ECS Botanics Holdings Ltd (ECS) Earnings Call Transcript & Summary

Welcome to the ECS Botanics FY '25 Q3 Investor Update. On the call today, we've got ECS Managing Director, Nan-Maree Schoerie. I'll pass you across in a moment to Nan-Maree to kick off her discussion of the company's progress. Today, we'll have a presentation from Nan followed by an opportunity for Q&A. [Operator Instructions] So to kick things off, I'll now hand over to ECS Botanics Managing Director, Nan-Maree Schoerie. Go ahead, Nan.

Thanks, Tim, and thanks for those of you who have dialed into this call. I'm really excited to share this presentation with you because I always feel like the quarterly reports are pretty flat and they don't really have the context behind some of the comments. And so it's a great opportunity. And hopefully, at the end of this, you all feel like you understand a lot more about where the business is and where we're heading. So I put it all agenda together, just a very brief presentation. I think there's time at the end, as Tim mentioned for Q&A and happy to take your questions once we've got to the end of the presentation. If there's anything that you -- that I didn't cover in enough detail or that I've missed all together, I'd be happy to discuss. But we're going to talk about the brands. I think a lot of you -- well, hopefully, many of you actually want to source ECS brands from your doctors. So I'll go through a little bit about that, the sales mix and what that means for the company. I'll touch on the PCEs and the outdoor grow, the funding and then also the outlook. So hopefully, we'll cover most of what your questions are. So our brands. So our Avani brand is the first brand we launched last year in about August. In fact, it wasn't. The first brand was RAP. But yes, so Avani is our own brand. And you can see that we've got flower, capsules, oils, and we've got some vapes. Our vapes are not very competitive. So I don't want to focus too much around that. We are looking to source vapes elsewhere because at the moment, we kind of -- we struggle, I guess, to make any reasonable margin on vapes. So we have it in the more to fill the product gap. But the other products are going well. Oil is not as well as what they used to in the past, and that has -- is for 2 reasons. One is the oil market is kind of flat, if not declining relative to flower. But also there's a lot of overseas oils products in the market as well, and they're very competitively priced. But having said that, our oils business is sort of picking up again. And I think one of the things we're working on is looking at getting organic oils because, as you know, we're an organic farm and some farm are looking to do some -- to make the necessary changes to be organic and so I would imagine that if all goes to plan within at least the sort of next 6 months, that will be organic. [Technical Difficulty] RAP. So RAP was initially launched as a broad veterans brand, but we now -- as many of you are aware, we have a large veterans contract. And so we've sort of standardized on giving the RAP brand to that particular customer. It's a very large customer of ours. And there, we initially just sold capsules and some oils and more recently, they started to pick up and take orders for flowers. I'll talk a little bit through the presentation about the fact that we have had some product supply issues and that was really primarily around capsules. We source the capsules from a supplier in Canada and the veterans contract just sort of took off. You might remember that the contract was about -- valued at about [ $350 ] a year and exceeding that on a monthly basis. And so we just -- we were a little bit on the back foot in terms of ordering the capsules and our suppliers being able to manufacture in time. But that is all pretty much behind us now. We're just sort of covering off that. And going forward, I don't expect to have any of those issues going forward. Now that obviously put pressure on our relationship a little bit with our customer, but also obviously put a little bit of pressure on our sales because we were -- we placed the orders with the manufacturer, but they took a little bit longer to come through. But as I said, the good news is that is pretty much behind us and the flower is starting to take off. So that contract is doing extremely well. We launched the value brand at the end of last year, that's our OzSun brand, going really, really well. And we are about to launch oils. So what we've done is because of the value of the -- sorry, the high uptake of the value brand, OzSun 15-gram, we're now doing oils in 50 more and 100 more bottles of CBD and THC to really capture those people that are buying large quantities of product. They have chronic illnesses and to try and keep the cost down. As most people know, the larger the package price, typically the lower the cost. So we're hoping that's going to do well. And finally, at the bottom, the Avani Advanced. For those of you who have been shareholders for a while know that I've been banging on VESIsorb for a very long time. It was also something that unfortunately took a long time to get released and we've only, at this stage, released our 25-milligram capsules. We expect to launch a 2.5 milligram, 20-milligram THC, CBD capsule in the next couple of weeks. They're already being manufactured. And similarly, we'll be releasing our first 5-milligram THC gummy, which I believe is extraordinary. So really excited about the launch of that VESIsorb gummy. It will be coming, as I said, if not this quarter then early next quarter, but they are already manufactured. In fact, I was talking to the supplier this morning. So they should be on their way soon. So that was a little bit about our own brands. You can see that we've had rapid growth in our B2C channel despite some of these challenges that we've had in getting product to the customers when they want them. The opportunity for us, I think, is enormous because I look at all of these -- I guess they're a little bit teething channels, they're a little bit underestimating which products are going to sell and getting ahead of the game. But we're already #13 in terms of the top 110, I think they've got brands in the market. So to get back in a period of 9 months, I think, is pretty remarkable and a really testament to our sales team that are doing a terrific job. And you can see that as well in terms of the prescribers. We've got 540 prescribers at the end of March. We are on track to get 700. There is no specific target number there. It's going to be diminishing returns. But obviously, we want to make sure that as many of the authorized prescribers as possible are actually on our -- or meeting with that MSL and are actually able to and want to prescribe our products. This is particularly important for the VESIsorb product, which has got a unique selling proposition. So a lot of face-to-face selling is required there. I've spoken about the RAP, Avani Advanced, I've just mentioned to you where we're going with that. So that should all be pretty much where we wanted to be in the next sort of month or so. And from there on, we're probably going to add another CBD, a 70-milligram CBD capsule. There was a conference in Brisbane, the United and Compassion Conference in -- I can't remember -- it was about 4 or 5 months ago. And A lot of the presentations there were talking about the benefits of high levels of CBD without sort of any negative impact. So the 70-milligram CBD capsule would be equivalent, if you think about 4x, it will be 280-milligram capsule, which will be a pretty strong CBD for those patients that are looking for that high CBD without having to follow a large chunk of oil. And then the OzSun brand. Well, the OzSun really done us a huge amount of benefit, not only because it's selling well, but we have a very large outdoor grow as most of you are aware. And most of that outdoor was destined to become -- to be used in extraction for oils. But that oils market, as I mentioned earlier, has dropped off a lot. And we haven't -- and our flower is not always good enough to sell an A-grade flower and there wasn't really a B-grade market. More recently, the whole market, not just ECS, but most of our competitors launched their budget brand, which is kind of the B bags, the smaller buds, the bags that are not good enough to make the A grade. And ECS is very, very well positioned to capture that market because we have a relatively low cost to produce our outdoor flower and the flower is really good. And I'll talk about it a little bit later, but the outdoor crop this year is just amazing, and we're really excited about the quality of it. And much of that outdoor flower has and always will be sold as an A-grade flower, but we just -- it's our first harvest. It's a little bit like breaks, I guess, or wine farming. We go out there and we take the tops, the best possible flower and then we treat that in much the same way as we would treat our polytunnel or PCE flower. And then the rest of it, we would typically in the past have just harvested for extraction. It has caused us a little bit of a challenge because we've got too much biomass from last year because it wasn't good enough to sell all of it as B grade. But the good news is, and I'll talk about it in the coming slide that the production this year is so much better, and there'd be very little biomass. So we have this ability now to still use last year's sales to make oil for this year. And almost everything that we produce this year will be sold as flower. Just talking a little bit about the sales mix. Often in my quarter, talk about the cash flow and how it is impacted by the B2C product line. We obviously make better margins. But what we have to do is put consignment stock into all these dispensaries. So there's a cost of production, obviously, the normal cost of production, but then we put -- we've got all the consignment stock, which well exceeds $1 million with a consignment stock in our -- with our distributors and we only get paid when the patient pays with distributors. So there's a long time in terms of payment terms. There's also sort of a significant amount of cash that's been tied up in consignment stock. But the good news is that, a, we're able to leverage some of these things that we've developed over the last 4 years, and that is the organic certification. I spoke about the -- potentially the organic oil certification as well and then also just the Australian grown. So having our own brand is really good for us to be able to leverage that and we're sticking very clearly to that, that the Avani brand is Australian grown, growing organically and then oils, as I say, will be organic. The B2B sales are typically white label in finished products. So we pack it in a jar or in a bottle. We get wholesale margin, so we don't get the same margins that we get from the B2C. But the good part about it is the customer typically orders it a lot, so 20 kilograms of flower at any onetime. 2,000 or 4,000 units of oil. So it's a chunky sale, 30-day payment terms and they give us a deposit as well. So from a cash flow perspective, B2B is a really nice model. But as I said, the disadvantage is you don't have that security of -- or sustainability of long term and also you're sitting at the mercy of your B2B customer sales force as to whether they are going to bring in the sales that are required. Now I will talk -- I'll probably mention it now. It's probably a good time to mention that, that B2B business, unfortunately, did go backwards and you can see it in the results. So we haven't grown the B2B. In fact, it's gone backwards when you launched the B2C. But the good news is what I'm seeing at the moment is customers are coming back. Now we didn't lose any customers. But they started shopping around and buying some flower from other people and buying some oils from other people. And I think they were quite understandably a little bit concerned about ECS going and becoming a competitor in the market. But what we're seeing is those customers are coming back. And so -- and again, I'm saying they're coming back, we're not going to lose them, but they're starting to order more again. So that's really exciting for us. Those relationships are strong and getting stronger. And I think that the B2B business is going to revert to where it was and then continue to grow. B2B export, this is typically bulk. So we don't ship jars across other than if -- well, when we start with Poland, we'll be selling finished product. But for Germany and the U.K., we sell bulk bags of 2 kilograms or 1 kilogram flower. They typically order 30, 40, 50 kilograms at a time. It is a little bit more difficult, particularly for Germany because they require unirradiated flower. So we have to make sure that the flower meets the specification before it ships. And we have had a couple over the last 12 months. They haven't made it. And that's obviously a big lesson for us is to make sure we don't ship product to cost there that doesn't meet the micro spec when it gets the other side. Obviously, we don't ship it with making sure it passes, but then it gets tested again when it gets to Germany. So we're now having to shoot for very much lower micro levels just to make sure that the product when it gets to Germany, it meets the micro spec. We don't have that issue or challenge in the U.K. They're happy to take irradiated flower and similarly when Poland picks up, they will take irradiated flower. And as I said, they'll be packed. Now the advantage of bulk, typically means less work for our team. We're always under the pump, we work fairly hard. And having the ability to sell some of our flowers bulk means that we can turn around it quicker. But then the negative is that instead of getting the finished product revenue and margin, you're getting the lower revenue, but you're still getting really good margins. And again, payment terms are 30 days. They do pay a deposit in most -- well, they will pay a deposit, but that varies, but the payment terms are pretty good. So there's advantages and disadvantages of each of those sectors, and I hope I've been able to share that a little bit with you. We obviously want to grow all 3, and we are growing all 3, but they do have different impacts. And you can see the impact of the B2C business on our cash flow was specifically around the consignment. So even the RAP brand that I talked about that we supply the veterans, a lot of that product is on consignment. So all of that product is on consignment. So the faster that one grows, the more cash we have tied up in inventory. And I'm sure you're all interested to know what's happened about Terphogz. We did sign that licensing agreement and we're still best friends with the Terphogz guy. It's taken longer than -- it seems like everything we do. It's taken longer than what we thought. And that was really because we've had to find the right kinetics. We're not growing the flower ourselves. So we're actually curating it or we've been sourcing the flower. We have found a very, very good quality flower that we're very happy to put into the Terphogz jars. It is a Z-based original Z product. So that's really good. We've got a U.K. partner signed up. Germany is a little bit behind. The New Zealand guys are really keen to go. Germany is a little bit behind. They're managing their cash themselves and making sure that they've got all their ducks in a row that they'll be launching and signing the contract and launching soon. In Australia, we're going to launch as soon as we can. So the flower is already on order, the permits are in place. We've got the jobs. We've got the labels. So we're hoping to launch late this quarter, if not early next quarter, but we're on target to look out for that product that will be in the market. And in the case of Terphogz, we're going to be selling the product in 5-gram jars and that's because it is a premium product and it's very expensive. And so we'll sell it in 5-gram jars so that the patient can actually still afford to is out of pocket at the time is not as bad. The PCE, so as per my document -- my quarterly, I mentioned that we have only constructed 7 of the 9. The reason for that is I need to build a cool room and I also need to build another clean room. The material for this is already purchased. It's not like a big cost, but I've taken my staff or my guys off of building the PCEs to get the cool room and the clean room built because we've just got so much flower that we need from the outdoor harvest and also so many orders that we need to process that it's -- we just -- we need that headhouse expansion as soon as possible. We don't need those other 2 PCEs until August, September because that's when we'll start growing the next season. We've got 6 of the PCEs with lights and heating. Unfortunately, we don't have any more power, so we can't, at this stage, do more than 6. We are looking at different options to do more over winter. But at this stage, for the season, we can only do 6. The PCEs are -- the new PCEs, they were more expensive to build in terms of material because they're concrete, they've got concrete floor, under floor heating. There was more investment, very, very good drainage. But you can see there, we talk about the fact that we're getting at least 50% more yield and the quality of the flower is really, really good. And although I said they were more expensive in terms of materials because we use our own labor to derisk this last 7, obviously, total V9, we were able to reduce the labor cost. So actually, that costs the same per polytunnel or PCE to construct what the old ones did. They're giving us 50% more yield. Obviously, there's 9 instead of 6, but the benefits are huge. And we've really managed to get that saving by putting our own team on to it. They learned from working with the previous constructors when we did the last 6, and they were very keen to do it themselves. We have obviously had to hire a couple of additional people. But these projects, as you know, take sort of 6 to 9 months to construct. So having someone on a contract for 6 to 9 months is a lot cheaper than using external contractors. So that's gone really well. We're very, very happy with the PCE. We also started getting some new genetics. And so I've got a picture there, which you would have seen the picture of the flower in the quarterly. I actually also posted a picture there of the trim flower. And at the bottom is a picture of Green Gelato. So I just wanted to show you the quality of the product that we're producing. This Bling Blaow that you can see in that photo that's already been harvested. Obviously, that's why you see trim flower. That is world-class. It's as good as anything that comes out of indoor growth and we expect it to be extremely popular in the market. And that's where we're moving. We still have a very loyal following for our Green Gelato and our Royal Moby, the 2 flowers that we started off with. It's still a very, very large patient base. Certainly, in the U.K., it's still one of the highest selling flowers, New Zealand, in Germany, we're selling it and then also here in Australia. So those strains are still popular with patients. But this is a new generation of genetics that are coming through. They're not genetics we developed ourselves. We did go down the path and I hired someone who was working with genetics and we started to develop our own genetics. But when you see the quality of the genetics that are available and the fact that we now have access to these genetics, it doesn't make sense for us to invest even though I know a lot of companies are planning R&D costs, et cetera, et cetera. At the end of the day, this is the fastest way to get to premium genetics. And our new PCEs with these genetics are producing flower that, as I said, we are extremely proud of. Part of this is also having a really good grower. We hired a new grower I think it was a year ago, Christmas time, and he's made a substantial difference to the company in terms of the stability -- sorry, the consistency of that flower and also the quality of the flower. And now as you can see, some of the new genetics coming through that he's helped us source as well as seen her hunt and coming through now into commercial strength. David also helped us find a new post-harvest manager. We've had some challenges with post-harvest just getting that balance between cost and quality. So some people have been very good at keeping the cost down, but then we're losing flower, we don't have the right quality. And on the flip side, then we get someone who's very good at getting the quality right, but then it's coming at a high price. So we managed to attract somebody from California, who's been doing this for 20-odd years. He's joined us. He's still on a temporary visa. We have applied for him to stay permanently and hopefully, and he's happy to do that. So hopefully, that will come through. But he is making a big difference in terms of not only the productivity, obviously, the quality because he knows what quality needs to be, but also the work culture. So I think we've got a really strong team now. And one of the things I worry about when I talk about the quarterlies is that my competitors are going to try and steal some of my people because I think we've got some of the best people in Australia in terms of both cultivation expertise as well as now post-harvest. So hopefully, that won't happen. So please don't tell anyone. And then we continue to struggle with demand. Now you would say, well, we're producing how many -- I think we're going to produce probably close to 10 tonnes this year. Surely, you're not struggling with demand. The problem is the vast majority of that flower comes from the outdoor, which is good for our B bud, but we can't export it. And it's not the AA grade, which the spring grow, for example, we could sell at 10x over. So it's getting that balance right. And that's why we put in the extra PCEs, and that's why we're doing the winter grow. We're constantly on the back foot in terms of meeting supply for that -- for our premium flower. It's a good problem to have, but certainly something that helps us counter, I guess, some of the challenges that the market has had with imports and the fact that there's a lot of product that's come from overseas that comes from indoor growth. And we are now able to compete head-to-head at a premium level. And quite honestly, if we could grow this sort of flower, we would be well positioned to grow for Terphogz as well. So that's probably something down the line. The only issue is if I grow for Terphogz, then I have less flower for other people. So it's getting that balance right. So this is our outdoor grow. As I mentioned, we had the best year this year. It was pretty dry, not great for everybody, but certainly for a cannabis cultivator, the weather could not have been better. We've had lovely sunshine days, very little rain. So we put the water on to the feet of the flower and we keep the buds itself dry and we just had an amazingly successful harvest. So those the flowers have come out of the very little mold. In the past seasons, we've actually had some issues with mold, obviously, from the rain, and that's why it becomes biomass. And we've also had some issues with seeding. We had a hemp farmer down the road that we discovered that once we found out that there were seeds in our flower. We've now actually had meetings with the hemp association and no one will grow hemp within 25 kilometers of our farms. So we're protected from that perspective. We learn the hard way. But also, as I said, no rain. So the flowers are really, really good, and we won't be using it for biomass, which is typically what we would have done in the past. So yes, the final yield is yet to be determined. So I'm just speculating that will be somewhere between 9 and 10 tonnes, but it is still speculative. We haven't done the final yield. And we won't know until the end of June when we actually harvested the rest of the PCEs as well. Just very briefly touching on, this is nothing that wasn't already in the quarterly, but NAB has given us an extra $2 million. Part of the issue was that they couldn't understand why we didn't spend the money we already had. And I've always kept that $3.2 million as an insurance. It gives us that ability that if anything goes wrong, we have somewhere to go to get money. So this $2 million now that they've lined up will really be used to help with the launch of the Terphogz. I expect that we won't be needing to use that money for much longer. There's a lot of positive indicators for ECS. And I know it's frustrating for shareholders, particularly when you see what's happening with the share price. But if you look at the underlying business and where we started and where we are now, I think there's a lot to be excited about. There's not many negatives in there. It's all -- it's a work in progress and it's hard work and things change and we've had to counter things like the imports, et cetera, et cetera. But I think ECS has come through really, really well. And the fact that we now have this balanced mix of products. We've got the Terphogz, we've got Avani, the RAP, the own brand, the B2C, the exports. There are a lot of levers that we can work on that allow us to offset some of the challenges that many of the local companies have had to put up with. The bottom section there is just asset finance. We obviously use that for things like tractors and equipment and things like that. And we pay that off on monthly. So it's the same as an asset financed in your car. So just in summary, I mentioned at the start of this that I'm really excited and I guess, comforted by the fact that our B2B customers are starting to place bigger orders with us. There's a general feeling that they are happiest with ECS. And so we're starting to see growth in that side and that's very important for us. Our B2B customers are incredibly important. As I mentioned -- as I was going through the document, the B2B customers are really good in terms of the cash terms are really good. They also place large orders. So it allows us to get that -- both that balance of B2B and B2C is very, very important and obviously, our exports as well. Many of the issues -- I mean, I know in the quarterly, I often talk about the issues, and I'm talking a little bit about them now. They're not major issues. They're more frustrations, I guess, but we have a customer screaming for product and we can't get it to them quick enough. And the reason why they didn't get the product is they didn't forecast that they're going to use anywhere near as much product as what they've needed and we're scrambling to fill that. But that's behind us now. We've got on top of it with our supplier. We're very comfortable that we have the right supply in our Canadian manufacturer. And in fact, I'm looking to potentially start exporting some of this product into Europe. Terphogz launch will be next quarter. I think we might even be able to get some product into the market in Australia this quarter. So that's very, very exciting. And then the last point there is just -- but I think that the transition from B2B to B2C is now kind of stabilizing. The B2B is coming back. And I expect that we will -- now with having the right level of consignment stock with our distributors, those issues behind us, we will now return to being cash flow positive within the next couple of -- well, if not -- probably not this quarter, but certainly for the next 6 months, we will be cash flow positive from what I can see coming down the pipeline. And I expect our revenues to return back to where they were in the past. I think that's it, Tim. This is last slide. It's the same slide I always put up, just to remind everybody that we're doing what we said we're going to do. I think from my perspective, trust is a very big thing. And I know some of the shareholders will know I get pretty upset if you can say all sorts of things, but I like to -- I think trust is a very, very important thing. And I've been frank even in this -- and very transparent in this presentation as well. I think we're a team, shareholders are part of my business and I want to make sure that everybody is comfortable that we're doing what we said we're going to do. So there is one thing on that list, the second last point on the '24 to '26, which is the vertically integrated manufacturer of oils, capsules, vapes and pastilles. We aren't looking to do that anymore and that's primarily because when we look at the cost of local manufacturer compared to the cost of what we can get from, for example, the capsules from Canada, it just doesn't make sense. The volumes that we would produce just cannot justify that level of investment at this point in time. So that one has kind of moved out. I haven't crossed it out because I don't want to say that it wasn't ever there. It was there. It's the only one that we haven't looked to proceed with. So that's it, Tim.

Excellent. Thanks, Nan. That was a very detailed present. So I appreciate the transparency. And thank you for our attendees who have been peppering us with questions over the course of it. So we'll do our best to get through all of them and maybe group a few of them together. [Operator Instructions] So there's been a few questions just about, I guess, the -- obviously, the PCEs are having a positive impact and some questions about sort of the progress of that construction program and what that means for financial reserves and the debt levels and whatnot. So I just sort of group a few of these questions together. There's one comment that -- the question is, can you tell us what the net debt was as at the 30th of March? And the comment is that on completion of construction scheduled in May, the available liquidity with the NAB facility appears to be circa $3 million less the cash burn in the current quarter. Is this the correct way to think about the company's cash reserves at the moment?

So I'm hoping I've got the question right. What we're saying is at the end of March, we had $2.2 million. But now we're still going to have some negative cash flow this quarter, which will then eat into some of that $3.2 million, but we've obviously also added the $2 million. So if that was the question, that's correct assumption that some of that new money because we expect to leave the $3.2 million there, some of that new money will be used up as we complete the PCEs. And also offset any negative cash flow that we may or may not have this quarter. It's a little bit too early to tell where we're going to land.

Yes. Makes sense. And to further that, can you tell us about any caveats that exist under the NAB facilities, for example, monthly targets or anything like that?

There's nothing.

Great. And can you give us any color on what the NAB is seeing that shareholders can't necessarily see, for example, prospects of breaking even on cash flow and things like that?

Well, obviously, we don't issue forecasts. So I can't tell you that. I have kind of alluded to the fact that I think that we will be cash flow positive within the next couple of quarters. So other than that, I can't share that. But we were very realistic in our NAB forecast. We made sure that we told them -- it's interesting with the bank actually, they want you to be -- they want you to go into debt because then they make money. So there's that balance of being optimistic and then realistic. So you have to be realistic with the bank because at the end of the day, they don't want to invest in a company that's not going to use that investment to build their business.

Exactly. That is the double-edged sword there. So also on the financing side, can you tell us what the costs are associated with the rest of the COGS launch that may require the use of the financing facility?

And I'll tell you what, what the level of investment in Terphogz is going to be. It will be similar to what we've had to do with the with B2C. So the Terphogz flower, as I mentioned in the presentation, we'll be sourcing that to us. So we have to pay for it. We have to pack it, we have to ship it and then we get paid for it. Or in our local market, we only get paid when the patient takes it. So it's actually just funding that cash flow over that period of time that we need the funding for. So it's not like we're investing in something and the money is going to be used up and gone. It's more just giving us that cash, that liquidity that we need to fund another initiative like this.

Yes, that makes sense. Just on the Terphogz. So the comment was made that Terphogz, the flower is not grown by ECS. So can you remind us who's growing that one?

No, I'm not -- I don't want to share that because it's our secret. So yes, we won't be sharing that. And it won't only be grown by one company. So we're actually sourcing from 2 different sources to give us that flexibility in terms of where the flow is coming from. But unfortunately, we can't share with it. But I can say that you saw the picture of the Bling Blaow, it looks something like that, but it's growing indoor and it's this genetics. So it will be the genetics that the Terphogz guys have that we'll be launching.

Yes, that makes sense.

And actually there's some exciting stuff around that, that I can't share, but it will come to market in the next couple of months as we launch into Australia, you'll see that there's some big names behind what we're doing in Terphogz as well. And that's not an influence. I don't want to say we haven't got snoop or anything like that. It's more just the validity of the genetics and the support of the brand is not just coming from Terphogz.

Yes. That's good to know. And still on Terphogz, can you explain what you mean when you say sourcing suitable premium valuation using the right genetics regarding the delays to the launch on that one? And the question being asked is, are there any other hurdles before the U.K. and Germany launch that might cause further delays? Or is everything else ready to go?

Yes. So first of all, the initial thought was we would potentially grow it ourselves. And the problem is Australia -- it's a good thing, that Australian biosecurity is very, very strict. And [ skittles ] can only be grown from farms. So you can't import seed. So if we had to go to the clones, it would take about 9 months and then you'd be lucky if you've got any viable product because it goes into the Australian biosecurity program and they won't release those clones until after 6 months. So we then decided that we would source flower that was grown from the right genetics and that was the difficulty just getting those genetics, the right genetics available for the -- that Terphogz genetics. Terphogz would happily give us their genetics. There's a very, very strong level of trust between them and our grower. And so that, as I mentioned earlier, that might be where we go down the line. It's just getting that balance right. The other question was, are there any potential new hurdles? The U.K. is going. So we're doing labels and it's all very much underway as is Australia. The German one is a little bit -- it's actually a regulatory issue that we have there that we're trying to work through. So that is -- I think we will probably be in market sort of July, August. That's my kind of guess, I guess, at the moment. There's no negative part in terms of the contracting. It's purely the regulatory stuff we have to overcome. And the New Zealand guys, because it's a relatively small market, they've also got to go through a big registration. New Zealand is not an easy country to get new flower into. You have to go through specific stability trials and things like that. So they're working through that at the moment and that they already in track, I guess. So no hurdles, just takes more time than what any of us would like.

Yes. No, that all makes sense. And can we talk about the margins that we expect on the Terphogz distribution deal?

Margin percentages is a nebulous number because what is the number. So I guess we would say that our margins won't be that different to what we make ordinarily, but obviously, the revenue number is much higher. So it's -- the percentage margin because it's quite -- we have -- and that is after we have to pay a royalty to Terphogz. So we have to build that into our margins. So the revenue number is higher. The margin percentage will be pretty much where our margins always are. And that's really because there's a component in our COGS that is to pay royalties to Terphogz.

Yes. Okay. Just you mentioned biosecurity before as it relates to New Zealand. So the question has been asked, can the clones come in via plant tissue culture to reduce the biosecurity importing time?

Yes, they can. But there's not a very high success rate with tissue culture with Australian biosecurity. We will look at it but we -- because we do need to get those genetics in. But at the moment, we've looked at all those options and they're not easy options, but -- and that offsetting of saying we need to get to market reasonably quickly. Once we're in market, we can then have these things going through biosecurity in the background and it's not delaying the launch, if that makes sense.

Yes. That sounds good. Back on the PCEs, can you clarify how much of the company's capacity is grown outdoor versus in the PCEs?

It was -- last year, it was about 4 tonnes outdoor, 2 tonnes indoor. And I think this year, we're going to have more outdoor and more indoor. So the ratio is probably the same. But if you work that out on sort of somewhere between 9 and 10 tonnes. So I think that -- I would imagine that this year, our PCEs will give us about 3, 3.5 tonnes and then it will go even more next year because we'll have all the PCEs and we'll have all the winter grow. So -- but the PCE flower is definitely where we need to focus our time and our effort because that's where the demand is. We have a lot of outdoor flower, you can only sell so much.

Yes. And so speaking of that PCE flower, there's another investor is asking or just to clarify, can you tell us what we are growing in the tunnels as they call them at the farm? And is there any products being grown offshore?

Offshore? What strains are we growing on the farm? We still have, as I mentioned before, we've got [ Lam Hemp ], Green Gelato -- there's so many. The new ones, Bling Blaow, Rainbow Belts are the 2 new ones. And then it's all the strains that are already in the market that people are aware of. There's another one called [ Tin G ] that we grew outdoor. That's really, really good. So that one is going to go. We do -- the question was, do we have any of our flowers growing offshore? The answer is no, but we do import flower. So to meet demand, we do import flower. And we're just about to start importing some flower from Thailand, not for the Terphogz brand, but for some of our B2B customers.

Speaking of offshore operations, I suppose, the question has been asked, has there been any thought to potentially acquiring a cultivator overseas where labor costs might be lower than Australia or Victoria?

We look at M&A all the time. But at the moment, I think it's not off to a record and we certainly looked at particularly as saying having a Northern Hemisphere grow. But cash is really hard to come by at the moment. And you would need to -- we'd have to do a capital raise. The share price is not really conducive to a capital raise. We have to go and borrow more money. So it's more a case of is the time right. I think we have to get ourselves profitable. We need to get all our ducks in a row. I think they're lining up nicely. I want to get some period of time where we have good solid growth. We're performing well. The share price recovers because we've got to do that. I mean that's got to be a priority for me. And then we can look at these things. In terms of M&A, a lot of companies will ask -- a lot of people have asked me at the time, well, there's some companies in distress, would you go and acquire them. I obviously have a look at all these opportunities that people are in distress for good reason. And I'm not -- I can't wave a magic wand and turn that around. So if the right opportunities come, we obviously look at them. But as I said, we've also got to take into context where the share price is at the moment. And we've got a lot of opportunity in front of us internally. So organic growth is my focus at the moment.

Just on the operations, we've made mention in the quarterly about the power called power upgrade that was required for the winter grow project. Investors is wondering -- is that power upgrade now complete? And will that enable heading for the full facility or just absorption?

That power upgrade. So we started with -- and don't quote me on these numbers, but I think we had about 200 amps and then we went to 360 amps and now we're at 520 amps. So I've done a couple of power upgrades. The 520 amps where we are at the moment, we kind of maxed out. So after this, if we want to do another power upgrade, we have to go all the way back to [indiscernible] and it will cost a lot of money, well north of -- probably in the region of $1 million. So we kind of tapped out on that. So what I am doing is having a look at other opportunities. So we obviously looked at solar and there's also other things we look at. But at the moment, I think it's just a case of we've got these new tunnels. We've got the power to them. We'll go through this winter grow and then next year, we'll have a look at what we can do. We've put heating in most of the tunnels. In fact, all of the -- all 15 of the new tunnels, when I say new Generation 2 and Generation 3 heating and then heating is also helpful because it means we can extend the season. So we can't do a winter grow, but we can have better results in our sort of autumn and spring than we've had in the past. In the past, what we found is when we grow in autumn and spring, we often have lower THC flower and that's more related to the temperature than it is to the sun. So we worked that out. So we put the heating in so that we can make sure that we can consistently produce flower that meets the specification for our customers and still extend -- have that full autumn spring grow. But yes, the next step for me is to identify ways to get power to. I think ultimately, we want to get power to another sort of maybe 5 that would give us 11 tonne through winter. That's my next project. And how do we do that economically and still make sure that we're not spending more on the flower than what it costs us to produce it. So the other way around selling it for less than it costs us to produce it. Because the market is competitive. And I think that's the other thing is we still have a lot of imported product in the market. So the pricing is still competitive. So we've still got to focus on making sure we can produce premium flower at a price that people are prepared to pay.

Yes. No, that's good. Just you touched on your potential M&A plans earlier. The question has been asked just on the reverse side. What about being acquired? Just do you ever get approached by companies interested in acquiring the company as a whole?

We have had a couple of sort of not so discrete opportunities that have -- people have looked at us from Canadian producers. But it never gets really -- they never do anything, not with us, not with anyone. So I think these are just people -- you never know how much of it is actually trying to look under the covers and see what we're doing. So there's that balance. So nothing serious at this stage, no.

Yes, makes sense. And just on the B2B market, can you talk about the price per gram that we're getting for those B2B sales?

Look, I don't normally typically share the pricing, but I can tell you that we get a better price from our European bulk B2B than we get locally, but it does come with challenges. And there's probably a 30% premium on that flower. We have got some customers here in Australia that are taking bulk now because they have their own packing, sort of, their own packing arrangements. So that's where I can compare the price and say it's 30% more when we export it. Our pricing in the market is certainly -- I can tell you it's no longer $6 a gram, which is what it was in the early days, but it's also not less than $5 a gram. So that's kind of the range, I would say. I don't want to give a specific price because different customers get different pricing.

Yes. That's good. And so still on B2B, you mentioned that B2B sales are now returning. Can you remind us how much B2B sales fell in Q3 compared to Q1? And hang on trying to get...

I don't have the numbers in front of me, but I can tell you that one of the big drop off from Q4 -- or sorry, not Q4, Q2 '24 versus Q2 '23 was we used to sell a large volume of oils to [indiscernible], but our pricing wasn't -- our margins were really poor. And so we made a decision that, that was probably not the right business for us and they started importing, which was fine. So that was a big drop off. But -- and then as I said earlier, the market for oils have dropped off. So flower, I think, has stayed the same or has continued to grow, depending on exports are growing, B2C is growing. The oils have dropped off, but we're starting to see some of that come back as well. But that is really where the losses or the change in the results have come from is really the volume of oil that we used to sell relative to what we sell now.

Yes. No, that's good. A few other financial questions, if I can try and group these together. You did talk earlier about sort of your outlook for positive cash flow. Comment has been made that there's investors identified what they call a consistent seasonal pattern in terms of Q3 and Q4 to reverse cash flow deficits. How does the company expect to address what may be a cash flow sustainability issue on a seasonal basis? And does that mean expanding the B2C team? Or what's the plan on that front?

So I think the question relates to the fact that during harvest time, our expenses are much higher. And therefore, we always end up having higher expenses during harvest or during the cultivation period compared to the rest of the year. So it's a bit lumpy. I think that's going to get less and less with -- for example, I mentioned earlier that we're putting in this cool room, the store room for our outdoor flower. Now we're going to have a large amount of storage over winter. So I think things will start to even out because a lot of our costs are not only cultivation. A lot of the costs are related to post-harvest processing. So we have more people in our post-harvest than we do in cultivation because trimming flower, the drying, the trimming, the packing, all of that, the quality that all happens takes a lot of costs. And it was related more to the growing season, but what we're going to see is that will even out, but the revenue will also even out as we start to be able to sell the flower consistency throughout the year.

Yes. That's good. And a question has just been asked about the order book, just seeking to clarify how the company refers to elements of it. So the comments made that last year, there were contractual agreements signed upwards of $50 million. But I just wanted to understand why an order book of $10.8 million in the last quarterly was just a record. And if there's any further update we're able to provide on where the order book is...

Yes. So first of all, there's a big difference in a contract and an order book. An order book was purchase orders. So purchase orders in our system. And that related a lot to the veterans business that we had. So that we had a large -- I mentioned earlier, we had large orders in the system, and we're now only being able to start filling them consistently. That money comes in slowly because it's only when the patient takes it, but at least we're starting to fill a lot of those orders. In terms of getting large contracts, I know it's what everybody wants to hear and that drives the share price up, but we only have so much flower. And so what we've got to do is we've got to start consistently delivering to our customers and growing our existing customers. We can grow our German customer, our U.K. customer, our Polish customer. We can grow our B2B business. We -- it's not -- actually, we don't need -- we don't really -- we're not in a position at the moment to go and get another large customer because most of them want flower and the customers we've got will take everything that we can produce. So it does look a little bit different. I know we're not announcing these big contracts and that would be frustrating because they do drive the share price up. But the reality is I go back to what I said before, organic growth. We have just got to consistently deliver and grow our existing customers because they are growing very, very rapidly. And if we don't supply, they buy from someone else. So there's flower that our customers are buying from other people that they would buy from us if we could supply more. So that's where my focus is. A lot easier to have a few large customers rather than have hundreds of small customers. We have added more customers this quarter. We've added some local customers. And as I mentioned, some of our B2B customers are coming back. And obviously, B2C, you could say we've got 700 customers because we've got 700 prescribers.

Got you. Okay. Just getting to our last few questions now. You've referenced the goal of reaching more than 700 prescribers within 12 months of the B2C launch. Can you just sort of give us color on the significance of that number? Question asked, does that represent a breakeven point for management forecast for the B2C division? Or is it more just a target that you set yourself?

It's more about market penetration. It's not related. I mean those prescribers don't necessarily all prescribe. Some of them prescribe a lot and some of them prescribe less. But it's just showing how the B2B business -- sorry, the B2C business is penetrating the authorized prescriber market. So the more prescribers we have, the more likely our B2C business is going to grow, particularly around VESIsorb, as I mentioned earlier. Is it linked to a breakeven point? No, I don't --we haven't done the analysis on the breakeven point, which is probably a negative sort of thing. But it's really not around profitability so much. A lot of the profitability is as people who've been with us for a while will know is related to biological assets and there's a whole lot of complexity around that. But in terms of cash, I think that's where we have to focus is, yes, if we -- as we grow more and more of our B2C business and as we grow our B2B business, it's going to be a cash thing that we will get to that cash flow positive stage, which is, I think, where we do all need to focus. And I also think we need to separate cash flow positive from operating cash to investment because if I want to keep growing the business, I've got to invest some of that cash in building more PCEs and putting in more power opportunities or building another clean room. Whatever those things are, they are essential for us to continue to grow this business. And the outlook is very good.

Yes, definitely part of the maturing of the business on that side. Back on the prescriber numbers, the same investor from before has made the point that based on his viewing of the market, there's just under 3,100 authorized prescribers nationwide. I just wanted to clarify is that consistent with ECS' understanding of the market landscape? And within that, what level of market penetration would we be targeting from this point onwards in terms of the prescribers?

Well, obviously, we set that target of 700. I think we'll get to around about 1,000. That's probably 30% of the prescribers. Remember, they're all over the country and we don't have people everywhere and we don't want to put on more and more MSLs. But we also -- I'm really keen to get our team to focus. The prescribers -- authorized prescribers are actually the easier ones to get to, but they're bombarded by every single cannabis company in Australia because they all want to sell to those people. So it is the right place to focus. But I think medium term, the focus also needs to be bringing GPs that are not authorized prescribers into prescribing, particularly VESIsorb and the capsules because it's very much not a strainer product. It's very much a medical product. And I think that's where we -- our next focus will be with VESIsorb capsules and even our normal capsules.

Yes. That would be interesting to see what comes on that front. And just in terms of the regulatory side of things, the question has been asked, are Australian cultivators gaining traction with their lobbying efforts? And are we likely to see a change at some point in enforcement activities to level the playing field with imports?

Yes. I mean there's still a lot of activity going on. So I've been arguing this since 2022. So I'm a bit worn out the whole process, but there's still a lot of activity going on. I'm still engaged with other cultivators and we are continuing to lobby through various means. I can't tell you whether we'll be successful or not. And I can tell you that what I've decided is that I've got to assume that nothing will change and that I've got to build -- I've got to build this business in this landscape. It's not a great landscape. The Australian government is certainly not supporting us because it's so much easier to be an importer than a local producer. But that's the land -- that's the fuel I've got to play on. And if we can get some restrictions on imports, and that's an upside for us. But I don't think that our work on the -- our product has to be as good as anything that's imported and as cost effective so that we can compete on a level playing field.

Yes. And I think on the outlook slide of the presentation deck, there was a nice photo of your team enjoying what looks like a morning tea or breakfast or something like that. So one investor has asked, can I come to the farm for one of those baking and then cookups?

Yes. It was actually, I walked out the door and I took that photograph literally, our office building is a double story and I saw that picture and I thought that looks so cool. It was a perfect day. We do invest in barbecues and bacon and eggs and things like that. This was the end of the harvest and it's really good for just giving back to the guys. They work incredibly hard. We've got a very hard working team and it's not easy when you work in the sun and the flies and all the things that go with being up at Murrabit in summer. And yes, so we do regularly do these sort of barbecues and things. And yes, I had a very nice bacon and egg role. And if you want to come, I'll let you know when the next round is.

Well, that's it. I mean, it does look beautiful up there. So it would be great fun to organize a site visit when the time is right. So I'm sure we'll have more to say about that one day. But I mean, that's all the questions we've had because [indiscernible] in 60 minutes on the dock, which is great. So we'll draw a line through it there. And on behalf of ECS, I'd really like to thank everyone for tuning in to the investor update. We really appreciate your support and your interest in the company. If you do have a question that we didn't answer today, please reach out and Nan and her management team will be happy to discuss further offline. We will also make the video recording of this session available online at the NWR Communications YouTube channel. So we're looking forward to the opportunity to talk to you again. And Nan, I might pass back to you for any closing comments.

Yes. Thanks, Tim. Well, everybody, again, thank you for joining. I hope that you saw a bit more color to the quarterly and that as I said, I probably tend to overshare a little bit. But I genuinely believe that particularly the shareholders that have dialed into this call, it's because you're very passionate about the company. I'm very passionate about the company. And I guess I just want to leave you with something I've been saying all along is it's a long journey, but we're building an amazing business. And I think you can be very optimistic about where we're going and be very proud of what we've achieved so far because at the end of the day, it's your company as well as mine.

Great. Good stuff, Nan. Thanks for that, and thank you to all our attendees and we look forward to getting through again soon. Cheers.

Thanks, Tim.