Supreme Cannabis Announces Q1 2020 Financial Results and $90 million Credit Facility led by Bank of Montreal

  • Supreme Cannabis achieves 122% year-over-year net revenue growth, Q1 2020 gross margin of 62%, and reports Adjusted EBITDA of $(4.9 million)
  • Secures $90 million in corporate credit facilities with Bank of Montreal as Lead Arranger and Agent
  • 7ACRES wins “Brand of the Year” at the Canadian Cannabis Awards
  • Confirms forecasted net revenue for fiscal 2020 of between $150 million and $180 million, and positive Adjusted EBITDA for fiscal 2020

TORONTONov. 14, 2019 /PRNewswire/ – The Supreme Cannabis Company, Inc. (“Supreme Cannabis” or the “Company”) (TSX:FIRE)(OTCQX:SPRWF)(FRA: 53S1) announced the release of its financial and operating results for the first quarter ended September 30, 2019.

The Company also announced that it has entered into a credit agreement with Bank of Montreal (“BMO”) as Lead Arranger and Agent on behalf of a group of lenders (collectively, the “Lenders”) for $90 million of senior secured credit facilities consisting of a term loan of $70 million and a revolving credit facility of $20 million (the “Credit Facility”).

“In the first quarter of fiscal 2020, we operated through challenging market conditions while integrating new businesses and product planning for the second half of the year.  Overall, our financial results reflect the inherent difficulties of operating in a new regulated industry and the transitionary period we are in as we evolve from a predominantly wholesale business to a leading cannabis CPG company in Canada. Despite these challenges, in the quarter we improved production operations to generate industry-leading margins of 62% and made the strategic decisions necessary to position our businesses for meaningful revenue generation from flower, flower convenience products and select derivative products in the remainder of fiscal 2020,” said Navdeep Dhaliwal, CEO of Supreme Cannabis. “The closing of up to $90 million in credit facilities from tier one lenders is a significant achievement that positions the Company to execute on our strategy and prudently grow the business in fiscal 2020 and beyond.”

“In connection with the Credit Facility, the Company underwent a rigorous due diligence process to secure this favourable, non-dilutive financing from leading financial institutions,” continued Mr. Dhaliwal. “There is only a select group of Canadian federal license holders who have obtained such financing over the past year. In the current challenging operating environment, our ability to secure credit facilities with tier one lenders speaks to the strength of our management, business and operations, and our ability to deliver strong financial results.”

Q1 2020 Select Financial and Operational Results.

($ thousands)

Three Months Ended

September 30, 2019

 Three Months Ended

 September 30, 2018

Net Revenue

11,433

5,140

Operating expenses

18,491

5,938

Net Loss after taxes

(16,525)

(5,385)

Basic and Diluted Loss per common share

(0.05)

(0.02)

Adjusted EBITDA

(4,932)

(849)

Cash

36,420

31,197

Supreme Cannabis’ wholly-owned subsidiary, 7ACRES, accounted for the Company’s year-over-year increase in net revenue, growing 122% from $5.1 million in Q1 2019 to $11.4 million in Q1 2020. The net revenue achieved during Q1 2020 was comprised of $10.5 million from 7ACRES and $0.9 million from Blissco. Quarter-over-quarter, net revenue decreased 40% from $19 million in Q4 2019. The quarter-over-quarter decrease in net revenue is predominately attributable to the combination of a rapid deterioration of pricing and demand in the wholesale market and the previously announced 7ACRES mechanical failure in grow rooms 1, 2 and 3, which was an isolated one-time event with all three grow rooms recommissioned and replanted in September 2019.

In Q1 2020, in response to wholesale market conditions, the Company prioritized its annual performance objectives by product planning for future quarters and holding back product from wholesale channels. In the second half of fiscal 2020, the Company expects this inventory of high-quality products to serve as inputs for flower convenience products and select cannabis derivative products, including pre-rolled joints, CBD oils and vaporizer oils. The Company continues to reduce its reliance on the wholesale market as it increases packaging capacity at its 7ACRES facility and transitions 7ACRES to solely recreational sales. In Q1 2020, wholesale sales accounted for 57% of cannabis flower sales, as compared to 65% in Q4 2019 and 100% in Q1 2019.  As Supreme Cannabis transitions into a CPG company, sales from recreational markets continue to increase. In Q1 2020, the company saw strong demand for its consumer-facing brands, with net revenue from recreational sales increasing 68% quarter-over-quarter.

Credit Facility.

The Credit Facility is secured by the assets of the Company including the 7ACRES facility. Pricing is based on a set margin over the BMO CAD Prime Rate or Bankers’ Acceptance and a pricing grid linked to certain financial ratios. It is expected to be at the outset between 5-6% per annum. The Credit Facility has a three-year term and contains customary financial and restrictive covenants. Supreme Cannabis may repay any portion drawn under the Credit Facility at any time without penalty. Supreme Cannabis has the option to increase the revolving credit facility by $10 million subject to agreement by the Lenders and satisfaction of certain legal and business conditions. In connection with the closing of the Credit Agreement, the Company has initially drawn $55 million of the term loan under the Credit Facility.

Cultivation.

In Q1 2020, the final phase of construction at 7ACRES’ premium cultivation facility accounted for the majority of capital expenditure in the quarter. Subsequent to quarter end, the 7ACRES facility reached a pivotal point in its construction process. In October, the Company completed construction on the facility’s two-story central processing, administrative and laboratory spaces (the “Center Core”), adding approximately 48,900 square feet of operational space to the facility. As production scales, the additional space will be licensed to accommodate the facility’s growing processing needs.

In addition to completing construction on the Center Core, 7ACRES has commissioned an automated bottling line capable of filling up to 12,000 3.5-gram containers per day with best-in-class auto-filling features, which meet 7ACRES’ high standards for its final packaged product. The Company expects that 7ACRES will commission a second and third automated bottling line in fiscal 2020. The additional in-house packaging capabilities will complete 7ACRES’ transition from a wholesale business to a premium consumer brand by Q3 2020.

The Company expects the 7ACRES facility, including all administrative infrastructure, to be complete by the end of calendar year 2019. With 7ACRES’ major infrastructure completed, the Company expects construction on the facility to have a lower impact on capital expenditure in Q2 2020.  

Processing.

Additional licensed space in the Center Core will be dedicated to the production of 7ACRES pre-rolls. 7ACRES branded pre-rolls will be produced in-house with whole flower inputs from 7ACRES’ premium strains. 7ACRES expects this format to appeal to both its existing consumers and new consumers. Approximately 15% of frequent cannabis consumers report using a pre-rolled joint as their last consumption format and approximately 23% of all cannabis consumption in Canada is made up of pre-rolled joints.1 7ACRES expects to launch this new high-margin and in-demand product in Q3 2020.

In addition to in-house pre-roll capacity, the Company aims to bring this high-margin product form to market under different Supreme Cannabis brands through contract manufacturing agreements. Subsequent to quarter end, the Company signed a definitive agreement with Indiva Inc. (“Indiva”), pursuant to which Indiva will manufacture and distribute pre-rolls for select Supreme Cannabis brands.  

In Q1 2020, the Company closed the acquisitions of Blissco and Truverra, expanding its focused operating assets. Subsequent to quarter end, Blissco’s 12,000 square foot extraction facility in Langley, British Columbia received its Cannabis Oil Sales License from Health Canada. In November, Blissco completed construction on its large-scale ethanol-based extraction lab, expanding upon Blissco’s existing CO2-based extraction capability. By the end of calendar year 2019, Supreme Cannabis expects that the Blissco facility will have the capacity to produce over 7,000,000 tincture bottles annually and meaningfully contribute to net revenue in second half of fiscal 2020. Blissco expects to ship its first full spectrum CBD oil product to the Canadian market in Q2 2020 to satisfy unmet demand for CBD oils nationally.

In the quarter, Supreme Cannabis gained an additional operating asset with the closing of its acquisition of Truverra. Truverra’s subsidiary, Canadian Clinical Cannabinoids Inc. (“CCC”), operates a 5,000 square foot licensed facility in Scarborough, Ontario. In the near-term, the CCC facility will be equipped to process high-quality inputs for cannabis 2.0 products, including concentrates.

Brands.  

In the quarter, 7ACRES continued to establish itself as the leading premium flower brand nationally with the launch of its new premium strain, Jack Haze. Jack Haze is 7ACRES’ first sativa-dominant strain with rare sensory characteristics. With the successful launch of Jack Haze, 7ACRES achieved premium pricing across all provinces the strain entered. Based on sales data from the Ontario Cannabis Store, in its first two months of sales, the Jack Haze strain achieved the highest sales velocity of any 7ACRES strain. To date, Jack Haze is 7ACRES’ highest-priced and most successful launch into the market.

The successful launch of Jack Haze demonstrates the Company’s proven ability to bring winning consumer-centric products to market. Supreme Cannabis’ product development team identified and anticipated consumer demand for a high-THC, sativa dominant strain with rare sensory characteristics. The Cambium Plant Sciences’ genetics team was responsible for selecting Jack Haze’s proprietary genetics and based such selection on consumer demand. 7ACRES cultivated this leading strain and the Company’s marketing team ran a targeted campaign to support its launch into the Canadian market. 7ACRES’ ability to forsee consumer taste, create custom flower products and market to consumers is what positions it as a leading Canadian flower brand and “Brand of the Year” for the second year in a row at Lift & Co’s Canadian Cannabis Awards in November 2019.

Outlook.

Supreme Cannabis confirms its financial outlook for fiscal 2020, which was previously announced on September 17, 2019:

  • Expected net revenue of between $150 million and $180 million.


  • Expected positive Adjusted EBITDA on aggregate over the course of the year.


  • 7ACRES’ to complete its transition from a wholesale business to premium consumer brand by Q3 2020, with complete in-house packaging capabilities for all flower products under the 7ACRES’ brand.


  • Fully funded to execute on all planned initiatives.

In addition to the above outlook, the Company will host its Annual and Special Meeting of Shareholders (the “Meeting”) on Monday, December 9, 2019 at 10:00AM EST. All registered shareholders are welcome to attend the Meeting, which will be held at 22 Adelaide St. West, Toronto Ontario, Floor 34, Room 302. In conjunction with the Meeting, the Company has filed its Information Circular and related proxy materials under its profile on SEDAR.

Supreme Cannabis’ MD&A and consolidated financial statements for the first quarter ended September 30, 2019, along with all previous public filings of The Supreme Cannabis Company, Inc., may be found on SEDAR at www.SEDAR.com.  

1

Cannatrack, Cannabis Consumption Study (Canada, Oct 2018 to Sep 2019, general population, n=11,639)

   
 

All figures are in Canadian dollars

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 fastest-growing, premium plant driven-lifestyle companies by effectively deploying capital, with an emphasis on disciplined growth and high-quality products.

Supreme Cannabis’ portfolio includes 7ACRES, its wholly-owned subsidiary and multi-award-winning brand; Blissco, a wellness cannabis brand and a multi-licensed processor and distributor based in British Columbia; Truverra Inc., a global medicinal cannabis brand and licensed cultivator; Cambium Plant Sciences, a plant genetics and cultivation IP company; Medigrow Lesotho, an cannabis oil producer located in southern Africa; Supreme Heights, an investment platform focused on CBD brands in the UK and Europe and a brand partnership and licensing deal with Khalifa Kush Enterprises Canada.

Supreme Cannabis trades as FIRE on the Toronto Stock Exchange (TSX:FIRE), SPRWF on the OTC Exchange in the United States (OTCQX:SPRWF) and 53S1 on the Frankfurt Stock Exchange (FRA: 53S1). Follow us on Instagram, Twitter, Facebook 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: the launch of new high margin products in the second half of fiscal 2020; the licensing of the additional space created by the Center Core, including the dedication of such space to the production of branded pre-rolled joints; the commissioning of a second and third automated bottling line in fiscal 2020; 7ACRES’ transition from a wholesale business to a premium consumer brand by Q3 2020; the completion of the 7ACRES facility by the end of calendar year 2019; the expectation that construction on the 7ACRES facility will have a lower impact on capital expenditures in Q2 2020; the branding, production and input of 7ACRES branded pre-rolls, including the launch of such pre-rolls in Q3 2020; the expectation that pre-rolled joints will appeal to a broad variety of other cannabis users, including existing and new customers, and that they will be high-margin and in demand; bringing pre-rolled joints to market under different Supreme Cannabis brands through various contract manufacturing agreements; the Blissco facility will have the capacity to produce over 7,000,000 tincture bottles annually and meaningfully contribute to net revenue in second half of fiscal 2020; the expectation that Blissco will ship its first CBD oil product to the Canadian market in Q2 2020; the CCC facility being equipped to process high-quality inputs for cannabis 2.0 products, including concentrates; the financial outlook for fiscal 2020; 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 17, 2019 (“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 for the first quarter ended September 30, 2019, please refer to the “Results of Operations for the three months ended September 30, 2019 and 2018″ section in the MD&A for the first quarter ended September 30, 2019. 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 for the first quarter ended September 30, 2019.

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.

SOURCE The Supreme Cannabis Company, Inc.

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