Auxly Cannabis Group Inc.

Good morning. My name is Anas, and I'll be your conference operator today. At this time, I would like to welcome everyone to Oxclick Cannabis Group year-end Q4 2021 earnings results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session from the company's financial analyst. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2. Thank you. Mr. Rocky, you may begin your conference.

Thank you, operator, and good morning, everyone. Thank you for joining us for Oxley Cannabis Group's fourth quarter and full year 2021 financial results conference call. A replay of this call will be archived on the investor relations section of Oxley's website. We'll start the call with a presentation and corporate update from our CEO, Hugo Els, followed by a recap of our year-end financial results by our CFO, Brian Schmidt, before opening the floor to questions from our financial analysts. Joining us for the question portion of the call will be our president, Michael Lichtmer. I encourage you to follow along the presentation slides which are posted on our website under the investor section under presentation. Before I turn the call over to Hugo, I'd like to remind everyone that our discussion today includes forward-looking statements that are based on assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from the views expressed today. Management can give no assurance that any forward-looking statement will prove to be correct. Forward-looking statements during this call speak only as to the original date of this call and we undertake no obligation to update or revise any of these statements except as required by applicable law. Management refers you to the cautionary statement and risk factors included in Oxley's disclosures. I note that all references on this call are to Canadian dollars and less otherwise stated. With that, I'll turn it over to our CEO, Hugo Alves.

Thank you, Carla. Good morning, everyone, and welcome. Brian and I are delighted to be with you again to present our Q4 2021 and full year results. Let's turn to slide five. We see Oxley's 2021 strategic objectives. These objectives did not change throughout the course of the year and were, to recap, maintaining leadership in the 2.0 product segment, building to leadership in dried flower and pre-rolls, becoming a top five licensed producer by national share of market, improving margins and revenues while being disciplined in our spending, and achieving adjusted EBITDA profitability. And I'm proud to say that Oxley was able to achieve most of these goals in an environment of unprecedented challenge. And that is a testament to the quality and commitment of our people and their tireless efforts. In terms of maintaining leadership in 2.0, we were able to successfully defend our number one ranking in the 2.0 product segment and finish the year as the largest licensed producer in the segment, capturing a 15% share of the 2.0 market in 2021. We continue to dominate the vape segment, again defending our number one LP position and increasing our share of market by 4% year over year, 19% in 2020 to 23% in 2021. With more than 100 vape brands in the market nationally, all three of our vape brands, Back Forty, CoLab Project, and Foray, secured a top five spot brand nationally, and VAC40 was the number one vape brand in the country. And we exited the year having secured top five sales positions across all 2.0 product categories that we participate in. The most ambitious goal that we set for ourselves in 2021 was to extend our brands into 1.0 formats in a meaningful way. Not only did this entail developing and commercializing a product portfolio in the new market segment, but it also entailed acquiring the capabilities that we believed would be needed to become a serious player in the 1.0 segment. We viewed this objective as critical to maintaining Oxley's growth trajectory given the size of the addressable market for 1.0 products currently representing over 70% of total market. And during 2021, we significantly strengthened our cultivation platform with the acquisition of Sunens Funds, now called Ausli Limiten, thereby giving us the scale and quality of cultivation that we believe enable us to remain competitive over the long term. And while we are still building our base portfolio and distribution of 1.0 products, our efforts to date have enjoyed enormous consumer success, And we exited the year as a top 10 LP in both dried flower and pre-roll formats. Over the course of the year, Oxley went from the 30th ranked licensed producer in flower at the end of 2020 to the number 7th licensed producer nationally with 5.1% share of market. And we went from the 19th largest producer in pre-rolls at the end of 2020 to the number 8 light LP nationally. at the end of 2021 with 3.5% market share. And notably, our Back 40 brand in particular has been a consumer favorite, quickly establishing itself as one of the top-selling flower SKUs in Ontario and securing the number four brand position in the province. And our unique Back 40 pre-rolls quickly gained consumer acclaim and were recognized as the best Indica pre-roll at the 2021 Kind Awards. We successfully achieved our goal of becoming a top five LP. Oxley almost doubled its market share position year over year, ending 2021 with a 7.4% share of market nationally and being the fifth largest licensed producer by share of market. And we were able to do that by being hyper-focused on our consumers and commercializing what I believe is an industry-leading innovation pipeline, which I'll touch on a little later in the presentation. We also continue to focus on depth and breadth of distribution to ensure that consumers can always access our products. And we ended the year with excellent coverage by having presence in over 92% of stores across Canada. And we continue to see great sales momentum with our portfolio and continued opportunities to build deeper connections with consumers through focused brand development and insights innovation. Over the first two months of 2022, The company has moved into the number four LP spot by share of market. Our CFO, Brian Schmidt, will discuss Oxley's financial performance later in the presentation, but I'll note some quick highlights. We successfully grew our net revenues 79% year-over-year to $83.3 million, including ending Q4 with net revenues of $29.3 million, a 20% increase over Q3. And we managed to increase our top line while maintaining spending relatively flat, with SG&A for 2021 almost a million dollars lower than SG&A in 2020. And as discussed on our last call, we did continue to encounter operational and supply chain challenges during the year, which negatively impacted our gross margin. but we were able to achieve a blended gross margin of 23% for the year, which was an improvement to the 21% gross margin achieved in 2020. And while those operational challenges and general industry headwinds negatively impacted our ability to achieve adjusted EBITDA profitability in 2021, we were able to make significant strides towards that goal. We improved year-over-year adjusted EBITDA by 24% to negative 21.7 million. While disappointed that we were not able to achieve this target in 2021, achieving adjusted EBITDA profitability is our primary strategic target in 2022, and we believe that we will be able to achieve that goal through continuing to drive top line with focused and differentiated brands and products, increasing the depth and breadth of our distribution, leveraging the increased output from our Leamington facility, investments in automation to increase production capabilities and output, and continuous improvement initiatives throughout the organization. Turning to slide six, the chart on the left shows Oxway's continued leadership in the 2.0 market relative to its competitors, where we have a sizable advantage relative to our closest competitor. When you look at total market, it is a tighter race for top spots. And the chart on the right-hand side of the page shows our relative standing on a total market basis where we ended the year as the fifth largest producer. Notably here, in 2021, no other cannabis company in Canada gained more market share than Oxley. And we significantly outperformed the Canadian REC market, growing at the till sales by approximately 157% year-over-year, while total industry sales only grew by approximately 49%. Moving to slide seven, you can see a picture of our national share of market performance on a quarter-by-quarter basis for every product category that we participate in. These are national market shares in order to give you a clear view of how we performed across the country and throughout the year. And a few high-level points to draw to your attention here are in vapor, We lost about a half point of share over the course of Q4. This was driven by some of our competitors dropping prices aggressively. We questioned the sustainability of current price investments and we chose not to follow that trend at this time and instead focus on supporting our products in store. And we are happy with the results in trade-off. In constant trades, we also lost a bit of share over the quarter, but this is not a concern. as it was driven by supply chain interruptions which constrained product availability. Those issues are resolved, so we expect to see our concentrate share tick back up. And we gained share in every other format. As I mentioned on our Q3 call, we expected to recapture share in edibles with the launch of new SKUs, and we're delighted with the consumer reception that our new edible formats have received. As already discussed, we saw continued quarter-over-quarter growth in dried flour and pre-rolls. And we've also made significant share gains in oil and topical products, where our Dosecan-branded products continue to win over consumers with superior quality and value. And also a shout-out to our innovation team for their Dosecan Daily Relief Cream, which is not only the product that I get the most compliments on, but also recognized at this year's Kind Awards winning the best topical categories. And I should note that we were able to achieve the number five ranking in topicals with one single SKU. And we're excited to extend our topical lineup in 2022 to address other functional needs of our Dosecan consumers. And on that note, I'd like to turn to slide eight. Insights-driven innovation is one of our core capabilities. I am biased for sure, but I believe that no other cannabis company on the planet can match Oxley's innovation capabilities and outputs. Our ability to translate consumer insights into differentiated products and manufacture and distribute them at scale is unrivaled in cannabis. Over the course of 2021, we successfully launched 51 new SKUs to market, including 10 first-to-market SKUs like our industry-leading live terpene sticks. And we've already launched new SKUs in 2022 and in the aggregate have 60 innovation SKUs in development for release over the course of the year so that we can continue to service the evolving needs of our consumers and build deeper brand connections. Let's move to slide nine. One of Oxley's winning aspirations is to create a leading portfolio of brands as measured by awareness and share of market. We obsess about creating brands that our consumers trust and love, so I am thrilled to see the impressive awareness gains that our brands have made over the course of the year. Using Brightfield Research Group data, you can see that all of our brands continued to gain awareness among consumers over 2021. Back 40 in particular, which we only launched at the end of 2020, has become the fastest growing brand in Canada and almost doubled awareness over the course of a single year. This was in part driven by its dominant vape position, where it is the number one vape brand nationally, and its rapid growth in dried flour, where it's the fourth largest flour brand in Ontario and Alberta and the third largest flour brand in British Columbia. We are committed to building lasting brands and will continue to make investments in insights, innovation, and brand development so that we can get closer to our consumers and earn their trust and loyalty. Turning to slide 10, before passing the presentation over to Brian, I'd like to spend a few minutes discussing our acquisition of sole ownership of Oxley-Leamington, our 1.1 million square foot greenhouse facility, formerly called Suman Farms. The acquisition positions Oxley as one of the largest cultivators of cannabis nationally and gives us the capabilities that we believe are needed to make a concerted and sustainable push for 1.0 market leadership in Canada. Oxley-Leamington gives us the competitive advantages of scale, lower costs, and surety of supply. And the scale of the facility also gives us the ability to execute on attractive export opportunities to foreign jurisdictions of industry. It has also simplified our cultivation supply chain and allows Oxley to improve its costs by materially reducing our reliance on third-party for dried flower and extract inputs and consolidating the margin previously left behind at Soonans onto the Oxley balance sheet. Finally, it allows Oxley to remain hyper-focused on its consumers. As the sole owners of the Leamington facility, we have exclusive access to a genetic bank of over 150 cultivars, which enables us to tailor our dried flower product offerings to the evolving preferences of our consumers. On slide 11, you can see that Oxley Leamington is driving our concerted push into 1.0 market leadership. Our BAC40 and CoLab project brands are among the fastest growing branded portfolios in the 1.0 market segment, and the output from Leamington is being used exclusively to service those portfolios. And as Brian will touch on, we are currently increasing production at Sunence to be able to service the increasing demand for our flour products. And we expect to make further output and efficiency gains with improved availability of automation, which is being commissioned over the course of the year. I'm going to stop there. Thank you very much for your time and attention. I'm now going to turn the presentation over to our CFO, Brian Schmidt.