Cansortium Inc. (CSE: TIUM.U) (OTCQX: CNTMF) stock rose more than 8% in trading early Wednesday after the company posted a much-improved balance sheet despite Hurricane Ian affecting sales in Florida toward the end of the period.
The U.S.-based cannabis company, which operates under the Fluent brand with locations in Florida, Pennsylvania, and Texas, released its financial and operating results for the third quarter ending Sept. 30.
Revenue rose 42% to $22.1 million versus $15.6 million in the same time period last year. Net loss was $5.5 million versus a net income of $7.3 million last year’s third quarter.
“We continued to execute on our profitability objectives during the third quarter, leading to another period of gross margin expansion and a record bottom line with strong cash flow generation,” said CEO Robert Beasley.
The CEO added that the company would have generated its eleventh consecutive quarter of revenue growth, “had it not been for Hurricane Ian driving store closures in late September.”
“As we exit the year and look to 2023, we expect to continue opening new stores in Florida while driving organic growth in our three Pennsylvania dispensaries,” he said. “We also have plans to begin building out our footprint in Texas and look forward to growing our presence in the state in 2023.”
In a statement, the company said that its newest dispensary in Annville, Pennsylvania, is “ramping and achieved a record month of sales in October 2022.”
Adjusted gross profit rose 71% to $16.7 million, or 75.5% of revenue, versus $9.8 million or 62.7% of revenue last year.
Adjusted EBITDA shot up 140% to a record $11.7 million or 53.1% of revenue, versus $4.9 million or 31.3% of revenue in 2021’s third quarter.
The company has also been maintaining its sheet, with cash from operations rising to $5.4 million versus a negative cash burn of $4.2 million during the same time last year.
Cansortium had around $9.1 million of cash and cash equivalents and $69.4 million of total debt by the end of the third quarter, with around 252.3 million fully diluted shares outstanding.
Being cash flow positive “helps us now build our stores without the need for any type of capital raise or any kind of loan funds,” the CEO told investors on a call to discuss the latest earnings.
“Start low and go slow is kind of the industry model and I believe that’s the right answer for us as well. We already did the over-expansion in the over-horizontal-expansion game, and that was no fun,” he said. “Pulling back from that was a tremendous effort. So, let’s just grow in sequence and grow in balance. To grow in balance at that point (you don’t need more stores. You’ve got to feed more stores. So, you’ve got to go back to the other end of the stream.”
Cansortium plans on opening one new store in the Sunshine State by the end of 2022, in addition to three stores in the first half of 2023. All of these locations are currently under contract and going through construction, the company said.
Beasley noted that Hurricane Ian gave the chain some trouble during the quarter, too, as twelve of its dispensaries having to temporarily closed. While stores saw spiked sales ahead of closings and right after reopenings, the company said that all of the stores eventually reopened by the following month.
“It just goes to prove that clean water or drinking water, toilet paper, and cannabis are the three things that you need in front of a storm,” he said, “because the sales were tremendous.”
Florida also allows a crop loss purchase, which means if you have an approved loss of crop by the Department of Health, an operator can replace that crop through wholesale purchase.
“We expected it be completely flattened and it wasn’t,” Beasley said on Tuesday’s earnings call. “And so the DOH said to us, do a rough calculation of what your losses could be and you can go ahead and buy” wholesale from other operators in Florida.
“We had this extraordinary scenario where we had multiple competitors reach out and say, ‘Hey, if you need to buy from us, we will sell to you.’ And that’s unusual in Florida. We’re not wholesale oriented. And so the idea of selling to your competitors is just not something that is available here. For them to reach out, it was just a tremendous, generous move on their part.”
Florida revenue increased 39% to $18.2 million versus $13.1 million by the end of the same quarter last year.
While Cansortium said it continued to make progress on its strategy for shareholders, the company lowered its previously issued revenue projection for 2022. The company now expects revenue for 2022 to run between $85 million-$90 million, down from last quarter’s expectations of $90 million-$95 million. The company also expects to close the fiscal year with adjusted EBITDA surpassing its previously issued guidance of $25 million-$28 million.
“So and again, go back to our Q3 expectations. I was asked this at the end of Q2, which is — our Q2 was so great, why am I not adjusting guidance? It’s because we anticipated Q3 to be flat. We were hoping for it to be flat or slightly up. I think we would have been slightly up, but for a Hurricane no one could predict that,” Beasley told investors.
“But you got to remember, we’re in Florida and our patients all leave town in the summer because it’s hot, so we traditionally see decreased sales in August in July. So, we knew that was coming and we were hoping to hold on to flat. We would have, but for the Hurricane.”