Announces Receipt of Interim Order in connection with the Amendment to the Arrangement with Cresco Labs Inc. ("
- Revenue growth of 7% vs. Q2-2019 (up 244% vs. Q3-18) while preparing for integration with Cresco Labs and completing HSR Review process.
- Continued gross margin expansion (+400bps sequentially in Q3) as optimized brand portfolio continues to scale and ultra-premium flower sales increase, supported by a 3x capacity increase.
- Introduced Cresco Labs products through Continuum and drove rapid penetration over a period of four months, positioning Cresco Labs as one of
Origin House's top distributed brands.
For a more comprehensive overview of the Corporate and Financial highlights presented in this press release, please refer to
Corporate Highlights for the third quarter ended
- Increased cannabis cultivation capacity approximately threefold. This continued expansion drove additional revenues and improved margins through the sale of ultra-premium flower.
- Streamlined brand portfolio to focus on category winners including the onboarding of more Cresco products to leverage the planned
California marketing launch by Cresco in Q4-2019. - Redesigned the sales and operations process in
California to better align with an increasingly mature market inCalifornia , which is expected to ultimately lead to better margins. - Took measures to reduce operating costs by approximately
$1.2 million from the second quarter of 2019, preparing for the integration with Cresco Labs and paving the path towards profitability. - Received an additional tranche of
$15 million in debt financing from Opaskwayak Cree Nation to fund the construction and expansion of the Company's cannabis production facilities inSonoma County and for general corporate purposes. - Closed the sale of its interest in
Alternative Medical Enterprises LLC for proceeds of approximately$8 million (USD$6 million ), resulting in an approximate return on investment of 156%.
Corporate Highlights subsequent to the quarter ended
- On
November 26, 2019 , announced the closing of a non-brokered financing, where the Company issued approximately 9,800,000 common shares ofOrigin House ("Common Shares") at a price ofC$4.08 per Common Share for aggregate net proceeds of approximatelyC$39,600,000 . - The Company and Cresco Labs signed an amendment to the Arrangement Agreement (the "Amendment") that provided for certain changes to its covenants and agreements.
- The Company's subsidiary Trichome Financial Corp. ("Trichome") and
22 Capital Corp. completed a reverse takeover. OnOctober 10, 2019 , Trichome began trading on the TSXV. - The Company achieved full integration with the California Cannabis Track-and-Trace system at each of its six licensed facilities in the state.
- The Company's distribution arm, Continuum, entered into an agreement to become the exclusive distributor of Cannabiniers™, producer of Two Roots™, Creative Waters™, and Baskin™ cannabis-infused products in
California .
Financial Highlights for the third quarter ended
The following are the major financial highlights of
- revenues were
$22.8 million as compared to$6.6 million , an increase of 244%; - gross margin was
$5.7 million as compared to$0.3 million , an increase of 1796%; - operating expenses were
$19.8 million as compared to$10.1 million , an increase of 97%; - net loss of
$25.6 million as compared to net loss of$7.5 million , a decrease of 242%; - net loss per basic and diluted share of
$0.34 as compared to net loss per share of$0.12 , a decrease of 183%; and - adjusted EBITDA loss of
$12.1 million as compared to adjusted EBITDA loss of$2.1 million , a decrease of 470%.
The following is a summary of key balance sheet items as at
- cash was
$22.4 million as compared to$69.2 million , a decrease of 68%; - total assets of
$274.1 million as compared to$230.7 million , an increase of 19%; and - total liabilities of
$134.5 million as compared to$57.7 million , an increase of 133%.
Management Commentary
In connection with the Arrangement,
Receipt of the interim order authorizes
Further details regarding the Arrangement and the procedures for shareholders to vote their
Results of Operations (Summary)
The following tables set forth consolidated statements of financial information for the three and nine-month periods ended
September 30 | December 31 | Change | % Change | ||||
Selected consolidated statement of financial position data | |||||||
Cash and cash equivalents | $ | 22,376,979 | $ | 69,206,193 | $ | (46,829,214) | (68%) |
Restricted cash | 9,325,663 | - | 9,325,663 | ||||
Working capital | (21,460,130) | 59,810,772 | (81,270,902) | (136%) | |||
Total investments (1) | 4,445,101 | 21,741,531 | (17,296,430) | (80%) | |||
Total assets | 274,136,144 | 230,698,045 | 43,438,099 | 19% | |||
Long term convertible debt | - | 16,026,098 | (16,026,098) | (100%) | |||
Shareholders' equity | 139,602,743 | 172,972,132 | (33,369,389) | (19%) | |||
Dividend per share | - | - | - | ||||
(1) This represents the sum of investments, royalty investments, and interests in equity method investees |
Three months ended | Nine months ended | |||||||||
2019 | 2018 | % change | 2019 | 2018 | % change | |||||
Consolidated statements of comprehensive loss | ||||||||||
Revenue | $ | 22,780,252 | $ | 6,623,998 | 244% | $ | 55,317,616 | $ | 10,778,901 | 413% |
Gross margin, excluding fair value items | 3,819,714 | 508,396 | 651% | 9,234,471 | 1,299,701 | 611% | ||||
Gross margin, including fair value items | 5,662,921 | 298,619 | 1796% | 11,753,668 | 1,089,924 | 978% | ||||
Operating expenses | 19,801,997 | 10,064,130 | 97% | 58,993,316 | 20,824,360 | 183% | ||||
Loss from operations | (14,139,076) | (9,765,511) | 45% | (47,239,648) | (19,734,436) | 139% | ||||
Net loss | (25,643,403) | (7,502,098) | 242% | (77,980,016) | (2,858,083) | 2628% | ||||
Other comprehensive income (loss) | 1,439,159 | (1,763,774) | (182%) | (4,414,798) | (519,705) | 749% | ||||
Total comprehensive loss | (24,204,244) | (9,265,872) | 161% | (82,394,814) | (3,377,788) | 2339% | ||||
Net loss attributable to owners of the Company | (25,303,233) | (7,179,771) | 252% | (76,975,519) | (2,608,647) | 2851% | ||||
Net loss per common share - basic & diluted | (0.34) | (0.12) | 173% | (1.06) | (0.05) | 1998% | ||||
Weighted average common shares - basic & diluted | 74,681,038 | 57,621,347 | 30% | 72,376,151 | 51,634,187 | 40% |
Liquidity
|
| |||
Cash and cash equivalents | $ | 22,376,979 | $ | 69,206,193 |
Liquid assets (1) | 58,423,276 | 80,353,704 | ||
Quick ratio (2) | 0.57 | 3.07 | ||
Working capital | (21,460,130) | 59,810,772 | ||
Working capital ratio (3) | 0.79 | 3.29 | ||
Convertible debt | - | 16,030,312 | ||
Secured credit facility available | - | 12,000,000 | ||
(1) Liquid assets include cash, amounts receivable, and inventory | ||||
(2) Quick ratio is defined as liquid assets divided by current liabilities | ||||
(3) Working capital ratio is defined as current assets divided by current liabilities |
Revenue by Type
Three months ended | Nine months ended | |||||||||
% Change | % Change | |||||||||
California Operations segment | ||||||||||
Product sales | $ | 18,869,125 | $ | 6,250,991 | 202% | $ | 45,020,530 | $ | 9,446,382 | 377% |
Interest and other income | 5,158 | - | - | 229,156 | - | - | ||||
Canadian Operations segment | ||||||||||
Product sales | 3,358,578 | - | - | 8,801,871 | - | - | ||||
Royalties | - | - | - | 78,329 | - | - | ||||
Interest and other income | 125,233 | - | - | 266,402 | - | - | ||||
Other segments | ||||||||||
Services | - | 69,760 | (100%) | 53,344 | 737,921 | (93%) | ||||
Royalties | - | 108,306 | (100%) | - | 364,553 | (100%) | ||||
Interest and other income | 422,158 | 194,941 | 117% | 867,984 | 230,045 | 277% | ||||
$ | 22,780,252 | $ | 6,623,998 | 244% | $ | 55,317,616 | $ | 10,778,901 | 413% |
Cost of Sales by Revenue Type
Three months ended | Nine months ended | |||||||||
% Change | % Change | |||||||||
California Operations segment | ||||||||||
Cost of product sales | $ | 17,372,402 | $ | 5,935,571 | 193% | $ | 40,927,903 | $ | 8,389,623 | 388% |
Canadian Operations segment | ||||||||||
Cost of product sales | 1,588,136 | - | - | 5,119,990 | - | - | ||||
Corporate segment | ||||||||||
Cost of services | - | - | - | 18,218 | 269,023 | (93%) | ||||
Cost of royalties | - | 180,031 | (100%) | 17,034 | 820,554 | (98%) | ||||
$ | 18,960,538 | $ | 6,115,602 | 210% | $ | 46,083,145 | $ | 9,479,200 | 386% |
Gross Margin by Revenue Type
Three months ended | Nine months ended | |||||||||
% Change | % Change | |||||||||
California Operations segment | ||||||||||
Product sales | $ | 1,496,723 | $ | 315,420 | 375% | $ | 4,092,627 | $ | 1,056,759 | 287% |
Interest and other income | 5,158 | - | - | 229,156 | - | - | ||||
Canadian Operations Segment | ||||||||||
Product sales | 1,770,442 | - | - | 3,681,881 | - | - | ||||
Royalties | - | - | - | 78,329 | - | - | ||||
Interest and other income | 125,233 | - | - | 266,402 | - | - | ||||
Other segments | ||||||||||
Services | - | 69,760 | (100%) | 35,126 | 468,898 | (93%) | ||||
Royalties | - | (71,725) | (100%) | (17,034) | (456,001) | (96%) | ||||
Interest and other income | 422,158 | 194,941 | 117% | 867,984 | 230,045 | 277% | ||||
3,819,714 | 508,396 | 651% | 9,234,471 | 1,299,701 | 611% | |||||
Realized fair value amount of inventory sold | (2,480,788) | (1,161,471) | 114% | (5,301,525) | (1,161,471) | 356% | ||||
Unrealized fair value gain on biological assets | 4,323,995 | 951,694 | 354% | 7,820,722 | 951,694 | 722% | ||||
Gross margin | $ | 5,662,921 | $ | 298,619 | 1796% | $ | 11,753,668 | $ | 1,089,924 | 978% |
Gross Margin by Type
Three months ended | Nine months ended | |||||
% Change | % Change | |||||
California Operations segment | ||||||
Product sales | 8% | 5% | 57% | 9% | 11% | (19%) |
Interest and other income | 100% | - | - | 100% | 0% | - |
Canadian Operations Segment | ||||||
Product sales | 53% | - | - | 42% | - | - |
Royalties | - | - | - | 100% | - | - |
Other segments | ||||||
Services | - | 100% | (100%) | 66% | 64% | 4% |
Royalties | - | (66%) | (100%) | - | (125%) | (100%) |
Interest and other income | 100% | 100% | - | 100% | 100% | - |
17% | 8% | 118% | 17% | 12% | 38% | |
Effects on change in fair value of | ||||||
biological assets on gross margin | 8% | (3%) | (355%) | 5% | - | - |
Gross margin | 25% | 5% | 451% | 21% | 10% | 110% |
Operating Expenses
Three months ended | Nine months ended | |||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||
California Operations segment | ||||||||||
Sales and marketing | $ | 4,027,529 | $ | 1,332,522 | 202% | $ | 12,163,082 | $ | 1,592,277 | 664% |
Research and product development | 168,515 | 209,710 | (20%) | 1,852,676 | 362,227 | 411% | ||||
General and administrative | 4,027,787 | 1,382,923 | 191% | 12,611,285 | 2,182,889 | 478% | ||||
Amortization of intangibles | 1,703,147 | 1,438,974 | 18% | 4,857,491 | 2,100,038 | 131% | ||||
Canadian Operations segment | ||||||||||
Sales and marketing | 1,518,104 | - | - | 3,716,959 | - | - | ||||
General and administrative | 1,332,240 | - | - | 2,672,911 | - | - | ||||
Amortization of intangibles | 278,401 | - | - | 682,237 | - | - | ||||
Other segments | ||||||||||
Sales and marketing | 155,699 | 615,184 | (75%) | 328,060 | 1,943,519 | (83%) | ||||
Research and product development | - | 1,759 | (100%) | - | 110,144 | (100%) | ||||
General and administrative | 6,590,575 | 5,075,067 | 30% | 20,108,615 | 12,482,165 | 61% | ||||
Amortization of intangibles | - | 7,991 | (100%) | - | 51,101 | (100%) | ||||
$ | 19,801,997 | $ | 10,064,130 | 97% | $ | 58,993,316 | $ | 20,824,360 | 183% | |
Three months ended | Nine months ended | |||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||
Sales and marketing | $ | 5,701,332 | $ | 1,947,706 | 193% | $ | 16,208,101 | $ | 3,535,796 | 358% |
Research and development | 168,515 | 211,469 | (20%) | 1,852,676 | 472,371 | 292% | ||||
General and administrative | 11,950,602 | 6,457,990 | 85% | 35,392,811 | 14,665,054 | 141% | ||||
Amortization of intangibles | 1,981,548 | 1,446,965 | 37% | 5,539,728 | 2,151,139 | 158% | ||||
Total | $ | 19,801,997 | $ | 10,064,130 | 97% | $ | 58,993,316 | $ | 20,824,360 | 183% |
Non-IFRS Financial Measures
The Company has provided unaudited financial information in this press release. EBITDA and Adjusted EBITDA are non-IFRS measures and do not have standardized definitions under IFRS. The Company has provided the non-IFRS measures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the measures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-IFRS financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-IFRS measures should not be considered superior to, as a substitute to, and should only be considered in conjunction with, the IFRS financial measures presented herein.
Adjusted EBITDA
Three months ended | Nine months ended | |||||||
2019 | 2018 | 2019 | 2018 | |||||
Add (Subtract) | ||||||||
Net loss for the period | $ | (25,643,403) | $ | (7,502,098) | $ | (77,980,016) | $ | (2,858,083) |
Depreciation of property and equipment | 768,107 | 174,274 | 1,931,393 | 300,072 | ||||
Amortization of intangible assets | 1,981,548 | 1,446,965 | 5,539,728 | 2,151,139 | ||||
Amortization of royalty investments | - | 180,030 | 17,038 | 820,553 | ||||
Amortization of right of use assets | 809,177 | - | 2,124,750 | - | ||||
Interest expense | 1,372,214 | 1,097,598 | 3,103,141 | 1,758,881 | ||||
Interest income | (441,230) | (194,940) | (1,086,677) | (230,045) | ||||
Current income taxes | 82,583 | 191,258 | 281,088 | 307,590 | ||||
Deferred income tax recovery | (1,434,109) | (439,487) | (2,822,378) | (446,764) | ||||
EBITDA | (22,505,113) | (5,046,400) | (68,891,933) | 1,803,343 | ||||
Transaction costs related to acquisition by Cresco Labs | 7,125,252 | - | 9,494,647 | - | ||||
Fair value loss on asset held for sale | 1,112,399 | - | 1,112,399 | - | ||||
Recovery of convertible notes receivable | - | (379,572) | (186,704) | (4,100) | ||||
Accretion expense on liability-classified preferred | ||||||||
shares of subsidiary | 221,886 | 87,659 | 1,126,068 | 87,659 | ||||
Gain on settlement of interests at acquisition | - | (1,098,374) | - | (1,098,374) | ||||
Expected credit loss on loan receivable | 787,590 | - | 925,172 | - | ||||
Impairment of intangible assets & goodwill | 272,151 | - | 272,151 | - | ||||
Change in fair value of derivative assets | 333,628 | (104,344) | 366,737 | (104,344) | ||||
(Loss) gain on investments | 775,641 | 2,802,373 | 7,696,612 | (12,762,704) | ||||
Impairment of other assets | 227,325 | - | 227,325 | - | ||||
Post combination remuneration | 166,260 | - | 546,584 | - | ||||
Realized fair value amounts included in inventory sold | 2,480,788 | 1,161,471 | 5,301,525 | 1,161,471 | ||||
Unrealized fair value gain on growth of | (4,323,995) | (951,694) | (7,820,722) | (951,694) | ||||
Impairment of loans receivable | 241,124 | - | 711,219 | - | ||||
Share-based compensation | 826,726 | 1,143,050 | 2,187,888 | 4,222,563 | ||||
Transaction costs on acquisitions | - | 254,714 | 495,559 | 536,840 | ||||
Revaluation of non-cash contingent consideration | 117,413 | - | 6,580,549 | - | ||||
Accelerated amortization of deferred financing fees | - | - | 954,033 | - | ||||
Total adjusted EBITDA | $ | (12,140,925) | $ | (2,131,117) | $ | (38,900,891) | $ | (7,109,340) |
Weighted average number of common shares outstanding - | 74,681,038 | 57,621,347 | 72,376,151 | 51,634,187 | ||||
Adjusted EBITDA per share - basic & diluted | (0.16) | (0.04) | (0.54) | (0.14) |
About
Disclaimer Regarding Financial Information
The financial information presented in this news release is based on unaudited management prepared financial statements for the three and nine months ended
Forward Looking Statements
Statements in this news release that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed here and elsewhere in
Forward-looking statements may include, without limitation, statements relating to the expected impact to the Company's future revenues, margins, cashflow and/or profitability from its brand optimization measures, the redesign of its sales and operations process, and/or the reduction in its operating costs, the expected growth or performance of
Although the Company has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in the forward-looking statements, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended, including, but not limited to: dependence on obtaining regulatory approvals; investing in target companies or projects that are engaged in activities currently considered illegal under US federal law; changes in laws; limited operating history; reliance on management; requirements for additional financing; competition; hindering market growth and state adoption due to inconsistent public opinion and perception of the medical-use and adult-use marijuana industry and; regulatory or political change.
There can be no assurance that such information will prove to be accurate or that management's expectations or estimates of future developments, circumstances or results will materialize. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events.
Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. The Company disclaims any intention or obligation to update or revise such information, except as required by applicable law, and the Company does not assume any liability for disclosure relating to any other company mentioned herein.
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