Q2 2024 Organigram Holdings Inc Earnings Call

Okay.

Operator: Good morning, my name is Gilles, and I will be your conference operator today. At this time, I would like to welcome everyone to the OrganiGram Hldg second quarter fiscal 2024 earnings conference call.

Good morning, My name, Michelle and I will be a conference operator today at this time I would like to welcome everyone to the Oregon at Graham Holdings second quarter fiscal 2024 earnings Conference call.

Operator: After the speaker's remarks, there will be a question and answer session. We ask you to please limit yourself to one question and one follow-up question. You may recur if you have any further questions. Thank you. Max Schwartz, you may begin your conference.

After the Speakers' remarks, there will be a question and answer session.

Michelle: We ask you to please limit yourself to one question and one follow up question you may re queue. If you have any further questions.

Michelle: Thank you Matt Schwartz you May begin your conference.

Max Schwartz: Thank you. Good morning, everyone, and thanks for joining us today.

Max Schwartz: Thank you good morning, everyone and thanks for joining US today as a reminder, this conference call is being recorded and recording will be available on <unk> website 24 hours after today's call.

Max Schwartz: As a reminder, this conference call is being recorded, and a recording will be available on OrganiGram's website 24 hours after today's call. Listeners should be aware that today's call will include estimates and other forward-looking information from which the company's actual results could differ. Please review the cautionary language in our press release dated May 14, 2024 on various factors, assumptions, and risks that could cause their actual results to differ. Further, reference will be made to certain non-IFRS measures during this call, including adjusted EBITDA, free cash flow, and adjusted gross margin, among others.

Max Schwartz: Listeners should be aware that today's call will include estimates and other forward looking information from which the company's actual results could differ. Please review the cautionary language in our press release dated may 14th 2024 on various factors assumptions and risks that could cause our actual results to differ.

Max Schwartz: Further reference will be made to certain non <unk> measures during this call, including adjusted EBITDA free cash flow adjusted gross margin among others. These measures do not have any standardized meaning under <unk> and are excited to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IRS.

Max Schwartz: Our approach to calculating these measures may differ from other issuers. So these measures may not be directly comparable please see today's earnings report for more information about these measures.

Max Schwartz: In this call references to fiscal 2020, we argue the 13 month period from September one 2022 through September 30 of 2023 listeners should also be aware that a company relies on a reputable third party providers, when making certain statements relating to market share data unless otherwise indicated all references to market data our source of high fire. It in combination with that when we call our provincial boards.

Max Schwartz: Retailers in our internal sales figures.

Max Schwartz: Today, we will be hearing from key members of our senior leadership team beginning with Goldman Burger Chief Executive Officer, who will provide opening remarks and commentary followed by Greg Chi.

Max Schwartz: These measures do not have any standardized meaning under IFRS and are intended to provide additional information and, as such, should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Our approach to calculating these measures may differ from that of other issuers, so these measures may not be directly comparable.

Max Schwartz: Please see today's earnings report for more information about these measures. In this call, references to fiscal 2023 refer to the 13-month period from September 1, 2022, through September 30, 2023. Listeners should also be aware that the company relies on reputable third-party providers when making certain statements relating to market share data. Unless otherwise indicated, all references to market data are sourced from HIFIRE in combination with data from WeCrawler, Provincial Boards, retailers, and our internal sales figures.

Greg Guyatt: <unk> Financial Officer, who will review our quarterly financial results for Q2 fiscal 2024 also joining us for the question and answer segment. It Kim Ann Burke Chief Commercial officer.

Max Schwartz: Today, we will be hearing from key members of our senior leadership team, beginning with Beena Goldenberg, Chief Executive Officer, who will provide opening remarks and commentary, followed by Greg Guyatt, Chief Financial Officer, who will review our quarterly financial results for Q2 Fiscal 2024. Also joining us for the question and answer segment is Tim Emberg, Chief Commercial Officer. Before I hand the call over to Beena, I would like to extend a thank you to those on the call today who made it out to our Investor Day and Facility Tour in April.

Greg Guyatt: Before I hand, the call over to Dina I would like to extend a thank you to those on the call today, who made it out to our Investor Day and facility tour in April we received a lot of positive feedback, but by far the most common thing we heard from attendees with how compelling it was to see the initiatives we've been talking about it or communication in person in the months to come we will be developing additional.

Max Schwartz: We received a lot of positive feedback, but by far, the most common thing we heard from attendees was how compelling it was to see the initiatives we've been talking about in our communications in person. In the months to come, we will be developing a digital version of this experience so our current shareholders and industry stakeholders can gain a better understanding of where our business is headed. With that, I will now introduce Beena Goldenberg, Chief Executive Officer of OrganiGram Hldg. Thank you. Please go ahead, Ms. Goldenberg.

Dina: This experience for our current shareholders and industry stakeholders can gain a better understanding of where our business is happy.

Dina: With that I will now introduce Dr. Goldenberg, Chief Executive Officer of Organically Holdings, Inc. Please go ahead Ms Goldenberg.

Beena G. Goldenberg: Thank you, Max, and good morning, everyone. We appreciate you all joining our call today and for your continued support of OrganiGram. It's hard to believe that we're already halfway through our fiscal year, and we're pleased to report that the events and changes that OrganiGram has undergone in the first half of the year have truly set us up for success in Canada and internationally for the balance of the year and in years to come.

Beena G. Goldenberg: Thank you, Matt and good morning, everyone. We appreciate you all joining our call today and for your continued support of organic brand.

Beena G. Goldenberg: It's hard to believe that we're already halfway through our fiscal year and we're pleased to report that the events or changes that organic ground has undergone in the first half of the year have truly set us up for success in Canada and internationally for the balance of the year and in years to come.

Beena G. Goldenberg: As we venture into the second half of 2024, we are confident that we will be in a position to truly accelerate our performance in Canada and internationally while putting the building blocks in place to allow us to deliver on our ambition to be a global leader in the cannabis industry. During today's call, we'll be discussing our performance highlights for the quarter and some important themes that will illustrate why, despite some ongoing headwinds, we remain confident in our ability to continue to deliver on our growth plan.

Beena G. Goldenberg: We venture into the second half of 2024, we are confident that we'll be in a position to truly accelerate our performance in Canada and internationally, while putting the building blocks in place to allow us to deliver on our ambition to be a global leader in the cannabis industry.

Beena G. Goldenberg: During today's call, we'll be discussing our performance highlights for the quarter.

Beena G. Goldenberg: Some important tool that will illustrate why despite some ongoing headwinds we remain confident in our ability to continue to deliver on our growth plans.

Beena G. Goldenberg: These are innovations as a continued focus area of ours and a growing competitive advantage for our company. International development as part of our ambitions to be a global leader in the cannabis space and the Canadian recreational business, and how we're poised to continue on our growth trajectory. Before we dive into these exciting topics, I'd be remiss not to address one important factor enabling us to comfortably weather the headwinds and support our growth plan, and that's the increase in our cash position.

Beena G. Goldenberg: Our innovation and the continued focus area of ours and a growing competitive advantage for our company.

Beena G. Goldenberg: International development as part of our ambition to be a global leader in the cannabis space.

Beena G. Goldenberg: And Canadian recreational business and how we're poised to continue on a growth trajectory.

Speaker Change: Before we dive into these exciting topics I'd be remiss to not address one important factor, enabling us to comfortably weather the headwinds and support our growth plans and that's the increase in our cash position.

Beena G. Goldenberg: This year, we significantly enhanced our already strong cash position by raising capital at a substantial premium to our share price. In Q2, shareholders approved a $124.6 million follow-on investment from BHP, with the first $41.5 million tranche successfully closed, and the second $41.5 million tranche expected to close by the end of August. Additionally, towards the end of the quarter, we announced and subsequently closed an oversubscribed financing round, generating an additional $28.8 million in gross proceeds.

Speaker Change: This year, we significantly enhanced our already strong cash position by raising capital at a substantial premium to our share price.

Speaker Change: Kitchen shareholders approved a $124 $6 million follow on investment probably 18 with the first 41 $5 million charge successfully closed in the second 41 $5 million tranche expected to close by the end of August.

Speaker Change: Additionally towards the end of the quarter, we announced and subsequently closed an oversubscribed financing route generating an additional $28 $8 million in gross proceeds.

Beena G. Goldenberg: By the close of the final tranche from DAT at the end of February 2025, OrganiGram will have nearly $200 million in pro forma cash on hand, an enviable position in today's challenging environment. Once again, I'd like to emphasize our disappointment with the Canadian government's reluctance to address critical issues impacting the cannabis industry in Canada. The biggest challenge for most Canadian cannabis LPs lies in the struggle to achieve sustainable profitability, with excise duties representing up to 35% of sales.

Speaker Change: By the close of the final tranche from <unk> at the end of February 2025, organic brand will have nearly $200 million in pro forma cash on hand, and enviable position in today's challenging environment.

Speaker Change: Once again I'd like to emphasize our disappointment with the Canadian government's reluctance to address critical issues impacting the candidates in the span Canada the.

Speaker Change: The biggest challenge most Canadian cannabis L P.

Speaker Change: Most Canadian cannabis therapies licensed struggle to achieve sustainable profitability with exercise disease, representing up to 35% of sale.

Beena G. Goldenberg: Despite the federal government's collection of almost $900 million in excise revenue from cannabis in 2023, surpassing revenues from beer and wine combined, no relief measures close to those extended to the beverage alcohol sector have been offered to the cannabis industry. To make matters worse, the recently announced federal budget did not address any form of improvement to the excise framework, despite recommendations from the industry, the Standing Committee on Finance, the Competition Bureau, and the expert panel reviewing the Cannabis Act.

Speaker Change: Despite the federal government's collection of almost $900 million in excise revenue from candidates in 2023, surpassing revenues from beer and wine combined no relief measures close to those extend it to the beverage alcohol sector have been offered to the cannabis industry to.

Speaker Change: To make matters worse, the recently announced federal budget did not address any form of improvement to the excise framework. Despite recommendations from the industry. The standalone many of them find that the competition Bureau, and the expert panel review in the cannabis Act.

Beena G. Goldenberg: Given OrganiGram's leadership position in the Canadian market, we remain steadfast in advocating for a fair and equitable excise framework that serves both industry interests and the federal government's objectives of safeguarding public health by diverting consumers from the illicit market. Despite this ongoing challenge, OrganiGram is well equipped to weather today's taxing regulatory environment and remain a leader in the sector. Not only have we demonstrated our ability to thrive in Canada, demonstrated by our 21% year-over-year growth in our recreational business this quarter, but we are also in an excellent position to invest in the growth of our international business with our robust balance.

Given organic brand leadership position in the Canadian market, we remain steadfast in advocating for a fair and equitable exercise.

Speaker Change: <unk> that serves both industry trends and federal governments objective safeguarding public health by diverting consumers from the illicit market.

Speaker Change: Despite this our wine challenge organic room is well equipped to weather today's taxing regulatory environment and remain a leader in the sector not only have we demonstrated our ability to thrive in Canada demonstrated by our 21% year over year growth in our recreational business. This quarter, but we're also in an excellent position to invest in the growth of our.

Speaker Change: Our international business with our robust balance sheet.

Speaker Change: Organic brands ambition to be a global leader in the cannabis space will be achieved by exporting our high quality high margin products to international markets and through the expansion of our footprint in emerging markets like the U S and Germany enabled by the $83 million of Jupiter strict strategic investment pool funded by two thirds.

Beena G. Goldenberg: OrganiGram's ambition to be a global leader in the cannabis space will be achieved by exporting our high quality, high margin products to international markets and through the expansion of our footprint in emerging markets like the US and Germany, enabled by the $83 million Jupiter strategic investment pool funded by two-thirds of BAT's follow-on investment.

Follow on investments.

Beena G. Goldenberg: In Q2, the company made its inaugural Jupiter investment and second U.S.-based investment in OpenBook Extracts, a leading provider of hemp-derived extracts and products. Through this investment, OrganiGram stands to gain invaluable insight into the U.S. landscape by leveraging OBX's extensive experience with key players in the U.S. cannabis market. Moving forward, we expect to collaborate with OBX on product launches in the U.S., capitalizing on the explosive growth of the hemp-derived THC market for edibles and beverages.

Speaker Change: In Q2, the company made its inaugural Jupiter investment and second U S based investment and also the book extracts a leading provider of hemp derived extracts and products.

Speaker Change: Through this investment organic ground stands to gain invaluable insights into the U S landscape by leveraging <unk> extensive experience with key players in the U S telecom market.

Speaker Change: Moving forward, we expect to collaborate with Ob at some product launches in the U S. Capitalizing on the explosive growth that the hamster ITC market for edibles and beverages.

Beena G. Goldenberg: With the DEA reportedly moving towards rescheduling cannabis, the opportunity in the U.S. is compelling, and we are carefully monitoring the regulatory landscape while we expand our footprint. Outside of the U.S., there are also a number of very compelling investment opportunities unfolding that we're well positioned to take advantage of, such as the decriminalization of cannabis in Germany, growth in Australia and the U.K., pilot programs in Switzerland, and medical frameworks being introduced in a growing number of markets, to name a few.

Speaker Change: With the DEA reportedly moving towards rescheduling cannabis the opportunity in the U S is compelling and we are carefully monitoring the regulatory landscape, while we expand our footprint.

Speaker Change: Outside of the U S. There are also a number of very compelling investment opportunities unfolding that we're well positioned to take advantage of us.

Speaker Change: To take advantage of the decriminalization of cannabis in Germany growth in Australia, and the UK pilot programs in Switzerland, and medical frameworks being introduced in a growing number of markets to name a few.

Beena G. Goldenberg: We've also made considerable progress with our international export business and are yielding tangible results from our efforts. In January, we completed our first shipment of medical flour to Sanity Group in Germany, and shortly after, we successfully shipped cannabis to Forsey Labs for distribution in the UK. Subsequent to quarter end, we completed our second shipment to San Diego. Furthermore, we signed two new supply agreements with medical cannabis suppliers in Australia and the UK, all while exploring additional opportunities in entirely new markets for OrganiGram. Our international revenue saw a significant decline versus Q2 fiscal 2023, driven by a large reduction in sales to Israel as we await payment of an outstanding receivable.

Speaker Change: We've also made considerable progress with our international export business and are yielding tangible results from our efforts.

Speaker Change: In January we completed our first shipment of medical flower to Sanity group in Germany, and shortly after we successfully shipped candidates the foresee lab for distribution in the U K.

Speaker Change: Subsequent to quarter end, we completed our second shipments etame.

Speaker Change: Further we signed two new supply agreements with medical Canada suppliers in Australia, and the U K, all while exploring additional opportunities in entirely new markets for organic ground.

Our international revenue saw a significant decline versus Q2 fiscal 2023, driven by a large reduction in sales to Israel as we await payment of an outstanding receivable, we are working with our Israeli customer on a payment plan and are optimistic that we will resume shipments to Israel in due course.

Beena G. Goldenberg: We are working with our Israeli customer on a payment plan and are optimistic that we will resume shipments to Israel in due course. That said, we are very encouraged by our return to international sales growth over the last three quarters, supported by our new international customers. Furthermore, our growth in flower exports is poised to receive a significant boost from OrganiGram's EU GMP licensing at our Moncton facility. Following a successful preliminary audit in February, we are optimistic that obtaining the certification will enhance our export margins and further expand our international customer base.

Speaker Change: That said, we are very encouraged by our return to international sales growth over the last three quarters supported by our new international customers.

Speaker Change: Furthermore, our growth in flower exports is poised to receive a significant boost from organic brands EU GMP licensing and our motion facility.

Speaker Change: Blowing a successful preliminary audit in February we are optimistic that obtaining this certification, thereby enhancing our excellent margins and further expanding our international customer base.

Beena G. Goldenberg: Now OrganiGram is synonymous with one thing; I think we could all agree that it's our relentless pursuit of consumer-centric innovation as a competitive advantage. Where other companies are cutting back, we're doubling down. You've heard me speak about the nano emulsion technology that is being worked on by the product development collaboration team. Excitingly, the PDC has received the preliminary results from a groundbreaking clinical study that was undertaken to validate this technology. The team is now analyzing the data, and we're excited to share the results with you soon.

Speaker Change: Now organic brand is synonymous with one thing I think we can all agree that it's a relentless pursuit of consumer centric innovation as a competitive advantage where other companies are cutting back we're doubling down.

Speaker Change: You've heard me speak about the nano emulsion technology, that's being worked on by the product development collaboration team.

Speaker Change: Secondly, the PDC have received the preliminary results from a groundbreaking clinical study that was undertaken to validate this technology. The team is now analyzing the data and we're excited to share the results with you soon.

Beena G. Goldenberg: The patent-pending nano emulsion technology aims to unlock the full power of ingested cannabinoids that will enable consumers to navigate and control their dosage experience more accurately, a key consumer pain point in the ingestible space. The nanoEMOTION production equipment was recently transported to OrganiGram's Winnipeg facility in April, and the company is preparing to scale up production and sales for these gummies in the fall. Another differentiated innovation play we remain bullish on stems from our first U.S. investment in phylogenetic bioscience in May of 2023.

Speaker Change: The patent pending nano emulsion technology aimed to unlock the full power of adjusted cannabinoid that will enable consumers to navigate and control their dosage experience more accurately.

Speaker Change: Consumer pain points in the injectable space.

Speaker Change: Nano emulsion production equipment was recently transported to organic rents Winnipeg facility in April and the company is prepared to scale up production and sales for these companies in the fall.

Speaker Change: Another differentiated innovation play we remain bullish on stems from our first U S investment in silos Bioscience in May of 2023.

Beena G. Goldenberg: As a result of this investment, we are the only company in Canada offering whole flour derived THC-V. Our introduction into THC-B products has garnered significant attention, with retail sales surpassing $3.7 million since their launch in August of 2023 and the completion of our first international shipment of THC-B flowers subsequent to quarter ends. Consumer feedback for the Super Sativa Powerhouse has been very positive, and we plan to continue to expand our portfolio of THC-B products.

Speaker Change: As a result of this investment we are the only company and Canada offering called flower derived T. H C D.

Speaker Change: Our introduction entity HCV product has garnered significant attention with retail sales, surpassing $3 $7 million since their launch in August of 23, and the completion of our first international shipments of THC flower subsequent to quarter end.

Speaker Change: Consumer feedback for the Super City. The powerhouse has been very positive to date and we plan to continue to expand our portfolio P HCV product.

Beena G. Goldenberg: The Philos investment also brought us seed-based production that many of you have seen showcased during our Investor Day in April. Philos' seed-based technology presents a transformative growth opportunity for OrganiGram. We are now systematically transitioning a portion of our monkton facility to seed-based production, which promises to increase plant yields, significantly reduce cultivation costs, shorten harvest cycles, and deliver more consistent and robust plants. The anticipated cost savings of seed-based production programs versus clone-based methods range between 30 to 40 percent.

Speaker Change: The final investment also brought a feed based production that many of you have seen showcased during our investor day in April.

Speaker Change: Psilosis seat based technology preventive transformative growth opportunity for organic brands.

Speaker Change: We are now systematically transitioning a portion of our Moncton facility to fee based production, which promises to increase quite yields significantly reduced cultivation costs shortened harvest cycle and deliver more consistent and robust plans.

Speaker Change: The anticipated cost savings at sea based production per Gram versus codebase methods range between 30% to 40%.

Beena G. Goldenberg: As of now, we have four seed-based production rooms online, which is a slower ramp-up than we originally had planned due to the time involved in obtaining seed characteristics that satisfy changing consumer preferences. However, we are encouraged by the yield and potency results of our first harvest. As we streamline our collection processes and further build out our pipeline of seed candidates, we anticipate that we will meet our goal of 30% seed-based production by the end of calendar 2024.

Speaker Change: As of now we have four seed based production rooms online, which is a slower ramp up than we originally had planned due to the time involved in obtaining seed cap characteristics, which satisfy changing consumer preferences.

Speaker Change: However, we are encouraged by the yield and potency results of our first harvest at.

Speaker Change: As we streamline our collection processes and further build out our pipeline of seed candidates. We anticipate that we will meet our goal of 30% fee based production by the end of calendar 2024.

Beena G. Goldenberg: Regarding VAPES, we previously highlighted our investment in Green Tank as a means to bring innovation to our VAPES portfolio and finally address our underperformance in this category. In Q2, we conducted a test launch of Green Tank's new atomizing technology in select markets.

Speaker Change: Regarding <unk>, we previously highlighted our investment in Green tank as it means to bring innovation to our base portfolio and finally address our underperformance in this category.

In Q2, we conducted a test launch of Green tanks, New Adam I think technology in select markets.

Beena G. Goldenberg: At the end of the test launch, we saw higher-than-expected consumer returns, and given our firm commitment to quality, the consumer, and our provincial board partners, we are working to address the issue before our anticipated national rollout. In parallel, extensive work within the PDC has taken place on several innovative vape solutions that we believe will begin to add to OrganiGram's portfolio of compelling and differentiated vape products. On the research innovation front, OrganiGram's recent achievements include significant reductions in THC to CBN conversion times by 75%.

Speaker Change: At the end of the test launch, we saw higher than expected consumer returns and given our firm commitment to quality the consumer and our provincial Board partners. We are working to address the issue before our anticipated national rollout.

Speaker Change: In parallel extensive work within the PTC has taken place on several innovative based solutions that we believe will begin to add to organic rems portfolio of compelling and differentiated vape products.

Speaker Change: On the research innovation front organic <unk> recent achievements include significant reductions in T C to C b and conversion time by 75%.

Beena G. Goldenberg: We are now able to produce 100% of our CBN demand in-house and are on our way to doing the same with CBG. We have also developed an isolation method to produce zero THC, THC-B isolate with an 85% purity level. We are identifying more genetic markers for disease and powdery mildew resistance, terpene synthesis, and other markers, which will allow us to select cultivars with more of the properties we want and less of the ones we don't. As we continue to identify new genetic markers, it's only a matter of time until we can selectively breed F1 seeds that result in the consistent expression of the desired genetics.

Speaker Change: We are now able to produce 100% of our CB and demand in house and are on our way to doing the same with C. B G.

Speaker Change: We have also developed an isolation message produced zero THC THC be isolate with an 85% purity levels.

Speaker Change: We are identifying more genetic markers for disease, and powdery mildew resistant chirping synthesis, and other markers, which will allow us to select coastal barge with more of the properties, we want and less of the ones. We don't as we continue to identify new genetic markers. It's only a matter of time until we can selectively breed F. One team.

Speaker Change: That results in the consistent expression of the desire genetics reached.

Beena G. Goldenberg: Research like this is what sets OrganiGram apart from other producers and provides us with a long-term advantage. Now, on the domestic front, OrganiGram maintains a leadership position in every major product category except Apes. As of Q2, OrganiGram held the number one position in milk flour, number one in hash, number one in ingestible extracts, number one in pure CBD gummies, number two in overall edibles, number two in infused pre-rolls, number three in all pre-rolls, and number three in dried flour, bringing us to the overall number three market position in Canada.

Speaker Change: Research like this is what sets organic room apart from other producers and provides us with a long term advantage.

Speaker Change: Now on the domestic front organic branding maintains a leadership position in every major product category accept fate.

Speaker Change: Q2 organic brands held the number one position in milk flower number one in house number one an ingestible extracts number one in pure CBD gummies number two in overall edibles number two and infuse pre rolls.

Speaker Change: Three in all pre rolls and number three and dried flower, bringing us to the overall number three market position in Canada.

Beena G. Goldenberg: Our continued success in almost every category is due to our relentless dedication to quality, innovation, and focus. As the top pure play cannabis company in Canada, everything we do at OrganiGram is geared towards creating the most exciting cannabis brands and products on the market, developed in Canada to delight consumers around the world. Regionally, we achieved remarkable growth in Atlantic Canada, with retail sales surging by over 36% to achieve a 16.1% share.

Speaker Change: Our continued success in almost every category is owed to our relentless dedication to quality innovation and focus.

Speaker Change: As the top pure play cannabis company in Canada, everything we do at organic round is geared towards creating the most exciting cannabis brands and products on the market developed in Canada to delight consumers around the world.

Speaker Change: Regionally, we achieved remarkable growth in Atlantic, Canada, with retail sales surging by over 36% to achieve a 16, 1% share.

Beena G. Goldenberg: Additionally, our market share in Quebec reached a record high 9.1% in March, signaling that we're building a strong hold in Canada's second most populous province, all while maintaining a top five position in every other province across Canada.

Speaker Change: Additionally, our market share in Quebec reached a record high nine 1% in March signaling that we're building a strong holding 10 is the second most populous province.

Speaker Change: All while maintaining a top five position in every other province across Canada.

Beena G. Goldenberg: It goes without saying that we're committed to innovation, but innovations are stronger when they're carried by great brands. The success of our Shred brand underscores our commitment to innovation and market leadership, with retail sales now exceeding $200 million annually. Shred has introduced several industry-first innovations, including flavor-forward milk flour, rip-strip hash, whole flour-derived THC-B gummies, and milled THC-B flour. In Q2, we introduced our first carton-style box of joints, Shred Rainbow Lion's Dart, offering consumers 7 packs of 10 darts in 4 different flavors.

Speaker Change: It goes without saying that we're committed to innovation, but innovation is stronger when they are carried by great brands.

Speaker Change: Tests of our shred brands underscores our commitment to innovation and market leadership with retail sales now exceeding $200 million annually shred has introduced several industry first innovations, including flavor forward milk flower Rip strip hash whole flower derive P HCV gummies and milled THC D flower.

Speaker Change: In Q2, we introduced our first carton style box have joined shred Rainbow, while stark offering consumers seven attacks of 10 darts in four different flavors.

Beena G. Goldenberg: Our newly launched Shred Rainbow Heavies, which consists of three flavored IPRs with over 40% THC, achieved over $450,000 in retail sales within their first month in the market. Among our other successful brands are Monjour, which continues to dominate the pure CBD gummy segment with 51% market share, growing 65% year over year. Trombone, which leads in hash, resulting in our 23% share in the category, and Big Bag of Buds, which is a leader in our large format flower category.

Speaker Change: Our newly launched shred Rainbow heavy which consists of three flavored IP ours with over 40% THC achieved over $450000 in retail sales within their first month of the market.

Speaker Change: Among our other successful brands are more sure which continues to dominate the pure CBD gummy segment with 51% market share growing 65% year over year.

Trumbull, which leaves and hash, resulting in our 23% share in the category.

Speaker Change: And big bag of Bugs, which is a leader in our large format flower category.

Beena G. Goldenberg: We don't often speak about Big Vagabud, but this quarter we launched Cereal Jealousy, a new cultivar from OrganiGram. This was our fastest ever launch to reach $1 million in sales, and our highest sales achieved for a new launch within two months of hitting the market. We are also particularly excited about the revitalization of our Translaser brand aimed at meeting the needs of a very large and underserved consumer segment, the passionate female believer. The new Trailblazer flower line was unveiled, showcasing hang-dried, smart-cured, hand-packed, premium, and potent flower pre-rolls in vibrant glass jars with shipments that began in April.

Speaker Change: We don't often speak about big bag, a bus, but this quarter, we launched cereal jealousy or new cultivar from organic growth. This was our fastest ever launch to reach $1 billion in sales and our highest sales achieved for a new launch within two months of hitting the market.

Speaker Change: We are also particularly excited about the revitalization of our Trailblazer brand aimed at meeting the needs of a very large and underserved consumer segment the passionate female believer.

Speaker Change: The new translational flower line with unveil showcasing hanged dried smartcard 10 pack premium and potent flower pre rolls and vibrant glass jars with shipments that began in April.

Beena G. Goldenberg: So to recap, the latter half of fiscal 2024 presents many opportunities for OrganiGram. Our growth in the domestic market continues due to our focus on innovation and understanding consumers. Our $83 million Jupiter fund and excellent balance sheet allow us to explore more strategic investments like silos and open book extracts, geared towards garnering competitive advantages and growing our international footprint. And we are growing our export customer base, which contributes

Speaker Change: So to recap the latter half of fiscal 2024 presents many opportunities for organic ramp our growth in the domestic market continues due to our focus on innovation and understanding consumers are $83 million Jupiter filings and excellent balance sheet allow us to explore more strategic investments like pilots and open book extracts year two.

Speaker Change: Towards garnering competitive advantages and growing our international footprint and we are growing our export customer base, which contributes to expanding our international revenue with that I will turn the call over to Greg to discuss our financial performance for the quarter.

Greg Guyatt: Thank you, Beena. As Beena mentioned in her comments, our recreational net revenue grew by 21% versus Q2 last year, versus approximately 7% market growth over the same period. When taken together with the decrease in international sales compared to Q2 of last year, we saw a net increase in our gross revenue of 8.6% to $57.4 million for the quarter, compared to $52.9 million in the same prior year period. Given the impact of a decrease in international sales of $8.6 million between Q2 and the same prior year period, our net revenue saw a modest contraction in the quarter of 5%, resulting in $37. OrganiGram is current with its excise duty obligations and remits approximately 34% of its gross revenue to the CRA.

Greg: Thank you Pina as Bina mentioned in her comments a recreational net revenue grew by 21% versus Q2 last year versus approximately 7% market growth over the same period.

Greg: When taken together with the decrease in international sales compared to Q2 of last year. We saw a net increase in our gross revenue of eight 6% to $57 4 million for the quarter compared to $52 9 million in the same period the same prior year period.

Greg: Given the impact of a decrease in international sales of $8 6 million between Q2 and the same prior year period, our net revenue saw a modest contraction in the quarter, a 5%, resulting in $37 6 million in net revenue, partially offset by an increase in wholesale revenue of $1 3 million.

Greg: Organic grandma's current with its excise duty obligations, removing approximately 34% of its gross revenue to the CRA.

Greg Guyatt: OrganiGram's cost of sales in Q2 fiscal 2024 was $26.4 million compared to $29.6 million in Q2 fiscal 2023, representing a decrease of 12%. The decrease in the cost of sales over the same prior year period was primarily due to higher inventory provisions in Q2 fiscal 2023 of $3.2 million related to net realizable value adjustments of inventory. We harvested approximately 19.9 000 kilograms of flour during Q2 fiscal 2024, compared to 20.6 000 kilograms in Q2 fiscal 2023, which represents a decrease of approximately 3%.

Organic around cost of sales in Q2 fiscal 2024 was $26 4 million compared to $29 6 million in Q2 fiscal 2023, representing a decrease of 12%.

Greg: The decrease in the cost of sales over the same prior year period was primarily due to higher inventory provisions in Q2, 'twenty fiscal 2023 of $3 2 million related to net realizable value adjustments of inventory.

Greg: We harvested approximately 19 9000 kilograms of flower during Q2 fiscal 2024 compared to 26000 kilograms in Q2 fiscal 2023, which represents a decrease of approximately 3% the.

Greg Guyatt: The decrease was primarily attributable to changes in our cultivar mix to address changes in consumer preferences. While yields and THC content will fluctuate over time, the trend we have seen over the last two years has been larger yields and higher potency. In Q2, year-over-year, OrganiGram experienced a 79% increase in flower production containing more than 24% THC. Now, about 25% of our harvest is clock in between 24 and 26% THC, and 25% is testing above 26%.

Greg: The decrease was primarily attributable to changes in our culture, our mix to address changing consumer preferences.

Greg: While yields on THC content will fluctuate over time with trends, we have seen in the over the last two years has been larger yield and higher potency and Q2 year over year organic growth.

Greg: 79% increase in power produced containing more than 24% THB now about 25% of our harvest is clocking in between 24, and 26% THC and 25% is testing above 26%.

Greg Guyatt: Compared to Q2 fiscal 2023, our yield per plant is higher, Higher yields should reduce the cost of cultivation in the long run, and as this flower is sold, we expect to achieve higher gross margin rates. In Q3, we should begin to see some lower-cost flower harvested in Q2 flow through the P&L, with that trend expected to continue into Q4. In Q2 fiscal 2024, Adjusted Gross Margin remains stable at 31%, or $11.7 million sequentially.

Greg: Compared to Q2 fiscal 2023, our yield per plant has increased.

Greg: Yields should reduce the cost of cultivation in the long run and as the flowers sold and we expect to achieve higher gross margin rate in Q3, we should we should begin to see some lower cost flower harvested in Q2 flow through the P&L without trend expected to continue into Q4.

Greg: In Q2 fiscal 2024, adjusted gross margin stable at 31% or $11 7 million sequentially compared to the same prior year period, we experienced a decline in our adjusted gross margin rate from 34% year over year decline was primarily due to lower international sales, which declined from $10 8 million.

Greg Guyatt: Compared to the same prior-year period, we experienced a decline in our Adjusted Gross Margin rate from 34%. The year-over-year decline is primarily due to lower international sales, which declined from $10.8 million to $2.2 million between Q2 fiscal 2023 and Q2 fiscal 2024. The delta here is related to a reduction in shipments to Israel, which have yet to recover.

Greg: The $2 2 million between Q2 fiscal 2023 in Q2 fiscal 2020 for the Delta here is related to reduction in shipments of Israel, which have yet to recover.

Greg Guyatt: Subsequently, however, our international sales have increased to $2.1 million, and we expect this trend to continue throughout the latter half of fiscal 2024. In Q2, OrganiGram realized approximately $2.4 million of the $10 million in annual savings that we outlined at the end of Fiscal 2023, and year-to-date, we have realized $4.7 million of these savings. Driving these continued savings is the use of in-house remediation and rapid drying technology. There are several other efficiency-driven initiatives underway that we expect will lower operating costs. We are reducing the bench time for our clones from 21 days to 14 days, which will reduce costs annually and increase capacity by approximately 1300 kilograms by freeing up two additional grow rooms.

Greg: Sequentially. However, our international sales have increased to $2 1 million and we expect that trend to continue throughout the latter half of fiscal 2024.

Greg: In Q2 organic ground realized approximately $2 $4 million of the $10 million in annual savings that we outlined at the end of fiscal 2023 and year to date, we have realized $4 $7 million of these savings.

Greg: Driving we've continued savings and abuse of in house remediation and rapid drying technology.

There are several other efficiency driving initiatives underway that we expect will lower operating costs. Further we are reducing the bedside Brook loans from 21 days to 14 days, which will reduce costs annually and increased capacity by approximately 1300 kilogram by freeing up two additional grow rooms also we're focused on power.

Greg Guyatt: Also, we are focused on power reduction initiatives, which we project will result in 2.3 million in annual savings. We're optimizing warehouse distribution between Moncton and Winnipeg to save on freight for customers in Western Canada. Included in our Q2 SG&A was a reserve of $4.2 million related to our outstanding receivable from our Israeli customer, CanDoc. SG&A remained relatively flat, adjusting for the CanDoc receivable provision, at $15.9 million compared to $16.1 million in Q2 fiscal 2023, or a decrease of 1%.

Greg: <unk> initiative, which we project will result in $2 $3 million in annual savings.

Greg: We are optimizing warehouse distribution between Moncton, and Winnipeg to save on freight for customers in Western Canada.

Greg: Included in our Q2, SG&A with a reserve of $4 2 million related to our outstanding receivable from our Israeli customer Cam dock SG&A remained relatively flat adjusting for the <unk> receivable provision at $15 9 million compared to $16 1 million in Q2 fiscal 2023 or a decrease of 1%.

Greg Guyatt: While G&A costs decreased by $1.2 million, they were offset by an increase in sales and marketing costs of $1.1 million related to higher competition in the Canadian marketplace. This quarter, we posted an Adjusted EBITDA loss of $1 million compared to Adjusted EBITDA of $5.6 million in the same prior year period. This loss was attributed to lower net flower revenue and lower international sales, which negatively impacted our Adjusted Growth Margin rate compared to the prior year period.

Greg: While G&A, while G&A costs decreased by $1 2 million that were offset by an increase in sales and marketing costs of $1 1 million related to higher competition in the Canadian marketplace.

Greg: This quarter, we posted an adjusted EBITDA loss of $1 million compared to adjusted EBITDA of $5 6 million in the same prior year period. This loss was attributed to lower than that cloud revenue and lower international sales, which negatively impacted our adjusted gross margin rate compared to the prior year period, we're confirming our outlook.

Greg Guyatt: We are confirming our outlook that our positive Adjusted EBITDA in FY2024 will exceed that of FY2023. Supporting this outlook is the expected increase in international sales in the back half of FY2024, as well as efficiency improvements and Lower Cost of Flowers, which is expected to start flowing through our P&L in the back half of fiscal 2024. The net loss for Q2 fiscal 2024 was $27.1 million, compared to a net loss of $7.5 million in the same prior year period.

Greg: Our positive adjusted EBITDA in fiscal 2024 will exceed that of fiscal 2023.

Greg: Supporting this outlook as the expected increase in international sales in the back half of fiscal 2024.

Greg: As well as efficiency improvements.

Greg: And lower cost of flower, which is expected to start flowing through our P&L in the back half of fiscal 2024.

Greg: Net loss for Q2 fiscal 2024 was $27 1 million compared to a net loss of $7 5 million in the same prior year period. The increase in net loss in the comparative period is primarily due to a lower gross margin, resulting from a reduction in the gain on fair value of biological assets and an increase in the fair.

Greg Guyatt: The increase in net loss from the comparative period is primarily due to a lower gross margin, resulting from a reduction in the gain on the fair value of biological assets and an increase in the fair value loss of the derivative liability of approximately $11.9 million related to the future issuance of BAC preferred shares. From a statement of cash flow perspective, net cash used in operating activities was $9 million in Q2 Fiscal 2024, compared to $19.7 million in the prior year period.

Greg: A value lots of derivative liability of approximately $11 9 million related to the future issuance of preferred shares.

Greg: From the statement of cash flow perspective, net cash used in operating activities was $9 million in Q2 fiscal 2024 compared to a use of $19 7 million in the prior year period. The decrease in cash used in operating activities of 54% was primarily due to an increase in accounts payable, resulting from a shift from monthly.

Greg Guyatt: The decrease in cash used in operating activities of 54% was primarily due to an increase in accounts payable, resulting from a shift from monthly to quarterly payments of excise duties in accordance with excise duty regulation payment schedules and improvements in a regular payment term. Cash used by investing activities in Q2 fiscal 2024 was $1.9 million compared to cash provided of $11.7 million in Q2 fiscal 2023, which was driven by a redemption of short-term investments in Q2 2023 of $15.2 million.

Greg: The quarterly payments of excise duty in accordance with excise duty regulation payment schedules and improvements in our regular payment term.

Greg: Cash used by investing activities in Q2 fiscal 2024 was $1 9 million compared to cash provided of $11 7 million in Q2 fiscal 2023, which was driven by a redemption of short term investments in Q2 2023 of $15 2 million on the topic of cash very pleased to state that we have.

Greg Guyatt: On the topic of cash, we're very pleased to state that we have one of the healthiest balance sheets in the industry. As of March 31, 2024, we had a total cash position of $83.6 million, including both restricted and unrestricted cash, and negligible debt.

One of the healthiest balance sheets in the industry as of March 31, 2024, we had a total cash position of $83 6 million, including both restricted and unrestricted cash.

Greg Guyatt: And as Beena mentioned, our pro forma cash position after the closure of the second and third BAT tranches and our recent equity raise of gross proceeds of $28.8 million is expected to start approaching $2,200 million. We focused our efforts this quarter on bolstering our cash, driving costs out of the business, expanding our international reach, and expanding market share while investing in the long-term efficiency of our business to set us up for success in the latter half of fiscal 2024 and beyond.

Greg: Negligible debt and as Bina mentioned, our pro forma cash position after the closure of the second and third tranches and our recent equity raise gross proceeds of $28 8 million.

Greg: Does it start approaching $200 million.

Speaker Change: We focused our efforts this quarter on bolstering our cash driving costs out of the business.

Speaker Change: Spanning our international reach and expanding market share while investing in the long term efficiency of our business to set us up for success in the latter half of fiscal 2024 and beyond.

Greg Guyatt: We did incur a loss of margin due to lower international sales and are focused on rapidly growing 2.0 segments such as infused pre-rolls, which attracted higher rec sizes. However, we head into Q3 confident that the back half of the year will demonstrate our ability to generate improved financial results. We continue to expect positive cash flow from operations before working capital adjustments by the end of fiscal 2024. This concludes my comments. I'll now turn the call back to Beena.

Speaker Change: We did incur the loss of margin due to lower international sales and our focus on rapidly growing two point out segments, such as infuse pre rolls, which attracted higher excise duty. However, we head into Q3 confident that the back half of the year will demonstrate our ability to generate improved financial results. We continue to expect positive cash flow.

Speaker Change: From operations before working capital adjustments by the end of fiscal 2024. This concludes my comments I'll now turn the call back Davina.

Davina: Thank you Greg.

Beena G. Goldenberg: The chemistry industry is still in its infancy, and after considerable growing pains, it looks like we're entering a period of renewed excitement around the sector, fueled by macro tailwinds that we believe will favor established leaders in the space, of which OrganiGram is clearly one of the very last few in Canada. Today OrganiGram stands as a leading LP with significant cash reserves and negligible debt. This represents a considerable competitive advantage, substantially mitigating liquidity risk and facilitating the expansion of OrganiGram's presence in international cannabis markets.

Davina: Cannabis industry is still in its infancy and after considerable growing pains that looks like we're entering a period of renewed excitement around the sector fueled by macro tailwind that we believe will favor established leaders in the space of which organic trend was clearly one of the very few in Canada.

Organic N: Today organic N stands as a leading L. P with significant cash reserves. The net negligible that this represents a considerable competitive advantage substantially is substantially mitigated liquidity risks and facilitating the expansion of our presence in international cannabis market.

Beena G. Goldenberg: We have persevered through every challenge presented to us, ranging from irrational price compression, overstated THC levels, nanny state regulations, and an illogical excise framework to achieve growth in our domestic business and set us up for a long-term growth trajectory. We also recognize the benefits of being challenged to bring excellence into every aspect of our business and have used this environment to hone our competitive edge. While this quarter we reported negative adjusted EBITDA, we're confident that our domestic and international market growth, our innovation pipeline, and investments and long-term efficiencies will result in improved financial performance throughout the back half of fiscal 2024. We look forward to updating you on our progress next quarter. So once again, thank you for your continued interest and support of OrganiGram. I will now open the call up for questions.

Organic N: We have persisted through every challenge presented to us ranging from irrational price compression overstated tsetse levels Nanny State regulations, and then logical excise framework to achieve growth in our domestic business and to set us up for long term growth trajectory.

Speaker Change: We also recognize the benefits of being challenged to bring excellent sent to every aspect of our business and have used this environment to hold our competitive edge. While this quarter, we reported negative adjusted EBITDA, we're confident that our domestic and international market growth, our innovation pipeline and investments in long term efficiencies will result in improved.

Speaker Change: Actual performance throughout the back half of fiscal 2024, we look forward to updating you on our progress next quarter. So once again. Thank you for your continued interest and support of organic brands I will now open the call up for questions.

Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you're called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question.

Speaker Change: Thank you the floor is now open for questions. If you have dialed in and we would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again if.

Speaker Change: If you are called upon to ask you a question in our listening via loudspeakers into devices. Please pickup your handset to ensure that your phone is not on mute when asking a question.

Speaker Change: And again, we ask that you. Please limit yourself to one question and one follow up question and you may re queue for further questions.

Operator: And again, we ask that you please limit yourself to one question and one follow-up question, and you may return for further questions. Your first question comes from the line of Aaron Grey of Alliance Global Partners. Your line is open.

Speaker Change: Your first question comes from the line of Aaron Grey of Alliance Global Partners. Your line is open.

Aaron Thomas Grey: Hi, good morning, and thank you for the question. First one for me, Greg, I believe you mentioned still expecting adjusted EBITDA to exceed prior years. I think that's in reference to the 5.5, right? So I just want to make sure I heard that correctly. And then, if you could just provide some more granularity in terms of those puts and takes you talked about.

Aaron Thomas Grey: Hi, good morning, and thank you for the questions.

Aaron Thomas Grey: First one for me Greg I believe you mentioned still expecting adjusted EBITDA to exceed prior year's investments.

Aaron Thomas Grey: 555, right. So I just want to make sure I heard that correctly and then if you could just provide.

Aaron Thomas Grey: Some more granularity in terms of those puts and takes you talked about some of the gross margin improvement you're expecting in terms of shifting to the sea based production.

Aaron Thomas Grey: You talked about some opex improvements as well you mentioned greater international I believe when you made reference that as well. So just in terms of the puts and takes of getting to.

Aaron Thomas Grey: EBITDA exceeding 2023 for the back half of fiscal 2020 for what we should expect in terms of the top line gross margin and EBIT that help us get there. Thank you.

Greg Guyatt: Sure. Thanks, Aaron. Let me try to unpack all that.

Erinn: Sure. Thanks, Thanks, Erinn, let me try to unpack all of that so first your question on EBITDA, Yes, you heard that correctly will exceed the EBITDA from from fiscal 2023 in the back half of this year.

Greg Guyatt: So first, your question on EBITDA. Yes, you heard that correctly. We'll exceed EBITDA from fiscal 2023 in the back half of this year. As far as margins and the various puts and takes, first, I'll start with the second quarter. And, you know, versus the prior year, we had less international. As you know, international is much higher-margin than domestic and does not include any excise duty obligations. Also, during the quarter, our mix skewed towards IPRs, which is good news in that we're driving leadership in that category, but at the same time, it's a new category for us.

Aaron Thomas Grey: As far as far as margins in the various puts and takes first of all I'll start with.

Speaker Change: In the second quarter, and we had versus the prior year, we have less international as you know international is.

Speaker Change: Higher margin than domestic and does not include any excise duty obligations.

Speaker Change: Also during the quarter, our mix skewed towards <unk>, which is which is good news and that we're driving leadership in that category, but at the same time, it's a new category for us.

Greg Guyatt: So, you know, we're still working out some of the kinks in the production area and really working on improving our production efficiencies there, which we've made good progress on, and we expect to see some movement on that in the back half of this year. Also, in the second quarter, we had lower jolt sales in Q2 versus Q1, which also would have been a bit of a drag on margin during the period. So, as we go forward into the back half of the year, you mentioned seed-based production that should start flowing through towards Q4, and as Bina mentioned, that's about a 30% to 40% cost reduction.

Speaker Change: So we're still working out some of the Kinks in the production area and really working on improving our.

Speaker Change: Production efficiencies, there, which we've made good progress on and we expect to see some movement on that in the back half of this year.

Speaker Change: Also in the second quarter, we had.

Speaker Change: Lower jolt sale Q.

Speaker Change: Q2 versus Q1.

Speaker Change: Which also.

Speaker Change: Also I would've had been a bit of a drag on margins during the period. So as we go forward into the back half of the year you mentioned the.

Bina: <unk> based production that should start flowing through towards Q4, and as Bina mentioned, that's about a $30, 30% to 40% cost reduction.

Greg Guyatt: And that's not going to be 30% to 40% in totality, obviously, but, you know, as we've said before, our plan is by the end of the calendar this year to have about 30% of the garden seed-based, which we'll see the benefit from. Also, moving forward, we're really working on making operational efficiency improvements in some production areas where we've seen higher weights than we would have liked in Q1 and Q2, and that's particularly around tube-style pre-rolls, which, again, is a relatively new process for us. [inaudible] I think that answers your question there, Aaron.

Bina: And that's not going to that's not going to be 30, 30% to 40% in totality, obviously, but.

Bina: As we've said before our plan and by the end of calendar. This year to have about 30% of the garden at the base, we will see the benefit from.

Bina: Also moving forward.

Speaker Change: We're really working on making operational efficiency improvements and some production areas, where we've seen higher than harder the higher waste than we would've liked.

Speaker Change: Q1, and Q2, and that's particularly around two style pre roll.

Speaker Change: Again, as a relatively new process for us and there's been a lot in the last number of weeks, we started to see real improvement in that area, we expect to drive that going forward as well.

Speaker Change: Also just you know the cost savings initiative that we mentioned before about the $10 million target for the year made great progress on that.

Speaker Change: $5 5 million more to go in the back half around freight logistics energy.

Speaker Change: And also the post harvest post harvest efficiencies that we expect that to be coming through.

Speaker Change: Hope that answers answered your question there.

Aaron Thomas Grey: No, it did. No, I really appreciate that color there, Greg. Second question for me, right, so you guys have the OBX investment. Within the U.S., there's been a number of public operators, you know, talking more about the hemp-derived beverage market specifically, but also, you know, edibles, including some listed on the NASDAQ similar to you. So can you speak, you know, specifically about your views specifically on the hemp-derived beverage and potentially edibles market, too, given your line of sight with OBX investment?

Greg: No. It didn't really appreciate that color there Greg.

Greg: Second question for me right. So you guys have the obs investment.

Greg: Within the U S has been a number of public operators talk more about the hemp derived beverage market, specifically, but also edibles, including some listed on the NASDAQ similar to so can you speak towards abuse swiftly on the hemp derived beverage and potentially edibles market too given.

Company Representative: Given your line of sight with <unk> investment or are you seeing some opportunities. There is there some ability for you to leverage <unk> distribution.

Aaron Thomas Grey: Are you seeing some opportunities there? Is there some ability for you to leverage BAT's distribution? You know, it's not a liquor channel there, but there's still some convenience and maybe some bodegas and elsewhere that could be leveraged. So just your view of the hemp-derived beverage market, you know, how big the opportunity is, and if you think there's opportunities for OGI to come within it. Thanks. All right.

Speaker Change: Liquor channel there, but there's still some convenience and maybe some of the data and otherwise that could be leveraged so.

Operator: Your view of the hemp derived beverage market, how big the opportunity is and if you think there's opportunities for <unk> within it.

Beena G. Goldenberg: Sure. Thank you, Aaron.

Erin: Sure. Thank you Erin so first of all we're very excited about that the hemp derived THC market for Injectables for both beverages and for Edibles and certainly our relationship with <unk> gives us a first line of sight into the market and the opportunity we.

Beena G. Goldenberg: So first of all, we're very excited about the hemp-derived THC market for ingestibles, for both beverages and for edibles. And certainly, our relationship with OBX gives us a first line of sight into the market and the opportunity. We do see there's a patchwork of states in the U.S. that have regulated the Delta 9 THC hemp extract, and there's some that are perhaps not regulated but are

Erin: We do see it theres a patchwork of states in the U S that are have regulated the.

Speaker Change: Delta 90, HC hemp derived and Theres some that are.

Erin: <unk> not regulated but are not enforcing and so this market continues to grow and we continue to track.

Beena G. Goldenberg: And so this market continues to grow, and we continue to track how big the opportunity is. What excites us about this is the direct-to-consumer opportunities that you could move products across state lines. So there are a lot of very interesting opportunities in the space.

Erin: How big the opportunity is what excites us about this is the direct to consumer opportunities that you could move product across.

Speaker Change: Across state lines. So there's a lot of very interesting opportunities around the space.

Speaker Change: We are.

Beena G. Goldenberg: We are reviewing what the opportunities are internally. We see the opportunity to use the nano-emulsion technology that we're developing in some of the products that we take to market in the U.S. at some point in the future, and the opportunity to leverage the clinical study that we did to make claims in that market. So we do think we have a competitive differentiation that we could use so we could enter the market.

Speaker Change: Viewing what the opportunities are internally, we see the opportunity of using the nano emulsion technology that we're developing and some of the products that we take to the <unk>.

Speaker Change: Market in the U S.

Speaker Change: At some point in the future and the opportunity to leverage the clinical study that we did to make claims in that market. So we do think we have a competitive differentiation that we could take so we could enter the market.

Speaker Change: We are looking at whether it's beverages or edibles.

Beena G. Goldenberg: We are looking at whether it's beverages or edibles, and we're looking at ways to get the product to market. So nothing in the short term in terms of using the BAT distribution network. We'd be looking at how OBX is getting products out, and we'd be looking at other partners that we could leverage. So it's still a work in progress, something that we're evaluating as we go. And obviously, needless to say, everything we do, we're going to make sure that we're compliant with our NASDAQ listing and our TSX listing. So this is an area that we're navigating carefully as we look to get some product into the U.S. market.

Speaker Change: And we're looking at ways to get the product to market. So nothing in the short term in terms of using the distribution network, we'd be looking at how Ob X is getting products out we'd be looking at other partners that we could leverage so that's still a work in <unk>.

Speaker Change: That's something that we're evaluating as we look out and obviously needless to say everything we do we're going to make sure that we're compliant with our NASDAQ listing with our <unk> ex listing. So this is that an area that we're navigating carefully as we look to get some product into the U S market.

Matt Bottomley: Your next question comes from the line of Matt Bottomley of Canaccord Genuity. Your line is open.

Speaker Change: Your next question comes from the line of Matt Bottomley with Canaccord Genuity. Your line is open.

Matt Bottomley: Good morning everyone, hope everyone's well. Yeah, just had a follow up question on the reserve you took for that receivable. So relative to your international contribution, you know, it is sizable, obviously not really material to the company or quarter overall, but I'm just curious if we can get a little more detail on that. Is this biomass that wasn't accepted in Israel? Is there a dispute there? Has that product been returned? I'm just trying to get an idea of where that relationship is, and then if Israel is still a market, that will be a focus in the near term.

Matt Bottomley: Good morning, everyone Hope everyone's well just had a follow up question on the reserve you took for that receivable so relative to your international contribution.

Matt Bottomley: Sizable obviously, not really material to the company or quarter overall, but I'm just curious if we can get a little more detail on that is this biomass.

Speaker Change: That wasn't accepted over in Israel is it is there a dispute there has.

Speaker Change: Has that product been returned I'm, just trying to get an idea of where that relationship is and then if Israel is still a market that will be a focus in the near term.

Greg Guyatt: No problem, Matt. Let me take that on and say to you that there is no issue with the product that was shipped over. This was a situation where the receivable was due at the end of October, and we all know what happened in that country on October 7th. And it is our intention to, in due course, get back to shipping to Israel. It's an important market for cannabis, and it's a higher-margin market than Canada, as Greg alluded to, in terms of our international growth. And so it's something that we want to do, but obviously, with the size of the outstanding receivable, we have been on standby at this point, and we have stopped shipping until we get this resolved.

Speaker Change: No problem let.

Speaker Change: Let me, let me take that on and say to you that there is no issue with the product that was shipped over.

Speaker Change: This was a situation where the receivable was due at the end of October and we all know what happened in that country on October 7th So there is a.

Speaker Change: Delay in payment.

Speaker Change: The customer says they'll pay us, but at this point at six months past due.

Speaker Change: And so we took the reserve on our books.

The customer: We expect to continue to work with the customer to get a payment plan that we're comfortable with them and it is our intention to in due course get back to shipping to Israel and it's an important market for cannabis and it's at.

Greg: Our higher margin markets, and then Canada as Greg alluded to in terms of our international grew.

Greg: Growth and so it's something that we want to do but obviously with the size of the outstanding receivable, we have been on standby at this point and we have stopped shipping until we get this resolved.

Matt Bottomley: Okay, thanks for that. And just one other question for me, just on the cadence of sort of the adjusted EBITDA rebound for the back half of the year. I'm just wondering if sort of cash flow from operations will be linear to that? Or will we see an outperformance in sort of the CFO given the fact that international sales likely have a higher margin and will drive more to the bottom line?

Greg: Okay. Thanks for that and just one other question for me just on the cadence of.

Greg: Sort of the adjusted EBITDA.

Speaker Change: Rebound to the back half of the year here I'm, just wondering if sort of cash flow from operations will be linear to that or will we see an outperformance in sort of the CFO given the fact that international sales are likely have a higher margin and it will drive more to the bottom line.

Greg Guyatt: Hey, thanks for that question, Matt. Right now, we're expecting the cash flow from operations improvement to be roughly linear, and that's really driven by the changes in working capital. And, you know, we are continuing to invest in the business, and we're investing in working capital as well. So, you know, that's really going to be an important driver there, beyond just the sales internationally. And for example, in the first quarter, we invested more in inventory than we had in the past in order to make sure that our customer service levels were much higher than they had been.

Speaker Change: Hey, thanks, Thanks for that question Matt.

Speaker Change: Now, we're expecting the cash flow from operations improvement to be roughly linear and that's really driven by the changes in working capital.

Greg: And.

Speaker Change: We are continuing to invest in the business and we're investing in working capital as well so.

Speaker Change: That's really going to be an important driver there beyond just the sales sales internationally and for example.

Speaker Change: Over the over the first quarter, we invested we invested more in inventory than we had in the past.

Speaker Change: Order to make sure that our customer service levels are much higher than they had been so that's sort of an example are on time and in full.

Greg Guyatt: So, this is an example; our on-time and in-full shipments to the provinces were up to over 95% in Q2 as a result of that investment. So, that's the one caveat to the linear versus sort of exponential following the international.

Speaker Change: Shipments to the provinces was up to over 95% in Q2 as a result of that investment. So that's the one caveat to the linear versus sort of exponential following following the international.

Operator: Thank you, and again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question comes from a line at Frederico Gomes of ATB Capital Markets. Your line is open.

Speaker Change: Thank you and again, if you would like to ask a question press star followed by the number one on your telephone keypad. Your next question comes from the line of Frederico Gomez.

Frederico Yokota Choucair Gomes: <unk> capital markets. Your line is open.

Frederico Yokota Choucair Gomes: Good morning. Thank you for taking the time to answer my questions. My first question is about Germany. I think yesterday there was an article mentioning there was a change in regulations there that could potentially expedite the second pillar of their legalization plan. So I'm just curious if you've seen that, could you comment on it in terms of your expectations for that second pillar, as well as just in terms of your EU GMP certification. Do you have any sort of timeline for that? Thank you. Thank you.

Frederico Yokota Choucair Gomes: Hi, Good morning, Thank you for taking my questions.

Frederico Yokota Choucair Gomes: My first question is on Germany, I think yesterday, there was an article in mentioning.

Frederico Yokota Choucair Gomes: There was a change in regulations, there that could potentially expedite the second pillar of their legalization of blend. So I'm just curious if you've seen that could you comment on it in terms of your expectations for that second pillar as well as just you know in terms of your EU GMP certification do you have any sort of timeline for that thank you.

Beena G. Goldenberg: No problem, Fred. So, let me start with the first point. Yes, we have seen the same news around the second pillar of German legalization and progress, and we're excited about that. Really, what that was all about was enabling pilot programs, similar to what we've seen in Switzerland, where they're going to allow certain, I guess, licensed producers or cannabis companies to have pilot facilities. So they could pilot programs so that they could test how the market runs and form some better understanding of the market.

Frederico Yokota Choucair Gomes: Okay.

Frederico Yokota Choucair Gomes: No problem Fred So let me start with the first point, yes, we have seen the same news around the second pillar of the German legalization.

Fred: It is progressing and we're excited about that really what that was all about is enabling pilot programs similar to what we've seen in Switzerland, where they're going to allow them to certain I guess licensed producers are cannabis companies to have pilot facilities like it pilot programs so that they can.

Beena G. Goldenberg: We're excited about that. We're talking with some of our customers that we deal with in Germany about the opportunities in that market. And this is just, again, another example of the legalization framework opening up in Germany, which we're excited about. It's another big market. So any progress like this, no different than the DEA rescheduling that they're talking about in the US, these are all good macro tailwinds for the industry. And we're excited about the opportunity it presents.

Fred: Test, how the market runs and form some better.

Fred: Understanding of the market.

Fred: We're excited about that we're talking with some of our customers that we're dealing within in Germany about the opportunities in that market and this is just again. Another example of the legalization framework opening up in Germany, which we're excited about it's another big market.

Fred: So any progress like this no different than the DEA rescheduling.

Fred: That they were talking about in the U S. These are all good macro tailwind for the industry and we're excited about the opportunity it presents.

Beena G. Goldenberg: In terms of the EU GMP, we had our preliminary audit back in February, and we were successful with that audit. So, we're now just waiting for confirmation from the regulatory authorities on when they will be coming out to do the final audit. You know, our hope is that it will happen this summer, but, you know, we're kind of not in control of their timeline, so we're just waiting for that to be scheduled.

Fred: In terms of the EU GMP, we have.

Fred: Our preliminary audit back in February and we were successful with that audit. So we're now just waiting for confirmation from the regulatory authorities and when they will be coming out to do the the final audit.

Fred: Our hope is that it will happen this summer, but we're.

Fred: Kind of not in control of their timeline. So we're just waiting for that to be scheduled.

Frederico Yokota Choucair Gomes: Thank you for that, Beena. My second question is: you mentioned that rescheduling in the U.S. could potentially help your U.S.-based strategy in terms of your investments. So just curious, how exactly could that play out? Is it about the sort of investments that you would be able to pursue while being compliant with your NASDAQ listing, or is it about helping, I guess, your investments that you have already made in the U.S. to perform better? So just any call on how rescheduling could help you in the U.S. Thanks.

Fred: Thank you for that.

Fred: Second question is just you mentioned that rescheduling in the U S could potentially help you.

Fred: Your USA strategy in terms of your investments. So just curious how exactly did that play out is it about the sort of investments that you would be able to pursue and while keeping being compliant with NASDAQ listing or is it about helping I guess your investments that you have already made in the U S to perform better so just.

Fred: Any color on how rescheduling could help you in the U S.

Fred: Thanks.

Beena G. Goldenberg: Sure, so again, just to reiterate, look, we think that the whole DEA rescheduling is really a positive move forward that signals, you know, the evolution of the US movement towards federal legalization. So we're excited about that. Now, it doesn't really help much for us from a compliance position, as you mentioned, with our NASDAQ and PSX listings, we still can't consolidate or control anything that's plan-touching. However, we do think that the whole rescheduling is expected to take some time, but it will happen.

Fred: Sure. So again just to reiterate look we think that the whole DEA rescheduling is really a positive move forward.

Fred: Signals the evolution of the U S movement towards federal legalization. So we're excited about that now it doesn't really help much for us from a compliance position as you mentioned.

Speaker Change: With our NASDAQ N PSX listings, we still cant consolidate or control anything that's touching.

Beena G. Goldenberg: And we think that this will benefit the two, our two US investee companies, and, you know, we're invested in them. So that's a benefit to us. It's still a small amount of benefit at this time, but we think that with the Jupiter fund, we have the opportunity to take advantage of other opportunities in the US market. And so this is just a positive all around for us as we look to expand our global footprint.

Fred: However, we do think that the.

Fred: It's the.

Speaker Change: The whole rescheduling is expected to take some time, but it will happen and.

Speaker Change: And we think that this will benefit the two our two U S investing companies.

Speaker Change: And you know we're invested in them. So that's a benefit to us it's still a small amount of benefit at this time, but we think that with the Jupiter.

Speaker Change: Fund, we have the opportunity to take advantage of other other opportunities in the U S market and so this is just a positive all around for us as we look to expand our global footprint.

Operator: Thank you, and with no further questions, that concludes our Q&A session. I will now turn the conference back over to Beena for closing remarks.

Speaker Change: Thank you and with no further questions that concludes our Q&A session I will now turn the conference back over to be enough for closing remarks.

Beena G. Goldenberg: Well, again, thank you everybody for joining the call today. I know that we have some exciting plans ahead, and we do look forward to updating you on our progress next quarter. So, with that, I'll end the call.

be enough: Well again, thank you everybody for joining the call today I know that we have some exciting plans ahead ahead and we do look forward to updating you on our progress next quarter, so with that I'll end the call.

Operator: This concludes today's conference call. You may now disconnect.

Speaker Change: This concludes today's conference call you may now disconnect.

Speaker Change: Yeah.

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