August 24, 2017 06:30 ET
Reports further portfolio expansion and beginning of revenue growth
OTTAWA, ONTARIO--(Marketwired - Aug. 24, 2017) - CannaRoyalty Corp. (CSE:CRZ)(CSE:CRZ.CN)(CNSX:CRZ)(OTCQX:CNNRF) ("CannaRoyalty" or the "Company") today announced the Company's financial results for the three and six-month periods ended June 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").
"CannaRoyalty is positioned to drive shareholder value as the North American regulatory approach to cannabis evolves and as the Company continues to build its platform of complementary, value-add cannabis assets in key industry verticals," said Marc Lustig, CEO of CannaRoyalty. "During the second quarter, we continued to expand our balance sheet with targeted investments. We also announced partnerships with key cannabis and investment-industry leaders, further demonstrating that we are rapidly becoming a premier provider of capital and advisory services within the North American cannabis industry. In the coming months, we will continue to add to our portfolio in key focus areas while leveraging the strength of our CR Advisory and CR Brands divisions to generate synergies for portfolio companies and drive results for our shareholders."
Financial Highlights - Q2-2017
Balance Sheet
All comparisons below are to December 31, 2016, unless otherwise noted
Revenue Components
| Three months ended June 30, 2017 |
Three months ended June 30, 2016 |
Six months ended June 30, 2017 |
Six months ended June 30, 2016 |
|||||
| Product sales | $ | 372,993 | $ | - | $ | 404,328 | $ | - |
| Services | 232,574 | - | 273,142 | - | ||||
| Royalties | 332,630 | - | 543,094 | - | ||||
| Interest income | 21,960 | 12,418 | 40,704 | 12,418 | ||||
| Total | $ | 960,157 | $ | 12,418 | $ | 1,261,268 | $ | 12,418 |
Income Statement
All comparisons below are to Q2-2016, unless otherwise noted
1 Adjusted 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 six-month periods ended June 30, 2017.
2 This represents the sum of investments, royalty investments, and interests in equity method investees
Notable Developments - Q2-2017
Top Holdings Review - Q2 2017
CR Holdings
CR Holdings includes controlled equity holdings, minority equity holdings and royalty interests.
River Collective ("River") - Royalty on net sales (December 2024), CR Brands purchase agreement.
Anandia Laboratories - 20% equity position.
Wagner Dimas - 20% equity position.
Resolve Digital Health ("Resolve") - 27.2% equity position.
Rich Extracts - Royalty on gross sales in perpetuity.
Cascadia Holdings - Royalty on gross rental income in perpetuity.
Alternative Medical Enterprises, LLC ("AltMed") - 8.3% equity position, Royalty on net sales of MüV products (July 2026).
Farmacopia Inc. ("Farmacopia") - minority equity position.
CR Brands
CR Brands includes a portfolio of wholly owned and licensed brands that cover high growth segments of the cannabis sector including vaping, pre-rolls, edibles, topicals, medical devices, concentrates and animal health.
Natural Ventures PR, LLC ("Natural Ventures") - Licencing Partner
River - Royalty on net sales (December 2024), CR Brands purchase agreement
Dreamcatcher Labs Inc. ("Dreamcatcher") - 100% wholly-owned subsidiary of CannaRoyalty.
The Terpistry™ - Wholly-owned CannaRoyalty venture.
CR Advisory
CR Advisory offers a suite of services with the objective of assisting investees and partners in accelerating the commercialization of their product(s) or services, and ultimately in leveraging their unique selling proposition to create a leadership position in their chosen niche within the global cannabis industry.
Results of Operations (Summary)
The following tables set forth consolidated statements of financial information for the three and six-month periods ending June 30, 2017 and June 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 June 30, 2017 and the Company's Financial Statements for the periods ended June 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 and Gross Margin
| Three months ended | Three months ended | Six months ended | Six months ended | |||||
| June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||
| Cost of product sales | $ | 360,931 | $ | - | $ | 360,931 | $ | - |
| Cost of service | 25,885 | - | 37,695 | - | ||||
| Cost of royalties | 151,660 | 11,984 | 196,488 | 11,984 | ||||
| Total | $ | 538,476 | $ | 11,984 | $ | 595,114 | $ | 11,984 |
| Three months ended | Three months ended | Six months ended | Six months ended | |
| June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |
| Cost of product sales | 3% | n/a | 11% | n/a |
| Cost of service | 89% | n/a | 86% | n/a |
| Cost of royalties | 54% | n/a | 64% | n/a |
| Total | 44% | 3% | 53% | 3% |
Operating Expenses
| Three months ended June 30, 2017 |
Three Months Ended June 30, 2016 |
% Change |
|||
| Sales and marketing | $ | 409,221 | $ | 2,939 | 13824% |
| Research and development | 148,852 | 161,272 | -8% | ||
| General and administrative | 1,977,734 | 763,444 | 159% | ||
| Amortization of intangibles | 205,878 | - | n/a | ||
| Total | $ | 2,741,685 | $ | 927,655 | 196% |
Operating Expenses (continued)
| Six months ended June 30, 2017 |
Six months ended June 30, 2016 |
% Change |
|||
| Sales and marketing | $ | 646,081 | $ | 10,942 | 5805% |
| Research and development | 625,093 | 679,655 | -8% | ||
| General and administrative | 4,114,922 | 1,739,131 | 137% | ||
| Amortization of intangibles | 408,350 | - | n/a | ||
| Total | $ | 5,794,446 | $ | 2,429,728 | 138% |
Adjusted EBITDA1
| Three months ended | Six months ended | ||||||||||||
| June 30 | June 30 | June 30 | June 30 | ||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||
| Net loss for the period | $ | (2,467,511 | ) | $ | (1,043,173 | ) | $ | (4,521,296 | ) | $ | (2,779,338 | ) | |
| Add (Subtract) | |||||||||||||
| Amortization of property and equipment | 49,456 | 11,984 | 91,198 | 11,984 | |||||||||
| Amortization of intangible assets | 205,878 | - | 408,350 | - | |||||||||
| Amortization of royalty investments | 144,271 | - | 165,392 | - | |||||||||
| Interest expense | 18,499 | 104,521 | 36,119 | 273,807 | |||||||||
| Interest income | (21,960 | ) | (12,418 | ) | (40,704 | ) | (12,418 | ) | |||||
| Deferred income tax recovery | (78,681 | ) | - | (157,053 | ) | - | |||||||
| EBITDA | $ | (2,150,048 | ) | (939,086 | ) | (4,017,994 | ) | (2,505,965 | ) | ||||
| Listing expense | - | - | 38,193 | - | |||||||||
| Penalties from non-completion of transactions | 37,578 | - | 221,053 | - | |||||||||
| (Gain) loss on reclassification to assets held for sale | 10,000 | - | (88,674 | ) | - | ||||||||
| Share based compensation | 645,816 | 89,385 | 1,804,212 | 89,385 | |||||||||
| Gain on dilution of equity accounted investment | - | - | (1,132,107 | ) | - | ||||||||
| TOTAL ADJUSTED EBITDA | $ | (1,456,654 | ) | $ | (849,701 | ) | $ | (3,175,317 | ) | $ | (2,416,580 | ) | |
| Weighted average number of common shares outstanding - basic and diluted | 41,829,704 | 18,242,358 | 40,356,024 | 15,887,594 | |||||||||
| ADJUSTED EBITDA per share - basic and diluted | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.08 | ) | $ | (0.15 | ) | |
1EBITDA, Adjusted 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 six-month periods ended June 30, 2017.
Share Capital
The Company's authorized share capital is an unlimited number of common shares of which 41,948,495 were issued and outstanding as at June 30, 2017 (December 31, 2016 - 36,006,956 common shares). The Company has issued 3,053,028 RSUs that have not been exercised as at June 30, 2017 including 1,210,465 that have vested (December 31, 2016 - 2,774,800 including 1,065,637 that have vested). As of June 30, 2017, there are share purchase warrants and broker warrants outstanding that can potentially be converted to 5,550,212 shares (December 31, 2016 - 1,113,633).
Conference Call
CannaRoyalty will host a conference call later today, Thursday, August 24, 2017 at 8:30 a.m. (Eastern Time) to discuss its 2017 second quarter financial results. The call will be chaired by Marc Lustig, Chief Executive Officer and François Perrault, Chief Financial Officer.
| Participant Dial-in | Webcast | Reference Number | ||||
| Conference Call | 647-427-7450; or 1-888-231-8191 |
http://bit.ly/2uEdwyi | ||||
| Replay (available for 2 weeks) |
416-849-0833; 613-667-0035; or 1-855-859-2056 |
61940416 |
Zenabis Share Issuance
The company has issued today an aggregate of 333,402 common shares to Zenabis Limited Partnership ("Zenabis"), pursuant to a previously disclosed arrangement. Of the shares, 243,902 were issued in satisfaction of a $500,000 cash advance by Zenabis in Q4 2016 for a share subscription at a price of $2.05 per share. The remaining 89,500 shares were issued in satisfaction of a penalty obligation to CannaRoyalty for non-completion of a previously disclosed share exchange transaction with Zenabis.
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.
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.
Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
In Canadian dollars
| Three months ended | Six months ended | ||||||||||||
| June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | ||||||||||
| Revenue | $ | 960,157 | $ | 12,418 | $ | 1,261,268 | $ | 12,418 | |||||
| Cost of sales | (538,476 | ) | (11,984 | ) | (595,114 | ) | (11,984 | ) | |||||
| Gross margin | 421,681 | 434 | 666,154 | 434 | |||||||||
| Operating expenses | |||||||||||||
| Sales and marketing | 409,221 | 2,939 | 646,081 | 10,942 | |||||||||
| Research and development | 148,852 | 161,272 | 625,093 | 679,655 | |||||||||
| General and administrative | 1,977,734 | 763,444 | 4,114,922 | 1,739,131 | |||||||||
| Amortization of brands and technologies | 205,878 | - | 408,350 | - | |||||||||
| Loss from operations | (2,320,004 | ) | (927,221 | ) | (5,128,292 | ) | (2,429,294 | ) | |||||
| Other income (expenses) | |||||||||||||
| Gain (loss) on reclassification to assets held for sale | (10,000 | ) | - | 88,674 | - | ||||||||
| Profit (loss) from equity accounted investees, net of tax | (98,483 | ) | - | 843,914 | - | ||||||||
| Penalties from non-completion of transactions | (37,578 | ) | - | (221,053 | ) | - | |||||||
| Listing expense | - | - | (38,193 | ) | - | ||||||||
| Foreign exchange loss | (61,628 | ) | (11,431 | ) | (187,280 | ) | (76,237 | ) | |||||
| Interest expense | (18,499 | ) | (104,521 | ) | (36,119 | ) | (273,807 | ) | |||||
| Net loss before tax | (2,546,192 | ) | (1,043,173 | ) | (4,678,349 | ) | (2,779,338 | ) | |||||
| Deferred tax recovery | 78,681 | - | 157,053 | - | |||||||||
| Net and comprehensive loss for the period | $ | (2,467,511 | ) | $ | (1,043,173 | ) | $ | (4,521,296 | ) | $ | (2,779,338 | ) | |
| Net loss per common share - basic and diluted | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.11 | ) | $ | (0.17 | ) | |
| Weighted average number of common shares outstanding | 41,829,704 | 18,242,358 | 40,356,024 | 15,887,594 | |||||||||
| - basic and diluted | |||||||||||||
| Net and comprehensive loss for the period attributable to: | |||||||||||||
| Owners of the company | $ | (2,455,709 | ) | $ | (1,043,173 | ) | $ | (4,493,679 | ) | $ | (2,779,338 | ) | |
| Attributable to non-controlling interest | (11,802 | ) | - | (27,617 | ) | - | |||||||
| $ | (2,467,511 | ) | $ | (1,043,173 | ) | $ | (4,521,296 | ) | $ | (2,779,338 | ) | ||
Unaudited Condensed Interim Consolidated Statements of Financial Position
In Canadian dollars
| June 30, 2017 | December 31, 2016 | |||||
| ASSETS | ||||||
| Current | ||||||
| Cash and equivalents | $ | 6,441,303 | $ | 2,945,895 | ||
| Amounts receivable | 1,307,101 | 556,170 | ||||
| Inventory | 713,858 | 641,350 | ||||
| Prepaid and other assets | 2,129,254 | 110,834 | ||||
| Loans receivable | 1,180,350 | 2,943,161 | ||||
| Assets held for sale | 333,160 | - | ||||
| 12,105,026 | 7,197,410 | |||||
| Convertible notes receivable | 887,054 | 864,806 | ||||
| Derivative assets | 96,852 | 114,505 | ||||
| Interest in equity accounted investees | 8,012,147 | 3,541,281 | ||||
| Investments | 2,228,750 | 2,228,750 | ||||
| Royalty investments | 12,088,130 | 2,593,891 | ||||
| Property and equipment | 1,165,198 | 1,393,112 | ||||
| Intangible assets and goodwill | 13,435,194 | 14,264,183 | ||||
| 37,913,325 | 25,000,528 | |||||
| $ | 50,018,351 | $ | 32,197,938 | |||
| LIABILITIES | ||||||
| Current | ||||||
| Amounts payable and accrued liabilities | $ | 5,057,112 | $ | 1,886,189 | ||
| Loan payable | 437,260 | 451,618 | ||||
| 5,494,372 | 2,337,807 | |||||
| Convertible debt | 1,464,690 | 1,414,414 | ||||
| Derivative liabilities | 84,559 | 100,586 | ||||
| Deferred tax liability | 2,957,138 | 3,001,766 | ||||
| $ | 10,000,759 | $ | 6,854,573 | |||
| SHAREHOLDERS' EQUITY | ||||||
| Share capital | $ | 44,067,512 | $ | 30,636,253 | ||
| Shares and contingent shares to be issued | 2,510,000 | 4,520,000 | ||||
| Warrants reserve | 5,217,805 | 628,623 | ||||
| Contributed surplus | 6,876,799 | 3,154,582 | ||||
| Foreign currency translation adjustment | (639,897 | ) | (102,762 | ) | ||
| Accumulated deficit | (17,984,006 | ) | (13,490,327 | ) | ||
| Non-controlling interest | (30,621 | ) | (3,004 | ) | ||
| 40,017,592 | 25,343,365 | |||||
| $ | 50,018,351 | $ | 32,197,938 | |||
Unaudited Condensed Interim Consolidated Statements of Cash Flows
In Canadian dollars
| Three months ended | Six months ended | ||||||||||||
| June 30, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | ||||||||||
| CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES | |||||||||||||
| Comprehensive loss for the period | $ | (2,467,511 | ) | $ | (1,043,273 | ) | $ | (4,521,296 | ) | $ | (2,779,438 | ) | |
| Items not affecting cash: | |||||||||||||
| Bad debts recovery | 99 | - | (13,219 | ) | - | ||||||||
| Income (loss) from equity accounted investees | 98,483 | - | (843,914 | ) | - | ||||||||
| Amortization of property and equipment | 49,456 | 11,984 | 91,198 | 11,984 | |||||||||
| Amortization of intangibles | 205,878 | - | 408,350 | - | |||||||||
| Amortization of royalties | 144,271 | - | 165,392 | - | |||||||||
| Share based compensation | 645,816 | 89,385 | 1,804,212 | 89,385 | |||||||||
| Deferred tax recovery | (78,681 | ) | - | (157,053 | ) | - | |||||||
| (Gain) loss on reclassification to assets held for sale | 10,000 | - | (88,674 | ) | - | ||||||||
| (1,392,189 | ) | (941,904 | ) | (3,155,004 | ) | (2,678,069 | ) | ||||||
| Changes in non-cash items relating to operations: | |||||||||||||
| Increase in amounts receivable | (497,458 | ) | (12,500 | ) | (747,099 | ) | (12,500 | ) | |||||
| Increase in inventory | (113,593 | ) | - | (72,508 | ) | - | |||||||
| Decrease (increase) in prepaid and other assets | (37,102 | ) | 5,833 | (96,020 | ) | (63,661 | ) | ||||||
| Increase (decrease) in accounts payable and accruals | (369,801 | ) | (181,428 | ) | (794,122 | ) | 882,653 | ||||||
| (2,410,143 | ) | (1,129,999 | ) | (4,864,753 | ) | (1,871,577 | ) | ||||||
| CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES | |||||||||||||
| Purchase of property and equipment | (61,710 | ) | (66,796 | ) | (132,014 | ) | (140,614 | ) | |||||
| Increase in share subscription receivable | - | - | - | (2,500 | ) | ||||||||
| Purchase of equity investments | - | (589,970 | ) | (1,601,218 | ) | (683,760 | ) | ||||||
| Purchase of Royalty Investment | (2,750,631 | ) | (194,188 | ) | (2,750,631 | ) | (194,188 | ) | |||||
| Purchase of Intangible asstes | - | (17,062 | ) | - | (17,062 | ) | |||||||
| Loans advanced to debtors, net of repayment | (476,265 | ) | (801,457 | ) | (1,140,800 | ) | (801,457 | ) | |||||
| Convertible loans advanced to debtors, net of repayment | - | (166,282 | ) | - | (296,269 | ) | |||||||
| (3,288,606 | ) | (1,835,755 | ) | (5,624,663 | ) | (2,135,850 | ) | ||||||
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES | |||||||||||||
| Proceeds from shares in private placements, net of issuance costs | - | 3,053,121 | - | 5,501,153 | |||||||||
| Proceeds from shares in bought deal financing, net of issuance costs | (4,806 | ) | - | 10,958,243 | - | ||||||||
| Proceeds from issuance of warrants, including broker warrants | - | - | 2,787,000 | - | |||||||||
| Proceeds from exercise of warrants | 262,842 | - | 292,092 | - | |||||||||
| Proceeds from issuance of stock options | - | - | 25,000 | - | |||||||||
| Net advances / (repayment to) lenders | 216,401 | - | (558,238 | ) | |||||||||
| Tax withholding paid on exercise of restricted share units | (64,401 | ) | - | (77,511 | ) | - | |||||||
| Decrease in share subscriptions payable | - | - | - | (684,486 | ) | ||||||||
| 193,635 | 3,269,522 | 13,984,824 | 4,258,429 | ||||||||||
| INCREASE (DECREASE) IN CASH | (5,505,114 | ) | 303,768 | 3,495,408 | 251,002 | ||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 11,946,417 | 6,157 | 2,945,895 | 58,923 | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 6,441,303 | $ | 309,925 | $ | 6,441,303 | $ | 309,925 | |||||