Q1 2022 Medipharm Labs Corp Earnings Call

May 16, 2022

Ladies and gentlemen, thank you for standing by and welcome to the Medu-Farm Labs first quarter 2022 financial results conference call. Please be advised that today's conference is...

Ladies and gentlemen, thank you for standing by and welcome to the meta firm Labs first quarter 2022 financial results Conference call. Please be advised that today's conference is being recorded.

Before we begin, please note the following caution respecting foreign looking.

Before we begin please note the following caution respecting forward looking statements, which is made on behalf of matter of firm labs and all of its representatives on this call. This.

which is made on behalf of Men of Farm Labs and all of its representatives.

The same is made on this call, we'll contain forward looking information that involved risks and uncertainties.

The statements made on this call will contain forward looking information that involve risks and uncertainties actual results could differ materially from a conclusion forecast or projection in the forward looking information certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information.

Actual results could differ materially from a conclusion, forecast, or projection in the forward looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information.

Additional information about the material factors that could cause actual results to differ materially from the conclusions, forecasts or projections, in the forward looking information, and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected, in the forward looking information are contained in MetaphermLab filings with the Canadian and provincial security regulators, which are available on the Steedar website at cedar.com

Additional information about the material factors that could cause actual results to differ materially from the conclusions forecasts or projections in the forward looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information are contained in that a firm labs filings.

With the Canadian provincial Securities regulators, which are available on the SEDAR website at SEDAR Dot com.

I will now pass the call to David Pidock, CEO of MetaFarm. Please go ahead.

I will now pass the call to David <unk> CEO of <unk>. Please go ahead.

Okay.

Thank you operator and good morning everyone. We appreciate you joining us for MetaFarm's 2022 Financial Results Conference call. Joining me on the call today are Keith Strong, MetaFarm's president and Greg Hunter, the company's CFO .

Thank you operator, and good morning, everyone. We appreciate you joining us for <unk> 2022 financial results Conference call. Joining me on the call today are Keith strong Mega farms, President and Great Hunter the company's CFO .

I joined MetaFarm as CEO in late April , subsequent to Q1. Since joining, I've been spending my time listening to and speaking with different stakeholders. As an outsider until recently, one of the first questions I'm inevitably asked is why move to MetaFarm, given the state of the overall cannabis space today?

I joined <unk> as CEO in late April subsequent to Q1 since joining I've been spending my time listening to and speaking with different stakeholders.

I'm charter until recently one of the first questions I'm inevitably ash as well.

I moved to met a farm given the state of the overall cannabis space today.

My short answer is that throughout my career in the farm and mid-tech spaces, I've been able to help companies manage through challenging transformative periods. I see a real opportunity for a metaphor to be one of the big winners in the space. The company's not there right now, but the raw ingredients are.

The short answer is that throughout my career in the pharma and med tech spaces, I've been able to help companies manage through challenging transformative periods.

Real opportunity for <unk> to be one of the big winners in this space. The company is not there right now, but the raw ingredients <unk> and.

Metapharm's facilities, regulatory approach, quality processes, and product lines provide a unique platform in the industry. It's more medical pharma approach, positions the company well to succeed in the emerging global medical cannabis market.

And if arms facility regulatory approach quality processes and product lines provide a unique platform in the industry. It's more medical pharma approach positions the company well to succeed in the emerging global medical cannabis markets.

The GMP licenses, Dell license, and international sales presence allow for compelling growth opportunities and from a partnership opportunity not available to most of our industry peers.

The GMP license that license and international sales presence allow for compelling growth opportunities and pharma partnership opportunities not available to most of our industry peers.

Well, I am new to this sector. I've been following medical cannabis and the industry very closely in my former pharmaceutical life. I'm here because I believe that metafarm labs is one of the most pharma-like.

I am new to the sector I've been following medical cannabis and the industry very closely in my former pharmaceutical life.

I'm here, because I believe that met a farm labs is one of the most pharma like Canada.

cannabis companies in North America. Entire industry, including MetaFarm, has many challenges ahead. However, I believe MetaFarm is well positioned to succeed, given their unique regulatory licensing capabilities, their opportunity pipeline, their existing global network, and their strong cash position. I'm confident we can turn this company into a value creation engine for shareholders.

Cannabis companies in North America.

The entire industry, including that of farm had many challenging however.

However, I believe <unk> is well positioned to succeed given their unique regulatory licensing capabilities their opportunity pipeline their existing global network and our strong cash position.

I'm confident we can turn this company into a value creation engine for shareholders. The.

The team has made solid incremental improvement on financial regulatory approvals and sales. However, in the past six quarters, Metapherm's financial performance has remained essentially flat.

The team has made solid incremental improvement on financial regulatory approvals and sales. However in the past six quarters <unk> financial performance has remained essentially flat.

The flat results somewhat hide progress in the move from a largely B2B business to focusing on our more profitable self-owned brand.

The flat result, somewhat high progress in the move from a largely b to b business to focusing on our more profitable cellphone brands.

But we need to move faster. We're committed to speeding up our strong pipeline of organic growth opportunities, but we will now also be focused on prudent, strategic, and opportunistic M&A growth opportunities.

Well, we need to move faster.

Committed to speeding up our strong pipeline of organic growth opportunities, but we will now also be focused on prudent strategic and opportunistic M&A growth opportunities.

I've reviewed the company's organic growth pipelines, both domestically and internationally, and it gives me good confidence for the future. We have many channels in different countries that the company has worked on opening that are primed and ready to deliver after years of regulatory impact.

I have reviewed the company's organic growth pipeline, both domestically and internationally and it gives me good confidence for the future.

Many channels in different countries that the company has worked on opening that are primed and ready to deliver after years of regulatory investments. We are focused on the international deal, where we're more uniquely positioned due to our licensure status could drive revenue and now most importantly profitability.

We are focused on international deals where we're more uniquely positioned due to our licensure status to drive revenue and now most important profitability.

and going forward M&A activity will form an important part of accelerating our sales and profit growth.

And going forward M&A activity will form an important part of accelerating our sales and profit growth.

Over the next several months, we expect the M&A opportunity set to expand as weaker players continue to come under cash flow and profit pressure.

But I want to be clear as we talk about M&A, we will be prudent, we will preserve financial flexibility, we will seek deals with synergy in spaces where we have demonstrated the right to win.

But I want to be clear as we talk about M&A, we will be prudent we will preserve financial flexibility, we will seek deals with synergy in spaces, where we have demonstrated the right to win.

We will be both strategic and opportunistic, and we will be ready to successfully execute and integrate.

We will be both strategic and opportunistic.

And we will be ready to successfully execute and integrate.

Medifarm is in a strong position to participate as the industry consolidates and to continue to build our leadership in the more specialty medical and wellness segment.

And if farmers in a strong position to participate as the industry consolidates and to continue to build our leadership in the more specialty medical and wellness segments.

We are virtually debt-free. One of the best cash visions amongst our peers were fully built out of unencumbered assets and a team hungry to grow.

Are virtually debt free one of the best cash position amongst our peers, we're fully built out.

Unencumbered assets and a team hungry to grow.

With a solid balance sheet, Medefarm has the strength to execute deals that will be accreted both in the short-term and over the long.

With a solid balance sheet metal farm has the strength to execute deals that will be accretive both in the short term and over the long term.

The company needs top-line growth to better leverage its current infrastructure. And we are very focused on getting metafarm to profitability as quickly as possible.

Company means top line growth better leverage at the current infrastructure and we are very focused on getting <unk> to profitability as quickly as possible.

I've had the privilege to participate in several company transformations over the years. These transformations have required significant growth through M&A, successful product launches in new and existing markets, profitability improvement programs, focus on costs, pricing, and right-sizing footprint.

I've had the privilege to participate in several company transformation over the years. These transformations have required significant growth through M&A successful product launches in new and existing markets profitability improvement programs focused on costs pricing and right sizing footprints.

I look forward to applying many of these learning to the challenges and opportunities we face at MetaFar. We will be squarely focused on growth, profitability, and driving shareholder value. I will now pass the call.

I look forward to applying many of these learnings to the challenges and opportunities we face in uniform.

He will be squarely focused on growth profitability and driving shareholder value.

I will now pass the call over to Keith.

Thanks, David. From a top-line perspective, Q1 was slower than we would have liked to see. However, we expect improvement in Q2, given positive trends in sales-related activities.

Thanks, David.

From a topline perspective Q1 was slower than we would've liked to see however, we expect improvement in Q2, given the positive trends and sales related activities for.

For example, in the Canadian provinces where we track provincial warehouse to retail depletions, we continue to see improvement each month and an 86% improvement year over year for the same period. On the international front, where sales were slightly down in Q1, activity picked up exiting Q1 and into Q2.

For example, in the Canadian provinces, where we track provincial warehouse to retail Depletions, we continue to see improvement each month, and an 86% improvement year over year for the same period on the international front, where sales were slightly down in Q1 activity picked up exiting Q1 and into Q2.

I'll turn to a brief discussion covering our three market segments, which include pharmaceuticals containing cannabis international medical and Canadian domestic.

I'll turn to a brief discussion covering our three market segments, which include pharmaceuticals containing cannabis, international medical, and Canadian domestic.

On the pharmaceutical side, we continue to make progress leveraging our drug establishment license received in July 2021.

On the pharmaceutical side, we continued to make progress leveraging our drug establishment license received in July 2021.

the most important being the submission and review of our Drug Master File, DMS, to the U.S. FDA.

The most important being the submission and review of our drug Master file DMF to the U S. FDA.

When looking at the FDA DMS database, Medifarm is one of only 14 companies globally and one of only two in North America that can meet demand in this market currently.

When looking at the FDA DMF database. Many farm is one of only 14 companies globally and one of only two in North America that can meet demand in this market currently.

The API segment alone will be an absolutely massive opportunity as it develops.

To remind you of the potential of this space, the US cannabis pharmaceuticals market was worth 943 million in 2021, according to Grandview Research.

To remind you of the potential of this space. The U S. Cannabis pharmaceuticals market was worth $943 million in 2021.

According to Grand view research.

Compare this with the traditional pharma API of business alone, which was worth $159 billion in 2020.

Compare this with the traditional pharma API business alone, which was worth 159 billion in 2020.

Clinical trial work is long-term by nature, and to be successful, you need more shots on net. This is exactly the approach we are taking, ensuring that our APIs are part of ongoing trials, which we expect will give us the best chance possible of becoming part of a long-term, highly profitable supply chain if these new drugs receive U.S., FDA, and global marketing authorization.

Clinical trial work is long term by nature and to be successful you need more shots on that this is exactly the approach we are taking ensuring that our API or part of ongoing trials, which we expect will give us the best chance possible of becoming part of a long term highly profitable supply chain. If these new drugs received U S F.

And global marketing authorization.

To help drive this segment, in March, we added a VP of business development to the team. Located in the U.S., they have made a successful career of selling various APIs for pharmaceutical companies globally. This individual has continued to make progress entering Q2, and we expect to onboard additional pharma customers as the year progresses.

To help drive this segment in March we added a VP of business development to the team.

Located in the U S. They have made a successful career of selling various apis for pharmaceutical companies globally.

This individual has continued to make progress entering into Q2, and we expect to onboard additional pharma customers as the year progresses.

Internationally, the most notable progress was the receipt of sanitary product approval from the Brazilian health authority known as INVISA.

Internationally. The most notable progress was the receipt of sanitary product approval from the Brazilian health authority, known as and visa and.

Envisa is known to be one of the toughest regulators in the world, which is evident when we see that they launched their medical cannabis program two years ago, and there are still just 15 products approved. Many Farm Bean, the manufacturer of one of those 15 approvals, and the only Canadian company with this authorization, sets us up for success in this quickly growing market.

And these are known to be one of the toughest and regulators in the world, which is evident when we see that they launched their medical cannabis program two years ago and there are still just 15 products approved <unk>.

Many farm being the manufacturer of one of those 15 approvals and the only Canadian company with this authorization sets us up for success in this quickly growing market.

Also internationally, we continue to deliver to clients in Australia and Germany while adding a new major market with initial deliveries to the UK, a country that is expected to follow Germany's framework as a robust medical market.

Also internationally, we continued to deliver to clients in Australia, and Germany, while adding a new major market with initial deliveries to the U K a country that is expected to follow Germany's framework as a robust medical market.

While revenue timing can be lumpy given the size of our current business, as we leverage our sales investments and add more customers and go deeper with the current ones, we expect this to smooth out hand-in-hand with volume growth.

While revenue timing can be lumpy given the size of our current business as we leverage our sales investments and add more customers and go deeper with the current ones. We expect this to smooth out.

Hand in hand with volume growth.

On the domestic side in March we closed the previously announced acquisition of shelter cannabis brands, which adds highly reputable specialty dry flower and pre rolled products to our portfolio. This fills a key gap in our Canadian product offering, while leveraging existing infrastructure and overhead and opening the opportunity to <unk>.

On the domestic side, in March we closed the previously announced acquisition of Shelter Cannabis Brands, which adds highly reputable specialty dry flower and pre-roll products to our portfolio. This fills a key gap in our Canadian product offering while leveraging existing infrastructure and overhead and opening the opportunity to expand our current international flower business over time.

And our current international flower business over time.

I'm happy to report that the first shipment of dried flower and pre-rolls left our building on mate.

I'm happy to report that the first shipments of dried flower and pre rolls left our building on may 10th.

We also continued to uphold our reputation of being a leader in innovation, launching Canada's first CBG oil, naturally derived CBG vaping, and water-soluble CBN.

We also continue to uphold our reputation of being a leader in innovation launching Canada first CPG oil naturally derived CBD gene Bacon and water soluble CBS .

These were delivered in late Q1 and available to consumers in early April . We expect to be able to report back on their performance following Q2.

These were delivered in late Q1 and available to consumers in early April we expect to be able to report back on their performance following Q2.

We continue to invest in our Salesforce during the quarter, which led to new listing in Ontario, Alberta, Nova Scotia, and BC. With a qualified Salesforce on the ground, and maturing in the field, we see significant opportunity to deepen the presence of existing products on the shelf while establishing a pipeline to speak tail growth of new products as they're introduced.

We continue to invest in our sales force during the quarter, which led to new listing and Ontario, Alberta, Nova Scotia NBC.

With a qualified sales force on the ground and maturing in the field, we see significant opportunity to deepen the presence of existing products on the shelf, while establishing a pipeline to speak tailed growth of new products as they are introduced.

We are strategically positioned in the Canadian market and key room to run.

We are strategically positioned in the Canadian market and GE room to run.

I'll now pass the call to Greg to discuss many farm financials.

I'll now pass the call to Greg to discuss many farms financials.

Right.

Thanks Keith and good morning everyone. As expected, Q1 revenue declined relative to Q4 given the seasonality in the cannabis market. We expect revenue to improve in Q2 as this seasonality dissipates in our investments in sales and marketing and new products, including shelter pay-off.

Thanks, Keith and good morning, everyone as expected Q1 revenue declined relative to Q4, given the seasonality in the cannabis market.

We expect revenue to improve in Q2, as this seasonality dissipates and our investments in sales and marketing and new products, including shelter payoffs.

As David mentions, growing our revenue based through organic and inorganic initiatives, reducing cash burns and driving towards profitability or top priorities in 2022. Stabbus Quill is not an option.

As David mentioned growing our revenue base through organic and inorganic initiatives, reducing cash burn and driving towards profitability. Our top priorities in 2022 status quo is not an option.

Now, the farm continues to be well positioned in the industry, with our strong balance sheet, unique licenses, including our drug establishment license, and our innovative pipeline of products and customers across multiple geographies.

The volume continues to be well positioned in the industry with our strong balance sheet unique licensees, including our drug establishment license and our innovative pipeline of products and customers across multiple geographies.

And keep discussed. We continue to open new markets during the quarter with our first sales into the United Kingdom. We continue to drive our innovative pipeline by launching our new CBD-Tinsure, a CBN-THC water soluble tinsure, and a CBD-V8 in Q1.

As Keith discussed we continue to open new markets during the quarter with our first sales into the United Kingdom, We continued to drive our innovative pipeline by launching our new CPG CBD tincture of CBS THC water soluble tincher and a CBD CBD abate in Q1.

We are optimistic these will start to make a meaningful contribution in future quarters. In addition, our shelter brand started shipping from our various facility in may and will contribute to revenue in Q2.

We are optimistic these will start to make a meaningful contribution in future quarters. In addition, our shelter brand started shipping from our very society in May and will contribute to revenue in Q2. Turning to the P&L performance.

Turning to the P&L performance for the first quarter.

Q1 revenues decrease sequentially from 5.7 million in Q4 to 4.9 million in Q1.

Q1 revenue decreased sequentially from $5 7 million in Q4 to $4 9 million in Q1.

Looking at international revenue components for the quarter. International revenues decrease sequentially from 2.2 million in Q4 to 1.9 million in Q1. Australian revenue declined from 0.9 million in Q4 to 0.6 million in Q1. German revenues declined sequentially from 1.3 million in Q4 to 1.1 million in Q1. Our first sales into the United Kingdom represented 0.2 million in the quarter.

Looking at international revenue components for the quarter.

International revenues decreased sequentially from $2 2 million in Q4 to $1 9 million in Q1, Australia revenue declined from <unk> 9 million in Q4 zero point $6 million in Q1, German revenues declined sequentially from $1 3 million in Q4 to $1 1 million in Q1, our first sale.

Into the United Kingdom represented zero point $2 million in the quarter.

International revenues represented 39% of total revenues in Q1 versus 38% of revenues in Q4.

As discussed in prior quarters, international revenues will remain lumpy as the market matures.

As discussed in prior quarters International revenues will remain lumpy as the market matures.

We are confident international revenues will continue to grow with our sales and marketing investments in existing markets and with our expansion into new markets such as Brazil.

Canadian domestic revenues decreased sequentially from 3.5 million in Q4 to 3 million in Q1, driven by market seasonality. With the strategic investments we have made in sales and marketing, expanded distribution points, entry into new provinces, new and innovative products, and shelter brands, we are confident we will improve domestic revenues as 2022 progresses.

Medium domestic revenue decreased sequentially from $3 5 million in Q4 to $3 million in Q1, driven by market seasonality with.

With the strategic investments, we've made in sales and marketing expanded distribution points.

Entry into new provinces, new and innovative products and shelter brands. We are confident we will improve domestic revenues as 2022 progresses.

Gross profit for Q1 was negative 0.4 million compared to Q4 gross profit of negative 5 million.

Gross profit for Q1 was negative <unk> 4 million compared to Q4 gross profit of negative $5 million, even adjusted for the $2 4 million inventory write down and $1 5 million of accelerated depreciation in Q4 Q1 gross profit improved while still negative adjusted gross.

Even adjusted for the 2.4 million inventory write down and 1.5 million of accelerated depreciation in Q4, Q1 gross profit improved. While still negative, adjusted gross profit exhibited a third sequinsure quarter of improvement. General and administrative expenses in the quarter decreased sequentially from 10.4 million in Q4 to 4.9 million in Q1.

Profit exhibited a third sequential quarter of improvement.

General and administrative expenses in the quarter decreased sequentially from $10 4 million in Q4 to $4 9 million in Q1.

Q4 included a receivable impairment of 6.1 million and an employee compensation reversal of 0.3 million.

Q4 included a receivable impairment of $6 1 million and an employee compensation reversal of zero point $3 million.

Q1 includes severance expense of 0.4 million. Adjusting for these items, GNA Expensing Q1 was consistent with Q4.

Q1 includes severance expense of 0.4 million adjusting for these items G&A expense in Q1 was consistent with Q4.

As I've already noted, growing the top line is critical as we push towards profitability and cash flow generation. We continue to invest in revenue generating functions in order to achieve these objectives. As a result, marketing and selling expenses in the quarter increased slightly from 1.4 million and Q4 to 1.5 million and Q1.

As I've already noted growing the top line is critical as we push towards profitability and cash flow generation. We continue to invest in revenue generating functions in order to achieve these objectives as a result, marketing and selling expenses in the quarter increased slightly from $1 $4 million in Q4 to one five.

In Q1.

R&D expenses decreased sequentially from 580,000 in Q4 to 300,000 in Q1. These investments will vary as we selectively allocate resources to advance our capabilities and product portfolio with a vision to become one of the most sophisticated cannabinoid producers in the world and capture a sustainable portion of the global cannabinoid medical and pharmaceutical market.

R&D expenses decreased sequentially from 580000 in Q4 to 300000 in Q1. These investments will vary as we selectively allocate resources to advance our capabilities and product portfolio with a vision to become one of the most sophisticated cannabinoid producers in the world and <unk>.

Capture a sustainable portion of the global cannabinoid medical and pharmaceutical markets.

Adjusted EBITDA for Q1 was negative 5.7 million, which improved from negative 6.6 million in Q4.

<unk> EBIT for Q1 was negative $5 7 million, which improved from negative $6 6 million in Q4.

Moving to the balance sheet.

The efforts of our team over the past year have continued to pay off with improvements in working capital as we continue to drive towards cash generation.

Efforts of our team over the past year have continued to pay off with improvements in working capital as we continue to drive towards cash generation.

Straight and other receivables decreased 2 million from 16.9 million in Q4 to 14.9 million in Q1. This decrease was driven by a continued focus on collections. As discussed in previous quarters, there is one large customer owing a total of approximately 8.5 million at the end of Q1, which is subject to legal proceedings. Adjusted for this one customer, trade and other receivables is approximately 6.3 million.

Trade and other receivables decreased $2 million from $16 9 million in Q4 to $14 9 million in Q1. This decrease was driven by a continued focus on collections.

As discussed in previous quarters, there is one large customer or a total of approximately $8 5 million at the end of Q1, which is subject to legal proceedings adjusted for this one customer trade and other receivables is approximately $6 3 million.

Our cash balance on March 31 was $28.3 million which decreased from $34.1 million at December 31. We are materially debt-free and have outright ownership of our two primary GMP assets in Canada and Australia.

Our cash balance on March 31 was $28 3 million, which decreased from $34 1 million at December 31, we.

We are materially debt free and have outright ownership of our two primary GMP assets in Canada and Australia.

With that, I'll turn it over to the operator to open the line for questions.

With that I'll turn it over to the operator to open the line for questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

And your first question comes from a line of Sean Mir from Canacord Genuity. Your line is open.

And your first question comes from the line of Sean Mirror from Canaccord Genuity. Your line is open.

Hey, good morning, and thank you for taking my question.

My first question is just on the shelter acquisition. So I just wanted to get offered any commentary on the pricing strategy with shelter. Are you looking to place it as a premium craft offering? We've heard from other operators that they're able to secure wholesale biomass for less than growing costs. Is that something that you're noticing? And if there's any desire to play in the lower pricing care category?

My My first question just on the the shelter acquisition. So I was just wondering if you could offer any commentary on the pricing strategy with shelter.

Are you looking at a place that as a as a premium tax crap offering.

We've heard from other operators that they are able to secure wholesale biomass or lessened growing costs is that something that you're noticing.

Is there any desire to player in the play and a lower pricing tier category.

Thanks for joining in, this is Keith here, it's a great question.

Good morning, Jay and thanks for joining us.

<unk>, that's a great question.

I think when we looked at Shelter, when we acquired the IP of those brands, we actually were trying to make sure that we didn't break anything that they were doing well with. So Shelter, when we reviewed that as an opportunity, they kind of play in the mid-tier space. So we're definitely not a premium brand.

I think when we looked at shelter.

We acquired the IP of those brands, we actually were trying to make sure that we didn't break anything that they were doing well with so shelter.

Shelter when we reviewed that as an opportunity.

They kind of play in the mid tier space. So there's definitely we're definitely not a premium brand.

Like as far as the small crack row is just because of the volume that we planned to sell so some of those smaller crack

Like as far as the small craft doors, just because of the volume that we plan to sell so some of those smaller craft.

opportunities of the higher premium college, you know, it's usually limited time offers. So we do want to have a smoother revenue than that. So it is a bit higher, but we're not in the value brand either. We are finding that fine wholesale flour is, you know, very advantageous kind of price wise. And we've been able to find multiple cultivators within the supply chain. Some that existed with the original shell service and some that came with the relationships that many farm had with me.

Opportunities are the higher premium call it.

It's usually limited titled first so we do want to have a smoother revenue isn't that what is the higher but we're not in the value brand either.

We're finding that buying wholesale flower is very advantageous kind of credit lines and we've been able to buy.

By multiple cultivators and the supply chain film that exited with the original shelve their businesses.

That came with the relationships that many of our how do we hope to make that even more.

Hope to make that even more market-creative as we move forward.

Margin accretive.

get better on volumes and forecasting with that. The product launch, I think as he heard, we said just last week we delivered and this week will be available to Ontarians from the first time for Medi-Farmist. I'm really excited about that.

Yeah.

Get better on volumes and forecasting with that.

Product launch I think you have heard me say just.

Last week, we delivered and.

Available in Ontario for the first time for many times. So we're really excited about that.

Thank you for the color there.

My next question, you may have addressed this in your prepared remarks, my line cut off a bit there.

My next question you may have addressed this in your AR and your prepared remarks, My my line cut off a bit there.

But in the last quarter, Australia and revenues had come down sequentially about 50%. And then this quarter that's followed up a bit more than 25% decline there. So is there any commentary on what's driving that movement in that market and how we should expect the top line to evolve in the coming quarters from Australia?

But in the last quarter Australian revenues had come down sequentially about 50% and then this quarter, that's followed up a bit more than 25% decline. There. So is there any commentary on what's driving that movement in that market and how we should expect the top line to evolve in coming quarters from Australia.

And if I could tag on this maybe any commentary on what the leadership structure is there now with Warren gone and that CEO Asia Pacific role eliminated. Kind of anything on how those operations are being overseen and after that I'll pass along the cute.

And if I could tag on just maybe any commentary on what the leadership structures. There now with our Warren gone and that CEO Asia Pacific roll eliminated.

Anything on how those operations are being overseen and after that I'll pass it along the queue.

Thanks, I think I'll talk about the leadership structure there and then I'll pass it over to Greg just to touch on on the revenue that we've been seeing.

Thanks, Jim I think I'll talk about the leadership structure, there and then I'll pass it over to Greg just to touch on on the revenue.

<unk> seen quarter to quarter so.

As we announced at the end.

When we announce our Q4 earnings on March 31, as part of that was some reorganization.

reorganization of the Australian facility with no longer having a region-specific CEO . So we do have a new leader there. He has worked with us since 2019. Very experienced. He came from background and pharmaceutical. He worked in places like Catalan, which makes capsules for people around the world. So he's now running our plant there. You know, as Greg begins to the financials, but as we see kind of the revenue go up and down just the size of what's happening there and the bench strength of what we have here in Canada. It just makes sense to have replicated executives. So we are looking at, you know, how do we save costs? And this was one way of doing it. So that's a great touch on the revenue piece.

Australia facility.

With no longer having like a region specific CEO . So we do have.

Our new leader there he has worked with us since 2009.

19, very experienced he came from background in pharmaceuticals, we worked in places like Cadillac, which makes capsules for people around the world. So he is now running our plant there.

Greg will get into the financials, but as we see kind of the revenue go up and down and just kind of the size of what's happening there and the bench strength that we have here in Canada.

It makes sense to have replicated.

Replicated executives. So we are looking at how do we save cost and this is one way of doing that so that's what we're going to touch on the revenue piece yeah. Thanks.

Yeah, thanks. Alright, keep it.

So yes as you noted the lumpiness within the Australian revenue you said Q Q4 was down relative to Q3, and Q1 was down a touch relative to Q4, what are the biggest moving pieces was some some larger spot sales we had some isolate within Australia and that was a large part of Q3.

The lumpiness within the Australian revenue, you said Q4 was down relative to Q3 and Q1 was down at touch relative to Q4. One of the biggest moving pieces was some larger spot sales. We had some isolates within Australia and that was a large part of Q3's revenue. So if you look at Q3 and Q4, we take out the large spot sales we had on the isolate, relatively consistent. And then in the Q1, again, as I said in the opening remarks, we do expect the international revenues to remain lumpy as the market develops. But again, it's the isolate.

<unk> revenue. So if you look at Q3 and Q4, if you take out the large.

Also we had on the isolate relatively consistent and then into Q1 again as I said in the opening remarks.

We do expect the international revenues to remain lumpy as the market the market develops but again its the isolate that was the big one.

But again, it's the isolate that was the big one.

Your next question, Crumbs to Align a Scott Fortune from Roth Capital Partners. Your line is open.

Your next question comes from the line of Scott Fortune from Roth Capital Partners. Your line is open.

Hey, good morning. This is Nick on for Scott. First question from us. I appreciate the commentary on the M&A side. Just looking, is there a segment you're specifically looking to improve? Feed on the sourcing or procurement side, brands or distribution? Just some additional color there would be helpful. Thank you.

Hey, Good morning. This is Nick on for Scott.

First question from Us I appreciate the commentary on the M&A side, just looking is there a segment, you're specifically looking to improve be it on the sourcing or procurement side brands or distribution just some additional color there would be helpful. Thank you.

Hey, Thanks, good morning. Thanks.

Hey Nick, morning. Thanks. Yeah, I think we see, you know, if you look back at our last five or six quarters, it's been relatively flat on the revenue side. We see a great opportunity for consolidation and M&A in the space. We think that we're very well positioned. As David mentioned in his remarks, we, you know, are virtually debt-free. We have a strong cash balance.

We see if you look back at our last five or six quarters, it's been relatively flat on the revenue side, we see a great opportunity for consolidation and M&A in the space. We think we're very well positioned as David mentioned in his remarks, we are.

We are virtually debt free we have a strong cash balance.

and really clean balance sheets. So I think that we are really in the dry receipt. Well, looks at that. I think for us, we're looking at how at that light we could get into new regions.

And really client clean clean.

Clean balance sheet, so I think.

We are really in the driver seat when looks at that I think for US we're looking at.

How asset light, we could get into a new region. So some places where our sub contracting some things and places like Europe is there an opportunity there to do an acquisition that would help with that and get us better margins in that region and then even looking at regions that were not in so continuing to look at the U.

So, you know, some places where we are self-contracting something.

and places like Europe , is there an opportunity there to do an acquisition that would help with that and get us.

As an opportunity and then I think beyond that and I think well have more communication in the future as we kind of get together and set the guardrails on what that looks like but I think beyond that too is just kind of new.

I think we'll have more communication in the future as we kind of get together and set the guardrails on what that looks like, but I think beyond that, too, is just kind of new, novel either products or delivery methods, especially on the medical side. We pride ourselves on being a GMP facility with a drug establishment license. We're in a number of trials, so we have placed our bets on the future of the pharmaceutical industry and drugs containing cannabis, and we think that if there's some acquisitions in that space, that we'd be very well-positioned to take part. Okay. Great. I appreciate that, Culler. And then next one for me on the Canadian oil side, you mentioned last quarter your success within that segment.

<unk> novel, either products or delivery methods, especially on the medical side like we pride ourselves on being a GMP facility with a drug establishment license where in a number of trials. So we have placed our bet on the future of the pharmaceutical industry.

And drove containing candidates and we think that there is some acquisitions in that space that we'd be very well positioned to take part.

Okay, great. I appreciate that color. And then next one for me, on the Canadian oil side, you mentioned last quarter your success within that segment in your market share, despite employing kind of premium pricing and having products on shelves for a limited amount of time, kind of compared to competitors. Can you provide an update on this product segment and how you're potentially looking to expand within this category? Thank you.

Okay, Great I appreciate that color and then last one from me on the Canadian oil side, you mentioned last quarter. Your success within that segment in your market share.

Despite employing kind of premium pricing and having products on shelves for a limited amount of time kind of compared to competitors can you just provide an update on this product segment and how youre potentially looking to expand within this category. Thank you.

Yeah, thanks Nick. I think we've been doing great with our oils. We definitely punch outside of our weight class when we look at who the top sellers are there and then where we sit. And as you mentioned, it is a premium product for us at pretty much double the price of any of our competitors. And now we're seeing, as we get to have more experience in the field and we're looking at some of the bigger retailers in Canada and we can share with them our successes with the top oil brands and some of those larger chains.

Yes, I think.

We've been doing great with our oil bounce, we definitely concho side of our weight class. When we look at who are the top sellers are there and then where were we said and as you mentioned it is a premium product for us at pretty much double the price of any of our competitors.

And in there so and now we're seeing as we get to have more experience in the field and we're looking at some of the bigger retailers in Canada, and we can see.

Share with them, our successes worth oil brand and some of those larger chains.

Which I think will help us and as you mentioned a good way for us to grow revenue is to expand in that category that we're already successful in so we

I think it will help us as you mentioned a good way for us to grow revenue as you expand in that category are already successful and so we.

We recently launched a CBG oil, it was the first CBG oil to launch in Canada.

We recently launched our CBD oil.

It was the first CDG oil to launch in Canada. There is one other one today, but I.

I think that adds to our portfolio.

One of the 2500 stores that carrier.

Oil now to add that oil is something that natural so that's a great opportunity for US and then we added in our water soluble.

water-soluble, so rather than taking it as a sublingual drop, you can now take a water-soluble cannabis oil and put it into our cold beverage and use that as a delivery method. So we are continuing to both innovate and grow that category, I think in the future we'll look at things like different carrier oils, so most of it today is MCT-based, obviously not every consumer wants that, so things like carrier oils or delivery methods, putting it in a two-part capsule, things like that, it's a great way to get our quality, premium GMT product out to more patients and consumers. Great, that's it for me, I'll pass it on. Thanks Nick. Your next question comes from the line of Aaron Gray from Alliance Global Partners. Your line is open.

So rather than take it as a sublingual drop you can now take our water soluble cannabis oil and put it into our cold beverage and.

Use that as a delivery method. So we are continuing to innovate.

And grow that category I think in the future, we'll look at things like different carrier well. So most of it today at MTT based obviously not every consumer want that though.

Things like carrier oils or delivery methods for NIM to four capsule things like that is a great way to get our quality premium GMP product out to more patients and consumers.

Great, that's it for me. I'll pass it on.

Great. That's it for me I'll pass it on.

Thanks, Nick.

Your next question comes from the line of Aaron Gray from Alliance Global Partners. Your line is open.

Your next question comes from the line of Aaron Grey from Alliance Global Partners. Your line is open.

Hi, good morning, and thank you for the questions. So first question for me, I just want to talk about Germany a bit. Obviously, you guys are very focused on the medical side, but a lot of conversations on the market about potential adult use and the timing of it coming on. Could you just remind us about where you guys would stand in terms of potentially wanting to participate within an adult use market that might come online within Germany, whether through your partnerships or otherwise? Thank you.

Hi, good morning. Thanks.

Thanks for the questions. So first question for me I, just want to talk about Germany event, obviously guys are very focused on the medical side.

But a lot of a lot of conversations on the market about potential adult use on the timing of that coming on could you just remind us about where you guys would stand in terms of potentially wanted to participate within our adult use market that might come on line within Germany.

Whether through your partnerships or otherwise thank you.

I think it's a very interesting topic to follow, it was in Germany last fall when they had an election and elected the coalition government and there was a lot of buzz in the industry in Germany about what that meant for cannabis. They recently said that they would be publishing some draft regs in the fall of 2022 so I think looking forward to that and seeing different ways that we might participate.

Thanks, Gary.

Very interesting.

Topics of followers in Germany last fall.

We had an election and all that.

Coalition government and there was a lot of buzz in the industry in Germany about what that meant for Canada.

They recently said that they would be publishing some draft regs in the fall of 2022, So I think looking forward to that theme different ways that we might participate.

I think I saw a few months ago a survey that was done here in Canada, 50% of consumers going into cannabis retail are doing it for a wellness reason.

I think I saw.

A few months ago, a survey that was done here in Canada, 50% of consumers going into Kansas retailer doing it for a wellness reason, so theyre self medicating or theyre going there for south, Florida wellness therapeutic benefit and so as the medical wellness product producer.

So they're self-medicating or they're going there for some sort of wellness therapeutic benefit. And so as a medical wellness product producer, you know, if you get an adult-use market the size of Germany, which would be three times the size of Canada, it's definitely somewhere that we will participate. And I think we could do it in a number of different ways, but, you know, working with

You get an adult use market the size of Germany, which is three times the size of Canada.

Currently somewhere that we will participate in I think what we can do it in a number of different ways, but.

Working with Stan.

Stata, which is one of the largest, not only just a generic drug company, but they also are a brand and wellness company. I think it will probably create an opportunity through them and through some of our other great partners. So, I'm really excited for it.

Data, which is one of the largest and not only just the generic drug.

Company, but there also are.

Brandon This company I think it will probably create an opportunity to do that through some of our other great partners. So really excited.

kind of waiting by to see what the regulations look like before we can determine how exactly

Kind of weighting by to see what the regulations look like before we can determine how exactly we participate.

All right, great, thank you very much. And then on the medical market for Germany, talk about the competitive dynamics that you're seeing there. Obviously, a lot of competitors talking about heightened competition, surprising pressure, but then we're also hearing about.

Alright, great. Thank you very much and then on the medical market for Germany Joe.

Talking about the competitive dynamics that you're seeing there obviously a lot of competitors talking about heightened competition. So pricing pressure, but then we're also hearing about.

You want to increase the amount of sales coming from outside, that covered by insurance, and people paying more out of pocket. So is there any more color you could offer in terms of the dynamics they are seeing in Germany and growth opportunities they are seeing specifically within the medical market?

The increased amount of sales come from outside that covered by insurance and people pay more out of pocket. So is there any more color you can offer in terms of the dynamics that you're seeing in Germany and growth opportunities, they're seeing specifically within the medical market. Thank you.

Yeah, it's a lot of progress being made there. We're seeing more and more insurance providers in the country look at regional, even tenders, which is something that they would do for more popular, established drug lines. So the fact that that's now coming into play for medical cannabis shows that those insurers are seeing that as a product going forward, and obviously some of our partners have done really well in there. So there's definitely more insurance into the space, so there's more people coming into the space, especially with the news of possible adult use.

Hey, John Yes.

A lot of progress being made there we're seeing more and more.

Insurance providers in the country, you look at regional even tenders, which is something that they would do or more popular established dragline. So the fact that that's now coming into play for medical candidates shows that those insurers are seeing that as a product going forward and obviously some.

Our partners have done really well and there is definitely more entrants into the space. So theres more people coming into the space.

Especially with the news as possible I don't use there. So I think we'll see competition, but we've done well.

So, I think we'll see competition, but we've done well.

you know, with competition in Canada, and I think, you know, we're happy to see it. It just shows that it proves our business model and why we've been working to get in there since 2018 and have been selling there for a while. I think, you know, when people say, oh, we're renting into...

With competition in Canada, and I think.

We're happy to see it just shows that improves our business model and why we have been working to get in 2018 and has been selling there for a while I think.

People say all orienting into.

into the German market. There's a lot of work to do. Depending on the product type, registration could take anywhere from two to six months. Permitting could take anywhere from one to three months.

Into the <unk>.

German market Theres, a lot of work to do depending on the product registration can take anywhere from two to six months.

Permitting can take anywhere from one to three months so.

So, you know, entering the market and actually selling on the market are two different things and we're happy that we've been there since Q2 of last year.

Entering the market and actually saw on the market.

And we're happy that we've been there.

Q2 of last year.

Alright, great. Thank you very much I'll jump back in the queue.

Okay.

And there are no further questions at this time. Mr. David Pittock, I turn the call back over to you for some final closing remarks.

And there are no further questions at this time, Mr. David Pillar Guy I turn the call back over to you for some final closing remarks.

Thanks operator and thanks everyone for your time. Look forward to our next update and everyone have a great week.

Thanks, operator, and thanks, everyone for your China look forward to our next update and everyone have a great week.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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