Emblem Announces 2017 Financial Results

Press Release

Toronto, Ontario, April 27, 2018 – Emblem Corp. (“Emblem” or the “Company”) (TSXV:EMC and EMC.WT), today reported its results for the fiscal year ended December 31, 2017. All amounts are expressed in Canadian dollars.

2017 Highlights

  • Generated $2.69 million in revenues and reported gross profit of $490,000 during 2017
  • Granted licence to sell cannabis oils by Health Canada
  • Won Top Licensed Producer Customer Service Award at the 2017 Canadian Cannabis Awards
  • Registered approximately 2,500 new patients during 2017, an increase of 1250% from 2016
  • Raised a total of $44.7 million in gross proceeds from equity and debt financings
  • Appointed Nick Dean as Emblem’s Chief Executive Officer and President
  • Entered into an agreement with Canntab Therapeutics Limited (“Canntab”) to collaborate on the patent-pending oral sustained-release formulation for cannabinoids
  • Entered into a licensing agreement with Dosecann to collaborate on the development of a cannabis-oil spray dosage form, that will be followed by the development of dose-controlled vaporizers
  • Substantially completed Phase 2 expansion of the Company’s current facility expansion plan, providing an additional 5,200 square feet of grow space
  • Commenced construction of 30,000 square foot Phase 3 expansion which will accommodate a GMP extraction facility, laboratory and pharmaceutical production facility
  • Purchased 80 acres of land in Paris Ontario for cultivation expansion and product development purposes

Current 2018 Highlights to Date:

  • Generated record revenues of $1.2 million in the first quarter of 2018
  • Increased patient count to approximately 3,300 patients
  • Signed a key supplier agreement to become a medical cannabis supplier to Shoppers Drug Mart Inc.
  • Invested in Fire & Flower Inc. and entered into 3-year preferred supplier agreement
  • Continued to build a world-class leadership team with several key additions
  • Raised $53.8 million in gross proceeds from equity and debt financings

Nick Dean, Chief Executive Officer and President of Emblem commented, “2017 marked a transformational year for Emblem, as it achieved many milestones against product development (oils license received in Q4) and cultivation expansion. We are incredibly encouraged by the growth achieved through our patient acquisition efforts, the strategic partnerships formed with both Dosecann and Canntab, which position Emblem as a leader in product innovation, and the professional leadership team we began to assemble. The revenue and gross profit achieved in 2017 is a testament that Emblem is building a company focused on achieving fundamental business objectives that will drive long-term value for our shareholders. With the foundation firmly in place across product innovation, brand relevance, and access to end-user, our management team and the board of directors are encouraged with the prospects to significantly improve our revenue and margin profile as we enter 2018.”

2017 Financial Highlights

Year Ended
December 31, December 31, December 31,
(Expressed in thousands of Canadian dollars, except per share amounts) 2017 2016 2015
Revenues $                2,694 $                   277 $                       –
Gross profit (loss) $                   490 $                 (260) $                       –
 
General and administrative $              (4,899) $              (2,212) $            (1,056)
Research and development $                 (472) $                 (713) $               (557)
Selling and marketing $              (3,218) $                 (957) $               (346)
Amortization of property, plant and equipment   $              (1,082) $                 (713) $                      –
Share-based payments   $              (2,102) $                 (430) $                      –
Advances to investment in associate   $                        – $                 (528) $                      –
Net loss and comprehensive loss $            (12,101) $            (17,389) $           (3,429)
Weighted Average Basic and diluted loss per share   $                (0.14) $                (0.44) $             (0.17)
 
Adjusted EBITDA   $              (8,729) $            (11,547)

 

Revenue

Revenues increased to $2,694,000 in 2017 from $277,000 in 2016, an increase of 873%. Revenues of $1,740,000 (2016 – $28,000) were generated from dried flower sales to registered medical patients and $362,000 (2016 – $181,000) from sales to other licensed producers. The average selling price of total product sold to medical patients during 2017 was $8.24 per gram (2016 – $7.01 per gram). Emblem received its licence to sell cannabis oil during late 2017 and generated revenue from cannabis oil products of $18,000 (2016 – $nil). During 2017, GrowWise Health Limited generated education fee revenue from other licensed producers of $514,000 (2016 – $39,000).

Gross Profit (Loss)

Recorded gross profit for the first time, with an increase of $750,000 from 2016. Gross profit for 2017 increased due to higher revenues and an increase in the unrealized gain on changes in fair value of biological assets resulting from additional cultivation capacity added during the year. With a total of five grow rooms completed and the receipt of the licence for sale of cannabis oil during late 2017, the Company expects to generate a steady increase in gross profit during the course of 2018.

Expenses

General and administrative expenses increased primarily due to an increase in administration personnel both at the production facility and the Company’s head office, investor and shareholder relations costs, consulting and professional fees, audit and legal services and other public company costs. The increase in selling and marketing costs is primarily attributable to the commencement of sales to registered patients in late 2016, which required increased sales and marketing personnel and related expenses. Higher share-based payments expense is due to the granting of options in 2016 and 2017, most of which vest equally over three years.

Adjusted EBITDA

The Company’s Adjusted EBITDA increased by $2,818,000 or 24% during 2017, when compared with 2016. The increase in Adjusted EBITDA is mainly a result of a lower net loss reported for the current year.

Outlook

Emblem’s plan for 2018 focuses on further strengthening the Company’s position as a leading medical cannabis company, while creating a brand-leading division launch within the burgeoning adult-use market, slated to begin in the third quarter of 2018. With the successful completion of the two most recent financing transactions in November 2017 and January 2018, the Company has a cash balance of approximately $80 million available today to support its growth plans for 2018.

The financial strength of Emblem’s balance sheet allows the Company to complete the construction of our state-of-the-art cultivation and manufacturing facilities in Paris, Ontario, and seek out opportunities for further cultivation expansion. In addition, Emblem will be making strategic investments in pharmaceutical research and development, clinical research, marketing and promotion, product development and licensing, allowing the Company to maintain its leadership position within the medical-use market, while preparing Emblem for a unique and competitive advantage in the adult-use market.

Emblem’s medical division entered 2018 with four different cannabis oils and a production capacity to meet the anticipated market demand for these oils, while at the same time developing additional oils with different cannabinoid profiles. During the first quarter of 2018, sales of cannabis oils grew rapidly and represented approximately 30% of the Company’s total sales. The Company expects that as dried flower is displaced in the medical cannabis market by oils and oils are, in turn, displaced by more advanced pharmaceutical formulations, the effect will be accretive to the market. The Company intends to bring oral metered dose spray formulations and oil-filled capsules to market in the third quarter of 2018, while simultaneously advancing the development of additional novel dosage forms of cannabinoids – in particular the sustained-release formulations in partnership with Canntab.

For 2018, Emblem’s focus on entering the adult-use market will target two distinct segments, health and wellness enthusiasts and casual users. At the same time, the Company will actively pursue supplier agreements with the highest growth provinces for Emblem’s adult-use products and brands.

Other Items

The board of directors of the Company has approved the granting of 835,000 incentive stock options (the “Options”) to certain employees and officers of the Company. The Options will be issued on May 1, 2018, will have a five-year life and vest over three years as to one-third the number of Options granted per year. The exercise price will be equal to the closing price of the Company’s common shares on May 1, 2018.

The Company also announced that the previously disclosed investor relations and capital markets advisory agreement with Spinnaker Capital Markets Inc. will terminate on April 30, 2018 and that Ali Mahdavi has resigned as the Company’s Vice President Capital Markets.

About Emblem

Emblem Corp. is a fully integrated licensed producer and distributor of medical cannabis and cannabis derivatives in Canada under the ACMPR (Access to Cannabis for Medical Purposes Regulations). Led by a team of cannabis experts and former health care and pharma executives, it has three distinct verticals – cannabis production, patient education centers, and pharmaceutical development. Emblem trades under the ticker symbol EMC on TSX Venture Exchange.

For further information contact:

Ethan Karayannopoulos
Investor Relations
Emblem Corp.
647.748.9696
ethank@emblemcorp.com

Alex Stojanovic
Chief Financial Officer
Emblem Corp.
416.923.1331
alexs@emblemcorp.com

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This news release contains certain forward-looking statements and forward-looking information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “achieve”, “could”, “believe”, “plan”, “intend”, “objective”, “continuous”, “ongoing”, “estimate”, “outlook”, “expect”, “may”, “will”, “project”, “should” or similar words, including negatives thereof, suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things: (i) the completion of the proposed facilities by the Company; (ii) the ability of the Company to utilize the new facilities to produce additional dried cannabis; (iii) potential sales of dried cannabis produced at the new facilities and the value thereof; (iv) the Company’s future production capacity; (v) the availability of additional sources of financing; (vi) the ability of the Company to establish a “closed box” indoor production facility; (vii) the ability of the Company to produce high quality dried flower; (ix) the benefits associated with the acquisition of the additional land; (x) the intention to grow the business, operations and potential activities of the Company; and (viii)  the anticipated changes to Canadian federal laws regarding adult use and the business impacts on the Company. Management of the Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which Emblem believes to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. While Emblem is not aware of any misstatement regarding any industry or government data presented herein, the medical marijuana industry involves risks and uncertainties and is subject to change based on various factors.

Forward-looking statements are not a guarantee of future performance and are subject to and involve a number of known and unknown risks and uncertainties, many of which are beyond the control of the Company, which may cause the Company’s actual performance and results to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in the Company’s annual information form for the year ended December 31, 2017  dated October 18, 2017 and in the Company’s short form prospectus dated January 29, 2018 both of which have been filed with the Canadian Securities Administrators and available on www.sedar.com. Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.

This news release contains future-oriented financial information and financial outlook information (collectively, “FOFI”) about Emblem’s prospective results of operations, sales, revenues, funds flow, and components thereof, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. FOFI contained in this news release was made as of the date of this document and was provided for the purpose of providing further information about the Company’s future business operations. The Company disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.

In this press release, reference is made to Adjusted EBITDA, which is not a measure of financial performance under International Financial Reporting Standards. The definitions for Adjusted EBITDA can be found in the Company’s December 31, 2017 Management’s Discussion and Analysis, filed on SEDAR.

Neither the Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Exchange) accepts responsibility for the adequacy or accuracy of this Press release.