Good afternoon, everyone. Welcome to The Parent Company's first quarter 2023 conference call for the 3-month period ended March 31st, 2023. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties relating to The Parent Company's future financial or business performance. Any such forward-looking information is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information, including the risk factors detailed in The Parent Company's continuous disclosure filings that can be accessed via the U.S. Securities and Exchange Commission website at www.sec.gov or SEDAR at www.sedar.com.
Forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions, and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate and should not be placed on due reliance on forward-looking information. The Parent Company undertakes no obligation to update such forward-looking information, whether as a result of new information, future events, or otherwise, except as expressly required by applicable law. During the course of this call, there may also be references to certain non-GAAP financial measures, including references to Adjusted EBITDA, which do not have any standard meaning under GAAP and therefore may not be comparable to similar measures presented by other companies.
For more information about forward-looking information and non-GAAP financial measures, including reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, please refer to the company's quarterly report on Form 10-Q, including management's discussion and analysis available on the SEC's website and SEDAR. I would like to remind everyone that this call is being recorded today, Monday, May 15th, 2023. I'll now hand the call over to Mr. Troy Datcher, Chief Executive Officer of The Parent Company. Please go ahead, Mr. Datcher.
Thank you, operator. Thanks everyone for joining the call today. During today's call, I'll provide a high-level overview of some of our successes during the first quarter. Then I'll turn the call over to our newly appointed Chief Operating Officer, Rozlyn Lipsey. Let me say that again. Our newly appointed Chief Operating Officer, Rozlyn Lipsey, to provide a review of the progress we made over the course of the quarter, our strategic goals, and the initiatives generated in partnership with Gold Flora. Mike Batesole, our Chief Financial Officer, will review our first quarter 2023 results in further detail.
Following this, I'll provide a brief overview of plans for 2023. Then I'll turn the call over for questions. To best compete in our market and our position ourselves as a long-term leader in California, we chose to undertake a significant evolution in our business model.
This included our move away from high volume, but low margin wholesale businesses and low value segments, which focus our energy and our efforts on establishing ourselves as a premium brand builder and consumer-focused company. I am pleased to share today that we have done great work with our teams to accomplish some really great results. These results are starting to have a meaningful impact on our financial results. We actually saw initial signs of this success in our full year 2022 results. Now, in the first quarter of 2023, we've achieved record gross margins. This would not be possible without the significant strategic shifts that we made, and I wanna thank the teams sincerely for their great work. The work started when I arrived here, and I can tell you that I've been incredibly impressed with their efforts.
I'm incredibly proud of what we've accomplished together. I wanna be very clear here. The work is not completed. It is not finished. We have built a really strong foundation, and now it is time to accelerate our pathway to profitability. We can achieve this through our continued focus on building authentic brands, our premier retail experiences for consumers, as well as optimization of our operations through our transformational merger of equals with Gold Flora. With this said, I'll now turn the call over to Roz Lipsey, who will take us through those plans. Thank you, Roz.
Thanks, Troy. It's great to be here with all of you today. As mentioned, we're currently working on several exciting initiatives, and I'd like to walk you through some of our most recent developments. Our expert brand building and omnichannel retail network remain a top priority for us. To that end, we're pleased to announce the extension of our partnership and licensing agreement with Mirayo by Santana. Mirayo is a top-selling celebrity influenced brand in California, inspired by Carlos Santana's Latin heritage and dedication to spiritual well-being.
This brand collaboration perfectly aligns with our values, as it is developed by authentic industry leader who is committed to providing premium products that connect with consumers. Recently, our teams gathered to celebrate the launch of Mirayo's new line of solvent-less 10-milligram hash rosin gummies, made with all-natural ingredients and available in flavors such as guava, prickly pear, and raspberry.
The new gummies are now available at our retail stores across the state. We also recently launched a new brand called Cruisers, which combines our top-performing Fun Uncle and DELI brands into a single line that offers premium cannabis products at consumer-friendly price points. Cruisers will be the best price offering in every category it participates in. Following its launch, it performed exceptionally well. In fact, in the 3-week period following its launch, Cruisers became our top-performing brand by revenue across our entire retail network. Continues to remain our top-performing brand by revenue and units. This new consolidated brand has also allowed us to reduce our overall SKU count by 30%, increase our gross margins, and reduce our cost of goods sold. We are very pleased with the Cruisers launch, which remains ahead of our original forecast.
Brand building will remain a key area of focus for our team, and we look forward to sharing additional developments throughout the year. During 2022, we significantly optimized our operations to reduce costs and improve profitability. This enabled us to create a platform that was focused on our areas of expertise and our best valued assets. With our announced combination with Gold Flora, we have an opportunity to bring together two operators with significantly complementary strengths to further accelerate our growth. As shared in our announcement on February 22, 2023, it is expected that our combined company can achieve between $20 million and $25 million of annualized cost savings, thanks to its comprehensive vertical integration. Our initial integration work has begun, and we are leveraging the enhanced scale and supply chain optimization to further drive efficiencies.
We've already begun to capitalize on benefits of Gold Flora's vertical integration, including initiatives such as sourcing specific strains for more genetic directional brands to deliver enhanced consistency and predictability to consumers. We've also moved vape pen and certain pre-roll production to Gold Flora's production lines for cost containment and margin improvement. We have shifted product R&D and innovation to Gold Flora's platform to accelerate our capabilities and improve time frames for the development of brands. Through the implementation of recent measures, we've yielded approximately $21 million in annualized payroll cost savings from the beginning of 2022 to date. We're off to a strong start, I look forward to providing further updates on the next call. Thank you, everyone, for taking the time to join us today.
Now I'd like to turn the call over to Mike, who will discuss the financial results of the quarter. Mike?
Thanks, Roz. Good afternoon, everyone. As a reminder, the results I'll be going over today can be found in our financial statements and MD&A contained in our quarterly report Form 10-Q. All figures are in U.S. dollars. It should be noted that we are a U.S. registrant with the SEC, and as such, our financial statements are prepared in accordance with U.S. GAAP. Q1 2023 net sales were $18.1 million, compared with $22.4 million in Q1 2022. As we have previously shared, we expected top-line revenue to be somewhat impacted as we execute on our goal to improve profitability and optimize our operations. Q1 2023 gross profit improved by 15.8% to $7.8 million, resulting in a record gross margin of 43% compared to $6.7 million or a gross margin of 30% in Q1 2022.
Significant improvement in both gross profit and gross margin was a result of our strategically led business transformation in 2022. To that end, sequential gross profit improved by 17% from $6.7 million in Q4 2022, and gross margin improved by 30% from Q4 2022. Q1 2023, total operating expenses were $22.1 million. It decreased by 43% from $38.9 million in Q1 2022. Q1 2023 Adjusted Gross EBITDA loss was $9.3 million, a 57% improvement from the loss of $27.1 million in Q1 2022, as well as a 35% sequential improvement compared to the Adjusted EBITDA loss of $14.4 million in Q4 2022. We ended the quarter with cash and cash equivalents of $76.1 million as of March 31, 2023.
Overall, I'm pleased with the strategically led work that the team has accomplished and with the improvement in our quarterly results. With that, I'll turn the call back over to Troy.
Thank you, Mike. Before we open it up the lines for questions, I'd like to just take a moment to discuss our plans for 2023. Our focus continues to be on improving gross margins and profitability. With the industry evolving and California maturing, we have a unique transformational opportunity available through our merger with Gold Flora. Together, we can leverage Gold Flora's premium indoor cultivation, their proprietary genetics, their supply chain management, combined with our proven brand-building expertise and our omnichannel retail platform to really drive scale to become the top operator in the state. We strongly believe this merger will be the best drive value for our shareholders, better serve our consumers, and position ourselves for long-term success. We are incredibly excited for everything that has in store for 2023. With that said, I'd like to open the call for questions.
I'll turn it over to our Operator. Thank you.
Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by 1 on your touch tone phone. You will hear a 1-tone prompt acknowledging your request. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. 1 moment please for your first question. As a reminder, it is star 1 to ask a question. Your first question comes from the line of Eric Des Lauriers from Craig-Hallum Capital. Your line is now open. Eric, your line is now open.
Thank you for taking my questions. I apologize for the technical difficulties there. You called out $20 million-$25 million in cost savings between the merger. You identified $21 million from your cost structure thus far. Can you just comment on if you expect Gold Flora to contribute to any of that cost savings, and if so, sort of what to expect on the Gold Flora front? Thanks.
Yeah. Let me start, Eric, then I'm gonna ask both Mike and Roz to fill in some color here. Yes, we expect the two combined companies to contribute to the success of our value that we are creating as an organization. If you think about it, there are obviously human capital savings on both sides. Importantly, as we're thinking about the combination of our assets, this gives us the opportunity to drive a lot of efficiency across our organizations. Importantly, as you are aware, Eric, because you follow our business, we actually decided to opt out of some capabilities over the course of the last year to invest our resources in other areas. Areas like cultivation, manufacturing, supply chain.
Well, the great news is that those are capabilities that Gold Flora has leaned into, we're expecting savings across the board, based off of those synergies between our two organizations. In all, the savings will come from both organizations combined, and it will be a combination of people, resources, but importantly, efficiencies that'll be driven by really savings from the business that'll be really important. Eric, I'll also allow both Mike and Roz to comment on any operation information to provide as well.
Let me just clarify one thing, Eric. I think the $21 million that savings, that's already actually been realized. There'll be additional savings outside of that, I think was what Roz was trying to allude to. For instance, we had a payroll savings of 7% over the over the quarter in TPCO alone. What we're doing is we're looking at both businesses and looking from an expense standpoint, we're looking at both businesses, and then from a functional standpoint, we're doing that. Roz is actually the lead from the TPCO side, so I'll let her give a little bit more color to that.
Hi, Eric. Yeah, as Mike was saying, you know, we're, I think we're looking at integration right now kind of as a, as a 3-phased approach. We're in phase 1 right now, which is capturing synergies between the organizations. You know, he mentioned the 7% reduction in cost savings. We're in Q1. We're moving certain outsourced capabilities that Gold Flora is ready to absorb, really to contain costs and improve NewCo margins, like what I had spoke about with the production of vape pens and certain pre-rolls. Then in, like, our phase 2, which would really occur around the time of closing, this would entail more distribution and really merging our sales teams for a stronger account and territory footprint.
This coupled with really cross-selling our first party brands into each other's stores creates a lot of white space opportunity for revenue and margin enhancement in the NewCo. We're excited about that. Really the phase three is. That includes months kind of subsequent to the close. We'll be looking at deeper actions in corporate expenses, like combining insurance and things like regulatory costs. We have a plan in place to address these things with, you know, deadlines attached. Thus far, we've seen good momentum from both organizations working together to achieve it.
Thank you for that color. Could you just comment on any sales trends that there are to call out within the Gold Flora portfolio? Thank you.
Mike, do you want to tackle that?
Sure, Eric. Could you just say that one more time? I want to make sure I answer the question you're asking.
Yeah, sure. Just wondering if there's any sales trends on the Gold Flora side of things to call out?
Sales trends. Well, they're actually trending. You're talking about the retail and cultivation and that type of sales trend. Is that what you're talking about?
Yeah, yeah. Just if there's, you know, yeah, if there's any trends worth calling out or, you know, if there's any sort of.
Yeah. Yeah. Okay. Yeah. Yeah. They're actually. Sorry about that, Eric. Their business is actually trending up. They're building out cultivation now. In 2022, there was a pretty substantial investment in CapEx to build out phase two of their cultivation facility. Those rooms are starting to come online now. We should see improved yields and improved volume moving through that. It's a strong market. Their flower is very strong. There's big demand for it. I think that from a cultivation side, we'll see strong. They've just hired a chief new revenue officer who is highly skilled, and I think will work to organize both the wholesale and retail channels of their business.
I think that they're positioned well, and the investments they've made in 2022 should come to fruition in 2023.
Thank you.
There are no further questions at this time. I will now hand over to Mr. Datcher for closing remarks.
Thanks, Operator, and I wanna thank all the members of The Parent Company for all the great work, not just this quarter, but over the course of the year. Candidly, since I started my tenure. Thank you for everything you've done. I'm sincerely proud of everything that we've achieved together during this time, and we could not have done that without you. Thanks to everyone who joined us today on the call. We're looking forward to sharing our Q2 results and progressing against our strategic initiatives. Thank you for joining us today, and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.