Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File Number: 001-38594

 

TILRAY, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

82-4310622

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

655 Madison Avenue, Suite 1900

New York, NY

10065

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (844) 845-7291

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class 2 Common Stock, $0.0001 par value per share

 

TLRY

 

The Nasdaq Global Select Market

 

 

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of January 4, 2022, the registrant had 466,522,611 shares of common stock, $0.0001 par value per share, issued and outstanding.

 

 

 

 


 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Statements of Financial Position (Unaudited)

1

 

Consolidated Statements of Income (Loss) and Comprehensive Loss (Unaudited)

2

 

Consolidated Statements of Stockholders' Equity (Unaudited)

3

 

Consolidated Statements of Cash Flows (Unaudited)

4

 

Notes to Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

38

PART II.

OTHER INFORMATION

40

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

43

Signatures

44

 

 


i


 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended November 30, 2021 (the “Form 10-Q”) contains forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”” might,” “plan,” “project,” “will,” “would” ”seek,” or “should,” or the negative or plural of these words or similar expressions or variations are intended to identify such forward-looking statements. Forward-looking statements include, among other things, our beliefs or expectations relating to our future performance, results of operations and financial condition; our strategic initiatives, business strategy, supply chain, brand portfolio and product performance; the COVID-19 pandemic; current or future macroeconomic trends; and future corporate acquisitions and strategic transactions.

Risks and uncertainties that may cause actual results to differ materially from forward-looking statements include: our ability to successfully complete the integration of the businesses of Tilray and Aphria; challenges and uncertainty resulting from the COVID-19 pandemic; the highly regulated environment in which we operate and our dependence on regulatory approvals and licenses; our ability to manage our supply chain effectively; disruption of operations at our cultivation and manufacturing facilities; challenges and uncertainty resulting from the impact of competition; our ability to manage risks associated with our international sales and operations; our ability to successfully develop and commercialize new products; our ability to execute our strategic plan and other initiatives, including our ability to achieve $4 billion of revenue by the end of our fiscal year 2024; our dependency on significant customers, which generate a significant amount of our revenue; input cost inflation; disruptions to information technology systems; pending and future litigation; volatility in our stock; our ability to raise funds; and other risks and matters described in our most recent Annual Report on Form 10-K, this Form 10-Q and our other filings from time to time with the U.S. Securities and Exchange Commission and in our Canadian securities filings.

Forward looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and, while we believe that information provides a reasonable basis for these statements, these statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements or forward-looking information as predictions of future events.

We undertake no obligation to update forward-looking statements to reflect actual results or changes in assumptions or circumstances, except as required by applicable law.

 

 

ii


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TILRAY, INC.

Consolidated Statements of Financial Position

(in thousands of United States dollars, unaudited)

 

 

 

 

November 30,

2021

 

 

May 31,

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

331,783

 

 

$

488,466

 

Accounts receivable, net

 

 

84,575

 

 

 

87,309

 

Inventory

 

 

233,020

 

 

 

256,429

 

Prepaids and other current assets

 

 

57,340

 

 

 

48,920

 

Convertible notes receivable

 

 

1,560

 

 

 

2,485

 

Total current assets

 

 

708,278

 

 

 

883,609

 

Capital assets

 

 

604,249

 

 

 

650,698

 

Right-of-use assets

 

 

13,933

 

 

 

18,267

 

Intangible assets

 

 

1,450,015

 

 

 

1,605,918

 

Goodwill

 

 

2,814,163

 

 

 

2,832,794

 

Interest in equity investees

 

 

4,440

 

 

 

8,106

 

Long-term investments

 

 

168,244

 

 

 

17,685

 

Other assets

 

 

164

 

 

 

8,285

 

Total assets

 

$

5,763,486

 

 

$

6,025,362

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Bank indebtedness

 

$

8,736

 

 

$

8,717

 

Accounts payable and accrued liabilities

 

 

168,300

 

 

 

212,813

 

Contingent consideration

 

 

62,339

 

 

 

60,657

 

Warrant liability

 

 

40,455

 

 

 

78,168

 

Current portion of lease liabilities

 

 

3,588

 

 

 

4,264

 

Current portion of long-term debt

 

 

31,510

 

 

 

36,622

 

Total current liabilities

 

 

314,928

 

 

 

401,241

 

Long - term liabilities

 

 

 

 

 

 

 

 

Lease liabilities

 

 

49,265

 

 

 

53,946

 

Long-term debt

 

 

151,819

 

 

 

167,486

 

Convertible debentures

 

 

554,854

 

 

 

667,624

 

Deferred tax liability

 

 

219,311

 

 

 

265,845

 

Other liabilities

 

 

320

 

 

 

3,907

 

Total liabilities

 

 

1,290,497

 

 

 

1,560,049

 

Commitments and contingencies (refer to Note 17)

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Common stock ($0.0001 par value; 990,000,000 shares authorized; 463,802,393 and 265,423,304 shares issued and outstanding, respectively)

 

 

46

 

 

 

46

 

Additional paid-in capital

 

 

4,954,547

 

 

 

4,792,406

 

Accumulated other comprehensive income

 

 

9,595

 

 

 

152,668

 

Accumulated Deficit

 

 

(527,900

)

 

 

(486,050

)

Total Tilray shareholders' equity

 

 

4,436,288

 

 

 

4,459,070

 

Non-controlling interests

 

 

36,701

 

 

 

6,243

 

Total shareholders' equity

 

 

4,472,989

 

 

 

4,465,313

 

Total liabilities and shareholders' equity

 

$

5,763,486

 

 

$

6,025,362

 

 

 

 

 

 

 

 

 

 

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

1


 

TILRAY, INC.

Consolidated Statements of Income (Loss) and Comprehensive Loss

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

 

 

 

Three months ended November 30,

 

 

Six months ended November 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net revenue

 

$

155,153

 

 

$

129,459

 

 

$

323,176

 

 

$

246,949

 

Cost of goods sold

 

 

122,387

 

 

 

94,176

 

 

 

239,455

 

 

 

176,721

 

Gross profit

 

 

32,766

 

 

 

35,283

 

 

 

83,721

 

 

 

70,228

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

33,469

 

 

 

28,273

 

 

 

82,956

 

 

 

54,245

 

Selling

 

 

9,210

 

 

 

6,079

 

 

 

16,642

 

 

 

11,896

 

Amortization

 

 

29,016

 

 

 

4,208

 

 

 

59,755

 

 

 

8,335

 

Marketing and promotion

 

 

7,120

 

 

 

4,252

 

 

 

12,585

 

 

 

9,177

 

Research and development

 

 

515

 

 

 

225

 

 

 

1,300

 

 

 

345

 

Transaction costs

 

 

8,120

 

 

 

18,206

 

 

 

33,699

 

 

 

20,664

 

Total operating expenses

 

 

87,450

 

 

 

61,243

 

 

 

206,937

 

 

 

104,662

 

Operating loss

 

 

(54,684

)

 

 

(25,960

)

 

 

(123,216

)

 

 

(34,434

)

Interest expense, net

 

 

(9,940

)

 

 

(4,832

)

 

 

(20,110

)

 

 

(10,568

)

Non-operating income (expense), net

 

 

64,750

 

 

 

(72,649

)

 

 

113,610

 

 

 

(86,008

)

Income (loss) before income taxes

 

 

126

 

 

 

(103,441

)

 

 

(29,716

)

 

 

(131,010

)

Income taxes (recovery)

 

 

(5,671

)

 

 

(14,192

)

 

 

(909

)

 

 

(20,017

)

Net income (loss)

 

$

5,797

 

 

$

(89,249

)

 

$

(28,807

)

 

$

(110,993

)

Total net income (loss) attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders of Tilray Inc.

 

 

(201

)

 

 

(99,900

)

 

 

(41,850

)

 

 

(134,243

)

Non-controlling interests

 

 

5,998

 

 

 

10,651

 

 

 

13,043

 

 

 

23,250

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain

 

 

(32,367

)

 

 

(910

)

 

 

(133,139

)

 

 

475

 

Unrealized loss on convertible notes receivable

 

 

52

 

 

 

 

 

 

(597

)

 

 

 

Change in fair value of long-term investments

 

 

(16,357

)

 

 

 

 

 

(16,357

)

 

 

 

Total other comprehensive (loss) income, net of tax

 

 

(48,672

)

 

 

(910

)

 

 

(150,093

)

 

 

475

 

Comprehensive loss

 

 

(42,875

)

 

 

(90,159

)

 

 

(178,900

)

 

 

(110,518

)

Total comprehensive income (loss) attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders of Tilray Inc.

 

 

(41,853

)

 

 

(100,810

)

 

 

(184,923

)

 

 

(133,768

)

Non-controlling interests

 

 

(1,022

)

 

 

10,651

 

 

 

6,023

 

 

 

23,250

 

Weighted average number of common shares - basic

 

 

460,254,275

 

 

 

243,477,655

 

 

 

454,797,598

 

 

 

242,207,388

 

Weighted average number of common shares - diluted

 

 

460,254,275

 

 

 

243,477,655

 

 

 

454,797,598

 

 

 

242,207,388

 

Net income (loss) per share - basic

 

$

(0.00

)

 

$

(0.41

)

 

$

(0.09

)

 

$

(0.55

)

Net income (loss) per share - diluted

 

$

(0.00

)

 

$

(0.41

)

 

$

(0.09

)

 

$

(0.55

)

 

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

2


 

TILRAY, INC.

Consolidated Statements of Stockholders’ Equity

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

 

 

 

Number of

common

shares

 

 

Common

stock

 

 

Additional

paid-in

capital

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Accumulated Deficit

 

 

Non-

controlling

interests

 

 

Total

 

Balance at May 31, 2020

 

 

240,132,635

 

 

$

24

 

 

$

1,366,736

 

 

$

(5,434

)

 

$

(113,352

)

 

$

26,957

 

 

$

1,274,931

 

Share issuance - legal settlement

 

 

1,389,884

 

 

 

 

 

 

7,018

 

 

 

 

 

 

 

 

 

 

 

 

7,018

 

Share issuance - options exercised

 

 

41,065

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

4

 

Share issuance - RSUs exercised

 

 

429,280

 

 

 

 

 

 

2,246

 

 

 

 

 

 

 

 

 

 

 

 

2,246

 

Share-based payments

 

 

 

 

 

 

 

 

1,233

 

 

 

 

 

 

 

 

 

 

 

 

1,233

 

Comprehensive income (loss) for the period

 

 

 

 

 

 

 

 

 

 

 

1,385

 

 

 

(34,343

)

 

 

12,599

 

 

 

(20,359

)

Balance at August 31, 2020

 

 

241,992,864

 

 

$

24

 

 

$

1,377,237

 

 

$

(4,049

)

 

$

(147,695

)

 

$

39,556

 

 

$

1,265,073

 

Share issuance - legal settlement

 

 

503,974

 

 

 

 

 

 

3,436

 

 

 

 

 

 

 

 

 

 

 

 

3,436

 

Share issuance - equity financing

 

 

14,610,496

 

 

 

2

 

 

 

103,594

 

 

 

 

 

 

 

 

 

 

 

 

103,596

 

Share issuance - SweetWater acquisition

 

 

8,232,810

 

 

 

1

 

 

 

69,189

 

 

 

 

 

 

 

 

 

 

 

 

69,190

 

Share issuance - options exercised

 

 

74,337

 

 

 

 

 

 

86

 

 

 

 

 

 

 

 

 

 

 

 

86

 

Share issuance - RSUs exercised

 

 

8,823

 

 

 

 

 

 

306

 

 

 

 

 

 

 

 

 

 

 

 

306

 

Share-based payments

 

 

 

 

 

 

 

 

1,017

 

 

 

 

 

 

 

 

 

 

 

 

1,017

 

Comprehensive income (loss) for the period

 

 

 

 

 

 

 

 

 

 

 

(910

)

 

 

(99,900

)

 

 

10,651

 

 

 

(90,159

)

Balance at November 30, 2020

 

 

265,423,304

 

 

$

27

 

 

$

1,554,865

 

 

$

(4,959

)

 

$

(247,595

)

 

$

50,207

 

 

$

1,352,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 31, 2021

 

 

446,440,641

 

 

$

46

 

 

$

4,792,406

 

 

$

152,668

 

 

$

(486,050

)

 

$

6,243

 

 

$

4,465,313

 

Third party contribution to Superhero Acquisition LP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52,995

 

 

 

52,995

 

Share issuance - options exercised

 

 

417,489

 

 

 

 

 

 

2,756

 

 

 

 

 

 

 

 

 

 

 

 

2,756

 

Share issuance - RSUs exercised

 

 

3,665,337

 

 

 

 

 

 

6,661

 

 

 

 

 

 

 

 

 

 

 

 

6,661

 

Share-based payments, net

 

 

 

 

 

 

 

 

(5,944

)

 

 

 

 

 

 

 

 

 

 

 

(5,944

)

Comprehensive income (loss) for the period

 

 

 

 

 

 

 

 

 

 

 

(101,421

)

 

 

(41,649

)

 

 

7,045

 

 

 

(136,025

)

Balance at August 31, 2021

 

 

450,523,467

 

 

$

46

 

 

$

4,795,879

 

 

$

51,247

 

 

$

(527,699

)

 

$

66,283

 

 

$

4,385,756

 

Share issuance - Superhero Acquisition LP

 

 

9,817,061

 

 

 

 

 

 

117,804

 

 

 

 

 

 

 

 

 

 

 

 

117,804

 

Share issuance - DDH note

 

 

2,677,596

 

 

 

 

 

 

28,560

 

 

 

 

 

 

 

 

 

(28,560

)

 

 

 

Share issuance - options exercised

 

 

98,044

 

 

 

 

 

 

1,939

 

 

 

 

 

 

 

 

 

 

 

 

1,939

 

Share issuance - RSUs exercised

 

 

470,324

 

 

 

 

 

 

6,314

 

 

 

 

 

 

 

 

 

 

 

 

6,314

 

Share-based payments, net

 

 

215,901

 

 

 

 

 

 

4,051

 

 

 

 

 

 

 

 

 

 

 

 

4,051

 

Comprehensive income (loss) for the period

 

 

 

 

 

 

 

 

 

 

 

(41,652

)

 

 

(201

)

 

 

(1,022

)

 

 

(42,875

)

Balance at November 30, 2021

 

 

463,802,393

 

 

$

46

 

 

$

4,954,547

 

 

$

9,595

 

 

$

(527,900

)

 

$

36,701

 

 

$

4,472,989

 

 

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

3


 

TILRAY, INC.

Consolidated Statements of Cash Flows

(in thousands of United States dollars, unaudited)

 

 

 

For the six months ended November 30,

 

 

 

2021

 

 

2020

 

Cash used in operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(28,807

)

 

$

(110,993

)

Adjustments for:

 

 

 

 

 

 

 

 

Deferred income tax recovery

 

 

(11,228

)

 

 

(36,175

)

Unrealized foreign exchange (gain) loss

 

 

(6,530

)

 

 

6,648

 

Amortization

 

 

76,804

 

 

 

23,010

 

Loss on sale of capital assets

 

 

230

 

 

 

 

Inventory valuation write down

 

 

12,000

 

 

 

 

Other non-cash items

 

 

3,739

 

 

 

(134

)

Stock-based compensation

 

 

17,670

 

 

 

8,339

 

Loss on long-term investments & equity investments

 

 

2,197

 

 

 

1,519

 

Loss (gain) on derivative instruments

 

 

(133,436

)

 

 

70,342

 

Loss on contingent consideration

 

 

1,682

 

 

 

 

Transaction costs associated with business acquisitions

 

 

 

 

 

13,897

 

Change in non-cash working capital:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,734

 

 

 

(28,570

)

Prepaids and other current assets

 

 

(6,299

)

 

 

(4,019

)

Inventory

 

 

3,409

 

 

 

(18,352

)

Accounts payable and accrued liabilities

 

 

(44,513

)

 

 

20,827

 

Net cash used in operating activities

 

 

(110,348

)

 

 

(53,662

)

Cash used in investing activities:

 

 

 

 

 

 

 

 

Investment in capital and intangible assets

 

 

(23,856

)

 

 

(29,863

)

Proceeds from disposal of capital and intangible assets

 

 

8,264

 

 

 

6,607

 

Promissory notes advances

 

 

 

 

 

(2,419

)

Repayment of notes receivable

 

 

 

 

 

4,032

 

Proceeds from disposal of long-term investments and equity investees

 

 

 

 

 

2,676

 

Net cash paid on business acquisitions

 

 

 

 

 

(275,603

)

Net cash used in investing activities

 

 

(15,592

)

 

 

(294,570

)

Cash (used in) provided by financing activities:

 

 

 

 

 

 

 

 

Share capital issued, net of cash issuance costs

 

 

 

 

 

102,559

 

Proceeds (payment) from warrants and options exercised

 

 

(3,927

)

 

 

90

 

Proceeds from long-term debt

 

 

 

 

 

1,881

 

Repayment of long-term debt

 

 

(20,779

)

 

 

(2,210

)

Repayment of lease liabilities

 

 

(3,360

)

 

 

(71

)

Increase in bank indebtedness

 

 

19

 

 

 

3,689

 

Net cash (used in) provided by financing activities

 

 

(28,047

)

 

 

105,938

 

Effect of foreign exchange on cash and cash equivalents

 

 

(2,696

)

 

 

29,853

 

Net decrease in cash and cash equivalents

 

 

(156,683

)

 

 

(212,441

)

Cash and cash equivalents, beginning of period

 

 

488,466

 

 

 

360,646

 

Cash and cash equivalents, end of period

 

$

331,783

 

 

$

148,205

 

 

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

 

 

4


 

 

TILRAY, INC.

Notes to Consolidated Financial Statements

Note 1. Description of business

Tilray, Inc., and its wholly owned subsidiaries (collectively “Tilray”, the “Company”, “we”, or “us”) is a leading global cannabis-lifestyle and consumer packaged goods company headquartered in New York, with operations in Canada, the United States, Europe, Australia, New Zealand and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body, and soul and invoke a sense of wellbeing. Tilray’s mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and wellbeing through high-quality, differentiated brands and innovative products. A pioneer in cannabis research, cultivation and distribution, Tilray’s production platform supports over 20 brands in over 20 countries, including comprehensive cannabis offerings, hemp-based foods, and alcoholic beverages.

On April 30, 2021, Tilray acquired all of the issued and outstanding common shares of Aphria Inc. (“Aphria”), an international organization focused on building a global cannabis-lifestyle consumer packaged goods company in addition to its businesses in the marketing and manufacturing beverage alcohol products in the United States, and in the distribution of (non-Cannabis) pharmaceutical products in Germany and Argentina, pursuant to a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario).

Note 2. Basis of presentation and summary of significant accounting policies

The accompanying unaudited consolidated financial statements (the “financial statements”) reflect the accounts of the Company. The financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. The information included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2021 (the “Annual Financial Statements”). These financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company’s balance sheet in these interim financial statements was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.

These consolidated financial statements have been prepared on the going concern basis which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due, under the historical cost convention except for certain financial instruments that are measured at fair value, as detailed in the Company’s accounting policies.

As a result of the April 30, 2021 business combination with Aphria, the reported results do not include the results of operations of Tilray and its subsidiaries on and prior to April 30, 2021, in accordance with the accounting treatment applicable to the Arrangement. Accordingly, comparisons between the Company's results for the three and six months ended November 30, 2021 and prior periods may not be meaningful.

Information about the accounting treatment of the Arrangement including details of the transaction, determination of the total fair value consideration, and allocation of the purchase price, are included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).

The purchase price allocation for the Arrangement is open for adjustments and has been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date.  In the event that more information is obtained, the purchase price allocation may change. Any future adjustments to the purchase price allocation, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement period, which is not to exceed one year from the acquisition date.

 

Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A complete list of our subsidiaries that existed prior to our most recent year end is included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).  

 

5


 

 

On August 13, 2021, the Company and other unrelated persons formed Superhero Acquisition L.P., a Delaware limited partnership (“SH Acquisition”), for the purpose of acquiring certain senior secured convertible notes in the principal amount of approximately $165.8 million (the “MM Notes”) originally issued by MedMen Enterprises Inc. (“MedMen”) together with certain associated warrants (the “MM Warrants”) to acquire Class B subordinate voting shares of Medmen (the “MedMen Shares”) from certain funds affiliated with Gotham Green Partners (the “MM Transaction”).  The MM Notes mature on August 17, 2028.  On August 17, 2021, SH Acquisition completed the MM Transaction and issued 9,817,061 shares of its common stock  as partial consideration for the MM Transaction. The balance of the consideration for the MM Transaction was paid in cash by the other unrelated investors of SH Acquisition. 

 

In connection with its issuance of 9,817,061 shares of its common stock, the Company’s received an interest in SH Acquisition equal to approximately 68% of the interests in SH Acquisition and, therefore, indirectly acquired a right to 68% of the MM Notes and related MM Warrants, which were convertible into approximately 21% of the MedMen Shares outstanding (if such MM Notes and MM Warrants were converted and exercised upon closing the MM Transaction). In addition, interest on the principal amount of the MM Notes shall accrue at an interest rate of LIBOR plus 6%, with a LIBOR floor of 2.5% and, any accrued interest shall be pay-in-kind at a price equal to the trailing 30-day volume weighted average price of the MedMen Shares, as and when such pay-in-kind interest becomes due and payable.  SH Acquisition was also granted “top-up” rights enabling it (and its limited partners) to maintain its percentage ownership (on an “as-converted” basis) in the event that MedMen issues equity securities upon conversion of convertible securities that may be issued by MedMen.  Tilray’s ability to convert the Notes and exercise the Warrants is dependent upon U.S. federal legalization of cannabis (a “Triggering Event”) or Tilray’s waiver of such requirement as well as any additional regulatory approvals.

 

Under the SH Acquisition partnership agreement, certain material events described therein require the approval of the Company, and, upon a Triggering Event, the Company has the ability to appoint two of the three members of the board of directors of the general partner of SH Acquisition. As a result, we consolidated SH Acquisition as a subsidiary of Tilray beginning on August 17, 2021.  Additional information about the MM Transaction is included in Note 7 Long-term investments.

Long-term investments