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spk01: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Cleverleaf's financial results for the third quarter ended September 30th, 2022. Joining us today are Cleverleaf's CEO, Andres Fajardo, and the company's CFO, Hank Hague. 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 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-Q for the quarter ended September 30, 2022, which was filed prior to this call as well as other filings made by Cleverlees with the SEC from time to time. These filings identify factors that could cause results to differ materially from those forward-looking 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 G. 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 release that is posted on the company's website. With that, I will turn the call over to Andres.
spk07: Thank you, Jackie, and good afternoon, everyone. During the third quarter, we worked diligently to continue progressing our growth strategy by improving the quality of our product and enhancing our commercial capabilities while reducing operating costs across all our subsidiaries. In our cannabinoid business, we generated 12% year-over-year revenue growth as we adapted to evolving demand dynamics in our target markets and navigated quarter-to-quarter variability in our sales cycle. We also faced some one-time disruptions in our non-cannabinoid segment revenues, due to retailer inventory reductions across a variety of channels. We continue to reduce our cash burn and focus on aligning our cost structure more closely with our core operational priorities. As we progress further into the fourth quarter, we will continue working to improve our operational efficiency and to strengthen our foundation for growth. To further contextualize our performance during the quarter, I'd like to first review the operating dynamics in our production geographies. In Portugal, we have seen product requirements evolve across several key flower markets around the world. These changes have affected our product market fit, and we have been working diligently on realigning it. For instance, our flower has been very successful in the Australian market given its high THC profile, bud size, and terpene profile. However, following the results of our most recent flower product launch in Israel, we identified and are in the process of changing the organoleptic characteristics of our flowers to better meet market demand. Part of this process of improvement, we had to delay several Icana shipments to Germany that we had planned to complete during the quarter. New shipments are already being processed and expected to be in the German market by year-end. We also plan to optimize the number of cultivated strains and harvest cycles to ensure that we're growing the most premium and commercially viable genetics to address greater selectivity in our markets. While these changes will lengthen the runtime of our Portugal operations, we are already seeing progress as improvements in our current crop and R&D cycles. To further improve our Portuguese operations, we replaced leadership and completed an overall restructuring to ensure that we can operate with improved efficiency and expertise, bringing in new talent with significant experience in cannabis flower cultivation. While these changes resulted in softer output from our Portugal operation during the quarter and corresponding pressure on our cannabis segment revenues, we are convinced that with the operational improvements being implemented, Our Portuguese operations are now optimally positioned for growth in 2023 and beyond through higher quality, more stable, and lower cost products. Finally, we have recently obtained EU GMP certification for our post-harvest facility in Portugal, which will further encounter revenue regenerating capabilities in the country. For instance, we have recently expanded our customer service portfolio to include GMP processing services now that we have the certifications. providing a gateway for flour into the EU. This will allow us to gain operating scale and will give us access to product from top growers around the world, which we intend to use as a complement to our self-grown portfolio. We will provide additional updates on these considerations and look forward to identifying additional value creation opportunities for our customers. In Colombia, We continue to prepare for the commencement of dried flower exports while navigating the effects of quarter-to-quarter lumpiness in our extract sales cycle. As we progress our flower preparations, we are applying the learnings from our Portugal operations to establish an efficient foundation and a focus on premium products. Many of our current customers have already visited our cultivation facility and expressed strong interest in our Colombian flower capabilities due to our expansive capacity and cost competitiveness. From a capacity perspective, we have the ability of scale to cultivate a significantly higher number of strains relative to both our competitors and our own existing Portugal operation, allowing us to explore, identify, select, and grow premium genetics. In conjunction with Colombia's optimal environmental growing conditions, which meaningfully reduce our need for artificial lightning or extensive pest control, Our scale and location offer a strong cost advantage as we prepare to address a greater portion of the global flower market. From where our flower preparations sit today, we believe we are currently on track to complete our first flower shipments from Colombia to Germany and Australia in the first quarter of 2023. Within our existing extract business, several shipments that we plan to complete in Q3 were delayed to Q4 of this year or Q1 of 2023. These were primarily due to regulatory delays and hurdles in both Germany and Israel, the phasing of certain orders from Brazil and Australia, and a cyber attack that the Colombian health agency in Lima suffered which delayed export certificates. For Brazil in particular, shipments of products approved under RDC 327 ramped very swiftly in the first half of this year, and we expect some of this pickup to resume in Q4. As a fundamental part of our growth strategy, we transformed our commercial capabilities during Q3. We created a Chief Revenue Officer function, and I am currently spearheading this position, which centralizes all commercial efforts and functions. including marketing and sales operations, looking to improve pipeline management, optimize relationship management with our current and potential customers, manage outreach strategies to increase our customer base, and increase our speed and probability of conversions from leads to sales. In line with these efforts, we created product expert teams for both flour and extracts that we integrated with the operation teams under our COO, to be focused on producing the highest quality products for our core markets, as well as working with commercial teams in an expert role to increase our sales effectiveness. Alongside these operational enhancements we have driven in Colombia and Portugal, we have continued our work to improve our working capital and right-size our inventory levels to better reflect current market opportunities. We harvested 1,936 kilograms of dried flour during the quarter compared to 17,304 in the year-ago period, representing an 89% year-over-year reduction. In Colombia, we have sustained our exclusive focus on THC flour product development, and we are using our existing inventory to complete our extract shipments. We will continue incurring costs related to processing our current inventory for extract sales in our existing partnerships, and we will soon have some additional and potentially higher cost contributions related to the new harvest and post-harvest processes needed for our dry flower products. As a result, we believe that these costs and our reduced agricultural output will continue to pressure our all-in cost per gram in the short term. However, we believe that driving improvements in our inventory over time will allow us to operate with a more efficient long-term infrastructure. In Portugal, as I mentioned earlier, we are further refining our production plant to ensure we are cultivating only the most premium and commercially viable flower strains. This increased selectivity has caused us to adapt our previous approach to launching new strains and addressing our capacity utilization. We are currently operating with reduced scale as we complete this additional work, but expect to build a stronger long-term operational strategy and benefit from additional economies of scale now that we've completed EU GMP licensing for our post-harvest facility. The reduction in scale implemented in Q3 and in early November will allow us to further reduce operating expenses in Portugal. While our work to optimize both of our cannabinoid production geographies remain gradual, We believe that strengthening our operational framework will allow us to maximize the revenue generation potential of our harvests and position ourselves to capture additional market expansion opportunities around the globe. Finally, in our nutraceutical business, we experienced some one-time order adjustments in Q3 across most of our channels as retailers reduced inventory levels. Our specialty distributors had ordered inventory more heavily in the first half of the year, which ended up reducing their volumes in Q3. Nearly all of our channels had inventory reductions at the warehouse level. While these dynamics pressured our third quarter top-line performance in our non-cannabinoid segment, we believe the bulk of the adjustments to our distributors' ordering cadence in Q3 are complete as of the end of Q3. Despite these one-time inventory adjustments, we have also been increasing our presence in major mass market retailers and pharmacy chains across the U.S. We have expanded our presence to over 30,000 stores and key major retail pharmacy chains have increased their portfolio with us by increasing the number of our SKUs in-store. We believe that the strength of our retailer and distributor relationships coupled with innovative marketing strategies we have recently implemented will result in strong revenue performance in the fourth quarter and 2023. As we continue adapting to evolving market conditions across our business, we believe that our operational agility, the depth of our knowledge and partnerships across our core markets, and our commitment to driving greater operational and cost efficiencies are strengthening our capabilities and our foundation for long-term growth. On an organizational level, we have continued to support our team members and enhance the quality and efficiency of our operations amid the strong restructuring progress we have made. As we close 2022 and enter 2023, we are moving forward as a leaner and more focused business with an unrelenting commitment to quality across our product portfolio. Now, I'd like to turn the call over to our CFO, Hank Haidt, who will discuss our third quarter financial performance in greater detail. Hank?
spk08: Thank you, Andres. Our revenue in the third quarter of 2022 was $3.3 million compared to $4 million in the year-ago period. We experienced softness in our non-cannabinoid segment revenues as a result of inventory reductions across most of our channels. as well as the timing of inventory orders among our distributors. However, as Andres mentioned earlier, we believe the bulk of these disruptions were concentrated in Q3 and that we should return to a more normalized top-line performance over the coming quarters as we work with our partners to mitigate broader economic pressures. While our cannabinoid segment revenue grew 12% year over year, This was offset by variability in the timing of certain flour and extract shipments. As a reminder, the quarter-to-quarter lumpiness in our sales cycle is a factor of the many regulatory approvals and quality control checks involved in our production and export process, which can drive delays in shipment completion. With that said, our ability to adhere closely to evolving regulatory standards and provide high-quality pharmaceutical-grade products in our target markets is central to the value we provide to our global customer base. Our all-in cost per gram of dry flour equivalent in the third quarter of 2022 was $1.13 per gram compared to $0.15 per gram in the year-ago period. The year-over-year increase was driven by our significantly reduced harvest with our new harvest decreasing by approximately 89% year-over-year. While our harvest production costs remained low in Columbia as a result of our reduced harvest, we continued to incur costs related to processing our existing inventory for extract sales. In Portugal, we incurred costs related to scaling our existing flower operations which we have recently worked to reconfigure. Though 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. In Columbia, we are working to right-size our harvest and prepare for smokable dry flower exports, and we believe that our costs will moderate to more advantageous levels as we ramp dry flower production to meet customer demand. We also expect flower products to eventually comprise a greater share of our product portfolio and that our extra costs will remain at similar or lower levels to what we've driven historically. In Portugal, we expect unit costs to improve over time as we process additional harvests ramp cultivation of our premium flower on a smaller scale, and bring our post-harvest facility fully online now that we've completed the EU GMP licensing process. The operational enhancements and workforce reductions we've already implemented have generated some initial cost savings, and we aim to drive additional efficiencies as we continue progressing these initiatives. Our gross profit in the third quarter of 2022 was $0.3 million, which included a $1.7 million inventory provision compared to $1.9 million, which included a $0.7 million inventory provision in the year-ago period. Our adjusted gross profit, which excludes the inventory provision in the third quarter of 2022, was $2 million compared to $2.6 million in the year-ago period, This reflects an adjusted gross margin of 59.8% compared to 65.1% in the year-ago period. The year-over-year decreases were primarily driven by our softer revenue performance during the quarter, as well as by increased inventory provisions related to aged, obsolete, or unusable inventory. We also continue to mitigate headwinds from wage inflation rising transportation costs, and both labor and material availability in our nutraceutical business. These factors have continued to pressure our margin performance, and we will continue monitoring these impacts on the broader status of the labor and supply chain conditions. As a result of the headwinds we've discussed in our revenue performance, as well as adverse conditions in the broader cannabis market, we've performed an interim impairment assessment on our indefinite lives intangible assets related to our Colombian licenses and recognized a total impairment charge of $19 million during the third quarter. This was partially offset by the write-off of approximately $6.7 million in corresponding deferred tax liability related to the indefinite lives intangible assets. Operating expenses in the third quarter of 2022 were 26.5 million compared to 11.6 million in the year-ago period. The increase was primarily driven by the intangible asset impairment charge of 19 million related to our Colombian cannabis licenses. As we continue adapting to evolving conditions in our operating environment, we will keep advancing the cost reduction and restructuring work we've undertaken throughout the year. including the most recent reductions we've made to our workforce and operational scale in Portugal. Starting with our restructuring near the end of the first quarter, we have steadily rightsized our personnel, new harvest output, production infrastructure, and organizational priorities to align more closely with our current market opportunities. In Q2 and Q3 combined, These actions drove sequential reductions in our G&A, R&D, and sales and marketing expenses of approximately $2.8 million. Additionally, one other significant example of our cost reduction efforts was our recent decision to change our audit service provider. We implemented a competitive bid process with several qualified firms, each submitting proposals for evaluation. As a result of this process, the company will realize a meaningful reduction in expense for the coming year. Net loss in the third quarter of 2022 was $20.2 million compared to net income of $1 million in the year-ago period. Net loss in the current period was primarily driven by the $19 million impairment charge, partially offset by $6.7 million deferred tax liability write-offs related to the indefinite live intangible assets I just mentioned. Note that net income in the prior year includes a $9.1 million gain on re-measurement of warrant liability and a $3.4 million gain on debt extinguishment, as well as a $0.5 million in interest and amortization of debt issuance costs. Adjusted EBITDA in the third quarter of 2022 improved to negative $5.4 million compared to negative $6 million in the year-ago period. This is mainly due to cost reductions mentioned earlier, partially offset by higher inventory provision and sales and marketing expense. The cost improvements we have implemented throughout the first three quarters of 2022 have significantly contributed towards our reduced adjusted EBITDA loss. We have driven steady sequential improvements in this metric year to date from the first quarter of negative 6.7 million to the second quarter of negative 6.3 million and to the third quarter of negative 5.4 million. At September 30th, 2022, our cash balance was 17.6 million compared to 37.7 million at December 31st, 2021. The decrease was primarily attributable to operating losses and our repayment of $22.9 million in debt obligations earlier in the year. This was partially offset by net proceeds of $26.3 million raised in our at-the-market stock offering year-to-date through the third quarter, as well as by $2.5 million proceeds related to the partial sale of equity investments. Through the remainder of 2022, we aim to further improve our liquidity position through reducing our expenses and investment in working capital. Lastly, due to our softer than expected revenue performance across both business segments during the quarter, we have revised our full year 2022 revenue forecast. We now expect our 2022 revenue to range between $17 million and $17.7 million compared to our previously disclosed range of $20 million to $25 million. Based on our continued progress with reducing costs across our organization, we currently remain comfortable with our previously stated expectations for our full year adjusted gross margin, which we expect to range between 50% and 55%. We have also narrowed the range of our 2022 adjusted EBITDA, which is expected to range between negative 23 million to negative 22 million as compared to our previous range of between negative 23 million to negative 20 million. With our continued cash burn reductions, we now expect our 2022 capital expenditures to be approximately 1.5 million compared to the previous range of approximately 2 million to 3 million. We believe our ongoing focus on restructuring our costs, optimizing our cash efficiency, and streamlining our organizational processes has placed us in a strong position to support our long-term growth and profitability objectives as we execute on our strategy into 2023. This concludes my prepared remarks, and now I'll turn the call back over to Andres to review some of our market opportunities and most recent operational highlights in greater depth. Andres?
spk07: Thank you, Hank. Before we open the call to questions, I'd like to briefly review the regulatory and commercial opportunities available in our target markets across the globe. During Q3, we continued expanding our pipeline and started executing on key orders that we expect to grow during Q4 and in 2023. In addition, we have focused on demand generation for our Colombian flour, which is expected to export in Q1 of 2023 and is expected to be a significant growth for the company next year. To highlight some of our latest commercial achievements, we announced our expanded partnerships with Cantourage, a European medical cannabis leader, in which we will supply Cantourage with high THC dried flower product from a WAPA strain cultivated in Portugal. Contract will then utilize this product to produce ICANA 10, which will have one of the highest TH levels available in German pharmacies. In addition to deepening our existing commercial partnerships, we have strengthened our German market presence through developing our relationships with seasoned pharmaceutical operators and distributors, supporting the rollout of our ICANA product line and working to leverage Cleverleaf Germany's own status as a licensed medical cannabis distributor. With these various established pathways to the German market, we are advantageously positioned to continue deepening our presence, as well as benefit from incremental regulatory catalysts as they unfold over time. In July, we also launched our WAPA strain with both InterCure in Israel and AMTG in Australia. This strain exemplifies the type of premium high THC genetics that have become the exclusive focus of our flower productions. We will work to continue supporting the global momentum for this strain across our core markets, and we are using the learnings from these initial WAPA launches to further refine our approach as we roll out additional high-quality, high-THC strains. These learnings will also inform the rollout of our Colombian dried flower products, and we currently expect Germany and Australia to be among the first of our target markets to receive these products. Colombian flower sales, which we expect to start ramping up in Q1 of 2023, present a very significant avenue of growth for clear leaves in 2023 and beyond. From a product standpoint, we have been working for over a year on quality improvement, and we have increased the number and type of genetics. We have also significantly improved key flower characteristics, such as THC and terpene profile, bud size, and density. Having already sold flour around the world, and based on feedback from our customers, we are confident our product will be well received in its destination markets. In addition, flour from Colombia has a very attractive cost position, which is hardwood cultivators in different countries to match, and will allow us to expand our market via affordability. Finally, the sustainability aspect of Colombian product, grown with very minimal artificial lightning and utilizing more than 70% rainwater, is generating significant interest across our customer base. As a matter of fact, we have several of our customers already interested in the flower and are working with them to nail down agreements for supply will begin in 2023. As part of our strategy of growing our genetic base and improving our product quality, we announced a new partnership with House of Kush, a leading legacy genetics cannabis company based in the United States near the end of Q3. And this three-year agreement We will be the exclusive producer of various genetics for House of Cush outside of the United States and Canada, growing strains such as Bubba Cush Pre-98 and San Fernando Valley OG Cush in our Colombia and Portugal facilities. We will collaborate with House of Cush to develop the proper cultivation protocols needed for each of the genetics, as well as complete an initial evaluation and adaptation phase at each production location. We look forward to expanding these US partners' global footprint and working to expand our broader market visibility in the U.S. where possible. In South America, we have started shipments of our extract products into Brazil, where our products can be found in pharmacies around the countries. We are already seeing a significant shift from the Compassion U scheme to RDC 327. Sales forecasts from our Brazilian partners allow us to feel very bullish on Brazilian growth during 2023. In addition to Brazil, we recently reached a key product milestone with one of our Peruvian medical cannabis partners, Anden Naturals. Just last week, we announced that Anden Naturals had obtained a sanitary registration for Andenol 50, a 5% THC-dominant oral solution produced by CleverDisc in Colombia and sold under the Anden Natural brand in Peru. Andenol 50 is the company's first THC-dominant product to obtain sanitary registration for commercialization as a finished product and it is the first product to secure this registration in Peru altogether. We view this achievement as a testament to our high-quality cultivation and product development standards, and we are on track to complete the initial 1,000-unit shipment of annual 50 in the first quarter of 2023. As we look to the year ahead, we are gradually and steadily activating our commercial pipeline in our core markets, while improving our position for additional growth opportunities. Beyond the target markets we've identified and activated in 2022, we are also underway with activating commercial opportunities in the United Kingdom. Use of medical cannabis when prescribed by a registered specialist doctor has been legal in the UK since 2018, making this market a vital opportunity for our pharmaceutical-grade products. We currently expect to export flour from Portugal to the UK in the first quarter of 2023, and we believe additional export and flour export from Colombia will follow over time. In sum, with the improvements across our flower product in Portugal, the launch of our Colombian flower, the expected growth in our extract orders, our expanded pipeline, and our enhanced commercial capabilities, we currently expect 2023 to be a year of significant growth for Cleverleafs. From a regulatory standpoint, there are several tailwinds for the industry, and particularly for us at Cleverleafs. As many of you have likely seen over the past few weeks, there has been increased regulatory progress towards recreational cannabis localization across several of our core markets. In Colombia, Representative Juan Carlos Sarras' adult use cannabis legislation bill received approval in the country's House of Representatives last month, and the bill will subsequently move forward for a Senate and presidential approval. We have seen similar legislative progress address out of Germany, as German Health Minister Karl Lauterbach has recently presented a paper outlining planned legislation to regulate adult-use cannabis distribution and consumption. In addition, the Australian Greens are underway with drafting a bill to legalize and regulate adult-use cannabis. Discussions of regulatory advancements have also resumed in the U.S., where President Biden issued an executive order pardoning individuals convicted of federal marijuana possession offenses and started an intent to review the scheduling categorization of marijuana. Each of these markets are at different stages of regulatory progress. As we've seen with past cannabis market expansion opportunities, these incremental advancements are complex and gradual, requiring extensive debate, approval, and careful establishment of legislative frameworks. We will continue to monitor these regulatory developments and any others that arise across our target markets, and we remain broadly supportive of growing cannabis acceptance across the globe and the corresponding market opportunities this offers. With the international market pathways we have activated and the increased efficiencies we are driving throughout our organization, we will continue working to strengthen our commercial presence and streamline our cost and capital structure to support our growth initiatives. We look forward to advancing our strategic process and further improving our positioning for long-term growth into 2023.
spk05: Operator, we'll now open the call for Q&A.
spk02: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. Our first question comes from Pablo of Cantor Fitzgerald. Please go ahead.
spk03: Hi, this is Matthew Baker on for Pablo. Thank you for taking our questions. Can you give more specifics from your growth in Germany, specifically what parts are growing and then what is driving that growth? And then as a second question, is the Israel market shut down for now and related to that? What are you leveraging? How are you leveraging the interferer expertise in your Portugal facility? Thank you.
spk05: Sure, this is Andres, and thank you for the question and thank you for joining the call.
spk07: So again, Germany and Israel both are part of our target markets, our strategic markets we chose this year to focus on. In Germany, I'd say what we have seen growing for us is basically our flour. We, during Q3, were able to sell, and even before, some of our Portuguese-produced flour. We did it quite successfully. and we're looking to continue doing so, you know, in Q4 and beyond. We have already, you know, started planning for additional strains from Portugal to be introduced at the beginning of 2023. And as mentioned before during the call, we're also preparing shipments for, you know, Colombian flower, which is, you know, looking very, very good from a THC perspective. Organoleptics are there as well. And certainly, of course, you know, there's a little story behind those strains. So we're very bullish on that. So certainly flour is what's attracting most of the attention that we're seeing right now. We've sold through our own distributor, Cleverleaf Germany, flour with our ICANF brand from third parties that has also been successful. So I guess what we have been building in Germany is a capability to be able to sell product to pharmacies across the country and as well to build that relationship with prescribing physicians, you know, where that's the case. That's one. And the second element to Germany for us, and we have been continuing to work on this, you know, for the most part this year, has been the extract side of things. And for the extract side of things, we partnered with Etifarm, which is a European pharmaceutical company, and we have been working with them We started by selling some CBD-dominant products. We're now evolving to sell other balanced and high THC products. It's also working. It takes time. We have to develop the demand through decisions, but it's working, and we're positive on Germany in that regard. Certainly, we're well-positioned. We have an asset there that has important distribution capabilities. We have built the relationship with pharmacies So we believe, you know, it will serve as our gateway for our own product and eventually as a gateway for product from other parties, which, you know, if I may, you know, given that we now have the EU GMP certification in our Portuguese facility, you know, will allow us to bring our Colombian flour and flour from others, you know, through our Portuguese facility and eventually to be sold in other parts of the EU. So I believe we're well positioned there for the competitive dynamics. On Israel, no, the market's not shut down. We have continued to ship product to Israel. It is a complex and lengthy process, but I guess if you have the right partners and work with them and work with the authorities, it's doable. We're a company that specializes in growing cannabis where it has to be grown and sending it to different parts of the world. So we have been able to to adapt ourselves to the ever-changing requirements in the Israeli market. And we still see a lot of potential there for our own products. But having said that, you know, part of what we're focusing on now in Israel is also looking for ways to help Israeli companies internationalize. I think that's something that these companies have been working on, you know, and we have the platform to do that both from a production, from a distribution, and from a client relationship standpoint. So I would say, yes, we're sending product. The market's not shut down. But beyond that, what we're focusing on now is how do we bring cannabis and genetics and all of what the cannabis industry has built in Israel to international markets.
spk03: Thank you for that. I appreciate the color. If I may, just one more follow-up question. What is the company's backup plan in the case that German REC program does not allow imports in the first few years? Just any color that you can provide that would be super helpful. Thank you.
spk07: Sure. In general, it's very early, as you know, to know what's going to happen. We have different strategies, I would say. Number one, of course, we have production. So I don't think it's a matter of if, but a matter of when they're going to allow imports. We will be ready for that. But beyond that, what we have been doing is we have our import and distribution company within Germany. We have been positioning a brand at this point. We're there working with pharmacies and eventually working with other players in the market. So most probably, if imports are not allowed, we're going to start leveraging those capabilities downstream that we have also been building in Germany successfully to be a player within the recreational cannabis industry. if, you know, or when it's legalized and, you know, of course, how it is legalized.
spk05: Thank you. Thanks. Thank you.
spk02: Once again, if you have a question, please press star, then 1. Our next question comes from Diana Tokar of Canaccord Genuity. Please go ahead.
spk06: Hey, guys. Thanks for taking my question. I just wanted to ask if you could give giving more color on 23 in terms of the split between cannabinoid business and non-cannabinoid business segment, and how should we be thinking about the revenue ramp, given that you're expecting to have first Colombian flower export in Q1 of 23? Thanks.
spk05: Thank you. So, okay.
spk07: I mean, next year, what's going to happen, Diana? And thanks for being in the call and for the question. Next year, as you said, we're seeing two or three things that are, I think, quite crucial in the cannabinoid business. Number one, we're seeing the Colombian flower enter the market in Q1 of next year. We're pretty confident on that, and that's going to have a significant impact on our cannabinoid sales. Second element, As we said, yes, we're reducing the scale in Portugal, but we are focusing on premium product. So we believe growth there is also going to be there. Third, we are maturing some of the extract contracts that we've already started shipping in 2022. Those are going to mature in 2023. For instance, Brazil, which is a huge market, we've started shipping with different clients. We're very, very bullish on that. So we see very different avenues of growth for our cannabinoid business next year. Having said that, we're also bullish on what's happening on the nutraceutical side. Our store counts have been increasing. Our portfolio penetration has been increasing across our channels. We have a branding strategy and portfolio strategies that we have seen you know, are successful, which we believe are going to bring growth next year as well. You know, I would say, you know, in general, you know, next year maybe, you know, we're going to be closer to 50-50% between both segments.
spk04: Okay, that's clear. That's it for me. Thank you.
spk05: Thank you.
spk02: At this time, this concludes the question and answer session. I would like to turn the conference back over to Mr. Farahando for any closing remarks.
spk07: Thank you, Ariel. 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 fourth quarter of fiscal year results next March.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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