Aleafia Health Inc. (TSX: AH, OTCQX: ALEAF) (“
Aleafia
Health” or the “
Company”) is pleased to
report its financial results for the three and nine months ended
September 30th, 2021. The Company’s 2021 third quarter unaudited,
consolidated financial statements and management discussion and
analysis will be available in the Investors section of the
Company’s website at aleafiahealth.com and will be filed on SEDAR
and available at sedar.com.
“Our momentum in the adult-use cannabis sector has continued
with our strongest quarter to date by a significant margin,” said
Aleafia Health CEO Geoffrey Benic. “Consumer demand for our
portfolio has been clearly demonstrated as we now begin to capture
meaningful market share, entering the top 10 nationally in the
pre-roll, edible, and oils categories. Most importantly, we’ve
realized a five-fold sequential increase in dried flower market
share during the quarter, in a category that is both Canada’s
largest and one that leverages our low-cost cultivation
advantage.
“The outdoor cultivation harvest, our third to date, has yielded
a material improvement in potency, providing us with a high-quality
THC-dominant dried flower for use in our milled and pre-roll
product formats. This is expected to significantly improve our
available supply of top-selling SKUs, which consistently sell-out
in adult-use markets. In 2020, we undertook capital improvements to
the outdoor facility while running a cultivar R&D testing
program, which has resulted in new, high-potency strains that will
enter our portfolio and provide strong momentum heading into the
new year.
“Like many of our peers, we have enacted an impairment of
goodwill and intangible assets which while negatively affecting net
income, are a non-cash expense. We have also undertaken cost review
initiatives which have resulted in a sequential decline in SG&A
expenses, and we expect will result in additional cost savings in
the near term.”
OPERATIONAL HIGHLIGHTS
($,000s, except operational results) |
Three months ended |
|
|
|
|
|
|
Sep 30, 2021 |
|
|
Sep 30, 2020 |
|
% Change |
|
|
$ Change |
|
Net adult-use cannabis revenue(1)(2) |
|
5,035 |
|
|
235 |
|
2,044% |
|
|
4,801 |
|
Net medical cannabis revenue(1)(2) |
|
2,506 |
|
|
1,909 |
|
31% |
|
|
597 |
|
Net bulk wholesale cannabis revenue(1)(2) |
|
1,945 |
|
|
2,101 |
|
(7%) |
|
|
(156) |
|
Cannabis net revenue(1)(2) |
|
9,486 |
|
|
4,245 |
|
123% |
|
|
5,242 |
|
|
|
|
|
|
Active, registered
patients |
|
18,642 |
|
|
17,526 |
|
6% |
|
|
1,116 |
|
Average net selling price per
gram of adult-use cannabis(1) |
$6.69 |
|
$4.92 |
|
36% |
|
$1.76 |
|
Average net selling price per
gram of medical cannabis(1) |
$6.14 |
|
$7.91 |
|
(22%) |
|
($1.77) |
|
Average net selling price per
gram of bulk wholesale cannabis(1) |
$1.26 |
|
$3.85 |
|
(67%) |
|
($2.59) |
|
Adjusted gross margin before
FV adjustments on adult-use cannabis net revenue(1)(2) |
|
28% |
|
|
21% |
|
8% |
|
|
- |
|
Adjusted gross margin before
FV adjustments on medical cannabis net revenue(1)(2) |
|
47% |
|
|
26% |
|
21% |
|
|
- |
|
Adjusted gross margin before
FV adjustments on wholesale cannabis net revenue(1)(2) |
|
(169%) |
|
|
(9%) |
|
(161%) |
|
|
- |
|
Kilograms sold |
|
2,709 |
|
|
835 |
|
225% |
|
|
1,874 |
|
1. See "Cautionary Statements Regarding Certain non-IFRS Measures"
section of associated MD&A for term definition. |
2. See associated MD&A for reconciliation to IFRS
equivalent. |
- Net cannabis
revenue was $9.5 million for the three months ended September 30,
2021 (“Q3 2021”), an increase of 123% over the prior year’s
quarter. This was primarily due to an increase in the sale of
cannabis in the adult-use and medical cannabis sales channels.
- Net adult-use
cannabis revenue during the three months ended September 30, 2021
was $5.0 million, an increase of 57% over the previous quarter and
2,044% over the prior year’s quarter. The sequential increase was
primarily due to greater product availability and the launch of new
product formats and SKUs. Specifically, this was driven by
increased sales of dried flower and pre-roll products, which make
up the largest and third largest adult-use product categories in
the Canadian market.
- Adjusted gross
margin in the adult-use cannabis segment before FV adjustments was
28%, compared to 21% in the prior year’s quarter. The sequential
decline in gross margin percentage was primarily due to the
increase in sales of value priced pre-rolls, which contribute a
lower gross margin.
- Medical cannabis
net revenue for Q3 2021 was $2.5 million, a 23% decrease over the
previous quarter and a 31% increase over the prior year’s quarter.
The sequential decline was due to seasonally lower prescriptions
written and filled during the summer months and a decline in
international medical cannabis sales during the quarter.
- Adjusted gross
margin in the medical cannabis segment was 47%, compared to 26% in
the prior year’s quarter. The improvement was due to optimizations
and economies of scale in the production of cannabis products, and
from lower costs of input material due to the ramp-up of production
at the Niagara Greenhouse and Port Perry outdoor cultivation
facilities.
- Net bulk wholesale
revenue received from sales to cannabis licensed producers, as
defined in the Cannabis Act was $1.9 million, compared to $3.1
million and $2.1 million in the previous and prior year’s quarters,
respectively.
- The negative gross
margin in the bulk wholesale segment during Q3 2021 of 169% is
attributable to the Company recording of an inventory provision for
slow moving inventory of $2.4 million expensed to cost of sales,
and the opportunistic sale of aged CBD distillate, due to a greater
focus by the Company on THC dominant SKUs.
PRODUCT LAUNCHES & KEY DEVELOPMENTS
Throughout the reporting period, the Company
undertook an expansion of its cannabis brand and product portfolio,
including differentiated formats and new SKUs in the important
value flower and pre-roll categories.
High Potency Outdoor
Cultivation: Subsequent to the reporting period, the
Company completed the harvesting of its 2021 outdoor cannabis
facility in Port Perry. Testing and weighing of CBD-dominant and
CBD/THC balanced cultivars, which represent the vast majority of
the total weight harvested, remains underway, and are not reflected
in the results below.
Cannabinoid testing results of THC dominant
dried flower indicate a significant improvement in potency and
total kilograms harvested that can be made available to sell in the
adult-use market in pre-roll and milled formats. A total of 11,600
kgs with an average THC potency of 22% will be allocated for sale
in the adult-use market, primarily under Aleafia Health’s everyday
cannabis brand Divvy. By contrast, in 2020, the Company harvested
7,200 kgs of THC dried flower, but only 7% of this harvest exceeded
THC potency of 20%, a key threshold in the adult-use market. The
material improvement in potency and yield is attributed to
additional cultivars introduced in 2021, following R&D testing
in 2020, along with improvements in site infrastructure.
Significant Increase in Dried Flower
Market Share: The Company has undertaken an expansion of
its dried flower portfolio, the largest product category in the
Canadian cannabis market, with new large format SKUs and additional
cultivars launched during the reporting period. Strong demand for
the Company’s everyday cannabis brand Divvy resulted in an 81-basis
point (BPS) increase in national adult-use market share1 over Q2
2021.
Divvy Line Extensions:
Following a successful launch of Divvy earlier in 2021, the Company
has recently added to the brand portfolio, with additional large
format milled and dried flower SKUs. These products lean on Aleafia
Health’s low-cost outdoor and greenhouse cultivation advantage with
low-cost input material allowing for competitive pricing while
protecting gross margins. Additionally, the Company has also
recently launched oils under the Divvy banner, which will be
available in adult-use markets in Q4 2021.
Top 10 Market Share in
Pre-Rolls: Buoyed by continued growth during Q3 2021 in
the pre-roll category, the Company sequentially doubled national
market share following the launch of larger format SKUs in the
value segment under the Divvy brand. Since the close of the
reporting period, the Company has entered the top 10 in national
market share1 in the category, estimated to be Canada’s third
largest.
Top 10 Market Share in Edibles:
Through the strength of its Kin Slips sublingual strips2 brand and
additional Bogart’s Kitchen confectionary edibles SKUs, the Company
has maintained top 10 national market share1 in the edibles
category.
Launch of Premium Brand Nith &
Grand: Featuring hang dried, hand trimmed, small batch
dried flower, and premium concentrates, Nith & Grand appeals to
experienced cannabis aficionados. The initial launch features TF
Pink Kush Live Resin vape cartridges, which comprises a hydrocarbon
extraction process utilizing fresh-frozen cannabis flower that
preserves the strain’s natural flavour, aroma and terpene
profile.
NET INCOME & ADJUSTED EBITDA
|
Three months ended |
Nine months ended |
($,000s) |
Sep 30, 2021 |
|
Sep 30, 2020 |
|
Sep 30, 2021 |
|
Sep 30, 2020 |
|
Net loss |
(82,922 |
) |
(19,761 |
) |
(94,206 |
) |
(29,937 |
) |
Add back: |
|
|
|
|
Depreciation and amortization1 |
2,388 |
|
3,273 |
|
7,338 |
|
7,515 |
|
Interest expense, net |
1,982 |
|
3,062 |
|
5,975 |
|
8,538 |
|
Income tax expense (recovery) |
(2,854 |
) |
(4,394 |
) |
(2,854 |
) |
(5,394 |
) |
EBITDA |
(81,406 |
) |
(17,820 |
) |
(83,747 |
) |
(19,278 |
) |
Write-down to net realizable
value included in cost of sales(2) |
2,382 |
|
- |
|
- |
|
- |
|
FV changes in biological
assets and changes in inventory sold |
(3,435 |
) |
10,708 |
|
(6,086 |
) |
18,027 |
|
Share-based payments |
1,050 |
|
648 |
|
2,168 |
|
2,108 |
|
Bad debt expense |
2,225 |
|
500 |
|
9,944 |
|
904 |
|
Business transaction
costs |
865 |
|
816 |
|
3,379 |
|
3,322 |
|
Unrealized (gain) loss on
marketable securities |
6,300 |
|
(61 |
) |
5,600 |
|
(66 |
) |
Gain in sale of assets |
- |
|
- |
|
(12,092 |
) |
- |
|
Impairment of goodwill |
11,314 |
|
- |
|
11,314 |
|
- |
|
Impairment of intangible
assets |
53,093 |
|
- |
|
53,093 |
|
- |
|
Non-operating expense
(income) |
8 |
|
(4 |
) |
(351 |
) |
(407 |
) |
Adjusted EBITDA(3) |
(7,604 |
) |
(5,213 |
) |
(16,778 |
) |
4,610 |
|
1. Includes non-cash depreciation expensed to cost of sales. |
2. See "Note 9" of accompanying financial statements for further
discussion. |
3. See "Cautionary Statements Regarding Certain non-IFRS Measures"
section for term definition. |
- Net loss for the
three months ended September 30, 2021 was $82.9 million compared to
a net loss of $19.8 million over the prior year’s quarter. The
increase in net loss over the prior year’s quarter is primarily due
non-cash items including a $53.1 million impairment of intangible
assets and a $11.3 million impairment of goodwill.
- During Q3 2021,
wages & benefits, and selling & administrative expenses
were $7.0 million, a decline of 24% over the previous quarter. This
follows cost review initiatives undertaken during the reporting
period which remain ongoing.
- Adjusted EBITDA
for the three months ended September 30, 2021 was a loss of $7.6
million, compared to a loss of $5.2 million in the prior year’s
quarter. The decline over the prior year’s quarter was primarily
due to an increase in cost of sales, which relates to the one-time
sale of aged inventory in the bulk wholesale channel.
SELECTED BALANCE SHEET INFORMATION
($,000s) |
Sep 30, 2021 |
Dec 31, 2020 |
Cash, cash equivalents, marketable securities |
11,338 |
30,529 |
Current assets |
69,894 |
82,923 |
Current liabilities |
65,750 |
45,041 |
Working capital |
4,144 |
37,882 |
Total assets |
152,708 |
237,283 |
Total liabilities |
67,768 |
83,062 |
|
|
|
Capitalization |
|
|
Lease liability |
2,533 |
3,167 |
Credit Facility |
9,942 |
- |
Convertible debt |
34,741 |
56,802 |
Total debt |
47,216 |
59,969 |
Total
equity |
84,940 |
154,221 |
Total capitalization |
132,156 |
214,190 |
CONFERENCE CALL & WEBCAST
Date: November 11,
2021 Time: 9:30 a.m.
ET USA/Canada Toll-Free Participant
Call-in: (866) 679-9046; Passcode:
5588397 International Toll-Free Participant
Call-in: (409) 217-8323; Passcode:
5588397 WEBCAST LINK
This conference call will be webcast live over the internet and
can be accessed through the link provided. Audio of the call
will be available to participants through both the conference call
line and webcast; however, the presentation may only be viewed via
the webcast. Participants who miss the live call can view a replay
at any time via the link provided.
- According to retail sell-through data
from Hifyre, inclusive of Ontario, Alberta, BC and
Saskatchewan.
- Hifyre data classifies Kin Slips in the
edibles product category.
CAUTIONARY STATEMENT REGARDING NON-IFRS
MEASURES
This press release contains non-IFRS financial
performance measures which the Company believes provides users with
relevant information regarding operation performance. These
measures are not recognized or defined under IFRS, and as a result,
they may not be comparable to the data presented by competitors.
For term definitions and reconciliation to IFRS equivalent, please
see the associated Q3 2021 MD&A.
For Investor & Media Relations:
Nicholas Bergamini, VP Investor
Relations1-833-879-2533IR@AleafiaHealth.comLEARN MORE:
www.AleafiaHealth.com
About Aleafia Health:
Aleafia Health is a vertically integrated and
federally licensed Canadian cannabis company offering cannabis
health and wellness services and products in Canada. The Company
has developed an international footprint, with subsidiaries or
investments in German and Australian medical cannabis companies and
has products available in both markets. The Company owns and
operates a virtual network of medical cannabis clinics staffed by
physicians and nurse practitioners who have seen over 75,000
patients to date.
Aleafia Health owns three licensed cannabis
production facilities and operates a strategically located
distribution centre all in the province of Ontario, including the
first large-scale, legal outdoor cultivation facility in Canadian
history. The Company produces a diverse portfolio of cannabis
derivative products including oils, capsules, edibles, sublingual
strips, and vapes, for sale in Canada in the medical and adult-use
markets, and in select international jurisdictions.
Forward Looking Information
This news release contains forward-looking information within
the meaning of applicable Canadian and United States securities
laws. Often, but not always, forward-looking information can be
identified by the use of words such as “plans”, “expects”,
“estimates”, “intends”, “anticipates”, or “believes” or variations
of such words and phrases or state that certain actions, events or
results “may”, “could”, “would”, “might” or “will” be taken, occur
or be achieved. Forward-looking information involves known and
unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company or its
subsidiaries to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking information contained in this news release. Risks,
uncertainties and other factors involved with forward-looking
information could cause actual events, results, performance,
prospects and opportunities to differ materially from those
expressed or implied by such forward-looking information, including
risks contained in the Company’s annual information form filed with
Canadian securities regulators available on the Company’s SEDAR
profile at www.sedar.com. Although the Company believes that the
assumptions and factors used in preparing the forward-looking
information in this news release are reasonable, undue reliance
should not be placed on such information and no assurance can be
given that such events will occur in the disclosed time frames or
at all. The forward-looking information included in this news
release are made as of the date of this news release and the
Company does not undertake any obligation to publicly update such
forward-looking information to reflect new information, subsequent
events or otherwise unless required by applicable securities
legislation.
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