Ms. Jenn Hepburn reports
EMERALD HEALTH THERAPEUTICS REPORTS FIRST QUARTER 2020 FINANCIAL RESULTS AND PROVIDES CORPORATE UPDATE
Emerald Health Therapeutics Inc. has provided its financial results for the quarter and ended March 31, 2020. Full versions of the company's unaudited condensed interim consolidated financial statements and management's discussion and analysis can be found on SEDAR.
"In the first quarter and year to date, the benefits of Emerald's significant restructuring and cost-rationalization are strongly emerging. While these benefits were not fully realized in our Q1 financials, we can see our operational metrics and financial results clearly moving in the desired direction," said Riaz Bandali, president and chief executive officer of Emerald. "In not even two full quarters, our two newly launched and scaled-up cultivation facilities in B.C. and Quebec have been achieving important milestones and are positioned to move us toward profitably. On top of that we own over 41 per cent of one of the premiere large-scale cannabis cultivation operations in the country. We are very pleased with our asset portfolio, our operating team and our prospects."
Emerald and Pure Sunfarms joint venture summary
Emerald Q1 2020 financials (compared with Q1 2019)
Net sales of $2.9-million increased 36 per cent compared with $2.1-million in the same quarter of the prior year.
Gross margin of negative $900,000 shows improvement over gross margin of negative $1.7-million in Q1 2019. Negative gross margin was impacted by $900,000 of non-cash or non-recurring expense items.
Total selling, general and administrative expenses of $6.0-million show a decrease of $2.3-million over $8.3-million expense in the comparable first quarter of 2019. Total SG&A expense included $2.1-million of non-cash or non-recurring items.
Net loss of $4.9-million includes $2.0-million loss on dilution of joint venture ownership and $1.1-million inventory writedown.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of negative $300,000 reflects $3.2-million improvement over negative adjusted EBITDA of $3.5-million in Q1 2019.
Key initiatives and accomplishments
Revenue for the quarter was driven by increased sales from the adult-use market where sales were up 35 per cent as compared with Q4 2019. Thirty per cent of revenue in the adult-use channel from SYNC oils contributed to improving margins, as this high CBD (cannabidiol), low THC (tetrahydrocannbinol) oil is not subject to excise duty.
Higher proportion of sales from the branded Sync oil, coupled with lower cost of dried flower contributed to improved margins compared with Q1 2019. Significant harvests from the newly operational production sites led to capitalized inventory, which reflected as a further improvement in production costs.
The restructuring initiated in the second half of 2019 resulted in improvements in the SG&A cost structure over comparable 2019 quarters.
Settled all disputes with its joint venture, Pure Sunfarms, and its joint venture partner, Village Farms. The settlement agreement extinguished all outstanding and future liabilities under the supply agreements, and ensures Pure Sunfarms is able to focus solely on its operations. Emerald retains 41.3-per-cent ownership and three of six board seats in Pure Sunfarms.
Richmond, B.C., 78,000-square-foot organic-certified greenhouse and St. Eustache, Que., 88,000-square-foot Verdelite indoor facility achieved full production of unique cannabis strains, harvesting over 2,500 kilograms of cannabis during the quarter. Emerald sold its first product from its B.C. facility in late March, with excellent customer receptivity.
Pure Sunfarms joint venture (41.3 per cent owned)
Net sales, consisting entirely of dried cannabis, were $18.0-million in 1Q20, compared with $14.4-million in 1Q19. This quarter was marked by a 118-per-cent increase in the sale of branded retail products compared with the prior quarter, largely as a result of the initial shipment and sale of product in Alberta. Q1 2019 sales were solely made through the wholesale channel.
A lower cultivation cost of 88 cents per gram in Q1 2020 compared with $1.38 per gram in Q1 2019 was driven by full-scale operations in 2020 versus operations that were still scaling up in 2019, as well as more experience growing cannabis in the Delta 3 facility, providing better efficiencies and economies of scale.
Q1 2020 represented the fifth consecutive quarter of profitability and sixth consecutive quarter of positive EBITDA.
Emerald recognized $5.2-million as its share of net income from Pure Sunfarms, as compared with $5.8-million recognized Q1 2019.
Financial results and capital resources
Selected quarterly financial information
The attached table summarizes selected quarterly financial information for the company, which was derived from the audited annual financial statements prepared in accordance with IFRS (international financial reporting standards) or the condensed interim consolidated financial statements prepared in accordance with IFRS applicable to the preparation of interim financial statements, IAS 34, interim financial reporting.
Q1 2020 KEY FINANCIAL AND OPERATIONAL METRICS
(thousands of dollars)
Q1 2020 Q4 2019
Gross revenue $3,333 $4,940
Net revenue (net of excise duty) 2,889 4,272
Cannabis gross revenue
Dry cannabis 1,964 4,598
Cannabis oils 1,271 283
Other 98 59
Gross margin (net of fair value adjustment) (504) (6,198)
Total SG&A (net of share-based payments) 4,334 4,482
Total R&D expenses 433 866
Net (loss) (4,879) (90,344)
Adjusted EBITDA (298) (4,425)
Average selling price (net of excise duty)
Recreational $4.32 $3.21
Medical $7.95 $7.14
Pure Sunfarms financial results
Gross revenue $21,519 $13,569
Gross margin (net of fair value adjustment) 9,397 10,026
Total SG&A 3,255 2,990
Net income (loss)* 10,891 994
Adjusted EBITDA* 8,131 10,603
* Share of the net income adjusted for transactions with Emerald
and for fair value changes, and adjusted EBITDA are reflected
in Emerald net income and adjusted EBITDA respectively.
The company's unaudited condensed interim consolidated financial statements and MD&A for the three months ended March 31, 2020, together with other information related to the company, including the company's most recent annual information form (AIF), can be found on SEDAR. Additional information related to the company is available on its website.
Financing and capital resources
In Q1 2020 and subsequent to the quarter, Emerald raised capital and issued shares with the following transactions. Full details are available in prior press releases and in various filings on SEDAR.
Jan. 31, 2020: settled $2.8-million of aggregate debt owed to Emerald Health Sciences Inc., a control person of the company, in exchange for 9,713,666 common shares at a deemed value of 29 cents per common share;
Feb. 6, 2020: raised $2.2-million in gross proceeds through the first tranche of a prospectus offering, issuing 7,596,551 units at a price of 29 cents per unit. Each unit consisted of one common share and one common share purchase warrant;
Feb. 6, 2020: settled $400,000 of interest on the convertible debenture in exchange for 1,322,627 common shares at a deemed price of 29 cents per common share;
Feb. 14, 2020: raised $800,000 in gross proceeds through the final tranche of a prospectus offering, issuing 2,748,276 units at a price of 29 cents per unit. Each unit consisted of one common share and one common share purchase warrant;
April 9, 2020: raised $1.1-million in gross proceeds from the exercise of 6.25 million warrants at 17 cents per warrant. The warrants were originally issued in 2019 with an exercise price of $2 per common share, in connection with the convertible debenture. The terms of the 6.25 million warrants were amended in April, 2020, and the exercise price of the warrants was changed to 17 cents per common share;
June 2, 2020: raised $2.1-million in gross proceeds through a prospectus offering, issuing 11,351,351 units at a price of 18.5 cents per unit. Each unit consisted of one common share and one common share purchase warrant.
Other corporate updates
Richmond, B.C., first full quarter of commercial production
Emerald's B.C. 78,000-square-foot organic-certified cannabis greenhouse is growing between three to six distinct, premium quality, high-potency strains of dried flower at one time and will continue to select strains based on their unique attributes and potential consumer appeal, as well as their suitability for the growing environment. Its debut product, Chemdog, has seen early positive receptivity in the marketplace.
Verdelite in full production and gearing up for launch of first branded product line
Verdelite continued to optimize its cultivation and processing operations after expanding its production at its 88,000-square-foot indoor facility. Verdelite has completed multiple harvests using its 21 highly controlled grow rooms. Verdelite is working to establish a strong identity in Quebec, with unique strains appealing to consumers seeking premium craft cannabis for adult-use.
Avalite letter of intent
In March, 2020, Emerald announced that it had signed a letter of intent under which Sigma Analytical Services Inc., a full-service good-manufacturing-practice-compliant testing laboratory for cannabis, hemp and derived products, may acquire Emerald's Avalite analytical testing operation. The companies also intend to establish a preferred partner relationship. The due diligence process has been delayed due to COVID-19 but the parties continue to work toward closing the transaction in Q3 2020.
Emerald Health Therapeutics will host a conference call on Friday, June 19, 2020, at 10:30 a.m. ET.
To access the audio broadcast, please dial 866-652-5200, or access via the Internet.
An archived version of the presentation will be available for 90 days on the investors section of Emerald's website.
About Emerald Health Therapeutics Inc.
Emerald Health Therapeutics is committed to creating new consumer experiences with distinct recreational, medical and wellness-oriented cannabis and non-cannabis products, with an emphasis on life science-based innovation and production excellence. Emerald's three distinct operating assets are designed to uniquely serve the Canadian marketplace and international opportunities.
We seek Safe Harbor.
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