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Thank you for standing by. This is the conference operator. Welcome to the Flora Growth Corporation Third Quarter 2024 Results conference call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the call, you may signal a conference specialist by pressing the star key, then the number zero. I would now like to turn the conference over to Dany Vaiman, Chief Financial Officer. Please go ahead.

Thank you, operator, and good morning, everyone. On behalf of the Flora team, welcome to our Q3 2024 and corporate update conference call. Before we begin, I wish to inform listeners that certain statements to be made today by the management team may contain forward-looking information. Today's call will include estimates and other forward-looking information and statements concerning future revenues, results, some operations, financial position, market, economic conditions, partnerships, and any other statements that may be seen as a prediction of future performance. The information may involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences are described in detail in the company's most recent filings available on EDGAR at sec.gov and SEDAR at sedar.com.

Any estimates or forward-looking information or statements provided are accurate only as of the date of this call, and the company undertakes no obligation to publicly update any forward-looking information or supply new information regarding the circumstances after the date of this call. On the call today, we have Clifford Starke, CEO, and myself, Dany Vaiman, CFO. Following the presentation, Clifford and I will be available for the question-and-answer period. The Q3 2024 results press release and the accompanying 10-Q have been filed on EDGAR and SEDAR. Please note that all amounts mentioned on this call are in U.S. dollars unless otherwise stated. I will now turn the call over to Clifford.

Thank you, Dany. Good morning, everyone on the line. Welcome to the Flora Growth Q3 2024 results and corporate update conference call. Let's begin with the United States. The recent election of President-elect Donald Trump brings renewed focus to the $28 billion hemp industry catalyzed by signing into the law in 2018 a historic Farm Bill. This transformative legislation decriminalized hemp at the federal level, fostering explosive growth across the United States. President-elect Trump's recent comments on cannabis regulation, indicating his favorable stance, also provide encouraging signals for those advocating for comprehensive cannabis reform. While federal legalization remains uncertain, these remarks suggest we should see significant progress in regulatory alignment under his administration. At Flora, we view this opportunity to further our presence in the U.S. market, leveraging our flagship brands like JustCBD and Vessel, which are already making strides in capturing market share.

With federal rescheduling procedures set to begin in January, we remain optimistic about additional cannabis policy advancements that could bring significant benefits to consumers, businesses, and communities alike. The prospect of a rescheduling shift underscores the growing recognition of cannabis' therapeutic potential as rightful place in a modern regulated economy. Complementing these developments, U.S. Senator Ron Wyden recently introduced the Cannabinoid Safety and Regulation Act. This legislation proposes the most comprehensive framework for hemp regulation in the U.S., addressing key areas such as product safety, labeling, and market oversight. We believe this act should serve as a blueprint for the upcoming Farm Bill, offering a pathway for clearer regulatory structures and fostering innovation investment within the hemp industry. A regulatory framework like this would work perfectly with Flora's mission to create safe, high-quality cannabinoid products that meet consumer demand and regulatory standards.

Moving to Europe, we're seeing promising developments in Germany. The country's updated framework for the liberalization and cultivation of industrial hemp underscores its commitment to becoming a leader in sustainable agriculture and cannabis reform. Germany is also making strides with its controlled cannabis retail efforts. The cities of Frankfurt and Hanover have been announced as model locations for Germany's first legal controlled cannabis retail operations. These pilot programs represent a critical step towards broader legalization with the potential to serve as a template for nationwide adoption. Flora has strategically positioned itself to capitalize on the European market. Our EU GMP facility in Germany provides a competitive advantage. It enables us to distribute premium medical cannabis across the EU. We are closely monitoring these developments and remain ready to expand our presence as these regulatory frameworks evolve. It's an exciting time for the industry.

We're optimistic about the future as we help drive forward policy and innovation that serves the needs of consumers, businesses, and society. With that, I'll pass along to Dany, who will discuss the financial results for the quarter. Dany, please go ahead.

Thank you, Clifford. Let me start by noting that in the United States, we are actively working to diversify our product portfolio by entering the fast-growing infused beverage market. This move represents a significant step forward as we tap into a segment that is expected to see substantial growth over the coming years. The introduction of our infused beverage line, including Melo and Cola products, allows us to leverage our expertise in product innovation and marketing. These beverages cater to a rising consumer demand for alternatives to traditional alcoholic drinks. In Germany, we are laying the groundwork for a transformative phase in our European operations. We recently welcomed Dr. Manfred Ziegler, the former Managing Director of CC Pharma, to lead our operations in the region. Dr. Ziegler brings extensive experience and a proven track record of success, including his leadership during the acquisition of CC Pharma by Tilray.

Under his guidance, we are launching a parallel import business, a key initiative designed to meet the growing demand for affordable, high-quality pharmaceuticals in the European Union. Parallel importing allows us to leverage pricing differentials within the European market while adhering to strict regulatory standards, creating a competitive advantage. Turning over to our financial results, revenues for the third quarter of 2024 were $12.5 million compared to $17.3 million for the third quarter of 2023. Revenues for the nine months ended September 30th, 2024, were $46.2 million compared to $58.1 million for the nine months ended September 30th, 2023. These decreases are primarily due to the company's deliberate discontinuation of several unprofitable lines, as well as increased competition. Total operating expenses were $6.5 million in Q3 2024 compared to $5.5 million in Q3 2023.

For the 2024 and 2023 year-to-date periods, total operating expenses were $19.6 million and $57.2 million, respectively. This represents a decrease of $37.6 million, or 66%. Net cash used in operating activities was $3.7 million in the nine months ended September 30th, 2024, compared to $7.3 million for the nine months ended September 30th, 2023, a decrease of $3.6 million, or 49%. On a consolidated basis, the net loss for the period was $9.8 million compared to $47.3 million in the comparable period, an improvement of $37.5 million, or 79%. Flora finished the quarter with $4.2 million in cash and $21.3 million in current assets, including $7.9 million of saleable inventory. In terms of performance for each of our divisions, JustCBD maintained a gross profit margin of 40% on sales of $4.2 million. The top-selling products in the quarter included the Bear, Nighttime Bear, and Peach Gummies.

Approximately 41% of its revenues stemmed from direct-to-consumer sales, with the remaining 59% generated through business-to-business sales. In the quarter, JustCBD added 83 new wholesale customers to its network. Vessel maintained a gross profit margin of 55% on sales of $1.1 million. Core products represented 29% of sales, and Compass products contributed 45% to sales. The largest individual item sold was the Compass Rise, representing 17% of Vessel sales. Vessel sales were 66% from direct-to-consumer and 34% on business-to-business. Vessel added 35 new wholesale customers in the quarter. Phatebo earned $7 million in revenue with gross margins of 7.1%. All sales were business-to-business and included brand name pharmaceuticals. I will now hand the call back to the operator for the question-and-answer period.

We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Aaron Gray from AGP. Please go ahead.

Hi, good morning, and thank you for taking my questions. This is Remington Smith on for Aaron Gray. My first question is, you've announced quite a few initiatives in the past few months. What do you think will be the largest drivers to growth in both the near-term and the long-term?

Hey, how's everything going? The main driver on the U.S. side is really going to be dialed in on the beverage front, which the distros have picked up, and you're slowly going to see in the Total Wines and ABCs of the world. On the German side, it's going to be one, the PI business, which we expect extreme high top line with decent margins on it, as well as being able to compete and win the pilots for the retail locations. Those are the main focuses of the business, and that's where we're putting money in today, both on the CapEx and OpEx exercises.

Gotcha. Yeah, that's helpful. And then kind of sticking to that German business, you experienced a little bit of softness, I guess, in your existing German business this quarter and the prior quarter, despite some of the reform that happened. If you could speak to a little bit of that and then the outlook to that existing business going forward.

Yeah, I mean, Germany, first off, we've brought in a world-class team now. So Manfred and the individuals he's brought in under him, I don't think we could find anyone better to actually run Germany in every facet possible. And then what we've done over the last quarter or so is really working on changing the business model a little bit to gain way higher margins on that side of the business, which I think you'll see, I think you're going to see the effects in a couple of quarters from now. But we're making a lot of changes in Germany.

Okay, that's helpful. And then, I guess, sticking to the gross margin, on the last call, you expected gross margin to expand into kind of that mid-30% range. So is the commercial wholesale going to be a driver there too, I guess, to that expansion? Will it be kind of the house of brands? Talk to me, I guess, if the mid-30% range is still the guidance, how you expect to get there, and what will that mix be between, I guess, the two segments?

Dany, do you want to touch on that to start?

Yeah, absolutely. So, Remington, thank you so much for joining us, and I hope you're doing well. As you noted, the business in the United States, JustCBD and Vessel, those ones do experience fairly significant margins, 40%-55% in some instances. Where the challenge has been is with the pharmaceutical distribution in Germany, which is upsetting and lowering that average. And as we noted, the parallel import business and the changes that we're implementing in Germany, we expect that margin to increase, and that will help bring the average to the low 30s and the high 20s. We just need a little bit more time to develop that business in Germany so that the parallel import revenues increase and become the most dominant force in that country.

I think it's just a matter of time, and it's just a matter of that business expanding and realizing its full potential.

Okay. And then my last question, you had quite a few initiatives with launching the THC, the hemp-infused business recently, and then the TruHC acquisition too. Do a lot of these kind of weigh on EBITDA in the quarter, kind of ramping up sales, especially kind of with the corporate SG&A costs?

Yeah. I mean, we're making investments now, both in the beverage front as well as Germany throughout. So right now, we're spending money. Hopefully, we're going to see the benefits in quarters to come.

Okay. Great. That's all for me. I'll hop back in the queue.

The next question comes from Sean Wong from Haywood Securities. Please go ahead.

Hey, Dany. Hey, Cliff. How's it going? Just wanted to get some clarity on how the launch of the parallel import business has been going so far, what we can expect from it, and what a wider European rollout could look like, and also the timeline to get to that 30% margin range that you mentioned earlier.

Yeah. I'll answer the first part then and hand over the margins to Dany. Sean, hope everything's great. First off, Manfred and his team came in. They're retooling a few things on the current business right now, which is the focus. Then what we're going to do is utilize our GMP facility to be able to bring in competitive pharmaceutical products from all over Europe to Hungary as well as many others in the world. Keep in mind, Manfred previously built a $600+ million business, and this is that category, and I think over the next couple of quarters, you'll see it kind of come together, and it's going well, but what we're trying to do is make sure the current business is stabilized and then grow on the PI business as well as go and compete for the cannabis licenses that have been given out.

Then, Dany, you want to get to the margin question?

Sure. Sean, good morning, and thank you for joining us, and I hope things are well on your side. I think that's a great question, and we will provide an update on that specific topic in the first quarter in 2025, once Manfred and his new team have had a chance to settle in. I think that would be the best time to begin addressing that question.

Perfect. Thank you. And I think that's my only question for now.

The next question comes from Bill Kirk from Roth Capital Partners. Please go ahead.

Hey, good morning, guys. Cliff, it looks like you're now on the board at Hoshi in Portugal. I think I saw that in the press release. So how does that business and that upcoming facility fit into your plans for Germany, your plans for Europe, and when do you expect product to start coming out of that facility?

Hey, Bill. I hope everything's great. So one, this was an investment made historically. This was with the Mettrum team back in the day, which I think everyone remembers: Mike Haines and Trevor and those guys. In the past couple of years, a big investment came in, and they put another $10 million in that facility. It's fully built. It has got their GACP license. The growth has obviously been up and running for well over a year now. There's two things that we would like to do. One is obviously get good quality product out of Portugal into Germany, which will be happening over the next couple of quarters. The second thing is, what's interesting is we're able to utilize our current GMP facility.

We'd be able to actually put an extension of it onto the Portugal facility and one of the dry rooms, which will make the entire flow process way easier and better, more efficient. But everything's coming together there, and I think the next couple of quarters is when we'll receive the first product out of there.

Okay. And as this will relate to Germany as well, could you give some more detail on the relationship with Curaleaf, like the responsibilities, maybe the commitments for both parties? And I ask because the announcements initially didn't seem like both groups were on the same page. So I want to make sure I understand what you and Curaleaf can and cannot do, and maybe how parallel fits into that dynamic.

Yeah. Yeah. I have a long-standing history with the EMMAC guys. EMMAC was sold to Curaleaf a number of years ago. Prior to them merging, we had a supply agreement that was supposed to be delivered from Portugal into Germany a number of years ago. No supply arrived, and we went and rebuilt the relationship with Curaleaf, which obviously we announced, which was a little bit, I guess, confusing for everyone, unfortunately. We're expecting delivery within the next month or so of high-quality product from Northern Green via the Four 20 guys. Originally, what will happen is we're going to use Four 20 to bring in the product, and then over the next quarter or two quarters after that, we'll stabilize the product in our GMP facility. We expect a long-term relationship as long as they could deliver high-quality flower we could put into the market.

Awesome. That helps a lot. If I could sneak one more in, going back to U.S. beverages, in some markets, Mellow and Cloud Cola, I think are THC-infused. In other markets, they're more hemp-infused. Is the goal of the brand ultimately to be THC-infused where and when you can, or should we expect kind of a mix, or is it what do you envision that kind of formulation behind those brands ultimately to be?

So we're seeing twofold. Obviously, we're very D9-driven. I think everyone is right now, and that's what's going into the Total's and ABCs right now. About 30% of that business will be all line-driven as well. But we also got a lot of demand from big box type of stores of, "Hey, we're obviously not ready to bring in THC-infused yet. Could you do the same category of mocktail form, which we're working on now for a couple of clients?" But I think what we're trying to do is build, at least dominate the Southeast, where really that's our presence, our network, both on grassroots, in-store, activate everybody, as well as hit the what we could do legally within the local colleges and universities, and really try to create a sustainable long-term brand.

I think that relationship with Peak has literally driven the same as eight years of work and experience have been great to work with. The emulsion facility is obviously up and running in Florida. We're focused on our own brands, but also powering a few other ones. And it's going very well, and I was surprised that the team did a really good job getting just distros on board relatively quickly, which is great. And now we're just working through more figuring out what our really working capital needs on what's going to happen on the growth side. But we're seeing, I think you're going to see hyper growth on that category on a quarterly basis.

Awesome. Thank you, Cliff. Thank you, Dany. I'll jump back in.

As a reminder, if you have a question, please press star one. The next question comes from James Udasco from Aegis Capital. Please go ahead.

Hi, good morning. It's James Udasco from Aegis, so we were just wondering, how has the Sunshine partnership helped with distribution across the retail consumer space in both the U.S. and Germany?

Good. So I hope everything's okay in New York. In terms of Sunshine, they've really just opened up the Florida market for us. That's who we chose. We decided to work with a little bit of a smaller distributor to get attention and very craft beer type of feel in terms of service. They did a great job getting into the retailers, which you're going to see a launch next week. Sunshine has no parallel outside of the Southeast, including Germany and Europe.

Awesome. Thank you. I'll jump back in the queue. Thank you very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Clifford Starke for closing remarks.

Thank you, all stakeholders, for coming on the call. Manfred's team is available for anything further, and have a great day.

This brings a close to today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Thank you for standing by. This is the conference operator. Welcome to the Flora Growth Corp. First Quarter 2024 Results and Corporate Update Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Dany Vaiman, Chief Financial Officer. Please go ahead.

Thank you, operator, and good morning, everyone. On behalf of the Flora team, welcome to our Q1 2024 and corporate update conference call. Before we begin, I wish to inform listeners that certain statements to be made today by the management team may contain forward-looking information. Today's call will include estimates and other forward-looking information and statements concerning future revenues, results from operations, financial position, markets, economic conditions, partnerships and any other statements that may be constructed as a prediction of future performance. The information may involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences are described in detail in the company's recent filings available on EDGAR at www.sec.gov and SEDAR at www.sedar.com. Any estimates or forward-looking information or statements provided are accurate only as of the date of this call, and the company undertakes no obligation to publicly update any forward-looking information or supply new information regarding the circumstances after the date of this call. On the call today, we have Clifford Starke, CEO; as well as Dany Vaiman, the CFO. Following the presentation, Clifford and I will be available for the question-and-answer period. The Q1 2024 results press release and the accompanying 10-Q has been filed on EDGAR and SEDAR. Please note, that all amounts mentioned in this call are in United States dollars unless otherwise stated. I'll now turn the call over to Clifford. [Technical Difficulty]

I'm sorry, Dany. Clifford's line has dropped. I'm just going to -- we're just going to try to reconnect him.

No problem.

Okay, good. My line just cut, everything's okay?

Yes, all good. Clifford...

Thank you. Dany, did you start off?

Yes. Please go ahead.

Okay. Great. Okay. Welcome to Flora Growth Q1 2024 conference call. Just -- a recap, in June 2023, we took over the company, and we've completely changed the company for the better. We're on track to focus on a few key initiatives and projects that should take this company the next level and create significant shareholder value. Today, we're fully funded to execute on those business plans. We recently closed a $3.23 million financing. And let me focus fully on Germany to start off, where half of revenues are generated. In March, the German government provided a solid green light for the legislation of recreational cannabis, along with the stated liberalization amendments for medical cannabis access. Beginning April 1, 2024, cannabis was formally declassified to a nonnarcotic status, the new law legislation of possession by adults for recreational purposes and allows individuals to grow up to 3 plants on their own. German adults will not be allowed to join -- will be allowed to join for-profit cannabis clubs with a maximum of 500 members starting July 1, 2024. Obviously, we will welcome this game-changing development in Germany as many of our features of [ my own ] legislation efforts in Canada, the German government has indicated that it intends to pursue a second phase of legislation focusing on the regional pilot projects with commercial supply chains. We believe that in time, Germany will further enhance its regulatory over recreational cannabis to allow for profit commercialization. An immediate commercialization opportunity -- Germany rules relates to its medical side of cannabis. Medical cannabis will no longer require a narcotic prescription, which is expected to simplify and streamline the process for subscription. More patients could gain access for medical cannabis, not only as a last resort, but rather as a acceptable treatment option for a variety of ailments. It is important to note that Flora subsidiaries have operated in Germany since 2017. We sold the first gram of legal medical cannabis in the country, and Flora's business is really prepared to take over in a driver seat and be a leader in country. Phatebo, one of our sub companies is a prominent pharmaceutical distribution company. It has an established medical cannabis sales team, and we've done very well over the past number of years. On the historic day, Germany's new rules came in. We announced the acquisition of TruHC Pharma GmBH, while we are pleased with our positioning in Germany, we believe the addition of TruHC to the Flora family will set us apart. Tru possesses key German licenses, including the EU-GMP processing, production narcotics for certified storage and laboratory licenses. In addition to hold certified customizable modules with flexibility to incorporate various production and packaging processes and which enables license extension for future in-country cultivation, which will supply to cannabis social clubs and eventually dispensaries. As part of acquisition, TruHC's management team led by Hendrik Knopp, has assumed leadership role within Flora's European operations. Hendrik was also responsible for -- in the first tender for the cultivation in medical cannabis in Germany back in the day with Aphria. The German legal cannabis recreational market has the potential to reach $4.2 billion upon legalization with the total European market forecast to achieve above $10 billion. On the heels of the German legislation push came reports of a potential reclassification of cannabis by the United States Drug Enforcement Administration, in terms of its list of Schedule I drugs to Schedule III following a recommendation from the Federal Health and Human Services Department. In 2022, President Joe Biden instructed HHG -- HHS to conduct a review of cannabis as it relates to scheduling of the plant. In August 2023 HHS recommended that cannabis be rescheduled to a schedule III substance. Schedule III drugs are those with a moderate to low for abuse and currently accepted medical uses. The DEA proposal formalized must be still reviewed by the White House Office of Budget and Management, after which DEA will take public comments before publishing its final rule. The U.S. market represents strong opportunities for Flora's businesses. Flora has expanded in the U.S. by offering complementary cannabis [indiscernible] consumer products through Just brand and cannabis accessories through Vessel. Additionally, Flora has been active in developing partnerships to expand the reach of our portfolio. In the quarter, we signed exclusive distribution agreements with Althea Group Holdings for Vessel brands in the United Kingdom, it is estimated that the vape pen and dry herb category represents a multibillion-dollar industry, it is expected to grow over the next decade from $5 billion to $15 billion. In April 2024, we entered 2 strategic distribution agreements, one with IMCC, IM Cannabis Corp. for Vessel production and distribution in Israel. IMCC's brands are well known for premium Israeli cannabis market, facilitating the import and wholesale of medical cannabis through retail pharmacies, online platform distribution center. Israel is one of the largest and longest standing medical markets in the world, and we plan on obviously positioning ourselves for that market. Second, with Me Raw Trade Ltd. to distribute both Just and Vessel-branded products in Poland and potentially other countries within the EU. Me Raw is expected to represent these brands and dispensaries, smoke shops, convenience stores, gas stations across Poland and offer white-label services to leading brands in the region. Overall, we're excited. I think we're making great strides and extremely excited over the next quarters to come when the business plan will really take shape and form. Dany, I'd like to hand over to you to go over more of the financial side of the business. And thank you.

Thank you, Clifford. Let me start by further elaborating that the momentum around cannabis reform could become a transformational moment for the sector and for Flora. We at Flora have been anticipating it and are ready to welcome it with an efficient, flexible and fit-for-purpose public company vehicle. Our business focus has shifted to allocating resources where there is potential for explosive growth, particularly in Germany and the United States. Revenues for the first quarter of 2024 were $18 million compared to $19.3 million for the first quarter of 2023. The decrease is primarily due to the company's deliberate discontinuation of several unprofitable product lines. These decreases in sales were partially offset by improved performance in our German operations, where sales increased to $11.3 million in Q1 2024 compared to $8 million in Q1 2023. Total operating expenses were $6.3 million in Q1 '24 compared to $7.7 million in Q1 2023, a decrease of $1.4 million or 18%. Excluding noncash impairment charges, the decrease in operating expenses quarter-over-quarter was $2.3 million or 30%. Net cash used in operating activities was $1.3 million in Q1 2024 compared to $4.3 million in Q1 2023, a decrease and an improvement of $3 million or 70%. On a consolidated basis, the net loss for the quarter was $3.4 million compared to $3.9 million in the comparable quarter, an improvement of $0.5 million or 13%. Before the impact of impairment and unrealized noncash losses, the operating loss was $1.6 million compared to $2.4 million in the comparable quarter, an improvement of $0.8 million or 33%. Flora finished the quarter with $4.2 million in cash, $21.8 million of current assets, including $9.2 million of salable inventory. Net working capital was $2.4 million. Each of our operating divisions have achieved results at or close to breakeven on income from continuing operations and adjusted EBITDA. JustCBD maintained a gross profit margin of 41% and sales of $5.4 million. Its top selling products in the quarter included the Nighttime Bear, Peach and CBD plus Calming Gummies. Approximately 36% of its revenues stemmed from direct-to-consumer sales and the remaining 64% generated through business-to-business sales. In the quarter, JustCBD added 200 new wholesale customers to its network. Vessel achieved a gross profit margin of 39% on sales of $1.3 million. Core products represented 48% of sales and Compass products contributed 31% to sales. The largest individual items sold was Core Black, representing 11% of Vessel sales. Vessel sales were evenly split between direct-to-consumer and business to business. In the quarter, Vessel added 35 new wholesale customers, including several multistate operators. Phatebo sales consisted of business-to-business sales of branded pharmaceuticals, including medications for Merck, Vertex, [ Antares ], MSV, Novo Nordisk, AstraZeneca, Janssen and Gilead Sciences. All in all, what we see in the capital markets is the beginning of a renewed sense of optimism around cannabis. Investors are beginning to appreciate the situation at hand with 2 of the most sought-after global markets in Germany and the United States are on the verge of ushering a new era in cannabis. This is precisely what our business was built for. I will now hand the call over back to the operator for the question-and-answer period.

[Operator Instructions] The first question comes from Bill Kirk with ROTH MKM.

So there's obviously been a lot of changes over the last 9 months or so over the last year. Can you give us a sense of what you're thinking the business will look like sales mix wise by like vision going forward? And if you can also by geography -- I think, Clifford, I think you said 50% Germany. But can you give us a sense of the division breakup sales mix that you're expecting going forward?

Yes. So right now, quarter in, quarter out, Germany between I would say, 50%, 55%. I think over the -- I don't feel comfortable telling you exactly what we're forecasting, so on and so forth future-wise. But I think you're going to see an increase both on the German side and the German side is going to be really on the medical cannabis launch, which we're already seeing, like, I don't know -- I'm sure you guys are following, but supply is extremely tight in Germany again. Within the first 2, 3 weeks, everything went bonkers more or less on simple flower product, high THC, good high-level strains. Now on the U.S. side, we're extremely excited on Vessel and Vessel's growth. I think that's going to have a tremendous trajectory over the next probably 2 quarters. And then something we're working on which we haven't announced yet is where we're really focused on the U.S. side. And in coming weeks, we'll give more of a focal point on what we're trying to achieve. But I would say at this point, I don't feel comfortable giving you exactly the breakdown. And when we put out guidance, if we do, then I think we'll be able to give you some more information, obviously.

Okay. I appreciate that. And then one on JustCBD. There are some big changes to the product lineup there. Can you walk us through a little bit more of those changes? And I guess what I want to get at is year-over-year, the profitability of JustCBD was about unchanged. But I think some of those product lines you took out were maybe unprofitable. So is it fair to expect the profitability of JustCBD as a segment to get better after those changes in the first quarter?

I think Just is positioned extremely well now to have a significant relaunch. Besides obviously cutting nonprofitable very low-margin businesses. We've also had, unfortunately, some issues with regulators in Florida, which is now solved, but that definitely hurt the top line and bottom line in the business for the quarter. So I would say from this point forth, you probably see quite a bit of growth on not necessary the gummy business or the tincture business, which are mature, but more new things that we're in the process of launching and focused on from a team perspective.

[Operator Instructions] The next question comes from Aaron Grey with Alliance Global Partners.

So first one for me, just on Germany. Obviously, early days of cannabis reform that took effect April 1. So I wanted to just speak more in terms of your expectations, what you're seeing early days in the market, how you look to capitalize specifically? Distribution, is that now something that's easier for you to utilize for cannabis now that's off the narcotics versus before being traditional pharma. And then any other ways that you're looking to capitalize on the opportunity there?

First off, Germany is obviously a big focal point of the company, we've been there for a long time. The short-term effects of April 1 were really on the medical side in terms of literally strains just getting sold out just because people are getting scripts far easier than before. It is still quite confusing where we are in the cycle in Germany because as social clubs come in effect, what does that mean for us and others. But really what we're playing this game for is when does it turn, where that next cycle is, or Phase 2 is ready to go, which is this quasi real rec space where Aaron walks in for a profit, buys cannabis and leaves. And that's what we're positioned for. That facility and team are the right fit to execute our business plan, both short term and long term. Short term, I think we're going to be very focused on medical distribution of the strains we currently move as well as July rolls in, we're going to make sure that if the not-for-profits or social clubs, great, but for a profit we can work all around that, whether it's supplying them genetics, whether it's supplying them third-party services for testing, whether it's growing on their behalf, obviously, we'll have our own club, but it's just to be part of it. But really what we're positioning for getting ready for is that Phase 2. And short term, I think you're going to see the rip happen purely on medical flower. It's a little bit confusing as well because being in the U.S., where almost everyone on this call is -- it's so far ahead of Germany in terms of products, while right now we're talking about flower. And the reality is I can't really introduce, for example, a cart to Germany legally. The reason is the pharmacist at the end is the one actually dispensing and is in control of actually releasing that to the patient and actually filling it today, okay? So there seems to be this whole new momentum of when things evolve and change. We're really right there touch every vertical to make money. But still, today, it's still the same focus it's been for years. It's just a lot easier and easier access and the margins are still sitting there, which is great.

Okay. Great. Appreciate that color. Second one for me on JustCBD. A lot of conversations lately around the hemp-derived beverage space and edibles as well, but really in some of the minor cannabinoids Delta-9 THC as well from public companies listed on Nasdaq and otherwise. So wondering if you're seeing additional opportunities through more traditional distribution channels? Obviously, a lot of patchwork in terms of the state regulations, some allowing it, some limiting milligrams and otherwise, but would love to get a perspective just in terms of what opportunities you see in the beverage channel for hemp-derived products for JustCBD and the distribution opportunities out there?

I think beverages is unbelievable category. Obviously, yourself and Bill prior to you obviously understand the beverage category very well outside of cannabis as well. And the way it's being positioned, it's not really a cannabis play. It's actually also distribution play or an alternative to alcohol distribution or alcohol. And what we're seeing is there's no national brand that exists today. There's unbelievable case studies done in various markets, but the Totals of the world are coming in and really starting to gear up. And when the category in the United States represents 2%, 3%, there's a tremendous amount of growth. And the person who traditionally smokes cannabis and rolls a joints and smokes, obviously, that's probably a different market. I think this is a new consumer who doesn't feel comfortable smoking or has different alternatives or wants to try cannabis or feels more comfortable with taboos over -- legally with it. And we see a huge explosion, in the past 60 to 90 days, it's already exploded with a tremendous amount of people trying to create brands. I think our team is extremely well positioned. I don't want to get into it too much on this call, but I think our team is extremely well positioned to actually be a leader in the category just like we were early days gummies. A period of time, we probably sold more gummies than most in the United States. In beverages, I think it's really important to be able to produce ultra-great quality. And I think what's on the shelf today is not. So I wouldn't be surprised if you go and start ripping off cans from the shelves of Total and start testing them and you're going to see the contents are far different than what you think from an MG standpoint, ML standpoint. And I think quality is going to win at the end of the day, I think having proper stability in place, what are the consumers actually 30 days out drinking what they're supposed to, is going to win. The supply by night, I don't think is going to last much longer. So that's definitely, I would say, probably the most exciting opportunity in this whole [indiscernible] space. Aaron, you mentioned it to me -- said to me a while ago and you see Tilray finally talking about it, obviously, something is happening there. At the same time, again, I don't want to get too involved in plans, but we're potentially looking at the beverage category for sure. I mean also on the I like -- I don't want to -- I don't think you're going to see over 5 MG be able to move around nationwide. But I'm not sure. I'm sure there's states like Tennessee where you could put in a 50 and there's no issues. But there's other states that obviously, like Florida, which is a little bit more difficult. And then we're seeing some states even do 4 caps. So I'm more curious also to hear what you have to say on that, but I'm sure 5 at the end of the day will probably be the threshold.

Yes. Yes. I definitely appreciate the comments. Obviously, seeing a lot of patchwork there at the state level, with some even lower milligram limits than 5. But I appreciate the color there.

The next question comes from Colin George with Haywood Securities.

Maybe if we could just turn back to Germany for a bit here. And any sort of trends or data that you're able to share with regards to new patient sign-ups or doctors -- number of doctors issuing prescriptions. I know it's only been 6 weeks, but I think there was an article out there that suggested that total patient sign up since the launch of -- since the change in the regulations on April 1 has nearly doubled the patient count. So any color you can provide on that or sort of trends you've seen in the first 6 weeks would be great.

Yes. I don't want to come in and stamp a number, I say, but I think what you're saying is probably pretty accurate. I think there has been a huge explosion. You see that in the shortage of supply. At the same time, there's a lot of poor-quality strains that aren't getting that. I think there's 2 things that are happening. There's the consumer either is extremely price dependent, i.e., very, very low or wants extremely high quality of cannabis, which obviously for higher prices, no middle ground in a sense. So we're seeing a lot of low-quality and high-quality cannabis move nowhere in between. And for us, obviously, we're -- the business is picking up clearly in Germany, but I really think, again, it's -- our plan is more for future development. That's why we've done our acquisition. That's what we've been in line for. And the medical sales and the rip in medical sales is great. We're obviously getting an extreme amount of calls and orders that we can't fulfill yet for items like [indiscernible] and potentially clones down the line, which we're trying to get organized on to actually meet the demand. But we're seeing -- it really reminds us, like we said, it really mindset of Canada early days, where everyone was kind of ripping early on and even the home-grows were doing quite well. And the ironic part is you probably remember back in Canada, when we're talking about like supply issues. And it's nice that supply issues on certain strains are actually real in the real market today. It's a blessing and it's great. So I think Phase 1, we're doing well on the medical side, but really, we're trying to build out a bigger game plan, obviously, for the market.

Okay. Great. That's helpful. And then maybe more of a crystal ball question here. With the changes in Germany, it looks like they're trying to move forward expeditely with the commercial market, some of the news out of the U.S. with potential rescheduling, 2 major global players that I would think will create a tailwind for some new countries and markets to sort of look down the route of legalization or some sort of cannabis reform. Are there any other countries internationally that you think could be one of the leaders following on Germany or ones that you're keeping a close eye on as maybe the next to switch.

I mean I have my hopes, which is not actually a great word, but I would love to see the U.K. go. I think that could be a great, great market. It's still in kind of education, but if that could go that would be unbelievable. Very conservative country, moving at a slower pace. And then obviously, it would be interesting to see over time what happens in France. The smaller markets in Europe, I expect would surely follow your -- Germany's lead, but really the big markets, it would be interesting to see -- it'll be interesting to how they roll out their policy and how we could play around it. But there are certain markets that are obviously quite big. They need to get attacked at the right time. If it could be -- years ago, everyone was talking about how Australia was such a bad market, and it's never going to take off and blah, blah, blah, and suddenly it explodes, right? And everything kind of comes together and now it's actually feeling another effect a little bit, but it had a really good 18 months of patient growth and real businesses and real distribution channels and so on and so forth. So if that could happen in the U.K. and France eventually, that would be unbelievable. But this side of the world, I mean, this is, I think, the next opportunity in the frontier to focus on is Europe. Even our Just and Vessel businesses, I mean, there's plenty of competition in the U.S., it's a very different market and very different positioning in this part of the world.

Okay. That's helpful. Yes, the U.K., I agree, would be incredibly exciting if they could move forward.

That would be awesome.

This concludes the question-and-answer session. I would like to turn the conference back over to Clifford Starke for any closing remarks. Please go ahead.

I just want to thank everyone for coming on today, I appreciate everyone's time, and we're really looking forward to report quarter in, quarter out, and we're very optimistic to build a real company and create great shareholder value for everyone. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Thank you for standing by. This is the conference operator. Welcome to the Flora Growth Corp. Q2 2023 Results and Corporate Update Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Dany Vaiman, Chief Financial Officer. Please, go ahead.

Thank you, operator. And good morning, everyone. On behalf of the Flora team, welcome to our Q2 2023 and corporate update conference call. Before we begin, I wish to inform listeners that certain statements to be made today by the management team may contain forward-looking information. Today’s call will include estimates and other forward-looking information and statements concerning future events, revenues, results from operations, financial position, markets, economic conditions, partnerships and any other statements that may be constructed as a prediction of future performance. The information may involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied by such statements. Factors that could cause or contribute to such differences are described in details in the company’s most recent filings available on EDGAR at sec.gov and SEDAR at sedar.com. Any estimates or forward-looking information or statements provided are accurate only as of the date of this call, and the company undertakes no obligation to publicly update any forward-looking information or supply any new information regarding the circumstances after the date of this call. On the call today, we have Clifford Starke, CEO; and myself, Dany Vaiman, CFO. Following the presentation, Clifford and I will be available for the question-and-answer period. The Q3 2023 results press release and accompanying 10-Q have been filed on EDGAR and SEDAR. Also note that all amounts mentioned in this call are in United States dollars unless otherwise stated. I’ll now turn the call over to Clifford.

Thank you, Dany and good morning everyone on the line. Welcome to the Flora Growth Q2 2023 results call. I welcome by saying that we were appointed in late June for the needs in stability and direction in this challenging environment. The company’s Colombian operations were not performing and corporate overhead was larger than what gross margins could sustain. We knew we had to make changes and make them quickly. We decided to divest for its Colombian operations and we implemented $6.1 million of cost savings, which includes a significant reduction in corporate overhead. While we believe favorable regulatory outcomes around adult use cannabis are likely in both United States and Europe, and we deliver significant upside in time. We do not intend to structure Flora as a company dependent on legalization. As we continue to rebuild Flora, we believe the upside lies with the cash flow diversity and runway for growth of our core businesses, which are expected to remain cash flow positive. Just Brands operates in all 50 states, 21 countries or 50 over 20,000 distribution points globally and a wide range of products from gummies, to Delta 8, HHC and so on and so forth. It is responsible for introducing the world’s most popular CBD gummy with more CBD gummy sold than any other brand. In July, Just Brands formed an exclusive worldwide partnership with Hulk Hogan to produce and sell Hulk Hogan branded products. The deal is expected to be accretive to Flora and includes a partnership with Carma HoldCo. Carma HoldCo is the host brand behind TYSON 2.0., Ric Flair Drip and evolved by future. We expect to form additional similar partnerships with entertainers and celebrities in the near future. Vessel is the leading brand of consumer technology including vape pens, batteries, and accessories. The Vessel product base are all premium and have an extremely high loyalty factor. We anticipate saving growth for Vessel in the coming quarters. Phatebo is a German based distributor of patented brand pharmaceuticals with an outreach for 28 countries. We believe in Phatebo’s potential to become an important player in therapeutics, marketing new cannabis products to the European market to start. The downturn in the global financial markets, particularly within the cannabis space continues to be a challenge facing the industry. We remain optimistic about the sector’s long-term prospects, now it’s the time for the industry to consolidate, reduce costs and build efficient models that can withstand the impact of broader economic weaknesses. Companies who will view the current conditions as a clear indication of evolution, we’ll emerge stronger and generate higher than average returns. With that, I’m going to pass along to Dany, who will go over the financial results for the quarter. Please go ahead.

Thank you, Clifford. Let me start by commenting that our results for the quarter both on a quarterly and year-to-date basis do not reflect the benefits of our reduced cost profile, which are expected to be filled in the quarters to come. We have reorganized our team to be lean, agile, and fit for purpose, enabling Flora to improve the expected operating cash flows. Our cost cutting and resource optimization is expected to continue and form a key part of our strategy, but without sacrificing performance. Revenues for the second quarter of 2023 were $21.5 million, an increase of 140% compared to the second quarter of 2022. In the first half of 2023, revenues were $40.8 million, an increase of 210% year-over-year. Gross profit for the second quarter of 2023 was $4.0 million, an increase of 19% compared to the second quarter of 2022. In the first half of 2023, gross profit was $9.3 million, an increase of 68% year-over-year. The growth in revenues and gross profit is driven by the inclusion of full period results for Phatebo and Just Brands, which were acquired in December 2022 and February 2022, respectively. On a consolidated basis, net loss for the quarter was $44.6 million, primarily due to the impact of impairment expenses of $34.9 million, loss from discontinued operations of $7.6 million and non-cash expenses of $1.2 million. Net loss for the first half of 2023 was $48.5 million, consisting substantially of impairment expenses of $34.9 million, loss from discontinued operations of $8.3 million and non-cash expenses of $2.7 million. As we look ahead, we will continue to prioritize Flora’s liquidity position. Considering recent market shifts and economic conditions, we intend to take proactive steps to improve our liquidity by obtaining additional financing. We believe the current market offers a generational opportunity for investment in the sector. We are confident in the trajectory we've set, and we are committed to delivering value to our shareholders. I will now hand the call back to the operator for the question-and-answer session.

Thank you. [Operator Instructions] As there are no questioners in the queue, this concludes the question-and-answer session. I would like to turn the conference back over to Clifford Starke for any closing remarks.

Thank you, operator, and thank you all for joining the call today. We look forward to continue updating you on the progress in the quarters ahead. Thank you and have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

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