Tilray Brands, Inc.
Q4 2020 Earnings Call Transcript

Published: 17 Feb 2021

[Operator:]

Greetings, and welcome to Tilray's Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Raphael Gross, Investor Relations. Thank you. You may begin, sir.

[Raphael Gross:]

Good afternoon and thank you for joining us on Tilray's 2020 full fiscal year and fourth quarter earnings conference call and webcast. On with me today are Brendan Kennedy, Chief Executive Officer; and Michael Kruteck, Chief Financial Officer.

[Brendan Kennedy:]

Hello everyone and thank you for joining us. The headline as we enter today's call on investor update is that our outstanding team was able to deliver solid revenue growth for the year and the quarter and positive adjusted EBITDA in the quarter in environment that was anything but normal. Our ability to achieve these results is attribute to Tilray's relentless focused on revenue growth, operational excellence, profitability, and shareholder value. Specifically on the revenue side, we successfully pursued profitable sales growth by focusing our three core businesses, Canadian Adult Use, International Medical and Manitoba Harvest hemp foods, while significantly reducing bulk B2B sales in Canada. These efforts will get 50% year-over-year growth in our Adult Use business in Canada, excluding bulk from 2019, as we worked aggressively to introduce a variety of Cannabis 2.0 products while expanding our presence across the retail landscape. We also generated over 150% growth in our International Medical business as we grew market share in key markets, and it leveraged our international presence and infrastructure. On the operational front, we significantly reduced our cost structure to better align with market conditions. This process began before the onset of COVID-19 and consisted of right-sizing resources, significantly reducing SG&A expenses, closing High Park Gardens and increasing our operating efficiencies. While the pandemic presented unanticipated challenges, it did not hinder our progress. Through Q4 2020, we were able to achieve approximately $57 million in annualized savings compared to our Q4 2019 run rate, surpassing our original goal of approximately $40 million by 42%. Notably, however, we did not allow our cost cutting efforts to distract us from our revenue growth goals. Turning now to the detailed of our performance. For the full year 2020, we generated a 26% increase in total revenue to $210.5 million. As noted, this growth was driven by International Medical revenue, which more than doubled to $33.9 million and in growth more than 50% in our Canadian Adult Use business to $83.8 million. Along with impressive sales results, we've achieved the adjusted EBITDA goal we set earlier in the year and delivered $2.2 million of adjusted EBITDA in Q4. These types of results required dedication, commitment, and focus. I'm proud to say that Tilray -- the Tilray team demonstrated all of this and more. Our teams successfully navigated changing industry dynamics, changes in our organization and the ever-present challenges presented by COVID-19 to accomplish outstanding results during 2020.

[Michael Kruteck:]

Thank you Brendan, and thank you to everyone joining us on the call this afternoon. As a reminder, all the financial information provided today was prepared in accordance with the U.S. GAAP and is in U.S. dollars unless otherwise indicated. Before we get started, I'd like to take care of one housekeeping item. Previously, we had broken out stock-based compensation, acquisition related expenses on our income statement. In the case of stock-based compensation expense, this is now distributed on cost of sales, general and administrative, sales and marketing, and R&D expenses. As a non-cash item you will still find the total amount on the cash flow statement. In the case of acquisition related expenses, these are now included in general and administrative expenses. Now to our financial performance. As our financial performance demonstrates, we made significant progress during 2020 to transform and strengthen our business, drive solid revenue growth and deliver against our adjusted EBITDA goal. Our team around the globe has done an incredible job executing on ambitious initiatives, while also prudently managing the business through pandemic related challenges. In doing so, the entire organization came together to meaningfully grow our top line, substantially reduce our costs and noticeably improve our gross margins. Our team is prepared us for the next stage of Tilray's evolution as we look to combine the Tilray business with Aphria to create the world's largest cannabis company by revenue. Now to our year-end results. Q4 2020 total revenue of $56.6 million was up 21% compared to the same quarter last year. This consisted of robust growth in our International Medical, Adult Use and Canadian medical channels, which was partially offset by declines in our bulk and hemp product channels. Excluding bulk cannabis sales, segment revenue mix in Q4 2020 was 73% cannabis and 27% hemp compared to 57% cannabis and 43% hemp in Q4 last year and 60% cannabis and 40% hemp in Q3 2020. Excluding bulk sales, Cannabis segment revenue increased 69% to $41.2 million compared to $24.3 million in the same period last year. The increase was driven by a 191% increase in International Medical sales to $11.7 million, a 49% increase in Adult Use sales to $25.4 million and a 20% increase in Canadian medical sales to $4 million. Bulk sales were essentially reduced to zero as we planned to sell through this channel on an opportunistic basis, primarily to help manage inventory levels in certain products. As previously indicated, we will continue to focus our efforts on higher margin opportunities. The growth in Adult Use is attributable to several factors, including improved presence in retail outlets, partly due to the relationship we establish with Kindred starting in Q3 2020, the launch of our Cannabis 2.0 products starting in December, 2019 and more active management of our pricing strategies across brands, product lines and locations. In Q4, 2.0 products accounted for approximately 20% of adult use sales and this contributed to our growth in the adult use channel in part due to the introduction of new form factors, including launching our hash product in Q4 and exciting new flavors in the case of our gummy lineup. The growth in Canadian medical is mostly attributable to growth of renewal prescriptions, the launch of vapes as a medical form factor early in the year, and some increased pricing due to mix shifts in the back half of the year. As Brendan mentioned earlier, our growth in International Medical was generally attributable to solid performance at our German business, but was also complimented by strong results in our Australian market. Our Cannabis segment mix continues to evolve and Q4, 2020 was made up of 62% adult use versus 60% in Q4, 2019 and 63% in Q3, 2020, 28% international medical compared to 14% in a year ago period and 26% in Q3, 2020, 10% Canada medical versus 12% in a year ago period and 11% in Q3, 2020, and essentially no bulk sells during 2020 while they represented 14% in Q4, 2019 and 24% for all of 2019. Q4 Hemp segment revenue decreased 18% to $15.3 million compared to $18.7 million for the same period last year and $20 million in the prior quarter. The decrease was mostly due to major customer working down their inventory of Manitoba Harvest branded product as they moved to a private label strategy, compounded in part by shifting consumer behavior due to COVID-19 and the lack of clear strategic direction of the business that led to our decision to make management changes. The results of this quarter notwithstanding, we believe the Manitoba Harvest business will regain its footing in the coming quarters, and will provide a solid platform from which to further expand and grow hemp food products and also establish and grow our presence in the CBD category. On a sequential basis, excluding bulk sales, revenue increased 10% in Q4 2020 to $56.6 million from $51.4 million to Q3. Below the surface is a good news story in all Cannabis segments. International Medical grew 44% to $11.7 million; Canada Adult Use improved 27% to $25.4 million; and Canada Medical increased 24% to $4.2 million. These robust increases in sales were partially offset by a 23% decline in hemp product sales. Total kilogram equivalent sold decreased 54% to 6,830 in Q4, 2020 from 15,039 in the prior year's Q4. The decrease was primarily due to the conscious lack of bulk sales in 2020. Our average net selling price per gram of cannabis in Q4 2020 was $5.97, a 118% increase or $4.09 and the $1.88 during the same period in 2019 and a slight 2.9% decrease in our reported selling price of 615 in Q3 of this year. The increase versus 2019 was due to a continued shift in distribution channels and product mix, including growth in international medical sales, a shifting sales to higher potency and price products in the adult use market and the continued growth of Cannabis 2.0 products in Canada. The decrease from Q3 was due to accelerated sales growth of cannabis flower and products in the Canadian adult use channel during Q4. Going forward, we expect our average selling price per gram to remain stable or increase over time as sales of international medical cannabis and 2.0 products in the Canadian adult use market continue to make up a larger percentage of ourselves mix. As Brendan indicated, we expect to see additional European countries permit the use of medical cannabis in a reasonably near term, and we are positioned-well to capitalize on these opportunities. Our average cannabis cost program increased to $3.72 compared to $1.53 in the fourth quarter of 2019, and decreased from $4.23 in the third quarter of 2020. The year-over-year increase was the result of lower kilograms sold due to the discontinuation of bulk sales and partly due to increase sales of Cannabis 2.0 products which have higher costs than dried flower. The decrease in Q4 is attributable to additional realization of cost cutting measures and better absorption rates in Portugal. Recall that we stopped attributing any cost to by-product that are High Park and Portugal facilities, which in turn reduces our need to make future inventory adjustments. However, this also increases our cost per gram on the flower and derivative products that do have value. As we've previously discussed, a portion of our cost cutting average directly impacted production costs at our Canadian facilities. In addition to closing High Park Gardens, we have reduced headcounts, improved processes and enhanced our cultivation methods, which has resulted in reduced overall production costs, but also improved yields by approximately 40% at our growing facilities. With the continued expansion of 2.0 offerings in Canada adult use, we expect to see ongoing improved throughput and cost absorption at our High Park farms and High Park holdings processing facilities. In Portugal, we also expect to see ongoing improvements in our production costs as our international medical sales grow and our cultivation assets come fully online during 2021. Gross margin for Q4 2020, including inventory valuation adjustments increased to 29% from negative 121% in the same period last year and 7% during Q3 2020. Excluding inventory valuation adjustments and stock-based compensation, gross margin for Q4 2020 was 36.4%, which represented a 1,400 basis point increase from 23.1% in the year ago period and roughly 400 basis point increase from 33.4% in Q3 2020. Gross margin for Cannabis, excluding inventory valuation adjustments and stock-based compensation, increased to 36.9% in Q4 2020 from 15.5% in a year ago period and from 27.4% in Q3 2020. The sequential increase in gross margin was partly due to increased international medical sales and lower costs at our production facilities resulting from our cost cutting measures. Looking head, we expect to see continued margin expansion due to the full realization of our cost cutting measures, additional process improvements, more throughput at our facilities and better fixed cost absorption, complimented by a rational pricing strategy on the front end of our business. Gross margins for Hemp, excluding inventory evaluations and adjustments, remain flat at 35% in Q4 2020 compared to 35% in year ago quarter and 43% in Q3 2020. As previously indicated, these reductions are largely due to a major customer shift to private labels products. Going forward, we expect Hemp margins to fluctuate between the mid 30s to mid 40s as we work to offset the negative margin impacts with new distribution of higher market products. Moving to expenses. Excluding impairment charges, acquisition related expenses, net loss from equity method investments and stock-based compensation, Q4 total operating expenses were $23.8 million, a $31.4 million decrease compared to the prior year quarter and slightly below the $24.8 million in Q3 2020. These favorable expense comparisons reflect the significant progress we made over the past few quarters in aligning our cost structure with the current business environment and strengthening our position as a leaner and more efficient leader in the cannabis and hemp industries. Over the course of 2020, we eliminated close to 500 positions and achieved an annualized savings impact net of severance costs of $40.3 million. These headcount reductions combined with our already implemented efforts to achieve operating efficiencies resulted in approximately $58 million annualized cost savings versus our Q4 2019 run rate cost structure. As Brendan noted, our cost savings measure began before the pandemic, and were not in direct response to its subsequent impacts. Net loss for Q4, 2020 was negative $2.9 million or negative $0.02 per share compared to net loss of $219.2 million or negative $2.14 per share in Q4 2019 and a net loss of $2.3 million or negative $0.02 per share in the third quarter of 2020. Adjusted EBITDA for Q4 2020 was positive $2.2 million compared to the adjusted EBITDA loss of $35.6 million in Q4 last year. This was a significant achievement and as you know was a goal we established late last year. The improvement in the year-over-year adjusted EBITDA is due to our significant efforts to reduce costs, improve our operating efficiencies, improve revenue mix, and our ability to accelerate sales in key segments. On a sequential basis, our adjusted EBITDA was a $3.7 million improvement from the negative $1.5 million loss in Q3 2020. The delta is attributable to improve gross margins and reduce costs. Regarding some balance sheet activities. In November, we exchanged approximately $197.2 million in the aggregate principle amount of our 5% convertible senior notes due 2023 for approximately 17.3 million shares of our class two common stock. Following the exchange transactions, approximately $277.9 million in aggregate principle amount of the notes remain outstanding. The purpose of the transaction was to opportunistically reduce our debt and eliminate approximately $9.2 million in annual cash interest costs. We ended Q4 2020 with cash and cash equivalents of approximately $189.7 million, representing an increase of $34.5 million from $155.2 million at the end of Q3, 2020. Since December 31, holders of our warrants have exercised 12.91 million shares for proceeds of $75.4 million. As of February 16, our cash and cash equivalents stood at $261.3 million. Turning to the future. As you know, we are working to complete our business combination with Aphria and expect the transaction to close during Q2 of this year. We view this transaction as a win-win. It brings together two leaders in the cannabis industry that share a culture of innovation, brand development and quality cultivation that are positioned us strategically exploit current and future international acceptance of cannabis products. As a combined company, we intend to pursue the opportunities for accelerated growth with a leading portfolio of branded products, designed to help patients and delight consumers. We will have the balance sheet strength and flexibility to access capital on favorable terms. We will focus on delivering the identified approximately CAD$100 million pretext synergies during the first two years after the transaction closes. And we will focus on achieving attractive returns for stockholders. I'll now pass it back to Brendan.

[Brendan Kennedy:]

Thank you, Michael. Before we turn over to the call for questions, I want to take this opportunity to thank you for supporting Tilray success since our company came to life in 2013. So, let's first from that point on are numerous. We're the first GMP certified medical cannabis producer in North America, one of the first producers to be licensed by Health Canada for medical and adult use production and distribution. The first licensed producer to legally export medical cannabis from North America to Africa, Australia, Europe, and South America, and the first producer to receive cultivation licenses from the national governments of two countries, Canada, and Portugal. We also established a world-class medical advisory board, which helped to guide our research and ensure that not only was their medical product efficacious, but that we were able to help patients in real-time. We built a global production and distribution footprint, including our state-of-the-art low cost GMP certified production facility in Portugal. And we entered into industry disruptive partnerships and alliances with iconic global brands, giving us critical competitive strengths. Based on our success we were the first cannabis company to complete an initial public offering on U.S. stock exchange, which further supported and accelerated our growth. Throughout that time, the industry has evolved and advanced and the new Tilray will be ideally positioned to continue to drive forward the global cannabis market and create value for all our stakeholders. I feel immensely proud to work with and serve all of you. And I look forward to continuing to do so after the closing of the transaction as the Director of the new Tilray. Thank you. We'll now turn the call over to questions. Operator?

[Operator:]

At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Tamy Chen with BMO Capital Markets. You may proceed with your question.

[Tamy Chen:]

Hi. Thanks. Good afternoon. I just wanted to focus a bit on the recreational business. So, I just wanted to understand, it looks like from my math and correct me if I'm wrong, but it seems like the rec 2.0 sales as a percentage kind of declined a bit sequentially. So it seemed like more of the strength was in the flower side. So just was hoping for a bit more color there. In addition to the expanded distribution that you mentioned, was there some form of significant loaded of new flower products in the quarter. And how should we think about the trajectory as we look into January, February with the impact of the Ontario lockdowns? Thank you.

[Brendan Kennedy:]

Sure. Thanks, Tamy. So on the growth in terms of the product set or the distribution of products within the category, we actually saw good growth in the quarter-over-quarter Q3 on all of our products, but it was led by flower. So we saw solid growth in vapes edibles and oils across the board. So, I would say that, we didn't necessarily see decline, just that the flower grew faster. So that was the first part of your question. In terms of the, the added distribution, what we've seen is that -- and this is -- I guess it's a little bit hard because it's somewhat self-reported, but on a self-reported basis, what we're seeing is that we probably have increased our reach in the marketplace listings by about 100 -- 100 plus, 120 listings or so. And in terms of points of distribution, we're probably talking about something in excess of 1,000 to 1,250. So, I think that that's a combination of a bunch of things. It's new products and new markets. It's existing products in -- or new products in existing markets. So it's a combination. And we think that a good portion of that is, both our own team working internally and maintaining the relationships that we've got with the provincial boards, as well as the relationship that we've got with Kindred, where they've got more breadth and depth in terms of the reach that they've got, compared to the number of people that we had out in the marketplace. And then, I think for us relative to where things are in the first quarter here is that, it's kind of real-time. And I don't know that we've got true visibility quite yet. What we're seeing is that -- the provincial boards are getting more, I guess, sophisticated in their approach to carrying products and what they have on the shelf. And we're actively working with them to try and figure out for products that they want to consider discontinuing is how we replace it with something else that might be more attractive to consumers. So, I don't know that we've got a specific visibility quite yet in terms of what goes wrong means to the business. But we're actively managing it and doing what we can to go ahead and replace products that are being considered for discontinuation.

[Operator:]

Our next question comes from the line of Aaron Grey with Alliance Global Partners. You may proceed with your question.

[Aaron Grey:]

Hi. Good evening and thanks for the question. So for me, I want to just ask a quick question on Manitoba Harvest. So just having to get some more color in terms of kind of the reasoning for some of the management changes. So I realized that the down pretty good amount sequentially, you talked about a shift to private label for a large customer. We seem to weight not only on sales, but also on margin. So just want to kind of talk about maybe the overall trend that you think you're seeing there on the Hemp side. Do you think that's a trend that other customers might do going forward in terms of switching to private label that further kind of impacts the margin profile or kind of what are the changes you're hoping the new management team will to hopefully turn around that segment for you guys. Thanks.

[Brendan Kennedy:]

Looking at Manitoba Harvest historically, the company and its product have been extremely successful historically in Costco. We've seen a lot of success in Amazon and Whole Foods as well. Those are clearly our three largest customers. Looking at the move to private label at Costco, the company has always had a small private label business where for a few other customers we produce private label products. But the shift at Costco is something that certainly we've been aware of over the last two years and really the long-term objective at Manitoba Harvest is to make the other points of distribution in the United States as successful as Costco has been historically for the company and for the products. And so, that's the real opportunity. So to rephrase that, customers at Costco has historically had purchased a lot of Manitoba Harvest, Hemp food products and the objective and the opportunity that's out there is to get consumers -- customers at other U.S. retailers, whether it's Walmart or Target, Kroger to get those customers to purchase Manitoba Harvest products just like they purchase them at Costco. Michael, anything to add there.

[Michael Kruteck:]

I would just say that, our goal is with that additional distribution is to recapture the margin. I don't believe that we think a significant portion of our customers will be looking to switch to the private label, based upon the visibility that we've got right now. So, we would certainly hope that that's a branded product play. And the other piece of it is, is that I do believe that we are going to focus on building out the CBD portion of our business in a more aggressive fashion than we have. We've got a brand that we acquired with a business that we owned previously by the name of Pollen and we plan to leverage the Pollen brand in the CBD space as a go-forward product for us.

[Aaron Grey:]

All right. Great. Thank you.

[Operator:]

Our next question comes from the line of Rupesh Parikh with Oppenheimer. You may proceed with the question.

[Rupesh Parikh:]

Good afternoon. Thanks for taking my question. So, I guess, just going towards the current quarter, Q1, are you guys providing any forward commentary in terms of how you think about sales or EBITDA for the current quarter?

[Brendan Kennedy:]

Rupesh, I think if this were -- if this were not -- I mean -- but let me start out. So, I think we're really pleased with the results that we've delivered for 2020 in its entirety and specifically Q4, on the commercial side of the business, the cost side of the business, and obviously down through the EBITDA line. There obviously a lot of moving parts due to COVID, and absent a COVID environment, I think that we would probably be in a place to provide a bit more guidance. But just given all the moving parts that we've got and the unusual circumstances that we're facing, I just don't know that we can give solid guidance at this point to say that here's how we feel. Things are going to turn out over the coming quarter or quarters. We're relatively bullish on where the business sits right now, and we feel good about the progress that we've made. We feel good about the progress that we continue to make and the opportunities that are in front of us. But I just -- I don't know that we're in a position to be given a specific guidance.

[Rupesh Parikh:]

Okay. Great. I'll pass it all on. Thank you.

[Operator:]

Our next question comes from the line of Vivien Azer with Cowen and Company. You may proceed with your question.

[Steve Schneiderman:]

Hi. This is Steve Schneiderman, pinch-hitting for Vivien tonight. On the adult use side of business, which you indicated was primarily driven by flower, as well as the other product lines. But within flower, at what price point did you see the most market traction given the reset that you guys did in the third quarter? Thank you.

[Brendan Kennedy:]

Yeah. Well, I mean, I'd say, Steve and let me just pull up some information here. So, we continue to see our sales predominantly in the -- in high potency as we indicated, and our sales continue to be in the premium, the mainstream and premium segments. So, as indicated we had 60%. We did have some additional value segment sales compared to the Q3. And so we did see -- and that was primarily driven by some products on the Dubond side, just the way that we kind of characterize it. And I think that's partially driven by the fact that we rolled out the hash product in Q4, which was very well received in Quebec. In fact, I think it's considered the number one hash product in the marketplace right now. So, I'd say that that -- those were some of the driving forces behind that, but we continue to stay focused on the mainstream of premium and the higher potency products. And that's been consistent, I think now from the last quarter.

[Steve Schneiderman:]

All right. Great. Thank you guys.

[Operator:]

Our next question comes from the line of Pablo Zuanic with Cantor Fitzgerald. You may proceed with your question.

[Pablo Zuanic:]

Thank you. Brendan, if I can ask two questions here. The first one, maybe it comes across as a stupid question, but given the great quarter you had and the very good news you had on the export markets in the last month, the big gap in the valuation between Aphria and Tilray, is there room to negotiate the exchange ratio? It would seem that that would be part of the fuel sharing here. What did that just doesn't make sense at all? And then the second question related to your export markets -- and by the way, congratulations on all of the products you're making. Can you talk about stickiness in those markets? I get that you have Portugal shipments and Canada, but a lot of other companies are trying to enter those markets also, right? So talk about stickiness in terms of our repeat business and why do they go back to a brand or the sales person or the service you're providing. Thank you.

[Brendan Kennedy:]

Great. Thanks. Thanks. Pablo. I can't speak to short-term individual shareholder sentiment. Obviously, I can always speak to my perspective. And when I look across every metric, financial, operational, product, geographic reach, the new Tilray -- the combined Tilray, I think offers shareholders the greatest return. I've been in this industry for 11 years. And when I look out over the next decade, I can't identify another industry that's going to see a continual growth on a year-over-year basis. So, we're working to close the transaction on the terms proposed and announced on December 16th and that's our focus. And I can't really speculate beyond that. In terms of second question, we're finding that extremely sticky. We're seeing -- despite some new entrance into the market, we're seeing our market share grow in Germany. We've seen it grow on a quarter-over-quarter basis, really throughout the last -- throughout the last two years. And it grows because the purchase process is different, right? Patient goes to a doctor, the doctor prescribes the product, patient then goes into the pharmacy and the pharmacist distributes the product. And so, we're seeing -- I would say we're seeing more stickiness and more brand loyalty in international pharmaceutical markets then you see certainly on the adult use side in Canada. And we see that stickiness not only in Germany, but we see it in Australia and New Zealand. And I think that's part of -- that's part of the rationale behind some of the announcements that we've made over the last six to eight weeks in terms of Hormosan in Germany and probably for registration, market optimization in Portugal, the export in Spain, the agreement in the U.K. and the announcements regarding France. It's important to establish a relationship with regulators in each country. It's important to establish and educated physicians in each country, as well as pharmacists and patients. And so, I guess the short answer would have been, yes, we are seeing thickness. But we expect to continue to take market share in countries, such as Germany.

[Pablo Zuanic:]

Great. Thank you.

[Operator:]

Our next question comes from the line of Michael Lavery with Piper Sandler. You may proceed with your question.

[Michael Lavery:]

Thank you. Good evening. I just wanted to come back to the U.S. You certainly believe you're well positioned for that. And I think referred to yourselves as a clear favorite for succeeding. And I think you touched on some of the reasons why, but I'd love to understand maybe a little bit of your thinking on timing. In part maybe what you expect from regulatory reform and then a little bit related to just in terms of the timing piece of it, as far as some of the advantages you point to are things like Aphria brand, do you have any ability to be working with them at all now to do any planning? How actively are you trying to prepare for U.S. entry?

[Brendan Kennedy:]

So on the medical side, we're very active. We have-- we're one of the few companies that has performed multiple imports into the U.S. with the DEA and FDA approval. And when I say multiple, I think it's around half a dozen so far for clinical trials. And when I look at the agreements we have around the world, we have -- I think we've announced 18 countries and we shipped to 17 countries around the world. And when I look at the U.S., I think that there's going to be an opportunity to import medical cannabis, just like we -- just like we import medical cannabis to 17 other countries around the world. I think there's going to be an opportunity to import a pharmaceutical grade at GMP certified medical cannabis product for distribution in the U.S. through a more pharmaceutical supply chain. So really outside of the MSO model. And so I think that's a huge opportunity and I think it's something that's relatively few international companies are prepared to do. And there's almost no GMP product available inside of the U.S. And so that's -- I think that's a huge opportunity. It's something we are aggressively pursuing. When it comes to the adult use market in the U.S., we continue to pay very close attention to regulatory changes, new states legalizing for adult use. I think this year is going to be unique in that. You will see more states legalized through the legislative branch rather than through ballot measures and ballot initiatives. Although, I think that -- I think in November, it's a possibility that you'll see a state like Ohio legalize through a ballot measure. And then two years out, a year from this November, I think it'll be another four or five really republican states legalize adult use cannabis and medical cannabis. The key thing we're paying a close attention to in the U.S. is really the distribution model. We're seeing a battle take place right now between the existing MSOs and the tobacco companies. There's been lots of press recently about some of the lobbying that Altria has been doing in the U.S. And then thirdly, the U.S. alcohol companies. And so the big question we have is which model is it going to be in. I have a pretty strong opinion that the existing MSO adult use model is not going to be the model of the future. I think it looks more like tobacco. I think it's more like alcohol. And I also think that adult use cannabis products will cross state lines -- you will see interstate commerce. And I think that's going to be extremely disruptive to entrenched players -- extremely costly to entrenched players. And so that's what we look at. And that's what I imagine the combined company will look at when it comes time to deploy capital in the U.S.

[Michael Lavery:]

And can you touch on the timing piece of when you think that might come?

[Brendan Kennedy:]

I mean, you're asking the right question. I still think sort of that next 12 to 18 month timeline and I think it's incremental. I think you'll see a couple of steps along the way rather than one giant shift. Although, it's completely unpredictable right now. Looking at 95% of Americans believe medical cannabis should be legal, 68% believe adult use should be. And so, there's -- it's one of the few issues that have bipartisan support, certainly among the voters, but also in Congress. And so, it could be two months from now, but I'm sort of still looking at that 12-month timeline, 12 to 18 months from now.

[Michael Lavery:]

Okay. Great. Thank you very much.

[Operator:]

Ladies and gentlemen, we have reached the end of today's Q&A session. I would like to turn the call back over to Mr. Brendan Kennedy for closing remarks.

[Brendan Kennedy:]

Great. Thank you, operator. To conclude, we're proud of our Q4 results and are ready to take our business to the next phase by bringing together two cannabis industry leaders, Tilray and Aphria. The combined company will have an unmatched geographic scale, broad and deep product and brand portfolio. And we'll be able to leverage the combined strength and capabilities of both our companies to meet consumer needs and advance patient care around the world. With a strong financial profile, low-cost production, leading brands, distribution network and unique partnerships, we believe the combined company will be well-positioned to deliver sustainable, attractive returns for shareholders. I'd like to thank the Tilray team for their commitment to our mission of improving people's lives through the power of cannabis and hemp. I'd like to thank all of you for your interest in Tilray and your participation on our quarterly call. Have a pleasant evening. Thank you.

[Operator:]

Thank you for joining us today. This concludes today's conference. You may disconnect your lines at this time.