Q2 2023 Aurora Cannabis Inc Earnings Call
Speaker 2: The.
Speaker 3: Greetings and welcome to the Aurora Cannabis Inc. 2nd quarter 2023 results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone true to choir operator assistance during the conference please press star zero on your telephone keybed. As a reminder this conference is being recorded. It is now my pleasure to introduce to you a Nance Christian, Christian vice president corporate development and investor relations. Thank you and ask you may begin.
Speaker 4: Thank you, John , and good afternoon, everyone. We appreciate you joining us today.
Speaker 5: With me are CEO Miguel Martin and CFO Glencibit.
Speaker 6: After the market closed, Aurora issued a news release announcing our fiscal 2023 second quarter financial results. This news release, accompanying financial statements and MDNA are available on our IR website and can also be accessed by a C-DAR and Edgar. In addition, you will find the supplemental information deck on our IR website.
Speaker 7: LISNERS 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.
Speaker 8: 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 by CEDAR and EDGAR.
Speaker 9: Following prepared remarks by Miguel and Glenn, we will conduct a question and answer session with our analysts.
Speaker 10: We ask you to limit yourself to one question and then get back in the queue for follow-up. With that, I will turn the call over to Miguel. Miguel, please go ahead.
Speaker 11: Thank you, Ann. First and foremost, we are very proud, we achieved what we set out to do several quarters ago, namely reaching our objective, a positive, adjusted EBITDA by the end of the 2022 calendar year.
Speaker 12: We are confident that we can deliver positive adjusted EBITDA on annualized bases going forward, although there may be some quarter to quarter variability due to that dynamic nature of the canvas industry. And the seasonality we previously talked about are a bevel business.
Speaker 13: Importantly, as part of our business transformation, we also completed the structural changes we had intended to make as part of our cost rationalization.
Speaker 14: These will certainly yield benefits for Warrant in both the near and long term.
Speaker 15: Annualized savings now told approximately $340 million since February 2020 and included substantial progress in cutting quarterly SGA to well below $30 million.
Speaker 16: Our next financial milestone will be achieving positive operating cash flow as part of our plan to build long-term shareholder value. We expect this to be a multi-quarter initiative, and we will update the market on our progress to this new milestone. We expect this to be a multi-quarter initiative, and we will update the market on our progress
Speaker 17: Looking forward, our enthusiasm for the future is anchored by our number one position in global medical cannabis among Canadian LPs and the growth we've been able to sustain despite some quarter-to-quarter variability. With loyal patients in existing markets and more developing countries poised to open, we think the top-line growth trend should continue.
Speaker 18: As a reminder, medical cannabis is a business we want to invest behind, not only because of its growth characteristics, but because of its defensive nature in volatile times. It also enjoys enviable as just in gross margins that consistently exceed 60 percent, twice that of consumer cannabis.
Speaker 19: The roar is also ideally positioned because of our robust balance sheet and net cash position.
Speaker 20: which puts us in select companies among our industry peers.
Speaker 21: This has allowed us to repurchase approximately $302 million in convertible debt in the last 12 months, resulting in about $17 million in cash interest savings on an annual basis.
Speaker 22: Finally, our investments in science, breeding, and genetics have resulted in proprietary cultivars and driven meaningful improvements to yields and potency that have benefited all of our product lines.
Speaker 23: We also remain committed to furthering medical cannabis clinical research in Canada, which should position us for innovation. It will be a key factor to success going forward.
Speaker 24: So those key strengths as a backdrop, let's take a deeper dive into our global medical cannabis business.
Speaker 25: As we had expected, international medical revenue rose sequentially compared to Q1, which can be attributed to our strength in the Australian market as well as continued success in Europe .
Speaker 26: Our European business continues to demonstrate stability and growth on a year-over-year basis.
Speaker 27: Angered by the German medical market, we remain number two in flowers.
Speaker 28: Based on recent comments from the health minister, we expect further clarity around recreational legalization in Germany sometime this spring. With a potential start to the market there as early as 2025.
Speaker 29: We continue to believe Aurora's position as one of only three companies with a medical domestic production license will give us a significant advantage as the regulatory framework is developed.
Speaker 30: We were also bullish on the opportunities that lie ahead in our other key European markets, which include Poland, UK, Czech Republic, and France.
Speaker 31: While markets such as Australia and Israel continue to develop, our presence across nearly a dozen countries outside of Canada, before it's this relative installation, individual economic and regulatory climate.
Speaker 32: Turning to the high margin Canadian medical market, most of the sequential growth and revenue was driven by one time benefit from Q1.
However, even after normalizing for this adjustment, we still experience a 2% growth in revenues.
We are extremely happy with this when coupled with recent cost reductions which drove meaningful improvements in profitability.
Over the past several months, Laura Patients have been given access to the largest ever selection of products and formats on a Laura medical, with over 75 SKUs launched in the medical channel between Q1 and Q2.
These include products from our full portfolio of adult used cannabis brands.
such as being quick strips, rabia premium flower, and new pre-rolls, concentrates, and minor cannabinoid oils.
Notably, our Canadian medical business benefits from strong patient retention, with insured patients comprising about 80% of all medical sales as part of a concentrated market with significant barriers to entry.
Our industry-leading market share also remains at about 25 percent roughly double that of our closest competitors.
To sum up, we remain very optimistic for this segment, as we are not only increasing the number of patients in the insured category, but have also experienced year-over-year increases in basket size and participation rates.
Note that only about 1% of the Canadian rail population is involved in medical cannabis.
So any sort of movement makes a massive difference.
with the benefits outsized to a very small subset of companies like Aurora that participate in this segment.
Switching the Canadian adult rack, our Q2 revenue shows sequential growth of 7%. This increase was achieved despite some temporary industry disruption and a reduced number of shipping days over the holidays.
The key driver for us here was Strong Sales Execution, coupled with a strong type line, the innovative new product properties.
As you may recall, one of the key reasons for our acquisition of Thrive last year was their ability to manage our Canadian Rec business, and we are thrilled to see our M&A strategy paying off.
Finally, we plan to drive significant shareholder value of the long run, where our controlling interest in Bevo, which is one of the largest suppliers of propagated vegetables and ornamental plants in North America.
We are currently repurposing the Aurora Skye facility for orchid and vegetable propagation with minimal capital investment.
This will not only increase Bevel's production capability and extended shipping range in Canon and US, but also enable us to generate predictable incremental revenue and adjusted EBIT.
And with that, now I'd like to turn the call over to Glenn for our financial review.
Thank you, Miguel, and good afternoon, everyone.
Before reviewing our Q2 financial performance, let me take a couple of minutes to discuss our balance sheet and cash flow.
I'd like to reinforce what I said a number of times before and that is we take great pride and having one of the strongest balance sheets among Canadian all piece and Our one of a very few in that cash position
Of course, we're always on the lookout for further opportunities to improve through smart and defensive capital allocation decisions.
As of yesterday, February 8th, we have approximately $310 million of cash, including $65 million of restricted cash. And we believe this is sufficient to fund operations and to our cash flow positive.
We have only $149 million Canadian principal remaining on our convertible loans due in 2024.
During Q2, we repurchased $135 million in principal on our convertible notes at a total cost of $128.7 million cash, including accrued interest.
The debt we purchased during calendar 2020 to this resulted in cash interest saving but now total approximately $17 million annually.
We also continue to have access to significant capacity under our base shelf perspectives, including approximately $180 million remaining under our ATM program.
During Q2, we issued 39.5 million shares for net proceeds of $68.8 million.
The current shelf will expire in April , and we do expect to repile a new shelf and ATM program at that time.
And we reiterate that the proceeds from chair issuance are expected to be used only for strategic purposes.
Our operating cash flow in K2 consists of the Venetian of $60.6 million.
But that included $15.5 million for a number of one-time payments related to our business transformation. People charge a
$12.4 million for one-year payments such as insurance and health damage of fees, and approximately a $12 million investing in working capital.
So we are pleased with the positive impact our business transformations having for our future cash flows.
With the restructuring of our business now largely executed, we do not expect one time they must to repair these levels.
And we do expect that the combination of reduced costs and increased revenue from the same footprint will be significant for the company to reach positive awkward and cash flow.
At the same time, it is worth noting that there may be some quarter to quarter-variant ability not ready to cash well.
As we saw in Q2, when the company achieved significant increases to sales, the long cash conversion cycle of this industry means that investment in working capital may be required, which may negatively impact operating cash flow for that period.
quarterly capital expenditures were approximately $3.5 million, down 36% from the $5.5 million last quarter, and more than offset by $14.7 million of cash from the sale of our Polaris facility.
Looking now to Q2 business performance.
PT total net revenue grew 25% to $61.7 million compared to $49.3 million last quarter. We saw strength across all business segments while also benefiting from a full quarter contribution from Bevo.
We achieved our goal of positive adjusted EBITDA, generating $1.4 million. This was primarily due to growing revenue in our industry-leading Canadian and international medical cannabis operations and from reductions in costs across our business, but primarily in S-GNA. We now provide limited access to managedhearttouch.com, providing Unique
We've now stabilized the company into a much cleaner operating structure and see a real opportunity to drive more revenue from these assets in the future.
Let me now address each of our businesses in a bit more detail.
Canadian medical revenue was $25.8 million in Q2, up 10% from Q1.
Much of the sequential growth in revenue was driven by a one-time revenue recognition benefit as more shipments than usual were intransited at the end of Q1.
However, normalizing for this adjustment, Canadian Medical still delivered a 2% increase.
But performing that was important given that most of our final cost production were in the segment during Q2-20-23.
So looking forward to fiscal Q3, we expect the Canadian medical business to perform similarly to Q2 excluding that one time revenue benefit of $800,000.
International medical route youth was 13.8 million dollars and reflected a 69% increase versus Q1.
The segment rebounded from Q1 as expected through shipment's export market such as Australia, Poland, the UK and Cayman islands.
and return to level of more consistent with Q4 2022.
Taken together, our medical business is in Canada and internationally generated $39.5 million of revenue, up to 25% from Q1. Medical cannabis represented about 64% of our Q2 revenue, may be 7% of gross profit. Adjusted gross margin was 61%, down from 67% to prior quarter. The decrease is primarily driven by higher sales than the certain international export markets, which yield a slightly lower adjusted gross margin that still contributes strong positive gross profit.
The Q2 increase was driven by growth in both Aurora's Premium Sand-Wrap brand and by our value brand Daily Special, which offers consumers a strong potency, quality and price proposition. Looking forward into Fiscal Q3, we expect the Canadian consumer market to continue to be fluid, with Aurora's top-line revenue being flat sequentially. Adjust the gross margin before fair value adjustments on consumer cannabis net revenue is 20% in Q2, compared to 25% in the prior quarter.
The decrease was primarily driven by the incremental sales of the value branded products as just mentioned. So we forward we of course remain committed to maximizing profitability through low cost production and margin of creder categories and all supported by our science leadership.
Our controlling stake in Bebo enabled us to recognize $6.6 million net revenue during Q2 up from $3.3 million in Q1. This increases a result of a full quarter of contributions compared to only a partial quarter of Q1.
Bebo has categorized this kind of propagation in our financial disclosures.
As a reminder, BEVO has a seasonal cadence with two thirds of BEVO's annual revenue and EBITDA being realized during the period from January to June .
On an annualized basis, DevOps business is steady, predictable, and supports our ability to generate positive, just to deal with that.
Bevos adjusted gross margin before fair value adjustments was 50% in Q2 compared to 60% in Q1.
Adjustment primary related to one time was a damage impact on fuel costs, which managed in the expects to be very transitory in nature.
Due to seasonality, we would expect improved margins in the key spring and summer sales windows.
Overall, the adjusted gross margin, the core fair value adjustment, which is 45% in Q2, versus 50% in Q1, still among the industries best.
Excluding the restructuring and non-recurring costs of $14 million in Q2, SGNA and R&D were wealthy cold. Down 17% took on to $26.6 million.
Notably, we have made good on our commitment to reducing SGN 8 to below $30 million as part of our business transformation plan, a rate that we can sustain going forward.
So pulling all of this together, regenerated positive adjust to be at the $1.4 million compared to a loss of $7.4 million in the previous quarter.
And finally, just a reminder that our fiscal year 2023 has only three quarters as we have changed our fiscal year end to March 31st. And that's in order to achieve certain internal costs and staffing efficiency.
So thanks for your interest. I'll now turn the call back to Miguel.
Thanks Glenn. At Aurora, our purpose is opening the world to cannabis as a global leader in this very exciting industry. And in that spirit, let me share some final thoughts.
First, we are very pleased to have completed our transformation plan, delivering on approximately $340 million in annualized savings since February 2020. Our entire team's hard work resulted in positive adjusted EBITDA while maintaining a strong balance sheet that will allow us to compete at a very high level and take advantage of future global opportunities.
Second, we've done this without sacrificing growth opportunities in our high-margin domestic and international medical cannabis businesses, which remain one of the best places in the industry to invest.
Third, we completed our plan during a period of volatility and uncertainty around the Canadian wreck market.
The good news is it continues to rationalize which will give us an opportunity to market share improvement.
Finally, our future success will be enabled by science through continued plant genetics, improving yields, and better crop quality. We believe this will drive high margin, new cultivar licensing opportunities in the future and place Aurora at the center of an industry-wide innovation.
Looking forward, we continue to focus on profitable growth opportunities across all segments.
ongoing discipline in capital deployment, and improving operating cash flow.
Taken together, our ability to make progress in these areas will position our shareholders for significant value creation.
Especially these levels.
Thank you for your time and interest in Aurora. Operator, please open the line for questions. Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. If you would like to ask a question, please press star one on your telephone keypad.
You may press star 2 if you would like to remove your question from the queue. For participants, you can speak your equipment and maybe not necessarily pick up your hands that before pressing the star keys.
And we ask that you please limit yourself to one question. Thank you.
One moment while we pull for questions.
And our first question comes from the line of Vivian Azare with Cowan. Please proceed with your question.
All right, thank you. Good evening.
Good evening, Deb.
So I wanted to dig in on medical cannabis growth margins please. Down a little bit, you know, year-over-year, and sequentially clearly was not an impediment to you guys hitting your target for part of the Vajessa-Dibidda, which is really, really nice to see and congratulations on that. But given the call out that the margin dilution was coming from frontier markets.
Do you think the current growth margin levels for that business are an appropriate run rate? It seems like you've got a lot of opportunity ahead of you and your mix to front-to-ear market might kind of stay at these levels and offline a little bit until there's a real catalyst in Germany. Thank you.
Yeah, I mean, so as it pertains to medical cannabis, I think structurally we don't see the margin compression that maybe you would see in the rack market. We're up to about 25% of the Canadian business and the reimbursed market, which represents about 80% of our revenues in Canada, is at a healthy number.
that is part of the overall system. You know, some of that was mixed, as you sort of mentioned in Canada, but structurally we don't see anything there. When you look internationally, you also don't sort of see those impediments. And yeah, there will be places, maybe where lower cost items gain a little bit of traction.
But because the model is structured in the manner that most of the supply chain takes their margin off of percentage of the wholesale list, and because you see reimbursement in those markets, there's not a structural reason, you know, to see margin. The question, secondarily.
You know, in the reckons in Canada, you're competing as hundreds of manufacturers, and in some cases some that need to sell their product at a lower number. In most of the international markets, you know, you really only competing as three or four other manufacturers because of the significant barriers to entry. So you don't see that competitive aspect where you play on price.
And lastly, you really are seeing value from clinicians and physicians and patients as they are interested in equality, which comes at a cost. So overall, we see this as a steady business from a margin standpoint and we see consistency and market to market in.
There was a little bit of, you know, mixed chings that the fact that you're about margins, there's nothing there structurally that gives us pause.
And the next question comes from the line of Michael Lavary with Piper Sandler. Please proceed with your question.
Thank you, good afternoon.
Good afternoon Michael. I just wanted to come back to the ATM. You mentioned you've got the remaining amount to go there and if I cut it right, I think you also said you would anticipate renewing that. Can you just give us a sense given where your balance sheet is already? What the thinking is and I guess it's some amount of how much is enough.
a point at which you would feel like you would fix all sorts of what you need at the ATM or it's something that you feel like has got a longer runway. How are you thinking about that?
Yeah, I think it's a great question because it's, you know, there's so much a point of interest right now, which is runway use of cash. What's the right amount of cash? I think first and foremost, you know, people should look at, you know, a company's actions maybe more so than even what they say. It's even very, very conservative.
in our balance sheet. Right from the beginning when I got, became CEO , the company worked extremely hard to have a strong balance sheet. And we saw a lot of this disruption. And clearly understand what using the HM means. And
and what that means to, you know, to others when you look at it. But first and foremost, we believe that it was important for external, you know, stakeholders to see the company to have enough cash to be able to run the business. And obviously that, you know, goes into how much cash you're burning. So we worked extremely hard and we've seen.
you know, progression from at one point the company had over $100 million a quarter in SG&A, now to below 30. You know, I've sort of beaten the drama about our cost savings. But overall, it is my belief that the company has to have a certain amount of cash, maybe more so than normal to give people the comfort that we will be here.
for this inevitable upside for global cannabis. I mean, I think there's no question that at some point, you're gonna see a significant amount of profitability opportunities around the globe. We believe in medical first. And the question is, who's gonna be there? And we think we're gonna be there. So the use of the ATM, you know, is...
is used strategically. I think people have seen the thing. It's good stewards of the cash. We've sold assets quickly in a good price as we've taken converts down. In many cases, below a par. And Michael, I think we'll continue to do three things. First, it's always focused on having strong balance sheet.
so that we will have the wherewithal to be there when these opportunities hit, as well as be there when potential M&A and other things happen, such as Bevo, which we thought was a great play. Secondly, we will be very judicious in our use of cash and hopefully people have seen that here.
And third, you know, where possible, we will use it to find, you know, margin of creative and profit opportunities. And we were really thrilled this quarter if you look at our sort of cash use and where it went, that in each of our four key businesses, we saw growth. And so I think you put that all together and, you know, you can sort of see that the future will look very similar to how we'd use cash in the past.
And the next question comes from the line of Andrew Carter with Steve Fulke. Please proceed with your question.
Hey, thanks. Good afternoon. So, I guess what I wanted to know is, do you think you can achieve, like, strip out candidates that don't use? Do you think you can be positive EBITDA in that business, considering kind of the difficult market? And just kind of a separate question, kind of how you, Miguel, and the board are looking at the business. I think I've got.
Right now, yeah, $275, $4 million of enterprise value. You think that captures what the sum of parts potentially is on the medical business, Canada Medical, New Year's Eveau, which you can do there. And then also just the genetics investment, difficult to value in the markets. Is that a consideration in something you keep in mind that potentially is a floor to consider here?
in a regulated, reimbursed, compliant manner is going to be the first mover of all of that. And we are one of the leaders, if not the leaders in that globally. So clearly the valuation and where we see ourselves, we don't think is representative of that opportunity, but.
You know, we don't have complete control of that. The medical business that was built in Canada and now is finding its way all across the globe and key markets is wonderfully portable, wonderfully defensible, and has extremely high margins as I've talked about. And as we see new markets coming on like Australia and...
Switzerland and Austria, you know, those are tremendous opportunities that only a small subset of companies will take advantage of. And, you know, how people value that. So the genetics piece and the science piece, you know, has been sort of sitting there on the side all along and with having what may be one of the largest cannabis genetic libraries in the world.
rack as a standalone is sort of a tough question because we see so many efficiencies and learnings and having both. And it would be an easy sort of answer to say, well, why don't you just get out of rack and focus on medical, which is really a strength for us. But you're starting to see that when you're in a market and you have both, there are significant advantages.
and we see that with product lines, we see that with innovation, we see that with production. And I think really importantly, you will see that in Germany. And we're very bullish on not only the opportunities in the progression of medical, but also in RAC and having that key learning facility and others and being able to be there at the beginning in medical and then transition in RAC.
market, shame and rack where we would be in medical.
And our next question comes in the line of Pablo Zwanek with Cantor Fitzgerald. Please proceed with your question.
This is Matthew Baker on for Pablo. Thank you for taking our questions. I have a two-part question. Firstly, what explains the stickiness of your market share in the Canadian medical market? And then on the other hand, why is your medical market share in Germany so much less sticky? And then as a follow-up, what are your latest thoughts of when German rec sales will begin and you still think imports will not be allowed?
Thank you. We're welcome, Matt. So Canada is a hard market. They're all sort of hard, but the reason it's so sticky is we've made really significant investments in this. We've been here a long time and we think we're...
You know, pretty good at it. We have roughly a 25 share. The next closest competitor is out about a nine share. So this is a piece of business where you have to make a lot of investments.
experience matters, particularly with clinicians and physicians and with clinics. And you have to continue to invest call centers, innovation, support mechanisms, science, engagement with key stakeholders and veterans and others. And so it's just a commitment we've made and I think you have to hit on all cylinders.
And I think without being sort of arrogant about it, I think we're pretty good at it, but at a long time in Canada. In other markets, some other folks got there at first. And it's not always the first mover status matters, but I think it takes more time.
you know, for the benefits of our program. So we're, you know, we're pleased with where we are in Germany, we don't have a 25 share. And there's some other good competitors in there. But again, it's four or five companies. So it's not like you're competing against 100, you know, or 200. And so, you know, I think, you know, we're really pleased with that and where we sit in the German market.
And as I mentioned in my prepared comments, we're one of only three companies that have a manufacturing license in Germany, which will play a significant role, we think, as they roll out legalization for the REC. Now in terms of REC, we're really excited about the German process.
I think three primary reasons. First is they're actively engaging with the EU and the expectation is with what they come up with would be applicable in other markets, Poland, Czech Republic and others. And we've heard from those regulators in those markets that they're looking to what happens in Germany and the EU. So it might take a little bit longer, but it'll be a more
but also on the medical side, which not a lot of people are talking about. And, you know, the current administration in Germany has a big initiative on reducing bureaucracy, and only about 30 percent of the patients' day in Germany are able to navigate through that medical qualification process for cannabis products. And if that was cleared up...
You'd see a real big change. 0.1% of the adult population in Germany is in that system. I mentioned Canada that 1%, so any sort of change there will have really outside benefits. So more, not with a lot more late spring.
And as soon as we hear something, we'll let people know. And we do expect some version of rec sales to happen day mid 2025, which is when there's a critical action and there've been some promises made about when this is gonna launch. What that looks like, we'll see, but these things may take a little bit longer, but.
With a country like Germany, it may take a bit and be a little bit more long time period, but when it happens, it sticks. So we're willing to work with them on that.
And the next question comes from the line of Frederico Gomez from AGB Capital. Please proceed with your question.
Hi, thank you. Good evening. Thanks for taking my question.
My question is just from the adult use side here in Canada. You mentioned that much of your sales increased coming from higher sales of value brands. You know, should we be reading to that? Was that more opportunistic or is there any in shift in strategy there?
whereby you plan to rely a little bit more on the value segment to grow volume and maybe accelerate growth on the consumer side. Thank you.
You're welcome Fred. No, there's no change in strategy, but I will say, you know, one thing that people should take away from this quarter is that Aurora, you know, has a unique ability to be opportunistic. So when there's a medical opportunity globally, we can take advantage of it. When there's a medical opportunity domestically in Canada, we can take advantage of it.
And so most of the change in what happened in Glenn reference this in his comments is we found ourselves in a very interesting situation where we grew some flower for daily special when it came in at a 28 or 29 potency, which is absolutely a super premium potency band.
But because it was already registered with the provinces, we really had the choice. We want to sell it and see the benefit, or we want to hold on to it and relist it. We didn't want to relist it. So the reality was that product that was extreme, high-podency and great quality went out under the daily special brands and had a little bit of compression in or overall margin.
So the Thrive team is doing an awesome job and we do see incremental opportunities to continue to do what we said we're gonna do But where you know, we see things hit in that wreck market on the discount play because we're focusing on operating cash flow We'll take those advantage of the cat so no change in strategy
It was opportunistic because of the unique situation. And listen, you're thrilled to have that, and it's a testament to great genetics and good cultivation that we found ourselves in that situation, and we were thrilled to be able to have those sales.
As a reminder, if you'd like to ask a question, please press star one. We ask that you limit yourself to one question, please. Our next question comes from the line of John Zamparo with CIBC. Please proceed with your question.
Thanks. Good afternoon. I wanted to ask about the Canada Health acquisition. I know this isn't hugely material, but 20 million in cash is not not meaningless in this space either. So just would like to get an update on what this asset brings to the table and what the financial implications of it so far.
Sure we have to do. I've been talking for a bit when you want to talk about Cayton Health and that's an odd deal.
Yeah, the folks at Canada Health are very closely attached to some of the key vet influencers in that population. They've been extremely good at building relationships and supporting veteran patients in the medical system.
finding the right medicines for them and just actually kind of almost all pretty little bit of counseling service. We thought that they're very important part of our supply chain and we thought since that business was so incredibly important to our profitability we needed to make sure that we had that
relationship locked up to the long term. So, you know, the acquisition there is really about solidifying the long term value where medical business and particularly the funnel of veteran patients and our ability to get very close to those patients, which obviously is.
is critically important to understand their needs. And it has started paying on to actually launch the new product in our medical portfolio in the last month, a product called Valor, which was the cul-p-par selected by veterans from our Coast Facility for Turpin Pro-File on various attributes.
They picked the name and it launched and again, just being that close to really critical patient population has been important for us. And that can help is a big part of that equation.
Thank you. And as a reminder, if you'd like to ask a question, please press star one. You may ask one follow-up question. Thank you.
And the next question comes from the line of Matt bottomly with Canacorn Genuity. Please proceed with your question.
Thank you, good evening everyone. Just wanted to touch on the adjusted gross margin again. I know, Glenn, you had some prepared remarks about this, but when you kind of look at the overall trend over the last three, four, even five quarters, it seems like the ratio of these types of adjustments are still fairly meaningful in relation to the size of your overall revenue. So I understand that you're not going to be able to see the actual total. So I understand that you're not going to be able to see the actual total.
these types of costs and these types of opportunities and challenges to continue sort of indefinitely. So I'm just wondering how you're anticipating this adjusted line moving just given that your actual audited or reviewed statements have pretty nominal margins from an unadjusted standpoint.
Yeah, thanks. So a couple of them are going in the market. They're certainly the myth across the category.
Market by market, the margins are holding up quite nicely. So we still see a strong medical margin as we've seen over the past several years, number of quarters in the Canadian medical. Consumer margin this quarter was generally mixed related, as Miguel just described, and opportunistic in certain areas.
and depreciation. We're trying to get to a cash margin that will allow you to understand the underlying ability of the business to generate cash. This quarter there was an adjustment for one time effective devo. I don't know if you're following natural gas prices, but they spike tenfold in December .
due to some weather in California and then came right back down in January . So it was just the first time never seen that before, one-time transit doors. I thought that wasn't very reflective of the true gross margin. So we will look at trying to paint a picture for you of the underlying ability of the company to generate cash flow.
changes in transfer and manufacturing line, lots of S-SHA reduction to a fair amount of noise and air financial. But I think we're past that now in Q3HRT, the level logo of the search of adjustments coming
Thank you. At this time, we have reached the end of the question and answer session. I would like to turn the floor back over to Miguel for any closing comments.
First, foremost, let me thank everybody for your interest in time. What we're thrilled is where we are. I would say this is absolutely not the finish line. You know, you take anything away from this call, and say that our strategic plan is working. And we're thrilled what we did here, but we're also thrilled where we're going forward. Appreciate everybody. What you're interested in, look forward to talking to you in the future. All the best.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.