Established a platform for strong revenue growth
and operational efficiency with a strengthened balance sheet
2020 Fourth Quarter Highlights:
- Increased recreational sales net revenue by 27%
quarter-over-quarter and 373% year-over-year, supported by brand
expansion and the introduction of Cannabis 2.0 products
- 36 active retail SKUs listed, with presence in all 10
provinces
- Completed the first and second shipments of medical cannabis to
Israel through its Truverra
brand
- Right-sized operations delivering immediate cost savings,
reducing quarter-over-quarter operating expenses (after
restructuring) by 9% and 65% year over year
- Maintains a strong liquidity position including a cash balance
of $28.4 million
Subsequent to Quarter End
- Strengthened the balance sheet through the partial conversion
of its convertible debentures at a premium to the market price of
the Company's common shares and through the extension of the
maturity on the remaining principal amount
- Amended its senior secured credit facility ("Credit Facility")
to provide greater flexibility to execute on its business plan
TORONTO, Sept. 24, 2020 /CNW/ - The Supreme Cannabis
Company, Inc. ("Supreme Cannabis" or the "Company") (TSX: FIRE)
(OTCQX: SPRWF) (FRA: 53S1) today announced its financial and
operating results for the three and twelve months ended
June 30, 2020.
Supreme Cannabis' Management Discussion & Analysis
("MD&A") and consolidated financial statements ("Financial
Statements") for the year and fourth quarter ended June 30, 2020 ("Q4 2020"), along with all
previous public filings of The Supreme Cannabis Company, Inc., may
be found on SEDAR at www.SEDAR.com. All figures are in Canadian
dollars.
"Fiscal 2020 was an important transitional year for Supreme
Cannabis where we streamlined our operations, reorganized our team,
and expanded our portfolio of brands and products that will drive
sustainable revenue growth," said Beena
Goldenberg, President and CEO. "Looking into 2021, we will
continue to focus on efficiency throughout the organization. As we
make progress towards our goal of becoming a premium cannabis CPG
company, we look forward to continued strong engagement from
cannabis consumers, growing our brand visibility and market
presence, and accelerated revenue growth."
Select Financial and Operational Results.
|
Three months
ended
|
Year
Ended
|
Financial
Highlights (in 000's $)
|
June 30,
2020
|
March 31,
2020
|
2020
|
2019
|
Gross
revenue
|
10,855
|
11,022
|
44,622
|
43,015
|
Net
revenue
|
9,532
|
9,725
|
39,749
|
41,833
|
Gross margin,
excluding fair value items (1)
|
(8,246)
|
(1,473)
|
(21)
|
25,034
|
Gross
margin
|
(11,544)
|
488
|
5,480
|
36,853
|
Operating
expenses
|
15,886
|
17,450
|
71,582
|
38,713
|
Impairment on
assets
|
3,414
|
57,519
|
60,933
|
-
|
Net loss
(2)
|
(33,252)
|
(72,328)
|
(139,420)
|
(14,497)
|
Net comprehensive
loss (2)
|
(33,806)
|
(73,396)
|
(150,417)
|
(14,392)
|
Adjusted
EBITDA (3)
|
(4,167)
|
(4,958)
|
(22,608)
|
(876)
|
Cash
|
28,419
|
23,128
|
28,419
|
54,822
|
|
|
1.
|
Gross margin,
excluding fair value items, is an Additional Subtotal presented by
the Company. The Company defines gross margin, excluding fair value
items as the gross margin before recording fair value changes on
growth of biological assets and realized fair value changes on
inventory sold or impaired. More information on changes in fair
value of biological assets can be found in "Changes in fair value
of biological assets" in MD&A.
|
2.
|
The Company has
applied IFRS 16 using the modified retrospective approach at July
1, 2019, under which comparative information is not restated. Under
IFRS 16, leases that were previously classified as operating leases
are now on–balance sheet. Instead of recognizing operating lease
expense, the Company now recognizes amortization and interest
expense related to these leases. (See "New Accounting Standards and
Interpretations Effective July 1, 2019" in MD&A).
|
3.
|
Adjusted EBITDA is a
Non–GAAP measure and does not have a standardized meaning under
GAAP. As a result, it may not be comparable to data presented by
other cannabis companies. For an explanation and reconciliation of
Adjusted EBITDA to related comparable financial information
presented in the Financial Statements prepared in accordance with
IFRS, refer to the Results of Operations and Non–GAAP Measures and
Additional Subtotals in MD&A.
|
Revenue
In Q4 2020, despite being at the height of the COVID-19 pandemic
when stores were closed, foot traffic was down, and in-store trade
marketing was generally prohibited, recreational net revenue rose
to $7.3 million, an increase of 27%
quarter-over-quarter. Recreational sales volumes were 1,449
kilograms, up 10% quarter-over-quarter, while the average selling
price per gram for recreational sales in Q4 2020 was $5.00, up 16% quarter-over-quarter. The increase
in recreational sales is a result of the Company's strategy to
focus on the recreational channel as the primary revenue source.
The quarter-over-quarter increase in the Company's average selling
price for recreational cannabis was primarily driven by lower
discounts and return provisions compared to the three months ended
March 31, 2020.
Wholesale net revenue in Q4 2020 was $2.3
million, down 43% quarter-over-quarter. Wholesale volumes
were 1,330 kilograms, up 4% quarter-over-quarter. The decrease in
net revenue for the three months ended June
30, 2020, compared to the prior quarter was primarily due to
reduced demand for wholesale cannabis flower in the current period
and lower average selling prices for wholesale cannabis sales.
Overall net revenue decreased 2% to $9.5
million in Q4 2020 from $9.7
million in Q3 2020. This was primarily driven by a change in
the Company's focus from the domestic wholesale channel to its
growing recreational channel.
Gross Margin
In Q4 2020 the gross margin, excluding fair value items,
included impairment charges of $12.1
million that were recorded in production costs. Excluding
the impact of impairment charges recorded in production costs,
gross margin, excluding fair value items increased to 41% in Q4
2020 compared to 37% for Q3 2020 mainly due to further cost savings
realized in the Company's production facilities and higher
recreational cannabis average selling price per gram. This was
partially offset by lower wholesale cannabis average selling price
per gram.
Adjusted EBITDA
The Company generated a lower Adjusted EBITDA loss of
$4.1 million compared to a loss of
$5.0 million in Q3 2020 due to
improved cost control measures taken in Q3 and Q4 to streamline the
Company's business and right-size its operations. Adjusted EBITDA
loss, excluding the write-off related to one specific accounts
receivable balance, was $1.9mm.
Balance Sheet, Liquidity and Cash Flow from
Operations
Supreme Cannabis ended the quarter with a total cash balance of
$28.4 million. In Q4 2020, the
Company announced that it had established an at-the-market equity
program (the "ATM Program") that allows the Company to issue and
sell up to $9.75 million of common
shares in the capital of the Company from treasury to the public,
from time to time, at the Company's discretion. The ATM Program is
designed to provide the Company with additional financing
flexibility should it be required in the future.
Subsequent to quarter-end, the Company significantly
strengthened its balance sheet by refinancing its convertible
debentures and amending its Credit Facility. As a result, there are
no debt maturities for two years, and total debt was reduced by
$69.8 million. Furthermore, cash
interest expense was significantly reduced as a result of the
reduction in the principal amount of the convertible debentures and
the Credit Facility. The amended Credit Facility defers the
financial covenants related to leverage and the fixed charge
coverage ratio by 12 months until Q3 2022.
In Q4 2020, the Company's operating expenses decreased 9% to
$15.9 million from $17.5 million in Q3 2020. The cost efficiencies
were driven by a quarter-over-quarter decrease in wages and
benefits of 24%, decrease in facility costs of 57%, decrease in
sales, marketing and business development expense of 31%, which
were partially offset by an increase in professional fees of 2%,
and a 93% increase in general and administrative expenses. The
increase in general and administrative expenses was driven
primarily by a $2.2 million write–off
related to one specific accounts receivable balance that the
Company deemed as uncollectable during the period. Excluding
one-time write-offs and restructuring charges, operating costs for
Q4 2020 were $12.5 million, or a
decrease of approximately 19% from $15.4
million in Q3 2020.
Prior to new leadership's focus on adjusting the Company's cost
structure to reach near-term profitability, Supreme Cannabis' Q2
2020 operating expenses were $19.8
million. The cost reductions achieved by the Company are a
result of the realigned and right-sized operating model implemented
in Q3 and Q4 2020. The Company remains focused on accelerating
near-term revenue growth while realizing cost savings and driving
efficiencies.
In addition to reducing its operational expenditures, the
Company's capital expenditures in Q4 2020 decreased to $1.1. million, down 52% quarter-over-quarter.
With the completion of construction projects at the Company's
Kincardine, Ontario ("7ACRES
Facility") and Langley, British
Columbia ("Blissco Facility") facilities, capital
expenditures for fiscal 2021 are expected to be minimal and will be
focused on productivity enhancements justified by near–term cash
flow returns.
Brand and Product Developments in Q4 2020
7ACRES
- 7ACRES' high-quality dried flower products accounted for the
majority of the Company's recreational cannabis sales in Q4
2020
- 7 ACRES introduced Indica and Sativa 0.5-gram Pax Era vaporizer
cartridges and flower rosin concentrate
- 7ACRES Craft Collective, a brand extension of 7ACRES, was
introduced to reinforce the brand's premium positioning and created
excitement among cannabis consumers and generated increased
visibility on social media through its introduction of unique
strains
- The interactive website, meetyourtastebuds.com, launched in May
to reinforce the 7ACRES brand, is an educational tool that builds
on market research-verified points of difference of taste and
aroma
Blissco
- Blissco more than doubled its shipments and net sales from Q3
2020, reflecting its availability in more provinces
- Blissco Pūr Dew full-spectrum CBD oil is a leading oil SKU in
many jurisdictions
- In fiscal 2021, the Company plans to introduce a full-spectrum
CBD 510 vaporizer cartridge
Sugarleaf
- Introduced in Q2 2020, the Sugarleaf product line has grown to
nine SKUs
- Sugarleaf launched a 1:5 oil, consisting of one-part THC to
five-parts CBD
- 510 vaporizer cartridge, 3 x 0.5 gram pre-rolls and Sugarleaf
bloom, the Company's first milled flower offering introduced
post-quarter
Hiway
- Introduced post-quarter to establish a position in the value
category
- Cannabis concentrate – Hiway Hash – introduced in August
- Two large-format whole flower SKUs, pre-rolls and 510 vaporizer
cartridges to be introduced in fiscal 2021
New Product Launches
- 18 SKUs were launched in the Canadian market in Q4 2020
- The Company currently has 36 active SKUs
- Additional 1.0 and 2.0 products to be introduced in fiscal
2021
- Subsequent to quarter-end, the Company terminated its agreement
with Khalifa Kush Enterprises Canada ULC – the 7ACRES Craft
Collective brand extension continues to address the ultra-premium
category
Distribution
Overall, Supreme Cannabis shipped nearly 25% more product in Q4
2020 compared to Q3 2020. The provinces of Quebec, Alberta, Ontario and British
Columbia generated the majority of the Company's sales.
Key to growing Supreme Cannabis' presence across Canada is the Company's sales agency agreement
with Humble & Fume Inc. ("humble+fume"). Through this
partnership, humble+fume is deploying a team of sales professionals
that will drive distribution, brand advocacy and budtender
education for all Supreme Cannabis brands at the store level. Since
tracking commenced in April 2020,
until the end of July, humble+fume has created 1,290 new listings
for Supreme Cannabis products. In the fourth quarter, 242 new
stores started carrying the Company's products with an additional
54 stores added in July and August.
COVID-19 restrictions limited humble+fume sales efforts to
virtual and telecommunications for part of Q4 2020. In the last
month of the quarter and subsequent to quarter-end, most retail
stores were open and humble+fume representatives are engaging
directly with operators and supporting new retail store openings.
This will allow further opportunities for promotions, new product
introductions, staff training and adding new retail outlets.
International
In Q4 2020, Supreme Cannabis made its second shipment of
Truverra medical cannabis to Israel under its contract with Breath of Life
International Ltd. ("BOL Pharma"), Israel's largest and leading producer of
medical cannabis. Subsequent to quarter-end, a third shipment was
made. BOL Pharma is distributing Truverra's medical cannabis in
10-gram containers to its network of pharmacies across Israel.
Operations
The Company has made several improvements at its core facilities
at the 7ACRES Facility and the Blissco Facility to enhance
production, processing and operating efficiency.
The 7ACRES Facility underwent a conversion from propane to
natural gas energy. As part of this process, the entire climate
control system was upgraded and optimized, resulting in
significantly enhanced efficiency and greater consistency. The
natural gas conversion is expected to deliver approximately
$1.5 million in annual savings.
The Company also took steps to improve the extraction processes
at the Blissco Facility. The key focus of the continuous
improvement processes includes improving conversion yields through
first-pass extraction and distillation.
Outlook
The Company continues to remain confident in its ability to grow
near-term revenue and reach profitability based on its accelerated
transition to a premium Cannabis CPG company, its improved
operating structure and its enhanced offering of new high-quality
brands.
- The Company has a robust and growing product line that
addresses consumers' needs at a variety of price points and form
factors.
- The Company has efficient and effective coast-to-coast sales
coverage with the humble+fume sales partnership.
- The Company has substantially completed the right-sizing of its
operating structure with the right teams in place to produce a
differentiated product line in-house efficiently.
- Supreme Cannabis remains focused on cost containment and is
fully-funded to execute on all planned initiatives.
Fourth-quarter and year-end 2020 earnings conference call and
webcast.
The Company will host a conference call to discuss its
fourth-quarter fiscal 2020 results at 8:00
AM Eastern on Friday, September 25,
2020. Interested parties can join the call by dialling
416-764-8659 or 1-888-664-6392. The conference ID number is
36043231. The call can also be accessed through the following
webcast link: https://bit.ly/2GffGyf.
A recording of the conference call will be available for replay
two hours after the call's completion. To access the recording,
please dial 416-764-8677 or 1-888-390-0541 and the replay code,
043231. The recording will be available until Sunday, October 25, 2020.
About Supreme Cannabis.
The Supreme Cannabis Company, Inc., (TSX: FIRE) (OTCQX: SPRWF)
(FRA: 53S1), is a global diversified portfolio of distinct cannabis
companies, products and brands. Since 2014, the Company has emerged
as one of the world's most premium producers of recreational,
wholesale and medical cannabis products.
Supreme Cannabis' portfolio of brands caters to diverse consumer
and patient experiences, with brands and products that address
recreational, wellness, medical and new consumer preferences. The
Company's recreational brand portfolio includes, 7ACRES, Blissco,
7ACRES Craft Collective, Sugarleaf and Hiway. Supreme Cannabis
addresses national and international medical cannabis opportunities
through its premium Truverra brand.
Supreme Cannabis' brands are backed by a focused suite of
world-class operating assets that serve key functions in the value
chain, including scaled cultivation, value-add processing,
automated packaging and product testing and R&D. Follow the
Company on Instagram, Twitter, Facebook, LinkedIn and YouTube.
We simply grow better.
Forward-Looking Information.
Certain statements made in this press release may constitute
"forward-looking information", "future oriented financial
information" or "financial outlooks" (collectively,
"forward-looking information") within the meaning of applicable
securities laws. Forward-looking information may relate to
anticipated events or results including, but not limited to:
focussing on efficiency throughout the Company; progressing
towards becoming a premium cannabis CPG company; continued
strong engagement from cannabis consumers, growing our brand
visibility and market presence, and accelerated revenue growth;
expected capital expenditures for fiscal 2021; the expectation that
the natural gas conversion at the 7ACRES Facility will deliver
approximately $1.5 million in annual
savings; the Company's ability to grow near-term revenue and reach
profitability; the Company's focus on cost containment and ability
to execute on all planned initiatives; the Company's plans to
introduce two large-format whole flower SKUs and 510 vaporizer
cartridges under the Hiway brand, to introduce a full-spectrum CBD
510 vaporizer cartridge and to introduce additional 1.0 and 2.0
products under its recreational cannabis brands; and other
statements that are not historical facts. Particularly, information
regarding our expectations of future results, targets, performance
achievements, prospects or opportunities is forward-looking
information. Often, but not always, forward-looking statements can
be identified by the use of forward-looking terminology such as
"may", "will", "expect", "believe", "estimate", "plan", "could",
"should", "would", "outlook", "forecast", "anticipate", "foresee",
"continue" or the negative of these terms or variations of them or
similar terminology. Forward-looking information is current as of
the date it is made and is based on reasonable estimates and
assumptions made by us at the relevant time in light of our
experience and perception of historical trends, current conditions
and expected future developments, as well as other factors that we
believe are appropriate and reasonable in the circumstances. To the
extent any forward-looking information in this press release
constitutes "future oriented financial information" or "financial
outlooks", within the meaning of applicable securities laws, the
purpose of such information being provided is to demonstrate the
potential of the Company and readers are cautioned that this
information may not be appropriate for any other purpose. However,
we do not undertake to update any such forward-looking information
whether as a result of new information, future events or otherwise,
except as required under applicable securities laws in Canada. There can be no assurance that such
estimates and assumptions will prove to be correct.
Many factors could cause our actual results, level of activity,
performance or achievements or future events or developments to
differ materially from those expressed or implied by the
forward-looking information as discussed in the "Risk Factors"
section of the Company's Annual Information Form dated September 24, 2020 ("AIF"). A copy of the AIF and
the Company's other publicly filed documents can be accessed under
the Company's profile on the System for Electronic Document
Analysis and Retrieval ("SEDAR") at www.sedar.com. The Company
cautions that the list of risk factors and uncertainties described
in the AIF is not exhaustive and other factors could also adversely
affect its results. Readers are urged to consider the risks,
uncertainties and assumptions carefully in evaluating the
forward-looking information and are cautioned not to place undue
reliance on such information.
Non-GAAP Measures and Additional Subtotals.
This news release contains certain financial performance
measures that are not recognized or defined under IFRS ("Non-GAAP
Measures") including, but not limited to, "Adjusted EBITDA". As a
result, this data may not be comparable to data presented by other
cannabis companies. For an explanation and reconciliation of these
measures to related comparable financial information presented in
the Financial Statements prepared in accordance with IFRS, please
refer to the "Results of Operations" section in the MD&A. The
Company believes that these Non-GAAP Measures are useful indicators
of operating performance and are specifically used by management to
assess the financial and operational performance of the
Company.
The Company defines Adjusted EBITDA as net income (loss)
excluding fair value changes on growth of biological assets,
realized fair value changes on inventory sold or impaired,
amortization of property plant and equipment & intangible
assets, share based payments, finance expense, loss on disposal of
property plant and equipment, unrealized and realized gains or
losses on investments, gains or losses on non-controlling interest
and income taxes.
The Company presents additional subtotals in its Financial
Statements prepared in accordance with IFRS. The additional
subtotals include, but not limited to, gross margin, excluding fair
value items in its statements of comprehensive loss ("Additional
Subtotals"). The Company defines gross margin, excluding fair value
items as the gross margin before recording fair value changes on
growth of biological assets and realized fair value changes on
inventory sold or impaired. More information on changes in fair
value of biological assets can be found in "Changes in fair value
of biological assets" section of the MD&A.
Non-GAAP Measures and Additional Subtotals should be considered
together with other financial information prepared in accordance
with IFRS to enable investors to evaluate the Company's operating
results, underlying performance and prospects in a manner similar
to Supreme Cannabis' management. Accordingly, these Non-GAAP
Measures and Additional Subtotals are intended to provide
additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with IFRS.
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SOURCE The Supreme Cannabis Company, Inc.