Tilray CEO on cannabis market challenges

Tilray CEO Irwin Simon joined Yahoo Finance Live to discuss the challenging cannabis market, acquisition plans, and inflation challenges.

Tilray Brands, Inc., held their Q3 2023 earnings call on Tuesday, April 11.

Tilray announced on Monday, April 10, that it plans to buy Hexo for a total of around $56 million in an all-stock transaction. The deal is expected to close in June 2023.

Key video highlights:

00:00:05 - Simon on cannabis market challenges

00:00:32 - Simon on Hexo acquisition

00:01:15 - Simon on keys to a deal

00:02:15 - Simon on global impact

00:02:30 - Simon on inflation challenges

Video transcript

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IRWIN SIMON: The markets are challenging out there in the cannabis industry. Number one, it's only four years since cannabis from recreational has been legalized. Number two, there's all these LPs in place today. There's over 1,000 LPs. There are multiple retail stores. And with that, there's got to be a company out there that takes that lead position. It's no different than any consumer packaged goods. And a lot of that has to come from consolidation, but consolidation has got to be right.

With Hexol, listen, Redecan is a great brand. There's a lot of great brands within Hexol. And with that, not only getting the synergies, Julie, you also got to get the growth there. And a lot got to change in Canada in regards to how you market the brands, in regards how you educate consumers about buying the product. Listen, Canada is the only country in the world where adult use cannabis is legal. So ultimately, Canada has ultimately put their foot out there, and they're kind of responsible for the rest of the world to sort of show, hey, here's how we do it. Here's how we market it.

And by the way, the Canadian government is making a lot of tax dollars from this, too. So they've got a vested interest to make sure this works in Canada. You don't do deals just for the sake of doing deals. And I think there's a number of things that you've got to look at. What you pay for the deal, number one, and we think we paid a very attractive price to benefit both shareholders for Tilray and ultimately benefit Hexol shareholders where they're become a part of Tilray and they get a bigger bite, and they're part of a bigger company.

Number two, we've talked about synergies and savings. In the first year, we're looking for $25+ million of synergies and savings. We actually get those once. Once you get the synergies and savings, how do we grow share? Combined share today is about 13%. We need to grow share double digits here, and that's the important thing, is, how do we grow share? And share has got to grow from taking it from our competitors and also bringing new users in there.

And at the end of the day, listen, how does it really show? Earnings per share, EBITDA contribution for our shareholders. Our shareholders got a win here, and 1 plus 1 gotta equal 5. Not 3, not 4-- 5. And ultimately, the objective in myself and my team is how we make Tilray a bigger company on a global basis? And the big thing here is, one day, legalization will happen in the US. There's talk today about what's going on in Germany.

What are the learnings coming out of Hexol? What are the learnings coming out of Redecan? What are the learnings coming out of Tilray that we can use around the rest of the world once legalization does happen? The cannabis industry-- there's been price decompression here, OK? I mean, our prices have come down in the cannabis industry. And as I said, it goes to $30 million of cannabis prices have come down this year in the Canadian market.

In regards to the US, beer can business, our beer business prices have gone up. Our spirits business prices have come up. And what we're trying to do is become those low cost producers. And that's one of the advantages of doing acquisitions, is where you can roll these smaller companies together and have a bigger platform where you can take out multiple costs. So I'm big on acquisition. Julie, as you know, I've done over 60+ acquisitions of need to build that out and took out a lot of cost and used the infrastructure to grow. And that's things we're going to continue to look at, at Tilray to reward our shareholders with bottom line profits.

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