Mr. Chris Rebentisch reports
1933 INDUSTRIES REPORTS FOURTH QUARTER AND ANNUAL FINANCIAL RESULTS FOR FISCAL YEAR 2019
1933 Industries Inc. has released its fourth quarter (Q4) and audited annual financial results for the period ended July 31, 2019 (year-end). All amounts expressed are in Canadian dollars.
Strong balance sheet with a cash position of $17.6-million, a robust increase of 245 per cent over the previous year of $5.1-million, allowing the company to finance capital projects, service its debenture payments and continue to grow its operations.
- Working capital was $22.5-million, compared with $11.0-million at July 31, 2018, representing an increase of 105 per cent;
- 44 per cent year-over-year increase in revenue, totalling $18.1-million, with a gross margin of $5.3-million;
100-per-cent-owned Infused Manufacturing contributed $9.9-million in annual revenues, a 130-per-cent increase over the previous year, while 91-per-cent-owned Alternative Medicine Association LLC (AMA) contributed $8.1-million in total revenues;
- Steady growth across these subsidiaries netted $5.2-million in Q4 revenue, the largest reported quarterly revenue to date;
Net loss for the year is $19.1-million, of which $5.0-million is attributed to a one-time non-cash impairment writedown of a non-performing subsidiary, $3.4-million in biomass purchases, non-cash share-based compensation of $2.2-million, $1.5-million in interest payments, a one-time non-cash loss on disposal of property and equipment of $1.9-million, and a non-cash accretion expense of $1.2-million;
- Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $10.1-million, compared with $3.1-million in 2018;
- Total assets grew by 49 per cent to $61.7-million from $41.3-million at July 31, 2018;
- Total liabilities were $24.5-million at July 31, 2019, compared with $4.4 million at July 31, 2018, of which $13.0-million of this increase is attributed to future rent payments of the company's new cultivation facility in Las Vegas, Nev.;
- IP (intellectual property) includes five product lines, 100-plus product SKUs (stock keeping units) with major brand traction across 46 U.S. states as well as six licensing partners.
SELECTED FINANCIAL INFORMATION
(in Canadian dollars)
Year-end 2019 consolidated results July 31, 2019 July 31, 2018
Revenues $18,059,774 $12,550,683
Gross margin $5,296,980 $6,351,466
Cash balance $17,613,900 $5,056,183
Net (loss) $(19,111,991) $(5,729,052)
Comprehensive (loss) $(19,011,564) $(4,791,300)
Adjusted EBITDA (loss) $(10,113,913) $(3,078,700)
Basic and diluted (loss) per share $0.08 $0.03
Total assets $61,654,094 $41,339,616
Total liabilities $24,465,690 $4,356,119
Total equity $37,188,404 $36,983,497
Results of operations Q4 2019 Q4 2018
Total revenue $5,244,946 $3,828,993
Gross margin $815,690 $2,197,803
Cash balance $17,613,900 $5,056,183
Net (loss) $(5,688,422) $(3,811,765)
Adjusted EBITDA (loss) $(4,287,416) $(2,266,992)
Basic and diluted (loss) per share $0.02 $0.02
Total assets $61,654,094 $41,339,616
44-per-cent year-over-year revenue growth without new facility
The company's $5.5-million growth in revenues over the prior year is attributed to the steady increase in AMA's number of cannabis plants and total annual plant yield, as well as to Infused's significant product distribution expansion in the United States. Infused's Canna Hemp brand of CBD (cannabidiol) health and wellness products are sold in over 800 retail outlets across 46 states and via the company's e-commerce site.
16-per-cent gross margin decrease until new facility ramps up cultivation
The company saw a decrease in gross margin from $6.4-million to $5.3-million primarily due to increased purchases by AMA of third party biomass to produce concentrates and final products. The company anticipates producing sufficient amounts of biomass from its new facility, thereby reducing third party purchases, which is expected to significantly improve the realized gross margins. Partially offsetting the increased costs of AMA, Infused has significantly increased its customer base, which has resulted in improved economies of scale in the production of CBD-based products, positively impacting overall gross margin.
$37.7-million cash injection by financing activities and strong cash position:
The sale of property and equipment increased cash by $13-million.
- The issuance of convertible debenture units increased cash by $15.5-million.
Common shares issued pursuant to a private placement increased cash by $4.5-million.
- Common shares issued pursuant to exercises of stock options increased cash by $700,000.
- Common shares issued pursuant to exercises of warrants and agent options increased cash by $3.9-million.
- Cash on hand at year-end is $17.6-million.
Cost-cutting measures in place to mitigate loss
The company's net loss for the year is $19.1-million, attributed to a one-time non-cash impairment loss of Spire Global Strategy and one-time non-cash loss on disposal of property and equipment, as well as increases in general and administrative costs as the company continued to scale up its operations and added staffing and resources to support the company's growth initiatives. The company continues to incur costs to support its growing infrastructure requirements.
Significant expenditures during the period include property and equipment expenses related to AMA's 67,750-square-foot cultivation facility and 12,160-square-foot production facility in Nevada, and the purchase of the remaining 9 per cent of Infused for $5.4-million, of which $1.2-million was cash via a promissory note paid during Q4.
The company saw an overall increase in expenses as it continues to grow in size and scale. The realignment of core business units, such as cultivation, extraction and manufacturing assets, and cost-cutting measures in place along all divisions have been a focus in order to lower expenses.
Commentary by Chris Rebentisch, chief executive officer
"Our second year of operations was met by a surge in market volatility, challenging capital markets and a changing regulatory environment. Although not immune to sector-wide stock pressures and volatility, the company remains positioned with growth and profitability in mind, and we continue on target on this path. We are razor focused on continuing to ensure the long-term viability of the company. We have implemented cost-cutting measures aimed at reducing our current operating expenses, improving efficiencies and strengthening our product offerings while building a sustainable foundation.
"Exceeding expectations, we increased revenues by 44 per cent from our previous year while awaiting our new cultivation facility to become operational. We oversaw a 130-per-cent growth in revenues for our CBD brand portfolio as well as a 245-per-cent increase of cash to execute on our growth plan. By the end of this fiscal year, we had completed the construction of one of Nevada's largest indoor cultivation facilities for premium craft cannabis and had begun to transfer our cannabis plants to the new facility.
"Subsequent to the year-end, we entered the California market with a management agreement for cultivation and manufacturing in the state, and continue to make progress on our infrastructure projects in Nevada, while targeting promising markets in Arizona and Colorado. Our proprietary Canna Hemp brands are emerging as significant players in the industry and continue to grow across the nation. We have also attracted some of the best brands in the industry as licensing partners as we continue to increase market share in Nevada as one of the largest wholesalers of cannabis products to legal dispensaries.
"We forecast strong revenue growth in 2020 as we expand our proprietary portfolio of AMA branded THC flower and concentrates, continue innovating our unique, differentiated, quality-based CBD Canna Hemp portfolio, and as our recently added licensing partnerships bear fruit. We anticipate significant margin improvements as we complete the buildout of new cultivation and production facilities in Nevada and become less reliant on wholesale biomass suppliers. With our focused vision on delivering the highest-quality consumer branded goods, we have a disciplined growth path to scale up operations in 2020 and beyond."
Key developments during fiscal 2019:
- On Sept. 14, 2018, the company closed its previous short form prospectus offering for $17.25-million.
On Sept. 17, 2018, the company appointed Chris Rebentisch to its board of directors.
On Sept. 18, 2018, the company changed its name to 1933 Industries from Friday Night Inc.
On Dec. 6, 2018, the company commenced trading on the OTCQX, the primer tier of the OTC Markets.
- On March 15, 2019, pursuant to a non-brokered private placement, the company issued 10 million units at 45 cents per unit for gross proceeds of $4.5-million. Each unit consists of one common share and one common share purchase warrant, with an exercise price of 50 cents and an expiry date of March 14, 2021.
On March 28, 2019, the company announced that it signed a membership interest purchase definitive agreement between the holder of the 9 per cent of the issued and outstanding membership interests of Infused MFG LLC, and the company, the beneficial holder of 91 per cent of the issued and outstanding membership interests of Infused MFG. The purchase consideration comprised seven million common shares with a fair value of 55 cents per share, one million common share purchase warrants with an exercise price of 53 cents and a fair value of 30 cents per warrant, and a $1,248,000
($940,000 (U.S.)) promissory note with an interest rate of 6 per cent per annum and an expiry date of Dec. 1, 2019, for a total purchase consideration of $5,395,722.
- On May 3, 2019, Brayden Sutton was appointed chairman of the board in addition to his previous positions as CEO and president.
On May 15, 2019, the company reported that its subsidiary, AMA, completed a sale and lease back for its newly constructed cannabis cultivation facility in Las Vegas, Nev. The purchase price for the sale transaction was $10.45-million (U.S.).
- On May 29, 2019, the company appointed Mr. Rebentisch as its CEO.
- On May 30, 2019, the company appointed Terry Taouss to its board of directors as Andrew Richards resigned as a director.
On June 5, 2019, Mr. Sutton resigned as the president of the company and Ester Vigil was appointed in his stead.
On June 17, 2019, Stephen Radusch was appointed chief financial officer of the company.
- On July 3, 2019, the company reported that it had received a permanent occupancy permit for its cultivation facility.
- On July 19, 2019, the company reported that it received both Clark county and Nevada Department of Taxation final approvals for the transfer of its existing cultivation licences to its new cultivation facility.
Key developments subsequent to fiscal 2019:
- On Aug. 15, 2019, the company reported that it had signed a management services agreement to provide operational and accounting services, as well as general management and oversight, to Green Spectrum Trading Inc., a medicinal and recreational cannabis business licensee in the state of California.
On Aug. 20, 2019, the company announced that it commenced the transfer of cannabis plants to its new cultivation facility in Las Vegas following an extensive period of system-wide testing.
On Sept. 10, 2019, the company announced the execution of a licensing agreement for the launch of Blonde, a high-end California brand making its debut in Nevada. Under the terms of the one-year agreement, the company's subsidiary, AMA, receives the exclusive rights to cultivate flower, manufacture prerolls, live resin vape pens and cartridges under the Blonde brand for distribution to licensed dispensaries throughout Nevada.
- On Sept. 19, 2019, the company announced a licensing agreement with California-based PLUGplay, a manufacturer of cannabis vaporizer cartridges with proprietary magnetic hardware, for a 12-month term. Under the terms of the agreement, the company's subsidiary, AMA, will manufacture distillate and vape pens under the PLUGplay brand, for distribution to dispensaries across Nevada.
On Sept. 30, 2019, the company announced that it commenced the flowering cycle of its cannabis plants in its new indoor cultivation facility located in Las Vegas, Nev.
On Oct. 22, 2019, the company reported that the debut of its Blonde Cannabis products in September, 2019, was its most successful brand launch to date.
On Nov. 4, 2019, the company launched its newest product, the Birdhouse CBD Balm, by Canna Hemp X. The CBD Balm was developed in collaboration with Birdhouse Skateboards, targeting the action sports market, and will be available for sale in dispensaries, wellness stores, skate shops and specialty retailers, including Zumiez in the United States.
Detailed information on the financials and the management's discussion and analysis can be found on SEDAR.
About 1933 Industries Inc.
1933 Industries is a vertically integrated, brand-focused cannabis company with operations in the United States and Canada. Operating through two subsidiary companies, the company owns leading cannabis brands, as well as licensed cannabis cultivation, extraction, processing and manufacturing assets.
The company owns 91 per cent of AMA and 100 per cent of Infused MFG. 1933 Industries continues to focus its operations in the licensed U.S. cannabis industry as a multistate operator in Nevada, Colorado and California.
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