Flora Growth Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 13, 2024

There are 5 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the LoRa Growth Corp. 2nd Quarter 2024 Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator

After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Danny Raymond, Chief Financial Officer. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. On behalf of the Fluorix team, welcome to the Q2 2024 results and corporate update conference call. Before we begin, I wish to inform listeners that certain statements to be made today by the management team may contain forward looking information. Today's call will include estimates and other forward looking information and statements concerning future revenues, results from operations, financial condition, market, economic conditions, partnerships and other statements that may be constructed as a prediction of future performance. Information may involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied by such statements.

Speaker 1

Factors that could cause or contribute to such differences are described in the company's most recent filings available on edgar@sec.govandsedar@sedar.com. Any estimates or forward looking information or statements provided are accurate only as of the date of this call, and the company undertakes no obligation to publicly update any forward looking information or supply new information regarding the circumstances after the date of this call. On the call today, we have Clifford Stark, CEO as well as Danny Daymond, CFO. Following the presentation, Clifford and I will be available for the question and answer period. The Q2 2024 results press release and the accompanying 10 Q have been filed on EDGAR and SEDAR.

Speaker 1

Also note that all amounts mentioned in this call are in United States dollars unless stated otherwise. I'll now turn over the call to Clifford. Please go ahead.

Speaker 2

Thank you, Danny. Good morning, everyone on the line. Welcome to the Solar Growth Q2 2024 results and corporate update conference call. Let me start by noting that in the Q2, Solar made several accretive acquisitions and formed strategic partnerships to capitalize on the most robust market trends. These actions are designed to further diversify our activities and continue building inroads to areas where we see potential for growth.

Speaker 2

The first acquisition was Tru HC and came in April at the time of Germany's utilization of cannabis. To date, we have seen meaningful integration with the true HD team and established key initiatives to stimulate our business activities in the country. With the largest population and the gracious purchasing power in Europe, Germany produced Europe's fastest growing cannabis market. With the following two phases of German legalization expected in the coming 12 to 18 months, Germany is expected to become the largest federal legal adult use cannabis market globally. The German government has indicated it intends to pursue a second phase of Jeremy continues to lead the way in European metal cannabis as well.

Speaker 2

Moving on to the U. S. Market and in 2024, the U. S. Administration announced that it's moving to reschedule cannabis under U.

Speaker 2

S. Federal law. The Justice Department is expected to post its proposed rule to reclassify cannabis from Schedule 1 to Schedule 3 under the Controlled Substances Act in the federal register. It is important to emphasize that this is the first time in the history of the United States that all major party presidential candidates are open to negotiating important candidates to reform. On the Democratic side, both Kamala Harris and Tim Walz are widely expected to take a progressive stance.

Speaker 2

I expect Tim Harroz has expressed support for cannabis legalization and Chairman Walz to utilize recreational cannabis with home state of Minnesota. More recently, President Trump former President Trump suggested he would be in favor of reform. As the U. S. Continues to move towards progressive time with legislation, for intent to capture immediate opportunities and market trends.

Speaker 2

In the quarter, we established a joint venture with Altaic Group Holdings to capitalize on the beverage market in the United States. We joint venture will link our U. S. A. CPG team and Althea's Peak, which is recognized as a market leader in caps infused beverages and operates its world class emerging technology and vision.

Speaker 2

This partnership is positioned to facilitate market access to nutritional channels like wine and liquor stores. We believe that these types of beverages is real possible beverage market segment currently representing a very small fraction between 1% to 3% of all U. S. Cannabis sales. Cannabis infused purchase are beginning to overtake alcohol when it comes to first time daily use.

Speaker 2

Another area where we want to leave the mark is in the global e commerce space. To this end, our acquired Australian Vaporizers in June. Australian Vaporizers was founded in 2010 and has become one of the largest online retailers of vaporizers, hardware and accessories in Australia. Australia vaporizers has the potential to drive synergies within Solar's remaining portfolio, including our high end brand vessel. With that, I'll pass on to Danny, who has got the financial results for the quarter.

Speaker 2

Danny, please go ahead.

Speaker 1

Thank you, Clifford. Let me start by loading. In addition to the acquisitions we made in the quarter, Fluoro launched several new products to stimulate organic growth. Gesso unveiled the 2nd generation Compass Rise, which has a unique design and the ability to stand upright. Just CBD introduced a series of new gummies for sleep and relaxation, underscoring an already best selling line of products.

Speaker 1

Revenues for the quarter for the Q2 of 2024 were $15,700,000 compared to $21,500,000 for the Q2 2023. Revenues for the 6 months ended June 30, 2024 were $33,700,000 compared to $40,800,000 for the 6 months ended June 30, 2020. These decreases are primarily due to the company's deliberate discontinuation of several unprofitable product lines as well as increased competition. Total operating expenses were $6,700,000 in Q2 2024 compared to $44,000,000 in Q2 2023, a decrease of $37,300,000 or 85%. Excluding non cash impairment charges, the decrease in operating expenses quarter over quarter was $2,500,000 or 28%.

Speaker 1

For the 2024 2023 year to date periods, total operating expenses were $13,000,000 51,700,000 dollars respectively. This represents a decrease of $38,700,000 or 75%. Excluding non cash impairment charges, the decrease in operating expenses year over year was $4,800,000 or 29%. Our net cash used in operating activities was $1,600,000 in the 6 months ended June 30, 2024, compared to $7,800,000 for the 6 months ended June 30, 2023, a decrease and an improvement of $6,200,000 or 79%. On a consolidated basis, the net loss for the quarter was $2,700,000 compared to $44,600,000 in the comparable quarter, a decrease of $41,900,000 or 94%.

Speaker 1

Cora finished the quarter with $6,100,000 in cash and $21,400,000 of current assets, including $6,700,000 of saleable inventory. Net working capital was 3,000,000 dollars In addition, we have set the stage for a wide array of financing alternatives to further fuel our business plan. In terms of performance for each of our division, JustCBD maintained a gross profit margin of 34% at sales of 4,400,000 dollars Its off selling products in the quarter included the Bear, nighttime Bear and Beach Companies. Approximately 41% of its revenues stemmed from direct to consumer sales and the remaining 59% generated through business to business sales. In the quarter, Justine Energy added 120 to most of our customers to its network.

Speaker 1

Vetsal maintained a gross profit margin of 53% on sales of 1,400,000 dollars Core products represented 35% of sales and Compass products contributed 41% of sales. The largest individual item sold was the wood slate, representing 11% of vessel sales. Vessel sales were 59% from the net to consumer and 41% from business to business. Vessel added 60 new wholesale customers, including several multistate operators in the quarter. Okeapo earned 9,600,000 dollars in revenue with gross margins of 8.4 percent in the quarter, including income from continuing operations of $200,000 Wholesales of business to business and included brand name Pharmaceuticals.

Speaker 1

I will now hand the call back to the operator for the question and answer session.

Operator

Thank you. First question comes from Aaron Grey with Alliance Global Partners. Please go ahead.

Speaker 3

Hi, good morning and thank you for the questions here. The first one for me just in terms of EBITDA and profitability, maybe you can tie in gross margin. So I think you had a $700,000 inventory impairment there. So just as you think on

Speaker 2

the board for gross margins, as you exited some

Speaker 3

low profit skews you mentioned on the go forward there, How should we think about the evolution of gross margin and how that ties into you guys coming back to EBITDA profitability? Thank you.

Speaker 2

Tony, do you want to know about?

Speaker 1

Yes. Sean, thank you so much for the question and thank you for joining us on the call. Yes, this Q2, as we noted in our MD and A and our financial disclosures, was a bit unusual in the sense that we had a fairly large inventory impairment charge of $700,000 in the quarter, which drove down the gross margin. If we look at it on a go forward basis, I think on a consolidated level, we're probably looking at in the mid-30s in that range from a gross margin perspective. And as we grow and add more profitable clients to our portfolio, we expect that number to gradually increase.

Speaker 3

Okay. All right. Thanks for that. The second question from me. You guys have a positive rise in the fire there on some initiatives that could heat up and drive some revenue.

Speaker 3

So just as we think about near term opportunities to drive revenue growth, what are you seeing as what could be the biggest impact of the

Speaker 1

P and L in the next 6 months here?

Speaker 2

Like a specific focus on talking about?

Speaker 1

I would say

Speaker 2

more Germany, do you think

Speaker 3

it's more of just with some shipping issues that you have there? I know you guys have a couple see what we should think of it as what are the most near term growth costs versus what the more longer term in terms of going to impact P and L?

Speaker 2

I think the U. S. Team is very dedicated and focused on becoming a real brand and beverage sector. We picked up distribution in several states. As we go into the fall, we continue to we see ourselves staying at the state stage relatively quickly here.

Speaker 2

On the U.

Speaker 1

S, I don't know where

Speaker 2

the growth is going to come from. Germany, the business plan is coming together quite nicely. We also have some partnerships we're working on that we really put our SKUs What's happening in Germany, we're realizing it's very e commerce heavy. We have a great partnership, which we can really get into right now. You're going to see besides we talked about before, our seeds, clones, flower, accessories, glass wool, jasalone, so forth.

Speaker 2

We're all based on this one platform that has, I would say, probably 2,500,000 viewers on a monthly basis in Germany. And it's by far the leading source for consumer to be able to actually identify what they want to purchase within this medical cannabis market and recreational market in Germany. So, it will be too strong U. S. On beverages.

Speaker 2

And Germany, we're touching as fast as we possibly can in the European market.

Speaker 3

Okay, great. Thanks for the color. Thank you.

Speaker 2

Thanks, Aaron.

Operator

The next question comes from Sean Long with Haywood Securities. Please go ahead.

Speaker 1

Hey, guys. Thanks for taking the time. Just wanted to kind of look at the recently completed Australian Bay Pressure acquisition and wanted to kind of touch around what's left in terms of the integration process and what does that look like from a capital perspective?

Speaker 2

Okay. So, our trading vaporizers, personally, I'm very familiar with it. When I was one of the largest shareholders of Namaste back in the day, That was the main asset. When it came back to us recently, obviously, we had some short term struggles

Speaker 1

in actually closing the transaction, which we

Speaker 2

ended up doing relatively quickly recently. Instead of the integration, it's more that the business plan has actually changed. So a retail individual does not have the actual ability to actually order a battery, a vaporizer, even nicotine on the e commerce platform. Everything's being driven through the doctors and pharmacists. But short term is a little bit confusing long term and SMB HQ takes us for a couple reasons.

Speaker 2

A lot of smaller players are gone. And second is a lot of, for example, the Pestros in the world are not registering their products and profits in the marketplace. VASL, which is our hardware component, which is also going to grow significant growth for us, is doing extremely, extremely well in the Australian market. After U. S, it's the 2nd largest market for us.

Speaker 2

So it's not really integration or cost. Those guys who always bought that they had cash and balance sheet funding inventory. The first shipment of vessel came I think 2 weeks ago and everything's been integrated properly on that aspect. But I would say there's not really a customer issues. It's more just integrating the platform offer more selections to consumers through the pharmacists and doctors.

Speaker 1

Awesome. Thank you. And my next question is kind of turning back to Germany and the adult use market there. And it's kind of the 1st full quarter that we're seeing in the early phase. I was just wondering what you guys are seeing there?

Speaker 1

And basically how you guys are expecting that to develop over the coming months and what's the preparation required?

Speaker 2

Two questions. So Germany, obviously, since April, has had a big influx in prescriptions, just where is your access? And really get to access scripts even outside of German medical systems throughout EU. So in that influx, what's interesting is high quality products as well as low quality products, price dependent, are all selling within

Speaker 1

the marketplace. For us, unfortunately,

Speaker 2

we us and many others ran out of a lot of our SKUs relatively quickly. What we're doing is we've sourced high quality, low quality flour, which should be arriving in the next couple of months. I'm just integrating it to 2 form 1 into our current pharmacy market institutional for us. The second is this e commerce relationship online I'm referring to, which is not public cat, but that's

Speaker 1

really what we're focused on integration wise. Integration wise.

Speaker 2

And Germany was continuing to keep on growing. And we're trying to focus really on just finding opportunities I didn't realize. I never really envisioned it going so e commerce driven versus traditional. So we've adapted really closely to that. I think we've done a good job.

Speaker 2

And the growth is really going to come from just getting honestly more SKUs onto certain platforms and feeding our pharmacies because a lot of people on certain quality strands are fully sold out.

Speaker 1

Awesome. Thank you so much. That's very helpful.

Operator

The next question comes from Bill Quirk with ROTH Capital Partners. Please go ahead.

Speaker 4

Hey, Cliff. Hey, Danny. Good morning.

Speaker 1

Hey, Bill. Good morning.

Speaker 4

Hey. So, Danny, you mentioned 120 new wholesalers for Just CBD. I think the number was 64. How many wholesalers are in like the base number that you're adding the 120 62? And what kind of bump from new wholesalers in terms of your sales per division?

Speaker 4

What kind of bump would you expect?

Speaker 1

Yes. I think that's a good question. Thank you for that Bill and good morning. I think if you look at it from a grand scheme of things, there are close to 20,000 points of distribution overall for the business and the company. But you're looking at a dollar value, not all of them are material, obviously.

Speaker 1

From a company and sales perspective, I think that particular increase, we would expect it to be between 2% and 3% in the immediate to short term. So that would be the number that best reflects that increase in the number of wholesale distribution for just.

Speaker 4

Okay. And then Cliff, I have a broader question on CBD or intoxicating hemp versus THC. It seems like some of the hemp groups are at odds with some of the proposed THC legislation that's out there. Can you talk about that conflict a little bit and maybe how, the success and opportunities for hemp and just CBD differ from THC in the U. S?

Speaker 1

Yes. I think there's

Speaker 2

a couple of bad seas out there that are creating negative atmosphere for our orders in the ad space, psychological or not. The way we've operated our business is knowing credibility and building trust with our consumers, both direct and through the wholesale channels. And there's real opportunities for growth. I just there's a lot of people out there that are selling psychoactive hemp that are not falling within the limits and it's causing real issues for other people trying to build real businesses. So for us, it's more or less now focused on our traditional lines of gummies, tinctures, so on

Speaker 1

and so on, over 800 different SKUs. And really the team,

Speaker 2

like I said, before, is going to be dialed in the beverage front. So everyone's really, really focused on developing that, and we see that as a huge, huge growth opportunity versus just selling another gummy. I'm going to the White House September 25. I don't I think there's a lot of political noise on the synthetics. Obviously, obviously, besides the bad seeds in terms of companies and people, there's a real risk on synthetic side, which we understand.

Speaker 2

The rest, I think, will be perfectly fine on. And again, I don't think they're actually worried about it in 2024 anyways. They're at the fall and running into the political movement here, I think, will run a lot more. It's tough to comment on politics, so I don't really feel comfortable overall.

Speaker 4

Sure. And Danny, I think you mentioned increased competition. Is that just what you're referring to with some of the folks pushing some of the psychoactive products maybe a little haphazardly? Is that where the competition is coming from?

Speaker 2

Yes, just off. It. I really think that this whole a lot of the major players are moving into the United States on the beverage front. Very credible. There's other groups that are running smoke shops that children shouldn't be going into and buying and leaving.

Speaker 2

I understand that. So how do we actually govern this properly? So it's very similar to alcohol. How is it going to unfold? And it's a really critical, awkward situation for everyone from MSOs to us to even the private prisons

Speaker 1

of everyone has an angle

Speaker 2

and issue. And I understand from a standpoint, you can go in jail for cannabis and so are for extremely small amounts. And you're given a situation now where there's synthetic and MSOs don't feel comfortable with that with all given CapEx profits we put into actually going into states and falling off. And you now see a New York kind of switching over finally. I was with Aaron in New York a while ago after, again, they're locked around.

Speaker 2

It's extremely uncomfortable walking in at a store, they're selling illegal cannabis

Speaker 1

derivatives, hemp derivatives, mushroom derivatives, so on and so forth.

Speaker 2

While it's we're just trying to build a real credible fit for the business. So everyone get on the same page and get back on the property, back on everyone else, that's what we're trying to do.

Speaker 1

And I think that will be implemented.

Speaker 2

I don't think it's a scare of our business. I don't think CBD anything is going the opposite way. Some CBD retailers or big box stores are starting to feel very comfortable obviously. On the beverage side,

Speaker 1

you're seeing big alcohol distrios feeling very comfortable on

Speaker 2

the total line, so on and so forth. And they're fighting anyone who actually is taking a notice that they're doing anything wrong. So it's all moving in the right direction. But in this political environment, which is very tricky and confusing for everyone, I think we just have to get to November and then stay close to what's happening day to day. But I do think there has to be a better job for kids as well as make sure the right companies are actually operational in certain states.

Speaker 4

Okay. Perfect. Thank you, Cliff. Thank you,

Operator

There are no more questions. This concludes the question and answer session. I would like to turn the conference back over to Douglas Tark for any closing remarks. Please go ahead.

Speaker 2

Thank you for all stakeholders who joined today. We're working hard to build the company. I think all seriousness is a macro trend that's coming to effect in a positive manner on both sides politically, And we're very, very excited for it. And if anyone needs more information, we're happy to provide a message today. And I, thank you very much and have a great day.

Operator

This brings to close today's conference call. You may disconnect your lines.

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