Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Organigram Holdings Fourth Quarter and Fiscal 2023 Earnings Conference Call. [Operator Instructions] Thank you. Max Schwartz, you may begin your conference.

Thank you. Good morning, and thank you for joining us today. As a reminder, this conference call is being recorded and the recording will be available on Organigram's website 24 hours after today's call. Listeners should be aware that today's call will include estimates and other forward-looking information from which the company's actual results could differ. So please review the cautionary language in our press release dated December 19, 2023, on various factors, assumptions and risks that could cause our actual results to differ. Further, reference will be made to certain non-IFRS measures during this call, including adjusted EBITDA, free cash flow and adjusted gross margin, among others. These measures do not have any standardized meaning under IFRS and are intended to provide additional information and as such, should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Our approach to calculating these measures may differ from other issuers, so these measures may not be directly comparable. Please see today's earnings report for more information about these measures. Listeners should also be aware that the company relies on reputable third-party providers on making certain statements relating to market share data. Unless otherwise indicated, all references to market data are sourced from Hyfire in combination with data from WeedCrawler, provincial boards, retailers and our internal sales figures. I will now introduce Beena Goldenberg, Chief Executive Officer of Organigram Holdings Inc. Please go ahead, Ms. Goldenberg.

Thank you, and good morning, everyone. With me today is our Chief Commercial Officer, Tim Emberg; and Chief Strategy Officer and Interim Chief Financial Officer, Paolo De Luca. By way of reminder, Paolo served as the company's CFO for over two years, including calendar 2018 and 2019. I'd like to take a moment to thank Derrick West for his contributions to Organigram in his time as our Chief Financial Officer. All of us at Organigram wish him the best of luck as he takes time to focus on his health and recovery following a recent surgery. Additionally, as you likely saw in our press release yesterday, we are pleased to announce the appointment of Greg Guyatt as our new CFO as of January 8, 2024. Greg joins us from Pheona, where he held the position of CFO and CEO. Previously, he was CFO at Greenspace Brands and held various senior finance positions at Kingsett Capital and Sears Canada. We look forward to welcoming Greg to the team in January and would like to thank Paolo for stepping in as Interim CFO in Derrick's absence. We will now discuss Organigram's performance for Q4 and full year fiscal 2023. We are pleased with Organigram's progress throughout fiscal '23, and I'm proud to say that we have continued to differentiate ourselves as Canada's leading pure-play cannabis company. Despite a challenging regulatory and competitive landscape, which did contribute to a reduction in our bottom line during the second half of fiscal 2023, we have grown Organigram's market share through an unwavering focus on the consumer, our strong marketing and sales expertise and of course, our keen focus on industry-leading innovation. As you may have heard, Organigram won the coveted KIND Magazine Innovation of the Year Award once again this year with our revolutionary Rip-Strip…

Thank you, Beena. I'm pleased to be speaking here to you today. Before I go any further, I'd like to remind everyone that Organigram made a decision earlier in the year to change its fiscal year-end from August 31 to September 30. We made this decision for a few reasons, including to align our quarters with more traditional fiscal quarters, which allows better comparisons to our other public peers and also to ease operational efforts around shipping cutoffs and inventory counts. We believe that this change will streamline financial reporting efforts over time. As a result of the company's change of its fiscal year-end from August 31 to September 30 and in order to bridge fiscal 2023 to fiscal 2024, the financial information presented here for the current quarterly period is for the four months from June 1, 2023 through September 30, 2023. And for the fiscal 2023 year consists of the 13 months from September 1, 2022 through September 30, 2023, whereas the comparative periods for 2022 are for the three months from June 1, 2023 through August 31, 2023, and the 12 months from September 1, 2021, through August 31, 2022, respectively. Going forward, our quarters will now end with December, March, June with September being our year-end. Year-over-year, gross and net revenue increased by 12% and 11%, respectively, primarily due to a net increase in recreational revenue of $15.1 million and net increases in international revenue of $3.7 million, partially offset by a decrease in domestic medical sales. In fiscal Q4, gross revenue increased by 9% and net revenue increased by 1% compared to Q4 fiscal 2022. The increases over the comparative periods were primarily due to the extended current period, offset by a decrease in international revenue in fiscal Q3 and Q4. As Beena mentioned, price…

Thanks, Paolo. And as Paolo just said, the Canadian industry continues to grow, yet is saddled by high excise taxes and restrictive regulations. We've seen LPs shuttering operations and entering creditor protection, while others are seeking short-term expansions on their maturing debts. Further, an astonishing number of LPs are in arrears on their excise taxes, and we are beginning to see the CRA hold these LPs accountable. Given these issues, it is not surprising that some LPs would mislabel products to artificially inflate THC levels to increase sales. However, this is simply not sustainable, and we expect to see more of our peers struggle to survive in the coming year. Organigram continues to fortify itself as current market forces put pressure on the industry, and is positioned to be highly opportunistic. To summarize our success against this backdrop, we've seen impressive growth in several product categories throughout 2023. Despite the industry challenges, we defended our market share as our brands and market-leading innovations are continuing to resonate with consumers. Organigram ended the year in the number two position among LPs in the recreational market. We were number one in milk flower, number one in hash, number one in gummies, number three in flower, and number three in pre-rolls. We invested heavily in cost-cutting and efficiency-driving projects in our facilities to help us realize additional savings for fiscal 2024. We also invested strategically to acquire rights to technologies like green-tank vaporization hardware and Phylos's seed-based genetics. Our focus is now on further strengthening our pre-roll offerings and shifting towards winning in the vape category while introducing products in the higher-margin craft flower market. The recently announced $124.6 million follow-on investment from DAT is designed to better assist us in capitalizing on opportunities in domestic and international markets. While the product development collaboration continues to work on the development of novel cannabinoid innovations and formulations that will support our product pipeline in years to come. We are set up to achieve an improved margin profile in fiscal 2024, supported by production efficiencies, better fulfillment, and expansion into more international markets. We have effectively no debt, sufficient cash, and an industry-leading portfolio of products and brands that consumers love, supported by industry-leading production capabilities. And with that, I want to thank you for joining us today. Operator, you may open the call for questions.

[Operator Instructions] Your first question comes from the line of Aaron Grey from Alliance Global Partners. Please go ahead.

Hi, good morning, and thank you very much for the questions. So first from me, I just wanted to touch on gross margins. So you called out a couple of things that impacted some of the gross margin pressure, including pricing, some of the higher flyer costs, higher cost per unit, as well as the inflation impact and international. So just to think sequentially, down 200 basis points, 90%, 70%, can you help to quantify maybe a rank order, which one has been the biggest impact to that margin pressure? And then how we think about the margins on the near term? Because you spoke to international, right back up in fiscal year 2024, is that more of an ex-quarter dynamic or do you think it'll be more of the back half? And then how do we think about the impact in terms of the Canadian marketplace on gross margin as T&C inflation remains? So any color on your gross margin expectations in the near to medium term would be helpful. Thank you.

Perfect, Paolo, I'll put that one over to you.

Great, thanks, Beena. Thanks for the question, Aaron. On margin, look, the highest margin opportunity for us always is international. So to the extent that we have international sales, that's going to drive margin and that's obviously going to depend on the mix of the size of that, of those sales and in comparison to the sales that we have in the REC market. And so just by nature, historically, international sales have been lumpy. And that's something that we're working to address. And we're working to address that by diversifying the countries that we sell to have more than two countries. So we're moving to four countries that we hope to expand that even further and then where possible to diversify within customers within those countries and then also to spread out the shipments So by doing that over time, we'll avoid the issue that we've had historically, which is essentially lumpy margins. At least I would say at least half of that is related to international sales. So to answer your question, international by far is the most important thing in terms of determining margin mix for the quarter. All of the products that we're now growing in have good margin profiles for us when they are operating and when we're producing them at a steady state and avoiding all the ramp up issues that we have, as almost any other people have with the initiation of those products. So we spent a lot of time on the call and compared comments talking about infused pre-rolls and tube-style pre-rolls. I can tell you that right now, the way that we're producing them right now is a lot better than the way we were producing them three or four months ago. And so while we could have made a decision to just optimize and not be in market, we would have lost the opportunity to gain market share. And I think it's very important that, especially in growing categories, that you get in there when you can. And I think we're happy with the way that we've claimed share of those spaces and that's going to continue to grow. And so I would say, if you want to look at the margin profile of our quarters in 2023 versus the way that we expected to play out in 2024, it's almost a mirror image. So whereas in 2023, we started off strong with margin and then it declined, in 2024, it will be the exact opposite. So I think that we certainly in our budget, and I don't want to make this forward guidance, but the way that we've planned the year out, our margins should get back to the same levels they were historically, if not even better.

Okay, great. Thanks for that comment. That was really helpful. Second question for me. I know still relatively early days, just in terms of the Jupiter initiative and the potential investments there, any color in terms of what you're seeing in the marketplace and how you might've narrowed in on some opportunities, particularly geographically, some catalysts ahead on the international front with Germany medical reform and potential door use down the line with Phase 2. And then obviously in the U.S., where potential rescheduling as well. So any color in terms of what you're seeing out there in the marketplace, U.S. internationally, or maybe potentially in Canada that might be appealing to you where you might be able to deploy some capital for some investment opportunities. Thanks.

Thanks, Aaron. So I'll start and then I'll hand it over to Paolo as well on this one. But just to start with, certainly our intention on Jupiter, I would say, 60% to 75% of the investment will be focused on the U.S. market. That is an area that we dipped our toe in slightly this year with the Phylos investment. So we understand the complexities and making sure we do something that is compliant with our NASDAQ listings. But we are significantly focused on the U.S. and the inbounds that we received after the announcement of this Jupiter pool has been just a testament to the opportunities out there. And we are currently narrowing down the areas that we're going to focus. I would say there's a portion of that investment looking at other international markets. But again, the priority is U.S. first and then what is the best opportunity globally moving forward from there. So that's in terms of the focus. Paolo, if there's anything else you want to add?

No, the only other thing that I would add is that I would say it's relatively early days. And the fact that some of the expected changes that people have called for, whether it be in countries like Germany or in the U.S., they haven't manifested as quickly as anticipated. I think it bodes well for us for a couple of reasons. One, it just allows us more time to expand our scouting and develop relationships with all the people and all the participants in those markets. And two, as these markets have been slow to move in terms of the initial expectation, the capital markets have been hampered as a result for cannabis companies. We're lucky because we're one of the few companies to pull off a very large investment at a very favorable valuation to where we were trading at. And I think that will set us up well because I don't think there's that much capital floating around for companies that need capital. So I think we're in a very good position and I think we'll have a lot more to announce on that in the calendar 2024 year.

Okay, great. Thank you very much for the detail. I'll go ahead and jump back into the queue.

Your next question comes from the line of Federico Gomes from ATB Capital Markets. Please go ahead.

Hi. Good morning. Thank you for taking my question. My first question is just going back to your comments on international and that being the largest margin opportunity for you. So I'm just curious, tying that to your free cash flow guidance for the second half of fiscal year 2024, does that guidance sort of relies on international growth? And if you could unpack a bit of the drivers behind that guidance and how much of it is about, in terms of the sales mix of domestic sales international, that would be great. Thank you.

Yes, sure. No problem, Fred. So our intention, as we said in the script earlier today, was that we are working on our EU GMP certification, which we expect to get in the back half of the year. So while the first half of the year on international shipments, we will expand outside of just Australia and Israel. We will add the two new countries we already announced supply agreements, that's to Germany and to the U.K. But our goal, as we look forward, is to leverage the EU GMP certification to get into more countries. And as regulations continue to change, there are more opportunities out there. So we do see the international sales growing, sort of phasing further into the back half as we grow out new international opportunities.

Thank you. My second question is just looking at the Canadian rec market. And I guess in your outlook, you mentioned the many LPs are behind payment of their taxes. And there's obviously a lot of challenges to raise capital and some bankruptcies happening. But at the same time, it just seems that this process of rationalization among LPs is always around the corner and never arrives. So just curious on your perspective here for next year, why could it be different from this year? How do you see that playing out? Is it going to accelerate into 2024? It's going to be more of a gradual process. How do you see that happening? Thank you.

Right. So thank you, Fred. We have been saying for a while now that this industry is primed for consolidation. And it hasn't happened because honestly, the fact that the CRA has allowed companies to be in arrears, it is unbelievable to us. We've seen and we've talked to a bunch of LPs, like the arrears are astonishing, and CRA has started to clamp down. We have heard that they've been in upon license renewal and asked for actual payment plans to get back in, to get the people back. And I think there are some companies that will never be able to do the payment plan getting back. So we've seen some closures as CRA has clamped down. We've also seen some closures as, you know, debts have come due and not been extended further. So banks have shut down LPs. So it's starting to happen. You know, we have companies not only going into CCAA, but companies just going into bankruptcy and shutting their doors. And it has to happen, right? I mean, there's just the dynamics right now are unsustainable. By having testing on THC inflation, which gave some LPs an extra year of runway by claiming they had products that were 30% to 35% THC, that when we tested it was sitting on average between 17 and 21 potency, it gave them runway. So what you have is companies out there, you know, really pressuring what is, you know, approved regulations, just because they're doing it to survive. And they've been able to survive an extra period of time, but it's not sustainable. This is, you know, it's crashing in on them while access to new capital isn't available. So, you know, is it happening as soon as we thought? No. Is it continuing to happen? Absolutely. So you're hearing about it, you're seeing these changes over the next, whether it takes 12 months or 24 months, what we know is that we're sitting on cash. We have strong brands and we have innovations and we will be here on the other side of it. And in the short term, while there's an unfair playing field because people are exaggerating their THC potency or aren't paying their taxes, that's going to come to an end at some point. They're going to go away and the strongest will survive and we're going to be one of them. And that's how we see it.

Thank you very much.

Your next question comes from the line of Yewon Kang from Canaccord Genuity. Please go ahead.

Hi, good morning. This is Yewon Kang on behalf of Map Bottomley. Thank you for the question. I just wanted to shift gears back to the Canadian adult use market and wanted to ask about the THC innovation that you guys have been rolling out recently. I wanted to ask if there is a dollar premium that you're able to attach to these THC products versus non-cannabinoid THC products. And as well, was also curious to see how you guys have been thinking about the cost benefit analysis of how these THC products have been performing, although it's early days, against the investment dollars that you guys have spent on Phylos for the partnership so far.

So thank you for the question. First, I'll pass it over to Tim Emberg, our Chief Commercial Officer, to answer the question on THC and other products that we have in market. Tim?

Sure. Thanks, Beena. So currently we have two THC gummy products in the market. One of them Trailblazer brand and one under our SHRED'ems brand. And we don't have it as a premium currently from a pricing perspective, but the reception in the market is quite strong. So as Beena mentioned earlier, we've got 13 SHRED'ems SKUs in the market and it's sitting in about the seventh position from a performance perspective early days into the market. So THCV also, for us, it requires a lot of education to not only the consumer, but to the bud tender. So part of our mandate from a commercial perspective right now is to really educate the consumer and educate the bud tender on THCV so they understand the attributes of THCV and be able to recommend it comfortably. And as we ramp up to our next portion of our THCV launch, which is our THCV Vapes, which we're launching very shortly, we expect a significant lift in the THCV section of our portfolio.

Thank you, Tim. And just to build the second part of your question, which is the payback on the investment with our Phylos investment, I want to remind you that it was really strategically twofold. That it was not only access to THCV, but it was also the ability to move our production to seed-based production. Now Phylos is known for being able to develop F1 hybrid seeds that will give us significant cost savings by converting a portion of our garden over to seed-based production. Our plan for fiscal 24 is that we'll have 30% of our garden converted over to seed-based by the end of the year. And what that does is not only does it shorten the cycle time in the garden, but it gives us more robust flowers, more predictable attributes to the flower. And when you have F1 hybrid seeds, we could take those to other markets around the world to deliver the exact same cultivar and experience in other markets. So it just gives us some stability and predictability. So we're very excited about that. And truly the payback on the Phylos very much links back and is a huge payback based on the conversion to the seed-based production.

And sorry, I'll just answer one more point is that there is a lot of interest on THCV from an international perspective. So we've been in discussions with our current partners, but also potential future partners on exporting THCV into their potential markets as well.

Great. Thank you for the color. And just my second question on the international shipments for fiscal '24 going forward, I know that you guys are going through an audit to get your facility EU GMP certified. So is it fair to expect that the international exports will likely, the sales will likely accelerate in the back half of fiscal '24 as you guys receive the EU GMP certification for shipments going to the U.K. and Germany? Thanks.

Tim, why don't you take that one as well?

Yes. So that's the idea. We're going through the EU GMP certified process right now. We expect to set up the audit fairly soon. And once we established the certification, we will be able to expand. And it's not only about market expansion, it's about turnaround time. When we go into a country like Australia, it takes longer if you don't have EU GMP to convert to EU GMP and get into the marketplace. So it will allow us to get a quicker turnaround and reorder process because we'll be able to ship finished goods versus bulk into this market, which will put it into the hands of the patient sooner and then get reorders in a more timely fashion versus taking eight weeks or so. So we expect it to benefit us from a market expansion perspective and open doors, but also to eliminate some of that lumpiness that Paolo referred to earlier.

But let me just build on Tim's comment, which is we will be audit ready. We are dependent on getting an auditor over from Germany to certify the facility. And while we hope to have that early in 2024, this isn't something that we could tie down. So we'll continue to drive towards that. But we do believe that even without the certification in the first half of the year, just resuming some of our shipments to partners, as well as adding the new supply agreement. So our agreement with both Sanity Group and with 4C Labs that we announced are predicated on us selling out of a non-EU GMP facility. So they will go through conversion. Whereas in the back half, if we should get the certification, that should go faster as well. So we will see increase even if there is delay in the certification, but because of new customers, but we do hope to see the certification because we believe there's even more upside by the end of the year once we get that.

Great. Thank you for the color. I'll jump back into the queue.

And we have no further questions at this time. I will now turn the call back to Beena Goldenberg for closing remarks.

Thank you, everybody, for joining the call today. I know that we're coming up on the holidays, so I want to wish everybody a happy and healthy holiday season. And I look forward to sharing with you more updates as we report our Q1 in mid-February. Thank you for joining the call.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.