Auxly Delivers Rising Revenues, Along With Rise In Losses

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Auxly Cannabis Group Inc. (OTCQX: CBWTF) reported total net revenues of $8.6 million for the second quarter ending June 30, 2020. This was a 200% increase over the same period last year and attributed to $6.8 million of cannabis net revenues and research revenues from KGK of $1.8 million.

The net loss at Auxly grew to $27 million from last year’s net loss of $8 million. The increase in net losses was primarily attributable to total other losses recorded during the second quarter, increased depreciation, interest expense, partially offset by gross margins net of selling, general and administrative expenses.

“We are excited to have another successful quarter of cannabis sales behind us, with Q2 bringing in $6.8 million of cannabis net revenues and $8.6 million in total net revenues,” said Hugo Alves, CEO of Auxly. “Despite a decline in sales as compared to Q1 2020, due in part to temporary store closures as a result of COVID-19 and new competitor value brands entering the market, we have taken immediate and deliberate steps to align our Company to reflect current consumer demands and market conditions.  We have already seen improved velocity of sales for our key brands from the pricing adjustments we made earlier this quarter, and are adding new product profiles that appeal to the fast-growing value segment, such as our Foray and Kolab Project’s 1g vape cartridge.  Additionally, we have seen a tremendous consumer response to the recent launch of our Robinsons and Kolab dried flower offerings.  As we move forward in executing our business strategy, we are committed to doing so with the highest degree of fiscal discipline.”

Impairment Loss

Auxly reported that it took an impairment loss on long-term assets of $4.5 million in the second quarter. “The Company’s LATAM cash generating unit Inverell represents its operations dedicated to the cultivation and sale of cannabis products within LATAM. Management determined that a liquidation approach was most appropriate in determination of the recoverable amount of the CGU due to regulatory delays causing uncertainty in the timing of sales and lack of cannabis product sales data in the industry.”

The company reported that over the three and six months ending June 30, 2020, wages and benefits were $7.5 million and $14.0 million, respectively, or an increase of $3.4 million and $5.7 million over the same respective periods in 2019. The increase was driven by workforce increases to support Cannabis 2.0 Product sales, primarily related to the operations and commercial teams.

Looking Ahead

The company had the following outlook for the remainder of the year, With the launch of the Company’s Cannabis 2.0 Products in December 2019, Auxly has established the foundation it plans to build on in 2020 to increase revenues and move towards positive cash flows in 2021. The Company’s objectives for 2020, which may be impacted by the COVID-19 pandemic (see further discussion in the MD&A under “COVID-19 Pandemic”), continue to be concentrated on Canadian operations. Broadly, Auxly’s objectives for the balance of the year are as follows:

Be a leader in the Canadian Cannabis 2.0 Products market. Complete remaining construction and licensing of all Canadian operations to leverage existing assets and increase revenues. Work with the Sunens team to secure the supply of input materials for use in the Company’s product offerings in 2020. Collaborate with strategic partners to move towards commercialization of a small number of products for sale internationally. Continue to take measures to improve cash flows and finance the business.

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