Supreme Cannabis Announces Financial Results for Q4 and Full-year 2020

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Supreme Cannabis Announces Financial Results for Q4 and Full-year 2020

Canada NewsWire

Established a platform for strong revenue growth and operational efficiency with a strengthened balance sheet

2020 Fourth Quarter Highlights:

  • Increased recreational sales net revenue by 27% quarter-over-quarter and 373% year-over-year, supported by brand expansion and the introduction of Cannabis 2.0 products
  • 36 active retail SKUs listed, with presence in all 10 provinces
  • Completed the first and second shipments of medical cannabis to Israel through its Truverra brand
  • Right-sized operations delivering immediate cost savings, reducing quarter-over-quarter operating expenses (after restructuring) by 9% and 65% year over year
  • Maintains a strong liquidity position including a cash balance of $28.4 million

Subsequent to Quarter End

  • Strengthened the balance sheet through the partial conversion of its convertible debentures at a premium to the market price of the Company's common shares and through the extension of the maturity on the remaining principal amount
  • Amended its senior secured credit facility ("Credit Facility") to provide greater flexibility to execute on its business plan

TORONTO, Sept. 24, 2020 /CNW/ - The Supreme Cannabis Company, Inc. ("Supreme Cannabis" or the "Company") (TSX: FIRE) (OTCQX: SPRWF) (FRA: 53S1) today announced its financial and operating results for the three and twelve months ended June 30, 2020.

Supreme Cannabis' Management Discussion & Analysis ("MD&A") and consolidated financial statements ("Financial Statements") for the year and fourth quarter ended June 30, 2020 ("Q4 2020"), along with all previous public filings of The Supreme Cannabis Company, Inc., may be found on SEDAR at www.SEDAR.com. All figures are in Canadian dollars.

"Fiscal 2020 was an important transitional year for Supreme Cannabis where we streamlined our operations, reorganized our team, and expanded our portfolio of brands and products that will drive sustainable revenue growth," said Beena Goldenberg, President and CEO. "Looking into 2021, we will continue to focus on efficiency throughout the organization. As we make progress towards our goal of becoming a premium cannabis CPG company, we look forward to continued strong engagement from cannabis consumers, growing our brand visibility and market presence, and accelerated revenue growth."

Select Financial and Operational Results.


Three months ended

Year Ended

Financial Highlights (in 000's $)

June 30, 2020

March 31, 2020

2020

2019

Gross revenue

10,855

11,022

44,622

43,015

Net revenue

9,532

9,725

39,749

41,833

Gross margin, excluding fair value items (1)

(8,246)

(1,473)

(21)

25,034

Gross margin

(11,544)

488

5,480

36,853

Operating expenses

15,886

17,450

71,582

38,713

Impairment on assets

3,414

57,519

60,933

-

Net loss (2)

(33,252)

(72,328)

(139,420)

(14,497)

Net comprehensive loss (2)

(33,806)

(73,396)

(150,417)

(14,392)

Adjusted EBITDA (3)

(4,167)

(4,958)

(22,608)

(876)

Cash

28,419

23,128

28,419

54,822



1.

Gross margin, excluding fair value items, is an Additional Subtotal presented by the Company. The Company defines gross margin, excluding fair value items as the gross margin before recording fair value changes on growth of biological assets and realized fair value changes on inventory sold or impaired. More information on changes in fair value of biological assets can be found in "Changes in fair value of biological assets" in MD&A.

2.

The Company has applied IFRS 16 using the modified retrospective approach at July 1, 2019, under which comparative information is not restated. Under IFRS 16, leases that were previously classified as operating leases are now on–balance sheet. Instead of recognizing operating lease expense, the Company now recognizes amortization and interest expense related to these leases. (See "New Accounting Standards and Interpretations Effective July 1, 2019" in MD&A).

3.

Adjusted EBITDA is a Non–GAAP measure and does not have a standardized meaning under GAAP. As a result, it may not be comparable to data presented by other cannabis companies. For an explanation and reconciliation of Adjusted EBITDA to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, refer to the Results of Operations and Non–GAAP Measures and Additional Subtotals in MD&A.

Revenue

In Q4 2020, despite being at the height of the COVID-19 pandemic when stores were closed, foot traffic was down, and in-store trade marketing was generally prohibited, recreational net revenue rose to $7.3 million, an increase of 27% quarter-over-quarter. Recreational sales volumes were 1,449 kilograms, up 10% quarter-over-quarter, while the average selling price per gram for recreational sales in Q4 2020 was $5.00, up 16% quarter-over-quarter. The increase in recreational sales is a result of the Company's strategy to focus on the recreational channel as the primary revenue source. The quarter-over-quarter increase in the Company's average selling price for recreational cannabis was primarily driven by lower discounts and return provisions compared to the three months ended March 31, 2020.

Wholesale net revenue in Q4 2020 was $2.3 million, down 43% quarter-over-quarter. Wholesale volumes were 1,330 kilograms, up 4% quarter-over-quarter. The decrease in net revenue for the three months ended June 30, 2020, compared to the prior quarter was primarily due to reduced demand for wholesale cannabis flower in the current period and lower average selling prices for wholesale cannabis sales.

Overall net revenue decreased 2% to $9.5 million in Q4 2020 from $9.7 million in Q3 2020. This was primarily driven by a change in the Company's focus from the domestic wholesale channel to its growing recreational channel.

Gross Margin

In Q4 2020 the gross margin, excluding fair value items, included impairment charges of $12.1 million that were recorded in production costs. Excluding the impact of impairment charges recorded in production costs, gross margin, excluding fair value items increased to 41% in Q4 2020 compared to 37% for Q3 2020 mainly due to further cost savings realized in the Company's production facilities and higher recreational cannabis average selling price per gram. This was partially offset by lower wholesale cannabis average selling price per gram.

Adjusted EBITDA

The Company generated a lower Adjusted EBITDA loss of $4.1 million compared to a loss of $5.0 million in Q3 2020 due to improved cost control measures taken in Q3 and Q4 to streamline the Company's business and right-size its operations. Adjusted EBITDA loss, excluding the write-off related to one specific accounts receivable balance, was $1.9mm.

Balance Sheet, Liquidity and Cash Flow from Operations

Supreme Cannabis ended the quarter with a total cash balance of $28.4 million. In Q4 2020, the Company announced that it had established an at-the-market equity program (the "ATM Program") that allows the Company to issue and sell up to $9.75 million of common shares in the capital of the Company from treasury to the public, from time to time, at the Company's discretion. The ATM Program is designed to provide the Company with additional financing flexibility should it be required in the future.

Subsequent to quarter-end, the Company significantly strengthened its balance sheet by refinancing its convertible debentures and amending its Credit Facility. As a result, there are no debt maturities for two years, and total debt was reduced by $69.8 million. Furthermore, cash interest expense was significantly reduced as a result of the reduction in the principal amount of the convertible debentures and the Credit Facility. The amended Credit Facility defers the financial covenants related to leverage and the fixed charge coverage ratio by 12 months until Q3 2022.

In Q4 2020, the Company's operating expenses decreased 9% to $15.9 million from $17.5 million in Q3 2020. The cost efficiencies were driven by a quarter-over-quarter decrease in wages and benefits of 24%, decrease in facility costs of 57%, decrease in sales, marketing and business development expense of 31%, which were partially offset by an increase in professional fees of 2%, and a 93% increase in general and administrative expenses. The increase in general and administrative expenses was driven primarily by a $2.2 million write–off related to one specific accounts receivable balance that the Company deemed as uncollectable during the period. Excluding one-time write-offs and restructuring charges, operating costs for Q4 2020 were $12.5 million, or a decrease of approximately 19% from $15.4 million in Q3 2020.

Prior to new leadership's focus on adjusting the Company's cost structure to reach near-term profitability, Supreme Cannabis' Q2 2020 operating expenses were $19.8 million. The cost reductions achieved by the Company are a result of the realigned and right-sized operating model implemented in Q3 and Q4 2020. The Company remains focused on accelerating near-term revenue growth while realizing cost savings and driving efficiencies.

In addition to reducing its operational expenditures, the Company's capital expenditures in Q4 2020 decreased to $1.1. million, down 52% quarter-over-quarter. With the completion of construction projects at the Company's Kincardine, Ontario ("7ACRES Facility") and Langley, British Columbia ("Blissco Facility") facilities, capital expenditures for fiscal 2021 are expected to be minimal and will be focused on productivity enhancements justified by near–term cash flow returns.

Brand and Product Developments in Q4 2020

7ACRES

  • 7ACRES' high-quality dried flower products accounted for the majority of the Company's recreational cannabis sales in Q4 2020
  • 7 ACRES introduced Indica and Sativa 0.5-gram Pax Era vaporizer cartridges and flower rosin concentrate
  • 7ACRES Craft Collective, a brand extension of 7ACRES, was introduced to reinforce the brand's premium positioning and created excitement among cannabis consumers and generated increased visibility on social media through its introduction of unique strains
  • The interactive website, meetyourtastebuds.com, launched in May to reinforce the 7ACRES brand, is an educational tool that builds on market research-verified points of difference of taste and aroma

Blissco 

  • Blissco more than doubled its shipments and net sales from Q3 2020, reflecting its availability in more provinces
  • Blissco Pūr Dew full-spectrum CBD oil is a leading oil SKU in many jurisdictions
  • In fiscal 2021, the Company plans to introduce a full-spectrum CBD 510 vaporizer cartridge

Sugarleaf

  • Introduced in Q2 2020, the Sugarleaf product line has grown to nine SKUs
  • Sugarleaf launched a 1:5 oil, consisting of one-part THC to five-parts CBD
  • 510 vaporizer cartridge, 3 x 0.5 gram pre-rolls and Sugarleaf bloom, the Company's first milled flower offering introduced post-quarter

Hiway

  • Introduced post-quarter to establish a position in the value category
  • Cannabis concentrate – Hiway Hash – introduced in August
  • Two large-format whole flower SKUs, pre-rolls and 510 vaporizer cartridges to be introduced in fiscal 2021

New Product Launches

  • 18 SKUs were launched in the Canadian market in Q4 2020
  • The Company currently has 36 active SKUs
  • Additional 1.0 and 2.0 products to be introduced in fiscal 2021

  • Subsequent to quarter-end, the Company terminated its agreement with Khalifa Kush Enterprises Canada ULC – the 7ACRES Craft Collective brand extension continues to address the ultra-premium category

Distribution

Overall, Supreme Cannabis shipped nearly 25% more product in Q4 2020 compared to Q3 2020. The provinces of Quebec, Alberta, Ontario and British Columbia generated the majority of the Company's sales.

Key to growing Supreme Cannabis' presence across Canada is the Company's sales agency agreement with Humble & Fume Inc. ("humble+fume"). Through this partnership, humble+fume is deploying a team of sales professionals that will drive distribution, brand advocacy and budtender education for all Supreme Cannabis brands at the store level. Since tracking commenced in April 2020, until the end of July, humble+fume has created 1,290 new listings for Supreme Cannabis products. In the fourth quarter, 242 new stores started carrying the Company's products with an additional 54 stores added in July and August.

COVID-19 restrictions limited humble+fume sales efforts to virtual and telecommunications for part of Q4 2020. In the last month of the quarter and subsequent to quarter-end, most retail stores were open and humble+fume representatives are engaging directly with operators and supporting new retail store openings. This will allow further opportunities for promotions, new product introductions, staff training and adding new retail outlets.

International

In Q4 2020, Supreme Cannabis made its second shipment of Truverra medical cannabis to Israel under its contract with Breath of Life International Ltd. ("BOL Pharma"), Israel's largest and leading producer of medical cannabis. Subsequent to quarter-end, a third shipment was made. BOL Pharma is distributing Truverra's medical cannabis in 10-gram containers to its network of pharmacies across Israel.

Operations

The Company has made several improvements at its core facilities at the 7ACRES Facility and the Blissco Facility to enhance production, processing and operating efficiency.

The 7ACRES Facility underwent a conversion from propane to natural gas energy. As part of this process, the entire climate control system was upgraded and optimized, resulting in significantly enhanced efficiency and greater consistency. The natural gas conversion is expected to deliver approximately $1.5 million in annual savings.

The Company also took steps to improve the extraction processes at the Blissco Facility. The key focus of the continuous improvement processes includes improving conversion yields through first-pass extraction and distillation.

Outlook

The Company continues to remain confident in its ability to grow near-term revenue and reach profitability based on its accelerated transition to a premium Cannabis CPG company, its improved operating structure and its enhanced offering of new high-quality brands.  

  • The Company has a robust and growing product line that addresses consumers' needs at a variety of price points and form factors.
  • The Company has efficient and effective coast-to-coast sales coverage with the humble+fume sales partnership.
  • The Company has substantially completed the right-sizing of its operating structure with the right teams in place to produce a differentiated product line in-house efficiently.
  • Supreme Cannabis remains focused on cost containment and is fully-funded to execute on all planned initiatives.

Fourth-quarter and year-end 2020 earnings conference call and webcast.

The Company will host a conference call to discuss its fourth-quarter fiscal 2020 results at 8:00 AM Eastern on Friday, September 25, 2020. Interested parties can join the call by dialling 416-764-8659 or 1-888-664-6392. The conference ID number is 36043231. The call can also be accessed through the following webcast link: https://bit.ly/2GffGyf.

A recording of the conference call will be available for replay two hours after the call's completion. To access the recording, please dial 416-764-8677 or 1-888-390-0541 and the replay code, 043231. The recording will be available until Sunday, October 25, 2020.

About Supreme Cannabis.

The Supreme Cannabis Company, Inc., (TSX: FIRE) (OTCQX: SPRWF) (FRA: 53S1), is a global diversified portfolio of distinct cannabis companies, products and brands. Since 2014, the Company has emerged as one of the world's most premium producers of recreational, wholesale and medical cannabis products.

Supreme Cannabis' portfolio of brands caters to diverse consumer and patient experiences, with brands and products that address recreational, wellness, medical and new consumer preferences. The Company's recreational brand portfolio includes, 7ACRES, Blissco, 7ACRES Craft Collective, Sugarleaf and Hiway. Supreme Cannabis addresses national and international medical cannabis opportunities through its premium Truverra brand.

Supreme Cannabis' brands are backed by a focused suite of world-class operating assets that serve key functions in the value chain, including scaled cultivation, value-add processing, automated packaging and product testing and R&D. Follow the Company on Instagram, Twitter, Facebook, LinkedIn and YouTube.

We simply grow better.

Forward-Looking Information.

Certain statements made in this press release may constitute "forward-looking information", "future oriented financial information" or "financial outlooks" (collectively, "forward-looking information") within the meaning of applicable securities laws. Forward-looking information may relate to anticipated events or results including, but not limited to: focussing on efficiency throughout the Company; progressing  towards becoming a premium cannabis CPG company; continued strong engagement from cannabis consumers, growing our brand visibility and market presence, and accelerated revenue growth; expected capital expenditures for fiscal 2021; the expectation that the natural gas conversion at the 7ACRES Facility will deliver approximately $1.5 million in annual savings; the Company's ability to grow near-term revenue and reach profitability; the Company's focus on cost containment and ability to execute on all planned initiatives; the Company's plans to introduce two large-format whole flower SKUs and 510 vaporizer cartridges under the Hiway brand, to introduce a full-spectrum CBD 510 vaporizer cartridge and to introduce additional 1.0 and 2.0 products under its recreational cannabis brands; and other statements that are not historical facts. Particularly, information regarding our expectations of future results, targets, performance achievements, prospects or opportunities is forward-looking information. Often, but not always, forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology. Forward-looking information is current as of the date it is made and is based on reasonable estimates and assumptions made by us at the relevant time in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable in the circumstances. To the extent any forward-looking information in this press release constitutes "future oriented financial information" or "financial outlooks", within the meaning of applicable securities laws, the purpose of such information being provided is to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. However, we do not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada. There can be no assurance that such estimates and assumptions will prove to be correct.

Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking information as discussed in the "Risk Factors" section of the Company's Annual Information Form dated September 24, 2020 ("AIF"). A copy of the AIF and the Company's other publicly filed documents can be accessed under the Company's profile on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com. The Company cautions that the list of risk factors and uncertainties described in the AIF is not exhaustive and other factors could also adversely affect its results. Readers are urged to consider the risks, uncertainties and assumptions carefully in evaluating the forward-looking information and are cautioned not to place undue reliance on such information.

Non-GAAP Measures and Additional Subtotals. 

This news release contains certain financial performance measures that are not recognized or defined under IFRS ("Non-GAAP Measures") including, but not limited to, "Adjusted EBITDA". As a result, this data may not be comparable to data presented by other cannabis companies. For an explanation and reconciliation of these measures to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, please refer to the "Results of Operations" section in the MD&A. The Company believes that these Non-GAAP Measures are useful indicators of operating performance and are specifically used by management to assess the financial and operational performance of the Company.

The Company defines Adjusted EBITDA as net income (loss) excluding fair value changes on growth of biological assets, realized fair value changes on inventory sold or impaired, amortization of property plant and equipment & intangible assets, share based payments, finance expense, loss on disposal of property plant and equipment, unrealized and realized gains or losses on investments, gains or losses on non-controlling interest and income taxes.

The Company presents additional subtotals in its Financial Statements prepared in accordance with IFRS. The additional subtotals include, but not limited to, gross margin, excluding fair value items in its statements of comprehensive loss ("Additional Subtotals"). The Company defines gross margin, excluding fair value items as the gross margin before recording fair value changes on growth of biological assets and realized fair value changes on inventory sold or impaired. More information on changes in fair value of biological assets can be found in "Changes in fair value of biological assets" section of the MD&A.

Non-GAAP Measures and Additional Subtotals should be considered together with other financial information prepared in accordance with IFRS to enable investors to evaluate the Company's operating results, underlying performance and prospects in a manner similar to Supreme Cannabis' management. Accordingly, these Non-GAAP Measures and Additional Subtotals are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/supreme-cannabis-announces-financial-results-for-q4-and-full-year-2020-301137835.html

SOURCE The Supreme Cannabis Company, Inc.

Cision View original content to download multimedia: http://www.newswire.ca/en/releases/archive/September2020/24/c0273.html

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