog. This segment contributed 28% of total net revenue. Reported gross margin was 36% (37% adjusted), down from 39% prior year, but BrewDog is expected to be margin-accretive with higher gross margins than the legacy U.S. beer platform. Excluding BrewDog, legacy U.S. beer revenue decreased due to intentional margin-focused skew/brand rationalization that reduced low-margin revenue by ~$16.6 million, supporting long-term profitability. 4. **Wellness**: Revenue grew 9% to $65.9 million, contributing 7% of total net revenue. Gross margin increased to 33% from 32% year-over-year, driven by strategic price increases that offset unfavorable sales mix. Growth was led by Highball Energy, which has more than tripled in size since acquisition. For the fourth quarter of 2026, revenue grew 25% year-over-year to $281.7 million, with growth across all four segments: cannabis revenue $71.5 million, beverage revenue $105.6 million (including $51.1 million from BrewDog), distribution revenue $85 million (+15% YoY), and wellness revenue $19.7 million (+16% YoY).

Risks & headwinds

- International medical cannabis operations face ongoing regulatory complexity, permit processing delays, and persistent price compression, which directly impacts gross profit and profitability, even as higher volumes partially offset these headwinds. - U.S. cannabis regulatory status remains uncertain, with unclear pathways for market entry depending on the final form of federal rescheduling or legalization, creating uncertainty for near-term U.S. expansion plans. - The overall global beer category is facing broad headwinds, with a 5% industry decline in the U.S. that has impacted near-term legacy beverage segment revenue. - The U.S. hemp-derived THC beverage market remains blocked by current federal regulation, delaying the potential for this high-margin growth opportunity. - Changes to Canadian Veterans Affairs cannabis reimbursement have created a permanent $4 million annual negative impact on Canadian medical cannabis revenue starting in fiscal 2027. - The company's current stock price does not reflect the underlying value of Tilray's diversified asset base and scale, in management's view.

Analyst Q&A

• Q: How does Tilray's diversified business model work together, and what is the long-term direction for the group? /

  A: Irwin Simon explained that Tilray has built a diversified portfolio of consumer product infrastructure: a $200M+ Canadian cannabis business with leading market share, a $100M+ European medical cannabis business, a full U.S. beverage manufacturing and distribution network (with 900 distributors and 18 brands), and the newly added BrewDog global hospitality and beverage platform. The company is not waiting passively for U.S. federal cannabis legalization, as its existing diversified portfolio delivers cash flow and growth across multiple categories. If U.S. legalization occurs, Tilray is already positioned to capture the opportunity with its existing beverage infrastructure.

• Q: Excluding BrewDog, U.S. beverage organic revenue declined 17% in Q4. What gives management confidence it can fix the legacy beverage business? /

  A: Simon explained the decline was intentional: the company completed a full overhaul of the legacy beverage portfolio, including rationalizing low-margin skews and unprofitable brands, which was a self-inflicted near-term revenue headwind. The beer category overall declined 5% industry-wide, compounding this effect. Going forward, Tilray will focus on Shock Top and Carlsberg as national brands, with other brands positioned regionally, has added new operational leadership, and is cutting costs to improve profitability, so management expects growth in fiscal 2027.

• Q: What is the medium-term EBITDA margin aspiration for Tilray, and what is the expected quarterly EBITDA sequencing after the BrewDog acquisition? /

  A: CFO Carl Merton said quarterly EBITDA sequencing will remain largely unchanged: the first three quarters will account for roughly half of full-year EBITDA, with the fourth quarter accounting for the other half. Simon stated the long-term aspirational consolidated EBITDA margin is 15% to 18% (including the lower-margin CC Pharma distribution business). Excluding distribution, the core consumer product segments are already tracking much higher, and margins will improve as CC Pharma is transformed into a higher-margin compounding business.

• Q: How does Tilray plan to approach U.S. M&A and expansion after federal cannabis rescheduling? /

  A: Simon said Tilray is ready for any regulatory outcome: it already has supply, brands, and existing research on medical cannabis indications that would allow it to enter the U.S. market quickly if a clear regulatory pathway is established. However, management will remain disciplined and will not make unguided acquisitions until the final regulatory framework (including FDA oversight and interstate commerce rules) is clear, to avoid regulatory risk from changing policies across administrations.

• Q: What drove CC Pharma's margin improvement, and what is the plan to transform the business going forward? /

  A: Margin improvement came from expanding reach to 16,000 German pharmacies, improved product portfolio mix, and better purchasing pricing enabled by stronger access to capital. Going forward, management plans to convert CC Pharma into a licensed compounding facility for medical cannabis products (pre-rolls, vapes), which will carry much higher margins, expand the CC Pharma distribution model to the UK, Italy, and Middle East markets, and launch a direct-to-consumer specialized service model in Germany. These changes are expected to grow CC Pharma's gross margin by 5 to 7 percentage points, dropping substantial incremental profit to the bottom line.