Ladies and gentlemen, thank you for standing by, and welcome to the MediPharm Labs fourth quarter and fiscal 2021 financial results conference call. Please be advised that today's conference is being recorded. Before we begin, please note the following caution respecting forward-looking statements, which is made on behalf of MediPharm Labs and all of its representatives on this call. Statements made on this call will contain forward-looking information that involve risks and uncertainties. Actual results could differ materially from a conclusion, forecast, or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information.
Additional information about the material factors that could cause actual results to differ materially from the conclusions, forecasts, or projections in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in MediPharm Labs filings with the Canadian and provincial security regulators, which are available on the SEDAR website at sedar.com. I will now pass the call to Bryan Howcroft, CEO of MediPharm. Please go ahead.
Thank you, operator, and good morning, everyone. We appreciate you joining us for MediPharm's Q4 and fiscal 2021 financial results conference call. Joining me on the call today are Keith Strachan, MediPharm's President, and Greg Hunter, the company's CFO. As most of you know, I joined MediPharm as CEO in late November of last year. At that time, I saw a company with all the attributes required to become a true leader in the global precision-based cannabinoid space. In the five months since joining, I've gotten to know the business and the team better. We are all very confident that MediPharm is well-positioned to achieve leadership in this space. Every member of our team would certainly acknowledge that the Pharm opportunity is long-term in nature.
However, it is our belief that there are very few companies in existence today that have the appropriate licensing and sophistication to capitalize on these opportunities. We believe that MediPharm will benefit highly from exposure to what the team expects will be one of the most profitable, sustainable opportunities in the global cannabinoid space. As the company pursues this longer-term opportunity, our team continues to execute on short and midterm avenues to growth and profitability, both in the international and domestic markets. During 2021, in a challenging environment, particularly on the domestic front, the MediPharm team, led by Keith and Greg, executed against several important initiatives designed to set the company's course squarely toward these objectives.
Before I pass the call over to Keith to provide additional granularity on the team's effort, we'd like to take the opportunity to thank all of our shareholders for their patience and ongoing support as the team continues to position the company to not only achieve its long-term objectives but to generate shareholder value along the way. I will now pass the call over to Keith.
Thanks, Bryan. As Bryan mentioned, the MediPharm team made meaningful progress in 2021. This progress was across our three primary market focuses: pharmaceutical, precision-based cannabinoids, international medical, and domestic retail. Broadly, our team brought an additional focus to the business as we progressed through 2021, hitting important milestones that set the company up for growth over the next 12 months. Our team opened key new markets, both domestically and internationally, introduced new innovative products, and intensified sales and marketing efforts to execute on revenue opportunities. I will start with precision-based cannabinoids. During 2021, we received a cannabis drug license as well as a GMP drug establishment license from Health Canada.
These key licences enables the company to leverage the infrastructure built over the past several years to enter the cannabis-based pharmaceutical and active pharmaceutical ingredient, or API, supply chain now and to scale. Last quarter, I highlighted how the receipt of the drug establishment licence had allowed us to start the supply qualification process in several jurisdictions, and while we were just getting started, we saw initial API sales to two different well-established pharma companies during Q4. In addition, we continue to work in partnership with organizations like McMaster University to develop drugs containing cannabis candidates. The API segment alone will be an absolutely massive opportunity as it develops. To put the potential growth in perspective, the U.S. cannabis pharmaceutical market was worth $943 million in 2021, according to Grand View Research.
Compare this with the traditional pharma API business alone, which was worth $159 billion in 2020. When looking at the FDA DMF database, MediPharm is one of only 14 companies globally and one of only two in North America that can meet demand in this market currently. Clinical trial work is long-term by nature and a bit of a numbers game. To be successful, you need more shots on net. This is exactly the approach we are taking, ensuring that our APIs and formulations, where possible, are part of ongoing trials, which we expect will give us the best chance possible of becoming part of a long-term, highly profitable supply chain if these new drugs receive U.S. FDA and global marketing authorization.
Post Q4, we entered the U.S. pharma market, leveraging our drug establishment license to register CBD API with the U.S. FDA through the DMF process. Aiming at commercial opportunities in novel pharmaceutical development and generic drug spaces. This is significant as this is the only U.S. DMF for CBD held by a Canadian company and the only natural CBD DMF at commercial scale in North America. MediPharm is serious about winning in this market and is positioned to do so. Now let's turn to international medical, where we also saw some important progress in 2021, and particularly in the fourth quarter. Our team opened several new markets during the year, but I'd like to focus my comments today on Germany. Given it is already the largest medical market globally and is expected to grow to be worth EUR 7.7 billion by 2028.
It will remain our primary focus for this segment of the business. International sales more than doubled in 2021, driven by shipments to customers in Germany, including the completion of our first shipment to STADA, a leading European consumer healthcare and generics company with a product presence in 120 countries. We grew our customer base throughout the year, shipping to seven customers in the German market. This is compared to five when we spoke on our Q3 call. During 2022, we will focus on deepening penetration with existing customers as well as adding new customers as our sales team continues to build a presence on the ground.
Given the fact that we only started to sell EU GMP certified dry flowers and oils in March 2021, we see substantial room to grow in both Germany and within other global markets. Turning over to our domestic business. In Canada, MediPharm launched several new innovative products during 2021. This included products like high CBD and high THC oil formulations and industry-first CBN formulations in both oil and vape formats. The primary thrust of our product strategy is targeted at the health and wellness consumer who doesn't mind paying for arguably the highest quality, in many cases, most differentiated products in the market. In Q4, MediPharm's CBG product was also accepted for sale by provincial distributors, with initial deliveries planned for Q1 2022.
Our premium product offering is resonating with customers, demonstrated by the market position of MediPharm Labs line of premium cannabis oils. After only 14 months of sales, we are number four across the cannabis oil category, according to High Fire data in Q4. Just taking the third spot would double our Canadian branded sales. Our company's CBD dominant oil line was also named CBD Brand of the Year at the 2021 Kind Awards, which is based on the feedback from over 200 frontline staff, a notoriously discerning group. In February of this year, we announced the acquisition of Shelter Cannabis brand, which adds highly reputable, specialty dry flower and pre-roll products to our portfolio. This fills a key gap in our Canadian product offering while leveraging existing infrastructure and overhead and opening the opportunity to expand our current international flower business over time.
During 2021, we made investments in our sales force, which led to new listings with Ontario, Alberta, Nova Scotia, and BC, and the entry into new markets like Quebec and New Brunswick. With a qualified sales force on the ground and maturing in the field, we see significant opportunities to deepen the presence of existing products on the shelf while establishing a pipeline to speed sales growth for new products as they are introduced. We are strategically positioned in the Canadian market and see room to run. I'll now pass the call to Greg to discuss MediPharm financials. Greg.
Thanks, Keith, and good morning, everyone. 2021 saw revenue decline as expected, given the weakness in the Canadian bulk distillate and concentrate markets. Revenue for 2021 was CAD 21.7 million, compared with CAD 36 million in 2020. Despite the year-over-year headwind, our team made progress with several key initiatives that will prepare the company for growth as we continue to advance towards profitability. International sales of CAD 9.5 million more than doubled in 2021, representing 44% of total revenue, compared to CAD 4.3 million in 2020, which represented 12% of total revenue. Germany was a new market for us in 2021, with the launch of EU GMP dried flower and oil. German revenue was CAD 5.2 million in 2021 and will remain a strategic priority for MediPharm, given the size and growth of this market.
As Keith mentioned, we had our first pharmaceutical sales in 2021. While the overall number was relatively small, it was an important milestone for MediPharm as the product was delivered to two reputable Canadian pharmaceutical companies. In addition, we are excited about our recent acquisition of Shelter Wildlife and Shelter Craft and expect shipments out of our Barrie facility to start in Q2. This addition will drive both revenue and improve profitability in 2022. Turning to the P&L performance for the fourth quarter. Q4 revenues increased 6.4% sequentially from CAD 5.4 million in Q3 to CAD 5.7 million in Q4.
International revenues decreased 23% sequentially to CAD 2.2 million, as Australian revenue declined from CAD 1.8 million in Q3 to CAD 0.9 million in Q4. German revenues grew 21% sequentially from CAD 1.1 million in Q3 to CAD 1.3 million in Q4. International revenues represented 38% of total revenues in Q4. Canadian domestic revenues grew 40% sequentially from CAD 2.5 million in Q3 to CAD 3.5 million in Q4. With the strategic investments we have made in sales and marketing, expanded distribution points, entry into new provinces and shelter brands, we are confident that we will continue to improve domestic revenues. We generated our first sales to New Brunswick in the quarter and are in the process of listing Newfoundland and Labrador.
Gross profit for the quarter of -CAD 5 million was impacted by a CAD 2.4 million inventory write-down and CAD 1.5 million of accelerated depreciation for machinery no longer required. Adjusted for these two items, gross profit was -CAD 1.1 million, which improved versus Q3 adjusted gross profit of -CAD 1.4 million. While the adjusted number was still negative, Q4 was the second sequential quarter of improvement. During Q4, we were able to renegotiate pricing on EU GMP flower to help improve our margin profile. This will take some time to work its way through the supply chain, and we expect to see improved margins in the back half of 2022. We also implemented an automated bottling line to produce tinctures during Q1 2022.
While we don't expect any significant short-term margin improvement from this investment, we expect it to pay off as we scale. General and administrative expenses in the quarter increased sequentially from CAD 4.6 million in Q3 to CAD 10.4 million in Q4, driven by a receivable impairment of CAD 6.1 million for one customer. This receivable was aged in excess of 365 days. Adjusting for this impairment, general and administrative expenses declined sequentially to CAD 4.3 million. Despite the credit impairment, we will continue to aggressively pursue our collection rights. Marketing and selling expenses in the quarter increased sequentially from CAD 0.9 million in Q3 to CAD 1.4 million in Q4. The increase was driven by investments in sales employees, advertising, and promotional activities to drive future revenue growth in 2022 and beyond.
R&D expenses increased sequentially from CAD 280 thousand in Q3 to CAD 580 thousand in Q4. These expenses will vary as we selectively invest to advance our capabilities and product portfolio. Other operating expenses increased sequentially from CAD 0.6 million of income in Q3 to CAD 4.2 million of expense in Q4, driven by a fixed asset impairment charge of CAD 4.2 million. Adjusted EBITDA for Q4 was negative CAD 6.6 million, which was consistent with Q3. Moving to the balance sheet. I've already mentioned a few impairments and write-downs that occurred during the quarter. Our team has been focused on cleaning up the balance sheet throughout the year, and we believe most major impairments and write-downs are behind us.
Trade and other receivables decreased CAD 12.2 million from CAD 29.1 million in Q3 to CAD 16.9 million in Q4. This decrease was driven by improved collections and a CAD 6.1 million impairment from one customer. Despite the impairment, we will continue to aggressively pursue our collection rights. As discussed in previous quarters, there is one large customer owing a total of approximately CAD 8.5 million at the end of Q4, which is subject to legal proceedings, and we remain optimistic in its collection. Adjusting for this one customer, trade and other receivables is approximately CAD 8.4 million. Our cash balance on December 31 was CAD 34 million, which decreased from CAD 38 million at September 30. During the quarter, we made all remaining payments on our convertible debenture, leaving MediPharm virtually debt-free and with outright ownership of our two GMP facilities in Canada and Australia.
I would echo Brian's comments and thank our shareholders for their patience as we continue to execute with a consistent focus on building shareholder value. With that, I'll turn it over to the operator to open the line for questions.
At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Aaron Grey from Alliance Global Partners. Your line is open.
Hi. Good morning, everyone. Thank you for the questions. First question from me. I wanna talk about recreational business adding, you know, flower and pre-rolls to the portfolio. Can you guys talk about, you know, the timing 2 Q, how meaningful you expect that to be, maybe additional, investments in terms of procuring flower from third parties and otherwise, and then the ability to sell it internationally as well as how you're looking to allocate between, both Canada as well as supporting some of your international markets. Thank you.
Hey, Aaron. Good morning. Thanks for joining the call. This is Keith Strachan, the President. Yeah, I think that's a great question. We're really excited obviously to be expanding our Canadian recreational businesses. You saw in Q4 we had, you know, some great results in that area. I think that, you know, we have built the infrastructure, and we have everything in place to deliver to these provinces on a weekly and sometimes twice-a-week basis. It makes sense to fill up those skids and get the flower and pre-roll product on there. As far as capital goes, it's very capital light. There's no significant investment on our end in order to get this going.
The Shelter brands themselves, as you saw in our press release there, is 100%, performance-based, so we would pay them a royalty only based on the performance of those actual brands. Just to address the last part of your question, ties really well into our international business. As you know, we've been selling EU GMP flower, mainly in Germany, since March 2021. And that's been a great business for us. We actually just recently also made deliveries into the U.K., and we'll continue to expand that business. There's no, you know, outlay as well on buying flower. We'll just more strategically buy that flower so that it can be, you know, put into different markets and further leverage, you know, that buying power as those two business lines grow for us.
Okay. Great. Thanks. Second question for me, I just wanna talk about Germany. You know, prepared remarks. You guys are still, you know, pretty bullish on the long term, you know, but near term, you know, obviously, you know, seeing some slower trends there than we had expected, you know, due to COVID over the past two years or so. With your relationship with STADA, can you talk about, you know, some things that they're hearing? You know, one of the big hurdles, you know, I think has been in terms of physician adoption. Can you talk about some of the work you've done in terms of, you know, the sales force kind of getting in front of physicians and getting more adoption, and prescriptions to the patient base out there? Thank you.
Yeah, that's a great question. Thanks, Aaron. I think you know, I just spent some time in Germany. I was there last month meeting with the STADA team, going over ways that we can increase our business. You know, they're really excited, and they're seeing more and more physicians adopt it and less stigma around the opportunity of cannabis as a medical product. I think with STADA themselves, they're really looking at this as like any other drug product. They're really winning kind of patient by patient or physician by physician. Even though the ramp up is slow in some cases, it is very sticky. Once they have that patient, they're able to keep them.
I think Germany in general, we've seen, you know, the increase in patients kind of month-over-month as we look at the data, and I think that will continue to grow. We have a new government in Germany, and that coalition government has looked at cannabis even legalization for adult use. I think that will bring even more wellness consumers into the market there. There's still a ton of opportunity, and we'll continue to focus on that region for our EU sales.
All right. Great. Thanks for the color, Keith, and I'll go and jump back into the queue.
Your next question comes from the line of Scott Fortune from Roth Capital Partners. Your line is open.
Good morning. Thank you for the questions. You know, congrats to Oasis on moving into new categories and new products. Kind of how should we look at continuing product innovation, different categories, different formats, going forward that you see that there's white space opportunities from that standpoint? If you can kind of help us understand the kind of future growth for the new categories. You still have a lot of build to go on the existing categories, but kind of new product set that potentially that MediPharm can brand and go on their own from that standpoint.
Thanks, Scott. It's a great question. I think you know, MediPharm, something that we've always been proud of is our innovation and our product pipeline. We have a great R&D team who do a lot of hard work and have developed you know, formulations and product delivery methods for both our own brands and some of our partner brands such as you know, Ace Valley, which is a Canopy brand. We work really hard on that. I think as far as the future goes, we saw the great success that we had with launching CBN in Canada as one of the first that had a CBN offering and the first to have a vapable CBN. We're doing the same thing with CBG. We've already delivered it to the provinces.
It should be, you know, on sale for retail stores in the next few days. It's really exciting for us to have, you know, one of the first vapable CBG products. You know, now that we have this dry flower, you know, there's a lot of other opportunities there as far as product innovations. Like, if we want to make a wellness dry flower where we have, like an inhalable CBD that's also infused with, you know, a CBD isolate or resin so that that consumer or patient can get that extra, you know, CBD. We'll continue to look at that, and they'll fall under different brands, you know, depending on who that consumer is. Continuing from there, we are, you know, as we mentioned on the call, we ranked about number four in cannabis oils across the country.
We'll continue to innovate that portfolio as well. Look at things like, you know, CBDA or CBGA as a differentiated offering there, and then look at, you know, different delivery methods, whether that be like a capsule or a spray and things like that. We're trying to make sure that we have consistent refreshes SKUs to keep those consumers coming back.
I appreciate the color there. Thanks. The last question from me, you know, as you look into the active pharmaceutical ingredient side as that plays out over longer term, but kind of the initiatives you're doing on growing precision-based cannabinoid markets, I know you have an opportunity here to go after some of the Elixnol or that side. Can you refresh us on the timing and opportunity for developing, you know, your own specific active ingredients for that market per se?
Thanks, Scott. I think that's a part of the business that I'm most excited about. I think that, you know, our company is built as a pharmaceutical company, and it has really, you know, grown and shaped for that. In 2021, we hit some great milestones there. The biggest one, getting our drug establishment license, which is very unique to us as a cannabis producer in Canada. The next one would be, you know, our drug master file. Having that drug master file in place with the U.S. FDA allows pharmaceutical companies to buy our API. That API can then be sold, you know, into different formulations that are actually marketable drug products.
Think of the next Epidiolex or the next Sativex, and what pharmaceutical company is gonna launch that. We're working really hard on there. I think we mentioned on the call that we've already sold development material to two pharmaceutical companies who are developing either a novel or generic drug. We'll continue to build with those companies. It is a longer sales cycle, hence why we've put some resources into the adult use market to help pay and fund for that. When that sales cycle does come to fruition, then we will be ready, and we'll be able to take advantage of that massive opportunity.
Thanks. I'll jump off and thank you.
Your next question comes from a line of Tamy Chen from BMO Capital Markets. Your line is open.
Hi. Good morning. Thanks. First question is on the STADA relationship. Could you just comment overall, like is STADA, you know, happy with the partnership so far? Is it supply on your end that's keeping revenue growth a bit more gradual, or is it that there's just much higher competition and product saturation in Germany than you expected? And also, can you elaborate, Keith, on what you said that once STADA onboards a patient, it's very sticky, and they're able to keep them?
Yeah. Thanks, Tamy. I think happy to elaborate a little bit more on the STADA relationship. I don't think that there's a supply problem. I think as you know, in the industry there is a lot of supply. Obviously, when we're selling GMP flower, it is a little bit. You know, there's a little bit less options, but there is a lot available, if they would like to, you know, STADA or any other of our German customers are looking for expansion there. I don't think it's a supply thing. As I mentioned, they do take a bit of a slower growth. They are really happy with the program. You know, STADA themselves, they have a cannabis business unit. That cannabis business unit has over 20 employees.
You could kind of even look at that, having a business unit with 20 employees, you can imagine the investment that they've put into this and that gives them that opportunity. Really with the STADA opportunity and continuing to grow and get those patients, it's really important for them to get that stickiness. What I mentioned on that stickiness is a lot. There's two different kind of markets within Germany. There's those who are going to, you know, cannabis-focused pharmacies, and buying almost like as a spot consumer and then those who are having, you know, firm prescriptions from their doctor.
The doctor would have an option to write a prescription for, let's say, high THC, in which case the patient or the pharmacist could put them into any sort of high THC offering. Whereas with the other option for a doctor is to actually name the product. The STADA brand is called Cannamedical. If they write Cannamedical 22 on there, then that patient can only fill that script with Cannamedical 22, if in order to fill it, and then any refills would be that exact same product unless they went back to the physician. That's where you get the stickiness is having those relations at the physician level and getting them signed on to your actual product.
You know, given STADA's, you know, been in the pharmaceutical business for 100 years, this is something that they're very good at. We're seeing, you know, month-over-month growth. That is very encouraging. As you mentioned, it is slower as they take more of an approach of getting them patient by patient.
I understand. Okay. They're going that stickier route, and so it takes time to establish the relationship and educate the physician specifically of their own products, hoping that the physician will write their specific products. That whole process just takes longer than, say, going the former route of just writing high THC.
Yeah, that's correct. Yeah. That's, you know, in some cases, a producer may take advantageous load-ins and try things like discount sales to pharmacies, and it's more of like a one and done strategy. Whereas we're doing that slow build and really doing the physician education on some of it. Really that wraps back in to elaborate more with the MediPharm ethos, like we're very heavily involved in the clinical area, so we have multiple trials going on. You know, some of the more notable ones with McMaster University. It's actually MediPharm product, particularly in most cases our CBD50 to 2, that's being used by patients in multiple trials. Then we could take initial data from that, and then we could use that for things like physician education.
That's where it starts getting, you know, more and more sticky, where a brand can't just come out of nowhere and launch something, and try to take those patients.
Right. Okay. That's helpful. My second follow-up is, can we just go back to the initial API sales you made in the fourth quarter? Like, I wasn't sure if I fully understood, like, is this just these two pharma companies, like, do they just need some initial material as they were doing studies? Or like are these products or drug products that they're eventually looking to commercialize and you may be like the recurring supplier?
Yeah, I think it's actually two different distinct routes. With API, we really have three routes of business. It could be someone who's doing studies for a clinical trial, they're doing a new novel drug. The other route would be someone who's launching an Abbreviated New Drug Application with the FDA, which would be your classic generic. Then there's another type of generic with the FDA, where it's a different delivery method. We have clients that fit into all three pillars. Our sales in Q4 is two types. One is a reputable pharmaceutical company that is building on a new drug product, so they're now doing development batches.
They're actually making batches with our API, so that they could, you know, put it on stability and start some of their initial, like, toxicology and safety studies. Then the other client is really looking at, you know, the generic opportunity in cannabis. If you look at the Jazz Pharmaceuticals portfolio, there's a bit of a patent cliff come 2026. They're buying up that patent cliff. If you look in the FDA Orange Book, your patents on Epidiolex could start to be challenged in September of this year. In order to put in a challenge with the FDA under Abbreviated New Drug Application, you would actually have to have, you know, material on, let's say, like three batches that would be on stability.
Where we're selling product into these pharmaceutical companies, they're working on those development batches. They're pretty far along. It's not just a you know phase I of a four-phase process. They would be pretty far along in that process. They still have to go through the long Abbreviated New Drug Application process.
For both of these, would you be the exclusive supplier as they go further and further down the line and into commercialization down the road?
No. In neither case are we considered exclusive at this point. Obviously as a pharmaceutical company, there's two things. One, you don't want to have all your, especially in today's uncertainties of supply chain, you usually don't have one supplier, which is very common in the pharmaceutical industry. As well as because they're in the application phase, they don't really wanna sign up for something. Let's say they go and challenge the patent and they lose that challenge to Jazz Pharmaceuticals, they don't really wanna be on the hook for that supply. So there's some things that we do, and you know, we provide them with R&D support. We think that we've done the most characterization on natural CBD probably across the world in knowing what every single impurity is in that 1%.
When 99% is CBD, everything else that's in that 1%, so that's where we get it. Then really, even though we wouldn't be exclusive, once they name us in their application, so we have our U.S. Drug Master File. Once they do their filing for Abbreviated New Drug Application, they cross-reference our Drug Master File for the FDA. Then at that point it becomes, you know, pretty hard for them to change suppliers. Although in agreement we might not be exclusive, there is, you know, multiple ways that we are able to work with them, so we get some, you know, again, some stickiness in that relationship.
Got it. Okay. That's it for me. Thank you very much.
There are no further questions at this time. Mr. Bryan Howcroft, I turn the call back over to you for some closing comments.
Okay. Thank you very much, operator. Look, we appreciate all of you for joining us today and certainly your ongoing support. We look forward to speaking with you in May for Q1 earnings. Wishing everyone a great day. Thank you very much.
This concludes today's conference call. Thank you for your participation. You may now disconnect.