Q1 2022 Tilray Inc Earnings Call
Good morning, everyone. Thank you for joining us to discuss till right, Inc. 's financial results for the 2022 fiscal first quarter ended August 31, 2021, joining.
Joining me on today's call are Irwin, Simon Chairman and Chief Executive Officer, Carl Merton, Chief Financial Officer, and Verdi, Nevada, 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 investment firms.
Could feel audio and participating retail shareholders conducted through the state technologies platform.
Question submission and Upvoting through the Sei technologies platform concluded yesterday, and the company will read aloud and answered the top questions. Mr. Marotta you may now begin the conference.
Thank you and good morning by now everyone should have access to the earnings release, which is available on the investors section of tell raised website at <unk> Dot Com and has been filed with the SEC and SEDAR on today's call. We will also refer to various non-GAAP financial measures, which.
Can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
<unk> 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, which may prove to be incorrect.
Actual results could differ materially from those described in these forward looking statements. Please note the text in our earnings press release issued today for a discussion on the risks and uncertainties associated with such forward looking statements.
Now I'd like to turn the call over to <unk>, Chairman and CEO Irwin Simon.
Thank you very much Barry and good morning, everyone. We appreciate you joining us for our call today.
As you know we are laser focused on building the world's leading cannabis focused consumer brands company, while generating $4 billion by the end of fiscal year 'twenty 'twenty four assuming U S federal legalization and acquisitions and we're making important strides.
And delivering on that goal despite a challenging backdrop in the cannabis world.
Reflecting our Q1 fiscal year 2022 revenue and adjusted EBITDA grew compared to prior year.
Despite the impact of Covid on the topline.
Notably in Canada, where stores did not reopen until mid June and now are at full capacity.
Carl will discuss our results in more detail, but I'd like to note specifically that our adjusted EBITDA margins improved modestly and we've taken advantage of production cultivation efficiencies and move forward with the integration and executing on these synergies we identified.
In the til rate of free a combination which are offsetting the impact of our near term cost pressures impacting every segment of the global economy.
Importantly, as well, we did not significantly lower product pricing to maintain our leading cannabis market share position in Canada, we still estimate that our cannabis adjusted EBITDA would have been several million dollars higher if the legacy <unk> products have been produced under.
There are more efficient or free up cost model.
In that regard we look at the performance until rate since we closed the business combination and May I deeply gratified by our early tangible accomplishments our confidence in our delivery to meet our goals and deliver for shareholders is supported by three main factors.
Strong movement towards cannabis legalization in our three largest markets, Canada, Europe and of course, the U S, whereas evidenced by our recent opportunistic acquisition of Mad men convertible notes, we continue to build our strategic position. So that we can benefit from.
Full legalization when the time comes.
Leaders with a playbook and proven execution abilities, and creating building and sustaining value in CPG and wellness categories with particular expertise in building iconic brands that stand for excellence and offer a selection of products that meet or exceed consumer.
Demand educating consumers about our strict quality standards and the benefits of cannabis to inspire brand loyalty and of course growing market share through scale and distribution with a laser focus on being that low cost high quality producer and then find.
<unk>, well defined organic acquisitive and partnership base Roes strategies.
When we compare ourselves to the peer set we're confident that we stand above and having the global reach and resources to make this vision a reality.
And with the progress, we're making and the Covid related factors beginning to dissipate we're building the new til rate upon four key competitive <unk>.
Differentiators.
Number one is our broad geographic footprint and operational scale he'll race on parallel and growing president's across our markets ideally positions us to lead the global cannabis market. We're focused on doing this through taking full advantage of organic growth opportunities.
And with the support of a strong balance sheet and access to capital accelerating that growth through pursuing transactions and partnerships that would complement our current business enable us to build further revenue growth and EBITDA cash flow.
On the topic of M&A I want to take this opportunity to express my appreciation to our shareholders.
Approving an increase in the number of authorized shares of our common stock at a special meeting held last month.
Because of our shareholders overwhelmingly support we've added the firepower the resources, we need to opportunistically pursue transactions that will enable us to accelerate our growth and further drive value creation.
Consistent with this I will discuss mad men in more detail shortly.
Moving on now to our next critical differentiator.
Our position as the number one Canadian L P.
In total sales on a consolidated basis a level, we have reached do door, a comprehensive portfolio of medical and adult use product offerings and carefully curated brands in our first full quarter since the completion of the business combination we maintained our retail market share up 16%.
And held our pricing even as some of the largest competitors experienced a share reduction let me now detail some of those specific accomplishments in the period.
In August we made our first shipment to Nevada, which was the last step towards making our presence in every province and territory in Canada.
This was a record quarter for adult use pre rolls with 17% growth in net sales since the fourth quarter of last year. Indeed, we were number one in cannabis flower and pre rolls and top two and three and all other product categories goods.
Good supply our top selling adult use brand reached net revenue on an annualized basis up $225 million and this is a three year old brand and in fact five brands in our portfolio rank in the top five sales leading brands across all adult use.
<unk> product categories, including good supplies, Xiaomi, Huawei, which recently won a bus tender choice award for Best Munchies brand in Canada.
Part of our goal of reaching 4 billion in revenue by the end of fiscal 'twenty 'twenty four concurrent with U S. Federal legalization includes expanding our market share just 30% and we view. These recent milestones as reflected and we're off to a good start achieving that.
Please expect to hear more from us about our growth in Canada as we introduced new innovative two point old products across concentrates edibles drinks medical products that promote health and wellness and of course, well being that will drive distribution across all of the.
Channels. This of course includes retail stores. We were pleased that there has been a nice uptick in the number of stores opened since the end of the Lockdown in Canada last year. This time, there were 600 stores today, there's over 200 stores.
It will take time for all the new Bud tenders in these locations to build personal relationships with consumers. So they can be seen as trusted resources, who can educate and make specific recommendations.
This is important as we believe that as consumers continue to shift away from price based cannabis purchases effective marketing regarding our quality and safety of our products and brand familiarity will matter more in our brands will be positioned to reap the rewards and the benefit.
Yes.
Our third differentiator is tremendous international growth opportunities based on two strong medical cannabis brands large distribution network in Germany through Cc pharma with access to 13000, plus pharmacies and and then European Union G. M P supply chain.
We not only have high quality production facility in Portugal, but also a new state of the art cultivation and production facility in Germany, which announced its first harvest and production in July this milestone will help us ensure the patients needs in Germany are met with products of the highest quality.
All the while at the same time, reducing dependence on imported supply and solidifying our position as a trusted provider of medical cannabis in Europe.
The EU alone, including Germany, Poland, Italy, the U K, France, the Netherlands, and including Israel has the potential to be a billion dollar business for us. This is because from a cannabis perspectives. These markets are more medically and pharmaceutical LIFO.
Look as the North America outside the U R business in Australia, and New Zealand continues to perform according to our expectations with our til re branded extracts and flower leading that market.
Most notably Hill right high quality CBD extracts lead the way in many Australian hospitals, serving many patients with seizure disorders under the special access scheme.
<unk> continues its success in New Zealand by being the number one company to have CBD balanced and THC extracts they're valid under the New Zealand Ministry of health minimum quality standards. The new scheme kicked off October one until Ray is well positioned to drive <unk>.
<unk> growth, we also see additional opportunities in Argentina, Colombia, and Brazil, and even China and India.
Next number for our CPG platform and infrastructure in the U S, including our Sweetwater and Manitoba harvest business suite waters distribution currently reaches over 47000 on and off premise points of sale.
Leaven percent higher from the previous year, while Manitoba harvest is available across 17000 stores in growing these businesses have already generated $100 million plus in annualized revenue and are quite profitable both still have significant white space.
There's lots of growth opportunities there.
Harnessed that we are expanding suite waters product line up leading craft beers to include blocker sodas under the rift brands. We're also working on new product categories, including hemp based CBD drinks and other RTD wild Spitzers wine in cans and others recently, we bought a facility in <unk>.
Fort Collins, Colorado and have started producing sweetwater products as it executes on its strategic plan of expanding into the Western states.
We've also just added 450 distribution points and Publix within the state of Georgia. Our growth plan is led by new innovation, including the introduction of broken Coast D. C. Loggers are collaboration with our craft cannabis brand broken coast as well as the launch of our Imperial IPA.
And hard teas and lemonade.
Manitoba harvest continues to provide us with ample opportunities to grow our footprint in the organic and natural industry.
Hep C is a supersede naturally high in plant based protein fiber Omega three fatty acids consumers interested in hemp seed hemp seed oil hemp protein continues to grow in the marketplace as consumers increasingly look to fall plant base low carb and key.
Based diets utilizing.
Utilizing our footprint in the U S. Today, we are able to leverage these strong brands and their distribution systems to parlay into CBD beverages C.
CVD personal care products and related Adjacencies. These may be later translated into THC based products upon federal legalization in the U S.
In addition to these four differentiators another critical driver of value creation for us in the $80 million in cost synergies, we've identified as part of the til Ray of free a business combination and the areas of cultivation and production sales marketing and corporate expenses were.
We're ahead of our original pace, having reached $55 million on a run rate basis to date with actual cash savings of close to $20 million recall that in July we announced we had reached $35 million in synergies on a run rate basis, what actual cash savings in.
Q4 of about $7 million.
These data points exclude any revenue synergies, notably those that can be derived from 2.0 products and beverage gummies and chocolate that are free yet have not produced previously, but we can now go into leveraging legacy till raised manufacturing infrastructure.
I would like now to spend a few moments on the potentially transform a transaction, we announced and closed in August with Mad men.
Mad men is an iconic multistate cannabis brand and retailer that offers its large and loyal consumer base, a highly compelling retail experience and their recent performance reaffirms a turnaround story that firmly is taking whole mad men had revenue of 42 million.
For the fourth quarter.
2021.50.
53, 9% year over year, and up 31, 3% from the previous quarter, specifically, we acquired senior secured convertible notes and certain warrants that are convertible into equity representing 21% of mednet upon federal legalization.
Mad men currently holds 22 retail licenses nationwide, including 14 in California, the largest legal cannabis market in the world and excluding uncapped licenses in Florida for a total of 27 retail locations and due to the equity investment that bad memory.
Concurrent with our transaction it will be able to further expand this business in key markets, including California, Florida, Illinois, Massachusetts, among other growth opportunities across the U S.
And there's so much till ray can do with Mad men, and Canada and learning about their retail sales and their products that can help with some of our innovation and some of our products in the Canadian and the international markets.
In short this transaction has set the stage for til rate to become a leader in the U S cannabis market upon federal legalization, while mitigating downside risk for our shareholders.
In addition to benefiting from the strong market position when legalization allows our strategic opportunities with Mad men, including international licensing opportunities in Canada and the EU. We are currently focused on pursuing as I've said before as well as commercial and distal.
Dubuque arrangements joint ventures, or other significant transactions over time.
With that to sum it up our eyes are firmly on the prize of creating.
$4 billion cannabis focus consumer brands company within the next three years, we have the strategy and the team in place to execute on our plan.
A leading and differentiated market position ongoing opportunities to drive synergies reduced production costs and a strong pipeline of transaction growth opportunities worldwide.
And with that I will now turn the call over to Carl.
Thank you Erin I would like to now review Q1 results.
We are building synergies into our business model.
Our cash and liquidity position.
And the specifics of the Mad men transaction.
As Irwin discussed we are working hard every day to build a stronger more diversified and profitable company and we are executing on this through our four key competitive differentiators. So that we can create sustainable value for our shareholders now and over the long term.
Recall that in the prior year quarter as a result of the arrangement between our free yet until rates are.
Our results are based on our free its financial statements, but were adjusted to follow U S. GAAP and is presented in U S dollars.
Additionally in July we published an appendix to our investor deck located on our website that contains an analyst primer, which breaks down our free as U S. GAAP financial statements for 'twenty, and 'twenty and 2021 by quarter. As a reminder, this primer was not audited.
Throughout our call today, we will reference both our financial results in accordance with GAAP as well as our adjusted financial results.
Please refer to our press release for a reconciliation of our reported financial results under GAAP.
Non-GAAP financial measures identified during our call.
Our Q1 net revenue grew 43% compared to Q1 last year.
Though the comparison itself is not apples to apples because the year ago quarter does not include any contributions from legacy tell right.
We know that as with other CPG companies, the Delta Varian quell with consumer confidence and impacted revenue in key consumer facing markets.
In our Canadian cannabis business, we held our number one position in Canada for L. P revenue and held our market share of approximately 16%.
All while largely maintaining our prices.
Nonetheless, the Covid Delta variant unquestionably impacted results and our Canadian cannabis business experienced flat net revenue during the quarter due to the provincial boards buying patterns.
Late in the quarter, we began to see the board's increase their purchases.
Rides that we attribute to ride the vaccination rates in Canada.
We believe that based upon retail sales data consumer demand is continuing to rise.
Key to this rise is ongoing education of bond had theirs as.
As the Influencer and shifting consumers from price based brands to margin based brands.
Our beverage business Sweetwater continues to experience a reduction in case demand for its on premises channel.
As well as op restaurants operating below full capacity.
With a softer off premise channel.
All being experienced by other beer producers.
After managing through the changes associated with moving from branded product at a big box retailer.
So a white label product, we are pleased with the revenue contribution from Manitoba harvest during Q1.
Finally, while cc pharma and experienced a slight improvement in the global supply chain that resulted in a modest increase in net revenue.
As we discussed on our last call operations were shut down in July for four days due to flooding and then more Germany.
This resulted in loss revenue of almost $5 million, which was slightly higher than the high end of our initial estimate of $7.0 million to $4 million.
To offset the lost revenue, we booked insurance reserves related to our business interruption policy that bolstered EBITDA. However, this did not benefit the top line revenue figure.
So as Irwin noted despite the COVID-19 related headwinds impacting the top line, we worked hard to optimize our performance.
And the results in the quarter was that we held our gross margin steady on a year over year basis and grew our adjusted EBITDA from $9.0 million to $19.0 million.
Representing our 10th consecutive quarter of increasing and positive adjusted EBITDA.
Importantly, our profitability would've been even higher if more of our operating synergies were already embedded within our business model.
Particularly fully converting the legacy tillery brands to a free is cost structure.
To illustrate this if.
The freest cost structure had been applied the legacy core brands during this quarter.
We believe the adjusted EBITDA for Q1 would have been closer to $23.0 million.
This is because pre business combination free.
<unk> was already a low cost producer with state of the art cultivation processing and manufacturing facilities and we are now accelerating our work on point additional costs out of that structure.
So the weekend gain further efficiencies and increase margins.
This work also includes improving product potency and quality to meet market demand.
Our Q1 net loss increased to $40.0 million versus a net loss of $28.0 million in the prior year.
While adjusted free cash flow decreased to negative $63.0 million from negative $71.0 million in the prior year quarter.
Several items led to the figure in the current quarter <unk>.
Including paying income tax balances that are free of diamond.
Payment of year end accruals and an increase in accounts receivable as we experienced late in the quarter purchasing from the provincial boards.
We specifically note that inventory decreased in the quarter and so this was not a part of the decreased adjusted free cash flow.
Last quarter, you may recall, we expressed how pleased we were to have generated free cash flow in Q4.
We believe that the first few quarters as a combined entity could see negative cash flows as we achieved our synergies.
And how we view free cash flow as an important element of our investment thesis.
That has not changed.
And while we did not meet this goal in Q1, we are working diligently towards sustaining free cash flow generation in future quarters.
Turning now to the business integration, we are making meaningful progress optimizing operations and as we focus on reaching at least $80 million of synergies within the first team first 18 months of the transaction.
As of September 30th.
The synergies achieved our $55 million slightly ahead of pace.
Our most recent actions include closing the Enniskillen facility.
And the announcement of our intention to close the Nanaimo facility in a phased approach that will be completed next spring.
Included in this quarter's results is a $5 million provision to cover closing costs associated with this announcement.
Going forward, we will be concentrating our British Columbia cultivation in the broken coast facility on Vancouver Island.
In international production and manufacturing in Portugal, and Germany.
Beyond these closures, we are working to embed other meaningful lasting inefficiencies in our business processes.
Operating and marketing initiatives.
Infrastructure compliance costs.
And through attrition.
Moving onto other events in the quarter as Irwin noted in mid August our majority owned subsidiary acquired the outstanding Senior secured convertible notes of Mednet.
Along with certain warrants to acquire med men's class b subordinated voting shares.
The total value of the Mad men notes in med been warrants was $179 million.
Of which $125.0 million represents the ownership interests of til rate.
And $61.0 million represents the ownership interest of the unrelated minority owners.
Purchase notes and purchased warrants were accounted for as debt and equity securities and recorded in long term investments with an offsetting current liability for the outstanding consideration due.
The only P&L impact with respect to the Mad men transaction this quarter and in the near term.
Until U S federal legalization.
Is the recording of interest on the notes and any future fair value adjustments to the notes themselves.
Now, let's discuss Q1 in greater detail.
In our cannabis business, our medical business grew due to the contributions from legacy tail right.
Although we experienced a lower number of existing patient renewals.
And a lower number of new patients in both independent and clinic channels.
Bill the average gross retail selling price of medical cannabis rose slightly to $6 eight per Gram in Q1 compared to $100.0 last year.
Our adult use business grew year over year due to the business combination along with numerous retail sales promotional programs innovations social media visibility and efforts to increase new accounts.
It also grew on a quarter over quarter basis.
Last quarter only included four weeks of legacy <unk> sales.
However, similar to Q4 last year, we dealt with consumers more focused on price based brands, which contributed to a decline in average selling price to $20.0 per gram in Q1.
Importantly, we did not lower our prices to secure our market leading share of the market.
And our candidates gross margin fell not because of price compression per se.
But rather that the toray brands represent a greater share of the mix in sales in the current quarter.
With those till Ray brands carrying their higher production costs.
Until all our effort in synergies are achieved and we have sold through all the inventory produced at legacy Ito rate facilities.
Similar to last quarter, the selling price decline was related to pricing being the primary means the brands, we're able to differentiate themselves coupled with limited consumer interactions with Bud tenders.
We view the ability of Bud tenders to educate consumers about the attributes and quality of products such as ours as critical to encouraging impulse purchases, while shifting customers away from price based brand purchases in general.
We think that through more education and a reduction in by tender turnover, which has also been very high during the lockdown period, and as new dispensaries opened and ramped up.
We will be very well positioned because we believe purchasing decisions will ship to margin based brands overprice based brands.
Similar to how consumers behave with regards.
Two other products such as alcohol.
Our cash cost to produce program decreased to $70 seven per Gram and our Leamington facilities. This was due to improved yield potency and cost control efforts that began in January of the prior year and that continued to benefit us.
Net revenue from our cannabis business in the first quarter Rose 37, 6% to $74 million.
Compared to the same period of the prior year.
In our distribution business net distribution revenue was $69.0 million for the quarter virtually unchanged from the $69.0 million last year.
During the quarter, our distribution business was negatively impacted by the strengthening of the U S dollar against the Euro.
Which if normalized would represent an additional $3 million in revenue.
Also impacting quarterly revenue was the heavy flooding, which caused a temporary business closure at cc pharma over a four day period, and consequently resulted in almost $5 million of lost revenue.
And our beverage alcohol business net revenues at Sweetwater were $20.0 million down slightly on a sequential basis and reflecting a reduction in keg demand from the on premises channel coupled with a decrease in off premises consumption.
We believe the impact of the Delta very affected consumer behavior, both within restaurants and groceries alike.
Net revenue from our wellness business, Manitoba harvests were $23.0 million, which we view positively and for which there is no comparable to the previous year.
All of this led to net revenue, increasing 43% to $168 million in Q1 over the prior year period with the increase primarily driven by the contributions from legacy tolerate and Sweetwater for which there were no comparable in the Q1 period last year.
Adjusted cannabis gross profit increased to $33 million in Q1 compared.
Compared to $29.0 million in the prior year.
Although adjusted cannabis gross margin margin fell to 43% from 50% in the prior year.
But only down 1% from last quarter.
The decrease in margins was related to a shift in sales mix to more till right brands that have higher cost to Bruce than our legacy brands as a result of including 13 weeks of revenue versus four weeks in the prior quarter for legacy <unk>.
And a deliberate and onetime buildup of inventory levels as part of our integration plan to shut down facilities such as in a scaling in the nine months.
Said another way as we worked to adjust our cost structure and reduced.
Production costs through the integration process, we incurred some temporary inefficiencies during this transitional phase that will ultimately result in greater efficiencies.
Adjusted distribution gross profit decreased to $16.0 million in Q1 from $14.0 million in the prior year while.
While adjusted distribution gross margin declined to 12% from 14% as a result of the impacts of COVID-19 on Cc pharma sales mix.
Adjusted beverage alcohol gross profit was $16.0 million in Q1, and there was no comparable in the prior year as the acquisition was completed last November.
Adjusted beverage alcohol gross margin was 57%, which was below the 66, 5% we achieved in the previous quarter.
We overachieve based on current expectations for on premise versus our off premise mix.
Adjusted Wellness gross profit was $4 million and adjusted gross margin was 27%, which was in line with our expectations and for which there were no comparable last year.
Sequentially adjusted wellness gross profit more than doubled from $7.0 million.
In Q4.
In aggregate adjusted gross margin held steady at 30% compared to the prior year, while adjusted gross profit rose, 46% to $51 million from $35 million.
As we continue to achieve our synergy plan over the coming quarters and as our non.
Distribution revenues increased their share of our total revenues.
We expect to see continued improvement in this metric.
General and admin cost increased to $54.0 million in Q1 or 29, 5% of net revenue.
<unk> to $26 million or 22, 1% in the prior year, which did not include the acquisitions of legacy till Ray in Sweetwater.
The increase in general and admin cost was primarily the result of the costs associated with the Sweetwater until right acquisitions.
Most particularly amortization of intangible assets.
And $5 million in costs due to the planned denial facility closure.
Transaction costs totaled $31.0 million compared to $7.0 million last year.
And were related to the solicitation of shareholder votes supporting an increase in the number of authorized common stock shares.
Our investment in the purchase notes and purchased warrants of Mad men.
Transaction closing costs.
Remaining costs associated with the arrangement and the evaluation of other potential acquisitions.
One time litigation costs.
For the quarter, we reported a net loss of $40.0 million.
Or <unk> <unk> per share compared to a net loss of $28.0 million or nine cents.
Per share in Q1 last year.
Representing an improvement of one <unk> per share.
Note that our weighted average share count increased to $453.0 million shares.
From 241.9 million shares during the same period.
Turning to cash flow and liquidity adjusted free cash flow was negative $63.0 million during Q1 and reflected $95.0 million of net cash used for operations.
$19.0 million investments in capital and intangible assets.
Offset by $52.0 million of cash expended related to our acquisitions.
Ken as I said earlier, we view achieving free cash flow on a consistent basis is a priority for this business.
While we certainly fell short in Q1, it was anticipated as a result of the synergy plans and.
And as we push forward with integration we view this goal as well within our reach in the coming quarters.
Even after the increase in cash used from operations, we still maintain a strong cash position of $376 million as of August 31, 2021 to both support our existing working capital requirements and our business plan.
While the last 18 months have certainly proven that there are numerous factors outside of our control.
Our focus remains on what we can do specifically business integration. So that we can better manage costs and the opportunities. We had have ahead of us as we execute on our highest return priorities across our five key competitive differentiators.
Thank you for your interest in <unk> and this concludes our prepared remarks.
Before we take questions from our covering analysts Erwin and I will answer a few questions from our retail shareholders from the same platform.
Right what is the first question.
Thank you Karl the first question is the following within pending federal legalization in the U S. How will tolerate benefit from this specifically how will this affect the value of the company.
The shareholders.
Yes.
Good morning Irwin Simon.
I think with legalization theres, many ways will benefit shareholders.
We're able to acquire multiple facilities or were able to acquire other msos, we could take all our.
You know technology, all our brands into the U S market and with our.
Balance sheet, there is a lot for us to do owning.
21% and Mad men today, and expanding that so with legalization as I said part of by $4 billion plan I am looking for at least $1 billion to $1 billion of sales.
The U S. So with the expansion of cannabis sales product sales medical sales that will be extremely beneficial beneficial to us in the biggest market.
Thanks Harlan.
The next question is a multipart question why would the dilution of shares would be beneficial how will the bill being proposed affect productivity and sales.
How are you approaching future acquisitions and expansion.
Are there any plans in place to accommodate the U S territories, if and when this bill gets passed.
Okay.
Thanks, Mark Thanks, Greg.
In terms of the dilution of share.
The share count I think it's important for our shareholders to understand that the approval. They gave US did not result in immediate.
The dilution of shares just to correct that and no dilution of shares.
And shares do not get counted until they're used for.
Some acquisition or for something else. So it's just the ability to use the shares and there is no dilution and the shares that were authorized by shareholders just to be clear I only the only shares we've issued since that occurred was was amendment.
Can you can you just repeat the second part of the question since it was a multi part question right.
Sure. So my question is how will the bill being proposed affect productivity and South and then how are you approaching future acquisitions and expansion.
So.
Irwin Irwin has laid out a very clear plan for the for the business in terms of who is in terms of the strategic plan.
For M&A and organic growth.
We're looking for we're going to rebuilding the company to a $4 billion.
Business by the end of 2023.
We've identified $1 billion.
Potential opportunities in Canada, and we're looking to build to a $1 billion in it.
In Europe and international and then.
<unk>.
$1 billion to 1 billion and a half in the U S. As the U S begins to legalize and we're able to make investments into the U S.
That's when we'll begin looking.
A more detailed level at U.
U S cannabis operations and to add to that Arun.
Yeah, and I think in regards to Youre, referring to is the savings bank.
Bill.
Listen I think something's got to happen in regards to some type of legalization. It doesn't necessarily help kill rate from a sales standpoint from an EBITDA growth standpoint, but it does help us from a banking.
Inter commerce.
Listen I'm, a big believer that something will happen in regards to legalization, whether safe Bank Act.
Whether its decriminalisation these scheduling.
Or full legalization on a medical standpoint.
The Big thing is.
I laid out our plan.
Last quarter and Carl just went through it will be ready for that.
And it's up in Toronto today.
<unk> our facilities and we are the largest grower of cannabis worldwide. So we have the ability to grow over 265000 kilos.
That we can ship all around the world.
One of the biggest hold backs in the U S will be grow and we have the grow we have the strange we have the potency we have the quality and the knowhow to be able to export that into the U S. Once legalization does happen.
Right.
Next question is this is a great limit to the amount of candidates tolerate can grow and sell in Germany will there be new permits issued to til array for continued growth and production.
So first of all there is no limit that we can grow in Germany, and if we did grow if we were able to hit the limits that we are grow we have.
Plenty of capacity in Portugal.
And I think that's the big thing with until Ray and I am not sure we get the.
The credit for it I'm not sure is built into our valuation, but Europe is going to be major and legalization.
The new administration coming on the Germany, with New administration coming on with Israel with Denmark, I think legalization happens within the next 18 months and we have two phenomenal facilities, both in Portugal, and Germany, and we can ship product from Canada, That's GMP certified.
Certified so with that we are well prepared and we feel that with our presence with cc pharma with our presence in Germany, with our Portugal facility, which I said before is a tremendous facility, we're set for European legalization and even if adult use us legalize.
We see additional legalization happening on the medical different countries within Europe.
Okay final question from the retail shareholder well Sweetwater THC drinks be soon available in Canada and are there plans to expand Sweetwater to California.
So number one while up and while up in Toronto I got the visit London facility, which we inherited and acquired the TRA transaction.
Have a beautiful facility there that has the ability to do cabin operations.
With THC its a license facility so with that we are going to expand our drink business I get out to visit stores yesterday and.
Absolutely.
The demand for drinks in Canada is growing.
There will be some type of teeth THC product, whether it's suite, what we're not but we think theres a big opportunity with Sweetwater with THC, you can buy Sweetwater beer in Ontario today.
Okay.
I had a page or two in the last two days, but Sweetwater is definitely here and hopefully youll see sweetwater in other forms in regards to growing Sweetwater today, Sweetwater, who sold at 40 states across the U S and continue to grow.
Great New line of new products are coming out are risk brand.
As our reported lots of drinks.
Our broken coast Youll see some tequila shelters, and that's coming out and yes.
Sweetwater with our Colorado facility that we just recently acquired will be expanding to the west coast that actually I'm out there next week spending some time power going to be able to do that so lots of expansion and lots of things happening with Sweetwater products.
Great. Thank you operator lets begin the analyst question.
Thank you.
For participants wishing to ask a question. Please press star one on your telephone keypad in the interest of time, we do ask that you. Please limit yourself to one question and one follow up our first question is coming from Owen Bennett of Jefferies. Please go ahead.
Good morning, Jan and hope for Awhile and I'll keep it to one.
One question, which relate king and CBD in the U S. So ignoring hemp food can you maybe talk a bit more.
CDP specific plans and it does it pay off.
A bit more focus so I mean today you mentioned that because you also mentioned personal cat. So any settlement. We can expect the law changed over the near term and then ultimately can we expect quite a broad C. D D portfolio across many product segments like money or payers or whether it would be more targeted.
Thank you al and good morning.
So you know we have.
<unk> wellness with that.
It's led by.
Jarrett Simon who it was.
The consumer packaged goods businesses.
And has worked on many consumer products.
The team has done a great job in regards to Manitoba harvest and getting that product line with both hemp and looking at lots of CBD products and to your question. We are currently today working on.
Some CVD partnerships, some CBD alliances both in topical personal care areas and drinks.
And look to expand in that area both in U S.
Canada and internationally.
So CBD is a focus for us hemp will be a big focus we've seen a big demand for hemp products in hemp food products and expansion in the U S on both of those.
The team is in place now ultimately developing and looking to roll out those products.
Great very helpful. Thanks, guys.
Thank you thank.
Thank you. Our next question is coming from Vivien <unk> of Cowen and company. Please go ahead.
Hi, good morning, Thank you.
My first question has to do with inter quarter trends in and post quarter trends in the Canadian adult use market appreciating that the delta there yet, but it's a bit of an impediment in terms of getting consumers back into the store that is a critical element.
Of your strategy to trade up consumers. So I was wondering if you can comment at all on weather trends evolved through the quarter and what you've seen corporate Jay. Thank you.
So.
I think the.
The important piece is that.
If you if you look at the Canadian market early on in the quarter. We were we were still in effectively lockdowns with stores closed.
As we go through the first month of the quarter those Lockdowns began to ease retail storefronts began to open.
You had a lot of new stores that we're opening who had.
By the tenders, who hadn't had a chance to really educate about our product.
And be in a position to really truly influence.
Consumers, but the more important pieces that when those stores first opened they were open with limited capacity and so I think initially it was about 25% and then agree later grew to 50 and just recently, it's now up to.
Full capacity in stores at least in Ontario, If you look at the Alberta market. Another very large market. They have a big spike of Delta going on right now and while there may not be lockdowns.
Something like a port.
Vivian.
Your question is an excellent question, because we really in Canada stores did not open until as Carl said to mid to late June.
Being in Toronto over the last couple of days I was had done to us and young yesterday, which is like times square and it was pretty quiet, but stores are opened and thats. The good news.
And they are allow pooled capacity.
We are on the street educating bud tenders about our product.
We are trying to do as much social media as we can to bring consumers back into the stores.
And with that.
Tumors out there.
Good potency good products and what's important is for us to be out there building our brands and that's the big thing there is a lot of little Lps out there today that our ankle biters that are selling product just on price.
But that is where our risks are good supply or so away.
Products have to get out there and build what the quality is.
Regulatory we go through and there's a lot we have to do it's coming up on three years October 18th with the Canadian government on legalization there has to be some changes to the regs out there and we will be out there.
Lobbying politicians with the Liberal government now how to make some of these changes having it out there and advertise safely how that we can sell more products because I'll tell you what we pay a lot of tax dollars towards this and Theres a lot of benefits and there's a lot of data that we've collected to show why legalization made sense of what happened in the last three years.
So there's a lot we got to do.
Theres a lot would do but I'll tell you, we're well positioned from a growth from a potency from a price or a brand standpoint.
Understood. Thank you for that I recognize the call is running long, but I have an important it's all a lot.
To the first two retail industrial questions that you've got the first one characterize legalization in the U S and in pending you know certainly our house view does not align with that whatsoever.
And what's happening on Capitol Hill, right now in terms of lack of not only bipartisanship, but even consensus you know with.
With the Democrats you hold a very narrow majority in the Senate.
Just wanted to get your opportunity to clarify how you're thinking about timing. Obviously the 2022 mid terms are not all that far away that certainly influences congressional motivation to pass legislation plus there are a number of you know fourth quarter legislative not.
As priorities that mandate like the budget feeling like reconciliation that must get done. It. So just wanted to give you an opportunity just to clarify how you're thinking about timing on essentially a catalyst.
Thank you Vivian and listen.
You're right I mean the.
Schumer Bill came out with a lot of Thunder some lightning.
And.
Think everybody thought this was going to happen right away I agree with you.
It's slow, but theres a lot of discussion going on but I think the big thing is this here.
Something will happen.
And to your point Theres election, coming up in 2022, the house and the Senate changed that could throw a lot of monkeys are the wrenches here, but I think the big thing that I come back with Til Ray is this here, we have a strong business with so much potential to grow in Canada, I think Europe has so much potential I think you might see legalization happened in Germany.
Before the U S. Okay, and we're well positioned there so yes, we'd love to see legalization, we want legalization in the U S. We're excited about what we're doing in Med man. We're excited about some of the other opportunities, but I think like other Lps and leg lovely U S msos with legalization doesn't happen.
18 months 24 months, we still have lots of runway out there to grow this business and to do acquisitions in adjacent areas, whether it's spirits and alcohol, whether it's hemp and CBD. So I think thats what the important thing is we will be around the hoop and will be there when legalization happens.
That's great thanks very much.
Thank you. Our next question is coming from Andrew Carter of Stifel. Please go ahead.
Hey, Thanks, Good morning, I know Theres, some puts and takes around the integration current environment ability to launch new products.
You mentioned that the ankle biters and continued deflation, but when do you think the combined Canadian adult use portfolio can get back to gaining market share at retail and also kind of driving underlying sales growth and then within that I think I heard you correctly, you mentioned recently your Canadian market share target might require M&A, so wanted to understand where can.
And M&A ranks in terms of your priorities right now and also your ability to acquire operating assets versus kind of executing investments like midnight. Thanks.
Andrew Great question.
Listen here's here's the big thing that's got to happen here.
The Canadian market and the Canadian market.
Yes, the population may be 33 million or 10% of the U S. But it's one of the only countries were adult use as legal number two I spent lots of time with our medical team up here and there are so many opportunities in regards to medical cannabis that we still have to exploit upon in regards to medical cannabis.
That's not our most drug plans today you can't it's not paid for Theres lots of movement, there that we should do.
Amazon pays for it in the U S, but not candidates. So there's a lot we need to do in regards to getting our medical business and our adult rec business.
Track here.
Stores have been closed since last November.
And now they're up to full capacity it's getting.
People back into the offices.
Getting people out the biggest thing is this year is us educating the bus tenders above all the great new products that we have and all the products and brands that we have out there and we have in place. The team to go ahead and do that we have the team in place to focus on the potency the brands the quality of the different strengths.
With that listen the top four up in Canada today represent about 50% market share Theres. Another group of Lps and there's over 500 Lps that have 123% market share that are nipping away and just drop in prices to bring consumers in that will last only so long and with them.
What we have to do to ensure as consumers Nora brands consumers, nor quality consumers, nor potency and absolutely price right. So we got our work absolutely cut of course, but we have the plan in place that we know we have to do and again like I said before we want to be $1 billion up here and to answer your.
Are we going to get that completely from organic growth.
I want to be at 30% market share licit originally I felt we could do that on our own.
There may have to be acquisitions.
More consolidation in this marketplace.
Im really excited to bulk deteriorate for your merger we've taken so far are $55 million of cost out of here you see our gross margins are 45% were till raised were 19%. So theres a lot of opportunities as you bring companies together consolidate and with 507.
Lp's up there theres got to be some more consolidation and yes. The answer is yes fill rate would be opened for other acquisitions in the Canadian market. If it made sense. It was accretive if we could get growth and we can get lots of savings.
Thanks ill pass it on.
Thank you.
Yeah.
Thank you. Our next question is coming from John <unk> of CIBC World markets. Please go ahead.
Thanks, Good morning, I know, we're at the top of the hours I'll stick to one as well.
You can get your thoughts on the wholesale and retail sides of the markets and in particularly the state of inventory at Canadian provincial boards and retailers I think Carl you had mentioned an uptick shipments late in the quarter, but do you think there's a restocking period coming here and the reason I asked that is retail sales seems pretty healthy in terms of its year over year growth, but that doesn't seem sculpt.
The producer level.
Like to get your thoughts there please.
I do think there will be there will be.
Minor restocking that.
Thats going thats going to occur.
I think if you look at what happened in the quarter. There were a lot of people that were concerned that we would go back into lockdown something that had happened regularly in Canada.
That didn't happen the individual stores got more and more comfortable.
With their sales levels and then it started increasing their purchasing I think the same thing that happened at the provincial boards. They waited to see a regular pattern and cadence of reordering and youre starting to see those those things happen now.
They've taken all the steps they needed to take to to manage their inventory levels.
Now is the time when they're going to we believe theyre going to start reordering.
Okay. That's helpful. Thanks very much.
Thank you.
Thank you. Our next question is coming from Michael Leverrier Piper Sandler. Please go ahead.
Thank you and good morning.
Good morning.
You've reiterated your aspirations to have a leadership role in the U S. And then obviously you pointed to mad men as part of that but.
As long as their brand is certainly they've lost ground in the last few years to a lot of other competitors.
How do you anticipate.
Sort of.
Yes.
That evolving and is there anything ahead of legalization in the U S that you can do to collaborate and work with them is there what's what if any limitations or restrictions are there around how closely you guys can work together.
Absolutely so number one we've already had multiple meetings.
With Mad men to learn about their business.
Youre right they have lost ground, but I would say.
This year under Tom Lynch. They are put some good plans in place to take it up a lot of cost.
And yes, there is lots of opportunities for us to work with them and getting data learning about their e-commerce.
And spending time with them on products that sell in the stores that we don't have with Canada day look at the innovation that they have in place for multiple brands.
Listen I come back and look at the Amendment brand.
When you mentioned that how well known it is here the equity within the brand.
The product line that will be.
What into stores I know some of the stuff that they're working on are innovation standpoint, I know some of the stuff that they're working on in regards to their stores the experience of the stores interaction with consumers. So there's a lot of that stuff, we can take to Canada.
And there is no reason why we can't license the <unk> brand at wholesale and note. The cookies brand is doing extremely well out there.
Compete with that also if like canopy has done.
With their Tokyo smoke brands Tweed brand, if anybody wants to license the amendment brand out there in the Canadian market to differentiate there is opportunities out there so with that there will be lots of opportunities. There are a lot of cross sharing.
Information there is a lot of digital information that both teams will be working we do have from observation rights on the board we can't be on the board.
At Board meetings, we have two seats with that so there is there is a lot of international action. This is not.
No passive investment with.
Just no oversight at all and not working together.
Okay, great. Thanks, and a quick follow up on Europe.
Obviously, you mentioned the.
Big the Portugal facility is how does it how does the German facility complemented in.
Do you have too much capacity there at the moment.
So the German facility right now is only selling to the German government.
Or from a medical standpoint.
In regards to the Portugal facility.
There's plenty of capacity and all our facility right that we're not growing at full capacity there. So.
Yes, we have plenty of capacity and but we have plenty of demand coming on.
Israel, Poland, Western Europe, and other parts of Europe.
Right now.
All of the facility is not full with product.
But we have.
The ability to grow additional products there to fill demand.
Okay, Great. That's helpful. Thank you.
Thank you.
Thank you. Our next question is coming from Aaron Grey of Alliance Global Partners. Please go ahead.
Hi, Thanks for the question I'll, just keep it to one here.
So kind of picking back on some of the questions that were asked at the retail level. So obviously you guys have an initiative to get more front of Bud tenders educate the consumer about more than just price and you know in the past Irwin Carl you've talked a lot about more than just THC too and kind of the whole chirping profile, but I guess my real question is how do you think about timing when do you think some of this you know education of the bad <unk>.
And then Bud tenders, the consumer will result in maybe better market share trends for your brands. So just any kind of color in terms of what you expect in terms of timing to see an improvement would be helpful. Thanks.
So it has started already and.
With that our new product lineup is in the midst of rolling out right now.
We've consolidated our sales organization, both from a merchandising standpoint, both from our sales that are calling on the control boards.
We consolidated our marketing groups.
In the midst of a consolidated marketing programs out there because there was a lot of programs that were already in place.
And with that.
Were on the street today, working with the retail stores.
There were 600 stores a year ago.
<unk> 1200 today.
And they are just opening as we speak so there's a lot of work to do.
Get in front of them and there's a lot of education to do at both our potency about our different strains and we have multiple products. We have 12 brands out there that we have to educate.
The Bud tenders on and I think that's what's important and while this is happening one of the obstacles out. There today is there's just a lot of products come in at these bar tenders on price and potency.
Nothing behind it and Thats, where we have the big opportunity versus the other big opportunity we have.
<unk> was not really into Canada is to point out with gummies and drinks.
Edibles, so now with our facility in London, Ontario that does chocolate that dose edibles that those drinks youre going to see already jumped into this category a much bigger way with while the uniqueness in a lot of differentiation on the THC that will be in products. So that's a whole other area for us to capitalize on tremendously.
Alright, great. Thanks very much.
Thank you.
Thank you. Our next question is coming from Pablo <unk> of Cantor Fitzgerald. Please go ahead.
Good morning.
I, certainly don't mean to speak on behalf of our institutional investors, but one question I'm getting a lot these days.
Corporate governance I'm not just for your company, that's what others in this space, even the very heavy.
Retail investor ownership right. So so but you're right. It's a 400 million the rest of the day you have free float churns about every two weeks right. So it's like do the shareholder scared.
And then of course, there's the board of directors, right, but putting institutions looking at that and remembering that because with game right. You had long term institutional investors you've got to see how quickly the activist involved in the board.
How should see institutional corporate governance until they in particular, thank you.
Good question.
From a board standpoint, we have a very independent board.
Myself the.
Only insider on the board.
Brendan Kennedy did join the board.
We have a diversified ESG is something very important from a board standpoint so.
<unk> a public company CEO for many many years corporate governance for us is something thats very very important.
And.
Independence is very important we have a bias generally director.
And the company so I think we.
Tenuously.
Phil the blood fulfill all the boxes, we went to shareholders.
To move ahead to come from the staggered board to a one year term shareholders didn't approve that.
So with that we're out there trying to ensure we changed the governance and we have good governance in place and that's something that's very very important.
Important to myself and the full board Pablo.
Thank you and just one quick follow up and that gives away sports. So on my math, you know $10 million this quarter.
Pro forma basis, that's pretty much in line with recent quarters, if I'm not wrong.
While the export markets continue to grow so it took a little bit about yes, youre number one in Germany next drugs. They understand our already number one in flower just took all of the trends that you are seeing there in terms of market share because it seems to me that others are growing and you are not and I also shared that at least one that gets reported facility. Your flowers is not being able to ship to Germany.
Just a little color. There you also about you know A&P cc pharma.
And he put A&P, if you really had cc pharma just trying to get more color in terms of your track record and performance in the German medical market right now thank you.
So A&P just on that it was doing a free extract.
We're focusing today until right, but listen I think similar to what happened in Canada.
Europe is reopening now you know as different countries are.
And bringing Europe together, both our Germans facility.
The person running Europe for us is consolidating our German operations are Portugal operations. So.
I'm not you know from a growing standpoint, and what we're growing over there.
We're selling a lot of product.
And we're producing it there there's not many.
Companies out there that have the production capabilities and the grow facilities that we have in Europe.
And the demand is picking up but you know we saw the cc pharma, we saw many areas where during the summer.
<unk> was closed and wasn't allowed visitors and muscle allow tourists et cetera, but I feel good not just looking at the quarter I feel good about the opportunities in Europe, because our situation in Germany with the German government I feel good about the facility in Portugal, which is one of the best facilities out there in the world today.
And the opportunities what we're seeing is France is opening up for medical there is more and more countries looking at growing medical and.
Not looking just at the quarter, but we will be there, we're seeing lots of great stuff happening in Israel in.
Western Europe so.
You may not see it totally know Pablo.
Stay tuned for what we have planned for Europe.
Thank you.
Thank you our last question today is coming from Glenn Mattson of Ladenburg Thalmann. Please proceed with your question.
Yeah, Hi, just one quick one for me I wanted to clarify urban's comment earlier in the call talking about synergies and that they were somewhat offset or completely offset I wasn't sure. When you said on the book by near term cost pressures and just a sense of the magnitude there and whether or not.
You see those abating soon or or just some color around that that's it for me. Thanks.
What I said is to date we've.
We've achieved over 80 plus.
Over $55 million.
Of synergies to date.
Close to $20 million of cash synergies.
Totally offset costs anybody out there today, that's not seen inflation on freight on labor.
Not in the business, so absolutely offset some of the costs from our standpoint, but what I did say is this here.
Did not see in our numbers till raise production costs in the skill and which is running at about 19%.
Our margins are in the high forties and that.
That product yet has not been produced yet in our facilities. So we will ultimately see those in the back half when a lot of that inventory is sold so we feel good about hitting the 80 plus million dollars in synergies, we feel theres tremendous cash synergies, there, which will help offset some of the higher cost.
<unk> that we're all seeing out there in the marketplace.
<unk>.
Okay.
Since that is our last question. Thank you very much everybody for getting on our call.
You for listing to our first quarter, where till Ray and our free it came together.
A lot has happened since may 1st.
We've accomplished a lot in regards to put it in these two companies together, putting the infrastructure together, putting the boards together from a governance standpoint from an ESG again I want to thank the shareholders for approving the additional shares they are not dilutive.
Shares that are in our treasury and ultimately we use them for the right acquisitions that are accretive acquisitions.
We're out there as we've talked about taking costs out of the business and ultimately what we've been able to do is put these companies together.
Our revenue increased 43% our gross profit in a market where there is a lot of pricing going on was up 46%, respectively. As I've said, we're the largest grower cannabis in the world today and has the ability to grow over 265000 kilos and spending time in.
Our facilities over the last few days our facilities look great.
Coming up in greenhouses when you have hot weather it does affect you in coming up with <unk>.
Some are out there it's important that we got our potency to get our right flower and that's stuff that we continuously work on we've had 10 consecutive quarters of positive adjusted EBITDA and want to keep that streak going.
And with that we're the number one adult use leader in Canada, and that's with a lot of Lps as over 500 Lps out there and everybody wants to stay in business and everybody wants to play that you're rainfalls in regards to not all stores opened not all the market back to place so.
I'm happy where we are.
There's a lot more I would like to achieve.
It's not the easiest market out there.
As you look at stock performances I don't think anybody is happy, but if you look at where our market cap was last year at this time of about $1 six.
<unk> market cap was about $1 six and we're trading close to 5 billion consolidated market cap today, we are achieving something then shareholders I know are not patients but.
We're working hard at it and there is an incredible strong plan in place I want to thank everybody for their support their time getting on the call today and I want you to know that until right team is working hard for you. Thank you very much be safe out there and we'll speak to you soon.
Okay gentlemen, thank you for your participation and interest until Ray you may disconnect. Your lines at this time and have a wonderful day.
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