Q2 2023 MediPharm Labs Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the meta Farm Labs 2023 second quarter financial results Conference call.
Please be advised that today's conference is being recorded.
Before we begin please note that remarks today may contain forward looking information and forward looking statements within the meaning of applicable securities laws.
This includes without limitation statements about <unk> labs, and its current and future plans expectations intentions financial results levels of activity performance goals or achievements and other future events trends or development statement.
Statements about meta farms acquisition of vivo cannabis incorporated the combined company's future financial and operational performance. The combined company's key business segments product offerings pro forma and overall financial performance potential revenue and cost synergies, resulting from the transaction and statements about <unk>.
The company's profitability and ability to grow that business going forward.
Forward looking statements are made as of the date hereof based on information currently available to management of meta farm and on estimates and assumptions made based on factors that met a firm believes are appropriate and reasonable in the circumstances.
However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expressed or implied by forward looking statements.
Certain material factors or assumptions applied in drawing a conclusion or making a forecast or projection as reflected in the forward looking information.
Additional information about the material factors that could cause actual results to differ materially from the conclusions forecast or projections in the forward looking information pardon me and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward look.
<unk> information are contained in metal form labs filings with the Canadian and provincial security regulators, which are available on SEDAR at SEDAR Dot com.
The Companys remarks may also contain references to certain non <unk> financial measures, including EBITDA adjusted EBITDA gross profit and adjusted gross profit.
These measures do not have any standardized meaning according to the international financial reporting standards or I F. R. F and therefore may not be comparable to similar measures presented by other companies.
<unk> believes that the non <unk> measures referenced provide information useful to shareholders and investors in understanding our performance and they assist in the evaluation of the combined company's business relative to that of its peers.
For more information please see the section titled reconciliation of non <unk> measures. The most recent MD&A of meta farm, which is available on SEDAR.
Meta firms actual financial position and results of operations may differ materially from management's current expectations.
As a result, we cannot guarantee that any forward looking statements or financial outlooks will materialize and you are cautioned not to place undue reliance on this information.
Forward looking statements are made as of the date hereof and except as may be required by law. The company undertakes no obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise.
I will now pass the call to David.
Oh of meta farm. Please go ahead Sir.
Thank you operator, and good morning, everyone. We appreciate you joining us for <unk> Labs second quarter results Conference call. Joining me on the call today are key strong net of farms, President and Greg Hunter, The Companys Chief Financial Officer.
I will address some of our strategic initiatives and then hand, the call over to Keith and Greg to provide more detail on the quarterly results.
This is our first full quarter conference call. Following the <unk> acquisition, So I would like to welcome legacy vivo shareholders stakeholders and employees to this call.
In Q2, <unk> was focused on the integration of people cannabis, which closed on April one.
The acquisition of vivo with a transformative transaction for meta farm lab and has essentially doubled our revenue.
In addition to doubling our revenue we have reduced our combined opex by over $3 million per quarter and improved our combined adjusted EBITDA by over $4 million per quarter, that's over $16 million annualized.
With the integration of Beacon Medical Australia, our international footprint is even stronger and the combined Companys annualized international revenue will represent over one third of our total sales.
In 2022 separate companies had negative adjusted EBITDA of almost $30 million, we have dramatically improved these results by bringing the two companies together.
Our current quarterly adjusted EBITDA was negative $3 2 million.
This represents a very substantial improvement of approximately 50%.
While we are very proud of this progress and our trajectory.
<unk> continues to work on further cost reduction and driving more growth and a profitable revenue stream.
I'm happy to report that we are ahead of schedule with our integration and cost savings targets. Thanks.
Thanks to the efforts of our newly combined team members, we were ready on day, one it's detailed communication for all employees regarding their roles reporting and how any changes affected each individual.
Thanks to this early communication all personnel changes have now been fully implemented.
We've now reduced the combined non direct labor workforce by approximately 30% since the announcement of the transaction.
This is in addition to previously announced restructuring efforts made separately by both company from 2022.
As a result of all of these efforts total non direct labor head count between both companies will have been reduced by approximately 45% compared to January 2022.
Restructuring has been implemented at all levels, including the C suite.
Senior level executive positions have now been reduced by 50% senior.
Senior level changes represent a large portion of the employee related cost savings.
We had previously shared at synergy goal of annualized $7 million to $9 million between cost savings and revenue.
Well ahead of all costs related synergy target by both dollar and timeline measures and on track for some of the key revenue synergies that Keith will address in a medical international channels.
Revenue was up approximately 120% over Q2 2022.
Adjusted EBITDA has improved 50% over Q2 2022.
Combined opex of vivo and NPL has been decreased approximately $7 million versus 2022 first half.
Combined adjusted EBITDA losses have been reduced $70 million versus the first half of 2022.
As mentioned our Q2 adjusted EBITDA was negative $3 2 million.
This EBITDA improvement combined with our strong balance sheet gives us a solid runway to pursue our growth initiatives, including M&A opportunities.
Post transaction, we continue to have a strong balance sheet with limited debt and a solid cash position relative to our peers, we have less than $3 million in debt and we have unencumbered ownership of all of our major assets with strong balance sheet with about $16 million in cash.
Becker to provide confidence in mpls and ability to execute on our strategic growth slowed down.
In addition, as Greg will address we have various potentially sizable cash inflows in the next few quarters.
There's been a lot of discussion in the industry about CRA.
This tax liabilities that many companies have been running out.
For clarity MTL has always been and remain fully up to date in any CRA excise tax obligations.
We often questioned how some of our peers were able to sell product feel below cost as the government has reported $200 million.
Uncollected <unk> exposure and several <unk> filings have now made clear there are a number of companies that have enjoyed a significant cost advantage simply by not paying their excise obligations.
As an industry, we have asked for a reduction standardization and simplification.
Taxes, and also for potentially excluding medical patients from taxes.
In the short term just ensuring that all companies are actually paying the existing taxes.
We'll be one good step towards market stabilization.
A few other key first that Keith will highlight where our successful FDA inspection first for our Canadian cannabis company and the first shipment of candidates pharmaceutical products to the U S by Canadian LP.
NIH funded clinical trial.
While Greg will share more details later in the call to summarize revenue gross profit and adjusted EBITDA, all dramatically improved versus prior year versus prior quarter and versus trailing 12 months largely driven by the successful vivo integration.
And cost reduction initiatives.
All key metrics, both financial and non financial are going in the right direction.
Exactly where we plan to be <unk>.
Focusing on profitable revenue streams, and addressing low margin products through price increases cost decreases and SKU rationalization.
Our experience with vivo integration has shown that we can quickly and profitably integrate and drive synergies with life Sciences organizations and we are confident that this approach can be repeated.
In 2023, we will continue to focus on reducing costs driving revenue growth in selected profitable segment.
Our pharmaceutical milestone and pursuing synergistic M&A.
We will remain focused on executing our strategy.
And as discussed we are on track to driving $7 million to $9 million in annualized EBITDA improvement from the beeville transaction and driving towards positive adjusted EBITDA I will now pass the call over to Keith.
Thanks, David.
Q2 was busy and exciting as an integrated people in many cases digging in and intimately learning their business reminded me of when we started operations at <unk> in 2018.
<unk> and hard work involved with drinking from the fire hose of new information and it's still very new sector.
I would like to personally thank the vivo and Merry farm team current and past for supporting this transition.
I was confident in our synergy savings estimates, but impressed on how quickly we were able to achieve them.
Our focus commercially in Q2 was reviewing the new and legacy business lines to ensure we were focusing efforts on high growth and high margin areas.
These would include things like new partnerships in Brazil, adding medi farm products to our medical E Commerce site and expanding the established <unk> Medical Australia business to include non flower products.
The approach is to go deeper with good customers and products versus going wider and stretching resources into unknown outcomes.
This focused approach allowed us to expand gross profit by the big quarter over quarter jump in company history.
The best Berry farm adjusted gross profit since Q4 2019.
And reduced opex, all while maintaining revenue.
Even as we made material progress in right sizing the business, we completed a major milestone in new areas of growth.
In Q2, we completed important regulatory steps to optimize our German supply chain to drastically improve margins by the end of this year.
And subsequent to the quarter, we hit the major milestone of our first commercial shipment of clinical trial material for the U S.
The U S shipment, followed a process, where the clinical trial required endorsement via the FDA investigational, new drug approval and DEA import approval.
In order for <unk> to even be considered by our NIH funded research partner, we required an extensive list of qualification and licenses, including our health, Canada drug establishment license and U S. FDA foreign site registration.
Both which came after millions of dollars in investment years of work on our quality management system and in depth audits.
These attributes have created a competitive moat for us in the pharmaceutical cannabis sector.
Okay.
This sector growth timeline as long by nature, but we have seen progress the latest cycle of funding grants by the Canadian Institute of Health Research provided funding to three of our clinical research partners and in the U S. The possible rescheduling of candidates could open the floodgates on new research opportunities.
At <unk>, we are ready for the qualification and capacity to take on these high margin projects.
These quality and GMP attributes also contributed to international progress in Q2.
The largest recent impact being in Australia.
As of July one 2023, the Australian therapeutic goods Association mandated that all candidates imports must meet GMP requirements.
This limited some of the non GMP products that were currently entering the market under the guise of the special access program.
In Q2, we delivered contract manufactured GMP beeps to Australia and prepared for a launch of Beacon medical oil and baked.
Speaking of medical new products will be comprised of the first GMP line in Australia, where patients can choose a flower full spectrum oil our full spectrum base all from the same screen.
Bowing patients to access a consistent therapeutic benefit across all three delivery methods.
<unk> line will launch in Q3.
The Beacon medical flower portfolio is currently the number three flower brand by sales and we anticipate these high margin products to have the same success.
Before turning to Greg to discuss financials, I would like to point out and briefly explain a new business channel and our financial statements and disclosures.
The channel of Canadian Medical cannabis has been added post vivo acquisition.
This includes our direct to patient medical platform known as Kenneth Barnes sales.
Sales to other Lps medical channel.
And our patient clinics.
Harvest medicine.
<unk> is a top 10 revenue generating direct to patient medical platform in Canada patients with a prescription registered with counterparts E Commerce site.
They can select from over 100, skus in all cannabis formats and be directly shipped to their home.
Harvest Medicine is an education focus.
Asian centric candidates discovery clinics operating in relocation and via Telemedicine harvest Medicine has conducted more than 150000 registered patient visits through its clinics, making it one of the top clinic networks in Canada.
With the addition of vivo we are now in every major cannabis channels.
As well as meaningful revenue in every major federally legal market, including Canada, Australia, Germany, U K, Brazil, and even dipping our toe into the U S with clinical trial material.
This diversification gives us the foundation to support further growth both organically and through M&A.
I'll now pass the call to Greg to discuss many farms financials.
Thanks, Keith and good morning, everyone.
David and Keith discussed we continue to focus on growing our revenue base through organic and inorganic initiatives, reducing cash burn and driving towards profitability as key priorities.
Before reviewing the results for the quarter, let me add some additional commentary on the progress we made on these priorities.
On April one 2023, we closed the acquisition of vivo cannabis in an all equity business combination in.
In aggregate many firms issued a $107 9 million shares valued at approximately $8 1 million.
As discussed last quarter, we're committed to delivering synergies of $7 million to $9 million on an annualized basis in the first week post closing the transaction, we implemented plans to reduce the combined <unk> and vivo non direct labor workforce by approximately 30% and undertook steps to reduce public company costs as well we have now.
<unk> approximately $7 million in savings on an annualized basis. This is in addition to the $3 million of annualized savings from restructuring we completed in late 2022.
Turning to the P&L performance for the second quarter.
Revenue for the second quarter of $9 $6 million increased approximately 120% versus Q2, 2022, and 64% versus Q1 2023, as we integrated the <unk> acquisition.
Revenue in our new Canadian medical channel of $3 $8 million increase exponentially versus just zero point $2 million in Q2, 2022, and zero point $6 million in Q1 2023, as we integrated the vivo medical business.
Revenue in the International Medical Channel was 3.0 million versus zero point $9 million in Q2, 2022, and $1 8 million in Q1, 2023, representing a 249% and 66% growth respectively.
The growth of the international Medical channel was largely driven by the integration of vivo as Australian business and medical.
The international business represented approximately 33% of total revenue in the quarter.
Revenue in the Canadian adult use and wellness channel was $2 4 million, which declined versus Q2 2022 in Q1 2023, as we selectively increased prices and rationalized products as we prioritize profitability over volume.
Pharmaceutical and VW revenue in Q2, 'twenty three with zero point $3 million is.
As Keith discussed previously pharmaceutical revenue as a longer term strategy and we will take time to pay off as the market continues to develop.
However, we hit some major milestones with the successful FDA inspection and the first U S pharmaceutical shipment.
Gross profit for Q2 was positive zero point $8 million or approximately 8%, which is the third consecutive quarter with positive gross margins gross.
Gross profit in the quarter was impacted by several discrete items, including fair value adjustments for biological assets and inventory write downs for some older International flower and severance for restructuring adjusting for these items gross margin was approximately 21%.
Gross margin continues to improve driven by product mix production efficiencies price increases and cost reduction initiatives. Our management team continues to aggressively prioritize driving gross margin improvements.
General and administrative expense in the second quarter of $5 $8 million increase versus prior year and sequentially as we incorporated $2 1 million of vivo G&A in the Medifast.
G&A expense for the quarter was impacted by $1 4 million of severance expense for restructuring.
Adjusting for severance G&A expense was $4 4 million, which increased sequentially and increased versus prior year driven by the incorporation of Evo.
Retrospectively if vivo were included in our Q2 2022 results G&A expense in the quarter declined approximately 35%, reflecting our combined cost reduction initiatives.
Marketing and selling expense of $1 6 million was consistent with Q2, 2022, and Q1 2023, despite the incorporation of vivo and doubling our revenue.
Total opex, which includes G&A marketing and selling and R&D expenses was $7 5 million in the quarter adjusting for severance and some other discrete items normalized opex was approximately $6 $5 million and includes $2 3 million from the incorporation of Viva <unk>.
Retrospectively if vivo were included in our Q2 2022 results Opex in Q2, 2023 is approximately 35% or $3 7 million lower reflecting our combined cost reduction initiatives.
Adjusted EBIT for Q2 of negative $3 2 million improved $3 2 million or 50% versus Q2, 2022 and year to date adjusted EBITDA was negative $6 3 million, which improved $5 7 million or <unk>, 47% versus prior year.
This improvement is driven by both expansion of gross margins and the reduction of operating expenses.
Retrospectively if vivo were included in our Q2 2022 results adjusted EBIT. In Q2, 2023 has improved approximately $6 7 million or 68%, reflecting our combined cost reduction and margin improvement initiatives.
Said another way in 2020, too many pharma adjusted EBITDA averaged negative $5 million to $6 million per quarter in vivo averaged negative $2 million per quarter combined the two companies average negative adjusted EBITDA of $7 million to $8 million per quarter in 2022.
In addition, <unk> Q1, 2023, adjusted EBITDA was negative $3 1 million.
This means in Q2 2023, we were able to incorporate vivo without impacting profitability relative to Q1, 2023, largely driven by our cost reduction initiatives.
Moving to a few notable items on the balance sheet trade and other receivables of $14 7 million includes one large customer or a total of approximately $8 5 million at the end of Q2, which is subject to legal proceedings. Excluding this item trade and other receivables is $6 2 million.
In 2022, we received a favorable summary judgment ruling with respect to this legal proceeding awarding <unk> $9 8 million subs.
Subsequent to the summary judgment ruling the customer appeal the decision and a hearing at the court of appeal has been scheduled for October 12 2023.
Our cash balance at the end of Q2 was $14 7 million and the company has less than $3 million of debt and opportunities for additional cash generation pending a favorable resolution of the $9 8 million summary judgment ruling in.
In addition, the company has assets held for sale with the ability to generate cash of approximately $2 million to $3 million in the near term.
The company has signed an offer for the sale of one parcel of land and expect the transaction to close in Q3.
We believe this gives <unk> a very strong position relative to our peer group to continue to execute on our strategy, including selective M&A.
Assuming a favorable legal ruling and the successful real estate transactions Merry farm could have an additional $10 million to $13 million in cash in the near term.
Combined with our reduced burn rate, we believe that we're positioned to pursue additional investments for growth, including participating in industry consolidation activities.
Although we still have work to do to get to profitability and become cash flow positive Q2 was another step in the right direction.
We successfully integrated the vivo acquisition, including executing the restructuring and cost savings program that will save approximately $7 million on an annualized basis as we progress towards our previously communicated synergy target of $7 million to $9 million.
Sales doubled versus prior year with the incorporation of vivo.
Gross profit was positive for the third consecutive quarter. Adjusted EBITDA remained consistent with Q1 2023, despite the incorporation of Evo, which historically had an adjusted EBITDA of negative $2 million per quarter.
And finally, we have a strong balance sheet relative to our peers with $14 7 million of cash less than $3 million of debt and our plan to generate cash in the near term.
With that I'll turn it over to the operator to open the line for questions.
Thank you.
If you would like to ask a question at this time simply prestige Starkey followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one a second time and.
And we will pause for just a moment to compile the Q&A roster.
And we will take our first question from Scott Fortune with Roth MK Ann Your line is open.
Yes, good morning, and thank you for the questions just wanted to highlight a little bit on the revenue segments, obviously added vivo for the quarter, but just one kind of focus on kind of the Canadian medical side of things and then international medical obviously focus on international milk of the Chilean market you mentioned.
The new rule changes.
And what type of boost.
Boost will you see from your side is GMP others are unable to qualify for the G&P side, but just kind of a quarter over quarter from the.
Vivo.
This revenue side, especially on the Canadian medical side.
The medical side as a comparison what would be helpful.
You guys completed a lot a little bit.
Okay.
Thanks Scott.
So I'll ask Keith to take the question.
As we mentioned on on Australia, we are in the process of launching.
A number of.
NPL products through the Beacon medical brand and I think it was going to launch soon so I'll turn it over to Keith and Keith maybe you can address some of the Canadian medical and Australia opportunities.
Hey, Scott good morning.
Yes, it's a great question I think we're really happy with the integration.
Vivo.
And what we're seeing there and its effect on the medical market, especially so.
In Canada <unk> participate in the medical market by selling to other licensed producers so we'd sell to someone like shoppers drug Mart, our canopy and they'd sell it on to their patients now with vivo, we have our own platform pulp Kenneth arms, it's been around since 2013. So it does have a lot of really good patient base.
Quarter over quarter.
Looking at the vivo business of Canadian medical and and really year over year for the same period is relatively flat.
It's a good business.
Looking at ways to.
Take that flat and increase at one of the ways that we're doing that is just adding selection. It was always known as kind of a flower platform. So that trends in Canadian patients, who use that really we're looking at Cana farms as kind of the go to flower spot, we want to be that Goto flyer sponsor that counterparts product, but what we've done is added in all those cool <unk>.
Products like our CDN oil and high potency CBD.
And we've already launched those on that platform and we're seeing sales pick up to that so we expect to see small growth in.
In that segment as those base of 10000 patients look at at our platform to have more selection and we.
We'll continue to support other licensed producers.
With product as well.
Australia.
The same thing as far as performance goes we worked with one distributor in Australia. So.
Quarter over quarter.
See like flat to slight decline in the vivo business and thats, mostly because as the distributor has rightsize their inventory, but when we look at the actual pharmacy sales.
We actually are up year over year and month over month.
So the pull through from patients in.
Australia is actually growing which is a great time, so that distributor will catch up and then as Dave mentioned, we've got some new products that we're launching into that market. So again it has been for them.
Vivo the brand there is called Beacon medical well.
Well established plan top three in the country for flower by $1.
And so we've done as we've added in new products, so with the new rule there being GMP only.
Theres less probably.
Concentrate products available and so what we've done is we've worked with our distributor and our pharmacy partners and will be distributed will be launching.
Three new oils and three dates.
Into that market as well know should deliver probably around the end of the month and that should give us a nice quarter over quarter increase going into the rest of the year.
No I appreciate that color and just a quick follow on there in the Canadian adult use obviously, a little bit seasonality. How you guys are rationalizing skus there.
The prices there.
Where is the focus or how do you view kind of the Canadian dollar.
For your portfolio going forward here.
Yeah in Canadian adult use will continue to be the premium supplier of.
No on smokable formats, we do have some.
Smokable formats, such as Wildlife and then obviously vivo with their growing background, we're able to use some of that expertise to also put in a better.
Product mix it is a little bit of a.
Tough market right now Theres a lot of other Lps that are struggling.
So they are selling things below cost theyre not as Dave mentioned.
In his remarks are not keeping up with their excise taxes. So we do find that when the price of a vape goes below the cost of what one person could make it more it's just not a place that we want to compete so we focus on where those margins are so we will continue to be in that market. Our salespeople are still industry educating bud tenders on the wellness product that we have.
But there was a slight decline in that business, because we're not going to chase it and we're not going to sell anything that loss.
Okay I appreciate that.
And then one last follow on probably for Greg you guys mentioned, congrats on the kind of quickening the integration or the combined youre looking for $7 million to $9 million finding cost savings and synergies here, but can you can provide on.
Going you've done a really good job on the cost side, they kind of get a sense for additional <unk>.
<unk> or if they need to be fully engraved in second half how should we look at kind of the opex from that side on the second half going forward here.
Yes, thanks for the question.
As we said.
Our prepared remarks, so we've already our target as we communicated was $7 million to $9 million in annualized synergies and thus far with the cost reductions that we've already executed on restructuring.
And public company costs, we have already achieved about $7 million on an annualized basis. The one that that obviously takes a little bit longer is within the sales.
Synergies.
But right now we are.
We're <unk>.
Proximately million and a half annualized is what we've achieved on sales synergies in our first quarter of integration and expect to.
To continue to evolve that.
Obviously that doesn't mean, we're done as we've said in our prepared remarks, nor aggressively pursuing further cost cutting initiatives and margin expansion to bring us too.
Positive EBITDA and positive cash flow.
And maybe just to build on that.
Just to build on that thought on Greg's comments, Keith tying Keith and great comments together the revenue synergies two of the big buckets are putting meta farm products through the Beacon channel in Australia, and as Keith said Thats launching later this month and the other one with putting meta farm products through the medical channel.
And that has already occurred so.
We planted the seeds that everything needs to happen and now we have to actually make it happen in the marketplace, but we're feeling good in terms of it.
The buckets of synergy on revenue, we were chasing we've kind of we've kind of started.
Great I'll jump back in the queue. Thanks for the color.
And as a reminder, the star one if you would like to ask a question and we will take our next question from Aaron Grey with Alliance Global Partners. Your line is open.
Yes.
Hi, good morning, and thank you for the questions.
Just wanted to piggyback off that question on profitability Andrew.
Just really simply how do we think about that path to get into positive EBIT.
What type of top line growth do you think youll be needed and what do you think will be a normalized gross margin.
You get some of these initiatives through in the next six months, if you kind of like help to paint a picture of how we get to.
That EBITDA profitability do you think there is going to be some topline growth or do you get there at the current revenue levels that you have on a combined basis. So any help there would be appreciate it. Thanks.
Okay.
Okay, maybe both.
Both Keith and Greg, but when I talked to this but just at 60000 feet.
It's a combination of executing really well on what we've already talked about right. So feeling great on the cost side, but that doesn't mean, there's not more cost opportunity. So we're going to do even more cost opportunities on top of what we said and now we have to make happen the revenue synergies.
Putting our products through the other channels and vice versa, and we have to make those happen I think Greg can give some I think we're reporting adjusted gross margin of 21% and I think that.
I was feeling pretty good about that going forward and we want to build on that and make that better again through the same things we've talked about everything from SKU rationalization to not selling things below cost to focusing on our profitable products because some of the international and international pharmaceutical opportunities that that Keith discussed.
At which generally have higher margins, so maybe I'll turn it over.
To add to keep and then and then Greg for just a little more color.
Yeah. Thanks, Thanks, I think they've covered that quite well, yes just.
Our adjusted gross margin as we discussed was roughly 21%.
We're targeting.
That or better.
As we go forward here, obviously, there is a lot of variables.
Play with the gross margin, particularly on mix and within the international margins as Keith touched on with some of the new product launches in the international markets, which come with a little bit.
Better margin, obviously as Dave said, we need to.
Continue to focus on driving the sales synergy with the integration. We're pleased thus far with how we've done on the cost synergy as I said to get to the $7 million.
And sales is really a focus to driving that as well and then as I said on the Opex in the prepared remarks, our Opex was was higher within the quarter given some of the restructuring items.
Getting to an adjusted.
About six and a half.
Which obviously as Dave and Keith a touch on we need to do more on that we'll continue to focus on driving that down to get to profitability as we move forward.
Yes, and the only thing I would add Keith is.
That that normalized margin of 20% a good target, but we are looking at some.
Really good places to improve that probably the most would be our supply chain for international for Medi Farm legacy was quite complex.
In some cases, especially on flower that we delivered to scatter.
And with the addition of.
Vivo they actually have a license in Germany called Beacon Medical <unk>, what that does is it gives us an opportunity to tighten up that supply chain. Some of the packaging that we are outsourcing will now do ourselves and our GMP facility that we acquired in <unk>, Ontario. So some of those will actually give us a good opportunity to boost.
Boost revenue and some of those segments that were a bit of a drag on on <unk>.
<unk> revenue and boost gross margin some of those segments, where that margin might've been a bit of a drag in the past in some of those it takes new licensing. So some of the applications would have went into the German health authority in the last month post acquisition and we expect another three to four months to get through that approval process. So really start.
On that new supply chain kind of end the year began next year.
Okay, great. Thanks for that color is that question Amit.
Status, so any update in terms of.
Progress of that initiative looking at Germany sales looks like it was about flat year over year. So how has that progressed with you guys with that relationship and then any expectations for the German market with potential for it to be removed candidates from the narcotic lifts and the expectations for that market to grow and how that relationship was that it might help you take advantage of that.
Thanks.
Yeah, we're really excited about.
Static continuing to invest we've seen other large international players kind of come into Germany, and then leave when they didn't work is happy with the commercialization opportunities with the.
New pilot program for legalization.
Static continues to be invested with a large team, especially large on the sales and marketing.
A little bit flat as you mentioned on sales, but what really like is the change in mix. So what you don't see in the financials is what products are going out the door.
And we're really getting more.
Oil what they call extract there so our cannabis oil.
Is increasing while we're seeing a slight decrease in flower on the flower side. There is some competition and what they call the patient pay market.
Patients are kind of a bit more promiscuous and looking for something like high THC or whats the cool new cultivar.
Whereas in the oil it's a lot more sticky with those prescriptions, so really happy with the progress there number two in market share.
And I think every month is a new record for them in an oil sales still small compared to market like Canada, but it's growing and we're really happy with that growth will continue to grow with that customer.
Okay, great. Thanks for the call I'll jump into the queue.
And ladies and gentlemen, we have no further questions at this time I will now turn the call back to Mr. David <unk> for closing remarks.
Thanks, everyone for joining us, including our legacy vivo shareholders and we look forward to our Q3 call have a good week everyone.
And ladies and gentlemen, this concludes today's conference call and we thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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[music].
Sure.
No.
Sure.