Organigram Global Inc.

Good morning. My name is Jack and I will be your operator today. At this time, I would like to welcome everyone to the Organigram Holdings Inc. Second 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 recue if you have further questions. As a reminder, This conference call is being recorded and a replay will be available on Organigram's website. At this time, I would like to introduce Amy Schwab, Vice President of Investor Relations.

Thank you, Jack. 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 would 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 those actual results to differ. Furthermore, during this call, we will refer to certain non-IFRS financial measures, including adjusted EBITDA and adjusted gross margins. These measures do not have any standardized reading under IFRS and our approach to calculating these measures may differ from that of other issuers. And so these measures may not be directly comparable. Please see today's earnings report for more information about these measures. I will now hand the call over to Greg.

Thanks, Amy. Good morning and thank you for joining us today. Here we are over a year into this pandemic, and despite challenging times currently, there's a light at the end of this tunnel as vaccines start to be administered across the country and worldwide. And we couldn't be more excited about the prospects for the cannabis industry in Organigram. Before going into more detail, I want to take a moment to thank our employees for their commitment and dedication to the company over the last 12 months, which have been challenging for all of us. This morning we reported our second quarter fiscal 2021 results for the period ended February 28, 2021. As we expected and indicated in our last quarter's disclosure, Q2 continued to be a transition period while we were ramping up operations and hiring the requisite staff such that operations are anticipated to be better supported in Q3. Our Q2 results were also further impacted by production disruptions on two occasions related to COVID-19, as well as market dynamics due to COVID-19 restrictions. As we continue to be laser focused on execution in a very competitive Canadian market, our team has been busy with some significant recent developments, which we believe have meaningfully strengthened Organigram's near and long-term competitive potential. We position the company for more near-term revenue growth with the acquisition of the Edibles and Infusions Corporation and believe our collaboration with BAT will be transformational over time. I will spend a moment on these two transactions before I comment more on the quarter. A hallmark of OrganiGrant has been our focus on R&D and innovation. Our efforts and intentions have been and continue to be about delivering innovative, differentiated products with the most consumer appeal. We were one of the first two cannabis companies to invest in biosynthesis, and we believe this technology has the potential to change the cannabis landscape. Another example is our in-house R&D team's development of a proprietary nanomulsification technology to allow for faster absorption of cannabinoids when compared to traditional edibles. It is our view that the cannabis industry is still in the nascent stages of product development, and a continued investment in innovation in R&D is necessary to secure a long-term competitive advantage. EAT, a leading consumer goods business with innovative product platforms, an impressive dedication to R&D, and deep consumer insight, chose to collaborate with us after extensive discussions, workshops, and in-depth due diligence. The Center of Excellence, or COE, is being established at our Moncton facility. At the COE, we will work on developing the next generation of cannabis products, IP and and technologies and can now also draw upon our R&D capabilities and licensed facility in Winnipeg to augment and diversify our product development efforts. Both Organigram and BAT are contributing scientists, researchers, and product developers to the COE. Initially, the focus will be on CBD products. Both companies have access to certain of each other's intellectual property and, subject to certain limitations, have the right to independently globally commercialize the products, technologies, and IP created by the Center of Excellence. Through the COE and BAT's representation on our Board of Directors, we intend to leverage BAT's expertise for our wider operations. There's a steering committee to supervise and govern the COE activities with an equal number of senior members from both companies. And we also anticipate benefiting from two BAT nominees to Organigram's Board of Directors. At closing, we welcome Mr. Jan Hepper to our board, and the other nominee is expected to be appointed in the near term. Mr. Hepper, who is a group category director at BAT, has over 23 years of diverse management, strategic leadership, and M&A experience at global companies, including Procter & Gamble, Danone, and most recently Lifestyles Healthcare. Not only is this collaboration with BAT going to accelerate and strengthen our research and product development activities, is also expected to be instrumental in establishing the foundation for our U.S. and international strategy. As part of the transaction, BAT invested approximately $221 million Canadian US for a 19.9% equity interest. With a significant capital injection, Organigram is well positioned to expand into the U.S. and other international markets at the right time and subject to applicable law. Under the Product Development Collaboration Agreement, we will be granted a worldwide, royalty-free, sub-licensable perpetual license to exploit IP developed under the collaboration. This license, which is non-exclusive outside of Canada and sold in Canada, will also enhance Organigram's ability to enter markets outside of Canada, including through sub-licensing arrangements with established operators. Approximately $30 million of VAT's investment is being reserved for our portion of funding obligations under a mutually agreed initial budget for the COE costs will be funded equally by Organigram and BAT. Now turning to our most recent transaction allowance last week. We acquired the Edibles and Infusions Corporation, or EIC for short, a software manufacturer with other specialized confectionery capabilities and backed by leadership from a company with 100 years of confectionery operations. The EIC management team also has experience in supplying confectionery products to over 20,000 locations throughout North America. James Fletcher, CEO of Cavalier Candies, joins Organigram as president of EIC. James has deep CPG and confectionery expertise and experience and a proven track record of delivering to some of the world's biggest retailers such as Costco and Walmart. The acquisition positions us for more near-term revenue growth from the largest edible category, soft chews or gummies, and diversifies our R&D and manufacturing capabilities with an operational footprint in Western Canada. EIC currently holds a standard processing license, is in the process of obtaining its sales license. Until it receives its sales license, it can manufacture products in bulk for further processing, review, and sale by us or other third-party license producers for white label opportunities. Importantly, the acquisition also strengthens our R&D capabilities with its research laboratory and research license. EIC constructed and leases a purpose-built, highly automated, 51,000 square foot manufacturing facility in Winnipeg, Manitoba, with state-of-the-art equipment designed to produce highly customizable, precise, and scalable cannabis-infused products, including edibles. We now have two facilities dedicated to REC 2.0 products, both designed under EU GMP standards. We believe that a strong presence in both Cannabis 1.0 and 2.0 markets is crucial to sustain a significant share of the Canadian market. While Cannabis 1.0 dried flower, fruit rolls and oils still accounts for more than 70% of the overall Canadian market. 2.0 sales growth is outpacing the overall market as new product formats are launched and consumer preferences evolve. For example, edibles currently represent about 4% of the Canadian rec market compared to 12 to 15% in US markets. In fact, we note that in Colorado, which is the most mature US market, edibles account for about 17% of the total cannabis sales. To date in Canada, edibles are one of the fastest growing segments of REC 2.0 products. We now have specialized capabilities in the two largest edible subcategories, gummies and chocolates. The largest subcategory is gummies or soft chews. With our acquisition of EIC, we can enter this market quickly, backed by proven confectionery experience. EIC equipment is designed to produce craft and large-scale nutraceutical-grade products cannabis edibles, including pectin, gelatin, and sugar-free gummies, coffee and caramel with novel capabilities such as infusion, striping, and the possibility of using fruit purees. Chocolates are the second most popular edible category, and our Moncton facility houses our world-class chocolate production and packaging line. Concentrates are another subcategory of REC 2.0 that has seen meaningful growth and appear to have a lot of upside when you look at the popularity of these products in the U.S., We have plans for in-house hydrocarbon extraction for the production of concentrates and other unique products. Currently, we expect to begin commissioning of this equipment in Q4 fiscal 2021. In the interim, we've continued to revitalize our product portfolio with 63 new SKUs launched since July 2020 and up to 31 more SKUs still to come in Q3 fiscal 2021. Ontario's SKU rationalization mandate has not negatively impacted us to date. As a result of us revamping our portfolio, we were able to trade up some of our slower-moving older products and were ready to replace them with new listings. We'll take a moment now to highlight some of our new key listings and launches. As we discussed during last quarter's earnings call, we are very focused on revamping our higher-margin Edison portfolio. After launching three new Edison Indica strains in late December 2020, we introduced these strains, Black Cherry Punch, ICC, and Slurucane, in three packs of half-gram pre-rolls. We expect to launch more high THC strains under the Edison brand in Q3 2021. Edison was among the most searched brands on the Ontario Cannabis Store website in November 2020, as well as January and February of this year. Also, in late March, we introduced a new brand called Indy, one of Canada's only cannabis brands dedicated exclusively to Indica cultivars. Skyway Kush is the first strain in the company's indie portfolio and currently offers THC in the range of 20% to 23%. In the popular value segment, we leveraged our successful Shred brand by launching jar joints, a convenient jar of 14 half-gram pre-rolls of Shred's Tropic Thunder. Shred has been the number one most searched brand on the OCS website for the last five consecutive months. In terms of REC 2.0 products, we introduced milk chocolate trailblazer snack bars, third flavor to be added to the initial launches of mint and mocha flavors. We also plan to launch further Edison Bite truffle products in the next few quarters after the success of our seasonal gingerbread offering last fall. We look forward to improving revenue from our vape portfolio with the launch of two new products with higher THC concentrations. These include an Edison Plus Feather disposable vape pen at a very competitive price point as well as a new 1 gram Edison cartridge for the 510 vaporizer. Both products will be based on our popular limelight strain. These two additions will add to our portfolio, which already includes the value segment offering of Trailblazer Sparks, Flicker, and Glow 510 thread torch cartridges in 1.5 gram and 1 gram formats, and the premium Edison Plus Pax aerodistillate cartridges. With last quarter's results, we indicate that we were scaling operations. We've made good progress hiring more staff and ranting cultivation, which we expect will improve demand fulfillment and drive higher net revenue in Q3 as compared to Q2. We do caution that net revenue could be negatively impacted should we identify any positive COVID-19 cases in the future and need to take similar measures to Q2. We essentially shut down the Moncton facility on two occasions in Q2, sending employees home to isolate. as well ontario announced its third state of emergency last week shuttering cannabis retail stores to foot traffic and limiting purchases to online shopping and local online shopping click and collect and local delivery which could also impact q3 revenue beyond q3 we're targeting for sales of soft shoes in fiscal q4 2021 subject to certain progress including but not limited to the receipt and commissioning of certain equipment the completion of QA documentation, the hiring of requisite staff, and obtaining listings for provincial boards. Also, we expect to resume shipments to CanDoc in Israel in the near term. We're seeking good agricultural practice certification from the Control Union Medical Cannabis Standard to comply with Israel's updated standards for imported cannabis. Subject to successful completion of a required inspection, likely to be conducted remotely, We anticipate being certified as early as the end of our fiscal third quarter. Shipments to CanDoc are expected to resume in fiscal Q4 2021, contingent upon regulatory approval from Health Canada, including obtaining an export permit and availability of the desired product mix. In terms of gross margins, we see the potential for significant upside here. We have identified a number of opportunities to improve levels over time. We expect to gain economies of scale and efficiencies as we as we continue to scale up cultivation. There's potential for greater contribution from higher-margin products and formats, including new strains under the Edison and Indy brands, international sales to CanDoc, as well as from multi-pack pre-rolls and one-gram vapes, which attract higher margins than singles and half-gram vapes. We also continue to invest in automation to drive cost efficiencies and reduce our reliance on manual labor. For example, our new pre-roll machine has been up and running since March, consistently churning out 25 to 30 pre-rolls per minute over time with the potential for further improvement. Over the last week alone, we've seen it consistently churning out 40 pre-rolls per minute. And finally, we are looking at more cost-efficient packaging as part of our packaging task force mandate. I'll now pass the call over to Derek to go through the financials in more detail before I wrap it up.