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Source: Auxly Cannabis Group Inc.

Auxly Reports Fourth Quarter and Full Year 2018 Financial Results and Provides Outlook for 2019

VANCOUVER, British Columbia, March 29, 2019 (GLOBE NEWSWIRE) -- Auxly Cannabis Group Inc. (TSX.V: XLY) (OTCQX: CBWTF) ("Auxly" or the "Company") today released its fourth quarter and full year 2018 financial results. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com.  All amounts are stated in thousands of Canadian dollars except common shares (“Shares”) and per Share amounts.

2018 Highlights

  December 31,
  December 31,  Change Percentage
(000's)  2018   2017   Change
Total revenues $   747   $  -   $  747 N/A
Net Losses *  (66,988)  (18,177)  (48,811)269%
Cash and equivalents  211,707   33,454   178,253 533%
Total Assets  460,818   92,579   368,239 398%
Debt $   94,151   $  18,650  $  75,501 405%
Average Shares outstanding  489,505,013   168,556,699   320,948,314 190%
*attributable to shareholders of the company       

Chuck Rifici, CEO and Chairman of Auxly commented: “2018 was an important year for us, as we made substantial progress towards our objective to become a vertically integrated cannabis company. We were successful in building a diverse and robust cultivation pipeline, have made progress on adding value through the research and development of derivative cannabis products through Dosecann, and expanded our distribution channels for bringing cannabis products to market. We added key strategic assets and partnerships to our portfolio, have over $200 million of cash and cash equivalents, and are well positioned to execute on our objectives for this year.”

Auxly’s Business

Auxly is a vertically integrated cannabis company with diverse operations across Canada and Uruguay and a platform spanning the entire cannabis value chain. The Company relies upon its diversified cannabis cultivation platform, its leading research and development infrastructure, its domestic and international distribution platform and its experienced team of industry leaders and strategic partners in order to serve an evolving global cannabis market.

Vision and Strategy

Since the Company’s inception, it has worked closely with its partners to develop a secure, cost-efficient and diversified source of cannabis. To accelerate market participation in the medical cannabis market, and prior to the legalization and creation of the adult-use cannabis markets in Canada in October 2018, Auxly invested in cultivation opportunities, more commonly referred to as “streaming” transactions, with the goal of supply diversification and efficient use of capital. These cultivation partners remain important to the Company’s predictable supply of diverse, cost efficient raw cannabis.

During 2018, as Canada moved forward with plans to legalize the adult-use cannabis market, and with the Company’s cultivation platform largely in place, Auxly turned its focus to securing the infrastructure and expertise necessary to participate in the derivative products segment of the cannabis market. The Company’s state-of-the-art processing facility at its wholly owned subsidiary Dosecann Inc. (“Dosecann”) and its highly-skilled team give the Company the ability to turn raw cannabis into derivative cannabis products. Further, Auxly’s acquisition of KGK Science Inc. (“KGK”) provides additional depth to Dosecann’s ability to develop and produce safe, effective and high-quality cannabis products.

The Company continues to develop strategic distribution channels to expand its exposure to new and existing markets, including health care providers, provincial boards and retailers, and its wholly-owned retail outlet with province-wide e-commerce capabilities in Saskatchewan.

Auxly has also invested in hemp cultivation and extraction in Uruguay through its 80% ownership of Inverell S.A. and its 100% ownership of its sister company Zeratol S.A., and is consistently evaluating other international cultivation and distribution opportunities.

Results of Operations

     
  December 31,
  December 31, 
(000's)  2018   2017 
Revenues    
Research contracts and other $   747   $  -  
Total Revenues    747      -  
     
Cost of sales    
Research contracts     1,078      -  
Gross loss excluding fair value items    (331)    -  
     
Unrealized fair value gain on biological transformation    143      -  
Gross loss    (188)    -  
     
Other incomes    
Fair value gain for financial instruments accounted under FVTPL    2,654      1,378 
Interest income    4,000      167 
Total other incomes    6,654      1,545 
     
Selling, general and administrative expenses    
Wages and salaries    9,059      1,672 
Office and administrative     4,305      1,543 
Professional fees    7,146      2,937 
Business development     7,053      8,449 
Selling expenses    398      -  
Total selling, general, and administrative expenses    27,961      14,601 
     
Other expenses    
Share-based payments    20,412      3,330 
Depreciation and amortization    2,063      32 
Interest Expense     
  Interest expense    6,831      877 
  Accretion expense    4,642      1,487 
Share of loss on equity investments    309      -  
Impairment of intangible assets    8,800      -  
Loss on settlement of financial liabilities    5,516      -  
Foreign exchange (gain)/loss    (546)    67 
Total expenses    75,988      20,394 
     
Net loss before income tax    (69,522)    (18,849)
Income tax recovery    2,313      672 
Net loss  $   (67,209) $  (18,177)
     
Net loss attributable to shareholders of the Company    (66,988)    (18,177)
Net loss attributable to non-controlling interest    (221)    -  
     
Net loss per common share (Basic and diluted) $   (0.14) $  (0.11)
     
Weighted average shares outstanding (Basic and diluted) 489,505,013   168,556,699 

Revenue

For the year ended December 31, 2018, Auxly recognized $747 of research revenues from the recently completed acquisition of KGK in the third quarter of 2018. KGK revenues are deferred and only recognized as performance criteria are met. KGK is a critical component in Auxly’s overall strategy to develop safe and effective consumer cannabis products while continuing to conduct leading edge research for third party clients.

Gross loss

Auxly realized a gross loss of $188 in 2018 comprised of revenues less KGK expenses of $1,078 in support of third-party research contracts which can fluctuate significantly during the contract and related performance milestones.  In addition, a $143 fair value gain on biological transformations was recognized during the period as Kolab Project Inc.’s cultivation progressed towards harvest.

Other incomes

Total other incomes of $6,654 is comprised of a fair value gain of $2,654 from changes in securities held and interest income of $4,000 primarily earned on cash and cash equivalents held during 2018.

Selling, general and administrative expenses

Wages and benefits were $9,059 during the year ended December 31, 2018 an increase of $7,387 over the same period of 2017, primarily due to an increase in Auxly employees to support the scaling of the business of $5,525 and workforce costs associated with the four acquisitions completed in 2018.

Office and administrative expenses were $4,305 in 2018 as compared to $1,543 in 2017.  The increase of $2,762 is comprised of $940 in rent expense, $850 in fees associated with financing activities and several other smaller expenditure items.

Professional fees were $7,146 during the year ended December 31, 2018. This compares to $2,937 during the year ended December 31, 2017. The increase in professional fees are attributable to ongoing services related to Auxly’s investment opportunities, due diligence and costs associated with four acquisitions, including legal fees of $2,950, and consulting fees of $2,730.

Business development fees were $7,053 during the year ended December 31, 2018, decreased by $1,396 over the same period in 2017. Expenses in 2018 consist of marketing and stakeholder communications of approximately $4,300 and $2,750 in business development activities.  The overall reduction in expenses is also attributable to the expiry of certain contracts in 2018, which were originated in prior periods. 

Other Expenses

Auxly recorded share-based expenses of $20,412 during the year ended December 31, 2018, an increase of $17,082, over 2017.  During 2018, 25,390,968 options were issued, resulting in a current year expense of approximately $12,900, of which, $7,114 was a result of immediate vesting or grant modification.  In addition, an expense of $6,032 associated with the issuance of 5,913,334 restricted Shares to non-executives as compensation for services performed in 2018 was fully recognized. Options outstanding prior to 2018 had a current year impact of $1,480. 
Depreciation and amortization expenses of $2,063 in 2018 reflect the impact of approximately $1,446 of intangible amortization primarily associated with acquisition related non-competition features and property, plant and equipment depreciation of $680 related to buildings and equipment.

Interest and accretion expenses of $11,473 in 2018 increased by $9,109 primarily due to interest of 6% on the convertible debentures and the non-cash accretion of placement and other related fees being recognized over 24 months.

The Company entered into the following agreements with Vivo Cannabis Inc. (“Vivo”) and ABcann Medicinals Inc.: (i) a confidential interim agreement dated May 29, 2017; (ii) a subscription agreement dated July 9, 2017; and (iii) an amending agreement to the interim agreement and subscription agreement dated March 19, 2018 (collectively the “Vivo Agreements”). Under the Vivo Agreements, the Company subscribed for 6,666,666 shares of Vivo (then ABcann Global Corporation) for $15,000.  The fair value of the long-term investment was valued at $6,200 for the shares and the Company allocated the residual $8,800 of the investment as a streaming interest intangible asset.  The Company and Vivo are currently engaged in confidential arbitration with respect to the Vivo Agreements.  As a result of this development, management has written off the $8,800 intangible asset related to the streaming interest.

The loss on other items of $5,516 in 2018 is comprised of the non-cash fair value adjustment on settlement of debt of $4,156 and $1,360 on settlement of a lawsuit. Auxly settled long-term loans and accounts payable balances with a carrying amount of $2,657 in consideration for the issuance of an aggregate of 2,984,959 Shares in November 2017. Due to the timing of the payment, the fair value of the Shares at the time of issuance was $2.28 based on the closing price on the grant date. The fair value of the consideration was estimated to be $6,806 resulting in a non-cash loss on the settlement of debt of $4,156.

Net Losses

For the year ended December 31, 2018, Auxly reported a net loss attributable to shareholders of $66,988 with net loss of $0.14 per Share on a basic and diluted basis. This compares to a net loss of $18,177 for the year ended December 31, 2017 with net loss of $0.11 per Share on a basic and diluted basis. The decrease in net income was primarily driven by an increase in expenses, compounded by non-cash expenses and losses during the period, partially offset by increased income tax recoveries of $1,641.

Outlook

In 2019, the Company expects to sell raw cannabis into the dry cannabis market and participate in the market for derivative products with an increasing part of its business dedicated to derivative cannabis product development, manufacturing and distribution as the industry evolves. The Company expects, therefore, that material revenue generation will coincide with the legalization and regulatory approvals for derivative cannabis products and the Company’s sale of such products to the market. Over the long-term, the Company believes shareholders will benefit from the higher profitability and anticipated strong growth of the derivative cannabis product market.

Auxly’s priorities for 2019 are as follows:

  • complete product R&D, formulation and manufacturing activities at the Dosecann facility in preparation for the legalization of derivative cannabis products;
  • complete construction of all ongoing cultivation assets, while continuing to work with the Company’s joint venture partner Sunens’ as it completes the state-of-the-art greenhouse facility in 2019, with expected supply of over 100,000 kg of cannabis in 2020;
  • continue to support the rollout of Kolab and Robinsons and build brand awareness; and
  • opportunistically expand the Company’s footprint in international markets to facilitate the sale of CBD, derived from its large-scale hemp cultivation operation in Uruguay.

ON BEHALF OF THE BOARD
"Chuck Rifici" Chairman & CEO

About Auxly Cannabis Group Inc. (TSX.V: XLY)

Auxly is a vertically integrated cannabis company with diverse operations across Canada and Uruguay and a platform spanning the entire cannabis value chain. The Company relies upon its diversified cannabis cultivation platform, its leading research and development infrastructure, its domestic and international distribution platform and its experienced team of industry leaders and strategic partners in order to serve an evolving global cannabis market.

Investor Relations:
For more information about investing in Auxly Cannabis Group, please visit: http://www.auxly.com or contact our Investor Relations Team: 
Email: IR@auxly.com
Phone: 1.833.695.2414

Stay Connected: 
Follow up on Twitter @Auxlygroup

Media Enquiries (only): 
For media enquiries or to set up an interview please contact:
Sarah Bain, VP External Affairs 
Email: sarah@auxly.com 
Phone: 613.230.5869

Notice Regarding Forward Looking Information:

This news release contains certain "forward-looking information" within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or information that certain events or conditions "may" or "will" occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes, but is not limited to: the proposed operation of Auxly, its subsidiaries and streaming partners, the Company's execution of its product development and commercialization strategy, the anticipated benefits of the Company's partnerships, joint ventures, research and development initiatives and other commercial arrangements, future legislative and regulatory developments involving cannabis and cannabis products, the timing of proposed research and clinical trials, the timing and outcomes of regulatory or intellectual property decisions, the relevance of Auxly’s subsidiaries’ and partners’ proposed products, consumer preferences, political change, competition and other risks affecting the Company in particular and the cannabis industry generally.

A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information in this release including, but not limited to, whether: Auxly’s subsidiaries and partners are able to obtain and maintain the necessary regulatory authorizations to conduct business, the Company is able to successfully manage the integration of its various business units with its own, the Company’s subsidiaries and partners obtain all necessary governmental and regulatory permits and approvals for the operation of their facilities and the development of its proposed products, and whether such permits and approvals can be obtained in a timely manner, the success of Dosecann and KGK’s research strategies, the applicability of the discoveries made therein, the successful and timely completion and uncertainties related to the regulatory process, the acceptance of future Dosecann products by consumers and medical professionals, and general economic, financial market, legislative, regulatory, competitive and political conditions in which the Company and its subsidiaries and partners operate will remain the same. Additional risk factors are disclosed in the revised annual information form of the Company for the financial year ended December 31, 2017 dated May 24, 2018.

New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. In addition, this release may contain forward-looking information attributed to third party industry sources, the accuracy of which has not been verified by the Company. The forward-looking information is being provided for the purposes of assisting the reader in understanding the Company's financial performance, financial position and cash flows as at and for periods ended on certain dates and to present information about management's current expectations and plans relating to the future, and the reader is cautioned that such forward-looking information may not be appropriate for any other purpose. Readers should not place undue reliance on forward-looking information contained in this release.

The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.

Neither 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.