Organigram Holdings Inc.

Q1 2022 Earnings Conference Call


spk_0: good morning and welcome to our gang graham holding eighth first quarter earnings conference call for the fiscal year twenty twenty two all line of them play on you to prevent any background noise after the speakers remark mark will be a question and answer session with alan yeah he agrees limit yourself to one question and one follow up question you may reach you if you have further question adam reminder of conference call being recorded and a transcript will be available on our ghana grams website lesnar there should be aware that today call will include at night and other forward looking information please review the cautionary language into the pressure lead on various factor assumptions and risk that could cause the company's actual results to differ furthermore during the call reference will be to certain non i offer measured including adjusted ebitda us and adjusted gross margin it measures do not have any standardized meeting under i a threat and are approaching counseling the measures may differ from that of other issuer and so these measures may not be directly comparable we see today earnings report for more information about the measured i would now like introduce been a goldenberg chief executive officer of organic graham holdings inc please go ahead and ned goldenberg thank you and good morning everyone with me and their quest or chief financial officer for today's call will that affect the financial results for the three month ended november thirtieth twenty twenty one and i will provide a general business update will then opened the cop for questions the first quarter of the got twenty twenty two show continued momentum from the program their teeth in the last quarter of twenty twenty one we've hit record net revenue in the quarter the higher than the history of the company we solidified are number for a market your position among canadian oh keith in the recreational marketing canada be coming one of the few larger canadian pais registering market share growth subsequent a quarter and we completed and creative acquisition of a laurentian that expand our product and brand portfolio and bolsters or geographic presence in quebec and we need further progress on our goal to achieve profitable adjusted ebitda when should be accelerated with the purchase of the ranch it and net revenue and he wine with thirty point four million dollars and fifty seven percent increase over t one and pit bull twenty twenty one this record level of net revenue speak to our success at elevating tibet address consumer need and introducing compelling brands that resonate with consumer we continue to hold the number for marketshare position among canadian l keys in the quarter and seven point five percent a year ago before product revitalization program or market share with four point four percent the high fire data provided ppl on how our products are being received in the market shred continuously the most popular flower brand with tropic thunder and funk masters fuse holding the number one and two positions respectively for november and tropic thunder and arberry as the to skills in december based on the
spk_1: yield and volume
spk_0: shred also remained the number one search brand on the cf website for thirteen of the past fourteen month these sustained positive result while the price for shred was increase in alberta in ontario demonstrated exceptional consumer demand training dummies were introduced in august twenty twenty one and are quickly gaining distribution and traction in the market in november they were ranked number three in turn the both fail them volume of unit thought everything job or unique high potency p c lot and maintains it's that someone condition within the injectable extract category our momentum continued after quarter in december data from high fire highlight that organic remicade seven point six percent market share a pen basis points from november hoping the number one position in the important power category number three condition and gardening and moving up to the number for position and pre will we're very pleased with the result and you should also note that this market did not reflect the contribution from the fails of laurentian product that will get a closer to an eight percent market share in november we watch more you're a wellness brand providing large format cbd and few thought to in very nicely and citrus medley flavor both flavors are available and vegan friendly and sugar free form for a maximum consumer choice in the short time since it's launch last month more your has already shown strong the length in and the market we're very pleased with the start and look forward to the new brand achieving the same except as a recent brand introduction we continue to focus on the needs of premium cannabis consumers through our flagship and brand and faded last quarter bright feel data and has shown growth and editors brand awareness and a significant increase in a number of social mentioned and popular consumer sentiment score seven little high potency strains were introduced and fiscal twenty twenty one and physical twenty twenty to thirty off with the launch of several new products including the edison blue velvet deep and get another first to market product the edison peers combo pack the first primo ten pack in the market to offer consumers to unique genetic within one pack consumer demand of them stronger need innovation and we're excited to continue to offer new relevant product to the market throughout the rest of the year
spk_2: now let's look at our operation
spk_0: in q why are you per class with the hundred and twenty nine grand compared to eighty six grand in few one of the good twenty twenty one and we have brought on new grow room and improved operational efficiency are cops program had been reduced by half while increasing key sea level at the mouth and cultivation center afraid to the facility are currently underway they think will increase capacity to our fourth the expansion a second harvesting area adding environmental enhancement and performing upgraded to the irrigation system need for further inherently old and flower quality in terms of automation the second pre war machine with commission black quarter and investment in high speed pope flying for big bag of bud and thread is underway a product development collaboration would be a p advanced than the quarter with the completion of the quality assurance and control laboratory construction has also begun on the bio lab which will conduct advance science research and on a gpp food and edible facility both of these are expected to be completed in february twenty twenty two this is an important milestone but research conducted of part of rpt see what will contribute to ongoing development activity which could result the new products from the future support market share road and a reputation as a consumer centric innovator initial development of focused on t v cbd and other cannabinoids edible dream date and injectable product with focus on products that improved delivery and thick see convenient and create new usual patient or commit and kind of asian is also reflected in our increased investment and hyacinth biological hyacinth if a leader in can happen when find that amusing by a synthesis to produce t v e b d and were can adequately without the use of cannabis plant this greatly reduces the cost and production time of the compound with a smaller environmental footprint in december we increased our total investment in higher than to ten million dollars this provides us with approximately forty nine percent interest in the company and to board feet one highest and comment that commercial production we have the option to purchase with to nab noise at a discount for the wholesale market price for a period of ten year producing any major or rear cabin annoyed quickly and and scale opened up multiple possibility for medical wellness and recreational product and one of only three large l p than that thing and by a synthesis organic brain is well positioned to take advantage of these opportunity finally i'd like to highlight the acquisition of were right and we need in december the of a quebec faith filthy of our teeth in ah crap cannabis sold under the laurentian brand and quebec top selling half old them or that travel on cannabis brand the ranch and current annual capacity is about six hundred kilograms the flour and one million hash unit we intention that seven million dollars in roman catholics behind laurentian expansion program with for increase capacity to about three thousand kilograms the flour and two million units of hash by the second half of twenty twenty two we are excited could further than the distribution of blurry to the brand outside of quebec lever thing the strength of
spk_3: our national fail forth
spk_0: the acquisition cost with thirty six million dollars consisting of ten million dollars in cash and twenty million dollars and shared as well potential are no consideration this is a significant position in that strengthens our premium portfolio with high margin products and increases are prevalent in quebec it is often credo as the origin of been averaging and said entered the ontario mark the november and annual net revenue run rate of seventeen million dollar with six million dollars and now don't turn it over to derek can present the financial overview derek
spk_4: thanks to them turning to arrange results for que one fiscal two thousand and twenty two gross revenue grew seventy five percent from que one two thousand twenty one to forty four point three million and yep revenue grew fifty seven percent from the same period in fiscal two thousand twenty one to thirty point four million these revenue increases were primarily due to higher recreational net revenue which grew nine percent from queue for fiscal two thousand twenty one and forty nine percent from the same period in two thousand twenty one and the resumption of shipments to israel under an agreement with can while gross revenues group seventy five percent cost of sales increased only twenty one percent year over year to twenty eight
spk_5: there was no charge for at absorb six overhead for news grow grimsby she won fiscal two thousand twenty two compared to two point seven million into one of the prior year
spk_0: we harvested approximately eleven point six thousand kilograms of flower during to one just got two thousand twenty two compared to about thirty nine hundred kilograms and she wanted the prior year an increase of one hundred and ninety seven percent this increase was directly related to increase yield proponent along with the increased competition planning drink
spk_4: you for fiscal twenty one and two one a fiscal tweet you can eat a growing demands from
spk_5: largely due to lower conservation and post office cause lower changes in third are your biological all said since of enjoy provisions the gross margin and you want improve to six hundred and ten thousand from negative sixteen point seven million and chief you one two thousand twenty one on an adjusted basis gross margin was five point five million compared to one point nine million to one two thousand twenty one we expect that the price increase to shred the addition of higher margin premium products to are offering and lower production costs for further improve merchants
spk_4: sta excluding non cashier based compensation increased to twelve point six nine and two one two thousand twenty two from ten point five million the a prior years comparison corner largely due to hire until cost you to increase account general wage increases increase professional for you to to technology fee fees and out of your feet from the new required to have an antibiotic and higher trade investment in that next men initiative and to support the launch of are you coming in at a derivative products also do to improve revenue in margins the negative adjusted at a doll was reduced from five point seven million in she wanted two thousand twenty one to one point nine million in the current quarter we also reduced or nap last year over year from thirty four point three million to one point three nine overall we are pleased with are improving financials and the continued been mentioned we're seeing in addition starting in december two thousand twenty one we began to recognize revenue from the launch an acquisition
spk_5: based on this we have now advanced argue and achieving cheating positive adjusted that a dog i shoot three of fiscal two thousand twenty two in terms of statement of cash flows
spk_0: like cash you'd an operating activities was nine point three million during que one in fiscal two thousand twenty cheap compared to cash generated of two hundred ninety four thousand and she wanted to prior year the change was primarily due to the current peerage investment working capital asset as we supported the growth of the business
spk_4: net cash used by funny creativity it was two hundred seventy thousand during she wanted just have to that and twenty two primarily driven by reduction death and you fly the lobby
spk_5: nick as generated from investing activities was fifty four million during you on fix for twenty two an increase of thirty eight million from the prior years comparison court
spk_4: during the current period those sixteen million from short term investment proceed one million from restricted by and not nodded seven million and code for catholics damages in terms of her balance sheet and of ever thirtieth cheese the thousand and twenty one we had a hundred and sixty eight million unrestricted cash and short term investments compared to one hundred eighty four million at the end of fiscal two thousand twenty one a decrease during the period is primarily due to the complete investment in both it's working capital asset
spk_5: and capital expenditures for so the improvements
spk_4: this concludes my comment thank you how about to turn the call back to dinner
spk_0: think their it get close we're very pleased with the record result in the past quarter they can can you can generate significant no can that i believe positions that for a successful fiscal twice a kids in that you can continue to expect strong revenue and volume growth more new and exciting product introduction increase brand penetration and further improvements in are adjusted gross margin thank you for joining us today i look forward to update you on our progress and now operator you may open the call for question
spk_6: have this time if you would like to ask a question you may do so that pressing star than a number one again that star than a number one in order to ask a question your first question constant line of with tears parade of oppenheimer and company
spk_5: the morning thanks i'm taking my gosh i'm like it's a further i want to go just market shares are significant increase in markets or year by year old you guys are tricky for the key efforts are true that marcus or increased
spk_0: hampshire thank you for the question fell out you know we we saw significant growth in the interest in our shred grand to and it's really the and been quite ironic at an increased demand from consumers really related to not only you know the convenience of the hi alli flavor profile all of the offering that's attractive consumers and we've seen really strong growth behind that brand and in addition we have started in a week we launched into the galleys category after our acquisition of ai feedback last april we launched into the category in august and saw significant attraction behind our shred brand became in with that cost competitive cost into the marketplace and it you know bill to the number three position in the market by november so pretty quickly so we continue to focus on building our derivatives our offerings and in addition in either mentioned earlier we launched our painters or and enter as witches and you our primo offering can pack that has two different to as strange and it it's a unique offering to the marketplace so we're just listening to our consumers understanding what they're looking for an and launching products that need their demand and if it helped us gain market share
spk_5: great that's awful current it maybe just one followed by should sandler action shot coalition so it's pretty prosecutor the theory of six million dollar even better run rate on the sales data seventeen million what's unique about the advantage and already generates that strong even honor and up fairly low rub your base
spk_0: right so i mean they're focused and laurentian and predominantly i selling hash products and their of the number one selling cash and of quebec marketplace so and it's the at in l a premium product offering with good margins on and in out that has then am really bad i'm drunk green consumer appreciation for if case tenure flavor i feel of the product so they've been able to manage the in a maintain really strong larkins on that offering am they combine that with some crap flower we know crown flower is and good margin product so am their focus has been on quebec market will continue to expand those offerings as we build our capacity to take advantage of both higher margin offering to you know or overall portfolio
spk_7: great thank you
spk_6: your next question comes from a line with tammy chan of v m b m o capital markets
spk_0: hi good morning thanks for the question and first i wanted to ask a bit more about the cost of and margins so can you help us understand in a once you honor up and running on the expanded capacity as i recall somewhere around the seventy thousand kilograms the year and what sort of you know minimum sales level would you move at that level capacity to maintain part of that margin than either the i ask because a lawyer gaining share now what you have a positive as the market does change allotted and who is any share can fluctuate compliance to time fly i wanna congress stan the flexibility or are putting leverage or the leverage nature of your call structure
spk_5: i jamie it's a derek here
spk_4: we know we are up revising add the look and turns out the total capacity to from seventy thousand to seventy five thousand based on of the improve notes that we have been getting consistently your loss for four months in done you we we're operating at capacity now based on the principle of boy in jail week just by increasing over the last few corners we have significantly reduced cost structure to the point that we've gone from negative adjusted gross margins are to positive adjusted gross margin the really enjoy hanging out there is there is a fixed costs element judge to the facility that said ya under the grandpa passed on earth can an entire as as shot on we we do plant based on pounds of the phenomenon products that at this point five exceeds air exceeds our current capacity but would ongoing planting in the moon's as mr man can choose to outstrip our current capacity the and based on success by alcoholics and our plans for innovation and watch new products we do feel that as you can see the construction and and the rooms to take it from this fifty five thousand capacity we have today to the seventy five thousand that we will be able to be operating at or near capacity fat were not a viewing this are from a perspective go by hi there is a significant downside to cheat at the expansion i just given where the didn't endless today bits and capacity that we have today from his fifty five thousand generalize run rate to seventy five thousand but of course on as when all i can describe the return to the nelnet whereby you're not operate in a pack pack
spk_5: meet with other cup competition in the marketplace they're they're on the there is a cost or if it's cost element chance that china will get a charging
spk_4: to cost of sales on should be not be operating our capacity the we feel if there is an so much more that channel we can provide on cost reduction just based on recent and fifty five thousand seventy five thousand and especially think will be sufficient better should be around i'd sufficient selling them and in our products which again you not expect
spk_0: wait let me just add one more comment on top of a chair dared to fed up cammy right now are are very popular shred rand is really only available and to market and in on it and two provinces in ontario in alberta the have some small volume that is in quebec but we haven't been able to expand
spk_2: if the distributions other markets do at the lack of supply and we do believe there's a lot more opportunity for us to expand that brand and take advantage of what deeply believe it's a great product offering out in the marketplace so we're not in a weight league a while i recognize your comment that i can see
spk_0: we have been swapping between brand we've seen some pretty sustained demand on our shred brand and continued great performance and were am looking forward to having that extra capacity to be able to expand or distribution thought it thanks for the comment there that actually that's i went to my follow a question so been a very interesting on shrugged because i was going to ask how much more upside in consumer demand new see in the shred brand because it's gotten so much shit that's over the last year so to clarify out shredders really only in alberta and ontario and not really in the other provinces on so i i i see the update their how about in the the the provinces on here and alberta that shredded already agnew continued to anticipate or he other still even more demand upside on should thank you
spk_2: at yet so so we am absolutely see opportunities in those markets and i should correct we do have a little bit of his lips also a shred in quebec and fifteen grand format versus the seven graham format we have an ontario now burn out and but we do see an upside because currently were on allocation of we can't supply that
spk_0: demand that's currently out there and this is why the increase in our at production capacity and and or improved fields is helping us will continue to be able to put fill orders as they come in but you know an inch of having i joint business planning meetings with the oh fear their breed quickly caliph there's big demand from the retailers and we can't supply that demand at that point or really looking forward to our expanded capacity for we could fulfill that demand and i think it all comes back to the fact that were offering a product that is competitively priced to the electorate market am and so we're bring new product and people and from deal with that market into the legal market through the brand introducing them to high quality offerings and so i do think a lot of upside as more people move over from the with that market through the legal market as well thank you
spk_5: your next question come from the line of aaron gray of a gp carter more you could keep your question
spk_0: first question for me i want to put on israel arm in our girls begin again it's quarter of his on the go forward or two questions and it's virtual could you call it may be on the margin profile that yards are receiving person the on israel and then how do you think about it gone or did they could picture continue and twenty twenty one know relative to you are grim knew you were even or quarter rather not are in or should continue to be lumpy both kind of a good base the local with you
spk_8: right so thank you for the question album at this point that we had strong you know we we you and resume shipments to israel and energy one of the got twenty twenty two we have a great partnership with can dock and they're very interested in ongoing and receiving ongoing product from what's what
spk_0: they're selling their market is you know freeing and in a dorm grown candidates from canada have a seat at the been drawn to get a premium i'm on a price for that product and out with our shipment that we made in he won a fiscal twenty two they were very pleased with the performance of our strains that i believe we ship and mac one that fall down in their stores within twenty four hours so you know they they're very clean they are they're looking for more product we expect to be on a cadence
spk_5: in you know shipment once a quarter to can dog obviously that he does depend on in know no changes to the regulatory environment but at this point we have to draw a strong partnership with can dog and we do expect to see ongoing shipments grew up the balance of market for year
spk_0: green bay through the just could go up greaves comment is in cambio mortar broke all there's you know your israel or wrote her shirt and mary as you did app okay and yeah so so only we have a good margins on the product that we help israel and and that's obviously because when you sell export markets you don't have the excise tax impact that you have when you fell within the recreational market and so it says strong margin for us
spk_4: and it helped that driver overall net revenue i don't know their if you want to provide any more color
spk_5: i'm i guess we don't normally get into the a margin by product categories are bunch of ugly but you know you have helped the margins on the on the on the be viewed as much as as a consequence of the eclipse talk like jones noted as well of the packaging that you're doing something on the on the export is the thought process and in terms of of labor and and
spk_4: element and so it does allow for much insulin or and hand than as compared to the floor margins in the country
spk_0: for example could call for the color appreciate that i'm same question for me when i just in terms of our liberal view on the market out in price and are just computer talk about your potential could you you party pressure on did you do price as a lever to kind of brigade mortgage sure he can get job role view in terms of would reach price you increased interest in hydrogen to look at pricing animator price gap and as be go to twenty two percent relative to their trump junior the market church as with my routine become watch over time with it for him right so so i think they're we've seen the price impression that happened in the flower category but from my perspective we basically theme it it sort of level off we got to a place and flower were supply and demand are getting more aligned in the marketplace the pride compression we're seeing now with coming in other segments he'd see quite significant compression coming in the weight category you know we we have a good competitive cost structure for dummies so we're not concerned that in that category in terms of price compression we know that we have to be competitive in the valley segment to prices offered in the illicit market to maintain element that momentum so i think you know in the offing fee have to watch the upright thing we certainly have seen the compression in the far category over the last year but it's i think really a good indication of the strength of our shred brand that were able to take pride thing in that category and continue to maintain the momentum on the brand so when i do believe that we've kind of the levels
spk_5: on on flour and there might be fun crime impression on the high end in the crowd flower segment the blood on the value of segment i think we've sort of leveled off you know i could be proven wrong but that certainly are and what we see as we were able to you know get that price increase on on
spk_6: threat
spk_5: good good good source the golden older back to the do
spk_0: your next question comes from a line of tie call of a capital i think fatigue my question just looking for some additional color on the queue to a look i think the language in the press release guided towards higher year over year sales and q do not necessarily sequential growth so just wondering if you to look i'm flattered down or what do you think in terms of adult use some of the present take their bigger perfect thanks for the question and so you know we we are going into the quarter obviously we have to the december behind us we've had some good momentum and we do have the incremental revenue coming from laurentian but the the as careful consideration on border a quarter which you know again could very well be growth quarter over quarter but we do want to recognize the fact that there is seasonality to the their lives and the second quarter or second quarter is usually our lowest quarter of the year because you have to have that the shut down over christmas the of the shorter february a month as well as of the provincial born that year ends or in march so we're just being cautious recognizing that while we certainly are striving for revenue quarterback quarter we are very clearly going to be significantly higher than the same quarter prior year
spk_9: via the other thing i do on their recognize look we've been going on nobody hikes to talk about this but you know called and back out there there are some restrictions in some other retail stores in terms of capacity limited than and you know in quebec who's allowed into the stores and you know there is the impact
spk_0: the labour shortages as you know people are infected with coded so we're just being cautious honor statements for the quarter but we certainly have of him coming in and we'd certainly have the incremental revenue coming from laurentian that should help us deliver a great solid quarter and you to great appreciate the color there and of my follow up or you mentioned earlier in the of the company still can't keep up with the man for for for a bird nibble there any way to quantify how much fields were left on the table with quarter and when you expect that supply demand picture will start the balance out given that power capacity expansion months and months them you oh right so the good question i mean we that a we certainly believe that we will be out of our supply challenge and one fourth expansion is up and and running so unfair mentioned earlier or focusing on you know seventy five thousand kilos of a product of of silly and that should be able to address the needs and demand of shred and enable us to look at expanding the distribution to other markets on top of you know feeding the markets we're currently in where we're on allocation am in terms that how much demand heard failed are we leaving on the table that's a hard one to answer would certainly know that in our conversations with the lcs
spk_9: they they currently see that's a very large number of their retailers are looking for product and a you know if something we can't supply so you know every every quarter we and started to see improve guilds we started to build some extra supply this path quarter and that should help of the film more
spk_6: orders over the next quarter and the you know there's sort of that that delay between when you plant can you harvest
spk_10: but we should continue to see improvements over the next couple of quarters but i see the big unlock coming in am one fourth expansion is unfair you know is incomplete and we will have production out of those grow room by the end of our fiscal year
spk_5: thanks for dinner of gone on the corner thank you your next question constant online of andrew profound know how stifle
spk_11: the morning
spk_5: when was the they reduce burden on with some of your product from to do you a launch road is it possible to quantify the price increases the to be didn't include one
spk_0: how much more dudes expect two to increase it by into to him and are you bring shred into new markets
spk_5: are you thinking about having a standardized national price on shred or could there be even further upside on on pros
spk_0: so thank you and you thought so here's the with regard to shred am we know that currently were selling in the most trade compressed market am in on it which is in ontario the biggest bulk of our volume am and that's just stayed down there and margin model and
spk_5: so we do believe that as we roll out to other markets there's been a margin applied as we have some markets that have me you know better of for prices and and we could get better margins on on our shred am in terms of the price increase way while we were able to get the pricing through an algorithm a little bit earlier in the quarter
spk_4: wow we were only able to get the ontario pricing through by the end of october so we do think that they're as good an upside in the next quarter as we see the full impact of the price increase in ontario
spk_0: is it possible to quantify the price increases
spk_5: are very few want a a while pick that yeah i'm not sure i'm not sure to check i'm a constitutional mean were on awesome done advantage in the quarter almost that knowledge saw on the planning new jersey but spoke from here you would be on you know and can know five percent arranged subject in terms of on the and path to the top one yeah just based on a transitional implementation on the time during that she wanted one three langford color and maybe transitioning to are in the expenses you know that you had that night outlook of have accelerated profitability
spk_0: you know could you clarify
spk_5: you don't believe that excluding are indeed and and when thinking about or in the expenses i believe the last time we spoke about it
spk_0: right
spk_5: you know you were talking about maybe thirty million dollars over three years
spk_12: how's that outlook changed at all
spk_0: could you maybe talk about period and and any other call you can provide on on the level of on the expensive to take into account you know your profitability look
spk_5: well i would say that goes a aren't expenses to gate has been on modesty in turn to the time you come on the spending programs that are weapons on that one side of the employees i've been hired or that are doing the work on from richardson or that's lunch and and we've got our own innovation and orange each new over of in the center of excellence
spk_4: was i would indicate that to the totem pole and spend with them and think as was originally budgeted on job originally forecasted and that jones beach was that the timing on some of the stand and the programs is that pushed out a few months on but the aggregate of the spend would be similar to sell the h be can get a bit lumpy or but we'd see that the would start to increase from the men raping she
spk_5: and you corn she wanted this year
spk_4: high jump ship little orange expensive the company
spk_5: thanks i'll get back and que
spk_0: your next question comes from a line of rahul so we're gaza of raymond james the money been below derek go out that so much they are questions i'm a new talking about was like readiness on a drill downloaded in about into the interplay between the be and was margins you fly to me that
spk_5: the company with extraordinary efficient in the early days that the legalization when operating a capacity and durga be required to the enclosed about it not for the past the right now elite you how should be bpp about the to offer and or of he beats rate limiting stuff in terms of capacity and and goes margins now and then how do we see that the old which the expansion that you potentially fetal the dip in march and as you transition to that extension get first first i would not seen a gift to emergence as we proceed to be stanchion out of the that cost that are getting added up the operation caught that are getting to call it or not ah you know like a shame a dollar for dollar pro rata edge of the extra capacity it's going to check
spk_8: night
spk_0: just by we wishing worth fifty five thousand and was actually say that's it that's for the month of january but for que one performing period humans cost me forty five thousand so just in terms of volume good today and where we can get to movie going from forty five thousand from she won effectively can suddenly part of an increase of third which is significant and all of a cost structure where there is that fixed costs components sort of time backdrop hell applied you onto any chance question isn't clear is that are most of the costs from the you're going to be out variable in nature and as as a consequence or cost of production for and
spk_8: is going to go down
spk_0: asian countries anyone that we increasingly marty seen that as we've increase the number ones available to london as compared to cute boy and to for which you three week he can be significant increases to are adjusted gross margin again
spk_2: gemma i'm positive it can percent so we do think that there is no a mathematical reason that the should not continue as we get to laugh for capacity of seventy five thousand
spk_5: great that very helpful and then just switching get a little bit we saw a diagram of his it's what it invested it i've been
spk_6: and we understand that height of the dynamic an important milestone for the green done the the production of foundation production of the eight and could you maybe do it stands for know when we might start to see the incorporation of your
spk_13: the highest and produced molecules in into or gonna guns products and hitting shelves given that wifi a couple get that that is one of your major competitors are good jobs with different derived from adnan
spk_0: right so or thank you for that question of am so at that point out that we're very pleased with the abu in the i ip that that come from high tempo it's why we furthered our investment and we are looking at and having a contract manufacturer organization the sort of at agreements in place and to help on the scale up by around that king at twenty twenty two that calendar year add twenty twenty two am and expect production sort of material revenue coming out of their their facility or that agreement by the end of calif you're twenty twenty three so if it's still you know a little ways away before we have enough scale of were clap annoyed out of that a production but we're very excited about what we've seen in terms of their technology likely we think we have to and you know as sense a fight approach that is easier to scale up and some of our competitors and and we believe that while we're talking about revenue only coming out by and in a significant material revenue coming out by the end of calendar twenty twenty twenty twenty three we do believe that me opportunity in an interview the news of these products it will take that time between now and then to work on you know somebody innovation and i work with that be a t and r product development collaboration to see where the greatest opportunity is are in bringing in the product so or use that time to do that the right research to do the right a consumer work and make sure that we're ready to go one that product the scale great a very helpful they can be taken our questions your next question comes from the line of annum book around of scotiabank
spk_8: the morning thank for take my question or include route him a quarter a palm
spk_2: below you provide some great color on the demand for shrug i want to focus more on the sort of flower vital revitalization project that's been undertaken over the past year and a half are you able to fight to high little bit on the contribution force or premium flower to rochelle's was first for the last quarter or verse last spring and really understood
spk_5: on get an idea about the man that you're seeing for those sort of their products that you've launched right so know a couple of points on that question though lead how the abu in a and from a flower them point within the growth am obviously in our shred the man but also on our big bag of been so that our twenty eight graham format am in a unique strains and album again we have
spk_0: limited distribution but as we can work through our capacity challenges but we're seeing some growth in that format as well i'm are at a thin brand we've seen as a beer with it's been sustained market share on an elephant brand out we expect to see some growth honor edison flower am in
spk_8: the back half of the fear as we start introducing some a bar and newer genetics behind that brand be no higher teeth the higher turkey and offerings
spk_0: on edison which is consistent with the consumer demand as far as you know more premium brand am so so that is coming in the interim wait we continue to focus on building out and and our portfolio behind at a thin with are you know okay we have and some lived read then bates under pack that will be coming out to market we have our editing job which i talked about briefly in the script that really was am at you know i'm great intro into the for a high potency binge as category and we're seeing you know additional youth coming out in that faith because because of the man so low margin up outside of flower through some of our derivative we launched darling your am offering which is see the and few soft shoes and and again and a larger format cbd offering there's not very many in the marketplace adding in a good margin for us and great offering for consumers am an opportunity to build that back distribution so i think there
spk_5: there's going to be margin improvement as we continue and can build out our portfolio
spk_6: and then you know either that earlier i think with edison just a matter of some of the new products gaining some traction and and we didn't see that with are at a pin pin earth which were pre rolled that past quarter so am i hope that answers that question
spk_5: yeah no it's are like those thanks for the color are so fucking are just one that kind of pressure on israel john and and wonder if your your partner care doctors shirt a sort recall material what the experts for for to cuddle dynamics of them market know it it feels basically right now that israel will eat sort of anything canadians put on the table but you know courts or by the op you looking to get into love market given the chart the demanded and march that's right so it is or anything you can share or not on in terms of what you have sparked on the or basis binary that you'd it you know sort of sequential one order every corner but arms you are eating or not and would be helpful right so i think what became clear in our discussions with can dock is what they're looking at what is really meaning that them best premium prices in israeli market is canadian indoor grown and flowers so what i think adam provides us with a unique ah opportunity is that were one of the largest indoor grown facility and supplying that marketplace and you know they said that a few new they put product out there and you know with with our brand the in identified as canadian indoor grow and it's of flies off the shelf though it's really seen as you know premium quality product and that marketplace for well i think there will be you know family
spk_0: competition from israeli drone and as as certainly am and think that we feel pretty strongly about how our performance in the market and you know can dock has it's very pleased with the products and you know they were at certainly you know told us how quickly that that come over any strains that we
spk_8: introduced and in a sold out in the marketplace fell and feeling good about that our relationship and continuing to build from there
spk_0: break hw new collection the border them shaky your next question comes from online line of douglas ma'am of rbc capital markets
spk_1: good morning and couple questions first griffin just have to do with them
spk_14: the illicit market
spk_5: clearly what you could do is walk us through know where you see the pricing in that market or can learn the you're not in the larger provinces bomb and the price differential between your shred a bag of bunch park and the differential that you need to mean came in terms of pricing how far on craig's sorry can you cheat before you're not able to take share for me i was at market i'm just gonna start with but right okay to thank you for that question am i think we've actually crossed that market in in terms of pricing thing with the illicit market if you look at price per gram you know we've seen overall on the market where the price per gram in the legal market and some of the value our frank has actually fallen
spk_0: below the price program on the illicit market now it's hard to say whether that a level playing field you you have differences in obviously early strains and cheat see but i feel like the increase in our demand on shred am has sort of indicated that were there were getting that cross over from the illicit market into legal market and work were at the right price there that i don't you know that we continue to see am in and i believe what it's come across that right now the legal market is now fifty three percent of sales vs you know forty seven percent of melissa market and mean there so long way to go to get more of that an illicit market over but in terms of price per gram on flower i think we kind of crossed over our and i think that gave us the opportunity to take a little bit of pride thing on shred am obviously been donna dynamics are a little bit different depending on the province in and but generally speaking that i think what we've already hit that mark
spk_1: okay bomb it's fair
spk_5: second cushioning the wanna pass clues about zone
spk_6: you you see that you're showing into israel but there are going to be a couple other markets that open up being in europe in the next little while
spk_13: perhaps in the next young twelve to twenty four months
spk_5: what do you what you're thinking or the company's thinking for international expansion and side of canada and you might you doing in israel
spk_8: right so so first of all we also have a a partnership with at can track out in australia and we had ship them are a while ago when we have we engage with them am and are looking to expand our export a shipments to australia as well so that in addition to israel
spk_0: we are correct businesses that will certainly look out for filling in this fiscal year in terms of other markets certainly we're all watching germany and trying to understand you know legalization there and other available markets in europe and what we're doing in the short term we're evaluating you know how to you at get them eg and p or gmt status in our moncton facility how to build though some capacity to be able to take advantage of that that market as well the the facilities are designed to get to you eg m t that or derivatives the for the and when a peg as well as or month and facility we don't have the certification yet but it's something that will look at over the course of the next twelve months and we consider those export markets in europe that become another opportunity for us okay thanks very much if you
spk_2: your next question comes from online line of andrew bond of jeffries
spk_15: morning and your bottom line for own bennett thank you for taking your questions understandably the call so i'll keep it to one
spk_6: it's around us strategy for federal legalization understanding the timing remains uncertain we've seen several different approaches introduction times from other opioids like optionality agreements and structured agreements with them of those as well as cpg oriented brantley honestly again grim has great traction they saw market share data so budget
spk_0: curious what specifically you're thinking about it you develop an approach to the eventual us thc market thank you right well or thank you i'm so so we're we've been looking at the us market and them and obviously it's something that that we publicize whole bunch of second i'm sorry but that am so we have the abu look at the us market and you know i don't believe necessarily that the option that some of our competitors have done at is the right approach you know we we know how significantly that's market has changed over the course of two years and you know i'm not sure if you put in an option now you know you're going to be getting into years time given that the rapidly changing market dynamics and we're the company our will continue to look at the market and track you know and of regulation at changes kit to make sure that we understand when the if you know the opportunity to really develop in the us for us look for cbd offerings in the us and other case piece of other things that will look at but we're going to be wet and when it's the right move for the short term goal in the last six months have been to build out the foundation and our canadian market place we added a i see which got us into
spk_1: dummies market very quickly we've just added laurentian which both there's that preference can pull back and get us you know both into craft flower any and to concentrate center in a bigger way with their trump trombley hash so i think that was our our priority as we continue to walk and that we've built out our our be
spk_0: in canada will start for luck am an air not i'm not sure if the u s is the first market of the walk outside of the us but we will look at expanding internationally as we at you know see the right opportunities come for us great thank you i colored can drop in the quarter thank you your next question comes from online of rodrigo bones of a t v capital markets
spk_6: ardmore you think for get like when he became one
spk_0: in terms of your market here so you don't have a good momentum going there but in markets to very are competitive advantage so it's going forward will you
spk_6: he didn't hear the market know during you like that in mine terms of how much share you can think of jannik we are your would you like get the market share group you cannot the

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