IM Cannabis Corp.

Good morning and welcome to I Am Cannabis' third quarter 2023 earnings conference call. Today's conference call is being recorded. At this time, I would like to turn the conference call over to Anna Tsiranko, Director of Investor and Public Relations.

Anna? Good morning and thank you, Operator. Joining me for today's call are I Am Cannabis Chief Executive Officer Oren Schuster and Chief Financial Officer Itai Vago. The earnings press release that accompanies this call is available on the investor relations section of our website at investors.imcannabis.com. Today's call will include estimates and other forward-looking information and statements, including statements concerning future results of operations, economic conditions and anticipated courses of actions and are based on assumptions, expectations, estimates and projections as the date hereof. This 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 CEDARplus at www.cedarplus.ca and EDGAR at www.sec.gov. Furthermore, certain non-IFRS measures will be referred to during this call. and the term non-IFRS adjusted EBITDA loss will hereafter be referred to as adjusted EBITDA loss. 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 also note that all references on this call reflect currency and Canadian dollars. With that, it is my pleasure to turn the call over to Orange Sister CEO of I Am Cannabis. Oren, please go ahead.

Thank you, Anna. Good morning, everyone, and thank you for joining us today. As a medical cannabis company headquartered in Israel, I would like to start off today by briefly touching on the Hamas massacre of Israelis. As I had mentioned in the press release on October 12th, there are no words to describe the scale of the horror and the impact it is having on each and every Israeli. We are a small country and every single one of us is directly impacted, either personally or through our family and loved ones. IMC supports and stead with all the Israelis that are affected by this war, and we also fully support the Israeli Defense Forces. Medical cannabis is defined as a critical infrastructure sector in Israel, just like all other pharmaceutical businesses. I am very proud of the team, how they are coming together to work through this horrific situation. While the assumption is that medical cannabis consumption will increase in the long term as a result of the war, it is too early to try to predict with any certainty exactly what the impact of the war will be on the medical cannabis industry in Israel in the short term. and how it will impact the planned regulatory changes in the short term that were expected at the end of 2023. As I mentioned during our last call in August, in June, the Health Committee of the Knesset, the Israeli parliament, passed a resolution facilitating access to medical cannabis for patients with medical indications including metastatic cancer, Parkinson's, and gastrointestinal disease such as Crohn's with regular prescription. Pain and PTSD, the two of the three most prevalent indications, will continue to require a medical cannabis license. We believe the new legislation will have the ability to accelerate market growth in Israel. However, in the absence of any official governmental communication, we expect all new cannabis legalization will be put on hold for the near future because of the war. Also in August, the German government took the next step forward in its cannabis legalization proposal. with the final reading of the legislation to be held in Parliament during Q4. While the focus there is on non-profit social clubs and home growth, medical cannabis is also expected to be rescheduled during Q1 2024. Medical cannabis will be moved from a tightly regulated narcotic to a simple prescription medication. This is a massive step forward for the medical cannabis industry. as it will greatly facilitate patient access by simplifying the prescription process for physicians and easing storage and transport regulations for both producers as well as pharmacies. The prescription cost for self-payers will also be reduced. Narcotic prescription has a co-payment which will no longer be applied under the new regulations. We anticipate that market growth will accelerate significantly as a result of the regulatory rescheduling. Before going into market details, as I've been doing for the last few quarters, I would like to give you an update on the transformation IMC has been going through since Q4 2022. We are singularly focused on reaching sustainable profitability, which is supported by two cornerstones we focused on in our last calls. First, the strategic shift to focus on meeting patients' and pharmacies' needs. Second, rightsizing, restructuring to put the necessary resources behind the strategic shift. We need to be a lean and agile business based able to respond quickly to the changes within our dynamic market. For the last four quarters, we focused on restructuring as well as accelerating the path to profitability through active cost management and margin improvement in both the Israeli and Germany individually. When we take a look at results of the strategic shift we can see that the revenue stays mostly stable, even taking into account the negative currency effect of the Israeli shekel, which has declined 19.6% since the beginning of the year versus the Canadian dollar. As expected, the cost of the revenue mirrors the revenue. This has not been easy. The majority of our supply comes from Canada, where we pay in Canadian dollars. we have lost 1.5% of our gross margin since Q3 2022. If it were not for the negative currency effect, we would have had an 11.5% improvement in our gross margin instead of the 10% improvement we are reporting this quarter. Where we see the clear impact of the restructuring and active cost management since Q4 2022, is in the operating expenses, where we have managed to further reduce costs by 34% since Q3 2022. But more importantly, in Q3, we kicked off a full integration project between Israel and Germany to further drive efficiencies in both of our markets. From supply to marketing and sales, we are sharing information and working together as one team. We believe that by combining our cannabis experience, we will be able to further our position within the cannabis market, especially in Germany. We clearly see that the German market development is mirroring the Israeli market development of the last few years. The average price per gram of medical cannabis for the patient has fallen from around 12 euros or 17 Canadian dollars per gram in 2022 to under 10 euros or 15 Canadian dollars per gram in 2023. An average of 20 new cannabis flowers are launched per month, a number which we expect to continue increasing. There are currently over 350 medical cannabis flowers and over 155 different medical cannabis strains available on the German market. The market is rapidly saturating. This is exactly the development the Israeli market has been going through for the past two years, which is why we have a clear advantage in the German market. we are leveraging our proven Israeli strategy to drive results in the German market. Now, I will give you an overview of both the Israeli and German markets before heading over to Etai for the financials. In Israel, we made a cautious decision to focus on the premium and super premium segments over a year ago. By doing this, we created these two segments in Israel and are still by far the market leaders in premium and super premium medical cannabis. What drove this decision was twofold, premium pricing and better gross margins. Premium and super premium cannabis are not subjected to the same price pressure, as mid-range cannabis allowing us to achieve higher gross margins. When we segment our portfolio accordingly, we can clearly see the results. Our average selling price for our ultra-premium brands this quarter is 25 shekels per gram or non-Canadian dollars per gram, the highest in the Israeli market. In Q3, we reinforced our position as number one in the premium market through the launch of two new Lot 420 high THC strains, Gelato 33 and Zeno, as well as additional IMC product, Chemtube. Overall, our business in Israel was influenced by three factors this quarter. First, we further streamlined our patient delivery service to improve cost. In Israel, until August, we delivered medical cannabis directly to patients. As a result of our active cost management, we have been working for the last three quarters. We decided to outsource our delivery service to a third party. While this move will result in approximately 300,000 Canadians in savings per year, we had a two-month transition period during this quarter, doubling the delivery cost during this time. We also estimate that the transition period caused a short-term interruption of sales. Second, currency fluctuations. As I mentioned earlier, the Israeli shekel fell significantly versus the Canadian dollar over the course of Q3, declining 2.6% in average versus Q2, with an overall decline of 19.6% since the beginning of the year. Because the majority of our sales are in shekels and we report in Canadian dollars, this had a significant impact on our Q3 revenue. leading directly to 900,000 Canadian dollars or 6.4 decrease in revenue versus Q3 2022. Third, while our focus has been on growing the premium and super premiums business, we have had to adjust our portfolio and inventory accordingly. We cleaned our first set of slow moving stock in Q3 by reducing prices. While this helps drive incremental sales in volume, the lower prices impacted both our revenue and gross margin. The remainder of the slow-moving stock will be cleaned out in Q4. In Germany, we launched our first premium ITHC strain leveraging the entire IMC Israel branding and collateral. By working closely with the Israeli team, we were able to ensure that this launch was our strongest launch in Germany so far. In addition, the team further solidified two new high THC strains that were launched in Q1 of this year. Taking a look at the overall results since we shifted our strategy, I'm convinced that it was the right decision. It has been challenging journey, but we are moving towards sustainable profitability. This will continue to be our focus as we move into Q4. In Q4 in Germany, we expect the final readings of the cannabis legalization to take place in the German parliament. We will also start to see the effect of the Israeli Hamas war as on the cannabis industry in Israel and on IIM Cannabis as well. Since the start of the war in October, we have already seen an initial impact on our employees, suppliers, imports, sales and more. While it is too early to assess the extent of the impact, we anticipate a negative impact in Q4 2023, with a potential positive effect in the medium to long term. I will now turn the call over to our Chief Financial Officer, Itay Vago, who will review our third quarter 2023 financial results. Itay?