Investor Ideas Potcasts, Cannabis News and Stocks on the Move; Episode 391 (TSX: HEXO) (NYSE: HEXO) (CSE: IMCC) (CSE: TGIF)
Delta, Kelowna, BC - March 30, 2020 (Investorideas.com Newswire) www.Investorideas.com, a global news source covering leading sectors including marijuana and hemp stocks and its potcast site, www.potcasts.ca release today's podcast edition of cannabis news and stocks to watch plus insight from thought leaders and experts.
Listen to the podcast:
Investor Ideas Potcasts, Cannabis News and Stocks on the Move; Episode 391 (TSX: HEXO) (NYSE: HEXO) (CSE:IMCC) (CSE: TGIF)
Today's podcast overview/transcript:
Good afternoon and welcome to another episode of Investorideas.com "Potcast" featuring cannabis news, stocks to watch as well as insights from thought leaders and experts.
In today's podcast we are looking at a few public announcements.
"We have continued our focus on improving our operations and expanding distribution across Canada. Our strategy with Original Stash has demonstrated that we can directly compete with the black market," said Sebastien St-Louis, CEO and co-founder of HEXO Corp. "The industry continues to see challenges ahead, and following a strategic review of the Company's core and non-core assets we believe we have positioned HEXO to meet these challenges head on."
Gross revenue increased 23% to $23.8M from $19.3M in Q1'20. Net revenue increased 17% to $17.0M from $14.5M in Q1'20.
Adult-use cannabis shipped revenue in Q2'20 increased 21% to $24.4M from $20.2M in Q1'20. Net adult use revenue increased 20% to $16.3M from $13.6M in Q1'20. The primary driver of the increase in sales during the quarter was the launch of Original Stash in Ontario, British Columbia and Alberta during the quarter, and the increase volume sold in Quebec. Adult use sales volume in Q2'20 increased 57% to 6,579 kg from 4,196 kg sold in the prior quarter.
Gross adult-use revenue per gram equivalent decreased to $3.49 in Q2'20 from $4.35 in Q1'20, reflecting the impact of the increasing portfolio share of Original Stash, the Company's value brand. The adult-use net revenue per gram equivalent decreased to $2.47 in Q2'20 from $3.24 in Q1'20.
Gross margin before fair value adjustments for Q2'20 was $5.7M or 33% of net revenue from sale of goods, compared to $4.6M and 31% in the prior quarter.
The Company incurred an write down on inventory of $16.1M during Q2'20 compared with $23.0M during Q1'20. The write down was realized on the Company's inventory in comprised of the following;
- Write down of surplus cannabis trim (trim is primarily used for extraction purposes) and milled products in the amount of $3.1M due to an excess of stock relative to the Company's short-term demand for cannabis distillate production; and
- Write down of concentrated bulk purchase of $11.8M, in part to an oversupply in the bulk product market, of which lowered the value when compared to the contracted price. The bulk product was acquired through a supply agreement, which is currently the subject of litigation and is alleged to be void as it was negotiated in bad faith at prices well in excess of market.
- Write down in the amount of $1.2M was recognized due to sunk costs related to packaging reconfiguration.
Operating expenses increased to $281.5M compared with $39.5M in Q1'20. Included in operating expenses, are certain expenses which management believes are expenses that are non-recurring or non-cash and related to significant changes in market conditions. Included in these expenses are:
- Restructuring costs - During the quarter the Company incurred restructuring costs in the amount of $0.3M associated to the rightsizing of operations that took place in Q1'20.
- Impairments of property, plant and equipment and intangible assets - Subsequent to the end of the quarter, after completing a strategic review of its cultivation capacity, the Company made the decision to list the Niagara facility for sale. As a result of the decision to sell, the Company undertook impairment testing of the facility, its property, plant and equipment, and the intangible assets acquired from Newstrike Brands Ltd. The Company determined that an impairment loss of $138.3M was required.
- Impairment of goodwill - As at January 31, 2020, the carrying amount of the Company's total net assets significantly exceeded the Company's market capitalization. In addition, slower than expected retail store roll outs in Canada and delays in government approval for cannabis derivative products resulted in a constrained distribution channels which have adversely affected overall market sales and profitability. As a result of these factors, management performed an indicator-based impairment test of goodwill as at January 31, 2020. As a result of this assessment, the Company recorded an impairment in goodwill of $111.9M.
- Realization of onerous contract - The Company recorded a $3.0M realization as the result of an onerous contract which is currently the subject of litigation.
When normalized for these non-recurring or non-cash expenses related to significant changes in market conditions, the company reports normalized operating expenses of $28.1M, compared with $35.1M in Q1'20. A 21% decrease as the result of a decrease in marketing expenditures and headcount, as the Company continues to reduce previous spending levels to refocus operations on becoming adjusted EBITDA positive. When normalized for other non-cash expenses the company reports normalized operating expenses of $16.1M, compared to $23.9M in Q1'20.
Loss from operations for the quarter was ($289.4M), compared with ($60.6M) in the prior period. Excluding non-cash write downs and impairment charges in Q2'20, adjusted net loss was ($23.2M) compared with ($34.0M) in Q1'20.
IM Cannabis Corp. (CSE:IMCC), one of the world's pioneering medical cannabis companies with operations in Israel and across Europe, announced that Focus Medical Herbs Ltd., a licensed medical cannabis producer in Israel, has signed a binding three-year sales agreement for the sale of medical cannabis to three pharmacies in Jerusalem operating under the Oranim Pharm and Medi Plus banners. Focus Medical is one of eight original licensed producers in Israel and has over 10 years of experience growing high quality medical cannabis in the Israeli market. Focus Medical has an exclusive commercial agreement with IMC to distribute its production under the IMC brand.
The total value of the Sales Agreement is expected to result in approximately CAD$15 million in revenue, with an expected gross margin of 50%.1
"IMC has long been recognized as a premium medical cannabis brand and this sales agreement reflects ongoing demand for quality products from well-known producers. As the medical cannabis market transitions from direct sales by licensed producers to a pharmacy model and with the government increasing the number of indications that qualify for medical cannabis treatment, we expect to continue to evaluate partnerships of this nature with leading pharmacies across Israel," says Oren Shuster, Chief Executive Officer of IMC.
1933 Industries Inc. (CSE: TGIF) (OTCQX: TGIFF), a vertically-integrated cannabis consumer packaged goods company, announced that it has begun its second harvest of cannabis plants from its cultivation facility located in Las Vegas, marking the beginning of continuous harvests in Nevada.
"This is an important milestone for our Company as we move into full production. We have spent several months optimizing the new Las Vegas facility, enhancing our genetics programme to develop varieties of strains and cultivars to meet the demands of our consumers and we are pleased with our progress to date. With the surge in demand during the COVID-19 pandemic, we are working closely with the dispensaries and responding to our clients' needs. We will be utilizing the current harvest for the production of our AMA branded concentrates and for our licensed brands Blonde™ and Denver Dab Co.", remarked Mr. Chris Rebentisch, 1933 Industries CEO. He added, "We are nimble and capable of adjusting our production to meet the needs of our consumers, which gives us a competitive advantage."
"We have spent considerable time conducting genetics hunting and receiving valuable feedback from the market will be key when selecting the best strains to develop commercially. We are known for producing some of the best concentrates in the market and we are working diligently, testing new strains and ensuring that we are harvesting every two to three weeks", said Mr. Ryan George, Director of Cultivation at Alternative Medicine Association, the Company's cultivation arm. "We are also pleased to report that we are growing DNA Genetics strains in every zone, with flowers available in the coming weeks and months. The Jack Herer strain will be ready for sale in approximately four months."
The timing for harvesting cannabis flowers is critical to ensure quality and consistency. Drying, lab testing and preparing the product for sale takes roughly a month from harvest, meaning that product from this harvest will be available in the market by the end of April. The Company's vertically integrated model focuses on controlling the supply chain where appropriate. Continuous harvests and steady-state production results in fewer purchases from and reliance on third-party biomass, improved quality of input materials, more consistent products and lower costs of production.
Tech startup FlowerShop Media (FSM) is helping cannabis brands adapt to the changing marketplace by providing a platform to manage digital advertising campaigns. In a climate of social distancing, CBD and THC brands will look to replace conferences, trade shows and face-to-face marketing with ways to reach their customers online and in their homes. Now more than ever, cannabis brands need a way to navigate restrictive advertising regulations to market their products across mainstream publishing sites.
BOLD, a premium cartridge manufacturer, selected FSM as a cost-effective way to specifically target CBD and THC processors and growers who purchase vape products for their oils and extracts. With campaigns already underway, FSM is delivering geo-targeted messaging to consumers based on where they live and a separate ad to buyers for dispensaries. So far, the campaign has resulted in a 30 percent increase in website traffic and a spike in online sales.
"Prior to FlowerShop Media, we relied on old-school outreach methods, such as trade shows or going through distributors to grow our territory," said BOLD Founder & CEO Bill Rinehart. "Now we use FlowerShop's digital ad platform to create brand awareness for the exact market we want to target. We saw dramatic growth in a short period of time using only digital ad campaigns targeting specific dispensaries in new markets, and we're looking forward to expanding nationwide."
Using the FSM platform, cannabis advertisers can create, manage and optimize digital advertising campaigns on devices such as desktops, mobile devices and connected TV with ad formats that include display, mobile, video, native and digital out-of-home. This solution enables CBD and THC companies and their agencies to expand beyond trade publications and enthusiast sites by advertising on premium publishing outlets, such as Hearst newspapers and magazines (i.e. Car and Driver, Popular Mechanics, Women's Health) and Gannett (i.e. USA Today and 100+ daily newspapers). Advertising buyers can use FSM as a self-service platform or as a managed service to help create and launch new campaigns.
"Our goal is to make it easy for cannabis companies to advertise across Tier 1 publications," said FSM CEO David Breckling. "Our direct relationships with the largest group of publishers allow us to promote our customers' products to fresh, new audiences across major media and streaming services."
FSM's underlying technology boasts a number of features that make it easy to advertise, including scaling one ad design across multiple media. Moreover, it removes a significant financial barrier that many small cannabis brands face because it doesn't require contracts to get started or a minimum spend to launch campaigns.
FSM's easy-to-use self-serve platform and managed services supports advertising buyers and agencies regardless of their depth of adtech experience. The platform also offers a number of geo-targeting capabilities and complex functionality for the more advanced users and advertising agencies.
Adtech veteran Breckling founded FSM to fill a critical business need in the cannabis space by offering a simplified advertising approach that navigates the ever-evolving state-by-state cannabis advertising regulations. His team's combined experience in the adtech space delivers expertise to build brand loyalty and help cannabis businesses become profitable. As the CEO and co-founder of Phluant and EyeWonder Inc., Breckling has spent his career building successful tech companies.
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