Mr. Riaz Bandali reports
EMERALD HEALTH THERAPEUTICS REPORTS THIRD QUARTER 2020 FINANCIAL RESULTS AND PROVIDES CORPORATE UPDATE
Emerald Health Therapeutics Inc. has released its financial results for the three and nine months ended Sept. 30, 2020. Full versions of Emerald's unaudited condensed interim consolidated financial statements and management discussion and analysis can be found on SEDAR.
"The pivotal recent event for Emerald has been the completion of our divestment of our ownership interest in Pure Sunfarms. We received $60-million in cash, a $19.9-million promissory note payable in six months, and approximately $1-million in debt forgiveness. This transformative transaction has given us a strong balance sheet and positions us to further enhance our existing assets and capabilities, as well as to pursue new strategic opportunities that can accelerate growth and value creation," said Riaz Bandali, president and chief executive officer of Emerald. "Our focus is on employing science-based innovation to build differentiated product lines that offer unique consumer experiences. We have already been moving along this path, with multiple new product launches in the third quarter including flavoured oils and, notably, our Fast Action Spray based on a unique nanoemulsion technology, and we look forward to developing more momentum in this direction.
"The third quarter of 2020 was only our second full quarter of production and sales of dried cannabis cultivated in Emerald facilities and it marked a very positive step forward with sequential quarterly gross sales growth of 39 per cent. While we are still incurring an operating loss, our net burn at this juncture is modest and manageable. With both of our growing operations just hitting full-scale production, we continue to optimize our systems and improve our processes with the goal to enhance production consistency and move gross margins towards our intended target levels.
"Combining a renewed strategy and strong balance sheet with the significant cost rationalization we implemented in the past year and ongoing operational refinements, we are well positioned and can now look forward to investing further internally in new product development, with multiple product launches planned over the next months and quarters, as well as to potentially secure external products, intellectual property, or even companies to help us drive toward growth and profitability."
Emerald Q3 2020 financials (compared with Q3 2019 and Q2 2020)
- All-in average year-to-date growing cost of $1.38 (including depreciation; excluding trim) per gram from Emerald's two facilities in St. Eustache, Que., and in Richmond, B.C. Cash growing cost of 98 cents (excluding depreciation) per gram. The two Emerald facilities harvested over 2,400 kilograms of cannabis flower and trim during the quarter.
- Net sales of $3.4-million decreased 64 per cent compared with $9.3-million in Q3 2019 and increased 36 per cent from $2.5-million in Q2 2020. Emerald was able to increase sales in Q3 2020 in comparison with Q2 2020 as a result of both the Souvenir launch and SYNC's continued growth despite market conditions and pricing pressure of oil products in the retail sector as new competition emerged. The decrease as compared with Q3 2019 sales relates largely to wholesale revenues recognized in the comparable period of $5.3-million.
- Total SG&A expense of $4.4-million, which includes $1.1-million of non-cash expenses, decreased $5.8-million from $10.1-million in Q3 2019 and increased $900,000 from $3.5-million in Q3 2020. The increase compared with Q2 2020 largely related to professional fees associated with the sale of Pure Sunfarms Corp., and Verdelite Sciences Inc. and Verdelite Property Holdings Inc., respectively.
- Net loss of $11.70-million includes a $2.3-million loss on changes in the fair value of biological assets and $1.8-million inventory writedown.
- Operating loss of $9.9-million decreased 33 per cent from $14.7-million in Q3 2019 and increased $7.4-million from $2.5-million in Q2 2020.
- EBITDA of negative $3.9-million in Q3 2020 reflects a $2.8-million improvement from negative $6.7-million EBITDA in Q3 2019 and $2.7-million decrease compared with Q2 2020. The EBITDA figure does not include any share of EBITDA from the Pure Sunfarms joint venture and only reflects Emerald's operating results.
- Net cash flow used in operating and investing activities of $600,000 in Q3 2020 decreased by $20.5-million from $21.1-million used in Q3 2019 and decreased $1.8-million from $2.4-million used in Q2 2020.
Key initiatives and accomplishments
- Increased recreational dried flower sales by 58 per cent and volume (kilograms) by 57 per cent from Q2 2020. Revenue growth benefited from growing sales of Emerald-grown, Emerald-branded flower outside of Quebec and after a successful late-June launch of the new Souvenir brand in Quebec. Initial shipments of Emerald-grown products to Alberta, Manitoba, Saskatchewan, and Newfoundland and Labrador were made in April and May, and to Ontario in the last week of Q2 2020. Emerald made its first product shipments from its Richmond greenhouse to British Columbia in late Q1 2020.
- Entered into a share purchase agreement with its joint venture partner in respect of the sale of Emerald's interest in its joint venture, Pure Sunfarms.
- Successfully launched new Fast Action SYNC products into Ontario, Saskatchewan and Alberta.
Financials results and capital resources
Selected quarterly financial information
The following table summarizes selected quarterly financial information for Emerald, which was derived from the audited annual financial statements prepared in accordance with IFRS 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.
Q3 2020 KEY FINANCIAL AND OPERATIONAL METRICS
(Thousands of Canadian dollars) Q3 2020 Q2 2020
Gross revenue $4,311 $3,106
Net revenue (net of excise duty) 3,373 2,481
Cannabis gross revenue
Dry cannabis 3,595 2,281
Cannabis oils 695 808
Other 21 17
Gross margin (net of fair value adjustment) (1,331) 142
Total SG&A (net of share-based payments) 3,368 2,353
Total R&D expenses 267 275
Net (loss)* (11,658) (18,943)
EBITDA** (3,845) (1,176)
Adjusted EBITDA* (1,439) (87)
Cash and cash equivalents 418 1,073
Net working capital 53,045 (6,721)
Average selling price (net of excise duty)
Recreational $3.54 $3.59
Medical $7.06 $8.83
Pure Sunfarms financial results
Gross revenue $28,762 $19,307
Gross margin (net of fair value adjustment) 7,801 4,308
Total SG&A 3,261 2,574
Net income (loss) (710) (158)
Adjusted EBITDA*** 5,830 2,639
*Share of the net income from Pure Sunfarms adjusted for
transactions with Emerald and for fair value changes, and adjusted
EBITDA from Pure Sunfarms are reflected in Emerald net loss and
adjusted EBITDA respectively Emerald adjusted EBITDA is calculated
by subtracting interest income, gain on changes in fair value of
biological assets, share of income from joint venture and deferred
income tax recovery, and adding back depreciation, share-based
payments, other expenses, loss from fair value changes in financial
assets, inventories written down due to fair value changes,
non-recurring items, and share of Pure Sunfarms adjusted EBITDA from
Emerald net loss and comprehensive loss.
**EBITDA is calculated by subtracting the share of Pure Sunfarms
adjusted EBITDA from adjusted EBITDA.
***Pure Sunfarms adjusted EBITDA is calculated by adding back Pure
Sunfarms' change in fair value of biological asset, non operating
expenses and gains, amortization expense and provision for income
tax to net income.
Emerald's unaudited condensed interim consolidated financial statements and management discussion and analysis for the three and nine months ended Sept. 30, 2020, together with other information related to Emerald, including Emerald's most recent annual information form, can be found on SEDAR. Additional information related to Emerald is available on its website.
Financing and capital resources
In Q3 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.
- Aug. 13, 2020: established an at-the-market offering (ATM) to issue shares from treasury for up to $3.25-million to the public, from time to time, at the discretion of Emerald. To date, Emerald has received gross proceeds of approximately $500,000 from shares via the ATM. The ATM is effective until the earlier of April 13, 2021, or completion of the sale of the maximum amount of shares thereunder.
- Sept. 16, 2020: issued 3,571,428 shares in the settlement of accrued interest related to the outstanding convertible debentures to June 30, 2020, at a deemed value of 17.5 cents per share.
- Nov. 2, 2020: completed the sale of Emerald's 41.3-per-cent interest in Pure Sunfarms, for $60-million in cash paid upon closing and a secured promissory note in the amount of $19.9-million maturing in six months and bearing interest at a rate of 12-per-cent per year. Approximately $1-million of existing debt was also forgiven.
- Nov. 24, 2020: repaid $25-million convertible debenture originally due to mature on Sept. 9, 2021, and paid $600,000 in accrued interest and a consent fee.
Other corporate updates
Sale of Verdelite Sciences and Verdelite Holdings
The purchase of Verdelite Sciences Inc. and Verdelite Property Holdings Inc. by Quinto Resources Inc., as originally announced on July 30, 2020, has not been completed. Quinto has not yet met the closing conditions of the agreement, which were to have been completed on or before Aug. 31, 2020. As per the terms of the agreement, Emerald has the right to terminate the agreement at its discretion but has not yet done so.
New product launches
On Aug. 31, 2020, Emerald announced the launch of its SYNC Nano Fast Action Spray in the adult-recreational market. These products are based on nanoemulsion technology which may provide rapid onset and shorter duration of effects to provide consumers with greater predictability and control of their cannabis experience. Alberta, Saskatchewan and Ontario have received initial shipments of SYNC 15 Nano THC fast action spray and SYNC 15 Nano CBD fast action spray has been shipped in British Columbia and Saskatchewan. Additionally, Emerald successfully launched its SYNCMED Nano CBD fast action spray into the medical market in July.
The company has expanded the flavour choices of its SYNC oil products from citrus and lemon to also include mint chocolate and mango, and the company continues to consider ways to further enhance the taste profile of these products to provide the widest level of consumer appeal.
Emerald has additional new product concepts going through its final commercialization steps toward its planned launch over the next months.
On Sept. 10, 2020, it was announced that Emerald's partner, STENOCARE A/S, had received special approval from the Swedish Medicines Agency to provide medical cannabis oil to Swedish patients who applied via their doctor to use such products for treatment purposes. STENOCARE, located in Denmark, is a leading supplier of prescription-based medical cannabis products for patient treatment. Under an agreement signed in November, 2019, Emerald will supply STENOCARE with its medical cannabis products for Denmark and other markets such as Sweden. The parties are processing the required information to commence import and distribution in Sweden. It is expected that the products will be available for patients during 2020 pending international import and export certificates.
Emerald will host a conference call on Tuesday, Dec. 1, 2020, at 10:30 a.m. ET.
To access the audio broadcast, please dial 866-652-5200, or 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 is committed to creating new consumer experiences with distinct recreational, medical and wellness-oriented cannabis products, with an emphasis on science-based innovation and product excellence.
We seek Safe Harbor.
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