Aleafia Health Inc.

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Good morning, ladies and gentlemen, and welcome to the Aletheia Health Fiscal Year 2023 Second Quarter Results Conference Call. This morning, Aletheia Health filed on SADAR its financial statements in the Associated Management Discussion and Analysis for the three-month-ended September 30th, 2022. 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 branded cannabis net revenue, adjusted gross margin, and adjusted EBITDA. 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 Alephia Health's CEO, Trisha Sims. Please go ahead.

Thank you, and welcome fellow shareholders. On behalf of Matt Dale, our CFO, and the entire team at Alephia Health, We wish you a warm welcome this fall morning. Today, on November 9th, Matt and I are excited to tell you about how Aletheia continues to accomplish exceptional things and is surpassing expectations on the path to profitability. First of all, under the topic of surpassing expectations, we are very proud to announce some very important news. In Q2 of fiscal year 2023, the company is pleased to announce it has reached a major milestone. having achieved adjusted break-even EBITDA well in advance of our previous end of fiscal year 2023 estimate, an accomplishment we are very proud of, as it has been a lot of hard work and very tough decisions to get us here this quickly. We believe we are the first Canadian LP of similar size, scale, and operational footprint to attain sustainable break-even adjusted EBITDA profitability. Relative to the prior year, we grew adjusted EBITDA by $7.7 million, reducing adjusted SG&A by 45%, with an additional 6% fewer FTE since Q1 2023. One of the ways we accomplished this was by extracting $10 million in cost reductions over the last nine months. We said we'd get to break even, and we not only did it, but we also did it two quarters ahead of our goal. a monumental milestone for Alethea Health. This clearly expresses our strong momentum, our drive for results, and our increasing financial success. Now we'll take you through some of the core objectives of the company. We identified four core strategic objectives earlier this year, and these continue to demonstrate growth, leadership, and execution across all four on our path to profitability. They are one, targeting a top standing in markets in the second half of fiscal year 2023. Two, leadership in medical cannabis. Three, growing our international business. And of course, four, achieving adjusted break even EBITDA profitability, which we now have achieved. Presently, we are operating with 23 million in run rate net revenue, and the third highest growth rate among top 20 Canadian LPs in retail sales pull-through over the last six quarters. While other seed market share, ranking is number 14 in our core market for Q2, and Divi brand leadership in the dried cannabis value segment market share has been maintained above 3% in Q2. In medical cannabis, our run rate net revenue is $12 million, and we are enjoying deepening penetration in key high-value markets, including veterans, Quebec, and third-party clinics. The result, 7.5% market share in the overall Canadian medical market. Internationally, we are now operating with $2.6 million in run rate net revenue, and QQ international sales have now approached a record $700K. In a promising development, we have a new international partner and a purchase order executed that will commence product shipments this month. We will discuss that more in an upcoming slide. Now we want to share with you a little bit about the transformation of the business over the last nine months. Looking at the company, it was one year ago in what was Q3 of our previous fiscal year, ending September 30th, 2021, and it is today ending September 30th, 2022. The difference is remarkable. We set out to be a branded adult use cannabis company and pivot away from being a wholesale bulk provider. There was a strong revenue growth in branded channels, partially offset by higher excise duties. Branded cannabis revenue grew 21%, to $13.3 million in fiscal year Q2, up from $10 million for the same period last year. Branded cannabis net revenue moved up 11% to $9.4 million from $7.6 million. While the percentages of adult use in medical cannabis were somewhat similar year over year, look at the change in both bulk use and international percentages. A year ago on the chart on the left, there was a negligible international revenue. and wholesale comprised 20% of the business. If you look at the right, there's international now at 6% and growing, and wholesale has been strategically reduced to 11% overall. That's how we've placed the company in the higher margin, higher growth segments of the cannabis market. Now, we never speak about some of the more exciting things that we're up to in the adult use landscape, So I wanted to share a little bit about how the company is becoming recognized for its many innovations in both product development and marketing events, earning Aletheia a great deal of buzz among media and purchasers this past quarter. As you may know, the prestigious Toronto International Film Festival is among the top three film fests in the world, bringing celebrities here from all around the globe. In this year's TIFF, for the first time ever, a CBD cannabis product our very own, a noon and night nightcap, a first-to-market combination of CBD suspension and melatonin, was featured in the exclusive product suite for Hollywood A-listers. Immediately after that coup, our second annual harvest party brought over 250 enthusiastic retailers, consumers, and purchasers in North Toronto to the company's Port Perry outdoor growth farm, the first and largest in Canada. where they celebrated the impeding harvest of more than 70,000 plants. And rounding out the quarter, Benzinga, the international go-to spot for investors wanting to learn more about the growth companies, featured the Alephia Health story on its all-access live show. Altogether, this spelled out a very busy month of buzz for the company and continues to add to our deepening penetration in the market, driving both brand awareness and brand loyalty. Now back to the business as we turn our attention to the company's business overview. We'll start with the Q2 fiscal year 2023 highlights in the adult youth channel. Continuing to show strong demand, the on-trend flagship Divi brand drives robust adult youth net revenue growth. The company achieved 31% growth in revenue over the prior year with adult youth revenue moving to $9.4 million from $7.2 million. 14% growth rate in net revenue over the prior year, up to $5.7 million from $5 million in 2021. This added up to a top three standing, or 36% in total retail sales growth among top 20 LPs over the last six quarters in our core market. Continuing our pattern of growth, the chart on the left details Aletheia's impressive 36% compound quarterly growth rate in participating markets since Q1 2021 compared to its peers. Retail sell-through growth has been close to 90% year-over-year in British Columbia, Alberta, Saskatchewan, and Ontario in our core markets. Among the highest are pre-rolls and millflower, two of the fastest-growing high-margin market segments. In pre-rolls, we have achieved 3% market share in listed regions, 35% growth rate in retail sales pull-through in Ontario, and 80% compound quarterly growth rate since Q1 calendar year 2021. Millflower is equally impressive with a number two ranking for market share in Ontario with an impressive 7.8%, 19% cumulative quarterly growth rate since Q3 fiscal year 2022. Now we will talk a little bit about the value segment and the Divi ranking. The estimated total addressable market, or TAM, of the value segment where Divi plays is approximately $750 million per year. Divi maintains its impressive continued trajectory, demonstrating brand awareness by remaining a top search brand on OCS.ca, as well as market leadership positions in key high-margin Ontario product segments. with milled flour achieving the number 2 position with 7.8% market share, and pre-rolls rising to the number 4 rank with 4.6% market share in Ontario. Whole flour enjoys the number 10 rank with 2.1% share, a remarkable achievement considering the loss of $5 million in revenue due to higher demand than capacity, as well as a cyber attack at OCS and the BC strikes. Vapes continue to show promise as a category for the company, with a number 21 rank and 1.4% share, and remain a goal for us to break into the top 10 category. A highlight of this story, however, is our popular Pineapple and Nucan 12-pack of pre-rolls, a runaway single SKU achieving a number three ranking in Ontario for Q2, a real breakthrough success story since its launch in January. Now we will turn our attention to the Port Perry Harvest Update. We are very proud of our Port Perry, Ontario outdoor grow facility and continue to derive improved results from our operations there, which has enabled us to monetize these bio-assets into branded cannabis products in the market. This year, more than 250 enthusiastic retailers and other supporters joined us to celebrate the harvest, which started sooner, reducing costs by $0.3 million. It yielded more than 70,000 plants with flower to be in the market before this quarter's end based on purchase order needs already for pre-roll and milled flower. The results were very impressive. THC dominant strain yield was up 77% of the total harvest compared to 60% last year. We saw an 11% increase in harvest of THC cultivars over 2021. We are seeing a 25% improvement in the yield per plant of THC cultivars. Our top selling cultivar from this facility, Pineapple Nukin, yielded 4,000 kilos of 20% plus THC with over 3.6% terpene profile. An incredible result for outdoor grown flower and a tribute to the skill of our growers and their diligent management of our assets. We also saw operational cost savings of 0.3 million year over year at this facility. Now we turn our attention to an update on our Grimsby Greenhouse facility. In Q3 fiscal year 2023, the company is enacting further cost savings initiatives with the wind down of its Grimsby Greenhouse, representing an annualized net savings of approximately $4.1 million. The company is focused on continuing to build the brand awareness of its everyday value brand, Divi, by supplying its consumers with innovative, sought-after cultivar strains from the best sources of flower supply, whether that be internally grown or produced from other third-party growers. The company will commence the process of winding down operations effective November 2022 that will impact 41 employees. Over the last four quarters, the company has experienced consistent whole flower stockouts as the scale of the Grimsby greenhouse was outstripped by consumer demand for our products, and we have now mitigated this issue by onboarding strategic partners to supply our ongoing requirements. The wind-down will begin this month, as the remaining harvests are completed, and we will continue to review potential strategic options, including monetization. Net proceeds will be primarily used for debt repayment. The end result of this decision will enhance the company in many tangible ways as we continue to scale growth of our high margin offerings. We'll now turn to a discussion on our medical channel. The growth in the Emblem medical product portfolio in the increasingly challenging Canadian medical market offset industry trends and increased year-over-year growth. Emblem is driven by deepening penetration in new regions and key high-value segments, including veterans, Quebec, and third-party clinics. Medical net revenue increased 16% to $3 million for the quarter ended September 30, 2022, compared with $2.6 million in the comparable calendar quarter last year. We also expanded product selection with the Divi catalog and third-party producers to create a one-stop medical cannabis shopping experience. We've increased flower selection with a focus on procuring more quality and variety flower for patients, including a total of 31 new SKUs since the fiscal year began. We've also improved the patient journey with Emblem and the clinic network. We now turn to some highlights on Q2 fiscal year 2023 international sales channel. Record quarterly revenue of $0.7 million were achieved for the company's promising international market. With a new partnership agreement signed in fiscal year Q2 EUGAP certification and a purchase order in hand, shipments to this new international partner are expected to begin early in Q3. International revenue growth remains a key strategy as it enhances margins, it diversifies our sales mix, and unlocks new untapped and growing markets. We continue to drive high margin growth for the company in Germany and Australia, executing against sales commitments and minimum purchase order requirements with our new European partner. I will now turn it over to our CFO Matt Sales to give a financial update.