UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, November 30, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38594
Tilray, Inc.TILRAY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 82-4310622 | |
(State or other jurisdiction of incorporation or | organization) | (I.R.S. Employer
|
1100 Maughan Road
Nanaimo, BC, Canada, V9X IJ2
655 Madison Avenue, Suite 1900
New York, NY
10065
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (844) 845-7291
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Class 2 Common Stock, $0.0001 par value per share |
| TLRY |
| The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☒ |
| Accelerated filer | ☐ | |
Non-accelerated filer |
| ☐ |
| Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of May 7, 2021,January 4, 2022, the registrant had 447,371,310466,522,611 shares of Class 2 Common Stock,common stock, $0.0001 par value per share, issued and outstanding.
Table of Contents
|
| Page | ||
PART I. | 1 | |||
Item 1. | 1 | |||
|
| 1 | ||
|
| 2 | ||
|
| 3 | ||
| 4 | |||
| Notes to | 5 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| ||
Item 3. |
| |||
Item 4. |
| |||
PART II. |
| |||
Item 1. |
| |||
Item 1A. |
| |||
Item 2. |
| |||
Item 3. |
| |||
Item 4. |
| |||
Item 5. |
| |||
Item 6. |
| |||
| ||||
44 |
i
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended November 30, 2021 (the “Form 10-Q”) contains forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”” might,” “plan,” “project,” “will,” “would” ”seek,” or “should,” or the negative or plural of these words or similar expressions or variations are intended to identify such forward-looking statements. Forward-looking statements include, among other things, our beliefs or expectations relating to our future performance, results of operations and financial condition; our strategic initiatives, business strategy, supply chain, brand portfolio and product performance; the COVID-19 pandemic; current or future macroeconomic trends; and future corporate acquisitions and strategic transactions.
Risks and uncertainties that may cause actual results to differ materially from forward-looking statements include: our ability to successfully complete the integration of the businesses of Tilray and Aphria; challenges and uncertainty resulting from the COVID-19 pandemic; the highly regulated environment in which we operate and our dependence on regulatory approvals and licenses; our ability to manage our supply chain effectively; disruption of operations at our cultivation and manufacturing facilities; challenges and uncertainty resulting from the impact of competition; our ability to manage risks associated with our international sales and operations; our ability to successfully develop and commercialize new products; our ability to execute our strategic plan and other initiatives, including our ability to achieve $4 billion of revenue by the end of our fiscal year 2024; our dependency on significant customers, which generate a significant amount of our revenue; input cost inflation; disruptions to information technology systems; pending and future litigation; volatility in our stock; our ability to raise funds; and other risks and matters described in our most recent Annual Report on Form 10-K, this Form 10-Q and our other filings from time to time with the U.S. Securities and Exchange Commission and in our Canadian securities filings.
Forward looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and, while we believe that information provides a reasonable basis for these statements, these statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements or forward-looking information as predictions of future events.
We undertake no obligation to update forward-looking statements to reflect actual results or changes in assumptions or circumstances, except as required by applicable law.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TILRAY, INC.
Condensed Consolidated Balance SheetsStatements of Financial Position
(in thousands of United States dollars, except for share and par value data, unaudited)
|
|
|
|
|
|
|
|
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 416,370 |
|
| $ | 189,702 |
|
Accounts receivable, net of allowance for credit losses of $1,267 and provision for sales returns of $727 (December 31, 2020 - $887 and $1,651, respectively) |
|
| 28,304 |
|
|
| 29,033 |
|
Inventory |
|
| 96,544 |
|
|
| 93,645 |
|
Prepayments and other current assets |
|
| 30,751 |
|
|
| 34,640 |
|
Total current assets |
|
| 571,969 |
|
|
| 347,020 |
|
Property and equipment, net |
|
| 197,771 |
|
|
| 199,559 |
|
Operating lease, right-of-use assets |
|
| 17,478 |
|
|
| 17,985 |
|
Intangible assets, net |
|
| 186,222 |
|
|
| 186,445 |
|
Goodwill |
|
| 169,079 |
|
|
| 166,915 |
|
Equity method investments |
|
| 8,100 |
|
|
| 9,300 |
|
Other investments |
|
| 12,083 |
|
|
| 14,369 |
|
Other assets |
|
| 5,542 |
|
|
| 4,356 |
|
Total assets |
| $ | 1,168,244 |
|
| $ | 945,949 |
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 48,289 |
|
|
| 17,776 |
|
Accrued expenses and other current liabilities |
|
| 60,461 |
|
|
| 39,946 |
|
Accrued lease obligations |
|
| 2,888 |
|
|
| 2,913 |
|
Senior Facility, net of transaction costs - current |
|
| 49,547 |
|
|
| — |
|
Warrant liability |
|
| 122,804 |
|
|
| 120,647 |
|
Total current liabilities |
|
| 283,989 |
|
|
| 181,282 |
|
Accrued lease obligations |
|
| 30,521 |
|
|
| 30,623 |
|
Deferred tax liability |
|
| 49,293 |
|
|
| 49,274 |
|
Convertible notes, net of issuance costs |
|
| 259,443 |
|
|
| 257,789 |
|
Senior Facility, net of transaction costs |
|
| — |
|
|
| 48,470 |
|
Other liabilities |
|
| 4,367 |
|
|
| 4,612 |
|
Total liabilities |
| $ | 627,613 |
|
| $ | 572,050 |
|
Commitments and contingencies (refer to Note 16) |
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Class 1 common stock ($0.0001 par value, 233,333,333 shares authorized; 0 shares issued and outstanding) |
|
| — |
|
|
| — |
|
Class 2 common stock ($0.0001 par value; 500,000,000 shares authorized; 179,118,980 and 158,486,087 shares issued and outstanding, respectively |
|
| 18 |
|
|
| 16 |
|
Additional paid-in capital |
|
| 1,599,713 |
|
|
| 1,095,781 |
|
Accumulated other comprehensive (loss) income |
|
| 11,958 |
|
|
| 8,205 |
|
Accumulated deficit |
|
| (1,071,058 | ) |
|
| (730,103 | ) |
Total stockholders’ equity |
|
| 540,631 |
|
|
| 373,899 |
|
Total liabilities and stockholders’ equity |
| $ | 1,168,244 |
|
| $ | 945,949 |
|
|
| November 30, 2021 |
|
| May 31, 2021 |
| ||
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 331,783 |
|
| $ | 488,466 |
|
Accounts receivable, net |
|
| 84,575 |
|
|
| 87,309 |
|
Inventory |
|
| 233,020 |
|
|
| 256,429 |
|
Prepaids and other current assets |
|
| 57,340 |
|
|
| 48,920 |
|
Convertible notes receivable |
|
| 1,560 |
|
|
| 2,485 |
|
Total current assets |
|
| 708,278 |
|
|
| 883,609 |
|
Capital assets |
|
| 604,249 |
|
|
| 650,698 |
|
Right-of-use assets |
|
| 13,933 |
|
|
| 18,267 |
|
Intangible assets |
|
| 1,450,015 |
|
|
| 1,605,918 |
|
Goodwill |
|
| 2,814,163 |
|
|
| 2,832,794 |
|
Interest in equity investees |
|
| 4,440 |
|
|
| 8,106 |
|
Long-term investments |
|
| 168,244 |
|
|
| 17,685 |
|
Other assets |
|
| 164 |
|
|
| 8,285 |
|
Total assets |
| $ | 5,763,486 |
|
| $ | 6,025,362 |
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Bank indebtedness |
| $ | 8,736 |
|
| $ | 8,717 |
|
Accounts payable and accrued liabilities |
|
| 168,300 |
|
|
| 212,813 |
|
Contingent consideration |
|
| 62,339 |
|
|
| 60,657 |
|
Warrant liability |
|
| 40,455 |
|
|
| 78,168 |
|
Current portion of lease liabilities |
|
| 3,588 |
|
|
| 4,264 |
|
Current portion of long-term debt |
|
| 31,510 |
|
|
| 36,622 |
|
Total current liabilities |
|
| 314,928 |
|
|
| 401,241 |
|
Long - term liabilities |
|
|
|
|
|
|
|
|
Lease liabilities |
|
| 49,265 |
|
|
| 53,946 |
|
Long-term debt |
|
| 151,819 |
|
|
| 167,486 |
|
Convertible debentures |
|
| 554,854 |
|
|
| 667,624 |
|
Deferred tax liability |
|
| 219,311 |
|
|
| 265,845 |
|
Other liabilities |
|
| 320 |
|
|
| 3,907 |
|
Total liabilities |
|
| 1,290,497 |
|
|
| 1,560,049 |
|
Commitments and contingencies (refer to Note 17) |
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
Common stock ($0.0001 par value; 990,000,000 shares authorized; 463,802,393 and 265,423,304 shares issued and outstanding, respectively) |
|
| 46 |
|
|
| 46 |
|
Additional paid-in capital |
|
| 4,954,547 |
|
|
| 4,792,406 |
|
Accumulated other comprehensive income |
|
| 9,595 |
|
|
| 152,668 |
|
Accumulated Deficit |
|
| (527,900 | ) |
|
| (486,050 | ) |
Total Tilray shareholders' equity |
|
| 4,436,288 |
|
|
| 4,459,070 |
|
Non-controlling interests |
|
| 36,701 |
|
|
| 6,243 |
|
Total shareholders' equity |
|
| 4,472,989 |
|
|
| 4,465,313 |
|
Total liabilities and shareholders' equity |
| $ | 5,763,486 |
|
| $ | 6,025,362 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
TILRAY, INC.
Condensed Consolidated Statements of Net LossIncome (Loss) and Comprehensive Loss
(in thousands of United States dollars, except for share and per share data,, unaudited)
|
|
|
|
|
|
|
|
|
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenue |
| $ | 48,021 |
|
| $ | 52,102 |
|
Cost of sales |
|
| 34,518 |
|
|
| 41,232 |
|
Gross profit |
|
| 13,503 |
|
|
| 10,870 |
|
General and administrative expenses |
|
| 25,587 |
|
|
| 27,269 |
|
Sales and marketing expenses |
|
| 9,739 |
|
|
| 18,326 |
|
Research and development expenses |
|
| 1,202 |
|
|
| 1,347 |
|
Depreciation and amortization expenses |
|
| 3,498 |
|
|
| 3,591 |
|
Impairment of assets |
|
| — |
|
|
| 29,839 |
|
Loss from equity method investments |
|
| 1,787 |
|
|
| 1,748 |
|
Litigation settlement |
|
| 45,000 |
|
|
| — |
|
Operating loss |
|
| (73,310 | ) |
|
| (71,250 | ) |
Foreign exchange (gain) loss, net |
|
| (699 | ) |
|
| 28,069 |
|
Change in fair value of warrant liability |
|
| 263,201 |
|
|
| 71,978 |
|
Interest expenses, net |
|
| 6,916 |
|
|
| 9,146 |
|
Other (income) expenses, net |
|
| (1,516 | ) |
|
| 4,651 |
|
Loss before income taxes |
|
| (341,212 | ) |
|
| (185,094 | ) |
Deferred income tax recoveries |
|
| (635 | ) |
|
| (1,272 | ) |
Current income tax expenses |
|
| 378 |
|
|
| 301 |
|
Net loss |
| $ | (340,955 | ) |
| $ | (184,123 | ) |
Net loss per share - basic and diluted |
|
| (2.01 | ) |
|
| (1.73 | ) |
Weighted average shares used in computation of net loss per share - basic and diluted |
|
| 169,489,223 |
|
|
| 106,463,352 |
|
Net loss |
| $ | (340,955 | ) |
| $ | (184,123 | ) |
Foreign currency translation gain (loss), net |
|
| 3,753 |
|
|
| (16,633 | ) |
Unrealized loss on investments |
|
| — |
|
|
| (74 | ) |
Other comprehensive loss |
|
| 3,753 |
|
|
| (16,707 | ) |
Comprehensive loss |
| $ | (337,202 | ) |
| $ | (200,830 | ) |
|
| Three months ended November 30, |
|
| Six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net revenue |
| $ | 155,153 |
|
| $ | 129,459 |
|
| $ | 323,176 |
|
| $ | 246,949 |
|
Cost of goods sold |
|
| 122,387 |
|
|
| 94,176 |
|
|
| 239,455 |
|
|
| 176,721 |
|
Gross profit |
|
| 32,766 |
|
|
| 35,283 |
|
|
| 83,721 |
|
|
| 70,228 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 33,469 |
|
|
| 28,273 |
|
|
| 82,956 |
|
|
| 54,245 |
|
Selling |
|
| 9,210 |
|
|
| 6,079 |
|
|
| 16,642 |
|
|
| 11,896 |
|
Amortization |
|
| 29,016 |
|
|
| 4,208 |
|
|
| 59,755 |
|
|
| 8,335 |
|
Marketing and promotion |
|
| 7,120 |
|
|
| 4,252 |
|
|
| 12,585 |
|
|
| 9,177 |
|
Research and development |
|
| 515 |
|
|
| 225 |
|
|
| 1,300 |
|
|
| 345 |
|
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| 33,699 |
|
|
| 20,664 |
|
Total operating expenses |
|
| 87,450 |
|
|
| 61,243 |
|
|
| 206,937 |
|
|
| 104,662 |
|
Operating loss |
|
| (54,684 | ) |
|
| (25,960 | ) |
|
| (123,216 | ) |
|
| (34,434 | ) |
Interest expense, net |
|
| (9,940 | ) |
|
| (4,832 | ) |
|
| (20,110 | ) |
|
| (10,568 | ) |
Non-operating income (expense), net |
|
| 64,750 |
|
|
| (72,649 | ) |
|
| 113,610 |
|
|
| (86,008 | ) |
Income (loss) before income taxes |
|
| 126 |
|
|
| (103,441 | ) |
|
| (29,716 | ) |
|
| (131,010 | ) |
Income taxes (recovery) |
|
| (5,671 | ) |
|
| (14,192 | ) |
|
| (909 | ) |
|
| (20,017 | ) |
Net income (loss) |
| $ | 5,797 |
|
| $ | (89,249 | ) |
| $ | (28,807 | ) |
| $ | (110,993 | ) |
Total net income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of Tilray Inc. |
|
| (201 | ) |
|
| (99,900 | ) |
|
| (41,850 | ) |
|
| (134,243 | ) |
Non-controlling interests |
|
| 5,998 |
|
|
| 10,651 |
|
|
| 13,043 |
|
|
| 23,250 |
|
Other comprehensive (loss) income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain |
|
| (32,367 | ) |
|
| (910 | ) |
|
| (133,139 | ) |
|
| 475 |
|
Unrealized loss on convertible notes receivable |
|
| 52 |
|
|
| — |
|
|
| (597 | ) |
|
| — |
|
Change in fair value of long-term investments |
|
| (16,357 | ) |
|
| — |
|
|
| (16,357 | ) |
|
| — |
|
Total other comprehensive (loss) income, net of tax |
|
| (48,672 | ) |
|
| (910 | ) |
|
| (150,093 | ) |
|
| 475 |
|
Comprehensive loss |
|
| (42,875 | ) |
|
| (90,159 | ) |
|
| (178,900 | ) |
|
| (110,518 | ) |
Total comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of Tilray Inc. |
|
| (41,853 | ) |
|
| (100,810 | ) |
|
| (184,923 | ) |
|
| (133,768 | ) |
Non-controlling interests |
|
| (1,022 | ) |
|
| 10,651 |
|
|
| 6,023 |
|
|
| 23,250 |
|
Weighted average number of common shares - basic |
|
| 460,254,275 |
|
|
| 243,477,655 |
|
|
| 454,797,598 |
|
|
| 242,207,388 |
|
Weighted average number of common shares - diluted |
|
| 460,254,275 |
|
|
| 243,477,655 |
|
|
| 454,797,598 |
|
|
| 242,207,388 |
|
Net income (loss) per share - basic |
| $ | (0.00 | ) |
| $ | (0.41 | ) |
| $ | (0.09 | ) |
| $ | (0.55 | ) |
Net income (loss) per share - diluted |
| $ | (0.00 | ) |
| $ | (0.41 | ) |
| $ | (0.09 | ) |
| $ | (0.55 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
TILRAY, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands of United States dollars, except for share data, unaudited)
|
| Common stock |
|
|
|
|
|
| Accumulated other |
|
|
|
|
|
|
|
|
| ||||||
|
| Number of shares |
|
| Amount |
|
| Additional paid-in capital |
|
| comprehensive (loss) income |
|
| Accumulated deficit |
|
| Total stockholders' equity (deficit) |
| ||||||
Balance as of December 31, 2019 |
|
| 102,781,225 |
|
| $ | 11 |
|
| $ | 705,671 |
|
| $ | 9,719 |
|
| $ | (430,130 | ) |
| $ | 285,271 |
|
Proceeds from ABG Profit Participation Arrangement |
|
| — |
|
|
| — |
|
|
| 1,353 |
|
|
| — |
|
|
| — |
|
|
| 1,353 |
|
Write-off of ABG finance receivable |
|
| — |
|
|
| — |
|
|
| 28,900 |
|
|
| — |
|
|
| (28,900 | ) |
|
| — |
|
Escrow shares released from downstream merger |
|
| (7,659 | ) |
|
| — |
|
|
| (151 | ) |
|
| — |
|
|
| — |
|
|
| (151 | ) |
Shares issued for common stock at-the-market, net of issuance costs |
|
| 2,265,115 |
|
|
| — |
|
|
| 27,027 |
|
|
| — |
|
|
| — |
|
|
| 27,027 |
|
Shares issued for investments |
|
| 6,934 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Shares issued under stock-based compensation plans |
|
| 597,868 |
|
|
| — |
|
|
| 1,079 |
|
|
| — |
|
|
| — |
|
|
| 1,079 |
|
Stock-based compensation expenses |
|
| — |
|
|
| — |
|
|
| 7,677 |
|
|
| — |
|
|
| — |
|
|
| 7,677 |
|
Shares issued under registered offering, net of issuance costs |
|
| 7,250,000 |
|
|
| 1 |
|
|
| 19,827 |
|
|
| — |
|
|
| — |
|
|
| 19,828 |
|
Shares issued for exercise of pre-funded warrants |
|
| 11,750,000 |
|
|
| 1 |
|
|
| 49,053 |
|
|
| — |
|
|
| — |
|
|
| 49,054 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,707 | ) |
|
| — |
|
|
| (16,707 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (184,123 | ) |
|
| (184,123 | ) |
Balance as of March 31, 2020 |
|
| 124,643,483 |
|
| $ | 13 |
|
| $ | 840,436 |
|
| $ | (6,988 | ) |
| $ | (643,153 | ) |
| $ | 190,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
|
| 158,046,087 |
|
| $ | 16 |
|
| $ | 1,095,781 |
|
| $ | 8,205 |
|
| $ | (730,103 | ) |
| $ | 373,899 |
|
Escrow shares released from downstream merger |
|
| (6,342 | ) |
|
| — |
|
|
| (135 | ) |
|
| — |
|
|
| — |
|
|
| (135 | ) |
Shares issued for common stock at-the-market, net of issuance costs |
|
| 6,254,980 |
|
|
| 1 |
|
|
| 156,029 |
|
|
| — |
|
|
| — |
|
|
| 156,030 |
|
Shares issued under stock-based compensation plans |
|
| 1,623,255 |
|
|
| — |
|
|
| 3,746 |
|
|
| — |
|
|
| — |
|
|
| 3,746 |
|
Stock-based compensation expenses |
|
| — |
|
|
| — |
|
|
| 7,141 |
|
|
| — |
|
|
| — |
|
|
| 7,141 |
|
Shares issued for exercise of warrants |
|
| 12,791,000 |
|
|
| 1 |
|
|
| 337,151 |
|
|
| — |
|
|
| — |
|
|
| 337,152 |
|
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,753 |
|
|
| — |
|
|
| 3,753 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (340,955 | ) |
|
| (340,955 | ) |
Balance at March 31, 2021 |
|
| 178,708,980 |
|
| $ | 18 |
|
| $ | 1,599,713 |
|
| $ | 11,958 |
|
| $ | (1,071,058 | ) |
| $ | 540,631 |
|
|
| Number of common shares |
|
| Common stock |
|
| Additional paid-in capital |
|
| Accumulated other comprehensive income (loss) |
|
| Accumulated Deficit |
|
| Non- controlling interests |
|
| Total |
| |||||||
Balance at May 31, 2020 |
|
| 240,132,635 |
|
| $ | 24 |
|
| $ | 1,366,736 |
|
| $ | (5,434 | ) |
| $ | (113,352 | ) |
| $ | 26,957 |
|
| $ | 1,274,931 |
|
Share issuance - legal settlement |
|
| 1,389,884 |
|
|
| — |
|
|
| 7,018 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,018 |
|
Share issuance - options exercised |
|
| 41,065 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Share issuance - RSUs exercised |
|
| 429,280 |
|
|
| — |
|
|
| 2,246 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,246 |
|
Share-based payments |
|
| — |
|
|
| — |
|
|
| 1,233 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,233 |
|
Comprehensive income (loss) for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,385 |
|
|
| (34,343 | ) |
|
| 12,599 |
|
|
| (20,359 | ) |
Balance at August 31, 2020 |
|
| 241,992,864 |
|
| $ | 24 |
|
| $ | 1,377,237 |
|
| $ | (4,049 | ) |
| $ | (147,695 | ) |
| $ | 39,556 |
|
| $ | 1,265,073 |
|
Share issuance - legal settlement |
|
| 503,974 |
|
|
| — |
|
|
| 3,436 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,436 |
|
Share issuance - equity financing |
|
| 14,610,496 |
|
|
| 2 |
|
|
| 103,594 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 103,596 |
|
Share issuance - SweetWater acquisition |
|
| 8,232,810 |
|
|
| 1 |
|
|
| 69,189 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 69,190 |
|
Share issuance - options exercised |
|
| 74,337 |
|
|
| — |
|
|
| 86 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 86 |
|
Share issuance - RSUs exercised |
|
| 8,823 |
|
|
| — |
|
|
| 306 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 306 |
|
Share-based payments |
|
| — |
|
|
| — |
|
|
| 1,017 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,017 |
|
Comprehensive income (loss) for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (910 | ) |
|
| (99,900 | ) |
|
| 10,651 |
|
|
| (90,159 | ) |
Balance at November 30, 2020 |
|
| 265,423,304 |
|
| $ | 27 |
|
| $ | 1,554,865 |
|
| $ | (4,959 | ) |
| $ | (247,595 | ) |
| $ | 50,207 |
|
| $ | 1,352,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2021 |
|
| 446,440,641 |
|
| $ | 46 |
|
| $ | 4,792,406 |
|
| $ | 152,668 |
|
| $ | (486,050 | ) |
| $ | 6,243 |
|
| $ | 4,465,313 |
|
Third party contribution to Superhero Acquisition LP |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 52,995 |
|
|
| 52,995 |
|
Share issuance - options exercised |
|
| 417,489 |
|
|
| — |
|
|
| 2,756 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,756 |
|
Share issuance - RSUs exercised |
|
| 3,665,337 |
|
|
| — |
|
|
| 6,661 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,661 |
|
Share-based payments, net |
|
| — |
|
|
| — |
|
|
| (5,944 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,944 | ) |
Comprehensive income (loss) for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (101,421 | ) |
|
| (41,649 | ) |
|
| 7,045 |
|
|
| (136,025 | ) |
Balance at August 31, 2021 |
|
| 450,523,467 |
|
| $ | 46 |
|
| $ | 4,795,879 |
|
| $ | 51,247 |
|
| $ | (527,699 | ) |
| $ | 66,283 |
|
| $ | 4,385,756 |
|
Share issuance - Superhero Acquisition LP |
|
| 9,817,061 |
|
|
| — |
|
|
| 117,804 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 117,804 |
|
Share issuance - DDH note |
|
| 2,677,596 |
|
|
| — |
|
|
| 28,560 |
|
|
| — |
|
|
| — |
|
|
| (28,560 | ) |
|
| — |
|
Share issuance - options exercised |
|
| 98,044 |
|
|
| — |
|
|
| 1,939 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,939 |
|
Share issuance - RSUs exercised |
|
| 470,324 |
|
|
| — |
|
|
| 6,314 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,314 |
|
Share-based payments, net |
|
| 215,901 |
|
|
| — |
|
|
| 4,051 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,051 |
|
Comprehensive income (loss) for the period |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (41,652 | ) |
|
| (201 | ) |
|
| (1,022 | ) |
|
| (42,875 | ) |
Balance at November 30, 2021 |
|
| 463,802,393 |
|
| $ | 46 |
|
| $ | 4,954,547 |
|
| $ | 9,595 |
|
| $ | (527,900 | ) |
| $ | 36,701 |
|
| $ | 4,472,989 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
TILRAY, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands of United States dollars, unaudited)
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Operating activities |
|
|
|
|
|
|
|
|
Net loss |
| $ | (340,955 | ) |
| $ | (184,123 | ) |
Adjusted for the following items: |
|
|
|
|
|
|
|
|
Inventory valuation adjustments |
|
| 2,062 |
|
|
| 4,044 |
|
Depreciation and amortization expenses |
|
| 4,908 |
|
|
| 4,561 |
|
Impairment of assets |
|
| — |
|
|
| 29,839 |
|
Stock-based compensation expenses |
|
| 7,193 |
|
|
| 7,677 |
|
Change in fair value of warrant liability |
|
| 263,201 |
|
|
| 71,978 |
|
Loss from equity method investments |
|
| 1,787 |
|
|
| 1,748 |
|
(Gain) loss from equity investments measured at fair value |
|
| (300 | ) |
|
| 1,534 |
|
(Gain) loss from sale of investment |
|
| (75 | ) |
|
| 65 |
|
Interest on debt securities |
|
| — |
|
|
| (221 | ) |
Deferred taxes |
|
| (635 | ) |
|
| (1,272 | ) |
Amortization of discount on convertible notes |
|
| 1,653 |
|
|
| 2,597 |
|
Amortization of transaction costs on Senior Facility |
|
| 436 |
|
|
| 131 |
|
Foreign currency (gain) loss |
|
| (699 | ) |
|
| 28,069 |
|
Accretion related to obligations under finance leases |
|
| 485 |
|
|
| 151 |
|
Issuance costs on registered offering recorded to net loss |
|
| — |
|
|
| 3,953 |
|
Credit loss expenses |
|
| 805 |
|
|
| 46 |
|
Provision for sales returns |
|
| (924 | ) |
|
| (262 | ) |
Loss on disposal of property and equipment |
|
| 82 |
|
|
| 457 |
|
Other non-cash items |
|
| — |
|
|
| 138 |
|
Changes in non-cash working capital: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (1,000 | ) |
|
| (1,906 | ) |
Inventory |
|
| (4,893 | ) |
|
| (11,594 | ) |
Prepayments and other current assets |
|
| 2,703 |
|
|
| 6,749 |
|
Accounts payable |
|
| 30,513 |
|
|
| (15,218 | ) |
Accrued expenses and other current liabilities |
|
| 20,645 |
|
|
| (3,172 | ) |
Net cash used in operating activities |
|
| (13,008 | ) |
|
| (54,031 | ) |
Investing activities |
|
|
|
|
|
|
|
|
Change in deposits and other assets |
|
| — |
|
|
| (927 | ) |
Investment in equity method investees |
|
| (493 | ) |
|
| — |
|
Proceeds from the sale of other investments |
|
| 2,719 |
|
|
| 437 |
|
Purchases of property and equipment |
|
| (2,466 | ) |
|
| (18,290 | ) |
Proceeds from disposal of property and equipment |
|
| 171 |
|
|
| 661 |
|
Net cash used in investing activities |
|
| (69 | ) |
|
| (18,119 | ) |
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from at-the-market equity offering, net of costs |
|
| 156,029 |
|
|
| 27,027 |
|
Proceeds from ABG Profit Participation Arrangement |
|
| — |
|
|
| 1,353 |
|
Proceeds from issuance of registered offering, net of issuance costs |
|
| — |
|
|
| 85,465 |
|
Payment of ABG finance liability |
|
| (375 | ) |
|
| (1,000 | ) |
Proceeds from exercise of warrants |
|
| 76,106 |
|
|
| — |
|
Proceeds from exercise of stock options |
|
| 6,117 |
|
|
| 1,813 |
|
Payment of obligations under finance lease |
|
| — |
|
|
| (105 | ) |
Payment on the settlement of stock options |
|
| (2,487 | ) |
|
| (748 | ) |
Proceeds from issuance of Senior Facility, net of transaction costs |
|
| — |
|
|
| 46,395 |
|
Repayment of Senior Facility |
|
| (1,309 | ) |
|
| (414 | ) |
Net cash provided by financing activities |
|
| 234,081 |
|
|
| 159,786 |
|
Effect of foreign currency translation on cash and cash equivalents |
|
| 5,664 |
|
|
| (10,437 | ) |
Cash and cash equivalents |
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
| 226,668 |
|
|
| 77,199 |
|
Cash and cash equivalents, beginning of period |
|
| 189,702 |
|
|
| 96,791 |
|
Cash and cash equivalents, end of period |
| $ | 416,370 |
|
| $ | 173,990 |
|
|
| For the six months ended November 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash used in operating activities: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (28,807 | ) |
| $ | (110,993 | ) |
Adjustments for: |
|
|
|
|
|
|
|
|
Deferred income tax recovery |
|
| (11,228 | ) |
|
| (36,175 | ) |
Unrealized foreign exchange (gain) loss |
|
| (6,530 | ) |
|
| 6,648 |
|
Amortization |
|
| 76,804 |
|
|
| 23,010 |
|
Loss on sale of capital assets |
|
| 230 |
|
|
| — |
|
Inventory valuation write down |
|
| 12,000 |
|
|
| — |
|
Other non-cash items |
|
| 3,739 |
|
|
| (134 | ) |
Stock-based compensation |
|
| 17,670 |
|
|
| 8,339 |
|
Loss on long-term investments & equity investments |
|
| 2,197 |
|
|
| 1,519 |
|
Loss (gain) on derivative instruments |
|
| (133,436 | ) |
|
| 70,342 |
|
Loss on contingent consideration |
|
| 1,682 |
|
|
| — |
|
Transaction costs associated with business acquisitions |
|
| — |
|
|
| 13,897 |
|
Change in non-cash working capital: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 2,734 |
|
|
| (28,570 | ) |
Prepaids and other current assets |
|
| (6,299 | ) |
|
| (4,019 | ) |
Inventory |
|
| 3,409 |
|
|
| (18,352 | ) |
Accounts payable and accrued liabilities |
|
| (44,513 | ) |
|
| 20,827 |
|
Net cash used in operating activities |
|
| (110,348 | ) |
|
| (53,662 | ) |
Cash used in investing activities: |
|
|
|
|
|
|
|
|
Investment in capital and intangible assets |
|
| (23,856 | ) |
|
| (29,863 | ) |
Proceeds from disposal of capital and intangible assets |
|
| 8,264 |
|
|
| 6,607 |
|
Promissory notes advances |
|
| — |
|
|
| (2,419 | ) |
Repayment of notes receivable |
|
| — |
|
|
| 4,032 |
|
Proceeds from disposal of long-term investments and equity investees |
|
| — |
|
|
| 2,676 |
|
Net cash paid on business acquisitions |
|
| — |
|
|
| (275,603 | ) |
Net cash used in investing activities |
|
| (15,592 | ) |
|
| (294,570 | ) |
Cash (used in) provided by financing activities: |
|
|
|
|
|
|
|
|
Share capital issued, net of cash issuance costs |
|
| — |
|
|
| 102,559 |
|
Proceeds (payment) from warrants and options exercised |
|
| (3,927 | ) |
|
| 90 |
|
Proceeds from long-term debt |
|
| — |
|
|
| 1,881 |
|
Repayment of long-term debt |
|
| (20,779 | ) |
|
| (2,210 | ) |
Repayment of lease liabilities |
|
| (3,360 | ) |
|
| (71 | ) |
Increase in bank indebtedness |
|
| 19 |
|
|
| 3,689 |
|
Net cash (used in) provided by financing activities |
|
| (28,047 | ) |
|
| 105,938 |
|
Effect of foreign exchange on cash and cash equivalents |
|
| (2,696 | ) |
|
| 29,853 |
|
Net decrease in cash and cash equivalents |
|
| (156,683 | ) |
|
| (212,441 | ) |
Cash and cash equivalents, beginning of period |
|
| 488,466 |
|
|
| 360,646 |
|
Cash and cash equivalents, end of period |
| $ | 331,783 |
|
| $ | 148,205 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Tilray, Inc.
TILRAY, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands of United States dollars, except for shares, warrants, per share amounts and per warrant amounts, unaudited)
|
|
Note 1. Description of the business
Tilray, Inc., a Delaware corporation, and its wholly owned subsidiaries (collectively “Tilray”, the “Company”, “we”, “our”, or “us”), is a leading global medicalcannabis-lifestyle and consumer packaged goods company headquartered in New York, with operations in Canada, the United States, Europe, Australia, New Zealand and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body, and soul and invoke a sense of wellbeing. Tilray’s mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and wellbeing through high-quality, differentiated brands and innovative products. A pioneer in cannabis research, cultivation processing and distribution, organization,Tilray’s production platform supports over 20 brands in over 20 countries, including comprehensive cannabis offerings, hemp-based foods, and is one of the leading suppliers of adult-use cannabis in Canada. The Company also markets and distributes food products from hemp seed and offers a broad range of natural and organic hemp based food products and ingredients that are sold through retailers and websites globally.alcoholic beverages.
On December 15, 2020, we entered into an Arrangement Agreement (as amended, the “Arrangement Agreement” with Aphria Inc. (“Aphria”), pursuant to whichApril 30, 2021, Tilray acquired all of the issued and outstanding common shares of Aphria Inc. (“Aphria”), an international organization focused on building a global cannabis-lifestyle consumer packaged goods company in addition to its businesses in the marketing and manufacturing beverage alcohol products in the United States, and in the distribution of (non-Cannabis) pharmaceutical products in Germany and Argentina, pursuant to a plan of arrangement (the “Plan of Arrangement”“Arrangement”) under the Business Corporations Act (the “Arrangement”)(Ontario). The Arrangement was completed on April 30, 2021. Each outstanding common share of Aphria outstanding immediately prior to the effective time of the Arrangement was transferred to Tilray in exchange for 0.8381 of a share (of Tilray Class 2 common stock). As of March 31, 2021, the Arrangement had not yet been completed and as such, the financial statements do not reflect the effect of the transaction.
Note 2. Basis of presentation and going concernsummary of significant accounting policies
The accompanying unaudited condensed consolidated financial statements (the “financial statements”) reflect the accounts of the Company. The financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. The information included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements included in the Company’s annual reportAnnual Report on Form 10-K for the year ended DecemberMay 31, 20202021 (the “Annual Financial Statements”). These financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company’s balance sheet in these interim financial statements was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.
These consolidated financial statements have been prepared on athe going concern basis which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.due, under the historical cost convention except for certain financial instruments that are measured at fair value, as detailed in the Company’s accounting policies.
ReclassificationsAs a result of the April 30, 2021 business combination with Aphria, the reported results do not include the results of operations of Tilray and its subsidiaries on and prior to April 30, 2021, in accordance with the accounting treatment applicable to the Arrangement. Accordingly, comparisons between the Company's results for the three and six months ended November 30, 2021 and prior periods may not be meaningful.
Information about the accounting treatment of the Arrangement including details of the transaction, determination of the total fair value consideration, and allocation of the purchase price, are included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).
The Company reclassified previously disclosed amounts related to inventory valuationpurchase price allocation for the Arrangement is open for adjustments and stock-based compensation expenseshas been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date. In the event that more information is obtained, the purchase price allocation may change. Any future adjustments to conformthe purchase price allocation, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement period, which is not to exceed one year from the acquisition date.
Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A complete list of our subsidiaries that existed prior to our most recent year end is included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the disclosuresU.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).
On August 13, 2021, the Company and other unrelated persons formed Superhero Acquisition L.P., a Delaware limited partnership (“SH Acquisition”), for the purpose of acquiring certain senior secured convertible notes in the principal amount of approximately $165.8 million (the “MM Notes”) originally issued by MedMen Enterprises Inc. (“MedMen”) together with certain associated warrants (the “MM Warrants”) to acquire Class B subordinate voting shares of Medmen (the “MedMen Shares”) fromcertain funds affiliated with Gotham Green Partners (the “MM Transaction”). The MM Notes mature onAugust 17, 2028. On August 17, 2021, SH Acquisition completed the MM Transaction and issued 9,817,061 shares of its common stock as partial consideration for the MM Transaction. The balance of March 31,the consideration for the MM Transaction was paid in cash by the other unrelated investors of SH Acquisition.
In connection with its issuance of 9,817,061 shares of its common stock, the Company’s received an interest in SH Acquisition equal to approximately 68% of the interests in SH Acquisition and, therefore, indirectly acquired a right to 68% of the MM Notes and related MM Warrants, which were convertible into approximately 21% of the MedMen Shares outstanding (if such MM Notes and MM Warrants were converted and exercised upon closing the MM Transaction). In addition, interest on the principal amount of the MM Notes shall accrue at an interest rate of LIBOR plus 6%, with a LIBOR floor of 2.5% and, any accrued interest shall be pay-in-kind at a price equal to the trailing 30-day volume weighted average price of the MedMen Shares, as and when such pay-in-kind interest becomes due and payable. SH Acquisition was also granted “top-up” rights enabling it (and its limited partners) to maintain its percentage ownership (on an “as-converted” basis) in the event that MedMen issues equity securities upon conversion of convertible securities that may be issued by MedMen. Tilray’s ability to convert the Notes and exercise the Warrants is dependent upon U.S. federal legalization of cannabis (a “Triggering Event”) or Tilray’s waiver of such requirement as well as any additional regulatory approvals.
Under the SH Acquisition partnership agreement, certain material events described therein require the approval of the Company, and, upon a Triggering Event, the Company has the ability to appoint two of the three members of the board of directors of the general partner of SH Acquisition. As a result, we consolidated SH Acquisition as a subsidiary of Tilray beginning on August 17, 2021.Additional information about the MM Transaction is included in Note 7 Long-term investments.
Inventory valuation adjustments were previously disclosedLong-term investments
Debt securities are classified as available-for-sale and are recorded at fair value and are subject to impairment testing. Other than impairment losses, unrealized gains and losses during the period, net of the related tax effect, are excluded from income and reflected in other comprehensive income (loss), and the cumulative effect is reported as a separate component of shareholders’ equity until realized. Upon sale, realized gain and losses are reported in net income. Debt securities are impaired when a decline in fair value is determined to be other-than-temporary. If the cost of sales onan investment exceeds its fair value, the Company’s Consolidated StatementsCompany evaluates, among other factors, general market conditions, credit quality of Net Lossdebt instrument issuers, and Comprehensive Loss. As of March 31, 2021, these amounts are included under the caption of cost of sales.
|
| For the three months ended March 31, 2020 |
| |
Inventory valuation adjustment no longer disclosed separately from cost of sales |
| $ | 4,044 |
|
Stock-based compensation expenses was previously presented asduration and extent to which the fair value is less than cost. Once a separate line itemdecline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the Company’s Consolidated Statementsstatements of Net Lossnet loss and Comprehensive Loss. As of March 31, 2021,a new cost basis for the investment is established. The Company also evaluates whether there is a plan to sell the security or it is more likely than not that the Company includes its stock-based compensation expense underwill be required to sell the respective captionsecurity before recovery. If neither of the conditions exist, then only the portion of the impairment loss attributable to credit loss is recorded in the statements of net loss and the remaining amount is recorded in other comprehensive income (loss).
Investments in equity securities of entities over which the Company does not have a controlling financial statements where compensation paidinterest or significant influence are accounted for at fair value. Equity investments without readily determinable fair values are measured at cost with adjustments for observable changes in price or impairments (referred to as the same employees is recorded. These reclassifications“measurement alternative”). In applying the measurement alternative, the Company performs a qualitative assessment on a quarterly basis and recognizes an impairment if there are summarized as follows:
|
| For the three months ended March 31, 2020 |
| |
General and administrative expenses |
| $ | 7,138 |
|
Sales and marketing expenses |
|
| 450 |
|
Research and development expenses |
|
| 89 |
|
Thesufficient indicators that the fair value of the equity investments are less than carrying values. Changes in value are recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”.
Investments in entities over which the Company does not have a controlling financial interest but has significant influence, are accounted for using the three months ended March 31, 2020 was reclassified to conform toequity method, with the Company’s share of earnings or losses reported in earnings or losses from equity method investments on the statements of net loss and comprehensive loss. Equity method investments are recorded at cost, plus the Company’s share of undistributed earnings or losses, and impairment, if any, within “Interest in equity investees” on the balance sheets. The Company assesses investments in equity method investments when events or circumstances indicate that the carrying amount of the investment may be impaired. If it is determined that the current period’s presentation. Acquisition-related expenses, net, formerly presented as a separate line item,fair value of an equity method investment is now presented in general and administrative expenses.
Net loss per share
Basic net loss per share is computed by dividing reported net loss byless than the weighted average number of common shares outstanding for the reported period. Diluted net loss per share reflects the potential dilution that could occur if securities or other
5
contracts to issue common stock were exercised or converted into common stockcarrying value of the investment, the Company duringwill assess if the shortfall is other than temporary (OTTI). Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the equity investee to sustain an earnings capacity that would justify the carrying amount of the investment. Once a determination is made that an OTTI exists, the investment is written down to its fair value in accordance with ASC 820 at the reporting period. Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potential dilutive common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options and the incremental shares issuable upon conversion of the convertible notes. Potential dilutive common share equivalents consist of warrants, stock options, restricted stock units (“RSUs”) and restricted stock awards.
In computing diluted earnings per share, common share equivalents are not considered in periods indate, which establishes a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive. As of March 31, 2021, there were 14,243,733 common share equivalents with potential dilutive impact (March 31, 2020 – 21,266,707). Since the Company is in a net loss for all periods presented in these financial statements, there is no difference between the Company’s basic and diluted net loss per share for the periods presented.new cost basis.
New accounting pronouncements not yet adopted
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which is intendedamends and simplifies existing guidance in an effort to address issues identified as a result ofreduce the complexity associatedof accounting for convertible instruments and to provide financial statement users with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity.more meaningful information. ASU 2020-06 is effective for the Company beginning JanuaryJune 1, 2022. This update may be applied retrospectively or on a modified retrospective basis with the cumulative effect recognized as an adjustment to the opening balance of retained earnings on the date of adoption. The Company is currently evaluating the effect of adopting this ASU.
|
|
InventoryIn May 2021, the FASB issued ASU 2021-04, Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2021-04”), which amends existing guidance for earnings per share (EPS) in accordance with Topic 260. ASU 2021-04 is comprisedeffective for the Company beginning June 1, 2022. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Subtopic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. ASU 2021-08 is effective for the Company beginning June 1, 2023. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.
New accounting pronouncements recently adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The standard is effective for annual reporting periods beginning after December 15, 2020 and including interim periods within those fiscal years. The Company adopted the ASU beginning June 1, 2021 and the adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The Company adopted the ASU beginning June 1, 2021 and the adoption of ASU 2020-01 did not have a material impact on our consolidated financial statements.
Note 3. Inventory
Inventory consisted of the following items::
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Raw materials |
| $ | 15,263 |
|
| $ | 15,223 |
|
Work-in-process |
|
| 60,197 |
|
|
| 61,867 |
|
Finished goods |
|
| 21,084 |
|
|
| 16,555 |
|
Total |
| $ | 96,544 |
|
| $ | 93,645 |
|
|
| November 30, 2021 |
|
| May 31, 2021 |
| ||
Plants |
| $ | 19,935 |
|
| $ | 23,083 |
|
Dried cannabis |
|
| 115,970 |
|
|
| 118,269 |
|
Cannabis trim |
|
| 3,725 |
|
|
| 2,931 |
|
Cannabis derivatives |
|
| 28,215 |
|
|
| 24,158 |
|
Cannabis vapes |
|
| 3,193 |
|
|
| 3,791 |
|
Packaging and other inventory items |
|
| 22,768 |
|
|
| 31,462 |
|
Wellness inventory |
|
| 12,412 |
|
|
| 15,171 |
|
Beverage alcohol inventory |
|
| 4,792 |
|
|
| 5,402 |
|
Distribution inventory |
|
| 22,010 |
|
|
| 32,162 |
|
Total |
| $ | 233,020 |
|
| $ | 256,429 |
|
|
|
|
|
|
|
|
|
|
Inventory is written down for any obsolescence, spoilage and excess inventory or when the net realizable value of inventory is less than the carrying value. During the three and six months ended March 31,November 30, 2021, the Company recorded $12,000 and $12,000 in our cannabis segment of charges forrelated to inventory and inventory-related write downs as a component of cost of sales. Cannabis products were written down by $1,720goods sold (November 30, 2020-$0 and hemp products were written down by $342 (2020: $3,247 and $797)$0).
Note 4. Capital assets
Capital assets consisted of the following:
|
|
|
| November 30, 2021 |
|
| May 31, 2021 |
| ||
Land |
| $ | 26,779 |
|
| $ | 28,549 |
|
Production facility |
|
| 411,611 |
|
|
| 346,510 |
|
Equipment |
|
| 236,239 |
|
|
| 215,408 |
|
Leasehold improvement |
|
| 7,444 |
|
|
| 17,059 |
|
ROU-assets under finance lease |
|
| 34,798 |
|
|
| 34,726 |
|
Construction in progress |
|
| 14,949 |
|
|
| 85,322 |
|
|
| $ | 731,820 |
|
| $ | 727,574 |
|
Less: accumulated amortization |
|
| (127,571 | ) |
|
| (76,876 | ) |
Total |
| $ | 604,249 |
|
| $ | 650,698 |
|
Prepayments and other currentNote 5. Intangible Assets
Intangible assets are comprisedconsisted of the following items:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Deposits |
| $ | 9,285 |
|
| $ | 15,976 |
|
Prepayments |
|
| 5,117 |
|
|
| 6,542 |
|
Taxes receivable |
|
| 16,349 |
|
|
| 12,122 |
|
Total |
| $ | 30,751 |
|
| $ | 34,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Intellectual |
|
|
|
|
| |
|
| Customer |
|
|
|
|
|
|
|
|
|
| property, |
|
|
|
|
| ||
|
| relationships |
|
| Licenses, |
|
| Non- |
|
| trademarks, |
|
| Total |
| |||||
|
| & distribution |
|
| permits & |
|
| compete |
|
| know how |
|
| intangible |
| |||||
|
| channel |
|
| applications |
|
| agreements |
|
| & brands |
|
| assets |
| |||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2021 |
| $ | 239,810 |
|
|
| 414,930 |
|
|
| 12,453 |
|
|
| 990,917 |
|
| $ | 1,658,110 |
|
Additions |
|
| — |
|
|
| 182 |
|
|
| — |
|
|
| 856 |
|
|
| 1,038 |
|
Effect of foreign exchange |
|
| (9,300 | ) |
|
| (17,346 | ) |
|
| (659 | ) |
|
| (51,738 | ) |
|
| (79,043 | ) |
At August 31, 2021 |
| $ | 230,510 |
|
|
| 397,766 |
|
|
| 11,794 |
|
|
| 940,035 |
|
| $ | 1,580,105 |
|
Additions |
|
| — |
|
|
| 26 |
|
|
| — |
|
|
| 97 |
|
|
| 123 |
|
Effect of foreign exchange |
|
| (6,240 | ) |
|
| (11,776 | ) |
|
| — |
|
|
| (10,099 | ) |
|
| (28,115 | ) |
At November 30, 2021 |
| $ | 224,270 |
|
|
| 386,016 |
|
|
| 11,794 |
|
|
| 930,033 |
|
| $ | 1,552,113 |
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2021 |
| $ | 18,302 |
|
|
| 1,167 |
|
|
| 4,299 |
|
|
| 28,424 |
|
| $ | 52,192 |
|
Amortization |
|
| 9,466 |
|
|
| 116 |
|
|
| 833 |
|
|
| 14,684 |
|
|
| 25,099 |
|
At August 31, 2021 |
| $ | 27,768 |
|
|
| 1,283 |
|
|
| 5,132 |
|
|
| 43,108 |
|
| $ | 77,291 |
|
Amortization |
|
| 10,904 |
|
|
| 122 |
|
|
| 1,188 |
|
|
| 12,593 |
|
|
| 24,807 |
|
At November 30, 2021 |
| $ | 38,672 |
|
|
| 1,405 |
|
|
| 6,320 |
|
|
| 55,701 |
|
| $ | 102,098 |
|
Net book value at May 31, 2021 |
| $ | 221,508 |
| 0 | $ | 413,763 |
| 0 | $ | 8,154 |
| 0 | $ | 962,493 |
| 0 | $ | 1,605,918 |
|
Net book value at August 31, 2021 |
| $ | 202,742 |
|
| $ | 396,483 |
|
| $ | 6,662 |
|
| $ | 896,927 |
|
| $ | 1,502,814 |
|
Net book value at November 30, 2021 |
| $ | 185,598 |
| 0 | $ | 384,611 |
| 0 | $ | 5,474 |
| 0 | $ | 874,332 |
| 0 | $ | 1,450,015 |
|
As of November 30, 2021, included in Licenses, permits & applications is $383,445 of indefinite-lived intangible assets (May 31, 2021 - $412,000).
Expected future amortization expense for intangible assets as of November 30, 2021 are as follows:
|
| Amortization |
| |
2022 (remaining six months) |
| $ | 35,746 |
|
2023 |
|
| 63,770 |
|
2024 |
|
| 57,094 |
|
2025 |
|
| 56,091 |
|
2026 |
|
| 56,091 |
|
Thereafter |
|
| 797,778 |
|
Total |
| $ | 1,066,570 |
|
Note 6. Goodwill
The following table shows the carrying amount of goodwill:
|
|
|
| November 30, |
|
| May 31, |
| ||
|
| Segment |
| 2021 |
|
| 2021 |
| ||
Broken Coast Cannabis Ltd. |
| Cannabis business |
| $ | 105,963 |
|
| $ | 105,963 |
|
Nuuvera Corp. |
| Cannabis business |
|
| 273,606 |
|
|
| 273,606 |
|
LATAM Holdings Inc. |
| Cannabis business |
|
| 63,239 |
|
|
| 63,239 |
|
CC Pharma GmbH |
| Distribution business |
|
| 4,458 |
|
|
| 4,458 |
|
SweetWater |
| Beverage alcohol business |
|
| 100,202 |
|
|
| 100,202 |
|
Tilray-provisional |
| Cannabis business |
|
| 2,155,471 |
|
|
| 2,144,143 |
|
Tilray-provisional |
| Wellness business |
|
| 77,470 |
|
|
| 77,470 |
|
Effect of foreign exchange |
|
|
|
| 33,754 |
|
|
| 63,713 |
|
Total |
|
|
| $ | 2,814,163 |
|
| $ | 2,832,794 |
|
Pursuant to the Arrangement, as described in Note 1, the Company is within the measurement period of the business acquisition. As of November 30, 2021, the fair values of assets and liabilities acquired have been prepared on a provisional basis and are subject to further adjustments as the Company completes its analysis. The Company will finalize the amounts recognized by April 30, 2022. The fair value adjustments made during the three and six months ended November 30, 2021 are not significant and are reflected in the table below:
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 375,673 |
|
| $ | 375,673 |
|
Accounts receivable |
|
| 28,054 |
|
|
| 28,054 |
|
Inventory |
|
| 68,547 |
|
|
| 76,547 |
|
Prepaids and other current assets |
|
| 2,960 |
|
|
| 8,960 |
|
Capital assets |
|
| 136,637 |
|
|
| 136,637 |
|
Right-of-use assets, operating leases |
|
| 12,606 |
|
|
| 12,606 |
|
Definite-lived intangible assets (estimated useful life) |
|
|
|
|
|
|
|
|
Distribution channel (15 years) |
|
| 404,000 |
|
|
| 404,000 |
|
Customer relationships (15 years) |
|
| 59,000 |
|
|
| 59,000 |
|
Know how (5 years) |
|
| 115,000 |
|
|
| 115,000 |
|
Brands (10 to 25 years) |
|
| 301,000 |
|
|
| 301,000 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
Licenses |
|
| 200,000 |
|
|
| 200,000 |
|
Goodwill-provisional |
|
| 2,232,941 |
|
|
| 2,221,613 |
|
Other assets |
|
| 22,879 |
|
|
| 22,879 |
|
Total assets |
|
| 3,959,297 |
|
|
| 3,961,969 |
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
| 62,292 |
|
|
| 62,292 |
|
Accrued expenses and other current liabilities |
|
| 85,120 |
|
|
| 85,120 |
|
Accrued lease obligations |
|
| 21,962 |
|
|
| 21,962 |
|
Warrant liability |
|
| 79,402 |
|
|
| 79,402 |
|
Deferred tax liability |
|
| 233,719 |
|
|
| 236,391 |
|
Convertible notes |
|
| 267,862 |
|
|
| 267,862 |
|
Other liabilities |
|
| 4,034 |
|
|
| 4,034 |
|
Total liabilities |
|
| 754,391 |
|
|
| 757,063 |
|
Net assets acquired |
| $ | 3,204,906 |
|
| $ | 3,204,906 |
|
|
|
Other
Note 7. Long term investments
Long-termLong term investments are comprisedconsisted of the following items::
|
| March 31, 2021 |
|
| December 31, 2020 |
|
| November 30, 2021 |
|
| May 31, 2021 |
| ||||
Equity investments at fair value |
| $ | 633 |
|
| $ | 477 |
| ||||||||
Debt securities classified under available-for-sale method |
| $ | 154,442 |
|
| $ | — |
| ||||||||
Equity investments measured at fair value level 1 |
|
| 5,918 |
|
|
| 9,251 |
| ||||||||
Equity investments measured at fair value level 2 |
|
| 2,384 |
|
|
| 2,934 |
| ||||||||
Equity investments under measurement alternative |
|
| 11,450 |
|
|
| 11,392 |
|
|
| 5,500 |
|
|
| 5,500 |
|
Debt securities classified under available-for-sale method |
|
| — |
|
|
| 2,500 |
| ||||||||
Total other investments |
| $ | 12,083 |
|
| $ | 14,369 |
| ||||||||
Total investments in debt and equity securities |
| $ | 168,244 |
|
| $ | 17,685 |
|
As of November 30, 2021, the Company’s debt securities under available-for-sale method include the MM Notes, described in Note 2 Basis of presentation and summary of significant accounting policies. Interest on the principal amount of the MM Notes shall accrue at an interest rate of LIBOR plus 6%, with a LIBOR floor of 2.5% and, any accrued interest shall be pay-in-kind at a price equal to the trailing 30-day volume weighted average price of the MedMen Shares, as and when such pay-in-kind interest becomes due and payable. The MM Notes, which mature in 2028, are indirectly held by the Company through its majority-owned subsidiary, SH Acquisition. The Company has the ability, in its sole discretion, to transfer its partnership interest in SH Acquisition and/or the pro rata portion of the MM Notes and the corresponding portion of accrued and unpaid pay-in-kind interest, and/or cause the redemption of the partnership interest and/or the pro rata portion of the MM Notes held by the minority interest in SH Acquisition at any time. The total unrealized loss of $16,357 in accumulated other comprehensive income at November 30, 2021 relates to the long-term available-for-sale debt securities. The Company’s allowance for credit losses on debt securities classified as available-for-sale is $0 at November 30, 2021 and 0 related credit loss expenses were recorded during the three and six months ended November 30, 2021. Comparisons are not provided for the comparable prior year periods given the MM Transaction did not close until August 17, 2021.
The Company values debt securities under available-for-sale method using the Black-Scholes model (Level 3) with the following weighted-average assumptions:
Expected term |
| 0.4 to 6.7 years |
| |
Expected volatility |
|
| 70 | % |
Effective interest rate |
|
| 20.4 | % |
Expected dividend yield |
|
| 0.0 | % |
Probability of conversion |
| 0% to 60% |
| |
Strike price |
| $0.15 to $4.29 |
| |
Fair value of common stock |
| $ | 0.22 |
|
The Company’s equity investments at fair value consist of publicly traded shares and warrants held by the Company, including certain warrants acquired with the MM Notes and exercisable for equity securities of MedMen’s Class B subordinate voting shares. The Company’s equity investment under measurement alternative includes equity investments without readily determinable fair values.
Unrealized gains and losses recognized in other expenses, netnon-operating income (expense) during the three and six months ended March 31,November 30, 2021 on equity investments still held at March 31,November 30, 2021 is $300are a loss of $1,806 and a loss of $3,883 (2020 – loss of $1,534)$399 and loss of $1,326). There were 0 impairments or adjustments to equity investments under the measurement alternative for the three and six months ended March 31,November 30, 2021 and March 31,November 30, 2020.
6
The Company collected a cash settlement of its only debt security classified under available-for-sale method instrument with the lender prior to its contractual maturity for $2,500 in February 2021.
Equity method investmentsNote 8. Accounts payable and accrued liabilities
As of March 31, 2021, thereAccounts payable and accrued liabilities are no changes to the status of the Company’s assessment of its joint ventures with Anheuser-Busch InBev (“AB InBev”) in Plain Vanilla Research Limited Partnership (“Fluent”) and the Company’s joint venture with Cannfections Group Inc. (“Cannfections”).
During the three months ended March 31, 2021, the Company made $493 capital contributions to Fluent (2020 - $0). The Company provides production support services to Fluent on a cost recovery basis. For the three months ended March 31, 2021, total fees charged were $372, (2020 - $1,880). The total amount included in accounts payable is $1,785 at March 31, 2021 (December 31, 2020 - $674). At March 31, 2021, the maximum exposure to loss is limited to the Company’s equity investment in Fluent.
During the three months ended March 31, 2021, the Company made $0 capital contributions to Cannfections (2020 - $0). At March 31, 2021, the maximum exposure to loss is limited to the Company’s equity investment in Cannfections. During the three months ended March 31, 2021, the Company incurred $448 in expenses for purchases from Cannfections (2020 - $80).
The Company’s ownership interests in its equity method investments as of March 31, 2020 and December 31, 2019 and loss from equity method investments for the three months ended March 31, 2020 were as follows:comprised of:
|
| Approximate |
|
| Carrying value |
|
| Gain (loss) from equity method investments for the three months ended |
| |||
|
| ownership % |
|
| March 31, 2021 |
|
| March 31, 2021 |
| |||
Investment in Fluent |
| 50% |
|
| $ | 4,039 |
|
| $ | (1,802 | ) | |
Investment in Cannfections |
| 50% |
|
|
| 4,061 |
|
|
| 15 |
| |
Total equity method investments |
|
|
|
|
| $ | 8,100 |
|
| $ | (1,787 | ) |
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
Trade payables |
| $ | 64,980 |
|
| $ | 57,706 |
|
Accrued liabilities |
|
| 62,915 |
|
|
| 112,594 |
|
Accrued payroll and employment related taxes |
|
| 18,403 |
|
|
| 19,390 |
|
Income taxes payable |
|
| 14,957 |
|
|
| 14,764 |
|
Accrued interest |
|
| 6,764 |
|
|
| 148 |
|
Other accruals |
|
| 281 |
|
|
| 8,211 |
|
Total |
| $ | 168,300 |
|
| $ | 212,813 |
|
|
| Approximate |
|
| Carrying value |
|
| Gain (loss) from equity method investments for the three months ended |
| |||
|
| ownership % |
|
| December 31, 2020 |
|
| March 31, 2020 |
| |||
Investment in Fluent |
| 50% |
|
| $ | 5,291 |
|
| $ | (1,819 | ) | |
Investment in Cannfections |
| 50% |
|
|
| 4,009 |
|
|
| 71 |
| |
Total equity method investments |
|
|
|
|
| $ | 9,300 |
|
| $ | (1,748 | ) |
Summary financial information for the equity method investments on an aggregate basis was as follows:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Current assets |
| $ | 8,440 |
|
| $ | 12,644 |
|
Noncurrent assets |
| $ | 7,033 |
|
| $ | 6,608 |
|
Current liabilities |
| $ | 4,505 |
|
| $ | 5,663 |
|
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenue |
| $ | 1,061 |
|
| $ | 1,392 |
|
Gross profit |
| $ | 224 |
|
| $ | 583 |
|
Net loss |
| $ | (3,574 | ) |
| $ | (3,496 | ) |
|
|
Accounts receivable
The Company maintains an allowance for credit losses at an amount sufficient to absorb losses inherent in the existing accounts receivable portfolio as of the reporting dates based on the estimate of expected net credit losses. The following table provides activity in the allowance for credit losses for the three months ended March 31, 2021 and March 31, 2020:
|
| For the three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Allowance for credit losses, January 1 |
| $ | 887 |
|
| $ | 615 |
|
Provision for expected credit losses (1) |
|
| 805 |
|
|
| 46 |
|
Write-offs charged against allowance |
|
| (439 | ) |
|
| (19 | ) |
Foreign currency translation adjustment |
|
| 14 |
|
|
| (47 | ) |
Allowance for credit losses, March 31 |
| $ | 1,267 |
|
| $ | 595 |
|
Accounts receivable balance before allowance for credit losses and provision for sales returns, March 31, 2021 and 2020 |
| $ | 30,298 |
|
| $ | 40,057 |
|
|
|
|
|
Property and equipment, net consistsNote 9. Bank indebtedness
The Company has an operating line of credit in the amount of C$1,000 which bears interest at the lender’s prime rate plus 75 basis points. As of November 30, 2021, the Company has 0t drawn on the line of credit. The operating line of credit is secured by a security interest on that certain real property at 265 Talbot St. West, Leamington, Ontario.
CC Pharma GmbH, a subsidiary of the following:Company, has 3 operating lines of credit for €8,000, €3,500, and €500 each, which bear interest at Euro Over Night Index Average plus 1.79% and Euro Interbank Offered Rate plus 3.682% respectively. As of November 30, 2021, a total of €7,353 ($8,264) was drawn down from the available credit of €12,000. The operating lines of credit are secured by a security interest in on the inventory held by CC Pharma GmbH.
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Land |
| $ | 6,674 |
|
| $ | 6,771 |
|
Buildings and leasehold improvements |
|
| 117,597 |
|
|
| 117,325 |
|
Laboratory and manufacturing equipment |
|
| 37,254 |
|
|
| 37,176 |
|
Office and computer equipment |
|
| 2,001 |
|
|
| 1,710 |
|
Right-of-use ("ROU") assets under finance lease |
|
| 15,270 |
|
|
| 15,072 |
|
Construction-in-process, not yet available for use |
|
| 49,562 |
|
|
| 49,380 |
|
|
|
| 228,358 |
|
|
| 227,434 |
|
Less: accumulated depreciation |
|
| (30,587 | ) |
|
| (27,875 | ) |
Total |
| $ | 197,771 |
|
| $ | 199,559 |
|
Refer to Note 16 for contractual commitments related to construction-in-process.
|
|
Intangible assets are comprisedFour Twenty Corporation (“420”), a subsidiary of the following items:Company, has a revolving credit facility of $20,000 which bears interest at EURIBOR plus an applicable margin. As of November 30, 2021, the Company has 0t drawn any amount on the revolving line of credit. The revolving credit facility is secured by all of 420 and SweetWater’s assets and includes a corporate guarantee by a subsidiary of the Company.
|
|
|
|
| March 31, |
|
| December 31, |
| ||||||||||||||||||||||||||
|
|
|
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||||||||
| Weighted Average Amortization Period (in years) |
|
| Cost |
|
| Accumulated Amortization |
|
| Impairment |
|
| Net |
|
| Cost |
|
| Accumulated Amortization |
|
| Impairment |
|
| Net |
| |||||||||
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 669 |
|
|
| 131 |
|
|
| 538 |
|
|
| — |
|
Customer relationships |
| 16 |
|
|
| 140,709 |
|
|
| 18,455 |
|
|
| — |
|
|
| 122,255 |
|
|
| 138,885 |
|
|
| 16,030 |
|
|
| — |
|
|
| 122,855 |
|
Developed technology |
| 10 |
|
|
| 7,322 |
|
|
| 1,525 |
|
|
| — |
|
|
| 5,797 |
|
|
| 7,227 |
|
|
| 1,325 |
|
|
| — |
|
|
| 5,902 |
|
Websites |
| 3 |
|
|
| 4,710 |
|
|
| 3,985 |
|
|
| — |
|
|
| 725 |
|
|
| 5,332 |
|
|
| 4,348 |
|
|
| — |
|
|
| 984 |
|
Trademarks and licenses |
| 5 |
|
|
| 182 |
|
|
| 70 |
|
|
| — |
|
|
| 112 |
|
|
| 9,009 |
|
|
| 1,245 |
|
|
| 7,650 |
|
|
| 114 |
|
Total |
|
|
|
|
| 152,923 |
|
|
| 24,035 |
|
|
| — |
|
|
| 128,889 |
|
|
| 161,122 |
|
|
| 23,079 |
|
|
| 8,188 |
|
|
| 129,855 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cultivation license | Indefinite |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,239 |
|
|
| — |
|
|
| 10,239 |
|
|
| — |
| |
Trademarks | Indefinite |
|
|
| 57,333 |
|
|
| — |
|
|
| — |
|
|
| 57,333 |
|
|
| 56,590 |
|
|
| — |
|
|
| — |
|
|
| 56,590 |
| |
Rights under ABG Profit Participation Arrangement | Indefinite |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,765 |
|
|
| — |
|
|
| 16,765 |
|
|
| — |
| |
Total |
|
|
|
|
| 57,333 |
|
|
| — |
|
|
| — |
|
|
| 57,333 |
|
|
| 83,594 |
|
|
| — |
|
|
| 27,004 |
|
|
| 56,590 |
|
Total intangible assets |
|
|
|
| $ | 210,256 |
|
| $ | 24,035 |
|
| $ | — |
|
| $ | 186,222 |
|
| $ | 244,716 |
|
| $ | 23,079 |
|
| $ | 35,192 |
|
| $ | 186,445 |
|
Amortization expenses for intangibles was $2,271 for
Note 10. Long-term debt
The following table sets forth the three months ended March 31, 2021 (2020 - $1,857). Expected future amortization expenses for intangible assets as at March 31, 2021 are as follows:net carrying amount of long-term debt instruments:
Year ending December 31, |
|
| Amortization |
| |
2021 (remaining nine months) |
|
| $ | 7,684 |
|
2022 |
|
| $ | 9,868 |
|
2023 |
|
| $ | 9,625 |
|
2024 |
|
| $ | 9,619 |
|
2025 |
|
| $ | 9,589 |
|
Thereafter |
|
| $ | 82,504 |
|
Total |
|
| $ | 128,889 |
|
|
|
The following table shows the change in carrying amount of goodwill:
|
| Hemp |
|
| Cannabis |
|
| Total |
| |||
Balance as of December 31, 2020 |
| $ | 136,332 |
|
| $ | 30,583 |
|
| $ | 166,915 |
|
Foreign currency translation adjustment |
|
| 1,762 |
|
|
| 402 |
|
|
| 2,164 |
|
Balance as of March 31, 2021 |
| $ | 138,094 |
|
| $ | 30,985 |
|
| $ | 169,079 |
|
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
Credit facility - C$80,000 - Canadian prime interest rate plus an applicable margin, 3-year term, with a 10-year amortization, repayable in blended monthly payments, due in November 2022 |
| $ | 56,160 |
|
| $ | 62,964 |
|
Term loan - C$25,000 - Canadian 5-year bond interest rate plus 2.73% with a minimum 4.50%, 5-year term, with a 15-year amortization, repayable in blended monthly payments, due in July 2023 |
|
| 13,015 |
|
|
| 14,335 |
|
Term loan - C$25,000 - 3.95%, compounded monthly, 5-year term with a 15-year amortization, repayable in equal monthly instalments of $188 including interest, due in April 2022 |
|
| 15,446 |
|
|
| 17,117 |
|
Term loan - C$1,250 - 3.85%, 5-year term, with a 10-year amortization, repayable in equal monthly instalments of $13 including interest, due in August 2026 |
|
| 505 |
|
|
| 587 |
|
Mortgage payable - C$3,750 - 3.85%, 5-year term, with a 20-year amortization, repayable in equal monthly instalments of $23 including interest, due in August 2026 |
|
| 2,354 |
|
|
| 2,562 |
|
Vendor take-back mortgage - C$2,850 - 6.75%, 5-year term, repayable in equal monthly instalments of $56 including interest, due in June 2021 |
|
| — |
|
|
| 92 |
|
Term loan ‐ €5,000 ‐ Euro Interbank Offered Rate plus 1.79%, 5‐year term, repayable in quarterly instalments of €250 plus interest, due in December 2023 |
|
| 2,543 |
|
|
| 3,356 |
|
Term loan ‐ €5,000 ‐ Euro Interbank Offered Rate plus 2.68%, 5‐year term, repayable in quarterly instalments of €250 plus interest, due in December 2023 |
|
| 2,543 |
|
|
| 3,356 |
|
Term loan ‐ €1,500 ‐ Euro Interbank Offered Rate plus 2.00%, 5‐year term, repayable in quarterly instalments of €98 including interest, due in April 2025 |
|
| 1,491 |
|
|
| 1,831 |
|
Term loan ‐ €1,500 ‐ Euro Interbank Offered Rate plus 2.00%, 5‐year term, repayable in quarterly instalments of €98 including interest, due in June 2025 |
|
| 1,589 |
|
|
| 1,831 |
|
Term loan - $100,000 - EUROBIR rate plus an applicable margin, 3-year term, repayable in quarterly instalments beginning March 31, 2021 of $7,500 in its first twelve months and $10,000 in each of the next two years, due in March 2024 |
|
| 89,375 |
|
|
| 98,138 |
|
Carrying amount of long-term debt |
|
| 185,021 |
|
|
| 206,169 |
|
Unamortized financing fees |
|
| (1,692 | ) |
|
| (2,061 | ) |
Net carrying amount |
|
| 183,329 |
|
|
| 204,108 |
|
Less principal portion included in current liabilities |
|
| (31,510 | ) |
|
| (36,622 | ) |
Total noncurrent portion of long-term debt |
| $ | 151,819 |
|
| $ | 167,486 |
|
Goodwill is tested for impairment annually, or more frequently when events or circumstances indicate that impairment may have occurred. No triggers have been identified in the quarter to perform additional quantitative tests.
|
|
Accrued expenses and other current liabilities are comprised of the following items:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Other accrued expenses and current liabilities |
| $ | 27,171 |
|
| $ | 24,181 |
|
Accrued litigation settlement |
|
| 20,000 |
|
|
| — |
|
Accrued payroll and employment related withholding taxes |
|
| 9,314 |
|
|
| 9,282 |
|
Accrued interest on convertible notes |
|
| 1,158 |
|
|
| 3,473 |
|
ABG finance liability - current |
|
| 1,500 |
|
|
| 1,500 |
|
Accrued legal and professional fees |
|
| 905 |
|
|
| 1,091 |
|
Accrued interest on Senior Facility |
|
| 413 |
|
|
| 419 |
|
Total accrued expenses and other current liabilities |
| $ | 60,461 |
|
| $ | 39,946 |
|
|
|
The Company has outstanding convertible senior notes with a face value of $277,857 as described in the Annual Financial Statements.
As of March 31,November 30, 2021, the convertible notes are not yet convertible, and the Company iswas in compliance with all the long-term debt covenants.
Note 11. Convertible debentures
The following table sets forth the net carrying amount of the convertible notes:debentures:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
5.00% Convertible Notes |
| $ | 277,857 |
|
| $ | 277,857 |
|
Unamortized discount |
|
| (13,977 | ) |
|
| (15,229 | ) |
Unamortized transaction costs |
|
| (4,437 | ) |
|
| (4,839 | ) |
Net carrying amount |
| $ | 259,443 |
|
| $ | 257,789 |
|
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
5.25% Convertible Notes ("APHA 24") |
| $ | 284,724 |
|
| $ | 399,444 |
|
5.00% Convertible Notes ("TLRY 23") |
|
| 270,130 |
|
|
| 268,180 |
|
Total |
| $ | 554,854 |
|
| $ | 667,624 |
|
The following table sets forth total interest expense recognized related to the convertible notes:
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Contractual coupon interest |
| $ | 3,473 |
|
| $ | 5,938 |
|
Amortization of discount |
|
| 1,253 |
|
|
| 2,009 |
|
Amortization of transaction costs |
|
| 401 |
|
|
| 588 |
|
Total |
| $ | 5,127 |
|
| $ | 8,535 |
|
|
|
On February 28, 2020, High Park Holdings Ltd., a wholly owned subsidiary of the Company (the “Borrower” or “High Park”) entered into a credit agreement, denominated in Canadian dollars (“C$”), for a senior secured credit facility in a maximum aggregate principal amount of $59,600 (C$79,800) (the “Senior Facility”).
On June 5, 2020, High Park entered into the First Amendment of the Senior Facility (the “Amendment”) which provided for interest-only payments for the remainder of its term with all outstanding principal payments due at February 28, 2022.
The Senior Facility bears interest on the outstanding principal balance at an annual rate equal to the Canadian prime rate plus 8.05%, calculated based on the daily outstanding balance of the Senior Facility calculated and compounded monthly in arrears and with no deemed reinvestment of monthly payments. Interest is due monthly throughout the term. The Company has the option to voluntarily prepay, without penalty, the outstanding amounts, in full or in part, at any time starting 6 months from the closing date subsequent to providing 75 days’ notice.
The Senior Facility has first priority claims on all North American assets of the Company and contains certain affirmative and negative covenants. The operational covenant includes a minimum unrestricted cash threshold of $29,466 (C$40,000) in order for the Company to make additional capital expenditures and investments. The Senior Facility is collateralized against all real and personal property owned, leased and operated by the Company in North America, and any and all other property of the Company now existing and acquired in North America after the closing date.
As of March 31, 2021, the Company was in compliance with all covenants set forth under the Senior Facility.
The following table sets forth the net carrying amount of the Senior Facility:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Senior Facility |
| $ | 51,161 |
|
| $ | 50,498 |
|
Unamortized transaction costs |
|
| (1,614 | ) |
|
| (2,028 | ) |
Net carrying amount |
| $ | 49,547 |
|
| $ | 48,470 |
|
Less: current portion of Senior Facility |
|
| (49,547 | ) |
|
| — |
|
Total noncurrent portion of Senior Facility |
| $ | — |
|
| $ | 48,470 |
|
The following table sets forth total interest expense recognized related to the Senior Facility:
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Contractual interest at Canadian prime plus 8.05% |
| $ | 1,325 |
|
| $ | 480 |
|
Amortization of transaction costs |
|
| 436 |
|
|
| 131 |
|
Total |
| $ | 1,761 |
|
| $ | 611 |
|
APHA 24
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
5.25% Contractual debenture |
| $ | 350,000 |
|
| $ | 350,000 |
|
Debt settlement |
|
| (90,760 | ) |
|
| (90,760 | ) |
Fair value adjustment |
|
| 25,484 |
|
|
| 140,204 |
|
Net carrying amount of APHA 24 |
| $ | 284,724 |
|
| $ | 399,444 |
|
Holders of the APHA 24 may convert all or any portion of their Notes, in multiples of $1 principal amount, at their option at any time between December 1, 2023 to the maturity date. The initial conversion rate for the APHA 24 will be 89.31162364 shares of common stock, par value $0.0001 per share, of Tilray, Inc. per $1,000 principal amount of Notes, which will be settled in cash, common shares of Aphria or a combination thereof, at Tilray’s election. This is equivalent to an initial conversion price of approximately $11.20 per common share, subject to adjustments in certain events. In addition, holders of the APHA 24 may convert all or any portion of their Notes, in multiples of $1 principal amount, at their option at any time preceding December 1, 2023, if:
|
|
(b) | during the five-business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1 principal amount of the APHA 24 for each trading day of the measurement period is less than 98% of the product of the last reported sale price of the Company’s common shares and |
(c) | the Company calls any or all of the APHA 24 for redemption or; |
(d) | upon occurrence of specified corporate event. |
The Company has outstanding warrants as describedmay not redeem the APHA 24 prior to June 6, 2022, except upon the occurrence of certain changes in tax laws. On or after June 6, 2022, the Annual Financial Statements. Warrants outstandingCompany may redeem for cash all or part of the Notes, at March 31, 2021, and related activity for the three months ended March 31, 2021 is as follows (reflects the number of Class 2 common stock asits option, if the warrants were converted to Class 2last reported sale price of the Company’s common stock):
Description |
| Classification |
| Exercise price |
|
| Expiration date |
| Balance December 31, 2020 |
|
| Issued |
|
| Exercised |
|
| Balance March 31, 2021 |
| |||||
Warrants |
| Liability |
| $ | 5.95 |
|
| March 17, 2025 |
|
| 19,000,000 |
|
|
| — |
|
|
| 12,791,000 |
|
|
| 6,209,000 |
|
|
|
|
|
|
|
|
| Total |
|
| 19,000,000 |
|
|
| — |
|
|
| 12,791,000 |
|
|
| 6,209,000 |
|
Duringshares has been at least 130% of the quarter ended March 31, 2021 12,791,000 warrants were exercised by warrant holders resultingconversion price then in cash proceeds toeffect for at least 20 trading days during any 30 consecutive trading day period ending on and including trading day immediately preceding the date on which the Company provides notice of $76,106.redemption. The redemption of the APHA 24 will be equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date.
The Company estimated the fair value of the Warrant liabilityAPHA 24 convertible debenture at March 31,November 30, 2021 at $1,098 per convertible debenture using the Monte Carlo pricingBlack-Scholes model (Level 3) with the following weighted-average assumptions:
Risk-free interest rate |
|
| 0.92 | % |
Expected volatility |
|
| 100 | % |
Expected term |
| 4.5 years |
| |
Expected dividend yield |
|
| 0 | % |
Strike price |
| $ | 5.95 |
|
Fair value of common stock |
| $ | 22.73 |
|
Discount due to exercise restrictions |
|
| 0 | % |
Risk-free interest rate | 1.43 | % | ||
Expected volatility | 70 | % | ||
Expected term | 2.5 years | |||
Expected dividend yield | 0.0 | % |
Expected volatility is based on the historical volatility of the Company's common stock.
TLRY 23
|
| November 30, |
|
| May 31, |
| ||
|
| 2021 |
|
| 2021 |
| ||
5.00% Contractual debenture |
| $ | 277,856 |
|
| $ | 277,856 |
|
Unamortized discount |
|
| (7,726 | ) |
|
| (9,676 | ) |
Net carrying amount of TLRY 23 |
| $ | 270,130 |
|
| $ | 268,180 |
|
Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of our common stock since itsor a combination of cash and shares of the Company’s common stock, at the Company’s election (the “cash conversion option”). The initial public offeringconversion rate for the convertible notes is 5.9735 shares of common stock per one thousand dollar principal amount of notes, which is equivalent to an initial conversion price of approximately $167.41 per share of common stock, which represents approximately 1,659,737 shares of common stock, based on the $277,856 aggregate principal amount of convertible notes outstanding as of May 31, 2021 (2020 - $nil). Throughout the term of the TLRY 23, the conversion rate may be adjusted upon the occurrence of certain events.
Prior to the close of business on the business day immediately preceding April 1, 2023, the TLRY 23 will be convertible only under the specified circumstances. On or after April 1, 2023 until the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of their TLRY 23, in 2018.multiples of $1 principal amount, at the option of the holder regardless of the aforementioned circumstances.
Note 12. Warrant liability
Warrants outstanding at November 30, 2021:
|
|
|
|
|
|
|
| Balance |
|
|
|
|
|
|
|
|
|
| Balance |
| ||
|
| Classification |
| Exercise Price |
| May 31, 2021 |
|
| Issued |
|
| Exercised/Expired |
|
| November 30, 2021 |
| ||||
Expiration date – September 26, 2021 |
| Equity |
| 3.08 |
|
| 166,000 |
|
|
| — |
|
|
| (166,000 | ) |
|
| — |
|
Expiration date – January 30, 2022 |
| Equity |
| 9.08 |
|
| 5,828,651 |
|
|
| — |
|
|
| — |
|
|
| 5,828,651 |
|
Expiration date – March 17, 2025 |
| Liability |
| 5.95 |
|
| 6,209,000 |
|
|
| — |
|
|
| — |
|
|
| 6,209,000 |
|
|
|
|
|
|
|
| 12,203,651 |
|
|
| — |
|
|
| (166,000 | ) |
|
| 12,037,651 |
|
Common and preferred stock
|
| November 30, 2021 |
|
| November 30, 2020 |
| ||||||||||
|
|
|
|
|
| Weighted |
|
|
|
|
|
| Weighted |
| ||
|
| Number of |
|
| average |
|
| Number of |
|
| average |
| ||||
|
| warrants |
|
| price |
|
| warrants |
|
| price |
| ||||
Outstanding, opening |
|
| 12,203,651 |
|
| $ | 7.41 |
|
|
| 5,994,651 |
|
| $ | 8.91 |
|
Exercised during the period |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Issued during the period |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Cancelled during the period |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Expired during the period |
|
| (166,000 | ) |
| $ | 3.08 |
|
|
| 0 |
|
|
| 0 |
|
Outstanding, ending |
|
| 12,037,651 |
|
| $ | 7.47 |
|
|
| 5,994,651 |
|
| $ | 8.91 |
|
The Company’s certificateCompany estimated the fair value of incorporation authorized the Company to issueWarrant liability at November 30, 2021 at $6.51 per warrant using the following classes of sharesBlack-Scholes pricing model (Level 3) with the following par value and voting rights as of March 31, 2021. The liquidation and dividend rights are identical among Class 1 common stock and Class 2 common stock, and all classes of common stock share equally in the Company’s earnings and losses.weighted-average assumptions:
|
| Par Value |
|
| Authorized |
|
| Voting Rights | ||
Class 1 common stock |
| $ | 0.0001 |
|
|
| 233,333,333 |
|
| 10 votes for each share |
Class 2 common stock |
| $ | 0.0001 |
|
|
| 500,000,000 |
|
| 1 vote for each share |
Preferred stock |
| $ | 0.0001 |
|
|
| 10,000,000 |
|
| N/A |
Risk-free interest rate |
|
| 1.40 | % |
Expected volatility |
|
| 70 | % |
Expected term |
| 3.80 years |
| |
Expected dividend yield |
|
| 0.0 | % |
Strike price |
| $ | 5.95 |
|
Fair value of common stock |
| $ | 10.12 |
|
During the three months ended March 31, 2021, theNote 13. Stock-based compensation
The Company issued 6,254,980 shares of Class 2 common stock for gross proceeds of $159,213 under its at-the-market equity offering program (2020 - $27,579). Transaction costs of $3,184 were recorded net against the allocated gross proceeds in additional paid-in-capital. As described in the Annual Financial Statements, the warrants’ anti-dilution price protection features allow, for the period the warrants are outstanding, the Company to only issue up to $20,000 in aggregate gross proceeds under the Company’s at-the-market offering program at prices less than the exercise price of the warrants, and in no event more than $6,000 per quarter, at prices below the exercise price of the warrants, without triggering the warrant’s anti-dilution price protection features.
The Company’s future ability to pay cash dividends on Class 2 common stock is limited by the terms of the Senior Facility and cannot be paid without the consent of the lender.
|
|
Original Stock Option Plan
Certain employees of the Company participate in the equity-basedoperates stock-based compensation plan of Privateer Holdings, Inc. (the “Original Plan”) under the terms and valuation method detailedplans as disclosed in our annual financial statements.Annual Report. For the three and six months ended March 31,November 30, 2021, the total stock-based compensation expense associated with was $8,253 and $17,670 (2020 - $5,489 and $8,339).
During the Original Plan was $57 (2020 – $162). As of March 31,three and six months ended November 30, 2021, the total remaining unrecognized stock-based compensation expense related to non-vestedCompany did 0t grant any further stock options under the Original Plan amounted to $193 which will be recognized over the weighted-average remaining requisite service periodor RSUs out of approximately 0.6 years.
11
Aphria’s predecessor plan.Stock option activity under the Original Plan is as follows:
|
| Stock options |
|
| Weighted- average exercise price |
|
| Weighted- average remaining contractual term (years) |
|
| Aggregate intrinsic value |
| ||||
Balance December 31, 2020 |
|
| 1,789,750 |
|
| $ | 3.62 |
|
|
| 3.8 |
|
| $ | 25,077 |
|
Exercised |
|
| (757,318 | ) |
|
| 3.17 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Cancelled |
|
| (80 | ) |
|
| 4.72 |
|
|
|
|
|
|
|
|
|
Balance March 31, 2021 |
|
| 1,032,352 |
|
| $ | 3.93 |
|
|
| 4.3 |
|
| $ | 13,660 |
|
Vested and expected to vest, March 31, 2021 |
|
| 986,020 |
|
| $ | 3.91 |
|
|
| 4.3 |
|
| $ | 13,618 |
|
Vested and exercisable, March 31, 2021 |
|
| 945,951 |
|
| $ | 3.72 |
|
|
| 4.2 |
|
| $ | 13,200 |
|
NaN stock options were granted under the Original Plan during the three months ended March 31, 2021 and March 31, 2020. The total fair value of stock options vested as of March 31, 2021 was $61 (2020 – $169).
New Stock Option and Restricted Stock Unit Plan
The Company adopted the 2018 Equity Incentive Plan (the “2018 EIP”) as amended and approved by stockholders in May 2018 under the terms and valuation methods detailed in the Annual Financial Statements. The number of shares of Class 2 common stock reserved for issuance under the 2018 EIP automatically increases on January 1 of each calendar year, for a period of not more than ten years, starting on January 1, 2019 and ending on and including January 1, 2027, in an amount equal to 4% of the total number of shares of our common stock outstanding on December 31 of the prior calendar year, or a lesser number of shares determined by our Board of Directors. The shares reserved include only the outstanding shares related to stock options and RSUs and excludes stock options outstanding under the Original Plan. The number of shares reserved for issuance under the 2018 EIP is 23,375,665, effective as of January 1, 2021 (December 31, 2020 – 17,037,421). For the three months ended March 31, 2021,Company's total stock-based compensation expense associated with the 2018 EIP was $7,084 (2020 – $7,515). As of March 31, 2021, the totalrecognized remaining unrecognized stock-based compensation expense related to non-vested stock options and restricted stock units (“RSUs”) under the 2018 EIP amounted to $29,883 which will be recognized over the weighted average remaining requisite service period of approximately 1.63 years.
Stock option and RSU activity under the 2018 EIP are as follows:
Time-based stock option activity
|
| Stock options |
|
| Weighted- average exercise price |
|
| Weighted- average remaining contractual term (years) |
|
| Aggregate intrinsic value |
| ||||
Balance December 31, 2020 |
|
| 3,909,559 |
|
| $ | 15.25 |
|
|
| 7.4 |
|
| $ | 1,700,194 |
|
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (471,211 | ) |
|
| 7.76 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
| (33,291 | ) |
|
| 8.46 |
|
|
|
|
|
|
|
|
|
Cancelled |
|
| (36,414 | ) |
|
| 42.61 |
|
|
|
|
|
|
|
|
|
Balance March 31, 2021 |
|
| 3,368,643 |
|
| $ | 16.02 |
|
|
| 7.2 |
|
| $ | 43,421 |
|
Vested and expected to vest, March 31, 2021 |
|
| 3,360,695 |
|
| $ | 15.87 |
|
|
| 7.2 |
|
| $ | 43,213 |
|
Vested and exercisable, March 31, 2021 |
|
| 2,902,957 |
|
| $ | 13.77 |
|
|
| 7.2 |
|
| $ | 38,916 |
|
The weighted-average fair values of stock options granted during the three months ended March 31, 2021 was $0 per share (2020 – $0). The total fair value of stock options vested in 2021 was $2,547 (2020 – $25,426).
Time-based RSU activity
|
| Time-based RSUs |
|
| Weighted-average grant-date fair value per share |
| ||
Non-vested December 31, 2020 |
|
| 1,884,390 |
|
| $ | 15.22 |
|
Granted |
|
| 350,311 |
|
|
| 20.02 |
|
Vested |
|
| (289,388 | ) |
|
| 15.59 |
|
Forfeited |
|
| (170,641 | ) |
|
| 11.84 |
|
Non-vested March 31, 2021 |
|
| 1,774,672 |
|
| $ | 16.33 |
|
During the three months ended March 31, 2021, 350,311 (2020 – 752,283) time-based RSUs were granted. During the three months ended March 31, 2021, 289,388 (2020 – 154,642) time-based RSUs vested.
Performance-based RSUs activity
|
| Performance-based RSUs |
|
| Weighted-average grant-date fair value per share |
| ||
Non-vested December 31, 2020 |
|
| 540,836 |
|
| $ | 7.13 |
|
Vested |
|
| (341,543 | ) |
|
| 7.18 |
|
Non-vested March 31, 2021 |
|
| 199,293 |
|
| $ | 7.05 |
|
NaN performance-based RSUs were granted during the three months ended March 31, 2021 (2020 – NaN). During the three months ended March 31, 2021, 341,543 (2020 – 53,125) performance-based RSUs vested .
|
|
The component of AOCI, net of tax, wasis as follows:
|
| Foreign Currency Translation Adjustments |
| |
Balance as at December 31, 2020 |
| $ | 8,205 |
|
Other comprehensive loss: |
|
|
|
|
Change in foreign currency translation |
|
| 3,753 |
|
Balance as at March 31, 2021 |
| $ | 11,958 |
|
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Stock options |
| $ | 1,939 |
|
| $ | 879 |
|
| $ | 4,695 |
|
| $ | 2,250 |
|
RSUs |
|
| 6,314 |
|
|
| 4,610 |
|
|
| 12,975 |
|
|
| 6,089 |
|
Total |
| $ | 8,253 |
|
| $ | 5,489 |
|
| $ | 17,670 |
|
| $ | 8,339 |
|
|
|
Legal proceedings
InFor the normal course of business,three and six months ended November 30, 2021, the Company may become involved in legal disputes regarding various litigation matters. The Company records a loss contingency if the information available indicates that it is probable that a liability has been incurred at the date of the financial statementsgranted 69,508 and the amount of loss can be reasonably estimated. As of March 31, 2021,1,414,666 performance-based RSUs, with NaN vesting in the opinionperiod (2020 – NaN and NaN). During the three and six months ended November 30, 2021, the Company accelerated the vesting of management, no claims meet the criteriaNaN and 679,000 RSUs to record a loss contingency.fully vested (2020 – NaN and NaN)
Lease commitmentsNote 14. Accumulated other comprehensive income (loss)
The Company leases various facilities, under non-cancelable finance and operating leases, which expire at various dates through September 2027.
Maturities of lease liabilities:Accumulated other comprehensive loss includes the following components:
Year ending December 31, |
| Operating Leases |
|
| Finance Leases |
| ||
2021 (remaining nine months) |
| $ | 2,861 |
|
| $ | 893 |
|
2022 |
|
| 3,498 |
|
|
| 6,165 |
|
2023 |
|
| 3,351 |
|
|
| 12,438 |
|
2024 |
|
| 2,758 |
|
|
| — |
|
2025 |
|
| 2,179 |
|
|
| — |
|
Thereafter |
|
| 6,428 |
|
|
| — |
|
Total minimum lease payments |
|
| 21,075 |
|
|
| 19,496 |
|
Less: amounts related to interest payments |
|
| 3,260 |
|
|
| 3,902 |
|
Present value of minimum lease payments |
|
| 17,815 |
|
|
| 15,594 |
|
Less: current accrued lease obligation |
|
| 2,888 |
|
|
| — |
|
Obligations recognized |
| $ | 14,927 |
|
| $ | 15,594 |
|
|
| Foreign currency translation gain (loss) |
|
| Unrealized loss on convertible notes receivables |
|
| Unrealized loss on available-for-sale debt securities |
|
| Less non-controlling interests |
|
| Total |
| |||||
Balance May 31, 2021 |
| $ | 156,417 |
|
| $ | (3,749 | ) |
| $ | — |
|
| $ | — |
|
| $ | 152,668 |
|
Other comprehensive loss |
|
| (100,772 | ) |
|
| (649 | ) |
|
| — |
|
|
| — |
|
|
| (101,421 | ) |
Balance August 31, 2021 |
| $ | 55,645 |
|
| $ | (4,398 | ) |
| $ | — |
|
| $ | — |
|
| $ | 51,247 |
|
Other comprehensive loss |
|
| (32,367 | ) |
|
| 52 |
|
|
| (16,357 | ) |
|
| 7,020 |
|
|
| (41,652 | ) |
Balance November 30, 2021 |
| $ | 23,278 |
|
| $ | (4,346 | ) |
| $ | (16,357 | ) |
| $ | 7,020 |
|
| $ | 9,595 |
|
Purchase commitmentsNote 15. Non-controlling interests
The following table tables summarize the information relating to the Company’s subsidiaries, Superhero LP, CC Pharma Nordic ApS, Aphria Diamond, and ColCanna S.A.S. before intercompany eliminations. During the three and six months ended November 30, 2021, the Company made contributions to Superhero LP of $0 and $117,804 in the form of Tilray Class 2 common shares, the Company paid dividends of C$70,000 and C$70,000 (USD$56,630) to the shareholders of Aphria Diamond (“DDH note”), with the portion allocated to the non-controlling partner settled via issuance of Tilray Class 2 common shares. There were no other contributions or distributions during the period.
Non-controlling interests as of November 30, 2021:
|
| Superhero |
|
| CC Pharma |
|
| Aphria |
|
| ColCanna |
|
| November 30, |
| |||||
|
| LP |
|
| Nordic ApS |
|
| Diamond |
|
| S.A.S. |
|
| 2021 |
| |||||
Current assets |
| $ | — |
|
| $ | 629 |
|
| $ | 82,882 |
|
| $ | 359 |
|
| $ | 83,870 |
|
Non-current assets |
|
| 154,442 |
|
|
| 134 |
|
|
| 156,004 |
|
|
| 141,952 |
|
|
| 452,532 |
|
Current liabilities |
|
| — |
|
|
| (709 | ) |
|
| (133,360 | ) |
|
| (6,639 | ) |
|
| (140,708 | ) |
Non-current liabilities |
|
| — |
|
|
| (410 | ) |
|
| (62,853 | ) |
|
| (16 | ) |
|
| (63,279 | ) |
Net assets |
| $ | 154,442 |
|
| $ | (356 | ) |
| $ | 42,673 |
|
| $ | 135,656 |
|
| $ | 332,415 |
|
Non-controlling interests as of May 31, 2021:
|
| CC Pharma |
|
| Aphria |
|
| ColCanna |
|
| May 31, |
| ||||
|
| Nordic ApS |
|
| Diamond |
|
| S.A.S. |
|
| 2021 |
| ||||
Current assets |
| $ | 919 |
|
| $ | 19,531 |
|
| $ | 315 |
|
| $ | 20,765 |
|
Non-current assets |
|
| 103 |
|
|
| 153,696 |
|
|
| 146,587 |
|
|
| 300,386 |
|
Current liabilities |
|
| (956 | ) |
|
| (28,511 | ) |
|
| (62 | ) |
|
| (29,529 | ) |
Non-current liabilities |
|
| (406 | ) |
|
| (69,332 | ) |
|
| (6,606 | ) |
|
| (76,344 | ) |
Net assets |
| $ | (340 | ) |
| $ | 75,384 |
|
| $ | 140,234 |
|
| $ | 215,278 |
|
Non-controlling interests for the six months ended November 30, 2021:
|
| Superhero |
|
| CC Pharma |
|
| Aphria |
|
| ColCanna |
|
| November 30, |
| |||||
|
| LP |
|
| Nordic ApS |
|
| Diamond |
|
| S.A.S. |
|
| 2021 |
| |||||
Revenue |
| $ | — |
|
| $ | 136 |
|
| $ | 53,101 |
|
| $ | — |
|
| $ | 53,237 |
|
Total expenses |
|
| — |
|
|
| 178 |
|
|
| 26,367 |
|
|
| 458 |
|
|
| 27,003 |
|
Net (loss) income |
|
| — |
|
|
| (42 | ) |
|
| 26,734 |
|
|
| (458 | ) |
|
| 26,234 |
|
Other comprehensive (loss) income |
|
| (16,357 | ) |
|
| 26 |
|
|
| (2,817 | ) |
|
| (4,120 | ) |
|
| (23,268 | ) |
Net comprehensive income |
| $ | (16,357 | ) |
| $ | (16 | ) |
| $ | 23,917 |
|
| $ | (4,578 | ) |
| $ | 2,966 |
|
Non-controlling interest % |
|
| 32 | % |
|
| 25 | % |
|
| 49 | % |
|
| 10 | % |
| NA |
| |
Net comprehensive (loss) income |
| $ | (5,234 | ) |
| $ | (4 | ) |
| $ | 11,719 |
|
| $ | (458 | ) |
| $ | 6,023 |
|
Non-controlling interests for the six months ended November 30, 2020:
|
| CC Pharma |
|
| Aphria |
|
| ColCanna |
|
| November 30, |
| ||||
|
| Nordic ApS |
|
| Diamond |
|
| S.A.S. |
|
| 2020 |
| ||||
Revenue |
| $ | 368 |
|
| $ | 79,515 |
|
| $ | — |
|
| $ | 79,883 |
|
Total expenses |
|
| 703 |
|
|
| 31,791 |
|
|
| 500 |
|
|
| 32,994 |
|
Net (loss) income |
|
| (335 | ) |
|
| 47,724 |
|
|
| (500 | ) |
|
| 46,889 |
|
Other comprehensive (loss) income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net comprehensive income |
| $ | (335 | ) |
| $ | 47,724 |
|
| $ | (500 | ) |
| $ | 46,889 |
|
Non-controlling interest % |
|
| 25 | % |
|
| 49 | % |
|
| 10 | % |
| NA |
| |
Net comprehensive (loss) income |
| $ | (85 | ) |
| $ | 23,385 |
|
| $ | (50 | ) |
| $ | 23,250 |
|
Note 16. Income Taxes
The determination of the Company’s overall effective tax rate requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The effective tax rate reflects the income earned and taxed in various United States federal, state, and foreign jurisdictions. Tax law changes, increases and decreases in temporary and permanent differences between book and tax items, valuation allowances against the deferred tax assets, stock-based compensation, and the Company’s future non-cancellable minimumchange in income in each jurisdiction all affect the overall effective tax rate. It is the Company’s practice to recognize interest and penalties related to uncertain tax positions in income tax expense.
The Company reported income tax benefit of $(5,671) and $(909) for the three and six months ended November 30, 2021 and income tax benefit of $(14,192) and $(20,017) for the three and six months ended November 30, 2020. The income tax expense (benefit) in the current period varies from the US statutory income tax rate and prior period primarily due to the geographical mix of earnings and losses with no tax benefit resulting from valuation allowances in certain jurisdictions.
Note 17. Commitments and contingencies
Purchase and other commitments
The Company has payments on long-term debt (refer to Note 10 Long-term debt), convertible notes (refer to Note 11 Convertible Debentures), material purchase commitments for inventoryand construction commitments as of March 31, 2021:follows:
|
| Total |
|
| 2021 (remaining nine months) |
|
|
| 2022 |
|
|
|
| 2023 |
|
|
| 2024 |
|
|
| 2025 |
|
|
| Thereafter |
|
| Total |
|
| 2022 (remaining six months) |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| Thereafter |
| ||||||||||||||||||
Purchase commitments |
| $ | 17,359 |
|
| $ | 17,359 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| |||||||||||||||||||||||||||||||||||||||||||
Long-term debt repayment |
| $ | 185,021 |
|
| $ | 34,201 |
|
| $ | 75,242 |
|
| $ | 72,045 |
|
| $ | 1,602 |
|
| $ | 990 |
|
| $ | 941 |
| ||||||||||||||||||||||||||||||||||||||
Convertible notes, principal and interest |
|
| 599,090 |
|
|
| 13,756 |
|
|
| 27,512 |
|
|
| 298,422 |
|
|
| 259,400 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||
Material purchase obligations |
|
| 28,951 |
|
|
| 12,024 |
|
|
| 14,741 |
|
|
| 1,101 |
|
|
| 407 |
|
|
| 254 |
|
|
| 424 |
| ||||||||||||||||||||||||||||||||||||||
Construction commitments |
|
| 3,534 |
|
|
| 3,534 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||
Total |
| $ | 17,359 |
|
| $ | 17,359 |
|
|
| $ | — |
|
|
| $ | — |
|
|
| $ | — |
|
|
| $ | — |
|
|
| $ | — |
|
| $ | 816,596 |
|
| $ | 63,515 |
|
| $ | 117,495 |
|
| $ | 371,568 |
|
| $ | 261,409 |
|
| $ | 1,244 |
|
| $ | 1,365 |
|
Due to the termination of a supply agreement, the Company removed $59,700 of purchase commitments from its commitments and contingencies as of March 31, Effective November 10, 2021,.
In 2018, the Company signed an agreement with Rose Lifescience Inc. (“Rose”) for distribution and marketing of product in Quebec in exchange for a minimum fee of $384 per annum for an initial term of five years. In September 2020, the Company signed an amendment to this agreement under which the Company is no longer obligated to purchase product from Rose nor pay the minimum fee. The Company will pay Rose a compensation fee based on net revenue sold in Quebec for an estimated compensation fee of approximately $8,000 through 2023. As there is 0 firm commission fee commitment, it is excluded from the above schedule. Compensation fee expense is recorded as incurred.
In 2018, the Company entered into a Producttermination and Trademark License Agreementsettlement agreement with DocklightABG Intermediate Holdings 2, LLC a related party (refer(“ABG”) and certain of its affiliates. Pursuant to Note 20),this settlement agreement, the Company terminated $6,600 in remaining guaranteed royalty payments owed to use certain intellectual property rightsABG in exchange for the payment of royalty depending upon specified percentage$3,925 as a termination fee. The termination fee was comprised of licensed product net sales,a $1,500 cash payment plus the issuance of 215,901 Class 2 common shares.
The following table presents the future undiscounted payment associated with a minimum royaltylease liabilities as of $493 per quarter. As the purchase commitment is an undeterminable variable amount, it is excluded from the above schedule.November 30, 2021:
Other commitments
|
| Operating |
|
| Finance |
| ||
|
| leases |
|
| leases |
| ||
2022 (remaining six months) |
|
| 2,071 |
|
|
| 1,114 |
|
2023 |
|
| 3,845 |
|
|
| 7,026 |
|
2024 |
|
| 3,236 |
|
|
| 2,061 |
|
2025 |
|
| 2,681 |
|
|
| 2,122 |
|
2026 |
|
| 2,898 |
|
|
| 2,186 |
|
Thereafter |
|
| 7,242 |
|
|
| 39,586 |
|
Total minimum lease payments |
| $ | 21,973 |
|
| $ | 54,095 |
|
Imputed interest |
|
| (4,240 | ) |
|
| (18,975 | ) |
Obligations recognized |
| $ | 17,733 |
|
| $ | 35,120 |
|
Legal proceedings
The Company has paymentsis and may be a defendant in lawsuits from time to time in the normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company believes the probable final outcome of such matters will not have a material adverse effect on the convertible notes (refer to Note 10), the Senior Facility (refer to Note 11), ABG finance liability and Portugal construction purchase commitments as follows:Company’s consolidated results of operations, financial position, cash flows or liquidity.
|
| Total |
|
| 2021 (remaining nine months) |
|
|
|
| 2022 |
|
|
|
| 2023 |
|
|
|
| 2024 |
|
|
|
| 2025 |
|
|
|
| Thereafter |
| |||||||
Convertible notes, principal and interest |
| $ | 319,535 |
|
| $ | 13,893 |
|
|
|
| $ | 13,893 |
|
|
|
| $ | 291,749 |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
Senior Facility, principal and interest |
|
| 56,533 |
|
|
| 4,029 |
|
|
|
|
| 52,504 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
ABG finance liability |
|
| 7,500 |
|
|
| 1,500 |
|
|
|
|
| 1,500 |
|
|
|
|
| 1,500 |
|
|
|
|
| 1,500 |
|
|
|
|
| 1,500 |
|
|
|
|
| — |
|
Portugal construction commitments |
|
| 2,778 |
|
|
| 2,778 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
Total |
| $ | 386,346 |
|
| $ | 22,200 |
|
|
|
| $ | 67,897 |
|
|
|
| $ | 293,249 |
|
|
|
| $ | 1,500 |
|
|
|
| $ | 1,500 |
|
|
|
| $ | — |
|
|
|
The Company reports 2its net revenue in 4 reporting segments: cannabis, distribution, beverage alcohol and hemp,wellness, in accordance with ASC 280 Segment Reporting. The Company generates revenues from the cannabis and hempthese segments through contracts and purchase orders with customers, each with a single performance obligation, being the sale of products. The Company determines that
Net revenue information disclosed in business segment information in Note 23 disaggregates revenue into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
For certain long-term arrangements, the Company has performance obligations for goods it has not yet delivered. For these arrangements, the Company does not have a right to bill for the undelivered goods. The Company has determined that any unbilled consideration relates entirely to the value of undelivered goods. Accordingly, the Company has not recognized revenue, and has elected not to disclose amounts, related to these undelivered goods. As of March 31, 2021 and December 31, 2020, other than accounts receivable, net of allowance for doubtful debts, the Company has 0 contract balances in the balance sheets. is comprised of:
|
|
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cannabis revenue |
| $ | 73,429 |
|
| $ | 70,155 |
|
| $ | 163,362 |
|
| $ | 137,275 |
|
Cannabis excise taxes |
|
| (14,654 | ) |
|
| (15,389 | ) |
|
| (34,138 | ) |
|
| (31,307 | ) |
Net cannabis revenue |
|
| 58,775 |
|
|
| 54,766 |
|
|
| 129,224 |
|
|
| 105,968 |
|
Beverage alcohol revenue |
|
| 14,544 |
|
|
| 754 |
|
|
| 31,027 |
|
|
| 754 |
|
Beverage alcohol excise taxes |
|
| (837 | ) |
|
| (44 | ) |
|
| (1,859 | ) |
|
| (44 | ) |
Net beverage alcohol revenue |
|
| 13,707 |
|
|
| 710 |
|
|
| 29,168 |
|
|
| 710 |
|
Distribution revenue |
|
| 68,869 |
|
|
| 73,983 |
|
|
| 136,055 |
|
|
| 140,271 |
|
Wellness revenue |
|
| 13,802 |
|
|
| — |
|
|
| 28,729 |
|
|
| — |
|
Total |
| $ | 155,153 |
|
| $ | 129,459 |
|
| $ | 323,176 |
|
| $ | 246,949 |
|
Note 19. Cost of goods sold
Cost of goods sold is comprised of:
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cannabis costs |
| $ | 45,259 |
|
| $ | 29,632 |
|
| $ | 85,450 |
|
| $ | 55,407 |
|
Beverage alcohol costs |
|
| 5,921 |
|
|
| 281 |
|
|
| 12,583 |
|
|
| 281 |
|
Distribution costs |
|
| 61,237 |
|
|
| 64,263 |
|
|
| 120,527 |
|
|
| 121,033 |
|
Wellness costs |
|
| 9,970 |
|
|
| — |
|
|
| 20,895 |
|
|
| — |
|
Total |
| $ | 122,387 |
|
| $ | 94,176 |
|
| $ | 239,455 |
|
| $ | 176,721 |
|
Note 20. General and administrative expenses
General and administrative expenses are comprised of the following items:of:
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Other expenses |
| $ | 7,613 |
|
| $ | 6,848 |
|
Salaries and benefits |
|
| 7,013 |
|
|
| 7,296 |
|
Stock-based compensation expenses |
|
| 6,493 |
|
|
| 7,138 |
|
Professional fees |
|
| 3,577 |
|
|
| 4,521 |
|
Credit loss expenses |
|
| 742 |
|
|
| 46 |
|
Loss on disposal of property and equipment |
|
| 83 |
|
|
| 457 |
|
Travel expenses |
|
| 66 |
|
|
| 963 |
|
Total |
| $ | 25,587 |
|
| $ | 27,269 |
|
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Executive compensation |
| $ | 2,237 |
|
| $ | 2,711 |
|
| $ | 5,327 |
|
| $ | 4,961 |
|
Office and general |
|
| 5,206 |
|
|
| 4,418 |
|
|
| 17,973 |
|
|
| 8,839 |
|
Salaries and wages |
|
| 8,149 |
|
|
| 8,821 |
|
|
| 23,460 |
|
|
| 18,164 |
|
Stock-based compensation |
|
| 8,253 |
|
|
| 5,489 |
|
|
| 17,670 |
|
|
| 8,339 |
|
Insurance |
|
| 4,995 |
|
|
| 2,904 |
|
|
| 9,626 |
|
|
| 6,110 |
|
Professional fees |
|
| 3,355 |
|
|
| 3,171 |
|
|
| 6,068 |
|
|
| 6,106 |
|
Travel and accommodation |
|
| 982 |
|
|
| 525 |
|
|
| 1,774 |
|
|
| 1,252 |
|
Rent |
|
| 292 |
|
|
| 234 |
|
|
| 1,058 |
|
|
| 474 |
|
Total |
| $ | 33,469 |
|
| $ | 28,273 |
|
| $ | 82,956 |
|
| $ | 54,245 |
|
Note 21. Non-operating income (expense)
Non-operating income (expense) is comprised of:
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Change in fair value of convertible debenture |
| $ | 56,353 |
|
| $ | (70,683 | ) |
| $ | 95,723 |
|
| $ | (70,343 | ) |
Change in fair value of warrant liability |
|
| 20,178 |
|
|
| — |
|
|
| 37,713 |
|
|
| — |
|
Foreign exchange loss |
|
| (10,180 | ) |
|
| (3,371 | ) |
|
| (15,904 | ) |
|
| (19,702 | ) |
Loss on long-term investments |
|
| (1,833 | ) |
|
| (399 | ) |
|
| (3,508 | ) |
|
| (1,519 | ) |
Gain from equity investees |
|
| — |
|
|
| — |
|
|
| 1,356 |
|
|
| — |
|
Other non-operating (losses) gains, net |
|
| 232 |
|
|
| 1,804 |
|
|
| (1,770 | ) |
|
| 5,556 |
|
Total |
| $ | 64,750 |
|
| $ | (72,649 | ) |
| $ | 113,610 |
|
| $ | (86,008 | ) |
|
|
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash paid for income taxes |
| $ | 103 |
|
| $ | — |
|
Cash paid for interest |
|
| 912 |
|
|
| 704 |
|
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 994 |
|
| $ | 854 |
|
Operating cash flows from finance leases |
|
| 264 |
|
|
| 142 |
|
Financing cash flows from finance leases |
|
| — |
|
|
| 105 |
|
Non-cash additions to Right-of-use assets and lease liabilities |
|
|
|
|
|
|
|
|
Operating leases |
|
| 33 |
|
|
| 423 |
|
|
|
In the normal course of business, the Company enters into related party transactions with certain entities under common control and joint ventures as described in the Annual Financial Statements and detailed below.
Leafly Holdings, Inc. (“Leafly”)
The Company has a series of agreements with Leafly providing for, among other things, data licensing, advertising and marketing activities. During the three months ended March 31, 2021, 0 operational expenses was recorded within general and administrative expenses in the statements of net loss and comprehensive loss (2020 - $129).
Docklight LLC (“Docklight”)
The Company pays Docklight a royalty fee pursuant to a brand licensing agreement which provides the Company with exclusive rights in Canada for the use of certain adult-use brands. During the three months ended March 31, 2021, royalty fees of $493 were recorded within general and administrative expenses in the statements of net loss and comprehensive loss (2020 - $221). Refer to Note 16 for purchase commitments with Docklight.
Fluent and Cannfections
The Company has joint venture arrangements with a 50% ownership and voting interest in each Fluent and Cannfections. Refer to Note 4 for details over transactions with these entities for the three months ended March 31, 2021.
|
|
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s cash and cash equivalents and accounts receivable.
The Company’s cash and cash equivalents are deposited in major financial institutions in Canada, Australia, Portugal, Germany and the United States. To date, the Company has not experienced any losses on its cash deposits. Accounts receivable are unsecured and the Company does not require collateral from its customers.
The Company is also exposed to credit risk from the potential default by any of its counterparties on its financial assets.
15
The Company evaluates the collectability of its accounts receivable and provides an allowance for credit losses as necessary (refer to Note 5).
Due to the uncertainties associated with COVID-19, the Company may be unable to accurately predict the creditworthiness of its counterparties and their ability to meet their obligations. This may result in unforeseen additional credit losses.
Foreign currency risk
The Company conducts its business in several countries and in a variety of currencies, the most significant of which are the Canadian dollar and the Euro. Consequently, the Company is exposed to foreign currency risk. A significant portion of the Company’s assets, liabilities, revenue, and expenses are denominated in Canadian dollars. A 10% change in the exchange rates for the Canadian dollar would affect the carrying value of net assets by approximately $47,220 as of March 31, 2021, with a corresponding impact to accumulated other comprehensive (loss) income. The Company is also exposed to risk related to changes in the value of the Euro due to its construction commitments in Portugal.
Interest rate risk
The Company’s exposure to changes in interest rates relates primarily to the Company’s outsanding debt. The Company is exposed to changes to the Canadian prime rate as the Senior Facility bears interest based on the Canadian prime rate plus 8.05%. The convertible notes bear interest at a fixed rate of 5% and are not publicly traded and is therefore are not affected by changes in the market interest rates. A 1% change in the Canadian prime rate would have an impact of $134 to the statements of net loss and comprehensive loss for the three months ended March 31, 2021.
Liquidity risk
The Company’s objective is to have sufficient liquidity to meet its liabilities when due. The Company monitors its cash balances and cash flows generated from operations to meet its requirements. As of March 31, 2021, the most significant financial liabilities are accounts payable, accrued expenses and other current liabilities, convertible notes and the Senior Facility.
Equity price risks
As of March 31, 2021, we held long-term equity investments at fair value and equity investments under the measurement alternative. These investment in equities were acquired as part of our strategic transactions. Accordingly, the changes in fair values of investment in equities measured at fair value or under the measurement alternative are recognized through other expense (income), net in the statements of net loss and comprehensive loss. Based on the fair value of investment in equities held as of March 31, 2021, a hypothetical decrease of 10% in the prices for these companies would reduce the fair values of the investments and result in unrealized loss recorded in other expense (income), net by $1,132. Similarly, based on the fair value of our warrant liability as of March 31, 2021, a hypothetical increase of 10% in the price for our common stock would increase the change in fair value of warrant liability by $12,290.
22. | Fair |
Financial instruments
The Company complies with ASC 820, Fair Value Measurements, for has classified its financial assetsinstruments as described in Note 3 Significant accounting policies in our Annual Report.
The carrying values of accounts receivable, bank indebtedness and accounts payable and accrued liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In general,approximate their fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active marketsdue to their short periods to maturity.
At November 30, 2021 the Company’s long-term debt of $18,305 (May 31, 2021 - $20,358) is subject to fixed interest rates. The Company’s long-term debt is valued based on discounting the future cash outflows associated with the long-term debt. The discount rate is based on the incremental premium above market rates for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points forGovernment of Canada securities of similar duration. In each period thereafter, the asset or liability, and includes situations where thereincremental premium is little, if any,held constant while the Government of Canada security is based on the then current market activity forvalue to derive the asset or liability.discount rate.
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of MarchNovember 30, 2021 and May 31, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
|
| Quoted prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| November 30, |
| ||
|
| in active |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| 2021 |
| |||||
|
| markets for |
|
| Other |
|
| Significant |
|
|
|
|
| |||||||||||||||||||
|
| identical |
|
| observable |
|
| unobservable |
|
|
|
|
| |||||||||||||||||||
|
| assets |
|
| inputs |
|
| inputs |
|
|
|
|
| |||||||||||||||||||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Total |
| ||||||||||||||||||||
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and cash equivalents |
| $ | 331,783 |
|
| $ | — |
|
| $ | — |
|
| $ | 331,783 |
| ||||||||||||||||
Convertible notes receivable |
|
| — |
|
|
| 1,560 |
|
|
| — |
|
|
| 1,560 |
| ||||||||||||||||
Equity investments measured at fair value |
| $ | 633 |
|
| $ | — |
|
| $ | — |
|
| $ | 633 |
|
|
| 5,918 |
|
|
| 2,384 |
|
|
| — |
|
|
| 8,302 |
|
Debt securities classified under available-for-sale method |
|
| — |
|
|
| — |
|
|
| 154,442 |
|
|
| 154,442 |
| ||||||||||||||||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Warrant liability |
|
| — |
|
|
| — |
|
|
| (122,804 | ) |
|
| (122,804 | ) |
|
| — |
|
|
| — |
|
|
| 40,455 |
|
|
| 40,455 |
|
Convertible Debt |
|
| — |
|
|
| (269,223 | ) |
|
| — |
|
|
| (269,223 | ) | ||||||||||||||||
Contingent consideration |
|
| — |
|
|
| — |
|
|
| 62,339 |
|
|
| 62,339 |
| ||||||||||||||||
APHA 24 Convertible debenture |
|
| — |
|
|
| — |
|
|
| 284,724 |
|
|
| 284,724 |
| ||||||||||||||||
Total recurring fair value measurements |
| $ | 633 |
|
| $ | (269,223 | ) |
| $ | (122,804 | ) |
| $ | (391,394 | ) |
| $ | 337,701 |
|
| $ | 3,944 |
|
| $ | 541,960 |
|
| $ | 883,605 |
|
|
| Quoted prices |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| in active |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| markets for |
|
| Other |
|
| Significant |
|
|
|
|
| |||
|
| identical |
|
| observable |
|
| unobservable |
|
|
|
|
| |||
|
| assets |
|
| inputs |
|
| inputs |
|
|
|
|
| |||
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
|
| Total |
| ||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments measured at fair value |
| $ | 477 |
|
| $ | — |
|
| $ | — |
|
| $ | 477 |
|
Debt securities classified as available-for-sale |
|
| — |
|
|
| — |
|
|
| 2,500 |
|
|
| 2,500 |
|
Warrant liability |
|
| — |
|
|
| — |
|
|
| (120,647 | ) |
|
| (120,647 | ) |
Convertible Debt |
|
| — |
|
|
| (239,652 | ) |
|
| — |
|
|
| (239,652 | ) |
Total recurring fair value measurements |
| $ | 477 |
|
| $ | (239,652 | ) |
| $ | (118,147 | ) |
| $ | (357,322 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| May 31, |
| |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| 2021 |
| ||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 488,466 |
|
| — |
|
| — |
|
| $ | 488,466 |
| ||
Convertible notes receivable |
| — |
|
|
| 2,485 |
|
| — |
|
|
| 2,485 |
| ||
Equity investments measured at fair value |
|
| 9,251 |
|
|
| 2,934 |
|
| — |
|
|
| 12,185 |
| |
Debt securities classified under available-for-sale method |
| — |
|
|
| — |
|
| — |
|
|
| — |
| ||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
| — |
|
| — |
|
|
| 78,168 |
|
|
| 78,168 |
| ||
Contingent consideration |
| — |
|
| — |
|
|
| 60,657 |
|
|
| 60,657 |
| ||
APHA 24 Convertible debenture |
| — |
|
| — |
|
|
| 399,444 |
|
|
| 399,444 |
| ||
Total recurring fair value measurements |
| $ | 497,717 |
|
| $ | 5,419 |
|
| $ | 538,269 |
|
| $ | 1,041,405 |
|
Items measured at fair value on a recurring basis
TheCompany’s financial assets and liabilities required to be measured on a recurring basis are its equity investments measured at fair value, convertible debt securities classified as available-for-sale, acquisition-related contingent consideration, and warrant liability.
EquityConvertible notes receivable, and equity investments recorded at fair value:value. The estimated fair value is determined using quoted market prices, broker or dealer quotations or discounted cash flows. Theseflows and is classified as Level 2. Certain equity investments recorded at fair value have quoted prices in active markets for identical assets and are classified as Level 1.
Warrant liability: Debt securities classified as available-for sale are recorded at fair value. The estimated fair value is determined using the Black-Scholes option pricing model and is classified as Level 3. The Company classified these securities as level 2 in the period of acquisition, when the valuation was determined to reflect the recent market transaction.
The warrants associated with the warrant liability are classified as Level 3 derivatives. Consequently, the estimated fair value of the warrant liability is determined using the Monte CarloBlack-Scholes pricing model (refer to Note 12).model. Until the warrants are exercised, expire, or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity, the warrant liability (which relates to warrants to purchase shares of Class 2 common stock) is marked-to-market each reporting period with the change in fair value recorded in change in fair value of warrant liability. Any significant adjustments to the unobservable inputs disclosed in the table below would have a direct impact on the fair value of the warrant liability.
The contingent consideration from the acquisition of SweetWater, first due in December 2023 and payable in cash, is determined by discounting future expected cash outflows at a discount rate of 5%. The inputs into the future expected cash outflows are classified as Level 3.
The APHA 24 Convertible Debt: This instrument is helddebentures are recorded at amortized cost.fair value. The estimated fair value is determined using quoted market prices near the reporting dateBlack-Scholes option pricing model and is classified as Level 2.3.
The opening balances of assets and liabilities categorized within Level 3 of the fair value hierarchy measured at fair value on a recurring basis are reconciled, to the closing balances as follows:
|
| Debt securities classified as available-for- sale |
|
| Warrant liability |
| ||
Opening balance as at December 31, 2020 |
| $ | 2,500 |
|
| $ | (120,647 | ) |
Additions and settlements |
|
|
|
|
|
|
|
|
Additions |
|
| — |
|
|
| — |
|
Exercise |
|
| — |
|
|
| — |
|
Settlements |
|
| (2,500 | ) |
|
| 81,223 |
|
Interest expenses, net |
|
| — |
|
|
| — |
|
Change in fair value |
|
| — |
|
|
| (83,380 | ) |
Closing balance as at March 31, 2021 |
| $ | — |
|
| $ | (122,804 | ) |
|
| APHA 24 |
|
|
|
|
|
|
|
|
|
| Debt |
|
|
|
|
| ||
|
| Convertible |
|
| Warrant |
|
| Contingent |
|
| Securities |
|
|
|
|
| ||||
|
| Debt |
|
| Liability |
|
| Consideration |
|
| AFS |
|
| Total |
| |||||
Balance, May 31, 2021 |
|
| (399,444 | ) |
|
| (78,168 | ) |
|
| (60,657 | ) |
|
| — |
|
|
| (538,269 | ) |
Additions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 170,799 |
|
|
| 170,799 |
|
Disposals |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Unrealized gain (loss) on fair value |
|
| 114,720 |
|
|
| 37,713 |
|
|
| (1,682 | ) |
|
| (16,357 | ) |
|
| 134,394 |
|
Balance, November 30, 2021 |
| $ | (284,724 | ) |
| $ | (40,455 | ) |
| $ | (62,339 | ) |
| $ | 154,442 |
|
| $ | (233,076 | ) |
|
| Quantitative information about Level 3 fair value measurements | ||||||||
|
| Fair value at March 31, 2021 |
|
| Valuation technique |
| Unobservable input |
| Range (weighted average) | |
|
|
|
|
|
|
|
|
|
|
|
Warrant liability |
| $ | (122,804 | ) |
| Monte Carlo |
| Volatility |
| 100% |
|
|
|
|
|
|
|
| Expected life |
| 0.2 years to 4.5 years (2.1 years) |
The unrealized gain (loss) on fair value for the convertible debenture, the warrant liability, contingent consideration, and debt securities classified under available-for-sale method is recognized in non-operating income (loss) using the following inputs:
Financial asset / financial liability | Valuation technique | Significant unobservable input | Inputs | |||
APHA Convertible debentures | Black-Scholes | Volatility, expected life | 70% 2.5 years | |||
Warrant liability | Black-Scholes | Volatility, expected life | 70% 3.8 years | |||
Contingent consideration | Discounted cash flows | Discount rate, achievement | 5% 100% | |||
Debt securities classified under available-for-sale method | Black-Scholes | Interest rate, conversion | 20% 0% to 60% |
Items measured at fair value on a non-recurring basis
The Company's prepayments prepaids and other current assets, long lived assets, including property and equipment, goodwill and intangible assets are measured at fair value when there is an indicator of impairment and are recorded at fair value only when an impairment charge is recognized.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There have been no changes to the Company’s capital management approach in the period. The estimated fair value ofCompany considers its cash and cash equivalents accounts receivable, net, accounts payable, accrued expenses and other current liabilities and Senior Facility at March 31, 2021 (December 31, 2020 – the fair value of all aforementioned) approximate their carrying value.marketable securities as capital.
Note 23. |
|
The Company has 2 operating segments based on major product categories:operates in 4 reporting segments. 1) cannabis operations, which encompasses the production, distribution and hemp. These operating segments are also the Company’s reportable segments.
The cannabis segment cultivates, processes and distributessale of both medical and adult-use cannabis, 2) beverage alcohol operations, which encompasses the production, marketing and sale of beverage alcohol products, in a variety3) distribution operations, which encompasses the purchase and resale of formats, as well as related accessories, on a global basis. The hemp segment processespharmaceuticals products to customers, and distributes a diverse portfolio of hemp-based natural and organic food and4) wellness products, on a global basis.which encompasses hemp foods and cannabidiol (“CBD”) products. This structure is in line with how our Chief Operating Decision Maker (“CODM”) assesses our performance and allocates resources.
The results of each segment are regularly reviewed by the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker, to assess the performance of the segmentOperating segments have not been aggregated and make decisions regarding the allocation of resources. The Company’s chief operating decision maker uses revenue and gross profit as the measure of segment profit or loss. The accounting policies of each segment are the same as those set out under the summary of significant accounting policies in Note 1. There are 0 intersegment sales or transfers.
|
| Three months ended March 31, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
| ||||||||||
|
| Revenue |
|
| Gross profit |
|
| Revenue |
|
| Gross profit |
| ||||
Cannabis |
| $ | 31,386 |
|
| $ | 9,343 |
|
| $ | 30,776 |
|
| $ | 2,926 |
|
Hemp |
| $ | 16,635 |
|
| $ | 4,160 |
|
| $ | 21,326 |
|
| $ | 7,944 |
|
Total |
| $ | 48,021 |
|
| $ | 13,503 |
|
| $ | 52,102 |
|
| $ | 10,870 |
|
Nono asset information is provided for the segments because the Company’s chief operating decision makerCODM does not review thisreceive asset information by segment on a regular basis. While the Company reported “business under development” as a fifth segment in its previous Annual Report, management determined that this no longer met the definition of a reporting segment.
TotalSegment net revenue andfrom external customers:
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
|
| 2021 |
|
|
| 2020 |
|
|
| 2021 |
|
|
| 2020 |
|
Cannabis business |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 129,224 |
|
| $ | 105,968 |
|
Distribution business |
|
| 68,869 |
|
|
| 73,983 |
|
|
| 136,055 |
|
|
| 140,271 |
|
Beverage alcohol business |
|
| 13,707 |
|
|
| 710 |
|
|
| 29,168 |
|
|
| 710 |
|
Wellness business |
|
| 13,802 |
|
|
| — |
|
|
| 28,729 |
|
|
| — |
|
Total |
| $ | 155,153 |
|
| $ | 129,459 |
|
| $ | 323,176 |
|
| $ | 246,949 |
|
Segment gross profit for the reportable segments is equal to the Company’s consolidated revenue and gross profit.from external customers:
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Gross profit for the segments |
| $ | 13,503 |
|
| $ | 10,870 |
|
General and administrative expenses |
|
| 25,587 |
|
|
| 27,269 |
|
Sales and marketing expenses |
|
| 9,739 |
|
|
| 18,326 |
|
Research and development expenses |
|
| 1,202 |
|
|
| 1,347 |
|
Depreciation and amortization expenses |
|
| 3,498 |
|
|
| 3,591 |
|
Impairment of assets |
|
| — |
|
|
| 29,839 |
|
Loss from equity method investments |
|
| 1,787 |
|
|
| 1,748 |
|
Litigation settlement |
|
| 45,000 |
|
|
| — |
|
Foreign exchange (gain) loss, net |
|
| (699 | ) |
|
| 28,069 |
|
Change in fair value of warrant liability |
|
| 263,201 |
|
|
| 71,978 |
|
Interest expenses, net |
|
| 6,916 |
|
|
| 9,146 |
|
Other expense (income), net |
|
| (1,516 | ) |
|
| 4,651 |
|
Loss before income taxes |
| $ | (341,212 | ) |
| $ | (185,094 | ) |
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cannabis business |
| $ | 13,516 |
|
| $ | 25,134 |
|
| $ | 43,774 |
|
| $ | 50,561 |
|
Distribution business |
|
| 7,632 |
|
|
| 9,720 |
|
|
| 15,528 |
|
|
| 19,238 |
|
Beverage alcohol business |
|
| 7,786 |
|
|
| 429 |
|
|
| 16,585 |
|
|
| 429 |
|
Wellness business |
|
| 3,832 |
|
|
| — |
|
|
| 7,834 |
|
|
| — |
|
Total |
| $ | 32,766 |
|
| $ | 35,283 |
|
| $ | 83,721 |
|
| $ | 70,228 |
|
Sources
Channels of Cannabis revenue were as follows:
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Dried cannabis |
| $ | 21,086 |
|
| $ | 19,696 |
|
Cannabis extracts |
|
| 10,270 |
|
|
| 10,545 |
|
Hemp products |
|
| 16,635 |
|
|
| 21,326 |
|
Accessories and other |
|
| 30 |
|
|
| 535 |
|
Total |
| $ | 48,021 |
|
| $ | 52,102 |
|
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenue from Canadian medical cannabis products |
| $ | 7,929 |
|
| $ | 6,260 |
|
| $ | 16,303 |
|
| $ | 12,640 |
|
Revenue from Canadian adult-use cannabis products |
|
| 49,535 |
|
|
| 58,175 |
|
|
| 119,128 |
|
|
| 115,123 |
|
Revenue from wholesale cannabis products |
|
| 2,259 |
|
|
| 1,440 |
|
|
| 3,959 |
|
|
| 5,232 |
|
Revenue from international cannabis products |
|
| 13,706 |
|
|
| 4,280 |
|
|
| 23,972 |
|
|
| 4,280 |
|
Less excise taxes |
|
| (14,654 | ) |
|
| (15,389 | ) |
|
| (34,138 | ) |
|
| (31,307 | ) |
Total |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 129,224 |
|
| $ | 105,968 |
|
Channels of revenue were as follows:Geographic net revenue:
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Cannabis |
|
|
|
|
|
|
|
|
Adult-use |
| $ | 19,440 |
|
| $ | 20,919 |
|
Canada - medical |
|
| 3,217 |
|
|
| 4,051 |
|
International - medical |
|
| 8,600 |
|
|
| 5,806 |
|
Bulk |
|
| 129 |
|
|
| — |
|
Total Cannabis revenue |
| $ | 31,386 |
|
| $ | 30,776 |
|
Hemp |
|
| 16,635 |
|
|
| 21,326 |
|
Total |
| $ | 48,021 |
|
| $ | 52,102 |
|
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
North America |
| $ | 72,443 |
|
| $ | 54,475 |
|
| $ | 162,986 |
|
| $ | 105,667 |
|
EMEA |
|
| 74,916 |
|
|
| 73,714 |
|
|
| 150,925 |
|
|
| 138,791 |
|
Rest of World |
|
| 7,794 |
|
|
| 1,270 |
|
|
| 9,265 |
|
|
| 2,491 |
|
Total |
| $ | 155,153 |
|
| $ | 129,459 |
|
| $ | 323,176 |
|
| $ | 246,949 |
|
Revenue attributed to geographic region based on the location of the customer was as follows:
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Canada |
| $ | 27,195 |
|
| $ | 29,488 |
|
United States |
|
| 11,043 |
|
|
| 16,530 |
|
Other countries |
|
| 9,783 |
|
|
| 6,084 |
|
Total |
| $ | 48,021 |
|
| $ | 52,102 |
|
Revenue includes excise duties of $4,646 for the three months ended March 31, 2021 (2020: $4,972).
Long-lived assets consisting of property and equipment, net of accumulated depreciation, attributed to geographic regions based on their physical location were as follows:Geographic capital assets:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
Canada |
| $ | 122,182 |
|
| $ | 122,328 |
|
Portugal |
|
| 69,704 |
|
|
| 71,988 |
|
United States |
|
| 5,830 |
|
|
| 5,182 |
|
Other countries |
|
| 55 |
|
|
| 61 |
|
Total |
| $ | 197,771 |
|
| $ | 199,559 |
|
|
| November 30, 2021 |
|
| May 31, 2021 |
| ||
North America |
| $ | 467,646 |
|
| $ | 504,575 |
|
EMEA |
|
| 132,666 |
|
|
| 140,838 |
|
Rest of World |
|
| 3,937 |
|
|
| 5,285 |
|
Total |
| $ | 604,249 |
|
| $ | 650,698 |
|
Major customers
One customer, in the Cannabis segment, accounted are defined as customers that each individually account for 20% of revenue for the three months ended March 31, 2021. One customer, in the Hemp segment, accounted for 11% of revenue for the three months ended March 31, 2021. Two customers, in the Cannabis segment, accounted for 16% and 13% of revenue, respectively, for the three months ended March 31, 2020. One customer, in the Hemp segment, accounted for 26% of revenue for the three months ended March 31, 2020.
Two customers accounted for 18% and 11%, respectively,greater than 10% of the Company’s accounts receivable balance asannual revenues. For the three and six months ended November 30, 2021 and 2020, there were 0 major customers representing greater than 10% of March 31, 2021. Three customers accounted for 17%, 16% and 11%, respectively, of the Company’s accounts receivable balance as of December 31, 2020.our annual revenues.
Note 24. | Subsequent Events |
A cannabinoid supplier (“supplier”) to Tilray, and Tilray had been engaged in binding arbitration, which commenced in March 2020 and related to a supply agreement dispute between the parties. On April 29,December 1, 2021, the parties mutually agreedCompany acquired all the membership interests in Cheese Grits, LLC, a Georgia limited liability company that owns the SweetWater Brewing Company brewery and taproom in Atlanta, Georgia (the “SW Acquisition”), which facility was previously leased to settle this matter. Pursuantthe Company. As consideration for the SW Acquisition, the Company paid a purchase price at closing equal to a settlement agreement and release, Tilray (i) paid $20,000 in cash and $5,000 in$30,665, which purchase price was satisfied through the assumption of outstanding debt as well as the issuance of 843,687 shares of Tilray’s Class 2 Common Stock tocommon stock with a fair value of $8,741. On December 17, 2021, the supplier on April 29, 2021, and (ii) agreed to pay either $15,000 inCompany issued an additional 82,224 Class 2 Common Stock or $20,000common shares with a fair value at issuance of $776 to satisfy its contractual obligations under the SW Acquisition.
On December 7, 2021, the Company acquired all the membership interests in cash, depending on certain circumstances,of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company and a leading distilled spirits brand located in Breckenridge, Colorado, widely known for its award-winning bourbon whiskey collection and innovative craft spirits portfolio (the “Breckenridge Acquisition”). As consideration for the Breckenridge Acquisition, the Company paid a purchase price in an aggregate amount equal to $102,900, which purchase price was satisfied through the supplier within nine monthsissuance of 11,245,511 shares of Tilray’s Class 2 common shares.
On December 7, 2021, the settlement date, in each case subjectCompany entered into the Second Amendment to certain upward adjustments basedCredit Agreement (the “Amendment”) with the Bank of Montreal (as amended, the “Credit Agreement”). The Amendment reduced our total outstanding long-term debt under the Credit Agreement to $79,375 and increased our current line of credit to $30,000. On December 7, 2021, the Company drew $10,000 borrowed on the trading priceline of credit.
On December 17, 2021, the Company acquired certain assets from WC IPA LLC, consisting of certain intellectual property, inventory and resale registration status of the Class 2 Common Stock. The parties also agreed to, among other things, withdraw
19
from the arbitration proceeding and to release the other party from any and all claims arising out of orassets relating to the arbitration orAlpine and Green Flash brands (the “Alpine Acquisition”). As consideration for the supply agreement. As of March 31, 2021, theAlpine Acquisition, the Company recordedpaid a purchase price in an aggregate amount equal to $5,133, which purchase price was satisfied through the litigation settlement expense in its statement of net loss and comprehensive loss to reflect the outcome of this settlement. The litigation liability is payable in a combinationpayment of cash and the issuance of 366,308 shares of the Company’s classTilray’s Class 2 common stock. The initial payments made on April 29, 2021 are reflected in accounts payable and the remaining future payment is reflected in accrued expenses. The Company also removed $59,700shares with a fair value of purchase commitments (refer to Note 16) from its commitments and contingencies as of March 31, 2021.
On April 25, 2021, the Company notified its senior secure credit facility lender that it intends to (i) terminate the commitments under the Senior Facility, and (ii) repay all outstanding loans and other obligations under the Senior Facility. On May 4, 2021, the Company repaid in full all outstanding indebtedness under its Senior Facility agreement. The Senior Facility and related security interests were terminated in conjunction with the repayment in full of $52,069 (C$64,000) of principal, as well as accrued and unpaid interest and fees of $494 (C$610), plus a prior notice prepayment fee of $1,070 (C$1,320).
As disclosed previously, on April 30, 2021 the Arrangement with Aphria was completed (refer to Note 1 for additional information regarding the Arrangement) and we paid the financial advisor transaction fee of $9,200.
$3,000.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
YouThis Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read the following discussion and analysis of our financial condition and results of operations togetherin conjunction with the unaudited financial informationConsolidated Financial Statements and the notesrelated Notes thereto included elsewherefor the period ended November 30, 2021 contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended DecemberMay 31, 2020 (“Annual Report”). Some of the information contained2021. Forward looking statements in this discussion and analysis or set forth elsewhereForm 10-Q are qualified by the cautionary statement included in this Quarterly Report on Form 10-Q including information with respect to our plans and strategy for our business and related financing, includes “forward-looking statements” withinunder the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or “forward-looking information” within the meaning of Canadian securities laws. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements and forward-looking information are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements or forward-looking information. Factors that could cause or contribute to such differences include, but are not limited to, those identified in this Quarterly Report on Form 10-Q and those discussedsub-heading “Cautionary Note Regarding Forward-Looking Statements” in the section titled “Risk Factors” set forth in Part II, Item 1Aintroduction of this Quarterly Report on Form 10-Q10-Q.
Company Overview
We are a leading global cannabis-lifestyle and consumer packaged goods company headquartered in our other SEC and Canadian public filings. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions onNew York, New York with the relevant subject. These statements are based on information available to us as oflargest global geographic footprint in the date of this Quarterly Report on Form 10-Q and while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements or forward-looking information as predictions of future events. Furthermore, such forward-looking statements or forward-looking information speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements or forward-looking information to reflect events or circumstances after the date of such statements.
Amounts are presentedindustry; including operations in thousands of United States dollars, except for shares, warrants, per share amounts and per warrant amounts or as otherwise noted. The Canadian dollar (“C$”) equivalents presented are derived using the average exchange rate during the reporting period. Amounts are individually converted by multiplyingCanada, the United States, dollarEurope, Australia, New Zealand and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body, and soul and invoke a sense of wellbeing. Tilray’s mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and wellbeing through high-quality, differentiated brands and innovative products.
In the pursuit of our strategic vision and mission, we continue to leverage our scale, expertise and capabilities to drive brand awareness and market share in Canada, Europe, the United States and the rest of world, achieve industry-leading, profitable growth and build sustainable, long-term stockholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities, including in consumer and patient insights, drive category management leadership and assess growth opportunities with the introduction of innovative new products and the entry into new markets. In addition, we are relentlessly focused on managing our cost of goods and expenses in order to maintain our strong financial position and expand our profit margins.
On April 30, 2021, upon consummation of the arrangement with Aphria Inc. (“Aphria”) pursuant to a plan of arrangement under the Business Corporations Act (Ontario) (the “Arrangement”), Aphria stockholders and Tilray stockholders owned approximately 61.2% and 38.8%, respectively, of the post-closing outstanding Tilray common stock resulting in the reverse acquisition of Tilray, whereby Tilray is the legal acquirer and Aphria is the acquirer for accounting purposes. Accordingly, as reported in our Annual Report and in this Form 10-Q, the assets and liabilities of Aphria are presented at their historical carrying values and the assets and liabilities of Tilray are recognized on the effective date of the business combination transaction and measured at fair value. The operating results for the comparable period, the three and six months ended November 30, 2020, are of those of Aphria. In conjunction with the reverse acquisition, the Company elected to adopt Aphria’s fiscal year of June 1 to May 31.
Prior to the completion of the Arrangement, our condensed consolidated financial statements were presented under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and in Canadian dollar rate to determine the Canadian dollar amount.Dollars (C$). All prior periods have been recast and are shown in this Form 10-Q under GAAP and in United States Dollars ($).
OverviewTrends and Other Factors Affecting Our Business
Market Dynamics.
Our vision is to build the world’s most trusted and valuable cannabis and hemp company. We are pioneering the future of medical, wellness and adult-use cannabis and hemp research, cultivation, processing and distribution, globally. We are one of the leading suppliers of adult-use cannabisbusiness reporting segment operates in Canada, medicinal cannabis in Germany, and a leading supplier of hemp products in North America.
We have supplied high-quality medical cannabis products to tens of thousands of patients in eighteen countries spanning five continents through our subsidiaries in Australia, Canada, Germany, Latin America and Portugal, and through agreements with established pharmaceutical distributors. We cultivate medical and adult-use cannabis in Canada and medical cannabis in Portugal. We only operate in countries where cannabis or hemp-derived cannabinoids are legal, and are permitted under all applicable federal, state, provincial and local laws.
We are witnessing a global paradigm shift regarding regulatory and consumer sentiment about cannabis and hemp. This shift is transforming a multibillion-dollaran industry from a state of prohibition to one of legalization. Medical cannabis is now authorized at the national or federal level in forty-two countries. The legal market for medical cannabisthat is still in its early stages of development. In Canada, the industry celebrated its third year of adult-use legalization in October 2021. As the industry continues to mature, there are a number of new entrants into the industry, which has led to increased competition. This competitive environment in the Canadian cannabis industry subjects us to the risk of loss of market share, price discounting by competitors, and we believeto the challenge of acquiring new customers amidst the evolving market changes. The number of licenses granted, and the number of countries with legalized regimes will continuelicensed producers ultimately authorized by Health Canada could have an adverse impact on our ability to increase over time. As this transformation occurs, we believe trusted global brands with multinational supply chains will becomecompete for market leaders by earning the confidence of patients, doctors, governments, and adult consumers around the world.
We are a leadershare in the Canadian adult-use market. We have agreements to supply certain provinces and territories with our adult-use products for sale through their established retail distribution systems. Adult-use legalization occurred in Canada on October 17, 2018. On October 17, 2019, the Canadian adult-use regulations were amended to permit the sale of new classes of cannabis products including edibles, beverages and vape products.
Canada. During the three months ended March 31,November 30, 2021, we issued 6,254,980 sharesmaintained our market leadership within Canada but experienced a decline in market share percent to 12.8% from the 15.7% market share we maintained at May 31, 2021. Prior to the end of Class 2 common stockour fiscal second quarter, the Company was primarily focused on margin maintenance in Canada. With the current market dynamics and the Company’s cost advantages, the Company adjusted its focus to be more price competitive in the value, mainstream and premium plus market categories, particularly, in vape and pre-rolled products. Management continues to explore key partnerships and acquisitions as a strategy to maintain and expand our market share position.
The cannabis industry in Europe is also in its early stages of development whereby countries within Europe are at different stages of legalization of medical and adult-use cannabis as some countries have expressed a clear political ambition to broadly legalize adult-use cannabis (Germany, Portugal, Luxembourg and Malta), some are engaging in an experiment for gross proceedsadult-use (Netherlands, Switzerland) and some are debating regulations for cannabinoid-based medicine (France, Spain, Italy, and the United Kingdom). In Europe, we believe that, despite continuing COVID-19 pressure, cannabis legalization (both medicinal and adult-use) will continue to gain traction, especially following actions of the Maltese and German governments. We also continue to believe that Tilray remains uniquely positioned to win in these markets with its infrastructure being the only company with EU-GMP cultivation facilities in two countries within Europe and our demonstrated commitment to the consistency, quality and safety of our products. Today, Germany remains the largest medical cannabis market in Europe. We are the market leader in medical cannabis within Germany with a market share of approximately $159.219.7% with our dried flower, extracts and Dronabinol products.
The following is a summary of the state of cannabis legalization within Europe:
Germany. The new coalition government led by chancellor Olaf Schulz declared its intention to legalize adult-use cannabis use, which aims to regulate the sale of adult-use cannabis.
Malta. In December 2021, Malta now allows its citizens to grow up to six plants at home, possess up to seven grams for personal use, establish a dedicated government authority, and allows the creation of social cannabis clubs. Although commercial sales are still forbidden, such achievement marks an important cornerstone for the cannabis industry in Europe.
Luxemburg. The government stated intentions to legalize adult-use cannabis in October 2021, thereby allowing cultivation, possession, and sale of seeds. However, legislation delays are due to the COVID-19 pandemic. The Luxemburg government has refined its draft bill, which we believe will be enacted in calendar year 2022.
Italy. Cannabis activists successfully set up a referendum to decriminalize domestic cannabis cultivation and remove penalties for cannabis possession through the amendment of several articles of narcotics law, which may come to a vote in calendar year 2022.
Portugal. There are currently two draft bills to allow for the consumption, cultivation, and possession of cannabis for adult use.
Switzerland. In October 2021, Switzerland announced its intention to legalize cannabis by allowing production, cultivation, trade, and consumption. In the meantime, Zurich, Switzerland's largest city, will be the location of a three-year pilot project starting in the Fall 2022 to conduct scientific studies on the cannabis market and its impact on Swiss society.
The Netherlands. The Dutch government aims to initiate an experiment involving the cultivation of cannabis for adult use to determine whether and how regulated cannabis can be legally supplied to coffee shops and what the resulting effects.
Spain. A subcommittee on cannabis was recently created and will commence its work in early February 2022 on a report leading the way for a government sponsored bill on medical cannabis.
France. France launched a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis. To date, approximately 1,000 patients are enrolled in the experiment.
United Kingdom. Medical cannabis is legal in the United Kingdom, however, there is a need to maximize both clinical research and patient benefit in a safe, cautious and ethical manner so that those patients for whom medical cannabis is shown to be effective can access it. Currently, a new piece of legislation is in discussion, which aims to improve access to cannabinoid-based medicine through two measures: (1) expanding the ability to prescribe these products to General Practitioners (GPs) who are registered with the General Medical Council and (2) establishing a commission for the assessment of cannabinoid-based medicinal products.
Acquisitions and synergies.
We have grown, and expect to continue to grow, our business through a combination of organic growth and acquisition. While we continue to execute against our strategic initiatives that we believe will result in long-term, sustainable growth, we also evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing businesses or provide us with the opportunity to enter attractive new geographic markets and/or expand our products portfolio and capabilities. We incur transaction costs in connection with identifying and completing acquisitions as well as ongoing integration costs as we integrate acquired companies and seek to achieve synergies. For the six months ended November 30, 2021, we incurred $33.7 million underof transaction costs.
In connection with the Arrangement, we committed to achieving at least $80 million of synergies in connection with the integration of Tilray and Aphria and developed a robust plan and timeline to achieve such synergies. In connection with the development of our at-the-market equity offering program.integration plan, we evaluated and optimized the organizational structure, evaluated and retained the talent and capabilities we identified as necessary to achieve our longer-term growth plan and vision, evaluated contracts and arrangements, and evaluated our supply chain and our strategic partnerships. During the six months ended November 30, 2021, we have executed on a series of synergistic actions which included:
• | We entered into a termination and settlement agreement with ABG Intermediate Holdings 2, LLC (“ABG”) and certain of its affiliates whereby we terminated the license to use certain trademarks and the obligation to pay associated royalties. Pursuant to this settlement agreement, we terminated $6.6 million in remaining guaranteed royalty payments owed to ABG in exchange for the payment of a $3.9 million termination fee. |
• | We concluded our joint venture relationship with AB InBev whereby we retained the manufacturing equipment associated with CBD and THC beverages, obtained a royalty-free, perpetual, worldwide license to utilize the technology related to the manufacture of CBD and THC beverages, which was developed by the joint venture and negotiated a co-manufacturing arrangement to manufacture CBD beverages on behalf of Fluent. |
• | We continued efforts to close down the legacy-Tilray Canadian facilities in Nanaimo and Enniskillen and integrate their forecasted demand into our Leamington facilities, thereby aligning our cost structure across our brands and products in Canada. |
As of the date of this filing, we have achieved $70 million in cost-savings on a run-rate basis and $36 million in actual cash-savings.
During the threesix months ended March 31, 2021, we issued 12,791,000 shares of Class 2 common stock related to the exercise of outstanding warrants for gross proceeds of approximately $76.1 million.
On AprilNovember 30, 2021, we also executed on other strategic transactions, which completed an arrangement pursuantafter the end of our fiscal quarter ended November 30, 2021 but before the filing of this Form 10-Q, as follows (Refer to an Arrangement Agreement dated as of December 15, 2020 (as amended,Part I, Financial Information, Note 24 Subsequent Events):
• | The acquisition of Breckenridge Distillery, a leading distilled spirits brand located in Breckenridge, Colorado, widely known for its award-winning bourbon whiskey collection and innovative craft spirits portfolio. Breckenridge Distillery joins SweetWater Brewing Company as the cornerstones of Tilray’s beverage alcohol segment and further diversifies the company’s net revenue mix. In addition to acquiring a strong brand and accretive business, this strategic acquisition delivers additional scale in the beverage alcohol category and further positions Tilray with additional infrastructure and a larger footprint in the U.S. market upon federal cannabis legalization. When federally permissible, Tilray believes the acquisition of Breckenridge Distillery will enable us to commercialize new and innovative products through the development of non-alcoholic distilled spirits, including bourbon whisky, that is infused with cannabis. |
• | The purchase of the previously leased SweetWater Brewing facility and taproom located in Atlanta, Georgia, which provides SweetWater with ownership of its state-of-the-art brewing facilityand integrated restaurant and live music venue. |
• | Building upon SweetWaters’s strategic plan to expand into all 50 states within the U.S., we acquired the Alpine and Green Flash brands, two iconic West Coast craft beer brands that boast award-winning brews. This strategic acquisition was completed shortly after SweetWater announced plans to move into a 32,450-square-foot production facility in Fort Collins, Co that it recently acquired, which also includes a 10,000-square-foot taproom. We believe that these initiatives, coupled with SweetWater’s new taproom inside Denver International Airport, will provide a launch pad for SweetWater to further distribute to the West Coast. |
The Coronavirus ("COVID-19") Pandemic, Its Impact on Us
We continuously address the “Arrangement Agreement”) with Aphria Inc. (“Aphria”), pursuant to which we acquired alleffects of the issuedCOVID-19 pandemic, a discussion of which is available in sections entitled "Risk Factors" in Item 1A of Part I and outstanding common shares“The Coronavirus ("COVID-19") Pandemic, Its Impact on Us” in Item 7 of Aphria pursuant to a plan of arrangement (the “Plan of Arrangement”) underour Annual Report on Form 10-K for the Business Corporations Act (the “Arrangement”). Each outstanding common share of Aphria outstanding immediately prior tofiscal year ended May 31, 2021.
During the effective timethree and six months ended November 30, 2021, our business operations experienced the following as result of the Arrangement was transferredCOVID-19 pandemic:
Our Canadian adult-use cannabis business continued to Tilray in exchange for 0.8381 of a share of Tilray Class 2 common stock. As of March 31, 2021, the
21
Arrangement had not yet been completed and as such, this Management’s Discussion and Analysis does not reflectexperience the effect of the Arrangement.
COVID-19
Thechanges in consumer demand that were established during the onset of COVID-19 pandemic and various government stepsperiods of lockdown. As we have previously reported, consumers shifted their demand behavior to reducepurchasing elections based primarily on pricing. This consumer model of purchasing eroded the spreadsales of COVID-19 have had and continueour higher quality, higher priced brands resulting in our market share reduction during the period. Our Canadian medical cannabis business experienced a slight uptick in patient demand. Our international cannabis business continued to have a significant impact onexperience delays from regulatory authorities overseeing access to medical cannabis in several European jurisdictions. In accessible markets, the way people live, work and interact and have significantly impacted and will likely continueaccess to impact economic activity aroundphysician practices remains limited due to protective measures in place throughout Germany, slowing down the world.
Duringadoption of cannabis as an innovative treatment option. Our distribution business experienced slight improvement in the global supply chain disrupted by the COVID-19 pandemic manyresulting in a modest increase in net revenue in its base currency but due to the weakening of the marketsUS dollar against the Euro resulted in which we producea decrease in sales from the prior year’s comparable period. Our beer and sell our products have experienced unprecedented “lockdowns” or “stay at home” orders, and other government mandated restrictions to try and reduce the spread of COVID-19. The situationalcohol business continues to be uncertainsee a decline in on-premise business primarily as the on-premise industry dealt with a lack of staffing and varies by market as infection rates of COVID-19 remain high in many regions throughout the world including Canada, Portugal, and Germany where we either have production facilities, sales efforts, or both. Because our products have been deemed essential products, we have been ablea change demand pattern related to continue operating our business.after work alcohol consumption. The health, safety and well-being of our employees has been and remains our first priority. Many of our employees continue to work from home. In those instances where our employees cannot perform their work at home, such as in our production facilities, we have implemented additional health and safety measures and social distancing protocols, consistent with government recommendations and requirements, to help to ensure their safety.
During the comparable quarter in 2020, and as a resultcontinued impact of the COVID-19 pandemic we saw an increasehas hampered revenue growth in demand for our cannabis products driven bymain consumer pantry-loading and increased consumptionfacing markets. Within the hemp food segment of our products duebusiness, we continue to concerns about future availability of productsnavigate the changes with growth in ecommerce and or concerns about whether retail locations that sell our products would remain open. During“click + pickup” channels offsetting declines in traditional retailer channels as consumer shopping behaviors shift.
Our business and operating results for the quarterthree and six months ended March 31,November 30, 2021 some of our key markets, including Canada and Germany, experienced severe restrictions on patients and consumers and the retail locations at which patients and consumers purchase our products. As a result of these restrictions we believe demand for our products was subdued during the period. Despitecontinue to be impacted by the COVID-19 pandemic, we have been able to keep up with fluctuating patientincluding Delta and consumer demand for our products and have continued to introduce new products in the market.
Omicron variants. The COVID-19 pandemic remains highly volatile, and the various government steps to reduceresponses of local governments based on numbers of new cases, disease severity, risk of reinfection, and vaccine performance continue are unpredictable. We cannot accurately predict the spread have impacted and mayduration or extent of the impact of the COVID-19 virus. We will continue to impactassess our patients’operations and consumers’ abilitywill continue to access and purchase our products. These steps may also inhibit our ability to produce products at our various facilities. While we believe consumer demand for our products remains strong, due toconsider the uncertainties surroundingguidance of local governments throughout the COVID-19 and itsworld. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our patients’results of operations, financial condition and consumers’ ability to access and purchase our products,cash flows from operations.
Results of Operations
Our consolidated results, in thousands except for per share data, are as well the uncertainties about whether we will be able to continue operations at our productions facilities, there remains commensurate uncertainty about the overall impact the pandemic may have on our business in the future. We generally expect COVID-19 to continue to impact patient and consumer behavior and access to products and present uncertainty in the markets in which we do business. Despite the uncertainty presented by COVID-19 our current forecasts show our cash balances will be sufficient to satisfy our working capital needs, debt payments, and general liquidity requirements.follows:
|
| For the three months November 30, |
|
| Change |
|
| % Change |
|
| For the six months November 30, |
|
| Change |
|
| % Change |
| ||||||||||||||
(in thousands of U.S. dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net revenue |
| $ | 1,55,153 |
|
| $ | 1,29,459 |
|
| $ | 25,694 |
|
|
| 20 | % |
| $ | 3,23,176 |
|
| $ | 2,46,949 |
|
| $ | 76,227 |
|
|
| 31 | % |
Cost of goods sold |
|
| 1,22,387 |
|
|
| 94,176 |
|
|
| 28,211 |
|
|
| 30 | % |
|
| 2,39,455 |
|
|
| 1,76,721 |
|
|
| 62,734 |
|
|
| 35 | % |
Gross profit |
|
| 32,766 |
|
|
| 35,283 |
|
|
| (2,517 | ) |
|
| (7 | %) |
|
| 83,721 |
|
|
| 70,228 |
|
|
| 13,493 |
|
|
| 19 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 33,469 |
|
|
| 28,273 |
|
|
| 5,196 |
|
|
| 18 | % |
|
| 82,956 |
|
|
| 54,245 |
|
|
| 28,711 |
|
|
| 53 | % |
Selling |
|
| 9,210 |
|
|
| 6,079 |
|
|
| 3,131 |
|
|
| 52 | % |
|
| 16,642 |
|
|
| 11,896 |
|
|
| 4,746 |
|
|
| 40 | % |
Amortization |
|
| 29,016 |
|
|
| 4,208 |
|
|
| 24,808 |
|
|
| 590 | % |
|
| 59,755 |
|
|
| 8,335 |
|
|
| 51,420 |
|
|
| 617 | % |
Marketing and promotion |
|
| 7,120 |
|
|
| 4,252 |
|
|
| 2,868 |
|
|
| 67 | % |
|
| 12,585 |
|
|
| 9,177 |
|
|
| 3,408 |
|
|
| 37 | % |
Research and development |
|
| 515 |
|
|
| 225 |
|
|
| 290 |
|
|
| 129 | % |
|
| 1,300 |
|
|
| 345 |
|
|
| 955 |
|
|
| 277 | % |
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 33,699 |
|
|
| 20,664 |
|
|
| 13,035 |
|
|
| 63 | % |
Total operating expenses |
|
| 87,450 |
|
|
| 61,243 |
|
|
| 26,207 |
|
|
| 43 | % |
|
| 2,06,937 |
|
|
| 1,04,662 |
|
|
| 1,02,275 |
|
|
| 98 | % |
Operating loss |
|
| (54,684 | ) |
|
| (25,960 | ) |
|
| (28,724 | ) |
|
| 111 | % |
|
| (1,23,216 | ) |
|
| (34,434 | ) |
|
| (88,782 | ) |
|
| 258 | % |
Interest expense, net |
|
| (9,940 | ) |
|
| (4,832 | ) |
|
| (5,108 | ) |
|
| 106 | % |
|
| (20,110 | ) |
|
| (10,568 | ) |
|
| (9,542 | ) |
|
| 90 | % |
Non-operating (expense) income, net |
|
| 64,750 |
|
|
| (72,649 | ) |
|
| 1,37,399 |
|
|
| (189 | %) |
|
| 1,13,610 |
|
|
| (86,008 | ) |
|
| 1,99,618 |
|
|
| (232 | %) |
Income (loss) before income taxes |
|
| 126 |
|
|
| (1,03,441 | ) |
|
| 1,03,567 |
|
|
| (100 | %) |
|
| (29,716 | ) |
|
| (1,31,010 | ) |
|
| 1,01,294 |
|
|
| (77 | %) |
Income taxes (recovery) |
|
| (5,671 | ) |
|
| (14,192 | ) |
|
| 8,521 |
|
|
| (60 | %) |
|
| (909 | ) |
|
| (20,017 | ) |
|
| 19,108 |
|
|
| (95 | %) |
Net income (loss) |
|
| 5,797 |
|
|
| (89,249 | ) |
|
| 95,046 |
|
|
| (106 | %) |
|
| (28,807 | ) |
|
| (1,10,993 | ) |
|
| 82,186 |
|
|
| (74 | %) |
Key Operating Metrics
We use the following key operating metrics to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions.
Other companies, including companies in our industry, may calculate key operating metrics with similar names differently which may reduce their usefulness as comparative measures.
(financial data is expressed in United States dollars) Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis.
|
| Three months ended March 31, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Kilograms equivalents sold - cannabis |
|
| 6,277 |
|
|
| 5,794 |
|
|
| 483 |
|
|
| 8 | % |
Kilograms harvested - cannabis |
|
| 10,969 |
|
|
| 9,532 |
|
|
| 1,437 |
|
|
| 15 | % |
Thousand units sold - hemp products |
|
| 2,438 |
|
|
| 1,878 |
|
|
| 560 |
|
|
| 30 | % |
Average net selling price per gram - cannabis |
| $ | 5.00 |
|
| $ | 5.28 |
|
| $ | (0.28 | ) |
|
| (5 | )% |
Average cost per gram sold - cannabis |
| $ | 3.56 |
|
| $ | 3.97 |
|
| $ | (0.41 | ) |
|
| (10 | )% |
Average gross selling price per unit - hemp products |
| $ | 6.82 |
|
| $ | 11.35 |
|
| $ | (4.53 | ) |
|
| (40 | )% |
|
| For the three months ended November 30, |
|
| For the six months ended November 30, |
| ||||||||||
(in thousands of U.S. dollars) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net cannabis revenue |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 1,29,224 |
|
| $ | 1,05,968 |
|
Net beverage alcohol revenue |
|
| 13,707 |
|
|
| 710 |
|
|
| 29,168 |
|
|
| 710 |
|
Distribution revenue |
|
| 68,869 |
|
|
| 73,983 |
|
|
| 1,36,055 |
|
|
| 1,40,271 |
|
Wellness revenue |
|
| 13,802 |
|
|
| — |
|
|
| 28,729 |
|
|
| — |
|
Cannabis gross margin |
|
| 23 | % |
|
| 46 | % |
|
| 34 | % |
|
| 48 | % |
Cannabis adjusted gross margin |
|
| 43 | % |
|
| 46 | % |
|
| 43 | % |
|
| 48 | % |
Beverage alcohol gross margin |
|
| 57 | % |
|
| 60 | % |
|
| 57 | % |
|
| 60 | % |
Distribution gross margin |
|
| 11 | % |
|
| 13 | % |
|
| 11 | % |
|
| 14 | % |
Wellness gross margin |
|
| 28 | % |
| NA |
|
|
| 27 | % |
| NA |
| ||
Adjusted EBITDA |
|
| 13,760 |
|
|
| 10,139 |
|
|
| 26,457 |
|
|
| 18,209 |
|
Cash and cash equivalents |
|
| 3,31,783 |
|
|
| 1,48,205 |
|
|
| 3,31,783 |
|
|
| 1,48,205 |
|
Working capital |
|
| 3,93,350 |
|
|
| 3,21,904 |
|
|
| 3,93,350 |
|
|
| 3,21,904 |
|
Free cash flow |
|
| (24,093 | ) |
|
| (6,863 | ) |
|
| (1,25,940 | ) |
|
| (76,918 | ) |
Adjusted free cash flow |
|
| (15,973 | ) |
|
| 11,343 |
|
|
| (69,430 | ) |
|
| (56,254 | ) |
NA=This reporting segment did not exist in the prior year period. The related acquisition occurred thereafter.
Segment Reporting
Management updated our reporting segments during the six months ended November 30, 2021. While the Company reported “business under development” as a fifth reporting segment in its previous Annual Report, management determined that this no longer met the definition of a reporting segment. Our reporting segments revenue is primarily comprised of revenues from our cannabis, distribution, beverage alcohol operations, and wellness, as follows:
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of U.S. dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Cannabis business |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 4,009 |
|
|
| 7 | % |
| $ | 1,29,224 |
|
| $ | 1,05,968 |
|
| $ | 23,256 |
|
|
| 22 | % |
Distribution business |
|
| 68,869 |
|
|
| 73,983 |
|
|
| (5,114 | ) |
|
| (7 | %) |
|
| 1,36,055 |
|
|
| 1,40,271 |
|
|
| (4,216 | ) |
|
| (3 | %) |
Beverage alcohol business |
|
| 13,707 |
|
|
| 710 |
|
|
| 12,997 |
|
| NM |
|
|
| 29,168 |
|
|
| 710 |
|
|
| 28,458 |
|
| NM |
| ||
Wellness business |
|
| 13,802 |
|
|
| — |
|
|
| 13,802 |
|
| NM |
|
|
| 28,729 |
|
|
| — |
|
|
| 28,729 |
|
| NM |
| ||
Total net revenue |
| $ | 1,55,153 |
|
| $ | 1,29,459 |
|
| $ | 25,694 |
|
|
| 20 | % |
| $ | 3,23,176 |
|
| $ | 2,46,949 |
|
| $ | 76,227 |
|
|
| 31 | % |
Our geographic revenue is, as follows:
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of U.S. dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
North America |
| $ | 72,443 |
|
| $ | 54,475 |
|
| $ | 17,968 |
|
|
| 33 | % |
| $ | 1,62,986 |
|
| $ | 1,05,667 |
|
| $ | 57,319 |
|
|
| 54 | % |
EMEA |
|
| 74,916 |
|
|
| 73,714 |
|
|
| 1,202 |
|
|
| 2 | % |
|
| 1,50,925 |
|
|
| 1,38,791 |
|
|
| 12,134 |
|
|
| 9 | % |
Rest of World |
|
| 7,794 |
|
|
| 1,270 |
|
|
| 6,524 |
|
|
| 514 | % |
|
| 9,265 |
|
|
| 2,491 |
|
|
| 6,774 |
|
|
| 272 | % |
Total net revenue |
| $ | 1,55,153 |
|
| $ | 1,29,459 |
|
| $ | 25,694 |
|
|
| 20 | % |
| $ | 3,23,176 |
|
| $ | 2,46,949 |
|
| $ | 76,227 |
|
|
| 31 | % |
Kilogram equivalents sold – cannabis.
Our We sell two product categories: (1) dried cannabis, which includes whole flower, ground flower and pre-roll products, and (2) cannabis extracts, which includes full-spectrum and purified oil drops and capsules, and product formats infused with cannabis extract suchgeographic capital assets are, as edibles and vape products. follows:
(in thousands of U.S. dollars) |
| November 30, 2021 |
|
| May 31, 2021 |
|
| 2021 vs. 2020 |
| |||||||
North America |
| $ | 4,67,646 |
|
| $ | 5,04,575 |
|
| $ | (36,929 | ) |
|
| (7 | %) |
EMEA |
|
| 1,32,666 |
|
|
| 1,40,838 |
|
|
| (8,172 | ) |
|
| (6 | %) |
Rest of World |
|
| 3,937 |
|
|
| 5,285 |
|
|
| (1,348 | ) |
|
| (26 | %) |
Total capital assets |
| $ | 6,04,249 |
|
| $ | 6,50,698 |
|
| $ | (46,449 | ) |
|
| (7 | %) |
Cannabis extracts are converted to flower equivalent gramsrevenue
Cannabis revenue based on the typemarket channel is, as follows:
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of US dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Revenue from Canadian medical cannabis products |
| $ | 7,929 |
|
| $ | 6,260 |
|
| $ | 1,669 |
|
|
| 27 | % |
| $ | 16,303 |
|
| $ | 12,640 |
|
| $ | 3,663 |
|
|
| 29 | % |
Revenue from Canadian adult-use cannabis products |
|
| 49,535 |
|
|
| 58,175 |
|
| $ | (8,640 | ) |
|
| (15 | %) |
|
| 1,19,128 |
|
|
| 1,15,123 |
|
| $ | 4,005 |
|
|
| 3 | % |
Revenue from wholesale cannabis products |
|
| 2,259 |
|
|
| 1,440 |
|
| $ | 819 |
|
|
| 57 | % |
|
| 3,959 |
|
|
| 5,232 |
|
| $ | (1,273 | ) |
|
| (24 | %) |
Revenue from international cannabis products |
|
| 13,706 |
|
|
| 4,280 |
|
| $ | 9,426 |
|
|
| 220 | % |
|
| 23,972 |
|
|
| 4,280 |
|
| $ | 19,692 |
|
|
| 460 | % |
Total cannabis revenue |
|
| 73,429 |
|
|
| 70,155 |
|
| $ | 3,274 |
|
|
| 5 | % |
|
| 1,63,362 |
|
|
| 1,37,275 |
|
| $ | 26,087 |
|
|
| 19 | % |
Excise taxes |
|
| (14,654 | ) |
|
| (15,389 | ) |
| $ | 735 |
|
|
| (5 | %) |
|
| (34,138 | ) |
|
| (31,307 | ) |
| $ | (2,831 | ) |
|
| 9 | % |
Total cannabis net revenue |
| $ | 58,775 |
|
| $ | 54,766 |
|
| $ | 4,009 |
|
|
| 7 | % |
| $ | 1,29,224 |
|
| $ | 1,05,968 |
|
| $ | 23,256 |
|
|
| 22 | % |
Revenue from Canadian medical cannabis products: Revenue from Canadian medical cannabis products increased 27% to $7.9 million and number of dried cannabis grams required29% to produce extracted cannabis in the form of cannabis oils infused into the final product. This conversion ratio is based on the amount of active cannabinoids in the products rather than the volume of the final product.
Total kilogram equivalents sold increased 8%$16.3 million for the three and six months ended March 31,November 30, 2021, compared to revenue of $6.3 million and $12.6 million for the prior year same periods. This increase in revenue from medical cannabis products is primarily driven by the contributions of legacy Tilray’s medical cannabis business resulting from the comparable period in 2020 primarilybusiness combination of April 30, 2021. The increase is also due to growthnew innovative product launches, including our new brand Symbios launched earlier in our internationalthe year, to address unmet medical sales. We expect continued increasesneeds and to provide patients with more choices in kilogram equivalents grams sold as we generate sales growth in our key cannabis businesses; adult-use and international medical.
Kilograms harvested – cannabis. Kilograms harvested representsmanaging their health conditions with medical products. There has been some offset from downward pressure caused by the weight of dried whole plants post-harvest, drying and curing. This operating metric is usedCOVID-19 pandemic from patients unable or unwilling to measure the production efficiency of our facilities and production team.
Total kilograms harvested increased by 15% for the three months ended March 31, 2021 from the comparable periods in 2020 primarily due to additional operating capacity at our Portugal facility.
Thousand units sold – hemp products. Our subsidiary, FHF Holdings Ltd. (“Manitoba Harvest”)sells hemp products such as shelled hemp seed, ground hemp, broad spectrum hemp extract containing CBD and hemp seed oil that are tracked by individual units.
Hemp products sold for the three months ended March 31, 2021 increased 30% from the comparable period in 2020. The increase was assee a result of our large format retail customers shifting to larger size private label offerings,doctor as well as increased promotional activity withincompetition from the Club and US Retail channels. Looking forward, the number of units sold is likely to continue to increase as sales volumes rise.
Average net selling price per gram – cannabis. The average net selling price per gram is an indicator of our pricing trends over time on a gram equivalent basis and is impacted by sales mix, channel and product type. We exclude revenue associated with hemp products, accessories, and freight sales, to arrive at cannabis-related revenue. We calculate average net selling price per gram by dividing total cannabis-related revenue by total kilogram equivalents sold. As Cannabis 2.0 products become a larger percentage of our mix, and because Cannabis 2.0 products include more value-added activitiesadult-rec and the cannabis inputs will be a lower portion of the overall cost and value of the products, we may change this operating metric from per gram to per unit measures in the future.price compression therein.
The average net selling price per gram Revenue from Canadian adult-use cannabis products: During the three and six months ended November 30, 2021, our gross revenue from Canadian adult-use cannabis product decreased by 5%15% to $49.5 million and increased 3% to $119.1 million for the three and six months ended March 31,November 30, 2021 from the comparable period in 2020 duecompared to increased competitive pricing in the adult-use segment. Generally, we expect our average net selling price to increase over time as our international medical sales make up a greater percentagerevenue of our total sales$58.2 million and we continue to introduce higher-priced Cannabis 2.0 products in our adult-use business.
Average cost per gram sold – cannabis. The average cost per gram sold measures the efficiency of our cultivation, manufacturing and fulfillment operations. We exclude hemp products, inventory valuation adjustments and the cost of sales related to accessories from total cost of sales to arrive at cannabis-related cost of sales. Cannabis-related cost of sales is then divided by total kilogram equivalents sold to calculate the average cost per gram sold. As Cannabis 2.0 products become a larger percentage of our mix, and because the Cannabis 2.0 products include other input costs that can be a greater portion of the unit cost than the cannabis ingredients, we may change this operating metric from per gram to per unit measures in the future.
The average cost per gram sold decreased by 10%$115.1 million for the prior year same periods.The three months ended March 31, 2021 from the comparable periodmonth decreases in 2020 primarily as a result of reduced cost structures at our facilities due to our cost cutting efforts during 2020, better throughput and cost absorption at our High Park Holdings processing facility, and partially due to the availability of low cost product from third parties. We expect to see continued improvement in our cost per gram metric as we continue to leverage our cost reductions, including the closure of High Park Gardens which was a relatively high cost facility to operate, and identify additional ways to optimize our production activities.
Average gross selling price per unit – hemp products. The average gross selling price per unitrevenue is an indicator of our pricing trends over time on a unit basis for our hemp products and is impacted by sales mix, channel and product type. We exclude revenue associated with cannabis, accessories and freight sales to arrive at hemp product-related revenue. We calculate average gross selling price per unit by dividing hemp product-related revenue by units sold.
The average gross selling price per unit decreased by 40% during the three months ended March 31, 2021 from the comparable period in 2020 primarily due to increased salesa series of lower priced private label products.
Critical Accounting Policies and Significant Judgments and Estimates
There were no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Results of Operations
Financial data is expressed in thousands of United States dollars, unless otherwise noted.
Condensed Consolidated Statements of Net Loss Data
(in thousands of United States dollars)
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Revenue |
| $ | 48,021 |
|
| $ | 52,102 |
|
Cost of sales |
|
| 34,518 |
|
|
| 41,232 |
|
Gross profit |
|
| 13,503 |
|
|
| 10,870 |
|
General and administrative expenses |
|
| 25,587 |
|
|
| 27,269 |
|
Sales and marketing expenses |
|
| 9,739 |
|
|
| 18,326 |
|
Research and development expenses |
|
| 1,202 |
|
|
| 1,347 |
|
Depreciation and amortization expenses |
|
| 3,498 |
|
|
| 3,591 |
|
Impairment of assets |
|
| — |
|
|
| 29,839 |
|
Loss from equity method investments |
|
| 1,787 |
|
|
| 1,748 |
|
Litigation settlement |
|
| 45,000 |
|
|
| — |
|
Operating loss |
|
| (73,310 | ) |
|
| (71,250 | ) |
Foreign exchange (gain) loss, net |
|
| (699 | ) |
|
| 28,069 |
|
Change in fair value of warrant liability |
|
| 263,201 |
|
|
| 71,978 |
|
Interest expenses, net |
|
| 6,916 |
|
|
| 9,146 |
|
Other (income) expenses, net |
|
| (1,516 | ) |
|
| 4,651 |
|
Loss before income taxes |
|
| (341,212 | ) |
|
| (185,094 | ) |
Deferred income tax recoveries |
|
| (635 | ) |
|
| (1,272 | ) |
Current income tax expenses |
|
| 378 |
|
|
| 301 |
|
Net loss |
| $ | (340,955 | ) |
| $ | (184,123 | ) |
Other Financial Data |
|
|
|
|
|
|
|
|
Adjusted EBITDA (1) |
| $ | (6,283 | ) |
| $ | (18,152 | ) |
factors, as follows:
|
|
• | We continued to experience a shift in retail cannabis demand to price-based brands during the COVID-19 pandemic. The decline is primarily due to shifting consumer trends to price compression in the market, magnified by consumer behavior during the lockdowns; and |
• | We also experienced additional declines in average gross selling price due to increased price-based competition in the more recent months from increased competition in the market. During the three months ended November 30, 2021, we maintained our market leadership but experienced a |
We continue to focus on expanding our product offerings to accommodate the changes in our adult-use customers, During the first quarter, we completed our first shipments to Nunavut. In the second quarter we expanded the terms of our distribution partnership with Rose LifeScience, which will now represent the entire Tilray portfolio; and expanded our partnership with Great North Distributors, Inc. to cover all of Canada, except for Quebec, using its established network.
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
(as a percentage of revenue) |
|
|
|
|
|
|
|
|
Cost of sales |
|
| 72 | % |
|
| 79 | % |
Gross profit |
|
| 28 | % |
|
| 21 | % |
General and administrative expenses |
|
| 53 | % |
|
| 52 | % |
Sales and marketing expenses |
|
| 20 | % |
|
| 35 | % |
Research and development expenses |
|
| 3 | % |
|
| 3 | % |
Depreciation and amortization expenses |
|
| 7 | % |
|
| 7 | % |
Impairment of assets |
|
| 0 | % |
|
| 57 | % |
Loss from equity method investments |
|
| 4 | % |
|
| 3 | % |
Litigation settlement |
|
| 94 | % |
|
| 0 | % |
Operating loss |
|
| (153 | )% |
|
| (137 | )% |
Foreign exchange (gain) loss, net |
|
| (1 | )% |
|
| 54 | % |
Change in fair value of warrant liability |
|
| 548 | % |
|
| 138 | % |
Interest expenses, net |
|
| 14 | % |
|
| 18 | % |
Other (income) expenses, net |
|
| (3 | )% |
|
| 9 | % |
Loss before income taxes |
|
| (711 | )% |
|
| (355 | )% |
Deferred income tax recoveries |
|
| (1 | )% |
|
| (2 | )% |
Current income tax expenses |
|
| 1 | % |
|
| 1 | % |
Net loss |
|
| (710 | )% |
|
| (353 | )% |
Other Financial Data |
|
|
|
|
|
|
|
|
Adjusted EBITDA (1) |
|
| (13 | )% |
|
| (35 | )% |
The six months increase in gross revenue is attributable to the inclusion of Tilray legacy products in our brand portfolio offerings.
Wholesale cannabis revenue: Revenue from wholesale cannabis products increased 57% to $2.3 million and decreased 24% to $4.0 million for the three and six months ended November 30, 2021 compared to revenue of $1.4 million and $5.2 million for the prior year same periods. The Company continues to believe that wholesale cannabis revenue will remain subject to quarter-to-quarter variability and is based on opportunistic sales.
International cannabis revenue: Revenue from international cannabis products increased 220% to $13.7 million and 460% to $24.0 million for the three and six months ended November 30, 2021 compared to revenue of $4.3 million and $4.3 million for the prior year same periods. The increase is due to the contributions of legacy Tilray’s larger international cannabis business as well as newly obtained business to business transactions. In Europe, we believe that, despite continuing COVID-19 pressure, cannabis legalization (both medicinal and adult-use) will continue to gain traction, especially following actions of the German and Maltese governments. We also continue to believe that Tilray remains uniquely positioned to win in these markets with its infrastructure being the only company with EU-GMP cultivation facilities in two countries within Europe and our demonstrated commitment to the consistency, quality and safety of our products.
Germany. During the three and six months ended November 30, 2021, we continued to experience some deceleration in the growth of our business caused by the COVID-19 pandemic, which resulted in some patients unable or unwilling to see a doctor. Despite these impacts,
|
|
• | We generated 10% revenue growth on our dried flower products when compared to the prior quarter. |
• | We are a |
RevenuePortugal. We are the only approved medical cannabis product in the market, which is distributed through our distribution partners to medical stakeholders throughout Portugal.
Luxembourg. We were selected by the Luxembourg Ministry of Health as the exclusive supplier for the country’s medical cannabis program for dried flower and oils.
Switzerland. We reportdistribute our operating resultscannabinoid-based medical extract products to Suisse patients through our partner “Lehenmatt Apotheke”.
France. We were selected as one of the four suppliers in two segments: (i) Cannabis (licensed),a two-year pilot experiment to supply approximately 3,000 patients with medical cannabis.
Italy. We are one of five distributors licensed to import medical cannabis into the Italian medical cannabis market.
United Kingdom. In the quarter, we completed a shipment of a wide range of dried flower products with high, medium and (ii) Hemp (unlicensed)balanced potencies into the UK medical cannabis market.
Ireland. The business segments reflect how our operationsWe are managed, how resourcesone out of only three suppliers within the Irish market whose cannabinoid-based medical products are allocated, how operating performance is evaluated by senior management andeligible for reimbursement.
Australia. We continue to strengthen the structurereputation of our internal financial reporting. We also evaluateTilray medical brand whereby, through a contract with the Department of Health in Victoria, 90 children are now participating in a government funded seizure program utilizing our cannabinoid-based medical products, which will continue to the end of calendar year 2024.
Distribution revenue by product channel.
Revenue by product channel
(in thousands of United States dollars)
|
| Three months ended March 31, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ Change |
|
| % Change |
| ||||
Cannabis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adult-use |
| $ | 19,440 |
|
| $ | 20,919 |
|
| $ | (1,479 | ) |
|
| (7 | )% |
Canada - medical |
|
| 3,217 |
|
|
| 4,051 |
|
|
| (834 | ) |
|
| (21 | )% |
International - medical |
|
| 8,600 |
|
|
| 5,806 |
|
|
| 2,794 |
|
|
| 48 | % |
Bulk |
|
| 129 |
|
|
| — |
|
|
| 129 |
|
|
| 100 | % |
Total Cannabis revenue |
|
| 31,386 |
|
|
| 30,776 |
|
|
| 610 |
|
|
| 2 | % |
Hemp |
|
| 16,635 |
|
|
| 21,326 |
|
|
| (4,691 | ) |
|
| (22 | )% |
Total |
| $ | 48,021 |
|
| $ | 52,102 |
|
| $ | (4,081 | ) |
|
| (8 | )% |
Excise duties included in revenue |
| $ | 4,646 |
|
| $ | 4,972 |
|
| $ | (326 | ) |
|
| (7 | )% |
Revenue.from Distribution operations Revenue decreased by 8%7% to $48.0$68.9 million and 3% to $136.1 million for the three and six months ended March 31,November 30, 2021 compared to revenue of $52.1$74.0 million and $140.3 million for the prior year same periodperiods.Included in 2020. The reduction was primarily driven by reduceddistribution revenue is $68.0 million and $133.0 million of revenue from CC Pharma, and $0.9 million and $3.1 million of revenue from other distribution companies for the hemp category asthree and six months ended November 30, 2021 versus $72.0 million and $136.2 million from CC Pharma and $2.0 million and $4.1 million from other distribution companies, respectively, in the prior year same periods.
The decrease in revenue during the three-months ended November 30, 2021 is primarily due to the impact of changes in the exchange rate between the Euro and USD totaling a $5.3 million reduction to the comparable prior period. Additionally, the decrease in revenue during the six-months ended November 30, 2021 was also the result of delaysthe negative impact of an isolated weather event in Densborn, Germany. Specifically, heavy flooding impacted CC Pharma and forced a business closure for approximately five days leading to a decrease in net revenue in the switchperiod of almost $5.0 million.
Beverage alcohol revenue
Revenue from branded productour Beverage operations increased to private label product with certain customers during the quarter$13.7 million and reduced promotional activity in 2021 versus 2020. Adult-use sales and Canada medical sales were negatively impacted by COVID related lockdowns throughout Canada during the quarter, while international medical sales increased as we expanded our customer base in existing and new markets.
Cannabis. Cannabis segment revenue increased 2% to $31.4$29.2 million for the three and six months ended March 31,November 30, 2021 compared to $30.8revenue of $0.7 million for the prior year same period in 2020.periods. SweetWater operates on-premises, wholesale, and specialty sales. Revenues continued to be negatively affected by the COVID-19 pandemic impacting on-premise consumers. The increase was primarily driven by increased sales inis substantially related to our international medical markets which was partially offset by reductionacquisition of SweetWater on November 20, 2020.
Earlier in the adult-useyear, our beverage operations began operating our new brewing facility in Colorado and Canada medical categories.opened a new taproom at the Denver International Airport in connection with its strategic expansion initiative. In addition, we released an extensive new line of innovative products, including seltzers, as well as a new beer offering developed in collaboration with our Canadian cannabis Broken Coast brand and a new vodka soda offering developed in collaboration with our Canadian cannabis Riff brand as Tilray continues to strengthen its strategic position in the U.S. by expanding its presence through acquisitions and collaboration with other Tilray cannabis brands. This strategy of leveraging our growing portfolio of brands enables the company to launch THC-based product adjacencies upon federal legalization in the U.S.
Hemp.Wellness revenue
Included in Wellness Hemp segment revenue decreased 22% to $16.6 is $13.8 million and $28.7 million from Manitoba Harvest, for the three and six months ended March 31, 2021 compared to $21.3 million forNovember 30, 2021. Manitoba Harvest was part of the same period in 2020. The decrease was primarily due to delaysassets acquired in the switch from branded product to private label product with certain customers duringArrangement. There are no comparable revenues in the quarter.prior year being presented.
Gross profit, gross margin and adjusted gross margin for our reporting segments
Revenue by product category
(in thousands of United States dollars)
|
| Three months ended March 31, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ Change |
|
| % Change |
| ||||
Dried cannabis |
| $ | 21,086 |
|
| $ | 19,696 |
|
| $ | 1,390 |
|
|
| 7 | % |
Cannabis extracts |
|
| 10,270 |
|
|
| 10,545 |
|
|
| (275 | ) |
|
| (3 | )% |
Hemp products |
|
| 16,635 |
|
|
| 21,326 |
|
|
| (4,691 | ) |
|
| (22 | )% |
Accessories and other |
|
| 30 |
|
|
| 535 |
|
|
| (505 | ) |
|
| (94 | )% |
Total |
| $ | 48,021 |
|
| $ | 52,102 |
|
| $ | (4,081 | ) |
|
| (8 | )% |
Excise duties included in revenue |
| $ | 4,646 |
|
| $ | 4,972 |
|
| $ | (326 | ) |
|
| (7 | )% |
We also analyze our sales mix by dried cannabis, extracts, hempOur gross profit and accessories. Cannabis as a whole represented 65% of total revenuegross margin for the three and six months ended March 31,November 30, 2021 versus 59% for the comparable period in 2020. Dried cannabis represented 67% of cannabis revenue for the three months ended March 31, 2021 compared to 64% for the comparable period in 2020. Cannabis extracts represented 33% of cannabis revenue for the three months ended March 31, 2021 compared to 34% for the comparable period in 2020. Hemp products represented 35% of total revenue for the three months ended March 31, 2021 compared to 41% for the comparable period in 2020. In the future, we expect our cannabis products to grow at a faster rate and make up a larger portion of sales than our Hemp products2020, is as we generally see higher growth rate opportunities in international medical cannabis markets.follows:
Gross margin by product category
(in thousands of United States dollars)
|
| For the three months ended March 31, |
| |||||||||||||||||||||
|
| Cannabis |
|
| Hemp |
|
| Total |
| |||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||
Revenue |
| $ | 31,386 |
|
| $ | 30,776 |
|
| $ | 16,635 |
|
| $ | 21,326 |
|
| $ | 48,021 |
|
| $ | 52,102 |
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs |
|
| 20,323 |
|
|
| 24,603 |
|
|
| 12,133 |
|
|
| 12,585 |
|
|
| 32,456 |
|
|
| 37,188 |
|
Inventory valuation adjustments |
|
| 1,720 |
|
|
| 3,247 |
|
|
| 342 |
|
|
| 797 |
|
|
| 2,062 |
|
|
| 4,044 |
|
Gross profit (loss) |
|
| 9,343 |
|
|
| 2,926 |
|
|
| 4,160 |
|
|
| 7,944 |
|
|
| 13,503 |
|
|
| 10,870 |
|
Inventory valuation adjustments |
|
| 1,720 |
|
|
| 3,247 |
|
|
| 342 |
|
|
| 797 |
|
|
| 2,062 |
|
|
| 4,044 |
|
Gross profit, excluding inventory valuation adjustments (1) |
| $ | 11,063 |
|
| $ | 6,173 |
|
| $ | 4,502 |
|
| $ | 8,741 |
|
| $ | 15,565 |
|
| $ | 14,914 |
|
Gross margin, excluding inventory valuation adjustments (1) |
|
| 35 | % |
|
| 20 | % |
|
| 27 | % |
|
| 41 | % |
|
| 32 | % |
|
| 29 | % |
(in thousands of U.S. dollars) | For the three months ended November 30, |
|
| Change |
|
| % Change |
|
| For the six months ended November 30, |
|
| Change |
|
| % Change |
| ||||||||||||||
Cannabis | 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Revenue | $ | 73,429 |
|
| $ | 70,155 |
|
| $ | 3,274 |
|
|
| 5 | % |
| $ | 163,362 |
|
| $ | 137,275 | �� |
| $ | 26,087 |
|
|
| 19 | % |
Excise taxes |
| (14,654 | ) |
|
| (15,389 | ) |
|
| 735 |
|
|
| (5 | %) |
|
| (34,138 | ) |
|
| (31,307 | ) |
|
| (2,831 | ) |
|
| 9 | % |
Net revenue |
| 58,775 |
|
|
| 54,766 |
|
|
| 4,009 |
|
|
| 7 | % |
|
| 129,224 |
|
|
| 105,968 |
|
|
| 23,256 |
|
|
| 22 | % |
Cost of goods sold |
| 45,259 |
|
|
| 29,632 |
|
|
| 15,627 |
|
|
| 53 | % |
|
| 85,450 |
|
|
| 55,407 |
|
|
| 30,043 |
|
|
| 54 | % |
Gross profit |
| 13,516 |
|
|
| 25,134 |
|
|
| (11,618 | ) |
|
| (46 | %) |
|
| 43,774 |
|
|
| 50,561 |
|
|
| (6,787 | ) |
|
| (13 | %) |
Gross margin |
| 23 | % |
|
| 46 | % |
|
| (23 | %) |
|
| (50 | %) |
|
| 34 | % |
|
| 48 | % |
|
| (14 | %) |
|
| (29 | %) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation adjustments |
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| (0%) |
|
|
| 12,000 |
|
|
| — |
|
|
| — |
|
| (0%) |
| ||
Adjusted gross profit (1) |
| 25,516 |
|
|
| 25,134 |
|
|
| 382 |
|
|
| 10 | % |
|
| 55,774 |
|
|
| 50,561 |
|
|
| 5,213 |
|
|
| 22 | % |
Adjusted gross margin (1) |
| 43 | % |
|
| 46 | % |
|
| 10 | % |
|
| (3 | %) |
|
| 43 | % |
|
| 48 | % |
|
| 22 | % |
|
| 47 | % |
Distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue | $ | 68,869 |
|
| $ | 73,983 |
|
| $ | (5,114 | ) |
|
| (7 | %) |
| $ | 136,055 |
|
| $ | 140,271 |
|
| $ | (4,216 | ) |
|
| (3 | %) |
Excise taxes |
| — |
|
|
| — |
|
|
| — |
|
| NM |
|
|
| — |
|
|
| — |
|
|
| — |
|
| NM |
| ||
Net revenue |
| 68,869 |
|
|
| 73,983 |
|
|
| (5,114 | ) |
|
| (7 | %) |
|
| 136,055 |
|
|
| 140,271 |
|
|
| (4,216 | ) |
|
| (3 | %) |
Cost of goods sold |
| 61,237 |
|
|
| 64,263 |
|
|
| (3,026 | ) |
|
| (5 | %) |
|
| 120,527 |
|
|
| 121,033 |
|
|
| (506 | ) |
|
| (0 | %) |
Gross profit |
| 7,632 |
|
|
| 9,720 |
|
|
| (2,088 | ) |
|
| (21 | %) |
|
| 15,528 |
|
|
| 19,238 |
|
|
| (3,710 | ) |
|
| (19 | %) |
Gross margin |
| 11 | % |
|
| 13 | % |
|
| (2 | %) |
|
| (2 | %) |
|
| 11 | % |
|
| 14 | % |
|
| (2 | %) |
|
| (17 | %) |
Beverage alcohol |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue | $ | 14,544 |
|
| $ | 754 |
|
| $ | 13,790 |
|
| NM |
|
| $ | 31,027 |
|
| $ | 754 |
|
| $ | 30,273 |
|
| NM |
| ||
Excise taxes |
| (837 | ) |
|
| (44 | ) |
|
| (793 | ) |
| NM |
|
|
| (1,859 | ) |
|
| (44 | ) |
|
| (1,815 | ) |
| NM |
| ||
Net revenue |
| 13,707 |
|
|
| 710 |
|
|
| 12,997 |
|
| NM |
|
|
| 29,168 |
|
|
| 710 |
|
|
| 28,458 |
|
| NM |
| ||
Cost of goods sold |
| 5,921 |
|
|
| 281 |
|
|
| 5,640 |
|
| NM |
|
|
| 12,583 |
|
|
| 281 |
|
|
| 12,302 |
|
| NM |
| ||
Gross profit |
| 7,786 |
|
|
| 429 |
|
|
| 7,357 |
|
| NM |
|
|
| 16,585 |
|
|
| 429 |
|
|
| 16,156 |
|
| NM |
| ||
Gross margin |
| 57 | % |
|
| 60 | % |
|
| (4 | %) |
| NM |
|
|
| 57 | % |
|
| 60 | % |
|
| (4 | %) |
| NM |
| ||
Wellness |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue | $ | 13,802 |
|
| $ | — |
|
| $ | 13,802 |
|
| NM |
|
| $ | 28,729 |
|
| $ | — |
|
| $ | 28,729 |
|
| NM |
| ||
Excise taxes |
| — |
|
|
| — |
|
|
| — |
|
| NM |
|
|
| — |
|
|
| — |
|
|
| — |
|
| NM |
| ||
Net revenue |
| 13,802 |
|
|
| — |
|
|
| 13,802 |
|
| NM |
|
|
| 28,729 |
|
|
| — |
|
|
| 28,729 |
|
| NM |
| ||
Cost of goods sold |
| 9,970 |
|
|
| — |
|
|
| 9,970 |
|
| NM |
|
|
| 20,895 |
|
|
| — |
|
|
| 20,895 |
|
| NM |
| ||
Gross profit |
| 3,832 |
|
|
| — |
|
|
| 3,832 |
|
| NM |
|
|
| 7,834 |
|
|
| — |
|
|
| 7,834 |
|
| NM |
| ||
Gross margin |
| 28 | % |
|
| — | % |
|
| 28 | % |
| NM |
|
|
| 27 | % |
|
| — | % |
|
| 27 | % |
| NM |
| ||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue | $ | 170,644 |
|
| $ | 144,892 |
|
| $ | 25,752 |
|
|
| 18 | % |
| $ | 359,173 |
|
| $ | 278,300 |
|
| $ | 80,873 |
|
|
| 29 | % |
Excise taxes |
| (15,491 | ) |
|
| (15,433 | ) |
|
| (58 | ) |
|
| 0 | % |
|
| (35,997 | ) |
|
| (31,351 | ) |
|
| (4,646 | ) |
|
| 15 | % |
Net revenue |
| 155,153 |
|
|
| 129,459 |
|
|
| 25,694 |
|
|
| 20 | % |
|
| 323,176 |
|
|
| 246,949 |
|
|
| 76,227 |
|
|
| 31 | % |
Cost of goods sold |
| 122,387 |
|
|
| 94,176 |
|
|
| 28,211 |
|
|
| 30 | % |
|
| 239,455 |
|
|
| 176,721 |
|
|
| 62,734 |
|
|
| 35 | % |
Gross profit |
| 32,766 |
|
|
| 35,283 |
|
|
| (2,517 | ) |
|
| (7 | %) |
|
| 83,721 |
|
|
| 70,228 |
|
|
| 13,493 |
|
|
| 19 | % |
Gross margin |
| 21 | % |
|
| 27 | % |
|
| (6 | %) |
|
| (1 | %) |
|
| 26 | % |
|
| 28 | % |
|
| (3 | %) |
|
| 62 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation adjustments |
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| (0%) |
|
|
| 12,000 |
|
|
| — |
|
|
| — |
|
| (0%) |
| ||
Adjusted gross profit (1) |
| 44,766 |
|
|
| 35,283 |
|
|
| 9,483 |
|
|
| 27 | % |
|
| 95,721 |
|
|
| 70,228 |
|
|
| 25,493 |
|
|
| 36 | % |
Adjusted gross margin (1) |
| 29 | % |
|
| 27 | % |
|
| 37 | % |
|
| 2 | % |
|
| 30 | % |
|
| 28 | % |
|
| 33 | % |
|
| 118 | % |
(1) | Gross profit (excluding inventory valuation adjustments) and gross margin percentage (excluding inventory valuation adjustments) are non-GAAP financial measures. |
Cost
Cannabis gross margin: Gross margin decreased during the three and six months ended November 30, 2021 to 23% and 34% from 46% and 48% versus the prior year same periods, reflecting the addition of sales of Tilray brands that have higher costs to produce than our legacy brands and a non-cash inventory write down of $12 million in November 2021. Significant efforts have been taken to reduce the Company’s cultivation costs at its legacy Tilray Canadian facilities, including announcing the shutdown of both the Enniskillen and Nanaimo facilities. In the interim and until the inventory cultivated at these facilities work their way through inventory, we expect to report lower gross margin – Cannabis
(margins until all inventory is cultivated at legacy Aphria facilities. Our European operations continue to work to optimize the cost structure for their cannabis growing facilities, including working with the Canadian operations team, all in thousands of United States dollars)an effort to continually will lower our per unit costs.
|
| Three months ended March 31, | 2021 vs 2020 Change |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Cost of sales - product costs |
| $ | 20,323 |
|
| $ | 24,603 |
|
| $ | (4,280 | ) |
|
| (17 | )% |
Cost of sales - inventory valuation adjustments |
|
| 1,720 |
|
|
| 3,247 |
|
|
| (1,527 | ) |
|
| (47 | )% |
Total Cannabis cost of sales |
| $ | 22,043 |
|
| $ | 27,850 |
|
| $ | (5,807 | ) |
|
| (21 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
| $ | 9,343 |
|
| $ | 2,926 |
|
| $ | 6,417 |
|
|
| 219 | % |
Gross profit (excluding inventory valuation adjustments)(1) |
| $ | 11,063 |
|
| $ | 6,173 |
|
| $ | 4,890 |
|
|
| 79 | % |
Gross margin percentage |
|
| 30 | % |
|
| 10 | % |
|
| 20 | % |
|
| 200 | % |
Gross margin percentage (excluding inventory valuation adjustments)(1) |
|
| 35 | % |
|
| 20 | % |
|
| 15 | % |
|
| 75 | % |
Distribution gross margin: Gross margin of 11% and 11% for the three and six months ended November 30, 2021 slightly decreased versus the same periods in the prior year driven by increased costs as the Company’s primary source of products were unable to ship during border closures and during periods of peak demand.
Beverage alcohol gross margin: Gross margin of 57% and 57% for the three and six months ended November 30, 2021 are in line with our expectations. We did not operate in this segment until the final week of the second quarter of the prior year.
Wellness gross margin: Gross margin of 28% and 27% for the three and six months ended November 30, 2021 are in line with our expectations and consistent with the preceding fiscal quarter. We acquired the wellness business in the Arrangement and did not operate in this segment during the same periods during prior year.
Operating expenses
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of US dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
General and administrative |
| $ | 33,469 |
|
| $ | 28,273 |
|
| $ | 5,196 |
|
|
| 18 | % |
| $ | 82,956 |
|
| $ | 54,245 |
|
| $ | 28,711 |
|
|
| 53 | % |
Selling |
|
| 9,210 |
|
|
| 6,079 |
|
|
| 3,131 |
|
|
| 52 | % |
|
| 16,642 |
|
|
| 11,896 |
|
|
| 4,746 |
|
|
| 40 | % |
Amortization |
|
| 29,016 |
|
|
| 4,208 |
|
|
| 24,808 |
|
|
| 590 | % |
|
| 59,755 |
|
|
| 8,335 |
|
|
| 51,420 |
|
|
| 617 | % |
Marketing and promotion |
|
| 7,120 |
|
|
| 4,252 |
|
|
| 2,868 |
|
|
| 67 | % |
|
| 12,585 |
|
|
| 9,177 |
|
|
| 3,408 |
|
|
| 37 | % |
Research and development |
|
| 515 |
|
|
| 225 |
|
|
| 290 |
|
|
| 129 | % |
|
| 1,300 |
|
|
| 345 |
|
|
| 955 |
|
|
| 277 | % |
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 33,699 |
|
|
| 20,664 |
|
|
| 13,035 |
|
|
| 63 | % |
Total operating expenses |
| $ | 87,450 |
|
| $ | 61,243 |
|
| $ | 26,207 |
|
|
|
|
|
| $ | 2,06,937 |
|
| $ | 1,04,662 |
|
| $ | 1,02,275 |
|
|
|
|
|
Operating expenses are comprised of general and administrative, share-based compensation, selling, amortization, marketing and promotion, research and development, and transaction costs. These costs increased by $26.2 million and $102.3 million for the three and six months ended November 30, 2021 as compared to prior year same periods. This was primarily due to reporting full quarters of operating expenses for SweetWater and Tilray, including non-cash amortization charges associated with definite life intangible assets acquired and general and administrative expenses. The remaining increase is from transaction costs related to non-recurring expenses associated with our current acquisitions and evaluation of future potential acquisition, and one-time litigation costs associated with the acquired net assets.
General and administrative costs
During the three and six months ended November 30, 2021, increased by 18% and 53% as compared to prior year same periods.
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of US dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Executive compensation |
| $ | 2,237 |
|
| $ | 2,711 |
|
| $ | (474 | ) |
|
| (17 | %) |
| $ | 5,327 |
|
| $ | 4,961 |
|
| $ | 366 |
|
|
| 7 | % |
Office and general |
|
| 5,206 |
|
|
| 4,418 |
|
|
| 788 |
|
|
| 18 | % |
|
| 17,973 |
|
|
| 8,839 |
|
|
| 9,134 |
|
|
| 103 | % |
Salaries and wages |
|
| 8,149 |
|
|
| 8,821 |
|
|
| (672 | ) |
|
| (8 | %) |
|
| 23,460 |
|
|
| 18,164 |
|
|
| 5,296 |
|
|
| 29 | % |
Stock-based compensation |
|
| 8,253 |
|
|
| 5,489 |
|
|
| 2,764 |
|
|
| 50 | % |
|
| 17,670 |
|
|
| 8,339 |
|
|
| 9,331 |
|
|
| 112 | % |
Insurance |
|
| 4,995 |
|
|
| 2,904 |
|
|
| 2,091 |
|
|
| 72 | % |
|
| 9,626 |
|
|
| 6,110 |
|
|
| 3,516 |
|
|
| 58 | % |
Professional fees |
|
| 3,355 |
|
|
| 3,171 |
|
|
| 184 |
|
|
| 6 | % |
|
| 6,068 |
|
|
| 6,106 |
|
|
| (38 | ) |
|
| (1 | %) |
Travel and accommodation |
|
| 982 |
|
|
| 525 |
|
|
| 457 |
|
|
| 87 | % |
|
| 1,774 |
|
|
| 1,252 |
|
|
| 522 |
|
|
| 42 | % |
Rent |
|
| 292 |
|
|
| 234 |
|
|
| 58 |
|
|
| 25 | % |
|
| 1,058 |
|
|
| 474 |
|
|
| 584 |
|
|
| 123 | % |
Total general and administrative costs |
| $ | 33,469 |
|
| $ | 28,273 |
|
| $ | 5,196 |
|
|
| 18 | % |
| $ | 82,956 |
|
| $ | 54,245 |
|
| $ | 28,711 |
|
|
| 53 | % |
Executive compensation decreased in the three months and increased the six months ended November 30, 2021. The slight decrease in the three months compared to the prior period is primarily related to one-time changes in the overall compensation structure. The increase for the six month period compared to the prior period is primarily due to an increase in the number of directors and executive level personnel on our board of directors and executive management team, respectively, and an increase in base salaries commensurate with the increased complexity of our Company.
Office and general increased during the three and six months ended November 30, 2021 primarily due to reporting SweetWater and Tilray for the periods and the additional one-time costs associated with the upcoming closure of our Nanaimo facility.
Salaries and wages decreased in the three months and increased the six months ended November 30, 2021. The slight decrease from the prior period is primarily related to one-time changes in the overall compensation structure. The increase is primarily due to additions associated with new acquisitions from prior year. The Company’s headcount increased to approximately 1,800 employees as a result of the Arrangement compared to 1,000 employees as of November 30, 2020.
The Company recognized stock-based compensation expense of $8.3 million and $17.7 million for the three and six months ended November 30, 2021 compared to $5.5 million and $8.3 million for the same periods in the prior year. The increase is primarily due to increased number of employees and the accelerated vesting of certain of our stock-based compensation awards tied to the Arrangement. Stock options are valued using the Black-Scholes valuation model and represents a non-cash expense, restricted share units (“RSUs”) are valued based on the graded vesting and the grant date fair value.
Insurance expense for the three and six months ended November 30, 2021 increased due primarily to our directors and officers’ insurance policy. This increase reflects an increase in premium rates, as the Company continued with legacy Tilray’s rating history.
Selling costs
For the three months ended November 30, 2021, the Company incurred selling costs of $9.2 million or 5.9% of revenue as compared to $6.1 million and 4.2% of revenue in the prior year same period. For the six months ended November 30, 2021, the Company incurred selling costs of $16.6 million or 5.1% of revenue as compared to $11.9 million and 4.3% of revenue in the prior year same period. These costs relate to third-party distributor commissions, shipping costs, Health Canada cannabis fees, and patient acquisition and maintenance costs. Patient acquisition and ongoing patient maintenance costs include funding to individual clinics to assist with additional costs incurred by clinics resulting from the education of patients using the Company’s products. The increase in selling costs as a percent of revenue in both the three and six-month periods resulted from incurred costs associated with multiple distributors in the same location, which represent a duplication of costs that will be reduced upon achievement of synergies. The increase is mainly driven by the combination of legacy Tilray.
Amortization
The Company incurred non-production related amortization charges of $29.0 million and $59.8 million for the three and six months ended November 30, 2021 compared to $4.2 million and $8.3 million in the prior year same periods. The increase is associated with the amortization on the acquired definite life intangible assets from SweetWater and Tilray.
Marketing and promotion costs
For the three and six months ended November 30, 2021, the Company incurred marketing and promotion costs of $7.1 million and $12.6 million as compared to $4.3 million and $9.2 million in the prior year same periods. The increase is mainly driven by the combination of legacy Tilray.
Research and development
Research and development costs were $0.5 million and $1.3 million during the three and six months ended November 30, 2021 compared to $0.2 million and $0.3 million in the prior year same periods. These relate to external costs associated with the development of new products. Although the Company spends a significant amount on research and development, the majority of these costs remain in costs of sales, as the Company does not reclassify research and development costs related to the cost of products consumed in research and development activities.
Transaction costs
The three month decrease is associated with the closing of the SweetWater acquisition in the prior period. This six month increase is associated with the solicitation of shareholder votes supporting an increase in the number of authorized common stock shares, transaction closing costs related to the Arrangement, the MM Transaction and the evaluation of other potential acquisitions and one-time litigation costs.
Non-operating (expense) income, net
Non-operating (expense) income is comprised of:
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
(in thousands of US dollars) |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Change in fair value of convertible debenture |
| $ | 56,353 |
|
| $ | (70,683 | ) |
| $ | 1,27,036 |
|
|
| (180 | %) |
| $ | 95,723 |
|
| $ | (70,343 | ) |
| $ | 1,66,066 |
|
|
| (236 | %) |
Change in fair value of warrant liability |
|
| 20,178 |
|
|
| — |
|
|
| 20,178 |
|
| NM |
|
|
| 37,713 |
|
|
| — |
|
|
| 37,713 |
|
| NM |
| ||
Foreign exchange loss |
|
| (10,180 | ) |
|
| (3,371 | ) |
|
| (6,809 | ) |
|
| 202 | % |
|
| (15,904 | ) |
|
| (19,702 | ) |
|
| 3,798 |
|
|
| (19 | %) |
Loss on long-term investments |
|
| (1,833 | ) |
|
| (399 | ) |
|
| (1,434 | ) |
|
| 359 | % |
|
| (3,508 | ) |
|
| (1,519 | ) |
|
| (1,989 | ) |
|
| 131 | % |
Gain from equity investees |
|
| — |
|
|
| — |
|
|
| — |
|
| NM |
|
|
| 1,356 |
|
|
| — |
|
|
| 1,356 |
|
| NM |
| ||
Other non-operating (losses) gains, net |
|
| 232 |
|
|
| 1,804 |
|
|
| (1,572 | ) |
|
| (87 | %) |
|
| (1,770 | ) |
|
| 5,556 |
|
|
| (7,326 | ) |
|
| (132 | %) |
Total non-operating income (expense) |
| $ | 64,750 |
|
| $ | (72,649 | ) |
| $ | 1,37,399 |
|
|
|
|
|
| $ | 1,13,610 |
|
| $ | (86,008 | ) |
| $ | 1,99,618 |
|
|
|
|
|
For the three and six months ended November 30, 2021, the Company recognized a change in fair value of its APHA 24 convertible debentures of $56.4 million and $95.7 million, compared to a decrease in value of $70.7 million and $70.3 million for the prior year same periods. The change is driven primarily by the changes in the Company’s share price and the change in the trading price of the convertible debentures. Additionally, for the three and six months ended November 30, 2021 Company recognized a change in fair value of its warrants of resulting in a gain of $20.2 million and $37.7 million acquired as part of the Arrangement, also as a result of the decrease in our share price. Furthermore, for three and six months ended November 30, 2021 the Company recognized a loss of $9.5 million and $15.2 million, resulting from the changes in foreign exchange rates during the period, compared to losses of $3.4 million and $19.7 million for the prior year same periods, largely associated with the strengthening of the US dollar against the Canadian dollar. The remaining other losses relate to changes in fair value in the Company’s convertible notes receivable and long-term investments.
Use of Non-GAAP Measures
We have included in this report measures of financial performance that are not defined by GAAP. We believe that these measures provide useful information to investors and include these measures in other communications to investors. These non-GAAP measures include:
| gross profit (excluding inventory valuation adjustments), |
• |
|
Cost of sales. Cost of sales decreased for the three months ended March 31, 2021 from the comparable period in 2020 mainly due to improved operational efficiencies as we realized the benefits of cost reductions implemented throughout our supply chain during 2020. Additionally, we have improved our supply and demand planning efforts which resulted in reduced inventory adjustments versus the comparable period. We incur inventory valuation adjustments generally due to the write off of aged product or products that are unlikely to be sold.
Gross margin. Gross margin of 30% for the three months ended March 31, 2021 increased from the comparable period in 2020 due to reduced inventory valuation adjustments and overall improvements in our cost of production related to our cost cutting efforts. Excluding inventory valuation adjustments, gross margin increased to 35%, from 20% in 2020. The improvement resulted from reduced costs, increased sales in higher margin international medical markets, and the introduction of 2.0 products in the adult use market.
Cost of sales and gross margin – Hemp
(in thousands of United States dollars)
|
| Three months ended March 31, | 2021 vs 2020 Change |
| ||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Cost of sales - product costs |
| $ | 12,133 |
|
| $ | 12,585 |
|
| $ | (452 | ) |
|
| (4 | )% |
Cost of sales - inventory valuation adjustments |
|
| 342 |
|
|
| 797 |
|
|
| (455 | ) |
|
| (57 | )% |
Total Hemp cost of sales |
| $ | 12,475 |
|
| $ | 13,382 |
|
| $ | (908 | ) |
|
| (7 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
| $ | 4,160 |
|
| $ | 7,944 |
|
| $ | (3,784 | ) |
|
| (48 | )% |
Gross profit (excluding inventory valuation adjustments) (1) |
| $ | 4,502 |
|
| $ | 8,741 |
|
| $ | (4,239 | ) |
|
| (48 | )% |
Gross margin percentage |
|
| 25 | % |
|
| 37 | % |
|
| (12 | )% |
|
| (32 | )% |
Gross margin percentage (excluding inventory valuation adjustments) (1) |
|
| 27 | % |
|
| 41 | % |
|
| (14 | )% |
|
| (34 | )% |
|
|
Cost of sales. Cost of sales decreased for the three months ended March 31, 2021 from the comparable period in 2020 primarily due to lower sales volumes and a shift to larger format private label products for certain customers.
Gross margin. Gross margin of 25% for the three months ended March 31, 2021 declined from 37% in the comparable period in 2020 due to increased sales of lower margin private label products versus higher margin branded products and lower absorption rates in our facilities due to reduced production volumes.
Operating expenses
(in thousands of United States dollars)
|
| Three months ended March 31, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
General and administrative expenses |
| $ | 25,587 |
|
| $ | 27,269 |
|
| $ | (1,682 | ) |
|
| (6 | )% |
Sales and marketing expenses |
|
| 9,739 |
|
|
| 18,326 |
|
|
| (8,587 | ) |
|
| (47 | )% |
Research and development expenses |
|
| 1,202 |
|
|
| 1,347 |
|
|
| (145 | ) |
|
| (11 | )% |
Depreciation and amortization expenses |
|
| 3,498 |
|
|
| 3,591 |
|
|
| (93 | ) |
|
| (3 | )% |
Impairment of assets |
|
| — |
|
|
| 29,839 |
|
|
| (29,839 | ) |
|
| 100 | % |
Loss from equity method investments |
|
| 1,787 |
|
|
| 1,748 |
|
|
| 39 |
|
|
| 2 | % |
Litigation settlement |
|
| 45,000 |
|
|
| — |
|
|
| 45,000 |
|
|
| 100 | % |
Total operating expenses |
| $ | 86,813 |
|
| $ | 82,120 |
|
| $ | 4,693 |
|
|
| 6 | % |
(as a percentage of revenue) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
| 53 | % |
|
| 52 | % |
|
|
|
|
|
|
|
|
Sales and marketing expenses |
|
| 20 | % |
|
| 35 | % |
|
|
|
|
|
|
|
|
Research and development expenses |
|
| 3 | % |
|
| 3 | % |
|
|
|
|
|
|
|
|
Depreciation and amortization expenses |
|
| 7 | % |
|
| 7 | % |
|
|
|
|
|
|
|
|
Impairment of assets |
|
| 0 | % |
|
| 57 | % |
|
|
|
|
|
|
|
|
Loss from equity method investments |
|
| 4 | % |
|
| 3 | % |
|
|
|
|
|
|
|
|
Litigation settlement |
|
| 94 | % |
|
| 0 | % |
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 181 | % |
|
| 158 | % |
|
|
|
|
|
|
|
|
N/A: Not a meaningful percentage
General and administrative. General and administrative expenses decreased for the three months ended March 31, 2021 from the comparable period in 2020 generally due to the realization of cost savings initiatives implemented in 2020 designed to better align our business with market conditions.
Sales and marketing. Sales and marketing expenses decreased for the three months ended March 31, 2021 compared to 2020 partially due to headcount reductions and our efforts to optimize trade and market spend.
Depreciation and amortization. Depreciation and amortization expenses was relatively flat for the three months ended March 31, 2021 from the comparable period in 2020, primarily because asset purchases in Portugal were not yet put into use.
27
Research and development. Research and development expenses decreased for the three months ended March 31, 2021 from the comparable periods in 2020 primarily due to rightsizing and optimizing the departmental structure and focusing on more near term innovations.
Impairment of assets. No impairments were recorded for the three months ended March 31, 2021.
Loss from equity method investments. Losses from equity method investments for the three months ended March 31, 2021 remained flat and were $1.8 million compared to $1.7 million for the comparable 2020 period.
Litigation settlement. Litigation settlement for the three months ended March 31, 2021 was due to a one-time settlement related to the termination of a purchase agreement.
Non-operating income and expenses
(in thousands of United States dollars)
|
| Three months ended March 31, |
|
| 2021 vs 2020 Change |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||
Foreign exchange (gain) loss, net |
| $ | (699 | ) |
| $ | 28,069 |
|
| $ | (28,768 | ) |
| N/A |
| |
Change in fair value of warrant liability |
|
| 263,201 |
|
|
| 71,978 |
|
|
| 191,223 |
|
|
| 266 | % |
Interest expenses, net |
|
| 6,916 |
|
|
| 9,146 |
|
|
| (2,230 | ) |
|
| (24 | )% |
Other (income) expense, net |
|
| (1,516 | ) |
|
| 4,651 |
|
|
| (6,166 | ) |
|
| (133 | )% |
Total |
| $ | 267,902 |
|
| $ | 113,844 |
|
| $ | 154,059 |
|
| N/A |
|
N/A: Not a meaningful percentage
Foreign exchange (gain) loss, net. The impact of foreign exchange for the three months ended March 31, 2021 was a gain of $0.7 million, versus a loss of $28.1 million for the comparable period in 2020. Because a significant portion of our balances are in Canadian dollars, the strengthening of the Canadian dollar relative to the United States dollar in the first quarter of 2021 drove the gain compared to the loss in the comparative 2020 period.
Change in fair value of warrant liability. Due to the increase in the market price of our stock since the offering closed, and despite the exercise of a significant portion of the warrants, the fair value of the warrant liability increased by $191.2 million for the three months ended March 31, 2021 from the comparable 2020 period.
Interest expense, net. Interest expense, net for the three months ended March 31, 2021 was $6.9 million compared to $9.1 million for the comparable period in 2020. The decrease was primarily attributable to the conversion of a portion of our convertible debt into equity in November 2020.
Other (income) expense, net. Other (income) expense, net was in an income position for the three months ended March 31, 2021 from the comparable period in 2020, primarily due to unrealized gains on investments exceeding losses in 2021, and because we recognized $4.0 million of issuance costs in March 2020 associated with our registered offering.
Net Loss and Adjusted EBITDA (1)
|
| Three months ended March 31, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
|
| Change |
|
| % Change |
| ||||
Net loss |
| $ | (340,955 | ) |
| $ | (184,123 | ) |
| $ | (156,832 | ) |
|
| (85 | )% |
Adjusted EBITDA (1) |
| $ | (6,283 | ) |
| $ | (18,152 | ) |
| $ | 11,869 |
|
|
| 65 | % |
|
|
• | adjusted free cash flow, and |
• | adjusted EBITDA |
Net loss increasedFor each of these non-GAAP financial measures, we are providing below a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure, an explanation of why our management and Board of Directors believe the non-GAAP measure provides useful information to investors and any additional purposes for which our management and Board of Directors use the three months ended March 31, 2021 fromnon-GAAP measures. These non-GAAP measures should be viewed in addition to, and not in lieu of, the comparable periodGAAP measures.
All of these non-GAAP financial measures should be considered in 2020 primarily due to the impactaddition, and not in lieu of, the change in the fair value of our warrant liability, the charge associated with our litigation settlement, and reduced sales and margin in our Hemp segment.
Adjusted earnings before interest, tax and depreciation (“Adjusted EBITDA”) increased for the three months ended March 31, 2021 from the comparable period in 2020 primarily due to cost reductionfinancial measures undertaken during 2020, and our ability to leverage sales growth with a reduced cost structure.
Non-GAAP Financial Measures
To supplement our financial statements, which are preparedcalculated and presented in accordance with accounting principles generally accepted in the United States generally accepted accounting principlesof America, (“GAAP”), we use certain measures, as described below, to understand and evaluate our operating performance.. These measures, which may be different than similarly titled measures used by other companies, are presented to help investors’
28
overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
Adjusted net income (loss) and adjusted EBITDA
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net income (loss) |
| $ | 5,797 |
|
| $ | (89,249 | ) |
| $ | 95,046 |
|
|
| (106 | %) |
| $ | (28,807 | ) |
| $ | (1,10,993 | ) |
| $ | 82,186 |
|
|
| (74 | %) |
Adjusted net income (loss) |
| $ | (32,181 | ) |
| $ | 8,500 |
|
| $ | (40,681 | ) |
|
| (479 | %) |
| $ | (82,970 | ) |
| $ | 8,055 |
|
| $ | (91,025 | ) |
|
| (1,130 | %) |
Adjusted EBITDA |
| $ | 13,760 |
|
| $ | 10,139 |
|
| $ | 3,621 |
|
|
| 36 | % |
| $ | 26,457 |
|
| $ | 18,209 |
|
| $ | 8,248 |
|
|
| 45 | % |
Adjusted net income (loss)
Adjusted net loss represents a non-GAAP financial measure that does not have any standardized meaning prescribed under GAAP and may not be comparable to similar measures presented by other companies. Adjusted net income is calculated as net (loss) income plus (minus) the unrealized loss (gain) on convertible debentures, a non-cash item, share-based compensation, foreign exchange (loss) gain, all non-cash items, and transaction costs, costs which will not necessarily continue in future periods depending on the frequency of additional M&A considered by the Company. It represents a measure management uses in evaluating operating results to reduce the impact of the volatility caused by fair value accounting of instruments associated with our capital structure, that have no impact on operations. The increase in adjusted net loss is primarily driven by higher net loss stemming from higher amortization costs associated with the definite lived assets acquired during the year, the additional general and administrative costs associated with Tilray for the full quarter and increased non-cash unrealized loss on changes to the fair value of our convertible debentures.
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
Adjusted net loss reconciliation: |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net income (loss) |
| $ | 5,797 |
|
| $ | (89,249 | ) |
| $ | 95,046 |
|
|
| (106 | %) |
| $ | (28,807 | ) |
| $ | (1,10,993 | ) |
| $ | 82,186 |
|
|
| (74 | %) |
Unrealized (gain) loss on convertible debentures |
|
| (56,353 | ) |
|
| 70,683 |
|
|
| (1,27,036 | ) |
|
| (180 | %) |
|
| (95,723 | ) |
|
| 70,343 |
|
|
| (1,66,066 | ) |
|
| (236 | %) |
Foreign exchange loss (gain) |
|
| 10,180 |
|
|
| 3,371 |
|
|
| 6,809 |
|
|
| 202 | % |
|
| 15,904 |
|
|
| 19,702 |
|
|
| (3,798 | ) |
|
| (19 | %) |
Change in fair value of warrant liability |
|
| (20,178 | ) |
|
| — |
|
|
| (20,178 | ) |
| NM |
|
|
| (37,713 | ) |
|
| — |
|
|
| (37,713 | ) |
| NM |
| ||
Stock-based compensation |
|
| 8,253 |
|
|
| 5,489 |
|
|
| 2,764 |
|
|
| 50 | % |
|
| 17,670 |
|
|
| 8,339 |
|
|
| 9,331 |
|
|
| 112 | % |
Inventory write down |
|
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| NM |
|
|
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| NM |
| ||
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 33,699 |
|
|
| 20,664 |
|
|
| 13,035 |
|
|
| 63 | % |
Adjusted net income (loss) |
| $ | (32,181 | ) |
| $ | 8,500 |
|
| $ | (40,681 | ) |
|
|
|
|
| $ | (82,970 | ) |
| $ | 8,055 |
|
| $ | (91,025 | ) |
|
|
|
|
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company calculates adjusted EBITDA as net (loss) income before income taxes, net interest expense, depreciation and amortization, equity in net loss of equity-method investees, inventory write downs, stock-based compensation, integration activities, transaction costs, unrealized currency gains and losses and other adjustments.
(The Company’s management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation.
We do not consider Adjusted EBITDA in thousandsisolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of United States dollars)Adjusted EBITDA is that it excludes certain expenses and income that are required by GAAP to be recorded in our consolidated financial statements. In addition, Adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining Adjusted EBITDA. In order to compensate for these limitations, management presents Adjusted EBITDA in connection with GAAP results.
For the period ended November 30, 2021, adjusted EBITDA increased primarily from favorable effects of new lines of business, offset by the inclusion of legacy Tilray’s cannabis business, while we work to achieve our synergies plan, as follows:
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Adjusted EBITDA reconciliation: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (340,955 | ) |
| $ | (184,123 | ) |
Inventory valuation adjustments |
|
| 2,062 |
|
|
| 4,561 |
|
Severance costs |
|
| 5 |
|
|
| 1,861 |
|
Depreciation and amortization expenses (1) |
|
| 4,908 |
|
|
| 4,600 |
|
Stock-based compensation expenses |
|
| 7,193 |
|
|
| 7,677 |
|
Impairment of assets |
|
| — |
|
|
| 29,839 |
|
Restructuring costs |
|
| 2,713 |
|
|
| — |
|
Loss from equity method investments |
|
| 1,787 |
|
|
| 1,748 |
|
Litigation settlement |
|
| 45,000 |
|
|
| — |
|
Foreign exchange (gain) loss, net |
|
| (699 | ) |
|
| 28,069 |
|
Change in fair value of warrant liability |
|
| 263,201 |
|
|
| 71,978 |
|
Interest expenses, net |
|
| 6,916 |
|
|
| 9,146 |
|
Loss from disposal of property and equipment |
|
| 83 |
|
|
| 457 |
|
Other expenses, net |
|
| 1,760 |
|
|
| 7,006 |
|
Deferred income tax recoveries |
|
| (635 | ) |
|
| (1,272 | ) |
Current income tax expenses |
|
| 378 |
|
|
| 301 |
|
Adjusted EBITDA |
| $ | (6,283 | ) |
| $ | (18,152 | ) |
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
Adjusted EBITDA reconciliation: |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net income (loss) |
| $ | 5,797 |
|
| $ | (89,249 | ) |
| $ | 95,046 |
|
|
| (106 | %) |
| $ | (28,807 | ) |
| $ | (1,10,993 | ) |
| $ | 82,186 |
|
|
| (74 | %) |
Income taxes |
|
| (5,671 | ) |
|
| (14,192 | ) |
|
| 8,521 |
|
|
| (60 | %) |
|
| (909 | ) |
|
| (20,017 | ) |
|
| 19,108 |
|
|
| (95 | %) |
Interest expense, net |
|
| 9,940 |
|
|
| 4,832 |
|
|
| 5,108 |
|
|
| 106 | % |
|
| 20,110 |
|
|
| 10,568 |
|
|
| 9,542 |
|
|
| 90 | % |
Non-operating expense (income), net |
|
| (64,750 | ) |
|
| 72,649 |
|
|
| (1,37,399 | ) |
|
| (189 | %) |
|
| (1,13,610 | ) |
|
| 86,008 |
|
|
| (1,99,618 | ) |
|
| (232 | %) |
Amortization |
|
| 37,471 |
|
|
| 12,031 |
|
|
| 25,440 |
|
|
| 211 | % |
|
| 76,804 |
|
|
| 23,010 |
|
|
| 53,794 |
|
|
| 234 | % |
Stock-based compensation |
|
| 8,253 |
|
|
| 5,489 |
|
|
| 2,764 |
|
|
| 50 | % |
|
| 17,670 |
|
|
| 8,339 |
|
|
| 9,331 |
|
|
| 112 | % |
Facility start-up and closure costs |
|
| 1,700 |
|
|
| — |
|
|
| 1,700 |
|
| NM |
|
|
| 7,900 |
|
|
| — |
|
|
| 7,900 |
|
| NM |
| ||
Lease expense |
|
| 900 |
|
|
| 373 |
|
|
| 527 |
|
|
| 141 | % |
|
| 1,600 |
|
|
| 630 |
|
|
| 970 |
|
|
| 154 | % |
Inventory write down |
|
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| NM |
|
|
| 12,000 |
|
|
| — |
|
|
| 12,000 |
|
| NM |
| ||
Transaction costs |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 33,699 |
|
|
| 20,664 |
|
|
| 13,035 |
|
|
| 63 | % |
Adjusted EBITDA |
| $ | 13,760 |
|
| $ | 10,139 |
|
| $ | 3,621 |
|
|
|
|
|
| $ | 26,457 |
|
| $ | 18,209 |
|
| $ | 8,248 |
|
|
|
|
|
|
|
Adjusted EBITDA should not be considered in isolation from, or as a substitute for, net loss. There are a number of limitations related to the use of Adjusted EBITDA as compared to net loss, the closest comparable GAAP measure. Adjusted EBITDA excludes:adjusts for the following:
| • |
|
| • |
|
| • | Non-cash |
• | Non-cash change in fair value of warrant liability; |
• | Non-cash amortization and amortization |
| • | Stock-based compensation expenses, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy; |
| • | Non-cash |
|
|
| • | Non-cash loss from equity method investments; |
| • |
|
• | Lease expense; |
| • | Non-cash |
29
|
|
| • |
|
|
|
|
|
Gross profit (excluding inventory valuation adjustments)
Gross profit (excluding inventory valuation adjustments) is a non-GAAP measure calculated in the cannabis segment. It is calculated as revenue less cost of sales, adjusted to add back inventory valuation adjustments.
Gross margin percentage (excluding inventory valuation adjustments)
Gross margin percentage (excluding inventory valuation adjustments) is a non-GAAP measure calculated in the cannabis segment. It is calculated as the gross profit (excluding inventory valuation adjustments), as described above, divided by revenue.
Liquidity and Capital Resources
As of March 31, 2021, we hadWe actively manage our cash and investments in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, and make acquisitions. We believe that existing cash, cash equivalents, of $416.3 million which were held for working capital and general corporate purposes. This represents an overall increase of $226.6 million since December 31, 2020. Our primary need for liquidity is to fund working capital requirements, capital expenditures, debt service obligations and for general corporate purposes. Our ability to fund operations and make planned capital expenditures and debt service obligations depends on future operating performanceshort-term investments and cash flows, which are subjectgenerated by operations, together with access to prevailing economic conditionsexternal sources of funds, will be sufficient to meet our domestic and financial, business and other factors.
During the three months ended March 31, 2021, we issued 6,254,980 shares of Class 2 common stock for gross proceeds of approximately $159.2 million under our at-the-market equity offering program. In addition, 12,791,000 warrants were exercised for 12,791,000 shares of Class 2 common stock resulting in gross proceeds to us of approximately $76.2 million.
The warrants issued as part of the registered offering contain anti-dilution price protection features which, so long as the warrants remain outstanding, allow us to only issue up to $20.0 million in aggregate gross proceeds under our at-the-market offering program at prices less than the $5.95 per share exercise price of the warrants, and in no event more than $6.0 million per quarter, at prices below the $5.95 per share exercise price of the warrants, without triggering the price protection features.
The warrants are to be settled in registered shares, and the registration statement is required to be active, unless such shares may be subject to an applicable exemption from registration requirements. The holders, at their sole discretion, may elect to a cashless exercise, and be issued un-registered shares in accordance with Section 3(a)(9) of the 1933 Act. In the event we do not maintain an effective registration statement, we may be required to pay a daily cash penalty equal to 1% of the number of shares of Class 2 common stock due to be issued multiplied by any trading price of the Class 2 common stock between the exercise date and the share delivery date, as selected by the holder. Alternatively, we may deliver registered Class 2 common stock purchasedforeign capital needs in the open market. We may also be required to pay cash if we do not have sufficient authorized shares to deliver to the holders upon exercise, which could have a material impact to our business.
Due to uncertainties we may face in raising additional equity financing in the future, which may be further impacted by the economic downturn and unprecedented conditions due to COVID-19, there remains uncertainty what impact this may have on managements assumptions used to develop these forecasts. Given our cash position and current operating plan, management believes there is not significant doubt about the entity’s ability to continue as a going concern for the next twelve months.foreseeable future.
The following table sets forth the major components of our Condensed Consolidated Statementsstatements of Cash Flowscash flows for the periods presented:
(in thousands of United States dollars)
|
| Three months ended March 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net cash used in operating activities |
| $ | (13,008 | ) |
| $ | (54,031 | ) |
Net cash used in investing activities |
|
| (69 | ) |
|
| (18,119 | ) |
Net cash provided by financing activities |
|
| 234,081 |
|
|
| 159,786 |
|
Effect of foreign currency translation on cash and cash equivalents |
|
| 5,664 |
|
|
| (10,437 | ) |
Increase in cash and cash equivalents |
| $ | 226,668 |
|
| $ | 77,199 |
|
|
| For the six months ended November 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net cash used in operating activities |
| $ | (110,348 | ) |
| $ | (53,662 | ) |
Net cash used in investing activities |
| $ | (15,592 | ) |
| $ | (294,570 | ) |
Net cash (used in) provided by financing activities |
| $ | (28,047 | ) |
| $ | 105,938 |
|
Effect on cash of foreign currency translation |
| $ | (2,696 | ) |
| $ | 29,853 |
|
Cash and cash equivalents, beginning of period |
| $ | 488,466 |
|
| $ | 360,646 |
|
Cash and cash equivalents, end of period |
| $ | 331,783 |
|
| $ | 148,205 |
|
Decrease in cash and cash equivalents |
| $ | (156,683 | ) |
| $ | (212,441 | ) |
Cash flows from operating activities
The changechanges in net cash used byin operating activities during the six months ended November 30, 2021 compared to the prior year same period is primarily related to changespayments associated with the Arrangement, income taxes at Aphria Diamond and accounts payable and accrued liabilities decreases in working capitalthe period. This net cash used in operating activities was positively impacted by reductions in inventory and changes in non-cash expenses, allcollections of which are highly variable.accounts receivable.
Cash flows from investing activities
During the three months ended March 31, 2021 we did not have significantThe change in net cash used in investing activities in the first two fiscal quarters of 2022 as compared to the same periodfirst two fiscal quarters of 2021 is primarily due to cash paid for the SweetWater acquisition in 2020 a time during which we purchased property and equipment related to our expansion projects in Canada and Portugal.fiscal year 2021.
Cash flows from financing activities
Cash used in financing activities in the first two fiscal quarters of 2022 as compared to the first two fiscal quarters of 2021 is primarily due to an early payment on SweetWater’s term loan facility and the share capital financing completed in fiscal year 2021 that did not recur in fiscal year 2022.
Free cash flow and adjusted free cash flow
Free cash flow and adjusted free cash flow are non-GAAP measures. Free cash flow is relevant to management and investors, because it represents the cash flow available to the Company to repay creditors or potentially make distributions to investors. The change inmeasure is comprised of two GAAP amounts deducted from each other which are net cash provided by financingflow used in operating activities during the three months ended March 31, 2021 relates toless investments, net of proceeds from our ATM equity offeringsdisposals, in capital and intangible assets. Adjusted free cash flow removes the exercisecash impact of outstanding warrants.acquisitions from free cash flow. Our free cash flow and adjusted free cash flow were, as follows:
|
| For the three months ended November 30, |
|
| Change |
|
| For the six months ended November 30, |
|
| Change |
| ||||||||||||||||||||
Free cash flow |
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 vs. 2020 |
| ||||||||||||||
Net cash provided by (used in) operating activities |
| $ | (17,121 | ) |
| $ | 2,438 |
|
| $ | (19,559 | ) |
|
| (802 | %) |
| $ | (1,10,348 | ) |
| $ | (53,662 | ) |
| $ | (56,686 | ) |
|
| 106 | % |
Less: investments in capital and intangible assets, net |
|
| (6,972 | ) |
|
| (9,301 | ) |
|
| 2,329 |
|
|
| (25 | %) |
|
| (15,592 | ) |
|
| (23,256 | ) |
|
| 7,664 |
|
|
| (33 | %) |
Free cash flow |
| $ | (24,093 | ) |
| $ | (6,863 | ) |
| $ | (17,230 | ) |
|
| 251 | % |
| $ | (1,25,940 | ) |
| $ | (76,918 | ) |
| $ | (49,022 | ) |
|
| 64 | % |
Cash expended related to acquisitions |
|
| 8,120 |
|
|
| 18,206 |
|
|
| (10,086 | ) |
|
| (55 | %) |
|
| 56,510 |
|
|
| 20,664 |
|
|
| 35,846 |
|
|
| 173 | % |
Adjusted free cash flow |
| $ | (15,973 | ) |
| $ | 11,343 |
|
| $ | (27,316 | ) |
|
| (241 | %) |
| $ | (69,430 | ) |
| $ | (56,254 | ) |
| $ | (13,176 | ) |
|
| 23 | % |
Subsequent Events
A cannabinoid supplier (“supplier”)Refer to Tilray, and Tilray had been engaged in binding arbitration, which commenced in March 2020 and related to a supply agreement dispute between the parties. On April 29, 2021, the parties mutually agreed to settle this matter. Pursuant to a settlement agreement and release, Tilray (i) paid $20.0 million in cash and $5.0 million in Class 2 Common Stock to the supplier on April 29, 2021, and (ii) agreed to pay either $15.0 million in Class 2 Common Stock or $20.0 million in cash, depending on certain circumstances, to the supplier within nine months of the settlement date, in each case subject to certain upward adjustments based on the trading price and resale registration status of the Class 2 Common Stock. The parties also agreed to, among other things, withdraw from the arbitration proceeding and to release the other party from any and all claims arising out of or relating to the arbitration or the supply agreement.Part I, Financial Information, Note 24 As of March 31, 2021, tSubsequent Events he Company recorded the litigation settlement expense in its statement of net loss and comprehensive loss to reflect the outcome of this settlement. The litigation liability is payable in a combination of cash and shares of the Company’s class 2 common stock. The initial payments made on April 29, 2021 are reflected in accounts payable and the remaining future payment is reflected in accrued expenses. The Company also removed $59.7 million of purchase commitments (refer to Note 16) from its commitments and contingencies as of March 31, 2021.interim report.
On April 25, 2021, the Company notified its senior secure credit facility lender that it intends to (i) terminate the commitments under the Senior Facility, and (ii) repay all outstanding loans and other obligations under the Senior Facility. On May 4, 2021, the Company repaid in full all outstanding indebtedness under its Senior Facility agreement. The Senior Facility and related security interests were terminated in conjunction with the repayment in full of $52.1 million (C$64 million) of principal, as well as accrued and unpaid interest and fees of $0.5 million (C$0.6 million), plus a prior notice prepayment fee of $1.1 million (C$1.3 million).
As disclosed previously, on April 30, 2021 the Arrangement with Aphria was completed (refer to Note 1 for additional information regarding the Arrangement) and we paid the financial advisor transaction fee of $9.2 million.
Contractual Obligations
During the three months ended March 31, 2021, we reached a settlement and release agreement related to one of our supply contracts which resulted in the reduction of the total value of future commitments by $59.7 million. We do not believe the termination of this contract will have any negative impact on our ability to competitively source products required to conduct our business.
|
| Total |
|
| 2021 (remaining nine months) |
|
|
|
| 2022 |
|
|
|
| 2023 |
|
|
|
| 2024 |
|
|
|
| 2025 |
|
|
|
| Thereafter |
| |||||||
Purchase commitments |
| $ | 17,359 |
|
| $ | 17,359 |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
Total |
| $ | 17,359 |
|
| $ | 17,359 |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
|
|
| $ | — |
|
Off-BalanceOff Balance Sheet Arrangements
WeAt November 30, 2021, we did not have during the periods presented, and we do not currently have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K that have had, or are likely to have, a material current or future effect on our consolidated financial statements.
Contingencies
In addition to the ruleslitigation described in the Part II, Item 1 - Legal Proceedings, the Company is and regulationsmay be a defendant in lawsuits from time to time in the normal course of business. While the results of litigation and claims cannot be predicted with certainty, the Company believes the reasonably possible losses of such matters, individually and in the aggregate, are not material. Additionally, the Company believes the probable final outcome of such matters will not have a material adverse effect on the Company’s consolidated results of operations, financial position, cash flows or liquidity.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. The accounting principles we use require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the SEC.financial statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies; however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting policies that have been identified as critical to our business operations and to understanding the results of our operations pertain to revenue recognition, valuation of inventory, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in “Part I, Item 1. Note 12 – SummaryBasis of Significant Accounting Policies”presentation and summary of significant accounting policies” to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
31
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Interest rateThere have been no significant changes in market risk is the risk that the value or yield of available-for-sale debt securities may decline if interest rates decline or that the value of financial liabilities will increase if interest rates increase. Fluctuations in interest rates may impact the level of income and expense recorded on these financial instruments. A 1% changefrom those addressed in the interest rate in effectCompany’s Annual Report on MarchForm 10-K for the fiscal year ended May 31, 2021 would not have a material effect on the convertible note financial liabilities as they bear interest at a fixed rate of 5% and are not publicly traded. The Senior Facility bears interest on the outstanding principal balance at an annual rate equal to the Canadian prime rate plus 8.05%. A hypothetical 1% increase in the Canadian prime rate would result in an increase of $0.1 million recorded in interest expense forduring the three months ended MarchNovember 30, 2021. See the information set forth in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2021.
Equity Price Risk
As of March 31, 2021, we held long-term equity investments at fair value and equity investments under the measurement alternative. These investment in equities were acquired as part of our strategic transactions. Accordingly, the changes in fair values of investment in equities measured at fair value or under the measurement alternative are recognized through other expense (income), net in the statements of net loss and comprehensive loss. Because of the uncertainty surrounding the COVID-19 outbreak, there is increased risk of declines in fair values of our equity investments if conditions have not been significantly improved and global stock markets have not recovered from recent declines. Based on the fair value of investment in equities held as of March 31, 2021, a hypothetical decrease of 10% in the prices for these companies would reduce the fair values of the investments and result in unrealized loss recorded in other expense (income), net by $1.1 million. Similarly, based on the fair value of our warrant liability as of March 31, 2021, a hypothetical increase of 10% in the price for our common stock would increase the change in fair value of warrant liability by $12.3 million.
Foreign Currency Risk
Our condensed consolidated financial statements are expressed in United States dollars. However, a significant portion of our business and assets and liabilities are denominated in a variety of currencies, the most significant of which are the Canadian dollar and the Euro. As a result, we are exposed to foreign currency transaction and translation gains and losses. The statements of net loss and comprehensive loss and statements of cash flows are translated to USD by applying the average foreign exchange rate in effect during the reporting period. Assets and liabilities are translated into US dollars using the exchange rate in effect at the balance sheet date. Appreciating foreign currencies relative to the United States dollar will positively impact operating income and net earnings, and increase the value of assets and liabilities, while depreciating foreign currencies relative to the United States dollar will negatively impact operating income and net earnings and reduce the value of assets and liabilities.
A 10% change in the exchange rates for the Canadian dollar would affect the carrying value of net assets by approximately $47.2 million as of March 31, 2021, with a corresponding impact to accumulated other comprehensive loss. We are also exposed to risk related to changes in the value of the Euro due to our one construction commitment in Portugal. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions to mitigate foreign exchange risks. As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains or losses could have a significant, and potentially adverse, effect on our results of operations.
32
Item 4. Controls and Procedures.
Evaluation of
Disclosure Controls and Procedures
Management, with the participation of our Chief Executive Officer and Chief Financial Officer (the Company’s principal executive officer and principal financial officer, respectively), evaluated the effectiveness of the Company’s
We maintain disclosure controls and procedures as of March 31, 2021. The(as that term “disclosure controls and procedures,” asis defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, (or “DCPs”), means controls and other procedures of a companyAct) that are designed to ensure that information required to be disclosed by a company in theour reports that it files or submits under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in the SEC’s rules and forms. DCPs include, without limitation, controlsforms, and procedures designed to ensure that such information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’sour management, including its principal executiveour Chief Executive Officer and principal financial officers,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that anydisclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on thedesired control objectives. An evaluation of the Company’s DCPseffectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2021, the Company’send of the period covered by this Quarterly Report was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as a resultof November 30, 2021, our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Consistent with guidance issued by the SEC, the scope of management’s assessment of the material weaknesses ineffectiveness of our disclosure controls and procedures did not include the Company’s internal control described incontrols over financial reporting of legacy Tilray, which we acquired on April 30, 2021. Legacy Tilray represented 8.9% of our Annual Report on Form 10-Kconsolidated assets and 25.8% of our consolidated revenues as of and for the yearquarter ended December 31, 2020, as of such date, the Company’s DCPs were not effective.November 30, 2021.
Remediation Efforts to Address Material Weakness
As previously described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2020, the Company began implementing a remediation plan to address the material weaknesses mentioned above. Management will continue to increase the adoption of software solutions to automate several manual processes, including but not limited to, the balance sheet account reconciliation control. Management also continues to standardize review procedures and formalize documentation of reviews to strengthen its control activities and provide training on documentation requirements surrounding the use of key spreadsheets and key reports. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Other than with respect to the remediation efforts described above, there
There have been no changes in the Company’s internalour “internal control over financial reportingreporting” (as defined in RuleRules 13a-15(f) and 15(d)-5(f)15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2021period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting. As mentioned above, the Company acquired legacy Tilray on April 30, 2021. The Company is in the process of reviewing the internal control structure of legacy Tilray and, if necessary, will make appropriate changes as it integrates legacy Tilray into the Company’s overall internal control over financial reporting process.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
420 Investments Ltd. Litigation"Item 3. Legal Proceedings" of our Annual Report on Form 10-K for the fiscal year ended May 31, 2021 includes a discussion of our legal proceedings. There have been no material changes from the legal proceedings described in our Form 10-K, except with respect to the matters disclosed below.
Class Action Suits and Shareholder Derivative Suits – U.S. and Canada
Authentic Brands Group Related Class Action (New York, United States)
On February 21,May 4, 2020, 420 Investments Ltd., as Plaintiff (“420”),Ganesh Kasilingam filed a lawsuit in the U.S. District Court for the Southern District of New York, against Tilray, Inc., Brendan Kennedy and High Park Shops Inc.Mark Castaneda, on behalf of himself and a putative class, seeking to recover damages for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Kasilingam litigation”). The complaint alleged that Tilray and the individual defendants overstated the anticipated advantages of the Company’s revenue sharing agreement with Authentic Brands Group (“High Park”ABG”), as Defendants, in Calgary, Albertaannounced on January 15, 2019, and that the plaintiff suffered losses when Tilray’s stock price dropped after Tilray recognized an impairment with respect to the ABG deal on March 2, 2020.
On September 27, 2021, the U.S. District Court entered an Opinion & Order granting the Defendants’ motion to dismiss the complaint in the Court of Queen’s Bench of Alberta. In August 2019,Kasilingam litigation.On December 3, 2021, the lead plaintiff filed a second amended complaint alleging similar claims against Tilray and High Park entered into an Arrangement Agreement with 420 and others (the “Arrangement Agreement”). PursuantBrendan Kennedy. The Defendants intend to the Arrangement Agreement, High Park wasfile a motion to acquire the securities of 420. In February 2020, Tilray and High Park gave notice of termination of the Arrangement Agreement. 420 alleges that the termination was unlawful and without merit and further alleges that the Defendants had no legal basis to terminate. 420 alleges that the Defendants did not meet their contractual and good faith obligations under the Arrangement Agreement. 420 seeks an order of specific performance (compelling the closing of the Arrangement Agreement). Alternatively, in the absence of specific performance, 420 seeks damages in the stated amount of C$110 million, plus C$20 million in aggravated damages. The Tilray and High Park Statement of Defense and counterclaim were both filed on March 20, 2020. 420’s Statement of Defense to our counterclaim was filed on April 20, 2020. No trial date has been set.dismiss this amended complaint as well.
Tilray, Inc. Reorganization Litigation (Delaware)(Delaware, New York)
On February 27, 2020, Tilray stockholders Deborah Braun and Nader Noorian filed a class action and derivative complaint in the Delaware Court of Chancery styled Braun v. Kennedy, C.A. No. 2020-0137-KSJM. On March 2, 2020, Tilray stockholders Catherine Bouvier, James Hawkins, and Stephanie Hawkins filed a class action and derivative complaint in the Delaware Court of Chancery styled Bouvier v. Kennedy, C.A. No. 2020-0154-KSJM. The two complaints are nearly identical, were filed by the same group of counsel, and name Brendan Kennedy, Christian Groh, Michael Blue, Maryscott Greenwood, Michael Auerbach, and Privateer Evolution, LLC (as successor to Privateer Holdings, Inc.) as defendants and Tilray as a nominal defendant.
On March 4, 2020, the Delaware Court of Chancery entered an order consolidating the two cases and designating the complaint in the Braun/Noorian action as the operative complaint. The operative complaint asserts claims for breach of fiduciary duty against Brendan Kennedy, Christian Groh, Michael Blue, and Privateer Evolution, LLC (the “Privateer Defendants”) for alleged breaches of fiduciary duty in their alleged capacities as Tilray’s controlling stockholders and against Kennedy, Maryscott Greenwood, and Michael Auerbach for alleged breaches of fiduciary duties in their capacities as directors and/or officers of Tilray in connection with the Downstream Merger.prior merger of Privateer Holdings, Inc. with and into a wholly owned subsidiary (the “Downstream Merger”). The operative complaint alleges that the Privateer Defendants breached their fiduciary duties by causing Tilray to enter into the Downstream Merger and Tilray’s Board to approve that Downstream Merger, and that Defendants Kennedy, Greenwood, and Auerbach breached their fiduciary duties as directors by approving the Downstream Merger. Plaintiffs allege that the Downstream Merger gave the Privateer Defendants hundreds of millions of dollars of tax savings without providing a corresponding benefit to Tilray and its minority stockholders and that the Downstream Merger unfairly transferred and extended Kennedy, Blue, and Groh’s control over Tilray. On July 17, 2020, the stockholder plaintiffs filed an amended complaint asserting substantially similar claims. On August 14, 2020, Tilray and all defendantsthe Privateer Defendants moved to dismiss the amended complaint. On October 14, 2020, in light of the Plaintiffs’ statement that certain actions may have mooted some of their claims related to the alleged unfair extension of control over Tilray, the Court entered an order adjourning the planned November 4, 2020 hearing and removing the pendingdeadlines for briefing on the motions to dismiss. The hearing was rescheduled to February 5, 2021. On February 5, 2021, the Court held a hearing on those Motions and reserved judgment. On December 11, 2020, Defendants filed a motion to dismiss Plaintiffs’ claims that the Downstream Merger improperly perpetuated or extended Kennedy, Blue, and Groh’s alleged control as moot in light of the automatic conversion of Tilray’s Class 1 common stock to Class 2 common stock. The parties have not yet agreed to a schedule on the briefing for that motion, but, atAt the February 5, 2021 hearing on Defendants’ Motions to Dismiss, the Plaintiffs agreed that their perpetuation of control claims are moot and stated that they intend to move for a fee award in connection with those claims. The defendants believeOn June 1, 2021, the Court denied Defendants’ Motions to Dismiss the Amended Complaint.
In August 2021, the Company’s Board of Directors established a Special Litigation Committee (the “SLC”) of independent directors to re-assert director control and investigate the derivative claims in this case are without merit,litigation matter. The SLC has appointed the law firm Wilson Sonsini to assist the SLC with an ongoing investigation of the underlying claim and intend to defend this case vigorously, but there are no assurances as to its outcome.
Securities Litigation
On May 4, 2020, a lawsuit was filed by plaintiff Ganesh Kasilingamdetermine whether continued prosecution of such claims is in the United States District Court for the Southern District of New York, against Tilray, Inc., Brendan Kennedy and Mark Castaneda, on behalf of himself and a putative class, seeking to recover damages for alleged violations of Sections 10(b) and 20(a)best interests of the Securities Exchange Act of 1934 (the “Kasilingam litigation”).Company. The complaint alleges that Tilray and the individual defendants overstated the anticipated advantages of the Company’s revenue sharing agreement with Authentic Brands Group (“ABG”), announced on January 15, 2019, and that the plaintiff suffered losses when Tilray’s stock price dropped after Tilray recognized an impairment with respect to the ABG deal on March 2, 2020. On August 6, 2020 the court entered an order appointing Saul Kassin as Lead Plaintiff and The Rosen Law Firm, P.A. as Lead Counsel. Lead Plaintiff filed an amended complaint on October 5, 2020. The Amended Complaint asserts the same Sections 10(b) and 20(a) claims against the same defendants on largely the same theory, and includes new allegations that the Company’s reported inventory, cost of sales, and gross margins in its financial reports during the class period were false and misleading because Tilray improperly recorded unsellable “trim” as inventory and understated the cost of sales for its products. The defendants filed a motion to dismiss the Amended Complaint in its entirety on December 4, 2020. Plaintiff’s opposition to the defendants’ Motion to Dismiss was filed on January 25, 2021, and the defendants’ reply was filed on February 24, 2021. The Motion to Dismiss is now fully briefed and pending before the court.The Company and the individual defendants believe the claims are without merit, and intend to defend vigorously against them, but there can be no assurances as to the outcome.
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Shareholder Derivative Lawsuits
On April 10, 2020, a shareholder derivative lawsuit was filed in the United States District Court for the Eastern District of New York (EDNY) by Chad Gellner, Matthew Rufo, and Melvyn Klein, allegedly on behalf of Tilray, Inc., that piggy‐backs on the Kasilingam litigation referenced above. It named the Board of Directors and Mark Castaneda as defendants. The theory of the lawsuit was that the board failed to prevent the alleged securities law violations asserted in the Kasilingam litigation. On May 29, 2020, a second shareholder derivative lawsuit was filed in the United States District Court for the Southern District of New York (SDNY) by Bo Hu asserting essentially the same claims, allegedly on behalf of Tilray, as the prior shareholder derivative action. And on June 16, 2020, the plaintiffs in the Gellner derivative action voluntarily dismissed that lawsuit in the EDNY and re‐filed it in the SDNY. The plaintiffs in the two derivative actions in the SDNY have agreed with nominal defendant Tilray and the individual defendants to consolidate the actions, and have submitted the stipulation to the court for approval.
On June 5, 2020 a third shareholder derivative lawsuit was filed in the United States District Court for the District of Delaware (DDE) by Lee Morgan, again alleging essentially the same claims, allegedly on behalf of Tilray, as the prior shareholder derivative actions. On November 3, 2020, the court in the Morgan action entered a stipulated stay pending developments in the securities class action pending in the SDNY. On December 21, 2020 a fourth shareholder derivative lawsuit was filed in the DDE by Donald Kisselbach, again alleging essentially the same claims, allegedly on behalf of Tilray, as the prior shareholder derivative actions. On March 1, 2021, the court so-ordered the parties’ stipulation, consolidating the DDE derivative actions under the caption In re Tilray, Inc. Consolidated Stockholder Litigation, and staying the consolidated action untilthe motion to dismiss the Kasilingam litigation is decided. The Company and the individual defendants believe the claims are without merit, and intend to defend vigorously against them.
Wyckoff Arbitration
On February 16, 2020, Wyckoff Farms (“Wyckoff”), a cannabinoid supplier to Tilray, emailed a demand for assurance of performance of the March 20, 2019 Cannabinoid Supply Agreement (“Supply Agreement”). Wyckoff stated that it believes that TilraySLC has anticipatorily breached its obligations under the Supply Agreement, which contemplated a five (5) year term, with an express minimum crop obligation during the first crop year for 2019-2020. Wyckoff demanded assurance that Tilray take delivery of and purchase at least 13,000 KG of product for the 2019/2020 crop year at a price of $4,600 KG of product (total purchase price $59,800,000). Wyckoff also claimed that the minimum quantity purchase obligation continued for the remaining crop years, which Tilray disputes. Tilray responded that it is within its rights under the Supply Agreement, that the contract’s only minimum purchase obligation is for the 2019/2020 crop year, and also invoked the contractual force majeure provision in light of the impacts of FDA action related to hemp-derived CBD, as well as the COVID-19 pandemic. On March 5, 2020, Wyckoff submitted the dispute to binding arbitration before the American Arbitration Association (AAA) in Benton County Washington, to which Tilray responded with an Answer on March 26, 2020, disputing Wyckoff’s claims. On April 29, 2021, the parties mutually agreed to settle this matter. Pursuant to a settlement agreement and release, Tilray (i) paid $20.0 million in cash and $5.0 million in Class 2 Common Stock to Wyckoff on April 29, 2021, and (ii) agreed to pay either $15.0 million in Class 2 Common Stock or $20.0 million in cash, depending on certain circumstances, to Wyckoff within nine months of the settlement date, in each case subject to certain upward adjustments based on the trading price and resale registration status of the Class 2 Common Stock. The parties also agreed to, among other things, withdraw from the arbitration proceeding and to release the other party from any and all claims arising out of or relating to the arbitration or the supply agreement. The arbitration proceeding was dismissed on April 30, 2021.
Langevin Canada Class Action
On June 16, 2020, Lisa Langevin commenced a purported class action in the Alberta Court of Queen’s Bench, on her behalf and on behalf of a proposed class of all medicinal and recreational users in Canada of the defendants’ cannabis products who consumed the products before their expiry date. She alleges that the defendants, including Tilray, marketed medicinal and recreational cannabis products in circumstances where the defendants misrepresented the amount of Tetrahydrocannabinol (THC) or Cannabidiol (CBD) in their respective products. As a result of the defendants’ alleged mislabeling of the cannabis products it is claimed that the plaintiff and proposed class members did not receive and consume the product that they believed that they had purchased and that this caused them loss, risk of injury and actual injury. Ms. Langevin claims that on February 13, 2020 she purchased Canaca – TenUp manufactured and distributed by Tilray. She had it tested and allegedly found that it only contained 43% of the claimed amount of THC. The Statement of Claim seeks $500,000,000 in damages and restitution and $5,000,000 in punitive damages plus interest and costs collectively from the defendants. On July 20, 2020 Plaintiff filed an Amended Amended Statement of Claim, and on December 4, 2020 the Plaintiff delivered a Third Amended Statement of Claim. We plan to vigorously defend against this action.
Shareholder Arrangement Lawsuits
On March 12, 2020, Tilray filed with the Securities and Exchange Commission and commenced the mailing of a definitive joint proxy statement/circular (the “Proxy Statement/Circular”) with respect to the special meeting of Tilray stockholders originally scheduled to be held on April 16, 2021 pursuant to the Arrangement.
Between March 15, 2021 and April 6, 2021, seven lawsuits were filed by alleged stockholders of Tilray (collectively the “Complaints”):
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Tilray and the other named defendants in the Complaints believe that these lawsuits are without merit and that no supplemental disclosure is required to the Proxy Statement/Circular under any applicable law, rule or regulation. However, solely to eliminate the burden and expense of litigation and to avoid any possible disruption to the Arrangement that could result from further litigation, Tilray filed a Form 8-K dated April 8, 2021 providing supplemental information to be read in conjunction with the Proxy Statement/Circular. On April 21, 2021, Alicia Barron-Archer voluntarily dismissed her lawsuit. On April 22, 2021, Arthur Reveles voluntarily dismissed his lawsuit. On April 24, 2021, Patricia Violini voluntarily dismissed her lawsuit.
Bill’s Nursery v. Tilray, Inc.
On April 8, 2021, Bill’s Nursery, Inc. (“BNI”), a Florida nursery and medical marijuana treatment clinic operator, and its owner, Stephen Garrison, filed suit in Washington state court asserting claims against Tilray, Inc. (as successor to Privateer Evolution, LLC) for breach of contract, breach of the implied duty of good faith, breach of fiduciary duty, and fraud, arising out of Tilray’s decision not to include the content of Tilray’s proprietary standard operating procedures (“SOPs”) in the parties’ 2015 applications for a “Dispensing Organization” license in Florida. The Statement of Claim seeks an unspecified amount in damages, plus interest and costs. Tilray believes the claims to be without merit and will vigorously defend against this action.
We assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of loss is not estimable, we do not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently available and available insurance coverage, our management believes that it has established appropriate legal reserves. Any incremental liabilities arising from pending legal proceedings are not expectedsuccessfully moved to have a material adverse effect on our consolidated financial position, consolidated results of operations, or consolidated cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to our consolidated financial position, consolidated results of operations, or consolidated cash flows.Plaintiff’s discovery stayed during their investigation.
Item 1A. Risk Factors.
Careful consideration should be given to the following updated risk factors related to the Arrangement, in addition to those risk factors described in Part I, “Item 1A (Risk Factors) in1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended DecemberMay 31, 2020 and2021 includes a discussion of our known material risk factors, other than risks that could apply to any issuer or offering. A summary of our risk factors is included below. There have been no material changes from the other information set forth in this Quarterly Report on Form 10-Q and in other documents that we file with the SEC or publicly in Canada, in evaluating our company and our business. Investingrisk factors described in our securities involves a high degree of risk. If any of these risks actually occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. Additional risks and uncertainties not currently known to us or that we currently consider to not be material may also materially and adversely affect our company and our business.
Risks Related to the ArrangementForm 10-K.
We may experience difficulties integrating Tilray and Aphria’s operations and realizing the expected benefits of the Arrangement.
The success of the Arrangement will depend in part on our ability to realize the expected operational efficiencies and associated cost synergies and anticipated business opportunities and growth prospects from combining Tilray and Aphria in an
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efficient and effective manner. We may not be able to fully realize the operational efficiencies and associated cost synergies or leverage the potential business opportunities and growth prospects to the extent anticipated or at all.
The Arrangement was completed on April 30, 2021, and we are in the early stages of our integration efforts. The integration of operations and corporate and administrative infrastructures may require substantial resources and divert management attention. Challenges associated with the integration may include those related to retaining and motivating executives and other key employees, blending corporate cultures, eliminating duplicative operations, and making necessary modifications to internal control over financial reporting and other policies and procedures in accordance with applicable laws. Some of these factors are outside our control, and any of them could delay or increase the cost of our integration efforts.
The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, increased tax costs, inefficiencies, and inconsistencies in standards, controls, information technology systems, policies and procedures, any of which could adversely affect our ability to maintain relationships with employees, customers or other third parties, or our ability to achieve the anticipated benefits of the transaction, and could harm our financial performance. If we are unable to successfully integrate certain aspects of the operations of Tilray and Aphria or experience delays, we may incur unanticipated liabilities and be unable to fully realize the potential benefit of the revenue growth, synergies and other anticipated benefits resulting from the arrangement, and our business, results of operations and financial condition could be adversely affected.
We have incurred, and may continue to incur, significant Arrangement-related costs and transition costs in connection with the Arrangement with Aphria.
We have incurred, and may continue to incur, significant Arrangement-related costs and transition costs in connection with the Arrangement with Aphria. We may incur additional costs to maintain employee morale and to retain key employees. Unanticipated costs may be incurred in the course of integration, and management cannot ensure that the elimination of duplicative costs or the realization of other efficiencies will offset the transaction and integration costs in the near term or at all.
Risks Related to COVID-19
Risks related to COVID-19 have and will continue to impact our operations and could have a material adverse effect on our business, results of operations and financial condition.
On March 11, 2020, the World Health Organization declared the outbreak of the coronavirus, or COVID-19, a pandemic. The COVID-19 pandemic continues to result in extended government-ordered closures affecting significant portions of the global economy, including in the United States, Canada, Portugal, and Germany, where we conduct significant business. The public health crisis caused by COVID-19 and the measures taken and continuing to be taken by governments, businesses and the public have, and we expect will continue to have, certain negative impacts on our business operations, and could have a material adverse effect on our business, results of operations and financial condition.
The full extent to which COVID-19 may impact our business, including our operations and the market for our securities and our financial condition, will depend on future developments, which are highly uncertain and cannot be predicted at this time. These include the duration, severity and scope of the pandemic, the development and availability of effective treatments and vaccines, and further action taken by the government and other third parties in response to the pandemic. In particular, COVID-19 and government efforts to curtail COVID-19 could impede our production facilities, increase operating expenses, result in loss of sales, affect our supply chains, impact performance of contractual obligations and require additional expenditures to be incurred.
In connection with COVID-19 and to comply with mandates and guidance from governmental authorities, we have and continue to update our operational procedures and safety protocols at our facilities. If such measures are not effective or governmental authorities implement further restrictions, we may be required to take more extreme action, which could include a short or long-term closure of our facilities or reduction in workforce. These measures may impair our production levels or cause us to close or severely limit production at one or more facilities. Further, our operations could be adversely impacted if suppliers, contractors, customers and/or transportation carriers are restricted or prevented from conducting business activities. For example, cannabis retail stores in certain Canadian markets may close voluntarily or be forced by local governments to close or modify their operations, reducing our ability to distribute adult-use cannabis.
Consumer demand for cannabis products may also be impacted by COVID-19 as a result of reductions in consumers’ disposable income associated with layoffs, and work or pay limitations due to mandatory social distancing and lockdown measures implemented by government authorities. Demand for medical cannabis may be further impacted due to a decrease in patients visiting doctor’s offices and clinics. As demand for our products decreases, we may be required to record additional asset impairments, including an impairment of the carrying value of our goodwill, along with other accounting charges.
COVID-19 might also impact recruitment for current and future clinical trials involving our products which could lead to delays in study completion and/or recruiting fewer participants than planned or anticipated.
The following is a summary of certain COVID-19 related operational impacts and associated risks at our production and processing facilities:
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• | We are still completing our integration efforts following completion of the Arrangement between Tilray and Aphria on April 30, 2021 and may experience challenges fully achieving the expected benefits of the Arrangement. |
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• | Government regulation is evolving, and unfavorable changes could |
• | Our production and processing facilities are integral to our business and adverse changes or developments affecting our facilities may have an adverse impact on our business. |
• | We face intense competition, and anticipate competition will increase, which could hurt our business. |
• | We may not be able to successfully develop new products or commercialize such products. |
• | The long-term effect of the legalization of adult-use cannabis in |
• | United States regulations relating to hemp-derived CBD products are unclear and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives. |
• | We have a limited operating history and a history of net losses, and we may not achieve or maintain profitability in the future. |
• | We are subject to litigation, arbitration and demands, which could result in significant liability and costs, and impact our resources and reputation. |
• | We are exposed to risks relating to the laws of various countries as a result of our international operations. |
• | Our strategic alliances and other third-party business relationships may not achieve the intended beneficial impact and expose us to risks. |
• | We depend on significant customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue could decline significantly. |
• | Significant interruptions in our access to certain supply chains for key inputs such as raw materials, supplies, electricity, water and other utilities may impair our operations. |
• | Management may not be able to successfully establish and maintain effective internal controls over financial reporting. |
• | The price of our common stock in public markets has experienced and may continue to experience severe volatility and fluctuations. |
• | The volatility of our stock and the stockholder base may hinder or prevent us from engaging in beneficial corporate initiatives. |
• | The terms of our outstanding warrants may limit our ability to raise additional equity capital or pursue acquisitions, which may impact funding of our ongoing operations and cause significant dilution to existing stockholders. |
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Given the ongoing and dynamic nature and significance of COVID-19 and its impact globally, we are not able to enumerate all potential risks to our business. Any of the negative impacts of COVID-19, including those described above, alone or in combination with others, may have a material adverse effect on our business, results of operations or financial condition. Further, any of these negative impacts, alone or in combination with others, could exacerbate many of the other risk factors outlined in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 30, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.Recent Sales of Unregistered Equity Securities
On October 13, 2021, Tilray entered into an assignment and assumption agreement with Double Diamond Holdings Ltd. (“DDH”), an Ontario corporation, pursuant to which, among other things, Tilray acquired from DDH a promissory note in the amount of CAD$34,300,000 (the “Note”) payable by 1974568 Ontario Limited (“Aphria Diamond”). DDH is a joint venturer with Aphria Inc. (Tilray’s wholly-owned subsidiary) in Aphria Diamond. As consideration for the Note, Tilray issued 2,677,596 shares of its Class 2 common stock to DDH.
Effective November 10, 2021, Tilray entered into a termination and settlement agreement with ABG Intermediate Holdings 2, LLC (“ABG”) and certain of its affiliates. Pursuant to this settlement agreement, the Company issued 215,901 shares of its Class 2 common stock to ABG in exchange for the release of certain claims.
On December 1, 2021, the Company acquired all of the membership interests of Cheese Grits, LLC, a Georgia based company (the “SW Acquisition”) that owned the real estate utilized and previously leased by SweetWater Brewing Company. . As consideration for the SW Acquisition, the Company paid a purchase price at closing equal to $30,665,000, which was satisfied through the assumption of outstanding debt as well as the issuance of 843,687 shares of Tilray’s Class 2 common stock. On December 17, 2021, the Company issued an additional 82,224 Class 2 common shares as consideration for the SW Acquisition.
On December 7, 2021, the Company acquired all of the membership interests of Double Diamond Distillery LLC (d/b/a Breckenridge Distillery), a Colorado limited liability company (the “Breckenridge Acquisition”). As consideration for the Breckenridge Acquisition, the Company paid a purchase price in an aggregate amount equal to $102,900,000, which purchase price was satisfied through the issuance of 11,245,511 shares of Tilray’s Class 2 common shares to the selling unitholders.
On December 17, 2021, the Company acquired intellectual property and inventory relating to the Alpine and Green Flash craft brew brands from WC IPA LLC (the “Alpine Acquisition”). As consideration for the Alpine Acquisition, the Company paid a purchase price in an aggregate amount equal to $5,133,000 which purchase price was satisfied through the payment of cash and the issuance of 366,308 shares of Tilray’s Class 2 common shares.
Each of the foregoing issuances of Tilray’s Class 2 common stock was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, for the offer and sale of securities not involving a public offering. No underwriter participated in the offer and sale of the shares issued pursuant to the foregoing issuances, and no commission or other remuneration was paid or given directly or indirectly in connection therewith.
Item 3. Defaults uponUpon Senior SecuritiesSecurities.
Not applicable.
Item 4. Mine Safety DisclosuresDisclosures.
Not applicable.
Item 5. Other informationInformation.
Not applicable.
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Item 6. Exhibits.
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Exhibit No. |
| Description of Document |
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2.1* |
| Arrangement Agreement between the Registrant and Aphria Inc., dated December 15, 2020 |
| 8-K |
| 001-38594 |
| 2.1 |
| 12/21/2020 |
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2.2* |
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| 02/22/2020 |
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3.1 |
| Amended and Restated Certificate of Incorporation, as currently in effect |
| 8-K |
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| 3.1 |
| 12/17/2019 |
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| 7/9/2018 |
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4.1 |
| Indenture, dated October 10, 2018, between the Registrant and GLAS Trust Company LLC |
| 8-K |
| 001-38594 |
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| 10/10/2018 |
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4.2 |
| Form of 5.00% Convertible Senior Note due 2023 (included in Exhibit 4.1) |
| 8-K |
| 001-38594 |
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| 10/10/2018 |
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10.1 |
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31.2 |
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| X | |
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32.1** |
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| X | |
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101 |
| The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Loss and Comprehensive Loss , (iii) Consolidated Statements of Stockholders' Equity (Deficit), (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
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| X |
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104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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| X |
Exhibit Number | Description | |
3.1* | ||
10.1* | ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101* | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Financial Position, (ii) Consolidated Statements of Loss and Comprehensive Loss , (iii) Consolidated Statements of Stockholders' Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* |
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39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Tilray Inc. | ||
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Date: |
| By: | /s/ Irwin D. Simon | |
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| Irwin D. Simon | |
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Date: January 10, 2022 | By: | /s/ Carl | ||
| Carl Merton | |||
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| Chief Financial Officer |
44
40