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Earlier this week, Auxly Cannabis Group Inc. (XLY.V) (CBWTF) released second quarter financial results and reported impressive growth on a quarter-over-quarter and a year-over-year basis.
The Canadian cannabis producer has been highly focused on Canada’s recreational market and generated more than $20 million of revenue in the second quarter. This amount is double the amount that was reported in the prior quarter as well as the same quarter in 2020.
One of the important metrics that was reported in Auxly’s second quarter earnings report was related to the balance sheet. During the period, the company strengthened its balance sheet through financing transactions as well as the sale of non-core assets.
In regard to the makeup of second quarter revenues, the sales were comprised of approx. 75% of cannabis 2.0 products sales, with the remainder from cannabis 1.0 product sales. The increase was related to higher retail cannabis sales across Canada (besides Quebec) as well as improvements in sales from provinces across Canada.
Although Auxly does not have leverage to the Quebec market, approx. 85% of second quarter cannabis sales came from British Columbia, Alberta, and Ontario. We are favorable on the diversity of the sales in Canada and will monitor how the business performs in these provinces on a going forward basis.
During the last year, Auxly has seen volatility with the sale of cannabis products to provinces across Canada. We will monitor this trend on a going forward basis and will follow the sales trend in future quarters.
We believe that Auxly has benefited from being an early mover on the cannabis 2.0 market in Canada and expect the business to continue to benefit from the growth of the vertical. During the last few years, the company has formed strategic relationships with high-profile cannabis brands and consider this to be a key growth driver for the business in future quarters.
A key aspect of Auxly’s story is related to the relationship that it formed with Imperial Brands in 2019. A few months ago, Imperial and Auxly amended the agreement to extend the maturity date of the $123 million debenture (issued by Imperial) by two years. In return for extending the maturity date, Auxly provided Imperial with the right to convert any or all of the accrued and unpaid interest on the debenture into common shares.
In 2021, Auxly is focused on building upon its success as a leading cannabis 2.0 product company and expanding its dried flower, pre-roll, oil, and capsule product offerings. By the end of the year, the company wants to be generating positive Adjusted EBITDA and we will monitor how the management team is able to execute on this.
Going forward, Auxly plans to analyze international expansion opportunities on an asset light basis. Concurrent with this strategy, the company plans to evaluate opportunities to launch new cannabis products for consumers and this is a story we are following.
If you are interested in learning more about Auxly Cannabis Group, please send an email to support@technical420.com with the subject “Auxly Cannabis Group” to be added to our distribution list.
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