Reports First Ever Revenue From
Operations
TORONTO, Nov. 8, 2018 /CNW/ - Newstrike Brands Ltd.
(TSXV:HIP) (the "Company" or "HIP") announced today the achievement
of significant milestones and a strengthened financial position for
the three and nine months ended September
30, 2018. The Company's wholly-owned subsidiary, UP Cannabis
Inc. ("Up Cannabis"), is a licensed producer of cannabis and
related products under the Access to Cannabis for Medical Purposes
Regulations ("ACMPR"). The Company's interim financial statements
and management's discussion and analysis for the three and nine
months ended September 30, 2018 and
its amended and restated interim financial statements and
management's discussion and analysis for the three and nine months
ended September 30, 2017 (the
"Amended Statements") are available on SEDAR at www.sedar.com.
THIRD QUARTER ENDED SEPTEMBER 30,
2018 HIGHLIGHTS
- The Company recognized its first ever sales of cannabis to the
adult-use and wholesale markets in excess of $3.4 million;
- The Company entered into a definitive supply agreement with the
Alberta Gaming, Liquor & Cannabis Commission ("AGLC")
that is expected to result in a variety of Up Cannabis product sold
via AGLC approved strategic retail partners and locations, and
through the AGLC;
- The Company entered into a Memorandum of Understanding with the
British Columbia Liquor Distribution Branch ("BCLDB") that
is expected to result in a variety of Up Cannabis product sold via
BCLDB approved strategic retail partners and locations;
- The Company entered into a cannabis master agreement with the
Ontario Cannabis Retail Corporation;
- The Company was selected by the Nova Scotia Liquor Corporation
("NSLC") as one of fourteen licensed producers who have
received initial purchase orders for adult-use cannabis by the
NSLC;
- The Company was cleared as a supplier of cannabis to
Saskatchewan Retail and Wholesale Permit Holders; and
- The Company closed its previously announced investment
agreement with Inner Spirit Holdings Ltd. ("Inner Spirit")
pursuant to which the Company and Inner Spirit have agreed to
acquire equity interests in each other and entered into a companion
strategic alliance agreement providing for the retail distribution
of Up Cannabis products and the creation and operation of Up
Cannabis-branded customer lounges or "Experiential Hubs" in each of
the Inner Spirit stores.
SELECTED SUMMARY OF QUARTERLY RESULTS
|
Q3 2018
QTD
($)
|
Q3 2017
QTD
($)
|
$
change
%
change
|
Q3 2018
YTD
($)
|
Q3 2017
YTD
($)
|
$
change
%
change
|
Revenue
|
3,420,446
|
-
|
3,420,446
NM
|
3,420,446
|
-
|
3,420,446
NM
|
Inventory
production costs
expensed to cost of sales
|
(2,353,314)
|
-
|
(2,353,314)
NM
|
(2,353,314)
|
-
|
(2,353,314)
NM
|
Gross margin
before the
undernoted
|
1,067,132
|
-
|
1,067,132
NM
|
1,067,132
|
-
|
1,067,132
NM
|
Fair value changes
in biological
assets included in inventory
sold
|
(1,056,084)
|
-
|
(1,056,084)
NM
|
(1,056,084)
|
-
|
(1,056,084) NM
|
Unrealized (loss)
/ gain on
change in fair value of biological
assets
|
(1,070,337)
|
-
|
(1,070,337)
NM
|
925,040
|
-
|
925,040
NM
|
Gross
Margin
|
(1,059,289)
|
-
|
(1,059,289)
NM
|
936,088
|
-
|
936,088
NM
|
Expenses
|
(7,450,780)
|
(3,828,411)
|
(3,622,369)
95%
|
(24,155,723)
|
(5,639,310)
|
(18,516,413)
328%
|
Other
items
|
359,722
|
(113,771)
|
473,493
NM
|
9,530,079
|
(7,382,827)
|
16,912,906
NM
|
Net
loss
|
(8,150,347)
|
(3,942,182)
|
(4,208,165)
107%
|
(13,689,556)
|
(13,022,137)
|
(667,419)
5%
|
Other
comprehensive income
|
3,344,152
|
-
|
3,344,152
NM
|
3,236,652
|
-
|
3,236,652
NM
|
Net and
comprehensive loss
|
(4,806,195)
|
(3,942,182)
|
(864,013)
22%
|
(10,452,904)
|
(13,022,137)
|
2,569,233
(20%)
|
Net loss per share
(basic and
diluted)
|
(0.01)
|
(0.01)
|
-
-
|
(0.03)
|
(0.07)
|
0.04
(57%)
|
During the quarter, the Company generated revenue of
$3,420,446. $600,583 of revenue was from our first shipments
of dried cannabis to the provincial government wholesale
distributors in Alberta,
Ontario and Nova Scotia as these customers began
preparation for initial sales commencing October 17, 2018. The Company continues to
fulfill orders received for the adult-use cannabis market and
expects to receive additional orders pursuant to executed supply
agreements. $2,819,863 of revenue was
from wholesale sales of cannabis for extraction purposes and the
creation of cannabis oil and/or distillate.
For the three and nine months ended September 30, 2018, $2,353,314 of costs incurred during the
production process and capitalized to inventory were expensed. This
resulted in gross margin of $1,067,132 (31.2% of revenue) before the fair
value adjustment on the sale of this inventory. The expense of
$1,056,084 for the fair value changes
in biological assets included in inventory sold represents the
amount of non-cash fair value adjustment being realized upon the
sale of finished goods inventory.
For the three and nine months ended September 30, 2018, the Company recognized a loss
of ($1,070,337) and gain of
$925,040, respectively, related to
the fair value adjustments of biological assets, being the
Company's inventory of cannabis in the pre-harvest stage. The loss
for the three months ended September 30,
2018 was primarily due to the inefficiencies related to the
start-up and ramp-up costs of producing cannabis in the Niagara
Facility along with lower than expected yields in the initial batch
of plants cultivated at this facility. Additionally, the
yield realized for certain plants in the Brantford Facility were
lower than originally projected as equipment trialed failed to meet
expected production targets. The gain for the nine months ended
September 30, 2018 was due to the
production of cannabis, which is representative of nine months of
production at the Brantford
facility and approximately five months of production ramping up at
the Niagara Facility.
The Company's major expenses incurred during the quarter relate
to: branding and marketing efforts of $3,054,056; share-based compensation charges of
$1,033,971; wages and benefits of
$937,807; consulting and professional
fees of $1,321,693; and other
growth-related costs including travel, telecommunications and
information technology. The Company's major expenses incurred
during the year to date relate to: branding and marketing efforts
of $6,320,516; share-based
compensation charges of $8,228,820;
wages and benefits of $3,328,255;
consulting and professional fees of $3,526,411; and other growth-related costs
including travel, telecommunications and information
technology.
Included in other items for the quarter is the loss of
$250,000 due to a provision recorded
on the holdback receivable on the divestiture of Enderlein and net
interest income of $609,722.
Year-to-date, other items included a net loss on the divestiture of
Enderlein of $110,679, net interest
income of $140,758 and the
termination fee paid to the Company related to the CanniMed
Therapeutics Inc. transaction ("Termination Fee") of $9,500,000.
Other comprehensive income is comprised of the fair market value
change recognized on strategic investments made in other Canadian
cannabis businesses.
The Company recorded a net loss of $8,150,347 and $13,689,556 for the quarter and year-to-date. The
comprehensive loss was $4,806,195 in
the quarter and $10,452,904
year-to-date.
STRONG FINANCIAL POSITION
As at September 30, 2018 the
Company had total assets of $162,771,457, including cash and cash equivalents
of $107,642,357, up from total assets
of $24,881,426, including cash and
cash equivalents of $811,028, as at
December 31, 2017. The increase is
due to the net proceeds from the two bought deal equity offerings,
the receipt of the Termination Fee, and the increase in fair market
value of its strategic investments.
As at September 30, 2018, the
Company's inventory of dried cannabis was $6,077,635 and the fair value of the biological
assets was $2,011,369. It is expected
that the biological assets will yield approximately 1,700 kilograms
of cannabis.
SIGNIFICANT MILESTONES ACHIEVED
The Company has made its first historic sales of $3,420,446 during the quarter. Accumulated dried
and finished goods cannabis inventory was valued at $6,077,635 as at September
30, 2018. The fulfilment and backlog of orders further
demonstrates the Company's ability to capitalize on growing demand
for its products.
The Company has continued the construction and expansion of its
Niagara Facility, engaged in various marketing initiatives, and
added experienced production and management personnel to build the
Company's Up Cannabis brand and consumer awareness.
The Company currently operates cannabis production facilities of
approximately 194,000 square feet of indoor and greenhouse
production capacity, in the aggregate, of which approximately 7,600
square feet is currently operating at or near full production
capacity at its Brantford Facility and approximately 186,400 square
feet at its Niagara Facility that is currently being retrofitted.
Management expects that the Niagara Facility will produce
approximately 15,000 kg of dried cannabis annually upon completion
of the greenhouse retrofit. As at the date of this press
release, the retrofit of the Niagara Facility is expected to be
completed by the end of the financial year, being December 31, 2018 , assuming there are no
unexpected interruptions to the schedule of retrofit
activities.
The construction of the Company's second greenhouse for the
Phase II Niagara expansion is underway and the steel structure is
erected; the headhouse expansion has the foundation complete,
structure erected, roof installed and is progressing with windows
and walls being installed. The Phase II Niagara expansion includes
60,000 square feet of processing space and 160,000 square feet of
additional greenhouse space dedicated to cannabis production. At
full ramp up, completion of the retrofit and construction of the
new greenhouse and processing areas at the Niagara Facility, which
is currently in progress, and the continued operational efficacy of
the Brantford Facility, the complete potential aggregate annual
production capacity for all facilities will be approximately 37,000
kg of dried cannabis. This estimate is subject to change
based on realized plant yields experienced at the Niagara
Facility.
THE AMENDED STATEMENTS
The Amended Statements have been amended to correct errors in
the original interim financial statements and management's
discussion and analysis. Certain line items in the statements of
financial position, comprehensive loss, cash flows, and changes in
shareholders' equity have been reclassified according to the nature
of the transactions. The net and comprehensive loss for the nine
months ended September 30, 2017 was
increased by $422,082 due to a change
to the listing fee for the reverse takeover transaction involving
Newstrike and HPI Holdings Ltd. ("HPI"), pursuant to which HPI
amalgamated with 2559595 Ontario Inc., a wholly-owned subsidiary of
Newstrike, to form 1977121 Ontario Inc., resulting in the indirect
acquisition by Newstrike of all of the issued and outstanding
securities of HPI (the "Transaction"). The reserve in the
condensed consolidated interim statement of changes in
shareholder's equity was increased by $422,082 due to a change to the valuation of the
warrants acquired through the Transaction. Corresponding amendments
were also made to the Company's management's discussion and
analysis.
OTHER MATTERS
Further to the Company's press release dated September 11, 2018 announcing Newstrike's
graduation from Tier 2 to Tier 1 issuer status on the TSX Venture
Exchange ("TSXV"), common shares previously deposited into escrow
pursuant to the rules of the TSXV will now be governed by the
release provisions of Tier 1 issuer escrow. The Company advises
that 95,499,005 Newstrike common shares ("Common Shares") were
released from escrow on September 12,
2018 following completion of the uplisting and 90,937,905
Common Shares remain in escrow and will be released on December 1, 2018.
About Newstrike and Up Cannabis
Newstrike is the parent company of Up Cannabis Inc., a licensed
producer of cannabis that is licensed to both cultivate and sell
cannabis in all acceptable forms. Newstrike, through Up Cannabis
and together with select strategic partners, including Canada's iconic musicians The Tragically Hip,
is developing a diverse network of high quality cannabis brands.
For more information visit www.up.ca or www.newstrike.ca.
Forward-Looking Information
This news release contains forward-looking statements.
Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of Newstrike to be materially different
from any future results, performance or achievements expressed or
implied by the forward-looking statements. Often, but not always,
forward-looking statements can be identified by the use of words
such as "plans", "expects" or "does not expect", "is expected",
"estimates", "intends", "anticipates" or "does not anticipate", or
"believes", or variations of such words and phrases or state that
certain actions, events or results "may", "could", "would", "might"
or "will" be taken, occur or be achieved. These forward-looking
statements include, but are not limited to, statements relating to
Newstrike's expectations with respect to its performance and
achievements including expected sales and construction timeline and
completion. Accordingly, readers should not place undue reliance on
the forward-looking statements and information contained in this
press release. Since forward-looking statements and information
address future events and conditions, by their very nature they
involve inherent risks and uncertainties.
Actual results could differ materially from those currently
anticipated due to a number of factors and risks. Readers are
cautioned that the foregoing list of factors is not exhaustive. The
forward-looking statements contained in this news release are made
as of the date of this release and, accordingly, are subject to
change after such date.
Newstrike does not assume any obligation to update or revise any
forward-looking statements, whether written or oral, that may be
made from time to time by us or on our behalf, except as required
by applicable law.
Neither TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
SOURCE Newstrike Brands Ltd.