Khiron Life Sciences Corp. (OTCQX:KHRNF) Q4 2021 Earnings Conference Call May 2, 2022 10:00 AM ET
Company Participants
Alvaro Torres – Chief Executive Officer
Franziska Katterbach – President-Europe
Conference Call Participants
Aaron Grey – Alliance Global Partners
Fred Gomes – ATB Capital
Venkata Velagapudi – Research Capital
Operator
Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Khiron Life Sciences’ Year End and Fourth Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]
Before we begin, please note the following caution respecting forward-looking statements, which is made on behalf of Khiron Life Sciences and all of its representatives on this call. The statements made on this call will contain forward-looking information that involves risks and uncertainties including those introduced by the COVID pandemic. Actual results could differ materially from a conclusion, forecast or projection in the forward-looking information.
Certain material factors or assumptions were applied in drawing a conclusion, or making a forecast or projection as reflected in the forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusions, forecasts or projections in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information are contained in the Khiron Life Sciences filing with the Canadian and Provincial Securities regulators, which are available on the SEDAR website at sedar.com. To provide a brief agenda, we’ll start with a discussion of the quarter financial results. After that, we’ll dive into key catalysts in each market that will drive growth. We’ll wrap the call up with a question-and-answer session.
I would now like to turn the conference over to Mr. Alvaro Torres, Khiron’s CEO. You may begin your conference, sir.
Unidentified Company Representative
Operator, can you please see that Mr. Torres is on the line. Operator, can you please see that…
Operator
Ladies and gentlemen, please stand by. We are having some technical difficulties. We appreciate your patience and apologize for the inconvenience. Ladies and gentlemen, I do apologize for the inconvenience. Thank you for your patience. Mr. Torres has joined us. I will now turn the call over to him for his presentation. Please go ahead sir.
Alvaro Torres
Thank you so much. Apologies for the technical malfunction. My name is Alvaro Torres and thank you everybody for joining us today in this call as we will be discussing our financial results for 2021. I think the overall takeaway for us is that the 2021 results start to continue to show how unique, how strong our patient-focused strategy is in Latin America and Europe. We are a real growth company. We are growing in every market that we are selling. We have a very unique way of capturing and retaining patients in Latin America and Europe. We’re enjoying very high gross margins that are going to take this company as one of the leaders in the international markets of Latin America and Europe.
I think this year we broke significant revenue on gross profit milestones. Overall, we exceeded more than almost CD$30 million, including CD$4.6 million in cannabis revenues, which represents a 1200% interest year-over-year with a 79% quarterly growth rate in the last five quarters with very high and sustainable growth margins of over 73% for the year with a very strong presence in Europe, which now accounts for more than 30% of our medical cannabis sales, which is very impressive for us, particularly since we started in Europe a very short while ago, while we continue to maintain a very clear leadership position in Latin America, particularly here in Columbia.
I think we are all very proud of the team who has accomplished all of these milestones under very difficult circumstances. And we are certainly now placing Khiron at the top of this nascent industry in Latin American and Europe. As we are talking now in the beginning of May, we are already seeing at beginning of this 2022 a very strong growth. We are forecasting revenues for the first quarter of almost $4.5 million in Q1, which takes us to a very positive optimism about how much we can more achieve in 2022 and how we can exceed the result that we have in 2021, particularly since in the March of this year, we’ve already exceeded the $1 million in sales of medical cannabis worldwide.
So we are now in a position where the company is generating real growth, where our patients are growing, where our doctors are prescribing a lot more, where we’re taking all of these real-world evidence this taking us some time to build, to be able to educate doctors across the world and being able to position a very high quality product and create a real brand, which is all about creating a sustainable relationship with patients and doctors being able to produce something at very high quality with very good gross margins. We’re just really getting started in every country that we’re targeting.
So with this is I will ask Swapan, our CFO, to provide more details on 2021 year end financials. And then we’ll ask Franziska, our President of Khiron Europe, to talk about Europe and then myself on Latin America. And then we’ll provide a little bit more color on what we are looking at for 2022.
So with that, thank you. Swapan, please.
Franziska Katterbach
Swapan?
Alvaro Torres
I think Swapan may be having technical difficulties with the call. So I will proceed and then wait for him to come back.
So revenue and gross profit overall in 2021, the overall revenues increased by 60% from $8 million to $12.8 million, driven by medical cannabis products, which accounted for 36% of the corporations over the revenues compared to $4.6 million in 2020. In the last quarter of 2021 medical cannabis revenues represented over 55% of the company’s overall revenues for Q4 2021.
And as the company continues to increase patient demand, patient acquisition, patient comprehension, retention, medical cannabis trials will continue to represent the majority of Khiron’s revenue stream. The entire company’s medical cannabis sales in 2021 increased to $4.6 million, representing almost 36% of the total revenue of the company.
The gross profit increased over 230% year-over-year to $4.9 million. This is driven by the continuous growth of the highly profitable medical cannabis segment. And the gross margins before fair value adjustments of 73% on its medical cannabis revenue stream in 2021 compared to 49% for the previous year of 2020. The company continues to prudently manage expenses, with 2021 general and administrative expenses declining over 15% year-over-year.
And I think when we’re looking at the revenue growth and how medical cannabis strategy is becoming such an important part of our business and our topline what we are seeing already in 2022 and beyond is how medical cannabis revenues will exceed our health services revenues.
In medical cannabis, in 2021, the company’s medical cannabis revenues increased by more than 1,200% from $370,000 in 2020 to $4.6 million, with gross profitability of 73%. Just in Q4, 2021, the company sold over $2 million in medical cannabis, representing 43% of the entire years medical cannabis product sales, mostly driven by Colombia and by Europe, Germany and the UK. This is of course attributable to the continuous growth in patient demand for the company’s products in Europe and Columbia as evidence by growth in patient acquisition, patient conversion and patient retention.
In 2021, the entire year, the company generated values of almost $1.5 million in Europe, particular Germany, and the UK, representing more than 30% of the company’s medical cannabis drugs compared to $40,000 in 2020. And as we continue to grow in Q1 2022, our medical cannabis sales are representing now a bigger portion of our total medical cannabis sales. And we’re looking for Europe to become a very big driver for growth and revenues in the entire year 2022 and beyond.
When we look at our health services, which includes the revenues and cost from our ILANS and Zerenia health centers, the company continues to grow the number of annual consoles by 42% from 99,000 patient interactions to 140,000 patient interactions per year, driven mostly by the growth in our Columbia operations, which represent the majority of the revenues of health services. In 2021, the company’s record the revenues of $8.1 million at 9% from 2020. And furthermore, the company increased the gross margins of its health services division from 13.6% in 2020 to 20.5% in 2021.
For expenses for the year ended December 31, 2021, total general and administrative expenses decreased by $4.1 million, compared to 2020 as a result of the decrease in personnel cost, a lower share based payments being partly offset by higher expenses in earnings. Corporate governance increased by $1.6 million in 2021, due to higher insurance costs.
However, for the year 2022, the company has been able to make a significant reduction on that insurance cost from an approximate amount of $2.2 million that we paid in 2021 to almost $350,000 that we will pay in 2022. And this is a profitable to the growth in revenues, the less perception of risk on the recognition of revenues from insurance companies and the position where the companies right now compared to what it was in 2021, as well as the belief of the insurance market about our business model and our ability to collect more revenues.
In terms of EBITDA and net loss, adjusted EBITDA loss decreased to $17.4 million in 2021 versus a loss of $18.8 million in 2020, primarily due to an increase – overall increase in revenues. The corporation’s comprehensive loss increased to $29.1 million in 2021, compared to $25.3 million in 2020. The increased loss that we experienced in 2021 is due to $50 million of impairments and a $3 million decrease in the gain of fair value biological assets, a partially offset by a $2.3 million gain in the non-cash fair value of the operational outstanding warrants and having $2.5 million less in the appreciation of signing bonuses compared to 2020.
When we look at the permit, laws that the company took in 2021, this is due to the suspension and of the cultivation license that the company had in Uruguay. We believe as a company that now that we’re exporting products to Brazil from Colombia and our overall, believe that we are not in the cultivation business necessarily we have decided to take this asset off our balance sheet, take the appropriate rider for Goodwill, no cash impairments, and be able to have a balance sheet that really reflects the business of the company and the business that we want to be in, which is medical cannabis sales from a business perspective in Latin America and Europe.
The same decision was made this year to stop selling our Kuida wellness line in Columbia and across the world. And we have taken the appropriate inventory write-offs to further reflect that the company is fully focused on its high growth, high profitability medical cannabis business and be able to focus our efforts and our expenses in the markets that where we are becoming leaders and where the company is certainly seeing a lot of growth and results. So with this in mind, then I will provide some operational highlights and catalysts.
And with that, I will ask Franzi, our President in Europe to give you some light on what’s happening in Europe and what we’re looking to do. So as I said before the result that we have continued to showcase, the unique position that we are building as in the medical cannabis market in Latin America and in Europe, currently our company generating sales in medical cannabis in Columbia, in Peru, in Brazil, UK, and Germany.
And we have very high expectations to enter the Mexican market very soon.
We began sales of medical cannabis in March 2020 at the beginning of the pandemic and even though the pandemic has not ended, our company has shown that we can grow in a very difficult circumstance. Not only that we can grow, but that we can generate sustainable profits and that we can build a brand, which is now one of the leading brands in Latin America and in the UK. For as everybody probably understands in this code, but our revenue stream is comprised of two businesses.
One is our health services business in which we focus on offering integrated medical services to patients with chronic pain, mental health, sleep disorders and neurological conditions. These business allows us to generate and need to real world evidence to convince doctors to prescribe medical cannabis allows us to convince insurance companies of the pharmacoeconomic benefits of cannabis and to increase conversional retention rates for patients.
Our second business is medical cannabis business, where we focus on educating doctors using our appropriate diary real world evidence produce and source high quality medical cannabis products that patients need and create brand loyalty across our markets. For the past three years, we have stated that our health services businesses have funneled.
This funnel allows us to capture demand, increase patient retention, and general real world evidence have translated to great sales of a high property medical cannabis products. In 2020, medical cannabis revenues represented only 4.6% of our total revenues of $8 million and 12% of our total gross profits of $1.5 million. In 2021, medical cannabis revenues represented 36% of our total revenues of almost $30 million and 68% of our total gross profits of $4.9 million.
In the last quarter, our medical cannabis revenues exceeded revenues from our health services business and represented almost 55% the entire quarterly revenues. All these trends give us a lot of optimism, because we have a very unique model and we are certainly showing that our business concept works and we’re just really in the very early stages of our growth.
In looking at Q1 of 2022, I said before, our company has already exceeded the $1 million revenue milestone in March, and we believe that we just really getting started in our target markets. We are focused on improving the quality of patients to apply use of medical cannabis, and we will keep growing quarter-after-quarter. I think our expectations for Europe and the way that we have been growing in the market like the UK has been tremendous and fantastic because of our ability to educate doctors and source a very high quality product.
In 2022, we expect our largest markets to be Colombia, Germany and the UK. And we expect that our medical cannabis revenues will surpass our health revenues overall. We did already expect the results of almost CAD4.5 million for Q1 of 2022. I deliver well on our rate to surpass the last year’s top line and certainly the bottom line results.
In Colombia, our main sources of revenue are health services and medical cannabis. In 2022 and 2020, the government of Colombia mandated that all insurance companies must cover medical cannabis to all patients. This is a tremendous milestone because it makes Colombia and Germany, some of the few markets in the world where medical cannabis has got to be covered by insurance company. And this milestone has brought on great growth opportunities for the company and some of the – which we already started to see in Q1 and before.
In 2021, we increased our total interactions from 99,000 to 140,000, 40,000 patient interactions. In the last few months, the company opened two new health centers that are located in high traffic shopping centers in Bogota. We have already began to show the great impact in our total patient interactions. Just in – in the first quarter of 2022, the total interactions in the clinic were already at 41,000, which gives us great optimism about lowering our patient base. The more patients that come to our clinic, the more cannabis we’re prescribing, the more patients we’re having, and the more profitability we made.
In 2021, our clinical revenues 2.9% and our top and bottom line, the health services segment depend on our ability to be able to bring a lot more patients. Insurance coverage has had a tremendous impact on our medical cannabis business. In 2021, we sold more than 52,000 oil based cannabis units, which is up from 5,600 in 2010 and over 68% of those were covered by insurance. But today, over 80% of all the units sold are sold to insurance coverage.
This insurance coverage has had at tremendous positive impact in our growth because it helps to increase patient retention. In 2021, 60% of all patients with medical cannabis were returning patients. And in the last month, three out of four patients that come to our clinic are all returning patients, which is the key towards building a sustainable growth towards building a brand and the more we keep having repeat customers, because they see the value of the Khiron products, the more revenue, the more profitability and the less expensive we will be for us to be able to grow to the numbers that we want.
Overall in Colombia, Khiron has the top selling brand. In medical cannabis, we provide our patients with great service. We have a very high basic conversion of patients with mention metrics, we’re just really getting started considering there’s almost 6 million people in Colombia that probably need with the conditions that can be applicable to medical cannabis.
We’re selling a very high profit margin product, and we’re improving the quality of life of people, of many patients by generating tremendous amount of data, which now we’re taking to other countries and other regions, as we are seeing in Europe, which Franzi will talk about, what we’re taking all these learnings, all of these data and be able to complete doctors that medical cannabis is not a thought that this is not a trend, that is a real medication. And with the right data, with the right product mix, this is going to be one of the biggest disruptors in the healthcare industry in the next 15 years.
Now with this growth that this focus, we also have to make decisions of what the company should put it resources. As I mentioned before, we decide discontinuing sales of our Kuida portfolio, which is our CBD based cosmetics product line and it’s the first part that Khiron ever launch.
I will tell you that prior to the pandemic, our Kuida line was growing double digits quarter-to-quarter, but with pandemic and the difficulties we faced, it was very difficult for us to generate sales impact. And our sales channels that we would use the major marketing on sales activities. Starting last year, we see our medical cannabis business grow, we decided to continue to focus on this high growth, high gross margin business to achieve meaning that the company was founded. And we have discontinued sales in the short-term of our Kuida product line. We have taking all the appropriate inventory measures and even though we will keep that product and those brands to ourselves, the companies that being focus on medical cannabis.
In Peru, Peru accounted for almost 5% of our total medical cannabis sales, but the country offers tremendous opportunities for growth, because this is the first company where the company has been able to register a finished product called Alixen with CBD and very soon we will have our first THC branded product register as a final medication. And this provides tremendous opportunities for us to explore all your types of sales channels, making access to patients that a lot easier and providing us a lot of opportunities to export those type of products that are already registered in a country like Peru into our countries of Latin American and Europe.
We see the opportunity to build brands into our countries. And I think that these new products that we are now register will grow our revenue based substantially in Peru. In Brazil, we began sales of CBD based products made last year, we’re currently building our clinic in clinic in Rio de Janeiro and are working towards importing high THC products to the country, which will be a very significant milestone, a very big differentiator and a good revenue generation for our company.
We expect Brazil revenues to becomes significant in the second half this year and 2023 and beyond. When we look at Mexico, it’s always been a top priority for the company. We believe we have the right business model to become a leader in that market, just as we are the clear leaders in the Columbian market. For the past years, we have been working on several avenues and we have recently began to announce initiatives that we believe will make Khiron very well positioned this month.
First, we have been educating doctors and physicians and closing partnerships with large hospitals, so that we can build more willingness to prescribe, which is really the way that you have to build the demand this market. We have partnered with the Tec de Monterrey to educate doctors and we recently announced a partnership with Teleton, which is one of Mexico’s most renowned hospital networks with 24 clinic centers and rehabilitation centers all across the country.
And it’s going to create a powerful goodwill for the company, extremely unparallel. So basically announced the couple of weeks ago, we are working on the regulatory aspect of patients and commercialization and some of these processes are not in our control, but we have achieved significant steps toward being able to commercialize very soon. And we are expecting to begin sales in Mexico as soon as possible this year.
So with that in Latin America, Franzi, perhaps you can give an introduction of overdoing in Europe. Europe has been a tremendous market for us. It’s going to be at tremendous revenue generator and gross profitability market for the company 2020 and – 2023 and beyond. And I couldn’t – we couldn’t be proud of the work that the team has done there building a brand becoming one of the top leading brands in the region and in very early stages of growth. So perhaps if you could please talk little bit about Europe.
Franziska Katterbach
Yes. Thanks a lot, Alvaro. Hello [indiscernible] everyone from Europe. Yes, let’s talk about Europe now. Khiron has historically entered the European medical cannabis market in 2019 with our conviction that leveraging the real world evidence generated by our clinics combined with the high quality and agile supply chain strategy will allow Khiron to make an impact on the European medical cannabis market, and also diversify our revenue base and provides more growth opportunities.
In 2021, I’m very proud that Europe represented a significant share of our medical cannabis business and in 2022 and beyond, this region will grow in importance. The success we’ve had experienced in Europe in such a short amount of time is due to our ability on the one hand leveraging, our unique understanding of medical cannabis coming from LATAM, but also our incredible evidence that we build in our clinics every day, combined with an amazing local team that we have in this region.
Due to the pandemic, 2021 was also a very challenging year for all of us and not only on a personal level during all the lockdowns. Nevertheless, we have established and strengthen our operational presence in both Germany and the UK, which are two of the largest markets in medical cannabis in Europe. Of course, from a European perspective, I’m very pleased that the European contribution to Khiron’s total medical cannabis sales finally exceeded more than 40% in Q4 2021.
What has emerged in Germany and the UK under really challenging conditions makes me proud and happy on the one hand. And on the other hand, reinforces our patient-oriented approach. Patients come first for us. Of course, this development would have not been possible without our experienced European team, which is constantly and rapidly growing. Besides our team and our patients, we also have a huge focus on our products that enjoy great popularity in the relevant patient forms in both Germany and UK.
For example, our THC-dominant Khiron 20/1 flower is today the most prescribed medical cannabis flower in the UK. And on the other hand, our Khiron 114 is still the most popular CBD-dominant cannabis flower on the German market. We are very thrilled to take advantage of this momentum and further develop the market, build out our market share and expand our medical portfolio with more flower varieties and extract.
So let’s now have a closer look at Germany. Germany with its progressive medical cannabis law that includes the possibility of reimbursement by statutory health insurance is undoubtedly the largest and most mature market for medical cannabis in Europe. Although, Germany is currently the largest market, the true potential for cannabis patients has not yet been reached. And that is good news because that means that there is still a huge untapped potential, which we as Khiron continue to untap. In particular with our CBD-dominant cannabis flower product Khiron 114, we have launched an important niche product in Germany in 2021, which enjoys great popularity amongst prescribers and patients. And with that, we were able to positively influence the discussion in the medical German public around the topic of medical cannabis.
In addition to the high quality of our products, we have a strong focus on constantly educating prescribers on our products and their indication specific application possibilities with our in-house sales force, a path that we continuously continue to push further in 2022, whereby we will also constantly extend our product portfolio to German cannabis patients and prescribers.
Let’s now move north to the UK. In the UK, Khiron has a comparatively long history with Khiron Europe. As we had our first market entry in 2019, our pioneering status in the UK has reached a peak in 2021 with the opening of Zerenia Clinics UK in November 2021. Our presence in the UK started back in 2019 when we became a founding member and also the exclusive Latin American supplier for Project 2021, which offers the subsidized pricing model for patients to become a patient access scheme in the UK market.
As in Germany, we have a very strong focus on doctor education and continue to build out our medical training for healthcare professionals with our fully accredited digital education platform Khiron Academy. As such, the opening of Zerenia Clinics UK was without a doubt a huge milestone in 2021 for Khiron in the UK. It was the milestone that changed Khiron European presence the most, as it brought a new facade to our pan-European team with the clinic. Today, our THC-dominant Khiron 20/1 is one of the most prescribed cannabis flower product in 2021 in the UK and our local team of experts is constantly growing. That’s it from Europe for now.
Alvaro Torres
Operator, we’ll now go to questions.
Question-and-Answer Session
Operator
Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Aaron Grey, Alliance Global Partners. Please go ahead. Mr. Grey, please proceed with your question.
Aaron Grey
Sorry. Yes. Hi. Yes, I was on mute, apologies. Hi. Thank you for the questions. First question for me, I just want to talk a little about the gross margin profile. So for fourth quarter it looks like gross margins were down a little bit in 4Q, but not to different what we’ve seen historically. The big difference seems to be in the medical cannabis product. So I just want to – I’m going to ask if you could provide maybe some more color in terms of where you see that margin profile kind of going forward. Obviously historically, first two quarters have been high 80s. So how you see the margin profile rebounding into 2022? I think would be really helpful, because obviously that would be key to kind of improving the EBITDA profile as well. Thank you.
Alvaro Torres
Hi, Aaron. Thank you. Good morning. So, what we did in Q4 of 2021 after looking at our auditors regarding our value recognition as principals and our COGS in Europe particularly, we updated the COGS of the entire year in Q4 2020 to 2021. So you’re seeing there of $1 million of gross profit for medical cannabis for the quarter, includes already the recognition of all the COGS throughout the year after we’ve discussed with our auditors, our revenue recognition strategies for 2021 and beyond.
To give you some color before the end of this year, we were recognizing our revenue as agents and not as principles, meaning that we were taking the net revenue from our European sales and after discussion with the auditors were now recognizing the growth revenue and recognized entire COGS of our products.
To give you some light of what that means if Q1 moving onwards and Latin America is having 85% gross profitability. And in Europe we are showing – we will be showing ongoing gross margins between 55% and 65% that will increase as we have different types of product mix and product sales and we are negotiating with our suppliers for better prices. It’s still very, very strong for us. It also shows that our top-line has increased as we did in the Q4 2021.
So to summarize, our overall revenue gross margins for the year with all the accounting for our principal and COGS that about 73% [ph], I think that is an appropriate message to take on the future as we’re not seeing any price decrease the price decrease in our top-line in Europe or the America.
Aaron Grey
Okay, thanks for that color. That’s really helpful. And then you talking about the – returning customer retention, let’s talk about, I think 2021, 60%, in your prepared remark talks about last month being 75%. So, really good retention rates. I just wanted to get some color in terms of, kind of the new, kind of patients also coming on board. So retention appears to be very strong, want to get some color on the new patients, especially just looking at the number of patient interactions. It looks like it was down a little bit sequentially for 4Q and obviously that can kind of be a leading indicator. I would believe for kind of new patients for cannabis as they come into health service for other ailments. So just any kind of color in terms of new patients for medical cannabis products that are coming both for the first quarter going forward? Thanks.
Alvaro Torres
So when we look at patient interactions, Aaron, we always have to look at the cyclical, right. Because the end of the year is usually particularly in December a month that most patients are either on holiday or not a taking their console. So every December or every Q4, it’s always going to be at [indiscernible] slight and lower than Q1 the next year, because of these particularities of holidays and vacations and things like that. So, but in Q1 of 2022, we already grew to 40,000 patient interactions, which is almost 25% more than Q1 of 2021. So the way that we’ve been able now to increase new patients, which in the month of April, March, were about almost 1,600 new patients per month that is happening because of our ability to grow and expand the clinic services because you’re talking to insurance companies to be able to get them to send us a lot more patients, particularly after the government mandated insurance coverage.
And so we always measuring what is the percentage of growth of new patients every month? We’re also measuring how many of those patients are returning and how often. So the expansion of the clinics is already providing us the great color for 2022. I mean, when we looked at last year was about 140,000 patient interactions. This first quarter alone is already 40,000. So we’re already seeing at tremendous optic on that because of the new clinics. And I think the challenge and the opportunity for us is that as we keep talking to more insurance companies and we keep expanding those services to be able to be closer to the patients, more and more patients are looking to enter the medical cannabis and become medical cannabis patients.
Retention plays a big role because it’s much cheaper for us to maintain an existing customer than trying to acquire a new one. But I think the cost of acquisition is also reducing because we’re able to get more insurance companies to come to our table. So, patient interacts need to increase so that we can have a little more patients coming in. I think Q2 and Q3 are going to start showing tremendous more increasing new patients because more insurance companies are entering these new medical cannabis portfolio. And these are just starting the year, I think will be all very positive for us. And certainly we’re already seeing a tremendous growth exceeding by far what we did last year in Columbia alone.
Aaron Grey
All right, great. Thanks for the color, and glad to see momentum continuing in the first quarter. I’ll jump back in the queue.
Alvaro Torres
Thank you, Aaron.
Operator
Your next question comes from Fred Gomes of ATB Capital. Please go ahead, sir.
Fred Gomes
Yep. Thanks. Good morning. Thanks for taking my questions. Just in your cost structure, I guess your adjusted EBITDA loss this quarter was over $5 million, when you look at your cost structure right now, you expect your operating expenses to decline this year, and what measures are you taking to achieve that? Thank you.
Alvaro Torres
Hi, Fred. Good morning. So one of the big items of expenses last year, and I think that was probably due today overall for upness of the market was the D&O insurance for which we paid almost $2.2 million in 2021 that had a huge impact on our finances and cash use. We were able to negotiate a much, much better terms with our insurance companies, particularly in that D&O insurance, which is going to be reduced by almost 80% from that. The second thing that we’ve been doing is we focus on medical cannabis we’ve already also stopped the sales and marketing efforts to Kuida product line. And I think it’s just a recognition of how strong our companies in medical cannabis and how we should continue to focus on that and not spend our resources in areas like CPG and cosmetics, which take a longer time to build a brand. Since we already started that two years ago, we know how difficult it is. And I think right now our focus is going to be on medical cannabis.
The rest is all also, on reducing our expenses, making sure that we are putting our resources, what they have to be. It’s all about, Colombia, all about making our Colombian operations less profitable. It’s about getting Europe and Germany and UK into a gross profitability that offsets all those expenses. We are well on our way there. I think that the last two months the company has been making all of these efforts trying to clean up our balance sheet also to make sure that we are reflecting the business that we want to be in. And today they – I mean, our focus is all about improving our cash collection from insurance companies from our distributors, so that we can get to that EBITDA neutrality by the end of the year.
Fred Gomes
Okay. Thanks, Alvaro. So, and then my next question is on Europe. Just curious, you expect growth to come more from the UK or Germany this year. And then do you have any updated data in terms of your market share in both of those markets? Thank you.
Alvaro Torres
Yes, I think may Franziska, you could take on that question. I think the UK, certainly a market has been growing the last four months and Q1 revenues were mostly driven by the UK. We have several strategies, but maybe perhaps you can put some color more into what you – what we think about Europe this year?
Franziska Katterbach
Yes, certainly. So it’s absolutely right what Alvaro was saying. When Germany was the largest portion of our revenue in 2021, we could already see a trend starting in Q4 2021, and it continued to happen in Q1 2022 that the UK is picking up. And we do see more of a 50:50 split in Q4 and since Q1 2022 even more so. So what we really see is that the UK is picking up significantly, which is very good. We are no [ph] longer active in this market. So we see that our education and the penetration is now starting to happen. So in UK, we could release there, say that we have the market dominant position with our high THC flower due to the fact that we have constantly the product on the market and the same quality.
In Germany, we started with a quite good market share and what we do see in Q1 that the reimbursement of our products is picking up, which is a very good indicator that our sales activities from our in-house salesforce is having an effect because if we see the doctors and could convince them about the product, he will prescribe it and it will be covered by the health insurance. And this is a trend we could very well see picking up in Q1 2022. So I think it’s still open, but a revenue split of 50:50 between Germany and UK is very likely.
Fred Gomes
Okay, thank you. And then maybe a last question just when you look through 2022 and your capital position right now, and your maybe potential cash uses, opening a new clinics, et cetera, can you give some color on how are you looking at that? And what’s your strategy to continue to grow and at the same time manage your capital position? Thank you.
Alvaro Torres
I think that what the company has built so far in terms of the clinic presence in Colombia, the team that we’re building and we all those cut CapEx expenditures that were affected in Q4 and Q1 that puts in a position to be able to grow to the number that we’re thinking for this year. And we already saw $1.1 million in March. So when we’re really looking for more CapEx investments as we already build out the infrastructure that we needed.
The company right now it’s focused on generating faster cash inflows into our – it’s called a bank account. That’s we’re selling a lot of cannabis we sold in Colombia, we’re selling in Germany, we’re selling in UK, and we get – we look for ways to be able to bring those cash in much faster. I mean, you just be most of them aren’t there [ph] March of April, where we’re selling almost 10,000 units a month [indiscernible] 90 days to be able to collect those after we’ve been able to reconcile with insurance companies, sometimes that process makes us try to figure out how ways to look for working capitals. We can fund our operations, knowing that we have such a secure innovation in the future.
I mean our company so we’ll be very clearly established. We owe almost only $1 million of the stock our clinic that we got two years ago. I think we have good opportunities to be able to look for those types of alternatives for working capital. We are actively working on that. And I think the more we’re talking to those type of institutions and they see the growth and the high growth profitability of our margins. It starts to become clear that what this company is looking for is to be able to fund that working capital growth.
On the other hand, I think that the more we keep selling in the UK, the more we keep selling in Europe, that’s also going to diversify our revenue base. This is not anymore a Colombian company. This is a global company with revenues from many different sources with different types of risk profiles. And that’s the conversation we’re trying to have institutions to see how we can fund the working capital needs of the company.
In terms of the CapEx, we are finishing our two clinics. We just finished them and having a lot of places coming to this clinics, but I see the outstanding item in terms of construction of our real asset. We’re taking some time to build that out as there’s big holidays and things like that and we are waiting to be able to get to be able to get out to issue products. We can start matching the revenue contributions, investing with expense that we pay. So in short, I think right now the company is in a position where it can show real growth and real success and real profit profitability and that’s a team where we’re looking at, how do we expedite our revenue, our cash flows into the company while we’re minimizing our expenses.
So our plan to be able to get to EBITDA neutrality by November is well understood, and I think right now we have to focus on finding those working capital needs to be able to fuel the growth. But the infrastructure that the company has today, that we have built for the last few years, it’s going to take us to that growth levels of revenues that we’re waiting for this year.
Fred Gomes
Okay. Thank you. Thank you, Alvaro. I’ll hop back in queue.
Operator
Your next question comes from Venkata Velagapudi of Research Capital. Please go ahead.
Venkata Velagapudi
Thanks Alvaro and Franziska for taking my questions. I have two questions on your European division. While making remarks on European segment you said that the true potential for cannabis hasn’t been reached yet. So do you have any visibility over when that potential will occur?
Franziska Katterbach
Well…
Alvaro Torres
Can you take that…
Franziska Katterbach
Yes. While I would like to know that I think what has been happening in this industry, this markets already potential will only be untapped if we as LPs are untapping it. So we have to focus on the doctor education and this takes a certain amount of time, and obviously also some spending, but if you don’t do it we don’t grow the market. So we see it every month. So if you look at the patient data and the product that’s been dispense in the pharmacy, there is a constant steady growth, it just takes time, and you have to build the relationship with the prescriber. And this is where we at Khiron focus on. We need to “own the doctors” while educating them with our data set and this is – this is key. And once you have that, I think you build a very loyal prescriber base.
The reality is a product that’s not self selling and I think this is now coming to all the players in the market. We all have to build this industry and this only comes with education of doctors, patients, and pharmacists. So the growth is there. It’s continuously be there and yes, I think the potential is huge. If you look at the numbers, we’re roughly around 100,000 patients in Germany right now where we should be in the millions or it could be in the million, if we just look at the numbers and the ratio we see in Canada.
Venkata Velagapudi
Yes, makes sense. That’s great. And one more question is, so right now in the short-term you mentioned that Germany and UK will drive the growth in Europe. So do you have any visibility over potential regulatory amendments in other countries that may impact Khiron positively?
Franziska Katterbach
So we already have some further open markets, which we haven’t pay close attention to, like Poland or Czech. We also have an eye on France as you might know France just launched a trial to see over that next couple of years to give out cannabis. So we would – we have a close eye on the markets. Italy could also be very interesting, but we at Khiron, we only enter these markets when there’s already a potential and when it makes sense from the revenue stream side. So right now in France there’s pilot program, where you have to SOP dispense cannabis for free. This is certainly not a model where we look at, but we want to see how this market develops, and this could be an interesting market but also, and I think this would be – this should be our home market as well, it’s same.
I mean, we’re a company from Latin America. We have all our education, we already have the presence in Spain, and we do see that regulators are looking into legalizing the medical cannabis dispensation, because what is kind of weird situation in Spain right now they allow the production of medical cannabis, but they don’t allow the dispensation. It’s quite reverse model than all the other markets in Europe. So very interesting market, it could be catalyst. We are paying with our regulatory team and our network close attention to these markets as well.
Venkata Velagapudi
Okay. That’s great. So final question from me, do you have any guidance on achieving positive adjusted EBITDA?
Alvaro Torres
Hi, Venkata.
Franziska Katterbach
Where do you – you want to take that.
Alvaro Torres
Yes. So we’re looking at an idea this year that will get us anywhere from $22 million to $28 million of revenues, mostly driven by medical cannabis sales in Colombian, in German, in the UK as a plan that we are having even with the COVID pandemic we’re looking at the EBITDA neutrality by November of this year with the markets that we’re in not including Mexico. Of course, if we started sooner we beginning those markets. The higher revenues will be able to do, but our base plan is to continue to grow in Colombia, German, UK, Peru and Brazil second half the year. Mexico will be something that will add certainly to our top line. And we are looking at that plan by November, for us to be able to do that we need to keep increasing our revenue base.
We need to keep increasing our patient focus, patient retention, our UK sales, our introduction of U.S., UK and in Europe, which we are well on our way to do. And, Columbia continues on the track towards being able to acquire more tensions and offer more insurance coverage to patients. But we have our proven business model. I mean, we already brought the $1.1 million mark in March. We’ve been growing quite significantly order a month and month, so we’re comfortable with those numbers and, we believe that we can make that as we’re making all our G&A reductions as well.
Venkata Velagapudi
Okay, that’s good. Thanks.
Franziska Katterbach
Maybe one addition to I would felt – answered your question on the growth potential and other markets. Maybe let’s not ignore the elephant in the room if Germany really goes recreational, which the coalition decided to do. We don’t know when it will happen, but they said. They’re going to legalize cannabis in Germany for recreational. This could be a huge, huge growth potential for us because we already have the supply chain to the market. We know what patients want; we know how to bring the product on the market. So this could be a huge potential for us as well. And build the second vertical while we keep the medical side, but add on the recreational side.
Venkata Velagapudi
Okay. Thanks for the color.
Alvaro Torres
Thank you, Venkata.
Operator
[Operator Instructions].
Alvaro Torres
Okay. So thank you so much for everybody your questions. I will disclose out with a few closing remarks. And so overall I would say this company was founded over three years ago. And four years ago, with the objective of improving quality of life of people. We focus from the beginning on how to build demand, create access, and create a very big unique mode, 2001 results. And the first quarter of this year show that we’re growing in every category. We’re growing in patient retention, patient acquisition, we’re growing ourselves in Germany. We’re growing in our growth profitability; we’re growing sales in Columbia or self growing sales in Peru. There’s no aspect of this company from an operational level that is not growing. And I think the uniqueness of our model, of our B2C model; we really try to obsess on how we get access for a safe drug.
The hands of patients now is translated into more than just one comes. We have overall from being a small Colombian company into being a truly international company where most of our revenues on medical cannabis in Q1 of this year are coming from Europe. And I think that diversification of revenue, the diversification of risk and the ability to collect data and create real world evidence is what’s going to make this company one of leaders in international markets. I think the obsession that we have in creating a sustainable business is starting to show we are a grow company that is really showing excellent results far above the peers, in any of our markets. And we are in markets that are just really getting started, where you could be relate them to what the United States was doing five years ago.
I think that first move advantage that we have as a B2C company, creating a real plan, creating real connections is showing in the way that we are growing our top line and our bottom line, which is going to get us to data neutrality by the end of this year, we believe that if we continue this path, if we continue and the discipline and focus of our business in the medical cannabis industry on patient acquisition, patient retention, and our ability to create a brand, which is really about creating a relations with a consumer and with the doctors we’re going to be one of the key players internationally in the next years.
As we progress through this year, we remain the medical category, the medical cannabis category leader in the town, one of the top medical branch in the UK, and one of the top selling CBD phenomenon cannabis flower in Germany. And we’ve done this in a very short time, in less than two years in the most difficult of circumstances. They say efforts on the team, give us a lot of confident in 2022 and deal with the will be a very positive year. And the more that we keep executing, the more we keep selling day after day, more than the day before we not build a company and we’re building a company, it’s going to be one of the key players in this market.
So with that, I appreciate everybody’s time today. Thank you to our team and thank you to everybody who asked the questions and have a great day and we’ll be looking forward to talking to you about the results of this year Q1 in the next couple of weeks. So thank you with that and have a great day.
Operator
Ladies and gentlemen, this does conclude your conference call for today. We would like to thank you for participating and ask you to please disconnect your lines.
