Entourage Health Corp

Good morning, everyone, and welcome to the Entourage Health Corps Second Quarter 2022 Results Conference Call. At this time, participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts and members of the media to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star and zero. A replay of this call will be available on the Entourage Health website later today and will remain posted for the next 90 days. I would now like to turn the conference over to Marianela de la Barrera, Senior Vice President, Communications and Corporate Affairs with Entourage Health. Please go ahead, Ms. de la Barrera.

Thank you, Cha, and good morning, everyone. Welcome to Entourage Health's second quarter 2022 results conference call. Please note this call is being recorded. For copies of our press releases and supporting documents filed on August 29th, 2022, or to retrieve a recording of this call, please visit the investor relations page of our website at www.entouragehealthcorp.com. The replay will be available later this afternoon. With us on today's call, George Scorsese, Chief Executive Officer and Executive Chairman of Entourage Health, and Vani Maharaj, our Chief Financial Officer. Today, we will be reviewing business highlights and discussing financial results for the second quarter, as well as recent developments. Following formal remarks, we will open the floor to questions. I would also like to remind everyone that during today's call, we will discuss our business outlook, which will contain certain forward-looking statements. Actual events or results could differ materially from those expressed or implied by such forward-looking statements due to several risks and uncertainties, including those mentioned in our most recent filings with CDAR. These comments are made based on predictions and expectations as of today. Other than as required by applicable securities laws, the company does not assume any obligation to update or revise them to reflect new events or circumstances. Now, at this time, it is my pleasure to introduce George Scorsese. Please go ahead, George.

Thanks, Miranella, and thank you to everyone for joining us this morning. Once again, it's my pleasure to be with you today, and here's hoping you're all having a wonderful summer. Before I get into our performance during the period, I want to share a high-level mid-year status update on the market. As you're all aware, a combination of factors brought unprecedented challenges to the cannabis sector in the first part of the year. For starters, market stressors and macroeconomic factors resulted in falling valuations across the board. But more pressing, we all noted increased competition, price compression, and oversupply as new products flooded the market. Added to this, many companies were challenged with the ability to raise capital due to scant funding options. But I have to say, these were not really our challenges during the period. And this is where I'd like to begin my entourage recap. First off, as a reminder, our strategy continues to revolve around three levers in 2022. Firstly, driving revenue. Secondly, growing margins sustainably. And thirdly, prudently managing our SG&A. Understanding our threefold plan, we've made it a priority in Q2 to revisit and improve our capital structure. During the quarter, we took significant steps to upgrade our capital structure, debt, and liquidity position. We added $8.9 million in additional funding capacity, thanks to the support provided by our valued partner, Leuna Pension Fund. All this allowed us to settle the repayment of our unsecured convertible ventures. It also provided us with the extension on our two secured credit facilities maturity dates for increased financial flexibility, essentially extending our loan repayment and financial obligations to 2024, where we will have the ability to service all debt positions based on our current run rates. This was an important development in our first half of the year. It has freed up our working capital. It gives us the flexibility and confidence to continue optimizing our cultivation operations platform to increase production of our in-demand products, drive revenue, grow margins, and meet our positive EBITDA goals over the long run. In a few minutes, Vani will walk us through the numbers and break down our next steps for achieving these goals. For now, I want to address how we're continuing to produce quality products for our adult use and medicinal channels. First up, The adult use market. While we have a diverse portfolio of products, we noted early in the year that premium and pre-roll market segments are the two fastest growing segments with the highest margins. In fact, the overall pre-roll markets alone increased 34% year over year in Q2 2022. Being opportunistic and capturing such markets with premium flowers was the impetus for acquiring the tissue culture business in late 2021. Responding to the market's need for new high THC genetics would result in greater sales of higher margin premium products. That's where we shifted our priorities towards, all rooted in high quality flower for innovative products. While our top-line market share remained relatively flat in the second quarter when compared to the prior year, we managed to take 6% of the premium market segment and close to 5% of the pre-roll market segment, according to HiFire and Buddy data for this three-month period ending June 20th, 2022. Now, I want to take a pause to make something very clear. We pride ourselves on producing quality products. We are never going to sacrifice quality for market share Same goes for revenue. We will not pursue market share points at the expense of our revenue and profits. Now, here's where our story for Q2 story takes a little bit of a turn. Transparently, those last few months in the quarter were a challenge for us as a company. We experienced a temporary production pause while we performed structural enhancements to our cultivation rooms in our Strathroy facility this past spring. Added to that, we were already undergoing remediation of some of our prized cultivars, a standard practice when rejuvenating genetics, particularly since we housed the capabilities with our tissue culture specialists. In doing so, we missed out on completing about a dozen harvests in Q2, which led to excess capacity. This explains in simple terms why our revenue in Q2 2022 was flat over the prior year. It was not for the lack of demand, but rather was due to the lack of output. The downstream impact is that we are now in a shortfall for some of our most popular cultivars and products, namely Pedro's Sweet Sativa, but I'm pleased to confirm teamwork hard to remedy the shortfall, and as of late June, we went back into full production with all 18 cultivation rooms upgraded and 100% online. Added to that, our Pedro has completed its year-long tissue culture rejuvenation, and I'm really happy with the results we're seeing so far. Our proprietary genetics is coming back better than ever this fall. I'm really excited to see this hit the market. Even so, the results was still a miss on our revenue targets in Q2. Total revenue of $13.2 million and net revenue of $9.7 million represented a total revenue decrease of 5% and net revenue decrease of 9% year over year from Q2 2021. So, while we were on track, we did not anticipate that an upgrade performed in a couple of our grow rooms would result in all rooms needing to be remediated. We recently introduced a new 24% high THC cultivar space cake to great fanfare. This speaks to our commitment to introduce new premium products and strains. In fact, even without our top selling SKU available, we really didn't lose market share. Moving forward, we have some new genetics and great products coming over the next few months, which includes new high THC cultivars, live sugar infused pre-rolls, live resin soft chews, new vapes, and of course, increased production of our boston beers teapot cannabis infused beverages which are now available out west and coming next to ontario moving now to our medical business this has been the real success story for us in the first half of the year with the highest margins coming from our medical sales in q2 our medical revenue was up 24 percent over the previous year this is due to our customer patient acquisition initiatives and digital marketing efforts combined with over 45 products now available on our platform. The varietal mix has been a winning combination for our patients. We have seen a significant increase in our patient registrations and patient retention with a sequential patient growth of over 20% per quarter. Additionally, as announced earlier this morning, we have over 10 union groups, five insurance providers, and 24 clinics on our Starseed platform. the latest addition for unions and their locals whose benefits are administered by Union Benefits. The Union Benefits team provides us with the potential to onboard an additional 12,000 patients plus their dependents with no out-of-pocket and access to a network of medical cannabis practitioners. We also recently partnered with HelloMD, a well-known telehealth network provider with access to a large base of cannabis healthcare practitioners to assist and partnered with Pineapple Express to provide speedy same-day delivery access to select regions of Ontario. In short, while we're expanding our patient base, we are also improving our platform's offerings with tailor-made solutions that bring forth a patient-first mandate. The last piece of the medical news I want to share with you is that based on the success of our patient registrations, both union and non-union, we're launching a second complementary medical channel to our Starseed channel in the coming weeks. Our new channel will be a syndicate of Entourage and Starseed and it will house a collection of craft cultivators selling high cannabinoid cultivars and products to patients. The new channel will be aptly named Syndicate. This is in response to recent trends across the medical field with patients looking for high THC flour and products. It will cater primarily to non-union patients who are looking for those craft products available in retail markets. It's our way of bringing patients back into the trusted medical side with health practitioners trained in cannabis medicine. We're also looking forward to partnering and supporting many of the smaller micro cultivators that need a medical platform to sell their products. More than 50 products will be showcased on our syndicate website over the next few months. This will bring smaller licensed producers and micro cultivators into the collective to promote their brands and cater to our discerning medical patients. On that note, I now want to give an update on our ongoing optimization efforts. Earlier this year, we transitioned the majority of our cultivation activities to Strathroy where we also implemented craft growing techniques into our individualized grow rooms. This was the best cost reduction move for the company over the long run. Despite the operations upgrades we undertook in that period, as it did not make sense to have two grow operations across our business platforms. Having introduced automation at our Aylmer facility in the first half of the year, we are definitely noting a boost in production rates to 4,000 pre-rolls an hour now that we have two machines running. This is incredible. The company is focusing on improving gross margins and cost savings to drive profitability while increasing efficiencies. Over the course of the year, we are focused on implementing our business transformation plan and making improvements to our business operations as outlined above. Our cultivation procedures, technology, and processes have been evolving over the past few months. We're also seeing positive improvements come from our greenhouse with maximum capacity utilization resulting in increased productivity. We fully expect to see these results starting in Q3 and primarily in Q4. How will we meet our objectives for the remainder of 2022? As the market share changes, As the market changes, excuse me, we are scaling production to respond to consumer trends, establishing additional revenue streams, and building on partnerships that have been successful. On that note, we recently announced a partnership with Erwin Naturals, a renowned nutraceutical and herbal supplement formulator, a popular branded wellness product sold across North America. Entourage is the exclusive Canadian producer and distributor of its subsidiary, Erwin Naturals Cannabis. new line of CBD and THC products. The products will initially be available on Entourage's Starseed Medicinal Channel in Q4 2022, but also has the potential to expand into retail markets across Canada in the future. And more specifically, we're eyeing this partnership as an opportunity to get our CBD products on pharmacy shelves across the country for easing access to CBD products. Before I hand it over to Vani, let me recap. Entourage is experiencing consistent growth, and our expanding product portfolio reflects our ongoing investment in enhancing our cultivation, scaling our operations, aligning the right partners, and delivering on our consumers' changing needs while creating shareholder value. This concludes my opening remarks. I'll now hand the call over to Vani, our CFO. We'll make a review of our financial results for the period. Thank you.