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spk03: Good morning and welcome to IAM Cannabis' third quarter 2024 earnings conference call. Today's conference call is being recorded. At this time, I would like to turn the conference call over to Anna Teranko, Director of Investor and Public Relations. Anna?
spk01: Good morning and thank you, operator. Joining me for today's call are IAM Cannabis Chief Executive Officer Orin Schuster and Chief Financial Officer Yuri Birnberg. The earnings press release that accompanies this call is available on the investor relations section of our website at .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 .cedarplus.ca and Edgar at .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 Orin Schuster, CEO of Mkannabis. Orin, please go ahead.
spk04: Thank you, Anna. Good morning, everyone. And thank you for joining us today. In IQ3, we had a clear focus to build a solid foundation to deliver accelerated growth in Germany in 2025. That said, as a medical cannabis company active in Israel and in Germany, I will start with a quick overview of the development of the German market and our performance there before explaining the progress we made to position the company for 2025. Since the April 1st partial legalization, the German cannabis market has been experiencing unprecedented growth at the speed that I don't think many anticipated. The growth has been driven by the increasing number of patients opting for cannabis-based treatments and the relatively inexpensive easy prescription process. Advances in medical research, better accessibility through pharmacies and the growing number of health care professionals willing to prescribe cannabis for a range of conditions from chronic pain to anxiety and sleep disorders are also key factors. The easing of regulations and increased public awareness have contributed significantly to the expansion of the market as well. As I did in the last quarter, I would like to put this growth into perspective by taking you through the details of our sales in Germany in 2024. They clearly show that strategic shift we made to concentrate our resources on the German market was the right one. Our sales increased by over 200% in Q2 versus Q1 to reach 3.5 million. In Q3, we again increased our sales by 66% versus Q2 to reach 5.8 million in Q3. Since Q2, we have been driving the market growth and are positioned among the top cannabis companies in Germany. While I'm very proud to presenting these numbers, our focus in the last few months has actually been behind the scenes on building a solid foundation for 2025. We spent the quarter leaning further into a clear target. Through the integration of the German and Israeli teams, the goal was to build a strong, consistent supply chain and a laser focused on how to improve the efficiency and accuracy of how we use our resources. I believe that this foundation will be the basis to drive accelerated growth in Germany in 2025. Behind every success, there is a strong unified teams. In Q2, the Israeli and German colleagues started working very closely to build a new supply channel from Israel to Germany. Cannabis supply chains are notoriously difficult to build with all the local, regional and international regulations that need to be followed. They manage this in a record time. The first three Israeli ground strains launched in Q3. The teamwork behind these first three strains is gathering steam and has led to a new project and opportunities. We are in the process of onboarding several new suppliers and expect to see the results during 2025. Just as important as a stable supply chain to deliver growth is sufficient resource management to sustain the growth. Our Q3 2024 revenues increased from 12.4 million in Q3 2023 to 13.9 million this quarter, while our operating expenses decreased from 4.9 million in Q3 2023 to 4.1 million in Q3 2024. As a result, our operating expenses ratio was 30% in Q3 2024 in comparison with 40% in Q3 2023, a remarkable 25% increase in efficiency. This decrease has been driven by several factors, but the integration between the two teams has been fundamental. By sharing the same resources, we have been able to significantly lower costs. Our active cost management has stretched through all aspects of the business, from purchasing and logistics to sales and marketing, making our execution much more efficient. Our goal is to keep this foundation to drive sustainable growth in 2025. While our journey to lean an agile company over the last year has not always been easy, I'm very proud of how efficient we have become, how well we are using our resources to deliver growth. The progress we have already made on both the supply chain and our sales efficiency gives us a very strong foundation to deliver accelerated growth in Germany in 2025. Taking a look at our Israeli business, as in Q2, we continue to shift resources to support the German business and continue to work toward maximizing our profitability in Israel. For our Israeli business, this translates into a clear focus on the premium and ultra-premium markets. Over the past few months, our market has been influenced by several factors. The ongoing war has continued to impact our supply chain, causing delays in shipments. We have also seen reduction in the number of medical cannabis patients with a decline of 10% from July to October. While the war initially delayed the medical cannabis license renewal process, it does not explain this sustained decrease. In the absence of sufficient data, we assume that the changes brought about by the July 2024 reform are causing complications in the prescription process. On the operational level, in our Israeli business, we relaunch Lot420, a premium Canadian brand with a total of three strains. All three strains were very well received by the market, selling through quickly. The same occurred with Super Sativa, the leading strain in our INC craft brand. These results clearly show on how we can capitalize on our understanding of both the premium market drivers as well as the patients need to deliver sales. As in the previous quarters, we are continuing to clean our slow moving, non-premium stock, clearing out all the inventory for about 0.6 million, which again impacted our cost of sales, gross margin and gross profit. To sum up Q3 2024, while the growth IMC delivered in Germany is clearly a highlight, most importantly, we focused on building a solid foundation, fully integrating the two teams to strengthen our supply chain and drive efficiencies that will be the basis to deliver accelerated growth in 2025 in Germany. I will now end the call over to Uri, who will review the third quarter 2024 financial results. Uri?
spk02: Thank you, Oren. Our Q3 results were mainly impacted by the following points. Our revenue in Q3 increased by .2% versus Q3 2023. This growth was driven mainly by increase of 278% in the German revenue. Our selling price per gram of the right flour increased 42% in this time period to $6.2 per gram. In addition, our operating expenses decreased by 16% versus Q3 2023. We continued closely monitoring our inventory and accrued for about 0.6 million for slow moving stock. The mid-April Orenim Agreement revocation resulted in reduced revenue and expenses versus previous periods. I will now take you through the overview of the Q3 2024 financial results for the company's operations. Revenue for the nine months ended September 30, 2024 and 2023 were 40.7 million and 38.1 million respectively, representing an increase of 2.6 million or 7%. The increase is mainly attributed to the accelerated growth in Germany with an increase in revenue of 6.3 million and decreased revenue in Israel of 3.7 million net. The decrease in Israel is attributed to the Orenim deal cancellation, which resulted in a decrease in revenue of approximately 5.1 million compared to the nine months ended September 2023. Excluding the Orenim revenue in Q3 2023, we have an increase of revenue in Israel as well of approximately $1.4 million or 6%. Revenue for the three months ended September 30, 2024 and 2023 were 13.9 million and 12.4 million respectively, representing an increase of 1.5 million or 12%. The increase is mainly attributed to the accelerated growth in Germany with an increase in revenue of 4.3 million and decreased revenue in Israel of 2.8 million net. The decrease in Israel is attributed to the Orenim deal cancellation, which resulted in a decrease in revenue of 3.2 million compared to the three months ended September 2023. Excluding the Orenim revenue in Q3 2023, we have an increase in revenue as well of approximately 0.4 million or 5%. Total right flyout sold for the nine months ended September 30, 2024 was 6,408 kilogram at an average selling price of $6.01 per gram compared to 6,528 kilogram for the same period in 2023 at an average selling price of $5.34 per gram. For the three months ended September 30, 2024, total right flyout sold was 2,202 kilogram at an average selling price of $6.2 per gram compared to 2,558 kilogram for the same period in 2023 at an average selling price of $4.35 per gram, mainly attributed to the inventory lifecycle, products diversity, discounts given and increased competition in the region. For the nine and three months ended September 30, 2024, Germany's share of total revenue has significantly increased compared to the corresponding period in 2023. This increase has had a considerable impact reflecting in a higher average price due to the favorable market conditions and growing demands. Together, these factors have contributed to an overall positive effect on our revenue performances. The cost of revenue for the nine months ended September 30, 2024 and 2023 were 34.9 and 28.4 million respectively, representing an increase of 6.5 million or 23%. This is mainly due to increase of material cost of approximately 7.1 million of which clearing all raw material of approximately 0.94 million accrued for slow inventory of approximately 2.2 million and increased inventory sales resulted with an increase of approximately 4 million, which is offset by reduced in other cost net of approximately 0.6 million. The cost of revenue for the three months ended September 30, 2024 and 2023 were 10.7 and 9.6 million respectively, representing an increase of 1.1 million or 11%. This is mainly due to the increased cost of approximately 1.2 million, including an accrual of 0.6 million for slow inventory. This is offset by a decrease in other cost net of approximately 0.1 million. Gross profit for the nine months ended September 30, 2024 and 2023 were 5.8 million and 9 million respectively, representing a decrease of 3.2 million or 36%. Gross profit for the three months ended September 30, 2024 and 2023 were 3.1 and 2.6 million respectively, representing an increase of 0.5 million or 19%. Gross profit, including losses from realized fair value adjustment on inventory sold of 0.05 and 0.7 million for the nine months ended September 30, 2024 and 2023 respectively. Gross margin after fair value adjustment in the nine months ended September 30, 2024 and 2023 respectively were 14% versus 25% and 23% versus 21% for the three months ended September 30, 2024 and 2023. GNA expenses for the nine months ended September 30, 2024 and 2023 were 6.8 and 7.7 million respectively, representing a decrease of 0.9 million or 11%. General and administrative expenses for the three months ended September 30, 2024 and 2023 were 2.4 and 2.1 million respectively, representing an increase of 0.3 million or 10%. The GNA expenses are compromised mainly from salaries to employees in the amount of 1.6 and 0.5 million for the nine and three months ended September 30, 2024. Professional fees in the amount of 2.3 and 0.9 million for the nine and three months ended September 30, 2024. Depreciation and amortization in the amount of 0.4 and 0.14 million for the nine and three months ended September 30, 2024. Inch-worth cost of an amount of 1 million and 0.34 million for the nine and three months ended September 30, 2024. And other expenses in a total amount of 1.5 and 0.5 million for the nine and three months ended September 30, 2024. Selling and marketing expenses for the nine months ended September 30, 2024 and 2023 were 5.3 and 8 million respectively, representing a decrease of 2.7 million or 34%. Selling and marketing expenses for the three months ended September 30, 2024 and 2023 were 1.5 and 2.6 million respectively, representing a decrease of 1.1 million or 41%. The decrease in selling and marketing expenses for the nine and three months ended September 30, 2024 is mainly attributed to our NIME revoke agreement of approximately 1.3 million and 0.7 million respectively. In addition to a decrease of 1.4 million and 0.3 million respectively in selling and marketing expenses. Total operating expenses for the nine months ended September 20, 2024 and 2023 were 15.2 million and 16.6 million. In Q3, 2024, the total operating expenses were 4.1 million compared to 4.9 million in Q3, 2023, a decrease of 0.8 million or 16%. Mainly due to decrease in salaries of approximately 0.3 million, depreciation expenses of 0.2 million and insurance of 0.1 million. Operating expenses ratio for the nine months ended September 30, 2024. Was 31% excluding the one time expense outcome of our NIME cancellation versus 44% for the nine months ended September 30, 2022. Representing an increased efficiency of about 30%. Operating expenses ratio for the three months ended September 30, 2024 was 30% versus 40% for the three months ended September 30, 2023. Representing an increased efficiency of about 25%. The efficiency ratio improvement is resulting from decrease operational cost and increased revenue. Non IFRS adjustment EBITDA loss for the nine months ended September 20, 2024 and 2023 was 4.7 million compared with 3.7 million representing an increase of 25%. Non IFRS adjustment EBITDA loss in Q3, 2024 was 0.2 million compared to an EBITDA loss of 1.3 million in Q3, 2023. Representing an increase of 82%. Net loss in the nine months ended September 20, 2024 was 10.6 million compared to 6.7 million in the nine months ended September 2023. Net loss in Q3, 2024 was 1.1 million compared to 2.1 million in Q3, 2023. Diluted loss per share for the nine months ended September 20, 2024 was $4.29 compared to a loss of $2.95 per share in the same period for year 2023. Diluted loss per share for Q3, 2024 was $0.41 compared to a loss of $0.96 per share in Q3, 2023. As of the balance sheet, -ash-cash equivalent as of September 30, 2024 were 2 million compared to 1.8 million on December 31, 2023. Total assets as of September 30, 2024 were 44.6 million compared to 48.8 million on December 31, 2023, a decrease of 4.2 million or 8.6%. The decrease is mainly attributed to the Oranim Agreement cancellation of 9.5 million of which mainly attributed to goodwill of 2 to 3.5 million, intangible asset 1.4 million, inventory 0.8 million, trade receivables 1.3 million, property plant and equipment 0.8 million, and reduction of cash and cash equivalent of approximately 0.3 million. In addition to Oranim Revocation Agreement effect, there is a total asset increase of 5.3 million, mainly due to increase of 8.1 million in trade receivables and increase of cash and cash equivalent of 0.5 million, offset by 4.8 million reduction in inventory and reduction of 0.9 million in intangible assets. Total liabilities as of September 30, 2024 were 40.4 million compared to 35.1 million on December 31, 2023, an increase of 5.3 million or 15%. The decrease was mainly due to the Oranim Agreement cancellation of 6.8 million of which mainly attributed to put option liability 2 million, purchase consideration payable 2.2 million, trade payables 1.6 million, lease liabilities 0.4 million, and a decrease of 0.3 million in deferred tax liability. In addition to the Oranim Revocation Agreement effect, there is a total liability increase of 12.1 million, mainly due to increase of 8.9 million in trade payables and an increase of 1.6 million in other accounts payable. The company is planning to finance its operation from 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 now like to turn the call back to you, Oran, for closing remarks. Oran? Thank you.
spk04: While the growth with the liver in Germany this quarter is a highlight, we spent the quarter focused on building a solid foundation for 2025. We leaned further into the full integration of the German and Israeli teams. Our goal was to build a strong, consistent supply chain along with a laser focus on how to improve the efficiency and accuracy of how we use our resources. I believe that the foundation we built this quarter will be the basis to drive further accelerated growth in Germany in 2025. I will now end the call over to the operator to begin our question and answer session. Operator?
spk03: Thank you. To ask a question, please raise your hand using your mobile or desktop application or press star 9 on your telephone keypad and wait for your name to be called. I repeat, to ask a question, please raise your hand using your mobile or desktop application or press star 9 on your telephone keypad and wait for your name to be called.
spk00: Operator?
spk04: There are no questions, so thank you, operator, and thank you all for joining our call today.
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