- Focuses business on accelerated, near-term revenue growth with
enhanced, coast-to-coast sales partnership with humble+fume
- Enhanced cost structure and near-term revenue generating
opportunities expected to drive profitable growth
- Reports 17% year-over-year net revenue growth and maintains a
strong liquidity position with total cash and restricted cash
balance of $55 million with
$35 million of undrawn capacity on
the Company's Credit Facility
TORONTO, Feb. 13, 2020 /CNW/ - The Supreme Cannabis
Company, Inc. ("Supreme Cannabis" or the "Company") (TSX: FIRE)
(OTCQX: SPRWF) (FRA: 53S1) today announced its financial and
operating results for the three and six months ended December 31, 2019, as well as an update on its
strategy and outlook.
As announced on February 11, 2020,
Supreme Cannabis has implemented a new operating structure,
including staff reductions, to drive efficiencies and support
long-term, profitable growth. With an optimized cost structure in
place, the Company is moving forward with its strategy to
transition to a premium cannabis CPG company, driving near-term
revenue with new high-quality brands and products at every price
segment. This expanded, consumer-facing brand portfolio is being
supported by an innovative sales model that achieves comprehensive
distribution across Canada.
"As we realign our structure and expectations with the current
state of the industry, I maintain my strong belief in Supreme
Cannabis' ability to drive near-term revenue growth, profitability
and long-term value with new high-quality brands and products at
every key price segment," said Colin
Moore, Director and Interim President and CEO. "I'm proud of
the team's progress and difficult work rightsizing the Company's
cost structure and focusing the business on near-term revenue
drivers. As one of the few licensed producers with completed
cultivation infrastructure and in-house value-added processing
capabilities, as well as proven premium brands in the recreational
market, we are well positioned to accelerate our CPG-focused
transition. Our strong liquidity position, including the Credit
Facility arranged by a tier one bank, further ensures we have the
capital necessary to execute going forward."
In the quarter, Supreme Cannabis built on the success of its
premium 7ACRES brand with the launch of the Company's first
pre-rolls under Sugarleaf by 7AC ("Sugarleaf"). The Sugarleaf brand
will addresses a mid-tier price point and continue to introduce
products that offer more convenient and accessible consumption
experiences. In the remainder of fiscal 2020, Supreme Cannabis will
further expand its brand portfolio to capture additional market
share and drive revenue growth with recreational brands that
address the ultra-premium and value segments. Products launched
under these brands will drive incremental sales volumes by growing
and sourcing additional cannabis inputs not intended for 7ACRES
premium products.
Supreme Cannabis also expanded distribution of its 7ACRES brand
to all 10 Canadian provinces last quarter. The Company is
addressing this national revenue opportunity through an enhanced
retail sales strategy and partnership with Humble & Fume Inc.
("humble+fume"), a leading distributor of cannabis accessories in
Canada. Under a comprehensive
sales representation and cost-sharing agreement, humble+fume will
act as a sales agent for Supreme Cannabis' recreational products
across Canada, creating the only
sales force in Canada able to
offer a complete solution of cannabis brands and accessories to
retailers. Supreme Cannabis will efficiently and effectively
achieve coast-to-coast sales coverage and build brands at a store
level, with an initial team of 14 sales professionals driving
distribution, brand advocacy and budtender education.
"With the number of retail stores in Canada quickly growing and cannabis consumers
making their purchase decisions in store, having representation at
the individual store level provides an essential opportunity for
our business to drive near-term revenue growth and support our
transition to a cannabis CPG company," continued Mr. Moore. "Our
partnership with humble+fume allows us to realize industry-leading
sales coverage and focus our sales and marketing efforts at the
most impactful stage of the cannabis consumer's journey. We enter
the second half of 2020 focused on the opportunity to address the
Canadian market with competitive consumer brands supported by an
unmatched sales force."
Select Financial and Operational Results.
($
thousands)
|
Q2 2020
|
Q1 2020
|
Q2 2019
|
Net
revenue
|
9,059
|
11,433
|
7,718
|
Gross margin,
excluding fair
value
items
|
2,633
|
7,065
|
4,525
|
Operating
expenses
|
19,755
|
18,491
|
10,891
|
Net loss after
taxes
|
(17,315)
|
(16,525)
|
(1,551)
|
Basic and diluted
loss per
common
share
|
(0.05)
|
(0.05)
|
(0.01)
|
Adjusted
EBITDA
|
(10,439)
|
(4,932)
|
(3,265)
|
Cash
|
48,705
|
36,420
|
91,966
|
Net Revenue
Net revenue increased year-over-year by 17% from $7.7 million in Q2 2019 to $9.1 million in Q2 2020 and decreased
quarter-over-quarter by 21% from $11.4
million in Q1 2020. The quarter-over-quarter decrease in net
revenue is primarily attributable to the Company's planned
transition from a focus on wholesale to recreational sales. In the
quarter, lower wholesale sales were partially offset by the
increase in recreational sales. Net revenue was also impacted
by actual and anticipated price adjustments of $0.5 million.
In Q2 2020, wholesale sales accounted for 38% of net revenue
compared to 54% in Q1 2020. Supreme Cannabis' remaining wholesale
flower supply agreements came to an end, which contributed to lower
quarter-over-quarter wholesale selling prices and sales volumes.
Despite this factor and market-wide wholesale price compression,
Supreme Cannabis continued to achieve favourable wholesale pricing,
with an average wholesale flower price of $3.26 per gram. As the Company advances its
transition to a CPG focus, it will continue to opportunistically
supplement recreational sales with attractive wholesale
transactions.
Recreational sales in Q2 2020 reached $5.7 million and, as a percentage of net revenue,
increased from 46% in Q1 2020 to 62% in Q2 2020. In the quarter,
recreational sales were impacted by market conditions, including
slower than expected store roll-outs in key Canadian provinces.
Recreational net revenue was also impacted by a lower than expected
contribution from the Company's other businesses. Recreational net
revenue for Q2 2020 was comprised of $5.0
million from 7ACRES products and $0.7
million from Blissco products. Supreme Cannabis continued to
achieve strong recreational pricing with a net average selling
price of $5.39 per gram.
Adjusted EBITDA
Adjusted EBITDA was down year-over-year from $(3.3) million in Q2 2019 to $(10.4) million in Q2 2020 and
quarter-over-quarter from $(4.9
million) in Q1 2020. Lower average selling prices and higher
impairment charges related to inventory write-downs resulted in
decreased margins. Adjusted EBITDA was also impacted by a
quarter-over-quarter increase in operating expenses.
Capital Expenditure
Capital expenditures in the quarter were $11.9 million, primarily reflecting the
completion of construction at the 7ACRES Facility, the addition of
an ethanol extraction lab at the Blissco Facility and phase 1
retrofitting to the Kitchener Facility. With the completion of
these construction projects, capital expenditure for the remainder
of fiscal 2020 is expected to be minimal, consisting of additional
CPG equipment and minor retrofitting to the 7ACRES Facility where
supported by near-term cash flow returns.
Balance Sheet and Liquidity
In the quarter, Supreme Cannabis entered into a credit agreement
with Bank of Montreal as Lead
Arranger and Agent on behalf of a group of lenders for $90.0 million of senior secured credit facilities
(the "Credit Facility"), consisting of a term loan of $70.0 million and a revolving credit facility of
$20.0 million. The Company initially
drew $55.0 million of the term loan under the Credit
Facility, ending the quarter with a total cash and restricted cash
balance of $55.0 million and
$35.0 million of undrawn
capacity.
During Q2 2020, the Company completed its standard evaluation of
investments which resulted in a reduction in the carrying value of
MG Health Lesotho. This reduction is reflective of general cannabis
market conditions and recognized as a loss in Other Comprehensive
Income.
Operations.
Prior to calendar year end, on December
21, 2019, all major construction on the Company's 440,000
square foot premium cultivation facility (the "7ACRES Facility")
was completed. Since completing construction and optimizing new
equipment, Supreme Cannabis has realized greater operational
efficiencies, improving its throughput trimming rate by 400% and
increasing its packaging capacity by 200%. Subsequent to quarter
end, 7ACRES brought a second automated bottling line into
production, increasing total packaging capacity to a maximum of
24,000 containers per day. The Company expects that 7ACRES will
bring a third automated bottling line into production prior to
fiscal year-end.
The 7ACRES Facility has approximately 250,000 square feet
of licensed cultivation space, comprised of 21 flowering rooms and
four rooms dedicated to vegetation and propagation. With major
construction complete, the Company has put in submissions for
licenses to Health Canada and expects to bring an additional 20,000
square feet of flowering space and 10,000 square feet of vegetation
and propagation space online in Q3 2020. An additional room that
previously operated as a storage and support space is currently
undergoing minor retrofits to be converted back into a flowering
room. The remaining 25th flowering room is operating as
7ACRES' processing and packaging space. Once necessary processing
and packaging capacity is brought online at the Company's facility
in Kitchener, Ontario, the company
intends to convert this room back into a cultivation space.
As previously announced, Supreme Cannabis leased an 107,000
square foot building in Kitchener,
Ontario to serve as a central manufacturing, processing and
packaging centre for Supreme Cannabis brands (the "Kitchener
Facility"). The Company has completed the first phase of
construction on the Kitchener Facility, which includes a
retrofitted multi-purpose processing clean room. The Company has
submitted its application to Health Canada for a cannabis
processing license. This license will allow Supreme Cannabis to
conduct product packaging and value-added processing at the
Kitchener Facility. In Q4 FY2020, the Company expects to begin
whole flower packaging and pre-roll manufacturing for Supreme
Cannabis brands at the Kitchener Facility.
In Q2 2020, Supreme Cannabis completed construction on Blissco's
12,000 square foot extraction facility in Langley, British Columbia (the "Blissco
Facility"), adding a large-scale ethanol-based extraction lab that
expands on Blissco's existing CO2-based extraction capability. In
the quarter, Blissco received its Cannabis Oil Sales License from
Health Canada as well as a license amendment that allows for the
sale of cannabis 2.0 products. As previously announced, with
this license amendment and the capacity to produce over 7,000,000
tincture bottles annually, Blissco's state-of-the-art extraction
facility will process product for 7ACRES'
vaporizer partnership with Pax Labs,
Inc. ("PAX").
As previously announced on December 5,
2019, Supreme Cannabis' genetics business, Cambium Plant
Sciences ("Cambium") is operating out of the 7ACRES cultivation
facility. The Company is no longer proceeding with capital
expenditure on the construction of the previously announced Cambium
facility. In the quarter, Cambium combined and catalogued
Truverra's genetic library, increasing its number of unique strains
by 70%. Cambium is testing new strains within the 7ACRES facility
and expects to commercialize new strains under the 7ACRES brand
prior to year-end.
Products and Brands.
At the end of Q2 2020, Supreme Cannabis launched Sugarleaf
pre-rolls, the Company's first offering priced below the premium
category. Sugarleaf is currently available in Alberta, Ontario and Quebec, and will increase distribution in
fiscal 2020. Sugarleaf will launch an additional pre-roll strain in
Q3 2020 and enter more product categories prior to fiscal year end.
The company will use Blissco's oil extraction and formulation
expertise to introduce an additional oil under the mainstream
Sugarleaf brand. This builds on Supreme Cannabis' position in the
CBD oil category, with Blissco's full spectrum CBD oil, Pūr
Dew, addressing the premium end of the category.
Through the Sugarleaf brand, the Company has seen strong demand
for pre-roll products and intends to bring whole flower pre-rolls
to market under the 7ACRES brand in Q3 2020. By the end of Q3 2020,
7ACRES will also introduce its first 2.0 cannabis product in the
form of PAX pods for the PAX Era vaporizer. 7ACRES inputs will be
extracted at the Blissco facility and Blissco's experienced team
will formulate premium oils for the 7ACRES PAX Era pods. Prior to
fiscal year end, the Company expects to introduce additional 2.0
products under the 7ACRES brand in the form of concentrates.
Supreme Cannabis continues to achieve capital light
international exposure in the EU and UK through its Truverra
branded CBD products. Truverra's e-commerce model, includes
distribution on Amazon UK and on truverra.com. Supreme Cannabis is
gathering valuable market insights through Truverra's consumer
website. Subsequent to quarter end Supreme Cannabis launched a new
Truverra website, improving the consumer journey and shopping
experience. Supreme Cannabis will continue to address international
medical opportunities under this international brand.
Outlook.
Due to current market conditions, including a slower than
anticipated retail rollout nationally, Supreme Cannabis is
withdrawing its previously issued financial outlook for fiscal
2020, which was originally announced on September 17, 2019 and subsequently confirmed on
November 14, 2019. This decision is
discussed in further detail under the heading "Outlook" in the
Company's MD&A for the second quarter ended December 31, 2019.
The Company is confident in its ability to grow near-term
revenue and reach profitability based on its accelerated transition
to a premium Cannabis CPG company, its improved operating structure
and its expected offering of new high-quality brands and products
at every price segment. The Company provides the following updated
outlook for the remainder of the fiscal year:
- Efficient and effective coast-to-coast sales coverage with the
humble+fume sales partnership. The partnership will allow for brand
building at a store level, thereby enhancing distribution, brand
advocacy and budtender education.
- Launch of 2.0 products including PAX era vaporizer pods and
cannabis concentrate products.
- Expanded brand portfolio with the launch of recreational brands
that address the ultra-premium and value segments.
- 7ACRES to complete its transition from a wholesale business to
premium consumer brand by Q3 2020, with completed in-house
packaging capabilities for all flower products under the 7ACRES'
brand. Supreme Cannabis will continue to opportunistically
supplement recreational sales with attractive wholesale
transactions.
- Engaged an internationally recognized search firm that is
identifying and evaluating candidates for the position of CEO.
- Fully funded to execute on all planned initiatives.
Supreme Cannabis' MD&A and consolidated financial statements
for the second quarter ended December 31,
2019, along with all previous public filings of The Supreme
Cannabis Company, Inc., may be found on SEDAR at www.SEDAR.com.
All figures are in
Canadian dollars.
|
About Supreme Cannabis.
The Supreme Cannabis Company, Inc., (TSX: FIRE) (OTCQX:
SPRWF) (FRA: 53S1), is a global diversified portfolio of
distinct cannabis companies, products and brands. Since 2014, the
Company has emerged as one of the world's fastest-growing, premium
plant-driven lifestyle companies. Supreme Cannabis' portfolio of
brands caters to diverse consumer experiences, with brands and
products that address recreational, wellness, medicinal and new
consumer preferences.
The Company's brand portfolio includes, 7ACRES, Blissco,
Truverra, Sugarleaf by 7AC and Khalifa Kush Enterprises Canada.
Supreme Cannabis' brands are backed by a focused suite of
world-class operating assets that serve key functions in the value
chain, including, scaled cultivation, value-add processing,
centralized manufacturing and product testing and R&D. Follow
the Company on Instagram, Twitter, Facebook, LinkedIn and
YouTube.
We simply grow better.
Forward-Looking Information.
Certain statements made in this press release may constitute
"forward-looking information", "future oriented financial
information" or "financial outlooks" (collectively,
"forward-looking information") within the meaning of applicable
securities laws. Forward-looking information may relate to
anticipated events or results including, but not limited to the
CPG-focused transition; the expansion of the brand portfolio;
driving incremental sales volumes; the relationship with
humble+fume; achieving coast-to-coast sales coverage and building
brands at a store level; capital expenditure for the remainder of
fiscal 2020; production capacity at the 7ACRES Facility; the
application to Health Canada for a cannabis processing license;
beginning whole flower packaging and pre-roll manufacturing at
Kitchener Facility; processing product for 7ACRES'
vaporizer partnership with Pax; commercializing new
strains under the 7ACRES brand prior to year-end; future launch and
distribution of Sugarleaf and 7ACRES products; the updated outlook
for the remainder of the fiscal year; and other statements that are
not historical facts. Particularly, information regarding our
expectations of future results, targets, performance achievements,
prospects or opportunities is forward-looking information. Often,
but not always, forward-looking statements can be identified by the
use of forward-looking terminology such as "may", "will", "expect",
"believe", "estimate", "plan", "could", "should", "would",
"outlook", "forecast", "anticipate", "foresee", "continue" or the
negative of these terms or variations of them or similar
terminology. Forward-looking information is current as of the date
it is made and is based on reasonable estimates and assumptions
made by us at the relevant time in light of our experience and
perception of historical trends, current conditions and expected
future developments, as well as other factors that we believe are
appropriate and reasonable in the circumstances.To the extent any
forward-looking information in this press release constitutes
"future oriented financial information" or "financial outlooks",
within the meaning of applicable securities laws, the purpose of
such information being provided is to demonstrate the potential of
the Company and readers are cautioned that this information may not
be appropriate for any other purpose. However, we do not undertake
to update any such forward-looking information whether as a result
of new information, future events or otherwise, except as required
under applicable securities laws in Canada. There can be no assurance that such
estimates and assumptions will prove to be correct.
Many factors could cause our actual results, level of activity,
performance or achievements or future events or developments to
differ materially from those expressed or implied by the
forward-looking information as discussed in the "Risk Factors"
section of the Company's Annual Information Form dated September 17, 2019 ("AIF"). A copy of the AIF and
the Company's other publicly filed documents can be accessed under
the Company's profile on the System for Electronic Document
Analysis and Retrieval ("SEDAR") at www.sedar.com. The Company
cautions that the list of risk factors and uncertainties described
in the AIF is not exhaustive and other factors could also adversely
affect its results. Readers are urged to consider the risks,
uncertainties and assumptions carefully in evaluating the
forward-looking information and are cautioned not to place undue
reliance on such information.
Non-GAAP Measures and Additional Subtotals.
This news release contains certain financial performance
measures that are not recognized or defined under IFRS ("Non-GAAP
Measures") including, but not limited to, "Adjusted EBITDA". As a
result, this data may not be comparable to data presented by other
cannabis companies. For an explanation and reconciliation of these
measures to related comparable financial information presented in
the financial statements prepared in accordance with IFRS for the
second quarter ended December 31,
2019, please refer to the "Results of Operations for the
three and six months ended December 31,
2019 and 2018" section in the MD&A for the second
quarter ended December 31, 2019. The
Company believes that these Non-GAAP Measures are useful indicators
of operating performance and are specifically used by management to
assess the financial and operational performance of the
Company.
The Company defines Adjusted EBITDA as net income (loss)
excluding fair value changes on growth of biological assets,
realized fair value changes on inventory sold or impaired,
amortization of property plant and equipment & intangible
assets, share based payments, finance expense, loss on disposal of
property plant and equipment, unrealized and realized gains or
losses on investments, gains or losses on non-controlling interest
and income taxes.
The Company presents additional subtotals in its Financial
Statements prepared in accordance with IFRS. The additional
subtotals include, but not limited to, gross margin, excluding fair
value items in its statements of comprehensive loss ("Additional
Subtotals"). The Company defines gross margin, excluding fair value
items as the gross margin before recording fair value changes on
growth of biological assets and realized fair value changes on
inventory sold or impaired. More information on changes in fair
value of biological assets can be found in "Changes in fair value
of biological assets" section of the MD&A for the second
quarter ended December 31, 2019.
Non-GAAP Measures and Additional Subtotals should be considered
together with other financial information prepared in accordance
with IFRS to enable investors to evaluate the Company's operating
results, underlying performance and prospects in a manner similar
to Supreme Cannabis' management. Accordingly, these Non-GAAP
Measures and Additional Subtotals are intended to provide
additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with IFRS.
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SOURCE The Supreme Cannabis Company, Inc.