Mr. Bruce Linton reports
CANOPY GROWTH CORPORATION REPORTS FIRST QUARTER FISCAL 2019 FINANCIAL RESULTS
Canopy Growth Corp. has released its consolidated financial results for the first quarter fiscal 2019 ended June 30, 2018.
"With our unparalleled success in Canada and Europe, Spectrum Cannabis's expanding global operational footprint now covering 11 countries, our active regulatory and global market development efforts, as well as approvals to proceed with the first of many planned clinical trials of cannabis-based medical therapies for both humans and animals, our leadership position in international medical cannabis markets continues to strengthen," said Bruce Linton, chairman and co-chief executive officer.
Added Mr. Linton: "With an estimated 36 per cent of the total supply committed to date to the provinces and territories, we have secured by far the deepest channel into the Canadian recreational cannabis market. Considering our substantial inventory, large cultivation footprint in production and the millions of additional square feet of greenhouses and our new state-of-the-art distribution centre that are ready and waiting for licences, we remain very confident in our ability to succeed in capturing significant market share."
Concluded Mr. Linton: "To drive our brand down to main street Canada and capture retail margin, we successfully invested in securing Tweed cannabis store licences in Newfoundland and Labrador, Manitoba, and Saskatchewan, and we expect to leverage these successes in Alberta, as well as in the anticipated private retail framework in Ontario. Canopy is developing the leading private cannabis retail channel in Canada."
HIGHLIGHTS
Q1 2019 Q4 2018 Q1 2018
Active registered patients 82,700 74,000 59,000
Kilograms and kilogram equivalents sold 2,695 2,528 1,830
Kilograms harvested 9,685 4,811 5,575
Inventory and biological assets (millions) $171 $118 $75
Revenues (millions) $25.9 $22.8 $15.9
Average selling price per gram $8.94 $8.43 $7.96
Cash and cash equivalents (millions) $658 $323 $115
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- The company continues to invest significant effort and resources across all business areas in preparation for the recreational market. Activities included the development, construction and licensing of large greenhouse cultivation platforms in British Columbia, Quebec and Ontario, the development of a regional distribution centre with highly efficient automation of product packaging, securing recreational cannabis supply commitments to provinces and territories, building product inventories, the development of new permitted product SKUs, including prerolled form factors, the development of recreational product packaging, the development of cannabis retail and education programs, and the development of the Tweed retail store concept and rollout strategy.
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Total first quarter revenue was $25.9-million representing a 63-per-cent increase over the quarter ended June 30, 2017, when revenue totalled $15.9-million and a 14-per-cent increase over revenues of $22.8-million in the fourth quarter of fiscal 2018.
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A total of 2,695 kilograms and kilogram equivalents were sold in the first quarter ended June 30, 2018, representing an increase of 47 per cent over the first quarter of last year and an increase of 7 per cent over the fourth quarter of fiscal 2018, in which 2,528 kilograms and kilogram equivalents were sold.
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Oil sales, including soft-gel capsules, accounted for 26 per cent of first quarter product revenue (reported revenue net of merchandise revenue, clinic revenue and shipping fees). Oil sales in the first quarter accounted for 2,650 litres (or approximately 330 kilogram equivalents) of the kilogram and kilogram equivalents stated herein.
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Cannabis sales in Germany accounted for 14 per cent of product revenue in the first quarter as compared with 2 per cent in the same quarter last year.
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Average selling price per gram was $8.94 for the first quarter, as compared with $7.96 last year in the same quarter and $8.43 in the fourth quarter of fiscal 2018.
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Spektrum Cannabis sold 248 kilograms in Germany at an average selling price of $13.62 per gram, up from 175 kilograms at an average selling price of $13.35 per gram in the fourth quarter of fiscal 2018, representing quarter-over-quarter growth of 42 per cent and 2 per cent, respectively.
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The company harvested 9,685 kilograms in the first quarter as compared with 4,811 kilograms in the fourth quarter of fiscal 2018 and 5,575 kilograms in the first quarter of fiscal 2018.
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At quarter-end, the company held inventory of 19,721 kilograms of dry cannabis, 14,895 litres of cannabis oils, ranging from concentrated resins, or refined oil to finished oil, and 1,055 kilograms of soft-gel capsules. Inventories are continuing to be scaled to meet management's expectation of market demands, including the legalized recreational market expected later in calendar 2018.
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The company closed the issuance of 4.25 per cent convertible notes amounting to $600-million in gross proceeds, including exercise of an overallotment by the initial purchasers. The transaction was significantly oversubscribed and included the participation by Greenstar Canada Investment Limited Partnership, an affiliate of Constellation Brands Inc., for $200-million, and the rest of the offering was allocated exclusively to institutions, primarily in the United States and Europe, as well as in Canada.
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The company acquired Annabis Medical sro, a medical cannabis distributor in the Czech Republic, and Daddy Cann Lesotho Pty. Ltd., a Lesotho-based company licensed to cultivate, manufacture, supply, hold, import, export and transport cannabis and its resin.
Subsequent to first quarter fiscal 2019:
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Completed the acquisition of unowned interests in Canopy Health Innovations and B.C. Tweed, making them wholly owned subsidiaries of the company;
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Alberta and B.C. supply agreements signed, doubling annualized supply requirement to over 67,000 kilograms per year;
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Formed wholly owned subsidiary Canopy LATAM Corp. and, through Canopy LATAM, acquired Spectrum Cannabis Colombia SAS, which previously operated as Colombian Cannabis SAS, expanding the company's focus on the emerging medical cannabis market of Latin America;
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Announced proposed acquisition of Hiku Brands to strengthen the company's portfolio of cannabis brands and advanced retail platform, including branded Tokyo Smoke stores. The transaction is expected to close in the second quarter of fiscal 2019.
First
quarter fiscal 2019 revenue review
Revenue for the first quarter fiscal 2019 was $25.9-million, representing an increase of 63 per cent over the prior-year quarter in which revenue was $15.9-million. In the three months ended June 30, 2018, and 2017, oils, including the company's soft-gel capsules, accounted for 26 per cent and 19 per cent, respectively, of the product revenue for each period.
First quarter fiscal
2019 product sales review
During the first quarter of fiscal 2019, the company sold 2,695 kilograms and kilogram equivalents in the first quarter ended June 30, 2018, at an average sale price of $8.94, up from 1,830 kilograms and kilogram equivalents at an average price of $7.96 in the prior-year period, representing an increase of 47 per cent and 12 per cent, respectively. The higher average price was due to changes in the mix of product sold and increasing sales in Germany by wholly owned subsidiary Spektrum Cannabis GmbH.
Oil sales, including gel caps, accounted for 26 per cent of first quarter product revenue (reported revenue net of merchandise revenue, clinic revenue and shipping fees). Oil sales in the first quarter accounted for 2,650 litres (or approximately 330 kilogram equivalents) of the kilogram and kilogram equivalents sold. Spektrum Cannabis sold 248 kilograms in Germany, all sourced from Canadian domestic production, at an average price of $13.62 per gram.
First quarter fiscal
2019 gross margin summary
The cost of sales includes the impact of cash operating costs of subsidiaries not yet cultivating or selling cannabis, including the company's B.C. Tweed and Vert Mirabel facilities that are partially licensed, and higher overheads incurred while preparing operations for the legalization of recreational cannabis. Excluding the costs associated with non-cultivating subsidiaries totalling $5.4-million, the gross margin before the fair value impacts in cost of sales and other inventory charges would have been $16.5-million or 64 per cent of sales.
The first quarter fiscal 2019 gross margin, including the costs of operating the non-cultivating subsidiaries and distribution charges but before the fair value effects of the international financial reporting standard accounting for biological assets and inventory and other inventory charges, was $11.1-million or 43 per cent of sales, as compared with $8.7-million or 55 per cent of sales in the first quarter of last year.
First quarter fiscal 2019 operating expense summary
Management believes continuing investment in building the company's significant and diversified production platform, flexible distribution capability, world-leading brands, medical and recreational sales and customer support capabilities, robust information technology infrastructure, international business development, and operations, as well as research and development into advanced operational systems, cannabis genetics in different environmental conditions, and new cannabis-based product form factors that will enter the market when permitted, all of which directly impacted profitability in quarter, represents a prudent long-term investment to strengthen the company's global leadership position. As a result, both sales and marketing and general and administrative expenses were up significantly relative to the same period last year.
Sales and marketing expenses include staffing levels in marketing and sales functions needed to service the coming regulated recreational and international markets, costs associated with the development of branding, marketing and education campaigns, the development of new permitted product SKUs, the development of recreational product packaging, the development of cannabis retail, and education programs, as well as costs associated with the company's medical outreach program and the expanding customer care centre, which interfaces directly with the company's expanding base of patients.
The general and administrative expenses include higher legal and professional services fees related to investments in governance, expanded operations and supporting business development, as well as expanding the company's information technology capability. G&A expenses also included higher employee compensation costs due to increased staff levels, necessary use of consultants and advisory services while expanding and commercializing the company's operations and compliance costs associated with meeting Health Canada requirements, as well as other public-company-compliance-related expenses, including related professional fees.
First quarter fiscal
2019 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) summary
Adjusted EBITDA in the first quarter fiscal 2019 amounted to a loss of $22.5-million compared with a loss of $3.9-million in the same period last year.
First quarter fiscal year
2019 other expenses and net
earnings summary
Other expenses totalled $60.4-million for the three months ended June 30, 2018, and was composed of a non-cash fair value loss of $19.3-million principally related to the change in fair value of TerrAscend warrants and a non-cash fair value loss on AusCann options. Both the warrants and options were initially recognized at fair value and are subsequently remeasured to their fair value at the end of each reporting period. Other expenses also included $16-million related to the convertible debt issue costs, which arose at the end of the quarter. In addition, fair value changes on the B.C. Tweed and Vert Mirabel put liabilities combined to a loss of $18.1-million. Of note, due to the full acquisition of B.C. Tweed in July, the B.C. Tweed put liability, which had a fair value of $72.6-million at the end of June, will be extinguished in the second quarter, which will result in a gain in that quarter.
The $60.4-million in other expenses described herein accounted for 30 cents of the reported 40-cent loss per basic and diluted share in the quarter, compared with a net loss of six cents per basic and diluted share in the comparative period last year.
Net loss in the quarter, after taxes and after the other expenses of $60.4-million just described, contributed to a reported net loss of $90.8-million or 40 cents per basic and diluted share share compared with a net loss of $9.2-million or six cents per basic and diluted share in the comparative period last year.
First quarter fiscal 2019 balance sheet highlights
At June 30, 2018, the company's cash and cash equivalents totalled $657.9-million, representing an increase of $335.3-million from March 31, 2018, principally due to the issuance of $600-million in convertible notes in the quarter, offset by investment in the aggressive expansion of the company's production assets and corporate capabilities.
Inventory at June 30, 2018, amounted to $118.2-million (March 31, 2018: $101.6-million), and biological assets amounted to $52.8-million (March 31, 2018: $16.3-million), together totalling $171.0-million (March 31, 2018: $117.9-million). Inventories are continuing to be scaled to meet management's expectation of market demands, including the legalized recreational market expected later in calendar 2018.
At June 30, 2018, the company held inventory of 19,721 kilograms of dry cannabis, 14,895 litres of cannabis oils, ranging from concentrated resins, or refined oil to finished oil, and 1,055 kilograms of soft-gel capsules. Included in the dry cannabis quantities were 2,594 kilograms available for sale in the company's on-line stores, 6,576 kilograms in process of finishing or awaiting approval for sale, and 10,551 kilograms of cannabis held for conversion to saleable oils and soft-gel capsules.
The unaudited consolidated financial statements and management's discussion and analysis documents for the three months ended June 30, 2018, will be filed on SEDAR and available at SEDAR. The basis of financial reporting in the unaudited condensed interim consolidated financial statements and management's discussion and analysis documents is in thousands of Canadian dollars, unless otherwise indicated.
Webcast and conference call information
The company will host a conference call and audio webcast with Mr. Linton and Tim Saunders, chief financial officer, at 8 a.m. Eastern Time on Aug. 15, 2018.
Webcast information
A live audio webcast will be available.
Calling information
Toll-free dial-in number: 1-888-231-8191
International dial-in number: 647-427-7450
Conference ID: 4984819
Replay information
A replay of the call will be accessible by telephone until 11:59 p.m. ET on Nov. 14, 2018.
Toll-free dial-in number: 1-855-859-2056
Replay passcode: 4984819
About Canopy Growth Corp.
Canopy Growth is a world-leading diversified cannabis and hemp company, offering distinct brands and curated cannabis varieties in dried, oil and soft-gel capsule forms. From product and process innovation to market execution, Canopy Growth is driven by a passion for leadership and a commitment to building a world-class cannabis company one product, site and country at a time.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in $000s except per-share amounts)
For the three months ended June 30,
2018 2017
(restated)
Revenue $25,916 $15,873
Inventory production costs expensed to cost of sales 14,832 7,161
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Gross margin before the undernoted 11,084 8,712
Fair value changes in biological assets included in inventory sold
and other inventory charges 26,388 10,784
Unrealized gain on changes in fair value of biological assets (57,289) (20,254)
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Gross margin 41,985 18,182
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Sales and marketing 17,266 6,405
Research and development 756 133
General and administration 19,588 7,493
Acquisition-related costs 1,884 836
Share-based compensation expense 23,072 2,881
Share-based compensation expense related to acquisition milestones 7,095 1,130
Depreciation and amortization 3,030 3,544
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Operating expenses 72,691 22,422
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(Loss) from operations (30,706) (4,240)
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Share of (loss) on equity investments (2,569) -
Other expense, net (60,426) (3,601)
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Total other expense, net (62,995) (3,601)
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(Loss) before income taxes (93,701) (7,841)
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Income tax (expense) recovery 2,723 (1,333)
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Net (loss) (90,978) (9,174)
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Net (loss) attributable to
Canopy Growth (80,277) (9,054)
Non-controlling interests (10,701) (120)
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(90,978) (9,174)
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Earnings per share, basic and diluted
Net (loss) per share (0.40) (0.06)
We seek Safe Harbor.
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