Nova Announces Third Quarter 2022 Results
Third quarter sales growth of 52%, gross margin growth of 71%, and positive operating profit
EDMONTON, AB, Nov. 7, 2022 /CNW/ – Nova Cannabis Inc. (the “Company” or “Nova”) (TSX: NOVC) today released its unaudited interim consolidated financial statements (the “interim financial statements”) and management’s discussion and analysis (“MD&A”) for the three months ended September 30, 2022. All financial information in this press release is reported in millions of Canadian dollars unless otherwise noted and represents results from continuing operations, unless otherwise indicated.
Our team continues to execute against our plan, and this shows in our third quarter results, which feature record sales for the quarter.
Marcie Kiziak, CEO of Nova
Our encouraging results come despite hyper-competitive cannabis retail markets across the country along with inflationary pressures and capital markets disruption. We are excited about our private label launch and believe that, along with our expanded data agreement program, our gross margin should continue to increase in the quarters to come.
We see significant market share in the province of Alberta where Value Buds has captured 21.5% of market share with a 58-store footprint, and we are noticing an increase in market share in Ontario with 2.9% in August of 2022 with only 23 stores.”
- Record sales of $58.9 million, a 52.4% increase from the third quarter of 2021, and a 4.6% increase from the second quarter of 2022.
- Gross margin of $11.1 million, or 18.9% of sales, a 70.8% increase from the third quarter of 2021 and consistent with the gross margin percentage for the second quarter of 2022.
- 85 stores currently operating at the date of this release, an increase of five stores since June 30, 2022, and 11 stores since the beginning of 2022.
- Nova’s market share has increased to 21.5% in Alberta and 2.9% in Ontario in Q3 2022 from 18.9% and 2.1% in Q3 2021, respectively, based on management’s estimates using industry data available1.
- Value Buds’ private label offerings is expected to launch at the end of November 2022.
- Liquidity, including cash and credit facility availability, of $11.6 million as at September 30, 2022.
1 Source: Statistics Canada: Retail trade sales by province and territory
Sales increased 52.4% compared to the third quarter of 2021, to $58.9 million from $38.7 million. The increase is primarily due to the 29 retail cannabis stores that were opened since June 30, 2021, 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. Sales for the three months ended September 30, 2022, included $1.4 million related to proprietary licensing arrangements compared to $0.2 million in the third quarter of 2021. Sales related to proprietary licensing arrangements increased 7.2% in the third quarter of 2022 compared to the Q2 2022 due to growth of the store network.
Gross margin for the period was $11.1 million, up $4.6 million or 70.8%, from $6.5 million for the same period in the prior year. Total gross margin as a percent of sales was 18.9% for the period (Q3 2021 – 16.9%), of which 2.4% (Q3 2021 – 0.6%) related to proprietary licensing arrangements which have no significant cost of sales. The gross margin as a percent of sales from retail sales remained relatively flat compared to the same period in the prior year as a result of converting most locations to the Value Buds discount banner in Q2 2021 compared to the former “Nova Cannabis”, “YSS” and “Sweet Tree” banners which operated under a different operating, pricing, and margin strategy. During the current year, the Company revised prices at certain retail locations where the competitive response has waned which contributed to the increase in gross margin percentage.
Operating profit excluding depreciation, impairment and other costs for the three months ended September 30, 2022, was $2.3 million (Q3 2021 – $1.0 million loss). The increase is primarily a result of the increase in sales and gross margin and decrease in administrative expenses, partially offset by an increase in selling and distribution expenses of $1.7 million to $7.4 million in the current period resulting from operating a larger number of stores. However, selling and distribution expenses as a percentage of sales decreased from 14.7% to 12.6% due to increased sales and cost efficiencies in the current period.
For the three months ended September 30, 2022, the Company recorded a net loss of $1.5 million compared to a $6.2 million loss in the third quarter of 2021 and $1.4 million loss in the second quarter of 2022. The reduction in loss compared to Q3 2022 is primarily a result of the increase in sales and gross margin for the three months ended September 30, 2022. The increase in net loss from Q2 2022 related to changes in certain non-cash fair value adjustments recognized in the prior quarter.
Nova has an uncommitted revolving credit facility with SNDL Inc. (“SNDL“) in an aggregate principal amount not to exceed $15.0 million (the “Credit Facility“). On October 31, 2022, the term of the Credit Facility was extended to April 30, 2023.
As at November 7, 2022, $9.8 million in principal and accrued interest was outstanding on the Credit Facility.
On July 22, 2022, the Company announced the establishment of an at-the-market equity offering program (the “ATM Program“) that allows the Company to issue up to $20.0 million of common shares from treasury to the public at the discretion of the Company and subject to regulatory requirements. Any common shares sold through the ATM Program will be sold at prevailing market prices when issued in ordinary broker’s transactions on the TSX, or another Canadian marketplace on which the common shares are listed, quoted, or otherwise traded. No common shares have been issued through the ATM Program to date due to the current market conditions in the cannabis equity markets. The ATM Program provides Nova optionality to access additional capital if needed.
Nova’s strategy is to be one of the largest and fastest-growing cannabis retailers in Canada. Its goal is to disrupt and strengthen the cannabis retail market by promoting a wide range of cannabis products at everyday best-value prices, while encouraging greater migration from the illicit cannabis market. The Company’s strategy is rooted in the quality of its store footprint and locations, the sales efficiency of Nova stores, and the appeal of the Value Buds brand. Nova continues to remain disciplined, and customer focused by choosing the best real estate for its strategy – whether through acquiring stores or building its own.
- The Company partnered with SNDL for Value Buds’ private label strategy, expected to launch in November 2022. The private label strategy enables Nova to develop higher gross margin offerings, build product brand loyalty and long-term brand awareness. The white label strategy focuses on keystone segments, specifically large format, uniquely curated for the Value Buds consumer, and drives meaningful differentiation through the retail network.
- The Company continues to remain aggressive with its pricing strategy to capture further market share. Nova has begun to increase pricing across all categories in Alberta to test elasticity and understand consumer buying trends and expects higher margin results in the fourth quarter of 2022.
- Nova expects to add three more stores in Alberta and Ontario in the remainder of 2022 and early 2023.
Nova will host a conference call and webcast at 10:30 a.m. EDT (8:30 a.m. MDT) on Tuesday, November 8, 2022.
To access the live webcast of the call, please visit the following link:
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: 9297#
For further information, refer to the Company’s interim financial statements and MD&A for the three and nine months ended September 30, 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.