Avicanna Inc. (AVCN) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining us today. My name is Elisa Berry, and I'm very pleased to host Avicanna's executive team today for corporate update on the company's progress made over the second quarter. Today's agenda includes Q2 milestones and achievements including recent acquisitions and introduction to MyMedi.ca and commercial updates followed by a Q&A session. For those who are new to the business, Avicanna is an international biopharmaceutical company focused on the development and commercialization of evidence-based cannabinoid-based products for the global medical and pharmaceutical markets. With an established scientific platform, encompassing research and development as well as clinical developments, Avicanna has successfully commercialized over 30 products across various market segments. I want to take a quick minute to introduce the team, starting with Aras Azadian CEO and founder of Avicanna. Aras founded Avicanna with a vision of establishing an international biopharmaceutical company with a strict focus on medical and pharmaceutical applications of naturally derived medicines, including cannabinoids. His experience in biotech and management consulting have been integral to Avicanna thought leadership in the space and progress pertaining to R&D and clinical development of the cannabinoid-based products and the commercialization of the company's extensive pipeline of proprietary products. Dr. Karolina Urban is Vice President of Scientific and Medical Affairs at Avicanna, where she leads the development and execution of the company's preclinical and clinical research programs, including collaborations with leading neurologists, clinicians and scientists. Dr. Urban also leads the company's medical affairs and has successfully developed and implemented global training programs for health care providers interested in prescribing medical cannabis. Ivana Maric has led the company's marketing operations since inception. And as a founding member, Ivana has championed the development, launch and management of all Avicanna's brands across the company's business verticals globally. Her leadership and dedication to the needs of patients and consumers has yielded successful commercialization of the company's 4 distinct brands across complex medical and retail channels in Canada since 2020. I'd like to remind everyone that certain statements made during today's presentation may contain forward-looking information within the meaning of applicable securities laws. Such statements may include estimates, projections, bulls, forecasts or assumptions that are based on current expectations and are not representative of historical facts or information. We want to be clear that such forward-looking statements represent the company's beliefs about future events, plans or objectives, which are inherently uncertain and are subject to numerous risks and uncertainties that may cause actual results or performance to differ materially from such statements. With that, we are going to have a question-and-answer session following today's presentation. To ask a question, please use the Q&A function to submit your questions. And with that, I will now pass it over to Aras.

Thank you, Elisa. Hi, everyone, and thanks for joining. Our corporate update. We're very pleased to provide an opportunity -- or have the opportunity to provide you an update in terms of our recent developments, what we believe is the most, I would say, successful in transformational quarter in our history and my colleagues and I will be happy to take some time to answer some of your questions at the end of the call as well. Going into sort of an overview, some of this was obviously disclosed within the press release as well, but we're going to highlight some of the major, I would say, milestones. On May 29 this year, we announced a definitive agreement to acquire the assets of inventory of medical cannabis by shoppers, which is a subsidiary of Shoppers Drug Mart. Medical Cannabis by Shoppers was one of the largest medical cannabis platforms in the country, nationwide platform with tens of thousands of patients for anyone that was wondering, this was an online platform. Under this agreement, Avicanna's acquiring certain inventory and assets of the Medical Cannabis by Shoppers division. In return, we're providing Shoppers Drug Mart with payments for that inventory over a period of 6 months in addition to a net revenue share for the first 2 years. So this was obviously a very attractive transaction for Avicanna, one that was non-dilutive in many ways to our shareholders. So very important. During the same period, during May, we announced the execution of a definitive agreement with -- or a master service agreement with Northern Green Canada. NGC is a Canadian license producer that is GMP and is tasked with providing Avicanna and what will be our medical portal, MyMedi fulfillment services in terms of our medical cannabis portal. Since the end of May, NGC support the combined teams have successfully transferred the medical cannabis by shoppers inventory and have actually taken over the fulfillment and delivery of the products to patients. So we're very happy and very excited that we're able to accomplish that first major milestones with our new partners at NGC. Getting into the financials, obviously, this is important given that the company has been in development stage in our [indiscernible] for many years. During Q2 2023, we reached -- we expect to reach about $3.3 million in revenues. This is a triple or about a 200% increase over Q1 2023, which was about $1.2 million. A large proportion of that roughly $2.5 million of that is arising from the sales that we have acquired from the Medical Cannabis by shoppers platform and through obviously the delivery of the products to patients. So I believe this is a very good signal in terms of the potential of this division for Avicanna throughout -- I mean, as we proceed during the same quarter, we were able to second -- during the same quarter, we were able to continue to enhance our manufacturing platform and Matrix in Canada as well within what we believe is an asset-light and very scalable model through which we work through minimum 4 of the licensed producers that have very different capabilities in terms of the type of products they can manufacture. These companies are -- the ones partners are producing various proprietary Avicanna SKUs other than being delivered to our medical cannabis by shoppers platform, which will be transitioned into MyMedi but also across a number of different channels that my colleague, Ivana will expand into. During the same -- or during this period, we were able to recognize, obviously, a significant amount of savings in our operations as well. We initiated during 2021 significant optimization efforts, which included the reduction of head count rationalization of redundancies, including headcount and human resources, noncore underperforming assets, but also prioritizing really our operations in terms of the business units that we wanted to focus on, which obviously, in many ways, has been the medical and pharmaceutical side. And this resulted in what was the lowest quarter -- lowest cost quarter we've had since 2019 in terms of OpEx and SG&A. And coupling that with obviously Q2's revenue expectations, we think we're obviously taking the right strides. We also commercialized or we announced the commercialization earlier this week with existing partner, Medipharm, our [indiscernible] drug delivery system technology capsules. These products are going to be coming into various Canadian and international markets through GPP and GMP production by Medipharm. The launch and potential of these advanced single-dose products is something that I personally -- and we're really looking forward to seeing its effect, obviously, within the medical market. Going into some of the research collaborations we announced research and education/sponsorship initiatives that we announced. We announced the collaboration with Langara College. Through this collaboration, we're going to be obtaining better understanding our absorption, pharmacokinetics, pharmacodynamic properties or formulations in simple terms, better understanding these formulations and the role in a patient's journey and be able to educate that to the medical community. But in addition to that supporting our pharmaceutical development in terms of R&D that we're very happy and proud to also announce that this research project was actually awarded a 2-year peer-reviewed grant by insert, which is a government entity as well, which is credit to Langara College and our R&D team's capabilities. We also announced a sponsorship agreement with the Canadian Consortium and investigation of cannabinoids or CCIC -- we're through the sponsorship agreement, we're going to be supporting CCIC access for their Canadian Cannabis Syllabus, which is a CME course, a continual medical education force for physicians. We believe this a credit, of course, will be a useful tool to enhance the medical community's engagement, but also potentially the adoption towards cannabinoid-based products and medicine. And we believe that this will be a significant factor for what is our new med tech platform being MyMedi.ca. So we rush-through these items, but we're trying to save some time for Q&A. I will now have to pass on to my colleague, Dr. Karolina Urban, to speak a little bit about MyMedi.

Thank you, Aras. So shifting to MyMedi. MyMedi is Avicanna's medical cannabis care platform that's designed to provide continuation of care for medical cannabis by shoppers patients. Since the initial announcement in March 2023, Avicanna's team has worked diligently and collaboratively with shoppers to develop and execute a process for transitioning patients and address the various patient product and operational matters through the build-out of MyMedi.ca. We have put into place security, IT and e-commerce infrastructure for the MyMedi.ca platform, which has been designed for both new patients and the cannabis, medical cannabis by shoppers patients that are transferring to our new portal and will have access to our products. We anticipate MyMedi.ca going live early August of this year. Some other features of the platform include a nationwide medical cannabis platform offering services in English and French. A portfolio of 200-plus products from over 20 selected brands and licensed producers, and we will also be including our own Avicanna brands, 4 different brands and 25-plus products. MyMedi will also be offering pharmacist-led and bilingual patient support programs. And finally, the platform will be capable of providing adjudication and reimbursement services to public and private payers, which today represent a significant portion of the sales. Ahead of the launch of MyMedi.ca in August, patients may continue to purchase products on the medical cannabis by shoppers platform until the end of July, at which time why MyMedi.ca is expected to launch and patients will then have access to the same products on MyMedi.ca. Patients have already started the consent process and we are excited to transition the platform from medical cannabis by shoppers to my MyMedi early August. Now my colleague, Ivana Maric, will take over to provide a commercial update.

Thanks very much, Karolina. The Canadian market continues to be the company's near-term priority, and we're happy to report that as we approach the end of Q2 2023, we've commercialized 25 of our proprietary SKUs in Canada and through 4 different brands. We're currently listed on 4 national medical channels with 61 commercial listings, including the 24 SKUs that are currently available on medical cannabis by shoppers which is in the process of transitioning to MyMedi.ca. Additionally, we continue to expand medical and wellness offerings across what are now 6 provincial adult-use channels with 52 listings. And we're also happy to report that combined, we now have a total of 113 commercial listings across Canada as we near the end of Q2 2023, which is a significant increase of about 34% from the 84 commercial listings that we had in Q4 of 2022. I'd like to also take the opportunity to highlight our RHO Phyto product portfolio. It's a diverse range of proprietary formulations, including oral, sublingual, topical and transdermal deliveries. They have varying ratios of cannabinoids and are supported by ongoing consumer patient and medical community education and training. And RHO Phyto is currently available nationwide to patients across various medical channels as well as clinical institutions in Canada and internationally. And within this medical cannabis portfolio, our newest development includes the first capsule product. As Aras mentioned earlier, we recently announced the advancement of our proprietary self-dimulsifying drug delivery system technology or sets for short in the form of capsules, which we are currently in the process of introducing 2 medical channels, including the MyMedi.ca platform. And these proprietary capsules are designed to address the highly lipophilic nature and the poor water solubility of cannabinoids. The formulation is currently available in the Canadian market have been generally described as having relatively poor absorption and relatively high variability of onset. Our Proprietary SEDDS technology demonstrated more than 90% dispersion within 1 hour with continued stabilization of the emulsion. And at this time, I'll just turn it back to Aras for a few closing remarks.

Thank you, Karolina, and Ivana. Just to close off and move on to Q&A. So we look towards the second half of this year, we're very optimistic about the future of the company. We believe we've evolved from what is a scientific or R&D platform into what is now a commercial platform, and we believe that we expect growth in terms of the revenue, but also the commercialization efforts of the company. This is going to mainly take part in Canada where we expect enhanced marketing and sales efforts now that the company has built out its proof of concept. We expect to add more resources into those particular channels for growth. We expect further pipeline developments to come into the market, meaning product extensions and line extension, specifically on our Rho Phyto brand, which is our highlight. An example of that was the self-dimulsifying drug systems that are coming in the form of capsules Ivana alluded to. And then we're also looking to expand into other new channels, meaning further adult-use channels, further adult use listings, but more importantly for us, further medical channels. There are 10, 15 medical portals or medical platforms in the cannabis sector that are doing well, and we're on track to getting into further channels, and we're excited about the potential of our products within that realm. Very excited about MyMedi.ca our new platform and the opportunity to further engage with patients, with the medical community and with the Canadian license producers that we're going to be partners with us in terms of delivering the products and just the potential of a full comprehensive medical cannabis platform. This has been obviously our vision from the beginning. So we're excited to be delivering on that. And then on an international level, we do continue to develop our international footprint -- we're setting the stage for international expansion of both our proprietary finished products, but also our raw materials or API division as well. To date, we've entered 19 international markets, which gives us extensive understanding of the regulatory environment within those markets as further legalization liberalization will allow us to enter with more, I would say, velocity. We're very excited about that as well. So we're very much looking forward to the second half of this year, and I'll open this up and provide a little bit of time for our folks here to take some questions. So if I ask some questions.

Thank you very much, Dr. Karolina, Aras and Ivana, I really appreciate you walking us through the presentation. I'm going to jump into some questions here. A few questions around the medical platform. Can you talk a little bit about what differentiates this platform to some of the others in the space?

I'll take the lead in the medical cannabis sector originally for the medical cannabis plot. It was, in many ways, a way for patients to have access or consumers have access to medical cannabis legally. With the legalization of adult use, that change. And we've seen significant reduction in medical because they were not necessarily real patients from the beginning. Those are consumers I can now walk into a dispensary and purchase their products. On the other hand, what we're seeing in terms of the demographics is an increase in actual patients. These are higher age groups. These are patients that are suffering for real clinical indications and therefore, require the handholding process of your physician being involved in the medical documentation a pharmacist from our patient support programs, providing the handholding in terms of dosing and titration, things such as drug-to-drug interaction. And of course, because we're adopting this platform from medical cannabis by Shoppers Drug Mart, we were able to take on some of those processes that are designed to provide a much more comprehensive medical cannabis care package and that includes things such as adjudication and reimbursement of insurance, meaning patients veterans are not paying for those products on our pocket. And today, that represents a majority of our sales that we're adopting. So I think that's a major factor for more of a business perspective. But again, the one thing I'll add is our commitment to evidence our commitment to medical care from the beginning is going to make this process, we believe, a little bit smoother as we engage with the medical community as a non-recreational non-alcohol [Tobacco] company that is taking on this challenge. And we so far have had incredible support and engagement from the medical community. So we are very excited about that. Karolina, sorry if I cover some of those topics, but anything you want to add.

Yes. No, just to expand on that. The opportunity to grow in the insurance group is also there. It's -- I think that's what we're seeing in all our discussions. And also, with our close relationships with key opinion leaders, such as you can see our relationship with CCIC, on bringing in better education, it will allow us to really go back to the community and educate on using medical cannabis in a way that enables physicians to provide new medical authorizations. And one of the big things is that there's a lot of real patients out there that right now aren't getting access to medical cannabis through physicians because they don't know how to get there. So that's something that with our medical affairs department, we're really going to approach and trying to make it an easier pathway to get the products, but also in educating which products to use when.

Wonderful. Next question, what is driving Avicanna's success in an overall challenging market in general?

I'll start off with, again, our commitment to patients, our commitment to an evidence-based medical approach. I believe we -- that's been -- that's what we started with as an R&D company in 2015. We stuck to it. We avoided the shiny object being adult use, and we're seeing the adult-use sector in terms of diminishing margins, price compression, oversupply, various, I believe, macro sort of industry-specific problems that they're facing, we don't face. We're an asset-light company that is focused on proprietary high-entry barrier products that therefore have high margins. And because we operate within the medical realm, we're not limited to a particular state or a particular country, we are already in some capacity active in 19 countries. So we look at the market opportunity from a pain sleep, dermatology, oncology, neurology perspective where a typical cannabis company is looking at it from an adult-use market size perspective and competing with very low entry barrier very repetitive products. So we are adjacent to the sector. And of course, we are affected by that in many ways in terms of the general confidence of the market and the bad taste has been left in many investors mouth in terms of the cannabis sector, but we operate in a completely different model. And I think what you're seeing now is, finally, the evolution of the company into reaching those objectives and delivering its products to patients, delivering those services and full medical package to across the world or across many countries to patients in the medical community, and those are much more sticky, much more high-margin opportunities that we're now finally seeing coming to fruition.

Thanks, Aras. Now I know we can't give guidance, but we do have quite a few analysts on the call asking about how to think about the new platform and a few questions around pathway to profitability. So wondering if you can tackle those.

Yes. To the best extent that I can, I mean, we demonstrated a 1 month of sales for roughly 1 month of sales from the Shoppers platform, and that obviously had a significant effect on our top line revenue. If you combine that with Q1, which was our lowest SG&A month, in a very simple sense, the company has optimized its operations and reduce costs and prioritize. And on the other hand, we've already been able to triple our revenues. We believe we're demonstrating a pathway to profitability by simple modeling of what we're demonstrating, but we are an asset-light very scalable model. So as we progress and see the revenue across our Canadian operations across MyMedi, across our international operations realized we believe that's going to demonstrate a simple path to profitability. And I don't think we're very far away from that. And I think in today's environment, today's market, that is the objective. And as I alluded to earlier, we started our cost-cutting optimization and prioritization efforts in 2021. We didn't start last year when the sector got worse. So I believe we've reached that stage. We now have a clear path to where we want to take this company and we believe we're going to be able to demonstrate that to investors and the market very soon.

And can you touch on the competitive landscape? Give us a quick overview on who some of your competitors are?

I think it's a very unique situation that Avicanna is positioned in because we are sort of the overdressed person for the party in a sense that we've come from a pharmaceutical and medical approach into medical cannabis and adult use in terms of wellness approach, and we've been able to bring in these proprietary high-entry barrier products and to do so in the latter stages of the sectors, I would say, sort of rationalization, which has allowed us to work through contract manufacturers. So we operate very much as an intellectual property company. I can't think of one in Canada that has successfully implemented a medical cannabis program through a pharmaceutical approach. So we could be compared to some of the medical peers in some capacity like Canopy and Aurora and [indiscernible] medical platforms, but they're also predominantly recreational companies. And then when I compare us to the peers that we like to be more associated to, which are the more biopharmaceutical and biotech companies, they don't have the commercial infrastructure and/or the API and/or the actual real real-world experience in terms of generating revenue and dealing with patients directly. So it's a very unique situation I believe we're in. I like to believe that we are the only ones that are doing that, and we'd like to believe that we are building a path to being the leaders in terms of medical cannabis initially in Canada and ultimately taking that sort of proof of concept and what we believe will be the gold standard for medical cannabis as a complete package, meaning advanced products patient support programs, education and training and opportunity to do research and real-world evidence and to be able to translate that into some of the international markets that have allowed legalization of medical cannabis. So I don't have a direct peer. I believe we're very unique in the position that we're taking.

Right. That's a really great segue to last question I wanted to ask here around what's next new markets, new products. What can we expect?

Yes. I think it's all 3. If I was to simplify it, it's the 3 bullets that are on the screen. It's growth in Canada. We've had incredible group of concept in Canada with our proprietary products. We see a deep tissue job being labeled as one of the best topicals in the market. A lot of people are leveraging and benefiting from that product. And we're going to see further growth of that simply due to the quality of the products and the formulations, we do want to obviously dedicate a little bit more resources into that because we've done so far today with almost no marketing and sales dollars. So I believe that's a good proof of concept and now obviously invest growth capital into the launch of MyMedi. I'm incredibly proud of what the team has accomplished what our partners have provided us in terms of support for a very small company in terms of size, not only are we building what will be, in my opinion, one of the most comprehensive medical portals within -- in the world in terms of medical cannabis, but also we're doing this on an active patient population. You're not building and growing, you're transferring tens of thousands of patients that are used to a particular level of service and quality and coming from Shoppers Drugmart, we can imagine that was very high-quality products and services. So incredibly difficult challenge, but very proud of how the team here and some of the folks I don't know listening in have delivered on that, and we're very proud and very excited about what MyMedi's going to provide to the world. And then finally, on the international side, again, the vision for the last 2 years has been let's make Canada a proof of concept. Let's demonstrate that our products, our services, our vision, the way we do things in terms of the business works, we can then translate that into many other international markets that are opening, and we're now seeing -- we're seeing the proof of concept. We're seeing opportunities arise internationally. And the part that's interesting for me internationally is that you're seeing mid- to large-sized companies enter the realm outside of the United States, of course, enter the realm and they're looking at us as a right partner in many ways. So very excited about the future potential of all of...

Wonderful. Thank you. Congratulations on all your success, and thank you very much for sharing these updates today. I know Aras, you're available to take additional questions and follow-up with investors offline. So as you [bought in] Dr. Karolina as well. I really wish everyone a wonderful summer, and thank you for your time today.

Thanks, everyone. Thank you for joining.

Thanks, everyone.