On June 29, 2020 Heritage Cannabis (CANN.C) released its financial results for Q2, 2020.
The days when cannabis companies could attract investors with cool stories (We’re the Apple-Store of Cannabis Dispensaries!) – is gone.
It’s not enough to own a Penticton grow-op the size of a bathtub.
Or to hold an option on a proprietary recipe for THC waffles.
You need revenues.
And a clear pathway to profitability.
Heritage isn’t profitable yet, but it is trending in the right direction and the losses ($1.9 million) are only 3% of its $64 million market cap.
Q2, 2020 Financial Highlights:
- Gross revenue was $1.4-million in the second quarter of 2020, compared with nil in the three-month period ended April 30, 2019.
- Net loss was $1.9-million in the second quarter of 2020, compared with a net loss of $5.2-million or two cents per common share in the second quarter of 2019.
- Cash and cash equivalents of $5.3-million and working capital of $13.1-million, compared with $11.5-million in cash and cash equivalents and working capital of $11.7-million at the end of fiscal year 2019.
Heritage owns two licensed Canadian producers, Voyage Cannabis and CannaCure, both of which also have industrial hemp licences. In July 2020 Voyage will be launching eight products (six vape cartridges and two tinctures) in the BC, Alberta and Manitoba markets.
Working under these licences, Heritage has two additional subsidiaries, a medical services division (which is focused on cannabis-based medical solutions) and Purefarma Solutions (which provides extraction services)
In May 2020 CANN announced that it will be launching its own series of formulated extraction products under the brand name Purefarma, “which will be sold through Voyage Cannabis, a licensed subsidiary of Heritage”.
Six weeks ago, Heritage announced that its subsidiary Voyage Cannabis has been given a cannabis oil sales license by Health Canada.
Voyage can sell weed products, including oil derivatives, to provincial cannabis boards as well as directly to patients in the medical market.
CANN’s proprietary extraction methodology uses high pressure systems and no harmful chemicals. Pending Health Canada product approvals, Heritage plans to launch a line of full spectrum CBD tinctures.
“Our extraction division, Purefarma, has built a reputation for quality and purity,” stated Clint Sharples, CEO of Heritage, “this license allows Voyage to offer these products directly to this growing market in addition to our contract manufacturing business.”
A week later, Voyage Cannabis was granted an industrial hemp license by Health Canada, allowing Voyage “to bulk store, as well as buy and sell industrial hemp, flowering heads, leaves or branches to other license holders, and to import and export grain”.
Q2, 2020 Operational Highlights:
Feb. 3, 2020, Heritage announced that it had entered into a term loan agreement with Trichome Financial Corp. for total proceeds of $6.7-million.
March 5, 2020: Advancement of J.V with Empower Clinics to perform hemp-based product manufacturing for proprietary formulations, giving CANN access to over 165,000 patients.
March 18, 2020: Due to Covid-19 disruptions, Heritage CEO taking 100% of his compensation as equity until further notice.
April 6, 2020: CannaCure granted an industrial hemp licence by Health Canada
April 13, 2020: Voyage granted a cannabis oil sales licence by Health Canada
April 23, 2020: Voyage was granted an industrial hemp licence by Health Canada
“We continued the advancement of our business strategy during the second quarter, with Health Canada granting a sales licence for Voyage and industrial hemp licences for both CannaCure and Voyage,” stated Sharples, “however, revenue in the quarter was significantly impacted by decreased orders for existing contract manufacturing services.”
Sharples admitted that the impacts of COVID-19 also delayed the signing of new agreements.
“During this time, the company took significant steps to ensure the continued strength of our balance sheet, which we believe will support the company through to actively launching our own branded products in July, 2020,” continued Sharples, “Management is confident that this launch, as well as additional potential contract manufacturing agreements, will lead to significantly improved revenue numbers in the future.”
On June 30, 2020 CANN announced that Voyage Cannabis has signed an agreement with True North for contract manufacturing services including biomass sourcing and the production of full spectrum cannabis oil and vape cartridge products.
Heritage customers will benefit from a unique consistency “between the strain profile of the biomass and the oil being produced”.
Voyage will produce CBD oil, 1-to-1 oil products, THC oil products, and a full spectrum vape cartridge for True North.
“As the market continues to evolve, we believe Heritage brings value to our partners through our proprietary cannabis extraction and formulation expertise,” stated Sharples.
“True North Agri is primarily focused on launching hemp derived CBD products through its retail sales network in Canada, US and UK leveraging relationships with processing partners like Heritage to offer premium products at competitive prices,” stated Darren Gill, CEO of True North.
When COVID-19 got its grip on Canada in March 2020, cannabis sales spiked dramatically.
But it turned out to be a “toilet-paper-buying-event” – panicky shoppers loading up on an essential item, in case inventories dried up.
Through April 2020, cannabis sales were flat.
In May, 2020 B.C. cannabis sales declined from $19.7 million in April to $19.4 million.
Despite COVID-19, CANN’s business is robust and its balance sheet healthy.
Full Disclosure: Heritage Cannabis is an Equity Guru marketing client.
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