MediPharm Labs Corp.

Ladies and gentlemen, thank you for standing by and welcome to the MetaFarm Labs 2023 Second Quarter Financial Results Conference Call. Please be advised that today's conference is being recorded. Before we begin, please note that remarks today may contain forward-looking information and forward-looking statements within the meaning of applicable securities laws. This includes, without limitation, statements about MetaFarm Labs, and its current and future plans, expectations, intentions, financial results, levels of activity, performance, goals or achievements, and other future events, trends, or developments. Statements about MetaFarm's acquisition of Vivo Cannabis Incorporated, the combined company's future financial and operational performance, the combined company's key business segments, product offerings, pro forma, and overall financial performance. Potential revenue and cost synergies resulting from the transaction and statements about combined companies profitability and ability to grow the business going forward. forward looking statements are made as of the date here of based on information currently available to management of Meta farm. And on estimates and assumptions made based on factors that Meta farm believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results to differ materially from those expressed or implied by forward-looking statements. Certain material factors or assumptions were implied 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 conclusions, forecasts, or projections in the forward-looking information, pardon me, 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 MetaFarm Labs filings with the Canadian and provincial security regulators, which are available on CDAR at CDAR.com. The company's remarks may also contain references to certain non-IFRS financial measures, including EBITDA, adjusted EBITDA, gross profit, and adjusted gross profit. These measures do not have any standardized meaning according to the International Financial Reporting Standards, or IFRS, and therefore may not be comparable to similar measures presented by other companies. MediPharm believes that the non-IFRS measures referenced provide information useful to shareholders and investors in understanding our performance and may assist in the evaluation of the combined company's business relative to that of its peers. For more information, please see the section titled Reconciliation of Non-IFRS Measures, the most recent MD&A of MetaFarm, which is available on CDAR. MetaFarm's actual financial position and results of operations may differ materially from management's current expectations. As a result, we cannot guarantee that any forward-looking statements or financial outlooks will materialize, and you are cautioned not to place undue reliance on this information. Forward-looking statements are made as of the date hereof, and except as may be required by law, the company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. I will now pass the call to David Piduck. CEO of MetaFarm. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate you joining us for MetaFarm Labs' second quarter results conference call. Joining me on the call today are Keith Straughan, MetaFarm's president, and Greg Hunter, the company's chief financial officer. I will address some of our strategic initiatives and then hand the call over to Keith and Greg to provide more detail on the quarterly results. This is our first full quarter conference call following the veto acquisition, so I would like to welcome legacy Vivo shareholders, stakeholders, and employees to this call. In Q2, Metafarm was focused on the integration of Vivo Cannabis, which closed on April 1st. The acquisition of Vivo was a transformative transaction for Metafarm Labs and has essentially doubled our revenue. In addition to doubling our revenue, we have reduced our combined OpEx by over $3 million per quarter and improved our combined adjusted EBITDA by over $4 million per quarter. That's over 16 million annualized. With the integration of Beacon Medical Australia, our international footprint is even stronger, and the combined company's annualized international revenue will represent over one-third of our total sales. In 2022, the separate companies had negative adjusted EBITDA of almost $30 million. We have dramatically improved these results by bringing the two companies together. Our current quarterly adjusted EBITDA was negative 3.2 million. This represents a very substantial improvement of approximately 50%. While we are very proud of this progress and our trajectory, the team continues to work on further cost reduction and driving more growth in our profitable revenue stream. I'm happy to report that we are ahead of schedule with our integration and cost savings targets. Thanks to the efforts of our newly combined team members, We were ready on day one with detailed communication for all employees regarding their roles, reporting, and how any changes affected each individual. Thanks to this early communication, all personnel changes have now been fully implemented. We've now reduced the combined non-direct labor workforce by approximately 30% since the announcement of the transaction. This is in addition to previously announced restructuring efforts made separately by both companies in 2022. As a result of all of these efforts, total non-direct labor headcount between both companies will have been reduced by approximately 45% compared to January 2022. Restructuring has been implemented at all levels, including the C-suite. Senior level executive positions have now been reduced by 50%. These senior level changes represent a large portion of the employee-related cost savings. We had previously shared a synergy goal of annualized $7 to $9 million between cost savings and revenue. We are well ahead of all cost-related energy targets by both dollar and timeline measures and on track for some of the key revenue synergies that Keith will address in our medical international channels. Revenue is up approximately 120% over Q2 2022. Adjusted EBITDA has improved 50% over Q2 2022. Combined OPEX of VEVO and MPL has been decreased approximately $7 million versus 2022 first half. Combined adjusted EBITDA losses have been reduced $7 to $8 million versus the first half of 2022. As mentioned, our Q2 adjusted EBITDA was negative $3.2 million. This EBITDA improvement, combined with our strong balance sheet, gives us a solid runway to pursue our growth initiative, including M&A opportunities. Post-transaction, we continue to have a strong balance sheet with limited debt and a solid cash position relative to our peers. We have less than $3 million in debt, and we have unencumbered ownership of all of our major assets. This strong balance sheet with about $15 million in cash is expected to provide confidence in NPL's ability to execute on our strategic growth roadmap. In addition, as Greg will address, we have various potentially sizable cash inflows in the next few quarters. There's been a lot of discussion in the industry about CRA excise tax liabilities that many companies have been running up. For clarity, MPL has always been and remains fully up to date in any CRA excise tax obligations. We often questioned how some of our peers were able to sell products seemingly below cost, as the government has reported $200 million in uncollected excise exposure, and several CCAA filings have now made clear there are a number of companies that have enjoyed a significant cost advantage simply by not paying their excise obligations. As an industry, we have asked for a reduction, standardization, and simplification of excise taxes, and also for potentially excluding medical patients from taxes. But in the short term, just ensuring that all companies are actually paying the existing taxes would be one good step towards market stabilization. A few other key firsts that Keith will highlight were our successful FDA inspection, first for a Canadian cannabis company, and the first shipment of cannabis pharmaceutical products to the U.S. by Canadian LP for an NIH-funded clinical trial. While Greg will share more details later in the call to summarize, revenue, gross profit, and adjusted EBITDA all dramatically improved versus prior year, versus prior quarter, and versus trailing 12 months. largely driven by the successful Vivo integration and cost reduction initiatives. All key metrics, both financial and non-financial, are going in the right direction. We're exactly where we plan to be. This includes focusing on profitable revenue streams and addressing low-margin products through price increases, cost decreases, and skew rationalization. Our experience with Vivo integration has shown that we can quickly and profitably integrate and drive synergies with like-sized organizations and we are confident that this approach can be repeated. In 2023, we will continue to focus on reducing costs, driving revenue growth in selected profitable segments, progressing our pharmaceutical milestones, and pursuing synergistic M&A. We will remain focused on executing our strategy, and as discussed, we're on track to driving $7 to $9 million in annualized EBITDA improvement from the VO transaction and driving towards positive adjusted EBITDA. I will now pass the call over to Keith.

Thanks, David. Q2 was busy and exciting as we integrated Vivo. In many cases, digging in and intimately learning their business reminded me of when we started operations at Medifarm in 2018. The fun and hard work involved with drinking from the fire hose of new information in a still very new sector. I would like to personally thank the Vivo and Medifarm team, current and past, for supporting this transition. I was confident in our Synergy savings estimates, but impressed on how quickly we were able to achieve them. Our focus commercially in Q2 was reviewing the new and legacy business lines to ensure we were focusing efforts on high growth and high margin areas. These would include things like new partnerships in Brazil, adding Medifarm products to our medical e-commerce site, and expanding the established Beacon Medical Australia business to include non-flour products. The approach is to go deeper with good customers and products versus going wider and stretching resources into unknown outcomes. This focused approach allowed us to expand gross profit by the biggest quarter over quarter jump in company history. The best Medifarm adjusted gross profit since Q4 2019 and reduced OPEX, all while maintaining revenue. Even as we made material progress in right-sizing the business, we completed some major milestones in new areas of growth. In Q2, we completed important regulatory steps to optimize our German supply chain to drastically improve margins by the end of this year. And subsequent to the quarter, we hit the major milestone of our first commercial shipment of clinical trial material to the US. The US shipment followed a process where the clinical trial required endorsement via the FDA investigational new drug approval and DEA import approval. In order for Medifarm to even be considered by our NIH-funded research partner, we required an extensive list of qualifications and licenses, including our Health Canada Drug Establishment License and US FDA Foreign Site Registration. both which came after millions of dollars in investment, years of work on our quality management system, and in-depth audits. These attributes have created a competitive moat for us in the pharmaceutical cannabis sector. This sector growth timeline is long by nature, but we have seen progress. The latest cycle of funding grants by the Canadian Institute of Health Research provided funding to three of our clinical research partners. And in the US, the possible rescheduling of cannabis could open the floodgates on new research opportunities. At Medifarm, we are ready with the qualifications and capacity to take on these high margin projects. These quality and GMP attributes also contributed to international progress in Q2, the largest recent impact being in Australia. As of July 1st, 2023, the Australian Therapeutic Goods Association mandated that all cannabis imports must meet GMP requirements. This limited some of the non-GMP products that were currently entering the market under the guise of a special access program. In Q2, we delivered contract manufactured GMP vapes to Australia and prepared for a launch of Beacon Medical oil and vapes. Beacon Medical's new products will be comprised of the first GMP line in Australia where a patient can choose a flour, full-spectrum oil, or full-spectrum vape, all from the same strain, allowing patients to access a consistent therapeutic benefit across all three delivery methods. This line will launch in Q3. The Beacon Medical Flour Portfolio is currently the number three flour brand by sales, and we anticipate these high-margin products to have the same success. Before turning to Greg to discuss financials, I'd like to point out and briefly explain a new business channel in our financial statements and disclosures. The channel of Canadian medical cannabis has been added post-vivo acquisition. This includes our direct-to-patient medical platform, known as CannaFarms, sales to other LPs medical channels, and our patient clinics, Harvest Medicines. CannaFarms is a top 10 revenue generating direct to patient medical platform in Canada. Patients with a prescription register with CannaFarms e-commerce site where they can select from over a hundred SKUs in all cannabis formats and be directly shipped to their home. Harvest Medicine is an education focused patient centric cannabis discovery clinic operating in three locations and via telemedicine Harvest Medicine has conducted more than 150,000 registered patient visits through its clinics, making it one of the top clinic networks in Canada. With the addition of Vivo, we are now in every major cannabis channel, as well as meaningful revenue in every major federally legal market, including Canada, Australia, Germany, UK, Brazil, and even dipping our toes into the U.S. with clinical trial material. This diversification gives us the foundation to support further growth both organically and through M&A. I'll now pass the call to Greg to discuss Medifarm's financials.