Auxly Cannabis Group Inc. (TSX: XLY) (OTCQX: CBWTF) released its financial results for the three months ending June 30, 2022. Total net revenues from the sale of adult-use cannabis in Canada were $27.3 million for the quarter, a 31% increase from the same period last year. The net losses for Auxly in the quarter almost doubled from last year’s $8.6 million to this year’s $14.2 million.
Revenue in the second quarter of 2022 was approximately 40% in sales of dried flower and pre-roll Cannabis Products, with the remainder from oils and Cannabis 2.0 Product sales. Net revenues improved from the company’s expansion of its Cannabis 1.0 Products and continued leadership in Cannabis 2.0 Products. Auxly reminded investors that it does not participate in the Quebec market, approximately 85% of cannabis sales during the second quarter of 2022 originated from sales to British Columbia, Alberta, and Ontario.
“We continued to make meaningful progress towards our strategic objectives during Q2,” said CEO Hugo Alves. “With an increasingly competitive market, we have been able to maintain our position as the #1 LP in cannabis 2.0 sales, driven by our leadership position in the vapor category where we ended the first half of the year as the #1 LP in the category with over 17% share of market. We successfully increased revenues and gross profits during the quarter while maintaining our SG&A spending largely flat. We have also strengthened our balance through the sale of non-core assets for total proceeds of $10.1 million to date, which will support our continued growth. We remained focused on our consumers and their evolving needs and preferences by launching 27 new SKUs during the first half of the year and will continue to prioritize investments in innovations in key growth categories. Finally, as we enter the second half of 2022, we will continue to focus on cost control and margin enhancement through continuous process improvements and investments in automation to further support our key objective of Adjusted EBITDA profitability in 2022.”
In July, Green Market Report reported that the Cantor Fitzgerald analyst lowered his 12-month price target on Auxly to C$0.08 from C$0.20 on reduced estimates and a lower multiple used. The stock was last trading at $0.06 or C$0.075. Zuanic wrote, “The heavy debt load and likely equity-holder further dilution, combined with worsening scanner trends prompt us to downgrade our rating to Neutral. We do see much improvement on cash burn. Based on our math, Auxly has the highest debt-to-sales ratio among LPs. This includes convertible debt held by Imperial Brands (IMB.LN/NC) due Sep 2024; but with a conversion price of $0.81, we think terms will be renegotiated.”
The company noted that interest expenses were $5.3 million and $10.4 million for the three and six months ending June 30, 2022, an increase of $0.5 million and $1.0 million over the same periods in 2021 primarily as a result of the inclusion of Auxly Leamington. Interest expense included accretion on the convertible debentures and interest paid in kind on the $123 million Imperial Brands Debenture. Interest payable in cash was approximately $1.6 million for the current quarter.
Auxly said it remains committed to building on its success as a Canadian market leader in 2022. The Company’s high-level objectives for 2022 are to improve revenue and gross profit margin to achieve a positive Adjusted EBITDA. The company said that during the second quarter it made positive progress toward its strategic objectives. “Despite operating in a challenging macroeconomic environment, the Company increased revenues and gross profits during the quarter. Coupled with largely flat SG&A spending, Auxly improved its Adjusted EBITDA by approximately 34% since the fourth quarter of 2021, bringing it closer to its objective of Adjusted EBITDA profitability in 2022.”