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spk05: With the EU GMP certification process for our post-harvest facility, and the facility will not be in full use until the licensing process is complete, we are incurring costs related to the heightened product testing and analysis process I mentioned earlier, as well as higher supplemental lighting costs relative to what we need in Colombia. While these factors across both of our production geographies have increased our costs in the short term, the preparation and optimization initiatives we're implementing today strengthen our position for current partnerships as well as for future market expansion opportunities. We expect that these harvest dynamics will pressure our unit economics in the short term, but that they will also allow us to optimize the revenues we can generate from our harvest in each of our production geographies over the longer term. We can leverage the existing efficiencies of our extraction operations in Colombia and the flower export learnings we've gleaned from Portugal to prepare for forthcoming opportunities, including Colombian flower exports, while closely monitoring respective partnerships and regulatory catalysts in our global target markets. In addition, we gained additional balance sheet flexibility after completing the full pay down of our debt obligations to Catalina LP and our remaining herbal brands debt. This improves our ability to support our growth initiatives and further optimize our operational foundation. Hank will share more about this shortly, but I'm proud of the necessary work we are doing to improve our organizational efficiency and effectiveness. As we enter the second half of 2022, I believe that the strategic steps and investments we are deploying today will benefit the business on our path towards becoming a supplier of choice within the global cannabis market. Now, I'd like to turn the call over to our CFO, Hank Haig, who will discuss our second quarter financial performance in greater detail.
spk02: Hank? Thank you, Andres. Our revenue in the second quarter of 2022 increased 27% to 4.7 million, compared to 3.7 million in the year-ago period. This increase was driven by higher sales in both our cannabinoid and non-cannabinoid segments, which grew 124% and 9% year-over-year, respectively. our cannabinoid revenue growth reflects continued strong performance across our target markets, particularly Australia, Brazil, Germany, and Israel. As our existing commercial agreements further activate and ramp, we will continue our momentum by seeking additional opportunities to deepen and expand our global partner base. Our all-in costs per gram of dry flour in the second quarter of 2022 was $2.26 per gram, compared to 22 cents per gram in the year-ago period. As Andres just mentioned, the increase on a per gram basis was driven by our significantly reduced harvest of approximately 90%. In Colombia, the harvest in the quarter was reduced to zero kilograms. while the harvest in Portugal increased 14% from the year-ago period. During the quarter, we were able to significantly reduce the cost to produce in Colombia due to the reduced harvest, but were offset by increased costs in Portugal as the agricultural operation ramps at the new post-harvest facility awaits its final GMP certification expected later this year. During the quarter, the Colombian operation continued its extraction operations to consume previously harvested dry flour in the manufacturing of GMP extracts and isolates. Over the coming quarters, we expect our total all-in cost per gram to remain elevated through a combination of these dynamics. I'd like to emphasize that these are all near-term unit economic considerations, as we right-size our harvest and pivot to harvesting flour in Columbia, compared to previously harvesting solely for extracts. In Columbia, we expect to keep our harvest output reduced as we go through the gradual process of right-sizing our inventory levels and optimizing our production operations for smokable dry flour export. We believe our costs will moderate to more advantageous levels as we ramp dry flower production to meet partner demand and further optimize the production process. From an extract perspective, we expect our costs to remain at similar or lower levels to what we achieved historically, but we expect flower products to comprise a greater share of our overall market portfolio over the long term. In Portugal, we expect our costs to remain higher as we drive towards greater capacity utilization, but expect unit costs to improve over time as we process additional harvest, finalize our cultivation ramp, and bring our post-harvest facility fully online once we complete the EU GMP licensing process, which we expect to do by the end of this year. Our gross profit was $1.3 million, which included a $1.3 million inventory provision, compared to $1.8 million, which included a $0.6 million inventory provision in the year-ago period. As a reminder, we are now reporting an adjusted gross profit figure to adjust for our inventory provision 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 provision, in the second quarter of 2022 increased 8% to $2.6 million compared to $2.4 million in the year-ago period. This reflects an adjusted gross margin of 55.5% compared to 65.4% in the year-ago period. The year-over-year gross profit growth on an adjusted basis was driven by our top-line revenue growth during the quarter, partially offset by the higher inventory provision charge we recorded for the quarter. This inventory charge negatively impacted our gross margins for the quarter, and it was primarily driven by inventory obsolescence in Portugal through a combination of product expiration timing and our continued work to refine our flower strains to strict specifications required by our target markets. In our nutraceutical business, we are also still impacted by wage pressure, rising transportation costs, and the availability of both labor and materials. We continue to believe that these factors will serve as headwinds for our margin performance, and we are closely monitoring the impacts of these effects on our business, and on broader labor and supply chain conditions. Operating expenses in the second quarter of 2022 decreased to $9.5 million compared to $11.4 million in the year-ago period. The decrease was driven by a lower level of general and administrative expenses during the quarter, including lower share-based compensation expense. As Andres mentioned at the start of the call, we completed several restructuring initiatives to align our expense base more closely with our current revenue profile, including a global workforce reduction. While these measures like this are never desirable, we value each one of our dedicated team members. These actions are necessary to achieving the operational leverage we previously expected in our business. We expect the reduction to generate cash savings of 2 million this year and 4 million in the years to come. Net loss in the second quarter of 2022 improved significantly to 1 million compared to 9 million in the year-ago period. The decrease was primarily driven by a $6.9 million gain on investments following our sale of a portion of our minority stake in CanSativa, as well as a $2.2 million decrease in stock-based compensation. The gain on investments related to the CanSativa sale comprised a $2 million realized gain on the sale and a $4.9 million unrealized gain due to the remeasurement of the CanSativa shares retained interest. Adjusted EBITDA in the second quarter of 2022 was negative 6.3 million compared to negative 5.7 million in the year-ago period. The decrease was mainly due to increased cost of sales, including increased inventory provision and additional sales and marketing expenses. At June 30, 2022, our cash balance was 19.5 million, compared to $37.7 million at December 31, 2021. The decrease was primarily attributable to operating losses and paying down our two largest pieces of debt, offset by net proceeds raised from our at-the-market stock offering, which will significantly enhance our balance sheet for Q3 and beyond. In April, we repaid the remaining approximately $13.2 million balance of the aggregate amount outstanding under our secured convertible note with Catalina LP. This repayment satisfied all of our outstanding debt and obligations under the note purchase agreement and convertible note. In May, we also fully repaid our outstanding debt and obligations under our loan and security agreement between Herbal Brands and Rockcliffe's capital of approximately $5.6 million. These repayments represented our outstanding debt related to our 2019 acquisition of Herbal Brands. Through paying off our Catalina and Herbal Brands debt, we have significantly improved our leverage and balance sheet flexibility as we enter the second half of 2022. These actions represent significant progress in our efforts to optimize our balance sheet and drive greater cash efficiency. Throughout 2022, we will continue working to improve our liquidity position through reducing our expenses and investment in working capital. During the second quarter of 2022, there was no sales activity resulting from the at-the-market common stock offering program, and $26.6 million remained available at the end of the quarter. Lastly, turning to our financial outlook, we continue to reiterate our full-year 2022 financial guidance, in which we expect our 2022 revenue to range between $20 and $25 million, with an adjusted gross margin between 50 and 55 percent. As a reminder, our top-line expectations reflect an expected year-over-year increase in our cannabinoid revenues as we activate additional commercial opportunities in our core markets. We also anticipate our full-year adjusted EBITDA to be within the range of negative 23 million, negative 20 million, with maintenance-level capital expenditures of between approximately 2 million to 3 million. We have made progress advancing our strategic objectives throughout the first half of 2022, and we believe our focus on restructuring our costs and optimizing our cash efficiency has positioned us to continue to strengthen our foundation for long-term growth and profitability. This concludes my prepared remarks, and I'll now turn the call back over to Andres to review some of our more recent operational highlights and market opportunities in greater depth. Andres?
spk03: Thank you, Hank.
spk05: Before opening the call to questions, I'd like to briefly discuss the progress we've made in our focus markets subsequent to the second quarter, as well as summarize some of the ongoing and emerging regulatory catalysts within them. As I mentioned earlier in the call, we made an important first step in our partnership through completing our first commercial export of high THC medical flour from our Portugal facility in July. Our WAPA strain was launched by Intercure in late July and we expect sales to be strong. This initial high THC strain is just the first of several genetics we expect to launch during the multi-year duration of the partnership. In addition to these shipments of our own flour strains, We will cultivate CanDoc's proprietary genetics in our Colombian and Portugal facilities for distribution across Israel and other countries. Our partnership with Intercure has been a long time in the making, and we look forward to making additional progress with Intercure and deepening our overall market presence in Israel. As of the end of July, we have also launched our WAPA strain with ANTG, a large-stake or pay Australian partner. This launch also signifies swift progress with one of our newest partners in the country. We look forward to further ramping our shipments and supplying the Australian market with high-quality flour products. In Germany, we have also built upon our momentum through expanding our partnership with Cantorash, a European medical cannabis leader. Under the expanded agreement, we are supplying Cantorash with high THC, 24% plus, dry flour product from our WAPL strain. Cantorash will then use our WAPA flower to produce ICANA number 10, which will have one of the highest THC levels available in the German pharmacies. This expanded partnership further increases the range of international high-quality medical cannabis products available to the EU market under our ICANA brand. And growing our product distribution with partners like Cantorash is an important objective for our European operations. Icana No. 10 is the second Clevelis product that is currently available in Germany, and we are on track to introduce additional products under the Icana brand over the coming months. Beyond our expanding Icana brand and our status as a licensed medical cannabis distributor, our strong relationship with seasoned pharmaceutical operators and other distributors like Etifarm and CanSativa have strengthened our position within the fast-growing German market. Having multiple commercial pathways in this market is a key advantage amid the country's ongoing regulatory tailwinds, with a draft bill to legalize recreational cannabis expected to be published later this year. While we are staying closely attuned to the potential development, our high-quality pharmaceutical-grade products and growing partner base have provided us with a solid foundation within Germany's current medical market. As we continue to strengthen our position in the medical market, we remain attentive to the legalization process for adult use, as we believe CleverLeaks is well-positioned to capitalize on this opportunity through our production facilities in Portugal and Colombia, as well as our established presence in Germany. In Colombia, as I mentioned earlier, the passage of Joint Resolution 539 in April completed the regulatory framework needed for gratified exports. The resolution regulates foreign trade related to cannabis and its derivatives, establishing the competent authorities needed to issue input and export permits for these products. We are also closely monitoring the progress of the three bills to legalize recreational cannabis in the country, and we look forward to further supporting these regulatory initiatives in strengthening our position for this expanded market potential. Through the first half of 2022, the diligent foundation we've laid across our production and commercial operation has begun to activate. As additional contracts ramp towards recurring shipments and new partnerships commence, we are well positioned to execute on these opportunities as an even leaner and more efficient organization. We will continue working diligently to further advance our existing contracts, seek and leverage additional commercial opportunities across our target markets, and solidify our cost structure and liquidity position to support additional progress on our focused growth strategy. As we progress further into 2022, we look forward to taking additional steps on our longer-term vision as a multinational operator. We will now open the call for Q&A.
spk04: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using the speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.
spk03: At this time, we will pause momentarily to assemble our roster. And the first question will come from Pablo Zulanek from Cantor Fitzgerald.
spk04: Please go ahead.
spk01: Thank you, Hank. Just, I guess, two questions. Just a reminder of the guidance when you say 20 to 25 million for the year, how much of that would be cannabinoids? I mean, I see that the number dropped sequentially in the second quarter, but it will be lumpy. So just a reminder of that. And related to that, when you said in the call that you'd be able to export dry flour from Colombia in the fourth quarter, just a reminder of what markets would be open to Colombian flour. I mean, I assume not Germany yet, but just some color there, Hank. Thanks.
spk02: Hi, Pablo. Thank you for the question and joining our call. Our target within the guidance range for the non-cannabinoid business is about $13 million for the year. So the balance would be the cannabinoid business.
spk01: And the question regarding... Go on.
spk02: Yeah, Andres, would you like to address the target markets for the Colombian right at the tail end of the year?
spk06: Sure, Hank. Thank you, Pablo. Thank you very much for being here. We're preparing the Colombian flour to be shipped from a regulatory perspective. The pathways are open as we speak from the production standpoint in Colombia and from a receiving standpoint to different countries. We believe the first countries that we're going to be targeting include Germany and Australia, and we're sorting through the final regulatory matters to be able to do that. The good thing, as we have said in the past, is We have been working on getting our flour, you know, up to par with market standards in terms of, you know, THC levels, the organoleptic size, butt size, you know, trichome density, color, terpenes, et cetera. And we're done, you know, great strides there. You know, we're just, as I said, we're finalizing all of the final, you know, regulatory and quality elements to be able to be shipping flour by the end of the year, most probably to one of those two markets.
spk01: Right. And just on that point and following up, So when you said in the call that you had to cut harvest in Colombia by about 90%, I understand the financial logic of that, but how does that affect your ability to be ready by the fourth quarter to meet those German standards? I mean, I suppose if you're cutting production a lot, that may create disruptions and might even delay your efforts to be ready by the fourth quarter. Maybe more color there would help.
spk06: Absolutely, Pablo. First of all, we did cut our harvest in Colombia, as Hank mentioned, during the call. We basically had zero harvest during this quarter for flour. And the reality is that if we compare it to the previous year, it basically was CBD and THC flour for extraction. So we're not planting any more of that flour. Basically, as we're managing our cash and managing our working capital, as we don't need any more of that kind of flour as we have inventory for extracts. Jorge Mancilla- Having said that, what we have been focusing is putting plants on the ground, you know, basically, on the one hand, to do all of these r&d product development. Jorge Mancilla- And second, you know, we do have plants on the ground, of course, to be able to meet our targets for exporting in in the fourth quarter, so the. Jorge Mancilla- The flowers will be you know harvested in Q3 and Q4 so there's there are plants on the ground, so by no means do we see you know any threat to those targets. from a production standpoint, really the cut on planting and harvesting was for mostly CBD flower for extraction.
spk01: Okay, thank you. And just one last one. So regarding the kind of 2-24% potency, that sounds quite exciting. I mean, my surveys are always very anecdotal, but the architects we've met and the people we've talked to is that There's a lot of 20% potency product in the market, but like 25% or close to that range is almost nothing right now. So that should have a lot of traction. I guess my question is not so much about the product, but maybe for you or Hank, I see that you said you sold the stake in Concetiva, but the balance sheet, and I don't want to ask an accounting question, but the balance sheet shows Concetiva investment like $5.7 million. It was $1.5 at the start of the year. I don't know if it was revalued or you invested $4 million more in CanSativa. And the reason I bring that up is that, to me at least, what you're trying to do in Cantourage sounds very exciting, but, you know, showing you investing money in Cantourage as opposed to CanSativa, unless I'm reading the balance sheet wrong here. Thanks.
spk02: Hi, Pablo. Thanks for the question, and I'm happy to clarify. The company had an investment in CanSativa. It still does. With that, you've actually asked an accounting question, so I'm sorry, and I'll give you the answer. When we sold a portion of our CanSativa stake, with that transaction, we gave up our board seat on CanSativa, and that reduced our influence of control. So, under the accounting rules, we had to account for our treatment of that investment differently. That's what you're seeing rolling through on the balance sheet. We did not make a further cash investment in the company.
spk01: Right. Okay. No, that's fine. That's good. I guess the very last one, Andres, is that the more people we talk to in Germany, it just sounds that you need to be partnering with local folks to be ready for those licenses that may be issued in the future if it's all going to be domestic production, right? I know we don't know what's going to happen in Germany in terms of what the program is going to look like, although there's a lot of people that think that at least in the initial phase, it will all be domestic production. I mean, well, first of all, do you agree with that view? And if that's the case, you know, what's your game plan, right? Because that would mean that you would not ship from Portugal or Colombia. I know it's a scenario that I'm describing, but I'm just trying to understand what would be the game plan for Clever Leaves if that were to happen.
spk06: Absolutely, Paolo. Very good question. The reality is, remember, in Germany, we have an approach which has different dimensions to it. Number one, we have Clever Leaks Germany, which is a wholly licensed importer and distributor of product into Germany. So that means even if we sometimes use the Cantorash pathway, we are having direct conversations with pharmacists and players you know, within the German market. And we are, you know, we are a German player ourselves. We're selling directly, not only our product, we're actually, you know, working with other companies, you know, aiding them to help, pardon me, helping them to sell some of their products. So we're building those relationships with the pharmacy and the different stakeholders in the German market. That's number one. Number two is we have been partnering with, you know, B2B clients of ours who are at this stage are taking our different products, being extracts or flowers, and bringing them to the German market. So we have different ways in which we're reaching the German market as we speak. In terms of the question regarding the scenario, as you know, and I've been very open in the past, it's not clear yet how the adult user recreational is going to be legalized in Germany. Is it going to be internal production at first?
spk05: Maybe.
spk06: If it is, it's really going to be constrained, because I don't think that's scalable or that's going to scale in the short term. Our view, at least, is that having Portugal within the European Union is going to be a big advantage for us, as we believe that some of the INCB restrictions regarding recreational cannabis you know, import and export would not apply if we're within the European Union. Of course, that's our hypothesis. In any case, you know, assuming that it's only going to be local, you know, the reality is that we're there, we're operating there as an importer distributor. We are building a brand right now, which is called ICANA. We're using our own product and product from third parties for that. So we're trying to be flexible, not, let's say, marrying ourselves with just one vision of what the future can be, which is something we've seen from others, but rather having different paths to market, being very well connected, working with different partners so that when things get a little bit more clear in terms of the regulatory pathway for recreational cannabis, we are among the companies that are able to win. Thank you.
spk00: Thank you.
spk03: And once again, if you have a question, please press star then one. This concludes our question and answer session.
spk04: I would like to turn the conference back over to Andres Fajardo for any closing remarks.
spk06: Thank you. And I'd like to take this opportunity to thank everyone that attended the call today, and we look forward to speaking with our investors and analysts when we report our third quarter results in November. Thanks all very much.
spk04: And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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