Medipharm Labs Corp

TSX:LABS

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the MediPharm Labs Third Quarter 2021 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]I would now like to hand the conference over to your speaker today, Keith Strachan, President of MediPharm Labs. Please go ahead, sir.

[Keith Strachan, Co]

Thank you, operator, and good morning. Joining me on the call today are Greg Hunter, our CFO; and Bryan Howcroft, our newly appointed CEO.Before we begin, please note the following caution respecting forward-looking statements, which is made on behalf of MediPharm Labs and all of its representatives on this call. The statements made on this call will contain forward-looking information that involve risks and uncertainties. Actual results could differ materially from a conclusion, forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information.Additional information about the material factors that could cause actual results to differ materially from the conclusions, forecasts or projections in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in MediPharm Labs filings with the Canadian and provincial security regulators, which are available on the SEDAR website at sedar.com.I'm excited to now hand the call over to Bryan Howcroft, our new CEO for introductory remarks.

[Bryan Howcroft]

Thank you, Keith. Good morning, and thank you for joining our quarterly financial earnings call. My name is Bryan Howcroft, and as of today CEO of MediPharm Labs. I'm joined today by Greg Hunter, MediPharm's Chief Financial Officer; and Keith Strachan, MediPharm's President.Before Greg and Keith present our quarterly results, I would like to say a few words. Firstly, I would like to thank Keith Strachan for his leadership as interim CEO and his support during the CEO transition period. Keith's knowledge of MediPharm and more broadly, the cannabis industry is deep, and I greatly look forward to learning from Keith and MediPharm's leadership team as we move forward.Over the coming weeks, I'll be having a lot of dialogue with shareholders, analysts, customers and the team here at MediPharm as I look to fully understand our position and ways we can more effectively leverage MediPharm's strengths for strategic and operational improvement. I see MediPharm in a similar light in many ways to my experience at Southmedic, a business in a highly regulated environment with many strengths. At Southmedic, we executed our business strategy, and we're disciplined about achieving results. In a similar way, I plan to execute against MediPharm's strategy and build a plan to restore the company's profitability through revenue growth and operational improvements. I am well aware that the business has not performed to its full capability over the last 18 months, and I look forward to getting us back on the right path. I will communicate those plans to you as they are developed, and we'll update you on our progress and successes.I will now turn the call over to Keith to provide a quarterly business update.

[Keith Strachan, Co]

Thank you, Bryan. We are very excited to have you join the company to lead our growth strategies going forward. I look forward to supporting your vision to see us grow as the world's leading precision based cannabinoid company with a focus on international markets.Our third quarter continued the trend of a transformational year at MediPharm Labs, establishing ourselves as a true pharmaceutical company with expertise in cannabis. Today, I will speak to the advancements made in Q3, which were highlighted with ongoing pharmaceutical licensing and revenue growth in our international sales. Greg will then discuss Q3 results, including areas where we saw growth and segments where we have opportunity to improve. Then I will close with final observations and an update on near term initiatives.To start, I'd like to highlight the areas where we continue to be leaders in the pharmaceutical sector of cannabis, in the field of drug development and manufacturing as well as reintroduce our plan to capitalize on this unique status in the industry. In the first month of Q3, we were awarded a drug establishment license from Health Canada.A drug establishment license is a certification issued by Health Canada as the manufacturer maintains pharmaceutical Good Manufacturing Practices, commonly referred to as GMP. It is achieved through an extensive review of the company's quality management systems over several months and then an in-person or virtual inspection by Health Canada spanning multiple weeks. In short, to obtain a DEL is a significant and material undertaking and especially in comparison to the cannabis processing license, which is commonplace in the cannabis industry today.What makes MediPharm truly unique is that we obtain this license for natural cannabis extraction, purification, and fabrication of finished goods. This makes us one of only a limited number of pharmaceutical manufacturers worldwide who can provide cannabinoid API and finished product and actually the sole license of this nature in North America. This will serve the cannabis pharmaceutical market, which experts expect to be worth $2.6 billion by 2025. This, along with a rapid growth expected to continue after 2025 as major cannabis drug patents begin to expire in 2026, positions MediPharm as a top-tier precision based cannabinoids company.In the few short months since being awarded the DEL, MediPharm has increased its access to existing medical cannabis programs, updating foreign health authorities with our new certifications to work towards using pharmaceutical trade, neutral recognition agreements to allow for international shipment in medical cannabis programs as we do from our Australian site today. These already include U.K., EU and Brazil, with additional countries to be sought after in short order. It's important to note that this license negates the need for EU GMP certification. A standard we operate at, but have not had a final inspection due to COVID travel restrictions placed on government inspectors.MediPharm has used the DEL to increase our presence in novel clinical drug trials providing cannabis as an API, such as McMaster University study that uses MediPharm Labs CBD50 to treat insomnia related to depression. Participating in these trials often uses our own formulation and strategically enables us to lock in future manufacturing rights if and when these new drugs receive FDA and Health Canada marketing authorization. This allows us the opportunity to increase our chances of success in multiple critical development programs while not limiting ourselves to a single one. This strategy reduces our downside risk, which is commonplace for pharmaceutical companies.Many pharmacies had commenced to use the DEL to facilitate GMP tolling services that allow for major international cannabis companies to access the export market without further capital investments in their own international GMP operations. And most importantly, MediPharm has used the DEL to start the vendor qualification process with pharmaceutical companies to provide them with API or finished dose products for the manufacturing of their future cannabis drugs, including generic, cannabinoid derived pharmaceuticals.All these drug establishment license business activities create a near-term opportunity where we simultaneously execute on our long-term strategy of producing cannabinoid derived pharmaceuticals, clinically proven and FDA approved. This is a great development for MediPharm and our shareholders, and it means our outlook for growth as a precision based cannabinoid company has never been stronger.Now turning to our third quarter results. Beyond the great advancements in our core pharmaceutical strategy, Q3 saw growth in other areas. The most promising being international distribution. As a testament to the execution in our international contracts, we saw quarter-over-quarter growth of 16.5% in our international revenue. This growth was concentrated in Australia and Germany. MediPharm's purpose-built GMP manufacturing facility in the state of Victoria of Australia gives us unique access to these markets. A global hub, the therapeutic Goods Administration and the Office of Drug Control certification serve the growing Australian medical market and future CBD OTC market.These certifications are also recognized around the world, have allowed repeat deliveries, Germany and future deliveries to medical cannabis countries like New Zealand and Denmark. In Germany, specifically, we added our fifth customer while making multiple replenishments to our first 4 customers, including growing our wholesale private label program with STADA, one of the EU's largest generic drug companies. And the value-add to our GMP cannabis oil, MediPharm has used its industry-leading quality management system and intimate knowledge of the cannabis supply chain to source and deliver GMP flower STADA. In 2022, we will be strengthening this portion of our business with lower cost flower to allow for that category to become more margin accretive like all of our other international business.As we continue to see sequential quarter-over-quarter growth in international sales and build our major pharmaceutical pipeline, we are committed to driving growth in Canada's medical and adult-use markets as part of our commitment to building a profitable and sustainable business. In Canada, we increased sales and marketing efforts successfully, which we anticipate will translate into sales growth in Q4 and moving forward. I will touch more on those sales and marketing strategies later in the call. In Q3, the MediPharm Labs line of premium cannabis oils were fourth in Canadian retail sales based on high fire data.While we are very pleased with this market share, we also believe there is much opportunity to grow market presence in the oil category. As companies ranked first to third in this category accounted for over $18 million in retail sales in Q3, excluding Quebec. Just moving one spot into the third position to see the retail sales value in this category, at least double for MediPharm. This current success will lead to higher sales to provinces in Q4 as the inventory from distribution centers pull-through and the increased revenue further as retail store listings continue to increase across the country.It is important to note that MediPharm Labs premium cannabis oil has an average price nearly twice as what our top competitors are selling for. This shows that our brand story of higher-quality product offering is working well, especially with CBD50, which is included in active clinical trial, CBD100 and our CBN oil.To expand in this category, we will continue to focus on our premium portfolio sales in retail, while driving innovation. We continue to launch unique oil SKUs with a CBD and CBN oil launching in Ontario during this week alone. After the success of our THC CBN oil, we believe that consumers will also pay a premium for CBN oil without THC, whose notable benefits include aiding sleep.Staying true to our pharmaceutical routes, our oil portfolio provides the same or similar formulations that are used in many clinical trial programs in our international medical cannabis sales program. We've also taken notice that consumers are using vapes as a wellness product as it can deliver a therapeutic benefit with a faster onset and is easier to titrate.To this end, in Q3, we expanded retail listings of our CBD Vape by 200%. This unique vape formula does not crystallize in the cartridge like many other CBD only vapes. Additionally, our CBN vape, the only CBN dominant vape on the market, sort retail listings increase by 140%. The uptake of these SKUs by retail stores in Q3 will translate to increased sales for eventual retailers in Q4 and onwards.In summary, our domestic presence is still growing in distribution and revenue. Most importantly, it serves as a proof-of-concept for our ability to provide end-to-end development, manufacturing and distribution solutions from multinational pharmaceutical companies.I will now turn the call over to Greg to discuss our financial results.

[Greg Hunter, Chief Financial Officer]

Thanks, Keith, and good morning, everyone. I'm pleased to report we continue to make progress with our international expansion, with international revenues increasing 16.5% sequentially in Q3 versus Q2. This is the third consecutive quarter with double-digit international revenue growth. In addition, we added another customer in Germany, bringing our customer count with successful German deliveries to 5. Germany is the largest international medical market, with a market value estimated to be EUR7.7 billion by 2028 according to Forbes and continues to be a strategic priority for MediPharm.Turning to the P&L performance for the third quarter. Q3 revenues increased 6.5% sequentially from $5.1 million in Q2 to $5.4 million in Q3. International revenues increased 16.5% sequentially to $2.9 million with German revenues of $1.1 million and Australian revenues of $1.8 million. Canadian domestic revenue stabilized in Q3 at $2.5 million, and we are optimistic to see growth in Q4 and beyond.Gross profit for the quarter of negative $1.9 million was impacted by a $0.5 million inventory write-down to net realizable value. Adjusted for this inventory write down, gross profit was negative $1.4 million, which improved slightly versus Q2 adjusted gross profit. General and administrative expense in the quarter decreased sequentially from $5.2 million in Q2 to $4.6 million in Q3, largely due to bad debt expense recorded in Q2. Marketing and selling expenses in the quarter decreased sequentially from $1.1 million in Q2 to $0.9 million in Q3. R&D expenses increased sequentially from $140,000 in Q2 to $280,000 in Q3. These expenses will vary as we selectively invest to advance our capabilities and product portfolio.Other operating income decreased sequentially from $3.2 million in Q2 to $0.6 million in Q3, driven by the Canadian Emergency Wage and Rent subsidy. Adjusted EBITDA for Q3 was negative $5.6 million versus negative $3.7 million in Q2. The reason for the change was largely driven by income from the Canadian Emergency Wage and rent subsidy.Moving to a few notable items on the balance sheet. Trade and other receivables decreased from $32.6 million in Q2 to $29.4 million in Q3. As discussed in previous quarters, there were 2 customers owning a total of approximately $19 million at the end of Q2. This balance has decreased to $15.8 million in Q3, including $8.5 million, which is subject to legal proceedings that we have previously disclosed and remain confident in its collection. The remainder of the $15.8 million is due from a second customer, and we are still confident in its collectability. Adjusting for these 2 customers and the wage and rent subsidy, trade and other receivables is approximately $13 million.Our cash balance on September 30 was $38 million, which decreased slightly from $38.8 million at June 30. The cash balance owing on the convertible debentures stood at approximately $1.9 million at the end of September. As of today, the cash balance remaining is approximately $0.5 million. While we made progress in the quarter by expanding our international presence and revenue and managing our cash consumption, we still have work to return the business to profitability and drive positive cash flow.I'm excited to work with Bryan to transition MediPharm to profitability and look forward to updating you on our progress. In addition, I would like to thank Keith for his leadership as interim CEO and look forward to continuing to work with him in his role as President.With that, I'll turn it back to Keith.

[Keith Strachan, Co]

Thank you, Greg. I will now provide some final thoughts on our outlook and plan to continue to increase revenue. There's a lot of opportunity for increased sales in Canada and internationally. Based on our fully built and funded manufacturing platform, we can increase revenue significantly without further capital investments.In August, I shared 3 initiatives we would undertake to increase sales. Since then, we have made incremental progress that led to increased sales in some categories and planted seeds for growth in others. These include one, investment in more sales resources. Domestically, we more than doubled our sales team in July and August. Those reps are now trained and in the field and in Q3, this led to 12% distribution growth in retail store listings across all of our SKUS.The pull-through from this shelf space penetration will result in better sales results going forward. Internationally, in the back half of the quarter, we successfully added sales personnel in Germany and Mexico to cover sales growth in the EU and Latin America. Early ROI is already in place with our achievement of international sales growth for the third subsequent quarter and new contracts signed in those regions.Two, expanding contract manufacturing. In Q3, we started GMP tolling activities in our Berry facility and also increased volumes in our Australian facility, providing partners with access to the highest quality cannabis manufacturing platform to deliver them cost saving and international reach is of paramount important to us and them. Revenue in this category is still growing as our partners deliver these products to their own international patients. We expect this growth to be immaterial in 2022.Three, continued innovation. On the pharmaceutical front, there are limited cannabis manufacturers with GMP certification, but even fewer that have completed cannabinoid API characterization. For example, in Q3, the MediPharm R&D team fully characterized pure CBD isolate right down to the 100 of the percent of each component. This, along with our validation and the stability of our GMP manufactured CBD are major components of completing a drug master file with the US FDA. A drug master file progresses our pharmaceutical sales initiative as those customers register for marketable, novel and generic drugs where CBD is an active ingredient. This will lead to major long-term and stable supply agreements when these drugs receive FDA and/or European Medicine Agency approval.Overall, Q3 was a productive quarter, marking the start-up of sales volumes under important new international customer deliveries, further global market penetration for our products and an improvement in the bottom line performance. 2021 is and continues to be a year of transformation for MediPharm and our new pharmaceutical licensing and introduction of a new CEO to bring fresh leadership to our company are few more pieces in the journey of this transformation.MediPharm does have several initiatives to complete to get back to profitability, but we have the platform and licenses to get there. With a strong cash balance that only decreased $800,000 in Q3 from $38.8 million to $38 million, better efficiency and collection of accounts receivables and only $500,000 remaining in convertible debt, now is the perfect time for Bryan to take the reins as CEO.Bryan can now bring his expertise and experience as a sale and operational expert to outline and execute on the path to profitability. Some cannabis companies may not have the longevity to survive this nascent market as it matures, but as a pharmaceutical company with such a strong platform and balance sheet, MediPharm is just getting started.Operator, could you please open the lines to questions from our callers.

[Operator]

[Operator Instructions] Your first question comes from the line of Tamy Chen with BMO Capital Markets.

[Tamy Chen, Analyst]

First for me is, on the gross margin or gross profit line. So excluding that write down, you're still at a gross profit loss. So I'm just wondering, is this still because you're working through legacy flower inventory? And if so, do you have a sense of when you'll be fully worked through that?

[Greg Hunter, Chief Financial Officer]

Yes. Thanks, Tamy for the question. It's Greg here. So there's a couple of things on gross margin. Yes, there is some older inventory that we are still working through. One of the big items that we've talked about in past quarters is improved margins with volume. Again, with the sales that we're at right now, as we talked about before, we're underutilized in the plant, so you don't get the same absorption. So we expect, as we ramp sales, that will improve.In addition to international sales, as we continue to expand and we enjoy higher prices in those markets, we do expect to see that improve, and we've seen 3 consecutive quarters now of double-digit revenue growth. Certainly, there's some automation and efficiency. And then there's other cost reduction initiatives that we're working on particularly with some of our German flower business that we've talked about to improve margins.And then the longer-term one is really going to improve it is as we get into the pharmaceutical sales, which is a little bit longer, but we expect to see improved margins on that. So hopefully, that gives you a little bit of color there.

[Tamy Chen, Analyst]

And my second question was, I think on a sequential basis, there was a modest decline in your international sales to Germany. So I just wanted to ask what was going on there? Because it sounds like you not only added a fifth customer, but you've been replenishing the existing 4?And just tied to that, can you also elaborate a bit more on that German flower business? So like where are you sourcing the flower from? And where do you think the cost reduction opportunities could be in that part of the business?

[Keith Strachan, Co]

This is Keith. Yes, we did see a very small decline in the top line revenue in Germany. Mostly just the business itself is still a bit lumpy. So we started deliveries there in late February, and we're kind of beholding to the import export approval of both countries. So both the health authority in Germany and health authority here, Health Canada issue permits and then we load and based on those permits we'll see that kind of be a little bit up and down until we bring on more customers to smooth it out, but it was a small decline, but we're seeing good things in the market that are pushing positive, and we are very bullish on that area as well.On the flower itself, it is something that we've done as a value-add to STADA. So they came to us and they wanted to have like a complete package for their patients, and they saw us as their exclusive cannabis partner. So what we did is when we sourced our flower from GMP growers in Canada. I think we set up the contract in 2021, there was opportunities with only so many GMP growers and so much inventory out there.I think that -- those opportunities have expanded since then and what we can offer to German patients have expanded as well. So just as we saw some of the price leveling out in industry -- in places like Canada 2 years ago, we're seeing that a little bit on the GMP file as well. So we'll be able to capture a little bit more of a margin as well as pass on some of that cost savings to patients.

[Operator]

Your next question comes from the line of Shaan Mir with Canaccord.

[Shaan Mir, Associate]

First one, just touching on your international sales, with that accounting for more than 50% of your sales in the quarter. Just wanted to get a sense for what you're doing and help manage the cadence of those revenues?International sales tend to be quite spread out, timing-wise and large in order sizes, as you probably know. So there's no certainty on the cash flow. So I'm just trying to get an understanding of the initiatives that you're undertaking to help manage this reality and what we should expect to see going forward in terms of quarterly fluctuations from the international segment?

[Keith Strachan, Co]

I think it's a good one. We've really done a lot of work in this regard. I think the #1, that helps take the lumpiness out of the business is more customers. So as you see ebbs and flows from, let's say, a single customer. In March, we delivered internationally to Germany with only 2 customers.And last quarter, that was the 5. So what we'll see is, as we add more customers, we'll change that. The big part of our international sales is also Australia, where we have our wholly owned subsidiary and building there. So we are able to hit away some of the uncertainties as far as import export goes as we can stock things in-country for end product and API sales. So I think that we have a few initiatives on the go to continue to improve that.

[Shaan Mir, Associate]

Just wanted to continue. Looking more broadly, I guess, to the German market, there's been more recent talks about a pathway to recreational program in that market. So just given that it's a large part of your business now being in the operations in the German market.Just what's your understanding of what's happening from a federal regulation standpoint over there and the potential for adult-use reform in that country and in that market if and how MediPharm would play? And that's my last question.

[Keith Strachan, Co]

Yes. I think it's really exciting to see the developments and the removal of this stigma of cannabis as a medical product or even as a wellness out of use product, and we've seen a lot of that in Germany. I was in Germany the week before the election, and there was a lot of buzz around the industry folks that I met with around that they were expecting a change of government.As you know, the German government, the expected coalition government is still negotiating how that coalition is going to work, and we probably will see coming after a few weeks, but it is exciting that cannabis legislation is front and center there. So at the very least, what we could expect is easier pathways on medical. So just having that accepting coalition of cannabis, things like quotas of how much medical cannabis the suppliers allowed to have, we could see maybe go away or at least increase drastically.On the adult-use market, I think we're in a great position. As you know, a lot of adult-use cannabis users do seek out that cannabis as a wellness product and kind of self-medicating. Some analysts say our experts say that in Germany, that distribution of adult cannabis would be through pharmacies. So since we've set up those distribution channels today, we can easily plug-in to serve that our used market, which obviously would be a massive increase to what they have in the medical market today.

[Operator]

Your next question comes from the line of Scott Fortune with ROTH Capital Markets.

[Unknown Analyst]

This is [ Nick ] on for Scott. I was just looking for color on the product uptake side with STADA. You mentioned launching 8 products back in April. And I think that included 3 extract formulations. So just wondering what the initial uptake among pharmacies and consumers had looked like and kind of how that influence future product rollouts?

[Keith Strachan, Co]

All of our German customers have been onboarding different SKUs. STADA themselves, as you mentioned, have 8 active SKUs in the German market today. We are looking to -- both have been successful to date. There are some more successful than others. What's really popular with German patients today is ITHC. So our ITHC SKUS, we see move more.And on the extract side, balance of oil is also popular with patients today. So like a one-to-one formulation. So with that knowledge that we have now launching their line in February, it really gives us an opportunity to continue to innovate. And so in 2022, we'll be completing the registration process for additional SKUs there that kind of meet the market demand.So a few more flower SKU that are high THC that are available in the Canadian market today that we will make available to German patients. And then some more unique cannabis oil SKUS, much like our MediPharm Labs oil line that we have in Canada.

[Unknown Analyst]

Okay. I appreciate that color. And then looking at Canada, you mentioned in the past seeing more spot purchasing versus kind of long-term agreements being made there. I was wondering what you're seeing on the Canadian LP side now with the recent purchasing cadences in this lower cost environment? And just kind of on the flip side of that, how that's affecting your purchasing strategy in that market?

[Keith Strachan, Co]

Yes. I think in that Canadian market, we do continue to see spot purchasing being quite popular as the pricing kind of levels itself out. What's really encouraging in the Canadian market is, I think in 2020, we had a pretty big supply glut, especially in intermediate products such as concentrate and distillate. I think that a lot of that has been worked through or has expired.So what we're seeing now is larger LPs with big product lines reaching out to processors like ourselves to augment their inventory with additional concentrator, distillate to make their products. So we're seeing some of that bulk market come back. It is slower. It's not in comparison to like a time line like a 2019, but it is encouraging to see that.We're also seeing, as these companies mature, everyone take a little bit more of a mature purchasing approach and a more of an evaluation of -- as far as in-sourcing or outsourcing some of their activities. So some of the larger license producers are looking more and more back at some of the tolling models to have some of their products made where they think that there could be some cost savings.So I think that is really encouraging to see as we have rollover of new management teams in the industry and the industry maturing, that will get more mature purchasing practices that we see in other industries.

[Operator]

[Operator Instructions] Your next question comes from the line of Aaron Grey with AGP.

[Andrew Richard Bond, Equity Research Associate]

This is Andrew Bond on the line for Aaron. First one from us on the Canada market. We've seen some of your legacy extraction peers begin to sell flower products in the Canadian adult-use market. Is this something you believe could be complementary to your current product selling in Canada? Or are you comfortable focusing on current formats and pharmaceutical sales internationally?

[Keith Strachan, Co]

I think at this time, we do have a great platform and a great base to make concentrate products. The Canadian flower market is one that we're -- some -- obviously, a lot of our peers are entering into, but it is quite a crowded market. So at this point in time, we don't have any immediate plan to launch a flower brand, just looking at kind of that goes.If that market, years from now are to level out and we have good partners that we are also buying on the GMP side, then it could be something that we relook at. But when we talk to the provincial boards today, they are not having any problems with multiple license holders wanting to sell flower. So we feel that we could better participate in the oil and concentrate markets and really where we do separate ourselves in those markets is through innovation.So as I mentioned on the call, like just this week in Ontario, we're launching a CBN dominant oil that has CBN and CBD, so no THC. So we find products like that as really where we could be successful and really rely on our strengths.

[Andrew Richard Bond, Equity Research Associate]

Perfect. And then kind of related to that, you mentioned your expectation for a large pickup in tolling services, which has historically been a smaller segment for you. How large of a contributor do you believe tolling could be as you look to make GMP API for some Canadian LPs? And when do you believe longer term, this could be a service, larger pharmaceutical [ CCAM ]?

[Keith Strachan, Co]

Yes. I think for us, contract manufacturing for large pharmaceutical companies, large wellness companies is something that is what we're very well set up for in the future and those are the types of conversations that we're having in our business development and sales pipeline today. So really excited to do that.Contract manufacturing for us has been a little bit of a smaller piece amongst license holders in Canada for various reasons. But we do have some very successful contracts. We do make, for example, like Ace Valley vape pens, which are one of the higher-ranked vape pens now owned by Canopy Growth. We did launch a very innovative line of creams and gels with Avicanna, which is a company that grew up their R&D through K-Labs at the MaRS building, so where it makes sense and hits our platform.The GMP tolling is something that is very interesting because we are pretty much the only person to provides that in Canada today. So that does create a better opportunity. Although the license holders that have kind of that international reach is also a small number. So it's hard to take a number on what that would be like today, just like our launching our own international business, we saw some lumpiness, especially in the beginning and even still today. It's hard to pick a number on where they'll see the pull-through to their international patients.

[Operator]

We do have a follow-up question from the line of Tamy Chen with BMO Capital Markets.

[Tamy Chen, Analyst]

Just quick clarification. Going back to your comment about SKUs with STADA. So are the SKUs that are more popular, is that primarily flower SKUs or among the ones that are more fascinating, it's kind of balanced between both flower and oil?

[Keith Strachan, Co]

Tamy, I think it is pretty much a balance. So we -- as far as the value goes, so volume-wise, there is more flower that moves. But it is obviously a lower cost item for patients and a lot of patients in Germany do have coverage, but on the flower market, you see more of a patient payer side.So we do probably volume-wise get more of a pull-through on the flower side, whereas value wise it's closer to an even split. And that's representative of the data that we see across all of Germany. So extracts have been rising as far as products go in Germany quarter-over-quarter, and they're almost neck and neck with flower now and then that’s extract and then there's also their content -- like their marketable drug concentrate business, things like EPIDIOLEX, [ cannabidiol ] and whatnot too, which are concentrate-based products. So overall, the concentrates make up a big part of that medical, and we pretty much -- STADA is pretty much in line with the industry there.

[Operator]

At this time, there are no further questions. I would now like to turn the floor back to Mr. Strachan for any additional or closing remarks.

[Keith Strachan, Co]

Thank you. As there is no further questions, I'll close by saying we look forward to hosting our fourth quarter and 2021 annual conference call in March and keeping you abreast of progress in between. Thank you for listening, and have a great day.

[Operator]

Thank you for participating in today's conference call. You may now disconnect your lines at this time.