First Quarter 2021 Highlighted Financial Results
- Quantity of cannabis sold totaled 4,753 kg in Q1 2021, which was 27% greater compared to 3,730 kg in Q1 2020;
- Consolidated gross revenue totaled
$16.2 million in Q1 2021, 8% higher than$15.0 million in q1 2020; - Gross margin before fair value changes to biological assets and inventories was
$2.7 million or 21.5% of net revenue in Q1 2021, compared to$5.0 million or 39.7% of net revenue in Q1 of the prior year; - Consolidated Adjusted EBITDA for the quarter totaled a loss of
$1.9 million , compared to loss of$768 thousand in Q1 2020; - Consolidated net income for the quarter totaled
$9.1 million or$0.01 per share, fully diluted, compared to a loss of$7.8 million or$0.02 per share, fully diluted, in the same quarter of last year;
We are also pleased that the Company's shareholders overwhelming approved the proposed merger with HEXO (TSX: HEXO; NYSE: HEXO) at yesterday's shareholders' meeting. We are pleased to be joining the Hexo team and are confident that the combined company will be accretive to all of the Company's stakeholders."
On
Key First Quarter 2021 Developments
- In
February 2021 the Company announced that its ZenPharm facility had received EU GMP certification. With ZenPharm having received EU GMP certification together with the most recent receipt of final licensing from theMalta Medicines Authority ,Zenabis expects to commence recurring commercial exports to theEuropean Union during Q2 2021 with the first shipment to be completed inMay 2021 . - In
February 2021 , the Company announced that it entered into a definitive arrangement agreement (the "Arrangement Agreement") under which Hexo Corp. ("Hexo") will acquire all ofZenabis' issued and outstanding common shares in an all-share transaction. Under the terms of the Arrangement Agreement,Zenabis shareholders will receive 0.01772 of a Hexo common share in exchange for eachZenabis common share held (the "Exchange Ratio"). Warrants and incentive securities ofZenabis will be adjusted to ultimately become exercisable to receive common shares of Hexo based on the Exchange Ratio. At the special meeting of the shareholders ofZenabis held onMay 13, 2021 , the shareholders approved the Arrangement Agreement with Hexo. - In
February 2021 , the Company entered into a settlement agreement and release with a customer (the "Settlement Agreement") pursuant to which the parties have agreed to withdraw from arbitration proceedings and release each other from all past, present and future claims arising out of the pre-paid supply agreement. Pursuant to the Settlement Agreement, the Company paid$12,500,000 to settle the customer deposit balance of$25,428,780 . - In
March 2021 , the Company closed the previously announced sale ofBevo Farms datedDecember 31,2020 . Upon closing,Zenabis received approximately$8.79 million in cash proceeds. Following the closing of the sale ofBevo Farms ,Zenabis has been unconditionally released from its prior guarantee ofBevo Farms' obligations to the Bank of Montreal ("BMO") underBevo Farms' credit facility with BMO. - In
January 2021 , the Company announced that it had secured a committed$60,000,000 revolving credit facility from a Canadian private debt fund in order to refinance the Senior Notes Payable and provide additional capital into the Company. The revolving credit facility would bear interest at the greater of 10% or the Toronto-Dominion Bank's prime rate plus 7.55% compared to the current Senior Notes Payable which bear interest at 14% plus other fees. To date, the Company has not drawn on this facility to repay the Senior Debt lenders. InFebruary 2021 , the Company filed a petition with theSupreme Court of British Columbia for a determination of the amount required to repay and terminate the Senior Notes Payable, including the Amended Royalty amount in order to draw on the revolving credit facility and repay the Senior Notes Payable. - In
February 2021 , the Company issued an unsecured convertible debenture to a third party for gross proceeds of$19,500,000 , bearing interest at 8% per annum and scheduled to mature inFebruary 2023 . The debenture holder also has the option to convert the principal and accumulated interest to shares at a price equal to the 5-day volume weighted average price. - In
February 2021 , the Company established an at-the-market equity ("ATM") program allowing the Company to issue up to$15,000,000 worth of common shares to the public. As of the date of filing, the Company has concluded the ATM program. - In
March 2021 ,Zenabis announced the launch of new 10 and 20 pack configurations of pre-roll multipacks for its Re-up brand in both indica and sativa formats. - During the quarter, the Company introduced three new high-THC strains to market and continued development of four additional new strains which are expected to be commercialized in the second quarter of the year.
Selected Financial Data
Condensed Consolidated Interim Statements of Net Income (Loss) | Three months ended | |||||||
Q1 | 2021 | Q1 | 2020 | Q1 | 2019 | ||||||
Financial Results | ||||||||
Gross revenue | $ | 16,178,869 | $ | 15,048,030 | $ | 5,077,104 | ||
Net revenue (i) | 12,418,793 | 12,601,116 | 4,350,828 | |||||
Gross margin before fair value adjustments | 2,669,937 | 5,006,028 | 2,288,083 | |||||
Operating expenses | 10,370,486 | 7,993,318 | 17,300,601 | |||||
Operating (loss) income | (4,823,474) | 192,685 | (12,365,720) | |||||
Other income (expenses) | 13,994,643 | (11,571,369) | 6,386,482 | |||||
Net income (loss) from continuing operations | 9,133,819 | (9,414,910) | (4,958,616) | |||||
Adjusted EBITDA loss from continuing operations (ii) | (1,852,841) | (767,915) | (7,862,300) | |||||
Income (loss) from continuing operations per share, basic | 0.01 | (0.03) | (0.03) | |||||
Income (loss) from continuing operations per share, diluted | $ | 0.01 | $ | (0.03) | $ | (0.03) |
(i) | Net revenue represents our total gross revenue exclusive of excise taxes levied by the |
(ii) | Refer to the "Non-GAAP Financial Measures" section for reconciliation to the IFRS equivalent. |
Summary First Quarter 2021 Financial Results
Consolidated net revenue in Q1 2021 was
Gross margins before fair value adjustments were
Consolidated operating costs were
Consolidated loss from operations was
Consolidated net income for Q1 2021 totaled
Outlook
The COVID-19 outbreak was declared a pandemic by the
The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and our business are not known at this time. Future impacts could include an impact on our ability to maintain operations, to obtain debt and equity financing, impairment of investments, impairments in the value of our long-lived assets, or potential future decreases in revenue or the profitability of our ongoing operations. The Company continues to work diligently to ensure operations continue and product is delivered while continuing to emphasize the safety of our product and employees.
Financial outlook
Over the course of 2020, the Company had reduced total debt outstanding by
Debt Component | Principal Outstanding | Maturity Date | Interest Rate / Quarterly Interest | ||
Secured Debentures | 51.9 | 14.0% / | |||
RDC Mortgage | 2.0 | 6.0% / | |||
Unsecured Convertible Debentures | 3.8 | 6.0% / | |||
Unsecured Convertible Debenture | 19.5 | 8.0% / | |||
Unsecured Convertible Note | 7.8 | 6.0% / | |||
Total | 85.0 | ||||
Non-GAAP Financial Measures
ADJUSTED EBITDA
Adjusted EBITDA is not a recognized, defined, or standardized measure under IFRS and may not be compared to similar measures presented by other issuers. Adjusted EBITDA is a metric used by management, calculated as net loss before fair value adjustment to inventory and biological assets; impairment of inventory; write-off of materials and supplies inventory; restructuring costs; share-based compensation; depreciation and amortization; impairment of assets held for sale; ZenPharm pre-commercialization costs; loss on revaluation of embedded derivative asset; loss (gain) on revaluation of derivative liabilities; finance and investment (income) expense; interest expense; (gain) loss on sale of property, plant and equipment; loss due to an event; insurance proceeds; loss on deconsolidation of subsidiary; government subsidies; loss on early conversion of debt; loss on extinguishment of debt; loss on remeasurement of royalty liability; other expense; current income tax expense; and deferred income tax (recovery) expense. Management believes adjusted EBITDA is a useful financial metric to assess the Company's operating performance before the impact of non-cash items and acquisition related activities. The following is a reconciliation of adjusted EBITDA to net loss, being the closest GAAP financial measure, for the periods outlined:
Three months ended | ||||||||
Q1 | 2021 | Q1 | 2020 | Q1 | 2019 | ||||||
Net income (loss) from continuing operations | $ | 9,133,819 | $ | (9,414,910) | $ | (4,958,616) | ||
Changes in fair value of inventory sold and other charges | 14,278,130 | 10,796,018 | 2,590,943 | |||||
Unrealized gain on changes in fair value of biological assets | (17,155,205) | (16,906,896) | (5,237,741) | |||||
Impairment of inventory | 799,643 | — | — | |||||
Acquisition costs | — | — | 4,398,646 | |||||
Restructuring costs | — | 1,058,452 | — | |||||
Non-recurring professional fees | 3,338,252 | — | — | |||||
Share-based compensation | 731,067 | 341,858 | 2,078,636 | |||||
Depreciation and amortization | 480,597 | 1,262,687 | 672,936 | |||||
ZenPharm pre-commercialization costs (i) | 498,149 | 452,215 | — | |||||
Gain on revaluation of derivative liabilities | — | — | (7,891,451) | |||||
Finance and investment income | (9,758) | (1,305) | (1,115,916) | |||||
Interest expense | 4,293,887 | 5,794,152 | 2,612,992 | |||||
Loss on sale of assets | 41,338 | — | 7,893 | |||||
Loss from loss of control of a former subsidiary | — | 668,562 | — | |||||
Government subsidies | (451) | (590,808) | — | |||||
Loss on early conversion of debt | — | 5,624,803 | — | |||||
Gain on remeasurement of royalty liability | (2,897,486) | — | — | |||||
Gain on settlement of customer deposits | (15,909,370) | — | — | |||||
Loss on settlement of loan receivable | 217,877 | — | — | |||||
Other expense | 269,320 | 75,965 | — | |||||
Current income tax expense | 33,347 | 78,277 | 61,477 | |||||
Deferred income tax expense (recovery) | 4,003 | (6,985) | (1,082,099) | |||||
Adjusted EBITDA income (loss) | $ | (1,852,841) | $ | (767,915) | $ | (7,862,300) |
(i) | Amounts are included within the 'General and administrative' and 'Salaries and benefits' expense line items on the Condensed Consolidated Interim Statements of Loss and Comprehensive Loss for the Other segment. |
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Forward Looking Information
This news release contains statements that may constitute "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information may include, among others, statements regarding the future plans, costs, objectives or performance of
For more information, visit: https://www.zenabis.com.
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