Newstrike Brands Ltd. Announces Second Quarter 2018 Results

Published: August 9, 2018

Newstrike Brands Ltd. Announces Second Quarter 2018 Results

Newstrike Brands Ltd. announced today the achievement of significant milestones and a strengthened financial position for the three and six months ended June 30, 2018. The Company’s wholly-owned subsidiary, UP Cannabis Inc., is a licensed producer of cannabis and related products under the Access to Cannabis for Medical Purposes Regulations (the “ACMPR”). The Company is pleased to report that its interim financial statements and management’s discussion and analysis for the three and six months ended June 30, 2018 and its amended and re-stated interim financial statements and management’s discussion and analysis for the three and six months ended June 30, 2017 are available on SEDAR at www.sedar.com.

SECOND QUARTER ENDED JUNE 30, 2018 HIGHLIGHTS:

  • Completed bought-deal equity offering raising net proceeds of approximately $48.4 million; bringing cash and cash equivalents to approximately $124.5 million, further enhancing the Company’s strong financial position to drive its growth strategies;
  • Entered into an investment agreement with Inner Spirit Holdings Ltd. (“Inner Spirit”) pursuant to which the Company and Inner Spirit agreed to acquire equity interests in each other and enter into a companion strategic alliance agreement for the retail distribution of Up Cannabis products and the creation and operation of Up Cannabis-branded customer lounges or “Experiential Hubs” in each of Inner Spirit’s stores;
  • Completed the divestiture of Enderlein Nurseries Ltd. (“Enderlein”), which was previously identified as a non-core/non-strategic asset;
  • Continued and accelerated the construction and expansion of the Company’s Niagara Facility (defined below);
  • Engaged in numerous branding and marketing activities to build Up Cannabis brand and consumer awareness; and
  • Appointed a new Chief Financial Officer and an independent lead director to the Board of Directors.

SELECTED SUMMARY OF QUARTERLY RESULTS:

Q2 2018 QTD

($)

Q2 2017 QTD

($)

% change

Q2 2018 YTD

($)

Q2 2017 YTD

($)

% change

Unrealized gain on changes in fair value of Biological Assets

1,098,557

1,995,377

Expenses

(9,911,843)

(1,134,994)

773%

(16,704,949)

(1,810,899)

822%

Other items

180,758

(7,322,460)

(102%)

9,170,358

(7,269,056)

(226%)

Net and comprehensive loss

(8,632,528)

(8,457,454)

2%

(5,539,214)

(9,079,955)

(39%)

Net and comprehensive loss per share (basic and diluted)

(0.02)

(0.06)

(69%)

(0.01)

(0.10)

(88%)

The Company recorded a net and comprehensive loss of $8,632,528 in the quarter and a net and comprehensive loss of $5,539,214 year-to-date.

The Company’s major costs relate to: branding and marketing efforts of $2,729,604 for the quarter and $3,266,461 year-to-date; share-based compensation charges of $3,454,246 for the quarter and $7,194,855 year-to-date; wages and benefits of $1,769,010 for the quarter and $2,390,449 year-to-date; consulting and professional fees of $927,877 for the quarter and $2,204,718 year-to-date; and other growth-related costs including travel, telecommunications and information technology.

The above noted expenses were partially offset by the favorable revaluation of biological assets of $1,098,557 for the quarter and $1,995,377 year-to-date.

Included in other items is the $180,758 gain for the quarter as a result of interest income of $175,153 and the divestiture of Enderlein of $139,321, partially offset by accretion expense of ($27,660) and a fair market value change recognized on a strategic investment made in another cannabis business ($107,500). The loss of $7,322,460 in the prior quarter was due to the listing fee for the acquisition of HPI Holdings Ltd. and reverse takeover of the Company ($7,099,152), accretion and interest expenses ($200,808) and unrealized losses on marketable securities ($22,500). The gain of $9,170,358 year-to-date was due to a termination fee paid to the Company related to the CanniMed Therapeutics Inc. transaction (the “Termination Fee”) of $9,500,000, interest income of $224,506, the divestiture of Enderlein of $139,321, partially offset by accretion and interest expenses ($614,648) and the fair market value change recognized on a strategic investment made in another cannabis business ($107,500). The loss of ($7,269,056) in the prior year-to-date was due to the listing fee ($7,099,152), accretion and interest expenses ($147,404), and unrealized losses on marketable securities ($22,500).

STRONG FINANCIAL POSITION:

On June 19, 2018, the Company completed a bought deal equity offering issuing 69 million common shares, including an over-allotment option, at $0.75 per share, and 34.5 million common share purchase warrants at an exercise price of $1.00 exercisable within 60 months, for total net proceeds of approximately $48.4 million. 4.1 million compensation warrants exercisable within 24 months at an exercise price of $0.75 were also issued as part of this bought deal equity offering. The June 19, 2018 equity offering followed the February 22, 2018 bought deal equity offering, whereby the Company issued a total of 69.7 million common shares, including an over-allotment option, at $1.32 per share, and 73.8 million common share purchase warrants (which included 4.2 million compensation warrants) at an exercise price of $1.75 exercisable within 24 months, for total net proceeds of approximately $86.0 million.

As at June 30, 2018 the Company had total assets of $163.2 million, including cash and cash equivalents of $124.5 million, up from total assets of $24.9 million, including cash and cash equivalents of $0.8 million, as at December 31, 2017. The increase is due to the net proceeds from the two bought deal equity offerings, the receipt of the Termination Fee, and the positive revaluation of biological assets.

SIGNIFICANT MILESTONES ACHIEVED:

The Company has accumulated dried and finished goods cannabis inventory valued at $8.2 million as at June 30, 2018. The inventory increase, combined with the licensing of the Niagara greenhouse facility (the “Niagara Facility”) for the cultivation of cannabis and the pending approval of the Niagara Facility sales licence amendment application, further positions the Company to capitalize on growing demand for its products in anticipation of the legalization of adult-use cannabis.

The Company has continued the construction and expansion of its Niagara Facility, engaged in various marketing initiatives, and added experienced production and management personnel to build the Company’s Up Cannabis brand and consumer awareness.

The Company currently operates cannabis production facilities of approximately 167,600 square feet of indoor and greenhouse production capacity, in the aggregate, of which approximately 7,600 square feet is currently operating at or near full production capacity at its Brantford Facility and approximately 160,000 square feet at its Niagara Facility that is currently being retrofitted. The Company has broken ground and begun construction on the Phase II Niagara expansion which includes 40,000 square feet of processing space and 160,000 square feet of additional greenhouse space dedicated to cannabis production.

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