Financing very much an issue for these folks. No argument there. But your post truly doesn’t reflect what’s going on here. Revenues are growing rapidly and expected to be ebita-positive by 2020. Lots of new growth channels opening. Risk/reward at present pps could be considered compelling by some.
Second Quarter 2019 Financial Highlights
Revenue was $2,995,310 in the second quarter of 2019, an increase of 266% from $817,558 of revenue in Q2 2018 and up 35% from $2,218,175 in the first quarter of 2019. Revenue growth was driven by sustained presence and increased dispensary penetration in established markets, increasing traction in the key California market, the first full quarter of sales in Michigan, and the introduction of new products.
Gross profit of $1,040,064 in Q2 2019 was up 172% from $383,170 a year earlier. As a percentage of revenue, gross profit margin declined to 35% compared to 47% in Q2 2018, as a result of the upfront cost of scaling production to meet the increased demand in California and Michigan. The Company expects a compression in margins as new markets open, which ultimately will improve as efficiencies and economies of scale are realized.
Net loss attributable to the Company was $6,769,557 compared to $1,187,194 in Q2 2018. The increased loss resulted primarily from higher operating expenses associated with the expansion of Dixie's work force, and in particular its sales and marketing organization, as well as costs related to becoming a publicly-listed company. Net loss includes $2,403,987 of non-cash expenses resulting primarily from stock options issued as compensation for key management and external service providers.
Dixie had $2,280,082 of cash at June 30, 2019 compared to $5,635,000 at March 31, 2019. The lower cash balance reflected the cost of funding operations as well as investing in the infrastructure and distribution required to support increased revenues for the balance of the year.
New Financing
On August 28, the Company received $1 million of cash in the form of an unsecured, non-dilutive loan ("the Loan") bearing annual simple interest at 12% from a new strategic funding partner. The Loan is contemplated to be the first part of a broader financing plan, as the Company is in discussions with this partner relating to the same.
Also subsequent to the end of the quarter, the Company received cash proceeds of $248,000 from the exercise of options by a shareholder.
Recent Operating Highlights
Announced expansion into Oklahoma, the sixth state in the Company's growing U.S. footprint, through a partnership with Globus Holdings to manufacture and sell Dixie products beginning in the fourth quarter of 2019.
Completed the first full quarter of operations in Michigan, after signing a licensing agreement with a local partner in February 2019 and launching products by the end of March. Dixie products are already being sold in approximately two-thirds of the dispensaries in the state.
Nearly doubled year-over-year revenue in Colorado driven by a 13% increase in account penetration, and the strength of particular categories such as gummies, and Dixie's Mindset brand, which has tripled monthly sales since the start of 2019.
Signed new distribution agreements for Dixie subsidiary AcesoHemp covering the Southern California, Nevada and Alaska markets, and providing a near-term path to more than double the brand's current presence in approximately 1,000 retail locations.
Launched a new Veterinarian Formula product line for pet wellness subsidiary Therabis LLC, and signed a commercial distribution agreement targeting the veterinary channel with national distributor Vedco Inc. The first order was shipped to Vedco on June 28, 2019 with subsequent re-orders placed in Q3 2019.
Announced regulatory approval of the 50/50 joint venture with Khiron Life Sciences Corp., and commercialization plans for both Dixie's cannabis-infused products in the Latin American market and Khiron's Kuida cosmeceutical line to be distributed by Dixie in the U.S. market. U.S. sales of Kuida are expected to commence by the end of Q4 2019.
Strengthened the executive team with the addition of Chief Financial Officer Greg Robbins, a veteran of Red Bull North America, and Vice President of Sales for regulated products Oliver Arnold, who previously spent more than two decades in sales leadership roles at Terlato Wines and will focus primarily on growing the California market.
Announced that the Company's subordinate voting shares have commenced trading on the OTCQX Best Market under the symbol DXBRF, and that the shares are now eligible for electronic clearing and settlement in the US through the Depository Trust Company (DTC).
Announced a breakthrough in THC water solubility through a proprietary emulsification technique and enhanced ingredient management, delivering improved uptake of cannabis-infused liquids. The proprietary process will be showcased in a new line of drink additive products called FUSE, as well as enhancements to existing beverages and tinctures.
In August, Dixie signed a letter of intent (LOI) with AriZona Beverages to develop, produce and distribute a line of THC-infused products under the AriZona banner. Per the LOI, the Company expects to execute Definitive Agreements by the end of Q3. Product formulations and brand development are already underway between the parties.
Outlook
Dixie has made significant investments through the first half of 2019 to establish important elements of its growth platform. Significant results have included strong organic revenue growth, the announcement of key strategic partnerships, entry into the Michigan market and the planned entry into the Oklahoma market in Q4 2019, the build-out of a sales and marketing infrastructure in California, the development of important channel relationships, the launch of multiple new products, and an expanded team capable of executing the Company's growth strategy.
The Company's strategic focus is now shifting to driving increased revenue and returns from these existing investments. Management believes there are significant opportunities within the existing portfolio of markets and products to generate growth and advance towards profitability, and expects to be EBITDA-positive on a consistent basis by the first half of 2020. In the remainder of 2019, the Company plans to prioritize executing on these opportunities, with investment in new markets and categories playing a secondary role.
The Company anticipates to continue its pattern of solid organic growth through the remainder of the year, with multiple initiative adding to revenue beginning next year. Initiatives expected to generate new revenue streams in 2020 include the commencement of sales in the Latin American and Canadian markets and the development of a new line of cannabis-infused products under the AriZona banner. The Company also expects to experience significant year-over-year growth in its two CBD lines, AcesoHemp and Therabis, as a result of an expansion of distribution networks throughout 2019.
