Mr. John Arbuthnot reports
DELTA 9 REPORTS FINANCIALS FOR Q3 2020
Delta 9 Cannabis Inc. has released its financial and operating results for the three-month and nine-month periods ending Sept. 30, 2020.
Financial highlights for
the three-month and nine-month periods ending Sept. 30, 2020:
- Net revenue of $13.1-million for the third quarter of 2020, an increase of 97 per cent from $6.7-million for the same quarter last year. Net revenue of $37.9-million for the first nine months of 2020, an increase of 79 per cent, from $21.2-million for the same period last year.
- Gross profit of $3.96-million for the third quarter of 2020, an increase of 95 per cent from $2.03-million for the same quarter last year.
Gross profit of $13.5-million for the first nine months of 2020, an increase of 98 per cent, from $6.8-million for the same period last year.
- Net income (loss) from operations and adjusted EBITDA (1) was a loss of $5.5-million and a loss of $50,000, respectively, for the third quarter of 2020, largely a result of an unrealized loss on the fair value of biological assets in inventory, a non-cash item. Net income (loss) from operations and adjusted EBITDA for the first nine months of 2020 was a loss of $400,000 and a gain of $1.9-million, respectively.
The company reported a strong financial position, with $7.2-million in cash, $25.6-million in working capital and total assets of $77.5-million.
(1) Adjusted EBITDA is a non-IFRS (international financial reporting standards) measure, and is calculated as earnings before interest, tax, depreciation and amortization, share-based compensation expense, fair value changes and other non-cash items.
"Management believes that, given the relative novelty and uncertainty of the global cannabis industry, the company's diversified revenue and vertical integration approaches will allow it to better react to market challenges than its competitors with single business strategies," said John Arbuthnot, chief executive officer. "Management is confident that its renewed focus on revenue growth, gross profitability and prudent cost controls will return the company to profitability over the coming quarters."
Third quarter and subsequent
On Nov. 9, 2020, Delta 9 closed a transaction with Auxly Cannabis Group Inc. and Kolab Project Inc. to acquire a retail cannabis store in Lloydminster, Sask. The purchase price of $875,000 was satisfied through the issuance of 1,282,270 common shares of the company at a deemed price per common share of 58.49 cents ($750,000) and $125,000 in cash, less customary adjustments. Delta 9's strategy of vertical integration is further strengthened with the move into Saskatchewan, and unites Delta 9's Western Canada retail strategy by joining its existing Manitoba and Alberta retail presence, and expands its base for future expansion opportunities.
On Oct. 20, 2020, Delta 9 announced that the Toronto Stock Exchange approved the company's normal course issuer bid. Under the NCIB, the company can purchase: (i) up to an aggregate of 2,802,503 common shares, representing 5 per cent of the public float of common shares as at Oct. 20 2020; and (ii) up to an aggregate of $1.18-million principal amount of 8.5 per cent unsecured convertible debentures of the company, representing 10 per cent of the public float of debentures as at Oct. 20, 2020.
- On Sept. 9, 2020, Delta 9 opened it fifth retail store in Manitoba. At 4,000 square feet, the newest Delta 9 Cannabis store is located in one of southwest Winnipeg's premier shopping destinations with high-traffic anchors, including Dollarama, Walmart, Home Depot, Safeway, Home Sense and Tim Hortons. The traffic corridor in southwest Winnipeg sees approximately over 50,000 vehicles every day. The new store is the largest cannabis retail store in the area, offering customers an open and modern shopping decor, highly trained staff, and a wide range of products, including dried cannabis flower, cannabis oil, edibles, drinkables, vape pens, concentrates and a full assortment of cannabis accessories. Delta 9 now has five retail stores in Manitoba and eight in total across Canada.
"Our three-prong growth strategy for revenue going forward will focus on expanding our retail store network and continue to market our price leadership strategy at new and existing stores," said Mr. Arbuthnot. "We will continue to build momentum in the cannabis wholesale segment with a focus on expanding product distribution in Delta 9's six provincial markets and continue to expand B2B business with a focus on creating relationships in the Canadian microcultivation industry and expansion into emerging markets."
SUMMARY OF QUARTERLY RESULTS -- CONSOLIDATED STATEMENT OF NET INCOME (LOSS)
Q4 2019 Q1 2020 Q2 2020 Q3 2020
Revenue $ 10,585,484 $ 11,753,406 $ 13,013,610 $ 13,130,320
Cost of sales 7,356,889 6,858,370 8,394,239 9,168,026
Gross profit before unrealized gain
From changes in biological assets 3,228,595 4,895,036 4,619,371 3,962,294
Unrealized gain from changes in
fair value of biological assets (net) 1,991,398 2,761,873 2,460,490 (2,338,699)
Gross profit $ 5,219,993 $ 7,656,909 $ 7,079,861 $ 1,623,595
General and administrative 3,118,669 3,198,840 3,676,326 4,047,063
Sales and marketing 1,385,700 1,243,115 1,534,875 1,753,461
Share-based compensation 234,503 314,231 174,779 776,705
Total operating expenses $ 4,738,872 $ 4,756,186 $ 5,385,980 $ 6,577,229
Adjusted EBITDA (loss) (91,760) 1,650,398 706,469 (474,039)
Income (loss) from operations $ 481,121 $ 2,900,723 $ 1,693,881 $ (4,953,634)
Other income (expenses) (696,667) (711,538) (262,364) (595,547)
Net income (loss) $ (215,556) $ 2,189,185 $ 1,431,517 $ (5,549,181)
Basic and diluted earnings (loss) per share $ (0.01) $ 0.02 $ 0.01 $ (0.07)
A comprehensive discussion of Delta 9's financial position and results of operations is provided in the company's management discussion and analysis for the three-month and nine-month periods ending Sept. 30, 2020, filed on SEDAR on Nov. 11, 2020.
2020 third quarter results conference call
A conference call to discuss the above results is scheduled for Nov. 12, 2020, premarket. The conference call will be hosted that day at 9 a.m. Eastern Time by Mr. Arbuthnot and Jim Lawson, chief financial officer, followed by a question-and-answer period.
Date: Nov. 12, 2020
Time: 9 a.m. Eastern Time
Dial-in number: 1-888-886-7786
Replay: 1-877-674-6060 (available until 12 a.m. Eastern Time, Feb. 12, 2020)
Replay passcode: 617905 followed by the pound key
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. Delta 9's shares trade on the Toronto Stock Exchange under the symbol DN and on the OTCQX under the symbol VRNDF.
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