Heritage Cannabis Reports Q3 2023 Financial Results

Rhea-AI Summary

Heritage Cannabis Holdings Corp. reports continued year-over-year growth in revenue and gross margin, with a 47% increase in gross margin over Q3 2022. Sales in Missouri and West Virginia combined reached over $3.2 million. Cost of sales decreased by 10.6% in Q3 2023. The Company recorded a comprehensive loss of $1,061,856 for the quarter. Heritage has entered the recreational cannabis market in New York and the cannabis-infused beverage market in Canada. They also shipped their first purchase order to Australia. Financial statements are available on SEDAR+.

Positive

• Continued revenue and gross margin growth
• Sales of over $3.2 million in Missouri and West Virginia
• Decrease in cost of sales by 10.6% in Q3 2023
• Expansion into new markets in New York and Canada

Negative

• Comprehensive loss of $1,061,856 for the quarter

Quarter Showed Continued Year-over-Year Growth in Revenue and Gross Margin, and Over One Million Units Shipped

TORONTO--(BUSINESS WIRE)-- Heritage Cannabis Holdings Corp. (CSE: CANN) (OTCQX: HERTF) (“Heritage” or the “Company”), today announced its financial results as at and for the three- and nine-month periods ended July 31, 2023. All figures are in Canadian dollars unless otherwise noted.

“We are highly focused on the strategic vision of driving sustainable growth across the organization through increasing market penetration with our brands and diversifying our revenue channels. These activities contribute to growing revenue and gross margin, which we have seen successfully occur again this quarter, including a 47% increase in gross margin over Q3 2022,” said David Schwede, CEO of Heritage. “Paired with this strategy, we are maximizing efficiencies and fine-tuning our production, as well as continuing to penetrate our U.S. markets which are gaining strength showing over $3.2 million in sales thus far in Missouri and West Virginia combined. These strategies are setting the stage for our Company as we continue to grow in our home market and explore international opportunities.”

Selected Financial Highlights

Selected financial highlights for the three- and nine-month periods ended July 31, 2023, and July 31, 2022, include the following:

		Three months ended				Nine months ended
(in $CDN)		Jul 31, 2023 $		Jul 31, 2022 $		Jul 31, 2023 $		Jul 31, 2022 $
Gross revenue		11,032,568		10,799,784		30,645,502		30,848,238
Net revenue (net of excise tax)		8,113,995		7,495,885		21,816,450		21,528,280
Cost of sales		4,487,702		5,025,046		12,834,338		13,987,874
Gross margin		3,626,293		2,470,839		8,982,112		7,540,406
General and administrative expenses		4,641,464		5,390,047		14,340,963		14,635,045
Other Income (Expenses)		49,315		(22,119)		(374,012		7,009,911
Comprehensive Income (Loss)		(1,061,856)		(2,779,327)		(5,782,863)		2,957,272

Q3 2023 Financial Highlights

• The Company reported gross revenue of $11,032,568 for the three months ended July 31, 2023, an increase of $232,784 compared to the gross revenue of $10,799,784 for the three months ended July 31, 2022. The increase in gross revenue was primarily due to the successful launches of the Thrifty and Adults Only brands, both seeing sales of $1,156,317 and $1,531,745 respectively. Gross revenue increases in the period were also attributable to increased sales of white label brands, specifically increasing from $nil during the three months ended July 31, 2022 to $1,076,304 during the three months ended July 31, 2023.
• The Company reported gross revenue of $30,645,502 for the nine months ended July 31, 2023, a decrease of $202,736 compared to the gross revenue of $30,848,238 for the nine months ended July 31, 2022. The decrease in gross revenue was primarily driven by a reduction in tincture sales and vape sales, which were down $226,556 and $45,883 respectively year over year and minimal contribution from the new brands which partially offset the SKU rotation.
• Cost of sales for the three months ended July 31, 2023 was $4,487,702, a decrease of $537,344 compared to $5,025,046 for the three months ended July 31, 2022. The decrease represented a 10.6% improvement, as a percentage of sales, in the current period. As stated in previous quarters, the Company is continuously reviewing its processes for optimization either on the manufacturing side or through material costing which continued to positively impact the results in the current quarter.
• Cost of sales for the nine months ended July 31, 2023 was $12,834,338, a decrease of $1,153,536, compared to $13,987,874 for the nine months ended July 31, 2022. The decrease represented a 3% improvement, as a percentage of sales, in the current period. The improvement was a result of continued production refinements to enable more efficient production.
• Gross margin for the three months ended July 31, 2023 was $3,626,293 compared to gross margin of $2,470,839 for the three months ended July 31, 2022. The increase in gross margin of $1,155,454 was primarily a result of improved production efficiencies in addition to a lower excise rate of 26.4% compared to 30.6% in the prior period which was driven by increased bulk B2B sales and international export sales, which provides less exposure to excise taxes.
• Gross margin for the nine months ended July 31, 2023 was $8,982,112 compared to gross margin of $7,540,406 for the nine months ended July 31, 2022. The increase in gross margin of $1,441,706 was a result of improved production efficiencies over the course of the year, as well as a lower excise rate in the period.
• For the three months ended July 31, 2023, the Company recorded a comprehensive loss of $1,061,856 or $0.00 loss per share compared to a comprehensive loss of $2,799,327 or $0.00 loss per share for the three months ended July 31, 2022. The decrease in comprehensive loss of $1,737,471 during this period was attributable to increased non-excisable sales, decreased cost of sales and production efficiencies in the period.
• For the nine months ended July 31, 2023, the Company recorded a comprehensive loss of $5,782,863 or $0.01 loss per share compared to a comprehensive income of $2,957,272 or $0.00 loss per share for the nine months ended July 31, 2022. The increase in comprehensive loss of $8,740,135 during the period was driven by three key factors: the unrealized gain in the prior period relating to various unachieved acquisition milestones of $8,331,429, the gain related to the sale of Stanley Park digital of $608,000 and the impact of rising interest rates which increased the interest expense by $276,284 during this period.

Q3 2023 Growth, Operational, and Corporate Highlights

• Heritage has transitioned to a true product and brand company, creating “forever SKUs” that have seen solid uptake in the Canadian cannabis market. With the in-house expertise in production, manufacturing, white labelling, pick and pack, and distribution, Heritage has developed several relationships to leverage this expertise. The Company has entered into distribution relationships with a number of well-known companies and brands including Aurora Medical, Canopy Growth Corp, Violet Tourist, OMG, White Rabbit, and Mad Hatter. To increase Heritage’s share in the cannabis market, the Company will consider opportunities to branch out into other areas of the supply chain, that can provide vertical integration and have a positive impact on margins.
• On May 8, 2023, the Company announced that it entered the recreational cannabis market in the State of New York. During the summer of 2023, samples were produced using the Company’s specifications for its RAD brand and were shipped to licensed retail stores in New York. The Company anticipates sales will commence by October 2023. Heritage continues to target the legal markets in the US with an asset light model and has signed a manufacturing and distribution agreement with a local partner that is primarily producing and selling products using Heritage’s innovative formulations and flavours, which have already achieved success in other markets. The initial launch was six SKUs and Heritage plans to add additional RAD products including live resin, rosin, and infused pre-rolls, as well as expand product offerings with additional Heritage brands. The US strategy continues to grow in a capital efficient manner in markets with strong projected growth.
• On May 17, 2023, Heritage announced that it entered the recreational cannabis-infused beverage market in Canada. Through a sales and distribution agreement with a leading producer of beverage products, BevCanna, Heritage will utilize its distribution channels and penetration with the provincial boards to bring some of the top performing beverages to market across the country. CUT THIS
• On June 20, 2023, Heritage announced that it shipped its first purchase order from a well-established Australian company for the supply of 15,000 units of live resin concentrate vape cartridges.
• Following the end of the third quarter:
  • Heritage announced the appointment of Jasmine Paige as Interim Chief Financial Officer (“CFO”), replacing Dan Phaure as he pursues new opportunities.
  • Heritage announced that products from its Pura Vida brand have been approved for listing by Société Québécoise du cannabis for retail and online distribution in the province of Québec.

Financial Statements
The consolidated financial statements of the Company as at and for the three- and nine-month periods ended July 31, 2023, and accompanying management's discussion and analysis have been filed with the securities regulators and are available on SEDAR+ at www.sedarplus.ca under the Company’s issuer profile.

About Heritage Cannabis Holdings Corp.
Heritage Cannabis is a leading cannabis company offering innovative products to both the medical and recreational legal cannabis markets in Canada and the U.S., operating under two licensed manufacturing facilities in Canada. The company has an extensive portfolio of high-quality cannabis products under the brands Purefarma, Pura Vida, RAD, Premium 5, Adults Only, Thrifty, feelgood., the CB4 suite of medical products in Canada and ArthroCBD in the U.S.

ON BEHALF OF THE BOARD OF DIRECTORS OF HERITAGE CANNABIS HOLDINGS CORP.

“David Schwede”
David Schwede
CEO

The Canadian Securities Exchange does not accept responsibility for the adequacy or accuracy of this release.

Forward-Looking Statements

This press release contains certain "forward-looking information" within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company's control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or may contain statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "will continue", "will occur" or "will be achieved". The forward-looking information contained herein may include, but is not limited to, assumptions related to cash flow and capital resources, and expectations related to the supply and manufacturing agreements, the intended expansion of the Company, and partnerships and Joint Venture Partnerships.

By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements.

An investment in securities of the Company is speculative and subject to several risks including, without limitation, the risks discussed under the heading "Risks and Uncertainties" in the Company's annual management discussion and analysis for the year ended October 31, 2022, and dated February 28, 2023. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.

In connection with the forward-looking information and forward-looking statements contained in this press release, the Company has made certain assumptions. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this notice.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230929126518/en/

Kelly Castledine

647-660-2560

kcastledine@heritagecann.com

Source: Heritage Cannabis Holdings Corp.