Auxly realized a gross loss of $0.2 million during the three months ended March 31, 2019.
VANCOUVER, British Columbia, May 27, 2019 (GLOBE NEWSWIRE) — Auxly Cannabis Group Inc. (TSX.V – XLY) (OTCQX: CBWTF) (“Auxly” or the “Company“) today released its financial results for the three months ended March 31, 2019. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com.
Q1 2019 Highlights
Advanced product R&D, formulation and manufacturing at Dosecann 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 to be completed during the third quarter of 2019 Successful production of oil in a bottle for sale in the second quarter of 2019. Completed first sales of dried cannabis flower.
Advanced the process for receipt of Kolab’s oil sales approval. Continued to work with joint venture partner Sunens as it completes phase one of a state-of-the-art greenhouse facility in 2019, with construction anticipated to be fully completed by December 2019. Receipt of Robinsons cultivation and processing licence in Nova Scotia; progress made towards Robinsons flower sales approval by the third quarter of 2019.
Advanced construction of Kolab’s Lloydminster store, with anticipated opening date in early Q3 2019. Inverell awarded a licence for scientific research and development of novel non-psychoactive cannabis strains for registrationKGK applied for a research and development licence under the Cannabis Act, which is under final review by Health CanadaMade progress toward the development of a clinical study plan at KGK to support the safety, efficacy and quality of Dosecann products.
Chuck Rifici, CEO and Chairman of Auxly commented: “In the first quarter of 2019, we made significant progress toward our goals for the year: we advanced product development at Dosecann, made progress toward the construction of key infrastructure, advanced licencing and sales at Robinsons, and had our first sales of dried cannabis flower to the market. We are well on track to have our initial range of derivative cannabis products completed and available for sale into the upcoming legal market later this year. With the combination of our cultivation supply, R&D, product development and manufacturing capabilities, and our relentless focus on science and innovation, we look forward to bringing the best cannabis products, brands and experiences to the medical, wellness and adult-use markets.”
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 derivative cannabis products under one roof. Further, Auxly’s acquisition of KGK Science Inc. (“KGK”) provides additional depth 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. and its 100% ownership of its sister company Zeratol S.A., and is constantly evaluating other international cultivation and distribution opportunities.
Results of OperationsRevenue
For the three months ended March 31, 2019, Auxly recognized $0.5 million of research revenues from the recently completed acquisition of KGK in the third quarter of 2018. KGK revenues are deferred and only recognized as performance criteria are met. 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.
For the three months ended March 31, 2019, Auxly recognized $0.3 million of revenues from sales of dry cannabis products. 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 loss: Auxly realized a gross loss of $0.2 million during the three months ended March 31, 2019, comprised of KGK earned revenues less expenses of $0.2 million in support of third-party research contracts which can fluctuate significantly during the contract and related performance milestones and gross profit of $0.2 million on the sale of cannabis products. In addition, a $0.2 million fair value loss on inventory recognized on net realizable value and a $0.4 million unrealized fair value loss on biological asset transformation contributed to the overall gross loss.
Other incomes: Total other incomes of $2.3 million is comprised of a fair value gain of $1.3 million from changes in securities held and interest income of $1.0 million primarily earned on cash and cash equivalents held during the three months ended March 31, 2019.
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.Wages and benefits were $4.1 million during the three months ended March 31, 2019, an increase of $2.9 million over the same period of 2018, primarily due to workforce increases in 2018. 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 were $1.7 million during the three months ended March 31, 2019 as compared to $1.0 million over the same period in 2018. The increase of $0.7 million is comprised of $1.0 million of rent, filing fees, IT expenses and other office and admin charges from subsidiaries acquired in 2018, net of a $0.1 million decrease in filing fees and a $0.2 million decrease in rent at the corporate office.
Professional fees were $1.0 million during the three months ended March 31, 2019 as compared to $0.6 million over the same period in 2018. The increase in professional fees are attributable to $0.3 million in legal fees related to investment opportunities and $0.1 million in recruiting fees to facilitate the Company’s growth.Business development fees were $1.0 million during the three months ended March 31, 2019 as compared to $2.1 million over the same period in 2018. The overall reduction in expense is attributable to lower transaction activities during the first quarter of 2019. Auxly recorded share-based expenses of $3.0 million during the three months ended March 31, 2019, an increase of $0.2 million over 2018. During the first quarter of 2019, 1,440,000 options were issued with vesting over a four-year period, resulting in an expense of $0.1 million with the remaining $2.9 million relating to the vesting of prior period options.
Other Expenses: Depreciation and amortization expenses of $1.0 million during the three months ended March 31, 2019 reflect the impact of approximately $0.6 million of intangible amortization primarily associated with acquisition related non-competition features and property, plant and equipment depreciation of $0.4 million related to equipment, buildings, and equipment.Interest expenses of $3.5 million during the three months ended March 31, 2019 increased by $1.3 million primarily due to interest of 6% on the convertible debentures and the non-cash accretion of placement and other related fees being recognized over 24 months.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: For the three months ended March 31, 2019, Auxly reported a net loss attributable to shareholders of $13.6 million with net loss of $0.02 per Share on a basic and diluted basis. This compares to a net loss of $10.5 million for the year three months ended March 31, 2018 with net loss of $0.03 per Share on a basic and diluted basis. 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 of $1.3 million.
In 2019, the Company expects to 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 Phase two products, the Company expects that material revenue generation will coincide with the legalization and regulatory approvals for derivative cannabis products and its sale of such products to the market, presently anticipated to commence in late 2019. Over the long-term, the Company believes shareholders will benefit from the higher profitability and anticipated strong growth of the derivative cannabis product market.Auxly’s priorities for 2019 are as follows:complete product R&D, formulation and manufacturing activities at the Dosecann facility in preparation for the legalization of derivative cannabis products;complete construction of all ongoing cultivation assets, while continuing to work with the Company’s joint venture partner Sunens as it completes phase one of a state-of-the-art greenhouse facility in 2019, with expected supply of over 100,000 kg of cannabis in 2020;continue to support the rollout of Kolab and Robinsons and build brand awareness; andopportunistically expand the Company’s footprint in international markets to facilitate the sale of CBD, derived from its large-scale hemp cultivation operation in Uruguay.
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/.
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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 streaming partners, the Company’s execution of its product development and commercialization strategy, the anticipated benefits of the Company’s partnerships, joint ventures, research and development initiatives and other commercial arrangements, 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, 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.
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