Tilray Brands Inc (TLRY) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Tilray's First Quarter 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your first speaker today, Mr. Raphael Gross. Thank you. Please go ahead.

Good afternoon, and thank you for joining us on Tilray's First Quarter 2020 Earnings Conference Call and Webcast. Along with me today are Brendan Kennedy, Chief Executive Officer; and Michael Kruteck, Chief Financial Officer.

Before we begin, please remember that during the course of our discussion, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events than those described in these forward-looking statements. Please refer to Tilray's reports filed from time to time with the United States Securities and Exchange Commission and Canadian securities regulators, along with the earnings press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements.

Finally, please note on today's call, management will refer to adjusted EBITDA and gross margin, excluding inventory valuation adjustments, which are non-GAAP financial measures. While the company believes that these non-GAAP measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's release for a reconciliation of each adjusted EBITDA and adjusted net loss -- to net loss and of gross margin, excluding inventory valuation adjustments to gross margin, the most comparable measures prepared in accordance with GAAP.

Now I'd like to turn the call over to Brendan.

Thank you, Raphael, and good afternoon, everyone. Today, in my prepared remarks, I will discuss our response to the COVID-19 pandemic, recent actions taken to drive significant cost reductions and efficiencies across our business, a summary of our first quarter performance, and our continued areas of focus for 2020. Afterwards, Michael Kruteck will review our quarterly results in detail.

Due to the COVID-19 pandemic impact, we are committed to leading through this unprecedented period with transparent communications, empathy and a focus on executing against elements of our business within our control. The safety and well-being of our employees, patients, customers and communities where we operate remains our top priority. We've created a COVID-19 task force at Tilray which works collaboratively with our senior leadership to actively monitor and adapt our operations to this evolving situation.

Throughout the first quarter and the week since, we have taken numerous actions to protect our employees and our business. At our operating facilities around the globe, we've enhanced safety and sanitation protocols, including physical distancing measures consistent with the recommendations of federal and local health authorities. All employees that have the ability to work remotely are doing so today and we have implemented a business continuity plan. I'm incredibly proud of our global team, which has worked together to ensure safety while minimizing potential impacts to our operations.

We continue to provide safe, high-quality products to our consumers and patients around the world. We have not seen any material changes to our supply chain related to COVID-19, with the exception of brief interruptions with provinces receiving shipments. While COVID-19 has created headwinds, we should not lose sight that legal cannabis is a net new product category and presents an enormous global growth opportunity.

Despite COVID-19 emergency orders, cannabis was recognized as an essential business in Canada, Germany, Portugal, Australia and multiple U.S. states. This validates our thesis that cannabis is a mainstream product consumed by mainstream patients and consumers. We're also seeing signs across the industry that cannabis is a countercyclical product, which we have long believed to be true. We believe that this pandemic will demonstrate that legal cannabis behaves more like a consumer staple, in other words, things people need rather than indulgent items, such as luxury products.

We have patients and customers who are depending on us to operate our business with as little disruption as possible. We remain focused on satisfying our customers and patients, and we continue to prepare for any further contingencies that may result from the pandemic.

I'll now discuss actions that we have taken to drive significant efficiencies and reduce costs across our business. Unrelated to COVID-19, at the start of the first quarter, we began implementing a comprehensive global cost-efficiency plan. We have communicated previously that we plan to drive to adjusted EBITDA profitability by the end of the year. Of course, the COVID-19 pandemic provides a level of uncertainty for Tilray and the broader industry. That said, based on what we know today, we believe that this goal is achievable, and we are executing accordingly.

Beginning in February, and as discussed during our last earnings call, we began restructuring our organization to better align with the competitive landscape by reviewing each of our operating businesses to reduce duplication and costs with a focus on generating return on capital and aligning supply with market demand.

While these changes were difficult, our success to date as one of the leading cannabis companies has been made possible by our ability to pivot and react when needed. In the long term, this will help to ensure we can manage our costs and continue to be good stewards of shareholder capital.

Throughout the first quarter, we took additional action to manage costs and drive efficiencies. In total, we estimate that we will achieve approximately USD 40 million in annualized cost savings relative to the run rate of our fourth quarter 2019. These changes are substantially complete as of today. And the most significant cost savings components include the following: First, the corporate headcount reduction; second, operational efficiencies at our cultivation sites in Canada and Portugal, including implementation of automation; thirdly, transitioning our Canadian adult-use sales to Kindred, a special cannabis brokerage. Kindred will act as our exclusive sales agent for all provinces and territories, excluding Quebec. Through this relationship, we intend to leverage their resources and brand-building services to grow our footprint across the country.

For the first quarter, there were $2.5 million of cost savings embedded within our results. The financial impact of these improvements will be more clearly realized starting in our second quarter before ramping up the full benefits in our third quarter.

We also closed 2 separate transactions during the first quarter: a $60 million debt facility and a $90 million equity raise, which Michael will address in more detail. With the steps we have taken to drive cost efficiencies and additional cash on the balance sheet, we feel that the business is on strong footing and well positioned to compete in the current market environment.

With respect to the first quarter itself, I'm pleased to report strong financial results. Revenue increased 126% year-over-year to $52.1 million. This marked our highest quarterly revenue on record and consisted of sequential quarterly growth across all of our core businesses: global medical, Canada adult-use and hemp products. Within global medical, which revenue in aggregate grew 105%, Canada medical grew 35% and international medical grew 221%, and Canada adult-use grew 165%. We believe we are well positioned to compete on the global stage with a diversified asset base and facilities and offices in Canada, United States, Europe, Australia and Latin America.

Our adult-use brands are in 11 provinces and territories today with cannabis 2.0 products in 9 regions where authorization allows. We are committed to continuing to expand distribution and market share. As we see regulation shift in certain provinces, such as Alberta and Quebec, we are well positioned to serve those markets as well.

Our medical cannabis products are available in 15 countries on 5 continents, and our hemp products are available in over 17,000 retailers in 20 countries around the world. We're the only cannabis company to had 2 GMP-certified cultivation facilities in Canada and Portugal, allowing us to serve international medical markets in an efficient manner.

We have participated in cannabis clinical trials in the United States and around the world, furthering our commitment to cannabis research and product development. Our joint venture with Anheuser-Busch InBev, the Fluent Beverage Company, was the first to launch 2 CBD-infused beverages -- beverage products in Canada. Manitoba Harvest provides us with the hemp products platform in the United States and 19 other countries around the world.

At the end of the quarter, on March 31, we announced that our Board of Directors unanimously approved the pro rata release of 11 million shares of Class II common stock held by the former equity holders of Privateer Holdings. The release took effect on April 3 and the shares released are part of the previously announced release of Tilray stock over a 2-year period. We will continue to proactively manage the release of the remaining shares. For the remainder of the year, we are focused on executing on profitable, long-term growth opportunities while continuing to drive cost efficiencies.

Our efforts and energy will be directed towards building our 3 existing businesses, which are our top priority: the Canada adult-use market, the global medical cannabis market and the global hemp products. These goals will be accomplished by continuing to expand the sales of our existing cannabis 2.0 products in Canada as well as introduce new form factors; completing the build-out of our facility in Portugal and obtaining our final GMP certification there; exporting Tilray medical products to new countries and expanding our medical cannabis product offerings in the international markets we currently serve; growing our global medical Canadian adult-use and hemp products market share and aggressively driving cost efficiencies; and finally, entering into new strategic partnerships that enable us to further accelerate our growth.

Turning to the broader industry and the markets in which we operate. Let me reiterate that there is significant demand for quality products at scale, and we are in the very early days of this industry's growth. Our revenue growth across all channels points to a paradigm shift in the use of cannabis, both as a medicine and a mainstream consumer product. And as the legal cannabis sales grow in the countries where it is already allowed, it will further the case for legalization around the world, first, for medical cannabis followed by adult use.

We've already done much of the heavy lifting by strategically investing in key markets across the global footprint to secure raw material supply, advance research and development, and build brands and relationships with patients and consumers. We are well positioned to enter new legal cannabis markets when legally permitted to do so and have a solid foundation to continue to expand our hemp foods business globally.

To conclude, we intend to win globally by building the world's most trusted and valued cannabis and hemp company, with a portfolio of best-in-class brands, supported by a multinational supply chain. I firmly believe that we have the right team, assets and strength in the balance sheet to execute on our strategy.

With that, I'd like to turn things over to our new Chief Financial Officer, Michael Kruteck, to review our financials.

Thanks, Brendan, and thanks to everyone joining us on today's call and webcast.

Please note that all of the financial information we discuss today is prepared in accordance with U.S. GAAP and is in U.S. dollars, unless otherwise indicated.

As Brendan indicated, we are very pleased with our first quarter year-over-year and sequential revenue growth and our adjusted EBITDA improvement on a sequential basis. Notably, gross margin, excluding inventory valuation adjustments, improved both sequentially and compared to the year ago period. We were also successful in strengthening our balance sheet with the closing of a $60 million debt facility and an $85.3 million net equity offering. These 2 transactions allowed us to close the quarter with $174 million in cash, a balance that will provide us with sufficient capital to focus on our path to profitability, a theme I will describe in more detail shortly.

Focusing on our quarterly results in more detail. First quarter revenue grew more than $29 million or 126% to approximately $52.1 million or CAD 70.7 million compared to the first quarter last year. This growth was largely due to increased volumes in all channels, excluding bulk, and the impact of full quarter of hemp product sales compared to a partial quarter in 2019. On a sequential basis, revenue grew 11% from the $46.9 million achieved in our fourth quarter last year. Growth was driven by a 23% increase in adult-use sales and a 14.3% increase in hemp sales, partially offset by a decline in bulk sales.

Our segment revenue mix during the first quarter was 59% cannabis and 41% hemp compared to 76% cannabis and 24% hemp in the first quarter last year. We generated 165% year-over-year revenue growth in our adult-use business or $20.9 million compared to $7.9 million in the prior year period. On a sequential basis, adult-use grew 23% over the $17 million in the fourth quarter last year.

Our international medical business revenues grew 221% to $5.8 million in the first quarter compared to $1.8 million in the year ago period and increased nearly 45% sequentially from $4 million in the fourth quarter last year. Our Canadian medical business revenues increased 35% from the prior year to $4.1 million and 21.6% sequentially.

Revenue of hemp products more than tripled compared to the partial prior year period, growing to $21.3 million from $6 million. On a sequential basis, we saw growth of approximately 14% from the $18.7 million generated in the fourth quarter of last year, driven primarily by food products.

Finally, and as previously indicated, our bulk sales fell to 0 from $4.8 million in the prior year as we focused on higher-margin opportunities. However, we may see some bulk revenue in future quarters depending on opportunistic sales and the need for inventory rebalancing.

Going a little deeper on our adult-use. Adult-use sales represented 68% of cannabis revenue in the first quarter compared to 45% in the year ago period, generally due to increased retail distribution in Canada and the introduction of new cannabis 2.0 form factors. We expect adult-use to continue to be a driver of revenue growth in future quarters. On an aggregate basis, our average net selling price per gram was $6.79 in the quarter, a change of $0.45 from Q1 2019.

Our average net selling price for cannabis flower was $5.28 or CAD 7.16 for the first quarter, a decrease of 32% or 6% from the prior year period. The average net selling price, excluding excise taxes, for adult-use was $3.49, CAD 4.73 per gram for the first quarter of 2020. The price decreases are largely due to a shift in product and channel mix over the course of the last 12 months, partially offset by the increased sales of cannabis 2.0 products during Q1 of this year. Generally, we expect our average selling price to increase over time as we increase our sales of international medical cannabis and continue to introduce no form factors in the Canadian adult-use market.

Moving on to operational metrics related to cannabis. Total kilogram equivalent sold nearly doubled to 5,794 kilograms from 3,012 kilograms in the prior year's first quarter. This growth resulted from increases in adult-use cannabis flower sales and the increase of cannabis 2.0 products. Gross margin for the quarter was 21%, a significant increase over the negative margins in the fourth quarter of 2019 and a 200 basis point decline compared to the first quarter of 2019, partially due to a write-down of approximately $4 million in the quarter.

First quarter gross margin, excluding inventory valuation adjustments, increased to 29% compared to 24% in the fourth quarter of 2019 and 28% in the first quarter of 2019. Gross margin for cannabis, excluding inventory valuation and adjustments, decreased to 20% from 23% compared to the fourth quarter of 2019, while gross margins for hemp excluding inventory valuation and adjustments decreased to 41% from 44% compared to the fourth quarter of 2019.

Going forward, we expect gross margins to increase sequentially as we see our cost reductions take hold, and we gain greater scale and benefit from positive product and channel mix, particularly in the second half of the year, with growth in international medical and cannabis 2.0 adult-use products in Canada.

Moving to expenses. Total operating expenses increased by $48.3 to $82.1 million compared to the prior year. The current year expenses included a $29.8 million noncash impairment charge primarily related to our ABG agreement. Given the uncertainty of the FDA stance on the sale of CBD products in the U.S., we concluded the near-term expectations for sales under this agreement did not support our balance sheet value. Q1 2020 operating expenses, excluding impairments and write-downs, totaled $52.3 million, and represented a 55% increase from Q1 2019. As 2020 progresses, we expect to see a meaningful decrease in operating expenses as a result of the cost savings actions Brendan mentioned earlier.

The net loss for the quarter was $184.1 million or $1.73 per share compared to the loss of $29.4 million or $0.31 per share for the first quarter of 2019. The increased loss was largely due to the impact of the change in the fair value of the warrant liability, the impairment of assets and the loss on foreign exchange attributed to the weakening of the Canadian dollar. We also saw an increase in operating expenses to support our continued growth initiatives and severance costs related to headcount reductions.

We reported an adjusted EBITDA loss of $19.7 million compared to a loss of $15.3 million in the first quarter last year. The increase in the year-over-year adjusted EBITDA loss was primarily due to increased costs in SG&A related to commercial growth initiatives and increased operating costs related to our cultivation efforts. On a sequential basis, our adjusted EBITDA loss reflected a 44% improvement from the $35.3 million loss in Q4 and was generally due to cost reductions and operational efficiencies.

Turning to balance sheet. We ended the quarter with cash and cash equivalents of approximately $174 million. During the quarter, we closed a $60 million senior credit facility on February 28 with a 2-year term and a registered offering of shares with net proceeds of $85.3 million on March 17. We believe we have sufficient capital and access to capital to manage our operations and execute our plans to achieve positive EBITDA.

While the impact of COVID-19 has created a new level of uncertainty, we remain focused on taking all actions within our control to deliver solid results in 2020 and are committed to working towards adjusted EBITDA profitability in Q4 of this year.

In reviewing cash flow for 2020, we expect our cash requirements for operating cash flow of $35 million to $45 million plus cash interest and principal payments of approximately $40 million and CapEx of $40 million to $45 million for a total of $110 million to $125 million. The CapEx number is slightly higher than originally indicated on our previous conference call, partially due to some carryover from 2019 and partially due to our efforts to finish Phase 2 of our Portuguese facility. Completing Phase 2 in Portugal as a single project is more efficient and has a better return. Due to COVID-19, however, we may experience construction delays in Portugal, which may reduce actual CapEx for the year.

Going forward, we are focused on our path to profitability. We have taken actions to be leaner and more efficient in our business, and we'll continue to evaluate our cost structure throughout the year to identify additional areas for improvement. Just as important as our cost-cutting efforts, we will continue to drive sales growth across our business. We will continue to build on our existing 2.0 products and introduce new form factors. We will introduce our supply of GMP products from Portugal into the existing and new international medical market. We will continue to expand the presence of hemp products in new retail settings, online and brick-and-mortar, and we will leverage our new relationship with Kindred Salesforce in the adult-use channel. As we strengthen our sales profile, and work to capture a sizable share of the global cannabis market, we will manage our production costs in an effort to grow gross margin sequentially and generate positive adjusted EBITDA.

To conclude, with our focus on managing costs, strengthening our balance sheet, driving growth in our key channels and markets and delivering shareholder value, we are positioning Tilray to be a leaner and more efficient leader in the cannabis and hemp food categories. We continue to believe Tilray is positioned for growth and profitability in the future as we establish ourselves as the most trusted cannabis and hemp company.

Brendan and I are now available to take your questions. Operator?

(Operator Instructions) I show our first question comes from Pablo Zuanic from Cantor Fitzgerald.

Congratulations on the results. Just if you can give some color on that 23% growth in recreational sales, how much of that was flower? How much of that was 2.0? And related to that, in the previous call, you talked about the Canadian market probably doubling this year in 2020. Are you still okay with that projection given the uncertainty around COVID?

Pablo, so we saw a -- primarily flower growth was the driver. We did see very good growth in our vapes as well as our edibles, but the primary growth was flower.

Right. And regarding the market growth projection that you gave before? I'm just trying to understand the impact from COVID in terms of overall sales. There was some pantry loading in late March. What's happening in April? Just some color about the industry, please.

Sure. Yes. So we did see a bit of a bump in March, but what we have seen is that things settled down in April so far at a level that was higher than what we were seeing in January and February. So we went through January, February, we saw an increase in March sales as a result of people probably buying in a function of COVID-19. And then what we've seen is settling in at a rate that is higher than where we were in January and February.

And just to add one point there. I think a lot of the revenue growth in terms of adult-use in Canada is really going to be dependent upon the number of retail stores that open up. Currently, we're tracking about 925 licensed retailers in Canada, licensed adult-use retailers in Canada. And the question of where do we end the year, do we end the year at 1,100 or 1,200? If we end 2020 with 1,200 retail stores opened in Canada, I think that, that doubling could prove to be accurate. What we do know is that we will continue to see adult-use growth year-over-year in Canada as more and more consumers transition from the illicit market to the legal market.

Our next question comes from Rupesh Parikh from Oppenheimer.

I just wanted to go back to expenses. So definitely a lot of progress on your expenses sequentially, especially the G&A line. So if my math is correct, I think your adjusted G&A is close to that $15 million or so range for Q1. Do you still see an ability to continue reducing the G&A line, I guess, for the balance of the year? Or I just wanted to get some more thoughts on the run rate for that line?

So yes, Rupesh, we -- while we took out a fair bit in the G&A line, that was about -- of the $40 million, probably about $30 million of that. And then nonheadcount-related is probably $10 million to $11 million. And so we're looking -- I mean we want to get the percent of revenue down to a manageable level. And so I think when you look at our Q1, we were roughly about 30 -- well 33%. If you just look at G&A, if you include the sales and marketing, which is where we took some costs out, it's 67%. And we're looking to bring that down into the high 20s, if not on some of the lines, kind of the low 20s as we go through the year. And so -- and part of that will come through COGS. We've got about $8 million that will come through COGS. And the remainder of that, of the 20 -- it's $8 million, so we get 22 -- $32 million that will come through the -- I'm sorry, of the -- excuse me, of the headcount, we see about $8 million coming from COGS and $18 million, $19 million coming through SG&A. And when we look at the G&A stuff, it's across the board. It was T&E, professional fees, public relations and a bunch of different things.

Okay. That's helpful. And then I guess switching gears to international medical, at least for us that's something been -- that's been harder to model, just given, I guess, the ramp and some of the volatility within that business. Any more color you can provide in terms of how you guys are thinking about the ramp for the balance of the year on the international medical front?

Rupesh, this is Brendan. I will start that answer and then turn over to Michael. I think one of the key milestones in Q1 is that the first time our international medical cannabis revenues exceeded our Canadian medical cannabis revenues, and that will never -- it will never go back, right? Our international medical will always be in excess of our Canadian medical cannabis revenue. And we expect that, that growth to continue on a quarter-over-quarter basis throughout the rest of this year and start next year. And so while we achieved one milestone, I think that the next milestone that I'm paying attention to is at some point over the next 3 or 4 quarters, our revenue internationally will exceed our revenue in Canada, and that will be an important milestone for us as a company.

Looking at international medical cannabis revenue in Q1, a lot of that was driven by exports not only from Canada but from our Portuguese facility, which is online. And so that growth occurred in exports from Portugal to Germany. And so we expect that trend to continue in Q2, in Q3 and Q4 of this year. Michael, maybe do you want to be a little more specific?

Yes. So when we look at our mix, just on the cannabis side of things, you look at Q1 2020 and international medical made up about 19% of that mix, and we see that growing into the, I guess, mid kind of 20% range is where we'd like to see it.

Our next question comes from Aaron Grey from Alliance Global Partners.

First question I had was just in terms of ASP for the adult-use market in Canada. I see that uptick sequentially. Can you just talk about how to kind of look at that line item over the next couple of quarters as we do start to see more of novel form factors increased in terms of mix of their sales there and just your expectation there?

Yes. So on the selling price, we're seeing that we expect to see some pretty good growth in our 2.0 products, in particular, the vapes and some more edibles as we roll out additional products. And so I would say that, that growth there should help our average selling price pretty significantly as we move through the year. We're seeing very good growth in the vapes right now. And the edibles are being taken up pretty well also. So it's really just, I think, the 2.0 form factors and we're constantly looking at our pricing to see if there's an opportunity to take some price, especially if we look at the higher potency product. But at the moment, I think it's more of the 2.0 in the adult-rec space. Where we do see the opportunity to take additional price or actually just increase the overall average selling price that we've got is through the growth of our international medical and Canadian medical, both of which we're seeing some pretty solid growth trends at the moment.

All right. Great. And just one more, if I could. In terms of your commentary on recent EBITDA positive by 4Q '20. Can you just talk about the underlying assumption of the gross margins? I believe last call, you talked about trying to reach 40% to 45% gross margins by the end of 2020. Is that still the target? And what's embedded in that expectation for reaching EBITDA positive?

Yes. So Aaron, on the gross margins, I don't know that we're necessarily calling a specific number. I think we are looking for sequential improvement in our gross margins. And that will be a function of just getting more efficient at what we're doing. As we start to produce more product in our Portuguese facility, we should see some very good leverage there. We're increasing the efficiencies in our Canadian operations and are looking for efficiencies there. The headcount and the cuts that we have recently made will show up in COGS to some degree. So I think we've got a lot of moving parts.

The one other thing that I would mention about our gross margins is that we'll probably see a little bit of pressure on them due to the fact that we're accounting for our byproduct on a 0 basis. And so I guess, historically, what's happened is that byproduct has been built up on the balance sheet, and that's why there have been significant write-offs for us as well as for, I guess, industry -- other industry players. And what we're doing is we're -- except for a few instances, we are attributing 0 value to that byproduct. So everything that we sell will have all the cost structure associated with it so that we don't have any write-offs at the end of the year. So we're essentially taking the byproduct through the P&L on an ongoing basis. So that will be a little bit of a change for us. We won't be building up that balance on the inventory on the balance sheet. And so the gross margins will be a little bit depressed as a function of that. And -- but otherwise, we do expect to see sequential growth in gross margins.

Our next question comes from Tamy Chen from BMO Capital Markets.

First question is, I just wanted a bit more color on the flower segment. Just what's driving the growth in the quarter? And where you see the competitive dynamics going forward? I think we're seeing this apparent continued shift to value, larger pack sizes. Just wanted to understand how Tilray is thinking about this. And what's this -- I mean I think you mentioned there's a supply disruption you've been seeing recently. Just wondering what that is exactly? And is that over now?

So I -- unfortunately, I don't have pack size information for you. I can try to get that and provide that to you. But I don't have that information to help you understand kind of whether that's the driver of the growth in flower right now. What I would say is that we are seeing growth in flower across all categories. Obviously, we would see more growth in flower at higher potency, if there were more available, higher potency product in the marketplace or if we were producing a bit more of it on our own. But we are seeing growth across the spectrum and the flower product.

And that goes for, I think, our medical also. We're seeing good growth in Canadian medical. In fact, I think during the COVID piece of this is that we did see some increase in patient counts, which manifests itself in increased sales as well. And again, like I mentioned earlier on the adult use is that we did see that settle into a higher level of growth in April so far compared to our January and February quarter. We saw the same thing in Germany, although it's a little bit harder to estimate that just because that market is growing pretty rapidly for us. So we are seeing good growth just across the board in flower. I'm sorry, I didn't catch your second question.

From the...

I got it, Michael. Tamy, yes, our supply chain disruptions due to COVID were pretty minimal. I mentioned at the beginning of the call, mostly around adult-use distribution in Canada, and really, that was mostly in March where some of our shipments, some of our deliveries were delayed by a few days here and there. But overall, we have not seen significant COVID-related distribution challenges in Canada or internationally in Q1 and throughout April and the first part of May.

Got it. Okay. And my follow-up is, on the German market, I think there's been sort of a change to the regulatory environment in terms of how medical cannabis would be reimbursed, that there may be a cap now. So I'm just wondering if that is indeed the case and what your expectation is with respect to how it could possibly impact pricing or growth of the market.

Yes. We don't see it significantly impacting our pricing. What is changing is some of the markets that's done at a retail level. And when I say retail, in Germany, that means pharmacies where the product is distributed to patients. In Germany, medical cannabis is normally distributed through the pharmacies and the German pharmaceutical regulations -- there were some changes to how those pharmacies can -- some limits, some caps put on the market of medical cannabis in that regulatory framework, but it should have fairly -- a favorable impact to us in terms of revenue and margin. We continue to see increasing demand in Germany and throughout Europe for medical cannabis on a month-over-month, quarter-over-quarter basis, both over the last -- since the start of the year and throughout this year.

Our next question comes from Vivien Azer from Cowen.

I hope everyone is healthy and safe. I wanted to dive in on the North American hemp business, please. We know from last year that, that business is a little bit seasonal because it's tied to school attendance, which is why you had a bit of a lighter selling period in calendar 3Q. So with kids in North America broadly not going to school right now, I'm curious on what you guys are seeing in that business, both kind of at the end of March, but also in the April because it seemed from the broader FMCG categories, in particular, food and beverage, some categories got a pantry load, and that demand has held up and other categories have seen a pantry load and then not kind of subsequent incremental demand. So any color on that would be helpful.

Yes. On a sequential basis, we saw growth, I should say hi, Vivien. Thanks for your question. On a sequential basis, we saw growth of approximately 14% from $18.7 million in Q4, almost entirely driven by food products. The -- it's hard to answer the question because we happen to be in additional Costco stores in both Canada and in the U.S. where they have something called -- at Costco something called a monthly value mailer. So we've seen significant demand for Manitoba Harvest hemp food products, not only from Costco but from Amazon in Q1. And that demand has continued into April, May. And so typically, in Q3 or in the past, we have seen a downtick in revenue for the Manitoba Harvest food products mostly due to, I guess, consumers' routines being disrupted by summer. And it's hard to know whether we will see that change this summer as a result of the disruption that's already underway.

Okay. So just to summarize, probably some portion of the growth came from Costco, but you haven't seen a material change in consumer demand patterns over the last 3 months or so?

We have not.

Our next question comes from Michael Lavery from Piper Sandler.

Welcome, Michael.

Thanks.

Just was wondering if you could give a little more color on your medium, longer-term outlook. Obviously, if you've been mindful of your capital allocation and position, you have some sort of plan. Can you maybe at least just at a high level, give us a sense of the timing for something like EBITDA positive or maybe more importantly, cash flow positive? And how far away that might be?

Yes. I mean -- thank you, Michael, for the question. I think as Brendan and I both indicated that we're focused on the Q4 period for the EBITDA breakeven or positive for 2020. And I mean given what we see today, we think that's something that is achievable. We don't know what we may see given COVID and other things in the marketplace. But our focus is squarely on trying to achieve that goal. And that's how we're operating the business. In terms of the cash flow...

Yes, right, the cash flow piece, so clarify that.

I'm sorry?

But yes, on the cash flow side, you were about to go there, sorry, I interrupted you.

Yes. I mean I don't -- I mean, look, I've been here 100 days, and I'm getting my arms around a lot of things. I don't know that I necessarily have a clear view of cash flow positive at the moment. We're working towards the EBITDA component. We are also looking at all of our CapEx. And then when we look at CapEx this year, this should be a big year that where we finish significant projects, particularly our Portuguese Phase 2. We won't see that coming in 2021. So I think we've got some pressure that comes off cash into 2021. And with the cost cuts that we've got, I think that we'll be driving hard towards trying to achieve a timely goal of cash flow positive. I just don't have the visibility that I'd kind of put out a time frame at this exact moment.

And just on the broader industry, do you have any sense of how something like COVID-19 might be impacting illicit trade? And would digital or delivery, for example, be driving share gains for the legal market?

Yes, that's something I've been thinking about a bit over the last few weeks. You could -- one could argue that Canadian consumers are -- in the time of COVID are more interested in obtaining a product from a licensed retail and a licensed producer. In that they're able to obtain the product from -- through the mail or via curbside pickup, which may lead to fewer interactions as opposed to traditional illicit transactions. Obviously, some of the illicit product -- providers in Canada do have online and they do deliver through the mail. But I think as people are concerned about quality and safety, I think that COVID may lead to a faster migration of Canadian consumers from the illicit market to the legal market. There's a lot of speculation in that statement. But it certainly seems as if that's a possibility based on sort of the revenue growth we saw in March from January and February and a continuation of that growth into April.

Our next question comes from Scott Fortune from Roth Capital Partners.

Just a little bit more color on what you're seeing in Ontario. They were wanting to bring on a fair amount of retail stores here in April. Kind of that's a key consumer access. What we're seeing in the U.S. is on the curbside and delivery, less transactions, like you meant that these are much higher transactions, but I just want to get a sense for Ontario and the ramp from a store and consumer access from that side as you view it?

We're seeing continued licensing. We track them on a provincial basis. And right now, we're looking at roughly 56 licensed retailers in Ontario, which is a significant growth trend where they -- where Ontario ended the year last year. And we expect that growth to continue throughout the remainder of the year. And the question will be, so where do we end up in terms of end of this year, in terms -- in the number of adult-use retailers that open up? And last year, we were basing our model on somewhere between 800 to 1,200 being open at the end of 2020. And it looks like barring some issue with COVID at the end of the year, it looks like we'll end up at the end of this year somewhere between 1,100 and 1,250, which I think will be positive for the growth of adult-use market in Canada.

Okay. Great. And just a follow-up, if you get 1,100, 1,200, then that makes you're getting to adjusted EBITDA positive pretty much on track from that standpoint? Less would make it a little more difficult. Is that kind of how you guys are looking at it?

That's exactly right. We were looking last year. It would be challenging to get there, if we ended 2020 with 800 stores or 900 stores open in Canada. It makes it a bit easier if we end 2020 somewhere around 1,100, 1,200 stores. That's one of the key drivers for us. The other key driver for us is continued international growth and the ability to ship products from our facility in Portugal to other countries around the world.

Our next question comes from Andrew Carter from Stifel.

I just wanted to ask because you've kind of alluded to kind of the market, the big surge in March and then kind of returning to normal levels in April and March. Is that what you're seeing kind of on the shipment side of things, are provinces kind of are -- in lockstep with where they were in the quarter kind of matching that consumption? Or are they reducing inventory levels? And I know there are some closures, but have they increased the order size? Can you help us understand that?

Yes. So we saw April up significantly from January, February but March up even more from January, February. And a lot of that was driven by both consumer and patient essentially stockpiling pantry loading in Canada. In the midst of all of that, I think that the Canadian distributors, primarily Crown Corporation decided to roll out cannabis 2.0 products really differently from the way that they rolled out cannabis 1.0 products in October of 2018. So what do we mean by that? What I mean is that in October 2018, a lot of the provinces faced really large orders and wanted the products in stock and inventory. This time around, they placed smaller orders, but they placed them much more frequently. And many times in December, January, we were getting a second order from a province almost essentially as soon as we shipped the first order. And so the frequency of their purchases has increased significantly, which is really different from how they were managing their supply chain during first go-around a little over a year ago.

Okay. And then to that point, you've shown up a pretty robust suite of products and only a handful of producers can say that. Are you seeing the provinces increase their order sizes for you? Obviously, the frequency is kind of a burden on your supply chain. And do you needed to go back to like higher orders, less frequent in order to achieve kind of that more profitable Canadian template?

Yes, I think we -- I think that they -- well, actually, there were a couple of stories around products that the provincial buyers bought that didn't sell. And so some of our peers had issues with returns. So they were looking to avoid that this go-around. And they're also looking to see who was actually going to be able to deliver on their promises. And so we produced a wide range of cannabis 2.0 products from teas and chocolates to date. And we were learning -- or part of what happened in Q1 is we were learning along [tracks], right? We were learning what Canadian consumers were interested in, which form factors, which flavors, which products. And I think that led to the buyers buying the way that they bought. The frequency -- as the frequency has increased and the retailers are getting more sell-through information, I think we may see some of the quantities increase throughout the rest of the year. But I think that the buyers were just trying not to get -- not to get burned or place the wrong bet this go-around as opposed to what happened 1.5 years ago.

Our next question comes from Graeme Kreindler from Eight Capital.

Brendan, I wanted to follow up on the comment you made about Tilray looking to pursue new partnerships. I was wondering if you could provide some more detail on what specific verticals you're looking at, what stage discussions are at right now? And how the talks in general, have they changed at all in terms of what's being discussed or what's being prioritized now versus the way you might have had those discussions about 1 year or 2 ago?

Yes, I think Constellation's entry into the industry and Altria's entry into the industry over how you look at it 2 years ago, 1.5 years ago. I think it scared a lot of people generally in beverage, tobacco, CBD space. And so the conversations a year ago were much more -- they're much more educational, so a lot of the meetings we had, we were educating some pretty large companies about the cannabis industry. And they were -- they tended to be in a bit of panic in trying to understand this industry in a hurry. That wasn't the case with Anheuser-Busch InBev -- AB InBev, they started looking at the industry early. And in our first conversation with them and when we announced the Fluent joint venture, it took about a year. So they had a really patient methodical approach.

I would say that generally today, companies in -- Fortune 500 companies that are looking to enter the industry are taking a much more methodical approach and that means lots of meetings, lots of due diligence, lots of tours. I also -- I think that 1.5 years ago, the valuations of companies within this industry and the volatility scared off a lot of those Fortune 500 companies. And the more realistic valuations today have peaked their interest more.

I guess my final point would be, we're seeing more interest from international partners who are looking at other CBD products in certain countries, medical, pharmaceutical products, compounding products in certain regions of the world. And so a lot of the conversations we're having today are focused on international markets, not domestic markets to Canada.

Okay. I appreciate the color there. And then just as a follow-up question, just to dig a bit deeper in terms of the sales increases seen in the hemp segment here. Just wondering if you could -- it sounds like most of that growth there was driven on the food side. I was wondering if you could just give us a bit of an update on how things are progressing on the CBD side. You obviously know that there is a challenged regulatory environment in the United States right now with respect to those products, but just wondering if you saw any sort of interesting trends or significant movement quarter-over-quarter?

Yes. I enjoy predicting how this industry is going to change over time. What is challenging -- what I've learned challenging is predicting anything involving the FDA. And so our strategy for the U.S. is focused around building a portfolio of trusted CBD brands in states where we're legally permitted to do so. And we feel that we're ready to address the federal CBD market once further clarity is provided by the FDA. But it's really difficult to know today when that opportunity will become a reality in the U.S. I think that a lot of it will depend on what happens with the election in November.

I think one of the disappointments around what's happened over the last quarter is that a lot of the ballot initiatives in individual U.S. states, primarily Red Republican states, they can be really difficult to collect ballot initiative signatures. And so I think we're going to see fewer states have successful ballot initiatives in November. But I think overall, it would be interesting to see how presidential candidates address both CBD, I guess -- CBD legalization, medical cannabis legalization and legalization for adult use in the U.S. between now and November.

Our next question comes from Glenn Mattson from Ladenburg and Thalmann.

I realize it's late in the call, so I'll try and be quick. But just one quick one on the cash balance as it stands. Should you achieve your guidance results as far as cash burn and CapEx and the money you spent on interest and debt payment and things like that. Were you to stand at the end of the year at that level of cash that, that math would project out to, is that a level that you're comfortable with? Or do you feel like the business needs to have more capital as you go into 2021?

Glenn, so I think that the cash balance will be partially dependent upon how much we access the ATM. We have $258 million left on the ATM. And depending upon how much of that we choose to access will kind of determine where we end up with the cash balance at the end of the year and then what that looks like into 2021.

Okay. Great. One more quick one, if I could. I guess maybe as I look at my model and I think about this year, it would appear that perhaps have to lean a little more on revenue growth from international medical. Could you give us a sense -- can you say what you think your market share maybe is in international medical? And would you expect your growth this year to come from further market share gains? Or would it be -- maybe you have a projection about what that German market can grow at this year? Just some color around that, and that would be it for me.

It's really hard to predict market share in Germany today. What we are seeing is that there aren't a whole lot of products in the market today. And 2 of our competitors there essentially don't have much product to be found due to some supply constraints on their side. But we do expect revenue growth internationally on a quarter-over-quarter basis throughout the year. The bulk of that being in Germany, although we see continued growth in Australia, New Zealand, Latin America, and some small growth, but early growth in other EU countries.

Our last question comes from Michael Hickey from Benchmark Company.

Curious first on retail pricing across major product categories. How that's comparing between legal and illegal retail shops, if there's still a big discrepancy there or not? I'm wondering how perhaps recessionary pressures on consumers here could impact the mix between legal or illegal shops? And then I have a follow-up.

So we're seeing some pricing compression on whole flower in Canada, especially on the lower and mid potency flower products, and that is being countered a bit by some strength, some support on high potency flower products as well as the 2.0 products. I think that -- I think one of the things we've learned in Q1 is that adult-use cannabis and medical cannabis internationally and in Canada that is more like a consumer staple and less like a luxury product. And cannabis, medical cannabis may be countercyclical. But I think that it's hard to answer your question because if the economic issues were caused by something other than a health issue, I think you might see people migrate back to an illicit market. But in the midst of a global health pandemic, so far, we haven't seen that. I think because consumers, patients are trying to be as healthy as possible and are looking for high-quality, safe products rather than untested, unregulated products that come from the illicit market and are also obtained through an illicit transaction.

Okay. But on the health side, you're not seeing a mix shift away from vape or flower, right? You're seeing sort of the opposite. I mean, intuitively, you think if that was a concern, you wouldn't want to be inhaling smoke into your lungs or vape?

Yes. We haven't seen that yet -- or haven't seen it. We have seen strength in the other form factors. So things like teas and edibles and chocolates, but haven't seen concerns with flower and vape at this point.

Okay. Last question. On the premium flower side, what's the highest potency that you're getting to retail? And what's your best-selling strain?

The highest potency in Q1 that we got to retail, I believe it was 20 -- somewhere between 25% and 26%. And that's a strain called Rockstar.

Nice. And is that your best-selling strain?

It's not by volume. But as soon as we have it, it sells out quickly.

This concludes our Q&A session. At this time, I'd like to turn the call back over to Mr. Brendan Kennedy, CEO, for closing remarks.

Thank you. I'd like to thank our dedicated employees and team members for all their hard work, improving patient and -- patients and consumers' lives through the power of cannabis and hemp. I appreciate -- we appreciate everyone's questions and participation on today's call. Have a great evening.

Ladies and gentlemen, thank you for attending today's conference call. This concludes our call today. You may now disconnect.