I think our mics are on, so we'll stop gossiping. Thank you for sitting in on our fireside chat today with Tilray. I'm Robert Moscow. I'm the Senior Analyst, Equity Research at TD Cowen, covering consumer staples. Very happy to have Irwin Simon, CEO of Tilray, and Carl Merton, who's the CFO, with us today. Tilray is a company that is truly the epitome of the convergence of beverages, cannabis, and wellness. It started out as a cannabis company, but it's evolved into something much more. I'm going to ask a bunch of questions. I'll also put it to the audience to see if anyone has questions at the end. Today, Tilray is a $400 million market cap company, $800 million in sales, and has been growing through M&A. Irwin, maybe we can start.
Tell us a little bit about the diversification strategy that you've been executing. Some of it was out of necessity, I imagine, because the regulatory environment for cannabis hasn't turned out as we would have liked.
Good morning, everybody. Robert, thank you. Good to be here. Number one, Tilray is unique in many ways. I think we're different than so many other companies. I think, in one, what I would say, the reflection of our stock price is no reflection of what the company is today. As I walk here to this conference, I smell a lot of cannabis on the way. I'll tell you what, people are drinking a lot of beer and alcohol. Whoever says beer and alcohol are going away, it's absolutely not. After 25 years building a natural organic food, wellness, personal care company, my next venture, very quickly afterwards, I got into the cannabis business with a little company called Aphria. We're about a $50 million business, cannabis just legalized in Canada.
Canada is the only country in the world where recreational cannabis is legal from a federal standpoint. With regulatory in Canada, with high excise tax, Canada being a smaller country with 40 million people, half the population is 21 and over, so that's only 20 million people, and only 20% are users, I realized, hey, we need to diversify. My first thing was to get Canada right, because it's a legal country. It's legal. How do we get that right? At the time, Aphria had its challenges. With that, very quickly, I went on to do acquisitions in Canada. We acquired Tilray. We did a reverse merger of Tilray. Then we acquired a company called HEXO. Today, Tilray is a $200 million US cannabis business in Canada. We're the largest in sales. We have 5 million sq ft of grow.
We sell flower. We sell pre-rolls. We sell edibles. We sell drinks. We sell tinctures. We are, if not the largest company from a sales standpoint, and with a lot of technology, a lot of research, a lot of work on medical cannabis. We today pay over $125 million in excise tax, the highest excise tax paid on any product in the Canadian market. Our limitations to grow in Canada are limited because of the size of the country, the excise tax there, and just the size of the market. Diversification is something that was very, very important. With that, we could not move into the U.S. market with cannabis, because cannabis is not legal from a federal standpoint. The stuff you smell in New York, we can't sell, because we trade on NASDAQ.
We're a company that has banks, and banks do not allow it because it's not federally legal. In 2020, I went out and started to acquire beer companies. The first company was SweetWater. I went on and bought some West Coast brands, bought Montauk Brewing, and recently bought eight brands from Anheuser-Busch, and then bought four brands from Molson . I also, along the way, acquired spirits business, Breckenridge Bourbon, vodka, and gin. Along with the Tilray acquisition came Manitoba Harvest. Our US assets today are about $350 million with all our assets in our US business. Again, we sell no cannabis in the US at all. What we're selling today, which has some great opportunities, and we're seeing a lot of excitement, is these Delta-9 drinks, where they derive from hemp, and 5% is from hemp and infused, available in about 13 states today.
I say this: if we could sell hemp drinks, or we could sell cannabis drinks in the U.S., it's a billion-dollar-plus business. In Canada today, we have about a 45% share of the Canadian market, do about $25 million-$30 million in Canada, and only can sell them in cannabis stores. Again, if we could sell them in restaurants, we could sell them in beer stores. It's a $100 million-plus business in the Canadian market. In Europe, which is a real interesting market, we today have grow facilities in Portugal and Germany. We sell, on a run rate, and I'll say on a run rate, about $100 million of medical cannabis in Europe. That has to be prescribed by a doctor. We sell in 20 countries. We grow it in Portugal. We grow it in Germany. We ship some from Canada.
Also in Europe, we have a medical distribution company called Tilray Pharma, which sells medicines, regular medicines, into 13,000 drugstores in the German market. They also distribute our cannabis in those markets. We are diversified. We are a global business. The company is five years old, and it came together with all these acquisitions. Ultimately, as cannabis legalizes, which I believe one day in the U.S., from a medical standpoint, we are well positioned with our Canadian business in regards to medical business, our research. We are well positioned to bring a lot of the medical findings in Europe to the U.S. once, ultimately, if that happened here. Also, as I said before, the drink business, which is a big business. With our beer business today, we have over 800-900 distributors out there that have the infrastructure to sell.
We're in every retailer within the U.S. today, whether it's with our beer, whether it's with our Manitoba Harvest. We have sales infrastructure. We have eight manufacturing facilities that produce beer and canned goods today. We have a spirits distillery that produces alcohol and Breckenridge. We have the infrastructure. We have the diversification. We are handcuffed a lot by regulatory, whether it's in Canada, whether it's in the U.S., and whether it's in Europe. In Europe, by the way, we only can sell flower. We can't sell pre-rolls or anything there. That's the good things about Tilray. That's some of the restrictions that we have from a regulatory standpoint.
Right. Maybe just level set us. What % of your sales today are alcohol beverage? What % is cannabis related?
Carl, would you?
It's about 30% cannabis, 30% beverage, 30% distribution.
Distribution.
The U.K. medical business, the EU medical business, and 10% Manitoba Harvest for wellness.
Right.
OK. Maybe we could start with beverage. You acquired a lot of craft brands. Craft beer had a long period of structural growth, and then it kind of hit a wall. These brands are a great collection of brands. What have you been able to do from a marketing and operational standpoint with these brands that their prior owners were not able to do?
So far, not everything that we wanted to do. Listen, we acquired SweetWater. And then something, COVID, comes along. So we had to deal with that. Then we acquired Nelson's, Green Flash, and Alpine West Coast businesses and expand the distribution where it was owned by private equity. We acquired Montauk, which was owned by a group of investors. And that's been just a great brand from an expansion standpoint. Listen, the eight brands that we acquired from Anheuser-Busch got lost within the ABI distribution system. Most of them were declining. I was asked about Highball here before, which is a great energy drink, one of the natural energy drinks out there. And basically, ABI had shut that down. And we expect some great growth. It's now listed in Whole Foods on a national basis.
One of the big things we're trying to do here is regionalize these brands and focus on three or four states with them, with Shocktop, which we acquired, which basically had no marketing people, no marketing dollars against it, that we're taking that national. One of the big things, being in the ABI system, you have a big distribution system out there. They bundle it with a lot of their brands. Even though they do not spend any money, they push it out into stores. Tilray does not have that. One of the big things that we're focused on is how we'll sell these in three or four states, how we'll have one or two national brands, and how we pay attention to them. Our marketing is different. We're doing a lot with social media. We're doing a lot with event marketing.
The big thing today, Robert, is innovation. What is new out there in light beers, non-alcoholic beers, some of the seltzer drinks that we're doing? Right now, we're cleaning a lot up as we integrate. We've closed two of the breweries since we acquired it. The question is, you don't want to be running capacity today at 50%. ABI or Molson's has long runs. They can produce beer at $30-$40 a barrel, where it's much more expensive for us. We've got to get the efficiencies of our breweries. That's some of the stuff that we're in the midst of doing today. What are we doing different? We're going to give them love and attention, where they got lost within the ABI system and got lost within the Molson system.
OK. And your route to market, what is your, you have your own distributor network? Are there independents that you align with, or?
With the ABI, for two years, we had to stay within the ABI distribution system. Two years is up. There are a lot of good independent distributors that are both ABI and Molson distributors out there that are looking for growth and are looking for craft brands. Craft beer is not going away. The winner is going to be those that come out with innovation and those that come out with new products. Basically, what we are doing right now, we have 900 distributors out there. It is not 900, because some of the distributors have three or four locations. Let's say we have 700 or 800 distributors. We have to make some of the decisions of consolidating these distributors, where we are going to be important to these, and bring all our brands together. We are in the midst of going through that right now.
Right. As you do that, do you have to buy out the contracts for this couple hundred?
Listen, good question. We're looking at that right now. What's the cost to do it? Is there some trading going on? We have a team that's just dedicated on that right now.
Right. OK. You did have to lower your revenue guidance for this year after first quarter. Was that mostly on the beverage side, or was it on the cannabis side?
It was basically three things. Number one, it was the beverage side. Part of it is what we decided on the beverage side was to go through a SKU rationalization, where we had a lot of these small brands out there. Number one, to include the SKU rationalization. Number two is just on currency, which dropped tremendously because of the Canadian currency and the US or European. Number three, it was just ultimately in Europe, when we are selling products, we cannot ship out of Portugal until we get a permit from the country. Some of this was just timing on getting permits from countries. That is why we took our guidance down for those three main things.
OK.
There were other, listen, there were new products that we were launching. One of the things in the beer business, the sets happen. There are the spring sets and the fall sets. If you miss these sets, you just do not get in there. There was a timing on some of the new products and when the sets were coming into play for us.
Got it. OK. You mentioned non-alcohol. I mean, if I look at the segments of the market that are really growing, I mean, this is really at the top. You must have capabilities to be able to participate. Are there any special skill sets to making non-alcohol taste good that are unique, or do you feel confident you can do all that yourself?
I think there's a lot of special skills. Number one, if you're going to drink a non-alcohol drink and it doesn't taste good, it doesn't feel like you're having a beer, it doesn't feel like you're having one, drink ginger ale, drink Diet Coke, drink club soda. OK. We've come out with three of them. Number one, under Montauk Zero, which I would blindfold anybody in this room and put both of them there. You will not tell me the difference between a Montauk Surf beer and our non-alcohol beer. Number two, we've come out with a product called Runner's High, which is after running, you want a non-alcoholic drink. We've come out with one that tastes really good. We've come out with one other under one of our other brands, our Ten Barrel.
Again, it's the extraction and having the product taste good, having the foam, and having it look like you're drinking a beer and you're not some person that's just sitting there and not drinking, not having any fun. You've got to feel like you're having fun. There's something about it. I would challenge anybody to try one of ours and tell me it does not taste like you're drinking a beer.
OK. We had a big win in the last couple months on distribution on that side with Runner's High. We're in 4,500 locations in public.
Yep.
We think that will help bring awareness to that brand and also give us the data to support to go to other big retailers to show them how well the brand does against its competition.
OK.
Listen, the non-alcohol is a category that's out there. I think the big thing, too, is light beers. Long Island Light is something we've launched with 90 calorie, two carbs. There's a lot we're doing in regards to the light side of beers, too, which we didn't have before. We have some great beers within Montauk with our Surf beer and our Summer Ale and stuff like that. Again, we've come out with products. We had a great product out there from SweetWater called Gummies, which was a high-alcohol, not the greatest tasting beer. It took off when it came out. It died. It's getting it right on this new product and new innovation. There are so many different products that are coming out there today.
Again, consumers want product that tastes good, lighter, and that they're going to feel they're getting, whether it's a buzz, whether they're getting something from it, there's a good benefit for it. What are we doing that's unique? We just don't need another IPA out there. There are multiple IPAs, multiple amber. What are we doing that's different? The other big thing out there, Robert, too, is branding. Montauk, Shocktop, some of these brands that we're doing stuff with today have tremendous brand equity. One of the things that we've done as a company is tied into sponsorships, whether it's with sports teams, whether it's with universities. Expensive to do. Getting that brand out in front of them is something important to us.
OK. I'd like to dig a little deeper on Delta-9, because this seems like the perfect marriage of all of your skill sets.
Right.
There are, I would imagine, obstacles on a state-by-state level as to how you can go to market. How big is your, you have a couple of brands right now in the U.S., and what is your approach to getting it on the shelf?
Listen, we have three brands right now.
Three.
Our approach is getting it on the shelf. It is interesting, because we put a team against this, not necessarily with our beer team. We are using the beer team's distribution system out there. Some of it is direct to consumer, whether it is ABC, Total Wine, we are selling direct to them. I would say today, half of our business is going through beer distributors. The other half would be going direct right to retail with an ABC or with a Total Wine. The product is not too sweet. How is the product taste? With 5 milligrams, we have 5 milligrams of THC, hemp THC, and 10 milligrams out there. Am I getting the benefits from it? 60 calories. I think we have some great products out there with it today. I think it is a big, big opportunity. You are right.
We just ran into some headwinds in Texas.
OK.
We are waiting to hear there. There are, what, 13 states today that allow us to sell. Within our numbers next year, we are going to have to spend some marketing dollars. We are going to have to spend some money on it. We think it could be in the millions of size next year for our business, which is all new business and all new innovation.
OK. Thirteen states where you're allowed. Does that mean there's thirty-seven states where there's a hard no? And because it has five milligrams or ten milligrams, just not allowed to go onto the shelf?
Yes.
OK. Do you see any other chance of those other 37? Is there any legislation underway? Or do you see any easy wins in the near future?
We're lobbying.
Yeah.
Listen, like I said before, with regulatory, I hate making predictions, because I've been wrong all the time. OK. I thought today cannabis would be legal in the U.S. I think if I can keep these 13 states right now, I'll be happy.
Yeah.
I get any more, I'll be real happy.
Got it. OK.
Do the beer companies, how do they feel about Delta-9? You have your own distributors. And they're putting it on the shelves. How do the other beer companies view it? Are they lobbying against you?
Sam Adams just recently came out with one.
OK.
OK. I think the smaller craft beer.
Are on your side.
Are on our side. The big guys, I mean, originally, you come back and look at it. It's interesting, because back when we acquired Tilray, Tilray and ABI had a deal together. That's how we got into the cannabis drink business in Canada. We acquired from Molson Coors a company called Truss, where they had a joint venture with HEXO. I think the big companies are waiting for regulation and cannabis to be approved before they'll touch it. OK. We're going to make sure we do everything right, have every I dotted and every T crossed in every state that we do it. I think you'll see, as you just saw, Sam Adams and some of the other craft businesses get into it. I don't think you see the big guys get into it so quickly.
Yeah. Because in a way, like our scene, the beer distributor and the beer distributors.
Distributors.
The beer distributor lobby is pushing for greater clarity of the rules across all the U.S. I think that's a huge win for the industry to have them supporting it.
The beer distributors want this, because if they see consumption and decline in the beer industry today, every beer distributor today is looking. If you're down 3%-4% on your business today, every beer distributor, they still got their same trucks, the distribution out there. What am I bringing in here that's going to grow, that's going to ultimately help my volume?
Right. I would imagine they're your competitors, these big beer companies. The more it's mainstreamed, the concept, they could actually help you grow a category if they were successful in getting it through.
Listen, I think they can help, absolutely. I think those that get the head start with whether it's our Happy Flower, Fizzy Jane, or our 420 out there, getting those brands out there. Now, there's a lot of small guys out there that are going to just put stuff out there or not going to follow the regulatory like we have to and some of the big guys. Listen, it would be great if ABI or Molson's got into this category, to your point, and legitimizes the category in a bigger way.
OK. Speaking of smaller players, it's an issue in your Canadian market, from what I recall, is that you have certain illicit competitors in Canada who have their own pricing structure very different from yours. They're not paying any excise taxes. Is there any chance of change in the regulatory environment in Canada that you're watching?
Good question. There is a new prime minister in Canada today. I last week met with a minister to talk about the taxation in the industry in Canada. Ultimately, there were 1,800 LPs in Canada today and how that has dwindled down, because a lot of them have gone bankrupt or gone out of business. In Canada today, it would change dramatically if my excise tax got cut in half. If we are paying $125 million in excise tax today, and ultimately half that came back to us and some of the provinces, that changes dramatically. In Canada today, if they tightened up the illicit market, which is still out there that has no regulatory, just grows product and can sell it and pay no excise tax.
The biggest thing, the third thing, I met with a premier in Canada just recently about selling our cannabis drinks outside the cannabis stores. If you could put it on tap in a bar, you could sell it in a restaurant, what kind of volume and what that could bring, A, to the restaurant industry and what it can help the industry in the Canadian market. That is something from a big change that I hope could happen. I'm hoping, and we're looking at it right now, could we compound and could we sell pre-rolls in Europe, which would help tremendously from a standpoint with us. In the U.S. market, if we could sell our Delta-9 drinks in all 50 states, and we haven't disclosed what we think this business will be this year.
If I could take those 13 states and multiply that and get to 52, it would be a good size business for us within the US next year.
OK. I'm going to ask if there's any questions from the audience or if you want to think it through. I'm going to ask one. Yeah, please. You have a microphone.
Can you speak to kind of run rate, cash flow, kind of how the companies are doing, given all the challenges you mentioned?
From a cash flow standpoint, all our businesses, our cannabis business, and from a cash flow standpoint, running cash flow positive are European. We've invested a lot of money into the beer business and our spirits business. You have to, as we acquired these businesses, to grow these businesses, to right size this business. Ultimately, there we got some work to do as we close facilities and take costs out. We took about $25 million of costs out so far this year. We look to take more. There's some work to do on our beverage business. It's a five-year-old business. We've brought these together. In regards to the rest of the company, listen, as we said in our last quarter, we have $250 million of cash. We probably have one time's debt.
The company is five years old, which I'm trying to build out. Some of the biggest, my cash outlay has been cleaning up legacy lawsuits that I inherited from Tilray or inherited from Aphria and cleaning a lot of that stuff up. Also, the investment in CapEx of how to improve these plants and put bigger tanks in for I can get longer runs and efficiency. I'm big on cash. I'm big on debt. I'm big on positive free cash flow. That's something that's a big, big focus on us is our cash conversion and how we use our cash. Listen, we're close to where we need to be on cash flow positive. Carl?
I would add the last two fiscal years, we were positive free cash flow. As Irwin said, this year, we're investing in the beer business behind the two acquisitions that we did at relatively cheap valuations and supporting those businesses that way.
We bought these businesses with facilities and brands very cheap. When you buy something at a good price, you can let them die or you got to invest in them. You and I talked before about Highball. Highball was dead, no sales. You do not put it into Whole Foods and bring consumer awareness to it. Shocktop, which was basically no money, no attention to it, no innovation. We inherited all these facilities. There is capital we have had to put into these businesses to really right size them and get them right and spend on the brands. We have spent in regards to advertising on our sports brands and our licensing deals there. We have had to invest probably more money than I thought we would back into the brands. Ultimately, we will see the benefits from them.
I did not really expect some of the declines that would happen within the beer category. I got to tell you something. We keep hearing about declines in the alcohol spirits category. I have four kids, and they are all over 21. I had 100 kids at my house for a party last week. I did not see one of them walking around not with a drink in their hand. They were not drinking, not to my dismay, they were not drinking non-alcohol. OK. I was with Carl last night. When I go to restaurants, I walk every table to see who has a drink on their table. It was a Monday night. Everybody had a drink on their table. It is not dry Monday yet out there.
I think the other thing on the sports sponsorships, if you take the example of what we did with the University of Florida Gators and the success we've had with Shocktop in the state of Florida as a result of that, I think speaks volumes for what's available to do. You just have to make sure you're spending that money wisely in the right places.
Listen, you got to be scrappy out there today. Where the big companies are, walk into a store today and see the beer displays. Look, there is craft beer, there is local beer, and then there are the national brands. The big thing is getting those displays. The big thing is getting the placements out there. The other major, major thing, and one of the things we did lose in some of this transition, is these tap handles. When you go into an on-premise bar today and see whose bar is on draft and stuff like that, that is real important for us. We also have 20 brewhouses out there, which sell food, sell our beer, and bring people together for events and occasions, which is important for us to help build our brand.
OK. We hit our time. Irwin and Carl, thank you very much for joining us. Please, a round of applause for Tilray.
Thank you very much, Rob. Thank you.