SNDL Inc. (SNDL) Q1 2022 Earnings Report, Transcript and Summary

Hello, and welcome to The Valens Company's First Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being record. It is now my pleasure to introduce your host, Everett Knight, Executive Vice President of Corporate Development and Capital Markets of the Valens Company. Everett, please go ahead.

Thank you, operator. Welcome to The Valens Company's first quarter fiscal 2022 financial results conference call for the period ended February 28, 2022. A replay of this call will be archived on the Investor Relations section of the Valens website at thevalenscompany.com/investors. Before we begin, please let me remind you that during the course of this conference call, The Valens' management may make statements including with respect to management’s expectations or estimates of future performance. All such statements other than statements of historical facts constitute forward-looking information or forward-looking statements within the meaning of the applicable securities laws and are based on assumptions, expectations, estimates and projections as the date hereof. Specific forward-looking statements include without limitation all disclosures regarding future results of operations, economic conditions and anticipated courses of actions. For more information on the company’s risks and uncertainties related to forward-looking statements, please refer to our latest Annual Information Form and our latest Management’s Discussion and Analysis each filed with Securities Regulatory Authorities at sedar.com or on EDGAR at www.sec.gov or on the Valens Company website at thevalenscompany.com and which are hereby incorporated by reference herein. Although these forward-looking statements reflect management’s current beliefs and reasonable assumptions based on the current available information to management as of the date hereof, we cannot be certain on the actual results will be consistent with the forward-looking statements in the future. There can be no assurance that actual outcomes will not differ materially from these results. Accordingly, we caution you not to place undue reliance upon such forward-looking results. For any reconciliation of non-GAAP measures measured and discussed, please consult our latest MD&A as filed on SEDAR and EDGAR. Now, joining me on the call today are Mr. Tyler Robson, Chief Executive Officer; Mr. Sunil Gandhi, Chief Financial Officer; and Mr. Fallows, President. Mr. Adam Shea, Chief Commercial Officer will also be available for questions. You can now follow along with the presentation on our website at the thevalenscompany.com/investors. With that, I would now like to hand the call over to Tyler. Tyler, please go ahead.

Thank you, Everett, and welcome to everyone that has joined our earnings call to discuss our results from the first quarter of fiscal 2022. We really want to start off with kind of three main points before we jump into it. Number one, revenue growth, we're back. We grew over 26% from Q1 - in Q1 from Q4. We said it was coming, it's now here, but it could not be possible with other pieces as we put into place in 2021. With that we are -- with what we're seeing this far in Q2, we're expecting double-digit revenue growth to continue into Q2. I want to touch on cost. They have been higher than what we want them to be. Some are out of our control as we went through on our Investor Day and some of them are in our control as we had to invest in new brand launches to set them up for success as we integrate the acquisitions. However, with the financials, we do not show in this -- we do not show the progress we have made in our integration initiatives that we will really pay off in the back half of the year. The third one, the long-term positioning of the company has not changed. In the public markets, we are measured from day to day, but the true value of the company is measured in years. The cannabis space is no different. And 2022 is going to be a difficult year for many reasons and the money we have raised earlier this month makes us positioned to drive innovation, profitable revenue growth and realize the benefits of our integration initiatives we have planned. I will go to Slide 6, to really dive into a few more are things that we're kind of going on behind the scenes and we're really going to grade ourselves on what we've done in the last quarter. So the first one grow adult rec market share in Canada, I would say we're meeting expectations. This is clearly the bright spot in the quarter. We are one of the fastest-growing companies in Canada, cannabis rec growing 36% quarter-over-quarter, and now we have over 3% market share as of February 2022. But the most impressive part is we achieved this despite the Canadian sales declining 4.6% in Q1 relative to Q4 based on Hifyre estimates. The second one, our U.S. business in Green Roads. It's progressing -- progress is improving. Despite a decline in Green Roads' revenue due to seasonal trends, we were able to launch new products as part of our Own the Day campaign as new product formats appeal to the mass market in conjunction with our Own the Day brand campaign, which has seen great momentum. The third one achieving positive EBITDA by Q4, progress is improving. We are making progress towards the goal by having action in 95% of the first $10 million in cost efficiencies. While this is not yet reflected on our financials, we do expect to see an impact over time, especially in the back half of the year. Number four, reducing cash burn through improvements in EBITDA, working capital management and monetization of non-core assets. This needs improvement. And to be frank, this is getting most of our attention. With our integration initiatives only beginning in February, they were largely not reflected in the quarter, but as I mentioned, we are quickly making progress. Just over four months at Citizen Stash acquisition, we are now fully integrated into their operations in Kelowna and we're looking to monetize the facility. This was always the plan. We know we have work to do here and it's happening. Financials are backward looking and we have made progress since the quarter-end. Let's chat in the coming quarters. Number five on developing our U.S. THC strategy as permissible, progress is improving. To be clear, with the back half of the initiative, we continue to make progress on developing a plan of attack that will not add any cash burn. We will discuss more in the upcoming quarters. With that, I'll turn it over to Jeff Fallows.

Thanks, Tyler. Moving on to Slide 7, with that quarterly highlights. We've made significant progress in Q1 with net revenue increasing 26.1%, primarily driven by strong growth in provincial sales, which increased 36.7% in the quarter. Importantly, our Canadian recreational market share also expanded growing from 2.4% to 3.1% from November to February as the products listed in 2021 began to meaningfully contribute to both market share and revenue gains. This is a particularly strong showing, given that the market contracted 4.6% over the same period, according to Hifyre data. Given the strong growth and recreational market share, we have now become a top 10 license producer in Canada and expect to continue our momentum on the back of the launch of our Versus and Contraband brands, which have already met with strong provincial demand, as well as our newly acquired Citizen Stash brand, which is now benefiting from our stronger and more efficient fulfillment capabilities. We have also seen an inflection point in our B2B sales, and we expect to see continued strength in the segment. Our Green Roads U.S. CBD business was the outlier this quarter in terms of revenue growth as December is a seasonally weak month and changes in new programs were not launched until later in the quarter. The quarter also saw several operational achievements, including a listing on NASDAQ, new commercial contracts and the initiation of commercial beverage production at the Pommies facility. Lastly, we completed a $32.3 million capital raise subsequent to quarter-end adding strength to our balance sheet. Our tangible book value per share now sits at a $1.57 against a market price of $1.65 as of last night's close. Tyler, I'll pass it back to you to go through provincial sales.

Thanks, Jeff. Obviously, provincial sales has been a highlight of this quarter. With exposure to over 80% of the Canadian market, we're working to deepen our relationships with that and really work closer with some retailers, which you guys can see. Again, we do expect double-digit growth in Q2 as we're basically halfway through. So pretty excited to continue to push and I think there's a lot of opportunity in adult rec alone. Getting back into it, we're really now a top 10 player with 3.1% market share. And when you do look at the top 10, some of those positions are up for grabs as we continue to dominate adult rec and grow faster than the majority of our other players while they're losing market share. Just to hit on some of the successes we've had, BC God Bud is the number one best-selling SKU across all product categories in Alberta, Ontario and British Columbia and Saskatchewan during the first three months of 2022. This speaks to the momentum we're truly having. I'll go to Slide 9 and talk about provincial sales. Good progress on provincial sales, but its low-hanging fruit still remains. We got to penetrate more stores in the key to successes distribution. We have been successful with the select few SKUs like BC God Bud and store penetration. We believe the success will continue to strengthen our penetration across a broader portfolio of brands in the upcoming quarters. Innovation. We continue to have one of the highest acceptance rates of new products, which directly goes through to the provincial boards and then down to distribution platforms. This speak to our innovation and the great pipeline of products that's still to come. We really want to touch on innovation, and I think we've gone over it a few times in the past on what innovation means. And I've made a few bold claims which are coming to fruition now. I truly believe in the infused pre-rolls and the adaptability of our platform to really take advantage of that. So what you'll see in the upcoming quarters, which you can see on the slide today. We are winning adult rec not only as provincial boards, but winning distribution. So as we continue to drive profitable growth with key innovation, like infused pre-rolls, we do believe that we are going to continue to move forward. Also with our platform, I still believe we have the most versatile and flexible platform in adult rec and you'll see it with this list of not only infused gummies, beverages and different vape pens coming to market. B2B, right before we move on to Jeff,. we obviously grew. I kind of said it and Neal, the analyst from Haywood straight up asked me what to expect? And I said growth. We grew 53%. So as we still move through the fewer bigger, better strategy, we are hitting our stride, but we do expect it to be, I would say, choppy as we're meeting the demand plans of other licensed producers, which we're working through. And cannabis is a volatile market, not only in the stock market, also with provincial boards and players. So as we continue to move through, we do believe it will stabilize. But we are comfortable with where we're going. With that, I'll turn it back to Jeff Fallows.

Thanks Tyler. And moving back to Slide 11, as discussed previously, Green Roads decreased quarter over quarter by approximately 10.5%. The decrease was attributable to the December slowdown, which is expected to persist from year to year as Black Friday deals pull demand forward into November and consumer spending shifts away from good for you, health and wellness products in favor of more indulgent consumer products. In addition, the launch of our brand campaign delayed the launch of other online programs, and we faced additional competition for online advertising and other consumer acquisition strategies as our competitors have started to pursue unsustainable spending strategies to attract new customers. While this has created some short term challenges for us, longer term, we believe us will provide a tailwind for us in the market as our competitors strain their capital re reserves due to higher customer acquisition costs or choose to divert funds from innovation, R&D and other necessary investments with longer term consequences. On the Investor Day, we discussed our product rationalization efforts aimed at simplifying buying decisions and creating a proper channel alignment strategy to ensure we have the right products in the right formats, in the right channels at the right price point. To that end, we have and will be launching approximately 39 new products and an additional 20 reformatted products under our six solution categories, which include sleep, pain relief, relaxation, performance, stress relief, and pet. One example of a new product is our arthritis pain relief product, which has become a top selling product for us after only being in market for a few weeks. Moving to Slide 12, Green Roads operates three distinct business segments in the U.S.; online direct to consumer, brick and mortar retail, and white label and international. As discussed on our Investor Day, we continue to see a transition of the business to the online direct to consumer channel, which now accounts for 54% of revenues. We expect to see continued growth in online revenues as the brand campaign launched in January continues to take hold and as our sophisticated e-commerce platform continues to support a rapid scale up. The retail business has seen and will continue to see the most changes given the post-COVID environment and as we complete our team realignment and build out, which is focused on deepening our penetration and existing channels, expanding our relationships with existing customers and launching Green Roads products into new channels. Finally, progress is being made on our white label and international business as cross-selling to existing Valens customers begins to bear fruit and drive volumes to our Green Roads manufacturing facility in Florida. Now I'll turn the call over to Sunil. Sunil?

Thanks, Jeff. Well, let me first start by saying that our operating environment continues to have some challenges, specifically with ongoing inflationary cost pressures, a very volatile supply chain and retail price compression in the Canadian market, given the highly fragmented state of the industry. As a result, we are taking actions to rightsize our cost structure and streamline our operational processes, which I will discuss in more details later in the call. That being said, we do expect that from an industry perspective, 2022 will be a challenging environment for under-capitalized companies with further financial failures anticipated across the marketplace. Despite this tough operating environment, we are beginning to see the benefits of trading on NASDAQ with overall liquidity in our stock improving by 55.5% quarter-over-quarter. The management team continues to believe that the long term benefits of trading on NASDAQ will outweigh the short term volatility that we've experienced at our share price in the first three months of 2022. Now moving to Slide 14, as Jeff mentioned, our Q1 2022 results demonstrate that the underlying business has passed an inflection point. Consolidated revenues increased by 26.1% to $23.2 million in Q1 2022, benefiting from strong Canadian operations, which represented 74% of total sales in Q1. Provisional sales increased by 36.7% to $10.8 million and this was primarily driven by a combination of the consolidation of the first full quarter Citizen Stash has well as the launch of our Versus and Contrabands in Canada. We are pleased to see that the B2B segment returned to growth in the quarter, and the increase was driven by some onboarding of new customers, as well as specific sales, which allowed us to move through power price inventory. Moving on to our Green Roads US CBD business, which saw revenues declined by 10.5% quarter over quarter to $5.1 million. This was due to trends with December being the slowest month of the year as Jeff mentioned earlier. Now, moving on to Slide 15, adjusted gross profit was $3.8 million a 14.6% of net revenue in Q1, 2022. The decline in adjusted gross profit was attributable to a change in sales mix, including lower sales from our higher margin Green Roads business and an increased sales contribution from our lower margin B2B relations. In addition, adjusting gross profit was negatively impacted by the monetization of higher price inventory through our B2B channel to better align our inventory with future requirements as well as higher transportation and raw material cost stemming from the ongoing supply chain challenges. Despite the sequential decline in adjusted gross profit, we were encouraged to see gross margin improvements in provincial sales, which saw an increase of 229 basis points over Q4 2021 as provincial sales reaped the initial benefits of cost efficiency gains in spite of the retail price compression in the Canadian market. Now moving on to Slide 16, adjusted EBITDA with $17.6 million in Q1 compared to -- negative, excuse me, $13.3 million in Q4 2021. The reduction in EBITDA was prior, primarily related to the lower adjusted gross margins and an increase in AP spend that was associated with the new brand launches, both in Canada and the US. Otherwise our operating costs and estimating profile remained flat from the previous corner. And this was in spite of onboarding and consolidating the Citizen Slash business for the first time, which is a demonstration of some of our cost control initiatives, starting to take place. Subsequent to quarter end, we announced the shutdown -- we announced the decision to shut the Citizen Stash facility as shift all production to our Colonna campus. This is expected to positively impact EBITDA future quarter after the realization of onetime cost. Now, moving on to Slide 17, this waterfall shows the main sources and uses of cash since the end of Q4. In December, we raised $40 million in debt for financing and subsequently repaid previous existing debts. Working capital also represented a $3.6 million drag on cash in Q1 as we positioned our operations to support the launches of Versus and Contrabands in Canada, while ensuring our entire pilot wreck portfolio would experience stock out during our period of rapid growth and provincial sales. Working capital investments are expected to moderate and flip the positive contributions of future quarters, especially in the last half of the latter part of the fiscal year. As the quarter represented a heavy investment of cash, we took on the additional equity raise for gross proceeds of $32.3 million, which closed in early April. The negative adjusted EBITDA profile of our business represents our primary focus as we move through 2022. Key elements on the pathway to achieving positive adjusted EBITDA include the following. One integration initiatives that we've already launched, where we've passed [ph] to $9.5 million of an annualized -- on an annualized basis have already been actioned with another $10.5 million coming. Further savings in procurement and biomass sourcing has contract growing arrangements begin to provide product. Three, revenue growth, as Tyler and Jeff are both measure previously and four, we expect reduced onetime costs associated with things like brand launches and acquisitions moving forward. I'd like to touch on an illustrative example of our cash conversion cycle on page 18 and it will provide some perspective. It takes about 90 to 95 days to complete and serve and move through the drivers behind what actually causes an increased investment in working capital. So as we walk through this example, first on day one, we purchase flour from third parties, generally with standard payment terms of net 30 days. By day 30 to 35, we process and packaged the flour into a finished product as started to ship it to the provincial boards, where we recognized would not collect the revenue yet. At this point, payment for the raw flour has already been due and made. Another 30 days forward, which is by day 60 to 65, we are required to pay the ex-site tax to the CRA on the sale that has already occurred a month previous. It's important to note that the ex-site tax on flour products can amount to its high 30% to 50% of the gross revenue of the product. Moving forward, by day 90 to 95, we then finally collect the gross revenue from the provincial board. The OCS, our largest customer offers net 60 day payment terms after taking delivery of the product. So while this is a simplistic illustration, it's not necessarily representative of all product types. It's important to note that as we have rapidly growing provincial sales come significant demand on working capital associated with sourcing inventory, exercise taxes, and receivables management from the provincial board. As at February 28, 2022, the company had approximately $43.5 million of inventory on hand compared to $42 million as at November 30, 2021. This increase in inventory was mainly attributable to the drive cannabis inventory, as well as packaging and supplies and preparation of new product launches across Versus, Contrabands and Citizen Stash. In addition, the company has had to increase safety stock levels due to the disruptive supply chain environment. This was offset by a decline in finished goods inventory and extract of cannabis as we move through higher price inventory to our B2B channel. The upfront investment in inventory has been a drag on our cash this quarter, as we begin to rapidly scale provincial sales, As we have launched new brands and new products, it has caused, and it is expected to continue to some near term volatility inventory balances. However, as previously indicated on our Investment Day, we expected this investment in inventory to stabilize by Q4 2022 as consumer demand and purchase orders of our products achieve a more normalized level of sell through and lead tighter inventory management. Now from an accounts receivable perspective as at February 28, 2022, the company had $35.6 million of trade in other receivables compared to $28.7 million as at November 30, 2021. As at February 20, 2022, the company had $13.8 million in trade receivables balances over 60 days compared to $6.8 million as at the previous quarter end. Some of the increase in receivables was also driven by the timing of shipments and since quarter end, the company has subsequently collected has outstanding trade payable balances or provided for 81% of the balance that was outstanding as at quarter end. Now I'd like to move to Slide 19. We've made significant progress on the first wave of our integration initiative as we have now executed on approximately 95% of our first $10 million in cost efficiencies through operational and organizational changes. Out of the $9.5 million been actioned, approximately two thirds or $6.4 million of the cost savings are coming through the SG&A side, of which almost half are driven through M&A synergies, while the remaining half were related to organizational realignment at balance. This is expected to positively impact SG&A in future quarters after accounting for the onetime cost. The remaining one third of 33% or $3.1 million, was driven by operational efficiency, including automation, process standardization and supplier optimization, which is expected to positively impact margins in the second half of the year. We remain on track to achieve an overall total of $20 million in annualized cost savings run rates by the end of fourth quarter 2022. With that, I will now turn the call over to the operator to open the line for Q&A session.

[Operator instructions] And our first question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your questions. Hi, Aaron, are you there? Aaron Grey?

Yeah. Hi, can you hear me? Sorry I was on mute -- quarter and the market share trends that you guys are having there. First question for me, just in terms of some of the arrangements you guys are having for the contracts going forward, just want to get a better sense in terms of obviously one thing you guys focus on in terms of the strains, you've done a good job in terms of gaining market share in the flower and pre-roll category. So want to get a better sense in terms of, as you're looking at these contracts, how you guys are still looking to be able to stay nimble enough to be able to take advantage buying more longer-term contracts, but also making sure you guys have the right alignment to meet consumer demand. Thank you.

Yeah, that's a great question. I'll answer that one. So depending on what brand we use, we have different strategies. So obviously, we're spot buying for some stuff and then we're contract growing others. So what we are - we are basically planning our product roadmap for the next two years, and we're going to be sun setting some strains in genetics and bringing in new one. So there's always something new to try something always exciting. And what we did, it was very intentional. When we looked at the Citizen Stash platform, we always knew there was a tremendous amount of synergies, not only in headcount, but also contract growth. So as we maneuver through the brands and different products, we've strategically placed them with certain growers at certain scales. So what you're going to see out to The Valens platform is a reduction of cost per gram, new innovation and new genetics coming in that we're not tied to anything. So again, I want to be very clear and intentional in how in saying this, Valens does not grow cannabis. We have contracts to purchase it. But if it doesn't meet a specific Valens standard, we're not obligated to buy anything. So we have the most versatile platform in cannabis, and there's a ton of exciting genetics coming down the pipe, not only for the new Contraband launch, but also for the Citizen Stash launch. And then Versus, we're going to continue to be the lowest cost biomass in Canada to the point where we actually tried to push it lower. And some of the provincial boards are worried about our competitors and trying to hold the floor. So we can get more aggressive. And as we move towards profitable growth, you're going to see a lot of that come to fruition.

Okay, great. Thanks. That's really helpful color. Second question for me, and then I'll jump back into the queue, just a higher level one. So when you look at the Canadian market in terms of shifts and format, most of the gains have been with pre-roll over the past year or so shifting from flower to pre-roll less so for the 2.0 products such as vapes and edible. So just given the historical focus of Valens as an extractor and kind of having some expertise in those categories, what do you think is really going to be needed to kind of see a bigger market share gain from the 2.0 categories? Do you feel like as we move out of COVID and get more and more brick-and-mortar shopping, that'll offer opportunity to see an increase, especially amid some of the pricing pressure that you're seeing in the vape category? So really just how you're looking at the 2.0 categories, vapes and edibles, over the next 12 months, and when are you seeing the opportunity for market share gains there? Thank you.

Yeah, that's a great question, too. I'll start with that one and Adam, I'm going to kick it to you. When you look at the platform in Canada, I would say, one, it's competitive to start; but two, because we are the most versatile company in this space, I think we can take advantage of that. So not only are we not tied genetics, we're not tied to certain products and we can push innovation harder, quicker than some of our larger industry peers. So when we really look at consumer trends, I called it a year ago where I do believe infused pre-rolls is going to outgrow the pre-roll category by year-end. We are starting to see some trends in the market coming that way. And then overall product development and/or distribution of 2.0 products, I really think there's two challenges, the marketing limitation and education, which is industry-wide, but also pricing. So with compression, we do expect it to come down, but we also expect to combat that with higher-margin products and different brands. So really pushing quality and consistency over than some of the lowest price stuff. Adam, feel free to comment.

Yep. Hi, Tyler. I'll add just two points to what Tyler said specifically around, the brand portfolio that we've now laid out gives us the flexibility to access and provide consumers 2.0 products at a range of price points, whether that's an opening price point or whether that's more premium price point, whether it's across edibles, beverages, vape category, et cetera. Our agility on being able to offer the quality and the price point across a whole range of consumer buying patterns really will allow us to accelerate innovation and take a disproportionate amount of share of the 2.0 category. So lots to come from us on this front in the quarters ahead. Thank you for the question.

Great. No, thank you very much for that detail. And I'll go ahead and jump into the queue.

And our next question comes from the line of Frederico Gomes with ATB Capital. Please proceed with your questions.

Hi, good morning, and thanks for taking my questions. Just on your provincial sales this quarter, you showed some good growth sequentially in the slides, you mentioned an increase in gross margins in that segment, but your overall gross margin did decline this quarter due to sales mix. So I'm just curious, can you give more color on your margin in Canadian rec? And are you having to compute on price to gain share? Obviously, you had some good market share gains recently. What gives you confidence that you can expand margins in that segment, just considering that the market is very fragmented and very competitive? Thank you.

Yeah, that's great question. So I'll start and then Sunil, I'll pass it to you. So when we look at our branded portfolio, we're expecting different margin and different brands. And as we roll out Versus, it is a market share leader in every category, it will play and then I think we'll continue to see that roll out. And when I said double-digit growth, I'm not speaking 10, just to be very, very clear because we are winning adult rec. When we roll out our margin, we're obviously moving through some of our inventory. But as we move through that inventory and monetize it, we do expect to be very contentional on what brands we push and what markets on different products. Again, because we have the versatile platform, we can do things other people can't. Sunil?

Yeah, sure. And just to build off what Tyler mentioned, I mean, first of all, yes, I mean, I think it goes out saying that the Canadian adult rec market is extremely price competitive. You can't deny that. I think what we've shown is between category management and our brand strategy, combined with our operational efficiencies, we're still gaining margin like over the coming quarters and we would expect that to outpace the challenges [Technical Difficulty].

I apologize. It seems, as if we have lost the speaker line of The Valens Company, I'll see if I can go ahead and get to them back. Okay. The Valens Company speakers, you may proceed.

Yeah. Sorry. This is Jeff. Maybe Sunil, you can just recap what you said. I am not sure when the call broke up.

Are. Yeah, sure. Apologies for the technical difficulties there. We got cut off inadvertently. So speaking to gross margin, build on what Tyler said, between our category management and our brand strategy, we are expecting to overcome with operational efficiencies, some of the retail price impression challenges of the Canadian market. So yes, it's a headwind. We obviously have to be conscious of the prices in the market, but we are outpacing the category and building margin profile with it. From an overall standpoint, as a company, where we would expect to see some positives and negatives on the margin side is like Green Roads will continue to contribute a meaningful share of our business as we presented on Investor Day. As that grows, we would anticipate our overall margin profile to grow where things become a little bit less predictable from one quarter to the next is on the B2B side, which sense have more volatility in the margin segment. So I would just say the long term trajectory is the right trajectory we're on between the combination of Green Roads and the adult Rec segment with some near term volatility caused by the B2B side.

Thank you. And then my next question is on your US BD business. We had a decline this quarter, but can you talk about any early signs of your initiatives to grow that business? Are you seeing any pick in sales after the quarter end compared to perhaps last year and what sort of growth in sales should we expect for the next quarter and the reminder of 2022? Thank you.

Yeah, that's a great question. I'll pass it off to Jeff after one quick comment. We did expect a slowdown at the end of the year, when you look at Black Friday and the sales push we had then going into the Christmas season, historically it happens every single year with the Green Roads platform. So everything happened exactly as expected and Jeff, why don't you kind of comment on what we're expecting going forward?

Yeah, sure. So I appreciate the question obviously, when you implement changes in a business and as you can see by some of the numbers, 39 new products, 20 product format changes, etcetera, launching of a brand campaign, realigning and reinvigorating team structures, etcetera, these things take time. So, yes, we're seeing some positive signs. And as I said in my prescriber remarks, things like the launch of our -- one of our first new products in the arthritis products has been very, very successful in terms of capturing the demand and the revenue profile we were targeting when we launched it. So we're strong -- we're strongly encouraged by product launches like that. Also the conversations that we're having and the new distribution partners, we're having conversations with and the orders that are starting to come in on the retail channel are also encouraging. So Frederico, we believe we are on the right track with our US business. We believe that the solution selling that we've moved the business towards was the right move. And we believe the products that we have in our development pipeline are the ones the market is looking for and so we are encouraged by what we see.

Our next question comes from the line of Nicholas Cortellucci with M Partners. Please proceed with your question.

Hey guys thanks for the presentation. I had a question about the beverage segment, with the new regulatory changes that healthcare has put forth about a month or two ago, what do you think is the incremental change for the beverage category and your guys market share as a whole?

Yeah, that's a great question and we are ecstatic that the change is finally coming into fruition. Maybe I'll kick it over to Adam on what he expects the beverage segment to do for our adult rec numbers.

Thanks, Tyler. Beverage is unquestionably going to be a significant unlock in 2.0, it's going to be a terrific way for us to bring new consumers into the category. The changes recently announced, I think only allow us to amplify what we're already doing, which is offering a range of beverages a range of both high THC and sessionable beverages. The portfolio will play in again, an accessible price point adding lots of value with high quality products. So this will unquestionably be a very significant growth driver for us as we move forward in this year and years to come.

Great. Okay. That's all for me. Thanks guys.

And our next question comes on the line of Nick Phase with Brian Garner[ph]. Please proceed with your question.

Yeah. Thank you for that. You did a $22.5 million bulk deal couple weeks ago. And by doing so you wrote about hundred million shareholder value. So what was so urgent for you to do this deal and when can you when -- when shareholders expect some positive returns from that? Thank you.

Yeah, that's a good question. And Sunil, I'll probably kick it over you and Everett. I will comment, with the Bud deal, we needed to solidify this future of the business and with the very turbulent market, what we couldn't do is be unpredictable. So we were extremely intentional and on any Bud deal, it always trades down after. So it was to be expected, but it will recover in time. And again, we are making tough decisions as a large shareholder myself, we are acting in the best interest of all share and we believe it was very intentional and needed to make sure that we could achieve the profitable growth that we expect in the coming years and tomorrow isn't promised. We have no idea what's going on in the world. You look at supply chain, you look at interest rates, you look at what's going on in Ukraine. We needed to basically solidify the platform that did. So Sunil, Everett feel free to comment it.

Yeah, I think Tyler's covered it very well. I'll just maybe just build on what he said. I think while I can appreciate the short term implications, obviously, didn't look that great. The reality is as a business, we had -- we felt it was very important that we had the capital position of the company to get through the storm of 2022 that we see in the sector. And quite frankly, combined with what's happening in the global markets on a macro level, for the reasons that Tyler mentioned, political unrest, global uncertainty around interest rates, etcetera, you know, you can't predict what will happen tomorrow, next week or next month and so we felt, we saw the opportunity. We saw strong interest from our investor base to make the move that we did to solidify our future.

Yeah, I'd say just to add on that Nick as well, is that if you look at all the integration initiatives that happened at the end of Q1 and into Q2, right? The reality of those changes we'll see vastly in Q3 and Q4. But we wanted the right financial footing to be flexible in this environment. Just to know.

And sorry, Nick, maybe if I can add one different perspective to this whole thing, wearing a former banker's hat here first and foremost, you never try to time the market, the windows come when they come. And quite frankly, you don't the last through it. So we had an opportunity. We believed it was strengthened our balance sheet and we believe we made the right choice in pursuing the financing when we did.

So it was all just about paying back debt and not do anything new.

Not sure I understand the question, Sunil, Everett made you did.

No, I think we need, Sunil, if you could just repeat it, if you don't mind, we didn't quite catch it.

Yeah. Yeah. Well, to be honest, I don't really understand your answers neither. So it's all about paying back debt and not to do anything new expensive for a company.

No, I, would say Nick, as we put in the press release we have very clear pathway of what we're spending on. This is not to repay debt, right? As we've been through very thoroughly on the presentation, it's to managing the working capital and cash close of the business, as the integration initiatives are still in process as there's a lot of onetime costs associated with. So we believe this is value added to the operations today, and this is not to pay back debt. It's to keep the balance sheet flexible and make sure that we can thrive in the back half of the year.

So it's mainly for working capital then, meaning operational losses that you expect to occur in the coming months.

Yes. And with the brand launches that we thoroughly went through in the presentation today, I'm happy to walk through it offline with you. Nick,

I think the closing point on that one is we needed optionality. Like in this market, you need to be able to be very strategic and aggressive when the time comes and we didn't want to be looking over our shoulder. So what we need to do is solidify the future of the organization and it was the best decision for the company,

Any recent trends in market share that you want to share with us?

Yeah. So I don't know if it was exactly numbers market share going forward. But what we will see is double digit growth in adult rec and we do continue to move the needle forward.

And our next question comes on the line of Aidan Giangregorio with Stiefel. Please proceed with your question.

Thank you. This is Aiden speaking on behalf of Andrew. First of all, yeah congrats on the quarter guys. Just curious on Quebec, do you guys have any updates on your progress there kind of moving into the Quebec market that you could share with us? Thank you.

Yeah, so I probably can't give away too much information on the Quebec market. Obviously we do have one skew available online that we are continuing to push on. And we do expect more in the future, but I think the big focus for us right now is on the big three provinces, BC, Alberta, and Ontario, and really opening up distribution and depth of products in those markets as we continue to push on Quebec, it is a bit of a fickle market, but we are continuing to move forward. Adam, I don't know if you have anything to add.

No, I think you hit it spot on Tyler. We've got a very methodical plan that we're trying to execute with the with the Quebec provincial board. And for us any significant progress that comes in the quarters ahead in Quebec will be incremental to the existing plan we have in place. So I feel very good about the progress we're making and to Tyler's point, it's all about doubling down on Alberta, British Columbia and Ontario through a whole series of new distribution strategies. So lots to come in the coming weeks.

Okay, great. Thank you. I'll step back in the queue.

And our next question comes on the line of Rahul Sarugaser with Raymond James. Please proceed with your question.

Good morning, Tyler, Sunil, Jeff, Everett. Thanks so much for taking our questions. So congratulations on the provincial sales ramp that certainly has been impressive given the broader environment. So I want to drill down a little bit on the B2B sales. You've had a 50% sequential growth there. Some of it, however has been of course, because of selling through some of this higher price inventory. So, given that that was potentially a blip in this quarter, how should we be thinking about that those B2B sales going forward and also what that margin profile would look like as you essentially get through this selling, selling through this high inventory?

Absolutely. That's a great question and Sunil, I'll probably leave the margin question for you, but as we continue to execute our strategy, a fewer bigger, better that has worked, and it was very intentional. We do continue to stabilize and what we're seeing right now is the unpredictability from some of our partners where they're doing some wishful thinking. So as we stabilize quarter to quarter, it's not that we're not getting the revenue. It just might be bloated in some quarters over others. And as we continue to stabilize and have a bright stock inventory, we can pack out when we get it in hand. So we do expect it to stabilize and be it more consistent sustainable trajectory going forward. That being said, we do expect our B2B segment to continue to grow. But Sunil, why don't you touch on margin and B2B?

Yeah, I think, the margin is actually going to follow some of that. What Tyler mentioned on the sales side in terms of that chopping is depending on which actual contract could relationships materialize the revenue in that given quarter, and we are relying on others and their needs in the market, that's where it can lead to slightly different profiles from one quarter of the next. Obviously in the long term trajectory, we expect sales and margin to be consistently moving forward. But from one quarter of the next, it's hard to give guidance in that type of area. We are relying on the means of other LPs.

Okay, great. That's really helpful. And then, so my follow up is on Green Roads, you identified that December was a weaker month seasonally. However, we've seen a couple slightly weaker quarters from Green Roads compared to at least the macro annual historical number provided during the acquisition. Recognizing of course the US CBD space is hyper competitive and pretty messy at the moment, what are some of the sort of bigger strategic things that you and the Green Roads team are doing to sort of consolidate and trying to drive that revenue back up to historical and beyond.

Yeah, that is a great question. Jeff, why don't you start and then I'll kind of add on to the end.

Yeah. thanks Ranul. I think it's actually a great question. So, as we looked at the US CBD space, and as we took over at Green Roads, there had been a big shift in the way the market was viewing CBD and the channels under which consumers were going to get access to CBD. And so when we saw that change occurring, we looked at the product portfolio, we looked at the ways that we were selling and we looked at the team and structures that we have in place. And that's really all of the conversation we've been having around realigning the channel strategy, making sure we had the right products and the right channels. And quite frankly, making sure that when we were in those channels, we were not just saying, hey, we have CBD for sale. It's actually about products that offer different solutions for consumers. So basically selling a differentiated product and not just selling quote unquote CBD. Obviously this process takes time. We would've loved to be able just to turn it on a quarter ago. But what I can say is having the majority of that work complete and as April is a big month for launching for us a number of those new products, we're excited about the performance we're going to be able to bring to the market in future quarters. But I think that's primarily it. It's you -- we needed an updated product portfolio. We needed new channels and new ways to sell those products in those channels. We believe we've got that and we're ready to roll.

Yeah. Rahul, just to kind of comment on that, I think Jeff did a pretty good job of illustrating it. It's really redefining the portfolio and putting it in the appropriate channel, whether it's smoke and vape, whether it's C store, whether it's retail or convenience, it's really about redefining the portfolio of re-pricing you things and even different format sizes. So what we're seeing is consumer trends change depending on the location. So really just trying to listen to the consumer and take advantage of that.

Great. Thanks again for taking our questions and good luck with the next quarter.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Tyler Robson for closer remarks.

Appreciate it. Well, I wanted to thank you for everybody for the time today. Obviously, there was a tremendous amount of growth in the quarter. There is still a lot of work to do, and we're not getting caught flat footed. So I truly look forward to speaking to everyone. Mid-July when our next quarter comes out because I do believe it will be positive. So thank you for everyone for taking the time. Thank you for the participation. Operator, you may disconnect your call at this time. Thank you.

Thank you. Have a good day.