Emerald Health Therapeutics, Inc. (“Emerald”) (TSXV: EMH; OTCQX:
EMHTF) has provided preliminary, unaudited financial results for
the third quarter of 2019 for its BC-based, 50%-owned joint
venture, Pure Sunfarms (“PSF”). The Company will report complete
financial results for the third quarter ended September 30, 2019,
after market close on Friday, November 29, 2019, and host its third
quarter 2019 financial results conference call on Monday, December
2, 2019 at 10:30 a.m. ET.
Financial Data
- Net sales for the third quarter were $24.0M and net sales
year-to-date (as of September 30th (YTD)) were $71.5M. Sales for
the third quarter consisted entirely of dried flower sold primarily
to other licensed producers.
- Sales volume was almost 50% higher than the previous quarter,
reaching approximately 12,000 kg of cannabis in the third quarter.
YTD sales were approximately 24,600 kg.
- Gross margin before non-cash adjustments to the fair value of
inventory and biological assets was 69%. YTD gross margin before
non-cash adjustments to the fair value of inventory and biological
assets was 75%.
- All-in production cost was $0.63 per gram, compared to the
previous quarter’s $0.65 per gram.
- Net loss of $2.4M reflects a ($12.6M) non-cash adjustment to
the fair value of inventory and biological assets. YTD net income
was $46.2M.
- Positive EBITDA of $13.3M resulted in an EBITDA margin of 56%.
YTD EBITDA was $47.1M, with an EBITDA margin of 66%.
- Net cash and cash equivalents as of September 30 was $16.1M, up
from $2.4M as of December 31, 2018.
Market Performance
After receiving its processing license amendment
in early September, PSF began selling and shipping its own branded
packaged products to Ontario in late September and has received
multiple product reorders.
Pure Sunfarms was the #1 brand, comprising
multiple products, in cannabis dried flower sales and volume with
the Ontario Cannabis Store (“OCS”) in the month of October,
achieving market share of 16% by volume. PSF’s market share was
double that of the next largest brand.
Pure Sunfarms’ Afghan Kush was the top selling
dried flower product with the OCS in October, and three of the
seven top-selling dried flower products with the OCS in October
were Pure Sunfarm products, by volume.
In BC, Pure Sunfarms began selling branded,
packaged dried cannabis products to the BC Liquor Distribution
Branch (“BCLDB”) in October. The BCLDB sold out of its first order
of Pure Sunfarms product in under three weeks, and has since
re-ordered, and Pure Sunfarms ranked among the top ten brands by
sales for all product categories in October.
“Our joint venture, Pure Sunfarms, is once again
showing its industry leadership with impressive financial results
and very low-cost production,” said Riaz Bandali, President and
Chief Executive Officer of Emerald. “PSF has started transitioning
its business model from wholesale to direct sales of packaged
cannabis products into provincial retail distribution channels. We
are excited about how well this transition is being accomplished
and we look forward to seeing the progress of PSF’s efforts to
expand distribution and to the expansion of its product line beyond
dried flower into other forms of consumption.”
Upcoming milestones
Having successfully launched packaged dried
flower products in Ontario and BC, with a strong brand and value
proposition that is resonating with consumers, PSF will continue to
focus on securing distribution in new provinces/jurisdictions.
PSF has prioritized pre-rolls as a key new
offering in its product mix, which it anticipates launching within
two quarters.
PSF has completed installation of extraction
equipment (with processing capacity of 35,000 kilograms of biomass
annually) in its new 65,000 square foot state-of-the-art processing
center within the Delta 3 greenhouse facility. The processing
centre has been designed for full GMP compliance and certification
to allow for future exports, and is expected to be operational very
soon, subject to Health Canada licensing and in-house calibration
and testing. PSF intends to produce oils and other new product
forms starting in the first half of 2020.
Conversion of the interior of its second 1.1
million square foot greenhouse operation, the Delta 2 greenhouse
facility, for cannabis production, is ongoing. This facility is
expected to double Pure Sunfarms’ annual output at full production
to more than 150,000 kilograms. Conversion of the Delta 2
greenhouse facility, which has been designed for full GMP
compliance and certification to allow for future exportation,
remains on schedule, with cannabis production expected to commence
during the second quarter of 2020. The facility is expected to be
operating at its full production run-rate by the end of 2020. Pure
Sunfarms has submitted to Health Canada its application for its
initial cultivation license for the Delta 2 facility.
Status of supply agreement with Pure
Sunfarms
Under Emerald’s 2019 Supply Agreement with Pure
Sunfarms, the Company may decline to accept deliveries of product
from PSF. If product is declined, PSF may sell such product to
third parties. In the event of such sale, and only in certain
circumstances, the Company may be required to pay to PSF an amount
equal to the difference between the purchase price applicable to
the Company (which is subject to adjustment based on sales by PSF
to third parties in accordance with the 2019 Supply Agreement) and
the price actually paid by such third parties. Between June 21,
2019 and September 29, 2019, the Company declined to accept certain
deliveries of product; this product was subsequently sold by PSF to
third parties. PSF has claimed that the Company is liable to PSF
for an aggregate amount of approximately $7.2 million. The Company
has disputed the amount of such claim. The Company is in the course
of discussions with PSF regarding these matters, and the outcome of
these discussions is uncertain at this time.
Emerald’s financial results for the third
quarter ended September 30, 2019, which include the financial
results of Pure Sunfarms on an equity basis, will be published
after the market close on Friday, November 29, 2019. The Company
will host a conference call on Monday, December 2, 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/emhtf191202.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 products focused on differentiated,
value-added product development for medical and adult-use customers
supported by novel intellectual property, large-scale cultivation,
extraction, and softgel encapsulation, as well as unique marketing
and distribution channels. Its 50%-owned Pure Sunfarms operation in
British Columbia, with value-oriented products, is in full
production at its first 1.1 million square foot greenhouse
operation, Delta 3. Pure Sunfarms’ second 1.1 million square foot
greenhouse, Delta 2, is planned to be in full production by the end
of 2020. Emerald’s Verdélite 88,000 square foot indoor production
facility in Québec is fully licensed and increasing cultivation of
premium, craft cannabis strains. Its Metro Vancouver high-quality
organic greenhouse and outdoor operation is expanding production in
the first of two 78,000 square foot buildings. Its Emerald Health
Naturals joint venture is broadening distribution of its
non-cannabis endocannabinoid-supporting product line across Canada.
Emerald has contracted for approximately 1,000 acres of hemp
annually in 2019 to 2022 with the objective of extracting low-cost
CBD. The executive team is highly experienced in life sciences,
product development, large-scale agri-business, and marketing.
Please visit www.emeraldhealth.ca for more information or
contact: Jenn Hepburn, 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
which is not a measure that has any standardized meaning prescribed
by IFRS and is therefore referred to as a “non-GAAP measure”.
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,
amortization, foreign exchange losses, and the net impact of
biological asset values on income.”
The Company uses this non-GAAP measure because
it provides additional information regarding performance of Pure
Sunfarms’ overall business that is 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 expansion and launch of Pure Sunfarms product lines; Pure
Sunfarms securing distribution in additional provinces; Pure
Sunfarms production of oils; obtaining required regulatory
approvals; production and processing capacity of various
facilities; expansion or conversion of facilities and the timing
thereof; obtaining additional cultivation licenses and other
permits; receipt of hemp deliveries; payments of amounts owed to
and owed by Emerald; resolution of disputes; broadening
distribution of non-cannabis endocannabinoid products; 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, results of operations; changes in business
focus and strategy; agreements with third parties; changes of law
and regulations; changes of government; failure to obtain
regulatory approvals or permits; failure to obtain necessary
financing; results of production and sale activities; 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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