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    DN   CA2477541049

DELTA 9 CANNABIS INC.

(DN)
  Report
Delayed Toronto Stock Exchange  -  03:50 2022-12-02 pm EST
0.0900 CAD   +5.88%
11/15Transcript : Delta 9 Cannabis Inc., Q3 2022 Earnings Call, Nov 15, 2022
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11/15Delta 9 Cannabis Reports Wider Q3 Loss, Higher Revenue
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11/15Delta 9 Cannabis Inc. Reports Earnings Results for the Third Quarter and Nine Months Ended September 30, 2022
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Delta 9 Cannabis : Management Discussion and Analysis

08/16/2022 | 06:24pm EST

Delta 9 Cannabis Inc.

Management's Discussion and Analysis

(For the three-month and six-month period ending June 30, 2022)

Table of Contents

Introduction: .................................................................................................................................................

1

Notice Concerning Forward-Looking Statements:........................................................................................

1

Company Overview:......................................................................................................................................

1

Overall Performance:....................................................................................................................................

3

Discussion of Operations: ...........................................................................................................................

13

Summary of Quarterly Results:...................................................................................................................

17

Liquidity:......................................................................................................................................................

18

Capital Resources:.......................................................................................................................................

18

Off-Balance Sheet Arrangements: ..............................................................................................................

19

Transactions Between Related Parties: ......................................................................................................

19

Proposed Transactions:...............................................................................................................................

21

Critical Accounting Estimates: ....................................................................................................................

21

Significant Accounting Policies Including Initial Adoption:.........................................................................

23

Internal Controls Over Financial Reporting: ...............................................................................................

23

Financial Instruments and Other Instruments:...........................................................................................

24

Disclosure of Outstanding Share Data: .......................................................................................................

24

Subsequent Events:.....................................................................................................................................

24

Risk Factors: ................................................................................................................................................

25

Strategic Risks: ........................................................................................................................................

25

Industry Risks: .........................................................................................................................................

27

Operational Risks: ...................................................................................................................................

29

Financial Risks: ........................................................................................................................................

32

Introduction:

This management's discussion and analysis ("MD&A") of the financial condition and results of operations of Delta 9 Cannabis Inc. (the "Company") is for the three-month and six-month period ending June 30, 2022, and is prepared as of August 15, 2022. It is supplemental to, and should be read in conjunction with, the Company's consolidated financial statements for the three-month and six-month period ending June 30, 2022. References herein to the "Company" include reference to the subsidiaries of the Company, as applicable.

This MD&A provides information that management of the Company believes is important to assess and understand the results of operations and financial condition of the Company. Our objective is to present readers with a view of the Company from management's perspective by interpreting the material trends and activities that affect the operating results, liquidity and financial position of the Company. All monetary amounts herein are expressed in Canadian dollars unless otherwise specified.

The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS").

Additional information relating to the Company, including the Company's annual information form, can be found on the Company's profile on SEDAR at www.sedar.com.

Notice Concerning Forward-Looking Statements:

This MD&A contains forward-looking statements. All statements other than statements of historical fact contained in this MD&A are forward-looking statements. Prospective investors can identify many of these statements by looking for words such as "believes", "expects", "will", "may", "intends", "projects", "anticipates", "plans", "estimates", "continues" and similar words or the negative thereof.

Forward-looking statements are necessarily based upon a number of expectations or assumptions that, while considered reasonable by management at the time the statements are made, are inherently subject to significant business, economic, health and competitive uncertainties and contingencies. Readers are cautioned to not place undue reliance on forward-looking statements which only speak as to the date they are made. Although management believes that the expectations and assumptions underlying such forward-looking statements are reasonable, there can be no assurance that such expectations or assumptions will prove to be correct. A number of factors could cause actual future results, performance, achievements and developments of the Company and/or its subsidiaries to differ materially from anticipated results, performance, achievements and developments expressed or implied by such forward- looking statements.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this MD&A are made as of the date of this MD&A or such other date specified in such statement. Except as required by law, the Company disclaims any obligation to update any forward-looking information, estimates, opinions, future events, results or otherwise.

Company Overview:

The Company is a vertically integrated cannabis company, with operations in cannabis cultivation, processing, extraction, wholesale distribution, retail, and business to business ("B2B") activities. The Company, through its wholly-owned subsidiary, Delta 9 Bio-Tech Inc. ("Delta 9 Bio-Tech"), is a licensed

1

producer of cannabis pursuant to the Cannabis Act (Canada) and operates an 80,000 square foot production facility, located at 760 and 770 Pandora Avenue East in Winnipeg, Manitoba, Canada (the "Delta Facility"). Delta 9 Bio-Tech holds a license from Health Canada (the "Health Canada License") to produce and sell cannabis and cannabis oil, extracts and derivative products. The Health Canada License is valid for a three-year term ending August 30, 2022.

On October 31, 2017, the Company under its former name "SVT Capital Corp." completed a reverse takeover transaction pursuant to which it acquired all of the issued and outstanding shares of Delta 9 Bio- Tech by way of a three-cornered amalgamation pursuant to an amalgamation agreement (the "Amalgamation Agreement") among the Company, Delta 9 Bio-Tech, and a wholly-owned subsidiary of the Company ("Newco"). In connection with the closing of this transaction, the Company changed its name from "SVT Capital Corp." to "Delta 9 Cannabis Inc.". Pursuant to the Amalgamation Agreement, Delta 9 Bio-Tech amalgamated with Newco under the provisions of the Canada Business Corporations Act, with the amalgamated company continuing as a wholly-owned subsidiary of the Company under the name "Delta 9 Bio-Tech Inc.".

The Company is a reporting issuer in the Provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.

The Company's common shares ("Common Shares") trade on the Toronto Stock Exchange (the "TSX") under the trading symbol "DN" and on the OTCQX under the trading symbol "DLTNF".

The address of the registered office of the Company is Suite 2600, 1066 West Hastings Street, Vancouver, British Columbia V6E 3X1.

Delta 9 Bio-Tech partially owns one operating subsidiary, Delta 9 Lifestyle Cannabis Clinic Inc. ("Delta 9 Lifestyle"). Delta 9 Lifestyle was incorporated under The Corporations Act (Manitoba) on February 9, 2017. Delta 9 Bio-Tech owns 68.78% of the issued and outstanding shares of Delta 9 Lifestyle. The remaining 31.22% of the issued and outstanding shares of Delta 9 Lifestyle are owned by 7217804 Manitoba Ltd. ("7217804"), an arm's length third party.

Delta 9 Lifestyle operates a chain of retail cannabis stores in Manitoba, operating under the trade name "Delta 9 Cannabis Store", offering cannabis flower, cannabis oils, cannabis pre-rolls, cannabis derivative products, and cannabis accessories to adult recreational consumers. As of June 30, 2022, Delta 9 Lifestyle operated ten cannabis retail stores in Winnipeg (Manitoba), one cannabis retail store in Brandon (Manitoba), one cannabis retail store in Selkirk (Manitoba), and one cannabis retail store in Thompson (Manitoba) with plans to open up to an additional two retail outlet stores in Manitoba over the next 12 months. Delta 9 Lifestyle also operates a medical clinic, which markets the "Delta 9" brand to patients and provides physician consultation services to patients seeking a medical recommendation to use cannabis for medical purposes.

In addition to Delta 9 Bio-Tech (and its partially-owned subsidiary, Delta 9 Lifestyle), the Company owns and operates two other material active subsidiaries, Delta 9 Cannabis Store Inc. ("Delta 9 Cannabis Store") and Delta 9 Logistics Inc. ("Delta 9 Logistics").

The Company owns and operates Delta 9 Cannabis Store, which was incorporated under the Canada Business Corporations Act on May 6, 2019. The Company owns 100% of the issued and outstanding shares of Delta 9 Cannabis Store. As of June 30, 2022, Delta 9 Cannabis Store operated one cannabis retail store in Calgary (Alberta), nineteen retail cannabis stores in Edmonton (Alberta), one retail cannabis store in Grand Prairie (Alberta), and one retail cannabis store in Lloydminster (Saskatchewan) under the three

2

trade names "Delta 9 Cannabis Store", "Discounted Cannabis" and "Uncle Sam's Cannabis". For more details with respect to the activities of Delta 9 Cannabis Store, see "Overall Performance - Vertical Integration and Retail Cannabis Sales".

The Company has one non-active subsidiary, 10007705 Manitoba Ltd. ("10007705") which is not engaged in active business operations. For information with respect to 10007705 and Delta 9 Logistics, see "Description of the Business" in the Company's annual information form located on the Company's profile on SEDAR at www.sedar.com.

Overall Performance:

Cannabis Cultivation, Processing, and Facility Expansion

The Company's principal cannabis cultivation and processing activities are focused on the Delta Facility. The primary purpose of the Delta Facility is to cultivate, process and manufacture high-quality cannabis products.

The Company's proprietary cannabis production methodology is based around a modular, scalable, and stackable production unit called a grow pod (a "Grow Pod"). The Company builds its Grow Pods by retrofitting standard, once-used, 40 foot high-cube shipping containers into Grow Pods. The Grow Pods are built to comply with Health Canada security requirements and good production practices. The Grow Pods create optimal conditions for large scale production of cannabis. Grow Pods can also be stacked on top of each other to use the production space available to the Company most efficiently. The Company retrofits shipping containers into Grow Pods at the Delta Facility, employing the Company's own employees as well as independent contractors.

Management believes that Grow Pods provide numerous benefits versus traditional open warehouse or green house cannabis production operations, namely:

  • A higher level of control over the growing environment contributing to higher quality cannabis products;
  • The ability to customize the growing environment for each genetic strain of cannabis, maximizing the quality and output of these strains;
  • The Grow Pods are relatively inexpensive and provide an attractive return on invested capital;
  • The modular format minimizes the risk of contamination or spread of contamination from plant diseases or pests; and
  • The modular format minimizes the risk of materially significant crop loss.

As of the date of this MD&A, The Company has 297 Grow Pods fully licensed and approved by Health Canada in service, consisting of 262 Grow Pods used for the production of cannabis and 35 Grow Pods used for non-production plants, plant harvesting, processing and packaging activities or laboratory and testing activities. The Company estimates that the current licensed Grow Pods have an annual production capacity of approximately 8,325 kilograms of dried cannabis per year. For the past three quarters the Company has been operating at or above the design capacity of the Delta Facility, which would make the annual production capacity in excess of 10,000 kilograms of dried cannabis per year.

3

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Delta 9 Cannabis Inc. published this content on 16 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 August 2022 22:23:09 UTC.


ę Publicnow 2022
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Financials
Sales 2022 64,0 M 47,5 M 47,5 M
Net income 2022 - - -
Net Debt 2022 - - -
P/E ratio 2022 -
Yield 2022 -
Capitalization 13,4 M 9,96 M 9,96 M
Capi. / Sales 2022 0,21x
Capi. / Sales 2023 0,20x
Nbr of Employees 288
Free-Float 62,3%
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Mean consensus BUY
Number of Analysts 1
Last Close Price 0,09 CAD
Average target price 0,40 CAD
Spread / Average Target 344%
Managers and Directors
John William Arbuthnot Chief Executive Officer & Director
James Lawson Chief Financial Officer & Secretary
Todd Schubert Vice President-Information Technology
Mark Jonker Chief Operating Officer
Derek Reimer Vice President-Compliance
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