DENVER and TORONTO, Nov. 25, 2019 — MJardin Group, Inc. (“MJardin” or “the Company”) (CSE: MJAR) (OTCQX: MJARF), a leader in premium cannabis production, today announced its financial and operating results for the three and nine-month periods ending September 30, 2019. All amounts are expressed in Canadian dollars unless otherwise indicated.
Q3 and YTD 2019 Highlights:
- Revenue of $7.6 million, includes $0.8M contribution from Cheyenne since acquisition date;
- Generated positive Adjusted EBITDA of $0.5 million;
- Sequential revenue growth from AMI facility of 47% compared to the prior quarter;
- Improved efficiencies by reducing corporate overhead by 45%;
- Announced first EU Supply agreement from the AMI facility for 250 KG a month beginning in the first quarter of 2020;
- Submitted application to Health Canada for a cultivation license at MJardin’s “GRO” facility in Dunnville, Ontario and received official RMI from Health Canada. MJardin expects full licensing at the facility by Q4 2019;
- Production metrics at our AMI and WILL facility continue to produce at approximately 60 grams per square foot;
- MJardin anticipates providing revised guidance as part of its full-year 2019 financial reporting in early 2020.
Subsequent Events:
- October 4, 2019 – MJardin advanced the previously disclosed purchase price pursuant to the signed LOI with Peguis First Nation and began construction on Phase 2 of the Warman Project;
- October 18, 2019 – MJardin prepaid a portion of the purchase price of the previously disclosed Cannabella transaction. In consideration for the pre-payment of a portion of the purchase price, MJardin will receive certain benefits under its management agreement with Cannabella that it would otherwise have had to wait until closing to receive;
- November 12, 2019 – MJardin signed a partnership agreement with Robes Inc. to cultivate and distribute Robes Cannabis and BLLRDR Brands.
”The third-quarter results reflect another period of building outsize and scale across our operational platform, which as expected comes with challenges in any business, however, we continue to successfully tackle these issues as we execute against our strategic plans which are centered around growth and profitability in 2020,” commented Pat Witcher, CEO of MJardin. “We further reduced SG&A and have decreased those costs by 45% compared to Q2 2019. This allows us to focus on and effectively allocate resources to developing our product lines within Health Canada’s upcoming regulations around extraction, edibles, and topicals. We continue to invest in these business lines on both sides of the border. Responsible deployment of capital to maximize shareholder value remains our top priority as we grow our operational footprint with accelerated revenue growth.”
Second Quarter Financial Summary
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||
| Revenue | $ | 7,643,293 | $ | 9,154,611 | $ | 25,299,430 | $ | 21,769,982 | ||||||
| Direct operating costs | (4,581,298 | ) | (4,013,144 | ) | (16,019,158 | ) | (11,372,076 | ) | ||||||
| Gross margin before the undernoted | 3,061,995 | 5,141,467 | 9,280,272 | 10,397,906 | ||||||||||
| Fair value in biological assets included in inventory sold and other inventory charges | (1,202,504 | ) | – | (1,498,773 | ) | – | ||||||||
| Unrealized gain on changes in fair value of biological assets | 1,321,851 | – | 3,091,132 | – | ||||||||||
| Gross margin | 3,181,342 | 5,141,467 | 10,872,631 | 10,397,906 | ||||||||||
| Operating expenses | ||||||||||||||
| Depreciation | 546,485 | 80,787 | 1,175,731 | 114,716 | ||||||||||
| Salaries and fringe benefits | 1,111,684 | 1,386,599 | 6,968,408 | 3,329,298 | ||||||||||
| Share-based compensation | 3,231,695 | 32,584 | 15,947,127 | 4,416,293 | ||||||||||
| Sales, general and administrative | 1,405,330 | 1,943,844 | 6,800,609 | 4,296,525 | ||||||||||
| Bad debt | 499,535 | 102,501 | 1,626,565 | 102,501 | ||||||||||
| Total operating expenses | 6,794,729 | 3,546,315 | 32,513,440 | 12,259,333 | ||||||||||
| Net (loss) income from operations | (3,613,387 | ) | 1,595,152 | (21,640,809 | ) | (1,861,427 | ) | |||||||
| Loan initiation fees | (202,219 | ) | – | (2,470,011 | ) | – | ||||||||
| Interest expenses | (6,322,937 | ) | (1,634,623 | ) | (14,874,317 | ) | (4,748,229 | ) | ||||||
| Net earnings from associate | 2,536,809 | – | 2,550,289 | – | ||||||||||
| (Loss) gain on disposition of equity investment | (257,502 | ) | – | 1,176,204 | – | |||||||||
| (Loss) gain on loan modifications | (2,518,635 | ) | – | 5,557,924 | – | |||||||||
| Other gain | 544,804 | – | 208,883 | – | ||||||||||
| Realized loss on foreign exchange | (236 | ) | (471,153 | ) | (61,971 | ) | (599 | ) | ||||||
| Total other expenses | (6,219,916 | ) | (2,105,776 | ) | (7,912,999 | ) | (4,748,828 | ) | ||||||
| Net loss before income tax and other comprehensive loss | (9,833,303 | ) | (510,624 | ) | (29,553,808 | ) | (6,610,255 | ) | ||||||
| Income taxes | 2,598,396 | 103,369 | 3,804,836 | 103,369 | ||||||||||
| Net loss | (12,431,699 | ) | (613,993 | ) | (33,358,644 | ) | (6,713,624 | ) | ||||||
| Other comprehensive loss Items that are or may be reclassified to net loss | ||||||||||||||
| Foreign operations – unrealized foreign currency translation differences | 3,530,661 | 89,068 | (1,299,431 | ) | 597,818 | |||||||||
| Total comprehensive loss | (8,901,038 | ) | (524,925 | ) | (34,658,075 | ) | (6,115,806 | ) |
| Three months ended | Nine months ended | |||||||
| September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||
| EBITDA | (2,963,882 | ) | 1,204,786 | (13,503,760 | ) | (1,747,310 | ) | |
| Adjustments: | ||||||||
| Add: Share based compensation | 3,231,695 | 32,584 | 15,947,127 | 4,416,293 | ||||
| Adjust: Loss (gain) on disposition of equity investment | 257,502 | – | (1,176,204 | ) | – | |||
| Adjust: Loss (gain) on loan modifications | 2,518,635 | – | (5,557,924 | ) | – | |||
| Adjust: Foreign exchange loss | 236 | 471,153 | 61,971 | 599 | ||||
| Deduct: Net earnings from Associates | (2,536,809 | ) | – | (2,550,289 | ) | – | ||
| Adjusted EBITDA | 507,377 | 1,708,523 | (6,779,080 | ) | 2,669,582 |
Non-IFRS Measures
EBITDA, Adjusted EBITDA and Adjusted Net Loss from Operations are non-IFRS measures that the Company uses to assess its operating performance.
EBITDA is defined as net earnings (loss) before net finance costs, income tax expense (benefit) and depreciation and amortization expense.
Adjusted EBITDA is defined as EBITDA adjusted to exclude: impairment, settlements, share-based compensation, advisory fees, and listing expenses, loss on foreign exchange and gain (loss) from equity investments and one-time gains or losses.
Adjusted Net Loss from Operations is defined as operating income (loss) adjusted to exclude share-based compensation.
MJardin Group uses these non-IFRS measures to provide investors and others with supplemental measures of its operating performance. The Company believes these non-IFRS measures are important supplemental measures of operating performance because they eliminate items that have less bearing on the Company’s operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. MJardin Group also believes that securities analysts, investors, and other interested parties frequently use these non-IFRS measures in the evaluation of issuers, many of which present similar metrics when reporting their results. As other companies may calculate these non-IFRS measures differently than the Company, these metrics may not be comparable to similarly titled measures reported by other companies.
Revenue
MJardin Group continued the development of the sales of cannabis from its owned facilities, generating the first sales from the Cheyenne facility post-license transfer of $0.8 million as well as recording $0.3 million in sales in the third quarter from the WILL facility.
The Company’s Colorado operations continue to provide consistent revenues, generating $6.5 million in the third quarter.
Gross Margin
Due to lower costs, gross margin for the three months ended September 30, 2019, was $3.1 million, compared to $2.9 million for the prior quarter, an increase of $0.2 million or 7%. Not included in this gross margin number are fair value adjustments to the inventory of $0.1 million. With a total of two grow rooms completed at WILL, full ownership of Cheyenne, further expansion underway, and the expected receipt of sale and cultivation licenses at AMI and GRO respectively, the Company expects to generate a steady increase in gross profit as facilities currently under-construction become fully operational.
Expenses
General and administrative expenses as well as payroll decreased from the prior quarter primarily due to the previously announced corporate cost-cutting measures which resulted in a 45% decrease in quarter over quarter SG&A. The Company will continue to aggressively search for efficiencies for the balance of 2019.
Adjusted EBITDA
Adjusted EBITDA was $0.5 million compared to an Adjusted EBITDA loss of $4.1 million for the prior quarter. This EBITDA improvement is primarily driven by the full benefits of corporate cost-cutting being realized during the quarter.
Q4 2019 and 2020 Outlook
MJardin Group continues to execute on its 2019 business plan with key deliverables for the fourth quarter of 2019, and full-year 2020 as follows:
- Full build-out completed in 2019 of WILL, GRO and AMI, with substantial completion of the Cheyenne facility anticipated by the first half of 2020;
- Construction will also begin on Rama in late 2019 with substantial completion expected to occur in 2020;
- 2019 exit run rate of approximately 3,300 kgs;
- Increase production run rates by the fourth quarter of 2020 by approximately 270% compared to 2019;
- The business will be EBITDA positive in fiscal year 2020 beginning in the third quarter;
- Successful transfer of licenses at Cannabella, and full integration of the businesses to enhance margins and market share;
- Continued pursuit of long term supply agreements to hedge price exposure of Canadian production and guarantee revenues.
About MJardin Group
MJardin is a cannabis management platform with extensive experience in cultivation, processing, distribution, and retail. For over 10 years, MJardin has refined cultivation methodologies, developed state of the art facilities and implemented vertical integration for and on behalf of license owners. MJardin is based in Denver, Colorado and Toronto, Canada. For more information, please visit www.mjardin.com