Good morning, everyone and thank you for joining us to discuss Tilray Brands, Incorporated Financial Results for the 2022 Fiscal Fourth Quarter ended May 31, 2022. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session for analysts and investment firms conducted via audio and participating retail shareholders conducted through the Say Technologies platform.
Question submission and uploading through the Say Technologies platform has already been concluded, and the company will read aloud and answer the top questions. Ms. Noorata, you may now begin the conference..
Thank you and good morning. By now, everyone should have access to the earnings release which is available on the Investors section of Tilray’s website at tilray.com and has been filed with the SEC and SEDAR.
On today’s call, please note that we will be referring to various non-GAAP financial measures which 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.
Today’s earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions.
These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties which may prove to be incorrect. Actual results could differ materially from those described in these forward-looking statements.
The text in our earnings press release issued today includes many of the risks and uncertainties associated with such forward-looking statements. And now, I’d like to turn the call over to Tilray Brands’ Chairman and CEO, Irwin Simon..
delivering continued product innovation and category leadership, investing in retail partnerships by educating, budtenders through an enhanced outreach and curating offerings to provide retailers with the highest velocity products. Producing best-in-class quality products in scaled low-cost production facilities in which we can implement synergies.
And finally as it relates to medical, expanding our relationship with patients and physicians to bolster our market position, while keeping our product assortment fresh and innovative as we work to advance education responsibility that impact regulation. Blair will discuss the Canadian cannabis market in further detail.
And in the US, where 91% of adults say, cannabis should be legalized for medical or adult use and 60% of adults across a variety of demographic group believe cannabis should be fully legalized. We see a market poised for growth, supported by a state-by-state trend towards legalization.
We believe that we can reach our target revenues by the end of fiscal year 2024 through a broad set of cannabis-focused CPG and craft beverage brands. And additional revenue in adult-use cannabis pending federal legalization. Federal legalization would certainly be a watershed event for Tilray brands in the industry.
But given the near-term uncertainty and seeing actual legalization reform, we're pursuing optionality, which we view as the next best day.
We have a considerable adult-use adjacency through our craft beverage, alcohol and wellness business, which include key US and global assets, such as Sweetwater, Breckenridge Distillery, Manitoba Harvest, which together are available in all 50 states and Washington, D.C.
As we've discussed previously, our investment in MedMen during year 2022 exemplifies this approach, and we can build upon giving our strong balance sheet and leadership expertise in operations, profitable CPG businesses and growing brands that consumers love to pursue and additional acquisition opportunities across the US.
Together, our growing US CPG platform represents a portfolio of award-winning and highly sought-after consumer brands, a strong and robust infrastructure, a broad global distribution footprint hands-on CPG expertise and operational excellence.
Today, our US CPG businesses combined are high-margin EBITDA and cash flow positive as well as good adjacencies to the cannabis industry and upon legalization and collectively they have generated over $130 million in revenue during fiscal year 2022 and nearly $60 million in gross profit.
Our beverage alcohol brands consist of Sweetwater, the number one rate brewery in the Southeast and the nation's 10th largest craft Breckenridge Distillery, which recently celebrated two double gold and one gold medal in the 2022 San Francisco World Spirits Competition, the largest spirits competition in the world and Alpine and Green flash, which are two iconic West Coast craft brands.
Our wellness business consists of Manitoba Harvest, which is a pioneer and leader in branded hemp-based foods. Through recent expansions, Sweetwater is now available in 42 states, including California, which is the number one beer market in the US.
Sweetwater also operates a new 32,000 square foot production facility and tap routes in Fort Collins, Colorado, along with the new taproom at the Denver International Airport.
The brand commands a loyal customer, following and go-forward plans for Sweetwater to continuing to launch innovative products, a new spirit-based ready-to-drink beverages continued Westford penetration in the US while expanding our presence in Canada and other international markets improving production utilization and evaluating strategic acquisition.
Breckenridge Distillery is widely known for its award-winning bourbon whiskey collection and innovative craft spirits portfolio, including bourbon whiskey, gin and vodka.
Distribution already reached across 50 states, and the brand is able to benefit from distribution synergies when paired with Sweetwater, we are confident that this will drive growth both now and in the future.
And finally, Manitoba Harvest is the world's leading hemp brand with production distribution across 17,000 stores in North America, and a 50% share in the hemp seed and 15 established markets.
Since the business combination, Manitoba has not only been stabilized, but has experienced dramatic trajectory change in measured channel with further opportunities to extend into adjacencies. We have also managed costs implement their pricing actions amidst a rising input cost environment and decreasing our reliance on big box distribution points.
We will leverage these strong brands and their distribution system to grow our US Tilray wellness business that will parlay it into CBD beverages, CBD personal care products and related adjacencies.
And upon federal legalization in the US will have a clear advantage to lead in the US market and strategic infrastructure operation in place to parlay into the THC-based products as well. Before I turn the call over to the team, I'd like to reiterate what we announced this morning.
the company expects to generate $70 million to $80 million of adjusted EBITDA and will be free cash flow positive in our operating business units in fiscal year 2023. With that, let's hear from Denise Faltischek, our Chief Strategy Officer and Head-International Business.
Denise?.
Thank you, Irwin and good morning, everyone. Internationally, our strategic presence and position continues to accelerate powerful growth and the signs continue to point to a bright future as we expand our international footprint.
The European cannabis industry is heading into a period marked by widespread legalization, innovation and considerable economic growth. According to Provision Partners, sales of medical cannabis in Europe are expected to be approximately €354 million this year, growing to €2.3 billion by 2026.
Sales of adult-use cannabis in Europe are expected to reach €1.5 billion by 2026 with more progressive cannabis legislation being introduced across the continent. As an international market leader, we at Tilray see ourselves as a front runner in the further development of this profitable market, given our proven track record.
We recognize the signs of the times early on and made several strategic investments that are now resulting in first-mover advantages.
Our operational strength is reflected along the entire value chain, with our leading medical cannabis brands, strong distribution network in Germany with CC Pharma and end-to-end EU-GMP supply chain, which includes two state-of-the-art EU-GMP production facilities in Portugal and Germany, with opportunities for expansion at each facility, we are well positioned to continue to pursue international growth opportunities.
In Europe today, we have one of the leading portfolios of medical cannabis for flower and oil extract products to meet our patients' needs, and we plan to continue to build on this strong foundation and maintain our leadership position.
During Q4, this unique setup led to international medical revenue increasing 205% compared to last year's Q4, but down from Q3 a due to shipments in Israel in the prior quarter, which we made the conscious decision not to repeat in Q4 due to the severe deterioration of market conditions within Israel, with medical cannabis sales and pricing declining.
The outlook for other international markets is more promising. Now is the time to seize the opportunities and move the European cannabis industry forward.
The potential is enormous, especially in Germany as a central market which is expected to remain the largest medical cannabis market in Europe and should also emerge as one of the largest adult-use markets upon legalization. We are already the leader in medical cannabis and number one in revenues in both flower and oil categories.
Based on inside health sales data, Germany's leading provider of health industry, pharmacy and medical cannabis sales data, Tilray has a market share of approximately 20% in Germany across our flower, extracts and Dronabinol products. And we are ready to make our contribution for the recreational market for which we have created the best conditions.
On the one hand, the operational strength of our business model with two state-of-the-art G&P facilities allows us to exponentially ramp up our capacity to meet the demand for medical and adult-use cannabis.
On the other hand, given our market leadership in the German market today, our well-established relationships with German regulators, where we have already proven ourselves to be the trusted partner and our expertise in adult-use cannabis that we developed in Canada, we believe we are well positioned to establish ourselves as a market leader to broadly legalize adult-use cannabis market in Germany and see a sizable portion of that market.
This puts us in a unique position in Germany, which continues to state its intention to legalize adult-use cannabis. Germany's Health Minister, Dr. Karl Lauterbach, announcing that a draft bill on adult-use cannabis could be published in late fall 2022.
However, we believe in that instance, the first commercial sale did not commence until the beginning of calendar year 2024. But also outside of Germany, we firmly believe – progressing. Many European countries have expressed a clear political ambition to broadly legalize adult-use cannabis. This is likely to be the start of a wave of change in Europe.
In fact, we think all of Europe could legalize medical-use cannabis within the next two years or sooner with certain countries legalizing adult use shortly thereafter. A few highlights in the quarter for our international business across various countries. In France, we estimate that the French market is roughly the size of Germany.
We believe that today, we are serving approximately 25% of the patients within the interference based on information provided by the ANSM. We also believe that France will legalize next spring when the experiment ends, and we are well positioned to take a leadership role there.
In the UK, we have the most comprehensive mix of medical cannabis products. We also launched Pollen, a CBD Lifestyle Brand, on Amazon UK with a mix of CBD gummies and drink drops in three signature lines.
In Poland, I am pleased to announce that we recently received approval for our regulatory submission in Poland and will begin importing to rebranded and white label medical cannabis products into Poland commencing in Q2.
In Israel, we continue to evaluate the market and are well positioned to serve Israeli patients with the high-quality full flower products from our Portugal facility, which is [indiscernible] CMS-certified compliant in addition to being EU GMP.
We have state of breadth of the continuously changing regulatory requirements and have prepared our operations and are compliant with the regulation changes on testing that take effect in the fall.
Finally, in Australia, we have expanded our medical cannabis product offerings to now include a complete range of medical cannabis whole power to meet patient needs and are seeing great acceptance of our products.
More importantly, we are one of the few providers of medical cannabis to Australia that are already compliant with the EU GMP regulations to take us back next June. With that, I'll now turn the call over to Blair McNeil, President of our Canadian business.
Blair?.
Thank you, Denise and hello, everyone. Over the last four years, a $5 billion legal market for cannabis in Canada has been created, which is an incredible achievement. However, this still represents a little more than half the total cannabis market in Canada and the differential provides a significant revenue opportunity ahead.
Not to mention, the estimated 40% of consumers of legal age who have not yet entered the category. Still, this is a challenging operating environment characterized by an oversupply of cannabis, unreasonable regulatory barriers and punitive excise taxation exacerbated by price compression.
For the average license producer, excise is almost one-third of gross revenue. Despite this, we continue to see growth in the number of LPs and retail outlets in Q4. Additionally, Q4 had more new products launched in the marketplace in any period since legalization.
Despite an environment of rising costs in all aspects of their lives, cannabis consumers continue to benefit from higher quality cannabis at reduced prices, while governments continue to benefit from significant taxation revenue. This is not sustainable, and we see significant consolidation on the LP front over the next 12 months.
In Q4, our retail market share declined to 8.3% and from 10.2% in the sequential period. Because of these challenging industry conditions, skill rationalization and discontinuation of Partner Brands.
Our number two market share in Canada and leading top five positions across numerous adult-use categories, including flower, pre-rolls and vapes based on recent high-quality [ph] sales data suggest to us that our strategies are beginning to deliver. In May, we saw that first of all, 23 flower beta strains come to the market.
Monkey Butter and Sweet Berry Kush hit limited markets with great success. We experienced a 123% increase in forecasted sell-through and completely sold through in Q4 versus extending into Q1. We have an additional 46 strains in our Alpha program, reinforcing our commitment to a flower innovation pipeline for years to come.
You will recall the majority of our share loss in FY 2022 was due to gaps in flower innovation, and we are confident this will reverse the trend moving forward. We are encouraged that in June, we experienced a reversal in trend and began we're gaining market share, a direct reflection of the flower investments we have been making.
Additionally, we have been recently able to account for the gap in high-quality [ph] data as it relates to Quebec. When we adjust for the overstatement of competitive LP share in Quebec, Tilray regained its number one market share nationally for the month of June.
Our plan to win in Canada is based upon an integrated consumer-first approach that leverages our scale and best-in-class manufacturing to drive profitability and share leadership over time. This begins with a deep understanding of the consumer need, occasion and functional benefit to drive our portfolio strategy of brands.
Our consumer insight research project is nearing completion, which will form our thinking for brand strategy. We utilized this strategy to develop our portfolio prioritization and innovation pipeline across all product categories and consumers.
During Q4, we brought exciting innovations to the market across all categories, beginning with Solei Bites, the brand's first foray into edibles and the first ready-to-eat THC edible available at the SQDC, Quebec's sole legal retailer for cannabis products.
We then expanded Good Supply’s best-selling cannabis portfolio with the launch of new high-potency products, including liquid wax vapes and exclusive new flower strains available in select markets across Canada. Finally, last month, we launched CBN Night Oil under the Aphria medical cannabis brand.
This is just a small sample of the innovation we will launch in the coming months ahead. In FY 2023, we expect to launch over 100 SKUs of innovation nationally, improving our innovation share of revenue to a market-leading 20% for licensed producers of our size.
This consumer-first innovation pipeline will continue to identify white space opportunities for years to come. As we have consistently communicated, budtenders are a key part of our strategy.
We are making investments in driving awareness through social media and digital and educating budtenders through store visits and product knowledge sessions, while developing a CRM budtender database for focused communications.
Through our market-leading coverage with Great North, we conducted almost 3,000 product knowledge sessions with budtenders on our innovation and product portfolio in Q4. This resulted in over 6,200 new points of distribution. Finally, we have a relentless focus on end-to-end costs at Tilray.
Early in Q4, we identified the opportunity to optimize our cost base even further. We have put in place an additional $30 million plan which is over and above our Tilray, Aphria and our Tilray HEXO synergies. This demonstrates our commitment to managing gross margin amid an evolving retail environment.
These plans are already underway, realizing $5 million in savings in the first six weeks of Q1. I will now turn the call back over to Carl Merton, Chief Financial Officer, to discuss financials in greater detail.
Carl?.
Thank you, Blair. Our results for both Q4 and fiscal year 2022 demonstrate our strength in having a diversified business across distinct operating segments, along with the traction we have made in implanting greater efficiencies into our organization, despite ongoing market challenges.
Before I review our financials, let me first remind everyone for one final time that because of the arrangements between Aphria and Tilray fiscal year 2021, our results in both the prior fiscal quarter and prior fiscal year consists of three months and 12 months of Aphria's financial statements, but only one month in both reporting periods of Tilray's operating results.
Our financial results follow US GAAP and are presented in US dollars. In addition, throughout our call today, we will reference both our financial results in accordance with GAAP as well as our non-GAAP adjusted financial results.
Our earnings press release contains a reconciliation of our reported financial results under GAAP to the non-GAAP financial measures identified during our remarks. Beginning with the top line, our Q4 net revenue grew 7.8% to $153.3 million compared to the prior year quarter.
Although, as I just said, the comparison itself is not fully apples-to-apples because Q4 of fiscal 2021 contains only one month of contributions from legacy Tilray and does not include record results.
Our Q4 net revenue continue to be negatively impacted by the ongoing strength of the US dollar, particularly given our biggest revenue sources, native currencies are the euro and the Canadian dollar.
For example, if the average foreign exchange rate this year was equal to the rate in the prior year for the same period, we would have reported an additional $9.5 million in net revenue and reported an additional $0.7 million in adjusted EBITDA for Q4.
Adjusted gross profit increased 16.7% to $50.5 million in Q4 from $43.3 million in the prior year quarter, while adjusted gross margin increased 250 basis points to 32.9% from 30.4%. We believe both of these profitability metrics should continue demonstrating improvement as more of our cost saving programs are completed.
Net loss was $457 million in Q4, compared to net income of $33.6 million in the prior year quarter. The variance is due largely to impairment, amortization and other non-cash changes in fair values, offset partially by lower transaction costs in the quarter.
Q4 adjusted EBITDA was $11.5 million, down 12.8% from the prior year quarter, extending our track record of positive adjusted EBITDA to 13 quarters.
Our positive adjusted EBITDA is a function of higher contributions to adjusted gross profit from our operating business segments, coupled with our strong focus on realizing operational and other efficiencies through integration as we have discussed over the past few quarters.
Contributing to our ability to report positive adjusted EBITDA this year was the work we did achieving our synergy targets as part of the Aphria-Tilray arrangement.
We finished fiscal 2022 realizing $85 million of synergies towards our revised target of $100 million, of which $60 million in cash savings have already flowed through our operating results. As Irwin mentioned, Q4 is the timing for our annual impairment testing.
In completing our testing this year, we dealt with a number of factors, including the impact of expected inflation on our cost models increased interest rates, particularly the risk-free interest rates, the strength of the US dollar against our operating currencies and the general recessionary like atmosphere, including current market conditions for all publicly traded companies.
As a result of these factors and the changes in the market opportunities in front of us, we recorded an impairment of $395 million split between inventory, goodwill and other intangible assets, all offset by a reduction in deferred income taxes.
The inventory provision partially related to CC Pharma and but was largely related to a Aphria One as it repairs for the changes associated with its new relationship with HEXO. As you will recall, certain of HEXO's production processes are moving to our Aphria One facility and certain Aphria One’s production processes are moving to HEXO’s facility.
The remaining portion of impairment tied to goodwill and other intangible assets related to our cannabis business segment, portions of which resulted from our ability to focus on our efforts on the best jurisdictional opportunities today.
Moving to our business segments in further detail, revenue in our cannabis segment decreased less than 1% to $53.3 million from the prior year quarter. If the average foreign exchange rate this year was equal to the rate in the prior year, the revenue in our cannabis segment would have increased 4% to $55.9 million.
This decrease included a 4% increase in our Canadian medical cannabis business, a 21.5% decrease in our adult-use cannabis business and a 205% increase in our international cannabis revenues.
While our Canadian adult-use cannabis revenue decrease, recent market share information from Hifyre for periods after year-end demonstrate our ability to regain lost market share. Regaining this share has been an almost year-long effort working on potency levels and product innovation, combined with increased presence with budtenders.
During the last year, we maintained our belief that the demand for higher quality brands in Canadian adult-use cannabis should rise once purchasing decisions are more positively influenced budtenders within a retail setting.
While we are extremely proud of the growth in our international cannabis revenue, the amount in the quarter could have been more. During the quarter, we were scheduled to ship approximately $6 million to an Israeli buyer. However, we chose not to ship such product as we were concerned about our ability to receive payment.
Reiterating what Denise said earlier, the Israeli market has become oversupplied with cannabis from the Canadian market. We believe we made the prudent business move by passing on this order. In terms of profitability and margins, adjusted cannabis gross profit increased 19% to $28.4 million in Q4 from $23.9 million in the prior year quarter.
While adjusted gross margin increased 890 basis points to 53.4% from 44.5%. The latter reflected the traction we are making through cost savings as part of our efforts around synergies. Turning to our beverage alcohol business. We generated $22.7 million in net revenue in Q4 and which was 43% higher than the prior year quarter.
This is primarily due to our acquisition of Breckenridge in December. However SweetWater contributed an incremental $1.4 million compared to last year due to an expense of new of innovative products and increased distribution point.
[indiscernible] we believe there is significant upside potential for this segment, as we strengthen our position in the US by leveraging our increased distribution particularly in extensive innovation pipeline and potentially other acquisitions.
Our adjusted beverage alcohol gross profit increased 28% to $13.6 million in Q4 from 10.6 million in the prior year quarter. However beverage alcohol gross margins decreased to 60% from 66.5% during this period.
Our distribution business, which is overwhelmingly CC Pharma, experienced an 8.3% decline in net revenue during Q4 to $61.2 million from $66.8 million in the prior year quarter. Most of the decline was tied to the strengthening of the US dollar and the inherent weakening of the euro versus the prior year period.
In fact, if the euro-US dollar exchange rate had been the same in the current quarter, as it was a year ago, CC Pharma would have reported an additional $6.5 million of revenue.
Adjusted distribution gross profit decreased to $3.5 million in Q4 and from $6.4 million in the prior year quarter, while distribution gross margin declined to 5.8% from 9.5%. This decline was temporary and due to increased costs as our primary source of products we're not able to ship during border closures and during periods of peak demand.
We also experienced higher-than-normal discounts and returns during the quarter. Finally, for our wellness segment, revenue contribution grew to $16.2 million from $5.8 million in Q4 last year when we only had one month of legacy Tilray results contained within our financials.
We view this business as having stabilized compared to late calendar 2020 as our new leadership team has introduced new products to the portfolio, new distribution points and reduce the reliance on non-branded big-box customers.
Adjusted wellness gross profit increased to $5 million in Q4 from $1.6 million in the prior year quarter, while gross margin increased 380 basis points to 30.7% from 26.9%. Last year, we only had one month of legacy Tilray's wellness business.
Consistent with some of my earlier comments, the reduced reliance on non-branded big box customers as well as operating improvements resulted in an increased adjusted gross margins.
Our cash and cash equivalent balance was a healthy $415 million, while our working capital balance increased 9% to $523.2 million and allows us to meet our operational and capital requirements.
Notably, we also utilized proceeds from our ATM program to strengthen our balance sheet by paying down approximately $86 million of our convertible debentures in the last quarter and in doing so, significantly reduced our outstanding debt. Briefly moving to full fiscal 2022 results.
Net revenue was $628.4 million, an increase of 22% from $513.1 million in 2021.
Cannabis revenue grew 17.9%, Distribution revenue was down $6.3 million while we benefited from contributions from both beverage alcohol, which grew 150% due mostly to acquisitions made over this past year and wellness, which grew 9x to $59.6 million from $5.8 million as we had 12 full months of contribution versus only one month in the prior fiscal year.
On profitability, we increased our adjusted gross profit by 29.2% to $186 million compared to $143.9 million and increased adjusted EBITDA by 17.8% and to $48 million compared to $40.8 million in 2021. Included in those results were the synergies we realized from the Aphria-Tilray arrangement.
Of course, notwithstanding those synergies we will also have substantial cash generation that will be forthcoming as a result of the Tilray and HEXO strategic alliance.
As Irwin noted, these additional operation and production efficiencies amount to up to an additional $80 million within the next two years that will be shared by both partners, including our advisory fee of $18 million that HEXO will pay to us during each of the next four years related to cultivation, operations and production matters.
For fiscal 2023, we believe this alliance will generate close to $40 million in additional cash for Tilray. The Canadian market is rightsizing through consolidation and competitive contraction. And as this plays out, we are strengthening our position.
This is being accomplished through our broader medical and adult-use portfolios of high-quality strains and formats, investments in retail partnerships and physician relationships optimize product offerings, scaled low-cost production facilities and our strategic alliance with HEXO. This concludes our prepared remarks.
We will now begin the question segment of our call, starting with questions from our covering analysts, which will be followed by a few questions from our retail shareholders through the safe platform.
Operator, who has the first question? Hello? Operator?.
Thank you. Our first question is from Vivien Azer with Cowen & Co. Please proceed..
This is actually Victor Ma on for Vivien Azer and thank you for the questions. So, my first question, I know post-quarter, the trends look better, but recent Hifyre data indicates a 200 bp volume share loss in both pre-roll and vapes in the quarter.
Can you offer some color on the drivers behind this and the trends and specifically these two categories post-quarter?.
For sure. I'm going to let Blair answer that, Blair, as you know, is our President of our Canadian business. So Blair, go ahead..
Yes, there's two trends that are really driving I would say, our pre-roll numbers and vape numbers, but both trends are different. On the pre-roll side, you're seeing some of our strain rationalization in some of our discontinuation of some brands, which will continue to be a little noisy, but our innovation pipeline will take care of that over time.
The second part on vapes, what you're seeing in vapes is a rise in THC -- significant rise in THC levels. Again, our innovation pipeline will take care of that and we're very confident in the trends moving forward..
And as some of the Hifyre data coming out, it's not -- as you look at it month-by-month, it's not always accurate to look at it that way as the different provinces, how they take product in. So, we definitely don't look at it month-by-month. But I will tell you, right now, last year this time, we only had a couple of new products going into the OCS.
This year, we have over 35 new products and more to come behind it. Our potency levels are up. Our price points are up, which we like to see and we have some incredible programs in place to drive volume. So, we feel good.
And a part of this, what you're seeing too is the Marley brand, which we took over from Tilray is no longer -- it's a discontinued brand, which was almost a $30 million business. So, with that, we've cleaned up SKUs. We did SKU rationalization and in the midst right now, we're coming up with a lot of new products..
Understood. Thanks for the color. If I could just squeeze in one more question on beer. So, recent Nielsen data suggests that SweetWater sales unperformed the craft beer category, which fell 2% in July in tracked channels year-over-year.
Can you provide any color on the underperformance despite the additional points of distribution state from the US West Coast?.
Listen, the West Coast is new for us. We have one of the top distributors, Reyes distributing our products. It's taken a little longer than we expected to go into the West Coast.
But we feel really good about SweetWater and SweetWater has taken a little longer than we expected, but we're happy with what we're seeing on Green Flash, Nelson, and Alpine, and they are existing brands. So yes, it's taken a little longer.
But I got to tell you the opportunities on the West Coast are tremendous for SweetWater and our three other brands in that marketplace. And we have a great distributor partner in Reyes.
And what we're seeing also is other distributors that we have today, picking up Alpine Green Flash in the Southeast or United distributors just pick some of those products up. The other thing which you're not seeing in IRI data is what we're doing in regards to on-premise, and we're picking up some nice on-premise business..
Great. Thank you. I hope back in queue..
Our next question is from Andrew Carter with Stifel. Please proceed..
Hey, thanks. Good morning. First off, I wanted to ask on the guidance here at the midpoint, which is, say, $37 million year-over-year increase. I wanted to ask, first off, is the HEXTO fee included in that number that will be, I guess, $14 million, $15 million.
But could you also talk to kind of what you're thinking through in terms of FX headwinds, inflation and also just revenue stability in particular on the Canadian use business?.
Good morning, Andrew. Yes, the HEXO numbers that I talked about in the call are all included inside of the guidance that we've given. There are a few areas where we're seeing inflationary pressures that are factored into those numbers. We're looking at rising energy costs in Germany, we're looking at rising input material costs at Manitoba Harvest.
But we also have been able to secure price increases in a few places along the way. And we think that to that point, we won't be adversely impacted..
And then in terms of kind of the revenue outlook, I mean, is it -- is stability for Canadian adult use -- like is the time line for that key to this? Is it by 2Q 2023 3Q? Just on you think you can help us on that line?.
So on that one, Andrew, I feel it's starting rate in Q1. And we're laris seeing growth already and seeing some good things happening at the same time as our new products really go into the marketplace in September. So it's not back-end loaded if that's what you're asking it basically starts in our first -- in the second quarter.
So yes, it's throughout the year for us. And listen, you saw what our margins are. We're not discounting our products like others just to gain share. As you saw even still, we continue to -- where we continue to grow. So we feel good about the Canadian market and where that's going. We feel good about the new products.
And listen, built into there is still synergies from the Aphria-Tilray deal not built into those numbers or all the opportunities and synergies with HEXO. We think there's many, many more. And the HEXO ones that are built in, they don't all happen day one, they're throughout the year. So there's still opportunities for additional HEXO deals.
HEXO savings..
Thank you. I will pass it on..
Thank you, Andrew..
Our next question is from Andrew Bond with Jefferies. Please proceed..
Andrew [indiscernible] on the line for Owen Bennett. Thank you for taking our questions. So first on cannabis margins, very nice lift during the quarter to about 50%. Carl, you mentioned this was driven by efforts around cost savings.
So were there any other onetime nuances or any onetime nuances or items helping lift these margins or any seasonal considerations around cannabis margins we should be making as we forecast fiscal 2023, or is 4Q a relatively fair representation of underlying cannabis margins ex any large bulk sales? Thank you..
So, Andrew, good morning. There is a very small seasonal impact on costs. The growing season from March to May is the best growing season. It's not – it's not a huge portion of that number, but it is a small piece of that. The vast majority of the increase, though, has been driven by the cost savings programs.
We talked about it in the script a little bit. In addition to the Tilray rate savings that we're targeting in addition to the Tilray HEXO piece that we're targeting. We also have an internal plan inside of the cannabis business that we're targeting for further cost reductions..
And then we put in place throughout the year, some initiatives how to take additional costs out of our business. That's why we feel good about cash flow positive, not only in our Canadian business and our international business in our spirits and beer business.
So the team after thee and half, four years have done a great job in regards to perfecting our growth and growing to what our plan is -- so I feel good about where our margins are. Yet, there's some seasonality in there. But our margins will continue to increase as our volume does. And with our different mix and stuff like that..
Great. Super helpful. Thanks, Denise. Thanks, Carl. Just really quick, if I may, staying on the same theme.
But for non-cannabis CPG, now that we're entering the warmer summer months here, could you just quickly remind us of the seasonal considerations around beverage alcohol as it relates to on-premise consumption? And related to that, anything to consider seasonally around Manitoba Harvest – anything to just help set expectations for quarterly delivery in fiscal 2023 would be helpful.
Thank you..
In regards to our Breckenridge, our bourbon or vodka or gin business is what we're seeing some great sales right now on our vodka and gin business. There's a lot just on our way back from Colorado, I spent the last three days out there from meetings. There's some changes going on in regards to distribution there. We like what we see.
You'll see in the back half, our bourbon businesses start to increase. In regards to our seasonality in beer, right now is a strong time for our beer business. And with our new distribution going into California and the West Coast, you'll continuously see increases there.
In regards to Manitoba Harvest, I got Jared Simon, who runs that, there's no real seasonality. I mean a lot of the baking products in that we're coming out with and seeds, different products, you'll see some pickup as you go into the winter or fall months in regards to baking from a standpoint there.
And just to touch on that, Hemp infused Foods, the team has done a tremendous job. What we're coming out with new products. You heard me mention it in my script is pretty exciting. So we're really excited about the contribution and the growth coming from our spirits business, our beer business our Manitoba Harvest.
And you heard me talk about wanting to add additional wellness products to our portfolio and additional acquisitions within the spirit and beer business and their exciting opportunities for us..
Great. Looking forward to the developments. Thank you, I will pass it on..
Our next question is from Aaron Grey with Alliance Global Partners. Please proceed..
Hi. Good morning, and thank you for the questions..
Good morning..
First question – thank you, good morning. First question for me, I just wanted to talk a little bit about pricing specifically around the flower category went in Canada. Can you speak to any trends to prove that you're seeing, I know you guys had taken some price changes a couple of months ago now.
So what you kind of see going forward if you do see some flooring there and if it might differentiate between different categories of premium and value? And then just secondary on that, just your take on some asset-light model that some other LPs might be taking and whether or not you think that might be more taking advantage of the current dynamics and that might need no cultivation of their own long-term or whether or not that might develop into more of a sustainable model? Thank you..
Yes. Thank you for the question. The flower category is a very interesting category. And if you've looked over the last two to three years, what you've seen is the evolution of these consumer segments around value all the way to what we would call ultra-premium.
And so what you'll see in our beta strain program is thoughtfulness around making sure that we have entrants in all of those categories. And so while value and mainstream continue to be big parts of the business, we do see some opportunity in premium and ultra-premium and Broken Coast is our flagship to play there.
So in terms of the flower category overall, I think, you have seen some flooring on it. I don't think there's much price compression to go.
But there are those unique opportunities to premiumize our brands through the different consumer segments, and that is built into our flower innovation program what you saw late in Q4 on Monkey Butter and Sweet Berry Kush launches. And then going forward, you will continue to see some significant beta strengths moving forward..
And we think in regards to flower, what you're talking about, I mean, the category is changing tremendously where we're seeing tremendous growth in the pre-roll category and infused pre-rolls, and infused flowers. So we see the category changing where flower used to be about 50% of the category, and that's no longer the case.
But again, what I feel good about is the quality of our flower, which has improved tremendously and also is our pre-rolls and our infused pre-rolls and what we're doing, and we're coming out with some slims. We're coming out with some new products coming in September. So I think where we are today, we got the right mix here.
And as we talked before, even with high-fire as we've gone through our SKU rationalization and getting the right types of products into the marketplace is something that I feel good about where we are in the Canadian market..
All right. Great. Thank you for that. And then second quick one for me just on the international front. You talked about some changing dynamics within Israel that are occurring right now. Just given Israel has been a big market for Canadian LPs as you had some slowdown in terms of growth within Germany.
Can you talk about your outlook for 2023 in terms of your P&L and revenue? If there's a slowdown in agile, do you think incremental growth within the current German medical market without expectation for adult use will be enough to offset that, so you still see some meaningful growth on the international side there? Thanks very much..
Yes. Hi, Aaron. Thanks for the question. And so in terms of the international markets, I'm going to separate out Israel for the moment. We absolutely see growth in our FY 2023 numbers, both in Germany as well as other countries that have come online.
As you know, outside of Germany, within Europe, most of the other countries are still fairly small, but we do see growth accelerating in various countries. For instance, looking at the UK and even though Luxembourg is pretty small, it's still a good size opportunity for us.
Plus in this quarter, we just received our market authorizations for Poland, both on Tilray branded as well as a private label customer as well, and we are looking to see some big opportunity in Poland. In France, the medical experiment ends in March of 2023, and we are expecting France to legalize medical cannabis soon thereafter.
And we are well positioned there with about – currently in the experiment, we have about 25% share of the customer base or I should say, patient base and we are very confident that we'll be able to maintain a good market share there.
We also see Italy and Spain also making waves and conversation about medical legalization, which we think are also big opportunities for us. You are right, we are not so bullish on Israel. We believe that there is a large oversupply in Israel caused by Canadian LPs shipping into Israel.
I think what has happened in the marketplace is that, as you look at product on an oversupplies happening in Canada, Israel was a place where large amounts of product could be uploaded. But now that has resulted in an oversupply to that market and what we're seeing is patient’s numbers sort of stagnating and sales declining.
And if you look at the marketplace there, there's a lot of price discounting with special deals, 2:1, 3:1. And so therefore, we're kind of hitting a little bit of a pause there and looking at what is the right strategy for that market..
Great. Thanks for the color, I’ll jump back in the queue..
Our next question is from Tamy Chen with BMO Capital Markets. Please proceed..
Hi, thanks for the question. I'm just wondering, you've done a really good job at achieving the cost synergies and we can really see that in the cannabis gross margin this quarter.
I'm just wondering, going forward, in terms of balancing the cost initiatives that you have with the quality of the products, I recall when you did have that stumble in your flower quality last year or something like that.
There was a focus on really achieving the cost synergies, but as a result, some of the product quality, especially on slower deteriorated a bit.
So, I just wanted to better understand what has changed, what changes have you made in the business so that going forward as your identifying more of these cost synergies that you want to achieve that there isn't going to be a bit of a repeat in terms of quality deteriorating or just not being nimble enough to keep up with trends in the Canadian rec market? Thanks..
Thank you, Tamy and thank you for your compliments. Number one, like I said before, yes, we've had some quality with flower. We acknowledged that, that's over a year ago. I think with automation last year with some heat issues in regards to ventilation. But that is six to eight months behind us in regards to our quality.
The other thing you heard me mention just in the flower. The other thing you heard me mention is, where there's a lot of change going on in the marketplace in regards to pre-roll and that is where some of the bigger growth is coming from. So, number one, yes, the team has done a great job in regards to taking out costs, but I will tell you this here.
None of that has been taken out to affect quality. Number two, we've invested capital in automation. Number three, we've invested capital in ventilation in regards to – with greenhouses and the heat that we endured last summer. So, I feel good that costs are not here to hurt our quality.
And we're in a good place here in regards to potency, some of the genetics that we have in place today. And in regards to the mix of the product, with some of the new products that are coming in. And the evidence is there by the amount of new products that are being accepted by the different control boards of Tilray products..
Got it. Thank you. That was it for me..
Thank you..
Our next question is from John Zamparo with CIBC. Please proceed..
Thanks. Good morning. I wanted to start on free cash flow. What was free cash flow in the quarter? And on your free cash guide, you're not adding closure being positive in your operating business units.
So, should we interpret that as it may not be positive on a consolidated basis for F '23?.
Good morning, John. So just in the quarter, free cash flow is a pretty generally accepted measure. We were -- we burned about $26.5 million. In that, our forecast for next year is positive free cash flow for the year. And we're saying that's going to be across the business operating units.
So, I'm not sure where you're getting that one or more that might be negative, but we're forecasting positive for the year..
And John, in regards to that this year, a lot of it is just as you come into our seasonality, a big part of it is just building out our inventories as we go into some of our busy seasonal time. So that's what a lot of the cash is used for..
Okay. Understood. And then my second question is on the EBITDA guide. I just would like to better understand this. You're calling for, call it, $25 million to $30 million of improvement from F '22, but you've got the $15 million in incremental synergies from the legacy Aphria deal, you're targeting presumably $40 million in savings from the HEXO deal.
If you split those costs savings equally, you're now calling for an additional $30 million in cost savings you mentioned earlier in the prepared remarks with $5 million saves already.
So just can you help us kind of square all that, or are there multiple incremental costs you're incurring? Is it more that the timing of these synergies is into F '24 and '23? Just anything you can help us understand that would be helpful. Thanks..
Well, number one, it's timing. Not everything starts June 1. So I mean, a lot of the savings and synergies are spread out throughout the year. So it's an annualized basis that we will get over the next 12 months. In regards to HEXO, some of it is interest, which is not in EBITDA.
And the other thing is, as we continue to grow our business, you'll see our G&A go up as we continue to invest in the infrastructure of building out the business here.
So yes, as we bring on some of the HEXO production and we're just not getting the HEXO fee for nothing, we have to provide services, which will include adding additional headcount, adding additional people here. So there's G&A offsets of some of that coming in. So number one, it's timing.
Number two, not all of it is interest which would go into EBITDA here. And three, there's offsets from additional HEXO in regards to us adding to our infrastructure and G&A..
Okay. That's very helpful. Thanks so much..
Thank you..
Our next question is from Matt Bottomley with Canaccord Genuity. Please proceed..
Hi, good morning. Thanks for taking the questions. Maybe this one is just for Carl. Just wondering if I could get a little more color on the $395 million of impairment charges, you listed some of the factors that went into that. Is there anyone that's more of a contributing factor? Obviously, vectors valuations continue to decline.
That's something that a lot of LPs and other companies have had to deal with when it comes to how much of the severity of these impairment charges, independent of how operations are going.
So I'm just curious how that factor is implementing the charge versus independent assumptions you have on growth or risk or things like that in your business segments?.
Thanks, Matt. I know in your background, you're CA as well. So I know you understand this topic fairly well. First off, I just want to reiterate that impairment is a non-cash charge.
Secondly, there are a number of factors that go into the calculation of an impairment when market situations dictate that, right? And so if you look at what's going on in the market right now, we're effectively in a recession, if it's not formally been called a recession yet. We've got lowering stock price and market cap values for entities.
You've got interest rates that are rising, a key component of calculating impairment, when required to calculate impairment is, what is the discount rate. Inside of that discount rate, one of the key interest rates is the risk-free rate of return, right? And so we have all of those pieces impacting our numbers.
As we looked at our future cash flows, coming out of cannabis business, we also had to adjust for changing currencies. The Canadian dollar is down against the US dollar. We also had to factor into the equation expectations on inflation.
And so, I think when you put all of those together, I would say, it doesn't really change the base belief of what is coming out of the cannabis division, but some of the conversion of those pieces into the calculation has caused that difference, which resulted in us taking that -- the non--cash impairment.
That's -- if you look at the $395 million number, a portion of it is sitting in inventory, and that was really us getting [indiscernible] ready to take on some of the HEXO production that they're going to do, as well as us transferring some of production on some products to HEXO.
We think that about $160 million to $170 million of it was goodwill related and the rest was related to intangibles..
Got it. Very helpful. Thanks. And just one other question for me, and it's more of one of these crystal ball type questions.
But specifically in the Canadian market? Is there anything that stakeholders and investors can look at when it comes to potential tailwinds on the regulatory front? It looks like some of these committee meetings have been punted further down the road with respect to any changes.
But when we look at how high the excise taxes are as a relation to wholesale pricing? What is now kind of a saturated now, even a retail environment, particularly in the Toronto area or IMA [ph]? Just anything that might change for the better that maybe is out of Tilray or any LPs control, but something that you guys are hoping for cautiously?.
I'm going to let Blair answer that. But I think it's an excellent question, and we're spending a lot of time on the Canadian market. Listen, we think, in regards to the number of LPs, the number of retail stores will change dramatically. With Tilray, everything has grown and produced within our facility.
So you're getting consistent grow, consistent quality. You see what our margins are, you see what our efficiencies are. So with that, I feel good about how we're positioned.
I'm going to let Blair speak in a second, but he is working with the Canadian group that is talking to the government, sometimes you're talking to yourself when you're talking to the government in regards to excise tax.
But we're out there, and it's been delayed in regards to the way the government is going to look at the cannabis market, but there absolutely has to be change to go on in that market. And if you come back and think about it, listen, cannabis has contributed over $20 billion in taxes over the last three-and-a-half, four years.
$6 billion in building out infrastructure, over 150,000 jobs… In Ontario alone, I think it was $500 million of contribution from cannabis last year. So it's contributing a lot of tax dollars. It's contributing employment -- but back to your point, about $0.35 of every dollar that we produce goes towards taxes here. So the government is doing well.
We still can't advertise. We still can't go out and talk about our products. So there's got to be changed. And we're pushing for it.
Blair, anything you want to add to that?.
Yes. No, what I would just say we're very active with C3. And I would say, from an LP standpoint, the group is very, aligned, and we had a very successful event in Ottawa back in May.
So while we don't have the crystal ball, and I know you alluded to that, certainly, we do think that, as Irwin said, that we need to see some big change in the regulatory environment. THC limits are being adjusted in a couple of categories, which is a positive move. We expect to see something from Health Canada today, hopefully, around CBD.
Certainly, there's just a lot of punitive measures going on, whether it be excise or advertising. So we continue to push really hard. I would say we're very active with the council, and we will continue to be..
Great. Thanks. I appreciate all that..
Our next question is from Michael Lavery with Piper Sandler. Please proceed..
Thank you. Good morning..
Good morning..
I just wanted to come back to Israel, I think it was Aaron's question. I know we touched on this a little bit, but you had mentioned the potential and then your reluctance to execute it. But it sounds like you pointed to market conditions, maybe instead of something customer specific.
Is it entirely driven by the market? And then just to clarify, when you talk about I think maybe said it's on a pause.
Do you have 0 sales to Israel in your guidance for this year?.
Not zero sales, but we're down on sales. Listen, I think Again, Israel is not -- is out 7 million people. It was a big market. I think it was an area where a lot of sales were in there. There's, three things. We got multiple markets we sell into over 20 countries -- we're looking at where there are growth opportunities.
I think there's lots of change going on in the way you can sell into Island different regulations there. And last but not least, when we sell something, we need to get paid. So that's important to happen there..
Yeah. And Michael, it's Denise. Just to add on to that because what Aron said is exactly on point about payment. Obviously, we want to sell and we want to get paid to and there have been some issues that has been experienced in the market with payments.
I think also the other thing is there's a lot of changing regulatory environment in Israel, where there's additional pesticide testing. There are additional requirements that are put on almost like in an arbitrary fashion. But the one thing I would add the question of whether we have we're factoring no sales to Israel.
We are actually factoring in sales. We are looking at it strategically in a different fashion where we would rather than simply having bulk sales go into Israel, we are looking at is building out a brand and building out a toll rate presence in Israel.
The one thing to note, I think, is -- which I think is important is that from a supply chain perspective, our facility is CUMCS certified totally compliant. We are all ready for the additional pesticide testing that comes online.
So we are, in fact, ready to sell to Israel, if and when we decide that it is the right market conditions and the right terms for us..
And we're one of the only ones with the right certification to be able to sell into industrial coming out of our Portugal facility instead of coming out of Canada. So there -- we will sell when it's right and we will sell knowing we're going to get paid for..
Okay. That's helpful. And just would love to follow-up with a portfolio question. You've mentioned wanting to pursue more acquisitions in beverage alcohol. You've also talked about the benefits of the HEXO arrangement you have now and potentially how it could go further.
I guess, maybe how do you -- is there order of priority between two of those? And what would it take? What catalysts are you looking for, or what conditions would it take for you to want to push the relationship with HEXO further to say like consolidation or a bigger ownership stake in the equity?.
So number one, with HEXO, I think, listen, this has been a great deal for Tilray. And again, it's a great deal for HEXO. There's a lot of sharing going on here. And you're taking number one and number two company, and ultimately, will they come together, there's a good chance.
But I think as you look at the marketplace, you look what they have and grow, what we have and grow, you look at the efficiencies, and that's what the Canadian market needs. I've always said that there's over 800 LPs. There's too much growth there, and you want to be able to grow in your own facility to be vertically integrated.
And what Tilray wants is to be vertically integrated on its own grow in distribution on our brands. Today, we have 12 brands. HEXO very much is not a branded company other than radicand. It's an ingredient company.
And I think the complementary where we are very much a branded company where we're vertically integrated on our grow, we have the distribution, and Canada is what, 37 million, 38 million people and you get two provinces that represent about, what, three-quarters of the population of sales.
But I think what's important here is consolidation there makes sense. No different than the consolidation with Tilray and Aphria made sense. We took -- we'll take over $100 million of cost out. Just think additionally, what we would take out in cost if Tilray and HEXO comes together. In regards to the beer or spirits business, we like that business.
We think it's a great adjacency in regards to the cannabis industry on numerous fronts. Number one, if you look at the three-tier system, if that's what comes into place, it's going to go through alcohol distributors. We use Southern Glazer, which is one of the largest distributors in the US and Canada in regards to our salespeople on the street.
There's great margins in that business. I'd love to have the multiple that a Brown-Forman or Diageo has, that's okay. So if you think about it, there's a lot of adjacencies. The other thing is we are looking at the wellness category in a big way today.
As Tilray builds out its branded consumable business, and we think we have great experience in the wellness area. And we think there's a lot of adjacencies there in regards to our Gen-Z or Gen-X and baby-boomer consumers..
That's helpful color. Maybe just one follow-up. You mentioned the three-tier system for alcohol.
What gives you confidence that cannabis would be handled the same way on any federal legalization in the US?.
You know, I don't have any -- listen, I don't have any confidence, I wish, there is a crystal ball. But the three-tier system has worked well in the alcohol. It's not going away. It's been here forever. I think, if you look at it, the three-tier system may be the way it would go.
And one thing today, I say this here, in our spirits and alcohol business, today we have a business that has alcohol in it. We'd love to have a business that has spirits and beer with THC or CBD. And then we have an infrastructure of distributors today that – distribute our beer or spirits business.
So if -- legalization happens, that's the case, we can put whatever we own in the US rate in that distribution system, which is a big asset. No one else has that in the cannabis industry today. And that's why we want to grow that.
And the same thing, if you come back and look at some of the biggest opportunities out there will be beverages that are infused with THC or CBD and food. I mean, I see what's happening just with our Manitoba Harvest business and our hemp infused.
There's no reason you can't buy potato chips that are not infused with THC or CBD one day or yogurt that has a spread on top of it. So we have setting the infrastructure for a lot of these things to happen. Without knowing what's going to happen, but we will have it circled in every way..
Okay. Thanks so much..
Our next question is from Scott Fortune with Roth Capital Partners. Please proceed..
Yes. Good morning. A lot of questions here. But real quick, just one for me, maybe for Denise on international side. Thanks for the update on the Germany legalization progress here in commercialization by early 2024.
But are you seeing from a competitive environment there in Germany? And what are you seeing on the pricing pressure potentially there, or what -- just kind of, a little bit of update on the Germany competitive and pricing credit, that will be great?.
Yes, sure. Hi, Scott. So in terms of the competitive landscape in Germany, both on, I would say, extract and whole flower, we are seeing more and more competition come into the space. Smaller entrants are coming into the space and are posing competition. We continuously watch the competition and stay ahead of the trend.
I think one thing first mover advantage definitely was key here. The German market is not an easy market, just to enter. There is a lot of higher barriers to entry. One, first and foremost a registration for products, which require stability testing on radiation, permits. That process along can take 12 months to 18 months to complete.
And also we are looking at not only on regulatory side, but we also have very high quality flower. Actually, just this morning we’ve received feedback on one of our streams and it’s been [indiscernible] one of the top five streams in Germany this morning.
So we will continuously look at our market entrants and we will continuously compete on high quality flower inhibition. And I am also watching pricing as well. Right now we are seeing pricing that on dry flower within the market place could grow as low as €3.50. We still are seeing our average pricing around €8.50 price point.
So we are very pleased with that. And we think that the ability to maintain pricing at that level is having a very high quality product in the market place. We are also obviously supplementing all of that with education of health providers and patients as well.
We just launched our WeCare website this – about a couple of weeks ago, which provides a plethora information for both healthcare providers and patients. So we continue to build brand awareness and continue to maintain high-quality flower and innovate across our portfolio. .
Thank you. Thanks for that color. I'll leave it at that. Thanks..
And our final question is from Pablo Zunak with Cantor Fitzgerald. Please proceed..
Good morning, Pablo..
Good morning. This is actually Matthew Baker on for Pablo. Thank you for taking our questions. Going to focus on the German market.
Are you able to consistently shift flower from Portugal to Germany as we've been hearing different things in the market regarding these types of shipments? And then can you just remind us of what you source from Canada versus Portugal regarding the German market? Thank you..
Yeah, so thank you for your question. I am not hearing or anything about issues shipping from Portugal. In fact -- actually this is the first time I'm hearing of that. We shipped into Germany almost on a weekly basis, so not really sure. .
Yeah, I am not sure where you got that from..
If the question is around adult use legalization, we also have our facility in Germany, which is right now provide medical cannabis for the German government. But there is plenty of room for expansion there in the event of adult use, well, when there is adult use.
And we believe that we can provide adult use both from Germany, and we are working on the ability to provide from Portugal as well..
Okay. I got it. And then just for my follow-up question, you guys kind of alluded to it in your answer, but in the scenario that Germany decides to only import recreational cannabis from within the EU.
Would you guys need to do anything to adopt for this?.
Yes. So we have capacity within our facility today to allow for the production for adult use. We – as I mentioned, too, we have the ability to expand and increase that production quite a bit.
We also believe that given the fact that we were the first company to provide medical cannabis to the German government we developed a lot of specs before with German officials.
We are also currently speaking with German official as they build out that framework for adult use as we provide our experience in Canada in terms of what work in adult use legalization. What has been problematic in adult use legalization. There's obviously a lot of questions.
And I give a lot of credit to German officials as they are trying to learn and understand what would be the best for the German market..
But important thing is this here. I mean, I don't think there's enough capacity anywhere to immediately be able to supply the German market. But Tilray is the only company that does have two facilities within Europe of scale and size. And if it took additional capital and we could absolutely expand in both have the know-how, have the ability to do it.
And if we were allowed to ship GMP, you sort of by product from Canada, we can do that, too. So we are well prepared for the European market upon legalizing and we're probably the only company that would be able to do it..
Thank you. for the color..
Thank you. .
Turn the call back over to Berrin Noorata to ask the retail shareholder questions..
Thank you, operator.
And the first question from the retail shareholder group is, what are you doing to stop the price -- the stock price from [indiscernible]?.
Thank you, Barren. And actually a good question. I think, and I hope you heard today what we're doing I hope you heard within our results. If you come back to look and I just recently came back from a board meeting presented what Tilray and previously Tilray has done over the last couple of years in regards to bringing this company together.
Our plan of how we want to become a $4 billion company and absolutely, that does include legalization happening but today we are diversified, company that is in medical cannabis, adult-use cannabis, spirits and beer and focused on wellness. We have an excellent team.
We're focused big on our brands, we're focused on our consumers and important, it goes back to this question, how do we give back to our shareholders.
In regards to going into next year, being free cash flow positive, being adjusted EBITDA increasing our EBITDA and building out a consumer packaged goods company that's focused on many categories and areas where the adjacency to the cannabis industry.
Listen, I wish I could go down to Washington tomorrow and knock on President Bush and knock on Congress and Senate and get – Biden, sorry, get legalization to happen, but we can't I think legalization will happen over the next three to four years.
And we will be set in regards to our brands, our infrastructure and have it well surrounded and with our balance sheet it gives us opportunities to be able to do different things. And I think that's what ultimately which will increase share shareholder value, which increases our stock price..
Thank you, Irwin. The next and last question is how will you position yourself in order to enter US markets..
Listen, I think, again, I go back, we are well positioned today. We're well positioned in Canada in regards to brands, our grow, our know-how and knowledge we have the largest cannabis growing facility in the world today that has the ability to grow 265,000 kilos. We have two facilities in Europe that grow. So with that, we know how to grow.
We have 12 great brands in Canada. We have uniqueness and innovation there. We have today, between sweet water between Green Flash, Alpine, Nelson and our Breckenridge businesses and our Manitoba Harvest business, we have brands and businesses with infrastructure and distribution in the US.
I mean, Manitoba Harvest distributes products to 17,000 stores. If you think where we sell our beer business and our bourbon business today and you look at the different distribution. So we know how to build brands. We know how to build businesses. We know the adjacencies that are out there. We have the strong balance sheet to do it.
And with that, depending upon legalization. And if it's one day merging or buying with one of the current larger MSOs, we have the ability to do that.
And we won't forget about MedMen and have an optionality on MedMen is something we have that upon legalization, we could go ahead and acquire MedMen, which has a strong brand name that can be used in multiple products throughout the US. So we have it circled.
And let me tell you, it's difficult running a business with a lot of unknowns out there that are dependent upon regulation. But I think what we're trying to do is build out infrastructure, build-out areas upon legalization that we can pull it all together. Thank you..
So with that, that ends our call for today.
It's been a tough year 2022 in regards to COVID with regards to closures in the Canadian market, in regards to having vaccine cards to enter stores, in regards to trying to keep a workforce together, in regards to inflation, in regards to changing out a lot of our growth, integrating Aphria and Tilray together with the savings, acquiring our Breckenridge business, acquiring Green Flash Alpine businesses.
And I think we've accomplished a lot in regards to what we are able to do. We built out a very, very, very strong management team that can take Tilray to the next level. Our deal with HEXO, and adjoining with the number two LP in Canada and with that, I think we're well set and was in position for a strong, strong 2023.
Listen, we don't like where our stock is just like anybody else, the market conditions, I think we're in some tougher times. But with that, Tilray has definitely tightened the belt. We've taken cost out. We're well positioned on our balance sheet. We're well positioned on our cash. We're well positioned in regards to our margins.
We're well positioned on our grow. We got a good diversified business here. So I'm excited about where we're going. And I'm excited about what we can do. And last but not least, we are focused to return to our shareholders and what we can do with that. So with that, enjoy the rest of your summer, and thank you very much for joining our call today.
Thank you..
Thank you. This does conclude today’s call. You may disconnect your lines at this time. And thank you for your participation..