Q4 2022 Aurora Cannabis Inc Earnings Call
So.
Greetings. Welcome to the Aurora Cannabis Inc. fourth quarter 2022 results conference call.
At this time, all participants are in our listen only mode. The question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Anand Krishnan. We may begin.
Thank you, operator. We appreciate you all joining us this afternoon.
Today with me are Miguel Martin, CEO and Glenn Ibbett, CFO .
After the market closed, Aurora issued a news release announcing our Fiscal 2022 4th Quarter and full year financial results.
This news release, accompanying financial statements, and MD&A will be available on our IR website and can also be accessed via CDAR and EDGAR.
In addition, you will find the supplemental information deck on our IR website.
Listeners are reminded that certain matters discussed on today's conference call could constitute forward-looking statements that are subject to risks and uncertainties related to our future financial or business performance.
actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements.
These documents may similarly be accessed via CDAR and EDGAR.
Following the prepared remarks by Miguel and Glenn, we will conduct a question and answer session for our covering analysts.
We ask that you limit yourself to one question and then get back in the queue, please. With that, I will turn the call over to Miguel. Miguel, please go ahead.
Thank you, Anant. Before discussing the business more broadly, let me begin with a brief discussion of our latest acquisition. A controlling interest in Bevo, one of the largest suppliers of propagated vegetables and ornamental plants in North America.
This transaction, first and foremost, underscores a disciplined approach to capital allocation, and second is consistent with both our immediate needs and our vision of becoming a leader in global cannabis.
BEVA will be managed by its existing management team to have over 85 years of agricultural experience and have consistently demonstrated growth in revenue and earnings over the past decade. Collectively, they retain a substantial equity ownership position as they embark on a robust growth plan.
As part of the transaction, we have identified a profitable opportunity to repurpose the Aurora Sky facility for orchid cultivation and vegetable propagation with minimal capital investment. This will greatly increase Bevo's production capability and extend its shipping range in Canada and the United States. It will also enable us to generate incremental revenue and adjusted EVA debt while saving on previously announced wind down and selling costs.
The transaction is immediately accretive to Aurora, adding approximately $9 million of annual adjusted EBITDA, and importantly, is another tangible step towards our goal of adjusted EBITDA profitability on a run rate basis by December 31, 2022. We are pleased to have Bevo as our partner and expect our investment to drive significant shareholder value over the long run.
Beyond the acquisition, we feel very good about our position in the market.
Our optimism is based on the inherent strength of our global medical cannabis business, where we remain the number one Canadian LP.
Medical cannabis remains the best segment to invest in, as there's both defensive and stable interbrial times and commands amiable adjusted gross margins that consistently exceed 60%, two times that of consumer cannabis.
And while our Canadian medical cannabis business is steady, our international business revenues increased by over 70% this fiscal year, with notable progress in Germany, Poland, the UK, and Australia.
The second reason for our enthusiasm is we continue to excel at rationalizing the business to the current environment.
As you know, our annualized cost savings of $150 to $170 million will be completed within the next two quarters. And once complete, we'll materially reduce our cash needs and get us closer to even a break even.
Our balance sheet is also a key differentiator and has enabled us to repurchase $155 million in convertible debt during Q4, which will result in considerable savings on cash interest cars.
Additionally, we have approximately $370 million in cash as of yesterday, which makes Aurora one of only a handful of companies within the cannabis industry to have a net cash position.
Finally, we feel great about our investment in science, which is beginning to pay off. Specifically, our breeding program has delivered nine new proprietary cultivars through our product pipeline since June of 2021, delivered meaningful improvements to yields, and is expected to generate incremental high-margin revenue through license agreements for these genetic innovations to other licensed producers. In fact, I'm excited to announce that we signed our first agreement, which is the new
to license genetics to a major Canadian LP during Q4, and we expect more to follow. So let's take a deeper dive into our global medical cannabis business.
During Q4, international medical revenue was up 35% compared to last year, as our regulatory expertise, compliance protocols, testing, and science capabilities supported our leadership position.
While revenue contributions for individual countries can certainly ebb and flow as these new markets develop due to various factors including the timing of government approvals and the import permits.,
We believe our exposure to nearly a dozen countries outside of Canada affords us relative insulation as it relates to the economic climate and conditions in specific countries across Europe , Israel, and Australia.
In Poland, Rebel News nearly doubled year over year, and we maintained our number one market share position.
We continue to invest in marketing efforts there to support our planned launch of new flower and extract products.
In the UK, our revenues increased by 25% compared to Q4 last year. We believe we're the market leader in the flower segment.
The UK witnessed rapid growth in patient population over the last year, and we hope to see this continue as new clinics open up.
Turning to Germany, we received EUGMP certification for our state-of-the-art domestic medical cannabis production facility in May and made our first shipment to German pharmacies that same month.
Recall that we hold one of only three licenses in Germany, and our number two in medical flour with a 17% volume share.
Our market share is also growing steadily in the extract market thanks to new product innovation.
During Q4, we also launched three sizes of dronabinol, making our first step into that category.
While growth in patient numbers moderated during the year, Germany remains the largest market in the EU with 83 million citizens with only about 100,000 to 120,000 medical cannabis patients.
We are certainly well aware of some of the economic challenges that Germany is facing at the present time as it grapples with the war in Ukraine and the impact that is having on energy prices and inflation.
Still, we are hopeful that growth will pick back up this fiscal year, even against this backdrop, driven by doctor education and a simplified reimbursement process.
We expect to begin generating revenues in France in 2023, where we are currently the only supplier of dried flower in the pilot program.
Finally, in Australia, our Q4 revenue rose 700% year over year, driven by record number of patients.
Let me reiterate that we believe that cannabis growth story will center on international medical and recreational over the next several years.
Right now we believe there are about 150,000 patients in Europe alone. And if the countries that have so far legalized medical cannabis were to reach similar adoption levels to Canada, 1% of the adult population, we believe there are about 150,000 patients in Europe alone.
The Pearson pool could expand to 3.5 million people.
This fiscal year we expect a number of new medical markets to come online and several governments have announced plans for recreational schemes, most notably Germany, so it's a massive opportunity.
We believe our success in medical cannabis provides us with a significant first mover advantage, and our leadership will be portable to rec markets as they open up.
Turning to the Canadian medical market, our leading market share was over 24%, while insured patients comprised 81% of our domestic medical sales, up to 79% in Q3. Our net revenue per order and per participating patient have both significantly increased over the past year. Due to a shift towards higher value insured patients, our net revenue
while our direct-to-consumer approach continues to drive industry-leading margins.
Overall revenue was flat in Q4 compared to Q3, but we attribute our share gain to the best in class service we offer, along with new premium products and innovations.
We note that acquiring, retaining, and moving the patient through the process requires significant resources and experience.
and much of that same infrastructure and know-how with patients in Canada is directly applicable to our success in Europe .
Switching to Canadian adult rec, our Q4 revenue increased by $2.3 million as compared to the prior quarter. The increase was primarily due to our strength in product offerings in certain categories, along with seven weeks of results from Thrive.
Their premium consumer cannabis net revenue added about 1.4 million dollars
While the environment at Canadian Rec has seen prolonged macro challenges, we are beginning to see signs of stabilization, and we remain focused on maximizing profitability through low-cost production and by entering higher margin categories.
The market also continues to highlight the importance of innovation and the SKU lifecycle.
with a typical skew generating 80% of its lifetime value in the six months following launch.
13 SKUs were launched across our REC and medical channels in June alone, and we have a stacked pipeline that should serve us well over the coming quarters.
More broadly, we believe that our scientific leadership in cannabis breeding and genetics provides Aurora with a unique advantage that drives value in all tiers of the consumer and medical categories.
Our breeding program has delivered 90 proprietary cultivars to our product pipeline since June of 2021.
As well as bringing new products to consumers, they deliver meaningful improvements in yield, which will allow us to produce top quality flour at industry-leading margins.
For example, our new farm gas cultivar delivers nearly double the yield of our traditional staple cultivars and does so at an average of 26.5% THC.
And with that, I would now like to turn the call over to Gwen for our financial review. But let me quickly say that we've made incredible strategic progress during the year. We are on track with our transformation plan, and we feel very optimistic about the future of the business. We are excited about the changes in the Governor's initial plans to try and get Vinceiment clockwork
Thank you, Miguel. Good afternoon, everyone. Good afternoon.
We're proud to have one of the strongest balance sheets among Canadian LPs, and I am pleased that we strengthened it even further during Q4.
So at the same time that we've been executing our cost reduction plan, we also repurchased 155.3 million dollars in principal on our convertible note.
with a total cost of $149.2 million in cash, and that's including accrued interest.
As of yesterday, we had approximately $370 million Canadian of available cash, and we have $209 million US principal remaining on our convertible notes.
We believe that debt reduction, even though maturity is still more than a year out, is a smart and defensive capital allocation decision that reduces balance sheet risk.
especially important during turbulent markets.
With the debt reduction executed so far, saving us cash interest costs of $9.5 million annually.
We continue to have access to shelf perspectives with $713.7 million U.S. still available, including $186.2 million U.S. remaining under our ATM program, which we may utilize from time to time for strategic purposes.
Our cash flow continues to improve with $22.5 million used in operations and working capital in Q4 compared to $39.3 million in prior quarter.
Q4 includes restructuring severance payments of $6.8 million.
We are moving closer to our positive adjusted EBITDA target, as we reduced our loss by $8.9 million versus Q4 of last year.
If we compare to last quarter, 2-3, our adjusted EBITDA loss increased by about $1.5 million. And that's driven mostly by a change in the company's sales channel mix.
As Miguel mentioned, we also expected positive contribution from our controlling stake in Bevo, which delivered EBITDA of $9 million for the year ending June 30, 2022.
I should note that the devil business has a strong seasonal cadence with the period from January to June expected to deliver roughly two-thirds of the full annual revenue in EBITDA.
So overall, Aurora remains on track to achieve a positive adjusted EVA direct readiness. through early Season.
Q4 net cannabis revenue is $50.2 million. That's compared to $50.4 million last quarter.
2.4 revenue included a non-routine $1 million provision for returns from prior period. So excluding that prior period adjustment, revenue was $51.3 million.
Medical cannabis fell modestly while consumer cannabis rose through mostly the contribution from a thrive acquisition.
So let me now address each of our core businesses in a bit more detail.
Canadian medical revenue was $24.9 million in Q4, $118,000 from Q3, and reflecting the stability of this business.
Our focus and traction with the insured patient population is certainly beneficial to us.
that provides greater consistency to the segment in any economic environment.
While the higher margin nature of this business compared to the consumer cannabis business contributes substantially more to our bottom line.
Our international medical revenue is $11.6 billion and that reflected 35% growth versus the same quarter a year ago.
But a 20% decrease sequentially.
The increase compared to Q4 last year was due to our strong presence in key international growth markets including Australia, Poland and the UK.
The decrease relative to last quarter resulted from a temporary situation of limited supply of high demand cultivars in Europe , coupled with a weakened euro. We expect these supply issues to continue through T1, but to improve in the following quarters.
Taken together, our leading Canadian and global medical businesses performed well, generating $36.6 million in sales and adjusted gross margins of 62 percent, down only slightly from 64 percent in the prior quarter.
Medical represents about 73% of our Q4 revenue.
And about 86% of our adjusted gross profit.
This segment best distinguishes us from our competitors and is critical.
the Aurora's path to deliver positive adjusted D
Our Q4 consumer revenue was $12.6 million, a $2.3 million increase compared to last quarter.
Consumer cannabis represented about 27% of our Q4 revenue and about 14% of our adjusted growth process. We advocate that all consumers beaments and automated freedom and agility by creating
The revenue increase was due mainly to $1.4 million from the addition of Fry's Consumer Business starting May 6.
and the relative stabilization of our Canadian consumer business.
Now that being said, we do expect some short-term disruptions to Q1 consumer cannabis revenue due to the cyber attack on the Ontario Cannabis Store distribution system.
and a significant labor strike at BC's liquor and cannabis distribution centers.
Is our revenue exposure from these events being as much as $3 million in Q1?
We do not expect this to impact our timelines to profitability. As I just mentioned, our medical business is responsible for about 86% of our adjusted gross profit.
SG&A, which includes R&D, came in at $49.3 million in 2014.
However, this included $6.7 million in restructuring costs and $2.3 million in prior period of employee related accrual. This restructuring related to the significant staffing reductions we took in June 2022 as part of our business and cost transformation plan. So excluding these costs, Q4S GNA is $39.1 million.
And this is our lowest level of estuarine anole in four years.
Ultimately, we expect to drive SNA for the existing cannabis business to below $30 million.
with a meaningful reduction expected into one, and the full savings being realized by December 2022.
So pulling all of this together, we generated and adjusted the loss in Q4 2022 of $12.9 million compared to $11.4 million in previous quarter.
It's driven mostly by a change in the company sales mix, so more consumer revenue in sales in Q4, which yielded lower average net selling prices.
Looking forward into Q1, fiscal 2023, we do expect to see an improvement to adjust to keep it up.
But that will be driven primarily by a reduction in SG&I to under $35 million in Q1.
I would like to reiterate our commitment to annualized cost savings of 150 to 170Million dollars.
These savings are evenly split between cost of goods sold and FQ&A where you are seeing them reflected in our P&L, either as they occur for the FQ&A savings or as inventory is drawn down for production related savings.
With the decisions we have taken, we are working toward a leaner, more agile operating model that is expected to provide strong EBITDA leverage as future revenues increase.
During Q4, we also recognized non-cash impairment charges of $505.1 million.
This is relating to goodwill, tangible assets, and other tangible assets.
The impairment represents the full remaining goodwill balance associated with Aurora Cannabis operations. Finally, Aurora484 can finally Sl Mary's new auto vital for Prairie Hills.
and the impairment was partially due to changes in cannabis market conditions, but most importantly, the changes in the current capital market environment, including higher rates of borrowing and lower foreign exchange rates.
And finally, just a minor housekeeping item. Our upcoming fiscal year 2023 will only have three quarters. We are changing our fiscal year end to March 31st and that's in order to achieve certain internal costs and staffing efficiencies.
To conclude, there are three key points from my financial review that I would like to reiterate.
First, our balance sheet is stronger than ever. It's supported by a healthy cash balance, reduced convertible debt level, and improving working capital and cash flow.
Second, our medical businesses in Canada and globally provide us with a competitive advantage and are critical to us generating sustainable profitability.
And finally, we've taken the actions to meet our targeted range for cross-seddings by December 2022. We've taken the actions to meet our targeted range by December 2022.
These will have a materially positive impact on our bottom line and reflect a leaner operating model at positions as well for future purposes.
Thanks for your interest in Aurora, and I'll now turn the call back to Miguel.
Thanks, Glenn. Here are four brief takeaways before we take your questions.
One, we're better positioned than ever to achieve our goal of a positive adjusted even a run rate as we exit the quarter and in December of 2022. And we have listed out several data points that support that here today.
Two, our medical cannabis business is a formidable force in the industry, both domestically and internationally.
It remains the smartest cannabis segments are best behind today, given the long term growth opportunities, the high margins, and the defensive nature of the segment described earlier.
Three, the Canadian rec market is in the process of correcting. As the recovery is complete, we will have added opportunity for market share and pricing.
Four, our science and innovation program represents another high margin opportunity that's just started.
To conclude, we are making significant strategic progress with each passing quarter, we are nearing the completion of our business transformation plan, and have done so while strengthening our balance sheet.
In addition, we've made two acquisitions in the past few months, Thrive and then Bevo, which underscores our ability to grow organically and through M&A, and we feel confident that we can create significant.
long-term shareholder value, particularly at news levels.
We appreciate your time and interest in Aurora and now I'll be happy to take your questions.
Operator, please open the lines for questions.
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One moment please while we pull through a question.
And our first question comes from the line of Vivian Ager with Cowen.
Please proceed with your questioning.
Hi, good evening.
Evening, Dad.
So I just wanted to dig into some of the revenue versus volume dynamics that you guys experienced in the quarter. Maybe it's as simple as FX headwinds, which we're very familiar with, covering large-cap staples, but usually your revenues and volumes at least directionally move in tandem, and it seems like there was a bit of a divergence there. So I'm wondering if there's any geographic mix or other price mix considerations to call out, please. Thank you.
You have a client.
I think what we saw was a bit of a mix change between consumer and medical. Our European medical did take a step down in the corridor, particularly in Germany, as there's a cultivar that we're producing that ran into a few production problems. They are correctable. They're in protest being corrected. But what we then saw, if you're looking at our average pricing or something, is that consumer, particularly with the addition of fries and stuff, is...
you know, a greater impact from the consumer pricing than we normally see in the mix. So that might be what you're looking at. But other than that, I think it was just kind of business as usual in terms of volume. So you get that impact from, you know, more volume going through on the consumer business and the lower average pricing.
Okay, thank you.
Our next question comes from the line of Michael Avery with Piper Sandler. Please proceed with your question.
Thank you. Thank you.
Thank you. Good evening.
Kneeling, Michael.
I just wanted to understand some of your thinking on the portfolio strategy a little bit more. The greenhouse synergies with Vivo make sense and take advantage of just your particular situation and obviously help add some EBITDA.
Are there any other agencies you'd be considering or that are on your radar or you know, like it's just one part of it and maybe related is just also as you think about the the EBITDA target is Any more expected to come from M&A?
Yeah, I mean, so let me try to unpack that a little bit. I think as it pertains to M&A, you know, our center of the plate or where we sort of live is, you know, medical cannabis, global medical cannabis. And so for that reason, certain things that, you know, have been of interest to others are probably not as much of interest to us. Secondly, you know, our position on the US, I think is one that's been validated. It's going to take longer.
I'm of the strong belief that it's going to be, if it's federal, it's going to be a medical construct with the FDA involved. And clearly given our dominance internationally on medical cannabis, we're going to have a lot of options there. So if you take the US out of the mix and you take maybe some other things out of the mix, you find certain things that maybe are more attractive to us than others. We liked Thrive and we talked about that because of the management team and the ability to really support what I think is important synergies between rec and medical.
Bevo, we think, is just an absolute diamond in the rough, but incredible propagator of science, has a really clever use of tax benefits as it pertains to sky, and has a big upside of growth for what we thought was a fair value both for us and for their shareholders. So I think, Michael, we'll continue to look at things like that. We've been terribly patient. Glenn was pretty eloquent about the balance sheet. Most importantly, that we have a really strong balance sheet.
around patients and science, which is something we've made a lot of investments in there now we're just starting to pay dividends. So steady as we go, I think we're in pretty good shape. In terms of the, you know, the EBITDA part.
You know the reality is you know if we can hold revenues and margins flat from the current level and we can get SGA under 30 you know you get there, and so you know we expect to reach that reach that type of SG&A By Q2 and we've shown a lot of progress And I think while some you know may have other questions when we've said we're going to do something around efficiencies We've done it and you know that SG&A would clearly be consistent with that
Okay, really helpful. Thank you. Thank you, Michael.
Our next question comes from the line of Pablo Zwanyk with Cantra Fitzgerald. Please proceed with your question.
Thank you, good afternoon. Miguel, you know, I'm looking at a press release at TILRE issue on September 6, and it says that TILRE initiates roundtable with German regulators to kick off draft legislation to legalize all these cannabis in Germany.
I'm wondering, when I saw a press release, I said, well, I suppose that Aurora will soon issue a similar press release.
So, I guess the question, the very basic question is, can you tell us or give some color about your lobbying capabilities, your people on the ground, your potential seat at the table in helping draft the German program? Because again, I was surprised, still reissue a press release and we didn't hear from you. And if I may add, you know, part B to the question, where do you guys stand today in terms of whether Germany will allow imports or it's going to be initially mostly just domestic production? Thank you.
You got it. So the first thing is I'm not here to comment on anybody. I have tremendous respect for my competitors and, you know, and, and what they do is what they do. But so I really have to comment on that. In terms of the German market, you know, we've made a significant investment in Germany. We have what we think might be one of the leading government relations, government affairs executives in Germany. He is, you know, having good conversations with the regulators.
I've spent my whole career working on things like this in both tobacco and alcohol, and they're never a straight line. As it pertains to Germany, there's two things going on, as you well know, and you've written a lot about...
is both enhancements to the medical business, which we're very excited about as one of the leaders in medical cannabis in Germany, and secondly is the legalization of the rec business. So my understanding and our understanding is that industries, you know, what industry needs in order for that to be successful is being considered. The German government is, they almost always are, being very thoughtful about the stakeholders and the timing in which, you know, this can be done in a compliant way.
I would expect their learnings from medical will color how they so go about, you know, the implementation of a rec business, which is why we think those companies that, you know, have facilities.
With the medical business, we'll have the advantages in rec. And as we said earlier, one of only three companies would have a license to produce in growing.
Now specific to your question about in country, you know, the, I think the going in position, I think for most folks should be that because of the, you know, the UN conventions and just because of the way the regs are going to work.
For REC is that you know the you know most obvious path for REC would be in-country manufacturing.
Now, clearly, whether the number is 200 tons or 300 tons or 400 tons in order to service that rec market, that is significantly more capacity than the three of us have.
But clearly that would be an opportunity there. We've also would say that while REC most likely would be an in-country production exercise, medical continues to be allowed with an EU GMP certification to have products brought into Germany. We do that successfully today from both our Nordic facility as well as our Canadian facilities. And we think it's one of our core companies. So more to follow in Germany. I understand the interest in it.
You know, I think what I would tell people is it's going to move thoughtfully. It might not always be a straight line.
But we've had tremendous respect for the regulators there in what we've seen from the medical business. And I think my expectation is that it will be a robust rec business. I just can't predict when, but at the time it will be compliant companies, experienced companies and thoughtful companies will have an advantage in Germany. And then clearly, if Germany implements this, that will be a beacon for other key markets around the world in terms of how you can.
go for medical cannabis and recreational cannabis. Understood. Thank you. You got it.
Our next question comes from the line of Andrew Carter with CECL. Please proceed with your question. Thank you for your question.
Hey, thank you. Focusing on the Bevo business, which we certainly have experience with covering Site 1, number one, do you see this platform to go deeper in this, given that this is a very fragmented space, and you now have a team to run that? And then the second, you have the decision to repurpose Sky versus selling it, which that's an opportunity cost that, if you will, kind of adds to the cost acquisition. What kind of timeline are you giving the Bevo team to get this up to speed, achieve a return, because it can help increase the cost in a number of Goodbye
versus if it didn't go well, kind of returning to that original selling the facility and also getting rid of all of the costs associated with it. Thanks.
You got it, Andrew. So first on Bevo, Bevo is a tremendous business. And you guys did cover it and so did others. I think it is a fallacy to say that Bevo didn't work in that previous construct when it was connected to another cannabis company. Bevo did work, it's just that combination did not work. We are not combining Bevo with Aurora from cannabis assets and non-cannabis assets. So there's that.
Secondly, you know, Bevo is a tremendous business. They have significant big box contracts, both in Canada and the US. And there is a lot of opportunity right now in North America for them to expand that business, both in Canada and the US, because of shipping costs and many of the items that they produce are produced offshore in Asia and Southeast Asia. And so they have tremendous opportunities there and we're excited about that, particularly since it can be done in a very capital-light manner. It's not gonna, you know,
this, but the combination of the tax benefit, the repurposing, the changes in the tax designation, and the upside that it presents very quickly for Bevo was a way better deal than being caught up with everybody else trying to sell cannabis assets. And at the end of the day, if they can't get there, we can always sell it in that key Edmonton market. But the beauty, you know, if there is such a thing of all the money that's been spent on skies, there's not a lot of capex or opex required by Bevo.
order to generate revenue. So you know as Gwen mentioned the Bevo business is a bit seasonal, it contributes more in our Q2 Q3 than it does in Q1. But to answer your question I think we'll know in the you know say next 9 to 12 months exactly what Skye means for Bevo and you know if it doesn't work out we still have that optionality but the offset of all the things I've mentioned make that play significantly a better advantage for Aurora than you know just selling it.
call. Y'all discussed plans to launch extracts in the UK in 4Q and also some top market share positions in the other key markets like Australia, Germany, Poland. So any detail on where sales came from in 4Q and where there might have been some weakness relative to 3Q. And if I could just sneak in maybe more broadly how you would characterize growth ahead in fiscal 23. Thank you.
Sure, let me take a top line comment about international and some of those key markets and then let Glenn get into some of the details about it. So you know, as we said in our prepared remarks, it is really important to be operating in, you know, a lot of countries.
And you got operate in the right countries. And so the reason for that is these sales are still a bit lumpy We've all seen that in what's happened with Israel But whether it's import permits or shipments or the regs sort of evolving you get these sort of months where you know How these sales into these months you don't? secondly a lot of these Investments can play out and really generate incremental margins and revenue
If they're laid over a broader system So the same production system the same cultivars the same genetics the same a lot of things are Similar to what we do in Germany Czech Republic Poland on and on and on now You got to have different distribution models to take advantage of those different pieces and we've done that and so in most markets We're just the manufacturer but in other markets we have a sales force and a wholesale piece the Western European or the International market as a whole
is absolutely growing and clearly is the fastest growing segment of global Canada's which is this medical piece and I will say that the regs are quite similar whether that's packaging stability testing manufacturing EU GMP there has been this sort of consistency and evolution that advantages a company like us now in terms of the actual specifics on the country breakouts when I'll turn it over to you
Yes, thanks. So, I mean, we keep calling out the same countries as kind of the dominant ones for us in our network, and that's Germany, Poland, the UK, and Australia. But to Miguel's point, they definitely are lumpy. Like Australia, for instance, in QSAR was up 75% from the previous quarter. But then as they look at Q1, it'll come down again, and Q2 looks good again. So it's very, we call it lumpy or something. That's why it's really important to have that portfolio because for the most part, our international businesses.
is fairly predictable, but country by country, you know, as they develop and, you know, as they find, you know, where those barriers are that need to be knocked down, patient access, things like that. And that was definitely the story in Australia a year or two back when they had to improve patient accessibility and then the market seems to be really kind of taking off. In terms of our extract in Germany, we did launch in Q4 late Q4, so we don't see much in terms of revenue in Germany in Q4.
But it is an important part of the competitive landscape there. So we are in that market now and we'll report more as we go forward on how that piece of our business is going. So again, Germany, Australia, UK, Poland being the predominant international medical markets for us right now. But I'd say there's probably at least four or five others that are contributing revenue in Q4. Got it. Thanks, Glenn. Thanks, Miguel. Appreciate it. I'll pass it on. Thank you.
Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Can you proceed with your question?
Good evening, everyone. Thanks for taking these questions. Just two questions for me on the revenue side of things. First, just on the consumer sales in Canada, there's a bit of a divergence that I think was noted with respect to Aurora sales relative to the macro level data on some of these point of sales subscription services we all look like. So, Glenn, you had mentioned some of the headwinds related to maybe the OCS website or some others. So I'm just wondering if you can give us a little more color on that. And the second question on revenue is just related to your international sales, is the current 11 to 12 million that you did in the past year.
in terms of sales. And so it underweights what we're doing. I think generally the rec business overall for an LP is generally challenging. It was referenced before what happened with the hack, unfortunately in the OCS, that caused about two weeks of disruption. They did an unbelievable job to get back up and running. We also saw the strikeout in BC that had a pretty significant effect for a long period of time. That's been cleaned up as well. I think the combination of that and retail stores.
feeling a lot of pressure plus compressed margins, overall means you really have to be sort of focused in where we went and the Thrive team's done a tremendous job and you can still, there's still places you can find to make money, premium flour obviously, but vapes, concentrates and some of the other things that they're particularly good at. So I think we're gonna be in this wash a little bit longer in terms of what the macro sort of issues are with REC but when it comes out, there is tremendous amount of efficiencies for someone that does.
as well as we do in medical and rec to have some of those items, particularly as patients are starting to look for more premium items and clinicians are starting to be more open to variety. So, Glenn, you want to pick up the rest of it? Yeah. Thanks very much, Miguel. Yeah, so certainly consumer revenue at the current levels would be more than adequate to get us to our profitability goal. We're certainly picking up the message that most of our gross profit is being generated over a hundred percent.
out of our medical businesses. So 86% in Q4 and that was a quarter where our international medical had a little bit of a pause. So normal, the quarter before say Q3, was 90% of our gross profits were coming out of our medical system. So absolutely as we see growth picking up again in Europe and Australia over the next number of quarters, the Canadian business objective is to stabilize it, you know, get it on good footing and give it a launch pad for growth in the future.
Yeah, on the international side, we're seeing some increased competition in some markets, namely Israel, several other LPs and international companies exporting to different markets. So can you talk about how you see that competition coming? Are you seeing any margin pressure in international? And what sort of advantages do you have to compete in your main markets like Germany and Poland? Thank you.
Sure. So, you know, listen, I've spent a lot of time in Israel and Israel is obviously a key market for a lot of folks. The challenges we've talked about in Israel is they have a significant amount of local production. And clearly that has advantages. So the import permits and the process and the certification of Israel is sort of an evolving one. What we've said about that is that we're not going to give any forward looking guidance on Israel. But when we have a shipment.
We always let people know because of the size of it. I'm not, you know, we haven't had a shipment in a bit on Israel. I don't think that's a forever situation. But, you know, right now it's not as big a focus because, and to your point, there has been a little bit of margin compression. A lot of people are fighting for that, including the local growers that have a lot of advantages. And I've got tremendous respect for that. Overall, internationally, because of the medical setup, we haven't seen the type of margin compression that we've seen.
you know, in the Canadian rec business or in the US overall. And these are really hard markets to get into. You know, Germany, which everybody talks about, is about a six or 12 month process and already even qualify a cultivar. The variance on the potency can only be 10% in their lab, which is a very difficult standard to get to. There's a significant amount of other work that you have to do around stability testing and whatnot. The other piece of this...
you know, is the fact that patients are quite sticky. Once they find something they like.
Whether it's ours or a competitive product, unlike REC, where you see massive share movements between top SKUs, you don't see that in the medical business. There's clearly first mover advantage, there's clearly a consistency advantage to those companies that can keep stuff in stock and are rolled out of the medical market. International cannabis, in most markets you're seeing maybe four companies, possibly five companies making up the lion's share of sales.
As we've all talked about in Canadian Rec as an example of top five companies do less than a third of the overall business. So I think your national business has proven to be sticky.
And as you go forward.
With the advent of things such as clinical research, partnership with clinicians, these systems getting bigger, I think you're gonna still see in most markets, particularly big markets like Germany, that three or four companies will do the lion's share of the business for a long time, and we expect Aurora to be one of them.
Thank you, Miguel. You're very welcome.
Our next question comes from the line of John Imparo with EIDC. Please proceed with your question. Please proceed with your question.
Thanks. Good evening. I wanted to get back to Bevo. And if we think about the evolution of Aurora over time, it used to be a pretty broad, expansive business with multiple segments. It then narrowed down to be purely cannabis and Bevo is certainly outside the core strategy of what the company was. But what I'm wondering is, should we view this as Bevo was trying to optimize the decision with Sky? Or do you want to further diversify the business away from pure cannabis at this point?
pinnings that we think will be an advantage to that pursuit of global leadership in medical cannabis. Bevo was really interesting to us for a couple of reasons. One is about Sky. And so the tax option there, the use of Sky, the ability for it to very quickly, without CapEx produce a significant amount of predictable, profitable revenue was important to us.
Secondly, you know, there are synergies and efficiencies. We haven't gotten into them yet, and we're not going to do it in a disruptive way. The propagation has always been.
You know this sort of interesting play in cannabis and while it's done in the US. It's not really done You know in Canada and so the excellence of 80 plus years around propagation Science there will be things that will come out of the bevo system or the Aurora system That will be additive and as we look at agriculture as a general sort of play and things around it We do see it's additive. I don't you know
the concept of adjacency, I do believe in staying close to the core. But if there are things that are profitable, is a good value for our shareholders, and is additive both financially and thematically, particularly from a science standpoint to our overall, you know, mission, I think we're going to be interested in that. And, you know, I'm pretty proud of this deal, for a lot of different reasons, but you know, proofs in the pudding, and I don't want to get over my skis too much on it.
But this is a really great team, a really good use of assets, CapEx Lite, and produces a lot of strength for us. So we'll see. That's helpful. Thank you. You're very welcome.
And our last question comes from the line of Amy Chen with BMO Capital Markets. Please proceed with your question.
Hi, thanks for squeezing me in. My question is on the science side, particularly the licensing of genetics. Miguel, I was just curious, this particular aspect of the science business, how do you see that fit within the overall Aurora business? Is this an area that you're very focused on, you do want to expand? What's the opportunity size that you see? And I guess the last part of the question I have is, whatever genetics that do come out of your R&D and innovation?
in the world. And so as it pertains to that, there are significant advantages not just around variety and uniqueness of the cultivars, say chasing potency and terp levels. Plant health, I reference yield. Farm gas is twice 2x the yield per square meter than some of our historical cultivars. That totally changes footprint and all types of different things that are going on.
There's incredible work being done on things like Power D Mill do. And so what I've seen is that when you look at other agricultural categories, there are companies that are not branded, that are not participating from a manufacturing standpoint of selling their items, but their genetics, their science, and they are participating in those markets and we're all familiar with them. No one's really doing that today, um, you know, on a global scale. And we think there's a space there. I also don't view it as a con as a conflict.
We have about a three share in the rec business. We have a 24 share in the Canadian medical business. And we have enough assets in order to serve our pipeline.
both domestically and internationally, as well as sell that. And some of these licensing deals are very innovative and to be honest are not overly creative and you see them in other categories such as soybean and vegetables and tomatoes and other things that we're around because of some of our partnerships.
And so like I said, we're excited about this the last part of this while there are some LPS doing this There is a huge gap
from particularly Canadian LPs in accessing, you know, world-class genetics. They just haven't done the work and it's not something you can snap your fingers and start up. This is a five or ten year process in breeding and genetics and in training in order to be there. And so we're excited about what it means for us and you see some of those some of that stuff in the market. We're also excited about what it means, you know, from for being able to sell it and generating revenue streams because the reality is we're not.
sort of science innovations.
Okay, thank you. You're very welcome. I appreciate the question. Thank you. Okay. Thank you. Thank you. Thank you. Okay.
We have reached the end of the question and answer session. I'll turn the call back over.
And I'll turn the call back over to Martin. Before closing the mic.
Well, listen, I appreciate everybody's interest. You know, our plan is absolutely on track. And I understand, you know, as I mentioned with the regulations that the progression of a successful canvas company is not a straight line. But in terms of the cost efficiencies we've done and will do what we've said, we've focused on those areas of the business that is profitable. And we do see an upside. And as these markets continue to come online.
It's been medical first and then rec and we think Aurora's in a great position. So we appreciate your support. We appreciate your interest and We look forward to sharing our progress as we move forward best all and your families Wish you all but the best and we'll go from there. Thanks everybody
And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. The bulk of today's conference telerometry is Before Midnight, Judge Mark San spheres refreshments casting Old Absolute Well If Still Here I Arche Zepp If You're Here Come to Wolf It's-