Auxly Cannabis Q2 Revenue Triples to C$20.9 Million

Auxly Reports Q2 2021 Financial Results: Reports Record Revenues, Adjusted EBITDA and Canadian Recreational Market Share

TORONTO, Aug. 16, 2021 (GLOBE NEWSWIRE) — Auxly Cannabis Group Inc. (TSX.V – XLY) (OTCQX: CBWTF) (“Auxly” or the “Company”) today released its financial results for the three and six months ended June 30, 2021. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com. All amounts are Canadian dollars except common shares (“Shares”) and per Share amounts.

Q2 2021 Highlights and Subsequent Events

• Total net revenues from sale of adult use cannabis in Canada of $20.9 million for the three months ended June 30, 2021, more than doubling the same period in 2020 and Q1 2021
• Adjusted EBITDA improves to negative $3.3 million, an improvement of $7.2 million as compared to Q2 2020 and $3.4 million more than the previous quarter
• Continuing improvements in total market share to 4.9% in Q2 2021 (rising to 5.4% in July 2021) while maintaining the #1 LP position in Cannabis 2.0 product sales nationally, with approximately 15.4% market share¹
• Further strengthened the Company’s balance sheet with financing transactions and the sale of non-core assets

Q2 Highlights

We are thrilled to report a record quarter for Auxly where we saw significant growth in our net revenue, adjusted EBITDA and our share of the recreational cannabis market.

Hugo Alves, CEO of Auxly

We continued to hold the #1 spot in Cannabis 2.0 Product sales nationally, through our leadership in the vapour segment and consumer-driven innovations in new product categories such as concentrates.

He continued, “Our strong momentum in retail sales and the increasing prevalence of our brands within the segments that they compete, are the result of our focused strategy and the investments we’ve made in the human resources, assets and capabilities that we believe are needed to win in the consumer market and which differentiate Auxly from its competitors. We look forward to launching new and exciting products for consumers to enjoy as we continue to execute against our objectives in 2021.”

Results of Operations

Revenue

For the three months ended June 30, 2021, net revenues were $20.9 million as compared to $6.9 million during the same period in 2020 and were comprised of approximately 75% Cannabis 2.0 Products sales, with the remainder from Cannabis 1.0 Product sales. Net revenues improved during the second quarter of 2021 by $14.0 million over the same period of 2020 and by $11.7 million over the first quarter of 2021 primarily due to the Company’s increased retail cannabis sales nationally and improvements in the Company’s provincial customers’ inventory purchases following the prior quarter pull back. Net revenues year to date were $30.0 million, an improvement of $14.1 million over the same period of 2020 primarily as a result of the second quarter improvements. Consistent with prior periods, as the Company does not participate in the Quebec market, approximately 85% of cannabis sales during the second quarter of 2021 originated from sales to British Columbia, Alberta and Ontario.

Gross Profit/Loss

Auxly realized a gross profit of $8.0 million resulting in a 38% margin during the three months ended June 30, 2021, compared to $1.4 million (19%) during the same period in 2020. Gross profits for the current period were primarily the result of Cannabis 2.0 Products sales with nominal contributions from Cannabis 1.0 Products. Gross profits on a year to date basis improved by approximately $6.6 million to $10.3 million as compared to the same period in 2020, resulting in a 34% margin, primarily as a result of the second quarter performance.

Inventory impairment was $0.1 million for the second quarter and $0.4 million year to date 2021. In 2020, impairment of inventory was higher during the same periods due to additional charges associated with Inverell’s operations.

Total Expenses

Selling, general and administrative expenses (“SG&A”) are comprised of wages and benefits, office and administrative, professional fees, business developments, share-based payments, and selling expenses. SG&A expenses were $12.1 million during the second quarter and $21.3 million year to date 2021, a decrease of $1.5 million and $5.1 million as compared to the same periods in 2020.

Wages and benefits were $4.7 million and $8.9 million for the second quarter and year to date of 2021 respectively, decreases of $2.3 million and $3.8 million, over the same periods in 2020. The decrease for the second quarter of $2.3 million was primarily driven by workforce reductions at Inverell of approximately $0.7 million and in savings and absorption changes in the remaining operations of approximately $1.6 million. Year to date decreases of $3.8 million primarily related to workforce reductions at Inverell of approximately $1.2 million with the remainder of the savings coming from headcount reductions and absorption changes in the rest of the Company.

Office and administrative expenses of $3.6 million for the current period and $6.7 million year to date in 2021 increased by $Nil and $0.5 million compared to same periods in 2020. Expenditures during the second quarter of 2021 included TSX listing fees and increased product testing, supplies and waste resulting from increased innovation and product development activities, Dosecann rent and Health Canada fees as a percentage of sales, partially offset by reduced expenditures of $0.2 million at Inverell and a number of other reductions throughout the Company. Year to date increased expenditures of $0.5 million primarily relate to increased operating costs associated with the development and sale of Cannabis Products, TSX listing fees, Dosecann rent, partially offset by approximately $0.5 million of reduced expenditures at Inverell.

Auxly’s professional fees for the three months ended June 30, 2021 were $0.7 million, higher by $0.2 million as compared to 2020 primarily due to increased legal expenditures associated with certain corporate activities. Year to date expenditures of $1.1 million were lower by $0.7 million as compared to 2020 primarily as a result of greater consulting expenditures in 2020 related to the development of the Company’s ERP system. Professional fees incurred during the periods primarily related to accounting fees, regulatory matters, reporting issuer fees, and legal fees associated with certain corporate activities. Professional fees can vary significantly based upon transactional activities from period to period.

Business development expenses were $Nil for the three and six months ended June 30, 2021, as compared to $Nil and $0.4 million during the same periods in 2020. The decreases are primarily due to a reduction in acquisition, development and travel related expenses primarily a result of the on-going COVID-19 pandemic.

Selling expenses for the period ended June 30, 2021, were $2.0 million and $3.4 million year to date, an increase of approximately $0.9 million over the same periods in 2020, as a result of cannabis sales activities comprised of brokerage fees earned by Kindred Partners and marketing initiatives for Cannabis Products.

For the three months ended June 30, 2021, share-based compensation was $1.0 million and $1.2 million primarily as a result of option grants completed during the second quarter of 2021. The year to date reduction in expense of $1.5 million as compared to 2020, reflects the impact of lower share prices and aging outstanding options.

Depreciation and amortization expenses were $2.2 million for the three months ended June 30, 2021, and $4.6 million year to date, $0.5 million lower and $Nil as compared to the same periods of 2020. The reduction in expenditures during the current period is primarily the result of greater expenditures related to Inverell in the prior year, partially offset by subsequent additional capital expenditures.

Interest expenses were $4.8 million and $9.4 million for the second quarter and year to date of 2021 respectively, increases of $1.4 million and $3.9 million over the same periods in 2020. Interest expenses in 2021 were primarily the result of interest expense and accretion on the $123 million Imperial Brands Debenture and changes related to the Amendments thereof, 7.5% on the convertible debentures issued in 2020, the non-cash accretion of placement and other related fees being recognized over the terms of the respective debentures, leases and short-term financing. Interest expenses in 2020 were primarily driven by the Imperial Brands Debenture, 7.5% on the convertible debentures issued in 2020 to date, and by leases.

Total Other Incomes and Losses

Fair value changes on financial instruments arise on changes in value of promissory notes and level two securities held. For the three and six months ended June 30, 2021, the Company reported a fair value gain of $0.1 million and $0.2 million respectively, approximately $4.6 million lower than the same periods in 2020 primarily as a result of more significant valuation reductions and a larger securities portfolio during 2020.

The Company recorded interest and other incomes of $0.4 million and $0.8 million for the three and six months ended June 30, 2021, with increases over the same periods of 2020 primarily due to changes in interest accretion on the promissory note from the Company’s Sunens joint venture.

Impairment of long-term assets of $11.4 million in 2021 relate to the recently announced sale of Curative where the carrying value exceeded the proceeds of sale. During 2020, the Company recognized an impairment loss on long-term assets of $4.5 million related to Inverell.

Gains and losses on settlement of assets and liabilities and other expenses was a gain of $17.0 million during the second quarter of 2021 as compared to a loss of $2.0 million during the same period of 2020. The improvement of $19.0 million for the period was primarily related to a $16.6 million gain associated with the Imperial Brands Debenture Amendments and a $2.4 million loss associated with accrued legal settlements and a credit loss provision in 2020. The year to date gain of $21.1 million in 2021 includes a $4.2 million first quarter 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 $2.5 million for the three months ended June 30, 2021 and $3.0 million year to date reflect the Company’s proportionate share of Sunens’ earnings. Sunens received its cultivation licence in June 2020 and has scaled up operations and made product available for sale to licenced producers, including Auxly beginning in the first quarter of 2021.

Auxly is exposed to foreign exchange fluctuations from the U.S. dollar to CAD dollar exchange rate primarily related to inventory and capital purchases and Inverell net assets. During the quarter ended June 30, 2021, the Company reported a foreign exchange loss of $0.6 million and a loss of $1.2 million year to date as compared to a loss of $1.1 million and a gain of $0.6 million during the same periods of 2020.

Net Income and Loss

Net income attributable to shareholders of the Company was $8.7 million for the three months ended June 30, 2021, representing a net income of $0.01 per share on a basic and diluted basis. Net loss attributable to shareholders of the Company was $1.8 million for the six months ended June 30, 2021, representing a net loss of $0.00 per share on a basic and diluted basis. The improvement in net income and loss positions was a result of net income of $12.3 million related to the sale of KGK, recognition of a gain from the Imperial Brands Debenture Amendments, improvements in continuing operating gross profits and income tax recoveries, partially offset by an impairment charge related to the Curative sale.

Adjusted EBITDA

Adjusted EBITDA of negative $3.3 million during the second quarter of 2021 improved by approximately $7.2 million or 68% over the same period in 2020 primarily driven by greater gross profits. Year to date Adjusted EBITDA of negative $10.0 million in 2021 also reflects improvements in gross profit and lower SG&A as compared to $17.9 million recorded during the same period of 2020.

Outlook

In 2021, Auxly is focused on building upon its success as a market leader in Cannabis 2.0 Products, while continuing to advance the Company’s focused expansion of its dried flower, pre-roll, oil and capsule product offerings. The Company’s overall objectives for 2021, which may be impacted by the COVID-19 pandemic (see further discussion in the MD&A under “COVID-19 Pandemic”), are as follows:

• Continued leadership and strength in the Cannabis 2.0 Products market;
• Focused expansion of Cannabis 1.0 Products;
• Become a top 5 licenced producer in Canada by total market share in adult recreational cannabis sales;
• Continue to take measures to improve cash flows, and finance the business;
• Become Adjusted EBITDA positive by the end of the calendar year;
• Leverage the Sunens facility to establish a secure supply of cannabis and reduce reliance on open market purchasing; and
• Explore possible cannabis market entry strategies in regulated international markets, on an asset light basis.

Auxly will continue to evaluate opportunities to bring new and exciting products to consumers as it continues to realize its vision of becoming a global leader in branded cannabis products that deliver on the consumer promise of quality, safety and efficacy.

Conference Call

Auxly’s management team will host a conference call today, Monday August 16, 2021, at 10:00 a.m. EST to discuss its financial results. Participants can access the conference call by telephone by dialing: 888-664-6383.

For those unable to participate in the conference call at the scheduled time, it will be available for replay on the Company’s website within 24 hours after the conclusion of the call.

About Auxly Cannabis Group Inc. (TSX.V: XLY)

Auxly is an international cannabis company dedicated to bringing innovative, effective, and high-quality cannabis products to the medical, wellness and adult-use markets. Auxly’s experienced team of industry first-movers and enterprising visionaries have secured a diversified supply of raw cannabis, strong clinical, scientific and operating capabilities and leading research and development infrastructure in order to create trusted products and brands in an expanding global market.

Learn more at www.auxly.com and stay up to date at Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.

Original press release

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