Q2 2024 IM Cannabis Corp Earnings Call

August 14, 2024

Operator 1: Call is being recorded. At this time, I would like to turn the conference call over to Anna Taranko, Director Investor & Public Relations. Anna.

Operator: Call is being recorded. At this time, I would like to turn the conference call over to Anna Taranko, Director Investor & Public Relations. Anna.

Anna Taranko: Good morning and thank you, operator. Joining me for today's call are IM Cannabis Corp. Chief Executive Officer, Oren Schuster, and Chief Financial Officer, Yari Birnberg. The earnings press release that accompanies this call is available on the investor relations section of our website at investors.imcannabis.com. Today's call will include estimates and other forward-looking information and statements, including statements concerning future results of operations, economic conditions, and anticipated courses of action, and are based on assumptions, expectations, estimates, and projections as of the date hereof. This information may involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences are described in detail in the company's most recent filings available on SEDAR+ at www.sedarplus.ca and EDGAR at www.sec.gov.

Anna Taranko: Good morning and thank you, operator. Joining me for today's call are IM Cannabis Corp. Chief Executive Officer, Oren Shuster, and Chief Financial Officer, Uri Birnberg. The earnings press release that accompanies this call is available on the investor relations section of our website at investors.imcannabis.com. Today's call will include estimates and other forward-looking information and statements, including statements concerning future results of operations, economic conditions, and anticipated courses of action, and are based on assumptions, expectations, estimates, and projections as of the date hereof. This information may involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences are described in detail in the company's most recent filings available on SEDAR+ at www.sedarplus.ca and EDGAR at www.sec.gov.

Anna Taranko: Furthermore, certain non-IFRS measures will be referred to during this call, and the term non-IFRS adjusted EBITDA loss will hereafter be referred to as adjusted EBITDA loss. Any estimates or forward-looking information or statements provided are accurate only as of the date of this call, and the company undertakes no obligation to publicly update any forward-looking information or statements or supply new information regarding the circumstances after the date of this call. Please also note that all references on this call reflect currency in Canadian dollars. With that, it is my pleasure to turn the call over to Oren Schuster, CEO of IM Cannabis. Oren, please go ahead.

Oren Schuster: Thank you, Anna. Good morning, everyone, and thank you for joining us today. As I had already mentioned during our last call, the entire cannabis industry is changing. It is literally being pulled out of the shadows. In the US, a proposal is on the table to reschedule cannabis on a federal level. Israel rescheduled cannabis to facilitate access to patients suffering from many new indications. Most importantly for us, Germany, the largest economy in the EU, legalized cannabis on 1 April 2024. Since we are the sixth largest cannabis distributor in Germany, I would like to go into more detail on the impact the legalization had on the German cannabis industry. I don't think that many anticipated the tremendous impact the legalization would have, specifically the speed with which the legalization has affected the market.

Oren Shuster: Thank you, Anna. Good morning, everyone, and thank you for joining us today. As I had already mentioned during our last call, the entire cannabis industry is changing. It is literally being pulled out of the shadows. In the US, a proposal is on the table to reschedule cannabis on a federal level. Israel rescheduled cannabis to facilitate access to patients suffering from many new indications. Most importantly for us, Germany, the largest economy in the EU, legalized cannabis on 1 April 2024. Since we are the sixth largest cannabis distributor in Germany, I would like to go into more detail on the impact the legalization had on the German cannabis industry. I don't think that many anticipated the tremendous impact the legalization would have, specifically the speed with which the legalization has affected the market.

Oren Schuster: While there are many estimates of how the German market will develop, what they all agree on is that the German market is poised to deliver significant growth. As an example, Zaunig & Associates is projecting a market with a run rate of about $2 billion by the end of 2025. According to BDSA estimates, the German cannabis industry is expected to reach approximately $1.5 billion in total sales in 2024 and is estimated to grow to about $3.7 billion by 2027. I would like to put this growth into perspective by taking you through the details of our internal sales in Germany over the last five months. In March, we sold 307,000 CAD.

Oren Shuster: While there are many estimates of how the German market will develop, what they all agree on is that the German market is poised to deliver significant growth. As an example, Zaunig & Associates is projecting a market with a run rate of about $2 billion by the end of 2025. According to BDSA estimates, the German cannabis industry is expected to reach approximately $1.5 billion in total sales in 2024 and is estimated to grow to about $3.7 billion by 2027. I would like to put this growth into perspective by taking you through the details of our internal sales in Germany over the last five months. In March, we sold CAD 307,000.

Oren Schuster: In April, we sold CAD 830,000, an increase of 170% versus March. In May, we sold CAD 1,120,000, an increase of 35% versus April. In June, we sold CAD 1,630,000, an increase of 46% versus May. Overall, we sold 200% more in Q2 than we did in Q1 2024 before legalization. While the numbers are still small, they speak for themselves. Without a doubt, the results of the legalization has had a tremendous impact on our business in Germany. It is clear that we will be focusing our resources where we expect to see the biggest growth opportunities and the best return on investment. At this point in time, this is the German market.

Oren Shuster: In April, we sold CAD 830,000, an increase of 170% versus March. In May, we sold CAD 1,120,000, an increase of 35% versus April. In June, we sold CAD 1,630,000, an increase of 46% versus May. Overall, we sold 200% more in Q2 than we did in Q1 2024 before legalization. While the numbers are still small, they speak for themselves. Without a doubt, the results of the legalization has had a tremendous impact on our business in Germany. It is clear that we will be focusing our resources where we expect to see the biggest growth opportunities and the best return on investment. At this point in time, this is the German market.

Oren Schuster: To ensure our accelerated growth in Germany continues in future quarters, we need to make sure that we are set up to deliver this growth. To achieve this, we have two clear targets. One, we need to have the right team in place. Two, keep our focus in building a consistent, stable supply chain. As a result, we are actively looking at our overall business to make sure that we are allocating the resources to support the German business. For example, our Israeli team is now working on building a new supply channel from Israel to Germany. At the same time, we're taking a good look at our Israeli business to see how we can maximize profitability. For our Israeli business, this translates into clear focus on the premium and ultra premium markets, as well as active cost management to support sustainable profitability.

Oren Shuster: To ensure our accelerated growth in Germany continues in future quarters, we need to make sure that we are set up to deliver this growth. To achieve this, we have two clear targets. One, we need to have the right team in place. Two, keep our focus in building a consistent, stable supply chain. As a result, we are actively looking at our overall business to make sure that we are allocating the resources to support the German business. For example, our Israeli team is now working on building a new supply channel from Israel to Germany. At the same time, we're taking a good look at our Israeli business to see how we can maximize profitability. For our Israeli business, this translates into clear focus on the premium and ultra premium markets, as well as active cost management to support sustainable profitability.

Oren Schuster: Moving on to the operational side of our Israeli business, we strengthened our position in the premium segment by launching Flower, an Avant brand with 2 strains. We launch and relaunch an additional 10 strains under the following premium and ultra-premium brands: Black Market, Pico, and IMC Craft. Our goal is to introduce our Israeli patients to a rotating portfolio of new and existing strains. As in the previous quarters, we are continuing to clean our slow-moving non-premium stock, clearing out all inventory for CAD 0.8 million. We also have an additional accrual of approximately CAD 1.1 million for slow-moving inventory, which is a conservative estimate. The impact of this can be clearly seen in our cost of sales, gross margin, and gross profit. Uri will go into further detail when he takes you through the numbers.

Oren Shuster: Moving on to the operational side of our Israeli business, we strengthened our position in the premium segment by launching Flower, an Avant brand with 2 strains. We launch and relaunch an additional 10 strains under the following premium and ultra-premium brands: Black Market, Pico, and IMC Craft. Our goal is to introduce our Israeli patients to a rotating portfolio of new and existing strains. As in the previous quarters, we are continuing to clean our slow-moving non-premium stock, clearing out all inventory for CAD 0.8 million. We also have an additional accrual of approximately CAD 1.1 million for slow-moving inventory, which is a conservative estimate. The impact of this can be clearly seen in our cost of sales, gross margin, and gross profit. Uri will go into further detail when he takes you through the numbers.

Oren Schuster: I would like also to give you a short update on where we are with the reverse merger with Kadimastem. On 28 May 2024, the company announced the termination of the pre-preliminary term sheet signed on 18 February 2024 with Kadimastem. Due to recent changes in the cannabis market, specifically in Germany, where the company operates, and other consideration not related to Kadimastem, the company has decided to cancel the planned reverse merger and to remain an active public company with the current cannabis operations. Before turning the call over to our Chief Financial Officer, Uri Birenberg, I would like to put Q2 2024 into perspective. Q2 2024 was a game changer for us with the legalization in Germany. I see tremendous potential for growth.

Oren Shuster: I would like also to give you a short update on where we are with the reverse merger with Kadimastem. On 28 May 2024, the company announced the termination of the pre-preliminary term sheet signed on 18 February 2024 with Kadimastem. Due to recent changes in the cannabis market, specifically in Germany, where the company operates, and other consideration not related to Kadimastem, the company has decided to cancel the planned reverse merger and to remain an active public company with the current cannabis operations. Before turning the call over to our Chief Financial Officer, Uri Birenberg, I would like to put Q2 2024 into perspective. Q2 2024 was a game changer for us with the legalization in Germany. I see tremendous potential for growth.

Oren Schuster: We are actively looking at our entire business to make sure that we are allocating the necessary resources to the German market to support further accelerated growth. I will now hand the call over to Uri, who will review our Q2 2024 financial results. Uri?

Oren Shuster: We are actively looking at our entire business to make sure that we are allocating the necessary resources to the German market to support further accelerated growth. I will now hand the call over to Uri, who will review our Q2 2024 financial results. Uri?

Uri Birenberg: Thank you, Oren. Our Q2 results were mainly impacted by the following points. Our revenue in Q2 increased by 11.7% versus Q2 2023. This growth was driven in part by the 129% Germany grew in Q2 2024 versus Q2 2023. Our selling price per gram of dried flower also increased 21% in this time period to CAD 6.09 per gram. In addition, as a result of last year's restructuring, our operating expenses continued to decrease by 21% versus Q2 2023. On the other hand, we cleared all raw material and accrued for slow-moving stock for about CAD 1.9 million. The mid-April OneMe agreement revocation resulted in reduced revenue and expenses versus previous periods.

Uri Birenberg: I will now take you through the overview of the Q2 2024 financial results for the company's cannabis operations. Revenues for Q2 2024 were CAD 14.8 million, compared to CAD 13.2 million in Q2 2023, an increase of CAD 1.6 million or 11.7%. The increase is mainly attributed to accelerated growth in Germany revenue of CAD 2 million net and decreased net revenue in Israel of CAD 0.4 million, which consists of our one-time cancellation effect and decreased revenue of CAD 2.4 million.

Uri Birenberg: Total dried flower sold in Q2 2024 was approximately 2,333kg with an average selling price of CAD 6.09 per gram, compared to approximately 2,128kg in Q2 2023, with an average selling price of CAD 5.04 per gram, which is an increase of 21%. Cost of revenue for Q2 2024 were CAD 13.9 million, compared to CAD 9.5 million in Q2 2023, an increase of CAD 4.4 million or 46.6%, mainly due to the increase in company revenue related to costs of approximately CAD 2.8 million, clearing of all raw materials of approximately CAD 0.8 million, and accrued for slow inventory of approximately CAD 1.1 million.

Uri Birenberg: Gross profit for Q2 2024 was CAD 0.8 million, compared to CAD 3.5 million in Q2 2023, a decrease of 75.6%. The downside is attributed mainly to the clearing of all the inventory, accrued for slow-moving inventory of approximately CAD 1.9 million, and slow-moving stock that was moved out at lower prices. Company fair value adjustment was zero and CAD 0.3 million for the Q2 2024 and Q2 2023 respectively. Gross margin after fair value adjustment in Q2 2024 was 6%, compared to 26% in Q2 2023. G&A expenses in Q2 2024 were CAD 2.2 million, compared to CAD 2.4 million in Q2 2023, a decrease of CAD 0.2 million or 9.5%.

Uri Birenberg: The decrease in the G&A expenses is attributed mainly to the decrease in insurance of approximately CAD 0.2 million. Selling and marketing expenses in Q2 2024 were CAD 1.5 million, compared to CAD 2.6 million in Q2 2023, a decrease of CAD 1.1 million or 44%. Mainly due to the revocation of our Nim agreement of CAD 0.6 million and decrease in salaries and professional services of CAD 0.4 million. Total operating expenses in Q2 2024 were CAD 3.7 million compared to CAD 5.2 million in Q2 2023. A decrease of CAD 1.5 million or 29%, mainly due to the decrease in salaries of approximately CAD 0.4 million, decrease in insurance of CAD 0.2 million, depreciation expenses of CAD 0.3 million, and professional services of CAD 0.2 million.

Uri Birenberg: Non-IFRS adjusted EBITDA loss in Q2 2024 was CAD 2.3 million, compared to adjusted EBITDA loss of CAD 0.5 million in Q2 2023, a decrease of 357%. Net loss in Q2 2024 was CAD 3.5 million, compared to CAD 3.7 million in Q2 2023. Diluted loss per share in Q2 2024 was CAD 0.23, compared to a loss of CAD 0.26 per share in Q2 2023. As of the balance sheet, cash and cash equivalents as of 30 June 2024 were CAD 0.7 million, compared to CAD 1.8 million on 31 December 2023. Total assets as of 30 June 2024 were CAD 40.2 million, compared to CAD 48.8 million on 31 December 2023.

Uri Birenberg: A decrease of CAD 8.6 million or 17.6%. The decrease is mainly attributed to the Oranim agreement cancellation of CAD 9.5 million, of which mainly attributed to goodwill, CAD 3.5 million, intangible assets, CAD 1.4 million, inventory, CAD 0.8 million, trade receivables, CAD 1.3 million, and property, plant, and equipment, CAD 0.8 million, and reduction of cash and cash equivalents of CAD 0.3 million. In addition to our IM revocation agreement effect, there is a total asset increase of CAD 0.9 million, mainly due to an increase of CAD 5.8 million in trade receivables, offset by CAD 3.4 million reduction in inventory. Reduction of cash and cash equivalents of CAD 1.8 million and reduction of CAD 0.7 million in intangible assets.

Uri Birenberg: Total liabilities as of 30 June 2024 were CAD 34.7 million, compared to CAD 35.1 million on 31 December 2023. A decrease of CAD 0.4 million or 1.1%. The decrease was mainly due to our IM agreement cancellation of CAD 6.8 million, of which mainly attributed to a decrease in put option liability in the amount of CAD 2 million, a decrease in purchase consideration payable in the amount of CAD 2.2 million, a decrease of CAD 1.6 million in trade payables, a decrease of CAD 0.4 million in lease liabilities, and a decrease of CAD 0.3 million in deferred tax liability.

Uri Birenberg: In addition to our reverse merger agreement effect, there is a total liabilities increase of CAD 6.4 million, mainly due to increase of CAD 6.2 million in trade payables, offset by a CAD 1.7 million reduction in other accounts payable. The company is planning to finance its operation from an existing and future working capital resources, as well as from its available credit facilities, and will continue to evaluate additional sources of capital and financing as needed. I would now like to turn the call back to Oren for closing remarks. Oren?

Oren Schuster: Thank you, Uri. This quarter was impacted by the clearing of all raw materials and the accrual for slow-moving stock. That said, we clearly see the impact the legalization has had on our German business. We were well positioned to take advantage of the growing market, delivering 200% increase in sales in Q2 versus Q1. We are actively making sure that we are allocating the resources, and support the German business needs to deliver further accelerated growth. I will now hand the call over to the operator to begin our question and answer session. Operator?

Oren Shuster: Thank you, Uri. This quarter was impacted by the clearing of all raw materials and the accrual for slow-moving stock. That said, we clearly see the impact the legalization has had on our German business. We were well positioned to take advantage of the growing market, delivering 200% increase in sales in Q2 versus Q1. We are actively making sure that we are allocating the resources, and support the German business needs to deliver further accelerated growth. I will now hand the call over to the operator to begin our question and answer session. Operator?

Operator 1: Thank you, Oren. If you would like to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. I repeat, in order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Our first question is from Scott Fortune from Roth. Scott, please go ahead.

Operator: Thank you, Oren. If you would like to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. I repeat, in order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Our first question is from Scott Fortune from Roth. Scott, please go ahead.

Scott Fortune: Yes, thank you, and thank you for the questions. Oren, just wanted to provide a little color on additional sourcing of supply for the German market that seems to be the bottleneck there. You're well positioned with infrastructure and allocated, you know, resources to support that. You know, Canvas is being sold through the pharmacies and what are you seeing as far as new pharmacies coming on board? You know, there are 2,000 to 3,000 pharmacies that offer Canvas out of the 18,000. Just your keys to IMCC brands getting into the pharmacy and looking or the pharmacies looking for certain supply amounts, just kind of touch base on the supply bottleneck and how you guys are addressing access and more sourcing of supply.

Oren Schuster: Okay. Thank you for the question, Scott. I do agree with you. The supply is the key today in Germany. Luckily, we have our own sources of supply.

Oren Shuster: Okay. Thank you for the question, Scott. I do agree with you. The supply is the key today in Germany. Luckily, we have our own sources of supply.

Oren Schuster: Once the legalization have started, we increased the quantities that we are ordering to Germany. I think that we can see that in our results in Q2, and we will get more supplies from our current suppliers. Concurrently, we will come with more suppliers to the market. In Q3, we will start to have sales from Israel. Product supply from Israel, we will start to sell it in Germany, and that's a complete new channel. The Israeli market is our market. We're based here. It's very easy for us to come with the supply from Israel. There is excess of supply today in the Israeli market, so we believe that it can be a very good and unique channel.

Oren Shuster: Once the legalization have started, we increased the quantities that we are ordering to Germany. I think that we can see that in our results in Q2, and we will get more supplies from our current suppliers. Concurrently, we will come with more suppliers to the market. In Q3, we will start to have sales from Israel. Product supply from Israel, we will start to sell it in Germany, and that's a complete new channel. The Israeli market is our market. We're based here. It's very easy for us to come with the supply from Israel. There is excess of supply today in the Israeli market, so we believe that it can be a very good and unique channel.

Oren Schuster: We want to be alone, obviously, but we are the only Israeli with the operations today in Germany. Besides that, we will come also with the premium and ultra-premium. I think that we announced that we're going to launch a BLKMKT in Germany. We have exclusive agreement for the German and the Swiss market. We are working very hard on adding more supply, and we will start to see soon more supply in the German market. It's something that is coming now to the market.

Oren Shuster: We want to be alone, obviously, but we are the only Israeli with the operations today in Germany. Besides that, we will come also with the premium and ultra-premium. I think that we announced that we're going to launch a BLKMKT in Germany. We have exclusive agreement for the German and the Swiss market. We are working very hard on adding more supply, and we will start to see soon more supply in the German market. It's something that is coming now to the market.

Scott Fortune: Great. Can I follow up on that? The supply that you're sending from Israel, is that going to take down different supply and selling opportunities in Israel or this additional supply? Just follow up on that, as far as the German market is concerned, right, you have private payers now. You mentioned you're getting into the premium segment, but this has been more of a mid-market, kind of the supply agreements you've been selling, agreeing to is kind of serving that mid-market. Just kind of point us towards the trends in Germany and where the different categories that you're selling into in the German side.

Oren Schuster: Okay. Well, it's a good question. There is a difference, big difference between the markets. In Israel, we are focusing on the premium, ultra-premium segment, and most of it we are importing from Canada today. In Germany, we believe that most of the market will be mid to low. In Germany, our strategy is to focus on the mid-market, but, we're going to have the full spectrum of the products, starting from ultra-premium down to I would say mid-low. It's different approach in the market. When I spoke about the Israeli market, I meant mid-market products from other Israeli growers that we are buying in Israel and selling in Germany.

Oren Shuster: Okay. Well, it's a good question. There is a difference, big difference between the markets. In Israel, we are focusing on the premium, ultra-premium segment, and most of it we are importing from Canada today. In Germany, we believe that most of the market will be mid to low. In Germany, our strategy is to focus on the mid-market, but, we're going to have the full spectrum of the products, starting from ultra-premium down to I would say mid-low. It's different approach in the market. When I spoke about the Israeli market, I meant mid-market products from other Israeli growers that we are buying in Israel and selling in Germany.

Scott Fortune: Got it. That, that's helpful. The last question for me is, obviously, you're shifting a lot of resources, allocating that towards the German market. Just kind of step us through, you know, the infrastructure in place, the additional cash outlays needed to kind of support that market, you know, being in front of the prescribing doctors or working with the pharmacies, just kind of an idea of where the resources are needed to continue to kind of grow pretty exponentially in the German market.

Oren Schuster: I think that, definitely, supply is the number one issue today in Germany. If we're speaking about the channels today, the channels is pharmacies. That's the main point of contact. We see, like you said, increase in the number of pharmacies, and more competition, more players. For us, the main focus, like I said, is the supply. We feel very comfortable with the market and with our ability to have a market access. We are working in this market since 2019, so we are well-established in the market. It's more about bringing the right products in the right pricing, and I think that, we understand very well the market. We are very experienced in that.

Oren Shuster: I think that, definitely, supply is the number one issue today in Germany. If we're speaking about the channels today, the channels is pharmacies. That's the main point of contact. We see, like you said, increase in the number of pharmacies, and more competition, more players. For us, the main focus, like I said, is the supply. We feel very comfortable with the market and with our ability to have a market access. We are working in this market since 2019, so we are well-established in the market. It's more about bringing the right products in the right pricing, and I think that, we understand very well the market. We are very experienced in that.

Oren Schuster: Regarding the ability to support the operation and the import with the cash flow, we have a projection. We see that we can support the import. It's much easier to do it now. We see the growth in the market. It's becoming a profitable business. I don't think that will be what will hold us from growing and to keep the growth in the German market.

Oren Shuster: Regarding the ability to support the operation and the import with the cash flow, we have a projection. We see that we can support the import. It's much easier to do it now. We see the growth in the market. It's becoming a profitable business. I don't think that will be what will hold us from growing and to keep the growth in the German market.

Scott Fortune: Yeah. I appreciate the color, and I'll jump back in the queue.

Operator 2: Okay. Our next question is from Arun Gray from Alliance. Arun, please go ahead.

Operator: Okay. Our next question is from Aaron Gray from Alliance. Arun, please go ahead.

Aaron Gray: Hi, good morning, and thank you for the questions here. I want to piggyback off what Scott was just speaking towards with Germany. You guys seem to have outperformed in Germany, you know, certainly in terms of a percentage basis, but even on some absolute dollars versus some others that we've heard from the public market. What would you attribute being key to the success in your view, you know, given you're not vertical, right? Would it be more so your relationships with doctors, communications with patients? Maybe some detail in terms of your go-to-market strategy to what drove such that strong growth quarter over quarter there. Thank you.

Oren Schuster: Okay. Good morning, Aaron. Thank you for the question. So like I said, we're established in the market. We have a familiar brand. In 2023, we had the number one selling SKU in the market. We are number six between the distributors, and there are more than 60 distributors in Germany. So we are well positioned. With the legalization, like I mentioned, we worked immediately on adding more supply. So we started to get more supply that we could sell, and that's one of the reasons that we grew more than the others. That's from the beginning, it was a strategic target for us to get more supply. That's the focus.

Oren Shuster: Okay. Good morning, Aaron. Thank you for the question. So like I said, we're established in the market. We have a familiar brand. In 2023, we had the number one selling SKU in the market. We are number six between the distributors, and there are more than 60 distributors in Germany. So we are well positioned. With the legalization, like I mentioned, we worked immediately on adding more supply. So we started to get more supply that we could sell, and that's one of the reasons that we grew more than the others. That's from the beginning, it was a strategic target for us to get more supply. That's the focus.

Oren Schuster: That's the main reason, because we have a good reputation in the market. For us, it's mainly, like I said, about the supply. Regarding the market presence and market access, I feel very comfortable. We have very good relationship with the pharmacies, and we have the support. We have the support from the cannabis community in Germany, which is very important because we work very tight with the influencers, we are well connected in the community. I think that it's a result of few years of hard working.

Oren Shuster: That's the main reason, because we have a good reputation in the market. For us, it's mainly, like I said, about the supply. Regarding the market presence and market access, I feel very comfortable. We have very good relationship with the pharmacies, and we have the support. We have the support from the cannabis community in Germany, which is very important because we work very tight with the influencers, we are well connected in the community. I think that it's a result of few years of hard working.

Aaron Gray: Okay, great. I appreciate that color there, Oren. Second question for me, just on the gross margin. You guys had some call-outs there in terms of some inventory clearance, and some accrual for some slow-moving inventory. Looks like ex, those impacts would have been around 18%. Just want to get some color in terms of the go-forward gross margin, how that's looking, particularly, if any of this, you know, change in having to source material for Germany, you know, might have some impact, on the gross margins going forward, depending on the cost of that. Thank you.

Oren Schuster: Okay. Thank you. It's true, our gross margin reduced significantly because of the inventory, like-

Oren Shuster: Okay. Thank you. It's true, our gross margin reduced significantly because of the inventory, like

Uri Birenberg: Clearance and accrual, yeah.

Oren Schuster: Yeah. First of all, it happened in Israel, not in Germany. We don't have any excess stock in Germany. Whatever we have, we are selling. It's part of it. It's connected, or mainly connected to, the change that we said that we are doing, that we're focusing on the premium and ultra-premium. We understand that the other segments of the market are not the right segments, so it's part of this process. Looking forward, we still have stock. We will continue and check the stock all the time to see what is sellable and what is not. I don't see a situation now with the premium products that we are bringing, that we are stuck with product.

Oren Shuster: Yeah. First of all, it happened in Israel, not in Germany. We don't have any excess stock in Germany. Whatever we have, we are selling. It's part of it. It's connected, or mainly connected to, the change that we said that we are doing, that we're focusing on the premium and ultra-premium. We understand that the other segments of the market are not the right segments, so it's part of this process. Looking forward, we still have stock. We will continue and check the stock all the time to see what is sellable and what is not. I don't see a situation now with the premium products that we are bringing, that we are stuck with product.

Oren Schuster: We have more demand than what we are bringing. In Germany, the situation is that whatever we can bring, we are selling. We know what we are bringing. It's part of the change that the company is going through. I think that besides that, we have a healthy gross margin.

Oren Shuster: We have more demand than what we are bringing. In Germany, the situation is that whatever we can bring, we are selling. We know what we are bringing. It's part of the change that the company is going through. I think that besides that, we have a healthy gross margin.

Uri Birenberg: Yeah. Yeah. We can look basically on the gross margin this quarter, we acted in a conservative way. We accrue for inventory that we are not sure that we will be able to fully sell, and we made everything right in order for our books, our financials, to represent the current status of the company. Basically, after those cleanings and since we are monitoring it very closely on a quarterly basis, we believe that the gross margin in the upcoming quarters will not look the way it looks right now. This quarter is not a representative quarter you can check the operation accordingly.

Aaron Gray: Okay. Got it. Thanks for color there. I'll jump back in the queue.

Operator 2: If you would like to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Okay, we have the next question from Scott Fortune. Scott, please go ahead. Scott, can you unmute?

Operator: If you would like to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Okay, we have the next question from Scott Fortune. Scott, please go ahead. Scott, can you unmute?

Scott Fortune: Yes. Sorry. Sorry about that. Just a follow-up on gross margins and how you're viewing the German market as far as the margin side of things, you know, offset by obviously the Israel side. Just kind of a little bit color on the margin cadence that's going on in Germany for your business right now?

Oren Schuster: We have a good gross margin in Germany today. We are about 40% this quarter in Germany. I think that it's very early to predict what will be in the German market regarding price pressure, when it will happen, if it will happen. It's still a very early stage in the market. I believe that at some stage we will see a price compression in Germany. Anyway, we are getting ready for that because we've seen it in other markets, and I believe that everything will be faster in Germany. This is what we have seen until now. We are getting ready for price compression. As of now, we have good gross margins in Germany.

Oren Shuster: We have a good gross margin in Germany today. We are about 40% this quarter in Germany. I think that it's very early to predict what will be in the German market regarding price pressure, when it will happen, if it will happen. It's still a very early stage in the market. I believe that at some stage we will see a price compression in Germany. Anyway, we are getting ready for that because we've seen it in other markets, and I believe that everything will be faster in Germany. This is what we have seen until now. We are getting ready for price compression. As of now, we have good gross margins in Germany.

Oren Schuster: Like we said, in Israel, we think that the changes to it we are doing will be effective. We will see the effect also in increased gross margin. How fast it will happen, if it will be next quarter, in two quarters or three quarters, I don't want to say anything now, but that's the timeframe in my opinion.

Oren Shuster: Like we said, in Israel, we think that the changes to it we are doing will be effective. We will see the effect also in increased gross margin. How fast it will happen, if it will be next quarter, in two quarters or three quarters, I don't want to say anything now, but that's the timeframe in my opinion.

Aaron Gray: I appreciate the follow-up. Thanks.

Operator 2: Next question from Aaron Gray. Aaron, please go ahead.

Operator: Next question from Aaron Gray. Aaron, please go ahead.

Aaron Gray: Yeah, apologies. That was just a legacy from prior. I didn't have any additional questions. Thank you.

Operator 2: Okay. I don't think we have any further questions. If anyone would like to ask a question, please raise your hand. Okay. All right. I don't think we have further questions.

Operator: Okay. I don't think we have any further questions. If anyone would like to ask a question, please raise your hand. Okay. All right. I don't think we have further questions.

Oren Schuster: Okay. Thank you, operator, and thank you all for joining our call today.

Oren Shuster: Okay. Thank you, operator, and thank you all for joining our call today.

Speaker #1: Is being recorded. At this time, I would like to turn the conference call over to Anna Taranko, Director of Investor and Public Relations. Anna,

Speaker #2: Good morning, and thank you, Operator. Joining me for today's caller, IM Cannabis Chief Executive Officer Oren Schuster and Chief Financial Officer Yuri Bernberg. The earnings press release that accompanies this call is available on the Investor Relations section of our website, at investors.imcannabis.com.

Speaker #2: Today's call will include estimates and other forward-looking information and statements, including statements concerning future results of operations, economic conditions, and anticipated courses of action, and are based on assumptions, expectations, estimates, and projections as the date hereof.

Speaker #2: This information may involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied by such statements.

Speaker #2: Factors that could cause or contribute to such differences are described in detail in the company's most recent filings available on Cedar Plus at www.cedarplus.ca.

Speaker #2: And Edgar at www.sec.gov. Furthermore, certain, non-IFRS measures will be referred to during this call, and the term "non-IFRS adjusted EBITDA loss" will hereafter be referred to as "adjusted EBITDA loss." Any estimates or forward-looking information or statements provided are accurate only as of the date of this call, and the company undertakes no obligation to publicly update any forward-looking information or statements or supply new information regarding the circumstances after the date of this call.

Speaker #2: Please also note that all references on this call reflect currency and Canadian dollars. With that, it is my pleasure to turn the call over to Oren Schuster, CEO of IM Cannabis.

Speaker #2: Oren, please go ahead.

Speaker #3: Thank you, Anna. Good morning, everyone, and thank you for joining us today. As I had already mentioned, during our last call, the entire cannabis industry is changing.

Speaker #3: It is literally being pulled out of the shadows. In the US, a proposal is on the table to reschedule cannabis on a federal level.

Speaker #3: Israel will schedule cannabis to facilitate access to patients suffering from many new indications. But most importantly for us, Germany, the largest economy in the EU, legalized cannabis on April 1, 2024.

Speaker #3: Since we are the sixth largest cannabis distributor in Germany, I would like to go into more detail on the impact the legalization had on the German cannabis industry.

Speaker #3: I don't think that many anticipated the tremendous impact the legalization would have specifically the speed with which the legalization has affected the market. While there are many estimates of how the German market will develop, what I all agree on is that the German market is poised to deliver significant growth.

Speaker #3: As an example, Zonic and Associates is projecting a market with a run rate of about 2 billion USD by the end of 2025. According to BDSA estimates, the German cannabis industry is expected to reach approximately 1.5 billion USD in total sales in 2024 and is estimated to grow to about 3.7 billion USD by 2027.

Speaker #3: I would like to put this growth into perspective by taking you through the details of our internal sales in Germany over the last five months.

Speaker #3: In March, we sold 30700 Canadians. In April, we sold 830000 Canadians, an increase of 170% versus March. In May, we sold 1120000 Canadians, an increase of 35% versus April.

Speaker #3: In June, we sold 1630000 Canadians, an increase of 46% versus May. Overall, we sold 200% more in Q2 than we did in Q1 2024 before legalization.

Speaker #3: While the numbers are still small, they speak for themselves. Without a doubt, the results of the legalization have had a tremendous impact on our business in Germany.

Speaker #3: It is clear that we will be focusing our resources where we expect to see the biggest growth opportunities and the best return on investment.

Speaker #3: At this point in time, this is the German market. To ensure our accelerated growth in Germany continues in future quarters, we need to make sure that we are set up to deliver this growth.

Speaker #3: To achieve this, we have two clear targets. One, we need to have the right team in place and two, keep our focus on building a consistent, stable supply chain.

Speaker #3: As a result, we are actively looking at our overall business to make sure that we are allocating the resources to support the German business.

Speaker #3: For example, our Israeli team is now working on building new supply channels from Israel to Germany. At the same time, we are taking a good look at our Israeli business to see how we can maximize profitability.

Speaker #3: For our Israeli business, this translates into clear focus on the premium and ultra-premium markets as well as active cost management to support sustainable profitability.

Speaker #3: Moving on to the operational side of our Israeli business, we strengthened our position in the premium segment by launching Flower and Avant brand with two strengths.

Speaker #3: We launched and relaunched an additional 10 strengths under the following premium and ultra-premium brands: Black Market, Pico, and IMC Craft. Our goal is to introduce our Israeli patients to a rotating portfolio of new and existing strengths.

Speaker #3: As in the previous quarters, we are continuing to clean our slow-moving non-premium stock, clearing out all inventory. For 0.8 million, we also have an additional accrual of approximately 1.1 million for slow-moving inventory.

Speaker #3: Which is a conservative estimate. The impact of this can be clearly seen in our cost of sales gross margin and in the gross profit.

Speaker #3: We will go into further detail when it takes you through the numbers. I would like also to give you a short update on where we are with the reverse merger with Kadimastem.

Speaker #3: On May 28, 2024, the company announced the termination of the preliminary term sheet signed on February 18, 2024, with Kadimastem. Due to recent changes in the cannabis market, specifically in Germany, where the company operates another consideration not related to Kadimastem, the company has decided to cancel the planned reverse merger and to remain an active public company with the current cannabis operations.

Speaker #3: Before turning the call over to our chief financial officer, Uri Birnberg, I would like to put Q2 2024 into perspective. Q2 2024 was a game-changer for us with the legalization in Germany.

Speaker #3: I see tremendous potential for growth. We are actively looking at our entire business to make sure that we are allocating the necessary resources to the German market to support further accelerated growth.

Speaker #3: I will now end the call over to Uri, who will review our second quarter 2024 financial results. Uri?

Speaker #4: Thank you, Owen. Our Q2 results were mainly impacted by the following points. Our revenue in Q2 increased by 11.7% versus Q2 2023. This growth was driven in part by the 129% Germany grew in Q2 2024 versus Q2 2023.

Speaker #4: Our selling price per gram of dried flower also increased 21% in this time period to 6.09 dollars per gram. In addition, as a result of last year's restructuring, our operating expenses continued to decrease by 21% versus Q2 2023.

Speaker #4: On the other hand, we cleared all growth material and accrued for slow-moving stock for about 1.9 million. And the mid-April autonomic wind revocation resulted in reduced revenue and expenses versus previous periods.

Speaker #4: I will now take you through the overview of the Q2 2024 financial results for the company's cannabis operations. Revenues for Q2 2024 were 14.8 million, compared to 13.2 million in Q2 2023.

Speaker #4: An increase of 1.6 million or 11.7%. The increase is mainly attributed to accelerated growth in Germany revenue of 2 million dollars, net, and decreased net revenue in Israel of 0.4 million which consists of an indeed cancellation effect in decreased revenue of 2.4 million.

Speaker #4: Total dried flower sold in Q2 2024 was approximately 2,333 kilograms with an average selling price of 6.09 dollars per gram. Compared to approximately 2,128 kilograms in Q2 2023 with an average selling price of 5.04 dollars per gram.

Speaker #4: Which is an increase of 21%. Cost of revenue for Q2 2024 was 13.9 million, compared to 9.5 million in Q2 2023. An increase of 4.4 million or 46.6%.

Speaker #4: Mainly, due to the increase in company revenue related to costs of approximately 2.8 million, clearing of all growth materials of approximately 0.8 million, and accrued for slow inventory of approximately 1.1 million.

Speaker #4: Gross profit for Q2 2024 was 0.8 million, compared to 3.5 million in Q2 2023. A decrease of 75.6%. The downside is attributed mainly to the clearing of all the inventory accrued for slow-moving inventory of approximately 1.9 million and slow-moving stock that was moved out at lower prices.

Speaker #4: Company fair value adjustment was 0 and 0.3 million for the Q2 2024 and Q2 2023 respectively. Gross margin after fair value adjustment in Q2 2024 was 6%, compared to 26% in Q2 2023.

Speaker #4: GMA expenses in Q2 2024 were 2.2 million, compared to 2.4 million in Q2 2023. A decrease of 0.2 million or 9.5%. The decrease in the GMA expenses is attributed mainly to the insurance of approximately 0.2 million.

Speaker #4: Selling and marketing expenses in Q2 2024 were 1.5 million, compared to 2.6 million in Q2 2023. A decrease of 1.1 million or 44%. Mainly due to the revocation of an agreement of 0.6 million and decrease in salaries and professional services of 0.4 million.

Speaker #4: Total operating expenses in Q2 2024 were 3.7 million, compared to 5.2 million in Q2 2023. A decrease of 1.5 million or 29%. Mainly due to the decrease in salaries of approximately 0.4 million insurance of 0.2 million depreciation expenses of 0.3 million and professional services of 0.2 million.

Speaker #4: Non-FRS adjusted EBITDA loss in Q2 2024 was 2.3 million, compared to adjusted EBITDA loss of 0.5 million in Q2 2023. A decrease of 357%.

Speaker #4: Net loss in Q2 2024 was 3.5 million, compared to 3.7 million in Q2 2023. Diluted loss per share in Q2 2024 was 0.23 dollars, compared to a loss of 0.26 dollars per share in Q2 2023.

Speaker #4: As of the balance sheet, cash and cash equivalents as of June 30, 2024, were 0.7 million, compared to 1.8 million on December 31, 2023.

Speaker #4: Total assets as of June 30, 2024, were 40.2 million, compared to 48.8 million on December 31, 2023. A decrease of 8.6 million or 17.6%.

Speaker #4: The decrease is mainly attributed to the agreement cancellation of 9.5 million, of which mainly attributed to goodwill 3.5 million, intangible assets 1.4 million, inventory 0.8 million, trade receivables 1.3 million, and property plant and equipment 0.8 million.

Speaker #4: And reduction of cash and cash equivalent of 0.3 million. In addition to revocation agreement effect, there is a total asset increase of 0.9 million mainly due to an increase of 5.8 million in trade receivables offset by 3.4 million reduction in inventory.

Speaker #4: Reduction of cash and cash equivalent of 1.8 million and reduction of 0.7 million in intangible assets. Total liabilities as of June 30, 2024, were 34.7 million, compared to 35.1 million on December 31, 2023.

Speaker #4: A decrease of 0.4 million or 1.1%. The decrease was mainly due to the agreement cancellation of 6.8 million of which mainly attributed to a decrease in put option liability in the amount of 2 million a decrease in purchase consideration payable in the amount of 2.2 million a decrease of 1.6 million in trade payables a decrease of 0.4 million in lease liabilities and a decrease of 0.3 million in deferred tax liability.

Speaker #4: In addition to revocation agreement effect, there is a total liabilities increase of 6.4 million, mainly due to increase of 6.2 million in trade payables offset by a 1.7 million reduction in other accounts payable.

Speaker #4: The company is planning to finance its operation from an existing and future working capital resources as well as from its available credit facilities and will continue to evaluate additional sources of capital and financing as needed.

Speaker #4: I would now like to turn the call back to Oren for closing remarks. Oren, thank you. This quarter was impacted by the clearing of all growth materials and the accruals of slow-moving stock.

Speaker #4: That said, we clearly see the impact of the legalization has had on our German business. We were well positioned to take advantage of the growing market delivering 200% increase in sales in Q2 versus Q1.

Speaker #4: We are actively making sure that we are allocating the resources and support the German business needs to deliver further accelerated growth. I will now end the call over to the operator to begin our question-and-answer session.

Speaker #4: Operator, thank you, Oren. If you would like to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced.

Speaker #4: I repeat, in order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced.

Speaker #4: Our first question is from Scott Fortune from Roth. Scott, please go ahead.

Speaker #1: Yes, thank you and thank you for the questions. Oren, just wanted to provide a little color on additional sourcing of supply for the German market as that seems to be the bottleneck there.

Speaker #1: You're well positioned with infrastructure and allocated resources to support that, but Canvas is being sold through the pharmacies and what are you seeing as far as new pharmacies coming on board?

Speaker #1: There's 2 to 3 thousand pharmacies that offer Canvas of the 18,000, but just your keys to IMCC brands getting into the pharmacy and looking are the pharmacies looking for a certain supply amounts?

Speaker #1: Just kind of touch base on the supply bottleneck and how you guys are addressing access and more sourcing of supply.

Speaker #2: Okay, thank you for the question, Scott. I do agree with you. The supply is the key to the in Germany. And luckily, we have our own sources of supply.

Speaker #2: And once the legalization has started, we increased the quantities that we are ordering to Germany. And I think that we can see that in our results in Q2.

Speaker #2: And we will get more supply from our current suppliers concurrently. We will come with more suppliers to the market. In Q3, we will start to have sales from Israel product supply from Israel we will start to sell it in Germany.

Speaker #2: And that's a complete new channel and the Israeli market is our market. We're based here. It's very easy for us to come with the supply from Israel.

Speaker #2: There is access of supply today in the Israeli market. So we believe that it can be a very good and unique channel we want to be alone, obviously, but we are the only Israeli with the operations today in Germany.

Speaker #2: And beside that, we are we will come also with the premium and ultra premium I think that we announced that we are going to launch black market in Germany.

Speaker #2: We have exclusive agreement for the German and the Swiss market. So we are working very hard on adding more supply. And we will start to see soon more supply in the German market.

Speaker #2: So it's something that is coming now to the market.

Speaker #1: Great. Follow up on that, the supply that you're sending from Israel is that going to take down different supply and selling opportunities in Israel or this additional supply?

Speaker #1: And just follow up on that as far as the German market's concerned, right? You have private payers now. You mentioned you're getting into that premium segment, but this has been more of a mid-market kind of the supply agreements you've been selling agreeing to is kind of serving that mid-market.

Speaker #1: Just kind of point us towards the trends in Germany and where the different categories that you're selling into in Germany side.

Speaker #2: Okay. Okay. Well, it's a good question. So there is a difference, big difference between the markets. In Israel, we are focusing on the premium and ultra premium segment.

Speaker #2: And most of it we are importing from Canada today. In Germany, we believe that most of the market will be mid to low. So in Germany, our strategy is to focus on the mid-market, but we're going to have full the full spectrum of the products, starting from ultra premium down to, I would say, mid, low.

Speaker #2: And so it's different approach in the markets. When I spoke about the Israeli market, I meant mid-market products from other Israeli growers that we are buying in Israel and selling in Germany.

Speaker #1: Got it. That's helpful. So and last question for me is are you needed obviously, you're shifting a lot of resources, allocating that towards the German market.

Speaker #1: And just kind of step us through the infrastructure in place, but additional cash outlays needed to kind of support that market. Getting in front of the prescribing doctors or working with the pharmacies, just kind of an idea of where the resources are needed to continue to kind of grow pretty exponentially in the German market.

Speaker #2: So I think that definitely supply is number one. Issue today in Germany. If we're speaking about the channels today, the channels is pharmacies, that's the main point of contact.

Speaker #2: And we see like you said, increasing the number of pharmacies, more competition, more players. For us, the main focus, like I said, is the supply.

Speaker #2: We feel very comfortable with the market and with the our ability to 2019. So we are well established in the market. It's more about being bringing the right products in the right pricing.

Speaker #2: And I think that we understand very well the market. We are very experienced in that. Regarding the ability to support the operation and the import with the cash flow, we have a projection we see that we can support the import.

Speaker #2: It's much easier to do it now. We see the growth in the market. It's becoming profitable business. So I don't think that that will be what will hold us from growing and to keep the growth in the German market.

Speaker #1: Got it. I appreciate the color and I'll jump back in the queue.

Speaker #3: Okay. And our next question is from Aaron Gray from Alliance. Aaron, please go ahead.

Speaker #4: Hi, good morning, and thank you for the questions here. So I want to piggyback off what Scott was just speaking towards with Germany. So you guys seem to have outperformed in Germany certainly in terms of a percentage basis, but even on some potential absolute dollars versus some others that we've heard from the public markets.

Speaker #4: So what would you attribute being key to the success, in your view, given that you're not vertical, right? Would it be more so your relationships with doctors, communications with patients, maybe some detail in terms of your go-to-market strategy to what drove such that strong growth quarter over quarter there?

Speaker #4: Thank you.

Speaker #2: Okay. Good morning, Aaron. Thank you for the question. So like I said, we are well established in the market. We have a familiar brand.

Speaker #2: In 2023, we had the number one selling SKU in the market. We are number six between the distributors and the more than 60 distributors in Germany.

Speaker #2: So we are well positioned. And with the legalization like I mentioned, we worked immediately on adding more supply. So we started to get more supply that we could sell.

Speaker #2: And that's one of the reasons that we grew more than the others. And that's from the beginning, it was a strategic target for us to get more supply.

Speaker #2: And that's the focus. And that's the main reason because we have a good reputation in the market. So for us, it's mainly, like I said, about the supply.

Speaker #2: Regarding the market presence and market access, I feel very comfortable. We have very good relationship with the pharmacies and we have the support. We have the support from the cannabis community in Germany.

Speaker #2: Which is very important because we work very tight with the influencers who are well connected in the community. So I think that it's a result of a few years of hard working.

Speaker #4: Okay. Great. I appreciate that color, there, Aaron. Second question for me, just on the gross margin. You guys had some callouts there in terms of some inventory clearance.

Speaker #4: And some accrual for some moving inventory looks like X those impacts would have been around 18%. Just want to get some color in terms of the go-forward gross margin, how that's looking particularly if any of this change in having to source material for Germany.

Speaker #4: Might have some impact on the gross margins going forward depending on the cost of that. Thank you.

Speaker #2: Okay. So thank you. It's true. Our gross margin reduced significantly because of the inventory right.

Speaker #1: Clearance and the accrual, yeah.

Speaker #2: Yeah. So first of all, it happened in Israel, not in Germany. We don't have any access stock in Germany. Whatever we have, we are selling.

Speaker #2: It's part of it, it's connected or mainly connected to the change that we said that we are doing, that we are focusing on the premium and ultra-premium.

Speaker #2: We understand that the other segments of the market are not the right segments. So it's part of this process. And looking forward, we still have stock.

Speaker #2: We will continue and check the stock all the time to see what is sellable and what is not. I don't see a situation now with the premium products that we are bringing that we are stuck with product.

Speaker #2: We have more demand than what we are bringing. And in Germany, the situation is that whatever we can bring, we are selling. We know what we are bringing.

Speaker #2: So it's part of the change, that the company is going through. And but I think that beside that, we have a healthy gross margin.

Speaker #1: Yeah. Yeah. We can look basically on the gross margin this quarter. Is that we cleaned some of the, let's call it, we acted in a conservative way.

Speaker #1: We accrual for inventory that we are not sure that we will be able to fully sell. And we made everything right in order for our books, our financials to represent the current status of the company.

Speaker #1: And basically, after those cleanings and since we are monitoring it very closely, on a quarterly basis, we believe that the gross margin in the upcoming quarters will not look the way it looks right now.

Speaker #1: This quarter is not a representative quarter. That you can check the operation accordingly.

Speaker #4: Okay. Got it. Thanks for the color there. I'll jump back in the queue.

Speaker #3: If you would like to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced.

Speaker #3: Okay. We have the next question from Scott Fortune. Scott, please go ahead. Scott? Can you unmute?

Speaker #1: Yes. Sorry. Sorry about that. Just a follow-up on gross margins and how you're viewing the German market as far as the margin side of things.

Speaker #1: Offset by obviously the Israel side. Just kind of a little bit of color. On the margin cadence that's going on in Germany for your business right now.

Speaker #2: Okay. So we have good gross margin in Germany today.

Speaker #1: 40%.

Speaker #2: We are about 40% this quarter in Germany. I think that it's I think that it's very early to predict what will be in the German market regarding price pressure, when it will happen, if it will happen.

Speaker #2: It's still a very early stage in the market. I believe that at some stage we will see a price compression in Germany. Anyway, we are getting ready for that because we've seen it in other markets.

Speaker #2: And I believe that everything will be faster in Germany. This is what we have seen until now. So we are getting ready for price compression as of now.

Speaker #2: We have good gross margins in Germany. And like we said, in Israel, we think that the change that we are doing will be affect we will see the effect also in increased gross margin.

Speaker #2: How fast it will happen, if it will be next quarter, in two quarters, or three quarters, I don't want to say anything now. But that's the time frame in my opinion.

Speaker #1: I appreciate the follow-up. Thanks.

Speaker #3: Next question from Aaron Gray. Aaron, please go ahead.

Speaker #4: Yeah. Apologies. I was just a legacy from prior. I didn't have any additional questions. Thank you.

Speaker #3: Okay. I don't think we have any further questions. If anyone would like to ask a question, please raise your hand. Okay. Oren, I don't think we have further questions.

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