Good day, and welcome to IM Cannabis Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Maya Lustig, Director of Investor and Public Relations.

Thank you, Operator. Joining me today are IM Cannabis Chief Executive Officer, Oren Shuster and Chief Financial Officer, Shai Shemesh. Earlier in today, IM Cannabis released financial results for the fourth quarter and full year 2021. The earnings release that accompanies this call is available on the Investor Relations section of our website at investors.imcannabis.com. Today's call will include estimates and other forward-looking information, including statements concerning future revenues, results from operations, financial position, market, economic conditions, product releases, partnerships, and any other statements that may be constructed as a prediction of future performance. This 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 SEDAR at www.sedar.com. Furthermore, certain Non-IFRS measures will be referred to during this call. The company believes that the presentation of these non-IFRS information provides useful supplementary data concerning the company's ongoing operation and is provided for informational purposes only. Any estimates or forward-looking information 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. Please also note that all references on this call reflect currency in Canadian dollars. With that, it is my pleasure to turn the call over to Oren Shuster, CEO of IM Cannabis. Oren, please go ahead.

Thank you, Maya. Hello, everyone, and thank you for joining us for our first earnings call. In just over two years since IM Cannabis become a public company, we have made a significant amount of headway in positioning our enterprise to become a leading producer of premium cannabis globally. In 2019, we successfully went public on the Canadian Securities Exchange. And in March of 2021, we became the first Israeli cannabis operator to list on the NASDAQ. Over three rounds of financing, we successfully raised approximately $70 million, which was prudently deployed into the business. In exchange for this capital, we have grown on annual revenue base nearly 10 times over the last three years, from just over $5 million in 2019 to record of over $54 million in 2021, representing revenue growth of over 240% in fiscal 2020. Most notably, we grew revenue by 390% year-over-year to over $20 million in the fourth quarter and exited the year at an approximate $18 million revenue run-rate, which showcases our accelerated growth. The strategic steps we have taken to capitalize on the evolving global regulatory landscape, and calculated approach towards building our global supply chain framework has today allowed us to become one of the leading distributors of medical cannabis in Israel with an established presence in the Canadian and German cannabis market. Ultimately, we see a pathway to capturing over 30% market share of the premium cannabis industry in Israel and other 10% share of the IO market within five years. But going further, for those of you who may be new to our story, I would like to first provide an overview of high-end cannabis and the vision that our team has been working towards since inception. Afterwards, I will provide some detail on our market segments that collectively…

Thank you, Oren. As mentioned, IMC is operating from a position of financial strain. Since inception, the capital we've raised has been strategically allocated across all business and created tremendous value in our business, most notably, by looking at our compounded annual revenue growth rate of approximately 120% since 2018. I will now provide an overview of our fourth quarter and fiscal year 2021 financial and operational results. Revenues increased 309% to $20 million in the fourth quarter of 2021 compared to $4.9 million in the fourth quarter of 2020. Revenue increased 242% to $54.3 million in 2021 compared to $15.9 million in 2020. The increase in revenue is primarily attributed to an increase in the quantity of medical and recreational cannabis salt. Gross profit before fair value adjustment for $3.8 million in the fourth quarter of 2021 compared to $2.8 million in the fourth quarter of 2020. Gross profit before fair value adjustment was $11.9 million in 2021 compared to $8.8 million in 2020. Gross profit was temporarily impacted in the fourth quarter of 2021 by COVID-19 restrictions in Canada and Israel, which delayed third-party manufacturing disruptive labor and supply chain. Total operating expenses were $16 million in the fourth quarter of 2021 compared to $6.9 million in the fourth quarter of 2020. Total operating expenses were $48.7 million in 2021 compared to $18.7 million in 2020. The increase in total operating expenses includes cost associated with seven acquisitions and expenses related to capital market activities. Net loss was $12.5 million in the fourth quarter of 2021 compared to a net loss of $20 million in the fourth quarter of 2020. Net loss was $18.5 million in 2021 compared to a net loss of $28.7 million in 2020. Basic and diluted loss per share in the fourth quarter of…

Thank you, Shai. In 2022, we are launching our top Canadian brands in Israel and Germany. While continuing to take the steps for alignment with ongoing regulatory reforms. As we look forward, our strategy is to unify our brand under the same high standouts that we have always prioritize. We believe this will ultimately result in IMC becoming a leading international consumer packaged goods company serving the cannabis industry. Not dissimilar out to the brands, you know [Indiscernible]. Worth noting the steps we've taken and positioned IMC to become one of the largest players in European Primium Cannabis Smart. Given this conditioning, we estimate that in five-years, IMC could have ordered 30% share of the market in Israel and other 10% share of the EU Premium Cannabis Market. If we execute well against our strategic growth print. Of course, this assumes that we do not encounter significant unforeseen events. and that the regulatory environment in our key markets will continue to evolve as we expect. While there are several developments that need to occur in order to achieve this vision, we feel our experienced team regulatory expertise and unique supply chain infrastructure, has positioned us to excel in this dynamic environment. With that, I hand the call over to the Operator to began our question-and-answer session. Operator.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. We will pause for a moment as callers join the queue. Our first question is from Aaron Grey with Alliance Global Partners, please go ahead.

Hi, good morning, and thank you for the questions and congrats on the first earnings call on the quarter. First question for me, strong momentum in Canada for you guys premium brands. As you guys now look potentially exports on those, occasional and otherwise, how do you guys think about allocation of product to both maintain momentum in Canada while also capitalizing on opportunity you have internationally and digital and otherwise? So just any color in terms of how you think about prioritizing between the two will be very helpful. Thank you.

Hi, it's Oren. Thank you for the question, it's a very good question. In Canada, what we're doing is building actually our distribution center for Israel and for Germany, and for the Canadian market. And the allocation from Canada is being done according to the different brands, and what we're trying to do is to optimize the allocation according to the brand, to the market where we can get the higher -- the highest margins while taking into consideration not to lose market share in each of the markets. To do so, we also will do more purchasing if needed, from outsource, but all the metrics will be held in Canada of this optimization.

Okay. Thank you. That's helpful color there. And second question for me, Shai. I think you mentioned profitability 2Q 2022. Could you maybe break down a pathway of how you guys are supposed to get there between gross margin and SGNA? This quarter $8 million EBITDA -- eight-month dollar EBITDA loss so a pretty hefty improvement over the next two quarters, so if you could help the path make of that from gross margin SGNA, that'd be helpful. Thank you.

Well, first of all, as you well know, 2021 was a very hectic year for us. We have acquisition, the NASDAQ listing, and the financing run that we did. This basically we had lot of transaction costs related to that and all other costs related to the other items. And when you will look at our balance sheet you will see that we have nice inventory levels that are going to be utilized during 2022. Apart from full consolidation of all the subsidiaries that now we are starting consolidating from day one and not partially, the increase in revenues due to the synergy and integration and what were mentioned before, as well as the reduction of the one-time costs that we're not expecting to have at the moment, we believe that we will reach a positive adjusted EBITDA at Q2 as with that. And growth margins that were relatively low in Q4 are estimated to increase as well.

Okay. Thank you. Anyway, could help to quantify how much some of those one-time impacts where that were included in that EBITDA number. Just so we can get a better run rate on a go-forward there for G&A? Thank you.

Yes. So I think it was inside the press release that was sent that we'll release. We had federal we had acquisition cost of $4.3 million for the 20 -- to 2021 we had another $1.3 million that related to our NASDAQ listing and in general, we paid around $20 million in cash and switching to the cash -- in cash, we paid more than $20 million for all -- $22 million for all the acquisition, NASDAQ the listing, everything involved. So does that answer your question

Yes, want to make sure that those had been shipped out, the Adjusted EBITDA but I'll go and ask some more question on the back-end and I'll jump back into the queue for now. Thank you very much for the details.

Thank you.

Our next question is from Scott Fortune with Roth Capital Partners. Please go ahead.

Good morning or afternoon where you are, and thanks for taking the questions. Real quick, you've done a nice job of acquiring, you've broadened your ecosystem and sales channel in Israel to become verbally and more vertically engraved with pharmacies and online business platforms to Nexia and such. Can you provide a little color on the synergies with some products including WAGNERS and others, selling it to retail delivery and distribution to drive growth and margin expansion here? And what type of margins and gross margins and EBITDA side are you expected to reach once you get this fully integrated into your systems, into Israel going forward. And then just a quick update on the continuing patient growth that's going on in Israel would be helpful.

Okay. So hi, it's Oren. First of all, regarding the synergies and what we see is definitely that the strategy is working and we're starting to see the benefits of the synergy. It's starting with the production in Canada and we have started to get shipments from our own production facility, as well as from other partners in Canada. And also in Israel, we started the integration of -- first of all, the home delivery, distribution centers that we acquired. It starts from call centers, centralized the delivery centers, and so on. So we are starting to recognize many of the efficiencies over there. Also, what we're doing is we're centralizing the purchasing, which gives us higher margins for the pharmacies. So with all of that and the fact that we're vertically integrated in selling our own products in -- our own pharmacies in Israel. the -- for our own products, the margins, the -- well, more than 50% with the other product it's a bit lower. So it depends on which chain of the company we are talking about. But if we're talking about the vertically integrated parts, it can be 70% even, and if we're speaking about pharmacies, for example, it can be even 25% to 30%. We're working more and more to sell our own products to get higher gross margins. The marketing is where this continue to grow, we've seen this year that the growth base is lower than it was last year mainly because of regulatory issues and that has to be well cleared. On the other hand, in Israel, we see that there is a process of legalization of medical cannabis that's started, so I think that it will be more regularized and we will see significant increase in the Israeli market. I'm not sure that I answered all the questions so we can do it.

No, that's perfect that you provided a lot of color and detail on that. And then real quick, shifting back to the Canada here, can you provide a production capacity update from your Canadian facilities, yield improvement that you seen and in the on-take for dry flour from your exports, and the supply for the Canadian market? You mentioned how to balance that out, but just get a sense for your own production capability and opportunity in Canada, and then now you look into add potentially more opportunities to add productions so that it can ensure that the premium Canadian market and their national markets going forward here. Are you looking at your production footprint to serve certain high-value markets going forward?

So our production capacity is nearly 15,000 tons annually in our main production facility in Canada. And I hope that will be able to extend that. Anyway, we're doing also B2B, especially for the Israeli market and the German market that de -centralized through Canada. So in the future, we're going to also continue with B2B purchases because there is overcapacity today in Canada and for us, it's good. And definitely in the future if we will need more capacity, we will extend the facility.

I appreciate the color, I will jump back in the queue. Thanks.

Okay. Thank you.

[Operator Instructions] Our next question is from Adam Altberg with BMO. Please go ahead.

Good morning, guys. And I just wanted to congratulate you on an unbelievably busy year battling COVID challenges and all of the transactions that the team has done. I know that they've worked insane hours and just want to congratulate you guys and obviously the entire IMC team, especially it's quite the accomplishment to exit the year at an $80 million annualized revenue run rate and I know that we got nowhere to go but up from here. So it was very good to hear as well roughly what the total costs were that were incurred during 2021 to transact on all the various acquisitions and on the NASDAQ listing, and obviously that with the team focused moving forward on getting the overall machine humming, that those one-time costs should come down, and now the focus was on the bottom line and running a smooth operation with no new acquisition plans currently in the pipeline. So very excited at how 2022 and the years ahead are looking. I do have a couple questions for you guys. First off, is there any insight that you have into any updated political momentum changes towards recreational legalization in Israel?

So Israel, now there is a work on new law for medical cannabis, Israel officially decriminalized the cannabis lately and the last month or so. So I think that in general, the approach is very positive towards cannabis. I believe that first of all, we will see the legalization of medical cannabis that will happen very quickly. And after that, the process of legalization will be much easier once medical cannabis will be legalized. So it's very difficult for me now to give any estimation regarding timelines, about legalization, we need more visibility that probably well have in during this year.

Okay, great. Can you maybe give a little bit more color around Germany and how the progress is going there and the status of the ease or restrictiveness, I'm not really sure of the availability to import product from your Canadian operations and Israeli operations?

So Germany as we all know it started to announced officially that they are going to legalization. And first of all, we have -- we feel it and we see that in Germany the discussion about cannabis is much more open than it was in the past and it's starting to become something very in the main-street unlike it was before, and it's a very good sign. And also what we see in Germany is a significant increase in the number of patients that are self-pay, are going through reimbursement program of the insurance. And so, we see definitely increased in debt segment, which is very similar to the recreational segment, which is aligned very well with our strategy of bringing premium products from Canada? We're now selling products that we are importing from Canada, not from our own facility, but we're working extensively on building the pathway to send or on products to Germany. And I believe that later this year we will start to manage that from our own facility on operation in Canada. We started to get product from Canada to Israel from our own facility. So the process is the progressing and moving and very optimistic about that.

Great. Do you guys have any comparative data that shows how IMC is performing versus your competitors in Israel specifically. I know that you mentioned that you have a goal to obtain 30% of market share for premium product in Israel. Can you maybe give everyone an idea of how IMC is doing versus competitors?

In the Israeli market we have few kinds of player in the medical cannabis. Some of them have the GMP facility, some growing, some have retail. IMC is vertically integrated, we are also growing and also have the retail chain and the direct supply. Today, we are one of the top layers, I think that if we're speaking about public companies, probably we are today number two I think, in numbers in Israel. And I think that 2022 will be way, way better for IMC in Israel than 2021 was.

Okay, fantastic. And then just if you could touch on Germany/the EU markets because there have been a few companies, I believe like AcuraLink and Tilray that has touched on their aspirations to generate I believe don't quote me on this, but a billion dollars plus annualized within a certain time period that specifically relate to the EU. So any comments you could make around, IMC's market share and progress in Germany that you haven't already expanded on?

What we have done until now in Germany, we have built the infrastructure and the preparation for the market expansion. We have done that with our EUGMP facility in Germany. We have build a significant logistics center in Germany to be able to get product to storage and to distribute it to the Germany market and also to the rest of the EU market directly from our logistics center. And now we're making sure that we will have enough product and premium products to support all the infrastructure that we build and all the demand that will be generated in Germany. So I think that we're putting all the foundations for this market that everybody is talking about. And I do wish the competitors those number because it means that the market is going to be huge. And we will have healthy competition.

Excellent answer. Thank you. That's all I have. And again, thanks very much to the entire team for all their hard work.

Thank you very much, Adam.

This concludes the question-and-answer session. l would like to turn the conference back over to Oren Shuster for any closing remarks.

Thank you, Operator, and thank you all for joining us for our call today. Please continue to track our progress as we continue to execute on our growth strategy. And I look forward to speaking with you in the coming quarters.

This concludes today's conference call, you may disconnect your lines. Thank you for participating, and have a pleasant day.