Beleave Inc. (BLEVF) CEO Andy Wnek on Q2 2018 Results - Earnings Call Transcript

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About: Beleave Inc. (BLEVF)
by: SA Transcripts

Beleave Inc. (OTCQX:BLEVF) Q2 2018 Earnings Conference Call November 30, 2018 11:00 AM ET

Executives

Kevin Keagan - Chief Communications Officer

Andy Wnek - Chairman and Chief Executive Officer

Bojan Krasic - President and Chief Financial Officer

Operator

Hello and welcome to Beleave Second Quarter 2018 Results Conference Call. All lines are currently on mute to prevent any background noise. I would now like to turn the meeting over to the company’s Chief Communications Officer, Mr. Kevin Keagan.

Kevin Keagan

Thank you, operator. I would like to remind everyone that this conference call is being recorded today. After the speakers’ remarks, there will be a question-and-answer session. Investors and stakeholders remind us that any additional questions can be directed to me at kevin@beleave.com.

This call contains forward-looking statements within the meaning of applicable securities laws. These statements are only predictions. Although the company believes that the expectations and assumptions on which the forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information, but just because the company can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions by its very nature it involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks including various risk factors discussed in the company’s disclosure documents, which can be found on the company’s profile on www.sedar.com.

I would now like to turn the meeting over to Mr. Andy Wnek, Chairman and CEO. Please go ahead, Andy.

Andy Wnek

Good morning. Thank you, Kevin and thank you to everyone for joining our first conference call today. We are thrilled to report on this exciting transformational second quarter for Beleave. There were many developments over the quarter and since that have impacted our company in a positive way and I would like to touch on a few is now.

Over the summer, we announced two ambitious facility projects one is in London, Ontario, a greenhouse facility and the other in British Columbia. Both will greatly increase our production capacity for years to come. Beginning next summer, our new London facility will come to host over 160,000 square feet of indoor and greenhouse grow space and during the warm summer months potential to grow 600,000 square feet of outdoor. In British Columbia, we have entered into a partnership with Kannavis Biotech Corp. to invest and build and operate 876,000 square feet of indoor growing space across 10 buildings, of which 2 will start to come online later next year. In support of these growing plans, we have developed the strong growing team at Hamilton site who will be ready as they open to grow in the new space.

Additionally, we announced two international partnerships one in Colombia and the other in Germany. In Colombia, we acquired a majority stake in Procannmed, a privately held company that is fully licensed for cultivation, production, extraction and distribution of both THC and CBD medical cannabis in Colombia. Through the partnership, we made land lease agreements for 27 hectares that allows for the development and expansion of Procannmed’s cultivation of cannabis for sale and extraction purposes. In Germany, our agreement with Canymed to supply with the German market with medical cannabis will allow us to penetrate the robust European cannabis market.

Our Medi-Green Network has seen great growth. We opened the store in Montreal in September and have started construction on our London store which is opening this week. Obviously, the big news since our last reporting was the legalization of recreational cannabis in Canada on October 17. Not only it was an historic date for our company, but nation as a whole. To compare this momentous occasion, we knew we want to have the very best product lineup for our customers. We already had a great relationship team at Seven Oaks and in July of this year we took that relationship to the whole new level. Beleave acquired Seven Oaks in an all share deal and brought their team onboard. This transaction has helped us provide a retail brand for the recreational market and opened our access to prudential distribution.

Lastly, scientific research and innovation are a big part of the core values of our company and at the heart of what we do. This fall we announced a breakthrough. We developed the water soluble cannabis infused powder and sugar products in preparation for the adult recreational cannabis infused food and beverage market expected in 2019. These new product lines stemmed from a patent application submitted and owned by Beleave from our own in-house research team. As moving forward with our plans, we are well prepared for the future and anticipate many exciting updates to share with our clients and stakeholders in the coming months.

I would now like to turn the meeting over to Bojan Krasic, President and CFO. Please go ahead, Bo.

Bojan Krasic

Thank you, Andy and thanks everyone for joining. As Andy mentioned, the second quarter has definitely been a transformational quarter in nature for Beleave. We have added medicinal cannabis sales to our revenue line in addition to our reoccurring Medi-Green revenues from previous quarter. Management has worked relentlessly to identify cost savings program where necessary and focused our efforts on production and sales. Our team has worked around the clock to provide supplies at three provinces with recreational cannabis that commenced the legalization in October. We are happy to say that because of those efforts, our revenue seemed to be on track to grow to approximately $1.2 million in Q3 and $2 million in Q4 this fiscal year. We do expect to supply more provinces as our production capacity grows and expect to see exponential growth in sales for 2019.

As mentioned by Mr. Wnek, we are continuously expanding our production footprint that will allow us to provide high-quality flower for sale as well as extract new products. Our formulations team has been engaged with quite sometime now development of new products. We are in discussions as to what set of medical products we will provide, but we do have strong indications that the delivery mechanisms will be in sugar powder format, syrup, solid edibles and liquids. The findings of our product development team have indicated that [indiscernible] increased efficacy therefore giving our products a more lasting effect. In translation, this will allow for micro dosing that will substitute high potency cannabis oil consumption for end users. This is a tremendous value to Beleave as we address both the issue of overly important cannabis edibles as well as creating high margin products for the company. This is the win-win scenario for both the consumers as well as the shareholders.

To further comment on our London facility, we would like to say that London Hydro has commenced installation of the 10 megawatts power upgrade. This upgrade is fully paid for and will be completed within the next 60 days. Site preparations and demolitions have been ongoing for the past 3 weeks and will be completed by the end of next week. Reconstruction and upgrading of the facility commencing first week of December, our security and grow rooms are the priority and the work is on schedule.

I would now like to turn the meeting back over to Kevin, the company’s Chief Communications Officer.

Kevin Keagan

Thanks, Boj. So from here on out, well, I’m actually going to read some email questions that we’ve received and either Boj or Andy will actually be able to comment on those. So one of the questions from David is, please explain what happened with the recent BCSE news?

Andy Wnek

So I’ll take that. We’re examining the matters raised by the BCSE and we’ll respond in due course. Management doesn’t tend to corporate with the commission fully. But let me state clearly, we entered into these transactions believing they were the normal course of business and at all times believing them to be – believing to be acting in compliance with all applicable laws. Additionally, all of these transactions were completely at arm’s length.

Kevin Keagan

Okay. Thank you, Andy. So one of the questions actually relates to the share split and then the timeline involved in getting the shares to respective clients. So I can answer that. One of the things actually for us is, for the share split, the rationale for that as mentioned in our press release was really to provide liquidity and to actually allow additional shareholders to be able to transact in our securities. So one of the things that we felt is actually that the lack of liquidity giving the holdings by insiders, the holdings by some of our longstanding clients didn’t allow for us to have that additional liquidity.

We didn’t make a transaction or do anything dilutive to the share count other than do the split. So we didn’t make an acquisition. We didn’t actually issue shares in that regard. We just actually did the stock split. Additionally, the timeframe was I think reasonable. We could have maybe made that a little clearer in the press release of the 7-day to 10-day timeline for that everyone would have their shares. So we did that according to plan and it did actually happen in normal course business, but I don’t – I’m not sure it was perfectly clear to everyone how long it would take to do that. So call – our question number three, just a further question on London and what are our expansion plans there?

Andy Wnek

Okay. As mentioned, the work has commenced on our London property with security and power to be completed in the coming months. [indiscernible] to provide a letter of revenue as to say how Canada shortly thereafter. I just want to explain that the project is built – being built in phases. So we’re not waiting to complete the entire facility before we can actually grow. So the gross space will be delivered in phases continuously through the project and we believe that by the very beginning of the first – second quarter, fiscal second quarter, sorry, let me restate that, we believe by early in the second quarter of the calendar year we will have gross space available and we’ll plan at.

Kevin Keagan

Okay. Thank you, Andy. So one of the other questions obviously and I guess, there’s a lot be email and on the phone is, with our new facility in Flamborough, what is actually the status of the expansion there?

Andy Wnek

So we are currently waiting on the municipal approval to commence completing the building. I really want to state that we have a very good relationship with the City of Toronto or City of Hamilton and are working through this process. We are confident that we will be receiving a permit to build. I however cannot say specifically when. If you viewed the process, it is up to Hamilton, we have met all the requirements and really are waiting for them to complete their final process to deliver permits to us.

Kevin Keagan

Okay. Thank you, Andy. So one other question is, can we get an update on the GMP certification?

Bojan Krasic

I’ll take that. So we have completed a GMP audit with great success recently. We do expect a Certificate of Compliance very shortly any day now as indicated. However, to-date we did begin our ISO compliance audit and that is also very important to us. What’s really important for the GMP audit for us is the ability to export products especially, the cannabis, [indiscernible] and oils into the European markets and other markets generally. We also did begin a stability testing of our [indiscernible] products as well as that is the requirement for pharmaceutical related products to be sold in international markets.

Kevin Keagan

Okay. Thank you, Boj. Operator, we’d like to open up the line now for questions if we could.

Question-and-Answer Session

Operator

Okay. [Operator Instructions] Okay. We do have a question coming through from the line of Paul Thomas [ph]. Your line is now unmuted. Please go ahead.

Unidentified Analyst

I’d like to ask how many product lines are coming online in 2019 as well as how many provinces will you be operating in?

Kevin Keagan

Boj or Andy?

Andy Wnek

Yes. Go ahead, Boj.

Bojan Krasic

In terms of product lines in 2019, we have indicated that we have gained about 90 strains if you’re looking for dry flower. As far as product lines coming from [indiscernible] products we have named them before. We still are unsure how many different ones, but they will come in 4 different formats as mentioned powder, sugars, syrups, edibles and liquids or consumables. As far as provinces in 2019 as our capacity grows, we have strong indication for demand from every single other province other than the ones we serve right now and those are being Ontario, British Columbia, and Manitoba. We really want to focus on servicing those ones really well with our current production capacity, and as we expand, we have strong demand from every single one province.

Unidentified Analyst

Thank you.

Kevin Keagan

Any further calls, operator?

Operator

The next question comes in from the line of Anthony Dorota [ph]. Please go ahead.

Unidentified Analyst

Hi there, gentlemen. Before I give my question, just wanted to say congratulations on the first earnings call of the company and also the second successive quarter of revenue generations. So my first set of questions has to do with retail sales in Seven Oaks. Does the company currently have enough inventory/near-term production to satisfy the provincial wholesaler and retail consumer demand? And has the company received any additional orders or an indication that future orders outside of current standing ones will follow from these third parties due to outsized demand?

Andy Wnek

Short answer to both question is yes. I would like to address the fact that we do actually have enough supply to supply current demand from the current wholesalers – wholesale buyers. They have indicated they have sent in other orders, so it wasn’t just a one and done. And as mentioned that’s why we are currently only focusing on those three provinces because definitely that’s all we can supply right now and maintain our – maintain enough shelf space.

Bojan Krasic

Yes. And the only other thing I would like to add from the perspective of continuing the relationship with the three provinces, I’ll just mention Ontario specifically, I mean, we are a standard supplier with them. We’ve had extremely strong feedback from them, a very positive note indicating they’re very pleased with how we’ve reacted to their demands, how we’ve supplied them, how we’ve interacted with them, and the fact that our product is well liked in is selling off the shelf. So I think that’s just a great indication of how things are going in with the provinces.

Unidentified Analyst

Okay. Thank you, gentlemen. So my next set of questions has to do with the medical side of the business. So is the company facing situation at all where product has to be redirected from medical channels to the recreational channels due to outsized recreational demand? And following up on that, is there a significant difference in margin for the company between a medical cannabis gram versus a recreational cannabis gram?

Bojan Krasic

I’ll take that question. So definitely we have been focusing especially this quarter Q3 coming up on recreational demand just because that’s been growing a little bit faster than the medical brands. And yes, there definitely is a difference in margin. However, when you take into the account a packaging customer service, shipping, etcetera, it’s not that far off I would say we again meet around. And I am roughly speaking right now around the dollar, dollar and a quarter more program on the medicinal side of things. And then again however our attempt is to export this into European markets where we can get a lot more program or just some box sales. We don’t even have to package our products that way. So yes, there is a difference in margin. However, the recreational demand has far outpaced the medicinal and we have had some recent focus on that. We are holding that products with medicinal patients as that demand grows internally, but it’s slow and steady for us on the investment side. We still were very much the leader and focused in it.

Unidentified Analyst

Okay. That’s a great segue to my next question with regards to the recent deal with Canymed, the German deal, so obviously very significant revenues, as per the press release it’s about €35 million per annum from this deal, if it fully materializes. Could you comment whether this should be a take or pay sort of with the company would believe be on the hook with regards to having issued the product for Canymed to sell it? And also can Canymed actually currently sell cannabis or are they applicants under the driven regime?

Andy Wnek

So the arrangement is take or pay. They are an applicant in Germany as most people are at this point in time. There has been very little clarity. There is this wave of companies who are applicants. I would say that based on our due diligence with them they have as good a chance as anyone from that perspective. They are very committed to us. They are actually coming to inspect our GMP processes, because that’s a critical part of the relationship if they require the GMP. So we are very comfortable that we have picked a good partner.

Bojan Krasic

I would just like to add that the reason maybe much online about this group, but when we look into [indiscernible] deal, they are – the individuals involved are clinicians, surgeons and consultants, 40% large consulting firms in Germany and actually among worldwide. So we feel confident their business planning model and their outreach to pharmacies is far superior to some of the other individuals that have we talked to. I can tell you right now that there has been a flubbing as Andy mentioned we had to swift through probably a couple of dozen applicants to do this.

Unidentified Analyst

Okay, thank you for that. And final couple of questions. So with regards to Canymed, what is their existing infrastructure in terms of sales channels, store fronts, etcetera, etcetera, how much would the company have to invest further into Canymed, should their application be successful in order to roll out their sales, would you have to provide anymore further investment and also are there any material consequences to believe should the supply agreement follow through for example if Canymed does not have a successful application?

Andy Wnek

Okay. I will take that question. So they not having existing supply channel – sorry they don’t have any existing stores in Germany. They came to us strictly to be a grower and wholesaler of product to – into pharmacies in Germany, so but they do have great relationships with them as many of the other ones do as well. We do not have to invest into the middle if we don’t want to update our current shareholdings in the company. So it’s actually – if this number realizes it’s about a question – for us it’s business as usual. We definitely have strong enough demand here in Canada to for our product, it was just a way for us to get a little bit more margin or product if we cannot, we feel we will. So it’s a huge market down there and it’s a thirsty market, what’s going to happen right now when it comes to production in Germany is much like Health Canada did in the early days of the MNPR. They are going to limit their growing capacities to something around the 1,000 fields a year per lot. So, you are going to see a lot of demand and then shortage of supply, so that’s how we fit in and for the long-term we would obviously like to keep our ownership of Canymed, because we feel as regulatory changes do happen and the allotments do grow we will have a strong position there as well.

Unidentified Analyst

Okay, thank you gentlemen. That concludes my questions. Thanks for taking my call.

Andy Wnek

Thank you.

Operator

Your next question comes in from the line of Jason Jonathan [ph]. Please go ahead.

Unidentified Analyst

You are a small company in a big industry what do you feel your biggest challenges are?

Andy Wnek

Happy to take that. Obviously, the challenge is to get the scale. And again, our view of the world is not we are not trying to build capacity to the level of a Canopy, we are trying to build capacity to be relevant in the industry. We feel our plans in London and our plans in BC give us relevance in the marketplace. I think the other competitive advantage that we have is that we have a very strong balance sheet. We haven’t over-invested in capital assets. We have been nimble in our relationships. The BC deal, for example, is funded by our partner and we are the operators. We were very fortunate we bought a tremendous property in London for $7 million and even with our retrofit it’s going to be significantly less than any other major greenhouse in total investment. So we have been wise with the balance sheet, we are not over-levered. We have been managing expenses. And I think from a size point of view, there is a level of agility at this size that I think is an advantage. And finally, we believe in the product and we believe in our product and I know every conference call has the same comment in it, but so far we have proven to be good growers, we have proven to have high-quality product and our name is getting out in the marketplace.

Unidentified Analyst

Thank you.

Andy Wnek

Thank you.

Operator

There are no further questions at this time. Should you have any further questions, please e-mail, Kevin Keagan at kevin@beleave.com. And I would now like to turn the meeting back over to Kevin for any closing remarks.

Kevin Keagan

Thank you, operator and thanks for everyone for tuning in or dialing in. We look forward to keep everyone updated on the progress of the company through the balance of 2018 and into 2019. And as the operator mentioned, please feel free to contact me if your call or e-mail wasn’t answered or your questions weren’t answered at this time I am happy to talk to any shareholder that has any concerns or questions and I look forward to hearing from you. Thanks everyone.