Cannara Biotech Inc.

everyone and welcome to canara biotech's fiscal year q2 earnings presentation for the three and six months ended february 28 2025. my name is scott carroll and i will act as a moderator for today's presentation as a reminder this presentation is being recorded following prepared remarks we will conduct a question and answer session if you haven't already done so you may submit your questions to investors canara.ca or in the chat option in your conference browser. Should all submitted questions be addressed today, we will follow up accordingly via email. Before we begin, please refer to slides two and three of our presentation. All information presented today is subject to our general disclaimers on financial measures and forward-looking statements, which are also available to be read in detail at cdarplus.ca. I will now turn over the call to Nicholas Sosiak, Chief Financial Officer.

Good morning, everyone. Thank you again for joining our Q2 Earnings webcast. My name is Nicholas Soziak, and as CFO of Canara, I have been deeply involved in every aspect of this company since 2019. From cultivation to processing, finance, strategy, sales and marketing, and product development, we're working alongside our team to drive success. I'm deeply proud of Canara for being one of Canada's largest vertically integrated cannabis producers, driven by strong financials, innovation, and a consumer-first approach. What truly gives Canara its competitive edge is our control and execution. We've built one of the most cost-efficient operations in the industry, while maintaining market-leading quality. As this is our first public quarterly earnings presentation, I will provide a brief summary of who we are and where we are going, as well as the underlying competitive advantages within our business. Kinara Biotech is a leading large-scale, vertically integrated licensed producer of premium-grade cannabis, proudly based in Quebec, Canada. We are the seventh largest licensed producer by sales in Canada, and we are the third largest producer by sales in Quebec, Canada's second largest province. We are the fourth largest producer by square footage nationwide, and the largest producer in Quebec, with a total of 1.6 million square feet of fully built-out hybrid indoor cultivation space. Currently, these facilities produce 33,500 kilograms and will be producing just under 40,000 kilograms by May of 2025. Fully scaled, our platform has the potential to scale up to 100,000 kilograms per year. As a vertically integrated company, we handle all the processes in-house. We view this as a key competitive advantage as it allows us to increase our quality and have full control of our supply chain, something much more relevant in today's Canadian market where third-party cultivators can be unreliable and where increased wholesale market pricing is squeezing margins for bulk purchasers. We believe we have built one of the strongest operational platforms in cannabis, with almost every single aspect of our operations levels evolving beyond the standard cannabis company. We are real cannabis operators with a real passion for the plant, and we are constantly evolving our technique to further distance ourselves. Fiscal Q2 2025 represented the strongest quarter in Canaris history. We delivered record revenue, record gross profit and gross margin, and record operating income and record adjusted EBITDA. During the quarter, we achieved net revenues of 26.6 million, up 6% quarter-over-quarter, and 35% year-over-year. We reported record high gross profit before fair value adjustments of 10.8 million, up almost 11% quarter-over-quarter, and returning us to previous record high gross margin of 41%. We also delivered an adjusted EBITDA of 7.1 million, up 18% quarter over quarter, and representing over 100% year over year growth. This represents a 27% adjusted EBITDA margin, a 280 basis point improvement, and an almost 900 basis point improvement versus the prior year period. This marks our 16th consecutive quarter of positive adjusted EBITDA, and our fourth consecutive quarter of positive net income. We have one of the strongest financial profiles in Canadian cannabis. We have been in net income positive on an annual basis since fiscal 2021, operating cashflow positive on an annual basis since 2022, and free cashflow positive on an annual basis since 2023. Our success comes down to three key advantages, premium quality, scalability, and cost leadership. We produce premium quality cannabis at scale and enter the market with disruptive pricing, making our products accessible to a wider audience. Our approach combines rare genetics, flavorful high cannabinoid strain profiles, and sophisticated cultivation methods such as hang drying, hand trimming, and slow curing at scale to ensure clean quality product that's never irradiated. We're leading the charge in this dynamic market, with significant investment and effort dedicated to our in-house phenohunting platform and a strategic partnership with 50-time award-winning cannabis breeder Exotic Genetics, enabling us to set trends rather than follow them. The popularity of our brands is a testament to the quality and consistency of our entire CPG portfolio. When consumers choose Canara brands, they know exactly what they're getting. Premium quality cannabis at the best value. On top of all this market success, we maintain one of the cleanest balance sheets in Canadian cannabis, with ample cash flows to service debt and no significant near-term maturities until December of 2027. In the second half of this year, we will begin to prepare our operations to further address the still uncaptured demand for our brands, as well as prepare for Quebec's November vape launch demand by expanding our cultivation capacity by almost 20%, or 6,000 kilograms, for only $1 million in capital outlay. We believe that this ability to expand internal capacity for such a minimal capital value is a significant competitive advantage and represents one of the highest ROI investment opportunities available for any company in cannabis today. Our market share expansion has outpaced our peers, driven by premium quality cannabis that we are able to sell at affordable prices. due to our competitive advantages in our low-cost operational strategies, efficiencies of scale, as well as our access to Quebec's low electricity rates. As of February of 2025, we hold third market position in Quebec, with 12.8% market share, up over 40% from 9% share in the prior year period. For March, we gained 60 basis points, while Quebec's number two LP lost 80 basis points. Canary is now only 60 basis points from the number one spot, representing a significant improvement from six months ago, when we were just over 300 basis points from the number one spot. Our strong performance in our home province is extremely relevant, and sometimes overlooked by cannabis investors. But in Quebec, there is almost no sales and marketing strategy permitted, including the use of data deals. We believe our performance in Quebec is a strong indicator of our ability to capture share in the rest of Canada through a truly better quality product offering than our competitors. Nationally, we hold 7th position in the market, with a 3.9% market share up from 2.9% share in the prior year period, making us one of the fastest growing LPs in Canada and the only top 7 company to gain share this quarter. Turning to our CPG portfolio, we are a leading operator across many product categories. Our greatest example of disruptive pricing strategy is our tribal flour, priced at only $30.08 in Ontario, but maintaining consistency, flavor, nose, and freshness comparable with ultra-premium-priced flour offerings, priced upwards to over $50 a unit. This value proposition has allowed Tribal to capture number one nationwide share of premium 3.5 gram flour, growing share by over 25% over the last six months to now over 18% share of the category. We also maintain nationwide leadership of the premium vape category, where we hold over 22% of the share, with monthly retail sales up almost 70% over the last 12 months. This leadership is an important contrast, as it represents our ability to win, even when we're positioned as the highest price option in the category. This is valuable proof that we are not only able to capture share through disruptive pricing, but also by providing the highest quality option available in that category. This leadership in the premium vape category is also a strong potential indicator of future performance once our home province of Quebec opens up the vape market in November of 2025. We are the fastest growing infused pre-roll multi-pack in Canada as well, with number two nationwide share of the category. From December 2024 to April of 2025, we increased our share by 18% to 10% market share of that category, while the number one operator saw a share decrease of 2% during that period. Our success also comes while commanding a much higher average retail unit price than the category leader, at almost $10 a unit higher. We are also seeing incredible category leadership for infused pre-rolls in our home province of Quebec, where we command over 73% of the share of infused pre-rolls in Quebec. Our market share reflects the strong underlying operational strengths of our platform and our real boots on the ground competencies as one of Canada's leading premium cannabis operator. Canara operates two state-of-the-art mega facilities in Quebec, enabling full vertical integration across all of our processes. Our farmland facility is dedicated to the operation of the nursery, our phenohunt process, post-harvest process, and packaging. The facility is 625,000 square feet, of which we occupy 170,000 square feet today. The balance of the building is currently being leased out to two tenants, which generate up almost $4 million a year in rental income. Our Valleyfield facility at 1.1 million square feet is a purpose built for hybrid indoor cannabis cultivation. It is one of the largest cannabis facilities in the country and the largest cannabis facility in Quebec. The facility has 24 growing rooms, each room measuring 25,000 square feet each, and each room has been redesigned to replicate indoor growing conditions. We operate 10 rooms this quarter and happy to report achieving our 2025 objective of activating two more rooms with one being turned online in April and an additional one scheduled next month, May 2025. These additional two rooms will add 6,000 kilograms or almost 20% additional capacity to our platform and increasing our 33,500 kilograms to just under 40,000 kilograms. Our Valleyfield facility is a particularly significant asset. We acquired the facility in 2021 for just under $27 million. This was an extraordinary opportunity, considering the incredibly over-engineered facility was built during the overspending gold rush period of Canadian's initial legalization, and the facility's original construction costs exceed over $250 million. This acquisition, at a fraction of its value, has given us leading access to mass-scale, low-cost cannabis cultivation for our business. We are delivering strong market share growth, have no current view of our demand ceiling, have an array of different product categories, packaging sizes that we currently don't offer, and through our Phenohunt program, we'll have access to an exclusive genetic bank that will continue to fuel Canadian retail demand. Furthermore, we see strengthening unbranded wholesale market that we currently barely participate in and increasing demand in international markets that is currently not our focus. Given these variables, we believe there is ample opportunity to continue to expand our capacity and we will continue to do so into fiscal 2026 and beyond. The remaining 12 rooms of Valleyfield facility will be turned online over the next 36 months, bringing our total cultivation capacity to 100,000 kilograms per year. Most importantly, and a key competitive advantage within our business, is our ability to turn online this additional capacity with very minimal capex outlay, given the rooms are already completely built out and only require minimal investment such as lighting, tables, and HVAC. Rooms 11 and 12, as mentioned previously, activated in April, the next one being activated in May, cost approximately $1 million in capex to activate, and we project the capital return period within the first year of operations. Fully scaling Valleyfield can enable us to generate between $250 million to $300 million in net revenue, assuming our current market conditions hold. As Canada's second largest province with over 9 million people, Quebec provides us a home field advantage and access to some of the lowest utility and labor costs in Canada. One of the most compelling benefits is the province's exceptionally low electricity rate at just 5.3 cents a kilowatt, substantially lower than those in other provinces such as Alberta, where rates as high as 13.6 cents a kilowatt. To our benefit, our Valleyfield facility pays a further reduced rate of 3.7 cents a kilowatt due to its location in a preferred agricultural development zone. Since electricity and labor costs account for over 75% of our indoor cultivation expenses, our Quebec positioning gives us a significant competitive advantage in our ability to be disruptive with our pricing while still generating industry-leading margins and cash flow generation. Beyond low electricity costs, Quebec presents the highest barriers to entry, particularly with strict restrictions on sales and marketing. These combined factors, combined with the lack of retail data deals, make Quebec an ideal environment for Canara's growth. Canara Biotech stands out as one of Canada's most profitable cannabis producers. We're nearly consistently delivered market share growth, revenue growth, industry leading margins, and positive operating and fee cash flow. We have a clean balance sheet and with manageable debt profile and nearly industry low interest rates. During the quarter, we achieved record high gross revenue of 37.7 million and net revenues of 26.6 million, marking an impressive growth of 6% quarter over quarter and over 35% year over year. This reflects expanded market share and product launches with increased distribution and is promising given the softer fiscal Q2 period which was influenced by seasonality. Gross profit before fair value adjustments for the quarter hit a record high of $10.8 million, returning us to our previous record high gross margin of 41%, representing a 170 basis point improvement quarter-over-quarter and a 370 basis point improvement versus the prior year period. The increase reflects increased yields, cost efficiencies, and a larger portion of our revenue coming from higher margin products such as live resin and dried flour. This returns us above our 40% internal gross margin target, which we believe there is further room for improvement as we scale further into our capacity. We've continued to maintain strong cost controls across the organization, reporting operating expenses during the quarter of $6.1 million, representing under 23% of our revenue. This reflects positively against the previous quarter and the prior year period, where operating expenses represented over 24% and 31% respectively. This improvement in operating expenses margin reflects our activation of cultivation rooms within our fixed cost base, despite increased sales and marketing spend to maximize the launch of our Q2 flower strains and manufactured products, as well as the support of the upcoming Quebec vape launch in November. We delivered a record high adjusted EBITDA of 7.1 million, up 18% quarter over quarter, and representing over 100% year over year growth. This represents a 27% adjusted EBITDA margin for the quarter, a 280 basis point improvement, and an almost 900 basis point improvement over the prior year period. Operating cash flows for Q2 was an outflow of 2.6 million, bringing year-to-date cash flow to a positive 3.3 million. Q2 free cash flow came in at an outflow of 4 million, bringing our year-to-date free cash flow to 0.6 million. This quarter, our operating cash flow, which in turn reduced our free cash flow, was a result of prepaying our excise tax obligations of $3.5 million before the end of the quarter and before the actual cash was collected from our related receivables. In addition to investing over $1.5 million in advanced deposits for packaging materials sourced overseas to reduce our costs and stock outs in fiscal 2025. We generated net income of 3.3 million and an EPS of 0.4 cents per share for Q2 of 43% quarter over quarter. Net margin for the period was 12.5% versus 9.2% for the prior quarter. During the quarter, we also made significant effort to further strengthen our balance sheet. In February, we announced the extension of our $34 million BMO credit facility to December of 2027, while maintaining our floating interest rate, which is currently below 7%. We also extended our smaller $5.7 million convertible venture to March 2028. For fiscal 2025 guidance, we're forecasting growth in both net revenue and adjusted EBITDA from our core business on an annual basis. We anticipate to continue to generate positive operating cash flow and fee cash flow on an annualized basis for this fiscal year. While many Canadian LPs are expanding overseas out of necessity, we are thriving in Canada by choice. The reality is that most can't compete profitably here. They're losing market share, struggling to build brands, and failing to operate efficiently. This industry isn't just about capital. It's about experience, knowledge, and most importantly, execution. Kinara has built this from the ground up. Every process we've developed is designed for long-term success, not short-term survival. We're not just another cannabis company. We are passionate cannabis advocates. We are boots-on-the-ground operators, market leaders, disruptors, and a company built for sustainable, profitable growth. Our financial performance speaks for itself. 16 quarters of positive EBITDA, industry-leading margins, operating in free cash flow on an annualized basis, and our market share is up over 30% in one year, as we continue to prove that we can capture share through leading quality and disruptive pricing strategies. We dominate in key categories with constrained demand for our leading brands while owning the ability to triple our production capacity organically with our industry-leading organic high ROI internal expansion opportunities. We have proudly built a foundation for long-term success with world-class operations, financial strength, and relentless execution, we believe we are positioned to shape the future of Canadian cannabis. Thank you for taking the time to learn more about Canara. We'd now be happy to open the floor and take your questions.

So thank you, Nick. We'll now transition over to our Q&A portion of the earnings presentation. Thank you.

Nick, on your side, is your mic now unmuted? Yeah, just the video is not working. Just 1, 2nd here. All right, I think we.

Got it perfect. So, as mentioned in our press release, we received questions to our investors at canara.ca email as well for the attendees of today's web presentation. You're welcome to submit your questions through direct chat. So, I'll start with the 1st, 1 that we received Nick. So, it's you've spoken previously to an internal goal for number 1, Quebec market share. close and grainy ground, are there any specific catalysts that could push you to number one in Quebec?

Yeah, no, absolutely. Firstly, the first thing to remember is that in Quebec, we can't conduct any traditional sales or marketing activities. So the value proposition of the product that we create speaks extremely highly about the sales that we're generating here in Quebec. We are leading across quality across every segment and category, and we're typically better priced than our competitors. And this builds really a strong performance that is the reason why we're outperforming here in Quebec. And I think that's just going to continue to escalate as our original SKUs will continue to gain traction. And in Quebec, every six months, there's new product launches. So every six months, we're launching new genetics as well as new products. But what I'm really, really excited for is actually this week, we launched the Tribal Trifecta in Quebec. And the tribal trifecta is a very unique infused pre-roll. It's a premium price pre-roll and it uses live resin, genetic specific live resin. So we take our genetics, such as the Cuban Lynx, and we create live resin from it. And then we infuse the sauce inside the flower and we put the diamonds on the outside of the joint. And because we're fully vertically integrated and this product is created with our own genetics, totally transformed within the organization, we strongly believe that this product is extremely hard to replicate. And currently, there's no diamond-coated joints here in Quebec. So I think this is going to be a product that's going to really take traction in the coming quarter. We're also launching a new genetic, our Meat Pie and our Porto Leche. So that's exciting. And yeah, vapes are coming in November for Quebec, which is a totally brand new category. And that, as you all know, we're one of the largest producer of live resin vapes in the country. So bringing this product here in Quebec is extremely exciting. We're very confident that our product is going to take traction and take a really good portion of the upcoming vape category here in Quebec.

Yeah, that's perfect. Thank you. The next question, looking back towards Q2, were there any standout product successes or key highlights across your portfolio that you could expand on?

Yeah, uh, our recent genetics to me on sunshine and bubble up again, we took almost a year and a half. To those genetics, so, and that that goes across all our genetics going forward. It's it's a year and a year. Plus, plus a couple of months to really get a genetic to market. So the Neon Sunshine and the Bubble Up are showing the fruits of our labour. They're catching up right under Cuban Lynx. And Cuban Lynx, you know, phenohunted almost four and a half years ago, is still outpacing, holding place as number one genetic in our tribal portfolio. But Neon Sunshine and Bubble Up are taking second and third. So that's just a matter of time where those two genetics are going to dominate the ranks. And we also just launched them in live resin and vape extract, which is also going to further promote the genetic base within Tribal. Beyond that, we're the trifecta from Tribal. We're really excited to see it launch in Quebec, but it's already in Ontario. We launched it in BC and bringing it into Alberta as well. It really has grown into the fastest growing mass me a multi-pack infused pre-roll we put a lot of innovation work and just the just the manufacturing process is so technical and labor intensive um to get it right but but we feel like we mastered that and and again the trifecta commands a ten dollar uh price point higher than our competitors uh so this is a clear sign of you know tribal's brand strength and consumer demand and the fact that we can play you know we're usually priced in that medium price tier but there's some products as we create because we're trying to create the best quality there's some advantages when we're first mover in a category to take um you know premium pricing uh so first is our focus on building tribal as trendsetting house of genetics and then the really what what What we're proud of is our vertical integration. Um, you know, we're creating all our flower. We're growing all the flower. We're creating all the, we're creating all the key for doing all the diamonds all in house. So we really get to control the quality of the inputs. Um, and, you know, that's what we put into our product and that's what's succeeding, uh, this quarter. So, you know, sunshine bubble up our trifectas are infused. Pre roles are faves. Um, they're all seeing a quarter over quarter increases.

Okay, thank you. We received a question or direct chat from Steve G and says, I know in the past, you've mentioned that you're happy with the price point, but with comparable products priced at 50 dollars, at what point in the growth profile might you consider pricing as a way to drive margin improvements?

Yeah, again, we're really not focused on increasing our pricing to drive margin. Um, we have several ways to drive margin, um, outside of just increasing price. So the 1st, 1 is is yield. Um, you know, we're as we're genetic house. So, you know, for. We're investing all the money and resources and finding genetics for an unforeseeable amount of time to really build a roster of genetics. These roster genetics will have the THC, have the flavors that we're all looking for that the market wants, but most importantly, have high yields. Right now, our average, we started, you know, some genetics at 60 grams of plant. Now our average is around 85 grams per plant, and we have some plants that are growing over 100 grams per plant. So just finding those right genetics will increase our margin and not have to increase our price. And again, price is very important in the cannabis market. There's a fine line between where the volume drops off significantly if you try to price your aids or any products in the premium range. So really, we're trying to capture volume. We have 100,000 kilos to sell. So pricing, you know, we're extremely proud about our pricing and being affordable and giving quality products, you know, in the mass segment of the price point that most people buy in. And that's what's really going to take over the market and scale our brands to number 1. Furthermore, just cost savings as we grow more weed, our fixed costs don't increase. It cost us $700,000 to turn on a room and 5 people to turn on the room and we can generate over 3000 kilos that year. So our fixed costs will stay the same, but then we're producing more and generating more revenues. So we're going to see efficiencies and margin increases there. And just scaling, economies of scale, you're buying more products, you have more packaging needs, you have more power to negotiate with your suppliers. So it's really important that we use those Strategies to, uh, to scale our business and not price. Price if we do price, it would probably in another brand, a segmented brand that we would create, and they would have other characteristics that would justify the increase in price.

Thank you. We received another question via chat from Mark Haas. It says, great quarter, great outlook. Any status update on the building sale? Upon sale, could an NCIB be possible or would you keep the capital for CapEx working cap to scale growth? And then in addition, any opportunity for cheaper funding or prepayment of the convertible debt at approximately 10% rate?

Yeah, great question. The asset held for sale is, you know, anything could happen in real estate, but we are, you know, we do have potential interested parties. We're confident that we might see a transaction very soon. So that's definitely in the works. And in terms of the sale of the building, if we do sell the building, We would use the cash to continue to invest in building out valley field. We have 12 rooms. The next phase to go from 12 to 24 is we have to build out a processing building and that's a 7 7Million dollars spend and then we have starting from rooms 12 to 24. we have to buy lights as well. So now the cost per room increases about 1.2, 1.5. So we're going to utilize that cash from the sale of the building to continue investing into valley field and opening more Grow rooms in terms of reducing our, our interest rate on our comfortable adventure. Absolutely. It's an open ended convertible venture, so we can pay it down any time. The objective, we make way more ROI on taking the cash and investing it into. The grow rooms to produce more cannabis and at the point that we do have excess cash flow, you know, in the coming year or 2, we would be looking to prepay the highest debt that we have on the books, which would be the convertible. If it's not converted by that time.

Thank you, Nick. We received another question from Raymond. With the positive momentum this quarter, are there specific operational efficiencies or process improvements you are targeting to further enhance margins as production volumes continue to grow?

The team is working every day on process improvement. We're really building a fully vertically integrated cannabis company and we're building from the ground up. So these are processes that we built from day 1 that, you know, from day 1 to where we are today. We're continuously improving our. Our operations from cultivation to the way we grow to trying different trials to get more yield or to reduce cost on a certain point with all without affecting quality. In our pre-roll department, we're purchasing more machines. We're scaling up the amount of pre-rolls that we're making. We're automizing the heart to create pre-rolls like our trifecta. and our kingpins on the supply chain. We're improving our transport. We're really taking cost advantage. We buy a lot overseas, which proves to bring a lot of cost savings, but also supply chain issues. So we're investing in our supply chain to really streamline the supply of our packaging and cost efficiencies on that point.

Thank you, Nick.

Next question received by email. Can you provide some colour on the factors that contributed to the quarter over quarter market share decline observed in Saskatchewan and Manitoba this past quarter?

Yeah, so we'll start with Saskatchewan. The first one is that we transitioned to a new wholesale partner during Q2. So that led to some temporary disruptions in our ordering and supply availability. But that was for a good reason. The transition really was to go to a new wholesale supplier that we believe will bring in additional revenues and really most importantly bring in additional distribution. In Saskatchewan, so we've completed all that during the quarter and now we're really positioned for recovery in the upcoming quarters for Saskatchewan. For Manitoba, we strictly really prioritized our products this quarter to our high volume markets like Quebec, Ontario, Alberta, BC. So, unfortunately, Manitoba was the last one on the list to get products due to constraints on product availability. And that impacted our overall market share in that market. Really the decision for us is that we have to scale in Quebec. We have to scale in Ontario, Alberta and BC. Those are our main markets. We need to dominate in those markets. Saskatchewan and Manitoba, Nova Scotia are ancillary markets at the moment until we really scale and build out our distribution in those. But we'll continue focusing in the quarters to come. In Manitoba, we expect to rebalance and increase supply chain and increase revenue generated from that province.

Thank you. The next question is, what do you think were the leading factors in establishing such a strong share of the Quebec infused pre-roll market?

So we came to market right out the bat with a superior product, superior consumer experience. Our infused joints, they're created with premium bud that we grew up. Usually most infused joints are how to source the cheapest cannabis. And most of the time it's shake or trim that is on the floor. But we use our whole bud, we use cured resin, cured resin produced from our whole bud. Most infused pre-rolls are used with distillate. And distillate, as we all know, is a lower grade of quality in terms of high and in terms of flavour. we also use our keef that we create here so this is keef that's fresh keef genetic specific keef too not mixed up not two years old so all of that components plus the flavors that we've created and really aren't deep really fine flavors that resonate with consumers um we all handled that r d internally and really created a product that when you guaranteed Freshness, consistency and quality. And that was, you know, we wouldn't have been able to do that with without our being fully vertically integrated and controlling every step that we do from cultivation to extraction. Um. So by not relying on third parties to produce these joints, we avoid risks that, you know, having consistency and quality issues. And that single handedly, you know, can reduce or completely eliminate volume in a product. So being consistent and having that quality, you know, really propelled our infused pre-rolls in Quebec. Over 70% of the market, which is insane, And now we're introducing our trifecta, which is a level up. So I'm really excited to see how that's going to play out. And yeah, I think that's why we're succeeding here in Quebec.

Thank you next question seat.

Congratulations on opening 2 additional rooms at your value field facility. Do you expect the additional yield from these rooms to be fully absorbed by market demand immediately? Or do you anticipate a ramp up period as you expand distribution and your product portfolio?

Yeah, so firstly, like, we only open rooms when we see, you know, our increasing demand and increasing support distribution for our products. We're number 7 nationally, so we still have, you know, 6 more companies to take market share for and absorb, you know, market share increases as time goes by. And we're climbing the ranks quarter over quarter. We're climbing the ranks. We're increasing our market share. So we're going in the right direction. And we're extremely, um, you know, diligent in our planning. We have a sales forecast that we plan from item to province in detail and we transform that. Unit base into how much cannabis does does it take to produce that unit? And then we go on our other side on our production side, and we look at how many rooms we have and how many, how much cannabis can that, uh, or category of cannabis can that rooms. Uh, produce, and then we match 1 minus the other and we get a gap forecast and that gap forecast is, you know, what really triggers. Opening more room, so we do it very diligently and we see that flag come up and we're like, okay, let's turn on another room. Um, so really. Why that happened is 1 organic growth across all all our skews and. Excuse that have been here for 4 or 5 years are still selling Cuban links across all the flower dry flower free rolls libraries and still selling. We want to launch new products. We want to launch new genetics. We have a whole roster genetics waiting, but we got no room to plant those. So we got it. We got to open more rooms. Also, really, you know, we have to understand that babes are coming to Quebec. That's huge. I think it's going to be 10% of the sales here in Quebec as it scales up. So we want to play a meaningful part of that market and we can't be out of stock. So, and, you know, that volume could increase significantly. So we have to be ready for that moment. And that's really the reason, main reason for opening the two rooms this year is to be ready for November when vapes come. But in between there and that, we have the trifectas coming up. We have our Meat Pie that's launching. We have Wagyu Delight outside of Quebec. We have our Porto Leche. We just phenohunted three new genetics. We have that to put into the pipeline. Uh, so we have a lot of products that that we want to scale up. We looked at our demand gap. We see the, we see, uh, we see. We see the gap and that's why we're turning on 2 more rooms and, um. Yeah, we're going to be planning another 3 more rooms for the next year and then scaling up to the full 24. Really with the objective of selling all of this cannabis here in Canada. And, um, if, you know, that's, that's really the objective and we have to open more rooms to achieve that objective.

Thank you next question received. Previously, you've mentioned that Canaris focus remains on growing its brands within Canada without pursuing international export opportunities at this time. Has there been any shift in your view or strategy regarding potential international expansion?

But there's also a lot of unknowns. And establishing a primary international business right now, I believe has a lot of risks. As an example, tariffs, tariffs, tariffs, the hottest topic right now, tariffs. Any day, any of those countries could slap a tariff on you and change your whole business overnight. Um, so that's, you know, that's unpredictable. There's regulatory, um, things are building out. Um, plus all our competitors are going international. That's really the, um, the hottest topic to, uh, you know, in Canadian cannabis right now is, is, is selling international. And yeah, you're making a lot of money. You're making profit. You can start building a sustainable or, you know, start building a business and hopefully become sustainable if you can manage all those risks, uh, But for Canada, we really, really do see the opportunity here in Canada, and we have to stay focused. It's really important. The name of the game is consistency, and if we branch out too quick, too fast, we're going to lose that consistency. So staying focused on Canada and all our sales in Canada. That's our number one strategy. As we, you know, as we build out and we see, you know, definitely use the international market or the wholesale market as an ancillary revenue stream as we build out to keeping our product fresh, right? You have to remember that cannabis is ages over time and you want to make sure that you get that product within the first 3 to 6 months to your to your client. So, as we grow, we might have some overages that we couldn't sell in time for the 6 months or get the distribution. So we'll use the B2B market and international market to absorb that cannabis, make money, make margin on it and utilize that avenue. But really with a focus on Canada, and then once we achieve our Canadian objective of being number 1 or the top, definitely top 3 producer in Canada. with the ultimate goal being number one, we'll look to international. Of course, we're a cannabis company. We're going to build, once we dominate Canada, we will look into international, bringing the brands that we've created here in Canada that Canada's known for, bring them international overseas in those markets and growing the proper way in those markets over time. So that's how we're going to handle the international opportunity long-term.

Thank you.

Next question received by email. The PR mentions an early remittance of excise taxes, and I'm curious why. If you could touch on this and maybe the working capital movements in general, how you expect this to normalize over the coming quarters, that would be great.

Yeah, so for operating cash flow, we did pay prepay. Uh, our excise tax obligation. Before the end of the month, uh, you know, like sales taxes, it's due the previous, uh, months due, um, by the 30th of the next month. So, we usually, uh, paid in the past, we paid it, uh. The 1 day right after where there's no penalty or interest or anything like that. This we're trying to just be more diligent and, you know, remitting on time, even though there's no penalties because we did have that extra cash and it was just a timing issue. So we did make a 3 and a half million dollar payment before the end of the month. And we didn't receive the related cash revenue from the sales for that transaction. So that created a gap in our cash flow, a timing gap, which we're going to see flip in Q3. We also invested over 1.5Million dollars in prepaid packaging. So this is what I mentioned earlier of trying to take cost advantages by buying bulk and buying overseas and avoiding supply chain issues. So where we really purchased over 6 months of stock from overseas that, you know, where it takes 2 months to receive the stock. uh so we invested in that uh so that you know we that affected our operating cash flow and in turn our free cash flow uh by close to five million dollars and um that you know we're going to see the flip of that and the benefits of that in cash flow come in in q3 as we don't have to spend cash on on packaging material or as much cash on packaging material uh and then we get the flip of the revenue coming in without the uh the related excise tax payment in Q3. So that's hopefully to explain the reason on the operating pre-cash flow.

Thank you, Nick. Next question. You have mentioned in the past that you have invested in a growing sales team leadership and boots on the ground field sales force with a stronger focus on sales and marketing efforts. Are you seeing any early results from this and what are the primary objectives they are pursuing?

Thank you.

Launches previously to the sales team coming on at the end of 2024 all of our launches, which is. Launched and no 1 was made aware, but people loved our brands that, you know, the butt tenders would make themselves aware that these launches were available. So now we have a sales team that can propel launches and get that into market. So that's, you know, we can. get penetration easier into those stores and build a SKU base and eventually build over time more revenues generated from each store. So each, you know, the real objective of our sales team is to educate our network. You know, they have to educate the whole Budtender retailer network on all our products, all our launches, upcoming launches. And that's really to support the innovation and product line extensions that we're building. They're also tasked to increase number of skus. When they go into a store and they see how many skus that they're carrying, four skus, five skus can air. When we have over 100 skus, This is how we have to get those SKUs on the shelf so that customer can buy. We're deploying trade marketing assets. Previous to the end of 2024, you walked into a store, a retail store across Canada, there was no marketing trade display assets for Canara, Tribal, Nuns or Orchid. So we had to compete. The customer would only know about a Tribal product if they heard about it from a friend or the bud tender recommended it. But the whole store in front of you would be littered with advertising from any other brand. So now we're deploying those trade assets and we're deploying them right and smartly and we're not putting a huge budget behind it at this point. It's one of our tools in our toolkit to increase revenue. But that's something that we're doing and is going to pay dividends over time. We're also supporting our retailers or consumers with better in-store execution, product education, and just overall service to strengthen our relationship with them, which in turn improves the sell-through of our product at those stores. So you're really, it's just, you know, continue pounding the pavement where we're pounding for strong retail engagement. We're expanding our distribution points. And, you know, right now we're just seeing the early impacts of market share increases and that's going to increase quarter per quarter as we build it up.

Thank you, Nick next question received congratulations on earning the number 1 market share position for mass premium 3.5 gram flower with tribal. You understand that a portion of consumers are trading up to a larger formats of 7 gram of 14 gram. Could you comment on how tribal plans to address the shift in consumer purchasing behavior? And Nick, just one second, sorry to cut in, but your microphone seems to be, it's not on mute, but we're not catching. You want to just say a word again and see if... Is that better? Yeah, that's perfect. Thank you.

So, yeah, no, I think, thank you for that. We've worked really hard on preventing tribal and focusing on the three and a half category. And we're proud to have a commanding market share of that category. We see increasing sales in seven grams and 14 grams. We're evaluating the opportunity, but under tribal that is. Under NUGS, we're playing in the seven grams and 14 grams, and we're actually having a lot of success under tribal, sorry, under NUGS with the seven grams and 14 grams. But I've been asked a lot for tribal, why don't we go into the seven grams and 14 grams when everyone's playing in that market? I strongly think that there is a good place for travel in the three and a half grams. And, you know, we're going to be launching genetic. We want to be, as mentioned before, a house of genetics with a roster of 20 plus genetics. And that's consistent staying over time. So having three and a half gives customers options. And if we were to play in the seven grams or 14 grams at one point in time, it would be a mixed option where three and a half of one flavor and a three and a half of another flavor would be offered under the tribal multi-pack to address the 7 grams and the 14 grams segment. But for now, really, we plan to dominate the 3.5 gram market under tribal. We think it's the most accessible and we want to give accessible highest quality cannabis. And that's how we do it under tribal. And then NUGS plays in the 7 grams and 14 grams for now. And then over time, we will see if Tribal will generate or bring to the market multi-packs under its 3.5 categories to reach the bigger formats like the 7 and the 14.

Thank you, Nick. Next question received. How much wholesale demand are you currently seeing in the market? And how does the tightening supply-demand balance across Canada influence your expansion strategy?

We're seeing the market increase. The wholesale market is definitely on fire and I'd say almost the pricing has doubled since last year. The reason why it exists is because international and the fact that a lot of licensed producers actually closed down production space and they moved to a strategy of more CPG strategy of just purchasing the cannabis. So at one point when the industry was in oversupply, I'd be pretty confident to say that we're in an under supply situation right now. Um, and that, you know, a lot of the cannabis is going international. And, um, it's, it's, uh, it's causing pressure on on the, the, the Canadian cannabis offerings. It's increasing the price and it's, you know, harder and harder for companies to make. A margin that are not producing cannabis because they're the most successful to price increases in wholesale cannabis for us. We're not affected because we're growing the cannabis. And if anything, it's an advantage to us because. We can utilize the wholesale market for ancillary cannabis that we have in inventory. Uh, so we use the, the wholesale market really as a backstop. We use it as a stop gap. And it really allows us to risk our, uh, operation. Um, and yeah, we, we again, prioritize all the cannabis for our main brands. Um, but as we scale, you know, that. That that avenue is very useful and I think it's just going to continue increasing because there's not more production space. Coming online, and if anything, there's more international sales as more countries recreationalize or or have a medical program. So that's going to continue putting pressure on on the supply of cannabis here in Canada. And I think that's a good condition for Canara to be in as a grower of cannabis over 40 or just under 40 tons of cannabis and on track to build out 100 tons in the next 3 years.

Thank you, Nick. You've touched on this a little bit in some previous questions and answers, but the next question received is, are there any upcoming product launches or innovations in the pipeline that you're particularly excited about or see as meaningful growth drivers? Uh, Nick, uh, the microphone is, I think the trifecta.

I think the trifecta in Quebec is really going is going to. You know, make waves, uh, and the trifecta outside of Quebec is making waves. Uh, so, uh, definitely that is super exciting as a product for me, because trifecta is not just 1. product it's a format for tribal and once we create a format for tribal every genetic that we launch under tribal gets that format so uh we have close to eight genetics there's uh yeah eight genetics we'll have eight trifectas over time and as we launch 20 genetics we'll have 20 trifectas over time uh portaleche that's our newest genetic coming uh launching into tribal in q3 It's going to be very exciting. It has like a cherry, red wine, creamy gas after notes on it. It sports over 30% THC. We have the Wagyu Delights and the Meat Pie coming under NUGS. So yeah, looking forward to Q3 and the launches that we're doing.

Perfect. Thank you, Nick. I see we're coming close to time. I think we will have a chance to answer one more question. And as mentioned in our press release and on today's call, should you have any additional questions, you can definitely email us at investors at canara.ca. The next question, Nick, is given the continued growth and dominance in the vape segment, is Canara exploring opportunities to expand its offerings within the vape segment?

Absolutely, we're a big player in the vape segment. We're gonna continue producing our 510 carts across Tribal and NUGS, and we'll continue doing that on a genetic, every genetic that launches out, we're gonna continue doing that. We recently launched our live resin all-in-one, the Tribal Supernova in Ontario, and our cured resins all-in-one under NUGS. That's both in Ontario and Alberta. Uh, so that's that's 1 entry into a, uh. Category that we've never played before and so all in 1's will be a category that we're going to build out over time. And we also are developing our solvents vape solvents vape all in 1 for nugs. This is a project that we've been working really hard on. Um, it's. very important to find the right hardware because rosin, solventless rosin reacts differently than BHO live resin. There's more fats and lipids inside rosin, which causes carts to clog or burn over time. And that's been a main factor for solventless carts, which is one reason why we haven't seen solventless carts in the market, or too many of them, in addition to the fact that they're expensive to make. Uh, so we're really trying to focus on that and bring us all to this card market that 1 quality doesn't burn, um, doesn't clog. And is most importantly affordable. Uh, so, yeah, that's really exciting project that we're working on.

Thank you, Nick, I think we're at time. So that concludes our Q and a portion. I'll open the floor to you, Nick, uh, for any closing remarks.

Just want to say, thank you everyone for taking the time to listen to our Q2 earnings call and our live Q&A session. Hopefully you got some further insights into our business. We're not changing our tune or continuing focusing on execution of the business. We have a real opportunity in Canadian cannabis. To climb the ranks and become a top leading. National cannabis producer, we have the assets. We have the people and we have the product, so it's just a matter of execution myself as well as our CEO CEO who couldn't be here today. work day and night to make this happen as well as our team of VPs and our 400 other employees that are working day and night to make this happen. So again, thank you for all your support in our story and wish you a great Tuesday. Thank you everyone.

Thank you Nick. Thank you all participants. Have a great day.