Good day, and welcome to IM Cannabis' Fourth Quarter and Full Year 2022 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. 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 positions, markets, 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 that 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 this 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 statements or supply new information regarding the circumstances after the date of this call. Please 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. Good morning, everyone and thank you for joining us today. 2022 was transformational year for us. We proved our flexibility, our ability to adjust quickly to market dynamics, we made strategic choices better focusing on our business model and priorities, we started shifting from vertically integrated model, while enhancing our strategic position higher up in the value chain, focusing on meeting patients, and pharmacies needs, we have anticipated the growing demand for premium products and build our competitive advantages through sourcing and import capabilities, fueled by strategic alliances with top of the line Canadian suppliers. The fourth quarter marked a pivotal point for us. To move closer to our goal of profitability, we commenced our exit from the Canadian market, refocusing our resources on the two highest value markets, Israel and Germany. Earlier this month, we announced additional restructuring initiatives that are designed to drive sustainable profitability, while reducing costs. To better suit the current market environment and our short to mid-term objectives, we announced the reorganization of the company's management and operations to be able to strengthen our focus on core activities and drive efficiencies to realize sustainable profitability. To achieve these goals, the company is reducing its workforce in Israel by 20% to 25% across all functions. As part of this restructuring initiative, key positions in the company's leadership team will be transitioned to highly skilled internal success roles will be supported through a three months transition period and closely monitored and other process to ensure continuity. At this point, I would like to thank the IM Cannabis management team, as well as all of our employees impacted by the restructure for their contributions to the company over the year. This month further reflects our determination to continue with our strategic plan by maximizing efficiencies,…

Thank you, Oren. As mentioned by Oren, the company decided to commence its exit from Canada and is no longer providing any funding to its Canadian operations. In Q4 and full year 2022 financials, the Trichome Group was deconsolidated from the consolidated financial statements of IMCC and was classified as discontinued operations for all period presented. I will now provide an overview of Q4 and full year 2022 financial results for the company's continuing operations. Revenues for 2022 were $54.3 million compared to $34.1 million in 2021, an increase of 60%. Revenues for Q4 2022 were $14.5 million compared to $9.9 million in Q4 2021, an increase of 46%. The increase in revenue is primarily attributed to the increase in the quantity of medical cannabis products sold, as well as the higher average selling price per gram once the company shifted to a premium product portfolio in Israel. Additional increases were derived from the company's organic growth and related synergies in the areas in which it operates. Total dry flower sold in 2022 was approximately 6,794 kilos with an average selling price of $7.12 per gram compared to approximately 4,278 kilos in 2021 with an average selling price of $6.18 per gram. This difference is mainly attributable to the higher average selling price per gram due to the acquisitions of the pharmacies in Israel. Total dried flower sold in Q4 2022 was approximately 2,330 kilos with an average selling price of $5.19 per gram compared to approximately 1,220 kilos in Q4 2021 with an average selling price of $6.87 per gram. Gross profit for 2022 was $9.2 million compared to $6.3 million in 2021, an increase of 46%. Gross profit for Q4 2022 was $2.6 million compared to $0.98 million in Q4 2021, an increase of 165%. Gross margin in…

Thank you, Shai. We will continue to concentrate our efforts on our highest value markets, Israel and Germany, and accelerate our path to profitability. We will maximize efficiencies and continue to create the right balance for future success. We are further strengthening our Israeli operations and now leveraging the synergies between the German and Israeli markets to achieve leading position in the European medical market, positioning ourselves to fully capitalize on the German recreational cannabis market upon legalization. In short, we spent 2022 and the beginning of 2023 transforming into the new IMC. We have what it takes to succeed. We are lean and agile, focused on building brands. Our consumers love and ready to be one step ahead. It is now time to look forward and deliver on our strategy. I would like also to take this opportunity to thank my team for delivering a 60% increase in revenue during this transformational year. With that, I hand the call over to the operator to begin our question-and-answer session. Operator?

[Operator Instructions] Our first question comes from Aaron Grey.

Hi. Thanks for the questions. Can you guys hear me okay?

Yes. Go ahead, please.

Okay, great. Thanks for that. Thanks for all the prepared remarks. First question from me, obviously, you highlighted a lot path to profitability. Just wanted to know if you could help put some of the pieces together in terms of kind of how we get there. So you talked about some of the cost saving initiatives that you have. But maybe if you could talk about any embedded top line growth that you might need to reset profitability or if you believe you can reset the current revenue numbers once you realize all the benefits of the cost saving initiatives? And then any embedded gross margins that you would need to reach that EBITDA profitability, that'd be helpful. Thank you.

Okay. Thank you for the question, Aaron. I'll start, it’s Oren. Regarding the moving to profitability, even with our current income -- revenues, we are moving to profitability. And so it's more about fixing the costs and making sure that we are using the synergies. So this is exactly what we have done and we are doing all the time. And this is the latest restructuring that we have done, that some of it was adjusting the organization to a leaner organization. After we exited the Canadian operation we had many duplication of roles, especially in the management. So this is a significant part of the restructuring that we have done now. And together with all the measures that we are doing, it's enough to move to profitability.

Okay. Thank you. Scott, please go ahead.

Yeah. Good morning. Thanks for the question. Just kind of a follow-up if you can kind of highlight the premium market for Israel, what you're seeing on that side of things as far as kind of a market share? How big is that opportunity for that premium side of things in Israel? And what's the competitive landscape from that standpoint? And just kind of your outlook for pricing. We've seen pricing come off in Israel overall with patients kind of from that standpoint, but your outlook for pricing in Israel throughout 2023 going forward here?

Okay. Thank you, Scott. So the Israeli market is a competitive market like most of the cannabis markets. And in some ways it's a different market because in Israel, still the black market is more expensive than the medical market. So we don't have pressure of the prices from the black market like many other markets. And it gives plenty of space for the premium segment because no competition. Even the premium segment is cheaper than the black market. So we don't feel the compression from the back market. We do feel that the competition in the market, we feel it less in the ultra premium and the premium segment. I think that the more competition that will be on those segments, we will feel more the pressure, obviously. I think that we are very well positioned, we understand this segment, we opened this segment in Israel, we are leading the segment and we build our reputation in this segment. So I think that even with more competition, we will be able to keep our position. And regarding the margins, I think that the fact that we are well connected to the consumers by the pharmacies and the home delivery that we have, we feel the market very well. And some of the adjustments that we've done in the organization is to be ready to press compression, although we don't feel it. We feel it, I mean, but not in our segment. I must say that we are working not only in the ultra premium and the premium segment. So we do feel it in the other segments and it's already in our results. So I don't think that we're going to face something more severe. But let's see what is happening with the market. Scott, I'm not sure that I answered all your question or I didn't answer something, please.

Please, Scott, go ahead.

You answered that. That's fine. But quick follow-up on Germany as a percentage of our overall revenue mix, what that growth was in 2022? And kind of expectations, obviously, we're waiting for adult legalization there potentially in 2024, but kind of the expectations of the German market as far as margins on the overall mix for the company?

Okay. So first of -- regarding the German market, we feel that the market is growing, especially in the segment that we are focusing in Germany, which is the self-payers segment. The self-payers segment, we think that it’s very similar to the segment that we are working in Israel. It's consumers, it's patients -- in Germany, it's patients that can get -- can go to physicians -- any physician in the market or teleclinics that are now opening more and more in Germany and get prescription and go to pharmacy and buy it and pay out of pocket. We think that many of them are more recreational users that use that medical cannabis for recreational usage, well-being, I would say and it's evolving all the time. So I'm very optimistic about that. Regarding the legalization, the Ministry of Health in Germany is supposed to publish the standards regulations or where they're going very soon. They said at the end of this month maybe there will be a delay. And I believe that the full legalization in Germany will take time and they will find something in between. I think that the medical market in Germany is not going anywhere. It will be a strong market for use in Germany. And I do believe that that will be the gateway for premium product into the market. And I'm not sure that they won't start with a model that is more based on medical than full recreational.

If anyone else has a question, please raise your hand and we'll call you for your question.

So I see here another question asking about more products behind -- and more products, not only flowers and extract. And I must say that in our markets, today, the only product that allowed is extracts and flowers. We are talking about medical market. And today, unfortunately, those are the only forms of cannabis that we can supply. If there are more questions, I would be happy to answer. Okay. 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 strategy. And I look forward to speaking with you all in the coming quarters.