Aleafia Health Inc ALEAF

RE:Thoughts on the CC

[Toweringmars]

Toweringmars wrote: In this absence of updates I figured id take a second look at the conference call info.
Its been awhile since I've done a bathroom read post like this, so for some weekend reading material, assuming it doesnt get buried with the same old repeaded topics, I've highlighted some of the stuff from the call. 

So we know we have 11,600 kg's that tested higher than 20% THC. 
'Now to be clear, the figures mentioned do not include our CBD and Balanced strains, which are still in the process of being weighed and tested, and make up the majority of the total harvest."

Thats going to go a long way to stopping our need for using Greenhouse GACP certified product to fill orders in the rec market like Geoff mentioned in the question portion. He mentioned that we've seen our order book fill up for sales in Nov and Dec to German markets. IMO they had to walk a tightrope of not stocking out the rec brands and chasing the high margin export markets. Its easy to say 'chase the high margin sales' but if that means dampening all the progress your making with these brands then its self defeating in the long term.

In one of the questions it was pointed out that our margins in the adult use side have declined slightly, and wether that was seasonal or not. Matt goes on to say that it comes from our growth in pre-rolls (moving into a top 10 national position) which generally have smaller margins than other products. And even though our greenhouse is quite low cost relative to peers, its going to be a different story when we're able to turn that line into 100% outdoor ultra-low cost. Milled oz should be a big margin booster. 

We've moved into a top-10 market share position in the oil, edible, and now pre-roll segments.
They point out that the biggest cost by far is the input material and not packaging or processing. As we continue to scale our margins should improve in all three of these segments as we have a larger addressable stash of input material from the outdoor crop. They say the new focus is to replicate this in the flower segment, and with input material being the biggest costs this plays right into our strengh by allowing us to be very aggressive with price points, while maintaining margins. 

With regards to UNIFOR, things have been slower than any of us could have guessed. But you cant plan for global pandemics shutting down large unionized positions and jobs. Sht happens. On the bright side, we've onboarded more patients in the last 30 days than we have in the previous 4 months combined. As we approach a return to normallacy I hope we see this accelerating.

And lastly I wanted to point out something that the shorts have been pouncing on, the negative gross profit margin in our bulk wholesale business this quarter. "Its critical to note that while there was a negative gross profit margin on our income statement. This exclusively relates to the sale of aged inventory, which we opportunistically sold during the quarter." Matt goes on to say this was aged distillate and oil inventory. To me, this sounds like perhaps it was some CBD distillate that didnt have as much of a demand as they thought, or perhaps was earmarked for 2.0 products that we're bottlenecked longer than anticipated. Regardless of the situation I'm glad they we're able to monetize them. Ideally they've learnt a lesson on this one, but this is a far more favorable scenario than writing them off and destroying it like we've seen with compeditors balance sheets. It by no means suggests that we lose money selling wholesale.

What im interested in, is Geoffs comments about CBD and wellness product regulations getting a major overhaul in the near future (likely Q1 2022), and being allowed to be sold OTC like in the US. This opens a major door for LP's, as you have a plethora of companies that want to get in on that market, and even if not directly involved in a JV, will need input material for their products. I think you'll see a wave of sales open up in that market, and frankly might lead more companies into profitability moving forward. Im a strong believer that like everything else, the company thought this would happen faster, and tried to capitalize off of it, but with COVID things got pushed to the backburner, and sequentially this led to the aged oil inventory. Its unfortunate, but again a one time thing. 

I look forward to news about the harvest and numbers next. 
Have a good weekend everyone.