Mr. Tim Conder reports

TILT HOLDINGS REPORTS FOURTH QUARTER AND FULL YEAR 2023 RESULTS

Tilt Holdings Inc. has released its financial and operating results for the three and 12 months ended Dec. 31, 2023. All financial information is reported in U.S. dollars and prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) unless otherwise indicated.

"It has been less than one year since my return to Tilt, and we have made foundational progress in that time," said Tilt's chief executive officer, Tim Conder. "Despite the many challenges we faced throughout the year, our team has meaningfully improved operating efficiency, reduced operating expenses and begun to restructure our debt to strengthen our balance sheet. Further, we have executed a refined brand partnership strategy in our plant-touching business, and now offer a more concentrated portfolio of strong, inhalation-focused brands that better align with our Jupiter hardware platform.

"In the fourth quarter, we experienced one of the largest periods of order volume in Jupiter's history ahead of Chinese New Year. To support this volume and in anticipation of future growth, we came to an agreement with our primary supplier, Smoore Technology Ltd., to expand our trade payable line and provided a guarantee to secure the continued shipment of product on credit, which is necessary to meet our customer needs and grow our business. A portion of these Chinese New Year orders were delivered in the first quarter of 2024, which negatively impacted revenue and profitability for the fourth quarter of 2023. Nevertheless, demand for Jupiter products remains strong and the opportunity for hardware sales in North America and beyond is growing.

Mr. Conder continued: "Our cost savings efforts and right-sizing initiatives have led to approximately $8-million in annualized savings in 2023 as compared to 2022. We now have a more efficient operating structure in place that will enable us to shift our attention from cost savings to revenue growth in 2024. We have a great team, and it has been exciting to execute on our plan together in 2023 and see their alignment around our refined vision come into focus for 2024 and beyond."

Q4 2023 financial summary

• Revenue was $37.5-million in the three months ended Dec. 31, 2023, compared with $44.3-million in the prior-year period. The expected decrease in revenue was primarily attributable to the timing of Jupiter order shipments from Smoore, a portion of which was recovered in the first quarter of 2024.
• Gross profit was $3.6-million and gross margin was 9.5 per cent in the three months ended Dec. 31, 2023, compared with $8.3-million or 18.8 per cent of revenue in the prior-year period. The decrease in gross profit was primarily driven by non-cash inventory adjustments, product mix in Jupiter, and lower pricing in Massachusetts and Pennsylvania.
• Adjusted gross margin (non-GAAP), or gross margin excluding non-cash inventory adjustments, in the three months ended Dec. 31, 2023, was 14.1 per cent compared with 18.8 per cent in the prior-year period.
• Net loss was $22.0-million in the three months ended Dec. 31, 2023, compared with a net loss of $73.1-million in the prior-year period. These results include a non-cash impairment charge of $7.5-million in the fourth quarter of 2023, as well as a $54.6-million (non-cash) impairment charge in the fourth quarter of 2022. Adjusted net loss (non-GAAP), which excludes non-cash impairment charges, was $14.5-million compared with adjusted net loss (non-GAAP) of $18.5-million in the prior-year period.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (non-GAAP) was $(1.6)-million in the three months ended Dec. 31, 2023, compared with $(400,000) in the prior-year period. The decrease was primarily driven by lower sales related to the timing of Jupiter order shipments.

Q4 2023 and recent operational highlights

• Partnered with Edie Parker, a nationally recognized, female-founded and operated lifestyle cannabis brand, to launch and distribute their products in Pennsylvania.
• Announced on Jan. 31, 2024, the company entered into a debt and security agreement, Guaranty, and related collateral security documents with Smoore to expand the company's existing trade payable credit line. The company is currently working with its noteholders on a forbearance agreement to assist the company in achieving the short-term goal of placing the Smoore trade payable on a more sustainable footing.
• Launched a hardware partnership with Travis Barker's new cannabis company, Barker Canna Co., to sell products including live rosin and full-gram rechargeable all-in-one vaporizers featuring unique flavour and strain combinations.
• Announced the mass market launch of THREDZ, a stackable cartridge that prioritizes portability and personalization, allowing consumers to blend two oil cartridges to create the perfect fusion, and a customized experience.
• Partnered with Level, a leading pressed tablet brand in California, to launch the brand in Pennsylvania in the coming weeks and Massachusetts later in the year.

FY 2023 financial summary

• Revenue was $166.0-million in the 12 months ended Dec. 31, 2023, compared with $174.2-million in the prior year. The decrease was primarily driven by the aforementioned order shipment timing and lower average price in certain Jupiter product lines.
• Gross profit was $24.4-million in the 12 months ended Dec. 31, 2023, or approximately 14.7 per cent of revenue, compared with $38.2-million or 21.9 per cent of revenue in the prior year. The decrease in gross profit was primarily driven by non-cash inventory adjustments and lower pricing in the Massachusetts and Pennsylvania cannabis markets.
• Adjusted gross margin (non-GAAP), or gross margin excluding non-cash inventory adjustments, in the 12 months ended Dec. 31, 2023, was 19.2 per cent compared with 21.9 per cent in the prior year.
• Net loss was $62.4-million in the 12 months ended Dec. 31, 2023, compared with a net loss of $107.5-million in the prior year. The improvement in net loss was primarily driven by a decrease in operating expenses predominantly due to a reduced non-cash impairment loss compared with the prior year, partially offset by the decrease in gross profit. Adjusted net loss (non-GAAP), which excludes non-cash impairment charges, in the 12 months ended Dec. 31, 2023, was $51.2-million compared with adjusted net loss (non-GAAP) of $45.3-million in the prior year.
• Adjusted EBITDA (non-GAAP) was $2.1-million in the 12 months ended Dec. 31, 2023, compared with $2.8-million in the prior year. The decrease was primarily driven by lower sales related to the timing of Jupiter order shipments.
• Cash provided by operations was $5.4-million for the 12 months ended Dec. 31, 2023, compared with $8.6-million in the prior year.
• At Dec. 31, 2023, the company had $3.3-million of cash, cash equivalents and restricted cash compared with $3.5-million at Dec. 31, 2022. Notes payable net of discount at Dec. 31, 2023, was $52.2-million compared with $59.7-million at Dec. 31, 2022.

Earnings call and webcast

Tilt management will host a conference call today at 5 p.m. Eastern Time to discuss its financial and operational results, business strategy, and future outlook, followed by a question-and-answer period.

Date:  Thursday, March 14, 2024

Time:  5 p.m. Eastern Time

Toll-free dial-in number:  877-423-9813

International dial-in number:   201-689-8573

Conference ID:   13744645

Webcast:  Tilt Q4 and FY 2023 earnings call

Please call the conference telephone number five to 10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Elevate IR at 720-330-2829.

The conference call will also be broadcast live and available for replay in the investor relations section of the company's website.

About Tilt Holdings Inc.

Tilt helps cannabis businesses build brands. Through a portfolio of companies providing technology, hardware, cultivation and production, Tilt services brands and cannabis retailers across 40 states in the United States, as well as Canada, Israel, South America and the European Union. Tilt's core businesses include Jupiter Research, a wholly owned subsidiary and leader in the vaporization segment focused on hardware design, research, development and manufacturing; and cannabis operations, Commonwealth Alternative Care Inc. in Massachusetts, Standard Farms LLC in Pennsylvania and Standard Farms Ohio LLC in Ohio. Tilt is headquartered in Phoenix, Ariz.

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