Neptune Wellness Solutions Inc (NEPT) 2022 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Neptune Wellness Solutions Inc. Fourth Quarter and Fiscal 2022 Earnings Conference Call. (Operator Instructions) Also note that the call is being recorded on Monday, July 11, 2022.

And now I would like to turn the conference over to Morry Brown, Vice President, Investor Relations for Neptune Wellness Solutions. Please go ahead, sir.

Thank you, operator, and hello, everyone. Thank you for joining us today for the Neptune Wellness Solutions Fourth Quarter and Fiscal 2022 Earnings Conference Call. With me today are Michael Cammarata, President and Chief Executive Officer; and Randy Weaver, Interim Chief Financial Officer.

All amounts discussed today are in U.S. dollars, and our remarks may contain forward-looking information representing our expectations as of today and may be subject to change.

Today's conference call contains non-GAAP measures, specifically adjusted EBITDA to provide investors with the supplemental measure of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on GAAP financial measures. Management also uses adjusted EBITDA in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital expenditure and working capital requirements.

Adjusted EBITDA is not a recognized, defined or standardized measure under GAAP. Our definition of adjusted EBITDA will likely differ from that used by other companies, including our peers, and therefore, comparability may be limited. Non-GAAP measures should not be considered as a substitute for or in isolation from measures prepared in accordance with GAAP. Investors are encouraged to review our financial statements and disclosures in their entirety and are cautioned not to put undue reliance on non-GAAP measures and view them in conjunction with the most comparable GAAP financial measures.

We do not undertake any obligation to update any forward-looking statement, except as may be required by Canadian and U.S. securities laws. Assumptions were made in preparing these forward-looking statements, which are subject to risks as laid out in our public filings found on SEDAR and EDGAR.

I'll now turn the call over to Michael.

Thank you, Morry, and hello, everyone. This morning, we reported our fiscal fourth quarter and the full 2022 results for the period ended March 31, 2022.

Before providing further details related to our financial and operational highlights for the 2022 fiscal year and our fourth quarter, I would like to take a moment to discuss the strategic decisions management and the Board have recently made. Taking into account all factors, including the current macroeconomic environment conditions, we believe these decisions are in the best interest of the company and its shareholders.

In early June, we announced the launch of our strategic review plan, which centers on Neptune becoming a pure-play consumer packaged goods company. As part of that plan, we intended to reduce costs, refine the current focus of the company and ultimately put us on an accelerated path to profitability and enhance shareholder value.

The strategic plan has culminated in 2 primary actions so far. One, the planned divestiture of our cannabis business in Canada; and two, the realignment of our focus and operational resources towards our portfolio of good-for-you and good-for-the-planet consumer-branded products that have large addressable markets and categories where we are seeing the most demand and therefore, the highest growth potential.

The intended sale of the cannabis business would include the Mood Ring and PanHash brand along with the Sherbrooke facility in Quebec, which was recently appraised at $21 million. In order to accelerate our cost savings, we are focusing on winding up our cannabis operations. This planned action is intended to provide significant cost savings and help maximize operational efficiencies, resulting in a 50% reduction in the workforce and over 30% reduction of the total payroll cost, and an estimated annual savings of $4.4 million.

We have also enacted additional initial cost cuts at the corporate level. This includes reductions in the corporate headcount and external consultants. Headcount at the corporate level has been reduced by 16%, which we expect to result in a savings of $1.2 million in payroll costs. We have reopened our strategic review and we'll continue to look for synergies and additional savings across our corporate structure and business units. This plan builds on our initial strategic review that took place in the fall of 2021 and is the final step of our transition to a pure-play, purpose-driven, consumer packaged goods company. It simplifies our overall structure, enables us to get hyper focused on the areas of the businesses we believe are the best positioned for profitability and growth.

In total, since the beginning, the strategic review last fall, we have announced cost cuts of approximately $16 million. This includes $5.6 million of payroll cost reductions for the cannabis and corporate announced in the last month. These are difficult decisions when they involve valued employees. However, we believe this is the prudent decision to make to ensure Neptune is financially positioned to achieve its long-term goals and increase shareholder value.

Before I move on to our operational highlights, I'd like to invite Julie Phillips, Chair of our Board, to say a few words about the recent appointments we've made to our Board and executive team.

Thank you, Michael, and hello, everyone. As Michael shared, we have made 2 strategic appointments to the leadership of Neptune over the last several weeks. First, at post quarter end, we welcomed Philip Sanford to the Board as Audit Chair.

Philip holds deep financial and commercial advisory experience as well as first-hand knowledge of Neptune's brands as a former Chairman of the Board of Sprout Organics. The addition of Phil further bolsters the Board's expertise for the next stage of our growth path, and we are already seeing the positive impact of his guidance as we navigate this next stage of growth for Neptune.

In addition, to further support the execution of our strategic shift, we were very pleased to recently announce the appointment of Raymond Silcock as Neptune's Chief Financial Officer, which will take effect on July 25, 2022. Ray brings more than 25 years of CFO experience across both public and private companies, particularly in the area of CPG. He has a strong track record of leading companies through strategic transitions and is well positioned to achieve further cost efficiencies and help drive the performance of Neptune for long-term success and growth.

On behalf of the Board and the management team, I'd like to say a warm welcome to Ray and offer him the opportunity to say a few words.

Thank you for those kind words, Julie, and good morning again, everyone. I am delighted to be joining the Neptune team at this pivotal moment in the company's history, and look forward to working closely with the entire team once I become the CFO. I also expect that once onboard, I'll be speaking to many of you on this call as well. So with that, I'll turn the call back to Michael Cammarata. Michael?

Thank you, Ray, and welcome to the team. Turning to our operational highlights. We have made significant progress on our path to becoming a CPG company with growth year-over-year and on a trajectory to profitability which our Board and management team remain laser-focused on achieving.

During Q4, we continued to make significant strides in positioning our core business areas for continued growth including: one, Sprout Organics, our primary baby and toddler food brand; two, by Biodroga, our B2B personal care and beauty brand.

Starting with our organic food and beverages. The fourth quarter was very exciting for our Sprout brand, with our focus being on growth, margin and innovation. Importantly, the May Nielsen data shows that Sprout outperforming the category across the board for all time periods measured from the last 4 weeks to the full 52 weeks. These share gains illustrate the power of our brand and our value proposition in the category, along with the execution of the team at Sprout, who have worked hard to maintain in-stocks during a challenging period for the supply chain. I want to personally thank each member of the Sprout team for their hard work during a difficult time period.

We expect this to translate into a record quarter for Sprout in Q1, which should be the highest revenue quarter Sprout has ever delivered. And we expect gross margins at Sprout to increase to 22% by 2024, mainly driven by 4 key items: One, improvement of the distribution and warehousing cost as a result of the movement to a full turnkey model as well as improved logistic cost management; two, the full year of price increase; three, improve product mix; four, the realization of certain volume discounts with the level of sales increasing.

With this infrastructure in place for strong growth in the baby food categories, we believe we can now confidently expand into the up-aged meal market, where the data shows gross profit margins in the 30% range. According to Nielsen data, sales from Sprout and their organic toddler meals have grown on an accelerated rate to September 2020, outpacing the growth for the organic baby food category as a whole.

Up-aged meals represent a $3.6 billion retail category, more than double the size of the baby food market. Our expansion efforts in this sector in parallel with our cost-effective strategy to scale will allow our products to disrupt the organic food market at a higher level without decreasing our cash runway.

Sprout was pleased to launch a first-ever co-branded product line of children's food with CoComelon. In Walmart nationwide with Sprout and CoComelon products released on walmart.com in March and a rollout to approximately 900 Walmart stores already achieved. With this expansion into Walmart, Sprout Organics is now available in over 90% of the organic baby food market. Sprout Organics and CoComelon products are also available on direct-to-consumer on the Sprout Organic website and on Amazon. The initial revenue impact from the Walmart launch began hitting the P&L in the fiscal first quarter of 2023 and we expect to build into the coming quarters.

Following the fiscal fourth quarter, we also announced the launch of co-branded Sprout and CoComelon organic snack bars for toddlers available online and at select retailers nationwide. We will also be adding displays featuring the CoComelon co-branded products at 2,500 Walmart doors in August and September. CoComelon is the #1 rated kids entertainment and educational show in the world, and the partnership allows Sprout and CoComelon to educate, promote food with real organic ingredients. Their product lines released are showing strong sell-through with sales surpassing the initial projections across several SKUs and performing 151% over Walmart's expectations. It was great to add additional products to our offering and further increase our opportunity for revenue growth.

In Q4, we were not immune to supply chain challenges being experienced across the industry, which has caused shipping costs to remain inflated and some delays with the product movement. Despite this, Sprout managed to maintain strong fill rates. Consistent with sector trends, we were also able to partially offset increased shipping costs by some price increases across our product portfolio.

The international rollout of Sprout in Canada into Sobeys, Metro and London Drugs stores has also progressed with positive initial reads from these stores.

Moving to personal care and beauty. During the fourth quarter, we've made significant progress at Biodroga, our B2B personal care and beauty brand. We have simplified Biodroga supply chain to remove a middle distribution step allowing Biodroga to take more ownership and control within its process and mitigate some of the delays.

As a result of cost-saving measures coming out of our strategic review, Biodroga has achieved decreased spend in Q4 compared to the prior quarters. Biodroga has also brought more soft gel and liquid manufacturing capacity into the network, increasing our capabilities and further reducing our costs.

It is important to note, however, that the supply chain delays will not result in lost revenue, but that it has pushed some of the revenue into Q1. We have already seen this revenue come in during Q1, resulting in a meaningful revenue acceleration versus our reported Q4 revenue and our best revenue quarter at Biodroga in over 2 years.

In addition, Biodroga's agile network of co-manufacturers allows for flexibility so that we are seen by our customers as one of the few brands that still delivers within 90 days. Sales leads achieved from trade shows attended in prior quarters are starting to translate into sales. The momentum from the pipeline growth achieved in the prior quarters flowed through to Q4 and is resulting in an increased number of customers as well as expanded product lines for existing customers.

Biodroga will also be launching new products in Q1 with its partners to continue to grow our portfolio of offerings. We expect this increase in the pipeline activity to drive revenue growth in the fiscal 2023. Biodroga has been focused on growing its industry presence and undertaking clinical studies to fortify the credentials of our underlying MaxSimil technology.

For example, our recent study on MaxSimil's K2 showed MaxSimil increase the bioavailability of vitamin K2 7 to 11x compared to the standard fish oil. These positive results enable us to further differentiate and communicate about our MaxSimil technology and its unmatched effectiveness in increasing absorption.

Biodroga is also expanding its current offering into additional products, providing dedicated lines for specific customer segments. As part of this overall strategy, Biodroga has recently launched a product portfolio of kids products including the launch of new supplement products formulated for kids.

Moving to Forest Remedies. In March, we announced the launch of Forest Remedies multi omega supplements made with Ahiflower oil in Sprouts Farmers Market stores nationwide. Ahiflower oil is a plant-based vegan alternative to fish oil, which has proven to be up to 4x more effective than flaxseed oil. The product has been recognized as a finalist for the product of the year for the NutraIngredients-USA Awards in the omega-3 category. The initial feedback from the rollout in Sprouts Farmers Market is positive, and we expect this to flow through to revenue growth in the fiscal 2023.

In addition, we have recently launched Forest Remedies into 800 CBS stores and expect to see healthy growth from this launch. This is another example of how Neptune is rolling out Forest Remedies across both smaller, regional and larger national retailers.

With that, I will now turn over the call to Randy to discuss the financial results in more detail.

Thank you, Michael, and hello, everyone. Before I recap the fourth quarter, I wanted to note a couple of changes effective March 31, 2022. We've changed our reporting currency from Canadian dollars to U.S. dollars, and we are reporting in GAAP instead of our IFRS nowadays. The change in reporting currency and GAAP has been applied retrospectively so that all the amounts in the consolidated financial statements that are included in this filing and the accompanying notes are expressed in U.S. dollars in GAAP.

For comparative purposes, historical consolidated financial statements are recast in dollars by translating assets and liabilities at the closing exchange rate in effect at the end of the respective periods. Expenses and cash flows use the average exchange rate in effect for the respective period, and equity transactions are converted at historical change rates. There are a number of translation gains and losses. Those are included as part of the cumulative foreign currency translation adjustment and is reported as a component of shareholders' equity under accumulated other comprehensive loss.

Turning now to the fiscal 2022 fourth quarter results. Neptune reported fourth quarter 2022 revenue of $11.5 million, a slight decrease of $3.1 million from our third quarter revenue of $14.7 million. There were some timing factors that impacted revenue, particularly at Biodroga due to industry-wide supplying chain issues, which we are all experiencing in virtually every industry. We've seen those orders translate to revenue in Q1 2023, which has been very strong. In cannabis, we had timing of shipment issues and supply chain issues, particularly with our capsules, which impacted revenue in that quarter.

For the 12-month period ended March 31, 2022, our consolidated revenues totaled USD 48.8 million. That's an increase of $13.4 million or 38% compared to the $35.4 million revenues in fiscal 2021. As Michael has spoken to, we've made significant strides over the past year in our transition to a refocused CPG company. We expect the refined growth strategy that we've adopted to drive growth, higher margins and improve our profitability.

Sprout Organics, our organic baby food brand reported revenue of $26.2 million for the year. Revenue was slightly impacted by timing of shipments and continuing supply chain challenges, but we anticipate the revenue from delayed shipping to flow into fiscal 2023 first quarter, and we have seen that in fact happen. We expect Sprout to post revenues in Q1 in the range of $6.8 million to $7.2 million. On the gross margin front, we expect the Sprout margins to continue to build driven by the factors Michael mentioned in his opening remarks.

Biodroga, our B2B personal care and beauty brand achieved $13.6 million in revenue compared to $12.1 million in the prior year. We expect Q1 revenue to come in, in the range of $4.2 million to $4.6 million, which will be the highest revenue quarter in 2 years for the Biodroga brand. The improvement in revenue we are experiencing during Q1 is driven primarily by the translation of orders from leads acquired in prior quarters as well as expansion of new product lines.

The cannabis segment, which we are in the process of divesting, recorded $7.8 million of revenue for the year. Last year is really not comparable. It was less than $1 million because we'd only been in operation for a quarter. We're continually focusing on reducing expenses and several actions we have taken since the end of 2021 have already cut costs very significantly throughout the business. For example, in January, we brought all our legal services in-house reducing our overall corporate spend.

Subsequently, initiatives announced in June build upon these measures to cut expenses further. The intended divestment of Neptune's cannabis business will greatly simplify our overall structure and enable us to focus on the parts of the business we believe, hold the most potential for profitability and growth.

To expedite cost savings, Neptune is winding up its cannabis operations. The divestiture of the cannabis division will achieve a 50% reduction in workforce, over 30% reduction in total payroll cost and an estimated annual cost savings of $5.8 million, resulting in significant cost savings and improved operational efficiencies. We also expect to gain further cost reduction from lower corporate overhead costs and professional fees related to the cannabis business.

In addition to the financial impact of the cannabis divestiture, we've also taken further measures to reduce corporate expenses including reduction in corporate headcount of 16% as well as cutting back on vendors and outside consultants. These measures are expected to achieve a further $1.2 million in cost savings.

For the fourth quarter, SG&A expenses net of subsidies were $10.2 million compared to $18.2 million for the same period the prior year, a decrease of $7.6 million or 43%. This is a result of the cost savings and business streamlining measures we've already implemented over the past 12 months.

Our adjusted EBITDA loss during the quarter was $15.2 million, an improvement of $2.6 million versus our adjusted EBITDA loss of $18 million in the year ago period. The improvement in adjusted EBITDA is mainly attributable to our increased revenue and lower expenses year-over-year.

On our balance sheet, we ended the year with $8.7 million in cash on hand. We've also taken decisive actions to improve the company's balance sheet position and ensure we have sufficient working capital to invest in the growth of the business in the near term, while continuing to drive towards margin expansion and our path to profitability.

In June, we announced a $5 million registered direct offering following an $8 million registered direct offering in March. Neptune intends to use the net proceeds from these offerings for working capital and other general corporate purposes. With this bolstered financing, we are better positioned to execute on the recently announced strategic priorities of divesting our cannabis business, focusing on our consumer packaged goods strategy and further accelerating cost savings throughout the company. While we continue to explore additional financing options, including debt, to ensure long-term financial stability, the measures taken thus far allow Neptune to meet its funding requirements in the immediate term.

For our fiscal 2023 outlook, and in conclusion, we're seeing strong revenue growth in Q1 in our core areas of food and beverage and personal care and beauty. We expect that trend to continue into fiscal 2023. We're laser focused on streamlining our business and reducing expenses to achieve profitability and sustainable growth.

For this fiscal year, we're confident that our steps to raise additional funding, exit the cannabis sector and realign our focus on CPG brands has improved our financial position and best place Neptune to add value for our shareholders.

I'll turn the call back over to Michael now. Thank you.

Thank you, Randy. We have made great progress on our strategic priorities of striving towards profitability, reducing costs and continuing to grow. As you know, the last few years have been challenging for Neptune. What we pulled off, we pulled off at a very difficult time to put it mildly. We could not have anticipated in 2019, the market realities we would be presented with.

But we took the view that we should continue with our strategy of becoming a CPG company rather than wait because the future we are heading towards looks the same whether we're prepared for it or not. A future where consumers not only want to choose good-for-the-planet products, a future where they must. In order to be ready for that future, this change was required.

Our mission is to become a modern CPG company with products that are not just good-for-you, but are also good-for-the-planet. Sustainability is a value, not just a sales tool. We think consumers need options that are built with that goal in mind from the ground up. That's why what we're doing is important. To change from a B2B extraction company to a CPG company in the wake of a global pandemic was even harder than we thought, but ultimately necessary. Finally, we are in a position to see the light at the end of the tunnel. With the completion of our $5 million raise and the announcement of the divestiture of our cannabis business, we are prepared and excited for what our brands can do.

We are sad to be exiting our cannabis business. We are so proud of them. But ultimately, they have proven to be too capital intensive for Neptune in a time of macroeconomic uncertainty. The regulatory, legal and insurance pressures they put on our central business is ultimately disadvantageous to our other brands.

We look forward to watching Mood Ring and PanHash grow even though they will no longer be part of the Neptune family. All of our actions here are intended to support Neptune's path to profitability and position it for growth as a consumer packaged goods company, that is prepared for the future where the products we buy are sustainable and healthy for the world we live in.

Our products are now available in some of the country's largest retail chains. We are also maintaining customers' relevance by pursuing the right strategic partnerships for co-branded product lines and expanded our product offerings in key categories. And we have a new CFO joining the company with a 25-year track record of growing strategically and positioning CPG companies for success.

I recognize though that this cannot have been done without the challenges we have gone through, and I appreciate everyone who got us here, our teams, our brands, our consumers and crucially, our shareholders who I know felt the difficulty of this transition. To everyone who is stuck with us, we thank you, and we look forward to sharing our future with you.

Operator, you may now open the lines for questions.

(Operator Instructions) And your first question will be from Aaron Grey at Alliance Global Partners.

So first question for me, just on Sprout. Just looking at the non-controlling interest and trying to kind of back in to 4Q for that. It looks like it was about $7.2 million, so then going off of what you then guide for 1Q, the $6.8 million to $7.2 million. I just wanted to get some further color in terms of some of the growth you were speaking towards. And I know I might be -- there might be something I was messing up there because you switched from CAD to U.S. dollar now for the 10-K. But I just want to get some further color in terms of how Sprout performed sequentially in 4Q and then how that 1Q guide relative is? So I'll leave it at that first.

Thanks for the question, Aaron. We're expecting to see continued growth in Q1 -- Q1 of 2023, we're seeing strong shipments. It's always subject to the supply chain challenges we've talked about with shipments and all that, but we are continuing to see that growth. I don't have the numbers at my fingertips. I don't have the numbers at my fingertips where exactly where we're going to wind up or the preliminaries for the Q1, but we do expect that growth continuing throughout the year.

Okay. Just to clarify, but you gave preliminary, I believe, you said of $6.8 million to $7.2 million for sprout, correct?

Yes, I believe that's correct, yes.

That's what you just said, I believe, in the first. I was just trying to figure out what that compares to 4Q, I guess. Because you don't -- I didn't have a hard 4Q number, yes.

Yes. Let me see if I can look that up.

I'm going to follow up later. That will be fine.

Yes, okay. That would be preferable. But I don't have the Q4 number at my fingertips at the moment.

Okay. Fantastic. Secondly, for Sprout than, on the profitability, right? So thanks for that target, I think you said 24% by 4Q. Just more on the near term. Can you talk about where Sprout kind of stood today for the fourth quarter, at least on the gross profit? Again, looking at the non-controlling, it does look like gross profit loss worsened for the fourth quarter relative to 9 months prior. Again, doing some translation here from CAD to USD.

But I wanted to know in terms of whether something on the timing has increased cost due to inflation that had a near-term impact. And whether or not you still see some of -- when do we start seeing -- is it a gradual improvement to get to that 20%, 24% for 4Q? Or it'll be more of a big uptick maybe in the third or fourth quarter to where we get there?

I think you're going to continue to see gradual improvement. There's not going to be huge changes automatically. And part of the challenges that we're having, we've put some price changes through, some price increases through. We're not getting the full impact of those yet even in -- fully in Q1, but you'll continue to see the impact of those as we get through fiscal 2023. And you'll see the continuing benefit of some of the new products that Michael mentioned during his remarks.

Okay. Great. And last one for Sprout, maybe more of a Michael question here. Can you talk about some of the strategies and obviously, you had a lot of top line initiatives with the CoComelon and Sprout partnership and now you're moving into the toddler meals. So just kind of high-leveling, how do you think about kind of focusing on those kind of few key SKUs, especially as you're doing the broader distribution and then also adding on these new product lines that we're seeing now for the toddler meals and a couple of months ago as well for the snack bar? So how do you kind of juxtapose the two between deepening sell through the existing SKUs and then also adding on new SKUs, especially during a time where liquidity is something you also need to consider in terms of the cost to add on new product lines?

Yes. So I think when we're looking at -- like the toddler meals we've been having in the market and had great results already against Gerber and others. We're going to be entering the up-aged meals, which is a $3.6 billion market. And that will actually expand our margins because the gross profit margin profile in that category is much higher.

When you look at -- like if you look at some of the retailers, there's about 50% of the offerings and some of them are organic when it comes to babies meals. It's even less when you go from baby food to baby meal to up-aged meals, like for instance, up-age meals, it's -- in one category had like 10% organic offering. So we feel that going into up-age meals is a huge opportunity for us to win at grocery to be able to expand.

When it comes to our supply chain, we've simplified it in Sprout. So we [moved] from a lot of different vendors all over the world and ingredients from all over to a North American supply chain with a handful of co-packers that we have partnered with.

And being able to exit the cannabis side of the house has enabled us to get additional support from some of our strategic stakeholders in the Sprout brand, which will allow us to support that growth and open up additional traditional banking opportunities.

So we do see that going in from baby food to break out of the baby food aisle to up-age meals to then eventually into other categories as part of our rollout over the next couple of years, that it's time to use our existing footprint and supply chain. At the same time as expand our margin profile. So while we're taking price increases in the current core SKUs, we also are entering categories with higher margins with less competition in organic. And that's going to give us a competitive edge, utilizing the CoComelon branding in some of these categories strategically in partnership with our retailers.

So we kind of have a map as we're walking the brand through its transition and breaking out of the baby aisle into certain keys while we're expanding the margin. And that's something that we've been working on for a while. And we've already felt like in the toddler meals, we've already seen very good success, which is starting to get into the up-aged meals, and we'll continue to monitor that. And then also as we get the price increases that we've already taken start hitting the results, will also be helpful. And also the uptick in distribution, like in September, we're going to be in 2,500 stores just in the Walmart alone with a special CoComelon promotion.

Okay. Great. And then just kind of last question for me just on the cannabis windup in sales, just any further color you can give? I know you're kind of doing both at once right now. So in terms of the windup, what do you think about the timing of that windup potentially in the legacy inventory you might have? And then any color you might be able to provide in terms of the process on the sale and the timing of that to potentially bring on some new capital?

Yes. We're actively in it and going through the process now with people. And we're cognizant of trying to move as quickly as possible for all stakeholders to continue to support those brands and on that new footing with new acquisitions.

Okay. Great. And last one for me. Just in terms of the timing of additional capital and different financing options you're considering, you mentioned debt still being considered. I know it's something that we've talked about previously as well. You recently disclosed in the 10-K in terms of the current balance for to operate the business kind of go forward. So just can you talk about the timing of that debt financing? And then whatever avenues you might have to look to, to ensure that you have capital for the business going forward as you're evaluating?

Yes. So obviously, on the Sprout level, we're into a joint project with Morgan Stanley and the divestiture of cannabis has opened up a lot of potentials there and in others. And then when it comes to Biodroga, it's already profitable. And so when you start taking the overhead needed out of corporate to support the cannabis unit, as we transition out of that, it reduces the cash needs.

So we're definitely very cognizant of that. We've been working with our partners on different levels to be able to accommodate that growth. But we definitely -- when half the business that we're moving in towards supporting Biodroga, which is already profitable and then Sprout, which is on a fast track. We definitely are working with our partners, then -- and for getting out of the cannabis side has definitely open the opportunities for us in a more efficient way and allowed us to reduce the corporate and overall burns into an area which is more suitable for us.

Thank you. And at this time, we have no further questions, which concludes today's conference. Thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.