Organigram Global Inc.

Good morning. My name is Renz, and I'll be your operator today. At this time, I would like to welcome everyone to the Organigram Holdings, Inc.' 's third quarter fiscal 2021 earnings conference call. All lines have been placed in mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. We ask you to 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 Ms. Amy Schwalm, Vice President, Investor Relations.

Thank you, Rend. Joining me today are Organigram's 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 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 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 Pablo.

Thanks, Amy. Good morning and thank you for joining Derek and me today. We do not have our permanent CEO in place. as we are conducting this call and I will address that right up front in terms of what we can share with you at this point. That way, the questions and answers portion at the end of this call can be focused on other questions that you may have. Speaking on behalf of our board of directors, we know that it is a priority to get the right person in the role as soon as possible. A leading search firm has been hired and the committee responsible for the selection of a new CEO has been busy reviewing candidates from across the CPG sector in North America. They are now in the second stage of the interview process with a short list of candidates. In any event, the company is operating very well during this interim period with the management team and board working together more closely than ever to expedite decision-making. I would also like to point out that our chairman, Peter Amaral, is acting as the executive chair, and he brings tremendous experience being the longest serving board member of the company, as well as deep CPG experience through a series of senior executive roles, including at Molson's and Cara Foods. We feel very equipped as a management team with the key input and oversight from Peter and the rest of our board of directors. Many of the senior executives have a strong track record at the company. and have contributed to the success we are seeing from our revitalized product portfolio, which I will talk about more in a moment. In addition to some longstanding executives, we also announced two key new hires with deep experience in cannabis and CPG. Our SVP of Marketing and Communications, Megan McRae, as well as our VP of Innovation, Bornaz Lamelik. We also onboarded great confectionery management capabilities as part of our edibles and infusions acquisition in James Fletcher, who remains president of EIC. In addition to a better top line trend, we have seen cultivation ramp with the benefit of increased staffing, and critically, we have seen cultivation costs per grant continue to decline on the back of higher plant yields, as well as the realization of other cost efficiencies and improvements. We have our newly promoted vice president of operations, Natalie Baden, to thank for leading these efforts. Again, all of this to reinforce that we feel very good about managing the business through this interim period and continue to benefit from the long track record and expertise of Peter Amaral and the rest of the board. We feel even better about our prospects when we look at the strong outlook for the entire industry and with COVID restrictions being unwound nationwide. a strong seasonal backdrop, and the ongoing expansion of the retail store network in key markets like Ontario. Derek will go into more specifics on our outlook for our fiscal Q4. So just to sum up before I continue to discuss the quarter, we won't be answering any other questions on the CEO search on this call, but look forward to updating you as soon as we are able to. Now I will move along to the fiscal Q3 results that we released earlier this morning. I will talk a little about revenue and new product launches, as well as some of our strategic developments, and we'll leave Derek to go through detailed financials and our outlook for Q4. As we expected and directionally guided, and I say directionally as we do not provide specific revenue or earnings guidance, in our last quarter's disclosure, Q3 revenue improved from a challenged Q2, which we believe represents a clear inflection point for the company. As I mentioned, we have ramped up operations and staffing such that we were better able to fulfill demand in Q3. We believe Q3 revenue was still negatively impacted by relatively suppressed demand from some provincial boards, particularly in the most populous province of Ontario. Strict COVID-19 restrictions in Ontario meant less staffing to enable physical distance and retail stores being limited to 25% capacity for most of March. and then closed completely to all foot traffic for the balance of our fiscal quarter, which ended May 31st, 2021. However, we did not have the production disruptions related to COVID-19 cases that occurred in our Q2 quarter ending February 28th, which essentially shut down the Moncton facility temporarily on two occasions, sending larger groups of employees home to isolate. Our revitalized product portfolio is resonating with consumers, and this is reflected in revenue growth in Q3. We conduct ongoing consumer research and leverage detailed analysis of our consumer purchasing behaviors to help ensure our offerings are aligned with existing and expected evolutions in consumer preferences. Consumer trends have continued to emerge and coalesce, including ongoing growth in the large format value segment, a desire for higher THC, as well as a penchant for newness, including new genetic strains and novel products. Organigram began a product portfolio revitalization in mid-calendar 2020 to address these consumer trends and preferences. We have launched 84 new SKUs since July 2020, and up to 20 more SKUs are still to come in Q4 fiscal 2021. Dry flour and pre-rolls remain the first and second largest categories, respectively, in the Canadian adult use recreational market of all product form factors. And the company believes these categories will continue to dominate based on the sales history in mature legal markets in certain U.S. states, as well as regulatory restrictions on other form factors. For example, the 10 milligram per package THC limit in the edibles category. Cannabis consumers continue to want both high THC dried flower products and cultivar diversity as supported by available sales data. In the popular value segment, sales of Shred continue to impress almost tripling from last quarter and representing the fastest growing brand in the country. It has remained the number one most searched brand on the OCS website for the last eight consecutive months. There are a number of exciting developments I want to highlight when it comes to this highly demanded product. First, the product margin on Shred is improving with a pivoting commercial strategy and a declining cost structure as our yields and efficiencies are improving with increased scale. Second, we have had the benefit of being able to leverage Shred's extremely strong brand equity to introduce new better margin products like Shred's jar of joints, a convenient jar of 14 half-gram pre-rolls of Shreds Tropic Thunder. And we have more to come, so stay tuned. We will obviously provide more details as these products are rolled out. Late in Q3, Organi-Gram officially announced the launch of Big Bagel Buds, indoor-grown, strain-specific, dried flower in a 28-gram value format. The new Big Bagel Buds lineup includes existing cultivars, such as the company's industry-leading Ultra Sour, otherwise known as Limelight in our Edison brand, along with new cultivars and a rotation of one-time strain offers. Big Bag of Buds contains a minimum of 17% THC, and one-time offer or OTOs will range in strain selections, including Grapefruit GG4, Original Blue, and Lemon Tree strains. Big Bag of Buds doubled its sales in Q3 from Q2, and we see this excellent trend continuing into Q4. As we said last quarter, we are focused on growing our sales mix into our higher margin dried flower brands. We have made ongoing investments in genetics to support the Edison brand promise of innovation and new and exciting products. We plan to keep the Edison brand revitalized over time with new streams as well as high potency. As you have heard other licensed producers lament, it is not easy to grow new strains at scale with both high THC and balancing that with high plant-based. But we are increasingly encouraged by our progress and recent results. In Q2 fiscal 2021, the company launched three new Edison Cannabis Co. Indica strains, which included high-potency Black Cherry Punch and Ice Cream Cake, or ITC, as well as Sluritane. Black Cherry Punch joins Limelight as the top seller of their respective strains amongst other LPs with similar strains in market. In late April 2021, the company announced the launch of another two new high-potency Edison dried flower strains, GMO Cookies and MAC-1, which have a THC range of 20% to 26% and are available in either a 3.5-gram format or a package of 3.5-gram pre-rolls. Both strains feature a distinct phenotypic profile, flavor, and aroma as a result of being grown in one of Organigram's strain-specific microclimates. We expect to introduce more new cultivars under the Edison brand in the near term. In late March, the company introduced another high-margin dry flower brand to the market called Indy, one of Canada's only cannabis brands dedicated exclusively to indica cultivars. Skyway Kush was the first and only stream in the company's indie portfolio, offering THC in the range of 20% to 23% until June, when we launched two new indie streams in 3.5 gram formats. Biscotti Gelato with a THC range of 20% to 26%, and Gelato No. 33 with a THC range of 17% to 23%. Pre-rolls are the second largest category in adult use recreational market and the fastest growing on a quarterly basis this year at about 33% in calendar Q2 over Q1. In late March of this year, we introduced the new Edison strains of Black Cherry Punch, ICC, and Slurcane in a package of three half gram pre-rolls produced with our new pre-roll machine. This machine was commissioned in March and is now producing an average of about 40 pre-rolls per minute. have ordered another machine expected to be delivered to commission in early Q1 fiscal 22 as pre-rolled demand hasn't shown any signs of slowing down. Derivative product sales were lower in Q3 than Q2, but we look forward to gaining sales traction in the largest derivative product category, Bates, with the launch of two new Bate 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 are based on 9-Lite, our top-selling flower strain, and the country's best-selling ultra-sour. And we expect our new soft-chooser gummies to be available in certain retail stores in early August. Today in Canada, edibles are one of the fastest-growing segments of derivative products, and the largest product subcategory within edibles is Gunny's. With our acquisition of Winnipeg-based Edibles and Infusions Corporation, or EIC for short, we enter this market backed by leadership with proven confectionery experience and a track record of delivery to some of the world's biggest retailers, including Costco and Walmart. We now have two facilities capable of R&D, product development, and large-scale manufacturing capabilities to deliver derivative products, our flagship facility in Moncton and our derivatives-dedicated EIC facility in Winnipeg, both designed and built with EU GMP specification standards in mind. While flower and related products still account for more than 70% of the overall Canadian market, derivative sales growths 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 market compared to 12 to 15% in more mature U.S. markets. Lastly, we have a very innovative derivative product launch still to come in Q4 fiscal 2021. I do not want to give away any more details until we are ready to launch, except to say our team is very excited about the potential of this product. In addition to the acquisition of EIC, we also announced the collaboration with and strategic investment from VAT in March. I won't reiterate all the details of the transaction as we covered it in great detail last quarter. However, by way of update, we were pleased to announce the successful launch of the Center of Excellence or COE at our Moncton facility as outlined in the PDC agreement with VAT. The COE has been established to focus on developing the next generation of cannabis products with initial focus on CBD. As the company and BHC refine plans and ramp up on execution for the COE, a number of initial skill positions have been created, including innovation-focused roles such as scientists and product developers, and over time, the employee count is expected to increase as new projects and work streams are brought online. The COE is governed and supervised by a steering committee consisting of an equal number of senior members of each of Organigram and VAT. Under the terms of the PDC agreement, both Organigram and VAT have access to certain of each other's intellectual property and, subject to certain limitations, have the right to independently and globally commercialize the products, technologies, and IP created pursuant to the PDC agreement. Approximately $31 million of VAT's $221 million investment in Organigram has been reserved for Organigram's portion of its funding obligations under the initially mutually agreed upon three-year budget. Costs relating to the COE are being funded equally by Organigram and BAP. From a governance perspective, there is 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 BAP nominees to Organigram's board of directors. At closing of the transaction, we welcome Mr. Giant Hepburn to our board and the other nominees expected to be appointed in the near term. Not only is this collaboration with VAT going to accelerate and strengthen our research and product development activities, it is also anticipated to be instrumental in establishing the foundation for our U.S. and international strategy. As part of the transaction, VAT invested approximately $221 million in us for a 19.9% equity interest, With the 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. I will now turn the call over to CFO Derek Lush.