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Investor Ideas Potcasts, Cannabis News and Stocks on the Move; Episode 391

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Mar 30, 2020 (Investorideas.com via COMTEX) -- Delta, Kelowna, BC - March 30, 2020 (Investorideas.com Newswire) www.Investorideas.com , a global news source covering leading sectors including marijuana and hemp stocks and its potcast site, www.potcasts.ca release today's podcast edition of cannabis news and stocks to watch plus insight from thought leaders and experts.

Listen to the podcast:

https://www.investorideas.com/Audio/Podcasts/2020/033020-StocksToWatch.mp3

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Hear Investor ideas cannabis potcast on iTunes

Today's podcast overview/transcript:

Good afternoon and welcome to another episode of Investorideas.com "Potcast" featuring cannabis news, stocks to watch as well as insights from thought leaders and experts.

In today's podcast we are looking at a few public announcements.

HEXO Corp. ( TSX: HEXO ) ( NYSE: HEXO ) today reported its financial results for the second quarter fiscal 2020 ended January 31, 2020.

"We have continued our focus on improving our operations and expanding distribution across Canada. Our strategy with Original Stash has demonstrated that we can directly compete with the black market," said Sebastien St-Louis, CEO and co-founder of HEXO Corp. "The industry continues to see challenges ahead, and following a strategic review of the Company's core and non-core assets we believe we have positioned HEXO to meet these challenges head on."

Gross revenue increased 23% to $23.8M from $19.3M in Q1'20. Net revenue increased 17% to $17.0M from $14.5M in Q1'20.

Adult-use cannabis shipped revenue in Q2'20 increased 21% to $24.4M from $20.2M in Q1'20. Net adult use revenue increased 20% to $16.3M from $13.6M in Q1'20. The primary driver of the increase in sales during the quarter was the launch of Original Stash in Ontario, British Columbia and Alberta during the quarter, and the increase volume sold in Quebec. Adult use sales volume in Q2'20 increased 57% to 6,579 kg from 4,196 kg sold in the prior quarter.

Gross adult-use revenue per gram equivalent decreased to $3.49 in Q2'20 from $4.35 in Q1'20, reflecting the impact of the increasing portfolio share of Original Stash, the Company's value brand. The adult-use net revenue per gram equivalent decreased to $2.47 in Q2'20 from $3.24 in Q1'20.

Gross margin before fair value adjustments for Q2'20 was $5.7M or 33% of net revenue from sale of goods, compared to $4.6M and 31% in the prior quarter.

The Company incurred an write down on inventory of $16.1M during Q2'20 compared with $23.0M during Q1'20. The write down was realized on the Company's inventory in comprised of the following;

  • Write down of surplus cannabis trim (trim is primarily used for extraction purposes) and milled products in the amount of $3.1M due to an excess of stock relative to the Company's short-term demand for cannabis distillate production; and

  • Write down of concentrated bulk purchase of $11.8M, in part to an oversupply in the bulk product market, of which lowered the value when compared to the contracted price. The bulk product was acquired through a supply agreement, which is currently the subject of litigation and is alleged to be void as it was negotiated in bad faith at prices well in excess of market.

  • Write down in the amount of $1.2M was recognized due to sunk costs related to packaging reconfiguration.

Operating expenses increased to $281.5M compared with $39.5M in Q1'20. Included in operating expenses, are certain expenses which management believes are expenses that are non-recurring or non-cash and related to significant changes in market conditions. Included in these expenses are:

  • Restructuring costs - During the quarter the Company incurred restructuring costs in the amount of $0.3M associated to the rightsizing of operations that took place in Q1'20.

  • Impairments of property, plant and equipment and intangible assets - Subsequent to the end of the quarter, after completing a strategic review of its cultivation capacity, the Company made the decision to list the Niagara facility for sale. As a result of the decision to sell, the Company undertook impairment testing of the facility, its property, plant and equipment, and the intangible assets acquired from Newstrike Brands Ltd. The Company determined that an impairment loss of $138.3M was required.

  • Impairment of goodwill - As at January 31, 2020, the carrying amount of the Company's total net assets significantly exceeded the Company's market capitalization. In addition, slower than expected retail store roll outs in Canada and delays in government approval for cannabis derivative products resulted in a constrained distribution channels which have adversely affected overall market sales and profitability. As a result of these factors, management performed an indicator-based impairment test of goodwill as at January 31, 2020. As a result of this assessment, the Company recorded an impairment in goodwill of $111.9M.

  • Realization of onerous contract - The Company recorded a $3.0M realization as the result of an onerous contract which is currently the subject of litigation.

When normalized for these non-recurring or non-cash expenses related to significant changes in market conditions, the company reports normalized operating expenses of $28.1M, compared with $35.1M in Q1'20. A 21% decrease as the result of a decrease in marketing expenditures and headcount, as the Company continues to reduce previous spending levels to refocus operations on becoming adjusted EBITDA positive. When normalized for other non-cash expenses the company reports normalized operating expenses of $16.1M, compared to $23.9M in Q1'20.

Loss from operations for the quarter was ($289.4M), compared with ($60.6M) in the prior period. Excluding non-cash write downs and impairment charges in Q2'20, adjusted net loss was ($23.2M) compared with ($34.0M) in Q1'20.

IM Cannabis Corp. ( CSE:IMCC ), one of the world's pioneering medical cannabis companies with operations in Israel and across Europe, announced that Focus Medical Herbs Ltd., a licensed medical cannabis producer in Israel, has signed a binding three-year sales agreement for the sale of medical cannabis to three pharmacies in Jerusalem operating under the Oranim Pharm and Medi Plus banners. Focus Medical is one of eight original licensed producers in Israel and has over 10 years of experience growing high quality medical cannabis in the Israeli market. Focus Medical has an exclusive commercial agreement with IMC to distribute its production under the IMC brand.

The total value of the Sales Agreement is expected to result in approximately CAD$15 million in revenue, with an expected gross margin of 50%.1

"IMC has long been recognized as a premium medical cannabis brand and this sales agreement reflects ongoing demand for quality products from well-known producers. As the medical cannabis market transitions from direct sales by licensed producers to a pharmacy model and with the government increasing the number of indications that qualify for medical cannabis treatment, we expect to continue to evaluate partnerships of this nature with leading pharmacies across Israel," says Oren Shuster, Chief Executive Officer of IMC.

1933 Industries Inc. ( CSE: TGIF ) ( OTCQX: TGIFF ), a vertically-integrated cannabis consumer packaged goods company, announced that it has begun its second harvest of cannabis plants from its cultivation facility located in Las Vegas, marking the beginning of continuous harvests in Nevada.

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