MediPharm Labs Corp.

In terms of your plan of action with the change in Germany, that'd be appreciated. Thank you.

Hey, Aaron. Thanks for the question. It's Dave. I'll let Keith, our German expert, take this one. There's lots of questions there and there's lots of good opportunities in Germany. Keith, go ahead.

Thanks, Aaron. We're really excited about the legislation change. It's a little bit faster even than we expected. We thought that the federal representatives might have sent it back for further comment. So we're really happy with where things are at now, and we're really excited about what it can do. I think for us, it's the removal of that narcotics license. So as you know, the legalization itself is based around more personal possession and personal cultivation to start. That's what they're calling Tier 1, and Tier 2 hopefully will be somewhat of a commercial program. But by removing the narcotics license, it allows us to flow goods easier, allows our pharmacy partners to store goods easier. And even places like in our distribution channel where there's special storage requirements and things like that. So I think that there's a really good opportunity there to see additional growth. You asked a little bit about where our business is in Germany and how it's broken up. Our main partner there remains to be Stata. And Stata is a large European generic and wellness-focused company. Right now, they're doing great in the oil category. So when it comes to flour, there are a lot of patients that are looking to, that are more discerning customers and looking for the next hottest, coolest flour. And what that is really focused on is the medical patient. And those medical patients are using that oil product. And they are number two in that category in Germany today. And it continues to grow. With the acquisition of Vivo, we did pick up the Beacon Health GMBH, which has its own suite of licenses for import, manufacturing, and distribution. We use that to strengthen our back end, and we do have a few SKUs that we do distribute under that Beacon brand, but it's not a large piece of our business today. It's something that we look to grow in the future. And then lastly, I'll just touch on geranabinol. As you mentioned, geranabinol is a THC isolate And it's used as a compounding product. And traditionally, a lot of the production has been done synthetically. And that synthetic chemical production is very high cost. And so what we are able to do is we're able to do a natural process here at our factory in Barrie under GMP pharmaceutical conditions. And we can make that at a larger scale and arguably also at a more competitive price. And we have started selling that in the market in Q4. And in Q1, sales have picked up drastically for that product. It's not something that's distributed by Stata. It's really used as like an API and a compounding from specialty pharmacy. So Stata themselves are more focused on their brand. So they have the Canada Stata brand and they continue to grow that brand. And so the generic product, we do through a number of other distributors and it's more of a distributor pharmacist relationship for that actual product.

I really appreciate that Keith. I would like to dive a little bit more in terms specifically with Stata and Jeremy. So how have your conversations been with the company? Are they planning to put more and more manpower to it? Do they believe that there's gonna be a big increase in terms of the physicians that will adopt it, because it no longer has to be the yellow prescription, right, with the narcotics. It can be just much more lower barrier, record keeping, et cetera, from how I understand it, now that it's removed from narcotics. So that, what's SADA's approach in terms of things that'll open up physicians and patients? And then also, can you just remind us, in terms of the agreement, was it a five-year agreement for you guys there, and any updates on potentially extending that? Thank you. Thanks.

Yeah, so Stata is also excited about the changes. I think you kind of nailed the one area is that it's easier for prescribers now not being a narcotic. So other physicians would be more comfortable with prescribing it. Stata has one of the largest sales teams in Germany on the medical cannabis side. And so they'll look to leverage that further. And then I think when you think of Stata themselves, they also are marketing hundreds of other pharmaceutical products to physicians in Germany and throughout Europe. And so it's now how do they leverage those relationships further to possibly talk about cannabis and medical cannabis products with those physicians who really wouldn't have prescribed it before based on that narcotics handle. So there is a really big opportunity there and we continue to look at that in Germany and in other jurisdictions. I think you mentioned the contract. The contract is a five year contract with some options to extend and the five years actually started from the first delivery. So even though we signed it in October of 2020, the first sale started in February of 2021. So we are under the original contract till February of 2026. and then we'll have some options to extend without any heavy lifting on the actual agreement side. Their business continues to grow on their side, especially with their higher margin product in the oil, so they're happy with the business, and I see this growing far beyond that 2026 end date of the original agreement.

Okay, great. Thanks very much for the comment and details on buying the keel. Thanks, Aaron.

If you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of Scott Fortune from Roth MKM. Please go ahead.

Yes, good morning, and thank you for the questions. A real good color on the German side is we think that's a big opportunity. Maybe you can get into kind of other international markets. The Brazilian side is a little bit there. And then just provide more color around the Canadian market as we see the excise tax here relief for the industry. And just the opportunities there for positioning and growth throughout the Canadian market in 24 would be helpful, how you guys are seeing that play out here.

Yeah, thanks for the question, Scott. Again, I'll have Keith talk to all of those. And maybe I'll ask Keith, you're basically talking about our revenue growth opportunities. So I think There's Brazil, but there's also Australia. So I'll just ask Keith to also touch on Australia before he addresses the Canada piece. So I think all of the areas you highlighted have some good growth opportunities, and some of them are emerging and we'll see in 2024. So Keith, maybe you want to cover those?

Sure. Hi, Scott. Thanks for joining us this morning. Brazil is something that's really exciting for us. We have... really been a pioneer in the industry of doing the proper path of an authorized prescription product in Brazil. So Brazil started like a lot of other companies with compassionate care, and there wasn't a lot of regulations to bring into that. The Brazil health regulatory and visa has now pushed towards more of the authorization. There's probably only a dozen authorizations today. Medifarm holds two of those. Having that authorization, even though they accepted our Canadian GMP drug establishment license to begin with for the export, they wanted to come and do an actual inspection of our facility. So in December, in Q4, they were here for a week and they did their thorough inspection of our facility. And we are the first facility in North America that InVisa has inspected through to completion for cannabis and cannabis manufacturing. So it's something that we're really quite proud of. On the commercialization side, we have signed an agreement with a large pharmaceutical company in Brazil that we are looking forward to disclosing further later. And really what that does is it gives us access to that market in a bigger way than we have been operating there in the last year. And so we're just waiting on the next major milestone there is we're waiting on one more product authorization from Anvisa. It's a long process where you submit a whole dossier that includes everything from product characterization to both stability studies and in-use stability. So it's not something that something could speed up and it creates a competitive vote for timing. So no matter how much a competitor wants to do as far as spending resources on it, they can only catch up so much with those. So it's really a good opportunity there. And we're looking forward to doing some meaningful things in Brazil in the back half. of this year. On the international side, especially on Germany and Brazil, I think what's really important is Australia. We've made really big strides in Australia since acquiring Vivo and taking over the Beacon Medical brand in Australia. In Q4 was our first full quarter of oil and vape sales there. So Flower has been a great flower brand there since 2018, one of the top five flower brands on a consistent basis. in Australia, which like every other market is the more popular product. But what we did is we launched oil and vapes. And then in particular in vapes, what we saw is a great opportunity because the rules got stricter at the same time as we launched. So the vapes had to be GMP. So same thing around process validation and stability was things that were needed. And so what that did is it removed a lot of skews from the market. So our competitors were forced to leave the market with those skews. And then we're able to see growth there. So we have big plans to maintain leadership in that category in Australia going forward. And we have some new sales folks in Australia, medical sales liaisons who are talking with physicians. And we think that we can continue to grow that brand since acquisition. I will touch on the Canadian market as well. It's a very large market for us, probably the largest addressable market for us, where we have seen growth in different ways. In 2023, we probably took a step back from some of our activities there, just as we saw some ups and downs in what the industry was doing, in particular, as you mentioned, in excise tax. I think there was probably too much reprieve for some of our peers in excise tax, especially through the pandemic. So they were able to sell products even further than a lot than companies like ourselves who are paying excise on a regular basis and are diligently keeping our accounts up to date. So we took a step back. That's changed now. The excise, even though there are still some large, there's some very large outstanding balances with some of our peers, what we don't have is just the wide open reprieve. So even if you have a balance, those licensed producers are now being forced to be current. And what that does is I think it helps even out the playing field as far as pricing goes and marketing goes. So we have taken the time in 2023 to kind of re-look at that portfolio and relaunch and refresh some of it. And a lot of that happened in Q4 to set up for a successful 2024. So in Q4, we launched a number of additional products, 15 different SKUs in the Canadian market, which is big for Medifarm. And a lot of that was focused around wellness type products like capsules. And we even launched a wellness focused minor cannabinoid vape, which wellness focused vapes were not something that were in Canada before we launched those products in November and December. So we look to see the success in that in 2024. And wellness is kind of where we play. within that market and where we, you know, win when it comes to that. And we've seen that, you know, in our market share in small categories like cannabis oil.

Yeah, the only other thing I might add, Scott, was the great unknowns about excise tax and what happens. You know, there was some in the recent Canadian report, there was some recommendations for eliminating medical or reducing and medical exercise so who knows what that will come together there's lots of speculation about changing um to a percentage basis for uh excise tax overall so some of the things that will benefit the entire industry would uh benefit us as well um and then some of the things like related to medical would uniquely benefit uh players who are uh have a significant presence in the medical space like us so we if If all of those recommendations sort of came forward, we probably would benefit sort of more than average from the XI tax reform, again, if any does occur.

I appreciate all that, Kalar. Thank you. I don't know if I missed out on some of the comments earlier, but kind of looking at M&A, obviously, good balance, strong balance sheet here. You've mentioned a lot of Canadian opportunities, but you'll be kind of diligent there, but Finally, you want to find a similar partner to Vivo, but are you looking at potentially adding potential opportunities to sell into the international opportunity with categories or products to fully utilize your manufacturing, your facilities there? Just kind of how are you looking at kind of approaching M&A and the opportunities there with these international markets potentially opening up for you here?

Yeah, that's a good question on M&A, and we are still actively, as we've said, looking at M&A, and our balance sheet puts us in a really strong position to consider M&A. We are looking for ones that would be accretive, so that's obviously important to us. I think synergy is the important thing. So Vivo had lots of synergy in terms of the international opportunities, but also from a cost perspective. Many of the folks that we're talking to or considering now are one of the things that they value out of a potential partnership going forward is our international presence. So as you know, some companies have an international presence from a Canadian perspective, but most Canadian LPs do not. So we're also looking at international opportunities, but a lot of, I would say, a lot of Canadian LPs don't have any international presence. And so we represent significant synergy for growth opportunities, revenue synergies, as we look at being able to use our channels for anyone that we might acquire or work with to grow their business through our international channels. And we're doing that on a licensing agreement perspective and looking at many deals with companies to do that, not in a full M&A perspective, but also that's certainly one of the things and one of the synergy opportunities we look at as we consider M&A. And I just say we'll be really thoughtful as we were with Vivo. Vivo, I believe, was extremely successful for us in terms of driving shareholder value, and I think anything we look at in the future, we would hope to similarly be positive and creative for shareholders.

That's helpful. I can slip one more in on there. You announced additional cost cuts here on kind of the OPEX side and fully, you know, further optimizing your utilization. But can you provide a little more color or detail less on these additional cost reductions and added contract manufacturing? Kind of a little more color on that would be helpful for 24 here.

Yes, so two different things there. On the cost side, we have been constantly going through different ways of restructuring folks in different areas. And in Q4, we had a further round of restructuring that had some significant numbers of FTE departures from the organization. Some of that is partially reflected in Q4, but most of that we will actually see in Q1 and the subsequent 2024 orders. is just a way of saying the improvements we've seen on EBITDA and the improvements we've seen on the cost side of things are not fully baked in yet. We have further reductions and further positive news coming as decisions we've already made and frankly already implemented get worked in. And then having said that, we are constantly looking at incremental opportunities to streamline to leverage to get maximum optimization of facilities. And so we would, aside from revenue growth, which also is driving improvements in EBITDA, we still have further things on the cost side that are going to improve our EBITDA performance. And maybe specifically on the contract manufacturing, both from an international perspective and a domestic perspective, it's been very active over the last, I'll say, six months in terms of many and Keith mentioned the Australia opportunity where a number of manufacturers were no longer able to provide GMP products for the market and our activity level of many people coming to us in Australia and Brazil and other places where we, as the rules get stricter, fewer companies can meet the standards. And so we've had lots of activity in terms of new business opportunities over the last six months. And similarly in Canada, for a variety of reasons, cost related, a lot of quality related, and a lot related to existing outsourced partners having troubles, whether that's CCAA troubles or other troubles. We have seen an uptick in, I'll say, manufacturing optimization, contract manufacturing, really from a number of sources who may have been with other competitors, looking to, I'll say, a better quality and a better financially secure partner opportunity. So there's been a number of those, and we hope that that also, as those work into our results, show further EBITDA and revenue improvement. I don't know if Keith or Greg needed to add to that. No, that's great.

Thanks for the questions. I appreciate it. Thanks, Scott. Thanks, Scott.

We currently have no further questions in our queue at this time. I will now turn it over to the MedPharm Labs management for closing remarks.

Great. Thank you, Opera. Thank you, everyone, for joining us. Just a reminder that the full text of the presentation The conversation here will be online in the next several hours, so if there was any challenges on timing, you'll be able to see and hear the entire script. So thank you, everyone, for joining us. We're very excited about the results we were able to present. We're very excited about 2024, and we will see you for Q1 results. Thanks for joining.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.