Tilray Brands, Inc. — FY2023 Form 10-K
Business context and reporting period. Tilray is a global cannabis, pharmaceutical distribution, beverage alcohol and wellness company. This filing covers the fiscal year ended May 31, 2023, not a standalone 2022 fourth quarter; results are compared with the year ended May 31, 2022. Amounts below are U.S. dollars.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net revenue | $627.1 million | $628.4 million |
| Gross profit / margin | $147.0 million / 23% | $116.8 million / 19% |
| Operating loss | $1,369.7 million | $610.4 million |
| Net loss | $1,443.0 million; $2.35 per share | $434.1 million; $0.99 per share |
| Adjusted EBITDA | $61.5 million | $48.0 million |
| Cash from operating activities | $7.9 million provided | $177.3 million used |
| Cash and marketable securities | $448.5 million | $415.9 million |
| Working capital | $340.1 million | $523.2 million |
Revenue was essentially flat, while gross profit improved as cost of goods sold declined. The reported net loss widened substantially, primarily reflecting $934.0 million of non-cash asset impairments and $246.3 million of non-cash write-downs of convertible notes receivable. Adjusted EBITDA is a non-GAAP measure and excludes significant items; it should not be treated as a substitute for GAAP results or cash flow.
- Revenue by segment: Cannabis $220.4 million, down 7%; distribution $258.8 million, essentially flat; beverage alcohol $95.1 million, up 33%; wellness $52.8 million, down 11%. Constant-currency total revenue increased 6% to $667.9 million.
- Segment trends: Cannabis revenue was pressured by competition, price compression and lower international sales; adult-use revenue included $40.4 million of HEXO advisory-services revenue. Beverage alcohol growth primarily reflected Montauk, acquired in November 2022. Wellness sales declined amid customer inventory reductions and slower sales following price increases.
- Margins: GAAP gross margin rose to 23% from 19%. Cannabis adjusted gross margin was 51%, but 40% excluding HEXO advisory revenue; beverage alcohol adjusted margin declined to 53% from 58%. Distribution adjusted margin rose to 11% from 9%, and wellness gross margin was 29% versus 30%.
- Liquidity and debt: Current assets were $773.0 million and current liabilities $433.0 million. At year-end, long-term debt had a net carrying amount of $161.0 million, convertible debentures payable $395.4 million and bank indebtedness $23.4 million. Contractual obligations listed $658.7 million of debt repayments, convertible notes and purchase/construction commitments, including $228.5 million due in FY2024. The company reported compliance with debt covenants.
Material changes and notable items
- Tilray acquired Montauk Brewing in November 2022 for approximately $35.1 million, with up to $18 million of additional contingent cash consideration tied to targets.
- The HEXO strategic alliance generated $40.4 million in advisory-services revenue and $7.7 million of interest income during FY2023. Tilray completed its acquisition of HEXO on June 22, 2023, after year-end, issuing approximately 39.7 million shares; it expects $25 million of additional synergies over the first two years after closing.
- The company recorded $603.5 million of cannabis goodwill impairment, $15.0 million of wellness goodwill impairment, $205.0 million of intangible-asset impairment and $104.0 million of capital-asset impairment. It also wrote down its HEXO and MedMen convertible notes by $128.6 million and $117.8 million, respectively.
- Cost actions included $22 million of annualized cannabis savings achieved against a $30 million plan and $6.2 million of annualized international cannabis savings against an $8 million plan. Tilray says it completed the $100 million Tilray-Aphria synergy target.
- Cash from operations improved from a $177.3 million outflow to a $7.9 million inflow. Management attributed the improvement to operating efficiencies, working-capital management and certain cash receipts, including a $33.0 million settlement receipt. Investing cash outflow was $285.1 million, largely reflecting purchases of marketable securities and the Montauk acquisition.
Outlook, risks and contingencies
The filing provides no quantified consolidated revenue or earnings guidance. Management emphasizes cash generation, cost reduction, profitable growth and selective investment. It expects international cannabis legalization to progress more slowly than previously anticipated, is reducing or idling production capacity to match demand, and is targeting further HEXO synergies. Management stated that available cash, marketable securities, operating cash flows and access to external funding should meet capital needs, while also noting that additional financing may be needed for growth and strategic transactions.
- Key exposures include cannabis price compression, illicit-market competition, excise taxes, regulatory and licensing uncertainty, and dependence on provincial and territorial purchasing decisions. U.S. federal cannabis remains illegal; hemp-derived CBD regulation is evolving.
- Further impairments remain possible. Goodwill and intangible valuations rely on forecasts and discount-rate assumptions; the auditor identified impairment assessment as a critical audit matter.
- Tilray reported litigation and arbitration matters, including securities and shareholder claims, a contractual dispute and a Cannfections arbitration. Management believes recorded reserves are appropriate and does not expect pending matters to have a material adverse effect, but states an unfavorable resolution could be material.
- Other risks include debt service and refinancing needs, potential dilution from equity-linked securities, currency movements, integration of HEXO, agricultural and supply-chain disruptions, and competitive pressures in craft alcohol.
Important facts for investors to verify
- Whether operating cash flow and adjusted EBITDA improve sustainably, and how much of the FY2023 improvement came from one-time receipts or non-recurring items.
- Progress toward HEXO integration and the $25 million synergy target, including the acquired business’s financial contribution and liquidity needs.
- Whether cannabis demand, pricing and facility utilization stabilize, and whether further inventory write-downs or asset impairments are required.
- Debt maturities, cash interest costs, refinancing terms and potential dilution from convertible notes, warrants and share issuances.
- Developments in material litigation and arbitration, and the assumptions supporting goodwill and intangible-asset valuations.
Reporting note: The filing’s audited financial statements received an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective as of May 31, 2023. Montauk was excluded from management’s internal-control assessment under the acquisition transition provision.