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Operator
Good morning and welcome to IAM Cannabis' fourth quarter 2023 and full year 2023 earnings conference call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Anna Taranko, Director of Investor and Public Relations.
Anna Taranko
Good morning and thank you, Operator. Joining me for today's caller, IAM Cannabis Chief Executive Officer Oren Schuster and Chief Financial Officer Jori Bernberg. The earnings press release that accompanies this call is available on the investor relations section of our website at investors.iamcannabis.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 action, 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 Cedar Plus 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 Oren Schuster, CEO of I Am Cannabis. Oren, please go ahead.
Oren Schuster
Thank you, Anna. Good morning, everyone, and thank you for joining us today. As you know, we are a medical cannabis company based in Israel and Germany, which is why we will focus the call today on the legalization in Germany The impact of the Israeli Hamas war had on our Q4 results and the potential reverse merger with Kadima stand, which we announced on February 28. When we take a look at Germany, 2023 was a roller coaster for the cannabis market. The year started out with extremely high expectations surrounding the proposed cannabis legalization. When the German Minister of Health unveiled his initial legalization proposal in April of 2023, it was a big step forward, but still fell short of the initial legalization expectations. The German government spent the rest of the year reworking step one of the proposed proposal focused on decriminalization home-grow, not-for-profit social clubs, and the rescheduling medical cannabis from narcotics, the most tightly regulated medication to regular prescription medication. While the implementation of the legalization was delayed several times, it cleared the final hurdle last Friday, March 22. The new legislation will enter into effect on April 1. with the opening of cannabis social clubs expected on July 1st. Obviously, our German team is extremely excited to have the relative freedom to operate within the new regulatory structure. The size of the opportunity is massive. The German population is about 83 million people, more than double the population of California. Until the non-profit social clubs are up and running, the only legal way to buy cannabis in Germany will be in the pharmacy with a prescription. We believe key to medical market growth is the rescheduling of medical cannabis from narcotic to a regular prescription medication, which will lower the barriers to market entry for new patients. Currently, one of the biggest bottlenecks in market growth is the prescription process. When prescribing narcotic, German physicians are required to document each patient and are subject to regular narcotic audits, whereas the prescription process for regular prescription medication is simplified, removing this bottleneck. In addition, the rescheduling will ease the storage and transport regulations for both distributors as well as pharmacies. The prescription cost for self-payers will also be reduced. Narcotic prescription and copayment, which will no longer be applied under the new regulations. When we put all the beneficial changes brought about by the rescheduling together, we anticipate that the medical cannabis market growth will accelerate significantly as more new patients are expected to start entering the market. In 2020, we started laying the framework to become a top cannabis company in Germany. Since 2021, we have been in the top 10. We have a fully licensed EU GMP cannabis processing facility, one of a handful in Germany, licensed to repack bulk. We distribute our cannabis products through our EU GDP license logistics center to any pharmacy in Germany within 24 hours. Having all our facilities EU GMP and EU GDP certified is so important because these are the highest certifications the European Union has to guarantee the safety of medical products. The structure behind both the EU GMP and the EU GDP is lean, agile, and can be easily ramped up to meet the increasing market demand. By having all these processes in-house, it enables us to maximize our margins while having independent full end-to-end control. We can and have been providing cannabis services to other cannabis brands in Germany as well. In November of 2022, We restructured and pivoted our strategy to focus exclusively on private payers and flowers, the market segment with the highest growth rates. Although our objective was sustainable profitability, the result of this pivot was tremendous. When we take a look at December 2023 market data from Inside Health, it shows that we grew 180% in 2023. while the market only grew 20%. The German team posted the highest market share growth in the category to close out the year as a strong number five within the German cannabis flower distributors. We are number one in sales per skew within the German market and have the highest growth in the market. These results clearly show the potential of our strategic pivot driving accelerated growth while reducing costs. With our in-house EU GMP facility, EU GDP logistic facility, to support the accelerated growth we already delivered in 2023, we have the supply agreements in place to deliver further accelerated growth in 2024. With the framework we have put in place and the experience we have gathered over the last four years, we believe that we are in an excellent position to take advantage of the momentous change in the cannabis category we'll go through in Germany. We have the infrastructure in place, we have the team, and the supply agreements we need to grow further. Moving to Israel, the Israel-Hamas war started on October 7th. While we can already see that it's leading to an increase in patient and license numbers, it's also played havoc with our business. For example, the decrease in our October sales plus the interruption of our supply chain caused a 26% or 3.2 million CAD decrease in our Q4 revenues. Also, our shipping costs have increased by almost 100%. The currency fluctuations we talked about last quarter continue to affect our revenue. The total annual effect of the fluctuation is downside of approximately 2.5 million CAD. In Q4, we continued cleaning out slow moving stock by reducing prices that we started in Q3. While this helped drive incremental sales in volume, the lower prices impacted both our revenue and gross margin. On a positive note, in Q4, we reinforced our position as the number one in the premium market by relaunching two black market strengths, jealousy and batched gelato, as well as two pickle strengths, jealousy number one and batched gelato number four, in addition to launching a new PICO strain, Absinthe Down No. As in Germany, in 2023, the Israel Ministry of Health started working on a regulatory overall facilitating access to medical cannabis for patients with medical indications ranging from metastatic cancer to pain and PTSD. The proposal includes moving medical cannabis to first-line treatment as opposed to last-line treatment and touches on existing export regulations. Just yesterday, the Ministry of Health had a conference to disclose the expected timeline and implementation of the new legislation. I will go into detail during our Q1 2024 call as we anticipate that the regulatory change will drive substantial growth in the Israeli cannabis market. In summary, while the overall results did not meet our expectations, 2023 was the year of transformation. We are a lean and agile business, able to take advantage of the accelerated growth expected of the rapidly evolving cannabis market in both Germany and Israel in 2024. I would now like to take you through the proposed reverse merger with Kadima Stem. When we started our year of transformation last year, we were focused on two goals. achieving sustainable profitability and maximizing shareholder value. We massively restructured the entire operation in 2023 to minimize costs and maximize our efficiency and agility. We made considerable progress in this direction throughout the year. While this process significantly improved our company's financial health, it does not translate into increasing shareholder value. This was front and center while we have been looking for a way to deliver maximum value for our shareholder in the current situation, keeping all possibilities open. It drove the decision to initiate the potential reverse merger with Kadima Stamp. It delivers on our promise of maximizing shareholder value while giving the legacy cannabis business the freedom to fully focus on just that. The cannabis business in Israel and Germany, two of the highest value medical markets, which are set to grow significantly this year. We expect that this process will accelerate the path to sustainable profitability of the cannabis business which our shareholders will retain in addition to participating with 12% in KadimoStem business, which we believe has tremendous potential. With a focus on clinical stage cell therapy, they were recently approved by the FDA to contract Phase IIa clinical trials. The next steps in the reverse merger process involve initiating robust due diligence, commencing work on the definitive agreement, as well as investigating the conditions, precedent, and requirements of the CSE and NASDAQ. It is still too early to assess how long it will take until we sign a definitive agreement. To sum up, 2023, we see that while the shift in strategy was not necessarily the easiest decision, the results in Germany undoubtedly show that it was the right one. Between the fluctuation in currency and the Israeli Hamas war in Q4, we did not see the results we'd expected in Israel this year. When I look at the overall results of 2023, I see that we are lean, agile, and well positioned to take advantage, not just of the growth expected by legalization in Germany, but in Israel as well. 2024 is the year we have been preparing for. In 2024, our focus will be clearly on Germany, where we are well positioned to deliver accelerated growth. We grew 180% in 2023. We are number one in sales per SKU. We have the infrastructure and the team we need for success, as well as the supply agreements in place to deliver. I believe this together with the 12% participation in Kadima STEM will deliver ShareHub all their value. I will now turn the call over to our Chief Financial Officer Uri Bierenberg, who will review our fourth quarter 2023 and full year financial results. Uri?
Uri Bierenberg
Thank you, Oren. I will now provide an overview of Q4 2023 and the annual financial results for the company's continuing cannabis operations. As Oren already mentioned, Q4 was tremendously impacted by the Israeli-Hamas war, which is apparent in our revenues as well as our expenses. Revenues for 2023 were $48.8 million, compared to $54.3 million in 2022, a decrease of 10%. Revenues for the fourth quarter of 2023 were $10.7 million, compared to $14.5 million, a decrease of 26%. The main part of the decrease on the fourth quarter, about $3.2 million, was due to the interruption of the supply chain cost by the Israeli-Hamas war. and the slow moving stock that was moved out at a lower price. Total bridge flour sold in 2023 was approximately 8,609 kilogram with an average selling price of $5.14 per gram compared to approximately 6,794 kilogram in 2022 with an average selling price of $7.12 per gram. The difference is mainly due to increased competition within the retail segment and mid-range stock discounts to move out slow moving stock. Total dried flowers sold in the fourth quarter of 2023 was about 2,082 kilogram, with an average selling price of $4.52 per gram, compared to about 2,334 kilogram in the fourth quarter of 2022, with an average selling price of $5.19 per gram. The decrease in average selling price was caused by increased competition within the retail segment and mid-rate stock discounts to move out slow-moving stock. Gold's profit for 2023 was $9.8 million, compared to $9.2 million in 2022, an increase of 7.5%. Gross profit for the fourth quarter of 2023 was $0.8 million, compared to $2.6 million in the fourth quarter of 2022, a decrease of 68%. The downside is mainly attributed to the decrease in revenue caused by the war and the slow-moving stock that was moved out at a lower price, and about $0.8 million cost of sell sheet due to inventory erase. Company fair value adjustment was about $1 million versus $2.1 million for the years ended 2023 and 2022. Gross margin before fair value adjustment in 2023 was 22% compared to 21% in 2022. Gross margin before fair value adjustment in the fourth quarter of 2023 was 10% compared to 19% in the fourth quarter of 2022. a decrease of 46%. G&A expenses in 2023 were $11 million compared to $21.5 million in 2022, a decrease of 49%. G&A expenses in the fourth quarter of 2023 were $3.3 million compared to $9.8 million in the fourth quarter of 2022, a decrease of 66%. The decrease in the G&A expenses is attributed mainly to empowerment on year 2022 and restructuring and headcount adjustment in 2023. Selling and marketing expenses in 2023 were $10.8 million compared to $11.5 million in 2022, a decrease of 6%. Selling and marketing expenses in the fourth quarter of 2023 were $2.8 million compared to 3.1 million in Q4 2022, a decrease of 10%, mainly due to decrease in shared base compensation and restructuring. Total operating expenses in 2023 were 22.6 million, compared to 40 million in 2022. Total operating expenses in fourth quarter of 2023 were $6 million, compared to 13.3 million in the fourth quarter of 2022. a decrease of 55%. NANA-FRS adjusted EBITDA loss in 2023 was 8 million, compared to an adjusted EBITDA loss of 11.5 million in 2022, a decrease of 31%. Adjusted EBITDA loss in the fourth quarter of 2023 was $4.2 million, compared to adjusted EBITDA loss of $1.9 million in the fourth quarter of 2022, an increase of 127%. Net loss from continuing operations in 2023 was $10.2 million, compared to $24.9 million in 2022. Net loss from continuing operations in the fourth quarter of 2023 was 3.5 million compared to a net loss of 9.6 million in the fourth quarter of 2022. Diluted loss per share in 2023 was $0.74, compared to a loss of $3.81 per share in 2022. Diluted loss per share in the fourth quarter of 2023 was $0.25, compared to a basic loss of $2.94 per share and a diluted loss of $3.55 per share in the fourth quarter of 2022. As of the balance sheet, cash and cash equivalent as of December 31, 2023, were $1.8 million, compared to $2.4 million in December 31, 2022. Total assets as of December 31, 2023 were $48.8 million, compared to $60.7 million in December 31, 2022, a decrease of about 20%. The decrease is mainly attributed to inventory reduction of about $6.6 million, a reduction in other assets of $1.8 million, and a reduction of non-current assets of about $3.5 million. Total liabilities as of December 31, 2023, were $35.1 million, compared to $36.9 million in December 31, 2022, a decrease of about 5%. The decrease was mainly due to the reduction in trade payables of about $6.1 million. The company is planning to finance its operations from an existing and future working capital resources. as well as from available credit facilities and will continue to evaluate additional sources of capital and financing as needed. I would like to turn the call back to Oren for closing remarks. Oren?
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