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

I, Gail Paech, move that MNP LLP be reappointed as auditors of the corporation for the current year, and that the directors be authorized to fix their remuneration and the terms of their employment.

I, Catherine Flaman, second that motion.

Registered shareholders and duly appointed proxy holders have been provided ample time to register their votes. Accordingly, the polls will be closed in 20 seconds. Once voting is closed, registered shareholders, duly appointed proxy holders will no longer be able to submit a vote. [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've been advised by the scrutineer that the ballots of proxies deposited have been voted in favor of appointing MNP LLP as the auditors of the corporation for the current year and that George Scorsis, Gail Paech, Bruce Croxon, Luciano Cacioppo and Jason Alexander have been elected to the Board of Directors. Therefore, I declare that 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 to -- before this meeting, I move and second that the formal portion of the meeting is now terminated. As the formal business of the meeting has now concluded, we would like to offer some remarks about the corporation and our business. An opportunity for registered shareholders to ask questions will follow the presentation. Thank you, and good morning, everyone once again. I'd like to welcome and thank our Board members, shareholders and guests for joining us today. Today, I'd like to review the progress, achievements and challenges of the past year, and most importantly, highlight how we are moving forward for the rest of 2023. Let me start by acknowledging our leadership team and the management teams who are here with us today. Their strong commitment and guidance have played a vital role in the complex cannabis industry that we are well aware of. I also want to express my deep appreciation to all of our hard-working and talented employees. They have fearlessly tackled challenges, seized opportunities and driven us forward to our ongoing success. Now let's shift our attention to some significant milestones. We are making tremendous progress in bringing our products to market setting new records while upholding our commitment to delivering consistent, high-quality products that meet the expectations of our patients and consumers. In May alone, we produced 1 million pre-rolls using 4 new state-of-the-art machines. This has streamlined our production, improved our efficiency and consistency. Color currently holds the impressive position of being the 16th largest cannabis brand in Canada, surpassing numerous notable competitors. It ranks as the fourth leading brand in the pre-roll category. Our market presence continues to expand with our products now available in over 2,000 retail stores throughout Canada. This means you can find of our renowned brands Saturday or Color in approximately 8 out of every 10 stores in Canada. As a testament to our success, we consistently sell an average of 650 pouches of dried flower every day to Starseed patients across Canada. We are proud to share that our medical channel has experienced exceptional recruitment and retention rates, showcasing our brand's strong appeal and trust among medical cannabis users. Now let's take a closer look at the priorities for 2023. We have set ambitious targets and developed a well-defined road map in several key areas. As we delve into our strategy and look -- and outlook for the future, it is crucial to emphasize the significance of our product pipeline. Our success thus far, can be attributed to the diverse range of products we offer, tailored to cater to individuals, strongly believe in the power of differentiation and premiumization, which is why we are continuously introducing new products and expanding our SKUs and our portfolio at such an impressive pace. In addition to catering to the adult-use market, we are actively growing our presence in the medical sector. Our portfolio expands, extensions, expand include innovative products such as medical products that address specific needs and deliver enhanced therapeutic benefits. We recently introduced cutting-edge offerings such as chewing gum, CBG -- CBG soft gels, patches and a range of products showcasing our commitments to pioneering advancements in the medical cannabis field. These new additions not only bolster our product offerings, but also highlight our dedication to improving patient care, expanding treatment options within our own medical community. We have some exciting news -- new products in the pipeline that we will be introducing over the summer. Keep your eye out for those in the coming weeks. Following a transformational year, we conducted a thorough assessment of our business practices with the decision to exit cultivation and source through a third-party supplier. Now have a strong hold on our processes, products emerging as a stronger company with a great future. The partnership with HEXO complements our infrastructure, creating synergies and further cost efficiencies as we bring our cannabis strains and high-margin products to the market at a much greater scale and consistency to meet the industry's rapidly emerging consumer trends alongside continued growth in new business opportunities. While staying true to our strengths in quality cannabis and creating award-winning consumer-centric brands and medical products, we are adapting to challenged times -- to changing times and the evolution of our company needs to reflect that. Today, we are realizing the benefits of our initiatives and production capabilities, all with the key goal in mind to grow consistently and profitably. They are rooted in the following. Growth, our primary focus is driving product growth, leading to increased revenue and market share. We aim to achieve this by consistently delivering high-quality flower that resonate with the consumers and meet their evolving needs. Secondly, market expansion and innovation. We are dedicated to expanding our market presence geographically and through innovation -- innovative product offerings, this includes exploring new markets while developing a diverse range of products that cater to different consumer segments. We can capture a broader customer base by offering products at various price points and maintaining our commitment to delivering consistent top-quality flower. Operational excellence, which is one of our most important. We prioritize operational efficiencies by managing our cost structure and optimizing our infrastructure by being prudent stewards of capital, we seek to achieve cost savings and reduced SG&A expenses. Our goal is to attain positive cash flow and adjusted EBITDA profitability by the end of 2023. This will strengthen our financial position and lay a solid foundation for sustained success. On that note, I'd like to invite Vaani to provide us with a financial overview. Vaani?

Thank you, George. Good morning, and thank you for joining us today. What a year it's been. As I reflect on the Entourage, I joined a year ago and the company that we are today, I'm struck by the sheer scale of transformation across the organization. And yet, even with all those changes, something that remains consistent is the demand for unpopularity of our cultivars. This is evident when we take a look at our adult-use revenue profile. The pre-roll category continues to be a strong performer for us, comprising 60% of our adult-use portfolio and reflecting a 101% CAGR since 2021. We continue to strategically review our distribution agreements, products offered, and markets targeted to drive revenue growth in this portfolio. The second prong of our revenue story is the Medical business, which has grown by 16.6% year-over-year, bolstered by strong patient renewal numbers and our patient-centric approach. As product innovation continues to be one of our core competencies, we will focus on continuing to consider different formats, which serve our patients' needs. And so, what does this revenue story mean for profitability? I draw your attention to the 2 significant indicators of future profitability. One, biomass cost. Since the divestiture of our cultivation arm, we have seen real progress in our overall cost of goods sold, yielding sustainable positive margins. Secondly, production. Our production optimization projects have begun to yield dividends with costs to manufacture decreasing while focusing on high-quality products. With our focus on assessing costs and optimizing our systems, our path to profitability is clear. I'll now pass it back to George.

Thanks, Vaani. Excellent recap. Since the legalization of cannabis in Canada, the industry has undergone substantial fluctuations marked by periods of high volatility. Following the initial wave of investment and optimism, valuations and expectations sort. However, as market realities unfolded challenges such as delayed retail rollouts, regulatory obstacles and intense competition emerged, leading to financial hardships, facility closures and regrettably bankruptcies for numerous companies and our competitors, it has become somewhat challenging. As the cannabis industry continues to evolve and regulatory frameworks mature, we're extremely optimistic about the abundant opportunities. Projections indicate that the market will expand to $8.8 billion in Canada alone over the next 5 years. An encouraging trend is the increased influx of legacy users transitioning into the legal market and new consumers looking for innovative, convenient products. Notably, the top 3 provinces have consistently witnessed remarkable market growth, solidifying that cannabis sales showed no signs of slowing down. The pre-rolled market constituting more than 66% of our revenue in the adult use sector in Q1 has experienced a significant upswing, emerging as a dominant force within the market. As a testament to our success, we currently hold a respectable market share of over 5% overall and 9% in BC, which is one of the most competitive markets. Moving into the Medical Cannabis segment. This is another significant opportunity for Entourage. So while other LPs are abandoning the segment, we are doubling down. This medical market has become a high-margin revenue stream for Entourage as Vaani dived into earlier. While client registration in Canada have dropped dramatically, our Starseed Medicinal brand is seeing a consistent growth pattern in patient registrations. We hold 5% of the total market share, which is still growing. Cannabis benchmarks notes that industry expenditures for medical-use cannabis dropped 13% last year, while Entourage's Starseed Medicinal channel has seen 17% year-over-year revenue growth, resulting from patient registrations, innovative product launches and a dedicated customer care team. Our initiatives to increase revenue, optimize efficiencies, drive cost disciplines and strengthen our balance sheet, including reducing our debt load will be the principal factors to our success in 2023 as we continue to expand our top line and are on track to achieve our financial objectives. Looking ahead, in 2023, we are well positioned to achieve increased revenues and future profitability. That concludes my formal remarks. Once again, if any of our registered shareholders or proxy holders wish to submit a question, please do so via the chat forum on the website. As there are no further questions, I'd like to conclude the meeting. Again, on behalf of Entourage team and our Board of Directors, thank you all to our employees, shareholders, customers and patients for your ongoing support. We look forward to briefing the market at our Q2 financial results conference call, expecting to be held in late August. Please note, a recording of today's proceedings can be found at the Investor Events page of our website at www.entouragehealthcorp.com. Lastly, thank you, and have a great day, everyone.

Thank you for joining today's meeting. You may now disconnect.