VIVO Cannabis™ Announces First Quarter 2020 Results

Net revenue was $8.2 million, an increase of 24% over Q4 2019

Initiated spring planting in Napanee airhouses

Additional production and extraction capacity expected to be operational in Q2 2020

NAPANEE, ON, May 14, 2020 /CNW/ – VIVO Cannabis Inc. (TSX: VIVO, OTCQX: VVCIF) ("VIVO" or the "Company") today released its first quarter 2020 financial and operating results.

Management Commentary

"Our positive first quarter 2020 results were fueled by a net revenue increase of 24% compared with the previous quarter," said Barry Fishman, CEO of VIVO. "Several of our Canna Farms™ and Fireside™ cannabis 2.0 products are showing strong momentum, and the VIVO team continued to execute well on plans related to our four strategic priorities, despite COVID-19 related challenges. In April, we started planting in our airhouses in Napanee, are awaiting Health Canada approval to begin production in our Phase 5 expansion in Hope B.C. and expect to commission our new ethanol extraction suite in Napanee in Q2 2020. During the quarter we also entered into new supply and processing agreements, which are expected to result in the launch of several exciting new products."

Financial Summary

Gross and net revenue for the first quarter of 2020 were $11.5 million and $8.2 million respectively. On a net basis this represents a 24% increase quarter-over-quarter, driven largely by the successful launch of the first phase of VIVO’s cannabis 2.0 products. When compared to Q1 2019, net revenue during the quarter grew by 62%.

VIVO continued to sustain top-tier prices for its medical and adult-use dry flower products, with a net average selling price of $6.67 per gram in Q1 2020.

The Company’s adjusted EBITDA(1) was ($2.6) million for the first quarter, which was a slight improvement over the fourth quarter of 2019. VIVO’s Q1 2020 adjusted EBITDA(1) from Domestic Cannabis Operations was ($1.7) million.  The additional ($0.9) million of adjusted EBITDA(1) in the quarter is related to Growth Initiatives (International Operations and Product Development) which represent current investments that are expected to drive future profitable sales beyond 2020.

Sales, general and administrative (SG&A) expenses were $5.5 million, compared to $5.1 million in the fourth quarter of 2019.

VIVO continues to maintain a healthy balance sheet through prudent management of operational expenses and a measured approach to capital expenditures. Cash and cash equivalents (including short term investments but excluding strategic equity investments) as at March 31, 2020 were $35.2 million.

Subsequent to quarter-end, VIVO announced it had repurchased certain of its outstanding 6% unsecured convertible debentures in the aggregate principal amount of $10.9 million, for a discounted purchase price of $10.1 million (plus accrued and unpaid interest thereon). As a result of the repurchase, the Company will save approximately $1.35 million in interest and principal, leaving remaining debentures in the aggregate principal amount of $27.1 million.

Key Performance Indicators

KPI (P&L amounts in
millions)

Q1 2020

Quarter-over-
Quarter Change

Q4 2019

Gross Revenue

$11.5

21%

$9.5

Net Revenue

$8.2

24%

$6.6

SG&A

$5.5

8%

$5.1

Adjusted EBITDA (1)

($2.6)

4%

($2.7)

Cash and equivalents

$35.2

(19)%

$43.4

Active patients (2)

21,444

21,537

Net flower price per gram

$6.67

+2%

$6.54

Product formats

7

40%

5

(1)

Adjusted EBITDA is not a measure of financial performance under IFRS. For the Company’s definition of Adjusted EBITDA, see the Company’s management’s discussion and analysis for the three months ended March 31, 2020, available under the Company’s profile at www.sedar.com

(2)

Represents active patients who purchase medical cannabis directly from the Company pursuant to the Access to Cannabis for Medical Purposes provisions of the Cannabis Regulations (Canada)

Business Update

VIVO remains focused on executing against its four strategic priorities and, in the last year, has made significant progress in enhancing supply and production capabilities, expanding its customer network, increasing product innovation and accelerating its international medical business. VIVO believes that focusing on these four priorities will generate long-term shareholder value and will accelerate the path to profitability.

1. Enhance Supply and Production Capabilities 

VIVO continues to adhere to a measured and disciplined approach to capacity expansion and production capabilities by ensuring these initiatives are cost effective and will be capable of meeting growing patient and consumer demand.

  • An application for Canna Farms’ 10,000 square foot Phase 5 expansion has been submitted to Health Canada, with operations expected to begin shortly after licensing. VIVO’s capital expenditure plan for 2020 is largely related to this project, with expenses heavily weighted in the first half of 2020.
  • To increase output and reduce unit costs, the Company is installing automated pre-roll equipment, commissioning a new high-volume ethanol extraction suite and introducing high-speed packaging equipment.

  • Planting has commenced in the airhouses at the Kimmetts facility in Napanee, approximately three months earlier than in 2019, which is expected to result in significantly higher output.
  • EU-GMP certification of VIVO’s Vanluven facility continues to advance. The Company expects to send its final written response in May. Barring regulatory delays, and delays in the ability of the German authorities to make a final inspection as a result of the COVID-19 pandemic, certification is expected to be granted in the second half of 2020.

2. Create a Broad and Loyal Customer Network

VIVO has a strong portfolio of brands in both the medical and adult-use markets. Its Canna Farms™ brand is one of the leading brands in the industry, known for producing award-winning, BC indoor-grown, craft cannabis flowers and newly launched extracts and edibles.

  • The Company continued to maintain top-tier net pricing of $6.67 per gram of dry flower.
  • VIVO entered into several new supply and processing agreements with strict quality and potency specifications, to acquire inputs for the Company’s dry flower and cannabis 2.0 products.
  • The Company currently sells over 100 stock keeping units (SKUs) and will introduce several new products later this year.
  • Canadian Bud Collection™, a new brand directed at the popular value segment of the market, was introduced in the first quarter of 2020.
  • Canna Farms successfully shipped cannabis 2.0 products to multiple provinces and Fireside™ chocolates were shipped to three Canadian provinces.
  • By shifting Harvest Medicine’s resources to providing patient-focused services through its telemedicine platform, HMED Connect, and by prioritizing the production of medical products, VIVO has tried to mitigate the impact of COVID-19 on its loyal medical customers.

3. Build an Innovation-Driven Branded Organization 

VIVO has a strong commitment to pursuing innovation throughout its value chain. The Company is also using its robust data insights as a foundation for the development of novel products with a strong competitive edge and high margins.

  • The Company made its first sales of its premium quality Fireside™ vape cartridges and kits to customers in Alberta, Ontario, and B.C.
  • Subsequent to quarter-end, VIVO signed an exclusive agreement with Vertosa, an infusion technology company based in Oakland, California. The agreement provides rights to their advanced technology for Canada. Vertosa’s patent pending emulsion systems allow for the creation of shelf-stable cannabis infused beverages, with high bioavailability, excellent clarity, and great taste. VIVO plans to install new equipment in its Napanee facility over the next few months to produce emulsification products for use in future cannabis beverages for VIVO and third-party product developers throughout Canada.
  • VIVO continues to progress its goal of expanding its offering of high-quality and precisely dosed cannabis products for medical patients through its partnerships with several pharmaceutical manufacturing companies.

4. Accelerate International Medical Business Growth

VIVO continues to pursue its international expansion strategy, leveraging its experience and leadership to enter new high-growth markets. The Company’s initial focus is on the German and Australian markets, which combined have a population of over 100 million people.

  • VIVO was granted a narcotics licence in Germany, and is awaiting receipt of an import licence, the final permit necessary to facilitate imports from VIVO’s Vanluven facility and from other non-EU sources.
  • VIVO continued to advance its European expansion strategy through its partnership with Linneo Health, a Spanish-based EU-GMP certified supplier of pharma-grade cannabis. The Company’s subsidiary, Beacon Medical Germany, is in the process of finalizing its first purchase order with Linneo for product for the German market expected to be sold in the second half of 2020.

  • The Company’s Australian business continues to develop as the Company’s subsidiary, Beacon Medical Australia, leverages its current customers and explores additional supply and commercial partnerships in this fast-growing market.

COVID-19 Update

VIVO continues to monitor COVID-19 developments and has implemented enhanced personal safety and sanitation protocols. VIVO’s production facilities are continuing operations and there have been no confirmed cases of COVID-19 among Company personnel. The Napanee and Hope facilities have extended hours and staggered shifts to facilitate physical distancing and ensure a safe work environment. Frontline staffing levels at the Company’s Napanee and Hope facilities during the last two months have ranged between 80% and 90%.

The Company is also proud to support the local communities in which it operates by donating masks and gloves in both Ontario and BC.

Q1 2020 Results Conference Call and Webcast

DATE:

Friday, May 15, 2020

TIME:

10:00 a.m. ET

DIAL-IN NUMBER:

647-427-7450 or 1-888-231-8191

CONFERENCE ID:

8835659

LIVE WEBCAST:

https://bit.ly/3cfBdBy

About VIVO Cannabis™

VIVO Cannabis™ is recognized for trusted, premium cannabis products and services. It holds production and sales licences from Health Canada and operates world-class indoor and seasonal airhouse cultivation facilities with proprietary plant-growing technology in Hope, British Columbia and Napanee, Ontario. VIVO has a collection of premium brands, each targeting different customer segments, including Canna Farms™, Beacon Medical™, Fireside™, Lumina™ and Canadian Bud Collection™. The Company is expanding its production capabilities and distribution network. Harvest Medicine, VIVO’s patient-centric, scalable network of medical cannabis clinics, has serviced over 100,000 patient visits. VIVO is pursuing several partnership and product development opportunities and is focusing its international efforts on Germany and Australia. The Company has a healthy balance sheet and is well-positioned to accelerate its path to profitability. For more information visit: www.vivocannabis.com

ON BEHALF OF THE BOARD OF DIRECTORS

Barry Fishman
CEO and Director

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Disclaimer for Forward-Looking Information

All dollar amounts in this news release are in Canadian dollars. Certain statements in this news release are forward-looking statements, which are statements that are not purely historical, including statements regarding the beliefs, plans, expectations or intentions of VIVO and its management regarding the future. Forward-looking statements in this news release include statements regarding: the Company’s expected catalysts which are expected to deliver profitable growth, including production expansion, distribution channel development, entry into international markets and the development and launch of innovative products and services, and the financial impact thereof; 2020 capital expenditure plans and the timing of spending of same; the Company’s expectation that focusing on its four strategic priorities will generate long-term shareholder value and accelerate the path to profitability; the impact of productivity improvements such as the reduction of unit costs, including as the result of the commissioning of new automated systems; the expected impact of timing of planting at the Kimmetts facility seasonal airhouses; the expected timing of EU-GMP certification and receipt of a German import licence, including the expected timing of related submissions from the Company; the expected timing of the Hope facility expansion becoming operational; the expected introduction of new products in 2020; and the expected timing of entry of Linneo products into the German market. Such statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the forward-looking statements, including: that the Company’s expected catalysts may not crystallize or be delayed; that the COVID-19 pandemic may last longer and have a more significant impact on the Company’s operations, the Canadian cannabis industry, or the global economy generally, than currently expected; that the Company may not be able to achieve its expected internal cultivation capacity; that the Company may not be able to launch new products in the time expected or at all; that the Company may not be able to achieve competitive margins; that the actual timing or amount of 2020 capital expenditures may differ from management’s expectations; that the Company may not be able to increase the sales of its products in the current domestic market or successfully develop and launch new product lines in the time expected or at all; that new products, if launched, may not be accepted by the market or may become subject to product liability claims; that the Company may not be able to obtain necessary licences; that demand for the Company’s products may not meet management’s expectations; that the timing of EU-GMP certification, the related submissions from the Company or the launch of European sales of Linneo products may be delayed, due to travel restrictions related to the COVID-19 pandemic or otherwise; that the expected impact of productivity improvements may not be realized; that the Company may be unable to retain its key talent; that the Company may not be able to execute on its strategic partnerships; that regulatory approval for the Canna Farms’ Phase 5 expansion may not be received in the time expected or at all; that the Company may not obtain any other necessary regulatory approvals as required from time to time; that the Company may be unable to protect its intellectual property; and other factors beyond the Company’s control. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. Readers are urged to consider these factors, and the more extensive risk factors included in the Company’s management’s discussion and analysis for the three months ended March 31, 2020, which is available on SEDAR, carefully in evaluating the forward-looking statements contained in this news release, and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements. The forward-looking statements in this news release are made as of the date hereof and the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws.

SOURCE VIVO Cannabis Inc.

VIVO is a family of premium brands and businesses, building a world-class cannabis company through the acquisition and development of specialty brands.