Extract growth drives record sales and volume
sold
MARKHAM, ON, Feb. 13, 2018 /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 third quarter fiscal 2018 ending
December 31, 2017. All amounts
expressed are in Canadian dollars unless otherwise noted.
"In the third quarter, we set new records for total sales and
grams sold demonstrating the strength of our underlying business
while we continue to make investments in preparation for the
recreational market and for international expansion," said
Neil Closner, CEO of MedReleaf.
"These investments are starting to bear fruit and we now have boots
on the ground in six different countries working on various
initiatives – both for cultivation and export. We also launched our
first adult recreational-use brand, San Rafael '71, which is
getting good reception from the various Provincial purchase
authorities. With a strong balance sheet bolstered by $192.5 million in equity capital raised since
last December, we have a clear opportunity to establish MedReleaf
as a global leader in the cannabis industry."
Third Quarter Fiscal 2018 Financial Summary
|
Three
Months
|
|
December
31,
|
CAD$ (in 000s,
except grams sold)
|
2017
|
2016
|
|
Dried
Cannabis
|
8,573
|
9,831
|
|
Extracts
|
2,349
|
296
|
|
Other
|
428
|
299
|
Total
Sales
|
11,350
|
10,426
|
Gross
Profit
|
9,985
|
9,714
|
Adjusted Product
Contribution Margin*
|
7,330
|
8,594
|
Adjusted
EBITDA*
|
(233)
|
4,093
|
Net Income
(loss)
|
(5,001)
|
1,738
|
Net Income (loss) per
share – diluted
|
$(0.05)
|
$0.02
|
Total grams
sold*
|
1,263,490
|
993,259
|
|
Average selling price
per gram – Dried Cannabis
|
$8.05
|
$10.41
|
|
Average selling price
per gram – Extracts
|
$11.83
|
$6.11
|
Total average selling
price per gram
|
$8.98
|
$10.50
|
Adjusted product
contribution per gram sold*
|
$5.80
|
$8.65
|
Cash cost per gram
sold*
|
$1.83
|
$1.55
|
|
|
|
*Non-IFRS
Measures
|
|
|
Third Quarter Fiscal 2018 Financial Highlights
- Record sales of $11.4 million, an
increase of 9% from the prior year period, and a 16% increase from
the second quarter of fiscal 2018.
- Sold a record 1,263 kilograms of cannabis products, an increase
of 27% from the prior year period and a 20% increase from the
second quarter of fiscal 2018.
- Sales of cannabis-based extract products were $2.3 million, or 21% of total sales.
- Adjusted EBITDA loss of $0.2
million, a decrease of $4.3
million from the prior year period due to discounts offered
to qualifying Veterans as a result of the Veterans Affairs Canada
(VAC) reimbursement policy change, overhead costs associated with
the Bradford Facility construction, and operating investments
towards future growth.
- Average selling price per gram of $8.98, a decrease from $10.50 for the prior year period due to the
reduction in VAC reimbursement pricing.
- Cash cost per gram sold of $1.83,
an increase from $1.55 for the prior
year period primarily due to increased plant operating costs and
fixed overhead attributable to the Bradford Facility. Cash cost per
total gram sold is expected to improve as greater efficiencies of
scale are realized when construction of the Bradford Facility is
fully completed.
- Adjusted product contribution margin per gram sold of
$5.80, a decrease from $8.65 for the prior year period.
Third Quarter Fiscal 2018 Business Highlights
- On November 14, 2017, MedReleaf's
Australian join venture partner, Indica Industries Pty Ltd. (t/a
"MedReleaf Australia"), was granted a licence from the Australian
Government Office of Drug Control ("ODC") for the cultivation and
production of medical cannabis.
- On November 30, 2017, MedReleaf
won 10 awards at the 2017 Lift Canadian Cannabis Awards including
Top Licensed Producer and first place product awards for: Top
Indica Flower, Top High CBD Flower, Top High THC Flower, and Top
High CBD Oil.
- On December 4, 2017, the Company
closed a bought deal equity financing for gross proceeds of
approximately $60.0 million.
- On December 21, 2017, the Company
announced an agreement to become a medical cannabis supplier to
Shoppers Drug Mart.
Subsequent to the Third Quarter Fiscal 2018
- As at February 2018, the total
annual production capacity at the Company's Bradford Facility is
9,500 kilograms, including 3,900 kilograms of capacity added since
November 2017 that is pending license
approval from Health Canada. The Company remains on schedule to
complete construction of the Bradford Facility with annual capacity
totalling 28,000 kilograms by the summer of 2018.
- On January 31, 2018, the Company
closed a bought deal equity financing for gross proceeds of
approximately $132.5 million.
- On February 6, 2018, MedReleaf
announced it has received Health Canada approval for the sale of
its cannabis oil softgel capsules, becoming the first LP to bring
colour-coded and cannabis variety-specific softgel capsules to
market.
- On February 8, 2018, MedReleaf
introduced its first adult-use recreational brand, San Rafael '71,
inspired by and designed to celebrate the spirit of cannabis
culture with the classic consumer in mind – one the largest
segments of the Canadian cannabis market.
Financial Review
Sales
Sales for the third quarter of fiscal 2018 reached a new
all-time high of $11.4 million, an
increase of 9% from the prior year period, and a 16% increase from
the second quarter of fiscal 2018. The increase in sales from the
prior year period was primarily due to sales growth for
extract-based products partially offset by Veteran volume capacity
and pricing limitations that impacted sales of dried cannabis
products. Sales of dried cannabis for the third quarter of fiscal
2018 were $8.6 million, a decrease of
13% from the prior year period.
Extract sales for the third quarter were $2.3 million, an increase of $2.1 million from the prior year period, and
represented 21% of total sales. With the launch of topical creams,
softgel capsules, future product development initiatives, and
growing industry demand, MedReleaf expects sales of extract
products to account for an increasing percentage of the Company's
overall revenue in the future.
During the third quarter of fiscal 2018, a total of 1,263.5
kilograms of cannabis products were sold, an increase of 27% from
the prior year period, and an increase of 20% from the second
quarter of fiscal 2018.
Total average selling price for the third quarter of fiscal 2018
was $8.98 per gram compared to
$10.50 for the prior year period. The
reduction in average selling price per gram from the prior year
period is a result of discounts offered to qualifying Veterans due
to the VAC Policy change that provides for a maximum reimbursement
rate of $8.50 per gram effective
November 22, 2016.
Cash Cost Per Gram Sold (Non-IFRS Measure)
The following are the Company's cash production costs, on a
total and per gram sold basis, for the three and months ended
December 31, 2017 and 2016, as
compared to reported production costs (excluding costs resulting
from the fair value of biological assets), which represents cost of
sales, in accordance with IFRS:
|
Three
Months
|
|
December
31,
|
CAD$ (in 000s,
except grams sold)
|
2017
|
2016
|
Production
costs
|
4,020
|
1,832
|
Amortization included
in production cost
|
(941)
|
(302)
|
Recovery of
production costs
|
-
|
405
|
Post production
costs
|
(762)
|
(396)
|
Cash production
costs
|
2,317
|
1,539
|
|
|
|
Equivalent grams
sold
|
1,263,490
|
993,259
|
Cash cost per gram
sold
|
$1.83
|
$1.55
|
The cash cost per gram sold for the third quarter of fiscal 2018
was $1.83 compared to cash cost per
gram sold of $1.55 for the prior year
period. The increase in cash cost per gram is primarily due to
increased plant operating costs and fixed overhead attributable to
the Bradford Facility. Cash cost per total gram sold is expected to
decrease steadily as increased production and yield improvements
are realized from the completed construction of additional
cultivation capacity at the Bradford Facility.
Adjusted Product Contribution Margin (Non-IFRS
Measure)
The following is the Company's Adjusted Product Contribution
Margin as compared to the reported gross profit, which includes the
gain on changes in fair value of biological assets in accordance
with IFRS, for the three months ended December 31, 2017 and 2016.
|
Three
Months
|
|
December
31,
|
CAD$ (in 000s,
except grams sold)
|
2017
|
2016
|
Gross
profit
|
9,985
|
9,714
|
|
Cost of finished
harvest inventory sold
|
8,232
|
5,110
|
Gain on fair value
changes in biological assets
|
(10,887)
|
(6,230)
|
Net gain on fair
value measurement of biological assets
|
(2,655)
|
(1,120)
|
Adjusted Product
Contribution Margin
|
7,330
|
8,594
|
|
|
|
Grams sold
|
1,263,490
|
993,259
|
Adjusted product
contribution margin, per gram sold
|
$5.80
|
$8.65
|
Adjusted Product Contribution Margin for the third quarter of
fiscal 2018 was $7.3 million or
$5.50 per gram sold, compared to
$8.6 million or $8.65 per gram sold for the prior year
period.
The decrease in Adjusted Product Contribution Margin and
Adjusted Product Contribution Margin per gram sold from the prior
year period was the result of increased labour costs and
depreciation attributable to the Bradford Facility expansion in
addition to both price and volume limits imposed by VAC Policy
change.
Adjusted EBITDA (Non-IFRS Measure)
|
Three
Months
|
|
December
31,
|
CAD$ (in
000s)
|
2017
|
2016
|
Income (loss) before
income taxes
|
(3,258)
|
2,527
|
Adjustments:
|
|
|
|
Amortization
|
1,776
|
432
|
|
Fair value change in
DSU
|
412
|
-
|
|
Stock based
compensation
|
3,546
|
2,251
|
|
Interest
income
|
(223)
|
(13)
|
|
Finance
costs
|
169
|
16
|
|
Initial public
offering related fees
|
-
|
-
|
|
Fair value loss on
shareholder loans
|
-
|
-
|
|
Net impact, fair
value of Biological assets
|
(2,655)
|
(1,120)
|
Adjusted
EBITDA
|
(233)
|
4,093
|
Adjusted EBITDA for the third quarter of fiscal 2018 was
($0.2) million, a decrease of
$4.3 million from $4.1 million for the prior year period.
The decrease in Adjusted EBITDA for the third quarter of fiscal
2018 compared to the prior year period is the result of: overhead
costs incurred to support the Bradford Facility; increased
expenditures related to professional fees; business development;
increased patient support costs to support patient demand;
investments in sales, marketing and brand development; increased
human resource talent to support current and future growth; and as
a result of the VAC Policy, the Company offering discounts to
qualifying Veterans to assist with the non-reimbursable portion of
their medication.
Net Income
Net loss for the third quarter of fiscal 2018 was $5.0 million compared to net income of
$1.7 million for the prior year
period. The net income decrease was mainly due to costs incurred
related to the Company's stock based compensation expense, fair
value loss related to the Company's deferred share unit (DSU) plan,
increased operating and overhead expenses, and increased
advertising and promotional expenses.
Balance Sheet
At the end of December 31, 2017,
the Company had cash and cash equivalents of $114.6 million, working capital of $137.9 million.
Inventories as at December 31,
2017 were $24.9 million, an
increase of $15.4 million from
March 31, 2017 due primarily to
inventory produced at the Bradford Facility. Of the total increase
in inventories, $10.7 million was due
to changes in the fair value associated with the deemed cost of
inventory, the balance was due primarily to the production of
work-in-process dried cannabis leaf product produced for future
extraction. As at December 31,
2017, the equivalent of approximately seven months of cost
of sales are included in inventory.
Biological assets as at December 31,
2017 were $3.8 million, an
increase of $1.0 million compared to
March 31, 2017 of $2.8 million. This increase was due to increased
fair value gains on biological assets resulting from increased
yields and the addition of biological assets at the Bradford
Facility.
Cash flow used in operating activities for the nine months ended
December 31, 2017 was $0.8 million compared cash flow provided by
operating activities of $15.8 million
for the prior year period. The decrease in cash flow provided by
operating activities was mainly due to IPO related costs and
increased operating costs, that were partially offset by increased
sales and gross profit. Increase in sales was due primarily to
patient demand, yield improvements, and the introduction of
extracted oil sales in November of 2016.
Capital expenditures for the nine months ended December 31, 2017 were $29.8 million primarily put towards production
rooms, building improvements, furniture and other equipment related
to the construction and development of the Bradford facility. As at
December 31, 2017, approximately
$9.0 million of future payments have
been committed in relation to the development of the Bradford
Facility.
MedReleaf is fully funded for its announced plans to increase
capacity to 35,000 kilograms in production annually. The Company
has a fully drawn $10 million term
credit facility and an undrawn $10
million revolving credit facility with CIBC. In addition,
MedReleaf completed two bought deal equity financings, one on
December 4, 2017 and a second on
January 31, 2018, for total gross
proceeds of approximately $192.5
million. The proceeds from these two equity financings will
be used to finance the acquisition and/or construction of
additional cannabis production and manufacturing facilities and
expand the Company's marketing and sales initiatives.
Third Quarter Fiscal Year 2018 Conference Call &
Webcast
A conference call and webcast to discuss MedReleaf's second
quarter fiscal year 2018 results will be held on Tuesday, February 13, 2018 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 2397185. The
replay of this call will be available until February 20, 2018.
The Conference Call will also be webcast live at
http://bit.ly/2DQpYSM
Financial Statements and Management's Discussion and
Analysis
This news release, along with the unaudited condensed interim
consolidated financial statements for the three and nine month
periods ended December 31, 2017 and
2016, including the notes thereto, 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. 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. 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.
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 MD&A, 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 include statements with respect to the potential growth
of the Company and increasing production capacity at the Bradford
facility and expansion of pharmaceutical manufacturing capacities.
The forward-looking information contained in this news
release are based upon MedReleaf's current internal expectations,
estimates, projections, assumptions and beliefs and views of future
events which management believes to be reasonable in the
circumstances, including expectations and assumptions regarding:
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, adverse economic,
regulatory and/or legislative developments, delays with respect to
expected construction and expansion of production facilities and
those risks and uncertainties relating to described in the
Company's management's discussion and analysis under the heading
"Risks and Uncertainties" and in the Company's annual information
form under the heading "Risk Factors" (both of which are available
electronically 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.
Voted Top Licensed Producer at the 2017 Lift Canadian Cannabis
Awards, MedReleaf is an R&D-driven company dedicated to
innovation, operational excellence and the production of
top-quality cannabis. Sourced from around the world and
carefully cultivated in one of two state of the art ICH-GMP and ISO
90001 certified facilities in Ontario, the Company delivers a variety of
premium products for the global medical market and is committed to
serving the therapeutic needs of its medical patients and providing
a compelling product assortment for the adult-use recreational
consumer.
For more information on MedReleaf, its products, research and
how the company is helping patients #livefree, please visit
MedReleaf.com or follow @medreleaf
SOURCE MedReleaf Corp.