Q1 2022 Aurora Cannabis Inc Earnings Call
Greetings and welcome to the Aurora cannabis incorporate his first corner 2020 to resolve conference call all participants will be in a listen only mode.
Need assistance, please signal conference session [laughter] Sparky, followed by zero.
Question and answer session will follow the formal presentation.
After the reminder, this conference is being recorded today Tuesday November 9th 2021, I would now like to turn the conference over to your host I know Krishna Vice President corporate development and industrial Relations. Please go ahead.
Thank you Betsy and thank you all for joining US with me today are a C E O Miguel Martin and CFO Glen isn't it.
After the market closed today Aurora issued a news release announcing our financial results for the first quarter of fiscal twenty-two.
The release accompanying financial statements and M. D. N. A are available on our I R websites and via SEDAR in Edgar. In addition, you can find a supplemental information desk on our I R website.
Listeners are also reminded that certain matters discussed in today's conference call could constitute forward looking statements, which are which are subject to risks and uncertainties related to our future financial or business performance.
Actual results could differ materially from those anticipated in these forward looking statements and the risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may be accessed by a SEDAR and Edgar.
Following prepared remarks flight Mcgowan, Glenn we will conductor conduct a question and answer session for.
Retail investors, we have compiled questions submitted to us prior to the call for analysts we will ask that you limit yourselves to one question and then get back in the queue.
With that I would like to turn the call over to Mcgill. Please go ahead.
Thank you and and we were pleased at our track record of strategic and financial progress from fiscal 2021 is carried in the first quarter of fiscal 2022, and then our efforts to build shareholder value of game on that.
Transformation plane is on track and we continue to expect to achieve adjusted EBITDA profitability sometime in the first half of fiscal 2023.
We focus on four areas to achieve this goal.
First with a number one Canadian L P and global medical cannabis revenue, leading margins of over 60%.
Nearly double what the industry generates an adult wreck, it's our competitive advantage and it's why reallocating further resources to the Canadian European and Israeli medical markets Longterm, we see medical continuing to expand globally and we strongly believe the leader in medical will be the key beneficiary of recreational cannabis when legalized.
Chuck It is redesigning the company to create a more efficient and effective enterprise big part of this is expense reduction we've already achieved run rate savings of approximately 33 million from our house plan on September which puts us on a charter good to achieve 60 million to $80 million in cost savings without impacting playing growth investments.
Third is our strong balance sheet and improve Casper I'm only 16.6 million this quarter.
Does that only supports our organic growth, but also provides us with the medium so valued emanating opportunities to be clear yep and when we make it acquisition it will be accretive bring managerial talent. We know currently possess N a line without premiumization strategy.
For our science innovation business you that this business unit is focused on launching a strong pipeline of new releases globally, the leverage our intellectual property in genetics and biosynthesis.
But first let's briefly discuss medical cannabis an adult rack.
In Canada, we represent about 23% of the medical market almost twice that of our closest peer, but only 1% of the population are currently patients.
Given the fragmented nature of this channel, we have a clear opportunity to expand our presence through education and by helping patients navigate medical cannabis alternative treatments throughout proprietary Nbn experience and this represents a great long term opportunity for us.
Our national Medical business continue to show exceptional growth growing by 146% over the prior year comparative period, we shipped the told $8 million during Q wanting to our partner in Israel can tech, which we believe is the largest single shipment of canvas that Israel has ever received.
We may still see month to month fluctuations are purchase orders from our Israeli partners. This as a tremendous vote of confidence in the quality of a large fries and as a proof point of our ability to profitably navigate complex and evolving regulatory environment.
Also contributing to international medical during Q1 was our continued success in Germany.
We have a leading position dry flour and a growing share of its oil market. We also solve or 50 per cent sales growth both the U K.
In Australia markets this quarter, which we expect to become significant profit drivers for us in the future.
In France, we delivered her first shipment in August with a pilot program under which we will supply the entire medical cannabis dried flower arrange alright.
<unk> expertise and medical cannabis and ability to operate within a highly regulated framework gives us a great opportunity to expand and the global adult rack when those markets open up this has been proven repeatedly over time and now what are you, saying this in the Netherlands, which based on today's global regulatory framework, we expect to become the largest federally regulate a.
Shall market outside of Canada, yes.
Yesterday, we announced an agreement to invest in Netherlands based growing one of 10 license holders entitled to participate in a controlled Canada supply chain experiment.
C C S C O.
Although we are providing grocery with a secured loan to construct the facility and sudden early operations are cash investment up front is minimal and the remainder of our investment is dependent on achieving certain milestones.
During the C. C F C. Approximately 80 out of the nearly 600 coffee shops in the country will only sell legally produce canvas <unk> federally licensed producers. So the trial be expanded on national we estimate of market size of about 2.8 billion annually, which is about the same size of the Canadian market.
I'm Canadian Dell rack, we believe the segment is still in the process of bottoming. That's why are focusing on Iraq is on higher quality higher potency higher margin products. They drove a 29% sequential revenue increase in our premium and the super premium dry flour products and contrast, the overall segment was relatively steady in Q1.
It's important to note that the discount segment of Iraq is largely a commodity almost completely driven by price. This will certainly great issues, the <unk> for the foreseeable future, which.
Which is why we're pleased to focus on premium rack, but more generally a strategy that centers on high margin high growth medical that's a key differentiator.
And finally in terms of our science and innovation business. You. We believe it provides a war with a strong right to win premium consumer category.
Within this unit is our world, leading genetics and breeding program, which we expect to become a real differentiator for war with the ability to brand new high cannabinoid cultivars to market, but are more customer focused sustainable and profitable.
The breeding program located in Aurora chose the state of the art facility in Vancouver Island. So much valley is expected to drive revenues through genetic rotation into our product pipeline and greatly improved the efficiencies of cultivation. There were how are you holding plants hired cannabinoids and better disease resistance.
We're also expecting revenue revenue growth through genetic licensing agreements for these novel cultivars.
For new proprietary kernel, it's called the bars with distinct European profiles and high TNC potency have already been developed. These include are three San RAF cultivars lots of September and farm gas, which we lost license in North 40, Saskatchewan base premium micro producer.
While we were just building up is part of our business and you'll hear much more about it soon we view genetic licensing as a capital light longterm revenue growth opportunity for Aurora and one that will ultimately bring a wide array of products to the market.
Finally, we also believe that our intellectual property includes the most efficient pathway for cannabinoid biosynthetic production, but puts us in a pivotal position with nearly all cannabinoid biosynthetic work being undertaken administered today, we're actively working to build partner enforce and protect as valuable intellectual property.
To turn the call over to Glenn So that we can provide his financial review.
[noise], Thanks, Miguel and good afternoon, everyone. I appreciate you all joining us today.
I will now review, our queue 120, twenty-two financials, which I believe show both the distinctive strengths of our business and our progress on your business transformation program, Let me point out a few of the highlights.
We have one of the stronger balance sheets amongst Canadian L. PS those consist of approximately $424 million in cash no term dot and access to 1 billion you asked through shelf perspectives, including a 300 million dollar U S. A T O R.
Our capacity to raise capital is available to us as financial firepower can be used for strategic and creative them the opportunities.
Our cashflow also continues to substantially improve your over here in.
Q1, cashews was $16.6 million down from $142.8 million in comparable period, a year ago, we have plenty of cash to find our operations as we move towards profitability and positive free cash flow.
Our core medical business. It continued to deliver overall growth and a normalized gross margin and 60 per cent range is 64% in Q1 2022.
Strong margin profile has held steady over the past few quarters and is an important gross profit driver Coke distinguishes us from our competitors and is critical to reaching positive EBITDA.
Of course, our S. T. D is also a fraction of what it used to be in prior years and upon continued execution of our business transformation plane will be coming down further.
That does sound pretty level or Q1 results benefited from a broad diversification across international medical.
<unk> medical and adult recreational seconds.
Overall, Q1 night cannabis revenue was $60.1 million, 10% higher than last quarter.
Our medical cannabis segment continues to excel generating $41 million in sales and a gross margin 64%.
Medical represents about 68% of our Cuban review about 81% of our gross profit.
Our consumer candidates business delivered $19.1 million in gross margin 32 per cent.
Overall Q wanted adjusted gross margin before fair value adjustments was 54 per cent.
This compares favorably to 48% a year ago, and 53% last quarter.
The increase in adjusted gross margins due primarily to a ship to sales mix towards medical market, which delivers higher I'll need you to tell me prices and margins.
Unrelated note, our average selling price per Gram dry cannabis rose, 21% to $4.67 I'm 386, Q1 of last year.
And the increasing prominence of her medical cannabis business.
Now a bit more detail on each of our business segments.
Our Canadian medical revenue was $25.1 million in Q1 reflected the consistent performance in the face of the continued consumed the retail industry lowland.
Cause we have said previously Canadian medical patients can be segmented into two groups those with cost reimbursement coverage and those without reimbursement program.
Our success is really driven by our high volume insured tissue groups, whose reimbursement make some consistent and reliable buyers and this is why we meet patient groups with reimbursement coverage of high poke his priority my medical business.
10, we may see some migration of price sensitive not an reimbursement patients from the medical channel to the adult recreation channel and does that market continues to develop over time.
Our international medical revenue is $15 $9 million now reflected 146% growth first prior and 84% sequentially.
One revenue included $7.9 million in sales to Israel.
Cause I said on our last conference call B B S analytics estimate the market size of about $3.2 billion by 2025.
Just Germany, Poland, U K, France and Israel.
Clearly international medical is worthy of our focus in the investment and demonstrates why are orange leadership internationally as an important driver of long term shareholder value.
R Q1, consumer Avenue was $19.1 million between relatively can put you compared to the prior quarter.
Our premiumization strategy games traction as evidenced by 29% sequential revenue growth in our premium dried flower category.
Largely driven by the launch of three and cultures.
Consumer margins were healthy at 32% over last quarter as we saw the shifting ourselves mix towards the premium marching side of our portfolio.
Putting together and we see the directional change would like to see.
Consumer gross profit up 5% from last quarter benefiting from I purposefully mix shipped towards premium.
Now for SG&A, which includes R&D it remains well controlled coming in at $44 million in Q1, excluding restructuring and prior period adjustment.
And while we've made a lot of progress and driving down SG&A. You're also implementing measures to take them further costs. These efforts should get us well below a $40 million quarterly run right by the time, we actually have this fiscal year.
So pulling all of this together, we generated and adjusted EBITDA loss in Q1, 2022 $11.5 million exclude 600000 termination restructuring charges.
For a million dollars decrease in EBIT lots as compared to last quarter was primarily driven by <unk>, 10% increase in revenues fall adjusted gross margins remained strong and steady.
For clarity in our adjusted EBITDA, We do not include the benefit of $14.4 million of government wage subsidy grants that we report and other income is this program has now been faced open Canadian pedal cars.
Oh, let me remind you of the timing along a path to profitability.
Approximately 60% of cash savings under.
Under the business transformation program are expected to be realized on the piano in our cost of goods.
As inventories drawn down following the implementation of our lower production cost structure.
We would expect to see those savings and our piano beginning late this fiscal year and into the next.
The remaining 40% of cash savings will show up next to me as they are executed.
Getting with Q2 of this fiscal year.
So to wrap up two key takeaways from these financial results.
We have a clear path for to be readjusted, the EBIT deposit looked at some point in the first half of our next fiscal year.
<unk> actions that we control.
And our balance sheet remains strong like a healthy cash balance and improved working capital and cash flow.
Turn the call back to you go.
Thanks, Glenn before we go to Q&A when will leave you with these final thoughts were.
We're very pleased that our transformation plan is on track and it's important to note that the foundation of that plan is medical cannabis for Ya.
That continued revenue growth with very high margins.
<unk> the number one Canadian L. P by medical canvas revenues globally, and we've been able to differentiate ourselves in Canada through investment in our proprietary and education infrastructure, which grade barriers to entry and a sticky insured patient base, we expect to be a market leaders jurisdictions around the world continue to open up.
Our number one position medical also paves the way for success in global adult recreational Kansas as medical only jurisdictions of all our most recent proof point as in Netherlands Brothers will surely follow a regulatory compliance testing in commitment to science take Aurora, the ideal partner and both medical and rack over the next day.
It.
As far as adult rack in Canada, we believe the market is in the process of bottoming and we are encouraged that are premiumization strategy is gaining traction.
We also expect continuing innovation or product pipeline supported by our science innovation program. Most importantly, any softness related to the discount segment will impede our ability to reach profitability.
To that point, we've already achieved 33 million run rate cost savings with more on the way this physicians as to achieve EBIT of profitability in the first half of fiscal 2023, and our team was alive and energized to get there.
Thanks for your time today, we're excited about the secular opportunity that continues to be very significant we look forward to updating you on our progress before we take questions from our analysts I will turn the call over to adapt to ask a few questions from a retail shareholders or invited to submit questions ahead of today's call and May I. Please go ahead.
[noise] Thanks Miguel.
Let's be in their questions.
The first one here is the following blend.
When do you expect to enter the U S market.
<unk>. It's a great question first inform us know that we are spending a lot of time focused on the U S and paying attention U S. I personally have over 25 years working in the U S with the F. D. A H E D. A and have it very keen sort of perspective on this topic, what I will.
Say is that our strategy of being thoughtful and being patient is clearly paid off if you look at the assets and U S. D. A decline in overall valued by 60% to 70% and so we're taking our time from valuation standpoint, clearly has been the right play.
Secondly, the bite the administration has been consistent medical first plus decriminalization and so with that we expect that the number one Canadian medical company and one of the largest Canadian L. P as medically globally.
Something to say about that so when you think about our overall goal of EBIT of profitability, we're not going to put that in the risk by looking for a non traditional investment.
Being said with the right opportunity, we have the balance sheet and financial flexibility be opportunistic when we see the right transaction.
And so as we go forward with that will continue to keep an eye on it we understand the news of this week and.
And what's been put forth and obviously, we will pay attention, but I'll leave you with this the work that we deal in Germany, the Netherlands, the UK Israel, all around the World and excellence and a regulatory compliant framework is what best positions us to be successful in the U S.
Great. Thanks Miguel.
Our next question is can you tell us more about your upcoming product launches a new innovation initiatives.
Absolutely so first and foremost as a company that has a globally diversified business, we get benefits out of innovation out of our scientific progress both in the medical business, but also in the rack business, which is probably more they're gist of your question. If you look at our full year of 2022 innovation calendar includes.
Over 80, new asking us in queue for a full year 21, we delivered twenty-five compelling new products to the market followed by another 22 ask you use in Q1 of 2021 and this is clearly been our most significant and successful innovation plush since legalization those innovation Sku's are doing next.
Dreaming, well right now the driving almost 40% of our wholesale revenue, reflecting really strong customer and consumer interest.
<unk> are heavily skewed towards new flower rotations that are powered biogenetics breeding facility that I mentioned previously as well as new concentrate and edible SK use that have been driven by historical investments and your capabilities and competencies.
On that we're also seeing great value unlimited rhymes with seasonal offerings.
This this winter will be offering a candy cane man some cranberry day now for the holiday season under our drift Ram that we think will be received very well and we're also introducing has for the first time, which we've relaunched the whistle branding with your packaging and price points and they're planning on releasing a whole new lineup of invitational genetics that come from.
Uhm coast facility. So overall there is a big focus on innovation, we get benefit out of it both in Iraq and medical business. It when we see it as a key component of our Premiumization strategy.
Perfect and our third and final question from the retail shareholders is which international markets do you view is the most important for the business and how are you planning on staying ahead of the competition in those markets.
When they have yeah. That's a great question I think everybody has been so focused on the you ask the people forget there's a huge world out there with positive cannabis legislation and regulations evolving we've talked about Germany, we've talked about UK, we talked about key markets like Australia, but the reality is these are really big marks with huge opportunity.
But each and every market has these core condition highly regulatory Steve compliance significant hurdles and everything for manufacturing attacking the sales and marketing so we see huge potential and our ability and we've seen great success historically, but there are a couple of several core markets that we're really excited about.
And I mentioned some of those on the call Israel was a large driver for us in Q1, and we continue now the bulk sales that will have with our partner can text to continue also our partnership with one of the most forward regulatory agencies. The imta under the leadership of you've all Landshark has been really important and we think the investments and work with.
Done with the ball and his team definitely will play dividends globally. We've also announced our entry in the Netherlands yesterday, which we expect to be a significant about $2.8 billion market in the future.
Orange, a European medical which is set to become about $5 billion market by 2025.
Really excited about our leadership in a couple of key areas number one supplier of flower in Germany as of September almost 35 share growing share of the oils market and the double that share since September.
We also believe with a number one in the UK drive flower business, where we had an exceptional quarter and as we've mentioned where the exclusive flower supplier three of the nine tenders and the French medical cannabis pilot program as for what sets us apart from the competition in our consistent regulatory expertise science testing and compliance has been recognized.
There's all around the world as of our ability and real differentiator and our ability to succeed in those key markets, we're not going to rest on our laurels and we're aiming to maintain and grow our market shares. These markets develop and we know that the expertise and experience is that we have there will play well all around the world and including the U S.
That's great. Thanks Miguel.
That's the end of the retail shareholder questions, operator, I'll turn it over to you for questions from the analysts.
Thank you we will now begin the question and answer session to ask a question.
And one I need touch time time, if you're using a speaker phone. Please pick up your handset before packing to keep.
At any time. Your question has been addressed and you would like to like Italian question. Please press star and 10 and.
In the interest of time, please limit yourself to one question can you have a fall off we kindly ask that you jump back in the queue.
At this time will pass on maternity to assemble our roster.
The first question today comes from Us at the in out there with talent. Please go ahead.
Hi, Thank you good evening.
Good evening Bev.
Alright as important as as the medical business is and can we talk a lot about it on entire corner is actually wanted to focus on consumer business in Canada, because the make shift is is apparent and it's certainly a positive.
Evolution of your portfolio and then looking at high fire data it looks like you're having something similar to Catherine.
Sequential market share gains for your portfolio somebody got one question that too Hot [laughter].
And you look at the components of your your market share gains in it and perhaps even comments here at the end of October.
Since you've already closed out that much.
Our driver San rap or or Wexler, and then as a follow up to that how do you think about these third party crap brand sitting in in driving not the top line garlic, but but also not being deleted chair marches. Thank you.
Very welcome. So if you have if you look overall in the Canadian rack business I just a couple of points wanted were only three years into it and it's a bit of an irrational market. Most of the market share gains from competitors are coming from the large pack size, which is really a valued play and as we've talked about we're focused on premium so as an exam.
Well, the discount 28 Grand which in some cases might even have a negative margin in certain provinces.
People are chasing because of excess inventories and a bunch of other things were exiting that.
When you look at Quebec.
We see strong extremely strong responses specifically to answer your question, we're seeing most of our premium growth.
In San RAF and this was a strategy, we announced about a year ago and you're dabbling seeing others, followed if you want to have really large market shares I. Just don't think it's a profitable strategy in short term this market.
Will rationalize a bit the other thing.
You know what you talked about high fire data and clearly syndicated data is evolving and is getting better but it's just not there yet in a way that maybe others would look and say in the U S of IRI Nielsen or in tobacco like MSA and so while we'd look at high powered data, it's only 50% coverage in on.
Cerio, it's only 30% to 40% cut.
Coverage in a b B C in Saskatchewan and.
Really little coverage and.
In the eschewed D C, where we see a lot of our overall business. So I don't think it's the end all to be all the end of the day. There are places, where you can make money and Canadian rack premium aspects and some of those premium categories. Definitely are there were focused on that and I think for those that are really up there in a hard said or.
Looking at overall market share I, just don't think there's a direct correlation between overall market share. So we're going to stay focused on San RAF in Whistler, We've seen great response, there of our new calls of ours. We also then can take some of those assets and put it into medical and I do think if you look at Colorado and California. As an example, you do see premium category.
<unk>.
Start to evolve and really articulate I Gotta believe that we're going to see that in Canada. It's just not there yet so we're not going to chase down the rabbit hole with lower margins, particularly in the discount category.
The next question comes from Pablo's Atlantic with Cantor Fitzgerald. Please go ahead.
Thank you I'm Gonna forget Sunday on the export of business you talked about the stickiness right comply as your science, you had innovation, but but could you just discuss more the cost side of things I mean, you're my understanding you should be in judo from Denmark right.
You.
We here in a while they put users had.
Claimed to be low cost and then they could enter Europe I'm sure. There's a simple aside but but just talk about model stickiness, because they yeah that compliance of being a complaint with the regulatory framework in those countries. He said.
<unk>.
Beach and it makes me wonder whether others could easily emulate that and just breaking with lower cost and maybe more distribution that you have if you're going to spend on that please. Thank you.
Sure I'd be happy with Pablo So it's absolutely an advantage and you don't you have to take a look at Germany. The reality is the standard in Germany is you have to have within a 10% deviation on the core components, particularly potency. That's a really hard thing to do and so you would have to have a pretty advanced facility in order to.
Be able to consistently need that that had a big role in that's gaining almost a third of the entire flower business.
So that would be one example, the second example would be Israel I talked about the I M. C. A and you have all in shafts leadership. They have the highest standards of anyone in the world and include about 44 pesticides, but no one else has even tested for it. So it's not only having C. U M C certification, which is a pretty unique.
Certification beyond you GMT, but also your ability to test package shipped and have all of that has made a significant different in Israel I don't think even though that there are places around the world where you can produce candidates cheaper let the overall certification reporting consistency are pretty.
Action and entering in those markets make that is viable I mean remember we're talking about medical patients. We're not talking just about Rex medical patients and their clinicians and their physicians will find an item that they like they want it to be of the highest possible quality and consistently available tone and so that is the same situation.
And over and over and over and there's a reason why the same companies are being successful in Germany, U K, France, Netherlands, Israel, and it's about compliance regulatory forward all of that infrastructure that you need and while and maybe in the short term there is a little bit that you can do a low cost products.
It's not there and I will say also that this is a place where like minded companies are great and so while we may be competing against some of the larger other L. PS we all agree that having a proper regulatory framework and adherence to compliance measures make sense. So there there's no disagreement on that so there's absolutely a high bar.
To get in that makes a huge difference and it's absolutely. The reason why we've done so well in some of these key markets you mentioned shipping costs, Yes, we do shipped from our Denmark facility and in some cases, particularly with Israel.
We shipped from Canada, it's not it's not insignificant, but it's not a prohibited costs because in many cases, you shipping bulk and getting into finished goods and market.
The next question comes from Michael Lottery with Piper Stanley. Please go ahead.
Thank you have a good evening.
Michael.
Actually just want to go back to direct business as well and just to understand some of the the the context in outlook and specifically with San RAF in Whistler in particular, having 29% sequential growth and all of medical even with the international boost from Israel.
Being up I think 17 sequentially.
Clearly, a really strong performer and a quarter.
You've made it very very clear your emphasis on the medical side. So I guess just how to think about this you know is it just that you can walk and chew gum or.
Cause it was there some more one off things driving that that are in a sustainable can you just give us a sense of.
Is is rack really just a question of Premiumizing and that you can do that and it's the focus within that piece or is it just a little bit more lumpy a medical is really the focus.
Well I think Michael right now clearly if you look at margins and you look at overall profit opportunities globally.
It's medical.
So margins in the mid sixties really sticky you know needing all the infrastructure of high hurdles to get in all the compliance stuff I mentioned internationally.
Medical.
Takes a unique skill set and it's one that we have I think on rack.
It really right now you have to remember that in Canada, we've only three years into this experiments and and the discount arena, which is now a decent part of the overall business. It really is a commodity and so pricing is really driving all of those major decisions and so we're just not going to chase that at the expense of profitability.
And the premium categories, no new differentiated and innovative really matters and so those you need called of ours make a big difference and we see that articulated itself with with her in San round the benefit of our system. As we also can take the same products and put it into the medical business and so.
Find Whistler products, which we've now put into our medical channel doing exceedingly well.
With our patients you see the same thing with San RAF products. So there are efficiencies so to the point of chewing gum and walking at the same time is clearly an opportunity to get benefits out of both but I have been give your laser focused on profitability and sustainability and you know you're going to focus on those areas that are more consistent with you right now.
Medical now we're not taking our eye off Iraq, I, just think bright sizing and are doing inappropriate way and also finding areas, where they're more asset light the genetics business that we've invested in the storage is wonderfully accretive biosynthetic and other aspects of genetics, we think will be really important in a global and.
<unk> because people are looking for that so I think.
Laid out our strategy, we're right on track, where we want to be steady as we go.
And I think.
Over time, the rack business in Canada will become more rational.
And in that the efficiencies that companies like Oswald will come more to bear, but right. Now you know those that are chasing the discount business I think they are in for a little bit of more of a rocky road, but the premium business is rational and for those that say that the.
Rack business is broken I would ask them to take a good luck at Colorado, and California, which appear to be about 18 months ahead of Canada and you are seeing good success.
Not only in margin accretive categories, but in premium brands.
Oh.
The next question comes from Andrew Cardio Miss people. Please go ahead hey.
Hey, Thanks, good good evening wanted to ask about the Canadian medical business I think it was down 8% year over year. So I know that there's some there's some patients that are sticky the the government reimbursement some they're more fluid, but could you gotta give us a sense of where that business should stabilize and you should see that start to grow from a market share page.
Saint gross standpoint thanks.
Sure I'll be happy under and thank you for the question, so I'll kick it off and they're like Glenn coming in on the back side of it.
Right now, we're seeing a little bit of interaction is Glenn mentioned between the rack business in the medical business thing, it's mostly in those that aren't receiving reimbursement most evidenced by the fact that we grew share.
Yeah, you see a little bit of decline, it's hard to say what the steady state is we're hearing some positive news about unions and different groups that will be bringing cannabis on right now it's only about 1% of the adult population.
In Canada.
Connected to that system. So we do see an opportunity to not only see the pie grow a little bit as thing normalize, but also continue to grow sure the Glen.
Yeah. Thanks.
Corner over quarter, the sales to the reimbursement groups in bedrooms. In particular was absolutely consistent anything is $3000 difference quarter to quarter. So it continues to be very strong little of the decline that you talked about or all of the decline from those mine reimbursing patients. So we <unk> mentioned there are groups.
So there that we have targeted and continued to work towards kind of really and contracts and that way. We're also launching a number of products and innovations that we believe will appeal to our existing patient population, particularly the reimbursement once you might've see something launched I think in the last couple of days packs.
Currently on the tax system.
<unk> bundle for a veteran patients camo and and great pricing to continue to reward and engage those those really important patients for it. So we think we can get more of it at the current term patient population.
And then continued to look for some of those stepwise changes in for Ya.
Association to use.
The next question comes from Johns and pile with D. I V. C. Please go ahead.
Thanks to evening I was hoping you could help us better understand how you expect the Netherlands market will play out and generally Miguel you you prefer medical only markets, but it sounds like you're excited about the Netherlands transitioning to wreck.
I would say your performance globally as in better and medical markets and consumers. So is the reason for excitement on the Dutch system that it seems like it's limited license with barriers to entry and and can you talk about your confidence in why it'll stay that way over the long term.
Yeah reality, John is a great question, so I I had the pleasure of being out there it.
Spending time with our team spending time in the markets and more importantly, spending time with our partner, which is the groceries I mean as I think everyone knows this is the canvas experiment in the Netherlands is 50 years in the making the reality today is it's a very sort of formula and legalized structure for the coffee shops the over 600.
Retail outlets, but the production parts has been sort of a black hole, the government, particularly wipes to clean that up and create much more of a legal market. So I get excited when there's financial incentives. There are only 10 licensees in this experiment and we're one of them and we're excited about.
The partner that we have clearly they're gonna be advantages for those 10 at a time in which we expect this goes legal all the economic incentives lineup and yes, we do like a medical only market given our expertise in given sort of how we've gone about it but I believe that medical as a step towards rack when you'd have a strong relate.
<unk> ship with the regulators, who can understand the marketplace you have a sense of what product portfolios are doing well. It gives you a significant advantage. This is a massive market we've talked about it being when it all goes potentially even as big as Canada, and there's going to be a clear advantage, but those who participate early so it was for that reason we're excited about it.
We clearly have a lot of infrastructure.
In that part of the world and success.
And so I clearly believe that countries like the success begets success and a lot of different ways and so this is an example, I think of where we are bullish on the opportunity to have it participate bumped into medical in that business and so more to follow on that but.
This is really one of only 10 licensees, we've got one of them I've got a great partner, it's a big big markets and all of the incentives from the government the regulators the retail owners all lineup well here and so we think we are in a good spot.
We're gonna have just a couple of commune.
Is 50 years in the making this has been established market. So there's not sort of gifts corpsman, how big commercial will be there's a number of cities that are required all the coffee shops in those cities are required to participate in this trial and one of the things I like is that is right on strategy for us So we need to become a premium premium margins premium price.
So this is typical.
Pricing international price humor for us so it's a very compelling opportunity and we're excited to be.
We think that's one of the leading companies involved there's.
Your next question comes from Tammy 10 with E. M. O. Please go ahead.
Good evening, I'm, 29% sequential increase Ah sounds and your premium consumer brands I mean, that's pretty impressive.
Okay, that's grilled fan activating more store signs to carrying a new cultivars or I think I might as well let me.
Order because these products are still Greg confirmed my attraction and I'm also just curious like <unk>.
To actually be in a state of sequential growth consumer segment, because I know the decline of daily specials, So I put that off at you.
Premium strategy. Thank you.
Well thanks for the question I'll I'll take the first part and let's go ahead and take the sequential quarters. So I would say that there's.
With all things with a consumer product they were probably for a primary reasons why we're seeing growth first and foremost the products are better.
So if you look at the uniqueness of the attributes you look at the potency. If you look at the genetics and those new cultivars and what we're seeing on San RAF across the board are better check longer than I would like.
For this reset to take hold but so the overall proposition I would say is more compelling secondly, you correctly brought up distribution we've partnered.
What I consider to be the best and largest broker in Canada that is national coverage.
Southern Glazer does a wonderful job for us and every month, we were able to touch about 90% of the volume which allows these new brands to get in third is as you know navigating the provincial buyers as hard and so the fact that these new cultivars are differentiated unique higher potency has given us a higher success.
Rates of getting them through that process was particularly in Ontario, I think it's a challenge and you hear from everyone and I think lastly, the overall sort of consistency and as we see new being the most important thing that people are buying.
The steady sort of roll out of these and seeing and not only in flower, but other brands has started to bring some of the shine back to San RAF, particularly with Bud tenders and store owners and so we're going to continue to roll. This out we're really pleased with the covered so to speak of our genetics.
You're going to see everything from continuing to do called of ours, and new genetics on San wrap and Wizards, but you're also going to see a lot of seasonal and you're going to see what we call collaborations the north 44.
For those that are familiar with Gordon that company. They are one of the pre eminence craft growers and for him to Salak farm gas and to be so positive about it and do so well seeks to our ability to produce cutting edge genetics and I think for a lot of people to.
Got that big candidates can grow great Necci high quality flower I think that's a testament that we absolutely can in Welts glad you wanted to pick up on the run rates in quarter over quarter.
Yeah sure Uhm Tammy we were up in most provinces, good 50% or more in Alberta, B C and Quebec was is a strong point for us for sure I think 33% of our consumer revenue came out of Quebec in Q1.
Ontario's the nut to crack obviously and I think we put a great foot forward with the reason to protocol and the innovation. Then we go I was talking about it and you get the root for their so alright, I expect that.
You guys don't mind, if it is the continuing challenge in consumer market, but the innovation that we've been putting forward and and the success that we've seen with that innovation today as it is positioning as well too.
Get this back on track over the next little while I'm, beginning to think Ontario with the key for US because we are so you can pick up any other provinces, where we've been able to get product Intermarket, Quebec. For instance is interesting isn't that if you're selling to Quebec. It's in all the stores and Nicole also there's not as many P as in Quebec because.
It's just a.
A different market uncertainty <unk> certain lp's can operate in Quebec to effectively so to a great market for a 10 wrap has been there since the beginning and that has a great reputation. So when you put.
When we when we renew the brand with new cultivars and especially the type of cultivars would put it.
We see the pick up when you see the response you see it in social media and things like that so that's the route forward for sure.
The next question comes from does man with RBC capital market. Please go ahead.
Yeah good evening.
My question just has to do you talk about sticking.
Stickiness of the international medical business, and just curious the 16 million or so on with the large order coming out of Israel during the quarter.
Sustainable or are we going to see a little of volatility over the next <unk>.
Several quarters or are we going to have a benefit from other countries offsetting maybe a decrease in Israel quarter to quarter.
Yeah. So it's a great question so certain markets.
Our steadier than other markets, Germany U K.
Our steadier when you see other market say like Poland. As an example, this last.
Order, we saw a bit of a regulatory hitch for a lot of companies, including us and that caused a delay and timing Israel is a bit of an evolving market and so it's hard.
For us to say, it's going to be steady.
But when it's open we do extremely well so we don't really give guidance on Israel now to your point about other markets opening up we always hope for that.
You'll know about the big ones. So France is obviously in their process, we've talked about the Netherlands, and so I can't give you an exact sort of guidance quarter over quarter there.
What I can tell you, though is that it is the same conditions that either open or closed the market can you meet the standards, what's happening with you over overall product specs, what's going on with the packaging what's happening with the testing.
All of that.
Sort of consistent and so when you when you win consistently and while there are timing points or hiccups or whatever you want to describe it.
We've done really well, we I think more so than almost anybody when there were a profit opportunities to be had where there.
Israel is a really good example, I'd spend time in Tel Aviv I have incredible respect for your ball land chapters lead regulator with the I M. C. I. We were one of the first companies to be able to navigate that process and ship. What we think is the largest amount of cannabis into Israel three of the nine.
Flower tenders and trance and so I wish it was steadier and sort of more formulaic about us being able to projected out but I think if you're bullish on the macro theory of global cannabis and you understand the high regulatory hurdles and you understand that these regulators all talk to each other and there's a lot of interaction.
You're going to see the same companies when time after time after time and I absolutely believe the FDA is going to be running a similar process and you're going to take a deep interest in what's happened.
Agencies, such as the IMC in Israel or health, Canada in Canada, Glen anything you want to add.
Uhm Dodge the diversification of the country. So we can all allergic to it is truly important moving out of the basket of countries as they are all developing Poland. For instance, we sold almost nothing too is last quarter as we had to re register or Danish production facility for shipments and Nicole and then we've got that registration and.
And shipments into Poland restarted in October but that.
So pulling down but the UK was up 50% from Australia was up 50% so for us the diversified basket of international markets as important as they developed as to your point Doc some more lost than others as we grow and it makes it a little bit more predictable a little bit more consistent portfolio.
The next question comes from Puerto Rico goes with ATB capital market. Please go ahead.
Yep visiting guys. Thanks for for taking my question I just want to go back to your best friend and another Lance.
Expect sales to start there just how long will it take for your partner's there to start operating and then in terms of margins there as well you know I know you touched on the premium strategy, there, but imagine that those margins it wouldn't be as good as as you're at.
Our international medical shipments.
When you want to kick it off and then.
Oh certainly.
Yeah. Thanks.
Uhm.
Yeah, they're very I listen <unk>.
Really interested in this market I think it's really cool to see.
Well established market like that that will actually ever Laura Brown and the coffee shops. When we go to use to down there are some of the.
Some of them.
Cities that are participating there. So we look forward to that we expect sales to start in calendar twenty-three so a little over a year for now and.
In in between now and then the licensees or getting their final sort of approve as in building with their facility C. In country. So that's what's happening before so it starts can be giving you a calendar twenty-three we expect to see sales just after that the.
The margins are similar to the type of international margins, we used we see that the pricing like most regulated markets is fairly strong.
And we expect to get healthy can you think of them kind of medical like margins, which is why we are acutely interested and if it's not a consumer market like you see Canada or more of a premium alright. So so that's why I think emergencies and time you can refuse.
Thanks.
This concludes that question and answer session I would like to turn the conference back up I can make out mind finding closing remarks.
Well I want to thank everybody and I Hope you and your families are are saved. This season. We're all excited about where we are as a company or transformation plan is on track. We look forward to sharing that success with you as we come in the upcoming quarters and we appreciate everything that you do in covering.
All the best Thank you.
The conference is absolute it. Thank you for attending today's presentation you may now disconnect.
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