Q4 2024 Organigram Holdings Inc Earnings Call
Similarly, our inaugural U K band medical flower shipment signaled our growing footprint footprint in Europe alongside these achievements, we signed new supply agreements in Australia, and the UK. These efforts highlight our commitment to diversifying international revenue stream and entering more high growth markets.
We also made our first Jupiter investment into U S. Based open book extracts our second U S investment to date.
Our work with Obs provides us with a platform for efficacy testing in R&D.
US valuable insights into the U S market, where we are evaluating potential entry into the U S through hemp derived products.
In Q3, our international strategy gained further momentum our $21 million Jupiter investment and Sanity group allowed us to deepen our presence in Europe, particularly in Germany, a market that has grown by a factor of approximately three to four times since the expanded medical program Ken came into place on April 1st of this year.
Year.
It is believed that the medical market has significant growth black with estimates that could reach a minimum of 1 billion euros to ranges as high as 3 billion euros in three years.
In addition, just this past week, the German Federal Ministry Minister of food and Agriculture approved a plan to allow research focused commercial candidates pilot programs to test legal and regulated access to candidates for consumers, while theres no guarantee that sanity group will obtain these pilot program licenses.
He is prepared to submit applications for licenses in Frankfurt Hangover and Berlin.
Finally, Q4 capped off the year with strong adjusted EBITDA of $5 9 million and an impressive adjusted gross margin of 37%. We also held the number two market share position in the Canadian cannabis market and finished the year with seven 6% market share in September.
Estimate to our brand strength operational efficiency and consumer Trust.
Notably, we consolidated gains in key provinces, including Quebec in British Columbia, and achieved year over year growth in our recreational shipments of 17, 6% far outpacing market growth.
Q4 also deliberate on the innovation front at our center of excellence located in our mountain facility. The 18 organic ground personnel have worked together since the establishment of our product development collaborations three years ago on the next generation of cannabis products and clients.
Now the first innovation from the PDC was launched in Q1 fiscal 2025 in the form of our fast acting soluble technology.
Fast for Ingestible products.
$3 million Pharmacokinetic study, we conducted and is believed to be the largest clinical study ever undertaken to evaluate the effects of cannabis products on humans and it enabled us to substantiate our consumer claim on packaging.
Up to 50% faster onset and nearly two times higher effect.
Beyond the strong Q4 performance of landmark developments occurred subsequent to the yearend on December six we acquired motif the largest private licensed producer in Canada by market share. This accretive acquisition, which represents a transformative step for organic <unk> domestic business as approximately 86.
Million in run rate net revenue, resulting in nearly $250 million in pro forma net revenue.
<unk> strengths lie and to rapidly growing ready to consume categories Bates and infuse pre rolls. These are high priority growth areas for us and the acquisition has instantly bolstered our ranking in these segments, while propelling us into the position of Canada's number one licensed producer by market share.
Our previous GAAP in base has been addressed as following the acquisition organic revenue now represents over 20% of the category at.
At the same time, our ranking in pre roll has been strengthen resulting in post acquisition organic ground, claiming the number one market positions in both of these categories.
Beyond market share. The acquisition is expected to result in compelling operational synergies, we anticipate $10 million in cost savings within 24 months as we integrate motif mow tea brands and operations Mauro.
Moreover, motifs to facilities, and Elmer and London, Ontario will enhance our capabilities on several fronts.
The Elmore facility has efficient extraction operations that will provide us with lower distillate costs as well as diamonds from hydrocarbon extraction.
<unk> will now supply some of the necessary extraction inputs, replacing a portion of their third party flower and trim purchases.
The London facility is centrally located.
Is essentially located warehousing and logistics hub that will provide supply chain synergies and benefit our flow through skus in Ontario, and optimized western Canada fulfillment delivering greater value to our customers.
In addition to filling our portfolio gap in dates and reinforcing our position in pre rolls.
<unk> is a well run business with an experienced and passionate team generating 15 consecutive quarters of positive adjusted EBITDA.
We're very excited about integrating well keep into our business and solidifying our position as Canada's top licensed producer.
Now, let's get into some of our performance metrics for the quarter and fiscal 2024.
Throughout fiscal 2024, we remain focused on four key objectives. The continued growth of our domestic business, which Tim will expand on shortly the expansion of our international sales and global footprint.
Increased production efficiency and margin expansion.
And building on our strong financial performance, which I'll leave for Greg to discuss.
Speaker Change: I am pleased to report that we successfully delivered on each of these objectives.
Speaker Change: On the international front organic <unk> expanded its global reach in fiscal 2024 to eight international supply partners diversifying our customer base to reduce some of the quarter over quarter volatility we have seen historically.
Speaker Change: As new partners ramped up what we saw this year was sequential net revenue expansion in every quarter.
Speaker Change: Our GMP audit was completed on November 18th upon receiving the certification, which we expect will happen in early 2025, our international sales are expected to become immediately more profitable as GMP flower commands a higher price.
Speaker Change: We anticipate our supply partners will turn to us more frequently to satisfy their demand as this will result in quicker availability into the market.
Speaker Change: In addition, our supply agreement with Sanity group stipulate increased volumes as of the time, we become certified.
Speaker Change: Now I'd like to shift focus to some of our operational wins in Q4, we harvested over 23000 kilograms with flower, representing a 10% increase year over year.
Speaker Change: Driving the increase capacity has an average yield per plant of 186 grams in Q3 and Q4.
Speaker Change: The increased yield contribute to lower cultivation costs and higher efficiencies at scale, although yields can fluctuate from time to time, depending on the culture of our mix.
Speaker Change: Our plant science teams have continued to hone our production practices and they have seen how incremental changes can have a large impact on yield and potency, thereby enhancing our competitiveness in the market.
In Q4, we began converting our grow rooms to a day night paradigm optimizing off peak power usage. This was implemented in 25% of our garden with plans to roll out.
Speaker Change: To the entire facility throughout 2025 and will contribute to our cost savings initiatives.
Further our investment in silos has resulted in additional benefits from fee based cultivation.
Speaker Change: In Q4, we achieved 9% of cannabis harvests from seed and 22% by the end of calendar 2020 for contributing to a reduction in cultivation costs and increased cultivation capacity. The company expect to further leverage lower cost seed based technology by targeting approximately 20% of harvest from <unk>.
Speaker Change: In fiscal 2025 with monthly fluctuations between 15% and 30% depending on the cultivar requirements the.
Speaker Change: The benefits of seed based technology are evolving as we shift our breeding programs more towards stabilized <unk>, we will be able to consistently cultivate streams with very specific traits.
Speaker Change: Are most of the facility also houses advanced automated pre roll and packaging production capabilities early in fiscal 2004, we fine tune. These production processes. After completing significant capital projects in fiscal 'twenty. Three these gains resulted in the production of over $55 million pre rolls in fiscal 'twenty, four and supported organic.
Speaker Change: Rapid growth in the category.
Speaker Change: At our dedicated edibles facility in Winnipeg, We produced $41 5 million Gummies and 24, an increase of 38% over the prior year.
Speaker Change: We also completed two key efficiency initiatives, we added in line active dosing toward gummy line and optimize our shift structure, resulting in over $1 $5 million in annualized savings.
Speaker Change: Finally in Lac superior, we harvested 1900 kilograms in fiscal 'twenty, four and we've seen yield and potency increases throughout the year as our cultivation ramped up this expansion has allowed us to further support our Quebec business.
Speaker Change: <unk> production also increased to $1 1 million units produced versus 700000 in fiscal 'twenty three.
Speaker Change: Driving this increase was a second ultrasonic night being added to our rich strip production process.
Speaker Change: All told in fiscal 2024.
Speaker Change: Organic revenue experienced efficiency gains and savings across all three of its facilities.
Speaker Change: At this point I'd like to turn the call over to Tim to discuss our commercial updates for Q4 and fiscal 2024.
Thanks piano organic grant was one of the few top L. P. As in Canada, as we managed to grow market share in our fiscal year 'twenty four compared to fiscal year 'twenty three.
Speaker Change: <unk> expanded its overall share of the Canadian market by 0.6 points, finishing the fiscal year with a seven six market share in September the highest market share we achieved all year and seven three for full year fiscal 'twenty four.
Speaker Change: This translated into a year over year growth in our adult Rec ship sales of plus 17, 6%.
Speaker Change: This is approximately three times the market growth in Canada based on the latest high fire data.
Speaker Change: We are extremely proud of these results.
Speaker Change: As shared growth and share gains like these are really tough to capture in this industry. This is not only a great reflection of our amazing commercial team and feet on the street, what our entire organization from an end to end from an ended and played a key role in this success.
As Bill mentioned, we moved into the number two market share position in Q4 prior to our acquisition of motif and becoming the number one player nationally.
Speaker Change: There were several contributing factors to our strong fiscal year 'twenty four.
Speaker Change: First and foremost.
Speaker Change: We returned to growth in our flour business. This was extremely important to us being a top flour producer. We gained 0.4 market share points in flower in fiscal 'twenty, four and reached a nine 5% overall, Florida sure.
Speaker Change: This was heavily driven by our big bag, a bunch of brands, which grew at 25% year over year versus just 2% growth in the overall large format segment.
Speaker Change: Our increase in quality on big bag and the strengthening of our overall value equation for consumers helped tremendously. This also allowed us to take price on this brand, which is something you don't see very often in this industry.
Speaker Change: Number two we expanded our pre roll business significantly.
Speaker Change: This is our strategy going into fiscal 'twenty four it went from the number six position in fiscal 'twenty three so the number three position in fiscal 'twenty, four and gained a whopping $2 four market share points year over year.
Speaker Change: We hit seven 2% market share infuse pre rolls and 6% for a regular pre rolls.
Speaker Change: Third driver is successful as we continue to hold dominant position, both gummies and Hodge with 29% and 22, 6% market share respectively in fiscal 'twenty four.
Speaker Change: With cash or increase was really driven by our strat ex rip strengths, where we saw a 76% year over year growth in ship sales.
Speaker Change: True innovation like reshape not only helps with further illicit market conversions, but makes the piece of the pie bigger.
Speaker Change: Based on our latest insight, 40% of consumers, who tried rich trips where neither the hatch category altogether. This is amazing to see.
Speaker Change: And finally as one of the top innovators in the space, We launched 70, new Skus in fiscal 'twenty. Four we worked very closely with our provincial board partners to ensure that our mix was not only optimizing these promise, but it helped deliver the right products to our retail partners and meet the needs of consumers. This also allowed us to generate the highest revenue per SKU possible.
Speaker Change: From a regional perspective, we saw material growth in regions in Q4, and Quebec, we hit our highest market share ever of nine 9% September growing almost one full share point year over year.
Speaker Change: In Saskatchewan, we more than doubled our market share went from three 2% to seven 9% in fiscal 'twenty four.
Speaker Change: Our most impressive gains however were made in DC. This year, we wrote the number 11 positions to the number five market position and increased our share by an impressive one four points overall.
Speaker Change: Our growth in D. C is expected to be further bolstered by the integration of mortise portfolio, which has been strong in western Canada.
Speaker Change: We maintained our position as the number one player in Atlantic Canada.
Speaker Change: And then Ontario, one of the most competitive markets in the country, we reached to seven 5% market share in September.
Speaker Change: From a brand standpoint organic <unk> flagship brand shred continues to grow with over $225 million in retail sales in fiscal 'twenty four.
Speaker Change: Under the shred brand consumers can enjoy gummies pasche, no flower pre rolls and base.
Speaker Change: As one of Canada's most beloved and recognized count as brands Shred currently accounts for almost 60% organic grams total market share.
With the <unk> acquisition, we bring another powerhouse brand of the organic Grandma umbrella box Hards last 12 months retail sales top $158 million and accounted for two thirds of <unk> total market share <unk>.
Speaker Change: <unk> is now the second biggest brand in organic Ams portfolio, and we're extremely proud to have them in the family.
Speaker Change: The combined portfolio results has organic on polling number one positions and vapes pre rolls hash milled flower and concentrates while being a top three player in every other major category.
Speaker Change: Graphically organic number is now number one in all regions with the exception of Quebec.
Speaker Change: But we are looking forward to future discussions with the FTC as they begin expanding into deep into the vape category.
Speaker Change: As we head into fiscal 'twenty five we will continue to focus heavily on ready to consume categories, which include gummies pre rolls.
Speaker Change: And with that I will now hand, it over to Greg to discuss our financial performance.
Greg: Thank you Tim.
Greg: To reiterate Max's comments at the beginning of the call regarding our change in fiscal year in fiscal 2023. The comparison periods of fiscal 2023, and Q4 fiscal 2023 will be presented as the unaudited 12, and three months periods ended September 32023, unless otherwise.
Greg: As indicated.
Greg: With that said, we had a strong Q4 and fiscal 2024 and delivered on the guidance, we reiterated throughout the year of higher gross margins higher net revenue and higher adjusted EBITDA year over year.
Greg: Q4, net revenue grew by 10% sequentially and 22% year over year to $44 $7 million.
Greg: In the quarter the sequential increase in net revenue was driven by an increase in international sales and growth in our domestic recreational business.
Greg: As mentioned earlier, our recreational ship sales increased by 17, 6% our growth rates significantly higher than that of the market.
Greg: At the same time, our gross margins have seen improvements owing to higher yield increased operational efficiencies and consistent product quality on both the sequential and year over year basis.
Greg: While yields on THC content will fluctuate over time and at this point are somewhat dependent on business needs. The trend we have seen over the last two years, it's been the larger yield and higher potency.
We averaged 131 grams per plant in fiscal 2020 to 158 grams in fiscal 2023 175 grams in fiscal 2024, and I'm pleased to report a record breaking Q4 this year with yields reaching 197 grams per plant.
Greg: As the yield increase we spread our fixed costs over a larger volume, resulting in better unit economics and cultivation and higher capacity.
Greg: We expect yields to continue to be high although it is somewhat dependent on our health Department, which again may cause fluctuations from time to time.
Greg: Our adjusted gross margin rate has continued to improve having 37% in Q4 compared to 36% in Q3 and 20% in Q4 of last year, an improvement of 17 percentage points year over year.
The combination of higher sales and higher adjusted gross margin rate in Q4 resulted in an increase in the gross margin dollars of over 130% year over year to $16 5 million.
Greg: The increase was attributable to several factors, including lower cultivation and post harvest costs higher international sales.
Greg: Inventory provisions and.
Greg: And lower depreciation, resulting from impairment charges recorded last year included in the efficiency gains would be achievement of $9 1 million out of our $10 million cost savings target for the year with the remainder expected to be realized in the first half.
Greg: 2025.
Greg: Regarding our operating expenses in Q4, we saw a sequential decrease of 11% to $16 9 million, primarily due to lower R&D and share based compensation costs.
Greg: Adjusting for the impact of impairments on PP&E and goodwill in Q4 fiscal 2023 on a year over year basis, our operating expenses decreased by 13% in Q4, largely due to lower general and administrative costs associated with lower technology and.
Greg: Costs related to our ERP project, lower insurance costs professional fees, depreciation and amortization as well as lower R&D.
Greg: As a result of our increased sales improved margins higher international sales and lower operating expenses. We are pleased to report strong adjusted EBITDA of $5 9 million in Q4 compared to $3 5 million in Q3, an increase of 69% full year adjusted EBITDA increase.
Greg: 55% to $8 4 million from $5 4 million in fiscal 2023.
Greg: Net loss this quarter was $5 4 million compared to a net loss of $26 6 million in the same prior year period. This reduction in net loss versus the comparative period is primarily due to higher adjusted gross margins and lower impairment charges in the current quarter as well as gains on investments in associates and.
Greg: The fair value of derivative liabilities and financial assets.
Greg: From a cash flow perspective, net cash provided by operating activities was $8 9 million in Q4 compared to a use of $8 5 million in the prior year period. The improvement was primarily due to higher recreational cannabis revenue and reduce cost.
Greg: Costs realized during the quarter.
Greg: Cash used in investing activities in Q4 was $22 4 million, which was primarily driven by the investment in Saudi group. This compares to cash used in investing activities in Q4 fiscal 2023 at $1 $5 million.
Greg: On the topic of cash we are pleased to reiterate that we continue to have a strong balance sheet as of September 32024, we had a total cash position of $133 4 million, including both restricted and unrestricted cash and negligible debt.
Greg: Our pro forma cash position, including restricted cash as of the causes of our multiyear transaction and the final $41 5 million follow on investment <unk>.
Greg: It was approximately $100 million.
Greg: Note that the restricted cash balance represents the remainder of the PDP funding from <unk>.
Greg: As well as cash earmarked for Jupiter pool investments.
Greg: On the topic of motif This act.
Greg: Accretive acquisition enhances our net revenue and earnings potential through the growth of our Canadian market share and the $10 million in cost synergies that we have identified thus far we expect half of these synergies to be realized in fiscal 2025 and.
Greg: In addition to the completion of our $10 million cost savings target from last year, we have identified additional efficiency optimization for fiscal 2025 from continuing to fine tuning our cultivation methods increased international sale as well as higher margins associated with the new GMP certification.
Greg: With our strong year end results, demonstrating increasing operational efficiency and opex savings a trend of higher sale higher margins and higher international footprint. We expect that fiscal 2025 will be another year of growth for organic ground.
We will be investing in our business to ensure a seamless integration of motif over the next few quarters, we anticipate stabilizing our gross margins above 35% and to generate positive adjusted EBITDA and most future reporting periods with full year adjusted EBITDA in fiscal 'twenty 2025 expected to exceed that of fiscal 2000.
Greg: 24, along with positive cash flow from operations.
Vienna: This concludes my comments I'll now turn the call back to Vienna.
Vienna: Thank you Greg this year has been a testament to our ability to execute with precision innovate boldly and navigate an evolving cannabis landscape with resilience and fore sight from expanding our international footprint to solidifying our leadership in key domestic categories. Every achievement has brought us closer.
Vienna: To our vision of setting the gold standard in the global cannabis industry as we move into fiscal 2025, our priorities and focus remains clear driving growth in ready to consume categories in international shipments.
Vienna: Enhancing operational efficiencies and leveraging our strategic acquisitions to deliver sustained value to our shareholders.
With a robust foundation in place market, leading brands, our focus on advocacy to shape, a sustainable industry and our strong team we are perfectly positioned to capitalize on emerging opportunities and to continue delivering exceptional results.
Vienna: Thank you for your continued interest in organic ground as we embark on this exciting next chapter I will now open the call to questions.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Speaker Change: I would like to withdraw your question simply press Star one again.
Our first question today comes from the lineup Aaron Grey from Alliance Global Partners. Your line is open.
Aaron Grey: Hi, good morning, and thank you for the questions. Congrats on the nice quarter anything going on the acquisition of <unk>.
Aaron Grey: I wanted to start off on motif and dive a bit deeper into some of the potential synergies that you spoke to on topline potential Quebec with banks.
Aaron Grey: As well as some cost synergies in terms of the extraction, but wanted to dig deeper because I know you guys had been working with BP with the program in terms of its own innovation with face at the Ats. So wanted to dive a bit more in terms of how you believe you can leverage the core competencies of motif as well as state to really drive further innovation.
Aaron Grey: Within the <unk> category and candidates. Thank you.
Speaker Change: Sure. Thank you Erin and just.
Speaker Change: We have been doing a lot of work on baked innovation not just that the PDC, but we also had the investment in Green tank.
Speaker Change: Their quantum baked technology and really what we're looking for with the <unk> acquisition is leveraging their credibility in the vape category to help us integrate these innovations into our portfolio. So.
Speaker Change: We founded at organic Graham we needed to do some innovation to get in but it was a tougher position when we had very little presence in the vape category, We certainly plan to leverage the expertise of the motif team to help us build.
Speaker Change: The right kind of programs to launch this innovation into the marketplace. So that is that is certainly our plan.
Speaker Change: But just further to your comment earlier in terms of.
Speaker Change: Synergies besides ingredient cost.
Speaker Change: That we certainly see benefits there are opportunities to leverage the centralized location warehouse in London, which will allow us not only to benefit from the.
Speaker Change: Skus that have that are in the flow through for Ontario to get into customers more quickly, obviously fulfilling out of Ontario versus New Brunswick is a big advantage, but also for both the organic grandma motif team getting faster fulfillment into Western Canada is a big advantage that that out.
Speaker Change: Central location will provide us.
Speaker Change: Besides that we see other opportunities.
Speaker Change: Leveraging our strength in Atlantic, Canada to help bring in motif products. There. There are some customers that we have stronger relationships than they do in <unk> and so we could leverage those relationships to help get their products launched and similarly, they have stronger position in western Canada. So we see.
The opportunities to expand our presence our net revenue.
Speaker Change: From both through the completion of this acquisition.
Speaker Change: And we continue to find other.
Speaker Change: Synergies like lower insurance costs, leveraging our data programs with our customers. So those kind of things that we will be continually working on to deliver on the 10 million of synergies expected in this acquisition.
Speaker Change: Thanks, so much.
Speaker Change: And then just second question for me just embedded within the outlook commentary.
Speaker Change: <unk> touched on earlier in the prepared remarks.
Can you provide any color on sort of your thoughts on the overall Canadian market.
Speaker Change: For growth that you expect given that we've seen some acceleration in growth in the market. This year as well as documentation how much you expect them to remain so your embedded expectation within your own for <unk> as we look towards 2035 for the broader industry in Canada. Thank you.
Speaker Change: Yes sure. So overall, we're looking at the forecast for the industry in Canada to grow about 4% in the next year.
Speaker Change: Certainly slowing.
In order of overall market unless there is some significant regulatory change that could either unlock better movement from the illicit market or perhaps some more on premise opportunity. So for now slower growth expected in the industry, where we see the opportunity is that.
Speaker Change: We have a stronger base, we see that the provincial boards looking to rationalize their lineups.
Speaker Change: To make sure we have they have the most productive skus and it's something that organic ramp has always done as Tim mentioned, we continue to optimize our portfolio to get the highest revenue per SKU. So we expect that in the next year.
Speaker Change: Less skus are available in the different provinces, we will be able to steal share from some of the smaller players that have perhaps been around longer than they should have given their slower turns per SKU. So.
Speaker Change: And this is something that we see an opportunity we expect that there might be some further rationalization in the industry.
Capital markets are still tight theres, some smaller players out there that will struggle as debt comes due.
Speaker Change: We have a strong balance sheet, and we expect to leverage our relationships between ours and boutiques to really not only grow with market or outpaced the market, but to steal share from those that are struggling or maybe not as focused on cannabis anymore and gives us an opportunity to.
Speaker Change: To really expand our market position.
Speaker Change: That's helpful color there.
Speaker Change: Thank you for the color congrats again.
Speaker Change: On a strong note and best of luck and so looking at plastic.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Frederico Goldman from ATB capital markets. Your line is open.
Frederico Goldman: Good morning, Thanks for taking my questions congrats on the quarter.
Frederico Goldman: First question on international markets.
Speaker Change: We've seen that.
Speaker Change: Many other mlps are also investing or trying to get in those markets. So I'm just curious.
Do you see any risk that these markets get more competitive and you could see some some price compression or just.
Speaker Change: Being harder and harder to grow internationally.
Speaker Change: Given given the Canadian Lps are ramping investments into those markets.
Yes. Thank you Fred for your question there is no question that.
Speaker Change: A lot of Lps are looking to international markets because the growth. There is number one faster than currently expected in Canada, but also obviously those sales don't incur the higher excise duties that the Canadian business does so.
Speaker Change: It's higher margin product.
Speaker Change: We anticipate more competitive.
Speaker Change: Situation, absolutely, we're seeing given some of the markets that there is more competition, but what we really see as an opportunity obviously getting R.
Speaker Change: <unk> GMP certification that we expect to get within the first quarter of 2025 is that we will be able to see a higher price than what we're currently selling into the market. So there is not many companies out there that have that certification.
So others are going through converters and by getting our certification not only would we be able to avoid the delays that go through converters, but so will become more of an interesting supplier to several of them.
Speaker Change: International customers, but also.
Speaker Change: For Us this is an opportunity with sanity group as part of the agreement that we had through the investment with them was to increase the amount of supply to them. Once we have the certification. So we see this is as big.
Speaker Change: Big opportunity.
Speaker Change: And in terms of your comments in terms of the sales right now there's a big demand in.
Speaker Change: In Germany and in Europe.
Speaker Change: And many of the international markets as they ramp from.
Being restricted to just being medical to maybe in some cases.
Speaker Change: Some pilot recreational programs just Germany in particular as an example.
Speaker Change: If you look at today.
Speaker Change: Currently anticipate that about 5% of their population are at candidates patients and you compare that to Israel, that's at 2% or Australia. That's at three 5% and there is such significant opportunity just on the medical side in Germany before you even consider the possibility of those.
Speaker Change: Pilot programs that were enacted at least announced last week. So we see significant upside we have great quality product we have.
Speaker Change: Enough volume so there's a lot of small craft.
Speaker Change: Players in Canada, but they can't supply the volumes needed in international markets, nor are they EU GMP certified so.
Speaker Change: Yes, there is more competitive pressures out there, but we see it as big opportunity going into next year.
Speaker Change: Thanks for that.
Speaker Change: Second question on.
Speaker Change: Youre fast emulsion technology in.
Speaker Change: The claims that you are you able to put into the packaging just curious what the feedback so far youre getting from consumers are.
Speaker Change: Are they able to differentiate our product just given the claims and the technology.
Speaker Change: Far and.
Do you see any opportunity to to license that technology or to use that in other markets specifically.
Thanks.
Speaker Change: Yes, no problem. So I'll, let Tim answer the question about reaction in that in the marketplace first and then I'll come back to you on opportunities in the U S.
Thanks, Peter So we're really in the early stages of launch we just did our initial pipeline.
Speaker Change: And we will have.
Speaker Change: Distribution out to eight provinces within the next week. So early indicators are extremely positive.
Speaker Change: At street level and from Bud tenders, and what we're hearing back from consumers. So.
Speaker Change: I can say that.
Speaker Change: There's been a lot of R&D behind this technology.
Speaker Change: And it says.
As advertised so the feedback so far is very very positive we're ramping up production to ensure we can meet the demand and I will probably have.
Speaker Change: More of a robust feedback in the coming weeks.
Speaker Change: And just to wrap on your question.
Speaker Change: <unk>.
Speaker Change: SaaS technology, we're very excited about it it is IP that we've worked on at the PDC and we're absolutely looking at how to leverage that IP into specifically the U S market in the Haynesville to nine space.
Speaker Change: No that the technology works.
Speaker Change: <unk> works very well for both gummies and for beverages, and we also know that the hunt, hence delta nine market in the U S is really a way to get into the U S market in a compliant way and we're looking forward to going into those kind of segments. The ingestible areas with a differentiated <unk>.
Speaker Change: <unk> using our fast technology.
Speaker Change: Great. Thank you very much.
Speaker Change: Your next question comes from the line of Pablo <unk> from Joanna <unk> Associates. Your line is open.
Speaker Change: Thank you and good morning, everyone.
Let me just follow up on that last question. So.
Speaker Change: I see.
Can you talk about the U S you're talking mostly about him derive understood.
Speaker Change: And beyond that youll be defined but when do you see kind of a growth with a kind of a USA.
Speaker Change: Rail structure and you look at Sun stream, some deal with sounds from USA.
Speaker Change: Seem to be more.
Speaker Change: NASDAQ listed Canadian Lps that are finding a way to get exposure to blend touching U S assets and Im sure you already know we that youll be defined very strong balance sheet, just focusing on <unk>. So can you give more clarity why why you shy away from THC right now thank you.
Speaker Change: Sure Pavel So I don't think we're saying we're shying away from THC touching it's just not as a direct opportunity as that hence delta nine which is.
Speaker Change: It's a low hanging fruit kind of way to enter the U S market because it's it's compliant because recently.
Speaker Change: That Mary Miller Amendment was.
Speaker Change: Not included in the farm Bill So we clearly are watching the regulations there.
Speaker Change: In terms of Jupiter funds look our approach has always been.
Speaker Change: With any of our investments looking for active investments, where we can see some benefits. So when we invested in silos, we got not only access to Chi HCV hi.
Speaker Change: Hi, concentrate screens for the Canadian market, but we also got the seat based technology.
Speaker Change: With the investment in <unk>, we have.
Speaker Change: A team that can help us on testing efficacy in the U S market that we obviously can't do from Canada.
Speaker Change: So while we look at canopy USA and we look at at Gulfstream.
Speaker Change: Is there more investment longer term investment strategies and not actively benefiting that today's business than we'd like our investment dollars to work both for the future.
Speaker Change: In terms of growth, but also for today and so finding a way to get into that plant touching might be more around leveraging our IP things like our fast technology that well will work on certainly the himself to nine will also work in the regulated space.
Speaker Change: Looking at how we work leveraging some of the other IP we've developed in the PDC. So that's our approach right now it doesn't preclude us from looking at some of those other structures, but it is for us the easier way in the way, we can actually consolidate revenue from the U S.
Speaker Change: And <unk>.
Make it work harder our money work harder for us in the shorter term.
Speaker Change: Thank you that's very clear and then just shifting gear.
Speaker Change: So think about 20 points of the polls.
Speaker Change: What do we know about ball fully viewers.
Speaker Change: <unk> some kind of is we're getting new with some potential changes, but should we be concerned about these reversals coming in kind of a policy. They will instead, we'll just take one totaling of government next year.
Speaker Change: Well that's I.
Speaker Change: The forward looking guests like I would say here's our position.
We certainly are a strong supporter of our C. Three industry Association and we are reaching out to the conservative to really talk about our industry.
Speaker Change: Well historically the Conservatives haven't been as supportive. This is an industry that grew from effectively nothing six years ago to over $5 billion.
Speaker Change: On the recreational legalization the liberal government health legalize it but the truth is the liberal government Hasnt really been listening.
Speaker Change: Over the last.
Speaker Change: Several years as many recommendations have gone to address the flawed excise duty.
Speaker Change: <unk>.
Speaker Change: And that was highlighted by the standing Committee I'm finance the competition Bureau the.
Speaker Change: The Cannabis Act review, everybody said something has to be done on the excise tax to get a sustainable industry that would not only.
Speaker Change: Make sure that it met the health objectives, so safe product available, but keeping them.
Speaker Change: Money out of the illicit market and unfortunately, we haven't seen.
Speaker Change: Any response from the Liberal government on that.
Speaker Change: <unk>.
Speaker Change: Finance that the economic statement that came out on Monday did a reference to the possibility of moving to a national stamp.
Speaker Change: That would certainly help the industry and avoid some of the challenges on forecasting and inventory management, but that is still.
Speaker Change: For the 2025 budget that might not ever happened. So the reality is we started again with the conservative government. We are a big business that offers lots of jobs good tax revenue.
Speaker Change: And the Conservatives typically are friendly towards business.
Speaker Change: And we are working.
Speaker Change: We are working to reach out to understand their position on candidates. We're looking for them to fix some of the things that the Liberals have left.
Speaker Change: Broken still in this in their legalization, so well the legacy that the Liberals will have his legalizing cannabis and there is an opportunity for the conservatives to fix the errors and really get this thing right moving forward. So we look forward to having those discussions.
Speaker Change: Very helpful. Thank you.
Speaker Change: Your next question comes from the line of Joe <unk> from Canaccord Genuity. Your line is open.
Speaker Change: Hi, Good morning. Thank you for the question. So my first question here is regarding the adjusted EBITDA margin. This quarter, obviously very nice to see the sequential improvement and a reduction in overall opex.
Speaker Change: Just wanted to ask about you know looking ahead to fiscal year 2025 are you guys expecting this opex level in Q4 to remain stable throughout just looking for some commentary here to help us think about the expectations for this line item going forward. Thank you.
Speaker Change: Good morning, Good morning, Giovanni Thanks, Thanks for the question and yes, we're obviously really happy about the strong EBITDA margins that we achieved I think looking into 2025, we expect EBITDA to be overall higher.
Speaker Change: And to achieve that expenses will be relatively stable.
Speaker Change: Although I will point out that as a result of the motif acquisition, we will be doing some investment to make sure that that the transaction get.
Speaker Change: Integrated effectively and then on the margin front.
Speaker Change: As I mentioned, we're expecting 35% on average looking into fiscal 2025 relatively stable.
Speaker Change: And.
Speaker Change: Obviously, we're looking at the cost synergies as well from from the <unk> acquisition of which we think $5 million will be realized this year.
Speaker Change: Got it thank you and just the second one here is regarding the international segment looking ahead to next year, obviously, Germany has seen pretty significant growth this year with the legalization.
Speaker Change: After about in April.
Speaker Change: How are you guys thinking about perhaps potential additional growth opportunities in that market given that the government second pillar plan to introduce the retail model is currently stalling and there maybe regulatory delays in terms of forming a government there. Thank you.
Speaker Change: Sure. So so first of all.
Speaker Change: The German market is growing.
Speaker Change: Quite considerably even if they don't get to the.
Speaker Change: The pilot is sort of the recreational pilot programs, we see just from the medical market opportunities right now it's growing.
Speaker Change: Whatever four to six times.
Speaker Change: Higher so there's lots of demand what you hear from most.
Speaker Change: The players in Germany is that they have left sales on the table. They haven't had access to enough flower that the delays in getting flower through the converters into the market has been challenging for them. There's lots of out of stocks. When you when the medical patients are looking.
Speaker Change: Looking to.
Speaker Change: Procure their product so we see the opportunity in Germany is huge there is lots of demand.
Speaker Change: And with our relationship with sanity, we not only have.
Speaker Change: Some products there that are performing very well some of our strains, but they're also looking for more and more inputs more more flower and once we get our EU GMP certification, we expect that.
Speaker Change: Not only will we be able to supply them more product directly but that the agreement from the investment was once we get our certification that we will be providing 30% of their needs into the German market. So.
Speaker Change: Even if the recreational pilot projects saw and at this point our understanding is if the.
Speaker Change: And pilot programs are.
Speaker Change: <unk> in advance of the next government forming.
Speaker Change: Unlikelihood that they will go backwards on that so we'll wait and see is as I mentioned in my remarks the.
Speaker Change: Sanity has.
Speaker Change: There will be.
Speaker Change: Putting in applications for three cities for Hanover, Frankfurt, and Berlin, and we feel that they have a strong likelihood of achieving.
Speaker Change: Some of those pilots.
Speaker Change: Projects because of their experience in Switzerland, where they currently run to and have that experience.
Speaker Change: That being said, we'll wait and see if they do get those cities, but even if it just stays as a medical market the demand is high.
Speaker Change: And at this point there is.
Speaker Change: Most more opportunities or a ship then available flower capacity to sense. So this is going to be an interesting year as we continued to see growth in the international markets.
Speaker Change: Thank you.
Speaker Change: And that concludes our question and answer session must be in a goldenberg I turn the call back over to you for some final closing remarks.
Goldenberg: Well. Thank you everybody for joining our call today, we are extremely proud of the results that we had in fiscal 2024. We're excited about the motif acquisition that we completed subsequent to the quarter end and the integration and the opportunity that it presents us as we go into fiscal 2025.
Goldenberg: It's mid December and everybody is looking at the holiday season coming up so I just want to wish everybody, a happy safe and healthy holiday season, and we look forward to updating you on our Q1 results in February.
Goldenberg: Thank you for joining our call.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: Okay.
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