Q3 2024 Flora Growth Corp Earnings Call
Speaker Change: [music].
Thank you for standing by this is the conference operator welcome to the floor, Chris Corporation third quarter 2024 results Conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
She joined the question queue. You May Press Star then one on your telephone keypad should you need assistance during the call you May signal conference specialist by pressing the Starkey.
Speaker Change: Then the numbers you're out.
Speaker Change: I would now like to turn the conference over to Danny Raymond Chief Financial Officer. Please go ahead.
Thank you operator, and good morning, everyone.
Speaker Change: On behalf of the Florida team welcome to our Q3, 'twenty 'twenty, four and corporate update conference call.
Speaker Change: Before we begin I wish to inform listeners that certain statements to be made today by the management team may contain forward looking information.
Speaker Change: This call will include estimates and other forward looking information and statements concerning future revenues.
Speaker Change: It's well operations financial position market economic conditions partnerships and any other statements that may be seen as a prediction of future performance information may involve known and unknown risks uncertainties and other factors, which may cause actual results.
Speaker Change: To differ materially from those expressed or implied by such statements.
Speaker Change: Factors that could cause or contribute to such differences are described in detail in the company's most recent filings available on Edgar.
Speaker Change: You see that Gov, and SEDAR at SEDAR com.
Speaker Change: Any estimates or forward looking information or statements provided Iraqi but only as of the date of this call.
Speaker Change: Company undertakes no obligation to publicly update any forward looking information.
Speaker Change: My new information regarding the circumstances after the date of this call.
Speaker Change: Our call today, we have Clifford Stark CEO and myself.
Aman: Aman CFO.
Aman: Following the presentation Clifford and I will be available for the question and that's a theory.
Aman: Q3, 2024 results press release and the accompanying thank you Edwin.
Filed on Edgar and SEDAR.
Speaker Change: Please note that all amounts mentioned in this call are in U S dollars unless otherwise stated.
I will now turn the call over to Clifford.
Clifford Stark: Thank you Danny good morning to everyone on the line welcome to the Florida growth Q3, 'twenty 'twenty four results and corporate update conference call.
Clifford Stark: With the United States. The recent election of PRASM elected Donald Trump brings renewed focus to a 28 billion dollar industry catalyzed by starting into the law and.
Clifford Stark: In 2018 historic firm, though.
Clifford Stark: This transformation legislation equalized federal level, fostering explosive growth across United States.
Clifford Stark: President elect trumps recent comments are Thomas regulation, indicating favorable stance also provided encouraging signals flows advocating for a comprehensive harvest reform.
Clifford Stark: While federal legalization remains uncertain. These remarks suggest we should see significant progress in regulatory alignment under his administration.
Speaker Change: How far are we view this opportunity to further our presence in the U S market leveraging our flagship brands I just CBD in vessel.
Speaker Change: I'll be making strides in capturing market share.
Speaker Change: With federal Rescheduling procedures set to begin in January and we remain optimistic about additional terrorist policy bass advancements like brings significant benefits to consumers businesses and communities alike.
Speaker Change: The prospect of a rescheduling shifted.
Speaker Change: This was a growing recognition of cabot's therapeutic potential its rightful place in the modern regulated economy.
Uh huh.
Speaker Change: Complementing these developments U S time ago, Ron Wyden recently introduced Carnival always JP and regulations Act.
Speaker Change: Legislation proposes the most comprehensive framework for hemp regulation in the U S addressing key areas, such as product safety labeling and market oversight.
Speaker Change: We believe this act should serve us loop blueprint for the upcoming Farmville offering a pathway for a clearer regulatory structures and fostering innovation investment within that industry.
Speaker Change: Our regulatory framework.
Speaker Change: This work.
Speaker Change: Perfectly with <unk> mission to create safe high quality products that meet consumer demand and the regulatory standards.
Speaker Change: Moving to Europe were seeing promising developments in Germany.
Countries updated framework for the liberalization cultivation of industrial hemp underscores is committed to becoming a leader in sustainable agriculture and tax reform.
Speaker Change: Germany is also making strides with its controlled cannabis retail efforts.
Speaker Change: He is a Frankfurt a hangover of an announced as malo locations for Germany's first legal controlled cannabis retail operations.
Speaker Change: These pilot programs represent a critical step towards broader localization with a potential to serve as a template for nationwide adoption.
Speaker Change: Florida has strategically positioned itself to capitalize on the European market or EU GMP facility in Germany provides a competitive advantage.
Speaker Change: Distribute premium medical cannabis across the EU. We're closely monitoring these developments, we remain ready to expand our presence as these regulatory framework evolves.
Speaker Change: It's an exciting time for the industry, we are optimistic about the future and to help drive foreign policy and innovation that serves the needs of consumers businesses and society.
Speaker Change: With that I'll pass along to Daniel who will discuss the financial results for the quarter Janney. Please go ahead.
Daniel: Thank you Clifford.
Daniel: Let me start by noting that in the United States. We are actively working to diversify our product portfolio by entering the fast growing infused beverage market.
Daniel: This represents a significant step forward.
I've been through a satellite that is expected to see substantial growth over the coming years.
Daniel: The introduction of our infused beverage lineup, including mellow and call of products allows us to leverage our expertise product innovation and marketing.
Daniel: These beverages caters to a rising consumer demand for alternatives to traditional alcoholic drinks.
Daniel: In Germany, we are late.
Daniel: The groundwork for a transformative phase in our European operations, we recently welcomed Dr. Landfill Ziegler, the former managing director of Cc pharma.
Our operations in the region.
Daniel: Ziegler, who brings extensive experience and a proven track record of success and leadership during the acquisition of Cc pharma might kill rate.
Daniel: I live as guidance, we are launching a parallel imports business a key initiative designed to meet the growing demand for affordable high quality pharmaceuticals, and the European Union.
Speaker Change: Hello, importing allows us to leverage pricing differentials within the European market was hearing the strict regulatory standards.
Speaker Change: At a disadvantage.
Speaker Change: Turning over to our financial results revenues for the fourth for the third quarter of 2024 with $12 5 million compared to $17 3 million for the third quarter of 'twenty three.
Speaker Change: Revenues for the nine months ended.
Speaker Change: The 30th 24, or $46 2 million compared to 58 1 million for the nine months ended September 30th 23.
Speaker Change: These decreases are primarily due to the company's deliberate discontinuation of several unprofitable lines as well as increased competition.
Speaker Change: Total operating expenses were $6 5 million in Q3, 24 compared to $5 5 million in Q3 23.
Speaker Change: For the 'twenty 'twenty, four and 2023 year to date periods total operating expenses were $19 6 million and 50 and $57 2 million respectively.
Speaker Change: This represents a decrease of $37 6 million or 66%.
Speaker Change: Net cash used in operating activities was $3 7 million in the nine months ended September 30th 24, compared to $7 3 million for the nine months ended September 30th 23, a decrease of $3 6 million or 49%.
Speaker Change: On a consolidated basis, the net loss for the period was nine 8 million compared to $47 $3 million in the comparable period.
Speaker Change: <unk> of $37 5 million or <unk> 79 per cent.
Laura: Laura finished the quarter with $4 2 million in cash and 21 3 million in current assets, including $7 9 million of Sellable inventory.
Laura: In terms of performance for each of our divisions.
Laura: Just C V D maintain our gross profit margin of 40%.
Laura: Sales of $4 2 million.
Laura: Top selling products in the quarter included the bear.
Laura: Bear in Beech gummies.
Laura: Approximately 41% of its revenues stemmed from direct to consumer sales with the remaining 59% generated through business to business sales in the quarter, Jeff CBD added 83, new wholesale customers.
Laura: That was.
Laura: That's all maintained a gross profit margin of 55% on sales of $1 1 billion.
Laura: Core products represented 29% of sales encompassed products contributed 45% of sales.
Laura: The largest individual item sold what was the cargo size.
Laura: Adding 70, 17% of vessel sales.
Laura: Vessel sales were 66% from direct to consumer and 34% and business to business.
Laura: The vessel added 35, new wholesale customers in the quarter.
Laura: The table or <unk> 7 million in revenue with gross margins of seven 1%.
Laura: All sales of a business to business and included broadening pharmaceuticals.
Speaker Change: I will now hand, the call back to the operator for the question and answer period.
Speaker Change: We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
Speaker Change: Here at town acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: She was try your question. Please press Star then two.
Speaker Change: We will pause for a moment as callers join the queue.
Speaker Change: The first question comes from Aaron Grey from a G. P. Please go ahead.
Speaker Change: Hi, Good morning, and thank you for taking my questions. This is Remington Smith on for Aaron Grey on My first question is you announced quite a few initiatives in the past few months. What do you think will be the largest drivers to growth in both the near term in the long term.
Speaker Change: Hey, hows everything going.
Speaker Change: The main driver on the U S side, it was really going to be dialed in on the beverage front, which.
Speaker Change: Which.
Speaker Change: The districts have picked up and you're still you're going to see the total wines and agencies the world on.
Speaker Change: On the German side, assuming two it's going to be one of the Pi business with respect to extreme high topline with decent margins on it as well as being able to compete and win the pilots for the retail locations. What was the main focus as a business and that's where we're putting money are in.
Speaker Change: Today, both on the Capex Opex exercises.
Speaker Change: Got you Yeah, that's helpful and then.
Speaker Change: Kind of sticking to that German business experienced a little bit of softness I guess in your existing chairman of business. This quarter in the prior quarter. Despite some of the reform that happened if could you speak to a little bit of that and then if the outlook to that existing business going forward.
Speaker Change: Yeah, I mean, Germany.
Speaker Change: First off we brought in World class team, though so manfred an individual's he's brought in under him I don't think we can find anyone better to actually run Germany in every facet possible.
Speaker Change: And then what we've done over the last quarter or so is really working on changing the business model a little bit to gateway higher margins on our side of the business, which I think you'll you'll see I think youre going to see the effects and a couple of quarters from now.
Speaker Change: But we're making a lot of changes in Germany.
Speaker Change: Okay.
Speaker Change: Okay. That's helpful and then I guess sticking to the to the gross margin on the last call you expected gross margin to expand into kind of a mid 30% range.
Speaker Change: So as is the commercial wholesale gonna be a driver there to I guess to that expansion.
Speaker Change: Will it be kind of a house of brands, but I guess, if the mid 30% range is still the guidance. How you expect to get there and what will the mix be between I guess the two segments.
Andy: Andy do you want to touch on that to start.
Andy: Absolutely so I really want to thank you so much for joining us and I hope you're doing well as he noted the the business in the United States, just CBD and vessel. The always wanted to do experienced fairly significant margins are 40% to 55% in some instances.
Andy: Where the challenge has been it's been with the pharmaceutical distribution in Germany, which is offsetting a lot with that average and as we noted the parallel imports business and the changes that we're implementing in Germany, we expect that margin to beat to our to increase and that will help bring the average you know to the low thirties and.
Andy: And the high Twenty's, we just need a little bit more time to develop that business in Germany, so that the parallel import revenues.
Andy: Inquiries and become the most dominant force in that country. So I think it's just a matter of time and it's just a matter of that business expanding and realizing its full potential.
Okay and then my last question you know you've got it.
Speaker Change: Quite a few initiatives with launching the the THC that happened fuse business recently and then the trade she acquisition too.
Speaker Change: Lot of these kind of weigh on EBITDA in the quarter kind of ramp in sales, especially kind of with the the corporate.
Speaker Change: SG&A costs.
Speaker Change: Yeah, I mean, we're making investments now both on the beverage front as well as Germany, you threw out so right now we're.
Speaker Change: Spending money, hopefully, we're going to see the benefits in quarters to come.
Speaker Change: Okay, Great. That's all for me and ill hop back in the queue.
Speaker Change: The next question comes from Sean Long from Haywood Securities. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Just wanted to get some clarity on how to launch parallel import business isn't going so far what we can expect from it.
Speaker Change: Wider European rollout could look like and also the timeline to get to that 30% margin range that you mentioned earlier.
Speaker Change: Yeah I'll answer the first part and then hand over the margin to Danny Sean Hope I Hope Everything's great.
Speaker Change: First off Matt and his team came in the retooling of a few things on the current business right now which is a focus are.
Speaker Change: And then what we're going to do is utilize our GMP facility to be able to bring in you know competitive pharmaceutical products from all over Europe are hungry for many is the world keep in mind man for previously built almost 600 plus million dollar business almost as a category.
Speaker Change: And I think over the next couple of quarters, you'll see it kind of come together.
Speaker Change: And and it's going well, but we're trying to do is making sure. The current business to stabilize and then grow on the Pi business as well, it's going to be fully capitalized.
Speaker Change: Cannabis licenses that are being given out.
Speaker Change: And then Dan do you want to get to the margin question.
Dan: Sure Sean Good morning, and thank you for joining us and I hope things are well on your side I think I think that's a great question and we will provide an update on that specific topic in the first quarter and a 2025 was a man for it and his new team have had a chance to.
Dan: Settle in I think that would be the best time to begin addressing that question.
Dan: Perfect.
Speaker Change: And I think that's my only question for now.
Speaker Change: The next question comes from Bill Kirk from Roth Capital Partners. Please go ahead.
Bill Kirk: Hey, good morning, guys.
Bill Kirk: Cliff it looks like you're you're now on the board at Hershey in Portugal, and I think I saw that in the press release, so how how does that business isn't that upcoming facility fit into your plans for Germany, you're playing through Europe, and when do you expect product to start coming out of that facility.
Bill Kirk: Hey, Bill I hope whoever it was great.
Speaker Change: For one this was an investment made historically.
And this is with the Maxim team back in the day, which I think everyone remembers my teams and traveler and those guys.
Speaker Change: In the past couple of years, because that's where it came in and they put another $10 million of that facility is fully built and who's got the GSP license. The grille has obviously been up and running for well over a year now there's two there's two things that we would like to do one is obviously you get.
Speaker Change: Good quality parts of the portfolio into Germany, which will be happening over the next couple of quarters. The second thing is what's interesting is we're able to utilize our current GMP facility, we'd be able to actually put an extension of all that onto the port facility in order to drive rooms to make the entire flow process.
Speaker Change: Way easier and better and more efficient.
Speaker Change: But everything's coming together there.
Speaker Change: And I think the next couple of quarters, when well receive the first part of that.
Speaker Change: Okay.
Speaker Change: And as this will relate to Germany as well.
Speaker Change: Could you give some more detail on the relationship with purely like the the responsibilities maybe the commitment.
Speaker Change: For both parties and I ask because the announcements initially didn't seem like both groups are on the same page so to make sure I understand what you can and cannot do and maybe how how parallel fits into that into that dynamic.
Speaker Change: Yeah, Let me let me.
Speaker Change: I have a long standing history with with.
Speaker Change: The email Geis E. <unk> was sold to release a number of years ago.
Speaker Change: Prior to that emerging we had a supply agreement that was supposed to be delivered from Portugal to Germany, a number of years ago.
Speaker Change: No supply arrived and we went and rebuilt relationship with clearly, which always we announced which was a little bit.
Speaker Change: I guess confusing for everyone. Unfortunately.
Speaker Change: We're expecting deliveries within the next month or so of high top quality products from northern Greene.
For 'twenty guys. Originally what will happen is we're going to use for 'twenty to bring in the product and then over the next quarter or two quarters oxidized will stabilize the product get our GMP facility and we expect a long term relationship as long as they could deliver a high quality flower or we could put into the market.
Speaker Change: Awesome that that helps a lot and if I could sneak one more in going back to U S beverages.
You know in some markets mellow and cloud Cola I think are THC infused in other markets. They're more him infused is is the goal of the brand ultimately to be THC infused where and when you can or should we expect you know kind of a mix or is it.
But what do you envision that kind of formulation behind those brands ultimately to be.
Speaker Change: So we're seeing two full we're seeing obviously you were very young.
And Jordan I think everyone knows right now.
Speaker Change: That's what's going into the totals and they'd be Cds right now about 30% of our business will be all already driven as well, but we also got a lot of demand from big box type of stores of PE, where all of a smart way to bring teaching abuse, yet could you do the same.
Speaker Change: Category Mark tell for them to work on now for a couple of clients, but I think what we're trying to do is build at least dominate the south east where.
Speaker Change: We're really not sort of presence or network, both on grassroots in store activity and everybody as well as you know had D. D. What we could do leave me with local colleges universities and really try to create a sustainable long term brand I think it's that relationship with peak is literally driven.
Speaker Change: Eight years of working experience have been great to work with.
Speaker Change: The most of the facilities all of this up and running in Florida.
Speaker Change: Focus on our own brands, but also parent a few other ones.
Speaker Change: And it's going very well and it's it's I was surprised at that.
Speaker Change: The team did a really good job getting just grows our board relatively quickly which is great.
Now, we're just working through more figuring out what are really working capital needs on what's going to help on the growth side, but where we're seeing.
Speaker Change: I think youre going to see hyper growth on that category on a quarterly basis.
Speaker Change: Awesome. Thank you cliff. Thank you Danielle I'll jump back in.
As a reminder, if you have a question. Please press star one. The next question comes from James Your desk from Aegis capital. Please go ahead.
James Yourdesk: Hi, Good morning, it's James your desk from ages. So we were just wondering how has the Sunshine partnership help with distribution across the retail and consumer space in both the U S and Germany.
Speaker Change: Yeah.
Speaker Change: Okay. So.
Speaker Change: Hope everyone's okay in New York in terms of Sunshine, they've really just opened up the Florida market for us not to we chose we decided to work a little bit of a small distributor to get attention very craft beer type of field in terms of service they did a great job.
Speaker Change: Getting into the retailers, which youre going to see a launch next week.
Speaker Change: Sunshine has no parallel outside of the southeast, including Germany and Europe.
Awesome. Thank you.
I'll jump back into queue. Thank you very much.
Speaker Change: Thanks.
This concludes our question and answer session I would like to turn the conference back over to Clifford Stark for closing remarks.
Speaker Change: Thank you for all our stakeholders for coming on the call are match teams available for anything further and have a great day.
Speaker Change: Yeah.
Speaker Change: This brings our close to today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
Speaker Change: Thank you.
Speaker Change: Yeah.