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spk02: Good day and welcome to the I Am Cannabis Q1 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Maya Lustig, Investor Relations at IAM Cannabis. Please go ahead.
spk01: Thank you, Operator. Joining me today are IAM Cannabis Chief Executive Officer, Oren Schuster, and Chief Financial Officer, Shai Shemesh. The earnings release that accompanies this call is available on the Investor Relations section of our website at Investors. Today's call will include estimates and other forward-looking information and statements, including statements concerning future revenues, results from operations, financial positions, markets, economic conditions, product releases, partnerships, and any other statements that may be constructed as a prediction of future performance. The information may involve known and unknown risks uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences are described in detail in the company's most recent filings available on CDAR at www.cdar.com and EDGAR at www.sec.gov. Furthermore, certain non-IFRS measures will be referred to during this call. The company believes that the presentation of this non-IFRS information provides useful supplementary data concerning the company's ongoing operation and is provided for informational purposes only. Any estimates or forward-looking information or statements provided are accurate only as of the date of this call and the company undertakes no obligation to publicly update any forward-looking information or statements or supply new information regarding the circumstances after the date of this call. Please note that all references on this call reflect currency in Canadian dollars. With that, It is my pleasure to turn the call over to Oren Schuster, CEO of IAM Cannabis. Oren, please go ahead.
spk03: Thank you, Maya. Hello, everyone, and thank you for joining us for our first quarter 2022 earnings call. The first quarter was highlighted by two key factors. First, with our operational execution, the benefits of integrating our global model have begun to take hold. allowing us to identify various opportunities for margin expansion. The primary relates to centralizing our operations in Israel, where we are transitioning our supply source towards a self-supply model leveraging our Canadian yield. Second, as we progress on the path to profitability, we achieved yet another quarter of record revenues which increased 169% year-over-year and 18% sequentially to $23.6 million. Notably, we exited the quarter at nearly 100 million revenue run rate basis. Taking these two factors into account, we expect 2022 to be a breakout year for Ion Cannabis. which will be particularly evident in the second half of the year given our industry-leading global framework and expected synergies. Taken in tandem with significantly reduced capital expenditure in the coming year and a strong balance sheet, we are strongly positioned for long-term success and shareholder value creation. Before I expand on this recent progress, Allow me to provide a brief overview of the company and our vision for those of you that may be new to our story. I will then touch on each of our market segments that collectively make up our unique global platform, followed by a review of our financial results before opening the call up for questions. I Am Cannabis is a leading provider of premium cannabis for the medical and recreational markets in Israel, Canada and Germany. These countries are the three largest in which cannabis is federally legal, and we are the only multi-country operator with footprint in each of them. This fact is important as it highlights IMC's leadership position and early mover advantage in a large and rapidly growing addressable market. Through a series of strategic acquisitions, we believe we have built a world-class platform of premium cultivation facilities with ample capacity, top-tier brands, extensive distribution capabilities, and direct sales channels. We took a methodical approach to procuring each of these components and focused on alignment with our vision to become one of the world's largest producers focused on cultivating cannabis for premium and ultra-premium market segments. With our infrastructure established, we next turned our focus to the integration of its components within each of our market segments as well as across our broader platform. In Israel, we took several actions to generate operating efficiencies domestically while leveraging our global import-export supply chain. we saw an opportunity to capitalize on fragmentation in the market as well as the evolving consumer preferences towards e-commerce and home delivery. The acquisitions we recently closed in Israel provided IMC with the opportunity to consolidate three leading pharmacies, including Panaxa to their own, the largest online pharmacy business in the country. We are now creating a single customer support center and a centralized distribution hub for the three pharmacies. This has been relatively seamless process that we believe will create significant cost saving going forward while also strengthening our brand presence. We also acquired two GMP certified trade centers, which provide us with the purchasing power from suppliers and the ability to provide a wider product selection. While we have historically relied on domestic cultivation sources for our products sold in Israel, the Canadian businesses we acquired last year provided us with the ability to import premium products to Israel. In the first quarter, we began importing our own products to Israel with the launch of our Wagners brand, which is highly popular in Canada and has received a positive response from Israeli consumers. In addition to the benefits of having global brand recognition, the economics of importing products from our Canadian subsidiaries are highly attractive. In fact, the Canadian products we produce, import, and sell in Israel have a gross margin profile that is nearly double that of the products sourced from other suppliers. As we increase volumes to meet elevated demand, we have a significant margin expansion opportunity by simply becoming our own primary source of supply. In Canada, our leading brands have continued to gain commercial traction with existing and new products. Our Wagners and Highland Grow brands continue to rapidly gain market share in their respective price segments. With each brand receiving a leading rank and leading position in the province of Ontario, Canada's largest cannabis market. While Canada is the most mature and competitive of the markets in which we operate, we are focused on driving growth by launching new products and formats and increasing engagement with new and existing customers. We also expect to expand into new provinces in the near term, namely Quebec, which accounts for nearly a quarter of the Canadian population. In addition to this growth, the Canadian operation also serves as an avenue to provide products to Israeli and German markets, further demonstrating the power of the global model. As we increase internal cultivation towards full capacity, we are also focused on several operational initiatives that we expect to contribute to margin expansion, including yield improvements and reductions of volume-based operating costs. Finally, we continue to lay our foundation in Germany, the largest medical cannabis market in Europe. We have established positive reputation among the German healthcare community through our IMC branded products, which we attribute to our track record, brand reputation, and proprietary data from our experience in the Israeli medical market. We are committed to providing German physicians and patients with the best available strains in the global cannabis market, and we're currently in the process of launching our Wagner's brand in Germany. We believe that Germany has the potential to be the second largest federally legal adult use market in the world. Earlier this month, the country's health minister announced his support of an accelerated legislative process for legalizing adult-use cannabis that is expected to take place in the coming months, including legislative drafts expected before the end of the year. While it appears that the momentum is picking up, the legislative process will undoubtedly take time. Being early in this market is strategic and presents a massive opportunity for IMC. This is why we have made the conscious decision to invest significantly into our German infrastructure over the last few years. And we plan to continue this investment going forward. We are building our foundation in Germany to allow us to be the first mover in the evolving German cannabis market that we believe will prioritize premium cannabis, which is our core focus. We are thrilled to see the benefits of our multi-country strategy begin to take effect. We are ramping up cultivation in Canada to fulfill growing demand domestically and in Israel and Germany, where premium products command the market. By bringing our supply source in-house and optimizing our cost structure through the centralization of operations in Israel, we are taking a calculated and sustainable approach to achieving gross margin expansion. IMC gaining brand recognition on a global level, yet when we evaluate our position relative to the potential opportunities afforded by evolving regulatory landscape, we are still in a very early stage of our growth trajectory. I will now turn the call over to our Chief Financial Officer, Shai Shemesh, who will review our first quarter 2022 financial results. Shai?
spk05: Thank you, Oren. We continue to operate from a position of financial strength. As we continue to grow our revenue base, we are uncovering a variety of operational improvements that will allow us to scale sustainably. I will now provide an overview of our first quarter for 2022 financial and operational results. Revenues increased 169% to $23.6 million in the first quarter of 2022, compared to $8.8 million in the first quarter of 2021. The increase in revenues is primarily attributed to an increase in the quantity of medical and recreational cannabis products sold. Gross profit before fair value adjustments increased 37% to $6.4 million in the first quarter of 2022, compared to $4.6 million in the first quarter of 2021. Total operating expenses were $18.1 million in the first quarter of 2022, compared to $6.7 million in the first quarter of 2021. The increase in operating expenses were partly due to restructuring expenses of approximately $3.7 million associated with the closure of the facility in Israel. Net loss was $10.7 million in the first quarter of 2022 compared to a net income of $4.7 million in the first quarter of 2021. Basic loss per share in the first quarter of 2022 was 14 cents compared to basic earnings per share of 11 cents in the first quarter of 2021. Diluted loss per share in the first quarter of 2022 was 17 cents compared to diluted loss per share of 6 cents in the first quarter of 2021. Non-IFRS adjusted EBITDA was negative $4.5 million in the first quarter of 2022, compared to an adjusted EBITDA loss of $1 million in the first quarter of 2021. Cash and cash equivalents totaled $10.3 million at March 31, 2022, compared to $13.9 million at December 31, 2021. We are just beginning to see the synergies of our consolidated operations take effect as reflected by our sustainable year-over-year revenue growth. As we look forward, we expect the positive effects of our operational improvements to be increasingly pronounced. In the second quarter of 2022, we expect revenues to accelerate on a year-over-year basis while continuing to grow sequentially. And as we have previously noted, we are rapidly approaching positive adjusted EBITDA, which we expect we will achieve on a run rate basis in the second quarter of 2022, positioning us to be cash flow positive on a run rate basis in the third quarter of 2022. Finally, a quick note on our capital allocation strategy. While we continue to take an opportunistic approach to deploying capital, we currently do not have any new acquisition plans, and therefore we do not foresee any significant capital expenditures in the coming year. I would like to turn now the call back to Oren for closing remarks. Oren?
spk03: Thank you, Shai. We are at a pivotal point in IMC's growth trajectory as we aim to rapidly capture market share while fully integrating the components of our global model to position us for our next phase as a leading consumer packaged goods company serving the cannabis industry. Our focus on operational excellence is already yielding benefits that we believe will be incrementally realized as our brands are unified. Building on our track record of success in Israel and product category leadership of our brands in Canada, While leveraging our unique distribution infrastructure in Germany, we are well positioned to emerge as a major player in the European premium cannabis market. The opportunity in front of us is truly remarkable, and we are working diligently to seize it and to generate long-term value for our shareholders along the way. With that, I hand the call over to the operator to begin our question and answer session. Operator?
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your hands before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Aaron Gray with Alliance. Please go ahead.
spk00: Hi, good evening, and nice to see the improvement sequentially on the revenue and EBITDA. So the first question for me, Shai, you just talked about 2Q. You guys are holding the profitability. Just want to get some clarification there. You said exit 2Q at a run rate of EBITDA positive, so is that right? Just think that's more so for the month and for the quarter. It might be a little bit more breakeven. And then just if you could help us, you know, in terms of modeling, kind of get to that. You talked about the guidance for improved revenue and gross margin quarter over quarter for 2Q. So just helping us get to, you know, how much margin improvement and sales, you know, growth you expect to kind of get to that EBITDA guidance you just provided. Thank you.
spk05: Hi, Aaron. Thank you for the question. Well, first of all, as for your first question regarding the adjusted EBITDA, positive adjusted EBITDA, yes, we believe that for sure at the end of the quarter, meaning June onwards, we will be positive. Currently, we cannot... say, if the whole quarter will be like this. But as for now, it seems that it's going to be positive from June onwards. As for your second question, you... Sorry, I was cut off. As for your second question, regarding the divorce margins, we are now in the phase of seeing the federal integration and exploiting the synergies. And each of our territories enjoys a different growth margin. As for the second quarter, we will improve. In the country, we were on a 27% growth margin. It's logical that we will be around the 30, closer to the 30. And going forward, we believe that on average, we should be between 30 to 35. You need to remember that we have different... working in different areas, such as the retail, where the cost margin is lower. But it allows us to build the rest of our strategy for a fully integrated company.
spk00: All right, great. Thank you very much for that call. That's helpful. Second question for me, just want to talk about the Israeli market, right? So if we're looking at the data that the regulators put out, it does look like there was a slowdown in terms of some of the volume for the first quarter on the industry. But, you know, when we talked in the past in terms of sometimes that volume data might not exactly align with the sales. So just want to get your outlook in terms of what you're seeing in terms of the overall industry, you know, sales, because it does look like it slowed down to low single digits in first quarter versus double digits sequential growth we had seen in the prior quarters. Thank you.
spk04: Well, do you want to pick this up? Yeah, yeah, I am. So what we've seen, the reasons that are just published in the last day or two, and we have seen a slower increase in the growth pace. Still, the market is growing. This month, it was slower than in the past. We don't know what will be in the rest of the year. But we have seen a big slowdown, not so significant until now. I don't know what will be in the rest of the year. Still, the market is growing.
spk00: Okay, great. Thank you very much. Last question for me. So Canada sales up 4%. You know, third-party high-fire data showing good trends for your brands. It actually shows retail up more like 20%, 30 bps games during the quarter. It looks like that's continued into April. So I know there can be some disconnects between, you know, selling into the provincial boards and then, you know, the POS, but it looks like sell-through has been strong. So is there any commentary maybe of the timing of the provincial buying? And maybe there might be some disconnect that we might see, you know, normalized in the next quarter in terms of some more meaningful growth rates similar to what we're seeing in the POS data. Thank you.
spk04: So we are continuing with capturing more market share in the Canadian market. I think that this is the market that you are related to. We also got more SKUs from the provinces because we are executing and performing very well. So I believe that we will continue with our growth and It's worth to mention that this year we're planning also to start and work in Quebec, which is a very significant market. We haven't seen yet the situation in Quebec, so I believe that we will continue with our growth before Quebec and definitely after we enter the Quebec market.
spk00: Okay, great. Thanks very much. I'll go ahead and turn back into the queue.
spk02: The next question comes from Scott Fortune with Roth Capital. Please go ahead.
spk06: Good evening, and thank you for the questions here. Just to follow up on Aaron's questions on the Canadian market and just kind of looking at prioritizing your premium brands to sell into the premium and ultra-premium channels there in Canada. But how do you think and kind of what's the allocation priorities within Canada and the international opportunities? Can you break down the percent or – the percent and volume of production that's being exported from Canada into those different global markets versus selling into Canada?
spk04: Yeah, it's a very good question. We are in the process now of optimizing our product allocation. Part of our integration and synergies is making this prioritization in Canada with the allocation of each of the products that we have to the different skills and brands across our markets, between Canada, Germany, and Israel. What we are aiming is that when we will allocate each of the flowers, it will be according to the optimization of the sale. of this product. So from the beginning, it will be allocated to the market with the highest margins that we can get. This is what we are building now, and this is part of the overall integration that we are planning. As of now, Scott, your question, we are allocating that between the brands, It's not mature yet. It's only the beginning of this process for us. Great.
spk06: And then looking at Israel a little bit, can you break out the different products sold in the Israel market from percentage-wise exports that you're able to sell dry flour there versus internal Israeli? And then what kind of flour versus oil? mix that was sold into the Israel market with the margin differences there?
spk04: In Israel, most of the market is small or is very small percentages of the product. What we see is that we've done We launched the Wagner's brand in Israel. It was a huge success. And in our stage, what we are doing is that we started to bring more massively products to the Israeli market. We're getting very good feedbacks, and the idea is to increase the import of products that are getting good feedbacks, and it's a process. This is what we're doing now. We're doing in Canada. We are purchasing products for the Israeli market, for the Canadian market, and also for the German market. The process of allocation of products between the markets is being in a phase of build out to know exactly the optimization. Today we are in the segments of premium and ultra-premium. We see that the ultra-premium with the high percentages of THC is going maybe to Canada because in the Israeli market we have a limitation of THC to 24.4% today. Higher than that goes to the Canadian market, unless it's EU GMP, which is only the minority of the product. So every product that we can, every import we can bring to the Israeli market that we need the qualification of the Israeli market, we want to bring to the Israeli market because we can sell it in Israel. So this whole process is being in a build-out phase. As of now, as much product as we can bring to the Israeli market with the qualification, we're bringing to Israel.
spk06: And just real quick. One last question if I can. Kind of Germany, what was the revenue breakdown in Germany and then what's the timing of Wagner's and potentially exporting your premium products from Canada into Germany directly?
spk04: Regarding the timing of the import, we are building that in order to bring the product to Germany, it has to be EU GMP certified. In Germany, you need an irradiation license, which is a process of at least six months. We are now in the process of all the regulatory phases in order to bring the product to Germany. I believe that it will be only on the fourth quarter, not before. Maybe the third, probably the fourth quarter. And regarding the numbers, can you ask again about the numbers? I'm sorry, I missed the question.
spk06: Yeah, just what was the revenue contribution from Germany on the quarter for the quarter.
spk05: It was $600,000. Okay. Thank you. I appreciate the color.
spk06: Thanks for the detail. I'll jump back in the queue.
spk02: This concludes the question and answer session. I would like to turn the conference back over to Oren Schuster, CEO of I Am Cannabis, for any closing remarks.
spk04: Thank you, operator, and thank you all for joining our call today. Please continue to track our progress as we continue to execute on our growth strategy, and I look forward to speaking with you in the coming quarters. Thank you very much.
spk02: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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