Emblem Corp. Reports 2018 First Quarter Results

Press Release

Strengthened team, new products, and key distribution partnerships driving demand

TORONTO, ON, May 29, 2018 – Emblem Corp. (TSXV: EMC and EMC.WT) (“Emblem” or the “Company”), a licensed producer of medical cannabis under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”), today reported financial and operating results for the first quarter ended March 31, 2018.

“Along with record sales and registered patient counts, our first quarter progressed rapidly in all areas as we focused on executing against our multi-year plan,” stated Nick Dean, President & CEO of Emblem Corp.  “Our achievements reflect the talent of our growing and future-focused leadership team which included several key additions in production, marketing, operations and finance. We’ve been incredibly pleased with the quarter over quarter growth of our patient acquisition efforts as a result of our new seven-person sales team, working in parallel with GrowWise. Our oils now represent close to one third of our total patient sales.  As we continue to introduce new dose-controlled formats and sizes to the market, we expect this trend will continue upward.  We significantly strengthened our balance sheet and initiated plans to increase our annual capacity 10-fold to 17,000kg to serve the domestic and international medical markets, as well as the pending adult-use recreational markets. Reach and end-user access in these markets was enhanced through channel partners, provincial government applications, and key supplier agreements including Shoppers Drug Mart and Fire & Flower. Commencement of R&D activities for our oral sprays, gel capsules and sustained release formulations position us to deliver leading dosage precision formats and consistent user-experiences. As a leader in precision cannabis formulations and processes, we believe Emblem can achieve a most-trusted brand status in both medical and adult-use markets with its value-added advanced product lines.”

Highlights for the First Quarter of 2018

  • Generated $1.3 million in revenue
  • 2,950 registered patients as at March 31, 2018
  • Cannabis oil sales represented 29% of Q1 patient revenue
  • Signed a key supplier agreement to become a medical cannabis supplier to Shoppers Drug Mart Inc.
  • $53.8 million financing increased cash balance to $83.8 million as at March 31, 2018
  • Purchased remaining 50% of GrowWise Health Limited
  • Progressed on expansion plans to increase annual capacity to approximately 17,000kg
  • Construction progressing on 30,000 square foot Phase 3 expansion at the Woodslee Production Facility with GMP extraction facility, laboratory and pharmaceutical production facility

Highlights Subsequent to the First Quarter of 2018

  • Invested in Fire & Flower Inc. and entered into 3-year preferred supplier agreement
  • Increased patient count 22% to approximately 3,600 patients at May 28, 2018 since March 31, 2018
  • Commenced R&D on oral sustained release formulations in collaboration with Canntab Therapeutics Limited (“Canntab”)
  • Commenced inventory build for legalization of adult-use recreational cannabis in Canada

First Quarter Financial Summary

        Three Months Ended
March 31 March 31
(Expressed in thousands of Canadian dollars, except per share amounts) $2,018 $2,017
Operations:
   Revenues $1,277 $903
   Gross profit (loss) $182 ($89)
   EXPENSES
   General and administrative ($1,638) ($897)
   Research and development ($85) ($97)
   Selling and marketing ($892) ($832)
   Amortization of property, plant and equipment ($383) ($232)
   Share-based payments ($400) ($305)
   Net loss and comprehensive loss ($3,837) ($2,495)
   Weighted Average Basic and diluted loss per share ($0.03) ($0.04)
   Adjusted EBITDA ($2,433) ($1,893)

Revenue

Revenues increased to $1,277,000 in Q1 2018 from $903,000 in Q1 2017, an increase of 41%. During the three months ended March 31, 2018, revenues of dried cannabis flower purchased by registered medical patients and Licensed Producers amounted to $457,000 and $394,000, respectively (March 31, 2017 – $461,000 and $362,000). Total dried flower sold to medical patients during the three months ended March 31, 2018 amounted to 52.8 kilograms of dried flower (March 31, 2017 – 54.7 kilograms), at an average selling price of $8.59 per gram (March 31, 2017 – $8.41 per gram). Total dried flower sold to Licensed Producers during the three months ended March 31, 2018 amounted to 71.1 kilograms of dried flower (March 31, 2017 – 90.0 kilograms), at an average selling price of $5.55 per gram (March 31, 2017 – $4.02 per gram).

During the three months ended March 31, 2018, revenues from cannabis oil products amounted to $187,000 (March 31, 2017 – $nil). Total sales during the three months ended March 31, 2018 were approximately 13.4 kilogram equivalents to medical patients (March 31, 2017 – nil).

During the three months ended March 31, 2018, GrowWise generated total revenues of $212,000 (March 31, 2017 – $74,000).

Gross Profit (Loss)

Gross profit for the three months ended March 31, 2018 was $182,000 compared to a gross loss of $89,000 for the prior year comparable period, an increase of $271,000 or 304% due to higher revenues and a higher unrealized gain on changes in fair value of biological assets. 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 throughout the remainder of 2018.

Expenses

General and administrative expenses increased primarily due to the continued build-out of the Company’s management team, as well as higher legal and consulting fees incurred in connection with various strategic initiatives. Higher share-based payments expense is due to the incremental expense associated with stock options granted in 2017.

Adjusted EBITDA

The Company’s Adjusted EBITDA decreased by $540,000 or 29% during the three months ended March 31, 2018, when compared with the three months ended March 31, 2017, mainly due to higher operating expenses during the current period.

Outlook

Emblem is utilizing its strong balance sheet to execute on its expansion plans for annual dried flower volumes initially to 17,000kg and to complete its 30,000 square foot expansion which includes a GMP certified manufacturing facility with an advanced research lab. The GMP certification will support international product exports. Further, Emblem is 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 recreational adult-use market.

Emblem’s medical cannabis business leads the Company’s product innovations. Having launched four successful cannabis oils in the first quarter of 2018, Emblem’s medical division is developing additional oils with different cannabinoid profiles. Additionally, Emblem will be introducing new size-formats to address consumer demand profiles. Emblem is focused on dosage precision to deliver repeatable user experiences, whether medical or adult recreational use. Accordingly, the Company intends to bring oral metered dose spray formulations and oil-filled capsules to market in 2018.

Physician prescribed formulations for major addressable categories including anxiety, pain, and sleep require standard pharmaceutical dosage formats (pills, gel caps, sub-lingual applications and measured dosage sprays). Sustained release dosage forms are designed to release the active pharmaceutical ingredient at a predetermined rate to maintain a constant drug concentration over a specific period of time, resulting in a longer duration of action from a single dose and often with reduced side effects.

Strengthening the Company’s position as a leading medical cannabis company, in May 2018, the Company, in collaboration with Canntab, commenced research and development activities on oral sustained release formulations of cannabinoids. The Company expects to sell, subject to Health Canada approval, sustained release pills or capsules in 2019.

For precision delivery, Emblem is also working with Dosecann to develop a range of cannabinoid dosage formulations designed to ensure patients are able to titrate and administer each dose the exact same way. The objective is to bring dosage-metered oral spray formulations to the market in 2018, followed by dose-controlled vaporizers.

Precise. Reliable. Trusted. 

Emblem believes its reputation for precise, standardized dosages that produces a specific effect each time can be carried over to the recreational adult-use market. Trust is built through effectiveness and a consistent, predictable user-experience.

Emblem has commenced managing product inventory, distribution, education and branding in preparation to enter the recreational adult-use market. The Company is pursuing supplier agreements with the highest growth provinces for Emblem’s recreational adult-use products and brands.

About Emblem

Emblem Corp. is a fully integrated licensed producer and distributor of medical cannabis and cannabis derivatives in Canada under the ACMPR. Led by a team of cannabis experts and former health care and pharma executives, the Company has three distinct verticals – cannabis production, patient education centers, and pharmaceutical development. Emblem trades under the ticker symbol EMC on the 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 development and completion of the proposed facilities by the Company; (ii) the ability of the Company to utilize the new facilities to produce additional dried cannabis and or oil; (iii) potential sales of dried cannabis and oil; 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 complete a GMP Facility; (vii) the ability of the Company to produce high quality dried flower and oil; (viii) the success of the partnership and collaboration arrangements entered into by the Company (ix) the intention to grow the business, operations and potential activities of the Company; and (x)  the anticipated changes to Canadian federal laws regarding recreational adult-use and the corresponding 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 December 31, 2017 Management’s Discussion and Analysis, which has 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 March 31, 2018 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.