Auxly Cannabis Group Inc. 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 | Percentage Change |
||||
| 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 | Percentage Change |
||||
| 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 Ended March 31, 2021 |
Three months Ended March 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.
About Auxly Cannabis Group Inc.
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 .
