WeedMD Reports Fiscal Year 2019 Financial Results and First Quarter 2020 Preliminary Revenue of $12 Million

WeedMD Inc. a federally-licensed producer and distributor of medical-grade cannabis announced today its financial results for the fiscal year ended December 31, 2019, including a 162% net revenue increase to $20.8 million, compared with $8.0 million for the prior year. The Company also announced preliminary unaudited first quarter 2020 revenue of $12 million⁽¹⁾, representing the first full quarter of integration with Starseed Holdings Inc. (“Starseed”), following the previously completed acquisition in December 2019. The Company expects to file its first quarter financial results on or before July 15, 2020.
                                      
“With the significant ramp-up of our production platform, 2019 was a year of planned investment coupled with a strategic focus on building strong brands and distribution channels,” said Angelo Tsebelis, CEO of WeedMD. “The Company’s $2.9 million in fourth quarter 2019 net revenue was comprised entirely of consumer sales as availability and demand for our Color Cannabis adult-use brand continued to expand.  The strong momentum carried into the first quarter of 2020 where the Company generated preliminary unaudited net revenue of $12 million, a record high quarter for WeedMD, with the Starseed medical brand and direct-to-consumer platform contributing significant high margin revenue. This solid year-over-year and quarter-over-quarter revenue growth is reflective of our strategy emphasizing customer-centric initiatives to drive direct-to-consumer sales and stronger margins and cash flow as we execute on our commercial plan.”

Key Financial Highlights

• Net revenue for the year ended December 31, 2019 was $20.8 million, representing a $12.8 million or 162% increase year-over-year, attributable to increased sales to other Licensed Producers (“LPs”) and the provincial distribution channel for the Adult-Use market.
• As a percentage of revenue, for 2019 consumer revenue accounted for $1.8 million or 8.6%, and wholesale accounted for $19.0 million or 91.4%.
• 2019 gross profit before changes in fair value was $4.0 million, a 19.4% gross margin compared with 40.7% in the prior year. Gross profit margin decreased year-over-year primarily due to the Company ramping up production as it brought 10 newly-licensed cultivation rooms online as well as decreases in selling prices due to the implementation of excise tax.
• The Company harvested 17,988 kgs in 2019, a 921% increase compared with 2018 which includes 8,950 kgs attributable to the WeedMD’s harvest of outdoor crops.
• WeedMD holds $38.9 million of inventory and biological assets as of December 31, 2019.
• WeedMD’s total assets reached $209.8 million as of December 31, 2019.
• Adjusted EBITDA* loss totalled $13.9 million for the year ended December 31, 2019 as compared with a loss of $5.7 million for the prior year period, mainly driven by increased general and administrative expenses, partially offset by the improvement of gross profit before changes in fair value of $2.1 million driven by the sales increase.

Q4 2019 & Preliminary Q1 2020 Revenue⁽¹⁾   

WeedMD also provided preliminary unaudited revenue highlights for the three-month period ended March 31, 2020. First quarter 2020 net revenues of $12 million represent a 329% quarter-over-quarter increase, reflecting the Company’s first full quarter of Starseed contribution. Revenue from Adult-Use and Medical channels increased meaningfully quarter-over-quarter to record high sales in Q1 2020 driven by higher product availability and customer acquisition initiatives. Additionally, WeedMD completed a substantial landmark sale of its inaugural outdoor-cultivated biomass earmarked for extraction and international markets. The sale was entered into in December 2019 and upon the buyer securing export certification, the product was shipped in January 2020 with the deferred income realized in the first quarter 2020.

“We are seeing the benefits of our fully-integrated business model in the first quarter of 2020 with record preliminary net revenues of $12 million,” said Lincoln Greenidge, Chief Financial Officer, WeedMD. “Our first quarter revenue mix is well diversified including significant Medical and Adult-Use sales, and the sale of almost half of our outdoor-cultivated biomass. Our scaled-up cultivation and production capabilities combined with our strong distribution channels positions WeedMD for continued growth and a path to profitability. Our integrated cultivation, extraction and fulfilment operations will enable us to produce low-cost, quality cannabis to create an assortment of high-margin finished products, which should significantly enhance our profitability over the remainder of the year.”

Leadership Appointments

Following the acquisition of Starseed, WeedMD combined its experienced senior leadership team and board of directors and in February 2020 in order to accelerate the Company’s commercial growth, appointed Angelo Tsebelis as CEO of WeedMD. Formerly President of WeedMD and Starseed, Angelo brings a renewed focus on expanding strategic commercial and sales distribution initiatives to execute on delivering high-margin, quality products.  

In April 2020, the Company appointed Lincoln Greenidge as Chief Financial Officer. Lincoln brings over 20 years of corporate finance, capital markets as well as mergers and acquisition experience and is leading the Company’s financial integration and strategic shift to commercialize WeedMD’s cultivation platform. 

Starseed Acquisition and Integration

WeedMD completed the acquisition of Starseed in December 2019 and secured a $25 million strategic equity investment from the LiUNA Pension Fund of Central and Eastern Canada (“LPF”), which funds were delivered to the Company in February 2020 following the receipt of shareholder approval. LPF’s investment strengthened WeedMD’s balance sheet to further support the Company’s commercial growth and its expanded distribution channels. Integration of the commercial and operations teams has been completed and the Company continues to review and execute against further opportunities for operational efficiencies and synergies.

Sales, Marketing and Business Development Milestones

Launched Color Cannabis: WeedMD expanded its sales distribution channel with the launch of Color Cannabis, a dedicated premium adult-use brand exclusively available to distributors and select retailers across Canada as of June 2019.

Expanded Medical Channel: With the addition of Starseed, WeedMD also welcomed new and direct channels to a patient base with insurance coverage for medical cannabis. The potential access to a substantial and direct consumer audience of over 350,000 individuals is expected to drive growth and margin expansion. The following four strategic partners and their benefits providers were added in February 2020:

• LiUNA Local 1059 (London, Ontario)
• myHSA
• The International Union of Painters and Allied Workers
• The Insulators Local 95 Health and Welfare Trust Fund

Launched Extraction Affiliate CX Industries Inc.

WeedMD launched CX Industries Inc. (“CX Industries” or “CX”), a business unit specializing in extraction, toll processing and third-party product formulation from its fully-licensed Aylmer site. With plans to process over 26,000 kg of biomass annually at peak production, CX offers tolling and white labelling services to other LPs and brands. Two Vitalis Q90 extractors commissioned in early 2020 moved CX Industries into commercial operation.

Indoor and Outdoor Cultivation Expansion

Expanded Indoor Cultivation: The Company ramped-up production and expanded into twenty cultivation and processing rooms in August 2019. With the additional ten 10,000 sq. ft. cultivation rooms along with ten more processing and drying rooms now fully operational, WeedMD has scaled up its product availability to execute on its mass craft strategy.

Outdoor Cultivation: In November 2019, WeedMD completed the first harvest of its 27-acre outdoor cannabis cultivation which yielded 8,950 kgs of high quality biomass for commercialization across various product formats at a cost to harvest of approximately $0.11 per gram. The Company recently completed planting for its second outdoor cultivation, the Company confirmed that it planted crop consisting of over 18,000 clones across seven core strains.

In October 2019, WeedMD secured a Health Canada license for its 50,000 sq. ft. purpose-built operating facility designed for its outdoor and other cannabis operations on its 158-acre Strathroy property. The facility is fully operational and allows for drying, processing, and storing of WeedMD’s outdoor harvested cannabis.

Licensing-Related Milestones

Bowmanville: The Company secured a Health Canada research licence at its Bowmanville facility in February 2020 which gives way to further research activities and allows for the administration and distribution of cannabis to human research subjects for assessment of taste, sight, smell and/or touch. 

Aylmer: Health Canada approved a licence amendment to allow an additional processing area, equipped with semi-automated packaging lines at its facility in Aylmer in May 2019.

Strathroy: The Company secured a standard processing licence from Health Canada in April 2019 for its Strathroy facility, authorizing the sale and distribution of cannabis plants and seeds, the first phase in obtaining a licence authorizing the sale of other classes of cannabis products.

COVID-19 Operational Response

In March 2020, WeedMD established a number of safety protocols and risk mitigation strategies to ensure the health and safety of its employees and communities as a result of the COVID-19 global pandemic. The Company temporarily closed its corporate offices in London and Toronto in accordance with emergency measures enacted by the Province of Ontario. While its production sites continue to operate, employees are observing strict social distancing and safety measures put in place by the Company. With the resulting business challenges, in April 2020 WeedMD temporarily reduced its workforce and is now reviewing a phased approach for its return to work strategy. Concurrent with this, the Company also implemented salary reductions across its senior leadership and board of director levels. 

Conference Call Information:

The Company will host a conference call with management on Thursday, June 11, 2020 at 10 a.m. Eastern Time to discuss its financial results and provide an operational outlook for 2020. 

The call will be hosted by Angelo Tsebelis, CEO and Lincoln Greenidge, CFO. Management will be available for analyst and media questions following opening remarks. 

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. All amounts are expressed in Canadian dollars and are in accordance with International Financial Reporting Standards unless otherwise noted.

About WeedMD Inc.

WeedMD Inc. is the publicly-traded parent company of WeedMD RX Inc. and Starseed Medicinal Inc., federally-licensed producers of cannabis products for both the medical and adult-use markets. The Company owns and operates a 158-acre state-of-the-art greenhouse, outdoor and processing facility located in Strathroy, Ontario as well as CX Industries Inc., a wholly-owned subsidiary which specializes in cannabis extraction from the Company’s fully-licensed 26,000 sq. ft. Aylmer, Ontario processing facility. With the addition of Starseed, a medical-centric operator based in Bowmanville, Ontario, WeedMD has expanded its multi-channeled distribution strategy. Starseed’s industry-first, exclusive partnership with LiUNA, the largest construction union in Canada, along with other employers and union groups complements WeedMD’s direct sales to medical patients. The Company maintains strategic relationships in the seniors’ market and supply agreements with Shoppers Drug Mart as well as six provincial distribution agencies where adult-use brands Color Cannabis and Saturday are sold.

For further information, please contact:

For Investor Enquiries:
Valter Pinto
Managing Director
KCSA Strategic Communications
1-212-896-1254
weedmd@kcsa.com

For Media Enquiries:
Marianella delaBarrera
VP, Communications & Corporate Affairs
416-897-6644
marianella@weedmd.com