Q3 2020 Medipharm Labs Corp Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the metaphor and labs, the first quarter financial results earnings Conference call.

This time all participants are in the listen only mode. After the speakers presentation, there will be the question and answer session.

Ask a question during the search and you will need to press star one on your telephone.

Please limit yourself the two questions before returning to the queue.

Be advised todays conference is being recorded.

The require any further assistance please press star zero.

I would now like the hand, the conference over to your speaker today Laura.

The fourth Vice President Investor Relations. Please.

Please go ahead.

Thank you operator, and good morning, everyone.

The on the call today are Pat Mccutcheon, Chief Executive Officer, Bobby Klein, Chief Financial Officer, Mourn average, Chief Executive Officer, Egypt, and stuff like and keeps draw on our president.

Before we begin please note the following caution restocking forward looking statements, which has made on behalf of money from labs and all of the to representatives on this call.

The statements made on this call will contain forward looking information that involves risks and uncertainties, including the old introduced by the COVID-19 pandemic and.

Actual results could differ materially from a conclusion forecast or projection and the forward looking information.

The material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information and.

Additional information about the material factors that could cause actual results to differ materially from the conclusion forecast or projection and the forward looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information contained in many from labs filings with the Kt and prevent Joseph.

Sure and he's regulators, which are available on SEDAR website at <unk> Dot com.

Now with that it's my pleasure to turn the call over to Pat.

Thanks, Laura and good morning, everyone.

Cut to the chase financially Q3 was disappointing.

On today's call, we will discuss the reasons why and the actions merger has resulted in the quarterly performance.

The good news and the core and like even though we were out of very early stage I was pleased with the progress we've made since our last call and transitioning a company interest sort of global medical and wellness markets have the sophisticated and pharmaceutical companies.

The recent partnership with data the European leader and generic drugs health and wellness and arguably one of our most significant achievements to date and puts us on the unique category within the global cannabis industry.

The deal, which took over a year to complete its a clear illustration of what's possible from differentiate GMP platform.

We expect our start of partnership along with the wasn't 30 other customer contracts and eat countries to begin generating revenue growth the early and 2021. This.

This will justify the investments we've made to establish our apartment capabilities and in fact, I can say with certainty that data would not have become a partner of many from labs with executing on our GMP certification and Canada and Australia.

The first two our results.

So far in our history, our revenue has come from the sale of bulk concentrate the resin and the switch and the vast majority being distributed and Canada.

As you know we enjoyed early success and the B to B bulk extraction markets and kind of it was first legalized from Canada.

Purposely use revenues from this business to fund the startup of our higher value pharmaceutical manufacturing activities and deployment of our international distribution strategy.

Over the past three quarters, we've seen this segment of the Kayne and campus industry changed significantly.

Yes, it's being influenced by a number of new players and many of the major LPG instead of transition to selling bulk to compensate for the lack of growth and their core business model.

Demand for finished one of <unk> products from the retail channel grew over 30% in the quarter.

<unk> early industry projections on expansion of retail outlets and new cash is 2.0 products have not been realized and the timeline of the market expected.

As a result, there has been a steep decline and demand for bulk concentrate and pricing pressure brought on by acute oversupply in the market combined with an immediate associated price drop.

This caused our revenues to decline to just under $5 million and the corner and.

The result on much lower revenue and in spite of cost containment measures adjusted EBITDA was negative for this quarter.

[noise] or from a future is we're ready to take off we're not relying on the bulk concentrate market to bridge the gap.

While we remain.

Opportunistic and is no longer tractor and from a margin perspective and is currently not economically viable.

In hindsight the cost actions, we took not significant enough or deployed fast enough to line went to the bulk markets don't true.

Some of the Q3 expense reductions happened too late in the quarter to make a difference we will have greater impact from Q4.

As a result, you're executing on a number of additional cost containment strategies to protect our earnings.

Accordingly or the per.

Last few weeks and with the full support of our board we commenced the stem to stern operational have you identified areas for improvement.

The number one your.

<unk> actively enhancing our financial management to better align cost with the timing of sales generation.

This means expense reduction is top priority.

In Q3, and you need to search for opportunities to rightsize our business.

This is in addition to the actions taken earlier this year that included and play reductions of 10% decrease and executive management salaries, the elimination of discretionary expenditures and the company wide cost containment measures.

As a result subsequent to the quarter, we further reduced EPS cheese through and or upper management ranks, while also reducing inventory on boarding service costs and reducing the need for capital project consultants and there will be a cumulative effect from these actions, which means more impact on Q4 as our cost continue to drop.

We expect annualized cost savings of over $3 million.

I want to be clear here I'm confident that we will not negatively impact our ability to serve customers meet future and market demand for slower path to global pharmaceutical and medical markets.

To inform on cost and efficiency improvement actions, we tapped into sep to target opportunities for process streamlining and we will make the most of our increased visibility of the system affords us moving forward.

I say p. implementation costs themselves will also fall away in January 2021.

It is required element to build trust and confidence and major pharma contracts existing and new.

Essential aspect of our expense drivers is procurement of candidates and whats.

Of a range for much more and tractor supply cost.

This will lead to improved margin performance, beginning early and 2021.

Number two.

We will continue to shift our focus from BB wholesale contracts to contract manufacturing of finished formulated goods.

Currently under our traditional white label and CMO services, we are producing a total of 22 beeps use.

In addition to these evolving contracts, we are now targeting more unique opportunities like the one that sort of by the manufacturing partner the labeling and distribution of 46000 units of soft shoes, just in the last month.

Number three and the recognition that we can't or wage growth, you've recently made significant enhancements to our sales and marketing strategies and.

The fairness I think the team has done a great job and secure and excellent customer contracts the old trees meaningful revenue in our target global medical and Canadian markets.

Late Q3, and consolidated sales and marketing and her leadership for a new VP of sales.

We are intensifying focus on our core of future medical wellness and adult use markets.

The cross these target markets, our priority will be to produce finished goods.

We have gained traction with this approach with finished from a product sales growing to comprise 57% of Q3 revenue up from 16% and Q2 2020.

Commercialized skews grew 13% and now include ensure bottles topicals I used to watch capsules, sublingual sprays and various formulations for edibles and beverages.

As mentioned earlier, our sales team is currently driving a 30% quarter over quarter growth and our Canadian and don't use which the sales.

I expect to see the space growth as we introduce more skews and entered the back for the first time and Q4.

Its investment in adult sales marketing and assumes came and mid Q3 2020, we're already seeing great success for.

For example of five TNB purchases and the top sellers and B C and two of the top 15, skews and Ontario.

Our money from flagship oil CBD 50 was the third highest selling oil skew in Canada.

And last October we were first to market, where the consumer side nine 9% pure CBD I used the crystal because.

The the launch of our labs can I missed the CBD, I should which targets the broad range of consumers and medical patients.

This is an incredibly popular products and jurisdictions I called out on California, and currently we are seeing the standard segment here in Canada.

Let me talk about our own branded BDC products, becoming more efficient cyrille producers of differentiated labs cannabis products is critically important and we have the capabilities to do this on.

The product Roadmaps specified that we will introduce our next labs kind of missed formulations and early 2021 stage and.

This is a good start and we expect more positive growth from each segment's geographically you will drive sales in Canada and abroad, and a more aggressive fashion.

Turning to our goal of medical pharmaceutical strategy.

We have promising opportunities for near term growth starting with our staff pharmaceutical partnership announced in late Q3.

Under this agreement maybe from labs like sports and GMP certified finished product and channel <unk> to Germany, beginning in February 2021, with the plan to expand to other newly approved European markets. All the time this.

And the first of its kind of agreement from the can't understand the street and as the door open on somebody from labs, and the other pharma leaders and looking to enter the medical Canada space.

Germany and are rapidly developing market from medical cannabis status and exceptional partner and one of the first from major pharma companies to enter the kind of us market growth.

And the extent of its farm should it be trained field team market penetration across on June 20 different countries and reputation in the European medical community or and over decades, we are well positioned to build on our presidents and the German and European markets.

Each of our international strategy as Australia and.

On the warrant Edwards' leadership, we continue to ramp up our customer base from Mehdi from Labs, Australia of the.

30, plus sales agreements, we now have and place around the world 12 have been secured by our Asia Pacific team.

Our decision to deploy our balance sheet to acquire 100% of May from labs, Australia positions us to take full advantage of these opportunities and whats flow control.

I'll now ask Warren to update you on its progress on.

On.

Thanks, Pat I'm very excited to be here with the came on the school.

This has been and very exciting productive yet from any from labs, Australia.

And now executing and outside of the art JMP platform.

Executing and a strategy of I've and many doors for us and the global kind of a smoker.

The focus is being on kind of the two point or the has established shots of the t. and manufacturing partner to support the emerging industry.

During Q3 received and evolution throughout GMP certification from the T.G. I.

This amendment allows us to manufacture kind of beside the line, which includes resin extract the norphlet [laughter]. We then try and besides the onto the medical kind of its products, such as our and liquid soft gel capsule and the oil.

And the two companies and Australia possessed this level of line.

The timing of the uptake could not be better.

This yeah, the TG eyes approved and patient applications from medical kind of missed out of record right.

The expected the approved patient population to reach the 70000 body and the 2020 day.

The revised that it's an upward and the number was the trade for the end of September month.

Month of the monks growth has been phenomenal.

With the introduction of milk and eggs and a simple prescription price it.

And they see the bell curve from here.

The team is focused on changing legislation to provide security products over the counter and 2021 day since buying interest from many large pharma company for interest and now services.

We've also been front and center and driving changes and the current regulatory framework pretty much value.

Hi, since one coty products like and trust and legislators the looking to make it possible for cost of thrives on the domestic pharma company.

The current lobbying to the T.J. will likely see a ban on imported non JMP medical product.

This ban and substantially increased the value of the L., James the loss and an l. share of the market.

This mirrors, the locks and New Zealand and Germany.

Hi rule of strategy fits well within the corporate strategy because it has the Korea regulatory regime strength.

The <unk> represents the highest level of opportunity for international export the park.

These creed of regulations made that up and so the industry and it can work seamlessly predestination operations. The said the domestic market I use your Latin America and Europe.

The powerful GNP price collectible.

The combination of the left us with huge flexibility.

From a production the specie medic on labs is now fully licensed by by the I'd say the T.J.

As Pat mentioned Asia Pacific team has been extremely I gave and securing cost and instead of on Welchol our growth strategy.

The white label supply agreement and so on kind of Green pharmaceuticals in light of type of thing. The Leidos example, this is the Twelveth customer agreement range last Friday the team.

Looking ahead, we have the RMBS and the go well beyond the Strider and you deal and.

You have deliberate growth and facility optimization plan. The 2021, the they're fully capable of executing on.

And my estimation, but he comes out of the strides destined to be a significant contributor to the corporate value going forward.

Now back to GAAP.

Thank you for an update no question, we're all very excited for what's on the horizon for Australia.

In addition, we formed our first customer alliances and the Latin American medical care of its market with cash from Peru, and accelerates Brazil.

Like you I'm eager to see sales ramp and everything and the lighting well for 2021.

And make that comment was confidence based on detailed discussions I've had with our customers that have reaffirmed agreed upon production schedules on.

The return with a few closing comments and now I'd like to provide the financial summary lobby.

Bobby take it away.

Thanks, Pat and good morning, everyone.

As you've just heard we are disappointed with our performance in Q3.

Chicken Lizzie after reporting a marked improvement in Q2.

However, our results continue to reflect mainly Canadian kind of this market conditions and wholesale.

Q3 revenue declined quarter on quarter by 9 million and it was primarily driven by lower volumes and bulk oil along with continued price compression to the tune of approximately 12%.

There are however, encouraging developments, namely.

Sales of finished goods products and by 23% quarter over quarter.

We made our first sale of ice and that's with 90 and I percent purity and the quarter.

Sales and Australia grew by 15%.

And we signed the additional sales agreements internationally, most notably with Stada, a leading pharma company and Europe as well as the accelerate in Brazil and can farm in Peru.

Gross profit was significantly impacted by the combined effects of lower pricing and lower volumes and sufficient to cover fixed cost as.

As well as a non cash inventory write down of $6.3 million and $1.5 million write down related to non current deposits on a few capex equipments.

Total operating expenses, excluding share based comp were marginally higher in quarter, three compared to quarter two by $200000.

Lower project consultancy and personnel related costs were offset by lower claims under Canada emergency wage subsidy program.

Lower foreign exchange translation gain.

And the small provision and approximately 500000 for the estimated credit loss.

As a result operating income including share based comp because the loss of $16.5 million and.

And adjusted EBITDA is the loss of $7.2 million.

Turning to a few highlights on the balance sheet.

Our balance sheet remains strong with cash balance at $36.5 million at the end of the quarter.

As mentioned earlier, reflecting the continuing market conditions with the oversupply of products along with pricing compression. We took a non cash write down on our inventory by $6.3 million, resulting in the net position of $31.8 million.

Looking ahead, we see increasing opportunity to take advantage of low cost flower inputs coming to the market the lowest we've seen to date.

However in light of the current market demand and supply dynamics, we are remaining selective and disciplined and our flower procurement efforts.

We will purchase the only what is required to fulfill our commitments as we look to preserve cash and maintain a healthy balance sheet.

As we said since the beginning of this year cash preservation and liquidity of become front and center objectives for the business.

Well, we took action to achieve cost savings the big this year, we will continue to pursue and accelerate additional cost reduction initiatives.

These actions combined with our cash and strong balance sheet will also enable us to execute on the initiatives that drive profitable growth going forward.

Now back of pad for closing comments.

Thanks, Bobby as you know, Bobby and leaving US and the end of the month and I would like to express my appreciation for his contributions over the past year.

We have now initiated a search for his replacement and in the meantime, we'll be well served on our current financing.

I think it's important to note that maybe part of the labs and done much to upgrade our corporate governance over the past few months.

The additions of Shelly Martin the tired sealed and that's the Canada, Chris Tais COO of BMO capital markets and Chris how it the former President of Janssen, Canada charts, and Johnson are making a difference to the quality of our board's deliberations and decision making.

Clearly moving from labs, and not the only company and the canvas industry that has had to adjust and evolve.

The pace of the market development has been much slower than anticipated and the global pandemic and definitely taking this tool.

This is not an excuse me it is a reality and one that we're addressing through the cost mitigation and at the sales and marketing improvements currently underway.

Once again, let me be crystal clear on this point, we are aggressively cutting costs from order to accelerate our path back to profitability.

It is important and mention that our global pharmaceutical strategy takes time and significant allocation of quality and regulatory resources not seen among our kind of you know p. peers.

When looking at our BDC business in Canada, and it's fair to compare made from labs sort of appears and the industry.

However, when comparing the international pharmaceutical strategy must be benchmarked against other global pharmaceutical AIDS Guy manufacturers. This is what truly differentiates maybe from labs, and where the future growth opportunities exist.

This has been our vision from day, one and is the right one to satisfy the global medical candidates market demands.

Looking ahead I remain confident in our future.

Our new customer relationships across the globe will produce revenue growth starting early 2021.

The signing of the first tier one pharmaceutical company to enter the of medical care of its industry is no small feat and well years and the making.

Our now wholly owned Australian subsidiary is giving a long sought after multi jurisdictional GMP supply chain to unlock new sales agreements and sort of new customers in Europe, and the sale of Pacific.

Other major picks member nation markets are opening up such as and the Tam and the U.S.

These are two of the largest jurisdictions in the world. The I'll provide further growth opportunities and expand our addressable markets given our TG a GMP certification.

The future of medical cannabis is bright and many from labs is well positioned to be a prominent player in the evolving industry.

Our long term vision and strategy of GMP certified platforms will create value for shareholders.

This quarter's performance is no reflection of the future potential of any problem labs leather has served as the lesson and operational efficiencies on our journey back to profitability.

Thank you for the ongoing support and the understanding of the requirements and time it takes to bring on higher quality products to the global medical consumer.

Although GMP quality is not required to serve the domestic adult use marketplace. It is the defining characteristic that sets Merry farm labs apart from the rest.

Now we would like to answer your questions. Operator would you. Please open the line so our callers.

Thank you that's the.

This time I would like to remind everyone in order to ask the question press star of the of the number one on your telephone keypad the.

First question comes from the the Cadeka, Okay TV capital markets. Your line is open.

Hi, good morning, and thanks for taking my questions.

Just want to dig a little deeper here a patent team with respect to your.

Your independent operational review that you made reference to the so I'm just wondering if you can comment on.

It's actually a undertaking the review, but also on and maybe more importantly is there a strategic component to this as well. Thank you.

[noise] working day, one day, such that first question I guess, the the operational review, we engaged a group of of pharmaceutical experts that type of the can take a deeper dive into our management systems and our efficiencies structure and.

All of their cost structure, and how were looking at any real opportunity, we can actually each position to accelerate back to profitability.

Maybe just leave that those church two first the opening comments and the keys can add a couple of details and logistic side.

The fact, they are David just as far as a of the review goes. This is Pat mentioned were really leaving no stone unturned you know I think looking at the results. There is there's obviously a lot of opportunity. So a lot of it is around the processes and procedures. So that that group that we brought and is really focused on bringing in some operational strength of the.

And from the pharmaceutical industry in a way that they can look at you know some of our activities and and how we do that's the we've just launched a safety in July which day sophisticated system and and the and now we want to make sure. We're getting the use the best instead of it through things like demand planning and scheduling and whatnot. So lots of opportunity. There. We're excited to kind of see that continue and.

The implemented and Q4.

Okay. Thanks, that's helpful. Thanks for the color Mike.

My second question goes back to stay out of which obviously for the many farm I mean this was on a very.

Very important a deal flow and also for the whole industry I just wanted to know just to level set here and you mentioned distribution.

Youre part of the really coming to fruition and the I think you said February 2021, when can we or the.

Analyst community you expect to start just to see revenue kind of thought hitting your your top line true, which data and also if I can take that question a bit further I know, Germany is kind of the first country, you're you're interested and what we've seen a number of other.

Peas, and track record over the last week or so one in particular is likely the largest and in the whole sector reported Germany, and particular actually decreased and sales just due to increased the competition and in that country. So I'm wondering how you feel about the German market in general and again interest of the which data more and more junior.

Thanks.

Yes. Thanks, Good question, David yet as mentioned in the earnings script, and and numerous different media events now status and our our host a fantastic and she went in terms of new customer relationships and.

Definitely a signal that the Canadian candidates companies or I cant of his company overall globally and actually now signed deals when it proves that can execute on the GMP platform with the tier one pharmaceutical company. So it's kind of fixed and attached the relationship. It's been a long time of the making as he mentioned we are expecting to see revenue.

From net and mid Q1, I mentioned on the earnings call in February so that sort of expect and she.

The of search and movie in Germany, and there's a couple of the little ones I would just add on to that keeps you not on just with regards to kind of the next steps and how that as much and look at the rest of Europe, and the and the growing opportunity.

[laughter] yeah. The a couple of parts of that you touched on their day, but are there other countries. The other opportunities and you know data operating 120 countries around the world. So we are looking right now as we get closer to launch in Germany and were looking at other countries, where we can duplicate the model and.

Gets the more runway out of the skews and they'll be launching so as far as getting more out there into other countries, especially in Europe and.

Once we have it within the E U. It's it is a little bit easier to move around with it. So there's there's a lot of opportunity there and we'll keep everyone up day that kind of add on the news calm and as far as of the German market goes in and some signals of of decline because of competition I think the pie there is getting problems, but at the little bit more.

And as you mentioned for some of the suppliers of I think that's why it is so important to work with someone like data. So where is the some producers might see increased competition as a threat why not you know partnering with one of the largest pharmaceutical sales of ours in the region.

Really mitigate that risk from us and I was trying to go alone.

Thank you very helpful I'll hop back from the Q.

Thanks, so much David.

Your next question comes from there and growth of Alliance Global partners your.

Your line is open.

Hi, good morning, and thanks for the questions.

First of all from me just one of the kind of come to the <unk> the Canadian market, particularly on the famous formulations, we saw some increase quarter over quarter looking.

Looking at the <unk> market overall, you know you mentioned some highlights on with BC, and Ontario, you'll be getting into Quebec wondering on terms of what you're seeing right now in terms of the base you know competition. It looks like we're seeing some pricing pressure Oh, you know within the markets. One of how you feel about the pricing of your own kind of off and formulation products. They have with your white label partners and how you feel like that's evolving how might impact.

On the gross margin profile. Thanks.

The good morning here and the takes us for the call and just couple of things and though I should pass on the kids welfare and of lot of color and logistics.

That definitely with regards to the day, Mark and we've been doing well as you mentioned the earnings call in terms of how competitive the converse reserves from the volume sales across the country. We feel very strongly and this is exactly how we kind of repositioned our of the balance of our revenue for Q3 with almost a 57 per cent acts.

Cool.

Representation of of revenue up from 16, and acute you basing a significant portion of it will.

We've also seen just over 30% growth quarter over quarter as you mentioned of its across all of the skews for our provincial distribution on.

Well, that's fine and get back recently and will actually pass over to Keith for just couple of more detailed specifically on the on the basic these particular.

[laughter].

And here from here and so pricing on base I think it's really we are remaining very competitive and as I mentioned in the call 'em. We of some of the best selling day skews either through our partners that are out there. So you know not everything that the consumer is looking for is based on price and have a great reputation of.

Good quality product as well when it comes to the price and we Didnt work really closely with with the profit says I think and when you look at the Katy and I don't use market. One of our main goal is on eliminating or reducing the illicit market and pricing is part of that strategy. So we're taking a hard and that strategy. So whereas right now we might not see.

And grade of margin or we are reducing the list of market, which will grow the market and the out of used Canadian product and then well see those margins get better and we bring our cost down mainly on input material. So the flower that we're working on now a lot of the higher price than the flower and that we would be.

Volume in the future so that the great a great Uh huh.

Opportunity from the Great thing about not working on kind of in the CMO b to B, a year and we do get a lot of exposure of of volume and pricing so rather than on the making a decision just on the table with just the problem and we have good and help the kind of what what's going on where us and some of the most major.

Our distributors and of producers here in Canada, as we work with them, so really relying on some of that information and health and make sure that we're making the most of form choices. When we finalize some of these price and shot.

[noise]. Thanks for that color. That's helpful. And then the second question for me I will kind of continue on you know what the gross margin. So you know what's the gross profit and you know even if we adjust for the two you know write downs that up to about 7.8 million would have still been negative in the quarter. You know you talked about you know buying flower now thatll be too.

And then what you currently have you know within the inventory. So the kind of talk about kind of you know the past the kind of improving the gross margin profile I know historically you haven't given the time.

On between the different.

You know.

The top line segments and the margin profile is but as you kind of transition away from the book extract a market and kind of into more of the finished formulation and the how best to think about you know the margin profile over the near and medium term. Thanks.

Yeah, Thanks, and I'll I'll just start much of a couple of things and I got a password of Bob the actually but a couple of the the couple of the elements that we did mention and the call I'm. The significant reduction of the price of input a supply material that will be available for the Canadian domestic market distribution for our product will be one influencing factor and another really comes from a the plane we met.

And the book to our operational review and and looking at efficiencies on our systems and ensuring the rationally.

Moving forward in terms of higher numbers of production and shorter amount of time and identify all of those organizational and.

Management system efficiencies that we need to know and to increase the the margin rate I will not sort of Bobby for a little added color in terms of the gross margin.

Thanks, Pat and thanks, everyone for the question and we just build on what Pat just said I think you know looking forward without giving any obviously from the sort of guidance the.

The sort of the drivers for some improvements to to be expected going forward or namely in reverse order. The Todd mentioned, one certainly our ongoing effort with respect to some efficiencies and process of <unk>.

The sort of reviews that was referenced earlier all of those little bit will add up the data that the biggest driver will be twofold, one sort of the input of material that hopefully going forward, if and when we need some of those selected procurements will certainly be the gain as I noted and my comments.

Reflective of the current market conditions of the input materials, which is the gain out of very low point, which is great in terms of <unk> input cost. The second that would be hopefully are continuing sort of evolution in terms of our portfolio and the product mix and certainly if you look to 2021, and you know sort of on the way out.

Or the international side of our portfolio as I mentioned, the number of times will will ramp up and will continue to ramp up and with that the sort of the positive the effect of all of that sort of shift in mix air and alone should be positive for our margin structure.

Okay, great. Thanks, I'll jump back in the queue.

Your next question comes from stuff works from your line is on.

And can I follow up a little bit on Australia, you quantify what you're doing there and then you mentioned kind of the international and makes how should we look at the the keyed into or the percentage of revenues as we look out to 2021 coming onto the and the into the.

The international side of things.

Yeah, Scott Smith, the very early from where you're calling in from this morning, thanks for calling in.

And I'm actually going to push over to a true warranties, a little bit of color on the yes, really and business and the the Denver, the number of contracts and Alex its non increasing and and I can finish off with the Harvard and look at the the percentage mix of kind of representation of the revenue over the next year or and you want to answer that element.

Yes.

The thanks, Scott So I guess on terms of the first couple of quarters of revenue as the company in Australia revolvers. The I'm had been over the focus in terms of actual transactions and live the product out to the end of a quarter.

Two companies actually in Australia, and that's obviously because [laughter].

The aspect of actually having on law sincere and a share of it gives us the opportunity to get the products of registered and all the countries like and easier and and Germany, and Europe on because that regulatory pathway, even with the GMP license does take some time.

The good news is we have been working on that actually behind the scenes from many months now somebody like stage and now evolution of the getting approved from Ministry of Health and you see the one.

Well its age of screening and I'm from products of proved to be registered and it's pretty calm and Jamie. So we're looking at the early quarters of next year will be very productive in terms of the transacting the actual product delivery from Australia and facilities and those international markets.

Is cluttered the portion of mix, obviously it depends on the maturity of the market museums and is in the mature market, but of the C companies entering that market space and have the opportunity to actually execute on the on delivering products that are on a jurisdiction because I need to go through the sign challenges and evolutions of building a company like one of the year and stuff.

Yes, Sir and that sort of 36 month exercise needs to take place in country and six of the next sort of for use of your core on the trust or supply those organizations and likewise into Europe, one of the market is evolving and emerging mature and you know.

A lot of companies and not necessarily looking to sit on the capital expenditure of facilities to execute on that business model sorry, Peter on the we look at sort of the of course, the really the question around opportunities and those markets do we say competition. The reality is is we're still the white label solution. So were not going up the likes of the you know two right here on the company's of potentially of.

These cluster and brand and to Mark and I were.

The company that actually per watt solution for a company the ones and the way the brand so that the competition is not necessarily eyes on.

Difficult to navigate when youre of solution for bought into the multiple different companies.

Thanks, so much that weren't on just outside of called points of stocks and question on the percentage is as you know we're very conservative in terms of how we position and guidance, but we are and we are very much expecting of the international sales to Australia to increase and it wont be anywhere between let's say 30 and 40%.

It's true the 2021 and that we'd be very excited to add to see that growth over the next year.

Great I appreciate the color and the real kids kind of Ah you know with Mexico kind of moving forward and the guys kind of look at the opportunity in Mexico, the or other countries that you from cool are coming on board here.

Yeah. Thanks for the question sockets, and that's already see trick on details on our international sales strategy.

And Scott I think you know exciting and a lot of new jurisdictions as people move toward a medical and legalize market and how we can.

Participate and those of Mexico, and particular would be on member of the pick the nation. So they're part of the pharmaceutical inspection co-op, which is the same co-op a that the TJ belongs to which has given us the GMP license in both Australia and in Canada, So and we expect the regulatory authorities and the places like Mexico.

Look at out of some of the same lens of the inspectors work under the same guidelines and regulations. So really exciting. There. Obviously you know new countries are sometimes hard to do business and and unless you find the right local partners, but I think you know many farm has a track record of success and these areas. We've signed the agreement and you know and.

It signed agreements and South America, where people you know sometimes have the same commentary as far as cracking into those markets, so with contract and and products being registered and places like Brazil, and Peru, as more and markets open up and central or South America, There's a massive opportunity there and then you know the expansion in Europe as Weve signed agreements and places.

Like the UK, Denmark, and and of course, Germany, So and Mexico, but really all all of all new markets, we see the as the massive opportunity because it will come with had the regulation and that's one of our strength.

And just the only all had and another little point to this and one of the things to you've seen recently and the the launch of our clinical trial portfolio or new trial, and that's not going to be looking at dialysis patients taking different chat and like products with different delivery mechanisms.

When we look at our clinical trials and development and actually bringing on new countries to actually be involved in net which gives us and the ability to work those regulatory bodies I on.

Also a habit and system, where we will have the data to be able to you in the number of different countries and so we are targeting the Latin American countries and opportunities to be involved and sort of of clinical trial portfolio, which we feel accelerate commercial opportunities John.

Great I appreciate the color I will jump back and the Q.

Thanks Scott.

The gain if you would like to ask the question or re queue for additional questions. Please press star of and the number one of your telephone keypad.

The next question comes from Fat and buckets of Scotiabank. Your line is of.

Mark and thanks for taking my question.

Okay. So.

I I won the it got back to the start of contract on are you guys able to give a little more color on the resources that are being dedicated by status to it maybe the number of sales staff or something along those lines. It's already been highlighted a few times, but obviously the German market of getting increasingly competitive from Canada. So.

That'd be helpful to understand how sad is going to apply resources the helped drive sales.

[noise] and how you doing the Adam and Thanks, a question I'll start by saying, we have obviously been a the conservative in terms of details on the and watching the sales and marketing strategy and the and the sales team itself and what I am kind of pass over to keep the skills live and more color in terms of how the mall.

They are from logistics side, and and actually I got.

On the African and broader team and actually now is engaged record it may from.

And to execute on the steel and not really from 21.

Ex that.

Yeah the.

It's obviously like our most important customer considering the size of the company. The terms of the on as far as time line go and the opportunity to expand it I think the the the importance of the relationship is also mirrored on the status I they have the.

Why you don't significant resources to the project to make and a success and I think you know with what that is done and especially in the last five years is very tactical and and when they do do something they do it with conviction. So I think we can be quite confident and and how that will roll out as far as like some of the and.

And all color on specific Oh, you know sales strategy that the little bit are harder to get into obviously, because we don't want to hinder our ability to remain competitive.

But there is a you know on the.

The concentrated effort on both sides.

Okay. That's great. Thanks. So my second question is likely for war and if we if we think about Q3 and we.

Touched on the regulatory bottlenecks of slowed the revenue profile of new contracts and new jurisdiction, and we think about Australia, where there any bottlenecks that provided a barrier to growth and Q3 or was the sort of a I think it was 12% growth that was highlighted the it's not the sort of cadence to be thinking about as the.

New contract sort of roll on for you guys. Because I think it was highlighted the 2021 would likely be the big ramp right for and all the contracts have been signed right.

Yeah.

Sorry on Ah, yes, so the true.

Yes, and you know the reality is in terms of you look at the evolution of fugard back through the series of different pressure places. The first lot of materials that we distributed into kind of the we're actually manufactured in Canada and distributed to Australia and on and sold into the domestic market and obviously, we could do that because of the now [laughter].

Oh Gee ticket certifications on the GMP and kind of that and there will succeed and the messaging and I had early on were on talked about the fact of stride and market actually is going to become quite seem to be at least stricter going forward in relation to products coming and internationally and Australia has been quite free in terms of the.

Hello Hello.

And <unk>.

And the buckets right onto.

Domestic body the therapeutic school administration is actually going to close the borders on making this the on GMP, which is kind of back the significant difference significantly difficult for kind of <unk> companies and other companies have throughout Europe to dawn hub that a GMP certification on the MRT to get price into Australia.

And then the the second of all the production and this quarter, which are the distributed ex and manufactured locally. So we're sort of the vote for you know business model, because we are maturing and we have the actual compute capability now now the full loss and seek to actually execute on products locally, obviously and with products and <unk> IPO and put material coming from the parents and Canada.

On the evolution should continue to ramp obviously, the the numbers. The I presented there was the fact that the up and so forth.

Domestically, we projected 70000 patients throughout this.

The sheer and 2020, we hit that number in September and you look at the sort of doubling month on month of price and acceptance through the year on the on.

Prescription process on which is the special access game the next year, specifically the big ramp.

And 2021, he's got over the counter the process or saved the day, specifically on who's going to be day scheduled and that's kind of beat over the counter and should be able to go to the geo pharmacy, and you'll be able to talk to the pharmacists and got access a secret of products now the domestic market companies pharmaceutical nutraceutical companies, which have mileage lots market per.

And yeah, I rolled wanting to have the first lots of CVD products out of the accounts or is that just the scheduling would happen in Q1, and obviously they need the GNP platform, which is the minimum requirements for manufacturing the product Hans actually into the market and other types of opportunities. Those companies are looking for other walks the year of sort of teach of autos.

The truck soft gel capsules, and obviously the of the capability to execute on nights and domestic block of here is ramping significantly and the continued to sort of capture more market share.

With companies, who are entering the space and we got to be the kind of this company and overseas a lot of and not looking at necessarily setting up capital expenditure on execution capability here and cultivation of manufacturing and actually setting up styles.

And in the domestic market to bring their products to stroke patients and it.

The the closing of the border and the GMP eye on.

Also require manufacturing partner to create those products on the GMP and Australia, the copy and putting them from kind of the unless that had that sort of attrition, which lot of and do not so there's a big ramp the swell in terms of the the Canadian kind of this company is entering the market looking for domestic manufacturing partners to grow day market share here locally as well.

Great great. Thanks.

Thank you.

Thanks much out of.

[noise] again and feels like the rest of question or re queue for additional questions from starting from the number one on your telephone keypad.

[noise] that sort of final question from today I will now return the call the Mr. factor cuts from for closing comments.

Thanks, so much and for that.

Once again [laughter], let me be of Crystal clear on this point, we are aggressively cutting costs in order to accelerate our path back to profitability profit.

Profitability that we expect to return to and 2021.

It's important to mention and our goal of pharmaceutical strategy takes time and the significant allocation of quality and regulatory resources not seen among our other LP peers, which we're often in appropriately compared to.

Our new customer relationships across the globe produced revenues growth starting in early 2021 real revenue growth.

Opportunities that are not available even to the vast majority of our industry peers.

The signing of the first tier one pharmaceutical company to enter the medical cannabis industry was no small feat and was years into making.

It was an incredible and she went out of our team we couldn't be more proud of this.

Although GMP quality is not required to serve the domestic the don't use markets in Canada and.

And the defining characteristic that somebody from labs apart from the rest of it.

And it's really the core reason why we have now been able to sign such major significant pharmaceutical deals such as data that immediately gives us an overnight competitive advantage and Europe.

And is this fundamental core reason the we'll continue with the side and execute on deals of this nature and side going forward and.

You very much.

Ladies and gentlemen of this concludes todays conference call. Thank you for participating and you may now disconnect.

[music].