Tilray Brands' (TLRY) cannabis sales and alcoholic beverages contributed greatly to the company's fiscal third-quarter revenue, which ultimately fell short of earnings estimates with a reported $188.34 million. Tilray Brands Chairman and CEO Irwin Simon discusses "timing" challenges faced this quarter concerning "Dry January" trends and pressures around marijuana legalization, stating that he believes the company still has a great deal of "optionality" despite restrictions on US operations.

"The big, big opportunity for Tilray and the big opportunity is what happened on the medical [side]. Prior to this only a certain amount of doctors that were licensed could prescribe medical cannabis [in Germany]. Now, every doctor in the country can prescribe medical cannabis. And with that it just opens up the market for... a tremendous market size," Simon says on the massive opportunity in German markets. "Number two... we have a facility in Germany today and that facility before only was selling to the German government under a tender. With that the facility now can sell to... any pharmacy and sell to anybody that wants medical cannabis... in Germany"

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: All right, let's talk about another stock that we watched today. Tilray brands, Revenue growing 30% last quarter driven only by cannabis sales. But beverage alcohol sales as well.

The shares, however, did fall in the session on the company's lowered forecast for cash flow. Here's what Tilray chairman and CEO Irwin Simon had to say on the company's growth momentum.

IRWIN SIMON: So number 1 with the acquisition of the eight ABI brands, that's where most of the growth came from. Also we've had a lot of new innovation that's just starting to get into the market. And at the same time, really focusing on these brands with new distribution.

But we suffered from dry January somewhat, a dry February, which is a real phenomenon out there. And it's something to overcome. And that's where as we've introduced not ALC beers, we've introduced some energy drinks-- we're introducing some sparkling water products, et cetera.

So with that, as Tilray is such a diversified company today, and third quarter is actually one of our lower quarters, it's great to see some growth happening within our businesses and across our sectors.

JULIE HYMAN: I do want to address, though, the reaction that we're seeing, Irwin, because it looks like even though you did see that growth in revenue came in a little below estimates loss was a little wider than estimates. And then there's that EBITDA, the cash flow forecast here. Where did these various shortfalls come from do you think? And how is that going to also the trajectory look like for the next few quarters?

IRWIN SIMON: Listen, not everything happens as planned. And we did our hexo acquisition. We did our trust acquisition. Integration sometimes takes longer than expected.

Our first two quarters were not positive free cash. And just from a timing standpoint, not able to make them up in our third and fourth quarter. We've announced the divestitures of some facilities in Canada, which ultimately will bring in additional cash somewhere between $60 to $80 million.

It also is accretive to EBITDA by about $5 million. At the same time, acquiring the ABI brands, their margins are in the high 20s versus our legacy beer brands, which are in the high 40s. So there's a lot of contribution, a lot of cash that will come from that.

So a lot of this is just a timing issue, Julie. And as you're building, as you're growing, as you're getting distribution out there, not everything happens. At the same time, as we're going through these businesses, we're looking at skew rationalization skews that don't make sense.

As we looking at simplifying our product lines, our production, there's stuff we're taking in and out of the business here. So that's what it is a lot of this is just timing. But I got to tell you. I really feel good where Tilray brands is today and what's in Tilray brands in the categories we're participating in, and where we are from a global standpoint.

And you know, what could come? So if I sit here today and look into a crystal ball, there's been so much chat over the last four years what could happen with cannabis on legalization and rescheduling.

I believe something will happen. We're well-positioned if medical cannabis is rescheduled from a Schedule I to a Schedule III. And we could easily jump in there with medical cannabis. We could export it from our Canadian operations.

We are a big medical cannabis seller in Canada. And we're probably number one in Europe. So we're ready to do that in regards to--

JULIE HYMAN: Irwin--

IRWIN SIMON: Go ahead.

JULIE HYMAN: --I'm sorry just to pause you there. I do want to ask a little bit more in detail about that. Because you have a market here in the United States, where you already do have state-by-state dispensaries that are selling medical cannabis. So how would your approach be different than what we are seeing from the existing market players?

IRWIN SIMON: So if it was rescheduled from a schedule from 1 to 3, and it's legal from not being a narcotic anymore, do we have the opportunity to sell it into the US and bring it in from our Canadian operations? With that, do we have the opportunity to acquire a company here? Right now, we can't do anything in the US because we're a NASDAQ listed company.

So it would give us the opportunities, whether we do it on our own, we buy. And actually, we own the debt within MedMen does it give us the opportunity to do something within MedMen. So we have optionality.

Right now, Julie, we're not locked into. We're not an MSO. We're not locked into that state to be a producer, to be a distributor, to be a retailer. And we don't have those investments. So it gives us optionality with the change that could happen.

JULIE HYMAN: I also want to ask you about the change that happened in Germany with the changing cannabis regulations there. And again, it doesn't sound like you would be able to enter just regular consumption market there because that's more on a personal and club level basis. But on the medical level, how would things change with the latest law change there?

Listen, what happened from a personal level is one thing that happened in Germany. The big, big opportunity for Tilray and the big opportunity is what happened on the medical.

Prior to this year, only a certain amount of doctors that were licensed could prescribe medical cannabis. Now, every doctor in the country can prescribe medical cannabis. And with that, it just opens up the market for a tremendous market size.

Number 2, we have a facility in Germany today. And that facility before only was selling to the German government under a tender. With that, this facility now can sell to any pharmacy and can sell to anybody that wants medical cannabis in Germany.

Secondly is we have a large grow and producing facility in Portugal that can sell it into Germany. So we already have people on the ground, we have grow on the ground, and we have brands in that marketplace that can really make a big difference.

The other thing in Germany, we have something called Tilray pharma which was CC pharma, which is a medical distribution business that sells into 13 drugstores. So we're vertically integrated to get the product to drugstores to be able to fulfill consumers medical cannabis prescriptions.

JULIE HYMAN: Well, we'll stay in touch as all of these changes kind of filter through the system. And I know there's some changes being talked about in Canada to reform the tax system as well. But we'll leave it there. We'll talk about that next time.

IRWIN SIMON: That would be major. And that's a lot to talk about, too.

JULIE HYMAN: It is. OK, so let me just squeeze one last one in. How confident are you that there will be those changes in Canada?

IRWIN SIMON: Listen, again, when it comes to predicting politics, I would never want to take a bet on that. But what I will tell you is this year something has to happen in the Canadian market. With price compression going on and a lot of the LPs going out of business.

And I'd like a strong, strong market in Canada. I think something will happen in regards to tax reform. For Tilray, it's about $80 million.

Do I expect $80 million coming into our coffers? No. But do I expect something to happen? Yes.

JULIE HYMAN: Gotcha. All right. Well, stay tuned then. And we'll talk again soon. Irwin Simon of Tilray, thank you so much.

IRWIN SIMON: Nice seeing you. Thank you.

JULIE HYMAN: Me too. Thanks.