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Auxly Cannabis Group Inc. had a great first three months of the year, with record revenue and margin and adjusted EBITDA in Q1 2024 compared to Q1 in previous years.
Despite this, the company still reported a net loss of $26 million for the three months ending March 31, 2024, an increase from a net loss of $10.2 million in the same period of 2023. The company attributes this increase in losses to the deferred tax expense on the conversion of Imperial Debenture into Shares, which was somewhat offset by improved gross profits and lower expenses.
Revenue from sales of cannabis products in Q1 2024 was $38.4 million, up from $37.5 in the same period in the previous year. Excise on those sales was $13.1 million, compared to $13.6 million in Q1 2023.
Auxly’s revenues for 2023 were primarily from dried flower and re-rolls (59% of all sales). The rest of the sales were for cannabis 2.0 products (namely vapes, but also edibles, oils, and topicals). Most of these sales (approximately 76%) were in British Columbia, Alberta, and Ontario.
Gross profit was $9.5 million, compared to $7.9 million in the same period in 2023. Adjusted EBITDA was $2.2 million, compared to just $138,000 in the first three months of 2023.
Wages and benefits declined to $4.3 million for the first quarter of 2024, compared to $4.7 million for the same period of 2023. These decreased expenses were reportedly related to Auxly’s “streamlining of operations and support staff.”
“Following a transformative year for Auxly, we have maintained our positive momentum in the first quarter of 2024 and are continuing to achieve profitable growth,” says Hugo Alves, CEO of Auxly. “Q1 2024 was the best Q1 in Auxly history across key metrics of revenue, gross margin and adjusted EBITDA. Our commitment to product quality, innovation and distribution excellence drove our top-line sales growth year-over-year, and our continued focus on operational efficiency and prudent capital management helped us deliver another quarter of adjusted EBITDA profitability.
“This is all thanks to the collective efforts of our talented and dedicated employees, who work hard every day to make quality products that help our consumers live happier lives. As we head into summer, we are excited to offer consumers new and innovative products to enjoy like our new larger Back Forty 0.75g pre-rolls, which will also be available to consumers in Quebec. We look forward to another quarter of sustainable, profitable growth and, as always, we will remain passionately committed to our consumers.”
Auxly’s brand portfolio includes Parcel, Back Forty, Foray, Dosecann, and Kolab Project. The company has secured listings and sold its cannabis products in all Canadian provinces, the Yukon, and the Northwest Territories. In May 2024, Auxly also launched its first branded product in Quebec, the new Back Forty large format 0.75g three-pack pre-rolls.
The Company also conducts wholesale bulk sales of dried cannabis to different licensed cannabis producers in Canada.
Auxly’s cannabis operations are located in Charlottetown, PEI, as well as Ottawa and Leamington, Ontario. The company does not currently have any active international operations or partnerships.
On March 28, 2024, strategic partner Imperial Brands PLC, which previously invested approximately $123.0 million in Auxly in 2019, completed its planned Imperial Debt Conversion. As such, $121.9 million of the principal amount under the Imperial Debenture was converted at an exercise price of $0.81 for 150,433,450 common shares in the capital of the Company.
In addition, $1.5 million of accrued interest was converted and issued, on a private placement basis, into 90,882,667 common shares in the capital of the Company at a price of $0.017. Imperial and Auxly amended the existing amended and restated investor rights agreement dated July 6, 2021, between the parties to, among other things, remove the existing requirement that Imperial will use the Company as its exclusive cannabis partner.
On February 1, 2024, Auxly also announced that it had signed a definitive agreement to an amendment and extension of Auxly Leamington Credit Facility, led by the Bank of Montreal as administrative agent. That deal includes terms to extend the maturity date by two years until December 31, 2025, with an option for Auxly Leamington to extend the maturity date for an additional year by making a $2.5 million principal repayment by December 31, 2025.
The deal also updates Auxly’s EBITDA and other financial and operational covenants for Auxly Leamington, increased quarterly principal payments throughout the term, with the obligations of Auxly Leamington under the amended and restated credit facility to continue to be supported by a $33 million limited guarantee by Auxly and a pledge by Auxly of all its securities of Auxly Leamington.
The company reports it will have insufficient cash to fund its operations for the next 12 months if its sales and margins do not improve or if its general and administrative expenses increase. Auxly’s “ability to sustain profitability and positive cash flows from operations is subject to material uncertainty that may cast significant doubt upon the Company’s ability to continue as a going concern,” reads the report.
Should they be unable to generate enough cash flow from financing and operating activities, the carrying value of Auxly’s assets could be subject to material adjustments.
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