WeedMD Reports Second Quarter 2020 Financial Results and Closes $30 Million Credit Facility with LiUNA Pension Fund
WeedMD Rx Inc.
18 min read
Management to host conference call on Thursday, October 1st, 2020 at 10:00 a.m. Eastern Time
TORONTO, Sept. 30, 2020 (GLOBE NEWSWIRE) -- WeedMD Inc. (TSX-V:WMD) (OTCQX:WDDMF) (FSE:4WE) (“WeedMD” or the “Company”), a federally-licensed producer and distributor of medical-grade cannabis, announced today its financial results for the three months ended June 30, 2020.
WeedMD reported net revenue of $5.9 million for the second quarter of 2020 driven by direct-to-consumer sales in the medical market and provincial retail channels. The Company also strengthened its liquidity subsequent to quarter end by closing on a $30 million credit facility with strategic investor LiUNA Pension Fund of Eastern and Central Canada (“LPF”).
“During the second quarter, we advanced our integration with Starseed to drive direct-to-consumer revenue and made significant operational progress in ramping up production. Our unique medical service platform and growing brand recognition for our Color Cannabis adult-use products contributed to our revenue for the quarter,” said Angelo Tsebelis, CEO of WeedMD. “We also entered into multiple new strategic partnerships and new consumer categories during the quarter, with expanded products manufactured from our own input biomass at our extraction hub. Complementing this, we anticipate an impressive harvest from our outdoor platform this fall. In recent weeks, we have seen an increase in customer activity and sales as consumers continue to adjust to COVID-19. The continued support and $30 million in non-dilutive financing we received from our partner and strategic investor LPF will provide us with increased liquidity to support our future sales growth.”
Summary of Results
For the Quarter-Ended
June 30, 2020
June 30, 2019
($000’s)
($000’s)
Net revenue
5,859
7,980
Gross (loss) profit before changes in fair value
(898
)
3,663
Gross margin% before changes in fair value
(15
%)
46
%
Income (loss) and comprehensive (loss)
(8,895
)
12,625
Adjusted EBITDA* (loss)
(4,951
)
(729
)
As at
June 30, 2020
Dec. 31, 2019
($000’s)
($000’s)
Cash and cash equivalents
5,667
8,184
Inventory
35,002
31,287
Biological assets
3,611
7,666
Working Capital
40,485
30,619
*Adjusted EBITDA is not a recognized measurement under International Financial Reporting Standards (“IFRS”) and this data may not be comparable to data presented by other companies. Management defines Adjusted EBITDA as EBITDA adjusted to exclude interest, tax, and depreciation, stock compensation, fair value changes and other non-cash items, and non-recurring items.This data is furnished to provide additional information and does not have any standardized meaning prescribed by IFRS. The Company uses this non-IFRS measure to provide shareholders and others with supplemental measures of its operating performance. The Company also believes that securities analysts, investors and other interested parties, frequently use this non-IFRS measure in the evaluation of companies, many of which present similar metrics when reporting their results. As other companies may calculate Adjusted EBITDA differently than the Company, this metric may not be comparable to similarly titled measures reported by other companies. We caution readers that Adjusted EBITDA should not be substituted for determining net loss as an indicator of operating results, or as a substitute for cash flows from operating and investing activities.
Key Financial Highlights
For the three and six months ended June 30, 2020, WeedMD recorded net sales of $5.9 million and $18.0 million, respectively, compared to $8.0 million and $11.3 million for the same periods ended June 30, 2019. Revenue decrease year-over-year for the quarter was mainly attributable to an increased focus on higher margin direct-to-consumer revenue versus wholesale. Direct-to-consumer revenue increased to $2.4 million in the 2020 second quarter as compared to $0.327 million for the same period the year prior. The six-month revenue increase in 2020 year-over-year was mainly attributable to the full period contribution of results from the acquisition of Starseed in December 2019, growth in adult-use market, and a significant sale of dried cannabis to a licence holder during the beginning of 2020.
Gross loss before changes in fair value was $0.9 million for the second quarter of 2020, mainly attributable to the lower amounts recognized from unrealized gains on changes in fair value of biological assets, and an accounting write-off in inventory of approximately $1.3 million.
Cultivation cost was $0.55 per gram for the quarter, compared to $0.96 in Q2, 2019.
The Company sold 976,860 grams of dried cannabis at a weighted average selling price, net of excise taxes, of $4.96 per gram during the second quarter of 2020 as compared to 1,978,628 grams sold during the second quarter of 2019 at a weighted average selling price, net of excise taxes, of $3.76 per gram during the same period the year prior. The increase in weighted average selling price, net of excise taxes, was due to due to a high proportion of direct-to-consumer sales in the quarter compared to same period in the previous year.
Adjusted EBITDA* loss totalled $5.0 million for the three-month period ended June 30, 2020 compared to an Adjusted EBITDA loss of $0.7 million for the same period in 2019, primarily as a result of an inventory write-off of approximately $1.3 million, substantial expenses incurred related to increased production, selling and general and administrative expenses, prior to optimization initiatives underway in the second half of 2020. The Company continues to realize additional synergies for greater cost efficiencies. As a result, selling, general and administrative expense decreased by 26% or $1.7 million in Q2 2020 compared to Q1, 2020.
“Our increased six-month revenue reflects the benefits of the Starseed combination and rapid growth in the adult-use market, despite the second quarter headwinds of COVID-19. Gross Margins were down mainly as a result of an inventory-related impairment charge and ramping up of operations during the period,” said Lincoln Greenidge, CFO of WeedMD. “Towards quarter end, we noticed increased customer activity as markets started to reopen in Canada. The $30 million credit facility entered into with the LiUNA Pension Fund will provide us increased financial flexibility and working capital as we expand our distribution channels and brand awareness, which should drive revenue growth and move us further on the path to profitability. At the same time, we remain committed to improving operating efficiencies, which will position us to continue delivering improved margins as we meet consumer demand for Cannabis 2.0 products.”
Corporate Highlights During & Subsequent to Second Quarter Ended June 30, 2020
Adult-Use Product Launches,Expanded Portfolio and Cannabis 2.0
New Color Cannabis Strain & Products: WeedMD announced the launch of Black Sugar Rose, a new Indica-dominant hybrid which is a cross of Critical Mass and Black Domina strains. Having successfully grown the renowned cultivar over two test cycles with favoured results, Black Sugar Rose joins our line-up and will be available to consumers in the fall of 2020. Color Cannabis Vapes. The Company also announced that the Color product line now includes 510 thread vape products, giving consumers another way to consume its Ghost Train Haze and proprietary Pedro’s Sweet Sativa strains - preserving their terpene-rich flavours and cannabinoid profiles with availability commencing in the fall of 2020. Color Cannabis Pre-Rolls. In response to consumer feedback, WeedMD introduced strain-specific pre-roll products available as two-packs of 0.35g pre-rolls. The size and unit count reflects consumer preference for single-session pre-rolls. These brand-trial inspired pre-rolls are made with finely milled Ghost Train Haze and Pedro’s Sweet Sativa whole flower. The Color Cannabis pre-roll products will be available via provincial distributors and retail outlets starting in October 2020.
Nitrogen-Flushed Flower Pouches. With certain Canadian consumers expressing dissatisfaction with product bag appeal and packaging waste, WeedMD recently announced its Color Cannabis whole flower products are transitioning to nitrogen-flushed pouch packaging. Nitrogen reduces the degrading effects of the oxidation process – the primary factor in cannabis dryness. This will help preserve the aromatic terpenes and maintain the integrity of freshly packaged flower products. Additionally, the transition from plastic jars and cartons will reduce the total weight of packaging waste by over 80%. These newly-packaged Color Cannabis flower products are expected to be available starting in late October 2020.
Medical Product Launches & Expanded Patient Services
WeedMD and Starseed Launch Combined Medical Marketplace: The Company announced it has merged its online medical product marketplaces under one platform and expanded its product offerings. The simplified Starseed Medicinal Inc. sales platform provides the Company’s patients with full access to WeedMD-produced dried flower, oil concentrates, softgel capsules and Aurum vape products and services such as same-day delivery.
Strain-Specific Medicinal Vaporizer (Vapes): In June 2020, WeedMD completed the launch of its innovative line of strain-specific medicinal vapes. The ‘Aurum’ vapes are available to Starseed patients across Canada as part of the Company’s expanding medical cannabis product portfolio. The Aurum vapes are produced and formulated in-house at WeedMD’s extraction hub with premium cannabis extracts derived from biomass cultivated from the Company’s indoor and outdoor harvests. The new product line was launched with the Company’s highly-regarded Ghost Train Haze strain, to be followed by other strains and formulations. As of September 2020, all WeedMD patients have access to vapes.
Commences ‘PatientDirect’ Same-Day Delivery Service: In June 2020, WeedMD launched its same-day medical cannabis home delivery service. The pilot project called ‘PatientDirect’ services local patients in the greater Toronto-area, with order fulfillment from the Company’s Bowmanville, Ontario distribution centre located just outside Toronto. PatientDirect is intended to ease potential third-party postal and delivery service disruptions resulting from current business conditions. The service is being offered to new and existing Starseed Medicinal patients and is now expanding to WeedMD patients.
Exclusive Licensing Agreement with Mary’s Medicinals
Premium Line of Self-care Products: WeedMD entered into an exclusive licensing, manufacturing and distribution agreement with premium, U.S.-based cannabis wellness house, MM Technology Holdings, LLC, owner of Mary’s Brands, and the acclaimed product line, Mary’s Medicinals (“Mary’s Brands” or “Mary’s”). As Mary’s sole Canadian partner, WeedMD will manufacture a suite of Mary’s Medicinals’ award-winning products in-house with its own input biomass at its state-of-the-art extraction hub later this year. The Company will also market, sell and distribute Mary’s branded products across Canada’s provincial adult-use and direct-to-consumer medical channels as it looks to expand new cannabis offerings to address an underserved market segment. Widely recognized for its innovative portfolio of delivery methods, Mary’s suite of branded cannabis products includes transdermal gels and patches and topicals. The agreement expands WeedMD’s line of Cannabis 2.0 products for exclusive distribution to consumers across all Canadian markets.
Commercial Arrangement with Leading Retailer Fire & Flower
Producing CBD Cannabis Products: In August 2020, WeedMD entered into a commercial arrangement with leading Canadian retailer, Fire & Flower Inc. (“Fire & Flower”). Under the partnership, WeedMD will manufacture, package and ship the retailer’s Revity CBD™ product line, now available at Fire & Flower stores in the province of Saskatchewan. Products manufactured through this partnership are produced at WeedMD’s state-of-the-art extraction hub, utilizing the Company’s own input biomass.
Licensing, Cultivation and Operations
Strathroy Facility Secures Expanded Health Canada Sales Licence: The Company secured an amendment to its Strathroy facility sales licence from Health Canada in September 2020, authorizing the sale and distribution of all cannabis products from the site. This gives way for the production, packaging, sale and distribution of new cannabis products from our Strathroy facility such as extracts, topicals and edibles to retail and medical markets.
Second Year Outdoor Harvest Expected to Commence in Early October
Outdoor Cultivation: Following WeedMD’s entry into its second year of outdoor cannabis cultivation with the planting of 16,000 clones across seven core cultivars on its 27-acre field, the Company is pleased with its progress and the harvest is anticipated to commence in early October 2020. This second harvest is expected to support extraction operations with terpene-rich and high-cannabinoid, low-cost cannabis biomass, as well as provide attractive input material for certain flower formats and products.
Partners with CannTx Life Sciences
Enhances Genetics Bank of New Cultivars and Preserves Elite Proprietary Cannabis Strains: In July 2020, WeedMD partnered with Guelph-based CannTx Life Sciences Inc. to add new cultivars to its genetics bank and expand the lifecycle of the Company’s prized cannabis cultivars using cutting-edge tissue culture techniques via Steadystem Solutions. Tissue culture is an innovative and widely-recognized practice in agriculture used for preserving plant integrity, crop health and genetic accuracy. Under the Steadystem program, nodal segment cultures are collected from WeedMD’s mother plants and regenerated using an in-vitro platform to re-produce historical cannabinoid and terpene profiles.
Liquidity Resources
$30 Million Credit Facility with LiUNA Pension Fund: Subsequent to quarter-end, in September 2020 WeedMD entered into a credit facility (the “LiUNA Credit Facility”) with the LiUNA Pension Fund of Central and Eastern Canada (“LPF”). The $30 million LiUNA Credit Facility, maturing in June 2022, provides the Company with financial flexibility to drive commercial initiatives during its next stage of growth. Additional details about the LiUNA Credit Facility can be found in the Company’s documents which are available under its profile on SEDAR at www.sedar.com.
Senior Secured Credit Facility: In June 2020, WeedMD amended certain terms of its senior secured credit facility entered into on March 29, 2019 (the “Senior Credit Facility”) (the “Credit Agreement Amendment). Under the terms of the Credit Agreement Amendment, the Company secured a deferral of certain financial covenants by 12 months to June 30, 2021 and quarterly principal repayments are rescheduled to commence at the end of 2020. Additionally, the Company agreed to a 50 basis point increase in the applicable interest rate margin on the Senior Credit Facility.
Leadership Appointment
In July 2020, the shareholders elected Bruce Croxon to the Company’s board of directors at the annual general and special meeting of shareholders (“AGM”) held virtually in Toronto, Ontario. Mr. Croxon, a prominent Canadian entrepreneur and venture capitalist and co-founder of Lavalife, brings his deep expertise as an investor and advisor in growth stage companies to WeedMD.
COVID-19 Operational Update
In response to the COVID-19 global pandemic, WeedMD established a number of safety protocols and risk mitigation strategies to ensure the health and safety of its employees and communities. The Company has taken actions to minimize the potential impact of COVID-19, including postponement of discretionary capital expenditures, reduction of general and administrative expenses, staff reductions, and enhanced process optimization to increase efficiencies and reduce costs.
The Company’s businesses have been designated essential services in all the markets in which they operate. Throughout this time, WeedMD has continued to conduct its operations to the fullest extent possible, while continuing to take actions to protect the health and safety of its employees, suppliers and customers.
In the first quarter of 2020, the pandemic did not have a material impact on the Company’s operations. During the second quarter of 2020, the Company experienced a decline in sales relative to the first quarter of 2020 which, in part, can likely be attributed to the economic uncertainty caused by the COVID-19 pandemic. This also factored into a slight reduction in production output and decrease in foot traffic at provincial retailers which ultimately stalled the Company’s sales and marketing initiatives during the period.
Subsequent to quarter-end, the Company has seen increasing customer activity and sales in the majority of its markets, reflecting the reopening of the Canadian economy and gradually decreasing impact of COVID-19, as people have adapted to this new environment. These positive trends have persisted and continue to improve.
Conference Call Information:
WeedMD will host a conference call with Angelo Tsebelis, CEO and Lincoln Greenidge, CFO on October 1st, 2020. Management will be available for questions following opening remarks.
Conference Call Details:
Date:
Thursday, October 1st, 2020
Time:
10 a.m. Eastern Time
Dial-in Number:
Canada/USA: 1-800-319-4610. International Toll: 1-604-638-5340 Participants, please dial in and ask to join the WeedMD call.
Replay Dial-in
Canada/USA: 1-800-319-6413. International Toll: 1-604-638-9010 Replay Access Code: 5146 Available after 12:00 p.m. Eastern Time, until November 1st, 2020
The Company’s financial statements and related management’s discussion and analysis for the period are available under the Company’s profile on SEDAR at www.sedar.com. All amounts are expressed in Canadian dollars and are in accordance with International Financial Reporting Standards unless otherwise noted.
About WeedMD Inc.
WeedMD Inc. is the publicly-traded parent company of WeedMD RX Inc. and Starseed Medicinal Inc., federally-licensed producers of cannabis products for both the medical and adult-use markets. The Company owns and operates a 158-acre state-of-the-art greenhouse, outdoor and processing facility located in Strathroy, Ontario as well as a fully-licensed 26,000 sq. ft. Aylmer, Ontario processing facility, specializing in cannabis extraction. With the addition of Starseed, a medical-centric operator based in Bowmanville, Ontario, WeedMD has expanded its multi-channeled distribution strategy. Starseed’s industry-first, exclusive partnership with LiUNA, the largest construction union in Canada, along with other employers and union groups complements WeedMD’s direct sales to medical patients. The Company maintains strategic relationships in the seniors’ market and supply agreements with Shoppers Drug Mart as well as six provincial distribution agencies where adult-use brands Color Cannabis and Saturday are sold.
For Investor Enquiries: Valter Pinto Managing Director KCSA Strategic Communications 1-212-896-1254 weedmd@kcsa.com
For Media Enquiries: Marianella delaBarrera VP, Communications & Corporate Affairs 416-897-6644 marianella@weedmd.com
Forward Looking InformationThis press release contains “forward-looking information” within the meaning of applicable Canadian securities legislation which are based upon WeedMD’s current internal expectations, estimates, projections, assumptions and beliefs and views of future events. Forward-looking information can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may”, “would” or “will” happen, or by discussions of strategy.
The forward-looking information in this news release is based upon the expectations, estimates, projections, assumptions and views of future events which management believes to be reasonable in the circumstances. Forward-looking information includes estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of fact. Forward-looking information in this news release include, but are not limited to, statements with respect to internal expectations, expectations with respect to actual production volumes, expectations for future growing capacity and the completion of any capital project or expansions. Forward-looking information necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; loss of markets; future legislative and regulatory developments; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the cannabis industry in Canada generally; the ability of WeedMD to implement its business strategies; the COVID-19 pandemic; competition; crop failure; and other risks.
Any forward-looking information speaks only as of the date on which it is made, and, except as required by law, WeedMD does not undertake any obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for WeedMD to predict all such factors. When considering this forward-looking information, readers should keep in mind the risk factors and other cautionary statements in WeedMD’s disclosure documents filed with the applicable Canadian securities regulatory authorities on SEDAR at www.sedar.com. The risk factors and other factors noted in the disclosure documents could cause actual events or results to differ materially from those described in any forward-looking information.
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
