TORONTO, June 01, 2020 (GLOBE NEWSWIRE) — Auxly Cannabis Group Inc. (TSX.V – XLY) (OTCQX: CBWTF) (“Auxly” or the “Company“) today released its financial results for the three months ended March 31, 2020. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com.
Q1 2020 Highlights and Subsequent EventsRecorded net revenues of $9.9 million, an increase of over 1,100% compared to the first quarter of 2019, including $9.0 million in cannabis net revenues primarily comprised of Cannabis 2.0 product sales from Dosecann, and KGK research revenues of $0.9 millionEstablished strong sales in British Columbia, Alberta and Ontario, which comprised more than 80% of revenues, with vapes accounting for more than 65% of the Company’s cannabis revenuesAuxly’s wholly owned subsidiary Robinsons Cannabis Inc. received its sales license from Health Canada, expanding the Company’s product offering to include artisan hand-crafted flower, expected to be available this summerSecured up to $25 million convertible debenture standby financing, of which $3.3 million worth of convertible debentures have been issued through two separate tranchesEntered into key partnerships and agreements with each of Medical Cannabis by Shoppers Drug Mart and OCAD University, and acquired exclusive global rights to omega-rich Ahiflower® oil from Natures Crops InternationalQ1 Highlights
Hugo Alves, CEO of Auxly, commented: “In our first full quarter of operations we generated incredible results and are thrilled to report close to $10 million in net revenues, with $9.0 million of that coming from cannabis sales! These results are a culmination of focus and hard work by the tremendous team that makes up the Auxly family. We delivered on our promise to launch a compelling portfolio of cannabis products that deliver on our consumer promise of quality, safety and efficacy – and consumers across the country have responded with phenomenal feedback. We remain focused on the continued execution of our corporate strategy and are committed to expanding our capabilities, both nationally and internationally, as we continue to fuel growth and generate value for our stakeholders.”Results of OperationsRevenueFor the three months ended March 31, 2020, Auxly generated revenues through the sale of Cannabis 1.0 Products and Cannabis 2.0 Products to customers, and by providing research services for customers who are conducting human clinical trials.During the first quarter of 2020, cannabis net revenues of $9.0 million were comprised of approximately 90% Cannabis 2.0 Products with the remainder from Cannabis 1.0 Products. Sales were strong in British Columbia, Alberta and Ontario comprising more than 80% of the Company’s revenues, with vapes accounting for more than 65% of its cannabis revenues. Auxly recognized $0.9 million of research revenues from KGK for the three-month period ended March 31, 2020 as compared to $0.5 million generated over the same time frame in 2019. These revenues are in support of third-party research contracts which can fluctuate significantly during the term of the contract. Revenues are driven by the achievement of milestones on existing and new contracts and are therefore deferred to be only recognized as performance criteria are met, resulting in timing differences of when revenues are recognized.Gross Profit / LossAuxly realized a gross profit of $2.8 million following fair value adjustments during the first quarter of 2020, as compared to a gross loss of $0.2 million during the first quarter of 2019. Gross profits in 2020 were comprised of $3.2 million or approximately 35% from Canadian cannabis operations, $0.4 million from research operations, partially offset by an impairment of $0.8 million related to Inverell plant and biomass product qualification and grading, as compared to a gross loss of $0.4 million from cannabis operations and a gross profit of $0.2 million from research operations over the same time period in 2019.Research revenues less expenses of $0.4 million were generated during the three months ended March 31, 2020 as compared to $0.2 million during the same period in 2019. During March of 2020, COVID-19 impacted KGK’s ability to conduct clinical trials and meet additional milestones. While new sales efforts continue, KGK has temporarily laid-off up to 50 employees as it seeks to complete milestones and reduce expenditures where possible during this period of uncertainty.Total ExpensesSelling, general and administrative expenses are comprised of wages and benefits, office and administrative, professional fees, business developments, share-based payments, and selling expenses.For the three-month period ended March 31, 2020, wages and benefits were $6.5 million, or an increase of $2.4 million over the same period in 2019. The increase was driven by workforce increases to support Cannabis 2.0 Product sales, primarily related to the operations and commercial teams. Increases of approximately $0.4 million were attributable to hiring at subsidiaries, including the absorption of employees arising from the foreclosure of 2368523 Ontario Inc. (d/b/a Curative Cannabis) (“Curative”).Office and administrative expenses of $2.6 million in the first quarter of 2020 increased by $0.9 million compared to the same period in 2019. The increase in office and administrative expenses is driven by head office and Dosecann to support the product development, formulation, R&D and testing of Cannabis 2.0 Products through the first three months of sales. Other increases in fees were related to the implementation and development of an organization-wide ERP system. Further increases of approximately $0.1 million related to activities at Robinsons OG and Curative, with office and administrative expenses across the other subsidiaries decreasing by $0.2 million.Auxly’s professional fees were $1.4 million during the three months ended March 31, 2020, as compared to $1.0 million over the same respective period in 2019. Professional fees incurred during the periods primarily related to accounting fees, regulatory matters, ongoing legal proceedings, recruiting fees in conjunction with hiring and preparedness for Cannabis 2.0 Products, consulting fees, and fees associated with financing activities. The increase in professional fees was driven by an increase in consulting fees associated with information technology, specifically the implementation and development of an organization-wide ERP system, commercial and sales activities, and infrastructure.Business development fees of $0.8 million for the three-month period ended March 31, 2020 decreased by $0.2 million, as compared to $1.0 million incurred over the same period in 2019, primarily due to a reduction in acquisitions and travel related expenses.Selling expenses for the first quarter of 2020 were $1.3 million as compared to $0.1 million for the first quarter of 2019. The increase is directly attributable to cannabis sales activities comprised of brokerage fees earned by Kindred Partners and marketing initiatives for Cannabis 2.0 Products.For the three months ended March 31, 2020, share-based compensation was $1.4 million, compared to the $3.0 million over the three months ended March 31, 2019. 166,000 options were granted in 2020 compared to 1,440,000 granted over the same period in 2019.Depreciation and amortization expenses were $2.4 million for the three-month period ended March 31, 2020, an increase of $1.4 million over the same period in 2019. Increased expenses primarily relate to additional capital expenditures and in use capital projects and intangible assets in 2020, whereas during 2019 several projects remained under development.Interest expenses were $2.2 million for the three months ended March 31, 2020, a decrease of $1.3 million over the same period in 2019. Interest expenses are driven by interest charges of 6% on the then outstanding 2018 convertible debentures and 4% on the Imperial Brands convertible debentures and the non-cash accretion of placement and other related fees being recognized over the terms of the respective debentures. Further, the Company has capitalized interest expense used to fund construction projects of $1.4 million in the first quarter of 2020 and $0.5 million during the same period in 2019.Total Other Incomes and LossesFair value changes on financial instruments included in this section arise on changes in value of promissory notes and level two securities held. For the quarter ended March 31, 2020, the Company reported a $0.1 million fair value loss, as compared to a $1.4 million dollar gain in the previous year. Fair value changes in 2019 reflected gains on promissory notes that offset market losses on the level two securities held. All promissory notes were repaid or fully impaired as at December 31, 2019. As such, all fair value changes in 2020 were reflective of the impact of prevailing market conditions over corporate investments held.Interest income of $0.1 million during the first quarter for 2020 decreased by $0.9 million from $1.0 million generated over the first quarter of 2019. Interest income is generated on notes receivable balances, investments in convertible debt, and interest on cash and cash equivalents.During the first quarter of 2019, an impairment charge of $1.8 million related to the intangible value of the FSD Pharma Inc. streaming agreement was taken as a result of previously announced contract breaches. There were no impairment charges taken during the first quarter of 2020.Gains on settlement of financial assets and liabilities for the three months ended March 31, 2020 were $1.8 million, primarily relating to a gain on non-monetary inventory transfers with another licensed producer, net of a credit loss provision of $0.6 million. Gains during the first quarter of 2019 were $0.4 million.Auxly is exposed to foreign exchange fluctuations from the U.S. dollar to CAD dollar exchange rate primarily related to loans due from Inverell. During the first quarter of 2020, the Company reported a foreign exchange gain of $1.6 million as compared to a $0.1 million loss over the same period in 2019.Net LossesNet losses attributable to shareholders improved by $0.9 million to $12.7 million, with a net loss of $0.02 per Share on a basic and diluted basis for the three-month period ended March 31, 2020. This compares to a net loss of $13.6 million and $0.02 per Share on a basic and diluted basis for the same respective period ended March 31, 2019. The decrease in net losses was primarily driven by the significant increase in gross profit, net of an overall increase in selling, general and administrative expenses used to support revenue generating activities.Adjusted EBITDAAdjusted EBITDA decreased by $0.8 million during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019, to $(8.2) million from $(7.4) million. The decrease was driven by an increase in selling, general and administrative expenses to support the commencement of cannabis product sales.OutlookWith the launch of the Company’s Cannabis 2.0 Products in December 2019, Auxly has established the foundation the Company plans to build on in 2020 to increase revenues and move towards positive cash flows. Auxly’s objectives for 2020, which may be impacted by the COVID-19 pandemic (see further discussion in the MD&A under “COVID-19 Pandemic”), continue to be concentrated on its Canadian operations, with a view to international opportunities that may be profitable in the near to long term. Broadly, the Company’s objectives for the year ahead are as follows:Be a leader in the Canadian Cannabis 2.0 Products market.Complete remaining construction and licensing of all Canadian operations to leverage existing assets and increase revenues.Work with the Sunens team to secure supply of input materials for use in the Company’s product offerings in 2020.Collaborate with the Company’s strategic partners to move towards commercialization of a small number of products for sale internationally or, if and when permitted, as part of the Cannabis 3.0 Products market.The Company looks forward to continuing its success over the year ahead as it gets closer to realizing on its vision of being a global leader focused on branded cannabis products that deliver on Auxly’s consumer promise of quality, safety and efficacy.ON BEHALF OF THE BOARD“Hugo Alves” CEOAbout Auxly Cannabis Group Inc. (TSX.V: XLY)Auxly is an international cannabis company dedicated to bringing innovative, effective, and high-quality cannabis products to the medical, 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: 1.833.695.2414Media 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, 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 successful production and launch of Robinsons products, 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; 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’ 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: Auxly’s subsidiaries and partners are able to obtain and maintain the necessary regulatory authorizations to conduct business, the Company is able to successfully manage the integration of its various business units with its own, 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 proposed products, and whether such permits and approvals can be obtained in a timely manner; the success of Dosecann and KGK’s research strategies, the applicability of the discoveries made therein, the successful and timely completion and uncertainties related to the regulatory process, the 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, 2019 dated May 13, 2020.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 TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
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