Avicanna Inc. (AVCN) Earnings Call Transcript & Summary

Good morning. Welcome to the Annual Meeting of Shareholders of Avicanna Inc. I am Stephen Kim, the Global Chief Legal Officer of Avicanna USA, a wholly owned subsidiary of Avicanna Inc. for the corporation. We are conducting the meeting on the Lumi virtual shareholder meeting platform. The Lumi platform will allow registered shareholders to vote on any matters at this meeting that they have not already voted on by proxy. I would now like to turn to Aras Azadian, CEO and Director of the corporation to call this meeting to order, Aras.

Thank you, Stephen. First on to the corporate verticals of Corporate governance documents. As Lead Director of the Board of Directors of the corporation, I will not preside as Chairman of the meeting. As Chairman of the meeting, I ask Stephen Kim, the Chief Legal Officer of Avicanna-USA, Inc., to act as Secretary of the meeting and are [ linage ] of Odyssey Trust Company to act as scrutineer. I now turn the meeting over to Stephen for a brief statement on forward-looking information that may be discussed at the meeting and an explanation of the voting procedures.

Thank you, Aras. In the course of today's meeting, officers and/or directors of the corporation may, in their remarks or in response to questions, make certain statements which contain forward-looking information for purposes of applicable securities laws. Forward-looking information or statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs expectations or assumptions regarding the future of our business, future plans and strategies, our operational results and other future conditions, and undue reliance should not be placed on any of these forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause the actual results, performance or achievements of the corporation or developments in the corporation's business or its industry to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. A detailed discussion of the risk of the corporation's business, including outcome of any of our forward-looking statements can be found in our public disclosure documents filed under the corporation SEDAR profile at www.sedar.ca. I'll now turn to an explanation of the voting procedures. Each shareholder is entitled to vote one vote for each common share held by that shareholder on all matters to be considered at this meeting. Certain matters to be presented at this meeting may require majority approval of disinterested shareholders holding at least 51% of the issued and outstanding common shares. We will conduct each vote at this meeting by way of a vote cast on the Lumi platform and those votes previously submitted by proxy. I understand that the scrutineers have tabulated all of the votes received prior to the voting cutoff. If you have previously voted, you do not need to vote again when prompted. By voting again, you will revoke any previous vote made prior to the voting cutoff. I will now turn the meeting back to Mr. Azadian.

Thank you, Stephen. Notice of this Annual and Special Meeting of the Shareholders was sent to all shareholders of record as of close of business on June 19, 2024. The proof of mailing of the notice of the meeting and the accompanying form of proxy and management information circular have been duly filed. I direct that a copy of the notice of meeting with proof of mailing be kept by the Secretary with the record of this meeting. As all shareholders should have previously received a copy of the notice of the meeting, I would ask that someone move to dispense with the reading of the notice of meeting.

I so move.

I second the motion. All in favor? Any opposed? Motion carried. I received the scrutineer's interim report and the scrutineers advised me that the quorum is present at the meeting. I direct that the scrutineer interim report on attendance be attached to the minutes of this meeting. This interim report shows that there's been -- there are present at this virtual meeting or represented by proxy at least 34 shareholders representing at least 20% of the outstanding common shares. Since a quorum of the shareholders is present, I declare the meeting to be duly called and properly constituted for the transaction of a [indiscernible] For those shareholders that did not vote by proxy, we will now open the voting on Lumi voting platform for all the resolutions detailed in the management information circular prepared in connection with this meeting. Particulars of the votes cast on all the matters may be obtained from the secretary after the meeting. I direct that the scrutineer's final report on all the matters be annexed to the minutes of this meeting as scheduled. The financial statements of the corporation for the financial years ended December 31, 2023, and 2022, together with the report of the auditors were delivered to shareholders who request the [ document ] copies are available at this meeting. It is not proposed to ask shareholders to approve the financial statements, which have been placed before the meeting. We will now proceed with the first item for approval, Election of Directors. The management information circular prepared in connection with this meeting sets out the 5 individuals who have been nominated for the election as Directors. The nominees are Aras Azadian, Giancarlo Davila Char, Paul Fornazzari, Eileen McCormack and John McVicar. There are no nominations by the required deadline as fourth in the company's advanced notice by line #2. While someone move that these 5 directors be elected as directors of the corporation to hold office until the next Annual Meeting of the Shareholders or until their successors are elected or appointed.

I so move.

I second the motion. All in favor? Any opposed? Motion carried. On behalf of the corporation, I would like to thank the directors for agreeing to stand for election. The next item of business is the appointment of auditors. May I have a motion that Kingston Ross, Pasnak LLP be reappointed as auditors of the corporation to hold office until the close of the next annual meeting of the shareholders and the Directors be authorized to fix the auditors' remuneration.

I so move.

I second the motion. All in favor, any opposed?Motion carried.If there is no further business, we will now close the voting on Lumi platform and will someone move to conclude this meeting of the shareholders of Avicanna.

I so move.

I second the motion. All in favor? Motion carried. I, therefore, declare the formal part of this annual meeting, the shareholders concluded. The results of the voting of this meeting will be available online on SEDAR plus. We would like to thank each of you for attending today for your ongoing support of the corporation. We are now turning to the corporate update portion of the meeting, which [indiscernible], Executive Officer of the corporation, will be presented. The past year has been transformational for Avicanna as we continue to advance all of our business pillars all the while advancing our R&D and clinical projects. From a fundamentals perspective, we continue to demonstrate growth and delivered annual revenues of $16.8 million during 2023. This represents roughly 34% growth from year 2022. Most recently, during Q1 2024, we delivered our most successful quarter from a financial perspective. This included our first adjusted EBITDA positive quarter and record revenues of $6.4 million with gross margins of about 51%. We continue to raise efficiencies and also integrated our business pillars all the while again advancing our R&D and clinical projects. This is what I will be breaking down this morning. From the Canadian perspective, the Canadian market continues to be the focus of our operations and the most significant revenue driver that we've established as a proof of concept of our intellectual property and business units, which we believe we can scale internationally. Our commercial platforms continue to operate at an asset-light model, leveraging 6 strategic manufacturing relationships in Canada with licensed producers who now manufacture upwards of 30 proprietary products for Avicanna. We continue to demonstrate growth through sales, active number of SKUs, commercial listings across medical and adult use platforms and growth in medical channels that are very important for Avicanna, including the MyMedi.ca platform. Across all these channels, the commercial listings have now increased to 139 of which 87 are through multiple channels. A major contributor to the advancements over the past year is, of course, the acquisition of medical cannabis by Shoppers Business unit that we have now updated and changed to MyMedi.ca. Shoppers Drugmart, is Canada's largest pharmacy chain which everyone in Canada we're familiar with, and that's who we are doing the business with. MyMedi.ca, medical cannabis care platform was formed with the intent to better serve the medical cannabis patients in Canada and the need to enhance their patient journey. In Canada, MyMedi.ca is now operated through Northern Green Canada Inc. and features a diverse portfolio of products from 20-plus licensed producers about 200 SKUs in addition to bilingual patient pharmacist-led patients [indiscernible] . MyMedi.ca also provides specialty services to distinct patient groups such as veterans, collaborators and public and private payers for adjudication and reimbursement. MyMedi is currently providing services also to 8 worker safety boards, including WSIB in Ontario, WSBC both of which are some of the largest safety providers in North America. The 2023 launch and integration of MyMedi.ca's medical cannabis care platform solidified our position as a leader within the medical cannabis space here in Canada with the objective to offer patients and the medical community comprehensive resources, including the proprietary products, patient support and education assets. The launch and integration of MyMedi.ca data increased awareness and access of our proprietary medical products, which has resulted in increase of our own product sales. This overall uplift was attributed to new listings, improved access, increase education and, of course, efficiencies within inventory management of our over [indiscernible] MyMedi.ca also provided additional education and collaboration within the medical community and new channels for dispensing, an example of which is the Sunnybrook Cancer Center in which Rho Phyto products are on site for health care practitioners to provide oncology patients with appropriate guidance and treatment. Moreover, since the launch, we have transitioned over 96% of the patients from the legacy medical cannabis by Shoppers platform to MyMedi.ca and have continued to further advance and grow the platform. We've also established new relationships with a network of over 50 specialized clinics and medical institutions, which collectively represent about 1,500 health care providers in addition to a significant number of individuals. During the second quarter, we also hosted a medical symposium with the community -- with the medical community industry leaders gathered to explore the advancement of the medical cannabis. From an international perspective, we continue to prioritize our operations on our long-term pharmaceutical pipeline and the evolving medical cannabis opportunity at an international level. Our international operations are preparing for the manufacturing of our proprietary cosmetic and pharmaceutical finished products, including Trunerox, which is our first indication specific drug that has obtained registration in Colombia from INVIMA. The drug is used for the treatment of severe seizures related to Lennox Gastaut Syndrome and Dravet syndrome in childhood catastrophic epilepsy indication. We anticipate Trunerox to be commercialized late 2024 or perhaps early 2025 and we expect the product to be covered in Colombia, where it's proved by insurance. The company also anticipates Trunerox to be commercialized in other Central and South American markets in the Caribbean, where we believe the INIVIMA approval will support a rapid approval for [indiscernible] . It's worth noting that Trunerox is not approved in Canada, and the product is currently only approved in Colombia. Our international efforts also garnered around cultivation and manufacturing of our own active pharmaceutical ingredients under the RES brand. RES branded API, active pharmaceutical ingredients, which includes CBD, CVG and THC in various [ fractionation ] forms have now been exported in 7 new countries and have been part of a drug approval for 3 different pharmaceuticals, including oral Trunerox. As of Q1 and Q2 2024, we also entered into several strategic international commercialization agreements related to our intellectual property and licensing. These projects will continue to evolve during 2024, and we will be updating the shareholders. From an R&D perspective, which everyone is familiar, is the DNA of the company, we've now spent over 8 years on R&D, preclinical and clinical development of our proprietary cannabinoid-based medicine. Avicanna has established an industry-leading scientific platform to develop this intellectual property and to continue to advance it. Our dedication to product development and evaluating the potential role of cannabinoids for therapeutic benefits have always been at the core of the company's [indiscernible] And now we successfully delivered and commercialized over 30 products which include cosmetics, medical cannabis and pharmaceuticals. It's worth mentioning that all of the intellectual property, including all formulations, drug delivery systems, a preclinical model, trademarks and all associated data derived from any of our medical operations with clinical trials are owned by Avicanna. This is something that we take [ pride]. As for early this year, we were also issued a patent by U.S. Plan and Trademark Office, USPTO, during Q2 2024. USPTO issued a patent number US11998634-632 that covers Avicanna Self emulsifying drug delivery system, in short we call it SEDDS for oral composition and methods of treating neuropathic pain. We're also proud to highlight that previously announced completion of 2 real-world evidence studies that were conducted with positive results here in Canada, including one with patients with epidermolysis bullosa at the hospital for sick children where our dermatology drug candidate was included in a real world evidence study measuring endpoints related to the dermal indication, including pain, itch and wound healing. [indiscernible] was conducted early this year was completed early this year. 55% of the patients enrolled in the study actually reported improved in wound healing and 45% displayed wound stability. Again, EB or Epidermolysis bullosa of [indiscernible] skin which is a very positive outcome for us. Additionally, during Q2 2024, we announced the completion of a study with Sante cannabis for patients with MSK pain and inflammation. The study result improved -- it resulted in improvements in symptoms, quality of life in patients with MSK pain and inflammation, also for patients with arthritis, osteoarthritis fiber myalgia, muscle and joint pain and localized pain. I will now do a quick overview of our financial update. We finished 2023 and began 2024 with positive improvements and of course, momentum, as I mentioned, $16.8 million in revenue, which represents about 314% growth from 2022. This resulted in significant improvements in our adjusted EBITDA and a loss of $4.3 million during 2023, which is an improvement of about 41% from the previous year. Our total units of proprietary products sold in Canada during 2023 was about 186,000 units. This represents about 51% over 2022, which was about 123,000 units. As mentioned, this is mainly attributed through our medical platform by Medici and our investments within the commercial channels in Canada. We increased the number of adult-use and medical channel listings, which resulted in about 133 during 2023. Consolidated gross margins during 2023 was $6.6 million, an almost 500% increase from 2022 and a gross profit of $1.1 million. This represents gross profit of 40% compared to 27% in 2022. Our gross margins in America and North America continued to improve from -- continue to improve from 36% in 2022 to 45% in 2023. And as we launched in Q1 2024 was about 51%. So we're continuing to see improvements within our gross margins, which I think demonstrate the proprietary nature of our products and services. Operating costs did increase in 2023 by only 19% compared to the previous year, which was largely attributed to the launch of MyMedi.ca. However, as mentioned, this increase is compare small considering the significant revenue increase of 314% in the same year. As for Q1 2024, we achieved quarterly revenues of $6.4 million, representing a significant increase of 450% compared to Q1 2023. The revenue growth was achieved with 32% year-over-year operational increase. During Q1 2024, we achieved our first adjusted EBITDA positive quarter, which was about $17,000. But this does mark the first adjusted EBITDA quarter in the company's history and a significant year-over-year improvement trend that we hope we will continue to progress with. It's also worth noting that we continue to improve our gross margins over 2023 with consolidated gross profits reaching 51%, as I was alluding to earlier, representing a 21% increase compared to Q1 2023. While we're happy with the recent achievements and improvements, we continue to build our additional opportunities to grow our revenue and scale our business to improve our financials and look forward in our path to greater profitability. As we look forward, we are excited about further advancements of both our commercial as well as our R&D clinical platforms, which we will now have additional focus and resource to dedicate to. From a commercial platform perspective, we look forward to our Canadian business pillars to continue to grow as we further engage with the medical community. Additionally, we expect to continue to enhance our efficiencies. We continue to create MyMedi.ca with our product line and proprietary brands like Rho Phyto. We are all excited about the possibilities arising from the further internationalization of our business through our Rho Phyto products, the launch of Trunerox and our ARS API division. From an R&D perspective, we look forward to advancing the scientific platform and progressing our drug candidates. We are thrilled with our recent clinical results that I alluded to earlier, and are further incentivized to focus on prioritization of our drug cannabis for further development and [advancement] Thank you for your time today, allowing us a chance to provide you with this corporate overview and attending today's meeting. We're open to questions and now turn this over to Ernesto Castilla, Legal Director and Assistant Corporate Secretary to see there are anything.

Aras, there's no questions that have been submitted.

Well, thank you, everyone. Appreciate you joining, and we appreciate the continued support from our shareholders.