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spk03: Hi everyone, and thank you for joining us. I'm Chris Naprawa, Chairman of Chiron's Board of Directors, and with me on our webcast today is Alvaro Torres, Chief Executive Officer, and Joel Friedman, Chief Financial Officer, as well as Francesca Ketterbach, European President. Before we start, there's a forward-looking statement. Please note that the following caution respecting the forward-looking statements, which is made on behalf of Chiron Life Sciences and all its representatives on this call. The statements made on this call will contain forward-looking information that involve risks and uncertainties, including those introduced by the COVID-19 pandemic. Actual results could differ materially from the conclusion, forecast, or projection in the forward-looking information. Certain material factors and assumptions are applied in drawing conclusion and making a forecast projection reflected in the forward-looking information. Additional information... About the material factors that could cause actual results to differ materially from the conclusions, forecasts, and projections in the forward-looking information. The material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection reflected in the forward-looking information are contained in the Chiron Life Sciences filing with the Canadian Provincial Securities Regulators, which are available on CDAR and on CDAR at website at cdar.com. to provide a brief agenda. We'll start with a discussion of the quarter, where Alvaro will walk through some of the key highlights, and he turns it over to Joel to run through the financial results. After that, we'll dive into our guidance for 2022 for various growth scenarios there, including catalysts in each market that will drive growth. We'll wrap it up with a quick Q&A at the end. Now, with that, it is my sincere pleasure to turn it over to Alvaro Torres, CEO and Director.
spk01: Thank you, Chris. Thank you, everybody, for tuning in in this call. Four years ago, we founded this company with the goal of improving the quality of life of patients and consumers through the applied use of cannabis. As you know, Chiron is a B2C medical cannabis company, and we're focused on building brands. We're focused on building relationships with doctors, with patients, and insurance companies. And we're focused on generating value versus exporting commodities in a race to the bottom. When we think about being a B2C company in the international markets, that means thinking every day about building and generating demand. And to generate demand, we need to think about and solve for evidence, quality, and access. So without evidence, doctors will not prescribe medical cannabis. If the product quality is not good, and by that I mean consistent and safe, patients will not take on and continue the treatment. And without access, and I mean distribution, insurance coverage, good healthcare service, and governmental support, there is no market. Because of this, we created our business model. We are focused on servicing patients through great healthcare and using this as a platform to introduce patients and doctors to medical cannabis in a responsible manner. Our medical cannabis sales grew by 47% to 825,000 Canadian, maintaining a gross margin level of 88%. We are able to achieve this because we focus on creating high value for our patients. These results were largely because of the growth in Colombia and because the acceleration sales in Germany. And this rate of growth and the catalyst that I'll be talking about very soon in the immediate future gets us very excited about the path that we're creating. As you know, we acquired our clinics almost three years ago because we believe that to build the market we want to be in, we need a strategy to solve for these three issues. So today we see our clinics are generating data that is creating real-world evidence that is driving prescriptions and credibility. Because of this evidence, we're able to convince and persuade insurance companies and the governments that medical cannabis is not a fad, that medical cannabis is not a trend, that it's good for patients and it's less costly. That makes medical cannabis a disruptive force. And the clinics allows us to provide access to our pharmacy or partnering pharmacies through our conversations with insurance companies and through our service. And in the back of this, we're able to sell a great medication that is improving the quality of life of patients. When I look back at our Q2 results, and I think they continue to showcase that we're on the right track and with the right acceleration because, one, we are growing in the medical cannabis sector in every market we are entering. Two, that our B2C strategy is producing strong profitability. Three, that our vertical integration strategy is the best path towards growth and that we need to deploy this clinic strategy in our target markets wherever possible, as fast as possible. And fourth, that Europe is becoming a significant part of our medical cannabis operations. We are, without a doubt, the leading company in the Colombian medical cannabis domestic market. I think this is thanks to our vertical integration strategy with Serenio, the goodwill of our products, and the increasing number of patients that are benefiting from our treatment. The last few months have encouraged us to continue moving forward with this strategy and deploy our clinics in Mexico, in Peru, in Brazil, and in the U.K. We know how to prescribe medical cannabis responsibly. We know how to persuade doctors into prescribing because we are creating a level of evidence that very few companies can talk about, particularly in our regions. We know how difficult it is to persuade physicians to prescribe cannabis, and we have created an ecosystem of evidence and education that needs to be deployed faster in every market that we're targeting. Very soon, we will be making our first publication in an indexed medical journal, showcasing the real-world evidence we have collected with more than 1,400 patients in Colombia, all of them with Chiron-made products. We plan to launch more publications for different conditions in the coming months. I think you can agree with me that this will create a level of credibility worldwide that very few companies can enjoy, and that will drive more prescriptions across all our markets. We are executing plans to finish this year with sales in Mexico, Colombia, Peru, Brazil, UK, and Germany. Our clinic strategy will certainly be a big part of this, which is all about creating demand, generating real-world evidence, developing new products, and increasing profitability. And, of course, we have to do this while we continue to be mindful of our cash investment, our collection of revenues from our clients, our management of expenses, and the well-being of our team and the patients who are responsible for the successful path that we are creating. With that all being said, I'd like to ask Joel, our CFO. to provide more details in the Q2 financials before I come back with Francie, talk about a little bit of operational highlights, our guidance that we've talked about in MD&A, and a quick Q&A session. So with that, thank you, please, Joel.
spk03: Joel, you're on mute. Joel, you're on mute.
spk04: Joel? Yes. continue, Alvaro, and maybe then go back to you later. Yes.
spk01: Absolutely. So, we will continue the operational while we get you all back online with the discussion of the financials. All of that information is already set up in our MP&A, for which we also open up a little bit more discussion about our operational metrics and our financial results, which are basically, you know, growth on the medical cannabis business, maintaining the profitability level and our ability in the clinics to capture more demand, and the important fact that Europe is becoming more and more a more important part of our revenue and our profitability, the reduction of our cash expenses for the quarter, and the continuous ability we have to keep reducing our overall SG&A while we continue to grow and the excitement for the future. So before we get into Joel, I'll get into the operational highlights with Francie. So I'd like to begin by discussing our Latin American operations, and then Francie will come in and talk about Europe. Francie, as you know, is our new president for Cairn Europe. So overall, we sold over 11,300 prescriptions. That is almost twice as much as we sold in the entire 2020. We are in the very early stages of our growth and I'm very excited about our next few quarters. You think about July alone, we sold two and a half times more than what we did in the entire month of January this year. And 91% of our product sales in LATAM came from our clinics in the first half of the year. In Latin America for this quarter, we're reporting sales in Colombia and Peru. And as you all may know, we just recently shipped our first shipment into Brazil. So let's talk a bit about Colombia. In Colombia, we have two main sources of revenues. One is health services. So we provide health services to our clinics. We are focused on chronic pain, neurology, sleep disorders, and mental health. We offer integrated services that include consultations, procedures, neurosurgeries, therapeutic support, and sleep diagnosis. In Q2, our revenues for health services, excluding medical cannabis, were reduced by 15% compared to last quarter, but we grew 19% year over year. Now, the main reason for this drop is that the impact of the COVID-19 restrictions on our high-end surgeries. In March of this year, in Q1, when Colombia was reducing the number of COVID cases, we were able to perform more than 16 of these high-end surgeries, which took our monthly revenues in the clinic to $1 million Canadian per month. Now, in Colombia, as you know, we entered a third wave in March all through mid-July. That caused, of course, more restrictions on the services coming down from 16 in March to 6 in June. Now, what that really means for us is that Today we have a backlog of over 42 surgeries that are scheduled to be executed within the next five months. That represents about $1.3 million Canadian of revenues that we will get back throughout the year, on top of the revenues that we're already doing every single month. So those revenues are not lost. They have been delayed. As you know, Colombia has reduced cases from 30,000 cases three weeks ago to almost 2,500 cases. So we're on the right trajectory when it comes to COVID restrictions. And despite that, we maintain our consult levels from Q1 around 24,000 consults and increased them by 77% compared to last year in the same period. I think most importantly, our conversion rate from consults to medical cannabis patients grew from 25% to 31%. I think our ability to continue growing monthly consults is great. We have a current installed capacity of over 50,000 consults per quarter, and we will see a greater number of consults now that restrictions on patient visits are being reduced. Now, when it comes to medical cannabis, I think that even with all the difficult circumstances regarding COVID-19, we serviced over 7,300 patients with medical cannabis. This is 24% more than last quarter. But also very important is that the average units sold per patient grew from 1.3 units per month in Q1 to 1.5 units per month in Q2 per patient. which resulted in almost 11,000 units sold in the quarter. That is 43% more than Q1, with an average selling price of $50 Canadian, with a gross profitability of over 80%. Now, the reasons for this growth could encapsulate in a couple of reasons. One is that there's more willingness to prescribe from our doctors, and there's a growing number of doctors who are prescribing. In Q1, we had 28 doctors prescribing 3.5 prescriptions per day. And in July, we had 36 specialists prescribing five prescriptions per day. Now, the second reason would be the continuing number of returning patients. In Q1, 48% of the patients were recurring. And in Q2, that number went up to 61% of the total patients serviced with medical cannabis. So not only are we having more doctors prescribing, but we're also having a lot more patients returning. Now, one of the key factors for this is insurance coverage. And as you know, Colombia is one of the few countries in the world, like Germany, where medical cannabis is covered. One of the biggest challenges we've been having always is convincing more insurance companies to open their processes to include medical cannabis. In Q2, around 50% of the total units sold were covered by one insurance company. In our last call, I think I mentioned our goal of convincing more insurers. And just last week, we started prescribing an initial population of patients belonging to another insurance company, which is, by the way, one of the top three insurance companies in Colombia. I think it's just a matter of time before the rest of these companies begin doing the same. Now, why are we able to do this is because we are generating tremendous amount of data on the pharmacoeconomic benefits of medical cannabis. So as we keep converting more patients and some cases like we are today, we're taking some patients off opioids, more insurance will be convinced and we will continue to grow exponentially. As you know, we have now 10 clinics in Colombia, three main health centers in Bogota, where most of the patients are going, and another seven satellite clinics in other cities, in addition to the telehealth platform, which is called Dr. Serena. These satellite clinics are small, one doctor, one nurse. And for now, they have limited installed capacity. As we keep growing, we will add more consult capabilities in each one of these cities. But the conversion rates, the conversion rates of patients in these clinics are above 80%, whereas in Bogota, the conversion rate is above 25%. This happens because patients that come to Bogota are not necessarily looking for medical cannabis, whereas patients that go to our clinics in Medellin, in Barranquilla, in Cali, are actually actively looking for medical cannabis. I think in the first half of our year, our Saturday clinics and the telehealth accounted for more than 12% of the total consults. And that expansion of that installed capacity is going to provide great growth for us. I think, you know, of course, we are very excited about the growth we're experiencing, more excited about the fact that we're doing it in the middle of the third wave of the pandemic. And I think that as more cases keep going down on COVID, as vaccinations are going up, we are continuing to prove that the vertical integration model works and that we're providing month-on-month growth and that we keep maintaining a very high profitability. And it's a matter of time before we're able to expand this model in other markets. Now, one of the catalysts that we're looking for in Colombia that you should all be looking for is, of course, one more insurance coverage. As I said before, we are now working with two of the largest insurance companies in Colombia. The more data Serenia generates, the more tools we have to convince more insurers. We're able to show them a very significant reduction on their average annual expenditures for chronic pain patients. And when you start to show insurance that we can save you money with a proper treatment, that we can actually show you that there's a lot of patients that are improving their quality of life, it's just really a matter of time. Now, of course, also recently, the government of Colombia issued a new decree in which they allow the dispensation of medical cannabis across pharmacies and drugstores. This is very important to us because most insurance companies have pre-established relationships with large pharmacy chains. So the more access the government is now providing, the more conversations and the easier it gets and the less impediments we have towards universal healthcare coverage, which is the goal of the company, which we will then take to the rest of the countries like Mexico, like Peru, like Brazil. Now, we're also looking to launch a new set of product categories, such as a medical grade topicals for pain. Today, as you know, our pipeline is comprised of five different sublingual oils. And with these topicals, we already began pilot programs in the clinic, so we can start generating medical evidence on these topicals, and that will give us a unique medical backing. So be attentive. We're going to be launching these products very soon. And I think with the number of patients that have asked for these type of topical creams with very high quality, we'll be making a very good growth in our revenues in Colombia. We're also planning to launch a new line of veterinarian medical products in Colombia. There is a favorable regulatory framework, and we have been approached by several prominent veterinary clinics, veterinarian doctors who want to take our science-based approach and give it to a big population of pets and mascots that have already increased with the pandemic. So we're going to be launching that also very soon. I think that will also be a catalyst for growth for the company in Colombia. Now, moving on to Peru, as you know, we began sales in Peru last year, and even though we grew 21% quarter over quarter, our Peruvian sales still represent a small fraction of our Latin sales. Fifty-one percent of the units are high THC and one-to-one, and even though we have grown in the total number of external doctors that are prescribing, I'm very sure we can do a lot better. Now, I said before that we believe that our clinic strategy is the key to generating demand, and this is why we partnered with Clinica Montessori Lima. And then last month and a half, we have dedicated ourselves to systems, infrastructure setup, soft opening, training, bringing doctors from Peru to Colombia, And now with all of that done, we're able to open the clinic fully commercial operations in the beginning of September. So I think we will see an uptick in prescriptions and we will generate demand like we have seen in Colombia. Now, in Peru, we've also been working in parallel on certain important things that are key catalysts for our company. First of all, about a week or so, Chiron was awarded its first ever medical product registration by the local FDA and across Latin America. The brand of the product is named Alexen. It's a CBD 30 milligrams per milliliter approved product. I think what's exciting about it is that now we can sell this product in any pharmacy in Peru and not just in Lima as we're doing today. That also means that any patient with a prescription can pick up their medication anywhere in Peru. So right now the team is working on codifying this product into as many pharmacy chains as possible, and I think that will also provide a big update in our Peruvian sales. Now, we're also going to introduce a new medical grade topical portfolio for pain in Peru based on what we're doing in Colombia. And I think we could be looking at an early Q4 introduction for these topical grade products and that will continue to drive more growth for us. When we look at Brazil, it's a market that, you know, we have been after for quite some time. I am very proud of the team that we were able to find the regulatory and compliant manner to take our Chiron-branded product from Colombia into the hands of a patient in Brazil. I think, as far as I know, this is the first branded medical cannabis product from Colombia into Brazil. I think that opens up a credibility around the company that we are able to deliver a product that's actually also a lot less expensive than the rest of the products out there today in the market. We recently announced the entry of Dr. Eduardo Favaret as medical director for Brazil. Eduardo, who was just here last week, is considered to be, like some say, the Neymar of medical cannabis over there. He's prescribed more than 3,000 patients. I think having him in our team is very positive. He will drive prescriptions. He will drive training. And it's not going to be only based on his experience, but on the tremendous platform we have created at Serenia that we will provide for him and his team. We have proven our ability to deliver the medication to the city. And as I said before, with a significant cost discount. And we will begin to work on introduction of THC products into the country very soon. Right now, we are looking for locations for a new flagship, Serenia, most likely in Rio de Janeiro. I think we are very certain that we know our clinics are the go-to-market strategy for us to build demand. We will execute on this as soon as possible while we figure out new partnerships to expand CEREN into 2022. And lastly, Latin America, I want to talk about Mexico. Mexico is a market that we are very close to. As you know, former President Vicente Fox is a member of our board of directors. In the past few months, we have been working closely with him to set up our operations and execute important partnerships that will cement our leadership position in Mexico. We recently announced that we obtained quotas for THC exports into Mexico from the government of Colombia. And this milestone is very important because we can start to plan and executing a lot earlier than we thought at the beginning of the year. In the meantime, we are finalizing more agreements with manufacturing companies that will manufacture our Chiron-branded products in Mexico. And very soon we'll be exporting our first CBD shipments, so we all have to be on the lookout for that. Our goal in Mexico is to become market leaders. We want to deploy our clinic business model just like we're doing in Colombia, but at a very much larger scale. And thanks to President Fox, we're making great progress with large healthcare institutions to be able to position Serenia in as many cities as possible as fast as possible. We will bring a level of real-world evidence, product quality, and access that will make Mexico very successful for us. We have already closed, for your information, an LOI with a prominent oncology center with more than five locations nationwide as part of these initiatives. And we will be announcing a lot more LOIs and partnerships with bigger or large medical institutions so we can put up serenias in as many places as possible. There will be a lot of new flow coming in the next few months. We have already closed an agreement with a clinic operator so that we can set up Serenia almost immediately now that we have all the permits and administrative process back office that we need to set it up. And so the new flow out of Mexico will be very interesting. I cannot be more excited about the possibilities. I think that the more our model proves to work in Colombia, the more excited we are about the market that is three times as large as Colombia. So with that, I'd like to introduce you to Francie, our president for Europe, and then Joel will come in with the financial review. I think that Europe is a market where we can be very competitive, bringing our strategy to countries like the UK and what we're doing in Germany. Now, this Q2 begins to show why we decided to enter. I mean, Europe accounted for 26% of our medical cannabis sales and for 30% of our medical cannabis profitability. So it's becoming and it will be a major driver for growth and profitability for the company. So, Francie, welcome and please tell us a little bit about what we've been doing in Europe. I think you're on mute, Francie.
spk04: Can you hear and see me? Yes.
spk00: Yeah.
spk04: So, hello, buenos dias, and guten tag. My name is Franziska Katterbach. I'm president of Chiron in Europe since June this year, and I'm happy to say that right now I'm exactly where I want to be. I joined Chiron almost two years ago after I met Alvor and Chris in Bogota, and I saw the team and the vision, which is right on the spot. After my visit to Bogota, I started with a very broad mandate of building current business in Europe, which is exactly the challenge I wanted to have. Before this, I was working for a company, a director of legal in Europe, where I helped building the medical cannabis business in several European countries since 2016. I have almost eight years of experience in the European medical sector, And five years of this identical cannabis business in Europe. So much for me. Let's talk about business. Our sales in Europe are driven by the sales of high-quality products in Germany and in the UK, representing 6% of the total sales. which was up more than 400% from the last quarter. I'm very proud to say that within a few months, we captured 1% of the dried flower market share in Germany and 40% of our flower market in the project. It seems my camera is not working. That's what I can tell.
spk00: That's the best if you put it yourself on a video. Let's see if yes with the audio.
spk04: So let's talk about Germany. Home sweet home. I would like to start with a brief overview of the German market. So far, Germany has 8 to 10 million people suffering chronic pain. It's roughly 8% of the population. And if you take this conservative number, these are patients which can potentially benefit from cannabis-based medication. In Germany, generally, every doctor can prescribe medical cannabis since March 2017, which means we're now in year five after legalization. So far, we have between 60,000 and 128,000 patients. And this is roughly 0.1 to 0.3% of the market. If we just apply a very conservative number of the Canadian market, which is that 1% of the population can become cannabis patient, there's still a lot of room to grow. Cannabinoid-based medications are reimbursed, like in Colombia, and up until now, roughly 70% of the scripts are reimbursed. The majority of scripts, to give you an overview of the split, is for high THC dried flower. It's roughly the dried flower market is at 45%, isolates make 30%, finished pharmaceuticals make roughly 20%, and extracts around 5%. Germany, as we know, is the most mature market for medical cannabis in Europe, but there's also some good news for us. There's still no defined market leader yet. And this means there's still a void which we as Chiron can fill. As the market in Europe and Germany goes more mature, we also see that the patients get more mature. So it is given that products have to comply and have to be grown under UGMP standards, but the patients are looking for more. They're not only looking for a certain THC and CBT ratio, but they're looking for strengths and they're looking for brands. So they become real connoisseurs. We as Chiron, we're truly patient focused, but what does that mean? It means that we work backwards. We think, what does the patient need? And then we look how we can get it. Generally, we believe that every dosage format has its use for patients. So dried flowers, extracts, isolates, everything's there for a reason and we're not agnostic here. Big question, why are we growing in Germany? I think we're growing in Germany because we do things different, because we know our customer. First of all, our very experienced team has a close ear to the market and understands the needs of patients. And as I already mentioned before, the needs of patients develop over time and they can also change. At the same time, our amazing sales force is able to convince doctors to write a Chiron script, which is a legal requirement in Germany. So taking a step back, in Germany, it's not that a doctor writes a script with dried flour, 20% THC, and then defer the dispensation decision to the pharmacist. In Germany, the doctor would have, in our case, to write a script which states Chiron 20 to 1. And then the pharmacist has to dispense exactly that product and cannot substitute with another one. So what makes us different in the eyes of a doctor? I think it's certainly our people, our dedicated team. It's our product portfolio. And it's also our real-world evidence from Colombia and the UK, which helps us to generally persuade doctors of the benefits of medical cannabis, but at the same time, convince them about our product portfolio. Together with our strong distribution partner in Germany, we're also able to talk to the pharmacists and understand their preferences and needs which don't have to be the same as the doctor ones or the patient ones. So altogether, I think we truly understand all of our customer categories, which is patient, doctors, and pharmacists. By doing so, we were able to increase sales of medical cannabis in Germany by 265% in comparison to Q1, which was heavily supported by the introduction of our new product category, which is the Chiron 21. It is a high THC dried flower product. Now let's move on to the catalysts, which I think you as our investors are predominantly interested in. How do we grow further? One catalyst will be that we will very soon introduce new and more importantly exclusive products in different categories. Our goal ultimately is that every patient finds within the current portfolio the product that they need, that they are looking for. Another catalyst is our genetics. We have released that we successfully imported our live clones and genetics from Colombia to Europe. And as we are now speaking, our varieties are grown within Europe, and I can already tell you that they look very promising to us. Finally, let's talk about the Colombian degree. As you know, the Colombian government recently approved the export of medical dried flower. And this is a huge opportunity for us in Europe and in Colombia when the Colombian market comes online. about this, it will still take some time until the laws are final. We are very excited and waiting for this, but in the meantime, and always in parallel, we focus on the sourcing local from our European side partners. Let's go up north to the UK. As you might know, Karen was a founding member of Project 2021 in the UK back in 2019. Through project 2021, eligible patients can get access to affordable cannabis treatment. The project overall aims to create the UK largest body of evidence for effectiveness and vulnerability of medical cannabis. And the end goal is that it is NHS funded where the benefits of the treatment with medical cannabis is proven to outweigh the potential risks. We are proud that we were able to gather a 40% market share of the dry flower of this product. And in Q2, we increased the same medical cannabis in UK by 475% from Q1, which is a big achievement for us. Now that we did that... and that we became a really recognized brand within this project and in the UK overall. We think it's the exact right time to deploy our Zirania clinics in the UK, and we are targeting to open our first Zirania clinic in the UK very soon. Why would we do that? Alvo already explained your model. And I think we learned from our LATAM experience that the clinics model, it simply works. In the UK, we started with 2021 to serve for the demand at the beginning. And now that we built that and seeing success, we think it's the right time to build that out further. as the UK market is still at this very, very beginning and still heavily undersupplied. And we want to solve for that in order to help patients. Another cornerstone in the UK is our Chiron Academy. Chiron Academy is our medical cannabis e-learning platform that has been completed by hundreds of physicians across the term, but also in Europe. And it was just recently accredited for UK CPD. And this means that a doctor who's completing an online course he receives CPD credits for continuous education. In addition, in the UK market, like in Germany, want to deploy new medical product categories sourced within Europe so far, hopefully very soon coming from Colombia. Overall, one of the key aspects to our strategy is our unparalleled differentiator is the real-world evidence, which we already collect for a long time in Colombia and at the same time collect in the UK. Because with this, we can persuade doctors to prescribe medical cannabis and show them that it's safe. As Alvor mentioned earlier, we will soon make our first publication in Index Journal. And this will create a massive credibility within the doctors community in UK and Germany. We're really looking forward to it. And it's exciting to think about the amount of data and evidence we'll be collecting just within Chiron in the future. And I used to say that I call our data set really our treasury chest, which it really is. So thanks a lot. Thanks for listening. I think we have exciting things to do in Europe. And I now would want to give back to Alvo. I just want to let you know that really the European team is working 24-7 to make Pyrenex a success. And this quarter shows that we're definitely on the right path. Thanks.
spk01: Thank you, Francie. I appreciate it. Joel, can you take on the discussions on the financial results for Q2, please?
spk02: Yes. Thank you, Alvaro. And apologies for the technical difficulties, everyone. In Q2 2021, the company recorded revenues of $2.8 million, consistent with record revenues of Q1 2021, as increases in medical cannabis offset a decline in health services. The devaluation of the Colombian peso resulted in a decrease in Canadian equivalent revenues of approximately 7% versus Q1 2021. At stable exchange rates to Q1, we would have seen another quarter of record revenues of approximately $3 million, with higher revenues in all segments. On a year-over-year basis, revenues were up 68% due to medical cannabis contributions and normalized clinic levels. In medical cannabis, we generated over $825,000 in revenues in the second quarter, which represented an increase of 47% over Q1 2021 and a contribution of approximately 30% of total revenues, compared to 20% in Q1 2021 and less than 1% a year ago. The largest contributor to sequential medical cannabis revenue growth was from Europe, with unity revenues of approximately 270,000, where sales increased 280% sequentially and contributed 60% of our Q2 medical cannabis sales growth. Prescription volumes in Latin America also increased significantly. over 40% from Q1, but revenue in Canadian dollars were impacted by the devaluation of the Colombian peso and lower unit pricing associated with increased B2B sales. Looking at our health services segment, which includes revenues and costs from Maryland and Zirinia health centers, revenues in Q2 2021 were 1.9 million, reflecting a 22% increase year over year, or over a 13% sequential decline from the prior quarter. On the 13% decline, approximately half related to the foreign exchange rates, while the remainder was larger as alter reduction of high margin services, such as the surgeries as Alvaro explained. As he noted, certain surgeries could not be provided, but we have the backlog of services that we expect to contribute to operating activities over the coming quarters. As mentioned a moment ago, 30% of total Q2 revenues were attributable to medical cannabis segment. Quite significantly, medical cannabis contributed about 70% of gross profits or about 750,000 for the quarter. In the 90% range, medical cannabis margins remain high and were consistent with the previous three quarters. Medical cannabis growth offset the reductions in health services where growth profit declined to 16% of revenues below the 25% margin in Q1, but consistent with the prior year. As was explained by Alvaro, the margin compression from the health services were driven by the deferral of high-margin services, and we expect these contributions to come back over the coming quarters. Despite the weakness in the clinic segment, I want to highlight that we still achieved consolidated gross margins in line with our highest levels to date, driven by the growth of medical cannabis revenues. Looking at expenses, Q2 2021 total expenses were down about 1% versus the prior year and 6% from the prior quarter. Our SG&A costs, which excluded share-based payments and R&D, were down 15%, or $0.9 million from Q1 2021, as the company continued to manage spending and benefited from the weaker peso. Looking at EBITDA, in Q2 2021, we recorded an adjusted EBITDA of about 3.85 million, a 5% improvement from Q1 2021 as medical cannabis operations continue to contribute. And these levels were consistent with Q2 2020 when operating activity was suppressed due to the COVID-19 restrictions. Looking at our balance sheet, we finished the quarter with 9.3 million in cash. We had a cash burn from March 31st, 2021 of 3.2 million. 1.7 million in debt, which is largely comprised of our lease obligations. The loan obligations in Columbia continue to reduce in line with normal payment schedules, creating opportunities for us to leverage our balance sheet to support our continued growth. In early July, 2021, we completed a financing that brought our pro-performer cash position over $20 million, positioning us well to continue to execute with our major capital investments behind us based on our current operations. I'll turn it back over to Alvaro, who will discuss more of the outlook for the coming quarters.
spk01: Thank you, Joe. So in our MD&A, we talk about providing revenue guidance for the first time, and I think we're able to do that because of the continuous growth that we're seeing in every market that we're in. And with this guidance, we talk about a run rate of at least minimum $1 million per month in medical cannabis in addition to the $1 million in medical services that we already achieved in March. So how do we get those to those $2 million a month with that same level of profitability within the next six, nine months? It's really continuing to grow at a market rate of about 35% to 40% quarter on quarter in every market that we're in. I mean, that's lower than the historic quarterly growth that we've had. We are entering Mexico. We are entering Brazil. We are opening clinics in the UK. We are opening our full commercial operations for Peru. And Colombia keeps to continue to grow very significantly the same as in Germany. So what that gives us to when we get to that point very soon is an annual revenue between $24 million and $35 million for 2022. Mindful, again, with the same level of profitability, but as close as possible to that above 80%, which is something that not many companies in this region can claim to do. The reason we've been waiting to be able to do this is because we want to come to you to show that our business model works. And now that we have that higher confidence level, we're able to provide that guidance. A lot more details on that are within the MD&A. But at the rates that we're growing, this is something that not only can be achievable, but that can also be much higher than what we expect in that range that I just mentioned. And this is done only through organic growth, setting up what we've set up for the last two and a half years that's now shown to be very fruitful and profitable for us in the next couple of years. So please, you can look at the MDMA for this, and I think we'll start to see a lot more of those results as we keep talking about all these catalysts that I just mentioned in each one of these countries. Each one of these countries, we're working on several things that are going to continue to expand on that growth. And our guests are very excited about showing that our business model works, that it takes a little time always, as good things that are sustainable take time. But they're very excited about it. We see what's happening on the ground, and we see the success that we're having. So with that, we got a couple of minutes. We have more for questions, about 10, 15 minutes. We've been having a lot of questions here in the chat, so maybe, Chris, you want to moderate, and Francia and I will make ourselves available to answer. If we're not able to answer all those questions, please write back to Paola Ricardo. She's our IR manager. She's in Toronto, and she will get promptly back to all of you if we're not able to answer all your questions. So with that, Chris, why don't we get into the Q&A?
spk03: Sure. Thanks, Alvaro. And so the first question is from Frederico. Wanted to know about a Zirania expansion in Germany and other European countries, including UK and Portugal. I think you've covered off a lot of that, but maybe just highlight what our Zirania expansion plans are.
spk01: Yes. Germany, it's not something that we can actually do just because of the regulations. But I think the German market is sufficiently strong enough that we don't need to build that demand. But certainly, we're going to do this in the UK. France was just last week in London, and we'll be setting up our Serenia there very shortly.
spk03: All right. So next question from Fred. How do you stack up in Colombia against the other competitors? Maybe just talk about our market share and what's going on in Colombia.
spk01: I think I said it before. I think we are the clear leaders in Colombia. We have more than 90% market share in the insured market. I don't see anything like Sirenia anywhere here. And I think, you know, of course, most companies are focused on the B2B business of cannabis, which is not something we do. But I would say that we are enjoying a very good market share, and we'll continue to do that as we keep growing our clinics and our revenues.
spk03: The next one is about when do we plan on ramping up Cuida sales? I can answer that one that, you know, we're really focused on the clinics and medical cannabis, and we won't be spending a great deal of capital on that product line at this time, even though it is such a great product. Next one from Larry about Mexico and how many clinics we expect to have up by the end of the year. I think you talked about that in your remarks. Maybe you just highlight the Mexican strategy.
spk01: Yes. Larry, I'm not going to give away a specific number of clinics that we want to close by. I think our main focus right now is to set up as many partnerships as possible. But we certainly want to start with one. But on the back of doing and showing investors the pipeline of big clinics that we'll be setting up there very, very soon. But right now, I think we've We are doing the right conversations with all the right groups. But I'll give you an example. We have 10 in Colombia, and Mexico is three times as large. So, when we think about Mexico, we've got to think in the 20s and 30s. It's just a matter of the right capital deployment strategy, the right strategy and partnerships, and it doesn't necessarily have to be all in the back of our capital like we're doing in Peru.
spk03: Okay. This next one is important from Tommy, talking about the share-based compensation that we recently announced. I think that's important that you cover that off.
spk01: Yes, well, I think we have a company where we have very committed employees. We gave 1.5 million shares to almost 95% of our employees, from the lady that welcomes people at the clinic all the way up to the vice presidents who are making a lot of these things happen. We need our employees to be compensated and to think about the future and what they can do with that equity. I don't think there's ever been a non-successful company that doesn't get their employees involved in the success of the company. And when you talk about giving 1,000 or 2,000 shares to the nurse that's picking up patients, that means a lot to that person. I think that level of commitment, this is why we are seeing our results. This is not happening by accident. This happened because there's a committed team that's every day thinking, how do we grow? And I think it was good for the board and for the company to recognize all that effort, particularly on the pandemic and everything that everybody's done to get us to this point.
spk03: Yeah, the next question here is related to the insurance providers. I don't think we put out a press release on our second insurance provider. But, you know, guys, sometimes we can put things out because we have consent of our partners, and sometimes we don't. And, you know, it's just really important to focus on execution. But what you see in this disclosure here today, not only with this broadcast, but also in the MD&A, I think you're seeing a super high level of disclosure. We're telling you just every detail we possibly can and being as transparent as possible. This one is for Franzi. Any thoughts on competition and price in Germany? Are we bringing in new patients? Are we taking patients away from competitors in Germany?
spk04: Yes, we do. So it's very easy to answer. Yes, we're stealing market share for the big ones because the market is still growing. And if you look at it, the established or more established brands are losing market share quite a bit. So, yes, we're taking market share away. And on the pricing, as it's reimbursed, pricing is not primarily important here. But we can offer very competitive prices in both Germany and in the U.K.
spk03: Another one for you, Franzi. Do you expect insurance coverage in the UK in the medium to long term?
spk04: Well, I personally expect governments overall over the whole world to kind of cover and reimburse a treatment which is necessary. We have this in Germany. We have this in Colombia. That's the right path. And the UK 2021 trial was set up in order to convince the NHS, which is the regulator, to in the future also cover insurance these products. So I'm hoping for it. We're working on it. But when this will happen, it's difficult to say.
spk03: Another question here, because Joel commented on currency fluctuations in Colombia, and do these fluctuations concern you? You know, our revenue is spreading out over many different countries and territories right now, and people need to understand, like, even though we've had fluctuations in the Colombian peso, our costs are in Colombian pesos as well. So although the only thing that bugs us is that it doesn't reflect the top-line growth that is obviously there, but, you know, these things have a way of turning around as well.
spk01: Also, Chris, I would say that that's one of the reasons why a year and a half ago we decided to bench Wall Street for its jurisdictions. The exposure of the company to the Colombian peso will be reduced quarter by quarter as Germany and the UK start to come up with different sales and the same as the Mexican peso and the Brazilian reais. So, this is very short-term, and this is more of a translation risk. And so, we're not concerned about that. And I want investors to understand that this diversification of revenues is the entire reason we got also into Germany and the U.K. almost a year and a half ago.
spk03: Yeah. There's a question here from Steven about our run rate. He's saying that our math is that we've only got a couple quarters left. I think, Steven, you might want to recheck your numbers there. We used just over $3 million in cash in the quarter, and we have $20 million in cash and no debt. So there's ample cash on the balance sheet for guys to understand that we raised this money to grow. Okay, we can disagree on the timing and the pricing and all that stuff, but we raise the money because we are committed to growing this business and we can see a massive opportunity in front of us. You know, there's a couple of questions in here just about share price and share performance. And folks, you know, we are the largest shareholders individually, and we care a great deal about this. Our answer to that is our 100% focus is on execution. And only with execution do we think we'll see meaningful share price improvement. But we are all committed to it. We are all hugely exposed to it. And we're doing everything we can to execute every single day, as you can see. And the leadership position that we have in these markets, no one else has done it.
spk01: I would agree on that note. I mean, as co-founder of the company, it's, of course, very difficult all the time to see that the lack of appreciation is done sometimes by what we do. But I also believe that this is a marathon and that we're winning that marathon because we have the best pace. Sometimes, you know, it talks about profitability and people think about revenues. We have to start looking beyond that. We have to start looking at new patient acquisition, how much profits are you making, and whether that's going to get us to that million patients that I talked about in 2024. When we look at the way that we're growing and how many patients are returning, how many patients are buying, the average annual expenditure per patient, which is now between Europe and LATAM about $1,000 per year, that's how we get to the $100 million in revenue. And there's no metric in this company. that is not growing. And I think that while we put out this MD&A this quarter with all these details to show you that in every metric we are growing. And so I think the market will continue to start appreciating that level of execution. When we think about international markets, we always think they may be slower, they're not as fast as the U.S., and that is absolutely true. But if we look at it in three years from now, I can tell you this is going to be the fastest market in medical cannabis. And it's not going to happen just by its own. It's going to happen because there are companies like Chiron who are building that demand, who are building that access. And when you think about insurance coverage, right, and we think about the black market, Look at a company that's now selling to countries that have full medical insurance, that we don't have to reduce our price. We are doing something special. Now, how long does it will take the market to understand it? I'm not really sure. But what I know that we are doing is actually executing every day. Anybody that comes to Serenity in Colombia, From Dr. Eduardo from Brazil to the doctors in Lima knows that we're building something very special, that we're able to grow and grow and grow. And when I tell you that we are the absolute clear leaders in the Colombian domestic space, this is just the first inning of the first game of the World Series. So it's not something that we can absolutely control. I can't control the fact that no insiders have sold the stock since we founded it. But because we believe in this, we believe this is going to be a billion-dollar opportunity. It just takes a little bit of patience. But if we were just selling commodity price and trying to sell as much as we could, as cheap as we would, that's not going to be the way that we're going to grow our company today, you know, 100 to the million patients or the 100,000 patients. We just have to be very disciplined as we are, be able to collect our revenues, which are very important to our cash flow. Every day, more insurance companies are including this, and that takes a longer collection period. But now we're getting that cash back from our clients, and that is the road that we have to take on because, you know, two years from now, we'll look back at it and say, well, what a good opportunity it was to get on the most dominant play in Latin America, at the moment when the market wasn't appreciating it. But we are long-term shareholders. We're here to stay. We're here to make sure that every patient that we can get serviced. I think we're very proud of every work that we've done, even in the worst of circumstances. So you can imagine what will happen to this company when things start to ease up. So, you know, I think we have to look at it from a different view. And, you know, with the cash that we have, we're not looking to raise any more. Right now, it's all about growth mode. How many clinics in Mexico? How many partnerships? How many clinics in the UK? You know, we assume we will have the most dominant medical cannabis clinic network in our markets. I think that's very exciting.
spk03: All right. And with that, I think we're right at the end of the broadcast. I do remind everybody to take advantage of the website, investors.chiro.ca. We respond to all our emails. We respond to all our questions. I think that's it for today. Thank you very much, everybody.
spk01: Maybe just one last question that we have here from Fran, talking about the stock, and he's been asking many, many times. Fran, I'm not selling stock. Chris is not selling stock. I haven't sold a single stock since we started, even though we no longer have lockups. I think in the end it's about commitment to the company. Who's selling the stock? investors who don't understand that this will go very, very big. But I think after looking at Q2, you start looking at the right numbers that we put out, you start seeing a lot of growth and a lot of profitability. And people start making their own calculations. And I start telling you, this is what our guidance looks for. This is what our 2022 revenues can look like. Give me any multiplier. I think this company is way undervalued. But we have to prove it. And we'll show it to you and the rest of the of the investors to know that we are going to get to those points and that the comparables in the market today, which are probably much more valuable, this is not a 100-meter dash race. It's a marathon, and this marathon is about who's got the best pace. And at that pace, I think we're certainly winning, and I'm very certain the market will start to appreciate every single metric that we put out. So I can tell you that we have a very committed management team. starting from Chris himself and the rest of the executives and the rest of the team that's working here. Nobody here that got 1,000 shares on their last resources is thinking of selling at this price. This is about building equity and building a long-term future. So on that, investors can be comfortable that we are here to stay and we are working very hard. And eventually, very soon, the market will start to appreciate the level of execution these companies have. So I think with that, Chris, sorry, I cut you off. No, that's all right. That's all right. We'll wrap it up. Thank you so much, everybody, for joining us today. And as I said, if you have more questions, you can write at investors at chiron.ca. Paola Ricardo, our investor manager, relationship manager, will try to answer any questions that you may have. We are a very transparent management team. We've answered as much questions as we can. And, well, thank you so much for believing the company, and we'll see each other very soon talking about all these successes and all the PRs that we'll be launching based on the catalyst that we talked about today. So thank you so much. Have a great day, and see you later. Thank you.
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