Avicanna Inc. (AVCN) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining our 2024 earnings and corporate update. I'm joined here with Phil Cardella, who's our CFO. And together, we'll be providing an overview of our 2024 results, a brief look into the future. And at the end of the presentation, we'll leave some time to take direct questions from the audience as well. I'll now hand it over to Phil to provide a brief administrative note.

Thanks, Aras. Before we begin, just a quick disclaimer. We may refer to forward-looking statements that are subject to risks and uncertainties that may differ from the actual results. We list risks, uncertainties and other factors that may cause our results to differ materially on Slide 2. These statements are based upon current information, beliefs and assumptions, and we disclaim any obligation to update them, except where required by law. Although we believe the current information, beliefs and assumptions underlying these forward-looking statements are reasonable, they may prove to be incorrect. Given these risks, uncertainties and assumptions, you should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activities, performance or achievements. We may also refer to non-IFRS measures. The reconciliations as well as additional information as to risks, uncertainties and other factors we may face may be found in our financial statements, management's discussion and analysis and our annual information form, all of which was filed on April 11, 2025, and may be available on SEDAR+, sedarplus.ca. I will now turn the call over to Aras to begin the presentation.

Thank you, Phil. We're proud to report our most successful year-to-date. This was marked by financial results, continued advancements in our commercial platform, but also in our R&D and clinical programs that we've been able to reinvest and dedicate resources to. In 2024, we strengthened our financial foundation. We achieved what is near self-sufficiency and have established a solid basis for growth, international expansion and something that's very exciting to us is innovation. We achieved record revenues, and Phil will dive into the financials in deeper levels, but $25.5 million, which is a 52% growth from previous year, and we actually achieved our highest ever quarter in Q4 2024. Our gross profits recorded to date were $12.9 million, which represents a 94% increase from the previous years. Our gross margins have risen to 51% during 2024, which is a 40% increase from 2023. The improvement in gross margin is attributed to optimization efforts and increased licensing and service revenue, but I believe it also accounts as a very good example of the differentiation between Avicanna and other companies within the cannabinoid space. Our adjusted EBITDA and annual EBITDA improvements improved by 68% from 2023. We narrowed our loss to about $1.4 million in 2024 as compared to $4.3 million in 2023. In 2024, overall, we made significant strides in strengthening our commercial platform, both domestically and internationally, which we will expand on. More importantly, it was our most progressive year-to-date in terms of research and development. We achieved meaningful advancements in our pharmaceutical pipeline, including our first pharmaceutical approval with Trunerox in Colombia under Avicanna LatAm, we made advancements in our R&D pipeline where we delivered positive clinical results that can now set the stage for our pharmaceutical development. And we further fortified intellectual property with several patents that were issued. All of this I will elaborate further as we go on. In terms of Canada, which continues to be our primary focus and strategic market, it's important that we've successfully established our scientific and commercial platform, and we firmly believe that the progress and insights gained in Canada do serve as a proof of concept for our future scale up in Canada, but also internationalization. Over the past 9 years, our R&D and clinical programs have conducted -- were conducted exclusively in Canada with some of the most important academic and clinical institutions leveraging off of the regulatory framework in Canada where we are able to conduct such research. Our consistent focus has resulted in what we consider to be an industry-leading scientific platform. This is supported by a robust portfolio of products, many of which are commercial patents and continued investments and advancements in our evidence-based approach to cannabinoid-based medicine. In parallel, over the last 3 years, we've built out our commercial infrastructure in Canada. This includes a portfolio of what is now 40 commercial SKUs in the Canadian market. These are proprietary unique formulations that Avicanna has developed. This platform operates as an asset-light model, meaning we are actually not manufacturing any of the products ourselves, but we're leveraging off what is 10 strategic manufacturing agreements in Canada through licensed producers. In Canada, we continue to demonstrate growth in product sales, active SKUs, commercial listings across adult-use and retail, and our commercial listings to date have now increased to about 140, 96 of which are across 7 different medical platforms, including MyMedi. In 2024, we executed the first full year of this synergistic model of Avicanna's MyMedi platform plus RHO Phyto, which I believe to be one of the most complete packages of medical cannabis today. This includes proprietary formulations from RHO Phyto, which I will expand on, our online medical platform, which is essentially a pharmacy and a patient support program and ongoing medical education for the medical community. I'll dive into RHO Phyto. This is our flagship brand of medical products. This is a key point or focus for the Canadian operations. So RHO Phyto line has undergone extensive R&D, clinical development, preclinical development, validation to deliver an optimized experience for patients, while meeting quality and consistency standards that health care practitioners and patients should demand and want. These advanced formulations span between various ratios of CBD, CBG and THC, and are offered in various delivery formats, including oil drops, sublingual sprays, topical gels, creams, capsules and edibles. These various drug delivery systems are then better designed for various needs of the patients. What you will notice is in that none of these formulations are inhalable. So this is contrary to the expectations or the norm within the cannabis industry. In addition to being available on MyMedi platform, the RHO Phyto formulations are also now available on other medical platforms within Canada, but also are the first brand to be available in major Canadian hospitals. This first-in-kind initiative enables health care providers to access dedicated educated training platform products, but also provide patients personalized support and online guidance through their treatment journey. Providing access to these standardized formulations across both medical and clinical community setting has generated meaningful feedback from our patients, but also from the health care practitioners. This has also allowed us to generate real-world evidence and insights into validating the approach of our formulations but also giving us guidelines towards our pharmaceutical pipeline, which we believe we can further invest in. This is really bridging the gap between cannabinoid-based medicine and the traditional pharmaceutical development that we always envisioned. In 2023, we successfully launched my MyMedi.ca, which is our medical cannabis platform. This was acquired or this was completed through an acquisition from Shoppers Drug Mart and their medical cannabis division called Medical Cannabis By Shoppers. This platform is operated by Northern Green Canada in Canada and is now established within the entire nation in Canada as a nationwide platform. MyMedi is positioned as a leader within the Canadian medical cannabis sector. Together with Northern Green's help, we've built a comprehensive patient support -- comprehensive patient-centric platform that offers proprietary products, robust patient support programs and a growing presence within the medical community. Throughout 2024, we focus on further enhancing the platform across several areas. We expanded and optimized our product portfolio. We are now working with 20 different licensed producers and have over 50 brands within the platform. We've enhanced our patient support and customer service. This is with emphasis on education, onboarding, harm reduction and insurance navigation. Over 70% of our patients are now relying on insurance coverage for their product sales. We've advanced our medical affairs initiatives, which is laying the foundation for expanded physician-facing programs that we will expand within 2025, and I will allude to some of that during the call today as well. And we've improved the financial aspects of the platform. We've improved margins, we've had cost reduction initiatives to bring the platform into the most efficient state it's ever been. During 2024, MyMedi generated $21.7 million of gross revenue. This includes about 85,000 units of Avicanna's own proprietary products that were also directly sold to patients. So the results reflect the platform's strong adoption and underscore a central role within the Canadian commercial strategy for Avicanna, but also the role and need for medical cannabis as a comprehensive package within the Canadian population. And a really important role for us in terms of the scale and growth of MyMedi, our own vision within the cannabinoid industry, but also what we intend to do internationally is of medical affairs. I truly believe this has not been conducted in a full comprehensive way by anyone yet in Canada. So I'll speak to a little bit about some of our efforts. Our medical affairs division plays a critical role in advancing cannabinoid-based medicine through education, training and clinical support. We have established a dedicated medical affairs team and platform focused on the Canadian medical community and scientific community with the objective of bridging the gap between research and clinical applications. Our efforts include collaborations with academic institutions, research organizations, clinical institutions to generate data and expand scientific understanding for medical cannabis or cannabinoid-based medicine. Key efforts today include health care provider clinic and hospital outreach with tailored education and training programs; development and dissemination of harm reduction strategies for both health care professionals and patients; support for observational real-world evidence studies, which we're conducting through MyMedi, several of which we've announced and we will continue to do so, and I will spend a couple of minutes on today; and then strategic collaborations with patient advocacy groups to support evidence-driven and a full, again, comprehensive medical cannabis care program to potentially enhance patient outcomes. In 2024, we continue to fulfill our mission of enhancing education across Canadian health care system. Our medical affairs team engaged with thousands of health care professionals through various initiatives, including our flagship symposium on cannabinoid-based medicine. The 2024 Symposium was an absolute success. We convened leading clinicians, researchers and shared the latest scientific evidence, clinical practices and collaborative opportunities in what was, again, a very successful event. I'm happy to discuss that we're going to have our 2025 Symposium. So we're proud to announce that 2025, which will be our fifth annual symposium that's going to also take place in MaRS Discovery District in Toronto. This will take place in June 6. Some of the viewers today can join virtually. This is open strictly to health care professionals and researchers at the space, and the event will feature a distinguished lineup of Canadian and international speakers, including key opinion leaders, clinicians, scientists, academic researchers and other Canadian researchers at the event. The agenda will cover a wide range of topics from emerging clinical evidence, but also the practical applications of cannabinoid-based medicine and patient care within Canada. A quick update and look into our international expansion. So internationally, we continue to focus on operations and development of our advancements of our strategic product candidates, including our pharmaceutical pipeline as we believe the emerging market and the opportunities within the global marketplace are going to provide opportunities for us to scale and again internationalize what we've successfully implemented in Canada. We've leveraged our regulatory expertise and to date have completed transactions in 22 international markets. This is quite difficult. As in many of these markets, we've been the first to do so. So we've been able to navigate complex frameworks to understand the regulatory landscape and complete these transactions. Our international operations are also focusing on manufacturing and commercialization of our particular proprietary products, including our cosmetic topicals, but also Trunerox, which received its marketing authorization from Colombia in early 2024. Trunerox, which is approved under the Invima, which is the Colombian regulatory agencies, is expected to launch this year in Colombia and expand into other South American markets. Trunerox is not approved by Health Canada, but it is approved again by Invima for Lennox-Gastaut Dravet Syndrome, which are catastrophic epilepsy conditions, similar to Epidiolex. We're also continuing to expand our active ingredient business. So Santa Marta Golden Hemp, which is our majority-owned subsidiary, has historically been producing active pharmaceutical ingredients, including CBD, CBG and THC, which we'll export to various markets. In 2024, we actually made substantial improvements and advancements in our agronomy and post-harvest infrastructure and capabilities as well. This has now enabled us to expand our Aureus branded portfolio of API to include premium, organic and sustainable flower as well, which is now an emerging opportunity within the European market in Australia. So we really look forward to having this business also turn into its own profit center really in addition to being Avicanna's supply chain. In terms of R&D, with 8 years plus of R&D preclinical and clinical development of cannabinoids, Avicanna has a history and an established scientific platform that we continue to develop. Our pharmaceutical pipeline, which comprises a range of indication-specific drug candidates and proprietary formulations that are in various stages of development and regulatory registration, are demonstrated here in this slide, and I will allude to a few of these. These drug candidates are strategically designed to address unmet medical needs in key therapeutic areas, including neurology, mood disorders such as depression, sleep disorders and also dermatological conditions. It's important to note we're learning a lot from RHO Phyto products within our platform and the patient population of MyMedi.ca to help us really prioritize and guide our clinical pipeline. Our development efforts are underpinned by a robust R&D platform and, as I mentioned, complemented by real-world evidence. This is to help us inform decision-making and validate our therapeutic approach. Several of these preparations are currently progressing through submission application registration phase in Latin America, more specifically Trunerox where the regulatory infrastructure allows that. Some of the key developments within 2024 in terms of our R&D clinical platform include the real-world evidence study that we've initiated for MyMedi through the Canadian Consortium Investigation, CCIC. This is a 1,000-patient study that's led by Dr. Hance Clarke, who's the President of the Canadian Pain Society. We also completed a dermatological condition study at SickKids, a clinical study that evaluated our 3% CBD topical in patients with EB or epidermolysis bullosa, which is an orphan disease. This was led by Dr. Elena Pope who is Head of Dermatology at SickKids. The early results show notable improvements in wound healing, which is a major endpoint that we were looking for in that study. We also completed an observational study on inflammatory pain. This was a real-world study where we assess our proprietary CBD and CBG gel. We had again positive improvements in outcomes reported across pain, physical function, but also daily activity domains. We also had significant improvements within our IP. We were able to obtain 2 U.S. patents from the U.S. Patent and Trademark Office for 2 of our proprietary formulations, including our deep penetrating topical formulation and the second one for our SEDDS, self-emulsifying drug delivery system, which is broad and covers a range from our oral formulations that include liquid drops, our SEDDS capsules and now moving into SEDDS powders. I'll now move it over to -- transfer over to Phil to provide an update on our financials.

Thanks, Aras. Good morning, everyone. I'm happy to provide an update on the financial results and improvements during 2024. As discussed earlier, 2024 has been a great year for the company with record revenues, margins and record low net loss. We finished the year with revenue of $25.5 million, an increase of 52% over 2023 revenue. The majority of our revenue has come from the success of the MyMedi platform, which generated revenue of approximately $21 million in 2024 compared to approximately $9 million in the previous year. In addition, the company entered into a multiple strategic licensing IP and supply agreements, providing exclusive rights to sell our products in specific markets as well as joint projects to develop and market new products. These agreements brought in licensing and service revenue of approximately $2.4 million in 2024, a large improvement from $530,000 in 2023. Our gross profit was $12.9 million in 2024, representing a gross profit margin of 51%, a substantial increase from our 2023 gross profit margin of 40%. Our increased gross margin is supported to our large increase in service revenue as well as management's efforts to renegotiate supplier contracts and identify cost-saving alternatives where available. In addition, the company continues to increase the quantity of our own in-house products sold on the MyMedi platform. Currently, sales of Avicanna products on MyMedi make up about 17% of all sales. The company has driven cost control measures in an effort to improve earnings and reduce reliance on external financing for operations. During the year, operating expenses increased by only 17% over 2023. Given that this is the company's first full year operating the MyMedi platform, the increases were directly related to those operations with the largest increases being in salaries and marketing expenses. The combination of these improvements has resulted in an improvement to our adjusted EBITDA loss of $1.4 million, a substantial increase from adjusted EBITDA of $4.3 million in 2023. In addition to improvements in our income statement, we continue to manage and build our cash flow and working capital position. In 2024, we have substantially decreased our liabilities by continuing to pay down aged vendor payables and external debt. As a result, we have decreased our accounts payable by over $1 million and paid down all external debt during the year. Our working capital deficit has fallen from $3.9 million at the end of 2023 to $1.6 million at the end of this year. The company produced positive results in 2024, and we continue to see additional opportunities to grow our revenue and scale our business to further improve our financials and work towards a path of greater profitability. Finally, I wanted to address the delay in our 2024 filings. As disclosed in the press release issued on March 31, 2025, we were unfortunately unable to file our audited financial statements by the statutory deadline due to internal jurisdictional licensing matter with our auditors. Despite being substantially complete with our audit and our quality review, our auditors could not issue the audit report in Ontario until their licensing requirements were met. To facilitate the additional time needed to resolve this matter, Avicanna applied for a management cease trade order, which was granted on April 4, 2025, by the OSC. On April 11, the company's auditors were able to resolve the internal licensing requirement and issued the signed audit report. The MCTO was lifted on April 16. I'd like to thank our auditors and my team for their speed and diligence in resolving this matter. Missing a crucial filing deadline is extremely stressful and our teams dealt with the matter professionally and very swiftly. Thank you very much. I'll pass it back to Aras.

Thank you, Phil. As we look ahead into 2025, we are now operating from a position of strength. Some of the folks in the audience have been with us for many years, and they've seen the consistent evolution of the company. So I'd like to -- I personally believe we're operating from a position of strength and stability. This gives us the opportunity to think strategically, allocate resources strategically and continue to innovate. I believe that as we progress towards our clinical evidence and pharmaceutical pipeline and the scale of our business, we're going to be able to do this at a much more comfortable level, but to be able to do that in a much more productive way as well. In Canada, we're committed to our leadership within the cannabinoid-based medicine, and we're deepening our engagement with the medical community. We believe our work with patient advocacy groups, payers and the medical community will allow us to scale the MyMedi plus RHO Phyto combination within the Canadian market and believe that we can continue to advance cannabinoid-based medicine into really the standard of care. Internationally, we're positioned to replicate and integrate our business model globally into the emerging markets with particular emphasis at least at an earlier stage within the European market. Importantly, after years of focused R&D and generation of meaningful real evidence, we are now poised to also advance our pharmaceutical pipeline and initiate the next phase of pharmaceutical development, which I think are going to be key as we build our strategy to ultimately list with the United States. I think that's a big part of our plan to prepare for that this year. And the reason for that is to have access to really an investment community and a marketplace that is more open to the pharmaceutical positioning and the pharmaceutical DNA of this company. So overall, very exciting 2025. I appreciate the consistent and ongoing support of many of our shareholders as we navigate the complexities of being associated with the cannabis industry, but a very successful year, and we believe 2025 will be bigger. I'd like to open it up for questions, if that's allowed within this platform.

Yes, apologies. I think we're having a few technical difficulties. [Operator Instructions] Aras, you've got a question from Lauren Gould.

For some years now, we've come in -- a friend of mine and I have come in through what I'll call the David Nikzad orthogonal pipeline. And we were given to understand that there is some sort of percentage of ownership within Avicanna. And no matter how I've asked the question, I've never received an answer. And so I'm wondering if you can address that, please We'd like to know what percentage of our shares we own or how that's addressed at all, please?

Sure. I'm happy to address it. So David Nikzad and EI Ventures were investors of Avicanna a few years ago. There were some announcements that we made with respect to that investment. From what I know, they've liquidated their entire position. So this was -- in the marketplace, they liquidated their entire position, and they don't have any equity or warrants within the Avicanna cap structure today. So this is something I think you would have to take up with EI Ventures, David Nikzad and that entire sort of ecosystem.

Are there any more questions? We've got one from Barbara Hickson.

Yes. I'm assuming you see profitability in 2025?

Barbara, yes, we're quite confident within that. I mean, Barbara, you've been with us for several years. I'm sure you've noticed the progression and the advancements we've made in terms of the revenue margins and gross profits, but also from an EBITDA loss perspective, we're really close. As long as we have some marginal growth this year, which we expect, we believe we're going to be able to achieve that. So I think in terms of optimization and cost structures, we've completed what can be done. So really, this year, the focus is on scale and growth, and we do believe we're going to achieve that.

Okay. We've got one more from Mark Meritt.

I'm curious if you can talk at all about the timing of Trunerox in Central America and South America this year.

Yes. We're actually in production. So as expected, things tend to take a little bit longer when you're dealing with regulatory agencies, but we're actually in production. We're going to be producing and launching the product sometime during early Q3. The initial launch will be in Colombia, but we're also in discussions with several other regulatory agencies to expand that. I think Trunerox has really an interesting opportunity considering the size of -- or the size of the market opportunity that we've seen, for example, with Epidiolex in the U.S. Trunerox is really designed to be sort of potentially the similar solution with the developing markets. It's going to take time, but epilepsy, especially pediatric epilepsy, especially catastrophic pediatric epilepsy is a massive market opportunity and something that I think we should be able to help various populations and get the product out to. So I think this year will be more of a soft launch within the Colombian market for us to learn more and have more of a proof of concept. And then from there on, expanding into other initially South American markets, but I do also see the potential for it to enter other developing markets as well.

And Aras, we've got one more from David Gordon.

Apologies if you discussed this earlier and I missed it, but I'm curious about your work with Vectura Fertin and by extension, PMI.

Yes. So at this stage, we're sort of limited in terms of disclosure, but we so far have initiated a collaboration with them within the medical affairs part in Canada. So we're conducting some research, some medical and clinical collaborations, but really they also launched their product, which is a CBD format of tablets within the MyMedi platform where they're assessing and learning from sort of the experience in the Canadian marketplace. There are other strategic discussions and initiatives that we will be sort of expanding and providing more insight as the year goes on. But yes, they are now -- the name is Aspeya. That's the name of the company. They just rebranded, but they are a sub of PMI.

Maybe we can come back to this one for now. There's one more question. Well, there's one more question from Barbara.

Aras, if you were to put your crystal ball on, what would you see for the company 5 years from now?

That's a tough one, Barbara. As you know, things are complex within this industry. I believe that because we're somewhat stigmatized because of the cannabinoid-based or, let's say, association that we will -- there's really 2 paths. There's a path that we maintain on our own. We continue to grow, we continue to scale, we continue to internationalize. And I think over the last 9 years, we've built really a platform that demonstrates the potential utility of cannabinoid-based medicine when conducted the right way with proprietary advanced drug delivery systems and evidence and patient support. So if we stay on our own, I really do see this scaling and internationalizing. And if we're generating $25 million, $30 million in Canada from medical at an early stage with very little investment in R&D, I think the potential of medical cannabis on its own globally is billions. And then in parallel with that, taking pharmaceutical pipeline candidates and taking those into real drug delivery, real drug development is massive. And that's us staying on our own. So I do believe that there's a potential for this company to be a $1 billion company. But there's also a world in which we are seeing Fortune 100 companies enter. We're starting to work and collaborate with several. There's probably a world in which within the next 2 to 3 years, one of these companies tries to acquire Avicanna. So I think there is an opportunity for less than 5 years from now a meaningful exit or meaningful opportunity for an exit for the shareholders of the company. And that will likely -- that I believe is somewhere within the next 24 months as well. But I think we've gone over the hill. We feel like the next few years for us to scale this is going to be substantially more exciting and less difficult than what the last few years has been. But I do see this again, either you've exited to a pharmaceutical company for a meaningful valuation in the next 3 years or we're really scaling this thing into a multinational potentially multibillion-dollar opportunity.

I think we might have time for one more question. This individual who's trying to speak as well.

The hand wave is gone but the mute is still there.

I think that's it.

All right, folks. Thank you very much. Ivanna, thank you for hosting. Phil, thank you for joining. Everyone, thank you very much for your time. If you have any further questions, most of you know how to reach me. I'm happy to answer more. And yes, looking forward to exciting 2025.