Q1 2024 Flora Growth Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Florida Corp, first quarter 'twenty 'twenty, four adults and Cogs corporate update conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation, there will be an opportunity to ask questions.
I joined the question queue, you May Press Star then one on your telephone keypad.
Do you need assistance during the conference call you May signal, an operator by pressing Star then zero.
Now I'd like to turn the conference over to Danny Raman Chief Financial Officer. Please go ahead.
Thank you operator, and good morning, everyone.
Speaker Change: On behalf of the Florida team welcome to our Q1, 'twenty 'twenty, four and corporate update conference call.
Before we begin I wish to inform listeners that certain statements will be made today by the management team may contain forward looking information.
Today's call will include estimates and other forward looking information and statements concerning future revenues results from operations financial position markets economic conditions partnerships and any other statements that may be constructed as a prediction of future performance.
Speaker Change: Information may involve known and unknown risks uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements.
That could cause or contribute to such differences are described in detail in the company's recent filings available on Edgar.
W. W. I S C dot Gov.
SEDAR at Www.
Speaker Change: That SEDAR dot com.
Any estimates or forward looking information or statements provided.
Only.
Speaker Change: Date of this call and the company undertakes no obligation.
Update any forward looking information or supply new information regarding the circumstances. After the date of this call.
On the call today, we have Clifford Stark CEO as well as Dan Whalen CFO.
Following the presentation Clifford and I will be available for the question and answer period.
Speaker Change: 1024 results press release, and the accompanying 10 10-Q, that's been filed.
Filed on Edgar and SEDAR.
They're all amounts mentioned in this call are in United States dollars unless otherwise stated.
Now I'll turn the call over to Clifford.
Oh, sorry, Danny.
Cliffs was blind has dropped and that's going to we're just going to try to reconnect them.
No problem.
Danny: Oh, Hey, good. This is my line just kind of everything's okay.
Yeah, Oh good Clifford.
Thank you. Thank you can you start off.
Yes. Please go ahead, okay, great. Okay. Welcome to floor of growth Q1, 'twenty four conference call.
Just to recap in June 2023, we took over the company and we've completely changed the company for the better we are on track to focus on a few key initiatives and projects.
Taking this to the next level and create shareholder value.
Today, we are fully funded to execute on those business plans.
Danny: We recently closed a three point.
Two 3 million dollar financing.
Let me focus fully on Germany to start off.
Where half of revenues are generated in March.
The German government provide the final green light from the legislation of recreational cannabis.
Along with a slate of liberalization amendments for medical cannabis access.
Beginning April 1st 2024 campuses Columbia reclassified to a non narcotic narcotics data.
The new law legislation possession by adults for recreational purposes.
In the business to grow up to three plants on their own.
German Alex will not be allowed to join we'll be allowed to join for profit Cabot's clubs with a Max of 500 members.
July 1st 2024.
Speaker Change: Obviously, we would welcome this game changing development in Germany, as many of our future if somebody else, who loves us legislation that first in Canada.
Mcgovern government: Mcgovern government has indicated that it intends to pursue the second phase why such legislation.
On a regional pilot projects with commercial supply chains, we believe believe that in time Jeremy.
Other enhances regulatory.
Over recreational cannabis to allow for profit commercialization.
An immediate commercialization opportunity sanctorum, Germany rules really relates to its medical side of Canada.
Metal canvas will no longer requiring arcata prescription with respect to simplify and streamline the process close disruption.
More patients to gain access for medical cannabis not only as a last resort.
Rather assets have told treatment option for a variety of elements is unfortunate what that floor of subsidiaries have operated Jeremy since 2017, we sold the first grammar legal medical cannabis in the country and our Florida business is really prepared to take over in a driver seat and be a leader in country for Tivo one of ours.
Companies is a problem that pharmacy distribution company that has an established medical cannabis.
Canada sales team and we've done very well over the past number of years.
Mcgovern government: On the historic day, Germany's new rules came in when we announced the acquisition of true HD pharma at G. M. D. H, while we're pleased with our positioning in Germany. We believe that there are some true hcg before family will set us apart.
Drew possesses key German licenses, including the EU GMP processing production and our colleagues to certify storage laboratory licenses. In addition to the whole certified customizable modules with flexibility to incorporate various production and packaging processes in which enables license extension for future in country.
Cultivation, which will supply to cabot's social clubs and eventually.
Mcgovern government: Dispensaries as far the acquisition trade fees management team led by Henry not has assumed leadership role with them or have European operations.
Hendrik is also responsible for it in the first tender for the cultivation.
In medical cannabis in Germany.
Back in the day with a with Austria.
The German legal cannabis recreational market has attached to reach $4 2 billion of falling by station with a total European market forecast you achieved about 10 billion.
On the heels of the German legislation plus came reports of a potential reclassification of cannabis by the United States drug enforcement administration from it's supposed to scheduled one drugs schedule III. Following a recommendation from our federal health and Human services Department in 2022, President Joe Biden instructed HG HHS to conduct.
Speaker Change: Review of candidates as it relates to scheduling of the plant.
Speaker Change: In August 2023, the H H S.
Recommended that canvas be rescheduled to a schedule III substance.
So it's all three drugs.
Are those of the moderate to low for abuse and currently it's up to the medical uses.
The D. A proposal a formalized must be still reviewed by the white house opposite budget management, after which Jay will take public comments before publishing its final.
The U S market presents strong opportunities to acquire businesses.
Florida is expand the U S by offering complementary cannabis derivatives consumer products through just brands and comps of SaaS with your vessel.
Speaker Change: Additionally floor has been active in developing partnerships to expand the reach of our portfolio in the quarter, we signed exclusive distribution agreements with Althea group holdings for vessel brands, the United Kingdom is that trying to debate pennant dry herb.
This category represents a multibillion dollar industry is expected to grow over the next decades from five to 15 billion.
In April 2024, we entered two distribution agreements one with I M. C. C. I am cannabis Corp for Baskin Archie.
Speaker Change: And distribution in Israel.
Speaker Change: These brands are well known for premium is really a canvas market facilitating the import of wholesale medical cannabis through retail pharmacies online platform distribution center.
Speaker Change: Those are our largest and longest standing medical markets in the world and we plan on Odyssey positioning ourselves for that market.
Speaker Change: Second with Miro trade limited to distribute both just and also branded products in Poland and potentially other countries within the EU Miro is expected to represent these rashes dispensaries smoke shops convenient stores gas stations across Poland and offer a white label services, leading brands in the regions.
Speaker Change: Overall, we're excited I think we're making great strides and extremely excited over the next quarters to come on the business plan will really take shape or form.
Speaker Change: Danny I'd like to hand over to you to go over more of the financial side of the business and and thank you.
Thank you clarified.
Danny: Let me start by further elaborating that at the moment.
Danny: Around cannabis reform could be kind of a transformational moment for the sector and for Florida.
Speaker Change: Florida had been anticipating it and are ready to welcome at within an efficient flexible and fit for purpose public company vehicle are.
Our business focus has shifted to allocating resources, where there is potential for explosive growth, particularly in Germany, and the United States.
Revenues for the first quarter of 2024 or $18 million compared to $19 3 million for the first quarter of 2023.
This is primarily due to the company's deliberate discontinuation of several unprofitable product lines.
These decreases in sales were partially offset by improved performance in our German operations, where sales increased to $11 3 million in Q1, 2024 compared to $8 million in Q1 of 2023.
Total operating expenses were $6 3 million in Q1, 24 compared to $7 7 million in Q1, 2023, a decrease of $1 4 million or 18%, excluding noncash impairment charges. The decrease in operating expenses quarter over quarter was $2 4 million.
30%.
Net cash used in operating activities was $1 3 million in Q1 2024 compared to $4 3 million in Q1, 2023, a decrease and an improvement of 3 million or 70%.
On a consolidated basis, the net loss for the quarter was $3 4 million compared to $3 9 million in the comparable quarter, an improvement of 0.5 million or 13%.
Speaker Change: For the impact of imbalance and unrealized noncash losses, the operating loss was $1 6 million compared to $2 4 million in the comparable quarter.
An improvement of 0.8 million or 33%.
Speaker Change: <unk> finished the quarter with $4 2 million in cash $21 8 million of current assets, including $9 2 million of Sellable inventory.
Speaker Change: Net working capital was $2 4 million.
Each of our operating divisions have achieved results that are close to breakeven on an income from continuing operations and adjusted EBITDA.
Speaker Change: Jessie we'd be maintained a gross profit margin of 441% on sales of $5 4 million.
It stopped selling products in the quarter included the nighttime there Pete and CVD plus coming gummies, approximately 76% of its revenues from direct to consumer sales and the remaining 64% generated through business to business sales in the quarter just CBD.
Jessie: Added 200, new wholesale customers to its network.
Speaker Change: That's all achieved gross profit margin of 39% on sales of $1 3 million core products represented 48% of sales in Congress products contributed 31% of sales.
Speaker Change: The largest individual item sold what's called black representing 11% of vessel sales.
It was evenly split between direct to consumer and business to business.
Speaker Change: In the quarter vessel added 35, new wholesale customers, including several multi state operators.
The turbo sales consisted of a business to business sales of branded pharmaceuticals, including medications for Merck vertex.
Of actress MSB.
Speaker Change: Novo Nordisk, Astrazeneca Janssen and Gilead Sciences.
All in all what.
What we see in the capital markets is the beginning of it.
Speaker Change: Any sense of optimism about around candidates.
Investors are beginning to appreciate the situation at hand with two of the most sought after global markets in Germany, and the United States.
College of ushering, a new era in categories. This is precisely what our business was built for.
Speaker Change: Now hand, the call over back to the operator for the question and answer period.
Thank you.
He joined the question queue. You May Press Star then one on your telephone keypad, you'll hear tone acknowledging your request.
Speaker Change: Using a speakerphone please pick up your handset before pressing any key cause enjoying a question. Please press star then two.
The first question comes from Bill Kirk with Scott and Ken. Please go ahead.
Hey, good morning, everybody. Thank you for taking the questions and thank you for the update.
So there's obviously been a lot of changes over the last nine months or so over the last year can you give us a sense of what you're thinking the business will look like sales mix wise by like vision going forward and if you can also by geography, I think closer to I think you said, 50%, Germany, but can you give us a sense of.
The division breakup sales mix that you're expecting going forward.
Yeah, So right now quarter in quarter out, Germany between lets say, 50% to 55%.
Speaker Change: I think over them I don't feel comfortable telling you exactly.
You know what we're forecasting so long. So hope you July is but I think youre going to see.
Increased both on the German side and the German side is going to be really on the medical cannabis launch, which we're already seeing like I don't know.
Speaker Change: You guys are falling but supply is extremely tight in Germany again within the first two three weeks everything went bonkers more or less one simple flower product high tier.
Good good.
Speaker Change: Good high level strains.
Speaker Change: Now on the U S side, we're extremely excited on vessel and vessels growth.
I think that's gonna have a tremendous trajectory over the next probably two quarters and then some of them will work out, which we haven't announced yet is what we're really.
Really focused on the U S side and in coming weeks, we'll get more and more.
You know a focal point in what we're trying to achieve.
But I would say at this point I'll feel comfortable giving you exactly the breakdown.
And when we put out guidance. If we do then I think we'll be able to give.
To give you some more information obviously.
Okay. Appreciate that and then one on just CBD. There is some big changes to the product lineup. There can you walk us through a little bit more of those changes and I guess, what I want to get out is.
Year over year, the profitability of just CBD was it was about unchanged, but I think some of those product lines you took out where maybe unprofitable. So is it fair to expect the profitability of just CBD as a segment to get better after those changes in the first quarter.
I think just as position extremely well now.
We have a significant relaunch.
Size, obviously cutting non profitable or very low margin businesses. We've also had unfortunate some issues with regulators in Florida, which is now solved but that definitely hurt the topline and bottom line the business for the quarter.
So I would say from this point forward, you, probably see quite a bit of growth on not necessary. The gummy business, where the <unk> business, which are mature more new things that were in the process of Walter.
And focus on promote from a from a team perspective.
Speaker Change: So thank you I appreciate it.
Once again, if you have a question. Please press Star then one.
The next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Yeah.
Hi, Thanks for the questions. So first one for me just on Germany, Obviously early days of canvas format took effect April one.
So wanted to speak more in terms of your expectations, what you're seeing early days in the market, how you looked to capitalize specifically.
Distribution is that now something that's easier for you to utilize for cannabis and now that's off the narcotics versus before being traditional pharma and then any other ways that you're looking to capitalize on the opportunity there. Thanks.
Thanks, Oh balls are first off Germany is off so obviously, a big focal point for the company that's been there for a long time.
Short term effects of April 1st.
Really on the medical side in terms of literally strange is getting sold out just because people are getting scripts far easier than before.
Speaker Change: It is still quite confusing where we are.
In the cycle in Germany, because our social clubs come in effect, what does that mean for us and others.
Really what we're playing this game for is when does it turn where that next cycle is our phase II is ready to go.
Which is a quasi real rack space, where air and walks in for profit bias Cabot somebody is and that's what we're positioned for that facility and team are the right fit to execute our business plans. Both short term and long term short term I think we're going to be very focused on medical distribution of our screens. We currently move as well.
Well as as July.
Rolls in we're going to make sure that gets an offer profits or social clubs, great before properly can work all around that whether it's supply them genetics as well as supplying them third party services for testing, whether it's growing on their behalf. Obviously, we'll have our own club, but it's just to be part of it but really what we're positioning for getting ready for.
Speaker Change: Or is that phase two.
In short term I think youre going to see the pop in purely on medical flower.
It's a little bit confusing as well because you know being in the U S where almost everyone on this call is.
Speaker Change: And Canada.
So far ahead of Germany in terms of products.
While right now we're talking about flower and reality is I can't really introduced for example, a cart to Germany legally. The reason is the pharmacist at the end is the one actually dispensing as a controlled release seen out to the patient and actually filling it today okay.
So there's going to be this whole new momentum of of when things evolve and change.
Really right there touch every vertical to make money.
But still today, it's still the same folks it's been for years, its just a lot easier and easier access and the margins are still sitting there which is great.
Speaker Change: Okay, Great I appreciate that color second one for me on just CBD.
Speaker Change: A lot of conversations lately around.
The hemp derived beverage space and edibles as well, but really in some of the minor cannabinoid at Delta 90 AC as well.
Public companies listed on the NASDAQ and otherwise so wondering if you're seeing additional opportunities through more traditional distribution channels. Obviously, a lot of patchwork in terms of the state regulations, some allowing it somewhat limiting milligrams and otherwise but would love your guys perspective, just in terms of what opportunities you see.
In the beverage channel for hemp derived products for CBD and be a distribution opportunities out there. Thanks.
Speaker Change: I think beverages is.
Speaker Change: Is unbelievable category all this yourself and build priority you, obviously understand the beverage category very well outside of canvas as well.
And the way, it's being positioned it's not really a cannabis play it's actually alcohol distribution play.
Our alternative to alcohol distribution.
And what we're seeing is there's no national brand that exists today.
Speaker Change: Unbelievable case studies done in various markets, but the totals of the world are coming in and really starting to gear up.
Speaker Change: And you know when when the category United States represents two 3%, there's a tremendous amount of growth and the person who traditionally smokes cannabis and rose joining smoked offsets probably a different market.
This is a new consumer.
Who doesn't feel comfortable smoking or how is it different alternatives or wants to try cannabis or feels more comfortable with taboos over legally with it.
And we see huge explosion in the past 60, 90 days are exploded with a tremendous amount of.
Of people.
People trying to create brands I think our team is extremely well positioned and I want to get into too much on this call, but I think our team is extremely well positioned to actually be a leader in the category just like we were early days gummies.
A period of time, we probably sold more gummies the most in the United States.
In beverages, I think it's really really important to be able to produce altered great quality and I think it was on the shelf today is not so I wouldn't be surprised if you can go and start ripping off cans from the shelves. The total and started testing them and you're going to see the contents are far different than what you think.
Speaker Change: Andrew Stanford Ml standpoint.
And I.
I think quality is going to win at the end of the day I think having proper stability in place or are the consumers actually 30 days out or to other supposed to who's going to win.
There's no fly by night I don't think it's going to going to last much longer. So that's definitely I would say probably the most exciting opportunity in this whole design space. Aaron you mentioned to me and said to me a while ago. When you see till Ray finally talking about it all of a something's happening there.
At the same time again, I don't want to get to in.
Speaker Change: Involved in plans.
We're potentially looking at the beverage category for sure.
Well again I hope so.
On the.
I I like I don't want to I don't think you're going to see over a five mg be able to move around nationwide, but I'm not sure I'm sure.
So those states like Tennessee, where he could put into 50 and there's other issues, but there's other states that obviously like a Florida, which is a little bit more difficult.
And then we're seeing some states even do for cap so.
I'm more curious also to hear what you have to stay on that but I'm sure five a day on the day it will probably be the threshold.
Yeah, Yeah, no definitely appreciate that kind of now that you've seen a lot of a patchwork there at the state level with some even lower milligram limits and five but I appreciate the color there.
Got it.
Our next question comes from Collin Gerry with Haywood Securities. Please go ahead.
Yeah. Thanks for taking my question, maybe if we could just turn back to Germany for a bit here and any sort of trend the data that you're able to share with regards to new patient sign ups or doctors number of doctors issuing prescriptions I know, it's only been six weeks, but I think there was an article out there that suggested that a total patient sign ups since.
Speaker Change: The launch or since the change in the regulations on April 1st has nearly doubled the patient count.
Sort of any color you can provide on that or sort of trends you've seen in the first six weeks would be great.
Yeah, I don't want a permanent staff a number by say, but I think what you were saying probably pretty accurate I think theres been a huge explosion you can see that in the shortage supply at the same time, there's a lot of.
Poor quality strains that arent getting that I think there's two things that are happening. There is the consumer either is extremely price dependent I E very very low or wants extremely high quality cannabis, which obviously for higher prices no middle ground systems. So we're seeing a lot of low quality and high quality cannabis move no in between.
And for US obviously, we're we're.
No the business is picking up clearly in Germany, but I really think again if at all.
Our plans more for future development, that's why we've done an acquisition that's all within one four and the medical sales in the retina medical sales is great. We're obviously getting an extreme amount of calls and orders that we can't fulfill yet for items like genetics in and potentially calling down the line.
Speaker Change: We're trying to get organized to actually meet the demand, but we're seeing it really reminds us like we said that it really mindful, Canada early days, where everything was kind of ripping early on in and even though home grows we're doing you know quite well and the ironic part is you probably remember back in Taiwan.
Talking about like supply issues.
It's nice that supply issues on certain strains are actually are real.
And in the German market today, it's a blessing and it's it's great. So I think phase one we're doing well on the medical side, but really we're trying to build out a bigger game plan, obviously for the market.
Okay, great. Thanks, a lot.
Speaker Change: It's helpful. And then maybe more of a crystal ball question here with the changes in Germany. It looks like they're trying to move forward expedited agree with the commercial market from the news out of the U S with potential rescheduling.
Speaker Change: Two major global players, but I would think we will create a tailwind for some new countries and markets sort of look down the road of legalization or from sort of cannabis reform are there any other countries internationally that you think could be one of the leaders following on Germany or ones that you are keeping a close eye on as maybe the next us.
Switch.
I mean I have my hopes, which is an absolutely great word, but I would love to see the U K go.
I mean, there could be a great great market.
Speaker Change: It's still in kind of education, but if that could go that'd be unbelievable.
Very conservative country.
Moving slower.
Slower pace and then obviously it would be interesting to see over time, what happens in France.
Smaller markets in Europe, I expect we'll just surely following year Germans eat, but really the big markets it would be interesting to see.
Speaker Change: It'd be interesting that how they how they rollout their policy and how it could play around that but there are certain markets that are obviously.
Quite big they need to get attached at the right time, if it could be you know years ago, everyone was talking about Australia was such a bad market, that's never going to take off and blah blah blah and signed it explodes right and everything kind of come together and now it's actually feeling the other effect a little bit but it had a really good 18 months of patient growth in real businesses.
And youll distribution channels, and so on and so forth. So.
If that can happen in the UK and France, eventually like that would be that'd be.
Yes.
This side of the World I mean, you know listen this is I think the next opportunity and the frontier to focus on is Europe, even or just in the vessel businesses I mean.
There's plenty of competition in the U S are very different marketing very different positioning in in this part of the world.
Okay. Yeah. Thanks that helpful. Yeah, the U K I agree it would be incredibly exciting if they could move forward.
Speaker Change: That would be awesome.
For me I'll jump back in the queue here in person.
Thank you.
Speaker Change: Yeah.
This concludes our question and answer session I would like to turn the conference back over to collect their stack for any closing remarks. Please go ahead.
I just want to thank everyone for coming on today I appreciate everyone's time, and we're really looking forward to a poor quarter on quarter out and we're very optimistic to build a real company and create greater shareholder value.
Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yes.
Speaker Change: Yeah.