Avicanna Inc. (AVCN) Earnings Call Transcript & Summary

So I believe we're live. We'll get started. Thank you for joining everyone. Good morning. Thanks for joining our Q3 2023 earnings call. This is also a corporate update. Aras Azadian, I'm the CEO of Avicanna. I'm joined today by Philip Cardella, who is the CFO. Phil, do you mind just starting with...

Good morning, everyone. I am Phil Cardella, CFO. Before we begin, I would like to remind you that the risk factors and other cautionary statements contained in our SEDAR filings and in our annual information form for the year ended December 31, 2022. We will now review these risk factors and other cautionary statements on this call. However, we encourage you to read them carefully. Various remarks on this call concerning expectations, predictions, plans, prospects, constitute forward-looking statements or information. These forward-looking statements or information are subject to the risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward statements or information reflect management's current view only. We undertake no obligation to revise or update such statements or make additional forward-looking statements in the future, except as required by applicable law. References may be made during this call to future orientated financial information and financial outlook all of which may are subject to the same assumptions, risk factor limitations and qualifications as forward-looking for information. While we believe that such estimates have been prepared on a reasonable basis, reflecting best estimates and judgments, the actual financial results of the company may vary from the amounts discussed herein and such variations may be material. During today's call, we may refer to non-IFRS measures such as adjusted EBITDA as not defined or reconciled in our earnings materials in the appendix of the presentation. These non-IFRS measures as defined by the company may not be comparable to measures with similar titles used by other companies. Certain information that may be mentioned during this call, including industry information estimates is obtained from third-party sources, including public sources, and there can be no assurance as to the accuracy or completed such information, although believed to be reliable, management has not independently verified any of this data from third-party services. Thank you very much.

Thank you, Phil. So going into the overview. This past quarter has been transformational for us. We delivered record revenues of nearly $6.3 million, which we filed last night. We did so while stabilizing our consolidated gross margins at about 46%. This has resulted in our best financial performance in terms of EBITDA since our IPO, which was in 2019. And during this quarter, we acquired and integrated the Medical Cannabis by Shoppers business, which we launched and launched the MyMedi.ca medical cannabis platform. We believe this has further solidified our leadership position as a truly medical company within the cannabinoid space. During the third quarter, we also made progress in our other business segments, particularly in Canada where we increased the number of our commercial SKUs to what is now 27 and increase the number of our listings to what is now 131. Digging into MyMedi into more detail. MyMedi.ca is our new medical cannabis platform, which we launched in the 2nd of August this year upon the company's acquisition of Medical Cannabis by Shoppers business from Shoppers Drug Mart. MyMedi was launched as Avicanna's new medical cannabis care platform that features a multi-branded diverse and scientifically curated portfolio products from Avicanna and other select Canadian license producers. This platform also features pharmacist-led patient support programs, educational resources, all to facilitate the incorporation of medical cannabis into a health care regimen. Through MyMedi the company provides medical cannabis access and support nationwide to tens of thousands of Canadian patients who have obtained medical authorization and documentation. During the third quarter, we prioritized the launch and integration of MyMedi into our operations. This has led to MyMedi having contributed a major portion of the revenues with approximately $5.8 million during the third quarter alone. I will note some unique differences between MyMedi.ca in comparison with other medical platforms within the Canadian market. MyMedi.ca is a multi-brand platform, as I mentioned earlier. We cover 200 SKUs across 40 different brands. And this is in contrast to many -- through the approach of most other medical cannabis platforms that generally limit the offerings to patients to their own specific products. Through MyMedi, we are offering training medical education for products and services, resources to facilitate the incorporation of medical cannabis into health care regimens, including Avicanna's own Avicenna Academy and the Canadian consortium of investigation for cannabinoid syllabus, which is an accredited of course. In addition to that, as I mentioned earlier, we're providing pharmacist led but also bilingual patient support programs and a variety of specialty services. The special services include veterans affairs and a dedicated program for veterans, which includes adjudication and good faith coverage as well. Since the launch, we've transitioned over 96% of the patients from the legacy Medical Cannabis by Shoppers platform to our new platform and have grown the actual patient base by approximately 10% during the third quarter. We've developed infrastructure to offer insurance reimbursement services to patients through more than 15 private insurance providers, public institutions, including 8 worker safety boards, including WSIB where we are a preferred vendor. Overall, all insurance adjudication and reimbursement accounts for about 60% of the MyMedi platform's revenues. We've established relationships with over 50 specialized clinics and medical institutions, which combined offer or work -- combining includes about 1,500 health care providers. We've also enhanced the education of our own portfolio and inventory management that streamline access to Avicanna's own products, 27-ownproducts, which now represent about 17% of MyMedi sales. That's an approximate increase of about 40% since the last quarter. I'll expand on our medical and other commercial channels within the Canadian market. During the third quarter, we progressed our commercialization efforts in Canada with particular focus on expanding our proprietary products, including the RHO Phyto brand that's on the screen across several medical channels. RHO Phyto is now being offered as a portfolio of 30-plus proprietary products, which includes a range of scientifically driven drug delivery systems, including oral, sublingual, topical, transdermal deliveries with varying ratios of cannabinoids. We were and are proud to be the first medical cannabis brand that's been made available for in pharmacy dispensing in major Canadian hospitals, specifically Sunnybrook Cancer Center, and we're proud to see continued access of RHO Phyto products onto the Sunnybrook Cancer Center and Hospital through the MyMedi platform. RHO Phyto products are also enrolled in a number of real-world evidence clinical trials with major Canadian institutions, including SickKids Hospital and UHN. In addition to RHO Phyto, the full range of our 27 SKUs have now progressed across various channels. Overall, we've experienced growing demand for our proprietary cannabis 2.0 products and extended access to the select SKUs from our portfolio into other medical cannabis channels, including MediPharms, Canna Farms, Canopy Growth Spectrum Therapeutics. This means our products are now available on 7 different medical channels, medical cannabis channels, including MyMedi which we believe represents about 50% of the registered medical cannibal patient base in Canada. We've experienced adoption expansion of our proprietary products also in adults channels, which combined with the Canadian channels represents about 131 total commercial listings. We further progressed our exclusive partnership with our agreement with Viola brands in Canada. We have now launched a total of 10 commercial SKUs under the Viola brand. This includes the Viola Drops, which utilizes Avicanna's in fluid technology that delivers cannabinoids in a water cell, you will now know emulsion format, and we're happy to see these products available across several medical channels, including the Ontario cannabis store, which is the largest adult-use provincial retail channel in Canada. Viola brands, for those of you that don't know, is an American social equity brand that's owned by Al Harrington -- launched by Al Harrington that we've successfully partnered with. These Canadian commercial efforts during the past quarter were in large part the accomplished translation of our R&D efforts from the lab into the market through an efficient and asset-light manufacturing model. Through the past third quarter, we saw 27 of our finished products manufactured through 6 specialized licensed producers with whom we also have supply agreements for various of their products onto the MyMedi platform. Just quickly touching on some of our international progress. We've demonstrated our commitment to expanding our products and intellectual property internationally. We've now completed transactions in over 20 international markets. And our belief is that international opportunity and legislation for cannabinoids was strongly focused towards medical and pharmaceutical applications rather than adult use. Our majority-owned subsidiary, Santa Marta Golden Hemp in Colombia also has continued to deliver high-quality accessible cannabinoid active pharmaceutical ingredients internationally for medical and pharmaceutical applications under our Aureus Santa Marta brand. Since its establishment 6 years ago, Santa Marta have provided Avicanna with its own dependable economical source of API. And in the past 3 quarters or in the past quarter, we also saw the continued utilization of our own API to our own drug candidates and pharmaceutical preparations. More specifically, our 10% CBD pharmaceutical preparation, which is marketed or will be marketed under different brands, including Trunerox. Trunerox is now under review for marketing authorization with 3 regulatory agencies, which includes Anvisa in Brazil, Ecuador and also INVIMA in Colombia, all through the last quarter as well. Phil, do you want to go through a deeper dive into the financial space.

Yes. Thank you. Okay. I will start this morning's financial update by reviewing the results and summarize the MyMedi.ca medical cannabis care platform and transaction. We began transitioning the operations of the Medical Cannabis by Shoppers platform at the end of May and completed the acquisition and transition to the new MyMedi.ca platform on August 2. To acquire this business unit, Avicanna purchased all of the inventory from Medical Cannabis by Shoppers and entered into a 2-year revenue share agreement. The inventory was purchased at fair value and is to be paid over 6 months following the August 2 closing date. The transaction was non-dilutive yet significantly accretive to the company as it required all no initial cash payments to be made by Avicanna, and therefore, enables us to dedicate resources on building the platform to hire an integrated human employees and to facilitate a smooth transition to minimize disruption to patients and disruptions on the continuity of revenue. Essential word of thanks to all the hard work and experience from our team. We've achieved strong revenue in the past third quarter and a relatively small increase in our operating expenses due to their dedication. Our total revenue for the 9 months ended September 30, 2023, was $10.7 million revenue, which included $8.5 million in revenue generated from Medical Cannabis by Shoppers business during both the transition period and subsequent to the launch of MyMedi.ca. In the 3-month period alone, revenues totaled $6.25 million with MyMedi.ca contributing $5.8 million of that. During the third quarter, the average gross margin for MyMedi.ca was 47%, and the company expects to see margin improvements largely due to the increase in sales in our own products through the platform, which offers significantly higher margin opportunity than sales of products purchased wholesale. Currently, our own products make up 17% of the sales on the MyMedi platform. Outside of MyMedi.ca, our Canadian sales experienced a 34% growth compared against the same time of period in 2022 from $1.2 million to $1.6 million and an almost doubling in units sold from 64,000 to 127,000 in those same periods, respectively. The company has continued to drive cost control measures, resulting in an increase in operating costs for the 9-month period of only 23% and an adjusted EBITDA loss of $3 million compared against an EBITDA loss of over $5 million during the same period 2022. During the last quarter, there was an adjusted EBITDA loss of $473,000 for the 3-month period compared against EBITDA loss of $1.8 million for Q3 2022. This reflects our lowest quarter to date. We will continue to drive down costs with the goal based on our current rate of progress of being EBITDA positive by the first quarter of 2024. In conjunction with the EBITDA goal, we continue to work to strengthen our working capital position with the goal of achieving positive operating cash flows and limit our reliance on cash flows from equity and debt financings. We will achieve this working capital improvement by managing inventory to ensure we consistently have sufficient stock levels but staggering purchases to ensure payments don't become simultaneously do. We will continue to manage our collections while adhering to vendor payments and maintain relationships and spoken chip away at our long-aged current liabilities. As of September 30, 2023, from the beginning of the year, cash outflows from operations have significantly decreased to approximately $550,000 compared to $6.6 million in the same period in 2022. These improvements are not only due to the increased revenues. These improvements are not only to the increased revenues in the MyMedi platform, but also to the quick and dependable receivables from insurance providers. Simultaneously, cash flows from financing were only $2.7 million compared to $7.6 million in 2022. As of the close of this past quarter, from the beginning of the year, we have conducted only one private placement transaction compared to a total of 5 private placement transactions in the prior year. Thank you for your attention, and I'll pass this back to Aras.

Thank you, Phil. The results of our financial and business performance this past quarter clearly validated the significance of this quarter for the company. We are optimistic, as Phil mentioned, about our capacity to further scale our business and our path towards EBITDA positive in the very near future. We look to the rest of 2023 and 2024. Our focus will be to continue to serve our patients in Canada continue to work towards firmly establishing our position as a leading medical cannabis company in Canada and also in parallel advancing our R&D intellectual property towards pharma, including our pharmaceutical preparations towards establishing our pharmaceutical pipeline and the company as a biopharmaceutical entity. While the year is not yet finished, it's very easy to say that this has been the most successful and progressive year for us and thus far in our 7-year journey. As a founding CEO, as most of you know, I've witnessed every phase of the evolution of this company, and I'm very proud of the team's execution and more so the resilience during the typical past few years. I want to thank everyone who has had a part in this, for their work, their commitment and unbearing support from many of you that are on this call. Thank you very much. I think that wraps up our call. Thank you for joining.