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spk11: 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.
spk10: 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.
spk04: As Tricia noted earlier, we achieved adjusted EBITDA possibilities two quarters faster than targeted in fiscal year 2023. It's an enormous achievement due to so many factors. These include aggressive SG&E cost rationalization across all our sites and business units, vendor consolidation towards trusted and scalable relationships, Negotiated volume rebates on major production input materials and supplies. A skew optimization to align our product portfolio on the highest selling product format with the strongest margin profile. Strategic adult use price increases debunk the trend of price compression, which many of our peers resorted to. Our current adjusted SG&A profile is flexible and scalable to facilitate continued revenue growth. We're not stopping there. Numerous other projects are underway to continue to drive improved, adjusted, even to profitability and eventually positive cash flow generation. These include strategic relationships to unlock further flower supply and capture missed revenue opportunities with a rotating offering under our new Divi Buyers Club. Launching large format SKUs focused on the dry flour and mill dry format categories. Adding SKUs under our House of Brands in higher margin derivative categories, including roll-ons, double A-wheel strips, and bath bombs. The Grimsby Greenhouse Wind Down, which will augment our cost structure, reducing our fixed costs and represents $4.1 million in annualized net cost savings. SG&A Cost Containment, which includes continuum dynamic assessment of all discretionary G&A expenditures. Enhanced B2B logistics and warehousing services to further utilize our existing asset footprint and drive high margin service-based revenue growth. B2B private labeling services, which has the effect of increasing our scale and aiding us with even better input material price discounts based on volume. In addition to producing positive and improving adjusted EBITDA profitability, we are focused on cash flow from operations generation. This quarter, we improved our cash flow from operations before changes in working capital by $12.1 million, from negative 12 in the prior year to $0.2 million in this quarter, in September 30, 2022. This is a tremendous improvement and a testament to our relentless focus on building a profitable branded cannabis producer. This slide details our drive to achieve over $11 million in annualized cost savings and adjusted SG&A over the last four quarters and dramatically reduced the company's cash burn to its lowest level ever and rapidly approaching positive cash flow from operations territory. Among the key cost reductions completed are insourcing certain legal, finance, and IT functions. Integration of the three channels in our medical business. A headcount realignment of over 35% reduction over the last four quarters. The non-recurring brand and product launch costs down. To achieve economies of scale, we've engaged in vendor consolidation and negotiated bond-based vendor discounts while creating a dynamic, focused, grassroots sales and marketing organization. We believe our internal sales and marketing team, which drives sales pull-through on both our adult use and medical channels, is a key competitive advantage for us. and allows for further operating leverage as we drive top line growth with limited incremental hit count required to do so. And now I'd like to take you through a few of our Q2 fiscal 2023 financial highlights. Branded cannabis net revenue across all our channels, adult use, medical and international, are driving profitability and growing. In our first adjusted EBITDA positive quarter since the transformation of our business from a bulk wholesale producer to a branded cannabis supplier. Total revenue increased 21% to 15 million over the prior year. Net revenue increased 11% to 10.6 million over the prior year, primarily driven by a 23% growth in branded cannabis net revenue. In the adult use market, net revenue increased by 27 million or 14% over the prior year. primarily driven by strong mills and pre-roll performance. These results were impacted by our flour supply shortages, the OCS cybersecurity tax, and DC strikes. We estimate that due to these factors, there was total missed flour sales of approximately $4.9 million in the quarter. At the same time, we increased medical net revenue by $24 million, or 16% over the prior year. aided by the continued ramp-up in our veteran and Quebec sales initiatives. While our sales growth was strong, as I previously mentioned, it could have been stronger. That said, at Aletheia, we are more focused on profitable revenue growth over absolute revenue growth. You can see this demonstrated in the vast improvement in gross profit margins before fair value adjustments to 35% versus negative 7% in the prior year. Our portfolio optimization in Q5 of fiscal 2022 is driving these results and they continue to balance driving high revenue growth in adult use with the growth in medical and international channels which deliver our highest margin sales. Alisa trades at a deep discount of 58% to the average of its peers, despite top quartile growth rates and retail sales pull-through in our core markets and a clear and achievable pathway for improved, adjusted EBITDA profitability in the very near term. Amongst our closest peers of size, scale, and business focus, to reach this important milestone, we believe that our strong growth and continued financial outperformance as a branded cannabis producer are catalysts for a potential re-rate and evaluation. We are pleased to report on our balance sheet transformation in progress. We continue to have liquidity from our receivable facility to drive growth and out-of-use sales. We have no near-term refinancing required or anticipated. In fact, December 2023 is the nearest term of refinancing of our credit facility. The company's net debt was reduced from $52 million to $43 million in the quarter end of September 30th. We possess the liquidity to drive growth that we've been discussing today, including $1.9 million in total cash on hand, $3.9 million undrawn from our $7 million receivable facility as of the date hereof. We've reported previously on successful agreements with holders of the convertible debentures in which there are no mandatory cash interest payments until June 30th, 2024. Next, I'd like to tell you about the company's networking capital and how it is being optimized to improve liquidity and enhance returns on capital. Networking capital's percentage of net revenue has decreased over the past year. Aggressive cost containment and accounts payable has driven a $7 million reduction in AT and excise goodies payable. On the topic of excise, the company continues to monitor developments on the excise tax regime and potential changes to the calculation to reduce the burden that Canadian LP face and drive it towards the targeted 10%. For Aletheia, had excise remained at 10% of sales, it would represent a $12 million windfall to the company. Inventory management is an important part of optimizing our working capital. with right-sizing inventory a key part of that effort. Inventory turnover increased from 0.8 times in Q2 of fiscal 2022 to 1.3 times in Q2 of fiscal 2023, driven by the monetization of slower-moving off-spec flour and bulk distillate material in the wholesale sales channel. The company continues to evaluate its inventory position with the goal of continued efficiency in its inventory turnover metric. There was a $13 million increase in bio-assets in this quarter, primarily due to the seasonal growth stemming from our strong outdoor porphyry crop. On the topic of growth, we have numerous initiatives underway to drive net revenue growth across all three of our core branded sales channels. These initiatives have produced branded cannabis net revenue of $38.5 million for the 12 months ended September 30th, 2022. with our current run rate of 42.3 million. Note that wholesale net revenue occupies a much smaller ratio, reflecting the success of our pivot to being a branded canvas producer. On guidance for fiscal year 2023, we estimate a range of between $53 and $58 million in total net revenue. This is a reduction at the top end by $5 million due to the aforementioned missed flower sales opportunity and macro events in the industry, including the OCS cybersecurity attack and DC strikes. With $53 million of net revenue in adult use, we have a goal of becoming a top 10 market share player up from our current position of number 14 on the market share ranking. We plan on doing this by expanding our high margin product lineup, recapturing market share in the flower category where it missed sales due to demand outstripping supply, and continue to build a loyal following through dynamic marketing and consumer engagement initiatives. In medical, the continual onboarding of new patients, particularly in the veteran segment and via referrals, is important to build a sticky revenue base. Making the patient journey easier for actively reaching out to patients to drive engagement and providing them a one-stop shopping experience are some of the key strategies we are implementing. For international, we are focused on executing flawlessly on our committed sales agreements, solidifying new international partnerships to further our position in key international jurisdictions. We believe we are on track to meet our fiscal year 2023 targets, including net revenue, margin, and just due to debt. Net revenue continues to grow profitably across all our three core sales channels, on margin pressure in a very competitive value segment. It's being combated with cost reduction strategies and is also listed by our higher margin medical and international panel. I'm delighted to share that we're able to increase our adjusted EBITDA guidance from a range of negative seven and a half to two and a half million to a new range of between negative one and positive one and a half million adjusted EBITDA for full year fiscal year 2023. Now that we've achieved positive adjusted EBITDA, we anticipate and target to continue delivering profitability for our shareholders. Before I turn the presentation over to some Q&A, I just conclude by saying from my perspective at CFO of Aletheia, we are where we need to be to achieve our many goals for growth, profitability, and financial health. We appreciate your support and these efforts, and as you can see, we're achieving what we have failed to do this year. There's more to come. That completes our presentation today. Thank you for listening. I'll turn it back to Tricia Sims for a few closing remarks.
spk10: Thank you, Matt. Alethea shareholders, analysts, and everyone listening today, I am very proud of our management team and what we have been able to do and accomplish before the end of this calendar year. We said we were going to deliver, and that is exactly what we continue to do. Accomplishing clearly plotted out goals, making lives better together as a team by growing and creating innovative products and expanding brands that adult use consumers and medical patients are attracted to, while at the same time increasing revenue, increasing market share, reducing costs, and achieving the monumental turnaround in our financial standing to bring us to break even adjusted EBITDA profitability. This is Alethea Health today, devoted to building the company into a truly great organization in this challenging yet exciting sector. Our incredible team is motivated to create the best branded cannabis company in the country, devoted to serving our adult use and medical customers with branded products targeted to fulfill the recurring needs while delivering for our shareholders, creating a creative value for the company. And finally, because we won't be meeting until the new year, on behalf of the entire team at Alephia, I wish you and yours a warm and safe holiday season. Hopefully it will be filled with Divi pre-rolls and Nunonite CBD bath bombs and some shut eye plus Kinslips to help you rest. Thank you and we will now turn it over to the question and answer period.
spk11: As a reminder to ask a question, please press star 11 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Pablo Zuniac with Cantor Fitzgerald. Your line is now open.
spk12: Good morning. This is Matthew Baker on for Pablo. Thank you for taking our questions. Could you give more color on how you think about sales and margins for 3Q and the second half of calendar 22? And what are the main debt payments you have left until December 2024? I have more follow-ups after, but just that's enough. Thank you.
spk10: Yes, absolutely. Thank you, Matthew, for your question, and we can answer that in two parts. So for the second half of 2022, which we're well into the last quarter of this calendar year, we anticipate this to be one of the strongest quarters, if not the best, that we've seen in the company's history. We see a rapid uptake in the adult use sales channels. We have many new SKUs that are listing in the Divi portfolio. One of which specifically the Divi Buyers Club, which will continue to offer greater value and opportunity for consumers, specifically with highly sought after cultivars and allowing for a unique range of not only strong THC products, but differentiating value that allows consumers to experience different strains within this key category. We also see a strong momentum on our medical sales going into the back half of the year through some of the new initiatives that we laid out earlier. And in addition to our whole flower category, which was one category that we struggled with last quarter as the demand for our product outweighed our supply. The other exceptional opportunity we have is that we are already harvesting and putting into market our Port Perry harvest. which is leading for us in the branded cannabis sector of the milled and pre-rolled products. And these continue to develop high margin for us as we've seen significant improvements in gross margin. So I think in summary, when you look at our three pillars, you will see exceptional strong growth in the adult use channel now that we have rectified our whole flower situation, continued monumental growth with our new listings in the Divi category in addition to pre-rolled and milled, and uptake, continued uptake in the medical sector, and in the international channel of which we actually shipped our first shipment this morning to Germany. So when you round out all of that opportunity, the growth in the back half of Q4 this year will be very strong for us. I'll now turn it to Matt to give a few comments on enhanced margin profiles.
spk04: So this quarter, I'll just add one comment on the sales of 10.6 million in total net revenue. And as we discussed, due to the OCS, VC, and flower supply shortages, we missed out on just over $3 million of net revenue. So pro forma, this quarter could have been close to $14 million. To get to the low end of our guidance of 53, we need two quarters of approximately $15 million per quarter. We feel confident we can achieve that. There are, you know, continue to be competitive pressures, particularly in adult use, but given the trend that we've been seeing and the growth, being the number two highest growing LP over the last seven quarters, we believe we can get there. On margin, this quarter we had 35%. That's a blended margin. If you look at on the branded cannabis side, which includes Adelieuse Medical and International, that was actually 40%. Our guidance for this year is to stay in that range, so between 32.5 and 37.5 for the full year, and we continue to believe that is achievable. On debt, there are no debt repayments required or principal repayments this year or next year. The nearest term debt refinancing is December of 2023. Both of our credit facilities are due at that time.
spk12: Okay, thank you for that. And then just more generally, It seems that the Canadian medical market is stagnant and become more competitive. Is this true and what needs to change from the regulator side and what can you do to adapt? And then regarding your rec sales, are they more skewed towards certain provinces? And if you could just give any color in that regard. Thank you.
spk10: Yeah, absolutely. Great question. Matthew, so the Canadian medical market continues to decline, yet Aletheia maintains very strong growth rate within this category and is now raised to over 7.5% market share, and it continues to be a very important pillar of our businesses. As Matt mentioned, this is strict, sticky, reoccurring, high-margin revenue of patients that are suffering from chronic conditions that are using consistent therapy. We believe with the advent of increased opportunity in the recreational sales channel model, the ability for non-traditional medical patients to acquire cannabis easily at every street corner has been a part of the decline in the medical market, yet there's an increased focus on reimbursement and third-party channels and benefit providers that continue to recognize medical cannabis as an important part of healthcare. We are largely playing within that sector with our veterans and other union support programs that continue to reimburse patients for medical conditions both across CBD and THC and that gives us a unique advantage within that category and we also have very strong partnerships with veterans and the Quebec medical market that continues to see an increase in rise in our patients. We've also been very strategic in looking for opportunities where other Canadian medical LPs have left the medical market and and where we have been successful in acquiring their patient base and ensuring that we can offer the highest value products to them. One of that being in the flour category where we have procured now highest quality, high quality flour and THC specifically for veterans group that has made a significant advantage to our entire product portfolio. So we believe that this continues to be a very important channel, and Alethea takes the position of continuing to grow its medical business, which you've seen over the past three quarters, but also in looking for opportunities that exist within this space. On the recreational side of the business, the focus for us mainly remains in the top three categories on flour, pre-rolls, and vapes. Specifically, we have developed a very strong following on giving in the mill category, as we mentioned, and the pre-roll category, which is representative from our very strong outdoor harvest and allows us to put a low-cost product into the value segment at premium quality. The other opportunity for growth for us specifically is in the whole-flower segment. As Matt mentioned, we missed out on about $3 million of net revenue last quarter where we had purchase orders in hand for whole flour, but the demand was so strong with Divi that this really outstripped our supply. We have now rectified that two ways through procuring a product from other highly sought after cultivars that bring some unique genetics into the market, and by launching a very unique you into the marketplace. One of the first branded Divi buyers club that allows you to have additional types of flowers that are non-strain specific consistently rotating within that category. And we see the whole flower category being one of the strongest categories for us to increase our momentum now that we have access to available supplies.
spk13: Thank you.
spk11: Again, to ask a question, please press star 11 on your telephone. At this time, I am showing no further questions. I would now like to turn the conference back to Tricia Sims for closing remarks.
spk10: I just wanted to thank all of you who attended today on being part of the Aletheia story and the Aletheia journey. As Matt and I mentioned, we are very proud of the accomplishments that Alethea has brought to you over the last year and nine months, hitting adjusted EBITDA profitability two quarters ahead of schedule. It's just the first step as we continue to transition the company and bring more great success and news to you over the following quarter. Thank you, and we wish you all a warm holiday season.
spk11: This concludes today's conference call. Thank you for participating. You may now disconnect.
spk01: The conference will begin shortly. To raise your hand during Q&A, you can dial star 11. Music. Thank you.
spk07: Thank you. Thank you.
spk11: 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 CDAR its financial statements in the associated management discussion and analysis for the three months 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.
spk10: 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 Aletheia 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-market combination of CBD suspended 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've 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 DVI ranking. The estimated total addressable market, or TAM, of the value segment where DVI plays is approximately $750 million per year. DVI 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 and capacity, as well as the cyber attack at OCS and the B2 strikes. 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-rolls 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 Nugent, 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 stock-outs 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.
spk04: As Tricia noted earlier, we achieved adjusted EBITDA possibilities two quarters faster than targeted in fiscal year 2023. It's an enormous achievement due to so many factors. These include aggressive SG&E cost rationalization across all our sites and business units, vendor consolidation towards trusted and scalable relationships, Negotiated volume rebates on major production input materials and supplies at skew optimizations to align our product portfolio on the highest selling product format with the strongest margin profile. Strategic adult use price increases debunk the trend of price compression, which many of our peers resorted to. Our current adjusted SG&A profile is flexible and scalable to facilitate continued revenue growth. We're not stopping there. Numerous other projects are underway to continue to drive improved, adjusted, even to profitability and eventually positive cash flow generation. These include strategic relationships to unlock further flower supply and capture missed revenue opportunities with a rotating offering under our new Divi Buyers Club. Launching large format SKUs focused on the dry flour and mill dry format categories. Adding SKUs under our House of Brands in higher margin derivative categories, including roll-ons, double-wheel strips, and bath bombs. The Grimsby Greenhouse Wind Down, which will augment our cost structure, reducing our fixed costs and represents $4.1 million in annualized net cost savings. SG&A Cost Containment, which includes continuum dynamic assessment of all discretionary G&A expenditures. Enhanced B2B logistics and warehousing services to further utilize our existing asset footprint and drive high margin service-based revenue growth. B2B private labeling services, which have the effect of increasing our scale and aiding us with even better input material price discounts based on volume. In addition to producing positive and improving adjusted EBITDA profitability, we are focused on cash flow from operations generation. This quarter, we improved our cash flow from operations before changes in working capital by $12.1 million, from negative 12 in the prior year to $0.2 million in this quarter, in September 30, 2022. This is a tremendous improvement and a testament to our relentless focus on building a profitable branded cannabis producer. This slide details our drive to achieve over $11 million in annualized cost savings and adjusted SG&A over the last four quarters and dramatically reduce the company's cash burn to its lowest level ever and rapidly approaching positive cash flow from operations territory. Among the key cost reductions completed are insourcing certain legal, finance, and IT functions, integration of the three channels in our medical business, a headcount realignment of over 35% reduction over the last four quarters, the non-recurring brand and product launch costs down. To achieve economies of scale, we have engaged in vendor consolidation and negotiated voluntary vendor discounts while creating a dynamic, focused, grassroots sales and marketing organization. We believe our internal sales and marketing team, which drives sales pull-through on both our adult use and medical channels, is a key competitive advantage for us. and allows for further operating leverage as we drive top line growth with limited incremental hit count required to do so. And now I'd like to take you through a few of our Q2 fiscal 2023 financial highlights. Branded cannabis net revenue across all our channels, adult use, medical and international, are driving profitability and growing. In our first adjusted EBITDA positive quarter since the transformation of our business from a bulk wholesale producer to a branded cannabis supplier. Total revenue increased 21% to 15 million over the prior year. Net revenue increased 11% to 10.6 million over the prior year, primarily driven by a 23% growth in branded cannabis net revenue. In the adult use market, net revenue increased by 27 million or 14% over the prior year. primarily driven by strong mill and pre-roll performance. These results were impacted by our flour supply shortages, the OCS cybersecurity tax, and BC strikes. We estimate that due to these factors, there was total missed flour sales of approximately $4.9 million in the court. At the same time, we increased medical net revenue by $24 million, or 16% over the prior year. aided by the continued ramp-up in our veteran and Quebec sales initiatives. While our sales growth was strong, as I previously mentioned, it could have been stronger. That said, at Aletheia, we are more focused on profitable revenue growth over absolute revenue growth. You can see this demonstrated in the vast improvement in gross profit margins before fair value adjustments to 35% versus negative 7% in the prior year. Our portfolio optimization in Q5 of fiscal 2022 is driving these results and they continue to balance driving high revenue growth in adult use with the growth in medical and international channels which deliver our highest margin sales. Alisa trades at a deep discount of 58% to the average of its peers, despite top quartile growth rates in retail sales pull-through in our core markets and a clear and achievable pathway for improved adjusted EBITDA profitability in the very near term. Amongst our closest peers of size, scale, and business focus, to reach this important milestone, we believe that our strong growth and continued financial outperformance as a branded cannabis producer are catalysts for a potential re-rate and evaluation. We are pleased to report on our balance sheet transformation in progress. We continue to have liquidity from our receivable facility to drive growth and out-of-use sales. We have no near-term refinancing required or anticipated. In fact, December 2023 is the nearest term refinancing of our credit facilities. The company's net debt was reduced from $52 million to $43 million in the quarter end of December 30th. We possess the liquidity to drive growth that we've been discussing today, including $1.9 million in total cash on hand, $3.9 million undrawn from our $7 million receivable facility as of the date hereof. We've reported previously on successful agreements with holders of the convertible debentures in which there are no mandatory cash interest payments until June 30th, 2024. Next, I'd like to tell you about the company's networking capital and how it is being optimized to improve liquidity and enhance returns on capital. Networking capital is percentage of net revenue as decreased over the past year. Aggressive cost containment and accounts payable has driven a $7 million reduction in AT and excise goodies payable. On the topic of excise, the company continues to monitor developments on the excise tax regime and potential changes to the calculation to reduce the burden that Canadian LP face and drive it towards the targeted 10%. For Aletheia, had excise remained at 10% of sales, it would represent a $12 million windfall to the company. Inventory management is an important part of optimizing our working capital, with right-sizing inventory a key part of that effort. Inventory turnover increased from 0.8 times in Q2 of fiscal 2022 to 1.3 times in Q2 of fiscal 2023. driven by the monetization of slower-moving off-spec flour and bulk distillate material in the wholesale sales channel. The company continues to evaluate its inventory position with the goal of continued efficiency in its inventory turnover metric. There was a $13 million increase in bioassets in this quarter primarily due to the seasonal growth stemming from our strong outdoor porcupine crop. On the topic of growth, we have numerous initiatives underway to drive net revenue growth across all three of our core branded sales channels. These initiatives have produced branded cannabis net revenue of $38.5 million for the 12 months ended September 30, 2022, with our current run rate of $42.3 million. Note that wholesale net revenue occupies a much smaller ratio, reflecting the success of our pivot to being a branded cannabis producer. On guidance for fiscal year 2023, we estimate a range of between $53 and $58 million in total net revenue. This is a reduction at the top end by $5 million due to the aforementioned missed flower sales opportunity and macro events in the industry, including the OCS cybersecurity attack and DC strikes. With $53 million of net revenue in adult use, we have a goal of becoming a top 10 market share player, up from our current position of number 14 on the market share ranking. We plan on doing this by expanding our high margin product lineup, recapturing market share in the flower category where it missed sales due to demand outstripping supply, and continue to build a loyal following through dynamic marketing and consumer engagement initiatives. In medical, the continual onboarding of new patients, particularly in the veteran segment and via referrals, is important to build a sticky revenue base. Making the patient journey easier for actively reaching out to patients to drive engagement and providing them a one-stop shopping experience are some of the key strategies we're implementing. For international, we are focused on executing flawlessly on our committed sales agreements, solidifying new international partnerships to further our position in key international jurisdictions. We believe we are on track to meet our fiscal year 2023 targets, including net revenue, margin, and just due to debt. Net revenue continues to grow profitably across all our three core sales channels, On margin pressure and it's very competitive value segment is being combated with cost reduction strategies and is also listed by our higher market medical and international panel. I'm delighted to share that we're able to increase our adjusted EBITDA guidance from a range of negative seven and a half to two and a half million to a new range of between negative one and positive one and a half million adjusted EBITDA for full year fiscal year 2023. Now that we've achieved positive adjusted EBITDA, we anticipate and target to continue delivering profitability for our shareholders. Before I turn the presentation over to some Q&A, I just conclude by saying from my perspective at CFO of Alicia, we are where we need to be to achieve our main goals for growth, profitability, and financial health. We appreciate your support, these efforts, and as you can see, we're achieving what we have failed to do this year. There's more to come. That completes our presentation today. Thank you for listening. I'll turn it back to Tricia Sims for a few closing remarks.
spk10: Thank you, Matt. Alicia shareholders, analysts, and everyone listening today, I am very proud of our management team and what we have been able to do and accomplish before the end of this calendar year. We said we were going to deliver, and that is exactly what we continue to do. Accomplishing clearly plotted out goals, making lives better together as a team by growing and creating innovative products and expanding brands that adult youth consumers and medical patients are attracted to, while at the same time increasing revenue, increasing market share, reducing costs, and achieving the monumental turnaround in our financial standing to bring us to break-even adjusted EBITDA profitability. This is Alethea Health today, devoted to building the company into a truly great organization in this challenging yet exciting sector. Our incredible team is motivated to create the best branded cannabis company in the country, devoted to serving our adult use and medical customers with branded products targeted to fulfill the recurring needs while delivering for our shareholders, creating accretive value for the company. And finally, because we won't be meeting until the new year, on behalf of the entire team at Alephia, I wish you and yours a warm and safe holiday season. Hopefully it will be filled with Divi pre-rolls and noon and night CBD bath bombs and some shut-eye plus Kinslips to help you rest. Thank you, and we will now turn it over to the question and answer period.
spk11: As a reminder, to ask a question, please press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Pablo Zuniac with Cantor Fitzgerald. Your line is now open.
spk12: Good morning. This is Matthew Baker on for Pablo. Thank you for taking our questions. Could you give more color on how you think about sales and margins for 3Q and the second half of calendar 22? And what are the main debt payments you have left until December 2024? I have more follow-ups after, but just that's enough. Thank you.
spk10: Yes, absolutely. Thank you, Matthew, for your question, and we can answer that in two parts. So for the second half of 2022, which we're well into the last quarter of this calendar year, we anticipate this to be, you know, one of the strongest quarters, if not the best that we've seen in the company's history. We see a rapid uptake in the adult use sales channels. We have many new SKUs that are listing in the DV portfolio. one of which specifically the Divi Buyers Club, which will continue to offer greater value and opportunity for consumers, specifically with highly sought after cultivars and allowing for a unique range of not only strong THC products, but differentiating value that allows consumers to experience different strains within this key category. We also see a strong momentum on our medical sales going into the back half of the year through some of the new initiatives that we laid out earlier. And in addition to our whole flower category, which was one category that we struggled with last quarter as the demand for our product outweighed our supply. The other exceptional opportunity we have is that we are already harvesting and putting into market our Port Perry Harvest. which is leading for us in the branded cannabis sector of the mills and pre-roll products. And these continue to develop high margin for us as we've seen significant improvements in gross margin. So I think in summary, when you look at our three pillars, you will see exceptional strong growth in the adult use channel now that we have rectified our whole flower situation, continued monumental growth with our new listings in the Divi category in addition to pre-rolls and mills, and uptake, continued uptake in the medical sector, and in the international channel of which we actually shipped our first shipment this morning to Germany. So when you round out all of that opportunity, the growth in the back half of Q4 this year will be very strong for us. I'll now turn it to Matt to give a few comments on enhanced margin profile.
spk04: So this quarter, I'll just add one comment on the sales. We have $10.6 million in total net revenue And as we discussed, due to the OCS, VC, and flower supply shortages, we missed out on just over $3 million of net revenue. So pro forma, this quarter could have been close to $14 million. To get to the low end of our guidance of 53, we need two quarters of approximately $15 million per quarter. We feel confident we can achieve that. There are, you know, continue to be competitive pressures, particularly in adult use, but given the trend that we've been seeing and the growth being the number two highest growing LP over the last seven quarters, we believe we can get there. On margin, this quarter we had 35%. That's a blended margin. If you look at on the branded cannabis side, which includes Adelieuse Medical and International, that was actually 40%. Our guidance for this year is to stay in that range, so between 32.5 and 37.5 for the full year, and we continue to believe that is achievable. On debt, there are no debt repayments required or principal repayments this year or next year. The nearest term debt refinancing is December of 2023. Both of our credit facilities are due at that time.
spk12: Okay, thank you for that. And then just more generally, It seems that the Canadian medical market is stagnant and become more competitive. Is this true and what needs to change from the regulator side and what can you do to adapt? And then regarding your rec sales, are they more skewed towards certain provinces? And if you could just give any color in that regard. Thank you.
spk10: Yeah, absolutely. Great question. Matthew, so the Canadian medical market continues to decline, yet Aletheia maintains very strong growth rate within this category and is now raised to over 7.5% market share, and it continues to be a very important pillar of our businesses. As Matt mentioned, this is strict, sticky, reoccurring, high-margin revenue of patients that are suffering from chronic conditions that are using consistent therapy. We believe with the advent of increased opportunity in the recreational sales channel model, the ability for non-traditional medical patients to acquire cannabis easily at every street corner has been a part of the decline in the medical market, yet there's an increased focus on reimbursement and third-party channels and benefit providers that continue to recognize medical cannabis as an important part of healthcare. We are largely playing within that sector with our veterans and other union support programs that continue to reimburse patients for medical conditions both across CBD and THC and that gives us a unique advantage within that category and we also have very strong partnerships with veterans and the Quebec medical market that continues to see an increase in rise in our patients. We've also been very strategic in looking for opportunities where other Canadian medical LPs have left the medical market and and where we have been successful in acquiring their patient base and ensuring that we can offer the highest value products to them. One of that being in the flour category where we have procured now highest quality, high quality flour and THC specifically for veterans group that has made a significant advantage to our entire product portfolio. So we believe that this continues to be a very important channel, and Alethea takes the position of continuing to grow its medical business, which you've seen over the past three quarters, but also in looking for opportunities that exist within this space. On the recreational side of the business, the focus for us mainly remains in the top three categories on flour, pre-rolls, and vapes. Specifically, we have developed a very strong following on giving in the mill category, as we mentioned, and the pre-roll category, which is representative from our very strong outdoor harvest and allows us to put a low-cost product into the value segment at premium quality. The other opportunity for growth for us specifically is in the whole flower segment. As Matt mentioned, we missed out on about $3 million of net revenue last quarter where we had purchase orders in hand for whole flower, but the demand was so strong with Divi that this really outstripped our supply. We have now rectified that two ways through procuring a product from other highly sought after cultivars that bring some unique genetics into the market and by launching a very unique you into the marketplace, one of the first, a branded Divi, a buyer's club that allows you to have additional types of flowers that are non-strain specific consistently rotating within that category. And we see the whole flower category being one of the strongest categories for us to increase our momentum now that we have access to available supplies.
spk13: Thank you.
spk11: Again, to ask a question. please press star 11 on your telephone. At this time, I am showing no further questions. I would now like to turn the conference back to Tricia Sims for closing remarks.
spk10: I just wanted to thank all of you who attended today on being part of the Aletheia story and the Aletheia journey. As Matt and I mentioned, we are very proud of the accomplishments that Alethea has brought to you over the last year and nine months, hitting adjusted EBITDA profitability two quarters ahead of schedule. It's just the first step as we continue to transition the company and bring more great success and news to you over the following quarter. Thank you, and we wish you all a warm holiday season.
spk11: This concludes today's conference call. If you think you're participating, you may now disconnect.
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