Mr. David Schwede reports

HERITAGE CANNABIS REPORTS Q3 2023 FINANCIAL RESULTS

Heritage Cannabis Holdings Corp. has released its financial results as at and for the three- and nine-month periods ended July 31, 2023.

"We are highly focused on the strategic vision of driving sustainable growth across the organization through increasing market penetration with our brands and diversifying our revenue channels. These activities contribute to growing revenue and gross margin, which we have seen successfully occur again this quarter, including a 47-per-cent increase in gross margin over [third quarter] 2022," said David Schwede, chief executive officer of Heritage Cannabis. "Paired with this strategy, we are maximizing efficiencies and fine-tuning our production, as well as continuing to penetrate our U.S. markets, which are gaining strength, showing over $3.2-million in sales thus far in Missouri and West Virginia combined. These strategies are setting the stage for our company as we continue to grow in our home market and explore international opportunities."

Selected financial highlights

Selected financial highlights for the three- and nine-month periods ended July 31, 2023, and July 31, 2022, are set out herein.

Q3 2023 financial highlights:

• The company reported gross revenue of $11,032,568 for the three months ended July 31, 2023, an increase of $232,784 compared with the gross revenue of $10,799,784 for the three months ended July 31, 2022. The increase in gross revenue was primarily due to the successful launches of the Thrifty and Adults Only brands, both seeing sales of $1,156,317 and $1,531,745, respectively. Gross revenue increases in the period were also attributable to increased sales of white label brands, specifically increasing from nil during the three months ended July 31, 2022, to $1,076,304 during the three months ended July 31, 2023.
• The company reported gross revenue of $30,645,502 for the nine months ended July 31, 2023, a decrease of $202,736 compared with the gross revenue of $30,848,238 for the nine months ended July 31, 2022. The decrease in gross revenue was primarily driven by a reduction in tincture sales and vape sales, which were down $226,556 and $45,883, respectively, year over year, and minimal contribution from the new brands, which partially offset the SKU rotation.
• Cost of sales for the three months ended July 31, 2023, was $4,487,702, a decrease of $537,344 compared with $5,025,046 for the three months ended July 31, 2022. The decrease represented a 10.6-per-cent improvement, as a percentage of sales, in the current period. As stated in previous quarters, the company is continuously reviewing its processes for optimization either on the manufacturing side or through material costing, which continued to positively impact the results in the current quarter.
• Cost of sales for the nine months ended July 31, 2023, was $12,834,338, a decrease of $1,153,536, compared with $13,987,874 for the nine months ended July 31, 2022. The decrease represented a 3-per-cent improvement, as a percentage of sales, in the current period. The improvement was a result of continued production refinements to enable more efficient production.
• Gross margin for the three months ended July 31, 2023, was $3,626,293 compared with gross margin of $2,470,839 for the three months ended July 31, 2022. The increase in gross margin of $1,155,454 was primarily a result of improved production efficiencies in addition to a lower excise rate of 26.4 per cent compared with 30.6 per cent in the prior period, which was driven by increased bulk business-to-business sales and international export sales, which provide less exposure to excise taxes.
• Gross margin for the nine months ended July 31, 2023, was $8,982,112 compared with gross margin of $7,540,406 for the nine months ended July 31, 2022. The increase in gross margin of $1,441,706 was a result of improved production efficiencies over the course of the year, as well as a lower excise rate in the period.
• For the three months ended July 31, 2023, the company recorded a comprehensive loss of $1,061,856 or nil loss per share compared with a comprehensive loss of $2,799,327 or nil loss per share for the three months ended July 31, 2022. The decrease in comprehensive loss of $1,737,471 during this period was attributable to increased non-excisable sales, decreased cost of sales and production efficiencies in the period.
• For the nine months ended July 31, 2023, the company recorded a comprehensive loss of $5,782,863 or one-cent loss per share compared with a comprehensive income of $2,957,272 or nil loss per share for the nine months ended July 31, 2022. The increase in comprehensive loss of $8,740,135 during the period was driven by three key factors: the unrealized gain in the prior period relating to various unachieved acquisition milestones of $8,331,429, the gain related to the sale of Stanley Park digital of $608,000 and the impact of rising interest rates, which increased the interest expense by $276,284 during this period.

Q3 2023 growth, operational and corporate highlights:

• Heritage Cannabis has transitioned to a true product and brand company, creating forever SKUs that have seen solid uptake in the Canadian cannabis market. With the in-house expertise in production, manufacturing, white labelling, pick and pack, and distribution, Heritage Cannabis has developed several relationships to leverage this expertise. The company has entered into distribution relationships with a number of companies and brands, including Aurora Medical, Canopy Growth Corp., Violet Tourist, OMG, White Rabbit and Mad Hatter. To increase Heritage Cannabis's share in the cannabis market, the company will consider opportunities to branch out into other areas of the supply chain that can provide vertical integration and have a positive impact on margins.
• On May 8, 2023, the company announced that it entered the recreational cannabis market in the state of New York. During the summer of 2023, samples were produced using the company's specifications for its Rad brand and were shipped to licensed retail stores in New York. The company anticipates sales will commence by October, 2023. Heritage Cannabis continues to target the legal markets in the United States with an asset-light model and has signed a manufacturing and distribution agreement with a local partner that is primarily producing and selling products using Heritage Cannabis's innovative formulations and flavours, which have already achieved success in other markets. The initial launch was six SKUs, and Heritage Cannabis plans to add additional Rad products, including live resin, rosin and infused prerolls, as well as expand product offerings with additional Heritage Cannabis brands. The U.S. strategy continues to grow in a capital-efficient manner in markets with strong projected growth.
• On May 17, 2023, Heritage Cannabis announced that it entered the recreational cannabis-infused beverage market in Canada. Through a sales and distribution agreement with a leading producer of beverage products, BevCanna, Heritage Cannabis will utilize its distribution channels and penetration with the provincial boards to bring some of the top-performing beverages to market across the country.
• On June 20, 2023, Heritage Cannabis announced that it shipped its first purchase order from a well-established Australian company for the supply of 15,000 units of live resin concentrate vape cartridges.
• Following the end of the third quarter:
  • Heritage Cannabis announced the appointment of Jasmine Paige as interim chief financial officer, replacing Dan Phaure, as he pursues new opportunities.
  • Heritage Cannabis announced that products from its Pura Vida brand have been approved for listing by Societe Quebecoise du cannabis for retail and on-line distribution in the province of Quebec.

Financial statements

The consolidated financial statements of the company as at and for the three- and nine-month periods ended July 31, 2023, and accompanying management's discussion and analysis, have been filed with the securities regulators and are available on SEDAR+ under the company's issuer profile.

About Heritage Cannabis Holdings Corp.

Heritage Cannabis is a leading cannabis company, offering innovative products to both the medical and recreational legal cannabis markets in Canada and the United States and operating under two licensed manufacturing facilities in Canada. The company has an extensive portfolio of high-quality cannabis products under the brands Purefarma, Pura Vida, RAD, Premium 5, Adults Only, Thrifty, feelgood, the CB4 suite of medical products in Canada and ArthroCBD in the U.S.

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