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spk02: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Cleverleaf's financial results for the first quarter ended March 31st, 2022. Joining us today are Cleverleaf's CEO, Andres Bejardo, and the company's CFO, Hank Haig. Before I introduce Andres, 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 filing for 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 10Q for the quarter ended March 31st, 2022, 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 in those bullet booking statements. 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 sheet. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures In 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 Andres.
spk03: Thank you, Jackie. We have made strong progress on our streamlined, redefined growth strategy during the first quarter. our cannabinoid revenues increased 195% year over year as we further activated and expanded our B2B partnerships across our target markets, complementing the continued performance strength of our nutraceutical business. Throughout the first quarter, we signed and announced a series of strong strategic partnerships with leaders in our target geographies, both through expanding our existing partnerships and through signing supply agreements with new B2B partners. Our swift commercial advancements demonstrate our emerging position as a supplier of choice within the global cannabinoid market. To support this growth, we also focus on aligning our cost structure and balance sheet with our renewed strategic priorities. While our bottom line reflects several one-time restructuring expenses related to equipment write-offs and employee exits, we believe the changes we have implemented will help us become an even leaner and more efficient operator, as well as drive greater cost savings over the longer term. Subsequent to the quarter, we optimized our balance sheet by paying off two of our largest remaining pieces of debt, our senior convertible note with Catalina LP and our remaining obligations related to the acquisitions of herbal brands. Our focus on commercial execution and organizational efficiency has allowed us to make decisive strategic progress, and I believe we are well positioned to maintain our momentum in 2022. As a reminder, we entered 2022 with the commitment to focus all commercial, regulatory, and product development efforts on five key markets, Australia, Brazil, Germany, Israel, and the United States. During the first quarter, we made strong progress across each of these markets. To begin with, In Australia, we announced two agreements in February that demonstrate our early momentum in this market. We expanded our existing relationship with Canatric, a research-driven medical cannabis operator, into a two-year, 3.6 million take-or-pay agreement in which we will begin supplying one strain of our high THC flour from Portugal alongside the CBD oil products we already supply. In addition, we signed our largest Australian supply agreement to date through a new partnership with Australian National Therapeutics Group. Under this four-year take-or-pay agreement, we will supply a product suite that includes CBD isolate and GMP-certified THC crude oil from Colombia and THC flour from Portugal. And ANTG has agreed to purchase a minimum of $7.8 million worth of products. We have seen Australia's roster of approved medical patients surge throughout the past year, and the country's cannabis industry revenue is expected to double this year, according to local cannabis consultancy Fresh Leaf Analytics. We believe our pharmaceutical-grade products and asset-light capabilities allow us to optimize the support and value we offer to our growing base of Australian B2B partners. We also advanced our progress with a mix of current and new partners in Germany, In January, we got off to a good start in this market with the launch of our Icana flower product from Portugal, the first batch of which sold out in 24 hours and has since been followed by repurchases from several pharmacies. In February, we announced the first import of our commercial CBD extracts into the country under our partnership with Etifarm, a European specialty pharmaceutical company. This was closely followed by the announcement of our three-year supply agreement with CanSativa, a German distributor and wholesaler, in which CanSativa will purchase a minimum of €2 million, or approximately $2.2 million, of high-THC cannabis flour contingent upon our Portuguese facility becoming EUGMP certified, along with other conditions for closing. Finally, in March, we continued to expand our extract distribution through the one-year international sales agreement we announced with German-Columbian medical cannabis and wellness operator Volumit Holdings, as well as its German manufacturing partner, Fidelio Healthcare. Under this agreement, we will provide Fidelio with access to three of our pharmaceutical-grade bulk cannabis extracts for use in soft fuels or prescriptions medicines. Through our ICANA launch and these three commercial agreements, we have made rapid progress with deepening our presence in the German market, which is the largest cannabis market in the European Union. We are proud to have the pharmaceutical-grade products and processes in place to help newer partners like Fidelio supply German patients with the physician-prescribed medicines they need. More broadly, our longstanding relationships with Etifarm and CanSativa, two seasoned German operators, allow us to expand the depth and breadth of our presence in this market, as these companies occupy meaningful positions in the country's pharmaceutical industry and domestic cannabis supply chain, respectively. We are preparing to advance our German commercial progress even further, as our affiliate, Clever Lease Germany, has recently become a fully licensed medical cannabis distributor in this market. I'll have more to share on this announcement later in the call, but our ability to navigate Germany's regulatory complexities and support significant commercial relationships has given us a meaningful runway for growth within this market and overtime throughout the EU. We have also maneuvered through lengthy regulatory complexities in Brazil, where we have products in market through the country's compassionate use regulations and two existing product approvals under RDC 327 the local regulatory framework for cannabis products. Through these and our other pending approvals, we are building the foundation for ramping our current commercial partnerships towards generating recurring revenue over the long term. After adapting to challenging quality standards in Israel in 2021, we have solidified our existing commercial agreements for active pharmaceutical products and signed a comprehensive multi-year strategic partnership with Intercure, the country's leading cannabis company. In this partnership, Intercure has access to our high-THC medical cannabis flour, and we will cultivate Intercure's high-quality strains to allow them to be launched as EU GMP-compliant branded products within the EU, UK, and Australian markets. We are proud to partner with the Intercure team on product development and to count them among our expanding global customer base for our flour products. Finally, in the U.S., in January, we entered the domestic CBD market with the launch of Joysoul. which provides U.S. consumers with a high-quality daily care system at an affordable price point. This was made possible by the hard work of our Erlber Brands team, and we've continued working to grow our nutraceutical business by increasing distribution to new clients and expanding penetration of various SKUs within our existing client base. Another major tenet of our 2022 strategy is preparing and scaling our production capabilities to support the growth and expansion of our flour offering. As we've ramped our Portugal operations over the past year, we've adapted the specifications of our Portugal flour to the needs of our target markets, giving us important insight into the flour cultivation and production that we plan to leverage in Colombia. As we announced last month, the Colombian government recently issued Joint Resolution 539, marking the completion of its regulatory framework for the export of medical cannabis flower. Having already exported flower products from Portugal and secured EU GMP certification for dry flower products in Colombia, we have been working on developing our Colombian flower product and regulatory pathways for over six months. I'll provide additional context around the resolution and our position later in the call that represents a welcome regulatory development from which I believe we are well positioned to benefit. I am proud of our early momentum in 2022 and currently believe we are positioned to sustain our commercial progress across our redefined core markets through the remainder of the year. To provide greater detail on the financial performance during the first quarter, as well as the other strategic steps we are taking to support our growth opportunities in our target regions, I'd like to turn the call over to our CFO, Hank Haidt. Hank, over to you.
spk04: Thank you, Andres. Our revenue in the first quarter of 2022 increased 50% to $5.2 million compared to $3.5 million in the year-ago period. This increase was driven by continued sales strength in our nutraceutical business. as well as significant year-over-year growth in our cannabinoid revenues, which increased 195% to 2 million compared to 0.7 million in the year-ago quarter. Our cannabinoid revenue growth reflects strong performance across our target markets as our existing commercial agreements gradually begin to activate and ramp. As Andres just highlighted, we are already off to a strong start with expanding our current partnerships and continuing to grow our partner bases within our core geography. Our all-in cost per gram of dry flour in the first quarter of 2022 was 35 cents per gram, compared to 16 cents per gram in the year-ago period. The increase was driven by production costs associated with our expanded operations in Portugal, offset by the efficiencies we have maintained in our Colombian operations. In Portugal, we continue to anticipate some quarter to quarter choppiness in our consolidated cost per gram as we manage the costs associated with ramping our expanded capacity. In Colombia, we also may see a slight increase in production costs in the near term as we grow less flour for extraction and focus on smokable flour for export. Across both geographies, we are focused on capturing economies of scale where we can decrease our unit costs over the longer term. Our gross profit was 2 million, which includes a 0.8 million inventory write down compared to 2.1 million which includes a 0.2 million inventory write down in the prior quarter. As a reminder, we are now reporting an adjusted gross profit figure to adjust for our inventory write down that was previously classified in SG&A and is now classified within cost of goods sold. That said, our adjusted gross profit, which excludes the inventory write down in the first quarter of 2022, increased 25% to $2.9 million compared to $2.3 million in the year-ago period. This reflects an adjusted gross margin of 55.2% compared to 66.4% in the year-ago period. The year-over-year gross profit growth on an adjusted basis reflects the strong revenue performance I just discussed, partially offset by higher production costs as we scale and optimize our Portugal operations. In our nutraceutical business, we have also continued to weather pandemic-related impacts around wage pressure, rising transportation costs, and the availability of both labor and materials. And we anticipate that these will continue to serve as headwinds for our margin performance over the coming quarters. We are closely monitoring the impacts of these effects on our business in the near term and on the broader labor and supply chain conditions over the longer term. Operating expenses in the first quarter of 2022 were 13.9 million compared to 9.9 million for the same period in 2021. The increase is primarily attributable to a $4 million one-time restructuring charge which stemmed from our efforts to align our cost structure with our redefined strategic priorities for the year ahead. Within our $4 million restructuring charge, approximately $2.8 million of the restructuring charge was related to charging off certain excess extraction equipment for our Columbian operations as we continue to prepare for dried flower exports later this year. And the remaining $1.2 million was related to employee exit costs. While these expenses constrained our bottom line during the first quarter, we believe these restructuring efforts will result in projected cost savings of approximately $2 million for the balance of the year. And we believe they represent an approximate $4 million cost reduction on an annualized basis for 2023. We believe our realigned cost structure will allow us to focus more fully on our core operational activities related to driving revenue growth in our target market. Our focus on deprioritizing non-core operational efforts, including M&A, minority investments, and long-term projects without a clear ROI, is a clear part of our strategy that is already positioning us to operate from an even more efficient foundation going forward. Net loss in the first quarter of 2022 increased to 16.1 million compared to 13.8 million for the same period in 2021, primarily driven by a $4 million restructuring expense, offset by increase in loss due to 1.7 million of debt discount write-offs, and loss on debt extinguishment of 2.3 million due to extinguishment of debt as offset on gain remeasurement of warrant liability. Adjusted EBITDA in the first quarter of 2022 was negative 6.7 million compared to negative 5.5 million for the same period in 2021 due to inventory write down increased R&D expenses for Colombian smokable dry flour and additional sales and marketing activities. At March 31st, 2022, our cash balance increased to 44.8 million compared to 37.7 million at December 31st, 2021. The increase was primarily attributable to our activity on our at-the-market offering through which we have raised $22.8 million in net proceeds as of the end of the first quarter. Subsequent to the first quarter, we have strengthened our balance sheet even further through paying off two major pieces of debt. On April 5th, we repaid the remaining approximate $13.2 million balance of the aggregate amount outstanding under our secured convertible note with Catalina LP. As a result of the repayment, all of our outstanding debt and obligations we owed under the note purchase agreement and convertible note are paid in full, which offers us greater balance sheet flexibility. On May 2nd, we fully repaid our outstanding debt and obligations under our loan and security agreement between Herbal Brands and Rockcliffe Capital. representing an aggregate principal amount of 5.6 million, approximately 46.7 thousand in accrued and unpaid interest, and approximately 3.1 thousand in aggregate fees. In total, these amounts represented our outstanding debt related to our acquisition of herbal brands in 2019. As a result, the company's debt has been reduced from $22.6 million to $2.1 million, thereby yielding annual total interest expense savings of $0.6 million. These actions represent significant progress in our efforts to optimize our balance sheet and drive greater cash efficiency. Throughout 2022, we remain committed to further improving our liquidity position through reducing our expenses and investment and working capital. Lastly, as present trends and commercial momentum in our business hold, we are reiterating our full year 2022 financial guidance. We expect our 2022 revenue to range between 20 million and 25 million, reflecting an adjusted gross margin of between 50 to 55%. Our top line expectations reflect expected increase in our cannabinoid revenues relative to 2021 as we continue to activate commercial opportunities in our core markets. Meanwhile, our adjusted gross margin expectations reflect higher production costs in Portugal and continued supply chain and labor cost headwinds in our cannabinoid and nutraceutical businesses, respectively. We also continue to expect our full year adjusted EBITDA to be within the range of negative 23 million to negative 20 million, with capital expenditures ranging between 2 million and 3 million. This CapEx range represents a maintenance level annual run rate. We have made solid progress with advancing our more streamlined growth strategy during the first quarter. And we believe our focus on restructuring our costs and optimizing our cash profile has positioned us to continue strengthening our foundation for long-term growth and profitability. This concludes my prepared remarks, and now I'll turn the call back over to Andres to review some of our recent commercial and production highlights in greater depth. Andres?
spk03: Thank you, Hank. Before we open the call up to questions, I'd like to briefly review the progress we've made in several of our core markets after the end of the first quarter. From both a production and commercial standpoint, we're improving our positioning in our key regions of focus and building upon the strong foundation we have laid over the past year. First, as I mentioned earlier, Cleverleaf celebrated the Colombian government issuance of joint resolution 539 in early April, which marked the completion of the regulatory framework needed to facilitate the export of medical cannabis flower from Colombia. The resolution details the process and requirements for exporting medical cannabis flower and cannabis derivatives, which will help inform the regulatory and product development preparations we've had underway for months. To this end, we've already successfully produced high THC cannabis flower in our early research and development phase, and we have had experience growing milled flour for extraction for over four years. In conjunction with our experience with exporting dried flour products from Portugal, we believe we can leverage our learnings to ensure our Colombian flour products meet the regulatory requirements in both Colombia and our end markets. We have already signed commercial agreements in several of our target markets and we expect to begin fulfilling this agreement by the end of this year. In fact, We anticipate exporting milled flour products as soon as Q3 of this year, given our experience and existing infrastructure for these products. We also ultimately plan to launch our Colombian flour in Germany through our wholly owned subsidiary, Clever Leaves Germany, building upon the momentum of our Icana flour brand. With our current expertise, scale, quality certifications, and growing partner base, we believe we are well positioned to expand our flour portfolio and capture this expanding growth opportunity within the global medical cannabis market. To provide some additional updates around Clever Needs Germany, we also recently announced that this affiliate has received all of the required regulatory licenses, permits, and certifications by German authorities to be able to distribute medical cannabis to wholesalers and around 20,000 pharmacies across the country. The requirements include a wholesale distribution license granted in compliance with the German Medical Products Act, a Certificate of Good Distribution Practices, or GDP, and a Permit for the Trade in Narcotics Drugs in Compliance with the German Narcotics Drugs Act. Our status as a fully licensed distributor complements the already strong commercial momentum we have generated in this market, and it grants us greater access to pharmaceutical distribution channels. As we support the growth of our Icana Flower brand, our German B2B partner-based We look forward to leveraging this additional opportunity to explore the German market's potential and serve as a reliable, flexible partner within Germany's strict regulatory framework. Lastly, in the U.S., our certifications and focus on pharmaceutical-grade quality has helped drive our recently announced partnership with Biome Therapeutics, an American clinical stage biopharmaceutical company. Under the two-year supply agreement, we have agreed to provide high-quality CBD isolate, which will be used in formulations for studies and clinical trials for rare neurological and developmental diseases. Biome has already shown the clinical benefits of cannabidiol in epilepsy patients, and the company obtained its orphan drug designation in 2021. Partnering with strong biopharmaceutical companies like Biome will help us not only establish our pharmaceutical presence and awareness of our top quality standards within the U.S., but also support our enduring commitment to advancing research around cannabinoids and their potential health benefits. To summarize our Q1 performance and recent highlights, we are steadily executing on our redefined growth strategy, positioning us to progress through 2022 as a leaner and more efficient organization. By narrowing our focus towards our target markets, we can more effectively allocate our resources towards adding value to our current partnerships while also identifying new opportunities to expand our partner base and leverage regulatory tailwinds. From a cost perspective, as Hank mentioned, we are focused on aligning our cost structure with these strategic priorities. As we optimize our production operations, strengthen our balance sheet, and pare down non-core operational expenditures, we are focused on enhancing our capital efficiency to support long-term growth. I am proud of the momentum we are building and of our team's hard work towards our longer-term vision. We look forward to providing updates on our progress and maximizing the value we create for all of our stakeholders through our renewed strategic approach. Operator, we will now open the call for Q&A.
spk01: Thank you, sir. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star then 1 on your telephone keypad. A confirmation term will indicate your line is in the question queue. You may press star then 2 if you would like to leave the question queue. For participants using a speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We'll pause for a moment while we pause for questions. Right there. At this time, this concludes our question and answer session. I would now like to turn the conference back over to Mr. Fajardo for closing comments.
spk03: Well, thank you very much. You know, I'd like to thank everybody who attended the call today. And, you know, we look forward to speaking with our investors, analysts when we report our second quarter results in August. So thanks, everyone.
spk01: Thank you very much, sir. Ladies and gentlemen, that concludes today's teleconference. Thank you for your participation, and you may now disconnect your lines.
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