Earnings call transcript: Cannara Biotech Q3 2025 sees robust growth

Cannara Biotech Inc. reported strong financial results for Q3 2025, with notable growth in revenue and profitability. The company’s stock price increased by 3.37% following the earnings announcement, trading at $19.82. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics, with analysts maintaining a strong buy consensus. Cannara’s strategic expansion and product innovations contributed significantly to its performance, positioning it well in the competitive cannabis market.

Key Takeaways

• Revenue increased by 40% year-over-year, reaching $27.3 million.
• Gross profit surged by 110% year-over-year, totaling $12.1 million.
• The company achieved a 25% yield improvement across its cultivation footprint.
• Cannara Biotech’s market share in Quebec rose to 12.6%, a 30% increase year-over-year.
• Stock price rose by 3.37% post-earnings announcement.

Company Performance

Cannara Biotech, with a market capitalization of $288 million, demonstrated impressive growth in Q3 2025, driven by strategic expansions and product innovations. The company’s revenue increased by 40% year-over-year, reflecting strong demand for its products. Trading at a P/E ratio of 22.2, Cannara’s gross profit also saw a significant rise, with a 110% year-over-year increase, showcasing the effectiveness of its cost management and operational efficiency. InvestingPro data reveals 10+ additional tips about the company’s financial health and growth prospects.

Financial Highlights

• Revenue: $27.3 million (+40% YoY)
• Gross Profit: $12.1 million (+110% YoY)
• Gross Margin: 44% (up from 41% last quarter)
• Adjusted EBITDA: $7.6 million (+170% YoY)
• Net Income: $4.1 million (+25% QoQ)
• Operating Cash Flow: $13.9 million (+220% YoY)
• Free Cash Flow: $11.7 million (+840% YoY)

Outlook & Guidance

Cannara Biotech is maintaining its annual cultivation capacity at 50,000 kg while focusing on developing its processing center. The company plans to expand into new product categories and continue its market share growth strategy. Analyst price targets range from $24 to $38, reflecting confidence in the company’s growth trajectory. Potential opportunities in medical cannabis, topicals, and new formats are also being explored. Get comprehensive insights and detailed analysis with InvestingPro’s exclusive Research Report.

Executive Commentary

Nicholas Soziak, CFO of Cannara Biotech, emphasized the importance of vertical integration, stating, "Vertical integration is a key factor." He also expressed confidence in the company’s growth prospects, saying, "We maintain our thesis of becoming the number one licensed producer in Canada over the next couple of years."

Risks and Challenges

• Market Saturation: The cannabis industry faces potential oversupply, which could pressure prices.
• Regulatory Changes: Shifts in cannabis regulations could impact operations and market access.
• Supply Chain Disruptions: Any disruptions could affect production and distribution efficiency.
• Economic Conditions: Broader economic factors may influence consumer spending on cannabis products.

Cannara Biotech’s Q3 2025 performance highlights its strategic advancements and market positioning, reflecting a positive outlook for the company’s future growth.

Full transcript - Cannara Biotech Inc (LOVE) Q3 2025:

Scott, Moderator/Presenter, Canara Biotech: Good morning, and welcome to Canara Biotech’s fiscal year Q3 financial results for the three and nine months ended 05/31/2025. As a reminder, this presentation is being recorded. Following the prepared remarks, we will conduct a question and answer session. Please submit your questions to investors at canera. Ca or in the chat option in your browser.

Before we begin, please refer to Slide two and three of our earnings presentation. All information today is subject to our general disclaimers on financial measures and forward looking statements, which are available to be read in detail at cedarplus.ca. I will now turn the presentation over to Nicholas Soziak, Chief Financial Officer at Canara Biotech.

Nicholas Soziak, Chief Financial Officer, Canara Biotech: Thank you, Scott. Good morning, everyone, and thank you for joining Canara’s earnings presentation for the fiscal third quarter ended 05/31/2025. My name is Nicholas Sosiak, CFO of Canara. And as many of you may know, I have been deeply involved in every aspect of this company since 2019. From cultivation to processing, finance, strategy, construction, sales and marketing, product development, you name it, I’ve had my hands in it.

Today, it will be my pleasure to provide you with an update on our best quarter since the company’s inception, our third quarter ending 05/31/2025. I am proud to announce that we are executing to plan steady quarter over quarter growth with fiscal Q3 twenty twenty five representing our strongest quarter yet, both financially. Operationally, we’ve achieved three very significant milestones for the business. First, we have completed our 2025 expansion strategy, turning online Rooms 11 And 12 at our flagship Valleyfield facility. These new rooms will increase our annual capacity by 6,000 kilograms, increasing our original plan total annual cultivation capacity by nearly 18% to 39,500 kilograms per year.

Second, through the constant research and development and refinement of our cultivation strategy, we have unlocked a significant operational breakthrough, improving our already strong annual cultivation yields by over 25% across our entire footprint. This increases the contributed capacity of our 12 activated rooms from 39,500 kilograms to 50,000 kilograms. As a result of this breakthrough, we’ve achieved our fiscal year twenty twenty six cultivation target a full year ahead of schedule. And finally, we have received approval pending financial procedural steps for the five of the 25 total vape SKUs onboarded by the SQDC for the highly anticipated vape category launch this November. This new category launch in our home province is a significant opportunity for Canara to continue our leadership as Canada’s number one premium vape brand, a category where we own over 23% of national market share for the third quarter of this year.

In addition to our significant operational milestones, our fiscal third quarter financial results also had some impressive milestones with new quarterly records across almost every financial metrics. We set new quarterly records for revenue, gross profit and margin, adjusted EBITDA, operating cash flow as well as free cash flow. During the quarter, we achieved record high net revenues of $27,300,000 up 3% quarter over quarter and up 40% year over year. Revenue growth was driven by increased penetration within our existing markets, new product launches under our leading brands and expanded distribution to new stores for which we still only have captured less than 3% of available points of distribution outside of Quebec. Gross profit before fair value adjustments for the quarter reached a record high of $12,100,000 up over 11% quarter over quarter and up over 110% year over year.

The increase in gross profit was generated by general economies of scale and cost efficiencies due to our automation. In addition to expanded capacity following the activation of additional grow rooms at our Violet Field facility,

Nick, Chief Financial Officer, Canara Biotech: and

Nicholas Soziak, Chief Financial Officer, Canara Biotech: of course, our yield improvement across the board. The improvement in gross profit has resulted in record gross margin before fair value adjustments of 44%, up from 41 last quarter and up from 29% in fiscal Q3 of last year. This quarter exceeded our internal gross margin target by 40% and while we expect gross margin fluctuations on a quarterly basis, we expect to see continued positive trend in our gross margin on a forward basis as we expand to unlock further economies of scale and see the benefit of our further improved yields. We’ve continued to maintain strong cost controls across the organization, reporting operating expenses during the quarter of $5,600,000 representing 21% of our revenues compared to $4,800,000 or 25% of our revenues in the same period of prior year. We delivered record high adjusted EBITDA of $7,600,000 up over 7% quarter over quarter and 170% growth versus the prior period year.

This represents approximately 28% adjusted EBITDA margin, a 115% basis point improvement quarter over quarter and up from an adjusted EBITDA margin of 14% last year. Net income was $4,100,000 or $04 per diluted share, up almost 25% quarter over quarter and up over 100% year over year. Net margin for the period was 15%, up another 12.5% in Q2 and 10% from the prior year. As you can see, solid growth across every benchmark we have. Now let’s take a look at our cash flows.

Operating cash flow generated was $13,900,000 for the quarter, up over 220% versus the prior year period and represented an almost 51% operating cash flow margin. The strong operational cash flows comes from our Q3 operational performance in addition to the timing of our cash from Q2 twenty twenty five where advanced payments of excise tax and inventory purchases were made. On a year to date basis, which would adjust for related timing adjustments between Q2 and Q3, operating cash flow for the nine months was $17,200,000 up almost 130% year and over representing a 21% operating cash flow margin. Capital expenditures were $2,200,000 for the quarter and $4,900,000 for the nine months ended May 31, a majority of which was spent activating cultivation space at our flagship Valleyfield facility and automation equipment for post processing activities at Far Nham. Our free cash flow generated was $11,700,000 for the quarter, up over 840% from the prior year period and represented almost 43 margin.

Free cash flow generated for the nine month period was $12,300,000 versus $500,000 in the prior year period and represented a 15.5% free cash flow margin. Fiscal Q3 twenty twenty five marks our seventeenth straight quarter of positive adjusted EBITDA and our fifth quarter of positive net income. Canara continues to own one of the strongest financial profiles in Canadian cannabis. Net income positive since fiscal twenty twenty one, operating cash flow positive since fiscal twenty twenty two and free cash flow positive since fiscal twenty twenty three. For our fiscal twenty twenty five guidance, we continue to forecast growth in both net revenue and adjusted EBITDA from our core business.

We anticipate generating operating cash flow and free cash flow on an annual basis for this fiscal year. At quarter end, we held $14,400,000 in cash, up $7,800,000 from our prior year ending cash balance and held a working capital position of $49,400,000 We maintain 84,000,000 in current assets against a $34,600,000 in current liabilities for a current ratio of 2.4. At quarter end, we had just shy of 91,400,000.0 in basic shares outstanding with less than 1,500,000.0 shares issued over the previous twelve months and less than 3,800,000.0 shares issued over the last three fiscal years. Basic shares issued over this period were largely as a result of employee stock option conversion plans with no dilutive capital raises conducted since the issue of our $5,000,000 convertible facility with the Limbek in July 2021 for the acquisition of our Valleyfield facility. Over 50% insider ownership means Canara is led by operators with skin in the game, fully invested in building long term value alongside our shareholders.

From March, we executed on four milestones that strengthen our balance sheet. First, we repaid $1,000,000 against our $5,700,000 convertible debenture with Ullimbeck, which is maturing March 2028. A second partial repayment of $2,300,000 is due in September, for which we have already found a replacement convertible debenture in place with the same terms. Second, we signed a binding letter of intent for $5,500,000 sale of an unutilized building and its associated land at Valleyfield, which we expect to close at the end of this month. In addition, we completed an amendment on our existing credit agreement with BMO, a leading Canadian bank, reducing our interest rate on our $34,000,000 term loan and $10,000,000 line of credit maturing in December 2027 by 75 basis points reducing our cost of debt to under 6%.

Finally, we have achieved financial covenants that allowed the removal of a limited recourse guarantee on our credit facility, saving a further $375,000 in annual interest expenses. We stand strong by saying Kinara maintains one of the cleanest balance sheets in Canadian cannabis with ample cash flows to fund our expansion project and to service our debt positions and have no significant near term maturities until December. Our market share continues to outpace peers driven by premium quality cannabis offered at affordable price. This is made possible by our low cost operations, scale efficiencies, and access to low electricity rates in Quebec. As of June 2025, we hold a 12.6% market share in Quebec up from 9.7% a year ago and almost 30% increase.

In March alone, we gained 60 basis points while the second largest LP lost 80 basis points. We are now just 60 basis points from the top spot. This is especially significant in Quebec and sometimes overlooked by cannabis investors as Quebec is the only province in Canada where almost no promotional activity is permitted. With no sales and marketing levers, growth here reflects product quality alone, a key signal of our ability to win across Canada. Nationally, we’re the seventh largest LP with 3.8% market share up from 3.1% last year.

That’s a 27% year over year increase, making us one of the fastest growing LPs in the country. The slight decrease in national market share from Q2 to Q3 is attributable to Ontario and Alberta where the company saw some market share loss due to the highly competitive pricing dynamics and Canara’s disciplined approach to profitable growth, prioritizing margin preservation over aggressive discounting. We are confident in our strategies in place to resume growth and market share in these markets over the coming quarters. Looking at our CPG portfolio, some examples of successes include: We offer one of the fastest growing premium infused pre roll multipacks in Canada. From March to June, we grew our category by 12% to 8.5% of the category share, While the number one competitor declined, now ranking us number two in Canada and number one in BC and Quebec in terms of market share.

In Quebec, we hold a commanding 70% of the infused pre roll market. I said 70% of the infused pre roll market here in Quebec making Nuggs the undisputed leader in the province. In premium vapes, we hold over 22% national share with sales up nearly 70% year over year despite being one of the highest priced product lines in the category. This confirms our ability to win not just on price but on quality. And that same vape performance, we believe, will give us a strong positioning ahead of Quebec’s vape launch this November.

Tribal leads premium 3.5 flower segment nationally, now holding over 18% category share. With pricing at $30 in Ontario, a disruptive value versus ultra premium offerings at $50 often with similar or less quality than tribal. For our new investors, our market share success is built on the strong inherent competitive advantages present within our asset base. We operate two state of the art mega facilities in Quebec, enabling full vertical integration across all of our processes without the need for third party cultivation, extraction, or manufacturing. Our Farnham facility is dedicated to the operation of our nursery, our pheno hunt process, post harvest, and packaging.

The facility is 650,000 square feet of which we occupy 200,000 square feet today and the balance of the building is currently leased out to tenants which generate up almost $4,000,000 a year in rental income. Our flagship Valleyfield facility at 1,100,000 square feet is a purpose built hybrid cannabis cultivation center. It is one of the largest cultivation cannabis facilities in the country and the largest cannabis facility here in Quebec. The facility right now has 24 growing rooms each measuring 25,000 square feet and each room is built to replicate indoor growing conditions. Our Valleyfield facility is a particular significant asset.

We acquired this facility in 2021 for just $27,000,000 This was an extraordinary opportunity considering the incredibly overengineered facility was built during the overspending gold rush period of Canada’s initial legalization, and the facility’s original construction cost exceeds $250,000,000. This acquisition at a fraction of its value has given us leading access to one of the best cultivation facilities in Canada with mass scale and low cost cultivation. 12 of the 24 value filled rooms are activated today and operational up from 10 rooms in fiscal of Q2. The newly activated rooms eleven and twelve after our breakthrough in cultivation improvements will allow us to now increase our capacity to annual yields of 50,000 kilograms per year, representing a 50% increase in production since fiscal of twenty twenty four. Activating the two additional rooms required a capital investment of approximately $1,500,000.

And these rooms could generate over $10,000,000 each year in annual net revenue, making it a significant making it a significant return on invested capital. And this is a strong competitive advantage that Canara owns. Canara’s forward CapEx approach is rooted in disciplined growth, scaling production in line with market demand. In 2026, we will initiate the first phase of construction on a dedicated processing center at Valleyfield to support additional drying, trimming and post harvest capabilities. This $10,000,000 investment will unlock processing capacity to activate additional growing zones, providing a clear path for continued scalable growth.

As mentioned previously, two major operational milestones achieved during this quarter has led to a 50% increase in our production capacity since last year. For fiscal twenty twenty six, we plan plan to maintain our annual kilogram capacity of 50 tons while focusing on our investment CapEx on the build out of our phase one processing center that will allow us to scale into more cultivation rooms starting fiscal twenty twenty seven and beyond. What sets Kanara apart is its ability to activate capacity within a fully, fully vertically integrated structure in lockstep with demand, delivering best in class returns on investment thanks to the minimal capital required to bring on our new grow rooms online. And it’s important to note the benefit of having each expansion occurring in the same facility using the same team, systems, and SOPs. This drives significant operational efficiencies and margin scalability, and most importantly, consistency as we grow.

Quebec has been always part of our secret sauce. It’s becoming clear that licensed producers coming out of Quebec are emerging as profitable leaders. As Canada’s second largest province with over 9,000,000 people, Quebec provides us with home field advantage and access to some of the lowest utility and labor costs in Canada. One of the most compelling benefits is the province’s exceptionally low electricity rates at just 5.9¢ a kilowatt, substantially lower than those in other provinces such as Alberta where rates are as high as 14¢ a kilowatt. Since electricity and labor account for over 75% of indoor cultivation costs, Our Quebec positioning gives us a significant competitive advantage within our cost base and enables us our ability to be disruptive with our pricing while still generating industry leading margins and cash flow generation.

And beyond electricity costs, Quebec represents the highest barriers of entry, particularly with strict restrictions on sales and marketing. These combined factors with the lack of retail data deals makes Quebec an ideal environment for Canara’s growth. While many Canadian LPs are expanding overseas out of necessity, we are thriving in Canada by choice. The reality is is that most can’t compete here profitably. They’re losing market share, struggling to build brands, and failing to operate efficiently.

Success in the cannabis industry is not simply rooted in scale, first mover advantage, or capital market access. And the history of overbuilt, overcapitalized companies losing market share to more sophisticated operators with better quality products is a testament to that. Success in this industry is a derivative of experience, knowledge, and most importantly, execution. While we have built large scale success over our operational history, we view our recent operational yield improvements and upcoming vape launch in Quebec as a very strong indicator of our industry leading operational excellence, our focus on evolving our strategies, and the ability to execute. Canara has built our success from the ground up with an extremely pragmatic, supremely focused operations team backed by leading commercial strategies and a truly premium product.

Thank you for taking the time to listen to our 2025 financial and operational highlight presentation. I’d now be happy to open the floor and take your questions.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. We will now kick off our q and a session. As a reminder, you may submit your questions via the chat or the Zoom q and a function at the bottom of your screen. Should your questions not be answered during the call, we will follow-up directly to ensure we have time to address.

Nick, Chief Financial Officer, Canara Biotech: Good stuff.

Scott, Moderator/Presenter, Canara Biotech: So, Nick thank you, Nick. So we’ll start with the the first question we received. So the first question is, since you managed to improve yield by 26%, why doesn’t it reflect on total possible output that was previously estimated? 100,000 kilograms.

Nick, Chief Financial Officer, Canara Biotech: Absolutely. So the, the the plan was, always for Valleyfield to reach a 100,000 kilograms. But in order to reach a 100,000 kilograms, we had planned to build out our rooftop greenhouse. That was going to happen, after 2026. However however, with the recent, cultivation, improvements and, changes in our cultivation techniques, we’ve actually been able to reduce our our overall, grow time without utilizing the additional space on the rooftop.

So this way, right now, where we’ve achieved with our 12 rooms, we’ve we’ve achieved 50,000 kilograms. We now can expand to our 12 our our 12 other rooms to get to a 100,000 kilograms without turning on our greenhouse. The greenhouse will eventually be planned for additional biomass, as and additional kilograms on top of that, as we plan out that project. But for now, the greenhouse has is not forecasted inside our production capacity.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Follow-up question is, why is the number of rooms opening for 2026 set to zero as of now?

Nick, Chief Financial Officer, Canara Biotech: Absolutely. So we had 12 rooms originally with the, before the, the expanded yields. We had 12 rooms, and, based on the, the our our runway, we were planning to turn on additional three rooms in 2026 to get us to the 50,000 kilograms. 50,000 kilograms is really our post harvest capacity limit at this point in time because we’ve been leveraging our Farnham facility to do all the drying and the trimming. Now, because of the increase in yield, we’ve decided to, keep our 12 rooms because we’ve already achieved our annual capacity target and now invest in our processing center so that we could be able to scale our next 12 rooms and handle the full 100,000 kilograms.

Scott, Moderator/Presenter, Canara Biotech: K. Thanks for that, Nick. And then lastly, any chance of seeing stock buyback this year to keep the number of shares stable, or are you more focused on paying debt as of now?

Nick, Chief Financial Officer, Canara Biotech: Yeah. Great question. We did we did a buyback earlier when our stock was below below a dollar. The objective for, going forward, at least for the next fiscal year, is, really focusing on our CapEx project, the processing building, and, and growing the next 12 rooms so that we can achieve full capacity and also, paying down our, our debt, starting off with the highest interest debt and then working our way down, at which point then we’ll be in a position to look at stock buybacks again.

Scott, Moderator/Presenter, Canara Biotech: I’ll move over to the, the q and a function, chat. So the the first question is outside Quebec, what are your competitors doing that Canera is not doing yet that could help you grow faster?

Nick, Chief Financial Officer, Canara Biotech: So we’ve taken a very slow and steady approach on sales and marketing. We’re Quebec based where sales and marketing is not permitted, you know, we didn’t develop a sales team or marketing for for for this market. And over time, just pretty much since last year, we really started deploying a more rigid sales and marketing program. That sales team across Canada, again, we’re only five or six compared to our competitors, which are, well over that number. And, you know, trade display programs, marketing programs, we’re just starting to, to to get you know, deploy that marketing spend.

Of course, always making sure that we’re not spending more. Our limit right now is 10% of revenues It’s a it’s a line in the sand that we put in to sustain growth. So, yeah, are other competitors spending much more than 10% of the revenue? Absolutely.

Are they, you know, really working with key accounts? Absolutely. And that’s that’s something that Canara is doing strategically, quarter over quarter and making the right moves quarter over quarter to ensure that we’re growing in a steady, pace and efficiently and effectively.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Turning over to some questions related to the vape cartridge launch at the SQDC this fall. The first question is, do we know how many vape SKUs the SQDC has approved thus far? And then I’ll add to that. It was a follow-up question.

Do you have a sense of how many carts will be distillate based? How many all in ones or other live rosin vapes?

Nick, Chief Financial Officer, Canara Biotech: So what we do know is that 25 carts were expect were were accepted in store, and five carts were accepted online. As we do know, based on the current market here in Quebec, if you’re an online SKU only, it’s it’s very hard to succeed. So we can look at the market as really 25 SKUs, and Canara having five SKUs represents 20% of, the in store shelf space of that. And just looking at our infused, the infused market share where we’re 70% of the market, you know, we’re really excited about our market share, in the vape category knowing that we have 20% of the shelf space and across all three brands. So all three brands, which is very important to us, are have a vape cart, Orchid, Nuggs, and Tribal.

Do we know what kind was accepted? No. We don’t. We don’t know the makeup of it. There’s no all in one, so these are all standard five tens, again, with a lot of restrictions.

Ohmage and voltage settings, are, pretty much dictated by SQDC to the color and the font that you use on the vape card. So, highly regulated, five tens only for now. We do have, two live rosin vapes out of the five SKUs that are launching. So we’re really excited to see, how Quebec’s gonna enjoy our, our vape cards come November.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. As a follow-up still related to the Quebec market, besides vape, what other changes will the SQDC be implementing or planning based on what you know?

Nick, Chief Financial Officer, Canara Biotech: Besides vape, so what we do know is that they’re getting rid of the, what they call the nursery program. So nursery program was for new SKUs. Any new SKU that was accepted within x SQDC would go into the nursery program, which would be about 15 to 20 stores out of their 107 store network. And then they would track the sales for six months, and then eventually, after six months, decide to go, full retail, or delist the the product. So, that’s currently, abolished.

And, so all new products going into SQDC, once accepted, will go to the full planogram. And that that’s about a three to four x times, the sales, that you would see on a nurse your your SKU seeing on a nursery program, versus a full plano. So, we launched a couple of SKUs in April in the SPDC, which are really performing well, our GMEN Trifecta, the NUGGS Meat Pie, and, those are actually still in planogram, nursery planogram. And, come, I guess, later on this year, they’ll be, transferred into the full, retail planogram, which will definitely see some increased sales for us. Other than vapes, the other than the nursery program, I think they’re also really focusing on improving the customer experience at SQDC.

So the in store customer experience really showcasing the product, allowing the suppliers to showcase the actual product. So I think they’re they’re making some changes that will help promote, the customer experience and, hopefully end up in increased sales over time.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question received is as follows. Considering the recent federal changes concerning temporary foreign workers becoming fully effective this fall, should we expect any effect to your operations, particular staffing costs and capacity management in Quebec?

Nick, Chief Financial Officer, Canara Biotech: Yeah. So most of most of our staff are are hired internally, Quebec staff. We do use agencies, though. We’ve verified and done our due diligence, and there’s no effect on on on Canara on increased staffing or costs or even management of it given the new regulations. So we’re we’re well aware of it.

We’re monitoring it. And, based on our conclusions, we’re, we’ve avoided any additional costs or, work to be done, given that new regulation.

Scott, Moderator/Presenter, Canara Biotech: K. Thanks, Nick. Next question is inventory has trended up in the last quarter. Is this mainly to support forecasted growth, or is there some seasonality to this? And how should we look at inventory levels going into the next few quarters?

Nick, Chief Financial Officer, Canara Biotech: Yeah. So there’s some seasonality as we mentioned with the q two cash flow issue where we did have lower cash flows because we did invest in the inventory, paying the deposits. Again, we’re we’re buying a lot of inventory from China, so the Chinese New Year. So we preloaded inventory. So if you look at our breakdown of the makeup of our inventory, there has been a big bump in in raw materials that, you know, reduce costs and we’ll be using over the remaining of a year.

In terms of how to look at it, we always look at it, one, internally in terms of how much of our cannabis is within, you know, a six months time frame, which is what ideally what we want, our cannabis to be from harvest date to to sale date is within six months. And, over 90% of our inventory is within that range. So that’s that’s one benchmark that we do internally. And then externally, I would I would say that, we can look at our costs, on our income statement, how much we’re doing on a quarterly basis, which is about $1,515,500,000.0 dollars of cost, and then look on our inventory level, our inventory balance in the note breakdown where you see the cost and then you have a fair value component on it. You’d have to back out the fair value and look at the cost, and we’re about 30,000,000, which tells me we have about $16,000,000 of runway, which is aligned, with, with what we’re looking at.

Yes. Are we trending up? Yes. But that’s also because we’ve increased our yield, and we’re, expecting 20%, or or more going into next year as a budget, to, increase our our our our sales. So, we have to get ready for that moment, and, that that inventory level for us is, is in check with with our sales track record.

Scott, Moderator/Presenter, Canara Biotech: Great. Thank you, Nick. Next question is, there are a number of financially constrained companies that are still operating in the industry. What will happen to these companies, and how will it impact Canera over the short to medium term?

Nick, Chief Financial Officer, Canara Biotech: I mean, we’ve already lived it for a while. You know, we see these financially constrained companies that, don’t have access to capital have, you know, really pushed their their strategic plan, in Canada, to the max that they could. Some found, success through international sales and moving internationally and restoring their business internationally. Others are, you know, gonna hang on for a little bit more and, unfortunately, go through the, c c double a process. Mergers and acquisitions at this point in time, I think they’re, you know, there’ll still be some, but it’s really not, the focus.

So I think this is, at the point where we’re gonna start seeing the downsizing of the the how many LPs are are in the industry, and then really refining it to the the the the top 10 that are, catering to 8080% of the market. And, for for Canara, we’re just gonna stay focused on, what we do, but also be opportunistic. There’s definitely synergies out there, and, we’ll we’ll evaluate any opportunity that comes across our desk to see that if it, provides added value to, the company and to our shareholders. And, we’ll evaluate that, but with the main goal of continuing our plan and not, risking anything to to change that plan.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question is as follows. As you continue to expand in flower, do you see untapped opportunities in your pack sizes?

Nick, Chief Financial Officer, Canara Biotech: Absolutely. Absolutely. We right now in tribal, we’re playing in three and a half, categories. For the flower in in in nugs, we play in the seven grams, 14 grams, 28 grams as well. And there’s probably a little mix between both brands that we could expand into.

We’re looking at multipacks where different flavors will be within a seven or 14 gram pack, and we’re just evaluating. I think we we Tribal, you know, is category leader in the three and a halfs, and NUGGS has seen some great success in our, sevens and our 14 grams. So we’re gonna evaluate, you know, each market segment. There’s a lot of price compression. People move from the three and a half to the sevens and the 20 eights.

So there’s still, not necessarily price compression happening right now, but the effect of price compression that happened, call it last year, and, them, you know, those categories having the most volume because you’re selling the most grams per per unit. So it’s the it’s one of those categories that still has price compression in it, And, we’re we’re standing back on the sidelines, evaluating it, gonna come up with a innovative and creative offering, for the market and, go forward with that. So a lot of opportunities, innovation, and and and pack size for us.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question received is as follows. Have you given sales guidance for 02/1926?

Nick, Chief Financial Officer, Canara Biotech: No. We haven’t. We have not, but you could kind of forecast it from, the amount of kilograms we’re forecasting and the the our average price per gram, which is reported in our financial statements. So you can that that that would assume that we would, you know, sell everything and have not no inventory rolling into next year. So, you know, take a margin of inventory that you need to roll into next year and use those two variables, and you can estimate, where our, revenue would land in 2026.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question is with the recent increase in stock price, has there been further discussion regarding the convertible debentures owner preference between repayment or conversion?

Nick, Chief Financial Officer, Canara Biotech: Definitely, definitely discussions. As as the price gets, or, you know, surpasses the conversion price, makes it more interesting for, the, debenture holder. So these are definitely discussions that are being had, and, you know, you’ll probably see some things in September around September 30, which is the date we’re originally agreed where we we will repay 2 and a half million or half of the the outstanding convertible debenture, with a new note. So we’ll see by that time, what the end conclusion on on that topic is.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question is how much wholesale demand are you seeing in the market?

Nick, Chief Financial Officer, Canara Biotech: So wholesale demand is continuing to increase drastically. I only have the number last year, but it was 40 to 50 tons of cannabis, was exported internationally. And then there’s still those companies that, you know, close down their grow or don’t have enough production capacity to sustain their own sales. So we are seeing a major advantage of being vertically integrated or being the grower at this point, a grower of premium quality cannabis. And, yeah.

So for for us, it’s it’s a good sign because as we as we focus on our strategy of retail, we see that this wholes the wholesale pricing continue to increase, which is a great plan a backup plan for us as we scale, and we have excess inventory to to sell through the b two b wholesale channel market as we scale up. And that’s it just proves our theory that if you control the vert the the the cultivation cycle that you ultimately, are eventually gonna be able to control the the the the whole product down to the the what you deliver to the consumer. And that was really, really important to us, and and we see that now why it’s so important. And, wholesale prices, I think, are gonna continue increases because there’s not much capacity being turned on, online and international sales continuing to increase. And Canadian sales are are also increased.

We’re at the highest national, retail sales to date. So everything’s moving in the right direction.

Scott, Moderator/Presenter, Canara Biotech: Perfect. Thank you, Nick. Next question is gross margin before fairly fair value adjustments expanded to 44% in q three twenty twenty five. How sustainable is this margin profile?

Nick, Chief Financial Officer, Canara Biotech: So our target was 40%. And, as, you know, we we as we stay focused and and do what we do, which is continuously improve our cultivation, increase yields, reduce cost, automation improvement across the whole vertical as operation of our of our facilities, we’re seeing those cost benefits. So is it sustainable? Absolutely. Where is it gonna land?

You know, our target was 40. We’ve already surpassed that. We’re gonna keep our target at 40% for now and, continue, continue scaling. There’s variables as well. Right?

With cultivation, the biggest impact for your yield per your your dollar per gram, is yield. Right? So, as we pheno hunt new genetics and figure this release new things, that that there there’s variables that we just don’t can’t control at a certain point in time, and then we we can, you know, build on it in r and d and and get it to where we are or want. But we’ve been holding, the margin steady, increasing, since we took a dip in q two of last year, which is, again, that happened because of yield issue where we pheno hunted two great genetics. Genetics.

Our r and d showed that it was great. And then when we end to commercialize the first lot, the yields weren’t weren’t where we expected it. And then it took us a while to, get the yields, or a quarter, basically, to get the yields to where, we want it to. And then the next quarter, we started seeing that reflective in the cost per gram and the yield per gram. So the many variables, but we understand them all.

We look at them. We control them, and, we’re gonna make sure that we always surpass our objective of, 40%.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question is how does the margin profile on vapes line up against the rest of your SKU portfolio?

Nick, Chief Financial Officer, Canara Biotech: Again, vertical integration is a key factor in there. Like, we cultivate, we grow the plants, we harvest the plants, we freeze the plants ourselves, we extract the plant ourselves, we fill the cart ourselves. So a lot of cost efficiencies, and that continues to improve over time, because there’s so many variables in that process that we’re always tweaking and making becoming more efficient. Our margin profile is really good on vapes, over 50%, some range up to 60% on our vapes. So it’s a it’s a very important category for us, and we continuously improve our costs, but also improve our quality of the product by investing in better quality hardware or better quality just making the the the oil better quality.

If it takes a bit longer to process, we’ll take we’ll we’ll we’ll do that if the quality is there, and then we save in other areas where the quality is not affected. So, yeah, very press really important 56% margin.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question is, could you give an update on the strategy to build out the processing center in Valleyfield? What is the objective of this expansion?

Nick, Chief Financial Officer, Canara Biotech: So as mentioned earlier, because we reached our 50 tons of capacity, we’ve reached our post harvest capacity drying and trimming. So the objective now, which would would have been at 15 rooms and then start the processing building, we’re gonna do it, yeah, at Room 12 and start really the processing building, and that’s a process it’s 200,000 square feet of processing building attached to our greenhouse. The shell’s already built out. This was part of the acquisition that we bought, but the interior was never built out. So the project here would be to build out a processing center.

We’re looking at, 10 drawing rooms, two deep two deep freezers, like serious walk in deep freezers, hand trimming and machine trimming rooms, vault space, a bunch of other, conditioning spaces and all that stuff, in our processing center. And that what that’s gonna do is not only is it gonna, leverage or allow us to scale into our next 12 rooms at Valleyfield, but it we’re gonna see cost efficiencies because right now, we’re transporting all our plants from Valleyfield to Farnham and then having a separate team do the drying and trimming and then processing it all there. So now that everything’s gonna be done at Valleyfield, there’s gonna be efficiencies there, and we’re gonna be basically sending finished finished good products to Farnam, and then Farnam will recapture the old drip drying and trimming space into more packaging space as we scale up, our operation.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question is congrats on reaching number two in Quebec by market share. How has the recent launch of Quebec Trifecta has gone to date?

Nick, Chief Financial Officer, Canara Biotech: The market loves them. Market loves them. We’re, the in the nursery program, again, it’s still nursery program. We’re the the top selling, infused pre roll, that was launched in that, during that period, and it’s the most expensive pre roll too. So, infused pre roll pack.

So I think, the market is is is appreciating, the the authenticity of that product, that we don’t use distillate or botanical flavors or anything like that. It’s true to terpene, flavors that are representative or that are come from the tribal genetic lineup. So, really excited to see that, go from nursery program to full launch and then launching our other trifectas that we have. We have every genetic gets a trifecta. So we have five trifectas waiting on the on the sideline ready to go into Quebec when they do their next protocol, which will only be in 2026.

Scott, Moderator/Presenter, Canara Biotech: Thank you. Next question is, who is the largest selling LP in Quebec, and what is a ballpark for their market share? What do they do best?

Nick, Chief Financial Officer, Canara Biotech: So the largest, LP in Quebec by, one or 2%, difference is, is Tilray. How did they get there? I mean, they do own some very high that were originally, you know, when Quebec first came out. Quebec is very, loyal, with their products. So Tilray had some products that, that continue to sell pretty well.

They’re the lowest priced product in in the SQDC, but they sell volume. So what else did they do? They also acquired a bunch of companies and brands and and, you know, gained their market share through acquisition. But, you know, I think Canara holding three brands, really two brands that hold 90% of the revenue or it being 10%, but two brands being the second largest l LP in in Canada in Quebec with two brands and about to take over becoming number one as we get the trifecta and our meat pie into full planogram as we launch our five new vape carts, again, under these two brands. It’s pretty exciting that, you know, I think in in a couple of months, Canara will be the number one LP in Quebec organically with only two brands.

Scott, Moderator/Presenter, Canara Biotech: Hey, Nick. Next question is how many provinces are you listed in, or rather what provinces remain to be onboarded?

Nick, Chief Financial Officer, Canara Biotech: So we’re, what’s left to be onboarded is the, East Coast, some of the Canadian territories, not major sales, but still, definitely channels to increase sales. The major opportunity for us, other than, you know, Quebec and increasing the market share there, is is really expanding and and diving into each of our core markets outside of Quebec being Ontario, Alberta, and, BC, where, we on average, we have about 14 products per store, which represents only 3% of the, total available distribution points across Canada, which also ties with, you know, our market share of being 3%. So we are going to continue expanding those markets, leveraging our sales and marketing team, our innovation, our products, and, continue scaling in BC, Alberta, and and Ontario while showing success in continuing to show success in Quebec and, and on the sidelines as well expand into the Eastern provinces to generate additional revenue.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question is, are there any product categories that you’re currently not participating in that look interesting to Canara?

Nick, Chief Financial Officer, Canara Biotech: Yeah. So as mentioned previously, I mean, there’s some format categories that we don’t play in every single format, across our different brands. So within our existing categories, there’s format plays, that we’re looking into. There’s multipack plays that we’re looking, into. And, you know, we’re not we haven’t really explored the edible category.

We have one SKU and waiting for some regulations to change. We haven’t explored the beverage category, which, you know, we we could look into. There’s the topicals and the, there’s a whole medical side too. We have very minimal sales on the medical rec channel. Sorry, medical channel, which is has high sales in in our existing categories, but also topicals and oils and capsules.

So that’s something that, category we can play in. And, yeah, that’s, I think those are we’re we’re in the major categories. There’s gonna be innovation as we continue to go, but, but there’s some sub subcategories that we’re looking into that could add value.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. As a follow-up, question, are there any upcoming product launches or innovations in the pipeline that you’re particularly excited about or see as meaningful growth drivers?

Nick, Chief Financial Officer, Canara Biotech: Or sorry. It’s our vapes. We’ve been working on that. Nothing but that, for for Quebec. So that’s that’s really exciting to to see, and that’s gonna be a a huge growth lever for us.

And then just expect our our normal continued innovation across across our product line. Right? We’re continuously pheno hunting, so we’re gonna be launching new genetics several new genetics every year, and every new genetic, like, you get it in flower, pre rolls, infused pre rolls across the board. And, again, looking at multipacks, multi flavor packs, which are are gonna be interesting, different sizing packs as well. So all that to come in the future.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. Next question is, are you utilizing any third party relationships? And if not, any plans on doing so?

Nick, Chief Financial Officer, Canara Biotech: We’re really fully fully in vertically integrated. We do leverage a CMO here and there when we’ve reached excess capacity and we need assistance to meet an order, you know, in the following week or or two. But our goal is to as as we hit those as we hit those timelines where we do have to leverage a CMO, we’re we’re investing and adding capacity within our internal organization to to be able to handle the increased capacity. So I I would I would say no. We don’t really use this CMOs to to build the our products.

Scott, Moderator/Presenter, Canara Biotech: Thank you, Nick. So the last question that was submitted, it’s as follows. You’ve spoken to an internal 40% gross margin target. Does this target change now that you’ve increased your yields?

Nick, Chief Financial Officer, Canara Biotech: So we’re gonna keep our 40% just because it’s it’s an industry leading margin already, and our goal is to continue over delivering on that. And, yes, will yields improve the margin? Absolutely. Will the costs will the everything that we do on a daily basis improving efficiencies across the organization, will it improve our costs and and and yield? Absolutely.

So we’re gonna continue executing on all levels and, and and continue seeing success and margin improvements, as we continue to scale Cannae.

Scott, Moderator/Presenter, Canara Biotech: Great. Thank you, Nick. That concludes the questions that were submitted. So I’ll open the floor for closing remarks.

Nick, Chief Financial Officer, Canara Biotech: Thank you, everyone, to, for joining our q three twenty twenty five financial presentation. As always, I appreciate any feedback you have. You can email me at Nick@Canara.ca. Anything on our story or if you’d like any, questions to be answered that weren’t answered on today’s webinar, it would be my pleasure. And, continue following our story.

Well, it’s not done yet. There’s a lot to come. We’re in this for the long run, and, we maintain our thesis of becoming number one licensed producer in Canada over the next couple years as we build out Canara and the assets that we have. So, again, thank you very much for joining me today, and have a wonderful Monday.

Scott, Moderator/Presenter, Canara Biotech: Thank you very much, Nick, and thank you to all participants.

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