Cansortium Inc. Reports First Quarter Financial Results; Reiterates Full Year 2020 Outlook

Cansortium Inc. (CSE:TIUM.U) (OTCQB: CNTMF) (“Cansortium” or the “Company”), a vertically-integrated provider of premium-quality medical cannabis, today announced financial results for its first quarter ended March 31, 2020 and reiterated its full year 2020 outlook. The Company’s unaudited condensed interim consolidated financial statements and accompanying notes, along with the Management Discussion and Analysis (MD&A) are available under the Company’s profile on SEDAR at www.sedar.com and are also accessible through a link on the Investor Relations section of the Company’s website at www.getfluent.com.

Executive Chairman Neal Hochberg commented, “During the first quarter of 2020 we continued to make significant improvements to the business and achieved positive quarterly Adjusted EBITDA for the first time in the Company’s history, driven by strong revenue growth and tightly focused operations. We believe that revenue growth and profitability will continue to strengthen through the remainder of 2020.”

Selected First Quarter 2020 Financial Highlights Versus First Quarter 2019 Results

  • Consolidated revenue increased 84 percent to $10.2 million, compared with revenue of $5.5 million.
  • Consolidated income from operations totaled $2.4 million, compared to loss from operations of $(12.5) million.
  • Consolidated Adjusted EBITDA(1) totaled $0.7 million, compared to Adjusted EBITDA(1) loss of $(3.4) million, marking the first time the Company has achieved quarterly Adjusted EBITDA profitability.
  • Consolidated net loss totaled $(13.9) million, or $(0.07) per diluted share, compared to consolidated net loss of $(16.3) million, or $(0.10) per diluted share.
  • During the first quarter of 2020, the Company opened its 19th medical marijuana dispensary in Panama City, FL. It operated 9 dispensaries during the comparable period in 2019. In April, the Company opened its 20th Florida dispensary in East Orlando, FL – it’s third in the greater Orlando market.

(1)

Adjusted EBITDA is a non-IFRS financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. The Company calculates adjusted EBITDA from EBITDA plus (minus) unrealized loss (gain) on embedded derivatives, plus (minus) certain one-time non-operating expenses, as determined by management. Reconciliations from EBITDA and Adjusted EBITDA to Net Loss are included in the accompanying financial schedules.

Full Year 2020 Outlook

The Company reiterated its full year 2020 outlook for consolidated revenues in the range of $55 million to $60 million and Adjusted EBITDA of more than $15 million. The forecast is based on projected revenues of at least $45 million for Cansortium’s Florida operations with additional revenue from the MichiganPennsylvania and Texas markets.

The Company expects to open up to six additional Florida dispensaries during the remainder of 2020, contingent upon timing of construction and final permitting. These locations include Coral Gables, Kendall, and Coral Springs. In addition, the Company expects to develop two new dispensaries in the south-central region of Pennsylvania during 2020 that will begin operating by early 2021.

Mr. Hochberg noted, “Our first quarter results and full year 2020 outlook reflect confidence in management’s ability to execute Phase 2 of the operational and financial restructuring plan (the “Plan”) developed by the Company’s Board of Directors and its Special Committee during 2019.  Phase 2 of the Plan will focus on growth and long-term shareholder value creation. We believe that Cansortium’s projected profitability will enable the Company to pursue the following targeted initiatives:

  • Expand its Florida dispensary network up to 26 by the end of 2020;
  • Augment its Florida cultivation capacity;
  • Utilize technology and various marketing initiatives to increase sales and customer loyalty;
  • Generate revenue in Michigan during 2020;
  • Grow its Pennsylvania dispensary network to three by 2021; and
  • Continue to promote expansion of the medicinal cannabis market in Texas.”

Mr. Hochberg continued, “We are committed to carefully focusing our capital and other resources on the most promising, actionable U.S. medical marijuana markets to grow revenues, while managing expenses to drive profitability. In Florida, despite the unprecedented challenges presented by the ongoing global COVID-19 pandemic, we are strengthening the Fluent brand’s competitive position by serving Florida’s growing medical marijuana patient population as a designated essential service. Together with additional opportunities in MichiganPennsylvania and Texas, we are positioned to make meaningful progress in 2020 toward enhanced cash flow and profitability.”

Company Promotes Marcos Pedreira to Chief Financial Officer
Mr. Hochberg also announced the promotion of Marcos Pedreira to the position of Chief Financial Officer, effective immediately. Mr. Pedreira, who joined the Company in October 2018 as Head of Finance, is a Certified Public Accountant and Certified Internal Auditor with a Master’s in Business Administration. He brings nearly 20 years of progressive experience in international accounting and finance, and extensive expertise in financial planning and reporting and internal controls. Before joining Cansortium, Mr. Pedreira served for eight years as Assistant Controller and Senior Director of Finance at Campbell Soup Company.

“I look forward to working closely with Marcos as the Company pursues its strategic growth opportunities in 2020 and beyond,” concluded Mr. Hochberg.

ABOUT CANSORTIUM INC.
Headquartered in Miami, Florida, and operating under the Fluent™ brand, Cansortium is focused on being the highest quality cannabis company in the State of Florida driven by unrelenting commitment to operational excellence from seed to sale. Cansortium has developed strong proficiencies in each of cultivation, processing, retail, and distribution activities, the result of successfully operating in the highly regulated cannabis industry. In addition to Florida, Cansortium is seeking to create significant shareholder value in the attractive markets of TexasMichigan and Pennsylvania.

Cansortium Inc.’s common shares and warrants trade on the CSE under the symbol “TIUM.U” and “TIUM.WT.U”, respectively, and on the OTCQB Venture Market under the symbol (OTCQB: CNTMF). Investors can find current financial disclosure and Real-Time Level 2 quotes for the Company on www.otcmarkets.com.

Forward-Looking Information

All projections related to anticipated future results are forward-looking in nature and are subject to risks and uncertainties that may cause actual results to differ, perhaps materially. Projections are predicated on the Company’s ability to continue successfully implementing the strategic growth and cost-saving initiatives identified by the Special Committee of the Board. In addition, projections are based on the Company’s ability to secure and effectively deploy its capital resources toward those initiatives.

Certain information in this news release, may constitute forward-looking information. In some cases, but not necessarily in all cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “is positioned”, “estimates”, “intends”, “assumes”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events. Forward-looking information is necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by the Company as of the date of this news release, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including but not limited to the factors described in the public documents of the Company available at www.sedar.com. These factors are not intended to represent a complete list of the factors that could affect the Company; however, these factors should be considered carefully. There can be no assurance that such estimates and assumptions will prove to be correct. The forward-looking statements contained in this news release are made as of the date of this news release, and the Company expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by law.

Financial Tables Follow

Cansortium Inc.

Consolidated Statements of Financial Position

As of March 31, 2020 and December 31, 2019

(USD ‘000)

 March 31, 

 December 31, 

2020

2019

Assets

Current assets

Cash and cash equivalents

$

4,846

$

2,516

Accounts receivable

136

144

Inventory

8,336

6,709

Biological assets

6,678

3,845

Note receivable

4,209

3,870

Prepaid expenses and other current assets

1,148

556

Total current assets

25,353

17,640

Investment held for sale

324

Assets held for sale

4,210

6,301

Property and equipment, net

19,311

19,128

Intangible assets, net

98,183

98,566

Right-of-use assets

19,532

20,190

Investment in associate

3,240

3,424

Goodwill

1,526

1,526

Other assets

290

291

Total assets

$

171,969

$

167,066

Liabilities

Current liabilities

Accounts payable

5,858

7,860

Accrued liabilities

4,324

5,135

Income taxes payable

3,218

1,492

Derivative liabilities

13,590

13,198

Current portion of notes payable

7,849

9,350

Lease obligations

1,852

1,761

Total current liabilities

36,691

38,796

Liabilities held for sale

3,017

3,240

Notes payable, net of current portion

37,895

31,053

Lease obligations, net of current portion

20,674

21,166

Deferred income taxes

26,065

24,957

Other long-term liabilities

750

676

Total liabilities

125,092

119,888

Shareholders’ equity

Share capital

144,481

149,322

Share-based compensation reserve

3,099

2,977

Equity conversion feature

12,250

7,613

Warrants

13,128

11,773

Accumulated deficit

(125,289)

(123,785)

Accumulated other comprehensive loss

(633)

(563)

Total shareholders’ equity attributable to Cansortium Inc. shareholders

47,036

47,337

Non-controlling interests

(159)

(159)

Total shareholders’ equity 

46,877

47,178

Total liabilities and shareholders’ equity

$

171,969

$

167,066

Cansortium Inc.

Consolidated Statement of Operations

For the three months ended March 31, 2020 and 2019

(USD ‘000)

For the three months

ended March 31,

2020

2019

Revenue, net of discounts

$

10,163

$

5,528

Cost of goods sold

3,660

2,561

Gross profit before fair value adjustments

6,503

2,967

Realized fair value of increments on inventory sold

7,562

1,118

Unrealized change in fair value of biological assets

(12,110)

(1,101)

Gross profit

11,051

2,950

Expenses

General and administrative

3,139

9,654

Share-based compensation

886

604

Sales and marketing

3,121

2,917

Depreciation and amortization

1,502

2,299

Total expenses

8,648

15,474

Income (loss) from operations

2,403

(12,524)

Discontinued operations

(376)

Other expense (income)

Interest expense, net

3,759

4,317

Change in fair market value of derivative

1,835

(1,879)

Loss on investment in associate

183

Loss on debt reestructuring

8,065

Other expense

16

1,589

Total other expense (income)

13,858

4,027

Loss before taxes

(11,079)

(16,551)

Income taxes

2,833

Net loss

(13,912)

(16,551)

Net loss attributable to non-controlling interest

(270)

Net loss attributable to controlling interest

$

(13,912)

$

(16,281)

Net loss per share

Basic

$

(0.07)

$

(0.10)

Diluted

$

(0.07)

$

(0.10)

Cansortium Inc.

Consolidated Statement of Cash Flows

For the three months ended March 31, 2020 and 2019

(USD ‘000)

For the three months ended March 31, 

2020

2019

Operating activities

Net loss

$

(13,912)

$

(16,551)

Adjustments to reconcile net loss to net cash used in operating activities:

Share-based compensation

806

1,203

Depreciation and amortization

1,990

2,654

Unrealized gain on changes in fair value of biological assets

(12,110)

(1,101)

Amortization of debt discount

1,378

Accretion of convertible debentures

1,822

Discontinued operations

(370)

Change in fair market value of derivative

1,835

(1,879)

Loss (gain) on investment in associate

184

Loss on debt reestructuring

8,064

Interest on lease liabilities

663

Deferred tax expense

1,108

Changes in operating assets and liabilities:

Accounts Receivable

8

(15)

Inventory

(1,627)

(1,686)

Biological assets

9,277

1,508

Prepaid expenses and other current assets

(592)

(2,148)

Other assets

1

748

Accounts payable

998

1,690

Accrued liabilities

528

(157)

Income taxes payable

1,726

Lease obligations

338

Other current liabilities

236

Other liabilities

132

Net cash provided by (used in) operating activities

531

(13,782)

Investing activities

Purchases of property and equipment

(1,132)

(2,718)

Notes receivable

(339)

Net cash used in investing activities

(1,471)

(2,718)

Financing activities

Proceeds from IPO

56,178

Proceeds from issuance of shares and warrants

4,351

Proceeds from issuance of notes payable

62

13,166

Payment of lease obligations

(1,064)

(647)

Principal repayments of notes payable

(9)

(44,500)

Net cash provided by financing activities

3,340

24,197

Effect of foreign exchange on cash and cash equivalents

(70)

136

Net increase in cash and cash equivalents

2,330

7,833

Cash and cash equivalents, beginning of period

2,516

2,026

Cash and cash equivalents, end of period

$

4,846

$

9,859

Cash

$

4,846

$

9,859

Cash included in assets held for sale

Total cash

$

4,846

$

9,859

Cash paid during the period for interest

$

409

$

2,627

Non-cash transactions:

Issuance of shares to acquire additional interest in consolidated entity

$

$

12,002

Shares returns for sale of interest in subsidiaries

$

(3,294)

$

Founders shares return

$

(10,970)

$

Note payable amendment

$

10,380

$

Cansortium Inc.

Financial Highlights

For the three months ended March 31, 2020 and 2019

(USD ‘000)

Three months ended

Financial results

March
31, 2020

March
31, 2019

Variance

Revenue

$

10,163

$

5,528

$

4,635

Gross profit

$

11,051

$

2,950

$

8,101

Gross margin

108.7%

53.4%

55.4%

Adjusted gross profit (loss)(1)

$

6,503

$

2,967

$

3,536

Adjusted gross margin(1)

64.0%

53.7%

10.3%

Selling, general and administrative expenses

$

8,648

$

15,474

$

(6,826)

EBITDA(1)

$

(5,330)

$

(9,142)

$

3,811

Adjusted EBITDA(1)

$

715

$

(3,420)

$

4,135

Net loss

$

(13,912)

$

(16,551)

$

2,639

Net loss per share (basic)

$

(0.07)

$

(0.10)

$

0.03

Net loss per share (diluted)

$

(0.07)

$

(0.10)

$

0.03

(1)

Adjusted gross profit, adjusted gross margin, EBITDA and Adjusted EBITDA are non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Refer to the reconciliation to IFRS and quarterly results of operations sections at the Company’s Management Discussion and Analysis document for reconciliation to IFRS.

Cansortium Inc.
Reconciliation of non-IFRS financial measures
For the three months ended March 31, 2020 and 2019
(USD ‘000)

EBITDA

EBITDA is a non-IFRS financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. The Company calculates EBITDA from net income (loss), plus (minus) interest expense (income), plus income taxes, plus depreciation and amortization, as follows:

Three months ended

March

March

31, 2020

31, 2019

Variance

Net income (loss)

$

(13,912)

$

(16,551)

$

2,639

Interest expense

3,759

4,317

(558)

Income taxes

2,833

2,833

Depreciation and amortization

1,989

3,092

(1,103)

EBITDA

$

(5,330)

$

(9,142)

$

3,811

Adjusted EBITDA

Adjusted EBITDA is a non-IFRS financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. The Company calculates adjusted EBITDA from EBITDA plus (minus) unrealized loss (gain) on embedded derivatives, plus (minus) certain one-time non-operating expenses, as determined by management. The reconciliation from EBITDA to Adjusted EBITDA is as follows:

Three months ended

March
31, 2020

March
31, 2019

Variance

EBITDA

$

(5,330)

$

(9,142)

$

3,811

Change in fair value of biological assets

(4,548)

17

(4,565)

Change in fair market value of derivative

1,835

(1,879)

3,714

Share based compensation

886

604

282

Discontinued operations

(376)

(376)

Loss on debt restructuring

8,065

8,065

Other non-recurring expense

183

6,980

(6,797)

Adjusted EBITDA

$

715

$

(3,420)

$

4,135

SOURCE Cansortium Inc

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