Please note that this conference is being recorded. I will now turn the conference over to our host, Glenn Axelrod, President, Bristol Capital. Thank you. You may begin.
Thank you, Diego. Thank you everybody for joining our webcast today with Cannara Biotech. The purpose of today's presentation is to give our audience a better understanding of the business through a PowerPoint presentation and then questions with management. The discussion is gonna be led by Nicholas Sosiak, CFO. You should see the presentation in the webcast. If you'd like a copy of this PowerPoint, simply email me at glen, glen @bristolir.com. I'll be happy to send you one. We're break for questions at the end of the formal presentation. When we do break, we encourage those questions.
As a reminder, we're only taking questions through the web portal. If you're listening over the telephone, please access the web link that we sent earlier today to ask that question. You could submit it at any time using the text box within the portal. I'll ask the questions on the air for everyone to hear, and then Nicholas will answer. I won't 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 has not yet been addressed during the call and can be, I'll come back to you by email.
I won't read the looking forward statements, but I do state that they apply, and I reference them on page two of this PowerPoint. With that said, once again, thank you for joining us. Remember, this is fairly informal, and we encourage those questions to help you better understand the business and its growth path. Now I'll turn the call over to Nicholas to start his part of the discussion and presentation.
Thank you, Glenn. Good afternoon, current and prospective investors. Thank you for joining us today and allowing me to give an overview and update to our business, Cannara Biotech, as of our last completed quarter in 2023. Today, I'm excited to present new prospective investors an overview of how and why Cannara is succeeding in the Canadian cannabis industry, in addition to providing current investors with an update on our milestones and our financial achievements for the first six months of 2023. Cannara Biotech is a vertically integrated Quebec-based licensed producer of premium-grade cannabis and derivative products at scale, having two mega facilities located in Quebec spanning over 1.6 million sq ft.
For those that don't know, Quebec is the province that has the lowest cost of electricity in the country, which also happens to be one of the largest cost inputs in indoor premium cannabis cultivation. Cannara Biotech Inc. is trading on the TSXV under the ticker LOVE, L-O-V-E, and on the OTCQB under the ticker LOVFF. Thank you for joining today. Over the next 20 minutes, my goal is to show you why we are positioned for national success and beyond. My name is Nicholas Sosiak, CFO of Cannara Biotech, and I have been with the company since 2019. In addition to finance and accounting, I oversee and help create and develop our genetics, products, brands, and overall marketing sales strategy.
As a C-level executive, I'm proud to have a huge passion for cannabis, as it gives me an edge in the industry to execute with high success. Just as multifaceted as myself is our CEO, Zohar Krivorot, who is the founder and main shareholder of the company. As CEO, he has taken a highly unique approach into building our business, spends most of his days and weekends at the facility, and in the process has developed a passion for cultivating cannabis plants. Cannara has been working on scaling and growing its operations organically within its two Quebec-based mega facilities since it became a public company in early 2019.
Cannara only subsequently began retail sales in Canada in 2021, focusing on only one province at the time, Quebec, with our three flagship brands, Tribal, Nugz, and Orchid CBD. Since our Quebec retail launch, we have been focusing on growing our internal cannabis production, one of the few licensed producers in the industry to do so at this point in time. We grew from an annual cannabis production in 2021 of 7,000 kg to 11,600 kg in 2022. As of today, with the opening of our ninth Valleyfield growing zone, we have expanded annualized production capacity to 29,500 kg . That's over a 150% increase in production compared to last year.
All that growth, yet we have only activated about 25% of our total potential production capacity. In tandem with an executed approach to growing production capacity organically and in lockstep to maintain consistency and quality, Cannara has now been focusing on entering new markets, scaling in existing markets, and introducing new products and genetics. In October of 2021, Cannara branched out its retail sales to include Ontario, Canada's largest cannabis market. Over the past year and a half, Cannara has carved out its position in Ontario with significant room to scale as Cannara increased its sales and marketing initiatives. Prior to 2023, the growth in Cannara's cannabis sales was primarily a factor of word-of-mouth.
With little sales activities, the company had limited inventory availability due to production capacity and extremely high demand. Currently, with only 26 SKUs and with sales and marketing initiatives just getting started, we find ourselves placing as the 8th-largest producer by sales in Ontario. As of today, earning three consumer-voted KIND Awards and having several SKUs to become the province's top products in its category. This summer, we got approval to list 17 new SKUs in Ontario, increasing our overall SKU count in the province by 86%. In September of 2022, the company also branched out to its third market, British Columbia, and currently has seven SKUs listed, with several more coming to market this month.
With this additional SKUs coming to market and again, increased sales initiatives, we expect BC to be our fourth-largest client by sales. In March of 2023, the company also received approval for retail sales in Alberta, Canada's second-largest retail market, right behind Ontario. Alberta has already accepted three of our SKUs to be launched initially at the beginning of May, with several more SKUs to follow as sales begin to occur. We expect Alberta to represent our third-largest client by sales. With increased production capacity, strategies in place for sales and marketing, innovative product development, and a new distribution networks, Cannara is positioned for national success.
We have superior products, lower cost of production, and as a result, lower retail selling prices, which provides for an extremely strong value proposition. Cannara may be the sole licensed producer in Canada that is currently increasing production capacity quarter-over-quarter, increasing market share quarter-over-quarter in current markets, entering new cannabis markets in addition to having international sales capabilities, and also only has a portfolio of 36 active SKUs with the potential to create way more. Being in only two major markets, and with these products, Cannara generated CAD 23.4 million of net revenue for the first six months of 2023, with strong operating margins and marking our eighth straight quarter of positive EBITDA.
For the second quarter of 2023, we posted an adjusted EBITDA of CAD 3.2 million with free cash flows of CAD 1.9 million. Our six months results show an adjusted EBITDA of CAD 5 million with a free cash flow of CAD 3.9 million. We strongly believe in the platform we have built with Cannara, growing and scaling organically with demand to maintain consistency and quality of this delicate product. Our capital partner, BMO, a Tier 1 Canadian bank, who continues to support the company, having just recently approved today an upsize of CAD 10 million to our existing CAD 50 million credit facility.
We are proud to be the ones owning, designing, building, and operating all of our assets in a completely vertically integrated fashion in order to control all inputs and quality measures the processes that we perform here at Cannara. One fundamental principle that is part of our ethos is in order to produce premium-grade cannabis, we need to control the process and ensure it's done indoors, where all cultivation variables can be controlled. For our new and prospective investors, I will now take a couple of minutes to review our prized assets, the Farnham and Valleyfield facilities.
Significant amount of planning, time, effort, and money has been invested into these facilities to provide Cannara total ownership and control over the cultivation process. Our first asset, the Farnham facility, was our first indoor cultivation production facility, which was purchased in 2018. Inclusive of the purchase of this 625,000 sq ft building, Cannara invested over CAD 60 million in the build-out of the state-of-the-art facility. As we continue to focus on increasing our production capabilities, starting in late 2021, we have now turned our efforts to scaling our new Valleyfield facility. Farnham is currently fully utilized with 170,000 sq ft of production footprint and 455,000 sq ft of leased out space earning rental income.
Our rental revenues from Farnham currently generate over CAD 3 million per year with over 90% margin. Farnham can output approximately 3,500 kg per year, is now focused on being the cannabis nursery, R&D facility, and main processing hub for post and derivative product transformation. In June 2021, we acquired the Valleyfield facility, which is now our main cultivation hub and additional center for post-processing and transformation. We acquired this purpose-built cannabis facility from The Green Organic Dutchman for CAD 27 million, for which they had invested over CAD 250 million building out.
The acquisition of the Valleyfield facility significantly changed Cannara's profile in the industry, gaining access to an asset that can produce up to 120,000 kg per year when combined with our Farnham facility. To provide some perspective on scale, our new Valleyfield facility has 24 independent growing zones, each measuring 25,000 sq ft and holding approximately 10,000 plants per growing zone. Comparing this to Farnham, we have 11 growing zones measuring 2,500 sq ft and holding only 1,000 plants, making each Valleyfield growing zone 10 times bigger than Farnham. As of April, we have achieved our 2023 yearly milestone of activating nine of these 24 growing zones, and when combined with Farnham, represent over 250,000 sq ft of operating canopy and 101,000 plants under production.
For fiscal 2024, we will be focusing on opening more growing zones and anticipate on achieving full activation of all 24 growing zones by 2026. Each growing zone we activate, we invest capital to redesign the zones into replicating indoor growing conditions, including growing without the sun. This completely eliminates variability in cultivation and ensures quality and consistency, two factors currently lacking in scaled cannabis production. Once Valleyfield is fully activated, it will be a world-class, fully vertically integrated cannabis production facility. In addition to our prized assets, we are one of the few that have been able to execute both the cultivation and sale of premium-grade cannabis.
Cannara and its brands since inception, has been built upon three core principles, solidifying our commitment to consistency. Our first core principle is quality and is our number one criteria for production and product development and our commitment to our customers. As we control the vertical from seed to flower or derivative product, quality does not become a differentiation factor amongst our brands. All of our brands house premium cannabis that is hang-dried and slow cured at scale by us. In addition, in order to succeed in cannabis market, we need to continuously innovate with new and exciting cannabis genetics.
To facilitate product development and innovation to become trendsetters in the Canadian cannabis industry, we hold an exclusive brand partnership with 50-time award-winning U.S.-based cannabis breeder, cultivator, and hash maker, Exotic Genetix. This agreement brings one of the most influential cannabis breeders and brands from the U.S. to Canada. Early on, we differentiated ourselves by understanding that consumers in the cannabis industry differ from those consumers in alcohol or tobacco or any other CPG category. This is because cannabis provides so many unique experiences to consumers due to the massive array of genetics currently available and that will continue to be developed.
As a result of this consumer trend, a fully vertically integrated cannabis company must not only be excellent agricultural cultivator, but understand and set consumer trends, much like in the fashion industry. This is why our partnership is important as we gain key understanding in cannabis genetic development while gaining a marketing edge to being first to market with trends set by Exotic Genetix. Our licensing arrangement also provides us the ability to introduce a fourth flagship brand. Our second core principle is ultimately making every single one of our products accessible. From the beginning, our products and brands have adopted a consistent product pricing strategy of disruptive low prices aligned with the legacy market.
As the cannabis industry is becoming more and more competitive, we find our success of producing a sustainable business offering a strong value proposition amongst our products. Our team has been dedicated and focused to execute, taking advantage of economies of scale, making our brands and products accessible to all consumers for everyone to enjoy. Our approach is methodical. Steady organic growth in order to focus on that consistent quality of production consumers are demanding for. It is our eighth quarter of positive EBITDA. A focus approach will allow us to succeed and navigate efficiently and effectively in the current cannabis market.
We plan to continue to scale at our Valleyfield facility quarter-over-quarter. As we develop more and more derivative- based products, we require more flower input as a derivative product uses approximately 10 times the amount of flower when compared to a dried flower product. The most important factor of our story is being built in Quebec and establishing a core dominant market that has high barriers of entry for cannabis production and retail sales. Quebec has the lowest electricity rate in Canada.
We are currently averaging CAD 0.042 per kW compared to our competitors in Ontario, paying CAD 0.113 per kW. Establishing a core market in Quebec, which has one of the highest barriers of entry, allowed us to carve out a healthy market share in Quebec and ensure weekly depletion of our inventory, which allowed us to expand in lockstep with other provinces that have heavier competition. Quebec is also the third-largest cannabis retail market in Canada, despite having the fewest amount of brands, licensed producers, and retail outlets. We are the third-largest producer by sales in Quebec, and for the month of April, hold approximately 10% market share in this province.
Being established in Quebec and having access to the lowest cost of electricity in country and basically free water, we have been able to execute our high quality, low price strategy. We believe our strategy will and has already proven to work exceptionally well in penetrating new markets and providing sustained month-over-month growth in market share. Our third core principle is to build brands that stay true to the cannabis culture and focus on the consumer. All of our brands provide full transparency into each product, showcasing the quality, which is why consumers are becoming serious advocators of our brands and products. Our unique value proposition is right for future growth.
We are currently seeing market share loss quarter-over-quarter from previous industry leaders and a significant price compression across all product categories, forcing many licensed producers who do not have a lean vertical structure with a solid value proposition to price products at a loss in order to grasp market share. This forces consumers to orient on price and really drive the value price market, for which we are laser-focused on capturing. As Cannara's pricing strategy is already focused on value, price compression has and will have little effect on us and will only lead to reducing competition and SKUs in the market, allowing us to carve more market share and build brand loyalty within the cannabis space.
Our three main flagship brands are Tribal, Nugz, and Orchid CBD. Amongst those SKUs, as of April 2023, we currently have 36 unique active SKUs available in the market, which is increasing quarter-over-quarter as our team innovates and get these product listed in the province. For our prospective investors that are not yet familiar with our brands, as we have found that cannabis consumers, buying choices highly relate on genetics and formats, Tribal puts genetics to the forefront while providing an unparalleled experience with quality and flavors and a simple navigation through product formats. Tribal currently has six genetics in its family, with four of the six being created by our partner, Exotic Genetix.
Tribal offers each genetic in four different formats, including dried flower, pre-roll, Live Resin vape carts, and Live Resin extracts, in addition to offering accessories and apparel. Our second brand, Nugz, focuses on the grassroots culture, committed to abundance, quality, and value, and focuses on product formats at disruptive prices to cater to a variety of cannabis segments. Nugz products include 3.5 gram dried flower, 14 and 15 gram bags, 28 gram bags, large pre-roll packs, and a variety of solventless derivatives. Our third flagship brand is Orchid CBD and caters to the remaining niche segment in dried flower, focusing on a more of a balanced and wellness experience.
Orchid CBD currently has one staple genetic, CBD Runtz, and offers it in 3.5 gram format and pre-roll, in addition to oil tinctures. Consumer experience for our product under Orchid CBD has been nothing but fantastic, as very few licensed producers focus in the CBD area. In December of 2022, Orchid CBD was awarded CBD Product of the Year in Ontario. We believe the appreciation for balanced and wellness products will only increase as the market matures. Orchid CBD will eventually grow in cosmetics and other wellness cannabis products. The future is bright for Canadian cannabis. Canada is currently the second-largest legal cannabis market in the world, and is the international export hub for most international countries.
The Canadian cannabis market hit CAD 4 billion in sales last year and is expected to reach CAD 7.6 billion by 2026. The Canadian cannabis market has immense potential, which is why Cannara is focused on its Canadian strategy and confident in continuing its growth in production capacity. Now for our goals. In 2023, we continue to track ourselves against five key objectives. Number one is to increase our cannabis production supply. During the second quarter of 2023, we activated our eighth growing zone, and in April, activated our ninth growing zone, achieving our fiscal 2023 objective four months ahead of schedule.
For the quarter, we generated CAD 11.7 million in cannabis revenue compared to CAD 8.4 million in prior quarter, representing a 39% quarter-over-quarter growth and a 125% growth compared to prior year. We also increased our quarterly production from 4,700 kg to 6,100 kg, a 30% increase in production capacity during the quarter. Our second and third objective was to offer new genetics and products for 2023. Cannara needs to always be focused on bringing new genetics to market, which actually entails a long nine-month process to ensure commercial success. During the first six months of 2023, we were able to launch two new genetics and introduce 21 new SKUs to market, with an additional 17 new ones coming this summer.
We are also scaling up and ensuring full utilization of our ever-growing production capacity by offering focused derivative products, including hash, oils, rosins, resins. Cannara is now delivering multiple vape, resins, and rosin SKUs across the country and is excited to see the growth in this growing category as it enters the market, which in fact is the third-largest cannabis product category right behind dried flower and pre-rolls. As mentioned earlier, we are Quebec's third-largest supplier by revenues, holding a 10% market share in April. We saw a 4% increase in market share for the first six months of 2023. In Ontario, we currently hold 3% market share, which increased from 13th position to eighth position as of month of April.
As of last quarter, minimal marketing efforts have been spent in Ontario and growth has been mostly word of mouth. With 17 new product SKUs launching this summer and more to come later in the year and increased marketing activities, we strongly believe that we will continue to see Cannara climb the market share ranks in Ontario. As of May 2023, we'll be launching in Alberta, Canada's second-largest market, with a very, very strong marketing launch. Finally, we are also focused on increasing distribution and marketing activities in BC and Saskatchewan, setting up Cannara for increased sales for the quarters to come.
Our fifth objective is to maintain a positive EBITDA. We have achieved our eighth consecutive quarter of positive EBITDA, and we expect this EBITDA to scale in line with our operations, even improving as we achieve economies of scale. The second quarter of 2023 has seen growth on all fronts as we expand market share in Quebec and in Ontario, and we scale up our operations.
We closed the quarter with just over CAD 4 million in cash and CAD 8.2 million in receivables that is expected to be collected within the next 30-60 days. As announced today, we closed in financing upside with our existing credit lender, BMO, a tier-one Canadian bank, for an additional CAD 10 million. The funds will be mostly used to support the construction of a rental asset that is expected to be highly accretive once built. The remaining funds will be used to support construction costs at Valleyfield while maintaining working capital. During the first half of 2023, we invested approximately CAD 5 million in capital costs for the activation of rooms and other required areas.
As we have achieved our nine rooms ahead of schedule, we do not foresee further capital requirements towards Valleyfield till next fiscal year. We have a healthy increase in working capital and capital partners to support our growth strategy without dilution. As of last quarter, our trailing 12-month revenues is now at CAD 45 million. For our second quarter of 2023, we achieved net revenues of CAD 13 million, up CAD 2.7 million or 26% from the prior quarter. We earned CAD 4 million in gross margin, representing 31%, which was significantly affected by a CAD 1.4 million impairment charge on inventory that was due to aged older than a year or inventory deemed not for retail sale. We believe this will be non-recurring.
Although we wrote off some inventory subsequent to quarter end, most of this inventory has been put through and sold through our B2B and wholesale channels, which will recover a good portion of the write-down. If we remove the effect of this write-down, gross margin would have been 42%. We achieved a positive EBITDA of CAD 3.2 million, up CAD 1.5 million or 88%, and generated CAD 1.8 million of free cash flow for the quarter. When comparing Cannara to its peers, although we may not be currently holding top revenue position, we are number one in our peer set for revenue growth, gross margin percentage, and EBITDA margin.
As evidenced by today's deck, with increasing production capacity and market share increasing in existing markets and us entering in new markets, we are confident that our revenues will continue to scale. As of February 28th, 2023, we are currently holding a share price of approximately CAD 0.85, with a fully diluted share count of approximately CAD 99 million shares, representing a market capitalization of CAD 77 million. For Cannara, consistency is bred into everything we do, as evidenced by our past five quarterly financials. I would like to stress that we're here to build a sustainable, long-lasting cannabis company that is set to become the leader in the industry.
I have briefly touched on most of our quarterly highlights, but I'd like to highlight three more points. Our commitment to building an optimized company, as evidenced by our conversion of a CAD 5.3 million debt obligation and a CAD 10 million upsize from a Tier 1 bank. Our diligence in providing investor value, which can be seen by thinking outside the box and converting a non-licensable space beside our Valleyfield facility into a rentable, accretive long-term asset for the company. We have already signed an 11-year term lease on this building that will be constructed very shortly. Our forward-thinking in obtaining international license certification to export cannabis.
Although currently not in the plans as Canada is expected to consume all the cannabis we produce, it is very beneficial to have other strategies in place to support the main goal. As we all know, a company is only as successful as its leadership team. We believe we not only have a core and succinct C-suite carrying all necessary experiences to deliver out the strategy, but are a group of very passionate people invested in the business. Behind us is a core team of VPs in each respective department, just as passionate and eager for Cannara to succeed as us, all providing experience and expertise in their respective field.
With the help of our team, we have increased our employee headcount from 175 employees at this time last year to 270 employees, a 54% increase to support our operational growth. Our board continues to provide overall excellence in governance. We have built a sound Board of Directors holding even further knowledge and overall industry expertise in cannabis, in real estate, pharmaceutical, IT, and finance. Between management and its directors, insiders hold over 50% of the company, which makes everyone vested in the success and the future of the company. We remain diligent, focused on setting our milestones and executing our strategy amongst much noise in the cannabis industry.
We have demonstrated continued operational execution, which provides us confidence that our plan is positioned for national success. I thank you for your time and attention. I truly appreciate it. For those that I may have missed, you can find us on the Canadian stock market under the ticker LOVE or the U.S. OTCQB market under ticker LOVFF. If you have any questions about our company or would like to get in touch with me, please send me an email to nick@cannara.ca. One love. Glenn, if you're ready, I'm ready to take some questions now.
Excellent. Really appreciate that, Nick. Again, to our audience, if you have a question, please use the webinar portal, question box to ask that question. We do have a bunch of questions in the queue, Nick, and I'll summarize some of them 'cause I think they're similar in nature. First theme is, can you just talk about why you think you're gaining so much market share in Quebec so quickly? You mentioned that you're the third or fourth-largest producer. Are you doing something different in Quebec that's letting you capture that market share versus the others?
Yeah. Thanks, Glenn. We're currently third. It's a testament just to no different from our us climbing from 13th to eighth in the same in the same period in Ontario. It all comes down to our value proposition, the products that we're creating, the quality, and then the price that we tag it to. It just works. We're early entrants in Quebec, so we have—marketing is very reduced in Quebec, pretty much not allowed. Word of mouth is extremely efficient in Quebec. Since we started here, we built that up for the past two years. Now that we're increasing production capacity, and we're able to deliver more, to Quebec, that's the effect that you're, we're seeing on our market share.
Okay, thanks. A follow-up question on that. The other producers, are they seeing the similar type of financial performance as you do based on the I guess, the economics of power in Quebec? Or are they still struggling like you had one of the slides in terms of the financial I guess comparison?
Yeah. This is data that I'm relying from that's pulled from as SQDC, we crawl it from the sales that Quebec produces. Based on what I see, we are the only LP that grew more than 1% market share month-over-month. All the other LPs that in my data set were reducing market share.
Super. Thank you. Next question. Do you disclose which of your current products contributes most to revenue?
Currently, it's dried flower and pre-rolls. Probably at a good 50/50 percent between dried flower and pre-rolls. We just got into concentrates and especially vape carts and dabbable extracts, which we believe is going to be a huge category. As mentioned earlier, it's the third-largest category right behind pre-rolls and dried flower. That probably represents 5% right now and could scale up to 40%-50% of our total revenues as we introduce more products.
Super. Thank you. Then, I guess product-related question is, are you selling any edibles? If not, is this going to be a product category that you're gonna get into?
Currently, we're not selling edibles directly. We're working with partners that have their own brands that need quality that are premium edible brands that need quality inputs. We're providing the quality inputs on a couple of brands. For us to go into the category yet, it's a bit saturated. Right now there's a lot of competition and very hard to make differentiation in that category right now with the current regulations on 10 mg per package, which is important. Not necessarily 10 mg per gummy, but 10 mg per package, which really limits the creativity and the cost that you can achieve on these.
We're leaving that on the back burner. Same thing with beverages. We will get into this category once they make some regulatory changes. In the meantime, work with partners to gain some sales in that category.
Okay, super. Next question. Could you provide some more color on your announcement today? Could you remind us what your current rate is? You also call out an interesting term with the potential of the rates to decline as you hit milestones. What should we be looking at to track your progress on hitting those milestones to lower your cost of capital, and how low can that go? Lastly, just wondering how this could affect your cash flow. When it's leased out, you generated roughly CAD 2 million per quarter in free cash flow for the last two quarters. How could this lease increase this number?
Yeah, great questions. The lease is definitely we're starting construction. We got the CAD 10 million. Most of it is going to be construction of the asset that's non-cannabis licensable on an area of the Valleyfield facility. When we acquired the Valleyfield facility, we also inherited about CAD 500,000 of steel that was going to erect this building. We took advantage of that and erected it. Found a 11-year or signed an 11-year lease term with a tenant that is starting in January 2024. It'll start bringing cash flows in starting in January 2024 once the asset is built.
Okay, thank you. Next question. Have your facilities been exposed to Hop Latent Viroid? How big of a problem do you believe it to be?
No. We do not suffer from any viroids or viruses or any issues in our cultivation process.
Okay, thank you. Any updates to the cannabis strategy table and your thoughts on implications if it actually comes to fruition?
Do you have more details on cannabis strategy table? What you mean by that?
I don't, but I'm gonna ask the individual who asked that question to possibly share more, and then we'll come back to it. Next question: Is there a trial period for new listings in Ontario and Alberta before they are fully accepted like here in Quebec?
No. In Ontario, they're either fully accepted through their general listing and gets basically goes on their wholesale channel, accessible to all retailers to buy, and they hold the inventory at their warehouse. Or there's the flow through program, which it still gets presented to all retailers and available to, for distribution to all retailers. However, the goods remain at the licensed producer, and you only ship based on the current week's order count. There's a bit of a nuance there. Otherwise, we're shipping directly to the retailers to the government.
Okay, thank you. Next question. Your prices are low, and yet you have very good margins. Can you please be a bit more specific on how you're able to maintain such low costs?
Absolutely. The key here for us is being in Quebec. The cost of electricity, as I mentioned, is one of the largest, probably represents 20% of our cannabis cultivation costs, is one of the largest costs of inputs. You know, I had said, at our main facility, we average CAD 0.045, but at our Valleyfield facility, we have a development construction rate, sorry, electricity rate, down to CAD 0.035. Compared to probably on the low end in Ontario, it's CAD 0.115, probably on the high end, I've seen as up as high as CAD 0.20.
When you're running a large-scale cannabis production facility, you're doing it indoors, so you're not using the sun, therefore your lighting, your electricity cost is extremely high. It becomes a huge cost input. Being built in Quebec, we basically pass that cost down to the consumer. We're still able to maintain those healthy margins. Coupled with, you know, maintaining a lean structure and not growing too fast and doing it in lockstep, so that we can maintain our costs.
Thank you. Is there any cyclicality to your business? Do certain quarters generate better numbers than others?
For now, we're not really affected by seasonality. Of course, there is seasonality trends in the cannabis industry, but it's hard to pick out for us right now just because we're scaling at the same time. The quarter, maybe if you're comparing to the past three quarters, a dip and a lift, it's all related to how much we could produce and when we turned on those rooms and how long. It's about a four-month growth cycle between planting it and getting out the cannabis.
That creates timing gaps between quarters. That's probably why we're seeing our revenues at least fluctuate. Right now we don't—we’re not affected by seasonality because we still have that high demand for us that's, you know, are consuming our product.
Okay. Thank you. Does Cannara have any intention of expanding into the maritime provinces?
Yeah, we do. Definitely, we're gonna be all across Canada. We like to enter a province with a very strong launch. Given that, you know, our products are high in demand across all provinces, we have to make sure that we have enough product, and since we don't buy cannabis from other LPs, we have to make sure that we have enough product to cater to these provinces. Our next objective is Alberta, which is the second largest market in Canada, it's going to be a big lift for us. Our focus is on Alberta, then once we've hit, you know, the— where it's, the growth starts to slow down and it's more organic growth, that's probably the time that we'll, we can refocus and get into the maritime provinces.
Okay. Thank you. Next question. Can you talk a little bit about your approach to marketing and branding and how important it is? How much are you currently spending on marketing? How do you expect that to change over time? Maybe allied to this, if you could sort of segment it by province, that would be helpful.
Yeah, sure. Quebec really, like I said before, there's really no marketing allowed, sales initiatives allowed. Other than, you know, the cost of labor, we don't work with any agencies. All the creative that we do behind our company is all done internally, so we save a lot of cost in that and get to execute at a very efficient and high rate. In Quebec, other than just the labor cost to design the packaging, there's really not much marketing costs or sales costs in Quebec. In Ontario, to date, I have two salespeople, and they're not even paid on commission. They're employees of the company.
They're brand ambassadors that are opening distribution networks and making relationships with Ontario retailers. For Ontario, that's really our focus, is just hiring more sales/brand ambassadors to be able to create those relationships and open more distribution network. Last time I checked, most of our SKUs are about 30%-40% penetration rate. There's still 60% of stores are not fully selling our product, which a lot, you know, signifies that there's a lot of room to growth for us. That's where we're focused now, at least in Ontario, or for sure in Ontario, is getting more brand ambassadors and understanding, getting more distribution networks open. In Alberta, it's the same concept.
We just hired our first brand ambassador, and slowly but surely, we'll hire more and open, make those relationships with the distribution networks. Same thing, again, the same thing in BC. It's the same marketing effort, that we're launching, that we've done in Ontario, and we're pushing Ontario, Alberta and BC. That's, that's, there was a second part of that question.
No, I think that was, you.
Is that it? Okay, perfect.
No, that was it. Next question. I've got a few questions on this, so I'll just sort of consolidate into one. Can you just talk about the different margin profiles on based on province and regulation? Are these margins similar? Are they unique? If they are unique, what's the key difference?
For us, because we're aiming, we're a future play and really looking in the long term. We're trying to, when we launch a product, we try to be price-agnostic and try to make sure that the price, the MSRP of a price is static across all provinces. There's that consistency again, that we have. Of course, there's a little bit of margin here and there, but there's benefits and pros in each province that kind of stabilize the cost and equalize the cost across all provinces. In this case here, Quebec might charge lower margins, but the cost of delivery is much higher, right? There's the cost of marketing is lower.
In Ontario, our shipping cost is actually much lower than our in Quebec, but we have to cover marketing costs and all that. Those kind of even out and our pricing across all provinces, stay within the same where we earn, you know, around that 40% gross margin across most of our products.
Okay. Thank you. Again, I've got like three or four different questions in different ways, but all talking about the same topic, so I'm gonna try to consolidate it all into a discussion point. Clearly, based on one of your slides, the market in Canada is fairly significant, and yet the industry is suffering pretty dramatically currently. I guess from your perspective, why do you think that is, and do you see this turning anytime soon?
I think the industry is hurting because everyone was chasing revenues. You know, there's still CAD 4 billion -CAD 5 billion of revenues available, but at one point, if you're chasing too far, you'll pass that revenue mark and you'll hit the top, right? I think that's what happened with most companies, and they weren't looking at their bottom line, they weren't looking at their quality, they weren't looking at the product. They may have generated the revenues, but they're not able to make a bottom line. Coupled with a bad product or, you know, not a good value proposition, the product will start not selling through and start losing traction as other competitors come in with a better value proposition.
I think that's what happened, is that there's a lot of cannabis that came, flooded the market, created price compression. Those companies are not able to turn around because they didn't focus on quality. There's a new wave of companies that are coming in that are focused on quality that are capturing the market share because they're offering a stronger value proposition, it's still a CAD 4 billion-CAD 5 billion market. Those companies, the few companies that have focused on that value proposition and are starting to get opening or take over the distribution networks that the other LPs had, that's kind of the shift in market share that we're seeing.
Okay. Super. With this underperformance in the industry, do you see opportunities for consolidation or M&A, both in the industry and for yourself?
Definitely. I mean, in all situations like this, there's definitely opportunities for M&A. For us, and consolidation, for us, we're not looking at that. Especially, I mean, in my opinion, I think it's, there's been cases of M&A in the past year and a half in the cannabis industry, where either the big guys acquire the small guys or two small guys acquiring each other. Unfortunately, it hasn't been successful because it all relies on the quality of the product. That's the key here is you need to focus on the products in order to carve out and build a sustainable business.
I although I think, you know, there's M&A opportunity, you know, there's a lot of CCAA processes going on, I think the wise choice, definitely for me and probably for other LPs is to try to figure out a strategy without merging and acquiring because, you know, the past has showed that it hasn't been successful. For us, that's a good thing because, you know, we're not gonna merge to inflate our revenues or anything like that. We're gonna keep just organically growing and, you know, if we're not acquiring people and others are not acquiring people, that just makes more less and less competitors on the market, more and more shelf space and more market share to, for us to grab.
Okay. Thank you. Next question. Love the Cannara's business model. A bit concerned about related party issues, conflicts of interest. Can you talk about why you're developing real estate, and how is Olymbec involved in this?
Yeah. I mean, we started with our first real estate lease at Farnham. Olymbec, we purchased that first Farnham facility from Olymbec back in 2018 for CAD 12 million, which was a great deal. It came with, we initially designed 170,000 sq ft of that facility to be our phase one of our production. At the same time, we had when we bought the building, it came with two great tenants that were paying, you know, CAD 8-CAD 10 a sq ft. Those tenants really helped sustain the initial start-up costs of Cannara while building the 170,000 sq ft.
In 2021, like I'd mentioned earlier, mid-2021, the Valleyfield facility came onto market, and we acquired it for CAD 0.10 on CAD 1 . That changed our plans, and we refocused our operation to Valleyfield, which then, you know, since we didn't have a use for Farnham, the 455,000 sq ft at this point in time, maybe in years from now, but right now we're focused on Valleyfield. We decided to keep the tenants and continue earning rental income on that front. Those tenants are not related parties, they're government entities and another tenant.
The new project is just, we wouldn't have started it if we didn't inherited the all the construction material to erect a 50,000 sq ft building. TGOD had plans in the past to build an R&D facility on that section that wouldn't handle cannabis, we do just like other R&D studies. Since we didn't see a value, we didn't need extra space, we inherited steel that would otherwise be useless. Through our both Zohar as well as Derek, who's on our board, are very knowledgeable in real estate.
We decided, and it's an accretive deal, to just erect the building and already found a tenant for it, which will generate cash flows starting next year for 11 years, was just a good use of funds for the market. Being either in cannabis or real estate, it was just a great use of funds because once the building is erected, there's no reason why we can't also sell it as well along with the lease.
Okay. Thanks for that, Nicholas. Next question. You talk in the presentation about the continued positive EBITDA. Is there gonna be a point in time when the shift will or the focus will shift to profitability? If so, when do you anticipate that will happen?
Definitely, definitely it's always a good benchmark, better benchmark than just EBITDA. Right now it's why we look at adjusted EBITDA is that we're building the company, right? We're carrying significant financing costs, interest costs to build the future growth of the company, which is not reflected in the income at this point in time or the quarter that you're looking at. We're just we're focused on adjusted EBITDA for now, and probably, you know, sometime next year, we'll be looking at changing that into net income. Back to there was a question I remember on our BMO loan, which I don't think I answered. We are paying prime + 2%.
Current prime is high right now because of the current interest rates. As those start to change, our number will, you know, across the capital will start to decrease. The number to look out for is in fact our adjusted EBITDA. We have covenants based on adjusted EBITDA. As adjusted EBITDA increases, our cost of capital also decreases.
Okay. Thank you. A couple more questions left in the queue for you, Nick, and then we'll end the call. Next question is, do you use LED lamps?
Yes, we do.
Okay. Thank you. You have a share buyback program. Have you disclosed how many shares you've bought since you started that?
No, I don't believe we disclosed. It's on the public registry. We're going slow at the beginning. We have till November 2023 to purchase to spend the CAD 1.5 million that we put down. For us, the beginning quarters right now is focused on the business, use the cash to generate, and then as sales increase closer to November, that's probably when our we'll get more active in the buyback. We have been buying back and buying back shares over the past two months, three months.
Thank you. Now I've got probably five or six similar type questions, and it all relates to congratulating you on excellent growth and financial performance, but reflecting on a poor share price. I guess people just wanna get your perspective on it and how you see that changing over time, what will lead to the change, if there's any near term catalysts that are going to help boost shareholder value.
Yeah, absolutely. I think unfortunately, we're in a time of the industry that's, you know, investors are exhausted because of what happened with other companies. My take on it is this is usually a period where, you know, further due diligence needs to be done on companies that are active on the space because it is still a huge market and a viable market and a market share that's gonna stay. I think this is a point in time where, you know, shareholders need to ignore the share price, or, you know, not as prioritize the share price, but look at the economics of the company and look at their business model.
As, you know, the market shifts from bear markets to bull markets, and I, you know, I think that when that shift happens, you know, the companies that have a proper business, proper sustainable business, and have a plan to capture that CAD 4 billion-CAD 5 billion market share, I think they will be able to succeed. You know, markets are efficient. That's what they're made for. Eventually the share price will reflect the true value of a company. Unfortunately, I don't have a crystal ball, and I don't know when that time is gonna be. What we're focused right now is execution, and telling our story, getting more eyeballs on our story.
I think that's where maybe we have been less active on because we were in a time where, again, investors were exhausted, and potentially the financials to show that quarter-over-quarter growth, right? We started with Valleyfield, and it takes some time to get these financials printed. With our Q2 and then Q3, coming in July, you know, that shows over that quarter-over-quarter growth. I think that's hopefully when investors can get more information on our company and really see what we're building and I think it's just the markets will equilibrate when it's time.
Super. I'll ask the last series of questions here, fairly quickly. Number one is, do you have a U.S. strategy? If so, you know, can you just articulate it?
Yeah. Like I said, we're for the next two years, we're hyper-focused on Canada. We believe that we've paved the way to that becoming leaders in Canada, of a CAD 5 billion market, and by 2026, CAD 7.6 billion. We're hyper-focused on that, and our assets pretty much can cater to all of Canada, and provide us a good share. Where once that project is done, Cannara has built a world-class facility, cannabis facility, growing premium-grade cannabis at scale, and selling through that and profitable and sustainable. Probably at that point in time, we'll be one of the few cannabis companies to do that, is when we are going to activate our U.S. and international strategies, bringing our brands internationally and in the U.S.
Preliminary plans right now are, is our Exotic Genetix partnership. Just like he's doing this partnership for us in Canada, where he's finding good cultivators that have brands and can sell. We have exclusivity in Canada. He probably has six other partners in six different states that have been vetted, and are producing his genetics and are selling their brands in that state. That potentially might be an avenue for us in two years. Right now, again, focus is on Canada.
Okay, super. The last question, and I'll let you have some closing remarks afterwards is, do you have any intentions, near term or longer term to uplist on the TSX or even the Nasdaq?
Yes, we do.
Good. Nick, any closing remarks, and then we'll end the call?
No, Glenn. I just want to thank everyone for joining us today and hearing out our story. We're really doing a crawl, walk, run approach. We're focused on the business, heads down. There might be a lot of opportunities coming down the pipeline, so we're definitely flexible in understanding and navigating the cannabis landscape. We feel that we have a strong strategy to execute and become number one in Canada. I just thank everyone for listening to the story. Reach out to me if you have any questions, nick@cannara.ca.
Super. Thank you very much, Nick. Thank you to our audience. This concludes this presentation.
Thank you. This concludes today's conference. You may disconnect. Have a great day.