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, 2019. These filings and
additional information regarding Auxly are available for review on
SEDAR at www.sedar.com.
Q2 2019 Highlights and Subsequent
Events
- Auxly welcomed $123.0 million investment and R&D
partnership with Imperial Brands
- Sunens entered into a term sheet for a syndicated credit
facility and expects to receive debt financing in the aggregate
amount of approximately $84.0 million
- Dosecann entered into a definitive agreement with Capsugel Inc.
to provide Dosecann with a complete line of equipment for capsule
filling and sealing, including a state-of-the-art LEMS® machine,
Lonza’s proprietary liquid-filled Capsugel® Licaps® capsules, and
rights to its capsule filling and sealing LEMS® technology. In
addition, Dosecann and Lonza will work collaboratively on new
product formulation for cannabis capsule products
- Kolab had its official store opening in Lloydminster,
Saskatchewan; Kolab is now able to commence local cannabis sales
and province-wide e-commerce throughout Saskatchewan
- Inverell harvested 18 tonnes of hemp biomass to be converted
into CBD isolate
Q2 Highlights
(000’s) |
|
Three monthsEnded June 30, 2019 |
|
Three months Ended June 30, 2018 |
|
Change |
|
Percentage Change |
|
Six months Ended June 30, 2019 |
|
Six months Ended June 20, 2018 |
|
Change |
|
Percentage Change |
|
Total revenues |
$ |
2,762 |
|
$ |
- |
|
$ |
2,762 |
|
N/A |
|
$ |
3,579 |
|
$ |
- |
|
$ |
3,579 |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses* |
|
(13,987) |
|
|
(11,878) |
|
|
(2,109) |
|
18% |
|
|
(27,598) |
|
|
(22,400) |
|
|
(5,198) |
|
23% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
equivalents** |
|
119,127 |
|
|
211,707 |
|
|
(92,580) |
|
-44% |
|
|
119,127 |
|
|
211,707 |
|
|
(92,580) |
|
-44% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets** |
|
439,888 |
|
|
460,818 |
|
|
(20,930) |
|
-5% |
|
|
439,888 |
|
|
460,818 |
|
|
(20,930) |
|
-5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt** |
$ |
96,637 |
|
|
94,151 |
|
$ |
2,486 |
|
3% |
|
$ |
96,637 |
|
|
94,151 |
|
$ |
2,486 |
|
3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Shares outstanding |
|
592,208,342 |
|
|
466,768,801 |
|
|
125,439,541 |
|
27% |
|
|
589,730,772 |
|
|
416,214,533 |
|
|
173,516,239 |
|
42% |
|
*attributable to shareholders
of the Company** comparable period is December 31, 2018
Hugo Alves, President of Auxly, commented: “This
quarter has been instrumental in ensuring our growth and success as
we prepare for the launch of our derivative products later this
year. With our first retail store now open in Saskatchewan,
licenses received at Robinsons and critical strategic partnerships
in place with innovative and trailblazing companies such as
Imperial Brands, we are well prepared to execute on our plans to
lead the next phase of the cannabis industry.”
Auxly’s Business
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.
Vision and Strategy
Auxly’s vision is to be a global cannabis leader
focused on providing branded cannabis products backed by science
and innovation.
Since the Company’s inception, it has worked
closely with its partners to develop a secure, cost-efficient and
diversified source of cannabis. To accelerate market participation
in the medical and wellness cannabis market, and prior to the
legalization and creation of the adult-use cannabis markets in
Canada in October 2018, Auxly invested in cultivation
opportunities, more commonly referred to as “streaming”
transactions, with the goal of supply diversification and efficient
use of capital. These cultivation partners remain important
to the Company’s predictable supply of diverse, cost efficient raw
cannabis.
With its cultivation platform largely in place
and in anticipation of the legalization of derivative adult-use
products for October 2019 (namely, concentrates, edibles and
topicals as contemplated by the Cannabis Act and its current and
proposed accompanying regulations) (“Phase two”), Auxly has been
focused on product formulation and development at its wholly owned
subsidiary, Dosecann Inc. (“Dosecann”). Auxly was a first
mover in 2018 with the acquisition of Dosecann. Its
state-of-the-art processing facility and its highly-skilled team
give the Company the ability to turn raw cannabis into a variety of
derivative cannabis products under one roof. Further, Auxly’s
acquisition of KGK Science Inc. (“KGK”) provides additional
scientific and clinical bench strength to Dosecann’s ability to
develop and produce safe, effective and high-quality cannabis
products.
The Company continues to develop strategic
distribution channels to expand its exposure to new and existing
markets, including health care providers, provincial boards and
retailers, and its wholly-owned retail outlet with province-wide
e-commerce capabilities in Saskatchewan.
Auxly has also invested in hemp cultivation and
extraction in Uruguay through its 80% ownership of Inverell S.A.
(“Inverell”) and its 100% ownership of its sister company Zeratol
S.A. and is constantly evaluating other international cultivation
and distribution opportunities.
Results of Operations
(000’s) |
Three months Ended June
30,2019 |
Three monthsEnded June 30,2018 |
Six monthsEnded June 30,
2019 |
Six months Ended June 20, 2018 |
Revenues |
|
|
|
|
Research Contracts and other |
$ |
2,318 |
- |
$ |
2,843 |
- |
Revenue from sales of cannabis products |
444 |
- |
736 |
- |
|
|
|
|
|
Total Revenues |
2,762 |
- |
3,579 |
- |
|
|
|
|
|
Cost of Sales |
2,090 |
- |
2,372 |
- |
Research contracts and other |
228 |
- |
376 |
- |
Costs of finished cannabis inventory sold |
|
|
|
|
Gross profit excluding fair value items |
444 |
- |
831 |
- |
|
|
|
|
|
Realized fair value change on inventory |
(1) |
- |
(195) |
- |
Unrealized fair value loss on biological transformation |
(155) |
- |
(537) |
- |
Gross Profit (loss) |
288 |
- |
99 |
- |
|
|
|
|
|
Other incomes |
|
|
|
|
Fair value gain for financial instruments, under FVTPL |
(1,812) |
282 |
(430) |
900 |
Interest income |
2,019 |
994 |
2,979 |
1,409 |
Total other incomes |
207 |
1,276 |
2,549 |
2,309 |
|
|
|
|
|
Expenses |
|
|
|
|
Selling, general, and administrative expenses |
11,325 |
10,504 |
22,293 |
18,235 |
Depreciation and amortization |
1,437 |
113 |
2,475 |
190 |
Interest expense |
1,897 |
2,756 |
5,431 |
4,961 |
Impairment of intangible assets |
- |
- |
1,800 |
- |
(Gain)/loss on settlement of financial assets and
liabilities |
250 |
- |
(125) |
4,191 |
Share of loss on equity investment in joint venture |
372 |
- |
552 |
- |
Foreign exchange (gain)/loss |
869 |
(38) |
940 |
(49) |
Total expenses |
16,150 |
13,335 |
33,366 |
27,528 |
|
|
|
|
|
Net Loss before income tax |
(15,655) |
(12,059) |
(30,718) |
(25,219) |
Income tax recovery |
1,464 |
(104) |
2,723 |
2,534 |
Net Loss |
$ |
(14,191) |
(12,163) |
$ |
(27,995) |
(22,685) |
|
|
|
|
|
Net loss attributable to shareholders of the
Company |
$ |
(13,987) |
(11,878) |
$ |
(27,598) |
(22,400) |
Net loss attributable to non-controlling
interest |
(204) |
(285) |
(397) |
(285) |
|
|
|
|
|
Net loss per common share (Basic and diluted) |
$ |
(0.02) |
(0.03) |
$ |
(0.05) |
(0.05) |
Weighted average number of shares outstanding (basic and
diluted) |
592,208,342 |
466,768,801 |
589,730,772 |
416,214,533 |
Revenue
For the three and six months ended June 30,
2019, Auxly recognized $2.3 million and $2.8 million of research
revenues from KGK, respectively. These revenues are in support of
third-party research contracts which can fluctuate significantly
during the contract and related performance milestones. Revenues
are driven by the achievement of milestones on existing and new
contracts and are therefore deferred to be only recognized as
performance criteria are met, resulting in timing differences of
when revenues are recognized. KGK is a critical component in
Auxly’s overall strategy to develop safe, effective and
high-quality consumer cannabis products while continuing to conduct
leading edge research for third party clients.Auxly recognized $0.4
million and $0.7 million of revenues from sales of dry cannabis
products for the three and six months ended June 30, 2019,
respectively. Dry cannabis flower sales have been curtailed as a
result of the company’s decision to use the dry flower to develop
derivative cannabis products in anticipation of Phase two
legalization.
Gross Profit
Auxly realized a gross profit of $0.3 million
for the three months ended June 30, 2019 and $0.1 million for the
six months ended June 30, 2019. Gross profit for the three months
ended June 30, 2019 is comprised of KGK revenues less expenses of
$0.2 million and $0.2 million of revenues less expenses on the sale
of cannabis products, net of a $0.1 million unrealized fair value
loss on biological asset transformation. Gross profit for the six
months ended June 30, 2019 is comprised of KGK revenues less
expenses of $0.5 million and $0.4 million of revenues less expenses
on the sale of cannabis products. In addition, a $0.2 million fair
value loss on inventory recognized on net realizable value and a
$0.6 million unrealized fair value loss on biological asset
transformation contributed to a reduction in overall gross profit
over the six-month period ended June 30, 2019.
Other incomes
Total other incomes were $0.2 million for the
three months ended June 30, 2019 and $2.5 million for the six
months ended June 30, 2019. For the three and six months ended June
30, 2019, other incomes are comprised of a fair value loss of $1.8
million and $0.4 million, respectively, from changes in securities
held and interest income of $2.0 million and $3.0 million,
respectively. Interest income is generated on notes receivable
balances as well as interest on cash and cash equivalents held.
Selling, general and administrative
expenses
Selling, general and administrative expenses are
comprised of wages and salaries, office and administrative,
professional fees, business developments, share-based payments, and
selling expenses. Share-based payments were reported separately
prior to 2019.
For the three and six months ended June 30,
2019, wages and benefits were $4.2 million and $8.3 million,
respectively. This reflects an increase of $2.4 million and $5.3
million over the same period in 2018, primarily due to workforce
increases in both 2018 and 2019. The increases were to support
expansionary activities as a direct result of workforces added on
acquisition of four entities and the corporate office.
Office and administrative expenses of $1.5
million in the second quarter of 2019 increased by $0.1 million and
$0.8 million to $3.2 million year to date compared to the same
periods in 2018. Office and administrative expenses have remained
relatively consistent year over year despite the increase in
headcount due to cost savings initiatives at head office.
Auxly’s professional fees were $1.8 million and
$2.9 million for the three and six months ended June 30, 2019,
respectively, as compared to $2.0 million and $2.7 million over the
same respective periods in 2018. Professional fees for 2019
primarily related to recruiting expenses, accounting fees, and fees
associated with financing activities, whereas these expenses in
2018 primarily related to acquisition activities, leading to a
decrease over the comparable second quarter three-month period. The
overall growth of the Company resulted in additional accounting and
recruiting fees over the six months ended June 30, 2019.
Business development fees of $1.1 million in the
second quarter of 2019 decreased by $1.4 million and $2.5 million
to $2.1 million year to date as compared to the same periods in
2018, attributable to a lower volume of transactions. The fees in
2019 were focused on exclusively securing opportunities for
additional financing, while the fees in 2018 were focused on the
acquisitions of Inverell, Dosecann, Robinsons, and KGK in
additional to securing financing.
For the three and six months ended June 30,
2019, share-based compensation was $2.7 million and $5.7 million
similar to the $2.7 million and $5.6 million over the same
respective periods in 2018. 1,440,000 options and 6,590,000 options
were issued during the three and six months ended June 30, 2019,
respectively.
Other Expenses
Depreciation and amortization expenses were $1.4
million in the second quarter of 2019 and $2.5 million year to
date. This is comprised of $0.6 million amortization of intangible
amortization per quarter, primarily associated with acquisition
related non-competition features. The remaining depreciation
relates to charges on the Company’s property, plant and
equipment.
Interest expenses were $1.9 million for the
three-month period ended June 30, 2019, a decrease of $0.9 million
over the same period in 2018, and $5.4 million for the six-month
period ended June 30, 2019, an increase of $0.4 million over the
same period in 2018. Interest expenses are driven by interest
charges of 6% on the outstanding convertible debentures and the
non-cash accretion of placement and other related fees being
recognized over 24 months. Further, the Company has been increasing
expenditures on construction projects and capitalizing interest
expenses incurred on borrowings used to fund such projects.
A foreign exchange loss of $0.9 million was
recognized during the three months ended June 30, 2019, an increase
of $0.9 million compared to the same period in 2018, driven by a
decrease in the U.S. dollar to CAD dollar exchange rate.
An impairment charge of $1.8 million related to
the intangible value of the FSD streaming agreement was taken
during the first quarter as a result of previously announced
contract breaches. The Company is currently evaluating its next
steps in this matter.
Net Losses
Net losses attributable to shareholders were
$14.0 million with a net loss of $0.02 per Share on a basic and
diluted basis in the second quarter of 2019, and $27.6 million with
a net loss of $0.05 per Share on a basic and diluted basis year to
date. This compares to a net loss of $11.9 million and $0.03 per
Share on a basic and diluted basis and $22.4 million and $0.05 per
Share on a basic and diluted basis, over the same respective
periods in 2018. The decrease in net income was primarily driven by
an increase in expenses, compounded by non-cash expenses and losses
during the period, partially offset by income tax recoveries.
Outlook
For the remainder of 2019, the Company expects
to realize cannabis sales through its wholly-owned Kolab retail
store in Lloydminster, Saskatchewan which opened on July 11th, sell
dry cannabis flower and participate in the market for Phase two
cannabis products, with an increasing part of its business
dedicated to derivative cannabis product development, manufacturing
and distribution. As dry cannabis flower is being used in the
development of derivative products, the Company expects that
material revenue generation will coincide with the legalization and
regulatory approvals for derivative cannabis products and the
Company’s sale of such products to the market, presently
anticipated to commence in December 2019. Over the long-term, Auxly
believes shareholders will benefit from the higher profitability
and anticipated strong growth of the derivative cannabis product
market.
Auxly’s priorities for 2019 and updates thereto are as
follows:
- Complete product R&D,
formulation and manufacturing activities at the Dosecann facility
in preparation for the legalization of derivative cannabis
products:
- Progress has been made in several
areas including extraction of flower to cannabis resin and
development of edible product formulations, with a full product
suite consisting of vape pens, chocolates, chewables, oils/sprays,
tablets, and capsules to be ready for sale in December 2019;
- Successful production of oil in a
bottle, oil in a spray and cannabis oil capsules for sale upon
receipt of relevant licenses;
- Expansion of the Dosecann facility
by approximately 10,000 square feet to 52,000 square feet is well
underway which will allow for larger production and extraction
throughput capacity; and
- Completed the acquisition of vape
pen hardware, capsule manufacturing equipment, derivative cannabis
product packaging and related production equipment.
- Complete construction of
all ongoing cultivation assets, while continuing to work with
Auxly’s joint venture partner Sunens as it substantially completes
phase one of a state-of-the-art greenhouse facility in 2019:
- The first phase of the Sunens
greenhouse is anticipated to cost approximately $150.0 million of
which Auxly has contributed $60.5 million and provided a Letter of
Credit for $21.4 million to be used for equipment purchases, as at
June 30, 2019;
- Sunens has entered into a term
sheet for a syndicated credit facility, with the Bank of Montreal
(“BMO”) as Lead Underwriter and, subject to the satisfaction of
certain customary closing conditions and the finalization of
definitive loan documentation, expects to receive debt financing in
the aggregate amount of approximately $84.0 million. The syndicated
senior debt facility will be for $71.5 million for a three-year
term together with a BMO $12.5 million leasing facility;
- Construction is anticipated to be
substantially completed in December 2019, with licencing expected
in early 2020 and cultivation commencing in Q2 2020; and
- Funding of the Curative facility
continued in Q2 2019. Construction of the Curative facility
is anticipated to be completed in 2019 along with an evidence
package to be submitted to Health Canada for cultivation
licencing.
- Continue to support the rollout of
Dosecann, Kolab, Robinsons and Foray:
- On April 5, 2019, Robinsons
received its cultivation and processing licenses in Nova
Scotia. Auxly anticipates receipt of the licence amendment to
allow sales by the first quarter of 2020;
- On June 19, 2019 Dosecann entered
into a definitive agreement with Capsugel Inc. to provide Dosecann
with a complete line of equipment for capsule filling and sealing.
In addition, Dosecann and Lonza will work collaboratively on new
cannabis capsule products;
- The Company has established strong
relationships with provincial boards during the second quarter of
2019 and anticipate signing supply agreements in Q3 2019;
- The Company has advanced the
process for receipt of Dosecann’s and Kolab’s oil sales approval;
and
- The Lloydminster store had its
official opening on July 11, 2019, and Kolab is now able to
commence local cannabis sales and province-wide-e-commerce in
Saskatchewan.
- Opportunistically expand
Auxly’s footprint in international markets to facilitate the sale
of CBD, derived from its large-scale hemp cultivation operation in
Uruguay:
- Corporate development and public
relations activities in Uruguay progressed in April 2019;
- Inverell was awarded a licence for
scientific research and development of cannabis strains for
registration during May 2019;
- Seeds containing higher CBD are
being registered for the 2020 planting season; and
- Continued to evaluate and explore
options to access markets in Europe.
In addition to the priorities noted above, the
Company is extremely delighted to have secured and participated in
financing activities in the past month amounting to more than
$200.0 million. These funds along with any additional financing
secured by the Company will be used to support and build the
Company’s business in preparation for Phase two derivative cannabis
products.
ON BEHALF OF THE BOARD"Chuck Rifici" Chairman
& 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:Sarah Bain, VP External Affairs Email:
sarah@auxly.com Phone: 613.230.5869
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,
proposed timelines for the build-out, licensing and
commercialization of the Company’s facilities and projects, 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
timing and completion of Auxly’s proposed transaction with Imperial
Brands, the anticipated closing date of the Sunens credit
facilities, future legislative and regulatory developments
involving cannabis and cannabis products, the timing of proposed
research and clinical trials, the timing and outcomes of regulatory
or intellectual property decisions, the relevance of Auxly’s
subsidiaries’ and partners’ 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: Auxly’s subsidiaries and
partners are able to obtain and maintain the necessary regulatory
authorizations to conduct business, the Company is able to
successfully manage the integration of its various business units
with its own, the Company’s subsidiaries and partners obtain all
necessary governmental and regulatory permits and approvals for the
operation of their facilities and the development of its proposed
products, and whether such permits and approvals can be obtained in
a timely manner, whether Auxly and Imperial Brands can complete the
transaction on the anticipated terms and timeline; the ability to
satisfy various conditions to the closing of Auxly’s transaction
with Imperial Brands contemplated by the subscription agreement and
the ability to obtain regulatory approval of the transaction; the
satisfaction of the closing conditions relating to the Sunens
credit facilities ; the success of Dosecann and KGK’s research
strategies, the applicability of the discoveries made therein, the
successful and timely completion and uncertainties related to the
regulatory process, the acceptance of future Dosecann products by
consumers and medical professionals, 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 revised annual information form of the Company for
the financial year ended December 31, 2017 dated May 24, 2018.
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 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.
Auxly Cannabis (TSXV:XLY)
Historical Stock Chart
From Apr 2024 to May 2024
Auxly Cannabis (TSXV:XLY)
Historical Stock Chart
From May 2023 to May 2024