MediPharm Labs Corp.

Ladies and gentlemen, thank you for standing by, and welcome to the MetaPharm Labs Third Quarter Financial Results Earnings Conference 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. Please limit yourself to two questions before returning to the queue. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Laura Lepore, Vice President, Investor Relations. Please go ahead, Madam.

Laura Lepore Thank you, Operator, and good morning, everyone. With me on the call today are Pat McCutcheon, Chief Executive Officer, Bobby Kwan, Chief Financial Officer, Warren Everett, Chief Executive Officer, Asia Pacific, and Keith Strong, our President. Before we begin, please note the following caution respecting forward-looking statements, which is made on behalf of Medifarm Labs and all of its representatives on this call. The statements made on this call will contain forward-looking information that involves risks and certainties, including those introduced by the COVID-19 pandemic. Actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in many farm labs filings with the Canadian Provincial Securities Regulators, which are available on CDAR website at cdar.com. Now, with that, it's my pleasure to turn the call over to Pat.

Thanks, Laura, and good morning, everyone. I'll cut to the chase. Financially, Q3 was disappointing. On today's call, we will discuss the reasons why and the actions we are taking as a result of the quarterly performance. The good news in the quarter is that even though we were at a very early stage, I was pleased with the progress we've made since our last call in transitioning our company to serve global medical and wellness markets as a sophisticated pharmaceutical company. The recent partnership with Stata, a European leader in generic drugs, health and wellness, is arguably one of our most significant achievements to date and puts us in a unique category within the global cannabis industry. The deal, which took over a year to complete, is a clear illustration of what's possible for our differentiated GMP platform. We expect our Stata partnership, along with more than 30 other customer contracts in eight countries, to begin generating revenue growth early in 2021. This will justify the investments we've made to establish our pharma capabilities. In fact, I can say with certainty that Stata would not have become a partner of ManyPharm Labs without executing on our GMP certification in Canada and Australia. First, to our results. So far in our history, our revenue has come from the sale of bulk concentrates of resin and distillate, and the vast majority being distributed in Canada. As you know, we enjoyed early success in the B2B bulk extracts market when cannabis was first legalized in Canada. We purposely used revenues from this business to fund the startup of our higher-value pharmaceutical manufacturing activities and deployment of our international distribution strategy. Over the past three quarters, we have seen this segment of the Canadian cannabis industry change significantly. This is being influenced by a number of new players and many of the major LPs that have transitioned to selling bulk to compensate for the lack of growth in their core business model. Demand for our finished formulated products from the retail channel grew over 30% in the quarter. However, early industry projections on expansion of resale outlets and new cannabis 2.0 products have not been realized in the timeline that the market expected. As a result, there has been a steep decline in demand for bulk concentrates and pricing pressure brought on by acute oversupply in the market combined with an immediate associated price drop. This caused our revenues to decline to just under $5 million in the quarter. As a result, on much lower revenue and in spite of cost containment measures, adjusted EBITDA was negative for this quarter. Our pharma future is ready to take off, but we are not relying on the bulk concentrate market to bridge the gap. While we remain opportunistic, it is no longer attractive from a margin perspective and is currently not economically viable. In hindsight, the cost actions we took were not significant enough or deployed fast enough to align with the bulk market's downturn. Some of the Q3 expense reductions happened too late in the quarter to make a difference and will have greater impact in Q4. As a result, we are executing on a number of additional cost containment strategies to protect our earnings. Accordingly, over the past few weeks, and with the full support of our board, we commenced a stem-to-stern operational review to identify areas for improvement. Number one, we are actively enhancing our financial management to better align costs with the timing of sales generation. This means expense reduction is top priority. In Q3, continue to search for opportunities to right-size our business. This is in addition to the actions taken earlier this year that include employee reductions, a 10% decrease in executive management salaries, the elimination of discretionary expenditures, and the company-wide cost containment measures. As a result, subsequent to the quarter, we further reduced FTEs throughout our upper management ranks while also reducing inventory, ongoing service costs, and reducing the need for capital project consultants. There will be a cumulative effect from these actions, which means more impact in Q4 as our costs continue to drop. We expect annualized cost savings of over $3 million. I want to be clear here. I'm confident that we will not negatively impact our ability to serve customers, meet future market demand, or slow our path to global pharmaceutical and medical markets. To inform our cost and efficiency improvement actions, we tapped into SAP to target opportunities for process streamlining, and we will make the most of our increased visibility that the system affords as we move forward. SAP implementation costs themselves will also fall away in January 2021. It is a required element to build trust and confidence in major pharma contracts, existing and new. The central aspect of our expense drivers is procurement of cannabis inputs. we've arranged for much more attractive supply costs. This will lead to improved margin performance beginning early in 2021. Number two, we will continue to shift our focus from B2B wholesale contracts to contract manufacturing of finished formulated goods. Currently, under our traditional white label and CMO services, we are producing a total of 22 vape SKUs. In addition to these evolving contracts, we are now targeting more unique opportunities like the one that saw us provide a manufacturing partner with the labeling and distribution of 46,000 units of soft chews just in last month. Number three, and in recognition that we can't cut our way to growth, we've recently made significant enhancements to our sales and marketing strategies. In fairness, I think the team has done a great job in securing excellent customer contracts that will produce meaningful revenue in our target global medical and Canadian markets. May Q3, we consolidated sales and marketing under the leadership of our new VP of Sales. We are intensifying focus on our core future medical, wellness, and adult use markets. Across these target markets, our priority will be to produce finished goods We have gained traction with this approach with finished formulated product sales growing to comprise 57% of Q3 revenue, up from 16% in Q2 2020. Commercialized SKUs grew 13% and now include tincture bottles, topicals, isolates, capsules, sublingual sprays, and various formulations for edibles and beverages. As mentioned earlier, our sales team is currently driving a 30% quarter-over-quarter growth in our Canadian adult use provincial sales. I expect to see this base grow as we introduce more SKUs and enter Quebec for the first time in Q4. This investment in adult sales marketing initiatives came in mid-Q3 2020. We're already seeing great success. For example, our 510 bait cartridges are top sellers in BC and two of the top 15 SKUs in Ontario. Our Medifarm flagship oil, CBD50, was the third highest selling oil SKU in Canada. In late October, we were first to market with a consumer-sized 99% pure CBD isolate crystal through the launch of our Labs Cannabis CBD isolate, which targets a broad range of consumers and medical patients. This is an incredibly popular product in jurisdictions like Colorado and California, and currently we are seeing the same excitement here in Canada. Let me talk about our own branded B2C products. Becoming more efficient serial producers of differentiated labs cannabis products is critically important and we have the capabilities to do this. Our product roadmap specifies that we will introduce our next labs cannabis formulations in early 2021. Stay tuned. This is a good start and we expect more positive growth in these segments. Geographically, we will drive sales in Canada and abroad in a more aggressive fashion. Turning to our global medical pharmaceutical strategy. We have promising opportunities for near-term growth, starting with our Stata pharmaceutical partnership announced in late Q3. Under this agreement, Medifarm Labs will export GMP-certified finished product and cannabis API to Germany beginning in February 2021 with a plan to expand to other newly approved European markets over time. This is the first of its kind agreement for the cannabis industry and is a door opener for MediPharm Labs with other pharma leaders looking to enter the medical cannabis space. Germany is a rapidly developing market for medical cannabis. Stata is an exceptional partner and one of the first major pharma companies to enter the cannabis market. Given the extent of its pharmaceutically trained field team, market penetration across 120 different countries, and reputation in the European medical community earned over decades, we are well positioned to build our presence in the German and European markets. Key to our international strategy is Australia. Under Warren Everett's leadership, we continue to ramp up our customer base from Medifarm Labs Australia. Of the 30-plus sales agreements we now have in place around the world, 12 have been secured by our Asia-Pacific team. Our decision to deploy our balance sheet to acquire 100% Medifarm Labs Australia positions us to take full advantage of these opportunities and with full control. I'll now ask Warren to update you on his progress. Warren?