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Delta 9 Cannabis Inc
Symbol DN
Shares Issued 87,963,478
Close 2020-05-14 C$ 0.445
Recent Sedar Documents

Delta 9 Cannabis earns $2.18-million in Q1

2020-05-14 18:14 ET - News Release

Mr. John Arbuthnot reports

DELTA 9 REPORTS RECORD FIRST QUARTER 2020 RESULTS

Delta 9 Cannabis Inc. has released its financial and operating results for the three-month period ending March 31, 2020.

Financial highlights for the first quarter of 2020:

  • Operating revenues of $11.75-million for the three-month period ending March 31, 2020, up 109 per cent from $5.63-million for the same quarter last year:
    • Sequential net revenues increased 11 per cent compared with $10.59-million for the three-month period ending Dec. 31, 2019.
  • Gross profit of $4.90-million for the three-month period ending March 31, 2020, up 170 per cent from $1.82-million for the same quarter last year:
    • Sequential gross profit increased 51 per cent compared with $3.23-million for the three-month period ending Dec. 31, 2019.
    • Gross profit margin improved to 42 per cent for the first quarter of 2020.
  • Net income from operations was $2.90-million for the three-month period ending March 31, 2020, compared with a loss from operations of $946,180 for the three-month period ending March 31, 2019:
    • Sequential net income from operations increased 503 per cent compared with $481,121 for the three-month period ending Dec. 31, 2019.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $1.65-million for the three-month period ending March 31, 2020, compared with an adjusted EBITDA loss of $1.98-million for the three-month period ending March 31, 2019:
    • This also compares with an adjusted EBITDA loss of $91,760 for the three-month period ending Dec. 31, 2019.
  • The company reported earnings per share of two cents for the three-month period ending March 31, 2020.
  • The company reported a strong financial position, with working capital of $23.90-million and total assets of $72.05-million.

"We were fortunate to be able to maintain continuous operations of our retail stores, wholesale and business-to-business (B2B) business units throughout the COVID-19 crisis. This allowed Delta 9 to be one of the few cannabis companies in Canada to report positive net income and adjusted EBITDA results," said John Arbuthnot, chief executive officer of Delta 9. "Our company was able to generate increases in sequential quarterly revenue and strong performance in our retail and B2B segments and a general rebound in our wholesale business volumes and wholesale average selling prices."

First quarter 2020 operational highlights:

  • Delta 9 received Health Canada approval for its new purpose-built cannabis processing centre, which will allow for fully automated bottling, packaging, capping and labelling of its consumer-packaged dried cannabis products. The company anticipates that once the processing centre is operating at capacity, it will allow for the processing of up to 25,000 kilograms per year of dried cannabis flower material.
  • Delta 9 completed its final services milestone under an agreement with a microcultivation partner, Oliver Acres Ltd. (operating as Cypress Craft). As one of the company's microcultivation partners, Cypress Craft entered into a strategic co-operation agreement with Delta 9, whereby Delta 9 provides services relating to the cannabis production facility design and construction, development of standard operating procedures and sanitation programs, consulting on Health Canada licensing, and other services supporting the acquisition of a Health Canada licence.
  • Delta 9 entered into a second supply agreement with Auxly Cannabis Group Inc., which will supply Delta 9's retail stores with a suite of Cannabis 2.0 products including cannabis oils, chocolates, chewables and vape products. This is in addition to the strategic partnership that was signed in September, 2018, that included a supply agreement which granted Auxly the right to purchase up to 5,000 kilograms of cannabis and 500 kilograms of cannabis trim per year until July 1, 2030. In exchange, Auxly invested $16.25-million in the company by purchasing 5,909,090 common shares of the company, becoming one of Delta 9's early strategic investors.
  • Delta 9 completed its final services milestone under an agreement with its microcultivation partner Because You Cann Inc. As one of the company's microcultivation partners, Because You Cann entered into a strategic co-operation agreement with Delta 9, whereby Delta 9 provides services relating to cannabis production facility design and construction, development of standard operating procedures and sanitation programs, consulting on Health Canada licensing, and other services supporting the acquisition of a Health Canada licence.

Summary of quarterly results

A summary of the company's quarterly results is provided in the accompanying table.

                                    CONSOLIDATED STATEMENT OF NET LOSS

                                                       Q2 2019          Q3 2019          Q4 2019          Q1 2020

Revenue                                           $  8,886,155     $  6,662,137     $ 10,585,484     $ 11,753,406
Cost of sales                                        5,936,975        4,628,070        7,356,889        6,858,370
Gross profit before unrealized gain from
changes in biological assets                         2,949,180        2,034,067        3,228,595        4,895,036
Unrealized gain from changes in fair value
of biological assets (net)                             586,366        1,388,863        1,991,398        2,761,873
Gross profit                                         3,535,546        3,422,930        5,219,993        7,656,909
Expenses
General and administrative                           3,075,803        2,681,388        3,118,669        3,198,840
Sales and marketing                                  1,324,537        1,151,158        1,385,700        1,243,115
Share-based compensation                               244,848          215,456          234,503          314,231
Total operating expenses                             4,645,188        4,048,002        4,738,872        4,756,186
Adjusted EBITDA (loss) (1)                            (663,705)        (849,760)         (91,760)       1,650,398
Income (loss) from operations                       (1,109,642)        (625,072)         481,121        2,900,723
Other income/expenses                                 (206,231)        (642,190)        (696,667)        (711,538)
Net income (loss)                                   (1,315,873)      (1,267,262)        (215,556)       2,189,185
Basic and diluted earnings (loss) per share              (0.01)           (0.02)           (0.01)            0.02

The accompanying table provides a breakdown of the company's revenue by segment.

                                            Three months ending      Three months ending      Three months ending
                                                 March 31, 2019            Dec. 31, 2019           March 31, 2020
Revenue from the sale of cannabis
Wholesale cannabis revenue                         $  2,935,641             $  1,448,992             $  2,991,299
Retail cannabis revenue                               2,437,094                5,050,690                5,854,017
Medicinal cannabis revenue                               96,560                   48,911                   58,026
Revenue from other categories
Business to business activities                          45,000                3,793,559                2,977,859
Merchandise and cannabis devices                        155,071                  220,344                  166,334
Other                                                    46,737                   53,451                   64,466
Subtotal                                              5,716,103               10,615,947               12,112,001
(Less) excise taxes                                     (83,919)                 (30,463)                (358,595)
Net revenue                                           5,632,184               10,585,484               11,753,406

Discussion of operations

A summary of the company's key performance indicators is provided in the accompanying table.

                                           KEY PERFORMANCE INDICATORS

                                                     Q1 2019      Q2 2019      Q3 2019      Q4 2019       Q1 2020
Production/wholesale unit
Total grams produced                                 418,901      675,233      871,516    1,305,806     1,198,983
Direct production cost per gram (1)                    $1.44        $1.05        $1.08        $0.91         $0.98
Total cost per gram (2)                                $1.60        $1.21        $1.21        $1.04         $1.10
Total grams released for sale                        185,626      565,599      519,596      718,353       729,085
Total grams sold (medical and recreational)          399,787      527,693      548,981      416,729       591,080
Avg. selling price per gram                            $7.58        $5.63        $4.19        $3.59         $4.50
Retail unit
Total grams sold (retail)                            189,796      282,336      349,410      491,941       692,661
Avg. selling price per gram                           $12.84       $12.42       $12.47       $10.27         $8.45
Number of transactions processed                      44,885       84,882      108,438      134,132       149,440
Avg. transaction size                                 $58.27       $41.46       $41.67       $39.29        $45.40
Unique website visitors                              180,774      152,680      150,279      165,415       171,218

(1) Direct production cost per gram includes direct labour, nutrients, utilities, growing materials and supplies 
    costs.
(2) Total cost per gram includes direct production cost per gram plus processing labour, packaging, bottling and 
    labelling costs.

A comprehensive discussion of Delta 9's financial position and results of operations is provided in the company's MD&A (management's discussion and analysis) for the first quarter ended March 31, 2020, which has been filed on SEDAR.

First quarter results 2020 conference call

Delta 9 has scheduled a conference call to discuss the results for its first quarter ended March 31, 2020. The conference call will be hosted May 15, 2020, at 9 a.m. ET by John Arbuthnot, CEO, and Jim Lawson, chief financial officer, followed by a question-and-answer period.

Date:  May 15, 2020

Time:  9 a.m. ET

Dial-in number:  1-888-886-7786 -- toll-free North America

Replay:  1-877-674-6060

Replay password:  634784 followed by the pound sign -- available until Aug. 15, 2020

About Delta 9 Cannabis Inc.

Delta 9 is a vertically integrated cannabis company focused on bringing the highest-quality cannabis products to market. The company sells cannabis products through its wholesale and retail sales channels and sells its cannabis grow pods to other businesses. Delta 9's wholly owned subsidiary, Delta 9 Bio-Tech Inc., is a licensed producer of medical and recreational cannabis and operates an 80,000-square-foot production facility in Winnipeg, Man., Canada. Delta 9 owns and operates a chain of retail stores under the Delta 9 Cannabis Store brand.

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