Adam JacksonNova Cannabis Inc. (TSX: NOVC) posted impressive growth in its fiscal 2022, driven by record sales, more stores, and key partnerships. The Canadian cannabis retail company posted its financial and operating results for the fourth quarter and full-year 2022 ending Dec. 31, 2022.
Nova achieved a record revenue of C$61.4 million during the fourth quarter, a 28.9% rise versus the same period in 2021 and a 4.2% increase sequentially.
CEO Marcie Kiziak said in a statement the company’s revenue growth has been supported by meatier profit margins as the company adjusts pricing in less competitive areas.
The successful launch of private label products with SNDL and growth in data analytics licensing will contribute to future profit margin growth and market share capture, she noted.
Nova’s gross margin for the fourth quarter was C$12.8 million, or 20.8% of revenue, which is a significant rise year-over-year and sequentially.
The company showed a promising upward trend by reducing its net loss. It posted a loss of C$4.8 million in the fourth quarter versus a loss of C$5.1 million sequentially. Adjusted EBITDA during the quarter was $3.2 million, up near $1 million versus $2.5 million in the previous quarter.
The company has been rapidly expanding its retail presence, with 91 stores operating as of Tuesday. The growth is evident with the addition of seven stores since Sept. 30, 2022, and 17 stores since the start of 2022. Nova held a market share of 26.4% in Alberta and 7% in Ontario during the fourth quarter, and sequentially, same store sales have risen 2.7% and 1.8%, respectively.
In November 2022, the company introduced four private label products under the Value Buds brand in Alberta, providing customers with more affordable options. These products have been successful, with private label sales accounting for approximately 2.6% of Alberta retail sales in the fourth quarter.
For the entire fiscal 2022, Nova reported a revenue of C$226.4 million, which is a 68.5% rise from 2021. The company’s gross margin was C$43.9 million, or 19.4% of sales, a 76.2% rise from C$24.9 million, or 18.5% of sales, in 2021. The net loss for the year was C$11.2 million, an improvement versus a loss of C$20.6 million in 2021.
Overall, Nova has placed its bets on a model of affordable price points in order to draw customers from illicit markets and ensure momentum in the legal industry. The approach is built on the quality of store locations and the appeal of the Value Buds brand.
In collaboration with SNDL, Nova launched its private label strategy in Alberta in November 2022. The partnership allows the company to develop higher-margin offerings, build customer loyalty, and create long-term brand awareness.
By December, SNDL and Nova Cannabis renegotiated the partnership to stay more competitive in a struggling Canadian cannabis landscape.
Under the new accord, SNDL will provide Nova retail support, corporate services, and debt restructuring. Nova received a C$15 million revolving credit facility and an immediate C$5.5 million in liquidity after SNDL returned 14.3 million Nova shares to reduce ownership below 20%. In exchange, SNDL receives intellectual property rights and licensing for Nova’s retail banners.
Additionally, the private label strategy targets key segments, specifically large-format products curated for Value Buds consumers, to drive meaningful differentiation through its retail network.
Still, Nova continues to pursue aggressive pricing strategies to capture more market share. The company has started adjusting prices across all categories in Alberta to test elasticity and understand consumer buying trends, which contributed to the gross margin improvement in the fourth quarter versus the third quarter.
In 2023, Nova has opened or acquired an additional three stores – one in Alberta and two in Ontario. Additionally, the company plans to acquire 26 more stores located in Alberta, Saskatchewan, and Ontario from SNDL’s retail network, pending the completion of its strategic partnership. The acquisition will raise the company’s store footprint by over 28%, it said.
