Auxly Cannabis Group Inc.

Good morning. My name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the Oxley Cannabis Group Q3 2022 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 analysts. If you'd like to ask a question during this time, simply press star followed by one. If you'd like to withdraw your question, please press star followed by the two. Thank you, Mr. Brian Schmidt. You may begin your conference.

Thank you, operator, and good morning, everyone. Thank you for joining us for Oxley Cannabis Group's third quarter 2022 financial results conference call. A replay of this call will be archived on the investor relations section of Oxley's website. Joining us today will be Hugo Alves, CEO. Mike Lickford, President, and myself, Brian Schmidt, CFO. I encourage you to follow along with the presentation slides, which are posted on our website under the Investoration section under Presentation. We are currently having some technical issues, so please bear with us, but we are looking to get that posted as quickly as possible. 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 upon assumptions that are subject to risks and uncertainties that could cause actual assumptions results to differ materially from our views expressed today. Management can give no assurance that any forward-looking statements will prove to be correct. Forward-looking statements during this call speak only 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 the Oxley disclosures. I note that all references on this call are to Canadian dollars unless otherwise stated. With that, I'll turn it over to our CEO, Hugo Howells.

Thanks, Brian, and good morning, everyone, and welcome to our third quarter 2022 earnings call. Start the presentation on slide five. And as we've indicated throughout the year, our main goal for 2022 is to improve revenues and margins and achieve adjusted EBITDA profitability. Brian is going to present the financial results later in the presentation, but at a high level, we experienced a temporary setback during the quarter. While we maintained our cash-based margins during the quarter, we had lower than expected revenues. We were impacted by some external factors and the gradual decline of baked share of market over the past 12 months, primarily due to price and competition. While we were able to lower SG&A by 10% during the quarter of 1.3 million, we are still busy working in that regard. We have made a number of changes that we believe will improve results in an increasingly diverse and competitive market by remaining focused on product quality, continuing to innovate to meet the evolving needs of our consumers and continuing to improve our operating capabilities. In line with a rapidly changing industry, we are constantly evaluating and balancing our portfolio with the demands and needs of our consumers. And during the quarter, we took steps to optimize our portfolio by streamlining certain cannabis 2.0 products as part of a skew rationalization process to focus the portfolio on consumer favorites while improving gross profit. Moving to slide six, the top three categories of flower, vape, and pre-rolls now account for 85.2% of total recreational sales, with vape slightly declining and gains in pre-rolls coming at the expense of flower. But combined flower and pre-roll still represent 70% of all sales in Canada. Vape has been flat as a category and has seen a 48% price compression on average price per milligram year-to-date. As we stated last quarter, we have continued to see significant growth within the ultra-value segment in vape, with over 40% of brands now participating at this lower price tier. While this did impact our share of market in vape, we only took moderate pricing reductions in vape during the quarter. Pricing reductions across the industry began around this time last year, and prior to our recent change, we were at a premium to most competitors by between 13% to 33%. based on OCS retail pricing. Our brands continue to be consumer favorites, with Back Forty and CoLab Project and 4A being top three vape brands year to date, and we defended our number one spot in 2.0 products. While we will certainly look to regain lost vape share over time, we will not chase share at the expense of profitability, and what we are most encouraged by over the quarter is the increasing strength of our flower portfolio, despite some challenges with lower-potency product that was sold through at the end of the second quarter. We took pricing action on vape products as one of the last LPs to do so. However, this was following further cost savings implemented to ensure margin stability, which includes a reduction in our hardware pricing and optimization of our packaging. The continued low-cost performance of Oxley-Leamington as we look to significantly increase flour and pre-roll sales in these two must-win categories. And the fact that we have been able to maintain a leadership position in the 2.0 segment despite maintaining our pricing over the first eight months of the year and still remain the number six LP in the market. Turning to slide seven, as consumer preferences continue to evolve, innovation and new products continue to drive both consumer and customer purchasing behaviors. While product life cycles vary by category and price points, as many as 15% of top-selling SKUs in each category are new products launched within the given category. For the year, we will have launched 60 exciting new SKUs to market, with over half of them coming during the second half of this year. While many of our innovations in the first half of 2022 were focused on a broad range of products across all categories, you will see the majority of our innovation focus across The second half of the year is in our key growth categories of dried flour, infused and unfused pre-rolls, and vapor products. As we look to leverage our Leamington capabilities, new automation equipment, and all the development work that we've done in these formats during the front half of the year, including selecting several unique and higher THC potency genetics to expand our flour and pre-roll portfolio and the development of new infused pre-roll flavors. Moving to slide eight, you can see an overview of our well-rounded brand portfolio addressing various consumer segments, product formats, and price points. To add to our award-winning portfolio of brands, we are launching our newest brand, Parcel, that will participate in the ultra-value price segment, which makes up approximately 34% of the flour category today. With a focus on dried flour, Parcel will launch with two dried flour and two milled flour skews with high THC potencies and unique flavors designed in line with evolving consumer preferences. Leveraging Oxley Leamington, we can bring high quality strain specific flour to consumers at a great value every day. Back Forty continues to be our largest brand in the market with distribution in over 90% of retail stores. consistently ranking among the top brands in Canada, where we are a leader in flower pre-rolls and vape products. We will continue to grow the strength of the brand by delighting consumers with new and exciting additions to portfolio, including our new high-potency, bold-flavored vapes launching in Q4, and our newly launched infused pre-rolls, which derive their flavor profiles from our top-selling vapes, which consumers enjoy. have shown us repeatedly that they love and trust, such as our Kush Mint, the number one selling vape cart in Canada. Colab continues to round out our portfolio with a more premium offering and experience across the dried flower, vape, and pre-roll segments. A consistent consumer favorite, Colab has been one of Canada's most innovative brands to date, bringing many first-to-launch products, including the first one-gram vape cart and live risin' edibles. Colab will continue to participate in the premium segment with additions to flower and pre-roll SKUs in the second half of the year and a first-to-market launch with Canada's first-ever blunt-flavored vapes launching in Q4 with honey bourbon and banana blunt with elevated potencies and best-in-class hardware. Turning to slide 9, Oxley-Leamington provides us with a strong competitive advantage by producing high-quality, low-cost cannabis at scale. there are few competitors that are growing the same quality of flour with the efficiencies that we have in place at our Leamington facility, and we plan to leverage this advantage to continue building to leadership in dried flour and pre-roll segments and improve our overall gross profit margin. Since taking over the Oxley-Leamington facility last year, we have been focused on three core objectives, improving product quality, reducing production costs, and diversifying product portfolio. and we're pleased that our efforts are showing impressive results as we have continued to see improvements in our product quality through potency, moisture, and trim improvements. Our year-to-date flower production costs are over 50% lower compared to 2021 by making significant changes, such as improvements to our nutrient infertigation programs, ramping up production capacity, and executing on multiple operational efficiency projects across the facilities. We have successfully trialed exciting new genetics over the course of the year and expanded our commercial production from three to seven strains. And we are constantly testing and trialing new cultivars from our large genetic library with the goal of leading dried flower innovation in market. We are excited for consumers to try the new cultivars, the majority of which will be shipped to market in Q4 and include Panda Puff, Banana OG, and Apple Fritter. all of which we'll add to our back 40 flour and pre-roll lines and mint cream pie, which we will launch under our CoLab brand. Turning to slide seven, we have previously spoken of our plans to further increase production capacity as well as ramp up our pre-roll automation and the several manufacturer-related delays that we have experienced to date. We have now installed and commissioned our second pre-roll maker in Oxley, Leamington with one more larger scale unit scheduled to arrive in Leamington in the back half of 2023. This second pre-roll maker will double our capacity in pre-rolls in short order and we will start to feel the impact of increased throughput and enhanced product margins in Q4. We are pleased to announce that we are in the final phases of completing the commissioning of our pre-roll packaging automation. We have been working closely with our manufacturers since accepting delivery of the equipment earlier in the year. And while we are disappointed in the length of time this process has taken, we are close to the finish line in reaching fully automated pre-roll packaging, a competitive advantage that we believe will be difficult to replicate for many of our peers. We have also more than doubled our bagged flour capacity with the addition of a second flour packer, which has already been commissioned and is ready for commercial production to support our new packaging. flower offerings. I'm going to stop there and now turn over the presentation to our CFO, Brian Schmidt, to walk you through the financial results. Brian?