TLRY — Q1 FY2027 Financial Report Analysis

BrewDog lifted revenue 23%, but the business Tilray owned a year ago shrank and the quarter swung to a $40 million loss

Tilray Brands' fiscal year ends on May 31, so this 10-Q covers fiscal Q1 2027: the three months ended August 31, 2026, compared with the same quarter a year earlier (ended August 31, 2025). Net revenue rose 23% to $257.1 million. Almost all of that growth was bought, not grown: the BrewDog craft-beer businesses Tilray acquired in March–April 2026 added $55.9 million of revenue. Take that out and the rest of the company brought in about $201 million, roughly 4% less than a year ago. Canadian cannabis and Tilray's older US beer brands both shrank, while European pharmaceutical distribution and international medical cannabis grew.

Below the gross-profit line the picture was worse. Operating expenses rose 83%, and last year's quarter had been flattered by a one-time $15.0 million gain. Tilray swung from a $2.1 million operating profit to a $24.1 million operating loss, and the net loss attributable to shareholders was $43.1 million, or $0.32 per share. Separately, the 10-Q discloses that Tilray's US beer lenders agreed on October 7 not to test this quarter's loan covenants at all.

At a glance

• $257.1M revenue, +23% — but $55.9M came from the newly bought BrewDog; without it, revenue fell about 4%.
• 30% gross margin, up from 27% — the share of each sales dollar left after production costs improved in beer (BrewDog's ~46% margin) and in cannabis, which is the quarter's real positive.
• –$27.4M free cash flow — operations plus capital spending used cash, inventory rose $27.8M, and the lenders waived this quarter's covenant test.

Results at a glance

All figures in US dollars. "n/m" = not meaningful (the year-ago figure was close to zero).

The shareholder figure (–$43.1M) is lower than the total net loss (–$40.0M) because $3.1 million of profit belongs to minority partners in subsidiaries Tilray doesn't fully own. EPS is calculated on the shareholder figure.

Where the revenue came from

Tilray reports four segments. "Net revenue" for cannabis is after Canada's excise tax, which Tilray collects and passes on to the government.

Beverage. Of the $45.8 million increase, $55.9 million was "incremental net revenues… associated with the Global BrewDog Acquisitions." That means the beer and spirits brands Tilray already owned fell from $55.7 million to about $45.6 million, down roughly 18%. The filing blames "continued industry-wide challenges across the craft beer, spirits, and brewpub categories and broader competitive pressures, which resulted in lower volumes sold." Segment gross margin rose to 41% mainly because BrewDog runs at "approximately 46%". In the older business, lower volumes left factory overhead spread over fewer cans ("lower overhead absorption"), and aluminum and freight costs went up.

Cannabis. Gross cannabis sales (before excise tax) fell 14% to $75.2 million:

Canadian adult-use sales fell on "continued pricing pressure in the flower category, particularly within the mainstream and value segments where the Company maintains a significant market share." About $1.1 million of product was deliberately sent abroad instead. Tilray's Canadian market share slipped from 7.9% to 7.4% versus the previous quarter. The company says that was due to a planned strain rotation that cut flower supply and a parts shortage at a vendor that hit pre-rolls. Canadian medical sales lost about $1.0 million when Veterans Affairs Canada cut its reimbursement from C$8.50 to C$6.00 per gram on April 1, 2026.

International cannabis grew $2.9 million in Germany on patient demand, and the newly acquired UK clinic Lyphe added $1.0 million. Even so, more grams were sold at lower prices: the filing puts price compression at "approximately $8.8 million in the quarter." Despite the falling revenue, cannabis gross margin improved to 39%. The filing credits "operating efficiencies… across our Canadian cannabis operations," a better product mix and better use of the Portugal facility.

Distribution. This European pharmaceutical wholesaler grew 14% on a 12% higher average selling price and 2% more units. It is Tilray's second-largest segment, but at an 11% gross margin it adds much less profit than its revenue suggests.

Geography. EMEA (Europe, Middle East, Africa) revenue rose 71% to $145.5 million, or 57% of the total, driven by BrewDog's UK business and distribution. US revenue fell 9% to $58.3 million and Canada fell 17% to $48.4 million. Currency was a small headwind, not a tailwind: in constant currency (at last year's exchange rates) revenue would have been $259.3 million, up 24%.

Why a better gross margin still ended in a bigger loss

Gross profit rose $20.0 million, but operating expenses rose $46.2 million. The filing attributes the increase to two things:

1. $32.0 million of operating costs that came with BrewDog and Lyphe. These included $7.4 million in salaries, $7.1 million in office costs, $5.6 million in marketing, $2.4 million in amortization and $1.3 million in rent. As a rough check, BrewDog's $55.9 million of revenue at a ~46% margin implies about $26 million of gross profit, less than the $32 million of added operating costs (which include Lyphe too). On a GAAP basis, the acquisitions did not yet cover their own overhead this quarter.
2. Last year's $15.0 million one-time gain. In Q1 FY2026 Tilray wrote off an earn-out it would have owed on the Montauk Brewing acquisition, because Montauk missed its targets. Booking that as a gain reduced last year's expenses. Without it, last year's operating result would have been about a –$12.9 million loss (–6.2% margin), so the real deterioration is from –6.2% to –9.4%, not from +1.0%.

Transaction costs ($4.8M vs. $0.4M) and restructuring ($2.4M vs. $0.9M, mostly closing the Terrapin and Hop Valley breweries) added the rest. Below operating income, an $11.2 million foreign-exchange loss compares with a $6.9 million gain a year ago. That is an $18.2 million swing that is mostly accounting revaluation of foreign-currency balances. A $3.5 million gain on retiring convertible notes partly offset it.

Takeaway: Tilray's "record revenue" is a BrewDog story. The business it owned a year ago shrank about 4%, with older US beer brands down ~18% and Canadian adult-use cannabis down 16%. Gross margins really did improve, but added overhead and a $27.8 million inventory build turned that into a $24 million operating loss and $27 million of cash burn. The useful test for the next few quarters is whether BrewDog's ~46% margin can absorb its own operating costs. Lenders evidently want to see the same thing before they test covenants again.

What the headline numbers hide

• Adjusted EBITDA vs. GAAP. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization, after excluding items management considers non-recurring or non-cash) was a positive $9.2 million. The GAAP operating loss was –$24.1 million. The ~$33 million gap is made up of $18.6 million of amortization and depreciation, $6.6 million of stock-based compensation, $4.8 million of transaction costs, $2.4 million of restructuring and $0.8 million of litigation. The release says the loss was "driven predominantly by non-cash charges." That holds for amortization, stock pay and the FX loss. Transaction and restructuring costs are real cash, though, and Tilray has reported them every year as it keeps buying and integrating businesses. Even on Tilray's own measure, adjusted EBITDA fell 10% while revenue rose 23%. The release attributes about $1.7 million of that to fuel surcharges linked to the Middle East conflict.
• Cash conversion. Operating cash flow was –$16.5 million against a –$40.0 million net loss. That looks better only because non-cash charges are large. Before working-capital changes, operations used $8.9 million, versus generating $8.4 million a year ago. Inventory rose $27.8 million ($11.7M distribution, $9.6M cannabis from higher Quebec and Portugal output, $7.5M beverage), offset by $20.4 million more owed to suppliers, mostly BrewDog's. After $10.9 million of capital spending, free cash flow was –$27.4 million, compared with –$10.6 million a year ago.
• Inventory growing faster than sales. Management calls the inventory build "anticipated as we scale for growth." But $4.3 million of the beverage increase sits in the legacy beer business, whose sales fell ~18%.
• Share dilution. The average share count rose 26% year over year (adjusted for the December 2025 reverse split). In the quarter, Tilray sold 4.6 million shares through its at-the-market program (selling stock gradually on the open market) for $22.9 million gross. It also issued 5.2 million shares to retire $24.0 million of convertible notes, and another 2.8 million shares for $12.0 million more in September. 147.8 million shares were outstanding on October 6, 2026. Existing holders own a smaller slice of the company each quarter, and a $180 million ATM program remains in place.
• Debt and the covenant waiver. At August 31, Tilray held $221.4 million of cash, restricted cash and marketable securities. Against that it owed $8.7 million of bank debt, $134.3 million of term loans and mortgages, and $64.0 million principal of 5.2% convertible notes due June 2027 (now $52 million after September's exchanges). That is roughly $14 million net cash by our arithmetic, before about $170 million of lease liabilities. The bigger flag is the Seventh Amendment to the US beer subsidiary's Bank of America credit agreement, signed October 7. Under it, the financial covenants (limits on leverage, minimum EBITDA and minimum liquidity that a borrower must meet) "will not be tested for the fiscal quarter ended August 31, 2026." It also loosens them for later quarters and blocks Tilray from drawing its $15 million revolving credit line until testing resumes. In July the same line had already been cut from $25 million. Tilray has enough cash that this isn't a liquidity crisis today. It does show that the US beer unit's earnings are below what its lenders originally required.
• Clean on impairments this time. Cannabis companies often take large goodwill write-downs. Tilray found "no such indicators" of impairment this quarter and recorded none.

Outlook

Management reaffirmed fiscal 2027 adjusted EBITDA guidance of $68–75 million. Q1's $9.2 million is only 12–14% of that range, which leaves roughly $59–66 million, or about $20–22 million per quarter, to come in Q2–Q4. Tilray says results are "typically more weighted toward the second half of the fiscal year, with results strengthening significantly in the fourth quarter" (beer's spring restocking and European summer pre-buying both land in March–May). That seasonality is real, but the required step-up is large given that Q1 adjusted EBITDA declined year over year.

What to watch next quarter (fiscal Q2, ending November 30, 2026; Tilray's 10-Q typically lands in early January):

• Legacy beer volumes vs. BrewDog margin. The first test is whether the older US brands stop declining, now that the Terrapin and Hop Valley breweries are closing. A second, larger catalyst arrives later: the Carlsberg licensing deal, under which Tilray brews and sells Carlsberg and Kronenbourg 1664 in the US, starts January 1, 2027 and would first show in fiscal Q3.
• International cannabis pricing. Germany drove growth, but $8.8 million of price compression in one quarter is large against a $16.2 million channel. Germany has also removed dried flower from statutory health-insurance coverage, which pushes those patients into self-pay.
• Cash burn and the covenant reset. Watch whether inventory starts converting to cash and whether covenant testing resumes on the amended terms. Also watch how much more stock is issued to retire the remaining $52 million of June 2027 notes.

Our read: gross margin gains in cannabis and beverage are real and specific. Below that line, though, Tilray is adding scale faster than it is adding profit, and it is paying for the gap partly with new shares. Until the legacy businesses stabilize and free cash flow turns positive, the reaffirmed EBITDA guidance is the claim to test, not the record revenue.