管理層發言
Thank you for joining today's conference call to discuss Tilray Brands' Financial Results for the First Quarter ended August 31, 2024. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session for analysts and investment firms conducted via audio. I will now turn the call over to Ms. Berrin Noorata, Tilray Brands' Chief Communications and Corporate Affairs Officer. Thank you. You may begin.
Thank you, operator, and good morning, everyone. By now you should have access to the earnings press release, which is available on the Investor's section of the Tilray Brands website at tilray.com, and has been filed with the SEC and the CSA. Please note that during today's call, we will be referring to various non-GAAP financial measures, that 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 those forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements. Today we will be hearing from key members of our senior leadership team, beginning with Irwin Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary, followed by Carl Merton, Chief Financial Officer, who will review our first quarter financial results for the fiscal year 2025. Also joining us for the question-and-answer segment are Denise Faltischek, Chief Strategy Officer and Head of International; Blair MacNeil, President of Tilray Canada; and Ty Gilmore, President of Tilray Beverages North America. And now I'd like to turn the call over to Tilray Brands Chairman and CEO, Irwin Simon.
Thank you, Berrin, and good morning, everyone, and thank you for joining us today. In the last five years, Tilray Brands has evolved into a new company. We no longer are just a Canadian cannabis LP. Tilray Brands has grown tremendously, and we're setting a new precedent for the CPG industry. Not only have we set the stage for a new era of consumer habits, Tilray Brands has pushed forward, disrupting the global CPG industry and revolutionizing consumer products. Tilray is at the forefront of innovation, pioneering and leading the convergence of beverages, cannabis, hemp, wellness, and distribution industries on a global scale. Our operations span over 20 countries and five continents with 44 consumer-connected lifestyle brands and 20 vertically integrated facilities that produce approximately 90% of our products in-house, ensuring the highest quality of our products. Tilray continues to lead with the number one cannabis business in Canada, leading medical cannabis business across Europe, the number one branded hemp business in North America, and the fifth-largest craft beer business in the U.S. Our success in building a new era of consumer products that resonates with today's discerning consumers and caters to their ever-evolving consumption habits and transforming the way consumers eat, drink and unwind with cannabis, hemp, and beverage products is a testament to our commitment on delivering innovative products that meets the needs of the modern consumer and drive growth across industries.
Moving on to Q1, we achieved our record first-quarter net revenue results, while strengthening our operations, increasing gross margin, and increasing our gross profit. We hit net revenue of $200 million, representing a 13% growth year-over-year. Our gross profit increased by 35% and gross margin increased by over 500 basis points compared to the prior year quarter. Our beverage business, including craft beer, spirits, and our new non-alc beers and other non-alcoholic drinks grew 132% in net revenue year-over-year. We strengthened our leadership position as the fifth-largest U.S. craft beer brewer with a 5% market share as a result of our craft acquisition from ABI. We recently launched a new beverage division called Tilray Alternative Beverages, focused on fueling key markets across the U.S., with innovative federally legal, hemp derivative Delta 9, THC branded, and branded products. This is an exciting new segment for us, and our network of distributors, which I'll get into in more detail shortly.
We focused our cannabis business on strengthening our operations and increasing our margins, leading to a gross profit increasing by 22%. We continue to lead the branded hemp food industry with a 52% branded market share, with Manitoba Harvest in the U.S. and the Canadian market share of nearly 80%. And our financial foundation remains strong with a robust balance sheet, ample cash reserves, reduced debt levels and flexibility to explore potential new acquisitions. Our financial strength enables us to pursue new opportunities and capitalize on emerging trends in the market. Let's now dive deeper into each of our business segments. Starting with Tilray Beverages. Today, our Beverage division leads with 19 iconic brands, ten network manufacturing facilities and over 700 distributors, 20 brewpubs and restaurants, and leading sales and marketing teams across the U.S. Our beverage strategy is focused on growing our portfolio brands in selected states, regional markets and ensuring product excellence and innovation, driving focused scale, expanding targeted distribution to increase our market penetration and consumer access.
In our Beverage segment we generated $56 million of net revenue in Q1. Across our growing craft brands, SweetWater is the number one volume brand family in Georgia, multi-outlet and convenience stores. Montauk is the number one branded family in New York Metro, having increased at a rate of sale of 240 basis points year-over-year. And Tilray is the number one craft supplier in the Pacific Northwest, thanks in part to the continued success of 10 Barrel's Pub Beer, Shock Top remains a leading priority as we relaunch the brand's number one seasonal offering, Shock Top Pretzel. During Q1 and Q2, driving additional 5,000 distribution points in the last 45 days. The Pacific Northwest grew overall Shock Top distribution by 42% during the Q1, adding 1,100 new placements for the brand. In the Northeast, Montauk's flagship Wave Chaser IPA continues to post positive year-over-year volume distribution gains adding a net of 139 off-premise accounts during Q1.
Three of SweetWater's top 12-pack SKUs, 420 Pale Ale, OG IPA and the Hazy IPA all posted positive trends for Q1 trending a plus 7%, a plus 24% and a plus 17%, respectively. As we've mentioned before, our ambition is far beyond our current reach, as we continue our focus to become a dominant leading beverage business by leveraging and are strengthening our portfolio of beloved local craft brands, recruiting new customers, and activating more occasions, driving new growth across these brands. Additionally, we are innovating across adjacent categories, including flavored malt beverages, ready-to-drink cocktails, spirits, and also beyond alcohol, we will grow our non-alc beer category and expand further into water, energy and other categories. Our powerful college sports partnerships across the country will be leveraged to bring new LDA consumers and fans into different brand families, especially Shock Top.
Separately, our MLS music events and local community partnerships allow our brands to recruit and retain our core customers across different age groups. We have the manufacturing facilities, the distribution, the sales and marketing infrastructure to drive tremendous growth in the Tilray Beverages business. In the non-alcoholic segment, Montauk non-alc craft beer is now sold in 650 counts and new brand, Runner's High Brewing Company has launched in the Southeast with three brews; Runner's High Golden Wheat, Raspberry Wheat, and Dark Chocolate, with several expansion markets to follow. With over 700 beer distributors, Tilray is now a leading supplier in key regions across the U.S., with regional jewels in the Northeast, Pacific Northwest, Colorado, Texas, Michigan, and the Southeast. With each beverage acquisition we've made over the past few years, SweetWater, Green Flash, Alpine, Montauk Brewing, the craft acquisitions from ABI and most recently, the acquisitions of our four brands in Molson Coors.
We are laser-focused on operational efficiency, optimizing cost structure, and getting the margins of the acquired brands up above 40%, like SweetWater and our other legacy businesses, we've identified additional growth opportunities in our beverage business. Tilray Beverage is going after category diversification and we've identified four categories. We expect to generate $30 million in revenue by the end of fiscal 2025. These four categories include: light lagers, $117 million category; flavored malt beverages, a $4.7 billion category; sparkling water, a $12 billion category; and the non-alc brew, a $445 million category. With our recent launch of Tilray Alternative Beverages, we are focused on fueling the U.S. with Hemp-Derived Delta-9 beverages, which is an estimated $2.8 billion market in the U.S. We're beginning to launch our Hemp-Derived Delta-9 THC brands and products in key states including Florida, Texas, Louisiana, Minnesota, North Carolina, South Carolina, Ohio, Georgia, Alabama, Oklahoma, and Tennessee with distribution driven by our existing and robust beer distribution network.
Our initial portfolio of HDD9 brands include Happy Flower, Herb & Bloom, 420 Hops, Fizzy Jane and we expect to launch additional brands by the end of this calendar year. Happy Flower is currently available online through Drink Happy Flower. The growth of Hemp-Derived Delta-9 THC drink business in the U.S. is remarkable. And we are excited to see its potential for our beer distribution network who are eager to jump into the business and already have begun placing orders. We look forward to sharing more updates on this development soon. Turning to Tilray Cannabis. In Canada, Tilray continues to lead the Canadian market share by almost 170 bps over the next competitor and have been consistently at the top of the industry for the past three years. From a regional perspective, Tilray is number one across British Columbia, Alberta, Ontario, and Quebec. These provinces combined include over 86% of the Canadian population.
We've also led in all other markets combined. In adult-use recreational cannabis, we focus on margin improvement across our portfolio brands and products resulting in improved adjusted gross margin by 500 basis points in Q1 versus last year. The margin improvement, partnered with efficient utilization, production, and further cost savings initiatives will allow us to grow our revenue, profitability, sustainability well into the future. In Q1 20% of our net sales revenue came from new innovation. Our mainstream Flower business continued to grow, because of our strong genetics. Our Redecan brand moved up to the number six position brand in Canada as reported by Hifyre data. In Beverages, Tilray continues to dominate the beverage category with a 45% market share, and at the end of August, with XMG, Mollo, THC beverage brands being the number one and number two brands, respectively. Tilray shipped 78 metric tons of biomass, or approximately 25% of the implied Canadian market volume in Q1.
We continue to leverage the wholesale channel where contribution margins are better and supply is starting to balance. On an adult-rec we shipped 16 million pre-rolled cones and over 2.1 million cans of beverages in Q1. Turning to our International business in Q1, we continue to execute against our three basic initiatives. First, the acceleration of growth in Germany. In Germany, since the Cannabis Act went into effect on April 1, 2024, we've seen a 50% increase in medical flower sales, as well as a 22% increase in medical cannabis extracts, where we already have a dominant share of the market, and we believe that our current positioning in Germany provides us with several unique competitive advantages to capture a significant share of the expected medical cannabis market, which is projected to be approximately $3 billion in the medium term. We expect to continue our growth in this very important market through commercial excellence and increased supply.
We will continue to leverage the expertise and relationship of our CC Pharma / Tilray Pharma distribution business in Germany, which supports our medical cannabis business through its network of 13,000 pharmacy and wholesalers. Second, the bifurcation and differentiation of physician-led and patient-led channels. As a market leader in the physician-led channel, we're turning our focus to accelerating our growth in the patient-led channel. One of our major initiatives in this regard is improving the availability and the quality of our medical cannabis supply to meet needs of patients-led channels by creating a flexible and diversified supply chain focused on high-quality flower and new innovation. At Aphria Rx, our German cultivation and processing facility, we received the very first commercial cannabis cultivation license and commercial distribution license issued in Germany under the new regulations.
These new license granted Tilray the ability to cultivate, produce, and distribute premium quality medical cannabis, with the ability to increase our production by approximately 5 times. Aphria RX can now fully utilize and maximize its growing capacity while also expanding its genetics to a total of 31 approved strains from the previously approved three strains. We've already completed our first harvest under new cultivation license. We expect to commercialize these products in Q2. We've also begun to supply our international markets with EU GMP-certified medical cannabis products from our Canadian facilities. With medical cannabis from Aphria Diamond launching in Poland and Broken Coast and Redecan launching in Australia. We expect to launch additional cultivation from Broken Coast and Aphria Diamond in the coming months. And finally, we'll continue to identify and enter new markets with the potential to generate material revenue and profit opportunities.
We expect European opportunities could represent a potential $45 billion medical market over the long term. And with our presence in Europe, it allows Tilray to grow our global brand portfolio to a base of over 700 million people in Europe, which is twice the population in the U.S. Finally, let's discuss our Tilray Wellness business, focused on improving people's lives through the power of hemp. Tilray Wellness is represented mainly by Manitoba Harvest, our leading hemp brand with over a 53% market share in branded hemp products. Wellness is also comprised of Happy Flower beverages and HiBall energy drinks. In Q1, Tilray Wellness delivered 11% net revenue growth compared to the prior year, driven by strong core business sales coupled with hemp innovation and the expansion into wellness beverages. A strong focus on cost helped the business improve margins, delivering a 300 basis point increase in gross margin to 32%.
As Tilray Brands has transformed, expanded and completed numerous acquisitions to get where we are today, our mission has evolved to be a leading premium lifestyle company with a house of brands and innovation of products that inspire joy, wellness, and create memorable experience. With that, I'll now turn the call over to Carl to discuss our financial results in greater detail. Carl?
Thank you, Irwin. As a reminder, our financial results are presented in accordance with U.S. GAAP and in U.S. dollars. Let's now review our quarterly performance for the three months ended August 31, 2024. In Q1 net revenue was $200 million, a 13% growth rate compared to the previous year quarter net revenue of $177 million. As Irwin stated, our Q1 net revenue was a record amount. In constant currency, net revenue grew to $204 million. By segment, beverage alcohol net revenue increased 132% to $56 million. Cannabis net revenue was in line with expectations at $61.2 million as a result of our strong focus on margins and strategic growth in key markets, which I will discuss in a moment. Distribution net revenue was flat and wellness net revenue rose 11% in the quarter. From a segment perspective, 28% of our net revenue was generated by our beverage alcohol business, 31% was generated by our cannabis business, 34% by our distribution business, and 7% by our wellness business.
This compares to 13% in beverage alcohol, 40% in cannabis, 39% in distribution, and 8% in wellness in the prior year quarter. The year-over-year variance is due to our craft beverage acquisition, which occurred in Q2 of last year. Gross profit increased by 35% to $59.7 million compared to $44.2 million in the prior year quarter. Gross margin increased to 30%, and over 500 basis point increase from the prior year period. Adjusted gross profit increased 21% to $59.9 million from $49.3 million in the prior year, while adjusted gross margin increased by 200 basis points to 30%, primarily reflecting our focus on improving our utilizations at our beverage alcohol facilities and favorable sales mix. Net loss improved by 38% to $34.7 million compared to a net loss of $55.9 million in the prior year quarter. On a per share basis, this amounted to a net loss of $0.04 per share, which was a 60% improvement compared to a net loss of $0.10 per share in the prior year quarter.
Adjusted net loss was $6.1 million compared to an adjusted net loss of $27.1 million in the prior year quarter, a 78% improvement year-over-year with adjusted net loss per share coming in at negative $0.01 per share, a significant beat compared to expectations of negative $0.05. Adjusted EBITDA was $9.3 million compared to $10.7 million in the prior year quarter. We are now approaching six consecutive years of generating positive adjusted EBITDA. The decrease in adjusted EBITDA from the prior year quarter is primarily related to building infrastructure and an increased investment in marketing and promotions at Tilray Beverages. Cash flow used in operations was $35.3 million compared to $15.8 million in the prior year quarter. Adjusted free cash flow was negative $39.5 million compared to negative $6.3 million in the prior year quarter as a result of an increased demand on our working capital in our beverage operations as we moved from the payment terms under the co-manufacturing agreements to our own payment terms after integrating production.
Turning now to our four business segments. Beverage alcohol net revenue was $56 million, up 132% from $24.2 million in the prior year. The positive delta was due to contributions from the craft brands which were purchased during Q2 of last year and new innovations across our brand portfolio. Through our expanding footprint, we now own and operate 20 brewpubs/restaurants in the U.S., that are in close proximity to the production of our craft brands. In the quarter these operations contributed $11 million of revenue, and we expect them to be a key part of our strategy going forward allowing us to increase brand visibility and gain an intimate understanding of our key consumers. Beverage alcohol gross profit increased to $22.9 million compared to $12.9 million and adjusted gross profit was $23.1 million compared to $13.5 million. While Beverage alcohol gross margin was 41% compared to 53%, and adjusted gross margin was 41% from 56% from the prior year quarter.
Due to the seasonality of our Beverage business, our third quarter ended February 29, 2024 is our most comparable period, reflecting the newly acquired craft brands to which we improved adjusted gross margin by over 300 basis points as a result of our efforts in integrating and optimizing our facilities as well as a favorable product mix. As we mentioned at year-end, the new craft brands were initially subject to co-manufacturing agreements, inhibiting our ability to optimize production and control costs in a manner sufficient to increase our gross profit and margin. Effective May 31, all the co-manufacturing agreements except for production of Shock Top ended and the production of the brands were in-house, with Shock Top's production expected to be integrated into our production facilities in Q2. As we integrate production in-house, we are able to better optimize production utilization in our facilities, decreasing unabsorbed overheads as well as achieving purchase price synergies now that we are purchasing the raw ingredients.
Gross cannabis revenue of $81.2 million was comprised of $57.2 million in Canadian adult-use revenue, $12.2 million in International cannabis revenue, $6.3 million in Canadian medical cannabis revenue and $5.5 million in wholesale cannabis revenue. Net cannabis revenue, which includes $20 million in excise taxes was $61.2 million, representing a 13% decrease from the year-ago period. Revenue from Canadian medical cannabis grew 2%, despite the category being impacted by competition from the adult-use market, while revenue from Canadian adult-use decreased 20%, which was a result of our increased focus on preserving gross margin and maintaining a higher average selling price in categories that have experienced a high degree of price compression. International cannabis revenue decreased by 14%, which was largely driven by variability on the timing in countries other than Germany of receiving import and export permits, resulting in fluctuations on a quarterly basis.
As Irwin said already, in the five months since legalization versus the five months before legalization, our Flower revenues in Germany are up 50%, and our extract sales are up 22%. As I mentioned, cannabis net revenue was in line with expectations at $61.2 million, but down $9.1 million versus the prior year. As we focus on our goal of improving cannabis gross margins, we are intentionally less focused on share and revenue in certain categories, particularly those categories facing the most price compression, including infused, pre-roll, and vape. Despite the decline in net revenue and share in those categories, we increased cannabis gross profit by $4.4 million and increased adjusted cannabis gross margin by over 500 basis points from the prior year period. Cannabis gross profit was $24.2 million and cannabis gross margin was 40%. Adjusted cannabis gross profit was $24.2 million compared to $24.3 million in the prior year quarter.
The gross margin increase was driven by our International cannabis business, and in Canada, our continued focus on maintaining a higher average selling price and selling a favorable product mix to improve adjusted gross margins by 500 basis points. Distribution net revenue derived predominantly through Tilray Pharma was $68.1 million, compared to $69.2 million in the prior year quarter. The decrease in net revenue is attributed to the effects of foreign exchange. On a constant currency basis, revenue from distribution increased to $70.4 million for the three months ended August 31, 2024, compared to revenue of $69.2 million for the prior year period. Distribution gross profit increased to $7.9 million compared to $7.7 million in the prior year period. While distribution gross margin increased to 12% from 11% in the prior year quarter, because of product mix. Wellness net revenue grew 11% to $14.8 million from $13.3 million in the prior year quarter.
The increase was driven by our strategic focus on continued innovations and strong organic growth within our branded hemp business related to higher consumption. Wellness gross profit was $4.7 million, up from $3.8 million in the prior year quarter, and gross margin rose to 32% compared to 29%, a result of decreased input costs and continued operational efficiencies. Our cash and marketable securities balance as of October 31 was $280.1 million, up from $260.5 million at year-end. This change was a result of our temporary increase in working capital dependence, offset by the funds raised from our ATM. Since its initiation, we have raised $94.5 million on our ATM, which we intend to use for strategic and accretive acquisitions, including capital expenditures for acquired businesses. Let me now conclude our prepared remarks and open the lines for questions from our covering analysts. Operator, what's the first question?
分析師問答
Our first question comes from Kaumil Gajrawala with Jefferies. Please go ahead with your question.
Hi, guys. Good morning. Can I ask a bit about the Canadian adult-use market and just how volumes are trending?
I missed that last comment -
Yes, how are volumes trending in Canada?
Blair is on the phone. I'll let him jump in a second. But I think the big thing which you see in Canada, how we've improved our margins there tremendously, and with Canada now being legal for five years, there's a lot of LPs that have come and gone and with us having 5 million square feet in Canada and being one of the largest and being the number one, there's a lot of volume, but the volume we're going to go after is profitable low volume and there's sales that we'll give up for. In the period, we introduced a lot of new products, a lot of new innovations. And what we've done with our facilities in regards to our yields, in regards to some of the products that we're doing today and the amount of pre-rolls, we sell over 80 million pre-rolls a year. We sell over 350 metric tons of flower a year. So volume is absolutely dependent, but it's profitable volume. Blair, you want to add anything to it?
Yes. Thanks, Irwin. And good question. In the industry overall, I would say, dollar volume is, as Irwin just talked about, compressed by some of the growth in those categories. But dollar volume is up 4.5% to 5% overall. If you look at the kgs shipped or the volume overall, the category is growing at 9% to 10%. So, we're still seeing healthy amounts of consumers come into the categories. We're seeing healthy amounts of growth in the business. I think what you're seeing is the offset of price compression. What we've made on choices that you heard in the results from Irwin and Carl is to not play as aggressively in those distillate and distillate-infused categories, which are margin challenged. So overall, I would say, the business is very healthy on the overall industry from a volume standpoint and a dollar volume standpoint still growing at about 5% on the dollar side. And then on the Tilray side, we're being very choiceful on how we balance our margin and our volume.
Got it.
I think the big important thing is to realize is a couple of things. Number one, where you still pay a flat excise tax in Canada, you heard Carl say, we pay over $20 million in excise tax in the quarter. We pay close to $150 million for a full year. There's still definitely some price compression, but we're not going to play in areas where it's just all about price. And that's the big focus. The other thing is, our teams have done a great job of taking costs out and getting the yields on our grow, getting the yields on our products, and educating consumers. They're going to have to pay a little more for the quality products they're getting.
Got it. Useful. And then maybe just update on where we are on price compression and maybe the balance of supply?
So let me just come back and say to this here. The interesting thing, as you go back and look over the last three years, we probably, in Canada, lost well over $200 million on price compression. And I'm not making excuses, that number drops to your bottom line. If you come back and look at ultimately excise tax being cut, and it was half, there's an extra $50 million, $70 million. So I think we're seeing price compression stabilize. In regards to inventories, with our growth today in our yields, and us ultimately balancing and right sizing our facilities, I think we're in a great state, a great place today in regards to what our inventories are. And the market continues to change dramatically in regards to potency. And that is a big thing today, it's amazing, and they're looking for 30% plus potencies today. And if you can grow it, you can sell it. And I think that's what's important, and we got caught a little on potencies on our good supply, and we saw some great growth in the quarter with regards to higher potencies in our good supply brand.
Great. Thanks, guys.
And the last thing I want to mention is that it has been five years since cannabis became legal in Canada, with the anniversary coming up on October 18. Consumers are now well-informed, and we've built our brands from the ground up. Our good supply brand is over a $200 million brand at retail, and consumers today understand quality, potency, genetics, and the origin of the product. Tilray has done an excellent job ensuring we provide great products. However, we still face many restrictions regarding packaging, advertising, and how we communicate with our consumers.
Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.
Hi, good morning, and thank you for the question. So, first, I just want to talk a high-level one in terms of how you're thinking about investing in the business and also driving profitable growth. You laid out a number of initiatives throughout the business. So I wanted to talk about how you're thinking about that. And then EBITDA growth throughout the year was down a bit in the first quarter. So how best to think about the levers and the cadence of EBITDA and what we should be thinking about for the rest of the year? Thank you.
So, number one, we come back, and this probably is one of our lowest quarters in the year. There's seasonality, which I don't think everybody looks at. There's also acquisitions, like in this quarter, there's nothing on the Molson Coors acquisition that we closed in early September. And in regards to rolling out new products, there's timing on that. In regards to our Delta-9 products in our beverage division, in regards to our non-alc, in regards to our Liquid Love, in regards to some of our other new products. So again, there is seasonality and there's timing on a lot of the new products in regards to the distribution of white space. The other big thing that's not in here is a lot of the costs that we're still taking out of this business with the integration of the ABI brands, a lot of costs still coming out in regards to our Canadian business. And in Europe, there's a lot happening there with Germany. Our flower business was up since the announcement of the new regulations in flower, Germany almost 50%. There's a time elapse of when we get products into the marketplace. There's a time elapse when products are shipped into the Poland market and some of the other ones. So a lot of it is just from a timing standpoint and the seasonality and our new products rolling out.
Okay, thanks, Irwin. That's helpful color. Second question for me, just on the Hemp-Derived THC beverages. You laid out a number of states in your prepared remarks. You had previously said two states. I just want to clarify, those states in your prepared remarks are those where you'll be distributing at brick-and-mortar or just DTC? And then secondly, just on Hemp-Derived beverages, how best to think about the ramping with brick-and-mortar and the impact of bills that have been introduced and the broader farm bill, which looks like it might be delayed another year, and how that's impacting broader distribution? Thank you.
Regarding Delta-9, our primary focus will be on brick-and-mortar sales. We have already received our initial orders, and most of the product will be distributed through retailers and our beer distributors. While some sales will be direct-to-consumer, currently there are 19 states where this product is permitted. We are enthusiastic about the existing orders and the product demand, with more offerings on the way. We plan to launch five excellent products, which will primarily be available at retail and via our beer distributors, while some will be sold directly to consumers through our Happy Flower brand.
Okay, great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.
Good morning, everyone. Appreciate a lot of the commentary on sort of individual markets in Europe and how things are progressing on the regulatory front and even with respect to some demand. But I'm just curious, without getting into too specific, into the nitty-gritty of any numbers or anything, but if you look at your international contribution, both exports, boots on the ground, it's been run rating at close to about $50 million for a little while now. And I'm just wondering if any of these changes on the regulatory front are expected to have a meaningful impact on that contribution by the end of your fiscal year?
Well, I'll let Denise jump in here for a second, but I got to tell you, you've heard what I said in Germany, since the changes in regulations, our flower business was up almost 50%. And in regards to supply, and that's been some of our biggest constraints here some supply, we supply from our Canadian operations, we supply from our Portugal and some of the changes that we now have in Germany where we can sell out of our German facility where before we only could sell through the German government. So there's a lot of pieces in place, but listen, there's only 20 different countries that allow medical cannabis in Europe. And I think there is some tremendous opportunity to see the size of the category in billions. The demand is there. Denise, do you want to add to what I said?
Yes, thank you, Irwin, and I appreciate your question. I want to address the point about our operations running at $50 million for the past few years, as I believe we've seen significant growth year over year, especially since the Tilray acquisition up to our reported numbers from last year. We anticipate substantial growth in this year's market. By fiscal year '25, as Irwin pointed out, we expect a 50% increase in our flower business and 22% in our extract business, where we already hold a considerable market share. As Irwin mentioned earlier, we are experiencing some timing issues with import-export permits in certain countries, where we ship directly to distributors instead of using our own warehouses, which can create some variability. Therefore, it's crucial to evaluate our business on an annual basis rather than quarterly to gain a complete understanding.
Okay, got it. Appreciate all that. And then I just wanted to sort of more of a general question, but just given some of the growth headwinds in the domestic Canadian market, obviously, there's been a lot of attention paid, and you guys have done a lot of good strategic initiatives, whether it's International or Beverage alcohol. But on the Wellness side of things, I'm just curious if there's any sort of M&A opportunities you think within there, or do you think this is more of a sort of organic growth story from the exposure you guys already have?
In terms of Wellness, there's a significant influx of medical users in Canada who are transitioning to recreational purchases. We are heavily focused on the medical side, recognizing the substantial demand for our products in treating conditions like anxiety, sleep disorders, pain, and epilepsy. This presents a major opportunity for us in the medical field. We're indeed considering potential acquisitions in this area as part of our strategy. Our research commitment to the medical sector is substantial, especially as we are the leading medical producer in Europe. We are gaining valuable insights through collaboration with universities, and we will be working with our teams from Canada and Europe next week on various initiatives. Overall, the medical aspect is crucial for our growth and holds significant importance in the Canadian market.
Okay. Thanks all.
Thank you. Our next question comes from the line of Bill Kirk with ROTH MKM. Please proceed with your question.
Good morning. I don't think I heard the fiscal '25 revenue guidance, which had been $950 million to $1 billion. Is that still the expectation for the year? And then, if I recall, that guidance had included some M&A, some expectation for some M&A, was the recent acquisition of the brands from Molson Coors, the M&A that was contemplated in that guidance, or is there still more implied?
So that was the guidance for the year. There is some M&A in there. We have not updated our guidance to include the Molson's acquisition.
Okay. So the range is still $950 million to $1 billion?
Exactly.
Okay. And then on the International side, like I understand that it's up over a few years, it has been in that like, $11 million to $14 million on a per quarter basis for a little while, despite new positive developments. So, like what's offsetting the new positive developments in kind of on a more narrow timeframe?
Thank you for the question. The international business has seen some changes, so it's not an exact comparison to previous figures. A couple of years ago, Israel contributed significantly to our revenue, but about a year and a half to two years ago, we decided to discontinue our operations there due to market conditions, including product saturation and price declines. This made it unprofitable for us to continue those sales, which had been substantial. In response, we have looked to expand into new markets, launching operations in Poland, the U.K., Italy, and Portugal, with plans to enter additional countries in the future. As Irwin noted, our Canadian business is relatively new, and our European operations are still in the early stages of development. Therefore, this business is just beginning to grow and show potential. We remain optimistic about its future, and as Irwin mentioned, we have already made investments and will continue to do so.
There have been some currency effects in Europe that have impacted us, but Denise highlighted that Europe is very profitable for us. This focus on profitability is crucial. Germany, being our largest market, faced restrictions where we could only sell to the German government at a loss. However, we have now renegotiated that tender. Each country has its own legal and regulatory framework, making it challenging to expand in Europe. We've even abandoned some markets, such as Israel, which was once significant for us. Despite these challenges, there are significant growth opportunities. Currently, we mainly sell flower and tinctures, not a wide variety of products. We strive for Europe to be a key market; we are currently the largest cannabis grower in Europe and have established infrastructure. While growth might be slower, the profitability in this market is important to us. We are also vertically integrated with our distribution through drugstores. So, although it’s not expanding rapidly, it remains a very profitable business for us.
Those details were great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your questions.
Thank you. Good morning. Just wanted to come back to the Delta-9 beverages. It's been tough in the cannabis space at least, really, building brands that kind of parallel to how they've developed in other categories. And so this is an interesting case to see how it plays out. But I guess with that in mind, you have four brands, I think you mentioned, you've got teed up and more to come. Why so many? And how do you plan to develop those and set them up for sustainable growth?
So, number one, the brands are developed, and again we've had Happy Flower out there for a long time with CBD 420 is one of our brands that are known. Two or three of our other brands have some uniqueness to them. So, again, with our five different products out there, it gives us differentiation in products, it allows us to have multiple products out there. And so far, everything we have shown retailers, distributors, they've liked, and we got quite a few orders. So, yes, 420 is a brand that's well-known out there. Happy Flower has been out there. We have to build some of our other brands out there, and we've done that before, as we've come out with new products in regards to Runner's High, which is our non-alc beer and our Montauk non-alc beer, our Liquid Love is our water brand that's coming out there. Our Delta-9, our new brand. Listen, the big thing is out there. We got products. We've developed these flavors.
We developed these products from scratch. We got 700 distributors out there, and these distributors want it now, we only can sell it in the states that is legal. And we got field salespeople out there on the street that will make sure we get this product in the hands. The last but not least, which is important, how do we market that to the consumer? And that's what's important for us to make sure we're getting the message across to the consumer. There's some really good products that we're coming up with.
Okay, I'm sorry, go ahead.
No, I just stopped. Sorry.
Yes, that’s helpful. Regarding the integration of beer production and the increased flexibility, how significant could that be and how quickly could it come into play? Should we consider the possibility of consolidating some facilities, and what can we expect in the next few quarters in terms of its impact on your numbers?
So, no, good question there. Listen, we're in a category today where the craft beer industry is declining 3%, but there's $100 billion worth of beer sold out there. So it's not like a small category. So there is tremendous opportunities in the craft beer business, okay? And with that, we think we can go out there and take share with innovation, with some of the new products that we've launched. We think we come back and look at whether it's the non-alc industry that's growing tremendously within Delta-9. The other thing is, we're going back to each of our brands today. We have 19 brands out there, and we're looking at these brands where they should be sold regionally and what should be a national brand. Shock Top definitely should be a national brand. But if you take Montauk, you take Blue Point and take SweetWater, and you focus them sort of in the Northeast, New York, New Jersey, Connecticut, Pennsylvania, maybe Florida, that's over 100 million people that we can market our brands to.
We don't need to be in every single state out there and ship 10,000, 20,000 cases there, spend money on it where we're not going to get the lift. If you come back and look at SweetWater, SweetWater grew a 2.5 million, 3 million case brand. But it went into certain states, whether it's Ohio or Illinois, it didn't make sense in those states, California. So what we're going to do is take these brands, focus on three, four, five states, put our money behind them, work with the distributors, educate the consumers about them, and then take our national brands like a Shock Top. And the other thing, what we're going to look at this here, if we have a pumpkin beer, we'll have pumpkin beer in similar flavors for Montauk, for Blue Point. We're not going to have all these multiple different formulas out there with a lot of complexity. So we're looking at how we take our tail of our brands. We're looking at how to take complexity out of our business.
We're going to do some SKU rationalization. And with this, it will optimize and right-size our footprint and the buying power today with over 15 million cases of beer that we're buying. And if we have to consolidate some of our facilities, which we're right now looking at, we ultimately will, but we really feel, you know, within a matter since 2020, we're now the fifth largest craft brewer out there with a 5% share out there. And we think we can get this category growing again through our innovation, through our distribution. And I got to tell you, working with distributors out there, they all want to see growth, they all want to see new innovation, they want to see products. And the same with the retailers. The retailers are looking at there's way too many brands, way too many products, how do we ultimately get this category growing, because it takes up too much space in stores.
Okay. Thanks so much.
Thank you. Our next question comes from the line of Pablo Zuanic with Zuanic & Associates. Please proceed with your question.
Thank you. Good morning, everyone. Irwin, maybe can you give us an update in terms of how you're thinking about U.S. plan touching assets? We've seen other companies that set up ring fence structures, Canopy USA, SNDL with SunStream, OGI has talked about that also. I mean, there's been more consolidation, and we would come to a point that there won't be much left to buy. So how do you handicap that? And how do you think about, you know, doing something similar in the current context of regulation?
I believe that the positive aspect is both presidential candidates support legalization. Regarding rescheduling, recommendations are expected in December, and I anticipate progress on that front as well as federal legalization, possibly starting with medical cannabis, leaving the rest to the states. If we reflect on our experience post-legalization in Canada, we scaled our business to over $300 million from scratch. We developed grow facilities, created brands, and established vertical integration. Currently, we rank among the largest growers, with nearly 5 million square feet of cultivation space, and we possess extensive knowledge in cannabis production. This year, we expect to sell nearly 9 million cans of cannabis-infused drinks. We have the expertise and the capabilities, being one of the largest medical cannabis companies in both Canada and Europe. Therefore, we are prepared to operate independently in the U.S., depending on the regulatory landscape.
Additionally, our strong balance sheet positions us well to seek out a strategic partner. In the U.S., we have 18 or 19 beer brands, several spirit brands, and our wellness brand, Manitoba Harvest. We need to consider if these brands can transition into the cannabis sector, as we are currently doing with Delta-9. In my view, cannabis will eventually be legalized, and we are ready to act accordingly when the opportunity arises.
Thank you. And one last one, maybe for Denise, just going back to the discussion in Germany, maybe using some Michael Porter's terms here, but maybe remind us of your competitive advantage there, your competitive assets, your asset strengths. What are the barriers to entry? Because what I hear, there's all these licensed importers that are able to bring products, we saw a big jump apparently in imports in the second and third quarter, and then they are able to go to doctors, promote those products, and sell them to the consumers, right? So I don't know if I want to see more fragmentation as opposed to consolidation in Germany. But I'm sure you have assets on the ground that give you an advantage. But I'm just trying to understand how the German market plays out in terms of fragmentation versus consolidation. Just importers versus local producers. And what's your edge? And why should we assume that you are better positioned than others? If you can just mention that. And as part of that, a quick reminder, if you produce, if you jump production in Germany by five times, I suppose that replaces Portugal or Canada, does that mean that you end up with a higher cost structure? Thank you.
Thank you, Pablo, and I appreciate your question. I also want to revisit the previous inquiry because I neglected to mention that our year-over-year growth from FY24 to FY23 in the European market was 34%. Regarding Germany, you are absolutely correct about our strong position there and in Europe overall. We have the Aphria RX facility, and with our new license, we can operate at full capacity, enabling us to produce five times more than we could under the previous tender. Additionally, we have expanded our production capabilities from three strains to 31 cultivars. I’m pleased to report that we recently shipped several high-performing Canadian cultivars to Neumunster, which we are also providing to both Portugal and Aphria RX to enhance our flexibility in supply chain and product availability for patients. With our facilities in both Germany and Portugal, coupled with our ability to deliver products from Canada, we likely have the most adaptable supply chain among cannabis companies in Europe.
While there are a few larger players in the German market and many smaller companies emerging, I believe we will eventually see some consolidation. However, our unique position includes a highly flexible supply chain and an efficient cost structure, maintained through our efforts to keep production costs low. Furthermore, we have an exceptional commercial team on the ground in Germany, backed by a knowledgeable sales team that enjoys a solid reputation among doctors and government officials. Being one of the first entrants into the German market has earned us trust and expertise, making us a preferred source of information for doctors looking to learn about medical cannabis and stay updated with the new regulations.
Thank you.
Thank you. Our final question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Hi, thanks. I wanted to ask about the quarterly results in beverage. I didn't catch if you mentioned whether the sales were in line with or a bit below expectations. I believe you said the cannabis sales were in line or better. Can you clarify how beverage performed compared to your expectations? The tracking data indicates the brands are slightly down. Do they just need some time for your new marketing and consolidation efforts to improve retail sales?
Thank you, Robert. While we don't provide specific guidance for our major businesses, we do have internal expectations and budgets. The beverage sector has underperformed slightly, primarily due to the timing of some new product launches and the pace at which distributors are able to take on these products. Another aspect I've mentioned earlier is our focus on optimizing the business, which includes SKU and brand rationalization, as well as identifying distribution opportunities. Additionally, there are timing factors related to customers adopting new products, including seasonal items and various others. The integration of some ABI brands into our operations has also affected timing. Overall, looking at our quarterly results, SG&A expenses have increased significantly within our beverage segment. However, as we continue to develop our infrastructure, expand our team, and manage the ABI business, we anticipate seeing benefits throughout the year.
We are optimistic about what we're experiencing and believe we are well-positioned with our brands, products, and innovations. Customer feedback has been positive, and we have high expectations for Delta-9, our non-alcoholic options, and Liquid Love. We are also looking forward to the new innovations coming from SweetWater, Montauk, and 10 Barrel, and although these are not yet reflected in our figures, we are excited about the growth potential from the recent acquisition of the four brands from Molson Coors. Overall, our beverage business is in a phase of early timing, but we have a solid plan in place, Robert.
Thank you.
Thank you.
Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Simon for any final comments.
Thank you very much, everybody, and thank you for joining us today. I'm incredibly proud and excited of what we've been able to put together over the last five-plus years. As you heard our guidance out there is $950 million to $1 billion of size, and that's coming from a startup basically at $50 million. Today, we have over 44 brands. We have 2,700 people that work within this company today. We have plenty facilities, we sell in over 20 countries, six different continents. And again, we are dealing in categories where regulation is important. There is no one company out there that does what we do as diversified as us. So it's not easy. And there's a lot of noise and a lot of news every day coming up about cannabis. As we sit here and wait, there's a lot of changes that got to happen. But again, the cannabis industry in the U.S. is over $40-plus billion in total size. So there's a big, big, big market out there.
You look at the total beer industry out there and the size just of the craft industry, there's a big business out there. You look at the wellness industry and some of the stuff that we're doing with hemp and that grew about 11% in the quarter. So we're well positioned. If you come back and look at our balance sheet, and that's something I think that's hurt a lot of other companies out there in the cannabis industry, is we really have managed our balance sheet, managed our cash situation, managed paying down debt. In our last quarter, we paid down over $300 million of our convertible debt. So we're focused on this and pulling all this together. Are we totally happy with our stock performance? No. But I don't think it reflects of what this company has done over the last five years and how we put together some great brands, great people, a great strategy, and how we're diversified out there.
And we're a global company in the CPG industry. So, I feel there's exciting times ahead. You have great brands, you have a really committed team. We have a tight, tight strategy out there. We have great partners with our distributors, our retailers, our consumers, who we're marketing to. And last but not least, our aim is to please our shareholders and reward our shareholders. With that, thank you very much and enjoy your day. Go Mets, go Yankees. And you go to Citi Field, you'll find our beer. You go to San Diego, you'll find our beers. So we want stadiums that are in the playoffs that are selling our beers. So with that, be safe out there, and thank you for joining us.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.