Mr. Bruce Linton reports
CANOPY GROWTH REPORTS FIRST QUARTER FISCAL 2017 FINANCIAL RESULTS
Canopy Growth Corp. has released its financial results for the first quarter of fiscal 2017 ended June 30, 2016.
Consolidated financial results include the accounts of the company and its wholly owned subsidiaries, Tweed Inc., Tweed Farms Inc. and Bedrocan Canada Inc.
First quarter fiscal 2017 highlights:
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Revenues of $7.0-million, representing a greater-than-300-per-cent increase over the three months ended June 30, 2015, and a 39-per-cent increase over fourth quarter fiscal year 2016;
- Over 16,500 registered patients at June 30, 2016, compared with over 3,600 at June 30, 2015;
- Bedrocan began licensed sales of bedro-oils cannabis oil in June, 2016;
- Announced partnership with AusCann Group Holdings Ltd. of Australia to work together in the Australian and international markets;
- Announced creation of joint venture, Bedrocan Brazil, with Entourage Phytolab SA based in Sao Paulo, Brazil, and local Brazilian partners.
Subsequent to Q1 fiscal 2017:
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Announced business partnership and receipt of necessary regulatory approvals to export medical cannabis to Germany for sale to patients;
- Listed common shares on the Toronto Stock Exchange;
- Closed the previously announced bought deal, including the overallotment option by the underwriters, on Aug. 24, 2016, for gross proceeds of $34.5-million.
"Our business took many important steps forward, in both Canada and abroad, during the first quarter," said Bruce Linton, chairman and chief executive officer, Canopy Growth. "Continued investment helped our business deliver its eighth consecutive quarter of double-digit percentage growth in revenue, product sold and registered patients. During the quarter we brought the full Tweed Farms greenhouse, all 350,000 square feet, into production. With close to 600,000 square feet in production across the corporation, in both low-cost greenhouse and indoor growing facilities, the capability and flexibility that we have to produce large quantities of high-quality dried cannabis and extracts, to meet potential future market demand, is unmatched in the sector.
"Investment in international development drove agreements with partners in Australia, Brazil and Germany. With other opportunities presenting themselves, the global expansion of our business has just begun."
Q1 fiscal 2017 revenue review
Revenue for the fourth quarter was $7.0-million compared with revenue of $1.7-million in the three months ended June 30, 2015, and $5.0-million for the fourth quarter of fiscal year 2016.
Q1 fiscal 2017 product sales review
In the first quarter of fiscal 2017 ended June 30, 2016, the company sold approximately 984 kilograms and kilogram equivalents at an average price of $7.09 per gram. In the three-month period ended June 30, 2015, approximately 215 kilograms were sold at an average price of $7.74 per gram. The impact of Bedrocan's true compassionate pricing program, introduced in the fourth quarter of fiscal 2016, reduced the average selling price per gram.
Q1 fiscal 2017 gross margin review
The gross margin was $3.4-million, or 49 per cent of revenue, for the three-month period ended June 30, 2016. In the comparative period last year, the gross margin on the same basis was $4.1-million or 239 per cent of revenue.
Q1 fiscal 2017
adjusted product contribution review
The company's adjusted product contribution is a non-generally accepted accounting principles metric used by management which adjusts the reported gross margin by excluding the fair value measurements as required by international financial reporting standards and measures the cost of sales for the grams actually sold in the period. Management believes this measure provides useful information as it reflects the gross margin based on the company's weighted average cost per gram from seed to sale against the grams sold.
The adjusted product contribution in the first quarter of fiscal 2017 was $4.4-million, or 63 per cent of revenue. In the comparative period last year, the adjusted product contribution was $1.0-million, or 60 per cent of revenue.
Q1 fiscal 2017 operating expense review
For the three months ended June 30, 2016, sales and marketing expenses were $2.3-million, or 32 per cent of revenue (three months ended June 30, 2015 -- $1.0-million, or 59 per cent of revenue).
The increase in sales and marketing expenses in the three months ended June 30, 2016, over the comparison period was due to expansion of the customer care centre, launching Tweed's customer engagement locations, an expanded medical outreach program and continuing to position the Tweed brand in preparation for a non-medical market.
General and administrative (G&A) expenses were $2.9-million, or 41 per cent of revenue, in the three-month period ended June 30, 2016, compared with $1.4-million, or 83 per cent of revenue, in the same period last year.
The increase in G&A expenses over the comparison period last year reflects the company's growth over last year, building commercial capacity and capability as a public company, and meeting compliance requirements with Health Canada.
Q1 fiscal 2017
earnings review
The company reported a net loss of $3.9-million or four cents per basic and diluted share for the first quarter ended June 30, 2016, compared with net income of $1.0-million or two cents per basic and diluted share in the comparison period last year. The net loss was inclusive of the non-cash unrealized gain on changes in fair value of biological assets described above. The non-cash gain on biological assets more than offset other cost of sales and operating expenses in the first quarter of last year to produce positive net income.
Q1 fiscal 2017
balance sheet and cash flow review
At June 30, 2016, the corporation's cash, comprising cash and cash equivalents, totalled $19.5-million, representing an increase of $4.1-million from March 31, 2016. The increase is attributable to net proceeds from the April, 2016, bought-deal common share offering in the first quarter of the fiscal year 2017, and the exercise of options and warrants, together totalling $11.5-million, partially offset by cash used to finance operations, investments in facility enhancements and international development together totalling $7.4-million. Investments in facility enhancements were primarily improvements at the Smiths Falls facility, including the conversion of growing rooms, in the expansion of cannabis oil extract production capacity and in information technology.
The audited consolidated financial statements and management's discussion and analysis documents have been filed with SEDAR. The basis of financial reporting in the unaudited condensed interim consolidated financial statements and management's discussion and analysis documents has been revised to thousands of Canadian dollars, unless otherwise indicated.
Subsequent events
Tweed receives approval to begin export of medical cannabis to Germany
On July 25, 2016, the corporation announced that wholly owned subsidiary Tweed had received the necessary approvals in Canada and Germany to begin exporting medical cannabis for sale to German patients. Working with MedCann GmbH Pharma and Nutraceuticals, a privately held pharmaceutical importer and manufacturer, the transfer marks an important milestone for the company and the first known incidence of dried cannabis being exported from a Canadian licensed producer to a major G7 country.
Canopy Growth announces graduation to Toronto Stock Exchange
On July 25, 2016, the company announced that it had received final approval for the listing of the corporation's common shares on the Toronto Stock Exchange. The common shares commenced trading on the TSX effective as of the open of the market on July 26, 2016, under the symbol CGC. The corporation's shares were delisted from the TSX Venture Exchange prior to the commencement of trading on July 26, 2016.
Bought-deal financing
On Aug. 24, 2016, the company announced that it had closed its previously announced short-form prospectus offering, on a bought-deal basis, including the exercise in full of the underwriters' overallotment option. A total of 9,453,000 common shares in the capital of the company were sold at a price of $3.65 per share for aggregate gross proceeds of $34,503,450. The offering was underwritten by a syndicate of underwriters co-led by Dundee Securities Ltd. and GMP Securities LP, and including INFOR Financial Inc. and PI Financial Corp.
Regulatory change
On Aug. 11, 2016, Health Canada announced the new access to cannabis for medical purposes regulations (ACMPR), which will come into force on Aug. 24, 2016, replacing the MMPR as the regulations governing Canada's medical cannabis program. While the general policy of the ACMPR was disclosed by Health Canada on Aug. 11, 2016, exact regulations will not be available until on or about Aug. 24, 2016. The ACMPR is being implemented as a result of the federal court ruling in the case of Allard versus Canada. In the Allard decision, the federal court found the MMPR to be unconstitutional and of no force and effect, but suspended its declaration of invalidity for six months in order to give the government time to respond. As per Health Canada's statement and corresponding fact sheet released on Aug. 11, 2016, the ACMPR will allow Canadians who have been authorized by their health care practitioner, and who are registered with Health Canada, to produce a limited amount of medical marijuana for their own medical purposes, or to designate someone who is registered with Health Canada to produce it for them. Starting materials such as plants or seeds are to be obtained from licensed producers only. On Aug. 24, 2016, the government released legislation to enact the policy announcement made on Aug. 11, 2016.
Webcast and conference call information
Canopy Growth will host a conference call and audio webcast with Mr. Linton and Tim Saunders, chief financial officer, at 8:30 a.m. ET today.
Webcast information
A live audio webcast will be available on-line.
Calling information
Toll-free dial-in number: 1-888-231-8191
International dial-in number: 647-427-7450
Conference ID: 52385525
Replay information
A replay of the call will be accessible by telephone until 11:59 p.m. ET on Sept. 19, 2016.
Toll-free dial-in number: 1-855-859-2056
Replay password: 52385525
CONDENSED STATEMENTS OF NET (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share)
Three months ended June 30,
2016 2015
Revenue $6,984 $1,710
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Unrealized gain on changes in fair
value of biological assets (6,684) (5,275)
Inventory expensed to cost of sales 6,654 1,492
Production costs 3,569 1,398
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Cost of sales (recovery), net of the
unrealized gain on changes in fair
value of biological assets 3,539 (2,385)
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Gross margin 3,445 4,095
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Sales and marketing 2,260 1,009
Research and development 403 38
General and administration 2,850 1,415
Share of loss in equity investments 220 -
Share-based compensation expense 888 372
Depreciation and amortization 911 268
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7,532 3,102
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(Loss) income from operations (4,087) 993
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Interest income (expense), net (47) 19
(Increase) decrease in fair value of
acquisition consideration related
liabilities (12) -
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(59) 19
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Net (loss) income and comprehensive
(loss) income before income taxes (4,146) 1,012
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Income tax recovery 197 -
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Net (loss) income and comprehensive
(loss) income after income taxes (3,949) 1,012
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Net (loss) income per share, basic (0.04) 0.02
Net (loss) income per share, diluted (0.04) 0.02
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We seek Safe Harbor.
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