Open up the fins and MDA and follow along…
A few items I would like to note prior to diving into fins…
- GMP received in June 2018… this will be important if/when Hemp gets pushed through Farm bill. Those big box stores want GMP.
- Issued more shares to satisfy a USD 6.0 million bill for work done on the 360 complex by Thermo Energy Systems [Leamington co… I might add.]
- 4 dispensaries operating for the Q.. 3 more open in Q3 with 4 new leases signed. That gets to 11 vs the 10-12 to be open before F2019 year end and 16-18 before F2020 year end
With a full Q from the new dispensaries sales saw a strong increase to $2.2million from $1.1 million last Q.
Equivalent grams sold increased to 137 kgs from 71kgs which was 90%. Yet Avg retail price per gram went up $0.34/gram to $16.33 or 2%, thus why Sales $ went up % wise more than KGs sold % wise.
However, the spend per average patients per Q dropped to $311.50 from $499.45. This could be timing wise as average patients is simply (this Q patients plus Last Q patients) divided by 2. So it assumes a linear acquisition of patients which might not be the case.
|Equiv Grams Sold||21618||71,327||135,939|
|Avg realized price gram||$19.99||$15.99||$16.33|
|active registered patients||1999||4,566||9,681|
|avg registered patients Q||1,250||2,284||7,124|
|gram equiv per avg patients||17||31||19|
|Revenue per avg patient||$345.60||$499.45||$311.50|
These numbers should become more interesting as the 3 new dispensaries are added in Q 3 which ends Nov 30 2018.
Cost of Goods Sold
|Adj GM %||40.5%||58.6%||52.6%||59.6%|
|GM% Just COGS||-72.7%||18.8%||27.5%||34.7%|
In adjusting Gross Margin, GoB are deducted, as is depreciation [I am not a fan of deducting depreciation, but since we aren’t comparing to any other LP I’ll put up with it], and certain 280E costs that are brought above the line are removed [Note: I asked GS about this as they also deduct it from Adj EBITDA, which leads me to think these are taxes. I’ll edit when I get a reply].
The GM % in both cases improved by a 7% of sales, with both measures turning in a new high.
|Equiv Grams Sold||21618||71,327||135,939|
|Cogs per gram sold||$16.24||$11.59||$10.67|
COGS per gram sold needs a major improvement. It is trending positive. Gross Margin should become interesting in Q4 F2019 as 360 will be in partial operation in Nov/18. So Q4 F19 should have a full q of the efficiencies… we will see if they get the revenue from same to support or if there is a lag period.
Total Opex increased by $799k QoQ to $5,755. The biggest culprits
- $320 k increase Prof Fees to $833k, which other than SBC, is their biggest Opex at 37.5% of sales a decrease from 45% sales last Q
- $243 k in Advertising expenses to $454k [21% sales vs 41% last Q] which makes sense given new dispensaries
- $173 k in selling costs to $520k [23% of sales vs 30% last Q]
- $103 in SBC to $1.2 million [56% of sales vs 100% last Q]
Some sales categories decreased in absolute dollars, and all but Advertising reduced as a percentage of sales. So we are seeing some economies of scale.
With this level of Opex and the Gross Margin
- Adj of 60% Breakeven sales to record a positive Operating Profit is $9,6 million
- Unadjusted GM of 35% Breakeven sales to record a Operating Profit $16.4 million
While sales should increase, we will likely see Opex items [selling, advertising, rent] also increase to support it. A better gross margin from 360 is required to compress breakeven.
If they can keep their sales equivalent at +$16/gram and compress their CoGS to an Aphrian like cost… the incrementality in sales should start delivering to the gross margin line and cascade through the fins. [This is where I would love a conference call to give some guidance like Carl has been doing.]
Net Operating Profit less GoB was negative $5.2 million versus negative $4.8 million last Q. A small slip but a slip nonetheless. Sales less CoGS and Depreciation was $512k versus $137k last Q. This improvement in absolute gross margin was not enough to counteract the operating expense increases above.
Total Non-Operating Income
Totalled $1.6 million a negative swing of $2.7 million from last Q, as last Q had the positive on embedded derivative of $1.6 million.
They had “Other loss (income)” of $463k which I am not sure what that is. Would be nice to have a better descriptor as it swung $976k. I think some is gain on LT Investments to a loss.
Net Income less IFRS Voodoo
Net Income less GoB was negative $6.2 million a slide from negative $3.2 million last Q. The biggest contributor was the flip in Total Non-Operating Income from the $1.6 million in embedded derivatives in Q1 to only $49k this Q, the extra $799 Opex and the balance of the Total Non Operating Income items counteracting the increase in Gross Margin before IFRS.
|Their figure Adj EBITDA||1019||-$3,098||-$2,053||-$3,139|
The difference between their Adj EBITDA and mine is the 280e adjusted cogs.
Of the $1.4 million difference $672 is cash related Opex increases, Other Income swinging $976 QoQ, and the differential QoQ between Application Fees and IR fees counteracting the $375 improvement in GM net of non cash items [Depreciation and GoB].
Items of note:
- Cash down $12.7 million
- Inv up $869k
- Bios up $662
- Capital Assets, largely construction in progress, up $9.2 million
- A/P and accrued down $6.4 million… likely related to…
- Share capital up $7.9 million from settling USD 6.0 bill on greenhouse.
As mentioned, build up of dispensaries and the completion of 360 campus to bring in cost efficiencies are things to keep a look out for in the next two Q’s.
That’s all I got.