Entourage Health Corp. (ENTG) Earnings Call Transcript & Summary

I, Gail Paech, move that the resolution approving the corporation's 10% rolling omnibus incentive plan, as set out in management information circular, be passed.

I, Marianella delaBarrera, second the motion.

I will now move to the next item of business. The next item of business is to approve an amendment to the articles of the corporation that changed its name from WeedMD Inc. to Entourage Health Corp., as more particularly described in the management information circular. I would ask that a motion be brought to approve the amendment to the articles of the corporation.

I, Gail Paech, move that the articles of the corporation be amended to change the name of the corporation from WeedMD Inc. to Entourage Health Corp., if and at any such time following the date of the meeting as may be determined by the Board of Directors of the corporation in its sole discretion, as more particularly described in the management information circular.

I, Marianella delaBarrera, second the motion.

Registered shareholders and newly appointed proxy holders have been provided with ample time to register their votes. Accordingly, the polls will be closing in 15 seconds. Once the electronic balloting closes, the voting page will disappear and your votes will automatically be submitted. [Voting]

The polls are now closed. I would ask that the scrutineer compile the report on the results of voting on all business matters. I have been advised by the scrutineer that the ballots and proxies deposited have been voted in favor of all the resolutions; and that Jason Alexander, George Scorsis, Gail Paech, G. Edmund King, Lu Cacioppo and Bruce Croxon have been elected to the Board of Directors. Therefore, I declare all the resolutions to have been carried. I direct that the results of the ballots be annexed to the minutes of the meeting. Is there any further business? As there is no further business to come before the meeting, I move and second that the formal portion of the meeting now terminate. As the formal business of the meeting is now concluded, I would now like to offer some remarks about the corporation and our business. An opportunity for registered shareholders to ask questions will follow the representation. Thank you very much. Thank you, and good morning, everyone. I'd like to welcome and thank our shareholders and guests for joining us today. Needless to say it's been quite a year, and we're sorry we couldn't do this meeting in person. But it's with optimism that I say this is already a turnaround year for so many reasons and on so many levels. I want to briefly recap our progress and achievements. But what I really want to highlight is how we're moving forward for the rest of 2021. At the beginning of the year, the Board and shareholders entrusted me to take over as Interim CEO. While it may have been a new role for me here at WeedMD, it was a role I was honored and very comfortable on taking. I knew I'd be working closely with some of the best people and products, while building a business that generates interest for our shareholders and partners in the business. I'd like to begin by addressing our corporate name change, which was just approved. We are excited to move forward as Entourage Health Corp. WeedMD will always be at the heart of who we are, but it's time to move beyond the name. Following the transformational year that drove us to merge with Starseed Medicinal and optimize our facilities, processes, products and talent, we are now realizing the benefits of our efforts, emerging as a stronger company with a great future. While we are staying true to our strengths of cultivating quality cannabis and creating award-winning consumer-centric brands and medicinal products, we are looking at expanding into new markets. After an introspective reflection on what was holding us back, it was very apparent that our name needed to align with who we are today. Simply put, we are adapting to changing times and the evolution of our company needs to reflect that. Entourage Health truly represents our refined values and vision, and it's who we are today. Our employees make up that expertise. And together, we're going to share a brief video that documents who we are. Look out for this in a shareholder email coming at the end of the week. You'll know -- we show the impressive addition of CannTx in this video, and I want to give an update on the LOI and pending merger, as we announced a few weeks ago. As a reminder, CannTx is a highly regarded craft cultivator that specialize the tissue culture and micro-propagation techniques, agriculture research and processing of new cannabis products such as rosin and hash. In addition to bringing renowned craft portfolio of Royal City Cannabis to our product line, they are known for their solventless extraction and capabilities. We're making great progress on finalizing our discussions and I'm looking forward to signing the definitive agreement in the coming weeks. Their operations are complementary to our infrastructure, which will create synergies and further cost efficiencies as we bring new cannabis strains and high-margin products to the market at much greater scale and consistency. Additionally, our combined portfolio will position our organization to meet the industry's rapidly emerging consumer trends, alongside continued growth in new business verticals. For clarity, their premier craft designated Royal City Cannabis products will be complementary to our portfolio, as opposed to playing the same market segment as our Color and/or Saturday brands. Royal City participates in a higher-margin premium price point. Further, our combined organization will house one of the most comprehensive genetic banks in the industry, further strengthening our robust cultivation and high-margin processing activities for greater new strain and product expansion. In summary, this transaction will combine our complementary operations while adding a premium craft brand, further strengthen our distribution capabilities and broaden our already impressive technical expertise and proprietary assets. We are excited to combine our exceptional organizations. Much like Starseed was an accretive addition to our medical channel in 2020, CannTx will bring the missing premium channel into our fold in 2021. Now going back to our Starseed merger in 2020. It was all about our integration of our operations and optimization. In addition to integrating 2 great companies, we conducted a thorough assessment of our business practices and initiatives and brought forward a series of business transformations. Today, we are realizing the benefits of our initiatives and production capabilities, all with the key goal in mind to grow consistently with profitability. These measures I've outlined are a large part of our success we have already achieved. We have positioned the company for long-term revenue growth and profitability in 2021. They are rooted in the following: Growth, driving product growth, geographic expansion and ultimately, revenue growth; optimization, strategically managing our facilities to ensure they are utilized to their full capacity; efficiency, managing our cost structure and optimizing our infrastructure to be prudent stewards of capital; quality, producing and delivering top-quality products that cannabis consumers are looking for, both in adult use and medical; and most importantly, people, having the right team in place to keep driving this forward. This last pillar is one of the most important. With our CFO, Beth Carreon, recently joining us, we are well positioned with the right team in place to propel us moving forward for continued growth. On that note, I'd like to invite Beth to provide us with an overview of our first quarter results posted yesterday. Beth?

Thank you, George. It's a pleasure to be here with you all today. George and I are pleased to share the strong financial and operational results for the first quarter of 2021. The business transformation, which included generating efficiencies in cultivation and focusing on premium products was a major driver behind our breakout first quarter in 2021. For Q1 2021, we reported total revenue of $12.9 million versus a $12 million revenue guidance we previously provided. This translated to net revenue, that is revenue after excise duties of $10.3 million, which represented sequential growth of 102% compared to Q4 2020 and a 40% growth over Q1 2020 after removing a onetime [ bulk ] sale in that period. The strong revenue growth in adult use was driven by increasing consumer demand, product innovation and distribution across Canada for our top 7 Color cannabis and Saturday dried flower, pre-rolls, vapes and live resin products. On the medical side, while our peers have experienced a decline, our Q1 2021 results delivered 125% sequential growth in medical revenue over Q4 2020. We expect additional locals joining with more patient activation throughout 2021. Regarding profitability, we delivered $31 million sequential improvement over Q4 2020 in gross profit before fair value changes. We continue to drive lower cultivation costs, as well as reduced selling, general and administrative expenses which was down 66% from Q4 2020. We're also paying down debt and managing our cash flow to strengthen our balance sheet, to support commercial growth into new product segments and distribution channels. Our adjusted EBITDA improved to minus $0.4 million in Q1 2021, which represented a sequential $31 million improvement over Q4 2020. This was driven by sales growth in high-margin channels and lower expense as mentioned earlier. In summary, the business transformation initiated in Q4 2020 has resulted in strong financial and operational results for Q1 2021. We are committed to this transformation and are confident to be on track on our growth trajectory for the rest of 2021. I look forward to sharing our continued progress at our Q2 earnings call. On that note, I'll now hand it back to George for closing remarks.

Thanks, Beth. Excellent recap. So looking ahead in 2021, we're well positioned to achieve increased revenues and future profitability. We are building on the foundation we laid out in 2020, both from the integration of Starseed and the initiatives we undertook to optimize our operations, grow revenues and drive sustainable profitable growth. We continue to focus on revenue growth while driving margin expansion across all of our direct-to-consumer and patient channels. We are now seeing the benefits of these initiatives. Our adult-use brands, Color cannabis and Saturday cannabis have all experienced tremendous growth as award-winning top-selling brands in their respective categories. We are demonstrating tangible results in 2021. In fact, I'm pleased to share today we are closing on our second quarter. But here's a party gift for everyone to take away: We've already hit our preliminary Q2 total revenue target, and we're once again expected to report sequential growth. Great job by the entire team. It's a team effort, and I'm proud of the hard work that everyone is doing that propel us -- to move us forward. Thank you to our Board of Directors, shareholders, employees, and more importantly, our customer and patients for their continued support. That concludes my formal remarks. Here's wishing everyone a safe and happy Canada Day. We will now open the floor to questions. Thank you. As there are no further questions, I would now like to conclude the meeting. Thank you and happy Canada Day.

Ladies and gentlemen, the meeting has now concluded. You may now disconnect.