Q1 2023 Tilray Brands Inc Earnings Call
Yeah.
Good morning, everyone. Thank you for joining us to discuss jewelry brands Inc.
Actual results for the fiscal year 2023 first quarter ended August 31st 2022, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session for analysts and investment firms conducted via audio and participating retail shareholders conducted.
Through the Sei technologies platform.
Question to Michigan and uploading through the stage technologies platform has already been concluded and the company will read aloud and answered the top questions. Ms. Gerardo you may now begin the conference.
Thank you and good morning by now everyone should have access to the earnings release, which is available on the investors section of the TRA brands website until right Dot Com and has been filed with the SEC and SEDAR on today's call. Please note that we will be referring to various non-GAAP financial measures, which can provide you.
School information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.
Today's earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP.
In addition, we will be making numerous forward looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect actual results could differ materially from those described in these forward.
Looking statements the text in our earnings press release issued today includes many of the risks and uncertainties associated with such forward looking statements.
Today, you will hear from key members of our senior leadership team Irwin, Simon Chairman and Chief Executive Officer, Tilbury Brands, Inc. Denise faulty check Chief strategy Officer, and head of our international business, who will update us on global market developments, including the increasingly.
Sanguine outlook of legalization across Europe .
Mcneill President of our Canadian business, who will update us on the focused impactful investments, we are making to grow our leadership position in the Canadian market and Carl Merton Chief Financial Officer, who will provide a financial review, including details on our strong balance sheet.
And now I'd like to turn the call over to Terry brands, Chairman and CEO Irwin Simon.
Thank you Barry and Hello, everyone and good morning. Thank you all for joining this morning for our fiscal year 2023 first quarter results. Our first quarter results reflect early tangible returns are what we discussed at length during our fiscal 2020 to report, namely realigning the business.
It's around three priorities pursuing our most profitable core business across Canada, Europe , and the U S optimizing our global operations, while taking out over $100 million.
Cash cost savings and strengthening our industry, leading balance sheet that affords us to seek opportunities for growth and expansion.
Mid market challenges.
These are differentiation foundation steps for profitable and sustainable growth for our worldwide cannabis CPG platform across medical adult use wellness in beverage alcohol, while we certainly made great strides through the 2022 fiscal year, including growing distribution across our core.
Businesses in Canada, the U S and internationally, our Q1 2023 results validates the approach and our overall execution.
Our success is most evident in our significant work and reducing operational costs and strengthening our balance sheet, which has been our focus given the challenging macro environment, we know that an efficient and agile foundation will pay incredible as the cannabis industry matures.
It's instructive to think about our efforts in these categories, all which complement and build upon the other the first and most impactful are the cost synergies from the <unk> business combination as announced during our fiscal year 2022, we've revised target of 100 million.
And annualized cash cost synergies and through Q1, we realized $95 million in cash cost of that $100 million goal. The remaining $5 million will be delivered by the end of fiscal 2023.
Important to contextualize this achievement $95 million and achieve cash cost synergies represents approximately 14% of the combined pro forma revenue up $682 million.
At the time of our Korea until re transaction.
With these specific synergies I want to spotlight, the G&A costs, which fell by nearly $9 million in Q1 compared to last year highlights here include large savings on office and general expenses. Our work is far from done in this respect and we continue to target specific line items.
And our G&A that can improve margin and maximize efficient operations.
Alongside the afraid until Ray synergies, we launched an additional $30 million of cost optimization plan for our existing cannabis business in Q4 of last year and to further solidify our status as the industry, leading low cost producer.
This involves identifying opportunities to leverage technology supply chain procurement and packaging efficiencies, while driving operational efficiencies and significant savings.
As of the end of the first quarter, we've achieved $13 million in savings on an annualized run rate basis related to this next level of cost reduction plan.
When complete these aggressive yet purposeful measures will have removed approximately $130 million and costs with.
Our compromising our ability to deliver growth and capture opportunities.
Second till Ray <unk> strategic Alliance that closed in July is expected to deliver $40 million total rate, including $31 million in revenue and $9 million in interest over the fiscal year.
And finally with the strength of our balance sheet with approximately $500 million in cash $638 million in working capital and over 70% of our debt set with fixed interest rates tail Ray brands is now in the best position to capture leading market share.
Across the global cannabis industry, where opportunity abounds.
The totality of this work is that we anticipate delivering significant growth in our adjusted EBITDA to between $70 million to $80 million in fiscal 2023, which at the high end of the range what amount of 67% growth compared to fiscal 2022 and as previously stated.
We also forecast generating positive free cash flow across all our operating segments. This year.
Our cost structure initiatives and the strength of our balance sheet provides our key differentiators to be sure, but the promise and potential of til rate brands is also predicated on top line opportunities and the specific purpose of our strategic plan, which we set in place in fiscal 2020.
Two.
This involves seizing the opportunities across both geographies and business lines, specifically in Europe , where our recently just spent some time with the team in Portugal, and Germany are.
<unk> is based upon an unrivaled platform smart disciplined and strategic planning and execution and Pan European momentum towards adult use legalization the European market, which is estimated to be worth as much as $37 billion by 2027 has already.
<unk>, our medical cannabis business and is nearing broad scale adult use legalization.
Germany in particular is taking concrete steps towards adult use legalization with.
With German law makers from the country recently towards Canada, and California cannabis businesses to hear from provincial leaders state officials experts and advocates about lessons learned from cannabis legalization with two EU GMP certified operations physician ideally in Portugal and Germany.
<unk> is positioned for significant advantages as legalization spreads.
In Canada with difficult trading conditions in a high tax environment and putting pressures on many licensed producer.
<unk> is uniquely positioned to thrive as the industry consolidates and in the U S. We've set the stage and the footprint for a broad set of cannabis focus CPG and craft beverage brands and additional revenue and adult use cannabis pending federal legalization.
While it seems elusive we continue to see signs of progress just this week of course president of by the city with part of the federal offenders for simple cannabis possession and asked for a review on Marijuanas current status as a schedule one controlled substance under U S law.
It is important to recognize these initiatives for what they are relatively modest but any sign of progress is important at this time in.
In the current environment, if legalization was to occur. We believe we are best positioned given our strong balance sheet, our cultivation knowhow, our CPG experience, our global footprint and our existing investment in <unk>.
On that note the biggest component of our craft beverage business Sweetwater is available in 42 states across the U S, including most recently in California, which is the number one beer market in the U S. But.
Brand also operates a 32000 square foot production facility and tap room in Fort Collins, Colorado, and tap room at the Denver International Airport stop by on your way through Denver.
Sweetwater is west coast presence and brand awareness remains in nascent stages, but we are confident that our work with the nation's largest beer distributor radius will yield tangible results.
There are network marketing acumen and deep relationships throughout the region will ensure broad availability at restaurants bars supermarket chains liquor stores and other retail outlets.
On a go forward plan for Sweetwater. It includes launching innovative products, new spirit bases ready to drink beverages.
Spanning our presence in Canada, and other international markets, improving product utilization and evaluating strategic acquisitions in the meantime, we're also pleased with what we're seeing with our iconic west coast brands Green Flash and Alpine which have also added a broad new distribution across the.
The us ahead.
Ahead of football season, Breckenridge distillery, which is one of the most highly awarded craft Bourbons and the US launch two new limited editions.
While high Bourbon brands as the official burden of the Denver Broncos.
These blends pay homage to the Broncos My Ohio era and include the team's classic 1962 logo on their label. This collaboration is now in its second year and is one that Bourbon consumers Love last month, we announced a renewed and expanded distribution agreement with Republic National does.
Distribution company that provides breckenridge with direct access to our expansive distribution network on and off premise retailers and customers across the U S. In 38 States and the district of Columbia. This opens new doors for Breckenridge and gives us full access to their premier distribution network setting a new.
New stage for accelerated brand growth finally, turning to our wellness business, Manitoba harvest is the world's leader in hemp based foods with production distribution across 17000, North American supermarkets, 50% share in hemp seeds and a presence at 15 established.
International markets. Our go forward strategy on this evitable scale and consumers' interest in hemp production aligned with plant based low carbon keto diets in the near term we are launching culinary oils plant based protein blends with Hampton Pea protein, along with a snack bar and <unk>.
Other product extensions with supersedes, we further plan to enter new International markets later, this year with Manitoba harvest.
We're also recently signed a distribution agreement with southern Glazer, the leading distributor of beverage alcohol in CBD beverages in the U S to serve as the exclusive distribution partner for til Ray wellness CBD beverage portfolio across 13 states in the U S with additional opportunities to scale nationwide.
Right.
This strategic agreement allow us kilroy brands to launch.
Ah wanted U S CBD beverage portfolio within familiar retail channels, such as independent natural grocery chains convenient stores local bars restaurants and gas stations.
Beyond CBD beverages, we intend to grow our U S til Ray wellness business into CBD personal care products and related Adjacencies and upon federal legalization in the U S. We will have a clear advantage to lead the U S market with strategic infrastructure and operations in place.
To parlay into the THC based products as well.
With that we will now hear from Denise what's happening in Europe .
Thank you Irwin and good morning, everyone internationally, and particularly in Europe , we are seeing more progressive cannabis legislation being introduced across the continent and around the world, reflecting a positive shift in attitude and acceptance of medical cannabis as treatment from numerous conditions as well as the legalization of cannabis right.
Yes, we.
We are well positioned and well resource to capture this wave of change that will yield considerable economic growth for our industry and for Kilroy brands.
The current economic environment in Europe today, the war in Ukraine, and its impact on inflation and rising energy prices, our medical cannabis business performed well in the quarter, our international medical cannabis business was up 2% versus the prior year period and was up 16% after removing the impacts of foreign exchange.
Consistent with our approach across our other businesses, we are relentlessly focused on our cost structure.
At the same time, we have been focused on continuously improving the quality and consistency of our medical cannabis products in order to fulfill our commitment to supply our patients with high quality safe and consistent products.
As Irwin noted, Germany remains the largest medical cannabis market in Europe , and emerging as one of the largest adult use markets. Upon legalization. We are already the market leader in medical candidates, leading both the whole flower and extract product categories in Germany.
Just an insight how sales data, we have approximately a 20% market share across our flower extracts and you'll be open all products in Germany, our revenue was up 22% versus the prior year period.
Today, we have the leading and broadest portfolio of medical cannabis whole flower with one of the most recognized brands in the German market.
Further we have maintained our premium pricing position as today, we sell approximately 85% of our whole flower medical cannabis products directly to pharmacies.
This combined with our end to end EU GMP supply chain uniquely primes TV brands for the recreational market, where we believe we can see is a sizable portion by exponentially ramping up capacity with two state of the EU GMP facilities in Portugal and Germany.
Our ability to leverage these existing assets to meet the demand for medical and adult use cannabis is a distinct competitive advantage a draft bill on German adult use candidates is slated to be published in late fall and the first commercial sales are likely to commence in the beginning of calendar 2024.
In Portugal, we continue to have the only registered medical cannabis product with our <unk> whole flower in the quarter are revenue in Portugal was up 89% versus the prior year period.
In the UK the market remains relatively small private payer market, but patient numbers continue to grow and we remain focused on reaching as many patient segments as possible with a broad portfolio of high quality whole flower products in Italy, we were approved by the Italian Ministry of health to import and distribute.
Certain medical cannabis extract aimed at compounding youth in the country.
In Ireland, we have recently reinstated a commercial presence in Ireland and are pleased to have made our medical cannabis products available to patients there.
We have one of only a handful of products that had been approved by the Irish government as part of the medical cannabis access program and are pleased to have received reimbursement approval, which ensures our products are made even more accessible to Irish patients.
In Poland, we were approved for pharmaceutical distribution of both survey brand.
An unbranded medical cannabis products and we have concluded our first shipment to polling after the quarter end.
Switzerland, the government lifted a ban on candidates for medical use in August .
<unk> access for use by patients who no longer have to seek exceptional permission from the health Ministry and the first sales pursuant to an experiment for adult use are imminent in.
In Israel, we continue to remain less than bullish because of the large oversupply caused by Canadian Lps.
We are seeing patient number stagnating sales declining in a lot of price discounting with special deals. We are therefore, continuing our pause in determining what is the right strategy for that market.
Finally in Australia, our medical cannabis business continues to perform well net revenues in Q1 increased 28% over the previous quarter. In addition, our business is well positioned in Australia. As we are already compliant with the EU GMP regulations that take effect Nextgen and are viewed as a trusted.
Candidates partner with a complete range of medical cannabis whole flower and extracts to meet consumer needs. We also recently received approval in verification from the natural Health Science Foundation of our flagship product till re purified oral solution CBD 100 to be used in clinical trials in Australia.
In New Zealand the sum total here is that across Europe and around the world, we have tremendous opportunity and the strategy assets and resources to seize it. It's an exciting time with that I'll now turn the call over to Blair Mcneill President of our Canadian business Blair.
Thank you Denise and Hello, everyone.
The first quarter of FY 'twenty three represented a significant momentum change for til Ray brands, Canada. We grew our number one market share position nationally by eight basis points to eight 5% for the quarter. This leads number two <unk> by 54 basis points and number three organic <unk> by 100.
96 basis points.
A reminder, this is using high fire for all markets, except for Quebec, where we utilized we'd crawler for a more accurate reflection of the market.
We also grew our revenue 23% versus Q4, FY 'twenty, two and 4% if you exclude <unk> revenue.
Though positive our revenue was muted by approximately $2 5 million.
In USD due to the cyber attack in Ontario, and strikes NBC in Quebec Canadian cannabis revenue would have been 6% higher when accounting for these events. Finally, we achieved 53% of our full year cost savings target in Q1, lowering our labor cost per gram by an incredible.
<unk>, 43%.
You will recall, we established our beta program midway through FY 'twenty, two with a pipeline of 46, new genetics and Q1 strains from this program allowed us to grow our flower category, two 7% faster than the market.
Good supply in monkey butter and sweep Harry Kirsch hit limited markets with great success.
Delivering 5% of our net sales and delivering almost two times the sales of Jongi, our most popular stream.
Additionally, our genetics deliver three five times the average market dried flower innovation sales volume.
We have four additional genetics entering the middle medical market in Q2 and recreational market in Q3.
This helped good supply become the number one brand nationally in September for the first time since July of 2021.
Over the.
Last year, we have allocated significant resources into being a consumer first commercial organization. This includes our structure data intelligence and market research investments.
Although early our investments are starting to pay off in Q1, seven 5% of our sales came from innovation. This.
This is considerably better than Q4, FY 'twenty, two and we expect it will continue to grow in future quarters long term, we expect this to lead to stickier innovation, which resonates with consumers.
Market, leading coverage has been a hallmark of til Ray in Canada as store count continues to grow beyond 3200 stores. We believe this competitive advantage also grows.
Q1, we conducted 8247 sales calls and 2027 product knowledge sessions with Bud tenders. This resulted in a market leading 14132 new points of distribution.
It also means innovation gets the consumer trial needed for repeat sales.
Recently, we had our entire great north team together with our sales and marketing leaders from til rate for two days. This allowed us to show the consumer first innovation plan and ensure they are ready to execute.
We have also invested in data for our medical channel both in consumer insights and consumer feedback mechanism to improve our product portfolio.
For our patient community, we launched Cana points, a new program designed to support patients through their medical cannabis journey.
As a complement to physician advice till ran medical patients use counterpoints to explore new offerings learn more about strains and record the effectiveness of their products. This app makes it easier for them to curate optimal personal consumption schedules and tailor their own experiences.
As a result, we have broadened our offerings under the <unk> and are free of brands to include a comprehensive range of THC and CBD products, which in aggregate have demonstrated effectiveness against a variety of medical conditions.
<unk> checks all the boxes to be a leading sustainable and agile license producer our low cost cultivation in leamington premium cultivation of broken coast.
Eight of the art manufacturing facilities.
Partnership with Hexcel, and our Avanti facility allow till ray to thrive and shape the future of the cannabis industry.
Recently, the Health, Canada Advisory Board recommended CBD products be permitted outside of cannabis dispensaries, an estimated $300 million opportunity.
Avanti owned Vitelle Ray located in Brampton has the facilities licenses people and equipment in place now to fulfill GMP CBD products when they become available outside of dispensaries.
It also allows us to produce cannabis health products three point now as the market transition. Additionally.
Additionally, avanti fulfills 80% of our testing needs within our current portfolio contributing to our low cost mindset.
Finally, we have seen revenue growth improvement in market share and cost reduction continue through the month of September I will now turn the call over to Carl Martin, Our Chief financial officer to discuss financials in greater detail.
Carl.
Thank you Blair, we place great emphasis on <unk> brands and are relentlessly focused on managing operational expenses proving we have the right strategy in place.
This is especially important as we contend with changing market dynamics and more recently inflationary challenges.
Before I begin my review, let me remind everyone that we follow U S. GAAP, our financials are presented in U S dollars and throughout our call today, we will reference results in accordance with GAAP as well as non-GAAP adjusted results.
Our earnings press release contains a reconciliation of our reported results under GAAP to the non-GAAP measures identified during our remarks.
Let's begin with our top line.
Net revenue in Q1 was $153 2 million.
Which is roughly equivalent if compared to the prior quarter and Q4 fiscal 2022.
But a 9% decline compared to the prior year quarter of $168 million, which was largely due to brand and SKU rationalization as well as foreign currency rates.
Our revenue income and adjusted EBITDA continued to be impacted by the ongoing strength of the U S. Dollar.
Particularly given our largest revenue sources currencies are the euro and the Canadian dollar.
On a constant currency basis, our net revenue remained relatively flat at $166 5 million.
With all of our distribution international cannabis and beverage alcohol businesses being up in their base currencies compared to the prior year quarter.
Reported gross profit was $48 6 million in Q1, a 5% decrease from $51 million in the prior year quarter.
Adjusted gross margin, however, increased 200 basis points to 32% from 30% the higher margin was made possible by our success in implementing our numerous cost saving programs and the revenue associated with our XO transaction.
While our net loss was $65 8 million in Q1 compared to a net loss of $34 6 million in the prior year quarter. We are reporting both our second highest ever adjusted EBITDA at $13 5 million and our 14th consecutive quarter of positive adjusted EBITDA.
And unprecedented achievement in our industry.
This is up 7% from the prior year quarter of $12 7 million.
It is worth calling out the meaningful headway, we made in reducing operating expenses, which decreased 42% over $50 million from the same quarter in fiscal 2022.
While the reduction in transaction costs year over year accounted for $37 2 million of the variance general and administrative expenses decreased 18% to $45 million. This was made possible by the synergies previously discussed.
In addition to the $100 million target and cost savings from the Affinia until re transaction, we achieved $13 million of annualized run rate basis of our $30 million cost optimization plan.
This $2 million was recorded in Canada cost of goods sold as well as our operating expenses during the period.
And we reported $7 $8 million of revenue and $1 2 million of interest income from our strategic alliance with XO.
Noteworthy to our quarter, we recorded an $18 $3 million gain in transaction costs on the purchase of the <unk> notes from HDI.
As part of our issuance of $33 3 million shares to satisfy satisfy the purchase price of the notes both upside and downside protection existed and based on our stock price during the contract period, we received a cash payment from HDI subsequent to quarter end of this amount.
Turning now to our business segments, which I will review in greater detail.
Revenue in our Canada segment was $58 $6 million, but on a constant currency basis would have been $61 6 million.
Gross cannabis revenue consisted of $6 5 million in Canadian medical cannabis revenue.
$58 4 million in Canadian adult use revenue.
$10 4 million and international cannabis revenue, which is a 2% growth from the prior year quarter of $10 2 million.
And $17 $1 million of excise tax all for net cannabis revenue of $58 6 million. However in comparison to the preceding quarter net revenue increased 10% from $53 3 million.
Canadian adult use cannabis revenue was impacted by a number of factors, including price compression challenges with provincial boards, including strikes in BC in Quebec, as well as cyber attacks in Ontario.
Both the BC and Ontario incidents caused provincial boards to close deliveries for approximately 10 business days.
During that period, we were denied multiple delivery spot.
Packaging, our revenue by approximately $2 $5 million in the quarter.
While the provincial boards did not open up additional delivery windows to make up for the shortfall. They did increase order sizes. Shortly thereafter to make up for demand.
As a result of our quarter and being so close to these incidences, we were not able to make up for the lost revenue this quarter, but anticipate making it up next quarter.
Over the last year shifting consumer demand impacted our flower products, particularly as it related to the potencies and our stream rationalization that negatively impacted us in Q1 compared to the year ago period.
Despite the change in our demand over the longer period of the last year. Our recent launch of numerous beta flower streams. During the current period yielded an 11% increase in flower sales compared to our fiscal Q4 2022 period. According to adjusted high fire data.
International cannabis revenue increased 2% to $10 4 million from $10 2 million for the prior year same period, but would have increased 16% to $11 9 million on a constant currency basis.
Despite ongoing global conflicts as well as the overall economy in Europe .
International cannabis continues gaining traction and we are uniquely suited to capitalize on these opportunities given our infrastructure, which includes two EU GMP cultivation facilities within Europe , our distribution network and commitment to product consistency quality and safety.
In terms of profitability and margins cannabis gross profit decreased 2%.
To $29 7 million in Q1 from $30 3 million in the prior year quarter, while the gross margin percentage increased 8% to 51% for the quarter.
When normalized to remove the $7 $8 million of <unk> revenue gross margin was flat at 43%. Despite the significant price compression experienced over the last year.
A reflection of our status as a low cost producer along with our synergistic initiatives and focus on higher margin sales.
Q1 revenue for our distribution business, which is overwhelmingly cc pharma was $60 6 million.
A 10% decline from the $67 2 million in the prior year quarter.
Impacted by the strengthening of the U S dollar relative to the euro compared to the same period last year.
In fact revenue would have actually increased 5% to $70 $6 million on a constant currency basis for an additional $10 million of revenue.
Adjusted distribution gross profit decreased to $5 6 million in Q1 from seven nine in the prior year quarter.
While distribution gross margin declined to 9% from 12%.
The decline was driven by product mix, we're changing consumer demand trend into lower margin products over the last year.
Turning to our beverage alcohol segment, we generated $20 7 million in net revenue in Q1, which was 34% higher than the prior year quarter of $15 5 million.
This was primarily due to our acquisition of Breckenridge last December .
We remain bullish on expanding this segment over time as we leverage our increased distribution, particularly in California.
Regaining brand acceptance with Green Flash and alpine while building brand acceptance for Sweetwater.
And one building out an extensive innovation pipeline and potentially pursue other acquisitions.
Adjusted beverage alcohol gross profit increased 24% to $10 9 million in Q1 from $8 8 million in the prior year quarter.
As a result of the Sweetwater, Colorado expansion in the quarter.
Which is still in the early stages of operation and yet to be fully utilized beverage alcohol gross margin decreased to 53% from 57% during this period.
Finally, our wellness segment.
Revenue contribution decreased 10% to $13 4 million from $14 9 million in Q1 last year.
On a constant currency basis, <unk> revenue decreased only 8%.
This decrease is a result of a one off private label sale in the prior year that did not recur in the current quarter as well as a higher volume of distressed retailer sales, which resulted in a higher volume of lower margin sales in the prior year quarter compared to the current period.
Adjusted Wellness gross profit decreased 13% to $3 5 million in Q1 from $4 million in the prior year quarter, while gross margin decreased only slightly to 26% from 27%.
But decreased from 31% in the previous quarter.
Impacting gross margin for the quarter was seed costs, which is the primary driver of the decreased gross margin from the previous quarter.
While seed costs rose almost 30% for organic hemp seed and 50% FERC conventional hemp seed in Q1 2023 are negotiated price increases did not take effect until Q2.
As a result, we will see the benefit of those pricing actions in the next quarter.
Together this demonstrates that we are effectively managing our costs.
Turning to free cash flow and liquidity free cash flow improved to negative $47 8 million in Q1, an improvement from negative $101 8 million in Q1 last year.
Traditionally Q1 is a period, where we experienced a greater than normal amount of annual payments than the rest of our year negatively impacting our free cash flow in this period.
Despite the negative free cash flow in the current period, we are reiterating our previous guidance of being free cash flow positive across all our business segments for fiscal 2023.
Our cash and cash equivalent balance as of August 31 was a healthy $496 million.
Nearly $75 million increase from our fiscal year end.
Our working capital balance, which allows us to meet our operational and capital requirements more than doubled to $637 $6 million over that same time horizon.
During the quarter, we completed our outstanding ATM program issuing 32 5 million shares and raising net proceeds of $129 6 million.
After quarter end, we utilized some of our cash on hand to purchase $50 million of our total 23 convertible notes for cancellation at a discount of $1 million.
And we will save over $2 $5 million in interest costs between now and their maturity date.
The outstanding principal balance on these notes has now been paid down by $138 million.
Since the transaction with the Korea and is down to under $140 million.
For fiscal 2023, we are reiterating our expectations of generating $70 million to $80 million of adjusted EBITDA and as I, just mentioned to be free cash flow positive across all business segments for the year.
This adjusted EBITDA range will be generated through the following means.
First we are strengthening our position from current levels as the Canadian market continues consolidating and less agile competitors contract.
This will be accomplished by maintaining our leadership as a low cost producer.
While offering a high quality screens and formats across our medical and adult use portfolios, which are continuously being optimized.
For their respective markets.
The investments we make at the retail level, such as our Bud tenders outreach and physician relationships.
Leveraging our scale low cost production facilities, and our strategic alliance with Hexcel.
Internationally, we have a vast medical opportunity beginning with Germany. In addition to other surrounding an emerging legal markets.
We are already utilizing our expertise from Canada to support responsible regulations that will enable us to enter and build our presence in these medical markets when feasible.
These regulations should also paved the way for eventual adult use as well.
Third in the U S. Our foothold beverage alcohol and wellness brands are already strong high margin businesses contributing meaningfully to our overall revenue and adjusted EBITDA, while diversifying our CPG portfolio.
We look forward to U S federal legalization.
And when that happens these brands can be properly leveraged for cannabis.
As we build our multibillion dollar portfolio of best in class medical adult use wellness and craft beverage brands, we will only pursue opportunities that provide us with the highest possible return and enable us to gain efficiencies through scale integration and partnership.
Yes.
This is our roadmap to building sustainable shareholder value.
And with that I will conclude our prepared remarks and open the lines for questions from our covering analysts.
Afterwards, we will take a few questions from our retail shareholders through the <unk> platform.
Operator, what's the first question.
Thank you before we take our first question I'd like to instruct you to please press star one on your telephone keypad to join the question queue. You May press star two if you'd like to remove your question from the queue and.
In the interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of.
Vivien <unk> with Cowen and company. Please proceed with your question.
Hi, good morning.
Vivian.
So.
I'd love to just start off by addressing the U S regulatory landscape I really appreciate it.
Prepared remarks, which are awfully clear that legalization remains elusive I think we're very much aligned.
On that debate and administrations announced yesterday with symbolic noteworthy release capital markets access and while that might be disappointing to anyone who is involved in the U S. Cannabis industry, certainly retail investors and some other industry watchers spread this announcement it actually could be good news for you. So realistically a narrow version of <unk>.
Dave is the only viable catalyst how do you guys continue to take advantage of.
This period of uncertainty where there is no Interstate commerce you guys have place. Your bets you just continue to work on and building that route to market infrastructure and just wait patiently are there other opportunities to continue to CAD.
The business for readiness when that eventually happens.
So excellent question I think the Big thing is what we saw this was the first step at volume administration have taken towards cannabis and.
In regards to pardon me all.
All of those that had been convicted in the social effect of it is a great sign.
It's on the agenda here and that he has asked.
From a health standpoint to look at it.
From our standpoint, there since the by the administration has been in place nothing has happened. So that's the good news and I think the Big thing, which I've said in my remarks was this year our plan we have.
Close to half a billion dollars of cash so we have abilities to do acquisitions.
We have a strong business with lots of growth opportunities in Canada, we have a great infrastructure internationally in both Portugal and Germany.
And with the U S. Today, we've acquired businesses within the beer industry, the spirits industry and have a wellness business. So from a U S standpoint, what we're going to continuously do is look at acquisitions in the consumer area with adjacency to cannabis.
In regards to the self Safe base Act depends what we can do so we're one of the largest grower cannabis in the world today.
We own multiple brands in Canada, and Europe , we owned brands in the U S with the Adjacencies.
When we're able to do something and have a clearer picture on it I think whether it's buying merging it gives us the opportunity to do that so we have.
A good balance sheet, we have good brands, we have lots of knowledge within this industry and.
Being one of the biggest out there gives us opportunistic ways to go about it.
Taking a guess and buy in options and not knowing and Theres a lot of unknown out there, but what I want to make sure. It is for our shareholders that we have a good vision to create the tail re branded consumer package good business with a focus on brands with a focus on adjacencies or focus on profitability from our standpoint.
That when cannabis does legalized in the U S. We're ready to capitalize on that in so many different ways and I think we're not one of the we're not an episode that's locked into a multi state we're not locked in we won't do something we don't have that flag in the ground that we ultimately got to figure out what's the right thing to do with the flag.
Yeah, absolutely lots of Optionality for you guys. That's very helpful. Thank you Irwin.
And then just to pivot to beverages since you mentioned it as my follow up question. Please.
I think that that asset is incredibly important and obviously, we cover alcoholic beverages and we know how good the growth is in that segment and Bourbon in particular.
We haven't seen any signs of down trading yet, though it is a question that I get consistently from institutional investors in particular, given that we're starting to see more regular pricing emerge and the distilled spirits segment against the very inflationary backdrop. So two part follow up. Please number one have you guys seen any signs of.
Down trading in any of your alcohol assets and then number two how do you feel about the pricing backdrop, because it does seem like most of your peers that really leaning into it. Thank you.
So we have not yet and with that we just saw.
Starting with the new distribution R&D C.
Got some great plans as we come into the holiday season, if anything what we are seeing.
<unk>, which is a cheaper product.
We're seeing some good pickup in that volume.
But listen we're looking at it we're making sure in regards to the consumers.
Trading down and by other types of products, whether it's <unk>, which is cheaper.
We will be ready for that but so far we have not seen anything.
We've seen some good consumption.
Within the beer business, we like that we see lots of opportunities in the beer business in regards to infuse beers.
You see a lot happening today with the key lizard, rums and that with beer and that so.
The Big thing is within that industry Vivien, we have the distribution network setup and with that we think theres going to be also additional opportunities from acquisitions in that area for us. The other good thing that's happening to us the FDA has.
Sept away and will allow CBD products, and we're introducing products out happy flower, which will start introducing so theres a lot of expansion within the category that we see.
Absolutely very helpful. Thank you.
Thank you. Our next question comes from the line of Andrew Carter with Stifel. Please proceed with your question.
Hey, Thanks, Good morning, and I think I want to take just a little bit of a different angle to kind of yesterday's news I think number one.
<unk> built this platform to be low cost <unk> serve all but is there has been the issue of fragmentation in Canada International activity. So what we did get we don't know what we're going to get from the us ultimately, but what we did get yesterday was a surge in the sector does that change your view at all of Canada, and maybe the necessary rationalization and how that may be prolonged in I guess.
I want to add to that is what is there is a lot of unknowns, but what you do know is trading higher does it by any chance change. Your view that you would want to go that you want to maybe double down on the investment in CPG versus cannabis, especially as cannabis NSO assets are re rating.
So Andrew good morning, how are you.
Canada is the only legal market.
Recreational cannabis really in the world today.
We have incredible facility incredible brands, it's about a $5 billion market today at retail going to a $10 billion market. So anything hey, we're going to do more in Canada, we're going to grow share we're going to innovate products.
Candidates to go whether it's edibles drinks and.
Stay tuned for what we're looking at and Blair talked about Canada three point, though so we have a big focus on Canada and with that there is a lot. We'll continue to learn in the Canadian market. The other thing who knows one day, we have over 3 million square feet of grow which I think you visited.
We grow some of the best and cheapest cannabis up there with some of the higher potency who knows that we can export in the U S. One day and that opportunity there so Canada for us from a recreational from the medical from the cannabis two point on cannabis three point, though we think and we said there is.
At $800 million business with also $200 million in the consumer area to grow there.
In regards to your other question do we want to become a CPG company.
Prior life myself and some of my team were part of heat that we built the $3 5 billion dollar consumer packaged good business.
Our medical wellness business has a lot of adjacency to cannabis.
And we liked the drinks business, we like the consumer packaged goods business, but what we're not going to do is just go out there and sit back and wait until the government makes decisions on which way. They go with cannabis we want growth, we promote and said hey.
In regards to EBITDA will be EBITDA positive cash flow positive we have a strong balance sheet, we're going to utilize that so.
Cannabis is a big part of our portfolio, but also Andrew we're going to look at the consumer packaged good area that has good growth categories that has good margins, but adjacencies at one time.
To the cannabis industry upon legalization.
Thanks, I'll pass it on.
Okay.
Thank you. Our next question comes from the line of Andrew Bond with Jefferies. Please proceed with your question.
Good morning. This is Andrew bond on the line for Owen Bennett, Thanks for taking our question.
Maybe shifting gears to recreational legalization in Germany.
There seems to be a view that the United Nations Incb regulations in prior rulings in EU courts might need to be addressed and could preclude preclude Germany from legalizing.
What's your most recent sense in Germany on the prospects for legalization. What are you hearing is this a material legal hurdle to overcome.
In your view and then more broadly maybe until we ultimately see legalization.
Recognizing you already have a favorable position in the Germany medical market are there additional actions you can take or are strategically taking two to be better positioned for win rec sales to ultimately launch. Thank you.
So number one I'm going to let <unk> answer that but I think the big thing is this here.
Medical cannabis is legal in Germany, right now in regards to the German government. They are spending a lot of time, they visit California that visit Canada in regards to how to do this so yes, there is going to be hurdles with anything losses happened within between.
But we are still very comfortable as German tenders have been put out there, which we won that cannabis will be legal within the German market. Denise you want to add anything to that yes sure. Thanks Sterling. So in terms of legalization in Germany. We also basically are seeing a movement across all of Europe .
Might've saw that in September there was a health regulators needing for the EU 27 countries.
They were in discussions based around cannabis regulation, so essentially looking at it from the entire EU perspective, looking at the 27 countries working together in order to establish a collaborative effort.
On candidates regulations. So so this is even more than just the German issue, where I think all of the EU is thinking about this and how to address it.
The German regulators are very focused on how to overcome the UN convention theres been a lot of different legal analysis, including how to address candidates, whether it's classified as a foodstuffs or some other way in terms of the regulations dealing with that so they are absolutely as work being.
And German regulator seemed very focused and as Irwin mentioned there.
Taken.
Right steps in terms of coming to the United States coming to Canada trying to understand really how to build a framework that addresses both health and safety as well as a commercialized market, which would be the first one.
In Europe .
And then in terms of your second question around.
How what are we doing I think one of the things to recognize is the fact that <unk> is a company who has invested.
Very much so into the European.
Market in terms of both our facility in Portugal, as well as our facility in Germany, and we are one of only three facilities that exist today in Germany, producing medical cannabis that facility can in fact be.
Converted and OLED tool to address the adult use cannabis market and provide for that market very quickly. So we believe we're very well positioned and I think the most important thing whether it's the U S. Whether it's Germany, whether it's Europe voters want this.
In Germany today, I think it's about 70% of voters are one canvas legalized in the U S over 60% wanted to legalize 90% want medical so again, it's what the voters losses was constituents want that's what the most important thing is and I think what everybody is realizing that tax dollars and the benefits from it.
That really will come.
So.
That's what we see out there both for Germany, and the U S.
Thanks, everyone. Thanks, Denise I appreciate your insights I'll pass it on.
Thank you. Our next question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.
Hi, Good morning, and thank you for the question just wanted to go back towards your prepared remarks on Canada, specifically around strengthening your position I believe you said some of the smaller some shake out there.
Want to get some color on where you believe that stands today for some of the high fire data September was the first month over past 12 or more worth of top five cumulatively actually gained share and having lost share in all the previous months. So do you feel like that was a clear.
Step change and that will continue to feel like there's still some more share.
Share of losses competitive nature to go or is that now we're at a point, where some of the bigger players might start to gain share on more of a regular basis. There. Thank you.
So number one I think for the first time, we're getting a good clear look at Canada with Covid with store closures with only being able to walk up and order.
Having vaccines doing stores. So now we're really getting a good look at it.
So that's number one number two with all the price compression and consumers go into the illicit market et cetera. So.
I come back and look at Canada was in our major disarray with that I'm going to let <unk> jump in here for a second.
You might see that we have made tremendous headway in Canada in regards to the importance of potency importance of strains.
<unk> eliminated some brands, we eliminated strains so that affected it.
Regards to our share out there.
With that I step back and I say this year that Canadian market will consolidate the Canadian market will condense and there will be at 800 Lps a lot of Lps will go away.
The thing is also is the consumer today within Canada.
Cannabis has been legal now for approximately four years, they're educated today and what they want to buy they are starting to understand brands theyre starting to understand pricing the same with the retail market.
A follow that many retailers closing so it's starting to mature from a market standpoint, it's the same thing with the government.
And excise tax and what we're working on there. So you got to remember Ken is only four years old now we are starting to get some wind at our back instead of wind at our face Blair you want to add anything to that no I.
I think the one thing that everyone said that's important for people to recognize is how early we are in this journey.
And the industry just went through a lot of chaos as Irwin mentioned I think the big thing I would reiterate is our investment into data and into the consumer insights and we're using that to make all our decisions moving forward. So we're very bullish on where we're going as an LP. We're very focused on being just an LP.
And not other things.
And we're going to utilize that to to win in the marketplace. So we're very comfortable with that.
And the thing is we're investing in research we're investing from a medical standpoint, we're investing in the next evolution of cannabis sales and I think that's what's important today and we're seeing multiple change in flower versus pre rolls versus edibles versus drinks.
And listen the Canadian market projected to be at $10 billion at retail.
Anything thats small to look at and it is the only country today, where cannabis for adult use is legalized out there. So we're going to learn in Canada, we're going to grow in Canada, and we want to have the biggest share in Canada.
Alright, great. Thank you very much for the color and I'll go and jump back into the queue.
Thank you. Our next question comes from the line of Jimmy Chen with BMO Capital markets. Please proceed with your question.
Hi, Good morning, I just had one quick question just a follow up on a previous one just talking about the last answer.
Thanks.
Thank you.
So it.
It sounds like.
The answer to that previous question.
But at this point you also are not sure exactly what.
Safe passage.
<unk> rules for your ability to go in the U S.
Remind me I think you probably the biggest hurdle.
<unk> would be where the stock exchanges like Nike and NASDAQ stand with respect to client touching.
Candidates businesses. So could you just clarify if you think.
<unk> package.
It might trigger allow you to go into the U S or really you don't know.
I will let Luca.
We're waiting for the status of the stock exchange. Thank you.
So.
Number one I think as I've said before in regards to selling only cannabis companies safe bank is not going to do anything for us, but I'll tell you what I do believe is going to do and it's interesting all of sudden investors start to an institutional investors start to look at this industry now and.
Starting to look at how they invested in this year and listen you may get other cannabis companies with NASDAQ.
We are stock exchange now that could list, there, which theres more dollars out there for them to raise but I think from our standpoint for til rate today is this year I mean.
Having institutional investors as a part of our ownership was something very important to us but.
And the opportunity for us to grow within other countries to be ready for the U S is something that we're going to continuously focus on but it doesn't change anything for us that we can own U S assets.
Kevin.
Okay. Thank you.
Thank you. Our next question comes from the line of Pablo <unk> with Cantor Fitzgerald. Please proceed with your question.
I just want to ask regarding a potential CPG partner, obviously constellation brands and kind of be goes Kronos altria as the industry begins to scale in more markets legalize you assume that there could be a strategic disadvantage for you and not having to be a large CPG partners. How do you think about that.
So I think.
Pablo is this here.
<unk>.
Altria, yes, that's product Chronos and <unk>.
And constellation this with canopy and you can make your own decision what they've done for them and what they've not done for them, Okay listen I've been in the consumer packaged goods business for over 30 years. It gives us the opportunity to build correctly and do the right things.
Not be whether its a tobacco company or another alcohol company. So we have optionality and I think that's what's important with that important out there we're not forced into making decisions were not forced into something in the consumer area. What's good for our business. What's good for growth what's good for consumers and how can we make a difference and last but not <unk>.
How do we make money for our shareholders is the right thing for us to do.
That's what's gives us optionality and I think that's what's so important today because of changing trends changing times and changing geographies.
And then just a quick follow up.
So I know you've said that there's a lot of unknowns in the U S and you don't want to do contingent at auction based deals understood, but you did Midland. So what was the what was a different.
Would there be other assuming that amendment that'll deals that would make sense.
So as I've said before and I'll say it again I felt mad men had a great brand has.
<unk> presence in different states within the U S and there's a lot we're learning in regards to consumer trends that we're taking back.
We did one and what I've said is this here don't want to do another one until I know what we can do so.
There was a lot of learning a lot of intelligence and we think <unk> has a lot of opportunities upon legalization. That's why at the time, we did that.
Yes.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.
Thank you good morning.
I just wanted to come back to the market share.
Yeah.
Got some stabilization there it looks like and just would love to understand what your expectations are.
For that going forward and just specifically what assumptions you've made for market share progressing in Canadian rig.
Against that $70 million to $80 million EBITDA guidance.
So from our standpoint.
Market share in Canada.
I said this year with our current business today, we want to be back in that double digit area today and that is focusing on the consumer focusing on our brands focusing on innovation listen the consumers come back and told US They want high potency of different strange different products, they've come back and said what.
They want regards to pre rolls versus flower, what's infuse et cetera. So.
<unk> got to listen to the consumer is very important in two provinces to back in Ontario, which are the biggest provinces within Canada of what the consumer is looking for in those markets, but working with all the other provinces. So innovations key new products are key Keith.
Keep coming up with new products quickly.
<unk> is key from that standpoint, and I think the ended the day is which is really important for us what's our name until Ray brands, how we build brands in Canada.
We're not out there just selling a pre roll we're not out there just selling flower, we're not out there selling oil what our brands stand for and when a consumer goods and theyre going to buy our brands blurry anything you want to add to that I think you've covered it.
And just what.
What share assumptions are reflected in your guidance.
Yes.
Our share assumptions basically high single digits low double digits.
And our guidance.
Okay. That's helpful and just a follow up on the cash flow guidance.
I know you say it'll be across all the businesses, which I assume is meant to be clear that its not one carrying another and that is broad, but just to make sure. I also understand is there a corporate piece or something that would.
Make that free cash flow positive at the total company level as well.
While corporate there's a corporate piece too and there is corporate investment.
Public company costs are as insurance costs.
<unk> Capex toss in there Thats all a piece it's a combined company. It's not just all the operating units of the <unk>.
<unk> as a combined company.
When we see our cash flow positive.
And so yes, that's just what I'm trying to make sure I understand that it's across each business and at the total company level you'll be.
Exactly exactly exactly yes, alright, thanks a lot.
Okay.
Thank you. Our next question comes from the line of Sean <unk> with Canaccord Genuity. Please proceed with your question.
Good morning, and thank you for taking my questions.
And congrats on the quarter just one for me here.
Sticking on the guidance here. So just looking at your adjusted EBITDA guidance at the low end that'd be calling for a bit over 30% increase from the Q1 run rate adjusted EBITDA I just wanted to get a sense for the cadence of that adjusted EBITDA growth through the year.
Is it more back half weighted or is this something that we should expect to see more step function growth through the quarters.
And maybe any commentary on what segments, you think will be driving that improvement.
So I'll, let Carl jump in we're one segment, but with any business. There is seasonality here as we looked at our spirits business, we look at our Burger business and.
And we look at our growth within our.
Canadian cannabis business it definitely is more back half.
Carl particularly Q4.
And inside of the beverage alcohol business Q4 is.
Those three months of our Q4 are the biggest shipping months for beer.
During the year as it relates to the load in for summer. So yes, there is you're going to see smaller step ups in the next couple of quarters, and then a bigger step up in Q4 and the next two second and third quarter are a big Canadian cannabis quarter. So.
<unk>.
That's when we see and Thats, what our plans at around the holidays.
And then around our January .
And quarter, there thats when the big.
Product lines and product launches that come out and Thats, we have a lot of what's in the total number of new products that we have launching over 100 Skus. This year of our 100 Skus in there we will start to roll out now over the next six months.
And.
One of the things Blair mentioned also.
<unk>.
With Alberta being on strike or BCB on strike and our issue in Ontario delayed shipments, which youll see those pick up in this quarter and next quarter.
Thank you again, congrats on the courtyard and I'll pass it on thank you.
Thank you very much and happy Thanksgiving.
Yes.
Thank you. Our next question comes from the line of Glenn Mattson with Ladenburg Thalmann. Please proceed with your question.
Hi, Thanks for taking the question also in light of the news of the Us yesterday as.
Perhaps it's only symbolic for now but.
I also kind of want to hit on the Mitman question, just because we haven't heard too much about it from you guys I mean, I'm just curious like.
How central that is to the U S strategy and just kind of like how involved you are in.
And the decision making process going on there and your general sense of like.
Yeah.
I guess, how do you feel about that business, how it's doing in.
What.
Is it kind of like the tip of the spear in other words in terms of your.
Candidates touching assets.
And your strategy for it.
Should things change in the U S.
So number one we're not involved with running Mad men, which.
Which we can't be.
Myself and Denise or observers on the board.
So we are not we don't have a voting position on the board.
A lot of data that we get from Mad men and Theres a lot of information that we see coming out of the U S. So.
Even though we're not selling into the U S. There's a lot of information that we're able to see.
Listen Birdman has gone through its challenge as matter of fact in La This weekend business Amendment stores.
And seeing what's going on in some of the products.
And I think theyre, making some tremendous headway I think it was an important move and get ready for selling Florida off.
And bringing some money into the company.
Theres some things we need to work out in New York, which we think will be a big market once not legalization happened once recreational can be sold here.
Can I come back and say the Mad men name different than the cookies name has tremendous potential out there that red bag that red product, so which gives us the opportunity to let all these things get fixed and if legalization or when legalization happens it gives us an opportunity to position herself, where we want to.
Whether its own 100% of the business on a percentage of the business on certain states et cetera. So we have.
Put into game today, and Theres, a lot of data and a lot of information that we're learning about but we're not involved in day to day operations and decision, making with the amendment today.
Great. That's it for me thanks for the color.
Thank you.
Thank you. Our next question comes from the line of Federico Gomez with <unk> capital markets. Please proceed with your question.
Hi, Good morning, guys. Thanks for taking my question.
I just have one quick question on the Cmos consolidation in Canada, we obviously.
Have your alliance, so a pretty complete spectrum assets here, but you mentioned that you expect some of the smaller LPG can start calling out in the market. So are there any specific.
Abilities or assets that you would be.
Would interest you in acquiring anything that will make sense from a strategic standpoint. Thank you.
Thank you very much for your question listen I think we're well positioned in Canada today.
We are well positioned with our grow facilities and we maintain our broken coast facility Theres. Some assets, we still have from the <unk> acquisition.
In regards to our processing we are in good place in regards to our partnership and relationship with <unk> and.
Read it can in some of the pre rolls and that we can do with those.
Readies, which we're rolling out.
We have a production facility in London, Ontario.
Where we can do drinks.
We're working with Red at Cannes in regards to edibles.
We have a facility.
<unk> that allows us to do some other things with canvas three point, though so which is called a <unk>. So we're well positioned in Canada. Today, we have 12 brands in Canada today, and 12, great brands. So.
It's lined up the pieces within the box is just how we roll it out how we work with.
The different provinces and how we work with consumers to educate them about products, how we educate them at both brands and how we work with them to move them over to the illicit market and that's an important part and I got to tell you Blair and his team have done a great job in doing that.
There's just a tremendous amount of data that we're accumulating.
Having in front of us to help us.
Drive our share in the marketplace and Thats why youre seeing share growth.
And again I think ultimately over the last year price compression is down 14.
14%, Okay and think about it that's a big move down 14% and from our standpoint by taking strains out of the market by eliminating.
The Marley brand, it's worth for us about 30 to 40 million, what's the total number on an annual basis.
About $30 million that we've taken out of the marketplace in regards to strains in brands and cleaning that up with the <unk> acquisition. So.
There's still a lot of falling out to do and I think just stepping back.
The industry is four years old.
The government is going through its review right now.
One of the biggest problems is in Canada for every dollar we sell 30 <unk> taxes. So we have to be efficient and that's why to survive in that market you got to be that low cost producer you've got to have the volume on top of that.
<unk>.
That's ultimately what's going to survive in that marketplace.
Yes. Thank you that's really helpful color. Thank you.
Thank you. Our next question comes from the line of Scott Fortune with Roth Capital. Please proceed with your question.
Hey, Good morning. This is Nick on for Scott just looking for some color on Germany, maybe for Denise I. Appreciate the roadmap you provided can you just touch on the competitive environment and kind of what you've seen in terms of supply and demand economics. There. It appears more suppliers are entering the market in Germany. So just looking for your thoughts around the current state of that market kind of just the pricing environment. There. Thank you.
Yes, sure no problem. So in terms of the market in Germany as you can imagine because of the fact, if you look outside of Canada, Germany is really is the largest market and from the medical cannabis perspective. So you do see a lot of.
New entrants coming into that market.
Believes.
As we mentioned in our press release, we are the number one market share in Germany with approximately 20% of market share and we believe that we have a very very strong brand.
Kill Rea, which is well recognized amongst physicians health care practitioners and patients alike.
When we look at our pricing, yes, there is some pricing compression. We're pleased to say that we have maintained high prices and in the area of medical candidates and we think a lot of that is really attributable to the fact that about 85% of our sales go directly to the pharmacy. So we are working directly with the pharmacists in terms of selling our products.
Losing margin to wholesalers and the like.
Yes.
Great Thats it from me I appreciate the color.
Thank you.
Thank you. Our next question comes from the line of Johnson <unk> with CIBC World markets. Please proceed with your question.
Thanks, Good morning, I wanted to follow up on free cash flow and the guide for positive.
Regard to the series for positive, but youre at nearly minus 50 now it's a meaningful step back from last quarter. So I wonder if you can elaborate on how you get there and were there certain elements of costs or payments that fell into Q1, and what kind of sales growth do you ultimately need to achieve to get to free cash flow positive for the year.
So John we've always said that that.
That our cash flow was was back was backend loaded. This year, we also talked a little bit of it in our script and in the.
The documents that that will get released publicly later today.
Q1, historically for US is is a quarter, where we have a go.
Greater share of our annual payments.
Different things that you have to do things like insurance and then things like those things that represent a big payment and then get the benefit gets spread out throughout the year.
I also think if you if you look at that cash flow number $26 million of that is is working capital.
Changes, where we think a big chunk of that reverse as we talked about the HDI receivable.
On the upside protection from the share issuance that comes in next quarter and moves against that so I think it's.
We were always expecting Q1 to be to be a negative towards that target.
And that we would make it up later in the year.
That's helpful. Thank you.
Thank you ladies and gentlemen, there are no other phone questions. At this time I will turn the floor back to MS. Nevada. Please go ahead.
Thank you operator, and now I will read questions from the <unk> technology platform. The first question from our retail shareholders is during the last earnings call. You stated that <unk> was exploring ways to get into the U S market what is the plan.
Yes.
Thank you.
I think the plan is very much been laid out.
As I said today, we have a strong spirits business, we have a strong beer business and we have a good foothold in the wellness business with Manitoba harvest.
Continuous focus on growing those businesses.
And with that look at other acquisitions out there within the spirits in the wellness business or in the beer business with adjacency to cannabis we are going to be opportunistic as we watch what unfolds in regards to legalization within the U S and if that does happen.
We would very much be able to jump in there and acquire or merge with some of these msos I think what's really important today as I've gone through and talked about our balance sheet in regards to our debt levels that are fixed out there and that we will generate free cash would not be out there burning cash. So there is going to be plenty of opportunities.
For us in the consumer area and upon legalization or some type of legalization there'll be opportunities for us within the cannabis area.
Thank you and the second and last question is what are you doing to reassure stockholders. That's Hillary is worth investing in.
Well number one.
I won't commit to this year, where you have a team around the world that is working real hard for its shareholders out there and those are our consumers.
Number two is we have a very.
<unk> strategic plan, which we've talked about to get to the $4 billion a lot depends upon legalization, where laser focus on our brands with a laser focus on cost savings in regards to we took out $100 million of cash cost savings, we're laser focused on our balance sheet with with.
Our cash that we have on hand today with our fixed debt out there.
I know none of us have been happy with our stock performance, but.
The market as the cannabis industry, but nobody out there is happy with our stock performance, but I will tell you. We are focused on our brands. We're focused on the category. We're focused on diversification, we're focused on free cash and with debt at the end of the day I think we will end up being.
Winter out there.
Thank you Irwin and that concludes our question.
So I want to thank everybody for joining us today.
Yesterday's news in regards to see President Biden talked about.
The cannabis industry and partnering those that had been charged with cannabis defense on a federal and encouraging governors out there to do it on a state wise is the first bit of action and.
We've talked about it and there's times you just want to give up upon legalization and how you go. Another route I think again as I just said before in the previous questions.
We are diversifying as a company and we have a strong presence in Europe , which I just recently visit and spend time with the team over there I'm very proud of what we have in Portugal with what we have in Germany and in 20 different countries, where we sell medical cannabis today and the demand for medical cannabis cannabis in regards to so many different diseases.
And the ability to help patients out there in regards to our Canadian market, what Blair and his team are doing there.
In regards to the changing market and as we talked about.
<unk> on <unk>.
Price points down, 14%, which we've gone in and cleaned up some of our strange taken out some of our brands that don't make sense. So we're doing the right things sitting today with the cash balance that we have and being focused on our debt where interest rates are rising the way they are and as cut a tremendous amount of companies.
Soft guard and with higher interest rates today coming out and being one of the cannabis companies out there that are focused on having to go raise money focusing on in regards to where our debt levels are and can manage through that and also our focus on the diversification. We're also sitting back and waiting what happens.
In the U S. It's not that we are.
Marked in today to be in multi states in different states legalize and where the opportunities will come from the safe Banking Act Theres a lot of investors that want to be in this industry. There's a lot of investors that have been ultimately burnt in this industry, but it's not going to be $100 billion industry in the U S. It's a <unk>.
$10 billion of industry within Canada, It's a 30 $40 billion industry in Europe , So there's big opportunities and the good thing is.
We are well rounded out there.
With opportunities and hopefully they all come together. So thank you for your patients I know, sometimes as I read out there hey, he would give up on us don't give up on us.
Because I commit this year the team the board and everybody else. There is working very hard. So thank you for your support sticking there with us I want to wish our Canadian friends, a very happy Thanksgiving.
And look forward to speaking to you soon have a nice weekend.
Have a nice Thanksgiving and a nice Columbus day, Thank you very much.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.