First quarter sales growth of 171%, gross margin growth of 95%, and positive operating profit excluding transaction costs related to the Sundial-Alcanna transaction
EDMONTON, AB, May 9, 2022 /CNW/ – Nova Cannabis Inc. (the “Company” or “Nova”) (TSX: NOVC) today released its unaudited condensed interim consolidated financial statements (the “interim financial statements”) and management’s discussion and analysis (“MD&A”) for the three months ended March 31, 2022. All financial information in this press release is reported in millions of Canadian dollars and represents results from continuing operations, unless otherwise indicated.
“The Company’s Value Buds stores experienced strong sales through the first quarter of 2022, and gross margin improved sequentially from the fourth quarter of 2021,” said Marcie Kiziak, CEO of Nova.
Those results are a direct correlation of the consolidation and rationalization in the industry, which our disruptive pricing strategy was designed to withstand. It is our commitment to continue to improve operational efficiency and discipline in managing our retail stores while selling good cannabis affordably.
Marcie Kiziak, CEO of Nova
With the deep support and increased capital commitment from Sundial, our new majority shareholder, Nova is well positioned to extend its leadership position in Alberta, expand in Ontario, and continue our trajectory as one of Canada’s largest and fastest growing cannabis retailers by bringing best value prices to the heart of the cannabis market and encouraging greater migration from the illicit market.
FINANCIAL AND OPERATING HIGHLIGHTS
- Sales of $49.8 million, a 171% increase from the first quarter of 2021, and a 5% increase from the fourth quarter of 2021.
- Gross margin of $9.4 million, or 19% of sales, a 95% increase from the first quarter of 2021 and an improvement as a percentage of sales from 18% for the fourth quarter of 2021.
- Nova now has 80 stores open, an increase of six stores since January 1, 2022.
- Operating loss before depreciation, impairment and other costs of $0.2 million compared to $0.1 million for the first quarter of 2021. Which included $1.6 million of costs that were incurred as a result of the closing of the Sundial-Alcanna Transaction (described below) relating to D&O insurance, severance, accelerated share-based payment expense and legal fees.
- Increased revolving credit facility from a maximum of $5 million to a maximum of $10 million.
- Cash of $4.9 million as at March 31, 2022.
- Nova appointed Marcie Kiziak as its Chief Executive Officer on March 31, 2022.
SUNDIAL ACQUISITION OF ALCANNA
On October 7, 2021, Sundial Growers Inc. (“Sundial”) (NASDAQ: SNDL) entered into an arrangement agreement, as amended, to acquire all of the issued and outstanding common shares of Alcanna Inc. (“Alcanna”), Nova’s majority shareholder (the “Sundial-Alcanna Transaction”).
On March 31, 2022, Alcanna and Sundial completed the Sundial-Alcanna Transaction, and Sundial indirectly acquired an approximately 63% ownership interest in Nova, as Alcanna was the registered holder of 35,750,000 Nova common shares on March 31, 2022. Sundial is now Nova’s majority shareholder.
FIRST QUARTER 2022 FINANCIAL RESULTS
Sales increased 170.9% compared to the first quarter of 2021, to $49.8 million from $18.4 million. The increase is primarily due to the 27 retail cannabis stores that were opened since March 31, 2021, the 19 stores acquired late in the first quarter of 2021 as part of the business combination between YSS Corp. and Alcanna, and increased sales from stores that were re-branded to the Value Buds discount banner from “Nova Cannabis,” “YSS,” and “Sweet Tree” at various times throughout 2021.
Gross margin for the period was $9.4 million, up $4.6 million or 95.4%, from $4.8 million for the same period in the prior year. The gross margin as a percent of sales was 18.8% for the period compared to 26.0% in the first quarter of 2021. During the comparative period for 2021, the stores were operated under the Nova Cannabis, YSS and Sweet Tree banners with a different operating, pricing and margin strategy than in the first quarter of 2022 when sales came primarily from the stores converted to the Value Buds discount banner.
Operating loss before depreciation, impairment and other costs
Operating loss before depreciation, impairment and other costs for the three months ended March 31, 2022 was $0.2 million compared to $0.1 million in the first quarter of 2021. Included in this loss was $1.6 million of costs that were incurred as a result of the closing of the Sundial-Alcanna Transaction relating to D&O insurance, severance, accelerated share-based payment expense and legal fees. Excluding these expenses, the increased profit before depreciation, impairment and other costs is primarily a result of the increase in sales and gross margin for the three months ended March 31, 2022.
Net loss and comprehensive loss
For the three months ended March 31, 2022, the Company recorded a net loss of $3.5 million compared to a $2.2 million net loss in the first quarter of 2021. Included in this loss was $1.6 million of costs that were incurred as a result of the closing of the Sundial-Alcanna Transaction relating to D&O insurance, severance, accelerated share-based payment expense and legal fees. Excluding these expenses, the reduced net loss that would have resulted but for the costs associated with the Sundial-Alcanna Transaction is primarily a result of the increase in sales and gross margin for the three months ended March 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES
Revolving Credit Facility
Effective November 1, 2020, Nova Cannabis Stores Limited Partnership (“NCS LP”), a wholly-owned subsidiary of Nova, entered into an uncommitted revolving credit facility with Alcanna, which as of March 31, 2022 is now a wholly-owned subsidiary of Sundial, in an aggregate principal amount not to exceed $5.0 million (the “Credit Facility”), unless increased to a maximum revolving facility amount of $10.0 million upon prior written notice to, and approval from, Alcanna. On May 2, 2022, Nova and Alcanna agreed to increase the aggregate principal amount of the Credit Facility to $10.0 million. As at May 9, 2022, $5.0 million in principal and accrued but unpaid interest is outstanding on the Credit Facility.
Nova will host a conference call and webcast at 11 a.m. EDT (9 a.m. MDT) on Tuesday, May 10, 2022.
To access the live webcast of the call, please visit the following link: https://services.choruscall.ca/links/novacannabis2022q1.html
The webcast archive will be available for three months via the link provided above.
A telephone replay will be available for one month. To access the replay dial:
Canada/USA Toll Free: 1-800-319-6413 or International Toll: +1-604-638-9010
When prompted, enter Replay Access Code: 8961#
For further information, refer to the Company’s interim financial statements and MD&A for the three months ended March 31, 2022, which are available from the Company’s profile on SEDAR, at www.sedar.com, or on the Company’s website at www.novacannabis.ca.
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