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, 2019. These filings and
additional information regarding Auxly are available for review on
SEDAR at www.sedar.com.
Q1 2019 Highlights
- Advanced product R&D,
formulation and manufacturing at Dosecann in preparation for the
legalization of derivative cannabis products:
- Progress has been made in several areas including extraction of
flower to cannabis resin and development of edible product
formulations, with a full product suite to be completed during the
third quarter of 2019
- Successful production of oil in a bottle for sale in the second
quarter of 2019
- Completed first sales of dried
cannabis flower
- Advanced the process for receipt of
Kolab’s oil sales approval
- Continued to work with joint
venture partner Sunens as it completes phase one of a
state-of-the-art greenhouse facility in 2019, with construction
anticipated to be fully completed by December 2019
- Receipt of Robinsons cultivation
and processing licence in Nova Scotia; progress made towards
Robinsons flower sales approval by the third quarter of 2019
- Advanced construction of Kolab’s
Lloydminster store, with anticipated opening date in early Q3
2019
- Inverell awarded a licence for
scientific research and development of novel non-psychoactive
cannabis strains for registration
- KGK applied for a research and
development licence under the Cannabis Act, which is under final
review by Health Canada
- Made progress toward the
development of a clinical study plan at KGK to support the safety,
efficacy and quality of Dosecann products
(000’s) |
March 31, 2019 |
March 31, 2018 |
Change |
Percentage Change |
Total revenues |
$ |
817 |
|
$ |
- |
|
$ |
817 |
|
N/A |
Net losses* |
|
(13,611 |
) |
|
(10,520 |
) |
|
(3,091 |
) |
23 |
% |
Cash and equivalents |
|
165,023 |
|
|
206,367 |
|
|
(41,344 |
) |
-25 |
% |
Total assets |
|
455,903 |
|
|
281,213 |
|
|
174,690 |
|
38 |
% |
Debt |
$ |
95,411 |
|
$ |
91,068 |
|
$ |
4,343 |
|
5 |
% |
Average Shares outstanding |
|
587,246,553 |
|
|
365,098,552 |
|
|
222,148,001 |
|
38 |
% |
*attributable to shareholders of the Company |
Chuck Rifici, CEO and Chairman of Auxly
commented: “In the first quarter of 2019, we made significant
progress toward our goals for the year: we advanced product
development at Dosecann, made progress toward the construction of
key infrastructure, advanced licencing and sales at Robinsons, and
had our first sales of dried cannabis flower to the market. We are
well on track to have our initial range of derivative cannabis
products completed and available for sale into the upcoming legal
market later this year. With the combination of our cultivation
supply, R&D, product development and manufacturing
capabilities, and our relentless focus on science and innovation,
we look forward to bringing the best cannabis products, brands and
experiences to the medical, wellness and adult-use markets.”
Auxly’s Business
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.
Vision and Strategy
Auxly’s vision is to be a global cannabis leader
focused on providing branded cannabis products backed by science
and innovation.
Since the Company’s inception, it has worked
closely with its partners to develop a secure, cost-efficient and
diversified source of cannabis. To accelerate market participation
in the medical and wellness cannabis market, and prior to the
legalization and creation of the adult-use cannabis markets in
Canada in October 2018, Auxly invested in cultivation
opportunities, more commonly referred to as “streaming”
transactions, with the goal of supply diversification and efficient
use of capital. These cultivation partners remain important to the
Company’s predictable supply of diverse, cost efficient raw
cannabis.
With its cultivation platform largely in place
and in anticipation of the legalization of derivative adult-use
products for October 2019 (namely, concentrates, edibles and
topicals as contemplated by the Cannabis Act) and its current and
proposed accompanying regulations) (“Phase two”), Auxly has been
focused on product formulation and development at its wholly owned
subsidiary, Dosecann Inc. (“Dosecann”). Auxly was a first mover in
2018 with the acquisition of Dosecann. Its state-of-the-art
processing facility and its highly skilled team give the Company
the ability to turn raw cannabis into derivative cannabis products
under one roof. Further, Auxly’s acquisition of KGK Science Inc.
(“KGK”) provides additional depth to Dosecann’s ability to develop
and produce safe, effective and high-quality cannabis products.
The Company continues to develop strategic
distribution channels to expand its exposure to new and existing
markets, including health care providers, provincial boards and
retailers, and its wholly-owned retail outlet with province-wide
e-commerce capabilities in Saskatchewan.
Auxly has also invested in hemp cultivation and
extraction in Uruguay through its 80% ownership of Inverell S.A.
and its 100% ownership of its sister company Zeratol S.A., and is
constantly evaluating other international cultivation and
distribution opportunities.
Results of Operations
(000’s) |
March 31 2019 |
March 31 2018 |
Revenues |
|
|
Research contracts and
other |
$ |
525 |
|
|
- |
|
Revenue from sales of cannabis products |
|
292 |
|
|
- |
|
Total Revenues |
|
817 |
|
|
- |
|
|
|
|
Cost of sales |
|
|
Research contracts and other |
|
282 |
|
|
- |
|
Costs of finished cannabis inventory sold |
|
148 |
|
|
- |
|
Gross profit excluding fair value items |
|
387 |
|
|
- |
|
|
|
|
|
|
|
|
Realized fair value change on inventory |
|
(194 |
) |
|
- |
|
Unrealized fair value loss on biological transformation |
|
(382 |
) |
|
- |
|
Gross loss |
|
(189 |
) |
|
- |
|
|
|
|
Other incomes |
|
|
Fair value gain for financial instruments, under FVTPL |
|
1,382 |
|
|
618 |
|
Interest income |
|
960 |
|
|
415 |
|
Total other incomes |
|
2,342 |
|
|
1,033 |
|
|
|
|
Expenses |
|
|
Selling, general and administrative expenses |
|
10,968 |
|
|
7,730 |
|
Depreciation and amortization |
|
1,038 |
|
|
77 |
|
Interest expense |
|
3,534 |
|
|
2,205 |
|
Impairment of intangible assets |
|
1,800 |
|
|
- |
|
(Gain) / loss on settlement of financial assets and
liabilities |
|
(375 |
) |
|
4,191 |
|
Share of loss on equity investment in joint venture |
|
180 |
|
|
- |
|
Foreign exchange (gain) / loss |
|
71 |
|
|
(11 |
) |
Total expenses |
|
17,216 |
|
|
14,192 |
|
|
|
|
Net loss before income tax |
|
(15,063 |
) |
|
(13,159 |
) |
Income tax recovery |
|
1,259 |
|
|
2,639 |
|
Net loss |
$ |
(13,804 |
) |
$ |
(10,520 |
) |
|
|
|
Net loss attributable to shareholders of the
Company |
$ |
(13,611 |
) |
$ |
(10,520 |
) |
Net loss attributable to non-controlling
interest |
$ |
(193 |
) |
$ |
- |
|
|
|
|
Net loss per common share (Basic and diluted) |
$ |
(0.02 |
) |
$ |
(0.03 |
) |
|
|
|
Weighted average number of shares outstanding (basic and
diluted) |
|
587,246,553 |
|
|
365,098,552 |
|
Revenue
For the three months ended March 31, 2019, Auxly
recognized $0.5 million of research revenues from the recently
completed acquisition of KGK in the third quarter of 2018. KGK
revenues are deferred and only recognized as performance criteria
are met. KGK is a critical component in Auxly’s overall strategy to
develop safe, effective and high-quality consumer cannabis products
while continuing to conduct leading edge research for third party
clients.
For the three months ended March 31, 2019, Auxly
recognized $0.3 million of revenues from sales of dry cannabis
products. Dry cannabis flower sales have been curtailed as a result
of the company’s decision to use the dry flower to develop
derivative cannabis products in anticipation of Phase two
legalization.
Gross loss
Auxly realized a gross loss of $0.2 million
during the three months ended March 31, 2019, comprised of KGK
earned revenues less expenses of $0.2 million in support of
third-party research contracts which can fluctuate significantly
during the contract and related performance milestones and gross
profit of $0.2 million on the sale of cannabis products. In
addition, a $0.2 million fair value loss on inventory recognized on
net realizable value and a $0.4 million unrealized fair value loss
on biological asset transformation contributed to the overall gross
loss.
Other incomes
Total other incomes of $2.3 million is comprised
of a fair value gain of $1.3 million from changes in securities
held and interest income of $1.0 million primarily earned on cash
and cash equivalents held during the three months ended March 31,
2019.
Selling, general and administrative
expenses
Selling, general and administrative expenses are
comprised of wages and salaries, office and administrative,
professional fees, business developments, share-based payments, and
selling expenses. Share-based payments were reported separately
prior to 2019.
Wages and benefits were $4.1 million during the
three months ended March 31, 2019, an increase of $2.9 million over
the same period of 2018, primarily due to workforce increases in
2018. The increases were to support expansionary activities as a
direct result of workforces added on acquisition of four entities
and the corporate office.
Office and administrative expenses were $1.7
million during the three months ended March 31, 2019 as compared to
$1.0 million over the same period in 2018. The increase of $0.7
million is comprised of $1.0 million of rent, filing fees, IT
expenses and other office and admin charges from subsidiaries
acquired in 2018, net of a $0.1 million decrease in filing fees and
a $0.2 million decrease in rent at the corporate office.
Professional fees were $1.0 million during the
three months ended March 31, 2019 as compared to $0.6 million over
the same period in 2018. The increase in professional fees are
attributable to $0.3 million in legal fees related to investment
opportunities and $0.1 million in recruiting fees to facilitate the
Company’s growth.
Business development fees were $1.0 million
during the three months ended March 31, 2019 as compared to $2.1
million over the same period in 2018. The overall reduction in
expense is attributable to lower transaction activities during the
first quarter of 2019.
Auxly recorded share-based expenses of $3.0
million during the three months ended March 31, 2019, an increase
of $0.2 million over 2018. During the first quarter of 2019,
1,440,000 options were issued with vesting over a four-year period,
resulting in an expense of $0.1 million with the remaining $2.9
million relating to the vesting of prior period options.
Other Expenses
Depreciation and amortization expenses of $1.0
million during the three months ended March 31, 2019 reflect the
impact of approximately $0.6 million of intangible amortization
primarily associated with acquisition related non-competition
features and property, plant and equipment depreciation of $0.4
million related to equipment, buildings, and equipment.
Interest expenses of $3.5 million during the
three months ended March 31, 2019 increased by $1.3 million
primarily due to interest of 6% on the convertible debentures and
the non-cash accretion of placement and other related fees being
recognized over 24 months.
An impairment charge of $1.8 million related to
the intangible value of the FSD streaming agreement was taken
during the first quarter as a result of previously announced
contract breaches. The Company is currently evaluating its next
steps in this matter.
Net Losses
For the three months ended March 31, 2019, Auxly
reported a net loss attributable to shareholders of $13.6 million
with net loss of $0.02 per Share on a basic and diluted basis. This
compares to a net loss of $10.5 million for the year three months
ended March 31, 2018 with net loss of $0.03 per Share on a basic
and diluted basis. The decrease in net income was primarily driven
by an increase in expenses, compounded by non-cash expenses and
losses during the period, partially offset by income tax recoveries
of $1.3 million.
Outlook
In 2019, the Company expects to sell dry
cannabis flower and participate in the market for Phase two
cannabis products with an increasing part of its business dedicated
to derivative cannabis product development, manufacturing and
distribution. As dry cannabis flower is being used in the
development of Phase two products, the Company expects that
material revenue generation will coincide with the legalization and
regulatory approvals for derivative cannabis products and its sale
of such products to the market, presently anticipated to commence
in late 2019. Over the long-term, the Company believes shareholders
will benefit from the higher profitability and anticipated strong
growth of the derivative cannabis product market.
Auxly’s priorities for 2019 are as follows:
- complete product R&D,
formulation and manufacturing activities at the Dosecann facility
in preparation for the legalization of derivative cannabis
products;
- complete construction of all
ongoing cultivation assets, while continuing to work with the
Company’s joint venture partner Sunens as it completes phase one of
a state-of-the-art greenhouse facility in 2019, with expected
supply of over 100,000 kg of cannabis in 2020;
- continue to support the rollout of
Kolab and Robinsons and build brand awareness; and
- opportunistically expand the
Company’s footprint in international markets to facilitate the sale
of CBD, derived from its large-scale hemp cultivation operation in
Uruguay.
ON BEHALF OF THE BOARD"Chuck Rifici" Chairman
& CEO
About 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: IR@auxly.comPhone:
1.833.695.2414
Media Enquiries (only):
For media enquiries or to set up an interview please
contact:Sarah Bain, VP External Affairs Email:
sarah@auxly.com Phone: 613.230.5869
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 streaming
partners, the Company's execution of its product development and
commercialization strategy, the anticipated benefits of the
Company's partnerships, joint ventures, research and development
initiatives and other commercial arrangements, future legislative
and regulatory developments involving cannabis and cannabis
products, the timing of proposed research and clinical trials, 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 all
necessary governmental and regulatory permits and approvals for the
operation of their facilities and the development of its 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 of future Dosecann products by
consumers and medical professionals, 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 revised annual information form of the Company for
the financial year ended December 31, 2017 dated May 24, 2018.
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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