Tilray, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing was signed February 19, 2021. Although the request identifies “2020 Q4,” this is an annual report covering the full fiscal year. The company reported in U.S. dollars. Tilray’s business comprised licensed cannabis and hemp products.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $210.5 million | $167.0 million |
| Gross profit (loss) | $24.7 million | $(23.5) million |
| Gross margin | 12% | (14)% |
| Operating loss | $(201.1) million | $(304.1) million |
| Net loss | $(271.1) million | $(321.2) million |
| Adjusted EBITDA, non-GAAP | $(30.3) million | $(89.8) million |
| Cash used in operating activities | $(129.4) million | $(258.1) million |
| Cash and cash equivalents at year-end | $189.7 million | $96.8 million |
Revenue increased 26%. Cannabis revenue rose 25% to $133.6 million, led by adult-use and international medical sales; bulk cannabis sales fell to $0.4 million from $25.5 million as Tilray reduced low-margin sales. Hemp revenue grew 28% to $76.9 million, including a full year of Manitoba Harvest operations versus ten months in 2019. Revenue included $19.1 million of excise duties.
Reported cannabis gross margin was negative 3%, reflecting $34.4 million of cannabis inventory valuation adjustments. Excluding inventory adjustments, cannabis gross margin was 23% (a non-GAAP measure). Total inventory valuation adjustments were $38.4 million, down from $68.6 million. The company attributed improved operating loss and Adjusted EBITDA primarily to lower expenses, reduced inventory charges and higher sales against a lower cost base.
Q4 2020 revenue was $56.6 million, gross profit $16.6 million, operating loss $21.3 million and net loss $2.9 million. Q4 2019 revenue was $46.9 million, gross loss $57.0 million and net loss $219.1 million.
Liquidity, debt and capital
- Year-end current assets were $347.0 million and current liabilities $181.3 million; reported working capital was $165.7 million. Current liabilities included a $120.6 million warrant liability.
- At year-end, convertible notes had $277.9 million principal outstanding ($257.8 million net carrying amount); the senior secured facility had $50.5 million principal outstanding ($48.5 million net carrying amount). The notes bear 5% interest and mature in October 2023. The senior facility is interest-only until its February 2022 maturity and bears interest at Canadian prime plus 8.05%.
- In November, Tilray exchanged approximately $197.1 million principal of convertible notes for 17.3 million shares, recording a $61.1 million gain on debt conversion. The company also raised approximately $127 million gross through its at-the-market equity program and $85.3 million net from a registered offering.
- Cash used in investing activities was $41.7 million; financing activities provided $264.8 million. Management said its forecasts supported meeting working-capital, debt-payment and general liquidity needs for the next 12 months, while noting potential need for additional capital to fund growth and Portugal construction.
Changes, outlook and significant matters
- Tilray reduced headcount by 529 positions and reported approximately $57 million in annualized cost savings versus its Q4 2019 run rate. It said further cost actions could be considered.
- The company closed High Park Gardens in 2020, recording approximately $28 million of related impairment charges across the closure and subsequent reclassification of the facility. It retained the property for possible future use.
- Tilray agreed to acquire Aphria in an all-share arrangement: each Aphria share would be exchanged for 0.8381 Tilray Class 2 shares. Closing was expected in Q2 2021, subject to shareholder, court and regulatory approvals; the filing provides no formal financial guidance for FY2021.
- COVID-19 affected retail access and medical-patient registrations, and created uncertainty around demand, supply chains and construction. Tilray reported its production facilities continued operating at normal levels at the time of filing.
- Risks include continuing losses and negative operating cash flow, customer concentration (three customers represented 45% of FY2020 revenue; four customers represented 87% of adult-use revenue), cannabis oversupply and pricing pressure, regulatory uncertainty for U.S. hemp-derived CBD, and significant litigation and arbitration. The filing describes, among other matters, a supplier arbitration involving a disputed $59.8 million purchase demand and a Canadian cannabis-labeling class action seeking $500 million in damages and $5 million punitive damages. Management said no legal claims met its accrual criteria at year-end, while acknowledging unfavorable resolutions could be material.
- The financial-statement audit opinion was unqualified. However, management and the auditor concluded internal control over financial reporting was ineffective due to a material weakness in control activities, including balance-sheet reconciliations, manual journal entries, inventory spreadsheets, and review and segregation-of-duties gaps in Portugal and Manitoba Harvest. Disclosure controls were also deemed ineffective.
Investor verification priorities
- Confirm the Aphria transaction’s completion, final terms, approvals and resulting share dilution.
- Track operating cash burn, cash availability, debt maturities and the conditions attached to the secured facility and outstanding warrants.
- Assess whether revenue growth translates into sustainable gross margins, particularly after inventory write-downs and changes in product mix.
- Verify remediation and auditor reassessment of the internal-control material weakness, especially inventory valuation and close-process controls.
- Monitor the material legal claims, supplier commitments, customer concentration and any additional impairments or cost reductions.