Aleafia Health Inc.

Good day and thank you for standing by. Welcome to the Aletheia Health Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be an analyst question and answer session. To ask a question, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker for today, Mr. Nicholas Bergamini, VP of Investor Relations. Please go ahead, sir.

Thank you. Joining me on the call today are Aletheia Health CEO Jeffrey Benek and CFO Matt Sale. This morning, Aletheia Health filed on CEDAR its financial statement and associated MD&A for the three and nine months ended September 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 margins. 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 they 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, and it's great speaking with my fellow shareholders today. We very much appreciate you joining us. Today is Remembrance Day in Canada, where we recognize the courage and sacrifice of our veterans, along with the men and women who today serve in the Canadian Armed Forces. I know we have many veterans as both investors and patients, so on behalf of Aletheia Health, I give you my sincere thanks. This quarter reinforces the disciplined and growth-oriented approach we've taken over the last year. Similar to our momentum established over the previous two quarters, it features significant growth in adult use cannabis sales as we continue full steam ahead in developing our wellness CPG business model. At the same time, we've also realized a reduction in SG&A expenses. But first, I'd like to quickly touch on the non-cash write-off of intangible and goodwill assets. which clearly resulted in the significant net loss for the quarter. It's really important to note that these are non-cash, one-time impairments of non-physical assets. These have absolutely no effect on our cash profitability, and like many of our peers, we have undertaken these impairments to adjust for current market conditions. Now with these items no longer on our balance sheets, it's cleared the deck for the strong growth moving forward. I'd like to speak to some incredibly exciting results at our outdoor cultivation facility in Port Perry, Ontario. In 2019 and 2020, we demonstrated that we could generate significant yield, but as we've always said, the outdoor flower potency was about 80% as high as that of our indoor and our greenhouse. Our goal this year was to produce high THC, low-cost dried flower at scale for sale directly in the adult use market with potencies meeting or exceeding greenhouse results. I believe our third annual harvest, which we completed this week, has achieved that goal. The average potency level for all THC flower harvested is 22%, with some cultivars reaching into the high 20s. Together, we have 11,600 kilograms of dried flour above 20%, almost all of which will be directly allocated towards the adult use market, specifically in pre-roll and milled formats. Apples to apples, this is over 20-fold increase in plus 20% THC dried flour harvest over last year. From our perspective, Potency, much more so than total weight, is the best indicator for investors of the total revenue generating potential for the harvest. Now to be clear, the figures I just mentioned do not include our CBD and balanced strains, which are still in the process of being weighted and tested, and which make up the majority of the total harvest. So the 11,600 kilos is just a fraction of the total weight harvested, and we look forward to reporting... on the total amount later this year. The outdoor cultivation results are important because it quickly ramps up supply for our top selling SKUs, which also leverage our low-cost cultivation advantage. As we said on previous earnings calls, these products are often sold out due to high demand, so these results will help alleviate the supply-demand imbalance. Stepping back exactly a year ago today on our earnings call, we signaled that we saw ourselves making a significant effort to enter the adult use market. In Q3 2020, we had approximately $200,000 in adult use net cannabis revenue. So we were essentially starting from scratch. In the last year, we've launched five consumer-facing adult use brands, each tailored to specific consumer segments. and we've launched dozens of SKUs in that time. The results are beginning to show, as we again reported a meaningful sequential increase in adult use sales, and an over 2,000% increase over Q3 2020. We've also begun to capture market share. According to retail sell-through data from Ontario, Saskatchewan, BC, and Alberta, we hold the ForeignVol top 10 market share position in both oils and edibles. Subsequent to the reporting period, we also reached the top 10 market share position in pre-rolls, the third largest category in Canada. The next objective for our team is to replicate this in the dried flour category. It's the largest in Canada by a wide margin. It also plays to our strengths. The largest input cost is the flour itself, not the packaging, not the processing. This is an area where we have an advantage over our peers, that will allow us to maintain competitive pricing and protect gross profit margins. We've also had some positive development in our domestic medical business. While we did see a small decline sequentially in sales here, this is consistent with last year, with lower order volume during the summer. We do expect to continue growing in the sector heading into Q4 and the new year. Our team continues to execute on our partnership 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 medical cannabis patients. Through collective bargaining with some of Canada's largest employers, Unifor is advocating for medical cannabis coverage in insurance plans. This is a completely unprecedented program with many stakeholders involved. It's not something that will bring results overnight, and indeed the ramp-up has taken more time than anticipated. One of the chief challenges is getting in front of employees during COVID-19 environment. But I've challenged our team to find a way in the last 30 days we've registered more patients than the previous four months of the program combined. While not yet material amount, I'm feeling encouraged that we are back on track. We've also had two new collective bargaining units approved the use of medical cannabis under their insurance plans, bringing the total onboard unionized employers to five. We remain as committed as ever to executing upon this differentiated opportunity. By owning the entire patient experience, you are able to create customer stickiness and drive consistent, repeatable high-margin sales. Matt, over to you.