WeedMD Reports Fiscal Year 2019 Financial Results and First Quarter 2020 Preliminary Revenue of $12 Million
Net revenue of $20.8 million for 2019, up 162% from 2018, and Q4 revenue of $2.9 million, representing a 38% quarterly increase in Adult-Use and Medical sales
Harvested 17,988 kgs in 2019, a 921% increase compared with 2018 as WeedMD’s indoor and outdoor cultivation exited 2019 fully licensed and operational to accelerate brand growth
Preliminary unaudited Q1 2020 revenue of $12 million(1) includes first full quarter of contribution from Starseed Holdings Inc., strong growth from adult-use and medical channels, and significant outdoor biomass sale
Completed acquisition of Starseed and executing on strategic plan driving revenue growth and operational synergies
Toronto, Canada, June 10, 2020 – WeedMD Inc. (TSX-V:WMD) (OTC:WDDMF) (FSE:4WE) (“WeedMD” or the “Company”), a federally-licensed producer and distributor of medical-grade cannabis announced today its financial results for the fiscal year ended December 31, 2019, including a 162% net revenue increase to $20.8 million, compared with $8.0 million for the prior year. The Company also announced preliminary unaudited first quarter 2020 revenue of $12 million(1), representing the first full quarter of integration with Starseed Holdings Inc. (“Starseed”), following the previously completed acquisition in December 2019. The Company expects to file its first quarter financial results on or before July 15, 2020.
“With the significant ramp-up of our production platform, 2019 was a year of planned investment coupled with a strategic focus on building strong brands and distribution channels,” said Angelo Tsebelis, CEO of WeedMD. “The Company’s $2.9 million in fourth quarter 2019 net revenue was comprised entirely of consumer sales as availability and demand for our Color Cannabis adult-use brand continued to expand. The strong momentum carried into the first quarter of 2020 where the Company generated preliminary unaudited net revenue of $12 million, a record high quarter for WeedMD, with the Starseed medical brand and direct-to-consumer platform contributing significant high margin revenue. This solid year-over-year and quarter-over-quarter revenue growth is reflective of our strategy emphasizing customer-centric initiatives to drive direct-to-consumer sales and stronger margins and cash flow as we execute on our commercial plan.”
Summary of Results for the Fiscal Year
| Dec. 31 2019 ($000’s) | Dec. 31 2018 ($000’s) | |
|---|---|---|
| Net revenue | 20,820 | 7,995 |
| Gross profit before changes in fair value | 4,049 | 3,234 |
| Gross margin % before changes in fair value | 19.4% | 40.7% |
| Income (loss) and comprehensive (loss) | (10,392) | (895) |
| Adjusted EBITDA* (loss) | (13,912) | (5,748) |
| As at | Dec. 31, 2019 ($000’s) | Dec. 31, 2018 ($000’s) |
|---|---|---|
| Cash and cash equivalents | 8,184 | 21,224 |
| Inventory | 31,287 | 5,834 |
| Biological assets | 7,666 | 2,150 |
| Working Capital | 30,619 | 29,838 |
*Adjusted EBITDA is not a recognized measurement under International Financial Reporting Standards (“IFRS”) and this data may not be comparable to data presented by other companies. Management defines Adjusted EBITDA as EBITDA adjusted to exclude interest, tax, and depreciation, stock compensation, fair value changes and other non-cash items, and non-recurring items. This data is furnished to provide additional information and does not have any standardized meaning prescribed by IFRS. The Company uses this non-IFRS measure to provide shareholders and others with supplemental measures of its operating performance. The Company also believes that securities analysts, investors and other interested parties, frequently use this non-IFRS measure in the evaluation of companies, many of which present similar metrics when reporting their results. As other companies may calculate Adjusted EBITDA differently than the Company, this metric may not be comparable to similarly titled measures reported by other companies. We caution readers that Adjusted EBITDA should not be substituted for determining net loss as an indicator of operating results, or as a substitute for cash flows from operating and investing activities.
Key Financial Highlights
Net revenue for the year ended December 31, 2019 was $20.8 million, representing a $12.8 million or 162% increase year-over-year, attributable to increased sales to other Licensed Producers (“LPs”) and the provincial distribution channel for the Adult-Use market.
As a percentage of revenue, for 2019 consumer revenue accounted for $1.8 million or 8.6%, and wholesale accounted for $19.0 million or 91.4%.
2019 gross profit before changes in fair value was $4.0 million, a 19.4% gross margin compared with 40.7% in the prior year. Gross profit margin decreased year-over-year primarily due to the Company ramping up production as it brought 10 newly-licensed cultivation rooms online as well as decreases in selling prices due to the implementation of excise tax.
The Company harvested 17,988 kgs in 2019, a 921% increase compared with 2018 which includes 8,950 kgs attributable to the WeedMD’s harvest of outdoor crops.
WeedMD holds $38.9 million of inventory and biological assets as of December 31, 2019.
WeedMD’s total assets reached $209.8 million as of December 31, 2019.
Adjusted EBITDA* loss totalled $13.9 million for the year ended December 31, 2019 as compared with a loss of $5.7 million for the prior year period, mainly driven by increased general and administrative expenses, partially offset by the improvement of gross profit before changes in fair value of $2.1 million driven by the sales increase.
Q4 2019 & Preliminary Q1 2020 Revenue(1)
WeedMD also provided preliminary unaudited revenue highlights for the three-month period ended March 31, 2020. First quarter 2020 net revenues of $12 million represent a 329% quarter-over-quarter increase, reflecting the Company’s first full quarter of Starseed contribution. Revenue from Adult-Use and Medical channels increased meaningfully quarter-over-quarter to record high sales in Q1 2020 driven by higher product availability and customer acquisition initiatives. Additionally, WeedMD completed a substantial landmark sale of its inaugural outdoor-cultivated biomass earmarked for extraction and international markets. The sale was entered into in December 2019 and upon the buyer securing export certification, the product was shipped in January 2020 with the deferred income realized in the first quarter 2020.
Revenue Highlights
| Q4 2019 ($000’s) | Q1 2020(1) ($000’s) | |
|---|---|---|
| Revenue by Channel | ||
| Adult-Use | 2,197 | 3,255 |
| Medical | 653 | 3,845 |
| Wholesale | - | 5,016 |
| Total Net Revenue | 2,850 | 12,116 |
“We are seeing the benefits of our fully-integrated business model in the first quarter of 2020 with record preliminary net revenues of $12 million,” said Lincoln Greenidge, Chief Financial Officer, WeedMD. “Our first quarter revenue mix is well diversified including significant Medical and Adult-Use sales, and the sale of almost half of our outdoor-cultivated biomass. Our scaled-up cultivation and production capabilities combined with our strong distribution channels positions WeedMD for continued growth and a path to profitability. Our integrated cultivation, extraction and fulfilment operations will enable us to produce low-cost, quality cannabis to create an assortment of high-margin finished products, which should significantly enhance our profitability over the remainder of the year.”
Corporate Highlights During & Subsequent to Year End December 31, 2019
Leadership Appointments
Following the acquisition of Starseed, WeedMD combined its experienced senior leadership team and board of directors and in February 2020 in order to accelerate the Company’s commercial growth, appointed Angelo Tsebelis as CEO of WeedMD. Formerly President of WeedMD and Starseed, Angelo brings a renewed focus on expanding strategic commercial and sales distribution initiatives to execute on delivering high-margin, quality products.
In April 2020, the Company appointed Lincoln Greenidge as Chief Financial Officer. Lincoln brings over 20 years of corporate finance, capital markets as well as mergers and acquisition experience and is leading the Company’s financial integration and strategic shift to commercialize WeedMD’s cultivation platform.
Starseed Acquisition and Integration
WeedMD completed the acquisition of Starseed in December 2019 and secured a $25 million strategic equity investment from the LiUNA Pension Fund of Central and Eastern Canada (“LPF”), which funds were delivered to the Company in February 2020 following the receipt of shareholder approval. LPF’s investment strengthened WeedMD’s balance sheet to further support the Company’s commercial growth and its expanded distribution channels. Integration of the commercial and operations teams has been completed and the Company continues to review and execute against further opportunities for operational efficiencies and synergies.
Sales, Marketing and Business Development Milestones
Launched Color Cannabis: WeedMD expanded its sales distribution channel with the launch of Color Cannabis, a dedicated premium adult-use brand exclusively available to distributors and select retailers across Canada as of June 2019.
Expanded Medical Channel: With the addition of Starseed, WeedMD also welcomed new and direct channels to a patient base with insurance coverage for medical cannabis. The potential access to a substantial and direct consumer audience of over 350,000 individuals is expected to drive growth and margin expansion. The following four strategic partners and their benefits providers were added in February 2020:
LiUNA Local 1059 (London, Ontario)
myHSA
The International Union of Painters and Allied Workers
The Insulators Local 95 Health and Welfare Trust Fund
Launched Extraction Affiliate CX Industries Inc.
WeedMD launched CX Industries. (“CX Industries” or “CX”), a business unit specializing in extraction, toll processing and third-party product formulation from its fully-licensed Aylmer site. With plans to process over 26,000 kg of biomass annually at peak production, CX offers tolling and white labelling services to other LPs and brands. Two Vitalis Q90 extractors commissioned in early 2020 moved CX Industries into commercial operation.
Indoor and Outdoor Cultivation Expansion
Expanded Indoor Cultivation: The Company ramped-up production and expanded into twenty cultivation and processing rooms in August 2019. With the additional ten 10,000 sq. ft. cultivation rooms along with ten more processing and drying rooms now fully operational, WeedMD has scaled up its product availability to execute on its mass craft strategy.
Outdoor Cultivation: In November 2019, WeedMD completed the first harvest of its 27-acre outdoor cannabis cultivation which yielded 8,950 kgs of high quality biomass for commercialization across various product formats at a cost to harvest of approximately $0.11 per gram. The Company recently completed planting for its second outdoor cultivation, the Company confirmed that it planted crop consisting of over 18,000 clones across seven core strains.
In October 2019, WeedMD secured a Health Canada license for its 50,000 sq. ft. purpose-built operating facility designed for its outdoor and other cannabis operations on its 158-acre Strathroy property. The facility is fully operational and allows for drying, processing, and storing of WeedMD’s outdoor harvested cannabis.
Licensing-Related Milestones
Bowmanville: The Company secured a Health Canada research licence at its Bowmanville facility in February 2020 which gives way to further research activities and allows for the administration and distribution of cannabis to human research subjects for assessment of taste, sight, smell and/or touch.
Aylmer: Health Canada approved a licence amendment to allow an additional processing area, equipped with semi-automated packaging lines at its facility in Aylmer in May 2019.
Strathroy: The Company secured a standard processing licence from Health Canada in April 2019 for its Strathroy facility, authorizing the sale and distribution of cannabis plants and seeds, the first phase in obtaining a licence authorizing the sale of other classes of cannabis products.
COVID-19 Operational Response
In March 2020, WeedMD established a number of safety protocols and risk mitigation strategies to ensure the health and safety of its employees and communities as a result of the COVID-19 global pandemic. The Company temporarily closed its corporate offices in London and Toronto in accordance with emergency measures enacted by the Province of Ontario. While its production sites continue to operate, employees are observing strict social distancing and safety measures put in place by the Company. With the resulting business challenges, in April 2020 WeedMD temporarily reduced its workforce and is now reviewing a phased approach for its return to work strategy. Concurrent with this, the Company also implemented salary reductions across its senior leadership and board of director levels.
Conference Call Information:
The Company will host a conference call with management on Thursday, June 11, 2020 at 10 a.m. Eastern Time to discuss its financial results and provide an operational outlook for 2020. The call will be hosted by Angelo Tsebelis, CEO and Lincoln Greenidge, CFO. Management will be available for analyst and media questions following opening remarks.
Conference Call Details:
Date:
Thursday, June 11, 2020
Time:
10 a.m. Eastern Time
Dial-in Number:
Canada/USA: 1-800-319-4610. International Toll: 1-604-638-5340
Participants, please dial in and ask to join the WeedMD call.
The Company’s financial statements and related management’s discussion and analysis for the period are available under the Company’s profile on SEDAR at www.sedar.com. All amounts are expressed in Canadian dollars and are in accordance with International Financial Reporting Standards unless otherwise noted.
About WeedMD Inc.
WeedMD Inc. is the publicly traded parent company of WeedMD RX Inc. and Starseed Medicinal Inc., licence holders producing and distributing cannabis products for both the medical and adult-use markets. The Company owns and operates a 158-acre state-of-the-art greenhouse, outdoor and processing facility located in Strathroy, ON as well as a fully-licensed 26,000 sq. ft. Aylmer, ON processing facility, specializing in cannabis extraction. With the addition of Starseed, a medical-centric operator, WeedMD has expanded its multi-channeled distribution strategy. Starseed’s industry-first, exclusive partnership with LiUNA, the largest construction union in Canada, along with employers and union groups complements WeedMD’s direct sales to medical patients. The Company maintains strategic relationships in the seniors’ market and supply agreements with Shoppers Drug Mart as well, as seven provincial distribution agencies where adult-use brands Color Cannabis and Saturday are sold.
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For further information, please contact:
For Investor Enquiries:
Valter Pinto
Managing Director
KCSA Strategic Communications
1-212-896-1254
weedmd@kcsa.com
For Media Enquiries:
Marianella delaBarrera
VP, Communications & Corporate Affairs
416-897-6644
marianella@weedmd.com
Notes:
(1) Preliminary and unaudited financial results are subject to customary financial statement procedures by the Company and its auditors. Actual results could be affected by subsequent events or determinations. While the Company believes there is a reasonable basis for these preliminary financial results, the results involve known and unknown risks and uncertainties that may cause actual results to differ materially. These preliminary fiscal results represent forward-looking information. See "Forward Looking Information".
Forward Looking Information
This press release contains "forward-looking information" within the meaning of applicable Canadian securities legislation which are based upon WeedMD's current internal expectations, estimates, projections, assumptions and beliefs and views of future events. Forward-looking information can be identified by the use of forward-looking terminology such as "expect", "likely", "may", "will", "should", "intend", "anticipate", "potential", "proposed", "estimate" and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions "may", "would" or "will" happen, or by discussions of strategy.
The forward-looking information in this news release is based upon the expectations, estimates, projections, assumptions and views of future events which management believes to be reasonable in the circumstances. Forward-looking information includes estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of fact. Forward-looking information in this news release include, but are not limited to, statements with respect to internal expectations, expectations with respect to actual production volumes, expectations for future growing capacity and the completion of any capital project or expansions. Forward-looking information necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; loss of markets; future legislative and regulatory developments; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the cannabis industry in Canada generally; the ability of WeedMD to implement its business strategies; the COVID-19 pandemic; competition; crop failure; and other risks.
Any forward-looking information speaks only as of the date on which it is made, and, except as required by law, WeedMD does not undertake any obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for WeedMD to predict all such factors. When considering this forward-looking information, readers should keep in mind the risk factors and other cautionary statements in WeedMD's disclosure documents filed with the applicable Canadian securities regulatory authorities on SEDAR a www.sedar.com. The risk factors and other factors noted in the disclosure documents could cause actual events or results to differ materially from those described in any forward-looking information.
Financial Outlook
This press release contains a financial outlook within the meaning of applicable Canadian securities laws. The financial outlook has been prepared by management of the Company to provide an outlook for the three months ended March 31, 2020 and may not be appropriate for any other purpose. The financial outlook has been prepared based on a number of assumptions including the assumptions discussed under the heading “Forward Looking Information” above and assumptions with respect to market conditions, pricing, and demand. The actual results of the Company’s operations for any period will likely vary from the amounts set forth in these projections and such variations may be material. The Company and its management believe that the financial outlook has been prepared on a reasonable basis. However, because this information is highly subjective and subject to numerous risks, including the risks discussed under the heading "Forward Looking Information" above, it should not be relied on as necessarily indicative of future results.
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