Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the OrganiGram Holdings Third Quarter Fiscal 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Craig MacPhail, you may begin your conference.

Good morning, and welcome to OrganiGram Holdings Inc.'s earnings conference call for the third quarter of fiscal year 2022. As a reminder, this conference call is being recorded, and a replay will be available on OrganiGram's website. Further, references will be made to certain non-IFRS measures during this call, including adjusted EBITDA and adjusted gross margin. These measures do not have any standardized meaning under IFRS. Our approach to calculating these measures may differ from other issuers, so these measures may not be directly comparable. As such, these non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Please see today's earnings report for more information about these measures. Listeners should also be aware that in making certain statements relating to market share data, the company relies on reputable third-party data providers. I would now like to introduce Beena Goldenberg, Chief Executive Officer of OrganiGram Holdings, Inc. Please go ahead, Ms. Goldenberg.

Thank you, and good morning, everyone. With me is Derrick West, our Chief Financial Officer. For today's call, we'll discuss the financial results for the three months ended May 31, 2022 and I will provide a general business update. We will then open the call for questions. In the third quarter of fiscal 2022, we achieved our fourth consecutive quarter of record year-over-year revenue growth. This progress speaks to our ability to build enduring, recognizable brands and innovate to create consumer demand in multiple segments of the cannabis market; as well as top line growth, we continue to secure a growing share of the market. According to Hifyre data as of July 5, in the third quarter, we held the #3 position in the Canadian recreational market with a 7.8% share, up from 7% in Q4 of fiscal '21. We saw further momentum in June with an 8.5% share. With only 50 basis points separating the top 3 Canadian LPs in June, we are confident that our consumer-focused strategy will enable us to continue to drive for market leadership. Our SHRED milled flower products are the top sellers in Canada with Funk Master, Tropic Thunder and Gnarberry holding the #1, #2 and #3 positions. We also hold the #3 position in the gummies category in terms of sales and are #2 in terms of volumes sold. This includes SHRED'ems gummies and Monjour, our large-format CBD-infused soft chews, both benefiting from new product introductions. Edison JOLTS, our unique high potency THC lozenge maintains its position as the top SKU in the capsules and mints category. In the third quarter, we added 2 new flavors to the JOLT lineup, Electric Lemon and Arctic Cherry and both quickly took top 10 positions in the category. According to Brightfield research, a survey of over…

Thanks, Beena. Turning to our earnings results for Q3 fiscal 2022. Gross revenue grew 90% from Q3 2021 to $55.2 million and net revenue grew 88% from the same period in fiscal 2021 to $38.1 million. These revenue increases were primarily due to higher recreational net revenue, which grew 105% from Q3 of the prior year. The cost of sales in Q3 fiscal '22 was $29 million compared to $23 million in Q3 of fiscal '21. The cost of sales increased as a consequence of the large increase in revenue in the period. We harvested approximately 13,000 kilos of flower during Q3 fiscal 2022 compared to about 8,400 kilograms in the prior year's comparison period, an increase of 57%. The key drivers for this increase from the prior year was yield per plant improvements and higher cultivation planning levels. On an adjusted basis, gross margin was $9.3 million or 24% compared to a negative 4% in Q3 of fiscal 2021. The improvement was primarily due to the higher overall sales volume combined with a lower cost of production. SG&A, excluding noncash share-based compensation, increased to $17.5 million in Q3 2022 from $12.3 million in the prior year's comparison quarter. This was largely due to the increased employee headcount related to the acquisitions of EIC and Laurentian and increased technology fees, including $1.4 million in ERP installation costs. In the quarter, we achieved a positive adjusted EBITDA of $583,000 compared to a negative $9.2 million in Q3 2021. The large improvement in EBITDA was a consequence of the higher sales and margins, somewhat offset by an increase in SG&A expenses. Based on our outlook for revenues, including growth from the Canadian recreational market and international sales and reduced cost of production from efficiency gains, we expect to increase adjusted EBITDA in…

Thanks, Derrick. To summarize, fiscal 2022 has demonstrated our success as a consumer-focused innovator. We are seeing a positive impact from consumer engagement, expanded distribution and market share. With our increased cultivation capacity, economies of scale from Phase 4C expansion and our investment in automation at all 3 manufacturing locations, we expect continual improvement in our bottom line. Thank you for joining us today. I look forward to updating you on our progress. And now operator, you may open the call for questions.

[Operator Instructions] Your first question comes from the line of Rupesh Parikh from Oppenheimer & Company.

So the area I want to touch on is international. So strong results this quarter, commentary very positive on quarter-to-date, what you're seeing there. If you can just remind us of the bigger opportunities you see on the international front going forward. And then how do you think about the margin profile of your international revenue versus the rest of the business?

Certainly. And thanks for your question. So to start with, you know that international business is going to just have higher margin because it doesn't have the excise tax that you have on your recreational -- sorry, on the recreational business. So that right away that extra impact, that just flows right through your business. So it's strong margin. It is an important piece of our business, and we'll continue to explore further opportunities. As we mentioned last quarter and probably in the last couple of quarters, we have been really tight on our supply. Our demand was outstripping our supply. And as a result, obviously, we built the expansion to the Moncton facility. With the expansion coming fully online, we're able to turn our focus to expand our customer base outside of our customers. We obviously have a very strong partnership with Canndoc in Israel, Cannatrek in Australia. We added 1 more customer this quarter with Medcan in Australia. And so we'll continue to look at other opportunities. As everyone knows, Europe is starting to look very promising with legalization comments coming from several countries. And with our excess capacity, we'll be able to capitalize on some of those opportunities.

Your next question comes from the line of Andrew Partheniou from Stifel GMP.

I just wanted to touch on your gross margin profile in the quarter. You had a pretty impressive revenue growth here, strong rec sales, but it seems the gross margin declined quarter-over-quarter. Trying to unpack that. And if you give some more color on the puts and takes there?

Certainly, Derrick, this 1 is yours.

Yes, there was a decline in the third quarter in terms of the adjusted gross margin at 24% that as compared to 26%. And I guess couple of factors here, and also as a reminder, in Q1 of this year, we were at 18%. So the general trend has been positive. As Beena outlined it, because of the excise tax -- if we look at the current quarter, the excise tax is 31%, that's the weighted average for the company, but it is heavier on the flower categories for us than it is for the mix. So we end up paying more than 31% on average on our recreational flower in Canada. When we do the lower shipments on the international, we don't have that cost. And so that is a meaningful improvement to margin. And if we had had the shipments that we had expected to occur during the quarter, we would have seen sequential growth in both our adjusted gross margin and our adjusted EBITDA. Shipment was made, it was just delayed and occurred in the end of July.

Okay. Thank you.

Yes, there's 1 more factor as well. We have had a decline in cost of production on an overall basis. And -- but during Q3, we were also -- continued much of the environmental enhancements at the facility. And when we're completing that construction activity with those environmental enhancements, there is a bit of downtime. And so there was perhaps a bit of a delay on utilizing all of the ultimate savings that we do think will be realized on our overall cost of operating, our cost of production, which we'll start to see once we get into the fiscal 2023, once all the rooms are up and running at the new capacity, and we will see continuous improvement to our cost of production, which will improve our margins in Canada on all our rec flower. But even with that said, the international, the excise tax will likely always have higher margins than Canadian rec business.

Okay. And a segue about the 4C expansion. You mentioned 20 out of 29 rooms are online right now. First harvest is coming very soon here. Could you talk a little bit about what you expect 4C to be incrementally accretive on margin? How high could we go with 4C? And you talked just now about this really being a big impact in fiscal '23. Could we start to see those impacts in Q4 or is this really only you're going to start seeing on the income statement in Q1?

I'll take that, Beena?

Yes.

So we are going to start to realize on that during Q4. And as a consequence, we just have more flower output. There is -- we are spreading out some fixed costs and putting noncash depreciation over a larger segment of the business, which will lower our -- basically our cost of production for the flower categories. And it is just that even if you have meaningful improvements in your cost reductions during Q4, much of those costs build into inventory, doesn't necessarily flow right away to the sale to your income statement. So that's sometimes why we point to Q1 of next year because it's really the inventory that you're producing in late Q4 that ends up being sold in Q1 of the next year. But the cost saving utilization will be occurring in Q4 at a partial level because we are again completing -- planting in rooms as we move along and opening the rooms. So Q4 will in and of itself be a transitional quarter. In terms of capacity, as Beena outlined earlier, we are essentially moving from 45,000 at the start of the year to an annual capacity of flower -- coming into Q3 approximately around 55,000 in the annualized capacity. We're leaving fiscal '22 with approximately 82,000 of flower capacity once on all the rooms are planted. We do believe we have upside to the 82,000 number, if we hit the targeted yield that Beena had referenced earlier in her remarks.

Is it possible to perhaps quantify the drag that 4C has had on the gross margin thus far? What kind of -- that could maybe allude to kind of pick up once that expansion contributes?

Well, I would say that a large portion, 25% of our costs are essentially noncash depreciation related, the rest are operating cash costs. And of that, a portion of it is fixed. So just taking your operational capacity from, say, the 55,000 kilos that we had on average in the quarter, up to an 82,000 and not having to add significantly at all to a fixed cost component, it is going to have a meaningful positive impact to our cost of production once we are operating at that level on a sustained basis, which will improve the margins in our flower categories, but our margins are positive in all our flower categories and how we're just looking, of course, to improve them, and we feel that we will, and that's why we've given the guidance that we expect to have improvements to the margins in the future quarter Q4 and onwards, along with the EBITDA as we continue to realize the savings just from the economies of scale. But in addition to that, we think we can get more cost reductions from improvements to flower yields. And ultimately, there's margin improvements that can come from mix within brands and provincial allocations, but that's not part of the cost structure element.

Your next question comes from the line of Aaron Grey from Alliance Global Partners.

So first question for me. You had some real nice momentum on the top line, especially regarding adult-use sales. Definitely outpaced what we saw in terms of the Hifyre data. So just wanted to know in terms of whether or not there was some sell-in, some potential buyers and there might be kind of some type of shift in that, go through the POS or maybe some [lighter] coming into the next quarter, particularly in terms of the adult-use flower seem to see the large sequential increase. So just if you talk about some of the sell-in to provincial buyers and if there's any timing in that one on there?

Certainly. At this point, the provinces are pretty tight in terms of how much inventory they're going to take. They're not really interested in carrying heavy sell-in volumes like we've seen in the past. So in most cases, you're working off of 2 weeks of inventory. I don't believe we have the sell-in inventory we actually are seeing the flow-through. And that's what you're getting with the Hifyre data, really strong velocities in our business. I mean we have some of the strongest sales per SKU in the market. Really the offtake numbers that we're getting through Hifyre just shows that this is -- it's growing with our revenue. And so I really don't believe we have any of this sell-in. As a matter of fact, we've had some of our strongest recorded weekly sales numbers in this quarter already. So this is momentum behind our brands. I said in the previous calls, we had -- because of limited available flower, we had limited how many markets we were selling our SHRED product. Back in last quarter, we were predominantly selling SHRED into only Ontario, Alberta and Quebec. We've had a chance to start expanding that distribution into some of the further provinces and are now selling SHRED in all of our provinces. We know it has great performance because we've seen it in the markets we were already in. So we're very excited with the momentum we have. This provincial mix will help us on our margins because we know Ontario is the most compressed margin province. And it's just great for the brand to be able to be coast-to-coast. We had limited ability to do that in the past. So this increased momentum is about new distribution. It's about distribution on some new innovation that we're focusing on, but we're seeing the offtake.

Fantastic. Second question for me, just on overall pricing environment. I know there are a lot of operators talked about some stabilization in terms of pricing of flower and certainly seeing less pricing pressure of flower versus other categories, but you're still seeing some of it. So wanted to get your feel in terms of continued pricing pressure for the flower category going forward? And obviously, you guys are doing very well in terms of market share gains or at least holding or gaining regardless, your overall take in terms of continued pricing pressure for the flower category?

Yes, certainly. So we are the #1 flower provider in the country. So it's a very important segment of our business. We've looked at this specifically our average selling price over the course from Q3 of last year to each quarter this year. And there was a decline between last year and the start of this year. We mentioned that in Q1 -- sorry, in Q3 of fiscal '21, average selling price was $2.12; and this quarter, was $1.88 per gram. But when we look back at Q1, Q2 and Q3 of fiscal year 2022, on average, we've been sitting in that $1.80 to $1.90 average selling price. Obviously, there's some mix based on which brands you're selling, which provinces you're selling. But from our perspective, the cost compression in flower happened over the last couple of years and has stabilized. And that's not surprising because we've said you have to get pricing in line with the illicit market to have that movement of consumers, some are listed into legal, but we've reached that point. So this is kind of where I believe the pricing, especially in the value segment needed to get, and we're not seeing further pricing compression in that flower segment.

Your next question comes from the line of Ty Collin from Eight Capital.

Given the turmoil we're seeing in the cannabis retail landscape right now, I'm curious whether you're seeing any changes in how retailers are ordering and whether there are any risks or opportunities to think about given the challenges downstream?

Yes. So certainly, I think you're pointing out to the fact that there is going to be some consolidation on the retail environment. And we are seeing a certain amount of pricing deflation coming from the retail landscape as opposed to the LP landscape. My last comment was around the LP landscape in terms of average pricing sold in. But we're seeing in the actual data, the impact of more value retailers out in the marketplace, some deflation, and it's going to lead to some, obviously, consolidations in the marketplace, especially in places where there is oversaturation and many of us have seen that in key markets. So what do I think is going to happen? I mean I think we're going to be in the situation where pricing is going to push some of these mom-and-pop shops to either exit or they're going to get gobbled up by retail chains. I think what we've seen in the last year is some of the regional chains becoming national, some of the national chains getting stronger. And that's just part of the maturation of this industry. I think at the end of the day, the bigger LPs are going to be able to build programs with the regional chains and national chains and get stronger performance than the kind of work that had to happen where you're dealing with a significant independent retail market. Now this is going to happen over time. There's still a lot of independent shops now, and we have the greatest sales team out in the marketplace. They're out working with bud tenders and working with the independents. But I think the benefit to the larger LPs is going to be establishing programs with the regional chains and with the national chains to really build out our business. They're going to want to deal with the vendors who could provide more than just 1 SKU or 1 segment, but the vendors who could provide one-stop shop to them. And the nice thing about the OrganiGram portfolio is that while we're very strong in flower, which is obviously the #1 category, we've got strong presence in gummies. We're building our presence in vapes. We have very strong performance in concentrates coming from the acquisition of Laurentian back in December. And we're building out our extracts business. We have a great product in JOLT. So they're finding it easier to work with us because we could build programs around that POS in the stores that aren't just about 1 SKU. And I think that is an advantage to the larger LPs.

That's great color. And just for my follow-up, following up on a comment you made earlier in the call, you talked about the incremental international opportunities that might open up as the additional capacity from 4C comes online. I mean, are there any other new revenue opportunities to think about as that capacity opens up maybe in white label and new product categories? Just appreciate any thoughts on that.

Yes, certainly. So as our capacity opens up, our primary goal will be to fill out some of the distribution gaps we currently have in Canada because we were really stealing from 1 pocket to the other as we're trying to balance the demand to what available capacity we had. So we're excited about having that so we could meet the needs and the demand of the Canadian consumer across the country. So that will be a priority of ours. But as we talked about and Derrick talked about earlier, international business is good margin business. It needs to be part of our mix. And we have a great relationship with some of our international partners in Canndoc and Cannatrek. In terms of opportunities, look, if you look at how legalization talks are happening in Europe, especially Germany, as many of you are following, in the most cases there is less capacity built to supply that market in Europe. There are some cultivation sites, but I think many of them shy off of building out heavy assets based on sort of learnings from the Canadian launch into legalization. And so we look at it as big opportunity to provide supply to some of those players in that market. And recognize that we have enough volume that it could be a meaningful supply agreement as opposed to companies looking at buying whatever 50 kgs once every 3 months, like we'd be able to provide significant regular volumes. And so we'll be having those conversations of supply agreements because the 1 thing about international business you want to have is something a little bit more predictable that you guys could model. We certainly had less international volume this quarter than expected. And that really was all about just the timing issue on our Israel shipment, which has already been shipped out. But as a result of that, more business that is contracted supply agreements that could be a regular cadence and is predictable is where we want to get to on our international business.

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

Just curious on your assessment on where the industry is when we sort of look on the capacity side of things. So you're one of the few LPs that is still adding incremental capacity on and it serves you very well. I think that OrganiGram is a good example of a company that hasn't over-allocated to its CapEx spend with respect to the number of facilities. But we have seen some of your peers shutter even their flagship facilities. I'm just curious on where you think the industry is with the ability to continue to service sort of vertically integrated supply versus leveraging wholesale channels to eventually build brands where you don't necessarily need 100% of your own biomass?

Right. So good question. A couple of points to be made on that. So the first thing is, a lot of facilities were built that were perhaps not built in a way to produce the high-quality product that needs to come out. So you've heard Aurora talk about their Sky facility and could only produce THC in the 16% to 18% range. That's not going to cut it anymore. What we've been seeing with this market a couple of years ago, hitting THC of 20% was a target. A year ago, it was 22% was a target. Now 24% or higher is a target. That sort of THC range continues to move. And if you build a facility like we have in Moncton, which is indoor grow, so you could control the environment, you could -- so this is consistent all year round. You don't have differences between summer and winter. You could drive -- control the environment to drive high-yield, drive higher THC, I think that makes you more competitive in the long run. You could meet the needs of the consumer changes and continue to operate efficiently. I think some of the facilities that were shuttered just were designed in a way that they could do that. We have if not the largest, certainly one of the largest indoor growth facilities in the world, and we're very proud of what we have in Moncton, and we can do that. And as a result, as the market sits, we're optimizing our facilities. We talked about the environmental enhancements. It continues to drive our higher THC that is expected. So why what do we think about internal grow versus using third party? I think, look, some of the third-party guys are going to have challenges with meeting those increasing THC expectations as any grower would. And some are going to be very good at doing it. And so -- but look, as capacity gets shutdown across the country and gets more in line with the needs of the market growth, controlling your own supply means you get the benefit of the cost savings whereas as capacity gets tighter, some of these third parties could increase the cost and you don't control your destiny. I think it's not a bad idea to have a portion of your business outsourced so that you always make sure you're benefiting from, if there's a cheaper supply summer, you get the benefit of that. And it certainly would be something as we look forward to more international business. If we have to go out and certainly buy some product to continue to fulfill some of our value brands, we will. That's the luxury we have. But having your own cultivation where you control your cost and you control your quantity, I think, is a competitive advantage. And we get that from our tremendous facility, we have a Moncton and that's really what differentiates us.

Understood. I appreciate that. And then just 1 more for me, just pivoting now to maybe U.S. optionality and your thoughts on how to strategically position yourself for, I think, an eventual opening of that market. I think a lot of consensus out there, it's getting a little messier with respect to when that timing might actually be. But given some other Canadian LPs that have either bought existing businesses that might be THC adjacent or some of the options we've seen or financial instruments purchased, do you feel the need to execute on something in addition to what you've already done with BAT in maybe the next year or 2? Or is OrganiGram waiting to get a little more color on exactly when and if something might actually change out of the border?

So good question. I mean, we talk about this obviously often. Our key goal originally was establish a strong foundation in our Canadian marketplace. We feel we are there and we will continue to benefit from that strength. But it is time for us to look outside of the Canadian borders. Whether the U.S. is going to be a primary goal or whether Europe is more interesting as perhaps legalization will happen sooner there than it happens in the States? I have said previously, we want to be a pure-play cannabis company, so we're not going to be looking at adjacencies. And I'm not sure I believe in the whole optionality because its legalization unpredictable, you don't know what you're buying into right now. So I would say that we would continue to look at the U.S. at least to establish a presence there where we can. So obviously, CBD has been something that is -- that several of our competitors have gone into and something that's open to us with our current listings. But it has to be the right fit. And I think really we'll look at where it makes sense. What we have been known for, OrganiGram is prudent in terms of our approach, looking at the opportunities, making sure they're the right ones for our business. But expansion is -- outside of the Canadian borders is important for us in the long term.

Your next question comes from the line of Frederico Gomes from ATB Capital Markets.

Maybe just to start off, are you seeing any significant impact of inflation in your supply chain? And if so, how do you view your capacity to pass on some of these potential inflationary costs to your customers, just given the pricing pressure that we're still seeing across the industry?

Yes, thank you for the question. Look, there's no question we're seeing inflationary costs. Obviously, freight is going up, and we're obviously shipping products from Moncton across the country. On that -- on the freight side, 1 of the things we have done this year to offset that inflationary cost is leverage our Winnipeg facility. We have a warehouse in Winnipeg, and we are bringing product across from Moncton, cross-stocking to pick up our gummies as we ship to Alberta and BC. And we're supplying the Manitoba orders straight out of Winnipeg. So we have some productivity initiatives that are offsetting the inflation costs from freight, maybe not completely flowing to the bottom line but certainly more than offsetting them. In the case of procurement on consumables, this is something that we have put a lot of focus on this past year. We have -- as we grow bigger, you're able to leverage your volumes. We have worked on RFPs with some of our key suppliers and have been able to offset those increasing inflationary costs with better negotiations, working directly with suppliers rather than going through distributors. Now these initiatives that we've done, in a lot of ways, we had hoped would drive right to the bottom line and some of them are being offset in part due to inflationary pressures. But I think we have more opportunities. We have a lot more productivity initiatives on our plate. And so at this point, I don't see that any kind of price increase is going to come through in the cannabis space. I'd love to see pricing, but the truth is, right now is the time for us to stay the course. We're making positive margin. And I think it's going to be a bumpy right from -- for some of our competitors over the next couple of -- maybe the next year or so. And we're going to stay the course, make sure that we are driving improved margins. And hopefully, there will be some consolidation in the space, some players exiting and the long-term prospects of the industry will get more profitable.

And maybe just a comment on your market share in edibles right now. It seems like it's increasing pretty rapidly. So where is that fast growth coming from? And would you expect that to continue so that you could potentially take on a leadership position there?

Yes. So look, we have a new product called [Every Quarter] with the OCS. Obviously, they're the largest provincial board and we have been very successful in getting our innovation in. And so with each product call, we're able to look at our lineup, make sure we have an optimized lineup in each province. We have these relationships top to tops with other provinces as well with Alberta, with BC. In this last quarter, we've had some conversations there. And we've equally, with the acquisition of Laurentian, have been able to build that relationship with SQDC as well and have seen some planned increases in our planograms. And so some of this market share growth is simply increasing our distributions on some core items and the success of launching new products. And I just want to bring your attention to the fact that a quarter ago we said we had 90 products in market. And this quarter, we said 85. So the message here is while we're launching a lot of products, we're not just leaving products that aren't performing out in the marketplace. We continue to optimize our lineup. We have 1 of the largest sales per SKU in the different provinces. And that makes the provinces want to work for us. They're efficient SKUs. So innovation is key in this category. We've put a lot of focus on innovation and continue to do that and have a lot more plans as we go forward. But I believe it's that, the success rate we're having other LPs might present 10 new SKUs and get 2. We present 10 and get 9 or 10 of them in the market because we have strong relationships with our customers. We're hearing what they're looking for in terms of innovation. What gaps they have in their offering. And we have a great R&D team working on developing these products. And our cycle time from ideation to market is quite spectacular.

Your next question comes from the line of Tamy Chen from BMO Capital Markets.

I just had a couple of quick follow-ups here. First is, Beena, I thought I saw recently that Israel might have halted imports because 2 of the distributors didn't have the right permits or something like that. Do you know anything about that? Like could that be a bit of a disruption for your Israel shipments for the next little bit?

So let me answer that by saying, look, the IMC in Israel has got ongoing audit requirements. They keep changing, and you have to be able to change with them. And I have to say part of the delay in our international shipment was us needing to make sure we met all those audit requirements before we got that shipment out. So it is an ongoing thing that we pay a lot of attention to. We obviously have already shipped another Israeli shipment this this quarter. So it's not an interruption, but some of these regulatory changes do drive some delays that are a little bit unpredictable. We're staying -- we have a great partner in Canndoc. We're staying on top of these changes and continue to work with them to make sure that we meet everything that needs to be met.

Got it. Okay. And I wanted to ask if you could elaborate a bit on this language you had in your -- for your fiscal Q4 outlook that 1 of the drivers for sequential growth you highlighted stronger forecasted market growth. And I was just curious if you could elaborate on that, what you're seeing? Is it more just seasonality? This is kind of more busier period of the year, that's what you're talking about? Or are you seeing some more fundamental green shoots with respect to the growth trajectory of the market?

Yes. So I think it's 2 things. There's certainly seasonality in the business as you get into the summer months, typically anyway. I think the last 2 years with COVID has probably restricted some of that growth. So there is going to be we predict a rebound from some of the COVID restrictions and gatherings to see some incremental growth. So we think that's what's really going to buoy the market in the next -- over this summer period. And so while there is increased growth from some additional retail stores, I think really the bulk of that comment was about seasonality and coming off what was a restricted period a year ago.

Got it. Okay. And if I could just squeeze in 1 last follow-up here. Your comment about the price competition that the retailers are now dealing with, it's not flowing back to the LPs. You said you feel and what you're seeing is not really further compression, especially on the flower side for the LPs. So -- like can you just comment on that, so you're not worried about with these new value strategies that some of these retail chains are doing. You're not concerned that it might ultimately flow back to the pricing that you're going to get?

I think that's a good question, Tamy. And the reality is, look, I'd like to believe it's not going to flow back. I think we've already taken such a significant price compression on the LP side that this is -- it's going to be tough for any LP to be able to go any lower than what we've been supplying given the profitability in the industry. I think the retailers are now -- again, they're going through a bit of hypercompetitive market and there is some rationalization that's going to come. And it really isn't an LP issue. It's their own decision on how they want to price their products. Will some of it flow back? Look, we -- hopefully, we will be able to provide them some opportunities from efficiency, one-stop shop, right kind of programs, education to their bud tenders and the like that helps from our end without making a move on our selling price. We have strong presence right now in the value segment. And it's -- this is about where you're going to go? You're not going to take -- I said earlier, we're not going to look at taking price increase, but certainly, we wouldn't be very excited about pressure on price decreasing. This is a business that has to be sustainable. You have to be able to make margin on what you're selling. We have good -- we have decent margin on our value brands, which allows us to compete in that segment. Obviously, better margins with some of the derivatives and -- in our Edison and more premium flower offerings. But that's -- it's a wait-and-see. You never -- I can't say what they're going to do. I do know that it is our -- we're not looking to take pricing for inflation, but we're certainly going to push back on further price compression given the marketplace.

Your next question comes from the line of Andrew Bond from Jefferies.

Andrew on the line for Owen Bennett. So really detailed call so far, so most of our questions have already been answered, but maybe for you, Beena, an overall consumer strategy more generally. With continued market share gains and achieving top share positions in a number of categories really mostly via organic growth, obviously, it's a number of things coming together strategically that has helped lead to this. But just wanted to hear from you what 1 or 2 things specifically you think has been really key to organogram OrganiGram's success and continuing to grow sales and market share while larger competitors have failed to do so?

Yes, certainly. So back to my consumer data, consumer packaged goods, the key to driving the business is consistently delivering the quality of products that you put out in the marketplace, so you're meeting the consumer expectation. What we have shown with our SHRED brand, in particular, is that we -- and we've talked to consumers, they say that every time they pick up a SHRED Tropic Thunder, they get the same experience. It's great quality product, fresh product. So the challenge of being hand-to-mouth in our -- was that as we were harvesting, we were processing and shipping out immediately, our consumers were getting great quality, great fresh product. And we heard comments like even though the THC on our SHRED only says 20%, it gives them a greater experience than some of the products that they're buying that have higher THC. And that's just about being a consistent delivery, and I think that has helped that brand considerably. We spend a lot of money on research to understand our consumers to understand what they want from our brands. We've built out a portfolio of brands to meet their needs. Our innovation platform is based on that consumer insight. And so again, this is not unfamiliar territory in consumer packaged goods. It's about understanding your consumer, it's building your brands, delivering consistent quality and you're going to continue to build that brand. And couple of years ago, people said, brands don't mean anything in cannabis. And they didn't, right? I mean it was a new industry and brands take a long time to build and to build awareness. And we are further challenged in this space because we could only talk to our consumers either online or in the retail stores. So it's challenging. But we're seeing our brands building. And I talked about our Net Promoter Scores on our 3 key brands. We're watching awareness. We're watching our Net Promoter Scores because when consumers are going to try something and they believe in the brand and they've had a good experience, they're going to come to that brand first. So it's baby steps, but brand building takes time, and we're excited about what we're doing. We're excited about the results that we're seeing. And when we talk to our consumers, they are reiterating that they're very impressed with the quality and consistency of our product.

Your next question comes from the line of Douglas Miehm from RBC Capital Markets.

Yes, I'll just keep this short. With respect to the international market that you've commented on a couple of times now, I'm just wondering, before you go into other countries, are there any regulatory hurdles specific to your company that you need to address? And then as you look out into '23 and '24, how much of your new capacity, by looking at it from an aggregate perspective, would you hope to come from the international marketplace?

Okay. So on the first part of your question about regulatory, look, every country is going to have different regulation requirements. I mean that has become clear. We have to do different things for our Australia partners and our Israel partners, and I don't expect anything different from any new partners. We'll understand the regulations. We keep abreast of it. We have a great regulatory team that helps us understand what needs to be done. Again, we have the GACP certification out of our Moncton facility. We have the CUMCS certification. We'll explore opportunities in Europe, if we need to be EU GMP out of our gummy facility. It's something that we're exploring. It was built to be converted to EU GMP, and we'll -- if there's a business case, we'll do that. So great opportunities to continue to grow the business, but there's no question. There will be further regulations that we have to look at, and we feel we are nicely set up to deliver against those. In terms of your second part of your question, what percentage of our business down the road should be -- are we expecting to be international? Derrick mentioned earlier that we expect to have an annual capacity of 82,000 kgs. Obviously, we will want to supply out of our facility and leverage all of our cultivation first. And so what is the demand out of our rec market? And then what is the opportunity we have to leverage into the international markets? I would say that given the profitability of the international business, if there are opportunities that we could buy from third-party, other third-party cultivators at a good price, and we could redirect some of our higher-quality flower to international markets, we'll do that. But this is going to be 1 of those that the first priority is use what we grow. And then if we have more opportunities, find the opportunistic -- a lot of the -- our competitors that are talking about being asset-light and not owning their own facilities, they're taking advantage of where they could buy flower at lower cost. We'll be in a great position to take advantage of that if the market is available and take advantage of that by shipping some of our great quality product to other markets. But if the supply dries up, we know we have ability to supply out of our own site.

Your next question comes from the line of Michael Freeman from Raymond James.

Congratulations on the spectacular 2022 so far. And thanks for entertaining this marathon analyst questions. Wanted to quickly touch on Laurentian. I wonder if you could give us a picture of its contributions to overall revenue and also how the capacity build-out is going there?

Right. So let me start with the capacity build-out. As I'm sure many people have experienced, probably the build-out is a little bit slower than we anticipated given the challenges with supply chain over the course of the last couple of months. So we still believe we'll have our expansion complete and online by the end of the calendar year. But I will say it's been a little bit more extracted in terms of the timeline because of those challenges. Laurentian has been strong for us in some ways. We, obviously, as I mentioned earlier, increased the distribution of our Tremblant hash across the country and are seeing great performance of that SKU in all the different markets that we enter into. We had a significant innovation platform developed for Laurentian to build off of our core Tremblant hash SKU. There have been some delays in getting that innovation out to market because, in particular, the SQDC has delayed their planogram changes. So we are sort of delayed a little bit in taking advantage of that innovation. But we expect Laurentian will deliver long term based on our acquisition goals to deliver the revenue that we expected as well as the margin down the road. So it is a little bit of a delay from where we had hoped we would be in terms of the innovation, but we've accelerated the distribution. So we got into the new provinces faster. So a little bit -- so 1 offset the other to a certain degree. But long term, innovation on top of this greater distribution should be a big benefit from -- for us from that acquisition.

Okay. That's very helpful, Beena. Maybe for Derrick, we saw quarter-over-quarter SG&A escalate. Part of the reason you talked about increased headcount and the installation of the ERP system. I wonder if you could give us an idea of what we should expect for SG&A in the future in the next few quarters?

I would say, obviously, the SG&A did increase as a consequence of ramping up in Winnipeg and the acquisition of Laurentian. So it's not just the headcount of the overall operation of those facilities has a G&A element to it, which impacted the quarter. As well, we have the commencement of the ERP costs that will run for the next 6 quarters at a minimum. And so -- but I would indicate that there was nothing abnormal in the quarter on our SG&A. It just reflects mostly where we are as a business today to support the growth that we've already seen in our sales. At some point you view some of the costs come early as you bring in the necessary staff and infrastructure in order to deliver at all levels organizationally, and the sales and margins generally follow. So I would almost say it's a leading indicator as much as anything. So I would not say that there's anything abnormal positive or negative in the quarter that would result in a meaningful immediate change. And having said that and going back to Beena's comments on inflation, there is, of course, an inflationary element that will come into play for us and other companies, frankly, that would have to also be considered. But again, nothing abnormal in the current quarter, so if you're just looking at the near-term run rate, but overall, of course, we will be impacted like others with inflation.

And if you'd entertain just 1 more? I wonder if you are satisfied with the innovation coming from within OrganiGram and your ability to address consumer sort of in all segments in cannabis -- or sorry, in Canada, or if you would be looking to add some capabilities inorganically within Canada in the next year or 2?

So I would say to answer that question, we're very happy with the innovation work that's happening within our facility. We have the Centre of Excellence built out. We have our own OrganiGram R&D team as well as the product development collaboration with BAT. And the teams are working together. We're taking advantage of some of the learnings and applying it to some of the innovation. We have a full pipeline of new products based on consumer insights and customers are telling us they're looking for. So I feel pretty confident that we could deliver against that innovation platform with our current operation and R&D teams.

So I think -- so thank you for your question. But I think we are now over time. Operator, I think it's time that we close down the calls, and I want to just again thank everybody for joining us today. It's been a pleasure. We're very excited about the performance of our business. We're looking forward to updating you on our progress moving forward. Have a good day.

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