OREANDA-NEWS. The Canadian Bioceutical Corporation (the “Company” or “BCC”) (CSE:BCC) (OTC:CBICF) reported its financial results for the first quarter of fiscal 2018, ended June 30, 2017.

 (CDN$) 3 months to
  June 30, 2017 		 3 months to
  March 31, 2017 		   Change 
 Health for Life (“H4L”) dispensary cannabis
 sales (grams)		 267,927 266,587 0.5%
 Average price per gram (H4L cannabis sales)    $14.76 $14.50 1.8%
 Wholesale revenues $1.4M    
 Total Revenues $5.1M $4.4M 14.1%
 Gross Profit $2.7M $1.0M 166%
 Adjusted EBITDA $0.1M ($0.3M) $0.4M
 Net loss from Operations ($0.8M) ($3.8M) $3.0M

As the Company’s activities are nearly exclusively related to cannabis assets owned in the U.S., which were acquired in calendar 2017 only, comparison to the financial performance in calendar 2016 is relatively without meaning. Hence, the Company has chosen to present the prior quarter, Q4 F2017, as the most meaningful comparable.

“We recorded a solid quarter with double digit sequential revenue growth, driven by strong sales of high-margin concentrates,” stated Scott Boyes, CEO of BCC. “At the same time, we continued to execute on our aggressive expansion strategy. We are developing a new dispensary in the Greater Phoenix Area, which we anticipate to be operational by late November of this year. Development of our assets in Massachusetts is progressing well, and we anticipate cultivation to commence in the second calendar quarter of 2018, with up to three dispensaries to open the following quarter. Additionally, we continue to make good progress on the other potential acquisitions, and anticipate completing several of these shortly. Once all initiatives have been developed, we aim to have a total of 10 dispensaries through four states, 9 million grams per annum in cultivation and 1.2 million grams per annum in concentrates production capacity. We believe this will generate significant additional firepower to fuel further expansion, especially in combination with our proven access to capital. Finally, our joint venture with Panaxia provides important product differentiation into the pharma-grade products segment, unlocking new avenues to pursue revenue and margin growth.”

Beth Stavola, President of BCC’s U.S. operations, added, “Our Health for Life dispensary brand and our MPX concentrates brand continue to resonate with the market. Growth was limited only through availability of product for extraction. We are addressing this through initiatives aimed at increasing our own production capacity, as well as a more aggressive purchasing policy with regard to third-party supply of trim. We are relocating and enlarging our Arizona production to the new Mesa North facility and we are in the latter stages of testing RotoGro, an innovative cultivation technology that we expect to substantially increase capacity and cost-efficiencies.”

Q1 2018 and subsequent highlights

Operational

  • Total revenues of $5.1 million, consisting of:
      - Health for Life dispensary sales of dried flower and concentrates of $3.6M
      - Wholesale sales of MPX concentrates and dried flower of $1.4M
  • In May 2017, the Company relocated its Mesa North Health for Life dispensary to a better location. The New Mesa North dispensary, which will form the blueprint for all the Company’s dispensaries currently under development, continues to experience stronger sales than the original location.
  • Started development of a new dispensary following the PerkAZ acquisition (see below) in the Apache Junction suburb of the Greater Phoenix Area, which the Company believes is an underserved geography in terms of dispensary coverage. The Company anticipates this new facility to be operational in late November 2017.
  • The Company has been conducting cultivation tests on its newly installed RotoGro technology and anticipates results will be available shortly. Upon successful completion of the test phase and subsequent installation of additional units, Management anticipates significantly increasing cultivation capacity, as well as doubling concentrates production in Arizona to 1.1 million grams per annum.

Acquisitions

  • Completed the acquisition of a 51% interest in a management company supporting a cultivation and production facility and up to three dispensaries in Massachusetts, which has voted in favour of legalizing the adult use of cannabis. In consideration of the acquisition, BCC paid US$5.1 million in cash and 2,000,000 stock options at an exercise price of CAD$0.39 per common share.
  • Signed LOIs to complete the following acquisitions:
      - GreenMart of Nevada, a Las Vegas-based cultivation and production wholesale operation
      - A profitable fourth Arizona cultivation/production/dispensary operation
      - Three licenses to develop and operate up to three dispensaries and one (of only 15 statewide) production licenses in Maryland

Partnerships

  • Signed a partnership with MJardin which will be providing cultivation services to certain of BCC’s operations, the first of which will be in Nevada, subsequent to completion of the acquisition.
  • Signed a strategic partnership with Israeli pharmaceuticals company, Panaxia, for the formation of a Joint Venture whereby Panaxia will be providing proprietary, smokeless, pharma-grade cannabis-based products that have been proven to be in high demand, but have not been readily available in the U.S. These products will be sold through the Health for Life dispensaries, as well as wholesale to other dispensaries in the markets in which BCC is active. Revenues are to be shared on a 50/50 basis, with Panaxia taking on all CapEx and OpEx related to the building and operations of the assembly facilities within the footprint of BCC cultivation facilities. BCC will be providing the cannabis for extraction by the JV and assembly into the Panaxia products. The first production unit is scheduled to become operational in Arizona during the first quarter of 2018.

Financing

  • Completed the second US$2.3M tranche of an US$11.2M private placement of common shares priced at CA$0.50 per share.
  • Arranged a US$25M credit facility with Florida-based Hi-Med. To-date, no funds have been drawn down against the facility, with the maximum of US$25M remaining available to the Company to fund the execution of its growth strategy.

Financial overview

Below follows a summary of the key financial metrics for the Company. A more detailed discussion of these and other metrics, as well as operational events, can be found in the Company’s Financial Statements, Management Discussion & Analysis filed on www.sedar.com

Revenues

Revenues increased by 14.1% to $5.1 million, as compared to the prior fiscal quarter (Q4-2017), attributable predominantly to increased sales of higher-margin concentrates products. During the three-month period ending June 30, 2017, the Company’s Arizona dispensaries sold 267,927 grams of cannabis products, as compared to 266,587 for the prior quarter. 

While the sequential change in grams of product sold is relatively negligible (0.5%), the Company was able to increase the contribution from higher-margin concentrates and derivative products, such as cannabis oils, shatter, wax and live resin. In total, the Health for Life dispensaries sold 220,366 grams of cannabis flower and 47,561 grams of concentrates and cannabis derivatives, as compared to 237,770 grams and 28,819 grams in fiscal Q4 2017, respectively. 

The average retail selling price per gram at the Health for Life dispensaries increased from $14.50 for fiscal Q4 2017, to $14.76 (USD $10.97) in Q1 2018, driven by the higher contribution to revenues from concentrates and derivative products. Accessories, edibles and ancillary products contributed approximately $0.1 million, while wholesale operations contributed $1.4 million.

As the Company completed the acquisition of the Arizona assets in January of 2017, no contribution from these operations was recorded in the prior year, during which only minimal sales of nutraceutical products were recorded.

The Company’s wholesale business in Arizona, which currently supplies over 40 Arizona dispensaries with its MPX branded products, generated $1.4 million in revenues, while ancillary products contributed $0.1 million to total revenues.

Gross Profit

Gross profit for the period before adjustment for the unrealized gain in the fair value of biological assets was $1.9 million, which represents a gross margin of 37.5%. Gross profit after adjustment for the unrealized gain in the fair value of biological assets was $2.7 million, reflecting 53.6% gross margin, as compared to $1.0 million for Q4 2017. 

Expenses

Expenses for the quarter were $3.2 million, as compared to $4.8 million for the quarter ended March 31, 2017. The decrease in operating expenses was attributable primarily to a reduction in share-based payments and a decrease in professional fees expenses related to the business combination with the Arizona assets in January of 2017.

Net Operational loss and Adjusted EBITDA

The Company recorded a net operational loss of $0.4 million, as compared to an operational loss of $3.8 million for the three-month period ended March 31, 2017. BCC’s revenue base for the period under consideration was attributable 100% to its Arizona operations, while additional corporate expenses are related to the Company’s expansion initiatives, which includes a strengthened corporate function and other overheads related to being a public company. Management anticipates that as additional assets, both in Arizona and in other states in which the Company operates become operational, revenue growth will outpace the related increase in expense.

Increased revenues from an improved mix of products sold in favour of higher margin cannabis concentrates resulted in Adjusted EBITDA of $0.1 million, as compared to a negative $0.3 million for the three months ended March 31, 2017. 

Financing activities

On May 5, 2017, the Company completed the second and final tranche of a private placement for gross proceeds of US$2.3 million through the issuance of 4,600,541 common shares.

The Company arranged a US$25 million revolving credit facility with Hi?Med, LLC. The funds drawn down against the line of credit will be earmarked specifically for making further acquisitions, as well as, where needed, the development of assets obtained in any transaction.  

The principal amount remaining from time to time unpaid and outstanding shall bear interest at 7.0% per annum. The principal remaining, and any interest accrued, shall be repayable, in full, 36 months from the date of closing. In connection with the facility, BCC will pay a 2.0% arrangement fee on each advance made to the Company by the Lender.

The outstanding principal amounts can be converted into common shares of BCC, as follows:

  1. up to an initial US$10 million of the principal outstanding, shall be convertible into common shares at a conversion price of CAD$0.50 per common share.
  2. any principal drawdown in excess of the initial US$10 million, and less than US$20 million, shall be convertible into common shares at a conversion price of CAD$1.00 per common share.
  3. any principal drawdown in excess of US$20 million, and less than US$25 million plus outstanding interest payable on the outstanding loan amount shall be convertible into common shares at a conversion price of CAD$1.50 per common share.

As of the date hereof, the Company has not drawn down any amount under the Hi-Med Facility.

Cash balance and liquidity

As at June 30, 2017, the Company held cash and cash equivalents of $10.3 million, while current liabilities stood at $2.1 million as at this same date. 

During the quarter ended June 30, 2017, the Company recorded net cash used in operations of $1.9 million and $8.9 million net cash used in investing activities (consisting mainly of acquisition related cash expenses).  Net cash used in financing activities was $0.3 million. 

Conference Call

The Company will hold a conference call to discuss its financial performance, operations and outlook.

Scott Boyes, President and Chief Executive Officer of BCC, and Beth Stavola, President of U.S. Operations (CGX) will host the call.

Additional Information

Additional information relating to the Company, including with respect to financial results, operational events, acquisitions and financings, is available on SEDAR at www.sedar.com in the Company’s Audited Annual Financial Statements, Management Discussion & Analysis (“MD&A”) and CSE Form 2A - Listing Statement (the “Listing Statement”).

About The Canadian Bioceutical Corporation
BCC, an Ontario corporation, through its wholly owned subsidiaries in the U.S., provides substantial management, staffing, procurement, advisory, financial, real estate rental, logistics and administrative services to two medicinal cannabis enterprises in Arizona operating under the Health for Life (dispensaries) and MPX (high-margin concentrates wholesale) brands. The successful Health for Life (“H4L”) brand operates in the rapidly growing Phoenix Metropolitan Statistical Area (MSA) with a population of 4.6 million people.  The award-winning Melting Point Extracts (“MPX”) brand is carried by over 40% of Arizona dispensaries. The Company also owns assets in Massachusetts, supporting cultivation, production and up to three dispensaries in Massachusetts, as well as is supporting development of a third licensed dispensary in Arizona. 

BCC continues to expand its U.S. footprint, being in the process of acquiring a cultivation and production wholesale business in Las Vegas, Nevada, and three dispensaries and a production license in Maryland.  The Company also leases a property in Owen Sound, Ontario, for which an application to Health Canada has been made for a cannabis production and sales license. In addition, the Company will continue its efforts to develop its legacy nutraceuticals business.

 

The Canadian Bioceutical Corporation
Interim condensed consolidated statements of financial position
(unaudited)
(in Canadian dollars) June 30,
   March 31,
As at 2017   2017
   
Assets  
Current        
Cash and cash equivalents $  10,259,337   $  21,519,289
Restricted cash -   133,220
Accounts receivable 1,354,955   764,672
Inventory 1,650,127   1,339,937
Biological assets 685,395   596,191
Prepaid expenses 356,267   181,190
Right of first refusal 194,655   199,830
Due from related parties 2,463,469   -
Asset held for sale 1,829,757   1,878,402
    18,793,962   26,612,731
Non-current  
Property, plant and equipment 9,667,058   4,546,022
Intangible assets 37,757,895   28,514,977
Goodwill 12,841,071   12,857,390
Deposits 462,220   398,992
       
Total assets $  79,522,206   $  72,930,112
         
 
Liabilities  
Current  
Accounts payable and accrued liabilities $   1,790,874   $   1,624,425
Income tax (receivable) payable (173,930)   545,661
Current portion of promissory note 144,093   147,453
  1,761,037   2,317,539
Non-current  
Term loans 12,977,000   13,322,000
Promissory note 1,259,639   1,303,526
Lease inducement 1,729,309   1,764,162
Convertible debentures 77,851   77,851
Option component of convertible debentures 85,807   185,274
Deferred income taxes  11,914,614   11,821,296
    28,044,220   28,474,109
   
Total liabilities   29,805,257   30,791,648
   
Equity  
Share capital 51,271,770   49,147,583
Warrants   3,724,123   3,632,398
Contributed surplus 3,315,382   2,665,730
Accumulated other comprehensive (loss) income (648,502)   595,434
Deficit   (14,620,571)   (13,600,869)
Equity attributable to shareholders of the Company  43,042,202   42,440,276
   
Non-controlling interest 6,674,747   (301,812)
    49,716,949   42,138,464
         
Total liabilities and equity   $ 79,522,206   $  72,930,112
The Canadian Bioceutical Corporation              
Interim condensed consolidated statements of net loss and
comprehensive loss (unaudited)
(in Canadian dollars)  
Three months ended   June 30,   June 30,  
  2017   2016      
   
Sales   $   5,105,123     $                -      
Cost of sales   3,306,660     -  
Gross profit before unrealized gain from  
changes in biological assets     1,798,463   -    
Unrealized gain from changes in fair value of biological assets 936,960     -  
   
Gross profit   2,735,423     -  
   
Expenses  
General and administrative     2,206,867   256,893    
Professional fees 426,232   12,113    
Share-based compensation     182,260   -    
Amortization and depreciation     397,166     -    
      3,212,525     -      
   
Loss from operations   (477,102)   (269,006)  
   
Other expense (income)  
Foreign exchange 53,755   (12,763)    
Interest income (67,136)   -    
Accretion expense 2,127   1,905    
Change in fair value of derivative liability     (99,469)   42,466    
Interest and financing charges, net     248,856   -    
Transaction costs  175,340   74,145    
  313,473   105,753    
   
Net loss      $    (790,575)   $   (374,759)    
   
Income tax expense   243,481     -  
   
Net loss after income taxes     $ (1,034,056)     $   (374,759)  
   
Net loss attributable to:  
The Canadian Bioceutical Corporation     $ (1,019,702)     $   (374,759)  
Non-controlling interest (14,354)     -  
   
      $   (1,034,056)     $   (374,759)        
   
Other comprehensive income  
Exchange differences on translating foreign operations   $  (1,240,476)      (7,813)    
   
Comprehensive loss for the period     $  (2,274,532)     (382,572)  
   
Comprehensive loss attributable to:  
The Canadian Bioceutical Corporation     $  (2,260,178)     $   (382,572)  
Non-controlling interest (14,354)     -  
   
      $  (2,274,532)     $   (382,572)        
   
Loss per share, basic and diluted (0.01)     (0.01)  
   
Basic and diluted weighted average number of shares outstanding  255,529,886   41,408,015  
The Canadian Bioceutical Corporation
Interim condensed consolidated statements of cash flows (unaudited)
(in Canadian dollars)
Three months ended
    June 30,        June 30,  
    2017     2016  
     
Operating activities    
Net loss $ (1,034,056 ) $ (374,759 )
Item not affecting cash:    
Amortization and depreciation   397,166     -  
Share-based compensation   182,260     -  
Accretion expense   2,127     1,905  
Change in fair value of derivative liability   (99,469 )   42,466  
Occupancy cost   -     139,377  
Income tax expense   243,481     -  
Interest expense   2,090     -  
Unrealized foreign exchange gain   53,755     (6,385 )
Unrealized gain from changes in fair value of biological assets      (936,960 )   -  
Income tax payments   (874,185 )   -  
    (2,063,791 )   (197,396 )
     
Changes in non-cash working capital:    
Accounts receivable   (497,818 )   3,284  
Inventory   484,563     -  
Prepaid expenses and deposits   (261,683 )   -  
Accounts payable and accrued liabilities   (14,516 )   56,915  
Lease inducement   (16,274 )   -  
Sales return reserve   -     (4 )
    (305,728 )   60,195  
     
Net cash used in operations   (2,369,519 )   (137,201 )
     
Investing activities    
Purchase of property, plant and equipment   (3,306,404 )   -  
Purchase of intangible assets   (4,886,114 )   -  
     
Net cash used in investing activities   (8,192,518 )   -  
     
Financing activities    
Due from related parties   (2,540,194 )   -  
Proceeds from issuance of convertible debt   -     110,278  
Proceeds from private placements, net of issuance costs   2,264,408     -  
Proceeds from exercise of warrants   -     25,000  
Proceeds from exercise of stock options   3,433     16,000  
Repayment of promissory note   37,780     -  
     
Net cash provided by financing activities   (234,573 )   151,278  
     
Increase (decrease) in cash   (10,796,610 )   14,077  
Cash, beginning of period   21,519,289     8,135  
Effect of exchange rate fluctuations on cash held   (463,342 )   (7,813 )
Cash, end of period $ 10,259,337   $ 14,399