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spk06: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Cleverleaf's financial results for the fourth quarter and full year ended December 31st, 2021. Joining us today are Cleverleaf's chairman and CEO, Kyle Detweiler, the company's president and incoming CEO, Andres Fajardo, and the company's CFO, Hank Haag. Before I introduce Kyle, I remind you that during today's call, including the question and answer session, statements that are not historical facts, including any projections or guidance, statements regarding future events or future financial performance or statements of intent or belief, are forward-looking statements and are covered by the safe harbor disclaimers contained in today's press release and the company's public filings with the SEC. Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. Specifically, please refer to the company's Form 10-K for the year ended December 31st, 2021, which was filed prior to this call, as well as other filings made by Cleverleads with the SEC from time to time. These filings identify factors that could cause results to differ materially from those forward-looking to one. Please also note that during this call, management will be disclosing adjusted EBITDA, adjusted gross profit, and adjusted gross margin. These are non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures and a statement disclosing the reasons why company management believes that adjusted EBITDA, adjusted gross profit, and adjusted gross margin provide useful information to investors regarding the company's financial condition and results of operations are included in today's press release that is posted on the company's website. With that, I will turn the call over to Kyle.
spk03: Thank you, Cody, and good afternoon, everyone. With today marking my last day with Cleverleafs, I wanted to begin today's call by thanking our entire team and our shareholders for their support of this company. It's been a true privilege to serve alongside such a talented team over the past seven years, including navigating our first year as a public company. Having worked with Andres for more than half a decade, I know he will continue working to build upon the momentum in our core markets and leverage the robust infrastructure we have put in place across our production footprint. I am proud to be leading the company in such capable hands and to welcome him to the call today to walk you through the details of Cleverly's progress over the past year, as well as the company's vision for 2022. Andres, over to you.
spk08: Thank you, Kyle.
spk02: It is a pleasure to be joining you on today's call, which marked my first time speaking with you as Cleverly's incoming CEO. I have been with the company since I co-founded it back in 2016, and I have served as its president since 2019. I held a variety of leadership positions within the company before then, carefully overseeing the robust and efficient foundation we have since built in Colombia. Over the past six years, we have quite literally built the business from the ground up, from establishing our cannabis production footprint in Colombia, and now in Portugal, to gaining important footholds in key cannabis markets around the world. I am honored to transition to the role of CEO at such an important time in the company's history. As our fourth quarter results demonstrate, we are making progress on our strategic objectives. We delivered year-over-year revenue growth and maintained our approach to cost management. During the year, our cannabinoid revenues have increased, proving that the commercial inroads we've established in our key markets are slowly beginning to activate. Our progress towards our long-term vision is gradual, yet steady, and I believe we are positioned to maintain our momentum in the years ahead. 2021, our first year as a public company, was about extending our operational footprint and setting the foundation for our commercial pipeline. As a complement to our operations in Colombia, we worked to ramp our Portugal operations and expand our capacity to serve the flower market. After we completed the construction of a Portuguese cultivation expansion in the third quarter, we received a license from the Portuguese Regulatory Health Authority, Infarmed, IEP, for the newly expanded facilities in December. Production in the new cultivation facility began shortly thereafter, with the first commercial production expected to be market-ready as early as the second quarter of 2022. The last major capital project is our new post-harvest facility in Portugal, which we expect to be operational by the end of 2022, and for which we are also pursuing EU GMP 31. Finishing the construction and the cultivation expansion and post-harvest facility in Portugal not only allows us to progress our ramp up in the country, but also marks the near completion of a CAPEX cycle, positioning us to move forward into our next phase of growth with lower CAPEX going forward. Importantly, we're entering 2022 with a more focused strategy as we aim to strengthen our commercial piping and revenues while working to capture organizational efficiencies. We have determined that the best investments of our time and resources will be to align our commercial efforts on a select set of markets that have nearer-term catalysts for our business, namely Australia, Germany, Brazil, Israel, and the United States. In addition, and because of the recent regulatory changes in Colombia to allow for the export of smokable cannabis flour, we will focus on developing the commercial contracts, the product, and the regulatory pathways for Colombian flours. We believe that our strategy will enhance our ability to grow while generating organizational efficiency. In Australia, we aim to capitalize on the area traction we've generated by expanding our flower sales, as well as scaling and securing additional extract sale agreements. As you may recall, we sent our first commercial flower shipment to this market in June 2021 as part of our partnership with IDT Australia, and we have already closed several agreements with partners there, as publicly announced in recent months. In Germany, we're focusing on three areas. First, we will work to expand our presence in the market through our Itana flour brand. Following our successful soft launch last quarter, we have confidence in both the product market fit for our flour brand and our commercial capabilities. Second, we aim to grow our product sales through our extract B2B partnerships. And third, we will work to activate our import path for flour from our Portugal operation for commercialization through our B2B partners. In Brazil, we expect to supply products that have recently received regulatory approval and to obtain regulatory approval for other key products. We believe the commercial agreements we have entered into, the product approvals we've obtained, and the overall market potential will make Brazil one of the company's most important drivers of growth in 2021. In Israel, we're looking to increase our presence within this large cannabis market through scaling our existing relationships for active pharmaceutical ingredients, or APIs, and working to capitalize on our recently announced long-term strategic partnership for flour. Having successfully navigated evolving quality standards in this market last year, we've proved that we have the adaptability and commitment to quality to continue building on our early progress. In the United States, we announced the launch of our CBD brand, Joysol, in January of this year. Joysol is produced by herbal brands, offering CBD in the forms of easy-to-use oil, drop blends, gummies, and topicals that comprise a CBD daily care system. This offering targets new and early CBD adopters at an accessible price point, and we will continue working to leverage herbal brands' distribution network, expanding product visibility and brand awareness. We will also work to continue supporting the overall momentum in our herbal brands business. Finally, in Colombia, we will continue to prepare for our first flower sales as a result of the national government's recent passage of the regulations around flower exports. We believe we are well positioned to leverage our existing customer relationships, our GACP and EU GMP certifications for dried flowers, and as well as capitalizing on our experience navigating the nuances of selling flour from our Portuguese operations to increase our presence in the global smokable flour cannabis market. In terms of our governance and leadership, we have continued to benefit from the expertise of our board and executive team as we transition into this next phase of growth. As we announced at the beginning of February, we appointed George Schulze, the founder and managing member of Schulze Asset Management, to our board of directors and audit committee. George brings over 25 years of experience in the investment industry, and we are pleased to welcome him to the board as we aim to further activate our commercial pipeline and enhance shareholder value. I would like to also thank my predecessor, Kyle Deadweiler, for the contributions that he has made to this company over the years. especially through his leadership as CEO during our first year as a public company. This leadership transition is the culmination of a succession planning process that our board and Kyle have worked on together, and we wish him all the best in his next chapter. Following Kyle's departure, Artemis Growth Partners co-founder and managing partner, Will Muecke, will be joining our board of directors with appointments to both our compensation committee and our nominating and governance committee. With Will's extensive experience in corporate finance, cannabis, healthcare, and ESG, he brings a welcome and seasoned perspective to our company as we continue advancing our progress on our refined growth objectives. As a co-founder of the company and a true believer in its purpose of bringing the benefits of cannabis to patients around the world, I have seen how far we have come in building our production footprint and our commercial pipelines. I believe that we have the right team, clients, products, and assets to lead Cleverleaf into the next phase of growth in 2021. We have already made meaningful progress on the strategic objectives I just summarized, but before I provide further details on these, I'd like to turn the call over to our CFO, Hank Haidt, to provide more details on our financial performance for the fourth quarter and full year.
spk08: Hank, over to you. Thank you, Andres.
spk05: Starting with our quarterly results, revenue in the fourth quarter of 2021 increased 25% to $4.2 million compared to $3.3 million in the year-ago period. This increase was primarily driven by sustained sales strength in our nutraceutical herbal brands business, which has made a steady recovery from the lows of the pandemic in 2020. As Andres mentioned earlier, We have driven year-over-year growth in our cannabinoid revenues, which increased 11% to $1.1 million compared to $1 million. While we continue to experience lumpiness in our sales cycle due to the many regulatory and quality checks involved in our production and export process, our ability to adhere to these evolving standards ensures that we maintain our pharmaceutical-grade quality across our operations. Our all-in cost per gram of dry flour in the fourth quarter of 2021 was 47 cents per gram, compared to 15 cents per gram in the year-ago period. The increase was driven by production costs associated with ramping our early-stage operations in Portugal, offset by efficiencies we are driving in our Colombian operations. Within our extended production capacity in Portugal, now online and licensed, we expect some quarter-to-quarter choppiness in our consolidated cost per gram as we manage the costs associated with ramping this additional capacity. However, as our Portugal operations gradually become more mature, we expect our unit costs to drop over the longer term as we capture economies of scale. Our gross profits including the inventory write-down of $3 million during the fourth quarter of 2021, was a loss of $0.3 million compared to $2.3 million in the year-ago period. Gross margin, including inventory write-down, was negative 6.9% compared to 67.9% in the year-ago period. For the fourth quarter, And going forward, we will be reporting an adjusted gross profit figure to adjust for inventory write-down that was previously classified in SG&A and is now classified separately within cost of goods sold to highlight the impact on gross profit. That said, the company recorded a $2.7 million and $0.3 million inventory write-down in our cannabinoid and non-cannabinoid segments, respectively, for obsolete and unsaleable inventory. Adjusted gross profit, which excludes the inventory write-down in the fourth quarter of 2021, was flat at $2.7 million compared to $2.7 million in the year-ago period. The adjusted gross margin was 64.1%, compared to 79.8% in the year-ago period. While we have maintained strong growth within our nutraceutical business, we are still navigating pandemic-related impacts around wage pressure, rising transportation costs, and the availability of both labor and materials. These factors constrained our margins this quarter and will likely continue to affect our margins over the coming quarters. And we will closely monitor both these impacts and the longer-term effects of our current labor and supply chain conditions more broadly. Operating expenses in the fourth quarter of 2021 were $11.4 million compared to $9.6 million for the same period in 2020, excluding the impact of an $18.5 million non-cash goodwill impairment related to our acquisition of our Columbia operations in November of 2019. The charge was triggered due to certain impairment indicators present during the fourth quarter of 2021, primarily related to the decline in forecasted revenues and decline in our share price one. The increase in operating expenses during the fourth quarter was primarily driven by higher non-cash share-based compensation expenses, which grew to approximately $3.3 million compared to $0.5 million in the year-ago period, as well as insurance and professional fees related to being a public company partially offset by cost-cutting measures. Net loss in the fourth quarter of 2021 was $24 million, compared to a net loss of $0.9 million for the same period in 2020. This was driven by higher non-cash goodwill impairment charge, higher non-cash share-based compensation expenses, higher inventory write-down, higher public company expenses, and non-cash interest expense recognized in connection with the conversion feature related to our convertible note due 2024 with Catalina LP, partially offset by the $11.5 million gain on the measurement of warrant liability and continued cost-cutting measures. Adjusted EBITDA in the fourth quarter of 2021 was negative $7.8 million compared to negative $6.3 million in the year-ago period. The decrease was mainly attributable to public company expenses and higher inventory write-downs. At December 31, 2021, our cash balance was $37.7 million compared to $79.5 million at December 31, 2020, with the decrease primarily attributable to our operating losses in capital investments, partially offset by increased borrowings and proceeds from public warrants exercised during the year. Now briefly turning to our full-year results. Revenue in 2021 increased 27% to $15.4 million compared to $12.1 million in 2020. This increase was primarily driven by strong sales and recovery trends within our nutraceutical business, as well as growth in our cannabinoid revenues that we drove throughout the year. For 2021, cannabinoid revenue increased 29% to 3.2 million compared to 2.5 million. Our all-in cost per gram of dry flour in 2021 was 22 cents per gram compared to 14 cents per gram in 2020. The increase was largely driven by production costs associated with ramping our early-stage production operations in Portugal, though offset by the efficiencies we are driving in our Colombian operations. Gross profit was $6.8 million compared to $7.4 million in 2020, with a gross margin of 44.3% compared to 61.2% in 2020. The declining gross profit is attributable to higher inventory write-down, labor, and supply chain-related cost impacts within the non-cannabinoid segment, offset by aforementioned revenue growth across both segments of the business. Adjusted gross profit increased 25% to $9.8 million compared to $7.8 million in 2020, reflecting a 63.7 adjusted gross margin compared to 64.5% in the year-ago period. Operating expenses in 2021 were $45.5 million compared to $34.3 million in 2020, excluding the impact of the $18.5 million non-cash goodwill impairment related to the acquisition of our Columbia operations in November 2019, and excluding the impact of the $1.7 million non-cash goodwill impairment charge we recorded in the first quarter of 2020 related to our herbal brand acquisition in the non-cannabinoid segment. The increase in operating expenses in 2021 was attributable to increased non-cash share-based compensation expenses which grew to $11.5 million compared to $1.7 million in 2020, as well as insurance and professional fees related to being a public company partially offset by continued cost-cutting measures. Net loss in 2021 was $45.7 million compared to a net loss of $25.9 million in 2020. This was primarily driven by higher non-cash goodwill impairment charge, higher non-cash share-based compensation expense, higher inventory write-down, higher public company expenses, and non-cash interest expense recognized in connection with the conversion feature related to the 2024 convertible note, partially offset by the $16.9 million gain on new measurement of warrant liability and continued cost-cutting measures. Adjusted EBITDA in 2021 was negative $24.9 million compared to negative $23.3 million in 2020. The decrease was mainly driven by public company expenses. To briefly discuss some of our recent financial updates subsequent to the fourth quarter, we entered into a first amendment of our secured convertible note with Catalina LP on January 13th. Under the amended terms, Catalina may elect to receive cash repayments for approximately $7 million of principal and accrued interest if the closing price per common share of our stock is below $2.20. on any 10 out of the previous 20 trading days. The amendment also modifies the optional redemption price at which Catalina may elect to redeem the principal into our common shares to be greater of 220 or an 8% discount to the four-day VWAP on each of the three days prior to and including the date of the optional redemption notice. These terms will remain in place until July 19th of this year. As such, we will provide further updates on our Q1 call, but we are continually evaluating both our current financing arrangements and other options to strengthen our balance sheet. We also filed a $100 million shelf registration statement with the SEC on January 14, 2022, which included an at-the-market offering perspective supplement. Through March 2022, the company has issued and sold 2.8 million shares pursuant to the ATM offering for aggregate net proceeds of 3.3 million and in the future may issue additional shares. We expect to use the proceeds of these sales for the repayment of debt and for general working capital purposes. As we move further into 2022, The operational and financial progress we have made throughout the past year demonstrates our continued execution on our key growth drivers. Our success with securing new partnerships, reaching the Pathfinder shipment stage within existing agreements, and evolving towards repeated and scaled commercial shipments in 2021 has positioned us to continue meaningfully advancing these efforts in the year ahead. Accordingly, The six strategic growth objectives and key regions of focus that Andres introduced for this year will support our full year 2022 financial targets, which we introduced in our preliminary results announcement on February 9th. As a reminder, we continue to expect our full year 2022 revenue to range between $20 million to $25 million. with an expected adjusted gross margin of approximately 50% to 55%. This revenue range reflects an estimated increase in cannabinoid revenue of between two times and five times 2021 cannabinoid revenue as we drive further progress in our core 2022 market. Our gross profit range reflects this expected growth while also taking into account the production costs associated with scaling our Portugal operations, as well as continued supply chain and labor-related costs in our herbal brands business. We also expect our full-year 2022 adjusted EBITDA to range between negative 23 million to negative 20 million, and we expect our annual capital expenditures to be approximately $2 million to $3 million, representing a 60% to 70% reduction, respectively, relative to our full year 2021 CapEx. As Andres previously discussed, completing construction on our Portugal production expansion marks the virtual completion of our CapEx cycle. so the $2 million to $3 million range represents more of a maintenance-level annual run rate. We will continue to focus on generating cash through reducing both our expenses and working capital. That said, we believe we are positioned to benefit from the completion of the capital intensive phase of our growth by focusing on gaining commercial contracts in 2022. This concludes my prepared remarks. I'll turn the call back over to Andres.
spk08: Andres? Thank you, Hank.
spk02: To continue the thread of our 2022 growth targets, the key global markets I discussed at the beginning of the call represent our core regions and business areas of focus for 2022. Before we open up the call to questions, I'd like to spend some time reviewing our recent progress in each of these areas. In Australia, we announced two agreements last month that we believe are examples of how we intend to deepen our presence within this market and expand the portfolio of products we export there. In mid-February, we expanded our existing relationship with Canatrack into a two-year, 3.6 million taker-pay basis supply agreement that includes high THC flour from Portugal. Canatrack was the first organization to import Cleverleaf's CBD oil solutions to the Australian market back in 2020, and we have been supplying various 10% and 20% CBD oral solutions to CanTrek from Colombia ever since. We are now positioned to provide them with one strain of high THC flour, complementing our oral solutions offering, and expect the flour to be sold and distributed through Australia's medical cannabis prescription pathway. We believe this expanded take-or-pay supply agreement will allow greater patient access to critical cannabis products in Australia, and we are pleased to provide additional support to this long-time partner as we strengthen our prospective positions in the rapidly growing medicinal cannabis market. We further advanced our progress in Australia with the four-year take-or-pay supply agreement we announced with Australian Natural Therapeutics Group, or ANTG, a leading Australian medicinal cannabis company. Under the terms of the agreement, we will be supplying CBD isolate and GMP-certified THC crude oil from Colombia and THC flour from Portugal. And ANTG has committed to purchasing a minimum of $7.8 million worth of products. This marks the largest supply agreement Cleverleafs has signed with the Australian Cannabis Company. With patient registrations for medical cannabis on the rise, as well as an increasing focus on local clinical cannabinoid research, the rapid growth of our addressable market in Australia presents a strong opportunity for us as we seek to build upon our early commercial progress in the region. We have also made commercial strides in Germany in this first few months of 2022. In January, we launched our first Aitana flower products with positive results. The first batch of products was well received and we have seen repurchases by pharmacies across the country, with patients providing positive feedback on the Eikana flower. During 2022, we expect to launch additional flower products, carefully selected to target specific needs. In February, we announced that we had imported our commercial extracts for distribution through Etifarm, a European specialty pharmaceutical company with a strong focus on the central nervous system, a key therapeutic area for medical candidates, that has been a CleverLeaks partner since last year. These extracts comply with Germany's demanding quality standards, and the importation makes us one of the first to successfully complete a commercial shipment of Colombian-manufactured high-CBD pharmaceutical products to Germany, where these products were subsequently released into the market as pharmaceutical products and are now available for patients in pharmacies under prescriptions. Our agility to navigate Germany's complex regulatory and quality standards reflects our team's deep knowledge of the market and commitment to strict compliance with both EU GMP and German Pharmacopoeia standards. Through collaborating with a seasoned pharmaceutical like Ethifarm, we believe we're solidifying our foothold in the German extract market. In a similar vein, we also expanded our partnership with CanSativa, a German cannabis distributor and wholesaler in which we have owned a minority stake since December 2018. In connection with CanSativa's Series B capital raise, led by a 15 million investment from Casa Verde Capital, Cleverleaf entered into a three-year supply agreement in which CanSativa will purchase a minimum of 2 million euro or approximately 2.2 million dollars of high THC cannabis flower. We expect this agreement to be initiated near the end of this year, contingent upon Cleverleaf receiving EU GMP certification in our Portuguese facility, as well as other closing conditions. We also sold a portion of our minority stake in the business in concert with CanSativa's GSB capital raise, reducing our ownership to approximately 9% and generating over €2 million, or approximately $2.2 million, of additional liquidity and non-dilutive capital for cleverness. CanSativa holds national exclusivity for distributing all domestically produced cannabis in Germany, making this relationship an important avenue for expanding a product's distribution within the market. At the beginning of this month, we also announced a one-year international sales agreement with German Columbian medical cannabis and wellness operator Volumet Holdings, as well as its German manufacturing partner Fidelio Healthcare. Fidelio will have access to three of our pharmaceutical-grade bulked cannabis extracts and will use this to create gel capsules for their customers. As a large EU-GMP-compliant producer worldwide that manufactures soft-shells for prescription medicine, Fidelio is another strong relationship for us as we leverage our production capabilities in Colombia to expand our market penetration throughout the geographies Fidelio serves. We will work to maintain the strong commercial momentum we are generating in Germany and are proud of the progress we have driven in this early month of 2022. Turning to Israel, we recently announced a comprehensive, global, multi-year strategic partnership with Intercure, a leader in the cannabis industry within the country. We expect this partnership to provide growth in the short term as Intercure will have access to clever leaves, high THC medical cannabis flower to serve several medical cannabis markets. In addition, we will cultivate Intercure's high-quality strains, looking to enable Intercure to launch them as EU GMP-compliant branded products within the EU, UK, and South American markets as regulation evolves. This agreement will also allow both companies to work together on new product development that will allow us to reach global patients jointly. In Israel, we have also solidified our commercial agreements for APIs that are already being used in one of the fastest-growing non-flour product lines in the country. In Brazil, two of our products have already been approved by Anvisa, the national regulatory agency under RDC 327, the local regulatory framework for cannabis products. These and other pending approvals represent the culmination of a multi-year regulatory process, and having these confirmations complete have allowed our existing commercial relationships to evolve from joint regulatory and technical work with our clients into revenue-generating partnerships expected to last multiple years. While our products are already in the market via the Compassionate Use Regulation, we expect our recently approved products under RDC-327 to be available in the market as soon as Q2 of 2022. In the United States, as I mentioned before, we commercially launched our first CBD brand, Joiso, in January 2022, which is one of our key operational goals this year. We believe our comprehensive approach to JOISO will unlock the CBD category and expand beyond the early adopters into the mass market. In pursuit of this, we are following a three-dimensional approach. First, our product development is focused on the use of CBD, other minor cannabinoids, and terpenes in our formulations. Second, our go-to-market model combines both direct-to-consumer as well as retail channels for which we will leverage our extensive distribution network to the extent possible. Third, our pricing strategy pursues affordability for the mass market. Beyond CBD, we're working to grow our nutraceutical business by increasing distribution into new clients and expanding penetration of our different SKUs into existing customers while we actively manage pressure and cost driven mainly by labor and transportation. Finally, to provide the latest update on Colombia and the next phases of the country's approval of dried flower exports, the Colombian government recently passed Regulation 277, which implements the legal provisions surrounding the initial decree issued by President Duque last July. These provisions allow us and our peers to start producing flower for commercial sales, or reappropriate flower previously grown for extract sales for export in a dried flower form. They also allow us to pursue further commercial activities around CBD-based products. While we are still awaiting passage of the Supplementary Technical Commercial Guidelines, our existing EU GMP certification for dried flower places us in a strong position to fulfill the existing provisions and expand our flower capacity and offerings. for new and prospective B2B clients beyond our rampant flower production in Portugal. We continue to prepare Colombian operations for dried flower production and are making strong progress on this front, leveraging the learnings we've already gleaned from our flower production and sales in Portugal. Pending the passage of the commercial guidelines I just mentioned, we are currently on track to commence our first dried flower exports in Q4 of this year. As these initial announcements demonstrate, we are off to a strong start with building upon the solid commercial and financial foundation we established for our business and continuing to grow our cannabinoid sales through 2022. Based on current trends, I believe we are on track for a strong first quarter performance and we will work to maintain the early momentum we are generating across our six key strategic goals and focus regions. The regulatory, quality, and operational insights we've gained within our core markets have given our teams greater focus and know-how for driving progress in our current partnerships and pursuing additional business development opportunities. Combined with our prudent cost control and focus on maintaining our operational efficiency, I believe we are well positioned to drive progress on our strategy throughout the year. I am proud of our team's commitment to deepening our commercial footprint and strengthening our overall presence with the global cannabinoid supply chain.
spk08: Our operator will now open up the call for Q&A.
spk07: Thank you, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. Our first question comes from the line of Vivian Azar with Cowen and Company. Please proceed with your question.
spk04: Hi, this is Victor Ma on for Vivian Azar, actually. Andres, you and Cowen have been partners for several years, and you bring with you many years of experience in industry. And over the time, you know, you've seen a lot of change in the global landscape, both in terms of the timing of regulation changes and just where the competitive landscape is focused, namely in Canada. So given all of that, we're hoping if you could start by giving your perspective on what changes you've observed that has, you know, been favorable for your operating model and what changes have prompted you to evolve your strategy.
spk08: Thanks.
spk02: Thank you very much for the question. And in effect, Kyle and I have been around the international industry mostly for over five, six years now. And certainly there have been some positive developments. I would say regulation has not only passed in key geographies for us, again, Australia, Brazil, Germany, But beyond that, it's getting steady. So it's not only past, but it's getting steady. Governments are understanding how this works, how the products have to flow. So that's basically a much stronger, much well-defined, I shall say, regulatory framework really helps companies like us because we will know exactly what we need to do to get the product from one place to the other. I would say number two, the product requirements have changed significantly. So while this today I think is a clear competitive advantage for Cleverleafs as we really understand our markets and we really know both in flowers and extract what each market is looking for, I would say during the evolution of time, it wasn't clear. It was ever changing, both from a technical perspective as well as from a market needs and likes perspective. But now I would say it's a lot more stable. And again, we built that competitive advantage. I would say, you know, the other thing we've noticed is that the beginning, many companies thought it was going to be very fast and very easy, you know, simply to enter the international cannabis business. But the reality is it requires time, it requires quality, it requires investment. But now I believe, you know, that the tide's changing. You know, one of the things we've learned that has actually shaped our strategy is the importance of focus. we're now focusing on five key geographies, as we've mentioned. So we have Australia, we have Germany, we have Brazil, we have Israel, the United States, and that's where we're focused. Why is that so important? Because we need to work on our commercial, you know, capabilities, our commercial agreements. We have to know clients in each of these geographies. We also have to work on the product because the technical requirements and what the market likes, for example, in terms of flour is very different among the markets. And third, the regulatory pathways are complex and are very different. I would say But one of the things we learned is when you try to, you know, have a very ample, let's say, geographic coverage, you might lose the risk of losing effectiveness in each of those geographies. And hence, Cleverleaf has decided to focus its strategy to be able to be much more effective on the revenue side of things, but again, at the same time, much more efficient on the cost side of things.
spk04: Great. Thank you for that call, Andres. And just one more, if I can. I just wanted to follow up on the announced partnership with Endicure. I know that was part of the remarks, but in terms of the timing of the transaction to an adult-use market in Israel is still – sorry, timing the transition to an adult-use market in Israel is still pretty fluid, and it's great that you're partnering with the market share leader in that medical market. But could you touch upon kind of how the supply agreement complements other deals that Endicure has with some of the other operators such as Toray, you know, are there like volume implications allocation in place or is this more of a market opportunity? And if you win with this, with this agreement delivering a white label product to intercure, does that in turn impact their portfolio mix?
spk02: Yeah, I would say that more than a supplier agreement, we see this as a real, you know, strategic partnership because it has several elements to it. Number one, you know, Entercure will have access, you know, to flour that we produce in our different, you know, production facilities in Portugal and Colombia. And that will certainly help broaden their portfolio in Israel, help, you know, them solidify their presence over there. And frankly, for us, it's working with a marquee partner to enter the Israeli flour market. So as you said, the market leaders have wide distribution So from that standpoint itself, it provides a very significant opportunity for our very wide portfolio, which, as I mentioned, is produced in Portugal and Colombia. That's number one. But I would say we're looking at the strategic partnership beyond that. We're looking at this as a way for us to work together so that we can help intercure in their internationalization process beyond Israel. How can we be that partner that helps them really take the great success they've had in their own country and take it beyond their own geography. So that's another key element. And I would say lastly, it combines a very tight technical and genetics and in general, a capability sharing and capability co-building that is very, very beneficial for both companies, right, as we look to enter Israel and as we look to help. Thank you.
spk08: secure both in Israel and beyond. Understood. Thank you for the call. I'll turn back to you.
spk07: Our next question comes from the line of Bobby Burleson with Canaccord. Please proceed with your question.
spk09: Hi, thanks for taking my questions. So I guess the first one is just, you know, if we understand that kind of three and a half times growth for your THC business, actually, in 2022 guidance?
spk08: First of all, that THC, is that all cannabinoid? I want to clarify that. Sorry. Sorry. Can you repeat the question?
spk02: My connection got lost just for one second.
spk09: Okay. So, the cannabinoid guidance, the tripling of that. Can we think about that from the perspective of how much existing capacity that uses up? Like what kind of capacity utilization you would expect yourself to be at kind of exiting the year?
spk02: Perfect. So in effect, we are... Thanks for your question. Apologies for the issue with the connection. Our guidance, you know, references a growth in our cannabinoid business of around two to five times. And... And basically, you know, one of the very interesting things where we think we are as a company that we are at the end of our CapEx cycle. You know, at this moment, to be able to reach the revenue, we're going to have sufficient capacity going into 2023, and that would not require significant capacity expansion or CapEx. So while we don't disclose specifically our capacity utilization numbers, what we can say is the current capacity allows us to basically fulfill our 2022 plans as released in our guidance and beyond. I would say that, of course, the philosophy we're assuming, which I think is very important, is we're investing as the market demands a product. So it may happen that if we exceed all of our forecasts and demand is picking up, we have the possibility to very quickly expand both our Portuguese and Colombian operations. But we will not do it unless the demand is there. So absolutely no issue for 2022 or 2023 as we're planning right now. But of course, we're always ready and could very easily trigger expansions on either of those two geographies.
spk09: Okay, and in terms of that kind of chicken and egg dynamic, are some of your prospective customers, before they commit to even larger scale agreements, interested in seeing more capacity put in place? Do they want that guaranteed capacity, or are they largely willing to make large commitments without you guys making that upfront additional investment?
spk02: I would say two or three things. Number one is we are absolutely sure that we can fulfill our customers' agreements with the capacity that we have installed. So that's number one, and that's an assurance. We work with our customers so that they may have that clarity. Number two, remember that, for instance, in Colombia, we have 1.8 million square feet of active cultivation, so that's way sufficient capacity for what we are looking at in terms of the revenue and the potential new product that we sell. In Portugal, we've just expanded last year to 2.4 hectares in our cultivation. We have a brand new post-harvest with the ability to manage significantly more cultivation space. And basically, when our clients go, they see our capacity, they see our facilities, they are right there, and they feel very confident. One, that the capacity is there to serve their contracts, but two, that we have the capacity or the ability to expand very rapidly if required. And they have seen what we did last year in our Portugal operations was very remarkable. We did the expansion very, very swiftly, very high-quality standards, working with all of our vendors as well as with the regulators to be able to get that facility up and running in very short periods of time. So, in general, I would add that our clients at a global level are looking at safe and sound capex, safe and sound cost, something that's actually attractive from their vantage point because that signals to them we're a sustainable company. We're looking to be a sustainable partner in the long term, and that actually is something they find quite appealing.
spk09: Okay, great. Then just maybe one last one with respect. to the Columbian flower export opportunity. You guys are waiting on the final kind of resolution there out of the Columbian government, but curious what kind of qualification timeline would be associated with getting that flower into some of your export markets once exports are approved.
spk02: Yeah, we have announced that we are targeting our first exports of high-quality, reliable, smokable cannabis flower probably for Q4 of this year. And I want to emphasize that because we might end up exporting some flower for extraction or other purposes. But I'd say the big potential for us is really the high THC, smokable cannabis flower. And we believe that to have consistent product going out to our different markets. We're looking at starting that in Q4 of this year. And something that you have to bear in mind is one element is to get the commercial agreements, which I would argue we have in many cases for our Colombian flour. But in addition, there are a couple of other things. One is regulation. You mentioned it. And from a Colombian standpoint, we're very confident that the last resolution is going to be issued soon. Of course, we don't control it, but that's the signal we've been receiving. But then you have to work with the receiving countries. You have to work with the authorities to really, you know, pan down what they're going to require for our flour. You know, and third, it has to do with the product. And, you know, one thing that's very important and we've learned through our Portuguese operation is growing smokable cannabis flour in a very consistent way is not easy. It is something that's very different from growing flower from extraction, which is what Colombian companies have been doing. So we have been working day in, day out to get our product out there, get our THC contents where they need to be, and work on all of those other characteristics of the product, which are of the essence, right? What we call the organoleptic characteristics, which is size of the bud, trimming, the terpenes, the smell, look and feel in general. So We believe we're going to have prime product out in the market again by Q4, and it's more than a matter of regulation or even the commercial contract. It's really getting a product that's sustainably sellable in the market, and that's the product we're aiming for.
spk08: Great. Thank you. Thank you very much.
spk07: And again, as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the Q&A queue. Our next question comes from the line of Pablo Zwanek with Cantor Fitzgerald. Please proceed with your question.
spk01: Yes, thank you. So maybe, Hank, a question for you first. In terms of that guidance of negative EBITDA of minus $20 million to minus $23 million and CAPEX of $2 to $3 million, what does that mean in terms of your usage of the ATM? I'm just wondering, you know, based on the agreement with Catalina and how that can play out, and your financial guidance, should we assume that you will need to make use of the ATM in a sizable way this year? Thanks.
spk05: Pablo, thank you for your question. We're constantly modeling out our cash flow projections and evaluating opportunities to bring in additional capital to improve our balance sheet and improve our liquidity. The ATM facility is a tool that we may use, but it's not the only tool. Thank you.
spk01: Okay, but I'm sorry to maybe insist on the question, but the idea is that when you talk about other alternatives of capital, we are talking about equity, right? So the idea would be that you would need to raise equity sometime during the rest of this year, correct?
spk05: That is correct.
spk01: No, that's good. Thank you. And then maybe also for you, Hank, two to five times on the cannabinoids. I know there's a lot of moving parts, but just maybe walk us through the mechanics of unbundled at two times or five times low-end, high-end. What are the main drivers of whether you hit the low-end or the high-end there?
spk05: Certainly, Pablo. as Andres mentioned during his opening remarks and sections, we have a number of geographies that we are actively engaged in and focusing in on. So Germany is one, Brazil is another, Israel is another. Andres, would you like to add any particular color in there?
spk01: No, I think without, I mean, I'm sorry to interrupt, but maybe the question is more You touched on it in the prior question, right, but you're saying Colombian flour maybe by end of the year. Okay, so that can get you to a five times, I suppose. Portugal flour, maybe when, right? I'm just trying to understand, you know, it's a big, I mean, you're starting from one million, so it can be two to five million, right, compared to Chile, it's still a small number on an annualized basis. But for you, it's a big jump in terms of growth, right? So I'm just trying to unpack, and I know there's many moving parts, right, but I'm just trying to unpack, you know, what are the basics to get you to two million? And what are, you know, the big jumps to get to the $5 million? Thanks.
spk02: Yes, Pablo, let me address that question briefly. I would say, again, there are three elements, you know, as we've really come to understand in the... So I would say that's the first variable. The first question would be, do we have the agreement in place to be able to get to 25 million? And I would say, yes, that's one thing we do have. Now, there are two other key things. Number one, the regulation. And that's really what is one of the main drivers of this variability, right? for, you know, let's take the different countries. I think that's important. Brazil, you know, we have some product registered already on RBC 327. We're navigating through the final processes of actually exporting some of that product and getting it to the market, you know, in Q2, as I mentioned. But again, you know, there are things there that depend on a visa, can be delayed a couple of months, and any delay basically driven by regulation could have an impact. That's, for example, in the case in Brazil. Case Germany, pardon me, Israel, for example, Israel, as you all know, is a regulation that changes relatively swiftly. And changes may delay some of the exports, further requirements, changes to the GACP requirements, to the pesticides, et cetera, which have happened in the past. And we're quite fast at adapting, but it might have an impact on the regulation. And the third key variable is the product. You know, I would say that this year, you know, our flower, I mean, our extras from Colombia have been in the market. We know where they are. We know where they're going. It's pretty predictable from a product perspective. Our flower from Portugal, I would say that we, you know, invested significantly most of last year getting our product up to par, and we have already exported to countries like Australia. We know the patients over there value our product and are seeing it as a very important attractive go-to possibility. We're entering Germany and we will have more of that feedback in the coming weeks and months. And similarly, that's happening with our Portuguese flour in Israel. So is there a little bit of a potential, I would say, risk there of how well our product is received? Sure. So we're working there really to get our product you know, to the standard of each market, not a technical standard. The product is there from a technical standard, but really, particularly in flour, adapting to the patient, you know, needs and preferences in each of the markets. So I would say from a commercial perspective, we have the agreement. From a regulatory pathway, we've tested them, right, and we feel comfortable, but things may be delayed and things might change. And from a product perspective, it's going to be a great year for Portuguese flour. It's already selling well. It's selling well in Australia, but it's being sent to Germany and Israel imminently. And how the market's going to receive that is, of course, going to be a key element of feedback for us. And remembering flour will also bring new strains to the market consistently in Portugal. We have several strains coming online from there. And last, you mentioned the Colombian flour. Frankly, while we expect our exports to begin in Q4 for our Colombian flour, We are, you know, we are seeing, you know, our exports of Colombian flour as probably, you know, something that is a, I would say, a potential good surprise as opposed to an integral part of getting to those 25 million, because we understand that there is still work that needs to be done there.
spk01: Got it. Thank you, Dugan. One last one. I know it's been a long call, but... You know, I guess what I struggle with, and maybe some investors struggle with, is that we understand, you know, the potential based on your local structure in Colombia and also the Portugal facilities, right? But then we look at the end markets, and I look at Germany, for example, right? Tilray, very dominant on oils and tinctures. And then the flower market, you have a bunch of people, Bedrocan, I mean, everybody's there, right? But it's two or three players that have maybe 70%, 80% of the market. So... You know, from our side, you know, in terms of what we call the right to win or the assumption that you should be able to gain sizable penetration in those markets, I mean, help us out. I mean, is it going to be more because of the epifarm relationship on the oils? Is it going to be because you have a great flower brand on Icana? I mean, we have to give you credit for the potential opportunity, of course, but I'm just trying to understand, you know, it's quite – I know it's still a very embryonic market anyway – But there are people that are very well established already there. So why should we believe or assume that you'll be able to gain penetration there? If you can just maybe unbundle that also a little bit, both on the flower side and the oils and things side. Thank you. That's it.
spk02: Sure, Pablo. Absolutely. And I would say the first thing that you have to remember, and we've discussed this in the past, is we're a company that's geared to do this. Our objective is really to penetrate these markets. That's our focus. We're not We don't have our own local markets and we're focused on this. We're paying a lot of attention to our commercial agreements, our product and the regulation. So we believe that those capabilities are going to give us the right to win. But it changes by country. So let's do a quick rundown by country. Let's begin with Brazil. One of the countries I believe is going to be one of the most interesting drivers of growth and surprises, I would say. Because it's a market, it's an extract market, it's a market that's being served by the compassionate use, but it's moving on to the RDC-327. And it's very hard to get a product registered there. You have to have the certifications, you have to have the dossiers, et cetera. And we have that. Now, it's going to change because compassionate use is importing for a specific patient. RDC-327 is product available in the pharmacies in the country. So, you know... What do you need to do? You have to open the path, you have to get the product, and you have to get the right partners. And we believe we have the right partners lined up in Brazil really to grow that market, which is really untapped or very limitedly tapped for RDC 327. So huge avenue of growth. How are we going to win? Based on the capabilities we've built in the past, developing a product, our commercial agreements, and, of course, our certifications. Israel. Israel. It's a matter of partnerships. We have to acknowledge we're never going to win there. The market is very dynamic. It's quite sophisticated. Distribution is a key element of success there, and it's proven. And we work to be able to partner with the market leader there, working on getting them additional product, trying to help them go beyond Israel, becoming a real partner for them. So we see absolutely a possibility of winning in Israel. Could we do it alone? No. Can we do it with one of the greatest partners available there or in our view the best? Sure. We believe we have the right to win because we have the products, we have the cost, we have the reliability, we have the right partners as well. Germany, you mentioned, I think Germany is a very interesting market because you cannot win, it's blanket winning Germany. You have to really segment your approach around and that's what we've done. On the one hand, we have our extras with Etifarm. We think we cannot win by ourselves in the extract market. We need a true pharmaceutical company getting to the physicians, generating that demand, and eventually helping us expand our portfolio. That's why we are partnering with such a company. And in flour, we believe in a B2B model, and we have partners, and we've shown some of those deals, partners who have a significant appetite for flour. When you go to Germany, yes, there are a lot of companies producing flour, but you actually go to the pharmacies They're very unsatisfied. Availability is if something's spotty, quality is if something's spotty. We're focused on generating specific products specifically for the German market, trying to fulfill exactly that reliability of supply, that quality and that consistency. And third, we have a team in Germany. They've been doing their work for quite some time. And that's why in Germany, we believe that IKANA could be a winner. And remember, Colombia is EUGMP certified and we're working on EUGMP certification in Portugal during the next few months. That will give us a unique footprint that nobody else has, frankly, to win there. Is it going to be an easy fight? For sure, no. But we have the cost, we have the infrastructure, we have the team in place in Germany, and we have everything required to win in that market. And Australia, I would say, is the same. Australia is growing, it's emerging. We entered very early. We have very nice business there in our extract side. The flour business with Canatric and ANTG and others is picking up very nicely. Again, it's a matter of availability, high-quality flour, reliable, with partners who trust us. So we believe, you know, we have, and actually I love the term right-to-win. I use it every day here because that's what we have. This is what we've built, that right-to-win, that differentiation. We're not just one more company. We're a company that's geared to actually serve those markets, and that's how we're setting ourselves up.
spk01: Got it. Thank you.
spk08: Thanks, Paul.
spk07: At this time, this concludes our question and answer session. I would now like to turn the call back over to Mr. Fajardo for closing remarks.
spk02: Well, thank you very much. You know, and I'd like to thank everyone that attended the call today. And we look forward to speaking with our investors and analysts when we report our first quarter results in May. Thank you very much.
spk07: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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