Supreme Cannabis Co Inc fka SPRWF

[Televet]

Supreme Cannabis Announces Financial Results
for Q1 2021
Continued strong revenue growth and operational efficiency
2021 First Quarter Highlights:
• Positive Adjusted EBITDA of $0.3 million
• 24% net revenue growth quarter-over-quarter
• 45 active retail SKUs, with presence in all 10 provinces
• Completed the third shipment of medical cannabis to Israel through its Truverra brand
• Maintains a strong liquidity position, including a cash balance of $20.4 million
Subsequent to Quarter-End:
• Entered into a supply agreement with Medical Cannabis by Shoppers Inc., a subsidiary of Shoppers
Drug Mart Inc., to offer Truverra-branded medical cannabis products through the Medical
Cannabis by Shoppers™ online sales platform accessible to patients across Canada.
TORONTO, November 16, 2020 – The Supreme Cannabis Company, Inc. (“Supreme Cannabis” or the
“Company”) (TSX: FIRE) (OTCQX: SPRWF) (FRA: 53S1) today announced its financial and operating results
for the three months ended September 30, 2020.
Supreme Cannabis’ Management Discussion & Analysis (“MD&A”) and condensed interim consolidated
financial statements (“Financial Statements”) for the three months ended September 30, 2020 (“Q1
2021”), along with all previous public filings of the Company may be found on SEDAR at www.SEDAR.com.
All figures are in Canadian dollars.
Beena Goldenberg, President and CEO of Supreme Cannabis, commented:
“In the first quarter of fiscal 2021, we made solid progress towards our goal of transforming Supreme
Cannabisinto a premium cannabis CPG company. We continued to execute on our strategy of accelerating
revenue and controlling our costs, which led to sequential growth in consolidated net revenue of 24%.
Recreational net revenue grew slightly compared to the fourth quarter of 2020, due largely to higher sales
volumes offset by lower average selling prices. Despite an initial drop in recreational sales volumes in July
due to stockouts as a result of fulfillment and supply chain growth challenges, we built steady monthover-month improvement in August and September as our sales partnership with Humble & Fume Inc.
gained traction. This strong momentum led to September 2020 being Supreme Cannabis’ highest month
on record for recreational sales. We exercised good cost control across the organization and benefitted
from a full quarter of cost savings from the measures taken to right-size the business in the second half of
fiscal 2020. This resulted in Supreme Cannabis generating a slightly positive Adjusted EBITDA of $0.3
million.”
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Ms. Goldenberg concluded, “Supreme Cannabis’ performance in the first quarter of fiscal 2021
demonstrates that our strategy is working. While the first quarter of 2021 was a consistent improvement,
we understand that more work is needed to become a sustainably profitable business. We will continue
to efficiently focus our resources on driving near-term revenue growth in the recreational market. We are
well-positioned to increase our market share with compelling brands and high-quality products at several
points of value and preference. We have increased our sales and marketing efforts in the recreational
segment during the quarter. Our partnership with Humble & Fume Inc. (“humble+fume”) has enabled
Supreme Cannabis to secure 2,258 new listings during the quarter. We expect the expanded listings to set
us up for further recreational revenue growth.”
Select Financial and Operational Results.
Three months ended
Financial Highlights (in 000's $) Sept 30, 2020 June 30, 2020
Gross revenue 13,977 10,855
Net revenue 11,867 9,532
Gross margin, excluding fair value items (1) (2,153) (8,246)
Gross margin (11,340) (11,544)
Operating expenses 6,547 15,886
Impairment of assets - 3,414
Net income (loss) 29,768 (33,252)
Net comprehensive income (loss) 29,768 (33,806)
Adjusted EBITDA (2) 266 (4,167)
Cash 20,366 28,419
1. Gross margin, excluding fair value items, is an Additional Subtotal presented by the Company. The Company defines gross margin, excluding
fair value items as the gross margin before recording fair value changes on growth of biological assets and realized fair value changes on
inventory sold or impaired. More information on changes in fair value of biological assets can be found in “Changes in fair value of biological
assets” in the MD&A.
2. Adjusted EBITDA is a Non-GAAP measure and does not have a standardized meaning under GAAP. As a result, it may not be comparable to
data presented by other cannabis companies. For an explanation and reconciliation of Adjusted EBITDA to related comparable financial
information presented in the Financial Statements prepared in accordance with IFRS, refer to the “Results of Operations” and “Non-GAAP
Measures and Additional Subtotals” in the MD&A.
Revenue
Overall net revenue increased 24% to $11.9 million in Q1 2021 from $9.5 million in Q4 2020.
Recreational net revenue rose to $7.5 million, an increase of 3% quarter-over-quarter as a result of
existing and new products continuing to be well received by the recreational cannabis consumer. In
particular 7ACRES Craft Collective and cannabis extracts, which include oils, vapes and concentrates
contributed a growing portion of the recreational sales in the quarter.
Wholesale net revenue, which includes the Company’s sales in the international medical cannabis
segment, in Q1 2021 was $4.4 million, up 92% quarter-over-quarter, with a 14% increase in average selling
price, driven by a higher contribution from domestic flower. Wholesale volumes grew by 69% as the
Company continues to forge longer-term relationships in the domestic market. The growth was also
driven by a 25% increase in international medical sales with the Company strengthening its relationship
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with Breath of Life International Ltd., Israel’s largest and leading producer of medical cannabis. The
Company plans to add additional medical partners in various international jurisdictions.
Gross Margin
In Q1 2021, the gross margin, excluding fair value items, included impairment charges of $8.4 million
recorded in production costs. Excluding the impact of impairment charges recorded in production costs,
gross margin, excluding fair value items, increased to 53% in Q1 2021 compared to 41% for Q4 2020,
mainly due to a realization of cost optimization initiatives the Company initiated in the second half of fiscal
2020.
Adjusted EBITDA
The Company generated a positive Adjusted EBITDA of $0.3 million compared to an Adjusted EBITDA loss
of $4.2 million in Q4 2020 due to an increase in revenue and a higher gross margin, excluding fair value
items and the impact of impairment charges.
Balance Sheet, Liquidity and Cash Flow from Operations
Supreme Cannabis ended the quarter with a total cash balance of $20.4 million and a working capital
surplus of $48.1 million.
During the first quarter of fiscal 2021, the Company significantly strengthened its balance sheet by
refinancing its convertible debentures and amending its three year term credit facility consisting of a term
loan and a revolving credit facility (the “Credit Facility”). As a result, there are no debt maturities for two
years (excluding customary principal amortization payments), and the carrying value of total debt was
reduced by approximately $71.0 million on the day of the transaction related to the convertible debt
extinguishment. Furthermore, expected cash interest expense was significantly reduced due to the
reduction in the principal amount of the convertible debentures and the Credit Facility. The amended
Credit Facility defers the financial covenants related to leverage and the fixed charge coverage ratio by 12
months until Q3 2022.
Operating and Capital Expenditures
In Q1 2021, the cost realignment efforts resulted in the Company achieving a $9.3 million or 59% decrease
in operating expenses, compared to the three months ended June 30, 2020. Operating expenses for the
three months ended September 30, 2020 benefited from a recovery of $1.5 million related to share based
payments, primarily driven by a recovery of $2.1 million for the cancellation and forfeiture of 10.9 million
stock options. The Company has executed on its cost rationalization activities which have led to significant
operating expense cost reductions since the start of its efforts during the third quarter of fiscal 2020. The
efforts included reduction in staffing levels across all facilities and shared services, the consolidation and
streamlining of the Company’s facilities and production processes and the curtailment of avoidable
expenses.
In addition to reducing its operating expenses, the Company’s capital expenditures in Q1 2021 decreased
to $0.4 million, down 61% quarter-over-quarter. With the completion of construction projects at the
Company’s Kincardine, Ontario (“Kincardine Facility”) and Langley, British Columbia (“Langley Facility”)
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facilities, capital expenditures for the remainder of fiscal 2021 are expected to be minimal and will be
focused on productivity enhancements justified by near-term cash flow returns.
Brand and Product Developments in Q1 2021.
Supreme Cannabis introduced 10 new SKUs to the market in Q1 2021:
• 7ACRES Craft Collective 3.5g Whole Flower Pink Kush
• 7ACRES Craft Collective 3.5g Whole Flower Ice Cream Cake
• Sugarleaf 0.5g Boost Sativa 510 Vape Cart (first 510 format launched for all brands)
• Sugarleaf 3x0.5g Pre-roll Jean Guy (New size format)
• Sugarleaf 3x0.5g Pre-roll Jack Haze (New size format)
• Sugarleaf 3x0.5g Pre-roll White Widow (New size format)
• Sugarleaf 3x0.5g Pre-roll Sensi Star (New size format)
• Sugarleaf 7g Bloom Milled Cannabis
• Sugarleaf 3.5g Bloom Milled Cannabis
• Hiway 2g Hiway Hash
Distribution.
Overall, Supreme Cannabis shipped 44% more product in Q1 2020 compared to Q4 2020. The provinces
of Quebec, Alberta, Ontario and British Columbia generated the majority of the Company’s sales.
Distribution to the recreational market on a gram equivalent basis was 17% higher in Q1 2020 compared
to Q4 2020.
Key to growing Supreme Cannabis’ presence across Canada is the Company’s sales agency agreement with
humble+fume. Through this partnership, humble+fume is deploying a team of sales professionals that will
drive distribution, brand advocacy and budtender education for all Supreme Cannabis brands at the store
level. Since tracking commenced in April 2020 until the end of September 2020, humble+fume has created
over 3,500 new listings for Supreme Cannabis products, including 2,258 new listings in the first quarter of
2021. In the first quarter of 2021, 232 new stores started carrying the Company’s products.
In the first quarter of 2021, as many COVID-19 restrictions were lifted and retail stores reopened,
humble+fume representatives resumed engaging directly with operators and supporting new retail store
openings. This allowed further opportunities for promotions, new product introductions, staff training
and adding new retail outlets.
Subsequent to quarter-end, the Company entered into a supply agreement with Medical Cannabis by
Shoppers Inc., a subsidiary of Shoppers Drug Mart Inc., to offer Truverra-branded medical cannabis
products through the Medical Cannabis by Shoppers™ online sales platform accessible to patients across
Canada. Under this agreement, Canadian patients will be able to order Truverra dried flower, pre-rolls
and full-spectrum CBD oil. Included in the offering is the Jean Guy strain, which is a tribute to the legendary
variety offered by the Montreal Compassion Club.
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Operations.
The Company continues to make incremental improvements at its core facilities in Kincardine, Ontario
and Langley, British Columbia, to enhance production, processing and operating efficiency.
Kincardine Facility
The Kincardine Facility implemented several changes with solid success.
• In August, the facility completed its fuel conversion from propane to natural gas, which is
expected to deliver $1.5 million in annual savings
• Bottled flower containers at the facility have been optimized to address shelf presence and reduce
the cost of procurement and is expected to deliver savings of over $1.0 million annually
• The facility also optimized its boiler systems, resulting in significantly more consistent climate
control
Subsequent to quarter-end, the Company’s processing license for the Kincardine Facility was amended by
Health Canada on October 29 to authorize commercial sale of cannabis products in the cannabis extracts
class of cannabis. The Company also received a research license at the Kincardine Facility on November
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Langley Facility
The continuous improvement program at the Langley Facility continues to yield positive results. A key
focus has been on improving conversion yields through first-pass extraction and distillation and further
enhancing quality in these processes.
Outlook.
The Company remains confident in its ability to grow near-term revenue and reach sustainable
profitability based on its accelerated transformation into a premium Cannabis CPG company, its
streamlined and right-sized operating structure, and its enhanced offering of new high-quality brands.
• The Company has a robust and growing product line that addresses consumers’ needs at a variety
of price points and form factors.
• The Company has efficient and effective coast-to-coast sales coverage with the humble+fume
sales partnership.
• The Company has substantially completed the right-sizing of its operating structure with the right
teams in place to deliver against objectives efficiently.
• Supreme Cannabis remains focused on cost containment and is fully-funded to execute on all
planned initiatives.
First-quarter 2021 earnings conference call and webcast.
The Company will host a conference call to discuss its first-quarter fiscal 2021 results at 8:00 AM Eastern
on Tuesday, November 17, 2020. Interested parties can join the call by dialling 416-764-8659 or 1-888-
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664-6392. The conference ID number is 67218125. The call can also be accessed through the following
webcast link: http://bit.ly/FIREQ12021.
A recording of the conference call will be available for replay two hours after the call’s completion. To
access the recording, please dial 416-764-8677 or 1-888-390-0541 and the replay code 218125. The
recording will be available until Thursday, December 17, 2020.