TORONTO, Sept. 08, 2017 (GLOBE NEWSWIRE) -- The Canadian Bioceutical Corporation (the “Company” or “BCC”) (CSE:BCC) (OTC:CBICF) today reported its financial results for the fourth quarter and full fiscal year ended March 31, 2017.
| (in CA$) | 3 months to March 31, 2017 | 3 months to March 31, 2016 | FY ended March 31, 2017 | FY ended March 31, 2016 | |
| Grams sold | 266,587 | - | - | - | |
| Total Revenues | $4.4M | $0.0M | $4.4 | $0.0M | |
| Gross Profit | $1.0M | $0.4M | $1.0 | $0.0M | |
| Adjusted EBITDA | ($0.3M) | ($0.8M) | $(1.2M) | ($1.4M) | |
| Net loss | $4.5M | $2.1M | $5.6M | $2.9M | |
“While the Arizona operations we acquired recorded a solid, cash-flow positive quarter, our investments in growth, the transition to IFRS rules around acquisition accounting, as well as a number of one-off expenses and other non-cash charges, impacted our reported bottom line,” stated Scott Boyes, CEO of BCC. “Going forward into Q1, we anticipate reporting margins more commensurate with normal operations.”
“With three transactions completed and another five nearing completion, we continue to successfully execute our aggressive growth strategy. Once the associated assets have been acquired and developed, we anticipate having 10 dispensaries in four states, with over 9,000 kg per annum cultivation capacity and over 1,200 kg per annum high-margin concentrates production capacity, forming an exceptionally strong foundation to build further multi-state growth on in the coming years.”
Beth Stavola, President of BCC’s U.S. operations, added, “We remain on track with our growth initiatives. We expect our newest Arizona dispensary, currently being built out, to be operational in November. At the same time, we are testing the RotoGro technology, which we expect to increase our cultivation capacity, a proven industry bottleneck for growth. Finally, our JV with Panaxia will provide further product differentiation in all our current markets. Our brands continue to resonate well with the market and we look forward to rolling out Health for Life dispensaries and MPX concentrates in the new markets we are entering.”
Q4 2017 and subsequent highlights
Operational
- Sold 266,589 gram equivalents of cannabis products at an average sales price of $14.50 per gram for gross revenues of $3.9 million, comprised of:
• 237,770 grams of cannabis flower
• 28,819 grams of concentrate - Ancillary products accounted for $0.5 million in revenues.
- Relocated the Health for Life Mesa North dispensary to the New Mesa North location. The new design, which will form the blueprint for all new Health for Life dispensaries, has continued to experience stronger ongoing sales than the old Mesa North facility experienced.
- Commenced development of a new dispensary following the PerkAZ acquisition (see below) in the Apache Junction suburb of the Greater Phoenix Area, an underserved geography in terms of dispensary coverage. The Company anticipates this new facility will be operational in November 2017.
- Commenced the installation of RotoGro as well as additional equipment for the production of high-margin concentrates at its New Mesa North facility, enabling the company to double concentrates production in Arizona to 1.1 million grams per annum.
Acquisitions
- Completed the acquisition of the companies managing and supporting the highly successful Health for Life dispensaries and the award-winning MPX wholesale concentrates brand in Arizona for a total consideration of US$25 million, consisting of US$15 million in cash and a three-year, 8% promissory note for US$10 million (the “AZ Business”).
- Completed the acquisition of the assets of PerkAZ, a management company supporting an additional cultivation, production and retail license. In consideration of the acquisition, BCC paid US$3 million in cash and issued 1,776,800 common shares (valued at US$1 million) at a price of CA$0.75 per common share. The acquisition includes a 44.3 acre property in Chino Valley, currently valued at US$1.5 million.
- Completed the acquisition of a 51% interest in a management company supporting a cultivation and production facility and a dispensary in Massachusetts, which voted in favour of legalizing adult use of cannabis. In consideration of the acquisition, BCC paid US$5.1 million in cash. The Company will also pay up to US$1,600,000 (US$800,000 each) in cash for the right to manage two additional dispensaries once zoning and other required permits have been granted.
- Signed LOIs to complete the following acquisitions:
• GreenMart of Nevada, a Las Vegas-based cultivation and production wholesale operation
• A profitable fourth Arizona cultivation/production/dispensary operation
• Three licenses to develop up to three dispensaries and one (of only 15 state-wide) production licenses in Maryland
Partnerships
- The Company entered into a partnership with MJardin who will be providing cultivation services to certain of BCC’s operations.
- The Company entered into a strategic partnership with Israeli pharmaceuticals company Panaxia for the formation of a Joint Venture whereby Panaxia will be providing proprietary, smokeless, pharma-grade cannabis-based products that have been proven to be in high demand, but have not been readily available in the U.S. These products will be sold through the Health for Life dispensaries, as well as wholesale to other dispensaries in the markets in which BCC is active. Revenues are to be shared on a 50/50 basis, with Panaxia taking on all CapEx and OpEx related to the building and operations of the assembly facilities within the footprint of BCC cultivation facilities. BCC will be providing the cannabis for extraction by the joint venture and assembly into the Panaxia products.
Financing
- Raised US$27 million in January 2017 through a private placement of common shares priced at CA$0.20 per share
- Raised US$11.2 million through a private placement of common shares priced at CA$0.50 per share
- Arranged a US$25 million credit facility with Florida-based Hi-Med. To-date, no funds have been drawn down against the facility, with the maximum of US$25 million remaining available to the Company to fund the execution of its growth strategy.
Financial overview
Below follows a summary of the key financial metrics for the Company:
Revenues
During the three-month period ending March 31, 2017, the Arizona operations sold 237,770 grams of cannabis flower and 28,819 grams of concentrate, generating combined gross revenues of $3.9 million. The average retail selling price per gram was approximately $14.50 (US$10.85). Accessories, edibles and ancillary products contributed approximately $0.5 million, for total quarterly revenues of $4.4 million. As the Company completed the acquisition of the Arizona assets in January of 2017, no contribution from these operations was recorded in the prior year, during which only minimal sales of nutraceutical products were recorded.
Gross Profit
Under IFRS, inventory of cannabis, cannabis extractions, edibles and accessories held by the acquired AZ Business at the date of acquisition was recorded at full retail value, and the fair value becomes the deemed cost on a go-forward basis. As a result, the Company recorded no gross margin on any inventory acquired effective January 1, 2017 and sold during the period January 1, 2107 through March 31, 2017. As the inventory held by the acquired companies on January 1, 2017 was sold, the fair value was relieved from inventory and the transfer was booked to cost of sales. On this basis, gross profit for the three-month period ended March 31, 2017, after adjustment for the unrealized gain in the fair value of biological assets, was recorded at $1.0 million, reflecting a 23.5% gross profit margin.
Adjusted Gross Profit
The acquired companies held inventory on January 1, 2017 with a fair market value of $3.5 million. Management estimates that the effect of this IFRS treatment on gross margin during the period be an adjustment of $2.1 million, which on an adjusted basis equates to an increase in gross margin before the unrealized gain on the fair value of biological assets of 48%. Given this adjustment, management has conservatively estimated a normalized gross margin before the unrealized gain on the fair value of biological assets would have been $2.2 million (50%).
Expenses
For the three-month period, total expenses of $4.8 million were recorded, as compared to $0.9 million for the same period in the prior year. The increase in operating expenses was attributable primarily to the business combination with the Arizona assets in January of 2017, the costs of which were not carried in the prior year, as well as certain one-off costs related to the acquisition (integration of accounting practices acquired operations, audit, legal), the Company’s migration from the TSX-V to the CSE, and a non-cash charge ($0.5 million) related to the change in lease on the Company’s Owen Sound property. Furthermore, the Company recorded a total of $1.5 million in non-cash share-based payments.
Net Operational loss and Adjusted EBITDA
The Company recorded a net operating loss of $3.8 million for the three month period ended March 31, 2017, as compared to a $0.8 million loss for the same period in the prior year. The increase in loss as attributable mainly to increases in general & administrative expense, share-based payments and the cost of goods sold, as recorded under IFRS acquisition accounting practices.
Adjusted for non-cash items, including the stock-based compensation expense, amortization and depreciation, non-cash occupancy costs, and the non-cash effects of accounting for biological assets and the non-cash effect of accounting for inventory acquired through acquisition at fair value, as well as interest and tax, the Company recorded a negative Adjusted EBITDA of $0.3 million for the three months ended March 31, 2017, as compared to negative $1.2 million for the same period in the prior year.
Cash balance and liquidity
As at March 31, 2017, the Company held cash and cash equivalents of $21.5 million, while the Company had recorded current liabilities of $2.3 million as at this same date.
During financial year 2017, the Company recorded net cash provided by financing activities of $45.0 million, offset partially by $1.4 million net cash used in operations and $22.7 million net cash used in investing activities (consisting mainly of acquisition related cash expenses).
Conference Call
The Company will hold a conference call to discuss its financial performance, operations and outlook when the results for the first quarter of fiscal 2018 (the period ended June 30, 2017) are announced, which management anticipates will be within the next couple of weeks. Details of the call will be pre-announced in a notice of call.
Additional Information
Additional information relating to the Company, including with respect to financial results, operational events, acquisitions and financings, is available on SEDAR at www.sedar.com in the Company’s Audited Annual Financial Statements, Management Discussion & Analysis (“MD&A”) and CSE Form 2A - Listing Statement (the “Listing Statement”).
About The Canadian Bioceutical Corporation
BCC, an Ontario corporation, through its wholly owned subsidiaries in the U.S., provides substantial management, staffing, procurement, advisory, financial, real estate rental, logistics and administrative services to two medicinal cannabis enterprises in Arizona operating under the Health for Life (dispensaries) and MPX (high-margin concentrates wholesale) brands. The successful Health for Life (“H4L”) brand operates in the rapidly growing Phoenix Metropolitan Statistical Area (MSA) with a population of 4.6 million people. The award winning Melting Point Extracts (“MPX”) brand is carried by over 40% of Arizona dispensaries. The Company also owns assets in Massachusetts, supporting cultivation, production and up to three dispensaries in Massachusetts, as well as is supporting development of a third licensed dispensary in Arizona.
BCC continues to expand its U.S. footprint, being in the process of acquiring a cultivation and production wholesale business in Las Vegas, Nevada, and three dispensaries and a production license in Maryland. The Company also leases a property in Owen Sound, Ontario, for which an application to Health Canada has been made for a cannabis production and sales license. In addition, the Company will continue its efforts to develop its legacy nutraceuticals business.
Cautionary Statement Regarding Forward-Looking Information
This news release includes certain “forward-looking statements” under applicable Canadian securities legislation that are not historical facts. Forward-looking statements involve risks, uncertainties, and other factors that could cause actual results, performance, prospects, and opportunities to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements in this news release include, but are not limited to, the Transaction and BCC’s objectives and intentions. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties and other factors which may cause actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general business, economic and social uncertainties; litigation, legislative, environmental and other judicial, regulatory, political and competitive developments; delay or failure to receive board, shareholder or regulatory approvals; those additional risks set out in BCC’s public documents filed on SEDAR at www.sedar.com; and other matters discussed in this news release. Although BCC believes that the assumptions and factors used in preparing the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this news release, and no assurance can be given that such events will occur in the disclosed time frames or at all. Except where required by law, BCC disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
On behalf of the Board of Directors
The Canadian Bioceutical Corporation
Scott Boyes, CEO
| The Canadian Bioceutical Corporation | ||||||||
| Consolidated statements of financial position | ||||||||
| (in Canadian dollars) | ||||||||
| March 31 | 2017 | 2016 | ||||||
| Assets | ||||||||
| Current | ||||||||
| Cash | $ | 21,519,289 | $ | 8,135 | ||||
| Restricted cash (3c) | 133,220 | - | ||||||
| Accounts receivable | 764,672 | 35,273 | ||||||
| Inventory | 1,339,937 | - | ||||||
| Biological assets | 596,191 | - | ||||||
| Prepaid expenses | 181,190 | - | ||||||
| Right of first refusal | 199,830 | - | ||||||
| Asset held for sale | 1,878,402 | - | ||||||
| 26,612,731 | 43,408 | |||||||
| Non-current | ||||||||
| Property, plant and equipment | 4,546,022 | - | ||||||
| Intangible assets | 28,514,977 | - | ||||||
| Goodwill | 12,857,390 | - | ||||||
| Deposits | 398,992 | 44,814 | ||||||
| Total assets | $ | 72,930,112 | $ | 88,222 | ||||
| Liabilities | ||||||||
| Current | ||||||||
| Accounts payable and accrued liabilities | $ | 1,624,425 | $ | 352,208 | ||||
| Income taxes payable | 545,661 | - | ||||||
| Due to related parties | - | 22,000 | ||||||
| Current portion of promissory note | 147,453 | - | ||||||
| 2,317,539 | 374,208 | |||||||
| Non-current | ||||||||
| Promissory note | 1,303,526 | - | ||||||
| Term loans | 13,322,000 | - | ||||||
| Lease inducement | 1,764,162 | 557,509 | ||||||
| Convertible debentures | 77,851 | - | ||||||
| Option component of convertible debentures | 185,274 | - | ||||||
| Deferred income taxes | 11,821,296 | - | ||||||
| 28,474,109 | 557,509 | |||||||
| Total liabilities | 30,791,648 | 931,717 | ||||||
| Equity | ||||||||
| Share capital | 49,147,583 | 6,415,525 | ||||||
| Warrants | 3,632,398 | 156,771 | ||||||
| Contributed surplus | 2,665,730 | 1,153,883 | ||||||
| Accumulated other comprehensive income | 595,434 | 100,973 | ||||||
| Deficit attributable to shareholders of the Company | (13,600,869 | ) | (8,368,835 | ) | ||||
| 42,440,276 | (541,683 | ) | ||||||
| Non-controlling interest | (301,812 | ) | (301,812 | ) | ||||
| Total equity | 42,138,464 | (843,495 | ) | |||||
| Total liabilities and equity | $ | 72,930,112 | $ | 88,222 | ||||
| The Canadian Bioceutical Corporation | ||||||||
| Consolidated statements of net loss and comprehensive loss | ||||||||
| (in Canadian dollars) | ||||||||
| Year ended March 31 | 2017 | 2016 | ||||||
| Sales | $ | 4,383,962 | $ | 5,960 | ||||
| Cost of sales | 4,291,312 | 2,083 | ||||||
| Gross profit before unrealized gain from | ||||||||
| changes in biological assets | 92,650 | 3,877 | ||||||
| Unrealized gain from changes in fair value of biological assets | 936,974 | - | ||||||
| Gross profit | 1,029,624 | 3,877 | ||||||
| Expenses | ||||||||
| General and administrative | 3,187,499 | 1,328,765 | ||||||
| Professional fees | 734,755 | 104,177 | ||||||
| Share-based compensation | 1,495,353 | 127,505 | ||||||
| Amortization and depreciation | 338,565 | 6,413 | ||||||
| 5,756,172 | 1,566,860 | |||||||
| Loss from operations | (4,726,548 | ) | (1,562,983 | ) | ||||
| Other expense (income) | ||||||||
| Foreign exchange | (142,817 | ) | 5,166 | |||||
| Interest income | (7,633 | ) | (1,115 | ) | ||||
| Write-off of goodwill and intangible assets | 66,190 | 1,177,166 | ||||||
| Write-down of inventory | - | 70,264 | ||||||
| Accretion expense | 11,154 | - | ||||||
| Change in fair value of derivative liability | 141,874 | - | ||||||
| Interest and financing charges | 328,348 | 82,272 | ||||||
| Transaction costs | 524,881 | - | ||||||
| 921,997 | 1,333,753 | |||||||
| Net loss | $ | (5,648,545 | ) | $ | (2,896,736 | ) | ||
| Income tax recovery | (416,511 | ) | - | |||||
| Net loss after income taxes | $ | (5,232,034 | ) | $ | (2,896,736 | ) | ||
| Net loss attributable to: | ||||||||
| The Canadian Bioceutical Corporation | $ | (5,232,034 | ) | $ | (2,896,631 | ) | ||
| Non-controlling interest | - | (105 | ) | |||||
| $ | (5,232,034 | ) | $ | (2,896,736 | ) | |||
| Other comprehensive income | ||||||||
| Exchange differences on translating foreign operations | $ | 494,461 | $ | 5,147 | ||||
| Comprehensive loss for the year | $ | (4,737,573 | ) | $ | (2,891,589 | ) | ||
| Comprehensive loss attributable to: | ||||||||
| The Canadian Bioceutical Corporation | $ | (4,737,573 | ) | $ | (2,891,484 | ) | ||
| Non-controlling interest | - | (105 | ) | |||||
| $ | (4,737,573 | ) | $ | (2,891,589 | ) | |||
| Loss per share, basic and diluted | (0.06 | ) | (0.07 | ) | ||||
| Basic and diluted weighted average number of shares outstanding | 77,957,565 | 40,078,442 | ||||||
| The Canadian Bioceutical Corporation | |||||||
| Consolidated statements of cash flows | |||||||
| (in Canadian dollars) | |||||||
| Year ended March 31 | 2017 | 2016 | |||||
| Operating activities | |||||||
| Net loss | $ | (5,232,034 | ) | $ | (2,896,736 | ) | |
| Item not affecting cash: | |||||||
| Amortization and depreciation | 338,565 | 6,413 | |||||
| Income tax expense | (416,511 | ) | - | ||||
| Write off of goodwill and intangible assets | - | 1,177,166 | |||||
| Write-down of inventory | - | 70,264 | |||||
| Share-based compensation | 1,495,353 | 127,505 | |||||
| Accretion expense | 11,154 | - | |||||
| Change in fair value of derivative liability | 141,874 | - | |||||
| Shares issued for services rendered | 101,700 | - | |||||
| Interest expense | 17,590 | - | |||||
| Unrealized foreign exchange gain | (142,817 | ) | - | ||||
| Unrealized gain from changes in fair value of biological assets | (936,974 | ) | - | ||||
| (4,622,100 | ) | (1,515,388 | ) | ||||
| Changes in non-cash working capital: | |||||||
| Accounts receivable | (345,040 | ) | 10,447 | ||||
| Inventory | 2,679,792 | (2,704 | ) | ||||
| Prepaid expenses and deposits | (106,625 | ) | (17,753 | ) | |||
| Accounts payable and accrued liabilities | 216,526 | 204,341 | |||||
| Lease inducement | 777,081 | 557,509 | |||||
| Taxes payable | - | (14,119 | ) | ||||
| 3,221,734 | 737,721 | ||||||
| Net cash used in operations | (1,400,366 | ) | (777,667 | ) | |||
| Investing activities | |||||||
| Acquisition of subsidiaries, net of cash acquired | (18,305,427 | ) | - | ||||
| Purchase of property, plant and equipment | (408,730 | ) | - | ||||
| Purchase of intangible assets | (2,000,050 | ) | (2,207 | ) | |||
| Acquisition of asset held for sale | (1,999,950 | ) | - | ||||
| Net cash used in financing activities | (22,714,157 | ) | (2,207 | ) | |||
| Financing activities | |||||||
| Advances from related parties | (17,776 | ) | 22,000 | ||||
| Proceeds from issuance of convertible debt | 110,278 | - | |||||
| Proceeds from private placements, net of issuance costs | 44,906,469 | 339,250 | |||||
| Proceeds from exercise of warrants | 47,500 | 100,000 | |||||
| Proceeds from exercise of stock options | 35,250 | 2,000 | |||||
| Repayment of promissory note | (11,638 | ) | - | ||||
| Interest paid | (15,765 | ) | - | ||||
| Net cash provided by financing activities | 45,054,318 | 463,250 | |||||
| Increase (decrease) in cash | 20,939,795 | (316,624 | ) | ||||
| Cash, beginning of year | 8,135 | 320,027 | |||||
| Effect of exchange rate fluctuations on cash held | 571,359 | 4,732 | |||||
| Cash, end of year | $ | 21,519,289 | $ | 8,135 | |||
Non-IFRS Measures
The Corporation uses “Adjusted Gross Profit” and “Adjusted EBITDA” as measures in this press release, which are not defined under IFRS. Management believes that these measures provide useful supplemental information to investors and is computed on a consistent basis for each reporting period.
“Adjusted Gross Profit” is a metric used by management which is calculated by removing the non-cash effects of accounting for biological assets and the non-cash effect of accounting for inventory acquired through acquisition at fair value on inventory sold during the period.
“Adjusted EBITDA” is a metric used by management which is income (loss) from operations, as reported, before interest, tax, and adjusted for removing other non-cash items, including the stock-based compensation expense, amortization and depreciation, non-cash occupancy costs, and the non-cash effects of accounting for biological assets and the non-cash effect of accounting for inventory acquired through acquisition at fair value. Management believes “Adjusted EBITDA” is a useful financial metric to assess its operating performance on a cash basis before the impact of non-cash items and acquisition related activities.
A reconciliation from loss from operations to Adjusted EBITDA is provided below.
| Three months ended | Year ended | |||||||
| Figures in CDN $ | March 31, | March 31, | ||||||
| 2017 | 2016 | 2017 | 2016 | |||||
| ($) | ($) | ($) | ($) | |||||
| Loss from operations | (3,794,613 | ) | (792,082 | ) | (4,726,548 | ) | (1,562,983 | ) |
| Adjustments | ||||||||
| Share-based compensation | 1,495,353 | - | 1,495,353 | 127,505 | ||||
| Amortization and depreciation | 338,565 | 1,603 | 338,565 | 6,413 | ||||
| Non-cash occupancy costs | 508,446 | - | 508,446 | - | ||||
| Unrealized gain from changes in | ||||||||
| fair value of biological assets | (936,974 | ) | - | (936,974 | ) | - | ||
| Fair value adjustment of | ||||||||
| inventory from acquisition | 2,100,793 | - | 2,100,793 | - | ||||
| Adjusted EBITDA | (288,430 | ) | (790,479 | ) | (1,220,365 | ) | (1,429,065 | ) |
A reconciliation from Gross Profit to Adjusted Gross profit is provided below.
| Three months ended | Year ended | |||||||
| March 31, | March 31, | |||||||
| Figures in CDN $ | 2017 | 2016 | 2017 | 2016 | ||||
| ($) | ($) | ($) | ($) | |||||
| Sales | 4,383,962 | 447 | 4,383,962 | 5,960 | ||||
| Cost of sales (excluding unrealized | ||||||||
| gain from changes in the fair | ||||||||
| market value of biological assets) | 4,291,312 | - | 4,291,312 | 2,083 | ||||
| Gross profit | 92,650 | 447 | 92,650 | 3,877 | ||||
| Percent of sales | 2.1% | 100% | 2.1% | 65.1% | ||||
| Unrealized gain from changes in fair | ||||||||
| market value of biological assets | 936,974 | - | 936,974 | - | ||||
| Gross profit (including unrealized | ||||||||
| gain from changes in the fair | ||||||||
| market value of biological assets) | 1,029,624 | 447 | 1,029,624 | 3,877 | ||||
| Percent of sales | 23.5% | 100% | 23.5% | 65.1% | ||||
| Adjustments: | ||||||||
| unrealized gain from changes in | 3,877 | |||||||
| fair value of biological assets | (936,974 | ) | - | (936,974 | ) | - | ||
| fair value adjustment to | ||||||||
| inventory from acquisition | 2,100,793 | - | 2,100,793 | - | ||||
| Adjusted gross profit | 2,193,443 | 447 | 2,193,443 | 3,877 | ||||
| Percent of sales | 50% | 100% | 50% | 65.1% | ||||