Avant Brands Inc. (AVNT) Earnings Call Transcript & Summary

Thank you for standing by. This is the conference operator. Welcome to the Avant Brands Fiscal Year 2023 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to [ Cole Lessir ], Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome, and thank you for joining Avant Brands Fiscal Year 2023 Results Conference Call. My name is [ Cole Lessir ], Investor Relations for Avant Brands. Speaking on our call today is Avant's Founder and Chief Executive Officer; Norton Singhavon; and Chief Financial Officer, Miguel Martinez. Avant's Chief Operating Officer, David Lynn, is also present and will be participating in our Q&A session. Our 2023 annual results were disseminated yesterday and is now available on SEDAR plus and on our website at www.avantbrands.ca. Before we get started, I wish to remind everyone that some statements made on today's call are forward-looking in nature and, therefore, are subject to certain risks and uncertainties, which are all outlined in detail in our regulatory filings available on SEDAR plus. On this call, we will refer to the company as Avant Brands or Avant. I will now turn over the discussion to Miguel to share the company's financial highlights. Norton will then provide a strategic update. Please go ahead, Miguel.

Thank you, Cole. Good afternoon, everyone. Thank you for joining us today. We are pleased to report another strong year for Avant Brands. Our press release issued this morning summarized key financial and operational highlights for the 2023 fiscal year. In the latest fiscal year, our company achieved milestones across all financial metrics, indicative of our growth trajectory and operational efficiency. Gross revenue achieved a record high of $30.2 million from the sale of 7,105 kilos, marking a 33% and 93% increase compared to the previous fiscal year. Net revenue similarly reached a record high of $26.3 million, reflecting a notable 31% increase compared to the previous fiscal year. The Canadian recreational net revenue was $15.8 million, showing a 10% increase versus the previous fiscal year. Our B2B and export revenues experienced exponential growth, reaching a record $10.2 million, indicating a 96% increase compared to the previous fiscal year. Our overall gross margin slightly increased to 34%, an improvement from the 32% reported in previous fiscal years. This is a reflection of recreational gross revenue margins of 48% and export sales with a margin of 35%. The overall average is slightly reduced from the sale of aged and out of spec product, which is sold in the Canadian B2B market. The weighted average selling price for flower decreased to $4.23 per gram from $6.07 per gram in the previous fiscal year. It's important to note that despite this overall decline, our export selling price actually increased during the year, and we have maintained pricing integrity with our flagship recreational brand BLKMKT without implementing any price reductions. The decrease in average selling price can be attributed to several factors. Firstly, there was an increase in bulk export sales, which have a lower average selling price due to the absence of packaging cost and excise taxes. Additionally, the relaunch of the Flowr brand, which was priced lower than Tenzo and BLKMKT contributed to this decline. Furthermore, a strategic decision was made to divest Flowr's existing stale dated and off spec inventory at discounted prices upon assuming ownership during the fiscal year. We continue to remain confident in our current pricing strategy amongst all channels. Selling, general and administrative expenses on the cash basis, so net of depreciation and stock-based compensation, totaled $8.8 million, which was an increase of $1.8 million over the prior year. This is primarily due to increases in professional fees, salaries and wages and Health Canada regulatory fees. While the increase year-over-year is 26%, SG&A as a percentage of net sales has slightly decreased from 35% to 33%. Adjusted EBITDA attained a new pinnacle at $4.4 million, reflecting a 132% increase compared to the previous fiscal year and an adjusted EBITDA margin at 17% of net revenue indicating solid operational efficiency and profitability. Net loss from operations significantly narrowed to $1.5 million, a notable improvement from the $8.5 million loss reported in the previous year. We are confident that the company will continue to drive revenue growth while reducing its losses and reaching net profitability in the near future. Cash flow from operations achieved a record positive inflow of $5.4 million, which is an $8.9 million improvement over the $3.5 million outflow in the previous fiscal year. This also marks our sixth consecutive quarter of positive cash flow from operations and underscores our commitment to sustained financial health and operational stability. These results reflect our company's dedication to driving growth, enhancing profitability and delivering value to our stakeholders, amidst a dynamic market landscape. Earlier this week, the company announced the restructuring of two of our seller financings with F-20, our largest obligation, which was a quarterly payment of approximately $1.8 million, is now significantly reduced to $450,000 per quarter. MENA, which was also due in full in December is not extended another 6 months -- is now extended another 6 months with approximately $60,000 in monthly payments. These amendments enable Avant to reinvest our strong cash flow from operations into near-term strategic objectives, so the company can remain committed to growing the business in a sustainable manner. For more information about our debt restructuring agreements, please visit our website. With that, I will turn the call over to our CEO and Founder, Singhavon, to expand on our operations and provide an update on strategic initiatives.

Thank you, Miguel. Avant Brands achieved record-breaking results in 2023, with momentum expected to continue into 2024, thanks to ongoing efforts to optimize cultivation efficiencies, reduce expenses and most importantly, drive revenue. Our recent product launches have been well received, reinforcing our leadership in the premium cannabis space. Dedication to quality and consistency across operations has enabled us to expand market share even in this competition. This quarter, we executed four new export agreements, driving growth in the international cannabis distribution market. Export sales is our fastest-growing channel, supported by partnerships in Israel, Australia and Germany. Export is a category that I'm most excited about, as it gives us a chance in building the most iconic cannabis brand in the world, BLKMKT through trademark licensing agreements. In Q4 fiscal 2023, Avant saw a temporary sales dip due to product accumulation for large export shipments, which were later fulfilled in Q1 of 2024. Decreased orders from the Ontario cannabis store were also a factor, influenced by inflation, changing dried flower consumption trends, and demand for larger format products. Avant's performance with OCS was further affected by limited product visibility and support in major Ontario retail chains, mainly those with 10 or more stores. This stems from Avant's decision to avoid pay-to-play data programs, preserving adult gross margins and ensuring compliance with the Alcohol and Gaming Commission of Ontario's policies. Avant maintains its dedication to the Canadian adult-use market and global expansion. Anticipated gross revenues for Q1 2024 falls within the range of $8.2 million to $8.7 million, further solidifying BLKMKT as a leading global cannabis brand. While Q4 presented a temporary setback, we have restored our previous run rate from earlier quarters in fiscal 2023. With confidence, we project continued growth as we offset decline in Canadian adult-use revenues with lucrative high-volume export deals. In conclusion, Avant Brands is dedicated to leading the premium cannabis industry through innovation and excellence. We appreciate the ongoing support of our shareholders as we continue on this path of growth and success. Together, we are poised for our future fill with growth, opportunities and success. Thank you for your support and interest in Avant Brands. Now we will open the floor to questions.

[Operator Instructions] first question comes from Jordan Kay, private investor.

Norton, Miguel, David. I've got a bunch of questions. I think I'm going to split it up in half. I'll do the first half and then get back in the queue and let others ask some questions. If that's all right?

Honestly, if you have questions, you can just go through them. We don't have to jump out and jump back in.

All right. Well, here we go. Question for you. The first one is, if you guys produce, let's just say, this quarter, you had produced 3,000 kilograms of cannabis. What does that look like in revenue, if you could turn around the next day and sell all of it?

Yes. I mean a quick and dirty math is you use our average selling price of -- I think it was, what, $4.40 a gram, $4.50 a gram. So, one thing you got to consider though is that 3,000 kg isn't all fully monetizable at that price point, right? Some of it is going to be popcorn, some of it is going to be trim. So out of 3,000 kg, our sort of quick and dirty math is 50% to 60% of that is what we call our ultra-premium flower. Then there's another, call it, 20% to 30% of popcorn and small buds and then the balance is trim. So popcorn and small buds, we use for our prerolls. Trim goes to extraction. But yes, that gives you an idea of sort of how that breaks down. So it wouldn't be 3,000 kg times $4.30 a gram. It's more like 1,600 kg times $4.30 a gram and then you would probably take another 20%/30%, assuming we have that velocity and demand for pre-rolls and move that at -- call it, a lower price point somewhere between $2 to $3, depending on whether we sell at bulk or whether it goes into our products.

Okay. Yes. And I can do some rough math on that, and that puts you a little bit higher in terms of revenue than it looks like Q1 is going to come in. So -- but that's good to know. My next question is about the current financing payments that you have. So by my calculation, it's somewhere around $1 million just in the financing from the Green Tech loan, the F-20 and the MENA. Is that right? That this quarter will even at $1 million?

Are you speaking. . .

Miguel, do you want to take this one?

Sure. Sorry, go ahead, Jordan. I didn't think your question was quite finished.

Yes, that's okay. So the amount of money that you're going to have to pay MENA, F-20, and whoever the lender is on Green Tech here in -- well, I don't know if it would be Q2 or Q1 based on those refinancings. But let's just call it, the next quarter or so, Q1. Well, I guess it depends on when those agreements are effective. Anyway, the more of my point here is, based on your eight-point-whatever-it-is in Q1, if that carries into future quarters, does that create enough cash flow for Avant to cover, all of its operating costs, all of its SG&A, all of its financing payments in terms of cash flow? Or does Avant currently need more money since there is very few dollars in cash on the balance sheet right now to take its obligation?

Miguel, actually, let me take this one. Jordan, so yes, I understand your question. So yes, I've done the math, we're about, yes, just under $1 million a quarter for debt obligations. To touch on that, obviously, Q4 was a little tight. But if you look at sort of the run rate that we had throughout Q3, our EBITDA and cash flow range from anywhere around $1.6 million to $1.9 million. So assuming that our revenues can sort of remain flat at worse at that $8 million mark, there should be enough cash flow to service these debt payments, which is why we structured them the way we did. To give ourselves comfort and cushion that we wouldn't have to restructure these again at some point in the near future.

Totally. And Nort, that's what I was hoping that you'd say. My concern is that I took a look at the current liability section and the accounts payable went from $5 million to $13 million in 2 quarters, which like, to me, what that means is that you may have been paying off some other debts, but other debts are racking up and let me rephrase that another way. Should we expect that number to go higher given the cash flow? Meaning those debts might get paid, but is there other stuff that's not going to get paid?

No. So I would say having a slow November and December definitely put a hindrance on our ability to sort of get caught up with everything. And especially, we wrote a big check in November for $1.8 million to the guys at F-20. Then we had a slow in November and it's full December. So we felt that cash crunch in January. We felt that in early February. But the products that we were pushing out the door in December and January, those cash flows started rolling in over the last few weeks. So we're in a position now where it was tight in the early part of the year, but we're starting to get caught back up slowly and surely. So I don't see that number increasing. I see it hopefully decreasing.

Okay. I mean, that's good. And, Nort, you talked about this in previous calls, but the holiday quarter where all of were all the local governments order from you guys. Isn't that Q4? Or am I missing something?

Yes. That's Q4. Yes, but you have to remember that most of these orders, they're planning out a reasonable time in advance, right? I don't see cannabis as a hugely seasonal product, in my opinion, but this is my personal opinion. But you also have to remember, Jordan, like what we noted in our -- and what I had read out and also in the earnings report is that our rec sales are declining, and I'm not going to sit her and sugarcoat it. Our rec sales are declining, and that is a major factor in why Q4 was where it was.

Is this a value buds problem?

This is a whole -- it's a plethora problem. So number one, obviously, inflation, who's going to go buy BLKMKT, which is one of the most expensive cannabis brands in the country, right, number one. Number two, we're seeing a lot of uptick in higher velocity, higher format SKUs, right? And honestly, the biggest thing, in my opinion, is this retail pay-to-play data programs. We don't participate in it. They are pricey. I have nothing against those producers who participate in that. But in my opinion, especially BLKMKT being the sort of the premier brand that it is. We shouldn't have to quote/unquote grease to get our products supported, right? So we're losing market share primarily in Ontario for all those reasons that I just stated. Now what's interesting is BC has actually -- if I'm correct, David, has sort of picked up for us over the last fiscal -- over the last fiscal year. So Ontario is going to be a blood bath. I mean I don't like to name drop, but when we recently went through this analysis on should we participate in the data programs. BZAM was one of the ones that was brought to us, right? We said BZAM, does it, they're killing it. They're moving lots of products. They're dominating in all categories. But look at what happened this morning. They filed for CCAA. So our thought is that our rec business is going to decline in Ontario, probably for the next couple of quarters. I don't see it being overly concerning, but I see as -- if we weather it out, we don't give up 15% to 20% of our gross margins on these data programs that eventually these companies will pay-to-play themselves out of business. And we'll remain -- we'll survive and our rec sales and market share should eventually turn back around and start growing. But it's hard for us to grow the rec business aggressively without doing what I call stupid things.

Yes, totally. And again, I would never recommend that you do anything that would put the business at risk. I just wonder like if you're not in, like, let's just say, a chain that's got 100-plus stores, and there was a way to work on something creatively? That might be interesting, but we can talk about that another time.

The problem is that it's not a one or done right, you open up Pandora's box. You get in chain #1, then chain #2 that's been supporting you like, hey, buddy, like what's going on? Well, how come we're not getting this deal, right? And you say, well, they have more stores than you. So it's -- it's not a one store thing. If you start it, you have to continue it and other stores are going to expect it. So even stores that have been supporting you, that have been moving your product maybe hundreds of thousands of dollars every few months that weren't getting this sort of kickback are going to ask for it. And it's just -- it's something that is, I think, a very slippery slope. It would -- it's a lot of work for us to try and grow our rec revenues by, call it, $1 million a quarter. We have to do a lot of things. But we look at how hard it is to grow our revenue by $1 million in export. Not to say that it's extremely easy, but it is a lot easier than trying to push water uphill on rec. When you have companies with -- some companies with unlimited bankrolls almost that have given up a good chunk of their margins for that shelf space.

Right. But, Nort, I assume that export picked up here in Q1. And the revenue is still around 8.5% on average of the numbers you gave. And the market 8.9% -- and again, I don't know how this happened, but if market's 8.9% in Q4 of 2020 -- whatever the prior year was, Q4 of 2022. And so the promise here, and I'm not saying that there's anything nefarious here, but the promise was, hey, where you were able to do 8.9% with 3PL and our other assets, you're going to -- we're going to buy by Flowr, right, which is going to grow our base by 30%/40%. And so you should expect 30%/40% additional on top of that. And so like the promise of $8 million quarter seems to be a little bit light. So can you talk a little bit about that?

Yes. So Q4 of last year, in my opinion, was completely sort of sandbagged. And what I mean by that was that there were export shipments that should have gone out in Q3, that went out in Q4. So realistically, last year, Q3 probably should have been $6 million and Q4 should have been, call it, $7 million, right, instead of $8.8 million and $5 million, if that makes sense. So that sort of touches on that. But on your point, yes, no, I completely agree with you. Our thesis this whole time has been we're going to buy a Flowr because we have excess unmet demand. And we still stand by that. We have tremendous unmet demand. So the challenge is that we didn't forecast our rec business to sort of decline at the rate that it has declined over this fiscal year, right? But looking into the future quarters, what I see is, I see us getting close to being able to sell all of our products. I think we're already getting visibility into that. It's going to be a mix of export. It's going to be a mix of rec and it's going to be a mix of Canadian wholesale. Once we're in a position where we can stabilize, and selling the vast majority of our products, then we look at slowly upgrading these sales channels, right? We might take some bulk wholesale sales that we're getting -- I don't know, $2.50 or $3.00 domestically and look to upgrade that into export channels. But again, there's significant demand that we're seeing in export. We signed 11 agreements to date and 0 of them were cold calls. They were all inbound to us. So these are other groups and other countries that know who we are, that know our product, and they reach out to us, and they want to do business. So we're excited about future markets or even expanding our current agreements in export.

Of the four that you issued that press release about are any of those in Q1?

I'll let David Lynn touch on that one.

No. We've just -- we mentioned that in that news release, we've started to ship on 1 of those 4 deals, should be kind of early Q2, most likely end of Q1, early Q2. So it's -- it can be a long sales cycle and then it can take a while to activate those deals. But by the same token, some of the deals that we did several months ago, or late last year, those are starting to monetize. And the ones that we did even further in the past, those have been building over time. Sorry, I would share Norton's optimism about the export market and also highlight the point about domestic B2B. That's a segment we've been in and out of over the years depending on whether we had excess inventory or not. But we reactivated that channel in Q1 and -- and we've had very good early success. So there's good upside there, too, and it's certainly at a minimum, an outlet for our excess inventory.

Okay. Let me see, I've got a few more here. Did we talk about GreenTec Bio? So that property is now mortgaged, right?

Correct. Sorry, not mortgaged, borrowed against. Yes, yes. Slightly different.

Yes, slightly different. So it's borrowed against. I think the number is $3.5 million.

How much value is left in that property?

I mean the value is in the eyes of the beholder, right? Somebody wanted that. .

If you went to the market, you don't know how much that would be worth?

I would say the government assessment, which I would say -- and where we are British Columbia, the tax assessment is usually fairly accurate to what the property is worth. And furthermore, we did run an appraisal also before we ran the -- before we bought against it. And it's come in basically around -- the appraisal, I believe, was, I want to say, $3.8 million/$3.9 million and the government assessment was around $3.3 million. And the reason why we borrowed against that was -- I don't know if I told you in the previous call, but we were thinking about selling it and leasing it back, right? But now, we're at the mercy of a landlord, right? Who knows who the future landlord would be, whether they be collaborative or difficult, right, number one. Number two, Kelowna industrial real estate has been one of the hottest sectors in all of Canada, right? So we lose the appreciation on that. And as I said, we're not in control. We're not in the driver seat. So we thought of, well, why don't we just borrow against it, pull money against it that way, we're still in control of our destiny. We don't have to deal with the landlord. And when we sort of broke down the numbers between paying interest versus paying a cap rate on a lease and assuming a very modest 2% growth per year on the real estate value, we were way better off borrowing against it and paying the juice on the interest versus losing control and paying a lease.

Yes. And that makes sense to me or -- and I -- the reason I was asking is because if that were a source of further capital, question is, was it worth selling? And ultimately, trying to pay down some of the debt that you guys currently have, if you're not able to sell all your current capacity, but I know you all worked very hard on that facility for a while now. No, there is -- I brought this up before, there are some pretty sizable management focuses associated with that. And I did see -- and this will be two questions. I did see there was $1.5 million worth of share-based payments. With the total market cap, I think the company had today of like CAD 27 million or CAD 28 million. And I think the bonus is on the GreenTec Bio are north of $2.5 million. If you could tell me if I'm wrong there. Like all the shares that are being issued -- and again, I'm not saying it's a lot of comps, but I'm saying like the company -- the market cap, the numbers can you shed some light -- because your common average investors like me are sitting here thinking we're getting diluted fairly substantially. And we don't know when the corner is going to turn so that our stock and the [indiscernible] that the company has more not less.

Those milestones have a floor price of $1. I'm not sure if you're aware of that. So the lowest price per share...

Yes. I wasn't aware of that. So 2.5 million shares of options are issued?

So 2.5, I don't remember the dollar value, if it's $2.5 million, then it's $2.5 million at a minimum price of $1. So if the stock is at $2, we get at $2, but the stock is at $0.10, we still get it of $1. And it has staggered over time. I think really what actually is more realistic to hit on that, it's about $1 million. And then the rest is a future 80,000 square foot expansion and getting that built out, getting that license, getting that operational. Who knows if ever you going to get that far.

Right. That makes sense. Okay. So yes, I think maybe if you guys wanted to put out something about that in one of your spreadsheets about that. Because I think -- and do you know what the $1.5 million worth of share-based payment was in the balance sheet for this quarter?

Sorry, say that one more time?

There was $1.5 million worth of share-based payments on the balance sheet?

Yes, I don't exactly recall what that went to. Some of it might have been compensation that we issued in shares. Sometimes we have the occasional consultant, whatnot, that wants to take compensation and shares also. But there isn't one -- There's no one particular thing. There wasn't like hey, we gave this guy $1.3 million in stock. For example.

Yes. I think we're all just -- there's a lot of tension when revenue comes in pretty light, right?

Yes. I agree.

Looking at things -- you wouldn't look at things normally, if the cash was flowing. But we're looking at everything now, and so that's some of the stuff that we're thinking about.

Mind you, we're looking 3 months behind in everything, too, which also sort of sucks, right, because I'm excited about things that have happened in Q1, which ends today, and we're talking about stuff that happened a few months ago. It's -- yes, it's a downside of public reporting, right?

It is. I mean I think it's also probably good that you had that insight for some of your other negotiations. But Nort, are the finances in your mind, a place where you'd consider selling the company? Has that crossed your mind? [indiscernible]

Are you asking me, my personal opinion or my CEO opinion?

Well, you can give me both and let me know what you're thinking.

I mean my personal opinion would be an F-no. My CEO opinion is that I have to consider sort of my fiduciary duty, right? I'm not interested in selling the company at $0.10. If somebody came in at -- or $0.12, somebody came in at 100% premium at $0.24. That doesn't interest me today. Now if we're on the verge of bankruptcy, that might be a different story. But I see the sales that are coming in from Q1. I see the cash flow that's coming from all of our initiatives to make up for that s***** quarter that we had. So I'm confident, but I'm also a bullish guy. So no, I -- No, I'm personally -- I'm not interested. But at the end of the day, I have a fiduciary to bring things to the Board, right? If somebody came along and said, "Hey, we're going to give you $0.35 a share for the whole company. I have a duty where I had to bring that to the Board and say, "Hey, XYZ LP is offering $0.35 a share. What do you guys think?" Right? And it would be a discussion among management and obviously, they would partially consider the CEO's recommendation. And maybe they would say we follow management's recommendation not to pursue the sale or they may say, we disagree with management, and we would like to proceed engaging in a transaction here.

And I know you love people to come to you and stuff. It's just -- if things are tight, that might be something that you'd want in your back pocket. And I know it's unthinkable considering where we thought we'd be at this time, but...

I feel like the tide is behind us, though, with the debt restructuring and sort of this nonperforming quarter behind us, like this is all in the past, right? Like we're not sitting here at December 1. At December 1, if you ask me, it might be a different story, right? I'm like, wow, we just had a terrible quarter. Our cash flow is going to suffer in January and February, what the heck do we do guys? And imagine we didn't restructure that debt. I'd be like -- yes, we've got to do something. But what do we do? We push more product out the door. We signed four new export agreements. We relentlessly negotiate the terms of all that debt financing. We reduced our payments with F-20 alone by $1.2 million, right? So today, where it stands, I'm a lot more optimistic about our future and our cash flows and our ability to survive and service all of our obligations simply because of all these initiatives that we've done.

Okay. That sounds good, Nort. And I know you probably don't have this, and I know other people probably ask the same question. Do you have any visibility into whether or not Q2 will be a good quarter?

I would say -- my thoughts for whether it's Q2, Q3 or Q4. I think somewhere in those quarters, we can expect a record quarter, but I wouldn't put your hopes up on a $20 million quarter, if that's what you're asking. I think this company is going to have sort of slow and steady growth. That's the only way it's going to be sticky revenue. But what we're seeing is that the company is on a growth trajectory and will continue to be. Yes, we had a slight blip in Q4, but we're sort of back on track in my opinion, to, I think, even better than what we've previously done.

No, those were excellent answers to my questions. I appreciate all your time.

No worries.

The next question comes from Jeremy Lee, self-employed.

Okay. So based on the -- you said 60% premium $4.50 per gram and 60% popcorn/trim $2 or $3 per gram. I get a weighted average of about $3.30 per gram. So -- Well, actually to start off. Can you talk about the discrepancy between the kilograms produced and kilograms sold?

Yes. So part of that is going to be, like I said, popcorn and trim, so that's going to go into inventory, right? So that doesn't really get -- that doesn't move at the velocity that our regular ultra premium flower moves. As highlighted in the press release, part of it is that we had to accumulate lots for export shipments. So how export works is that we're not shipping a bunch of orders every day for $25,000 or $50,000, right? We get a purchase order. It could be anywhere from a couple of hundred grand, upwards or even close to $1 million, right? We don't have all that product sitting in stock when we get that purchase order. So we have to accumulate it. Sometimes it could take 2 months, 3 months, and we got to do all the import permitting from the receiving end, then we then have to apply for the export permit on the Canadian side. So that takes time. That's why there's a discrepancy there. And also, as I mentioned to Jordan and on this call, we had a weak Q4 in terms of rec sales.

Okay. So full capacity right now is about 16,000 kilograms divided by 4 per quarter, it's about 4,000 kilograms. So you have the 40/60 weighted average number, $3.30. That's about like $12 million per quarter in revenue. How far are we getting from full capacity?

I would say we are pretty close to full capacity. It's fully selling that product. So our -- so that number of 16,000, it's -- I actually -- how we do it is we don't operate at 100% capacity. And what I mean by that is that to operate at 100 capacity, 100% capacity means you're probably running 8-week strains, which we don't. Part of that also means that you don't have a room shutdown for more than a day, right? The room comes down to harvest and you sanitize and clean and got new plants in there right away. So typically, we try and target a 70% to sort of 78% production capacity as an output versus actual capacity. That 16,000 number is also slightly skewed because I think the more accurate number might be taking sort of a 17,300 approach and times-ing that by sort of 70% for the actual output -- if that makes sense. I know it's a little confusing.

Okay. Could you talk about the international market and how it's different from domestic as in like revenue per gram and margin per gram? I know just some notes about that in your statement, but...

Yes. So in the Canadian market, we have to put in -- we put our flower and drawers and we sell it. There's -- it can be labor-intensive at times because we hand package for the most part. And we're reliant on the government and their reliant on the stores and the stores are reliant on consumer trends. So there's a lot of variables that come into play, right? You get a couple of Reddit reviews where people say, "I don't like this product". It affects the sales, right? BLKMKT, our rec brands for the most part, sort of have a -- our consumers like change, right? Whereas if we were a value brand, I feel like consumers might say, hey, this is a cheap and cheerful ounce, and I like what I've been previously getting. So it's keeping up-to-date with rotating trends. It's dealing with the consumer trends. It's also at the mercy of -- as I mentioned -- the stores and the bud tenders. What I like about export is that we ship it in 1 kilo bags. So pricing ends up being less on a sort of gross revenue amount, but we don't have to pay excise tax, okay? We don't have to spend money on packaging, and it's high volume. We're relying on sort of our export client, and they buy enough product to sort of maybe get them through the next month or 2, right? Whereas these provincial buyers are very conservative because they don't want to sit on inventory. And more so, we have less competition in these other markets, right? We're not fighting other groups that are that are doing data programs in the retail stores, right? It's a lot less competitive, I think, in my opinion. And our gross margin percentage is relatively equal, I believe they're both sitting sort of in that 40-ish to almost 50%. And sorry to add one more thing on top. Licensing our BLKMKT brand is interesting too, because in Israel, on top of our selling price, we get an additional -- it's just under 10%, like 7 -- sorry, 2.5% on their gross selling price, which ends up being, I would say, 8% of sort of our selling price, give or take.

Okay. And I'm not quite caught up on the Germany and Israel markets, and Australia. Can you talk about how it's different from the Canadian market, the size of it, things like that?

I don't really know honestly, the details of the size. But I can tell you, from our perspective, sort of our sales pipeline, Israel and Australia are our two biggest export markets. I would say they're fairly close in line in terms of dollar volume, dollar value sold. I would say also previously sort of our average run rate for export was about $1 million a month, however you divide that among the countries. I would say it started off, obviously, more weighted in Israel, and that's sort of tipped over now where it's fairly even. But I see visibility into sort of $1.5 million to potentially even upwards of $2 million a month in export sales for this company moving forward. And that's what we're working to achieve.

The other thing I would just add is, when you look longer term, just to echo Norton's comments, we started in Israel. That's where we shipped the most -- then we went into Australia. We've done really good volumes there. And we have the highest client count in Australia. Germany is our newest market. The markets are all in different stages of their evolution. But if you look at the population of those countries, Israel's 9 million people, Australia is 27 million people in Germany, which we're just entering is 84 million people. So when you look at these markets long term, and you assume that the cannabis sales kind of normalize more in line with the population, it's pretty exciting to be entering new markets in Germany. It's the third largest economy in the world, right? So we're doing quite a healthy business right now, but we're most excited about the future because we're getting into more and more markets. As we sign new deals, we have a word-of-mouth effect where we get calls from new clients. So there's enormous upside there. And obviously, there's other countries that are accepting exports as well, whether it's U.K. or Ukraine or Poland. So we're going to explore those markets as well.

Okay. Yes, this quarter was pretty scary. Could you talk about like breakeven if we're looking at looking at breaking even this quarter and if we're profitable this quarter, what are the margins going to look like?

Miguel, do you want to take this one?

Yes, happy to. So if I understood your question correctly. You're looking at that average that $8.2 million to $8.7 million gross revenue guidance that was provided, and curious about breakeven. This quarter, from a cash flow perspective, we're looking to be very strong and very healthy. And as Norton alluded to earlier, a lot of these sales, it wasn't just Q4 that was struggled. It was Q4 and the beginning of our Q1. So a lot of this ramp that we're talking about a lot of this in coming back to our previous growth rates came in the second half of the first quarter, and that's putting us in a strong position to pay down some of our liabilities, and we will be better than breakeven on this quarter. And that trend is looking to continue into Q2.

Okay. And I know when you're talking to Jordan, you had a question where you wanted to ask about it as like to answer it as a CEO or as you personally. Can you talk about like the debt refinancing, how you thought about that personally and just thoughts and feelings on it?

Yes. I didn't like the dilution that we took on that. I didn't think our share price would be at $0.10 by the time the 5-day VWAP rolled around because when we started renegotiating with them right after we made that payment in November. So we were in meetings. I don't remember where the share price was around that time, but I want to say it was like probably $0.20, 20-something cents. So yes, listen, like as a shareholder, it hurts me every time we have to dilute. But we also had a dismal Q4, which I think it would hurt more if we had to kind of pick up the ball and go home. And what I mean by that is some sort of insolvency proceeding, right? That is something that scares me more than anything. So to take a little hit on the dilution. At the same time, we had a dismal quarter. I feel like it's ripping the band-aid off, like guys like let's just get it done, get this behind us, restructure it, take the dilution, clean up the debt, push things out further, make up for the s***** quarter and let's look into next year. Have a basis for a strong 2024.

Okay. And then the fact that demand is hard to -- whatever pay-to-play, whatever, the fact that demand was weak is pretty surprising, like considering all the good recommendations and how you get on Reddit. Can you talk about like if you saw that coming? How. . .

I would say that -- no, we were a little bit surprised too, that it sort of happened as quickly as it did. I mean, we were seeing the trends throughout the fiscal year. Like our strongest rec quarter-to-date, I believe, was still in fiscal 2022. I forget which quarter it was. But 2022, rec was extremely strong. 2023, we started seeing some changes quarter-over-quarter. And there were not major changes, but you start to see a steady decline. And I agree with you. I mean we have, in my opinion, some of the most consistent and high-end cannabis in this world, and it actually drives me insane when I see that -- I'm not going to name names. We have some of the biggest chains in Ontario, where we have a penetration of 1%. That means we have 1 SKU in 3 of their stores, 3 of 30 of their stores. That's extremely frustrating. And we can't get it. We can't get the support that we need in those stores. again, without doing these data programs. So we've run some initial analysis. We don't think it makes sense. I think we're better off letting these guys continue fighting themselves and probably fighting themselves into CCAA by paying for these fees. And I think it will turn around. There's also many amazing independent retailers that we love working with that support our products, that carry a plethora of our SKUs, that have their bud tenders strongly support and recommend or products that don't require data programs, right? So we're trying to support them the best we can. But at the end of the day, Ontario, the system, in my opinion, is flawed because BC, you have 8 stores maximum, right? So you're sort of away from these Goliaths that control everything. Ontario is very, what I call, Goliath driven. And that sucks for a niche premium brand. That's one of the highest price points in the country that, in my opinion, is one of the best products in the country that we don't get the love that we should. The final point of that is that if you're not getting love in that market, what do you do, right? You look elsewhere, you build BC, you build exports.

Yes. Look, frankly, from my point of view, it seems a little bit strange. It seems unfair. But if you control -- you focus on quality, focus on costs, you'll come out better for it, I think. Yes. Just -- another question, can you talk -- is there -- do you think there's -- would you ever do like a value brand? I guess you're doing that with your midyear brand, but -- Do you think pricing is a concern?

Pricing is not a concern on value. What -- I want to say, value is extremely exciting for us. But what is sort of exciting is an avenue to move our smaller buds, right? Popcorn, because our pre-roll velocity is not enough to move all of our popcorn -- looking at sort of a discounted smalls brand and also a value brand under Flowr, which isn't really too value, it's more so what I call middle of the ground value. We're definitely looking at that because it moves a lot of velocity. Now, do I want to play there forever? Probably not. And if you were to ask me if I could move 1,000 kilos in a recreational high format brand that had velocity or if I would move it in export, I think I would probably pick export because, again, it's the infrastructure, the logistics, the not fighting for the shelf space. But with export, I get to build my BLKMKT brand, right? I'm building the BLKMKT brand overseas. So instead of trying to fight here in Ontario with BLKMKT pushing water up a hill. We're -- while they're focused on Ontario, I say, hey, guys, you guys have fun in Ontario. We're looking at the rest of the world.

Okay. Last question. So there was a poll at the end of the year on Reddit where they like had a sweet 16 bracket voting on which products they like the best. You guys didn't win at all, but you guys came pretty close. What do you guys have to do to win it all, in your opinion? Get on top?

I'm not familiar with that program, but my answer to all of these contests and stuff is really get all your friends and family to go vote or whatever it is. Was that a voting pool, right? Yes. That's like the Arcannabis Cup couple of years ago, right? Where you go on Instagram and you vote and it -- I mean, in my opinion, it's sort of like -- it's not a matter of quality. It's a matter of how many people you can blast to get on to those things and vote. I mean the numbers on products speak for itself, right. Even though BLKMKT is declining in Ontario, I would say we're still arguably the undisputed champ of sort of the ultra-premium cannabis, right? There are other comparable brands that might sell higher volume in dollars than us, but that's because they do the data program. There might also be some smaller niche craft brands that might even have product just as nice as ours, and maybe a little bit cheaper. But we've sort of found a sweet spot where BLKMKT is a reasonable velocity brand at its price point, and I would say arguably one of the most iconic premium brands in the country and in the world.

The next question comes from Jacob Brodsky, private investor.

Hello, Norton, Dean(sic) [ David ], who guys are doing well. Can you hear me?