Q1 2021 Tilray Inc Earnings Call
[music].
Good morning, everyone. Thank you for joining us to discuss <unk>, Inc. 's financial results for the 2021 fiscal year and fourth quarter and it may 30.
<unk> 2021.
Joining me on today's call are Irwin, Simon Chairman and Chief Executive Officer, Carl Merton, Chief Financial Officer, and barren neurotic Chief Corporate Affairs Officer, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session for analysts and.
When firms conducted via audio and participating retail shareholders conducted through the state technologies platform.
<unk> submission and a voting through the state technologies platform concluded yesterday, and the company will read aloud and answered the top questions. Mr. Marotta you may begin the conference.
You and.
And then Bernie by now everyone should have access to the earnings release available on the investors section of til raise website at til raised dot com and filed with the Securities and Exchange Commission on form 8-K on today's call. We will also refer to various non-GAAP financial measures, which can provide.
<unk> useful information for investors. However, the presentation of this information is not intended to be considered and isolation or as a substitute for the financial information presented in accordance with GAAP.
Today's earnings press release contains a reconciliation of each non.
GAAP financial measure to the most comparable measure prepared in accordance with GAAP.
Also please remember that during this call. We may make forward looking statements. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties.
Use which may prove to be incorrect Act.
Actual results could differ materially from those described and these forward looking statements.
Please note the text and our earnings press release issued today for discussions on the risks and uncertainties associated with such forward looking.
And now I'd like to turn the call over to Til Re's, Chairman and C E O Irwin Simon.
Thank you very much bearing and good morning, everyone. We appreciate you joining us for our inaugural call as new til rate today, we will reiterate and reaffirm the strategic and financial benefits.
And of our recent business combination and acquisition detailed the business level strategies and roadmap to ensure we realize the vision of that combination.
Outline the progress we have made to date and of course discuss our fiscal fourth quarter 2021 results which consists.
Consists of 13 weeks, a pre merger freia and 4 weeks of post merger legacy till right.
The world's largest cannabis company, when we announced the new til Ray and December of last year, we were optimistic that the strategic operational and market opportunities in front of.
I had potential to create the world's leading cannabis focused consumer branded company and this was our bet backed by strong trends towards cannabis legalization and our 3 key markets, Canada International and the U S.
Our management team with.
And with a track record of building and sustaining value and the consumer package good wellness space well.
Well defined organic and acquisitive and partnerships based on growth strategy that together with full legalization and the U S. We believe we will take us to a plan of 4 billion.
<unk> of revenue by 2024.
I want to be clear at the outset, our conviction and both the opportunities just as importantly, as our ability to execute on that opportunity has never been stronger.
Last 6 months have affirmed the.
Sheer size of global opportunities ahead of US just as importantly, the effectiveness of our committed and passionate group of team members and building the leading consumer package good business in the cannabis industry.
Beyond what we have achieved over the last 6 months our perseverance.
And strict Covid crisis itself lends further validation to the fact that this team knows how to pivot execute and get results consider at the highest level and we lost well over $100 million and revenue as a result of retail store closures and.
And Covid general impact and yet we immediately implemented cost saving measures ultimately, helping those built EBITDA to more than $40 million in 2021, we manage share facilities extremely well, helping ensure they remained open throughout the last.
At 18 months, we acquired Sweetwater announced the closure of the til Ray of free a combination and made meaningful progress on the integration as I will discuss in more detail.
We closed on a new bank financing of $100 million term debt and $20 million of credit.
And ended the fiscal year with more than $488 million of cash and cash equivalents versus $360 million last year.
So throughout today's presentation consider these achievements during fiscal 'twenty 1 of year of unprecedented change.
<unk> and disruption.
Highlight the strength of our new leadership team and should instill confidence in the road ahead, as we accelerate integration of til Ray and our freia amid increasingly favorable market conditions.
The thesis behind till RAF rehab.
Business combination and Sweetwater acquisition is that the combination of cannabis with our CPG and health and wellness company is a winner.
Prior to a freia and my team here with me today are till Ray we built a great CPG business and natural organics healthy foods.
Food personal care products beverage alcohol and other industries and the playbook here is essentially the same it's all about building iconic sought after brands backed by product excellence and variety of educating consumers about our brands, our stringent quality standards and.
It fits of cannabis products to encourage trial foster loyalty and having the scale distribution necessary to get them into consumers' hands and grow market share.
To put it simply <unk> is the only cannabis company with that scale.
And reach and resources.
Just to get it done.
Our business planning and integration are built around 5 key competitive differentiators and.
The industry's broadest geographic footprint and operational scale leadership positions and Canada with a complete portfolio of product offerings and carefully curated bra.
And Ben tremendous international growth opportunities and a meaningful use consumer packaged good platform to be immediately leveraged for cannabis products upon legalization and with both companies coming together substantial synergies.
Geographic footprint and operational.
Brand sales I'll start with item, 1 geographic footprint and scale. This is clear and distinct competitive advantage as till right now possesses the geographic footprint and operational scale to emerge as a consolidator in the cannabis market.
This effort is backed by a strong.
On a scale balance sheet robust cash balances and access to capital. These attributes provide us with the ability to accelerate organic growth build EBITDA and free cash flow and look at other partnerships and acquisitive opportunities that could ultimately complement our product.
<unk> as legalization and accelerates regardless of the industry, but especially and as <unk> rapidly growing industry like cannabis. These attributes should deliver long term sustainable value for shareholders.
Strengthening leadership position in Canada.
And Ken.
Canada, we plan to grow and strengthen our position as the number 1 Canadian LP and total sales on a consolidated basis.
And this is the foundation that will be so essential to getting us from occurred combined retail market share and Canada up 16% to our goal of.
And 30% share by fiscal year 2024.
New products that are trusted by consumers that have real brand equity and fac, putting the 2 complementary portfolios of a freia and legacy till right together has enabled us to strength in both brands.
Free.
And historically been strong and flower pre rolls to point old products and began making inroads on <unk>, while legacy <unk> has several high powered potency flower strains that fit nicely into our portfolio. In addition to be and stronger overall and edibles and beverages.
<unk>.
Strategic partnerships with provincial boards and retail partners, we have strong relationship with the provincial boards across the country and retailer partners. We will continue to create merchandising and education platforms for Bud tenders and consumers to drive brand loyalty.
And to our portfolio.
Both of these strategies will drive absolute growth and the Canadian market.
Additional store openings to this point there are currently over 2000 stores in Canada, we believe growing the market demand could warrant as many as 3000 and by the end of calendar year 2000.
22 of course, this retail performance will likely improve and commensurate with lifting the COVID-19 restrictions, which of course materially impacted retail efforts since the spring of 2020.
Our Canadian business.
We will benefit further from the fact that.
We are already the low cost producer with a state of art cultivation processing and manufacturing facilities, but this did not happen by accident and fact from the beginning we were careful about how we create a cost structures within the organization and now we are accelerating our work on pulling additional.
Out of the structure, so that we can gain further efficiencies and increase our margins.
While legacy till Ray was generally asset light and <unk> had invested heavily and brands with great brand equity, we view, our ability to now leverage product capabilities and footprints.
Card and asset light model as a strong combination.
Based on Ocs sales data till Ray continue continues to be the number 1 market share in Ontario further the consolidation of til rate also has the number 1 market share now and Quebec.
Innovation.
With also be a hallmark across our brands and across all segments and Canada from a cannabis 2 point on standpoint, this will be within concentrates and edibles and drinks while for Canadian medical our focus is centered on the large and growing demand for new high quality cannabis products that.
Promote health wellness and wellbeing.
For example, we recently launched Sim deals, which complements our existing medical brand portfolio of all medical or free up broken coast until right products. This new brand was developed to provide a broader spectrum up.
<unk> and <unk> and unique Kennedy boy ratios at a better price point.
In addition, it allows medical patients a full comprehensive assortment of products, including flower and oils and pre rolls for their health wellness regimen.
We also introduced high potency medical.
Topical and under the free of Bran designated Detar target inflammatory joint disease by regulating tissue inflammation when applied topically to the skin.
Also we consolidate facilities within Canada and moved a lot until raised production into our Leamington facilities.
<unk> will continue to focus on improving product potency and quality to meet the market demand.
As you know, Canada currently restrict how cannabis brands can be mark and to consumers while product safety is certain to our Paramount. It is also crucial to communicate.
And educate consumers about the products and benefits of cannabis.
During the pandemic as people were not able to go into stores, and Ontario and had to deal with in store capacity limits in Alberta, and British Columbia, We kept our focus on driving brand awareness work with the different control board and retailers to.
And to use social media and other e-commerce platform to help those that order online are picked up at curbside.
And as noted a moment ago until just recently and mid June there were over 800, plus stores and Ontario alone that had never open their doors to customers because of Covid.
Kate and only do curbside delivery.
This has now begun to change and many stores have since opened across these provinces and June although that of course did not help our may ending fiscal quarter sales.
And so for the past 6 months when customers were looking for product they were searching.
Our claim most of the websites are organized by price and other words price mattered more than marketing. However, as consumers now can resume and interact with Bud tenders and win impulse purchase can occur inside the store, we're confident customers will shift away from price.
And on La based cannabis purchases and brands will matter and more environmentally characterized by pent up demand.
Finally, we intend to be effective innovative advertisers and the truest sense of that term.
Educating our consumers about the quality.
<unk> and safety of our products is essential and advertising as a critical medium and that effort.
We have therefore been working with the appropriate authorities to allow more effective forms of advertising similar to other regulated industries and we have a marketing strategy that is ready to go.
Accelerating our international growth, our international growth strategy Leverages, our 2 strong medical cannabis brands <unk>.
And our large distribution network in Germany, and envy and European Union GMP supply chain again. These attributes are unique to <unk>.
And taken together they are expected to increase our access and availability to high quality consistent medical candidates for all European patients.
The European Union, where we already have a very minimal presence represent represents a powerful growth market and could be.
Billion dollar business for us from a medical standpoint alone.
We will also be ready for legalization from adult use when the time comes are present in the EU allows us to grow our brands on a global basis with 600 million people that is nearly twice.
Just the size of the U S with Germany possessing the greatest potential at twice the population of Canada.
We already have a low cost production facility and Portugal that provides us with tariff free access to the EU. We also have a state of the art EU GMP certified cultivation and.
And production facility in Germany, and a subsidiary and Cc pharma, which has a medical distribution business to 13000 pharmacies.
And while our fiscal fourth quarter results in Europe were negatively impacted by the Lockdown and Germany similar to Canada. It is now reopening and were confidence.
Since our business momentum will return.
Among the many benefits of our business combination is the ability to have cc pharma distributed our products are on and Portugal to Germany and in doing so move up the value chain with the consumer as part of that transaction to.
Be clear revenue synergies are not part of the overall $80 million and synergies that we've already articulated those were only on the cost side.
This transition is taking place and will positively impact the tail in our fiscal first quarter, but had no flow through in recent quarters.
Another key factor and our plans for Europe is that the EU generally is more medically and pharmaceuticals focused on Canada, and the U S, which results in nearly a 3 times difference and purchase reimbursement and so we've expanded to those markets that are more focus on reimbursement and have reimbursement.
We think consumption increase on per capita basis as well.
Yeah.
Early this month, our wholly owned German subsidiary of free Rx completed the first successful harvest of its EU GMP certified medical cannabis cultivator in Germany for distribution too.
To German pharmacies.
This represents an important milestone and granting access to high quality trustworthy medical cannabis to patients and healthcare professionals in Germany, and despite the challenges of a global pandemic, we remain on track as the first licensed producer to cultivate.
And the mob medical cannabis in Germany.
Moreover, we think that our ongoing domestic harvest and production will play an indispensable role and ensuring that patients needs are met with products of the highest quality medical cannabis while at the same time, reducing dependence on imported <unk>.
Debate.
Other European markets, where we are expanding our platform, our Poland, Italy, the U K, France, the Netherlands, and Israel. These countries and other parts of the continent are likely to see full legalization before the U S.
Finally, and South America.
And there'll be greater legalization from a medical standpoint, we already have a foothold into Argentina, and Colombia, where we see some opportunities. We've also shipped some CBD oils into China and should see opportunities eventually, India, where THC is already use and a lot of different medicines.
Enhanced use consumer packaged good presence and infrastructure here and the U S. We have a strong consumer packaged good presence and infrastructure with 2 strategic pillars, Sweetwater and 11 largest craft brewer in the nation and leading lifestyle brand.
Was around 4000 and on premise and.
And off premise points and the sales across 27 states and Manitoba harvest a pioneer in branded hemp CBD and wellness products with access to 17000 stores in North America today, they are $100 million plus businesses and quite profitable with enormous.
<unk> potential for growth.
And the event of U S Federal legalization, which received a high profile boost from Senator Schumer's recently proposed legislation weekend foresee within the next 24 months.
And ray will be ideally positioned to compete and the cannabis.
And by really bridge and these strong brands and their distribution systems to parlay into THC drinks CBD drinks CVD foods and related Adjacencies.
With Sweetwater, we're expanding our product line of leading craft beers and other.
Other beverages to build greater brand awareness for our cannabis brands through cross collaboration and brand extension opportunities, we entered <unk> hazy, a juicy and refresh and IPA and Oasis, which is a vodka seltzer mix, both are doing well already and just last month Sweetwater.
Sweetwater partner with broken coast to launch U S distribution of broken Coast BC Lager, which is also a milestone event as til raised first Canadian cannabis brand and introduction into the U S.
We intend to follow this up over time by introducing other.
Great Canadian cannabis brands to the U S and doing so will connect us with consumers and other mainstream brands and our portfolio. We're also currently working opportunities for Sweetwater with CBD Tequila mixes wine spirits are mixes wine and Mccann et cetera, while increasing sweetwater.
And while there's distribution in the near term to an additional 3 states.
And.
Let me also say that during the quarter itself Sweetwater like a lot of other craft breweries had below plan on premise sales as many restaurants and bars were closed for operating full capacity although.
We did pick up a lot of retail business as consumers bought or expanded their line of products as.
As business conditions have improved since the end of the quarter on premise sales have rebounded and are up 40% year over year.
Turning now to Manitoba harvest this is a great.
Great business, and we're now fine tuning and strategic planning and expanding opportunities, including looking at strategic partnership opportunities and acquisitions that complement our adjacencies to the cannabis world as we position ourselves for federal legalization.
Sustained.
Substantial synergies.
As we have said we plan to deliver approximately $80 million of annual pre tax cost synergies within 18 months of the business combination.
When we first announced the transaction, we said 24 months, but I've since moved that up key areas of opportunity are.
Our within cultivation and production cannabis products purchasing and sales marketing and corporate expenses.
There's already been a lot of hard work done by our great team over several months, which will a lot more go towards achieving these synergies and getting the 2 entities fully.
Okay.
So far we have already achieved $35 million and synergies.
So we're a little bit ahead of our internal plan, but still moving things along so that we can continuously drive positive cash flow within the new tool right.
Notably as I said this before the.
U S $80 million, our cost synergies and do not reflect any possible revenue synergies that we know are also within our reach.
In conclusion, I know that I've covered a lot of ground today, but hopefully have also express my enthusiasm and excitement for what.
Integral lies ahead for the new tool right.
Karl will now review, our financial results, but first I want to remind and encourage our shareholders of record to read our proxy and vote online or by telephone on the authorized shares proposal and governance proposals for all.
What reasons I've detailed this morning, we need your help to ensure til rate grows and to ensure you're able to participate in our success and the meaningful constructive manner.
As a reminder, the first proposal would authorize additional shares of common stock so that we can move.
The <unk> to accelerate our growth through potential acquisition and financing opportunities. However approval does not mean the authorized shares will be immediately issued only that the shares would be available if needed and pursuit of these important corporate initiatives to drive shareholder.
Move cryo.
And second our other proposals are intended to expand the rights of our shareholders that take into consideration the views held by the investment community on important matters of governance.
These proposals requires shareholder approval on several amendments to our.
Our organizational documents.
If you have any questions or need any assistance and voting your shares. Please contact moroso Dolly at 833, 497, 7 and $3.95 total free in the U S and Canada or tool.
Valerie 658, 9400, I know that I speak for our entire management team and our board of directors. When I say that we are working every day to take full advantage of all the opportunities that we have until ray to enhance long term shareholder value and deep appreciation.
<unk> of your support.
With that I will now turn the call over to Carl Carl.
Thank you Arun.
I would like to Echo Erwin and sentiment and express my excitement for being a part of <unk>, we are poised to be a strong diversified and profitable company and on.
Our early integration process.
This reinforces our confidence that <unk> will create long term sustainable shareholder value for years to come.
Before we begin I need to point out some important accounting reminders are.
Our business combination was determined to be a reverse acquisition.
This means that while <unk> is considered.
To be the legal acquirer, a freer is considered to be the accounting and acquire under U S. GAAP standards.
Our financial statements going forward will reflect this.
Which means that all prior quarter year or periods are based on a free as prior financial results.
These prior result.
And the first 3 quarters of fiscal 2021 were adjusted to follow U S. GAAP and are presented and U S dollars.
As a result, you cannot directly compare items from the prior periods to a free as historical financial statements.
To help understand our prior periods and to help analysts and investor.
<unk> forecast more accurately.
Today, we published in an appendix to our investor deck located on our website that contains and analysts primer.
The primary breaks down a free as U S. GAAP financial statements for 2000, 2020 and 'twenty 1 by quarter.
Please note the primer.
Has not been audited.
We remind investors that our fourth quarter and fiscal year ended May 31, 2021 results presented today consists of 3 months and 12 months, respectively of a free as operating results as well as 1 month and both reporting periods of <unk> operating results.
Throughout our call today, we will reference our audited results and we will also reference our adjusted financial results.
Please refer to our press release for a reconciliation of our reported financial results under GAAP to the non-GAAP financial measures identified during our call.
Specific to Q4.
For fill rate accomplished a tremendous amount despite the COVID-19 related headwinds impacting the top line.
While we worked hard to maintain our brand strength across adult use and medical and net revenue would certainly have been higher if not for Lockdowns in Europe and Canada.
Our team took proactive and aggressive steps to optimize.
<unk> performance.
In fact, our ability to drive significant cost savings by aligning production cost with demand and a dynamic operating environment.
Managing G&A.
And the benefits realized from implementing meaningful changes that are free of pre merger as well as.
And minimizing costs and <unk> during the initial 4 week period.
Resulted in another quarter of increased adjusted EBITDA.
Our ninth consecutive quarter of positive adjusted EBITDA.
We believe this represents truly differentiated performance within our peer set.
During the quarter net income rose to $33.6 million versus a net loss of $84.3 million and the prior year.
More importantly, I am extremely pleased to report that for the quarter, we generated positive free cash flow.
Of $3.3 million, achieving a major milestone and building the company and delivering on our comments to shareholders to do so by year end 2021.
We view generating a steady stream of free cash flow as another important differentiator of our business.
And.
<unk> already demonstrated our ability to consistently realize positive adjusted EBITDA. The logical next step and showcasing sustainable profitability until rate is sustained periods of free cash flow generation.
1 of the key benefits of our business combination was the $80 million.
<unk> of anticipated synergies.
Months of planning before the closing and 10 weeks. After closing we are making great progress on integration.
This progress includes meaning.
And business processes and operating initiatives and.
Infrastructure.
And having a client's cost attrition and head count and facility closures, including most notably the closure of the and the skill and growing facility effective September 30.
But the most important question is our progress against the $80 million goal.
And this respect I am pleased to report that we are ahead of our.
<unk> and took the actions necessary to achieve $35 million of the $80 million and synergies.
Although cash savings and Q floor, we're closer to $7 million.
Now, let's discuss Q4 and greater detail.
Germany and at a hard lockdown and.
And we were challenged to source sufficient medical supply products from lower cost countries to sell through our German distribution channels.
Want to be clear that the orders and the demand were there we simply could not source supply due to COVID-19 restrictions.
Another headwind and our Q4 performance for Europe.
Was that medical patients, who might otherwise load up on supply and advance of summer vacations and generate our traditional strong Q4 demand did not do so this year.
As a result of these conditions net distribution revenue was $66.8 million for the quarter compared to 74.
And in the fourth quarter of the prior year.
During our fourth quarter, Canada continued to struggle with high infection and low vaccine rates.
Each led too restrictive Lockdowns, and Ontario, Alberta, and British Columbia for virtually the entire quarter.
Net revenue from our cannabis business and.
$4 million order was $53.7 million <unk>.
Compared to $39.6 million and the same period of the prior year.
Net revenues at Sweetwater continue to improve but remain below pre COVID-19 levels at $15.9 million and net revenues from our wellness business Manitou.
And it's over harvest were 5.8.
$8 million and essentially 1 month of activity.
All of this led to net revenue increasing 25, 3%.
$142.2 million and Q4 over the prior year period.
The average gross selling price.
Fourth use cannabis decreased to $2.98 per Gram and Q4.
Compared to $3 and <unk> 90 per Gram and Q4 of the prior year.
And as a result of increased competition and price being only ways to differentiate during COVID-19 lockdowns.
A temptation we did not.
This of adult use during the period.
The average gross selling price of medical cannabis exclusive of wholesale decreased to $4.54 per Gram and Q4 compared to $4.95, and Q4 of the prior year as a result of specific pricing programs offered to assist patients who have been.
And <unk> impacted by the pandemic along with other promotional programs.
Our cash cost to produce per gram decreased to 72 per gram and our leamington facilities.
This was due to improved yield potency and cost control efforts that began in January and that continue to benefit.
Net.
Adjusted cannabis gross profit increased to $23.9 million.
In Q4, compared to $18.9 million and the prior year.
Although adjusted cannabis gross margin fell to 44, 5% from 47, 7%.
The decrease.
<unk> margins was a result of price compression during the COVID-19, lockdowns, despite our determined efforts to lower our cost of sales.
Not included in our calculation of adjusted cannabis gross profit was a provision of $19.9 million on the combined canvas inventory of our Korea until right.
Greece and Mark the business combination, we performed a detailed review of inventory levels identifying some inventory categories, where the combined entity had excessive inventory levels, creating the provision.
These efforts included proactively adjusting our cost structure to offset the impact of the decrease.
As demand, including temporary 4 day work weeks and our Canadian cannabis facilities better managed head count.
And reduced planned operating spending.
Cannabis contributed $6.4 million to our adjusted EBITDA in Q4.
Up from $3.8 million last year.
Greece, and adjusted distribution gross profit decreased to $6.4 million and Q4 from $8.9 million and the prior year.
Adjusted distribution gross margin declined to 9.5% from 12, 1%.
As a result of the impacts of COVID-19 on Cc pharma sales mix.
Distribution contributed <unk> $9 million to our adjusted EBITDA in Q4 down from $1.4 million last year.
Adjusted beverage alcohol gross profit was $10.6 million and Q4, and there was no comparable and the prior year as the acquisition was completed last.
Remember.
Notably adjusted beverage alcohol gross margin was a healthy 66, 5% far.
Far outpacing our other segments and a sequential improvement from the 2 previous quarters under our ownership.
The Sweetwater team clearly did a great job controlling costs despite softer.
Yes.
Off premise sales due to COVID-19 restrictions.
Beverage alcohol contributed $6.5 million to our adjusted EBITDA in Q4.
And adjusted EBITDA margin of over 40%.
Essentially on par with Canada's contribution but with.
<unk> about a fifth of the net revenue.
Obviously, we remain very bullish on Sweetwater.
Both from a standpoint of expanding its top line through new products and greater distribution, but also because of the high margin nature of this business and what it could contribute to our overall profitability over time.
Adjusted Wellness gross profit was $1.6 million and adjusted gross margin was 26, 9% for which there were no comparable last year.
G&A costs increased to $32.8 million and Q4 or 23, 1% of net revenue.
Compared.
Third to $24.9 million or 21, 9% and the prior year, which did not include the acquisitions of Sweetwater until rates.
The increase was the result of head count increases and increases and our insurance costs.
Transaction costs totaled $33.3 million and were really.
2 out of pocket fees to consummate the business combination Inc.
<unk> legal banking and other advisory fees, along with severance payments associated with the business combination.
For the quarter, we reported a net income of $33.6 million or 18 per.
And related or compared to a net loss of $84.3 million or <unk> 39 per share last year.
And Q4, our ability to generate net income was related to recognizing a $121.5 million in net non operating income.
And this was due to an unrealized.
<unk> gain on our convertible debentures, driven primarily by the change and our share price and the change and the trading price of the convertible debentures.
Turning to cash flow and liquidity as I mentioned earlier, we generated $33.3 million and free cash flow during Q4, representing a $6.7.
<unk> million dollars positive swing from Q3.
All despite the intensity of Covid restrictions and our markets.
This was a major achievement for us and something we have talked about in the past as being 1 of our highest priorities demonstrating profitability through key metrics, such as adjusted EBITDA and free cash flow.
In fact, after having generated positive adjusted EBITDA for more than 2 years now we view achieving free cash flow on a consistent basis as our next priority.
And our ability to do so beginning in Q4 was because of a substantial increase in operating cash flow to $8.3 million from 0.7 million.
Coupled with limited Capex of just under $5 million, which was just above our $4.1 million expenditure in Q3.
We are also proud of our industry, leading balance sheet, including a strong cash position.
As of May 31, 2021, we had cash.
Of $488.5 million to.
And to both support our existing working capital requirements, including COVID-19 related financial impacts and our near term business plans.
Briefly moving to full fiscal 2021 results. This was clearly a transformational year of progress for.
And 1 that enabled us to position <unk> as a leading cannabis brand.
Net revenue was $513.1 million and increase of 27% from the $405.3 million in 2020.
Cannabis revenue grew 55% distribution.
<unk> revenue was.
And was flat, while we benefited from contributions from both beverage alcohol and wellness totaling $34.4 million that were not in our 2020 results.
Turning to profitability, we significantly increased our adjusted EBITDA to $48 million.
Compared to $5.8 million.
And 2020, reflecting an improvement of $35 million or.
And our 603%.
And with our focus on the future and what we can control we are executing on our highest return priorities, including business integration and accelerating our global growth strategy across.
<unk> 5 key competitive differentiators as Irwin articulated.
We are also let and loosely focused on managing our costs in order to maintain our healthy financial condition.
Our success will be measured through the scale expertise and capabilities, we will leverage to drive market share achieve.
Industry, leading profitable growth and build sustainable long term shareholder value.
As we move ahead, we believe our strong cash position and balance sheet flexibility provides us with the means to transform the industry through our highly scalable operational footprint.
<unk>.
<unk> portfolio of diverse medical and adult use brands and products.
And multi continent distribution network.
Finally, and while we are not and are positioned to issue any formal guidance.
I'd like to mention that the recent floods and Germany directly affected cc pharma.
And Fortunately.
All our employees are safe.
However business operations were shut down for 3 days.
We estimate this will create a negative impact of $2.5 million to $4 million and Q1.2022 net revenues and.
Along with a minor margin impact related to the cleanup.
We maintain insurance coverage.
And <unk> to cover these.
Both do not and expect insurance proceeds to be received during the quarter.
With the recent lifting of Lockdown rescinded.
We not only look forward to increased interactions with our families and friends, we look forward to the changing purchasing patterns and demand for candidates and our biggest market.
This concludes our prepared remarks.
Before moving to analyst questions, Erwin and I will answer a few questions from our retail shareholders from the <unk> platform.
Thank you, let's begin the questions from the state platform first question is the following.
There is a great limit to the amount of candidates tolerate can grow and sell and Germany.
And there'll be permits issued to tell ray for continued growth and production.
Hi, good morning nature, when it's absolutely, yes and its.
It's limited to our facility and.
With that with our current tenders that we have.
And the ability to fill them.
There is lots of opportunities for us and Germany, and I think there will be additional tenders.
And additional production that will come our way listen the big fish.
And Germany also is <unk>.
Distributing cannabis to those 13000 drug stores, which will go through Cc pharma.
Big fish in Germany, as we hope with the Green Party.
They pushed through legalization and.
And it happens within the.
Which happens within the 18 months and referenced to Germany.
Okay. Thank you.
Question on seat Sweetwater, or Sweetwater THC drinks be soon available on Canada and.
Are there plans to expand Sweetwater to California.
So number 1.
And next will be THC drinks available in Canada as part of the <unk> acquisition.
And at Canning facility and a net <unk>.
Facility became available to us and London, Ontario facility.
There will be THC drinks and Canada.
There will be right now I don't know the brand is going to be under.
But sweetwater as a brand and alcohol is available today and Canada. It is our intention to expand into the Canadian market and secondly, recently, we completed and Fort Collins, Colorado.
Buying a facility.
Called Red truck and that facility will start producing sweetwater products and the intention is to expand into the western states.
Thank you <unk>.
Next question with impending federal legalization and the U S. How.
Taylor I benefit from this specifically how will this affect the value of the company and benefit the shareholders.
Good question listen I've talked about and my script today.
4 billion and plan to get <unk> and sales by the end of 2024.
A big part of that is legalization.
And you come back and it till Ray number 1 we look to grow through.
Adult use medical new products cannabis, 2 <unk>, which is edibles and drinks.
And the Canadian market.
Number 2 we talked about.
And we will.
To $1 billion of sales in Europe through medical cannabis and through our Cc pharma and potentially other acquisitions.
Legalization happening in the U S.
And which is the biggest market.
Which today is probably between CBD and THC as close to a 50.
Growing billion dollar market is the biggest opportunity.
And what til ray will be pursuing.
As opportunity and options with Msos.
And that will be able to either integrate them into our business merge or acquire once legalization does happen and the U S.
Okay.
Thank you.
Operator, please open the lines for analysts questions.
Thank you I will now open the lines for analysts questions. We ask that you. Please limit yourself to 1 question.
Our first question comes from the line of Owen Bennett with Jefferies. Please proceed with your question.
Okay.
50 billion and Jan <unk>.
Good morning.
And question for me is slightly following up on the yen.
The last question, we just thought that so obviously the votes for more share tomorrow.
And it will be fat and machine and.
And this could be used.
And we will offset and the U S and with the potential change within the next 12 enrollments and it means you could and to the U S <unk> market.
Wanted to know how youre thinking about U S assets and here is it.
Additional <unk>.
And <unk> assets light Sweet, we'll tell which focus now on gaming.
And so things around secure Ingalls and I'll, let <unk> on use THC assets and likely see and a couple of European and Keith.
So and as I said before.
<unk> put out there and aggressive stance for til rate by the end of 2024.
To be.
To acquire $1 billion company.
A good part of that is acquiring and the consumer area to enhance our Manitoba harvest business and the food area, where we would be able to add CBD or THC or our hemp business.
And along with our Sweetwater.
And <unk> business, we would like to acquire additional businesses in the alcohol area or the beverage business that would complement sweetwater and we see those businesses today growing to a $200 million business.
And we'd like to see about a half of $1 billion and sales and the consumer packaged goods business.
And our poor whether its conventional products, whether it's CBD products, whether it's hemp products or THC products, where permissible and legalization happens and regards to the U S market.
And what we're looking for is to be able to have a $1 billion to 1 billion and $5 and sales and that would come from.
<unk> knees, where we have optionality and invest and those companies with the attention and once the legalization does happen that we would be able to acquire 100% of those companies.
Okay awesome. Thank you very much.
Thank you.
Thank you our next question.
Comes from the line of Vivien <unk> with Cowen. Please proceed with your questions.
Good morning Vivien.
Good morning, and.
I wanted to touch on your market share aspiration for 2024, which is close to a doubling from where you are today just in terms of kind of what underpins.
And the logic behind the 30% because certainly you have competitors that have similar aspirations for market share leadership, so market share gains are not a foregone conclusion. So.
And so from a marketplace standpoint, it seems like you are expecting better mix shift.
As the category reopens and in terms of in person.
Like how much are you expecting in terms of you know better pricing and better mix to drive those market share gains. Thanks.
So Vivian today, we're at about a 16% market share and with that if you step back for a second and it's aspirational looking to basically double our market.
Sales and the.
The Canadian market has been almost closed for 7 months.
There is numerous stores that had been built that have never been open in Ontario, and we're only and the third year.
Building legalize and building the awareness of legalization so for us to grow our share.
Share, we have to drive and build awareness to the benefits of cannabis for adult use we have to improve consumers' perception and purchasing of medical cannabis in Canada.
And we need to get to those 3.
3000 stores or a.
A little less debt or proposed to open we have to bring in more users that understand the benefits of cannabis and a big part of that also has us growing our beverage business and our edible business and a lot of innovation and the thing is I come back with til Ray and someone said to me this morning.
What does that mean, we have to remain nimble and flexible and entrepreneurial if not a lot of the little guys will nibble at us. The other thing Thats got to happen and Canada. There's got to be change in regards to way you could market to consumers educate consumers on the quality assure.
And of the products and the safety of the products and Thats, what Kennedy Gotta do and I think with that we can grow to a 30 plus market share in that marketplace.
Okay.
Thank you and your next question comes from the line.
Sure and Andrew Carter with Stifel. Please proceed with your question.
Hey, Thank you good morning, I know that you guys aren't giving formal guidance, but I just wondered directionally, how you're thinking of this next quarter with the reopening stronger on premise sales for Sweetwater and I appreciate the headwinds and then within that kind of whats you mentioned a lot about the sustained.
Stay and ability of free cash flow. So as we think about that the $5 million and Capex is that a good note for the quarter or is that a good number going forward or is that step up higher and then second kind of big 1 is do you expect a better balance but on a in terms of your cultivation.
And in terms of that working capital drag and thanks.
Carl you want.
And then.
Sure. So just Andrew with respect to free cash flow and and.
Capex I would say for the next.
Few quarters.
And the $5 million is probably the high watermark.
Most of our large or not most of all of our large capital projects.
<unk> have finished.
Across the World, we have a we have some investing to do a little bit and on some lighting projects and leamington to improve lighting and and.
And.
There will eventually be decision on additional extraction capacity and Portugal, but those are not large products.
And as.
They use to inventory levels obviously.
And we inherited and some inventory as part of the transaction with the with Tory.
We're closing down those.
The Enniskillen facility moving that production to Leamington, where we think we'll have a little bit better control on that so we should see our.
Some of these those inventory levels.
Start to draw down.
And as stores reopen.
In terms of the demand a portion of the <unk>.
Question and what what the end of Q1 will look like and we're not really going to give any guidance, but I think I've said this before.
You are seeing.
As it relate and and increase in demand at store fronts. I think there is there is a delay that happens at store level to ordering and inventory.
And making sure that.
They remain and Lockdowns.
If you were here in Canada, and it was a lot of people, who who have been burned by the lockdowns.
Seeing the Lockdowns back on again.
So theres going to be a little bit of time to make sure.
On that that that process is moving forward and I think that will lead to a little bit of a delay and ordering increased ordering patterns and.
And then that same piece will play out at the at the provincial boards and there'll be a couple of week delay as orders started increasing from the.
<unk> side before they start placing additional orders with Lps and so towards the end of that of our quarter is when we.
We see the demand increasing from the board.
And Andrew or not and.
Regards to guidance I think it's important to get all of the retail store.
Our retail and all of the stores that had been built open.
Get all the distribution facilities get the piped up demand run through the system and then we got a better handle on what consumption really looks like what order and all our new products and be able to give some.
Guidance after that.
Thanks, I'll pass it on.
Thank you.
Thank you. Our next question comes from the line of Johns and borrow with CIBC. Please proceed with your question.
Thank you good morning, I wanted to ask about the prior.
And on the U S.
So earlier when you say you are looking for Optionality.
<unk> deals in the use just wanted to.
Or essentially what amounts to costless exercises on warrants for meaningful stake. So is that what youre looking for and if so is it fair to assume you are looking for cannabis brands rather than vertically integrated operators, whether it's msos are single state operating.
Operator.
So John you broke up just as you were going to ask me that pertinent question, but I think I know, what you're asking me.
In the U S. There's 2 paths on going down.
And number 1 is looking and the consumer products area and alcohol and food.
Debt today are.
Our products that are sold in the marketplace that ultimately be converted to THC and CBD products. Once legalization does happen and that would become part of our Sweetwater and our Manitoba harvest business alongside of that would be to.
B looking at Optionality and.
Investments in Msos.
That makes sense that would strategically align with til ray.
And look to acquire or merge with them a 100% once legalization didn't happen so theres 2 pads and regards.
<unk> 2 investments and the U S.
Understood and appreciate the color. Thank you. Thank you very much.
Thank you. Our next question comes from the line of <unk> <unk> with Oppenheimer. Please proceed with your question.
Good morning, and thanks for taking my question, so over and you referenced and.
And your comments on I think.
Some of the challenges just on the pricing front that you guys are seeing and the market and I'm. Just curious if you look at the competitive backdrop out there what are you seeing out there right now and and how are you guys and got just some of the pricing pressures going forward.
So <unk> good morning.
Listen I think what happened out there as a lot of products.
And are bought online and products were.
Locked up at retail stores.
Didn't heavier, but tenders able to tell about the qualities of the products. The attributes of the products. So a lot of consumers for display and products on price.
And that's the bad news.
<unk> revenues is I think a lot of these products. They bought on price. They saw that they were not or learned that they were not good products and on quality products and learned from that as.
As I said before.
Price is key we are a low cost producer on the other hand consumers like brands and when you are buying.
And as the Tequila good Buck a good alcohol a good 1 you want a good quality product and that is not going to be any different in the cannabis space and 1 thing that I can reassure you with our over 12 brands quality products is something that we're going to come out with potency is important and our different strains are important and our different brands.
Rands and listen and pricing is important.
But we're not going to be out there as the lowest price product line and I think building consumer awareness around quality is going to be something very important for us, but I think a big part of it was it was before bought buy on price. It was not bought on brands.
It was not border and education and consumers try them and.
And we're not happy with the results.
Great. Thank you.
Thank you.
Thank you. Our next question comes from the line of Tami Chen with BMO capital markets. Please proceed with your questions.
Thank you good morning.
<unk>.
I just wanted to ask.
With respect to your U S strategy.
2 approaches that you talked about.
I'm just wondering.
It's a very complex strategy, where we're looking for several calls CBD.
Mark.
Paul more food businesses and on THC on top of that so I guess first part of the question is why pursue both of these routes and it seems to add a lot more to your plate and a lot more complexities and 2 is when you talk about that second half on investments and possibly acquiring.
Alcohol.
And why why why do you believe that and.
Msos or even single state operators would be interested in and investment or possibly acquisition by total ray. Thanks.
So number 1 again strategically.
And alcohol.
Business today, we think alcohol is growing and the 3% to 5%.
And we think number 1 it's a great category.
We think we can bring a lot of new products to it like we've done so far with Sweetwater.
And we will continue to do that as we introduce our tequila and our cash.
Our wines and the cans are risk products, which are about the soldiers and it can and gained distribution. We have the infrastructure there to do that and Thats no different and Manitoba harvest and we want these businesses to be bigger businesses.
And ultimately with the.
Jason to candidates.
It is something that will be important to us, it's not where our consumer packaged goods business, just going and the food and drink business, it's important there and adjacencies to our cannabis business our CBD.
And in <unk>.
Prior life and build consumer packaged goods business as I said before we wanted to be the largest brand.
Cannabis company and the World and regards to what they would want to partner with US listen we are 1 of the largest cannabis companies today and the world.
We have a.
Big business in Canada and at <unk>.
<unk> use the medical use and regards to cannabis 2 <unk>.
<unk> and and and.
Gummies and edibles, and we have a major business in Europe, and the medical business.
And as you look at some of these msos, where there yes doing business in the U S. As they look to have that partner that has capital we have close to a half a billion dollars of cash.
And drink our balance sheet.
We have great liquidity within our stock we have a lot of very experienced management team and we have a good history of knowing how to grow great candidates with great strengths. So I'm not sure why they would not want to partner with us if it makes sense economically for both.
<unk> set to shareholders.
Yes.
Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.
Hi, good morning, and thank you for the question.
And so on you and you mentioned.
About your markets aspirations, and Canada to get 30%, but and I also wanted to talk about in terms of the legal market versus the illicit market and maybe some of your.
And it goes there right now, Ontario estimates about 50% of sales still go on to the illicit market.
On pricing at least on the flower side seems to be below the illicit market.
We have certainly improved allow us and Canada, even though and they're still looking for it to get to 3000, and maybe we'll see more of an impact from the greater amount of stores and the back half of the year as lockdowns ease, but and love get your perspective in terms of what else you think would be needed in terms of from the legal category to better compete with the illicit market.
Store and product formats more quantity for beverages more milligrams for edibles or what you believe will be needed in order to gain more on that market share over and the illicit market.
So number 1 as I've said before and I say, it again brand equity brand equity brand equity the guy that growth there and build your brands you got to go out there.
Whether it be at consumers and trusted brands that go through the quality assurance and regulatory debt products go through and you know what you're getting in regards to our potency type of boat.
And C product and regards to.
If a product.
Has.
Any type of.
Additives.
If a product is sprayed with pesticides are and how it's grown et cetera. So that's important to educate consumers on the product safety product quality and product attributes.
Number 2 what's really important is this here is pricing.
And I agree price is important.
And but when you pay the price you know you are going to be happy and satisfied with which you are getting and the product number 3 is distribution and making sure. We can sell our products across all the Canadian provinces and have a strong presence in each of the provinces number 4 is innovation.
And is key.
And listen if you come back and look at it we saw close to $100 million of beeps today and.
2 years ago breakthrough not around and regards to pre rolls and the different technology and pre rolls today and regards for different hashes, and waxes and oils and innovation is going to be key.
And so it's not we're just growing.
Growing flower and putting flower are there, we're putting multiple new products multiple innovation and the big expansion for US today is also and the drinks and edible area, where we have very limited business today and now that we have a facility we have the opportunity to grow that business.
Alright, great. Thanks.
Okay.
Hello.
And as operator there.
Hello.
Okay.
Yes.
And.
Yes.
Your next question please.
And so sorry about that and technical difficulties. Our next question comes from the line of Michael elaborate with Piper Sandler. Please proceed with your question.
Good morning.
Good morning, Mike on some of the.
Attractive assets that came with the <unk> deal and obviously the Portugal facility is a big 1 of those you did also inherit.
It's a.
Business that.
Prior auditor cited material weaknesses and internal controls.
Can you just help us understand how you're addressing that and how hard it is to fix.
So.
And if you're okay, I can take that mark.
Michael.
And there were.
And I believe it was 3 material weaknesses that have been identified by the prior management team.
Thank you the prior processes that existed.
And we have been working on those items since.
And even during the integration period, sorry, more than just the integration period and even during the pre closing period to help strengthen those controls.
Those those same processes.
We are obviously, we have similar processes and a free.
And we have been able to design controls around it.
That did not result, and a finding of a material weakness and so we believe by integrating their processes into ours and taking best practices moving forward.
And that material weakness.
And we'll be fully remediated.
Within the next year.
So before we reported our next our next review yes.
Okay. Thanks.
Yes.
Yes.
Yeah.
Thank you. Our next question comes from the line with Heather Basket.
<unk> of America. Please proceed with your question.
Hi, Thank you for taking my question and so.
So the first SKU, there and we're seeing and Canada open up to some degree can you can you walk us through June and July and and and sort of lot with aubade and.
Any sort.
Banks signs that you're seeing or hearing on improvement and this is a follow up to that.
We've seen consumers team across the board and not just in Canada shift to shopping more online with with all these lockdowns and curious how you're thinking about consumer habits going forward and and confidence that you have.
And of that the consumer habit.
A portion of the consumer hasn't permanently shifted to buying online.
Okay.
So heather good morning.
And number 1 and the Canadian market and Carl jump in here anytime.
Because you're in Toronto, but what we're seeing is a.
A lot of pipe demand and.
And a lot of you know.
Getting back to business and stores opening as you heard me say there was close to 600 stores.
We're licenses were granted that did not open.
During the pandemic and did not want to open that are going to start to open now which will.
Consumers opportunities to win and byproducts.
And what consumers want to see is all the new products that have come out and get back to volume at local retail stores and regards to iron on line.
I think if anything the reverse has happened.
Give where consumers they want to get into stores and want to get educated about the new products and want to go back to shopping at retail and I'm seeing that in the supermarket industry and other retail stores.
And I think that is something we will see and Canada right now because theres going to be a lot of new stores that are opening up.
Happen and.
With that.
And I hope to see a lot of buying from that picked up demand a lot of our new products will be introduced into the stores and the big thing is where we have to do is educate consumers again about our products because its almost been a year that we have not been either.
And we talk to them show them and let them try our products and let them purchasing of products.
Great. Thank you very much and.
And we plan to spend.
A lot more in marketing dollars in regards to social media and getting out on these products.
And that's what's important to get out there and spend.
And as I say the Canadian market is limited what you can do and advertising but.
We are going to be aggressive.
Yes.
Okay.
Thank you there are no further questions at this time I would like to hand, the call back over to management for any closing comment.
Thank you very much operator, and thank you very much everybody for getting on the call today I got to tell you in 2021, it's been a tough year.
And if you step back and look Canada.
Canada was closed pretty well since November.
Europe was closed as well and with that.
We were able to do 2 major acquisitions, 1 in October and acquiring Sweetwater and then announcing in December on.
Until Ray and.
And closing on both of these deals.
We put in place a very strong management team I really like to thank my management team because.
And the successes happen because of the management team and the great people I work with I also want to thank our board of directors for their support.
During this pandemic and getting these things done.
You heard me talk about how already we've put in place.
A lot of cost.
Savings.
Close to $35 million between putting both businesses together. We originally said we do this and 24 months, we've moved it up to 18 months and.
In regards to the fourth quarter still with Canada close we grew our business.
No.
We grew our business, 55% and cannabis.
This.
Net income of $33 million were cash flow positive, we're sitting with $485 million and the bank 1 of the questions asked of me what do we bring to the U S.
In regards to why and MSR would want to partner with US Let me tell you something Canada has.
It's been a tough market for us we've learned a lot we've learned how to grow we've learned how to produce products, we learnt how to innovate and taking a lot of those learnings from Canada and Europe into the U S will be very helpful for any MSR that partners with us.
And I appreciate the support from our shareholders and sticking with us.
I know, there's times and I get the notes from our retail shareholders, which I really appreciate.
Them and it's important for us to communicate it is very important today. If you are a shareholder that you did open vote as I've said when we close this deal we are left with no shares.
We want to go out there and do any.
Acquisitions and.
And to invest and the future of our business with that enjoy the rest of your summer and thank you again and I look forward to speaking to you and.
And the future have a great day.
Thank you that Johnson conclude todays teleconference. Thank you for your participation and May.
You may disconnect your lines at this time.
Good day.