Second quarter sales growth of 90%, gross margin growth of 105%, and positive operating profit

EDMONTON, AB


,


Aug. 11, 2022


/CNW/ – Nova Cannabis Inc. (the ”

Company

” or ”

Nova

“) (TSX: NOVC) today released its unaudited condensed interim consolidated financial statements (the ”

interim financial statements

“) and management’s discussion and analysis (”

MD&A

“) for the three months ended

June 30, 2022

. All financial information in this press release is reported in millions of Canadian dollars and represents results from continuing operations, unless otherwise indicated.

“The performance of our Value Buds stores continues to outpace the growth of the industry as we reported record sales for the second quarter of 2022, underpinned by equally strong sales and gross margin growth that is driving greater operating leverage to the bottom line,” said

Marcie Kiziak

, CEO of Nova. “Delivering superior value to cannabis consumers will become increasingly important in the current economic environment, and Value Buds is purpose built for this. We will stay the course by being disciplined in how we expand our footprint, remaining customer focused and choosing the best real estate for our strategy, whether through acquiring stores or building our own.”

• Record sales of
  
  $56.3 million
  
  , a 90% increase from the second quarter of 2021, and a 13% increase from the first quarter of 2022.
• Gross margin of
  
  $10.6 million
  
  , or 19% of sales, a 105% increase from the second quarter of 2021 and consistent with gross margin of 19% of sales for the first quarter of 2021.
• Nova now has 82 stores currently open, an increase of three stores since
  
  March 31, 2022
  
  .
• Positive operating profit before depreciation, impairment, and other costs of
  
  $2.1 million
  
  compared to a loss of
  
  $2.5 million
  
  for the second quarter of 2021.
• Increased revolving credit facility from a maximum of
  
  $10 million
  
  to a maximum of
  
  $15 million
  
  .
• Cash of
  
  $6.2 million
  
  as at
  
  June 30, 2022
  
  .
• On
  
  July 22, 2022
  
  , announced the launch of an at-the-market equity offering program (the ”
  
  ATM Program
  
  “) which will allow the Company to issue up to
  
  $20 million
  
  of common shares from treasury to the public at the discretion of the Company and subject to market conditions and regulatory requirements

Sales

Sales increased 90% compared to the second quarter of 2021, to

$56.3 million

from

$29.7 million

. The increase is primarily due to the twenty-nine (29) retail cannabis stores that were opened since

March 31, 2021

, and increased sales from stores that were re-branded to the Value Buds discount banner from “Nova Cannabis,” “YSS,” and “Sweet Tree” at various times throughout 2021.

Gross margin

Gross margin for the period was

$10.6 million

, up

$5.4 million

or 105.0%, from

$5.2 million

for the same period in the prior year.  The gross margin as a percent of sales was 18.8% for the period (Q2 2021 – 17.4%).  During the comparative period for 2021, the stores were operated under the Nova Cannabis, YSS and Sweet Tree banners with a different operating, pricing and margin strategy than in the second quarter of 2022 when sales came primarily from the stores converted to the Value Buds discount banner. During the current period, the Company revised prices at certain retail locations where the competitive response has waned which contributed to the increase in gross margin percentage.

Operating


profit before


depreciation, impairment and other costs

Operating profit excluding depreciation, impairment and other costs for the three months ended

June 30, 2022

was

$2.1 million

(Q2 2021 –

$2.5 million

loss). The increased operating profit excluding depreciation, impairment and other costs is primarily a result of the increase in sales and gross margin, partially offset by an increase in selling and distribution expenses, and a decrease in administrative expenses, for the three months ended

June 30, 2022

. Administrative expenses in the comparative period included

$0.5 million

in share-based payment expense,

$0.2 million

in severance expense, and

$0.3 million

of legal and professional fees in transitionary costs incurred after the reverse takeover transaction of YSS Corp. Selling and distribution expenses in the current period increased by

$2.0 million

to

$7.0 million

in the current period from operating a larger number  of stores, however, the selling and distribution expenses as a percentage of sales decreased from 16.9% to 12.7% due to increased sales and cost efficiencies in the current period.

Net loss


and comprehensive loss

For the three months ended

June 30, 2022

, the Company recorded a net loss of

$1.4 million

(Q2 2021 –

$7.0 million

net loss). The reduction is primarily a result of the increase in sales and gross margin for the three months ended

June 30

, 2022.  Income taxes have not been recorded in either period as the Company incurred taxable losses for the current year to which deferred tax assets have not been recognized because it is not probable that sufficient taxable profits will be available against which the Company may use the benefits. Impairment of

$0.9 million

was recorded in the prior period for two (2) stores assumed as part of the reverse takeover transaction of YSS Corp. which the Company elected to close due to proximity to existing retail stores.

Summary of Consolidated Cash Flows

Revolving Credit Facility

Nova has an uncommitted revolving credit facility with Sundial in an aggregate principal amount not to exceed

$15 million

(the ”

Credit Facility

“).

As at

August 11, 2022

,

$8.7 million

in principal and accrued interest is outstanding on the Credit Facility.

Nova is very well positioned to capitalize on the growth that’s in the market while continuing to take market share. The Company will remain disciplined in how it operates to drive margin expansion and deliver greater operating leverage.

• The Company is partnering with SNDL Inc. (formerly known as Sundial Growers Inc.) for Value Buds’ private label strategy, which is expected to launch before the end of 2022. Nova believes that establishing a high-performing private label will boost loyalty and drive more traffic to its stores.
• Nova remains on track with our target to add 10 more stores in
  
  Alberta
  
  and
  
  Ontario
  
  in the remainder of 2022 and early 2023.

Nova will host a conference call and webcast at

10:30 a.m. EDT

(

8:30 a.m. MDT

) on

Friday, August 12

, 2022.

Call Access

Canada

: 1-800-319-4610

International: +1-604-638-5340

Webcast Access

To access the live webcast of the call, please visit the following link:


https://services.choruscall.ca/links/novacannabis2022q2.html

Replay

The webcast archive will be available for three months via the link provided above.

A telephone replay will be available for one month. To access the replay dial:


Canada

/

USA

Toll Free: 1-800-319-6413 or International Toll: +1-604-638-9010

When prompted, enter Replay Access Code: 9297#

For further information, refer to the Company’s interim financial statements and MD&A for the three and six months ended

June 30, 2022

, which are available from the Company’s profile on SEDAR, at

www.sedar.com

, or on the Company’s website at

www.novacannabis.ca

.

This news release contains forward-looking statements or information (collectively ”

forward-looking statements

“) within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “continue”, “anticipate”, “will”, “should”, “plan”, “intention”, and similar words suggesting future events or future performance. All statements and information other than statements of historical fact contained in this news release are forward-looking statements. In particular, this news release contains forward-looking statements pertaining to: the Company’s expectations regarding its growth and business strategies; the launch of the ATM Program and the issuance of common shares thereunder; Nova’s private label strategy; and

Alberta

and

Ontario

expansion.

With respect to forward-looking statements contained in this news release, the Company has made assumptions regarding, among other things: the Company’s ability to identify locations for, construct and open new stores and the costs related thereto; the availability of hardware and equipment for those stores; government regulation and applicable laws will not change in a manner adverse to the Company; receipt of necessary regulatory approvals to open new stores; the Company’s ability to obtain leases for new sites and attract the necessary personnel to operate new stores; demand for the products the Company sells; other factors that will drive sales growth in the Value Buds banner, including Nova’s private label strategy; availability of acquisition opportunities; sustainability of competitors’ businesses and competition in the retail cannabis industry, including from the illicit cannabis market;  consumer demands; and factors that influence consumer behavior.

Although the Company believes that the expectations reflected in the forward-looking statements, and the assumptions on which such forward-looking statements are made, are reasonable, especially given the unprecedented uncertainty of the full extent and impact of COVID-19, there can be no assurance that such expectations and assumptions will prove to be correct. Readers should not place undue reliance on forward-looking statements included in this news release. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause actual performance and financial results to differ materially from any estimates, forecasts or projections. These risks and uncertainties include, among other things, the duration and severity of the COVID-19 pandemic on the business, operations and financial condition of the Company; the risk that Nova will be unable to execute its strategic plan and growth strategy, as planned without significant adverse impacts from various factors beyond its control; business decisions and strategies of Sundial, Nova’s indirect majority shareholder; dependence on suppliers; potential delays or changes in plans with respect to capital expenditures and the availability of capital on acceptable terms; risks inherent in the retail cannabis industry; competition for, among other things, customers, supply, capital and skilled personnel; changes in labour costs and markets; incorrect assessments of the value of acquisitions; general economic and political conditions in

Canada

(including

Alberta

,

Ontario

and

Saskatchewan

), and globally; industry conditions, including changes in government regulations; fluctuations in foreign exchange or interest rates; unanticipated operating events; failure to obtain regulatory and third‐party consents and approvals when required; changes in tax and other laws that affect Nova and its shareholders; the potential failure of counterparties to honour their contractual obligations; stock market volatility; and the other factors described in the Company’s public filings available at

www.sedar.com

. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this news release are made as of the date hereof. Except as expressly required by applicable securities legislation, Nova does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

SOURCE Nova Cannabis Inc.

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