IM Cannabis Corp. Q2 FY2024 earnings call

• German market: Legalization in Germany had a tremendous impact. Q2 sales in Germany were 200% more than Q1 2024 before legalization. The company is focusing resources on the German market, with targets of having the right team and a consistent supply chain. Israeli team is building a supply channel from Israel to Germany.
• Israeli business: Focus on premium and ultra-premium markets, launched multiple strains under various brands. Cleaning of slow-moving non-premium stock, with inventory write-offs and accruals affecting cost of sales, gross margin, etc.
• Reverse merger: On May 28, 2024, the company terminated the preliminary return sheet with Kadimastem and will remain an active public company with current cannabis operations.

In Q2 2024, revenues were $14.8 million compared to $13.2 million in Q2 2023, an increase of 11.7%. The growth was driven by a 200% increase in German market sales from Q1 to Q2 2024. Specifically, in Germany, sales in March were C$307,000, April C$830,000, May C$1.120 million, June C$1.630 million, showing significant sequential growth. For the Israeli business, there was cleaning of slow-moving non-premium stock, with an inventory write-off of C$0.8 million and an additional accrual of approximately C$1.1 million for slow-moving inventory.

• Continue to focus resources on the German market to ensure accelerated growth, with targets of having the right team and a stable supply chain. - Allocate resources to support German business for further growth. - Focus Israeli business on premium and ultra-premium markets and cost management for sustainable profitability.

• Impact of inventory clearance and accrual for slow-moving stock on financial performance. - Market changes such as potential price compression in the German market. - Supply chain risks in ensuring sufficient supply for the German market.

Q: Scott Fortune from ROTH asked about additional sourcing of supply for the German market, new pharmacies coming on board, and supply bottlenecks.

A: Oren Shuster responded that they have their own supply sources, increased orders to Germany, will get more supply from current suppliers, start selling product from Israel in Germany, have exclusive agreements for BLKMKT in German and Swiss markets, and are working on adding more supply.

Q: Aaron Grey from Alliance asked about key to success in Germany and gross margin.

A: Oren Shuster said they are well established in the German market, had number one selling SKU in 2023, well positioned as number six distributor, focused on supply. Uri Birenberg added that gross margin was affected by inventory clearance and accrual, but upcoming quarters' gross margin is expected to improve as they monitor inventory closely.

Q: Scott Fortune followed up on German market gross margins.

A: Oren Shuster said German market had about 40% gross margin currently, early stage in market so price compression possible but preparing for it, and German market currently has good gross margins.