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 August 31, 2023

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 BRANDS, 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 Identification No.)
265 Talbot Street West, Leamington, ON	N8H 5L4
(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
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 October 2, 2023, the registrant had 730,289,573 shares of Common Stock, $0.0001 par value per share issued and outstanding. 

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Consolidated Statements of Financial Position (Unaudited)	1
	Consolidated Statements of Loss and Comprehensive Loss (Unaudited)	2
	Consolidated Statements of Stockholders' Equity (Unaudited)	3
	Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Condensed Interim Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52
PART II.	OTHER INFORMATION	53
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
Signatures		58

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended August 31, 2023 (the “Form 10-Q”) contains forward-looking statements under Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the "safe harbor" created by those sections and other applicable laws. 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  under the Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the “safe harbor” created by those sections and other applicable laws. 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 intentions or expectations regarding our cost savings initiatives; our strategic initiatives, business strategy, supply chain, brand portfolio, product performance and expansion efforts; current or future macroeconomic trends; future corporate acquisitions and strategic transactions; and our synergies, cash savings and efficiencies anticipated from the integration of our completed acquisitions and strategic transactions.

Risks and uncertainties that may cause actual results to differ materially from forward-looking statements include, but are not limited to, those identified in this Form 10-Q and other risks and matters described in our most recent Annual Report on Form 10-K for the fiscal year ended May 31, 2023 as well as our other filings made 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 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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

TILRAY BRANDS, INC.

Consolidated Statements of Financial Position

(in thousands of United States dollars, unaudited)

	August 31,			May 31,
	2023			2023
Assets
Current assets
Cash and cash equivalents	$	177,519		$	206,632
Restricted cash		1,613			—
Marketable securities		287,333			241,897
Accounts receivable, net		82,076			86,227
Inventory		232,075			200,551
Prepaids and other current assets		44,943			37,722
Assets held for sale		3,696			—
Total current assets		829,255			773,029
Capital assets		494,619			429,667
Right-of-use assets		5,605			5,941
Intangible assets		967,568			973,785
Goodwill		2,009,673			2,008,843
Interest in equity investees		4,638			4,576
Long-term investments		7,564			7,795
Convertible notes receivable		74,681			103,401
Other assets		8,647			222
Total assets	$	4,402,250		$	4,307,259
Liabilities
Current liabilities
Bank indebtedness	$	14,594		$	23,381
Accounts payable and accrued liabilities		238,081			190,682
Contingent consideration		7,181			16,218
Warrant liability		10,015			1,817
Current portion of lease liabilities		2,324			2,423
Current portion of long-term debt		13,489			24,080
Current portion of convertible debentures payable		251,590			174,378
Total current liabilities		537,274			432,979
Long - term liabilities
Contingent consideration		13,000			10,889
Lease liabilities		7,462			7,936
Long-term debt		152,390			136,889
Convertible debentures payable		120,861			221,044
Deferred tax liabilities		169,633			167,364
Other liabilities		74			215
Total liabilities		1,000,694			977,316
Commitments and contingencies (refer to Note 18)
Stockholders' equity
Common stock ($0.0001 par value; 980,000,000 common shares; 723,292,600 and 656,655,455 common shares issued and outstanding, respectively)		72			66
Preferred shares ($0.0001 par value; 10,000,000 preferred shares authorized; nil and nil preferred shares issued and outstanding, respectively)		—			—
Additional paid-in capital		5,909,895			5,777,743
Accumulated other comprehensive loss		(43,561	)		(46,610	)
Accumulated Deficit		(2,487,032	)		(2,415,507	)
Total Tilray Brands, Inc. stockholders' equity		3,379,374			3,315,692
Non-controlling interests		22,182			14,251
Total stockholders' equity		3,401,556			3,329,943
Total liabilities and stockholders' equity	$	4,402,250		$	4,307,259

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

1

TILRAY BRANDS, INC.

Consolidated Statements of Loss and Comprehensive Loss

(in thousands of United States dollars, except for share and per share data, unaudited)

	Three months ended
	August 31,
	2023			2022
Net revenue	$	176,949		$	153,211
Cost of goods sold		132,753			104,597
Gross profit		44,196			48,614
Operating expenses:
General and administrative		40,516			40,508
Selling		6,859			9,671
Amortization		22,225			24,359
Marketing and promotion		8,535			7,248
Research and development		79			166
Change in fair value of contingent consideration		(11,107	)		211
Litigation costs		2,034			445
Restructuring costs		915			—
Transaction (income) costs		8,502			(12,816	)
Total operating expenses		78,558			69,792
Operating loss		(34,362	)		(21,178	)
Interest expense, net		(9,835	)		(4,413	)
Non-operating income (expense), net		(4,402	)		(32,992	)
Loss before income taxes		(48,599	)		(58,583	)
Income tax expense		7,264			7,211
Net loss	$	(55,863	)	$	(65,794	)
Total net income (loss) attributable to:
Stockholders of Tilray Brands, Inc.		(71,525	)		(73,482	)
Non-controlling interests		15,662			7,688
Other comprehensive gain (loss), net of tax
Foreign currency translation gain (loss)		3,209			(60,292	)
Unrealized gain (loss) on convertible notes receivable		—			(2,525	)
Total other comprehensive loss, net of tax		3,209			(62,817	)
Comprehensive loss	$	(52,654	)	$	(128,611	)
Total comprehensive income (loss) attributable to:
Stockholders of Tilray Brands, Inc.		(68,476	)		(132,450	)
Non-controlling interests		15,822			3,839
Weighted average number of common shares - basic		691,189,382			575,301,374
Weighted average number of common shares - diluted		691,189,382			575,301,374
Net loss per share - basic	$	(0.10	)	$	(0.13	)
Net loss per share - diluted	$	(0.10	)	$	(0.13	)

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

2

TILRAY BRANDS, INC.

Consolidated Statements of Stockholders’ Equity

(in thousands of United States dollars, except for share data, unaudited)

								Accumulated
	Number of				Additional			other						Non-
	common		Common		paid-in			comprehensive			Accumulated			controlling
	shares		stock		capital			loss			Deficit			interests			Total
Balance at May 31, 2022		532,674,887	$	53	$	5,382,367		$	(20,764	)	$	(962,851	)	$	42,561		$	4,441,366
Share issuance - equity financing		32,481,149		3		129,590			—			—			—			129,593
Shares issued to purchase HEXO convertible note receivable		33,314,412		3		107,269			—			—			—			107,272
HTI Convertible Note - conversion feature		—		—		9,055			—			—			—			9,055
Share issuance - Double Diamond Holdings dividend settlement		1,529,821		1		5,063			—			—			—			5,064
Share issuance - options exercised		3,777		—		—			—			—			—			—
Share issuance - RSUs exercised		950,893		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax		—		—		(1,189	)		—			—			—			(1,189	)
Stock-based compensation		—		—		9,193			—			—			—			9,193
Dividends declared to non-controlling interests		—		—		—			—			—			(8,561	)		(8,561	)
Comprehensive income (loss) for the period		—		—		—			(58,968	)		(73,482	)		3,839			(128,611	)
Balance at August 31, 2022		600,954,939		60		5,641,348			(79,732	)		(1,036,333	)		37,839			4,563,182
Balance at May 31, 2023		656,655,455	$	66	$	5,777,743		$	(46,610	)	$	(2,415,507	)	$	14,251		$	3,329,943
Share issuance - HEXO acquisition		39,705,962		4		65,158			—			—			—			65,162
Share issuance - settlement of contractual change of control severance incurred from HEXO acquisition		865,426		—		1,500			—			—			—			1,500
Share issuance - Double Diamond Holdings dividend settlement		5,004,735		—		8,146			—			—			—			8,146
Share issuance - HTI convertible note		17,148,541		2		49,998												50,000
Share issuance - RSUs exercised		3,912,481		—		—			—			—			—			—
Shares effectively repurchased for employee withholding tax		—		—		(4,860	)		—			—			—			(4,860	)
Equity component related to issuance of convertible debt, net of issuance costs		—		—		3,953			—			—			—			3,953
Stock-based compensation		—		—		8,257			—			—			—			8,257
Dividends declared to non-controlling interests				—		—			—			—			(7,891	)		(7,891	)
Comprehensive income (loss) for the period		—		—		—			3,049			(71,525	)		15,822			(52,654	)
Balance at August 31, 2023		723,292,600	$	72	$	5,909,895		$	(43,561	)	$	(2,487,032	)	$	22,182		$	3,401,556

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

3

TILRAY BRANDS, INC.

Consolidated Statements of Cash Flows

(in thousands of United States dollars, unaudited)

	Three months ended
	August 31,
	2023			2022
Cash used in operating activities:
Net loss	$	(55,863	)	$	(65,794	)
Adjustments for:
Deferred income tax recovery		59			796
Unrealized foreign exchange (gain) loss		(3,127	)		10,026
Amortization		30,789			34,069
Loss on sale of capital assets		3			77
Other non-cash items		(816	)		2,080
Stock-based compensation		8,257			9,193
Loss on long-term investments & equity investments		47			1,193
Loss on derivative instruments		10,345			6,336
Change in fair value of contingent consideration		(11,107	)		211
Change in non-cash working capital:
Accounts receivable		13,044			(3,068	)
Prepaids and other current assets		(4,654	)		(34,891	)
Inventory		3,650			(232	)
Accounts payable and accrued liabilities		(6,469	)		(6,265	)
Net cash used in operating activities		(15,842	)		(46,269	)
Cash used in investing activities:
Investment in capital and intangible assets, net		(4,152	)		(3,000	)
Proceeds from disposal of capital and intangible assets		342			1,463
Purchase of marketable securities, net		(45,436	)		—
Net cash acquired from business acquisitions		22,956			—
Net cash used in investing activities		(26,290	)		(1,537	)
Cash provided by (used in) financing activities:
Share capital issued, net of cash issuance costs		—			129,593
Shares effectively repurchased for employee withholding tax		—			(1,189	)
Proceeds from long-term debt and convertible debt		29,174			1,288
Repayment of long-term debt and convertible debt		(6,369	)		(5,196	)
Repayment of lease liabilities		—			(1,035	)
Net increase in bank indebtedness		(8,787	)		159
Net cash provided by (used in) financing activities		14,018			123,620
Effect of foreign exchange on cash and cash equivalents		614			(1,080	)
Net decrease in cash and cash equivalents		(27,500	)		74,734
Cash and cash equivalents, beginning of period		206,632			415,909
Cash and cash equivalents, end of period	$	179,132		$	490,643

Included in the statement of cash flows cash and cash equivalents is $1,613 of restricted cash as of August 31, 2023, $nil as of May 31, 2023.  

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

4

TILRAY BRANDS, INC.

Notes to Consolidated Financial Statements

Note 1. Basis of presentation and summary of significant accounting policies

The accompanying unaudited condensed interim consolidated financial statements (the “financial statements”) reflect the accounts of the Company for the quarterly period ended August 31, 2023. The financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP and should be read in conjunction with the audited consolidated financial statements (the “Annual Financial Statements”) included in the Company’s Annual Report on Form 10-K for the fiscal year ended  May 31, 2023 (the “Annual Report”). These unaudited condensed interim consolidated 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. 

These condensed interim consolidated financial statements have been prepared on the 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, under the historical cost convention except for certain financial instruments that are measured at fair value, as detailed in the Company’s accounting policies.

All amounts in the unaudited condensed interim consolidated financial statements, notes and tables have been rounded to the nearest thousand, except par values and per share amounts, unless otherwise indicated.

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 condensed interim 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 Annual Report, except for the entities acquired within Note 6 (Business acquisitions), during the period ended August 31, 2023.

Marketable securities

We classify term deposits and other investments that have maturities of greater than three months but less than one year as marketable securities. The fair value of marketable securities is based on quoted market prices for publicly traded securities. Marketable securities are carried at fair value with changes in fair value recorded in the statement of net loss and comprehensive loss, within the line, “Non-operating income (expense)”.

Long-term investments

Investments in equity securities of entities over which the Company does not have a controlling financial interest or significant influence are classified as an equity investment and 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 “measurement alternative”). In applying the measurement alternative, the Company performs a qualitative assessment on a quarterly basis and recognizes an impairment if there are sufficient indicators that the fair value of the equity investments is 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)”.

5

 

Investments in entities over which the Company does not have a controlling financial interest but has significant influence, are accounted for using the equity 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, adjusted for 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 fair value of an equity method investment is less than the carrying value of the investment, the Company will 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 date, which establishes a new cost basis.

Convertible notes receivable

Convertible notes receivable include various investments in which the Company has the right, or potential right to convert the indenture into common stock of the investee and are classified as available-for-sale and are recorded at fair value. Unrealized gains and losses during the year, 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. We use judgement to assess convertible notes receivables for impairment at each measurement date. Convertible notes receivables are impaired when a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the statements of loss and comprehensive loss and a new cost basis for the investment is established. We also evaluate whether there is a plan to sell the security, or it is more likely than not that we will be required to sell the security 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).

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing reported net income (loss) attributable to stockholders of Tilray Brands, Inc. by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share is computed by dividing reported net income (loss) attributable to stockholders of Tilray Brands, Inc. by the sum of the weighted average number of common shares and the number of dilutive potential 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, warrants, and RSUs and the incremental shares issuable upon conversion of the convertible debentures and similar instruments. Shares of common stock outstanding under the share lending arrangement entered into in conjunction with the TLRY 27 Notes, see Note 12 (Convertible debentures payable) are excluded from the calculation of basic and diluted earnings per share because the borrower of the shares is required under the share lending.

In computing diluted earnings (loss) per share, common share equivalents are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive. For the three months ended August 31, 2023 and August 31, 2022, the dilutive potential common share equivalents outstanding consisted of the following: 21,202,933 and 16,989,328 common shares from RSUs, 6,325,348 and 4,741,653 common shares from share options, 7,847,219 and 6,209,000 common shares for warrants and 77,819,141 and 36,687,326 common shares for convertible debentures, respectively.

Revenue

Revenue is recognized when the control of the promised goods or services, through performance obligation, is transferred/provided to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligations.

Excise taxes remitted to tax authorities are government-imposed excise taxes on cannabis and beer. Excise taxes are recorded as a reduction of sales in net revenue in the consolidated statements of operations and recognized as a current liability within accounts payable and accrued liabilities on the consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.

In addition, amounts disclosed as net revenue are net of excise taxes, sales tax, duty tax, allowances, discounts and rebates.

6

 

In determining the transaction price for the sale of goods or services, the Company considers the effects of variable consideration and the existence of significant financing components, if any.

We may enter into certain contracts for the sale of goods or services, which provide customers with rights of return, volume discounts, bonuses for volume/quality achievement, and/or sales allowances. In addition, the Company may provide in certain circumstances, a retrospective price reduction to a customer based primarily on inventory movement. The inclusion of these items may give rise to variable consideration. The Company uses the expected value method to estimate the variable consideration because this method provides the most accurate estimation of the amount of variable consideration to which the Company will be entitled. The Company uses historical evidence, current information and forecasts to estimate the variable consideration. The Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retrospective price reduction, representing its obligation to return the customer’s consideration. The estimate is updated at each reporting period date.

On July 12, 2022, the Company and HEXO Corp. ("HEXO") entered into various commercial transaction agreements, as described in Note 24 (Segment reporting), which included an advisory services arrangement. The fees associated with the advisory services arrangement were recognized as revenue when such services were provided to HEXO. Any payments that were received for such services in advance of performance were recognized as a contract liability. On June 22, 2023, the Company completed the acquisition of HEXO as described in Note 6 (Business acquisitions), simultaneously terminating the advisory services arrangement and other commercial transactions.

New accounting pronouncements not yet adopted

In August 2023, the FASB issued ASU 2023-05, Business Combination - Joint Venture Formations (Subtopic 805-60) Recognition and Initial Measurement (“ASU 2023-05”), which is intended to address the accounting for contributions made to a joint venture. ASU 2023-05 is effective for the Company beginning June 1, 2026. This update will 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 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. The Company adopted the ASU 2021-08 beginning June 1, 2023, however, it did not have any impact on our condensed interim consolidated financial statements.

7

  

Note 2. Inventory

Inventory consisted of the following:

	August 31,		May 31,
	2023		2023
Plants	$	19,152	$	10,884
Dried cannabis		102,711		89,801
Cannabis trim		-		322
Cannabis derivatives		10,406		9,229
Cannabis vapes		4,076		1,173
Packaging and other inventory items		17,932		19,997
Wellness inventory		11,788		11,164
Beverage alcohol inventory		31,434		27,837
Distribution inventory		34,576		30,144
Total	$	232,075	$	200,551

Note 3. Capital assets

Capital assets consisted of the following:

	August 31,			May 31,
	2023			2023
Land	$	36,076		$	30,635
Production facility		330,012			344,627
Equipment		271,992			185,422
Leasehold improvement		7,786			7,753
Construction in progress		9,727			8,048
	$	655,593		$	576,485
Less: accumulated amortization		(160,974	)		(146,818	)
Total	$	494,619		$	429,667

8

  

Note 4. Intangible Assets

Intangible assets consisted of the following items:

	August 31,			May 31,
	2023			2023
Customer relationships & distribution channel	$	618,672		$	614,062
Licenses, permits & applications		369,479			366,793
Non-compete agreements		12,432			12,394
Intellectual property, trademarks, knowhow & brands		592,545			583,468
		1,593,128		$	1,576,717
Less: accumulated amortization		(209,716	)	$	(187,088	)
Less: impairments		(415,844	)		(415,844	)
Total	$	967,568		$	973,785

As of August 31, 2023, included in licenses, permits & applications is $183,660 of indefinite-lived intangible assets. As of May 31, 2023, there was $181,093 of indefinite-lived intangible assets included in Licenses, permits & applications.

Expected future amortization expense for intangible assets as of  August 31, 2023 are as follows:

	Amortization
2024 (remaining nine months)	$	55,895
2025		73,414
2026		73,414
2027		73,414
2028		73,414
Thereafter		434,357
Total	$	783,908

9

     

Note 5. Goodwill

The following table shows the carrying amount of goodwill by reporting units:

	August 31,			May 31,
Reporting Unit	2023			2023
Cannabis	$	2,640,669		$	2,640,669
Distribution		4,458			4,458
Beverage alcohol		120,802			120,802
Wellness		77,470			77,470
Effect of foreign exchange		8,705			7,875
Impairments		(842,431	)		(842,431	)
Total	$	2,009,673		$	2,008,843

10

  

Note 6. Business acquisitions

Acquisition of Montauk Brewing Company, Inc.

On   November 7, 2022, Tilray acquired Montauk Brewing Company, Inc. (“Montauk”), a leading craft brewer company based in Montauk, New York, which expanded our distribution network with a strong brand in the tri-state region of the U.S. In consideration for the acquisition of Montauk, and after giving effect to post-closing adjustments, the Company paid an aggregate purchase price equal to $35,123, which was comprised of $28,701 in cash and the remainder through the issuance of 1,708,521 shares of Tilray's common stock (having a value of $6,422 at closing). In the event that Montauk achieves certain volume and/or EBITDA targets on or before  December 31, 2025, the stockholders of Montauk shall be eligible to receive additional contingent cash consideration of up to $18,000. The Company determined that the closing date fair value of this contingent consideration was $10,245 based on the inputs disclosed in Note 23 (Fair value measurements). 

The table below summarizes fair value of the assets acquired and the liabilities assumed at the effective acquisition date. 

	Amount
Consideration
Cash	$	28,701
Shares		6,422
Contingent consideration		10,245
Net assets acquired
Current assets
Cash and cash equivalents		1,983
Accounts receivable		1,116
Prepaids and other current assets		467
Inventory		1,570
Long-term assets
Capital assets		420
Customer relationships (15 years)		18,540
Intellectual property, trademarks & brands (15 years)		13,650
Goodwill		17,803
Total assets		55,549
Current liabilities
Accounts payable and accrued liabilities		1,580
Long-term liabilities
Deferred tax liability		4,851
Other liabilities		3,750
Total liabilities		10,181
Total net assets acquired	$	45,368

In the event that the Montauk acquisition had occurred on June 1, 2022, the Company would have had additional revenue of approximately $3,000 for the three months ended  August 31, 2022 and net loss and comprehensive net loss would have increased by approximately $600 for the three months ended  August 31, 2022, primarily as a result of amortization of the intangible assets acquired. This unaudited pro forma financial information does not reflect the realization of any expected ongoing synergies relating to the integration of Montauk.

11

     

Acquisition of HEXO Corp.

On June 22, 2023, Tilray acquired HEXO, a cannabis company in Canada (the “HEXO Acquisition”) for the purpose of expanding the Company’s revenue base, production capabilities around certain form factors and growth opportunities with the Redecan brand. In consideration for the HEXO Acquisition, the Company paid a total purchase price equivalent of $93,882, which consisted of stock consideration of $63,927, settlement of convertible notes receivable of $28,720, the fair value of HEXO stock-based compensation of $1,188 and the assumption of warrants of $47. In connection with the HEXO Acquisition, each outstanding HEXO common share was exchanged for 0.4352 of a share of Tilray common stock and each outstanding HEXO preferred share was exchanged for 0.7805 of a share of Tilray common stock. In the aggregate, the Company issued 39,705,962 shares of Tilray common stock, at a share price of $1.61 per share, in connection with the HEXO Acquisition. The Company intends to sell HEXO's Kirkland lake property and has recorded the value of the associated capital assets as an asset held for sale. 

The Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value may be subject to adjustments pending completion of final valuations and post-closing adjustments. The table below summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed for the HEXO Acquisition at the effective acquisition date as follows: 

	Amount
Consideration
Shares	$	63,927
Settlement of convertible notes receivable		28,720
Warrants assumed		47
Estimated fair value of HEXO stock-based compensation		1,188
Net assets acquired
Current assets
Cash and cash equivalents		14,634
Restricted cash		1,657
Accounts receivable		7,855
Asset held for sale		755
Prepaids and other current assets		2,530
Inventory		27,495
Long-term assets
Prepaid expenses		8,384
Capital assets		70,782
Intellectual property, trademarks & brands (15 years)		2,000
Interest in equity investee		3,145
Total assets		139,237
Current liabilities
Accounts payable and accrued liabilities		45,355
Total liabilities		45,355
Total net assets acquired	$	93,882

Included in accounts payable and accrued liabilities was $12,856 of litigation settlement accruals as of June 22, 2023. 

In the event the HEXO Acquisition had occurred on June 1, 2022, the Company would have had, on an unaudited proforma basis, additional revenue of approximately $7,000 and $20,000 for the three month period ended  August 31, 2023 and 2022, respectively, and its net loss and comprehensive net loss would have increased by approximately $1,800 and $30,000 for the three month period ended August 31, 2023, and 2022, respectively. This unaudited pro forma financial information does not reflect the realization of any expected ongoing synergies relating to the integration of HEXO.

Acquisition of Truss Beverage Co.

On August 3, 2023, Tilray acquired the remaining 57.5% equity interest in Truss Beverage Co. ("Truss"), a cannabis beverage company, for $74 (CAD$100) in cash and $4,181 of contingent consideration from Molson Coors Canada ("Molson"). This represents the portion of Truss that had not been previously acquired as part of the HEXO Acquisition. The Company currently intends to divest Truss's assets and has recorded the value of the associated capital assets and lease obligations as an asset held for sale. The Company has agreed to pay Molson as contingent consideration an amount equal to 57.5% of any proceeds from any divesture, net of any costs and expenses associated with the disposition. 

The Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value of the net assets acquired may be subject to adjustments pending completion of final valuations and post-closing adjustments. The table below summarizes preliminary estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition date as follows:

	Amount
Consideration
Cash consideration	$	74
Investment in equity investees		3,145
Contingent consideration		4,181
Net assets acquired
Current assets
Cash and cash equivalents		6,739
Accounts receivable		1,038
Prepaids and other current assets		78
Inventory		2,573
Asset held for sale		2,960
Long-term assets
Intangible assets		296
Total assets		13,684
Current liabilities
Accounts payable and accrued liabilities		5,408
Other liabilities		876
Total liabilities		6,284
Total net assets acquired		7,400

In the event that the Truss acquisition had occurred on June 1, 2022 the Company would have had, on an unaudited proforma basis, additional revenue of approximately $3,000 and $5,000 for the three month period ended  August 31, 2023 and 2022, respectively, and net loss and comprehensive net loss would have increased by approximately $700 and $1,000 for the three month period ended August 31, 2023, and 2022, respectively. This unaudited pro forma financial information does not reflect the realization of any expected ongoing synergies relating to the integration of Truss.

Note 7. Convertible notes receivable

Convertible notes receivable is comprised of the following:

	August 31,		May 31,
	2023		2023
HEXO Convertible Note	$	-	$	28,720
MedMen Convertible Note		74,681		74,681
Total convertible notes receivable		74,681		103,401
Deduct - current portion		-		-
Total convertible notes receivable, non current portion	$	74,681	$	103,401

HEXO Convertible Note

On June 22, 2023, the Company completed the HEXO Acquisition as described in Note 6 (Business acquisitions). Concurrently with the closing of the HEXO Acquisition, the HEXO convertible note was converted for shares of HEXO.

12

 

MedMen Convertible Note

On August 31, 2021, the Company issued 9,817,061 shares valued at $117,804 to acquire 68% interest in Superhero Acquisition L.P. (“SH Acquisition”), which purchased a senior secured convertible note issued by MedMen (the "MedMen Convertible Note"), together with certain associated warrants to acquire Class B subordinate voting shares of MedMen, in the principal amount of $165,799. The MedMen Convertible Note bears interest at the Secured Overnight Financing Rate ("SOFR") plus 6%, with a SOFR floor of 2.5% and, any accrued interest is added to the outstanding principal amount, and is to be paid at maturity of the MedMen Convertible Note. 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. The Company’s ability to convert the MedMen Convertible Note 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. The MedMen Convertible Note has a maturity date of August 17, 2028.

The MedMen Convertible Note was based upon the fair value of the collateral assets net of disposal costs.  In the prior year, the Company used the Black-Scholes model using the following assumptions: the risk-free rate of 3.50%; expected life of the convertible note; volatility of 70% based on comparable companies; forfeiture rate of nil; dividend yield of nil; probability of legalization between 0% and 60%; and, the exercise price of the respective conversion feature. 

The Company did not recognize any interest income on the MedMen Convertible Note for the three months ended August 31, 2023, which would have increased its value. 

Note 8. Long term investments

Long term investments consisted of the following:

	August 31,		May 31,
	2023		2023
Equity investments measured at fair value	$	2,064	$	2,144
Equity investments under measurement alternative		5,500		5,651
Total	$	7,564	$	7,795

13

  

Note 9. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are comprised of:

	August 31,		May 31,
	2023		2023
Trade payables	$	78,971	$	70,819
Accrued liabilities		129,517		78,007
Accrued payroll and employment related taxes		6,826		18,772
Income taxes payable		15,727		14,934
Accrued interest		6,974		8,102
Other accruals		66		48
Total	$	238,081	$	190,682

Note 10. Bank indebtedness

Aphria Inc., a subsidiary of 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 August 31, 2023, the Company has not drawn on the line of credit. The operating line of credit is secured by a security interest on that certain real property located at 265 Talbot St. West, Leamington, Ontario.

CC Pharma GmbH, a subsidiary of the Company, has two operating lines of credit for €7,000 and €500 each, which bear interest at Euro Short-Term Rate ("ESTR") plus 2.50% and Euro Interbank Offered Rate ("EURIBOR") plus 3.75%, respectively. As of August 31, 2023, a total of €6,967 ($7,594) was drawn down from the available credit of €7,500. The operating line of credit for €7,000 are secured by an interest in the inventory of CC Pharma GmbH as well as the Densborn facility and underlying real property. The operating line of credit for €500 is unsecured.

Four Twenty Corporation (“420”), a subsidiary of the Company, has a revolving credit facility of $30,000, which bears interest at SOFR plus an applicable margin. As of August 31, 2023, the Company has drawn $7,000 on the revolving line of credit. The revolving credit facility is secured by all of 420's assets and includes a corporate guarantee by a subsidiary of the Company. 

14

     

Note 11. Long-term debt

The following table sets forth the net carrying amount of long-term debt instruments:

	August 31,			May 31,
	2023			2023
Credit facility - C$66,000 - Canadian prime interest rate plus an applicable margin, 3-year term, with a 10-year amortization, repayable in blended monthly payments, due in November 2025	$	44,400		$	45,260
Term loan - C$25,000 - Canadian prime plus 1.00%, compounded monthly, 5-year term, with a 15-year amortization, repayable in equal monthly installments of C$181 including interest, due in July 2033		10,905			10,959
Term loan - C$25,000 - Canadian prime plus 1.00%, compounded monthly, 5-year term with a 15-year amortization, repayable in equal monthly installments of C$196 including interest, due in July 2033		13,105			13,092
Term loan - C$1,250 - Canadian prime plus 1.50%, 5-year term, with a 10-year amortization, repayable in equal monthly installments of C$12 including interest, due in August 2026		330			346
Mortgage payable - C$3,750 - Canadian prime plus 1.50%, 5-year term, with a 20-year amortization, repayable in equal monthly installments of C$23 including interest, due in August 2026		2,128			2,104
Term loan ‐ €5,000 ‐ EURIBOR plus 2.15%, 5‐year term, repayable in quarterly installments of €250 plus interest, due in December 2023		545			803
Term loan ‐ €1,200 ‐ at fixed 4.26%, 1‐year term, repayable in monthly installments of €100 plus interest, due in December 2023		442			755
Term loan ‐ €1,500 ‐ at a fixed 2.00%, 5‐year term, repayable in quarterly installments of €94 plus interest, due in April 2025		732			819
Term loan ‐ €3,500 ‐ at a fixed rate of 4.59%, 5‐year term, repayable in monthly installments of €52 plus interest, due in August 2028		3,702			1,706
Mortgage payable - $22,635 - EURIBOR rate plus 1.5%, 10-year term, with a 10-year amortization, repayable in monthly installments of $57 plus interest, due in October 2030		20,688			20,863
Term loan - $70,000 -SOFR plus an applicable margin, 5-year term, repayable in quarterly installments of $875 to $1,750 due in June 2028		70,000			65,000
Carrying amount of long-term debt		166,977			161,707
Unamortized financing fees		(1,098	)		(738	)
Net carrying amount		165,879			160,969
Less principal portion included in current liabilities		(13,489	)		(24,080	)
Total noncurrent portion of long-term debt	$	152,390		$	136,889

During the quarter ended August 31, 2023, Four Twenty Corporation ("420"), a wholly-owned subsidiary of the Company, repaid its $100,000 term loan and entered  into a new secured credit agreement, which comprised of: (i) a $70,000 term loan facility, bearing interest at SOFR plus an applicable margin and having a maturity date of June 30, 2028 (the "420 Term Loan"), and (ii) a $20,000 delayed draw term loan facility, issued on the same terms as the $70,000 term loan facility (the "420 Delayed Draw Term Loan" and, together with the 420 Term Loan the "420 Secured Credit Agreement"). The 420 Term Loan was fully drawn on June 30, 2023. The 420 Delayed Draw Term Loan was fully drawn subsequent to August 31, 2023, as described in Note 25 (Subsequent events).  Under the terms of the 420 Secured Credit Agreement, the Company pledged all of Sweetwater, Breckenridge and Montauk’s assets and the related equity interest, and Tilray Brands, Inc. provided a limited guarantee.

As of August 31, 2023, the Company and its subsidiaries, were in compliance with its covenants under its long-term debt agreements. 

15

     

Note 12. Convertible debentures payable

The following table sets forth the net carrying amount of the convertible debentures payable:

	August 31,		May 31,
	2023		2023
5.20% Convertible Notes ("TLRY 27")	$	120,861	$	100,476
HTI Convertible Note		-		47,834
5.25% Convertible Notes ("APHA 24")		124,453		120,568
5.00% Convertible Notes ("TLRY 23")		127,137		126,544
Total		372,451		395,422
Deduct - current portion		251,590		174,378
Total convertible debentures payable, non current portion	$	120,861	$	221,044

HTI Convertible Note

	August 31,		May 31,
	2023		2023
4.00% Contractual debenture	$	—	$	50,000
Unamortized discount		—		(2,166	)
Net carrying amount	$	—	$	47,834

On July 12, 2022, the Company issued a $50,000 convertible promissory note to HTI ("HTI Convertible Note"), bearing a 4% interest rate payable on a quarterly basis and having a maturity date of September 1, 2023. On August 31, 2023, the Company settled in full the HTI Convertible Note through the issuance of shares as described in Note 14 (Stockholder's equity).    

TLRY 27

	August 31,			May 31,
	2023			2023
5.20% Contractual debenture	$	172,500		$	150,000
Unamortized discount		(51,639	)		(49,524	)
Net carrying amount	$	120,861		$	100,476

The TLRY 27 convertible debentures were issued on  May 30, 2023 and on June 9, 2023 by way of overallotment, in the principal amount totaling $172,500 (the “TLRY 27 Notes”). The TLRY 27 Notes bear interest at a rate of 5.20% per annum, payable semi-annually in arrears on  June 15 and  December 15 of each year, and mature on  June 15, 2027, unless earlier converted. The TLRY 27 Notes are Tilray’s general unsecured obligations and rank senior in right of payment to all of Tilray’s indebtedness that is expressly subordinated in right of payment to the notes; equal in right of payment with any of Tilray’s unsecured indebtedness that is not so subordinated, including TLRY 23 and APHA 24, effectively junior in right of payment to any of Tilray’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations) of Tilray’s current or future subsidiaries. Noteholders will have the right to convert their TLRY 27 Notes into shares of Tilray’s common stock at their option, at any time, until the close of business on the second scheduled trading day immediately before  June 15, 2027. The initial conversion rate is 376.6478 shares per $1,000 principal amount of TLRY 27 Notes, which represents a conversion price of approximately $2.66 per share. The conversion rate and conversion price will be subject to adjustment upon the occurrence of certain events.

The TLRY 27 Notes will be redeemable, in whole and not in part, at Tilray’s option at any time on or after   June 20, 2025 at a cash redemption price equal to the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price of Tilray’s common stock exceeds 130% of the conversion price for a specified period of time. If certain corporate events that constitute a fundamental change occur, then, subject to a limited exception, noteholders  may require Tilray to repurchase their TLRY 27 Notes for cash. The repurchase price will be equal to the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date. In connection with the Company’s offering of the TLRY 27 Notes, the Company entered into a share lending agreement with an affiliate of Jefferies LLC (the “Share Borrower”), pursuant to which it lent to the Share Borrower 38,500,000 shares of the Company’s common stock (the "Borrowed Shares"). The Borrowed Shares were newly-issued shares, will be held as treasury shares until the expiration or early termination of the share lending agreement and may be used by purchasers of the TLRY 27 Notes to sell up to 38,500,000 shares of the Company’s common stock. The fair value of the share lending agreement has been recorded as part of the unamortized discount on the debenture. The Company expects that the selling stockholders will use their position created by such sales to establish their initial hedge with respect to their investments in the TLRY 27 Notes. The Company did not receive any proceeds from the sale of the Borrowed Shares. 

APHA 24

	August 31,			May 31,
	2023			2023
5.25% Contractual debenture	$	350,000		$	350,000
Debt settlement		(213,260	)		(213,260	)
Fair value adjustment		(12,287	)		(16,172	)
Net carrying amount	$	124,453		$	120,568

The APHA 24 convertible debentures, were entered into in April 2019, in the principal amount of $350,000, bear interest at a rate of 5.25% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, and mature on June 1, 2024, unless earlier converted (the APHA 24 Notes"). The APHA 24 Notes are Tilray’s general unsecured obligations and rank senior in right of payment to all of Tilray’s indebtedness that is expressly subordinated in right of payment to the notes; equal in right of payment with any of Tilray’s unsecured indebtedness that is not so subordinated, including TLRY 23 and TLRY 27, effectively junior in right of payment to any of Tilray’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations) of Tilray’s current or future subsidiaries. 

Holders of the APHA 24 Notes may convert all or any portion of such note, in multiples of $1 principal amount, at their option at any time between December 1, 2023 to the maturity date of June 1, 2024. The initial conversion which the Company may settle in cash, or common shares of Tilray, or a combination thereof, at Tilray's election, 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 Notes 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:

(a) the last reported sales price of the common shares for at least 20 trading days during a period of 30 consecutive trading days immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(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 Notes 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 the conversion rate on each such trading day;

(c) the Company calls any or all of the APHA 24 Notes for redemption or;

(d) upon occurrence of a specified corporate event.

16

 

The Company was not able to 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 Company  may redeem for cash all or part of the APHA 24, at its option, if the last reported sale price of the Company’s common shares has been at least 130% of the conversion price then in effect 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 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 elected the fair value option under ASC 825 Fair Value Measurements for the APHA 24. The APHA 24 was initially recognized at fair value on the balance sheet. All subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk are recorded in non-operating income. The changes in fair value related to instrument-specific credit risk is recorded through other comprehensive income (loss).

The Company  may from time to time seek to retire or purchase its APHA 24, in open market purchases, privately negotiated transactions or otherwise. Such purchases or exchanges, if any, will depend on prevailing market conditions, the company's liquidity requirements, contractual restrictions and other factors. During the previous fiscal year, the Company purchased $122,500 principal of APHA 24.

The overall change in fair value of APHA 24 during the quarter ended  August 31, 2023 decreased by $3,885, this was comprised of $2,147 of fair value changes which was offset by the decrease in foreign exchange of $1,738 ( August 31, 2022 – $7,884 of fair value changes, offset by a decrease in foreign exchange of $8,367).

As at  August 31, 2023, there was $136,740 principal outstanding as compared to on May 31, 2023 there was $136,740 of principal outstanding.

During the three months ended August 31, 2023 and 2022, the Company recognized total interest expense of $1,795 and $3,403, respectively.

TLRY 23

	August 31,			May 31,
	2023			2023
5.00% Contractual debenture	$	277,856		$	277,856
Principal amount paid		(150,526	)		(150,526	)
Unamortized discount		(193	)		(786	)
Net carrying amount	$	127,137		$	126,544

The TLRY 23 bears interest at a rate of 5.00% per annum, payable semi-annually in arrears on April 1 and October 1 of each year. Additional interest may accrue on the TLRY 23 in specified circumstances. The TLRY 23 will mature on October 1, 2023, unless earlier repurchased, redeemed or converted. There are no principal payments required over the five-year term of the TLRY 23, except in the case of redemption or events of default.

The TLRY 23 Notes are Tilray’s general unsecured obligations and rank senior in right of payment to all of Tilray’s indebtedness that is expressly subordinated in right of payment to the notes; equal in right of payment with any of Tilray’s unsecured indebtedness that is not so subordinated, including TLRY 27 and APHA 24, effectively junior in right of payment to any of Tilray’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables but excluding intercompany obligations) of Tilray’s current or future subsidiaries. 

The TLRY 23 includes customary covenants and sets forth certain events of default after which the convertible notes may be declared immediately due and payable, including certain types of bankruptcy or insolvency involving the Company. To the extent the Company so elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants, for the first 365 days after such event of default, consist exclusively of the right to receive additional interest on the notes. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of the Company's common stock, at the Company's election (the "cash conversion option"). The initial conversion 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 760,588 shares of common stock, based on the $127,330 aggregate principal amount of convertible notes outstanding as of   August 31, 2023. 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, September 30, 2023, holders may convert all or any portion of their TLRY 23, in multiples of $1 principal amount, at the option of the holder regardless of the aforementioned circumstances. This note was repaid on maturity as described in Note 25 (Subsequent events).  

As of August 31, 2023, the Company was in compliance with all the covenants set forth under the TLRY 23. The effective interest rate on the debt is 6.9%, the Company recognized interest expense of $1,592 and amortized discount interest of $593 for the three months ended August 31, 2023.

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Note 13. Warrant liability

As of August 31, 2023 and May 31, 2023, there were 6,209,000 warrants outstanding, with an original exercise price of $5.95 per warrant, expiring