Good day, and welcome to the Clever Leaves Q1 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then one on a touch-tone phone. To withdraw your question, please press Star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jackie Keshner, Gateway Group, Director of Investor Relations. Please go ahead.
Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clever Leaves financial results for the Q1 ended March 31, 2023. Joining us today are Clever Leaves CEO, Andres Fajardo, and the company's CFO, Hank Hague. Before I introduce Andres, I remind you that during today's call, including the question and answer session, statements that are not historical facts, including any projections or 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 March 31, 2023, 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 condition 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 Andres.
Thank you, Jackie. Good afternoon, everyone. During the Q1 , we continued to execute on our strategic growth objectives, leveraging our commercial momentum in our core cannabinoid markets and our meaningfully improved cost structure. We generated particular sales strength in Brazil and Israel. We drove sequential and year-over-year margin improvements in our non-cannabinoid segments. In addition, we have progress on ramping our Colombian smokable dry flower shipments and completing the wind down of our operations in Portugal. Importantly, we have reduced our operating expenses by 48% year-over-year, reflecting the benefits of our restructuring and cost optimization initiatives. With these changes, we were able to reduce net loss by 75% and reduce adjusted EBITDA loss by 35% as we continue to navigate our path to cash flow positivity.
We came into 2023 with an emphasis on three key strategic areas of growth: our focused commercial strategy, our low-cost, high-quality production in Colombia, and our optimized cash management. I will share a brief update on our recent progress in each of these areas, starting with our Colombian production operations. As we previously disclosed, we are now exclusively cultivating and producing our products out of Colombia, from supporting our existing extract business to progressing early launch and ramp efforts for our flower exports. To optimize our cultivation process, we have maintained reduced harvest levels relative to the year-ago quarter, reflecting our continued focus on cultivating THC flower for export and processing our existing CBD inventory for extract sales. We ultimately expect to leverage this operation's expansive mature capacity, advantageous cost structure, and optimal agricultural climate to drive greater operational efficiencies and cost reductions over time.
To further catalyze these efforts, we partnered with Praetorian Global, a leading U.S. based brand owner that operates the Bins brand and an intellectual property provider to the global cannabis and hemp industry. Under the terms of this agreement, we will work with Praetorian to select specific flower strains for initial cultivation trials at our Colombian facilities, with the goal of producing premium quality cannabis flowers and downstream products for distribution to the European Union, United Kingdom, and Australia by Q2 of 2024. From an R&D perspective, this partnership allows us to combine our cultivation and development know-how with Praetorian's production efficient, high-yield, and flavor-forward genetics. Developing and launching these products also enables us to build on our existing traction in Australia and Europe while establishing our early pathways into the U.K.
From a production standpoint, one of our key operational priorities has been completing and supporting the launch of our Colombian dry flower exports. We have already sent our first commercial shipments of our Colombian grown flower product to both Australia and Germany. The completion of our flower shipments to both of these core markets represent a key operational milestone. We soon expect to complete sales to pharmacies. From there, we continue to target ramping flower shipments to the U.K. and Israel by end of 2023. We will further fine-tune our product and processes in response to the respective market feedback we receive from these shipments. As we have discussed in relation to our prior flower production in Portugal, adapting our products to the evolving requirements of the core markets is an imperative and ongoing step towards scaling our Colombian flower shipments.
With these market-specific evaluations underway, we're maintaining a focused approach to strain development to ensure we are prioritizing the highest quality and most commercially viable genetics. At present, we're focused on refining two or three individual strains, and we will provide updates on new strain launches in our target markets as they reach completion. Moving into our focus commercial strategy, we have continued to activate and ramp our commercial pathways across the core markets we identified for 2023, which comprise Australia, Germany, Brazil, Israel, the United Kingdom, and Colombia. This work includes both building upon the inroads we have already established and signing new partnerships to take us deeper into our earlier-stage markets, and I will share some recent developments on these fronts.
In Brazil, our largest market during Q1, sales of our approved products under RDC 327 have continued to ramp. They served as a strong driver of our cannabinoid revenues in Q1. Most recently, we announced a five-year agreement to supply CBD-dominant products through Hypera, one of the largest Brazilian multinational pharmaceutical companies. Through our partnerships with GreenCare and Hypera, we expect to significantly grow in the Brazilian cannabis markets. The CBD products manufactured under these agreements are registered under RDC 327. They are already being sold to drugstores and pharmaceutical distribution channels. We look forward to further supporting these partnerships and expanding our presence in the Brazilian market. In Australia, we were able to sell the vast majority of our remaining Portuguese flower inventory.
As we've previously shared, our Portuguese flower has historically received strong market feedback in Australia, given its high THC content, bud size, and terpene profile. We aim to build upon this track record as we launch and scale our Colombian flower exports in Australia. The sales of our Portuguese flower to Australia also aid the progression of our wind-down process. Even our Portuguese production operations have fully ceased. Please note that we are now accounting for items related to our Portugal operations, including these sales under discontinued operations. You will see this change reflected in our Q1 2023 financial presentation and year-over-year comparisons, as Hank will describe in greater detail shortly. In Israel, we have continued to sell APIs in the form of isolates and extracts, and we're in the process of preparing our flower to be launched later in the year.
Finally, we continue to expect our first shipments of cannabinoid products to the U.K. in the coming months. To touch on our third growth objective, optimized cash management, our wind-down process in Portugal has continued to proceed smoothly. We undertook this process as part of our ongoing restructuring initiatives with the aim of capturing greater cost and capital efficiencies as we leverage our existing production advantages and minimal CapEx needs in Colombia. As of the end of the Q1 , our Portuguese flower cultivation, post-harvest processes, and manufacturing activities have all ceased in full, and we have completed the bulk of our workforce reductions. We continue to track towards the completion of our wind-down activities, and we expect our operational transition to drive increased savings by end of this year.
With our strategic progress during the Q1 , we believe we have built a solid foundation for continued execution on these objectives through the remainder of 2023. I will describe our opportunities and objectives in greater detail later in the call. First, I'd like to turn the call over to our CFO, Hank Hague, who will discuss our Q1 financial performance. Hank?
Thank you, Andres. Before I discuss our Q1 performance, I wanted to provide some additional context on how we're accounting for Portugal in our financials, which Andres mentioned earlier. With the cessation of our core operational activities in Portugal and the associated ongoing wind-down process, we have determined that the nature and extent of our restructuring measures in Portugal meet the discontinued operations criteria as of March 31, 2023, per Accounting Standards Codification 205, Presentation of Financial Statements. As a result, our condensed consolidated balance sheet, the condensed consolidated statement of operations, and the notes to the consolidated financial statements have been restated for all periods presented to reflect the discontinuation of these operations in accordance with ASC 205.
We will maintain this presentation during the coming quarters of this fiscal year. Further explanatory notes are available in our Q1 2023 10-Q, as filed today. Moving on to our quarterly results. Our revenue in the Q1 of 2023 was $4 million, compared to $5 million in the year-ago period. For our cannabinoid revenues, the decrease reflects the benefit of a one-time influx of pipelined shipments to Brazil in the year-ago quarter that did not repeat in the Q1 of this year, as well as the discontinuation of Portuguese flower and the ramp-up of Colombian flower. With that said, we have maintained a strong and steady cadence of Brazilian shipments, and this market has continued to be a strong revenue driver for us in Q1 and into the Q2 . We also had solid contributions from Israel during the quarter.
While we have also continued to generate traction in Australia, note that approximately $300,000 in revenues from the sale of our remaining Portuguese flower inventory have been categorized under our discontinued operations classification. Our non-cannabinoid segment revenues declined due to marketplace adjustments with onboarding a new online marketplace partner, as well as implementing new sales terms in our specialty channel. Inflationary pressures impacted the specialty channel customer inventory levels during the quarter. Larger accounts, including food, drug, and mass, continued with solid point of sales results. Ordering has bounced back from the prior quarter inventory adjustments, reflecting the measures we've taken to mitigate broader macroeconomic headwinds. Our all-in cost per gram of dry flower equivalent in the Q1 of 2023 was $1.29 per gram, compared to $0.12 per gram in the year ago period.
The increase was driven by our reduced harvest in Colombia relative to the year ago period, as well as continued costs associated with processing our existing hemp and CBD inventory for extract sales. Consistent with our work over the past few quarters, we have remained focused on right-sizing and optimizing our Colombian harvest to support the ramp of our dry flower exports as we expect our flower products to comprise a greater share of our product portfolio over the long term. As we continue exclusively producing our products out of Colombia, we believe we can leverage greater cost advantages over time as we scale our flower production and benefit from no longer having the higher costs associated with our Portugal operations. We ultimately expect to reduce our production cost per gram to their historical levels.
Our gross profit in the Q1 of 2023, which included an inventory provision of $0.1 million, was $2.2 million, compared to $2.6 million in the year-ago period, which included a $0.3 million inventory provision. Our adjusted gross profit, which excluded the inventory provisions, was $2.4 million in the Q1 of 2023, compared to $2.9 million in the year-ago period. This reflects an adjusted gross margin of 59.2% compared to 57.6% in the year-ago period. The decrease in our gross profit reflects the lower revenue we generated during the quarter. This was partially offset by the lower inventory provision we recorded for our cannabinoid business and the improved margin performance of our non-cannabinoid business, both of which drove our gross margin improvements for the quarter.
Operating expenses in the Q1 of 2023 improved significantly to $6.4 million compared to $12.3 million in the year-ago period. The 48% decrease reflects the significant benefit and diligence of our cost reduction initiative. We expect to continue seeing these benefits through and beyond the Q2. Note that our operating expenses in the year-ago quarter included a $3.8 million restructuring charge related to charging off certain excess extraction equipment for our Colombian operations, as well as employee exit costs. Net loss in the Q1 of 2023 improved to $4.1 million, compared to a net loss of $16.1 million in the year-ago period.
The improvement was driven by our continued restructuring and cost reduction measures, as well as significantly lower interest expense and amortization of debt issuance costs compared to the year ago period. Net loss in the Q1 of 2022 also included the $3.8 million restructuring charge I just mentioned, as well as loss on debt extinguishment of $2.3 million. Adjusted EBITDA in the Q1 of 2023 improved to negative $3 million compared to negative $4.7 million in the year ago period. This was mainly due to the benefits of cost reductions and restructuring initiatives we have previously implemented. The cost improvements we have put in place over the past year and maintained through these early months of 2023 have contributed towards our reduced adjusted EBITDA loss.
At March 31, 2023, cash equivalents, and restricted cash were $6.7 million, compared to $12.9 million at December 31, 2022. The decrease was primarily attributable to operating losses, working capital needs, and cash expenditures related to the wind down of our Portugal operations. As we discussed on our March conference call. We believe our operational transition to Colombia and workforce reduction in Portugal will meaningfully reduce our cash burn going forward. While we expect our restructuring cash expenditures to persist through the first half of 2023, we anticipate that we will begin seeing cost savings and significantly reduced cash burn during the Q2 . As a reminder, we are also preparing to sell our Portuguese assets as part of our broader wind down process.
We continue to target completing these asset sales during this calendar year, and we will provide further updates as they arise over the coming quarters. Subsequent to the Q1 , we also raised approximately $273,000 in net proceeds from our at-the-market stock offering. We will continue to leverage this program where applicable and evaluate other potential pathways for additional capital throughout the year. As noted in our public filings, including our 10-Q for the Q1 of 2023, there is substantial doubt about our ability to continue as a going concern. Our ability to execute our operating plans through 2023 remains dependent on our ability to obtain additional funding, which may include several initiatives such as raising capital, reducing working capital, and monetizing non-core assets.
We will continue working to enhance our liquidity position through reducing our investments in working capital and maintaining a lean expense structure across our business. With the momentum we have generated in our core markets and the cost improvements we have driven during the Q1 and over the past year, we remain comfortable with our previously stated full year 2023 financial targets. We continue to expect our full year 2023 revenue to range between $19 million and $22 million, with an expected adjusted gross margin of approximately 58%-63%. We also anticipate our 2023 adjusted EBITDA to be in the range of negative $13.6 million to negative $10.6 million.
Reflecting our ongoing focus on improving our capital efficiency and driving additional expense reductions, our projected 2023 capital expenditures of $0.5 million-$0.7 million represent an approximately 50% reduction relative to our full year 2022 CapEx. This concludes my prepared remarks, and now I'll turn the call back over to Andres to review our market opportunities and catalysts in greater depth. Andres.
Thank you, Hank. Before we open the call to questions, I'd like to provide a quick overview of some additional regulatory catalysts in our core markets. In Brazil, we recently received our GMP certification from ANVISA, the Brazilian health regulatory agency. This certification is required for the manufacturing and commercialization of cannabis products in this market, and we are one of the few companies outside of Brazil to receive it. Being GMP certified in Brazil is a major milestone for our positioning within this market, which has the potential to become the largest cannabis market in Latin America. Further, it serves as a testament to the high quality and premium standard production practices we uphold, and it complements the GMP certifications we have already received in the EU and Colombia.
As for broader catalysts, we are most closely monitoring trends and progress towards the adoption of Colombian flower across our target markets, both within our own shipments and in the overarching progress of these exports. According to a report from The New Century, overall legal medical cannabis exports from Colombia increased 96% last year relative to 2021, with four of our core markets, Brazil, Australia, Israel, and Germany, comprising some of the top export destinations. These statistics highlight the traction that Colombia has continued to gain within the global medical cannabis market, as well as our own strategic positioning within this backdrop. We are also monitoring further regulatory and recreational developments in the Colombian domestic market.
As of late March, our recreational legalization bill has received approval from the House of Representatives, Senate, and now the First Committee of the Chamber. We will stay closely attuned to further progress on this measure. In Germany, we're following German Health Minister Karl Lauterbach's new two-phased approach to recreational cannabis legalization. While the first phase focuses on implementing cannabis social clubs for German citizens, a second 5-year phase would allow certain municipalities to have licensed specialty shops that can sell recreational cannabis. The multiple avenues we currently occupy in Germany's cannabis supply chain place us in a beneficial position to adapt to the country's recreational framework as it develops. In Brazil, where medical cannabis prescriptions have increased, individual states have moved to enact legislation that seeks to improve patients' access to the cannabis products they need.
For example, São Paulo passed a law in January that facilitates access to free medical cannabis, as well as measures to increase public awareness and diagnosis surrounding cannabis-based medicines. With the products we have available under RDC 327, we aim to continue supplying pharmaceutical-quality cannabinoid products and ingredients for enhanced patient care. We will continue to monitor and adapt to the regulatory landscapes in our own markets as they evolve. We remain confident in our overall strategy and commercial position. As we further activate and grow our global footprint and do so from a leaner and more efficient operational infrastructure, we aim to make additional progress on our commercial objectives, production advantages, and capital improvement initiatives through the remainder of 2023. We'll now open up the call for Q&A.
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Bobby Burleson with Canaccord. Please go ahead.
Hey, guys. A couple of quick ones. If we look at all these different opportunities that you have in cannabinoid, you mentioned, you know, Australia, Germany, Brazil, Israel, U.K. and Colombia, maybe help, you know, prioritize those for us, you know, if you tier them in terms of, you know, maybe excluding the CBD, you know, activity that you're doing in Brazil, you know, how would you kind of rank the THC opportunities, timing-wise across those markets?
Bobby Burleson, thank you very much for your question. You know, I, I think, definitely our top markets are going to be Brazil, you know. Just, just for clarity of for everybody, the opportunities in Brazil are purely medical. It's really, you know, are the products we're selling over there are treated like narcotics. The products we have right now, which have a little THC and the ones we're gonna have in the future that includes higher levels of THC, are gonna be treated exactly the same as per the regulation there. That's where we believe, you know, part of or a significant part of our growth is gonna come from. We have very strong partnerships in GreenCare and Hypera. We recently announced, you know, the, the agreement with the latter.
We have partners who have strength, who have been investing heavily into the market. You know, we believe, you know, conversion of physicians actually prescribing their products is going to increase it very significantly in a market that is very, very big. We expect that market to become one of our greatest sources of growth for us. Most probably, you know, Brazil is going to become one of the largest markets globally in the very near future. I would say after Brazil, we're looking with very, you know, very positively at Australia. Our sales in Australia have been picking up consistently.
As we mentioned earlier, you know, we were able to sell the remaining portion of our Portuguese flower to Australia, which means the market is, has appetite for flower. Flower like the one we know how to produce. We're in the process of, you know, getting our Colombian flower up to that spec. We've already shipped our first product, so we think flower in Australia is going to be one of our drivers of growth. I would say that extracts in Australia is becoming very, very important. You know, the Australian authorities and the Australian market is becoming even more, you know, specific in the requirements of the quality of the products. As we mentioned, we have our ANVISA certification now, our EU GMP certification, our Colombian certifications.
We're very, very well positioned to actually serve a market like Australia, who's getting more and more tighter, you know, as time passes. That means many suppliers are not going to be able to enter Australia and we are confident that we, for, you know, based on what we have built, are going to continue growing in that market and we are seeing it, you know, already. Australia and Brazil, I would say, are probably tier one. I would say, you know, later in the year, you know, definitely Germany for us through our iCannab platform is going to be the third greatest driver of growth, where we will see revenues from our flower and our own branded flower into the market, you know, growing significantly as our Colombian production ramps.
You know, as a reminder, in Germany we have our own distributor, which means we are actually able to sell our own branded products directly to pharmacies, of course at a very different margin profile than what we have to, than what we have when we sell to a wholesale business. I would say those are our top markets. But having said that, and you mentioned it, we continue, you know, we continue to sell and focus on Israel, but we believe flower for Israel is gonna be later in the year.
The U.K. is a market where we see a lot of opportunity. It's opening up for us and we expect those shipments in the coming months. Colombia, you know, we're working on it. The change in regulation happened, the very beginning of this year. We do expect that it's going to become increasingly an important market for us as well.
Great. Maybe, in Brazil at the state level, you know, obviously in the U.S., you know, the states are driving, legalization, you know, in terms of really accelerating things like rec and more liberal medical, programs. I'm wondering, you know, what's the dynamic in Brazil? How significant is the São Paulo, action that you're seeing? You know, are there other opportunities where you're gonna see state level activity, you know, really help pick up demand?
Absolutely. I think it is going to be an important driver for growth. São Paulo, it's one of the, it's a large state. It's a very influential state, is opening up this program, which basically addresses the issue of affordability of cannabis products for the Brazilian population. It basically facilitates the access and of course the payment or, as it's for the passenger reimburse. So definitely it's a market catalyst. With our partners, we're looking very closely at what's happening in São Paulo. In other states there start to become discussions about something similar.
You know, we believe that we're very well-positioned because we have our products, you know, number one, already registered under RDC 327, which is going to, you know, in any case, be a requirement for those standards, we believe. Also, we have very strong partners which, or who can, you know, help us participate and eventually, be able to win, those market tenders. Of course, you know, it's gonna, you know, there are some time still before that happens, but we think it's going to be a catalyst, and we think we're gonna be, very well-positioned, with the products, for that.
In terms of, you know, how ready some of these markets are to really turn on the spigot for more orders, you know, is there some hesitancy maybe that kinda goes away when you address the balance sheet concerns, you know, whereby, you know, if you raise capital or you know, in various ways selling assets or whatever it is, do you think that that'll increase, you know, confidence in the part of some of these customers to turn on the orders some more?
I would say, you know, what we have been discussing with customers, you know, which is basically the same that we've been discussing today, is the company that's lowering costs, improving margins. You know, we've closed down an operation that was using significant amount of our cash. The revenues are increasing. We have lower CapEx. We have some non-core assets. I would say, you know, at this point we're not seeing that as a constraint on ordering. You know, the constraints are mostly in general, regulatory, you know, commercial timing, et cetera. I see some tailwinds where we're feeling some clear tailwinds, you know, in Brazil. Again, we just got the ANVISA certification, which is a requirement, and we had to have worked very hard for that with our partners. We got that.
That's something that of course we were all, you know, waiting for. That we believe is going to open, you know, volumes even beyond what we have today. The changes in Australia come July 1. The fact that we have all of these certifications in place are going to open up the marketplace, and we're seeing, you know, those orders, you know, come in and increase. I would say, Bobby, at this point, you know, that's really not, you know, a clear concern such that it can reduce our revenues, mainly because, you know, they're being addressed.
You know, as we said, you know, with all the actions that we're undertaking, you know, we do see, you know, significant reduced use of cash in Q2 and going forward, which puts us in a much better position. Of course, that's a result of everything that we have done.
Okay, great. It just reminded me on the guidance, was every line item essentially reiterated, or was there some shifting around a little bit, on the EBITDA line?
Yeah. Hi, Bobby, it's Hank.
Okay.
We maintain our guidance, line by line, so no movement.
Line by line. Excellent. Okay, thanks, guys.
Absolutely.
Thank you very much, Bobby.
This concludes our question and answer session. I would like to turn the conference back over to Andres Fajardo for any closing remarks.
No, I just wanna thank everyone who attended the call today. We look forward to speaking with all of our investors and analysts, when we report our Q2 results, in August.