JWCA James E Wagner Cultivation Corporation

James E. Wagner Cultivation Corporation (TSX VENTURE: JWCA; OTCQX: JWCAF), a premium cannabis brand focused on producing clean, consistent cannabis grown using its advanced and proprietary GrowthSTORM™ aeroponic platform, reported financial results for its fiscal first quarter ended December 31, 2019. Dollar amounts are in Canadian dollars.

Fiscal Q1 2020 Corporate Highlights

• Received licensing amendment from Health Canada to double JWC2’s licensed production capacity to 44,500 square feet, which would be an annualized production capacity of more than 9,000 kilos of dried cannabis.
• Average yield per plant increased to 262 grams in the first quarter of 2020, versus the average yield of 210 in the same year-ago period.
• Launched plans to open a 2,000 square farm gate retail store adjoining the company’s JWC2 flagship facility, representing a new direct-to-consumer sales channel for the company. The store is anticipated to be the Waterloo region’s first retail cannabis store located on a licensed cultivation site, and will serve the area’s 500,000 inhabitants. In January, the company submitted a cannabis retail operator license application to the Alcohol and Gaming Commission of Ontario.
• Received a license amendment from Health Canada for the sale and production of cannabis extracts, edibles and topicals at the company’s JWC1 facility, allowing JWC to add kief, rosins, and pre-rolls in various quantity formats to its product portfolio. 
• Introduced four new cannabis strains grown using the company’s advanced GrowthSTORM™ aeroponic platform: King Tut, Dark Helmet, West Coast Sour Diesel, and Hash Plant.
• Engaged Kindred Partners to serve as the exclusive broker for JWC adult-use cannabis products in Canada.
• Entered a supply and manufacturing agreement with CannaCure Corporation, a wholly-owned subsidiary of Heritage Cannabis Holdings, whereby CannaCure formulates and fills JWC’s vape cartridges, for both recreational and medical cannabis markets.
• Began collaboration and research trial with Fluence Bioengineering for the performance testing of Fluence’s VYPR 2p Broad Spectrum LED lighting solution. The trial will assess if the lighting solution can further improve JWC’s already high level of energy efficiency and help to further optimize cultivation performance.

Financial Highlights

• Revenues totaled $264,000 in fiscal Q1 2020, down 74% sequentially from $1,025,000 in fiscal Q4 2019, and compared to $550,000 in fiscal Q1 2019. The decline in revenue was due primarily to management’s response to market conditions and the strategic decision to defer sales to the second quarter to maximize the revenue potential and gross margin of produced goods. This decision was reflected in Unrealized Fair Value on Finished Goods in the amount of $2.4 million, as compared to none at the end of the previous quarter.
• Loss and comprehensive loss for fiscal Q1 reduced 48% to $1.2 million or $(0.01) per share.
• Gross margin totaled $1.8 million, compared to $3,000 in in the same year-ago quarter.
• Operating expenses in fiscal Q1 2020 were $2.5 million, a 46% decrease from fiscal Q4 2019, and a 5% increase from fiscal Q1 2019.
• Received private placement equity funding of approximately $1 million.
• Secured a $4 million loan facility available in two tranches, with $2,850,000 received during the first quarter and the remaining portion received in the subsequent quarter. 
• Obtained convertible security funding for up to $10 million available in two tranches, with $2 million drawn in the subsequent quarter and the remainder available subject to mutual agreement with the lender. 

Management Commentary

“During our first fiscal quarter of 2020 we made tremendous strides in many areas of our business designed to better position JWC for success in the new year.  We focused our efforts on deriving the maximum value from all available resources and avenues, including our biological assets, branded products, key partnerships, proprietary technologies and newly established sales channels.

“Our financial results for the quarter demonstrated that despite our strengthening platform, we were not immune to the challenges of an industry that is still evolving and striving for balance. While revenue declined substantially, this was largely purposeful, reflecting what we see as temporary conditions that are now set to pivot and launch in the opposite direction in the current quarter.

“During fiscal Q1, we implemented a strategic response to the market. A combination of number of factors, primarily oversupply and the lack of legal sales outlets continued to drive the illicit market. As a result, our wholesale partners were unable to buy our products at historical prices, driving gross margins into the negative territory. So, we made the strategic decision to hold back on sales and preserve our biological assets until the oversupply subsided and the recreational market opened.

“Our ability to attract various sources of capital even in this challenging environment demonstrated our strong value proposition and gave us the flexibility to pursue our strategy. We dedicated our resources to the development of our Cannabis 2.0 products, positioning ourselves to capture the anticipated growth in the recreational market in the current quarter. This has also included the formation of a variety of new partnerships and obtaining key regulatory approvals.

“Experts are now predicting a three times growth in industry-wide sales in 2020, as the number of retail stores steadily increase as a result of eased regulations and the oversupply subsides. We expect this to support the sale of significant volumes of our products in Q2 and beyond.

“Our primary focus will remain on becoming a highly successful cultivator and seller of clean, consistent cannabis. Our financial outlook is unchanged for fiscal Q2 and Q3, as we reiterate below. Combined with our industry-leading yields and lower cost of production due to our unique GrowthSTORM™ system, we believe we can achieve and sustain highly favorable margins and strong growth over the long term.”

Summary Financial Results
	Q1 2020	Q1 2019	% Change	Q4 2019	% Change
Revenues	263,820	549,995	-52%	$1,024,515	-74%
Operating expenses	2,443,168	2,386,812	2%	1,704,537	43%
Loss from operations	(640,056)	(2,375,936)	-73%	(2,790,773)	-77%
Net and comprehensive loss	(1,166,785)	(2,325,292)	-49%	(3,087,790)	-62%
Net and comprehensive loss per share	(0.01)	(0.03)	-67%	(0.03)	-67%
	Dec. 31, 2019	Sept. 30, 2019	% Change
Cash & cash equivalents	321,042	1,266,611	-75%
Agriculture produce & biological assets	10,416,349	6,026,989	73%
Non-current assets	28,693,007	19,057,907	51%
Other liabilities and long-term debt	19,596,266	7,172,475	173%
Shareholder's equity	14,867,012	15,111,888	-1.6%

For the first quarter of fiscal 2020, revenues totaled a $264,000, decreasing 74% from $1,025,000 in the previous fiscal quarter, and by 52% from $550,000 in the same year-ago quarter.

General and administrative costs increased to $2.1 million sequentially, and remained equal marginally at $2.1 million compared to the same year-ago period. Increases in salary and wages expense to $1.0 million in first quarter of fiscal 2020 from $622,000 in the same year-ago quarter was offset by the elimination of in rent expense due to the adoption of IFRS 16. Under IFRS 16, leases and rent expenses are no longer included in the income statement, but instead as a reduction to lease liabilities in the statement of financial position.

Operating expense totaled $2.5 million, increasing 46% from $1.7 million in the previous quarter, and up 5% from the same year-ago quarter. Excluding two one-time items in Q4 2019 (the transfer of year to date production expense to inventory and the receipt of scientific research and experimental development (“SRED”) tax credit), operating expense decreased 4% from the previous quarter. The increase from the prior year is consistent with the company’s plans for facility expansion, including increasing employee headcount and preparations for the new farm-gate retail store.

Biological assets totaled $3.6 million at the end of the first quarter 2020, compared to $2.9 million at the end of the previous quarter and $1.5 million at the end of the year-ago quarter.

Net and comprehensive loss was $1.2 million or $(0.01) per share in fiscal Q1 2020, compared to $3.1 million or $(0.03) per share in the previous fiscal quarter and $2.3 million or $(0.03) per share in fiscal Q1 2019.

Cash and equivalents at December 31, 2019 totaled $321,000 compared to $1.3 million at September 30, 2019 and $2.9 million at December 31, 2018. The decrease in cash is attributable to cash used in operations and the reduction in accounts payable.

The company raised $1 million in equity and borrowed $2.85 million in the fiscal first quarter. Subsequent to the quarter, it raised an additional $3.3 million in equity financing and convertible securities, and borrowed another $1.15 million.  The company has the option, upon mutual agreement with the lender, to secure an additional $8 million in operating capital through existing funding vehicles, in addition to other means. The company believes it will sustain sufficient liquidity to meet its financial commitments and for its growth objectives to be achieved.

Outlook

Inventories totaled approximately 1,199 kg of dried cannabis and 102 liters of formulated oil at the end of fiscal Q1 2020. These products are planned for sale in the second and third quarter of fiscal 2020.

The company plans to begin selling cannabis products through recreational channels before the end of fiscal Q2 2020.

In fiscal Q2 2020, the company expects to be revenue positive (cash flow positive), along with generating positive net and comprehensive income. By Q3 2020, it expects revenue growth to drive strong gross margins, positive cash flow, and net and comprehensive income.

Additional Information

Additional details of the Company’s financial results are available in the financial statements and the management’s discussion and analysis as filed under JWC’s profile on SEDAR (www.sedar.com) and available on the Company’s website at www.jwc.ca.

Conference Call

On February 21, 2020, the Company will host a conference call to discuss these results, followed by a question and answer period, as specified below:

Date: Friday, February 21, 2020Time: 3:00 p.m. Eastern time (12:00 p.m. Pacific time)Toll-free dial-in number: +1 (877) 407-9208International dial-in number: +1 (201) 493-6784Conference ID: 13698939

The conference call will be webcast live and available for replay here. 

Please call the conference telephone number five minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact CMA at +1 (949) 432-7566.

A telephone replay of the call will be available from 6:00 p.m. Eastern time on the same day until March 6, 2020:

Toll-free replay number: +1 (844) 512-2921International replay number: +1 (412) 317-6671Replay ID: 13698939

About James E. Wagner Cultivation Corporation

James E. Wagner Cultivation Corporation’s wholly owned subsidiary is a Licensed Producer under the Cannabis Regulations, formerly the Access to Cannabis for Medical Purposes Regulations (“ACMPR”). JWC is a premium cannabis brand, focusing on producing clean, consistent cannabis using an advanced and proprietary aeroponic platform named GrowthSTORM™. JWC began as a collective of patients and growers under the Marihuana Medical Access Regulations (the precursor to ACMPR). Since its inception, JWC has remained focused on providing the best possible patient experience. JWC is a family-founded company with deep roots planted in the local community. JWC’s operations are based in Kitchener, Ontario. Learn more at www.jwc.ca.

Notice Regarding Forward-Looking Statements

This press release contains statements including forward-looking information for purposes of applicable securities laws (“forward-looking statements”) about JWC and its business and operations which include, among other things, statements regarding increased production capacity at JWC’s facilities, the financial impact of additional licenced flowering space at JWC’s facilities, increased yield of cannabis flower, the availability of debt financing, sales of cannabis in the recreational market, increasing customer demand, the financial growth of JWC, management’s expectation of JWC achieving break-even, turning net and comprehensive income positive and turning revenue positive and the timing for the achievement of such milestones. The forward-looking statements can be identified by the use of such words as “will”, “expected”, “approximately”, “may”, “could”, “would” or similar words and phrases. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those implied in the forward-looking statements. For example, risks include risks regarding the cannabis industry, economic factors, the equity markets generally, building permit related risks and risks associated with growth and competition as well as the risks identified in JWC’s Annual Information Form dated April 3, 2019‎, available under the JWC’s profile at www.sedar.com. Although JWC has attempted to identify important factors that could result in actual actions, unanticipated events may cause results to differ materially from those described in forward-looking statements, and there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release and are based on current assumptions which management believes to be reasonable. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Company Contact Nathan Woodworth President & CEO Tel: (519) 594-0144 x421 Email: nathan@jwc.ca

Investor Relations Jonathan Leuchs CMA Tel: (949) 432-7566 Email: jwca@cma.team