Cannara Biotech Inc.

Good morning, everyone. Welcome to Canara Biotech's third quarter 2026 earnings webcast. The three months ended May 31st, 2026. Today's presenter is Nicholas Soziak, Chief Operating Officer and Interim Chief Financial Officer of Canara Biotech. At this time, all participants are in listen-only mode. Following the prepared remarks, we will hold a question and answer session. To ask a question during this session, Please press star 11 on your telephone. You will hear an automated message confirming that your hand has been raised. To withdraw your questions, simply press star 11 again. Please be advised that today's conference is being recorded. Before we begin, please refer to slides two and three of the company's cautions regarding forward-looking statements, market and industry data, and non-GAAP and other financial measures. I will now turn the call over to Nicholas Soziak. Please go ahead, sir.

Good morning, everyone, and thank you for joining me to review Canara's Q3 2026 results for the period ended May 31st, 2026. The third quarter demonstrated the depth and resilience of our business. Gross cannabis revenue increased 16% year-over-year to $44.1 million. Total net revenue reached $31.8 million. and adjusted EBITDA increased 11% to $8.5 million. We also generated $5.7 million of operating cash flow and remained profitable with net income of $4.8 million. These results reflect continued execution of a model built around premium quality at scale, disruptive pricing, and disciplined, profitable growth. Our estimated national retail market share remained at 4.4%, positioning Canara as the eighth largest licensed producer in Canada by estimated retail sales. We maintained our leadership position in Quebec, all while setting new monthly market share records in Ontario and Alberta in June of this year. Importantly, our growth is being supported by a broader and increasingly productive distribution platform. Canara products now exceed 49,000 points of distribution and represent approximately 3.3% of national cannabis retail listings. Our market share continues to exceed our shares of listing, demonstrating strong velocity and consumer pull-through. Operationally, we activated two additional grow zones at Valleyfield during the quarter, bringing the total to 14 of 24 and increased annualized production capacity to more than 58,000 kilograms. In response to demand signals, including our recently announced supply agreement with Curaleaf, we now expect to activate four additional zones by the end of fiscal 2027, bringing total active capacity to approximately 75,000 kilograms, about one year ahead of our original timeline. This expansion remains demand-driven and capital disciplined, supported by over 10.5 million of year-to-date investment in our infrastructure to expand post-processing throughput, and unlock additional cultivation capacity within our existing owned footprint. We also advanced several strategic priorities during and after the quarter. In May of 2026, we completed the acquisition of Medican Organic, fully consolidating ownership related to the Valleyfield facility and gained access to SOPs and other intellectual property related to extraction. We secured exclusive Canadian rights to Blue River's Ampersand live rosin infusion technology, creating a differentiated new ingestible format under NUGS. and announced just yesterday we entered our first long-term international supply agreement with Curaleaf, one of the world's largest cannabis companies, providing a pathway into international markets and representing a potential aggregate contract value of up to $21 million. Together, these milestones strengthen our vertically integrated platform and expand our growth opportunities across Canadian distribution, product innovation, and international supply. The key takeaway is that Canara is scaling from a position of profitability and financial strength. We are expanding capacity in line with visible demand, investing behind proven brands and high-velocity products, and maintaining the operating discipline that has defined our growth. With that, I will walk you through our financial performance for the quarter, which represents our 21st quarter of consecutive positive adjusted EBITDA and our 15th consecutive quarter of positive operating cash flow. demonstrating a business that is growing revenue, maintaining strong margins, generating cash, and funding a meaningful portion of its expansion internally. Q3 delivered strong year-over-year results and sequential growth across our key financial measures. Gross cannabis revenue before excise tax increased to $44.1 million, up $6.2 million, or 16% from Q3 last year. Growth was driven by deeper penetration in existing markets, product innovation, and expanded formats across our brand portfolio. Including real estate revenue, gross revenue reached $45.1 million. Total revenue, net of our excise taxes, increased 16% to $31.8 million, from $27.3 million in the prior year quarter. On a sequential basis, total revenue increased 17% from Q2, reflecting a seasonal recovery in consumer demand, together with growth in both our retail and business-to-business channels. Gross profit before fair value adjustments increased to $13.4 million from $12.1 million. Gross margin was 42% compared with 44% last year and 43% in Q2. The modest change primarily reflects product mix. We continue to invest in cultivation and post-processing initiatives intended to improve yield, product quality, and transformation costs while preserving our competitive price-to-quality advantage. Operating income increased to $7.4 million from $6.8 million in Q3 of 2025. Income before taxes increased 19% to $6.9 million, and net income increased to $4.8 million from $4.1 million. Basic and diluted earnings per share were both $0.05. Adjusted EBITDA increased 11% to $8.5 million, representing a 27% margin. This performance demonstrates the operating leverage of the platform as higher revenues translated into increased profitability while we continue to invest in our growth. Operating cash flow was $5.7 million. The prior year quarter generated $13.9 million and benefited from the timing of cash receipts and payments. Free cash flow was $1.3 million compared with $11.7 million last year, primarily due to higher capital expenditures related to the Valley Field expansion and processing center project. Year to date, the underlying performance remains strong. Gross cannabis revenue increased 13% to $123.7 million, while total net revenue increased 13% to $89.1 million. Gross profit before fair value adjustments increased 18% to $38.5 million, with the margin improving to 43% from 41%. Adjusted EBITDA increased 13% year to date to $23.3 million, operating cash flow was $16.6 million, and free cash will remain positive at $4.3 million despite a significant increase in growth capital expenditures. Year-to-date operating income and net income were lower than the prior year, primarily due to higher non-cash share-based compensation and increased investments in sales and marketing to support distribution and market expansion. These investments are deliberate and are intended to expand the revenue base and strengthen our platform for future growth. I will now turn to our performance in the national retail market. At the national level, Canara maintained an estimated 4.4% retail market share in Q3, consistent with Q2 and up from 4.1% in Q1. Compared with the same quarter last year, our national market share increased by approximately 50 basis points. Quebec remained our largest market and the foundation of our leadership position, with an estimated 14.1% market share during the quarter. In June, market share normalized to 12.9%, following a period of exceptional growth while we maintained our position as the number one licensed producer in the province. Just as importantly, we're continuing to build meaningful scale in Canada's largest cannabis market. Ontario market share increased to 3.5% in Q3 from 3.1% in Q2 and reached a record 3.7% in June. Alberta also continued to improve, reaching 2.6% during the quarter and a record 2.9% in June. These gains demonstrate that our brands, products, and pricing strategy resonate well beyond our home province. They also reflect improving retail penetration. Canara products represented approximately 3.1% of national retail listings during Q3 and 3.3% in June, compared with our 4.4% national retail market share. In other words, our products continue to generate more sales than our shelf space would suggest, demonstrating strong consumer demand and retail productivity. Importantly, those gains are also translating into a much more diversified national revenue base. Let me show you what it looks like. While Quebec remains our largest market, Canara is not dependent on a single province for growth. During the third quarter, 54% of our estimated Canadian cannabis retail sales were generated outside of Quebec. Ontario now represents approximately 34% of our Canadian retail revenue, Alberta contributes another 11%, and British Columbia and the remaining provinces collectively account for the balance. This diversification reflects years of disciplined expansion into Canada's largest provincial markets. It broadens our revenue base, reduces concentration risk, and provides a stronger platform for sustainable long-term growth as we continue expanding distribution and market share across the country. That national market expansion has been driven by the strength of our brands and continued product innovation, which we'll discuss next. Our brand portfolio continues to lead across several important categories. Tribal is Canada's leading mass premium flower brand and a leader in premium live resin vapes. Nuggs leads in hash rosin, while Nuggs G-Sherb remains Canada's number one infused pre-roll. In CBD, Orchid CBD remains Canada's leading CBD flower brand. The strength of this portfolio is its relevance to high-value consumers who purchase across multiple formats and prioritize quality, flavor, consistency, and innovation. During Q3, we expanded that platform through new genetics and formats. Under Tribal, we added new Gran Turismo and Porto Leche products, and extended Neon Sunshine and Bubble Up into larger flower formats. Under NUGS, Flavor Bomb was a key highlight. The platform expanded across infused pre-rolls and liquid diamond vapes and now ranks amongst Ontario's top three infused pre-rolled multi-packs. With only three listings, it generates nearly six times the category average in sales per SKU, demonstrating the value of focused, high-velocity innovation. We also launched NUGS grape buyouts in the 28 gram format, extending our value proposition into Ontario's largest flower segment, which represents nearly 40% of all flower sales. We had previously limited our participation in this format due to significant price compression. However, with average selling prices per gram now improving, we are pursuing the opportunity from a disciplined entry point. Within five weeks of launch, Great Barrier Ounce became a top five selling ounce in the province for May, with weekly shipments continuing to accelerate at quarter end. While still early, these results reinforce our confidence in our ability to gain share in a large, strategically important category. Following the quarter, as mentioned earlier, we added another innovation pathway through our exclusive Canadian agreement with Blue River Terps. The agreement gives Canara the right to commercialize products using Blue River's proprietary ampersand live rosin infusion technology, bringing the flavor, terpene preservation, and full-spectrum characteristics of live rosin into an ingestible format under NUGS. Together, these launches demonstrate how we are expanding the value of our portfolio through larger formats, higher-velocity platforms, and new consumption occasions. Importantly, we are doing so while maintaining a strong financial position, which brings me to our balance sheet. Our balance sheet remains well positioned to support the next phase of the business. We ended Q3 with $21.8 million of cash, compared with $14.4 million at the beginning of fiscal year. Current assets were $97.7 million, and current liabilities were $32.6 million, resulting in working capital of approximately $65.1 million, up $17.2 million since August 31, 2025. Accounts receivable increased to $18.5 million, reflecting our higher revenue base and the timing of collections. Inventory was $49.6 million, while biological assets were $6 million. These balances support a larger cultivation footprint, a broader product portfolio, and increased national distribution. Property, plant, and equipment increased to $92.8 million, reflecting continued investment in the Valley Field Processing Center and the activation of additional grow zones. Total assets increased to $194.5 million from $168.6 million at the beginning of the fiscal year. Total liabilities were $68.6 million, while shareholders' equity increased to $125.8 million from $102.2 million at year-end. This increase reflects retained earnings, the conversion of the convertible debenture, and the private placement completed earlier in the fiscal year. During the quarter, we drew $2 million under our $10 million long-term credit facility to support construction of the new processing center at Valleyfield. Given our financial performance, the company also reduced its cost of borrowing down to a 4.83% interest rate. Our capital expenditures are being directed towards projects with clear strategic and operating value that translates to direct revenue and profit. Expanding post-processing throughput, activating additional grow zones, and supporting the infrastructure required for higher production volumes. The key point is that we are funding these investments from a position of liquidity and profitability. We continue to generate positive operating cash flow, maintaining meaningful and working capital, and retain access to credit, allowing us to execute our expansion plan while remaining disciplined in our capital allocation. At an average closing share price of $1.71, Kinara's market capitalization was approximately $167 million. We will continue to align spending with demand visibility, operational readiness, and expected returns, ensuring that capital is deployed where it can create the greatest long-term value for shareholders. Before I conclude, I wanted to share a few recent photographs from our Valley Field Processing Center expansion, which remains on schedule and on budget. The area highlighted in pink shows the new processing center currently under construction. The photos below are the new drying rooms, which will significantly expand our post-harvest processing capacity and support the activation of additional cultivation zones over time. This investment is an important part of our long-term growth strategy. As cultivation capacity expands, we need the downstream processing infrastructure to match. The new facility provides that scalability while leveraging our existing footprint. It also supports our international ambitions. Under our recently announced supply agreement with Curaleaf, Curaleaf will sponsor our pursuit of EU GMP certification for this processing center. Achieving EU GMP certification is expected to further facilitate access to European medical cannabis markets and strengthen the foundation for our long-term international growth. We're excited about the progress being made and look forward to sharing additional construction updates as the project advances. With that, I will now summarize the key takeaways from our performance this quarter. Canara's strategy is built on premium quality at scale, disruptive pricing, and disciplined execution. Q3 provides clear evidence that this model is working. We increased gross cannabis revenue by 16%, generated $8.5 million of adjusted EBITDA, and remained free cash flow positive while investing in our next phase of capacity. We maintained a 4.4% national retail market share, remained the market leader in Quebec, and reached record monthly shares in Ontario and Alberta. Our distribution footprint now exceeds 49,000 points, and our market share continues to outperform our share of retail listings. We expanded annualized production capacity to more than 58,000 kilograms and accelerated our path to approximately 75,000 kilograms by the end of fiscal 2027, while preserving a clear runway to 100,000 kilograms within our existing footprint. We also strengthened the platform through the Medican acquisition, the Blue River Technology Agreement, and our first long-term international supply agreement with Curaleaf. Taken together, these commercial and operational milestones validates the strategy shown on the slide. Our premium quality products are creating consumer demand, Our vertically integrated platform is converting that demand into profitable growth, and our discipline expansion is creating a clear path to scale. Curaleaf's decision to select Canara following a detailed review of our facility operations and product provides further third-party validation of the quality and consistency of the platform we have built. The result is a vertically integrated, profitable, and increasingly diversified cannabis platform with leading brands, structural cost advantages and a clear path to scale. We remain focused on converting that opportunity into sustainable revenue growth, profitability, and cash generation. Thank you for your continued support. We will now open the line for questions.

Certainly, ladies and gentlemen, if you do have a question at this time, as a reminder, please press star 11 on your telephone. And our first question comes from the line of Neil Gilmer from Haywood Securities. Your question, please.