Cannara Biotech Conference Summary Company Overview - **Company Name**: Cannara Biotech Inc. - **Stock Symbol**: LOVE (TSXV) - **Industry**: Canadian Cannabis - **Founded**: 2018 - **Headquarters**: Quebec, Canada - **Facilities**: Operates over 1.6 million square feet across two fully owned facilities in Quebec [2][5] Core Business and Market Position - Cannara Biotech is a vertically integrated cannabis company focused on producing premium-grade cannabis at scale, emphasizing profitability, innovation, and long-term value creation [2][4] - Currently the **seventh largest producer** in Canada by sales and **second largest** in Quebec, with a **12.8% market share** in Quebec, up from 9.7% a year ago [5][17] - Annualized production run rate is approximately **50,000 kilograms** (50 million grams) [5][6] Financial Performance - **Q3 2025**: Best quarterly financial results in the company's history - **Nine months of 2025**: - Net revenue: **$80 million** - Gross profit: **$32.7 million** - Gross margin: **41%**, with steady quarter-over-quarter increases [9][10] - Adjusted EBITDA: **$20.7 million** (26% of revenues) [10] - Net income: **$9.8 million**, a **53% increase** from the previous year [10] - **Cash Flow**: Generated **$17.2 million** in operating cash flow and **$12.3 million** in free cash flow in the first nine months of 2025 [11] Operational Highlights - Achieved a **26% increase** in capacity over the past year without additional capital costs [6][9] - Vertical integration allows full control over the cannabis supply chain, enhancing quality and efficiency [7][24] - Upcoming launch of a new vape category in Quebec, with **20% retail shelf space** already secured [8][17] Competitive Advantages - Strong operational platform with a focus on premium quality, scalable operations, and cost leadership [8][9] - Access to Quebec's low electricity rates of **$0.059 per kilowatt**, significantly lower than other provinces [26] - High barriers to entry in Quebec due to strict regulations on sales and marketing, allowing Cannara to thrive without heavy promotional activities [26][27] Strategic Initiatives - Plans for a **$10 million investment** in a new dedicated processing center to support growth and expand capacity to **100,000 kilograms** annually [16][24] - Focus on internal growth rather than external acquisitions, emphasizing operational discipline and quality [25][27] Market Trends and Outlook - The Canadian cannabis market is experiencing a shift, with a **41% surge** in estimated retail sales year-over-year, positioning Cannara as a leader in growth [16][17] - The company is well-prepared to meet unserved demand and capitalize on upcoming market opportunities, particularly in the vape segment [8][17] Conclusion - Cannara Biotech is positioned as a dominant player in the Canadian cannabis market, with a strong financial performance, operational efficiencies, and a clear growth strategy focused on quality and innovation [2][9][27]

Financial Data and Key Metrics Changes - The company achieved the highest free cash flow per share in its history at $0.54, driven by lower per unit costs and solid production performance [5][6] - Adjusted operating cash flow reached $900 million, and adjusted free cash flow was $460 million, with cash capital expenditures of $500 million [7] - Cash on the balance sheet increased from $479 million at year-end to approximately $700 million by March 31, and leverage decreased from 1x to 0.8x [7][8] Business Line Data and Key Metrics Changes - Oil production was 175,000 barrels per day, and total production was 373,000 barrels of oil equivalent per day, exceeding expectations [6] - Controllable cash costs were reduced by 4%, and drilling and completion costs decreased by 3%, landing at $750 per foot for the quarter [7] Market Data and Key Metrics Changes - Approximately 25% of 2025 oil production is hedged at a price just above $73 per barrel, allowing the company to be more opportunistic during downturns [9][10] Company Strategy and Development Direction - The company is focused on opportunistic investments during downturns, aiming to acquire high-quality assets with low breakeven costs [11][12] - A recent acquisition in New Mexico for $608 million adds approximately 12,000 BOE per day and enhances the company's operational footprint [12][13] - The company maintains a disciplined approach to mergers and acquisitions, ensuring that any new assets meet rigorous investment criteria [16][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current market and capitalize on opportunities, emphasizing a strong balance sheet and liquidity [5][9] - The company plans to reduce capital expenditures by $50 million while maintaining production at the high end of guidance, reflecting a dynamic approach to capital allocation [20][21] Other Important Information - The company redeemed $175 million in high-interest legacy notes, saving approximately $17 million annually in interest expenses [7] - Credit ratings have improved, with ratings of BA1 from Moody's and BB+ from S&P, positioning the company one notch away from investment grade [8] Q&A Session Summary Question: How does the New Mexico bolt-on acquisition compare to recent deals? - Management highlighted the low decline production base and the quality of inventory as key advantages of the New Mexico acquisition, which fits well with the company's M&A strategy [24][26] Question: What is the capacity for continued share buybacks? - Management indicated ample capacity for both acquisitions and share buybacks, emphasizing a patient approach to share repurchases [29][30] Question: Can you share details on the acquisition process? - The acquisition was a result of long-term discussions with the sellers, and the assets were already on the near-term drill schedule, providing a competitive advantage [37][38] Question: What is driving better-than-expected production? - The outperformance in production is attributed to the successful integration of recent acquisitions and improvements in artificial lift technology [40][41] Question: How does the company view the trade-offs in a weaker oil price environment? - The company maintains a focus on returns and flexibility, allowing for adjustments in activity based on market conditions while still generating strong returns [48][50] Question: What is the outlook for M&A opportunities? - Management expects continued opportunities for acquisitions in the Delaware Basin, particularly as motivated sellers may emerge in a downturn [59][60] Question: What is the current state of service costs in the industry? - Service costs are beginning to move lower, with some providers offering price concessions due to reduced activity [65] Question: How does the company plan to optimize the acquired assets? - The company plans to apply its peer-leading cost structure to the newly acquired assets, which have shown strong productivity [88][89]