Tilray Brands, Inc. (NASDAQ:TLRY) Q3 2023 Earnings Conference Call April 10, 2023 5:00 PM ET
Company Participants
Berrin Noorata – Chief Corporate Affairs Officer
Irwin Simon – Chairman and Chief Executive Officer
Carl Merton – Chief Financial Officer
Denise Faltischek – Chief Strategy Officer and Head, International
Blair MacNeil – President, Tilray Canada
Ty Gilmore – President, U.S. Beer Business
Conference Call Participants
Vivien Azer – TD Cowen
Andrew Carter – Stifel
Aaron Grey – Alliance Global Partners
Tamy Chen – BMO Capital Markets
Frederico Gomes – ATB Capital Markets
John Zamparo – CIBC
Michael Lavery – Piper Sandler
Operator
Good afternoon, everyone. Thank you for joining us to discuss Tilray Brands, Inc.’s Financial Results for the Full Year 2023 Third Quarter Ended February 28, 2023. 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 concluded and the company will read aloud and answer the top questions.
Ms. Noorata, you may now begin the conference.
Berrin Noorata
Thank you, and good morning. By now, everyone should have access to the earning press release, which is available on the Investors section of the Tilray Brands website at tilray.com and has been filed with this SEC and SEDAR. On today’s call, 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. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.
In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in these forward-looking statements. The text in our press release issued today includes many of the risks and uncertainties associated with such forward-looking statements.
Note, that we have also posted presentation on the HEXO transaction to the Investors section of the Tilray Brands website.
Today, you will hear from key members of our senior leadership team. Irwin Simon, Chairman and Chief Executive Officer, Tilray Brands, Inc.; and Carl Merton, Chief Financial Officer, who will provide a quarterly financial review and update our annual guidance. Also joining us for the question-and-answer segment of this call is Denise Faltischek, Chief Strategy Officer and Head of International; Blair McNeill, President, Tilray Canada; and Ty Gilmore, President of our U.S. Beer Business.
And now, I’d like to turn the call over to Tilray Brands’ Chairman and CEO, Irwin Simon.
Irwin Simon
Good afternoon, everyone. And thank you, Berrin. And hello, everyone. Thank you for joining us for our report on our Q3 financial results, as well as our exciting announcement that we reached an agreement to acquire 100% of the common shares of HEXO. Let me begin by stating the obvious, the global cannabis industry continues to be challenging with both industry specific and macro headwinds. The Tilray Brands team has demonstrated adaptability, strong execution skills and operation excellence throughout in response to diversify our business and built a strong durable balance sheet. This diversification, in particular, has been an absolute necessity given the ongoing delays in U.S. Federal cannabis legalization and the delayed SAFE Banking Act, as well as delays and adult use legalization in Germany. All of which have fundamentally impacted cannabis industry business models, built around the promise of legalization.
These industry conditions have compelled us to challenge previous assumptions, adapt and execute. As a result, we built the most diversified global cannabis lifestyle and CPG company with a clear vision and a strategy to deliver sustainable long-term stockholder value and growth. Throughout it all, we have remained focused on the core business fundamentals such as maximizing our revenue growth and profitability, cost management and, of course, cash generation. And while due to the current macroeconomic climate, we do not believe the value of the opportunities we’ve created within our diversified business are fully reflected in our current stock price.
We begin that these opportunities will generate significant stockholder value in the long-term, and that our efforts that we’ve delivered will suit these following accomplishments. We’ve repositioned Aphria, optimized operations and cost efficiencies and built the leading Canadian cannabis LP with the Tilray transaction and now with the HEXO transaction. Today, Tilray Brands continues to lead with the #1 cannabis market share across Canada, which we’ve accomplished as a low cost producer, while achieving $122 million in cost savings. We’ve strengthened and expanded our international cannabis business in over 20 countries and new markets and territories around the globe. And today, we have the leading medical cannabis market share across Europe.
As an adaptation to delay in the U.S. Federal cannabis legalization, we built a strong and profitable U.S. beverage alcohol business including repositioning SweetWater into the #1 craft brewer in Georgia, the #2 craft brewer in the Southeast, and the 10th largest craft brewer in the U.S. We acquired Montauk Brewing Company and grew its points of distribution by 10% within the first four months of operating this business. Today, Montauk is the fastest selling craft brewer in New York. Our highly awarded bourbon brands, Breckenridge Distillery, was recently awarded the World’s Best Blended Whiskey by Whiskey Magazine. You got to try this product. We’ve also stabilized Manitoba Harvest into a profitable business, creating the world’s leading hemp food brand with over 50% of branded hemp market share in the U.S. and Canada. When Federal cannabis legalization does occur, we will leverage these U.S. businesses into beverage alcohol and wellness, including their distribution and marketing networks to capture new, expansive opportunities across the U.S. and throughout the creation of a broad set of cannabis-infused CPG brands.
Now let’s discuss our agreement to acquire HEXO Corp. Please refer to the Tilray and HEXO investor presentation available on our website www.tilray.com for greater details. We view this transaction as building on strength. In that, it takes the proven value proposition of the successful strategic partnership that we forged with the HEXO team last year, and this enables us to fully leverage the combined power of our businesses. Together, we have the assets and the operating expertise to build a stronger Canadian platform that takes advantage of clear opportunities to deliver stronger top-line growth and increase our market share, deliver an enhanced margin contribution, accelerating our drive to profitability through operating and cost synergies; and ultimately, enhancing value creation for our shareholders.
To provide some further detail, we expect three immediate benefits: First, we expect the combination of our businesses to enable us to grow and strengthen our #1 share even further across all major Canadian cannabis markets, anticipate pro forma combined cannabis market share would rise 480 basis points to 12.9%, and pro forma net sales would rise to approximately US$250 million supported by leading low cost operations and complementary distribution across all Canadian geographies. Second, it will broaden our portfolio of high growth brands, expanding Canadian adult use opportunities with the addition of HEXO’s top brands, including Redecan, the #7 brand in Canada and add new Canadian medical opportunities in HEXO’s assortments, which would bring in new diversified group of consumers and patients in addition to adding capabilities across multiple product categories, while leveraging our robust supply chain. And third, we are confident it will enable us to take greater advantage of the complementary operational and cost synergies that exist between our businesses. Since we purchased the convertible notes in HEXO in July of last year, the HEXO team has made significant strides in reducing cost, improving profitability by making changes to their operations and participating in our joint cost savings effort. Upon completion of the next phase of this transaction, we intend to achieve additional cost savings and synergies in excess of $25 million on an annualized basis.
The HEXO transaction, which we expect to be accretive to earnings upon achieving synergies and savings, is expected to close in June 2023 and will consist of a purchase price of approximately $56 million payable through the issuance of Tilray’s common stock. Upon the expected closing in June of ’23, we will integrate HEXO operations into Tilray’s Canadian infrastructure across manufacturing, cultivation, operations, sales and marketing and corporate. We also expect to leverage Redecan state-of-the-art grow facility for our low cost production business. And we are evaluating the utilization and the optimization of Masson at Gatineau, Quebec for new opportunities, including a premium berry and vegetable business.
Our management team has a proven track record optimizing operations and setting and achieving synergy targets. So our confidence in our ability to deliver the synergies we’ve identified in HEXO acquisition is very strong.
Turning now to how we executed in the third quarter. Tilray Brands sustained and grew the top line while continuing to strengthen our balance sheet through cost cutting initiatives and related steps to optimizing the platform amid complicated market dynamics across Canada, Europe and the U.S..
This work includes a very deliberate decision to accelerate our path to positive free cash flow driven by the following priorities: First, maximizing revenue and growth in our profitable core business, which entails maintaining our #1 leading position across Canada, and that has been since 2020. And continuing to expand and grow our cannabis market share across Canada, the largest federally legal cannabis market in the world. We anticipated the HEXO acquisition will continue to contribute substantially to this objective. Solidifying our leadership status and growing market share in medical cannabis across our international markets, establishing new market opportunities as medical legalization continues to take hold and setting our business up to capture the adult use market when legalization occurs. And winning in the U.S. through our leading and profitable portfolio of craft beverage, alcohol, and wellness consumer products brands, which resonates powerfully with consumers and are ideally positioned in key markets. When Federal cannabis legalization does occur, we will leverage these U.S. businesses and their distribution and marketing networks to capture new expansive opportunities across the U.S. and through the creation of a broad set of cannabis-infused CPG brands.
Second, we are diligently optimizing the efficiencies of our global operations and driving the disciplines and accountability that ensure we remain a low cost producer in the cannabis business and our other businesses. This includes realizing substantial cost savings and synergies in our business, discontinuing certain partnerships and exiting certain unprofitable businesses in order to focus our resources on the businesses that are driving profitability and cash flow. These aren’t easy decisions, but we made them early and they’re unquestionably the right ones to make.
And third, we are strengthening our industry-leading balance sheet and cash position, which enables us to pursue target opportunities for growth and expansion within the context of economically uncertain environment. This balance sheet strength is a distinct competitive advantage in this environment, and should enable us to achieve the kind of scale and superior competitive positioning that we believe will deliver profitability and stockholder returns in the long-term.
Now to review our performance in Canada over the past quarter. In Canada most notable challenge is price compression, which impacted us by approximately $28 million year-to-date, almost all which drops to the bottom line and negatively impacted EBITDA by approximately $26 million for the nine months. Because of price compression, excise tax has become a larger percentage of each sale and is exaggerating the cost of excise which is calculated largely as a fixed price per gram versus a percentage of purchase price. Tilray has paid approximately $120 million Canadian in excise tax and corporate income tax in the last 12 months of the Canadian government, with the majority coming off the top line sales and impacting the bottom line. No question that Canadian government has been the most profitable cannabis business in our industry.
In order to rectify this imbalance, we continue to work with the government to reduce inequitable taxes between the legal and the illicit cannabis industry. In short, the difficult operating conditions in Canada that we described in recent quarters persist including ongoing price compression, strained retailer cash flows, and exorbitant excise taxes. There also continues to be almost 1,000 LPs, up 300 since we started reporting numbers last year in the market. But we are starting to see some consolidation at both the LPs and the retail store levels as well as some inventory levels normalization across the retail market.
Against this backdrop, the strength of our brands has enabled us to maintain our #1 market share position. In Q3, which was 73 basis points ahead of the #2 LP. Our adult use recreational brand Good Supply continues to be the #1 brand in Canada, with 6% of the market. In Q3, excluding Quebec, our share across Canada was up 43 basis points in Q3 versus Q2 with solid improvements in Ontario and British Columbia and we’re seeing this trend continue as we’ve entered Q4.
To provide some further insight in performance of Canada, volume delivered was flat in Q3 versus Q2, reflecting continued price compression in the marketplace. Taken together, we saw $3 million of price compression in Q3 results. This has slowed significantly from Q2, where there was a $12 million of price compression. We do believe we’re starting to see the floor on price compression in the marketplace. From a category standpoint, dried flower continues to be a standout, up almost 7% from Q2, and double the industry performance. However, we’re not resting on this achievement. Our beta program continues to provide us with a pipeline of new strains and we have recently made changes to our post harvesting processes, which will ensure our Good Supply brand continues to provide consumers strong value at competitive price points.
In our international businesses, we’re focused on three strategic priorities: solidifying our leadership position and growing market share in medical cannabis in the countries around the world in which we participate today, achieving early mover advantage in new countries as medical legalization continues to take hold, and of course ensuring strong positioning to capture the adult use market upon adult use cannabis legalization. As we do this, we’re optimizing our international platform, including working to remove approximately $8 million of costs from our European businesses, of which we’ve already achieved $2.6 million to date.
In order to achieve long-term profitable growth, in the event that only medical cannabis legalization continues to proliferate, we believe that we’re well positioned for success driven, by the following competitive differentiators: Our high quality medical cannabis brands which are trusted by patients, healthcare professionals and government officials around the world. Our unrivaled platform of assets resourced through our cultivation facilities in both Portugal and Germany, and our medical distribution network led by our integrated CC Pharma and medical cannabis teams with relationships across 13,000 pharmacies. Based on these trends to date, we built upon momentum in Poland with a rapid and substantial increase in our sales of medical cannabis. Received market authorization for two additional medical cannabis extracts in Italy, which will distribute through our wholly-owned subsidiary, FL Group, one of the only five companies in Italy that is authorized by the Italian Ministry of Health to import and distribute medical cannabis. And we have expanded our European footprint across the Czech Republic through a new export and distribution partnership. In the event of adult use cannabis legalization, we believe we are strongly positioned to seize on the opportunity based on our differentiators and the industry-leading expertise we have had as a market leader in Canada and through the deep CPG experience in our management team.
Turning now to the U.S. and our CPG portfolio. In the U.S. participation in the adult use cannabis markets is integral to our long-term strategy. However, as we have said in the past, we will not engage businesses that touch cannabis plants, if cannabis remains federally illegal in the U.S. In the meantime, we are optimizing the value of our existing high potential U.S. businesses, which consists of five craft beverage alcohol brands and wellness brands. The largest of our beverage brand is SweetWater headquartered in Atlanta, Georgia with a nationwide infrastructure spanning 44 states, an innovation-driven culture. SweetWater is now growing into a true national leading craft beer brand. Building on innovation, earlier this year, the brand launched a new consumer focused brewers, including a new Crisp Lager; Gone Trippin’ a West Coast style IPA, both of which are now available across SweetWater’s national footprint. We’re also excited to continue our largest music event in the Southeast, SweetWater 420 Fest, which will be held at our flagship brew in Atlanta this year on April 22nd and April 23rd. Come visit.
In addition, to growing SweetWater, we are extremely proud to expand our two iconic Southern California brands, Alpine Beer, which just opened a stadium anchoring taproom at Petco Park and Green Flash. We vastly expanded distribution of both throughout our partnerships with Reyes, the largest beer distributor in the U.S. and we are confident by their position for on growing growth.
And Montauk Brewing Company, which we acquired last year, is the fastest selling craft beer brand and the #1 craft brewer in New York. We were recently able to expand its distribution by approximately 10% in the first 4 months since our acquisition. It is now available in over 3,500 retail locations across the Northeast, including expanded distribution across New York, New Jersey, entrance into Connecticut and Rhode Island. We are confident that Montauk Brewing has the potential to grow in true national brand, which will accomplish by leveraging SweetWater’s infrastructure to significantly expand Montauk Brewing, including entering into markets outside of its existing footprint.
Finally, our bourbon spirits brand Breckenridge Distillery continues to firmly establish its position as a category leader, winning key influential awards, including Best American Blended Whiskey, Best American Blended Limited Release, Best American Blended Malt, and most recently, World’s Best Blended Whiskey in Whiskey Magazine’s 2023 World Whisky Awards. Today, Breckenridge Distillery is distributed in all 50 states and aligned nationally with RNDC with a distribution contract, guaranteeing nearly 30% sales growth annually. Breckinridge Distillery continues to build momentum for continued strong performance.
Turning now to our Wellness segment. Focusing on Manitoba Harvest branded hemp business, the brand continues to expand in the U.S. and Canada leading market share positions, including a better than 50% dollar share within branded hemp seed, strong dollar growth in the MULO and natural channels. And in the latest 12 weeks reporting period, it also continues to deliver dollar growth of each of its top eight measured U.S. retailers, including Sprouts, Walmart, Kroger, and its market share in Canada remains at nearly 80%. The drivers of growth include distribution expansion, a strong innovation pipeline, and new pricing actions to offset cost inflation, coupled with an ever increasing consumer interest in hemp products, given the key role they can play in plant based low carb and keto diets, which are very popular today. In Q3, Tilray Wellness also introduced a new CBD wellness beverage Happy Flower during the Dry January. Via our direct-to-consumer e-commerce platform, Happy Flower offers non-alcoholic cocktails infused with CBD that meets the needs of Gen Z and Millennial consumers. We will look to officially launch and expand the brand in key markets throughout the remainder of 2023 focusing on states with CBD permissibility and establish CBD sales.
And as announced last week, we’re expanding our distribution with Whole Foods Market with the launch of the brand’s first regenerative organic certified Hemp Hearts. We believe our wellness platform continues to be an important part of our U.S. strategy, providing us with deep connection to our consumers and our customers. We look forward to building even a greater scale of our wellness business in the near and long-term.
Now before I turn the call over to our CFO, Carl Merton, I want to provide some context around the reduction in our net assets reported in Q3, which includes a noncash $1.1 billion impairment charge, resulting from higher interest rates and a decline in our market cap in recent quarters. This noncash accounting charge does not at all change our strong conviction in our ability to accelerate our path to pause the free cash flow positions our company for profitable growth across the markets we serve and delivers on our foremost priority generating value for our shareholders. The market is challenging right now. But we have the right strategy in place to preserve the strong position we are in across our markets, as well as our financial flexibility that we’re executing on.
With that, I now will turn the call over to Carl to discuss the financials in greater detail. Carl?
Carl Merton
Thank you, Irwin. Given the challenging environment affecting the economy as a whole and our industry in particular, we are staying focused on what we can control. Namely: improving our operating efficiencies and realizing cost savings within our business model, reevaluating partnerships in markets that no longer meet our criteria, strengthening our balance sheet and working towards generating positive free cash flow; even if it inhibited, generating additional adjusted EBITDA in the near-term.
For our financial review, we present our results in accordance with U.S. GAAP and in U.S. dollars, and will reference both GAAP and non-GAAP adjusted results throughout our discussion. Our earnings press release contains a reconciliation of our reported results under GAAP to the non-GAAP measures identified during our remarks.
Let’s begin with a significant noncash reduction in our net assets we took during the quarter, a situation that has become very common in the CPG and cannabis industries over the last 12 months. Importantly, the review of our net assets and the calculation of the noncash reduction was not a function of our belief in our business plan or changes in our view as to the future of our business and units. As noted by Irwin, this noncash accounting charge was almost entirely led by changes in our market cap.
To explain further. Due to the decline in our market cap between the last day of our fiscal Q2 and the last day of our fiscal Q3, together with the rising interest rate environment, particularly in risk-free interest rates, the accounting test for indicators of impairment was triggered. The first step in this process required us to update our forecast based on current expectations of the business. This reassessment had a negligible impact on the impairment calculation itself. But we then had to reassess the discount rate applied to this forecast due to the sharp increase in risk-free interest rates over the last nine months. This increase in interest rates led to $100 million of the noncash asset write-down during the quarter.
Next, we had to assess the carrying value of our assets, including intangibles and goodwill against our current market cap. And with reduction in our market cap, it led us to record an additional $1.1 billion noncash reduction in our net assets. This noncash reduction was allocated as $55 million to inventory, $54.8 million to the HEXO convertible note, $104 million to capital assets, $38.7 million to other assets, $205 million to intangible assets and $618.5 million to goodwill. Overall, the allocation resulted in non-cash asset reductions of $15 million in the Wellness segment and the remainder of the noncash reductions in the Cannabis segment.
The noncash reduction to inventory was also recorded in contemplation of our acquisition of HEXO to align our inventories to meet the future demands we see in the market. It is notable here that between the time we first announced the Tilray-Aphria transaction in December 2020 and when we closed on the transaction in May 2021, the share price of Aphria rose dramatically due to investor enthusiasm over U.S. Federal legalization. This surge in Aphria share price directly led to an increase of $1.4 billion in the purchase price of Tilray which itself led to an increase of $1.4 billion of intangible assets. A value that is higher than the noncash reduction we announced today.
Again, we do not believe these noncash asset reductions are indicative of the significant long term market opportunity that still exists for the federally legal cannabis market. We are therefore working hard every day to see that our vision in creating the leading and most diversified cannabis lifestyle and consumer packaged goods company in the world across adult use and medical cannabis, beverage alcohol and wellness consumer products is achieved.
Now with that, I will discuss our results for the quarter. For the quarter, net revenue increased slightly to $145.6 million from the prior quarter of $144.1 million. On a constant currency basis, net revenue rose to $154.2 million from $151.9 million in the prior year period. Reported negative gross profit for Q3 was $11.7 million compared to gross profit of $39.8 million in the year ago quarter. Included in this quarter’s result was a non-cash reduction in inventory related to the previously discussed reduction in non-cash carrying value of our net assets.
However, adjusted gross profit for Q3 was $44.3 million, up 11% from last year. Adjusted gross margin rose to 30% from 26% in the prior year quarter. This was made possible by our success in implementing numerous cost saving programs, including offsetting part of our allocated overhead from intentionally reducing cannabis production. From the $30 million cost optimization plan that we first announced in Q4 of last year, we achieved $22 million on an annualized run rate basis, of which $12 million represented actual cost savings during Q3.
Net loss was [$1.2 million] compared to a net loss of $61.6 million in the prior quarter and net income of $52.5 million in the year ago quarter. Net loss for the quarter is tied to our quarterly goodwill impairment review. From an adjusted net loss perspective, our loss was $0.04 per share. Adjusted EBITDA was $14 million, marking our 16th consecutive quarter of adjusted positive EBITDA and a significant increase from Q3 last year of almost 40% despite the decline in revenue. Operating cash flow for the quarter improved to a loss of $18.6 million from a loss of $46.4 million in the prior year period, a substantial improvement. The decrease in cash used was primarily related to improved operating efficiencies realized through our synergy programs, and management of our working capital requirements.
From a free cash flow perspective, we reported a $19.5 million use of free cash flow, primarily as a result of working capital changes. More specifically, during the quarter, we used $0.8 million of cash on CapEx. We used $1.4 million on operating our businesses and we used $17.3 million on managing working capital. The cash used in operating our businesses of $1.4 million is the lowest level reported since we first brought Aphria and Tilray together. And demonstrates the steps we continue to take to remove costs and better balance revenue and costs across all our business units. Cash used in or provided by working capital changes is expected to fluctuate on a quarter-by-quarter basis.
Today, we are also reiterating our guidance with respect to reporting positive free cash flow from our operating segments for fiscal 2023. While we are not currently a positive free cash flow for the year, our fourth quarter is expected to make significant ground in this measure.
Turning to our business segments. Gross cannabis revenue comprised $6 million in Canadian medical cannabis revenue, $45.3 million in Canadian adult use revenue and $9.7 million in international cannabis revenue. These were collectively offset by $13.6 million of excise taxes. Excise taxes continued to significantly impact our gross revenue. Tilray paid almost CAD120 million in the last 12 months to the Canadian government in excise and corporate taxes. This substantial tax burden adds to the challenges facing the cannabis industry today. More importantly, Tilray is one of the few licensed producers in Canada that pays taxes when due and is not using the Canadian government as a de facto financing arm.
Net cannabis revenue was $47.5 million, representing a 14% decline from the year ago period. The variance was mostly related to a reduction in international cannabis revenue, and to a lesser extent, lower wholesale cannabis revenue and Canadian medical cannabis revenue.
On a constant currency basis, net cannabis revenue declined by 7% as the decline in the Canadian dollar and euro resulted in a $3.5 million decrease compared to the prior year quarter. Price compression, while slowing continued to have a marked impact on our results. For the fiscal year-to-date, our revenues are down $28 million directly as a result of price compression in Canada, of which virtually all also represented a reduction in EBITDA.
In the quarter, our Canadian cannabis wholesale team met with a significant number of licensed producers about becoming their B2B outsource partner. Even though the results of those conversations did not lead to wholesale sales this quarter, we have secured multiple outsource partners and continue to work with many more.
Adjusted cannabis gross profit increased to $22.2 million from $18 million in the prior year quarter, while the gross margin percentage increased to 47% from 33%. Excluding the HEXO advisory fee revenue, adjusted cannabis gross margin would have been 35%, up slightly from the year ago period. The margin improvement was related to continued cost optimization, offset by impacts of price compression, as well as a decrease in the utilization of our cannabis facilities to manage demand requirements. Distribution revenue, which is derived predominantly through CC Pharma, increased 5% to $65.4 million from $62.5 million in the prior year quarter, despite the strengthening of the U.S. dollar relative to the euro.
On a constant currency basis, revenue would have actually increased 12% to $70.1 million for an additional $4.7 million of revenue. Distribution gross profit increased 49% to $7.4 million from $5 million in the prior year quarter, while distribution gross margin increased to 11% from 8%. These increases were the result of a positive change in product mix and our focus on higher margin sales, including the decision to exit the medical device reprocessing line. Looking ahead, we think we can continue to drive larger business profit margins despite not increasing revenue as we approach full utilization of our facility.
Turning to our Beverage Alcohol segment, we generated $20.6 million in net revenue, which was slightly higher than the prior year quarter of $19.6 million. The delta was primarily due to our acquisition of Montauk in November 2022. We remain bullish on expanding this segment over time as we leverage our increased distribution, regain brand acceptance with Green Flash and Alpine, faster brand acceptance for SweetWater in California, build out an extensive innovation pipeline, and of course, potentially pursue other acquisitions.
Adjusted beverage alcohol gross profit was $11 million, compared to $11.5 million in the prior year quarter, while adjusted gross margin was 53%, a slight decline from 59% as a result of the Montauk acquisition that was not completed in the prior period comparison and operates at a slightly lower margin with SweetWater. Also SweetWater’s operations in Colorado in the current period had a negative impact on the margin as it is still in the startup phase.
Finally, on our Wellness segment. Revenue decreased 18% to $12 million from $14.7 million in Q3 last year. The decrease in revenue was due to a reduction in customer inventory levels at warehouse locations across North America. And a pullback on margin-dilutive non-branded sales that led to top line declines in the quarter versus the prior year.
Adjusted wellness gross profit was $3.7 million, down from $5.4 million in the prior year quarter, while gross margin decreased to 31% from 36% through the impacts of higher input costs of seed ingredients as a result of inflation. However, the increase in prices during Q2 to combat the inflation impacts resulted in a consistent margin from the immediately preceding quarter.
Our cash, cash equivalents and marketable securities balance as of February 28th was $408.3 million, up $129 million from the $279.2 million in the year ago period. Given our quarterly and fiscal year performance to date against the backdrop of macroeconomic challenging near-term market conditions, we are lowering our expectation of adjusted EBITDA generation to between $60 million and $66 million, an increase of over 30% from last year. However, as I already indicated, we are still projecting being free cash flow positive across all business segments for the year.
To conclude, while the quarter was challenging in many respects, largely due to market interest rates and our market cap, we are committed to ensuring that our cost structure is consistent with our revenue expectations, minimizing CapEx, improving our industry-leading balance sheet, reducing debt and driving free cash flow.
With that, I will conclude our prepared remarks and open the lines for questions from our covering analysts. Afterwards, we will take a few questions from our shareholders through the Say platform. Operator, what’s the first question?
Question-and-Answer Session
Operator
[Operator Instructions] And our first question is from Vivien Azer with TD Cowen.
Vivien Azer
I’m sure it’s a long queue, so I’ll just keep it to one. Irwin, on the HEXO deal, I really wanted to focus on why now. You guys have clearly had the strategic relationship in place, shared cost savings already incurring. So I’m really curious, is this more top line motivated or more cost cutting motivated? Because on the top line, it seems like the market share gap between you and number two HEXO shrunk about over 100 basis points sequentially. So I’m wondering how much of a factor that plays into the timing versus just the cost cutting and whether it kind of run its course and consolidation was the next logical step? So if you can comment on the why now? I’d appreciate it. Thank you.
Irwin Simon
Good afternoon, Vivien. And thank you. I think Vivien, there is multiple reasons here. Number one, I think the Canadian market has to consolidate. You heard me talk about price compression where we have lost $28 million in the first nine months and that comes right off the bottom line, affects our earnings, affects our EBITDA. Secondly is, listen, there is still a big illicit market there. The market out there is fragmented with over 1,000 LPs. The market has multiple retail stores. So with this, this gives us close to a 13% share. And as we spent time with the Redecan team or the HEXO team, Redecan, which we think is a great asset, the Masson facility is a great asset. We think there is lots of opportunities there. And just think about it. How hard it is for us to achieve earnings in Canada? And with that putting these three companies together Aphria, Tilray and now HEXO, there will be over $25 million, $30 million of savings over the next couple of years. We think we can really grow the Redecan brand in the flower, the oil business and their readies. We think there is lots of opportunities. So it made sense and where the stock was it ultimately made sense for Tilray shareholders.
Vivien Azer
Okay. And nothing on cost really?
Irwin Simon
Well, I think cost again, as I said before is, consolidation is something that has to happen here. And I think is there moving some of the growth of Masson into our Leamington facilities, utilizing the same infrastructure of the sales organization, the marketing organization, the distribution organization, the purchasing organization. So listen, Vivien, if we can get $25 million to $30 million of cost savings in each year, get an additional $25 million to $30 million in gross margin from this business. And at the end of the day, we think for Tilray shareholders, we paid about $55 million, $56 million for this business and you think about it ultimately what Redecan and you think about what other assets have sold for. It’s a great deal out there for shareholders and it’s a great deal out there for future earnings.
Listen, the Canadian market has to change. And I think today with Tilray taking that leading position out there. And the biggest winner in Canada today is the Canadian government, where we pay over $120 million between excise tax and taxes and HEXO pays $35 million. So ultimately it also will give us some clout to now to go to the Canadian government and say something has to change here in this marketplace. And you know what, Vivien, one day legalization will happen in the U.S. And with the facilities that we have in Leamington, what we now have in Gatineau, what we have in the Redecan facility in regards to its slims and its flowers and its craft growing that, we are really set up for U.S. whether we can naphtha with free trade and ship into U.S. We’re really set up for our international business. So it takes Tilray to the next level and we are ready for the cannabis business in a big way whether legalization happens or not in the U.S. or happens in Europe. So I think it’s a great deal.
And the other thing is, not so many times you get to look at a company and spend the last 9 months to 11 months being their partner here. And we should be able to integrate this pretty easy and get all the synergies and savings. So I’m really excited about this.
Vivien Azer
Yes. No, absolutely. The prior relationship certainly helps.
Irwin Simon
And it creates a lot of value at the end of the day for both shareholder base. And I think that’s the important thing here. And it also will create a lot of value for consumers out there to expand distribution. So it’s a win-win deal and maybe trust me and not us, there’s other consolidation that got to happen in the Canadian market. You can’t have over 1,000 LPs out there and Canada the size of the country that it is just standing alone and hope the industry changes. As I said, the biggest cannabis company in Canada today is the Canadian government with the excise tax.
Operator
Our next question is from Andrew Carter with Stifel.
Andrew Carter
So I want to build on Vivien’s question about kind of the why now with HEXO. And doing this transaction, I mean, bringing Aphria, Tilray together, perhaps there was a time when due interests were accelerating? But I don’t know, correct me if I’m wrong, but you went to the provinces. And it wasn’t exactly like I have this brand and this brand, they looked at you and said you’re one company, we only want this much.
Do you see that as a risk here of the provinces looking at you and saying, actually, it could be actually dilutive like, okay, we’re not — there is no one plus one here. There’s one entity we only want so much, or have dynamics changed in the market?
Irwin Simon
I think it’s an excellent question. And when we looked at it, I think it’s very complementary. Redecan has its slims, Redecan has its craft grow flower out there, Redecan has its oils. HEXO has a strong platform in the Quebec market out there. So it’s very complementary to us out there. HEXO does not have really an international business. And some of the things I’ve said the Redecan facility is an incredible facility that’s out there. And there’s a lot we can do in the midst of moving some of our edibles there, some of our oil business there, moving some of our drinks into our London facility. So, with that, ultimately, to become that low cost producer, you got to remember, in Canada, no matter if there’s price compression, excise tax remains the same.
For us to get the profitability you want, you got to get bigger. And with 1,000 LPs out there, it’s harder to get bigger by just stealing share or you wait for a lot and go out of business. But the big thing here is consolidation is key. And I think this really sets us up. It sets us up to talk to the Canadian government in regards to excise tax. It comes back and sort of with certain provinces. And like I said before to Vivien, we had the ability to be 49% owner of HEXO. And I think it’s no shock to anybody that this has happened now. And it’s nine months, and it’s the right thing for both companies.
Andrew Carter
Okay, second question to ask. In the write downs, there was some on the MedMen-Superhero venture. Are you looking at that state differently? Or would you seek to kind of to move up your claim at all, all of that, or long-term is that kind of thesis intact, whatever happens with MedMen?
Irwin Simon
So, I’m still very bullish on MedMen. I think a lot of great work has been done to clean it up. I think MedMen still has one of the best known brand names in the MSO in the cannabis business in the U.S. What it does for us, Andrew, it puts us, upon legalization, we now have a great brand in MedMen, if that was to come to be. We have a great name within SweetWater if one went to the cannabis world with infused drinks and stuff like that.
So, the big thing with Tilray today, it’s really set up in the Canadian market today, between HEXO, Tilray and Aphria to have close to a 13% share. We’re really set up in Europe, in Germany, in Portugal. And sell it 20 countries today for medical. And if cannabis legalized tomorrow in Germany, we’re ready for the recreational, adult use in the German market or any other market. And then in the U.S. with SweetWater, with Montauk Brewing, with Breckenridge, we have a strong business there today in the consumer area, where it’s very easy for us to do infused drinks or one day ultimately, is it edibles or is it pre rolls or et cetera. So, we’re set up. And ultimately, the only thing holding us back is legalization but in the meantime, we have some great markets that we can operate in today, whether it’s cannabis, whether it’s beer, whether it’s spirits, whether it’s wellness food, or whether it’s our medical cannabis business.
Operator
And our next question is from Aaron Grey with Alliance Global Partners.
Aaron Grey
You’ve stabilized your market share over at Tilray. But HEXO has still been experiencing share losses, some was intentional, because they’ve been simplifying their SKU count. But just curious in terms of how you look at some of the SKU overlap? And you’ve talked a lot about Redecan but also think about original stash? Do you feel like, there still might need to be some more simplification of the SKU count, as you now are 100% consolidated? How do you think about that going forward? Thank you,
Irwin Simon
Aaron. Hi, how are you. So I’m going to answer part of it, then I’m going to turn it over to Blair McNeill is here with us, our President of the Canadian market. But I think, listen, HEXO has gone through its challenges and I think the team there under Charlie Bowman, and Mark Attanasio have done a great job in regards to cutting costs. And I think that was the big thing. How do we stay alive by cutting costs? And it was not the focus on growing some of the brands, growing some of the businesses, and there’s a lot of legacy stuff out there. I think now, it’s now time to take HEXO to the next step with its brands with its products, products with its range, and within its abilities. And we really have seen that. Blair, do you want to add to that?
Blair McNeill
Yes, thanks, Irwin. And thanks for the call or Aaron. Overall, I would say we mentioned earlier about the complementariness of that categories. HEXO’s strength in straight edge pre-roll, their strength in oils. And then some of their strength in flower, especially in mainstream flower with the Redecan brand. So the number one thing for us, which I think we bring to the table is the Tilray market coverage. We have industry leading coverage, we’re going to be able to up the number of distribution points up the number of sales calls, and overall up the number of time that the HEXO brands get talked about. And we think that’s going to provide an upside across the board for both of us.
And it’s going to make conversations with retailers much more valuable for them and us. And so I really see a good benefit for HEXO on that front.
Irwin Simon
And Aaron, I think what retailers want to see is a strong Canadian market, they want to see a strong leader that’s going to set the path here for growth. They’re going to see a strong leader that’s going to want innovation and going to be able to invest in brands, invest in product, invest in innovation, invest in quality and control, and Tilray is ready to do that. So — and like I said, if you come back and look after Tilray you know there’s a lot of other trade companies out there. But I think like anything, whether it’s the soda industry, whether it’s consumer packaged goods industry, there’s got to be a leader out there that really can evolve and change the industry. And I think we have the infrastructure in place and sales, marketing, distribution, grow innovation to really fold in HEXO, which we did with Tilray. And one plus one hopefully is going to equal five.
Aaron Grey
Great. Thanks for that color. That’s really helpful. Just a quick one for me. On the $25 million cost synergies, can you provide some detail on how much that’s split between COGS and SG&A? And then just timing of when you expect that to be realized? Thank you.
Irwin Simon
So the $25 million on synergies is just $25 million. I mean on top of that, you get them once. And then after that, it’s the contribution margin that we start to get from the operations of the businesses.
Aaron Grey
Okay. All right. Great. Thanks. I’ll get back in queue.
Operator
And our next question is from Tamy Chen with BMO Capital Markets. Please proceed with your question.
Tamy Chen
Thanks. I just have one question, and it’s about your footprint in Canada. I’m curious to hear your perspective on, why not consider possibly reducing the square footage permanently? Because the Canadian market, as you said, is quite challenged. It’s taking a while for some of the competitors to exit the industry. And like you have a pretty sizable footprint. I’m not sure how much you are able to stock so essentially via that produce initiatives that you’re talking about? So are we able to just elaborate a bit more on you think about that? And I also wonder being a wholesaler for other LPs, like, aren’t you essentially aiding some of your competitors through that initiative? Thanks.
Irwin Simon
Tamy, really good question. And between all our growth facilities today, I mean, it’s probably 4.5 million to 5 million square feet for a Canadian market. That’s a lot of growth facilities, okay? So with that, you are 100% right. And these facilities, I mean, the HEXO facility that was built was probably $0.25 billion of an asset that was spent there. So it’s an incredible asset that has a lot of other value in greenhouses that there is tremendous demand out there for premium vegetables and fruit and vegetables. Yes, it’s not the same margin. But again, we are not growing cannabis and put in warehouses, okay? And so when I mentioned on my last call, it’s amazing how many calls I got from retailers ask me, when we are getting into that. So absolutely. And we are not in the wholesale business. The name of our company is Tilray Brands. And we are out there to build brands. And we are not out there to be a wholesaler and a grower to cannabis, and enable other cannabis companies to have product. So there is a big opportunity with Masson. It’s a state-of-the-art facility and we are going to look to do other things and just grow cannabis there.
Tamy Chen
Okay. I thought I heard earlier that, in the quarter you had some discussions with other producers. Is that now referring to Cannabis LPs?
Irwin Simon
Well, we have had discussions for some other cannabis, but that’s not going to be a major part of our business. We have a major canning line in London, Ontario. We’d look to potentially do some canning for other companies out there. We have the ability to do edibles. But that’s not — if you come back and look at our business today, our business is to build brands. Our business is to grow products for ourselves, not be that third-party grower out there. I will tell you, we will do some. But ultimately, that’s not a big part of our business planning going forward.
Operator
And our next question is from Frederico Gomes with ATB Capital Markets.
Frederico Gomes
Just have one question maybe just moving away from the HEXO deal. Just on the international side, we’ve seen some news out of Germany recently that could mean a delay in terms of full scale legalization in that country. I am just curious know what sort of feedback you believe that that could have in other countries, legalizing cannabis in Europe? Will that delay that and how does that impact your view of those markets and your international strategy?
Irwin Simon
Frederico, good afternoon. And I’m going to let Denise answer that in a second. The only thing I’ll say is this here. I mean, yes, there’s a delay, but there’s still lots of discussion. But you got to remember, in the marketplace, even though it’s medical cannabis, there’s a big percentage of those consumers that are getting medical cards or getting prescriptions for recreational. And that continues to grow tremendously.
So — and ultimately, I think, Germany, there something will happen. Listen, we’re seeing medical cannabis, ultimately will be legal in France. A country like Poland, we’re seeing tremendous growth in countries like that. Denise?
Denise Faltischek
So just building on Irwin’s answer. So you are right, there seems like there is a little bit of a delay as Germany works with the EU in order to determine a framework that works both for Germany as well as the rest of the European Union. And we’ve recently heard from Health Minister Lauterbach, that they’re working on a legislative scheme that would provide legalization as broadly as possible, but really trying to not run afoul of the EU rules. So we’re waiting to hear what that framework looks like. They were supposed to release something last week. That got a little bit delayed. We’re hoping to see something soon. But as Irwin mentioned, we’re not waiting for adult use legalization in order to really continue to grow and look to expand our business.
Yes, we are very well positioned for adult use, depending upon when it happens. And I would say when it will happen at some point, because we do have our two EU GMP facilities. One in Germany, one in Portugal, we have our distribution network. And we also have the expertise that we leverage from our Canadian colleagues who have been living in an adult use Federal legalization market for several years now.
And in the event that the scheme says that only in-country cultivation is allowed in Germany, we are only one of three companies that actually have a facility in Germany today. So we’re set up depending upon several different ways the regulations could shake out. But as Irwin mentioned even if we never have adult use, we are very well set up for medical, we have a brand that is considered to be highly reputable based on the feedback that we receive from healthcare professionals, from government regulators, from patients were synonymous with very high quality, sustainable, consistent medical cannabis. We will continue to grow that business and look to see how do we continue to succeed without the legalization of adult use.
Irwin Simon
I think the big thing is today, we have facilities both in Portugal and Germany, to go and really build out facilities and have that catalyst there would take anybody else a long, long time. So we have infrastructure, we have the distribution with CC Pharma. We have as Denise said the brands in place, we have the knowhow. We have relationships with the government. So it’s just a matter of time. But in the meantime, the growth today is coming from the medical business, quasi, legal rec business. And that’s ultimately what’s happening, you know, in that marketplace.
Operator
Our next question is from John Zamparo with CIBC.
John Zamparo
I’ll stick to one also, since we’re past an hour, and it’s back to the HEXO deal. I think most of us or maybe all of us are of the view, there needs to be more consolidation in the sector. But at the same time acquisitions in Canadian cannabis, historically haven’t really lived up to expectations. Typically, that seems to be because sales fall at acquired brands post acquisition. And I think about the Aphria-Tilray merger, even with the $100 million plus with cost synergies, EBITDA is similar to where it was before that merger and the Tilray legacy brands retail sales have declined meaningfully. So I wonder why you expect this deal to be different and specifically, what can you share that you’ve learned from Aphria-Tilray merger, that you think can help avoid HEXO’s revenues from falling off and help you make the HEXO deal more successful? Thank you.
Irwin Simon
So every time we do a deal we learned from John and I think that’s important, I think going back and looking at the Tilray-Aphria deal at the time. Number one, there was a lot less LPs out there. Secondly, it was during COVID it happened. And purposely we eliminated a lot of strains, we eliminated a lot of SKUs out there to go ahead with it. And I think, the big thing on Tilray was ultimately its medical business, its European business. Its canning business, there was just other attributes that complemented the businesses.
Now with that, we had price compression this year of close to $30 million price compression last year and you didn’t have 1,000 LPs. So, I think it’s just different times. Ultimately, you come back and look at value. I mean, again, Tilray shareholders are getting great value here. If you compare it to what, ultimately Redecan can sold to for HEXO at one time, and you come back and look at multiples that have been paid for other deals out there, and what we’re paying, Tilray shareholders are getting the incredible value here.
Listen, we have to execute. We have to make sure we get beyond 13%, 14% share. We have to get the synergies and savings. But ultimately, it’s there for us to go get and do. And I have said in previous calls, I wanted a 15% to 20% share. You’re not getting a 15% to 20% share without buying someone with so many LPs. I was talking through it with Carl today how hard it used to be to get a license. It’s so much easier to get a license today in the Canadian market to produce cannabis. So I think that’s going to change. And I think ultimately, it’s going to deter a lot of the smaller growers out there when you see somebody today with the size of Tilray out there, that’s well capitalized on the balance sheet, got the brands that it does, got the growth facilities and the processing facilities to be out there. Listen, there’s always opportunities out there for craft growers. There’s always opportunities out there for small growers and small companies. But again, we got to make it happen. It’s just not going to be handed to us on the silver platter either. And as we go into the different provinces, we got to make sure we got our strategies and story right. And we got to make sure consumers want our brands. And I got to tell you, the Redecan brand, great brand, a lot of the HEXO brands are great brands. So I think the three of us coming together as one is a big thing for the Canadian market.
Operator
Thank you. Our next question is from Michael Lavery with Piper Sandler. Please proceed with your question.
Michael Lavery
Thank you. Good evening. Just wanted to come back to guidance and just maybe make sure you can help us understand — it looks like you would need a really significant step-up in margins in the fourth quarter. And you have got a little bit of momentum there, but it would be far above anything you have done recently. Can you just give us some confidence that that’s achievable?
Carl Merton
Yes. Thanks, Michael. Great question. So I think the first thing we have had these conversations a couple of times with different people. A few things to note. First one is that Q4 is traditionally the largest quarter of the year for the beverage alcohol category, which is really just inside of the beer division, more so than Breckenridge. And it’s that lead in the pipeline fill for the summer. And we saw that and everyone will see it in Montauk’s revenue, when we did our diligence on Montauk and we’ve seen it every year that we’ve owned SweetWater. So we have some expectations for significantly improved EBITDA inside of the beverage alcohol division in Q4.
When you look at the cannabis division, I think we have got a few — sorry, we have two or three things that are happening at the same time in the quarter. The first one is, as we have continued to reduce costs, a lot of those cost savings have just started to kind of finally hit inside of Q3 and you are going to see the benefit of those in Q4, that further reduction of costs. The second piece is that Q4 is our best quarter during the year for cultivation. And we see improvements in gross margin every year in Q4 as a direct result of that. I think you have also seen some of the items that are in the press release today in terms of different pieces that are going on with HEXO that will all happen in the fourth quarter. And so when you combine all of those things together, the improving results we have seen in the distribution business in the last couple of quarters, as they made those major changes and removed some of their product lines, are really what’s driving our belief and the calculation of our revised guidance.
Irwin Simon
And I think some of the biggest thing Carl said, as we started the cost savings, we are starting to see those cost savings come into effect. The second thing is price compression. The big price compression, basically the $24 million during the first two months. Now those prices are in place, but you are seeing a lot less price compression that’s out there today. And price compression comes right off, EBITDA comes right off the bottom line. So with that, we don’t expect to see price compression out there. Listen, we are looking at is there an opportunity for price increases out there where we could get it if it made sense? So there is a lot in the fourth quarter. A lot of great things happening at SweetWater we get to a full quarter of Montauk and growing the distribution there. We just rolled out our Breckinridge distillery products through RNDC and getting a full benefit of that.
So there’s a lot of things in place, as I talked about. Europe, we had some bumps in Europe. Europe is really hitting on all cylinders today. I think there’s some great things happening at our CC Pharma business. You heard me talking about Poland, you heard just talked about some of the other growth that’s happening there. Denise and team have done a great job of taking costs out of Europe. We’re looking for $8 million of costs. We got $3 million to $4 million of it already. So we’ll see the benefits of that. So there’s a lot of moving pieces. And there’s a lot, yes, happening in our fourth quarter.
Michael Lavery
And I just want to follow-up on Tamy’s question. You said yourself, how — just what a big number the 4.5 million to 5 million square feet is and you mentioned, some berries and vegetables you can grow it at HEXO’s facility? Why not just cut capacity? Is our vegetables really so interesting that it’s worth hanging on to that much growing space?
Irwin Simon
So number one, we have some incredible facilities with some incredible value there, okay? So why just close those facilities when we see demands in the market for categories that really the market needs it. So if we can produce high end vegetables out there, where there’s a big market, and could sell it to multiple retailers, and why just get rid of these facilities and close it down when a lot of money has been spent on them, and it can put us in unique businesses. And you know what, if there’s a time that we’re going to need them again, for growing cannabis, they’re available to us. I think you’ve seen other cannabis companies out there sell these assets off of basically nothing. These are assets where a lot of money was spent on them. And there’s other uses to these and that’s what we’re going to look at other uses for these facilities.
Operator
Our next question is from Matt Bottomley with Canaccord.
Unidentified Analyst
This is [Yvonne Heng] on for Matt Bottomley. Just one from me here on the cannabis adjusted gross margins. This line item seems to have increased by 10% sequentially. So I was just wondering if you could provide any puts or takes from the quarter? Or what contributed to the expansion on this margin? And how we should think about though cannabis margins going forward, especially with respect to the HEXO acquisition, in terms of how onboarding their business would impact the pro forma margins?
Carl Merton
So cannabis margin is up from the prior year, like 47% — it’s up to 47% from 33%. And a big reason for that increase is the HEXO advisory fee, right? So we’ve been publishing adjusted cannabis gross profit numbers to help people understand what that difference is. And so when you adjust out for the advisory fee, that gross margin is actually 35%. So it’s relatively consistent with the prior year but it is up.
Unidentified Analyst
And just second part of my question would just be how we should be thinking about the margin profile going forward with the HEXO acquisition in terms of how we should expect their operations to have an impact on the pro forma gross margin?
Carl Merton
So on a on a pro forma basis, we’re not anticipating a significant change in the margin profile. As Irwin talked about, we see great opportunities with the Redecan facility and its low cost production that it has particularly matched against the selling prices that they’re able to achieve from their products. And we’ve talked about the fact that we’re looking to use Masson in a different capacity, and so it would not be included in that number.
Operator
Thank you. That concludes our analyst questions. We will now proceed with questions submitted by stockholders on the Say Technologies platform. Berrin, I will pass it over to you.
Berrin Noorata
Thank you, operator. And the first question from the Say Technologies platform is what are you doing to improve shareholder value?
Irwin Simon
So number one, I am not happy at all about our stock price. And I don’t think it truly reflects what the value is that we’re building for our shareholders today. And you think about Tilray, Aphria, now HEXO, ultimately, we’ve been around four years. And you think about the assets that we own, the countries that we’re in from a global and what we’re building out in brands. And I think we’re doing everything we can. I have an incredible team that I work with. We have some great brands. We have a really good strategy in place. Not everything has worked out on time in regards to legalization, SAFE Bank Act, and these are things that sometimes are out of our control. But with that we are trying to build out with those shareholder value.
And as I’ve said before, we have number one share in Canada. We’re the #1 cannabis company in Europe. We have some of the top beers in craft beer in the Southeast, and Georgia, and #10 in the country. We got some great growth going on with Montauk, and to be named the world’s best whiskey out there is a major, major accomplishment. And then we have a great wellness brand, that when we acquired it was losing money. And now the team has turned that around. So I think there’s a lot in place we’re doing to really improve our shareholder value. And I will tell you, this team is working hard for our shareholders, which we all are.
Berrin Noorata
Thank you. And the second and last question is, Mr. Irwin, the CEO holds around 108,000 shares of Tilray and others on the Board only hold around 10,000 shares? Why does the CEO and Board have such a lack of holding in their own company?
Irwin Simon
I think somebody’s got the wrong numbers there. First of all, it’s Mr. Simon, not Mr. Irwin. And right now, between vested and unvested shares, I think I hold about 3.6 million shares in stock options. I’ve never sold a share, not my intention to sell shares. One of the big things to compensate our employees is part of owning stock and being part of a stock ownership plan. So that is very much what our plan is. I know, there’s a lot of why aren’t we buying back stock, but I think right now is a growth company, investing our money back into acquisitions, back into the business to get the growth to return to our shareholders.
Irwin Simon
With that, I want to thank you all for joining us today, Monday, April 10th. There was a lot of news coming out of here. As I always say, there were some great things that happened. There’s some good things and we recognize the challenges out there. And we recognize the challenges in today’s environment. I go to tell you, I’ve been doing this for a long time. Absolutely the cannabis industry is a tough industry, but there’s no easy industry. But we recognize the challenges out there. In the meantime, considering where Aphria was back in 2019 and where Aphria-Tilray and now HEXO will be is a tremendous accomplishment for us, as that low cost producer is that company that has the brands, that has the infrastructure in place to sell in market and grow. And the industry is changing dramatically.
But stepping back and looking at Tilray today, we were upfront to diversify. We knew we couldn’t come into the U.S. and touch a plant. But we have a very successful CPG business with our beer business, with our bourbon business and our wellness food businesses. We have a very strong business in Europe with our CC Pharma, which originally we wondered why we own it. But, hey, it sells into 13,000 drugstore. It’s very much EBITDA positive. It’s a good business. And with Europe changing dramatically and challenges in the European market, whether it’s Israel, what the team has really done over there is taking costs out and has gone into new markets like Poland, Czech Republic and really have expanded its distribution. And Europe will legalize one day or there will be more countries that will sell cannabis ultimately that can convert it to the recreational market.
So with that, I’m excited about of the opportunities that we have in front of us, the businesses that we have in front of us, the diversified businesses. We have a strong balance sheet with over $400 million plus of cash. As Carl talked about, we expect to be free cash flow positive this year. And trust me, we have been out and front of ensuring that we are cutting costs and you don’t hear me announcing today that we are doing all these layoffs and cutbacks, as we have been focused on cost containment throughout the last couple of years within the Tilray businesses. We want to reward our shareholders. Our shareholders are the key and I want to thank you for the support. As we went out there to get more shares, I want to thank you for sticking with us. I want to thank you for being there. When the stock goes down, it’s not fun, but I know as shareholders every day we wake up, we want to reward our shareholders and hopefully you will see that one day.
And to our consumers that buy our products, I can rest assure you, whether it’s our beer or bourbon or food or our cannabis, quality, quality, quality, and that’s built around our brands to ensure that we are putting good safe products out there for the consumer to enjoy. And that’s something that’s the utmost importance within Tilray. As I said, we are four years old, we have done a lot. And we are a brand that’s well known. We are businesses with well-known brands and there is a lot more to come.
With HEXO, I am really excited about the opportunities with HEXO. Got to know the team over the last nine months, got to work with them. We got to see the inner workings of HEXO. And I want to welcome all the HEXO employees to Tilray once this deal closes. And I got to tell you, it’s going to be exciting as HEXO, Tilray and Aphria come together. A lot of work went into this and a lot of work we needed to make it happen. First, I want to thank my fellow Tilray employees that worked around the clock. Whether it’s Easter Passover weekend or whenever to make sure this deal happened and happened right and the diligence and everything that goes into it. I want to thank our Board of Directors for all their support to ensure that we were doing the right things, ask the right questions, go through the right governance. I want to thank the HEXO Board that spent endless hours to ensure the HEXO shareholders were rewarded. Mark Attanasio, the Chairman, thank you. And I sound like I’m at the Globes thanking people but — and Charlie Bowman, their CEO and many, many other HEXO employees that made sure this happened.
So with that, hopefully the next time I talk to you, the HEXO deal has closed and we move forward. With that, hopefully everybody has a great evening, have a great Easter vacation. And look forward to speaking to you soon. And again, thank you very much for your support. Good night.
Operator
This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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