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VANCOUVER, British Columbia, Aug. 16, 2019 (GLOBE NEWSWIRE) -- Auxly Cannabis Group Inc. (TSX.V - XLY) (OTCQX: CBWTF) ("Auxly" or the "Company") today released its financial results for the three and six months ended June 30, 2019. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com. 

Q2 2019 Highlights and Subsequent Events

• Auxly welcomed $123.0 million investment and R&D partnership with Imperial Brands
• Sunens entered into a term sheet for a syndicated credit facility and expects to receive debt financing in the aggregate amount of approximately $84.0 million
• Dosecann entered into a definitive agreement with Capsugel Inc. to provide Dosecann with a complete line of equipment for capsule filling and sealing, including a state-of-the-art LEMS® machine, Lonza’s proprietary liquid-filled Capsugel® Licaps® capsules, and rights to its capsule filling and sealing LEMS® technology. In addition, Dosecann and Lonza will work collaboratively on new product formulation for cannabis capsule products
• Kolab had its official store opening in Lloydminster, Saskatchewan; Kolab is now able to commence local cannabis sales and province-wide e-commerce throughout Saskatchewan
• Inverell harvested 18 tonnes of hemp biomass to be converted into CBD isolate

Q2 Highlights

^{*attributable to shareholders of the Company
** comparable period is December 31, 2018}

Hugo Alves, President of Auxly, commented: “This quarter has been instrumental in ensuring our growth and success as we prepare for the launch of our derivative products later this year. With our first retail store now open in Saskatchewan, licenses received at Robinsons and critical strategic partnerships in place with innovative and trailblazing companies such as Imperial Brands, we are well prepared to execute on our plans to lead the next phase of the cannabis industry.”

Auxly’s Business

Auxly is an international cannabis company dedicated to bringing innovative, effective, and high-quality cannabis products to the medical, wellness and adult-use markets. Auxly's experienced team of industry first-movers and enterprising visionaries have secured a diversified supply of raw cannabis, strong clinical, scientific and operating capabilities and leading research and development infrastructure in order to create trusted products and brands in an expanding global market.

Vision and Strategy

Auxly’s vision is to be a global cannabis leader focused on providing branded cannabis products backed by science and innovation.

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 and wellness 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.

With its cultivation platform largely in place and in anticipation of the legalization of derivative adult-use products for October 2019 (namely, concentrates, edibles and topicals as contemplated by the Cannabis Act and its current and proposed accompanying regulations) (“Phase two”), Auxly has been focused on product formulation and development at its wholly owned subsidiary, Dosecann Inc. (“Dosecann”).  Auxly was a first mover in 2018 with the acquisition of Dosecann.  Its state-of-the-art processing facility and its highly-skilled team give the Company the ability to turn raw cannabis into a variety of derivative cannabis products under one roof. Further, Auxly’s acquisition of KGK Science Inc. (“KGK”) provides additional scientific and clinical bench strength 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. (“Inverell”) and its 100% ownership of its sister company Zeratol S.A. and is constantly evaluating other international cultivation and distribution opportunities.

Results of Operations

Revenue

For the three and six months ended June 30, 2019, Auxly recognized $2.3 million and $2.8 million of research revenues from KGK, respectively. These revenues are in support of third-party research contracts which can fluctuate significantly during the contract and related performance milestones. Revenues are driven by the achievement of milestones on existing and new contracts and are therefore deferred to be only recognized as performance criteria are met, resulting in timing differences of when revenues are recognized. KGK is a critical component in Auxly’s overall strategy to develop safe, effective and high-quality consumer cannabis products while continuing to conduct leading edge research for third party clients.
Auxly recognized $0.4 million and $0.7 million of revenues from sales of dry cannabis products for the three and six months ended June 30, 2019, respectively. Dry cannabis flower sales have been curtailed as a result of the company’s decision to use the dry flower to develop derivative cannabis products in anticipation of Phase two legalization.

Gross Profit

Auxly realized a gross profit of $0.3 million for the three months ended June 30, 2019 and $0.1 million for the six months ended June 30, 2019. Gross profit for the three months ended June 30, 2019 is comprised of KGK revenues less expenses of $0.2 million and $0.2 million of revenues less expenses on the sale of cannabis products, net of a $0.1 million unrealized fair value loss on biological asset transformation. Gross profit for the six months ended June 30, 2019 is comprised of KGK revenues less expenses of $0.5 million and $0.4 million of revenues less expenses on the sale of cannabis products. In addition, a $0.2 million fair value loss on inventory recognized on net realizable value and a $0.6 million unrealized fair value loss on biological asset transformation contributed to a reduction in overall gross profit over the six-month period ended June 30, 2019. 

Other incomes

Total other incomes were $0.2 million for the three months ended June 30, 2019 and $2.5 million for the six months ended June 30, 2019. For the three and six months ended June 30, 2019, other incomes are comprised of a fair value loss of $1.8 million and $0.4 million, respectively, from changes in securities held and interest income of $2.0 million and $3.0 million, respectively. Interest income is generated on notes receivable balances as well as interest on cash and cash equivalents held.

Selling, general and administrative expenses

Selling, general and administrative expenses are comprised of wages and salaries, office and administrative, professional fees, business developments, share-based payments, and selling expenses. Share-based payments were reported separately prior to 2019.

For the three and six months ended June 30, 2019, wages and benefits were $4.2 million and $8.3 million, respectively. This reflects an increase of $2.4 million and $5.3 million over the same period in 2018, primarily due to workforce increases in both 2018 and 2019. The increases were to support expansionary activities as a direct result of workforces added on acquisition of four entities and the corporate office.

Office and administrative expenses of $1.5 million in the second quarter of 2019 increased by $0.1 million and $0.8 million to $3.2 million year to date compared to the same periods in 2018. Office and administrative expenses have remained relatively consistent year over year despite the increase in headcount due to cost savings initiatives at head office.   

Auxly’s professional fees were $1.8 million and $2.9 million for the three and six months ended June 30, 2019, respectively, as compared to $2.0 million and $2.7 million over the same respective periods in 2018. Professional fees for 2019 primarily related to recruiting expenses, accounting fees, and fees associated with financing activities, whereas these expenses in 2018 primarily related to acquisition activities, leading to a decrease over the comparable second quarter three-month period. The overall growth of the Company resulted in additional accounting and recruiting fees over the six months ended June 30, 2019.

Business development fees of $1.1 million in the second quarter of 2019 decreased by $1.4 million and $2.5 million to $2.1 million year to date as compared to the same periods in 2018, attributable to a lower volume of transactions. The fees in 2019 were focused on exclusively securing opportunities for additional financing, while the fees in 2018 were focused on the acquisitions of Inverell, Dosecann, Robinsons, and KGK in additional to securing financing.

For the three and six months ended June 30, 2019, share-based compensation was $2.7 million and $5.7 million similar to the $2.7 million and $5.6 million over the same respective periods in 2018. 1,440,000 options and 6,590,000 options were issued during the three and six months ended June 30, 2019, respectively.

Other Expenses

Depreciation and amortization expenses were $1.4 million in the second quarter of 2019 and $2.5 million year to date. This is comprised of $0.6 million amortization of intangible amortization per quarter, primarily associated with acquisition related non-competition features. The remaining depreciation relates to charges on the Company’s property, plant and equipment.

Interest expenses were $1.9 million for the three-month period ended June 30, 2019, a decrease of $0.9 million over the same period in 2018, and $5.4 million for the six-month period ended June 30, 2019, an increase of $0.4 million over the same period in 2018. Interest expenses are driven by interest charges of 6% on the outstanding convertible debentures an