Hydropothecary reports fiscal 2018 first quarter results ending October 31, 2017 as cash inventory cost per gram declines to $0.89

GATINEAU, QC--(Marketwired - December 21, 2017) - The Hydropothecary Corporation (TSX VENTURE: THCX) (the "Company") reported its financial results for the three months ended October 31, 2017, the first quarter of the Company's 2018 fiscal year. The Company's financial statements and related management's discussion and analysis for the period are available under the Company's profile on SEDAR at www.sedar.com and on the Company's website www.THCX.com. All amounts are expressed in Canadian dollars.

Highlights

• Shipments increased to 120,844-gram equivalent from 80,782 in the first quarter of fiscal 2017.
• Cash cost of finished goods inventory declined to $0.89 per gram equivalent from $1.79 in the first quarter of fiscal 2017, driven by improvements in cultivation processes and economies of scale.
• Relationships established with 16 new clinics, further expanding and diversifying the Company's patient base and market presence.
• Major 250,000 sq. ft. greenhouse expansion commenced construction, increasing the Company's annual production capacity of dried cannabis to 25,000 kilograms when completed.

Subsequent Events

• Issued notice of conversion to convertible debenture holders from the Company's $25.1 million financing. The effective date for the conversion is December 27, 2017.
• Closed a $69 million bought deal financing on November 24, 2017 and issued a notice of conversion of the convertible debentures with an effective date of January 15, 2018.
• Acquired 78 acres of land adjacent to the Company's 65-acre Gatineau, Quebec facility.
• Announced a 1 million sq. ft. greenhouse expansion to be completed for December 2018 to increase annual dried cannabis production capacity to 108,000 kg.

"This past quarter was a bellwether for Hydropothecary -- a sign of greater things to come. Our new products are gaining acceptance in the market. We broke ground on our state-of-the-art 250,000 sq. ft. greenhouse and announced a new expansion to increase total annual production capacity to 1,300,000 sq. ft. We also upped the caliber of our leadership. Our company is in a strong financial position and these results demonstrate that we are making the right decisions," said Sebastien St-Louis, CEO and Co-founder. "Our focus now is on the execution of our two expansion projects and our innovative product strategy in anticipation of the opening of the recreational adult-use cannabis market."

Revenue for the first quarter ended October 31, 2017 was $1,101,502, compared to $1,138,702 for the quarter ended October 31, 2016. Total grams sold increased 50% to 120,844 from 80,782 in the same prior year period, reflecting sales of new product lines such as H2, Decarb and Elixir No. 1 introduced in previous quarters. Revenue per gram declined to $9.12 from $14.10, mainly as a result of the growth of the H2 product line, introduced beginning in December 2017, which retails for $7.25 to $10 per gram. Lower average realized prices in the latest quarter also reflect the decision by Veterans Affairs Canada (VAC) to cap the reimbursable amount at $8.50 per gram, effective in the second quarter of Fiscal 2017.

Cost of sales for the first quarter ended October 31, 2017 was ($1,361,758), compared to $69,325 for the same quarter ended October 31, 2016. This is due mainly to an increase in the value of biological assets on hand, reflecting full capacity utilization of a new greenhouse (Building 5) since the fourth quarter of Fiscal 2017.

Cash inventory cost per gram declined 50% year over year to $0.89 for the first quarter ended October 31, 2017, compared to $1.79 for the same prior year quarter. Cost per gram has been trending downward as a result of improvements in cultivation processes and economies of scale resulting from the full utilization of higher production capacity. The Company expects recent changes to growing and harvest methodology to drive further improvements in production efficiencies.

Marketing and promotion expenses increased to $1,114,584 for the first quarter ended October 31, 2017, compared to $759,534 for the same three months ended October 31, 2016. This reflects mainly the addition of marketing and promotion staff and an increase in travel-related expenses, printing and promotional materials, in line with the Company's focus on client growth.

General & administrative expenses increased to $1,167,929 for the first quarter ended October 31, 2017, compared to $516,842 for the same three months ended October 31, 2016. The increase is due primarily to the growing scale of the Company's operations, including higher production and head count, as well as increased compliance costs as a listed company.

Loss from operations for the first quarter ended October 31, 2017 was $381,114, compared to a loss from operations of $419,113 for the first quarter ended October 31, 2016. The lower loss from operations in the latest quarter is due mainly to the significant unrealized revaluation gain related to the Company's biological assets, which more than offset higher expenses in line with the expanding scale of operations.

Other Income/(Expenses) for the first quarters ended October 31, 2017 and October 31, 2016 was ($1,537,088) and ($11,191), respectively. Revaluation of financial instruments of ($1,282,436) in the latest quarter reflects the revaluation of an embedded derivative related to $3,275,000 of USD convertible debentures issued and converted in the prior year. Additionally, the Company incurred interest expense for the three months ended October 31, 2017 and October 31, 2016 of $432,908 and $14,493, respectively. This increase reflects the accrual of interest related to convertible debentures.

Financial Highlights

"Adjusted EBITDA" is a non-GAAP financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. It is a metric used by management which is net loss, as reported, and adjusted by removing interest, tax, other non-cash items, including the stock based compensation expense, depreciation, and the non-cash effects of accounting for biological assets and inventories. Management believes "Adjusted EBITDA" is a useful financial metric to assess its operating performance on a cash basis before the impact of non-cash items and acquisition related activities.

About The Hydropothecary Corporation

The Hydropothecary Corporation is an authorized licensed producer and distributor of medical marijuana licensed by Health Canada under the Access to Cannabis for Medical Purposes Regulations (Canada). Hydropothecary provides naturally grown and rigorously tested medical marijuana of uncompromising quality. Hydropothecary's branding, marijuana product offering, patient service standards and product pricing are consistent with THCX's positioning as a premium brand for a legal source for medical marijuana within this new marketplace. In addition to medical marijuana production and sales, Hydropothecary explores various research and development opportunities for cannabinoid extracts, drugs and combinatory chemistry. In addition, the company is investigating the development and patenting of novel technologies related to medical marijuana, as well as the import and export of medical marijuana.

Forward-Looking Information

This press release contains forward-looking information based on current expectations. Examples of such forward-looking information include statements about future operational and production capacity, including expected resulting production cash costs, the impact of enhanced facilities and production capabilities, and expected available product selection. These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. The forward-looking statements included in this press release are made as of the date of this press release and the Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by applicable securities legislation.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.