A presentation and then questions with management. The discussion's gonna be led by Nicholas Sosiak, CFO. You should see the presentation in the webcast. If you'd like a copy, simply email me at Glenn, G-L-E-N, @bristolir.com. We'll break for questions at the end of the formal presentation. As a reminder, this is not an earnings call, but rather a general introduction and overview presentation. We're only taking questions through the web portal and encourage questions to help you better understand the business. If you're listening over the phone, please access the web link that I sent earlier today to ask that question. Remember, you can submit a question using the Q&A box at any time within the portal. I'll ask the question on the air for everyone to hear, and then Nicholas will answer. I'm not gonna reference any names, but simply read the questions asked.
As we have a fairly large audience today, if I can't get to your question online in time, and it has not yet been addressed during the call and can be, I'll come back to you by email. I'm not going to read the forward-looking statements, but they do state that they apply, and I reference them on page three and four of this presentation. With that said, once again, thank you for joining us. Remember, this is fairly informal, and we do encourage questions to help you better understand the business and its growth path. And now I'll turn the call over to Nick to start his part of the discussion and presentation.
Thank you, Glenn. Good afternoon, shareholders and prospective investors. Thank you for joining us for Cannara Biotech's Q3 2024 investor webinar. For those who don't know me, my name is Nicholas Souciak, and I'm the CFO of Cannara Biotech. I've been with the company for five years and have been at the forefront of building both our commercial and our financial strategy. I am very passionate about what we are creating here for Cannara and the Canadian cannabis industry altogether. Today, we'll be discussing our financial performance for the quarter, key operational updates, and our strategic outlook for the remainder of the year. I'm excited to share the progress we've made and the direction we're headed. At the end of my presentation, I will open the floor to your questions in the chat, so please feel free to submit your questions as I go through the presentation.
As Glenn said, before we dive in, I just want to draw your attention to our disclaimer. The information presented today contains forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those projected. So I do encourage you to review page two and three of our investor deck in detail following this presentation. Cannara Biotech. We are a leading large-scale, vertically integrated licensed producer of premium-grade cannabis, proudly based in Quebec, Canada. Over the years, we have grown into one of the country's largest cannabis producer, with a total of 1.6 million sq ft of cultivation space spread across two mega facilities here in Quebec, both just an hour drive from each other.
Currently, these facilities are producing approximately 33,500 kilograms of cannabis annually, with the potential to scale up to 100,000 kilograms as we reach full operational capacity. Our distinct advantage lies in our ability to deliver high-quality products at disruptive pricing, which has established us as a key player in the Canadian market. This success is largely driven by our three brands: Tribal, Nugz, and Orchid. Launched five years ago and continues to be the backbone of our retail cannabis revenue. The enduring popularity of our brands is a testament to the quality and consistency that resonates strongly with Canadian consumers. We remain committed to these brands as we work to capture an even larger market share for the Canadian market. Over the past five years, Cannara has evolved into a financially robust cannabis enterprise.
In the last 12 months alone, we generated approximately CAD 77 million in net revenue, CAD 28 million in gross profit, with a 35% gross margin, CAD 16.4 million in EBITDA, and CAD 5.3 million in net income, and CAD 10.4 million in operating cash flows. This strong financial foundation positions us well to continue scaling within the Canadian cannabis market, which is projected to reach CAD 5.1 billion by 2029. Today, Cannara ranks as ninth amongst Canada's top licensed producers by sales, and third in Quebec, with our national and Quebec market share reaching new highs, 3.2% nationally and 11.8% in Quebec as of July 2024. These accomplishments have been achieved with a lean sales and marketing team, primarily through word-of-mouth and organic growth strategies.
As we embark on our next phase of growth, we are poised to implement a more robust sales and marketing strategy, which will expand our national sales team, enhance our trade display programs, and secure key distribution agreements to further drive our success. As mentioned earlier, the Canadian recreational cannabis market is projected to reach 5.1 billion by 2029, representing a 21% increase over the next five years. This growth presents an opportunity for Cannara. While we certainly expect to benefit from the overall market expansion, our primary focus is on capturing market share from our competitors. This will be driven by a continued launch of our new and innovative SKUs, alongside the strategic development... deployment of our sales and marketing initiatives across key markets. We are particularly optimistic about our growth prospects in Quebec, where we currently hold the position of third largest producer.
With less than a 2% market share gap from number one position, we are determined to achieve the number one spot by fiscal 2025. We firmly believe that our competitive pricing and commitment to quality will enable us to continue gaining market share, not just in Quebec, but across the entire country. And a cornerstone of Cannara's success is our ability to own and operate two mega facilities in Quebec, enabling full vertical integration from seed all the way to sale. This integration is key to our efficiency and cost control, setting us apart in the industry. Our Valleyfield facility is particularly significant and is by far our most prized asset. Acquired in 2021 for just CAD 27 million, this was an extraordinary opportunity, considering the facility's original construction costs exceeded CAD 250 million....
This acquisition at a fraction of its value, just over ten cents on the dollar, has given us access to mass-scale, low-cost cannabis cultivation for our business. Valleyfield is one of the largest indoor cannabis cultivation sites in Canada. It's equipped with 24 independent growing zones, each measuring 25,000 sq ft, and capable of holding up to 9,600 plants per zone. Why Quebec? Well, Quebec is more than just a location for Cannara. It's a strategic choice that offers significant cost advantages for our operations. One of the most compelling benefits is the province's exceptionally low electricity rates. At just CAD 0.053 a kilowatt, Quebec's rates are substantially lower than those in other provinces, such as Alberta, where rates are as high as CAD 0.136 a kilowatt. For Cannara, the advantage is even better.
Our Valleyfield site benefits from a further reduced rate down to three point seven cents a kilowatt, due to its location in a preferred agricultural development zone. This cost efficiency directly enhances the sustainability and profitability of our operations. Beyond low electricity costs, Quebec presents the highest barriers to entry, particularly with its strict restrictions on sales and marketing. These challenges have resulted in fewer licensed producers operating in the province, making it less saturated and underserved. Despite these limitations, Quebec still boasts to be the third-largest retail market in Canada. These combined factors make Quebec an ideal environment for Cannara's growth, and by leveraging these unique advantages, we've been able to enhance our competitive position nationwide. A key pillar of our strategy is our unwavering commitment to product innovation, particularly through the discovery of new cannabis genetics, a process known as pheno hunting.
This meticulous process is crucial to develop diverse and high-performing products across our brand portfolio. At Cannara, we invest a significant amount in research and development of the pheno hunt process, planting over 250 genetics every quarter. This involves a substantial financial commitment, over hundreds of thousands of dollars, and over a year of rigorous testing to select the best genetic for our brands. Both our CEO and I personally lead this rigorous pheno hunt selection process. Our goal is to build a roster of high-performing genetics that excel in both production yield and market satisfaction, which will drive SKU innovation and ultimately boost our revenues. The importance of this process, though, cannot be overstated, especially in an industry where the product life cycle of non-performing cannabis genetics is often short-lived. However, discovering a winning genetic can be a game changer.
Take, for example, our Cuban Linx strain, which remains one of our highest-earning genetics after four consecutive years of continuous sell-through. Through our dedication to pheno hunting, we aim to identify more high-performing genetics like Cuban Linx . Recently, we introduced our latest genetics, Neon Sunshine and Bubble Up, which are already showing promising sell-through and have the potential to become our next top performers. At Cannara, as I said before, our commitment to premium-quality cannabis is anchored in our meticulous cultivation practices, inspired by leading markets like California. We focus on high cannabinoid content and rich flavor, flavorful profiles to ensure our product consistency meet the highest standards of excellence. With our CEO's deep expertise in cannabis cultivation and our team of PhD plant scientists, we are dedicated to continuous improvement in our cultivation process.
While change, especially in an agricultural environment, may present challenges, we actually view these as investments into our knowledge base, enabling us to refine our techniques that ultimately enhance quality, yield and quality. And when these six are successful, the improvements significantly reduce operational costs and drive greater efficiency. Another pillar of our quality commitment is our commitment to hang drying and slow curing. Even at mass scale, we are committed to this approach, preserving the natural characteristics of the flower, and ultimately, its quality. And beyond quality, accessibility is key. Our disruptive pricing strategy ensures that premium cannabis remains within the reach of everyone. Our portfolio is anchored by three flagship brands: Tribal, Nugz, and Orchid CBD, each uniquely positioned to fill a specific niche in the Canadian cannabis market.
Our brands offer products under most major categories of cannabis, including dried flower, regular and infused pre-rolls, vape carts, and concentrates. Now, to recap, our strategy is all about delivering premium-quality cannabis at scale while maintaining accessible pricing. We've outlined our focused growth in the Canadian cannabis market, which is projected to reach CAD 5.1 billion by 2029. Over the next several years, we will be scaling up our production in lockstep with demand, up to 100,000 kilograms annually. Our ongoing investment in expanding and refining our cultivation process, along with our commitment, our dedicated commitment to quality and affordability, will be our key to success. As we solidify our position as Canada's leading cannabis producer, backed by a profitable and robust business model, we'll be well-prepared to expand further into international markets and medical markets for the next phase of our revenue growth.
When we look at our internal production capacity, Cannara has been steadily expanding year over year, a strategy that contrasts sharply with many of our competitors in our space, who have had to downsize their operation just to stay afloat. In fiscal 2022, we were producing 22,000 kilograms of cannabis annually. Today, we've increased that by over 50%, bringing our production to 33,500 kilograms per year. Looking ahead to fiscal 2025, we plan to invest to further develop our post-processing center at the Valleyfield facility. What this will allow is it'll pave the way for future cultivation expansion at this facility. Our goal is to activate four additional growing zones at Valleyfield in the following years, targeting an annual capacity of 75,000 kilograms by fiscal 2028.
Taking a look at our revenue growth, you can see a clear trajectory in both cannabis production and revenue over the past several quarters, reflecting a positive impact of our scaling efforts at the Valleyfield facility. However, in Q3 twenty twenty-four, you will notice a slight dip in sales. This was due to our cultivation issue that arose during Q2, which affected the quality of our dried flower and pre-roll categories. The issue stemmed from trial and error as we tested new cultivation techniques, which temporarily led to a reduced quality and consequently impacted our sales. We have since dedicated significant amount of resources to addressing and reversing this issue. I'm pleased to report that we've already seen substantial improvement in both yield and quality of our harvests. While such situations can impact the business, it's extremely important to remember that there's no textbook for mass-scale cannabis production.
Every single cannabis facility is different. So these experiences, although challenging and costly, are invaluable investments in Cannara's intellectual property and expertise in mass-scale cannabis cultivation. Moving forward, we are confident that the lessons learned and the adjustments made will support our continued growth, ensuring we maintain the highest standard our customers expect, while driving further revenue increases. At the retail store level, our national market share hit an all-time high of 3.2% in July, up from 3% in Q3 and 2.9% in Q2 2024, as based on Hifyre Retail Analytics. You may note some changes to our market share data from previous reporting, as we have changed the source from Headset to Hifyre. Hifyre is a retail store sales database used by Canada's top LPs to measure market share and product performance, providing better benchmarking for us.
Our home province of Quebec has seen the biggest growth, fueled by our superior infused pre-roll product line, and first to Canada launch of our newest genetics, Neon Sunshine and Bubble Up, in early twenty twenty-four. As our new genetics release in the rest of Canada in August of twenty twenty-four, we expect our market share for the rest of Canada to start showing positive increases as we expand the distribution of our catalog and grow in our newest markets of Manitoba and Nova Scotia. Our Tribal live resin vape carts, Nugz Hash Rosin, and Orchid CBD continue to be the top choices for consumers in Canada. Now, let's take some time to focus on our latest financial performance for the quarter ending May thirty-first, twenty twenty-four, and review some key metrics.
We generated a total revenue of CAD 19.5 million for the quarter, with a gross profit of CAD 5.8 million, resulting in a gross profit margin of 29.4%. On a year-to-date basis, our gross margin stands at 35%. The slight decrease this quarter was due to a temporary reduction in cannabis yields during Q2, which increased our cost of goods sold that were sold in Q3. However, cannabis yields have significantly improved during this quarter, and we expect margins to return to normal levels. Our adjusted EBITDA for the quarter came in at CAD 2.8 million, marking our thirteenth consecutive quarter of positive EBITDA. We reported a net income of CAD 2 million and generated CAD 1.2 million in free cash flows, allowing us to reinvest into the business in future quarters.
Over the trailing past 12 months, we've achieved CAD 77 million in net revenue, CAD 16.4 million in EBITDA, and CAD 5 million in net income, and we are on track for further growth as we move into Q4 2024 and beyond. As of the end of Q3, we held CAD 5.5 million in cash and maintained a strong working capital position of CAD 35.2 million. Our main debt is with BMO, a Tier One Canadian bank that has continued to show strong support for Cannara and the cannabis industry altogether. With a fully diluted share count of approximately 96 million shares and a current share price of CAD 0.66, our market value today is approximately CAD 63 million.
It is also important to know that over 50% of this is insider ownership, demonstrating our commitment to the success of this business. It's also worth noting that over CAD 300 million has been invested in creating Cannara's two mega facilities, with the majority of these costs attributable to the Valleyfield facility, and also money that we didn't spend. The true value of this asset is not reflected on our balance sheet, as we acquired the site from a competitor at a significant discount. So when comparing our financial performance to our peers, Cannara stands out with a strong margin and consistent revenue growth. Our ability to generate positive EBITDA and maintain a healthy cash flow, puts us in a solid position to capitalize on future opportunities as we continue to grow.
Cannara's success is anchored by our leadership team, that has deep expertise in both cannabis sector and other high-growth industries. Our team's strategic vision and operational know-how have been pivotal in driving the company's sustained growth. We are also excited to welcome the latest addition to our team, Nick Van Dam, our new VP of Sales. With over five years of experience in cannabis sales, Nick will play a key role in evolving our sales strategy from primarily a word-of-mouth approach to a more comprehensive national sales plan. Our board of directors provides invaluable guidance, bringing a wealth of experience from diverse industries. Their leadership ensures we remain focused on our long-term goals, while navigating the complexities of the cannabis market. Between management and its directors, insiders hold over 50% of this company, which makes everyone vested in the success and the future of Cannara.
That concludes my presentation today. I hope the insights shared have given you a clear understanding of the robust platform we're building here at Cannara, and why we believe we are well-positioned for national success. I thank you again for your time and your attention. I am now happy to take any questions you may have about our business or strategy. Thank you again.
Super t hank you, Nicholas. Lots of questions in the queue already, and again, to our audience, just use the Q&A tab within the portal to ask a question. So the first question for you is, can you discuss your sales force in more detail and sales marketing efforts to grow outside of your traditional word-of-mouth marketing as per your recent news?
Absolutely. So, previous to, call it, since June, our marketing and sales was one department, and our sales team across Canada consisted of four individuals, three to four individuals throughout the year, on and off. And all marketing efforts targeted through socials and targeted through to budtenders that work at the retail store. In June, we did hire Nick Van Dam, VP of Sales, coming from Auxly with five years of experience in direct cannabis sales. And the goal for us is to really focus on national distribution. We have to remember where we are built is in Quebec, and in Quebec, there's absolutely no marketing allowed. You're not allowed a sales team.
You're not allowed trade displays, target displays. You're not allowed doing social media. So the growth in Quebec is all organic, and I'm proud to say that we have an 11.8% market share as of July in Quebec, with absolutely no marketing efforts, which to me means that the product and the quality stands strong altogether, and the value proposition is strong. Now, how do we get that product and that value across Canada and through and to the hands of consumers, with all the noise that's going on in the Canadian cannabis industry? And that's where we've really changed our approach by hiring Nick. Our sales team is going to increase over the next year.
We're gonna have many, up to two, two, one to three, sales agents per province, and we're going to focus on our trade display marketing program. When you walk into a store, call it last month, there would be no Nugz, Tribal, Orchid displays, no way for a consumer to know that your product exists other than asking the budtender what he would consume, and the budtender saying that their favorite brand is Tribal or Nugz or Orchid. Now when customers walk into high-performing stores, that we're starting with high-performing and then working our way through the network, when customers go through high-performing stores, there will be trade displays that will present the products, will present the brands. We launch products every quarter.
Right now, all our people are buying our products just based on word of mouth. They are not aware of any launches, and every quarter, we have ten to fifteen products that come out. So how does that consumer get to know those products exist? Trade display plays a very important role, and then the third part is working with retailers to open distribution, get direct access to the retail network. That's, you know, that's relationships and building and understanding each market individually and getting your product on your shelf. So right now, our issue is our products' quality and consistency is there, other than a couple of hiccups that we go through as we go through our growing pains.
But as we develop this product, now we got to figure out how to get it into onto the shelf of the rest of Canada, with, you know, over and above our word-of-mouth strategy. So I think coupled a stronger sales team, a robust trade display marketing program in addition to distribution and key accounts focus will definitely help propel our sales to the next level.
Super t hanks, Nick. Next question. Is there anything that you see or you can discuss that it's on the horizon in the Canadian market in terms of reform or regulation, like changes to the treatment of excise taxes, that you see impacting the industry in the near future?
Yeah, it's all up in the air. I wish I had a crystal ball to tell me exactly which date it's gonna happen. Do I think it's gonna happen? Absolutely. The excise regime was based on a CAD 10 a gram cannabis sale price. Today, you know, we're selling at CAD 3 net of excise tax. So excise tax represents a 33% cost or tax on my gross revenues, and I strongly believe that's not sustainable. Or it wasn't the original intent of that excise tax. It was supposed to be 10%. But now we're so far down the industry, and there are some companies like ourselves that are able to operate with that excessive tax.
I believe that the government is letting that play out to see which ones are the real companies that can operate in a highly regulated environment, and then sometime in the future, that reform will happen when the industry has stabilized, and will change, and you know that cost will be partially given back to the consumer, but a large portion will be you know brought to the bottom line of the company, that's definitely a benefit for us. We're not building our business with any anticipation of any change. We're assuming that you know this excise tax will forever be the same, but I do know. I do feel that you know that reform will be coming down.
Okay, thank you. With some competitors entering adjacent industries like alcoholic beverages, how do you see yourself in comparison? Would you branch into other partnerships in this area, short term or long term?
Definitely long term. Short term, as I mentioned in our presentation, our focus is Canadian cannabis. I think with a focused strategy, we will achieve our goal of becoming leader in Canada and, while all my other competitors are, you know, moving their business, or refocusing their business to international cannabis sales or pivoting to another industry, that just provides us a better chance of success with a hyper-focused strategy on Canadian cannabis. Our goal of becoming the first large-scale, profitable, successful cannabis company in Canada, leading company, we will create a platform.
We have created a platform of cannabis, large scale mass cannabis cultivation at scale, at quality, at great pricing, which then can be replicated and built and built upon, with, you know, moving into other industries, alcohol, beverages, or going international or medical, but I think the number one goal for us is building this platform, and proving it out in Canada, where the opportunity for us exists.
Super t hank you. Regarding your genetics, are your competitors spending as much time on genetics, and if not, why?
So unfortunately, I'm not in their businesses. I highly doubt that they're spending this time, amount of energy, time, and cost. We're losing revenue. We are making the active decision to lock out two rooms a quarter and not produce revenue from that, and just pheno hunting 250 genetics from it that will propel the future. You know, foregoing revenue in our in the current cannabis industry is a hard decision. So you know, few are able to make that decision. They're not looking to the future and understanding the future. And second, there's no textbook for pheno hunting. Pheno hunting is a process that takes a lot of time, energy, experience, expertise, and building it out. You know, we at the...
I know that this is what the company needs. Our CEO knows what the company needs. We have the expertise to identify high-performing genetics, so that's why I had mentioned that both the CEO and I lead the pheno hunting process. This is not something that you can just give to your team for now, and we're creating the process now. So it's not something that you can tell your team, "pheno, hunt me and find me the next best genetic." There's. You really have to have that knowledge at the top, enveloped within the whole organization, where everyone's tracking towards finding the next genetic, and then having the money, the time, the energy, and the tolerance to go through it. It takes a year.
Bubble Up and Neon Sunshine was selected last year, and it took till August 2024 to actually see it into market. So it's an extreme long process, a lot of time. Other companies, I think, are just trying to keep afloat. We're really thinking down the future, and you know, if we can have a roster of high-performing genetics, that's how we will continue to our sell-through and increasing our production capacity.
Super t hank you. And I guess on the same topic, is there a differentiation of technology or innovation in the cultivation process that gives you an edge over your competitors?
Every facility is different. We've learned that the hard way. Every single facility, cannabis facility, the way it grows, it's an agricultural product. It's very... They call it, it's a weed, but to get quality out of a weed is the challenge. Every facility is different, so there's no textbook. There's no... You know, you can't call up a company and say, "Improve my yields," and they come in, and they install their product, and your yields go up 30%. It's all trial and error. So we implement from new genetics, finding new genetics, which, you know, one genetic can produce 50 grams a plant, another genetic, using the exact same cultivation methods, can produce 100 grams per plant.
You can imagine that on a cost basis, if that plant cost you CAD 100, and it produced 50 grams versus that that produced 100 grams, your cost is there's extreme reduction in that, so our goal is to find those high-powered genetics that are producing 100 grams per plant, and then not only that is that they work in our facility. 'Cause I can give that same plant and provide it to another grower, and they would not get the same results, so we're doing that internally. We're building that competency. We're building that intellectual property. We have that dips and waves in our gross margin, and, you know, sometimes we make a wrong mistake because, again, there's no...
We couldn't call somebody to say, "This is how you do it." We made a mistake, we reversed the mistake, we learned from it, and we continue building from there.
Okay, thank you. Consolidation seems to be where the industry is heading. How do you see this affecting Cannara?
For me, it's great news for us. We stand on the sidelines watching one consolidation happen, which will lead to brands deteriorating, and shelf space opening up, you know, market share consolidation, and then portfolios getting delisted and, you know, new room for us to go into the market. So that, to me, aligns with our strategy of capturing market share from our competitors. And yeah, that's really what we're after, is capturing that market share from our competitors, as we continue to scale up from here.
Okay, thank you. Do you break down your margins by product category or brands? And if so, can you shed any light on the product or brand performance?
Yeah, so, we have a very, very robust ERP. I can tell you, not off the top of my head, but I can tell you the cost of every single segment of our cultivation, from cloning the plant, to creating the mother, to harvesting it, to the drying phase, to the trimming phase. So we know the whole costing process, and then we know that from till down to the finished good, and then that's by brand. So we have that all broken down. Tribal is our top-performing brand. Right now, we're pretty much 33% across the board, between dried flower, pre-rolls, and vapes and concentrates. So that's, you know, one-third of our business represents those three categories.
Tribal being our highest performer, followed by Nugz, who significantly scaled up in the past year with all the new products that we've created. We've created a vape line for Nugz, a flower line, pre-roll line. So that's starting to catch up in revenues with Tribal. And Orchid more on the sidelines with one genetic, the Orchid CBD, but still very consistent for the past four years as we focus on building out Tribal and Nugz.
Yeah, thank you. Are you planning on expanding into the United States or other markets, and if so, would it be through organic or acquisition?
Too far to tell. Again, the strategy, as we mentioned for the couple years, is 100% focused on Canada. Once we become dominant player in Canada, we've validated a platform, a 1.6 million sq ft cannabis, vertically integrated cannabis facility, producing premium grade cannabis at low pricing, in Canada. Number one player in market share, and sales, and revenues. Once that is built out, then we can take that platform and go international, go to the U.S., depending on how it opens up. We have a platform to acquire companies, acquire facilities, and bring our IP that we've built out for the past eight years, nine years in Canada, we're gonna be able to build that and replicate that in other markets.
That's really the goal for us. It's a long process. You know, cannabis just got recreationalized a couple of years ago, and there's no textbook, there's no method of doing this at scale. We're laying the foundation of how the industry is and how cannabis production is supposed to be at mass scale, validating that, and then we'll take the next phase of our growth.
Okay, super. Thank you. What do you evaluate, or how do you minimize risk on demand supply when you're turning on additional grow rooms, that you do not have to chase demand to justify the investment?
So our investment is quite minimal. Unlike, you know, other companies who have to build out new production square footage, all our production capacity is built out. We have maybe a CAD 40,000-CAD 400,000 investment in each room for additional chilling capacities and other bells and whistles. So the initial cost of opening this room, these rooms are not staggering. But you'll notice that we're not rushing to open these rooms, even the cost is not staggering, is because you also you need a place to sell the cannabis. Could we sell this all internationally and open 10 rooms by next year, and open our international markets?
Most likely, but we're not gonna focus on the real core strategy of Cannara, which is to become dominant player in Canada. So we'd rather do it in a lockstep approach. We're monitoring, we have a very robust, very robust ERP system that I built personally when I started the company in 2019, and built the whole team upon. So every single person in our organization uses our ERP system and tracks inventory, sales, everything. So we have a sales forecast, we have a production forecast, and we have a button to press that takes maybe two months to turn on, and a room, and 800 kilos per harvest, four times a year, will turn on, you know, in two to three months from pushing that button.
So basically, we just look at our sales, we look at our production, and when that inflection point happens, that's when we turn on more capacity and just keep on growing in lockstep. We're already operational cashflow, net income, cashflow, so any incremental rooms that we turn on, we look at as incremental revenue, profit, cashflow to the business, and we'll just keep layering on those extra rooms, 12 extra rooms. Sorry, 14 extra rooms, over the next 4 years as we continue to grow.
Thank you. Should we think about the CAD 0.037 per kilowatt hour price at the Valleyfield facility as a permanent price, or is this a temporary rebate ending in 2027?
Yes, it is a temporary rebate. It's a contract that we have till twenty twenty-seven at 3.5 cents. Right now, that's the development rate that we do have. It's not a... We do lose it after twenty twenty-seven, but there's ability to renew it. But that question is correct, that, you know, it is a development rate up to twenty twenty-seven, that, you know, closer to the term, we can look to renegotiate it.
Thank you. And I, I think you stated this during your formal remarks, but can you just comment on how many rooms you have in production right now, and what is the plan for twenty twenty-five?
Yeah. So we have 10 rooms, 25,000 sq ft, 250,000 sq ft total, 100,000 plants growing at Valleyfield facility. And then we have 11 rooms, outputting about 3.5 kilos per year at Farnham, for a total of 33,500 kilos. 2025, in order to turn on more rooms. Right now, in order to grow quicker and expand, we focused on our capital expenditures on Valleyfield, opening production space, our 10 rooms, and using that Farnham, our Farnham facility, as a hub to trim, dry, and package this cannabis. So we had the cannabis going back and forth. Now, Farnham's at capacity with 10 rooms.
We have to invest into creating our post-processing center at Valleyfield, which is a building right next to it, 200,000 sq ft, that we're gonna build out about 50,000 sq ft for the post-processing and of the cannabis plants. What this will allow us to do is open new rooms for 2024, five, and beyond. So we're focused during most of the half of 2025 on building out that post-processing room. Towards the end of 2025, we're looking to turn on two rooms, and then four rooms in 2026 after that, until 2028.
Okay, thank you. Can you comment on what your perception is right now of the black/illicit market and its effect on growth of, I guess, the legalized market in Canada?
The information is not widely available. It's not clear. I'm not sure how much I can rely on it. You know, from what Quebec says, there's a 40%-50% illicit market still available. The growth that I've mentioned at 21% is assuming that we're not capturing the rest of the black market. Personally, do I feel like it's lower than that? I think it is. I think we're closer to maybe 25% that's left of the black market, but you know, that's our...
If we're a dominant player in a CAD 5.1 billion dollar market in Canada, we've achieved our phase one and objective revenue objective of being a dominant player and reaching our revenue goals, and then the next phase would be medical and international, U.S. Yeah, so I think that's that for us, that's how we look at it.
Okay, super. Can you comment on what your view is, or the company's view is, on capital allocation? For example, your previous share buyback, versus opening new growing zones, once you achieve economies of scale.
Yeah, absolutely. So, we're at a point where our, I mean, we're at a point where our... Any dollar that we generate from the business provides a significant return on investment if reinvested back into the business. As an example, you know, that CAD 400,000 to turn our room, if I can sell everything in that room, that's three thousand something kilos per year, that's close to CAD 10 million payback in the year on a CAD 400,000-CAD 500,000 investment. So, yeah, so we're continuing to invest in... Sorry, repeat the- I lost track there. Repeat the question on-
I guess just your overall capital allocation strategy in terms of-
Oh, yeah, versus.
Yeah
The rest of the investors. So for us, like, we're so focused on expanding, and that every dollar, you know, can ten x the payback in a year, that any additional cash flow first goes to fund the business, and then if we're not in an inflection point of having to reinvest in the business, i.e., the post-processing center or new rooms, we then look to pay down our debt and reduce our cost to capital. And then thirdly, you know, we can do strategies to focus on increasing our share price.
That's the buyback and other things that we can do in the future to increase our share price, but because the investment return is so high on the business itself and our objective for the next four years to continue building this business for Canada as phase one, every dollar goes into the business, then debt, and then trying to focus on share price.
Okay. Are there any plans by the company to launch new brands beyond the current three in the marketplace?
For now, we forecast that we don't see the need to open more brands, and we really think that building brand loyalty in an industry that there's no real example of brand loyalty as of today will be a significant point of differentiation, so focusing all our efforts until we've maximized the potential of these brands is definitely our objective. We're nowhere near maximizing the potential of these brands.
Perfect. Can you talk a little bit about your pricing strategy, in terms of premium versus standard product lines?
Yeah, I mean, we, because of our advantages in Quebec, our low cost of electricity, which happens to be the highest cost input in cannabis, and because of our dedication to quality, and our lean team, you know, the CEO is there every single day, acts as master grower, going through the facility, making sure everything is running good. I manage it from a financial point of view. We're able to just keep our costs low, and then we're able to price our products in that mid-tier range, from pricing perspective, not value-based tiering pricing, but very close to that middle, right above that value price tiering. But then we don't compromise on quality.
We go back to our asset and control and see where, what we can do to keep that quality up and reduce costs, and that's increasing, and that's not cutting in areas like hand trimming or hang drying or slow curing. That's investing in genetics and finding a genetic that gives me 100 grams per plant, 120 grams per plant, and building that product line so that it's affordable, which then will, if a product is affordable and quality, then the volume will attach to that product, and that's how we're building our product line.
Super t hank you. Are you seeing the industry changing operationally, such as your business has, operating with more focus on operational performance and profitability? And on that point, how do you see the industry taking shape? Do you envision several companies emerging in Canada, leading the market, like we have with grocers and convenience stores?
I think that will happen. There will be a select handful of the top companies that are capturing the majority of the market, and then, you know, the rest of the market, 20% of it, held individually by smaller companies. Who that company is, I think, you know, there are the big ones that are out there now, and it's gonna be one of the couple of the big ones. It's who's going to be able to execute the strategy, continue the success, and build upon it, right? It's not a... We're not in a business where you create a product, and you put it on the market, and, you know, that will continue sell through. You continuously have to innovate. You have to be consistent with that product.
You have to address those ever-changing consumer needs. So if companies are able to do that, like we believe we are, we're going to be, you know, in that number one position, you know, leading position with a couple of others. And I think there's gonna be mergers and acquisitions to keep those certain companies in the top ranks and surviving. The biggest issue is making it profitable. And making it profitable and making it work, it's extremely hard in the current conditions. But you know, well, I think we've proved it out, and we continue to prove it out and continue to improve it as well.
There's just a lot of opportunity for companies, a business that is set on, focused on, like, on capturing Canada and the cannabis market. The other companies that are in that segment are running other initiatives, are expanding into industries, are going international, medical. Maybe they have enough resources and capabilities and competencies to win in both, in all the markets, but for us, I think that focused approach will make us that part of the top company.
Thank you. What is the company aiming at in terms of product mix, extract versus flower and pre-rolls, and how is this mix affecting revenue recognition, timing based on biological assets, fair value increases?
So I think our ratio is exactly where I want it to be, 33% dry flower, 33% pre-rolls, and 33% vapes and concentrates. You know, it aligns with how my plant produces, meaning, you know, 50, most 60% is bigger buds that you would use for dried flower, and all that. You know, 40% is used for concentrates and pre-rolls, so it aligns perfectly with the way we grow a plant. And in terms of biological assets, we again have a robust system that we track every single plant, every lot, where it's going, the end destination.
So when we grow out our plants, and we review our biological assets, we know every genetic what plant how much yield it's gonna grow, and what is it destined for. So if that lot is destined for vape carts, well, then a formula for fresh frozen application and the return from fresh frozen to oil would be used to value our biological assets. So everything has formulas and assumptions that are built upon the lots that we're growing during that period. So we're very technical, extremely technical. My auditors tell me every time, we're extremely technical in both the costing of our inventory and the biological assets.
Thank you, Nicholas. Next question. Do you see any impact for you from the U.S. potentially rescheduling cannabis, and could that affect your operations, relationships with your genetic partners, and overall U.S. strategy?
Yeah, definitely. I think there's gonna be just a whole sentiment change, right? If the U.S. legalizes, just the sentiment that we'll feel in Canada from a consumer point of view, from an investor's point of view, I think the green rush would be renewed, would allow us to utilize potentially our share price for more opportunistic deals that may come up in the future. So definitely, you know, I'd welcome the change if U.S. legalizes. I'd like it to take a little bit of time, so I can build a business in Canada and have the platform ready to jump into the U.S. when it legalizes.
But if it happens shorter, I mean, that I think just the hype and the renewed activity that's happening in the industry will positively benefit our stock and allow us to be more nimble when looking at opportunities.
Okay, super t hank you. Can you give additional details or specifics on what adverse growing changes led to decreased yields earlier this year?
Yeah, so I can go through the technicals, and we could sit down and go through it, but you can imagine that in a growing cultivation, there is many touch points, from the cube you choose to the how long you're cloning the plant, how long you're seeding the plant, how long you're vegging the plant, how long you're flowering the plant, how much water you're giving it, how much light you're giving it, when you're cutting the water off from harvest, how long you're harvesting, when you're harvesting it. The drying phase, the humidity, the VPD chart, there's numerous factors. So my team, Zohar, the CEO, goes in every week, and, you know, says, "What if we...
Let's try a sample, let's try this." It worked out on a small scale, so then we got improved yields, and then we implemented on a large scale. Large scale most of the time happens, and we see that continuous improvements. When a change happened, and I don't know the exact change in detail, it has to do with irrigation and humidity and cutting the water, as well as CO2 and non-CO2 inputs in the genetic. When you change those, we grew it out, and it had negative effects from a large commercial basis. So we went back, we regrew the same line back to the original specs and got to exactly where we were before.
So now we know that the changes that we've done on a test basis worked. On a commercial base, I guess, when there's more plants, there's a lot of factors, and I can bring in my PhD to talk about it, but it didn't work on a commercial setting, so we dialed that back, reverted back the settings, and then the next grow that we got from that genetic was back to where it was.
Great. Super, thank you. I'm gonna ask you some market-related questions, I guess, at this point. So, first question is, there seems to be a big disconnect between what the current value of the company is and the share price. With that in mind, have there been any conversations regarding privatization, or the opposite, potentially a Nasdaq uplist?
Yeah, so in terms of privatization, I think, you know, we went to the public, we raised money, we have shareholders. 50% of the shareholders are internal, the other 50% are public holders. But we're all vested to making this work. So I think, you know, being public allows us... We're not short-sighted, we think long term, and having been public in a cannabis space and being, it fits extremely well with being number one in the space and being a leader in the space. So for us, you know, public is where we are, and what we continue to march towards. In terms of the Nasdaq listing, of course, TSX listing, we've looked at the opportunities.
It just comes with a huge cost and a huge time on my part, as well as my team's part. And we just did the analysis of cost and cost-benefit of, you know, uplisting now versus later. And for us, it's, it was the choice of later, given the amount of costs that it requires and time, and given our hypergrowth situation right now, and, you know, the... We don't have a need to fully further dilute our shareholders or raise more money. We really want to build the expansion of this business through reinvestment of our business's cash flow, which will then provide that shareholder value.
And then when, you know, as we continue going over the next year, two years, however long it takes, and we have that extra cash, and we've invested into our business and opening more rooms, then we would start looking at opportunities of uplisting and going to the Nasdaq or TSX. As of this moment, though, it's not for us the right moment.
Great. Super. Do you know if Cannara is currently traded on any ETFs?
No, we're not.
Okay. And then, I guess the last question, Nick, is.
We're working hard to be on.
Yeah. To our audience, again, if we've got a couple of minutes left, if you've got a question, please use the question and text box. I'll wait for that to come in. In the meantime, Nick, I'm gonna leave it with you to maybe potentially give some summary remarks and maybe your perception of the weakness in the share price versus the strength of the business, and how do you see that playing out over time?
Yeah, so I mean, I think, I think, all cannabis companies are in the same boat in terms of share price. You know, I think there's factors out of our hands right now, that needs time to work through. Some things just need time. The cannabis industry was the green rush, you know, a lot of money was thrown at these companies. A lot of money was spent, poorly, and a lot of investors got hurt, lost money, and, you know, have lost trust in cannabis and cannabis companies.
That's kind of where we are today as we stand, and now investors have to kind of step it back and say: "Is cannabis an industry that's going to be here for the future?" You know, "Is it- is there money, is there money in cannabis?" And as I mentioned before, it's CAD 5.1 billion by 2029, and that's just Canada. Canada is also the international hub to export cannabis, you know, across European markets and eventually in the U.S. So you have to ask yourself, you know, is there an opportunity just looking at the industry, while some investors are just not looking at that because of the historics. And then, once you determine that there is potential in this cannabis industry, you have to find...
You know, it's very easy to look at the companies that are still standing, that have scale and have the ability to grow and are not, you know, have not pigeonholed themselves, into a, you know, a small business, a niche business, or they didn't invest in assets. Now, to raise money to build cannabis assets is practically impossible. So as an example, if I was Cannara with no Valleyfield facility and just a Farnham facility, and I needed CAD 200 million to build out a Valleyfield facility, we wouldn't be the same Cannara we are today.... So you have to step back and look at the companies that are still standing, and seeing if these companies do have the potential of grabbing, you know, that percentage of that, of that CAD 5.1 billion, and, and growing from there.
And I think there's a lot of room and there's a lot of growth. Cannabis will be here. It'll continue to grow. There's gonna be many more things that are gonna happen in our industry. It's really, really new. So for us, with that in mind, and, you know, we evaluated, we think that there's a cannabis opportunity in Canada. We looked at our assets. We have all the assets. We have the intellectual property. We're building the intellectual property. We have the employees. We have the know-how. We have the products, the brands, and now it's just execution and time to deliver that. And I think, you know, our share price should follow...
You know, and the markets are inefficient, as long as you can be rational. So yeah, I think, you know, it's gonna take some time for the markets to adjust and see the value of our stock. I'm doing presentations like this one, talking to people every day showing the benefit, doing site tours, and showing how it is. But it's an uphill battle right now because you're talking to investors and people that necessarily don't want to hear about cannabis or got hurt previously about cannabis. But the smart investor would look and look at the potential opportunity in cannabis, look at the potential opportunity of the companies that are still standing.
If you were to look and do this analysis five years ago, it would be impossible because there was so much noise, and there were so many companies. Everything was growing. There was not concrete facts, and I think today we're at a point where we have concrete facts. We have financial statements to prove. There's concrete evidence to see the growth, and it's making the decision on who's gonna be the top player in cannabis and, you know, supporting that company, and I think we're positioned here for national success, and both myself and our CEO, as well as the entire team at Cannara, are super vested into making this work, and we want to see nothing but success for this company.
So, that's what we are here to do, and hope you enjoyed listening to our Q3 update. Feel free to email me anytime if you have questions. I'm glad to do investor tours as well. My email's nick@cannara.ca, and thank you again for having me today.
Super. Really appreciate it, Nicholas. Thank you. Thank you to our audience, and this concludes today's presentation.