MediPharm Labs Corp. (LABS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MediPharm Labs Fourth Quarter Financial Results Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Laura Lepore, MediPharm Labs Vice President of Investor Relations and Communications. Please go ahead.

Thank you, operator, and good morning, everyone. We're pleased to have you join us on MediPharm Labs fourth quarter earnings conference call. Joining me for today's call are Pat McCutcheon, Chief Executive Officer; Bobby Kwon, Chief Financial Officer; and Keith Strachan, our President. Now before we begin, please note the caution regarding forward-looking statements, which is made on behalf of MediPharm Labs and all of this representatives on the call. The statements made on this call may contain forward-looking information. The actual results could differ materially from its conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information. And the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in MediPharm Labs filings with the Canadian provincial securities regulators, which are available on SEDAR at www.sedar.com. With that, it's now my pleasure to turn the call over to Pat McCutcheon.

Thanks, Laura, and good morning, everyone. This is not a business-as-usual environment. And on behalf of everyone at MediPharm Labs, I want to extend my thoughts to all those affected by COVID-19, whether directly through illness or indirectly through job losses. Special thanks to the country's dedicated health care professionals and all the support staff for standing on the front lines of this pandemic. As a business, we're doing our part to keep our employees safe through these unprecedented times. We also recognize that we have a job to do and a business to run, and I'm grateful to all of my colleagues for staying focused and committed, whether working remotely or in our critical environment laboratories at MediPharm Labs Canada and Australia. Our goal since founding MediPharm Labs in 2015 has been to build a sustainable, profitable, multi-jurisdictional, pharma-quality platform to serve the world's most attractive cannabis markets. I'm extremely proud to report that in our first year since receiving our sales license from Health Canada, we made tremendous strategic progress in our business fundamentals to achieve our goal. Our list of accomplishments includes our first GMP certification, international licensing, the addition of manufacturing capabilities and capacity, completion of our Australian facility build-out and graduation to the TSX from the venture exchange. MediPharm Labs has proven operational excellence in the emerging global cannabis industry. We have become a leader in extraction purification, while staying committed to specialization in new formulations and product development. We delivered our first full year of revenue of over $129 million and closed our year-end with strong liquidity and financial capacity to execute on our go-forward strategies. We delivered these accomplishments against the backdrop of an evolving regulatory landscape and challenging market conditions that impacted the Canadian cannabis sector in the latter part of 2019. Calling out these major factors, first, there is a significant delay in the development of the cannabis consumer market. Retail operations, both online and with physical outlets, have been rolling out at a much slower pace than everyone expected. This is also true for medical distribution channels. Second, you're all aware of the challenges being faced by many of our vertically integrated peers. We have an 18-month rearview mirror in which we saw how tough it was for producers to grow cannabis as well as process and package it and to get it to the shelf. We are seeing history repeat itself with cannabis oil-based products. Most have been very slow to adopt. Companies were not fully prepared for 2.0, lacking manufacturing capabilities, resulting in their inability to convert bulk concentrate into finished consumer products. In addition, others face significant quality issues with finished products resulting in product returns and other issues. Third, the combination of the first 2 factors resulted in increased volumes of bulk resin and distillate in the market, which had downward pressure on pricing and impacted our Q4 revenue and margin. While we do expect these trends to continue in the near term, we do believe we have the right strategy in place. We expect the supply demand dynamic will correct itself once vertically integrated players increase their finished product capabilities and once more product-focused licensed producers such as Olli brand and larger more mature CPG companies enter the market. The consumer demand for these 2.0 products is high, and we are ready and well positioned to take advantage. Having said this, we have already started to address the current Canadian market dynamics while continuing to advance our global company position. We are prudently investing in the build-out of our global platform as our international distribution network will be an increasingly important driver to our success in the future. We're beginning to gain momentum, particularly in Australia. We are on the right path towards capturing significantly enhanced growth from global medical markets. In addition, we are excited to enhance our distribution into the global markets from our Australian platform. Bobby will speak to the Q4 results in more detail in a moment, but I think it's important to put our results in the context of our strategic plan. We delivered a strong first full year of commercial operations, one of only a few profitable cannabis companies with adjusted EBITDA of just over $24 million and a net income before tax of approximately $7 million. We achieved this while continuing to invest and strengthen our platform. We expanded our capabilities and team, introduced our first white-label offerings, our first cannabis 2.0 shipments and our first international sale. Above all, we received our first GMP certification from the Australian Therapeutic Goods Administration, otherwise known as TGA, a critical catalyst to our international growth. This stands out among the year's most important and industry differentiating accomplishments. In January, we received a key importation license for our Australian business that will allow us to import from Canada and other jurisdictions. Last week, we announced the expected shipment of a large volume of cannabis oil in addition to 35,000 units of finished products from our Barrie facility to our vault in Australia. This will allow our Australian operations to accelerate the distribution and sale of GMP-finished medicinal products ahead of many domestic Australian license facilities to satisfy a quickly growing demand for GMP medicinal end products in Australia and potentially new cannabis-regulated jurisdictions in the Asian Pacific region. We have already established a robust pipeline of supply opportunities and announced an agreement with Compass Clinics Australia to supply finished pharmaceutical-quality cannabis oil products to be distributed directly to patients. In Canada, just before year-end, Health Canada amended our license to expand our Barrie facility footprint to 25,000 square feet from our initial 8,500 square feet. We started shipping products to provincial distribution networks in BC, Manitoba and Saskatchewan before year-end and have since added Ontario and Alberta to our growing list of distributors. We are now further scaling up automated downstream production and packaging, quality control and testing, R&D and storage to support new product formulations and increased demand. We've got exciting product development plans underway, including the rollout of our first MediPharm Labs-branded medicinal product line. I'm very excited to go into more detail on this, and we'll do so later in the call. Finally, we're developing many great relationships with newly licensed customers, who have ambitious plans focused on highly sought-after cannabis 2.0 products for distribution in Canada and abroad, further enhancing our Canadian market stability. Earlier this year, we secured an opportunity to serve Shoppers Drug Mart, another great testament to the quality of our products and programs. First shipments of MediPharm-branded formulated oils have been delivered and will be available for sale within weeks on the medical cannabis by Shoppers' national patient e-commerce platform. So what does this all mean? One, we create a multi-jurisdictional GMP-accredited manufacturing platform to drive our penetration into global medical markets that can only be served by GMP-certified suppliers; two, we can now realize production synergies between our Canadian and Australian operations to accelerate sales; three, we're capitalizing on the opportunity here at home to deliver ready-to-go finished products to Canadian customers under 2.0 and beyond; and four, all these developments demonstrate that we can execute our long-term strategy while delivering on our business plan and responding with high integrity to quickly changing market dynamics and challenges while effectively managing the short-term disruptions of today through product and channel diversification. One of these business disruptions is the global pandemic of COVID-19. We are actively monitoring and analyzing the market impact that this virus will have in the Canadian marketplace, but it's impossible to forecast at this point the magnitude of the effects of such terrible virus. First and foremost, we are working vigilantly to keep our people and products safe. Today, cannabis retail outlets and associated license producers remain open. We are diligently working with our supply chain partners to minimize any disruptions. We are responding quickly to the developments from our governments and public health officials. I'll now turn the call over to Bobby. This is Bobby's first call as MediPharm Labs' global CFO, but he's already become an invaluable contributor to our senior leadership team and our evolving global strategic plan. Bobby, please take it away.

Thanks, Pat. It's a pleasure to be here. Since joining the MediPharm team, my priority has been to mobilize the company to remain tightly focused on business fundamentals. As a young company, we are continuing to build a bridge to the future. Given the current dynamics in the Canadian cannabis market, we are carefully managing our costs and cash and are being strategic and prudent in investing to drive growth and efficiencies, all while meeting the evolving needs of our customers. I'll speak to some of our plans in a moment. But first, since Pat covered the annual financial highlights, I'll move to Q4 results. As all of you know, 2019 was the first full year of operations, which means we have little year-over-year comparisons. As such, I will focus on the sequential comparison to quarter 3. To put this in context, I'll echo Pat's earlier comments on the market conditions across the entire Canadian cannabis sector as a number of factors impacted our financial results. These are all related and include a slower-than-anticipated rollout of retail channels in Canada and especially the largest province, Ontario; a slower-than-anticipated ramp up of consumer cannabis 2.0 products getting to shelf. And because of the first 2, we saw an oversupply of bulk oil on the market, which drove down pricing. Q4 2019 revenue came in at $32.4 million. And although this was a 25% decrease compared to Q3, the team delivered a solid finish to a breakout year for MediPharm Labs. A quarter-over-quarter decline in revenue was primarily the result of lower-than-anticipated volumes to the tune of approximately minus 17% and a lower realized average selling price on bulk oil, broadly in line with the wholesale pricing compression seen in the overall adult-use market. In terms of volume, spot customers accounted for about 45% of total revenue during the quarter, while contracted customers slowed their purchases and did not exercise purchase options. The lower pricing is a direct consequence of the market dynamics I just described, where the supply of bulk oil is outpacing the demand. In terms of product mix, the vast majority of Q4 revenue still came from wholesale bulk oil as we just began to ship our very first 2.0 products in late December. Quarter 4 2019 gross profit was $10 million compared to $14.8 million in Q3. Gross margin as a percent of revenue for Q4 2019 was 31%, 300 basis points lower than quarter 3. This was primarily the result of lower average selling prices I mentioned earlier and the impact of fixed production costs spread over lower volumes, partially offset by favorable impact from lower dry flower purchase costs. Operating expenses for Q4 2019 was $12.5 million, including stock-based compensation. Of the roughly $3 million increase compared to the prior quarter, a little over 1/2 relates to a critical investment we're making in implementing an ERP platform, which only started in earnest in Q4. This platform will provide the essential foundation to underpin our continued growth for the longer term. The balance of the OpEx increase is attributable to business development support expenses, slightly higher salaries and wages and some additional engineering projects, consultancy costs related to GMP and a few other capital projects. As a result of the factors just discussed, adjusted EBITDA for Q4 2019 was $2.7 million or 8% of revenue compared to $10.1 million for Q3. On a net income before tax basis, Q4 2019 recorded a loss of $2.4 million compared to a net income of $5.4 million in Q3. Turning to the balance sheet. At the end of Q4 2019, we reported a cash balance of $39 million, slightly lower than $42 million at the end of Q3. On receivables, as of December 31, 2019, total AR was $26 million. The past due amount was $8.6 million. And of that, $7.7 million or 90% was due to the one overdue account that you're aware of and where we have commenced legal action again. The rest of the outstanding past due amount of approximately $900,000 was all collected in Q1 of this year. Turning to inventory. Total inventory was $51 million at the end of Q4 2019. This inventory level stemmed from the ongoing purchase of dry flower inventory in anticipation of a much stronger rollout of retail distribution channels and scaling of vertically integrated customers 2.0 finished product lines, neither of which has yet fully materialized. To a lesser extent, some of the inventory purchases were also earmarked to support a quick start of our Australian operations. At the same time, beginning in December, we noticed the sharp decline in the demand for bulk oils. These industry trends led to a lower sales pull-through of bulk oils into finished goods purchased by consumers as well as an overabundance of supply in the Canadian market as I described. In recognition of these trends, we slowed our raw material purchases in Q4 compared to what was purchased in the prior quarter. As well, we will be taking advantage of lower input costs on a select basis whilst maintaining our requirements for higher-quality flower inputs and specific cannabinoids. Now looking ahead, we expect many of these dynamics in the Canadian market that I described to persist in the short and medium term. And like all businesses, the unprecedented situation we are all facing with COVID-19 creates many unknowns for the industry, especially in the short term. In response, we are taking a multipronged approach as we move ahead. First, we remain focused on accelerating and diversifying growth. Second, we have already implemented measures to conserve cash and aggressively pursue cost savings initiatives, and we will continue further going forward. To provide a bit more color to each, first on growth, we continue to accelerate new product development opportunities already in our pipeline of 2.0 products outside our current portfolio, for example, in the areas of topical creams. As we speak, we're adding several new product SKUs for provincial and medical channels, and we recently launched our own branded products. Our business development team has also further intensified efforts to supply international medical markets, where pricing and margins are more favorable. Second, on cost savings and cash conservation measures, we took action earlier in the month to reduce our total headcount by 10% as well as rebalancing our production workforce to meet the changing product mix towards more finished goods. We have actioned procurement-driven cost savings initiatives. For example, based on more rigorous buying process and enhanced QA testing methodology, we were able to reduce the number of third-party QA tests, which are quite expensive, without compromising on quality and safety of the product. And lastly, we have deferred or stopped lower priority budgeted capital projects to conserve cash. We are prudently managing capital, putting spend behind initiatives that will underpin top line profitable growth and those that will provide high-quality return on investment as we execute on the long-term strategy of our business. I'll now turn the call back to Pat for summary comments.

Thanks, Bobby. Having made a number of key investments in both Canada and Australia last year, we have a strong platform in place to serve customers and launch new products. We remain laser-focused on a number of exciting activities and growth catalysts. Most importantly, we are preparing for EU GMP certification, specifically from the German health authorities. Once we secure EU GMP certification, our 2 country supply chain will allow us to serve demand for medical cannabis oil products directly from Canada to European jurisdictions. Elsewhere, we are excited to expand our distribution network to Asian Pacific markets such as New Zealand and in Latin America, with Brazil recently coming online, representing one of the world's largest medical consumer markets with the biggest potential. On new product development, we are diligently working on various new and exciting product formulations and delivery mechanisms outside our current portfolio. Please watch closely for future announcements on these exciting new products to come. As mentioned last week, we announced the launch of MediPharm Labs brand. Our strategy has been to remain focused on our customers' needs. Consumers and customers have asked for the highest-quality products, and we have listened. True to our pharma roots and vision, we launched our first MediPharm Labs-branded high concentrate pharma-quality CBD formulation. We believe the combination of this initial product purity, potency and attractive pricing will distinguish itself among the limited competitive products available in the medical wellness category. This is only the first of a family of medical and wellness products to come this year. Stay tuned. Taken together, these actions will extend our runway for growth, enhance our value proposition and diversify our risk and dependence on the Canadian market. Compared to current domestic conditions, international medicinal markets offer both a higher degree of growth and margin opportunity. To be clear, despite our expectations of the Canadian market, we are very optimistic about Canada and the future of concentrates. Cannabis 2.0 offers great potential for MediPharm Labs. We know the market is there. Inevitably, provincial retail distribution networks will fill up through additional store openings, leading to greater distribution potential. We are ready for when newer, larger and more sophisticated base of customers enter the space. In summary, we remember that cannabis remains a very new industry in Canada. We feel confident in our staying power, our strategy and our ability to continue to execute. We are mitigating risks and maintaining our balance sheet strength. At the same time, we are taking advantage of our industry-leading capabilities and unique position as a GMP-certified pharma-quality extraction company for global markets. I am fully invested, along with our incredibly professional leadership team and more passionate and committed than ever regardless of whatever dynamic challenges we are faced with in this very young and new but exciting global cannabis industry. We are committed to delivering long-term sustainable shareholder value into 2020 and beyond. Thank you very much. And now I'd like to take your questions. Operator?

[Operator Instructions] Your first question comes from the line of Scott Fortune from ROTH Capital.

This is Nick stepping on for Scott. Just a couple of questions here. You guys called out anticipation of receiving your EU GMP license by the back half of 2020. Could you provide a little color on the potential timing of that considering the current macro environment with COVID?

Sorry, is it Nick?

Yes. This is Nick.

Nick, thanks a lot for the question. I'm actually just going to pass that one over to Keith to handle, just to start this off. Thanks a lot.

Nick, this is Keith Strachan, President. I appreciate the question about EU GMP. We have -- we're going through the steps or on probably step 3 of 3 as far as inspections go. That next step is a physical inspection from B farm. We do have it scheduled tentatively. Obviously, with what's going on with COVID-19, we are seeing that there is some risk there as far as that inspection able to happen from those. So I think that's why it's probably prudent of us to say it would be in the back half of 2020. But we're ready as far as GMP goes, and we feel really well prepared, considering that we have our GMP from another PIC/S nation, Australia, which we received in December 2019.

Got it. That's helpful. And then just one follow-up for me. Could you provide an update on the timing of a potential uplisting and what may be holding you guys up on that front?

Thanks, Nick. Well, we actually -- we were previously -- we had a great response actually from the NASDAQ originally. What it's actually come down to in terms of our senior management team's decision is that the market conditions are not currently in the best place right now. We've decided as a team to push this into potentially the back half of the year. Currently with our share price at where it is, we actually don't now qualify from where it sits today. So we will look to position ourselves and execute when the time is right and when our share price actually lines up with the NASDAQ conditions.

Your next question comes from the line of David Kideckel from Altacorp.

Congrats on the quarter, everybody. Just a couple of questions for me. Pat, I'm wondering, you mentioned on the call in your closing comments you're looking forward to attracting new and more sophisticated customers, whether that's CPG or pharma in the space. Going back to your statement of claim filed, I guess, about a month ago, I'm just wondering, should -- as analysts in the investor community, should we be thinking about any more potential contracts that are at risk?

Thanks, David. Where we sit today, we don't feel actually there's any other risk with any of our current partners for any other further litigations or difficulties in collecting our accounts receivable. I do feel, and we feel strongly that the industry has needed to take its time to mature and to prove to new potential CPG companies and potentially brand pharmaceutical companies to come into the space. With cannabis 2.0 just literally starting about 3 months ago now, I don't think we have enough -- we haven't had enough time to actually prove or show that the markets themselves either through product development or distribution channels that it's mature enough for large CPG companies to come into the space or brand pharma as I mentioned. Having said that, we feel confident that as a company, on the heels of our GMP certification, expectations of a number of other GMP certifications to follow-on, that we will be one of the better positioned companies to bring on these new customers because we actually qualify or check the boxes on what large CPG and more importantly for us and the way that we're looking into the future pharmaceutical companies look to qualify as partners in the space in the new space of cannabis. Thanks so much for the question.

Okay. That's very helpful. And I guess, as a follow-up to that and on the same line, so with your press release last week that you announced with your new product, the oil-based product being branded as a MediPharm-type product. To our knowledge, that was the first time that MediPharm Labs has done this, which is great. I guess, just thinking about this, is this something that we should think about when we're modeling revenue, especially thinking that margins are probably a lot higher compared to if you're working with a third party? Like where do you see the mix going forward in the next, I guess, a couple of quarters when it comes to your own in-house branded product versus everything else?

Yes. I'll take the first part of that question, David. With regards to our own brands, yes, we're very excited to launch this brand. And the one main reason as we're very customer-centric and focused company is that our customers, as we mentioned in the call script, have very much asked us to do this. There's right now a lack of very high-quality products actually on the shelf in the medical and the wellness space. So we've listened to our customers, and now we've felt that with this gap that it's time to actually launch our own brand. With regards to margin and percentage of our revenue distribution, I'm actually going to pass that over to Bobby to make a comment. Bob, would you mind chiming in here, please?

Sure. Thanks for that question. Maybe I'll just piggyback a little bit first on Pat's comment on our branded. For what it's worth, I spent most of my professional career in the sort of branded CPG space, specifically with Unilever globally over for 20 years. So naturally, I'm a strong proponent of brands. And being a newcomer coming into this sector and to MediPharm, what is very clear is that there is a gap in the market where the consumers are lacking information about the quality, the consistency of the various products on the market. And what brands tend to do or actually consistently do across multiple industries is that brands exist and thrive because they could actually provide the level of trust, signifies high-quality, in this case, purity and also, obviously, at the same time, in an overall sense, sort of supply -- provides superior consumer experience. And to that end, we at MediPharm have developed a purposely built platform, whereby we could actually deliver consistently on those elements of trust, quality and consistency to our consumers and also to our customers. And in doing that, just like in CPG, as you rightly sort of alluded to, our own branded -- brand products, will, over time, command sort of higher margin. Now the exact mix of that, to answer your second part of the question, the finished goods part of our portfolio will evolve over time especially on the heel of the cannabis sector and the retail distribution opening up, whereby more consumers will come into the sector. But again, the actual pace of that is uncertain and certainly has been compounded by the current COVID situation. But in the fullness of time, with the retail distribution opening up, finished goods, of which the branded products will be an element, of course, will become a greater portion of our business. The exact metrics is yet to be determined.

Okay. Very helpful. And congrats on the quarter. I'll hop back in the queue.

Thanks, David.

[Operator Instructions] Your next question comes from the line of Kimberly Hedlin from Canaccord.

Okay. Maybe just a bit more color on kind of your sales mix going forward into 2020 in terms of bulk resin versus the white-label 2.0 products and then international versus domestic. If you're able to provide a little bit more color on that?

Thanks, Kim. I'm actually going to push this first question over to Keith. Keith, would you actually mind just bringing some more clarity on that? I think there might be another one following on to this question, Kim, or maybe I can add some more color. But Keith, you want to start off?

Sure. Yes, I think for sure, as you know, and you can see in our fourth quarter results there, the vast majority of our business is still that B2B bulk resin. I think going forward, that will still probably represent probably around like the 70% to 80% range of revenues until we get into later this year. Really excited about international. But obviously, for us, it's a couple of regulatory just moving product just from a permitting standpoint of receiving permits and getting permits out since it's done on a case-by-case basis. And because it's all medical, some of the volumes are a bit smaller to start, but really excited there. And then on the white-label products, we are seeing just kind of getting the very first shipment out of the very end of 2019 and then that shipping continuing in the past quarter. We see that coming up. So I think that you -- if you had to put it in kind of 3 buckets, it would be your B2B still being the largest, white label, domestic being probably the second and then international being the third. But with regulation changes, we could see that #2 and 3 pretty easily depending on some things still in the pipeline.

Got it. That's helpful. Maybe just looking at the balance sheet. I'm just wondering, it looks like you guys drew $4 million on your bank facility. Any color on the rationale for that? You're still sitting pretty good from a cash perspective.

Yes. Thanks for that question, Kim. We definitely are feeling good about our current cash position, but when it comes to actually the specifics on the drawdown, typically, we wouldn't give guidance or specific details on this. But I will actually pass it over to Bobby just to add any appropriate color to this one.

Sure. Kim, thanks for the question. Just very -- actually a clean cut question in the sense that the $4 million was actually half of the $8 million nonrevolving line that was dedicated specifically for capital expenditures. So we drew down just half of that behind a number of discrete CapEx projects to underpin our growth. And related to that, that you may be thinking of, we have not touched as of this date. We've not touched the revolving operating line.

Got it. That's helpful.

Thanks much, Kim. Do you have anything else? Or is that it?

Oh, I thought it was limited to 2. Yes. I'm okay for now.

Your next question comes from the line of Adam Buckham from Scotiabank.

So you guys noted they've seen oversupply bulk extract in the market. I don't think really that should come as a surprise to anyone. But can you maybe just talk about the dynamics in that market currently? Is it mainly oversupply crude? Are you seeing oversupply in distillate and isolate as well? And then just secondly, can you maybe just talk about lab's ability to provide isolate versus others in the industry?

Thanks, Adam, for that question. I'll definitely take that one. Yes. So oversupply of bulk extract has been seen actually in bulk crude resin as well as bulk distillates. There's a couple of reasons for this. The main driving factors is the fact that actually, there hasn't been an uptake on the retail distribution with Ontario having a limited number of stores and a slow rollout. That's been the main driver. The second in kind of the cascades of the supply chain is that a number of our partners and unfortunately, a number of the big players in the cannabis space actually haven't been able to prove that level of maturity yet in terms of being able to convert bulk extract or distillate into these end products that are going to be shelf-ready at high quality and being able to pass third-party testing. So I think that's an element of the industry itself requiring some -- a little more time to mature. Again, I mentioned this is only about 3 months in since there's been distribution of cannabis 2.0 products. So I think that will come as we move further. The fact of the matter is, too, with this oversupply, obviously, prices have come down because of that pressure with new additional competition in bulk extraction services and bulk extraction production. So that's been another element of that. That has actually further pushed us down the path of focusing more on the final mile now with our production of tinctures, vapes and topicals to actually reduce that stress in the company. It's pretty -- the fact of the matter is, I think the basic piece is that the more time we have and with distribution increasing that we will see a reduction of this overall bulk, say, oversupply, and then we'll see a change going down into the latter part of H1 and into H2.

Okay. That's great. So just the second question here. So you guys press released that you shipped a large quantity of finished products into Australia last week. I'm just wondering in the Australian market, what you guys have been seeing so far as a result of COVID-19 and the impact on the medical market there? I'm just trying to get an idea of how much sell-through you could potentially have there in the near term?

Yes, thanks for that question. I'm going to pass that one over to Keith to answer that.

Yes, for sure. I think the Australian market is still a very young market, but we're seeing patients increase month-over-month. So I don't know the additional effect right now on COVID-19 is hard to tell. We are seeing logistics problems, both in Canada and Australia. As you know, we do ship a lot of stuff to Australia. We're probably one of the larger in Canada as far as shipping both end products and bulk into the Australian market. And we have noticed in the past month that the shipment of those products have been slower as far as logistics from ferry to Pearson airport to the airport in Melbourne and then out to the market. So I think from a product to market standpoint, we will be seeing some delays related to what's going on in the world today.

Your next question comes from the line of Devin Schilling from PI Financial.

You guys mentioned some increased costs this quarter related to the ERP implementation. Did you guys quantify how much this was? Or maybe I missed that.

Yes. Thanks, Devin, for the question. I'm going to pass it over to Bobby to bring so more color to that one.

Yes. Thanks a lot, Devin. In terms of this particular quarter, where we just started sort of in earnest with respect to our ERP platform, I alluded to the fact that of our total increase of $3 million in OpEx, about half of it, a little bit over half of it was attributable to the ERP. And so that gives you some quantification. But ERP will continue in sort of good pace throughout the first half of this year. And it's an important platform, as you can appreciate, providing us the level of controls, the level of sophistication and visibility to sort of act on sort of timely information and data to underpin overall enterprise. So we're very much working very, very diligently behind this.

Okay. So just to recap, expect additional costs coming from this initiative in Q1 and Q2 as well of this year?

Yes. It will be in the front half and then hopefully, we'll taper down, obviously, once the implementation goes live.

[Operator Instructions] There are no further questions at this time. I'll now turn the call back over to Pat McCutcheon for -- Chief Executive Officer, for final remarks.

Thanks so much, everybody. Thanks for turning into the call during these difficult times. I just wanted to push in summary that we really couldn't be happier with our first full year financials. We've come a long way since founding the company in 2015, and we couldn't be more proud of what we've done in terms of execution and the team that we've put together. We really feel this is qualified. Our business strategy is being the right one. And the right one domestically and definitely the right one on the heels of our GMP certification for us to now execute into the global distribution game. I do feel, obviously, that the challenges are what they are. The fact of the matter is that cannabis has been around since beginning of time, but the distribution in this new legalized market has just begun, in fact. So we feel that with increasing distribution reduction -- continued reduction of the legacy or black markets, the increase of demand for high-quality products such as the fact that we've now launched our own brand and the ability of our company to continue our vision and execution on our original business strategy in the international distribution markets is going to be very key. We feel that regardless of how challenging this issue is with COVID-19 that when it does end, and it will end, that we will be positioned as one of the strongest cannabis companies in the world. And this is not going to push us away, and we're very proud to bring this value to our shareholders now and into the future. Thank you so much, everybody.

This concludes today's conference call. You may now disconnect.