CannaRoyalty Announces its Third Quarter 2017 Financial Results

 In News Release

Ottawa, Canada – November 28, 2017 – CannaRoyalty Corp. (CSE: CRZ) (OTCQX: CNNRF) (“CannaRoyalty” or the “Company”) today announced the Company’s financial results for the three and nine-month periods ended September 30, 2017. All figures are reported in Canadian dollars ($), unless otherwise indicated. CannaRoyalty’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”).

“Q3 was a transitional period for our business as we focused on ramping up production of CR Brands products in California through River’s distribution network,” said Marc Lustig, CEO of CannaRoyalty. “Through our investees and wholly-owned subsidiaries, we now have a presence in seven key legal North American cannabis markets with specific exposure to value-added downstream segments including manufacturing, distribution, product development, technology, marketing and brands. The experience our team has gained over the past three years in most major North American markets has led us to phase two of our journey and to California.”

Marc added, “This morning, we announced the signing of binding term sheets to acquire two leading California cannabis companies that generated approximately C$12 million* in consolidated revenue to the end of October 2017. These acquisitions are transformative for CannaRoyalty, and will provide the Company with foundational assets to execute on our California expansion strategy. Our plan over the next twelve months is to leverage our current asset base, expertise and portfolio of brands to build a leading downstream cannabis consumer products business and generate revenue growth, with a focus on California. We have outlined this strategy in a shareholder letter below and in our MD&A.”

Recent Developments

For a comprehensive overview of CannaRoyalty’s top holdings, please refer to the Company’s Management’s Discussion and Analysis of the Financial Condition and Results of Operations for the Three and Nine Months Ended September 30, 2017. 

  • The Company recently launched its Soul Sugar Kitchen edibles products, which experienced rapid retail penetration in the initial launch and distribution period. Shortly after, the Company completed the first commercial production of its GreenRock Botanicals (“GRB”) vape pens. The Company will continue ramping up production of these products, as well as other products within its existing and growing CR Brands portfolio.
  • CR Brands is currently retrofitting its new Santa Rosa facility (the “Facility”) to produce the growing suite of CR Brands products for the California market. The Facility is located in a commercial complex with several tenants that have been licensed for cannabis production and distribution by the city of Santa Rosa, and the Company is in the process of applying for its own processing license. The Facility has significant capacity to accommodate growth in the CR Brands portfolio, and for the manufacture of additional products.
  • The Company executed a letter of intent to launch its CR Brands into the Nevada market, with a focus on Las Vegas. This was accomplished through a CR Advisory engagement with Æther Gardens that focuses on the production and launch of CR Brands products in the Nevada market. Æther Gardens is a vertically-integrated cannabis cultivator, extractor, and manufacturer based in Clark County, Nevada.
  • The Company’s investee, Resolve Digital Health, signed major exclusive product deals with Aphria Inc., one of Canada’s largest legal cannabis producers, and with Liberty Health Sciences Inc., an operator and investor in the medical cannabis market in Florida.
  • The Company’s investee, AltMed, was recently awarded an authorization to commence medical cannabis cultivation in Florida. There are only 12 other Medical Marijuana Treatment Center (MMTC) licensees in Florida, placing AltMed Florida in a uniquely competitive position, in a growing market that now has over 51,000 registered patients. Additionally, AltMed also opened its first Arizona dispensary during Q3, which has been ramping up its distribution and sales efforts.
  • On November 9, the Company announced that Mr. R. Wilkinson, the principal of Rich Extracts, was arrested in Nebraska for possession of marijuana with intent to distribute. The possession and distribution of marijuana are illegal in Nebraska. This development has accelerated the Company’s efforts to enforce on its security interest in Rich Extracts and remove Mr. Wilkinson from the Rich Extracts extraction business.
  • On November 23, 2017, the Company received its first draw of $3,000,000 from the Sprott Credit Facility and intends to use the funds for general corporate purposes.

 

* Last twelve months’ (“LTM”) revenues to October 31st, 2017, based on unaudited financial statements. This figure represents a consolidation of the LTM revenues for Kaya and Alta. Converted at 1.2735 USD/CAD based on November 27, 2017 Bank of Canada noon rate.

Financial Highlights – Q3-2017 

Revenue Components

 

 

Three months ended Three months ended Nine months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Products $ 298,866 $703,193
Services 41,451 314,594
Royalties 385,001 136,329 928,095 136,329
Interest 18,984 (8,622) 59,688 3,796
Total $744,302 $127,707 $2,005,570 $140,125

Revenue by Operating Division

Three months ended Three months ended Nine months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
CR Holdings $ 403,985 $ 127,707 $ 987,783 $ 140,125
CR Brands 298,866 703,193
CR Advisory 41,451 314,594
Total $744,302 $127,707 $2,005,570 $140,125

Income Statement

All comparisons below are to Q3-2016, unless otherwise noted

  • Revenues were $744,302 as compared to $127,707.
  • Gross margin was $128,010 as compared to $91,269.
  • Net loss per share of $0.08 as compared to $0.07.
  • Adjusted EBITDA1 loss of $1,762,145 as compared to a loss of $1,198,522.
  • Adjusted EBITDA1 loss per share of $0.04 as compared to a loss a $0.05.

 

Balance Sheet

All comparisons below are to December 31, 2016, unless otherwise noted

  • Total assets of $46,166,044 as compared to $32,197,938.
  • Total investments2 of $19,960,949 as compared to $8,363,922.
  • Cash and cash equivalents of $2,593,914 as compared to $2,945,895.

 

1Adjusted EBITDA and Adjusted EBITDA per share are non-IFRS measures. See “Adjusted EBITDA” in the Company’s Management’s Discussion and Analysis for the three and nine-month periods ended September 30, 2017.

2This represents the sum of investments, royalty investments, and interests in equity method investees

Top Holdings – Recent Updates

For a comprehensive overview of CannaRoyalty’s top holdings, please refer to the Company’s Management’s Discussion and Analysis of the Financial Condition and Results of Operations for the Three and Nine Months Ended September 30, 2017.

Regulatory Developments 

Two key regulatory events also occurred subsequent to the end of Q3.

  • First, both the Canadian Securities Exchange (“CSE”) and the Canadian Securities Administrators (“CSA”) released statements (CSA: Staff Notice 51-352; CSE: Press Release dated October 16) providing clarity and certainty for Canadian public companies with US cannabis activities, such as CannaRoyalty. Both the CSA and the CSE reinforced their rights to determine eligibility of listing companies that meet the relevant listing and eligibility requirements. The Company viewed both of these notices as favourable, as they provide increased transparency and certainty regarding the views of its exchange and its regulator of its existing operations and strategic business plan. On November 24, the TMX Group provided an update regarding issuers with U.S. marijuana-related activities. The update confirmed that the TMX Group will rely on the Canadian Securities Administrators’ recommendation to defer to individual exchange’s rules for companies that have U.S. marijuana-related activities and to determine the eligibility of individual issuers to list based on those exchanges’ listing requirements. The TMX also confirmed there is no current CDS ban on the clearing of securities of issuers with marijuana-related activities in the U.S.
  • The second regulatory event was the release of Health Canada’s Proposed Approach to the Regulation of Cannabis (the “Proposed Regulations”), which was released to the public on November 22, 2017. The Proposed Regulations contemplate a variety of cannabis product forms not currently allowed under the Access to Cannabis for Medical Purposes Regulations (the “ACMPR”), including: edible products containing cannabis (like food or beverages), pre-rolls, and cannabis concentrates including vaporizing solutions. The Proposed Regulations suggest these product forms are to be permitted after one year of the proposed Cannabis Act coming into effect, which is expected on or before July 1st, 2018. Accordingly, the Proposed Regulations provide a platform for CannaRoyalty to commercialize a significant portion of its products, brands, intellectual property, and know-how into the Canadian market.

Results of Operations (Summary)

The following tables set forth consolidated statements of financial information for the three and nine-month periods ending September 30, 2017 and September 30, 2016. For further information regarding the Company’s financial results for these periods, please refer to the Company’s Management’s Discussion and Analysis for the periods ended September 30, 2017 and September 30, 2016 and the Company’s Financial Statements for the periods ended September 30, 2017, published on CannaRoyalty’s issuer profile on SEDAR at www.sedar.com and the Company’s website at www.cannaroyalty.com 

Cost of sales by revenue type

Three months ended Three months ended Nine months ended Nine months ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Products $327,986 $688,917
Services 23,961 61,656
Royalties 264,345 36,438 460,833 48,422
Total $ 616,292 $ 36,438 $ 1,211,406 $ 48,422

Gross margin amounts and percentages by revenue type

  Three months ended Three months ended Nine months ended Nine months ended
  September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Products $(29,120) $14,276
Services 17,490 252,938
Royalties 120,656 99,891 467,262 87,907
Interest 18,984 (8,622) 59,688 3,796
Total $128,010 $91,269 $794,164 $91,703
   
  Three months ended Three months ended Nine months ended Nine months ended
  September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Products (10%) n/a 2% n/a
Services 42% n/a 80% n/a
Royalties 31% 73% 50% 64%
Interest 100% 100% 100% 100%
All Types 17% 71% 40% 65%

 

Operating Expenses

  Three months ended % Nine months ended %
  Sept 30, 2017 Sept 30, 2016 Change Sept 30, 2017 Sept 30, 2016 Change
Sales and marketing $422,362 $86,190 390% $1,068,443 $97,132 1000%
Research and development 275,839 168,498 64% 900,932 848,153 6%
General and administrative 1,943,675 1,670,264 16% 6,058,597 3,409,395 78%
Amortization of intangibles 193,063 n/a 601,413 n/a
Total $2,834,939 $1,924,952 47% $8,629,385 $4,354,680 98%

About CannaRoyalty

CannaRoyalty is an active investor and operator in the legal cannabis sector. Our focus is building and supporting a diversified portfolio of growth-ready assets in high-value segments of the cannabis sector, including research, consumer brands, devices and intellectual property. Our management team combines a hands-on understanding of the cannabis industry with seasoned financial know-how, assembling a platform of holdings via royalty agreements, equity interests, secured convertible debt, licensing agreements and its own branded portfolio.

For further inquiries, please contact:

Marc Lustig, CEO
info@cannaroyalty.com
1-844-556-5070

Jonathan Ross, CFA
LodeRock Advisors Inc.
jon.ross@loderockadvisors.com
416-283-0178


Forward Looking Statements
Statements in this news release that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed here and elsewhere in CannaRoyalty’s periodic filings with Canadian securities regulators. When used in this news release, words such as “will, could, plan, estimate, expect, intend, may, potential, believe, should,” and similar expressions, are forward- looking statements.
Forward-looking statements may include, without limitation, statements including the Company’s expectations with respect to pursuing new opportunities and its future growth and other statements of fact.
Although CannaRoyalty has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in the forward-looking statements, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended, including, but not limited to: dependence on obtaining regulatory approvals; investing in target companies or projects which have limited or no operating history and are engaged in activities currently considered illegal under US Federal Laws; changes in laws; limited operating history; reliance on management; requirements for additional financing; competition; hindering market growth and state adoption due to inconsistent public opinion and perception of the medical-use and adult-use marijuana industry and; regulatory or political change.
There can be no assurance that such information will prove to be accurate or that management’s expectations or estimates of future developments, circumstances or results will materialize. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events.
Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. CannaRoyalty disclaims any intention or obligation to update or revise such information, except as required by applicable law, and CannaRoyalty does not assume any liability for disclosure relating to any other company mentioned herein.