Heritage Cannabis Reports Third Quarter 2021 Financial Results

Rhea-AI Summary

Heritage Cannabis Holdings Corp. (OTCQX: HERTF) reported record gross revenue of $5.1 million for Q3 2021, a 114% year-over-year increase. Gross profit reached $1.2 million, marking a significant turnaround from a loss of $1.1 million in Q3 2020. Despite challenges from forest fires affecting production, the company expanded its product offerings, launching into the flower market and gaining market share in concentrates and vapes. However, SG&A costs surged to 93% of revenue due to one-time costs and competitive pricing strategies, raising concerns about sustainability.

Positive

• Record gross revenue of $5.1 million in Q3 2021, up 114% year-over-year.
• Gross profit of $1.2 million in Q3 2021, a significant recovery from a $1.1 million loss in Q3 2020.
• Expanded product portfolio and distribution, entering the flower market with shipments to British Columbia.
• Achieved 175% growth in New Brunswick and improved market share in Nova Scotia.

Negative

• SG&A costs rose to 93% of revenue in Q3 2021, up from 55% in Q3 2020, due to one-time product launch costs.
• Comprehensive loss of $6.6 million in Q3 2021, indicating ongoing financial challenges.

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, 2021 (“Q3 2021”). All figures are in Canadian dollars unless otherwise noted.

Key Financial Highlights of Fiscal Q3 2021

• Gross revenue climbed to a record $5.1 million in the third quarter of 2021, an increase of $2.7 million or 114% from the same period in the prior year.
• Gross profit in Q3 2021 was $1.2 million, with gross margins improving 217% from -$1.1 million in the same period in the prior year.
• SG&A costs as a percentage of revenue increased to 93% in the third quarter of 2021, compared to 55% in the third quarter of 2020. The increase was attributed to a number of one-time costs related to product launches as well as repositioning pricing on products in highly competitive categories.
• Strong Balance sheet with net working capital of $21.5M, and cash and equivalents of $4.6 million as of July 31, 2021.

“Given the headwinds that many are facing in the industry, Heritage successfully expanded its product portfolio and distribution across Canada quarter-over-quarter which culminated with a second straight record quarter for gross revenues.” stated David Schwede, Chief Executive Officer of Heritage. “While the impact of the forest fires on the West Coast forced us to curtail production and shipments, our team worked extremely hard to produce a record top-line quarter. Also, we made a strategic decision in the quarter to invest in our platform - a combination of one-time product innovation costs and increasing our bench strength - in order to ensure we are positioned to sustain continued growth in the coming quarters. Our strategy shift, in less than one-year, has been dramatic and successful. We now have seven brands in Canada that are gaining strong followings in both retail and on-line sales channels, and our expanded U.S. strategy is continuing to advance with our partnerships in the near-term coupled with our U.S. e-commerce launch for ArthroCBD. While we are continuing to make changes to strengthen the platform, we are very confident that the combination of our popular brands and product innovation expertise has formed the foundation for a platform that will continue to compete and capture more market share.”

Operational Highlights

• Along with recurring orders from provincial boards and on-line retailers, Heritage continued to grow its distribution capabilities across Canada, adding new SKUs in Ontario and both Western and Eastern Canada, as well as launched five brands on cannmart.ca and 61 SKUs on mendocannabis.ca, a medical platform in Quebec.

• Entered the flower market with the successful shipments of its first orders of RAD Reefer (flower) and RAD Doobie (pre-rolls) to the province of British Columbia and expects to introduce both products to additional provinces in late 2021. This is the largest category in Canadian legal sales, representing 64% of total sales in the latest data from Health Canada.

• RAD Shatter products were the fastest growing products in Ontario in the concentrates category and achieved #3 and #4 concentrate overall within one month of launching in the province. Additionally, in the oils category Heritage saw 40% growth in month-over-month sales, and vape sales grew 164% month-over-month.

• Heritage has become a top 3 provider of concentrate and vape products in New Brunswick, and the Company saw 175% growth in sales in the province over the month of June 2021. In Nova Scotia, Heritage brands have 17.8% of the market share in the concentrates category, and RAD alone grew from 7.5% to 11.7% market share in a three month time-frame.

• In the United States, Heritage launched ArthroCBD, a 25 mg CBD softgel capsule brand formulated using VESIsorb®. The ArthroCBD launch marks the first of a pipeline of over seven new medicinal hemp based CBD product offerings by Heritage.

• The first six medical “CB4” line of branded products to be sold through medical channel partners in Canada recently launched.

Corporate Update and U.S. Growth Initiatives

• Announced a five-year partnership with Como Health LLC, doing business as 3Fifteen Primo Cannabis (“3Fifteen”), a rapidly growing cannabis company with five dispensary licenses. 3Fifteen holds one of 11 manufacturing licenses approved to operate in the state of Missouri allowing Heritage to produce branded med-rec products to be offered to medical cannabis consumers. The partnership will grant shelf minimums for Heritage’s branded products in 3Fifteen’s Missouri dispensaries.

• On June 1, 2021, Heritage announced it had entered into a non-binding letter of intent to purchase all of the issued and outstanding common shares of California based Capna Intellectual/dba Bloom Brands ("Bloom") in an all share transaction. While this transaction remains in the diligence phase, the Company is working to ensure that if successfully completed, Bloom will land on the Heritage platform and be positioned for growth.

• On May 4, 2021, Heritage issued common shares (“Common Shares”) in the capital of the Company to Merida Capital Holdings LLC (“Merida”). The issuance of 495,049 Common Shares at a deemed price of $0.125 per Common Share were issued to Merida for consideration in connection to services provided pursuant to a consulting agreement for the above mentioned partnership with 3Fifteen.

Selected financial highlights for the three- and nine-month periods ended July 31, 2021 include the following:

	Three-month periods ended				Nine-month periods ended
(in $CDN)	July 31, 2021 $	July 31, 2020 $		July 31, 2021 $			July 31, 2020 $
Gross Revenue	5,111,945	2,389,776		11,544,016			7,756,320
Net Revenue	4,314,314	2,310,050		9,410,105			6,826,462
Cost of Sales	3,069,069	3,374,858		6,163,343			6,633,177
Gross Margin	1,245,245	(1,064,808)		3,246,762			343,270
General and Administrative Expenses	8,335,897	1,975,069		18,894,828			7,458,727
Other Income (Expenses)1	(527,022)	1,747,940		(1,129,923)			1,659,832
Comprehensive Income (Loss)	(6,637,449)	(151,152)		(14,999,542)			(3,851,354)

Financial Statements

The consolidated financial statements of the Company as at and for the three- and nine-month periods ended July 31, 2021 and accompanying management's discussion and analysis have been filed with the securities regulators and are available on SEDAR at www.sedar.com under the Company’s issuer profile.

About Heritage Cannabis Holdings Corp.

Heritage 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, feelgood., CB4 and ArthroCBD.

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, 2020 and dated February 26, 2021. 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/20210929005326/en/

Kelly Castledine

Tel: 647-660-2560

kcastledine@heritagecann.com

Source: Heritage Cannabis Holdings Corp.

FAQ

What were the financial results for Heritage Cannabis Holdings in Q3 2021?

Heritage Cannabis reported gross revenue of $5.1 million, a 114% increase from Q3 2020, with a gross profit of $1.2 million.

What is the stock symbol for Heritage Cannabis Holdings?

The stock symbol for Heritage Cannabis Holdings is HERTF, traded on the OTCQX.

How did Heritage's SG&A costs change in Q3 2021?

SG&A costs increased to 93% of revenue in Q3 2021, compared to 55% in the same quarter of 2020.

What new markets did Heritage Cannabis enter recently?

Heritage Cannabis launched into the flower market and expanded its distribution capabilities across Canada, including into British Columbia.

What was the comprehensive loss for Heritage Cannabis in Q3 2021?

The comprehensive loss for Heritage Cannabis in Q3 2021 was $6.6 million.