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GTEC Holdings loses $2.3-million in Q2 2019

2019-07-30 12:59 ET - News Release

Mr. Norton Singhavon reports


GTEC Holdings Ltd. has released its financial results for the second quarter period ended May 31, 2019.

Key financial highlights:

  • Alberta Craft Cannabis (ACC) sold 18,569 grams of cannabis at an average price of $5.85 per gram for total revenue of $108,000.
  • Gross margin increased to $75,000 before fair value adjustments and $1.2-million, including fair value adjustments.
  • The company had net operating loss of $1.5-million and net loss of $2.3-million.
  • The company had strong balance sheet, with $48-million in assets and net working capital of $4.8-million, including $2.2-million in cash and cash equivalents.
  • It closed a $6.4-million second tranche of a $12.5-million brokered private placement. The company announced, due to increased demand, it has upsized the brokered syndicated private placement offering led by Sprott Capital Partners LP, from $5-million, to $8-million, to $10-million. The agent had the option to increase the size of the offering by up to 25 per cent, therefore, closing the financing at $12.5-million.

Key operating highlights:

  • The company completed three production facilities, of which ACC and Grey Bruce Farms (standard cultivation licence issued by Health Canada on July 5, 2019, to Grey Bruce) now have cultivation licences and Tumbleweed is in process of obtaining its cultivation licence.
  • ACC received its standard processing licence and medical sales licence, issued by Health Canada on July 26, 2019. The standard processing licence authorizes the sale of cannabis plants, cannabis plant seeds, fresh cannabis and dried cannabis products. The medical sales licence authorizes the sale of cannabis for medical purposes. This provides ACC with the ability to sell into provincial recreational supply chains and facilitates direct sales to medical cannabis clients.
  • ACC completed infrastructure changes and received approval to operate at its expected capacity of 1.3 million grams; ACC produced 117,634 grams of cannabis at an average cash cost of production of $1.83 per gram.
  • ACC ramped up operations and is now operating at full production capacity.
  • The company acquired a cannabis retail store located in Vancouver, B.C., to serve as the company's flagship retail location, operated as Cake Cannabis. The company has submitted its application, where provincial licensing is pending.
  • It entered into a purchase and sale agreement with Canopy Growth Corp. to acquire a cultivation facility that is near completion, with estimated production capacity of four million grams.
  • Jurgen Schreiber, the former chief executive officer of Shoppers Drug Mart and former chairman of ALDO, was appointed to the board of directors on June 10, 2019.

"The second quarter of 2019 provided a number of significant achievements for the company, as the team continued to successfully execute on its operational strategy," said Norton Singhavon, GTEC founder, chairman and chief executive officer. "We anticipate the recent milestones of Grey Bruce Farms being licensed and Alberta Craft Cannabis receiving additional sales licences, as well as, operating at full production capacity, will significantly increase the company's operating performance for the remainder of the fiscal year."

The company's recent financing provided the funds for the following initiatives:

  • The company completed construction of Grey Bruce Farms, to be cultivation ready. As a result, Grey Bruce Farms is now licensed and will increase the company's annualized output by more than 120 per cent.
  • It completed construction of Tumbleweed, to be cultivation ready. Tumbleweed is now awaiting the issuance of its standard cultivation licence.
  • It continued construction of the GreenTec Bio Pharmaceuticals (GBP) purpose-built building. Construction to complete will now focus on the interior elements of the facility.
  • The company made an investment commitment into Cannabis Cowboy, which currently holds 23 development permits in Alberta. It completed buildout of the retail cannabis store and e-commerce warehouse in Saskatchewan; the issuance of provincial licensing is pending.
  • The company purchased equipment to facilitate Zenalytic Laboratories being fully operational and revenue generating for cannabis analytical testing.
  • It commenced construction on the extraction rooms at Zenalytic Laboratories.

Outlook and strategy

The company's initiative to produce, market and distribute premium indoor cannabis is being achieved through the determination and execution of the GTEC team. The company commenced with the development of five cultivation facilities across Canada, of which three have now been completed, with two facilities licensed by Health Canada for standard cultivation, one for standard processing and medical sales, and one is in process of obtaining its standard cultivation licence. As a result, the company is now revenue generating with significant production growth in the near future.

The company will continue to build out and execute on its objectives to increase shareholder value, with the following outlook:

  • Currently producing premium quality indoor flower, with ultrapremium flower to commence harvesting in the third quarter of 2019;
  • Estimated cannabis production for fiscal 2019 by operation:
    • ACC to produce between 500,000 to 700,000 grams at a cash cost range between $1.40 to $1.60 per gram;
    • Grey Bruce Farms to produce between 150,000 to 300,000 grams at a cash cost range between $1.50 to $1.80 per gram;
  • Estimated sales for fiscal 2019 by operation:
    • ACC estimating sales between $2.5-million to $3.3-million;
    • Grey Bruce Farms estimating sales between $900,000 to $1.3-million (sales expected to commence in October, 2019);
  • Commence sales into the provincial supply chain, as ACC received its standard processing licence and medical sales licence; this will increase the company's overall average selling price and overall gross margin;
  • Increase customer base, where the company currently has continuing sales discussions with other licensed producers (previously have sold cannabis to six Canadian licensed producers);
  • Maximize the economic value of harvested plants, by optimizing the ratio of marketable components, such as the sale of flower, popcorn and trim, as well as converting its trim for alternative use within the market (for example, oil or preroll).

The company is expecting to achieve the following milestones throughout the remainder of fiscal 2019:

  • Standard cultivation licence at Tumbleweed within the coming weeks, resulting in an additional one million grams of production, once operating at full capacity;
  • Complete construction at GBP and 3PL in the fourth quarter of 2019;
  • Licence for GTEC Saskatchewan retail cannabis store and e-commerce warehouse in the third quarter of 2019;
  • Licence for Vancouver retail cannabis store in the fourth quarter of 2019;
  • Zenalytic Laboratories analytical testing business to be revenue generating in the third quarter of 2019;
  • Launch its ultrapremium genetic portfolio in the fourth quarter of 2019.

The management's discussion and analysis for the period and the accompanying financial statements and notes are available under the company's profile on SEDAR.

About GTEC Holdings Ltd.

GTEC Holdings is a specialized cannabis company dedicated to cultivating ultrapremium quality cannabis in purpose-built indoor facilities. The company is vertically integrated across all major sectors of the Canadian cannabis industry and is currently licensed by Health Canada for standard cultivation at two facilities, standard processing (extraction), standard processing (provincial sales), medical sales and analytical testing. The management team comprises a diverse skillset sourced from leading global food and beverage and premium alcohol companies. GTEC has completed three cultivation facilities and is currently cultivating and selling cannabis.

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