Revenues increase 281% over the quarter
ended September 30, 2017 and 50% over Q2 2018
Emblem Corp. (TSXV: EMC, OTCQX: EMMBF) (“Emblem” or the “Company”),
a licensed producer of cannabis under the Cannabis Act through its
wholly owned subsidiary Emblem Cannabis Corporation, is pleased to
report financial and operating results for the three and nine
months ended September 30, 2018. The strong results underscore the
Company’s continued focus on fundamentals such as revenue growth,
market share, and operational excellence to drive long-term
shareholder value.
“This quarter marked a significant period of
transformation for Emblem as we strategically aligned the business
around our core strengths. This began with the signing of one of
the largest business to business cannabis supply agreements,
increasing our aggregate annual product supply run rate to
approximately 30,000 kilograms beginning in mid-2019. With product
volume and cost visibility addressed, management can refocus both
human and capital resources on levering core competencies of
product innovation, brand building and securing global distribution
channels,” said Nick Dean, President & CEO, Emblem Corp.
“During the quarter, we began to realize the significant revenue
impact of our Symbl brand within the adult-use market as we
fulfilled 100% of our provincial commitments, while maintaining
product availability for our growing number of registered
patients.”
Highlights for the Third Quarter of
2018
- Record Company revenues of $2.3
million, a 281% increase year-over-year and a 50% increase
quarter-over-quarter.
- Among industry-leading revenue per
gram equivalent sold to patients of $10.67 per gram.
- Sales of high margin derivative
products grew rapidly and represented 48% of total patient sales
for the quarter, driving robust realized pricing.
- 20% increase quarter-over-quarter
in active registered patients to 4,820 as at September 30,
2018.
- Signed five-year supply agreement
with Aphria Inc. (“Aphria”), to receive an aggregate of 175,000
kilogram equivalents of high-quality dried cannabis flower and
crude cannabis oil at preferred wholesale pricing, commencing in
May 2019.
- Strategic investment and three-year
supply agreement with Natura Naturals Inc. (“Natura”), to receive
up to 3,000 kilograms of high-quality cannabis flower per year at
preferred wholesale pricing with deliveries to commence in December
2018.
- Launch of Symbl, Emblem’s first
adult-use recreational cannabis brand.
- Signed supply agreements with the
Alberta Gaming Cannabis Commission (“AGLC”) and the Ontario
Cannabis Store (“OCS”). Fulfilled 100% of commitments to deliver
cannabis products before September 30, 2018, which generated $0.8
million in revenues.
- Launched oral dose-metered spray,
Atmosphere.
- Announced strategic partnership
with GreenSpace Brands Inc. to develop and commercialize
cannabidiol infused health and beauty products for the adult-use
recreational market.
- Signed five-year supply agreement
with and investment in Compass Cannabis Clinic to become a
preferred cannabis supplier through its wholly owned subsidiary
adult-use retail entity Starbuds Canada.
Highlights Subsequent to the Third
Quarter of 2018
- Increased patient count to
approximately 6,000 active registered patients as at the date of
this release, representing a 122% increase in patient count since
the beginning of the year.
- Appointment of Wayne Kreppner as
President of Medical to support the rapid growth of Emblem’s
medical division and associated new product innovations.
- Adult-use distribution partners are
indicating robust demand for Symbl cannabis products and
re-stocking has occurred since the end of the quarter. Shipped 134
kilogram equivalents of Symbl cannabis products to the OCS, AGLC
and Fire & Flower Inc., with additional deliveries scheduled
for the remainder of the fourth quarter.
- Signed supply agreement with the BC
Liquor Distribution Branch and obtained supply approval with the
Saskatchewan Liquor and Gaming Authority.
- Signed definitive agreement with
German pharmaceutical wholesaler Acnos Pharma Gmbh in respect to
launching a joint venture under the name Emblem Germany for the
purpose of exporting Emblem-branded cannabis products from Canada
to Germany.
- Election of Connie A. Stefankiewicz
and Loreto Grimaldi to the Company’s board of directors.
- Completed an equity investment in
DriveABLE Assessment Centres Inc., a global leader in
cognitive-based driving evaluations, to support its research on
cannabis impairment.
Third Quarter Financial Summary
|
Three Months Ended |
Nine Months Ended |
|
|
September 30, |
|
September 30, |
September 30, |
September 30, |
|
2018 |
|
2017 |
2018 |
|
2017 |
|
|
|
|
|
|
Revenues |
$ |
2,261 |
|
$ |
593 |
|
$ |
5,046 |
|
$ |
2,035 |
|
|
Production expenditures
and realized fair value changes in inventory sold |
$ |
(2,792 |
) |
$ |
(1,388 |
) |
$ |
(7,161 |
) |
$ |
(3,881 |
) |
|
Unrealized gain on
changes in fair value of biological assets |
$ |
968 |
|
$ |
845 |
|
$ |
2,575 |
|
$ |
1,807 |
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
General and
administrative |
$ |
(1,865 |
) |
$ |
(934 |
) |
$ |
(5,586 |
) |
$ |
(3,161 |
) |
|
Research and
development |
$ |
(132 |
) |
$ |
(114 |
) |
$ |
(279 |
) |
$ |
(312 |
) |
|
Selling and
marketing |
$ |
(2,015 |
) |
$ |
(886 |
) |
$ |
(4,184 |
) |
$ |
(2,359 |
) |
|
Amortization of
property, plant and equipment |
$ |
(407 |
) |
$ |
(277 |
) |
$ |
(1,192 |
) |
$ |
(771 |
) |
|
Share-based
payments |
$ |
(170 |
) |
$ |
(563 |
) |
$ |
(594 |
) |
$ |
(1,457 |
) |
|
|
|
|
|
|
|
Operating loss |
$ |
(4,152 |
) |
$ |
(2,724 |
) |
$ |
(11,375 |
) |
$ |
(8,099 |
) |
|
|
|
|
|
|
|
Net finance costs |
$ |
(890 |
) |
$ |
(48 |
) |
$ |
(2,299 |
) |
$ |
(165 |
) |
|
Net other (expenses)
income |
$ |
(5,806 |
) |
$ |
(40 |
) |
$ |
(5,806 |
) |
$ |
2 |
|
|
|
|
|
|
|
|
Net loss and
comprehensive loss |
$ |
(10,848 |
) |
$ |
(2,812 |
) |
$ |
(19,480 |
) |
$ |
(8,262 |
) |
|
Weighted average basic
and diluted loss per share |
$ |
(0.09 |
) |
$ |
(0.03 |
) |
$ |
(0.16 |
) |
$ |
(0.10 |
) |
|
|
|
|
|
|
|
Adjusted EBITDA |
$ |
(2,886 |
) |
$ |
(1,924 |
) |
$ |
(8,362 |
) |
$ |
(5,869 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
During the three and nine months ended September
30, 2018, total revenues of the Company increased by 281% and 148%,
respectively, from the prior year’s comparable periods. The
increase in revenues was a result of the commencement of oil sales
during December 2017 and the launch of the adult-use recreational
market in the third quarter of 2018.
During the three months ended September 30,
2018, the Company sold dried flower and oil products to the AGLC
and OCS for total revenues of $766,000.
“Our significant quarter over quarter revenue
increase was driven by the legalization of adult-use cannabis and
our supply agreements in the provinces of Ontario and Alberta. We
are now pursuing Canada-wide distribution, and subsequent to the
third quarter, secured sales approvals in Saskatchewan and B.C.,”
said Mr. Dean. “In addition, feedback from patients continues to
reinforce that Emblem is a trusted brand of medical cannabis that
puts patients’ needs first. Medical innovation, supply and support
will continue to be our first and foremost priority, as evidenced
by the recent appointment of our new division president, Wayne
Kreppner, who brings immense R&D experience to our leadership
team. Our commitment to product development and innovation was
demonstrated with the recent launch of Atmosphere oral dose-metered
sprays.”
During the three and nine months ended September
30, 2018, GrowWise Health Limited (“GrowWise”), an indirect
wholly-owned subsidiary of Emblem, generated total revenues of
$222,000 and $685,000 (September 30, 2017 - $161,000 and $356,000),
an increase of 38% and 92%, respectively, from the prior year’s
comparable periods.
During the three and nine months ended September
30, 2018, revenues of dried cannabis flower purchased by registered
medical patients amounted to $497,000 and $1,453,000 (September 30,
2017 - $438,000 and $1,297,000), respectively. Revenues of dried
cannabis flower purchased by licensed producers amounted to
$275,000 and $851,000 (September 30, 2017 - $nil and $362,000),
respectively.
Total dried flower sold to medical patients
during the three and nine months ended September 30, 2018 amounted
to 60.4 kilograms and 171.8 kilograms of dried flower (September
30, 2017 – 50.8 kilograms and 159.5 kilograms), at an average
selling price of $8.25 per gram and $8.47 per gram (September 30,
2017 - $8.81 per gram and $8.35 per gram), respectively. Total
dried flower sold to licensed producers during the three and nine
months ended September 30, 2018 amounted to 55.5 kilograms and
164.9 kilograms of dried flower (September 30, 2017 – $nil and 90.0
kilograms), at an average selling price of $5.00 per gram and $5.17
per gram (September 30, 2017 - $nil and $4.02 per gram),
respectively.
During the three and nine months ended September
30, 2018, revenues from cannabis oil products amounted to $445,000
and $952,000 or 26% and 30% of total sales to medical patients,
respectively. Revenues from sales to other licensed producers
amounted to $nil and $221,000 for the three and nine months ended
September 30, 2018.
Total bottled oils sold to medical patients
during the three and nine months ended September 30, 2018 were
approximately 30.6 kilogram equivalents and 66.0 kilogram
equivalents, at an average selling price of $14.52 per gram
equivalent and $14.32 per gram equivalent, respectively. Total
cannabis oils sold to licensed producers were nil and 28.3 kilogram
equivalents during the three and nine months ended September 30,
2018, at an average selling price of $nil and $7.83 per gram
equivalent, during the three and nine months ended September 30,
2018, respectively.
Prior to December 2017, the Company did not sell
cannabis oil products until it received its license to sell
cannabis oil products in November 2017.
Production expenditures and realized
fair value changes in inventory sold
Production expenditures and realized fair value
changes in inventory sold for the three and nine months ended
September 30, 2018 was $2,792,000 and $7,161,000 (September 30,
2017 – $1,388,000 and $3,881,000), respectively, and unrealized
gain on changes in the fair value of biological assets was $968,000
and $2,575,000 (September 30, 2017 - $845,000 and $1,807,000),
respectively. During the three and nine months ended September 30,
2018, Production expenditures and realized fair value changes in
inventory sold includes costs relating to inventory sold of
$1,016,000 and $2,680,000 (September 30, 2017 - $348,000 and
$1,203,000), production costs of $1,719,000 and $4,144,000
(September 30, 2017 - $913,000 and $2,401,000) and patient costs of
$57,000 and $337,000 (September 30, 2017 - $127,000 and $277,000),
respectively. The higher production costs during the three and nine
months ended September 30, 2018 compared to 2017 are related to the
higher production volumes resulting from the commissioning of three
additional flowering rooms in the fourth quarter of 2017 and
packaging of inventory in preparation of the adult-use recreational
market for October 2018.
Expenses
General and administrative expenses increased
primarily due to the continued build-out of the Company’s
management team, as well as higher business development, legal and
consulting fees incurred in connection with various strategic
initiatives with respect to supply management, cultivation
expansion, product development and distribution. Higher selling and
marketing costs were due to brand development, brand awareness, and
media campaigns in connection with the launch of the Company’s new
adult-use brand Symbl, in preparation for the Cannabis Act coming
into force.
Adjusted EBITDA
The Company’s Adjusted EBITDA decreased by
$962,000 and $2,493,000 during the three and nine months ended
September 30, 2018, when compared with the three and nine months
ended September 30, 2017, mainly due to higher operating expenses
during the current periods.
About Emblem
Emblem is a fully integrated cannabis company
focused on driving shareholder value through product innovation,
brand relevance, and access to patient and consumer channels.
Through its wholly-owned subsidiary Emblem Cannabis Corporation,
Emblem is licensed to cultivate, process, and sell cannabis and
cannabis derivatives in Canada under the Cannabis Act. Emblem’s
state-of-the-art indoor cannabis cultivation facility and Product
Innovation Centre is located in Paris, Ontario. Emblem Cannabis
Corporation is also the parent company of GrowWise, one of Canada’s
leading cannabis education services. Emblem trades under the ticker
symbol EMC on the TSX Venture Exchange and EMMBF on the OTCQX Best
Market.
For media inquiries, please contact:
Morgan CatesH+K
Strategies416.413.4649morgan.cates@hkstrategies.ca
For further information contact:
Ethan Karayannopoulos Investor Relations Emblem
Corp. 647.748.9696 ethank@emblemcorp.com
Alex Stojanovic Chief Financial Officer Emblem Corp.
416.923.1331 alexs@emblemcorp.com
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This news release contains certain
forward-looking statements and forward-looking information
(collectively referred to herein as "forward-looking statements")
within the meaning of applicable Canadian securities laws. All
statements other than statements of present or historical fact are
forward-looking statements. Forward-looking statements are often,
but not always, identified by the use of words such as
"anticipate", "achieve", "could", "believe", "plan", "intend",
"objective", "continuous", "ongoing", "estimate", "outlook",
"expect", "may", "will", "project", "should" or similar words,
including negatives thereof, suggesting future outcomes. In
particular, this news release contains forward-looking statements
relating to, among other things: (i) the development and completion
of the proposed facilities by the Company; (ii) the ability of the
Company to utilize the new facilities to produce additional dried
cannabis and or oil; (iii) potential sales of dried cannabis and
oil; produced at the new facilities and the value thereof; (iv) the
Company's future production capacity; (v) the availability of
additional sources of financing; (vi) the ability of the Company to
complete a Good Manufacturing Practice certified facility; (vii)
the ability of the Company to produce high quality dried flower and
oil; (viii) the success of the partnership and collaboration
arrangements entered into by the Company (ix) the intention to grow
the business, operations and potential activities of the Company;
(x) the anticipated changes to Canadian federal laws regarding
recreational adult-use and the corresponding business impacts on
the Company; and (xi) the ability of third parties to perform under
certain supply agreements. Management of the Company believes the
expectations reflected in such forward-looking statements are
reasonable as of the date hereof but no assurance can be given that
these expectations will prove to be correct and such
forward-looking statements should not be unduly relied upon.
Various material factors and assumptions are typically applied in
drawing conclusions or making the forecasts or projections set out
in forward-looking statements. Those material factors and
assumptions are based on information currently available to the
Company, including data from publicly available governmental
sources as well as from market research and industry analysis and
on assumptions based on data and knowledge of this industry which
Emblem believes to be reasonable. However, although generally
indicative of relative market positions, market shares and
performance characteristics, such data is inherently imprecise.
While Emblem is not aware of any misstatement regarding any
industry or government data presented herein, the medical cannabis
industry involves risks and uncertainties and is subject to change
based on various factors.
Forward-looking statements are not a guarantee
of future performance and are subject to and involve a number of
known and unknown risks and uncertainties, many of which are beyond
the control of the Company, which may cause the Company's actual
performance and results to differ materially from any projections
of future performance or results expressed or implied by such
forward-looking statements. These risks and uncertainties include,
but are not limited to, the risks identified in the Company's
Annual Information Form dated October 6, 2018, which has been filed
with the Canadian Securities Administrators and available on
www.sedar.com. Any forward-looking statements are made as of the
date hereof and, except as required by law, the Company assumes no
obligation to publicly update or revise such statements to reflect
new information, subsequent or otherwise.
This news release contains future-oriented
financial information and financial outlook information
(collectively, "FOFI") about Emblem's prospective results of
operations, sales, revenues, funds flow, and components thereof,
all of which are subject to the same assumptions, risk factors,
limitations, and qualifications as set forth in the above
paragraphs. FOFI contained in this news release was made as of the
date of this document and was provided for the purpose of providing
further information about the Company's future business operations.
The Company disclaims any intention or obligation to update or
revise any FOFI contained in this news release, whether as a result
of new information, future events or otherwise, unless required
pursuant to applicable law. Readers are cautioned that the FOFI
contained in this news release should not be used for purposes
other than for which it is disclosed herein.
In this press release, reference is made to
Adjusted EBITDA, which is not a measure of financial performance
under International Financial Reporting Standards. The definitions
for Adjusted EBITDA can be found in the Company's September 30,
2018 Management's Discussion and Analysis, filed on SEDAR.
Neither the 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 press release.
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