BC + ON, CANADA

Heritage Cannabis Reports Q2 2023 Financial Results, Achieving Continued Gross Margin Growth for the Quarter

TORONTO, June 28, 2023–(BUSINESS WIRE)–Heritage Cannabis Holdings Corp. (CSE: CANN) (OTCQX: HERTF) (“Heritage” or the “Company“), today announced its financial results as at and for the three- and six-month periods ended April 30, 2023. All figures are in Canadian dollars unless otherwise noted.

“We are very pleased to have achieved gross margin growth once again this quarter, despite the lack of much needed regulatory changes within the industry in Canada. We have remained extremely focused on managing our costs and quarterly burn-rate while harnessing a continuous improvement approach to maximize our product output”, said David Schwede, CEO of Heritage. “Our entry into the U.S. market is performing well with both our Missouri and West Virginia facilities gaining a strong foothold in their respective markets, and with our RAD brand launching in New York this summer we are building out our capital efficient footprint in the U.S. Similar to our growing relationship with an Australian firm, we continue to evaluate new international markets to introduce our portfolio of in-demand products.”

Selected Financial Highlights

Selected financial highlights for the three- and six-month periods ended April 30, 2023, and April 30, 2022, include the following:

Three months ended

Six months ended

(in $CDN)

Apr 30, 2023
$

Apr 30, 2022
$

Apr 30, 2023
$

Apr 30, 2022
$

Gross revenue

10,165,939

10,452,313

19,612,934

20,048,454

Net revenue (net of excise tax)

7,379,043

7,491,184

13,702,455

14,032,395

Cost of sales

4,074,385

4,306,378

8,346,636

8,962,828

Gross margin

3,304,658

3,184,806

5,355,819

5,069,567

General and administrative expenses

5,051,952

4,084,500

9,699,499

9,244,998

Other Income (Expenses)

(375,704)

(185,513)

(553,556)

8,367,299

Comprehensive Income (Loss)

(1,958,047)

(500,614)

(4,721,007)

5,756,599

Q2 2023 Financial Highlights

  • The Company reported gross revenue of $10,165,939 for the three months ended April 30, 2023, a decrease of $286,374 compared to the gross revenue of $10,452,313 for the three months ended April 30, 2022. The decrease in gross revenue was primarily due to a continued rotation of the Company’s SKUs at the provincial board level particularly through its flower vertical which was down 17% in the current quarter compared to the prior quarter while the impact of both the Thrifty launch and Adults Only brands are between load-in and initial replenishment stage and didn’t have a full impact on the quarter end results.

  • For the six months ended April 30, 2023, the Company reported gross revenue of $19,612,934, a decrease of $435,520 compared to the gross revenue of $20,048,454 for the six months ended April 30, 2022. The decrease in gross revenue was primarily by a reduction in tincture sales and vape sales which were down 14% and 4% year over year and minimal contribution from the new brands which partially offset the SKU rotation.

  • Cost of sales for the three months ended April 30, 2023, was $4,074,385, a decrease of $231,993, compared to $4,306,378 for the three months ended April 30, 2022. The decrease represented a 1% improvement, as a percentage of sales, in the current period. As stated in previous quarters, the Company is continuously reviewing its processes for optimization either on the manufacturing side or through material costing which continued to positively impact the results in the current quarter.

  • For the six months ended April 30, 2023, cost of sales was $8,346,636, a decrease of $616,192, compared to $8,962,828 for the six months ended April 30, 2022. The decrease represented a 2% improvement, as a percentage of sales, in the current period. The improvement was a result of continued production refinements to enable more efficient production.

  • Gross margin for the three months ended April 30, 2023 was $3,304,658 compared to gross margin of $3,184,806 for the three months ended April 30, 2022. The increase in gross margin of $119,852 was primarily a result of improved production efficiencies in addition to a lower excise rate of 27.4% compared to 28.3% in the prior period which was driven by increased bulk B2B sales which provides less exposure to excise taxes.

  • For the six months ended April 30, 2023, gross margin was $5,355,819 compared to gross margin of $5,069,567 for the six months ended April 30, 2022. The increase in gross margin of $286,252 was primarily a result of improved production efficiencies over the course of the year given excise was flat period over period.

  • For the three months ended April 30, 2023, the Company recorded a comprehensive loss of $1,958,047 or $0.00 loss per share compared to a comprehensive loss of $500,614 or $0.00 loss per share for the three months ended April 30, 2022. The increase in comprehensive loss of $1,457,433 during this period was attributable to higher interest costs as a result of rising interest rates and unrealized losses on derivative liabilities as a result of revaluations.

  • For the six months ended April 30, 2023, the Company recorded a comprehensive loss of $4,721,007 or $0.01 loss per share compared to a comprehensive income of $5,756,599 or $0.01 income per share for the six months ended April 30, 2022. The increase in comprehensive loss of $10,477,606 during the period was driven by three key factors: the unrealized gain the prior period relating to various unachieved acquisition milestones of $8,415,429, the gain related to the sale of Stanley Park digital of $608,000 and the impact of rising interest rates which increased the interest expense by $205,000 during this period.

Q2 2023 Growth, Operational, and Corporate Highlights

  • On February 6, 2023, the Company appointed Eoin Hegarty as Chief Operating Officer, and Cory Larsen as Chief Commercial Officer. Dan Phaure has retained his position as Chief Financial Officer, following his resignation from the role of Chief Operating Officer. Both Mr. Hegarty and Mr. Larsen are current employees of Heritage, and their promotions follow on their achievements in advancing the Company’s strategy to not only successfully expand across Canada, but also in Heritage’s entry into the United States.

  • Heritage has transitioned to a true product and brand company, creating “forever SKUs” that have seen solid uptake in the Canadian cannabis market. Now with in-house expertise in production, manufacturing, white labelling, pick and pack, and distribution, Heritage has developed several relationships to leverage this expertise. The Company has entered distribution relationships with a number of well-known companies and brands including Aurora Medical, Canopy Growth Corp, Violet Tourist, OMG, White Rabbit, Panacea, North 40, and Mad Hatter. To extend Heritage’s capabilities in the cannabis market, the Company will consider opportunities to extend in other areas of the supply chain that will provide vertical integration and positively impact margins.

  • On March 6, 2023, Heritage announced the receipt of a purchase order from a well-established Australian company for the supply of 15,000 units of Live Resin concentrate vape cartridges. Heritage recently received import permits allowing the Company to ship products to this growing market. The Australian market, while still in its infancy as a medical cannabis market, Heritage is the first company to ship Live Resin to Australia

  • On March 8, 2023, Heritage announced that the Missouri facility effectively began in the state of Missouri. Heritage, through its relationship with Como Health LLC, doing business as 3Fifteen Primo Cannabis (“3Fifteen”), has had products in market since legalization at 3Fifteen’s medical dispensaries in Missouri, including 12 stock keeping units (“SKUs”) on shelves. Already seeing strong sales on the medical side, the Missouri operation is poised to capture a piece of the newly minted recreational market.

  • On March 13, 2023, Heritage announced that it has met the regulatory requirements and achieved approval from the Brazil Health Authority (ANVISA) to import its first formulated CBD product into Brazil. Heritage has also achieved stability on two additional products that are awaiting final approval. In 2021, Health Canada granted Heritage with the first ever license to export cannabis products from Canada to Brazil, and Heritage successfully shipped products to enter the testing phase with ANVISA.

  • Following the end of the second quarter, Heritage announced plans to enter the recreational cannabis market in New York, with RAD branded vape and concentrate products becoming available to New York consumers this summer. Heritage continues to target legalized markets in the U.S. with an asset light model and has signed a manufacturing and distribution agreement with a local partner that will primarily produce and sell products using Heritage’s innovative formulations and flavours that have achieved success in other markets. The initial launch will be 6 SKUs and Heritage plans to add additional RAD products including live resin, rosin, and infused pre-rolls, as well as expand product offerings with additional Heritage brands.

Financial Statements
The consolidated financial statements of the Company as at and for the three- and six-month periods ended April 30, 2023, and accompanying management’s discussion and analysis have been filed with the securities regulators and are available on SEDAR at www.sedar.com under the Company’s issuer profile.

About Heritage Cannabis Holdings Corp.
Heritage Cannabis is a leading cannabis company offering innovative products to both the medical and recreational legal cannabis markets in Canada and the U.S., operating under two licensed manufacturing facilities in Canada. The company has an extensive portfolio of high-quality cannabis products under the brands Purefarma, Pura Vida, RAD, Premium 5, Adults Only, Thrifty, feelgood., the CB4 suite of medical products in Canada and ArthroCBD in the U.S.

ON BEHALF OF THE BOARD OF DIRECTORS OF HERITAGE CANNABIS HOLDINGS CORP.

“David Schwede”
David Schwede
CEO

The Canadian Securities Exchange does not accept responsibility for the adequacy or accuracy of this release.

Forward-Looking Statements

This press release contains certain “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or may contain statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “will continue”, “will occur” or “will be achieved”. The forward-looking information contained herein may include, but is not limited to, assumptions related to cash flow and capital resources, and expectations related to the supply and manufacturing agreements, the intended expansion of the Company, and partnerships and Joint Venture Partnerships.

By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements.

An investment in securities of the Company is speculative and subject to several risks including, without limitation, the risks discussed under the heading “Risks and Uncertainties” in the Company’s annual management discussion and analysis for the year ended October 31, 2022, and dated February 28, 2023. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.

In connection with the forward-looking information and forward-looking statements contained in this press release, the Company has made certain assumptions. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this notice.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230628002868/en/

Contacts

For more information contact:
Kelly Castledine
Tel: 647-660-2560
kcastledine@heritagecann.com

   

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