Q1 2020 Earnings Call
[music].
At this time all participants on the listen only mode. After the speaker presentation that will be a question and answer session. The ask a question. During this session you would need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to you as first speaker today Mr. Raphael grows. Thank you. Please go ahead.
Good afternoon, and thank you for joining us on Hillary's first quarter 2020 earnings conference call and webcast.
With me today, our President Kennedy, Chief Executive Officer, and Michael accrued tax Chief Financial Officer.
As we begin please remember that during the course of our discussion management may make forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 as amended. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events.
And those described in these forward looking statements. Please refer to tell raise reports filed from time to time with the United States Securities and Exchange Commission and Canadian Securities regulators, along with the earnings press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those.
Expressed or implied in any forward looking statements. Finally, please note on todays on today's call management will refer to adjusted EBITDA and grow and gross margin, excluding inventory valuation adjustments, which are non-GAAP financial measures. While the company believes that these non-GAAP measures provide useful information for.
Our investors the presentation of this information is not intended to be considered in isolation or to substitute for the financial information presented in accordance with gap.
Please refer to today's release for a reconciliation of each adjusted EBITDA and adjusted net loss to net loss and of gross margin excluding inventory valuation adjustments to gross margin. The most comparable measures prepared in accordance with gap now I'd like to turn the call over to Brandon.
Thank you Raphael and good afternoon, everyone.
Today in my prepared remarks, I will discuss.
Our response to the Coca 19 pandemic.
Recent actions taken to drive significant cost reductions and efficiencies across our business.
A summary of our first quarter performance.
And our continued areas of focus for 2020.
Afterwards.
Michael crude Tech will review our quarterly results in detail.
Due to the Kogan 19 pandemic impact we are committed to eating through this unprecedented period with transparent communications.
Empathy and a focused on executing against elements of our business within our control.
The safety and well being of our employees patients customers and communities, where we operate remains our top priority.
We've created the Coven 19 task force that so ray, which works collaboratively with our senior leadership to actively monitor and adapt our operations to this evolving situation.
Throughout the first quarter in the weeks since we've taken numerous actions to protect our employees and our business.
Our operating facilities around the globe, we've enhanced safety and sanitation protocols, including physical distancing measures consistent with the recommendations that federal and local health authorities.
All employees that have the ability to work remotely are doing so today.
And we have implemented a business continuity plan.
And incredibly proud of our global team, which is worked together to ensure safety, while minimizing potential impacts to our operation.
We continue to provide safe high quality products to our consumers and patients around the world.
We've not seen any material changes to our supply chain related to cope at 19 with the exception in brief interruption the provinces receding shipments.
Welcome to 19 has created headwinds.
We should not lose sight that legal cannabis net new product category.
That presents an enormous global growth opportunity.
Despite covered 19 emergency orders cannabis was recognized as an essential business in Canada, Germany, Portugal, Australia and multiple use states.
This validates our thesis that cannabis and mainstream product consumed by mainstream patients and consumers.
We're also seeing signs across the industry that candidates the counter cyclical product, which we have long believed to be true.
We believe that this pandemic will demonstrate that legal candidates behaves more like consumer staple in other words things people need rather than indulgent items, such as luxury products.
We have patients in customers or depending on us to operate our business, there's little disruption as possible.
We remain focused on satisfying our customers and patients and we continue to prepare for any further contingencies that may result from the pandemic.
I'll now discuss actions that we've taken to drive significant efficiencies and reduce costs across our business.
Unrelated to covert 19 at the started the first quarter.
We began implementing a comprehensive global cost efficiency plan.
We have communicated previously that we plan to drive to adjusted EBITDA profitability by the ended the year.
Of course, that's over 19 pandemic provides a level of uncertainty for Tilbury and the broader industry.
That said based on what we know today, we believed that the schools achievable and we are executing accordingly.
Beginning in February and as discussed during our last earnings call.
We began restructuring our organization to better align with the competitive landscape by reviewing each of our operating businesses.
Reduce duplication and costs.
With a focus on generating return on capital and aligning supply with market demand.
While these changes were difficult.
Our success to date as one of the leading candidates company has been made possible by our ability to pivot and react when needed.
In the long term this will help to ensure we can manage our costs and continued to be good stewards of shareholder capital.
Throughout the first quarter, we took additional action to manage costs and drive efficiencies.
In total.
We estimate that we will achieve approximately 40 million U.S. dollar as an annualized cost savings relative to the run rate of our fourth quarter 2019.
These changes are substantially complete as of today.
And the most significant cost savings components include the following.
First the corporate head count reduction.
Second operational efficiencies at our cultivation site in Canada in Portugal, including implementation about an automation.
Thirdly transitioning our Canadian adult used sales to kindred especial candidates brokerage Kindred will act as our exclusive sales agent for all provinces and territories, excluding Quebec.
Through this relationship we intend to leverage their resources and brand building services to grow our footprint across the country.
So the first quarter.
There were $2.5 million of cost savings embedded within our result.
The financial impact of these improvements will be more clearly realized starting in our second quarter before ramping up the full benefits in our third quarter.
We also closed two separate transactions during the first quarter.
$60 million debt facility, and 90 million dollar equity raise which Michael will address in more detail.
With the steps, we've taken to drive cost efficiencies and additional cash on the balance sheet.
We feel that the business is on strong footing and well positioned to compete in the current market environment.
With respect to the first quarter itself I'm pleased to report strong financial results.
Revenue increased 126% year over year.
$52.1 million.
This marked our highest quarterly revenue on record.
And consisted of sequential quarterly growth across all of our core businesses.
Global Medical Canada, It will use and hemp products.
Within global medical.
Which revenue in aggregate grew 105%.
Canada Medical grew 35% and international medical grew 221%.
In Canada adult use grew 165%.
We believe we're well positioned to compete on the global stage with a diversified asset base.
And facilities and offices in Canada.
The United States Europe, Australia in Latin America.
Our adult use brand are in 11 provinces and territories today with candidates to dilute products in nine regions, where authorization allows.
We are committed to continuing to expand distribution and market share.
As we see regulations shift in certain provinces, such as Alberta in Quebec.
We are well positioned to serve those markets as well.
Our medical Kansas products are available in 15 countries on five continents, and our home products are available in over 17000 retailers in 20 countries around the world.
Really only candidates company Ted to GMP certified cultivation facilities in Canada in Portugal, allowing us to serve international medical markets is an efficient manner.
We have participated in Canada clinical trials in the United States and around the world.
Furthering our commitment to cannabis research and product development.
Our joint venture with Anheuser Busch Embeds. The fluent beverage company was the first launched two CBD infuse beverages beverage products in Canada.
Manitoba harvest provides us with the hemp products platform in the United States 19, other countries around the world.
At the ended the quarter on March 30, Onest, we announced that our board of directors unanimously approved the pro rata release of 11 million shares of class to common stock how does the former equity holders of private your holdings.
The release took effect on April 30.
In the shares released our part of the previously announced release until restock over two year period.
We will continue to proactively manage the release of the remaining shares.
For the remainder of the year, we're focused on executing on profitable long term growth opportunities, while continuing to drive cost efficiencies.
Our efforts in energy will be directed towards building, our three existing businesses, which are our top priority.
Canada adults use market the global medical cannabis market.
And the global hemp products.
These.
These goals will be accomplished by continuing to expand the sale of our existing canvas to download products in Canada.
As well as introduced new form factors.
Competing buildout of our facility in Portugal, and attaining our final GMP certification there.
Exporting till Ray medical products to new countries and expanding our medical cannabis product offerings in the international markets. We currently serve.
Growing our global medical Canadian adult use in hemp products market share and aggressively driving cost efficiency.
And finally entering into new strategic partnerships that enable us to further accelerate our growth.
Turning to the broader industry and the markets in which we operate let me reiterate that theres significant demand for quality products at scale and we are and in the very early days of this industry is growth.
Our revenue growth across all channels points to a paradigm shift and the use of candidates both as a medicine and the mainstream consumer product.
And as the legal Canada sales grow in the countries, where it is already loud. It will further the case for legalization around the world first for medical Canada's followed by adult use.
We've already done much of the heavy lifting by strategically investing in key markets across the global footprint.
Secure raw material supply.
Advance research and development and build brands and relationships with patients and consumers.
We are well positioned to enter new legal cannabis markets when legally permitted to do so and have a solid foundation. It continued to expand our hemp foods business globally.
To conclude we intend to win globally by building world's most trusted and valued cannabis and company with a portfolio of best in class brands supported by a multinational supply chain.
I firmly believe that we have the right team assets and strengthened balance sheet to execute on our strategy.
With that I'd like to turn things over to our new Chief Financial Officer, Michael crew Tech to review our financials. Thanks, Brendan and thanks to everyone joining us on todays call and webcast. Please note that all of the financial information. We've discussed today is prepared in accordance with U.S. GAAP and as in us dollars unless otherwise indicated.
As Brendan indicated we're very pleased with our first quarter year over year and sequential revenue growth and our adjusted EBITDA improvement on a sequential basis, notably gross margin, excluding inventory valuation adjustments improved both sequentially and compared to the year ago period.
We've also successful and strengthening our balance sheet with the closing of the 60 million debt facility and an 85.3 million net equity offering.
These two transactions allowed us to closed the quarter with 174 million in cash balance that will provide us with sufficient capital to focus on our path to profitability a theme I will describe in more detail shortly.
Focusing on our quarterly results in more detail.
First quarter revenue grew more than 29 billion or 126% to approximately 52.1 billion or 70 point $70 million Canadian dollars compared to the first quarter last year.
This growth was largely due to increased volumes in all channels, excluding bulk and the impact of full quarter of hem product sales compared to a partial quarter in 2019.
On a sequential basis revenue grew 11% from the 46.9 million achieved in our fourth quarter last year.
Growth was driven by a 23% increase in adult U.S sales and a 14.3% increase in home sales, partially offset by a decline in bulk sales.
Our segment revenue mix during the first quarter was 59% cannabis and 41% 10 compared to 676% cannabis and 24% him in the first quarter last year.
We generated 165% year over year revenue growth in our adult used business for 20.9 million compared to 7.9 million in the prior year period.
On a sequential basis.
Use grew 23% over the 17 million in the fourth quarter last year.
Our international Medical business revenues grew 221% to 5.8 million in the first quarter compared to 1.8 million in a year ago period, an increase nearly 45% sequentially from 4 million in the fourth quarter last year.
Our Canadian medical business revenues increased 35% from the prior year to 4.1 million and 21.6% sequentially.
Revenue hem products more than tripled compared to the partial prior year period going to 21.3 million from 6 million.
On a sequential basis, we saw growth of approximately 14% from the 18.7 million generated in the fourth quarter of last year, driven primarily by food products.
Finally, and as previously indicated our bulk sales fell to zero from 4.8 million in the prior year as we focused on higher margin opportunities. However, we may see some bolt revenue in future quarters, depending on opportunistic sales and the need for inventory rebalancing.
Going a little deeper on our adult use at our new sales represented 68% ahead of US revenue in the first quarter compared to 45% in a year ago period generally due to increased retail distribution in Canada and the introduction of new Cabinet is 2.0 form factors.
We expect I don't use to continue to be a driver of revenue growth in future quarters.
On an aggregate basis, our average net selling price per Gram was $6 in 79 cents in the quarter a change of 45 cents from Q1 2019.
Our average net selling price for candidates flower was $5 in 28 cents or $7 in 16 cents Canadian for the first quarter, a decrease of 32% or 6% from the prior year period.
The average net selling price excluding excise taxes for I don't use was $3.49 Canadian $4.73 per Gram for the first quarter of Twentytwenty.
The price decreases are largely due to a shift in product and channel mix over the course of the last 12 months, partially offset by the increased sales of kind of is 2.0 products. During Q1 of this year.
Generally we expect our average selling price to increase over time as we increase ourselves of international medical cannabis and continued to introduce no form factors in the Canadian East market.
Moving on to operational metrics related to kind of us total kilogram equivalent sold nearly doubled to 5794 kilograms from 3012 kilograms in the prior years first quarter.
This growth resulted from increases in I don't use cannabis flower sales an increase of candidates 2.0 products.
Gross margin for the quarter was 21% a significant increase over the negative margins in the fourth quarter of 2019, and a 200 basis point decline compared to the first quarter 2019, partially due to a write down of approximately 4 million in the quarter.
First quarter gross margin, excluding inventory valuation adjustments increased to 29% compared to 24% in the fourth quarter 2019, and 28% in the first quarter of 2019.
Gross margin for Canada. This excluding inventory valuation adjustments decreased to 20% from 23% compared to the fourth quarter of 2019, while gross margins for him excluding inventory valuation adjustments decreased to 41% from 44% compared to the fourth quarter 2019.
Going forward, we expect gross margins to increase sequentially as we see our cost reductions take hold and we gained greater scale and benefit from positive product and channel mix, particularly in the second half of the year with growth in international medical and cannabis 2.0, I don't use products in Canada.
Moving to expenses.
Total operating expenses increased by $48.3 million to $82.1 million compared to the prior year.
The current your expenses included a 29.8 million noncash impairment charge, primarily related to our ABG agreement given the uncertainty of the FDA stance on the sale of CBD products in the US we concluded the near term expectations for sales under this agreement did not support our balance sheet value.
Q1, Twentytwenty operating expenses, excluding impairments and write downs totaled 52.3 million and represented a 55% increase from Q1 2019.
As Twentytwenty progresses, we expect to see a meaningful decrease in operating expenses as a result of the cost savings actions Brendan mentioned earlier.
The net loss for the quarter was $184.1 million for $1.73 per share compared to the loss of 29.4 million or 31 cents per share for the first quarter 2019.
The increased loss was largely due to the impact of the change in the fair value of the warrant liability the impairment as assets and the loss on foreign exchange attributed to the weakening of the Canadian dollar.
We also saw an increase in operating expenses to support our continued growth initiatives and severance costs related to headcount reductions.
We reported and adjusted EBITDA loss of 19.7 million compared to a loss of 15.3 million in the first quarter last year.
The increase in the year over year adjusted EBITDA loss was primarily due to increased cost and SDMA related to commercial growth initiatives and increased operating costs related to our cultivation efforts.
On a sequential basis, our adjusted EBITDA loss reflected a 44% improvement from the 35.3 million lots in Q4 and was generally due to cost reductions and operational efficiencies.
Turning to the balance sheet, we ended the quarter with cash and cash equivalents of approximately $174 million during the quarter. We closed a 60 million senior credit facility on February 28, with a two year term and a registered offering of shares with net proceeds of $85.3 million on March 17.
We believe we have sufficient capital and access to capital to manage our operations and execute our plans to achieve positive EBITDA.
While the impact of covert 19 has created a new level of uncertainty we remain focused on taking all actions within our control to deliver solid results in 2020 and are committed to working towards adjusted EBITDA profitability in Q4 of this year.
In reviewing cash flow for 2020.
We expect our cash requirements for operating cash flow of $35 million to $45 million plus cash interest and principal payments of approximately $40 million capex of $40 million to $45 million for a total of 110 to 125 million.
The Capex number is slightly higher than originally indicated on our previous conference call, partially due to some carryover from 2019 and partially due to our efforts to finish phase two of our Portuguese facility.
Completing phase two in Portugal as a single project is more efficient and has a better return.
Due to covert 19, however, we may experience construction delays in Portugal, which may reduce actual capex for the year.
Going forward, we're focused on our path to profitability, we've taken actions to be leaner and more efficient in our business and we'll continue to evaluate our cost structure throughout the year to identify additional areas for improvement.
Just as important as our cost cutting efforts, we will continue to drive sales growth across our business. We will continue to build on our existing 2.0 products and introduce new form factors, we will introduce as supply of GMP product for Portugal into the existing and new international medical market.
We will continue to expand the presence of him products and new retail settings online and brick and mortar and we will leverage our new relationship with kindred salesforce in the adult use channel.
As we strengthened our sales profile.
Work to capture a sizable share of the global head of this market.
We will manage our production costs and effort to grow gross margin sequentially and generate positive adjusted EBITDA.
To conclude with our focus on managing costs strengthening our balance sheet driving growth in our key channels and markets and delivering shareholder value. We are positioning till rate to be a leaner and more efficient leader in the cannabis and have food categories.
We continue to believe till Ray is positioned for growth and profitability in the future as we establish ourselves as the most trusted cannabis and have company.
Brendan and I now available to take your questions operator.
Thank you Sir.
As a reminder to ask a question you would need to press star one on your telephone.
Which are your question press the pound key.
We ask that you please limit yourselves to one question and one follow up please standby, while we compile the Q when a roster.
I show our first question comes from Pablo Zuanic from Cantor Fitzgerald. Please go ahead.
Hello, everyone and congratulations and that we sold just if you can give some color on that 23% growth in recreational sales how much of that was flower how much of those words was 2.0.
Unrelated to that in the previous call you talked about the Canadian market broadly doubling this year and Twentytwenty are you still okay, we that projection given the uncertainty of Unquoted. Thank you.
Hi, Pablo Thank you very much so.
We saw a primarily flower growth.
With the driver we did see very good growth in our base as well as our.
Levels.
But the primary growth was was ranked flower.
Right and then regarding the margin growth projection that you gave before sorry, I'm just trying to understand you know the input from Colombia in terms of overall sales there was a bunch below the in late March what's happening in April just just curious from quarter to other distributors.
Yes, so we did see available in in March.
What we have seen is the things settle down in April.
So far at a level was higher than what we were seeing in January and February so.
We went through January February we saw an increase in March sales as a result of people.
While the buying in as a bunch of coded and then we've seen a settling in at a rate is higher than where we were in January February.
Okay. Thank you very much and.
I would add one one point there I think.
A lot of the revenue growth in terms of adult U.S and Canada is really going to be dependent upon.
The number of retail stores that that open up currently.
We're tracking about 925 enlightens retailers in Canada licenses will use retailers in Canada.
And the question of.
Where do we end the year.
We ended the year.
1100 1200.
It is we any.
We ended 2020 with with 1200 retail stores opened in Canada.
I think said.
That doubling.
Good to prove to be accurate.
What we Dino.
Is that we will continue to see it will use growth.
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Year over year in Canada, as more and more consumers transition from.
That market to the legal market.
Okay, great. Thank you.
Thank you I'm next question comes from Rupesh Parikh from Oppenheimer. Please go ahead.
Good afternoon, and thanks for taking my questions. If I just wanted to go back to expenses. So definitely lot of progress on your expenses sequentially, especially the DNA line.
So my if my math is correct I think your adjusted United's post.
50 million or so arrange for Q1.
Do you still see an ability to continue reducing DNA lime just for the balance of year or just wanted to just or more thoughts on on the under run rate for that product line.
Yes, a reverse thanks very much so.
Yes, we will we took out a fair bit in the DNA line.
That was about the 40 million, probably about 30 million to that.
And then non head count related is probably 10 to 11.
And.
So we're looking I mean, we want to get the person to revenue down to a manageable level and so I think when you look at our Q1, we were up 34, 33%. If you just look at Gnh includes sales and marketing, which is where we took some costs out its 67%.
We're looking to bring that down into the high 20 is not on some of the lines kind of the low twentys as we go through the year.
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And so and part of that will come through Cogs, We've got about $8 million it'll come through Cogs.
And the major of that the 20 units.
8 million, so we get 20 to 32 million middle come through the.
Im sorry.
The of the excuse me.
The headcount, we see about 8 million coming through Cogs, and 18 million 19 million coming through as Gina.
And look at when we look at the DNA stuff its is across the board it was.
T any professional fees public relations and a bunch disciplines.
Okay. That's helpful and I guess switching gears to international medical at least prospects does something Ben that's been harder to model just given I guess the ramp into the volatility when the within that business anymore color. You can provide in terms of how you got tricks and growth around for the balance of you're on the international medical front.
Yes, Hi, refreshes that Britain I'll start that that.
And for in turnover, Michael Let me why the key milestones in Q1.
The first time.
Our international.
Medical Kansas revenue, we expect that.
You bet growth to continue.
Quarter over quarter basis.
Throughout the.
The rest of this year and starting next year.
And so while we achieved one milestone I think that the next milestone that on.
Pay attention to is at some point.
Over the next three or four quarters.
Our revenue internationally I will exceed our revenue in Canada.
And that will be that will be important milestone for.
Yes.
As a company.
Looking at International Medical Kansas revenue in Canada and in Q1.
A lot of that was driven by.
Exports not only from Canada, but from our.
Our port facility.
Which is online.
And for that growth occurred.
In exports from Portugal, two to Germany, and so we expect.
And that trend to continue.
In Q2.
Q3 in Q4.
This year.
Michael maybe do and be able more specific.
Yes, so when we look at our mix just on the candidate side of things you look at Q1, 2020, and international medical made up 19% of that mix and.
We see that growing into the I guess did they kind of 20 ranges, where we'd like to see it.
Okay, great. Thank you.
Thank you.
Our next question comes from Aaron Gray from Alliance Global Partners. Please go ahead.
Hi, good afternoon, and thanks to the questions.
First question I had was just in terms of ASP, if they don't use market in Canada.
I'd like to that uptick sequentially can you just talked about how to kind of look at that line item over next couple of quarters as we do start to see more of novel to form factors increase in terms of mix of their sales there and just your expectation there. Thank you.
Well.
So on the on the selling price we.
We're seeing that we expect to see some pretty good growth in our 2.0 products in particular.
Debates and some more edibles as we rolled out additional products and so I would say that growth there should help.
Average selling price pretty significantly.
As we move through the the the year, we're seeing very good growth in the base right now.
And our edibles are being taken out pretty pretty well also so it's really just as a 2.0 form factors and we're constantly looking at our pricing to see if theres an opportunity to take some price, especially if we look at the higher potency product, but at the moment I think it's more of a 2.0 in the adult Rick space, where we do see the opportunity.
Take additional price or actually just increase the overall average selling price you got is through the growth of our international medical in the Canadian medical.
Both of which we're seeing some.
Some pretty solid growth trends at the moment.
Alright, great. Thank you and just one more if I could in terms of your commentary on reaching Eva positive by for Q 20 can you talk about underlying assumption for gross margins I believe last call you talked about trying to reaching 40 45 gross margins by the end of 2020.
Thats still the target and what's embedded in that expectation for reaching you would have positive. Thank you.
Right.
Yes, so earn on gross margins.
Necessarily calling us specific number I think we are looking for sequential improvement in our gross margins.
And that will be a function of.
Just getting.
More efficient and what we're doing as you start to produce more product in our Fourg facility, we should see some very good leverage there.
We're increasing the efficiencies in our Canadian operations and are looking for efficiencies there.
The the head count and the.
Cuts that we have recently made will show up in Cogs to some degree. So thank you got a lot of moving parts. The one other thing that I would mention about are those margins is that we'll probably see a little bit of pressure on the due to the fact that were accounting for our byproduct.
On a zero basis, and so I guess historically, what's happened is that byproduct is that builds up on the balance sheet and thats why there have been significant write offs.
For us as well as for I guess industry other industry players and what we're drilling is where except for a few instances where attributing zero value to that by products are everything we sell we'll have all the cost structure associated with it. So that we don't have any write offs at the ended the year.
So were essentially taking the by product through the TNL on an ongoing basis, so that'll be a little bit of the change for us we won't be building up that balance on the of the inventory on the balance sheet and.
So the gross margins will look a little bit depressed as a bunch of that.
And but otherwise we do expect to see sequential growth in gross margins.
Great. Thanks, co that's helpful and I'll jump back into queue.
Okay.
Thank you.
Next question comes from Tami Chen from BMO capital markets. Please go ahead.
Okay.
Yeah. Thanks, Hi, guys. First question is I'm, just wondering a bit more color on the flowers segment, just switch driving the growth in the quarter and where you see the competitive dynamics going forward I think we're seeing thats apparent continued shift to value like a pack size is just weren't equity.
Dan how kelway thinking about this and what Chris right next to you mentioned they supply disruption you've been seeing recently just wondering what that is exactly in is that over now.
So I.
Yes, I don't have pack size information for you I can try to get that and provide that to you.
But I don't have that information to help you understand kind of whether that's the the driver of the growth in flower right now.
What I would say that we are seeing growth and flower across all categories. Obviously, we would see more growth and lower at higher potency. If there were more available higher potency product in the marketplace.
If we are producing a bit more of it on our own.
But we are seeing growth across the spectrum in the flower product.
And that goes for I think our medical also.
We're seeing good growth in our Canadian medical in fact, I think your during.
On the Cobiz piece of this is that we did see some increase in patient counts, which manifest itself and increased sales as well and again like I mentioned earlier on the out uses that we did see that settled into a higher.
Higher level of growth in April so far compared to our January February quarter. We saw the same thing in Germany, although it's a little bit harder to see estimate that just because that market is growing pretty rapidly for us.
So.
We are seeing good growth just across the board and flour and I'm, sorry, I Didnt catch your second question.
Hi, Michael.
Okay.
Yes, our our supply chain disruptions due to co two pretty minimal I mentioned.
Because of the call.
Mostly mostly around adult use.
Distribution is.
In Canada.
And really that mostly in March where some of our.
Our shipments of our deliveries were delayed.
Bye.
Dave here in there but.
Overall.
We've we've not seen.
The significant code roof related.
Fusion challenges.
In Canada or four internationally.
In.
Q1.
And throughout April 1st Pardon me.
Yes.
Got it Okay and then my follow up is on the German market I think there's been quite of a change to the regulatory environment in terms of how medical candidates would be encouraged that there may be a cap now so I'm just wondering if that is indeed, the case and get what your expectation is with respect.
Howard could possibly impact pricing or closer to market. Thanks.
Yeah, we don't.
We don't see significantly impacting.
Our.
Our pricing.
What.
What is changing some of the.
In the market.
That does at the.
Retail level might be at retail.
In Germany that that meeting pharmacies.
Where the.
Product is.
Distributed to to patients.
In Germany medical Kansas, and only distributed through pharmacies.
And the German pharmaceutical regulations and.
They were there were some changes to how those pharmacies.
Can.
Some limit from cash on the market of medical canvas in.
There you go toward framework, but it should have fairly.
More impact.
In terms of revenue and margin.
Okay.
We continue to see we continue see increasing demand.
In Germany and throughout.
Europe.
Medical canvas and on a month over month quarter to quarter.
Closed over the last.
Since our last year and throughout this year.
Okay. Thank you.
Thank you Sir our next question comes from.
Within Vivien Azer from Cowen. Please go ahead.
Thank you good evening, everyone is healthy and phase I wanted to dive and on the North American.
Lastly, we know from last year that that business, it's a little bit seasonal because it's tied to school attendance on which is why you had a.
At a later on selling period in calendar three Q still with kids in North America, probably not going to school right now I'm curious on what you guys are seeing in that business. So kind of at the end of March that also into April because it seems for the broader FMCG category in particular food in average give some categories.
Got it can't Siloed and that demand has held up in other categories and auditing I can see load and then not on subsequent incremental demand. So any color on that would be helpful. Thanks.
Yes.
On a sequential basis that we saw growth.
They have begun.
Thanks for your question on a sequential basis with growth of approximately 14%.
<unk>.
From 18.7 million in.
In Q4.
Almost entirely driven by food.
Product.
The it's hard to answer the question.
Because.
He happens to be in additional pastas tasco source in both Canada.
And in the U.S. and where.
They have something called of Costless on the call the monthly.
Valued mailer.
The.
Significant demand for a massive harvest tempt food products.
Not only from Costco, but from a from Amazon.
In Q1.
And and that demand has continued into.
April may and so typically in.
In Q3.
In the past we have the a.
Downtick in.
In revenue over the massive harvest food products.
Most of you too.
Consumers routine being disrupted by summer.
It's hard to.
It's hard to know whether we will see that change.
This summer.
As a result.
Disruption that's already underway.
Okay. So just to summarize probably some portion of the growth came from Costco, but you haven't seen a material change in consumer demand patterns over the last three months or so.
We have not.
Perfect. Thanks that helps forget it.
Thank you.
Next question comes from Michael Labrie from Piper Sandler. Please go ahead.
[noise]. Thank you good evening and welcome Michael.
Thanks.
Just was wondering if you could give a little more color on your medium longer term outlook.
Obviously, if youve been mindful of your capital allocation and physician.
You have some sort of plan can you maybe at least just at a high level gives a sense of.
The timing for something like EBITDA positive or maybe more importantly, cash flow positive and how far away that might be.
Yes, I mean it. Thank you Michael the question that I think is Brendan the night, both indicated that we're focused on.
The Q4 period for the.
EBITDA breakeven to positive.
For 2020.
And I mean, given what we see today.
We think that's something that is is achievable. We don't know what we may see getting Kobe and other things in the marketplace, but our focus is squarely on on trying to achieve that goal and that's what that's our operating the business.
In terms of the added flow yes.
Right. The castle, if you just to clarify that.
I'm sorry.
But yeah on the capital side do you worry about to go there sorry to interrupt you.
Yes, I mean I don't.
I mean look.
I've been here 100 days and them getting my arms around a lot of things I don't know they necessarily about a.
A clear view cash flow positive at the moment, we're we're working towards the EBITDA component. We're also looking at all of our Capex. There will be look at Capex. This year. This should be a big year that where we finish a significant projects particular, our Portuguese phase two.
We won't see that coming in 2021, So I think we've got some pressure that comes off cash into 2021 and with the cost cuts that we've got I think that mill will be driving hard towards trying to achieve.
A timely goal of cash flow positive I, just don't have the visibility that I've kind of put out.
Timeframe at this at this exact moment.
And just on the broader industry for do you have any sense of how something like covert 19 might be.
Impacting illicit trade and would digital or delivery for example be driving share gains for the legal market.
Yes, that's something that thinking about as good over the last.
Over the last two weeks.
Yes.
You could one could argue that that Canadian.
Tumors are.
His haven't cobot are more interested in obtaining.
Product from a license retail Hawaii producer.
[music].
In that.
They are able to obtain the product from through the mail already occurred side.
Pickup.
Rich.
Do we too.
Fewer interaction.
As opposed to traditional.
Was it a transaction.
Obviously, some of the listed product providers and Canada.
Do you have.
Online.
And to deliver through through the mail.
I think as people are concerned about.
Quality and safety.
I think that.
That.
Coated may may lead to a.
Faster.
Migration Canadian consumers from the lifted market to to the legal market has a lot of speculation that statement.
But it certainly.
Seems as if thats a possibility based on.
So the revenue growth we saw.
In March from January February and.
Continuation of that growth.
In April.
Okay, great. Thanks very much.
Thank you I'm next question comes from Scott fortunes from Roth Capital Partners. Please go ahead.
Thank you for take call. Good afternoon, just a little bit more color on what you're seeing Ontario, you know they were wanting to bring on a fair amount of retail stores here in April I'm kind of that's the key consumer access you know what we're seeing the U.S. It is the on the curbside and delivery less.
Transactions like you meant that these are much higher transactions, but just want to get a sense for Ontario, and the ramp from a storing and consumer access from that side as you feel it.
We're seeing continued.
Continued licensing.
We we track.
We track them on a.
On a provincial on a sequential basis.
And.
Right now we're looking at.
Roughly.
The six.
License retailers in in Ontario, which is.
A significant growth from where they were Ontario and ended the year.
Last year.
And we we expect that that group to continue throughout the remainder of the year.
And then the question will be so where do we end up.
In terms of ended this year.
In the number.
Those retailers.
Open up and.
Last year, we were we were basing our model on.
Somewhere between 800 to 1200 and.
Being opened in 2020 that it looks like.
Barring.
Some issue with coconut into the air it looks like will end up.
At the end of this year.
Between 1100.
And 400.
Which I think will be positive for for the growth of the abilities market Ken.
Okay, great and it just follow up if you get 1100, 1200, then that mix, you're getting to adjusted EBITDA positive or pretty much on track from that standpoint.
New less would make a little more difficult the kind of like as looking at.
That's exactly where we were looking.
Last year and.
It would be challenging to get there.
Ended 2020, with 800 source or 900 stores.
Opened in Canada.
It makes it easier.
We ended 2020.
Somewhere around 11 400 source.
That's one of the key drivers the other.
Key driver for us it continues.
International growth.
And the ability to I'm sure products from our.
So in Portugal to other countries.
Great I appreciate the color thanks, guys.
Yep.
Thank you next question comes from Andrew Qatari from Stifel. Please go ahead.
Hey, Thanks, Good evening I, just wanted to ask because you've you've kind of alluded to kind of the market or the big surge in March and then kind of returning to normal levels. In April in March is that what you're seeing kind of on on the shipments side of things are province's kinda are in lockstep with where they were in the quarter kind of matching that consumption or they reducing <unk>.
Story levels and I know, there's some closures, but at the increase the order size can can you help us understand that.
Yes, so so we saw right.
From.
Significantly from January February.
But march.
Even more in January February.
And a lot of that was driven.
A lot of that was driven by.
Both consumer and patient, yes, essentially.
Pantry loading.
In in Canada in in the mid.
Although bad and think that I think that that Canadian.
Distributors, the primarily crank Corporation.
Decided to rollout canvas to though products Brody differently from the way that they rolled out.
Kevin One auto products in October 20.
80.
To me that what it means that if I heard from 18.
As provinces.
Really large orders and want to product.
In stock inventory.
This time around and they they placed smaller orders.
But it quite that much more frequently.
And any time.
In.
In December January we were getting a second order from a problem.
Almost especially as soon as we shipped slippers or.
And for the frequency of their purchases.
Has has increased.
Currently.
Which is very different from how big were.
Managing their supply chain during first all around.
Over here.
Okay, and then to that point you showed up you've shown up a pretty robust suite of products and only a handful of producers can say that are you seeing are you seeing the provinces increased their order sizes for me obviously the frequency is kind of a burden on your supply chain and do you need to go back to like higher orders.
Less frequent in order to to achieve kind of that more profitable Canadian template.
Yes [laughter].
Yes, I think that they.
Well actually in the room, there were a couple of story.
Around.
In product that the the potential buyers spot.
That that Didnt sell.
So some.
Our peers had.
Had issues with with returns.
As they were looking to avoid that this this go around.
And they're also looking to see who is actually going beyond the lever.
On on their promises.
And so we.
We produce a wide range of Kansas.
Two other products from.
He used and chocolate to today.
And.
We were learning our in part as part of what happened in Q1 is.
We were learning along box warning what.
What can be tumors were interested I, we form factors, which flavors, which product and I think that led to me.
The buyers buying away that.
The way that they bought and.
The the frequency as frequently as has increased.
And.
The retailers are getting more sell through information I think we may see.
Some of the.
The quantities and create a rough rough year.
I think that the buyer trying not to get not to get burned are quite strong bat. This go around.
As opposed to what happened here after.
Thanks, I'll I'll pass it on.
Thank you.
Net cash on our next question comes from Graham Kreindler from a capital. Please go ahead.
Hi, good afternoon, and thanks for taking my question.
And I wanted to follow up on the comment you made about to re looking to pursue new partnerships. I was wondering if you could provide some more detail on what specific verticals.
You're looking at what stage discussions are at right now and how that how the talks in general have they changed at all in terms of what's being discussed or whats PV prioritized you know now versus the way you might have had those discussions about a year or two ago. Thanks.
Yes.
I think.
Translations entry into the entry into the industry and all through entry into.
The industry.
Yeah over.
Yes.
How you look at two years ago, you're in Africa.
Hey, scared a lot of people.
Generally in the.
Beverage tobacco the.
Hey.
As the the conversation a year ago were much more.
They're much more education also robotics.
That means we have we're educating and.
Some pretty large company.
The campus industry and they were.
And it's been panic in trying to understand.
Three.
And in a hurry.
And that wasn't the case with.
It has a question that they they started looking at industry.
Early and everything.
Our first conversation with them and when we announce.
Fluids.
Venture it took about a year so they they hadn't really patient methodical approach I would say that.
Generally today.
The Companys Fortune 500 companies that are looking at sort of the industry are taking as much or.
Methodical.
Approach.
And that means lots to be lots of due diligence lots of ups to or.
I also.
I think that a year and a half ago devaluation.
Companies in the industry and the volatility scared off a lot of those good fortune 500.
And.
The more realistic valuations that have a peak there.
Interest more I guess my final point would be we're seeing and we're seeing more interest.
From International Partners, who.
Looking at.
Yeah.
Other TV products in certain countries.
Medical.
Pharmaceutical products.
Compounding product and certain regions.
The world and so a lot of the conversations we're having today.
Our focus on international.
Market.
I'm not domestic market to Ken.
Okay. Appreciate the color there and then just as a follow up question just to dig a bit deeper in terms of the that sales increases seen in that segment here I'm. Just wondering if you could you know it sounds like most of that growth. There was driven on the food side I was wondering if he just give us a bit of an update on.
On how things are progressing on this TV side, we obviously know that there is a challenge regulatory environment I'm in the United States right now with respect to.
Those products, but just wondering if you saw on any sort of interesting trends or or no significant movement quarter over quarter. Thank you.
Yes.
I am I.
A enjoyed predicting how this industry is going to change over time what's.
What is challenging.
Our next challenging is predicting anything involving.
Yes.
And so our strategy for you at.
His focus around building building portfolios trusted CBD brands in states, where were legally permitted to do so.
We feel that we're ready.
To address the federal CBD market one.
Further clarity provided by the FDA.
But.
It's really difficult to know today.
When.
That opportunity will become a reality and.
In the U.S.
I think that's.
I go out of it will will depend on.
What happened.
With the election and in November.
HM.
One of the.
Well the disappointment around each.
What's happened over the last quarter it is that.
[music].
Ballot initiatives in individual U.S. Dave.
Currently Red Republican today.
They.
Can't be really difficult to two quick.
Initiatives signatures and so.
I think we're going to assist you were they have does that fall out initiatives in November, but I think overall.
[music].
It'll be interesting to see how presidential candidate.
Address.
Okay CBD.
Keeping utilization medical Kansas supervision and legalization for.
In the U.S.
Between now and.
On.
Great. Thank you.
Thank you thanks, Andrew.
Thanks next question comes from Glenn Mattson from Ladenburg Thalmann. Please go ahead.
Hi, Thanks for taking a the question I realize it's late and of course, all tried to be quick but just one quick one on the cash balance as it stands should you achieve your.
Guidance results as far as cash burn in Capex and.
The money spent on interest and debt payment and things like that.
Where are you to stand at the end of the year at that level of cash that though that that math would project out too is that an level that you're comfortable with or do you feel like the business needs to have more capital.
As you go into 2021.
Hey, Glenn yes. Thanks, Thanks for the question so.
I think that the the cash balance will be partially dependent upon how much we accessed the ATM.
We have 258 million left on the ATM and.
Depending upon how much of that we choose to access will determine where we end up with the cash balance at the end of year than what that looks like into 2021.
Okay, Great one more quick one if I could Oh, I guess, maybe as I look at my model and I think about this year. It would appear that perhaps that the lean a little more on revenue growth from international medical could you give a sense can you say what do you think your market share maybe is in international medical and what do you.
But your growth this year to come from you know further market share gains or would it be or maybe have a projection about what that.
German market can grow at a this year just some color on that and they'll be for me. Thanks.
It's really hard to predict market share in Germany today, and what we're saying that.
They're on a whole lot of products in the market today.
Two.
Two of our competitors there.
Essentially.
Don't have much products to be can be found.
Due to some supply constrained.
There, but we do expect.
Revenue growth.
International yet on a quarter over quarter basis throughout throughout the year the bulk of that.
Being in Germany, Although we see we see continued growth in.
Yeah.
In Latin America.
And then some.
Small growth, but early growth and other expenses.
Great Thats it for me thanks.
Thank you I last question comes from Mike Hickey from Benchmark Company. Please go ahead.
[noise] Brendan Michael So you guys are good same store squeezing me in here late appreciate it.
Curious first on retail pricing across major product categories [noise].
Oh, that's comparing between a legal and illegal retail shops, there's still a big discrepancy there or not.
I'm wondering how Ah, perhaps recessionary pressures on.
Consumers here could impacts we pack mix between.
Legal or illegal shops, and another follow up.
Let's see so silver seek them.
Some pricing compression.
Oh on whole flower Andy in Canada is.
Especially on the lower.
Indeed potency flower product.
That is HM.
Is being countered by some some strength some support on iPhone CFR product.
As well as is to not do.
Products.
I think that.
What are the things we learned in Q1 is the.
They don't use Canada.
Medical Canadas.
Internationally, Canada behaves more.
Like a consumer stable.
Glass like.
Luxury.
Product and.
Kansas Medical Kansas, maybe.
Counter cyclical.
I think that.
It's it's hard to answer your question because if the.
It's the Uh huh.
It's the economic issues were caused by something other than health issue I think you.
These people migrate back to that market.
But in the midst of the a global health pandemic.
So far.
We haven't seen that I think because consumers a patients are trying to be as healthy as possible and or looking for high quality.
I'd say.
Products rather than.
Untested unregulated.
Products that come.
From analysts that market and are also obtained.
Through it was that transaction.
Okay, but on the health side, you're not seeing a mix shift away from base for our flower right, you're seeing sort of the opposite I mean intuitively think if that was a concern now you wouldn't want to be.
Inhaling smoking too long so abate.
Yeah, we haven't seen that yet.
Or haven't seen it.
We have seen.
We have been strength in or the other form factor, so things like to use and edibles and chocolate.
But haven't haven't seen a.
Concerns with with flour and at this point.
Okay last question on the on the premium flower side, what what's the highest potency.
You are getting to retail and what's your best selling strain.
<unk>.
[noise] D.
Hi, guys potency.
In Q1.
That we've got to retail or.
Why is he.
Well move to 25% to 26%.
And that's a strain called rock star.
Nice is that your best phones for me.
It's not not by.
Not by volume, but as soon as soon as we have it.
It is itself a quickly.
Sure Alright, thanks, guys special not be section.
Thank you. Thank you.
Thank you. This concludes our Kuni session at this time I like to turn the call back over to Mr. Brendan cannot be CEO for closing remarks.
Thank you I'd like to thank our dedicated employees and team members for all their hard work.
Inpatient and outpatient consumers' lives.
Through the power can now I appreciate we appreciate everyone's question.
In participation on today's call everything.
Ladies and gentlemen, thank you for attending today's conference call. This concludes our call today you may now disconnect.
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