Intercure Ltd.

Ladies and gentlemen, thank you for standing by and welcome to Intercare 2021 fourth quarter and year-end earnings webcast. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then one on your telephone. If you require any further assistance, please press star then zero. I would now like to turn the conference over to your speaker for today. Adam, you may begin.

Thank you. Good evening, everyone, and welcome to Intercure's fourth quarter and full year 2021 results webcast and conference call. A copy of the company's earnings press release is available on the news and events section of our website at www.intercure.co. With me on today's call are Alex Rabinovich, Intercure's Chief Executive Officer, and Amos Cohen, the company's Chief Financial Officer. Today, we'll review the highlights and financial results for the fourth quarter and full year ended 2021, as well as more recent developments. Following these formal remarks, we will be prepared to answer your questions. Before we begin, please let me remind you that during this conference call, Intercures Management may make forward-looking statements made within the meaning of applicable security laws. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These forward-looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from those expressed or implied in such statements. Factors that could cause actual results to differ materially include but are not limited to the risk factors contained in the company's filings with CDAR and the Securities and Exchange Commission. Please also note any forward-looking statements made here are as of today and accept to the extent required by law. The company assumes no obligation to update statements as circumstances change. Also, please note that all amounts expressed during this call are in Canadian dollars or new Israeli shekels, unless otherwise noted. Now, I will turn the call over to Alex Rabinovich, InterCure CEO. Alex, please go ahead. Thank you, Adam.

Shalom, everyone, and thank you for joining us for our fourth quarter and full year 2021 earnings call. First of all, we are excited with our outstanding results for the fourth quarter, but I first would like to apologize for the inconvenience of rescheduling this conference call. We at KPMG wanted to ensure that everything is correct. As you might have noticed, our audited results came stronger than our preliminary expected results, which is in line with our commitment to continue delivering strong performance. 2021 was another successful year for InterQ as we continued to solidify our position as the largest, fastest-growing, and most profitable cannabis company outside of North America. In line with our profitable growth strategy, we executed well on all fronts, This produced strong financial and operating results while further positioning InterQ for continued growth. The fourth quarter of 2021 was our eighth consecutive quarter with high double-digit growth and total record revenue of $33 million, almost three times greater than the fourth quarter of 2020, and representing sequential growth of over 24%. Our adjusted EBITDA in the fourth quarter was $9 million, representing 123% year-over-year growth, and our Q4 EBITDA margin was approximately 26%. This quarter concluded a record-breaking 2021 with a total annual revenue of just over $89 million, with an adjusted EBITDA of $23 million, representing almost 230% and almost 250% growth over 2020. As we don't bear any special taxes or two ATEs, our strong positioning and financial discipline successfully generated cash from operation six consecutive quarters in a row, and more than $10 million generated during 2021, and we ended the year with one of the strongest balance sheets in the industry with $89 million in cash. These are unmatched results in markets beyond North America, and I want to thank our team and management for delivering such a strong quarter in the year. Our performance affirms the strength of our brand's global platform and our ability to focus on execution. I will take some more of your time and walk you through some of our recent milestones and their part in continuing to grow our business and deliver value to all stakeholders. support the growing demand for our breaded products to increase our upstream supply chain by scaling up production in our cultivation sites, especially in our southern facility, which is now one of the largest and most advanced high-quality medical grade sites in the space. We are very proud in reaching the highest quality dry flower standards by successfully cultivating the first-ever pharmaceutical grade cookies breaded products. In addition, We scaled up our strategic global cultivation with our exclusive partners, which extends over three continents, utilizing over six high-end cultivation sites. Ramping up cultivation and production of our unique genetics supports our growth in the domestic and international markets. We expect further increase in our scale and depth in 2022, laying the groundwork to support increased demand for our branded products in our target markets, Israel, Europe, and Australia. Keeping with our vertically integrated seed-to-sell model, we've expanded our one-of-its-kind dedicated medical cannabis dispensing operation during 2021. As of December 31, 2021, our chain included 20 pharmacies in five locations in major cities across Israel and four pharmaceutical logistic hubs, of which two we own and operate, covering 100% of the Israeli market. Since the beginning of 2022, we've added additional three new locations, totaling 22 pharmacies, 15 of which are actively dispensing pharmaceutical-grade medical cannabis. We expect to expand our dispensing operation within the coming year in our domestic market and beyond as we are duplicating our winning model to new territories. Growing our cannabis dispensing operation six times in the past year has expanded our reach while ensuring patients receive the highest quality service. The effect of this was seen last October as we reached a world record of one ton medical cannabis product dispense in one month. This represents our leading position in branding, products, and service, with approximately 30% market share of the Israeli medical cannabis market, the largest and fastest-growing medical cannabis market outside of North America. Our fast-growing, vertically integrated model enabled us to disrupt the competitive landscape. Our expertise, execution, and rapidly scaling our high-quality branded product supply chain gives us a clear competitive advantage and an edge as we enter new markets. In addition to expanding our production and reach, we successfully launched new high-quality branded products and introduced a group of pharmaceutical-grade medical products for the first time. Our combined portfolio includes a broad range of offering across patient segments, from ultra-medical for treating specific health indication to high THC globally recognized cooking products. By offering a variety of products at the right price point with a professional assistant, we are able to meet patient needs and provide an unmatched experience. To meet the solid demand for our quality products in Israel, I'm proud that we were the first company to meet the new importation requirements set by the Israeli Medical Cannabis Agency, known as the 109 Protocol. Being able to meet the 109 requirements enabled us to resume importation during the second half of 2021 from our strategic partners, and we have successfully landed shipments from Tilray, Organizam, Fortman Life Science, and others. These shipments mark a significant milestone in regard to the navigation and streaming of regulatory requirements will support the growing demand for our branded products. Regarding exportation, since we last spoke, Israeli regulators have begun implementing a reform on exportation of pharmaceutical-grade cannabis, enabling us to export our products in bulk for the very first time. The reform is a milestone moment that will have a tremendous positive ripple effect on our international business, especially as the target markets continue to evolve and implement GMP medical cannabis programs. Throughout 2022, we will continue to supply our branded products in new markets and expand distribution channels. In fact, there are currently over 40 countries in different stages of implementing pharmaceutical-grade medical cannabis regulations, and most of them are much bigger than Israel. In addition to exporting products from our own facilities, we utilize our exclusive strategic partnership with other global leading companies to provide new markets with our high-quality branded products. In that regard, we announced last week a new partnership with Cleverleaf, which now joins a prestigious list of partners. We expect to add more strategic partners as we continue to expand our international supply chain during 2022. Another landmark regulatory change is occurring in the CBD fund. In December 2021, the Israeli Ministry of Health announced that CBD products with THC threshold of 0.3%, will remove from the dangerous drug act. In spite of the evolving Israeli political situation, we expect the Israeli Minister of Health to implement regulations which align with their announcement, which de facto recognize CBD's benefits and to permit registration and return sales of products containing CBD. We've been prepared for this chance since December 2020 when we signed an exclusive partnership with the leading CBD company in the world, Sherlock's Web. In preparation for opening the Israeli CBD market, we recently announced a strategic partnership with Almond Health, B1F market leader in Israel, with unmatched shelf space of over 1,700 pharmacies and points of sales. By taking action before regulation, we are positioned to lead the new CBD wellness market in Israel. As the industry evolves and matures, we believe that three to four players will come to dominate the pharmaceutical-grade cannabis market throughout a process of consolidation. During 2021, we signed a letter of intent to acquire one of the pioneering and leading licensed producers. During 2021, we signed a letter of intent to acquire one of the pioneering and leading licensed producers in Israel and Australia, cat holdings known as Betel. Just recently, we announced that we have signed a definitive agreement to acquire 100% of Betel's shares and expect that this historic acquisition mark the first major consolidation in the pharmaceutical-grade medical cannabis space. The acquisition of Betel is expected to further strengthen our leadership position in the pharmaceutical-grade medical cannabis market In addition, the acquisition is expected to be accretive to our financial model with revenue estimated at 50 million NIS or almost 20 million Canadian dollars. And now, let's dive into our international expansion, one of our main goals for 2022. As I explained in the past, most of the world is taking a medicalized approach towards cannabis and rapidly growing number of countries are adopting this unique and strict regulation. And this is, in my opinion, the most exciting cannabis market in the world today with lots of barriers to entry. We are duplicating our winning model into new territories with evolving supportive regulation. This includes Germany, Austria, the UK, and Australia. During the fourth quarter, we expanded our relationship with the iconic cannabis brand Cookies into Europe. We are opening our first cookies in random locations in Vienna and London and many more European cities in the pipeline. Looking into the future, we believe that the next step in most territories after medicalization is legalization of adult-used cannabis. Cannabis today is no longer a taboo and enjoys broad support across the political spectrum. Just this year in December, Germany's new government announced plan to legalize cannabis for recreational use, which we believe will start with the rolling out of a pilot program that could begin in the near future. This is a significant long-term growth engine for InterQ. Furthermore, we believe many countries will follow Germany, and some might even speed up the process to capitalize on the existing momentum. We are encouraged by this trend in Europe, and we are monitoring the United States, the leading cannabis market in the world. Regardless of the recent advance with the Moore Act, we expect that medical cannabis, once federally legal, will be regulated by the FDA. We believe that the FDA will establish similar regulation for medical cannabis to those we already comply with. In the upcoming year, we plan to lay down the first foundations for our federally-complied U.S. operation. In summary, the Interclue team delivered another strong performance in 2021, We continued our track record of solid financial results, expanded our operation in Israel and abroad, set a foundation for continual international expansion, and leading the consolidation process. As we enter 2022, I strongly believe that Intercure is well positioned for another great year. We expect revenue growth to continue in the first quarter and while 2022. The opportunities ahead of us are significant. and we will continue focusing on delivering solid possible growth and strengthening our position by providing value for patients, employees, and shareholders. So for us, the fun is just beginning. And with that, I will now hand it over to Amos Cohen, CFO, to discuss our financial results in more detail. After, we will open the line for questions.