Hi, everyone. Good morning. Thank you for being here today. Look, before we get started, counsel wants you to please note our standard disclaimers, non-IFRS measures, forward-looking information. Okay. Maybe before we dive into the company in earnest, I will spend a couple of minutes telling you a little bit about myself and my executive leadership team. My name is Hugo Alves. I am the Co-Founder and CEO of Auxly, and I have been in regulated cannabis since the very beginning, since 2013, when regulations were introduced. Before Auxly, I was in the cannabis industry as an advisor. I was a senior partner at Bennett Jones LLP, a national law firm here in Toronto, where I helped build the cannabis practice and advised on many of the early deals in the sector. It has been my privilege to be supported by this team of executives.
Everyone on this page is either a co-founder with me or a startup team member. We are a small team. I like to say small but mighty. Collectively, between us, we have over 70 years of regulated cannabis experience, and I think more importantly, we have navigated this journey together through all the challenges, all of the industry headwinds, and I think what that has built is a really battle-hardened team that is deeply united and focused, and we have built a culture where the expectation of ourselves and for each other is that we execute with excellence. I think all of that is important because it is that culture that helps engender some of our success. Okay, enough about us. Let me get you situated on the company at a high level. We are a Canadian cannabis company. We are publicly listed on the TSX and OTCQB exchanges, headquartered here in Toronto.
We specialize in the cultivation and manufacturing of cannabis products. Specifically, we focus on pre-rolls, dried flower, and vapes. Those are the formats that matter the most. They account for 85%-90% of all industry sales on a given month, and that is what we focus on. We sell those products here in Canada under a portfolio of brands that we own, including our flagship brand, Back Forty, which is the number one brand in cannabis in Canada by dollars sold, loved by consumers from coast to coast. You can find our products coast to coast. We are in every province and territory and 97% of all retail locations in Canada. I think we are also one of the few cannabis companies in the world that has been able to attract a significant strategic partner. In our case, that is Imperial Brands, one of the world's largest tobacco companies.
They own 19.9% of our stock and have been a great partner. In terms of overall market, we are the second-largest producer by market share. We have about 8% share of total market. I think most importantly, we are not only growing, we are growing profitably. Okay, I am restricted to talk about my Q2 numbers. We are releasing our Q3 results on November 12th. As at the trailing 12-month period, as at that Q2 period, we generate CAD 166 million in net operating revenue, CAD 51 million in EBITDA, and CAD 47 million of cash flow. We are generating very strong financial results. We think we have got the company in a great place as a profitable market leader. Of course, we are very confident in our ability to continue delivering robust year-over-year growth and strong, profitable results. Okay.
As I mentioned, we're focused on winning at home in the Canadian market, and we think this is a great market to be in. It's a growing market. More and more Canadians continue to choose cannabis as their preferred form of recreation. Beyond just the growth, this is also a maturing, a stabilizing market. Everything from the regulatory environment to consumer dynamics to pricing is more stable here than in other markets, which makes operating in Canada more predictable and profitable for Auxly. We think this market grows on average about a rate of 5% a year till 2030, sorry, to get us to this CAD 7.4 billion market. Of course, we believe Auxly can grow much faster than that given the quality of our brands, the strength of our product innovation, and our world-class assets and capabilities, which I'll walk you through today.
Of course, beyond Canada, there is a large global market that is evolving and growing and gives us a great long-term opportunity to grow into. Whether it's rescheduling in the U.S., the rise of the demand in the German market, we think these markets provide a good long-term opportunity, and we also believe that the very things that make us successful here at home, our products, our brands, our cost structure, will also make us very competitive on a global stage. For us, we've always said there has to be a reason to believe you can win away from home, and for us, that's you have to win at home. So our approach has always been you have to show that you can consistently win at home before you earn the right to compete internationally. I think to date, we're doing a good job of that.
We are the market leaders in our product categories. We're the innovation leaders. We have the number one brand in Canada, and of course, a global strategic partnership in Imperial Brands that can help us grow into these markets as they mature. As I mentioned, we are very keenly focused on winning at home. We think that there's a lot of room to grow here in Canada, but of course, we're not burying our heads in the sand. We are taking measured and deliberate steps to build that pathway towards international participation. We've started shipping internationally. We ship to the U.K., we ship to Israel, we'll ship to Germany imminently. What we're doing is testing the market. Does our product resonate? Do counterparties say what they commit to doing?
All of our work in this area to date has only reinforced our conviction that we are very uniquely positioned to be competitive on a global stage, and also that we don't need to or benefit from rushing in. These are young, developing markets. We're generating very strong returns here at home without the additional risk of international markets. Of course, again, I would just point to Imperial Brands that operates in all these markets and can really help us grow when these opportunities mature. Okay, I'm going to take a couple of minutes now to talk about some of the assets and capabilities that help drive our results, and I'm going to start with our flagship brand, Back Forty. I mentioned this is Canada's number one cannabis brand by dollars sold.
It has been the number one cannabis brand since December of 2024, so for almost two years now, and it continues to grow. It is growing at a rate of about 26% on a rolling three-month basis. I think that success has been underpinned by our laser focus on the Back Forty consumer, then just a relentless dedication to servicing that consumer with quality, value, and innovation. I think what Back Forty has won is the right of trial. When Auxly releases a new Back Forty product, our provincial customers want to buy it, they want to list it, our retail partners want to pull it into their stores, and most importantly, consumers want to buy it and try it because they have come to expect high quality and a great value from a Back Forty product. Then it is our job not to disappoint them.
I think we are doing a good job of not disappointing our consumer, and this right to trial is a competitive advantage. It is one of the reasons why our innovations perform well out of the gate. It is one of the ways we keep a very tight and efficient SKU portfolio. We also think we have the best assets in the business, and that starts with Auxly Leamington. This is a 1.1 million square foot custom-built greenhouse located in Leamington, Ontario. It is a hybrid greenhouse. It is light-assisted. We think what this facility gives us is a real cost and quality advantage. We currently grow about 100,000 kg of dried flower there.
We think that we can push that significantly by at least 30% over the next three years, and we have announced a CAD 30 million capital program at Auxly Leamington over the next three years to unlock that capacity and improve quality and efficiency. As I mentioned, what this facility gives us is scale, helps us cultivate at a great cost, but beyond that scale, Auxly Leamington is a quality champion, right? What this facility lets us do is grow a very, very high-quality product at scale, and the proof is really in the results. Back Forty is the number one brand in dried flower. Our Back Forty Liquid Imagination 28 g bag has been the number one selling SKU in Canada by dollars since June of 2024. The number two selling SKU is our Fire Breath product.
In fact, if you look at a cultivar level, so this is at a strain level, irrespective of pack size, three of the top 10 cultivars currently in market are currently being grown at Auxly Leamington. That is unrivaled in our industry. No other facility can make that claim. No other producer across their facilities can make that claim. That high baseline quality at Auxly Leamington has also allowed us to get innovative, to start premiumizing a portion of our yield. By using some unique genetics and a different post-harvesting process, we were able to create a higher priced product that we sell at a higher price under a brand that we created called South Point, which is a nod to Leamington, Ontario, being the southernmost point in Canada.
We released this brand late last year in December, and with only three SKUs in market, it's already a top 40 flower brand in Canada. We've now just recently released a second cultivar called Masterpiece in market. Flower looks great. Consumers' reaction has been very positive to date, so we're delighted to have the second cultivar in market and very excited for the future of the South Point brand. Auxly Leamington also houses our pre-roll capabilities, which through our partnership with Imperial Brands and a five-year R&D collaboration with the world's largest manufacturer of pre-roll equipment, we've developed the highest throughput, highest quality pre-roll manufacturing in the world. I think what these investments have allowed us to do is take the same approach that we take in flower, which is to consistently deliver a very high-quality product at a great value.
Again, I think our investments, our long-term focus on this product category, which is the largest product category in cannabis, have yielded incredible results. Our Back Forty pre-rolls are a consumer favorite. Back Forty is the number one brand in pre-rolls, and the number one selling pre-roll SKU in the country is a Back Forty branded product. We started with the slims, which were a novel format at the time and continue to be a consumer favorite. Last summer, we innovated. We released the Backpacker, a larger size pre-roll, and consumer reaction was off the charts. This is now one of the most popular formats in the entire pre-roll industry. Between these two formats of slims and Backpackers, we sell about 1 million pre-rolls a week. Now we've started to expand our offering. We recently just released this Day Tripper product.
I bought my first one in Ontario last week, which was great, and we're very excited about this product because this is intended to compete in the 2x1 g segment of the pre-roll category, which is the fastest-growing segment in all of cannabis and now accounts for close to 10% of the pre-roll category. Up until now, Back Forty didn't have a competitor in this segment. So we're very excited about the product. We think it's turned out great. Consumer reaction, again, has been fantastic. So we're excited about the Day Tripper, and we think it'll help us continue to grow our pre-roll share. Okay, moving on to vapes. We get out of Auxly Leamington and we go to Charlottetown, Prince Edward Island. Auxly Charlottetown is our center of vape manufacturing and innovation.
For those of you who don't know, the PEI government has done an incredible job over the last 20 years of attracting some of the top biotech companies and some of the top biotech talent from all over the world to the island. What that's allowed us to do is really build an incredible team. I think they're unrivaled in product quality. Our vapes are always amongst the lower failure rates in the industry and renowned for their quality, and I think this is the top vape innovation team in the country. No one has released more first-to-market innovations in vape than this team, including, in late 2023, the all-in-one vape. I know this isn't a new innovation, but bear with me for a moment. When we released this product into the market, it fundamentally changed the vape category.
Vape was a stagnant category, about 14% share of total market for years, and now it is approaching 19% and some months poking above 19%. That is all being driven by the convenience of the all-in-one vape. As you can see in this segment, we dominate. 23% share of segment, over 17,000 points of national distribution, and then many of the top-selling SKUs in the format. I am not raising this to talk about a 2023 innovation, but when we released this, as you can imagine, our competitors saw the success, and all of them rushed to introduce an all-in-one vape to compete with us, and some of those competitors chose to compete on price. They compressed the floor of the category. Because of our focus in our three categories, because of our innovation leadership, Auxly was able to not only protect its share, but its profitability.
Earlier this year, we released the Back Forty all-in-one boosted vape. This is a higher-priced product. It is a premium product. It is a hardware innovation that gives the consumer 50% more THC per pull. By releasing this product and the consumer traction, all three SKUs that we released are in the top 10 of their segment. We were able to not only protect our share, but also protect our gross margin. Okay, so we have discussed a lot of things here, our assets, our people. How does this all come together in terms of financial results? Again, I am restricted to talking about Q2, but I think what our Q2 results demonstrate is the strength of our business. Okay, in Q2, we delivered quarterly records for net operating revenue, adjusted EBITDA, and cash flow from operations. Net revenue was CAD 45.8 million. That was an 18% year-over-year increase.
Gross margin, 55% compared to 52% in the prior year, reflecting some of the investments that we made in efficiency in our operating platform. Adjusted EBITDA, CAD 14.3 million. That was a 24% increase year-over-year, represented a 31% EBITDA margin, and cash flow from operations, not on this page, but grew to CAD 13.4 million. That was an increase of 31% year-over-year and a 94% conversion from EBITDA. So we are generating strong results. I think our Q2 results, we are meeting our commitment to deliver robust year-over-year growth and deliver strong profitability. All key indicators going in the right direction and delivering good operating leverage. I think this is really driven by increasing demand for our products. The year-over-year improvements we have made to throughput and capacity that we funded from our own cash. Of course, some of that great product innovation and product mix that I mentioned earlier.
Importantly for us, I meet investors a lot, and they often ask me, "What is the number one KPI? What are you and your team focused on?" For us, it is cash. Happy to report we are generating very strong cash flows. For us, EBITDA is not as meaningful unless it is converting to cash because it is that cash that allows us to keep funding growth without dilution and allows us to allocate capital where we think we can get a strong return. In terms of that allocation, we operate on a disciplined framework that is returns-focused. We currently believe investing in organic growth is our best and highest return use of capital. Therefore, the CAD 30 million CapEx program will also make some investments in distribution.
We think purchasing our own shares offers a very compelling return for shareholders, and we do have a standing NCIB program, and we are active under that program. We are happy to consider inorganic options, and we have looked at inorganic options and continue to evaluate where they advance our strategy and meet our return expectations. Finally, we are also happy to continue strengthening our balance sheet so that we are able to execute on these opportunities when they arise. Okay, I am going to wrap it up here. Again, I want to thank you for your interest and for your time today. I think I will just conclude by saying I think we are building a durable company, one of the long-term winners in the cannabis industry. At its core, this is a consumer products market.
If you do not have the goods, the products consumers trust and love, it is not going to work. I think what we have proven is we can consistently deliver a very high-quality product to our consumers in the product categories that matter the most. We have brands and products that consumers trust and love, world-class people, assets, and capabilities that give us real protectable advantages in terms of cost and quality. Then, of course, we are generating very strong financial results with a strong balance sheet to allow us to continue funding growth and improving profitability from our own cash. So I will stop there. I want to thank you again for your time. I am happy to take any questions with the remaining time. Of course, if I do not get a chance to connect with you over the course of the conference, please feel free to reach out to us anytime.
Our contact information is on the last page. Thank you very much. Yeah, sure.
Just curious on the international opportunity. I know you guys are not going after that right now. But eventually, you do go after it. A lot of your competitors are looking to those markets, Germany in particular. Is there a risk that some of those markets, like Germany, are oversupplied in the next two to three years? Just curious your view on that.
Yeah, sure. I am going to repeat the question so that it picks up on the web. So the question was, with the focus on international markets, in particular Germany, is there a concern that that market becomes oversupplied? No, I do not view it as a near-term or mid-term concern for much of the reason that having one of these large cultivation facilities is a distinct competitive advantage in today's environment. To build out this type of cultivation facility, you are looking at north of CAD 200 million and probably three years of build-out, design, and build, and then another few years of getting your operations running smoothly. Then you look at a European market, specifically Germany, with very high energy rates and labor rates, two of the largest line items, and you quickly see that this is a market that will have to be supplied from external sources.
Canada has, I think, the deepest cultivation footprint, but also importantly, we have a global reputation for quality. So I think the global markets will continue to be a good long-term opportunity for Canadian operators. Sure. The gentleman behind you. Yeah, go ahead.
Sticking to the international markets, how would you enter today? I know you will not be discussing that one. How would you enter today, and what is your plan should it look promising along the way? How to enter downstream acquisitions?
Yeah, I think like the vast majority of participants in global markets today, we are selling to a distributor who then puts it through their distribution network in their local jurisdiction. Longer term, that is part of the learning process. I would say longer term, our goal would be to capture as much of the margin as we possibly can for ourselves. Sorry, go ahead.
Just curious on pricing in Canada. We know a lot of companies wanting to grow in Canada, the priority is in Canada. So even if you look maybe four years out, what is your visibility on and your comfort levels around price in general?
Yeah, look, I think for a lot of the same reasons that I mentioned why I believe the international. Yeah, let me repeat the question. Pricing in Canada, what is the outlook for pricing longer term? I think my answer to that would be for a lot of the same reasons that international supply, I think, international markets won't be oversupplied. I think pricing remains robust in Canada over the near to medium term because demand is going up and cultivation capacity is finite. Sure, you might be able to bring an extra 1,000 kg, 2,000 kg, 3,000 kg online, but to service the growth, you really need these large-scale cultivation facilities, and the capital and time necessary to get those facilities online is very difficult in today's environment. Sure. Go ahead, Sebastian.
Following on this, do you think this explains why there has been a fairly recent consolidation or even back?
The question was, is pricing part of the driver on some of the proposed consolidation in the market today? Look, I can't really speak to Curaleaf's motivations. What they have publicly stated, though, is that, yeah, the GMP cultivation capability is attractive to them to meet their growing demand in EU markets. So I think, certainly it's the cost and time necessary to get great cultivation capacity online. It's a very big competitive advantage to those who have it. Okay. I think I've got time for one more. One more right here in the front.
I'll go with capturing more margin. What are the rules around going forward with retail? Is that part of the plan in terms of capturing more margin by having a skin in the game as opposed for Is that an option they changed in Canada?
The question is, how do you capture more margin with retail? Is there going to be vertical integration? No, we have rules against vertical integration in Canada. We have anti-tied house rules that LPs can own up to a certain percentage of retail in some jurisdictions, but generally speaking, people either have the retail community or the LP community. The government doesn't allow you to vertically integrate here. Any other questions? Well, look, thank you very much for your time again. Appreciate it. Hopefully, I'll get to meet some of you later.