Aleafia Health Inc.

Good day and thank you for standing by. Welcome to the Alesia Health second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Nicholas Bergamini, Head of Investor Relations. Please go ahead.

Thank you, Dani. Joining me on the call today are Aletheia Health CEO Jeffrey Benick and CFO Matt Sale. This morning, Aletheia Health filed on CDAR its financial statements and associated management discussion and analysis for the three and six months ended June 30th, 2021. All comments to be made on this call today should be taken with reference to and are qualified in their entirety by those documents. Today's call includes 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 to calculating these measures may differ from that of other issuers, and so these measures may not be directly comparable. Please see this quarter's MD&A for more information about these measures. I will now pass the call over to our CEO, Jeffrey Benick.

Thank you, Nick. It's great speaking with my fellow shareholders today. We very much appreciate you joining us. This quarter reinforces the discipline and growth-oriented approach we've taken over the last year. As we've said repeatedly on previous earnings calls, our focus over the last 12 months has been on scaling our production and bringing a strong portfolio of cannabis products to the medical, adult use, and international markets. And we believe these results demonstrate strong consumer confidence and patient demand for our growing product and brand portfolio, starting with a 53% sequential increase in cannabis net revenue. More importantly, we've realized a major shift in our sales mix. That has the benefit of providing us with more balanced, sustainable, and ultimately more valuable sources of revenue. In fiscal year 2020, the majority of our revenue was from bulk wholesale. That revenue mix has changed significantly this fiscal year with our four core pillars, medical, international, adult use, and wholesale contributing approximately evenly to our revenue base. This result is better diversification of revenue, less seasonality, and allows us to react to market opportunities and achieve the highest possible net realizable margin. Q2 2021 saw us report record adult use net revenue increasing 87% sequentially and 270% over last year's quarter. This growth was achieved despite macro industry challenges of significant retail store shutdowns and major delistings of product SKUs occurring in Canada's largest provincial market. We agree with the assessment that COVID-19-related lockdowns have negatively impacted adult use in store sales, particularly in Ontario. This growth trajectory also occurred in medical, as we realized record medical cannabis net revenue, with 23% and 67% sequential and year-over-year increase respectively. This was driven by meaningful growth in both domestic and international medical sales. The gross margins and patient stickiness evident in medical, along with the absolute size and rapid growth rate of adult use make these channels both attractive. Bulk wholesale also increased 66% quarter over quarter as we continue to be opportunistic in utilizing this channel for sale of low-cost cannabis. Together, this paints the picture of a substantially improved sales mix. evenly distributed across three sales channels. The COVID-19 related headwinds have, along with greater competition, directly contributed to industry-wide price and margin compression. We are regularly seeing major Canadian LPs report lower and even negative gross margins on cannabis revenue. Matt will spend more time on this topic, but I think it's worth highlighting that we have, again, delivered what is to our knowledge among the strongest gross margins for Canadian LPs at 41% or 49% adjusted gross margin when subtracting non-cash depreciation expenses. Given that our sales growth has been driven by new product launches, it's a testament to our operations team that we've been able to protect margins even as we rapidly scale production and react nimbly to new opportunities. While we will always continue to innovate and do have some additional launches in the back half of 2021, Q2 saw a continued significant expansion in our product portfolio and brand roadmap. Thirteen net new SKUs were launched in multiple provincial markets during the quarter, and in most cases, also to the medical patients. Specifically, the launch of our brand Divi and our first larger format dried flower and pre-roll SKUs were our biggest revenue catalyst during the quarter. Along with vapes, these are the largest product categories in Canada, and we view it as essential to have a strong presence in them. Our goal with Divi is to build an iconic cannabis brand for high volume, regular cannabis users not willing to sacrifice on quality. Due to this successful launch, demand outpaced our projections, which did result in some supply challenges during the quarter. As we've realigned production and prioritized the cultivation of certain cultivars, we will be able to significantly increase supply for the most in-demand SKUs. Moving to the medical channel, there were a few key items that drove growth in Q2. First, our dried flowers were exported to the German medical cannabis market, which was a long-awaited breakthrough for us. At the same time, we completed our largest shipments to Australia to date, and have additional purchase orders for 2021. Scheduled same-day delivery, virtual consultations, and our growing suite of medical cannabis products provide a unique ecosystem for Canadian patients. It's a completely differentiated value proposition for patients that does not exist elsewhere in the Canadian cannabis industry. Domestically, we began registering our first patients unionized employees of the Ford Motor Company. Through our exclusive agreement with Unifor, Canada's largest private sector union, the thesis underpinning this relationship is that out-of-pocket costs remains the largest barrier for many potential cannabis patients. Through collective bargaining with some of Canada's largest employers, Unifor is advocating for medical cannabis coverage in insurance plans. Since then, we've had two new employers together representing roughly an additional 2,000 members, plus eligible family members sign up to be part of the UNIFOR program. We expect these new programs to take effect in September, and we will seek to grow penetration rates in UNIFOR's much broader 315,000-member base. Lastly, I'll touch on our outdoor cultivation facility in Port Perry. When we completed our harvest last year, we communicated a series of improvements we would make in 2021 to build upon our 32,000 kilogram yield. Most importantly, that meant hitting the ground running with planting completed in June, over a month earlier than in 2020. The importance of this can't be overstated in a five-month growing season. I'm at the Port Perry facility regularly and very excited to commence the harvest in October. Matt, over to you.