CALGARY, Nov. 28, 2019 /CNW/ - Westleaf Inc. (the
"Company" or "Westleaf") (TSX-V:WL) (OTCQB:WSLFF),
released today its third quarter financial results for the fiscal
year 2019, for the three month interim period ending September 30, 2019 and provided an update on
operations. Westleaf's third quarter Financial Statements and
related Management Discussion & Analysis for the reporting
period are available under the Company's profile at
www.sedar.com
Q3 2019 Financial Highlights:
- Operating revenues of $1.7
million for the third quarter of 2019, up 82% from Q2 2019.
Total revenue reflects operations from three cannabis retail stores
in the Saskatoon region and one in
Calgary, the latter which was only
operational for the final two weeks of the interim period. In
management's view, the urban stores continue to perform well and
are achieving blended gross margins of ~37%.
- Selling General & Administrative (SG&A) costs of
$3.1 million for the quarter, down
~$0.7 million or 17% from Q2 2019.
Westleaf continues to be focused on cost reductions and is
implementing further overhead reduction initiatives.
- Westleaf's cash reserves at the end of the reporting period
were $10.0 million and the Company
has access to low-cost, undrawn credit facilities with ATB
Financial of ~$18.9 million which
brings the total available borrowing room and cash reserves to
~$28.9 million;
- The Company opened a fourth Prairie Records retail
location in Calgary, Alberta, on
September 1, 2019, bringing the
Company's total cannabis retail profile to four stores operating,
and the Company announced the anticipated development of three more
proposed cannabis retail stores, one in downtown Calgary, one in the University District in
Edmonton and one in Banff National Park, all of which are subject
to applicable regulatory approvals, including approval from Albert
Gaming Liquor and Cannabis.
Highlights Subsequent to Quarter End:
- On November 7, the Company
announced the proposed merger of the Company with We Grow BC Ltd.,
the cultivator of premium cannabis brand Qwest, to create a
combined vertically integrated company at the luxury end of the
cannabis market. The proposed merger is expected to provide the
combined entity with access to $8.9
million in additional non-dilutive capital through the
issuance of a new term loan ($4.7
million) and removal of the restricted cash requirement
(~$4.2 million) under the Company's
current subsidiary level credit facilities (which are expected to
be consolidated at the Company level as part of the transaction).
Following the close of the transaction, the combined company's
remaining infrastructure projects are anticipated to be fully
funded.
- Westleaf's Phase I of The Plant, the Company's
large-scale extraction, processing and manufacturing facility in
Calgary, (built to EU GMP
specifications) received approval from Health Canada for a standard
processing licence on October 11,
2019.
"During the reporting period, we executed on our previously
stated plans to build out a viable integrated premium cannabis
company and prepare the Company for the coming of Cannabis 2.0,
that is the legalization of a large variety of cannabis derivative
products," said Scott Hurd,
President and CEO of Westleaf. "We successfully completed
construction on The Plant, and we received a standard
processing licence from Health Canada within the estimated time
frame. Subsequent to the quarter end The Plant has been
operationalized and we are now prepared to begin manufacturing a
number of cannabis derivative products for sale by the Company and
through white label contracts for third parties."
"Most substantially, subsequent to quarter end, we announced
that we intend to merge Westleaf with We Grow BC," added Hurd. "The
resulting combined company is expected to have the scale and the
cannabis brands to be a significant player in the ultra-premium end
of the legal recreational cannabis market in Canada. In our view, We Grow's Qwest
brand has established itself as a leading cannabis brand,
recognized for its ultra-premium quality products and rare flower
varieties, evidenced by its leading realized selling price in the
Canadian recreational market."
Operating Highlights
The Plant – Preparing for Cannabis 2.0:
- Phase I of The Plant, construction of the Company's
wholly owned large-scale cannabis extraction, processing and
product formulation facility, was completed and it received
approval from Health Canada for a standard cannabis processing
licence which allows the Company to begin cannabis processing
production;
- Phase I of the facility is designed to process approximately
65,000 kgs of dried cannabis per annum into high quality oils,
concentrates, tinctures, vape products and gel caps, including a
white label vape product for Winnipeg based Delta Nine Cannabis Inc., and
Westleaf's first in-house product, a line of vape pens under the
brand General Admission1;
- The Plant is a highly strategic asset for the Company.
Westleaf anticipates strong industry wide demand for efficient
extraction, processing and formulation capacity. In addition, the
merger with We Grow BC is expected to enable the combined entity to
begin processing and production of derivative products under the
premium brand Qwest.
The Plant has an additional 45,000 square feet of
scalable space with the potential to expand capacity as well as
potentially add additional product lines based on consumer
preferences now that additional products have been licensed.
The first products expected in Cannabis 2.0 legalization are
a line of vape products the Company plans to roll-out in the early
part of Q1 2020. The Plant is also anticipated to be a key
component in the merged company, as some of the processing capacity
will be used to create Qwest branded ultra-premium cannabis
derivative products.
Prairie Records – A Unique Retail
Experience:
Prairie Records the Company's retail brand continues to
grow through the quarter with the addition of a store in
Calgary's Forest Lawn district,
which opened on September 1, 2019.
The Prairie Records two urban stores in Saskatoon continue to return gross margins
close to 37%.
In September 2019, Prairie
Records was awarded the Canadian "Retailer of the Year" Award
by the Cannabiz GrowUP Awards and Conference and in November 2019, Prairie Records was
recognized by the Canadian Marketing Association as a Silver
Medalist in the Cannabis Category, for its on-the-ground launch
campaign around the Company's Saskatoon retail cannabis stores.
The retail environment in Alberta and Saskatchewan, where the Company operates
retail stores, continue to show positive month over month
growth. Alberta remains
among the highest sales per population in the country with a 3.16%
increase in sales from August to September
2019. Saskatchewan also
continues to grow by similar amounts. (Statistics Canada, Cannabis
Retail Sales).
With its open retail market, Alberta has accounted for more sales than any
other province in the country since legalization, edging out
Ontario which has three and half
times the population but only a fraction of the stores open. In the
first 12 months of sales, there has been a total of $928.3 million sold in legal retail and online
stores across Canada. (Statistics Canada, Cannabis Retail
Sales).
Thunderchild Cultivation
Construction of Westleaf's purpose-built, indoor cultivation
facility near Battleford,
Saskatchewan has progressed significantly in Q3 2019 and
subsequent to the reporting period. Phase I of the indoor grow
operation is expected to include a total of 80,000 square feet with
20 grow rooms and approximately 21,000 square feet of flower bench.
Phase II is expected to add an additional 50,000 square feet and
bring total production capacity up to approximately 14,600 kgs per
annum, all subject to receipt of applicable regulatory
approvals2. Principle construction is expected to be
primarily complete in December
2019.
The remainder of the facility construction is fully financed
with low-cost, non-dilutive bank debt from ATB Financial and
Westleaf believes it is uniquely positioned to provide the high
demand ultra-premium indoor flower to the market once operational.
Assuming the closing of the proposed merger, the
Thunderchild facility is expected to be a key asset for the
expansion of the Qwest brand, as We Grow BC will introduce
its genetics and plants into the facility, which is amongst the
most sought after premium cannabis on the market.
Outlook and Additional Information
With the announcement of the merger with We Grow BC, the
combined Company is anticipated to be positively positioned as the
market enters an important next phase of growth within Canada's expanded legal recreational cannabis
market. The combined entity will be focused on the ultra-premium
end of the market both from a position of cultivation and product
development of Qwest branded cannabis and cannabis
derivatives as well as at its Prairie Records retail
outlets. Based on data provided by the Alberta Gaming Liquor and
Cannabis (AGLC) Commission, Qwest products held down the
first and third highest average retail price amongst all available
cannabis products in the province, averaging approximately
$20 and $17 per gram for Qwest Reserve and
Qwest respectively3. In management's view, this
support for these ultra-premium products bodes well for the
development of additional derivative products under the
Qwest brand.
Share Structure
As of September 30, 2019, the
Company had 142.7 million common shares outstanding, 23.5 million
warrants outstanding, 7.9 million RSUs outstanding, and 3.0 million
stock options outstanding. All RSUs were granted in accordance
with the Company's compensation plan.
About Westleaf Inc.
Westleaf is a Canadian cannabis company focused on cannabis
brands, extraction and production of derivatives, wholly owned
retail, as well as cannabis cultivation. The Company's Health
Canada licensed extraction and processing facility, The
Plant, is expected to produce high quality and consistent
cannabis derivatives and consumables, both for Westleaf's in-house
brands as well as white label products. Westleaf's retail concept,
Prairie Records, leverages the instinctual tie between
recreational cannabis and music with stores operating or in
development across Western Canada.
The Company's Thunderchild cultivation facility is scheduled
for completion at the end of this year.
Cautionary Statements
This news release contains "forward-looking information" and
"forward-looking statements" (collectively, "forward-looking
statements") within the meaning of the applicable Canadian
securities legislation. All statements, other than statements of
historical fact, are forward-looking statements and are based on
expectations, estimates and projections as at the date of this news
release. Any statement that involves discussions with respect to
predictions, expectations, beliefs, plans, projections, objectives,
assumptions, future events or performance (often but not always
using phrases such as "expects", or "does not expect", "is
expected", "anticipates" or "does not anticipate", "plans",
"budget", "scheduled", "forecasts", "estimates", "believes" or
"intends" or variations of such words and phrases or stating that
certain actions, events or results "may" or "could", "would",
"might" or "will" be taken to occur or be achieved) are not
statements of historical fact and may be forward-looking
statements. In this news release, forward-looking statements relate
to, among other things, (i) retail cannabis stores that Westleaf
plans to open; (ii) the construction of Westleaf's production
facilities and the timing for completion of same; (iii)
commencement of production at Westleaf's production facilities;
(iv) the Plant providing a competitive advantage by being adaptive
to consumer needs; (v) products and brands to be produced from
Westleaf's production facilities and the products and services that
Westleaf plans to offer; (iv) timing of provincial and federal
regulatory approvals; (vii) timing of legalization of certain
derivative products; (viii) changes in cannabis consumption habits
among Canadians; (ix) the processing and production capabilities of
Westleaf's extracting and cultivation facilities; and * the
Company's proposed merger with We Grow BC Ltd. and the anticipated
benefits related thereto. Forward-looking statements are
necessarily based upon a number of estimates and assumptions that,
while considered reasonable, are subject to known and unknown
risks, uncertainties, and other factors which may cause the actual
results and future events to differ materially from those expressed
or implied by such forward-looking statements. Such factors
include, but are not limited to: risks relating to the ability to
obtain or maintain licenses to retail cannabis products; review of
Westleaf's production facilities by Health Canada and receipt of
licenses from Health Canada in respect thereof; future legislative
and regulatory developments involving cannabis, including the
passing of regulations regarding derivative cannabis products;
inability to access sufficient capital from internal and external
sources, and/or inability to access sufficient capital on
favourable terms; the labour market generally and the ability to
access, hire and retain employees; the ability of Westleaf's
production facilities to operate and perform at peak production;
general business, economic, competitive, political and social
uncertainties; the satisfaction of conditions precedent under
Westleaf's credit facilities; timing and completion of construction
of Westleaf's production facilities and retail locations; and the
delay or failure to receive board, ATB Financial or regulatory
approvals, including any approvals of the TSX Venture Exchange, as
applicable. There can be no assurance that such statements will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on the
forward-looking statements and information contained in this news
release. Except as required by law, Westleaf assume no obligation
to update the forward-looking statements of beliefs, opinions,
projections, or other factors, should they change, except as
required by law.
Neither TSXV nor its Regulation Services Provider (as that
term is defined in the policies of the TSXV) accepts responsibility
for the adequacy or accuracy of this release
- Based on average management suggested retail price of SKUs
available from Alberta Gaming, Liquor and Cannabis
in September 2019.
- Thunderchild production capacity estimates are based on Phase I
and Phase II total flower bench of 42,000 square feet total (21,000
square feet per phase), 60 grams of flower per yield per square
foot per harvest, and 5.8 harvests per annum. Phase I consists of
facility floor plate of approximately 80,000 total square feet
(total square footage of Phase I & II of ~130,000 sq.
ft.).
- Extraction capacity estimates based on a phased approach
anticipated to reach 65,000 kg capacity in Q1 2020 as additional
equipment is installed in existing built out space. Based on 350
workdays per year.
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SOURCE Westleaf Inc.