Auxly Cannabis Group Inc. (TSX - XLY) (OTCQX:
CBWTF) ("
Auxly" or the
"
Company") today released its financial results
for the three months ended March 31, 2021. These filings and
additional information regarding Auxly are available for review on
SEDAR at www.sedar.com.
Q1 2021 Highlights and Subsequent
Events
- Recorded net revenues of $10M for
the three months ended March 31, 2021, an increase of 1% from the
same period in 2020.
- Maintained leadership position in
Cannabis 2.0 product sales with approximately 12.6% national market
share1 in the quarter.
- SG&A declined another 5% from
the previous quarter.
- Continued to launch new innovative
products to the Canadian market with the introduction of the
Company’s first cannabis concentrate, 232 Series Diamonds under its
Kolab Project brand and an industry-leading, high-potency topical,
Dosecann Daily Relief CBD cream.
- Welcomed Andrea Fraser to the Auxly
Family as Chief People Officer.
- Further strengthened the Company’s
balance sheet with a $8M private placement offering of units.
Q1 Highlights
(000’s) |
|
March 31,2021 |
|
March 31,2020 |
|
Change |
PercentageChange |
Total net revenues |
$ |
10,008 |
$ |
9,905 |
$ |
103 |
1% |
|
|
|
|
|
|
|
|
Net losses* |
$ |
(10,494) |
$ |
(12,744) |
$ |
2,250 |
18% |
|
|
|
|
|
|
|
|
Adjusted
EBITDA** |
$ |
(6,872) |
$ |
(8,335) |
$ |
1,463 |
18% |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
714,041,130 |
|
625,242,335 |
|
88,798,795 |
14% |
* Attributable to shareholders of the
Company** Adjusted EBITDA is a Non-IFRS financial measure. Refer to
the Non-IFRS Financial and Performance Measures section in the
MD&A for definitions
(000’s) |
|
March 31,2021 |
|
December 31,2020 |
|
Change |
PercentageChange |
Cash and
equivalents |
$ |
20,431 |
$ |
21,214 |
$ |
(783) |
-4% |
|
|
|
|
|
|
|
|
Total assets |
$ |
389,258 |
$ |
378,963 |
$ |
10,295 |
3% |
|
|
|
|
|
|
|
|
Debt |
$ |
117,911 |
$ |
114,825 |
$ |
3,086 |
3% |
|
|
|
|
|
|
|
|
Hugo Alves, CEO of Auxly, commented: “As felt
throughout the industry, this first quarter of 2021 proved to be a
challenging one for Auxly as we continued to combat industry
headwinds and the impacts from the COVID-19 pandemic. However,
while sales to our provincial customers were impacted, the
performance of our products at a retail level remained
exceptionally strong, we are very encouraged by the growth in our
retail sales and continued market share achievements, which has
reinforced our leadership position in the Canadian Cannabis 2.0
market. We intend to build on our success in the 2.0 category and
introduce new product formats, including Cannabis 1.0 product
formats, that expand our product offering and delight our
consumers, as we remain committed in our vision of being a global
leader in branded cannabis products and building long-term
stakeholder value.”
Results of Operations
(000’s) |
Three months EndedMarch 31, 2021 |
Three months EndedMarch 31, 2020 |
Revenues |
|
|
Revenue from sales of cannabis products |
$ |
12,152 |
$ |
10,467 |
Research contracts and other |
842 |
901 |
Excise taxes |
(2,986) |
(1,463) |
|
|
|
Total Net Revenues |
10,008 |
9,905 |
|
|
|
Cost of Sales |
|
|
Costs of finished cannabis inventory sold |
6,848 |
5,091 |
Research contracts and other |
850 |
548 |
Inventory (gain) / impairment |
230 |
1,274 |
Gross profit excluding fair value items |
2,080 |
2,992 |
|
|
|
Unrealized fair value gain / (loss) on biological
transformation |
255 |
(51) |
Realized fair value gain / (loss) on inventory |
1 |
(180) |
Gross Profit / (loss) |
2,336 |
2,761 |
|
|
|
Expenses |
|
|
Selling, general, and administrative expenses |
9,388 |
14,018 |
Depreciation and amortization |
2,533 |
2,374 |
Interest expense |
4,608 |
2,199 |
Total expenses |
16,529 |
18,591 |
|
|
|
Other incomes / (losses) |
|
|
Fair value gain / (loss) of financial instruments accounted under
FVTPL |
116 |
(115) |
Interest and other income |
416 |
61 |
Gain / (loss) on settlement of assets and liabilities and other
expenses |
4,069 |
1,834 |
Share of gain / (loss) on investment in joint venture |
(459) |
(785) |
Foreign exchange gain / (loss) |
(488) |
1,644 |
Total other incomes/(losses) |
3,654 |
2,639 |
|
|
|
Net Loss before income tax |
(10,539) |
(13,191) |
Income tax recovery |
39 |
- |
Net Loss |
$ |
(10,500) |
$ |
(13,191) |
|
|
|
Net loss attributable to shareholders of the
Company |
$ |
(10,494) |
$ |
(12,744) |
Net loss attributable to non-controlling
interest |
(6) |
(447) |
|
|
|
Adjusted EBITDA |
$ |
(6,872) |
$ |
(8,335) |
|
|
|
Net loss per common share (basic and diluted) |
$ |
(0.01) |
$ |
(0.02) |
|
|
|
Weighted average shares outstanding (basic and
diluted) |
714,041,130 |
625,242,335 |
Revenue
For the three months ended March 31, 2021,
cannabis revenues were $12.2 million as compared to $10.5 million
in the same period in 2020. Net cannabis revenues of $9.2 million
during the period, were comprised of approximately 80% Cannabis 2.0
Products sales, with the remainder from Cannabis 1.0 Product sales.
During the first quarter of 2021, Auxly maintained strong retail
cannabis sales nationally. While Auxly’s cannabis revenues
were impacted by additional volatility as a result of changes to
its provincial customers’ inventory management practices and the
increase in restrictions during the third wave of the COVID-19
pandemic, the Company was able to maintain leading market share
positions for retail cannabis sales.
Research and other revenues of $0.8 million for
2021 were $0.1 million lower than 2020 primarily as a result of the
COVID-19 pandemic and its disruptive impact on the completion of
clinical trials and the achievement of revenue milestones connected
to such clinical trials. Revenues in support of third-party
research contracts can fluctuate significantly during the term of
the contract based upon the achievement of milestones. Where
milestones are not met, revenues are deferred on the balance sheet
which may result in timing differences in earnings.
Gross Profit / Loss
Auxly realized a gross profit of $2.3 million to
March 31, 2021, compared to a gross profit of $2.8 million in 2020.
Cannabis gross profits for the period ended March 31, 2021 were
$2.3 million, resulting in a 26% margin (25% before impairment and
fair value adjustments), with research and other gross profits of
$nil. Inventory impairment of $0.2 million was recognized in 2021,
as compared to a $1.3 million loss during the same period of 2020
associated with Inverell’s operations.
Total Expenses
Selling, general and administrative expenses
(“SG&A”) are comprised of wages and benefits,
office and administrative, professional fees, business
developments, share-based payments, and selling expenses. For 2021,
SG&A expenses were $9.4 million, a decrease of $4.6 million
from the first quarter of 2020.
Wages and benefits were $4.3 million, a decrease
of $2.2 million over the same period in 2020. The decrease of $2.2
million was primarily driven by workforce reductions and employee
wage subsidies at KGK of $0.7 million, $0.4 million a result of
expenditures associated with Inverell in 2020, and savings and
absorption changes in the remaining operations of approximately
$1.1 million.
Office and administrative expenses of $3.1
million in 2021 increased by $0.5 million compared to 2020
primarily a result of increased operating costs associated with the
development and sale of Cannabis Products in 2021, partially offset
by savings of $0.3 million associated with operations at Inverell
in 2020.
Auxly’s professional fees for the three months
ended March 31, 2021 were $0.5 million, lower by $1.0 million as
compared to 2020. Professional fees incurred during the periods
primarily related to accounting fees, regulatory matters, reporting
issuer fees, and fees associated with financing activities.
Professional fees can vary significantly based upon transactional
activities from period to period. Business development expenses
were $Nil as compared to $0.8 million in 2020. The decrease is
primarily due to a reduction in acquisition, development and travel
related expenses primarily a result of the on-going COVID-19
pandemic.
Selling expenses for the period ended March 31,
2021 were $1.3 million, consistent with the same period in 2020 and
were directly attributable to cannabis sales activities comprised
of brokerage fees earned by Kindred Partners and marketing
initiatives for Cannabis Products.
For 2021, share-based compensation was $0.2
million as compared to $1.4 million in 2020. The reduction in
expenses in 2021 reflects the impact of significantly fewer option
grants to date, the impact of lower share prices and fewer
outstanding options.
Depreciation and amortization expenses were $2.5
million in the first three months of 2021, as compared to $2.4
million during the same period in 2020. The increase in expense is
primarily a result of additional capital expenditures during the
past 12 months.
Interest expenses were $4.6 million for the
three months ended March 31, 2021 and $2.2 million for the same
period of 2020. Interest expenses in 2021 were primarily the result
of interest expense and accretion on the $123 million, 4% Imperial
Brands convertible debenture, 7.5% on the convertible debenture
issued in 2020, the non-cash accretion of placement and other
related fees being recognized over the terms of the respective
debentures, leases and short-term financing. Interest expenses in
2020 were primarily driven by the Imperial Brands convertible
debenture and by leases.
Total Other Incomes and
Losses
Fair value changes on financial instruments
arise on changes in value of promissory notes and level two
securities held. For the period ended March 31, 2021, the Company
reported a fair value gain of $0.1 million, as compared to a loss
of $0.1 million in 2020.
The Company recorded interest and other incomes
of $0.4 million in the first quarter of 2021, increasing from $0.1
million in 2020, primarily related to interest accretion on the
Sunens promissory note.
Gains on settlement of assets and liabilities
and other expenses were $4.1 million, primarily relating to a $4.2
million gain on the settlement of a $5.8 million liability
associated with a non-monetary product exchange with another
licensed producer. Gains were $1.8 million in 2020, primarily
relating to a gain on non-monetary inventory transfers with another
licensed producer, net of a credit loss provision of $0.6
million.
The share of loss on investment in joint venture
of $0.5 million in the first three months of 2021, decreased by
$0.3 million as compared to the first three months of 2020
reflecting the Company’s proportionate share of Sunens’ earnings.
Sunens received its cultivation licence in June 2020 and has scaled
up operations and made product available for sale to other licenced
producers in the first quarter of 2021.
Auxly is exposed to foreign exchange
fluctuations from the U.S. dollar to CAD dollar exchange rate
primarily related to inventory and capital purchases and Inverell
net assets. During the quarter ended March 31, 2021, the Company
reported a foreign exchange loss of $0.5 million compared to a gain
of $1.6 million in the same period in 2020.
Net Losses
Net losses were $10.5 million with a net loss of
$0.01 per share on a basic and diluted basis during the quarter
ended March 31, 2021, and $13.2 million with a net loss of $0.02
per share on a basic and diluted basis in the same period in 2020.
The improvement of $2.7 million in 2021 was primarily the result of
reductions in total expenses and total other gains.
Adjusted EBITDA
Adjusted EBITDA of negative $6.9 million,
improved by approximately $1.4 million over the same period in
2020. The increase was primarily driven by lower SG&A excluding
non-cash share-based compensation.
Outlook
In 2021, Auxly is focused on building upon the
Company’s success as a market leader in Cannabis 2.0 Products,
while continuing to advance the Company’s focused expansion of its
dried flower, pre-roll, oil and capsule product offerings. The
Company’s overall objectives for 2021, which may be impacted by the
COVID-19 pandemic (see further discussion in the MD&A under
“COVID-19 Pandemic”), are as follows:
- Continued leadership and strength
in the Cannabis 2.0 Products market;
- Focused expansion of Cannabis 1.0
Products;
- Continue to take measures to
improve cash flows and finance the business;
- Leverage the Sunens facility to
establish a secure supply of cannabis and reduce reliance on open
market purchasing; and
- Explore possible cannabis market
entry strategies in regulated international markets, on an asset
light basis.
The Company will continue to evaluate
opportunities to bring new and exciting products to consumers as it
continues to realize its vision of becoming a global leader in
branded cannabis products that deliver on the consumer promise of
quality, safety and efficacy.
ON BEHALF OF THE BOARD
"Hugo Alves" CEO
About Auxly Cannabis Group Inc. (TSX:
XLY)
Auxly is a leading Canadian cannabis company
dedicated to bringing innovative, effective, and high-quality
cannabis products to the 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:Email: press@auxly.com
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 partners;
the intention to grow the business, operations and existing and
potential activities of Auxly; proposed timelines for the
build-out, licencing and commercialization of the Company’s
facilities and projects, the company’s response to the COVID-19
pandemic, the impact of the COVID-19 pandemic on the Company’s
current and future operations; the Company's execution of its
innovative product development, commercialization strategy and
expansion plans; the anticipated benefits of the Company's
partnerships, joint ventures, research and development initiatives
and other commercial arrangements; the expectation and timing of
future revenues; expectations regarding the Company’s expansion of
operations and investment into foreign jurisdictions; future
legislative and regulatory developments involving cannabis and
cannabis products; the timing and outcomes of regulatory or
intellectual property decisions; the relevance of Auxly’s
subsidiaries’ and partners’ current and 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: the Company will be able to
execute on its business strategy; Auxly’s subsidiaries and partners
are able to obtain and maintain the necessary governmental and
regulatory authorizations to conduct business; the Company is able
to successfully manage the integration of its various business
units with its own; there are not materially more closures or
lockdowns related to the COVID‐19 pandemic; the Company’s
subsidiaries and partners obtain and maintain all necessary
governmental and regulatory permits and approvals for the operation
of their facilities and the development of cannabis products, and
whether such permits and approvals can be obtained in a timely
manner; the Company will be able to successfully launch new product
formats and enter into new markets; there is acceptance and demand
for current and future Company products by consumers and provincial
purchasers; 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 annual
information form of the Company for the financial year ended
December 31, 2020 dated April 23, 2021.
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 Toronto Stock Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the Toronto Stock Exchange) accepts responsibility for
the adequacy or accuracy of this release.
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