Q2 - 2020 - A bathroom read.
Is it what we expected? 100%. Is it growth when looking at the last quarter? 100%. Are they adjusting the business model to better meet the needs of the market? 100%. Is it good? Yes.
This quarter we saw a reduction in topline revenue, to the sum of 4.821m (14,596 - 9775). What happened? Well, the answer is not so simple to 'some' as seen in their comprehention skills, but we're talking about a cannabis company. Their primary business is selling cannabis. Shocker. Water is also wet. But lets dive a little deeper into that. We're a cannabis company, focused on the medical sector, with alot of our eggs in the outdoor grow basket. That being said, one needs to keep in mind what assets and scale are reported in the Q2 numbers, and where we are headed. Gross cannabis sales this quarter we're 8.995m vs. 13.726m in the previous quarter. We all know the bulk of our sales comes from wholesale. 6.166m this quarter vs. 11.653 last quarter, a difference of 5.487m. This was not unexpected, as we knew we we're running out of the outdoor inventory. I'm rather happy we we're able to sell so much of it. To date we've sold 6.166 Q2, 11.653 Q1, and 2.805 Q4, for a grand total of 20.624m to date.
But whats more important is the assets that we're in play during this period. The Niagra facility boasts capabilities of 25,000kg's annually. Due to the timing of the license we did not realize any tangible revenue for it in these financials (it helped with biological assets in the starter genetics for the outdoor, but fair value is not incorporated into revenue, and is only really shown in assets and less of a capital expense vs. last year.)
The Paris facility boasts a grow capacity of 1500kg's annually, along with an extraction capability of 115,000kg's annually. The facility is our hub for packaging and distribution, order fufillment, analytical testing, and primarily grows our premium indoor flower (likely used in the medicinal side). Prior to the license amendment we we're using 2,500sf. Now (which we'll likely see in q3/q4 financials is the whole 20,000sf of the facility.)
Lastly, our Port Perry facility boasts an indoor facility of 7000sf, along with our 86 acre outdoor license. The wholesale we've shown to date comes from the original 26 acre license, where we only planted 13,000 plants. Its presumable that we only really utilized around 14 acres of the license in the first year, whereas this year we have 66acres in production. If we extrapolate the numbers from last years harvest where we made 20.624m on 14 acres, we can assume (on the low end) that 20.624 (times a multiple of 4.71 (66/14)) then we're looking at 97.139m with the same metrics (We've since added more irrigation systems and feeding towers, and have learned from last year and can apply that to this years crop). Along with our newly completed drying and storage facilities. So we can see much more come from that, especially now that we have the capabilities, and soon the automation lines to turn that into oil and new formats.
To put that in perspective, of our 128,500kg grow capacity we essentially only had 32,500kg of capacity working towards generating the revenue reported to date. We're about to start realizing the rewards of the other 96,000kgs of capacity. Along with the additional canopy, previously our extraction capabilities we're 13,000kg's, whereas currently we boast a capability of 115,000kgs, a difference of 102,000kg's.
Now onto pricing. Yes we've seen the spot prices fall in both the adult sales and medical sales. Not unlike every other LP in the sector. But lets be honest with ourselves here. Is it better to continue business as usual and stockpile inventory because your stubborn? Or is it a better business plan to write down inventory and bring in more customers (while driving more brand awareness)? We can see how the plan has worked as we've gone from 10,983 active patients last quarter, to 13,285 at the end of Q2. Also, make no mistake, with out outdoor input from last year, we saw our overall cost per gram in the 30 cent range. While we add more indoor / greenhouse capacity this would normally rise, however the massive yeild we can realize from the outdoor grow will more than offset costs and hammer that price lower. At the end of the day, unlike some would have you believe, we're FAR from selling anything at a loss. Our sales we're only 0.1m less than the previous quarter. Yes it can be argued that our margins fell, but in the real world, inventory with an expiration date becomes worthless. If they can move more volume, whilst still maintaining healthy revenues, then I'm all for it. On the adult use side, we grew 0.1m while our margins improved due to the extraction nature of the products we we're selling. The only slight concern I had with the bulk sales, was our margins shrank in a decent way. This was attributable to higher costs in actually extracting the product vs selling it as bulk flower, while the bulk flower prices came down. These spot prices have now stabalized and should stabalize even further with supply agreements.
Another thing to keep in mind when assesing financials is the asset to liability ratio. Our assets as of this quarter is 468,015 vs. 449,449 last quarter, a difference of 18.566m. Our liabilities this quarter were 78,217 vs. 70,125 last quarter, a difference of 8.092m. It is safe to say that the company growing its assets far quicker than its liabilities, and in turn is preforming well.
Cash on hand and marketable securities this quarter grew 21.979m over the last quarter.
Another thing to note in these financials is the below;
Distribution Centre During Q1 2020, the Company entered into a lease agreement for a warehouse facility (the “Distribution Centre”), located in Vaughan, Ontario. Retrofitting of the Distribution Centre to meet Health Canada requirements was completed, and a cannabis processing (for warehousing) and medical sales licence applications were submitted to Health Canada during the reporting period. The Distribution Centre is intended to serve as the Company’s logistics hub, handling all order fulfilment and storage. It will also house the Company’s registered corporate head office. Strategically located in the Greater Toronto Area and in close proximity to the Toronto Pearson Airport, licensing of the facility will allow the Company to significantly improve delivery times for its AssureHome Delivery medical cannabis delivery service, and expand its geographic service area to other major metropolitan areas. Following initial Health Canada licensing, the Company also intends to apply for a subsequent licence amendment to allow packaging lines to be operated at the facility.
All in all I think this quarter was as expected, if not slightly better than I would have guessed.I think as opposed to most companies, we at least have a bright future vs nothing in the pipeline and trying to somehow claw more market share. We're well positioned come 2.0 products. And there are exciting times ahead of us!!