C21 Investments Inc. (CSE: CXXI)(OTCQB: CXXIF) delivered unaudited financial results for the third quarter of fiscal 2020 ending October 31, 2019 with revenue of $10.58 million, a sequential increase of 7.5% over the second quarter and a big jump over last year’s $305,011 for the same time period. The net loss for C21 was $5.1 million for the third quarter.
“We delivered impressive third-quarter results reflective of the significant progress we made toward our strategic objectives. We rationalized our operations, achieved improved efficiencies, and have sharpened our focus on leveraging the strong brand awareness of our product portfolio. The positive changes we are making better position C21 for success over the long-term,” said Sonny Newman, President, and CEO, C21 Investments.
The company has seen success in its Nevada operations, while Oregon has had to restructure. Oregon reported a net loss of $6.5 million, while Nevada delivered a net profit of $5.6 million.
The company reported 172,694 customer transactions in the third quarter at Silver State Relief dispensaries, an 8% increase over Q2, and a 24% increase from Q1. Year-to-date customer transactions now exceed 580,000. C21’s Q3 market share now represents 5% of the total State of Nevada cannabis sales.
C21 said that it continues to leverage the vertical integration of its businesses by bringing our strong Oregon brands online in Nevada, which now include Phantom Farms CBD line of products, pre-rolls, with Phantom flower awaiting state approval of packaging.
C21 Investments undertook an appraisal of the Oregon leaseholds and real estate assets, which resulted in a write-down of $4.2 million in the quarter. This one-time charge reduced the quarter’s earnings per share by 5 cents to ($0.06).
“Strategically we set a course to become an efficient and profitable business with strong fundamentals. This has resulted in significant growth in adjusted EBITDA and operating cash flow results for the quarter, positioning the company to become profitable in the near term,” said Michael Kidd, Chief Financial Officer, C21 Investments.
The company noted it is involved in two different lawsuits.
A complaint was filed in the Oregon State Circuit Court for Clackamas County, on April 29, 2019, by two
current owners of Proudest Monkey Holdings, LLC (the former sole member of EFF), alleging
contract, employment, and statutory claims with an amount in controversy of $1,837,500 against the
Company, its wholly-owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and
Phantom Brands LLC, in addition to three directors, two officers, and one former employee. The Company
and the other defendants wholly deny the allegations and claims made in the lawsuit and is defending and may
counterclaim through the lawsuit. As a procedural update, the Company has filed an Oregon Rule of Civil
Procedure (ORCP) 21 motion to dismiss all of the Plaintiffs’ claims against it, its wholly-owned subsidiaries,
and other defendants; the Rule 21 motions are pending before the court. Further, the Company’s recent
internal investigation, findings and self-reporting of actions and alleged malfeasance by the Plaintiffs at the
EFF facility (discussed more fully below under Oregon Compliance) should serve to bolster the Company’s
defense and potential counterclaims in the litigation. Given that this legal proceeding is in a premature stage
and the Company wholly denies the claims, no provision was recorded
On or about May 30, 2019, Wallace Hill filed a civil claim in the Supreme Court of British Columbia alleging
breach of contract and entitlement to 1,800,000 common shares of the Company, fully vested by March 1,
2019, and damages due to the lost opportunity to sell those shares after such date for a profit. On June 23,
2019, the Company circulated a letter to Wallace Hill terminating the agreement and accepting Wallace Hill’s
repudiation of the agreement based on Wallace Hill’s previously published defamatory comments and
termination of the agreement. Also, on June 23, 2019, the Company filed its response to the civil claim
denying all claims and filed counterclaims alleging breach of contract, a declaratory judgment of termination
of the agreement, defamation and an injunction from further defamatory comments. The civil action is
pending, and it is too early to predict its resolution.