Good morning. My name is Gilles, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Organigram Holdings Second Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] Thank you. Max Schwartz, you may begin your conference.

Thank you,. Good morning, everyone, and thank you for joining us today. As a reminder, this conference call is being recorded and a 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. Please review the cautionary language in our press release dated May 14, 2024, on various factors, assumptions and risks that could cause our actual results to differ. Further references 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. In this call, references to fiscal 2023 are to the 13-month period from September 1, 2022 through September 30, 2023. 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 Hifyre in combination with data from Weedcrawler, provincial boards, retailers and our internal sales payers. Today, we'll be hearing from key members of our senior leadership team, beginning with Beena Goldenberg, Chief Executive Officer, who will provide opening remarks and commentary, followed by Greg Guyatt, Chief Financial Officer, who will review our quarterly financial results for Q2 fiscal 2024. Also joining us for the question-and-answer segment is Tim Emberg, Chief Commercial Officer. Before I hand the call over to Beena, I would like to extend a thank you to those on the call today who made it out to our Investor Day and facility tour in April. We received a lot of positive feedback, but by far the most common thing we heard from attendees was how compelling it was to see the initiatives we've been talking about in our communications in person. In the months to come, we will be developing a digital version of this experience for our current shareholders and industry stakeholders to gain a better understanding of where our business is headed. With that, I will now introduce Beena Goldenberg, Chief Executive Officer of Organigram Holdings Inc. Please go ahead, Ms. Goldenberg.

Thank you, Max, and good morning, everyone. We appreciate you all joining our call today and for your continued support of Organogram. It's hard to believe that we're already halfway through our fiscal year, and we're pleased to report that the events and changes that Organogram has undergone in the first half of the year have truly set us up for success in Canada and internationally for the balance of the year and in years to come. As we venture into the second half of 2024, we are confident that we will be in a position to truly accelerate our performance in Canada and internationally while putting the building blocks in place to allow us to deliver on our ambition to be a global leader in the cannabis industry. During today's call, we'll be discussing our performance highlights for the quarter and some important themes that will illustrate why, despite some ongoing headwinds, we remain confident in our ability to continue to deliver on our growth plans. These are innovation as a continued focus area of ours and a growing competitive advantage for our company, international development as part of our ambitions to be a global leader in the cannabis space, and Canadian recreational business and how we're poised to continue on our growth trajectory. Before we dive into these exciting topics, I'd be remiss to not address one important factor enabling us to comfortably weather the headwinds and support our growth plans, and that's the increase in our cash position. This year, we significantly enhanced our already strong cash position by raising capital at a substantial premium to our share price. In Q2, shareholders approved a $124.6 million follow-on investment from BAT with the first $41.5 million tranche successfully closed and the second $41.5 million tranche expected to close…

Thank you, Beena. As Beena mentioned in her comments, our recreational net revenue grew by 21% versus Q2 last year, versus approximately 7% market growth over the same period. When taken together with the decrease in international sales compared to Q2 of last year, we saw a net increase in our gross revenue of 8.6% to $57.4 million for the quarter, compared to $52.9 million in the same prior year period. Given the impact of a decrease in international sales of $8.6 million between Q2 and the same prior year period, our net revenue saw a modest contraction in the quarter of 5%, resulting in $37.6 million in net revenue, partially offset by an increase in wholesale revenue of $1.3 million. Organogram is current with its ex-size duty obligations, remitting approximately 34% of its gross revenue to the CRA. Organogram's cost of sales in Q2 fiscal 2024 was $26.4 million, compared to $29.6 million in Q2 fiscal 2023, representing a decrease of 12%. The decrease in the cost of sales over the same prior year period was primarily due to higher inventory provisions in Q2 fiscal 2023 of $3.2 million, related to net realizable value adjustments of inventories. We harvested approximately 19.9 thousand kilograms of flower during Q2 fiscal 2024, compared to 20.6 thousand kilograms in Q2 fiscal 2023, which represents a decrease of approximately 3%. The decrease was primarily attributable to changes in our cultivar mix to address change in consumer preferences. While yields and THC content will fluctuate over time, the trend we have seen over the last two years has been larger yields and higher potency. In Q2, year-over-year Organogram experienced a 79% increase in flower produced containing more than 24% THC. Now, about 25% of our harvest is clocking in between 24% and 26% THC, and…

Thank you, Greg. The cannabis industry, is still in its infancy and after considerable growing pains, it looks like we're entering a period of renewed excitement around the sector, fueled by macro tailwinds that we believe will favor established leaders in the space, of which Organigram is clearly one of the very last few in Canada. Today, Organigram stands as a leading LP with significant cash reserves and negligible debt. This represents a considerable competitive advantage, substantially mitigating liquidity risks and facilitating the expansion of our presence in international cannabis markets. We have persisted through every challenge presented to us, ranging from irrational price compression, overstated THC levels, nanny state regulations, and then logical excise framework, to achieve growth in our domestic business, and to set us up for a long-term growth trajectory. We also recognize the benefits of being challenged, to bring excellence into every aspect of our business, and have used this environment to hone our competitive edge. While this quarter we reported negative adjusted EBITDA, we're confident that our domestic and international market growth, our innovation pipeline, and investments in long-term efficiencies will result in improved financial performance, throughout the back half of fiscal 2024. We look forward to updating you on our progress next quarter. So once again, thank you for your continued interest and support of Organigram. I will now open the call up for questions.

Thank you. [Operator Instructions] Your first question comes from the line of Aaron Grey of Alliance Global Partners. Your line is open.

Hi, good morning and thank you for the questions. First one from me, Greg, I believe you mentioned still expecting adjusted EBITDA to exceed prior years. I think that's in reference to the 5.5, right? So I just want to make sure I heard that correctly. And then if you could just provide some more granularity in terms of those puts and takes. You talked about, some of the gross margin improvement you're expecting in terms of shifting to the seed-based production. You talked about some OpEx improvements as well. You mentioned greater international, I believe, when you made reference to that as well. So just in terms of the puts and takes, of getting to EBITDA exceeding 2023 for the back half of fiscal 2024, what we should expect in terms of the top line gross margin and EBITDA to help us get there? Thank you.

Sure. Thanks, Aaron. Let me try to unpack all that. So first your question on EBITDA. Yes, you heard that correctly. We'll exceed the EBITDA from fiscal 2023 in the back half of this year. As far as margins and the various puts and takes, first I'll start with in the second quarter. And we had - versus the prior year, we had less international. As you know, international is much higher margin than domestic, and does not include any excise duty obligations. Also during the quarter, our mix skewed towards IPRs, which is good news and that we're driving leadership in that category. But at the same time, it's a new category for us. So, we're still working out some of the kinks in the production area, and really working on improving our production efficiencies there, which we've made good progress on. We expect to see some movement on that in the back half of this year. Also in the second quarter, we had lower JOLT sales, Q2 versus Q1, which also would have been a bit of a drag on margin during the period. So, as we go forward into the back half of the year, you mentioned the seed-based production. That should start flowing through towards Q4. And as Beena mentioned, that's about a 30% to 40% cost reduction. And that's not going to be 30% to 40% in totality, obviously. But as we've said before, our plan is by the end of calendar this year to have about 30% of the garden seed-based, which we'll see the benefit from. Also moving forward, we're really working on making operational efficiency improvements in some production areas, where we've seen higher - waste than we would have liked in Q1 and Q2. And that's particularly around tube-style pre-roll, which again is a relatively new process for us. And just in the last number of weeks, we started to see real improvement in that area. We expect to drive that going forward as well. Also just, the cost savings initiative that we mentioned before about the $10 million target for the year, we've made great progress on that. $5.5 million more to go in the back half around freight, logistics, energy, and also some - post-harvest efficiencies that we expect to see coming through. Hope that answers your question Aaron.

No, it did. No, really appreciate that color there, Greg. Second question from me, right, so you guys have the OBX investment. Within the U.S., there's been a number of public operators talking more about the hemp-derived beverage market specifically, but also edibles, including some listed on the NASDAQ similar to you. So can you speak towards your views specifically on the hemp-derived beverage and potentially edibles market too, given your line of sight with OBX investment? Are you seeing some opportunities there? Is there some ability for you to leverage BAT's distribution? It's not a liquor channel there, but there's still some convenience and maybe some ingestibles and otherwise that could be leveraged. So your view of the hemp-derived beverage market, how big the opportunity is, and if you think there's opportunities for OGI to come within it? Thanks.

Sure. Thank you, Aaron. So first of all, we're very excited about the hemp-derived THC market for ingestibles, for both beverages and for edibles. And certainly our relationship with OBX gives us a first line of sight into the market, and the opportunity. We do see there's a patchwork of states in the U.S. that - have regulated the Delta 9 THC hemp-derived. And there's some that are perhaps not regulated, but are not enforcing. And so, this market continues to grow and we continue to track how big the opportunity is. What excites us about this is the direct-to-consumer opportunities that you could move products across state lines. So there's a lot of very interesting opportunities around this space. We are reviewing what the opportunities are internally. We see the opportunity of using the nano-emulsion technology that we're developing in some of the products that we take to the market in the U.S. at some point in the future. And the opportunity to leverage the clinical study that we did, to make claims in that market. So, we do think we have a competitive differentiation that we could take, so we could enter the market. We are looking at whether its beverages or edibles, and we're looking at ways to get the product to market. So nothing in the short-term in terms of using the BAT distribution network, we'd be looking at how OBX is getting products out. We'd be looking at other partners that we could leverage. So it's still a work in progress, something that we're evaluating as we look out. And obviously, needless to say, everything we do, we're going to make sure that we're compliant with our NASDAQ listing, with our TSX listing. So, this is an area that we're navigating carefully as we look to get some product into the U.S. market.

Your next question comes from the line of Matt Bottomley of Canaccord Genuity. Your line is open.

Good morning, everyone. I hope everyone's well. I just had a follow-up question on the reserve you took for that receivable. So relative to your international contribution, it is sizable, obviously not really material to the company or quarter overall. But I'm just curious if we can get a little more detail on that. Is this biomass that wasn't accepted over in Israel? Is there a dispute there? Has that product been returned? I'm just trying to get an idea of where that relationship is. And then if Israel is still a market, that will be a focus in the near term?

No problem, Matt. Let me take that on and say to you that there is no issue with the product that was shipped over. This was a situation where the receivable was due, at the end of October. And we all know what happened in that country on October 7th. So there is a delay in payment. The customer says they'll pay us, but at this point it's six months past due. And so we took the reserve on our books. We expect to continue to work with the customer, to get a payment plan that we're comfortable with. And it is our intention to, in due course, get back to shipping to Israel. It's an important market for cannabis, and it's a higher margin market than Canada, as Greg alluded to, in terms of our international growth. And so, it's something that we want to do. But obviously, with the size of the outstanding receivable, we have been on standby at this point, and we have stopped shipping until we get this resolved.

Okay. Thanks for that. And just one other question from me, just on the cadence of sort of the adjusted EBITDA rebound, for the back half of the year here. I'm just wondering, if cash flow operations will be linear to that, or will we see an outperformance in sort of the CFO given the fact that international sales, likely have a higher margin and we'll drive more to the bottom line?

Thanks for that question, Matt. Right now, we're expecting the cash flow from operations improvement to be roughly linear. And that's really driven by the changes in working capital. And we are continuing to invest in the business, and we're investing in working capital as well. So that's really going to be an important driver there beyond just the sales internationally. And for example, over the first quarter, we invested more in inventory than we had in the past, in order to make sure that our customer service levels were much higher than they had been. So this is an example, our on-time and in-full shipments to the provinces was up to over 95% in Q2, as a result of that investment. So that's the one caveat to the linear versus exponential following the international.

Thank you. [Operator Instructions] Your next question comes from Frederico Gomes of ATB Capital Markets. Your line is open.

Good morning. Thank you for taking my questions. My first question is on Germany. I think yesterday there was an article mentioning there was a change in regulations there that, could potentially expedite the second pillar of their legalization plan. So I'm just curious if you've seen that, could you comment on it in terms of your expectations for that second pillar as well as just in terms of your EU GMP certification, do you have any sort of timeline for that? Thank you.

No problem, Fred. So let me start with the first point. Yes, we have seen the same news around the second pillar of the German legalization and progress, and we're excited about that. Really what that was all about, is enabling pilot programs similar to what we've seen in Switzerland, where they're going to allow to certain, I guess, licensed producers or cannabis companies to have pilot facilities, like a pilot programs. So that they could test how the market runs and form some better understanding of the market. We're excited about that. We're talking with some of our customers that we're dealing with in Germany, about the opportunities in that market. And this is just, again, another example of the legalization framework opening up in Germany, which we're excited about. It's another big market. So any progress like this, no different than the DEA rescheduling that they're talking about in the U.S. These are all good macro tailwinds for the industry, and we're excited about the opportunity it presents. In terms of the EU GMP, we had our preliminary audit back in February and we were successful with that audit. So, we're now just waiting for confirmation from the regulatory authorities on when they will be coming out to do the final audit. Our hope is that it will happen this summer, but we're kind of not in control of their timeline. So we're just waiting for that to be scheduled.

Thank you for that, Beena. My second question is just, you mentioned that rescheduling in the U.S. could potentially help your U.S.-based strategy in terms of your investments. So just curious how exactly could that play out? Is it about the sort of investments that you would be able to pursue while being compliant with your NASDAQ listing? Or is it about helping, I guess, your investments that you have already made in the U.S. to perform better? So just any color on how rescheduling could help you in the U.S.? Thanks.

Sure. So again, just to reiterate, look, we think that the whole DEA rescheduling is really a positive move forward that, signals the evolution of the U.S. movement towards federal legalization. So, we're excited about that. Now, it doesn't really help much for us from a compliance position, as you mentioned. With our NASDAQ and TSX listings, we still can't consolidate or control anything that's plant touching. However, we do think that - the whole rescheduling is expected to take some time, but it will happen. And we think that this will benefit our two U.S. investee companies. And we're invested in them. So that's a benefit to us. It's still a small amount of benefit at this time. But we think that with the Jupiter Fund, we have the opportunity to take advantage of other opportunities in the U.S. market. And so, this is just a positive all around for us as we look to expand our global footprint.

Thank you. And with no further questions, that concludes our Q&A session. I will now turn the conference back over to Beena for closing remarks.

Well, again, thank you, everybody, for joining the call today. I know that we have some exciting plans ahead. And we do look forward to updating you on our progress next quarter. So with that, I'll end the call.

This concludes today's conference call. You may now disconnect.