InMed Pharmaceuticals Inc. (INM) Earnings Call Transcript & Summary

Yes, sure. Market sizing, so let's start with that. This is a rather difficult one to answer because there's not a lot of business intelligence sources available for cannabinoids, just too new. The best sources that we have are outfits like BDS or Headset, which track cannabinoid sales but they cover a very small segment of the overall market. And so beyond that, there's not much else, right?. Nielsen for example, is not reporting out on cannabinoid consumption and revenues, right? So at BayMedica, we tend to look at our own revenues as a beacon, and we also lean heavily on our distribution partners to provide frontline Intel. The other way we look at it is that there's a track record of cannabinoids that have come into the market and have been adopted and have seen exponential growth. So it all started with THC, right, which now is an FDA-approved drug, then there was CBD, which is also an FDA-approved drug, and by the way, both of these major cannabinoids are in a multitude of consumer products presently. Then there was CBN, which has proliferated at an impressive rate over the last year or two and now here comes CBD and THC, which we produce, and I believe, could outperform all of them. So yes, and that's a whole other conversation so and we can get in the weeds on that in a future date. But for me specifically, I look at the disruptive potential for two reasons. The first one is the existence of the endocannabinoid system. And what it does and the impressive scientific data that already exists even in these really, really early days. And the second thing, just the sheer size of some of the sectors where we know cannabinoid ingredients can be applied. You've got weight management, right? $225 billion industry or thereabouts; regulated cannabis $43 billion industry; energy drinks as just one segment of the beverage industry, that's a $159 billion industry. So for me, when you consider those two things and you really start to see how massive the opportunity is. And me as one of a rather small group of individuals who really understand this market inside and out and all its nuance. I know that BayMedica and InMed are very, very well positioned to participate and benefit from all of it.

Right. So let's take that a little further and maybe you can give us an overview of how marketers and product developers can utilize rare cannabinoids to increase sales velocity.

Yes. I hope that this resonates with the audience, and I think that it will. So if you look at consumer packaged goods, right, in any retail store right? You won't see milk and energy drink or toothpaste as the only thing on the labels of these products, right? You also see things like fortified with vitamin D or with Taurine or with peroxide. And these unique ingredients add value to these products by making them -- make your bone stronger or giving you more physical energy or making your teeth whiter, but they also differentiate those products on the shelves, right? So if a consumer sees 10 of these products on the shelf, they're more likely going to reach for yours where that product adds additional value to them. So these types of value-add ingredients can create better top line revenue, they can increase margins, they can allow you to ultimately charge more at retail for this premium product. And this is what we're starting to see happen with cannabinoids. Cannabinoids are ingredients that can be showcased on the front of the label and if the brand can just figure out how to communicate the value add compliantly, they'll sell more product at a higher price with a better margin. But that's not all, there's a real good reason to do this. And it's that these cannabinoids actually work. They do make products better, and they let the consumer tap into the multitude of benefits cannabinoids have to offer. And again, as I mentioned earlier, hopefully, not too poorly, with my explanation of the endocannabinoid system, use cases are endless. So all that said, I would strongly encourage any marketer or any product developer to get ahead of the curve now, learn how to work with these compounds and begin to include rare cannabinoids in their product as soon as they possibly can.

Great. Thanks for that. That's very interesting. Now science suggests that there are more than a 140 rare cannabinoid known to exist, and your portfolio closed 4 of them. So CBC, THCV, CBDV and CBT, I think that's correct? So why are you choosing those compounds specifically? And are there any plans to add to those offerings in the future?

Yes. That's -- let's start with why choose those. Generally speaking, there's a lot of credible primary research out there. You kind of have to vent out the pseudoscience from the real science. But there's, of course, also Phase I and Phase II clinical data, clinical trial data. And so all of those things factor into why -- all that data factors into why we would choose the cannabinoids that we currently sell. In some cases, we also incorporate anecdotal evidence or frontline market intelligence into our decision-making. There's also a lot of consideration given to the feasibility of using our -- rather using our manufacturing platform to make cannabinoids that we know have promised. And then, of course, we weigh the potential of the COGS or cost of goods sold to produce a cannabinoid using our manufacturing platform. And ultimately, what these COGS will translate to in terms of pricing on the open market? Just because we know someone will buy a cannabinoid for $20,000 a kilo and there's a good margin in there. It doesn't mean it's a viable mass market ingredient. And a real good way to evaluate that is cost-in-use. Cost-in-use being a term that's used to describe the cost of an ingredient at an effective concentration in a finished product. This calculation determines whether the inclusion of an ingredient will lead to a sellable price point relative to the value of the finished product. And it's really one of the most critical factors in determining whether the mass market will actually adopt an ingredient. So by way of example, if the inclusion of caffeine or Taurine, like I kind of mentioned earlier, in Red Bull, were to translate to a retail price of, say, $10 a can. I can tell you the Red Bull probably would not put caffeine or Taurine in their product. It just wouldn't sell, right? So the same thing goes for cannabis, it's no different, the ingredients has to fit into a budget for the finished product, and the budget is determined by what the brand decides is the sellable price point of the product. So I hope that makes sense. Those are all the things that we consider when building these products.

Got it. So you mentioned, of course, that the market recognized pretty early stages, and there's still of a research. But obviously, the most direct research is your own revenue profile. So on that basis, InMed I think a few days ago released early disclosure unaudited fourth quarter fiscal year and the fiscal year of InMed ended in June of this -- of 2023 and shown significant growth in the last three quarters in BayMedica revenues. In the last 2 quarters in excess of 100% growth. So can you explain where this increased demand is coming from and why? And how confident are you that this trend is going to continue moving forward?

Yes. Indeed, Robert, we have seen explosive growth over the last year, culminating in triple-digit increases in revenue two quarters in a row, which has necessitated increasing our manufacturing volumes from hundreds of kilos to metric tons. And for those who don't know what the metric tons, it's 1,000 kilos. So we've made this jump from hundreds of kilos to doing production runs of metric ton scale. So in terms of drivers, the largest driver behind the increased demand has been consumer education, which we, in a small part, have contributed to, but many, many, many others have as well. Consumers have had to get up the curve on why they wanted to make cannabinoids part of their daily regimens. And we finally hit this kind of critical mass of awareness. We've also seen large players with big voices develop and launch new products with their cannabinoids on the front of the label. And in the last 6 months, if you look back, you can see companies like [ Paps], companies like Kronos, companies like Wild [ Organogram ] and many others have launched products with rare cannabinoids. So of course, this raises a ton of awareness, but it also creates a second wave of fast followers, right? So these are pioneers, I guess, for lack of a better term, but there's going to be a lot of -- you're starting to see now all the fast followers pile in. Also probably most importantly, is that the consumers have spoken with their [ wallets ] and these products that were launched are actually showing velocity, right? They're not just sitting on the shelves and nobody is buying them. So in terms of confidence of the trends going forward, I expect to see cannabinoids to continue to take center stage as consumers endeavor to own in on the products that work for them. But I would definitely expect some lumpiness in the short term as a result of things like seasonality that we don't quite understand in this really immature market, not to mention certain challenges that are end-customers face, but certainly, consecutive quarters with growth -- with the growth that we've experienced, indicate a trend as opposed to a blip and we're taking a cautious and responsible approach. We're managing our internal expectations, and we're building the business in a way that's expects that to trend to keep going in the direction that it's going, but does not create unnecessary exposure.

Right.

So I guess lastly, long term, we're not very -- I mean excuse me, we are very confident since we're only seeing a fraction of the addressable market participating right now. And I, for one view this class of ingredients, cannabinoids becoming as pervasive as sugar or citric acid, something like that. I see it in every fridge, I see it in every pantry, I see it in every purse, and really like the biggest indicator to me is that there's enough alert for the big multinationals to be keeping a really close eye on this. And it's really just a matter of time before they pile in. And we're just setting our business up to be ready for all that.

It sounds very exciting. Let's wrap this all up and in the interest of time, what do you see as the key catalyst for BayMedica going into fiscal year 2024?

Yes. In the interest of time, I appreciate you letting me drone on and on in here. But in the interest of time, I'll give you some rapid fire answers here. In the short term, there will be continued customer education, and we at BayMedica will continue to support and enable our distribution partners to sell more. So consumer education and what's really in our control is enabling our distribution partners to sell more. In the medium term, there will be more trusted brands with large voices continuing to launch rare cannabinoid products which will just continue to drive awareness, right, and continue to drive people to make me-too products, and these fast followers continuing to jump in. And then longer term, there will be favorable regulatory changes and the eventual release data that's currently being generated via the massive amount of global cannabinoid R&D that's going on right now. So how is that?

That's great. I just want to add a point made a question just to tack on to that back of that because, obviously, with any early-stage business, supply chain is considered a risk factor. So your press release actually last week also indicated that you were working diligently to improve your supply chain challenges. So maybe you could just end up with giving us some sort of overview of that and what it all means?

Yes, I'd be happy to. So demand for our products have increased significantly since the last year. And it happened without a lot of notice, right? We had to scale up very, very, very quickly, and what that requires is great leadership and flawless execution because everything needs to be augmented. Production personnel needs to be hired, raw ingredients procurement needed to be increased. We need to diversify our supply chain in that regard, vendor relationships needed to be beefed up, and we're able to step through all of that in really short order. So going forward, we're really, really well positioned to support current demand. And we're also really well positioned to support material step-ups in future demand. But with proper safeguards, as I mentioned earlier, to ensure that we don't overextend ourselves. And then, of course, there's like an added benefit of all this. I don't know if we touched on this in the press release, I don't remember. We're now getting the economies of scale that come with these major step-ups in production specifically as for what I've done in my own shop. We put structure and process around working with our customers on proper forecasting and demand planning, which has been a bit elusive in this space for a while because people don't have the access to business intelligence, as I mentioned earlier. And we've also worked diligently to design customer journey that ultimately culminates in a frictionless buying experience that we expect will keep our customers very, very loyal long term.

Well, thank you for all of that. And I think we're going to wrap it up there. And I would like to thank you for your very informative and interesting insights on the rare cannabinoids market and BayMedica, and if you have any -- just talking to our audience, if you have any further questions for Jerry, just send them on to me and I'll be sure to pass them on. So that leads me to wish you all a great day and enjoy.

Thank you, Rob, appreciate it on.