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IM Cannabis Reports Record Second Quarter 2022 Financial Results; Revenues Increase 114% YoY to $23.8 Million
Gross margin of 24%, which is expected to increase with further asset integration, product availability, and operational improvements
Approximately $6.5 million per year in expected cash cost savings from streamlining operations in Canada and closure of Israeli cultivation farm
TORONTO and GLIL YAM, Israel, Aug. 15, 2022 /PRNewswire/ -- IM Cannabis Corp. (the "Company", "IM Cannabis", or "IMC") (CSE: IMCC) (NASDAQ: IMCC), a leading medical and adult-use recreational cannabis company with operations in Israel, Canada, and Germany, provided financial results for its second quarter ended June 30, 2022. All amounts are reported in Canadian dollars unless otherwise stated.
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Q2 2022 Highlights
Revenues increased 114% year-over-year to $23.8 million.
Gross profit, before fair value adjustments, was $5.6 million.
Implemented streamlining and restructuring plan in Canada, with expected cash cost savings of approximately $4 million per year, including the sale of SublimeCulture Inc. ("Sublime").
Completed the closure of the Sde Avraham cultivation farm that Focus Medical Herbs Ltd. ("Focus Medical") owned and operated in Israel, with expected cash cost savings of $2.5 million per year, and further centralized operations of recently acquired assets in the country.
Management Commentary
"We have accelerated along the path to profitability, with increased revenues, operational streamlining, and a focus on cost reduction," said Oren Shuster, Chief Executive Officer of IMC. "Our primary goal is to continue to increase revenue in each of our core markets to build long term shareholder value. By focusing on sustainable revenue growth, while rigorously pursuing cost and margin efficiencies, we believe we can achieve profitability in the short term."
"Our long-term strategy relies on geographic diversification and preparation to target, upon legalization, new adult-use recreational cannabis markets in Germany followed by the rest of Europe. We are preparing to leverage our global cultivation, brand, and commercial expertise to profitably capture substantial market share across Europe. Our strength is in properly positioning our brands in different markets and the introduction of new SKUs to consistently exceed consumer and patient expectations."
"Like in Israel, we have embarked on a thorough restructuring of our operations in Canada as part of our global integration efforts and to reduce costs. To that end, we have finalized the sale of Sublime, which together with our streamlining initiatives in Israel, is expected to yield $6.5 million in annual cash savings. We expect the majority of savings to begin to materialize in the third quarter, with full realization in the fourth quarter of this year," concluded Shuster.
Operational Highlights
To further streamline operations in Israel, Focus Medical completed the closure of its Sde Avraham cultivation farm. The closure of Sde Avraham farm allows the Company to efficiently leverage its fully licensed import-export supply chain and focus on importing premium and ultra-premium products from its Canadian subsidiaries and other leading Canadian suppliers.
In Israel, the Company continued to focus on importing premium and ultra-premium indoor-grown dried cannabis from its Canadian licensed cultivation facilities and its world-leading cannabis suppliers and supply partners. The Company successfully introduced its highly popular WAGNERS Canadian brand in Israel and expects to bring to market new medical cannabis products in Q3 and Q4.
In Canada, the Company launched numerous new products in response to high market demand for its brands, WAGNERS and Highland Grow, which hold top 3 spots in the premium and ultra-premium segments in Ontario, respectively. At the end of Q2, and in the first weeks of Q3, the WAGNERS pre-roll catalog at the Ontario Cannabis Store ("OCS") grew through the launch of Tiki Rain, Blue Lime Pie, and TRPY SLRP pre-rolls. Two new 3.5g dried flower SKUs – Tiki Rain and Purple Clementine – were also launched in addition to an expansion of the concentrate portfolio with the introduction of soft black hash and 3.5g soap bar hash. Highland Grow added new dried flower SKUs to its OCS portfolio – Gas Tank and Diamond Breath as well as White Lightning pre-rolls. New product rollouts continue with the introduction of new strains including Frost Bite, Leviathan, and Space Jagger.
On August 5, 2022, the Company closed the sale of Sublime, which along with additional streamlining measures taken in Canada is expected to generate annual cash cost savings of approximately $4 million per year. All cultivation, genetics, and logistics have been centralized in the Company's facilities in Kitchener, Ontario which has sufficient cultivation capacity to support the streamlining initiative. The Company sold Sublime to a group of purchasers that included the current and former members of the Sublime management team for aggregate proceeds of $100,000 less adjustments. The transaction constituted a "related party transaction" within the meaning of Multilateral Instrument 61-101 – Take-Over Bids and Special Transactions ("MI 61-101"). Pursuant to Sections 5.5(a) and 5.7(1)(a) of MI 61-101, the transaction is exempt from the formal valuation and minority shareholder approval requirements of such instrument.
In Germany, May was the strongest sales month to date, and the Company's IMC Hindu Kush strain was the top selling T20 in the market, strengthening Adjupharm GmbH's ("Adjupharm") position as one of the top 10 cannabis companies in Germany. With receipt of the extended EU-GMP license on May 24th, including additional production, testing & release steps, the Company achieved another milestone that supports its strategy of product and brand variety. Adjupharm commenced several new product license applications preparing for the launch of new high-quality and high-THC products in Q4 2022 and Q1 2023.
Q2 2022 Financial Results
Revenues were $23.8 million in Q2 2022, representing an increase of 114% from Q2 2021. Total dried flower sold for Q2 2022 was 3,210 kilograms at an average selling price of $5.72 per gram, compared to 1,842 kilograms for the same period in 2021 at an average selling price of $3.92 per gram. The increase in revenues is primarily attributed to the increase in the quantity of medical and recreational cannabis products sold, as well as from the higher average selling price per gram the Company realized from its portfolio of premium branded cannabis products in Israel and Canada.
Gross profit, before fair value adjustments, was $5.6 million in Q2 2022 compared to $0.6 million in Q2 2021.
General and administrative expenses were $11.1 million in Q2 2022 compared to $7.4 million in Q2 2021. The increase in the general and administrative expense is mainly attributable to the growing corporate activities in Israel and Canada following the Company's acquisitions in 2021.
Sales and marketing expenses were $5.0 million in Q2 2022 compared to $1.2 million in Q2 2021. The increase in the sales and marketing expenses was due mainly to the Company's increased marketing efforts in Israel, brand launch in Germany, and increased distribution expenses relating to the growth in sales and consolidation of sales and marketing expenses of entities acquired in 2021.
Adjusted EBITDA loss was $(4.6) million in Q2 2022 compared to $(5.7) million in Q2 2021.
Net loss was $18.98 million in Q2 2022 compared to net loss of $5.01 million in Q2 2021. Included in the net loss was a non-cash charge of $5.4 million, related to restructuring activities in Canada and Israel, along with associated write-downs in tangible and intangible assets, such as other non-cash impairments of $1.5 million in financial expenses and $3.8 million in general and administrative costs.
Cash and cash equivalents totaled $5.86 million as at June 30, 2022, compared to $34.05 million as at December 31, 2021.
The complete interim condensed consolidated financial statements of the Company and related management's discussion and analysis for the three months ended June 30, 2022 and 2021, will be available under the Company's SEDAR profile at www.sedar.com.
Q2 2022 Conference Call
The Company will host a zoom web conference today at 9:00 a.m. ET to discuss its Q2 results, followed by a question-and-answer session for the investment community. Investors are invited to register by clicking here. All relevant information will be sent upon registration.
If you are unable to join us live, a recording of the call will be available on our website at https://investors.imcannabis.com/ within 24 hours after the call.
About IM Cannabis Corp.
IM Cannabis (NASDAQ: IMCC, CSE: IMCC) is a leading international cannabis company providing premium products to medical patients and adult-use recreational consumers. IM Cannabis is one of the very few companies with operations in Israel, Germany, and Canada, the three largest federally legal markets. The ecosystem created through its international operations leverages the Company's unique data-driven perspective and product supply chain globally. With its commitment to responsible growth and financial prudence, and the ability to operate within the strictest regulatory environments, the Company has quickly become one of the leading cultivators and distributors of high-quality cannabis globally.
In Israel, the Company imports and sells premium and ultra-premium medical cannabis, operating retail pharmacies, online platforms, distribution centres and logistical hubs through IMC Holdings Ltd. and its subsidiaries and affiliates, which enable safe delivery and quality control throughout the entire value chain. In Germany, the IM Cannabis ecosystem operates through Adjupharm, where it also distributes cannabis to pharmacies to medical cannabis patients. In Canada, IM Cannabis operates through Trichome Financial Corp. and its subsidiaries TJAC and MYM, where it cultivates and processes cannabis for the adult-use market at its Ontario, Nova Scotia, under the WAGNERS and Highland Grow brands.
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