Entourage Health Revenue Dips On Production Issues

The Canadian company shared several strategic plans to ensure the decline is "temporary."

Entourage Health Corp. (OTCQX: ETRGF, TSXV: ENTG) second-quarter revenue sank, a result company management blames on a “temporary product shortfall of some of our prized cultivars,” according to CEO George Scorsis.

The Canadian producer and distributor released its financial report card for the second quarter ending June 30, 2022.

Entourage reported second quarter total revenue of $13.2 million, down 5% versus the same time last year. Net revenue, which excludes the excise tax, fell 9% to $9.7 million in the same period.

The company said that the decrease was driven by a decline in adult-use net revenue, “mainly due to the temporary unavailability of the company’s proprietary cultivars, which reduced the case fill rate for adult use products.”

This decline was slightly offset by growth in medical revenue of $800,000, or 24%, over the previous year.

“In the quarter, we undertook key upgrades to our greenhouse facility to bring more premium products to market over the coming months,” Scorsis said. “We also made significant strides to improve our capital structure, debt and liquidity position during the period.”

Entourage said in April that it beefed up its existing credit facility with LiUNA Pension Fund affiliate, adding $15 million in funding availability.

Scorsis said the company used an additional $8.9 million in June to repay the company’s unsecured convertible debentures which matured on June 30, 2022. The remaining funds will be used for general working purposes to drive further commercial growth, the company said.

Gross loss for the company declined 85% ($2.6 million) versus the prior year period.

Gross margin was 5% in the quarter versus 22% for the first quarter this year and 29.4% in the prior year. Entourage said that the changes were a result of higher costs to produce while cultivation remediation and operational upgrades were finalized in the period.

Selling, general and administrative expenses for the quarter was $7.8 million versus $6.7 million in the previous quarter and $10.4 million in the second quarter last year.

The company blamed the overall slump in part on decreased consulting fees, office & administrative expenses, salaries and benefits and research and development, partially offset by increase in selling marketing and promotional expenses and professional fees.

Entourage posted an adjusted EBITDA of -$2.4 million in the second quarter, a 27% gain versus -$3.3 million in the same period last year, “also primarily driven by strategic transformation initiatives mainly due to reduction in expenses due to operational efficiencies.”

The company has nearly $14.2 million in cash and cash equivalents, as well as around $38.4 million in working capital.

This month, Entourage also announced that it entered into an exclusive licensing agreement with U.S.-based nutraceuticals and herbal supplement formulator Irwin Naturals. Under the agreement, Entourage will produce and distribute Irwin Naturals Cannabis products in Canada.

The strategic partnership follows recent release of recommendations for easing access to over-the-counter CBD products in Canadian pharmacies.

“In Q2, we noted a 24% increase in sales revenue of our higher-margin medical products over the previous year, due in part to our customer-patient acquisition initiatives and digital marketing efforts – all while continuing to focus on operational improvements to reduce our long-term costs,” said newly minted CFO Vaani Maharaj.

“While our cultivation underwent a recalibration and remediation in the quarter as we upgraded our operations while transitioning into premium flower offerings, we fully expect to realize the full benefits of our transformation and continuous improvement initiatives as we implement further drivers to ensure disciplined cash and inventory management.”

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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