TORONTO, May 28, 2021 (GLOBE NEWSWIRE) —
Auxly Cannabis Group Inc. (TSX – XLY) (OTCQX: CBWTF)
(”
Auxly
” or the ”
Company
“) today released its financial results for the three months ended March 31, 2021. These filings and additional information regarding Auxly are available for review on SEDAR at
www.sedar.com
.
Q1 2021 Highlights and Subsequent Events
- Recorded net revenues of $10M for the three months ended March 31, 2021, an increase of 1% from the same period in 2020.
-
Maintained leadership position in Cannabis 2.0 product sales with approximately 12.6% national market share
1
in the quarter. - SG&A declined another 5% from the previous quarter.
- Continued to launch new innovative products to the Canadian market with the introduction of the Company’s first cannabis concentrate, 232 Series Diamonds under its Kolab Project brand and an industry-leading, high-potency topical, Dosecann Daily Relief CBD cream.
- Welcomed Andrea Fraser to the Auxly Family as Chief People Officer.
- Further strengthened the Company’s balance sheet with a $8M private placement offering of units.
Q1 Highlights
| (000’s) |
March 31, 2021 |
March 31, 2020 |
Change |
Percentage Change |
||||
|
Total net revenues |
$ |
10,008 |
$ | 9,905 | $ | 103 | 1% | |
|
Net losses* |
$ |
(10,494 ) |
$ | (12,744) | $ | 2,250 | 18% | |
| Adjusted EBITDA** |
$ |
(6,872 ) |
$ | (8,335) | $ | 1,463 | 18% | |
| Weighted average shares outstanding |
714,041,130 |
625,242,335 | 88,798,795 | 14% | ||||
* Attributable to shareholders of the Company
** Adjusted EBITDA is a Non-IFRS financial measure. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A for definitions
| (000’s) |
March 31, 2021 |
December 31, 2020 |
Change |
Percentage Change |
||||
|
Cash and equivalents |
$ |
20,431 |
$ | 21,214 | $ | (783) | -4% | |
|
Total assets |
$ |
389,258 |
$ | 378,963 | $ | 10,295 | 3% | |
|
Debt |
$ |
117,911 |
$ | 114,825 | $ | 3,086 | 3% | |
Hugo Alves, CEO of Auxly, commented: “As felt throughout the industry, this first quarter of 2021 proved to be a challenging one for Auxly as we continued to combat industry headwinds and the impacts from the COVID-19 pandemic. However, while sales to our provincial customers were impacted, the performance of our products at a retail level remained exceptionally strong, we are very encouraged by the growth in our retail sales and continued market share achievements, which has reinforced our leadership position in the Canadian Cannabis 2.0 market. We intend to build on our success in the 2.0 category and introduce new product formats, including Cannabis 1.0 product formats, that expand our product offering and delight our consumers, as we remain committed in our vision of being a global leader in branded cannabis products and building long-term stakeholder value.”
Results of Operations
| (000’s) |
Three months Ended March 31, 2021 |
Three months Ended March 31, 2020 |
||
|
Revenues |
||||
| Revenue from sales of cannabis products |
$ |
12,152 |
$ | 10,467 |
| Research contracts and other |
842 |
901 | ||
|
Excise taxes |
(2,986) |
(1,463) | ||
|
Total Net Revenues |
10,008 |
9,905 | ||
|
Cost of Sales |
||||
| Costs of finished cannabis inventory sold |
6,848 |
5,091 | ||
| Research contracts and other |
850 |
548 | ||
| Inventory (gain) / impairment |
230 |
1,274 | ||
|
Gross profit excluding fair value items |
2,080 |
2,992 | ||
| Unrealized fair value gain / (loss) on biological transformation |
255 |
(51) | ||
| Realized fair value gain / (loss) on inventory |
1 |
(180) | ||
|
Gross Profit / (loss) |
2,336 |
2,761 | ||
|
Expenses |
||||
| Selling, general, and administrative expenses |
9,388 |
14,018 | ||
| Depreciation and amortization |
2,533 |
2,374 | ||
| Interest expense |
4,608 |
2,199 | ||
|
Total expenses |
16,529 |
18,591 | ||
|
Other incomes / (losses) |
||||
| Fair value gain / (loss) of financial instruments accounted under FVTPL |
116 |
(115) | ||
| Interest and other income |
416 |
61 | ||
| Gain / (loss) on settlement of assets and liabilities and other expenses |
4,069 |
1,834 | ||
| Share of gain / (loss) on investment in joint venture |
(459) |
(785) | ||
| Foreign exchange gain / (loss) |
(488) |
1,644 | ||
|
Total other incomes/(losses) |
3,654 |
2,639 | ||
|
Net Loss before income tax |
(10,539) |
(13,191) | ||
| Income tax recovery |
39 |
– | ||
|
Net Loss |
$ |
(10,500) |
$ | (13,191) |
|
Net loss attributable to shareholders of the Company |
$ |
( 10,494) |
$ | (12,744) |
|
Net loss attributable to non-controlling interest |
(6) |
(447) | ||
|
Adjusted EBITDA |
$ |
(6,872) |
$ | (8,335) |
|
Net loss per common share (basic and diluted) |
$ |
(0.01) |
$ | (0.02) |
|
Weighted average shares outstanding (basic and diluted) |
714,041,130 |
625,242,335 | ||
Revenue
For the three months ended March 31, 2021, cannabis revenues were $12.2 million as compared to $10.5 million in the same period in 2020. Net cannabis revenues of $9.2 million during the period, were comprised of approximately 80% Cannabis 2.0 Products sales, with the remainder from Cannabis 1.0 Product sales. During the first quarter of 2021, Auxly maintained strong retail cannabis sales nationally. While Auxly’s cannabis revenues were impacted by additional volatility as a result of changes to its provincial customers’ inventory management practices and the increase in restrictions during the third wave of the COVID-19 pandemic, the Company was able to maintain leading market share positions for retail cannabis sales.
Research and other revenues of $0.8 million for 2021 were $0.1 million lower than 2020 primarily as a result of the COVID-19 pandemic and its disruptive impact on the completion of clinical trials and the achievement of revenue milestones connected to such clinical trials. Revenues in support of third-party research contracts can fluctuate significantly during the term of the contract based upon the achievement of milestones. Where milestones are not met, revenues are deferred on the balance sheet which may result in timing differences in earnings.
Gross Profit / Loss
Auxly realized a gross profit of $2.3 million to March 31, 2021, compared to a gross profit of $2.8 million in 2020. Cannabis gross profits for the period ended March 31, 2021 were $2.3 million, resulting in a 26% margin (25% before impairment and fair value adjustments), with research and other gross profits of $nil. Inventory impairment of $0.2 million was recognized in 2021, as compared to a $1.3 million loss during the same period of 2020 associated with Inverell’s operations.
Total Expenses
Selling, general and administrative expenses (“
SG&A
”) are comprised of wages and benefits, office and administrative, professional fees, business developments, share-based payments, and selling expenses. For 2021, SG&A expenses were $9.4 million, a decrease of $4.6 million from the first quarter of 2020.
Wages and benefits were $4.3 million, a decrease of $2.2 million over the same period in 2020. The decrease of $2.2 million was primarily driven by workforce reductions and employee wage subsidies at KGK of $0.7 million, $0.4 million a result of expenditures associated with Inverell in 2020, and savings and absorption changes in the remaining operations of approximately $1.1 million.
Office and administrative expenses of $3.1 million in 2021 increased by $0.5 million compared to 2020 primarily a result of increased operating costs associated with the development and sale of Cannabis Products in 2021, partially offset by savings of $0.3 million associated with operations at Inverell in 2020.
Auxly’s professional fees for the three months ended March 31, 2021 were $0.5 million, lower by $1.0 million as compared to 2020. Professional fees incurred during the periods primarily related to accounting fees, regulatory matters, reporting issuer fees, and fees associated with financing activities. Professional fees can vary significantly based upon transactional activities from period to period.
Business development expenses were $Nil as compared to $0.8 million in 2020. The decrease is primarily due to a reduction in acquisition, development and travel related expenses primarily a result of the on-going COVID-19 pandemic.
Selling expenses for the period ended March 31, 2021 were $1.3 million, consistent with the same period in 2020 and were directly attributable to cannabis sales activities comprised of brokerage fees earned by Kindred Partners and marketing initiatives for Cannabis Products.
For 2021, share-based compensation was $0.2 million as compared to $1.4 million in 2020. The reduction in expenses in 2021 reflects the impact of significantly fewer option grants to date, the impact of lower share prices and fewer outstanding options.
Depreciation and amortization expenses were $2.5 million in the first three months of 2021, as compared to $2.4 million during the same period in 2020. The increase in expense is primarily a result of additional capital expenditures during the past 12 months.
Interest expenses were $4.6 million for the three months ended March 31, 2021 and $2.2 million for the same period of 2020. Interest expenses in 2021 were primarily the result of interest expense and accretion on the $123 million, 4% Imperial Brands convertible debenture, 7.5% on the convertible debenture issued in 2020, the non-cash accretion of placement and other related fees being recognized over the terms of the respective debentures, leases and short-term financing. Interest expenses in 2020 were primarily driven by the Imperial Brands convertible debenture and by leases.
Total Other Incomes and Losses
Fair value changes on financial instruments arise on changes in value of promissory notes and level two securities held. For the period ended March 31, 2021, the Company reported a fair value gain of $0.1 million, as compared to a loss of $0.1 million in 2020.
The Company recorded interest and other incomes of $0.4 million in the first quarter of 2021, increasing from $0.1 million in 2020, primarily related to interest accretion on the Sunens promissory note.
Gains on settlement of assets and liabilities and other expenses were $4.1 million, primarily relating to a $4.2 million gain on the settlement of a $5.8 million liability associated with a non-monetary product exchange with another licensed producer. Gains were $1.8 million in 2020, primarily relating to a gain on non-monetary inventory transfers with another licensed producer, net of a credit loss provision of $0.6 million.
The share of loss on investment in joint venture of $0.5 million in the first three months of 2021, decreased by $0.3 million as compared to the first three months of 2020 reflecting the Company’s proportionate share of Sunens’ earnings. Sunens received its cultivation licence in June 2020 and has scaled up operations and made product available for sale to other licenced producers in the first quarter of 2021.
Auxly is exposed to foreign exchange fluctuations from the U.S. dollar to CAD dollar exchange rate primarily related to inventory and capital purchases and Inverell net assets. During the quarter ended March 31, 2021, the Company reported a foreign exchange loss of $0.5 million compared to a gain of $1.6 million in the same period in 2020.
Net Losses
Net losses were $10.5 million with a net loss of $0.01 per share on a basic and diluted basis during the quarter ended March 31, 2021, and $13.2 million with a net loss of $0.02 per share on a basic and diluted basis in the same period in 2020. The improvement of $2.7 million in 2021 was primarily the result of reductions in total expenses and total other gains.
Adjusted EBITDA
Adjusted EBITDA of negative $6.9 million, improved by approximately $1.4 million over the same period in 2020. The increase was primarily driven by lower SG&A excluding non-cash share-based compensation.
Outlook
In 2021, Auxly is focused on building upon the Company’s success as a market leader in Cannabis 2.0 Products, while continuing to advance the Company’s focused expansion of its dried flower, pre-roll, oil and capsule product offerings. The Company’s overall objectives for 2021, which may be impacted by the COVID-19 pandemic (see further discussion in the MD&A under “
COVID-19 Pandemic
”), are as follows:
- Continued leadership and strength in the Cannabis 2.0 Products market;
- Focused expansion of Cannabis 1.0 Products;
- Continue to take measures to improve cash flows and finance the business;
- Leverage the Sunens facility to establish a secure supply of cannabis and reduce reliance on open market purchasing; and
-
Explore possible cannabis market entry strategies in regulated international markets, on an asset light basis.
The Company will continue to evaluate opportunities to bring new and exciting products to consumers as it continues to realize its vision of becoming a global leader in branded cannabis products that deliver on the consumer promise of quality, safety and efficacy.
ON BEHALF OF THE BOARD
“Hugo Alves” CEO
About Auxly Cannabis Group Inc. (TSX: XLY)
Auxly is a leading Canadian cannabis company dedicated to bringing innovative, effective, and high-quality cannabis products to the wellness and adult-use markets. Auxly’s experienced team of industry first-movers and enterprising visionaries have secured a diversified supply of raw cannabis, strong clinical, scientific and operating capabilities and leading research and development infrastructure in order to create trusted products and brands in an expanding global market.
Learn more at
www.auxly.com
and stay up to date at Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.
Investor Relations:
For investor enquiries please contact our Investor Relations Team:
Email:
[email protected]
Phone: 1.833.695.2414
Media Enquiries (only):
For media enquiries or to set up an interview please contact:
Email:
[email protected]
Notice Regarding Forward Looking Information:
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words, or information that certain events or conditions “may” or “will” occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes, but is not limited to: the proposed operation of Auxly, its subsidiaries and partners; the intention to grow the business, operations and existing and potential activities of Auxly; proposed timelines for the build-out, licencing and commercialization of the Company’s facilities and projects, the company’s response to the COVID-19 pandemic, the impact of the COVID-19 pandemic on the Company’s current and future operations; the Company’s execution of its innovative product development, commercialization strategy and expansion plans; the anticipated benefits of the Company’s partnerships, joint ventures, research and development initiatives and other commercial arrangements; the expectation and timing of future revenues; expectations regarding the Company’s expansion of operations and investment into foreign jurisdictions; future legislative and regulatory developments involving cannabis and cannabis products; the timing and outcomes of regulatory or intellectual property decisions; the relevance of Auxly’s subsidiaries’ and partners’ current and proposed products; consumer preferences; political change; competition and other risks affecting the Company in particular and the cannabis industry generally.
A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information in this release including, but not limited to, whether: the Company will be able to execute on its business strategy; Auxly’s subsidiaries and partners are able to obtain and maintain the necessary governmental and regulatory authorizations to conduct business; the Company is able to successfully manage the integration of its various business units with its own; there are not materially more closures or lockdowns related to the COVID‐19 pandemic; the Company’s subsidiaries and partners obtain and maintain all necessary governmental and regulatory permits and approvals for the operation of their facilities and the development of cannabis products, and whether such permits and approvals can be obtained in a timely manner; the Company will be able to successfully launch new product formats and enter into new markets; there is acceptance and demand for current and future Company products by consumers and provincial purchasers; and general economic, financial market, legislative, regulatory, competitive and political conditions in which the Company and its subsidiaries and partners operate will remain the same. Additional risk factors are disclosed in the annual information form of the Company for the financial year ended December 31, 2020 dated April 23, 2021.
New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. In addition, this release may contain forward-looking information attributed to third party industry sources, the accuracy of which has not been verified by the Company. The forward-looking information is being provided for the purposes of assisting the reader in understanding the Company’s financial performance, financial position and cash flows as at and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that such forward-looking information may not be appropriate for any other purpose. Readers should not place undue reliance on forward-looking information contained in this release.
The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.
Neither Toronto Stock Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Toronto Stock Exchange) accepts responsibility for the adequacy or accuracy of this release.
