Clever Leaves Holdings Inc (CLVR) 2022 Q2 法說會逐字稿

Good afternoon and welcome to the Clever Leaves second-quarter 2022 earnings conference call. (Operator Instructions) Please also note this event is being recorded.

I would now like to turn the conference over to Jackie Keshner. Please go ahead.

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clever Leaves' financial results for the second quarter ended June 30, 2022. Joining us today are Clever Leaves' CEO, Andrés Fajardo; and the company's CFO, Hank Hague.

Before I introduce Andrés, I remind you that during today's call, including the question-and-answer session, statements that are not historical facts, including any projection for guidance, statements regarding future events or future financial performance or statements of intent or belief are forward-looking statements and are covered by the Safe Harbor disclaimers contained in today's press release and the company's public filings with the SEC.

Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. Specifically, please refer to the company's Form 10-Q for the quarter ended June 30, 2022, which was filed prior to this call, as well as other filings made by Clever Leaves with the SEC from time to time. These filings identify factors that could cause results to differ materially from those forward-looking statements.

Please also note that during this call, management will be disclosing adjusted EBITDA, adjusted gross profit, and adjusted gross margin. These are non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures and a statement disclosing the reasons why company management believes that adjusted EBITDA, adjusted gross profit, and adjusted gross margin provide useful information to investors regarding the company's financial conditions and results of operations are included in today's press release that is posted on the company's website.

With that, I will turn the call over to Andrés.

Thank you, Jackie, and good afternoon, everyone. Our second-quarter performance reflects our continued execution on our redefined growth strategy. We generated solid year-over-year revenue growth across both segments of our business, including a 124% increase in cannabinoid revenues as we continued to expand on existing commercial partnerships and drive strong momentum in our target markets of Australia, Brazil, Germany, Israel, and the United States.

In addition, we've completed significant restructuring initiatives to more closely align our cost structure with our core operational priorities. From a balance sheet perspective, we fully repaid our two largest debt obligations, which has significantly reduced our total debt and given us additional flexibility to support our ongoing strategic initiatives. I am proud of the strategic progress we have made and our team's tireless work to maintain our momentum through the first half of 2022.

To review our second-quarter commercial progress in greater depth, I will focus on each of our target markets. In Germany, we have continued to sell our IQANNA flower product and received strong demand and positive market feedback for the brand and products. As we continue to grow this brand and complete additional shipments, we believe this product line will become a strong contributor to our revenues from the German market.

In April, Clever Leaves Germany also became a fully licensed medical cannabis distributor, granting us direct access to our network of wholesalers and around 20,000 pharmacies throughout the country. I will speak in greater depth about additional commercial and regulatory opportunities within this market later in the call. But we look forward to further supporting the momentum we've generated through the first half of 2022.

In Israel, we have remained vigilant in our adherence to the country's fluid regulatory framework and work to ramp our existing commercial agreements. To ensure compliance with the heightened quality standard Israel has in place, we strengthened our post-harvest flower product testing and analysis capabilities, demonstrating our deep market knowledge and commitment to meeting even the most stringent pharmaceutical standards around the globe.

As a result of these efforts, we successfully completed our first high-THC flower shipment to InterCure, Israel's leading cannabis company. Having only announced our InterCure partnership in late March of this year, we are proud to have reached this milestone so swiftly. And we will work closely with them to make additional progress on this long-term partnership.

In Brazil, we increased our product shipments during the second quarter as several of our products that have been approved under RDC 327, their Brazilian regulatory authorities, strict cannabis manufacturing and import standards officially enter the market. Furthermore, GreenCare, one of our current Brazilian partners, launched these products to a large number of physicians in late June, marking the initiation of sales of our products to patients under RDC 327.

We've previously had shipments in market on a compassionate use basis where medical products were unregistered and could be imported by individual patients once they obtain regulatory and prescriber permissions. Now having products approved for broader market entry through RDC 327 is a stringent and multi-year process, but one that provides immense long-term value for us and current partners. As we seek additional product approvals, we are working to activate and ramp our current agreements to deepen our foothold within this market.

We've demonstrated similar regulatory agility in Australia, which instituted a new set of sanitary requirements for cannabis import producers. Our Portugal team worked quickly to adapt to these standards. And our flower exports have proceeded seamlessly ever since. We have since launched our Wappa flower strains with one of our large Australian take-or-pay partners. And we believe this high-quality offering has a compelling product market fit.

Finally, in the US, we announced a two-year supply agreement with Biom Therapeutics, an American clinical-stage biopharmaceutical company in April. Under the terms of the agreement, we will provide high-quality CBD isolate for using studies and clinical trials centered on rare neurological and developmental diseases. This partnership complements our commercial CBD offering, JoySol, which we are gradually rolling out with a launch and learn approach to small retail chains within Herbal Brands, nutraceutical partner network as well as select online marketplaces.

We have had solid traction within the detox space thus far by increasing our distribution into major retailers countrywide and our portfolio penetration on a same-store basis. While we have continued to drive strong cannabinoid revenue expansion relative to last year, I want to remind everyone that our quarter-to-quarter sales cycles can appear lumpy due to the many regulatory approvals and quality control checks in both in our production and export process.

As we adapt to evolving regulatory standards in our target markets and are certain that our products meet all necessary pharmaceutical specifications, these measures impact the timing of individual shipments and how quickly our given supply agreement can ramp. That said, our ability to provide high-quality, pharmaceutical-grade products and adhere closely to our target market standards remain a central tenet of our value proposition as we expand our existing agreements and work to further expand our global partner base.

From a regulatory perspective, we have another market expansion opportunity in Colombia that we are carefully monitoring. With the country's new Congress that started in July 20 of this year, there are so far three bills for legalizing the recreational use of cannabis in Colombia. Two of the projects are oriented towards amending the Colombian constitution for creating an exemption to the prohibition that exists now. The main purpose of the third bill is to create a regulatory framework for the usage, cultivation, production, marketing, import, export, and related functions for cannabis and its derivatives in a recreational context.

The current version of the bill allows for the current license holders to add a new modality in the existing license for cultivation and processing cannabis for recreational use. This would also create a new license for dispensaries that would be issued by the Ministry of Commerce. The elected President, Gustavo Petro, has publicly expressed that he is going to support both medicinal and recreational uses of cannabis in the country. Among many other benefits, legalizing recreational cannabis in Colombia has the potential to strengthen and diversify the domestic cannabis industry as well as retail distribution channels.

As we've voiced further markets around the world, Clever Leaves is fully committed to supporting legalization efforts and propelling the future of all use cannabis in Colombia forward. The additional growth opportunities offered by this potential market expansion benefits us as a domestic operator and positions Colombia for major cannabis export hub globally.

We are proud to support the significant development and are closely following additional regulatory progress along these lines.

Our progress in each of our target markets demonstrates our growing value within the global cannabinoid supply chain. We have built deep and growing B2B partnerships across our target markets. And we're steadily heading towards an inflection point in our business as we activate and ramp our supply agreements.

Narrowing our operational focus to these markets has allowed us to execute on our pipeline more effectively and improve our positioning for additional developments in these markets. Whether they come in the form of new product approvals, recreational market potential, or new distribution in growth, we believe we are well positioned to leverage these and further establish Clever Leaves as an efficient, multinational operator.

To support our commercial growth, we have undertaken a series of restructuring and optimization initiatives that aim to align our cost and operational infrastructure more tightly with our redefined core strategic objectives. As we prepare for additional opportunities in our core markets, we have focused on shifting away from non-core operational activities and improving our capital efficiency. To this end, we have already undertaken a global workforce reduction that is expected to drive solid cost savings this year and even greater savings on an annual basis going forward, which Hank will summarize in greater detail shortly.

Alongside our commitment to production efficiency across our Colombia and Portugal operations, we are simultaneously working to optimize our working capital and in particular, our inventory. As a result, we have significantly scaled down our Colombian output and have optimized our product mix across both Colombia and Portugal.

We are working to better reflect our growing market opportunities with our production plan, which we believe will allow us to meet our annual revenue targets for 2022. These factors contributed to the sequential and year-over-year increase in our all-in cost per gram during Q2. So I will briefly discuss our production considerations in each country.

In Colombia, we significantly reduced our harvest output relative to a year ago quarter. As a result, we harvested 1,200 kilograms of dry flower in total across our production operations during Q2, which is a 90% reduction compared to 11,464 kilograms harvested in the prior year period. However, we have continued to incur costs related to processing our current inventory for our ongoing extract sales in our existing partnerships.

While we continue to drive efficiencies within the production process itself and leverage the advantages of the country's low labor cost and ideal cultivation climate, these changes to our harvest output have begun impacting our all-in cost per gram. We expect our reduced agricultural output levels to remain in place for the next few quarters as we work to rightsize our inventory levels, which will place similar pressure on this metric in the short term but benefit the efficiency for infrastructure moving forward.

Additionally, as we mentioned in April, the Colombian government's passage of Joint Resolution 539 has completed the national regulatory framework needed to begin exporting dry flower. And we expect our own dry flower exports to begin during Q4 of this year. With their harvest, we have begun shifting our harvest mix to include fewer CBD plants and more THC plants, which reflects the broader mix trends in our current product portfolio as we plan to increase our THC flower exports over time.

Our preparations for commencing flower exports require different and potentially higher cost approaches to the harvest and post-harvest process compared to our previous extraction on the approach. Plants grown for flower export purposes will need to meet certain physical specifications in addition to THC content labels and will be subject to a different trimming and processing methods.

In Portugal, we're working to scale our operations as we quickly expand our flower portfolio. We are not yet at full planted capacity after finishing our cultivation facility expansion last year, which increases our production cost per gram in the short term. At the same time, we have been optimizing our production plan to ensure production of the right strains for commercial purposes, while ensuring we continue with our ability to launch new strains into the market in a consistent basis.

Though we are still underway with the EU GMP certification process for our post-harvest facility and the facility will not be in full use until the license process is complete, we are incurring costs related to the heightened product testing and analysis process I mentioned earlier, as well as higher supplemental lagging costs relative to what we need in Colombia. While these factors across both of our production geographies have increased our cost in the short term, the preparation and optimization initiatives we're implementing today strengthen our positioning for current partnerships as well as for future market expansion opportunities.

We expect that these harvest dynamics will pressure our unit economics in the short term, but that they will also allow us to optimize the revenues we can generate from our harvest in each of our production geographies over the longer term. We can leverage the existing efficiencies of our extraction operations in Colombia and the flower export learnings we've gleaned from Portugal to prepare for forthcoming opportunities, including Colombia flower exports, while closely monitoring respective partnerships and regulatory catalysts near global target markets.

In addition, we gained additional balance sheet flexibility after completing the full paydown of our debt obligations to Catalina LP and our remaining Herbal Brands debt. This improves our ability to support our growth initiatives and further optimize our operational foundation.

Hank will share more about this shortly. But I am proud of the necessary work we are doing to improve our organizational efficiency and effectiveness. As we enter the second half of 2022, I believe that the strategic steps and investments we are deploying today will benefit the business on our path towards becoming a supplier of choice within the global cannabis market.

Now I'd like to turn the call over to our CFO, Hank Hague, who will discuss our second-quarter financial performance in greater detail. Hank?

Thank you, Andrés. Our revenue in the second quarter of 2022 increased 27% to $4.7 million compared to $3.7 million in the year-ago period. This increase was driven by higher sales in both our cannabinoid and non-cannabinoid segments, which grew 124% and 9% year over year, respectively. Our cannabinoid revenue growth reflects continued strong performance across our target markets, particularly Australia, Brazil, Germany, and Israel.

As our existing commercial agreements further activate and ramp, we will continue our momentum by seeking additional opportunities to deepen and expand our global partner base. Our all-in cost per gram of dried flower in the second-quarter 2022 was $2.26 per gram compared to $0.22 per gram in the year-ago period. As Andrés just mentioned, the increase on a per gram basis was driven by our significantly reduced harvest of approximately 90%.

In Colombia, the harvest in the quarter was reduced to zero kilograms, while the harvest in Portugal increased 14% from the year-ago period. During the quarter, we were able to significantly reduce the cost to produce in Colombia due to the reduced harvest. But we're offset by increased costs in Portugal as the agricultural operation ramps as the new post-harvest facility awaits its final GMP certification expected later this year.

During the quarter, the Colombian operation continued its extraction operations to consume previously harvested dry flower in the manufacturing of GMP extracts and isolates. Over the coming quarters, we expect our total all-in cost per gram to remain elevated through a combination of these dynamics. I'd like to emphasize that these are all near-term unit economic considerations as we rightsize our harvest and pivot to harvesting flower in Colombia compared to previously harvesting solely for extracts.

In Colombia, we expect to keep our harvest output reduced as we go through the gradual process of rightsizing our inventory levels and optimizing our production operations for smokable dry flower export. We believe our costs will moderate to more advantageous levels as we ramp dry flower production to meet partner demand and further optimize the production process.

From an extract perspective, we expect our costs to remain at similar or lower levels to what we achieved historically. But we expect flower products to comprise a greater share of our overall market portfolio over the long term. In Portugal, we expect our costs to remain higher as we drive towards greater capacity utilization but expect unit costs to improve over time as we process additional harvest, finalize our cultivation ramp, and bring our post-harvest facility fully online once we complete the EU GMP licensing process, which we expect to do by the end of this year.

Our gross profit was $1.3 million, which included a $1.3 million inventory provision compared to $1.8 million, which included a $0.6 million inventory provision in the year-ago period. As a reminder, we are now reporting an adjusted gross profit figure to adjust for our inventory provision that was previously classified in SG&A and is now classified within cost of goods sold. That said, our adjusted gross profit, which excludes the inventory provision in the second quarter of 2022 increased 8% to $2.6 million compared to $2.4 million in the year-ago period. This reflects an adjusted gross margin of 55.5% compared to 65.4% in the year-ago period.

The year-over-year gross profit growth on an adjusted basis was driven by our topline revenue growth during the quarter, partially offset by the higher inventory provision charge we recorded for the quarter. This inventory charge negatively impacted our gross margins for the quarter. And it was primarily driven by inventory obsolescence in Portugal through a combination of product exploration timing and our continued work to refine our flower strains to strict specifications required by our target markets.

In our nutraceutical business, we are also still impacted by wage pressure, rising transportation costs, and the availability of both labor and materials. We continue to believe that these factors will serve as headwinds for our margin performance. And we are closely monitoring the impacts of these effects on our business and on broader labor and supply chain conditions.

Operating expenses in the second quarter of 2022 decreased to $9.5 million compared to $11.4 million in the year-ago period. The decrease was driven by a lower level of general and administrative expenses during the quarter, including lower share-based compensation expense.

As Andrés mentioned at the start of the call, we completed several restructuring initiatives to align our expense base more closely with our current revenue profile, including a global workforce reduction. While these measures like this are never desirable, we value each one of our dedicated team members. These actions are necessary to achieving the operational leverage we previously expected in our business. We expect the reduction to generate cash savings of $2 million this year and $4 million in the years to come.

Net loss in the second quarter of 2022 improved significantly to $1 million compared to $9 million in the year-ago period. The decrease was primarily driven by a $6.9 million gain on investments following our sale of a portion of our minority stake in Cansativa as well as a $2.2 million decrease in stock-based compensation. The gain on investments related to the Cansativa sale comprised a $2 million realized gain on the sale and a $4.9 million unrealized gain due to the remeasurement of the Cansativa shares retained interest.

Adjusted EBITDA in the second quarter of 2022 was negative $6.3 million compared to negative $5.7 million in the year-ago period. The decrease was mainly due to increased cost of sales, including increased inventory provision and additional sales and marketing expenses.

At June 30, 2022, our cash balance was $19.5 million compared to $37.7 million at December 31, 2021. The decrease was primarily attributable to our operating losses and paying down our two largest pieces of debt, offset by net proceeds raised from our at-the-market stock offering, which will significantly enhance our balance sheet for Q3 and beyond.

In April, we repaid the remaining approximately $13.2 million balance of the aggregate amount outstanding under our secured convertible note with Catalina LP. This repayment satisfied all of our outstanding debt and obligations under the note purchase agreement and convertible note. In May, we also fully repaid our outstanding debt and obligations under our loan security agreement between Herbal Brands and Rock Cliff Capital of approximately $5.6 million. These repayments represented our outstanding debt related to our 2019 acquisition of Herbal Brands.

Through paying off our Catalina and Herbal Brands debt, we have significantly improved our leverage and balance sheet flexibility as we enter the second half of 2022. These actions represent significant progress in our efforts to optimize our balance sheet and drive greater cash efficiency.

Throughout 2022, we will continue working to improve our liquidity position to reducing our expenses and investment in working capital. During the second quarter of 2022, there was no sales activity resulting from the aftermarket common stock offering program. And $26.6 million remained available at the end of the quarter.

Lastly, turning to our financial outlook, we continue to reiterate our full-year 2022 financial guidance, in which we expect our 2022 revenue to range between $20 million and $25 million with an adjusted gross margin between 50% and 55%. As a reminder, our topline expectations reflect an expected year-over-year increase in our cannabinoid revenues as we activate additional commercial opportunities in our core markets.

We also anticipate our full year adjusted EBITDA to be within the range of negative $23 million and negative $20 million, with maintenance level capital expenditures of between approximately $2 million to $3 million. We have made progress advancing our strategic objectives throughout the first half of 2022. And we believe our focus on restructuring our costs and optimizing our cash efficiency has positioned us to continue to strengthen our foundation for long-term growth and profitability.

This concludes my prepared remarks. And I'll now turn the call back over to Andrés to review some of our more recent operational highlights and market opportunities in greater depth. Andrés?

Thank you, Hank. Before opening the call to questions, I'd like to briefly discuss the progress we've made in our focus markets subsequent to the second quarter, as well as summarize some of the ongoing and emerging regulatory catalysts within them. As I mentioned earlier in the call, we made an important first step in our partnership with InterCure through completing our first commercial export of high-THC medical flower from our Portugal facility in July.

Our Wappa strain was launched by InterCure in late July. And we expect sales to be strong. This initial high-THC strain is just the first of several genetics we expect to launch during the multi-year duration of the partnership. In addition to the shipments of our own flower strains, we will cultivate Canndoc's proprietary genetics in our Colombian and Portugal facilities for distribution across Israel and other countries.

Our partnership with InterCure has been a long time in the making. And we look forward to making additional progress within InterCure and deepening our overall market presence in Israel.

As of the end of July, we have also launched our Wappa strain with ANTG, a large take-or-pay Australian partner. This launch also signifies swift progress with one of our newest partners in the country. We look forward to further ramping our shipments and supplying the Australian market with high-quality flower products.

In Germany, we have also built upon our momentum through expanding our partnership with Cantourage, a European medical cannabis leader. Under the expanded agreement, we are supplying Cantourage with high THC, 24% plus dry flower product from our Wappa strain. Cantourage will then use our Wappa flower to produce IQANNA #10, which will have one of the highest THC levels available in German pharmacies. This expanded partnership further increases the range of international high-quality medical cannabis products available to the EU market under our IQANNA brand. And growing our products distribution with partners like Cantourage is an important objective for our European operations.

IQANNA #10 is the second Clever Leaves product that is currently available in Germany. And we are on track to introduce additional products under the IQANNA brand over the coming months. Beyond our expanding IQANNA brand and our status as a licensed medical cannabis distributor, our strong relationship with seasoned pharmaceutical operators and other distributors, like Ethypharm and Cansativa, have strengthened our position within the fast-growing driven markets.

Having multiple commercial pathways in this market is a key advantage amid the country's ongoing regulatory tailwinds with a draft bill to legalize recreational cannabis expect to be published later this year. While we are staying closely attuned to the potential development, our high-quality, pharmaceutical-grade products and growing partner base have provided us with a solid foundation within Germany's current medical market.

As we continue to strengthen our position in the medical market, we remain attentive to the legalization process for adult-use as we believe Clever Leaves is well positioned to capitalize on this opportunity through our production facilities in Portugal and Colombia, as well as our established presence in Germany. In Colombia, as I mentioned earlier, the passage of Joint Resolution 539 in April completed the regulatory framework needed for dry flower exports. The resolution regulates foreign trade related to cannabis and its derivatives, establishing the competent authorities needed to issue import and export permits for these products.

We are also closely monitoring the progress of the three bills to legalize recreational cannabis in the country. And we look forward to further supporting these regulatory initiatives and strengthening our position for this expanded market potential.

Through the first half of 2022, the diligent foundation we've laid across our production and commercial operation has begun to activate. As additional contracts ramp towards recurring shipments and new partnerships commence, we are well positioned to execute on these opportunities as an even leaner and more efficient organization.

We will continue working diligently to further advance our existing contracts, seek and leverage additional commercial opportunities across our target markets and solidify our cost structure and liquidity position to support additional progress on our focused growth strategy. As we progress further into 2022, we look forward to taking additional steps on our longer-term vision as a multinational operator.

We will now open the call for Q&A.

(Operator Instructions) Pablo Zuanic, Cantor Fitzgerald.

Thank you. Hank, just I guess two questions, so just a reminder of the guidance. When you say $20 million to $25 million for the year, how much of that would be kind of -- it's, I mean, I see that the number dropped sequentially in the second quarter but it will be lumpy. So just a reminder of that.

And related to that, when you said in the call that you'd be able to export dry flower from Colombia in the fourth quarter, just a reminder of why the markets would be open to Colombian flower? I mean, I assume not Germany yet, but just some color there, Hank. Thanks.

Hi, Pablo. Thank you for the question and joining our call. Our target within the guidance range for the non-cannabinoid business is about $13 million for the year. So the balance would be the cannabinoid business.

And the question regarding -- go on.

Yeah, Andrés, would you like to address the target markets for the Colombian flower right at the tail end of the year?

Sure, Hank. Thank you, Pablo. Thank you very much for being here. We're preparing the Colombian flower to be shipped from a regulatory perspective. The pathways are open as we speak from the production standpoint in Colombia and from a receiving standpoint to different countries. We believe the first countries that we're going to be targeting include Germany and Australia. And we're sorting through the final regulatory matters to be able to do that.

A good thing as we have said in the past is we have been working on getting our flower up to par with market standards in terms of THC levels, the organoleptic size, bud size, trichome density, color, terpenes, et cetera. And we're done great strides there. We are, just as I said, we're finalizing all of the final regulatory and quality elements to be able to be shipping flower by the end of the year, most probably to one of those two markets.

Right. And just on that point and following up, so when you say in the call that you had to cut harvest in Colombia by about 90%, I understand the financial logic of that. But how is it -- how does that affect your ability to be ready right by the fourth quarter to meet those German standards? I mean, I suppose if you're cutting production a lot, that may create disruptions and might even delay your efforts to be ready by the fourth quarter. Maybe more color there would help.

Absolutely, Pablo. First of all, we did cut our harvest in Colombia, as Hank mentioned during the call. We basically had zero harvest during this quarter for flower. And the reality is that if we compare to the previous year, which basically was CBD and THC flower for extraction. So we're not planting anymore of that flower basically as we're managing our cash, managing our working capital as we don't need any more of those flower -- of that kind of flower as we have inventory for extracts.

Having said that, what we have been focusing is putting plants on the ground. Basically on the one hand, to do all of these R&D product development. And second, we do have plants on the ground, of course, to be able to meet our targets for exporting in the fourth quarter. So the flowers will be harvested in Q3 and Q4. So there are plants on the ground. So by no means do we see any threat to those targets from a production standpoint. Really, the cut on planting and harvesting was for mostly CBD flower for extraction.

Okay. Thank you. And just one last one, so regarding the kind of 24% potency, that sounds quite exciting. I mean, my surveys always are very anecdotal. But the (inaudible) we've met and the people we've talked to is that there's a lot of 20% potency product in the market, but like 25% or close to that range, there's almost nothing right now. So that you have a lot of traction.

I guess my question is not so much about the product, but maybe for you or Hank. I see that you said you sold the stake in Cansativa about the balance sheet and I don't want to ask an accounting question, but the balance sheet shows Cansativa investment like $5.7 million. It was about $1.5 million at the start of the year. I don't know if that was revalued or you invested $4 million more in Cansativa.

And the reason I bring that up is that to me at least, what you're trying to do with Cantourage sounds very exciting. But showing you invested money in Cantourage as opposed to Cansativa unless I'm reading the balance sheet wrong here. Thanks.

Hi, Pablo, thanks for the question. And I'm happy to clarify. The company had an investment in Cansativa. It still does. With that, you've actually asked an accounting question, so I'm sorry, and I'll give you the answer.

When we sold a portion of our Cansativa stake, with that transaction, we gave up our Board seat on Cansativa. And that reduced our influence of control. So under the accounting rules, we had to account for our treatment of that investment differently. So that's what you're seeing rolling through on the balance sheet. We did not make a further cash investment in the company.

Right. Okay. No, that's fine. That's good. And I guess the very last one, Andrés, is that the more people we talk to in Germany, it just sounds that you need to be partnering with local folks to be ready for those licenses that will be issued in the future if it was all going to be domestic production, right? So I know we don't know what's going to happen in Germany in terms of what the program is going to look like, although there's a lot of people that seem that at least in the initial phase, it will all be domestic production.

I mean, well, first of all, do you agree with that view? And if that's the case, what's your game plan, right? Because that would mean that you will not ship from Portugal or Colombia. I know it's a scenario that I'm describing, but I'm just trying to understand what would be the game plan for Clever Leaves if that were to happen?

Absolutely, Pablo. Very good question. So the reality is remember in Germany, we have an approach, which has different dimensions to it. Number one, we have Clever Leaves Germany which is a wholly licensed importer and distributor of product into Germany. So that means we -- even if we sometimes use the Cantourage pathway, we are having direct conversations with pharma system players within the German market.

And we are a German player ourselves. And we're selling directly, not only our product. We're actually working with other companies, aiding them to help -- pardon me, helping them to sell some of their products. So we're building those relationships with the pharmacy and the different stakeholders in the German market. That's number one.

Number two is we have been partnering with B2B clients of ours who are at this stage are taking our different products, being extracts or flowers, and bringing them to the German market. So we have different ways in which we're reaching the German market as we speak.

In terms of the question regarding the scenario as you know, and I have been very open in the past, is it's not clear yet how the adult-use recreational is going to be legalized in Germany. Is it going to be internal production at first? Maybe. If it is, it's really going to be constrained because I don't think that's scalable or that's going to scale in the short term.

Our view at least is that having Portugal within the European Union is going to be a big advantage for us as we believe that some of the INCB restrictions regarding recreational cannabis, I mean, import and export would not apply if we're within the European Union. Of course, that's our hypothesis.

In any case, assuming that it's only going to be local, the reality is that we are there. We're operating there as an importer distributor. We are building a brand right now, which is called IQANNA. We're using our own product and product from third parties for that.

So we're trying to be flexible -- not, let's say, marrying ourselves with just one vision of what the future can be, which is something we've seen from others, but rather having different paths to market, being very well-connected, working with different partners, so that when things get a little bit more clear in terms of the regulatory pathway for recreational cannabis, we are among the companies that are able to win.

Thank you.

Thanks, Pablo.

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Andrés Fajardo for any closing remarks.

Thank you. And I'd like to take this opportunity to thank everyone that attended the call today. And we look forward to speaking with our investors and analysts when we report our third-quarter results in November. Thanks all very much.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.