AUXLY REPORTS Q3 2023 FINANCIAL RESULTS

TORONTO, Nov. 13, 2023 /PRNewswire/ - Auxly Cannabis Group Inc. (TSX: XLY) (OTCQB: CBWTF) ("Auxly" or the "Company") today released its financial results for the three and nine months ended September 30, 2023. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com. All amounts are Canadian dollars except common shares ("Shares") and per Share amounts.

Q3 2023 Highlights and Subsequent Events

• Total net revenues of $28.2 million in Q3 2023, representing an increase of $8.4 million or 42% compared to the same period in 2022;
• SG&A reduced by $1.5 million or 13% from the same period in 2022 as the Company continues to focus its efforts on reducing overhead in the Company;
• Adjusted EBITDA was positive $0.1 million, an improvement of $5.9 million as compared to the same period last year;
• Retained the #5 LP position in Canada with a 4.8% share of market at the end of the quarter, which has increased to 5.0% share of market as of the end of October1;
• We continued to improve sales in the pre-roll segment, one of the fastest growing product categories, finishing the quarter with 4.2% share of market up from 3.4% in the previous quarter;
• Back Forty Wedding Pie remained the top-selling non-infused pre-roll SKU nationally in the quarter, and Back Forty Banana OG pre-rolls moved to the #2 position in October;
• Our newest brand Parcel, launched earlier in the year, has gained significant traction in the dried flower category, and Parcel Sweet Notes was the top-selling 14g dried flower SKU nationally in October;
• Introduced innovative cannabis products to the market backed by consumer insights, including the launch of new Back Forty all-in-one vapes, which will be available in Alberta, Ontario, Saskatchewan and Manitoba in November;
• Successfully upgraded post-harvest operations to improve dried flower quality while maintaining throughput from the Auxly Leamington cultivation facility;
• Strengthened the Company's balance sheet by entering into an agreement with strategic partner Imperial Brands plc to extend the maturity date of the Imperial Brands convertible debenture by two years from September 25, 2024 to September 25, 2026.

Hugo Alves, CEO of Auxly, commented "During the quarter we continued to take positive steps to focus our operations, reduce costs and improve profitability. We saw increased demand for our products due to strong operational execution, the persistent efforts of a dedicated internal sales force and the increasing popularity of our Back Forty and Parcel brands. The successful consolidation of our manufacturing activities, enhancements in pre-roll automation and disciplined spending have directly improved margins and resulted in better overall financial performance. We were also able to strengthen our balance sheet by obtaining a two-year extension of the unsecured convertible debenture held by our strategic partner Imperial Brands. Our Q3 results reflect the tireless efforts of our talented employees and their commitment to making incredible products that help people live happier lives. We are united in our mission, encouraged by our quarterly results and dedicated to building on those positive achievements."

For the three and nine months ended September 30, 2023, net revenues were $28.2 million and $74.2 million as compared to $19.8 million and $69.8 million during the same period in 2022, an increase of 42% and 6% respectively. Revenues for the three and nine months ended September 30, 2023 were comprised of approximately 67% and 61%, respectively, in sales of dried flower and pre-roll Cannabis Products, with the remainder from oils and Cannabis 2.0 Product sales. Auxly maintained its position as a top 5 LP, by maintaining strength in sales of both Cannabis 1.0 and Cannabis 2.0 Products.

Consistent with prior periods, as the Company does not participate in the Quebec market, approximately 84% of cannabis sales during the nine-month period originated from sales to British Columbia, Alberta and Ontario.

Auxly realized a gross profit of $4.6 million and $18.5 million for the three and nine months ending September 30, 2023 resulting in a 16% and 25% Gross Profit Margin respectively, as compared to $2.2 million (11%) and $15.7 million (23%) during the same periods in 2022. Excluding non-cash amounts, the Cost of Finished Cannabis Inventory Sold Margin for the three months ended September 30, 2023 improved to 30% versus 25% in the same period of 2022. This is primarily as a result of a higher proportion of Cannabis 1.0 Products sold by the Company utilizing low-cost cannabis cultivated at Auxly Leamington, and the streamlining of certain Cannabis Products and operating costs.

Realized and unrealized fair value gains and losses reflect accounting treatments associated with Auxly Leamington cultivation activities and sales and are influenced by changes in production, sales and net realizable value assumptions.

Inventory impairments during the third quarter of 2023 of $3.2 million were associated with certain slower moving SKUs and certain product not meeting quality specifications, an increase of $1.2 million from the comparative period. The impairments recognized in the nine months ending September 30, 2022 include impairments related to the closure of the Auxly Annapolis facilities.

Selling, general and administrative expenses ("SG&A") are comprised of wages and benefits, office and administrative, professional fees, business development, and selling expenses. SG&A expenses were $10.0 million during the third quarter of 2023, $1.5 million lower than the third quarter of 2022 primarily due to lower wages and benefits and selling expenses. Year-to-date expenditures of $28.9 million in 2023 are $8.2 million lower than the same period in 2022 primarily due to measures taken to reduce overhead in the organization and lower selling expenditures.

Wages and benefits were $4.0 million for the third quarter of 2023, as compared to $4.8 million for the same period of 2022. The decrease in expenses was related to the streamlining of operations and support staff for a more focused product portfolio. Year-to-date expenditures of $11.9 million were lower than those of $15.6 million during the same period of 2022. The decrease is primarily due to measures taken after the third quarter of 2022 to reduce overhead in the organization.

Office and administrative expenses were $2.6 million during the third quarter and $8.1 million year-to-date which was $0.2 million higher and $0.5 million lower than the same periods in 2022. The increased expenditures primarily relate to a provision for bad debt related to Fire & Flower Holdings Corp. filing for creditor protection under the Companies' Creditors Arrangement Act and the timing and costs associated with product innovation.

Auxly's professional fees were $1.0 million during the third quarter of 2023 and $2.4 million year-to-date which was $0.3 million and $0.2 million higher than the same periods in 2022. Professional fees incurred primarily related to accounting fees, regulatory matters, reporting issuer fees, and legal fees associated with certain corporate activities and as a result can fluctuate significantly from one period to the next.

Business development expenses were $0.1 million for the three and $0.4 million for the nine months ended September 30, 2023 as compared to $0.1 million and $0.2 million during the same periods in 2022. These expenses primarily relate to acquisition, business development and travel related expenses.

Selling expenses were $2.3 million for the three months ended September 30, 2023 and $6.2 million year-to-date, decreases of $1.3 million and $4.4 million over the same periods in 2022, primarily as a result of cost reductions associated with the internalization of the sales team and reduced marketing initiatives, partially offset by higher Health Canada fees related to higher revenues.

Equity-based compensation for the three and nine months ended September 30, 2023 was $0.7 million and $1.5 million respectively. During the same periods of 2022, these amounts were $0.5 million and $3.6 million, primarily reflecting the impact of restricted share units ("RSU") granted in June 2022, in respect of services provided by employees in 2021.

Depreciation and amortization expenses were $1.8 million for the period ended September 30, 2023, and $5.2 million year-to-date decreasing by $1.7 million and $6.8 million respectively over the same periods in 2022, primarily as a result of reductions in intangible assets, completion of certain leases and right of use assets, and depreciation associated with disposed assets.

Interest expenses were $6.6 million and $18.9 million for the three and nine months ended September 30, 2023, an increase of $1.1 million and $3.0 million over the same periods in 2022. The increase in expense is primarily a result of the impact of rising interest rates where such obligations are subject to variable charges and higher accretion expense on convertible debentures. Interest expense includes accretion on the convertible debentures and interest paid in kind on the $123 million Imperial Brands Debenture. Interest payable in cash was approximately $2.4 million for the three month ended September 30, 2023, an increase of $0.6 million over the same period in 2022.

Total other incomes and losses for the third quarter of 2023 was a net income of $47.2 million primarily related to gains due to the extension of the Imperial Brands Debenture. Total other loss in the third quarter of 2022 was $43.4 million primarily due to the impairment of goodwill and other assets of $45 million partially offset by gains related to foreign exchange, assets and liabilities and interest and other income.

Total other incomes and losses for the nine months ending September 30, 2023 was a net income of $45.5 million compared to a net loss of $66.4 million in the comparative period. Total other incomes and losses for the nine months ended September 30, 2023 included gains due to extensions on unsecured promissory notes, partially offset by the closure of Auxly Ottawa facility where the carrying value exceeded the fair value less cost to sell. Total other incomes and losses during the comparative period of 2022 included the first quarter losses associated with the closure of Auxly Annapolis and Auxly Annapolis OG facilities where the carrying value exceeds the fair value less cost to sell.

Net income for the three months ended September 30, 2023 was $32.6 million, representing a net income of $0.03 per share on a basic and diluted basis. The change in net income in the third quarter of 2023 as compared to a net loss of $60.1 million for the same period of 2022 was primarily driven by the gains on the extension of the Imperial Brands Debenture and changes in total expenses and improved gross profits. The net loss of $114.2 million through nine months of 2022 includes the net impact of approximately $25.7 million related to the closure of the Auxly Annapolis and Auxly Annapolis OG facilities during the first quarter of 2022.

Adjusted EBITDA for the three months ended September 30, 2023 was $0.1 million, an improvement of $5.9 million over the same period of 2022, primarily as a result of improvements in gross profits and SG&A.

In 2023, we aim to continue to improve earnings performance, increase focus on key product formats, lower costs and increase efficiency, which we expect will yield positive results. With these actions in mind, our goals for 2023 are broadly defined below:

• Increase net revenues by 15%, with a focus on key product categories, enhanced by strategic expansion of our product portfolio, while supporting strong retail distribution through our internal sales team.
• Continue to leverage Auxly Leamington's large-scale, low-cost cultivation facility and the Company's manufacturing automation to increase blended Cost of Finished Cannabis Inventory Sold Margin to an average of 35-40%.
• Vigorously manage SG&A as a percentage of net revenues to keep it below 40%.
• Prudently manage the Company's balance sheet and streamline assets where possible.

The Company successfully continued its efforts to improve earnings performance resulting in positive Adjusted EBITDA for the third quarter of 2023.

The Company increased its pre-roll manufacturing capabilities and advanced the implementation of alternate post-harvest drying methods at Auxly Leamington to improve dried flower quality. Stronger execution in our key product formats, the persistent efforts of a dedicated internal sales force and the increasing popularity of our Back Forty and Parcel brands contributed to increased demand for our products and revenue expansion during the quarter.

We prudently managed our spending and continued to focus operations on vape, pre-roll and dried flower products to improve overall efficiency. The consolidation of our pre-roll and dried flower manufacturing activities at our Auxly Leamington facility, automation enhancements and continual process improvements all contributed to improved margins.

The Company also strengthened its balance sheet during the quarter by successfully working with its strategic partner Imperial Brands to extend the maturity date of its unsecured convertible debenture until September 25, 2026 and is actively working with BMO and the syndicate of lenders towards a longer-term extension of the Auxly Leamington secured credit facility.

We continue to work towards achievement of our full year plan, built upon proven demand for our products, outstanding employees, top-tier assets and an underlying desire to continue to put our consumers first by delivering safe, effective, high-quality products that address their evolving needs and preferences and help them live happier lives.

Please see the Company's MD&A for the three months and nine months ended September 30, 2023, under "Non-GAAP Measures" for a further description of the following financial and supplementary financial measures.

EBITDA and Adjusted EBITDA

These are non-GAAP measures used in the cannabis industry and by the Company to assess operating performance removing the impacts and volatility of non-cash adjustments. The definition may differ by issuer. The Adjusted EBITDA reconciliation is as follows:

Cost of Finished Cannabis Inventory Sold Margin

"Cost of Finished Cannabis Inventory Sold Margin" is a supplementary financial measure and is defined as Cost of Finished Cannabis Inventory Sold divided by net revenues.

Gross Profit Margin

"Gross Profit Margin" is defined as gross profit divided by net revenues. Gross Profit Margin is a supplementary financial measure.

Debt

"Debt" is defined as current and long-term debt and is a supplementary financial measure. It is a useful measure in managing our capital structure and financing requirements.

The Company will not host an earnings conference call and the Company does not anticipate reinstating earnings conference calls until further notice. All investor inquiries should be directed to IR@auxly.com.

ON BEHALF OF THE BOARD
"Hugo Alves" CEO

Auxly is a leading Canadian consumer packaged goods company in the cannabis products market, headquartered in Toronto, Canada. Our focus is on developing, manufacturing and distributing branded cannabis products that delight our consumers.

Our vision is to be a leader in branded cannabis products that deliver on our consumer promise of quality, safety and efficacy.

Learn more at www.auxly.com and stay up to date at Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.

This news release contains certain "forward-looking information" within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or information that certain events or conditions "may" or "will" occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes, but is not limited to: the proposed operation of Auxly and its subsidiaries; the intention to grow the business, operations and existing and potential activities of Auxly; the impact of the COVID-19 pandemic on the Company's current and future operations; the Company's execution of its innovative product development, commercialization strategy and expansion plans; the Company's intention to introduce innovative new cannabis products to the market and the timing thereof; the anticipated benefits of the Company's partnerships, research and development initiatives and other commercial arrangements; the current and anticipated benefits of the Company's acquisition of Auxly Leamington; the intention of the Company to sell the Auxly Ottawa assets and the proposed use of any proceeds; expectations regarding the Company's ability to enter into a formal credit facility amendment with BMO and the syndicate of lenders and the timing thereof; the expectation, timing and quantum of future revenues, Cost of Finished Cannabis Inventory Sold Margin, SG&A and of positive Adjusted EBITDA; expectations regarding the Company's expansion of sales, operations and investment into foreign jurisdictions; future legislative and regulatory developments involving cannabis and cannabis products; the timing and outcomes of regulatory or intellectual property decisions; the relevance of Auxly's subsidiaries' current and proposed products with provincial purchasers and consumers; consumer preferences; political change; competition and other risks affecting the Company in particular and the cannabis industry generally.

A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information in this release including, but not limited to, whether: the Company will be able to execute on its business strategy or achieve its goals; Auxly's subsidiaries are able to obtain and maintain the necessary governmental and regulatory authorizations to conduct business; the Company is able to successfully manage the integration of its various business units with its own; the Company's subsidiaries obtain and maintain all necessary governmental and regulatory permits and approvals for the operation of their facilities and the development of cannabis products, and whether such permits and approvals can be obtained in a timely manner; the Company will be able to continue to successfully integrate Auxly Leamington's operations with its own, and whether the expected benefits of the acquisition materialize in the manner expected, or at all; the Company will be able to sell the Auxly Ottawa assets and achieve the anticipated cost savings from the closure of the facility; the expected benefits of the Imperial Brands Debenture amendment materialize in the manner expected, or at all; the Company will be able to reach an agreement with the syndicate of lenders to enter into a formal credit facility amendment on terms acceptable to the Company and in a timely manner; the Company will be able to successfully launch new product formats and enter into new markets; there is acceptance and demand for current and future Company products by consumers and provincial purchasers; the Company will be able to increase and maintain revenues, maintain positive Adjusted EBITDA, and/or achieve and maintain its target Cost of Finished Cannabis Inventory Sold Margin; and general economic, financial market, legislative, regulatory, competitive and political conditions in which the Company and its subsidiaries and partners operate will remain the same. Additional risk factors are disclosed in the annual information form of the Company for the financial year ended December 31, 2022 dated March 30, 2023.

New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. In addition, this release may contain forward-looking information attributed to third party industry sources, the accuracy of which has not been verified by the Company. The forward-looking information is being provided for the purposes of assisting the reader in understanding the Company's financial performance, financial position and cash flows as at and for periods ended on certain dates and to present information about management's current expectations and plans relating to the future, and the reader is cautioned that such forward-looking information may not be appropriate for any other purpose. Readers should not place undue reliance on forward-looking information contained in this release.

The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.

Neither Toronto Stock Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Toronto Stock Exchange) accepts responsibility for the adequacy or accuracy of this release.

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SOURCE Auxly Cannabis Group Inc.