DELTA 9 CANNABIS INC. (TSX: DN) (OTCQX: VRNDF), is pleased to announce financial and operating results for the three-month and six-month period ending June 30, 2020. Financial Highlights for the three-month period ending June 30, 2020 Net revenue of $13.0 million for the second quarter of 2020, an increase of 46%, from $8.9 million for […]
DELTA 9 CANNABIS INC. (TSX: DN) (OTCQX: VRNDF), is pleased to announce financial and operating results for the three-month and six-month period ending June 30, 2020.
Financial Highlights for the three-month period ending June 30, 2020
Net revenue of $13.0 million for the second quarter of 2020, an increase of 46%, from $8.9 million for the same quarter last year.
Sequential net revenue increased 11% versus $11.8 million for the three-month period ending March 31, 2020
Gross profit of $4.6 million for the second quarter of 2020, an increase of 57%, from $2.9 million for the same quarter last year.
Net income from operations of $1.7 million for the second quarter of 2020 versus a loss from operations of ($1.1 million) for the same quarter last year.
Adjusted EBITDA of $0.7 million for the second quarter of 2020 versus an adjusted EBITDA loss of ($0.7 million) for the same quarter last year.
The Company reported earnings per share of $0.01.
The Company reported a strong financial position, with working capital of $24.5 million and total assets of $77 million.
Financial Highlights for the six-month period ending June 30, 2020
Net revenue of $24.8 million for the first six months of 2020, an increase of 71%, from $14.5 million for the same period last year.
Gross profit of $9.5 million for the first six months of 2020, an increase of 100%, from $4.7 million for the same period last year.
Net income from operations of $4.6 million for the first six months of 2020 versus a loss from operations of ($2.1 million) for the same period last year.
Adjusted EBITDA of $2.4 million for the first six months of 2020 versus an adjusted EBITDA loss of ($2.6 million) for the same period last year.
Cash flows from operations of $4.0 million for the first six months of 2020 versus negative cash flows from operations of ($9.0 million) for the same period last year.
“We are pleased with the continuation of strong growth in top line revenue from our three main business units,” said John Arbuthnot, CEO of Delta 9. “The COVID-19 crisis has had its challenges but our management team and employees have done an incredible job in continuing to execute on our diversified growth strategy. These results not only demonstrate another quarter of profitability, but continued execution on achieving critical milestones which will allow us to continue to grow our business.”
2nd Quarter Operational Highlights
The Company entered into a master cannabis supply agreement with the Ontario Cannabis Retail Corporation to provide for the supply of Delta 9 branded cannabis products and accessories for sale in retail cannabis stores in Ontario and online sales of recreational cannabis products and accessories to customers in Ontario.
Delta 9 opened cannabis retail stores in the First Alberta Place building in Calgary and in Grande Prairie, Alberta that continue the strategy of establishing a chain of Delta 9 branded retail stores across Canada. Delta 9’s goal is to add an additional 12 retail stores over the next 24 months.
The Company entered into a partnership agreement with the Manitoba Hotel Association to be their exclusive cannabis partner and to canvass and develop interest in establishing cannabis retail outlets and selling Delta 9 cannabis products on site in Manitoba hotels. Delta 9 offers programs in educational, point-of-sale systems, supply chain and product selection, marketing, procurement, branding and assistance in product ordering to build Delta 9’s brand as the partner of choice for cannabis in Manitoba hotels.
Delta 9 has also entered into an agreement with the Province of Newfoundland and Labrador, the Newfoundland and Labrador Liquor Corporation and Oceanic Releaf Inc. (“Oceanic”) pursuant to which Delta 9 will supply cannabis and cannabis-related products in that Province. Delta 9 also entered into a definitive agreement with Oceanic Releaf Inc. and Ms. Taylor Giovannini to acquire a five percent interest in the common stock of Oceanic in exchange for the provision by Delta 9 of certain consulting and training services to Oceanic.
The Company received Health Canada approval for its new purpose-built cannabis processing center which will allow for fully automated bottling, packaging, capping and labelling of its consumer-packaged dried cannabis products. The Company anticipates that once the processing center is operating at capacity it will allow for processing of up to 25,000 kg/year of dried cannabis flower material.
Summary of Quarterly Results
Consolidated Statement of Net Income (Loss)
Cost of Sales
Gross Profit Before Unrealized Gain From Changes In Biological Assets
Unrealized gain from changes in fair value of biological assets (Net)
General and Administrative
Sales and Marketing
Share Based Compensation
Total Operating Expenses
Adjusted EBITDA (Loss) 1
Income (Loss) from Operations
Other Income/ Expenses
Net Income (Loss)
Basic and Diluted Earnings (Loss) Per Share
1. Adjusted EBITDA is a non-IFRS measure, and is calculated as earnings before interest, tax, depreciation and amortization, share-based compensation expense, fair value changes and other non-cash items.
A comprehensive discussion of Delta 9’s financial position and results of operations is provided in the Company’s Management Discussion & Analysis for the three-month and six-month period ending June 30, 2020 filed on SEDAR on August 14, 2020 and can be found at www.sedar.com.
2020 Second Quarter Results Conference Call
A conference call to discuss the above results is scheduled for August 17, 2020, pre-market. The conference call will be hosted that day at 9:00 a.m. Eastern Time by John Arbuthnot, Chief Executive Officer, and Jim Lawson, Chief Financial Officer, followed by a question and answer period.
August 17, 2020
9:00 am Eastern Time
Dial in #
1-877-674-6060 Available until 12:00 midnight Eastern Time, November 17, 2020
For more information contact:
Investor & Media Contact: Ian Chadsey VP Corporate Affairs Mobile: 204-898-7722 E-mail: email@example.com
About Delta 9 Cannabis Inc.
Delta 9 Cannabis Inc. is a vertically integrated cannabis company focused on bringing the highest quality cannabis products to market. The company sells cannabis products through its wholesale and retail sales channels and sells its cannabis grow pods to other businesses. Delta 9’s wholly-owned subsidiary, Delta 9 Bio-Tech Inc., is a licensed producer of medical and recreational cannabis and operates an 80,000 square foot production facility in Winnipeg, Manitoba, Canada. Delta 9 owns and operates a chain of retail stores under the Delta 9 Cannabis Store brand. Delta 9’s shares trade on the Toronto Stock Exchange under the symbol “DN” and on the OTCQX under the symbol “VRNDF”. For more information, please visit www.delta9.ca.
Disclaimer for Forward-Looking Information
Certain statements in this release are forward-looking statements, which reflect the expectations of management regarding the Company’s future business plans and other matters. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. Forward looking statements in this news release include statements relating to: (i) the Company’s plans to establish a chain of cannabis retail stores across Canada; and (ii) the anticipated production capacity of the Company’s planned cannabis processing center. Such statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements, including all risk factors set forth in the annual information form of Delta 9 dated March 19, 2020 which has been filed on SEDAR. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. Readers are urged to consider these factors carefully in evaluating the forward-looking statements contained in this news release and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements. These forward-looking statements are made as of the date hereof and the Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws.
Is M&A Going To Heat Up In The Cannabis Sector With U.S. Federal Legalization Right Around The Corner?
During the last few years, there has been increased consolidation in the cannabis industry and we have identified trends over the course of this time period. The first wave of acquisitions started in Canada and this trend lasted several years. This wave of acquisitions still ranks as some of the most expensive transactions and was […]
During the last few years, there has been increased consolidation in the cannabis industry and we have identified trends over the course of this time period.
The first wave of acquisitions started in Canada and this trend lasted several years. This wave of acquisitions still ranks as some of the most expensive transactions and was highlighted by Aurora Cannabis Inc. (ACB.TO) (ACB) acquired two Licensed Producers for a combined price that was greater than $7 billion.
The second wave of acquisitions took place in 2018 and 2019 and was primarily related to US cannabis retailers. Since cannabis is illegal at the federal level in the US, these transactions took much long to complete (when compared to Canada) and many of the deals were scrapped due to plunging stock prices. The most significant failed acquisition in this vertical was MedMen Enterprises’ (MMEN.CN) (MMNNF) deal to purchase Pharmacann. After this transaction was called off, MedMen has come under considerable pressure and was assigned a $0 price target from Canaccord Genuity (CF.TO).
From an acquisition standpoint, 2020 has been a slower than normal year for the cannabis sector. Companies are being much more strategic when it comes to acquiring or investing in businesses that could be complementary or accretive in nature.
One of the more interested trends that we have identified with the cannabis M&A market is related to the types of businesses that are being purchased. Previously, cannabis companies were focused on acquiring assets that would increase production capacity, improve brand awareness, or expand into a different vertical.
In the current market environment, technology is playing a much larger role in M&A activity and we consider this to be the third wave of acquisitions. In this phase, we believe that companies are focused on purchasing businesses that can lead to margin expansion, positive cash flow generation, or improved profitability.
One of the best examples of this is the merger between Stem Holdings Inc. (STEM.CN) (STMH) and Driven Deliveries Inc. (DRVD). The companies operate completely different businesses and are levered to different parts of the cannabis value chain. We consider the merger to be strategic in nature and expect the combined company to record stronger revenue growth, margin expansion, and positive adjusted EBITDA.
Stem Holdings owns cannabis assets that are located in strategic US markets. Driven utilizes a state-of-the-art delivery platform to service the California cannabis market. The combined company can use Driven’s technology to capitalize on cannabis delivery opportunity in the markets that Stem is levered to and are bullish on the potential value that can be created through this strategy.
At current levels, the combined company is trading at a considerable discount to its peers and we believe that it has a compelling valuation. Due to the technology side of the business, the combined company should be valued at a higher multiple and we believe that the market is missing out on something significant with it.
If you look at the performance of other cannabis companies that have acquired tech assets, you will notice a positive trend after an initial period of weakness. We are not sure if this is the case with Stem Holdings and Driven but are bullish on the long-term opportunity that is associated with the combined company.
Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.
Insurance coverage is a necessity for businesses in every industry, cannabis and hemp related ones are certainly not the exception. But of course, insurance in the cannabis industry comes with its twist and many complications, as most things in this industry do.
It is no secret the cannabis business is skyrocketing, many states have now legalized both medical and recreational marijuana and many more are close to take that step later this year. Nevertheless availability of insurance coverage for the cannabis industry remains in flux.
The issues surrounding cannabis insurance are mostly due to the constant changing regulation, lack of data, and many banking restrictions. Still, this industry may offer an even higher reward to insurers who overpass the complexities Federal illegality of the industry brings.
A comprehensive insurance program may be your best protection against the many risks you face on a daily basis as a cannabis entrepreneur, here is what you need to know when deciding to insurance your business.
What challenges do cannabis companies face when finding insurance?
While the industry is growing, insurance coverage is having a hard time to keep pace with its risk management needs. Conflicting state and federal laws have made insurance carriers reluctant to write cannabis policies, resulting in higher prices.
Although the stigma and uncertainty of the cannabis industry has decreased in the past years, and education has become and incredible asset to the discussion of legalization of cannabis, it is still a very difficult industry for insurance companies to get into.
Not only the regulations change drastically from state to state – since states don’t have the same regulatory environment for cannabis – the insurance industry is forced to address those differences in terms of coverage and policy making.
Even with the reputation risk being a much lesser concern, the fear of federal prosecution of financial and insurance institutions if services to legitimate marijuana businesses are provided has played a major part in making insurers avoid adjusting their policies to accommodate cannabis business protection for fear.
In reality, since insurance companies are regulated by state no on a federal level, there shouldn’t be any risk as long as the insurance companies and their clients comply with state regulations and always operate in-state.
What Risks Do Cannabis and Hemp Business Need To be Protected From?
As the legalization of both medicinal and recreational cannabis continues to grow, manufacturers, distributors and retailers, have to be prepared to deal with the controversy of the industry that points to risk management implications.
Incidents that impact cannabis businesses can cause irrevocable financial and reputational damage:
Product liability includes but is not limited to breach of warranty, failure to warn, label claims, misrepresentation, fungus, pesticides, and vaporizers.
Claims of illness caused by products, manufacturing or product-related defects that result in a loss, and damage because product misuse are very common occurrences in the cannabis industry.
A recent vaping crisis has increased the risk exposure and coverage gaps. Insurance carriers are now adding more exclusions for vape products, premium rates are increasing for product liability coverage.
Theft and Fraud
Many cannabis businesses remain cash only and that is a significant part of risk exposure for the industry, since they become the prime targets for theft and fraud. Also, the nature of these businesses makes them specifically vulnerable to theft.
Standard general liability policies, needed by all other businesses to protect themselves from lawsuits, were not created with the cannabis industry in mind, and since there is so much legal uncertainty it may be difficult for insurance companies to offer adequate general liability for those cannabis businesses that need it.
Crop loss is coverage for crops in the event of loss or damage by insured perils including fire, lightning and hail. It does hold an area for risk exposure in the cannabis industry different from other businesses.
Fire, theft, and sprinkler leakage are common threats most indoor crop insurance policies cover. Buty cannabis growers experience different threats as well, such as mold, rot, disease, changes in climate, or fertilization problems.
Because of recent natural disasters, outdoor coverage has become hard to find and those insurance companies with such policies have increased exponentially the prices. The lack of available outdoor crop insurance is one of the biggest gaps in cannabis business coverage.
What cannabis related industries need insurance coverage
Cultivators: Cultivators are confronted with a wide range of risk challenges including fire, theft, equipment breakdown and other inherent risks that impact the business.
Manufacturers: Manufacturers of hemp and cannabis products carry many of the same standards and regulatory requirements as other types of vendors. They require insurance protection such as product liability and product recall.
Dispensaries: Many retail stores of everyday consumer based products require insurance to protect themselves from burglary, vandalism, fire and other hazards that could strike at any moment, cannabis dispensaries are not the exception.
Ancillary businesses: Many ancillary businesses require insurance protection and they still suffer from the challenges and uncertainties all cannabis businesses face. They require general and professional liability, property, products and workers’ compensation insurance, among others.
Testing laboratories: Not properly insuring your cannabis testing lab could lead to massive financial losses that many business owners wouldn’t be able to recover from. testing equipment, computers, documents, or samples are expensive and important property that could be damaged in a fire, burglary, or other unpredictable events
Landlords: Landlords that support cannabis and hemp industries are also exposed to inherent challenges of the industry that put their businesses in risk.
In this Cannabis Legislation News episode we had the opportunity to talk to Patrick McManamon CEO of Cannasure, a cannabis insurance company that has been serving hundreds of cannabis businesses since 2010 and mitigating the challenges they face when trying to get insurance coverage
Their understanding of the industry and many years of expertise analyzing the unique risks facing the cannabis industry gives them a leverage to best serve cannabis and hemp related businesses.
The origins of Cannasure can be traced back to one of our oldest friends who was in the process of opening a medical marijuana cooperative in Southern California. During one of our weekly conversations, we discussed the trouble he was having securing business owner’s insurance at a reasonable cost. We offered to take over the search and report back to him on our findings. With that, we became involved in this complex industry.
We saw, first hand, that the stigma against the burgeoning marijuana industry was strong, but not based in fact. We also quickly became aware of the many brokers and agencies looking to make a quick buck without understanding the true needs of the businesses in the industry. We knew something had to change, and we were the ones to do it.
Don’t miss out on our Marijuana Legalization Map where you can browse the current status of laws in every state in the United States and see all our posts on each of them.
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