Q2 2022 Clever Leaves Holdings Inc Earnings Call
[music].
Good afternoon, and welcome to the clever leads second quarter 2022 earnings conference call.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
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Please also note this event is being recorded.
I would now like to turn the conference over to Jackie Kashner.
Please go ahead.
Good afternoon, everyone and thank you for participating in today's conference call to discuss quarterly financial results for the second quarter ended June 30th 2022.
Winning us today are <unk>, CEO , Andre Hardy and the Companys CFO Henk Hague.
Before I introduce Andreas I remind you that during today's call, including the question and answer session statements that are not historical facts, including any projections or guidance statements regarding future events or future financial performance or statements of intent or belief are forward looking statements and are covered by the safe Harbor disclaimers contained in today's.
The press release and the company's public filings with the SEC.
Actual outcomes and results may differ materially from what is expressed in or implied by these forward looking statements.
Typically please refer to the Companys Form 10-Q for the quarter ended June 30th 2022, which was filed prior to this call as well as other filings made by club relief with the SEC from time to time.
These filings identify factors that could cause results to differ materially from those forward looking statements.
Please also note that during this call management will be disclosing adjusted EBITDA adjusted gross profit adjusted.
Gross margin.
These are non-GAAP financial measures as defined by SEC regulation G.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures and the statements as clothing. The reasons why company management believes that adjusted EBITDA adjusted gross profit and adjusted gross margin provide useful information to investors regarding the company's financial conditions and results of operations are included in today's press release.
<unk> that is posted on the Companys website.
With that I will turn the call over to Andre.
Thank you Jackie and good afternoon, everyone.
Second quarter performance reflects our continued execution on our defined growth strategy.
We generated solid year over year revenue growth across both segments of our business, including a 124% increase in revenues as we continued to expand an existing commercial partnerships and drive strong momentum in our target markets, Australia, Brazil, Germany, Israel and the United States.
In addition, we've completed significant restructuring initiatives to more closely align our cost structure with our core operational priorities.
From a balance sheet perspective, we fully repaid our two largest debt obligations, which has significantly reduced our total debt and giving us additional flexibility to support our ongoing strategic initiatives.
I am proud of the strategic progress we have made on our team's tireless work to maintain our momentum through the first half of 2022.
To review, our second quarter commercial progress in greater depth I will focus on each of our target markets.
Germany, we have continued to sell right kind of flower products, and we see strong demand and positive market feedback for the brand and product.
We continue to grow this brand and complete additional shipments. We believe this product line will become a strong contributor to our revenues from the German Mark.
In April Liberty's, Germany also became a fully licensed medical cannabis distributor granting us direct access to a network of wholesalers and around 20000 pharmacies throughout the country.
Yeah.
I'll speak in greater depth about additional commercial and regulatory opportunities within this market later in the call.
We look forward to further supporting the momentum we've generated through the first half of 2022.
In Israel, we have remained vigilant in our derisked, the country's fluid regulatory framework and work to ramp our existing commercial agreements.
To ensure compliance with the heightening quality standard Israel has some place we strengthen our post harvest flower product testing and analysis capabilities, demonstrating our deep market knowledge and commitment to meeting even the most stringent pharmaceutical standards around the globe.
As a result of Bcf, which we successfully completed our first high THC flower shipment tweens are cute israels, leading cannabis company.
Having already announced our <unk> partnership in late March of this year. We are proud to have reached this milestone so swift.
And we will work closely with them to make additional progress on this long term partnership.
In Brazil, we greet their product shipments during the second quarter, our cereal for products that have been approved under RBC 327.
The Brazilian regulatory authorities strict cannabis manufacturing and input standards officially entered the market.
Furthermore, Greek wonderful Green brick partners launched these products to a large number of physicians in late June Martin de initiation of sales of our products to patients under our D. C 327.
We previously had shipments market on a compassionate use basis, where medical progress unregistered and could be imported by individual patients when they obtain regulatory and prescribed with first nations.
Having product approved for broader market entry through our D. C 310 to seven.
<unk> is a multiyear process, but one that provides immense long term value for us.
Yeah.
As we seek additional approvals, we're working to activate and brought our current agreements to deepen our foothold within this is mark.
With demonstrated similar regulatory Julien, Australia, which instituted a new set of standard care requirements for Kennedy in pork producers.
Our Portugal team worked quickly to adapt to these standards and our flower exports have preceded seamless ever since.
We have since launch a whopper flower strained with one of our largest trillium take or pay partners and we believe this high quality offering has a compelling product market fit.
Finally in the U S. We announced a two year supply agreement with volume Therapeutics and American clinical stage biopharmaceutical company in April .
Under the terms of the agreement we will provide high quality CBD isolate for you seen studies and clinical trials centered on where neurological and developmental diseases.
This partnership complements our commercial CBD offering choice tool, which we are gradually rolling out with a lunch and learn approach to small retail changed within variable brands nutraceutical partner network as well as select online marketplaces.
We have had solid traction within the destock space, thus far by increasing our distribution into major re tenders countrywide.
Our portfolio penetration on a same store basis.
While we have continued to drive strong ketamine revenue expansion relative to last year. Once we mined everyone that our quarter to quarter sales cycles can appear lumpy due to the many regulatory approvals and quality control checks in Bolton, our predictions and expert process.
As we adapt to evolving regulatory standards in our target markets and are certain that our products with all necessary pharmaceutical specifications. These measures impact the timing of individual shipments and how quickly given supply.
<unk>.
That said our ability to provide high quality pharmaceutical grade products and a beer closer to our target market standards remain a central tenet of our value proposition as we expand our existing agreements and work to further expand our global partner base.
From a regulatory perspective, we have another market expansion opportunity in Colombia, we are carefully monitoring.
With the country's new Congress that starting July 20th of this year, so far three bills for nickel like new recreational use of cannabis in Colombia.
Two of the projects are oriented towards amending the Colombian constitution for creating an exemption to the prohibition that exists now.
The main purpose of the third bill is to create a regulatory framework for the usage cultivation production marketing import export unrelated functions for candidates and its derivatives in a recreational conflicts.
The current version of the Bill allows for the current license holder sweat a new modality in the existing license for cultivation and processing cannabis for recreational use.
This will also create a new license for dispensers that would be issued by the ministry of Commerce.
The elected President we celebrate that will has publicly expressed that he is going to support both medicinal recreational uses of cannabis in the country.
Among many other benefits legalized recreational cannabis in Colombia has the potential to strengthen and diversify the domestic cannabis industry as well as retail distribution channels.
As we invoice for those markets around the world delivered is fully committed to supporting the legalization efforts and propelling the future of adult use cannabis in Columbia footwear.
The additional growth opportunities offered by this potential market expansion benefits us as a domestic operator and positions, Colombia, a major cannabis experts globally.
We are proud to support the significant development and are closely following additional regulatory progress along these lines.
Our progress in each of our target markets demonstrates our growing value within the global cannabinoid supply chain.
We have built deep and growing BW partnerships across our target markets and we're steadily heading towards an inflection point in our business as we activate and ramp our supply agreements.
Narrowing our operational focus in these markets has allowed us to execute on our pipeline more effectively and improve our positioning for additional development in these markets.
Whether they come in the form of new product approvals recreational market potential or new distribution in growth. We believe we are well positioned to leverage these and further establish <unk> as an efficient multinational operator.
To support our commercial growth, we have undertaken a series of restructuring and optimization initiatives that aimed to align our cost and operational infrastructure more tightly with our redefined core strategic objectives.
As we prepare for additional opportunities in our core markets, we have focused on shifting away from noncore operational activities and improving our capital efficiency.
To this end we have already undertaking a global workforce reduction that is expected to drive solid cost savings this year and even greater savings on an annual basis going forward, which ankle summarized in greater detail shortly.
Alongside our commitment to production efficiency across our Colombia, Portugal operations, we're simultaneously working to optimize our working capital and in particular our inventory.
As a result, we have significantly scaled down our Colombian output and have optimized our product mix of course, both Columbia and Portugal.
We're working to better reflect the green market opportunities with our production plan, which we believe will allow us to meet our annual revenue targets for 2022.
These factors contributed to the sequential and year over year increase in our all in cost per Gram. During Q2, So I will briefly discuss our production considerations in each country.
In Colombia, we significantly reduced our harvest output relative to a year ago quarter.
As a result, we harvested 1200 kilograms of dry flower in total across our production operations during Q2, which is a 90% reduction compared to 11464 kilograms harvested in the prior year period.
However, we have continued to incur cost related to processing their current inventory for our ongoing extra sales in our existing partnerships.
While we continue to drive efficiencies within the production process itself.
Leverage the advantages of the country's low labor cost in ADR conservation climate. These.
These changes were harvest out would have begun impacting our all in cost per gram.
We expect a reduced agricultural output levels to remain in place for the next few quarters as we work to right size, our inventory levels, which will place similar pressure on this metric in the short term, but benefit the efficiency for infrastructure moving forward.
Additionally, as we mentioned in April the Colombian government's passage of joined resolution 539 has completed a national regulatory framework needed to begin exporting dry flower and we expect our own dry flower exports to begin during Q4 of this year.
Within our harvest, we have begun shifting their harvest mix to include fewer CBD plants, and more THC plants, which reflects a broader mix trends and our current product portfolio as we plan to increase our THC flower exports overtime.
Our preparations for commencing flower exports require different and potentially higher cost approaches through the harvest and post harvest process compared to our previous extraction on the approach.
<unk> grown for flower expert purposes, we need to meet certain physical specifications. In addition to phe constant levels and will be subject to a different trimming Mets.
In Portugal, we are working to scale our operations as we quickly expand our flower portfolio.
We are not yet approved classic capacity after finishing our cultivation facility expansion last year, which increases our production cost per gram in the short term.
At the same time, we have been optimizing our production plant to ensure production of the right strengths for commercial purposes, while ensuring we continue with our ability to launch new strength into the market.
And base.
Yeah.
So we are still underway with the EU GMP certification process for our post harvest facility.
And the facility will not been fully use them to the license brothers is complete we are incurring costs related to the heightened product testing and analysis process I mentioned earlier as well as higher supplemental cost relative to what we need in Colombia.
While these factors across both of our production geographies have increased our cost in the short term the preparation on optimization initiatives. We're implementing today strengthen our positioning for green partnerships as well as for future market expansion opportunities.
We expect that these harvests dynamics will pressure unit economics in the short term, but they will also allow us to optimize the revenues we can generate from our harvest each of our production geographies over the longer term.
We can leverage the existing efficiencies of our extraction operations in Colombia, and the flower expert learnings gleaned from Portugal to prepare for forthcoming opportunities, including Colombia flower exports, while closely monitoring respective partnerships and regulatory catalysts and our global target markets.
In addition, we gained additional balance sheet flexibility after completing the full pay down of our debt obligations to Catalina LP and our remaining variable brands yet.
This improves our ability to support our growth initiatives and further optimize our operational foundation.
Hank will share more about this shortly but I am proud of the necessary work, we're doing to improve our organizational efficiency.
As we enter the second half of 2022, I believe that the strategic steps in investments. We are deploying today will benefit the business on our path towards becoming a supplier of choice within the global cannabis market.
Now I'd like to turn the call over to our CFO <unk>, who will discuss our second quarter financial performance in greater detail.
<unk>.
Thank you Andre our revenue in the second quarter of 2022 increased 27% to $4 7 million compared to $3 7 million in the year ago period.
This increase was driven by higher sales in both our cannabinoid and non cannabinoid segment.
Which grew 124% and 9% year over year, respectively.
Our cannabinoid revenue growth reflects continued strong performance across our target markets.
Clearly, Australia, Brazil, Germany and Israel.
As our existing commercial agreements further activate and ramp.
We will continue our momentum by seeking additional opportunities to deepen and expand our global partner base.
Our all in cost per Gram of dry flower in the second quarter 2022 was $2 26 per gram compared to 22 per gram of a year ago period.
As Andres just mentioned the increase on a per Gram basis was driven by a significantly reduced harvest of AR.
Approximately 90%.
In Colombia, our harvest in the quarter was reduced to zero kilograms.
While the harvest in Portugal increased 14% from the Zurich period.
During the quarter, we were able to significantly reduce the cost to produce in Colombia due to the reduced harvest.
But were offset by increased costs in Portugal, as the agricultural operation ramps at the new post harvest facility await final GMP certification expected later this year.
During the quarter the Colombian operation continued its extraction operations to consume previously harvested dry flower in the manufacturing of GMP extracts and isolate.
Over the coming quarters, we expect our total all in cost per Gram.
<unk> elevated through a combination of these dynamics.
I'd like to emphasize that these are all near term unit economic consideration.
As we right size, our harvest and pivot to harvesting flower in Colombia.
They're too.
Harvesting solely for extracts.
In Colombia, we expect to keep our harvest output reduce as we go through the gradual process of right sizing our inventory levels and optimizing our production operations for smokable dry flower exports.
We believe our costs will moderate to more advantageous levels as we ramp drive power production to meet partner demand and further optimize the production process.
From an extract perspective, we expect our costs to remain at similar or lower level.
What we achieved historically.
But we expect cloud products to comprise a greater share of our overall market portfolio.
Over the long term.
In Portugal, we expect our costs to remain higher as we drive towards greater cap that sit in utilization.
But expect unit cost to improve overtime as we process additional harvests.
Finalize our cultivation ramp.
Bring our post harvest facilities fully online once we complete the EU GMP licensing process, which.
Which we expect to do by the end of this year.
Our gross profit was $1 3 million, which included a $1 3 million inventory provision compared to one 8 million, which included a 0.6 million inventory provision in the year ago period.
As a reminder, we are now reporting an adjusted gross profit figure to adjust for our inventory provision that was previously classified in SG&A and is now classified within cost of goods sold.
That said, our adjusted gross profit, which excludes the inventory provision in the second quarter of 2022 increased 8% to $2 6 million compared to $2 4 million in the year ago period.
This reflects an adjusted gross margin of 55, 5% compared to 65, 4% in the year ago period.
The year over year gross profit growth on an adjusted basis was driven by our top line revenue growth during the quarter, partially offset by the higher inventory provision charge, we recorded for the quarter.
This inventory charge negatively impacted our gross margins for the quarter and it was primarily driven by inventory obsolescence and Portugal through.
Through a combination of product exploration timing and our continued work to refine our flower strains to strict specifications.
Wired by our target market.
In our nutraceutical business. We are also still impacted by wage pressure rising transportation cost.
And the availability of both labor and materials. We continue to believe that these factors will serve as headwinds for our margin performance and we are closely monitoring the impacts of these effects on our business and on broader labor and supply chain conditions.
Operating expenses in the second quarter of 2022 decreased to $9 5 million.
<unk> to $11 4 million in the year ago period.
Decrease was driven by a lower level of general and administrative expenses during the quarter, including lower share based compensation expense.
As Andres mentioned at the start of the call. We completed several restructuring initiatives to align our expense base more closely with our current revenue profile.
<unk> a global workforce reduction.
While these measures like this are never desirable.
The value of each one of our dedicated team members.
These actions are necessary to achieving the operational leverage we previously expected in our business.
We expect the reduction to generate cash savings of $2 million this year and $4 million in the years to come.
Net loss in the second quarter of 2022 improved significantly to $1 million.
Care to $9 million in the year ago period.
The decrease was primarily driven by a $6 $9 million gain on investments following our sale of a portion of our minority stake.
You can't put Teva as well as a $2 2 million decrease in stock based compensation.
The gain on investments related to the cancer cell.
Sale comprised a 2 million realized gain on the sale and a $4 9 million unrealized gain due to the remeasurement of our cans.
With Teva shares retained interest.
Adjusted EBITDA in the second quarter of 2022 was negative $6 3 million compared to negative $5 7 million in the year ago period.
The decrease was mainly due to increased cost of sales.
<unk> increased inventory provision and additional sales and marketing expenses.
At June 32022, our cash balance was $19 5 million compared to $37 7 million at December 31, 2012, we won.
The decrease was primarily attributable to our operating losses and paying down our two largest pieces of debt.
Offset by net proceeds raised from our aftermarket stock offering.
Which will significantly enhance our balance sheet for Q3 and beyond.
In April we repaid the remaining approximately $13 2 million balance of the aggregate amount outstanding under our secured convertible note with Catalina L. P.
This repayment satisfied all of our outstanding debt and obligations under the note purchase agreement and convertible note.
In May we also fully repaid our outstanding debt and obligations under our loan and security agreement between herbal brands and Rockwood capital of approximately five 6 million.
These repayments represented our outstanding debt related to our 2019 acquisition of herbal brands.
Through paying off our Catalina and herbal brands that we have significantly improved our leverage and balance sheet flexibility as we enter the second half of 2022.
These actions represent significant progress in our efforts to optimize our balance sheet and drive greater cash efficiency.
Throughout 2022, we will continue working to improve our liquidity position, reducing our expenses and investment in working capital.
During the second quarter of 2022, there was no sales activity, resulting from the aftermarket common stock offering program and.
And $26 6 million remained available at the end of the quarter.
Lastly, turning to our financial outlook, we continue to reiterate our full year 2022 financial guidance in which we expect our 2022 revenue to range between 20 and $25 million.
Within our growth with an adjusted gross margin between 50% and 55%.
As a reminder, our topline expectations reflect an expected year over year increase in our cannabinoid revenues.
As we activate additional commercial opportunities in our core markets.
We also anticipate our full year adjusted EBITDA to be within the range of negative $23 million negative $20 million with maintenance level of capital expenditures of between approximately 2 million to $3 million.
We have made progress advancing our strategic objectives throughout the first half of 2022, and we believe our focus on restructuring our cost and optimizing our cash efficiency has positioned us to continue to strengthen our foundation for long term growth and profitability.
This concludes my prepared remarks, and I'll now turn the call back over to Andreas should we view some of our more recent operational highlights and market opportunities in greater depth.
Andreas.
Thank you Henk.
Before opening the call to questions I'd like to briefly discuss the progress we've made in our focus markets sequent to the second quarter as well as summarize some will be ongoing and emerging regulatory catalysts within them.
As I mentioned earlier in the call. We made an important first step in our partnership with inter true through completing our first commercial export of high THC medical flower from our Portugal facility in July .
Our whopper strain was much by insecure in late July and we expect sales to be strong.
This initial high THC strain is just the first of several genetics, we expect to launch during the multiyear duration of the partnership.
In addition to the shipments of our own flower strains, we will cultivate can box preparatory genetics, and our Colombian and Portugal facilities for distribution of course, Israel and other countries.
Our partnership with <unk> has been a long time in the making and we look forward to making additional progress with insecure and deepening our overall market presence in Israel.
As of the end of July we have also launched our wealth, Australia with MTGE, a large take or pay Australian partner.
This launch also signifies swift progress with one of our newest partners in the country.
We look forward to further ramping more shipments on supplying the Australia market with high quality flower products.
In Germany, we have also built upon our momentum through expanding our partnership with <unk>, a European medical cannabis leader.
Under the expanded agreement, we are supplying <unk> with high THC, 24% plus dry flower product from a wall Street.
<unk> will then use our whopper flowers to produce a ton of number 10, which will have one of the highest THC levels available in German pharmacists.
This expanded partnership further increases the range of international high quality medical cannabis products available to the EU market under our kind of bread and.
And growing our product distribution with partners like <unk> as an important objective for our European operations.
I kind of number 10 is the second seventies product that is going to be available in Germany, and we are on track to introduce additional products under the Iqos brand over the coming months.
Beyond their expanding a kind of brands on our status as a licensed medical cannabis distributor our strong relationship with season that Pamela political operators on early distributors like etsy farming cancer fever.
Strengthened our position within the fast growing driven market.
Having multiple commercial path. We've seen this marked a key advantage among the country's ongoing regulatory tail winds with a draft due to legalize recreational Kennedy is expect to be published later this year.
While we are seeing closely attuned to the potential development or high quality pharmaceutical grade products and growing partner base have provided us with a solid foundation with Germany's current medical Mark.
As we continue to strengthen our position in the medical market, we remain attentive to the localization process for adults as we believe <unk> is well positioned to capitalize on this opportunity through our production facilities in Portugal in Colombia, as well as our established presence in Germany.
In Colombia as I mentioned earlier the passage of joined resolution 590 April completed the regulatory framework needed for graph our exports.
The resolution regulate spring trade related to cannabis and its derivatives, establishing the competent authorities needed to issue input are mixed with privilege for these products.
We're also closely monitoring the progress of the three bills to legalize recreational cannabis in the country and we look forward to further supporting these regulatory initiatives and strengthening our position for this expanded market potential.
Through the first half of 2022 diligent foundation, we've laid across our production and commercial operation has begun to activate.
As additional contracts ramp towards recurring shipments of new partnerships commence we are well positioned to execute on these opportunities as an even leaner and more efficient organization.
We will continue working diligently to further advance our existing countries. She can leverage additional commercial opportunities across our target markets and solidify our cost structure and liquidity position to support additional progress on our focused growth strategy.
As we progress further into 2020 to look forward to taking additional steps on our longer term vision as a multinational operator.
We will now open the call for Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will come from Pablo <unk> from Cantor Fitzgerald. Please go ahead.
Thank you.
I guess two questions. So just a reminder of the guidance when you say 20 to 25 million for the year, how much of that would be kind of annoys I mean, I see that the number dropped sequentially and this is important.
It will be lumpy. So just to remind that have died and related to that when you said in the call that you'd be able to export dry flower from Colombia in the fourth quarter. Just to reminder of where the market would be open to Colombian flowers, I mean, I assume no, Germany, yet, but just some color there. Thanks.
Hi, Pablo Thank you for the question and joining our call.
Yeah, our target within the guidance range for the non cannabinoid business is about $13 million for the year. So the balance would be the cannabinoid business.
And the question I'm getting from them.
Go on.
Andre would you like to address the target markets.
For the Caribbean.
Right at the tail end of the year.
Sure. Thank you Paolo Thank you very much.
Bank here.
Yes, we're preparing to Colombian flower to be shipped from a regulatory perspective. The pathways are open as we speak from the production standpoint in Colombia from receiving sampling to different countries. We believe the first country that we're going to be targeting include Germany, and Australia, and we're sorting through the final regulatory matters to be able.
To do that the good thing as we have said in the past as we have been working on getting our flower up to par with market standards in terms of THC levels. The Oregon elliptic size box size with Thaicom density color therapies et cetera, and where have done great strides there.
We're just as I said, we're finalizing all of the final regulatory and quality elements to be able to be shipping flower by at the end of the year, most probably to one of those two markets.
And just on that point on following up so when you say in the call that you had to cut its harvesting Columbia by about 90% I understand the financial logic of that but how does that how does that affect your ability to be Arabian right by the fourth quarter to meet those gentlemen standards I mean, I suppose you sort of cutting production of law that may create disruptions and.
Might even delay your efforts to be ready by the fourth quarter, maybe more quarterly or withheld.
Absolutely Paolo first of all we did cutter our harvesting Colombia has mentioned during the call. We basically have zero harvest during this quarter for flower and the reality is that if we compare it to the previous year.
<unk> CBD and THC flower for extraction. So we're not planting anymore of that flower basically what we are.
Managing our cash and managing our working capital as we don't need any more of the flowers.
That kind of flowers, we have inventory for extracts having said that what we have been focusing is putting plants on the ground basically on the one hand to do all of these R&D product development and second we do have plans on the ground of course to be able to meet our targets for exporting in in the fourth quarter. So the flowers will.
Be harvested in Q3 and Q4. So there is there are plants on the ground. So by no means do we see any threat to those targets.
Production standpoint, really the cut on planting and harvesting watched for.
It's mostly CBD.
Flower for extraction.
Okay. Thank you and just one last one.
So regarding the kind of 224%, but don't see that that sounds quite exciting.
I mean, my set of I used to always be anecdotal, but then the people. We've talked to you said does that over 20% potency product in the market about like 25% that are on or close to a range of almost nothing right. Now so that that you have I don't know traction I guess my question is not so much of other product but.
Maybe for your Hank.
You just said you saw this taking comes with Evo, but the balance sheet and I don't want to ask one accounting question, but you know the balance sheet shows because with your investment of <unk> $5 7 million. It was about 1.5 years this stuff for a year.
Don't know if it was revalued or do you invest for medium wanting comes with Eva and the reason I bring that up is to me at least what youre trying to the weekend to rush it sounds really exciting but shouldn't.
Should we be investing money in country, Russia as opposed to against with somebody in the balance sheet wrong here. Thanks.
Hi, Pablo Thanks for the question and I'm happy to clarify.
The company had an investment.
Steven it's filled that.
With that you've actually asked an accounting question, so im sorry, and I'll give you the answer.
When we sold a portion of our <unk> stake with that transaction, we gave up.
Our board on cancer Teva and.
And that reduced our influence of control so under the accounting rules, we had to account for our treatment of that investment differently. So thats, what youre seeing rolling through on the balance sheet, we did not make a further cash investment in the company.
Right. Okay. Okay. No. That's fine that's good and then I guess the very last one.
Hum.
As he said.
No.
The more people, we talked to in Germany.
Just sounds that G&A to be partnering with local folks to be ready for those licenses have been issued in the future if it will all.
We're going to be domestic production right. So I know, we don't know what's going to happen in Germany in terms of where the program is going to look like although there's a lot of people that seem that at least in the initial phase. It will all be domestic production I mean, well first of all do you agree with that view.
That's the case.
What's your game plan right because that would mean that you would not see from Portugal, Colombia, I know, it's a minority of that I'm, describing but I'm just trying to understand what would be the game plan.
Particularly if that were to happen.
Absolutely very good question. So the reality is remember in Germany, we have a an approach which has different dimensions to it number one we have cleverly was Germany, which you say holy licensed importer.
And distributor of product into Germany, So that means we even if we saw.
Sometimes use the <unk> pathway, we are having direct conversations with pharmacists and players.
Within the German market and we are we are a German player ourselves and we're selling directly not only our product we're actually working with other companies.
Them to help.
Pardon me, helping them to sell some other products. So we're building those relationships with the pharmacy on the different stakeholders in the German market. That's number one number two is we have been partnering with <unk> clients of ours, where at this stage are taking or different products being extra careful flowers and bringing them to the German market. So we have different ways.
Into and which we are reaching the German market as we speak.
In terms of the question regarding the new the scenario as you know and I've been very open in the past is it's not clear yet.
How the adult use recreational is going to be.
<unk> in Germany.
No.
Is it going to be internal production at first may be.
If it is it's really going to be constrained because I don't think thats scalable or that's going to scaling the short term.
Our view at least is that.
Having portugal within the European Union is going to be a big.
Advantage for us.
As we believe that.
Some of the <unk> restrictions regarding recreational cannabis.
Import and export it would not apply if we're within the European Union of course, that's our hypothesis in any case.
Assuming that it's only going to be local and the reality is that we are there. We're operating there isn't as an importer distributor. We are building a Brent right now which is called I cannot we're using our own product and product from third parties for that so we're trying to be flexible.
Not not let's say marrying ourselves with just one vision of what the future can be which is something we've seen from others, but rather having different paths to market being very well connected.
Working with different partners, so that when things get a little bit more clear in terms of the regulatory.
Terry pathway for recreational cannabis we are among the companies that are able to win.
Okay. Thank you.
Thanks, Rob.
And once again, if you have a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to Andreas <unk> for any closing remarks.
Thank you.
I'd like to take this opportunity to thank everyone that attended the call today, and we look forward to speaking with our investors and analysts when we reported third quarter results in November thanks, all very much.
And thank you Sir.
France has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Okay.
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Okay.