Continued strong revenue growth and operational efficiency
2021 Second Quarter Highlights:
Positive Adjusted EBITDA1 of $3.6 million
Consolidated net revenue of $18.3 million
54% net revenue growth quarter-over-quarter
52 active retail SKUs with 9 new SKUs introduced in Q2, with presence in all 10 provinces
Completed fourth shipment of medical cannabis to Israel through its Truverra brand
Maintains a strong liquidity position, including a cash balance of $41.9 million pro forma including net proceeds of $21.5 million from the unit offering subsequent to quarter end
TORONTO, Feb. 11, 2021 /PRNewswire/ - 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 months ended December 31, 2020.
Supreme Cannabis' Management Discussion & Analysis ("MD&A") and condensed interim consolidated financial statements ("Financial Statements") for the three and six months ended December 31, 2020 ("Q2 2021"), along with all previous public filings of the Company may be found on SEDAR at www.SEDAR.com. All figures are in Canadian dollars.
Beena Goldenberg, President and CEO of Supreme Cannabis, commented:
"Supreme Cannabis continued to execute on its strategy of accelerating revenue and controlling our costs in the second quarter of fiscal 2021, which resulted in record revenue and EBITDA performance. Consolidated net revenue grew by 54% compared to Q1 to $18.3 million, while recreational net revenue – which is a significant area of focus for the Company – grew by 70% compared to last quarter to $12.7 million. Our revenue growth was attributable to distribution gains, improved fulfilment and an overall strengthening of our internal processes. We continued to exercise disciplined cost control across the business, resulting in Supreme Cannabis generating positive Adjusted EBITDA of $3.6 million, up from $0.3 million in the first quarter of fiscal 2021."
Ms. Goldenberg continued, "Supreme Cannabis' standout performance in the second quarter of 2021 not only highlights that our strategy is working, but the traction and market penetration we achieved in the quarter positions us for further profitability and growth. Our increased sales and marketing efforts in partnership with Humble & Fume Inc. ("humble+fume") enabled Supreme Cannabis to secure 3,446 net new listings during the second quarter, up from 2,258 new listings in the previous quarter. We are a top-10 player in Canada in flower and 7ACRES is a top-5 player in pre-rolls. We are also in the top three in concentrates. This reinforces the traction we're gaining with consumers. While we built strong momentum throughout the quarter and made good headway in matching supply to demand, we acknowledge that there is more work to be done in becoming sustainably profitable. As we continue our transformation into a premium cannabis CPG company, we remain committed to the continuous improvement and maturation of our internal processes and will keep offering compelling brands and high-quality products at several points of value and preference."
Ms. Goldenberg concluded, "Subsequent to quarter end, we took the opportunity to strengthen Supreme Cannabis' balance sheet and improve our liquidity by raising $21.5 million in net proceeds from an equity financing and an additional $4.2 million through our at-the-market equity program. These transactions not only strengthen the Company's balance sheet but also put us in a strong position to fund growth initiatives and capitalize on strategic opportunities that have the potential to maximize shareholder value."
1 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 the MD&A.
Select Financial and Operational Results.
Three months ended
Financial Highlights (in 000's $)
Dec 31, 2020
Sept 30, 2020
Gross margin, excluding fair value items (1)
Net income (loss)
Net comprehensive income (loss)
Adjusted Gross Margin (2)
Adjusted EBITDA (2)
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 the MD&A.
Adjusted Gross Margin and Adjusted EBITDA are Non–GAAP measures and do not have a standardized meaning under GAAP. As a result, they may not be comparable to data presented by other cannabis companies. For an explanation and reconciliation of Adjusted Gross Margin and 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 the MD&A.
Overall net revenue increased 54% to $18.3 million in Q2 2021 from $11.9 million in Q1 2021.
Recreational net revenue rose to $12.7 million, an increase of 70% quarter-over-quarter as a result of distribution gains, improved fulfilment and higher sales as the Company's products continue to be well received by the recreational cannabis consumer. In particular, a 98% increase in sales volumes and a 3% higher average selling price per gram from the Company's dried flower and pre-rolls drove the increased recreational net revenue.
Wholesale net revenue, which includes the Company's sales in the international medical cannabis segment, in Q2 2021 was $5.6 million, up 28% quarter-over-quarter, driven by a 14% increase in average selling price per gram and a larger contribution from international flower sales volumes. Wholesale volumes grew by 12% as the Company continues to forge longer-term relationships in the domestic market. The growth was also driven by a 34% increase in international medical sales with the Company strengthening its relationship with Breath of Life International Ltd., Israel's largest and leading producer of medical cannabis.
In Q2 2021, Adjusted Gross Margin was 49% compared to 53% in Q1 2021, primarily due to product mix and higher production costs from scaling of operations and investments in supply chain. Adjusted Gross Margin for Q2 2021 excludes impairment charges of $0.7 million recorded in production costs compared to $8.4 million of impairment charges recorded in production costs in Q1 2021.
The Company generated a positive Adjusted EBITDA of $3.6 million compared to an Adjusted EBITDA of $0.3 million in Q1 2021 due to a significant increase in revenue and consistent cost control.
Balance Sheet, Liquidity and Cash Flow from Operations
Supreme Cannabis ended the quarter with a total cash balance of $20.4 million and a working capital surplus of $43.1 million.
Subsequent to quarter end, the Company took steps to significantly reinforce its balance sheet and launched an overnight marketed public offering ("the Offering") of units of the Company (the "Units") at a price of $0.19 per Unit (the "Offering"). Each Unit comprised of one common share of the Company and one half of one common share purchase warrant of the Company (each full common share purchase warrant, a "Warrant"). Each Warrant is exercisable to acquire one common share of the Company (a "Warrant Share") until January 29, 2024 at an exercise price of $0.23 per Warrant Share, subject to adjustment in certain events.
On January 29, 2021 the Company announced the closing of the Offering of 121,049,000 Units for total net proceeds to the Company of $21.5 million, including the full exercise of the over-allotment option granted to the underwriters in connection with the Offering. The net proceeds from the Offering will be used to fund growth initiatives, as a reserve for strategic opportunities, and for working capital and general corporate purposes.
Subsequent to quarter end, the Company also issued 21,560,500 shares under the at-the-market equity ("ATM") program for net proceeds of $4.2 million. Pursuant to the terms of the Offering, the Company will pause the use of its ATM program.
Including equity issuances subsequent to quarter end from the Offering and ATM program, the Company had a pro forma total cash balance of $41.9 million.
Operating and Capital Expenditures
In Q2 2021, the cost realignment efforts taken in the second half of fiscal 2020 continued to benefit the Company. Operating expenses in Q2 2021 rose by 29% over the previous quarter to $8.4 million, primarily driven by Q1 2021 benefiting from a recovery of $2.1 million related to the cancellation and forfeiture of 10.0 million stock options. As such, excluding the impact of the cancellation and forfeiture of the options, the Company's operating expenses decreased by approximately 2% quarter-over-quarter. The Company continues to consolidate and streamline its facilities and production expenses.
The Company's capital expenditures in Q2 2021 decreased to $0.3 million, down 25% quarter-over-quarter. With the completion of construction projects at the Company's Kincardine, Ontario ("Kincardine Facility") and Langley, British Columbia ("Langley Facility") facilities, capital expenditures for the remainder of 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 Q2 2021.
Supreme Cannabis introduced 9 new SKUs to the market during Q2 2021:
The following SKUs were launched on the Medical Cannabis by Shoppers™ online sales platform in February 2021:
5g Whole Flower Jean Guy
5g Whole Flower Sensi Star
5g Whole Flower White Widow
2x 0.5g Pre-Rolls Jean Guy
2x 0.5g Pre-Rolls Sensi Star
2x 0.5g Pre-Rolls White Widow
Overall, Supreme Cannabis shipped 41% more product in Q2 2021 compared to Q1 2021. The provinces of Quebec, Alberta, Ontario and British Columbia generated the majority of the Company's sales.
Distribution to the recreational market on a gram equivalent basis was 87% higher in Q2 2021 compared to Q1 2021.
Key to growing Supreme Cannabis' presence across Canada is the Company's sales agency agreement with 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 December 2020, humble+fume has created over 7,300 new listings for Supreme Cannabis products, including 3,446 new listings in the second quarter of 2021, up from 2,258 the previous quarter. In the second quarter of 2021, over 246 new retailer locations started carrying the Company's products.
While Supreme Cannabis and its brands achieved significant traction and revenue growth in the recreational market in Q2 2021, the Company is monitoring its sales and marketing efforts in light of the new restrictions put in place during the second wave of COVID-19 and will optimize its in-store marketing and spend accordingly.
In the second quarter of 2021 the Company also announced that it had entered into a supply agreement with Medical Cannabis by Shoppers Inc., a subsidiary of Shoppers Drug Mart Inc., to offer Truverra-branded medical cannabis products through the Medical Cannabis by Shoppers online sales platform accessible to patients across Canada. Truverra's dried flower and pre-roll offerings are now available for purchase, with full-spectrum CBD oil coming soon.
The Company also expanded its international medical cannabis shipments, completing its first shipment of medical cannabis to Australia in a private label transaction subsequent to quarter end.
The Company continues to make incremental improvements at its core facilities in Kincardine, Ontario and Langley, British Columbia, to enhance production, processing and operating efficiency.
At the Kincardine facility the Company continued to optimize growing conditions, reducing harvest times and finding efficiencies in drying and trim, achieving a 6% decrease in time from clone to dock and a yield improvement of 3.6%. The Company also made significant improvements to its labelling processes and have initiated commissioning on a second pre-roll label machine.
Subsequent to quarter end, a pre-roll autocone machine arrived on site and will be put into production in in the coming months.
At the Langley Facility, the Company's continuous improvement program continues to yield positive results. The Company is focused on improving the quality of its oils by using carbon filtration to optimize its distillation process, resulting in a 7% improvement in the potency of distillates.
The Company continues to focus on near-term revenue and reaching sustainable profitability based on its accelerated transformation into a premium Cannabis CPG company, its streamlined and right-sized operating structure, and its enhanced offering of 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 deliver against objectives efficiently.
Supreme Cannabis remains focused on cost containment, driving efficiencies, and is fully-funded to execute on all planned initiatives.
Second-quarter 2021 earnings conference call and webcast.
The Company will host a conference call to discuss its second-quarter fiscal 2021 results at 8:00 AM Eastern on Friday, February 12, 2021. Interested parties can join the call by dialling 647-427-7450 or 1-888-231-8191. The conference ID number is 9983683. The call can also be accessed through the following webcast link: https://bit.ly/3qZirpD.
A recording of the conference call will be available for replay two hours after the call's completion. To access the recording, please dial 416-849-0833 or 1-888-859-2056 and the replay code 9983683. The recording will be available until March 12, 2021.
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.
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: progressing towards becoming a premium cannabis CPG company; expected capital expenditures for the remainder of fiscal 2021; offering of additional products through the Medical Cannabis by Shoppers online sales platform; the implementation of the pre-roll autocone machine in the coming months at the Kincardine Facility; the Company's ability to grow near-term revenue and reach sustainable profitability; the Company's focus on cost containment and ability to execute on all planned initiatives; 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" and Adjusted Gross Margin". 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 amortization of property plant and equipment & intangible assets, share based payments, restructuring charges, impairment of inventory in production costs, fair value changes on growth of biological assets, realized fair value changes on inventory sold or impaired, net finance expenses, gain on settlement of convertible debentures, loss on modification of debt, gain on settlement of contract, gain or loss on disposal of property plant and equipment, unrealized and realized gains or losses on investments and income taxes.
The Company defines Adjusted Gross Margin as gross margin excluding inventory impairment, fair value changes on growth of biological assets and realized fair value changes on inventory sold or impaired.
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.