MediPharm Labs Corp.

Thank you for standing by and welcome to the MediPharm Labs conference call to discuss the second quarter 2025 results. Our speakers on today's call are David Piddock, President and Chief Executive Officer, and Greg Hunter, Chief Financial Officer. As a reminder, all participants are in the listen-only mode and the conference is being recorded. After management's presentation, we will take written questions through the Q&A feature on the webcast. The information contained on this presentation should be considered together with the more detailed information, disclosure, financial data and statements available on the company's website and on CDR Plus profile. As seen on slide two and three, I would like to note that this earnings call contains forward-looking information and is based on the company's current expectations, estimates, and beliefs as of today's date, and will also use terms that are non-IFRS financial measures. Please review the company's most recent disclosure material for the risks associated with the use of forward-looking information and the use of non-IFRS financial measures in this presentation. Please note that all dollar amounts mentioned in today's call are in Canadian dollars unless otherwise noted. And now I would like to turn the call over to Mr. David Piddock. Please go ahead.

Thank you, operator. Good morning and thank you for joining us for MediPharm Labs' second quarter earnings call. As you saw in the news release we issued earlier this morning, we delivered solid operational and financial results with 14% revenue growth over the prior year while successfully defending MetaFarm in a proxy contest and executing effectively on our strategic priorities. Let me begin by sincerely thanking our shareholders. Your support and engagement during the proxy contest was impactful and very much appreciated. Over 200 million votes were cast in our June AGM, approximately four times the typical votes cast. We saw shareholders approve all management recommendations and all dissident board nominees were rejected by a margin of three to one. This level of participation reflects an encouraging alignment with our long term vision for Medifarm. Unfortunately, defending against this proxy contest was costly in terms of legal and advisory fees, and it temporarily diverted our focus from some exciting strategic initiatives. At the operational level, I'm proud to say that our leadership team was able to stay focused on executing our business strategy to reduce operating costs and increase revenue. That is reflected in our continued progress on both our day to day operations and key strategic initiatives. The proxy contest did create a valuable opportunity to engage directly with shareholders. The executive team, board members, and I had the chance to speak with many of you. I was impressed by the depth of knowledge and conviction many of you have of MediPharm's pharmaceutical and medical approach to cannabis. With your support, we are now in a stronger position to focus on the future and to accelerate our organic and M&A growth plans. We spend over $2.2 million during the second quarter to defend the company in the proxy battle. We believe those costs are largely behind us, although there may be further legal expenses associated with the frivolous personal lawsuits launched by the dissident. The company has a robust, you know, directors and officers liability insurance policy that will help mitigate any future legal expense exposure related to the dissident group. I do believe, and I know our board agrees, that it is important to reflect on some of the learnings through this challenging process. In particular, I note that while the resolution relating to the Omnibus Equity Incentive Plan was endorsed, it passed by a slim margin. We take that feedback from our shareholders seriously. The Compensation Committee of the Board, comprised entirely of independent directors, has already met and is engaging with how to further improve the company's approach to executive compensation. The Board is also reviewing the 15% cap for the Omnibus Equity Incentive Plan and exploring potential ways to reduce the cap over time. I'll add one final comment on governance. With the recent addition to the board of John Medlin and Emily Jamieson, five of our seven board members are now fully independent. Only Keith Straughan and I remain non-independent. This structure is an important safeguard for shareholders and reflects our commitment to strong, transparent governance. Returning to our second quarter performance, We believe the results offer further evidence that our strategy is working. We continue to deliver revenue growth, led by a 50% year-over-year increase in our international business. Our team is managing expenses effectively, including through the divestment of non-core assets with the sale of the dormant Hope facility closing in the quarter. As for our financial position, contrary to false claims you may have seen during the proxy contest, I want to assure you that MetaFarm continues to operate from a position of strength. We ended Q2 with $10.4 million in cash, which is up from the $8.4 million at the end of Q1. This increase came despite the $2.2 million in proxy-related expenses and was supported by the gross proceeds from the sale of our Hope facility of $4.5 million. Our financial strength is ultimately driven by improved operating performance. I shared these tables last quarter, and they continue to demonstrate consistent progress in improving adjusted EBITDA. As Greg will describe, the slight step backwards from positive adjusted EBITDA in Q1 was a result of some margin challenges based on product mix, notably in the international market. We have undertaken many initiatives in recent years to reduce standard costs and increase gross profit, while simultaneously reducing operating expenses and growing revenues. We continue to implement incremental cost-saving programs in our manufacturing facilities and in our commercial operations. As a result, our operational cash burn is now minimal. We are virtually debt-free. We own our facilities outright. We're current on our excise duties and continue to maintain strong relationships with our suppliers and partners. Our financial stability has made Metafarm an appealing and reliable partner internationally. We are continuing to invest in working capital to support growing global demand. That includes inventory and receivables to service our core export markets. enabling continued growth in Germany, Australia, and the United Kingdom. I will elaborate on some of our key growth opportunities and overall strategy momentarily. First, I will turn the call over to Greg to walk through our Q2 financial results in more detail. Greg?

Thanks, Dave, and good morning, everyone. Medifarm management continues to focus on growing our revenue base through both organic and inorganic initiatives while reducing expenses and cash burn. with the goal of becoming a profitable and cash flow positive organization in the near term. Our progress on these efforts is reflected in our Q2 results, highlighted by a 14% year-over-year increase in revenue. Revenue for the second quarter was $11.8 million, an increase of $1.5 million, or 14%, compared to the same period last year, driven primarily by continued expansion of our international business. International medical cannabis revenue grew 2.2 million or 50% year over year to 6.7 million. This growth was broad based across our German, Australian and United Kingdom customer base. International medical cannabis accounted for approximately 57% of total revenue this quarter, up from 43% a year ago. Canadian medical cannabis revenue was 3.1 million and declined 0.1 million from Q1 2025. Canadian adult use and wellness revenue was $1.6 million, representing a 6% increase year over year and a 19% sequential improvement. Gross profit for the quarter was $3.3 million, or 28% of revenue, down from prior year and sequentially. This decline was largely due to product mix. Management remains focused on improving gross margins through product optimization and production efficiencies. general and administrative expenses adjusting for the 2.2 million expense related to the proxy contest would have decreased 0.8 million year-over-year and would be consistent with q1 2025 marketing and selling expenses were 1.4 million which is consistent with both the prior year and previous quarters Total operating expenses, which includes G&A, marketing and selling, and R&D, was $4.3 million when adjusting for several discrete items, including the $2.2 million expense related to the proxy contest. Operating expenses adjusted for these discrete items declined versus prior year and sequentially, reflecting our success in improving the efficiency of the organization. Management continues to focus on further expense reduction opportunities. Adjusted EBITDA for the quarter was negative 0.6 million, which declined versus prior year, driven by margin dilution from product mix. However, year-to-date adjusted EBITDA is negative 0.4 million, which improved 0.6 million versus prior year. While we don't provide guidance, we are very encouraged by our revenue trend and expected to continue to move in a positive direction, although there may be variability from quarter to quarter as international markets mature. Moving to a few notable items on the balance sheet. Our cash balance at the end of Q2 was $10.4 million, which increased versus the prior quarter cash balance of $8.4 million as we divested the whole facility for gross proceeds of $4.5 million. Let me expand on our cash position, given it was a topic of conversation during the recent proxy contest. During the most recent quarter, our operational cash flow would have been approximately negative $500,000 if it were not for the $2.2 million expenditure on the proxy contest. This is generally in line with our adjusted EBITDA as one would expect. Based on our current cash burn, we have many quarters of cash remaining to fund operations and move to become EBITDA and cash flow positive. Trade and other receivables balance at Q2 is $8 million, and 85% of trade accounts receivable is aged 60 days or less. Trade and other payables balance at Q2 is $8.2 million, and unlike many other cannabis companies, we are up to date on cannabis excise duties, sales taxes, and trade payable obligations. The company has virtually no debt and has full ownership of two production facilities with an appraised value greater than $15 million. To summarize, although we still have work ahead of us to enhance our profitability profile and become cash flow positive, Q2 was a step in the right direction. Revenue in Q2 increased 14% versus prior year, and year to date has increased 12% versus prior year. International medical cannabis revenue in Q2 increased 50% versus prior year and represented 57% of total revenues in the quarter. Although gross profit margin for the quarter declined versus historically high recent periods, it was still 28%. Adjusted EBIT in Q2 declined sequentially. However, year to date, it is negative $0.4 million, which is an improvement versus prior year of negative $1.1 million. And finally, as previously discussed, we have a strong balance sheet relative to our peers with over $10 million in cash and virtually no debt. As a result of our strong balance sheet, we are well positioned to continue to invest in organic and inorganic growth opportunities as the industry continues to mature. I'll turn it back to Dave to expand on some of those opportunities.

Thanks, Greg. Looking ahead, our strategy is consistent with what has proven to be successful for us. We are focused on disciplined execution, sustainable growth, and international expansion. We continue to invest in innovation within our product portfolio, and strengthen our reputation as a leader in pharmaceutical cannabis through manufacturing excellence and our contributions to clinical research. We are also actively evaluating opportunities for accretive M&A within a consolidating market. I'll touch on several of these points. For international sales, international sales continue to be a strong driver of growth for MECLAR, as demonstrated by our recent results. Our success in global markets is built on years of preparation, investment, and execution. Metafarm has an established presence in Germany, the UK, and Australia, supported by deep experience operating these regulated markets. We hold a comprehensive suite of GMP licenses across the EU, Australia, Brazil, and other jurisdictions, enabling us to operate with confidence and compliance in complex regulatory environments. While many Canadian LPs are just beginning to explore international markets, Metafarm has been active globally for years. Our international capabilities were further strengthened by the strategic acquisition of Vivo in 2023, which expanded our global footprint and operational reach. We've built enduring partnerships and distribution networks that support consistent and scalable growth. The international cannabis market presents significant challenges, including regulatory compliance, import-export, permit management, logistics, quality assurance, and cash flow. MetaFarm is uniquely well-positioned to manage these complexities. Our infrastructure is built for international success. We've developed regulatory pathways, supply chain systems, and commercial quality processes that allow us to deliver reliably across borders. Q2 saw shipments of $6,000 into the UK, a substantial increase in our presence in this growing market. In Brazil, the CBD market continues to grow over 50% per year. New entrants have led to some significant market pressure on pricing. We are working with our partners to adjust price positioning as loss preparations continue, and we remain hopeful for first shipment in 2025. In the first half of 2025, several Canadian and international cannabis companies have approached us for support with supply chain and partner-related challenges. These conversations have opened doors to new opportunities and reinforced our reputation as a trusted international partner. Our pathway to further international growth includes diversification of our product mix including the launch of novel metered dose inhalers with contracts already in place to support rollout in key international markets regarding inhalers earlier this year the company commercialized and launched metered dose inhalers in the canadian market and we've begun to introduce new minor cannabinoid line extensions the launch of our metered dose inhalers marks an important milestone in our strategy bring innovative pharma quality cannabinoid products to global markets with contracts in place to export to the uk and australia as demand grows for smoke-free and precisely dosed fast onset formats metafarm is uniquely positioned to meet that need with differentiated solutions that align with both wellness trends and clinical applications this product supports our broader goal of expanding precision cannabinoid delivery across regulated international markets. During my conversation with shareholders, many of you expressed an interest in our clinical trial activity. MediPharm's pharmaceutical grade manufacturing capabilities, supported by our GMP and drug establishment licenses, allow the company to contribute meaningfully to the global medical research community by delivering consistent, high-quality cannabinoid products for clinical evaluation. We continue to advance cannabinoid-based pharmaceutical research, serving as a trusted manufacturing partner for leading universities, medical institutions, and pharma partners across Canada and internationally. We are proud to be working with many leading research institutions including University Health Network, VHN, University of Manitoba, University of Calgary, McMaster, and BC Cancer Agency. These collaborations are focused on rigorously exploring the therapeutic potential of cannabinoids in treating a wide range of medical conditions. This slide shows more than 10 clinical trials currently in progress at various stages, which utilize MetaPharm products. These studies represent a significant step forward in understanding the therapeutic benefits of cannabinoids in managing conditions such as chronic pain, insomnia, major depressive disorders, epilepsy, and cancer-related symptoms. Looking at one of these trials, In Q2, we shipped additional materials as part of an extension of the Libby Clinical Trial led by the University of Southern California's Keck School of Medicine. The Libby Trial is a randomized double-blind phase two trial planned for approximately 150 patients across 20 US sites, supported by a $16 million NIH and NIA funding grant. More than 70% of Alzheimer's and other dementia patients in hospice care are prescribed psychiatric medications for management of agitation typically a combination of antipsychotics, sedatives, and opiates. These medications often lead to undesirable side effects, all of which tend to make the situation even worse, lowering quality of life for patients and adding burden to their care providers. Recent research suggests that derivatives of cannabis can be beneficial in controlling agitation and distress without the side effects of the traditional medications. In this project, Tech School of Medicine aims to test the efficacy of an oral combination of THC and CBD for the treatment of agitation in participants with a diagnosis of dementia who are eligible for hospice and experiencing agitation. I will also highlight that MetaPharm Labs has recently been selected to supply pharmaceutical-grade cannabinoids for an international animal health product. The product will be leveraged in a veterinary trial exploring its therapeutic potential in treating pain and inflammation in pets. The project comes at a time of growing regulatory interest in veterinary cannabinoid products. MediPharm actively participated in Health Canada's public consultation in Q2, which explored a potential regulatory pathway for natural health products and veterinary drugs containing CBD for animal use in Canada. The company has also expanded its international pharmaceutical footprint through a contract development engagement with a European biopharmaceutical firm. This partnership focuses on scaling a novel solid-dose cannabinoid delivery system, with MetaPharm securing future manufacturing rights in select markets upon successful development and regulatory approval. While the short-term financial impact of participating in clinical trials may be minimal, we believe they help reinforce MetaPharm's position as a leader in the pharmaceutical cannabis space. Being a trusted partner to leading academic institutions and other researchers strengthens our credibility as we build international relationships. In the longer term, there are opportunities for direct revenue contribution resulting from successful trials. The final topic I'll cover is mergers and acquisitions. I mentioned the Vivo acquisition we completed in 2023. Vivo has been MetaFarm's largest and most significant M&A transaction to date, and it has proven to be a great success, as highlighted by its contributions to our international growth and profitability. Vivo has set a high benchmark that we intend to apply to any future transactions. In a sector with numerous consolidation opportunities, we follow a strict set of criteria when evaluating potential partners. Most important is ensuring that any transaction has significant potential strategic revenue and cost synergies and enhances shareholder value. We continue to participate in strategic M&A discussions with selected parties and are hopeful to share more insights in the coming months. In conclusion, we remain steady in our focus on driving shareholder value through our international revenue growth and are committed to executing on our long-term vision as a global leader of novel cannabinoid products for medical and wellness use. Metapharm has demonstrated success in Q2 with year-over-year revenue increases. We are excited about the future and confident in our path forward. The global cannabis sector continues to evolve. It is still challenging in many respects, but we believe Metapharm is uniquely positioned. Our pharmaceutical approach, our strong governance foundation, and our financial discipline distinguish us from others in the space. Once again, thank you to our shareholders for your trust and engagement. With a strengthened foundation, a supportive investor base, and a focused team, Medifarm is well positioned to move forward with confidence. I'll now ask the operator to open the call to your questions.

Thank you. You can submit questions via the Q&A button at the bottom right-hand corner. Your first question comes from the line of Aaron Gray of Alliance Global Partners. Your line is open.

Hi, good morning. This is John on for Aaron. Thank you for the questions. So in international, could you speak to some of the growth opportunities you're seeing and where you feel best positioned to drive meaningful step change in growth? Just some more color on specific markets you think maybe present the best near-term opportunities versus others being more long-term.

Yeah, great. Thanks for the question, John. So we have a number of international growth opportunities that we've outlined. I guess I'll start with our most exciting one, which is the inhaler, which we showed here. So we have launch plans in Australia and in Europe, and we have those set up and sales should come in this year for both of those. And that's exciting because that's a differentiated product with potentially higher margins. So that's the inhaler, which we discussed briefly. What's happening in a lot of the growth, there's been lots of challenges for European customers and we touched on this and I think Greg touched on this in the call. We've been approached by a number of customers who, let's say, are dissatisfied for a variety of different reasons with some of their existing distribution partners that are helping them get Canadian product to market. And so we continue to have inbound new opportunities from new customers that are giving basically new opportunities and new channels to get into various, especially European markets. In addition to that, our existing distributors that we use in our markets, which includes pharma distributors and other distributors vary by market, we've been seeing some good organic growth, let's say, within our existing customer base. And then we have some exciting product launches in both Australia and as we discussed in the new market, which is Brazil. All of these markets are growing in some interesting ways. We've mentioned the Brazilian market growth being over 50% and we're seeing robust growth in many European markets. And a number of European markets are actually newly opening. So France and some of the smaller European countries, we also have discussions or actual contracts in place with some new and some existing partners to grow our presence there. I don't know, Greg, if you want to have anything to add to that.

No, I think that covers it.

Great. That's really helpful. And I know we've asked about this in the past, but given the news around potential

uh reclassification for cannabis could you talk about what opportunities could come available for metafarm if schedule three were to come about and maybe how you're uniquely positioned to compare to others great thanks for that and we actually had that question come in from another shareholder on the line so i'll kind of address their uh angle on it uh as well we released a press release yesterday that tried to sort of describe that but i'll try and put it in in uh in my own words, what the opportunities are. So, um, there's kind of a general opportunity as, as the perspectives in the U S market, uh, evolve, it represented a general opportunity for the, the, um, stigma to decrease in the market. And what that does is it allows, it allows the market to grow in a whole bunch of different ways. As, as everyone is aware, we cannot export from Canada or import from the U.S. to and from the U.S. market. And the current scheduling treats cannabis federally as a narcotic, and you can't do interstate trade. So lots of complexities, and some of those complexities, including banking and some other things, go down as it gets rescheduled. For us specifically, we are we believe we are the only company that's had a cannabis facility that's had an FDA inspection. And we are one of very few that has actually shipped product into the US and in our case, mostly for clinical trials. There have been a number of both pharma companies and academic institutions that have that have desired or have plans in place to launch clinical research. But the complexities involved with doing that clinical research in the current environment with the scheduled drug, which involves the DEA, makes it very difficult and challenging. And, you know, we've had some great partners that have allowed us to supply them and go through the complexities of selling into the U.S. market. So we have sold clinical trial materials into the U.S. market. And also as API with our drug master file and our FDA inspection, we can also provide API product into the US. So what we believe will happen is a lot of these research opportunities, both in the academic sphere and in terms of product development with actual pharma companies, those are going to get reprioritized potentially. And they'll be looking for suppliers that in the short term can provide product supply. And there's very few companies that have already done it and are sort of preset to do that. And then in the larger sphere, if this, as the stigma goes down and as research goes up and as both pharma and academic institutions get more interested, it's going to generate a snowball of of research and activity, very few companies can respond to that in the short term. And we have already done so. So we see it as a significant opportunity actually for patients and for the progressing of research. So we just discussed in detail sort of one of our more than 10 research projects. If you look at the power of the US research capability that has really had one hand tied behind its back, that has prevented the power of U.S. research to get into this, that should change. That could change if and as scheduling changes. So that's in addition to all the benefits from what expenses can be written off and some of the, I'll say, the commercial benefits of potentially being able to you know, not have to deal with multi-state operators and go through the borders and things like that. So I don't know, Greg, if you have anything to add to that. Yeah, that addressed the question, John.

Yes, yes, very well. And then finally, just on profitability, it's been drifting around the breakeven mark for some time now. How should we think about the best levers for you to achieve more meaningful profitability? Is it simply top line growth or are there other margin enhancing levers available?

Yeah, I'll take a swing at that and then I'll turn it over to Greg who gets this question quite a bit from investors and from the board and from our own conversations. It's not a single bullet and a single lever. And it's a lot of the levers we're already pulling and continuing to pull. So we have ongoing activities in terms of decreasing our costs. We have ongoing sort of restructuring that we are doing to ensure that our footprint is correct. You will notice that we have sold one of our redundant and closed facilities and any burn that was associated with that is now gone. And we continue to look to efficiencies on the cost side. Certainly revenue growth contributes. We have capacity in our facilities Both of our facilities, GMP facilities, have capacity, so incremental volume is certainly helpful. And then we're very attuned to, I'll call it, mixed pricing margins. So on the gross profit level, being very sensitive to what business we take on, being very thoughtful in terms of how we price and how we manage existing profitability and new profitabilities. And then I think we touched on new launches generally and differentiated launches like the inhaler come with higher margins. And so that's super helpful to the mix. But I'll turn it over to Greg. You can give some deeper thoughts on sort of the multi-tiered approach to managing this tightly.

Yeah, I think just to build on what Dave said, there is no one silver bullet. There's a multitude of different items that the team is actively and aggressively pursuing. I think the one is, if you just look at the gross profit slide that we show on the prepared deck there, you can see where, you know, we went from negative gross margins to, you know, I'll say 30-ish percent. You know, we are coming off, we came off a historical high gross margin in Q1. Q2 was more in line with the prior quarters. And so a number of things that we're working on to do it, obviously, top line growth. We have excess capacity in both of our production facilities, so we can take on additional volume without additional cost or investment. So that is certainly one. The other one, as Dave mentioned, expansion into new markets and higher profitability products, whether that be in Brazil, or inhalers. Certainly pricing efficiencies, we're always actively looking at pricing opportunities. And then just general cost reduction opportunities. Again, we've shown over the number of years, we've taken costs down significantly and we're always making adjustments. So for example, in Q2 here, we made some optimization of shifts within our facility. And that will bear fruit in the Q3, Q4 timeframe. And then finally, I'd say, you know, one of the biggest ones that we've been very public about is M&A, which we're actively pursuing. I mean, if you look, go back and look at the Bevo acquisition and how successful that was on bringing two companies together. And really running them for the price of one driving significant significant synergy and so that continues to be a major pillar of our strategy and more actively working on that as well. And hopefully we'll have news to share on that in the near near terms.

Great thanks Greg. Any other questions there, John? No, thanks for the questions and Great, appreciate it. I'll just note that we had questions that came in and it looks like they've been addressed either in the content of the presentation or in the questions from the analysts. I think operator, we've kind of got through all the questions that came in from shareholders.

Thank you. With no further questions, this concludes the Q&A session and the conference. You may now disconnect.