IM Cannabis Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 8, 2024

There are 7 speakers on the call.

Operator

Good morning, and welcome to IAM Cannabis' First Quarter 2024 Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Anna Taranko, Director of Investor and Public Relations. Anna?

Speaker 1

Good morning, and thank you, operator. Joining me for today's call are I am Canabo's Chief Executive Officer Executive Officer, Juri Greenberg. The earnings press release that accompanies this call is available on the Investor Relations section of our website at investors. Imcanabas.com. Today's call will include estimates and other forward looking information and statements, including statements concerning future results of operations, economic conditions and anticipated courses of action and are based on assumptions, expectations, estimates and projections as the date hereof.

Speaker 1

This information may involve factors that may cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause actual results are described in detail in the company's most recent filings available on SEDAR Plus at www.sedarplus. Ca, www.sec.gov. Furthermore, CERS measures will be referred to during this call, and the term non IFRS adjusted EBITDA to as adjusted EBITDA loss.

Speaker 1

Any estimates or forward looking information or statements provided are accurate only as of the date of this call and the company undertakes no obligation to publicly any forward looking information or statements or supply new information regarding the circumstance at the date of this call. Also note that all references on this call reflect currency and Canadian dollars. With that, it's my pleasure to turn the call over to Oren Schuster, CEO of IAM Cannabis. Oren, please go ahead.

Speaker 2

Thank you, Anna. Good morning, everyone, and thank you for joining us today. I would like to start off with a quick overview of the overall cannabis market. On April 1, the German government legalized cannabis. On April 30, the Associated Press that there is an indication that the US Drug Enforcement Administration classified cannabis as less dangerous drug, placing it at the same level as other medications.

Speaker 2

And obviously Canada legalized cannabis several years ago. Together, these regulatory changes in 3 gs7 countries are affecting and will continue to affect the future of the entire cannabis industry out of the proverbial that goes toward the mainstream market. With each new regulatory rescheduling, cannabis is becoming more legitimate. As a medical cannabis company based in Israel and Germany, the last 10 days of Q1 were game changers for us. On March 22, the German government passed the final hurdle for legalizing cannabis.

Speaker 2

The new law went into effect on April 1. On March 28, the Israeli Ministry of Health announced that the first phase of anticipated regulatory reform facilitating access to medical cannabis for many new patient groups would take effect on April 1st as well. These regulatory changes were cannabis industry, setting both the German as well as the Israeli medical cannabis markets up for significant accelerating more new patients are expected to start entering the markets. I won't go through the details of the Germany legalization today since we covered it in our last call. But I would like to give you a sense of our legalization is April 1.

Speaker 2

Keep in mind that until the non profit social clubs and home grow legalization is implemented as expected, The only legal way to purchase cannabis in Germany is in a pharmacy with a prescription. As a result, the telemedicine providers specializing in cannabis have been overrun. New patients have been lucky if they manage to get an appointment within 2 to 2 weeks. The cannabis focused pharmacies have been flooded not only with people walking into pharmacies without a prescription trying to purchase cannabis. Taking a look at our German business, the legislative changes directly impacted our March sales.

Speaker 2

Because of the uncertainty surrounding the legalization in March, pharmacies were hesitated to purchase usual quantities, leading to a decrease in sales, which not only impacted the amount of March, but the entire Q1 results in Germany. Since April 1, however, we have seen continuous acceleration in our sales. In April, our monthly sales were just about double the monthly average of the last 6 months. While it is still too early to predict how the market will continue to develop, the 1st month was very promising. In line with the German market, we are shifting our focus to ensure that we have the necessary resources in place for success.

Speaker 2

Moving to Israel, I will now take you through the regulatory reform that occurred there. During our last call, I said that I would go into detail today. As we mentioned in our April 1 press release, the reform was initially announced by the Ministry of Health on August 7, last year. It was then delayed by 3 months because of the Israeli Hamas war. On March 28, the 12 phase of the reform was approved and announced by the Ministry of Health.

Speaker 2

The key aspects which were implemented on April 1 are as follows: A change in the prescription process. Patients and medical conditions from oncology to Parkinson's will no longer be required to obtain a license on medical cannabis. These patients will receive a prescription to those for other prescription medication. Pain and PTSD are not yet included in the reform. Medical cannabis can now be prescribed through the HMO, Israel's public healthcare system.

Speaker 2

Until the reform, cannabis could not be prescribed through the HMO, which covered the majority of the Israeli population. The number of prescribing physicians is expected to increase. Before the reform, only about 100 physicians were able to issue cannabis licenses. Now the thousands of HMO physicians who are duly trained and certified within their field of expertise can prescribe medical cannabis as a first line treatment as opposed to last resort. Based on medical discretion for the approved indications.

Speaker 2

The cost for prescribing is anticipated to be reduced. The Ministry of Health has limited the cost of medical cannabis prescription. We believe that by facilitating the access to medical cannabis for many patients, new regulations will transform the medical cannabis market in Israel. By improving the accessibility, increasing the potential number of prescriber and lowering the cost of obtaining cannabis prescription, we anticipate an increase in the number of medical cannabis patients. While the legalization in Germany had an immediate impact on our cannabis market, the impact of the regulatory reform in Israel started slowly.

Speaker 2

The only sign we have seen are the first prescriptions from eligible physicians that have started to reach our pharmacies. While the legalization in Germany had an immediate impact on the regulatory reform in Israel started slowly. The only signs we have seen up to now are the first few prescriptions that have started to reach our pharmacies. At our Israeli business, in Q1 we continued cleaning the slow moving stock by reducing price started in Q3 of 2023. The lower price impacted both our revenue and gross margin.

Speaker 2

As in Q4 2023, in Q1 2024, we further reinforced our position in the premium market, launching 8 new strains. We launched Purple Rain T15, Yahemian, VACUER Gelato by Black Market, Sulfur Sertiva by TENSORAvant, Gelato 33 by LOT4-twenty, and motor birth BFLMO LMO and flow of G by sNDL To Germany, as the market started ramp up for the anticipated accelerated growth, the German team has been working on sourcing robust supply chain that can meet the demands of the growing market. These flowers that are sold through pharmacies must come from EU GMP facility. Of all the licensed cannabis producers, few of the 20 of the Canadian cannabis producers are EU GMP certified, making this one of the primary supply chain bottlenecks. IFC Germany not only has an EUGP certified packaging facility, but is also capable of performing 3rd party audits for licensed Canadian cannabis producers, ensuring they meet the requirements to receive the EU GMP certification.

Speaker 2

This is an advantage when we are building our supply chain. Glasshouse Botanics was the 1st Canadian licensed producer that received its EU GMP through our partnership. In return, we have the exclusivity and right of first refusal for their strengths. Our team also audited further Canadian licensed producers during Q1, in preparation for the 3rd party audit with the German authorities later this year. We anticipate that these partnerships will form the basis of our supply chain in Germany.

Speaker 2

As I had mentioned earlier, and also in our April 15 press release, we are shifting our focus to the German market, allocating our resources to where we see the biggest potential and the best return of our investment. Our new priorities have forced us to make difficult decisions, the first of which was deciding not to make the remaining installment payments to complete the purchase of Ronin Pharmacy in Israel. As such, the 51% of the shares we held will transfer back to the seller. Ori will go through the impact of this on our business later in the call. I'd also like to give you a short update on where we are with the proposed reverse merger with Cadimostem.

Speaker 2

At this stage, merger with Cadimelstem is still in early phases, and its completion is uncertain. It is still too early to assess how long it will take until we sign a definitive agreement or establish with whatever such an agreement will be executed. Before turning the call over to the Chief Financial Officer, Ui Binenberg, I would like to put Q1 2024 perspective. As you all know, 2020 was the year of transformation for us. We completely restructured becoming very lean and agile company.

Speaker 2

This process is reflecting in the numbers. Our G and A expenses were 28% versus Q1 2020. Were it is not for the decision not to complete the remaining purchase, our total operating expenses would have increased 29% versus Q1 2023. When I look ahead with the regulatory changes in Israel and the realization in Germany, I see a tremendous potential for growth. Have the infrastructure and supply agreements to support accelerated growth in place.

Speaker 2

What we need now to do is to ensure that we have the necessary resources in place for success. I will now hand the call over to Ori, who will review the Q1 2020 financial results. Ori?

Speaker 3

Thank you, Oren. I will now provide an overview of Q1 2024 financial results for the company's cannabis operations. Our Q1 results were mainly impacted by the following points: price reduction and provisioning for slow moving inventory and, as Ole mentioned, shifting our focus and resources to German market, which led to the decision not to compete with the rolling purchase. Revenues for Q1 2024 were $12,100,000 compared to $12,500,000 in Q1 2023, a decrease of 3%. The decrease is mainly due to an extended effect of about $200,000 and decreasing average price per sale due to increased competition.

Speaker 3

Total Bright Flowers sold in Q1 2024 was approximately 18.70 an average selling price of $5.68 per gram, compared to approximately 18.42 kilograms in Q1 2023 with an average selling price of $6.59 per gram. The difference is mainly due to increased competition within the retail segment and mid rate stock discounts to move out slow moving stock. Gross profit for Q1 2024 was $1,800,000 compared to 2.9 $1,000,000 in Q1 2023, a decrease of 39%. The downside is attributed mainly to the slow moving stock at the lower prices and an exchange of differences totaling $400,000 and $64,000,000 cost of sales due to debt, inventory erase of the slow moving stock. Company fair value adjustment was $400,000 for the Q1 2024 and Q1 respectively.

Speaker 3

Gross margin after fair value adjustment in Q1 2024 was 15% compared to 23% in Q1 2023. G and A expenses in Q1 2024 were $2,300,000 compared to $3,200,000 in Q1 2023, a decrease of 38%. The decrease in the G and A expense is attributable mainly to the salaries and professional services of $0,640,000 Selling and marketing expenses in Q1 2024 were $2,300,000 compared to $2,800,000 in Q1 2023, a decrease due to decrease in salaries and professional services of $500,000 Total operating expenses in Q1, twenty twenty four were $7,400,000 compared to $6,500,000 20 1, 2023. The increase is due to the other operating expenses related to our NIM deal repoke, with an expected losses of $2,800,000 Adjusting for these one time losses, Q1 2024 operating expenses were $4,600,000 compared to $6,500,000 in Q1 2023, a decrease of 29 percent. Non IFRS adjusted EBITDA was $2,100,000 compared to an adjusted EBITDA loss of $1,900,000 in Q1 2023 and increased losses of 10%.

Speaker 3

Net loss from continuing operations in Q1 2024 was $6,000,000 compared to $900,000 in Q1 2023. Diluted loss per share in Q1 2024 was $0.42 compared to a loss of $0.05 per share in Q1 2023. As of the balance sheet, cash and cash equivalents as of March 31st, 2024 were $1,000,000 compared to $1,800,000 in December 31, 2023. Total assets as of March 31, 2024 were $41,000,000 compared to $48,800,000 in December 31st, a decrease of 16%. The decrease is mainly attributed to the goodwill reduction due to our new agreement cancellation of about $2,800,000 a reduction dollars reduction of cash and cash equivalent of $800,000 and reduction in credit payables of 1,200,000 Total liabilities as of March 31, 2024, were $32,800,000 compared with $35,100,000 in December 31, 2023, a decrease of about 7%.

Speaker 3

The decrease was mainly due to the the good expenses of $1,800,000 and reduction in the put option liability of $700,000 The company is planning to finance its operations from existing and future as well as from available credit facilities, and we'll continue to evaluate additional and financing as needed. I would like now to turn the call over to Mr. President for closing remarks. Oren?

Speaker 2

Thank you. As in Q4, in this quarter, we were still impacted by the price reduction of the slow moving stock. While overall uncertainties about the proposed legalization affected our results in Germany, That said, we spent a quarter shifting our focus to Germany and preparing our business for accelerated growth after the April 1 legalization. Looking back, I see that we had the infrastructure and the supply agreements in place to continue delivering accelerated growth we have already seen in April. We will also ensure that we have the necessary resources in place for success.

Speaker 2

With that, I hand the call over to the operator to begin our Q2.

Operator

To ask a question, please raise your hand using your mobile or desktop application or press star 9 on your telephone keypad and wait for your name to be called. Our first question comes from Scott Fortune from ROTH. Scott, please go ahead.

Speaker 4

Yes. And thank you for taking the questions. I want to put a little emphasis here as you shift your focus to Germany there, Oren. But some of the key initiatives kind of needed to be put in place to benefit from that stronger positioning there. And then we can focus on kind of accelerating the supply chain.

Speaker 4

But just kind of the key kind of initiatives or shifts in the focus to really benefit from Germany coming on board here with sales from that standpoint? A little color on that would be great.

Speaker 5

Okay. Thank you, Scott, for the question. So in Germany, we have all the structure needed to execute in the German market. We have an EU GMP facility that can get product and package it and release it in the German market. We have the distribution center in Germany supported by the GMP facility.

Speaker 5

We are we can do and we are doing audits to third parties so that they will be able to become EU GMP compliant and to supply us to the German market. Usually, we're doing it with agreements, exclusivity or right of office refusal. And we build an infrastructure also for the supply chain. We have the infrastructure and we are adding more suppliers to this infrastructure in order to support the growth in the market. We also are going to export from Israel to Germany.

Speaker 5

This channel is opening up, and we have a significant infrastructure here in Israel that of growing, and we can able to supply also some of the needs from the Israeli market directly to Germany. And we have also a competitive advantage in that aspect because we have the operation, the know how and the understanding here in Israel to support the German operation. And so the main focus is on the supply channels because it's a huge challenge in the German market to be able to get a constant supply. Until now, the market was a very small market relatively. So it wasn't an issue.

Speaker 5

But we have seen that scaling up is not it's not simple, especially in highly regulated market like German market. We have seen that everything is difficult today in the German market, and the regulations haven't changed for the importation and the process of the GMP standards for the product. Although the regulatory change from the patient and the prescriber side. So that's the main focus for now because we see that that's the what we feel in the market, that the need is there and it's growing, and it's more about the supply and the ability to guarantee this supply. So that's the first focus that we are doing.

Speaker 5

We're already selling in the market. Last year, we have been number 1 in the sales plus SKU in the German market. So we know how to push product to the market. And I think that now with the high demand and the access to supply, we will see it also in the results.

Speaker 4

Yeah, just to follow-up on that. I appreciate that color. Just how, when do you think or kind of the supply, you're well positioned to add supply. You're getting them certified on there and you can distribute that to the pharmacy. So really benefit from this accelerated pickup in Germany.

Speaker 4

Kind of step us through how plan the timing of supply being

Speaker 5

added into your infrastructure there in Germany.

Speaker 4

And is this more of a second half, infrastructure there in Germany? And is this more of a second half boost and just kind of in perspective, how much supply are you looking to double the supply that you can sell into Germany in or 2024 or into 2025 just kind of quantify that a little bit? That'd be helpful.

Speaker 5

Okay. So, we already started to add more suppliers. Just recently, we added another supplier named Glasshouse, a Canadian LP that we have done within the EU GMP for its facility. And now we started to sell the products in Germany. So it's ongoing process.

Speaker 5

I think that in the second half, we will see significant increase in the supply that we are getting into the German market. And I think that it will be also aligned with the growth in the German market because although we see that the market is picking up, we will see, I think, that the demand will continue to grow. And so the second half will be much more significant. But it's an ongoing process, and we haven't started it only now.

Speaker 4

Okay. And then last question for me, one follow-up. Can you provide a little more color on the inventory clearing in Israel? Are you kind of completing that or are you finished or is this still kind of impacting this quarter, Q2 come forward? Just kind of a little more update on the inventory side that's still in Israel here.

Speaker 5

So we are checking the inventory all the time and do the adjustments that we have to do. We're going with conservative approach. I don't see for the near future significant changes over there. But this is something that we are monitoring all the time.

Speaker 4

How much had so? Have you worked this work through 50 of your inventory? Where are you at from completing that inventory clearing here?

Speaker 5

I think that we cleared most of the inventory, but we are cleaning inventory according to expiry. We are working in the medical market. We have expiration dates. And like I said, I don't see any significant clearance.

Speaker 4

Got it. I appreciate. I will jump back in the queue. Thanks.

Speaker 5

Okay. Thank you.

Operator

Thank you. Our next question will come from Owen Gray from Alliance.

Speaker 6

First one for me, I just want to follow-up a bit on Jeremy. Helpful commentary on the supply chain. I guess just in terms of the patients, right, so given for that market, it's one that a lot of times they have prescribed the specific brand. As we understand it, so can you speak to some of the efforts that you're making to get more on the front lines in front of physicians to make sure they're going to be pushing patients towards your brands and talking about that value? So maybe in terms of telemedicine or physical physicians, some of those efforts to maybe push more sales velocity to the patients that you're making.

Speaker 6

Thanks.

Speaker 5

Okay. Thank you for the question, Aaron. So currently, we are working with almost all the online clinics. Let's say, definitely all of the big online clinics in Germany. And, also, we have done a lot of work with the physicians, education work in order to push prescriptions.

Speaker 5

And we see it also in the demand. We see also changes, some changes in the market. It's not clear yet. We've seen that pharmacies are changing prescriptions. So I think that it's the market is dynamic and there will be, involvement over there.

Speaker 5

And I think that some of the power is moving also to the pharmacies. This is what we are seeing. But I think that we have a good presence with the main players in the market, which is still the teleclinics. And we, until now, we pushed our products significantly with the teleclinics and the prescribers. And, for example, we had the best, the number one strain in Germany in 23, and all of that is because we pushed it in the right channels.

Speaker 5

We are keeping a close eye on the market with the changes. And like I like I said, I think that we will see changes in the market, and we will adjust ourselves to to to the market because it's still very early stages. We also work with the demand is not coming only from the physicians. It's coming from the patients themselves. We are working with patient groups and through other channels directly with the patients in Germany to drive the demand.

Speaker 6

Okay, great. Thanks. That's really helpful color there. Just one quick thing you mentioned in terms of the pharmacies. Can you provide some more color in terms of the power kind of shifting there?

Speaker 6

Are you seeing more of the pharmacies starting to sell cannabis? I believe a lot of reports are saying about 2,000 or 3,000 of the 18,000 before of the pharmacies were prescribing or had cannabis dispense. Have you ever seen that dramatically increase or are we still at the early stages there?

Speaker 5

I think that it's early stages. I think that we see new behavior every day of players in Germany. And I think that it's because there are also coming new players and not all the time everything is clear. We've seen lately, for example, that the authorities closed one of the online clinic online pharmacies. So it's I think that we will see dynamics a bit over there and that the borders will be checked by new players.

Speaker 5

But Germany is very organized, so I think that we will understand exactly where the market and the regulations are very clear relatively in Germany. So I think that we will see different behavior, but some stage it will stable. But regarding stock, the demand is there. And I think that companies are clearing stock now in Germany and also pharmacies. But there is growth in the number of patients, and I think that everybody in the market feel it.

Operator

Okay. I think we have no further questions, Oren. We can close the call.

Speaker 5

Thank you, operator, and thank you all for joining our call today.

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Key Takeaways

  • On April 1, German legalization went live, causing pharmacies to hesitate in March but resulting in April monthly sales that were nearly double the six-month average.
  • The April 1 Israeli medical cannabis reforms enable HMO prescribing, expand eligible physicians from 100 to thousands, add new patient groups and cap prescription costs, setting the stage for market expansion.
  • IAM Cannabis is strengthening its EU GMP-certified supply chain for Germany by leveraging its in-house packaging/audit facility and securing exclusive rights with Canadian producers like Glasshouse Botanics.
  • In Q1 2024, revenue fell 3% to C$12.1 million and gross margin dropped to 15% due to cost cuts on slow-moving stock, while net loss widened to C$6 million and adjusted EBITDA loss reached C$2.1 million.
  • The company has shifted resources toward Germany’s growth by canceling the remaining Ronin Pharmacy acquisition in Israel and is exploring a potential, but currently uncertain, reverse merger with Cadimostem.
AI Generated. May Contain Errors.
Earnings Conference Call
IM Cannabis Q1 2024
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