Emerald Health Therapeutics, Inc. (“Emerald”) (TSXV: EMH; OTCQX:
EMHTF) today reported financial results for the quarter ended March
31, 2019. Full versions of the Company’s unaudited condensed,
interim consolidated financial statements and MD&A for such
period can be found on SEDAR at www.sedar.com.
Highlights
- Emerald’s 1Q19 sales of $2.6 million represents an increase of
131% over the prior quarter and almost 600% year-over-year.
- Pure Sunfarms (50%-owned joint venture) sales reach $14.4
million in Q1; Emerald’s 50% share $7.2 million; aggregate pro
forma sales including Emerald’s proportionate share of Pure
Sunfarms’ revenue amounts to $9.0 million.
- Emerald net loss improves from $13.9 million in 4Q18 to $3.6
million in
1Q19.
- Delivering or approved to supply cannabis to eight provinces
and one territory.
- Increased medical client base by 40% and achieved greater
percentage of medical sales from oils; revenue was comprised of
approximately 87% dried products and 13% oils.
- Emerald Health Naturals (“EHN”) (51%-owned) now selling
non-cannabis natural health products for the endocannabinoid
system. Its Endo product line is now in 82 stores across
Canada.
- BC-based Pure Sunfarms 50% owned
joint venture:° 1Q19 sales of $14.4 million.° Achieved EBTIDA of
$7.8 million; net income before tax of $16.1 million.° Emerald
records $5.8 million as share of income from Pure Sunfarms compared
to $1.4 million in the prior quarter.° Fully planted in 1.1 million
square foot greenhouse. On track to reach annualized production
run-rate in first greenhouse of 75,000 kg by mid-year.° Advancing
plans to convert a second, nearly identical 1.1 million square foot
greenhouse in the same complex. This greenhouse is targeted to
complete its first harvest in 2020 and annualized full run-rate
production of 75,000kg in 4Q20.° Received its processing license
for packaging and extraction.
“Our Q1 sales demonstrate the Company’s
accelerating growth in the market,” said Dr. Avtar Dhillon,
President and Executive Chairman of Emerald. “As this trend
continues, our team is well-positioned to create significantly
increasing sales for the Company. The introduction of SYNC 25, our
Emerald-branded high-CBD oil for the recreational market,
demonstrates our ability to advance differentiated, innovative
products to serve the marketplace.”
Financials Results & Capital
Resources
Selected Quarterly Financial
Information
The following table summarizes selected
quarterly financial information for the Company, which was derived
from annual financial statements prepared in accordance with IFRS
or interim financial statements prepared in accordance with IFRS
applicable to the preparation of interim financial statements, IAS
34, Interim Financial Reporting:
|
Q1 2019 Key Financial and
Operational Metrics |
|
|
Q1 2019 |
Q4 2018 |
% Change |
Q1 2018 |
% Change |
Financial Results |
|
|
|
|
|
Gross revenue |
$ |
2,609,559 |
|
$ |
1,131,853 |
|
131 |
% |
$ |
373,218 |
|
599 |
% |
Cannabis
gross revenue |
|
|
|
|
|
Dry cannabis |
|
2,275,231 |
|
|
876,347 |
|
160 |
% |
|
152,251 |
|
1394 |
% |
Cannabis oils |
|
332,527 |
|
|
231,170 |
|
44 |
% |
|
213,872 |
|
55 |
% |
Other |
|
1,801 |
|
|
24,336 |
|
-93 |
% |
|
7,095 |
|
-75 |
% |
Gross
margin (net of fair value adjustment) |
|
(2,371,821 |
) |
|
(3,466,535 |
) |
32 |
% |
|
(107,955 |
) |
-2097 |
% |
Total
SG&A (net of share based payments) |
|
6,242,128 |
|
|
11,283,031 |
|
-45 |
% |
|
3,243,996 |
|
92 |
% |
Net
income (Loss)1 |
|
(3,648,683 |
) |
|
(13,900,360 |
) |
74 |
% |
|
(5,045,420 |
) |
28 |
% |
Adjusted
EBITDA2 |
|
(3,471,449 |
) |
|
(13,051,286 |
) |
73 |
% |
|
(3,380,519 |
) |
-3 |
% |
Balance Sheet |
|
|
|
|
|
Cash and
cash equivalents |
$ |
15,664,718 |
|
$ |
36,042,090 |
|
-57 |
% |
$ |
89,503,515 |
|
-82 |
% |
Plant and
equipment & Plant under construction |
|
36,202,526 |
|
|
27,276,218 |
|
33 |
% |
|
6,011,174 |
|
502 |
% |
Total
Assets |
|
240,030,481 |
|
|
206,962,694 |
|
16 |
% |
|
123,125,313 |
|
95 |
% |
Operational Results |
|
|
|
|
|
Average
selling price, net of excise duty |
|
|
|
|
|
Recreational |
$ |
4.98 |
|
$ |
5.19 |
|
-4 |
% |
$ |
- |
|
N/A |
Medical |
$ |
7.17 |
|
$ |
8.10 |
|
-11 |
% |
$ |
8.14 |
|
-12 |
% |
Pure Sunfarms Financial Results |
|
|
|
|
|
Gross
revenue |
|
14,359,432 |
|
|
4,669,407 |
|
208 |
% |
|
- |
|
N/A |
Gross
margin (net of fair value adjustment) |
|
9,283,235 |
|
|
3,313,388 |
|
180 |
% |
|
- |
|
N/A |
Total
SG&A |
|
1,328,594 |
|
|
1,278,723 |
|
4 |
% |
|
554,234 |
|
140 |
% |
Net
income (Loss) |
|
11,427,641 |
|
|
7,107,460 |
|
61 |
% |
|
(603,585 |
) |
1993 |
% |
Adjusted
EBITDA3 |
|
7,760,361 |
|
|
(303,986 |
) |
2653 |
% |
|
(554,234 |
) |
1500 |
% |
|
|
|
|
|
|
(1) 50% of the net income adjusted for transactions with EMH and
for fair value is and adjusted EBITDA are reflected in EMH net
income and adjusted EBITDA respectively. |
(2) EMH adjusted EBITDA is calculated by substracting interest
income, gain on changes in fair value of biological assets, share
of income from joint venture and deferred income tax recovery and
adding back depreciation, share-based payments, other expenses,
loss from fair value changes in financial assets and 50% of Pure
Sunfarms adjusted EBITDA from EMH net loss and comprehensive
loss. |
(3) Pure Sunfarms adjusted EBITDA is calculated by substracting
Pure Sunfarms' change in fair value of biological asset, non-cash
other income ($50,999 in Q1 2019) and fair value adjustment, and
adding back realized fair value amounts included in inventory sold,
amortization expense and provision for income tax (adjusted for
$3,750 in Q1 2019) |
|
The Company’s unaudited condensed, interim consolidated
financial statements and MD&A for the three months ended March
31st, 2019 together with other information related to the Company,
including the Company's most recent Annual Information Form ("AIF")
can be found on SEDAR. Additional information related to the
Company is available on its website at www.emeraldhealth.ca.
Financings
During 1Q19 the Company filed a short form base
shelf prospectus in each of the provinces of Canada that qualifies
the issuance and secondary sale of $150 million of common shares.
The Company established an at-the-market equity program on March
27, 2019 and has subsequently raised net proceeds from sale of
shares totaling $9.8 million. The Company intends to use the
proceeds of the financings to fund the completion of capital
projects and potential future expansion and acquisitions, including
joint venture projects, for research and development, to expand the
Company’s existing extraction capabilities, and for working capital
and general corporate purposes.
Corporate Update
Production & Sourcing
Pure Sunfarms
Pure Sunfarms (PSF), Emerald’s 50%-owned joint
venture, completed conversion of its 1.1 million square foot Delta
3 greenhouse operation in Delta, BC, and secured cultivation
licenses for the entire 1.03 million square feet growing area of
the facility. It has completed planting of the growing area and is
on track to reach its annualized production run-rate of 75,000
kilograms by mid-2019.
PSF exercised its option to acquire the nearly
identical 1.1 million square foot Delta 2 ‘sister’ facility. It is
now moving forward with its plan to convert the facility to
cannabis production at an estimated cost of approximately $60
million. Emerald owes an additional $18.5 million of its $25
million obligation for this transaction, with the balance of the
conversion cost expected to be covered through operational cash
flow. PSF’s goal is to at least double annual cannabis production
and support its goal to be a high-quality, low-cost producer in
Canada. PSF aims to complete its first harvest at the Delta 2
facility mid-2020 and achieve full run-rate production in the
fourth quarter of 2020, subject to completion of construction and
the receipt of Health Canada licenses.
PSF entered into a credit agreement with Bank of
Montréal and Farm Credit Canada in respect of a CAD $20 million
secured non-revolving term loan with the intent to use the proceeds
to fund the final cost of converting its 1.1 million square foot
greenhouse as well as for general corporate purposes.
Verdélite
Verdélite, Emerald’s wholly-owned 88,000 square
feet indoor grow facility in Quebec, is expected to grow over 5,000
kg annually. It is licensed to cultivate and sell cannabis flower
as well as extract, manufacture, synthesize, test and sell
next-generation cannabis products. Verdélite aims to be at full
production by mid-2019 following completion of upgrades to the
electrical infrastructure. Approximately $1.6 million of
additional expenditures are expected to substantially complete the
buildout.
On May 1, 2019, the Company announced that the
vendors of Verdélite elected to receive $7.5 million of the $22.5
million they were to receive as the final payment for their shares
of Verdélite in shares of the Company.
Cannabis Sales Agreements – Adult-use
Markets
Emerald is currently delivering cannabis to
government authorities in Alberta, Ontario, British Columbia,
Newfoundland and Labrador, PEI and the Yukon and to licensed
private retailers in Saskatchewan. It has also been authorized to
supply cannabis to the Manitoba Liquor & Lotteries
Corporation.
The Company has received its first purchase
order from the Société Québécoise du Cannabis and anticipates
fulfilling it in the second quarter of 2019.
On May 17, 2019, the Company announced that it
shipped 6,000 40 ml bottles of its SYNC 25 CBD oil to the British
Columbia Liquor Distribution Branch. This was the Company’s first
sale of extracted product to a provincial authority.
Value-Added Processing
Factors R&D Technology,
Inc.
As previously announced, the Company signed a
term sheet to form a strategic alliance with FTI, a division of
Factors Group of Nutritional Companies Inc., in which FTI will,
subject to execution of binding documentation, provide
pharmaceutical-grade, large-scale manufacturing capacity as well as
expertise in GMP-level extraction, softgel production, and
packaging. FTI will agree to provide the Company with access to a
facility capable of processing up to 1 million kg of biomass
annually and softgel production capacity of up to 600 million
capsules per year. Phase 1 of the Health Canada review of the
application process for this facility has been successfully
completed and the licensing process is awaiting Health Canada
approval.
Emerald Health Naturals
On January 10, 2019, the Company closed its
acquisition of 51% of EHN. Emerald Health Bioceuticals (“EHB”)
granted EHN the exclusive Canadian distribution rights to its
endocannabinoid supplement portfolio in exchange for 49% ownership
of EHN.
EHN commenced sales to natural health stores
across Canada in May, 2019 of the Endo natural health product line
with its non-cannabinoid PhytoCann™ Complex ingredients that
support the endocannabinoid system.
Indena
On February 5, 2019, Emerald entered into a
license with Indena S.p.A. of Milan, Italy, bearing certain
exclusivity rights in Canada to use Indena’s cannabidiol (“CBD”)
extraction technology and contract manufacturing services for CBD
extraction. In addition, Emerald obtained exclusive use of Indena’s
proprietary Phytosome® technology for the purpose of developing
novel cannabinoid-based products with superior utility.
Other Key Events
On May 22, 2019, the Company announced the
appointment of Sean Rathbone as Chief Operating Officer.
On May 24, 2019, the Company announced that it
had been appointed by the American Trade Association for Cannabis
and Hemp to lead its International Affairs Council on CBD and Hemp
in its engagement with the US Food & Drug Administration
regarding policy pertaining to CBD-containing products and
associated cross-border trade.
Conference Call
Emerald Health Therapeutics will host its fiscal
first quarter 2019 financial results conference call on Friday, May
31, 2019 at 10:30 a.m. ET.
To access the audio broadcast, please dial (866)
652-5200, or via the Internet at:
https://services.choruscall.com/links/emhtf190530.html. An archived
version of the presentation will be available for 90 days on the
"Investors" section of Emerald's website:
https://ir.emeraldhealth.ca/events-and-presentations.
About Emerald Health Therapeutics,
Inc. Emerald Health Therapeutics, Inc. is a Canadian
licensed producer of cannabis. Its 50%-owned Pure Sunfarms joint
venture in BC is licensed and fully planted in the first of its two
1.1 million square foot greenhouses. The capacity of each
greenhouse is estimated to exceed 75,000 kg of cannabis annually
following completion of conversion. Emerald’s Verdélite operation
in Saint Eustache, Québec is completing the build-out of its 88,000
square foot indoor cultivation facility and is scaling up for
production. Emerald has contracted for approximately 1,000 acres of
hemp in 2019 to 2022 with the objective of extracting low-cost
cannabidiol. Emerald has letters of intent for strategic
partnerships for large scale extraction and softgel encapsulation,
as well as for proprietary technology to enhance cannabinoid
bioavailability. Its team is highly experienced in life sciences,
product development, large-scale agri-business, and marketing, and
is focused on developing proprietary, value-added cannabis products
for medical and adult-use customers.
Emerald is part of the Emerald Health group,
which represents a broad array of companies focused on developing
pharmaceutical, botanical, and nutraceutical products aimed at
providing wellness and medical benefits by interacting with the
human body’s endocannabinoid system.
Please visit www.emeraldhealth.ca for more
information or contact: Rob Hill, Chief Financial Officer (800) 757
3536 Ext. # 5
Emerald Investor Relations (800) 757 3536 Ext.
#5invest@emeraldhealth.ca
Non-GAAP Financial Measures
This press release contains references to EBITDA
and Pro Forma Sales. These financial measures are not measures that
have any standardized meaning prescribed by IFRS and are therefore
referred to as “non-GAAP measures”. Non-GAAP measures used by the
Company may not be comparable to similar measures used by other
companies. EBITDA is defined as “income (loss) before interest
expenses, taxes, depreciation and amortization. Pro Forma Sales is
defined as the Company’s gross sales plus 50% of the gross sales of
Pure Sunfarms as reported in each of their respective financial
statements less 50% of the profit Pure Sunfarms recorded on sales
of bulk dried flower to the Company that remains in the Company’s
inventory. Refer to the table above for information on the
calculation of EBITDA used in this press release.
The Company uses these non-GAAP measures because
they provide additional information regarding performance of the
Company’s overall business that are not otherwise reflected under
IFRS.
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 release.
Cautionary Note Regarding Forward-Looking
Statements: Certain statements made in this press release that are
not historical facts are forward-looking statements and are subject
to important risks, uncertainties and assumptions, both general and
specific, which give rise to the possibility that actual results or
events could differ materially from our expectations expressed in
or implied by such forward-looking statements. Such statements
include production and processing capacity of various facilities;
conversion of facilities; expansion of facilities; use of proceeds
of financings; commencement of production; sales volumes; receipt
of licenses; execution of final agreements with FTI; construction
and operation of a laboratory; receipt of hemp deliveries; and
anticipated production costs.
We cannot guarantee that any forward-looking
statement will materialize, and readers are cautioned not to place
undue reliance on these forward-looking statements. These
forward-looking statements involve risks and uncertainties related
to, among other things, changes of law and regulations; changes of
government; failure to obtain regulatory approvals; failure to
obtain necessary financing; results of production and sale
activities; results of scientific research; regulatory changes;
changes in prices and costs of inputs; demand for labour; demand
for products; failure of counter-parties to perform contractual
obligations; as well as the risk factors described in the Company’s
annual information form and other regulatory filings. The
forward-looking statements contained in this press release
represent our expectations as of the date hereof. Forward-looking
statements are presented for the purpose of providing information
about management's current expectations and plans and allowing
investors and others to obtain a better understanding of our
anticipated operating environment. Readers are cautioned that such
information may not be appropriate for other purposes. The Company
undertakes no obligations to update or revise such statements to
reflect new circumstances or unanticipated events as they occur,
unless required by applicable law.
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