Sunniva Reports Big Revenue, Big Expenses

Canadian-based cannabis company Sunniva Inc.  (SNNVF),  released its financial results for the fourth quarter and the year ending December 31, 2017. For fiscal 2017, the company delivered $16.1 million in revenue mostly generated from its two acquisitions during the period, Natural Health Services (NHS) and Full Scale Distributors (FSD), which contributed C$11.3 million and C$4.8 million in revenue, respectively.

Still, Sunniva reported a net loss for the year of C$18.5 million as compared to C$6.9 million for 2016. The losses stemmed from C$14.3 million in selling, general and administrative expenses and then the company also incurred costs of goods sold of C$9.4 million due to the contract physician compensation in NHS and product manufacturing costs in FSD.

Fourth Quarter

In the fourth quarter, Sunniva delivered C$5.9 million in revenue compared to zero revenue for the same time period last year. Revenue came from NHS and FSD, which contributed C$3.9 million and $2.0 million in revenue respectively. Net income for the fourth quarter was C$0.2 million as compared to a net loss of C$1.4 million during the fourth quarter of fiscal 2016.

In the fourth quarter, Sunniva booked C$5.2 million in selling, general and administrative expenses and incurred costs of goods sold of C$3.4 million. During the fourth quarter Sunniva said in a statement that it realized a non-cash recovery of C$2.4 million resulting from a fair value decrease in its convertible promissory notes and warrant liability; a recovery of C$1.4 million resulting from the finalization of the NHS purchase price allocation and the resulting impact on amortization of the intangible software assets; and share-based compensation expense of C$0.7 million.

Management Comments

“2017 was a transformative year for Sunniva establishing the necessary infrastructure to become one of the largest vertically integrated cannabis companies operating in the world’s two largest cannabis markets – Canada and California. It has taken us many years to navigate strict federal and state legislative frameworks in California and the recent US presidential support of the legislative rights of individual states affirms our vision of becoming the leading provider of clean, medical grade cannabis within the Golden State,” said Tony Holler, CEO of Sunniva.

“Our vision is to become one of the lowest cost, highest quality cannabis producers in these markets by building large-scale purpose-built current good manufacturing practices designed greenhouses and establishing sophisticated distribution channels, including our ownership of Natural Health Services cannabis clinics in Canada which has surpassed 95,000 active patients as of today, to purchase the significant quantities of high quality Sunniva branded and Sunniva private label cannabis products. Our focus moving forward is to execute and de-risk our business model by forward selling a large portion of our production in both markets, supplementing the previously announced 90,000 KG take or pay contract with Canopy Growth in Canada, with an emphasis on creating long-term shareholder value.”

So Far In 2018

In February, Sunniva and Canopy Growth Corporation entered into a take or pay supply agreement. Canopy Growth will purchase up to 45,000 kilograms of dried cannabis annually and Sunniva will share in the revenues as the product is sold through Canopy Growth’s distribution network including its online marketplace, Tweed Main Street.

The company repaid the FSD note in cash of $2.8 million (US$2.2 million), plus accrued interest, and the remaining portion through the issuance of common shares at the conversion price of US$2.55 per share. In April, Sunniva announced that its US subsidiaries received all the necessary State of California temporary licenses for phase one and two for its purpose-built state-of-the-art greenhouse cultivation facilities in Cathedral City, California.

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