Q1 2024 Cronos Group Inc Earnings Call
Okay.
Good morning.
Brittany Morgan: My name is Brittany Morgan, and I will be your conference operator today. I would like to welcome everyone to Cronos Group's 2024 First Quarter Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Shayne Laidlaw, Investor Relations. Please go ahead.
Britney Morgan: My name is Britney Morgan and I will be your conference operator today.
Britney Morgan: I would like to welcome everyone to Kronos groups 'twenty 'twenty four first quarter earnings conference call.
Britney Morgan: Today's call is being recorded at this time I would like to turn the call over to Shayne Laidlaw Investor Relations. Please go ahead.
Shayne Laidlaw: Thank you, Brittany, and thank you for joining us today to review Cronos' 2024 First Quarter Financial and Business Performance. Today I am joined by our Chairman, President, and CEO, Mike Gorenstein, and our CFO, James Holm.
Shayne Laidlaw: Thank you Britney and thank you for joining us today to review Kronos is 2024 first quarter financial and business performance today.
Shayne Laidlaw: Today, I'm joined by our Chairman, President and CEO, Mike Goldstein, and our CFO James Home Curtis issued a news release announcing our financial results. This morning, which was filed on our Edgar and SEDAR profile. This information in the prepared remarks will also be posted on our website under Investor Relations.
Shayne Laidlaw: Cronos issued a news release announcing our financial results this morning, which is filed on our EDGAR and CDAR profiles. This information and the prepared remarks will also be posted on our website under Investor Relations. 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.
Shayne Laidlaw: 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 U.S. GAAP, can also be found in our earnings materials that are available on our website. Lastly, we will be making statements regarding market share information throughout this conference call, and unless otherwise stated, all market share data is provided by HiFIRE. We will now make prepared remarks, and then we'll move to a question-and-answer session. With that, I'll pass it over to Cronos's Chairman, President, and CEO, Mike Gorenstein.
Speaker Change: 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 statements.
Michael Gorenstein: Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials in our SEC filings that are available on our website.
Michael Gorenstein: Any forward looking statements made during this call are qualified in their entirety.
Michael Gorenstein: Information about non-GAAP financial measures, including reconciliations to U S. GAAP can also be found in our earnings materials that are available on our website.
Michael Gorenstein: Lastly, we will be making statements regarding market share information throughout this conference call and unless otherwise stated all market share data is provided by high fire. We will now make prepared remarks, and then we'll move to a question and answer session with that I'll pass it over to <unk>, Chairman, President and CEO, Mike Weinstein.
Michael Gorenstein: Thank you Shane and good morning, everyone.
Michael Gorenstein: Thank you, Shayne, and good morning, everyone. Our year is off to a strong start, marked by 30% year-over-year revenue growth, fueled by market share gains in Canada and a rebound in sales and— Gross Margin Improvement and Operating Expense. We are fully realizing the savings we implemented in 2023 as we are well on our way to achieving incremental savings of $510 million in 2025. The team's consistent and relentless focus on delivering top-line growth while simultaneously driving operational efficiency positions Cronos for success in 2024 and beyond.
Michael Gorenstein: Our year is off to a strong start march by 30% year over year revenue growth fueled by market share gains in Canada, and a rebound in sales in Israel gross margin improvement and operating expense reductions for fully realizing the savings implemented in 2023, as we are well on our way to achieving incremental savings of $500 million in 2024.
Michael Gorenstein: It seems consistent and relentless focus on delivering top line growth, while simultaneously driving operational efficiency and positioning.
Michael Gorenstein: Additionally, kratos for success in 2024 and beyond.
Speaker Change: I wanted to take a moment to discuss the cannabis market and our brand positioning.
Michael Gorenstein: I want to take a moment to discuss the cannabis market and our brand. A lot of the cannabis market today is characterized by products that were launched to appeal to as many consumers as possible based on price rather than building a strong connection with a targeted segment of consumers. Without building a strong connection with consumers through a targeted approach, we see many brands lose share to more focused software.
Speaker Change: A lot of the cannabis market today is characterized by products that were launched to appeal to as many consumers as possible based on price rather than building a strong connection with a targeted segment of consumers.
Speaker Change: Without building a strong connection to consumers through a targeted approach we see many brands grew share it's more focused offerings.
Michael Gorenstein: With Spinach, we were very intentional about targeting specific consumer needs, and I believe that was instrumental to our success. This strategy drove our success in cementing Spinach as the number two brand in Canada. We launched Finish in Canada at the end of 2018, and since then, the team has worked hard to bring thoughtful innovations to market across different categories.
Speaker Change: With spinach were very intense work to target specific consumer needs and believe that was instrumental to our success.
Speaker Change: This strategy drove our success implementing spinach as the number two brand in Canada.
Speaker Change: We launched this in Canada at the end of 2018.
Speaker Change: The team has worked hard to bring software innovations to market across different categories.
Michael Gorenstein: We're so proud of the team and what we've achieved, and we leverage that success as a blueprint for a broader portfolio, starting with Lord Jones. We returned Lord Jones to its adult use route and brought it to Canada to attack product categories with a more narrow premium focus, but we think brand share will be stickier and more important. Since launching with Hash & Fuse pre-rolls in Q4 2023, we expanded the portfolio in Q1 to also include chocolate fusions and live resin bakes that have done well in the early days following the launch.
Speaker Change: So proud of the team and what we've achieved.
Speaker Change: And we leveraged that success is finished as a blueprint for our broader portfolio starting with Lord Jones.
Speaker Change: Return lowered going through its adult use route and brought it to Canada to attack product categories with a more narrow premium focus where we are.
Speaker Change: Gran Tierra will be stickier and borderlands.
Speaker Change: Since launching with has refused Bureau in Q4 2023, we expanded the portfolio in Q1 to also include chocolate fusion in my revenue base that have done well in the early days following the launch.
Speaker Change: We continue to expand the reach of our leading international brands Peace Naturals.
Michael Gorenstein: We continue to expand the reach of our leading international brand, Peace Natural. Utilizing our best-in-class genetics and high-quality cultivation, we have brought strains such as wedding cake and GMO cookies to Israel, Germany, Australia, and now the U.K. Utilizing the Pete's Naturals brand in new markets we enter, we continue to cement our flour products as leaders in the market and lay the groundwork for when regulations allow us to launch borderless products such as edibles and vegetables.
Speaker Change: Utilizing our best in class genetics and high quality cultivation, we have brought strains such as wedding cake and GMO cookies to Israel, Germany, Australia, and now the U K.
Speaker Change: Utilizing the peace naturals branded new markets, we enter we continue to cement our flower product leaders in the market.
Speaker Change: The groundwork for what the regulations allow us to launch cordless products, such as edibles and vape.
Speaker Change: Let's dive into how our brands are performing in market.
Michael Gorenstein: Let's dive into how our brands are performing in marketing. Our strength in spinach extends across various product categories, notably in flour, edibles, and base, where we are in a top three share position. We've seen exceptional performance with our top products, such as our GMO Cookies Flour, Sours by Spinach Edibles, and new Flavor Forward 1.2 gram vapes, driving significant market traction. In Q1, we continued to strengthen the dried flower category, remaining the number one brand with 6.5% of retail sales.
Speaker Change: Our strength the spinach extend extend across various product categories, notably flower edibles and base, where we're a top three share position.
Speaker Change: We've seen exceptional performance with our top products, such as our GMO cookies flower salaries by spinach, edibles and new flavor forward, one two grand base driving significant market traction.
Speaker Change: In Q1, there is continued strength in the dry flower category remaining the number one brand with six 5% of retail sales.
Michael Gorenstein: This success is driven by years of genetic breeding, investment in R&D, including tissue culture, and best-in-class cultivation at scale with our JV Cronos program. In the corner, we launched new flour strains and formats, including ASG in 28 grams and Alien Kush in 3 12 grams.
Speaker Change: This success is driven by year, the genetic breeding investment in R&D, including tissue culture and best in class cultivation at scale with our JV Kronos broke out.
Speaker Change: In the quarter, we launched new flower strains and formats, including ESG in 28 grams and alien question, three and a half brand and we continue to develop new strains to bring to market, which capitalize on the fleet.
Michael Gorenstein: And we continue to develop new strains to bring new products to the market, capitalizing on this lead. We also launched a new brand specifically for the Quebec market, called Tonek, which will feature high-quality flour products to meet consumer demand for this market. In the edibles category, spinach had 14.4% market share in Q1.
Speaker Change: We also launched a new brand specifically for the Quebec market also leak, which will feature high quality flower products to meet consumer demand for this market.
Speaker Change: And the Edibles category <unk> had 14, 4% market share in Q1.
Michael Gorenstein: Our focus on developing innovative strategies and products in this category has been instrumental in the success. A key addition to our product lineup is the Fully Blasted Sours, a high-potency, one-pack, 10-milligram THC gummy. It garnered early momentum in Q1, and we are encouraged by early sales today. With non-compliant edibles coming off the market again and the introduction of our competitive one-pack 10-milligram dummy, we are confident we are bringing the right products to market. Beyond our spinach brand, we launched Lord Jones Chocolate Fusion, a bite-sized chocolate featuring a dynamic, multi-textured experience.
Speaker Change: Our focus on developing innovative strategies and products in this category have been instrumental in the success.
Speaker Change: The key addition to our product lineup is fully glass and sours high potency. One pack 10 milligram THC gummy, which garnered early momentum in Q1, and we are encouraged by early sales to date.
Speaker Change: With Noncompliant edibles coming off the market again, and the introduction of our competitive one pack 10 milligram dummy. We are confident we are bringing the right products to market.
Speaker Change: Beyond our finished brand.
Speaker Change: We launched Lord Jones chocolate fusion.
Speaker Change: Bite sized chocolate featuring a dynamic multi tax rate experience.
Michael Gorenstein: We believe our Chocolate Fusions will be a category-defining product and are looking forward to getting it into more retail locations over the coming months. In the Vape category, Spinach maintained its number 3 market position but gained shares sequentially, now capturing 7.6% of retail sales in the category. Our new and improved Spinach 1.2 gram vates have received positive feedback, further solidifying our market presence and growth in this category. We also launched two new spinach all-in-one vates, Pineapple Paradise and Blueberry Dynamite.
Speaker Change: We believe our chocolate begins it will be a category defining products and are looking forward to getting it into more retail locations over the coming months.
Speaker Change: And the vape category, we actually maintained our number three market position, but gained share sequentially now capture a seven 6% of retail sales in the category.
Speaker Change: Our new and improved finished one two gram base have received positive feedback further solidifying our market presence and growth in this category.
Speaker Change: We also launched two new spinach, all in one base pineapple Paradise and blueberry dynamite.
Michael Gorenstein: Under the Lord Jones umbrella, we will launch Lord Jones Live Resin Vapes in two different hardware options in January. The lineup features versatile sizes, including a half gram trial size and the convenience of a very sleek all-on-one device, and a 1 gram stock size as a 510 thread cartridge catering to enthusiasts and those new to the category.
Speaker Change: Under the Lord Jones umbrella, we launched Lord Jones live revenue base in two different hardware options in January.
Speaker Change: The lineup features versatile silent, including a half Gram trial size and the convenience of a very sleek all in one device.
Speaker Change: And the one Gram stock upsides as a 510 thread cartridge catering to enthusiasts and those new to the category.
Speaker Change: We are focused on driving market share and the pre roll category and continuing to extensive product development and R&D work in this area.
Michael Gorenstein: We are focused on driving market share in the pre-roll category and continue to do extensive product development and R&D work in this area. We've launched several new flavor-forward infused pre-roll offerings under the Spinach brand, as well as a multi-pack. Spinach Fully Charged Party Pack is a combination of infused pre-rolls at 40% plus THC, which includes the finest cold-filtered cannabis extract and a keep coat.
Speaker Change: We've launched several new flavor for infused Piero offerings under the spinach brand as well as the multipack.
Speaker Change: The spinach fully charged party pack with a combination of infused payrolls at 40% plus THC, which includes the finest cold filtered cannabis extracts and keep cutting.
Speaker Change: Our hash infused payroll under the Lord Jones brand can become a fan favorite and my personal favorite product.
Michael Gorenstein: Our hash-infused pre-roll under the Lord Jones brand has become a fan favorite and my personal favorite product. Our continued focus is to be leaders in all categories we operate in, and that remains the North Star for our efforts in the pre-roll category. Now, turning our attention to international markets. Our operations in Israel rebounded well from Q4, which was impacted by the war, and Q1 was the highest revenue quarter in Israel since Q4 of 2022.
Speaker Change: Our continued focus is to be leaders in all categories. We operate in and that remains a north star for our efforts in the <unk> category.
Speaker Change: Turning our attention to international markets our.
Speaker Change: Our operations in Israel rebounded well from Q4, which was impacted by the war and Q1 was the highest revenue quarter in Israel since Q4 of 2022.
Michael Gorenstein: The team in Israel has done a ton of work to refine their processes and approach to the market, which has yielded both higher volume and improved average selling prices sequentially. Strength in Israel is also driven by our GMO and wedding cake genetics, which were developed in-house and propelled the Peace Natural brand to be a leader in the market. In April, we appointed Adam Wagner as SVP and Head of Cronos Israel, where he was previously the VP of Finance.
Speaker Change: The team in Israel has done a ton of work to refine their processes and approach to the market, which has yielded both higher volumes and improved average selling prices sequentially.
Speaker Change: Our strength in Israel is also driven by our GMO and wedding cake genetics, which were developed in house that propelled the peace natural brand to be a leader in the market and enters.
Speaker Change: In April we appointed Adam Wagner as SVP head of Israel, where he was previously the VP of finance.
Michael Gorenstein: Atom brings significant finance and operational experience across both public and private companies to this leadership position. We are already seeing a positive impact from his leadership and look forward to his leadership of the business. We are confident that our team's approach to the Israeli market is as good as ever, and I believe that with their leadership, we will continue to refine and improve over time. We're particularly excited about our growth potential in Germany, where recent legislative changes have fueled material incremental growth in the market and have allowed for opportunities to responsibly market medical cannabis products, which was not permitted under previous regulations.
Speaker Change: Adam brings significant financial and operational experience across both public and private companies to this leadership position.
Speaker Change: We're already seeing a positive impact from his leadership and look forward to his stewardship of the business.
Speaker Change: We are confident that our teams approach to the Israeli market is as good as ever and I believe that with their leadership, we will continue to refine and improve over time.
Speaker Change: We're particularly excited about our growth potential in Germany, where recent legislative changes has fueled material incremental growth in the market and have allowed for opportunities to responsibly market medical cannabis products.
Speaker Change: Which was not permitted under previous regulations.
Michael Gorenstein: We are committed to delivering high-quality cannabis products and nurturing our relationship with our partner, Cannafativa. We're also excited to announce another international milestone earlier this week with our first shipment to the UK medical market. We intend to establish our Peace Naturals brand as the top medical brand for patients in the UK, as we've done in Israel and Germany.
Speaker Change: We are committed to delivering high quality cannabis products and nurturing our relationship with our partner Kansas Deepa.
Speaker Change: We're also excited to announce another international milestone earlier this week with our first shipment to the U K medical market.
Speaker Change: We intend to establish our peace Naturals brand at the top medical brand for patients in the U K as we've done in Israel in Germany.
Speaker Change: International revenue can be lumpy from quarter to quarter. So although we did not have revenue in Q1 in Germany, Australia. Following our initial load and we are very pleased with the end market sell through in the quarter.
Michael Gorenstein: International revenue can be lumpy from quarter to quarter, so although we did not have revenue in Q1 in Germany or Australia following our initial load-in, we are very pleased with the in-market sell-through in the quarter. We are confident about the trajectory of our international revenue in 2024, underscoring our commitment to global expansion and revenue diversification. Our joint venture, GroCo, continues to excel, demonstrating robust performance in line with our expectations. Broker reported preliminary unaudited revenue of approximately $5.1 million from non-Cronos customers in the first quarter.
Speaker Change: We are confident about the trajectory of our international revenue in 2024, underscoring our commitment to global expansion and revenue diversification.
Speaker Change: Our joint venture <unk> continues to excel demonstrating robust performance in line with our expectations.
Speaker Change: Broker reported to us preliminary unaudited revenue of approximately $5 1 million for non Kronos customers in the first quarter.
Michael Gorenstein: Additionally, the credit facility that Cronos previously provided GroCo currently has $67.1 million outstanding following the principal repayment of $1.2 million in Q1. In addition, BroCo made interest payments of $1.4 million in Q1. The solid financial performance of BroCo, yielding equity pickup, interest payments, and a loan payback to Cronos, is a vital component of our overall financial. Turning to the U.S., last week the media reported that the DEA plans to follow the HHS recommendation to reschedule cannabis to Schedule III. The proposal, which still needs to be reviewed by the White House Office of Management and Budget, would not legalize cannabis federally for adult use but is a dramatic shift in how the plant will be classified.
Speaker Change: Additionally, the credit facility that <unk> previously provided broker currently has $67 1 million outstanding following the principle repayments of $1 $2 million in Q1.
Speaker Change: In addition, broker made interest payments of $1 4 million in Q1.
Speaker Change: The solid financial performance of broker <unk>.
Speaker Change: Pick up interest payments alone payback to Kronos is a vital component of our overall financial picture.
Speaker Change: Turning to the U S last week, the media reported that the DEA plans to follow the HHS as recommendation to reschedule candidates to schedule III.
Speaker Change: Proposal, which still needs to be reviewed by the White House office of management and budget would not legalized candidates federally for adult use but is a dramatic shift in how the plant will be classified.
Michael Gorenstein: We think incremental progress is great for the industry, and this is a step in the right direction. This quarter's successes have resulted from our steadfast focus on building a portfolio of borderless products with strategic infrastructure and global partners. Our long-term strategy to invest in branded innovation that targets specific consumer needs for our remaining asset light is working, and we're off to a tremendous start for our 2024 fiscal year. The combination of these efforts and an industry-leading balance sheet sets us up well to grow in our current market and execute in any new market we decide to enter. I'd like to pass it on to James to take you through our financials. Thanks, Mike. Good morning, everyone.
Speaker Change: The incremental progress is great for the industry. This is a step in the right direction.
Speaker Change: This quarter success as a resulted from our steadfast focus on building a portfolio of cordless products with strategic infrastructure and global partnerships.
Speaker Change: Our long term strategy to invest in brand innovation that target specific consumer needs or remaining asset light is working there we're off to a tremendous start for our 2020 for fiscal year.
Speaker Change: The combination of these efforts and industry, leading balance sheet that sets up well to grow in our current markets and execute any new market, we decided to enter.
Speaker Change: With that I'd like to pass on to James to take you through our financials.
James Holm: I will now review our first quarter 2024 results in relation to the prior year period. The company reported consolidated net revenue of $25.3 million, a 30% increase from the prior year period; constant currency consolidated net revenue increased by 31% to $25.5 million. The revenue increase is primarily driven by higher cannabis flower extract sales in Canada and higher cannabis flower sales in Israel. Gross profit in the first quarter was 4.5 million, equating to an 18% gross margin, representing a 1.5 million improvement in gross profit and a 270 basis point improvement in gross margin from the prior year period. The increase is primarily driven by higher sales of cannabis flower extract in Canada and higher cannabis flower sales in Israel.
James Holm: Thanks, Mike. Good morning, everyone.
James: Thanks, Mike Good morning, everyone.
James: I will now review, our first quarter 2024 results in relation to the prior year period.
James: The company reported consolidated net revenue of $25 3, Million% to 30% increase from the prior year period constant currency consolidated net revenue increased by 31% to $25 5 million.
James: The revenue increase was primarily driven by higher cannabis flower extract sales in Canada and higher cannabis flower sales in Israel.
James Holm: Gross profit in the first quarter was $4 5 million equating to an 18% gross margin representing a $1 5 million improvement in gross profit and a 270 basis point improvement in gross margin from the prior year period.
James: The increase was primarily driven by higher sales and candidates, Florida extracts in Canada and higher candidates flower sales in Israel the.
James Holm: The improvement in the top line was coupled with numerous supply chain efficiencies such as favorable labor and overhead costs, as well as lower inventory variances, all culminating to drive a material improvement in gross margin from Q4 2020. Consolidated adjusted EBITDA in the first quarter was negative $10.7 million, representing a $5 million improvement from the prior year period. The improvement was primarily driven by a decline in general and administrative and research and development expenses and an improvement in gross profit.
James: The improvement in topline with coupled with numerous supply chain efficiencies, such as favorable favorable labor and overhead costs as well as lower inventory variances, all culminating to drive a material improvement in gross margin from Q4 2023.
Mike Gorenstein: Consolidated adjusted EBITDA in the first quarter was negative $10 7 million, representing a $5 million improvement from the prior year period.
James Holm: The improvement was primarily driven by a decline in general and administrative and research and development expenses and an improvement in gross profit.
James Holm: Following last year's overachievement in savings, we are well on our way to achieving our 2024 goal of saving an incremental $5 to $10 billion. In addition to delivering on operational efficiencies and maximizing the return on our cash, we received an interest payment on our GroCo Senior Secured Loan of approximately $1.4 million and a principal repayment of approximately $1.2 million for total cash paid by GroCo to Cronos of approximately $2.7 million in Q1.
James Holm: Following last year's over achievement in savings, we are well on our way to achieving our 2024 goal of saving an incremental $5 million to $10 million.
James Holm: In addition to delivering on operational efficiencies and maximizing the return on our cash we received an interest payment on our broker senior secured loan of approximately $1 4 million and a principal repayment of approximately $1 2 million for total cash paid by grow coda Kronos of approximately $2 7 million in Q1.
James Holm: Having the best balance sheet in the cannabis industry enables us to take calculated strategic bets while we remain steadfastly focused on reducing cash burn. Turning to the balance sheet, the company ended the quarter with approximately $855 million in cash and cash equivalents. Moving to the cash flow statement, cash flow from operations was negative approximately $2.2 million. This compared to a negative approximately $47.7 million in the prior year period, which included a cash outflow of approximately $33 million associated with the All-Trail Warrant relinquishment, and Free Cash Flow, defined as operating cash flow less capex, was negative $4.2 million.
James Holm: Having the best balance sheet in the cannabis industry enables us to take calculated strategic bets, while we remain steadfastly focused on reducing cash burn.
James Holm: Turning to the balance sheet. The company ended the quarter with approximately $855 million in cash and cash equivalents moving.
James Holm: Moving to the cash flow statement cash flow from operations was negative approximately $2 2 million. This compares to the negative approximately $47 7 million in the prior year period, which included a cash outflow of approximately $33 million associated with the Altria warrant relinquish Matt.
James Holm: And free cash flow defined as operating cash flow less capex was negative $4 2 million. This compares to a negative approximately $48 5 million in the prior year period, So a significant improvement.
James Holm: This compares to a negative of approximately $48.5 million in the prior year period, so a significant improvement. We have many wins to point to this quarter. Market share gains, OPEX reduction, balance sheet, and cash flow optimization. And we are reaffirming our guidance that we anticipate the net change in cash, defined as the sum of cash and cash equivalents and short-term investments, will be positive in 2025. Looking back on the progress we have made, I share in Mike's confidence in the trajectory of our business and our preparedness for entry into new markets as they become available. With that, I'll open the line for questions.
James Holm: We have many ones to point to this quarter market share gains opex reduction balance sheet and cash flow optimization, and we are reaffirming our guidance that we anticipate the net change in cash defined as the sum of cash and cash equivalents and short term investments will be positive in 2024.
James Holm: Looking back on the progress we have made sure and my confidence in the trajectory of our business and our preparedness for entry into new markets as they become available.
Speaker Change: I'll open the line for questions.
Speaker Change: Thank you.
Operator: 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. Please note that all analysts are allowed to ask one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first questioner comes from the line of John Zamparo with CIBC. Your line is now open.
Speaker Change: At this time, we will conduct the question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.
Operator: Please note that all analysts are allowed to ask one question and one follow up question. Please.
Operator: Please standby, while we compile the Q&A roster.
John Zamparo: Our first question comes from the line of John <unk>.
John Zamparo: ROE with CIBC. Your line is now open.
John Zamparo: Thank you good morning, I wanted to start on the rescheduling.
John Zamparo: I wanted to start on the rescheduling news. And I think I know the answer here, but I want to ask it anyway. Let's say we fast forward to call it November. And we do get a formal rescheduling, everything's been approved.
John Zamparo: News and I think I know the answer here, but I wanted to ask it anyway, let's say, we fast forward to.
John Zamparo: Call. It November and we do get a formal rescheduling everything's been approved I wonder all other things equal what does that change with the Kronos group.
Michael Gorenstein: Good morning, thanks, John. You know, I think it's certainly very exciting and a great step in the right direction, but rescheduling is a very broad idea. I think the devil will be in the details. So there'll be a lot of potential opportunities and restrictions. There are a lot of plans that we look at, but I think we really need to see the details before
Speaker Change: Good morning, John.
Michael Gorenstein: I think it's certainly very exciting and.
Michael Gorenstein: Great step in the right direction, but a rescheduling of the very broad idea and I think the devil will be in the details so there'll be a lot of potential opportunities and restrictions.
Michael Gorenstein: There's a lot of plans that we look at but I think we really need to see the details before we comment on exactly how we'll pursue a U S strategy under any potential new framework.
Speaker Change: Okay fair enough.
John Zamparo: Okay, fair enough. And then moving back to Canada, we've seen softer growth industry-wide year-to-date. That doesn't seem to impact your brands. I wonder what you attribute the industry slowdown to, though, and obviously, pricing is a component here. But do you get a sense there's ongoing trade-down from consumers? Because this has always been an extremely price competitive and price-sensitive industry. I wonder how the industry can provide more value and how that will influence your strategy.
Michael Gorenstein: And then moving back to Canada, we.
John Zamparo: We've seen softer growth industry wide year to date that doesn't seem to impact your brands I Wonder what you attribute the industry slowdown to be though obviously pricing is a component here, but do you get a sense theres ongoing trade down from consumers because it has always been an extremely price competitive and price sensitive industry I wonder how the industry can provide.
John Zamparo: More value and how does that influence your strategy.
Speaker Change: Sure so for our brand specifically.
Michael Gorenstein: Sure, so, you know, for our brand specifically, we've continued to see growth. And, you know, I think what's key is now that we sort of reached a point where you're not seeing significant price compression, at least in flower, it's really bringing new products, bringing superior quality to the market, and you are competing with the illicit market. So, you know, going back to the prepared remarks, I think it's about picking the consumer segments and developing something that's, you know, narrowly focused on delivering what their needs are.
Michael Gorenstein: <unk> continued to see growth and.
Michael Gorenstein: With with key is.
Michael Gorenstein: Now that we sort of reached a point, where youre not seeing significant price compression at least in flower.
Michael Gorenstein: It's really bringing new products, bringing superior quality of the market and you are competing with illicit market. So going back to the prepared remarks, I think it's about taking the consumer segment in developing something thats narrowly focused on delivering what their needs are.
Michael Gorenstein: So, you know, that's something that we'll continue to do. It's something we'll continue to focus on, and you'll see whether Spinich or Lord Jones are continuing to develop great products, and I think that's what will drive our growth.
Michael Gorenstein: That's something that we'll continue to do it. So we will continue to focus on and Youll see whether spinach or Lord Jones is continue to develop great products and I think thats, what will drive our growth.
John Zamparo: Thank you very much. I'll pass it on.
Speaker Change: Thank you very much I'll pass it on.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Your line is now open.
Speaker Change: Thank you.
Speaker Change: Our next question.
Operator: Our next question comes from the line of Matt Bottomley with Canaccord Genuity.
Matt Bottomley: Line is now open.
Matt Bottomley: Good morning, everyone. Thanks for the comments so far. I just wanted to stay in the Canadian market. A lot of us have tracked the retail trends and, as John was mentioning, some of the slowing that we're seeing in the space. But I'm wondering if you can comment more on what your experience has been in the last three months or so with respect to the provincial wholesalers. There's been a lot of, especially from some of the leading LPs, a lot of hopeful thinking of, and maybe it'll come to fruition, of the IRA, or sorry, I'm in my US mode, the CRA sort of coming back and really calling some of these Are you seeing any tangible change with the competitive profile when you're putting purchase orders in from the provinces, or do you think that's a longer-term trend?
Matt Bottomley: Good morning, everyone. Thanks for the comments so far just wanted to stay in the Canadian market a lot of us attractive retail trends and as John was mentioning some of the slowing that we're seeing in the space, but I'm wondering if you can comment more on what your experience is in the last three months three months or so with respect to the provincial wholesalers theres been a lot of.
Matt Bottomley: Partially from some of the leading L. P is a lot of hopeful thinking of and maybe they'll come to fruition.
Matt Bottomley: The IRS, sorry, and then by U S mode.
Matt Bottomley: CRA sort of coming back and really calling some of these old excise.
Matt Bottomley: Excise tax payable that.
Matt Bottomley: <unk> lowered the amount of saturation in the space are you seeing any tangible change with the competitive profile when youre, putting purchase orders in from the provinces or do you think thats a longer term trend.
Speaker Change: Sure So I think.
Michael Gorenstein: Sure, so I think that the CRA is starting to, you know, garnish some of the payments from LPs that aren't paying the exit taxes is a step in the right direction and really does help level the playing field, but certainly, I think more action is needed. It's hard to know exactly what's driving some of the trends where you see, you know, I'd say supply is starting to dry up, but I think maybe what's bigger than the CRA is likely that you've got reduced supply from, you know, all the facility shutdowns we've seen over the last few years. And then also, I think there is increased international demand, and that is probably starting to pull from the product as well. So, you know, as you can see, we've definitely experienced growth, but I think there's
Michael Gorenstein: CRA sirna.
Michael Gorenstein: Garnish.
Michael Gorenstein: Garner some of the <unk>.
Michael Gorenstein: Payments from LTE that arent paying CRA tax paying the excise taxes is a step in the right direction and really does help level, the playing field, but certainly I think more actions needed.
Michael Gorenstein: It's hard to know exactly what's driving some of the trends you see.
Michael Gorenstein: <unk>.
Michael Gorenstein: Say supply is starting to dry up but I think maybe with bigger than the CRA is likely that you've got reduced supply from all the facility shutdowns. We seen over the last few years and then also I think there is increased international demand and that is probably starting to pull through product as well.
Michael Gorenstein: So as you can see we've definitely experienced growth.
Michael Gorenstein: But I think theres a lot of factors driving that.
Michael Gorenstein: <unk>.
Michael Gorenstein: Cray would only be one of them.
Matt Bottomley: Okay, understood. And then there is just another question for me outside of Canada on the international front. Obviously, it's nothing new for, you know, any producer out of Canada that exports internationally. But there's a bulkiness to, you know, when products sort of ebb and flow. You know, you've had some pretty big swings in Israel, and I understand some of the dynamics that are going on there. But is there any, you know, forward-looking commentary you can give with respect to, maybe as a percentage of your overall revenues on a 12-month basis, what international might look like compared to what it's been historically? Sure, you know, I want to hold that.
Speaker Change: Okay understood and then just another question for me outside of Canada on the International front, obviously, it's nothing new for any producer out of Canada that exports internationally. There is theres a bulking is too.
Matt Bottomley: When products sort of ebbs and flows you've had some pretty big swings in Israel and I understand some of the dynamics that are going on there but is there any go forward looking commentary you can give with respect to maybe as a percentage of your overall revenues.
Matt Bottomley: On a.
Matt Bottomley: 12 month basis forward, what international might look like compared to what it's been historically.
Matt Bottomley: Sure.
Michael Gorenstein: Sure, you know, I want to hold back on giving guidance on percentages. I'll just say that I think Israel will be less lumpy for us because the way that we report Israel versus others, because it's a core market for us, we have, you know, sales manufacturing, and we're really reporting sell-through. So it's different than, say, the UK, Australia, or Germany. But I will say that we expect significant growth in Germany given the regulatory change. It's a market we're extremely excited about, and I think that the UK does have a lot of potential to grow in the second half of the year. Okay, thanks for that, Mike.
Speaker Change: To hold back and giving guidance on on percentages I'll, just say that I think Israel will be less lumpy for us because the way that we report Israel versus others, because it's a core market for us we have.
Michael Gorenstein: Manufacturing and were really reporting.
Michael Gorenstein: Sell through so it's different than say, the U K, Australia or Germany.
Michael Gorenstein: But I will say that we expect cigna.
Michael Gorenstein: Significant growth in Germany, given the regulatory change in the market. We're extremely excited about and I think that UK does have a lot of potential to grow in the back half of the year.
Mike: Alright, Thanks, Mike.
Michael Gorenstein: Yes.
Michael Gorenstein: Alright.
Mike: Thank you so much for that.
Michael Gorenstein: Okay.
Operator: Thank you so much for that. And, as a reminder, everyone.
Speaker Change: And as a reminder, everyone.
Operator: 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. Please note that all analysts are allowed to ask one question and one follow-up question. Please stand by while we compile the Q&A roster.
Speaker Change: To ask a question you will need to press star one on your telephone and wait for your name to be announced so withdraw your question. Please press star one again.
Operator: Please note that all analysts are allowed to ask one question and one follow up question. Please.
Operator: Please standby, while we compile the Q&A roster.
Operator: Alright.
Operator: All right. I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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Speaker Change: I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude.
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