Tilray Inc (TLRY) Q4 2018 Earnings Conference Call Transcript
As mentioned earlier, we have also expanded our global senior leadership team with six strategic executive hires from world-class organizations to help our existing teams spearhead our future growth and development internationally. In addition to Andrew Pucher, as our new Chief Corporate Development Officer from Goldman Sachs, we hired Greg Christopher, who joined from Nestle to be our Executive Vice President of Operations. Rita Seguin joined from Diageo as Executive Vice President of Human Resources.
Dara Redler, our General Counsel, joined from Coca-Cola. Charlie Cain , our Vice President of Retail, joined from Starbucks and Sascha Mielcarek, our Managing Director Europe joined us from Grunenthal . At the same time, our team remains deeply committed to clinical research. This is important for the future of medicine, as well as being a competitive differentiator in the industry and has accelerated awareness, very positive awareness in international medical cannabis market.
Most recently in the fourth quarter, we partnered with researchers at the Lambert Initiative for Cannabinoid Therapeutics at the University to Sydney to complete a study examining the effects of cannabis on driving and cognitive function. The trial phase of the study culminated in 2018 and results are expected to be published sometime this year.
Looking ahead to the balance of the year and into 2020, we continue to anticipate the following corporate milestones: Launching Tilray and Manitoba Harvest CBD products in the US, as regulations permit, signing additional adult-use supply agreements in Canada, shipping Tilray products to pharmacy chains in Canada, exporting Tilray medical products to new countries, expanding Tilray's medical cannabis product offerings in the international markets we currently serve, extending our existing pharmaceutical partnerships to additional countries and regions, obtaining a sales license for High Park's processing facility in London, Ontario; additional clinical trials; recruiting additional executives from outside of the industry to further strengthen our management team; and finally, adding strategic partnerships and acquisitions in the United States and Europe.
In summary, we are incredibly proud of our achievements in 2018 and are excited about our growth potential over the next several years. We will continue to execute on our strategic initiatives and take actions that will fuel long term value for our shareholders as well as our customers, consumers, patients, and employees around the world.
With that, I would like to turn the call over to Mark.
Mark Castaneda -- Chief Financial Officer, Secretary and Treasurer
Thanks, Brendan. Good afternoon to those of you joining us on the today's call and webcast. It is a pleasure to be speaking with you today. Please note all the financial information we discussed today is prepared in accordance with US GAAP that is in US dollars unless otherwise indicated. We are pleased to report the fourth quarter financial results and the significant growth opportunities that lie ahead.
Focusing on fourth quarter results in more detail; Q4 revenue was $15.5 million, representing an increase of 204%, as compared to the fourth quarter last year. Revenue growth is driven by the inaugural sales for the Canadian adult-use market, bulk sales and accelerated wholesale distribution in export markets.
Extract products represented a greater mix at approximately 54% of revenue for the fourth quarter of 2018, compared to 24% of revenue for the same period last year. We are pleased with the performance in adult-use market so far and expect adult-use to be a growth driver for 2019, as we continue to ramp up supply and with additional form factors that are expected to be included in our results later this year.
Moving on to operational metrics. Total kilogram equivalents sold increased more than threefold to 2053 kilograms from 694 kg in the same quarter of 2017. The overall average net selling price per gram increased to $7.52 from $7.13 in the prior year. The increase is primarily due to an increase in mix of higher priced extract products with improved price per gram, as a percentage of total revenue compared to the prior year.
Looking at the Canadian direct to patient sales, our average selling price per gram increase 9.4%to $7.43 compared to $6.79 per gram. Again, primarily due to product mix. Drilling into adult-use, our average and selling price per gram was $5.40 per gram, which we expect to increase over the longer term, as higher price value-added products become available in Q4. On the production side, we continue to expect significant increase throughout 2019, as we expand our capacity to 90 metric tonnes, as we bring our Ontario greenhouse and Portugal facilities fully online. As Brendan mentioned, we've recently completed successful harvest at our EU Campus in Portugal and has a multiple harvest in the coming months.
Gross margin for Q4 decreased to 20% from 57% in the same period last year. As a result, the procurement of third-party supply, costs related to ramping up our production and absorbing the tax for medical patients. We expect to see margin pressure during the ramp up of our production facilities and during the temporary lack of industry supply.
Longer term, we continue to expect 50% plus gross margins, as we lower our costs through greenhouse and outdoor cultivation and as we ramp those facilities past the start-up phase. We also expect reduced revenue per unit, as selling wholesale in the adult-use market becomes a bigger mix of our revenues.
Our total operating expenses increased to $26 million, which includes $4.1 million in non-cash stock compensation expense, excluding that operating expenses increased to $21.9 million from $5.5 million in the prior year. The increase was primarily due to $12.3 million increase in G&A associated with higher professional fees and increased resources that support our growth and expansion for the start up of operations for adult-use.
Net loss for the quarter was $31 million or $0.33 per share compared to $3 million or $0.04 per share in the fourth quarter of 2017. Net loss included non-cash stock compensation charge of $4.1 million compared to $34000 charged in the prior year. Adjusted EBITDA was a loss of $17.8 million compared to a loss of $2.1 million in the fourth quarter of last year. The increase in net loss and adjusted EBITDA was primarily due to the expected increase in operating expenses related to driving our expansion forward, such as investing on continued growth, expansion of international teams and costs related to M&A and public company costs.
Turning to the balance sheet. We ended the quarter with cash and short-term investments of approximately $517 million. As a reminder, in October we announced the pricing of a $475 million convertible debt private placement, resulting a net proceeds before expenses of about $460 million. We intend to use the proceeds for working capital, future acquisitions, and general corporate purposes. We believe we have sufficient capital to execute our CapEx and offer an expansion plans for the next 12 to 18 months.
On a longer term basis, we intend to further build on our early leadership in the global cannabis industry and to achieve growth for years to come. We see an opportunity to capture a sizable portion of this market with estimated gross margins of 50% plus and adjusted EBITDA margins of 25% to 30%.
The EBITDA margins are based on the legal markets that exist today, and as new markets are added, we will invest to develop those markets, which could have a short term impact on those margins, but also provide for greater revenue upside and a stronger business longer term. We are proud of our results and confident we are well positioned to continue to be a leader in the global cannabis industry.
This concludes our prepared remarks. Brendan and I are now available to take your questions. Operator?
Questions and Answers:
Operator
Thank you. (Operator Instructions) And our first question is from Vivien Azer with Cowen and Company. Your line is open.
Steve Schneiderman -- Cowen and Company -- Analyst
Hi. This is Steve Schneiderman pinch hitting for Vivien tonight. Thanks for taking the call. Just to lead off, just quick housekeeping item, can you please clarify, whether the revenue numbers of $15.5 million are based on a gross or on a net basis?
Mark Castaneda -- Chief Financial Officer, Secretary and Treasurer
Yeah, that's net revenues, but it does include taxes, that's your question.
Steve Schneiderman -- Cowen and Company -- Analyst
Yeah, thank you. That's helpful. And you mentioned that you're absorbing the excise tax. Thank you for that clarification too.
Mark Castaneda -- Chief Financial Officer, Secretary and Treasurer
Okay.
Steve Schneiderman -- Cowen and Company -- Analyst
Can you guys provide a little bit more detail on the outlook for 2019 in terms of revenues. Is there any cadence, we should be thinking about for the on-boarding of novel form factors later in the year?
Mark Castaneda -- Chief Financial Officer, Secretary and Treasurer
Yeah. So, as we mentioned nine months ago, we're doing our IPO roadshow. We talked about 2018 being double from 2017, and 2019 being at least 3x what 2018 is. So, as you know, we don't give specific guidance, but we do give some directional guidance and that 3x was excluding Manitoba Harvest. And for Manitoba Harvest, it's about CAD100 million, or call it US$75 million and we only had a for 10 months of the year. So, let's call it around $65 million for this year.
Steve Schneiderman -- Cowen and Company -- Analyst
Okay, great. And while we appreciate the need to buy from third-party and it seems like it's weighing on your gross margin. Yeah, I understand that you're looked at double your square footage with supply coming online. But can you talk a little bit more about the sequencing of that? And how to alleviate some of your headwinds? And in particular, how much is Natura Naturals coming into play?
Brendan Kennedy -- President and Chief Executive Officer
So, Natura is coming into play it's relatively short, small for Q1 just because we purchased it during the quarter. There was also some commitments for them to sell to other third parties. So, the off-take we're going to have is relatively small in Q1. For the full year, it's around 10 metric tonnes and could be up to 20 for next year, if we do an expansion project there.
Steve Schneiderman -- Cowen and Company -- Analyst
And on the rest of your supply in terms of when we see that coming online this year?
Brendan Kennedy -- President and Chief Executive Officer
So, we continue to see increases each quarter just as the facilities become more mature and we're able to use 100% of the facilities, as supposed to having to scale it up throughout this year. So, you'll see revenues continue to grow, especially revenues from our own harvest continue to grow, so you'll see margins improve sequentially each quarter this year.
Mark Castaneda -- Chief Financial Officer, Secretary and Treasurer
We've also completed our first harvest from Portugal and we anticipate regular harvest from that facility. We won't sell product from Portugal until later on this summer. So, you'll see inventory begin to accumulate there in anticipation of our GMP inspection so that we can export from Portugal to other countries around the world.
Steve Schneiderman -- Cowen and Company -- Analyst
And just a follow-up to that point, Brendan, can you can you offer some specificity, how that may impact the financial model, and how that buildup may impact gross margins? And will sales from that facility be gross margin accretive to the company?
Brendan Kennedy -- President and Chief Executive Officer
Yes. So, if you think about Portugal and this cost, it's cost basis is significant lower than Canada and we're going to do an outdoor crop as well as greenhouse crop. So again, significantly lower cost than our Canadian costs. So, as we're able to sell that product, which is going to be more the second half of this year, that'll be that will definitely expand the margins and that's all medical product, which generally has higher price points.
Mark Castaneda -- Chief Financial Officer, Secretary and Treasurer
And then the final thing you'll see from that Portugal facility is that we'll use that facility to meet demand from countries around the world. And we'll begin to leave product cultivated in Canada, inside of Canada and so no longer export nearly as much from Canada.
Steve Schneiderman -- Cowen and Company -- Analyst
All right, great. Thank you guys very much.
Operator
Thank you. Our next question is from Tamy Chen with BMO Capital Markets. Your line is open.
Tamy Chen -- BMO Capitals -- Analyst
Thanks. Hi, Brendan and Mark. First question, I just want to go back on the procurement from third-party supply, is that because of the where the timeline of the ramp is at Enniskillen? Or is it just quality differences, or is it there's different strains that the provinces want that you're not growing at Enniskillen right now? I'm just trying to understand that the rationale on the third-party supply.
Brendan Kennedy -- President and Chief Executive Officer
So, that the third-party supply is primarily because we have significant demand for our products and we're just not able to produce enough to demand. As in our -- built in our model originally as we were planning to have third-party supply and if you remember the articles from a year ago, we're saying that we were going to be oversupply in Canada at this point in time. That hasn't happened. So, it has been part of our plan to use third-party supply, the quality of that supply is just not available as well as just not enough product available.
Tamy Chen -- BMO Capitals -- Analyst
Okay, got it. And in terms of the Enniskillen facility, so I just want to confirm it's the facility now is fully licensed then all areas are planted and growing? And can you help me think in terms of timing of the next big harvest from that facility that we should keep in mind, when it comes to thinking about your pace of sales in Q1, Q2, the rest of this year?
Brendan Kennedy -- President and Chief Executive Officer
Yeah. So, as far as licensing, so that facility is licensed today, the production facility in London is not fully licensed. So, we're using some of the space in the Enniskillen facility that will be used for other things like trying. So, we're not using the full capacity of our at Enniskillen facility because of the licensing requirements in London. So, that will happen, we believe, in the near term and we'll be able to use Enniskillen at more full capacity.
Tamy Chen -- BMO Capitals -- Analyst
Got it. Okay, thank you.
Operator
Thank you. Our next question is from Rob Wertheimer with Melius. Your line is open.
Rob Wertheimer -- Melius Research -- Analyst
Hi, good evening. I wanted to ask about your view on the progress and development of edibles or beverages and other products that might be on sale in Canada in 4Q, just general thoughts. And then specific question, is that clear to you -- obviously, you're brand new in the JV you're doing. But is that clear to you that THC and CBD beverages can be made like attractive and shelf stable in the near term? Or is that sort of, I think you're going to figure out an indeterminate amount of time?
Brendan Kennedy -- President and Chief Executive Officer
So, we think that they can be manufactured and be shelf stable and be tasteful. Yes, tasty over the short term. I think that, so those are obviously in terms of prioritizing our objectives. Those are the first things we're looking at. We've also spent a lot of time over the last few years, looking at other simple scientific problems to solve. So, water availability, bioavailability, time to peak effect, duration of effect and we've solved a lot of those issues and so we were excited to bring a number of different edible products to market whenever we can.
I guess the big uncertainty is, when we're anticipating October of this year. But that hasn't -- there's not complete clarity there and there's also not complete clarity on which exact form factors, which exact ingredients will be allowed and what's the packaging for those products will be.
Rob Wertheimer -- Melius Research -- Analyst
Do you have a view on whether your experience to date allows you to have a leg up in that, when and if it becomes allowed in 4Q? I don't know what the process is going to be like for approvals, whether past experience or manufacturing expertise or whatever? I don't know if you view as that of a differentiator or it's early out of the gate or not?
Brendan Kennedy -- President and Chief Executive Officer
I think we have some advantages. So, while we were building out our London, Ontario facility, we built out space for beverages, we built out space for oil extraction, we built out space for edibles. And so from an operations perspective, I think, being licensed, we already we have some advantages there. I think where we have a lot of experience that will turn out to be advantageous is that, we've licensed the brand called the Goodship that operates in Washington State, I believe California.
And there, there's knowledge in terms of manufacturing, specifically with Goodship edibles that contains CBD and THC, recipes, SOPs, what packaging, what manufacturing equipment to use. And so those are all things that we're putting into our facility in London, Ontario and we do feel like, we have a leg up because of our -- that brand and the know-how from that brand. We also think that our joint venture with AB InBev gives us a leg up on beverage. They own 8 of the top 10 beer brands in the world. They know how to manufacture beverages all over the world. And they have a, as you can imagine, a robust supply and distribution chain globally.
Rob Wertheimer -- Melius Research -- Analyst
Very helpful, thank you. If I can ask one other one on Europe and without trying to get your give specific guidance or outlook. But I mean, can you see a path, where you actually have ready demand for production out of Portugal for the full facility, when you do it. I just don't know the pace of acceptance. You know, obviously, we're trending in a great direction. I just don't know the pace of acceptance in the medical community there. And I don't know, whether you can talk about your efforts to educate or whether that channel doesn't need education. It's going to pour in when it becomes available?
Brendan Kennedy -- President and Chief Executive Officer
I believe that there's demand for all of our current supply in Portugal today and demand for our forecasted supply as we ramp that facility. We export today from Canada to about a half a dozen European countries. We have a global agreement with the Sandoz division of Novartis that we signed last December. And we think we'll add roughly a half a dozen extra countries to that agreement, most of which will be in the EU, when the European Parliament passes resolution on medical cannabis.
A few weeks ago, we were expecting that and so that we expect continued growth not only within the countries in Europe that have already legalize medical cannabis, but in really in additional countries in Europe that will legalize medical cannabis. And just to put it in perspective, you know, in Germany back in 2015, there were about 800 patients, medical cannabis patients there. At the start of last year, there are about 16,000 finished last year, about 40,000, I expect, I estimate that we'll get to about 100,000 patients in Germany by the end of this year. And so we're seeing rapid growth not only in the number of countries, but the number of patients within individual EU countries.
Rob Wertheimer -- Melius Research -- Analyst
Very helpful. Thank you.
Operator
Thank you. Our next question is from Brett Hundley with Seaport Global. Your line is open.
Luke Perda -- Seaport Global -- Analyst
Hi, this is Luke Perda on for Brett Hundley here. Thank you for the detail on your interest in the CBD products market in the US and given the FDA's stance, I'm hoping you can help me understand kind of your approach, your view on what the company expects on this front, it's our understanding that large CPG companies are putting out RFPs for fairly large quantities of CBD in the US. Is that something that Tilray plans to be meaningful one?
Brendan Kennedy -- President and Chief Executive Officer
It is. So, we've signed an initial supply agreement for a number of different CBD products from either farmers or groups of farmers or processors within the United States. And we anticipate signing additional agreements, additional supply agreements in the coming months and quarters. There's tremendous demand for CBD isolate and hemp-derived CBD extracts.
We've been approached by a number of CPG companies that have asked us to certify their supply chain, whether it's from CBD hemp farmers in Montana or Colorado or Oregon. And so we are obviously having conversations with a number of different CPG companies. It's really the rationale behind our acquisition of Manitoba Harvest.
With Manitoba Harvest if you can imagine buyers at Amazon, Whole Foods, Costco, Albertsons, as they're looking to put CBD products on their shelves, there are a lot of unknown brands out there and a lot of unknown sources of CBD. And those retailers, they're going to go with a brand they know and a supply chain they trust, like Manitoba Harvest, which has been in that business for years, the world's largest hemp food manufacturer. They control 30,000 acres of hemp cultivation and they're already on the shelves of 16,000 major retailers in the United States and Canada.
Luke Perda -- Seaport Global -- Analyst
Thank you. And kind of building off that Manitoba Harvest acquisition, do you have any growth rate expectations for the next couple of years and kind of an ultimate target margin for that business?
Mark Castaneda -- Chief Financial Officer, Secretary and Treasurer
So, the growth rate can just on the food side is between 10% and 15%. With the CBD side it is going to be significantly higher than that. So, we haven't given again -- we don't give guidance, but and some of that is dependent upon timing of CBD and when we can get it on shelves in the US. As far as margins, gross margins in that business will be around the 50% range, with CBD being a larger portion will actually tick up even higher than that.
Luke Perda -- Seaport Global -- Analyst
Great, thank you. And just one more here. Kind of looking at M&A, what's on the top of the list for your company? What are your view toward products from market areas? Have your views toward products or market areas changed since the cannabis industry evolved?
And what are your thoughts on ownership of US dispensary assets? That's something that ultimately attractive to Tilray, or would you rather position yourself elsewhere in the supply chain?
Brendan Kennedy -- President and Chief Executive Officer
So, I'll start with the first part of that question. You know, when we look at strategic M&A, we look at transactions, we look at companies that open new territories, that increase our capacity, that increase our brand offerings through new form factors. We look at R&D. So, some disruptive technology and selectively we are looking at retail. And I put the second part of your question into that retail category.
I guess, when we think about geography, we do we are focused right now on the United States and Europe and focused on aggressively deploying capital there. We certainly are not spending a whole lot of time looking at state-licensed dispensary retail locations in the United States today.
Luke Perda -- Seaport Global -- Analyst
Great, thank you.
Operator
Thank you. Our next question is from Graeme Kreindler with Eight Capital. Your line is open.
Graeme Kreindler -- Eight Capital -- Analyst
Yeah, hi, good evening and thanks for taking my call. Just a first question here as a matter of housekeeping. Just wanted to confirm the treatment of the excise tax. Is any of that showing up in the cost of goods sold line? And if so, what is the amount that?
Mark Castaneda -- Chief Financial Officer, Secretary and Treasurer
So, excise tax is, it does show up in cost of goods sold, I don't have those numbers handy. It's relatively small. If you think about excise tax, it's about a dollar per gram. So, you can do the math on what we sold at adult-use.
Graeme Kreindler -- Eight Capital -- Analyst
Okay. Sure understood. Thanks. And then just to go back to follow on the questions with respect to the CBD market in the United States. We've seen, I think, a bit of a different tap on strategy, some people waiting for individual states to regulate and that will be an acceptable framework versus waiting for, you know, I guess, a full FDA ruling.
Where does Tilray stand on that side in terms of what's needed before we can see commercialization?
Brendan Kennedy -- President and Chief Executive Officer