Clever Leaves Holdings Inc. (NASDAQ:CLVR) Q3 2022 Earnings Conference Call November 9, 2022 5:00 PM ET
Company Participants
Jackie Keshner – Investor Relations
Andrés Fajardo – Chief Executive Officer
Hank Hague – Chief Financial Officer
Conference Call Participants
Matthew Baker – Cantor Fitzgerald
Jackie Keshner
Good afternoon, everyone. And thank you for participating in today’s Conference Call to discuss Clever Leaves’ Financial Results for the Third Quarter ended September 30, 2022. Joining us today are Clever Leaves CEO, Andrés Fajardo; and the company’s CFO, Hank Hague.
Before I introduce Andrés, I remind you that during today’s call, including the question-and-answer session, statements that are not historical facts, including any projections or guidance, statements regarding future events or future financial performance or statements of intent or belief are forward-looking statements and are covered by the Safe Harbor disclaimers contained in today’s press release and the company’s public filings with the SEC.
Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. Specifically, please refer to the company’s Form 10-Q for the quarter ended September 30, 2022, which was filed prior to this call, as well as other filings made by Clever Leaves with the SEC from time-to-time. These filings identify factors that could cause results to differ materially from those forward-looking statements.
Please also note that during this call, management will be disclosing adjusted EBITDA, adjusted gross profit and adjusted gross margin. These are non-GAAP financial measures as defined by SEC Regulation G.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure and a statement disclosing the reasons why company management believes that adjusted EBITDA, adjusted gross profit and adjusted gross margin provides useful information to investors regarding the company’s financial conditions and results of operations are included in today’s press release that is posted on the company’s website.
With that, I will turn the call over to Andrés.
Andrés Fajardo
Thank you, Jackie, and good afternoon, everyone. During the third quarter, we worked diligently to continue progressing our growth strategy by improving the quality of our product and enhancing our commercial capabilities, while reducing operating costs across all our subsidiaries.
In our cannabinoid business, we generated 12% year-over-year revenue growth, as we adapted to evolving demand dynamics in our target markets and navigated quarter-to-quarter variability in our sales cycle. We also faced some one-time disruptions in our non-cannabinoid segment revenues due to retailer inventory reductions across a variety of channels.
We continue to reduce our cash burn and focus on aligning our cost structure more closely with our core operational priorities. As we progress further into the fourth quarter, we will continue working to improve our operational efficiency and to strengthen our foundation for growth.
To further contextualize our performance during the quarter, I’d like to first review the operating dynamics in our production geographies. In Portugal, we have seen product requirements evolve across several key flower markets around the world. These changes have affected our product market fit and we have been working diligently on realigning it.
For instance, our flower has been very successful in the Australian market, given its high THC profile, but size and therapy profile. However, following the results of our most recent flower product launch in Israel, we identified and are in the process of changing organoleptic characteristics of our flowers to better meet market demand.
Part of this promise of improvement, we had to delay several IQANNA shipments to Germany that we have planned to complete during the quarter. New shipments are already being processed and expected to be in the German market by year-end.
We also plan to optimize the number of cultivated strains and harvest cycles to ensure that we’re growing the most premium and commercially viable genetics to address greater selectivity in our markets. While these changes will lengthen the ramp time of our Portugal operations, we are already seeing progress improvements in our current crop and R&D cycles.
To further improve our Portuguese operations, we replaced leadership and completed an overall restructuring to ensure that we can operate with improved efficiency and expertise, bringing new talent with significant experience in cannabis flower cultivation.
While these changes resulted in softer output from our Portugal operation during the quarter and corresponding pressure on our cannabiniod segment revenues, we are convinced that with the operational improvement be implemented, our Portuguese operations are now optimally positioned for growth in 2023 and beyond through higher quality, more stable and lower cost products.
Finally, we have recently obtained EU GMP certification for our post-harvest facility in Portugal, which will further account our revenue regenerating capabilities in the country. For instance, we have recently expanded our customer service portfolio to include GMP processing services now that we have certification, providing a gateway for flower into the EU.
This will allow us to gain operating scale and will give us access to product from top growers around the world, which we intend to use as a complement to our self-grown portfolio. We will provide additional updates on these considerations and look forward to identifying additional value creation opportunities for our customers.
In Colombia, we continue to prepare for the commencement of dry flower exports while navigating the effects of quarter-to-quarter lumpiness in our extract sales cycle. As we progress our flower preparations, we are applying the learnings from our Portugal operations to establish an efficient foundation and a focus on premium products.
Many of our current customers have already visited cultivation facility and expressed strong interest in our Colombian flower capabilities due to our expensive capacity and cost competitiveness.
From a capacity perspective, we have the ability and scale to cultivate a significantly higher number of strains relative to both our competitors and our own existing Portugal operation, allowing us to explore, identify, select and grow premium genetics.
In conjunction with Columbia’s optimal environmental growing conditions, which meaningfully reduced our need for artificial lighting or extensive pest control, our scale and location offers a strong cost advantage as we prepare to address a greater portion of the global flower market. From where our flower preparations sit today, we believe we are currently on track to complete our first flower shipments from Colombia to Germany and Australia in the first quarter of 2023.
Within our existing extract business, several shipments that we plan to complete in Q3 were delayed to Q4 of this year or Q1 of 2023. These were primarily due to regulatory delays and hurdles in both Germany and Israel, the phasing of certain orders from Brazil and Australia and a cyberattack to the Colombian Health Agency, INVIMA suffered, which delayed export certificates. For Brazil, in particular, shipments of products approved under RBC327 ramped very swiftly in the first half of this year and we expect some of this pickup to resume in Q4.
As a fundamental part of our growth strategy, we transformed our commercial capabilities during Q3. We created a chief revenue officer function and I’m currently spearheading this position, which centralizes both commercial efforts and functions, including marketing and sales operations, looking to improve pipeline management, optimize relationship management with our current and potential customers, manage outreach strategies to increase our customer base and increase our speed and probability of conversions from lead to sales.
In line with these efforts, we created product expertise for both flower and extract that we integrated with the operation teams under our COO to be focused on producing the highest quality products for our core markets, as well as working with commercial teams in an extra role to increase our sales effectiveness.
Alongside these operational enhancements we have driven in Colombia and Portugal, we have continued to our work to improve our working capital and right-size our inventory levels to better reflect current market opportunities. We harvested 1,936 kilograms of dried flower during the quarter, compared to 17,304 in the year ago period, representing an 89% year-over-year reduction.
In Colombia, we have sustained our exclusive focus on THC flower product development and we are using our existing inventory to complete our extract shipments. We will continue incurring costs related to processing recurring inventory for extract sales in our existing partnerships and we will soon have some additional and potentially higher cost contributions related to the new harvest and post-harvest processes needed for our dry flower products.
As a result, we believe that these costs and our reduced agricultural output will continue to pressure our all-in cost per gram in the short-term. However, we believe that driving improvements in our inventory over time will allow us to operate with a more efficient long-term infrastructure.
In Portugal, as I mentioned earlier, we are further refining our production plan to ensure we’re cultivating only the most premium and commercially viable flower strains. This increased selectivity has caused us to adapt our previous approach to launching new strains and addressing our capacity utilization.
We are currently operating with reduced scale as we complete this additional work, but expect to build a stronger long-term operation strategy and benefit from additional economies of scale now that we’ve completed EU GMP licensing for our post-harvest facility. The reduction in scale implemented in Q3 and in early November will allow us to further reduce operating expenses in Portugal.
While our work to optimize both of our cannabinoid production geographies remain gradual, we believe that strengthening our operational framework will allow us to maximize the revenue generation potential of our harvest and position ourselves to capture additional market expansion opportunities around the globe.
Finally, in our nutraceutical business, we experienced some one-time order adjustments in Q3 across most of our channels as retailers reduced inventory levels. Our specialty distributors had ordered inventory more heavily in the first half of the year, which ended up reducing their volumes in Q3.
Nearly all of our channels had inventory reductions at the warehouse level. All these dynamics pressured our third quarter topline performance in our non-cannabinoid segment, we believe the bulk of the adjustments to our distributors ordering cadence in Q3 are complete as of the end of Q3.
Despite this one-time inventory adjustments, we have also been increasing our presence in major mass market retailers and pharmacy chains across the U.S. We have expanded our presence to over 30,000 stores and key major retail pharmacy chains have increased their portfolio with us, by increasing the number of our SKUs in store. We believe that the strength of our retailer and distributor relationships, coupled with innovative marketing strategies, we have recently implemented we saw strong revenue performance in the fourth quarter and 2023.
As we continue adapting to evolving market conditions across our business, we believe that our operational agility, the depth of our knowledge and partnerships across our core markets and our commitment to driving greater operational and cost efficiencies are strengthening our capabilities and our foundation for long-term growth.
On an organizational level, we have continued to support our team members and enhance the quality and efficiency of our operations, and with the strong restructuring progress we have made. As we close 2022 and enter 2023, we are moving forward as a leaner and more focused business with an unrelenting commitment to quality across our product portfolio.
Now I’d like to turn the call over to our CFO, Hank Hague, who will discuss our third quarter financial performance in greater detail. Hank?
Hank Hague
Thank you, Andrés. Our revenue in the third quarter of 2022 was $3.3 million, compared to $4 million in the year ago period. We experienced softness in our non-cannabinoid segment revenues as a result of inventory reductions across most of our channels, as well as the timing of inventory orders among our distributors.
However, as Andrés mentioned earlier, we believe the bulk of these disruptions were concentrated in Q3 and that we should return to a more normalized top line performance over the coming quarters as we work with our partners to mitigate broader economic pressures.
While our cannabinoid segment revenue grew 12% year-over-year, this was offset by variability in the timing of certain flower and extract shipments. As a reminder, the quarter-to-quarter lumpiness in our sales cycle is a factor of the many regulatory approvals and quality control checks involved in our production and export process, which can drive delays in shipment completion.
With that said, our ability to adhere closely to evolving regulatory standards and provide high quality pharmaceutical grade products in our target markets is central to the value we provide to our global customer base.
Our all-in cost per gram of dry flower equivalent in the third quarter of 2022 was $1.13 per gram, compared to $0.15 per gram in the year ago period. The year-over-year increase was driven by our significantly reduced harvest with our new harvest decreasing by approximately 89% year-over-year. While our harvest production costs remained low in Colombia as a result of our reduced harvest, we continue to incur costs related to processing our existing inventory for extract sales.
In Portugal, we incurred costs related to scaling our existing flower operations, which we have recently worked to reconfigure. So we expect our total all-in cost per gram to remain elevated through a combination of these dynamics, I’d like to emphasize that these are all near-term unit economic considerations.
In Colombia, we are working to right-size our harvest and prepare for smokable dry flower exports and we believe that our costs will moderate to more advantageous levels as we ramp dry flower production to meet customer demand. We also expect flower products to eventually comprise a greater share of our product portfolio and that our extract costs will remain at similar or lower levels than what we’ve driven historically.
In Portugal, we expect unit costs to improve over time as we process additional harvest, ramp cultivation of our premium flower on a smaller scale and bring our post-harvest facility fully online now that we’ve completed the EU GMP licensing process.
The operational enhancements and workforce reductions we’ve already implemented have generated some initial cost savings and we aim to drive additional efficiencies as we continue progressing these initiatives.
Our gross profit in the third quarter of 2022 was $0.3 million, which included a $1.7 million inventory provision compared to $1.9 million, which included a $0.7 million inventory provision in the year ago period.
Our adjusted gross profit, which excludes the inventory provision in the third quarter of 2022 was $2 million, compared to $2.6 million in the year ago period. This reflects an adjusted gross margin of 59.8%, compared to 65.1% in the year ago period. The year-over-year decreases were primarily driven by our softer revenue performance during the quarter, as well as by increased inventory provisions related to aged, obsolete or unusable inventory.
We also continue to mitigate headwinds from wage inflation, rising transportation costs and both labor and material availability in our nutraceutical business. These factors have continued to pressure our margin performance and we will continue monitoring these impacts on the broader status of the labor and supply chain conditions.
As a result of the headwinds we’ve discussed in our revenue performance, as well as adverse conditions in the broader cannabis market, we performed an interim impairment assessment on our indefinite intangible assets related to our Colombian licenses and recognized a total impairment charge of $19 million during the third quarter. This was partially offset by the write-off of approximately $6.7 million in corresponding deferred tax liability related to the indefinite live intangible assets.
Operating expenses in the third quarter of 2022 were $26.5 million, compared to $11.6 million in the year ago period. The increase was primarily driven by the intangible asset impairment charge of $19 million related to our Colombian cannabis licenses.
As we continue adapting to evolving conditions in our operating environment, we will keep advancing the cost reduction and restructuring work we’ve undertaken throughout the year, including the most recent reductions we’ve made to our workforce and operational scale in Portugal.
Starting with our restructuring near the end of the first quarter, we have steadily right-sized our personnel, new harvest output, production infrastructure and organizational priorities to align more closely with our current market opportunities. In Q2 and Q3 combined, these actions drove sequential reductions in our G&A, R&D and sales and marketing expenses of approximately $2.8 million.
Additionally, one other significant example of our cost reduction efforts was our recent decision to change our audit service provider. We implemented a competitive bid process with several qualified firms each submitting proposals for evaluation. As a result of this process, the company will realize a meaningful reduction in expense for the coming year.
Net loss in the third quarter of 2022 was $20.2 million, compared to net income of $1 million in the year ago period. Net loss in the current period was primarily driven by the $19 million impairment charge, partially offset by $6.7 million deferred tax liability write-offs related to the indefinite live intangible assets I just mentioned. Note that net income in the prior year includes a $9.1 million gain on re-measurement of warrant liability and a $3.4 million gain on debt extinguishment, as well as $0.5 million in interest and amortization of debt issuance costs.
Adjusted EBITDA in the third quarter of 2022 improved to negative $5.4 million, compared to negative $6 million in the year ago period. This is mainly due to cost reductions mentioned earlier, partially offset by higher inventory provision and sales and marketing expense. The cost improvements we have implemented throughout the first three quarters of 2022 have significantly contributed towards our reduced adjusted EBITDA loss. We have driven steady sequential improvements in this metric year-to-date from the first quarter of negative $6.7 million to the second quarter negative $6.3 million and to the third quarter of negative $5.4 million.
At September 30, 2022, our cash balance was $17.6 million, compared to $37.7 million at December 31, 2021. The decrease was primarily attributable to operating losses and our repayment of $22.9 million in debt obligations earlier in the year. This was partially offset by net proceeds of $26.3 million raised in our at-the-market stock offering year-to-date through the third quarter, as well as by $2.5 million proceeds related to the partial sale of equity investments. Through the remainder of 2022, we aim to further improve our liquidity position through reducing our expenses and investment in working capital.
Lastly, due to our softer than expected revenue performance across both business segments during the quarter, we have revised our full year 2022 revenue forecast. We now expect our 2022 revenue to range between $17 million and $17.7 million, compared to our previously disclosed range of $20 million to $25 million.
Based on our continued progress with reducing costs across our organization, we currently remain comfortable with our previously stated expectations for our full year adjusted gross margin, which we expect to range between 50% and 55%.
We have also near the range of our 2022 adjusted EBITDA, which is expected to range between negative $23 million to negative $22 million, as compared to our previous range of between negative $23 million to negative $21 million.
With our continued cash burn reductions, we now expect our 2022 capital expenditures to be approximately $1.5 million, compared to the previous range of approximately $2 million to $3 million.
We believe our ongoing focus on restructuring our costs, optimizing our cash efficiency and streamlining our organizational processes has placed us in a strong position to support our long-term growth and profitability objectives as we execute on our strategy into 2023.
This concludes my prepared remarks. And now I’ll turn the call back over to Andrés to review some of our market opportunities and most recent operational highlights in greater depth. Andrés?
Andrés Fajardo
Thank you, Hank. Before we open the call to questions, I’d like to briefly review the regulatory and commercial opportunities available in our target markets across the globe. During Q3, we continued expanding our pipeline and started executing on key orders that we expect to grow during Q4 and in 2023. In addition, we have focused on demand generation for our Colombian flower, which is expected to export in Q1 of 2023 and is expected to be a significant growth for the company next year.
To highlight some of our latest commercial achievements, we announced our expanded partnership with Cantourage, a European medical cannabis leader in which we will supply Cantourage with high THC dry flower product from our Wappa strain cultivated in Portugal. Cantourage will then utilize this product to produce IQANNA brand, which will have one of the highest each levels available in German pharmacies.
In addition to deepening our existing commercial partnerships, we have strengthened our German market presence through developing our relationships with seasoned pharmaceutical operators and distributors, supporting the rollout of our IQANNA product line and working to leverage Prerelease journeys on status as a licensed medical cannabis distributor.
With these various established pathways to the German market, we are advantageously positioned to continue deepening our presence, as well as benefit from incremental regulatory catalysts as they unfold over time.
In July, we also launched a Wappa strain with both InterCure in Israel and ANTG in Australia. This strain exemplifies the type of premium high THC genetics that have become the exclusive focus of our flower production.
We will work to continue supporting the global momentum for the strain across our core markets and we are using the learnings from these initial Wappa launches to further refine our approach as we roll out additional high quality, high THC strains.
These learnings will also inform the rollout of our Colombian dry flower product and we currently expect Germany and Australia to be among the first of our target markets to receive this product.
Colombian flower sales, which we expect to start ramping up in Q1 of 2023, present a very significant avenue of growth for cures in 2023 and beyond. From a product standpoint, we have been working for over a year on quality improvement and we have increased the number and type of generics.
We have also significantly improved key flower characteristics such as THC and terpene profile, bud size and density. Having already sold power around the world and based on feedback from our customers, we are confident our products will be well received in its destination markets. In addition, flower from Colombia has a very attractive cost position, which is hard for cultivators in different countries to match and will allow us to expand our market via affordability.
Finally, the sustainability aspect of Colombian product growing with very minimal artificial lightning and utilizing more than 70% rainwater is generating significant interest across our customer base. As a matter of fact, we have several of our customers already interested in the flower and are working with them to nail down agreements where supply will begin in 2023.
As part of our strategy of growing our genetic base and improving our product quality, we announced a new partnership with House of Kush, a leading legacy generics cannabis company based in the United States near the end of Q3.
In this three-year agreement, we will be the exclusive producer of various genetics for House of Kush outside of the United States and Canada, growing strains, such as Bubba Kush Pre-98 and San Fernando Valley OG Kush in our Colombia and Portugal facilities.
We will collaborate with House of Kush to develop the proper cultivation protocols leader for each of the generics, as well as complete an initial evaluation and adaptation phase at each production location. We look forward to expanding this U.S. partners’ global footprint and working to expand our broader market visibility in the U.S. where possible.
In South America, we have started shipments of our extract products into Brazil where our products can be held in pharmacies around the countries. We are already seeing a significant shift from the compassionate use them to RBC327. Sales forecast from our Brazilian partners allow us to feel very bullish on Brazilian growth during 2023.
In addition to Brazil, we recently reached a key product milestone with one of our Peruvian medical catalyst partners, Anden Naturals. Just last week, we announced that Anden Naturals had obtained a sanitary registration for Andenol 50, a 5% THC dominant oral solution produced by Clever Leaves in Colombia and sold under the Anden Naturals brands in Peru.
Andenol 50is the company’s first THC dominant product to obtain sanitary registration for commercialization as a finished product and is the first product to secure this registration in Peru altogether.
We view this achievement as a testament to our high quality cultivation and product development standards and we are attractive to the initial 1,000 unit shipment of Andenol 50 in the first quarter of 2023.
As we look to the year ahead, we are gradually and steadily activating our commercial pipeline in our core markets, while improving our position for additional growth opportunities. Beyond the target markets we’ve identified and activated in 2022, we are also underway with activating commercial opportunities in the United Kingdom.
Use of medical cannabis for prescriber registered specialist doctor has been legal in the U.K. since 2018, making this market a vial opportunity for our pharmaceutical grade products. We currently expect to export flower from Portugal to the U.K. in the first quarter of 2023 and we believe additional effort in our export from Colombia will follow over time.
In sum, with the improvements across our flower product in Portugal, the launch of our Colombian flower, the expected growth in our extract orders, our expanded pipeline and our enhanced commercial capabilities, we currently expect 2022 to be a year of significant growth for Clever Leaves.
From a regulatory standpoint, there are several tailwinds for the industry and particularly for us at Clever Leaves. As many of you have likely seen over the past few weeks, there has been increased regulatory progress towards recreational cannabis localization across several of our core markets. In Colombia, representative from Carlos Ardila have introduced cannabis legislation bill received approval in the country’s House of Representatives in last month and the bill will subsequently move forward for Senate Representative approval.
We have seen similar legislative progress out of Germany as German Health Minister, Karl Lauterbach, has recently presented a paper outlining plan legislation to regulate out-of-use cannabis, distribution and consumption.
In addition, the Australian groups are underway with drafting a bill to legalize and regulate out-of-use cannabis. Discussions of regulatory advancements have also resumed in the U.S. for President Biden issue an executive order pardoning individuals convicted of federal marijuana possession offenses and started an intent to review the scheduling categorization of marijuana.
Each of these markets are at different stages of regulatory progress. As we’ve seen with past cannabis market expansion opportunities, these incremental advancements are complex and gradual, requiring extensive debate, approval and careful establishment of legislative frameworks.
We will continue to monitor these regulatory developments and any others that arise across our target markets and we remain broadly supportive of growing cannabis acceptance across the globe and the corresponding market opportunities these offers.
With the international market pathways, we have activated and the increased efficiencies we are driving throughout our organization, we will continue working to strengthen our commercial presence and streamline our cost and capital structure to support our growth initiatives. We look forward to advancing our strategic process and further improving our positioning for long-term growth into 2023.
Operator, we’ll now open the call for Q&A.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Pablo Zuanic of Cantor Fitzgerald. Please go ahead.
Matthew Baker
Hi. This is Matthew Baker on for Pablo. Thank you for taking my questions. Can you give more specifics from your growth in Germany, specifically, what parts are growing and then what is driving that growth? And is the — and then as a second question, is the Israel market shutdown for now, and related to that, what are you leveraging — how are you leveraging the interferer expertise in your Portugal facility?
Andrés Fajardo
Sure. This is Andrés. Thank you for the question and thank you for joining the call. So, again, Germany and Israel both are part of our target markets, our more strategic markets we chose this year to focus on.
Germany, I’d say, what we have seen growing for us is basically our flower. We — during Q3 were able to sell even before some of our Portuguese produce flower. We did it quite successfully and we’re looking to continue doing so in Q4 and beyond. We have already started planning for additional strains in Portugal to be introduced at the beginning of 2023.
And as mentioned before during the call, we’re also preparing shipments for Colombian flower, which is looking very, very good from a THC perspective for organoleptics there as well, and certainly, of course, there’s a little story behind those strains. So we’re very bullish on that.
So certainly, flower is what’s attracting most of the attention that we’re seeing right now. We’ve sold through our own distributor, Clever Leaves Germany flower with our IQANNA brand from third parties that has also been successful. So I guess what we have been building in Germany is a capability to be able to sell product to pharmacies across the country and as well to build that relationship with prescribing physicians where that’s the case. That’s one.
And the second element to Germany for us and we have been continuing to work on this for the most part of this year has been the extract side of things. And for the extract side of things, we partnered with Ethypharm, which is a European pharmaceutical company.
We have been working with them. We started by selling some CBD dominant products. We’re now evolving to sell other balance and high THC products and that — it’s also working. It takes time. We have to develop the demand through positions, but it’s working and we’re positive on Germany in that regard.
Certainly, we’re well positioned. We have an asset there that has distribution, import and distribution capabilities. We have built the relationship with pharmacies. So we believe it will serve as our gateway for our own product and eventually as a gateway for product from other parties, which if I may, given that we now have the EU GMP certification in our Portuguese facility will allow us to bring our Colombian flower and other flower from others through our Portuguese facility and eventually to be sold in other parts of the EU. So I believe we’re well positioned there for the competitive dynamics.
On Israel, no, the market is not shutdown. We have continued to ship product to Israel. It is a complex and lengthy process. But I guess, if you have the right partners and work with them and work with the authorities, it’s doable. We’re a company that specializes in growing cannabis where it has to be grown and sending it to different parts of the world. So we have been able to adapt ourselves to the ever-changing requirements in the Israeli market and we still see a lot of potential there for our own products.
But having said that, part of — what we’re focusing on now in Israel is also looking for ways to help Israeli companies internationalize. I think that’s something that these companies have been working on and we have the platform to do that, both on production, from a distribution and from a client relationship standpoint.
So I would say, yes, we’re sending products. The market is not shut down. But beyond that, what we’re focusing on now is, how do we bring cannabis and genetics and all of what the cannabis industry has built in Israel to international markets.
Matthew Baker
Thank you for that. I appreciate the color. If I may, just one more follow-up question, what is the company’s backup plan in the case that German rec program does not allow imports in the first few years? Just any color that you could provide, that would be super helpful? Thank you.
Andrés Fajardo
Sure. In general, it’s very early, as you know, to know what’s going to happen. We have different strategies, I would say. Number one, of course, we have production. So I don’t think it’s a matter of if, but I wonder of when they’re going to allow imports, we will be ready for that.
But beyond that, what we have been doing is we have our import and distribution company within Germany. We have been positioning a brand at this point, where they are working with pharmacies and eventually working with other players in the market.
So most probably, if imports are not allowed, we’re going to start leveraging those capabilities downstream that we have also been building in Germany successfully to be a player within the recreation of cannabis. If no — it –or when it’s legalized, and of course, how it is legalized.
Matthew Baker
Thank you.
Andrés Fajardo
Thanks.
Hank Hague
Thank you.
Operator
[Operator Instructions] Our next question comes from Diana Tecar [ph] of Canaccord Genuity. Please go ahead.
Unidentified Analyst
Hey, guys. Thanks for taking my question. I just want to ask if you could give you more color on 2023 in terms of the split between cannabinoid business and non-cannabinoid business segment? And how should we — we would be thinking about the revenue ramp, given that you’re expecting to have first Columbian flower export in Q1 of 2023? Thanks.
Andrés Fajardo
Hi. Yeah. Sure. Okay. I mean, next year, what’s going to happen, Diana, and thanks for being the call and for the question. Next year, as you said, we’re seeing two or three things, I think, quite crucially in the cannabinoid business.
Number one, we’re seeing the Colombian flower enter the market in Q1 of next year. We’re very pretty confident on that and that’s going to have a significant impact on our calamine sales.
Second element, as we said is, we’re — yes, we are reducing the scale in Portugal, but we are focusing on premium products, so we believe growth there is also going to be — it’s going to be there.
Third, we are maturing some of the extract contracts that we’ve already started shipping in 2022, but those are going to mature in 2023, for instance, Brazil, which is a huge market. We started shipping with different clients and we’re very, very bullish on that. So we see very different avenues of growth for our cannabinoid business next year.
Having said that, we’re also bullish on what’s happening on the nutraceutical side, our store counts have been increasing, our portfolio penetration has been increasing across our channels. We have a branding strategy and portfolio strategies that we have seen are successful, which we believe are going to bring growth next year as well. I would say, in general, next year, maybe we’re going to be closer to 50% between both segments.
Unidentified Analyst
Okay. That’s clear. That’s it for me. Thank you.
Andrés Fajardo
Thanks, Diana.
Operator
At this time, this concludes the question-and-answer session. I would like to turn the conference back over to Mr. Fajardo for any closing remarks.
Andrés Fajardo
Thank you, Ariel. I’d like to thank everyone that attended the call today and we look forward to speaking with our investors and analysts when we report our fourth quarter and fiscal year results next March.
Operator
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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