Quarterly Report for Quarter Ending August 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Unaudited Interim Consolidated Financial Statements and the related Notes thereto for the three month period ended August 31, 2026 contained in this Quarterly Report on Form 10-Q ("Form 10-Q") and the Audited Consolidated Financial Statements and the related Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended May 31, 2026, as well as in conjunction with the sections entitled "Item 1A. Risk Factors" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended May 31, 2026 and in the section entitled "Item 1A. Risk Factors" in this Form 10-Q. Forward looking statements in this Form 10-Q are qualified by the cautionary statement included in this Form 10-Q under the sub-heading "Cautionary Note Regarding Forward-Looking Statements" in the introduction of this Form 10-Q.

Company Overview

Tilray Brands, Inc., a Delaware corporation (collectively, along with its subsidiaries, the "Company", "Tilray", "we", "us" and "our"), is a leading global lifestyle consumer products company, which was incorporated on January 24, 2018 and is headquartered in Leamington and New York, with operations in Canada, the United States, Europe, Australia and Latin America that is leading as a transformative force at the nexus of cannabis, beverage, wellness, and entertainment, elevating lives through moments of connection. Tilray's mission is to be a leading premium lifestyle company with a house of brands and innovative products that inspire joy and wellness, while creating memorable experiences that bring people together.

Our overall strategy is to leverage our brands, infrastructure, expertise and capabilities to drive revenue growth in the industries and channels in which we compete, achieve industry-leading profitability and build sustainable, long-term shareholder value. In order to ensure the long-term sustainable growth of our Company, we continue to focus on developing strong capabilities in data analytics and consumer insights, drive category management leadership and assess opportunities for the introduction of new categories, products and entries into new geographies. In addition, we are relentlessly focused on managing our cost structure and expenses in order to expand margins and maintain our strong financial position. Finally, our experienced leadership team provides a strong foundation to accelerate our growth. Our management team is complemented by experienced operators, cannabis industry experts, veteran beer and beverage industry leaders and leaders that are well-established in wellness and better-for-you products, all of whom apply an innovative and consumer-centric approach to our businesses.

Trends and Other Factors Affecting Our Business

U.S. Beverage market trends:

Within the beverage category, we expect the following key trends to continue to shape the near-term outlook in this segment:

The cannabis industry in Canada continues to evolve given how nascent the industry is with federal legalization of adult-use cannabis occurring approximately eight years ago. Through analysis of the current market conditions, the following key trends have emerged and are anticipated to influence the near-term future in the Canadian cannabis industry:

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Market share. During the first fiscal quarter, we experienced a decrease in market share in Canada from 7.9% to 7.4% from the immediately preceding quarter as reported by Hifyre data for all provinces, excluding Quebec where Weedcrawler was deemed more accurate. The 50-basis point decline primarily reflected a 90-basis point decrease in the whole flower category, resulting from a planned cultivation strain rotation that temporarily impacted supply, and a 440-basis point decrease in the straight-edge pre-roll category due to an out-of-stock experienced by a componentry vendor despite maintaining a market leading position within this category. These declines were partially offset by modest increases in the vape, blunt and infused pre-roll categories as the Company continues to scale in these high-growth, ready-to-consume product formats. Despite the decline in flower market share, the Company remains focused on improving profitability within the category by prioritizing higher-margin premium brands, including Broken Coast. The Company continues to enhance its global supply chain and expand its cultivation footprint to support demand across Canadian and international markets. We have successfully optimized our Quebec cultivation facility and expect it to generate meaningful flower output in the second half of the fiscal year, which may be directed to international markets based on potential customer demand. During the fiscal quarter ended August 31, 2026, the Company opportunistically redirected approximately 1.0 Metric Tonnes to international markets, which are expected to generate higher margin sales.

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Price compression. Licensed producer consolidation has progressed more gradually than anticipated, while retailer consolidation has increased the negotiating leverage of larger retailer accounts. At the same time, consumer preferences continue to evolve. Demand is shifting toward manufactured formats such as infused pre-rolls, beverages, edibles, and vapes, reflecting a broader premiumization and convenience trend within the category. Price compression in specific categories is expected to persist in the market, intensified by fierce competition among the approximately 1,000 Licensed Producers in Canada. The fixed impact of excise tax per gram further compounds these challenges, and has promoted ongoing industry lobbying efforts.

International cannabis market trends:

We are a global leader in the development, production, distribution, marketing and sale of pharmaceutical-grade medical cannabis products. The cannabis industry in Europe is still in its early stages of development and countries within Europe are at different stages of medical cannabis legalization. Meaningful progress in the legalization and regulation of cannabis for medical purposes, has now taken place in more than 20 countries representing a population of more than 524 million people (Germany, UK, Italy, Poland, Netherlands, Czech Republic, Greece, Portugal, Austria, Switzerland, Denmark, Croatia, Malta, Luxembourg, Ukraine, Sweden, Norway, Türkiye, Ireland and Spain). Beyond this, some countries have expressed a clear political ambition to legalize adult-use cannabis (Portugal and Luxembourg), some are engaging in programs for adult-use legalization (Netherlands and Switzerland) and some are debating regulations for cannabinoid-based medicine (France). In Europe, we believe that, despite continuing recessionary economic conditions, political uncertainty in various countries and the continuing Russian conflict with Ukraine, cannabis legalization (both medicinal and adult-use) will continue to gain traction albeit more slowly than originally expected. This is evidenced by the cannabis regulations in Malta in 2021, in Czech Republic in 2026 and more concretely in Germany in 2024, which we believe will serve as a catalyst for continued changes in drug policy throughout Europe. Outside of Europe and North America, the cannabis industry is also continuing to develop with Australia and Israel representing some of the larger markets and with some Latin American countries also growing their respective medical cannabis markets, such as Argentina, Panama, Colombia and Brazil.

We continue to believe that Tilray remains uniquely well-positioned to maintain and gain significant market share in the markets in which we participate. We benefit from our end-to-end vertically-integrated infrastructure in major markets and well-placed investments, which are comprised of two EU-GMP cultivation facilities located in Portugal and Germany; our fully owned route-to-market encompassing sales, marketing and distribution infrastructure in Germany, Australia and Italy; a network of leading distributors who we work with in the various other countries in which we participate; and, our extensive genetics portfolio and demonstrated commitment and expertise related to the cultivation and production of high-quality, safe cannabis products. Tilray's International business also benefits from the depth and breadth of knowledge, experience, relationships and infrastructure we have gleaned from our leading participation and investment into the Canadian medical and adult-use markets. Tilray is proudly pioneering the effort to further understand the therapeutic value of cannabis through strategic partnerships with leading research institutions globally where Tilray is currently supporting clinical trials around the world studying the efficacy of cannabis in treating various indications. We believe that these assets and attributes, combined with our ability to navigate complex regulatory environments, will continue to drive our leadership in international medical markets and allow us to successfully enter new markets as they adopt medical cannabis and potentially adult-use regulations and may also serve to support a potential U.S. participation.

Germany. Today, Germany remains the largest medical cannabis market in Europe.

We continue to believe that Tilray is well-positioned in Germany, particularly following the enactment of MedCanG and given our domestic cultivation capabilities. Our wholly owned subsidiary, Aphria RX, was awarded the first license for the cultivation of medical cannabis in Germany by the BfArM under the liberalized regime, enhancing our ability to serve patients with high-quality products and improved availability.

Recent changes to Germany's statutory health insurance framework removed dried medical cannabis flower from the benefit entitlement under §31(6) SGB V. As a result, patients seeking to continue treatment with dried flower through the statutory system will generally be required to cover the cost privately. Standardized cannabis extracts and medicines containing dronabinol or nabilone remain eligible for reimbursement, subject to applicable requirements, including new conditions relating to prior treatment with an approved cannabis-based medicinal product. Certain implementation details and the treatment of previously approved therapies continue to be clarified.

We believe the breadth of our portfolio positions us well as these changes are implemented. Our established cannabis extract portfolio allows us to continue serving the reimbursed segment of the market, while our differentiated flower portfolio, which includes the ARX, Good Supply and Tilray Medical brands, provides a range of distinct product propositions for patients in the evolving self-pay market. Across the portfolio, we remain focused on delivering the quality, trust, safety and consistency expected from Tilray.

Poland. In Poland, cannabis was legalized for medical use in 2018 and is prescribed to patients by a physician and dispensed by pharmacies. Today, all doctors in Poland are allowed to prescribe medical cannabis and it is a self-pay market as medical cannabis is not refundable by the Polish health service. Tilray is a leading supplier of medical cannabis in Poland through our network of distributor partnerships. We predominantly supply the market with whole flower medical cannabis products.

United Kingdom. Since November 2018, doctors in the U.K. have been able to prescribe medical cannabis for medicinal use for patients with medical conditions that had failed to respond to first-line medications. The market today is predominantly all self-pay and prescriptions are facilitated by private clinics. Today, we supply the U.K. market with mainly whole flower products from brands such as Good Supply through our distributor partners with sights on growing our portfolio to extracts and other formats. The Lyphe Acquisition brings deep clinical expertise and a strong patient-first approach that immediately strengthens our capabilities in the U.K.

Ireland. In June 2019, the Minister for Health signed legislation allowing for the operation of the Medical Cannabis Access Programme ("MCAP") on a pilot basis for five years. The MCAP allows a medical consultant to prescribe a cannabis-based treatment for a narrow set of specified medical conditions, where the patient has failed to respond to standard treatment. Reimbursement is available for products which have received the appropriate approvals. Tilray was one of the first players to enter the Irish market and is one of a few suppliers which has received approval for its products to be prescribed and to have been granted reimbursement status. Today, we supply our approved extract product to Ireland through our distribution partner.

Italy. In May 2023, Tilray Medical received authorization from Italy's Ministry of Health to distribute three new medical cannabis compounds. These medical cannabis compounds are distributed by Tilray Medical Italia to pharmacies across Italy. We have an established broad national pharmaceutical distribution network in Italy, where medical cannabis is prescribed by doctors and reimbursed by the healthcare system to eligible patients. In 2025, Tilray has received additional cannabis flower and extract product authorizations and has formed a strategic partnership with Molteni Farmaceutici with the commitment to broaden the availability of Tilray Medical products for patients across Italy.

Australia. In 2016, the Australian Government legalized medicinal cannabis, which is regulated by the Therapeutic Goods Administration. Medical cannabis is prescribed by a doctor but there is no coverage under the Pharmaceutical Benefits Scheme. Tilray Medical supplies the market with a wide portfolio of medical cannabis extracts as well as whole flower products. As the market continues to mature, we have seen increased demands and differentiation specifically with medical cannabis flowers. In response, we launched the Broken Coast, Redecan and Good Supply brands and products, which provides the patient with a segmented portfolio of products while we continue to deliver on the trust, safety and consistency that has become expected from our Tilray Medical brand.

Luxembourg. Luxembourg established its medical cannabis framework in 2018, with the national program operational since February 2019. Medical cannabis is tightly regulated, accessible only through trained physicians and dispensed exclusively via hospital pharmacies. Prescriptions are limited to patients with defined, severe medical conditions, and all treatments are covered by public health insurance. In January 2025, Luxembourg updated its regulations to phase-out high-THC flower products, now permitting only balanced or high-CBD flower and oil-based extracts. This shift reflects the government's commitment to standardized, pharmaceutical-grade cannabis therapies and patient safety. Tilray Deutschland GmbH was awarded the official government tender in 2025 to supply medical cannabis flower, demonstrating our leadership in centralized procurement and compliance with Luxembourg's rigorous standards.

Portugal. Portugal legalized medical cannabis in July 2018. The regulatory framework is overseen by INFARMED, requiring Market Placement Authorization (ACM) for all non-pharmaceutical cannabis products, with strict GACP and GMP compliance. While domestic patient access remains limited due to stringent product approvals and the absence of public reimbursement, Portugal has emerged as a leading European producer and exporter of medical cannabis, supplying high-value markets such as Germany, Poland, and Australia. In 2021, Tilray received the first Authorization for Placement on the Market for dried flower, with additional product approvals in 2024, reinforcing our pioneering role in Portugal's medical cannabis sector. Our strategic investments in cultivation and manufacturing, combined with robust compliance and documentation standards, enable Tilray to deliver EU-GMP quality products to both domestic and international markets. As Portugal explores adult-use reform, we expect that Tilray's established reputation and operational excellence position us to capitalize on future regulatory developments and market expansion.

Spain. Spain introduced a formal medical cannabis framework in October 2025 (Royal Decree 903/2025), marking the first time cannabis-based treatments are systematically regulated within its healthcare system. The model is highly controlled and built around standardized cannabis preparations (magistral formulas) rather than licensed commercial products, with strict requirements on composition (THC/CBD), manufacturing quality, traceability, and pharmacovigilance under the supervision of the Spanish Medicines Agency (AEMPS).

Ukraine. Ukraine established a national medical cannabis framework in 2024, driven largely by the need to treat war-related conditions such as chronic pain and post-traumatic stress disorder (PTSD). The law (No. 3528-IX), signed in February 2024 and effective from August 16, 2024, legalized cannabis for medical, scientific, and educational purposes, removing cannabis extracts from the list of prohibited substances and enabling their cultivation, manufacturing, import/export, and dispensing under strict licensing and quota controls. The regulatory system is highly pharmaceutical in nature: products must be registered as medicines or compounded in pharmacies using approved APIs, with full traceability, security requirements (e.g. controlled cultivation environments and surveillance), and oversight by the Ministry of Health and the State Medicines Service.

Panama. Panama established its medical cannabis framework under Law 242 of 2021, with further regulatory advancements in 2026 creating a structured pathway for physician authorization and patient registration. In July 2026, Tilray Medical commercially launched Tilray Oral Solution CBD100, manufactured at our EU-GMP-certified facilities in Portugal and supplied through our joint venture: Solana Life Group. The product is intended to be distributed by prescription through Farmacias Arrocha, expanding patient access to regulated, pharmaceutical-quality cannabinoid medicine through established healthcare channels.

Brazil. Brazil has recently implemented a major overhaul of its medical cannabis regulatory framework (2025-2026), transitioning from a temporary, import-dependent model (RDC 327/2019) to a more comprehensive, pharmaceutical-grade system covering the entire value chain. The new rules adopted by ANVISA in early 2026 (notably RDC 1.012-1.015/2026) establish for the first time clear provisions for cultivation, manufacturing, research, and commercialization under strict licensing and oversight. Cannabis products are formally defined as industrialized medicinal products based primarily on CBD or CBD-dominant extracts, reinforcing a pharmaceutical approach and excluding non-medical formats (e.g. cosmetics or wellness products). The framework also introduces domestic cultivation (≤0.3% THC) for medical purposes, a regulatory sandbox for controlled pilot activities (including patient associations), and stricter GMP, traceability, and quality standards aligned with international norms.

France. France is approaching full approval of a permanent medical cannabis framework, following a multi-year pilot (2021-2026) and a prolonged regulatory process. The government has already finalized the core legal architecture, including draft decrees covering prescription, production, and distribution, which have been submitted to the European Commission and reviewed by the Conseil d'État.

The forthcoming approval is expected to introduce a highly controlled, evidence-driven model: cannabis will be prescribed only as treatment for defined conditions (e.g. neuropathic pain, epilepsy, multiple sclerosis spasticity, oncology and palliative care), using standardized pharmaceutical products (oils, capsules, possibly vaporized formats) under strict ANSM oversight. Prescription will initially remain specialist-led, with potential gradual involvement of general practitioners, and products will require full pharmaceutical compliance (quality, traceability, GMP). A critical pending step is the HAS (Haute Autorité de Santé) evaluation, expected to determine reimbursement and clinical value in late 2026, which will ultimately define real patient access. If favorable, broad patient access is targeted for 2027, positioning France as a large regulated medical cannabis market.

U.S. cannabis market trends:

In April 2026, the U.S. Department of Justice (the "DOJ") issued an order rescheduling FDA-approved cannabis products and state-licensed medical cannabis from Schedule I to Schedule III under the Controlled Substances Act. The DEA conducted an expedited administrative hearing to consider broader rescheduling. While the DOJ rescheduling order is facing legal challenges in the D.C. Circuit Court of Appeals, the only expected additional step in the proceedings was for the DEA Chief Administrative Law Judge (the "ALJ") to issue his recommendation on rescheduling to the DEA, who would then make a final determination on policy. Most recently, the ALJ granted a motion for a stay filed by certain parties who claimed that the recent Government Accountability Office ("GAO") report on drug scheduling should be entered into the record. Agreeing that it should be allowed in the record, the ALJ has requested briefing of the GAO report to be submitted in the proceedings.

As a global leader in medical cannabis, we believe we are well-positioned to participate in a federally compliant U.S. medical cannabis market, but we continue to monitor the regulatory landscape and legal challenges that are ongoing. We continue to believe that these recent efforts to reschedule cannabis from Schedule I to Schedule III under the Controlled Substances Act represent meaningful progress toward broader cannabis reform and have the potential to accelerate clinical research, broaden patient access, and support the development of a regulated, science-driven medical cannabis market in the United States.

Wellness market trends:

Tilray Wellness' branded business continues to grow across brick-and-mortar retail as well as e-commerce, which we believe further establishes its leading market share position in better-for-you categories. The Company continues to focus on value-added innovation within natural and organic food and beverages across branded and ingredient sales. We continue to participate in multiple growing categories including super-seeds, better-for-you breakfast, better-for-you snacking, as well as functional beverages and natural energy drinks. Within our Ingredients sales business, we have expanded our range of offerings in hemp protein and hemp oil, helping us further develop our business in North America and Asia.

Acquisitions, Strategic Transactions and Synergies

We strive to continue to expand our business, on a consolidated basis, through a combination of organic growth and acquisition. While we continue to execute against our strategic initiatives that we believe will result in long-term, sustainable growth and value to our stockholders, we continue to evaluate potential acquisitions and other strategic transactions of businesses that we believe complement our existing portfolio, infrastructure and capabilities or provide us with the opportunity to enter attractive new geographic markets and product categories as well as expand our existing capabilities. In addition, we have exited certain businesses and continue to evaluate certain businesses within our portfolio that are dilutive to profitability and cash flow. As a result, we incur transaction costs in connection with identifying and completing acquisitions and strategic transactions, as well as ongoing integration and restructuring costs as we combine acquired companies and continue to achieve synergies, which is offset by income generated in connection with the execution of these transactions. For the three months ended August 31, 2026, we incurred $4.8 million of transaction costs, net. For the three months ended August 31, 2025, we incurred $0.4 million of transaction costs, net. The following strategic transactions completed during the fourth quarter of fiscal year 2026 continue to have a meaningful impact on our business, growth strategy and operating results:

Carlsberg. On February 5, 2026, we entered into an exclusive licensing agreement, which commences on January 1, 2027, with the Carlsberg Group, one of the world's premier brewing organizations and among the largest globally by revenue. Under the terms of the agreement, Tilray has been granted a multi-year license to produce, market, sell and distribute Carlsberg®, Carlsberg Elephant®,1664®, and Kronenbourg 1664 Blanc® branded beers across all channels in the United States, beginning January 1, 2027. The agreement has an initial five-year term, with an automatic renewal for an additional five years subject to performance criteria.

BrewDog. Between March and April 2026, Tilray completed the Global BrewDog Acquisitions. See Note 7 (Business acquisitions) for details of the various transactions. As the only global craft beer brand, BrewDog transformed our beverage platform from a U.S. platform into a global platform and provided us with the international presence, team and capabilities to support the broader distribution of our U.S. beverage brands across key international markets, consistent with our previously disclosed ambition. In addition to the acquisition of BrewDog's global businesses, the acquisition of BrewDog U.S. furthered our regional jewel strategy in the U.S. craft beer market by providing us with a footprint in the Midwest.

Lyphe. On April 15, 2026, Tilray acquired Lyphe, a UK-based medical cannabis clinic and digital pharmacy platform. Through the Lyphe Acquisition, the Company seeks to enhance access to medical cannabis in the UK while expanding its capabilities in dispensing traditional prescription medicines, thereby creating a seamless, digitally enabled patient experience.

HelloMD. On July 10, 2026, the Company acquired HelloMD, a direct-to-patient medical cannabis platform. Through the HelloMD Acquisition, the Company expects to expand its direct-to-patient capabilities and create a fully vertically integrated medical cannabis platform in Canada.

Political and Economic Environment

Our results of operations may continue to be affected by economic, political, legislative, regulatory, legal actions, global volatility and general market disruption resulting from geopolitical tensions, such as Russia's continued incursion into Ukraine, the ongoing events in the Middle East, including the conflict involving Iran, and political uncertainty in certain countries in Europe. Escalation of hostilities in the Middle East, including Iran, could further disrupt global energy markets, fuel prices, transportation networks, and supply chains, which may indirectly impact operating costs and consumer demand. Economic conditions, such as recessionary trends, inflation, supply chain disruptions, interest and monetary exchange rates, government fiscal policies, and the recent economic uncertainties resulting from certain changes in U.S. global economic policy, including changes on global trade policies can have a significant effect on operations. More specifically, there are limited expected impacts on revenue from the recently enacted U.S. tariffs and foreign enacted retaliatory tariffs in most reporting segments. The Company is actively monitoring developments related to these tariffs, evaluating potential impacts on its business, and adapting its operations and mitigation strategies as appropriate. From a cost perspective, we believe the recently enacted tariffs have and may continue to have an impact on input materials such as aluminum, hops, barley, malt and vape componentry, which are partially imported. We intend to mitigate these impacts to the extent possible.

In addition, the recent U.S. federal regulatory developments regarding cannabis rescheduling represent a significant shift in the political and legislative environment. This evolution is expected to lead to a legitimate regulatory framework for the provision and use of medical cannabis as a therapy for a multitude of conditions and disease states, bringing U.S. drug policy in line with the drug policies of other countries around the world today. We expect that this will also lead to more research, clinical development, and education, aligning closely with Tilray's established global expertise in regulated medical cannabis markets. During fiscal 2027, the U.S. Drug Enforcement Administration conducted administrative hearings regarding the proposed transfer of marijuana from Schedule I to Schedule III under the Controlled Substances Act and it was expected that the ALJ would issue his recommendation imminently. However, in response to a motion for a stay filed by certain parties who claimed that the recent Government Accountability Office ("GAO") report on drug scheduling should be entered into the record, the ALJ granted the stay, thereby extending the hearings. We continue to monitor these developments and, with more clarity on the regulatory framework and the outcomes of the legal challenges, we intend to leverage our proven compliance infrastructure, scientific knowledge, and operational scale to expand responsibly in the U.S. market, introducing medical-grade cannabis products in targeted therapeutic formats. While these developments present significant long-term growth opportunities, they also introduce new regulatory complexities and potential risks that we will continue to monitor closely. These developments did not have any immediate impact on our financial results.

Seasonality

Certain of our reporting segments are affected by seasonal factors and, therefore, our results of operations for any interim period, including the three months ended August 31, 2026, are not necessarily indicative of the results that may be expected for the full fiscal year.

Beverage. Net revenue in our U.S. craft beer business has historically been highest in our fiscal fourth quarter, which ends on May 31^st. In that quarter, wholesalers and retailers increase their purchases and inventory levels ahead of the summer selling season and new products are introduced in connection with retailer spring shelf resets. Our fiscal third quarter has historically been our lowest quarter for beer net revenue. With respect to spirits, our business has historically benefited from purchases ahead of the winter holiday season in our fiscal second quarter and our third quarter benefits on net revenue after the calendar reset for graduated excise tax rates. We have a limited operating history with BrewDog, which we acquired in fiscal 2026 and which includes hospitality and U.K. retail operations. Its seasonal patterns may differ from those of our U.S. craft beer business.

Distribution. Our Distribution segment has historically experienced higher purchasing by wholesalers, distributors and pharmacy customers in our fiscal fourth quarter, ahead of the summer vacation period in Europe.

Cannabis. Our Canadian adult-use cannabis business has historically experienced lower net revenue in our fiscal third quarter as the winter weather moves customers away from dried flower and pre-rolls to vapes before reversing in the fourth quarter as the spring and summer months arrive. Similar to our Distribution segment, net revenue from our International medical cannabis business is historically higher due to the increased purchasing by wholesalers, distributors and pharmacy customers in our fiscal fourth quarter, ahead of the summer vacation. However, it can also fluctuate significantly from quarter to quarter due to the timing of the receipt of import and export permits, import quotas, product availability (where our cultivation experiences lower yield during the hot summer months) are impacted and regulatory developments in the jurisdictions in which we operate.

Seasonal patterns in our results may be affected, or obscured, by other factors. These include acquisitions and the integration of acquired brands, the timing of retailer shelf resets and of product launches, our portfolio and SKU rationalization initiatives, the timing of customer orders and shipments, weather, and changes in laws and regulations. As a result, period-to-period comparisons of our results may not be meaningful indicators of future performance.

Results of Operations

Our consolidated results in thousands, except for per share data, are as follows:

		For the three months ended
		August 31,				August 31,				Change				% Change
(in thousands of U.S. dollars)		2026				2025				2026 vs. 2025
Net revenue		$	257,147			$	209,501			$	47,646				23	%
Cost of goods sold			179,638				152,032				27,606				18	%
Gross profit			77,509				57,469				20,040				35	%
Operating expenses:
General and administrative			57,608				41,053				16,555				40	%
Selling			13,593				12,923				670				5	%
Amortization			6,500				3,929				2,571				65	%
Marketing and promotion			15,736				10,155				5,581				55	%
Research and development			89				41				48				117	%
Change in fair value of contingent consideration			-				(15,000	)			15,000				(100	)%
Litigation costs, net of recoveries			787				1,007				(220	)			(22	)%
Restructuring costs			2,447				869				1,578				182	%
Transaction costs, net			4,802				400				4,402				1,101	%
Total operating expenses			101,562				55,377				46,185				83	%
Operating income (loss)			(24,053	)			2,092				(26,145	)			(1,250	)%
Interest expense, net			(6,480	)			(6,696	)			216				(3	)%
Non-operating (expense) income, net			(7,773	)			3,832				(11,605	)			(303	)%
Loss before income taxes			(38,306	)			(772	)			(37,534	)			4,862	%
Income tax expense (recovery), net			1,725				(2,285	)			4,010				(175	)%
Net income (loss)		$	(40,031	)		$	1,513			$	(41,544	)			(2,746	)%

Use of Non-GAAP Measures

Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q, we discuss non-GAAP financial measures, including references to:

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adjusted EBITDA,

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cash and cash equivalents, restricted cash and marketable securities, and

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constant currency presentation of net revenue (on a segment and consolidated basis).

These non-GAAP financial measures should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with generally accepted accounting principles in the United States of America ("GAAP"). These financial measures, which may be different than similarly titled financial measures used by other companies, are presented to help investors' overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Please see "Reconciliation of Non-GAAP Financial Measures to GAAP Measures" below for reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as a discussion of our adjusted EBITDA measure and the calculation of such measure.

Constant Currency Presentation

We believe that this financial measure provides useful information to investors because it eliminates the effect that foreign currency exchange rate fluctuations may have on period-to-period comparability given the volatility in foreign currency exchange markets and therefore, provides greater transparency to the underlying performance of our consolidated net sales. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. Dollar are translated into U.S. Dollars at the average monthly exchange rate in effect during the corresponding period of the prior fiscal year rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

Cash and cash equivalents, restricted cash and Marketable Securities

The Company combines the Cash and cash equivalents financial statement line item, the restricted cash financial statement line and the Marketable securities financial statement line item as an aggregate total as reconciled in the liquidity and capital resource section below. The Company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its short-term liquidity position by combining these three GAAP metrics.

Operating Metrics and Non-GAAP Measures

We use the operating metrics and non-GAAP measures set forth in the table below to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. Other companies, including companies in our industry, may calculate operating metrics and non-GAAP measures with similar names differently, which may reduce their usefulness as comparative measures. Certain variances are labeled as not meaningful ("NM") throughout management's discussion and analysis.

		For the three months ended
		August 31,				August 31,
(in thousands of U.S. dollars)		2026				2025
Net beverage revenue		$	101,496			$	55,739
Net cannabis revenue			56,109				64,511
Distribution revenue			84,266				74,007
Wellness revenue			15,276				15,244
Beverage costs			59,489				34,413
Cannabis costs			34,087				41,241
Distribution costs			75,143				66,008
Wellness costs			10,919				10,370
Gross profit			77,509				57,469
Beverage gross margin			41	%			38	%
Cannabis gross margin			39	%			36	%
Distribution gross margin			11	%			11	%
Wellness gross margin			29	%			32	%
Adjusted EBITDA (1)		$	9,205			$	10,181
Cash and cash equivalents, restricted cash and marketable securities (1) as at the period ended:			221,390				264,828
Working capital as at the period ended:		$	376,903			$	433,508

⁽¹⁾ Adjusted EBITDA and cash, restricted cash and marketable securities are non-GAAP financial measures. See "Use of Non-GAAP Measures" above for a discussion of these Non-GAAP measures and "Reconciliation of Non-GAAP Financial Measures to GAAP Measures" below for a reconciliation of these Non-GAAP Measures to our most comparable GAAP measure and the discussion above captioned "Cash and Marketable Securities."

Segment Reporting

For the three months ended August 31, 2026 and August 31, 2025, respectively, our reporting segments net revenue was comprised of net revenues from our beverage, cannabis, distribution, and wellness operations as follows:

		For the three months ended
		August 31,				August 31,				Change				% Change
(in thousands of U.S. dollars)		2026				2025				2026 vs. 2025
Beverage business		$	101,496			$	55,739			$	45,757				82	%
Cannabis business			56,109				64,511				(8,402	)			(13	)%
Distribution business			84,266				74,007				10,259				14	%
Wellness business			15,276				15,244				32				0	%
Total net revenue		$	257,147			$	209,501			$	47,646				23	%

For the three months ended August 31, 2026 and August 31, 2025, respectively, our reporting segment net revenue on a constant currency⁽¹⁾ basis was as follows:

		For the three months ended
		as reported in constant currency(1)
		August 31,				August 31,				Change				% Change
(in thousands of U.S. dollars)		2026				2025				2026 vs. 2025
Beverage business		$	101,777			$	55,739			$	46,038				83	%
Cannabis business			56,873				64,511				(7,638	)			(12	)%
Distribution business			85,188				74,007				11,181				15	%
Wellness business			15,433				15,244				189				1	%
Total net revenue		$	259,271			$	209,501			$	49,770				24	%

(1)

The constant currency presentation of our net revenue based on reporting segment is a non-GAAP financial measure. See "Use of Non-GAAP Measures -Constant Currency Presentation" above for a discussion of these Non-GAAP Measures.

For the three months ended August 31, 2026 and August 31, 2025, respectively, our geographic net revenue was as follows:

		For the three months ended
		August 31,				August 31,				Change				% Change
(in thousands of U.S. dollars)		2026				2025				2026 vs. 2025
USA		$	58,326			$	63,961			$	(5,635	)			(9	)%
Canada			48,432				58,167				(9,735	)			(17	)%
EMEA			145,522				85,253				60,269				71	%
Rest of World			4,867				2,120				2,747				130	%
Total net revenue		$	257,147			$	209,501			$	47,646				23	%

For the three months ended August 31, 2026 and August 31, 2025, respectively, our geographic net revenue on a constant currency⁽¹⁾ basis was as follows:

		For the three months ended
		as reported in constant currency(1)
		August 31,				August 31,				Change				% Change
(in thousands of U.S. dollars)		2026				2025				2026 vs. 2025
USA		$	58,326			$	63,961				(5,635	)			(9	)%
Canada			49,338				58,167				(8,829	)			(15	)%
EMEA			146,890				85,253				61,637				72	%
Rest of World			4,717				2,120				2,597				123	%
Total net revenue		$	259,271			$	209,501			$	49,770				24	%

(1)

The constant currency presentation of our net revenue based on geographic segment is a non-GAAP financial measure. See "Use of Non-GAAP Measures -Constant Currency Presentation" above for a discussion of these Non-GAAP Measures.

As of August 31, 2026 and May 31, 2026, respectively, our geographic capital assets were as follows:

			For the three months ended
		August 31,				May 31,				Change				% Change
(in thousands of U.S. dollars)		2026				2026				2026 vs. 2025
USA		$	205,546			$	207,592			$	(2,046	)			(1	)%
Canada			237,582				245,799				(8,217	)			(3	)%
EMEA			197,861				202,598				(4,737	)			(2	)%
Rest of World			24,934				24,236				698				3	%
Total capital assets		$	665,923			$	680,225			$	(14,302	)			(2	)%

Beverage revenue

Net revenue from our Beverage segment increased to $101.5 million for the three months ended August 31, 2026, compared to revenue of $55.7 million for the prior year period. Results for the current fiscal quarter include incremental net revenues of $55.9 million associated with the Global BrewDog Acquisitions completed during the fourth quarter of fiscal 2026. Excluding the impact of the Global BrewDog Acquisitions, the year-over-year decrease was primarily attributable to continued industry-wide challenges across the craft beer, spirits, and brewpub categories and broader competitive pressures, which resulted in lower volumes sold. Notwithstanding the current market challenges, the Global BrewDog Acquisitions significantly advance our long-term beverage strategy by transforming our platform from a predominantly U.S.-focused business into a global beverage platform with established operations and infrastructure, commercial capabilities and consumer reach across key international markets, which we believe positions the segment for future growth and enhanced scale.

Cannabis revenue

For the three months ended August 31, 2026 and August 31, 2025, respectively, cannabis net revenue based on market channel was as follows:

		For the three months ended
		August 31,				August 31,				Change				% Change
(in thousands of US dollars)		2026				2025				2026 vs. 2025
Revenue from Canadian medical cannabis		$	4,717			$	6,146			$	(1,429	)			(23	)%
Revenue from Canadian adult-use cannabis			53,564				64,067				(10,503	)			(16	)%
Revenue from wholesale cannabis			673				4,155				(3,482	)			(84	)%
Revenue from international cannabis			16,237				13,367				2,870				21	%
Total cannabis revenue			75,191				87,735				(12,544	)			(14	)%
Excise taxes			(19,082	)			(23,224	)			4,142				(18	)%
Total cannabis net revenue		$	56,109			$	64,511			$	(8,402	)			(13	)%

For the three months ended August 31, 2026 and August 31, 2025, respectively, cannabis net revenue based on market channel on a constant currency⁽¹⁾ basis was as follows:

		For the three months ended
		as reported in constant currency(1)
		August 31,				August 31,				Change				% Change
(in thousands of US dollars)		2026				2025				2026 vs. 2025
Revenue from Canadian medical cannabis		$	4,804			$	6,146			$	(1,342	)			(22	)%
Revenue from Canadian adult-use cannabis			54,575				64,067				(9,492	)			(15	)%
Revenue from wholesale cannabis			685				4,155				(3,470	)			(84	)%
Revenue from international cannabis			16,252				13,367				2,885				22	%
Total cannabis revenue			76,316				87,735				(11,419	)			(13	)%
Excise taxes			(19,443	)			(23,224	)			3,781				(16	)%
Total cannabis net revenue		$	56,873			$	64,511			$	(7,638	)			(12	)%

(1)

The constant currency presentation of our Cannabis revenue based on market channel is a non-GAAP financial measure. See "Use of Non-GAAP Measures -Constant Currency Presentation" above for a discussion of these Non-GAAP Measures.

Revenue from Canadian medical cannabis: Gross revenue from Canadian medical cannabis decreased to $4.7 million for the three months ended August 31, 2026, compared to gross revenue of $6.1 million for the prior year period. On a constant currency basis, gross revenue from Canadian medical cannabis decreased to $4.8 million for the three months ended August 31, 2026. The decrease in gross revenue from medical cannabis, on a constant currency basis, was primarily driven by a reduction in the Veterans Affairs Canada reimbursement ceiling from CAD $8.50 to CAD $6.00 per gram, effective April 1, 2026, as enacted under the Canadian federal government's Budget 2025, which reduced revenue by approximately $1.0 million during the fiscal quarter. The remaining decrease was attributed to uninsured patient attrition to the adult-use recreational market.

Revenue from Canadian adult-use cannabis: During the three months ended August 31, 2026, our gross revenue from Canadian adult-use cannabis decreased to $53.6 million, compared to gross revenue of $64.1 million for the prior year period. On a constant currency basis, our gross revenue from Canadian adult-use cannabis decreased to $54.6 million for the three months ended August 31, 2026. The currency adjusted decrease in gross adult-use revenue for the three-month period was primarily driven by continued pricing pressure in the flower category, particularly within the mainstream and value segments where the Company maintains a significant market share. These decreases were partially offset by growth from innovation and recently launched products. In addition, certain inventory was redirected to international markets, which would otherwise have generated approximately $1.1 million of revenue in the Canadian market. Notably, we have continued to invest in our cultivation footprint, including the expansion of cultivation at our Quebec facility, to support demand across both Canadian and international markets. We remain encouraged by the early performance of key innovation initiatives and believe our investments in cultivation, brands and product development position the business to capitalize on future growth opportunities as market conditions evolve.

Wholesale cannabis revenue: Gross revenue from wholesale cannabis decreased to $0.7 million for the three months ended August 31, 2026, compared to gross revenue of $4.2 million for the prior year period. On a constant currency basis, gross revenue from wholesale cannabis decreased to $0.7 million for the three months ended August 31, 2026. As wholesale market dynamics evolve, we continue to evaluate opportunities to sell into the wholesale market or allocate product to international markets and other sales channels based on demand and profitability. Specifically, during the three months ended August 31, 2026, wholesale cannabis revenue declined compared to the prior year period as the Company strategically redirected product to other markets, resulting in a 70% decrease in wholesale gram equivalents sold.

International cannabis revenue: Net revenue from International cannabis increased to $16.2 million for the three months ended August 31, 2026, compared to net revenue of $13.4 million for the prior year period. On a constant currency basis, net revenue from international cannabis increased to $16.3 million for the three months ended August 31, 2026 and was primarily attributable to growth in the German medical cannabis market, which increased by $2.9 million as a result of increased patient demand. This growth was further supported by a $1.0 million increase in the United Kingdom through the Lyphe Acquisition. Despite increased gram equivalents sold, international cannabis revenue was negatively impacted by price compression of approximately $8.8 million in the quarter. Lastly, international cannabis revenue may fluctuate from quarter to quarter based upon the timing of the receipt of export/import permits as well as the timing of shipments from one quarter to the next.

Distribution revenue

Net revenue from our Distribution segment increased to $84.3 million for the three months ended August 31, 2026, compared to revenue of $74.0 million for the prior year period. On a constant currency basis, revenue from Distribution increased to $85.2 million for the three months ended August 31, 2026. The increase in Distribution revenue for the fiscal year was primarily driven by a focus on competitive pricing and product mix, as evidenced by a 12% increase in average selling price, and a 2% increase in units sold.

Wellness revenue

Our Wellness segment net revenue increased to $15.3 million for the three months ended August 31, 2026, compared to $15.2 million from the prior year period. On a constant currency basis for the three months ended August 31, 2026, Wellness segment net revenue increased to $15.4 million. Wellness net revenue remained largely unchanged, as growth from innovation and new product offerings was largely offset by lower e-commerce sales resulting from temporary supply constraints.

Gross profit and gross margin for our reporting segments

For the three months ended August 31, 2026 and August 31, 2025, respectively, our gross profit and gross margin were as follows:

		For the three months ended
(in thousands of U.S. dollars)		August 31,				August 31,				Change				% Change
Beverage		2026				2025				2026 vs. 2025
Net revenue		$	101,496			$	55,739			$	45,757				82	%
Cost of goods sold			59,489				34,413				25,076				73	%
Gross profit			42,007				21,326				20,681				97	%
Gross margin			41	%			38	%			3	%			8	%
Cannabis
Net revenue			56,109				64,511				(8,402	)			(13	)%
Cost of goods sold			34,087				41,241				(7,154	)			(17	)%
Gross profit			22,022				23,270				(1,248	)			(5	)%
Gross margin			39	%			36	%			3	%			8	%
Distribution
Net revenue			84,266				74,007				10,259				14	%
Cost of goods sold			75,143				66,008				9,135				14	%
Gross profit			9,123				7,999				1,124				14	%
Gross margin			11	%			11	%			0	%			0	%
Wellness
Net revenue			15,276				15,244				32				0	%
Cost of goods sold			10,919				10,370				549				5	%
Gross profit			4,357				4,874				(517	)			(11	)%
Gross margin			29	%			32	%			(3	)%			(9	)%
Total
Net revenue			257,147				209,501				47,646				23	%
Cost of goods sold			179,638				152,032				27,606				18	%
Gross profit			77,509				57,469				20,040				35	%
Gross margin			30	%			27	%			3	%			11	%

Beverage gross margin: For the three months ended August 31, 2026, our beverage segment generated gross margin of 41%, which increased from 38% generated in the prior year period. The increase was primarily driven by the inclusion of BrewDog, which generated a gross margin of approximately 46% and favorably impacted the segment's overall gross margin. This benefit was partially offset by lower overhead absorption resulting from reduced volume in our legacy beverage operations, as well as higher input costs, particularly for aluminum and inbound freight.

Cannabis gross margin: For the three months ended August 31, 2026, our cannabis segment generated gross margin of 39%, which increased from 36% generated in the prior year period. The increase was primarily driven by operating efficiencies realized across our Canadian cannabis operations as well as favorable product mix, together with improved utilization of our cultivation facility in Portugal as we continued to scale international production. These benefits more than offset the impact of lower revenue and price compression, particularly within international cannabis markets.

Distribution gross margin: For the three months ended August 31, 2026, our distribution segment generated gross margin of 11%, and remained consistent from 11% generated in the prior year period. The comparability was affected by a $1.3 million in the prior year for the classification of certain packing labor costs within selling expenses rather than cost of goods sold. Excluding this impact, gross margin improved, driven primarily by a favorable product mix, including an approximately 12% increase in average selling price, and lower input costs resulting from cost-reduction initiatives.

Wellness gross margin: For the three months ended August 31, 2026, our wellness segment generated gross margin of 29%, which decreased from 32% in the prior year period. Gross margin decreased as a result of an unfavorable change in sales mix away from e-commerce and organic products to non-organic and white label.

Operating expenses

During the three months ended August 31, 2026 and August 31, 2025, respectively, the changes in operating expenses were as follows:

		For the three months ended
		August 31,				August 31,				Change				% Change
(in thousands of US dollars)		2026				2025				2026 vs. 2025
General and administrative		$	57,608			$	41,053			$	16,555				40	%
Selling			13,593				12,923				670				5	%
Amortization			6,500				3,929				2,571				65	%
Marketing and promotion			15,736				10,155				5,581				55	%
Research and development			89				41				48				117	%
Change in fair value of contingent consideration			-				(15,000	)			15,000				(100	)%
Litigation costs, net of recoveries			787				1,007				(220	)			(22	)%
Restructuring costs			2,447				869				1,578				182	%
Transaction costs, net			4,802				400				4,402				1,101	%
Total operating expenses		$	101,562			$	55,377			$	46,185				83	%

Operating expenses are comprised of general and administrative, selling, amortization, marketing and promotion, research and development, change in fair value of contingent consideration, litigation costs, net of recoveries, restructuring costs and transaction costs, net. For the three months ended August 31, 2026, operating expenses increased by $46.2 million to $101.6 million when compared to $55.4 million for the prior year period. The increase was primarily driven by $32.0 million of incremental operating expenses associated with the Global BrewDog Acquisitions and the Lyphe Acquisition. The increase also reflected the absence of a $15.0 million gain from the change in fair value of contingent consideration relating to the Montauk acquisition recognized in the prior year period. These items are discussed in further detail below:

General and administrative costs

During the three months ended August 31, 2026 and August 31, 2025, respectively, the changes in general and administrative costs when compared to the prior year period were as follows:

		For the three months ended
		August 31,				August 31,				Change				% Change
(in thousands of US dollars)		2026				2025				2026 vs. 2025
Salaries and wages		$	26,108			$	21,736			$	4,372				20	%
Office and general			16,942				8,697				8,245				95	%
Stock-based compensation			6,584				5,052				1,532				30	%
Insurance			2,910				2,393				517				22	%
Professional fees			632				1,218				(586	)			(48	)%
Gain on sale of capital assets			(101	)			(241	)			140				(58	)%
Travel and accommodation			2,305				1,312				993				76	%
Rent			2,228				886				1,342				151	%
Total general and administrative costs		$	57,608			$	41,053			$	16,555				40	%

Salaries and wages increased by 20% during the three months ended August 31, 2026, when compared to the prior year period. This is primarily attributable to incremental salaries and wages of $7.4 million associated with the Global BrewDog Acquisitions and the Lyphe Acquisition completed during the fourth fiscal quarter of fiscal year 2026, as well as annual merit increases. This increase was partially offset due to a reduction of retention payments of $0.8 million compared to the prior year period.

Office and general increased by 95% during the three months ended August 31, 2026, when compared to the prior year period. The increase in the three months ended August 31, 2026 was driven by higher costs in the current year, including $7.1 million of incremental office and general expenses associated with the Global BrewDog Acquisitions and the Lyphe Acquisition completed during the fourth fiscal quarter of fiscal year 2026.

The Company recognized stock-based compensation expense of $6.6 million during the three months ended August 31, 2026, of which $0.9 million was recorded against accounts payable and accrued liabilities on the Consolidated Statements of Financial Position in connection with the Performance-Based Elective Settlement Award achieved (Note 14), compared to $5.1 million for the prior year period. Stock-based compensation expense is based on the adopted time-based vesting schedules and varies according to the assumptions used in the vesting model.

Insurance expense increased by $0.5 million for the three months ended August 31, 2026 to $2.9 million from $2.4 million for the prior year period. The increase in insurance expense for the three months ended August 31, 2026, was attributable to incremental insurance costs associated with the Global BrewDog Acquisitions.

Rent expense increased by 151% for the three months ended August 31, 2026 to $2.2 million compared to $0.9 million for the prior year period. Rent expense is predominantly comprised of operating lease expenses for our brew pubs and office spaces and varies period-over-period based on lease amortization schedules and common area maintenance costs. The increase for the three months ended August 31, 2026 reflects incremental rent costs of $1.3 million associated with the Global BrewDog Acquisitions and the Lyphe Acquisition completed during the fourth fiscal quarter of fiscal year 2026.

Selling costs

For the three months ended August 31, 2026, the Company incurred selling costs of $13.6 million or 5% of net revenue as compared to $12.9 million or 6% of net revenue in the prior year period. These costs relate to third-party shipping costs for all segments, in addition to distributor commission incurred by the cannabis segment, Health Canada cannabis fees, and patient acquisition and maintenance costs. The increase in selling costs for the three months ended August 31, 2026, was primarily attributable to $3.1 million of incremental selling costs associated with the Global BrewDog Acquisitions and the Lyphe Acquisition, as well as $1.7 million of incremental fuel and freight surcharges resulting from elevated global fuel prices and shipping disruptions associated with the ongoing conflict in the Middle East. These increases were partially offset by benefits realized from ongoing cost-saving initiatives and a change in revenue mix to lower selling cost segments.

Amortization

The Company incurred non-production related amortization charges of $6.5 million for the three months ended August 31, 2026, compared to $3.9 million in the prior year period, based on depreciable capital and intangible assets useful lives. The increase is primarily attributable to incremental amortization expense of $2.4 million associated with the Global BrewDog Acquisitions and the Lyphe Acquisition completed during the fourth fiscal quarter of fiscal year 2026.

Marketing and promotion costs

For the three months ended August 31, 2026, the Company incurred marketing and promotion costs of $15.7 million, compared to $10.2 million for the prior year period. The increase was primarily driven by $5.6 million of incremental marketing and promotion costs associated with the Global BrewDog Acquisitions, as well as variability in discretionary marketing spend.

Research and development

Research and development costs were $0.1 million during the three months ended August 31, 2026, compared to $0.0 million in the prior year period. These costs relate to external expenditures associated with the development of new products.

Change in fair value of contingent consideration

A portion of the total consideration to be paid in connection with the Company's acquisition of Montauk was contingent upon the achievement by Montauk of certain financial measures as of December 31, 2025. In the event that Montauk achieved either the pre-determined sales volume target or EBITDA target, then $15.0 million of contingent consideration would be deemed earned and payable. If both the sales volume target and the EBITDA target were achieved, an additional $3.0 million would be deemed earned and payable for a total contingent consideration payment of $18.0 million.

During the three months ended August 31, 2025, the Company reassessed the estimated fair value of the contingent consideration liability as $nil, based on subsequent information regarding Montauk's operating results and revised expectations for the remainder of the earn-out period. As a result of lower-than-anticipated sales volumes during the peak selling periods of June, July and August 2025, and the loss of certain national retail programs, management concluded that Montauk no longer had a viable path to achieving the sales volume target or the EBITDA target within the earn-out period. Accordingly, the Company applied a probability of achievement of 0% to the sales volume target and 0% to the remaining criteria. The resulting $15.0 million change in fair value of the contingent consideration liability was recorded within the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) and contributed to the Company's net income generated during the period ended August 31, 2025, despite historically reporting a net loss.

During the remainder of fiscal 2026, the earn-out period concluded and neither financial measure was achieved. Accordingly, no further changes to the fair value of the contingent consideration liability were recognized during the year ended May 31, 2026 as no contingent consideration obligation was payable.

Litigation costs, net of recoveries

For the three months ended August 31, 2026, the Company recorded $0.8 million of litigation settlements costs and third-party fees incurred in defending these claims, net of favorable recoveries compared to $1.0 million in the prior year period. The decrease is related to period-to-period variability as litigation and settlement costs are non-recurring in nature. During the three months ended August 31, 2026, the Company settled a copyright infringement litigation claim for which insurance recovery is expected. Specifically, the Company expects to receive approximately $1.0 million in insurance proceeds to offset the same amount funded for settlement of this claim.

Restructuring costs

In connection with the integration of certain acquisitions and strategic transactions, the Company has incurred restructuring and exit costs in the amount of $2.4 million for the three months ended August 31, 2026, compared to $0.9 million for the prior year period. All restructuring plans are approved at the executive level, and their associated expenses are recognized in the period in which the plan is committed or otherwise incurred.

Within the Beverage segment, restructuring activities primarily related to a business optimization plan designed to consolidate production, streamline and simplify operations, and improve the Beverage cost structure. Activities implemented under the plan included the closure of and the consolidation of volumes into certain brewery and related facilities. More specifically, in connection with our business optimization plan, we made decisions to cease production at our Terrapin facility in Athens, GA and our Hop Valley facility located in Eugene, OR, as well as executing an agreement to divest our Atwater business. Restructuring charges primarily consisted of employee termination severance and benefits, facility closure and exit costs, contract and other termination costs, costs associated with SKU rationalization activities, and other costs directly associated with the execution of the plan. As a result, during the three months ended August 31, 2026, the Company incurred $2.3 million of restructuring related expenses associated with these efforts. The Company expects these initiatives to be substantially completed by the end of fiscal 2027.

Transaction costs, net

Transaction costs, net, include acquisition related income and expenses, related legal, financial advisor and due diligence cost and expenses and transaction related compensation. For the three months ended August 31, 2026, transaction costs increased to $4.8 million from $0.4 million for the prior year period. During the three months ended August 31, 2026, transaction costs associated with the continued integration of BrewDog and Lyphe, as well as $1.1 million of professional and other fees related to the BrewDog administration process.

Interest expense, net

For the three months ended August 31, 2026, interest expense, net was $6.5 million compared to $6.7 million for the prior year period. For the three months ended August 31, 2026, interest expense, net was comprised of $0.9 million of interest income, $1.5 million of accretion of convertible debt discount, and $5.9 million of cash interest expense compared to $1.9 million, $2.0 million and $6.6 million, respectively, for the prior year period.

Non-operating (expense) income, net

During the three months ended August 31, 2026 and August 31, 2025, respectively, the changes in non-operating (expense), income were comprised of:

		For the three months ended
		August 31,				August 31,				Change				% Change
(in thousands of US dollars)		2026				2025				2026 vs. 2025
Change in fair value of warrant liability		$	-			$	(3,670	)		$	3,670				(100	)%
Foreign exchange gain (loss)			(11,234	)			6,928				(18,162	)			(262	)%
Loss on long-term investments			(27	)			39				(66	)			(169	)%
Unrealized gain (loss) on digital assets			46				(8	)			54				(675	)%
Other non-operating (losses) gains, net			3,442				543				2,899				534	%
Total non-operating income (expense)		$	(7,773	)		$	3,832			$	(11,605	)			(303	)%

For the three months ended August 31, 2026, the Company did not recognize a change in fair value of its warrants as they have been fully exercised, compared to a loss of $3.7 million in the prior year period, as a result of the change in our share price and the exercise price of the warrants. For the three months ended August 31, 2026, the Company recognized a loss of $11.2 million resulting from the changes in foreign exchange rates during the period compared to a gain of $6.9 million for the prior year period. The other non-operating (losses) gains, net were gains of $3.5 million for the three months ended August 31, 2026, compared to gains of $0.5 million for the prior year period, and primarily resulted from the exchange transaction of the TLRY 27 Notes, as described in Note 12 (Convertible debentures payable).

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. The Company calculates adjusted EBITDA as net income (loss) before income taxes, net interest expense, depreciation and amortization, purchase price accounting step-up on inventory, stock-based compensation, restructuring costs, transaction costs net, litigation costs net of recoveries, change in fair value of contingent consideration, project 420 cost savings initiatives, unrealized currency gains and losses and other adjustments.

We believe that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to the Company's results of operations and financial condition. In addition, management uses this measure for reviewing the financial results of the Company and as a component of performance-based executive compensation.

We do not consider adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of adjusted EBITDA is that it excludes certain expenses and income that are required by U.S. GAAP to be recorded in our Financial Statements. In addition, adjusted EBITDA is subject to inherent limitations as this metric reflects the exercise of judgment by management about which expenses and income are excluded or included in determining adjusted EBITDA. In order to compensate for these limitations, management presents adjusted EBITDA in connection with GAAP results.

For three months ended August 31, 2026, adjusted EBITDA decreased to $9.2 million compared to $10.2 million for the prior year period.

		For the three months ended
		August 31,				August 31,				Change				% Change
Adjusted EBITDA reconciliation:		2026				2025				2026 vs. 2025
Net income (loss)		$	(40,031	)		$	1,513			$	(41,544	)			(2,746	)%
Income tax expense (recovery), net			1,725				(2,285	)			4,010				(175	)%
Interest expense, net			6,480				6,696				(216	)			(3	)%
Non-operating (income) expense, net			7,773				(3,832	)			11,605				(303	)%
Amortization			18,638				15,561				3,077				20	%
Stock-based compensation			6,584				5,052				1,532				30	%
Change in fair value of contingent consideration			-				(15,000	)			15,000				(100	)%
Project 420 business optimization			-				200				(200	)			(100	)%
Litigation costs, net of recoveries			787				1,007				(220	)			(22	)%
Restructuring costs			2,447				869				1,578				182	%
Transaction costs, net			4,802				400				4,402				1,101	%
Adjusted EBITDA		$	9,205			$	10,181			$	(976	)			(10	)%

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, net income (loss). There are a number of limitations related to the use of Adjusted EBITDA as compared to net income (loss), the closest comparable GAAP measure. Adjusted EBITDA adjusts for the following:

●

Non-cash amortization expenses and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;

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Stock-based compensation expenses, a non-cash expense and are an important part of our compensation strategy;

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Non-cash foreign exchange gains or losses, which accounts for the effect of both realized and unrealized foreign exchange transactions. Unrealized gains or losses represent foreign exchange revaluation of foreign denominated monetary assets and liabilities;

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Non-cash change in fair value of warrant liability;

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Non-cash change in fair value of contingent consideration;

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Project 420 business optimization costs;

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Interest expense, net;

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Transaction costs, net which includes acquisition related income and expenses, related legal, financial advisor and due diligence cost and expenses and transaction related compensation, which vary significantly by transaction and are excluded to evaluate ongoing operating results;

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Restructuring charges;

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Litigation costs, net of favorable recoveries and the third party fees associated with defending these claims, including costs related to legacy and non-operational litigation matters, legal settlements and recoveries;

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Current and deferred income tax expenses and recoveries, which could be a significant recurring expense or recovery in our business in the future and reduce or increase cash available to us.

Liquidity and Capital Resources

We actively manage our cash, marketable securities and digital assets in order to internally fund operating needs, make scheduled interest and principal payments on our borrowings, and complete acquisitions. We believe that existing cash, cash equivalents, marketable securities, Bitcoin digital assets and cash generated by operations, together with access to external sources of funds, will be sufficient to meet our domestic and foreign capital needs for the short and long-term outlook.

For the Company's short-term liquidity requirements, we are focused on generating positive cash flows from operations and being free cash flow positive. Certain of our business segments, such as cannabis, are working capital intensive and have longer cash conversion cycles. In order to mitigate these effects, management continues to optimize our infrastructure, headcount, as well as the elimination of other discretionary operational costs. Additionally, the Company continues to work on improvements to the cash conversion cycles across its businesses and invest our excess cash in short-term marketable securities which are comprised of U.S. treasury bills, high grade corporate bonds and term deposits with major Canadian, European and Australian banks as well as in digital assets.

For the Company's long-term liquidity requirements, we are focused on funding operations through profitable organic growth and through acquisitions of businesses that are accretive to earnings. We may need to take on additional debt or equity financing arrangements in order to achieve this strategic plan on a long-term basis.

On April 15, 2026, the Company entered into an Open Market Sales Agreement with Jefferies LLC, TD Securities (USA) LLC and Roth Capital Partners, LLC (together, the "Agents") with respect to an at-the-market offering (the "ATM Program") under which the Company may offer and sell shares of the Company's common stock, par value US$0.0001 per share (the "Common Stock"), having an aggregate offering price of up to $180 million from time to time through or to the Agents, acting as sales agents, or directly to the Agents, acting as principals. During the three months ended August 31, 2026, the Company issued 4,645,344 shares under the ATM Program generating gross proceeds of $22.9 million. The Company paid $0.6 million in commissions and other fees associated with these issuances generating net proceeds of $22.3 million. The Company intends to use the net proceeds from the ATM Program to fund strategic and accretive acquisitions or investments in businesses and capital expenditures for acquired businesses, including potential acquisitions of assets in the U.S. and internationally in order to capitalize on expected regulatory advancements or expansion opportunities.

Additionally, we are committed to optimizing our capital structure and enhancing financial flexibility as we intend to continue to opportunistically purchase or exchange equity for the TLRY 27 Notes prior to their underlying maturity date in June 2027, subject to market conditions.

On July 24, 2026, American Beverage Crafts Group, Inc., a wholly owned subsidiary of the Company, entered into the Sixth Amendment to its Credit Agreement with Bank of America, N.A., as administrative agent, and the lenders that are a party thereto. Subsequent to the quarter ended August 31, 2026, the Company entered into the Seventh Amendment, which among other things, provides that the financial covenants will not be tested for the fiscal quarter ended August 31, 2026 and revises certain financial covenants for subsequent periods. The Seventh Amendment also limits borrowing availability under the revolving facility. For additional information, see Note 26 (Subsequent events), Part II, Item 5. Other Information and the risk factor titled, "Our access to the revolving credit facility is restricted and, if we are unable to demonstrate compliance with the applicable financial covenants in the future, the restrictions may continue and the lenders may exercise remedies that could materially adversely affect our liquidity and financial condition" in Part II. Item 1A. Risk Factors in this Form 10-Q.

As part of its capital and liquidity management strategy, the Company may, when appropriate, engage with its lenders to amend the terms of its debt arrangements, obtain waivers, or otherwise modify financing terms.

The following table sets forth the major components of our Consolidated Statements of Cash Flows for the periods presented:

		For the three months ended
		August 31,				August 31,
		2026				2025
Net cash provided by (used in) operating activities		$	(16,541	)		$	(1,341	)
Net cash provided by (used in) investing activities			(9,253	)			24,467
Net cash provided by (used in) financing activities			13,967				19,848
Effect on cash of foreign currency translation			828				188
Cash and cash equivalents, beginning of period			229,342				221,666
Cash and cash equivalents and restricted cash, end of period		$	218,343			$	264,828
Marketable securities			3,047				-
Cash and cash equivalents, restricted cash and marketable securities(1)		$	221,390			$	264,828

Within the Consolidated Statements of Cash Flows, cash and cash equivalents includes $3,383 of restricted cash as of August 31, 2026, and $nil as of August 31, 2025.

(1)

Cash and cash equivalents, restricted cash and marketable securities are non-GAAP financial measures. See "Use of Non-GAAP Measures" above for additional discussion regarding these non-GAAP measures. The Company combines the Cash and cash equivalents financial statement line item, Restricted cash and the Marketable securities financial statement line item as an aggregate total as reconciled in the liquidity and capital resource section below. The Company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its short-term liquidity position by combining these three GAAP metrics.

Cash flows from operating activities

Net cash used in operating activities was $16.5 million for three months ended August 31, 2026, compared to $1.3 million for the prior year period. Excluding the impact of changes in working capital, cash used in operations was $8.9 million compared to cash generated of $8.4 million in the prior year period, as the current period was negatively impacted by the integration of the Global BrewDog Acquisitions and continued restructuring within the legacy beverage business. Notably, the acquisition-related working capital impacts from the Global BrewDog Acquisitions recognized in the fourth quarter of fiscal 2026 did not recur, and BrewDog did not require cash funding during the quarter.

Cash used in working capital was $7.7 million for three months ended August 31, 2026, compared to $9.8 million in the prior year period. The significant components of the current fiscal quarter working capital change were as follows:

-

Accounts receivable. Accounts receivable increased by $1.3 million as higher receivables relative to sales in certain segments were offset by lower receivables in others.

-

Prepaids and other current assets. Prepaid expenses and other current assets decreased by $1.0 million, primarily due to the collection of BrewDog related receivables for customer payments held during the administration process, partially offset by annual insurance and corporate prepaid renewals.

-

Inventory. Inventory increased by $27.8 million, and was anticipated as we scale for growth and was primarily due to increases of $11.7 million in distribution inventory, $9.6 million in cannabis inventory from higher production levels in Quebec and Portugal, and $7.5 million in beverage inventory, including $3.2 million attributable to BrewDog and $4.3 million related to the legacy beverage business. These increases were partially offset by a $1.0 million decrease in wellness inventory.

-

Accounts Payable. Accounts payable increased by $20.4 million, partially offsetting the use of cash from other working capital items. The increase was primarily attributable to higher BrewDog trade payables due to improved supplier credit terms and the timing of payments and sales tax remittances.

Cash flows from investing activities

The change in net cash used in investing activities was $9.3 million for three months ended August 31, 2026, compared to cash generated of $24.5 million for the prior year period, and was primarily a result of the change in investments in marketable securities in the current periods.

Cash flows from financing activities

The change in cash provided by financing activities was $14.0 million for three months ended August 31, 2026, compared to $19.8 million for the prior year period primarily due to variability in funds related to repayments of long-term debt as well as lease liabilities.

Contingencies

In addition to the ongoing litigation matters described in the Part II, Item 1 - Legal Proceedings, the Company is and may be a defendant in lawsuits from time to time in the ordinary course of business. While the outcomes of litigation matters and claims made against the Company cannot be predicted with absolute certainty, the Company believes that it has sufficiently reserved for those matters where losses were probable and had a reasonable ability to estimate. Additionally, the Company believes the probable final outcome of such matters, after the application of reserves and insurance proceeds, will not have a material adverse effect on the Company's consolidated results of operations, financial position, cash flows or liquidity.

Critical Accounting Estimates

Our Financial Statements are prepared in accordance with U.S. GAAP. The accounting principles we use require us to make estimates and assumptions that may impact the reported amounts of assets and liabilities as of the date of the Financial Statements and amounts of income and expenses during the reporting periods presented. We believe in the quality and reasonableness of our critical accounting policies, however, materially different amounts may be reported under different conditions or using assumptions different from those that we have applied. The accounting estimates that have been identified as critical to our business operations and to understanding the results of our operations pertain to revenue recognition, valuation of inventory, valuation of long-lived assets, goodwill and intangible assets, stock-based compensation and valuation allowances for deferred tax assets. The application of each of these critical accounting policies and estimates is discussed in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in, our Annual Report on Form 10-K for the fiscal year ended May 31, 2026.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in "Part I, Item 1. Note 1 - Basis of presentation and summary of significant accounting policies" to our Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.