Welcome to IM Cannabis Q1 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Maya Lustig, Investor Relations at IM Cannabis. Please go ahead.

Thank you, operator. Joining me today are IM Cannabis Chief Executive Officer, Oren Shuster and Chief Financial Officer, Shai Shemesh. 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 and statements 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. 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 SEDAR at www.sedar.com and EDGAR at www.sec.gov. 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 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. 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 quarter 2022 earnings call. The first quarter was highlighted by two key factors. First with our operational execution, the benefits of integrating our global model has began to take hold, allowing us to identify various opportunities for margin expansion. The primarily relates to centralizing our operations in Israel, where we are transitioning our supply source towards the third supply model leveraging our Canadian yield. Second, as we progress on the path to profitability, we achieved yet another quarter of record revenues, which increased 169% year-over-year and 18% sequentially to $23.6 million. Notably, we exited the quarter at nearly $100 million revenue run rate basis. Taking these two factors into account, we expect 2022 to be a breakout year for IM Cannabis, which will be particularly evident in the second half of the year given our industry leading global framework, and expected synergies. Taken in tandem with significantly reduced capital expenditure in the coming year, and a strong balance sheet we are strongly positioned for long term success and shareholder value creation. Before I expand on this recent progress, allow me to provide a brief overview of the company and our vision for those of you that may be new to our story. I will then touch on each of our market segments that collectively make up our unique global platform, followed by a review of our financial results before opening the call up for questions. IM Cannabis is the leading provider of premium cannabis for the medical and recreational markets in Israel, Canada and Germany. These countries are the three largest in which cannabis is federally legal. And we are the only multi-country operator with footprint in each of them. This fact is important as it…

Thank you Oren. We continue to operate from a position of financial strength. As we continue to grow our revenue base, we're uncovering a variety of operational improvements that will allow us to scale sustainably. I will now provide an overview of our first quarter for 2022 financial and operational results. Revenues increased 169% to $23.6 million in the first quarter of 2022, compared to $8.8 million in the first quarter of 2021. The increase in revenues is primarily attributed to an increase in the quantity of medical and recreational cannabis products sold. Gross profit before fair value adjustments increased 37% to $6.4 million in the first quarter of 2022, compared to $4.6 million in the first quarter of 2021. Total operating expenses were $18.1 million in the first quarter of 2022 compared to $6.7 million in the first quarter of 2021. The increase in operating expenses were probably due to a reduction in expenses of approximately $3.7 million associated with the closure of the facility in Israel. Net loss was $10.7 million in the first quarter of 2022 compared to a net income of $4.7 million in the first quarter of 2021. Basic loss per share in the first quarter of 2022 was $0.14 compared to basic earnings per share of $0.11 in the first quarter of 2021. Diluted loss per share in the first quarter of 2022 was $0.17 compared to diluted loss per share of $0.06 in the first quarter of 2021. Non-IFRS adjusted EBITDA was negative $4.5 million in the first quarter of 2022 compared to an adjusted EBITDA loss of $1 million in the first quarter of 2021. Cash and cash equivalents totaled $10.3 million at March 31, 2022, compared to $13.9 million at December 31, 2021. We are just beginning to see the synergies of our consolidated operations take effect as reflected by our sustainable year-over-year revenue growth. As we look forward, we expect the positive effects of operational improvements to be increasingly pronounced. In the second quarter of 2022 we expect revenues to accelerate on a year-over-year basis while continue and to grow sequentially. And as we've previously noted, we're rapidly approaching positive adjusted EBITDA, which we expect, we will achieve on a run rate basis in the second quarter of 2022 positioning us to be cashflow positive on a run rate basis in the third quarter of 2022. Finally, a quick note on our capital allocation strategy. While we continue to take an opportunistic approach to deploying capital, we currently do not have any new acquisition plan and therefore we do not foresee any significant capital expenditures in the coming year. I would like to turn now the call back to Oren for closing remarks. Oren?

Thank you, Shai. We are at a pivotal point in IMC's growth trajectory, as we aim to rapidly capture market share, while fully integrating the components of our global model to position us for our next phase as a leading consumer packaged goods company serving the cannabis industry. Our focus on operational excellence is already yielding benefits that we believe will be incrementally realized as our brands are unified. Building on our track record of success in Israel, and products category leadership of all brands in Canada while leveraging our unique distribution infrastructure in Germany, we are well-positioned to emerge as a major player in the European premium cannabis market. The opportunity in front of us is truly remarkable. And we are working diligently to seize it and to generate long term value for our shareholders along the way. 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] Our first question comes from Aaron Grey with Alliance. Please go ahead.

Hi, good evening, and nice to see the improvements sequentially on the revenue and EBITDA. So the first question for me, so I just talked about 2Q you guys are holding the profitability. Just want to get some clarification there. You said exit 2Q at a run rate of EBITDA positive. So is that right? I think that's more so for the month and for the quarter, it might be a little bit more breakeven. And then just if you could help us in terms of modeling kind of guess that you talked about the guidance for improved revenue and gross margin, quarter-over-quarter for 2Q. So just helping us get to how much margin improvement and sales growth you expect to kind of get to that EBITDA guide you just provided? Thank you.

Hi Aaron. Thank you for the question. First of all, as for your first question regarding the adjusted EBITDA yes, we are we believe that for sure at the end of the quarter meaning June onwards, we will be positive and currently we cannot say if the whole quarter will be like this. But for now it seems that there's going to be positive from June onwards. As for your second question, regarding the gross margin. We are now in the phase of streaming the federal integration and exploiting the synergies and each of our territory enjoy different gross margin. As for the second quarter, we will improve and [currently we are on] 27% gross margin, it's logical it will be around the 30% closer to the 30%. And going forward we believe that on average we should be in between 30 to 35. You need to remember that we have different, we are now working in different areas such as the retail where the gross margin is lower. But it allows us to build the rest of our strategy for a fully integrated company.

All right, great. Thank you very much for that color. That's helpful. Second question for me. Just want to talk about the Israeli market. So if we're looking at the data that the regulators put out, it does look like there was a slowdown in terms of some of the volume for the first quarter on the industry. But when we talked in the past in terms of sometimes that volume data might not exactly line with the sales. So just want to get your outlook in terms of what you're seeing in terms of the overall industry sales because it does look like it slowed down to low single digits in first quarter versus double digit sequential growth we had seen the prior quarters. Thank you.

Well, Oren you want to take that?

Yes. I am. So what we've seen the recent data just published in the last day or two and we have seen a slower increase in the growth space still the market is growing. This month it was slower than in the past. We don't know what would be in the rest of the year. But we've seen a bit slow down not so significant than it is now. I don't know what will be in the rest of the year. Still the market is doing great.

Okay. Great. Thank you very much. Last question for me. So Canada's sales up 4%. Third party, hyper data showing good trends for your brands, it actually shows retail up, 20% 30% bips gain during the quarter, it looks like that continued into April. So I know, there can be some disconnects between selling into the provincial board. And then the POS, but looks like sell through has been strong. So it's any commentary maybe of the timing of the provincial buying. And maybe there might be some disconnect that might see normalizing the next quarter in terms of some more meaningful growth rates, similar to what we're seeing in the POS data. Thank you.

So we are continuing with capturing more market share in the Canadian market. I think this is the market that you would like to. We've also got more skews from the provinces, because we are executing and they are performing very well. So I believe that we will continue with our growth. And just to mention that this year we can also to start and work in Quebec which is a very significant market. And we haven't seen yet the situation in Quebec. So I believe that we will continue with our growth before Quebec and definitely have to enter the Quebec market.

Okay, great. Thank you very much. I will go ahead and join back in the queue.

Your next question comes from Scott Fortune with Roth Capital. Please go ahead.

Good evening. And thank you for the question here. Just to follow up on Aaron's questions on the Canadian market and just kind of looking at prioritizing your premium brands to sell into the premium and ultra premium channels there in Canada, but how do you think and kind of what's the allocation priorities within Canada and international opportunities? Can you break down to the present or the volume of production that's being exported from Canada into those different global markets versus selling into Canada?

Yes. It's a very good question. We are in the process now of optimizing our products allocation. Part of our integration synergies is making these prioritization in Canada with the allocation of each of all the products that we have to the different skews and brands across our markets, between Canada, Germany and Israel. What we are aiming is that when we will allocate each of the flower it will be according to the optimization of the sale of this product. So from the beginning, it will be allocated to the market with the highest margins that we can get. This is what we're building now. And this is part of the overall integration that we're planning. As of now Scott your question we are allocating that between the brands. It's not mature yet, it's only the beginning of this process for us.

Great. And then look at Israel a little bit, can you break out the different products sold in Israel market from percentage wise exports that you're able to sell dry flower there versus internal Israeli and then what kind of flower versus oil mix that was sold into the Israel market with the margin differences there?

So in Israel, most of the market is smallest or in the on four percentages of the product, it's meaningless. What we see is that we've done, we launched the WAGNERS brand in Israel, it was a huge success. And in our stage, what we are doing is that we started to bring more massively products to the Israeli market. We are getting very good feedbacks. And the idea is to increase the import of products, getting good feedbacks, and it's a process. And this is what we're doing now. We're doing in Canada. We are purchasing products for the Israeli market, for the Canadian market and also for the German market. So the process of allocation of products between the markets is being in a phase of a build out to know exactly the optimization. Today we are in the premium or in the segments of premium and auto premium. And we see that the entrepreneurial with the high percentages of [CSE] is going mainly to Canada, because it is market, we have a limitation of [CSE] to 24.4% today, higher than that goes to the Canadian market. And then fixed GMP, which is only the minority of the product. So every product that we can, every import we can bring to the Israeli market that will meet the quality. The qualification is Israeli market we want to bring to the Israeli market because we can sell it in Israel. So this whole process is being in a build out phase. As of now as much products as we can bring to the Israeli market is [indiscernible] qualification we're bringing to Israel.

Got it. And just one quick housekeeping. One last one last question if I can. Germany, what was the revenue breakdown in Germany? And then what's the timing of WAGNER'S and potentially exporting your premium products from Canada into Germany directly?

So regarding the timing of the import, we believe that in order to bring for the product to Germany, it has to be a new GMP certified. And in Germany, you need irradiation license which is the process of six months. We are now in the process of all the regulatory phases in order to bring the product to Germany. I believe that it will be only on the fourth quarter. Not before. Maybe the third. Probably the fourth quarter. And regarding the numbers. Can you pass through again about the number I’m Sorry, I missed the question.

Yes. Just what was the revenue contribution from Germany on the quarter, for the quarter?

It was $600,000.

Okay, thank you.

We have it in the second --

Appreciate the color. Thanks for the detail. I'll jump back in the queue.

This concludes the question-and-answer session. I would like to turn the conference back over to Oren Shuster, CEO of IM Cannabis for any closing remarks.

Thank you operator and thank you all for joining 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. Thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.