Supporting financial statements for the fourth quarter and year 2020 and outlook for 2021

TORONTO, April 26, 2021 (GLOBE NEWSWIRE) – Auxly Cannabis Group Inc. (TSX – XLY) (OTCQX: CBWTF) (Auxly or the Company), a consumer products company in the cannabis products market, today announced its financial results for the fourth quarter and full year 2020. These documents and other information about Oxley are available on the SEDAR website at www.sedar.com. All amounts are in U.S. dollars, except for ordinary units (the Units) and per Unit.

2020 Highlights

  • Record net sales for 2020 are $50.8 million, including net cannabis sales of $46.6 million, an increase of 508% over 2019.
  • Cannabis net sales in the fourth quarter were $18.3 million.
  • Achieve the #1 position in Canada for sales of Cannabis 2.0 products by 20201, with a market share of approximately 14% in this category.
  • The launch of Cannabis 1.0 with the release of Robinson’s premium dry flower and the Kolab project grower series in collaboration with Lotus Cannabis and Safari Flower Co.
  • Efforts to reduce overhead costs continued and dropped to less than $10 million in the fourth quarter.
  • Further strengthening of the company’s balance sheet through financial transactions.

End of year highlights

In its first full year of commercial operation, the company has shown tremendous growth, with net revenues up 508% year-on-year. As one of the first LPs to offer cannabis 2.0 products post-legalization, and as one of the largest and most widespread 2.0 products on the market, we have successfully cemented our position as one of the leading cannabis companies in Canada.

Hugo Alves, managing director Auxly

Going forward, we will build on the success of our first year, develop deeper connections with our consumers through continued knowledge and innovation, explore growth opportunities that align with our business strategy, and continue our efforts to improve cash flow to ensure that we can achieve our vision of being the world leader in cannabis branded products.

Performance

Revenue

For the one. year ended December 31, 2020, cannabis revenues were $57.2 million, compared to $2.3 million for the same period in 2019. Net cannabis sales of $46.6 million. The $1.0 million in sales during the period represents approximately 80% of Cannabis 2.0 sales, with the remainder coming from Cannabis 1.0 products, which is a significant increase over the 2019 Cannabis 2.0 sales that began in December. Over the course of the year, about 75 per cent of net cannabis revenue came from British Columbia, Alberta and Ontario, putting Oxley at the top of cannabis 2.0 sales in the country. Sales of Cannabis 1.0 products helped launch Colab’s Summer 2020 flower and pre-flower rolls, as well as Robinson’s dried flowers.

Research and other income of $4.1 million. The 2020 total of $8.1 million is $2.1 million more than the $1.1 million total. Total clinical trial value decreased by $1.5 billion compared to 2019, primarily due to the COVID-19 pandemic and its disruptive impact on clinical trial completion, partially offset by the introduction of new regulatory advisory services. Revenues supporting third-party research contracts can vary significantly over the life of the contract, depending on the achievement of milestones. If milestones are not achieved, revenue is deferred in the balance sheet, which can result in timing differences in revenue.

Gross profit/loss

In 2020, gross profit was $11.1 million, compared to a gross loss of $3.7 million in 2019. Gross profit from cannabis for the year ended 31. This represents a cannabis margin of 21% (27% before depreciation and fair value adjustments) and a gross margin for research and other activities of $1.4 million. Impairment on inventories of $3.4 million. The total amount of $13.3 million was $0.2 million. The $1.1 million increase is primarily due to costs associated with the discontinuation of Inverell operations and is approximately $1.1 million higher than 2019. The $8.0 million for legacy Cannabis 2.0 products is related to the SKU rationalization implemented in the third quarter of 2020.

For the year ended December 31, 2019, a gross loss of $3.7 million, net of fair value adjustments, was realized. The total loss for the year ended December 31, 2019 consisted primarily of inventory adjustments of approximately $4.1 million (inventory write-downs of $1.8 million.0 Dosecann Products, a loss of $0.1 million related to the decrease in fair value of other inventories, a write-down of $0.1 million for other inventories and a write-down of $0.1 million for other inventories. The decrease in the fair value of biological assets of $0.8 million and an unrealized loss on a decrease in the fair value of biological assets of $0.8 million were recorded in the period ended December 31, 2009. December 2009.

Total cost

Selling, general and administrative expenses (SG&A) include salaries, office and administrative expenses, fees, business development, stock-based compensation and distribution costs.

In 2020, general and administrative expenses were $48.9 million, a decrease of $1.4 million from 2019.

Salaries and benefits were $22.6 million, an increase of $4.7 million over 2019. The increase of $4.7 million is primarily due to an increase in the number of employees supporting the sale of cannabis products, primarily related to production and sales teams, employee buyouts due to foreclosures, and severance and accruals during the period, partially offset by employee wage subsidies received from KGC and staff reductions at Inverell.

Office and administrative expenses of $11.8 million. The $3.8 million increase in 2020 is due to a $3.8 million increase in $8.5 million. The $1.2 million increase over 2019 is primarily due to higher operating expenses related to the development and sale of cannabis products in 2020 and the implementation of a company-wide ERP system.

Auxiliary expenditures were $3.2 million, a decrease of $3.6 million from 2019. The fees charged during the periods relate primarily to accounting, regulatory matters, reporting issuer fees, pending litigation, staff recruitment, consulting and fees related to financial activities. The decrease in professional services fees is due to a reduction in the number of professional services contracts and the number of professional services contracts in 2020.

Business development expenses were $1.4 million, compared to $4.8 million in 2019. This decrease is mainly due to lower acquisition, development and travel costs.

Cost of sales for the year ended December 31, 2020 was $5.6 million. Total business share of total expenses was $8.3 million, down $5.3 million from $8.1 million in 2008. The increase in cannabis product revenue in 2019 is directly attributable to cannabis sales activity, consisting of referral fees earned by Kindred Partners and cannabis product marketing initiatives.

For 2020, share-based compensation was $4.3 million, compared to $12.6 million for 2019. The decrease in expenses in 2020 reflects the impact of significantly fewer options, lower stock prices and the reversal of approximately $1 million of expenses related to the termination of options under options granted on January 1, 2020. General and administrative cost reductions announced in October 2020.

Depreciation expense was $9.4 million in 2020, compared to $8.6 million in 2019. The increase in expenditures is primarily due to capital expenditures in 2020. In 2019, several projects remained in development and were not amortized to completion.

Interest expense was $13.0 million for the twelve months ended December 31, 2020 and $12.1 million for the same period in 2019. 4 percent of Imperial Brands’ convertible bonds, 7.5 percent of the convertible tranches of the 2020 bonds and a non-cash accumulation of placement fees and other related costs recorded in accordance with the terms of the respective bonds. Interest expense in 2019 is attributable to a 6% interest charge on the 2018 Convertible Notes and Imperial Brands Convertible Notes, as well as a non-cash charge for placement fees and other related costs recognized over the term of the related notes.

Total other gains and losses

Changes in the fair value of financial instruments are attributable to changes in the value of bonds and available-for-sale securities in the second category. For the year ended December 31, 2020, the Company recorded a fair value revaluation loss of $4.4 million, compared to a loss of $6.5 million in 2019, primarily due to the write-off of Beleave Inc. commodity equivalent debt. The 2020 fair value loss reflects changes in Level 2 securities as all bonds held at December 31, 2019 have been redeemed or fully impaired.

The Company recorded interest and other income of $0.5 million in 2020, a decrease from $3.6 million in 2019, primarily due to a decrease in cash and cash equivalents during the year and the reversal of $1.3 million of accrued interest as part of the negotiations with Sunens for the amendments to the Auxly termination agreement in the fourth quarter of 2020.

The impairment of non-current assets, intangible assets and goodwill of $6.1 million in 2020 was primarily due to the impairment of the Inverell cash-generating unit, LATAM. Depreciation and amortization was $34.9 million, compared to $23.9 million in 2019. The total cost to the United Nations is $7.6 million and $7.6 million to the United Nations Office on Drugs and Crime (UNODC). In addition, an impairment charge of $1.8 million was recorded. The Group’s share in the intangible value of FUR Pharma Inc. (SDF), a loss of $1.1 million. The Company has not paid any amount in respect of the purchase price of the green relief. (d/b/a Curative Cannabis) as a result of a seizure and loss of $0.5 million related to the green relief agreement.

Losses on extinguishment of assets and liabilities and other charges were $10.0 million. The Group’s investment in the joint venture of $8.7 million was impaired primarily for the following reasons As part of the changes to the interest rate exemption clause, the Company has until 1… No interest will be paid on the approximately $48.5 million loan until January 2023. During the quarter, inventory was returned, resulting in a liability of approximately $5.8 million in accounts payable and other liabilities and assets in inventory. A replacement product has since been delivered to an approved manufacturer in March 2021 to meet this obligation. There was a loss of $3.6 million. The loss of $8.5 million in 2019 was primarily due to a loss of $2.5 million in the year ended December 31, 2019. December 31, 2019, primarily due to a loss of $2.5 million in the year ended December 31, 2019. December 2019 can be attributed to. The Company’s total foreclosures, reserves for loan losses and final accounts receivable are approximately $0.5 million.

The joint venture’s proportionate share of investment loss of $7.4 million in 2020 increased $5.3 million compared to 2019, reflecting the Company’s proportionate share of Sanens’ earnings. Sunens received its cultivation license in 2020 and expanded its operations in the first quarter of 2021 so that the products would be available for sale to other licensed growers.

Auxly is exposed to exchange rate fluctuations between the U.S. dollar and the Canadian dollar, primarily in connection with Inverell. In the year ended December 31, 2020, the Company recorded a foreign exchange loss of $0.4 million and $1.5 million in 2019.

Net losses

Net loss was $87.4 million with a net loss of $0.14 per share on a basic and diluted basis in 2020 and $108.6 million with a net loss of $0.17 per share on a basic and diluted basis in 2019. The $21.2 million improvement in 2020 was primarily due to a $14.8 million increase in gross profit, a year-over-year increase in total expenses, a $16.9 million decrease in impairment charges and total other losses, partially offset by a $10.3 million decrease in income tax recoveries.

Net loss of $108.6 million The increase of $11.4 million in 2019 was primarily due to an increase in other comprehensive loss and depreciation, partially offset by a tax refund.

Adjusted EBITDA

Adjusted EBITDA increased by approximately $7.0 million to negative $30.3 million in 2020 compared to the same period in 2019. The increase was primarily due to gross margin on cannabis products, partially offset by proceeds from the sale of mergers and acquisitions, excluding non-cash share-based compensation. In 2019, adult sales began in December 2019.

Sunen update

The 16th. In April 2021, Sanens received a notice of default from Bank of Montreal, as lender, administrative agent and syndication agent under the Sanens Credit Agreement, in connection with, among other things, its failure to meet its recently established earnings benchmarks for the first quarter of 2021. As part of this syndicated financing, the company guarantees payments of up to $33 million in the event of a default.

Although the lenders have reserved rights under the loan agreement, they continue to provide funds that Sunens will use to finance its day-to-day operations. Sunens began cultivation in the licensed area after receiving the permit in June 2020 and sold to the Company and other licensed growers in the first quarter of 2021. Sunens may require additional working capital financing until production and sales revenues reach expected levels. Discussions with the creditors on a formal agreement to modify and/or reduce the loan are continuing in a spirit of cooperation and positivity, although there is no guarantee that an agreement will be reached with the creditors. For more information, see the Crop Supply – Solar sections of the MD&A.

Outlook

With the launch of a robust initial portfolio of cannabis 2.0 products in December 2019, Auxly is well positioned to launch its first full year of cannabis products in 2020. The company’s objectives for 2020 are as follows

  • Become a leader in the Canadian cannabis 2.0 market;
    • Oxley’s year was a great success. The company has solidified its position as one of the first cannabis 2.0 distribution and sales companies in Canada and will be the first licensed producer of cannabis 2.0 products in the country by 2020.
  • Completion of remaining construction and permitting work at all Canadian facilities to utilize existing facilities and increase sales;
    • The company completed the expansion of its Dosecanna facility to include the second floor, increasing production, sales and distribution of Cannabis 2.0 products.
    • Conversion of Colab from a cultivation facility to a production, processing and distribution facility for the Company’s pre-cut Cannabis 1.0 products and dried flower, in anticipation of the strategic expansion of Cannabis 1.0 production.
    • The Company’s subsidiaries have obtained numerous licenses from Health Canada, including processing licenses for Sunens and Robinsons OG and an institutional cannabis research license for KGC, which provide the Company with greater business flexibility.
  • Work with the Sunens team to ensure the supply of raw materials for use in the company’s manufacturing processes by 2020 ;
    • Despite some delays related to COWID-19, Oxley was able to expedite the licensing process for the facility, allowing Sunens to grow and offer cannabis for sale to Oxley and other licensed producers in the first quarter of 2021.
  • Work with strategic partners to bring a small number of products to market that will be sold internationally or, if and when allowed, on the Cannabis 3.0 market;
    • While sales in the international market have yet to materialize, the Company has made significant progress in marketing products for the Cannabis 3.0 market, if and when legally permitted, while continuing its development strategy.

In 2021, Oxley plans to continue to build on its success as a leader in cannabis 2.0 products, while deliberately expanding its offerings of dried products, prerolls, oils and capsules. The Company’s overall objectives for 2021 that may be affected by the COVID 19 pandemic (see further discussion in the COVID 19 pandemic section of the MFA) are as follows.

  • Maintain leadership and strength in the cannabis 2.0 market;
  • Targeted expansion of cannabis products 1.0;
  • Continue to take steps to improve the company’s cash flow and financing;
  • Using the Sanens facility to ensure a reliable supply of cannabis and reduce reliance on open market purchases
  • Investigate possible strategies for entering regulated international cannabis markets based on the low asset weight principle.

The Company will continue to evaluate opportunities to bring exciting new products to consumers, while continuing to realize its vision of being a global leader in cannabis branded products that deliver on the promise of quality, safety and efficacy to consumers.

ON BEHALF OF THE BOARD OF DIRECTORS

Director General Hugo Alves

About Oxley Cannabis Group Inc. (TSX:XLY)

Oxley is Canada’s leading cannabis company, dedicated to providing innovative, effective and high-quality cannabis products to the wellness and adult-use market. Auxly’s experienced team of pioneers and visionary entrepreneurs provided a diverse raw cannabis offering, strong clinical, scientific and operational capabilities, and a leading research infrastructure to build strong products and brands in a growing global market.

For more information, visit www.auxly.com and follow us on Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.

Original press release

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