VIVO Cannabis™ Announces Second Quarter 2020 Results

Published: August 18, 2020

VIVO Cannabis™ Announces Second Quarter 2020 Results

VIVO Cannabis Inc. released its second quarter 2020 financial and operating results.

Management Commentary

“This is our fifth consecutive quarter of sequential sales growth. We are pleased with our quarterly results, with Q2 2020 sales increasing 79% over the prior year quarter, while sales, general and administrative expenses decreased 18% over the same period,” said Barry Fishman, CEO of VIVO. “Notable achievements include the expansion of our leadership position in the concentrates category across several provinces, the introduction of a first-to-market shatter by Fireside™ X, and the naming of Canna Farms™ as the fourth most recognized cannabis brand among Canadian cannabis consumers in a recent Brightfield Group survey. We also advanced several key medical cannabis initiatives in order to position the business for future success, including entering into product supply and clinical services agreements with Medical Cannabis by Shoppers™.”

Financial Summary

Gross and net revenue for Q2 2020 were $12.7 million and $9.4 million, respectively. On a net basis this represents a 15% increase quarter-over-quarter as compared to Q1 2020, driven largely by successful sales of VIVO’s Cannabis 2.0 products. When compared to Q2 2019, net revenue grew by approximately 79%.

Concentrates made up over half of VIVO’s cannabis sales revenue during the quarter, a testament to the Company’s strategic decision to be a leader in that space. This was offset by lower flower sales, resulting from decreased market demand in the wake of the COVID-19 pandemic.

VIVO continued to sustain top-tier prices for its medical and adult-use dry flower products, with a net average selling price (net of excise) of $6.07 per gram in Q2 2020.

The Company purchased third-party extraction inputs in Q2 2020. The internal extraction suite at its Vanluven facility is now able to provide these inputs and VIVO expects the gross margin on its vape and extract products will improve significantly.

Sales, general and administrative expenses were $4.7 million in Q2 2020, compared to $5.5 million in the first quarter, a reduction of 15%.

The Company’s adjusted EBITDA(1) was ($2.2) million for the quarter, an improvement of $0.4 million over the first quarter of 2020. VIVO’s Q2 2020 adjusted EBITDA(1) derived from Domestic Cannabis Operations was ($1.8) million. The additional ($0.4) million of adjusted EBITDA(1) in the quarter was related to Growth Initiatives (International Operations and New Product Development), which represent current investments that are expected to drive future profitable sales beyond 2020.

VIVO continues to maintain a healthy balance sheet through prudent management of operational expenses and a measured approach to capital expenditures. During Q2 2020, VIVO repurchased certain of its outstanding 6% unsecured convertible debentures in the aggregate principal amount of $10.9 million, for a discounted purchase price of $10.1 million (plus accrued and unpaid interest), leaving remaining debentures in the aggregate principal amount of $27.1 million outstanding. As a result, the Company will save approximately $1.35 million in interest and principal. Cash and cash equivalents (including short term investments but excluding strategic equity investments) as at June 30, 2020 were $22.2 million.

Key Performance Indicators

KPI
(P&L amounts in millions)

Q2 2020

Quarter-over-
Quarter Change

Q1 2020

Gross Revenue

$12.7

11%

$11.5

Net Revenue

$9.4

15%

$8.2

SG&A

$4.7

(15%)

$5.5

Adjusted EBITDA (1)

($2.2)

15%

($2.6)

Cash and equivalents

$22.2

(37%)

$35.2

Active patients (2)

25,500

19%

21,444

Net flower price per gram

$6.07

(9%)

$6.67

Product formats

8

14%

7

(1)      

Adjusted EBITDA is not a measure of financial performance under IFRS. For the Company’s definition of Adjusted EBITDA, see the Company’s management’s discussion and analysis for the three and six months ended June 30, 2020, available under the Company’s profile at www.sedar.com.

(2)    

Represents active patients (as of the end of the quarter) who purchase medical cannabis directly from the Company, including new temporary six-month extensions post March 13, 2020 based on Health Canada’s amendment due to COVID-19.

Business Update

VIVO remains focused on executing against its four strategic priorities. In the first half of 2020, the Company has made significant progress in enhancing supply and production capabilities, expanding its customer network, increasing product innovation and accelerating its international medical business. VIVO believes that focusing on these four priorities will generate long-term shareholder value and accelerate the path to profitability.

1.     Enhance Supply and Production Capabilities 

VIVO continues to adhere to a measured and disciplined approach to capacity expansion and production capabilities by ensuring initiatives pursued are cost effective and will be capable of meeting growing patient and consumer demand.

  • Canna Farms’ 10,000 square foot Phase 5 expansion received all necessary Health Canada approvals in the quarter. Operational rooms are being fully utilized for storage and processing, and planting has commenced in the cultivation areas, using a two-tiered growing system.

  • Commissioning of the Vanluven facility’s ethanol extraction suite is complete and commercial production is underway. The resulting high quality, low production-cost resins and distillates will be used as inputs for VIVO’s oils, vape cartridges, and other Cannabis 2.0 products, such as the first Canadian-launched shatter by Fireside™ X.

  • Following planting in the first quarter of 2020, the seasonal airhouses at the Kimmetts facility now contain over 10,000 healthy plants, most of them over seven feet tall.

2.     Create a Broad and Loyal Customer Network

VIVO has a strong portfolio of brands in both the medical and adult-use markets. Its Canna Farms™ brand is one of the leading brands in the industry, known for producing award-winning, BC indoor-grown, craft cannabis flower and newly launched solvent-less extracts and edibles.

  • VIVO continued to maintain top-tier net pricing of $6.07 per gram of dry flower and implemented some price reductions to stay competitive within the premium market segment.

  • VIVO entered into a product supply agreement and a clinic services agreement with Medical Cannabis by Shoppers™. Under the terms of the supply agreement, VIVO’s licensed producers will offer a broad portfolio of Canna Farms™ and Beacon Medical™ branded medical cannabis products through the Medical Cannabis by Shoppers™ online sales platform to patients across Canada, including its latest Cannabis 2.0 offerings such as chocolates and extracts. Under the terms of the clinic services agreement, VIVO’s subsidiary, Harvest Medicine, will provide cannabis education services to patients who are appropriate candidates for cannabinoid-based products and provide consulting services to the Medical Cannabis by Shoppers™ Cannabis Care team.

  • VIVO entered into a collaboration agreement with Veterans’ House (“Veterans’ House“), under which the Company will provide sponsorship and support to joint programs for Canadian Armed Forces veterans. Veterans’ House is a federally registered non-profit organization that provides veterans suffering from mental illness and operational stress injuries, such as post-traumatic stress disorder, access to counseling and peer support programs.

  • In Q2 2020, VIVO began shipping products under its Canadian Bud Collection™, brand, which launched in Q1 2020 and is directed at the popular value segment of the market.

  • After temporarily realigning Harvest Medicine’s resources to provide patient-focused services through its telemedicine platform, HMED Connect, at the outset of the COVID-19 pandemic, Harvest Medicine clinics are now “patient ready”, with precautions in place to accommodate walk-in patients and help stop the spread of COVID-19, while continuing to offer patients online options to receive services.

3.     Build an Innovation-Driven Branded Organization 

VIVO has a strong commitment to pursuing innovation throughout its value chain. The Company is also using its robust data insights as a foundation for the development of novel products with a strong competitive edge and high margins.

  • During Q2 2020, VIVO made initial shipments of its Fireside X shatter product to several provincial wholesalers, including in British Columbia, where the provincial wholesaler sold its entire purchase within the first week. This is the fifth significant concentrates product format launched by VIVO, following Fireside vape cartridges, and Canna Farms’ bubble hash, kief and live rosin.

  • This month VIVO introduced Beacon Medical softgel capsules, available through its Canna Farms on-line medical marketplace. Beacon softgel capsules provide patients with a convenient format to ingest cannabis in a precise-dosed format, increasing choice for the Company’s more than 25,000 registered patients.

  • Subsequent to the signing of an exclusive agreement with Vertosa Inc., an infusion technology company based in Oakland, California, for Canadian production rights, Vertosa’s equipment has been installed at the Vanluven facility. VIVO expects to begin production of active emulsions using this technology for the cannabis beverage market in the coming months.

  • VIVO advanced into the next stage of product development with partner, Pharmascience Inc., a global pharmaceutical company based in Montreal, Quebec, for a unique line of specific medical cannabis formulations produced under pharmaceutical quality standards. VIVO believes that a significant catalyst to increased medical cannabis use is the introduction of new medical-grade, precise-dosed, stable formulations, which the partnership with Pharmascience is intended to target. The first products from this partnership are expected to be introduced in the Canadian market by the end of Q1 2021.

4.     Accelerate International Medical Business Growth

VIVO continues to pursue its international expansion strategy, leveraging its experience and leadership to enter new high-growth markets. The Company’s initial focus is on the German and Australian markets, which, combined, have a population of over 100 million people.

  • VIVO’s Australian business continues to rapidly advance, achieving record sales in Q2 2020. Australia’s Therapeutics Goods Administrator (TGA) reported a record number of new patient approvals in July of 2020 and triple digit growth in patient approvals year over year. VIVO is well positioned to capitalize on this rapidly growing market.

  • VIVO continued to advance its European expansion strategy through its partnership with Linneo Health, a Spanish-based EU-GMP certified supplier of pharma-grade cannabis. VIVO’s subsidiary, Beacon Medical Germany, is expecting final approval of Linneo product for import to Germany in late 2020.

  • Beacon Medical Germany was granted a narcotics licence in Germany, and is awaiting receipt of an import licence, the final permit necessary to facilitate imports from VIVO’s Vanluven facility and from other non-EU sources. EU-GMP certification of VIVO’s Vanluven Facility continues to advance, with a follow-up audit having recently been completed. The follow-up audit is an important step towards EU GMP-certification and is a requirement to import medical cannabis products from Canada for sale in Germany and other European countries.