Little Green Pharma Ltd (LGP) Earnings Call Transcript & Summary

Sorry, everyone, for that short delay in getting going. I would like to -- on behalf of the Board and management of Little Green Pharma, welcome you to this Extraordinary General Meeting. Before Chairman, Michael Lynch-Bell introduces the Board and formally starts the meeting, I'd like to provide a quick run-through of the agenda for your reference. The first part of the meeting will see each of the resolutions put to the meeting and a formal vote of shareholders. Should you have a question that directly relates to the resolution being discussed, please submit that in the Q&A button or box on the screen, and I'll put it to the Chair at the appropriate time on your behalf. At the completion of the formal business of the meeting, Managing Director, Fleta Solomon, will provide a short investor update. And at the completion of this update, Fleta and the Board will be on hand to answer any questions you may have. I would now like to introduce Little Green Pharma Chair, Michael Lynch-Bell. Michael, over to you.

Thank you. Good afternoon, ladies and gentlemen. Good morning from Europe. On behalf of the Board, it is my pleasure to welcome you to Little Green Pharma Limited's General Meeting. As David said, I'm Michael Lynch-Bell. I'm the Chair of Little Green Pharma. Allow me to begin by introducing my fellow directors and the management team who are on this Zoom call. Fleta Solomon, our CEO and Director; Angus Caithness, our Executive Director; Dr. Neale Fong, a Non-Executive Director; Beatriz Banzo, Non-Executive Director; and our Company Secretary, Al Warren. And of course, I'm pleased to welcome those shareholders who are in attendance today. It's past 3:00 p.m. We have a quorum present, and I now declare the meeting open. The notice for this general meeting was circulated to shareholders within the required period, and all shareholders were notified by letter dated the 29th of December 2022 were to access the notice. If there are no objections, I'd like to move that the notice be taken as read. I'd like to describe the voting procedures that will apply to this meeting. As recommended by the ASX and ASIC votes on each resolution will be taken by way of poll. Only Little Green Pharma Limited shareholders or their duly appointed representatives or proxies are eligible to vote at this meeting. If you're a shareholder, proxy, corporate representative or authorized attorney and wish to vote at this meeting or change your previously submitted proxy vote, please ensure you complete the poll from previously requested from the Company Secretary and return it by e-mail when prompted. The results of the poll will notify -- it will be notified to the ASX and published on the company's website following the meeting. As I put the resolutions of today's meeting with shareholders, I'll offer shareholders the opportunity to ask questions. At this meeting, there will be 18 shareholder resolution. Each resolution will be proposed and vote on to be carried by a way of the poll. There have been proxies received in respect of today's resolutions, which I will disclose when those resolutions are considered. As mentioned in the notice of meeting is intended that any undirected proxies given to the Chair will be voted in favor of the relevant resolution. Now to the formal business of the meeting. Resolution 1. The first item of business Resolution 1 is an ordinary resolution to ratify the issue of 20 million Placement Shares and the Listing Rule 7.1A. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution? I now put the resolution and will now move to the next item of business. Resolution 2. The next item of business Resolution 2 relates to the ratification, the issue or agreement to issue 20 million Placement Options. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions.

Thank you. I now put the resolution and will now move to the next item of business. Resolution 3. The next item of business Resolution 3 relates to ratification, the issue or agreement to issue up to 10 million share purchase plan options. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions, Michael.

Thank you. I now put the resolution and will now move to the next item of business Resolution 4. The next item of business Resolution 4 seeks shareholder approval for the renewed approval of a new employee securities incentive plan. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions received. Michael.

Thank you. I now put the resolution and we'll now move to the next item of business Resolution 5. The next item of business Resolution 5 is conditional on the passing of Resolution 4 and seeks approval for potential termination benefits under the new employee securities incentive plan. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions have come through, Michael.

Thank you. I'll now put the resolution and we'll now move to the next item of business, Resolution 6. The next item Resolution 6 seeks shareholder approval to modify the company's constitution as set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions have been received, Michael.

Okay. Thank you. I now put the resolution. I will now move to the next item of business Resolution 7a. The next item, Resolution 7a seeks shareholder approval to issue up to 1.5 million Performance Rights to Ms. Solomon or her nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions have been received, Michael.

Thank you. I now put the resolution. We'll now move to the next item of business. Resolution 7b. The next item Resolution 7b seeks shareholder approval to issue up to 1.5 million Performance Rights to Mr. Caithness or his nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions received, Michael.

Thank you. I will now put the resolution. As the next item of business concerns myself, I will pass the chair to Fleta Solomon for the next item of business.

Thanks, Michael. I will now move to the next item, Resolution 8a, which seeks shareholder approval to issue up to 250,000 Director Placement shares to Mr. Michael Lynch-Bell, or his nominees on the terms set out in the memorandum. The resolution and details of the valid proxy votes on the resolution up here on the screen, and I will take these as being read. Are there any questions to this resolution?

No questions have been received Fleta.

I now put the resolution and queue and I'll pass back to the Chair, Michael for the next item.

Thanks, Fleta. We'll now move to the next item of business, which is resolution 8b. This seeks shareholder approval to issue up to 125,000 Director Placement shares to Dr. Neale Fong, or his nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions received, Michael.

Thank you. I now put the resolution. We'll now move to the next item of business. Resolution 8c. Resolution 8c seeks shareholder approval to issue up to 250,000 Director Placement shares to Ms. Fleta Solomon or her nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions received, Michael.

Thank you. I now put the resolution. I will now move to the next item of business, Resolution 8d. Resolution 8d seeks shareholder approval to issue up to 250,000 Director Placement shares to Mr. Angus Caithness or his nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me and I'll take these as being read. Are there any questions on this resolution?

No questions received, Michael.

Thank you. I now put the resolution. As the next item of business concerns myself, I'll pass the chair back to Fleta for the next item of business.

Thanks, Michael. The next item Resolution 8e, seeks shareholder approval to issue up to 250,000 Director Placement options to Mr. Michael Lynch-Bell or his nominees, on the terms set out in the memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen, and I'll take these as being read. Do we have any questions here?

No questions received, Fleta.

Thank you. I now put the resolution and hand back to Michael.

Thanks, Fleta. We'll now move to the next item of business, which is Resolution 8f. This seeks approval to issue up to 125,000 Director Placement Options to Dr. Neale Fong or his nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I'll take these as being read. Are there any questions on this resolution?

No questions, Michael.

Thank you. I now put the resolution. I will now move to the next item of business, Resolution 8g. This seeks shareholder approval to issue up to 250,000 Director Placement Options to Ms. Fleta Solomon or her nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I'll take these as being read. Are there any questions on this resolution?

No questions received, Michael.

Thank you. I now put the resolution and we'll now move to the next item of business, Resolution 8h. This seeks shareholder approval to issue up to 250,000 Director Placement Options to Mr. Angus Caithness or his nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I'll take these as being read. Are there any questions on this resolution?

No questions have been received, Michael.

Thank you. I now put the resolution. I will now move to the next item of business. The next item, Resolution 9a seeks shareholder approval to issue up to 125,000 employee EE placement shares to Mr. Paul Long or his nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions received. Michael.

Thank you. I now put the resolution. I will now move to the next item of business. Next item, Resolution 9b, seeks shareholder approval to issue up to 125,000 in employee placement options to Mr. Paul Long or his nominees on the terms set out in the explanatory memorandum. The resolution and details of the valid proxy votes on the resolution appear on the screen behind me, and I will take these as being read. Are there any questions on this resolution?

No questions received, Michael.

Thank you. I now put the resolution to the meeting. Before we move to the poll procedure, are there any other questions that any shareholder would like to ask?

No questions have been received, Michael.

All right. Thank you. As all resolutions at this meeting have now been put to shareholders, we will move on to the poll procedure. If you are a shareholder, proxy, corporate representative or authorized attorney and wish to vote at this meeting or change your previously submitted proxy vote, please ensure you complete the poll form previously requested from the Company Secretary and return it by e-mail immediately as directed. We will now have a brief break while the poll forms are returned and the poll results are counted. The results will then be announced to the meeting. [Voting]

Thank you, Michael. We can continue now with the meeting.

Thank you. The voting process has been completed, and I therefore declare the poll closed. The results of the poll will be notified to the ASX and published on the company's website following the meeting. That concludes the business of the meeting. I would like to thank our shareholders for your attendance and support of Little Green Pharma. Just before I hand over to Fleta, we do have one question come in, which basically asks why are the employee Placement Shares only 125,000 but Resolutions 1 to 8 are adding a lot more shares to the directors. Well, there is a difference, the employee placement options shares and indeed the director placement shares of the later resolutions are those shares for which the directors and employees have subscribed. So in other words, for which they are paying for. Whereas the other resolutions are in respect of incentives, which are -- which shareholders have to vote on for directors, although they don't have to vote on them for employees. And these are incentives as part of our incentive plan to really drive management for the success of the company. So they are different share schemes relating to that. So one in relation incentives and one in relation to the share purchase plan for which directors and employees subscribe. I hope I have never confused that with my answer. Thank you. Fleta, I'm going to hand over to you now for a short update and hold a Q&A session if there are any questions.

Thank you, Michael. Good one. Okay. That's the -- formality is done. Now a little bit of an update. So hi, everyone. Thank you again for joining us today. I also want to thank you for, I guess, bearing with us recently in this weaker economic environment. I know everyone's really super keen to see the share price increase and no one is keener than myself and also the team sitting with me right now on this call. So I just wanted to recognize this. So the underlying company fundamentals are really solid. We're really happy with the progress that we've continued to make in our quest to supply patients worldwide with our cannabis medicines. There are a couple of factors that may be influencing the share price, a major shareholder, Elixxer has been selling down their shares on market for the last 6 months due to their own operational requirements. So as far as we're aware, their decision to trade is actually nothing to do with LGP's performance. So we're working with them to find a buyer for the remaining parcel of shares. So I just wanted to mention that. We still owe Canopy Growth about $4 million, but we're currently negotiating with them to extend the payment terms of the loan to give us some breathing space. So we're considering refinancing as like if we can find a way. So we're currently having discussions with multiple groups. On the operational front, 2022 was a huge year, a being transformational year for LGP and with so many activities on the go at once, so I thought it would be worthwhile just highlighting some of the company and our developments. I guess most notably, over the past 12 months, Little Green Pharma has continued to build its track record of revenue generation. We had a solid year of growth finishing 12 months to June 2022 with $14.8 million in revenue, which is double the previous year. We also had a solid quarterly -- quarter ending 31st of December 2022 with cash receipts of $6 million and revenue increasing to $5.3 million. This total is about $14 million to the 9 months, and we entered the quarter with a $7 million cash in bank. The bulk of the sales have come from Australia with flower, which is used for vaping or smoking is dominating the market domestically, which is quite interesting. So it's taken over a lot from the oil market. Based on a freedom of information request by the industry body, it actually looks like LGP had the #1 oil product in all 3 categories of high CBD, balanced and THC [indiscernible] medicines. And this was in the 6 months to June 2022. Data from the TGA, Therapeutic Goods Administration suggests near 700,000 units of medicine was sold in the 6-month period. And the Medicinal Cannabis Industry of Australia, so an association -- organization has estimated sales of about $100 million for that 6 months. Flower products contributed to roughly 70% of all products. So this appears to be where the growth is. And of course, now where Little Green Pharma has turned its focus to. The data also suggests the need for high THC flower in the Australian market and our genetics program or our plant development program over in Denmark is really starting to pay off. The recent arrival of flower from the Danish facility has been well received in Australia so far, with about $500,000 worth of revenue alone in the last 5 weeks of the quarter just gone. So end of last year. So this along with being a vertically integrated business or company, which, of course, we have control over our supply chain, we feel will contribute to an increase in market share in this sector. Internationally, LGP has also been really active. We have sales agreements with a number of distributors across Europe. This requires them to take minimum purchase obligations in order to maintain exclusivity over the relevant products. However, what I want to stress here is that the industry, the medicinal cannabis industry doesn't work on take-or-pay contracts like some other industries do, but rather a minimum commitment volumes or purchase obligations to maintain their exclusivity over cannabis strains. It's really important that you understand that. And also acknowledge that no damages are payable if these minimum quantities are not ordered. But if that's the case, we can then sell that strain, so on sell it to somebody else, another company or sell it under our own brand. So nonetheless, if our distributors meet their minimum purchase obligations to keep their product or their strain exclusivity as agreed, LGP can reasonably expect $45 million of revenue over the next few years just from these European contracts. So in Germany alone, we anticipate sending over ton of flower into the country in the coming year. So I guess from our point of view, it is flurry of activity, particularly like late last year, LGP now, we feel is very strongly positioned for another productive year in 2023. When combined with our Australian first-mover advantage, you can begin to appreciate the capacity and capability that fits within the organization. And we've been building on this with our strategy and also our capability pipeline for some time now, so you're well aware of that strategy, and now we're ready to deliver. For this year, the company's focus will not only be on extending our track order sales growth, while we're also turning our attention to the profitability pathway. But we have proven the concept in Australia and now with Little Green Pharma delivering into Europe, we think it's paramount to shift our attention towards future investor returns. Our footprint in Europe has given us a competitive advantage over other non-European medicinal cannabis company. And as more countries in Europe start to open up and legalize medicinal cannabis use, we have the building blocks in place to supply product to these markets and continue to make a world of difference to our patients. But that's in a brief snapshot, but thank you all for your time just now. I look forward to some more exciting updates in the coming months. But I might use this opportunity, if I can, just to suggest to everyone on the call that if you haven't been getting our investor e-mail updates, you wish to receive regular communications from us, please, could you sign up to our newsletter database on the investor website. Otherwise, simply e-mail me or [email protected]. And what we'll do is add you to that communication list, so it will just come directly to your e-mail. Sometimes it will come in the form of videos. And of course, most of this information is uploaded to our website. So this is different to the Computershare and ASX platforms. So that e-mail address if you would like to get these communications is [email protected]. So that way, you won't miss out on updates as they happen and often we'll do a recap. So thank you very much. I'll open it up, I guess, to Q&A. So David or Michael, do we have any question?

Thanks, Fleta. You may have answered a number of the questions that have come through, but we'll give it a go anyway. Now I would like to open the floor to questions. These can be submitted using the Q&A box on your screen, and I will put them to the appropriate Board member on your behalf. Where there are several questions that are similar in nature, I'll group these together and ask them as one question to save on repetition. So I'll jump in. There's a couple of questions that have come through. And this is an open question. When will the company achieve profitability? I know that's something that shareholders always look to and potentially directors are reluctant to answer or give too much guidance. But I will ask the question as asked.

Yes. No problems. Yes, it's the question we do get asked quite often. And the company is relentlessly focused on achieving profitability as soon as possible. However, look, we're not in a position to be able to forecast profitability at a given time right now. What we'll do is to continue to update the market, with finance information as required and we'll confirm once we've achieved cash flow breakeven. But do understand, and as I mentioned just a few moments ago, is absolutely our focus for this coming year, and we look forward to further developments.

Now just looking back a little bit. In terms of the SPP, there was a target amount that could have been raised and the company did fall a little short. Why do you think that occurred? Why don't you think the full amount under the SPP was taken up?

Yes. Look, a very reasonable and good question. And look, I think is very highly likely because the company's share price remained below $0.20 for the duration of that SPP offer period. So I think in this climate, the fact that we got what we did, I think we did very well because it was below that price and I think that's just an indication of the industry -- I'm sorry, not even the industry, but just the economic climate. I know many other companies were in a similar position and didn't get that full allocated amount. So we're actually very happy with what we got.

Now you touched on before the share price. And obviously, that's one metric that shareholders do look at when it comes to measuring success. And it shouldn't be, as you mentioned, the only metric that shareholders should look at. But you gave some context before, but why do you think the share price is low? And from someone within the business, how out of step do you think it is with what's really happening within the business?

Well, lots to unpack there. Okay. So look, I can't be certain why the share price has been steadily decreasing over time since its highest back in July 2021. So likely tied to general market sentiments and of course, many of the small caps and ASX-listed companies, they're also experiencing these declines over the period. Further, and as I mentioned earlier, we are aware, and this is based on notices of changes to substantial holdings issued that Elixxer, so one of our shareholders has been steadily selling their shares over the last sort of 6 months to 12 months. And look, it would have to have -- we would think or will likely put down pressure on the share price. So again, I can't answer that. I wish I could. I wish I had a globe in front of me or this magic ball that could just tell me exactly what's happening. But I know that the underlying company fundamentals are really good, really solid. And I think once we can work out with Elixxer and stop that selling and particularly refinancing if we can, the Canopy line or certainly extending that will really help us just to sort of re-rate and focus on the future, and we'll keep focusing on that revenue growth. And I think it will -- we're certainly hoping that it will re-rate itself in time. But I certainly feel -- I feel for everybody because we're the same. And we look at [ this ] price every day and we've just got to focus on what we do best and we think that will be rewarded in time.

Speaking about what you do best and looking at an operational point of view, how excited are you by the opportunity that's over the horizon for LGP from an operational point of view.

Look, like just as I mentioned, we -- everything that we've been doing over the last few years are building out our Australian operations and building out the Danish operations. Of course, we acquired that, but have now streamlined the operations. And we're seeing the fruit of that labor, the flower that's coming out of Denmark now is really special. So to have these 2 world-class facilities in different -- in the Northern and Southern Hemisphere, we've really [ stretch ]. Most of that CapEx is well and truly done and we can just now focus on sales, and we've proven that we can do that. And we've got some of these solid agreements. And so we look forward to -- we're already delivering into those, but we'll continue to look at more agreements and delivering into that. So we're really bullish for what's ahead and can't wait for -- to be here in another year's time or even in 6 months to show the progress. So we're really happy with where we are.

A couple of really good regulatory questions come through, and please share them around appropriately. One relates to the changes to the GMP regime in Australia that's coming in, in July, what does it actually mean? And what do you think it will do for the industry?

Yes. I'll have a go at this one and if anyone's got anything else to add, jump in. But look, we're not aware of the supply acquisition of other companies so I can't -- we can't really talk about that. However, it expects that the changes to the GMP and that's the good manufacturing practice rules in Australia, post 1st of July 2023, will mean the companies that have not released products into the market and have not secured a GMP-manufactured supply pathway will no longer be able to supply into the Australian market. So the company expects that this will benefit existing AU GMP. So it's a GMP facilities in Australia and also in Europe, such as what LGP has. And so that it won't affect that. But what we might do is it's possible that we could experience some price stabilization in the market. I can't be certain of that. But given the number of products, there are 360 products, I believe, like different cannabis medicines in the Australian market. So with that many, you would assume that there will be a number of groups that may not have the GMP requirement to fit these rules, but we're making assumptions, so we certainly are [ counting recession ]. And I don't know if anyone else things, got anything to add to that.

I suppose the short answer is that LGP is well positioned and what the competitors do is up to them. But certainly, in an LGP position, you're comfortable with where you're at?

Very much so, yes. I mean we've set up with the highest of quality and all of the certification and licenses necessary. So it doesn't affect us at all. If anything, it will have a positive effect.

Now just another question regarding legislation. And the question itself was the European legislation was mentioned earlier. Where is Australia out with legislation, particularly in relation to THC medicines.

So what do you mean there? Sorry, I don't understand that question.

I think the question is he is asking Europe is sort of at a certain point where it relates to their regulatory framework. Is Australia catching up, behind, in front? And what do you think the Australian landscape may look like from a regulatory point of view.

So I mean Australia is pretty advanced in terms of the medicinal cannabis legislation worldwide. We're allowed CBD and THC-based medicines. In fact, many much of our -- many of our sales through higher THC or even balance ratios in terms of our cannabinoid medicines. The only thing where it is a little bit different in Australia is our CBD laws or rules. The TGA dip down schedule sort of a year or 2 ago. CBD for as a schedule III medicine. That means that it could be accessed as an over-the-counter medicine. However, I guess what people, the industry didn't really understand is that to be able to go into your local pharmacy or chemists and ask for a cannabis product over-the-counter, it actually needs to undergo clinical trials because the TGA, so our therapeutic goods who regulate and monitor oversee our industry, they need to be sure that this particular over-the-counter, whether it's a supplement or medicine or whatever you call it, is actually -- is safe, and we've undergone those studies. And so it does take a couple of years to do the studies, and it also takes some significant cost as well. So you will start to see in the next year or 2 and companies coming out potentially with and over-the-counter medicine. And I know that was a long-winded answer, but I just -- it's very complex in each country whereas Europe treats CBD quite differently, depending on the country where you are, some you can get it over-the-counter and others, you can't, you still need it medically prescribed. So yes, look, certainly, Australia is quite ahead of the game just in terms of our regulatory environment, but also the patients and the demand and also the research in Australia that's happening here is really fabulous. And I think in the next couple of years, we'll see some great research come through.

Thanks, Fleta. It looks like that's got us to the end of questions. No more have come through. So with all questions now answered, that does bring to a close today's meeting. And on behalf of the Board and management of Little Green Pharma, I'd like to once again thank you all for your attendance. The outcomes of the voting will be released to the ASX promptly after the meeting. I would like to wish you all a very happy day. Thanks, everybody.

Thanks, everybody.

Thank you.