Liberty Health Sciences Q2 F2019

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.

Operating Performance 28-Feb-18 31-May-18 31-Aug-18
Grams Harvested 165093 201,753 191,644
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

30-Nov-17 28-Feb-18 31-May-18 31-Aug-18
Adj GP $49 $253 $600 $1,322
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.

Operating Performance 28-Feb-18 31-May-18 31-Aug-18
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.

Operating Expenses:

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.

Adjusted EBITDA

30-Nov-17 28-Feb-18 31-May-18 31-Aug-18
Adjusted EBITDA -$2,077 -$3,270 -$2,338 -$3,692
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].

Balance Sheet

 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.





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