Adam JacksonAugust 1, 2023
Zuanic predicted continued growth in Canadian market despite seasonal variances.
Auxly Cannabis Archives - Green Market Report
Adam JacksonAugust 1, 2023
StaffJuly 27, 2023
The Daily Hit is a recap of the top financial news stories for July 27, 2023.
On the Site
Mastercard Fallout Means More Pain for Cannabis Industry
When financial titan Mastercard Inc. (NYSE: MA) cut ties with a swath of payment processors that had been aiding marijuana retailers across the country, the news sent shivers down the collective spine of the cannabis industry. Analysts predicted the move would only increase the likelihood of all-cash transactions, thus heightening the chances of more violent robberies. Read more here.
Tilray Leverages CPG Expertise to Build Beyond Cannabis
Against the backdrop of a tumbling sector, Tilray’s fourth-quarter and full-year financial results for 2023 were dynamite. The company reported better-than-expected top-line results across all segments. The adult-use cannabis segment recorded its best revenue generation in nearly eight quarters despite the challenges of price deflation. Read more here.
Michigan Cannabis Companies Wanted a Crackdown on Unlicensed Cannabis – They Got It, and Then Some
After years of little to no enforcement under former Michigan Cannabis Regulatory Agency Executive Director Andrew Brisbo, operators demanded a change. They wanted regulators to root out the illicit market marijuana entering the legal space and cratering prices and to also punish those involved in the schemes. The industry is now crying foul and is urging the agency to slow down fines and apply them more evenly under sustained pricing pressure. Read more here.
Imperial Brands to Retain Cannabis Investment as Auxly Extends Debenture Maturity
Auxly Cannabis Group Inc. (TSX: XLY) (OTCQX: CBWTF) has announced a two-year extension to the maturity date of a $123 million debenture held by its partner, Imperial Brands PLC. The loan, originally due in September 2024, will now mature in September 2026. Read more here.
Cannara Biotech Delivers Solid Quarter as Company Grows
Cannara Biotech Inc. (TSXV: LOVE) (OTCQB: LOVFF) announced its fiscal third quarter 2023 financial and operating results for the third quarter ending May 31, 2023. Cannara Biotech reported revenue of $15.8 million versus last year’s $9.9 million for the same time period. The company also reported net income of $2.9 million versus last year’s net income of $1.4 million in the same time period. Read more here.
In Other News
Tantalus Labs
A B.C. Supreme Court judge has approved the bulk sale of more than 1.2 tonnes of cannabis by a company after the Canada Revenue Agency threatened to destroy it. In a ruling released online this week, the court allowed Tantalus Labs Ltd. to move ahead with a hasty sale of its remaining inventory of cannabis flower. The agency had earlier declined to renew the company’s excise tax license due to financial difficulties. Read more here.
Missouri
Regulators at the Missouri Department of Health and Senior Services have had trouble holding medical-marijuana businesses accountable for things that went against their rules. But when new cannabis regulations go into effect on Sunday, officials will have that power to hit marijuana facilities with fines, suspend their operations or even revoke their licenses if they host events where unlawful activity occurs. Read more here.
Adam JacksonJuly 27, 2023
Auxly also announced the resignation of CFO Brian Schmitt.
Adam JacksonMay 15, 2023
Looking ahead, the company said it will up its focus on key product formats, lower costs and increase efficiency.
Adam JacksonMarch 31, 2023Net losses totaled more than $130 million.
Adam JacksonNovember 14, 2022Sales for the quarter also were affected by Hurricane Fiona and a labor strike.
Debra BorchardtAugust 15, 2022
Auxly Cannabis Group Inc. (TSX: XLY) (OTCQX: CBWTF) released its financial results for the three months ending June 30, 2022. Total net revenues from the sale of adult-use cannabis in Canada were $27.3 million for the quarter, a 31% increase from the same period last year. The net losses for Auxly in the quarter almost doubled from last year’s $8.6 million to this year’s $14.2 million.
Revenue in the second quarter of 2022 was approximately 40% in sales of dried flower and pre-roll Cannabis Products, with the remainder from oils and Cannabis 2.0 Product sales. Net revenues improved from the company’s expansion of its Cannabis 1.0 Products and continued leadership in Cannabis 2.0 Products. Auxly reminded investors that it does not participate in the Quebec market, approximately 85% of cannabis sales during the second quarter of 2022 originated from sales to British Columbia, Alberta, and Ontario.
“We continued to make meaningful progress towards our strategic objectives during Q2,” said CEO Hugo Alves. “With an increasingly competitive market, we have been able to maintain our position as the #1 LP in cannabis 2.0 sales, driven by our leadership position in the vapor category where we ended the first half of the year as the #1 LP in the category with over 17% share of market. We successfully increased revenues and gross profits during the quarter while maintaining our SG&A spending largely flat. We have also strengthened our balance through the sale of non-core assets for total proceeds of $10.1 million to date, which will support our continued growth. We remained focused on our consumers and their evolving needs and preferences by launching 27 new SKUs during the first half of the year and will continue to prioritize investments in innovations in key growth categories. Finally, as we enter the second half of 2022, we will continue to focus on cost control and margin enhancement through continuous process improvements and investments in automation to further support our key objective of Adjusted EBITDA profitability in 2022.”
In July, Green Market Report reported that the Cantor Fitzgerald analyst lowered his 12-month price target on Auxly to C$0.08 from C$0.20 on reduced estimates and a lower multiple used. The stock was last trading at $0.06 or C$0.075. Zuanic wrote, “The heavy debt load and likely equity-holder further dilution, combined with worsening scanner trends prompt us to downgrade our rating to Neutral. We do see much improvement on cash burn. Based on our math, Auxly has the highest debt-to-sales ratio among LPs. This includes convertible debt held by Imperial Brands (IMB.LN/NC) due Sep 2024; but with a conversion price of $0.81, we think terms will be renegotiated.”
The company noted that interest expenses were $5.3 million and $10.4 million for the three and six months ending June 30, 2022, an increase of $0.5 million and $1.0 million over the same periods in 2021 primarily as a result of the inclusion of Auxly Leamington. Interest expense included accretion on the convertible debentures and interest paid in kind on the $123 million Imperial Brands Debenture. Interest payable in cash was approximately $1.6 million for the current quarter.
Looking Ahead
Auxly said it remains committed to building on its success as a Canadian market leader in 2022. The Company’s high-level objectives for 2022 are to improve revenue and gross profit margin to achieve a positive Adjusted EBITDA. The company said that during the second quarter it made positive progress toward its strategic objectives. “Despite operating in a challenging macroeconomic environment, the Company increased revenues and gross profits during the quarter. Coupled with largely flat SG&A spending, Auxly improved its Adjusted EBITDA by approximately 34% since the fourth quarter of 2021, bringing it closer to its objective of Adjusted EBITDA profitability in 2022.”
Debra BorchardtJuly 25, 2022
Cantor Fitzgerald analyst Pablo Zuanic downgraded Fire & Flower (OTC: FFLWF) and Auxly Cannabis Group to Neutral from Overweight and cut his price targets for both. Challenges within the Canadian cannabis market were cited as the overarching reason.
Canadian Problems
Zuanic noted that the market seems to have hit a saturation point. He wrote in his report, “There are now over 3,300 stores in Canada (~1,600 in ON; 765 in AB, 435 in BC, 89 in QB). Store density in Canada (85 stores per 1mn people, with ON at 108) is above that in most states in the US, ex CO (129), OR (171), and OK (590).” He went on to write, “Price deflation in Canada (flower prices down 36% in the last two years), has not all been caused by competition among licensed producers (LPs), but also by some retailers cutting prices and pursuing a discount strategy. Thus, overall, we think this is a tough market climate for retailing.” At this point, Cantor only gives three cannabis companies an Overweight rating and those are Aurora (ACB), Organigram (OGI), and Village Farms (VFF).
Fire & Flower
Zuanic dropped his rating on Fire & Flower to Neutral from Overweight and lowered his 12-month price target to C$2.60 from C$9.50 (last published 4/26/22) on reduced estimates and increased operational risks. It was last trading at $1.65 or C$2.11. He wrote, “Our recent surveys show that Fire & Flower stores (factoring-in its Spark membership offers) are now pricing in line with High Tide’s stores (NASDAQ: HITI), below Nova Cannabis, and well-below the OCS online store. While we believe this makes sense, we think competitive dynamics have forced Fire & Flower to take more draconian measures on the pricing front than management may have initially envisaged. The transition (likely increased sales but lower margins) generates uncertainty and makes us wonder about the company’s ability to make meaningful improvements to cash burn; we think this is also reflected by the company’s decision to delay its NASDAQ listing.”
Following the April quarter, the cantor analyst noted that sales fell 4% seq to $41 million, with retail store revenues dropping 7% sequentially and that same-store sales fell 26% year-over-year to $30 million. In addition to that, the store count fell to 101 stores at the end of April from 105 at the end of January. He also pointed out that tech revenues were down 28% to $3 million, and wholesale and delivery was up (but on lower margins).
That said, we appreciate Fire & Flower’s asset-light strategy, prudent brick & mortar growth plans, its inroads in tech services and delivery, and the strategic benefits of the partnership with Circle-K (ATD.TO/NC). However, given heightened competitive challenges and further potential shareholder dilution down the road, we now prefer to rate the stock Neutral.
Auxly Cannabis
The analyst lowered his 12-month price target on Auxly to C$0.08 from C$0.20 on reduced estimates and a lower multiple used. The stock was last trading at $0.06 or C$0.075. Zuanic wrote, “The heavy debt load and likely equity-holder further dilution, combined with worsening scanner trends prompt us to downgrade our rating to Neutral. We do see much improvement on cash burn. Based on our math, Auxly has the highest debt-to-sales ratio among LPs. This includes convertible debt held by Imperial Brands (IMB.LN/NC) due Sep 2024; but with a conversion price of $0.81, we think terms will be renegotiated.”
The analyst also lowered his sales estimates based on the latest Hifyre data, which showed Auxly losing further market share in the vape and flower segments (vape is >40% of sales, and the company’s vape share is now 16% vs. 24% a year ago), and sales dropping at a faster pace at retail. He also pointed out that Auxly has been lowering prices, which is not a good sign for profitability. Having said that he believes Auxly could still be an attractive target (given 2.0 share, pre-rolls gains, and supposedly more-efficient flower cultivation), but the convertible debt held by Imperial Brands may deter interested parties.
StaffJune 23, 2022
The Daily Hit is a recap of the top cannabis business stories for June 23, 2022.
ON THE SITE
IGC Makes Progress on THC for Alzheimer’s
India Globalization Capital, Inc. (IGC) (NYSE: IGC) announces its financial results for the fiscal year ending March 31, 2022. IGC reported that its revenue was approximately $397 thousand and $898 thousand for Fiscal 2022 and Fiscal 2021, respectively. The net loss for Fiscal 2022 for IGC was approximately $15 million or $0.30 per share, compared to approximately $8.8 million or $0.21 per share for Fiscal 2021. Adjusting for approximately $5.3 million in one-time and non-cash expenses, the net loss is approximately $9.7 million in Fiscal 2022. Read more here.
Selling the Psuedo-Psychedelic Sizzle
Say you want a quick microdose of an uplifting substance this morning and decide to turn to one of a handful of companies promising a “magic” experience with their mushroom concoctions—such as Mudwtr. A little psilocybin buzz should do the trick, right? Oops… better look closer. Read more here.
Executive Spotlight: Dave Choulpek
Juva Life (OTC: JUVAF) is a life sciences research company with an immense background in cannabis, allowing the company to cultivate and to derive small molecule compounds that target inflammation in the human body. Currently Juva Life is working with Juva-019 and Juva-041, which are non-cannabinoid molecules found to be naturally occurring in the cannabis plant. Juva Life’s assets include one micro business, one cannabis cultivation facility and two cannabis delivery companies in California. Read more here.
IN OTHER NEWS
Khiron Life Sciences Corp.
Khiron Life Sciences Corp. (TSXV: KHRN) (OTCQX: KHRNF) (Frankfurt: A2JMZC), a global medical cannabis company throughout Latin America and Europe, announced the results of its 2022 Annual General and Special Meeting of shareholders held on June 23, 2022. Read more here.
Auxly Cannabis Group Inc.
Auxly Cannabis Group Inc. (TSX: XLY), a consumer packaged goods company in the cannabis products market, announced that it has amended and restated the unsecured convertible debentures in the capital of the company issued under its standby facility with an institutional investor, which was previously announced on April 28, 2020. Read more here.
Nabis Cannabis, Teamsters Local 630
Drivers and fleet maintenance workers at Nabis Cannabis have voted overwhelmingly to ratify their first contract with Teamsters Local 630. It is the first collective bargaining agreement at the rapidly-growing cannabis distribution company. “I’m incredibly proud of the tenacity and courage that was demonstrated by this group of workers,” said Lou Villalvazo, Local 630 Secretary-Treasurer. “What they have done at this company can serve as a model for successful organizing and bargaining throughout the California cannabis industry moving forward.” Read more here.
Item 9 Labs Corp.
Item 9 Labs Corp. (OTCQX: INLB) — a vertically integrated cannabis dispensary franchisor and operator announced today that its new 20,000 square-foot, state-of-the-art cultivation and lab facility in Pahrump, N.V. is nearing completion and expected to be fully operational by end of 2022. Read more here.
CannTrust Holdings Inc.
CannTrust Holdings Inc. (unlisted), minority investor in Phoena Holdings Inc. (formerly CannTrust Equity Inc.) today announced that it is seeking an order from the Ontario Superior Court of Justice extending the time for the company to call the next annual meeting of its shareholders. The company also provided an update concerning its board of directors’ review of strategic alternatives. Read more here.
CryoMass Technologies Inc.
CryoMass Technologies Inc. (OTCQX: CRYM) announced that CryoMass begins trading today on OTCQX under the symbol “CRYM.” Christian Noël, CryoMass CEO, stated, “We are pleased to reach this important milestone, as OTCQX is the highest tier of the OTC markets. Of more than 12,000 securities traded on the OTC Markets, only 644 (as of May 31, 2022) have met the requirements for trading on the OTCQX® Best Market. The upgrade to the OTCQX will increase CryoMass’s accessibility to U.S. investors and will allow our shareholders to trade more effectively. This also reflects our continued commitment to responsible corporate governance.” Read more here.
Akanda Corp.
Concerned shareholders of Akanda Corp. have today replaced a majority of the board of directors of the Corporation, with highly-qualified and motivated directors. The concerned shareholders of the corporation collectively own or control 16,556,779 common shares of the corporation (representing approximately 54.1% of the issued and outstanding common shares of Akanda), and yesterday passed a written resolution of the shareholders of the corporation pursuant to the provisions of the Business Corporations Act (Ontario) removing each of Louisa Mojela, Philip van den Berg, Charles Kié, Gila Jones, Gugu Dingaan and Bridget Baker as directors of the Corporation effective immediately. Read more here.
Debra BorchardtMay 16, 2022Auxly Cannabis Group Inc. (TSX: XLY) (OTCQX: CBWTF) released its financial results for the three months ended March 31, 2022. Auxly reported net revenues rose 147% to $22.6 million versus $9.2 million during the same period in 2021. Revenues fell sequentially from the fourth quarter’s revenue of $29 million. Auxly admitted it had lower winter yields at Auxly Leamington and hardware and packaging shortages due to supply chain disruptions. The company said believes that those challenges are largely behind it, and is very encouraged by yield and overall product quality improvements that it has seen at Auxly Leamington, which it believes will better equip Auxly to meet the demand for its flower and pre-roll products.
Net losses rose to $39 million for the quarter versus last year’s net loss of $10 million for the same time period. The earnings per share were ($0.05) versus last year’s ($0.01).
Revenue in the first quarter of 2022 was approximately 61% in Cannabis 2.0 Product sales, with the remainder from Cannabis 1.0 Product sales. Auxly said that revenues improved as a result of its expansion into Cannabis 1.0 Products and continued leadership in Cannabis 2.0 Products. Consistent with prior periods, as the Company does not participate in the Quebec market, approximately 85% of cannabis sales during the first quarter of 2022originated from sales to British Columbia, Alberta and Ontario.
Hugo Alves, CEO of Auxly, said, “Amid intense and growing competition and seasonal buying trends in the Canadian cannabis market, Auxly continued to see strength in sales, increasing revenues 147% year-over-year. Though this quarter presented some ongoing supply chain and operational challenges preventing us from meeting consumer demands for our branded cannabis products, we believe we have taken the necessary steps to correct these issues for the coming quarters, allowing us to increase fill rates and continue with our exciting new product launches throughout the year. We continue to lead the market in cannabis 2.0 products and remain focused on building to leadership in dried flower and pre-rolls and improving our business to achieve our goal of reaching adjusted EBITDA profitability.”
Losses Increase
The company addressed the increase in losses saying that there was an impairment of long-term assets of $12.9 million and intangible assets and goodwill of $10.8 million respectively in the first quarter of 2022 related to the closure of the Auxly Annapolis and Auxly Annapolis OG facilities where the carrying value exceeds the fair value less cost to sell. Gains and losses on settlement of assets and liabilities and other expenses in the prior-year quarter were primarily associated with a gain on the settlement of a $5.8 million liability associated with a non-monetary product exchange with another licensed producer. The share of loss on investment in joint venture of $0.5 million represents the company’s proportionate share of Auxly Leamington’s earnings prior to its acquisition in November 2021, which results are presently consolidated into the Company’s financial statements.
Outlook
Auxly said it is confident in its second-quarter sales outlook and in its ability to achieve Adjusted EBITDA profitability in 2022. The company, however, provided no numbers for its sales expectations.
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