Tilray, Inc. (TLRY) Q1 2022 Earnings Call Transcript

Tilray, Inc. (NASDAQ: TLRY) Q1 2022 earnings call dated Oct. 07, 2021

Corporate Participants:

Berrin Noorata — Chief Corporate Affairs Officer

Irwin D. Simon — Chairman and Chief Executive Officer

Carl Merton — Chief Financial Officer

Reece Fulgham — Interim Chief Financial Officer, MedMen Enterprises, Inc.

Analysts:

Owen Bennett — Jefferies — Analyst

Vivien Azer — Cowen and Company — Analyst

Andrew Carter — Stifel — Analyst

John Zamparo — CIBC World Markets — Analyst

Michael Lavery — Piper Sandler — Analyst

Aaron Grey — Alliance Global Partners — Analyst

Pablo Zuanic — Cantor Fitzgerald — Analyst

Glenn Mattson — Ladenburg Thalmann — Analyst

Presentation:

Operator

Good morning, everyone. Thank you for joining us to discuss Tilray, Inc’s Financial Results for the 2022 Fiscal First Quarter ended August 31 2021. Joining me on today’s call are Irwin Simon, Chairman and Chief Executive Officer; Carl Merton, Chief Financial Officer; and Berrin Noorata, Chief Corporate Affairs Officer. [Operator Instructions]

After the speakers’ remarks, there will be a question-and-answer session for analysts and investment firms conducted via audio and participating retail shareholders conducted through the Say Technologies platform. Question submission and uploading through the Say Technologies platform concluded yesterday and the company will read aloud and answer the top questions.

Ms. Noorata, you may now begin the conference.

Berrin Noorata — Chief Corporate Affairs Officer

Thank you and good morning. By now, everyone should have access to the earnings release, which is available on the Investors section of Tilray’s website at tilray.com and has been filed with the SEC and SEDAR.

On today’s call, we will also refer to various non-GAAP financial measures, which can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as substitute for the financial information presented in accordance with GAAP. Today’s earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.

Also, please remember that during this call, we may make forward-looking statements. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in these forward-looking statements. Please note the text in our earnings press release issued today for discussions on the risks and uncertainties associated with such forward-looking statements.

And now, I’d like to turn the call over to Tilray’s, Chairman and CEO, Irwin Simon.

Irwin D. Simon — Chairman and Chief Executive Officer

Thank you very much, Berrin, and good morning, everyone. We appreciate you joining us for our call today. As you know, we are laser focused on building the world’s leading cannabis-focused consumer brands company, while generating $4 billion by the end of fiscal year 2024, assuming US federal legalization and acquisitions, and we are making important strives in delivering on that goal despite a challenging backdrop in the cannabis world.

Reflecting our Q1 fiscal year 2022, revenue and adjusted EBITDA grew, compared to prior year, despite the impact of COVID on the top line. Notably, in Canada, where stores did not reopen till mid-June and now are at full capacity. Carl will discuss our results in more detail, but I’d like to note specifically that our adjusted EBITDA margins improved modestly, and we’ve taken advantage of production, cultivation efficiencies and move forward the integration and executing on these synergies we identified in the Tilray-Aphria combination, which are offsetting the impact of our near-term cost pressures, impacting every segment of the global economy.

Importantly as well, we did not significantly lower our product pricing to maintain our leading cannabis market share position in Canada. We still estimate that our cannabis adjusted EBITDA would have been several million dollars higher, if the legacy Tilray products had been produced under our more efficient Aphria cost model.

In that regard, we look at the performance of Tilray since we closed the business combination in May. I am deeply gratified by our early tangible accomplishments, our confidence in our delivery to meet our goals and deliver for our shareholders is supported by three main factors. Strong movement towards cannabis legalization in our three largest markets, Canada, Europe and of course the US, whereas evidenced by our recent opportunistic acquisition of MedMen convertible notes. We continue to build our strategic position, so that we can benefit from full legalization when the time comes.

Leaders with the playbook and proven executional abilities in creating, building and sustaining value in CPG and wellness categories with particular expertise in building iconic brands that stand for excellence and offer a selection of products that meet or exceed consumer demand, educating consumers about our strict quality standards and the benefits of cannabis to aspire brand loyalty and of course, growing market share through scale and distribution with a laser focus on being that low-cost, high quality producer. And then finally, well defined organic, acquisitive and partnership base growth strategies.

When we compare ourselves to the peer set, we are confident that we stand above in having the global reach and resources to make this vision a reality. And with the progress we are making and the COVID-related factors beginning to dissipate, we are building the new Tilray upon four key competitive differentiators: number one, is our broad geographic footprint and operational scale. Tilray’s on parallel and growing presence across our market ideally positions us to lead the global cannabis market. We’re focused on doing this through taking full advantage of organic growth opportunities and with the support of a strong balance sheet and access to capital, accelerating that growth through pursuing transactions and partnerships that would complement our current business enable us to build further revenue growth and EBITDA cash flow.

On the topic of M&A, I want to take this opportunity to express my appreciation to our shareholders. We’re approving an increase in the number of authorized shares of our common stock at the special meeting held last month. Because of our shareholders overwhelming support, we’ve added the firepower, the resources we need to opportunistically pursue transactions that will enable us to accelerate our growth and further drive value creation. Consistent with this, I will discuss MedMen in more detail shortly.

Moving on now to our next critical differentiator, our position as the number one Canadian LP in total sales on a consolidated basis, a level we have reached due to our comprehensive portfolio of medical and adult use product offerings and carefully curated brands. In our first full quarter since the completion of the business combination, we maintained our retail market share of 16% and held our pricing even as some of the largest competitors experienced a share reduction.

Let me now detail some of those specific accomplishments in the period. In August, we made our first shipment to Nunavut, which was the last step towards making our presence in every province and territory in Canada. This was a record quarter for adult use pre-rolls with 17% growth in net sales since the fourth quarter of last year, indeed we were number one in cannabis flower and pre-rolls and top two and three in all other product categories.

Good Supply, our top selling adult use brand reached net revenue on an annualized basis of $225 million and this is a three-year-old brand. And in fact five brands in our portfolio rank in the top five sales leading brands across all the adult use product categories, including Good Supply, Chowie Wowie, which recently won a Budtender Choice Award for best Munchies brand in Canada.

Part of our goal of reaching $4 billion in revenue by the end of fiscal 2024 concurrent with US federal legalization, includes expanding our market share to 30%, and we view these recent milestones as reflective, and we’re off to a good start achieving that. Please expect to hear more from us about our growth in Canada, as we introduce new innovative 2.0 products across concentrates, edibles, drinks, medical products that promote health and wellness, and of course, well being that will drive distribution across all the channels. This in course includes retail stores. We are pleased that there has been a nice uptick in the number of stores opened since the end of the lockdown in Canada. Last year this time, there were 600 stores. Today there is over 1,200 stores.

It will take time for all the new budtenders in these locations to build personal relationships with consumers, so they can be seen as trusted resources, who can educate and make a specific recommendation. This is important as we believe that as consumers continue to shift away from price-based cannabis purchases, effective marketing regarding the quality and safety of our products and brand familiarity will matter more and our brands will be positioned to reap the rewards and the benefits.

Our third differentiator is tremendous international growth opportunities based on two strong medical cannabis brands, large distribution network in Germany through CC Pharma with access to 13,000 plus pharmacies and end-to-end European Union GMP supply chain. We not only have high quality production facility in Portugal, but also a new state-of-the-art cultivation and production facility in Germany, which announced its first harvest and production in July. This milestone will help us ensure that patients’ needs in Germany are met with products of the highest quality, while at the same time, reducing dependence on imported supply and solidifying our position as a trusted provider of medical cannabis in Europe.

The EU alone including Germany, Poland, Italy, the UK, France, the Netherlands and including Israel has the potential to be $1 billion business for us. This is because from a cannabis perspective, these markets are more medically and pharmaceutically focused than North America. Outside the EU, our business in Australia and New Zealand continues to perform according to our expectations with our Tilray brand and extracts and flower leading that market.

Most notably, Tilray high quality CBD extracts lead the way in many Australian hospitals, serving many patients with seizure disorders under the Special Access Scheme. Tilray continues its success in New Zealand by being the number one company to have CBD balanced and THC extracts verified under the New Zealand Ministry of Health minimum quality standards. The new scheme kicked off October 1st and Tilray is well positioned to drive market growth. We also see additional opportunities in Argentina, Colombia and Brazil and even China and India.

Next, number four, our CBD platform and infrastructure in the US, including our SweetWater and Manitoba Harvest business. SweetWater’s distribution currently reaches over 47,000 on and off-premise points of sale. 11% higher from the previous year, while Manitoba Harvest is available across 17,000 stores and growing. These businesses have already generated $100 million plus in annualized revenue and are quite profitable, both still have significant white space, lots of growth opportunities. To harness that, we are expanding SweetWater’s product line of leading craft beers to include back to sodas under the Rick brand. We’re also working on new product categories, including hemp-based CBD drinks and other RTB wine spitzers, wine in cans and others.

Recently, we bought a facility in Fort Collins, Colorado, and have started producing SweetWater products as it executes on its strategic plan of expanding into the Western states. We’ve also just added 450 distribution points in Publix within the State of Georgia. Our growth plan is led by new innovation, including the introduction of Broken Coast BC loggers, our collaboration with our craft cannabis brand Broken Coast, as well as the launch of our Imperial IPA and hard teas and lemonade.

Manitoba Harvest continues to provide us with ample opportunities to grow our footprint in the organic and natural industry. Hemp seed is a super seed, naturally high in plant-based protein fiber Omega 3 fatty acids. Consumers’ interest in hemp seed, hemp seed oil, hemp protein continues to grow in the marketplace, as consumers increasingly look to follow plant-based low carb and Keto-based diets.

Utilizing our footprint in the US today, we are able to leverage these strong brands and their distribution systems to parlay into CBD beverages. CBD personal care products and related adjacencies, these may be later translated into THC-based products upon federal legalization in the US.

In addition to these four differentiators, another critical driver of value creation for us in the $80 million in cost synergies we’ve identified as part of the Tilray-Aphria business combination in the areas of cultivation and production, sales, marketing and corporate expenses. We are ahead of our original pace, having reached $55 million on a run rate base to-date, with actual cash savings of close to $20 million.

Recall that in July, we announced we had reached $35 million in synergies on a run rate basis with actual cash savings in Q4 of about $7 million. These data points exclude any revenue synergies, notably, those that can be derived from 2.0 products in beverages, gummies and chocolates that Aphria have not produced previously, but we can now go into leveraging legacy Tilray’s manufacturing infrastructure.

I would like now to spend a few moments on the potential transformative transaction we announced and closed in August with MedMen. MedMen is an iconic multistate cannabis brand and retailer that offers its large and loyal consumer base a highly compelling retail experience. And the recent performance reaffirms a turnaround story that firmly is taking hold. MedMen had revenue of $42 million for the fourth quarter of 2021, up 53.9% year-over-year, and up 31.3% from the previous quarter. Specifically, we acquired senior secured convertible notes and certain warrants that are convertible into equity, representing 21% of MedMen upon federal legalization.

MedMen currently holds 22 retail licenses nationwide, including 14 in California, the largest legal cannabis market in the world and excluding on cap licenses in Florida for a total of 27 retail locations. And due to the equity investment that MedMen received concurrent with our transaction, it will be able to further expand its business in key markets, including California, Florida, Illinois, Massachusetts among other growth opportunities across the US. And there is so much Tilray can do with MedMen in Canada and learning about their retail sales and their products that can help with some of our innovation and some of our products in the Canadian and the international markets.

In short, this transaction has set the stage for Tilray to become a leader in the US cannabis market upon federal legalization, while mitigating downside risk for our shareholders. In addition to benefiting from the strong market position when legalization allows our strategic opportunities with MedMen, including international leasing [Phonetic] opportunities in Canada and the EU, we are currently focused on pursuing as I’ve said before, as well as commercial and distribution arrangements, joint-ventures or other significant transactions over time.

With that, to sum it up, our eyes are firmly on the prize of creating a $4 billion cannabis focused consumer brands company within the next three years. We have the strategy and the team in place to execute on our plan, a leading and differentiated market position, ongoing opportunities to drive synergies, reduce production costs and a strong pipeline of transaction growth opportunities worldwide.

And with that, I will now turn the call over to Carl.

Carl Merton — Chief Financial Officer

Thank you, Irwin. I would like to now review Q1 results. How we are building synergies into our business model, our cash and liquidity position and the specifics of the MedMen transaction.

As Irwin discussed, we are working hard every day to build a stronger, more diversified and profitable company. And we are executing on this through our four key competitive differentiators, so that we can create sustainable value for our shareholders now and over the long-term. Recall that in the prior year quarter, as a result of the arrangement between Aphria and Tilray, our results are based on Aphria’s financial statements, but were adjusted to follow US GAAP and is presented in US dollars.

Additionally, in July, we published an appendix to our investor deck located on our website that contains an analyst primer, which breaks down Aphria’s US GAAP financial statements for 2020 and 2021 by quarter. As a reminder, this primer was not audited. Throughout our call today, we will reference both our financial results in accordance with GAAP, as well as our adjusted financial results. Please refer to our press release for a reconciliation of our reported financial results under GAAP to the non-GAAP financial measures identified during our call.

Our Q1 net revenue grew 43%, compared to Q1 last year. Although the comparison itself is not apples-to-apples, because the year ago quarter does not include any contributions from legacy Tilray. We know that as with other CPG companies, the delta variant quelled the consumer confidence and impacted revenue in key consumer-facing markets.

In our Canadian cannabis business, we held our number one position in Canada for LP revenue and held our market share of approximately 16%, all while largely maintaining our prices. Nonetheless, the COVID delta variant unquestionably impacted results and our Canadian cannabis business experienced flat net revenue during the quarter, due to the provincial boards buying patterns.

Late in the quarter, we began to see the board’s increase their purchases, a rise that we attribute to rising vaccination rates in Canada. We believe that based upon retail sales data, consumer demand is continuing to rise. The key to this rise is ongoing education of [Indecipherable] as the influencer in shifting consumers from price based brands to margin based brands.

Our beverage business, SweetWater, continues to experience a reduction in case demand for its on-premises channel, as well as restaurants operating below full capacity, coupled with a softer off-premises channel, all being experienced by other beer producers. After managing through the changes associated with moving from branded product at a big box retailer to a white label product, we are pleased with the revenue contribution from Manitoba Harvest during Q1.

Finally, while CC Pharma experienced a slight improvement in the global supply chain that resulted in a modest increase in net revenue. As we discussed on our last call, operations were shutdown in July for four days due to flooding in Denmark and Germany. This resulted in lost revenue of almost $5 million, which was slightly higher than the high end of our initial estimate of $2.5 million to $4 million. To offset the loss revenue, we booked insurance reserves related to our business interruption policy that bolstered the EBITDA. However, this did not benefit the top line revenue figure.

So as Irwin noted, despite the COVID-related headwinds impacting the top line, we worked hard to optimize our performance. And the results in the quarter was that we held our gross margin steady on a year-over-year basis and grew our adjusted EBITDA from $8.1 million to $12.7 million, representing our 10th consecutive quarter of increasing and positive adjusted EBITDA.

Importantly, our profitability would have been even higher, if more of our operating synergies were already embedded within our business model. Particularly, fully converting the legacy Tilray brands to Aphria’s cost structure. To illustrate this, if Aphria’s cost structure has been applied, the legacy Tilray brands during this quarter, we believe, the adjusted EBITDA for Q1 would have been closer to $17.6 million. This is because pre-business combination, Aphria was already a low cost producer with state-of-the-art cultivation, processing and manufacturing facilities. And we are now accelerating our work on point additional costs out of that structure so that we can gain further efficiencies and increase margins. This work also includes improving product potency and quality to meet market demand.

Our Q1 net loss increased to $34.6 million versus a net loss of $21.7 million in the prior year, while adjusted free cash flow decreased to negative $61.2 million from negative $70.1 million in the prior year quarter. Several items led to the figure in the current quarter, including paying income tax balances at Aphria [Indecipherable] paying of year-end accruals and an increase in accounts receivable, as we experienced late in the quarter purchasing from the provincial boards. We specifically know that inventory decreased in the quarter and so this was not a part of the decreased adjusted free cash flow.

Last quarter, you may recall we expressed how pleased we were to have generated free cash flow in Q4. How believe that the first few quarters as a combined entity could see negative cash flows as we achieved our synergies. And how we view free cash flow as an important element of our investment thesis that has not changed. And while we did not meet this goal in Q1, we are working diligently towards sustaining free cash flow generation in future quarters.

Turning now to the business integration. We are making meaningful progress optimizing operations, and as we focus on reaching at least $80 million of synergies within the first 18 months of the transaction. As of September 30th, the synergies achieved are $55 million, slightly ahead of pace. Our most recent actions include closing the Enniskillen facility and the announcement of our intention to close the Nanaimo facility in a phased approach that will be completed next spring.

Included in this quarter’s results is a $5 million provision to cover closing costs associated with this announcement. Going forward, we will be concentrating our British Columbia cultivation in the Broken Coast facility on Vancouver Island and international production and manufacturing in Portugal in Germany. Beyond these closures, we are working to embed other meaningful lasting efficiencies in our business processes, operating and marketing initiatives, IT infrastructure, compliant costs and through attrition.

Moving on to other events in the quarter. As Irwin noted, in mid-August, our majority owned subsidiary acquired the outstanding senior secured convertible notes of MedMen, along with certain warrants to acquire MedMen’s Class B subordinated voting shares. The total value of the MedMen notes and MedMen warrants was $170.9 million, of which $117.8 million, represents the ownership interest of Tilray and $52.9 million, represents the ownership interest of the unrelated minority owners.

Purchased notes and purchased warrants were accounted for the debt and equity securities and recorded in long-term investments with an offsetting current liability for the outstanding consideration due. The only P&L impact with respect to the MedMen transaction this quarter and in the near-term, until US federal legalization is the recording of interest on the notes and any future fair value adjustments to the notes themselves.

Now let’s discuss Q1 in greater detail. In our cannabis business, our medical business grew due to the contributions from legacy Tilray, although we experienced a lower number of existing patient renewals and a lower number of new patients in both independent and in clinic channels. Still the average gross retail selling price of medical cannabis rose slightly to $6.08 per gram in Q1, compared to $5.95 last year.

Our adult-use business grew year-over-year due to the business combination along with numerous retail sales promotional programs, innovations, social media visibility and efforts to increase new accounts. It also grew on a quarter-over-quarter basis, as last quarter only included four weeks of legacy Tilray sales. However, similar to Q4 last year, we dealt with consumers more focused on price-based brands, which contributed to a decline in average selling price to $3.17 per gram in Q1.

Importantly, we did not lower our prices to secure our market leading share of the market. And our cannabis gross margin fell not because of price compression per se, but rather that the Tilray brands represent a greater share of the mix in sales in the current quarter with those Tilray brands carrying their higher production costs, and so all our effort in synergies are achieved, and we have sold through all the inventory produced at legacy Tilray facilities.

Similar to last quarter, the selling price decline was related to pricing, being the primary means that brands were able to differentiate themselves, coupled with limited consumer interactions with budtenders. We view the ability of budtenders to educate consumers about the attributes and quality of products such as ours as critical to encouraging impulse purchases, while shifting customers away from price-based brand purchases in general. We think that through more education and a reduction in budtender turnover, which has also been very high during the lockdown period and as new dispensaries opened and ramped up. We will be very well positioned, because we believe purchasing decisions will shift the margin based brands over price based brands.

Similar to how consumers behave with regards to other products such as alcohol. Our cash cost to produce per gram decreased to $0.77 per gram at our Leamington facilities. This was due to improved yield, potency and cost control efforts that began in January of the prior year and that continue to benefit us. Net revenue from our cannabis business in the first quarter rose 37.6% to $70.4 million, compared to the same period of the prior year. In our distribution business, net distribution revenue was $67.2 million for the quarter, virtually unchanged from the $66.3 [Phonetic] million last year.

During the quarter, our distribution business was negatively impacted by the strengthening of the US dollar against the euro, which, if normalized, would represent an additional $3 million in revenue. Also impacting quarterly revenue was the heavy flooding, which caused a temporary business closure at CC Pharma over a four day period and consequently resulted in almost $5 million of lost revenue.

In our beverage alcohol business, net revenues at SweetWater were $15.5 million, down slightly on a sequential basis and reflecting a reduction in the case demand from the on-premises channel coupled with a decrease in off-premises consumption. We believe the impact of the delta variant affected consumer behavior both within restaurants and groceries alike.

Net revenue from our wellness business Manitoba Harvest were $14.9 million, which we view positively and for which there is no comparable to the previous year. All of this led to net revenue increasing 43% to a $168 million in Q1 over the prior year period, with the increase primarily driven by the contributions from legacy Tilray and SweetWater for which there were no comparables in the Q1 period last year.

Adjusted cannabis gross profit increased to $30.3 million in Q1, compared to $25.4 million in the prior year, although adjusted cannabis gross margin fell to 43% from 50% in the prior year, but only down 1% from last quarter. The decrease in margins was related to a shift in sales mix to more Tilray brands that have higher cost to brews than our legacy brands as a result of including 13-weeks of revenue versus four weeks in the prior quarter for legacy Tilray, and a deliberate and one-time build up of inventory levels as part of our integration plan to shut down facilities such as Enniskillen and Nanaimo.

Said another way, as we work to adjust our cost structure and reduce production costs through the integration process, we incurred some temporary inefficiencies during this transitional phase that will ultimately result in greater efficiencies. Adjusted distribution gross profit decreased to $7.9 million in Q1 from $9.5 million in the prior year, while adjusted distribution gross margin declined to 12% from 14% as a result of the impacts of COVID-19 on CC Pharma sales mix.

Adjusted beverage alcohol gross profit was $8.8 million in Q1 and there was no comparable in the prior year, as the acquisition was completed last November. Adjusted beverage alcohol gross margin was 57%, which was below the 66.5% we achieved in the previous quarter. We overachieved based on current expectations for on-premise versus our off-premise mix.

Adjusted wellness gross profit was $4 million and adjusted gross margin was 27%, which was in line with our expectations and for which there were no comparables last year. Sequentially, adjusted wellness gross profit more than doubled from $1.6 million in Q4. In aggregate, adjusted gross margin held steady at 30%, compared to the prior year, while adjusted gross profit rose 46% to $51 million from $35 million. As we continue to achieve our synergy plan over the coming quarters and as our non-distribution revenues increased their share of our total revenues, we expect to see continued improvement in this metric.

General and admin costs increased to $49.5 million in Q1 or 29.5% of net revenue, compared to $26 million or 22.1% in the prior year, which did not include the acquisitions of legacy Tilray and SweetWater. The increase in general and admin costs was primarily the result of the costs associated with the Sweetwater and Tilray acquisitions, most particularly, amortization of intangible assets and $5 million in cost, due to the planned Nanaimo facility closure.

Transaction costs totaled $25.6 million, compared to $2.5 million last year and were related to the solicitation of shareholder votes, supporting an increase in the number of authorized common stock shares, our investment in the purchase notes and purchase warrants of MedMen, transaction closing costs, remaining costs associated with the arrangement and the evaluation of other potential acquisitions and one-time litigation costs.

For the quarter, we reported a net loss of $34.6 million or $0.08 per share, compared to a net loss of $21.7 million or $0.09 per share in Q1 last year, representing an improvement of $0.01 per share. Note that our weighted average share count increased to 449.4 million shares from 241.9 million shares during the same period.

Turning to cash flow and liquidity. Adjusted free cash flow was negative $61.2 million during Q1 and reflected $93.2 million of net cash used for operations, $16.3 million in investments in capital and intangible assets, offset by $48.4 million of cash expended related to our acquisitions.

Again, as I said earlier, we view achieving free cash flow on a consistent basis as a priority for this business. While we certainly felt short in Q1, it was anticipated as a result of the synergy plans. And as we push forward with integration, we view this goal as well within our reach in the coming quarters. Even after the increase in cash used from operations, we still maintain a strong cash position of $376 million as of August 31st, 2021, to both support our existing working capital requirements and our business plan.

While the last 18 months have certainly proven that there are numerous factors outside of our control, our focus remains on what we can do, specifically business integration, so that we can better manage costs and the opportunities we have ahead of us as we execute on our highest return priorities across our five key competitive differentiators. Thank you for your interest in Tilray. And this concludes our prepared remarks. Before we take questions from our covering analysts, Irwin and I will answer a few questions from our retail shareholders from the Say platform.

Reece, what is the first question?

Questions and Answers:

Reece Fulgham — Interim Chief Financial Officer, MedMen Enterprises, Inc.

Thank you, Carl. The first question is the following. With impending federal legalization in the US, how will Tilray benefit from this? Specifically, how will this affect the value of the company and benefit the shareholders?

Irwin D. Simon — Chairman and Chief Executive Officer

Good morning. It’s Irwin Simon. Listen, I think with legalization, there’s many ways that will benefit shareholders as we’re able to acquire multiple facilities or are able to acquire other MSOs, we can take all our technology, all our brands into the US market and with our balance sheet, there is a lot for us to do owning 21% in MedMen today and expanding that. So with legalization, as I said part of my $4 billion plan, I’m looking for at least $1 billion to $1.5 billion of sales out of US. So with the expansion of cannabis sales, product sales, medical sales that will be extremely beneficial to us in the biggest market.

Reece Fulgham — Interim Chief Financial Officer, MedMen Enterprises, Inc.

Thanks, Irwin. The next question is a multipart question. Why would the dilution of shares be beneficial? How will the bill being proposed affect productivity and sales? How are you approaching future acquisitions and expansion? And are there any plans in place to accommodate the US territories, if and when, this bill gets passed?

Irwin D. Simon — Chairman and Chief Executive Officer

Thanks, Reece. In terms of the dilution of the share count, I think, it’s important for shareholders to understand that the approval they gave us did not result in an immediate dilution of shares.

Carl Merton — Chief Financial Officer

Just to correct that — in no dilution of shares and shares do not get counted until they’re used for some acquisition or for something else. So it’s just the ability that to use the shares and there is no dilution in the shares that were authorized by shareholders just to be clear on that.

Irwin D. Simon — Chairman and Chief Executive Officer

Yes, the only shares we’ve issued since that occurred was MedMen. Can you just repeat the second part of the question since it was a multipart question, Reece?

Reece Fulgham — Interim Chief Financial Officer, MedMen Enterprises, Inc.

Sure. So second part of the question, how will the bill being proposed affect productivity and the sales? And then how are you approaching future acquisitions and expansion?

Carl Merton — Chief Financial Officer

So I think Irwin has laid out a very clear plan for the business in terms of the strategic plan for M&A and organic growth. We’re looking for — we’re going to be building the company to a $4 billion business by the end of 2023, where we’ve identified $1 billion of potential opportunities in Canada. We’re looking to build to $1 billion in Europe and international and then $1 billion to $1.5 billion in the US, as the US begins to legalize, and we’re able to make investments into the US, that’s when we’ll begin looking and a more detailed level that at US cannabis operations, isn’t it, Irwin?

Irwin D. Simon — Chairman and Chief Executive Officer

Yes. And I think in regards to — you’re referring to is a SAFE Bank bill, listen, I think something has got to happen in regards to some type of legalization. It doesn’t necessarily help Tilray from a sales standpoint, from an EBITDA growth standpoint, but it does help us from a banking and inter commerce. Listen, I’m a big believer of that something will happen in regards to legalization, whether SAFE Bank Act, whether it’s decriminalization, de-scheduling or full legalization on the medical standpoint.

And I think the big thing is as I laid out our plan last quarter and Carl just went through it, we’ll be ready for that and I’m in better thrilled today, I have viewed our facilities and we are the largest growers of cannabis worldwide. So we have the ability to grow over 265,000 kilos of products that we can ship all around the world and one of the biggest hold backs in the US will be grow, and we have the grow, we have the strains, we have the potency, we have the quality and the know-how to be able to export that into the US, once legalization does happen.

Reece Fulgham — Interim Chief Financial Officer, MedMen Enterprises, Inc.

Great. Next question is this. There is a great limit to the amount of cannabis Tilray can grow and sell in Germany. Will there be new permits issued to Tilray for continued growth and production?

Irwin D. Simon — Chairman and Chief Executive Officer

So first of all, there is no limit that we can grow in Germany and if we did grow, if we able to hit the limits that we grow, we have plenty of capacity in Portugal. And I think that’s the big thing within Tilray and I’m not sure we get the credit for it. I’m not sure is built into our valuation, but Europe is going to be major in legalization. With the new administration coming on the Germany, with new administration coming on Israel, with Denmark, I think legalization happens within the next 18 months, and we have two phenomenal facilities, both in Portugal and Germany, and we can ship product from Canada that’s GMP EU certified.

So with that, we are well prepared, and we feel that with our presence with CC Pharma, with our presence in Germany, with our Portugal facility, which I said before is a tremendous facility. We’re set for European legalization and even if adult-use doesn’t legalize, we see additional legalization happening on the medical front in different countries within Europe.

Reece Fulgham — Interim Chief Financial Officer, MedMen Enterprises, Inc.

Great. Final question from the retail shareholder. Will SweetWater THC drinks be soon available in Canada? And are there plans to expand SweetWater to California?

Irwin D. Simon — Chairman and Chief Executive Officer

So number one, while up in Toronto, I got the visit the London facility, which we inherited and acquired when the Tilray transaction we have a beautiful facility there that has the ability to do canning operations with THC, it’s a licensed facility. So with that we are going to expand our drink business. I get out to visit stores yesterday and absolutely the demand for drinks in Canada is growing and there will be some type of THC product whether it’s SweetWater or not, but we think there is a big opportunity with SweetWater with THC. You can buy SweetWater beer in Ontario today, and I had a [Indecipherable] too in the last two days, but SweetWater is definitely here and hopefully you’ll see SweetWater in other forms.

In regards to grow in SweetWater today, SweetWater is sold in 40 states across the US and continue to grow a great new line of new products are coming out, our Rick brand, which is our [Indecipherable] drinks. Our Broken Coast you’ll see some tequila seltzers in that coming out. And yes, SweetWater, with our Colorado facility that we just recently acquired will be expanding to the West Coast and actually I’m out there next week spending some time how we’re going to be able to do that. So lots of expansion and lots of things happening with SweetWater products.

Reece Fulgham — Interim Chief Financial Officer, MedMen Enterprises, Inc.

Great, thank you. Operator, let’s begin the analyst question.

Operator

Thank you. [Operator Instructions] Our first question is coming from Owen Bennett of Jefferies. Please go ahead.

Owen Bennett — Jefferies — Analyst

Good morning, gents. And I hope all are well. And I’ll keep it to one question, which relates to CBD in the US. So ignoring hemp food, can you maybe talk a bit more about CBD specific plan? So it does appear this is getting a bit more focus. So I mean today you mentioned CBD beverages, you also mentioned personal care. So are these segments we can expect launches over the near-term? And then ultimately, can we expect quite a broad CBD portfolio across many product segments like money or payers or will it be more targeted? Thank you.

Irwin D. Simon — Chairman and Chief Executive Officer

Thank you, Owen. Good morning. So we have formed Tilray Wellness with that it’s led by Jared Simon, who was heading consumer packaged goods businesses, and has worked on many consumer products. The team has done a great job in regards to Manitoba Harvest and getting that product line with both hemp and looking at lots of CBD products. And to your question, we are currently today working on some CBD partnerships, some CBD alliances, both in topicals and personal care areas and drinks and look to expand in that area, both in U.S., Canada and internationally. So, CBD is a focus for us. Hemp will be a big focus. We’ve seen a big demand for hemp products and hemp food products and expansion in the U.S. on both of those. And the team is in place now, ultimately developing and looking to roll out those products.

Owen Bennett — Jefferies — Analyst

Very helpful. Thanks, guys.

Irwin D. Simon — Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Vivien Azer of Cowen and Company. Please go ahead.

Vivien Azer — Cowen and Company — Analyst

Hi, good morning. Thank you. My first question has to do with inter-quarter trends and post-quarter trends in the Canadian adult use market, appreciating that the Delta variant was a bit of an impediment in terms of getting consumers back into the store. That is a critical element of your strategy to trade up consumers. So I was wondering if you can comment at all on whether trends evolved through the quarter and what you’ve seen quarter-to-date. Thank you.

Carl Merton — Chief Financial Officer

Good morning, Vivien. I think the important piece is that that if you look at the Canadian market, early on in the quarter, we were still in effectively lockdowns with stores closed. As we go through the the first months of the quarter, those lockdowns began to ease, retail storefronts began to open. You had a lot of new stores that were opening who had — bud tenders who hadn’t had a chance to really educate about our products and be in a position to really truly influence consumers. But the more important piece is that when those stores first opened, they were open with limited capacity. And so I think initially, it was about 25% and then it grew — it later grew to 50% and just recently it’s now up to full capacity in stores, at least in Ontario. If you look at the Alberta market, another very large market, they have a big spike of Delta going on right now. And while there may not be lockdowns, it’s something that could come forth.

Irwin D. Simon — Chairman and Chief Executive Officer

Vivien your question is an excellent question, because we really — Canada stores did not open until as Carl said till mid to late June. Being at Toronto over the last couple of days, I was at Dundas & Yonge yesterday, which is like Time Square and was pretty quiet but stores are open. That’s the good news. And they are allowed full capacity. We are on the street educating bud tenders about our product, we are trying to do as much social media as we can to bring consumers back into the stores. And with that, consumers out there want good potency, good products and what’s important is for us to be out there building our brands. And that’s the big thing. There is a lot of little LPs out there today that are ankle biters that are selling product just on price. But that is where our RIFF, our good supply, our Soleil products have to get out there and build what the quality is and what regulatory we go through.

And there’s a lot, we have to do, it’s coming up on three years, October 18 with the Canadian government on legalization. There has to be some changes to the regs out there and we will be out there lobbying the politicians with the liberal government now, how to make some of these changes, how to get out there and advertise safely, how that we can sell more products. Because I’ll tell you what, we pay a lot of tax dollars towards this and there’s a lot of benefits. And there’s a lot of data that we’ve collected to show why legalization made sense and what happened in the last three years. So there’s a lot we got to do and there’s a lot we do. But I’ll tell you, we’re well-positioned from a growth, from a potency, from a price and a brand standpoint.

Vivien Azer — Cowen and Company — Analyst

Understood, thank you for that. I recognize the call is running long but I still have an important follow up that relates to the first two retail investor questions that you’ve got, Irwin. And the first one that characterize legalization in the U.S. is impending. Certainly our house view does not align with that whatsoever, I think, first hand, what’s happening in Capitol Hill right now in terms of a lack of not only bipartisanship but even consensus with the democrats who hold a very narrow majority in the senate. So I just wanted to give you an opportunity to clarify how you’re thinking about timing. Obviously, the 2022 mid-terms are not all that far away. That certainly influences congressional motivation to pass legislation, but there are a number of fourth quarter legislative, not just priorities but mandates like the budget ceiling, like reconciliation that must get done. So I just wanted to give you an opportunity to clarify how you’re thinking about timing on the potential U.S. catalysts. Thanks.

Irwin D. Simon — Chairman and Chief Executive Officer

Thank you, Vivien. Listen, you’re right, I mean the Schumer Bill came out with a lot of thunder, some lightning and I think everybody thought this was going to happen right away. I agree with you. It’s slow but there’s a lot of discussion going on. But I think the big thing is this year. Something will happen and to your point, there is election coming up in 2022, the house in the senate change, that could throw a lot of monkeys in the wrenches here. But I think the big thing that I’ll come back with Tilray is this year. We have a strong business with so much potential to grow in Canada. I think Europe has so much potential. I think you might see legalization happen in Germany before the U.S. Okay? And we’re well-positioned there.

So yes, we’d love to see legalization, we want legalization in the U.S. We’re excited about what we’re doing at MedMen. We’re excited about some of the other opportunities. But I think like other LPs and like a lot of the U.S. MSOs, if legalization doesn’t happen for 18 months, 24 months, we still have lots of runway out there to grow this business and to do acquisitions in adjacent areas, whether it’s spirits and alcohol, whether it’s hemp food and CBD. So I think that’s what the important thing is. We will be around the hoop and we’ll be there when legalization happens.

Vivien Azer — Cowen and Company — Analyst

That’s great, thanks very much.

Operator

Thank you. Our next question is coming from Andrew Carter of Stifel. Please go ahead.

Andrew Carter — Stifel — Analyst

Hey, thanks, good morning. I know there’s some puts and takes around the integration, current environment, still you launched new products, and you mentioned the ankle biters and continued inflation. But when do you think the combined Canadian adult use portfolio can get back to gaining market share at retail and also kind of driving underlying sales growth? And then within that, I think I heard you correctly, you mentioned recently your Canadian market share target might require M&A. So wanted to understand where Canadian M&A ranks in terms your priorities right now and also your ability to acquire operating assets versus kind of executing investments like MedMen. Thanks.

Irwin D. Simon — Chairman and Chief Executive Officer

Andrew, great question. Listen, here’s the big thing that’s got to happen here in the Canadian market. And the Canadian market, yes, the population may be 33 million, 10% of the U.S., but it’s one of the only countries where adult use is legal. Number 2, I spent lots of time with our medical team up here and there is so many opportunities in regards to medical cannabis that we still have to exploit upon. In regards to medical cannabis, it’s not on most drug plans today. You can’t — you know it’s not paid for. There’s lots of movement there that we should do. Amazon Pay support in the U.S., but not in Canada. So there’s a lot we need to do in regards to getting our medical business and our adult rec business on track here. Stores have been closed since last November and now they’re up to full capacity, it’s getting people back into the offices and getting people out.

The biggest thing this year is us educating the bud tenders about all the great new products that we have and all the products and brands that we have out there. And we have in place the team to go ahead and do that. We have the team in place to focus on the potency, the brands, the quality, the different strains. With that, listen, the top 4, up in Canada today represent about 50% market share. There is another group of LPs and there’s over 500 LPs that have one 1%, 2%, 3% market share that are nipping away and just dropping prices to bring consumers in. That will last only so long. And with that, what we have to do to ensure is consumers know our brands, consumers know our quality, consumers know our potency and absolutely price rate. So we got our work absolutely cut out for us. But we have the plan in place that we know we have to do.

And again, like I said before, we want to be $1 billion up here. And to answer your question, are we going to get that completely from organic growth? I’ve said, I want to be at 30% market share. Listen, originally, I felt we could do that on our own. There may have to be acquisitions and more consolidation in this marketplace. I’m really excited about the Tilray-Aphria merger. We’ve taken so far $55 million of cost out of here. You see our gross margins are 45% where Tilray’s were 19%. So there is a lot of opportunities as you bring companies together and consolidate and with 507 LPs out there, there’s got to be some more consolidation. And yes, the answer is yes. Tilray would be open for other acquisitions in the Canadian market if it made sense, it was accretive, we could get growth and we can get lots of savings out of it.

Andrew Carter — Stifel — Analyst

Thanks, I’ll pass it on.

Irwin D. Simon — Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from John Zamparo of CIBC World Markets. Please go ahead.

John Zamparo — CIBC World Markets — Analyst

Thanks, good morning. I know we’re at the top of the hour, so I’ll stick to one as well. I’d like to get your thoughts on the wholesale and retail sides of the markets and particularly the state of inventory at Canadian provincial boards and retailers. I think, Carl, you had mentioned an uptick in shipments late in the quarter. But do you think there is a restocking period coming here? And the reason I ask that is retail sales seems pretty healthy in terms of year-over-year growth, but that doesn’t seem felt at the producer level. So just would like to get your thoughts there, please.

Carl Merton — Chief Financial Officer

I do think there will be a minor restocking that’s going to occur. The — I think if you look at what happened in the quarter, there were a lot of people that were concerned that we would go back into lockdown, something that had happened regularly in Canada. As that didn’t happen, the individual stores got more and more comfortable with their sales levels and then they started increasing their purchasing. I think the same thing then happened at the provincial boards. They waited to see a regular pattern and cadence of reordering. And you’re starting to see those things happen now. And they’ve taken all the steps they needed to take to manage their inventory levels and now is the time when they’re going to — we believe they’re going to start reordering.

John Zamparo — CIBC World Markets — Analyst

Okay, that’s helpful, thanks very much.

Carl Merton — Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is coming from Michael Lavery of Piper Sandler. Please go ahead.

Michael Lavery — Piper Sandler — Analyst

Thank you and good morning.

Irwin D. Simon — Chairman and Chief Executive Officer

Good morning.

Michael Lavery — Piper Sandler — Analyst

You’ve reiterated your aspirations to have a leadership role in the U.S. and then obviously pointed to MedMen as part of that, but as strong as their brand is, certainly they’ve lost ground in the last few years to a lot of other competitors. How do you anticipate sort of that evolving and is there anything ahead of legalization in the U.S. that you can do to collaborate and work with them? Is there — what if any limitations or restrictions are there around how closely you guys can work together?

Irwin D. Simon — Chairman and Chief Executive Officer

Absolutely. So number one, we’ve already had multiple meetings with MedMen to learn about their business. You’re right, they have lost ground. But I would say this year, under Tom Lynch, they have put some good plans in place, have taken up a lot of cost. And yes, there is lots of opportunities for us to work with them in getting data, learning about their e-commerce and spending time with them on products that sell in the stores that we don’t have in Canada today, look at the innovation that they have in place from multiple brands. And listen, I come back and looked at the MedMen brand and when you mentioned it, how well known it is here, the equity within the brand, the product line that will be brought into stores, I know some of the stuff that they’re working on, on an innovation standpoint, I know some of the stuff that they’re working on in regards to their stores, the experience of their stores, interaction with consumers.

So there’s a lot of that stuff we can take to Canada and there is no reason why we can’t license the MedMen brand at wholesale and note the Cookies brand is doing extremely well out there and compete with that. Also if like Canopy has done with their Tokyo Smoke brand, Tweed brand, if anybody wants to license the MedMen brand out there in the Canadian market to differentiate, there is opportunities out there. So with that, there will be lots of opportunities, a lot of cross-sharing information. There’s a lot of digital information that both teams will be working. We do have from observation rights on the Board, we can be on the Board. At Board meetings, we have two seats with that, so there is a lot of internal action. This is not — no passive investment with just no oversight at all and not working together.

Michael Lavery — Piper Sandler — Analyst

Okay, great, thanks. And a quick follow-up on Europe. You’ve obviously mentioned how big the Portugal facility is. How does it — how does the German facility complement it and do you have too much capacity there at the moment?

Irwin D. Simon — Chairman and Chief Executive Officer

So the German facility right now is only selling to the German government for — from a medical standpoint. In regards to the Portugal facility, there is plenty of capacity and all — our facility right now, we’re not growing at full capacity there. So yes, we have plenty of capacity and — but we have plenty of demand coming on from Israel, Poland, Western Europe and other parts of Europe. So right now, all of the facility is not full with product but we have the ability to grow additional products there to fulfill demand.

Michael Lavery — Piper Sandler — Analyst

Okay, great, that’s helpful. Thank you.

Irwin D. Simon — Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Aaron Grey of Alliance Global Partners. Please go ahead.

Aaron Grey — Alliance Global Partners — Analyst

Hi, thanks for the question. I’ll just keep it to one here. So kind of picking back on some of the questions that were asked at the retail level. So obviously, you guys have an initiative to get more from the bud tenders, educate the consumer about more than just price and in the past, Irwin, in a call, you’ve talked a lot about more than just THC to — in kind of a whole terpene profile. But I guess my overall question is, how do you think about timing to when you think some of this education of the bud tenders and then bud tenders to the consumer will result in maybe better market share trends for your brands? So just any kind of color in terms of what you expect in terms of timing to see an improvement would be helpful. Thanks.

Irwin D. Simon — Chairman and Chief Executive Officer

So it has started already. And with that, our new product line up is in the midst of rolling out right now. We’ve consolidated our sales organization, both from a merchandising standpoint, both from our sales that are calling on the control boards. We’ve consolidated our marketing groups and in the midst of consolidating marketing programs out there because there’s a lot of programs that were already in place. And with that, we are on the street today, working with the retail stores. There were 600 stores a year ago in Ontario. There’s 1200 today and they are just opening as we speak. So there is a lot of work to do to get in front of them and there’s a lot of education to do about our potency, about our different strains, and we have multiple products. We have 12 brands out there that we have to educate the bud tenders on. And I think that’s what’s important.

And while this is happening, one of the obstacles out there today is, there’s just a lot of products coming in at these bud tenders on price and potency and nothing behind it and that’s where we have the big opportunity. The other big opportunity we have, Tilray was not really into Cannabis 2.0 with gummies and drinks and edibles. And now with our facility in London, Ontario that does chocolate, that those edibles, that does drinks, you’re going to see Tilray jump into this category in a much bigger way with lot of uniqueness there, a lot of differentiation on the THC that will be in products. So that’s a whole other area for us to capitalize on tremendously.

Aaron Grey — Alliance Global Partners — Analyst

All right, great, thanks very much.

Irwin D. Simon — Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Pablo Zuanic of Cantor Fitzgerald. Please go ahead.

Pablo Zuanic — Cantor Fitzgerald — Analyst

Good morning. Irwin, I certainly don’t mean to speak on behalf of institutional investors, but one question we’re getting a lot these days is about corporate governance and not just for your company, but for others in the space, given the very heavy retail invested ownership. Right? So when I look at Tilray it’s at $400 million today. Your free float churns about every two weeks. Right? So it’s like do the shareholders scared? And then of course there’s the Board of Directors. Right? But for institutions, in looking at that and remembering that in the case of [Indecipherable] right, you had long-term institutional investors, you had shareholder activists involved in the Board. How should these institutions think about corporate governance at Tilray in particular? Thank you.

Irwin D. Simon — Chairman and Chief Executive Officer

Good question. From a Board standpoint, we have a very independent Board. Myself, I’m the only insider on the Board. Brendan Kennedy did join the Board from Tilray. We have a diversified ESG. It’s something very important from a Board standpoint. So being a public company CEO for many, many years, corporate governance for us is something that’s very, very important and independence is very important. We have a Vice Chair, Lead Director in the company. So I think we continuously fulfill all the boxes. We went to shareholders to move ahead to come from a staggered Board to a one-year term. Shareholders didn’t approve that. So with that, we’re out there trying to ensure we change the governance and we have good governance in place and that’s something that’s very, very important to myself and the full Board, Pablo.

Pablo Zuanic — Cantor Fitzgerald — Analyst

Thank you. And just one quick follow-up. In the case of exports, so in my math, $10 million this quarter on a pro forma basis, that’s pretty much in line with recent quarters if I’m not wrong, while the export markets continue to grow. So talk a little bit about, yes, you’re number one in Germany in extracts and I understand Aurora is number one in flower. Just talk about the trend that you’re seeing there in terms of market share because it seems to me that others are growing and you are not. And I also hear that at least in the case of your Portugal facility, your flower is not being able to ship to Germany. Just some color there. You also got AMP, you got CC Pharma. What was the need for AMP if you already have CC Pharma? Just trying to get more color in terms of your track record and performance in the German medical market right now. Thank you.

Irwin D. Simon — Chairman and Chief Executive Officer

So AMP, just on that, is doing Aphria extract. We are focusing today on Tilray. But listen, I think similar to what happened in Canada, Europe is reopening now as different countries are and bringing Europe together, both our German facility, the person running Europe for us is consolidating our German operations, our Portugal operations. So I’m not — from a growing standpoint and what we’re growing over there, we’re selling a lot of product and we’re producing it there. There is not many companies out there that have the production capabilities and the growth facilities that we have in Europe and the demand is picking up. But we saw that CC Pharma — we saw many areas where, during the summer, Europe was closed and wasn’t allowed visitors and wasn’t allowed tourists etc.

But I feel good not just looking at the quarter, I feel good about the opportunities in Europe because of our situation in Germany with the German government. I feel good about the facility in Portugal, which is one of the best facilities out there in the world today. And the opportunities what we’re seeing is France is opening up or medical, there is more and more countries looking at growing medical. And not looking just at the quarter, but we will be there. We’re seeing lots of great stuff happening in Israel, in Western Europe. So you may not see it totally now, Pablo, but stay tuned for what we have planned for Europe.

Pablo Zuanic — Cantor Fitzgerald — Analyst

Thank you.

Irwin D. Simon — Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our last question today is coming from Glenn Mattson of Ladenburg Thalmann. Please proceed with your question.

Glenn Mattson — Ladenburg Thalmann — Analyst

Yes. Hi, just one quick one for me. I wanted to clarify Irwin’s comment earlier in the call talking about synergies and that they were somewhat offset or completely offset, I wasn’t sure, when you said on the — by near term cost pressures and just sense of the magnitude there and whether or not you see those abating soon or just some color on that. That’s it for me. Thanks.

Irwin D. Simon — Chairman and Chief Executive Officer

So what I said is, to date we’ve achieved over 80 plus — over $55 million of synergies to date, close to $20 million of cash synergies. Absolutely, offset costs anybody out there today that’s not seen inflation on freight, on labor is not in business. So absolutely offset some of the costs from a standpoint. But what I did say is this here. You did not see in our numbers Tilray’s production costs that’s [Indecipherable], which is running about 19%. Our margins are in the high-40s and we — that product yet has not been produced yet in our facilities. So we will ultimately see those in the back half when a lot of that inventory is sold. So we feel good about hitting the $80-plus million in synergies, we feel there’s tremendous cash synergies there, which will help offset some of the higher costs that we’re all seeing out there in the marketplace.

Since that is our last question. Thank you very much everybody for getting on our call. Thank you for listening to our first quarter where Tilray and Aphria came together. A lot has happened since May 1. We’ve accomplished a lot in regards to putting these two companies together, putting the infrastructure together, putting the Boards together, from a governance standpoint, from an ESG. Again I want to thank the shareholders for approving the additional shares. They are not dilutive, their shares that are in our treasury, and ultimately we use them for the right acquisitions that are accretive acquisitions. We’re out there as we’ve talked about taking costs out of the business and ultimately what we’ve been able to do is put these companies together.

Our revenue increased 43%. Our gross profit in a market where there is a lot of pricing going on, was up 46% respectively. As I’ve said, we’re the largest grower of cannabis in the world today and have the ability to grow over 265,000 kilos. And spending time in our facilities over the last few days, our facilities look great and coming off in greenhouses when you have hot weather, it does affect you. And coming off a hot summer out there, it’s important that we got our potency, we got our right flower and that’s stuff that we continuously work on.

We’ve had 10 consecutive quarters of positive adjusted EBITDA and want to keep that streak going. And with that, we’re the number one adult use leader in Canada and that’s with a lot of LPs. There’s over 500 LPs out there and everybody wants to stay in business and everybody wants to buy their [Indecipherable] in regards to not all stores opened, not all the market back to place.

So I’m happy where we are. There is a lot more I’d like to achieve, it’s not the easiest market out there. As you look at stock performances I don’t think anybody is happy but if you look at where our market cap was last year at this time, about $1.6 billion and where Tilray’s market cap was about $1.6 billion and we’re trading close to $5 billion consolidated market cap today, we are achieving something and shareholders I know are not patient but we’re working hard at it and there is an incredible strong plan in place.

I want to thank everybody for their support, their time getting on the call today and I want you to know the Tilray team is working hard for you. Thank you very much. Be safe out there and we’ll speak to you soon.

Operator

[Operator Closing Remarks]