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Tilt Holdings Inc. (OTC: TLLTF) is over being a plant-touching company. It’s sold off its stores and plans to sell its cultivation and manufacturing businesses as well. The company is setting its sights on vapes – specifically Jupiter vapes – for its future.

But the road to completing this transition is replete with potholes and speed bumps.

During the company’s conference call to discuss its fourth-quarter results, CEO Tim Conder explained to investors how the company plans to sell the remainder of the plant-touching operations, diversify away from China to avoid tariffs and shift the payment model for some customers – heavy lifts for any company.

Couple that with a debt load that the current revenue (which has dropped) can’t support, and it looks like 2025 will continue to test the company’s executives.

For sale

In February, Tilt sold its Massachusetts retail locations to In Good Health, a private single-state Cannabis operator, for $2 million. That leaves the company’s cultivation and manufacturing operations in Massachusetts and Pennsylvania and an additional manufacturing business in Ohio. Conder believes deals can be done on those properties in 2025.

However, analysts on the call weren’t as positive, particularly with regard to the properties in Massachusetts. Conder agreed that Massachusetts was challenging, but Tilt leases from Innovative Industrial Properties there. The CEO noted that IIP has been supportive of their efforts to divest the business.

Conder thinks that the low-cost structure of the property would be accretive for the right buyer. However, the high cost to produce products in the state coupled with low selling prices has turned off many MSOs who have begun to leave Massachusetts.

The Pennsylvania market might be an easier sell, Conder noted, since TILT’s products are in 90% of dispensaries in the state, and it’s on the cusp of legalizing adult-use cannabis.

“We have great relationships with multistate operators who command the sort of retail footprint in that market. we feel confident that the right buyer will appreciate that asset for all of those attributes that I just mentioned,” Conder said.

Tariffs

While the company believes vapes will provide the path to success, the segment is heavily dependent on Chinese hardware. That could expose the company to the tariff wars instigated by the new presidential administration. Conder even suggested the issue was keeping their hands full.

However, he also stated that its main suppliers, CCELL and Smoore, already set up operations in Indonesia, and the company is shifting its production there to avoid taxes.

Still, the switched to Indonesia won’t be completed until the end of the year, so there could be months of tariffed products. Conder said the company hasn’t passed on any tariff costs to customers, but costs had increased.

Shifting the relationship

TILT is also moving towards a direct invoice model with some of its customers, under which it will earn a commission on sales from Asian hardware companies, a move that was initially announced during the company’s third-quarter call. Management said that move will impact revenue this year.

Customers will work directly with CCELL on orders and payments for the Jupiter products, which will reduce oversight from Tilt. Gross margins have gone up slightly already in the fourth quarter, but Conder said that there will be a material effect on top-line revenue.

Conder also explained that the company has a sizable payable due to the hardware manufacturers, which he blamed on previous management. Direct invoicing is expected to help manage that situation.

However, Conder admitted the company has mostly worked with CCELL, which has been slow to transition to new technologies in the vape world. Tilt said it is looking to add new suppliers in addition to CCELL to spread its risk to having one main supplier.

Paying the piper

The company also confessed it will need to continue to address its overall debt load.

“We recognize that our debt obligations are unsustainable compared to revenue,” Interim CFO Brad Hoch said. “We are committed to resolving this issue with collaboration and cooperation of our debt holders who support. our strategic vision. We believe this will help assure business continuity.”

Tilt believes that when it loses all its plant-touching businesses, it will be able to take advantage of 280E tax breaks.