Cann Group Limited (CAN.AX) Earnings Call Transcript & Summary

All right. Welcome to today's webinar, everybody. Thanks for joining. I'm Jenny Pilcher, CEO and Managing Director of Cann Group. And I'm joined today by Mike Ryan, who will be joining the Cann Board as Chair. Today's webinar will cover broadly 4 main areas: our recently announced debt refinance and equity raise transaction. We'll take a look at the global and domestic market and industry dynamics. We will take you through our commercial strategy and lastly, some of our financials. So just a quick reminder before we start, we do have an SPP Offer running currently, which closes on November 17, and that date won't be extended. So next slide. We do have a bit of a disclaimer here. We -- there will be some forward-looking statements and things like that. So just bear those in mind, please, that they are estimates only. Carry on, next slide. Yes. So I just wanted to quickly recap the debt restructure and equity raise announced to market on Monday, the 27th of October. This was a transformational transaction for Cann Group and that we have successfully reduced our debt burden by approximately 81% down to $14.5 million, and that will save the company around $3.5 million of interest costs per year and obviously kicks in about $60 million of net assets to the balance sheet. So the transaction more specifically, we'll see NAB exit as our major lender. They will receive $15.3 million as a settlement for all of their debt, and they'll have no further recourse on Cann or hold any security going forward. We do have an existing $5.5 million loan with an Australian private credit fund, and they will lend a further $9 million, taking our debt position to $14.5 million. The headline interest rate on that going forward is 9.5% cash and 3% capitalized payable at maturity in 2 years' time. So to assist with funding the NAB settlement, we have also completed a $6.5 million placement. It is subject to shareholder approval, but we do have firm commitments for that. And as mentioned, we've also launched an SPP where we have a $2.5 million shortfall cover guaranteed. So the minimum raise we will end up with is $9 million. So next slide. We can go one more. So taking just a closer look at Cann Group. We're obviously one of the largest producers of medicinal cannabis dried flower in Australia via our state-of-the-art GMP production facility located in the Sunraysia region of Victoria. So our facility has 0.7 hectares of fully operational glasshouse, which is capable of producing approximately 10 to 12 tonnes of dried cannabis flower per annum when it's at full capacity. We have a further 2.8 hectares of partially completed glasshouse. This is not operational today, but it does represent a future expansion opportunity, but it would require additional capital to do that. We have full GMP chemistry and microbiology labs, which means we can do our own product release, which saves time and costs, and we don't need to rely on external suppliers for that. We've got a 13.5 hectare empty block of land adjacent as well, which we are actually looking at using that for a solar energy project, which will reduce our electricity costs. In terms of the glasshouse itself, it's got a lot of advanced automation features, Priva integrated environment control system, which allows short-cycle year-round cropping. So we produce all year round. logics, table movement systems, GMP, I already mentioned, drying rooms, mechanical dehydration, mechanical trimming. And more recently, we installed a GMP accredited jar packing using high-speed 14-head automatic filling equipment. Next slide. So this slide just takes a quick look at our leadership team. So on the right, I am joined on the exec by Michael Long, who heads up our production facility and is also responsible for our B2B business development. Carlyn Villani is our Head of Commercial, and she's responsible for our Botanitech brand and strategy, having created and launched that in 2024. And Steve Notaro is our VP of Compliance. I'm joined on the Board also by Doug Rathbone, who's been with the company since 2015. And more recently, Peter Kopanidis, who joined in March this year, who has a debt and Investor Relations background and is also a chartered accountant. And as mentioned, I am joined on the call today by Mike Ryan, who has an established career in equity markets, and he will talk shortly on a couple of slides. So next slide. Just take a quick look before we dive into some of the detail around our investment highlights. So sales revenue is forecast to grow approximately 15% to $17 million for FY '26, and we're also targeting EBITDA positive. And just on that, we had our first EBITDA positive month in August '25. So this sales revenue growth is being driven by our own brand, Botanitech and also our bulk flower sales channel. And early FY '26 sales are ahead of budget for both of those areas. We have our partnership with Chemist Warehouse, which will help expand our sales channels. Our flower is obviously locally grown and produced in our facility, which I've already talked through. Importantly, our gross margins are well through 50% now, and that's been driven by a 35% operating expense reduction in FY '25 and increasing yields. And last but not least, we've got this 81% reduction in core debt, which lowers our financing costs and strengthens our balance sheet, which is really important going forward. Next slide. So I'm going to hand over to Mike now to take you through some of the global and domestic markets and industry tailwinds.

Great. Thanks, Jenny, and thank you, everybody, for joining the call today. Just going through what's happening in the global market itself, what we're seeing is a strong growth of cannabis -- medicinal cannabis market, which is forecast at this stage to rise to about [indiscernible] plus by 2030, which implies a CAGR of around about 18%. Now while North America dominates the market, there is growing demand occurring within Europe with they driving about 30% of the global market, particularly in Germany and the U.K. The Asia Pacific region itself is sort of growing at the same rate, if not slightly higher, and Australia being the key hub going forward. Analysts are projecting over the next decade that there will be about a 20% to 25% annualized growth in this space. And then just moving on to patient access. A couple of things...

You've just hit mute, Mike.

Sorry. Sorry, I'll just backtrack a little bit. So patient access is expanding rapidly as well. What's also driving that is a change in sort of perception as well as the benefits being realized from medicinal cannabis and also the regulatory framework, which has improved significantly over that time. Trump's recent endorsement of medicinal cannabis saw a notable pickup in performance of North American cannabis companies over the last 3 months, up over 100%. If we move on, and that will sort of give rise and is starting to give rise to sort of the increase in the amount of M&A that's starting to emerge. If we just go to the next slide, in the context of Australia, the Australian market itself is worth about -- estimated around about $500 million to $700 million. And at the patient level, that's growing at around about 25% per year. The Australia is now exceeding about 100 tonnes per year, which is starting to highlight the maturity of the market, et cetera. And scaling of the market is sort of benefiting companies like ourselves. This -- I mentioned prior about the shift in social perception of illicit to legal transition, and that's getting significant momentum, and that's reflected, as I mentioned before, prescription momentum. Customer behavior is changing, greater engagement, in the way in which the product is now offered with gummies, vapes, et cetera, is also supporting that penetration. So from a broader perspective, the growth in the market, as you see on the right, is coming primarily from flowers, but we are seeing other sectors seeing growth as well. Just moving on to the next slide. These tailwinds, again, reiterating what we've already mentioned. You're seeing this regulatory support, the rising export market, we're seeing growing demand coming out of Europe, the transition, the clinical validation and obviously, the delivery formats are making it a lot more accessible. And for patients, the ability to access it has become a lot more-easier. When I say easier, the quality and access through prescription is becoming a lot more available. And just coming across to the right, just looking at that chart, you are actually seeing a rise in the unit sold versus the top 50 products, and this is where we're getting greater penetration with Botanitech. Back to you, Jenny.

Yes. Great. Thanks, Mike. So the next couple of slides just take a look at our commercial strategy. So we broadly have 2 commercial streams. So firstly, on the right-hand side, we have our branded products range, where we sell a variety of formats under our Botanitech range. These are typically sold via distributors and on consignment and are purchased by patients under prescription. So formats include dried flower, which is our main product, oils, edibles and vapes, and they also come in a range of CBD/THC combinations. Secondly, on the left-hand side, we also sell our own produced dried flower to other cannabis suppliers, so our B2B channel stream, mainly via white label, but also via bulk. So for white label, we have certain customers that have exclusive rights to some of our flowers and our bulk flower channel allows us to ship large quantities of flower at a time. Next slide. So looking a little bit more specifically into both of these channels. For our Botanitech brand, we target expansion through new formulary signings, the expansion of the range itself via new SKUs such as our gummies range, which was launched last month. And we've also got a new brand launching this quarter, which is targeting a very mid-price range level. And of course, we have our partnership with Chemist Warehouse, which we are now -- have signed up 13 different outlets, all of those in Queensland, but we hope to be able to replicate that nationally. On the B2B side, we're looking at export channels for our dried flower, primarily U.K., Poland and Germany. And we're continuing to onboard new white label customers, and we, of course, have our regular box flower customers as well. The next slide just shows you the journey of our Botanitech brand. This is our own established brand, which I mentioned, which was originally launched with oils only back in '22, but is now very much heavily focused on dried flower being that's our main game, obviously. And we more recently added vapes and gummies into that range. And you can see the middle product, the blue INC, that's our bestseller flower and accounts for more than 50% of our branded sales. So in terms of looking at where does our dried flower come from -- we've got -- Cann has got a very well-established R&D program, which has 2 main programs. The first is our CRADA program, which was developed in collaboration with AgVic and where we selected our top 8 breeding candidates, and they have now entered the market under our Botanitech brand. And then alongside that, we also have our breeder pack seed importation program from North America, and we now have our top 3 that have also entered the market under our Botanitech brand. And in addition, we've also now have a very established diverse genetics bank with a wide range of patient relevant traits, giving us the ability to, I guess, rapidly adapt to evolving patient prescriber and market needs. And we test these in our Mildura facility on a regular basis, and we look for patient desirables, and we will take the best of the best through to the Botanitech range. Now I just wanted to touch a little bit on our financials for the last few slides. When I joined as an exec back in April '24, so roughly 18 months ago, we implemented a 3-phase strategic plan. The first 2 stages were focused on rightsizing the cost base of the business so we could achieve profitability. scaling up production in a very systematic and controlled manner and securing funding to allow us to do both of those things. But pleasingly, Phase 2 was completed with the restructuring of the debt position and strengthening the balance sheet. And now we're poised to enter Phase 3, which is firmly focused on revenue growth and profitability. Next slide. We've mentioned cost reductions a little bit throughout this presentation. We have reduced our cost base by 35% year-on-year for FY '25. And we -- as a result of that, we now have a much lower cost per gram, which makes us very price competitive in the marketplace. And that lowering of the cost per gram has come from not only the cost reductions, but also and importantly, increasing yield, so through improvements, which is great. And all of that just goes straight to the bottom line in terms of increased margins. And just on that, we improved our EBITDA by 44% year-on-year, and we're now well positioned to target our EBITDA positive stated objective for FY '26. Next slide. Just a quick recap of some of the results for FY '25. We had dried flower production increased also by 35% to 5.9 tonnes, and we were at an annual run rate of 9.2 tonnes. So we're well on track to hit our objective for FY '26 of 7.7 tonnes. Our revenues from our leading product in Botanitech increased 100% year-on-year. We've got improving gross margins, as I mentioned, operating expenses down 35% through stringent cost management, which, by the way, we continue to do. So very much a focus. And obviously, as mentioned, we had our first EBITDA positive monthly result for August. And now next slide, just having a quick look at our outlook. So revenue growth, we've got a forecast of $17 million for FY '26. For continued margin expansion, the debt reduction has significantly strengthened the balance sheet, which opens up far more strategic opportunities. We've got a highly scalable operation here with production set to increase to 7.7 tonnes, as mentioned. We've got a consistent revenue base now through the channels we've talked about, and we have a profitability trajectory targeting EBITDA more specifically in the range of $0.3 million to $0.7 million for FY '26. I think that takes us to the close of the formal presentation, but we're happy to open up for questions. And just a reminder, the SPP date there, 17th of November. And if you're submitting a question in the chat, can you please state your name. Just wait a few seconds for those to come through. I can't see any in the Q&A section, but I just might defer to my colleagues in case they can see those.

There is a question from [indiscernible] asking, are there any regulatory, legislative or market factors holding back Cann Group? If so, what are you doing to resolve any issues? And I think this one might be directed for your response, Mike, if you wouldn't mind.

I'll ask Jenny to jump in here as well. The regulatory sort of backdrop has sort of not necessarily been overly favorable historically in the last 12 to 24 months, albeit with regards to importation. That now is tightening up. Jenny can provide some more specifics around that. The market factors also playing into their hands are that the customers are wanting quality and consistency of quantity. So both those aspects are sort of, again, playing into our hands. I suppose the third element to where we're at is the customer base now that we've restructured the business is taking a lot more proactive approach towards us. Jenny, you might want to add a few.

Sorry, can you hear me?

Yes.

Yes. Sorry. Yes. Thanks, Mike. I think you've covered it pretty broadly there. Just more specifically, we are starting to see tightening up of the import permits that have been allocated by the TGA. In fact, they've -- or ODC they've reduced those just in the last couple of weeks, actually, they've reduced the quota. So that means with less import permits and import available, then our producers start to look to -- sorry, cannabis companies start to look to the local producers like Cann for flower, which is good for us. I don't think we have any more questions coming through on the Q&A. So I'll...

Sorry. Jenny, there's one more from Nick, which says, with my initial investment down 70% over the past 12 months, is Cann on track to complete Mildura upgrades for 300% production increase in the next 12 months or so? And will this also create more contracts to distribute -- to distributors?

Yes. I think, look, as I mentioned, we do have an expansion opportunity with the glasshouse. We do -- we could go another fourfold. However, it does require a lot of capital investment there. So we're not in a position to be able to do that today. We're firmly focused on getting the 2 zones that we have fully fitted out, churning out profit and covering themselves from a cash flow perspective before we look to expansion.

It's probably worth adding there, though, that there is significant leverage in the business more for each tonne that we put on, right, because we've got an embedded infrastructure already in place. But as Jenny has alluded to, our priorities at this stage is ensuring that the current zone is operating at maximum capacity.

Yes, agreed.

Any other questions?

That appears to be it from the feed, everybody. So thank you.

No. Great.

All right. Thank you, everyone, for your attendance today.

Thank you very much.

We'll close the webinar.