Auxly Cannabis Group Inc. (TSX.V - XLY) (OTCQX:
CBWTF) ("
Auxly" or the
"
Company") today released its financial results
for the three and six months ended June 30, 2021. These filings and
additional information regarding Auxly are available for review on
SEDAR at www.sedar.com. All amounts are Canadian dollars except
common shares (“
Shares”) and per Share amounts.
Q2 2021 Highlights and Subsequent
Events
-
Total net revenues from sale of adult use cannabis in Canada of
$20.9 million for the three months ended June 30, 2021, more than
doubling the same period in 2020 and Q1 2021
-
Adjusted EBITDA improves to negative $3.3 million, an improvement
of $7.2 million as compared to Q2 2020 and $3.4 million more than
the previous quarter
-
Continuing improvements in total market share to 4.9% in Q2 2021
(rising to 5.4% in July 2021) while maintaining the #1 LP position
in Cannabis 2.0 product sales nationally, with approximately 15.4%
market share1
-
Further strengthened the Company’s balance sheet with financing
transactions and the sale of non-core assets
Q2 Highlights
For the three months ended:(000’s) |
|
June 30, 2021 |
|
|
June 30, 2020 |
|
Change |
Percentage Change |
|
Total revenues |
$ |
20,852 |
|
$ |
6,867 |
|
$ |
13,985 |
204 |
% |
Net
income/(loss)* |
$ |
8,658 |
|
$ |
(27,917 |
) |
$ |
36,575 |
131 |
% |
Net
income/(loss) from continuing operations* |
$ |
(3,676 |
) |
$ |
(29,175 |
) |
$ |
25,499 |
87 |
% |
Adjusted
EBITDA** |
$ |
(3,315 |
) |
$ |
(10,488 |
) |
$ |
7,173 |
68 |
% |
Weighted
Average Shares outstanding |
|
762,652,783 |
|
|
627,821,967 |
|
|
134,830,816 |
21 |
% |
For the six months ended:(000’s) |
|
June 30, 2021 |
|
|
June 30, 2020 |
|
Change |
Percentage Change |
|
Total revenues |
$ |
30,018 |
|
$ |
15,875 |
|
$ |
14,143 |
89 |
% |
Net
income/(loss)* |
$ |
(1,836 |
) |
$ |
(40,661 |
) |
$ |
38,825 |
95 |
% |
Net
income/(loss) from continuing operations* |
$ |
(13,992 |
) |
$ |
(40,488 |
) |
$ |
26,496 |
65 |
% |
Adjusted
EBITDA** |
$ |
(9,996 |
) |
$ |
(17,896 |
) |
$ |
7,900 |
44 |
% |
Weighted
Average Shares outstanding |
|
738,481,243 |
|
|
626,517,977 |
|
|
111,963,266 |
18 |
% |
*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
1) Headset Canada Insights
|
|
|
|
|
As at:(000’s) |
June 30, 2021 |
December 31, 2020 |
|
Change |
|
Percentage Change |
|
Cash and equivalents |
$ |
31,735 |
$ |
21,214 |
$ |
10,521 |
|
50 |
% |
Total assets |
$ |
399,511 |
$ |
378,963 |
$ |
20,548 |
|
5 |
% |
Debt |
$ |
104,622 |
$ |
114,825 |
$ |
(10,203 |
) |
-9 |
% |
Hugo Alves, CEO of Auxly, commented: “We are
thrilled to report a record quarter for Auxly where we saw
significant growth in our net revenue, adjusted EBITDA and our
share of the recreational cannabis market. We continued to hold the
#1 spot in Cannabis 2.0 Product sales nationally, through our
leadership in the vapour segment and consumer-driven innovations in
new product categories such as concentrates. Our strong momentum in
retail sales and the increasing prevalence of our brands within the
segments that they compete, are the result of our focused strategy
and the investments we’ve made in the human resources, assets and
capabilities that we believe are needed to win in the consumer
market and which differentiate Auxly from its competitors. We look
forward to launching new and exciting products for consumers to
enjoy as we continue to execute against our objectives in 2021.”
Results of Operations
|
|
Three months |
|
|
Three months |
|
|
Six months |
|
|
Six months |
|
(000’s) |
|
Ended June 30, |
|
|
Ended June
30, |
|
|
Ended June 30, |
|
|
Ended June
30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
Revenue |
|
|
|
|
Revenue from
sales of cannabis products |
$ |
29,551 |
|
$ |
8,320 |
|
$ |
41,703 |
|
$ |
18,787 |
|
Other
Revenue |
|
- |
|
|
66 |
|
|
- |
|
|
70 |
|
Excise taxes |
|
(8,699 |
) |
|
(1,519 |
) |
|
(11,685 |
) |
|
(2,982 |
) |
Total Net Revenue |
|
20,852 |
|
|
6,867 |
|
|
30,018 |
|
|
15,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of Sales |
|
|
|
|
Costs of
finished cannabis inventory sold |
|
13,061 |
|
|
5,029 |
|
|
19,909 |
|
|
10,120 |
|
Inventory (gain)/impairment |
|
124 |
|
|
668 |
|
|
354 |
|
|
1,942 |
|
Gross profit excluding fair value items |
|
7,667 |
|
|
1,170 |
|
|
9,755 |
|
|
3,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
fair value gain/(loss) on biological transformation |
|
315 |
|
|
201 |
|
|
570 |
|
|
150 |
|
Realized fair value gain/(loss) on inventory |
|
(1 |
) |
|
(15 |
) |
|
- |
|
|
(195 |
) |
Gross Profit |
|
7,981 |
|
|
1,356 |
|
|
10,325 |
|
|
3,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
Selling,
general, and administrative expenses |
|
12,006 |
|
|
13,608 |
|
|
21,271 |
|
|
26,350 |
|
Depreciation
and amortization |
|
2,174 |
|
|
2,688 |
|
|
4,606 |
|
|
4,577 |
|
Interest expense |
|
4,787 |
|
|
3,339 |
|
|
9,388 |
|
|
5,519 |
|
Total expenses |
|
19,027 |
|
|
19,635 |
|
|
35,265 |
|
|
36,446 |
|
|
|
|
|
|
Other income/(loss) |
|
|
|
|
Fair value
gain/(loss) of financial instruments accounted under FVTPL |
|
75 |
|
|
(4,521 |
) |
|
191 |
|
|
(4,636 |
) |
Interest and
other income |
|
431 |
|
|
345 |
|
|
847 |
|
|
406 |
|
Impairment
of long-term assets |
|
(11,366 |
) |
|
(4,506 |
) |
|
(11,366 |
) |
|
(4,506 |
) |
Gain/(loss)
on settlement of assets and liabilities and other expenses |
|
16,995 |
|
|
(2,020 |
) |
|
21,063 |
|
|
(186 |
) |
Share of
gain/(loss) on investment in joint venture |
|
(2,494 |
) |
|
(996 |
) |
|
(2,953 |
) |
|
(1,781 |
) |
Foreign exchange gain/(loss) |
|
(571 |
) |
|
(1,056 |
) |
|
(1,179 |
) |
|
588 |
|
Total other income/(loss) |
|
3,070 |
|
|
(12,754 |
) |
|
6,603 |
|
|
(10,115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss before income tax |
|
(7,976 |
) |
|
(31,033 |
) |
|
(18,337 |
) |
|
(42,793 |
) |
Income tax recovery |
|
4,291 |
|
|
567 |
|
|
4,330 |
|
|
567 |
|
Net
loss from continuing operations |
$ |
(3,685 |
) |
$ |
(30,466 |
) |
$ |
(14,007 |
) |
$ |
(42,226 |
) |
Net income/(loss) from discontinued
operations |
|
12,334 |
|
|
1,258 |
|
|
12,156 |
|
|
(173 |
) |
Net income/(loss) |
$ |
8,649 |
|
$ |
(29,208 |
) |
$ |
(1,851 |
) |
$ |
(42,399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income/(loss) attributable to shareholders of the
Company |
$ |
8,658 |
|
$ |
(27,917 |
) |
$ |
(1,836 |
) |
$ |
(40,661 |
) |
Net loss attributable to non-controlling
interest |
$ |
(9 |
) |
$ |
(1,291 |
) |
$ |
(15 |
) |
$ |
(1,738 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
$ |
(3,315 |
) |
$ |
(10,488 |
) |
$ |
(9,996 |
) |
$ |
(17,896 |
) |
From
continuing operations |
$ |
(0.00 |
) |
$ |
(0.05 |
) |
$ |
(0.02 |
) |
$ |
(0.06 |
) |
From discontinued operations |
|
0.02 |
|
|
0.00 |
|
|
0.02 |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) per common share (basic and
diluted) |
$ |
0.01 |
|
$ |
(0.04 |
) |
$ |
(0.00 |
) |
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (basic and
diluted) |
|
762,652,783 |
|
|
627,821,967 |
|
|
738,481,243 |
|
|
626,517,977 |
|
Revenue
For the three months ended June 30, 2021, net
revenues were $20.9 million as compared to $6.9 million during the
same period in 2020 and were comprised of approximately 75%
Cannabis 2.0 Products sales, with the remainder from Cannabis 1.0
Product sales. Net revenues improved during the second quarter
of 2021 by $14.0 million over the same period of 2020 and by $11.7
million over the first quarter of 2021 primarily due to the
Company’s increased retail cannabis sales nationally and
improvements in the Company’s provincial customers’ inventory
purchases following the prior quarter pull back. Net revenues
year to date were $30.0 million, an improvement of $14.1 million
over the same period of 2020 primarily as a result of the second
quarter improvements. Consistent with prior periods, as the Company
does not participate in the Quebec market, approximately 85% of
cannabis sales during the second quarter of 2021 originated from
sales to British Columbia, Alberta and Ontario.
Gross Profit/Loss
Auxly realized a gross profit of $8.0 million
resulting in a 38% margin during the three months ended June 30,
2021, compared to $1.4 million (19%) during the same period in
2020. Gross profits for the current period were primarily the
result of Cannabis 2.0 Products sales with nominal contributions
from Cannabis 1.0 Products. Gross profits on a year to date basis
improved by approximately $6.6 million to $10.3 million as compared
to the same period in 2020, resulting in a 34% margin, primarily as
a result of the second quarter performance.
Inventory impairment was $0.1 million for the
second quarter and $0.4 million year to date 2021. In 2020,
impairment of inventory was higher during the same periods due to
additional charges 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. SG&A
expenses were $12.1 million during the second quarter and $21.3
million year to date 2021, a decrease of $1.5 million and $5.1
million as compared to the same periods in 2020.
Wages and benefits were $4.7 million and $8.9
million for the second quarter and year to date of 2021
respectively, decreases of $2.3 million and $3.8 million, over the
same periods in 2020. The decrease for the second quarter of $2.3
million was primarily driven by workforce reductions at Inverell of
approximately $0.7 million and in savings and absorption changes in
the remaining operations of approximately $1.6 million. Year to
date decreases of $3.8 million primarily related to workforce
reductions at Inverell of approximately $1.2 million with the
remainder of the savings coming from headcount reductions and
absorption changes in the rest of the Company.
Office and administrative expenses of $3.6
million for the current period and $6.7 million year to date in
2021 increased by $Nil and $0.5 million compared to same periods in
2020. Expenditures during the second quarter of 2021 included TSX
listing fees and increased product testing, supplies and waste
resulting from increased innovation and product development
activities, Dosecann rent and Health Canada fees as a percentage of
sales, partially offset by reduced expenditures of $0.2 million at
Inverell and a number of other reductions throughout the Company.
Year to date increased expenditures of $0.5 million primarily
relate to increased operating costs associated with the development
and sale of Cannabis Products, TSX listing fees, Dosecann rent,
partially offset by approximately $0.5 million of reduced
expenditures at Inverell.
Auxly’s professional fees for the three months
ended June 30, 2021 were $0.7 million, higher by $0.2 million as
compared to 2020 primarily due to increased legal expenditures
associated with certain corporate activities. Year to date
expenditures of $1.1 million were lower by $0.7 million as compared
to 2020 primarily as a result of greater consulting expenditures in
2020 related to the development of the Company’s ERP system.
Professional fees incurred during the periods primarily related to
accounting fees, regulatory matters, reporting issuer fees, and
legal fees associated with certain corporate activities.
Professional fees can vary significantly based upon transactional
activities from period to period.
Business development expenses were $Nil for the
three and six months ended June 30, 2021, as compared to $Nil and
$0.4 million during the same periods in 2020. The decreases are
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 June 30,
2021, were $2.0 million and $3.4 million year to date, an increase
of approximately $0.9 million over the same periods in 2020, as a
result of cannabis sales activities comprised of brokerage fees
earned by Kindred Partners and marketing initiatives for Cannabis
Products.
For the three months ended June 30, 2021,
share-based compensation was $1.0 million and $1.2 million
primarily as a result of option grants completed during the second
quarter of 2021. The year to date reduction in expense of $1.5
million as compared to 2020, reflects the impact of lower share
prices and aging outstanding options.
Depreciation and amortization expenses were $2.2
million for the three months ended June 30, 2021, and $4.6 million
year to date, $0.5 million lower and $Nil as compared to the same
periods of 2020. The reduction in expenditures during the current
period is primarily the result of greater expenditures related to
Inverell in the prior year, partially offset by subsequent
additional capital expenditures.
Interest expenses were $4.8 million and $9.4
million for the second quarter and year to date of 2021
respectively, increases of $1.4 million and $3.9 million over the
same periods in 2020. Interest expenses in 2021 were primarily the
result of interest expense and accretion on the $123 million
Imperial Brands Debenture and changes related to the Amendments
thereof, 7.5% on the convertible debentures 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 Debenture, 7.5% on the convertible
debentures issued in 2020 to date, 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 three and six months ended June 30, 2021,
the Company reported a fair value gain of $0.1 million and $0.2
million respectively, approximately $4.6 million lower than the
same periods in 2020 primarily as a result of more significant
valuation reductions and a larger securities portfolio during
2020.
The Company recorded interest and other incomes
of $0.4 million and $0.8 million for the three and six months ended
June 30, 2021, with increases over the same periods of 2020
primarily due to changes in interest accretion on the promissory
note from the Company’s Sunens joint venture.
Impairment of long-term assets of $11.4 million
in 2021 relate to the recently announced sale of Curative where the
carrying value exceeded the proceeds of sale. During 2020, the
Company recognized an impairment loss on long-term assets of $4.5
million related to Inverell.
Gains and losses on settlement of assets and
liabilities and other expenses was a gain of $17.0 million during
the second quarter of 2021 as compared to a loss of $2.0 million
during the same period of 2020. The improvement of $19.0 million
for the period was primarily related to a $16.6 million gain
associated with the Imperial Brands Debenture Amendments and a $2.4
million loss associated with accrued legal settlements and a credit
loss provision in 2020. The year to date gain of $21.1 million in
2021 includes a $4.2 million first quarter gain on the settlement
of a $5.8 million liability associated with a non-monetary product
exchange with another licensed producer.
The share of loss on investment in joint venture
of $2.5 million for the three months ended June 30, 2021 and $3.0
million year to date reflect 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 licenced producers, including Auxly beginning 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 June 30, 2021, the Company
reported a foreign exchange loss of $0.6 million and a loss of $1.2
million year to date as compared to a loss of $1.1 million and a
gain of $0.6 million during the same periods of 2020.
Net Income and Loss
Net income attributable to shareholders of the
Company was $8.7 million for the three months ended June 30, 2021,
representing a net income of $0.01 per share on a basic and diluted
basis. Net loss attributable to shareholders of the Company was
$1.8 million for the six months ended June 30, 2021, representing a
net loss of $0.00 per share on a basic and diluted basis. The
improvement in net income and loss positions was a result of net
income of $12.3 million related to the sale of KGK, recognition of
a gain from the Imperial Brands Debenture Amendments, improvements
in continuing operating gross profits and income tax recoveries,
partially offset by an impairment charge related to the Curative
sale.
Adjusted EBITDA
Adjusted EBITDA of negative $3.3 million during
the second quarter of 2021 improved by approximately $7.2 million
or 68% over the same period in 2020 primarily driven by greater
gross profits. Year to date Adjusted EBITDA of negative $10.0
million in 2021 also reflects improvements in gross profit and
lower SG&A as compared to $17.9 million recorded during the
same period of 2020.
Outlook
In 2021, Auxly is focused on building upon its
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;
- Become a top 5
licenced producer in Canada by total market share in adult
recreational cannabis sales;
- Continue to take
measures to improve cash flows, and finance the business;
- Become Adjusted
EBITDA positive by the end of the calendar year;
- 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.
Auxly 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.
Conference Call
Auxly’s management team will host a conference
call today, Monday August 16, 2021, at 10:00 a.m. EST to discuss
its financial results. Participants can access the conference call
by telephone by dialing: 888-664-6383.
For those unable to participate in the
conference call at the scheduled time, it will be available for
replay on the Company’s website within 24 hours after the
conclusion of the call.
ON BEHALF OF THE BOARD"Hugo Alves" CEO
About Auxly Cannabis Group Inc. (TSX.V:
XLY)
Auxly is an international cannabis company
dedicated to bringing innovative, effective, and high-quality
cannabis products to the medical, 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 and stay up to date at Twitter:
@AuxlyGroup; Instagram: @auxlygroup; Facebook:
@auxlygroup; LinkedIn: company/auxlygroup/.
Investor Relations:
For investor enquiries please contact our
Investor Relations Team: Email: IR@auxly.comPhone:
1.833.695.2414
Media Enquiries (only):
For media enquiries or to set up an interview please contact:
Email: press@auxly.com
Notice Regarding Forward Looking
Information:
This news release contains certain
"forward-looking information" within the meaning of applicable
Canadian securities law. Forward-looking information is frequently
characterized by words such as "plan", "continue", "expect",
"project", "intend", "believe", "anticipate", "estimate", "may",
"will", "potential", "proposed" and other similar words, or
information that certain events or conditions "may" or "will"
occur. This information is only a prediction. Various assumptions
were used in drawing the conclusions or making the projections
contained in the forward-looking information throughout this news
release. Forward-looking information includes, but is not limited
to: the proposed operation of Auxly, its subsidiaries and partners;
the intention to grow the business, operations and existing and
potential activities of Auxly; the Company’s response to the
COVID-19 pandemic; the impact of the COVID-19 pandemic on the
Company’s current and future operations; the Company's execution of
its innovative product development, commercialization strategy and
expansion plans; the anticipated benefits of the Company's
partnerships, joint ventures, research and development initiatives
and other commercial arrangements; the expectation and timing of
future revenues; expectations regarding the Company’s expansion of
operations and investment into foreign jurisdictions; future
legislative and regulatory developments involving cannabis and
cannabis products; the timing and outcomes of regulatory or
intellectual property decisions; the relevance of Auxly’s
subsidiaries’ and partners’ current and proposed products; consumer
preferences; political change; competition and other risks
affecting the Company in particular and the cannabis industry
generally.
A number of factors could cause actual results
to differ materially from a conclusion, forecast or projection
contained in the forward-looking information in this release
including, but not limited to, whether: the Company will be able to
execute on its business strategy; Auxly’s subsidiaries and partners
are able to obtain and maintain the necessary governmental and
regulatory authorizations to conduct business; the Company is able
to successfully manage the integration of its various business
units with its own; there are not materially more closures or
lockdowns related to the COVID‐19 pandemic; the Company’s
subsidiaries and partners obtain and maintain all necessary
governmental and regulatory permits and approvals for the operation
of their facilities and the development of cannabis products, and
whether such permits and approvals can be obtained in a timely
manner; the Company will be able to successfully launch new product
formats and enter into new markets; there is acceptance and demand
for current and future Company products by consumers and provincial
purchasers; and general economic, financial market, legislative,
regulatory, competitive and political conditions in which the
Company and its subsidiaries and partners operate will remain the
same. Additional risk factors are disclosed in the annual
information form of the Company for the financial year ended
December 31, 2020 dated April 23, 2021.
New factors emerge from time to time, and it is
not possible for management to predict all of those factors or to
assess in advance the impact of each such factor on the Company's
business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking information. The forward-looking
information in this release is based on information currently
available and what management believes are reasonable assumptions.
Forward-looking information speaks only to such assumptions as of
the date of this release. In addition, this release may contain
forward-looking information attributed to third party industry
sources, the accuracy of which has not been verified by the
Company. The forward-looking information is being provided for the
purposes of assisting the reader in understanding the Company's
financial performance, financial position and cash flows as at and
for periods ended on certain dates and to present information about
management's current expectations and plans relating to the future,
and the reader is cautioned that such forward-looking information
may not be appropriate for any other purpose. Readers should not
place undue reliance on forward-looking information contained in
this release.
The forward-looking information contained in
this release is expressly qualified by the foregoing cautionary
statements and is made as of the date of this release. Except as
may be required by applicable securities laws, the Company does not
undertake any obligation to publicly update or revise any
forward-looking information to reflect events or circumstances
after the date of this release or to reflect the occurrence of
unanticipated events, whether as a result of new information,
future events or results, or otherwise.
Neither Toronto Stock Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the Toronto Stock Exchange) accepts responsibility for
the adequacy or accuracy of this release.
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