CA - Avicanna Inc. (AVCNF) Q3 2023 Earnings Call Transcript

2023-11-15 14:00:11 ET

Avicanna Inc. (AVCNF)

Q3 2023 Results Earnings Conference Call

November 15, 2023, 08:30 AM ET

Company Participants

Aras Azadian - Chief Executive Officer

Phillip Cardella - Chief Financial Officer

Conference Call Participants

Presentation

Aras Azadian

Thank you for joining, everyone. Good morning. Thanks for joining our Q3 2023 Earnings Call. This is also a corporate update. My name is Aras Azadian, the CEO of Avicanna, and I'm joined today by Phillip Cardella. Who's the CFO? Phil, do you mind just starting with the disclaimer?

Phillip Cardella

Good morning, everyone. I'm Phillip Cardella, CFO. Before we begin, I would like to remind you that there are several risk factors and other cautionary statements contained in our SEDAR filings, including our annual information form for the year ended December 31, 2022. We will not review these risk factors and other cautionary statements on this call. However, we encourage you to read them carefully.

Various remarks on this call concerning expectations, predictions, plans, prospects constitute forward-looking statements or information. These forward-looking statements or information are subject to the risks and uncertainties that may cause actual results to differ from historical or anticipated results. Any forward statements or information reflect management's current view only. We undertake no obligation to revise or update such statements or make additional forward-looking statements in the future, except as required by applicable laws.

References may be made during this call to future orientated financial information and financial outlooks, all of which are subject to the same assumptions, risk factors, limitations and qualifications [indiscernible].

While we believe that such assessments have been prepared on a reasonable basis, reflecting best estimates and judgments, the actual financial results of the company may vary from the amounts discussed herein and such variation may be material.

During today's call, we may refer to non-IFRS measures such as adjusted EBITDA [indiscernible] defined or reconciled in our earnings materials in the appendix of the presentation. These non-IFRS measures as defined by the company may not be comparable to measures with similar titles used by other companies.

Certain information that may be mentioned during this call, including industry information and estimates, is obtained from third party sources, including public sources, and there can be no assurance as to the accuracy or completeness of such information. Although believed to be reliable, management has not independently verified any of this data from third-party sources. Thank you very much.

Aras Azadian

Thank you, Phil. So going into the overview, this past quarter has been transformational for us. We've delivered record revenues and of nearly CAD 6.3 million, which we filed last night. We did so while stabilizing our consolidated gross margins at about 46%.

This has resulted in our best financial performance in terms of EBITDA since our IPO, which was in 2019. And during this quarter, we acquired and integrated Medical Cannabis By Shoppers business which we launched and launched the MyMedi.ca medical cannabis platform. We believe this has further solidified our leadership position as a truly medical company within the cannabinoid space.

During the third quarter, we also made progress in our other business segments, particularly in Canada, where we increased the number of our commercial SKUs to what is now 27 and increased the number of our listings to what is now 131.

Digging into MyMedi into more detail, MyMedi.ca is our new medical cannabis platform, which we launched on August 2 this year upon the company's acquisition of Medical Cannabis by Shoppers business from Shoppers Drug Mart. MyMedi was launched as Avicanna's new medical cannabis care platform that features a multi-branded diverse and scientifically curated portfolio of products from Avicanna and other select Canadian licensed producers. This platform also features pharmacist led patient support programs, educational resources, facilitate the incorporation of medical cannabis into health care regimen.

Through MyMedi, the company provides medical cannabis access and support nationwide to tens of thousands of Canadian patients who have obtained medical authorization and documentation.

During the third quarter, we prioritized the launch and integration of MyMedi into our operations. This has led to MyMedi having contributed a major portion of the revenues with approximately CAD 5.8 million during the third quarter alone.

I will I will note some unique differences between MyMedi.ca in comparison with other medical platforms within the Canadian market. MyMedi.ca is a multi-brand platform, as I mentioned earlier. We cover 200 SKUs across 40 different brands. And this is in contrast to the approach of most other medical cannabis platforms that generally limit the offerings to patients to their own specific products.

Through MyMedi, we're offering training medical education for products and services, resources to facilitate the incorporation of medical cannabis into healthcare regimens, including Avicanna's own Avicanna Academy and the Canadian Consortium of Investigation for Cannabinoid Syllabus, which is an accredited course. In addition to that, as I mentioned earlier, we're providing pharmacist led, but also bilingual patient support programs and a variety of specialty services. The special services include Veterans Affairs – a dedicated program for veterans, which includes adjudication in good faith coverage as well.

Since the launch, we've transitioned over 96% of the patients from the legacy Medical Cannabis by Shoppers platform to our new platform and have grown the actual patient base by approximately 10% during the third quarter. We've developed the infrastructure to offer insurance reimbursement services to patients through more than 15 private insurance providers, public institutions, including eight Worker Safety Boards, including WSIB, where we are a preferred vendor. Overall, all insurance adjudication and reimbursement counts for about 60% of the MyMedi platforms revenues.

We've established relationships with over 50 specialized clinics and medical institutions which, combined, offer or work – combining, includes about 1,500 healthcare providers. We've also enhanced the education of our own portfolio and inventory management that have streamlined access to Avicanna's own products, 27 own products, which now represent about 17% of MyMedi sales. That's an approximate increase of about 40% since the last quarter.

I'll expand on our medical and other commercial channels within the Canadian market. During the third quarter, we progressed our commercialization efforts in Canada with particular focus on expanding our proprietary products including the RHO Phyto brand that's on the screen across several medical channels. RHO Phyto is now being offered as a portfolio of 30 plus proprietary products, which includes a range of scientifically driven drug delivery systems, including oral, sublingual, topical transdermal, deliveries with varying ratios of cannabinoids.

We were and are proud to be the first medical cannabis brand that's been made available for in-pharmacy dispensing in major Canadian hospitals, specifically Sunnybrook Cancer Centre, and we're proud to see continued access of RHO Phyto products onto the Sunnybrook Cancer Centre and hospital through the MyMedi platform. RHO Phyto products are also enrolled in a number of real world evidence clinical trials with major Canadian institutions including SickKids hospital in UHN.

In addition to RHO Phyto, the full range over 27 SKUs have now progressed across various channels. Overall, we've experienced growing demand for our proprietary cannabis 2.0 products and extended access to the Select SKUs from our portfolio to other medical cannabis channels including Medipharms, Canna Farms, Canopy Growth, Spectrum Therapeutics. This means our products are now available on seven different medical channels, medical cannabis channels, including MyMedi, which we believe represents about 50% of the registered medical cannabis patient base in Canada.

We've experienced adoption and expansion of our proprietary products also in adult use channels, which combined with the Canadian channels represents about 131 total commercial listings.

We further progressed our exclusive partnership with our agreement with Viola Brands in Canada. We've now launched a total of 10 commercial SKUs under the Viola brand. This includes the Viola Drops, which utilizes Avicanna's Influid technology that delivers cannabinoids in a water soluble nanoemulsion format and we're happy to see these products available across several medical channels, including the Ontario Cannabis Store, which is the largest adult use provincial retail channel in Canada.

Viola Brands, for those of you that don't know, is an American social equity brand that's owned by Al Harrington or launched by Al Harrington that we've successfully partnered with.

These Canadian commercial efforts during the past quarter were in large parts due to accomplished translation of our R&D efforts from the lab into the market through an efficient and asset light manufacturing model.

Through the past third quarter, we saw 27 of our finished products manufactured through six specialized licensed producers, with whom we also have supply agreements for various of their products on to the MyMedi platform.

Just quickly touching on some of our international progress, we've demonstrated our commitment to expanding our products and intellectual property internationally. We've now completed transactions in over 20 international markets. And our belief is that international opportunity legislation for cannabinoids was strongly focused towards medical and pharmaceutical applications rather than adult use.

Our majority owned subsidiary Santa Marta Golden Hemp in Colombia also has continued to deliver high quality accessible cannabinoid active pharmaceutical ingredients internationally for medical and pharmaceutical applications under our Auerus Santa Marta brand. Since its establishment six years ago, Santa Marta Golden Hemp provided Avicanna with its own dependable, economical source of API.

And in the past three quarters – or in the past quarter, we also saw the continued utilization of our own API into our own drug candidates in pharmaceutical preparations. More specifically, our 10% CBD pharmaceutical preparation, which is marketed or will be marketed under different brands, including Trunerox.

Trunerox is now under review for marketing authorization with few regulatory agencies, which includes ANVISA in Brazil, Ecuador, also INVIMA in Colombia all through the last quarter as well.

Phil, do you want to go through a deeper dive into the financials, please?

Phillip Cardella

Yes, thank you. Okay, I will start this morning's financial update by reviewing the results and summarizing the MyMedi.ca medical cannabis care platform and the transaction.

We began transitioning the operations of the Medical Cannabis by Shoppers platform at the end of May and completed the acquisition and transition to the new MyMedi.ca platform on August 2. To acquire this business unit, Avicanna purchased all of the inventory from Medical Cannabis by Shoppers and entered into a two year revenue share agreement.

The inventory was purchased at fair value and is to be paid over six months following the August 2 closing date. The transaction was non-dilutive, yet significantly accretive to the company as it required all – no initial cash payments to be made by Avicanna and therefore enables us to dedicate resources on building the platform, to hire and integrate new employees and to facilitate a smooth transition to minimize disruption to patients and disruptions on the continuity of revenue.

A special word of thanks to all the hard work and experience from our team. We've achieved strong revenue in this past third quarter and a relatively small increase in our operating expenses due to their dedication.

Our total revenue for the nine months ended September 30, 2023 was CAD 10.7 million revenue, which included CAD 8.5 million in revenue generated from Medical Cannabis by Shoppers business during both the transition period and the subsequent to the launch of MyMedi.ca.

In the three month period alone, revenues totaled CAD 6.25 million, with MyMedi.ca contributing CAD 5.8 million of that. During the third quarter, the average gross margins from MyMedi.ca was 47% and the company expects to see margin improvements largely due to the increase in sales on our own products through the platform, which offers significantly higher margin opportunity than sales of products purchased wholesale. Currently, our own products make up 17% of the sales on the MyMedi platform.

Outside of MyMedi.ca, our Canadian sales experienced a 34% growth compared against the same nine-month period of 2022 from CAD 1.2 million to CAD 1.6 million, and then almost doubling in units sold from 64,000 to 127,000 in those same periods, respectively.

The company has continued to drive cost control measures resulting in an increase in operating costs for the nine month period of only 23% and an adjusted EBITDA loss of CAD 3 million compared against an EBITDA loss of over CAD 5 million during the same period in 2022.

During the last quarter, there was an adjusted EBITDA loss of CAD 473,000 for the three month period compared against EBITDA loss of CAD 1.8 million for Q3 2022. This reflects our lowest quarter-to-date. We will continue to drive down costs with a goal, based on our current rate of progress, of being EBITDA positive by the first quarter of 2024.

In conjunction with the EBITDA goal, we continue to work to strengthen our working capital position with the goal of achieving positive operating cash flows and limit our reliance on cash flows from equity and debt financings. We will achieve these working capital improvements by managing inventory to ensure we consistently have sufficient stock levels, but staggering purchases to ensure payments don't become simultaneously due. We will continue to manage our collections while adhering to vendor payments and maintain relationships and slowly chip away at our long aged current liabilities.

As of September 30, 2023, from the beginning of the year, cash outflows from operations have significantly decreased to approximately CAD 550,000 compared to CAD 6.6 million in the same period of 2022. These improvements are not only due to the increased revenues in the MyMedi platform, but also to the quick and dependable receivables from insurance providers.

Simultaneously, cash flows from financing were only CAD 2.7 million compared to CAD 7.6 million in 2022. As of the closing this past quarter, from the beginning of the year, we have conducted only one private placement transaction compared to a total of five private placement transactions in the prior year.

Thank you for your attention, and I'll pass it back to Aras.

Aras Azadian

Thank you, Phil. The results of our financial and business performance this past quarter have clearly validated the significance of this quarter for the company. We're optimistic, as Phil mentioned, about our capacity to further scale our business and are on path towards EBITDA positive in the very near future. As we look to the rest of 2023 and 2024, our focus will be to continue to serve our patients in Canada, continue to work towards firmly establishing our position as a leading medical cannabis company in Canada and also in parallel advancing our R&D intellectual property, including our pharmaceutical preparations towards establishing our pharmaceutical pipeline and the company as a biopharmaceutical entity.

While the year is not yet finished, it's very easy to say that this has been the most successful and progressive year for us and thus far in our seven year journey. As a founding CEO, as most of you know, I've witnessed every phase of the evolution of this company and I'm very proud of the team's execution and more so the resilience during the difficult past few years.

I want to thank everyone who has had a part in this for their work, their commitment and unwavering support from many of you that are on this call. Thank you very much.

I think that wraps up our call. Thank you for joining.

Question-and-Answer Session

Q -

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