Cannara Biotech Inc. (TSXV: LOVE) (OTCQB: LOVFF) posted positive third-quarter results – showing the resilience of the Québec mega-producer amid waning profits for many throughout the sector. The company announced its third-quarter financial and operating results for the three and nine-month periods ending May 31, 2022.
For the key metric of quarterly revenue, Cannara saw a 36% gain of $10.1 million – a record high – since the previous quarter, and 41% increase since this time last year at $24.1 million in year-to-date revenue. The company also delivered a positive net income of $1.4 million for the quarter.
CEO Zohar Krivorot said, “We continue to be ahead of schedule on all of our stated objectives for this year while at the same time delivering record revenue, our fifth positive quarter of Adjusted EBITDA, and positive net income.”
The company also posted its fifth consecutive quarter of positive adjusted EBITDA of $1.8M with a net income of $1.4 million, up from an adjusted EBITDA of $34,000 in the previous quarter. The gains represent $2.8 million for the first nine months of 2022 compared to $139,000 of adjusted EBITDA for the first nine months of 2021, “all while continuing to support over $700,000 in one-time startup expenses for the Valleyfield Facility,” the release said.
Approximately 4,800 kg of cannabis or 1,286,000 units were sold across three flagship brands during the nine-month period of 2022, an increase of over 1 million units sold compared to the same period last year. The company also invested $4.9 million in capital expenditures during the quarter and over $12 million during the nine-month period, the bulk of the capital expenditures related to the finalization of the construction of the Valleyfield facility. Cannara has $13 million in working capital as of May 31, 2022.
“We are also pleased to report to shareholders that our new state-of-the-art Valleyfield Facility, as of today, is producing six out of its twenty-four growing zones, each containing 9,600 plants,” said Krivorot. “We have multiple successful harvests delivered from our new facility, which provides us confidence in our ability to continue our expansion and to grow consistent premium-grade cannabis at scale.”
Benefits of Banking Access
Cannara said in December that it planned to optimize additional debt financing from CIBC to finalize the redesign of several zones at the Valleyfield Facility as a way to replicate the indoor cultivation environment, including growing without utilizing the sun and launching the operations at the site – all while leveraging Québec’s low electricity costs.
Following the report, the company intends to fashion its long-term goals with the help of a $50 million credit facility secured by BMO Commercial Banking. The credit facility includes a three-year term loan for $39.3 million with an accordion for up to an additional $10 million, a $5 million line of credit, and $5.7 million for the issuance of a letter of credit. Funding was received after the quarter-end in May.
In June, Cannara used part of the $39.3 million from that term loan to repay the existing $21.8 million loan with CIBC and $5.7 million for the issuance of a letter of credit to cover certain deposit requirements. The company also granted a total of 600,000 stock options to employees and 613,333 stock options to consultants at an exercise price of $0.18.
“The credit facility provides the company with the necessary liquidity to continue to execute on our expansion plans,” said CFO Nicholas Sosiak. “These additional resources will assist Cannara to increase its cannabis supply through capital investment at the Valleyfield Facility with a continued focus on providing consumers with premium products at sustainable, market-disrupting high value propositions.”
Sosiak said the strategy helps the company increase market share while simultaneously entering new provinces.
“Given that Cannara only operates today in 2 major Canadian markets,” he said, “I am really excited for the Company’s long-term picture as we have plenty of room for growth.”
Cannara is a vertically integrated producer of premium-grade cannabis and derivative products with two mega facilities based in Quebec spanning over 1,650,000 sq. ft., today. The company now has six of its 24 growing zones in full production, representing 150,000 square feet of canopy holding over 55,000 plants that can be harvested four times per year.