Auxly Cannabis Group Inc.

Good morning. My name is Joanna and I will be your conference operator today. At this time, I would like to welcome everyone to Oxley Cannabis Group Q1 2023 earnings conference 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 would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Thank you, Mr. Schmidt. You may begin your conference.

Thank you, Joanna, and good morning, everyone. Thank you for joining us for Oxley Cannabis Group's first quarter 2023 financial results conference call. My name is Brian Schmidt, CFO of Oxley Cannabis Group, and joining me today is Hugo Alves, CEO. A replay of this call will be archived on the investor relations section of Oxley's website. I encourage you to follow along with the presentation slides, which are posted on our website in the investor section under presentation. Before I turn the call over to Hugo, I would 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 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. Manager 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 unless otherwise stated. With that, I'll turn it over to our CEO, Hugo Alves.

Thanks, Brian. Good morning, everyone, and welcome to our first quarter of the earnings call. I'll start the presentation on slide five of our investor deck. As mentioned on our last call, 2022 was a challenging year for the Canadian cannabis industry. And in order to better position Oxley within the current market realities, we evolved our strategy at the end of the third quarter of 2022 and continue to do so today by streamlining our portfolio to focus on consumer favorites and the largest product categories of dried flower, pre-rolls and vapes. Enhancing our capabilities and automation at our Leamington facility to deepen and further leverage our high quality, low cost cultivation and manufacturing advantage. Reducing costs throughout the organization and internalizing our sales team to focus exclusively on Oxley products improve relationships with retailers, and increase distribution for our products. With those actions in mind, our overarching goal for 2023 is to achieve sustainable profitability by increasing our annual net revenues by 15%, by focusing on key product categories, building portfolio depth within those categories, and growing distribution and consumer excitement within those categories by leveraging our internal sales team. We also aim to improve blended gross margins to 35% to 40% by leveraging Oxley-Leamington's high-quality, low-cost cultivation advantage and continuing to enhance our automated manufacturing capabilities. We'll continue to vigorously take costs out of our business to keep SG&A to below 40% of net operating revenue. And of course, we will continue to prudently manage the company's balance sheet and streamline assets where possible. These initiatives have started to bear fruit over the past two quarters, where we are already on track in several key areas, such as cost of finished cannabis inventory sold margin at 37%, and positive operating cash flows of $3 million. Turning to slide six, dried flower pre-rolls and vapes account for 85% of all industry sales and represent the largest opportunities for Oxley. We are a leading category in each of these key product categories. We have established a Vapor portfolio of consumer favorites driven by consumer-focused innovation where we have three strong and differentiated Vapor brands at different price points. And thanks to the success of all three brands, our Vapor products are broadly distributed nationally. As I shared with you on our last call, we have started to lean into dried flower and pre-roll products and are making excellent progress in establishing our brands within those product segments. We feel that our Oxley Leamington facility with its high quality and low cost of cultivation gives us a natural competitive advantage in both formats. We have made significant investments in pre-roll manufacturing and packaging automation. to develop what we believe is a best-in-class product in terms of quality, consistency, and price. And as a result of those efforts, we have continued to increase our share of market in both product categories, including now being the fifth largest LP in the dried flower category. In addition, we anticipate that our third, much larger automated pre-roll filling machine will arrive in Leamington during Q2, which, when commissioned, will significantly increase our pre-roll throughput. Moving to slide seven, we continue to be committed to building lasting brands that resonate with consumers, and we will continue to make investments in insights, innovation, and brand development so that we can ensure we are helping consumers live happier lives by consistently delivering phenomenal products at a great value under brands they can trust. We have a well-rounded brand portfolio which addresses various consumer segment, product formats, and price points. Back Forty continues to be our largest and strongest brands. Consumers continue to love the brand's value proposition of simple, high-quality cannabis at a great everyday price. Back Forty products are widely distributed, being found in over 90% of retail locations in Canada, and as a result, Back Forty has consistently been a leading brand nationally over the past 12 months. We recently added a fifth brand to our portfolio, Parcel, to compete in the fast-growing ultra-value pricing tier. We have seen the ultra-value price tier grow rapidly over the past 12 months, as consumers look for increasing value for money in the face of economic uncertainties. Approximately two-thirds of dry-floured volumes now transact at the ultra-value price segment, and Oxley-Leamington's high-quality, low-cost advantage allows us to offer consumers single-strain flower at ultra-value pricing while maintaining profitable margins. And we are delighted with the early performance of Parcel products as a new and increasing source of revenue, and we look forward to increasing the breadth of Parcel's product portfolio and increasing distribution over the course of 2023. Turning to slide eight. As consumer preferences continue to evolve, innovation and new products continue to drive both consumer and customer purchasing behaviors. In 2023, we will continue to innovate to meet the evolving needs of our consumers, but we will focus principally on dried flower, pre-roll, and vapor product formats. We will look to increase the breadth of our product portfolio in those key categories to set the stage for continued growth and further leverage the competitive advantages that we believe Oxley has in those three product categories as outlined earlier in this call. Over Q1, we successfully released 23 new SKUs into our key product categories and will continue to seek additional listings for exciting new flour, pre-roll and vapor products throughout 2023 and leverage our new internal sales team to build retailer excitement and distribution for those products. Turning to slide 9, Oxley-Leamington is one of the premier cannabis cultivation facilities in the world. There are very few competitors that can match our mix of high quality and low cost, and we plan to leverage this advantage to continue building to leadership in the dried flower and pre-roll segments and improve our overall gross profit margin. Through continuous improvements in cultivation strategies and genetic selection, we have seen overall product quality and potency increase over the past 12 months, and importantly, have seen those improvements translate into increased sales and market. As already mentioned, we have increased our focus on flower innovation and have a portfolio of commercially ready strains for launch over the course of 2023. Turning to slide 10, We have also continued to progress our automated manufacturing capabilities. We successfully installed and commissioned our second pre-roll filling machine at our Lympton facility, doubling our filling capacity. As mentioned, we are also getting ready to accept delivery of a new, much larger, first-of-its-kind filling machine, which will again materially increase product throughput and efficiency and make us the largest manufacturer of cannabis pre-rolls in the country. We believe that our low-cost cultivation structure, increasing throughput capacity, and related automation will allow the company to make further inroads into the pre-roll category, which is part of our plan, along with dried flower sales, to steadily increase net revenues over time. I will stop here and turn over the presentation to our CFO, Brian Schmidt, to walk you through the financial results. Brian, over to you.