Aurora Cannabis Inc. (ACB) Q1 2021 Earnings Call Transcript

Aurora Cannabis Inc. (ACB 12.87%)
Q1 2021 Earnings Call
Nov 09, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning everyone and welcome to the Aurora Cannabis first-quarter fiscal 2021 conference call for the three-months ending September 31, 2020. This call is being recorded today, Monday, November 9, 2020. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to the risks and uncertainties relating to Aurora's future financial or business performance. Actual results could differ materially from those anticipated in the forward-looking statements.

The risk factors that may affect results are detailed in Aurora's annual information form and other periodic filings and registration statements. These documents may be assessed via the SEDAR and EDGAR databases. Since we are conducting today's call from our respective remote locations, there may be brief delays, crosstalk, or other minor technical issues during this call. Thank you in advance for your patience and understanding.

I would now like to introduce Mr. Miguel Martin, chief executive officer for Aurora Cannabis. Please go ahead, Mr. Martin.

Miguel Martin -- Chief Executive Officer

Thank you, operator. And good morning, everyone. And thank you for your interest in Aurora. Since being appointed CEO in late September, I've established the tactical plans to succeed.

And I've been working with our team on executing these plans. We intend to demonstrate that Aurora can be a profitable, growth-oriented leader in the global cannabinoid market. I would therefore like to spend our time today discussing the execution steps we're making in our business, as well as our go-forward strategy. But first, let me comment briefly on the recent quarter.

Q1 can best be characterized as a transitional period. While there remains a significant opportunity available to Aurora in the Canadian consumer segment the other legs of our business are performing well. We remain the leader in the high margin Canadian medical market., and our International Medical business sells 41% net revenue growth this quarter. Our CBD brand Reliva is the No.1 ranked brand by Nielsen in the U.S.

CBD sector, and most importantly, our platform provides us with significant optionality in the CBD market as I'll explain later. As you can see in my earnings release, our quarterly results were generally in-line with our previous expectations. With cannabis net revenues of $67.8 million, and an adjusted gross margin of 52%, excluding ramp-up costs at Nordic. SG&A excluding restructuring items was $43 million which was consistent with our run rate target of the low $40 million range.

Finally as remains -- relates to Q1, we demonstrated progress with respect in narrowing our adjusted EBITDA loss the $10.5 million. This marked the third consecutive quarter of adjusted EBITDA trending toward breakeven. As you know as part of our business transformation plan, we've made some very tough decisions and done a lot of hard work over the past year with respect to rightsizing our cost structure. This includes taking the largest cut to G&A of any Canadian LP.

For context, we cut quarterly SG&A from $100 million to approximately $43 million per quarter and sharply reduced our capex. Under my leadership, we will continue our focus on fiscal prudence. I can say without hesitation that our entire company is in a different mindset now than we were previously, and I've empowered all levels of the company to look for opportunities for profitable growth and for cost efficiencies. For example, we have demonstrated the capacity to make difficult financial decisions such as in June where we were one of the first cannabis companies to take the step to write down our inventory and recost our trend.

I also think we have a real opportunity to better align production cost to sales and shift costs from fixed to variable. In doing so, we'll manage our working capital investment more effectively, so that we can get the cash flow positive generation more quickly. This longer-term cash flow objective goes beyond simply reaching a positive adjusted EBITDA, our goal for the second quarter. Our expectation for the second quarter and demonstrates our leadership in differentiating Aurora and setting the standard for building a value-creating global Cannabis Company.

Back in June, we announced the closure of five cultivation facilities across our network, and I can confirm that a few of those facilities are now shuttered. But lighting production costs for sales and comes as more than that. Specifically, our Aurora Nordic 1 facility, which is a new EU GMP certified production facility located in Denmark will allow us to more efficiently distribute products in Europe and around the world, and better allocate production here in Canada. Before I discuss the performance of our business segments and in particular our Canadian consumer segment, let me briefly address our recent capital raise under the ATM.

The $280 million that we raised recently through our previous ATM was a responsible decision in today's challenging environment. The cash will ensure that we have the runway needed to complete the remaining elements of our transformation plan, execute our tactical plans to regain market share in the Canadian consumer business and the position for the rapidly changing global cannabinoid market. We appreciate the cannabis companies are being evaluated with respect to their business performance and their liquidity. And we wanted to ensure that we are addressing both sides of this equation without any perceived concerns with respect to liquidity.

We now have a much stronger balance sheet that makes it possible for us to act opportunistically, and allows investors to focus on our business execution. In fact, as I said earlier, we are squarely focused on generating operating cash flow as quickly as possible. And of course, as a matter of good governance, we have also filed the new shell prospectus. This is a common step for most large companies to have available if needed.

Now, let's discuss our business itself beginning with the Canadian consumer market where we have much work to do to gain share, but also a strong sense of urgency to continue executing our well thought out tactical plans. As you know, there are two things to consider that are working in our favor, and in doing so, providing us with considerable tailwinds. First, the category is growing. With Stats cannabinoids are showing 11% month over month growth in July, and another 5% in August and more stores continue open particularly in the province of Ontario, which is very encouraging news.

In fact, from the national data that we have seen, the current store count is approximately 1,200 and could reach 1,300 by December. And second, the consumer has demonstrated very dynamic tendencies, with market share moving very quickly between brands unlike in more stable CPG categories. This provides us with a great opening for our pivot to premium brands. These factors suggest to us that with the right accountabilities and focus, the right products, the right sales execution, including product availability, visibility, packaging, and better engagement with the provinces, we can gain share in key growth categories quickly, ll while achieving profitability.

The data from Canada and other mature markets indicate that premium and super-premium brands have been, and will continue to be successful in all formats. Therefore, Aurora has a real opportunity for a more articulated and balanced portfolio offering. With a greater focus on higher-margin, and sustainable premium assets; such as vapes, pre-rolls, and premium flower offerings across multiple price tiers. For example, gummies as a format, we have a No.1 position.

And we are allocating additional resources so that we can enhance and grow our format. We are also working to expand our leading concentrates and to refocus our dried flower business toward higher gross profit dollar pools. Of course, premium segments must also be supported with classic CPG sales, marketing, trade marketing, and consumer engagement methodologies to build awareness, foster affinity, and generate outsized returns. The key of course is to ensure that in doing so, we're delivering more dollars to the gross profit line versus simply just delivering low-margin revenue.

We are, therefore, much more invested in our market share within the premium and super-premium categories along with our market share of categories such as, vapor, pre-rolls, and concentrates that are margin accreted compared to our market share and a deep discount flower business. While it's still early days, I'm happy to say that we're starting to see some green shoots from these initiatives and suggest they keep tabs on the headset data, and other market data so that you can gauge our ongoing performance. For example, we're very encouraged by the great response to Phase 1 of our vapes' lives that recently hit the market. We're also seeing strong demand from our aces pre-roll, and are currently working through some supply constraints will help get those issues resolved soon so that we can have broader distribution in that key product category.

Let me also say that we would invade some pre-rolls, there's a lot of opportunities to bring classic CPG elements in packaging, and alignment, the traditional flower does not lend itself to. We'll accelerate our focus on our premium brands, Aurora and San Raf, as well as our super-premium brand Whistler. These are tremendous assets that balance out the total offering to our consumers. Our intention is to build an ecosystem around each of them through various formats to foster greater brand visibility and provide greater choices to the consumer where they can work up the value chain.

As an example, we're working to extend these brands to include San Raf pre roles and higher quality, Whistler vape. Through all these initiatives our intention is to generate not just revenue but quality revenue that will deliver a healthy gross profit dollar as opposed to essentially just a gross margin percentage. Whistler for example currently delivers 10 times the gross profit dollars per gram that the discovery and mine. So, our path forward and putting more dollars to the bottom line is based on the notion that not all revenue dollars are created equal.

On a related note, while we continue to support our daily special brand, we think the value segment may -- value opportunity to shift production and manufacturing cost to a more variable model, and we are exploring that opportunity. This wearable model could also allow us to better control inventory build.In my 20 plus years of working with products in dynamic categories, I've seen many examples of there being an advantage to having more flexibility with a variable cost model. Now, let me turn your attention to our domestic and international medical businesses, which are operating well and delivered a 4% revenue increase over the last quarter. While our Canadian medical revenue declined slightly over the prior quarter, this segment is an evolving landscape, and we're extremely happy with our ability to manage that business.

We have moved our patient intake and experience online and can now offer substantially more choices to our patients and veterans as a result. While the medical channel overtime may see some migration of the consumer channel, we see opportunities to retain and grow key patient groups like Veterans to continue to grow the medical market. Our National Medical segment has been a consistent performer and reported a 41% increase in Q1. We are already one of the leading providers of flowers in Germany, and we continue to see opportunities in the oil market.

We also just cleared an important regulatory milestone in the Aurora Nordic 1 production facility in Denmark, which just achieved GMP certification, and its sales license for flower and oil. This facility is now able to ship from Denmark to Germany, as well as the rest of the EU and other parts of the world. There is certainly a great lesson here from our success to date in the global medical market that has positive implications for other opportunities, namely that it takes a lot of investment, a lot of compliance expertise, and a lot of thought to be successful with the high standards that these international markets require. But once those capabilities are built out they become very portable.

We are bullish on the long-term international market opportunity and believe that Aurora would demonstrate expertise and medical market leadership is very well positioned to continue to generate enduring shareholder value from international business as these markets develop. Lastly, our Nielsen top-ranked U.S. CBD brand Reliva remains an enviable strategic platform. Despite the temporary slow growth due to COVID, our platform already provides us with a critical distribution and regulatory expertise, and relationships both advantages as the U.S.

market continues to evolve. Reliva focuses on brick and mortar stores as an exclusive CBD supplier for some of the largest retailers and wholesalers nationally, and our products are in over 23,000 stores. This may be seen as an unusual approach in a COVID environment given the general consumer shift to online sales, but our trade partners have taken a really dim view of those that have pivoted to online sales amid the pandemic, and we decided to stick with them to the long term. Given its variable cost model, Reliva is even a positive and as an aside late model that does not require any capex.

Looking ahead, we're very bullish on what we've heard of the FDA and anticipate positive action. So, when the FDA moves forward those companies with a history of compliance and experience in brick and mortar will win. We, therefore, think Reliva is a wonderful asset, and we'll continue to be a significant EBITDA contributor. According to the most conservative estimates, CBD represents about $2.0 billion in retail revenue.

So when we talk about global cannabinoids and leveraging Aurora's science and innovation, the non-THC parts of our portfolio could potentially be bigger than the THC parts of our portfolio, particularly with positive FDA action in the U.S.. I'll now turn it over to Glen, to walk through the financial details.

Glen Ibbott -- Chief Financial Officer

Thanks, Miguel. Good morning everyone. And thanks for joining us on today's call. We'll take a few minutes to review our first-quarter 20 21 results.

Please note that the figures I'll be going over today can be found in the press release we issued this morning. And our role in Canadian dollars unless otherwise stated. I should also note that in accordance with IFRS standards, the comparative revenue figures for Q4 2020 have been reduced slightly to reflect the removal of discontinued operations results from our ancillary revenues. Our first-quarter fiscal 2021, the period from July 1 to September 30, 2020, our net revenue, all of it from cannabis businesses came in at $67.8 million, a bit higher than the $60 million to $64 million range we previously provided.

Our sales mix remains evenly split with the consumer cannabis segment delivering $34.3 million in net revenue, and our medical cannabis segment delivering $33.5 million in net revenue. So let me dig into revenue a bit further. In the first quarter, our medical revenue was up slightly. Underlying this was a temporary decrease in Canada of about $600,000, as we transition all of our patients to a new integrated sales platform where they have access now to all of our medical brands.

Including MedReleaf, CanniMed, and Aurora, and soon, Whistler. Aurora continues to have a significant advantage in the Canadian medical market share. More than offsetting that temporary decline with a stellar performance from our international medical business, which continued to show the strength of our expertise and brands with a 41% increase quarter over quarter to almost $6.5 million of revenue. I should remind you that our leadership in the Canadian International Medical markets is very important to our bottom line and long-term value creation bringing sustainable growth expectations in a very solid gross margin profile averaging in the high 60% range in both Canada and internationally.

A Q1 consumer revenue declined 3% over Q4, despite the growing overall market.[Inaudible] outlined both the challenges and the opportunity for a large Canadian consumer market, we see Q1 consumer revenue as reflecting that period of transition for us. Despite the challenges, there are certainly some great spots in earnings including a $2.5 million increase in derivative product sales, and a 1.1 million increase in U.S. CBD revenues. We also recently launched our daily special vape offering quickly capturing consumer attention and the number three spot in Ontario.

Of course, this is just the first vape launch in a planned flower brand portfolio of vape offerings in the near-term. Turning now to our margins. Adjusted gross margin before fair value adjustments on overall cannabis net revenue remains strong at 48% in Q1, and this compares to 50% in the prior quarter. But excluding the $2.6 million of ramp-up costs and our Aurora Nordics facility in Denmark, our overall Q1 adjusted gross margin was actually 52%.

Medical margins continued to deliver important levels of profit at 67% overall excluding Aurora Nordic ramp-up costs. Our consumer margins improved at 38% due mainly to product mix with a heavier weighting on 2.0 products in the quarter. While inventory levels increased about $27 million, overall from the previous quarter, we are making progress in reducing this growth. And as Miguel has noted in his remarks between the facility closure is currently being executed, and opportunities to align current demand and production needs that our ongoing facilities expect to bring this into balance during the fiscal year.

Cannabis is a long lead time agricultural crop with the challenging demands schedule to forecasts alignment does take a bit of time. Miguel's remarks regarding shifting the more fixed cost to a variable over time are also very important to our plans to drive sustainable positive cash flow in the near future. Looking now at SG&A, including R&D. We successfully reduced SG&A costs, which we defined as including R&D spending as well.

For the announced target of below $40 million range. Taking it from over $100 million in Q2 2020, down to $43 million in Q1, 2021. This excludes approximately $4 million of termination costs related to the business result. As an important driver of our profitability and positive cash flow, I'm encouraged to tell you that we continue to operate our targeted corporate SG&A run rate in Q2, and have the entire company incentive to find incremental opportunities to hold and even reduce this important metric.

We do believe this level of SG&A spending is quite sustainable and capable of supporting a much higher revenue line. Pulling all of this together, adjusted EBITDA in Q1 2021 with the loss of $57.5 million, but that included a number of previously communicated restructuring costs, including employee and contract terminations. Adjusting for these costs and in accordance with our bank covenant definition, adjusted EBITDA for Q1 is $10.5 million. This is the third consecutive quarter of improvement as we continue to work toward positive EBITDA on cash flow.

And just make a couple of comments regarding our cash position and cash flows down, but as of November 6, our consolidated cash position was $250 million. That compares to $162 million as of June 30. That balance reflects the improvements in our recurring cash flows, which I'll describe in a moment, as well as cash raised through our ATM program in the last couple of months. It also reflects payments in October for our major annual cost of insurance and employee bonuses.

The balance on our term debt stands at $101 million on November 6, and we remain in compliance followed by debt covenants under this agreement. We are very happy with the continued excellent relationship and ongoing dialogue we have with our very supportive banking partners. The cash flow. The amount of cash we used in Q1 is similar to that in the prior quarter.

However, the mix within cash use showed significant positive progress. We use $25.2 million in cash to fund operations, excluding working capital investments, and used $47.4 million for contract and employee termination costs. These costs included the previously announced termination of the UFC agreement. We also paid $15 million for capital expenditures in Q1, down materially as many long weight projects are now complete.

Increases in networking capital use $37 million in the quarter, driven by a $14 million increase in accounts receivable, and a $25 million increase in inventory. As both Miguel and I have described earlier, we continue to execute plans to more closely aligned production levels with demand. Finally, in the quarter. We also used $18.2 million in cash to reduce our term debt and lease obligations.

So cash used in operations and for capital expenditures is crucial metrics in our drive toward generating sustainable positive free cash flow. And both have improved significantly and consistently over the past several quarters. As an example in our Q2 2020 fiscal quarter. That's the last quarter before we announced our business transformation plan, we used $86 million cash in operations, not counting working capital bill and $128 million for capital expenditures.

So total outflow $240 million for just these two items. As a comparison, I just reported a Q1 total of about $40 million for these same two items. We made the decision to reposition our company to be a leader in our industry and driving deposit EBITDA and cash flow. The actions we have taken have improved cash outflow on these returning items by over 80% within three quarters.

Even with a solid balance sheet and rapidly improving cash flows, we still believe that access to capital is of paramount importance. Particularly in an environment of rapid change and value-driving opportunities. So you will have noted that we recently filed a new shelf prospectus that is intended to protect the company and our shareholders as we navigate through an uncertain environment. But we are firmly convinced that our focus on getting the cash flow positive as quickly as possible will both demonstrate the excellent long-term value creation possible in this industry.

And will alleviate the need for additional equity capital as far as possible. As we have shown with our progress on the business transformation, we will continue to prudently manage our liquidity as we drive to a positive viewpoint between cash flow. So to conclude, and as I mentioned in our last report to you, I'm incredibly excited about the vision and tactical plan that Miguel's laid out here. I am seeing the recovery in a Canadian consumer business showing signs of traction.

And when you add that the leading position we have in medical candidates globally, the excellent gross margins we continue to deliver. With a vastly improved SG&A cost structure, and an important platform for U.S. growth, and a much-improved balance sheet you may be able to understand why we are quite Bullish for Aurora's future, and for our shareholders. Thanks for taking the time with us on a very busy reporting day.

Before we take questions, I'd like to now turn the call back to Miguel, for a few wrap-up remarks. Miguel.

Miguel Martin -- Chief Executive Officer

Thanks, Glenn. I want to close by highlighting the steps of the plan we're executing now with the Canadian consumer market. First, we're focused on driving sales of premium brands and flowers, Whistler, San Raf, and Aurora. Second, we are focused on winning share and key growth formats, vapor, freerolls, edibles, and concentrates.

And third, evaluating and executing on opportunities to align our production and manufacturing costs to sales and shift our model away from fixed to variable cost. I'm very confident in the early execution of these tactical plans. We know what we need to do to be successful across our main markets, and are already seeing early signs around the right path. As CEO, it is my responsibility to ensure that the entire team is executing accordingly to their respective responsibilities.

This entails continuously looking for more effective ways to capture top-line opportunities that are margin and creative and extract even more efficiencies from operations. When we are successful, we are not only strengthening our financial condition but over time, build a sustainable and growing level of adjusted EBITDA. And the base of positive free cash flow that can be used to invest globally over a multi-year horizon in both the THC and non-THC cannabinoids. We look forward to sharing our progress with respect to our plans, and in reaching these goals over the coming quarters.

Thank you. Operator, if you could please open it up for questions.

Questions & Answers:

Operator

Thank you. We will now be conducting a Q&A session. [Operator instructions]. Thank you.

Our first question comes from the line of Vivien Azer with Cowen. Please proceed with your question.

Vivien Azer -- Cowen and Company -- Analyst

Hi. Good morning.

Miguel Martin -- Chief Executive Officer

Good morning, Viv.

Vivien Azer -- Cowen and Company -- Analyst

So understanding this is a transitional quarter like maybe let's take it a little bit more near-term. Obviously, a lot of volatility in the markets. Elections are incredibly topical in the United States. So, Miguel, perhaps this is the great opportunity for you to levels that everyone on what you view as the tangible and likely regulatory pathways for a more notable entry into the U.S.

beyond CBD.

Miguel Martin -- Chief Executive Officer

Well, good morning Vivien and it's a great question. I think like most things with me, my background really colors my opinion. And having spent 20 years to 25 years in the tobacco business, you saw a lot of uncertainty and there are a lot of cool areas here. So first and foremost, while everyone is hyper-focused on potential federal action, I would really draw your attention to what's happening in the states.

When you talk about controlled substances and we talk about regulated products, state-level actions in many ways have more applicability in the short-term than federal actions. You see that in CBD today in the U.S. and the cannabinoid business and you clearly see it in the THC bearing cannabinoids, we had four really important states pass comprehensive cannabis legislation. And so that starts to move the ball forward in terms of when do you get to this tipping point.

Now on the federal side, the Biden/Harris position is clear and I think it's going to have to be a little more articulated than what the timing is. But depending on what happens with a runoff election in Georgia, the Republicans' control of the Senate has a key impact. So, all in all, if you boil it all down, I guess I would say the following three things: first and foremost, very positive news at the state level. We see both in the U.S.

and globally an increasing openness toward THC bearing cannabinoids and that bodes well for a company like Aurora; Secondly, there is no work to be done to see what a federal construct looks like; and third, and I think this is the most important piece by far is, if and when you see countries including the U.S. pass federal regulations and legislation the experiences that the Canadians LPs have had in Canada as the largest federal construct on manufacturing, packaging, production, sales and marketing, all of those things instantly becomes really valuable. By the same token the riggers getting into Germany or Poland or in Israel that is muscle memory that you can't just replicate really quickly. So we continue to learn.

We continue to see those pieces as being portable. And at a time in which there is an opening for us in the U.S., we think that we'll have a ton of resources and a ton of interest because of all those experiences. And so that's how I would couch it and it's -- I'm not here to give a particular timeline because I think that's folly trying to predict legislation like this at a federal level.

Vivien Azer -- Cowen and Company -- Analyst

Absolutely. And I appreciate that perspective. Miguel, If I can squeeze in a follow up then.

Miguel Martin -- Chief Executive Officer

Sure.

Vivien Azer -- Cowen and Company -- Analyst

As it relates to the Senate election to the extent that the Democrats do not take the Senate. Do you want to offer a view on what that means in terms of [Inaudible] and catalysts? Thanks.

Miguel Martin -- Chief Executive Officer

Yes. I mean I don't mean that it's easy to say that if Senator McConnell and the Republicans keep control of the Senate that's sort of that. I mean, as we've learned with states like Illinois the economic benefits of legalization of medical/rec has become a bit of a bipartisan issue. And so, I think we have to see unfortunately with the pandemic of COVID, you're seeing a lot of budget shortfalls, and a lot of people are looking toward a responsible regulated version of cannabis in order to fill that.

So I think maybe we'll have to see. But I understand that historical positions would be the Democrats are always going to support it, and Republicans always won't. That's not the case. We have not seen that in CBD.

As an example when you look at Republican governors particularly in say, Texas or Florida seeing the benefits of a regulated thoughtful approach on non-THC very cannabinoids, and I don't think it's a foregone conclusion that the Republicans given their focus on fiscal prudence wouldn't also have a similar opinion under the right construct. And again, those companies that have acted responsibly in a compliance-driven manner in Canada clearly are going to have an advantage when that construct presents itself.

Vivien Azer -- Cowen and Company -- Analyst

Understood. Thanks for the time.

Miguel Martin -- Chief Executive Officer

Thank you, very much.

Operator

Our next question comes from the line of Pablo Zuanic with Cantor Fitzgerald. Please, proceed with your question.

Pablo Zuanic -- Cantor Fitzgerald -- Analyst

Thank you. Good morning.

Miguel Martin -- Chief Executive Officer

Good morning, Pablo.

Pablo Zuanic -- Cantor Fitzgerald -- Analyst

I guess the first question would be just following up on the last one. When you see our cannabis growth, licensing, Tokyo Smoke, and Tweed to acreage and building awareness for their brands. And you here are free to talk about the strategic relevance of the sweet water dealing craft beer to build relevance for their brands. Do you think you need to do something similar to push or to start building awareness for your brands in the U.S., or it's just too early and there's still enough time to get behind that.

Thanks.

Miguel Martin -- Chief Executive Officer

Well, thank you for the thoughtful question, Pablo. I mean, listen. I'm not here to be critical of anyone else's approach, particularly as it builds awareness. I think the two examples you gave are a bit different.

One is, about leveraging infrastructure, and expertise. And the second to your point it is about awareness. My opinion is that when you have high-quality brands that can operate in a variety of different markets, as we do I think there's an opportunity. The biggest thing though Pablo to me is, all of your capabilities to be able to execute at a time in which it makes sense.

Obviously, there are challenges, structural challenges for publicly traded companies to operate today in the U.S. That doesn't mean though that you can't build infrastructure and capabilities for a time in which it is federally regulated. And that's really what we're focused on. So we will be opportunistic.

I clearly expect that a lot of folks will be deeply interested in what we've been able to do around the world from a regulated standpoint. I would also tell you that the science in genetics, and genomics, and experience with the plant may be one of the most portable aspects of both our business and other pieces of business. So it doesn't give me any pause that our friends in Canada have done what they've done, and the folks of Africa have done what they've done with the craft brewery in Atlanta. We feel very confident about our position.

We feel very confident that the resources that we have will be attractive, and there is a time in which it makes sense you'll see us be there.

Pablo Zuanic -- Cantor Fitzgerald -- Analyst

Ok then. Just a quick follow up on the Canadian market. I don't think there's much in the press release about outlook or comments in the quarter but. Obviously, you'll beat into the September quarter right.

$68 million versus $60 million to $64 million. Maybe what drove that because guidance was given late in the September quarter, but more importantly where are we -- what comments can you give in terms of guidance with the outlook for the December quarter in the break. With the -- I guess with a slight concern on my side that when I look at the market data particularly [Inaudible], I see evidence of the successful pivot into derivatives under premium brands. But I see a big fallout in sales so your value flower business right, which is still relevant to your total revenue.

So I wonder what that means to your total rig sales in the December quarter. So just some color there in terms of beat and in terms of where we are in the December quarter. Thanks.

Miguel Martin -- Chief Executive Officer

All right. I'll take the second half, and then I'll turn it over to Glen to talk about the first half. So, you just mentioned that these are big ships to move. Clearly, I've been unabashed in my focus on premium flower derivatives, vapor which obviously, have a long history and given with running Logic.

And so, what I would say is, there is a lot of folks that are pumping out low-cost flower at the low end. And that's had an impact. And you're going to see disruption as us and others right-sized production to consumer demand. And so that is what it is, and can certainly get there.

I think as you look at the percentage of the profit pool, and you look at the margins associated. And as I mentioned Whistler's 10 acts program as a discount flower you're going to start to see us move pretty strongly into the areas I've talked about. You've seen it on vapor. You'll see it on pre-rolls.

You'll see it on concentrates. And so, I'm not worried about the contribution of our profitability being reliant upon a low-cost flower and the commoditization of that particular aspect of the flower, I think is not a great place to be. And so, we're confident with our plan, and I think having being blessed with such premium assets is really going to be important. And for everyone that has this belief, I know you don't.

But this whole thing gives me commodities. I would draw your attention to what we're seeing in California and Colorado, and you know over 50 years to 100 years of regulated products there is clearly a place for premium products in the regulated space. And clearly in place as being demonstrated for premium products in the cannabis business. And as you know the margins of those derivative products are 2.0, some may call it away are stronger.

So, Glen, you want -- could you please take Pablo's first part of his question.

Glen Ibbott -- Chief Financial Officer

Yes.Thanks. Good morning. No problem. Listen, we have a range and as we were closing our books, it looks like we're getting toward the upper end of the range and potentially a little bit over.

I wasn't comfortable giving you guys any additional guidance beyond that range or shipped again till we got through all of this the review as opposed to closing the bottom review with our auditors. And for instance, you'll see in our MD&A where we disclose more. We pursue our revenues. In particular, our revenue provision is about a million dollars lower than it would have been the previous quarter.

And that all takes time to work through. So the outcome we knew here at the top or maybe slightly over. In fact, as we looked at it, as I say finalizing the book and recording all the proper provisions and things like that, we ended up coming in slightly above the range. And that's about it.

Pablo Zuanic -- Cantor Fitzgerald -- Analyst

That's good. Thank you both.

Miguel Martin -- Chief Executive Officer

No problem.

Operator

Our next question comes from the line of Michael Lavery with Piper Sandler. Please, proceed with your question.

Michael Laver -- Piper Sandler -- Analyst

Thank you. Good morning.

Miguel Martin -- Chief Executive Officer

Good morning, Michael.

Michael Laver -- Piper Sandler -- Analyst

So can you -- even if the timing of any entry into THC in the U.S. is certainly unknown. How much thought have you given to your strategic approach or how you would plan to go to market. And specifically, I'm curious how you view interstate commerce.

Do you see that as an inevitability, and if so, would you wait for that to come into place before trying to make an investment or entry or would you go ahead and begin on a state by state approach. How do you think about that?

Miguel Martin -- Chief Executive Officer

Well, first, as you look at the things that we have to do to be successful say in Germany or in Israel or in Poland, there are a lot of similarities to what you've had to do in the U.S. If you look at everything we've had to do in Canada, there are a lot of similarities to what I believe you'll have to do in the U.S. So much of the -- I know it's fun to talk about brands, and marketing, and devices, and formats but the real heavy lifting is going to be on the back end. So IP genetics, genomics, trademarks, science, compliance, manufacturing protocols, GMP, ICS certification, packaging compliance, testing protocols, sales, and marketing.

And so if I was asked by one that you want to focus on who are the companies that are going to win long term, look at the companies that do that. Yes, clearly having some brand awareness and excellence in terms of consumer awareness will be critical, but in a new regulated category, it's going to be all of the other stuff that I just mentioned that's going to clearly make a difference. And we're working on that every day, all day not only in Canada but around the world. And that benefits us greatly in the U.S.

Now, Michael as you know, the legal restrictions are the different aspects of what a publicly traded company has to do in order to be compliant will require some form of a federal construct. Now as I mentioned earlier, there are a lot of different pathways to get there that is not just a red-blue issue that can be around economics and a variety of things. And clearly, I think for the U.S. and for the states to truly unlock the greatest amount of economic potential interstate trade and shipment will have to be there.

I mean, if you look at it's somewhat of a correlated the Farm Bill on CBD, it would be incredibly challenging if you continue to ring-fence these states and have to produce register license grow and sell all within a state. And that really creates I think limitations on how the true economics. Now some might say, well that's always to exist because the states are going to want their piece of the pie of the economics of how that's grown. We don't see that in tobacco.

We don't see that in alcohol. We don't see that in spirits. We don't see that in pharma. So I think as this proceeds, really to unlock those economics and whether it's compliance or all these other aspects.

That would be there you would have interstate, and then at that point, you're starting to get into a federal construct, and at that point, you know things open up. I do -- and it's why I think we have a leading position. I do think the expertise that the Canadian LPs have will be in high demand for all the reasons that I've mentioned. There is nothing currently globally like Canada.

And while U.S. FDA and DA and other regulatory agencies don't always follow international protocols, there's no question. It's going to influence that because a strong neighbor already a lot of different interactions. And so I think there is a big advantage for those LPs that have successfully navigate them.

Michael Laver -- Piper Sandler -- Analyst

Ok. Thanks for that. And just a follow-up. You've mentioned genetics and genomics a couple of times.

Can you give us maybe a little more color on how you see Aurora differentiated or standing out there? And then how that translates into marketplace execution either with the consumer or anyone else.

Miguel Martin -- Chief Executive Officer

So, Aurora over its lifespan has acquired a significant amount of companies and resources, and with a lot of those companies has become -- has come to a very significant library of genetics and genomics. And so, like any other agricultural company, genetics have a lot to do with yields. A lot to do with the durability of the plant. A lot to do with the output.

And clearly, given the variances in how we see people use cannabis in the articulation of all those core metrics whether it's intensity or onset or offset, genetics and genomics are really important in this category like they would in most of these regulated types of categories. So as you think about that expertise and the value of that being able to leverage that in a market the size of the U.S. it becomes incredibly important. And again, it's the lifecycle of it.

It's the fact that these assets and these outputs have been tried and tested over multiple crop cycles, in multiple markets, and in different environments. And so all of those things are valuable as you get into a market the size of the U.S. where you really can't be as niches and there will be under a potential federal construct the value for large scale agriculture like you're seeing in Canada today. And so again that all play a role in how quickly and how effectively, and how thoughtfully you go to a market with the size of the U.S.

Michael Laver -- Piper Sandler -- Analyst

Ok. That's great. Thank you, very much.

Miguel Martin -- Chief Executive Officer

You're very welcome, Michael.

Operator

Our next question comes from the line of Tamy Chen with BMO. Please, proceed with your question.

Tamy Chen -- BMO Capital Markets -- Analyst

Thanks. Good morning, everyone. The first question is, I wanted to understand better the shelf with the $500 million U.S. ATM is quite significant in amount.

So I mean, how should we investors think about that. Have you taken that on so you can ride out the chop environment in Canada or is it also for how you're thinking about the U.S. you mentioned opportunistic a couple of times? I just wanted to understand that given it's a pretty sizable amount.

Miguel Martin -- Chief Executive Officer

Glen, we're taking that one.

Glen Ibbott -- Chief Financial Officer

Yes. I'll get started on that Tamy. The thing you said, it's not ATM, it's a shelf prospectus, and not just pre-qualified shares for issuance or any securities for issuance. And pretty broad, and allow us to issue debt.

It allows us to issue our shares certainly should we see an opportunity to do so. But it's not an ATM If we're to use an ATM and we have to fund a supplement to be able to do that and see that. Should we do that at some point? So this is really -- as Miguel mentioned in his remarks just the hallmark of any mature companies how do show respect qualified and available opportunistically. That's the way to think about it.

It's not with -- it's no ATM. It doesn't allow us to sell shares tomorrow under ATM unless we polish supplement.

Miguel Martin -- Chief Executive Officer

Yes, I guess to be the only thing I'd add to it. We mentioned this a bit earlier. If you look at cash burn or the cash component, which is becoming such an important metric for a lot of good reasons. On cost and cash use, we've got about $60 million in cash expenses, more on SG&A in three quarters.

We've severely reduced our capex over that time, and now we really lower our run rate really focused around maintenance capex going forward. So I think overall, the focus on cash is headed in the right direction. We look at the industry. We look at our peers.

I'd say, we're clearly well-capitalized. But I think the big thing also is the market's appreciation of business execution and rock-solid liquidity. And when we prove to investors that execute on the plan, we put forward where I really don't that's success to be overshadowed by perceived liquidity issues. And so as we move forward in the tactical plan gaining back market share and growth of that was premium segments in Canada, we really want to have those financial resources available to be opportunistic which you've mentioned.

So, I just would add that color about the importance of having both sides of it. It's really I think allowing people to uniquely focus on execution, particularly in the rec cannabis business.

Tamy Chen -- BMO Capital Markets -- Analyst

Got it. Ok. That's helpful. Thank you.

And I guess my follow-up is if you could just elaborate a bit more on what you were talking about, and shifting more production costs from fix to variable. I mean is that considering even more facility closures, and more leverage on third party supplies. Can you elaborate on what you meant by that? Thank you.

Miguel Martin -- Chief Executive Officer

Sure. Sure. I'll be happy to. I mean the base premise.

I mean if you go back to all these facilities the amount of production in Canada and a lot of ways was built to service global opportunities, and to service a market that just is bigger than it is currently there. And so I've got a long history of using variable versus fixed, and I will tell you the one thing I can predict in this category is that things are moving very quickly. And so, the hardwire yourselves to these massive fix costs not knowing exactly what the outcome is, I think is not -- doesn't best serve Aurora. Secondly, as we've all know, there was plenty of great high-quality products available particularly in Canada.

So, while we'll have to have the new GMP facility over in Denmark which is a tremendous asset to have. And clearly, there's plenty of work for that. There's nobody in Canada particularly with these large-scale facilities. So we've announced the downturn of five of them.

A couple of them already closed. And yes, we are looking at some external sources to give us greater flexibility so that we don't have to carry all those costs, and also be in a good position. This would be both in flower, and as well as a couple of other items. If you look at other businesses I've been a part of it, some might argue have been quite successful.

You don't hardwire huge fixed costs. You give yourself maximum flexibility. And then once a category really is on firm footing and you can determine exactly where it's going. I think you can make a more educated decision.

So, I'm very confident that you're going to find this to be in a strong position regardless of which way the category moves, particularly in between formats.

Operator

Our next question comes from the line of David Kideckel with ATB Capital Markets. Please, proceed with your question.

David Kideckel -- ATB Capital Markets -- Analyst

Hi. Good morning, guys.

Miguel Martin -- Chief Executive Officer

Good morning, David.

David Kideckel -- ATB Capital Markets -- Analyst

Congrats on the quarter. I want to just go down into your International Medical cannabis opportunity, a little bit more in detail. That's ok. So just to note, one of your competitors also announced and you also announced results this morning after the International Medical Cannabis component date, the sales were actually down quarter over quarter versus Aurora, your sales are up.

So my question is, given just how important this channel is. Overall, like Glen, you mentioned gross margin in particular. Do you see this trend continuing with upwards sales on the international channel specifically? And I'll just not to give that call or question some color I mean one of the comments made by the competitor was that it's a very crowded space. So just any color you can offer with not only market potential there but how is Aurora navigating the complexities associated with Medical cannabis on an international scale.

Thanks.

Miguel Martin -- Chief Executive Officer

Yes. I mean. So first and foremost, I think we're bullish. As I mentioned before, if you think about the permissive nature of the movement of legal cannabis across the globe, opportunities are more prevalent and are going to happen more frequently than the opposite.

So, I just would throw that out there as a general tailwind. Secondly, I will tell you that compliance regulatory having facilities in Europe and the navigation of specific aspects about the infrastructure that's focused on Science technology and regulation are differentiators as markets internationally are becoming more, I would guess professionalized and more sophisticated. I think companies like Aurora will be an advantage in that they can produce quality cannabis in a certain manner with a certain level of infrastructure. And so listen, we're in the early days here and I'm not here to dismiss or be critical of any of our competitors, I have great respect for them.

We like where we're at. We like the possibilities that the EU facility in Denmark provides for us. And we'd like the conversations that we're having with external partners based on our history of compliance and science-based production. And I think as long as those tailwinds continue of cannabis being permitted and being open internationally, I think what we bring to the table and continue to invest in will be a compelling argument.

Glen Ibbott -- Chief Financial Officer

Let's establish a little bit of that. And just you will see in our MD&A where we pull apart the international business. You can see the revenue is mainly generated at a flower. And there is a developing market in Germany actually quite a healthy one for attracting oils and things.

So it's important to note that the licensing that we got at our lower Nordic sold in Denmark includes oil. So, its flower and oil, and we intend to use that facility to supply the European markets in the international markets. In fact, whether it's Europe, Israel, or whatever and free up the Canadian facilities. But the oil licensing out of Nordic is important because that's an opportunity for us to grow in Europe.

In the part of the market, we haven't actually been participating in very strongly.

David Kideckel -- ATB Capital Markets -- Analyst

Got it. Ok. That's helpful. So certainly it sounds like there's a lot of room for growth there.

My follow-up question is to shifting gears altogether to beverages. I know Aurora currently does not have a presence in the beverage category, maybe that's because in the U.S. they've been a flop, but with all the technology that Aurora and others have had, we're seeing an uptake of beverages specifically in Canada. So I'm just wondering, do you have a preference, either way, moving forward as beverages category that you're looking to get into.

Thank you.

Miguel Martin -- Chief Executive Officer

Well, we do have a beverage in Canada. We have a shot which has done quite well. I mean my opinion on beverages, I guess is a couple of fold. First is in these categories, I would argue that there is not a significant advantage in being the first mover.

We've seen that in a variety of correlated categories around. I'm very respectful of what our competitors done. I think what's more important is having a strong innovation system. Can you bring high-quality products to market that meet consumer needs at a proper price point? And I believe Aurora is developing those capabilities.

And you've seen it with vapor. Secondly, if and when there was going to be an opportunity in beverage, clearly we have all of the other pieces put together and all of the plant genomics and everything we would need in order to play in that category. What I do believe though is that this category is moving so quickly that to make outsized bets and presuppose exactly where the consumer is going is a mistake. So, we are going to continue to offer a variety of consumer options, particularly in emerging categories.

And I could argue that concentrates vapor and pre-roll today have much more actionable opportunities from an economic standpoint. And if and when beverage or any other category like that emerges, we'll be there. I will also say that we see in California and Colorado, those are really bellwether states and operate about a year, 10 months to a year from a consumer standpoint ahead of where Canada's at. And if we start to see inclinations that beverage or something else is really taking off in those markets or any other bellwether market that we get consumer data on, we can quickly do it.

So I respect others making that push. We don't see it as an opportunity today, but if and when it was there we'd be there. And like I said at the beginning, these categories are not one where first-mover status matters.

Operator

Our next question comes from the line of John Zamparo with CIBC. Please, proceed with your question.

John Zamparo -- CIBC -- Analyst

Thanks. Good morning.

Miguel Martin -- Chief Executive Officer

Good morning.

John Zamparo -- CIBC -- Analyst

Good morning. The fact is you listed as being success indicators like IP science, and testing, and packaging. I guess that's how you monetize that. Does it assume a federal pathway to operate in the U.S.

and Aurora is the one executing that or you think about it as selling that expertise to local state level providers or is there an assumption of an additional equity investor partnering with Aurora? I know there's a lot of unknowns there. But I just would like to get a sense of how you think about monetizing the factors where you lead the U.S. or international competitors.

Miguel Martin -- Chief Executive Officer

Well, this is a great question. I think there is. The good news is there is a ton of different ways to do it. I mean if you look at companies like Monsanto or you look at other companies that are branded companies, there's a variety of different ways to get there.

I think the main thing to understand is at the time in which the U.S. legalizes cannabis either at the medical side or on the rec side, clearly the Canadian companies are going to have a massive head start in terms of understanding what that type of construct means. So listen, whether that means we're opportunistic through M&A, whether there's licensing, whether there's [Inaudible] all types of things. What I do know is that our continued focus and effort in being compliant and being thoughtful around the globe outside of the U.S.

puts us in a position where others are not. And I have -- listen, I have tremendous respect for the MSOS in the U.S. in what they've done. But the fact of the matter is they have not operated in the federal contract.

They've not operated in all of these different markets, and that is a different animal. And so, whether that's a partnership, whether that's a go it alone, whether that's the right things, I'm not going to stand here and presuppose what that is. But what I can say is, all the hard work that we're doing around the globe to be successful is portable. Can be plugged and played into the U.S.

and so there's no disconnect there. We don't have to take resources away from what we're doing to be more attractive to the U.S. We don't have to focus on that. So we continue to be in a good position of optionality.

And like I said, it's the Canadian LPs can have a significant set of resources that upon federal legalization of either side will be -- I would argue uniquely valuable.

John Zamparo -- CIBC -- Analyst

Ok. That's helpful. I'll pass it on. Thank you.

Miguel Martin -- Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Matt McGinley with Needham. Please, proceed with your question.

Matt McGinley -- Needham & Company -- Analyst

Thank you. Questions on the cash register. You started the second quarter with $103 million in cash and with the equity raise you did it with the cash balances that you had. I think on November 6, you had $50 million which implies you still I think had around $50 million in cash losses.

Are the 2Q cash losses still on the operating side and that the revenue isn't covering the costs or is this more related to working capital and capex.

Glen Ibbott -- Chief Financial Officer

Yes. Thanks for that. I think I mentioned in my remarks and gave just past over fairly quickly that we did have a couple of the larger annual costs in October. Including our insurance which is in excess of $10 million paid out in October.

And also our employee bonuses, which are in the same neighborhood. So we take those out of that cash burn in terms of turnout focus on operations is delivering right now.

Matt McGinley -- Needham & Company -- Analyst

Ok. Turning to your European facility. Now you noted the increase in production costs related to that the ramp of the Nordic 1 facility in Denmark. When would we expect to see that fully operational and, I guess when could that impact the Medical segment revenue and given gross margin rates are already pretty high in that segment.

Would that have a positive impact on gross margin rates or is it net initially because the U.S. gets more efficient larger Canadian operations would be offset by this smaller European operation at the gate?

Glen Ibbott -- Chief Financial Officer

So, it's operational now. I mean that's why you're seeing the ramp-up costs as they build inventory. They're simply waiting for all the licensing. All the licensing is in place and believe you'll see -- we expect to see sales from that facility in this quarter into Europe.

Into Germany, and other places. And simply just the import/export permit that is the typical process now and may take a week or two for those. So it helps. It's already though is built with a lot of similarities to our existing facilities in Canada built by the same -- we built that we retrofitted an existing facility there.

So it's a very efficient producer and operated while filming Matt Peterson who's a third-generation agricultural grower in the Netherlands and I believe is in Denmark is one of the largest tomato exporters in the area as well. So a lot of history there a great operator and so do that built in a similar method to the way we built Canada. So we expect it to be built with a high yield and a very efficient operator.

Miguel Martin -- Chief Executive Officer

I got to tell you that the other point I make there is that EU GMP is going to be an important designation for all the other markets as well. And so while it's more expensive in order there's value there. Plus also, navigating that again builds capabilities for us in other markets. Sorry, operator.

Operator

Our next question comes from the line of Owen Bennett with Jefferies. Please, proceed with your question.

Owen Bennett -- Jefferies -- Analyst

Morning, guys. Hope you're well.

Miguel Martin -- Chief Executive Officer

Good morning, Owen.

Owen Bennett -- Jefferies -- Analyst

Just one question for me on the dried flower. So sequential decline, driven by daily special. So arguably in line with a new strategy in putting less focus there. But the balance being flat would also suggest share loss continues in the over more premium brands which is not in line with the new strategy.

Ideally, we'd like to see this moving upwards. Can you maybe speak a bit more too soon? When would you expect to see share on the premium brands in flower start to pick up with the actions that you were taken? Thank you.

Miguel Martin -- Chief Executive Officer

Sure. Listen, I just got in to see. And so some of these things take a little bit longer. What I can tell you is that you're going to see a significant focus on our premium flower.

And then we have some tremendous brands as you know, Whistler saying wrap in Aurora. The Company had gone through a lot of transition. As you know in the first half of the year and there was quite a bit of interest in getting to that transition. And then to be honest that daily special lines that happened in February and March was so -- I think took everyone by surprise.

So there's a couple of things going on. First and foremost, it takes a bit to get those premium brands resettled. Secondly, we've had very substantive and good conversations with our trade partners about that. And third, we have to look at in some ways looking into better articulation on format and packaging and those things take a little bit longer than just flipping a switch and saying we care about San Raf, Whistler, and Aurora.

So, I don't want to give you timing. I think, listen, I'm impatient with all things. I think as you look at the headset and body data, we don't take away data. You'll see it.

What I can tell you is that you're not going to see competing priorities from us. You're not going to see us try to do both things exceedingly well. So I don't think we can. So our focus will be on the premium flower, and not on the deep commoditization that's happening on the low-cost flower.

And what has not been mentioned today is that you've got 1,300 stores which is an amazingly small amount of stores. And you can muscle 1,300 stores through marketing trade, marketing, and sales execution all of which I've got a long history with. And I can tell you that our focus of those resources will be on premium products and premium accretive margins such as vapor and pre-roll. So, I know that's not the exact answer from the timing standpoint you want, but you know better than anyone and have access to that data.

You'll see others do it and I'll be we'll be happy to answer it as we go along.

Owen Bennett -- Jefferies -- Analyst

Ok. Thanks very much. Very helpful.

Miguel Martin -- Chief Executive Officer

Thank you, Owen

Operator

We have reached the end of the Q&A session. Mr. Martin. I would now like to turn the floor back over to you for closing comments.

Miguel Martin -- Chief Executive Officer

Well, thank you. And I want to thank everybody for your questions. We really appreciate your interest in Aurora. While it's early days under my tenure, I'm very excited about where we're going, and I really appreciate that all of you took the time here today.

And lastly, and probably most importantly from all of us, we hope all of you are safe and healthy. And we look forward to seeing you soon in person in the future. All the best.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Miguel Martin -- Chief Executive Officer

Glen Ibbott -- Chief Financial Officer

Vivien Azer -- Cowen and Company -- Analyst

Pablo Zuanic -- Cantor Fitzgerald -- Analyst

Michael Laver -- Piper Sandler -- Analyst

Tamy Chen -- BMO Capital Markets -- Analyst

David Kideckel -- ATB Capital Markets -- Analyst

John Zamparo -- CIBC -- Analyst

Matt McGinley -- Needham & Company -- Analyst

Owen Bennett -- Jefferies -- Analyst

More ACB analysis

All earnings call transcripts