Fiscal 2017 Adjusted EBITDA of $14 million on $40
million in sales; phase 1 Bradford Facility expansion
complete and in production
MARKHAM, ON, June 28, 2017 /CNW/ - MedReleaf Corp. (TSX: LEAF)
("MedReleaf" or the "Company"), Canada's first and only ISO 9001 and ICH-GMP
certified cannabis producer, today announced financial and
operating results for the fourth quarter and fiscal year ended
March 31, 2017. All amounts expressed
are in Canadian dollars unless otherwise noted.
"We doubled revenue in fiscal 2017 and we did it profitably –
growing Adjusted EBITDA more than threefold," said Neil Closner, CEO of MedReleaf. "With the
successful completion of our IPO in June we have $74 million in financing to help fund our
strategic growth initiatives including: expanding our capacity more
than five times to support up to 35,000 kilograms of production;
scaling our domestic business; developing our recreational brand
portfolio; and international expansion, which we believe positions
MedReleaf well for future growth and profitability."
Fourth Quarter and Fiscal Year 2017 Financial Summary
|
|
Three
Months
|
Twelve
Months
|
|
|
March
31,
|
March
31,
|
CAD$ (in 000s,
except grams sold)
|
|
2017
|
2016
|
2017
|
2016
|
Sales
|
|
10,360
|
6,862
|
40,339
|
19,302
|
Gross
Profit
|
|
10,316
|
4,474
|
37,939
|
12,517
|
Adjusted Product
Contribution Margin*
|
|
7,398
|
4,442
|
30,903
|
11,928
|
Adjusted
EBITDA*
|
|
1,622
|
1,954
|
13,851
|
4,622
|
Grams
sold*
|
|
1,167,325
|
593,400
|
3,668,104
|
1,688,800
|
Adjusted product
contribution per gram sold*
|
|
$6.34
|
$7.49
|
$8.42
|
$7.06
|
Cash cost per gram
produced*
|
|
$1.53
|
$3.11
|
$1.73
|
$3.23
|
*Non-IFRS Measures
Through fiscal 2017, MedReleaf successfully increased production
capacity, reduced cash production costs, and launched new cannabis
oil products at its production facility in Markham, Ontario ("Markham Facility"),
resulting in the following highlights:
Fiscal Year 2017 Highlights
- Sales of $40.3 million, an
increase of 109% from the prior year
- Adjusted Product Contribution Margin of $30.9 million, an increase of 159% from the prior
year
- Adjusted EBITDA of $13.9 million,
an increase of 200% from the prior year
- Sold 3,668.1 kilograms of cannabis products, an increase of
117% from the prior year
- Adjusted product contribution margin per gram sold of
$8.42 compared to $7.06 in the prior year
- Cash cost per gram produced of $1.73 compared to $3.23 in the prior year
- In July 2016, completed the
purchase of a 210,596 square foot production facility in
Bradford, Ontario ("Bradford
Facility")
- In November 2016, obtained a
Health Canada Licence for the production and sale of cannabis
extracted oils, and became the first Canadian Licensed Producer to
bring cannabis capsules to market
Fiscal 2017 Fourth Quarter Highlights
- Sales of $10.4 million, an
increase of 51% year-over-year
- Adjusted Product Contribution Margin of $7.4 million, an increase of 67%
year-over-year
- Adjusted EBITDA of $1.6 million,
a decline of 17% year-over-year, as a result of increased
investment in long-term growth initiatives and $0.6 million in one-time costs
- Sold 1,167.3 kilograms of cannabis products, an increase of 97%
year-over-year
- Adjusted product contribution margin per gram sold of
$6.34 compared to $7.49 in the prior year period
- Cash cost per gram produced of $1.53 compared to $3.11 in the prior year period
Subsequent to the fiscal 2017 year end, MedReleaf completed the
first phase of its Bradford Facility construction project, which
included drying, trimming, packaging, shipping, storage and grow
rooms with an estimated annual production capacity of 2,800
kilograms of cannabis products. In April
2017, MedReleaf received a cultivation licence from Health
Canada pursuant to the Access to Cannabis for Medical Purposes
Regulations in respect of the Company's Bradford Facility and the
Company has commenced production at such facility.
MedReleaf also became the first medical cannabis producer to
receive an International Council on Harmonization certification for
Good Manufacturing Practices ("ICH-GMP") for Active Pharmaceutical
Ingredients. The ICH-GMP certification is a significant milestone
supporting the Company's international expansion strategy and
R&D initiatives to help the pharmaceutical industry more fully
explore the benefits of medical cannabis through clinical
trials.
On June 7, 2017, MedReleaf closed
its initial public offering and secondary offering for aggregate
gross proceeds of $100.7 million and
the Company's common shares commenced trading on the Toronto Stock
Exchange under the symbol "LEAF".
Financial Review
Sales
Sales were $10.4 million for the
fourth quarter of fiscal 2017, an increase of 51% from $6.9 million in the prior year period.
On November 22, 2016, Veteran's
Affairs Canada ("VAC") announced a new Reimbursement Policy for
Cannabis for Medical Purposes (the "VAC Policy"). The key points of
the policy include a maximum reimbursement rate of $8.50 per gram of dried marijuana or the
equivalent amount of fresh marijuana or cannabis oil, and coverage
limitations to an amount of three grams per day, subject to a
process that potentially allows for the daily limit to be exceeded
by individual Veteran patients by way of an exemption request to be
submitted to VAC by a medical specialist. The reimbursement
limitations became effective immediately and the coverage
limitations became effective May 21,
2017.
In response to the pricing changes introduced by the VAC Policy,
the Company began to offer price discounts to qualifying Veterans
to assist with the non-reimbursable portion of their medication.
This resulted in a reduction in average selling price for the
fourth quarter of fiscal 2017. Following the VAC Policy change the
Company has continued to see strong patient growth in both veterans
and non-veterans, as demand for premium cannabis products has
sustained average price above the $8.50 VAC Policy cap.
During the fourth quarter of fiscal 2017, a total of 1,167.3
kilograms of cannabis products were sold at an average selling
price of $8.87 per gram. This
represents an increase of 573.9 kilograms sold, or 97% from the
prior year period at an average selling price of $11.56 per gram. On a sequential basis, volume
sold increased by 174.1 grams, or 18% from the third quarter fiscal
2017 at an average selling price of $10.50 per gram.
For the year ended March 31, 2017
and 2016, sales were $40.3 million
and $19.3 million, respectively. This
resulted in a $21.0 million, or 109%,
increase in sales when compared to the prior year.
During the year ended March 31,
2017, 3,668.1 total kilograms of cannabis products were sold
at an average selling price of $11.00
per gram (2016 – 1,688.8 kilograms at an average selling price of
$11.43 per gram). This represents an
increase of 1,979.3 kilograms or 117% compared to the prior
year.
Sales and volume growth for the year was primarily the result of
increased production capacity, patient demand, yield improvements,
and the introduction of cannabis oil extracts for sale.
Cash Cost Per Gram Sold (Non-IFRS Measure)
The following are the Company's cash production costs, on a
total and per gram sold basis, for the three and twelve months
ended March 31, 2017 and 2016, as
compared to reported production costs (excluding costs resulting
from the fair value of biological assets), which represents cost of
sales, in accordance with IFRS:
|
Three
Months
|
Twelve
Months
|
|
March
31,
|
March
31,
|
CAD$ (in 000s,
except grams sold)
|
2017
|
2016
|
2017
|
2016
|
Production
costs
|
2,962
|
2,420
|
9,436
|
7,374
|
Amortization included
in production cost
|
(426)
|
(162)
|
(1,197)
|
(590)
|
Recovery of
production costs
|
-
|
-
|
-
|
-
|
Post production
costs
|
(751)
|
(413)
|
(1,896)
|
(1,335)
|
Cash production
costs
|
1,785
|
1,845
|
6,343
|
5,449
|
|
|
|
|
|
Equivalent grams
sold
|
1,167,325
|
593,400
|
3,668,104
|
1,688,800
|
Cash cost per gram
sold
|
$1.53
|
$3.11
|
$1.73
|
$3.23
|
Through the course of fiscal 2017, increased production volumes
and higher yields resulting in improved efficiencies in labour
utilization and allocation of fixed costs have allowed MedReleaf to
produce premium, indoor-grown medical cannabis on a comparable cash
cost per gram basis to greenhouse peers.
The cash cost per gram sold for the fourth quarter of fiscal
2017 was $1.53, compared to cash cost
per gram sold of $3.11 in the prior
year period. Cash cost per gram sold for the fourth quarter of
fiscal 2017 decreased $1.58 or 51%
compared to the prior year period.
The cash cost per gram sold for the years ended March 31, 2017 and 2016 was $1.73 and $3.23,
respectively. Cash cost per gram sold for the year ended
March 31, 2017 decreased $1.50 or 46% compared to the year ended
March 31, 2016.
Adjusted Product Contribution Margin (Non-IFRS
Measure)
The following is the Company's Adjusted Product Contribution
Margin as compared to the reported gross profit, which includes the
gain on changes in fair value of biological assets in accordance
with IFRS, for the three and twelve months ended March 31, 2017 and 2016.
|
Three
Months
|
Twelve
Months
|
|
March
31,
|
March
31,
|
CAD$ (in 000s,
except grams sold)
|
2017
|
2016
|
2017
|
2016
|
Gross
profit
|
10,316
|
4,474
|
37,939
|
12,517
|
|
Cost of finished
harvest inventory sold
|
7,652
|
3,960
|
24,216
|
9,803
|
Gain on fair value
changes in biological assets
|
(10,570)
|
(3,992)
|
(31,252)
|
(10,392)
|
Net gain on fair
value measurement of biological assets
|
(2,918)
|
(32)
|
(7,036)
|
(589)
|
Adjusted Product
Contribution Margin
|
7,398
|
4,442
|
30,903
|
11,928
|
|
|
|
|
|
Grams sold
|
1,167,325
|
593,400
|
3,668,104
|
1,688,800
|
Adjusted product
contribution margin, per gram sold
|
$6.34
|
$7.49
|
$8.42
|
$7.06
|
Adjusted Product Contribution Margin for the fourth quarter of
fiscal 2017 was $7.4 million or
$6.34 per gram sold, compared to
$4.4 million or $7.49 per gram sold for the prior year
period.
Adjusted Product Contribution Margin for the year ended
March 31, 2017 was $30.9 million or $8.42 per gram sold, compared to $11.9 million or $7.06 per gram sold the year ended March 31, 2016.
The increase in Adjusted Product Contribution Margin for the
quarter and the year was as a result of growth in production
capacity and sales throughout the year.
The decline in Adjusted Contribution Margin per gram sold for
the fourth quarter of fiscal 2017 compared to the prior year period
is a result of the impact of the VAC Policy resulting in lower
average selling price per gram, partially offset by lower
production costs as reflected in a reduction in the cash cost per
gram sold.
Improvements in Adjusted Product Contribution Margin per gram
sold for the year are primarily attributable to sales volume
increases that allow for better utilization of, and the spread of
cost allocations attributable to, labour production and overhead
costs.
Adjusted EBITDA (Non-IFRS Measure)
|
Three
Months
|
Twelve
Months
|
|
March
31,
|
March
31,
|
CAD$ (in
000s)
|
2017
|
2016
|
2017
|
2016
|
Income (loss) before
income taxes
|
2,891
|
1,408
|
15,642
|
3,371
|
Adjustments:
|
|
|
|
|
|
Amortization
|
588
|
243
|
1,692
|
870
|
|
Stock based
compensation
|
604
|
324
|
3,053
|
903
|
|
Interest
income
|
(56)
|
(19)
|
(75)
|
(51)
|
|
Finance
costs
|
59
|
30
|
121
|
118
|
|
Initial public
offering related fees
|
454
|
-
|
454
|
-
|
|
Net impact, fair
value of
|
|
|
|
|
|
|
Biological
assets
|
(2,918)
|
(32)
|
(7,036)
|
(589)
|
Adjusted
EBITDA
|
1,622
|
1,954
|
13,851
|
4,622
|
Adjusted EBITDA for the fourth quarter of fiscal 2017 was
$1.6 million, a decrease of
$0.3 million or 17% from $2.0 million for the prior year period.
The decrease in Adjusted EBITDA in the fourth quarter of fiscal
2017 compared to the prior year period was driven by higher
Adjusted Contribution Margin, offset by increased operating expense
as the Company invests in long-term growth initiatives,
specifically hiring for domestic expansion, creating the
recreational brand portfolio, and developing international
opportunities.
For the fourth quarter of fiscal 2017, bad debt associated with
VAC receivables, accounting adjustments within the Tikun Olam
agreement, and severance totaled $0.6
million. While MedReleaf believes these expenses were
extraneous and isolated within the quarter, the Company did not
alter for them in the Adjusted EBITDA calculation.
Adjusted EBITDA for the year ended March
31, 2017 was $13.9 million, an
increase of 200% from $4.6 million
for the year ended March 31, 2016.
Adjusted EBITDA increased for the year as a result of operational
growth in production capacity, patient demand, and sales.
Balance Sheet and Use of Proceeds from Offering
At the end of March 31, 2017, the
Company had cash and cash equivalents of $12.9 million and working capital of $24.7 million.
On June 7, 2017, the Company
closed its initial public offering and secondary offering for
aggregate gross proceeds of $100.7
million, with MedReleaf receiving gross proceeds of
approximately $80.7 million and the
selling shareholders receiving proceeds of approximately
$20.0 million. After the deduction of
associated fees and expenses, the Company received net proceeds of
approximately $74.0 million in
connection with the initial public offering.
Approximately $55.0 million of the
funds received by the Company in connection with the initial public
offering are expected to be allocated to manufacturing capacity
expansions at the Markham and
Bradford Facilities, as the Company is now fully funded to increase
production capacity to up to 35,000 kilograms annually.
Approximately $2.0 million in
proceeds are expected to be used for clinical research and product
development and the remaining $17.0
million in proceeds are expected to be used for working
capital and general corporate purposes.
Fourth Quarter and Fiscal Year 2017 Conference Call &
Webcast
A conference call and webcast to discuss MedReleaf's fourth
quarter and fiscal year 2017 results will be held on Wednesday, June 28, 2017 at 8:00 a.m. (ET). The call will be hosted by
Neil Closner, Chief Executive
Officer, and Igor Gimelshtein, Chief
Financial Officer, followed by a question and answer period.
To participate, interested parties are asked to dial (647)
427-7450 or (888) 231-8191 prior to the scheduled start of the
call. A replay of the conference call will be available by dialing
(855) 859-2056 and using the reference number 41045544. The replay
of this call will be available until July 5,
2017.
The Conference Call will also be webcast live at
http://bit.ly/2rl9jgz
Financial Statements and Management's Discussion and
Analysis
This news release, along with the audited consolidated annual
financial statements and the Company's corresponding management's
discussion and analysis, are available on the Company's website at
www.medreleaf.com and on SEDAR at www.sedar.com.
Non-IFRS Measures
This news release refers to certain non-IFRS financial measures.
These measures are not recognized measures under IFRS, do not have
a standardized meaning prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other
companies. Rather, these measures are provided as additional
information to complement those IFRS measures by providing
additional information regarding the Company's results of
operations from management's perspective. Accordingly, non-IFRS
measures should not be considered in isolation nor as a substitute
for analysis of the Company's financial information reported under
IFRS. All non-IFRS measures presented in this news release are
reconciled to their closest reported IFRS measure.
(a) Adjusted Product Contribution Margin
Management makes use of an "Adjusted Product Contribution
Margin" measure to provide a better representation of performance
in the period by excluding non-cash fair value measurements as
required by IFRS. The Adjusted Product Contribution Margin used by
management is a non-IFRS financial measure that does not have any
standardized meaning prescribed by IFRS and may not be comparable
to similar measures presented by other companies. Management
believes this measure provides useful information as it represents
the gross margin for management purposes based on the Company's
complete cost to produce inventory sold, exclusive of any fair
value measurements as required by IFRS. The metric is calculated by
removing all amounts related to biological asset fair value
accounting under IFRS including gains on transformation of
biological assets and the cost of finished harvest inventory sold,
which represents the fair value measured portion of inventory cost
("fair value cost adjustment") recognized as cost of goods
sold.
(b) Equivalent grams and kilograms
Equivalent gram or kilogram refers to the equivalent number of
dried grams or kilograms of cannabis required to produce extracted
cannabis in the form of cannabis oil. The Company estimates and
converts its cannabis oil inventory to equivalent grams using the
combined Tetrahydrocannabinol ("THC") and Cannabidiol ("CBD")
content in extracted cannabis products. Any reference to grams in
this news release includes the combined dried cannabis and
equivalent grams of extracted cannabis.
(c) Cash Cost Per Gram Sold
The cash cost per gram sold is used by management to measure the
estimated amount of direct production costs, on a per gram sold
basis, that are required to produce dried cannabis and cannabis
oil. Management uses this measure to track production cost trends
and assess the sensitivity and tolerance for pricing changes.
Management believes this measure provides useful information by
removing non-cash and post production costs and provides a
benchmark of the Company against its competitors. This is not a
defined term under IFRS. The metric is calculated by: removing from
production costs incurred during the period, all non-cash based
costs (including amortization and inventory write-downs or
impairments) and all post production costs; and dividing such
amount by the approximate number of grams of cannabis sold during
the period. Post production costs include indirect overhead
expenses such as: equipment rentals, payment processing fees,
indirect labour expenses, shipping expenses, quality control
expenses, and other order fulfillment costs included in production
costs.
(d) Adjusted Earnings Before Interest, Tax, Depreciation and
Amortization ("Adjusted EBITDA")
Adjusted EBITDA is used by management as a supplemental measure
to review and assess operating performance and trends on a
comparable basis. The Company defines Adjusted EBITDA as EBITDA
adjusted for the impact of any unrealized expenses or gains, stock
based compensation, fair value gains or costs arising from
biological assets, expenses related to readying the Company for its
initial public offering and other non-recurring costs the Company
deems unrelated to current operations.
Adjusted EBITDA does not have a standardized meaning under IFRS
and is not a measure of operating income, operating performance or
liquidity presented in accordance with IFRS and is subject to
important limitations. The Company's definition of Adjusted EBITDA
may not be the same as similarly titled measures used by other
companies. The Company believes that Adjusted EBITDA provides a
useful tool for assessing the comparability between periods of its
ability to generate cash from operations. Adjusted EBITDA is
presented in order to provide supplemental information to the
Financial Statements included elsewhere in this prospectus, and
such information is not meant to replace or supersede IFRS
measures.
Cautionary Statement Regarding Forward-Looking
Information
This news release contains "forward-looking information" within
the meaning of applicable Canadian securities legislation which are
statements other than statements of historical fact and which can
be identified by the use of forward-looking terminology such as
"expect", "likely", "may", "will", "should", "intend",
"anticipate", "potential", "proposed", "estimate" and other similar
words, including negative and grammatical variations thereof, or
statements that certain events or conditions "may", "would",
"could" or "will" happen, or by discussions of strategy. Statements
in this news release containing forward-looking information are
based upon the expectations, estimates, projections, assumptions
and views of future events of management at the date hereof and
that management believes to be reasonable in the circumstances,
including those relating to: general economic conditions, the
expected timing and cost of expanding the Company's production
capacity, the expected timing of cannabis legalization in
Canada, future growth of the
Company's business and international opportunities, the development
of new products and product formats, the Company's ability to
retain key personnel, the Company's ability to continue investing
in its infrastructure to support growth, the impact of competition,
trends in the Canadian medical cannabis industry and changes in
laws, rules and regulations. Statements containing forward-looking
information should not be read as guarantees of future events,
performance or results, and will not necessarily be accurate
indications as to whether, or the times at which, such events,
performance or results will occur or be achieved. The
forward-looking information contained in this news release is
subject to known and unknown risks and uncertainties, including but
not limited to those risks and uncertainties described under the
heading "Risk Factors" in the Company's annual information form
dated June 27, 2017 (which will be
available on the Company's SEDAR profile at www.sedar.com), any of
which could cause actual results to differ materially from those
expressed or implied by the forward-looking information disclosed
herein. Accordingly, readers are cautioned not to place undue
reliance on such forward-looking information. Statements in this
news release containing forward-looking information speak only as
of the date on which they are made and MedReleaf does not undertake
any obligation to update or revise any forward‑looking information,
whether as a result of new information, future events or otherwise,
except as required by applicable securities laws.
About MedReleaf Corp.
MedReleaf sets The Medical Grade Standard™ for cannabis in
Canada and around the world. The
first and only ICH-GMP and ISO 9001 certified cannabis producer in
North America, MedReleaf is a
R&D-driven company dedicated to patient care, scientific
innovation, research and advancing the understanding of the
therapeutic benefits of cannabis. Sourced from around the world and
perfected in one of two state of the art facilities in Ontario, MedReleaf delivers a variety of
premium products to patients seeking safe, consistent and effective
medical cannabis.
For more information on MedReleaf, its products, research and
how the Company is helping patients #livefree, please visit
MedReleaf.com or follow @medreleafcanada.
SOURCE MedReleaf Corp.