Organigram Global Inc.

At this time, I would like to welcome everyone to the Organigram Holding, Inc.' 's first quarter fiscal 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. We ask that you please limit yourself to one question and one follow-up question. You may re-queue if you have any further questions. As a reminder, this conference call is being recorded and a replay will be available on our Organigram's website. At this time, I would like to introduce Amy Schwamm, Vice President, Investor Relations. Please go ahead.

Amy Schwamm Thank you, Casey. Joining me today are Organigram's Chief Executive Officer, Greg Engel, Chief Financial Officer, Derek West, and our Chief Strategy Officer, Paolo De Luca. Before we begin, I'd like to remind you that today's call will include estimates and other forward-looking information from which our actual results could differ. Please review the cautionary language in today's press release regarding various factors, assumptions and risks that could cause our actual results to differ. Furthermore, during this call, we will refer to certain non-IFRS financial measures, including adjusted EBITDA and adjusted gross margin. These measures do not have any standardized meaning under IFRS and our approach in calculating these measures may differ from that of other issuers and so are not directly comparable. Please see today's earnings report for more information about them. I will now hand the call over to Greg.

Thanks, Amy. Good morning and thank you for joining us today. This morning we reported our first quarter fiscal 2021 results for the period end of November 30, 2020. We're pleased with meaningful growth in our adult rec sales sequentially from last quarter. Strong evidence that our new products, as part of our portfolio revitalization, are resonating well with consumers. We're excited about the recent launch of another three strains under our Edison brand, and we have more to come in the next few quarters as we continue to reinvigorate this brand. Encouragingly, Edison was recognized as one of the most searched brands on the Ontario Cannabis Store website for the month of November. We've started to ramp up cultivation and staffing such that we can meet overall increased demand in the industry and for many of our new products. And we have the assets and financial strength to support our plans. In contrast to many of our peers, we generated positive cash flow from operations in Q1, the second quarter of the last three quarters with positive cash flow from ops. Since the second half of fiscal 2020, we've been extremely active introducing new products and improving many of our existing ones. Since July, we have launched 53 new SKUs, with up to 14 more in the pipeline expected to launch before the end of February. We continue to see dry flower imperils as the two largest categories in the Canadian REC market, and based on U.S. legal state data, we believe they will continue to dominate the foreseeable future, even as alternative product forms gain traction. We've successfully launched a number of value segment dry flower offerings in the first half of fiscal 2020, particularly in larger format sizes in response to increased demand in that category. I'll talk more about our success there in a moment. We're also very focused on our higher margin Edison flower portfolio by introducing new unique strains and higher potency THC products where we think there's a good opportunity for us to differentiate. Subsequent to quarter end, we launched three new indica strains, Black Cherry Punch and Ice Cream Cake or ICC, both with THC ranges of 20 to 26 and solar cane was 17% plus THC. We expect to launch at least three more high THC strains under the Edison brand over the next few quarters as a result of our continuous investment in new genetics. We run trial cultivation cycles to ultimately identify the winners, the ones we decide to move forward with, because we expect them to attract the strongest consumer response. We continue to leverage our indoor facility and our unique three-tiered cultivation rooms, Every Edison strain benefits from being grown in one of these data-backed, strain-specific grow rooms with bespoke microclimates, designed to offer a distinct flavor and aroma profile and to ensure consistent quality. Variables such as humidity, temperature, and light are customized to optimize the growth, cannabinoid, and terpene profile of each strain. Opportunity to scale up new genetics require patient and deliberate process where cultivation protocols are trialed for each cultivar and adjusted through multiple grow rooms before full rollout to multiple rooms in our facility. We've launched a number of new genetics over the past 18 months, including our high THC Edison Limelight or Ultra Sour, which is now the company's best-selling strain. Our newest cultivars were developed from genetics that were originally sourced from a premium cannabis nursery. The nursery's processes and technology help ensure robust, healthy, high-quality plants. Our focus on both genetics and the environment in which they are grown results in a unique phenotype expression. This means even plants grown from the same genetics can be markedly different in terms of physical properties, potency, terpenes, and aromas based on their growing conditions. We believe this product development process is a differentiator for us. Revisiting our more recent launches in the value dried flower category, we believe our value products are differentiated and do not have to compete on price alone. Particularly since the onset of the COVID-19 pandemic, value in large format sizes have become an increasing focus of consumers. In the spring of 2020, we responded with the introduction of BUDS, which is Indoor Grown Whole Dry Flower and Strain Specific. The company's value segment strategy also includes dry flower offerings that were launched in larger format sizes of 7 gram and 15 gram under the Trailblazer brand in July 2020. The Trailblazer value brand continues to offer increasingly higher THC levels versus what was offered when originally launched near the start of adult use cannabis legalization and at a competitive price point. At the beginning of Q1, we expanded our value portfolio with the launch of Shredd. a high-quality, high-potency dry flour that is pre-shredded for consumer convenience. Shred offers three pre-milled varieties, all with a THC levels of 18% or more, and combines specific strains to provide unique flavor profiles for each of the three product offerings. It is made from whole flour, does not contain any shake or trim, and is milled to the same specifications as our existing pre-rolled products. Shred is currently OrganiGram's most affordable option on a per gram basis. Sales of Shred contributed significantly to our growth in rec revenue in Q1 and was the number one most searched brand on the Ontario Cannabis Store website for both November and December. The product has exceeded our expectation and continues to sell out. One of the reasons we are ramping up cultivation and staffing, which I will talk about more shortly. At the end of the quarter, we also launched limited edition seasonal offerings, including Trailblazer Christmas Sticks, an affordable 0.5 gram pre-roll, which continues to do well in retail stores. In addition to new REC 1.0 products, we've launched a number of innovative REC 2.0 offerings in vape, edible, and beverage categories. Just after quarter end, we launched Trailblazer Spark, Flicker, and Glow 510 thread torch vape cartridges in a new 1 gram format. This extended our lineup to a suite of trial size 0.5 gram and full size 1 gram cartridges for the 510 vaporizer. Trailblazer Torch offers consumers 510 cartridges, high-quality CO2 extract in three unique terpene-infused flavors. Our vape portfolio also includes products for the mainstream and the premium segments, Edison Plus Feather Ready-to-Go Distillate Pens and Edison Plus Pax Era Distillate Cartridges. We're focused on increasing THC concentrations in many of our vape products to meet consumer demand, so stay tuned for changes to come in this category. Our chocolate portfolio includes Treblazer Snacks, a value-priced cannabis-infused chocolate bar available in both mint and mocha flavors, and we expect to launch a new flavor this quarter. Our Steady There chocolate equipment allows for each of the five sections of the bar to be filled separately, allowing for higher accuracy of infusion. We also offer Edison Bites truffles available in both milk and dark chocolate formulations, as well as a gingerbread flavor for a limited time. At the end of the quarter, we launched Edison Remix dissolvable cannabis powder. This product's distribution has expanded listings to eight provinces, and we expect to secure listings for the remaining two provinces in the near future. We believe the beverage segment could have greater potential than what we have seen in the U.S. to date. As mentioned on our last earnings call, but worth repeating, Estimates suggest that recreational cannabis beverage market represents a $467 million opportunity in Canada. And results of a recent Organigram survey indicate a significant majority of current consumers, 74%, would prefer to add cannabis to their beverages versus consuming a pre-mixed one. This is also supported by sales data in Colorado, where cannabinoid-infused powders have rapidly risen to the top of the beverage category in popularity, representing 55% in the state's beverage market sales. This is from Headset Data in Colorado Market Insights from July 2020 of last year. We believe Edison Remix offers a unique experience for consumers made possible by our R&D department. They developed a proprietary nano emulsion technology that generates nano droplets, which are very small and uniform. This provides improved absorption compared to traditional solid edibles and beverages, potentially allowing for a more reliable and controlled experience. The nano-emulsion technology is also anticipated to have increased ability to temperature variations, mechanical disturbance, salinity, pH, and sweeteners, and the dried powder formulation offers discretion, portability, and a potentially extended shelf life compared to a liquid. It's available in three formats, two sachets with 5 mg of THC each, two sachets with 5 to 5 mg of THC to CBD each, and five sachets with 10 milligrams of CBD each. As we've said, we're encouraged by the consumer response to date for many of our new products. However, we understand the frustration consumers have when they can't get what they want because of inventory stockouts. We've already begun to ramp up staffing with plans to hire 100 staff, mostly in cultivation, with up to another 30 staff in packaging by early in our third quarter. We know we have missed out on significant sales opportunities and remain focused on improving supply chain processes and order fulfillment rates. For example, internally, we've identified a list of course cues for which we aim to ensure never go out of stock in an effort to drive maximum distribution and continue to build brand equity. Increased production and staffing should result in efficiencies from greater economies of scale. Benefits to revenue margins are not expected to be recognized in Q2 as we take this quarter to hire staff. Further, we do note that the industry demand may be dampened and negatively impacted Q2 sales due to lockdowns related to COVID-19. For example, since November 23rd, cannabis retail stores in the densely populated regions of Toronto and Peel in the province of Ontario have been closed to physical retail traffic. And since December 26th, the remainder of stores in Ontario have been closed to in-store purchases. The stores have still been able to offer click and collect and limited delivery services. In the near future, we expect to resume shipments to CANDOC in Israel. We're seeking good agricultural practice certification by the Control Union Medical Cannabis Standard to comply with Israel's updated standards for imported cannabis. We're making good progress and subject to successful completion of a required inspection likely to be conducted remotely. We anticipate being certified as early as our third quarter. Shipments will also depend on the availability of the desired product mix as we work on ramping up staffing and production to accommodate demand. In addition to revenue upside beyond fiscal Q2, we've identified a number of opportunities which have the potential to greatly enhance gross margins. We expect to gain economies of scale and efficiencies as we scale up cultivation and packaging, including the decline in charges for unabsorbed fixed overhead costs. The recent launches of higher margin Edison strains, with more launches on the horizon, have the potential to positively impact gross margins over time These products gain traction in the market and comprise more of our total revenue. A greater proportion of our portfolio is being dedicated to higher volume SKUs, such as multi-packed pre-rolls and one gram vape cartridges, which attract higher margins. We continue to invest in automation to drive cost efficiencies and reduce dependence on manual labor. For example, a new pre-roll machine is expected to be fully commissioned and operational by the end of fiscal Q2 2021. And as a result of a packaging task force project, a number of cost reduction opportunities have been identified with the potential to benefit margins starting in Q4 2021. I'll now pass the call over to Derek to go through our financial position and results in more detail before I wrap up.