Auxly Cannabis Group Inc. (XLY) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Auxly Cannabis Group Annual General and Special Meeting Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Genevieve Young. You may begin your call.

Thank you, operator. Good morning, everybody, and welcome to the Annual Meeting of the Shareholders of the Auxly Cannabis Group, Inc. The meeting will now come to order. My name is Genevieve Young, and I am the Chair of the Board of Directors of Auxly, I will act as Chair of this meeting. We would like to remind everybody on the call today that the meeting materials as well as Auxly's slide deck that we're speaking to on today's call, all are available on the Investors section of the Auxly website at www.auxly.com. We would also like to remind shareholders present that filming and audio recording are not permitted during the meeting or its presentation. Today's call is being recorded and a copy of the recording will be available for playback on the Auxly website. Thank you very much for your cooperation. I hereby appoint Ron Fichter, General Counsel and Corporate Secretary of Auxly to act as the Secretary of this meeting; and Yanne Yu of Computershare Trust Company of Canada to act as scrutineer. To cover all business within a reasonable period of time, we have prearranged for certain persons to move and second certain resolutions. Further, to make the meeting as efficient as possible, we will not be taking questions over the phone, but we will answer some pre-submitted questions following the corporate presentation. And once the formal meeting is concluded, there will be an opportunity for those in attendance to ask questions. Therefore, please hold any questions and comments until the end of the Q&A, question for the -- after the formal part of the meeting has concluded. I have received an affidavit from an official of Computershare that proper notice of this meeting has been given on May 26, 2022. All shareholders of record as of May 18, 2022 were mailed a package containing the notice calling this meeting and the form of proxy for use at this meeting. The declaration of mailing is available for inspection by any registered shareholder. I declare that service of notice has now been established and would ask that the Secretary file with the minutes of this meeting copies of all such documents. If there is no objection, the reading of this notice of meeting will be dispensed with. Pursuant to the bylaws of Auxly, business may be transacted at this meeting if there are 2 persons present in person or by telephonic or electronic means and who are each entitled to vote at the meeting and holding or representing by proxy not less than 5% of the votes entitled to be cast at the meeting. The scrutineers' report has been received and shows that notice of this meeting has been properly given and there is quorum present. I declare that this meeting is regularly called and properly constituted for the transaction of business. Only shareholders of record as at May 18, 2022 or their properly appointed proxy holders are entitled to speak and vote upon matters at the meeting. Each shareholder of the Corporation is entitled to one vote for each share held. It is proposed at the voting today with respect to 2 items: one, the nomination and election of directors for the ensuing year and to the reappointment of the auditor for the ensuing year and the authorization of directors to fix remuneration of the auditor will be done by a show of hands unless a vote of -- vote by ballot is demanded. I now place before the meeting the audited financial statements for the year ended September -- December 31, 2021, together with the report of the auditor of the Corporation thereon, a copy of which has been mailed to shareholders who requested it. We will now be proceeding with the next item of business being the election of directors. The nominees of management of the Corporation identified in the management information circular mailed to shareholders are: Hugo Alves; Genevieve Young; Troy Grant; Conrad Tate; Vikram Bawa; and Murray McGowan. I will now entertain a motion nominating these persons as directors.

Chair, I nominee for election as directors of the Corporation for the ensuing year, the 6 persons you have just presented.

I second the motion.

I will now put the motion to the meeting all in favor, please signify by raising your hands. Any contrary? Okay. I declare the motion carried and that Hugo Alves; Genevieve Young; Troy Grant; Conrad Tate; Vikram Bawa; and Murray McGowan are elected directors of the Corporation to serve until the close of the next Annual Meeting of the Shareholders or until their successors have been elected or appointed. The next item of business is the reappointment of the auditor and the authorization of the directors to fix the auditor's remuneration.

Chair, I move that Ernst & Young LLP be reappointed as the auditor of the Corporation until the next Annual Meeting of the Shareholders or until its successor is appointed and that the directors of the Corporation be authorized to fix the remuneration of such auditor.

I second the motion.

I now put the motion to the meeting all in favor, signify by raising your hands. Is there any contrary? Okay. I declare the motion carried. Unless there is any further business to come before the meeting, would somebody please move to conclude this meeting?

Yes, I move that this meeting be concluded.

I second the motion.

All in favor, signify by raising your hands. Any contrary? I [ declare ] the motion carried. I hereby declare the formal part of this meeting concluded. We will now give a corporate presentation followed by answers to select previously submitted questions and a Q&A session for shareholders in attendance. I'd like to pass the call to Julie Cannon, Manager, Investor Relations.

Thank you, Genevieve. Good day, everyone, and thank you for joining us for our Annual General Meetings of Shareholders. Joining me now to provide a corporate update and present an Auxly slide deck as well as answer some questions from shareholders is our CEO, Hugo Alves; CFO, Brian Schmitt; President, Mike Lickver; and Senior Vice President of Commercial, Andrew MacMillan. For those of you joining by teleconference, I encourage you to follow along with the presentation slides, which are posted on our website under the Investors section under Events, Auxly AGM. Before I turn the call over to Hugo, I would like to remind everyone that our discussion today includes forward-looking statements that are based on assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from the views expressed today. Management can give no assurance that any forward-looking statement will prove to be correct. Forward-looking statements during this call speak only as the original date of this call, and we undertake no obligation to update or revise any of these statements, except as required by applicable law. Management refers you to the cautionary statement and risk factors included in Auxly's disclosures. I note that all references on this call are to Canadian dollars unless otherwise stated. And with that, I'll turn it over to our CEO, Hugo Alves.

Thanks, Julie. And I want to thank the shareholders on the phone and especially those here in person today. It is great to be able to do these AGMs in person again. It's something that we've really missed being able to interact with the shareholders in person. So the goal of this meeting today in this presentation is really to give you an overview of 2021 and 2022 so far, and then give you some further insight into our 2022 objectives and how we're trying to achieve them. Yes. So let's jump in. All right. So these are the 2021 goals that we communicated throughout last year. And even though the market changed a lot, the goals remain constant. One of our goals was to be a 2.0 leader. In 2020, we were the #1 company in 2.0. Obviously, as the market continues to develop lots of new entrants, but we successfully defended our 2.0 crown for the second year overall. We had a dominant performance in vapes, where we were the undisputed category leaders. And we hope to replicate the success again this year, right. Building to leadership in dried flower and pre-rolls, this was the biggest strategic item last year and entailed a huge amount of work because not only did it entail stretching our brands from 2.0 into 1.0 format, something that hasn't been done in the industry by anyone other than Auxly. We also had to buy out the majority interest in our Leamington joint venture. And I think the results have been incredible to date. Mike and his team have done an incredible job in Leamington. We now think it is the premier cultivation facility in the country. We were able to successfully stretch our brands. We are now a top 10 player in both formats, and Back Forty is the fastest-growing dried flower brand and well established in the category now, it's the fourth largest brand in the country. And we expect to see continued expansion in 1.0 categories from throughout 2022 as we look to leverage the output from our Leamington facility to drive new 1.0 SKUs and access broader distribution. We wanted to become a top 5 LP. So we thought -- we believe that if we were able to maintain our 2.0 prominence and stretch our brands into 1.0, we would really have a chance of inserting ourselves into the conversation as one of the leading companies in the country. So we set a lofty goal at the beginning of the year because we started in the top 10, but just in the top 10, and happy to say that we did achieve this goal. We punched well above our weight, finished 2021 as the fifth largest LP, and we surpassed many companies on this list. I think all of them may be with the exception of one name who have been in operations much, much longer than we have. And that is a testament to the strength of our products, our brands, people and strategy. [ Back here. ] The financial targets, Brian is going to talk about later in the presentation. So I don't want to take this material, but I will summarize by saying that we were able to significantly grow top line without increasing SG&A. Our SG&A in 2021 was actually lower than 2020, and that's despite assuming consolidating all the costs of Sunens onto our balance sheet and of course, increased selling expenses as our sales went up. But we did not achieve our gross margin target of 30%. We ended the year at 23%, and that was largely the result of price compression, which we'll talk about a little later in the presentation. And as a result of that, we did not achieve our adjusted EBITDA goal. We improved adjusted EBITDA year-over-year, but we didn't achieve that goal. So look, despite not achieving every strategic objective, 2021 was a tremendous year of growth. We demonstrated that our leadership in the 2.0 category wasn't by chance, right? We were able to maintain leadership in the category. We demonstrated our brands were strong enough to stretch into a new category and that we could not only make fantastic 2.0 products, but also 1.0 products, and that our ability to compete with the largest companies by being more focused and deliberate in our strategy. But we didn't achieve the EBITDA profitability target, and that is our #1 strategic objective this year. And we're confident that we can continue to increase our top line by continuing to build our brands and be hyper-focused on consumers and customers. And I'm delighted that Andrew MacMillan, who heads our commercial function, is here with us today to speak to those items later in the presentation. But what I will say in summary is we continue to see increased demand for our products. Our Q1 2022 was significantly better than Q1 2020, and we expect to see that trend continue for the remainder of the year. And we believe that we can enhance our gross margins. We're going to leverage the flower out of our Leamington facility to reduce our cost of goods. We're also very focused on optimizing operations through investments in automation, key function consolidation and ongoing process improvements throughout our cultivation and manufacturing platform to both increase throughput capacity and reduce our costs. Now the new cycle in cannabis these days is all doom and gloom, right? It's not lost on us, but I thought it would be helpful to give you some context as to why we continue to be confident that we can achieve our strategic goals. So the market has not grown as quickly as first predicted, but it is continuing to grow at a significant pace. The rec market in 2021 grew 50% relative to 2020. And we're continuing to see month-over-month growth. We think the rec market will grow by about $1 billion this year. Retail locations are growing that provide greater and greater access to consumers. And the legal market last year for the first time in history surpassed the illicit market. And of course, what you're not going to see on this page is the changing social attitudes and destigmatization. More and more Canadians are coming into the category every day. We see new users constantly choosing our brands, especially our Foray brand. And more and more Canadians are choosing cannabis over other forms of recreational consumables. So that's going to hold us in very good stead. Another reason why we're confident is that we're focused on the right categories. What this slide shows is the evolution of key product categories in the more mature market of Colorado. And Colorado is just an example here. We see this throughout U.S. states. And the clear trend that it shows is that over time, 2.0 formats account for a greater and greater percentage of overall market. You can see flower and pre-rolls are going to continue to be a critical part of the market, and that is why we pushed so hard last year to extend into 1.0 format. What this also shows is that over time, as new consumers enter the market, consumers who perhaps don't have a history of combustion and existing consumers look for new consumption options, they increasingly choose 2.0 product format. You can see that evolution already happening in Canada, where the 2.0 segment grew from 19% to 24% last year, right? So we expect to see that trend continue. And what that means is that over time, Auxly's dominance in the 2.0 category will become more and more material in terms of overall market, right? So the market is giving us a lot of reasons to be optimistic that we can achieve our strategic goal and become the #1 company in Canada. But as I stated earlier, this is a new industry, new market, and there are going to be challenges and bumps along the way. And I'm assured by our friends at Imperial Brands that those challenges and bumps are not unique to cannabis. They happens often cyclically in every consumer market. And one of the major challenges we faced in 2021 and continue to face in 2022 is price compression, which is currently driven primarily by increased competition. The number of LPs and number of brands in 2021 more than doubled in our industry. So there are many more companies buying for the same consumer dollars. And in our crowded market, where you can't really advertise and talk to people, one of the only ways that a new entrant has to capture consumer attention is by dropping price materially, right? But it's not sustainable, not sustainable, especially in an inflationary environment. Eventually, people run out of money, so the trend levels off. And what we are seeing is a leveling off of price in some of the more mature categories. And we believe that, that trend is going to continue to grow as companies continue to grapple with increased costs, high taxation and constrained access to capital, right? And some of them, perhaps many of them exiting the market entirely. Lots of reason for optimism about the future, but we're keenly aware of the challenges that we have to endure and overcome in order to be a long-term winner in the industry. And I think so far in 2021, Q1, we're off to a great start. Brian is going to give you an overview of Q1 from a financial standpoint, but taking us back to those '22 -- 2022 objectives and how we're going to achieve our strategic goals, we materially grew our top line year-over-year, 147% compared to Q1 2021. We improved gross profit margin quarter-over-quarter on a absent fair value adjustment. We continue to be a leader in innovation, releasing 10 new products into market. and leading in the innovation category. Our innovations capture more consumer dollars than any other companies. We grew our brands and we increased our distribution, right? And what you're not -- what you don't see on this slide is a tremendous amount of effort that Mike and his entire operations team have put into working through automation, process improvements, function consolidation to improve our operations at all of our sites. As already mentioned, we're continuing to see strong sales growth in Q2, and we expect that trend to continue for the remainder of the year. We're going to see our share of market bounce around a bit while the market and pricing stabilizes, but we're okay with that. We are not going to operate at a negative margin or make irrational price drops just to capture market share. Our goal this year is to be profitable, and that's what we're all focused on. We believe we have the highest quality, highest value products in the market and that we are unrivaled in consumer insights and innovation. And we believe we have the right people, assets to execute on our strategy to be the #1 licensed producer in Canada by 2025, have a leading brand portfolio by that time as measured by total sales revenue and share of market and most importantly, to deliver stable and profitable financial performance for our stakeholders. I'm going to stop here, and it's my pleasure to pass this presentation over to Andrew MacMillan, our Senior Vice President of Commercial, to give you more color on how Auxly is going to continue to win with consumers and customers and drive continued growth. Andrew, over to you?

Thanks, Hugo, and welcome, everybody. If we move on to Slide 13, I want to start providing you with an overview of trends that we are seeing within the product categories that we participate in and how we are looking to address them throughout the year. Innovation and new products continue to drive both customer and consumer purchase behavior. We continue to see most of our category managers turn over close to 10% of their assortment on a quarterly basis. We know that as many as 15% of the top-selling SKUs in each category are new launches within that existing quarter. Product life cycles vary by category and consumer segment or price points within each segments. You see new consumer trends such as potency, flavors and terpenes, fast-acting technology and vape hardware driving consumer trends and our innovation launches today. In edibles, we are seeing consumers look for increased onset timing and differentiated cannabinoids in new and interesting flavors. To address this, we have launched fast-acting edibles in new and familiar flavors like pear papaya under the Foray brand. In vapes, consumers are looking for flavor evolution and input differentiation. We are focused on premiumizing the vapor category under our Kolab Project brand and have launched a [ live resin vape ], our first [ solvents ] product that does not use any additional chemicals during the extraction process and one of its first-of-its-kind in Canada. We continue to expand automation in pre-rolls to reach more customers and consumers alike and further deepen our portfolio in the growing infused pre-roll segment. We continue to lead the market in concentrates with innovation focused on potencies, flavor and terpenes and unique textured products. Understanding the importance of innovation and new and exciting products, we can continue to develop deeper consumer insights on desired product attributes, brand traits and consumers' in-store purchasing behavior, continue to convert these insights into exciting new products, innovation to delight consumers and customers alike to strive and understand that full life cycle of a SKU or strain by category to ensure we are remaining relevant and leading the market in innovation. We currently have 60 new SKUs that our -- the product development and innovation team have collaborated on over the course of this year, 10 of those have previously launched are in market today in Q1, and we estimate 20 more in the next quarter launching across the country. As we move on to Slide 14, in addition to these new innovations, brands continue to matter to both our consumers and customers as well. Most specifically, budtenders who are trusted daily by consumers for recommendations of our products. We are building differentiated brands to drive consumers to retail stores, generating sales by winning that moment of truth at purchase. We are connecting with targeted consumers to branded 360 campaigns, that tell a meaningful narrative, which aligns with the DNA of each of our brands and the target consumer. We continue to connect directly with consumers on our own digital channels and our own direct-to-consumer marketing. We recently launched some proprietary research project with budtenders to truly understand the importance of brands, but more specifically how our brands compare to our competition. We know that budtenders are recommending our products, and what we understand from this research is that 75% of consumers are taking the recommendation of them. We continue to work with the budtenders to understand -- to ensure they understand our brands and products. And we can continue to immerse them into our brands through activations like product education events and social events like Kind Winter Fair. At Auxly, we obsess about creating brands that our consumers trust and love. We remain focused on creating a leading portfolio of brands as measured by awareness and share of market. As we move on to Slide 15, you can see that we continue to grow awareness on all 4 of our brands in the most recent quarter-over-quarter. We continue, again, as I mentioned, to connect with the intended consumer segment. We activate on digital media campaigns, both on traditional mainstream and nontraditional platforms were legal. We activate our own digital branded cannabis channels greater than ever before. And lastly, we bring these campaigns to life in the retail environment with in-store trade marketing. But looking at Brightfield Group research data, you can see that all of our brands continue to gain awareness. Back Forty in particular, which we only launched at the end of 2020, has become the fastest-growing brand in Canada and almost doubled in awareness over the course of this year. This is in part driven by its domination of vapes, where it's currently the #2 brand nationally, and its rapid growth in both dried flower and pre-roll segments, Back Forty has grown brands in the dried -- is the fastest-growing brand in dried flower and it's the fourth biggest in Ontario. We continue to see great traction in our other brands as well in Kolab and Foray with Kolab's continued focus on higher potencies and true-to-plant experiences. As mentioned early, we recently launched a series of solvents extract products in the edible, vapor and concentrate formats. With Foray, we are focusing, as Hugo mentioned, on product attributes and differentiation with our novice consumers in mind. We're introducing fast-acting formulations and product rich in minor cannabinoids, and CBN is one of the fastest-growing cannabinoids in the market today. While the wellness segment of the market has been slower to develop, we are continuing to see growth in our Dosecann brand and products as Hugo mentioned. We will be introducing new and innovative products throughout the year into this brand as well. We remain committed to building lasting brands, and we will continue to make investment in insights, innovation and brand development, so that we can ensure we are helping our consumer live happier lives by consistently delivering quality products at a great value under brands they can trust and love. Moving on to Slide 16. We continue to expand our product suite and build meaningful brands with our targeted consumers, we want to make sure that they can access our products in a convenient manner. We have a -- we continue to work strategically with provincial partners like OCS, AGLC, and BC Cannabis to drive our insights to them to ensure we are winning with their assortment. Leveraging our partnership with Kindred, we have access to the largest field sales force in the country. [ They call them ] the stores, driving distribution, in-store visibility and educating those budtenders who are the heartbeat of the industry. Products are currently available in every province outside Quebec, and we are currently only -- and which we are currently selling products in the medical channel to service those customers through customers like Mendo Cannabis. As of May 2022, we have increased our retail presence to over 95% across all stores in Canada and have strategic partnerships with 23 retail chains, including Canna Cabana, Value Buds, Spiritleaf, Tokyo Smoke, Fire & Flower to name a few. These large retail channels make up over 40% of the sales in the market today, and we significantly over-index and share of market with these partners. We -- and we continue to work with these national chains not only on partnerships, but also on product assortment strategies, in-store programming, educating their staff and supporting the program with loyalty rewards. That support was rewarded most recently at the O'Cannabiz Awards, where we won LP of the year. With the introduction of our new and innovative products, growing brand awareness and increased distribution footprint, we believe we have the right pieces in place to regain the market share that we have lost in the first quarter and maintain our position as one of the leading licensed producers in the country. With that, I'll turn it over to our President, Mike Lickver, he'll give you an update on our assets and operations.

Thanks, Andrew. Good morning, everyone. I'd like to take a moment to review our key operational assets and help you better understand how they continue to drive our growth into 2022 and beyond. On Slide 18, I want to start by providing an update on our most recently acquired facility, Auxly Leamington. This is a state-of-the-art greenhouse facility located in Leamington, Ontario. It's 1.1 million square feet, which includes 877,000 square feet of fully completed built-out cultivation space, and the remaining areas are available for additional processing and warehousing space that we can build out as required. The facility commenced harvesting activities at the beginning of 2021, and that has helped launch and fuel our dried cannabis product expansion throughout all of last year. Continuing into 2022 and now as we are the sole owners of the facility, we have exclusive access to a genetic bank of over 150 unique cultivars, and we are able to tailor our dried flower product offerings to the evolving preferences of our consumers as we expand our product portfolio in the 1.0 segment. While we're still building our base portfolio in 1.0 products, consumer demand has shown to be extremely strong for our branded Back Forty and Kolab products is incredibly encouraging. As Hugo and Andrew had already noted, our Back Forty branded flower is already the #4 brand in Ontario, and our pre-rolls have seen tremendous success since the launch of Back Forty 40s in the previous year, moving us to the #9 position in national sales. All of this flower comes from the Leamington site. The Leamington site also provides us with the competitive advantage of scale, lower cost and surety of supply. Production capacity over the last year has increased to its current run rate of approximately 75,000 kilograms annually, and we still have further room to expand. We are currently in the stages of building out additional manufacturing space in Leamington, which will include additional pre-roll making capacity as well as high-speed pre-roll and flower packaging lines, all of which should be completed and operational by Q4 of this year. Currently, Auxly Leamington is supplying approximately 80% of all of the input requirements for the total Auxly portfolio, and we are actively working towards increasing that percentage. Leamington is a unique large-scale facility that provides Auxly with a low-cost competitive advantage to participate in over 70% of the total cannabis market, which is made up of flower and pre-rolls. And we were excited to welcome the facility and its incredible team to the Auxly family. Turning to Slide 19. As you've heard today and previously, we work extremely hard to get as close to our consumer as possible to best understand their needs and how we can best differentiate our products to meet those needs. And over the last 3 years, we spent a lot of time and resources building and developing the research and development and manufacturing capabilities that we need to turn our consumer insights into product innovation faster and better than any other cannabis company in Canada. And that is in large part due to the people, assets and capabilities that we have built at our Auxly Charlottetown facility, which was formerly known as Dosecann. This is a 52,000 square foot state-of-the-art purpose-built facility, where we have a full suite of product development and product manufacturing capabilities, staffed by the best research and analytical mines in cannabis today. And as a result, the rate of our cannabis product innovation coming out of this facility is unmatched anywhere in the Canadian landscape. At Charlottetown, we continue to produce all of our 2.0 products, which include vapes, chocolates, concentrates, gummies, oils, topicals and infused pre-rolls, and we have capabilities to continue scaling up manufacturing capacity as needed to match increasing consumer demand. Turning to Slide 20. Currently, all of our pre-roll manufacturing and dried flower packaging takes place at our Auxly Ottawa facility. We leveraged our partner Imperial Brands, their know-how and their partners to help in securing a first-of-its-kind high-speed pre-roll maker, which allows us to produce slim format pre-roll sticks and make them available in 10 pack size, a format that consumers are increasingly requesting in a fast-growing category. Currently, we package all of our Back Forty award-winning flower in our 40s pre-rolls, as well as our Kolab Project Flower and our 950 Series pre-rolls at our Ottawa site. Due to the success of the flower and pre-roll program since launch, we've invested in additional automation, which will allow us to increase pre-roll capacity by almost 7x as well as high-speed packaging, which will all lead to decreased production costs across the entire pre-roll production process. Pre-rolls were the fastest-growing category in 2021, and Auxly is well positioned to service the growing demand for these products. We have faced significant supply chain disruptions on receiving these additional pieces of automation equipment. However, I'm happy to report that the pre-roll packaging line has been received and installed and is currently undergoing commissioning. And the second pre-roll machine is due to arrive within a month, and we expect commercial production to begin in Q3. I I'll now turn the presentation over to our CFO, Brian Schmitt, to discuss Auxly's financial performance.

Thank you, Mike, and good morning, everyone. Please turn to Slide 22, where we've outlined our financial results for the year, which show the progress we've made in the last 2 years since we commenced cannabis sales, demonstrating a strong positive trend in market share, which is a key indicator of the company's performance. Auxly's revenues closely follow our success represented by market share. However, they are influenced from time to time by purchasing patterns from our wholesale partners. Our share of market for 2020 was 3.1% and improved to 5.5% in 2021. Continuous improvements throughout the year and into the fourth quarter propelled us to the #5 LP position with 7.4% market share. As a result, Auxly reported record fourth quarter revenues of $29.3 million, ending the year with $83.8 million in revenue, an increase of 79%. Year-over-year, we drove significant improvement in Cannabis 1.0 sales through the expansion into the category, which amounted to 31% of our revenues, while maintaining our #1 position in Cannabis 2.0 sales, which accounted for 69% of our revenues. The next slide, Slide 23, captures our gross margin, adjusted EBITDA and net losses for the year, all of which improved. Gross profit margin for the year was 23%, with a mix between product categories with 2.0 products being the main driver. As previously mentioned, SG&A decreased in 2021 by approximately $900,000, which included the impact of Auxly Leamington consolidation and higher selling expenses in support of store openings, marketing initiatives and fees associated with higher revenues. An adjusted EBITDA loss of $21.9 million for the year was an improvement of approximately 24% over 2020, primarily the result of increased gross profits, partially offset by higher selling expenditures. And finally, the net loss for the year improved by $51 million as compared to 2020. The improvement was primarily a result of net income related to the sale of KGK, recognition of a gain from the Imperial Brands debenture amendments and improvement in operations. As we move forward into 2022, I wanted to provide a quick reminder of our recently reported Q1 results and some positive impacts we expect going forward. Turning to Slide 24. On the left-hand of the side of the slide, you will see that the seasonal impact of retail sales was evident in the first quarter, similar to the pattern in 2021. Our share of market for the quarter was 6.9%, a slight decline from the 7.4% in Q4. However, we continue to maintain our #5 LP position in the company -- in the country. The right side of the page, Auxly reported $22.6 million in revenue in the first quarter, an increase of 147% as we continue to drive significant improvement in our Cannabis 1.0 sales, which accounted for 39% of the revenue while maintaining our #1 position in 2.0 with sales of 61%. While revenue decreased in Q1, we anticipate that the revenue pattern for the balance of the year will be similar to that achieved in 2021 based upon continued growth in total retail sales, leveraging the capabilities of our newly acquired Auxly Leamington facility, increased capacity and efficiency, particularly in the pre-roll category in the second half of 2022 and sales associated with new innovations as Andrew spoke to earlier. Lastly, while revenue will be one of our main contributors to becoming adjusted EBITDA positive for the year, we are also focused on maintaining a strong balance sheet and leveraging our assets. Earlier in the year, following the acquisition of Auxly Leamington, we announced the closure of both Auxly Annapolis facilities. Since that time, we have made progress in both facilities and are pleased to announce that negotiations are moving along well. The sale of these non-core assets will contribute further to strengthening our balance sheet without dilution. And with that, I'll turn it over to Hugo for closing remarks.

Thanks, Brian. Look, that concludes our presentation for the day. I want to thank all our shareholders listening in and for their continued support, and especially those in the room. I know it's a tough time to be a cannabis investor. I hope what we've managed to do today is at least give you a little bit of insight as to why we continue to be excited about the industry and Auxly's ability to be a long-term winner within that industry. And we truly believe that we have the right strategy and we have the right people, assets and capabilities to execute against that strategy. And we are committed as a management team and as an organization of working our socks off to doing everything within our power to achieve those goals. So I want to thank everyone again. I'm very much looking forward to getting together with you shortly for our Q2 results in August. So we're going to wrap things up here and answer a few pre-submitted questions that were submitted by shareholders prior to the meeting. I'm going to turn it over to Julie to read the first question.

Thanks, Hugo. The first question is, does Auxly have any plans to expand into new jurisdictions?

This is a question we get often. So as we've stated throughout, we're focused on Canada. We feel you have to win at home before there's a reason to believe you can win elsewhere. But that being said, we are regulatory experts. We are always looking at emerging jurisdictions. We have done an internal review as we do every year to look at jurisdictions that are of interest to us. Auxly Leamington gives us different capabilities. So we do have plans to explore external jurisdictions and we have ones that we like particularly. So keep your eyes peeled for that. But our primary focus is Canada, Auxly Leamington gives us capability to explore internationally.

Thanks, Hugo. Second question is, has Auxly sold the 2 Robinsons assets yet or Auxly Annapolis assets yet?

I think as Brian mentioned, we're making significant process -- progress on both assets, especially on the indoor asset is further along. So expect to see some news soon.

And what is the update on entry into the Quebec market?

Yes. Look, I'll take that one as well. Quebec continues to really set up barriers to entry for people that don't operate in Quebec, right? That part is pretty clear. Now we obviously don't agree with those policies. But we're not operating within the province yet. But we are continuing to have meetings with the SQDC to see how we can bring value to their assortment. We are continuing to push medical product through some of the medical providers, but we're not in Quebec yet. And I can't give you a hard estimate on when we're going to get in.

Thank you. The next question is, any -- can you provide any financial guidance for the rest of the year?

Sure, I'll take that. As with many other companies, we're not in a position to provide formal guidance as the industry is still maturing and very volatile and dynamic. I can, however, reconfirm some of the items that we've previously disclosed. Number one, being our key priority for the year is to become adjusted EBITDA positive. And that will be through increasing revenue and improving gross margins, which will be supported, as Mike touched to -- touched on the rapidly declining cost of dried cannabis coming from our Auxly Leamington facility. Number two, we will continue to make improvements in our operations and automation, while keeping to the lower end of our capital expenditure range. And lastly, we will continue to manage SG&A in line with recent experience, including the impact of consolidation of Auxly Leamington with some increases throughout the year as revenue increases. So there are some costs tied directly to revenue.

Thanks, Brian. Next question is, will Auxly need to do more financings in order to support the innovation or new product launches as well as scalability?

More generally, in terms of financing for the business, not necessarily in the narrow scope of innovation and product development. We've been successful to date in obtaining various sorts of -- sources of financing to enable the business to be a top LP where it is today. However, as we've mentioned in our presentation, we are looking to be adjusted EBITDA positive to mitigate and reduce any reliance on funding going forward. Where funding will be required, we are focused and conscious of equity dilution. However, we spent a great deal of time considering other forms of non-dilutive transactions such as the extension of the convertible debenture from Imperial. Non-dilutive transaction, new debt, where we have unencumbered assets, provided the terms of the debt are appropriate for the transaction. And lastly, disposing of non-core assets. So we've obviously recently announced Annapolis, but we disposed of non-core assets in prior years such as KGK.

Thanks, Brian. And last question is, what is management doing to address the share price?

That's a tough question. As sort of Hugo said in the closing remarks, overall, prices, North and South of the border in many industries have declined rapidly. I think cannabis has been a challenge for an extended period of time. All the management team here are shareholders. So we are aware and obviously, cognizant of the share price. I would say cannabis has been a tough spot, and there has been significant fluctuations from time to time in the share price, but we do not speculate on share price changes. What we can do is manage is control our own initiatives and really execute on our strategic plan. That's the best thing we can do. And we look to continue to separate ourselves from other LPs. And hope that our present and future shareholders see that in the longer term and make and choose Auxly further cannabis investment.

Thank you. That concludes the formal part of our presentation and meeting. So operator, we can now end the call.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. We would like to thank you all for participating and ask that you please disconnect your lines.