Mr. Terry Booth reports
AURORA ANNOUNCES Q3 2017 RESULTS
Aurora Cannabis Inc. has released its financial and operational results for the quarter ended March 31, 2017 (third quarter 2017).
Operational highlights and recent developments
Revenues of $5.2-million as compared with $200,000 for Q3 2016. Q3 2017 revenues reflect 33.3-per-cent sequential growth over second quarter 2017, driven both by increased patient numbers and higher revenue per patient. The company's current sales pace exceeds $2.0-million per month. Aurora continues to execute well on all aspects of its growth strategy, including the construction of a state-of-the-art 800,000-square-foot production facility, national and international expansion, and continued investments in technology, innovation, partnerships, customer service, and sales and marketing.
FINANCIAL AND OPERATIONAL HIGHLIGHTS Q3 2017
Q3 2017 Q2 2017 Q3 2016
Active registered patients at close of period 113,110 12,200 1,042
Grams sold 653,008 538,045 30,380
Revenues $5.2M $3.9M $0.2M
Adjusted gross profit $3.1M $1.5M -
Working capital $126.5M $60.1M $2.4M
Investment in capital assets $10.5M $4.2M $1.6M
Developments subsequent to the quarter
- Achieved sales pace exceeding $2-million in gross monthly revenues;
- Commenced sales of cannabis oils;
- Construction of Aurora Sky, the company's flagship new 800,000-square-foot production facility at the Edmonton International Airport, is proceeding well and on schedule. The company currently estimates the capital cost of the project to be in the range of $110-million;
- Production at the new facility is expected to commence late in calendar 2017 upon completion of the initial phases of the project, with the full 800,000 square feet completed in 2018 and full capacity reached in 2019;
Further strengthened its financial position with completion of the $75-million offering of 7 per cent unsecured convertible debentures and converted $17.5-million of outstanding 8 per cent convertible debentures into approximately 8.75 million additional common shares;
- Completed the acquisition of Peloton Pharmaceuticals Inc., which includes a 40,000-square-foot cannabis production facility in Pointe-Claire, Que., currently 80 per cent complete. Subsequent to the acquisition, Aurora has reinitiated construction activities toward completion and licensing;
- Commenced international expansion with the participation in Cann Group Ltd.'s initial public offering on the Australian Stock Exchange for $6.5-million (Australian) and now holds 19.9 per cent of the shares issued and outstanding in Australia's first licensed cannabis company;
- Approximately $86.5-million in additional gross cash proceeds may be available from the potential future exercise of warrants, stock options and compensation options/warrants;
- Completed phase II of the research collaboration with Radient Technologies Inc. (RTI), and a report is expected from RTI, subject to confirmation of analytical results from Anandia Labs, by May 31, 2017;
- Appointed Glen Ibbott as chief financial officer;
- Appointed Andrea Paine as director, Quebec affairs.
"The tabling this spring of legislation to legalize adult consumer use of cannabis validates our aggressive growth and expansion strategy," said Terry Booth, chief executive officer. "The progress of construction and timelines to complete our 800,000-square-foot Aurora Sky facility position us exceptionally well for the anticipated start of adult consumer sales by July, 2018.
"Our premium cannabis products continue to resonate strongly with the rapidly growing medical market. Following an exceptional patient growth rate for the first 12 months of commercial operations, demand continues to exceed available supply. We have pro-actively managed new patient registrations in Q3 2017 to balance demand with our steadily increasing production capacity to ensure we protect our position as a premium supplier. As our capacity increases and more product becomes consistently available, we anticipate patient acquisition will resume its steady growth. We are also very excited to have commenced cannabis oil sales shortly after the quarter ended. They have gotten off to a brisk start, and we expect these to be a material contributor to revenues, enabling us to capture significant share in this fast growing segment of the cannabis market.
"Going forward, with one of the strongest cash balances in the industry, we will be able to execute on our aggressive expansion plans, both domestically and internationally, as we have done successfully with the acquisition of Peloton and our participation in the IPO of Australia's first licensed cannabis company, Cann Group. Finally, as we are maturing as an organization, we have added considerable strength to the management team with the appointments of a chief financial officer and director of Quebec Affairs. These new team members will add important additional senior executive capacity as we pursue our goals and execute our growth strategy."
Highlights Q3 2017
Obtained cannabis oil sales licence in January, 2017;
- Significantly strengthened the balance sheet with in total $127.4-million in new funds;
- Generated approximately $27.4-million from the exercise of warrants, stock options and compensation options;
$25-million in completed brokered private placement of 8 per cent unsecured convertible debentures;
- $75-million in completed brokered private placement of 33,337,500 units at a price of $2.25 per unit;
- Generated revenues of approximately $5.2-million, up 33 per cent, or approximately $1.3-million, from second quarter 2017;
- Sold 653,008 grams of cannabis, up 21 per cent from Q2 2017;
- Achieved new sales milestones;
- Sales pace for the quarter in excess of $1.5-million per month;
- Record sales month in March, 2017, with product sales in excess of 250 kilograms and gross revenue in excess of $2-million;
- Launched second generation of the company's highly successful mobile application;
- Graduated from the OTCQB to the OTCQX;
- Signed a memorandum of understanding with Radient Technologies for a joint development and commercialization of superior and standardized cannabinoid extracts. Entered into a joint venture research agreement pursuant to which Radient and Aurora are working to validate the effectiveness of Radient's MAP technology for cannabis extraction;
- Invested approximately $3.3-million in Radient's convertible debenture and private placement financings, resulting in an 18-per-cent ownership;
- Appointed Neil Belot as chief global business development officer;
- Appointed Dr. Barry Waisglass as medical director.
Financial review Q3 2017
A comprehensive discussion of Aurora's financials and operations is provided in the company's management discussion and analysis and financial statements filed with SEDAR.
The company sold 653,008 grams of cannabis during Q3 2017, up 21 per cent from Q2 2017. Revenues of $5.2-million were generated in Q3 2017, as compared with $200,000 for Q3 2016, and up 33 per cent, or approximately $1.3-million, from Q2 2017, driven by higher patient numbers and an increase in the revenue per patient. The company has pro-actively managed new patient registrations in Q3 2017, following an exceptional patient growth rate for the first 12 months of commercial operations, in order to balance demand with its steadily increasing production capacity, and to protect the company's reputation as a reliable supplier of premium products. As more product becomes available, the company anticipates it will increase new patient registration and return to higher patient acquisition rates.
Gross profit and adjusted gross profit
Management believes that adjusted gross profit, a non-generally accepted accounting principles measure, provides useful insight into the company's operational performance during the periods by excluding non-cash fair value measurements of biological assets that are required under IFRS, as shown in the table.
GROSS PROFIT AND ADJUSTED GROSS PROFIT
Three months ended Three months ended
March 31, 2017 March 31, 2016
Revenue, as reported under IFRS $5,175,304 $219,230
Gross profit, as reported under IFRS 5,762,624 4,191,186
Unrealized gain on changes in FV of biological assets 2,620,160 4,808,248
Adjusted gross profit 3,142,464 (617,062)
Adjusted gross profit margin 61% N/A
General and administrative costs
General and administration costs were $2.0-million in Q3 2017, an increase of $1.4-million compared with Q3 2016, attributable primarily to increases in corporate and general administrative activities as the company scaled up its business operations, completed various equity and debt financings, as well as other costs incurred related to continuing negotiations for additional financings, and other potential acquisition and investment opportunities. In the prior period, the company began scaling up its business operations as it transitioned to a fully licensed producer.
Sales and marketing
Sales and marketing costs were $2.7-million in Q3 2017, an increase of $2.2-million over Q3 2016. The increase was largely attributable to increases in consulting fees, selling costs and wages. Consulting fees increased by $1.0-million, primarily attributable to fees paid to Canadian Cannabis Clinics pursuant to a services agreement to provide operational, administrative and consulting services to CanvasRx. No such expense was incurred in the prior period. Selling expenses increased by $800,000, directly related to the increase in sales volume during the period.
The company recorded net income of $100,000 in Q3 2017, as compared with net income of $2.5-million in Q3 2016. The change in net income is attributable primarily to a $5.0-million increase in revenues and a $3.3-million increase in the unrealized gain on debenture and marketable securities, offset by a $2.2-million negative impact of the change in unrealized gain on the changes in fair value of biological assets, a $2.5-million increase in non-cash share-based payments, a $1.1-million increase in financing costs, as well as a $3.5-million increase in sales and marketing and general and administrative costs, related to the increase in business and corporate activities.
Liquidity and capital resources
Working capital as of March 31, 2017, was $126.5-million, as compared with a deficiency of $2.8-million as
at June 30, 2016. The $129.3-million increase was primarily attributable to an increase in cash and cash equivalents of $110.9-million, generated from debt and equity financings, offset by a decrease in short-term loans of $6.0-million. The increase in cash and cash equivalents resulted mainly from net cash generated from equity and debt financings of $147.1-million, offset by net cash used for operations of $15.2-million and investments of $21.0-million.
Subsequent to March 31, 2017, the company also generated $75-million in additional gross cash proceeds from an unsecured convertible debenture financing.
Details of the capital initiatives described above can be found in the company's filings on SEDAR.
Outstanding share data
As of the date of the management's discussion and analysis, the company had the securities issued and outstanding as shown in the table.
OUTSTANDING SHARE DATA
Securities May 15, 2017
Issued and outstanding shares 355,172,810
Compensation options/warrants 1,865,249
Charitable options 72,000
Convertible debentures shares reserved for issuance 25,153,352
Aurora's business strategy is to continue accelerating its penetration of the Canadian medical cannabis market, leverage its Health Canada sales licence for derivative products, expedite the completion of the Pointe-Claire facility and to complete a major facility expansion (Aurora Sky) for additional production capacity.
If, as expected, the Canadian federal government passes legislation legalizing the adult consumer use of cannabis, the company is building organizational and production capacity to capture a share of the adult use market. The company is executing an aggressive Canadian and international expansion, as evidenced by the April, 2017, acquisition of Peloton Pharmaceuticals in Quebec and lead participation in the May, 2017, Cann Group IPO in Australia. The company is also actively pursuing further international opportunities.
CanvasRx Inc. share issuance
Additionally, the company shall issue 1,080,604 common shares, at a deemed price of $2.30 per common share, to the vendors of CanvasRx in accordance with CanvasRx achieving certain earnout payment milestones for the period ended March 31, 2017, as set out in the share purchase agreement previously announced on Aug. 10, 2016. The issuance shall be completed upon receipt of approval from the TSX Venture Exchange, which is expected to occur shortly.
About Aurora Cannabis Inc.
Aurora's wholly owned subsidiary, Aurora Cannabis Enterprises Inc., is a licensed producer of medical cannabis pursuant to Health Canada's access to cannabis for medical purposes regulations (ACMPR). The company operates a 55,200-square-foot, state-of-the-art production facility in Mountain View county in Alberta and is currently constructing a second 800,000-square-foot production facility, known as Aurora Sky, at the Edmonton International Airport, and it has acquired, and is undertaking completion of, a third 40,000-square-foot production facility in Pointe Claire, Que., near Montreal. In addition, the company is the cornerstone investor with a 19.9-per-cent stake in Cann Group Ltd., the first Australian company licensed to conduct research on and cultivate medical cannabis.
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