Q2 2021 Aphria Inc Earnings Call
Good morning, My name is Denise and I will be your conference operator for today at this time for much welcome everyone to be of for your Inc. Q quarterly Investor call. All lines have been placed on the bench in the background noise. After the speakers remarks, there will be a question and answer session for analyst and we're investing for him to only.
If youd like to ask a question during the time simply press Star then the number one on the telephone keypad, if youd like to withdraw your question. Please press the pound key. Thank you Mr. Macgregor you may begin the conference.
Thank you Denise good morning, everyone and thank you for joining us to discuss a free Inc.'s financial results for the second quarter ended November 30 of 2020 on today's call are Irwin Simon and Carl margin.
By now everyone should have access to the earnings release financial statements and M. DNA, which are available on the investors section of the free is web site at Www Dot of free Inc. Dot com.
Financial statements have been filed on SEDAR and Edgar.
Before we begin please remember that during the course of this call management may make forward looking statements.
These statements are based on managements current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect actual results could differ materially from those described in the <unk> in each forward looking statement.
Please note the tech net earnings press release, and the financial filings issued today for a discussion of risks and uncertainties associated with such forward looking statements.
I'd also like to remind you that all references to financial figures are in Canadian dollars unless otherwise stated.
And now I'd like to turn the call over the Irwin.
Thank you very much the American good morning, everyone. We appreciate you joining us today to discuss our second quarter fiscal year 2021 results across.
Across geography use our global teams continued to execute well and advanced our leadership position as we build upon our long term vision to be a leading global cannabis lifestyle consumer package goods company.
The strength of our operational for natural result demonstrates the diversification of our business.
We took important strategic steps to focus on the highest priorities, including which we believe will be high returns for such a strengthening our core cannabis Foundation in Canada, and Europe, and completing our strategic M&A, which help us generate sustainable growth for today and welding true.
Of the future [laughter] in the second quarter, we reported net revenue of 160.5 million on an increase of 33% from prior year quarter. This was helped fuel by best the adjusted EBITDA per quarter, representing our seventh consecutive quarterly increase in positive.
Adjusted EBITDA.
We had a record adjusted EBITDA from our cannabis business also up for the seventh consecutive quarter and.
And on an adjusted basis reported net income of $3.2 million on earnings of a penny per share.
[laughter] our market, leading adult use kind of is France remains strong and our international medical cannabis sales are off to a solid start day.
During the quarter of free it maintain its number one position as the top of license producer in terms of sales to provincial boards across all of our brands and both on carrier and Alberta per headset reporting data.
It's a data while not always encompassing of retail sales in Canada covers a large portion or approximately 63% of the total retail market.
Based on the headsets retail data for the first half of fiscal 2021, a free on is the number one licensed producer with the market share of 13%.
For another point of reference according to oversee EPS data for the Rolling three months of October November and December 2020 of free again is the number one LP for all categories sales with the 16.2 per cent market share.
Oh the free is also the number one LP in the category with the 21% market share and our brands just to name a few really good supply. So late we're number one of the dried flower with the 16.8% market share number two in pre roll with the 21.3% market share and number of.
The wouldn't oil well the 16.5 per cent market share in Canada.
All according to all C. S for the same rolling three month period.
Internationally, we completed our first you GMP shipments of dried cannabis cannabis spoiled to Germany. We also received on import permit in Malta for our first you G.M.P. shipments of cannabis oil sales for the Maltese market.
In Israel, we completed our first shipments of medical care and the best to CAD dock and we execute as the flight agreement would owe the life from an expanding a free is international presence into Poland.
We are leveraging our strength with our medical platform and our multi facet international operations. This includes our domestic cultivation import permits and a large distribution infrastructure to increase access the high quality medical cannabis for patients and consumer.
[noise] work inside that we're excited about the long term potential to grow internationally and the and inner core Canadian market, where a foundation continues to be very strong.
As a company that's purpose driven we take great pride in leading our core values and are committed to changing people's lives for the better by investing in our products, our brands and our people and of course saving the planet.
We utilize our industry, leading cultivation and production facilities, along with their R&D and the innovations teams to create compelling and relevant product offerings for all of our consumers.
At the same time, we did an excellent job managing our costs.
Q2, marking our fifth consecutive quarter of cash cost per gram below one dollar.
And there is room to even reduce is more the strength of the balance sheet and capital structure enables us to support our growth organically and inorganically, increasing establishing the free a as a clear leader.
While we're pleased with our growth and success to date, we know there's still a tremendous potential for sustainable long term growth.
Our transformational journey began well over a year ago, and where we started it is very different than where we are today and probably where we will be next year. This type of.
And as we look edge of the next six to 12 months and be on we will continue to evolve and our business will stay in the forefront of the industry.
We focused on maximizing our growth in net sales profitability and more important cost containment.
We ended Q2 with the pro forma cash of $320 million Canadian.
And then importantly, one improved our free cash flow by $70 million in the quarter as we move closer to our target of generating positive free cash flow.
I want to think.
Our global teams for their hard work and dedication to deliver these results during these times.
The health and safety of our employees remains a top priority for us in the midst of the ongoing dynamic operating environment, we completed the strategic accretive acquisition of Sweet water.
One of the largest independent craft Brewers in the United States based on volume and most recently entered into a definitive agreement the combined with till right in order to create the largest global cannabis business based on revenue.
We're on track the close till right at the end of April or early May of 2021 for.
Following the receipt of regulatory approvals and shareholder approval for both companies and I'm really excited about getting this done.
At a free yeah, we're building on our existing strong foundation in Canada and internationally by increasing the scale of our global operations through these two strategic transactions.
Focusing on the Sweetwater, Freddie bench, founder and CEO Sweet water and his team have truly hit the ground running working side by side with her team on drinks our acquisition of Sweet water provides a robust profitable platform for future growth and development as we leverage their innovation manufacturer.
The marketing distribution infrastructure in the southeast where the expansion opportunities across all the U.S. for craft beer and upon federal Legalisation cannabis products in drinks, which is well over a 200 billion dollar market.
We now have added key partnerships with leading the U.S. distributors retailers and the on premise customers strength in their ability to develop new distribution in the U.S. for a free of products and branded beer products and branded free products.
In addition to acquiring a strong brand and then the accretive business. This acquisition positions of free up with the scalable infrastructure within the U.S. and enables us to access the U.S. market quickly in the event and when federal Legalisation happens.
[noise], we're excited to build brand awareness for adult use cannabis brands in the U.S. ahead of potential federal cannabis Legalisation, our integrated credit teams the already done a tremendous job developing new cannabis lifestyle craft beer and other beverages for products using the of free of cannabis France.
We can't wait for them to hit the market in fiscal year 2021.
This also includes suite waters, most recent product innovation and the rapid growing hard seltzer category and a great new product called hazy, which is being fueled by millennials and important demographic in our business.
As many of you know for 30 years I, let the CPG company in the U.S. I know what it takes to build winning brands brand equity is key consumers resonate with brands our team at a free of understands the importance of brand equity and selling good quality safe products.
In the U.S., we believe the recent election will likely for by a stronger near term potential for change in federal cannabis regulations and out of free Yeah, we are ready and well positioned for it.
We expect change to happen faster and decisions to be made sooner under the new Democratic leadership.
More and more states are legalizing, both medical and recreational cannabis.
One in every three U.S. citizen has access to legal kind of us today, 68% of Americans are in favor of legalize based on a recent Gallup poll.
And the interest pace pass each of the same safe Beacon Act should provide access to additional institutional investors and smart strategic partners.
As we continue to advance our long term vision and growth objectives. The addition of sweet water is a cornerstone within our U.S. strategy and a strong complement to our existing of free of business and we believe it will be a compelling financially for us.
To further advance our vision and strategic growth objectives. We believe the addition of sweet water and its pending business and the combination will tell what would kill rate will widen the gap between us and our peers position on positioning us well ahead of the competition.
We believe Sweetwater until Ray will provide compelling strategic and financial benefits and significant value for our free cash and till raise shareholders, particularly as we increase our financial strength and flexibility for sustainable profitable growth on a global basis.
On a combined basis, we will be the largest global kind of this and consumer package goods company in the industry based on revenue of free until Ray will be the leading adult use cannabis Canadian licensed producer based on revenue for the last 12 months reported by each company by combining.
Their respective brand and distribution networks and world class facilities.
We'll have some of the strongest the most compelling leading brands with the ongoing focus on innovation new products New distribution. For example for the period of August to October 2020, the combined company would have a market share approaching 20% the.
The largest share held by any single license producer in Canada, and 700 basis points higher than the next closest competitor.
Why we're pleased to be in this position together, we're striving to be at least 30% market share over a better over the over time.
In Europe, we will have five strong brands to help us established on rival European platform, including two production facilities till Ray has the leading medical cannabis operations in Europe that will benefit our existing medical sales and distribution.
On a combined basis of free until Ray will be one of the strongest medical cannabis companies with their assortment of dried flower medical cannabis medical cannabis oil CBD cosmetics and wellness products, a true market leader and innovator.
We will also have a robust and flexible supply chain give until raised you GMP facility in Portugal, and we expect to be the first of all have in country cultivation in Germany based on the recent completion of our new facility.
At the same time, we look forward to extending Cc pharmas medical camera the cannabis operating with access to over 30, D., Inc. Thousand pharmacies throughout Germany.
We believe these compelling operational strength position us better than ever before for leading the medical cannabis market and to better position us when cannabis potentially becomes the Lee will form of recreational standpoint in Europe, and we believe this will happen sooner than later.
From a global operations for perspective, we remain committed to Latin America and today are the only Canadian LP with the physical presence in Latin America.
We have a tremendous runway for growth of proven global team with a track record of success.
In the U.S., we can leverage a strong sales and distribution fusion network. This includes leveraging suite waters existing relationships along with the addition of til raise CBD and wellness brand, Manitoba harvest of pioneer in their industry.
Sweet water and Manitoba harvest together represent over $120 million Canadian sales in the U.S. market.
We look to build upon our existing distribution partnerships in the us and internationally.
Keep in mind, sweet water, and Manitoba harvests provide us with thousands and thousands of distribution points for our products across the natural mass club and grocery sales channels as well as the E Commerce as Sweetwater is available on restaurant in bars and other on premise foods.
All of us outlets.
We believe this will give us tremendous head start to access these retail and food outlets with our craft beer beverage CBD and hemp product offerings and we can do this on the national scale on the new U.S. as well for our cannabis brands of products offering when the federal legalization occurs.
We also look to build the bond the strategic partnerships the business combination builds on both till re enter free is other strategic partnerships with consumer industry leaders, including the global pharmaceutical alcohol CBG functional foods and beverage categories.
We're excited about the opportunity for approximately $100 million Canadian and pre tax cost synergies between both companies that should happen within the first 20 more 24 months. Following the completion of the transaction. This will also be a pause of platform for future business accretion as we integrate on.
For two business together.
Well the strong financial profile low cost production market share leading brands distribution network and unique partnerships. The combined company of the free until rate will be increasingly well positioned to deliver sustainable attractive returns for both our shareholders.
In summary, we're very pleased with the results for the first half of fiscal year 2021 in a difficult operating environment.
The Freia, we continued to build on our strong foundation in Canada and internationally to capitalize on growth opportunities utilizing our best in class cultivation and manufacturing across greater distribution footprint, enabling us to connect with an increasing amount of consumers and patients.
With our industry, leading brands and products.
We remain excited about the tremendous growth in Canada in the U.S. and the rest of the world and the future milestones, including the completion of our business combination with till right.
From the bottom of my heart I'd like to thank our entire team that has worked tirelessly to run the business to do the.
These deals and the sales and the stay safe.
And our board of directors for their continued efforts and always being there and being successful and helping us with our transformational journey.
I know I said, a lot and there's a lot the do.
But as the team we're really excited about what the end result will be with that I will now turn the call over the Carl who will take you through our financial results for fiscal Q2 Carl.
Thank you Aaron good morning, everyone today, I will reference our adjusted financial results unless noted otherwise please.
Please refer to our press release issued today for a reconciliation of our reported financial results under IRS for the non-GAAP financial measures identified during our call.
Q2 marked our highest adjusted EBITDA quarter ever with adjusted EBITDA of 12.6 million and adjusted EBITDA from our canvas business of 12.9 million the.
This represents our seventh consecutive quarter of increasing positive adjusted EBITDA.
We maintained our brand strength in the quarter across both of our adult use and medical markets.
And for the seventh consecutive quarter, we reported record gross revenue for adult use cannabis.
Our industry, leading cultivation team continues to do a great job, helping us to keep our cash cost below one dollar coming in at 79 cents this quarter.
The strength of our balance sheet and capital structure enabled us to not only complete the strategic accretive acquisition of Sweet water Brewing company.
But also on the quarter with pro forma cash of 320 million.
As Irwin discussed Sweetwater further diverse diversifies, our product offering broadens, our consumer reach and enhances loyalty with consumers.
Conjunction with our acquisition of Sweetwater, we closed a 120 million dollar U.S. financing with BMO for.
Operating 20 million us dollars in a revolving credit facility and 100 million us dollars of term debt within a few days after the end of our second quarter.
At closing, we drew fully on the term debt facility.
The credit facility is secured by the assets of sweet water and the corporate guarantee from a free on.
The term loan bears interest at the Euro border rate plus matrix pricing based on suite was leverage.
And our efforts to improve our free cash flow position, we're successful in the quarter as we improved our position by more than $70 million and the closer to our target of generating positive free cash flow.
With these results of free a continues to maintain its leadership position within that and of his industry.
We are pursuing significant opportunities for future growth.
And further diversifying our business in Canada and internationally.
Our ability to generate consistent financial results is a direct result of our global teams emphasis on initiatives that prioritize our free is profitability.
The only for today, but well into the future.
As Irwin mentioned, we shipped our first you GMP certified product to Germany in Malta during the quarter.
And we completed the first shipment of medical came the Miss the candidates for distribution in Israel.
In the second quarter, we are pleased to see of returned to normalized sales levels as cc pharma after experiencing an impact from COVID-19 in their business in the per quarter.
Our teams remain resilient and agile the best manager cannabis operations and our supply chain as the marketplace evolves at.
At the end of the quarter, our supply chain experienced little impact as the result of COVID-19.
Keep in mind, even though we experienced minimal supply chain impact from COVID-19, the portions of our business reliant on in person visits whether they'd be the doctor offices hospitals pharmacies candidates clinics bars restaurants.
Can't of its retail stores continued to experience challenges depending upon the local restrictions of relations related to the global pandemic, which may have an adverse impact on our revenue in the future.
Our supply chain team continues to work closely with our supply chain partners on a day the debate day to day basis.
To prevent and minimize any sort of disruption associated with COVID-19.
In addition, we were closely watching and proactively preparing for Brexit.
The pharma work closely with alternative suppliers to minimize any Brexit impacts and purchased additional inventory after quarter end from the United Kingdom in advance of assets.
Moving to our financial results for Q2 in more detail net revenue increased 33% from the prior year.
For 10% from the prior quarter to $160.5 million.
Net cannabis revenue increased 7% from the prior quarter to 67.9 million for an increase of 99% from the prior year quarter on.
Well medical cannabis revenue was essentially flat in the quarter. Despite a 5.7 per cent decrease in the average gross retail selling price the medical patients.
This decline in average gross retail selling price.
As the result of specific price programs offered to assist patients in need we have been negatively impacted by Tobin 19, and other promotional programs.
The increase in revenue from adult use cannabis products was primarily due to a 3.4% increase in the average growth selling price to the adult use market the $4.29 based on sales mix.
As Irwin mentioned, we are particularly pleased with our $5.3 million of international canvas revenue as we started selling cannabis in Europe and met our first year volumes to Canada.
Given that we sold our first year volume to can dark in the quarter, we anticipate fluctuation in our international canvas revenue over the remainder of the year.
And sweet water contributed nearly $1 million in revenue at a very attractive 61% adjusted gross margin based.
Based on us owning the business for only five days in the quarter.
Finally during the quarter, we missed an opportunity, particularly in Alberta, when we experienced a significant increase in demand for free roads over an extremely short period of time that we were unable to supply.
To address the increasing demand experienced at the end of the at the beginning of the quarter, we work to Triple our daily supply capabilities by the ended the quarter positioning us to better meet demand going forward.
Adjusted cannabis gross profit decreased to 31.2 million into Q2 compared to $31.5 million in Q1.
Adjusted cannabis gross margin was 45.9% in Q2 compared to 49.7% in Q1.
Decrease in adjusted can't of its gross profit and gross margin was primarily due to actions taken to reduce production levels at our free of one facility to better match supply and demand, including inventory that with the liquidated below cost.
We liquidated some older inventory below cost, resulting in a gross loss of approximately $1.5 million on the sale.
And we incurred unabsorbed overhead of approximately $1 million as a result of our reduce operating capacity.
Our cash cost of produce for Graham remain below $1 for the fifth consecutive quarter.
Down 9% to 79 cents.
Our all in cost per Gram decreased 8% to $1.30 in Q2.
Adjusted distribution gross profit for the second quarter was $12 million compared to 11.8 in the prior quarter.
The increase in adjusted distribution gross profit was the result of an increase in distribution revenue at Cc from in Germany.
During the quarter, our adjusted gross margin on distribution decreased from 14.4% to 13.1% the.
The decrease in the gross margin was a function of product sales mix of Tc pharma.
Operating expenses in the quarter increased to 82.7 million from $54.5 million in the prior quarter. The increase from the per quarter was primarily due to $22.6 million of transaction costs associated with our M&A activities in the quarter.
And increased share based compensation largely driven by the increase in a free of share price.
On an adjusted basis.
Excluding the impact of non cash losses on financial instruments, driven by the increase in our share price share.
Share based compensation driven by the increase in our share price and transaction for US We reported net income for Q2 of $3.2 million or one cents per share.
As we consistently stated our focus remains on generating positive EBITDA.
We are pleased the Q2 represents a record adjusted EBITDA for us and our seventh consecutive quarter of increasing and positive adjusted EBITDA.
Consolidated adjusted EBITDA for the quarter increased $2.6 million to $12.6 million.
This includes adjusted EBITDA from Ken of its operations of 12.9 million.
Adjusted EBITDA from distribution operations of 2.6 million.
On an adjusted EBITDA from our beverage alcohol business of point $3 million the.
These positive results were partially offset by an adjusted EBITDA loss from business is under development of 3.2 million.
Most notably adjusted EBITDA from cannabis operations increased 24% in the quarter of.
Achieved by driving revenue increases and our consistent focus on managing our cost structure.
From a liquidity perspective at the end of the quarter. The company had pro forma cash of $320 million to continue to fund planned international growth.
We are extremely pleased to report that on of free cash flow basis are concentrated efforts resulted in an improvement in free cash flow of over $70 million in the quarter.
Recording of free cash flow loss of $16.3 million compared to a loss of 86.6 million in the prior quarter.
This was accomplished while completing the capex spending on our German cultivation facility.
Similar to Q2, we continue to work to lower our quarterly working capital requirements.
Succeeding in the current quarter by reporting positive operating cash flow.
Our cash provided by operations of over $3 million.
And we continue to work to be free cash flow positive in Q3.
All subject to the intensity of profit 19 restrictions in the markets, where we operate.
We believe this free cash flow when combined with our existing cash position and strong balance sheet will support our growth initiatives in both Canada and internationally.
In summary, we believe of free it continues to set itself apart from others in the cannabis industry based on a variety of financial metrics, including.
Including our record of consecutive quarters of positive EBIT adjusted EBITDA on.
Our growing kind of its revenues our diversified revenue stream with the addition of Sweetwater.
Our ability to leverage our Canadian canvas brands in the us through suite waters brand portfolio on.
Our focus on our highest return priorities and profitability.
As well as our industry, leading cultivation and production efforts.
We believe our strong cash position will continue to help us navigate through the.
This flow Covidien 18 global pandemic.
As we succeed in reaching more consumers and patients with our high quality, leading brands and products.
As Irwin highlighted in detail of free it is better positioned than ever before in Canada, The us Europe and Latin America for continued growth and development.
We are ready for potential future kind of its legalization in the us and Europe with a proven global team to execute on our strategic growth initiatives.
Since closing the acquisition of Sweet water, we are working collaboratively to execute on key revenue synergies and strategic initiatives, particularly for fiscal year 2022.
With the addition of sweet water, we are creating a complement to the rebranded cannabis lifestyle product platform.
Prior to the acquisition of Sweetwater. They grew revenues generated solid net income and adjusted EBITDA as well as good cash flow in spite of headwinds from COVID-19.
We look forward to leveraging combined scalable operating model to drive strong long term financial port performance.
And our confident this acquisition will support our long term growth in revenue enhance our profitability enhance our margin structure and generate free cash flow, while enhancing value for our shareholders.
Since Irwin review the key reasons why we continue to believe to raise the compelling and attractive business combination for free of shareholders I wanted to spend a few moments addressing some financial items and on a couple of housekeeping items.
First in addition to maintaining their NASDAQ listing we understand the total raise working on registration under the TSX. So that the combined entity will be dual listed post closing.
It is the goal of the combined entity to maintain its place on the S&P TSX comp is it index.
The combined company were reported results under Us GAAP accounting rules, which means our finance team at of free I will be working diligently to convert our existing Canadian reporting the U.S. GAAP.
We also anticipate the combined company will maintain our free as current fiscal year end in May.
Importantly, we are working on a joint circular which subject to the SEC review, we anticipate filing mailing to shareholders in mid March.
Please reference our free until Ray business combination for Q for any further questions related to the transaction available on our website.
As part of our agents our transaction team, which included finance and operational representation spent a considerable amount of time identifying and quantifying potential synergies from the transaction.
As part of the announcement of the transaction, we announced that over $100 million of free tax synergies have been identified and we're capable of achievement within 24 months of the transaction.
Upon achievement, we expect that these synergies will benefit the combined company going forward and deliver the deliver incremental value to its shareholders, which we believe if you were to apply a 10 to 15 times multiple that is in the incremental EBITDA.
It would imply a $1 billion to $1.5 billion of incremental value accretion to shareholders of the combined company.
From a sales perspective at the time of announcement the kind of on the combined company would be the largest cannabis company in the world.
The additional scale and financial strength. This provides will be an important part of our entry into the U.S.
Makes us more appealing to potential CPG partners and allows us to better leverage of free is existing production footprint in Canada.
Looking ahead to the second half of fiscal 2021 for free or we expect to become an even stronger more diversified and profitable company.
We continuously work with local and global communities, where we operate.
We have tremendous confidence or ability to create long term sustainable shareholder value for many years to come.
This concludes our prepared our prepared remarks are winning on now available for analysts questions.
Back to you Denise.
Thank you to ask the question. Please press Star then the number one on the telephone keypad, we'll pause for just the moment, how the company roster.
Your first question comes from Owen Bennett with Jefferies. Your line is open.
Good morning debt.
Good morning, good morning on.
One question for me.
Some of the looks like it continues for full match that may suggest that the wants to focus.
On the international business and from international sales picking up in the quarter on.
The segment, obviously become much more of the focus with the.
Right. So just hoping you could maybe talk through the international competitive on pricing dynamics of moral and particularly with regard to Germany does it put the like competition when youre because of the unique.
Single for the moment, so just wanted to get some flow through on not based on cash.
So on I'll take that.
Pricing in Germany today has remained.
Now on.
On a balance level, we're not see pricing be competitive out there.
I think from a standpoint of the free of with our facility there with with the tendency of.
One.
On being able to ship product at a low cost from our Leamington facility on.
We can be very competitive the other thing is we're we're very well positioned because of seasoned arm and then ultimately with Portugal coming on world, which will allow us to ship anywhere in Europe. I mean, we can be as competitive as anybody else and then some so.
You know I am quite excited about the European market from a medical standpoint from potentially a recreational legalization are you know other products that CBD products, but so far we have not seen the competitive pricing there.
That we've seen somewhat in Canada.
Okay. Thank you very helpful.
Thank you.
And then just as a reminder, please limit yourself to one question and then rejoin the queue for any additional question. Your next question comes from the Vivien Azer with Cowen Your line is open.
Hi, good morning.
Hi, good morning.
Good morning, I was hoping to touch on your inventory levels given the the sales.
Cost of weight on your gross margin.
The only just modestly sequentially in the quarter, but remained elevated relative to historical levels. So any color around that would be helpful. Thank you.
So you know basically listen.
I think again as we go into the back half is the two biggest quarters of a free of our inventory levels went up to hit those those sales.
The demand for pre rolls, which we're selling $70 million per quarter. So lot of it is built up for demand built up for new product distribution.
Built up for new stores opening that built up for some of our products, but on the other hand, there's a big effort within the company right now as we look at our inventories and how we get our inventories down and one of the bigger things here is here.
For a more stores are opening up the market is growing and how we balance our inventories.
Also as some of the liquor control boards go through SKU rationalization is going to force us to do that.
And as we look at integrating till ray and some of their grow into our facilities.
Will help our inventory position also so it's something I will tell you that we are focused and we are all over.
Because what happens you are managed for inventory there is a lot of cash that drives of the bottom line there.
Carl I know of you want to add anything to that.
Just the only thing I would add is if you look at the the inventory levels over the last three quarters, you can see that sequential fleet, we've been bringing those those are the.
Those balances.
The growth in the inventory down.
And our and are working to in the current quarter the flip that equation.
Perfect. Thank you for much.
Your next question comes from Andrew Carter with Stifel. Your line is open.
Hey, Thanks, good morning.
You are not giving any formal targets for the kind of want to think about ask about how you're thinking about revenues for the for kind of the the second half.
On the distribution business snapped back up nicely, but you kind of caution Colgate. So is this the right level or the two quarters ago. How are you thinking about the sweet water business relative to that 2019 $66.6 million revenue number I know you cited the bar business and then.
The also how should we be thinking Oh, sorry wholesale agreements as well is there an opportunity to do any more retail rate and I guess the final question is this is kind of the first quarter, where we've seen some market share in ceded some market share so over the back half. The you see yourself getting back into the position of gaining market share with the current portfolio or perhaps.
Any kind of the for capabilities with the till the acquisition could do that thanks.
So I'll take a few of the I'll, let Carl there's a lot of questions. There hopefully I can remember the mall, but.
You know the the Big thing here is in regards to listen we know what's on parallel right now on.
Sales closed down the ins curbside delivery in regards to.
So sweet water a lot of on premises close down on the other hand as good as consumers of people stay home, they're going to consume more and more beer that they buy at retail or consume more and more cannabis because they are at home and we'll pick it up at current size. So you know.
I see us dealing with that but I think the big thing is that we have the uniqueness and products and how we build on our brand the continued to take share.
You heard me talk about inventories before.
And balancing out our inventories and I think where the liquor control boards are getting a lot smarter to by looking at the inventories and what sales from what doesn't and a big part of this Carl talked about it.
Where we did lose some share is because we just didn't have the right products, they're on the right inventories. So listen it's two years and we're getting a lot better from having the visibility having data having the products, but one of the big things that you've got to remember here consumers want our products and they're not the start of their.
Not going to buy them.
You know in regardless of the next tap listen it's our biggest two quarters of there and we've planned for and how do we maneuver around kind of it is a whole other thing.
We're not giving guidance, but it's our biggest two quarters as as we look at the back half and we.
We see tremendous demand, we see more and more stores opening up we see more and more provinces wanting product, but it's going to growth.
Go through some SKU rationalization is out there. The other thing is in regards to our.
Product that we're going to ship to Europe, and you MP GMP certified you heard me talk about Israel you heard me talk about Poland. You heard me talk about the demand.
The opportunity for US one of the things in Brendan built out till Ray.
He was an asset light Canadian operation.
So there is a lot of opportunity to bring a lot of til re grow into.
The of free of facilities and that was a big part of our cost savings and we're already all over that and executing on that Karl I don't know do you want to add anything or I don't know if I missed the Andrew if I missed any of your questions.
I just.
The to go for a little bit further on the share that with ceded as Irwin talked about that was really a function of of pre roll.
On capacity internally and now that our capacities backup.
And we look at the December information in the limited January information that we have available to US we believe the all of that share is back.
Now that's a that's great. Thank you guys I'll pass it on.
Thanks, Andrew.
Your next question comes from Aaron Grey with Alliance Global Partners. Your line of your line of open.
Hi, good morning, Thanks for the question.
So I want to jump back to kind of international opportunities because its going to be more of a focus.
Once the merger closes so specifically on on Germany, you guys kind of talked about the pricing landscape, but wanted to talk about the overall market growth there because we've seen the data from the insurance kind of slowdown in the market. The past two quarters. So want to get you know your sense in terms of.
Any initiatives you might have in terms of educating the doctors on getting more patients for the kind of help lift the overall market because youre going to have 50 pharma.
And the pharmacy distribution, there, but how about like increasing the overall demand from the consumers and how you're thinking about that you're in the market. How is the evolve as you have it on cultivation come on line in the country on you have to raise Portugal facility. Thanks.
So good question.
You know and you know what's happening right now we can't within there see doctors.
But we have a whole online program of how to get the doctors have the educate doctors and there's other things that we're looking with working with in the universities in potentially working with some of the medical schools and some of the research there and investing in that and.
As I say, that's going to be a big important part of the til rate of free are coming together in Europe is building out our medical platform until Ray has a very very strong plateau.
Platform in Europe already which there number one on the oils and I got to tell you. The other big thing there we have a major league of Enrique.
In regards to distribution to 30000 drugstores through you see pharma.
And.
So we we have of plan, even though were.
Got our hands tied right now because the overall can't get to the medical.
There's of plan right now on place as we get to them on line.
Alright greatly that answer.
Your next question comes from the AD Pablo net with Cantor Fitzgerald. Your line is open.
Thank you good morning.
And when I guess my question is one of the of the U.S.
David Klein in an interview we'd be on him Bloomberg recently said the he expects to be selling in the U.S. in seven to eight months time for us.
Although the hope things will change from the regulatory risk.
Correct.
Given that the company they kind of be growth because as contingent stakes in acreage on.
On sort of sand how much of of these advantage for you know having those contingencies on.
On related on of course, the and I know you don't see the water no money to harvest unrelated to that.
The question in.
On the call you referenced a few times being one of attractive CPG companies of strategic partners again, how much of a disadvantage compared to a grown on those kind of be growth is it for you and not having the biking of one of the older constellation brands. Thanks.
So.
Pablo I don't think I'm at a disadvantage at all and you know David Klein got a strategy that he's going to execute on and you know today, we're selling products in the U.S. under sweet water and were selling will be selling products under Manitoba harvest.
We will be selling other CBD products listen I do not think we are at all disadvantage because with the free at with its brands with its balance sheet with its R&D, which the with its regulatory that we have of there what our global footprint today, you heard me say.
We go to thousands of grocery stores thousands of of convenience stores. So there's going to be plenty of partners out there for us to partner up with and you know what there's other consumer packaged goods companies now that are going to want to be in this industry. So you know what we can.
Step back and pick the right partner for the right area of the business. So I don't think were one bit disadvantage of anything I think we get the pit.
What partner, if we want to partner with on the consumer side I think in regards to whether we acquire of legalization happens whether we merge we will get to pick the right person or the right company and the most important thing Pablo when that happens it's going to be at a time when we know.
What the landscape looks like on legalization not out there buying a lottery ticket and trying to guess what could happen.
Right can I squeeze one more if I may if you on line.
On the local they want to understand the logic of teen range the merger with till the but at the local level in kind of the how much of an advantage being larger on I ask the question.
On the go on things that you are some farms on rate of guns seemed to be the way the company is doing best.
In terms of sales on market share trends right. So those are much from one of the company. So I'm just wondering how the size of at least on the Canadian context only help thanks, that's it.
Yeah listen size does not always matter, it's what's in the company, Okay and until Ray brings to us some great assets in their medical business. They bring some great brands to us they bring some great management in people.
They are asset light they bring a lot of growth that will fit with the into our facility.
And the combination of back to.
What I said before the combination today, we have over 20% market share.
So with that.
We get the 30% market share there is a lot of catching up and by the way as prices come down Pablo and to compete with US who are going to be that low cost producer is going to be more and more difficult and last but not least when you have scale and size and have free cash you got investing your brands and Thats something.
The net will be able to do where the little guys or the little Lps will not have the ability to do it.
Thank you.
Your next question comes from the Tommy Chan with BMO capital markets. Your line is open day.
Thanks, Good morning.
The one question on Lincoln.
Talk a bit more on explain a bit more about what underscore your optimism on more legalization in Europe, including your view of that recreational legalization from countries. The jumping will come sooner than later on.
Wondering specifically seeing there that's driving your expectation or optimism there. Thank you.
Good morning Tammi.
So again, you know a year your expectations are only as good as what you're in Tayloe is telling you from these countries and whether it's the Green party in certain elections.
My Intel is coming back from my team there that on the timing when it could happen in could happen. This year. The second thing is listen like like the us like Canada every country needs tax dollars.
And.
With that I think legalization in understanding the benefits of cannabis and and I think what Germany had the opportunity to look at is what it was able to do from the legalization on a medical standpoint. So you know that that's where I'm getting my Intel and that's what I'm hearing back from lobbyists in or.
For political relationships over there and the different change in parties that will happen and just you know what.
What the population wants so that's why I think Europe, and Europe is usually a lot more progressive than the United States. So thats why I see legalization happening.
In Europe sooner than later.
Your next question comes from John is on par with CNBC. Your line is open.
Thanks, Good morning, I wanted to for learning on the us.
I wanted to follow up on the west side of things as well.
And just would like to get your thoughts on on weather or if your strategy changed at all since the results of last week's runoff election, the because it does it give you a sense of greater urgency to go gain of presence in the U. assets beyond what you already have now or does it make you take pause to say you might get some clarity or certainty.
From a regulatory perspective.
And in that sense, you'd want to preserve capital you'd be able to go after plant touching businesses or launch from candidates brands in the U.S., maybe earlier than you would've thought even the couple of weeks ago, just any thoughts there would be helpful.
The John Great question, I listen I think.
I don't think within the first 100 days the Biden administration is going to you know.
Legalize cannabis and I think theres multiple ways and multiple things going to happen you know within the sales Bank. The act just legalizing medical decriminalizing et cetera.
Going out and buying a piece of the company today is something that we can easily do.
But you know I like the idea of of.
You know buying assets like we did with Sweetwater, Manitoba harvest that can.
Easily translate into legalize cannabis THC products when the when the market allows the other thing is this here you know and and people think sometimes I'm crazy when I've said, it but just like Theres, great Canadian beer made in Canada that shipped into the us in regards to build out the infrastructure.
To supply the west and having the regulations and the quality and the safety in <unk> and Canada. In this October we'll have three years will there be an opportunity to ship Canadian cannabis into the US we don't know that okay. So again I hate to get out in front and guess.
Add to win there and make big bets for our shareholders and make big bets with a non known is not something I would let a free until ready to do but I think the big thing is this here with our footprint today in in Canada with our footprint in Europe, what our footprint in the us have.
On the balance sheet that we have having the R&D behind us having three years of good regulation.
When the legalization happens to what form.
We'll be ready to partner to buy to Greenfield I think that's what's important for.
That were kind of circling the wagons instead of getting on the wagon now.
Okay, that's great color. Thank you.
Thank you your.
Your last question comes from Graham can do with the capital Your line is open.
Hi, Good morning, and thank you for taking my question on.
Yeah.
A quick follow up question regarding the the outstanding merger agreement with AD free until the <unk> I was just wondering given the recent share price appreciation over the past months for both stocks for particularly looking at til array of significantly outperforming its peer group here I'm wondering if that has been the impact on between now and expecting closing date for.
Some color that would be helpful. Thank you very much.
Not at all I mean, there's the fixed share.
The share price and the fixed agreement I think are both stocks.
Of moved on and I think again.
You know what shareholders are thinking.
You know they they like till Ray because it will be together with the free and the like a free on but.
It has no effect on the deal in the as I said before the deal is moving to close the end of April early may.
The teams are hard at work of putting all the pieces together the infrastructure of the synergies the opportunities for both companies and I have to say.
I like the deal even more now the more and more I've got into it as of bringing these two companies together it is really going to be exciting for a free until ratio holders.
Understood. Thank you very much true.
Thank you.
Now lets call back on.
Earnings per share the closing remarks.
Oh, Thank you very much the niece and everybody. Thank you very much for getting on this call today.
2020 in regards to a free.
Has been you know.
Good year.
Lots of changes.
What a difference a couple of years mix in 2021.
You know.
We got a lot to do and being number one does not always mean you stay at number one and you've got to continuously earn it you got to continuously work on it and you got to continuously evolve and change I have a saying when your green you're growing when you're right you're right and we never can actually let ourselves right.
Because we've got to growth.
I would say this year the I would say this here if you look at a free of until rate together next.
The next year. This time, we'll both be very very different companies and so will the industry.
Again, I cant think.
All the employees at a free of that have work real hard and work to get both these.
M&A transactions done at the same time running the business and it's been difficult borders or close getting up to Canada, and but I got to tell you a lot of this happened within a free on I really want to thank the team.
I want to also think Brendan Kennedy.
And the til rate team, what a great pleasure to work with them and.
Brendan will join our board and there's a lot of his team members that will join.
The of free of T. The free until rate team and we're really excited about the partnerships and I got to tell you I'm really pleased how the two teams have worked well together and putting this together because they know what's the best thing for the companies. They know what's the best thing for the shareholders and they know what's the best way to growth there and win.
You know the next five months are going to be tough out there.
With Covance.
And I think from the standpoint, we have to be smart and safe and with that every day, we look at our facilities. We look at our offices, how we keep multiples, but more important how we keep our business growing.
During these times of stores are closed restaurants are closed how we push at retail et cetera, I want to thank everybody for your support. Thank you very much for believing in the free up and now believing in a free until Ray of Sweet water was we come together, so happy new year, the safe out there and I look forward to talking to you and the next.
For months Bye bye.
Let's conclude todays conference call you may now disconnect.
[music].
[noise] [noise].
[music].