CannaRoyalty Announces Record Financial Results for the Second Quarter of 2018

Published: August 23, 2018

CannaRoyalty Announces Record Financial Results for the Second Quarter of 2018

CannaRoyalty Corp. announced the Company’s financial results for the three and six-month periods ended June 30, 2018. All figures are reported in Canadian dollars ($), unless otherwise indicated. CannaRoyalty’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”).

“Q2 marked a turning point for CannaRoyalty and its shareholders as the team translated strategy and execution into record financial performance. The Company generated earnings per share of $0.18 primarily by delivering on its stated objective of rationalizing early passive investments. The Company also generated a record adjusted EBITDA result for a Canadian-listed cannabis company2,” said Marc Lustig, CEO of CannaRoyalty. “Q2 is the beginning of a multi-quarter parabolic step change in revenue, powered by sequential acquisitions and organic growth. CannaRoyalty generated a record $3.5 million in revenue this quarter, a 446% increase from Q1 and more than the Company generated in all of 2017. These results reflect the successful initiation of the Company’s strategic focus on building its Californian distribution and brands platform. This growth is expected to continue in Q3 and Q4 as FloraCal and RVR are added to the Company’s financials and as our team continues to grow market share and expand the Company’s supporting manufacturing and value-add services footprint. Both RVR and FloraCal are performing above expectations, and we are actively executing our plans to increase the revenue generating capacity of both companies. I thank all of our long term shareholders for their faith in this team and our plan. I am proud to say that this is truly just the beginning of the CannaRoyalty story.”

“Our goal is to be the home of origin for the global cannabis brands of the future. It’s a model built on trust. Trust from our brand partners that we will drive their success in California and beyond. Trust from our retail partners that we will deliver exactly what they need. Without that trust, it is not possible to build the trust we are seeking from consumers – which is what we believe a brand to be. We’ve been hard at work building the infrastructure and services needed to support brands in building that consumer trust,” said Afzal Hasan, President and General Counsel of CannaRoyalty. “This is a highly scalable platform. We touch the majority1 of licensed dispensaries in the state. We’re doing this not just because we believe it will result in the formation of tomorrow’s global cannabis brands, but also because we believe it will drive industry leading revenue growth in the next 12 months. We’re actively pursuing distribution relationships with a number of California’s leading brands, and each successful relationship that we enter into is immediately accretive to our revenue run rate. With $15.7 million in cash at the end of Q2, the proceeds from our recent convertible debenture issue and the combined $26 million sale of certain non-core assets, we have the financial strength to continue to take advantage of the accretive growth opportunities we see in the California market.”

Recent Developments

For a more comprehensive overview of these recent developments, please refer to CannaRoyalty’s Management’s Discussion and Analysis of the Financial Condition and Results of Operations for the Three Months Ended June 30, 2018.

  • On July 3, 2018, CannaRoyalty announced the close of the FloraCal Farms acquisition for a total consideration of US$1 million in cash and 35,088 CannaRoyalty Class A Compressed Shares, as well as up to an additional US$3 million in cash and 35,088 Compressed Shares to be paid over 3 years, based on completion of certain milestones and other considerations.
  • On July 6, 2018, executing on its stated strategy to focus on expanding its California footprint, CannaRoyalty announced that it purchased a licensed distribution and manufacturing facility in the city of Cotati in Sonoma County, California for US$2.4 million. The Cotati facility will serve as an additional hub for distribution, as well as supporting manufacturing infrastructure, to meet the strong demand of CannaRoyalty’s distributed brand portfolio.
  • On July 12, 2018, CannaRoyalty announced that it had acquired the exclusive rights to distribute and manufacture Pacific Remedy LLC’s industry-leading infused pre-rolls in California.
  • On July 12, 2018, the Company announced that it had closed a fully marketed private placement of unsecured convertible debentures raising aggregate gross proceeds of $32,980,000.
  • On August 9, 2018, CannaRoyalty announced the close of Aurora’s acquisition of Anandia Inc. for initial consideration valued at approximately $115 million in common shares and warrants of Aurora. CannaRoyalty’s equity stake in Anandia was reported at approximately $26.4 million3 as of June 30, 2018.
  • On August 9, 2018, CannaRoyalty announced its intention to commence normal course issuer bid. Under the proposed normal course issuer bid, CannaRoyalty may purchase up to 5% of CannaRoyalty’s issued and outstanding common shares over a 12-month period using proceeds from asset divestitures.
  • On August 14, 2018, the Company’s previously announced (July 11th) sale of its Canadian pre-roll technology license to Aurora for aggregate consideration of $7 million4 in Aurora common shares, had closed.

1

Based on publicly available and internal CannaRoyalty statistics

2

Based on publicly available financial information for Canadian publicly-traded cannabis companies

3

CannaRoyalty’s proceeds in Aurora equity generated through the sale of the Company’s Anandia position is valued at $19.9 million based on the closing price of Aurora common shares on August 22, 2018.

4

The value of these shares based on the closing price of Aurora common shares on August 22, 2018, was approximately C$6.1 million.

Financial Highlights – Q2 – 2018

Operating Results
All comparisons below are to June 30, 2017, unless otherwise noted

  • Revenues were $3.5 million as compared to $960,157, an increase of 266%;
  • Gross margin was $820,935 as compared $421,681, an increase of 95%;
  • Operating expenses were $6.3 million as compared to $2.7 million, an increase of 129%;
  • Net income of $9.3 million as compared to a net loss of $2.0 million;
  • Net income per basic share of $0.18 as compared to a net loss per basic share of $0.05;
  • Net income per diluted share of $0.17 as compared to a net loss per diluted share of $0.05;
  • Adjusted EBITDA income of $11.1 million as compared to a loss of $1.0 million, an increase of $12.1 million; and
  • Adjusted EBITDA per basic share of $0.21 as compare to a loss of $0.02, an increase of $0.23 per basic share;
  • Adjusted EBITDA income per diluted share of $0.20 as compared to a loss of $0.02, an increase of $0.22 per basic share.

Balance Sheet
All comparisons below are to December 31, 2017, unless otherwise noted

  • Cash was $15.7 million as compared to $4.5 million, an increase of 248%;
  • Total assets of $94.8 million as compared to $46.1 million, an increase of 105%;
  • Current assets of $23.5 million as compared to $7.9 million, an increase of 196%;
  • Current liabilities of $5.9 million as compared to $2.1 million, an increase of 178%; and
  • Long-term debt of $290,457 as compared to $2.3 million, a decrease of 87%.

Results of Operations (Summary)

The following tables set forth consolidated statements of financial information for the three and six-month periods ending June 30, 2018 and June 30, 2017. For further information regarding the Company’s financial results for these periods, please refer to the Company’s Management’s Discussion and Analysis for the periods ended June 30, 2018and June 30, 2017 and the Company’s Financial Statements for the periods ended June 30, 2018, published on CannaRoyalty’s issuer profile on SEDAR at www.sedar.com and the Company’s website at www.cannaroyalty.com.

June 30, 2018

December 31, 2017

Change

Selected statement of financial position data

Cash

$

15,724,845

$

4,522,644

$

11,202,201

Working capital 

17,558,886

5,813,705

11,745,181

Total investments (1)

44,096,031

26,674,288

17,421,743

Total assets

94,791,037

46,139,757

48,651,280

Long term and convertible debt

290,457

2,258,467

(1,968,010)

Shareholders’ equity

85,244,780

40,468,344

44,776,436

Dividends, per share

(1) This represents the sum of investments, royalty investments, and interests in equity method investees

Three months ended

Six months ended

June 30,
2018

June 30,
2017

June 30,
2018

June 30,
2017

Consolidated Statements of Net Income (Loss)

Revenue

$

3,511,466

$

960,157

$

4,154,903

$

1,261,268

Gross margin

820,935

421,681

791,305

666,154

Operating expenses

6,280,216

2,741,685

10,760,230

5,794,446

Loss from operations

(5,459,281)

(2,320,004)

(9,968,925)

(5,128,292)

Net income (loss)    

9,298,488

(2,017,556)

4,644,015

(3,984,161)

Other income (expense)

698,464

(449,955)

1,244,069

(537,135)

Total comprehensive income (loss)

9,996,952

(2,467,511)

5,888,084

(4,521,296)

Net earnings (loss) per common share – basic 

0.18

(0.05)

0.10

(0.10)

Net earnings (loss) per common share – diluted

0.17

(0.05)

0.09

(0.10)

Weighted average common shares – basic

51,560,197

41,829,704

48,536,866

40,356,024

Weighted average common shares – diluted

55,308,327

41,829,704

52,462,527

40,356,024

Revenue by Type

Three months ended

Six months ended

 June 30, 2018 

 June 30, 2017 

 June 30, 2018 

 June 30, 2017 

Product sales

$

3,110,617

$

372,993

$

3,195,390

$

404,328

Services

238,344

232,574

668,161

273,142

Royalties

137,189

332,630

256,247

543,094

Interest income

25,316

21,960

35,105

40,704

Total

$

3,511,466

$

960,157

$

4,154,903

$

1,261,268

Cost of Sales by Revenue Type

Three months ended

Six months ended

 June 30, 2018 

 June 30, 2017 

 June 30, 2018 

 June 30, 2017 

Cost of product sales

$

2,378,378

$

360,931

$

2,454,052

$

360,931

Cost of services

60,000

25,885

269,023

37,695

Cost of royalties

252,153

151,660

640,523

196,488

Total

$

2,690,531

$

538,476

$

3,363,598

$

595,114

Gross Profit by Revenue Type

Three months ended

Six months ended

 June 30, 2018 

 June 30, 2017 

 June 30, 2018 

 June 30, 2017 

Products

$

732,239

$

12,062

$

741,338

$

43,397

Services

178,344

206,689

399,138

235,447

Royalties

(114,964)

180,970

(384,276)

346,606

Interest

25,316

21,960

35,105

40,704

Total

$

820,935

$

421,681

$

791,305

$

666,154

Gross Margin by Revenue Type

Three months ended

Six months ended

 June 30, 2018 

 June 30, 2017 

 June 30, 2018 

 June 30, 2017 

Products

24%

3%

23%

11%

Services

75%

89%

60%

86%

Royalties

(84%)

54%

(150%)

64%

Interest

100%

100%

100%

100%

All Types

23%

44%

19%

53%

Operating Expenses

Three months ended

Six months ended

June 30, 2018

June 30, 2017

Change

June 30, 2018

June 30, 2017

Change

Sales and marketing 

$

1,219,066

$

409,221

198%

$

1,697,582

$

646,081

163%

Research and development

75,445

148,852

(49%)

151,410

625,093

(76%)

General and administrative

4,456,638

1,977,734

125%

8,207,064

4,114,922

99%

Amortization of intangibles

529,067

205,878

157%

704,174

408,350

n/a

Total

$

6,280,216

$

2,741,685

129%

$

10,760,230

$

5,794,446

86%

Adjusted EBITDA1

Three months ended

Six months ended

June 30, 2018

June 30, 2017

June 30, 2018

June 30, 2017

Add (Subtract)

Net loss for the period

$

9,298,488

$

(2,017,556)

$

4,644,015

$

(3,984,161)

Amortization of property and equipment

80,530

49,456

125,798

91,198

Amortization of intangible assets

537,306

205,878

704,174

408,350

Amortization of royalty investments

252,153

144,271

640,523

165,392

Interest expense

341,293

18,499

661,283

36,119

Interest income

(25,316)

(21,960)

(35,105)

(40,704)

Current income taxes

115,898

116,332

Deferred income tax recovery

(176,090)

(78,681)

(7,277)

(157,053)

EBITDA

10,424,262

(1,700,093)

6,849,743

(3,480,859)

Listing expense

38,193

Penalties from non-completion of transactions

37,578

221,053

Gain on sale of equipment

10,000

(88,674)

Recovery on Achelois Inventory

(441,370)

(441,370)

Share based compensation

1,092,235

645,816

3,032,278

1,804,212

Transaction costs on acquisitions

282,126

TOTAL ADJUSTED EBITDA

$

11,075,127

$

(1,006,699)

$

9,722,777

$

(1,506,075)

Weighted average number of common shares outstanding – basic

51,560,197

41,829,704

48,536,866

40,356,024

Weighted average number of common shares outstanding – diluted

55,308,327

41,829,704

52,462,527

40,356,024

ADJUSTED EBITDA per share – basic

0.21

(0.02)

0.20

(0.04)

ADJUSTED EBITDA per share – diluted

0.20

(0.02)

0.19

(0.04)

EBITDA and Adjusted EBITDA are non-GAAP financial measures and accordingly they are not earnings measures recognized by IFRS and do not carry standard prescribed significance. Moreover, our method for calculating Adjusted EBITDA may differ from that used by other companies using the same designation.  Accordingly, we caution readers that Adjusted EBITDA should not be substituted for determining net income (loss) as an indicator of operating results or as a substitute for cash flows from operating and investing activities.

Share Capital

The Company’s authorized share capital is an unlimited number of common shares of which 53,694,947 were issued and outstanding as at June 30, 2018 (December 31, 2017 – 43,898,445 common shares). The Company has issued 3,842,990 RSUs that have not been exercised as at June 30, 2018 including 2,203,345 that have vested (December 31, 2017 – 4,153,150 including 1,933,587 that had vested).  As of June 30, 2018, there are share purchase warrants and broker warrants outstanding that can potentially be converted to 4,491,866 shares (December 31, 2017 – 4,112,712).   The Company has issued 967,500 share options that have not been exercised as at June 30, 2018 including 308,250 that have vested (December 31, 2017 – 850,000 including 212,500 that had vested).

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