MediPharm Labs Corp.

Ladies and gentlemen, thank you for standing by and welcome to the MediPharm Labs 2023 Third 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 MetaPharm Labs and its current and future plans, expectations, intentions, financial results, levels of activity, performance, goals or achievements, and other future events, trends, profitability, business growth, or developments. Forward-looking statements are made as of the date hereof based on information currently available to management of MetaPharm and on estimates and assumptions made based on factors that MetaPharm 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. Additional information is contained in MetaPharm 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 International Financial Reporting Standards, or IFRS, and therefore may not be comparable to similar measures presented by other companies. MetaFarm believes that the non-IFRS measures referenced provide information useful to shareholders and investors in understanding our performance, and they 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 MediPharm, which is available on CDAR. I will now pass the call to David Piduck, CEO of MediPharm. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate you joining us for MetaFarm Labs' third quarter results conference call. Joining me on the call today are Keith Strom, 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 second full quarter conference call following the vehicle acquisition. As an overview, we are very happy with our margin OpEx, and EBITDA results. Our balance sheet is the best shape it has ever been. Now with our house largely in order, we can turn our focus to investments to drive profitable growth. In the near term, with cash flow and funding challenges faced by many of our peers, we look to leverage our stability and our cash position to consider M&A investments for growth. The company has been focusing on improving gross profit, reducing OpEx, and delivering significant improvement on adjusted EBITDA. All of these initiatives combine to positively impact our quarterly cash burn rate as we work on getting to a position of generating positive cash flow. We are very satisfied with the gross margin results and the continued improvement in EBITDA. Q3 adjusted EBITDA for the quarter improved to negative $2.4 million, despite the softness in quarterly revenues. As we have focused on improving margins, we have been diligent in our pursuit of higher margin business and in exiting or managing lower-margin or negative-margin business. While this approach has had notable positive impacts on profit and cash flow, it has also negatively impacted our quarterly revenues. MetaPharm has remained focused on the integration of Zivo cannabis and delivering on the synergy targets we have previously shared. I am pleased to report that all Zivo-related cost synergy targets have been met, and Greg will share details on the associated positive results in gross profit, OpEx, and EBITDA. A further round of restructuring was implemented in Q3 that will provide an additional $3 million in cost improvements starting in Q4. The acquisition of Vivo was a transformative transaction for MetaFarm Labs and has allowed us to deliver 45% year-to-date revenue growth over prior year and an almost 50% improvement in adjusted EBITDA year-to-date. Our combined adjusted gross profit was approximately 32% for the quarter, versus a minus 10.5% in the prior year quarter. Year-to-date adjusted gross profit has improved by $6.7 million, and OPEX has been substantially reduced as well. Greg will discuss our cash position in more detail, but we are very happy to report a cash balance today of approximately $19 million. The previously announced legal settlement has added significantly to our cash position. With our Q3 adjusted EBITDA of minus 2.4 million, a strong balance sheet including full unencumbered ownership of our key assets and minimal debt of less than $3 million, our improved cash position allows us to look for strategic investments that will drive revenue from both an organic and M&A perspective. To summarize, revenue, gross profit, and adjusted EBITDA improved versus prior year and versus trailing 12 months. largely driven by our profitability focus, the successful Vivo integration, and cost reduction initiatives. With our profitability initiative showing good results, we can further increase our focus on profitable revenue growth. Our experience with the 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. As we head into 2024, we continue to focus on reducing costs, driving revenue growth in selected profitable segments, progressing our longer-term pharmaceutical milestones, and pursuing synergistic M&A. With our cost position now well-established and a very favorable cash and debt position relative to some of our peers, we believe that there may be several synergistic M&A opportunities available for consideration in the near term. I will now pass the call over to Keith. Thanks, David.

Q3 was a great quarter for Medifarm as we continued our strategic focus on a profit-first model. With a deep understanding of our costs and the business acquired from Vivo Cannabis in April, we were able to laser focus on where to reduce investment and where to invest on areas primed for growth. The record growth profit margin and drastically reduced EBITDA loss in the quarter speak to the success of this focus. I would like to take a few minutes to outline some of the examples of how we got here and what work is being done to expand revenue in the future. I will start with the Canadian adult use and wellness category. In this market, we saw a Q3 net revenue decline. However, there are good reasons for this. One, we grew cannabis oil market share, which is our highest margin adult use product. Two, we pulled back on non-profitable vapes, dry flower, and pre-roll skews. And three, we stopped retail partnership programs where we would not see return on investment. In Q3, we laid a foundation to grow the top line in this category with the same guardrails of profitability. Some good examples include, we negotiated the elimination of the 10% royalty on the wildlife brand making new dry flower and pre-roll launches more profitable. We invested in new sales reps in Western Canada, and subsequent to the quarter, launched two new oil products and two additional capsule SKUs. All high-margin products for us. Looking at the Canadian medical category, we maintain sales while targeting profit by rationalizing SKUs on the CannaFarm's direct-to-patient portal. In the process, we removed products that carry a higher manufacturing cost and replaced them with products where we have invested in automation. On the third-party side of medical sales, we increased our listings with MyMedic, the former Shoppers Drug Mart platform, from 8 to 15. We also grew listings with other major patient platforms, such as Aurora and Avamedic. For future growth in the Canadian medical category, we recently entered into agreement with Tilray to take on specialty Medifarm branded SKUs for their medical channel. Once launched with Tilray, we will have our products on all major Canadian direct-to-patient platforms, making Medifarm a go-to brand choice for patients, no matter where they purchase their medical cannabis products from. In Q3, our clinic business, Harvest Medicine, published two papers in the American Journal of Endocannabinoid Medicine, which is also mentioned in the Wall Street Journal. It is published research like this that helps physicians and specialists in making cannabis prescription decisions that will ultimately grow the medical business. Lastly, in the international medical category, revenue is down on a quarter-over-quarter basis, but this area is where we made the most improvement on gross margin in previous periods the international sales included one-time bulk flower sales to some of our existing oil customers however many of these sales were done via third-party source flower resulting in low margins this also came with inventory risk based on tight gmp flower specifications in q3 we consciously made decisions to decrease some of the marginally profitable spot business opportunities to refocus on our long-term German partners like Stata. Much of our international focus was growing our Beacon Medical brand. As a top three flower brand in Australia, we knew we can grow that high margin base with more resources and expanded product portfolio. In Q3, we launched our Beacon Medical GMP baits and oils. The Australian bait market is poised for significant market growth given new and more strict Australian GMP standards put in place in July 2023. We are well positioned as a partner of choice when regulations tighten. We also increased our investment in the Australian medical sales team during the quarter. Outside of those highlighted segments, Medifarm remains a leader in pharmaceutical cannabis production. We made additional progress on our US FDA site registration and API filings, while our international pharmaceutical partner navigates the US generic drug application process. We also completed a sizable delivery of clinical trial material to the US in July, with new US DEA permits recently received for additional delivery this year. We look forward to translating our leadership in quality pharmaceutical manufacturing into meaningful revenue growth in the future. I am very excited about our position in Canada and internationally and look forward to sharing our progress as more milestones are achieved. I'll now pass the call to Greg to discuss Medifarm's financials.