Q4 2022 Cronos Group Inc Earnings Call
Speaker 1: You.
Speaker 2: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1-1.
Speaker 3: Good morning, my name is Cory, and I'll be your conference operator today. I would like to welcome everyone to Chrono's Group's 2022 fourth quarter and full-year earnings conference call.
Speaker 3: Today's call is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, press star 1-1 again. At this time, I would like to turn the call over to Shane Laidlaw, Investor Relations.
Speaker 3: Please go ahead. Thank you, Corey, and thank you for joining us today to review Kronos' 2022 fourth quarter and full year financial and business performance. Today I am joined by our Chairman, President, and CEO , Mike Gorenstein, and our CFO , James Holm. Kronos issued a news release announcing our financial results this morning, which is filed on our Edgarn CEDAR profile. This information, as well as the prepared remarks, will also be posted on our website under Industrial Relations.
Speaker 3: Before I turn the call over to Mike, let me remind you that we may make forward-looking statements and refer to non-GAAP financial measures during this call. These forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statement.
Speaker 3: Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials and our SEC filings that are available on our website, by which any forward-looking statements made during this call are qualified in their entirety. Information about non-GAAP financial measures, including reconciliations to US GAAP, can also be found in the earnings materials that are available on our website.
Speaker 3: We will now make prepared remarks and then we will move into a question and answer session. With that, I'll pass it over to Cronus's Chairman, President and CEO , Mike Kornstein. Thank you, Shane, and good morning, everyone. I want to start our call today by reflecting on the transformative steps we took in 2022 to put our business on a better footing in preparation for the future growth of the global cannabis industry. In 2022, we embarked on a strategic realignment of our business and our business plan to ensure
Speaker 3: The realignment of our business was centered on our core objective to create a portfolio of borderless products and brands across adult use product formats.
Speaker 3: Last year we spent a lot of time getting our product and mix right for each market we This involved strengthening our borderless product portfolio, including edibles, vapes, and infused pre-roads, and exciting and flyer genetics that launched Canada and Israel.
Speaker 3: We've also decided to exit the CBD beauty category in the US in favor of focusing on adult youth product formats. Quarter or strategic initiatives and continuous improvement efforts are getting to an avenue of product in the market that elevates the consumer experience and leverage the number of supply chain. We are building a blueprint in Canada for what we think will win in other markets. Our focus is on borderless product innovation.
Speaker 3: meaning we're creating product lines and brands that we know from our experience will win when introduced to new markets.
Speaker 3: We've managed to do all this while cutting our costs significantly and reestablishing our mindset to ensure growth with the attention to ROI and portal innovation. Our summer cost structure enables us to fund the project initiatives to help grow anduke-Urro-Promach strategically.
Speaker 3: As we look ahead this year, we know there's more we can do to cut cough while maintaining our innovation and growth engine.
Speaker 3: We remain truly focused on cutting cop, rather business, to ensure product voice for long-term growth.
Speaker 3: As part of our plan optimizes supply chain, in early 22, we announced plans to begin wanting down operations at our Peace Natural Campus.
Speaker 3: including the shuttering of cultivation and moving certain that can be used to contract manufacturers. As you will know, we participate in industry that is constantly evolving so it's important to stay agile.
Speaker 3: We continue to transition towards a more flexible footprint, ensuring we have a capability to execute in current and future market opportunities. To that end, we decided to maintain select components of our operations at the Peace Natural Campus. Specifically, we plan to continue distribution where happens, certain R&D activities, and manufacturing or multiple prior to our innovative products.
Speaker 3: We expect that decisions provide us with space and security for continued growth. Through this realignment, our goals have always been to position front successfully a semifortfolio of best-in-class borderless products, fueled by proprietary innovation, while preserving financial flexibility. The decisions remain in the peace natural campus, allow us to make the lecture teaching investments in our R&D and brand-flights lines as we innovate and evolve continue preferences.
Speaker 3: In Canada, we continue to execute our plan to create a robust portfolio of borderless products highlighted by several important product launches and the continued success of the product already in market. All of the following Canadian market share information I will be referencing and provided by High Fire. In January 2023, our award winning gummies under the Spinach Grand Ombrilla became the number one gummeme in Canada with 15.9% market share in the edible category. When focusing on just gummies, Spinach has a 20.9% market share.
Speaker 3: We're thrilled that our gummies have become a highlight of so many adult-consumered lives. I would like to thank them for showing the brand loyalty and enthusiasm for our products. Sowers by Stages of Borderless Products and the flavors, combinations, and sales have made it confident that we have a winning product that can appeal to consumers in any market. In December , we launched the Spinach Field CBC Gummies in select markets and a Continuous Band Distribution in the first quarter of 23.
Speaker 3: This is the first CBC guvving product in Canada and the first product of any kind of feature is 3-1 ratio of CBC to THC. We're incredibly excited about the potential of CBC and have big plans for it in 23. Early sales point to strong consumer adoption and believe this product will be added to our overall benefit portfolio. In November , as in previously disclosed, we launched two infused pre-rolls in Canada. The first under the finished brand is our fully charged atomic GMO, which comes in a 5-pack with a half gram for pre-roll. We also launched a CBG infused pre-roll under the finished field brand, Tropic Diesel CBG, which comes in a 3-pack with a half gram for pre-roll. These new pre-rolls are quickly climbing the market share ranks, led by our fully charged atomic GMO infused pre-roll.
Speaker 3: Our free roll market share grew by 40 basis points sequentially from the third quarter to 1.4% in the fourth quarter. We have lacked the market in free rolls, but through extensive work in this category and the launch of infused free rolls, we believe that we now have the right foundation. The moves have made in 22 to improve our near-term competitive position in free rolls are just the beginning of the work we're doing in the category. We believe, like the Edibles category, free rolls will be a category with product differentiation, or drive brand separation, and one of our top priorities is to create next-generation borderless products. We are doing extensive work to develop a portfolio product that will separate us from the competition.
Speaker 3: based on several factors including reducing harshness, improving consistency, and hitting on consumer preferences around flavor and potency. In the base category, we achieved 4.8% market share in the fourth quarter. Up 40 basis points in Q3, finding to number six in market share. We'll look to build on that momentum in 23, which continue to push to include American avinoids in our base and drive innovation leading on our winning formulations across the portfolio.
Speaker 3: While flower-remecanadian market continues to be heavily weighted to 28 grand bags, we continue to fund market share in a 3.5 gram segment, with our GMO cooking queue, the highest ranking 3.5 grams queue in the country, at number 6 in the overall dry flower category. We had a 5.1% share of the overall dry flower category in the fourth quarter, making finished the number 3 grand in flower. In 2 floor, Groco reported a preliminary unordered revenue of approximately 2.4 million from non-chronous customers, and in the full year, Groco had revenue of approximately 21 million to non-chronous customers. Our 50% share of Groco's net income, which is the count for under the equity methods accounting, weighted at 3.1 million in 22.
Speaker 3: Toronto's previously provided broker with a credit facility, which currently has 73.89 outstanding following the repayment of principal 3.1 million by broker as of December 22. In addition to printable repayment, Toronto's also received 2.2 million interest payments in broker in 2022, which show a 5.2 million in cash payments to Toronto. The strong financial performance of broker codes, yielding equity pickup, print, tax, and interest payments to Toronto is an important component to our overall financial picture, and I believe it's an under-appreciated part of our story.
Speaker 3: We are very pleased with how quickly Groco achieved profitability and are excited that they are making significant strides in continuously improving their operations. Groco's performance on cultivation continues to be strong, hitting north of 30% CHC potency on recent harvest, which is a testament to our JV's complemented capabilities in cultivation and downstream processing and our investment in genetic breeding and tissue culture. Turning to Israel, our Fee's natural products continue to be strong performers. In the fast quarter, we launch two new flyer feet, Miami Sky and Atomic Sower.
Speaker 3: powered by a flyer of an edX and breeding program, which continues to set up the part from the competition in Israel. Our end-market sales and marketing strategies have resonated and our products have become synonymous with quality and consistency, driving the brand to set. In terms of the US market, we see the production of both Happy Dance and Peace Plus, the streamlined of brand portfolio and our operations to focus on adult youth product format under the Lord Jones brand. We are pleased to move forward in 23 week with a leaner portfolio of brands and a mix of products. We feel confident we'll volve and build our brand portfolio.
Speaker 3: hosting a record first half of 23 with gross revenue of $57.6 million in Australian dollars and EBITDA of $11.8 million. The medical market continues to grow in Australia and the tourist position is incredibly well to take advantage of the market opportunity. As of the end of 2022, our stake in the tour is worth approximately 22 million, which we believe an under-appreciated asset on our balance sheet.
Speaker 3: Last but certainly not least, I would like to congratulate and introduce you to James Home, our new CFO , who joined us in November of 22. James brings to Chronos roughly 20 years of experience in various finance and accounting roles at leading companies across industries. It has been immensely impactful to our business during this first four months and we look forward to having him as part of the team helping steer Chronos forward. With that, I would like to pass it on to James to take you through our financials. Thanks Mike. Good morning everyone. I am very pleased to be joining my first earnings call with Chronos and I'm looking forward to all the great things we are going to accomplish. Turning to 2022, on a consolidated basis, we increased revenue 23% year over year to 91%
Speaker 4: results in relation to the prior year period.
Speaker 4: The company reported consolidated net revenue in the fourth quarter of 22.9 million and 11% decrease from the prior year period. Constant currency consolidated net revenue decreased 4% to 24.8 million. The revenue change was primarily driven by a decline in the adult youth Canadian market. The company reported a decline in the third quarter of 22.9 million.
Speaker 4: driven by lower cannabis flower sales, largely attributable to an adverse price mix shift. A decline in revenue in the U.S. segment driven by the strategic repositioning of that business and the impact of the weakened Canadian dollar against the U.S. dollar during the period, partially offset by growth in cannabis flower sales in the Israeli medical market. Consolidated growth profit in the fourth quarter was negative .2 million, representing a 2.2 million decline versus the prior year period. The decline was primarily driven by lower cannabis flower sales in Canada, largely driven by adverse price mix shift, an increase in inventory reserves in the U.S. segment as we transition away from the beauty category.
Speaker 4: and lower fixed cost absorption and packaging changes in the ROW segment. This is partially offset by increased sales of cannabis flower in Israel, a favorable mix of cannabis extract products that carry a higher margin profile than other product categories, and lower cannabis biomass cost. Consolidated adjusted EBITDA in the fourth quarter, with negative $21.2 million, representing a $6.1 million improvement versus the prior year period.
Speaker 4: The improvement was primarily driven by a decline in expenses across general and administrative, sales in marketing and research and development. Turning to our reporting segments, in the rest of the world segment, we reported net revenue in the fourth quarter of 22 million, a 3% decline from the prior year period. Constant currency net revenue in the rest of the world segment increased 5% to 24 million. Revenue change was primarily driven by a decline in cannabis flower sales in Canada, largely attributable to the mixed shifts from 3.5 gram offering to 28 gram offering and the impact of the weakened Canadian dollar against the US dollar during the period. This was partially offset by growth in cannabis extract in Canada and cannabis flower sales in the Israeli medical market.
Speaker 4: Growth profit for the rest of the world's segment in the fourth quarter was 1.3 million, representing a 1.1 million decline from the prior year period. The decline was primarily driven by lower fixed cost absorption, packaging changes, and an adverse price-mix shift in the Canadian flower market, partially offset by growth in cannabis, extracts, and canada, increased flower sales in Israel, and lower biomass cost. Adjusted EBITDA on the rest of the world's segment for the fourth quarter was negative 13.4 million, representing a 1.2 million improvement from the prior year period. The improvement versus the prior year was primarily driven by a decrease in research and development and general and administrative expenses.
Speaker 4: Turning to the US segment, we reported net revenue in the fourth quarter of 850,000, a 73% decrease from the prior year period. The decline year over year was driven by a reduction in promotional spending and skewer rationalization due to the strategic realignment of our US business. Growth profit in the US segment for the fourth quarter was negative 1.5 million, representing a 1 million decline from the prior year period. The decline year over year was primarily due to lower sales volumes and increased inventory reserves associated with discounted discounts using a discontinu-
Speaker 4: down approximately 11 million from the third quarter of 22. As foreign exchange rate volatility has impacted our P&L, it's also had a large impact on our balance sheet.
Speaker 4: If you apply the FX rates for the period ended December 31, 2021, to the current period balance sheet, we would have approximately 914 million cash in short term investment, an approximately 36 million dollar difference. Last year, we made significant strides to reduce spending and improve our cash burn rate. We started 22 with the targets to reduce cash operating expenses by 20 to 25 million.
Speaker 4: which we were able to surpass by $3.7 million, saving a total of $28.7 million throughout $22. A free cash flow improved by approximately 43% in 22 versus prior year, driven by operating expenses, saving, and approximate 60% reduction in CAPEX, which was down to $5 million in $22. As we embark on 2023, we are setting a new goal to reduce cash operating expenses by an additional $10 to $20 million.
Speaker 3: We continue to be thoughtful in our approach to cost reduction to not hamper our growth or our ability to execute on building borderless products. With that, I'll turn it back to Mike. Thanks James. Before getting any questions, I want to level up that what's under the front of some Rela and worth things today? Close the year with 870 million cash and equivalent and zero debt.
Speaker 3: With the move and interest rates, we expected generate significant interest income from our cash in 2023. Our Canadian business reached 56 million revenue in 22 and within that business, our Spanish brand had the following market share ring provided by high fire data for January 23. Overall, Spanish is the number three cannabis brand and edibles the number one brand and flower the number three brand and three rolls the number nine brand and quickly taking share and invades the number six brand and also gaining ground. We have a leading brand in Israel, totally revenue of 30.5 million in 2022.
Speaker 3: We have a 6.3% stake in farm can, one of the largest private USMSOs currently on our book, 49 million. We have an approximately 10% stake in the mature, a leading publicly traded Australian medical cannabis provider worth a approximately 22 million out of year end. We own 50% of the equity in Chronos Broco, which is profitable and they paid a 5.2 million in principle and interest payments in 22. We ended the year with a remaining balance of approximately 86 million on our combined loans to Broco and its partner. Broco has a growing book of business outside of the L.T. Chronos, reporting out to a total of 21 million to non-abroad customers in 22.
Speaker 3: We have a growing portfolio of intellectual property associated with fermentation and cannabinoids, patent- pending product formulation, and a constantly growing portfolio of genetics. We own real estate and multiple whiteness facilities free from any income residues. And finally, we have an exclusive partnership with Altria on a global basis. Close and market yesterday, Chrono's creative and market capital brought to me $794 million and an enterprise value approximately negative $84 million.
Speaker 3: I don't believe there's a cannabis company today that has more underpriced value in the product. With that open line for questions. Thank you. At this time we will conduct a question and answer session. As a reminder to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. We ask that you please limit yourself to one question and one follow-up. One moment, stand by while we compile the Q&A roster. First up is Michael Freeman of Raymond James. Michael, you are in his open. Good morning, Mike and James and Shane. Thanks for my trip to care questions.
Speaker 3: I wanted to first ask, I mean, we have a great interest in your partnership with King of Bioworks and the commercialization of layers. I wonder, you know, after many quarters selling errors in a distributed through your products, I wonder if you could describe how the high level of the impact you've seen in the release of sales and the reputation of these rares. Yeah, thanks. No, I think it's been a great impact. You know, I don't think it's a coincidence that...
Speaker 3: You know, we've used rare than our deliver products. You know, with a heavy focus on adables and with a cheeky number one market share. I think it gives a halo of the brand a lot of it to put out a number of skews that are really differentiated that, you know, others aren't really offering. And I think it also gives us some momentum to be able to continue building on portfolio. Now, we really have a lot more iteration and we still think there's a lot of, you know, exciting product and that's the yet to come. So I think it's a key differentiator. I think that, you know, the result can be seen. Just didn't, and what we've been able to put out of the last year. So we're really excited about it. And I think the retailers and consumers are as well.
Speaker 3: That's true. Thank you. Now turning to the US, you know, we saw some disappointing results in Congress at the end of last year and it looks like the timeline for any sort of major reform in the US. It's been pushed out. I wonder if you could frame for us your plans regarding entering the US, which is very prominent in the historical strategic plans. And wondering if that has changed to focus more on other geographies given the events of late last year. No, it just, you know, it haven't, haven't changed. I think that, you know, we didn't expect to do it in regards to whether or not.
Speaker 3: We're ready to move into markets as they open. So when we think about that, Israel and the growth we think can continue there. We think Australia, there's certainly some from tailwind, Germany of course and the US. But other markets that start to open up faster is.
Speaker 3: move into markets as they open. So when we think about that, Israel and the growth we think can continue there. We think Australia, there's certainly some from tailwind, Germany of course, and the US. But other markets that start to open up faster will be ready to move.
Speaker 4: Thank you. Stand by for our next call. Our next call comes from William Carter of Seifel, William, you're open. Hey, thanks. This is Andrew on for William. Just wanted to ask real quick. The first offer, we're going to ask about the growth margin in the quarter, the compression accelerated. Were there any one-time issues? Is that growth margin? Does it inflect significantly from here because just kind of get an idea of what really changes that? I know you said volume deliverage, but volume and flowers have helped by the price. Anything you'd help on that? Thanks. Sure. Thanks, Andrew. So, yeah, the primary drivers of decline in the growth profit and the ROW segment were adverse price mix shifts in the cannabis flower and lower sales in the US business. We also did have an increase in US reserves due to the strategic repositioning of the portfolio. More focused on the adult youth product formats, right? So to the one-timers you alluded to.
Speaker 4: And then we had lower fixed cost absorption and packaging changes and they are a W statement again one time issues as you alluded to However, those negative impacts were partially offset by strength and cannabis flower sales in Israel as well as the growth of cannabis extracts Bells in Canada they carry a higher margin profile than other product categories Israel gained significant operating leverage and their cost structure going from 13.4 million in revenue in 21 The 30.5 million in revenue in 22 for 128 percent increase And then lastly we benefited from lower cannabis biomass cost as we continue to leverage a joint venture with chronos grow co Right so we do not anticipate you know obviously to the extent you know you can such things but don't anticipate any future one timers there so hopefully more of a normalization on the growth market profile
Speaker 3: Yes, thank you, James. Just to add that, you know, one other thing that we talked about a bit last quarter, you know, as we were transitioning from, from piece natural to Groco, there were a number of supply chain disruptions ahead of. And so, you know, from an efficiency perspective, still in order when you saw a bit of it, you know, in top lines well, that did it overall effect the margin. So, you know, we think we'll get back to normalization now that, you know, we've sort of settled it having the same warehouse and distribution we had before and being able to optimize and restore it. Thanks. Second question, I wanted to ask because you gave, you know, kind of your comments that the end there did underscore, you know, some of the kind of the x checks you made on your strategy in terms of just market share products, but obviously the market is very different than what we thought it would be five years ago. So, I guess I would ask with the cash on hand, you see a sense of urgency to go out there and offer a more tangible case.
Speaker 3: Like, what do you think about like the kind of landscape of assets across the cannabis landscape, Canada and elsewhere, many of them broken assets, we saw some interesting deals last week. Anything any perspective you can give on that, thanks. Sure, so there are a number of assets, I think that are attractive. Some of those assets need to be separated from other teachers that you know would say otherwise take away the value of what's there. You know, we've we've expected that to have happened faster. I think that we're getting closer and closer. You know, depending which market you're talking about, you know, there's different types of assets, but I just want to stress the thing that we will continue to be focused on is what is going to, you know, have long term stickiness from a consumer perspective. So, you know, we aren't really focused on supply chain assets. It's really on branded products. And I think that there are some that are out there, but there's, I think, still some work to do and still some movement before.
Speaker 3: You know, a number of those are attractive, but there are so small set of them that, you know, we couldn't make it as long. Thank you. One moment for our next question. Our next question comes from John Zampara of CBIC. Thanks, good morning. I wanted to ask you about the Peace Natural Facility and the decision to remain there. Mike, you referenced the continually evolving landscape in this sector. And I wonder what was it specifically in the late G3 or early G4 that led to the decision to keep part of that facility running? It seems like you're keeping a number of functions. So I wonder if that cost escalated at third party providers or an element of control. Do you want to maintain or something proprietary? I'm just curious about the change here. I think there's a number of things, you know, I think first and foremost, we want to make sure that we have...
Speaker 3: We had the capabilities to be able to execute today and also in the future. And I think part of that, the distribution warehousing is really important. There's some R&D activities that we wanted to make sure we could maintain and also some of the proprietary products we just want to keep manufacturing and how it's done in advance of that. But another big factor, I think it's that given the success that Groco's been having, you know, quick as they reached profitability, we've still a lot of optimization to go. You know, it's also moving into Groco, did in a way sort of crowd and limit the potential for expansion of Groco, but also sort of cap the growth that I think that we'd be able to have. So I think any staying gives us the the short-term ability to execute better still orders, have better margins, but also longer-term for both us and Groco to be able to continue seeing growth. And that was really the deciding factor. Okay, that's helpful. Thank you.
Speaker 3: And now being able to start iterating, and adding, and combining different cannabinoids, and they got to where you can see the next level of success that we'll be able to have. But in a market, you know, you walk in a lot of the dispensary. Everything looks the same. Being able to have some of this different, some of this more targeted. When people are asking for effects, you can get something that's actually got a little bit more backing than just indicator of diva. I think that's really important to knowledge and what we do. Thank you. One moment for our next question. Our next question comes from Vivian Azer of Cohen.
Speaker 3: Thank you. Good morning. I was wondering if you could comment, please, on the recent announcement from the OCS around the change to their margin profile and how you guys are thinking about that in regards to your pricing as well as competitive landscapes. Sure. Now, I think it's pretty early to see what the spectrum of competitive landscapes will be. I think overall it's a step in the right direction. I think it's really good to see the acknowledgment that there's structural challenges in the industry.
Speaker 3: And that there are a lot of struggles for LPs to basically be sustainable and hit profitability. I still think that there's a lot more that needs to be done. But it is appreciated seeing that happen. But it's still pretty early to see, is this something where price is taken? Is there something where, you know, if you want to look basically seeing the value from it? We'll probably be able to have a better idea of that by next quarter. Okay, that's helpful. And then just on my follow up, you know, a lot of callouts on innovation, which all makes good sense in particular, given some of the differentiation that you guys are able to bring with your genetics and the rare cannabinoids. But, you know, in lieu of your continued focus on cost, can you just articulate how you guys think about kind of inventory management, SK rationalization, and, you know, what kind of regulators you've brought up. What would in place to manage that? Thanks. Sure. You know, one of the things that we've done. And I think it's been really helpful is the structure that we have with Roku where, you know, it's not cultivating and then trying to find a way to.
Speaker 3: sell product we have, whether or not it hits our spec. So, you know, when you're managing as grow-o on your own, it would be, okay, we need to, you know, our spec for a certain strain might be 26 to 30%, and it comes in at 31%, or at 24%, and suddenly you can't sell it, and you have to figure out what to do. When you're in more of a sourcing model, I think that makes it much more efficient. So, less risk of inventory write down. And I think that's been one of the most helpful things that we've seen, and also having multiple markets that can be pushed to, but grow-o being able to then sell third parties, you know, really is out for my sense.
Speaker 5: Thank you. One moment for our next question. Next question comes from Tammy Ten of BMO Capital Markets. Tammy, your one's open. Thank you. Good morning. First question. Bit of a follow-up on what someone else had asked. Mike, curious, if you could speak right now specifically to the Canadian market, you know, you talked about the adverse price mixed trends. But the market itself is still more weight to 28 grams. They will talk about the OCS announcement, small step in the right direction. But how would you at this point characterize the Canadian recreational market? It just seems like the...
Speaker 3: example. If you look overall we were able to achieve number one and editable and we're not doing that as a value brand and we're certainly not
Speaker 3: the ones participating in the race, the bottom on price. And we were able to do that even while you have the chewable extract, which is really finding ways to undercut the more traditional edible prices. And I think that just shows that when you have differentiated products, and this is really the further you get away from flour, the easier it is to differentiate and be able to take market.
Speaker 3: What I think that means going forward, and this is why we have such a focus on borderless products, is you're going to have to continue doing that in each category. And when I think of the flyer category, it's certainly genetic matter, but I think that you're going to see three roles, really the area where we're able to differentiate. And you see that, it's similar tobacco, you know, the pipes tobacco is not a really big category, but you see cigarettes that separate. You know, I think that there's a ton of opportunities for differentiation and three roles. I think it's a very similar category to edibles. I think that there will be some really segmented brands that are able to separate. It's going to be very product focused. And if you're not able to do that, I think you start getting closer and closer to selling the commodity and the fact that we've seen a shift to 28 grand bags just supports that.
Speaker 3: Got it. Okay. And I wanted to circle back on Andrew's question, talking about your cash position. It is a sizable amount of cash. And so I just wanted to ask directly, how do you think about that? Any plans that are signed from funding your current operations? Thank you. Yeah, I think, you know, obviously with the move and interest rates, you know, I do think it's a start to see pretty significant interest income. You know, but I think that's probably the last, the last interesting part of the answer you're looking for. What I can tell you is that we will remain disappointed and one of the things that we're not looking at is assets where it is purely just price competition and a race to the bottom.
Speaker 3: Now, someone being able to grab market share is not important if they're not able to generate cash. We think overall about what we're able to do is how do we become cash worth all of it and we aren't thinking about it just to ebid up. So those assets are very specific what we're looking at, we're seeing how they fold in both today and in the future. And in cannabis having cash, I think is a very rare and very valuable thing. So I think that we are in a extremely fortunate position. You know, we certainly get quite a lot of inbound. There are a lot of assets available, but we are still going to continue to be disciplined like we have in the past and make sure that anything we have is a really strong fit. You know, we can't go into a position on things like that. We'll get there only lap for a year. Thank you. One moment for our next question.
Speaker 6: Our next question comes from Nadine Sirward Bernstein. Nadine, you're open. Hi, thank you for the question. Two for me, please. First one on gross margin. I know you mentioned those one-time impacts in the quarter. Is there a way that you could help size those one-time impacts, or perhaps put another way? What would your gross margin have been without those? And how should we think about a normalized gross margin when to those all drop out going forward for each of your segments? And then my second question is on Israel, you know, you continue to have robust performance in that kind of pre-contrast to many of your peers. So could you just give us an update on the underlying trends that you are seeing in that market and how you expect that to develop over this year? Thank you. Sure, yeah. So on the margin right, as we did allude to there, we're one-time impact.
Speaker 3: but the results of our Israel team continues to have. I'll say this that...
Speaker 3: We're very differently set up than the theory we have in Canada because I think most have typically looked at it as sort of an outlet to move excess products, or we looked at it as an opportunity to create a long-term business and build a brand. You know, we've had boots on the ground in Israel for a long time. They've now been able to achieve distribution in nearly all the pharmacies that are currently selling cannabis. And it's a very attractive industry both for businesses and patients right now.
Speaker 3: been leading that charge, as physicians in flux, and there's now someone out there, but there's, it's a fluid situation, but I do think that there is a good chance, you know, that we see a regular for a change in Israel that does expand the market further. Still early to tell on timing, but it's a new world.
Speaker 3: from leading that charge, as physicians in flux, and there's now someone out there, but it's a fluid situation, but I do think that there is a good chance, that we see a record for a change in Israel that does expand the market further. Still early to tell on timing, but it's a new world. All right, perfect, thank you.
Speaker 2: Thank you. I would not like to turn the call over to Mike Gorge-Sene. Thank you for taking time, everyone, and have a great day. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you. Thank you.
Speaker 1: I you.