BEVCANNA MANAGEMENT’S DISCUSSION & ANALYSIS
Perhaps they will get revenue generating operations underway. They give no timeline. Or are they a pump and dump?
The 2M options they granted insiders don't kick in until 50¢ so something needs to happen, or could the PPS actually rise without producing $1 of revenue?
(formerly Nutrivida Biotech Investments Inc.)
MANAGEMENT’S DISCUSSION & ANALYSIS
For the three and six months ended June 30, 2019
Prepared as of August 28, 2019
INTRODUCTION
The following interim management’s discussion and analysis (“MD&A”) is a review of operations, current
financial position and outlook for Bevcanna Enterprises Inc. (the “Company”) and should be read in
conjunction with the Company’s unaudited condensed interim consolidated financial statements for the
six months ended June 30, 2019 and notes thereto. The Company prepares its financial statements in
accordance with International Financial Reporting Standards (“IFRS”).
As used in this MD&A and unless otherwise indicated, the terms “we”, “us”, “our”, and “Company” refer to
Nutrivida Biotech Investments Inc. Unless otherwise specified, all dollar amounts are expressed in
Canadian dollars.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This MD&A contains forward-looking statements. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from such statements. The words “aim,”
“anticipate,” “believe,” “continue,” “could,” “expect,” “intend,” “likely”, “may,” “optimistic,” “plan,” “potential”,
“predict”, “should,” “would,” and other similar expressions are intended to identify forward-looking
statements. Forward-looking statements are based on material factors and assumptions made by our
Company in light of management’s experience and perception of historical trends, current conditions and
expected future developments, as well as other factors that we believe are appropriate in the
circumstances, including but not limited to:
• the Company’s expectations regarding its consolidated revenue, expenses and operations;
• the Company’s anticipated cash needs, its needs for additional financing;
• the Company’s intention to develop its business and its operations;
• expectations with respect to future production costs and capacity;
• the grant and impact of any licence or supplemental licence to conduct activities with cannabis or
any amendments thereof;
• expectations with respect to the future growth of its medical and/or adult-use recreational
cannabis products;
• the Company’s competitive position and the regulatory environment in which the Company
operates;
• expectations with respect to the approval of the Company’s licences; and
• expectations with respect to the Company’s intended operations in California and the United
States.
These statements are only predictions and involve known and unknown risks, uncertainties and other
factors that may cause actual results to differ materially from those indicated in these statements,
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including, but not limited to:
• the Company not being issued licences to cultivate and sell cannabis in a timely manner, or at all;
• uncertainty with respect to the legalization of cannabis-infused edibles and beverages in Canada;
• uncertainty with respect to the conflict between United States federal and state laws;
• uncertainty over whether a market will develop for the Company’s products;
• the Company’s limited operating history;
• potential or actual conflicts of interest;
• the risk the Company is unable to obtain additional financing to achieve its business objectives
and execute its strategy on satisfactory terms, or at all;
• uncertainty about the Company’s ability to continue as a going concern; and
• changes in general economic or political conditions.
The forward-looking statements contained in this MD&A reflect our views and assumptions only as of the
date of this MD&A. The Company undertakes no obligation to update or revise any forward-looking
statements after the date on which the statement is made, except as required by applicable laws,
including the securities laws of Canada.
DESCRIPTION OF BUSINESS
The Company was incorporated under the BC Business Corporations Act on July 13, 2017 as Nutrivida
Biotech Investments Inc. During the three months ended March 31, 2019, the Company did not conduct
any material commercial operations. Its principal business was the development and expansion of the
business carried on by its wholly-owned subsidiary BevCanna Operating Corp. (“BevCanna Opco”).
BevCanna Opco has applied for licences (the “Licences”) in respect of its Production Facility (as defined
below) for the cultivation and sale of cannabis from Health Canada pursuant to the Cannabis Act
(Canada), and is currently at the Review and Security Clearance Stage of the licensing process. The
Company is also positioning itself for future growth in the event that Health Canada expands legalization
of cannabis into derivative products and beverages. The Company has secured a long-term lease for 100
acres of land and a 40,000 sq. ft. turn-key bottling facility with access to an underground aquifer located
in Bridesville, British Columbia (the “Production Facility”).
The Company has also entered into a joint development agreement (the “JD Agreement”) with a
California-based company to develop cannabis-based beverage formulations in California, where such
products are permitted under state law. The agreement includes an option for the Company to acquire all
of intellectual property owned by the California company related to water-soluble cannabis powders and
all of the intellectual property developed under the agreement. The Company intends to incorporate a
subsidiary under the laws of the State of California to carry out the Company’s operations in California
and has committed to inject $1.5 million into this subsidiary following the exercise of its option.
The Company has applied for licences for processing and research under the Cannabis Act and a hemp
cultivation licence under the Industrial Hemp Regulations in addition to the originally applied for
Production Licence and Sales Licence. In May 2019, Health Canada issued the hemp cultivation licence
to the Company. The Company is currently evaluating potential joint venture or hemp crop sharing
arrangements with other licensed producers of cannabis, as permitted by its hemp cultivation licence.
The Company is currently focusing on the development of its product branding, the identification and
evaluation of potential joint venture and business opportunities, and formalizing agreements in respect of
such opportunities where the Company believes it to be appropriate. Once the Company has been
granted the Licences, it will begin the business of growing, cultivating and processing cannabis, and when
permitted in accordance with applicable laws and regulations, it intends to position itself as a vertically
integrated white label manufacturing partner and supplier of premium alkaline spring water for infused
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cannabis beverages. The Company will formulate, develop and launch infused beverage brands through
licensing agreements and joint ventures with other licensed producers of cannabis and entities with
expertise in desired areas. The Company also intends to launch its own house brands infused with
cannabidiol which have a health and wellness focus. In the event that the Company is not granted the
Licences as expected, or the grant of the Licences is delayed, the Company will focus on expanding its
operations in the United States, as permitted by applicable state laws.
On June 28, 2019, the common shares of the Company have been approved for listing on the Canadian
Securities Exchange (“CSE”).
On July 2, 2019, the Company’s common shares commenced trading on the CSE under the symbol
“BEV”.
OVERALL PERFORMANCE
As the Company was incorporated on July 13, 2017, it has not yet achieved profitable operations.
The Company is at an early stage in its development. The Company’s future performance depends on,
among other things, its ability to: (i) complete the planned expansion of the Production Facility using the
funds available; (ii) obtain the Licences, and (iii) achieve the milestones set out in the JD Agreement.
Further, the Company’s future performance depends on the enactment by the Government of Canada of
regulations to support the sale and distribution of cannabis edibles and concentrates, which are currently
expected to come into force on October 17, 2019.
On April 1, 2019, the Company entered into the JD Agreement to develop cannabis infused beverages in
California. The Company is committed to provide funding of up to US$500,000. As of June 30, 2019,
US$206,086 has been funded and US$293,914 remains to fund. The Company has an irrevocable and
exclusive right and option to purchase and acquire any or all of the right title and interest in and to other
party of the JD Agreement and/or its assets and the other party’s intellectual property (“Option”). The
option is exercisable through the issuance of common shares and released on performance milestones
being met as follows:
• US$1,000,000 on launch of a powdered drink line within 3 months;
• US$1,000,000 on launch of a line of water drinks within 9 months;
• US$1,400,000 on attainment of US$7,500,000 in revenues;
• US$1,400,000 on attainment of US$16,000,000 in revenue.
Upon exercise of the option, the Company will commit to inject an additional US$1,000,000 to support the
working capital needs of the JD Agreement.
On May 1, 2019, the Company entered into a brand management services agreement with an arm’s
length party pursuant to which the Company issued 100,000 common shares to at a deemed price of
$1.00 per common share and agreed to pay $8,000 per month for a term of twelve months for brand
management services, which may be payable in cash, common shares or a combination of cash and
common shares.
On May 1, 2019, the Company also entered into a marketing services agreement with an arm’s length
party pursuant to which the Company issued 300,000 common shares at a deemed price $1.00 per
common share and agreed to pay $35,000 per month for a term of twelve months for marketing services.
Management Changes
On August 26, 2019, the Company appointed Camilo Lyon to the Board of Directors of the Company. Mr.
Lyon brings over two decades of corporate finance and consumer brand experience to the Company,
primarily as an equity research analyst in the US focusing on global lifestyle brands and retailers at top
investment banks. He is Founder and CEO of Harixston Consulting, a firm focused on capital raising and
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advising early stage consumer brands as they progress through their stages of growth. Prior to this role,
Mr. Lyon served as Managing Director and Head of US Consumer Research at Canaccord Genuity for
eight years. During that time, he advised institutional and corporate clients on investment and business
strategies. Prior to that, he was a Vice President in Equity Research at Bank of America Merrill Lynch
covering consumer discretionary companies. Mr. Lyon began his career at Goldman, Sachs & Co. and is
a graduate of The University of Chicago Booth School of Business and Boston University.
On July 30, 2019, the Company’s board of directors has appointed Michael Darby as the chief financial
officer and corporate secretary of the company, effective July 29, 2019. Mr. Darby succeeds John
Campbell, who will continue to hold the role of chief strategy officer of the company, and who will now
focus primarily on merger, acquisition and joint venture opportunities in the Company’s two principal
markets: Canada and California.
A finance professional with over 25 years of progressively senior financial management experience, Mr.
Darby joins the Company from Naturo Group Investments Inc. Prior to joining Naturo Group, Mr. Darby
served as CFO of Skidmore Group Holdings Inc., a family-owned private equity firm. Previous roles
include CFO of TCG International Inc., an international manufacturer, retailer, and franchisor of auto and
window glass, and Canadian manufacturer and distributor of architectural millwork, and corporate
controller and director of administration of Glentel Inc., a publicly traded retail telecommunications
company. Mr. Darby is a member of the chartered professional accountants of British Columbia and
earned a bachelor of commercial studies degree from the University of Western Ontario.
OUTLOOK
The Company’s business objectives for the upcoming six months include:
• completion of testing of water-soluble, powder-based beverages in the United States, with a focus
on the California market;
• entry into multiple LOIs with Canadian Licensed Producers for white-label manufacturing of
cannabis infused beverages for initial clients for the Canadian market;
• refinement and roll-out of the Company’s in-house brand concepts for both the Canadian and
United States markets, including Anarchist Mountain Beverages, the Company’s first brand,
which is inspired by the site of the Company’s bottling operations; and
• identification of a suitable partner and finalization of cultivation crop-sharing agreement with an
established Canadian Licensed Producer in respect to the Company’s 100-acre outdoor
cultivation site in the fertile Okanagan Valley.
As disclosed in the Company’s prospectus dated June 20, 2019, available under the Company’s SEDAR
profile at www.sedar.com, the Company also announces that it has entered into an exclusive master
lease and services agreement with world-class beverage manufacturer Naturo Springs. The agreement
includes exclusive access to Naturo Springs’s alkaline spring water aquifer, from which the Company will
source water to infuse with CBD and THC for its cannabis infused beverage products. The partnership
also enables the Company to cultivate its own sun-grown cannabis biomass, through the lease of 100
acres from Naturo Springs. BevCanna was recently awarded a hemp cultivation license from Health
Canada, and is subsequently pursuing a Cannabis Cultivation License. The biomass and pristine spring
water will form the basis of the Company’s range of innovative infused beverages, for both house brands
and white-label clients.
In addition to providing access to these on-site resources, Naturo Springs has agreed to allocate their
40,000-square foot HACCP-approved bottling facility and warehouse for the Company’s exclusive use. A
Standard Processing License has already been applied for on the existing facility and the Company is in
the final evidence submission stage.
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Naturo Springs has also obtained pre-approval from the Agricultural Land Commission to expand the
facility up to 170,000 square feet, to be used for the Company’s future growth strategy. The bottling
plant’s current capacity is 72 million bottles per shift/per annum.
For more information on the Company, including its business, objectives and the agreement with Naturo
Springs, including all material terms of the agreement, see the Company’s prospectus dated June 20,
2019, available under the Company’s SEDAR profile at www.sedar.com.
SELECTED FINANCIAL INFORMATION
Statements of Comprehensive Loss
Six months ended
June 30, 2019
($)
Year ended
December 31, 2018
($)
Total revenues -
-
Loss for the period (3,815,519) (6,972,280)
Loss per share (basic and diluted) (0.08) 0.32
Statements of Financial Position
Six months ended Year ended
30-Jun-19 31-Dec-18
($) ($)
Assets
Current assets 5,775,988 6,786,813
Total Assets 16,959,676 18,517,100
Liabilities
Current liabilities 640,507 373,410
Total liabilities 640,507 373,410
Total Shareholders’ Equity 16,319,169 18,143,690
Total Liabilities and Shareholders’ Equity 16,959,676 18,517,100
DISCUSSION OF OPERATIONS
Three months ended June 30, 2019
Revenue
For the three months ended June 30, 2019, the Company did not generate any revenue.
Net Loss
For the three months ended June 30, 2019, the Company recorded expenses of 1,890,940 and realized
and unrealized gain on marketable securities of $103,148, which resulted in a net loss of $1,787,792
during the three months ended June 30, 2019. The main factors that contributed to the loss in the period
were professional and consulting fees of $605,799, marketing expenses of $339,161, amortization
expenses of $311,939, research and development expenses of $284,243 and management fees of
$117,000. Management anticipates that the Company will incur expenses in subsequent periods as a
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result of expenses related associated with being a reporting issuer listed on a stock exchange, expenses
anticipated to be incurred in connection with the expansion of the Production Facility and obtaining the
Licences and expenses related to the implementation of the JD Agreement.
Six months ended June 30, 2019
Revenue
For the six months ended June 30, 2019, the Company did not generate any revenue.
Net Loss
For the six months ended June 30, 2019, the Company recorded expenses of $4,064,961 and realized
and unrealized gain on marketable securities of $249,442, which resulted in a net loss of $3,815,519
during the six months ended June 30, 2019. The main factors that contributed to the loss in the period
were share-based compensation of $1,010,971, professional and consulting fees of $1,148,658,
marketing expenses of $350,895, amortization expenses of $623,374, research and development
expenses of $357,439 and management fees of $218,500. Management anticipates that the Company
will incur expenses in subsequent periods as a result of expenses associated with being a reporting
issuer listed on a stock exchange, expenses anticipated to be incurred in connection with the expansion
of the Production Facility and obtaining the Licences and expenses related to the implementation of the
JD Agreement.
Assets
The Company’s assets as at June 30, 2019 were $16,959,676, consisting primarily of 4,859,431 in cash
and lease and manufacturing agreements with a related party valued at $11,094,223.
Liabilities
The Company’s current liabilities as at June 30, 2019 were $640,507 comprised of $395,093 in trade
payables and accrued liabilities and $245,414 due to related parties. As at June 30, 2019, the Company
did not have any long-term liabilities.
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SUMMARY OF QUARTERLY RESULTS
The following table provides a summary of the previous eight quarters of the Company’s financial
performance.
Q2 2019 Q1 2019 Q4 2018 (1) Q3 2018 (1)
Total revenues - - N/A N/A
Loss for the period (1,787,792) (2,027,727) N/A N/A
Loss per share (basic and
diluted) (0.04) (0.05) N/A N/A
Q2 2018
(1) Q1 2018
(1) Q4 2017
(1) Q3 2017
(1)
Total revenues - N/A N/A N/A
Loss for the period (299,149) N/A N/A N/A
Loss per share (basic and
diluted) (0.06) N/A N/A N/A
(1) The information for the quarters prior to the Company becoming a reporting issuer (June 28,
2019) is not provided if the Company has not prepared financial statements for those quarters.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
As at June 30, 2019, the Company had working capital of $5,135,481.
Cash used in Operating Activities
During the six months ended June 30, 2019, the Company had cash used in Operating Activities of
$2,049,131.
Cash used in Investing Activities
During the six months ended June 30, 2019, the Company had cash used in Investing Activities of
$226,770 comprised of $250,000 for the purchase of marketable securities and $76,775 for the purchase
of property and equipment, reduced by the proceeds from the sale of marketable securities of $100,005.
Cash provided by Financing Activities
During the six months ended June 30, 2019, the Company received a net of $488,027 in cash from
Financing Activities, all from proceeds from issuance of common shares.
Future Capital Requirements
The Company may need to continue to raise capital, as the Company expects its costs will increase due
to the expansion of the Production Facility and the start of production, as well as the initiation of the
Company’s operations in California under the JD Agreement. The Company’s future capital requirements
will depend upon many factors including, without limitation, the granting of the Licences by Health
Canada. The Company has limited capital resources and has to rely upon the sale of equity securities for
cash required for expansion and production purposes, for acquisitions and to fund the administration of
the Company. Since the Company does not expect to generate any revenues from operations in the near
future, it must continue to rely upon the sales of its equity and debt securities to raise capital, which would
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result in further dilution to the shareholders. There is no assurance that financing, whether debt or equity,
will be available to the Company in the amount required by the Company at any particular time or for any
period and that such financing can be obtained on terms satisfactory to the Company or at all.
OFF-BALANCE SHEET ARRANGEMENTS
The Company did not enter into any off-balance sheet arrangements as at June 30, 2019 or as of the
date of this report.
TRANSACTIONS BETWEEN RELATED PARTIES
During the three months ended June 30, 2019, the Company incurred management fees of $73,500 from
certain directors and officers of the Company.
As at June 30, 2019, the following is owed to related parties, which are non-interest bearing, unsecured
and due on demand:
• $46,000 (December 31, 2018 - $66,500) for services provided by the Chief Financial Officer
of the Company (“CFO”).
• $243,184 (December 31, 2018 - $25,872) from amounts owing for products and services
provided by a company owned by the President and the Chief Executive Officer (“CEO”) of
the Company.
• $2,230 (December 31, 2018 - $nil) from amounts owing for products provided by a company
with officers and directors in common with the Company.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
Accounting Policies Adopted by the Company
IFRS 16 Leases
IFRS 16 ''Leases'' ("IFRS 16") was issued in January 2016 and is effective for annual periods beginning
on or after January 1, 2019. IFRS 16 replaces IAS 17 "Leases" ("IAS 17"), International Financial
Reporting Interpretations Committee ("IFRIC") 4 "Determining Whether an Arrangement Contains a
Lease" ("IFRIC 4"), Standards Interpretation Committee ("SIC") 15 "Operating Leases - Incentives", and
SIC 27 "Evaluating the Substance of Transactions Involving the Legal Form of a Lease".
IFRS 16 sets out the principles for the recognition, measurement, presentation, and disclosure of leases
which requires lessees to account for operating leases under a single on-balance sheet model in a
manner similar to the previous accounting for finance leases under IAS 17. At the commencement date of
a lease, a lessee recognizes a liability to make lease payments and a right-of-use asset ("ROU asset")
representing the right to use the underlying asset during the lease term.
The adoption of the IFRS 16 has had no material impact on the Company’s consolidated financial
statements, as the Company currently has limited exposure to leases.
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
The Company’s financial instruments consist of cash, accounts payables and accrued liabilities. The fair
value of the Company’s amounts receivable and accounts payable and accrued liabilities approximate
their carrying value, which is the amount recorded on the statement of financial position, due to their short
terms to maturity. The Company’s cash is measured at fair value, under the fair value hierarchy based on
level one quoted prices in active markets for identical assets or liabilities.
The Company’s risk exposures and the impact on the Company’s financial instruments are summarized
below:
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Credit risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The
Company believes it has no significant credit risk.
Liquidity risk
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet
liabilities when due. As at June 30, 2019, the Company had a cash balance of $4,859,431 to settle
current liabilities of $640,507.
Market risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, equity
prices, input costs and product prices. Cannabis is part of a developing market, likely subject to volatile
and possibly declining prices year over year, as a result of increased competition. Because cannabis is a
newly commercialized and regulated industry, historical price data is either not available or not predictive
of future price levels.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. The Company is not exposed to interest rate as it does not
have any borrowings.
DISCLOSURE OF OUTSTANDING SECURITY DATA
The Company has one class of shares outstanding, being common shares. As of the date of this report,
45,510,750 common shares were issued and outstanding as fully paid and non-assessable shares.
As of the date of this report, the Company had 3,250,000 options to acquire common shares issued and
outstanding exercisable at a price of $0.50 per common share.
As of the date of this report, the Company had 4,000,000 common share purchase warrants outstanding
exercisable at a price of $0.50 per common share.
SUBSEQUENT EVENTS
On July 5, 2019, the Company granted 2,000,000 stock options to purchase up to 2,000,000 common
shares of the Company to certain directors, officers, consultants and employees of the Company.
Each option vests immediately upon the grant and is exercisable for a period of 3 years from the date of
grant at a price of $0.50 per common share.
OTHER MD&A REQUIREMENTS
Additional information related to the Company can be found on SEDAR at www.sedar.com.
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