- 2nd consecutive quarter of positive Adjusted EBITDA1
- 4% Adjusted EBITDA margin2 places company in top 3 position for profitability amongst its peers3
- 9% growth in adult use revenue4 over prior quarter; 5% growth in adult-use revenue5 year over year
- 40% increase in medical net revenue6 with $1.1 million record month revenue in November 2022
- 1st shipment made toward new European agreement announced in Q2 FY2023
- Estimated $1 million sales7 contract to second European partner
- Gross profit before fair value adjustments of 37% versus 27% in the prior year8
TORONTO, Feb. 13, 2023 (GLOBE NEWSWIRE) -- Aleafia Health Inc. (TSX: AH, OTCQB: ALEAF) (“Aleafia Health” or the “Company”) is pleased to report its financial results for the three months ended December 31, 2022, its third quarter of its fiscal year ending March 31, 2023 (“FY2023”).
For the second consecutive quarter, ahead of forecasts, the Company has achieved the important milestone of positive Adjusted EBITDA of $0.4 million representing a 4% Adjusted EBITDA margin9, representing a top three position amongst its peers of Canadian LPs of similar size, scale and business focus10.
“Aleafia Health has developed a relentlessly focused cost containment and profitability culture, while continuing to introduce highly innovative, sought-after and in-demand products while adding to adult-use revenues nationally in Canada,” said Aleafia Health CEO Tricia Symmes. “With ongoing and completed cost rationalizations and the continued growth and popularity of our branded adult-use portfolio, anchored by Divvy, we remain confident the Company can reach our goals of scalable profitability while attaining a top 10 standing in our markets in the next fiscal year11.”
“The Company’s $0.4 million in Adjusted EBITDA in Q3 FY2023 – our second quarter in a row of profitability and two quarters faster than anticipated – is an outstanding achievement. It represents an increase of $2.8 million over the quarter ending December 31, 2021 and a $0.4 million increase over last quarter, our first positive Adjusted EBITDA quarter since emerging as a branded cannabis producer,” said Matt Sale, CFO. “It results in part from $2.8 million of incremental annualized Adjusted SG&A cost savings since the last quarter and $21 million in cost reductions over the last 15 months.”
Adult-Use Positive Momentum: In Q3 FY2023, the Company experienced 9% growth in adult use revenue over the previous quarter, despite an industry-wide market retraction. Divvy continues to drive the majority of the $10.0 million of total revenue in this channel for the quarter ended December 31, 2022, up from $9.0 million in the prior calendar year. All of this adds up to a #13 ranking for market share in our core markets for Q3 FY202312. The Company is targeting achieving a top 10 market share ranking13 in each of its participating markets14. It has also added to its addressable market by entering Manitoba, a fifth provincial distribution region, enabling Divvy and the rest of the Aleafia Health portfolio to reach over 70% of the Canadian population.
New International Partner: Internationally, the Company recorded $0.6 million in international net revenue15 for Q3 FY2023, and reached $1.7 million for the twelve months ended December 31, 2022. This represents 155% year over year growth in the international sales channel. During Q3 FY2023 the first shipments to a previously announced international partner were also executed towards an estimated $4.6 million16, two-year sales commitment. In January 2023, a second European partner was announced, representing a one-year, estimated $1.0 million17 initial contract.
“International net revenue for the 2022 calendar year was $1.7 million up from $0.7 million in the prior year, an impressive 155% increase,” said Symmes. “While there was a modest decline in international revenue quarter over quarter due to timing of shipments, product is now in the European market and with the completion of expansion plans, the Company’s Paris, Ontario indoor cultivation facility will increase grow capacity by 20% for international destinations.”
Rising Medical Net Revenue: There was a 40% increase in medical net revenue over the prior year and a 7% increase over the last quarter, aided by a record $1.1 million in Total Cannabis Sales18 in November 2022. In a contracting market, medical net revenue, excluding clinics, rose to $2.7 million in Q3 FY2023 ending December 31, 2022, as compared to $2.0 million in the same calendar period last year. There were 12 specific new medical programs introduced to patients in Q3 FY2023, targeting individual patient segments with new formats and expanding the Aleafia Health flower and edible portfolio.
Further Cost Reductions: Adjusted SG&A19 of $3.8 million in the quarter ended December 31, 2022 represented a 51% decline over the prior year and a 16% decline relative to last quarter. Since the last quarter, the Company achieved an additional $2.8 million in annualized Adjusted SG&A cost savings primarily relating to efficiencies in its IT systems, enhanced procurement processes, and an ongoing vendor consolidation. The Company’s full-time equivalent headcount decreased by 20% over last quarter. Over the last four quarters, over $16 million in annualized cost savings have been extracted from Adjusted SG&A, bringing Adjusted SG&A down from 89% of total net revenue in the quarter ended December 31, 2021 to 36% in the quarter ended December 31, 2022.
“Significant and aggressive cost rationalizations in the Company’s Adjusted SG&A have dramatically reduced the Company’s cash expenditures,” said Matt Sale, CFO. “We are operating with a current Adjusted SG&A profile that is flexible and scalable to facilitate continued net revenue growth across all three of our core branded cannabis sales channels. Going forward, we are focusing on further deepening our relationships with key vendors, aligning the Company with those matching our size and scale, creating further competitiveness, and enabling volume-based discounts.”
“It has been a year since our leadership team changed, and every day we are still inspired by the hard work and team approach of all those who have contributed to the Company’s success, as represented by our second consecutive quarter of Adjusted EBITDA profitability,” said Symmes. “We believe the Company’s future is very bright as we expect to attain a top 10 market share position in each of our existing markets, and enter new domestic markets and grow international expansion20, while continuing to introduce new and innovative products that meet consumers’ needs in the formats that add to their overall well being.”
Operational and Financial Highlights
| ($,000s) | Three months ended | Nine months ended | |||||||||||
| 31-Dec-22 | 31-Dec-21 | 31-Dec-22 | 31-Dec-21 | ||||||||||
| Operating Results | |||||||||||||
| Adult-Use Market Share %(1) | 2.1 | % | 1.7 | % | 2.1 | % | 1.7 | % | |||||
| Adult-Use Market Share Ranking | 13 | 15 | 13 | 15 | |||||||||
| Medical Use Orders | 16,162 | 18,956 | 46,529 | 58,038 | |||||||||
| Medical Use Avg Order Value | $ | 166 | $ | 143 | $ | 162 | $ | 143 | |||||
| Financial Results | |||||||||||||
| Revenue | 14,754 | 11,981 | 45,660 | 36,009 | |||||||||
| Branded Cannabis Net Revenue | 10,039 | 8,312 | 29,445 | 21,813 | |||||||||
| Wholesale Net Revenue | 750 | 452 | 4,009 | 7,644 | |||||||||
| Net revenue(1) | 10,789 | 8,764 | 33,453 | 29,457 | |||||||||
| Branded Cannabis profit $ | 3,717 | 2,117 | 9,974 | 5,118 | |||||||||
| Branded Cannabis profit % | 37 | % | 25 | % | 34 | % | 23 | % | |||||
| Bulk Wholesale profit $ | 272 | 232 | 380 | (3,964 | ) | ||||||||
| Bulk Wholesale profit % | 36 | % | 51 | % | 9 | % | -52 | % | |||||
| Gross profit before fair value adjustments | 3,990 | 2,348 | 10,239 | 1,153 | |||||||||
| Total Gross profit % | 37 | % | 27 | % | 31 | % | 4 | % | |||||
| Adjusted SG&A | 3,835 | 7,824 | 13,036 | 24,508 | |||||||||
| % of total net revenue | 36 | % | 89 | % | 39 | % | 83 | % | |||||
| Adjusted EBITDA(2)(3) | 446 | (2,398 | ) | (409 | ) | (14,646 | ) | ||||||
| Adjusted EBITDA margin (2) | 4 | % | -27 | % | -1 | % | -50 | % | |||||
| 1. Based on HiFyre retail sales pull through data in BC, AB, SK, and ON for the period Q4 | |||||||||||||
| 2. See “Cautionary Statements Regarding Certain non-IFRS Measures” section for term definition 3. See “Adjusted EBITDA” section for reconciliation to IFRS equivalent | |||||||||||||
Cautionary Statement Regarding Non-IFRS Measures
Total Cannabis Sales, Adjusted EBITDA, Adjusted SG&A, International Net Revenue, Wholesale Net Revenue, Branded Cannabis profit, Bulk wholesale profit, Adjusted EBITDA margin, Gross Profit before Fair Value Adjustments, Adult-Use Cannabis Net Revenue, Branded Cannabis Net Revenue and Medical Cannabis Net Revenue are non-IFRS measures that do not have a standardized meaning and therefore may not be comparable to similar measures presented by other issuers. Definitions of each measure and a reconciliation of Adjusted EBITDA and Adjusted SG&A against the comparable IFRS measure can be found below. For additional information including the purpose of the non-IFRS measure, see “Cautionary Statement re Non-IFRS measures” in the Company’s Management’s Discussion and Analysis for the period ended December 31, 2022 found on SEDAR at www.sedar.com.
Adjusted EBITDA
Adjusted EBITDA is widely used by industry participants and analysts to measure company performance. The Company considers Adjusted EBITDA a key metric for measuring operating performance and cash flow, to manage working capital, debt repayments and capital expenditures. Adjusted EBITDA is calculated as net income (loss), excluding (i) amortization and depreciation, (ii) fair value changes in biological assets and changes in inventory sold, (iii) share-based payments, (iv) bad debt expense, (v) business transaction costs, (vi) non-operating expenses (income), (vii) taxes, (viii) interest expenses, (ix) one-time sale of assets, and (x) unrealized gain (loss) on marketable securities. Adjusted EBITDA is not recognized or defined under IFRS, and as a result, it may not be comparable to the data presented by competitors.
| Three months ended | Nine months ended | |||||||
| ($,000s) | 31-Dec-22 | 31-Dec-21 | 31-Dec-22 | 31-Dec-21 | ||||
| Net loss | (25,128 | ) | (71,509 | ) | (22,557 | ) | (146,612 | ) |
| Add back: | ||||||||
| Depreciation and amortization(1) | 1,349 | 1,823 | 5,259 | 6,556 | ||||
| Interest expense, net | 2,233 | 2,185 | 7,047 | 5,922 | ||||
| Deferred Income tax expense (recovery) | - | - | - | (2,854 | ) | |||
| EBITDA | (21,545 | ) | (67,501 | ) | (10,251 | ) | (136,987 | ) |
| Inventory provision | 6,795 | 17,266 | 6,795 | 19,648 | ||||
| FV changes in biological assets and changes in inventory sold | 10,449 | 6,633 | (4,534 | ) | (373 | ) | ||
| Share-based payments | 685 | 663 | 2,211 | 2,252 | ||||
| Bad debt expense | - | 12 | - | 1,543 | ||||
| Business transaction costs | 67 | 951 | 427 | 2,917 | ||||
| Restructuring Costs | 291 | - | 291 | - | ||||
| Gain on sale of assets | - | - | (112 | ) | (12,092 | ) | ||
| Gain on sale of marketable securities | - | - | - | - | ||||
| Fair value adjustments through profit and loss | 126 | 8,785 | 1,133 | 13,685 | ||||
| Impairment of intangible assets | - | - | - | 53,093 | ||||
| Impairment of goodwill | - | - | - | 11,314 | ||||
| Impairment of property, plant & equipment | 3,578 | 28,800 | 3,578 | 28,800 | ||||
| Non-operating expense (income) | - | 71 | 52 | (368 | ) | |||
| Adjusted EBITDA(2) | 446 | (4,320 | ) | (409 | ) | (16,568 | ) | |
1. Includes non-cash depreciation expensed to cost of sales
2. See "Cautionary Statements Regarding Certain non-IFRS Measures" section for term definition
Adjusted SG&A
Adjusted selling, general and administrative (“Adjusted SG&A”) is defined as SG&A expenses adjusted to exclude non-recurring costs. These non-recurring items may relate to certain transaction costs, one time subsidies, and severances. Medical clinic supply services amounts are included in SG&A. Adjusted SG&A is not recognized or defined under IFRS, and as a result, it may not be comparable to the data presented by competitors.
| ($,000s) | Three months ended | Nine months ended | ||||||
| 31-Dec-22 | 31-Dec-21 | 31-Dec-22 | 31-Dec-21 | |||||
| SG&A | 3,872 | 6,980 | 13,061 | 22,344 | ||||
| Business transaction costs | 67 | 951 | 428 | 2,876 | ||||
| Bonus reversals, severance, other adjustments | (104 | ) | (107 | ) | (447 | ) | (712 | ) |
| Adjusted SG&A | 3,835 | 7,824 | 13,036 | 24,508 | ||||
Gross Profit before Fair Value Adjustments
Gross Profit before Fair Value adjustments is the gross profit before fair value adjustments and inventory provision. Management believes that this is a useful metric to assess the profitability of cannabis sales, as it eliminates the effects of non-cash FV changes in inventory and biological assets.
Adult-use Cannabis Net Revenue is net cannabis revenue for Canadian adult-use sales.
Cannabis Net Revenue is sale of cannabis revenue less excise duties.
Branded Cannabis Net Revenue is calculated as adult-use cannabis net revenue, medical cannabis net revenue and international cannabis net revenue. It excludes bulk wholesale net revenue.
International Net Revenue is net cannabis revenue for international medical sales.
Medical Cannabis Net Revenue is net cannabis revenue for Canadian medical sales and clinic revenue.
Bulk Wholesale Cannabis Net Revenue is net cannabis revenue in sales to other Licensed Producers.
Branded Cannabis Profit represents gross profit on branded cannabis net revenue. It is calculated by subtracting cost of sales related to branded cannabis net revenue.
Bulk Wholesale Profit represents gross profit on bulk wholesale. It is calculated by subtracting cost of sales related to bulk wholesale cannabis net revenue.
Adjusted EBITDA margin is calculated by Adjusted EBITDA divided by total net revenue.
Total Cannabis Sales means sale of cannabis revenue including excise duties
For Investor & Media Relations
Matthew Sale, CFO
IR@AleafiaHealth.com
LEARN MORE: www.AleafiaHealth.com
About Aleafia Health:
The Company is a federally licensed Canadian cannabis company offering cannabis products in Canadian adult-use and medical markets and in select international markets, including Australia and Germany. The Company operates a virtual medical cannabis clinic staffed by physicians and nurse practitioners which provide health and wellness services across Canada.
The Company owns three licensed cannabis production facilities and operates a strategically located distribution centre all in the province of Ontario, including the largest, outdoor cannabis cultivation facility in Canada. The Company produces a diverse portfolio of cannabis and cannabis derivative products including dried flower, pre-roll, milled, vapes, oils, capsules, edibles, sublingual strips, and topicals.
Forward Looking Information
Certain statements herein relating to the Company constitute “forward looking information”, within the meaning of applicable securities laws, including without limitation, statements regarding future estimates, business plans and/or objectives, sales programs, forecasts and projections, assumptions, expectations, and/or beliefs of future performance, are “forward-looking information”. Such forward-looking statements involve unknown risks and uncertainties that could cause actual and future events to differ materially from those anticipated in such statements. Forward looking statements include, but are not limited to, statements with respect to our long term profitability, market share, net revenue, the estimated value of contracts, new market entries, branded cannabis net revenue, Adjusted EBITDA, and other financial outlook projections for fiscal year 2023, our commercial operations, including production and / or sales of cannabis, quantities of future cannabis production, anticipated revenue in connection with such sales, and other Information that is based on forecasts of future results, estimates of production not yet determinable, and other key management assumptions. The following material factors or assumptions were used to develop the forward looking information: stable currency exchange, parties will perform contracts in accordance with their terms, parties to contracts will purchase the minimum quantities required to retain any exclusivity rights under the contract, ability to obtain listing agreements in new markets, market size and growth of the Canadian adult-use and medical cannabis markets, retail store penetration, script trends, cultivation and processing capacity, costs of production, gross and net revenue per gram. Actual results may differ materially from those expressed or implied by such forward looking statements and involve risk and uncertainties relating to: currency conversion, ability to source flower and supplies of sufficient quantity, quality and price point, performance of competitors, laws and government policies, future cultivation yield and quality, actual operating performance of facilities, product launches, facility licenses and amendments, average selling prices, cost of goods sold, operating expenses, Adjusted EBITDA, regulatory changes in the Canadian and international markets, and other uninsured risks. The forward looking information was approved by Management as of February 10, 2023. The Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by law. The forward looking information is provided for information purposes only and readers are cautioned that it may not be appropriate for other purposes. This presentation is provided for general information purposes only and does not constitute an offer to sell or solicitation of an offer to buy any security in any jurisdiction.
_____________________________
1 This is a non-IFRS measure. Please see cautionary statement on non-IFRS measures below.
2 This is a non-IFRS measure. Please see cautionary statement below.
3 Peer group includes Decibel, Rubicon, Hexo, Lifeist, Aurora, Delta 9, Entourage, Auxly, Vivo, TGOD, Valens, Canopy, Medipharm.
4 This is a non-IFRS measure. Please see cautionary statement below.
5 This is a non-IFRS measure. Please see cautionary statement below.
6 This is a non-IFRS measure. Please see cautionary statement on non-IFRS measures below.
7 This is forward looking information. Please see cautionary statement below.
8 This is a non-IFRS measure. Please see cautionary statement below.
9 This is a non-IFRS measure. Please see cautionary statement on non-IFRS measures below.
10 Peer group includes Decibel, Rubicon, Hexo, Lifeist, Aurora, Delta 9, Entourage, Auxly, Vivo, TGOD, Valens, Canopy, Medipharm.
11 This is forward looking information. Please see cautionary statement below.
12 Based on HiFyre retail sales pull through data in BC, AB, SK, and ON for the period Q3 FY2023 and excludes beverage and cultivation.
13 This is forward looking information. Please see cautionary statement below.
14 “Participating markets” means the recreational cannabis markets for Ontario, Saskatchewan, Alberta, Manitoba and British Columbia.
15 This is a non-IFRS measure. Please see cautionary statement below.
16 This is forward looking information. Please see cautionary statement below.
17 This is forward looking information. Please see cautionary statement below.
18 This is a non-IFRS measure. Please see cautionary statement below.
19 This is a non-IFRS measure. Please see cautionary statement below.
20 This is forward looking information. Please see cautionary statement below.
