Flora Growth Corp. Price & Performance (FLGC)

Thank you, operator, and good morning, everyone. On behalf of the FluorA team, welcome to our Q3 2024 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, home operations, financial position, market, economic conditions, partnerships and any other statements that may be seen as a prediction of future performance. The information may involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences are described in detail 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 and myself, Danny Vaiman, CFO. Following the presentation, Clifford and I will be available for the question and answer period.

The Q3 2024 results press release and the accompanying 10 Q have been filed on EDGAR and SEDAR. Please note that all amounts mentioned on this call are in U. S. Dollars unless otherwise stated. I will now turn the call over to Clifford.

Thank you, Danny. Good morning, everyone on the line. Welcome to the Fluorogrowth Q3 2024 results and corporate update conference call. Let's begin with the United States. The recent election of President-elect Donald Trump brings renewed focus to the $28,000,000,000 Hemp Industry catalyzed by signing into the law in 2018 historic Farm Bill. This transformative legislation neutralized hemp at the federal level, foster explosive growth across the United States. President-elect Trump's recent comments on cannabis regulation indicating a favorable stance also provide encouraging signals for those advocating for comprehensive cannabis reform. While federal legalization remains uncertain, these remarks suggest we should see significant progress in regulatory alignment under his administration. At Fluor, we view this opportunity to further our presence in the U. S. Market, leveraging our flagship brands like JustCBD and Vessel, which are already making strides in capturing market share. With federal rescheduling procedures set to begin in January, we remain optimistic about additional cannabis policy advancements that can bring significant benefits to consumers, businesses and communities alike. The prospect of a rescheduling shift underscores the growing recognition of cannabis therapeutic potential as rightful place in a modern regulated economy. Complementing these developments, U. S. Senator Ron Wyden recently introduced the Cannabinoid Safety and Regulations Act.

This legislation proposes the most comprehensive framework for hemp regulation in the U. S, addressing key areas such as product safety, labeling and market oversight. We believe this act should serve as blueprint for the upcoming Farm Bill, offering a pathway for clearer regulatory structures and fostering innovation investment within that industry. A regulatory framework like this would work perfectly with Fluoro's mission to create safe, high quality cannabinoid products and meet consumer demand and regulatory standards. Moving to Europe, we're seeing promising developments in Germany. The country's updated framework for the liberalization and cultivation of industrial hemp underscores its commitment to becoming a leader in sustainable agriculture and cannabis reform. Germany is also making strides with its controlled cannabis retail efforts. The cities of Frankfurt and Hanover have been announced as model locations for Germany's first legal controlled cannabis retail operations. These pilot programs represent a critical step and we have to distribute premium medical cannabis across the EU. We are closely monitoring these developments and remain ready to expand our presence as these regulatory framework evolves. It's an exciting time for the industry. We're optimistic about the future to help drive forward policy and innovation and serve the needs of consumers, businesses and society.

With that, I'll pass along to Danny, who will discuss the financial results for the quarter. Danny, please go ahead.

Thank you, Clifford. Let me start by noting that in the United States, we are actively working to diversify our product portfolio by entering the fast growing infused beverage market. This move represents a significant step forward as we tap into a segment that is expected to see substantial growth over the coming years. The introduction of our infused beverage line, including Mellow and Cola products, allows us to leverage our expertise in product innovation and marketing. These beverages cater to a rising consumer demand for alternatives to traditional alcoholic drinks. In Germany, we are laying the groundwork for a transformative phase in our European operations. We recently welcomed Doctor. Mansfield Ziegler, the former Managing Director of CC Pharma to lead our operations in the region. Doctor. Ziegler brings extensive experience and a proven track record of success, including his leadership during the acquisition of CC Pharma by Tilray. Under his guidance, we are launching a parallel import business, a key initiative designed to meet the growing demand for affordable, high quality pharmaceuticals in the European Union. Parallel importing allows us to leverage pricing differentials within the European market while adhering to strict regulatory standards creating a competitive advantage. Turning over to our financial results.

Revenues for the Q3 of 2024 $12,500,000 compared to $17,300,000 for the Q3 of 'twenty three. Revenues for the 9 months ended September 30, 'twenty four were $46,200,000 compared to 58,100,000 for the 9 months ended September 30, 'twenty 3. These decreases are primarily due to the company's deliberate discontinuation of several unprofitable lines as well as increased competition. Total operating expenses were $6,500,000 in Q3 'twenty four compared to $5,500,000 in Q3 'twenty three. For the 2024 2023 year to date periods, total operating expenses were $19,600,000 $57,200,000 respectively. This represents a decrease of $37,600,000 or 66 percent. Net cash used in operating activities was $3,700,000 in the 9 months ended September 30, 'twenty 4, compared to $7,300,000 for the 9 months ended September 30, 'twenty 3, a decrease of $3,600,000 or 49%. On a consolidated basis, the net loss for the period was $9,800,000 compared to $47,300,000 in the comparable period, an improvement of $37,500,000 or 79%. Fluorra finished the quarter with $4,200,000 in cash and $21,300,000 in current assets, including $7,900,000 of saleable inventory. In terms of performance for each of our divisions, JustCBD maintained a gross profit margin of 40% and sales of $4,200,000 Top selling products in the quarter included the bear, nighttime bear and peach gummies.

Approximately 41% of its revenues stemmed from direct to consumer sales with the remaining 59% generated through business to business sales. In the quarter, JustCBD added 83 new wholesale customers to its network. The vessel maintained a gross profit margin of 55% on sales of $1,100,000 Core products represented 29% of sales, and Compass products contributed 45% to sales. The largest individual item sold was the Compass Rise, representing 17% of vessel sales. Vessel sales were 66% from direct to consumer and 34% on business to business. Vessel added 35 new wholesale customers in the quarter. Fotivo earned $7,000,000 in revenue with gross margins of 7.1%. All sales were business to business and included brand name Pharmaceuticals. I will now hand the call back to the operator for the question and answer period.

We will now begin the question and answer session. The first question comes from Aaron Grey from AGP. Please go ahead.

Hi, good morning and thank you for taking my questions. This is Remington Smith on for Aaron Grey. My first question is, you've announced quite a few initiatives in the past few months. What do you think will be the largest drivers to growth in both the near term and the long term?

Hey, how's everything going? The main driver on the U. S. Side is really going to be dialed in on the beverage front, which the distros have picked up and you're still going to see in the total lines and ABCs of the world. On the German side, it's going to be 2, it's going to be 1, the PI business, which we expect extreme high top line with decent margins on it, as well as being able to compete and win the pilots for the retail locations. Those are the main focuses of the business and that's where we're putting money in today, both on the CapEx, OpEx exercises.

Got you. Yes, that's helpful. And then kind of sticking to that German business, you experienced a little bit of softness, I guess, in your existing German business this quarter and the prior quarter despite some of the reform that happened. Could you speak to a little bit of that? And then just the outlook to that existing business going forward?

Yes. I mean, Germany 1st off, we've brought in world class team now. So Manfred and the individuals he's brought in under him, I don't think we could find anyone better to actually run Germany in every facet possible. And then what we've done over the last quarter or so is really working on changing the business model a little bit to gain way higher margins on that side of the business, which I think you'll see I think you're going to see the effects in a couple of quarters from now. But we're making a lot of changes in Germany.

Okay. That's helpful. And then I guess sticking to the gross margin. On the last call, you expected gross margin to expand into kind of mid-thirty percent range. So is the commercial wholesale going to be a driver there too, I guess, to that expansion? Will it be kind of the house of brands? Talk to me, I guess, if the mid-thirty percent range is still a guidance, how you expect to get there? And what will that mix be between, I guess, the 2 segments?

Danny, do you want to touch on that to start?

Yes, absolutely. So, Remington, thank you so much for joining us and I hope you're doing well. As you noted, the business in the United States, Just CBD and VESL, those ones do experience fairly significant margins, 40% to 55% in some instances. Where the challenge has been, it's been with the pharmaceutical distribution in Germany, which is offsetting and lowering that average. And as we noted, the parallel import business and the changes that we're implementing in Germany, we expect that margin to increase and that will help bring the average to the low 30s and the high 20s. We just need a little bit more time to develop that business in Germany so that the parallel import revenues increase and become the most dominant force in that country. So I think it's just a matter of time and it's just a matter of that business expanding and realizing its full potential.

Okay. And then my last question, you had quite a few initiatives with launching the THC, the hemp infused business recently and then the TrueHC acquisition too. A lot of these kind of weigh on EBITDA in the quarter kind of ramping up sales, especially kind of with the corporate SG and A costs?

Yes. I mean, we're making investments now both in the beverage front as well as Germany throughout. So right now, we're spending money. Hopefully, we're going to see the benefits in quarters to come.

Okay, great. That's all for me. I'll hop back in the queue.

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

Hey, Danny. Hey, Cliff. How's it going? Just wanted to get some clarity on how the launch of Parallel Import business has been going so far? What we can expect from it and what a wider European rollout could look like? And also the timeline to get to that 30% margin range that you mentioned earlier?

Yes. I'll answer the first part then hand over the margin to Danny. Sean, hope everything is great. First off, Matt and his team came in, they're retooling a few things on the current business right now, which is the focus. Then what we're going to do is utilize our GMP facility to be able to bring in competitive pharmaceutical products from all over Europe, the Hungary's where many of the world. Keep in mind, Manfred previously built a $600 plus 1,000,000 business and this is that category. And I think over the next couple of quarters, you'll see it kind of come together. And it's going well, but we're trying to do is making sure the current business is stabilized and then grow on the PI business as well as grow and compete for the cannabis licenses that have been given out. And then, Dan, you want to get to the margin question?

Sure. Sean, good morning and thank you for joining us and I hope things are well on your side. I think that's a great question and we will provide an update on that specific topic in the Q1 in 2025 once Mansford and his new team have had a chance to settle in. I think that would be the best time to begin addressing that question.

Perfect. Thank you. And I think that's my only question for now.

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

Hey, good morning guys. Cliff, it looks like you're now on the Board at Hochi in Portugal. I think I saw that in the press release. So how does that business in that upcoming facility fit into your plans for Germany, your plans for Europe? And when do you expect product to start coming out of that facility?

Hey, Bill. I hope everything is great. So one, this was investment made historically. This was with the Metroom team back in the day, which I think everyone remembers, Mike Hanes and Trevor and those guys. In the past couple of years, a big investment came in and they put another $10,000,000 in that facility. It's fully built. They just got their GACP license. The grow has obviously been up and running for well over a year now. There's 2 things that we would like to do. 1 is obviously get good quality project of Portugal into Germany, which will be happening over the next couple of quarters. The second thing is what's interesting is we're able to utilize our current GMP facility. We'd be able to actually put an extension of it onto the Portugal facility and on the dry rooms, which will make the entire flow process way easier and better and more efficient. But everything is coming together there. And I think the next couple of quarters is when we will receive the first product out of there.

Okay. And as this will relate to Germany as well, could you give some more detail on the relationship with Curaleaf like the responsibilities, maybe the commitments for both parties? And I ask because the announcements initially didn't seem like both groups were on the same page. So I want to make sure I understand what you and Cureleaf can and cannot do and maybe how Parallel fits into that dynamic?

Yes. Let me I have a long standing history with the EMAC guys. EMAC was sold to Curaleaf a number of years ago. Prior to them merging, we had a supply agreement that was supposed to be delivered from Portugal into Germany a number of years ago. No supply arrived and we went and rebuilt the relationship with Curaleaf which we announced, which was a little bit, I guess, confusing for everyone, unfortunately. We're expecting delivery within the next month or so of high top quality products from Northern Green via the 420 guys. Originally, what will happen is we're going to use 420 to bring in the product. And then over the next quarter, 2 quarters after that, we'll stabilize the product in our GMP facility. And we expect a long term relationship as long as they could deliver high quality flower we could put into the market.

Awesome. That helps a lot. If I could sneak one more in going back to U. S. Beverages. In some markets, Mellow and Cloud Cola, I think are THC infused and in other markets, they're more hemp infused. Is the goal of the brand ultimately to be THC infused where and when you can or should we expect kind of a mix or is it how what do you envision that kind of formulation behind those brands ultimately to be?

So we're seeing 2 fold. We're seeing obviously, we're very D9 driven, I think everyone is right now. And that's what's going into the totals and ABCs right now. About 30% of that business will be all line driven as well. But we also got a lot of demand from big box type of stores of, hey, we're obviously not ready to bring THD and Fuse yet. Could you do the same category of mocktail form, which we're working on now for a couple of clients? But I think what we're trying to do is build at least dominate the Southeast, where really that's our presence or network, both on grassroots, in store, activate everybody as well as hit the what we could do legally within the local colleges, universities and really try to create a sustainable long term brand. I think it's that relationship with Peak has literally driven, save us 8 years of work and experience have been great to work with. The emulsion facility is obviously up and running in Florida. We're focused on our own brands, we're also powering a few other ones. And it's going very well. And it's I was surprised that the team did a really good job getting Justrose on board relatively quickly, which is great.

And now we're just working through more figuring out what our really working capital needs on what's going to happen on the growth side. So we're seeing I think you're going to see hyper growth on that category on a quarterly basis. Awesome.

Thank you, Cliff. Thank you, Danny. I'll jump back in.

The next question comes from James Udeshko from Aegis Capital. Please go ahead.

Hi, good morning. It's James Udesh from Aegis. So we're just wondering how has the Sunshine partnership helped with distribution across the retail consumer space in both the U. S. And Germany? Good. So I hope everything is okay in New York. In terms of Sunshine, they've really just opened up the Florida market for us. That's who we chose. We decided to work with a little bit of a small distributor to get attention and very craft beer type of feel in terms of service. They did a great job getting into the retailers, which you're going to see a launch next week. Sunshine has no parallel outside of the Southeast, including Germany and Europe.

This concludes our question and answer session. I would like to turn the conference back over to Clifford Stark for closing remarks.

Thank you for all stakeholders for coming on the call. The management team is available for anything further and have a great day.