Aleafia Health, Inc. (ALEAF) CEO Geoffrey Benic on Q1 2019 Results - Earnings Call Transcript

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About: Aleafia Health Inc. (ALEAF)
by: SA Transcripts
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Earning Call Audio

Aleafia Health, Inc. (OTCQX:ALEAF) Q1 2019 Results Conference Call May 13, 2019 8:30 AM ET

Company Participants

Nicholas Bergamini - IR

Geoffrey Benic - CEO

Benjamin Ferdinand - CFO

Operator

Good day, ladies and gentlemen, and welcome to the Aleafia Health First Quarter Results Call. Participants may listen to the call through the conference call line or the webcast link that have both been provided. However, participants seeking to view the corporate presentation must login into the webcast. I would now like to the turn the call over to Nicholas Bergamini, Head of Investor Relations. You may begin.

Nicholas Bergamini

Thank you. And thank you for joining us for Aleafia Health’s 2019 first quarter results call. Joining me is CEO, Geoffrey Benic; and CFO, Benjamin Ferdinand. This morning Aleafia Health filed its first quarter financial statements and associated management discussion and analysis on SEDAR and EDGAR. Please note that this call contains forward-looking statements and reflects the company’s current expectations. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements or other future events to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Geoffrey and Benjamin will now deliver remarks. Geoffrey, over to you.

Geoffrey Benic

Thank you, Nick. And thank you to our shareholders for joining us here today. It’s exciting to look at how far we've come over the last quarter, the core focus of our team has been on executing quickly and efficiently of using our second mover advantage to scale faster and smarter than our competitors while learning from their mistakes. To illustrate that point, let's rewind one year, since our first quarter 2018 we've managed to increase our revenue by 1,723%, that's not incremental growth that’s exponential growth it's why we were in NTS Exventure top performing company of the year for 2018, but the past is the past and we’re not going let up on the pace that’s bought us where we are today.

So want to give some exciting licensing updates. Before looking deeper into our first quarter results, we’ve had some exciting news regarding the healthcare and license applications for our 1.1 million square foot outdoor growth and our Niagara Greenhouse. Regarding our outdoor growth, we’ve now received notes from healthcare there our application's officially under review, by their application and processing team and with Niagara we just received great notes from Healthcare that we have passed a high level review and that they have no concerns with our application. As well line interrupted in the application rules released last Thursday passing this high level review is mandatory. We're thrilled to know now that we are now closer than ever to getting our facilities up and running. We have the staff in place, the genetics and the facilities are ready today.

Want to talk about some of our first quarter highlights, the biggest accelerate that we have made today is the transformative acquisition of Emblem which closed late in the first quarter. In Emblem, we have a sound department with highly complementary assets and capabilities that will allow us to capitalize on high growth opportunities while pursuing national and international expansion. Perhaps most importantly Emblem with their strong brand and in house expertise producing high margin value added products accelerated our execution strategy by 12 to 18 months. We’re already seeing the positive results of this acquisition with only two weeks of Emblem results reported in Q1 financials, our Canada's revenue in this quarter nearly surpassed Canada's revenues of 0.6 million for all of 2018. More importantly in the first 38 days of Q2, 2018, we’ve already received Canada's product orders with expedited gross revenues of 1.2 million. To quickly ramp up those five sales we’re looking to our four primary 2019 catalysts and we've made very important progress on this front. In addition to the important license milestone, I just touched on. This quarter we've got our Niagara Greenhouse to a plant ready state, since then we've continued finalizing the retrofitting of the entire facility and the work will conclude later this month.

Niagara is unlike any greenhouse I've seen. And the capital investments we've made, including rolling container benches will ensure greater yields, stable inventory management and a perpetual year round harvest. These investments will pay dividends for years to come. We've also submitted our license and member application for innovative outdoor growth extension at Port Perry.

The cultivation area is 26 acres or 1.1 million square feet. To put this in perspective, we currently have 22,000 square feet of licensed cultivation area. 22,000 square feet to over 1.1 million square feet. The outdoor site is 100% complete, we're ready to begin planting upon healthcare and approval.

The final facility build out is what I believe is the crown jewel of our production division, the Paris processing facility, which also has indoor cultivation. The Phase 2 expansion of Paris will bring exponential scale to our extraction and packaging of branded emblem medical and simple how to use products.

Over the course of last year, Emblem consistently punched above its weight in the production and branding. Unlike our peers Emblem has delivered on all of his commitments to provincial government wholesalers and major Canadian provinces and we continue to develop new product formats.

The Paris Phase 2 expansion will exist solely for the production, packaging and shipping of value added products. Construction of the build out will be completed in June of 2019. And we will have all the necessary equipment in place to begin production in Phase 2 in mid Q3 2019.

We will be conservatively reaching 50,000 kilograms extraction capacity with the new build out expect to use the vast majority for this expansion for the extraction of cannabis grown on our own cultivation facilities.

In terms of resource allocation, the first priority as always will ensure adequate supply for medical cannabis patients, including patients that are cannibal medical and grow wise help clinics and education centers.

Lastly, we also expect to begin the CD shipments from AFCA, our preferred wholesale pricing with a ramp up over the next three to four months. This agreement will secure us 35,000 kilograms annually. To put things in perspective, this will need an additional 2 million to 3 million additional grams per month at low cost which we can use to rapidly scale up our products sales.

To deliver on this exponential scale, we've ensured that we had the team in place who've done it before. Between our senior vice president of production Lucas Escott and his team, we have growers who have helped lead the build up and then operated seven cannabis production facilities.

To round out our team, we made some important hires in Q1 starting with a new Head of Clinics Keith White. Most recently Keith was the Axial Clinics Chief Operating Officer, which is the largest multidisciplinary medical clinic number in Canada with over 500,000 unique patients.

Keith's technology background, allowed him to streamline patient care by scaling the institution of new electronic medical record systems that enables physician to access digital patient records while working within the public hospital system.

This has served us very well as Keith has been integrating our Campbell medical clinics and Emblem's Grow Wise health clinics. And due to the rapid growth we expect to experience we've added a new position of General Counsel with Jeff Cocker-Smith filling that role in a highly regulated and fast changing industry, strategic legal advice is more important than ever. Lastly we've added the new position of VP of Human Resources filled by Dave Shepherd. Dave has done an outstanding job of what we're seeing rapidly growing work force. We keep an extremely lean head office but we quickly filled out our following positions in our three cultivation facilities.

We have also strengthened our board with the addition of Daniel Mallard and Loreta Grimaldi who joined us from Emblem. Strong corporate governance and internal accountability is an important priority for us and with the leadership of our Board Chair Julian Fantino and a roster of experienced directors we are well positioned. Lastly I want to touch on the incredible talent we've inherited from the Emblem acquisition. This is the first quarter in which the two teams officially began working together and the product expertise and production know how has been invaluable.

I will now hand it over to our CFO Benjamin Ferdinand.

Benjamin Ferdinand

Thank you, Geoff. Very exciting day here, today. I'll first note that the Emblem acquisition closed on March 14, 2019 and at the end of the reporting period, Emblem financial results prior to the reporting period and the closing date do not appear in our first quarter results.

Now let's talk about our results.

Aleafia Health first quarter revenues were1.5 million compared to 83,000 in Q1 2018. The company experienced a net loss of 20.2 million or $7 million net loss excluding 13.2 million in one-time non-cash resulting from the closing of the Emblem acquisition.

Cash on hand at March 31st was 36.6 million increasing from 26.4 million the previous quarter. Current assets were 61 million increasing from 29.9 million the previous quarter. Capital expenditures related to our three facility build outs are expected to decrease significantly in the coming quarters with Port Perry outdoor now complete, Niagara weeks from completion and Payers construction expected to conclude in June 2019. We maintained a strong balance sheet and all of our current plants, including facility build out are full funded.

Next let's start with strategy, we've been a significant consolidator in the Canadian cannabis space with two major acquisition to date Emblem Canabo Cannabis Clinic. We have the assets in place in Canada and we will continue to prioritize international expansion. Specifically we're looking for partners or acquisition targets that align with our cannabis health and wellness vision and secure market asset for high margin value added product portfolio.

This quarter, we closed our equity stake in Australian licensed producer Canna Pacific. We continue to make an important progress in this key market making increase in Canna Pacific following a successful acquisition of a 180,000 square feet green house by iconic Byron Bay, Australia. The value proposition that we offer Canna Pacific and other partners goes far beyond access to capital. We have an extraordinary eco system from clinic operations to cannabis education and certification to e-commerce. We're assisting Canna Pacific in all these areas and we actually have their lead grower embedded in our Paris facility working with their cultivation team and taking Alefia health best practices back to Australia.

As a cannabis health and wellness company we’re looking for access to high income, high populated markets. The recently announced joint venture with Acnos Pharma in Germany which we own 60% of will allow us to gain access to 20,000 pharmacies and a logistics of the pricing network to distributing our medical cannabis oils. The German cannabis market really is incredibly attractive. In Germany, patients are able to have their cannabis expenses reimbursed by a private and public health insurance plan. And as a result margins are significantly higher than in Canada. We have very high expectations for this joint venture and access [indiscernible] incredibly skilled and highly motivated partner in Acnos.

I'll circle back to just point I'm moving faster at lower cost and more effectively than our peers. With the Acnos JV we secured market access at very low cost, we don’t need to train and hire local partners, nor make an expensive acquisition. And we still have access to a large market in Europe. This will be an attractive growth model for us in other key markets. The last highlight from this quarter has been our successful graduation to the Toronto Stock Exchange senior board, even today there are only handful of cannabis companies listed on the Toronto Stock Exchanges senior board. We continue to believe that there is a significant renewed based on investors by a top tier stock exchange list. I’ll now hand it back to Nick.

Nicholas Bergamini

The first question reads, how do you view the outdoor growth opportunity. If you think you can grow this year. And is it really possible to be growing cannabis in Canada due to the climate.

Question-and-Answer Session

A - Geoffrey Benic

So, I’ll take that question. So, few decades ago people talked about the wine industry in Canada and people said it would never ever happen. People tend to get their cannabis and agricultural society and those skill sets are really, really transferable to many types of crops. So, we can have crops in the summer to fall with the potential for great yields. So the plan is, to keep this low cost biomass to our outdoor growth and to be extractive and Paris and use in manufacturing high margin product like edibles and base when they are approved by health cannabis. So, we are extremely excited about the opportunity of what this outdoor low cost gross going to yield for us going forward. 1.1 million square feet translates into a big, big opportunity and grow and kilograms and ultimately low cost growth, low cost kilograms.

Nicholas Bergamini

Next question reads, on international expansion, Aleafia had made some moves recently to the German and Australian markets. How does Aleafia view next steps for international expansion? Do you have more plans in the near future?

Benjamin Ferdinand

I’ll answer that one. We’re focused on taking our well developed ecosystem strategy and export it globally. It is truly is exportable and scalable. We demonstrated our ability to do this already with as you mentioned our partnerships in Germany with Acnos and Australia with CannaPacific. And we’re not going to stop there, we’re looking at the highest income markets and thinking very, very creatively at ways that we can enter those markets.

Nicholas Bergamini

And the final question is how long for Health Canada review at approval of license applications?

Geoffrey Benic

So, nothing is guaranteed in life especially as it pertains to Health Canada, but we have never ever been in such an exciting position with our licenses as it comes to regulatory approval by Health Canada. I can tell you based on process and based on where we are in the process, we are – we could be weeks – week if not days away from being licensed. Again once again all subject to Health Canada and nothing is guaranteed, but again today that I can tell you folks we have never ever been so close to being approved not just on the outdoor, but also on the indoor. The path is clear and Aleafia has never seen such a clear path to our future as I see today.

Nicholas Bergamini

Thank you. That concludes the question-and-answer session. Geoffrey do you have any closing remarks.

Geoffrey Benic

Yeah. I’d like to again really want to tell the shareholder group and on behalf of the Board thank you for your patience. Thank you for your support and also we wanted to let you know that we have never ever been in such a strong position financially, regulatorally and just as a team. And I truly say this, I truly, truly mean this that the best is truly yet to come. So on behalf of the Board and management team to all our shareholders and potential shareholders thank you.

Nicholas Bergamini

Thank you, operator. Over to you.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.