AUXLY REPORTS Q3 2022 FINANCIAL RESULTS

40 2 AUXLY REPORTS Q3 2022 FINANCIAL RESULTS

<br /> AUXLY REPORTS Q3 2022 FINANCIAL RESULTS<br />

Canada NewsWire



TORONTO


,


Nov. 14, 2022


/CNW/ –

Auxly Cannabis Group Inc.

(TSX: XLY) (OTCQX: CBWTF) (”

Auxly

” or the ”

Company

“) today released its financial results for the three and nine months ended

September 30, 2022

. These filings and additional information regarding Auxly are available for review on SEDAR at

www.sedar.com

. All amounts are Canadian dollars except common shares (”

Shares

“) and per Share amounts.



Q3 2022 Highlights

  • Total net revenues from sale of adult use cannabis in

    Canada

    of

    $19.8 million

    for the three months ended

    September 30, 2022

    , a 19% decrease from the same period last year and a 28% increase year-to-date;
  • SG&A declined approximately 11% from the previous quarter as the Company continues to focus its efforts on reducing costs;
  • Adjusted EBITDA was negative

    $5.8 million

    , an improvement of

    $0.3 million

    as compared to the same period last year;
  • Auxly Leamington continues to contribute to positive gross margins through low-cost cultivation and increased yields;
  • Continues to rank among the top 10 LPs in

    Canada

    by total recreational retail sales as the Company continues to launch new and exciting cannabis products to the Canadian market.


Q3 Highlights



For the three months ended:


(000’s)



September 30, 2022


September 30, 2021


Change


Change


Total net revenues



$               19,830


$               24,493


$       (4,663)


-19 %


Net income/(loss)*



(60,102)


(13,527)


(46,575)


-344 %


Net income/(loss) from continuing operations*



(60,102)


(13,527)


(46,575)


-344 %


Adjusted EBITDA**



(5,776)


(6,099)


323


5 %


Weighted average shares outstanding



901,521,265


825,612,944


75,908,321


9 %



For the nine months ended:


(000’s)



September 30, 2022


September 30, 2021


Change


Change


Total net revenues



$              69,791


$              54,511


$          15,280


28 %


Net income/(loss)*



(114,237)


(15,363)


(98,874)


-644 %


Net income/(loss) from continuing operations*



(114,237)


(27,519)


(86,718)


-315 %


Adjusted EBITDA**



(16,095)


(15,628)


(467)


-3 %


Weighted average shares outstanding



884,496,806


767,844,307


116,652,499


15 %



As at:


(000’s)



September 30, 2022


December 31, 2021


Change


Change


Cash and equivalents



$              16,019


$              14,754


$            1,265


9 %


Total assets



$            345,060


$            450,422


$       (105,362)


-23 %


Debt***



$            173,689


$            168,809


$            4,880


3 %


*Attributable to shareholders of the Company

**Adjusted EBITDA is a Non-IFRS financial measure.  Refer to the Non-GAAP Measures

*** Debt is a supplementary financial measure.  Refer to the Non-GAAP Measures


Results of Operations


For the periods ended:



Three months September 30,



Nine months September 30,


(000’s)



2022


2021



2022


2021



CONTINUING OPERATIONS



Revenues


Revenue from sales of cannabis products



$            29,138


$         35,817



$         102,430


$       77,520


Excise taxes



(9,308)


(11,324)



(32,639)


(23,009)



Total net revenues



19,830


24,493



69,791


54,511



Costs of sales


Costs of finished cannabis inventory sold



14,921


19,471



53,017


39,380


Biological asset impairment









704




Inventory (gain)/impairment



2,014


716



8,670


1,070



Gross profit/(loss) excluding fair value items



2,895


4,306



7,400


14,061


Unrealized fair value gain/(loss) on biological

transformation



7,496


352



25,704


922


Realized fair value gain/(loss) on inventory



(8,175)


(1)



(17,398)


(1)



Gross profit



2,216


4,657



15,706


14,982



Expenses


Selling, general, and administrative expenses



11,559


11,507



37,134


31,612


Equity-based compensation



475


55



3,594


1,221


Depreciation and amortization



3,525


2,223



12,025


6,829


Interest expense



5,507


3,932



15,923


13,320



Total expenses



21,066


17,717



68,676


52,982



Other income/(loss)


Fair value gain/(loss) for financial instruments

accounted under FVTPL






223






414


Interest and other income



105


436



274


1,283


Impairment of long-term assets



(4,809)


(60)



(17,693)


(11,426)


Impairment of intangible assets and goodwill



(38,022)





(48,811)




Gain/(loss) on settlement of assets and liabilities

and other expenses



(1,574)


41



(1,411)


21,104


Gain/(loss) on disposal of subsidiary






1,355






1,355


Share of gain/(loss) on investment in joint venture






(3,095)






(6,048)


Foreign exchange gain/(loss)



938


633



1,224


(546)



Total other income/(loss)



(43,362)


(467)



(66,417)


6,136



Net loss before income tax



(62,212)


(13,527)



(119,387)


(31,864)


Income tax recovery



2,110





5,150


4,330



Net loss from continuing operations



$        (60,102)


$      (13,527)



$      (114,237)


$     (27,534)



Net income/(loss) from discontinued operations












12,156



Net income/(loss)



$         (60,102)


$      (13,527)



$      (114,237)


$     (15,378)



Net income/(loss) attributable to shareholders

of the Company



$         (60,102)


$      (13,527)



$      (114,237)


$     (15,363)



Net loss attributable to non-controlling interest












(15)



Adjusted EBITDA



$           (5,776)


$         (6,099)



$        (16,095)


$     (15,628)


From continuing operations



$             (0.07)


$           (0.02)



$            (0.13)


$         (0.04)


From discontinued operations












0.02



Net income/(loss) per common share (basic and

diluted)



$             (0.07)


$           (0.02)



$            (0.13)


$         (0.02)



Weighted average shares outstanding (basic and

diluted)



901,521,265


825,612,944



884,496,806


767,844,307


Hugo Alves

, CEO of Auxly, commented: “This quarter was transitional for the company as we took insights from and listened to our consumers to understand their evolving needs and preferences so that we could begin to deliver on quality improvements across our vape, dried flower and pre-roll portfolio, while also implementing pricing reductions. These necessary adjustments along with disruptions at some of our wholesale customers and hurricane Fiona’s temporary impact on our Auxly Charlottetown facility led to lower than expected revenue for the quarter. We expect to see the benefits of our portfolio and pricing adjustments along with increased traction from our 30+ new SKUs that have launched, or will be launching, in Q4 2022. We have been working hard on an updated and expanded dried flower portfolio utilizing Auxly Leamington’s competitive advantage of high-quality, large-scale, and low-cost cultivation. We will continue to expand our presence in this category through the introduction of four unique strains under our award winning Back Forty and Kolab Project brands, as well as through new dried and milled flower product offerings that will be offered under our new ultra-value brand, Parcel. Finally, we will continue to focus on cost control and margin enhancement through continued process improvements and investments in automation to further support our key objective of Adjusted EBITDA profitability in 2022.”



Net Revenues

For the three and nine months ended

September 30, 2022

, net revenues were

$19.8 million

and

$69.8 million

as compared to

$24.5 million

and

$54.5 million

during the same periods in 2021. Revenue in the third quarter of 2022 was comprised of approximately 36% in sales of dried flower and pre-roll Cannabis Products, with the remainder from oils and Cannabis 2.0 Product sales. Net revenues for the third quarter were negatively impacted by reduced orders from two of our largest customers

Ontario

and

British Columbia

, as they worked through their respective data security and labour issues, and by a one-week closure of Auxly Charlottetown due to hurricane Fiona. In addition, revenues were impacted by lower vape orders following price reduction notifications delivered during the quarter and fewer dried flower reorders while lower potency dried flower sold during the end of the second quarter was being depleted. Year-to-date revenues are higher than the same period in 2021 due to further product expansion and distribution, partially offset by price compression and changes in share of market. Consistent with prior periods, as the Company does not participate in the

Quebec

market, approximately 85% of cannabis sales during the third quarter of 2022 originated from sales to

British Columbia

,

Alberta

and

Ontario

.



Gross Profit

Auxly realized a gross profit of

$2.2 million

and

$15.7 million

for the three and nine months ending

September 30, 2022

resulting in a 11% and 23% Gross Profit Margin


1


respectively, as compared to

$4.7 million

(19%) and

$15.0 million

(27%) during the same periods in 2021. Cost of Finished Cannabis Inventory Sold Margin

1

during the third quarter remained strong at 25%, 4% greater than the same period of 2021, and consistent with the second quarter of 2022, despite the lower proportion of dried flower sales and short-term impacts from vape pricing reductions.

Following the acquisition of Auxly Leamington in

November 2021

, the Company recognizes gross profit or loss from Auxly Leamington as part of the costs of finished cannabis inventory sold only as product is sold to the Company’s customers after being further processed by Auxly Ottawa or Auxly Charlottetown. Realized and unrealized fair value gains and losses reflect accounting treatments associated with Auxly Leamington cultivation and sales. Prior to the acquisition of Auxly Leamington, the net operating results of Auxly Leamington were recorded in other income and expenses on an equity basis in proportion to the Company’s ownership in the joint venture.

Biological and inventory impairments during the current period of

$2.0 million

are primarily a result of SKU rationalization and run-off and product not meeting quality specifications, with year-to-date charges of

$9.4 million

inclusive of the closures of the Auxly Annapolis and Auxly Annapolis OG facilities, certain third-party product write-offs, and current period charges.



1

Gross Profit Margin and Cost of Finished Cannabis Inventory Sold Margin are supplemental financial measures – See ”

Non-GAAP Measures

“.



Total Expenses

Selling, general and administrative expenses (”

SG&A

“) are comprised of wages and benefits, office and administrative, professional fees, business development, and selling expenses. SG&A expenses were

$11.6 million

during the third quarter of 2022, in line with the same period in 2021 and

$1.3 million

lower than the previous quarter of 2022. Year-to-date expenditures of

$37.1 million

in 2022 are

$5.5 million

greater than the same period in 2021 primarily due to the addition of Auxly Leamington and expenditures associated with increased revenues.

Wages and benefits were

$4.8 million

during the third quarter of 2022, approximately

$0.8 million

higher than the same period of 2021, primarily due to the addition of Auxly Leamington and lower overhead absorption, partially offset by reductions associated with the Auxly Annapolis and Auxly Annapolis OG closures. Year-to-date expenditures of

$15.6 million

were higher by

$2.7 million

than those during the same period of 2021. The increases relate to the inclusion of Auxly Leamington and lower overhead absorption, partially offset by cost reductions from the closure of the Auxly Annapolis and Auxly Annapolis OG facilities.

Office and administrative expenses were

$2.4 million

during the current quarter, decreasing by

$0.9 million

compared to the same period in 2021. The decreased expenditures primarily relate to higher product cost absorption, reduced waste and the timing and cost associated with product innovation, partially offset by the inclusion of Auxly Leamington. For the first nine months of 2022 expenditures were

$8.5 million

, approximately

$1.5 million

below the same period of 2021 reflecting reductions in the current quarter partially offset by the addition of Auxly Leamington.

Auxly’s professional fees were

$0.7 million

during the third quarter of 2022 and

$2.2 million

year-to-date which were

$0.1 million

lower and

$0.3 million

greater respectively, than the same periods in 2021. Professional fees incurred during the period primarily related to accounting fees, regulatory matters, reporting issuer fees, and legal fees associated with certain corporate activities.

Business development expenses were

$0.1 million

for the three months ended

September 30, 2022

and

$0.2 million

after nine months, as compared to

$0.1 million

and

$0.2 million

respectively, during the same periods in 2021. These expenses were nominal during the COVID-19 pandemic and primarily relate to acquisition, business development and travel related expenses which have increased modestly as a result of loosening restrictions and the resumption of business travel.

Selling expenses were

$3.6 million

for the three months ended

September 30, 2022

and

$10.6 million

year-to-date, increases of

$0.3 million

and

$3.9 million

over the same periods in 2021, as a result of cannabis sales activities comprised of brokerage fees, Health Canada fees related to higher revenues, and increased marketing initiatives for Cannabis Products.

Equity-based compensation for the three and nine months ended

September 30, 2022

were

$0.5 million

and

$3.6 million

respectively. During the same periods of 2021 these amounts were

$0.1 million

and

$1.2 million

. The charges for the current quarter reflect the impact of prior option grants and restricted share units (”

RSU

“) granted in

June 2022

, in respect of services provided by employees in 2021. The expense related to options is primarily a function of the number of grants, the weighted average aging of the grants and the share price at the time of grant. The RSU charge is primarily determined by the number of units granted, vesting periods and forfeiture assumptions, and the Share price at the time of grant.

Depreciation and amortization expenses were

$3.5 million

for the period ended

September 30, 2022

, and

$12.0 million

year-to-date increasing by

$1.3 million

and

$5.2 million

respectively over the same periods in 2021. The increase in expense during the current period is primarily related to additional capital expenditures and inclusion of Auxly Leamington in 2022.

Interest expenses were

$5.5 million

and

$15.9 million

for the three and nine months ended

September 30, 2022

, an increase of

$1.6 million

and

$2.6 million

over the same periods in 2021 primarily as a result of the inclusion of Auxly Leamington. Interest expense includes accretion on the convertible debentures and interest paid in kind on the

$123 million

Imperial Brands Debenture. Interest payable in cash was approximately

$1.8 million

for the current quarter.



Total Other Incomes and Losses

Total other incomes and losses for the quarter were a net loss of

$43.4 million

primarily due to the impairment of goodwill and other assets of

$45 million

partially offset by gains related to foreign exchange, assets and liabilities and interest and other income, as compared to a loss of

$0.5 million

during the same period in 2021, which were primarily driven in 2021 by a loss on investment in joint venture, partially offset by gains on disposal of subsidiary and other smaller gains.

During the third quarter of 2022 the Company determined the existence of impairment indicators, as a result the Company performed an impairment test and concluded that the carrying value was higher than the recoverable amount of the Canadian cannabis CGU by

$45.0 million

. As a result, the Company wrote off the goodwill balance of

$24.8 million

, and the balance of

$20.2 million

was allocated to other assets of the Company based on their relative carrying amounts at the impairment date, with no individual asset being reduced below its estimated fair value. Management allocated

$20.2 million

of impairment as follows:

$13.2 million

of impairment losses towards intangible assets,

$2.2 million

towards other receivables, and

$4.8 million

of impairment losses towards long-term assets, including property, plant and equipment.

Total other incomes and losses for the nine months ending

September 30, 2022

of

$66.4 million

include the first quarter losses associated with the closure of the Auxly Annapolis and Auxly Annapolis OG facilities where the carrying value exceeds the fair value less cost to sell.

The share of losses on investment in joint venture during 2021 represented the Company’s proportionate share of Auxly Leamington’s earnings prior to its acquisition in

November 2021

, which results are presently consolidated into the Company’s financial statements.

Auxly is exposed to foreign exchange fluctuations from the U.S. dollar to CAD dollar exchange rate primarily related to inventory, capital purchases and Inverell net assets.



Net Income and Loss

Net losses attributable to shareholders of the Company were

$60.1 million

for the three months ended

September 30, 2022

, representing a net loss of

$0.07

per share on a basic and diluted basis. The net loss of

$118.7 million

through nine months of 2022 includes the net impact of approximately

$25.7 million

related to the closure of the Auxly Annapolis and Auxly Annapolis OG facilities during the first quarter of 2022.



Adjusted EBITDA

Adjusted EBITDA during the three months ended

September 30, 2022

was negative

$5.8 million

, an improvement over the same period of 2021. Year-to-date Adjusted EBITDA of negative

$16.1 million

was

$0.5 million

worse than the same period of 2021.



Discontinued Operations

On

May 27, 2021

, the Company announced that it had reached an agreement to sell KGK to Myconic Capital Corp. (now Wellbeing Digital Sciences Inc.) (”

Wellbeing

“), and on

June 2, 2021

, completed the sale of KGK to Wellbeing. As a result of the sale, results from operations and cash flows from KGK have been presented as discontinued operations, as applicable, on a retrospective basis.


Outlook

In 2022, we remain committed to building on our success as a Canadian market leader. We plan to drive organic growth through continued innovation, increased brand traction, and ubiquitous distribution, while prioritizing operational efficiencies and profitability. Our high-level objectives for 2022 are:

  • Improve revenue and Gross Profit Margin to achieve positive Adjusted EBITDA
    • Our key priority in 2022 is to achieve Adjusted EBITDA profitability by continuing to grow top line revenue while enhancing Gross Profit Margins through leveraging the increasing flower output from our Auxly Leamington facility, focused and differentiated brand and product offerings, increased depth and breadth of distribution, and cost optimization through investments in automation to increase production capabilities and efficiency and continuous improvement initiatives.
  • Win with consumers and increase brand traction
    • We will continue to be deeply committed to understanding our targeted consumers and developing products and brands that help them live happier lives. Driven by deep consumer insights we will continue to evolve our brand portfolio to earn and keep the trust and loyalty of its customers and consumers and be the choice of consumers in-store. We will service the evolving preferences of our consumers by delivering new and innovative branded products to market and ensuring that our consumers can access those products broadly and reliably.

The Canadian cannabis industry continues to evolve at an extraordinary pace. The challenges posed by increasing competition and fragmentation, oversupply of cannabis, high taxation, a robust illicit market and severe price compression have been further exacerbated by inflation, global supply chain disruptions, and constrained capital markets.

Our revenues during the quarter were negatively impacted by reduced orders from two of our largest customers

Ontario

and

British Columbia

, as they worked through their respective data security and labour issues, and by a one-week closure of Auxly Charlottetown due to hurricane Fiona. In addition, revenues were impacted by lower vape orders following price reduction notifications delivered during the quarter and fewer dried flower reorders while lower potency dried flower sold during the end of the second quarter was being depleted.

We have been working hard on an updated and expanded dried flower portfolio utilizing Auxly Leamington’s competitive advantage of high-quality, large-scale and low-cost cultivation. We believe that our efforts over the past two quarters will immediately improve revenues through:

  • improved quality of our award-winning Wedding Pie, Mandarin Cookies and Fruity Pebbles OG strains, producing higher THC potencies, improved bag appeal, and increased moisture and terpene content, which improved products were ready for sale at the end of the third quarter;
  • expansion of our product portfolio to address the growing consumer demand for strain differentiation with four unique offerings: Panda Puff, Banana OG and Apple Fritter, which will expand our award winning Back Forty portfolio, and Mint Cream Pie, which will be added to Kolab Project’s dried flower portfolio; and all of which will be available for sale in Q4 2022; and
  • the launch of Parcel, our new ultra-value brand, which will offer a variety of dried flower and milled flower products and is currently available in the

    Alberta

    market as of Q4 2022, with other key provinces to follow early in Q1 2023. Parcel allows us to continue to expand our Cannabis Product portfolio in dried flower, which remains the largest category in

    Canada

    .

In addition to price reductions taken during the quarter, we look to grow the market share of our vape SKUs by increasing potencies and intensifying flavours across all brands, and by launching six new vape flavours over the next two quarters under our award-winning brands Back Forty and Kolab Project. Further, we expanded our infused pre-roll portfolio to include new Back Forty offerings with flavours modeled after the brand’s successful vape profiles.

We remain focused on cost control and margin enhancement through continued operational process improvements and investments in automation. During the quarter, we took steps to increase efficiency by optimizing our portfolio by streamlining our Cannabis 2.0 Product offerings as part of an overall innovation and SKU rationalization process. We have started to run off certain low-margin or low-demand SKUs, and outsource certain SKUs where profitable, all with the goal of further improving Gross Profit and lowering SG&A.

We have and will continue to put our consumers first by delivering safe, effective, high-quality products that address their evolving needs and preferences and help them live happier lives. We continue to be leaders in product innovation and believe active management of our portfolio, as well as our continued focus on insights-driven innovation, product quality, targeted marketing efforts and brands, will allow us to continue to preserve the trust and loyalty of our consumers and maintain leading market share positions in our key product categories.


Non-GAAP Measures

Please see the Company’s MD&A for the three and nine months ended

September 30, 2022

, under “Non-GAAP Measures” for a further description of the following financial and supplementary financial measures.


Financial Measures


EBITDA and Adjusted EBITDA

These are non-GAAP measures used in the cannabis industry and by the Company to assess operating performance removing the impacts and volatility of non-cash adjustments. The definition may differ by issuer. The Adjusted EBITDA reconciliation is as follows:


(000’s)



Q3/22


Q2/22


Q1/22


Q4/21


Q3/21


Q2/21


Q1/21


Q4/20


Net loss from continuing operations


Interest expense


Interest income


Income tax recovery


Depreciation and amortization


Included in cost of sales


Depreciation and amortization


Included in expenses



$ (60,102)



5,507



(105)



(2,110)




681




3,525


$  (14,289)


5,336


(84)


(85)


2,180


3,900


$   (39,846)


5,080


(85)


(2,955)


1,211


4,600


$   (18,376)


4,348


(308)




689


5,678


$   (13,527)


3,932


(436)




386


2,223


$   (3,685)


4,787


(431)


(4,291)


326


2,174


$   (10,322)


4,601


(416)


(39)


141


2,432


$   (26,012)


3,814


310


(24)


208


2,328



EBITDA



Impairment of biological assets


Impairment of inventory


Unrealized fair value loss/(gain) on


biological transformation


Realized fair value loss/(gain) on


Inventory


Restructuring related costs


Equity-based compensation


Fair value loss/(gain) for financial


Instruments accounted under FVTPL


Impairment of long-term assets


Impairment of intangible assets and


goodwill


(Gain)/loss on settlement of assets,


liabilities and disposals


Share of loss on investment in joint


Venture


Foreign exchange loss/(gain)



(52,604)



2,014



(7,496)




8,175



193



475







4,809




38,022




1,574








(938)


(3,042)




1,778


(11,735)


6,898




2,916








(163)




(647)


(31,995)


704


4,878


(6,473)


2,325




203




12,884


10,789






361


(7,969)




2,194


(1,462)


904




212


408






815


(1,387)


242


(7,422)




716


(352)


1




55


(223)


60




(1,396)


3,095


(633)


(1,120)




124


(315)


1




960


(75)


11,366




(16,995)


2,494


571


(3,603)





230



(255)



(1)




206


(116)





(4,068)


459


608


(19,376)




1,763


(215)






472


(262)


1,784




6,042


4,412


749



Adjusted EBITDA



$  (5,776)


$   (3,995)


$   (6,324)


$   (6,043)


$   (6,099)


$   (2,989)


$   (6,540)


$   (4,631)


Supplementary Financial Measures



Cost of Finished Cannabis Inventory Sold Margin

“Cost of Finished Cannabis Inventory Sold Margin” is a supplementary financial measure and is defined as Cost of Finished Cannabis Inventory Sold divided by net revenues.



Gross Profit Margin

“Gross Profit Margin” is defined as gross profit divided by net revenues. Gross Profit Margin is a supplementary financial measure.



Debt

“Debt” is defined as current and long-term debt and is a supplementary financial measure. It is a useful measure in managing our capital structure and financing requirements.


Conference Call

Auxly’s management team will host a conference call today,

Monday, November 14, 2022

, at

10:00 a.m. EST

to discuss its financial results.  Participants can access the conference call by telephone by dialing: 1-888-664-6383 or by audio webcast at:

https://app.webinar.net/BobWPaRQpak

.

For those unable to participate in the conference call at the scheduled time, it will be available for replay on the Company’s website within 24 hours after the conclusion of the call.

ON BEHALF OF THE BOARD

“Hugo Alves” CEO


About Auxly Cannabis Group Inc. (TSX: XLY)

Auxly is a leading Canadian consumer packaged goods company in the cannabis products market, headquartered in

Toronto, Canada

. Our focus is on developing, manufacturing and distributing branded cannabis products that delight our consumers.

Our vision is to be a leader in branded cannabis products that deliver on our consumer promise of quality, safety and efficacy.

Learn more at

www.auxly.com

and stay up to date at Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.


Notice Regarding Forward Looking Information:

This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words, or information that certain events or conditions “may” or “will” occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes, but is not limited to: the proposed operation of Auxly, its subsidiaries and partners; the intention to grow the business, operations and existing and potential activities of Auxly; the Company’s response to the COVID-19 pandemic; the impact of the COVID-19 pandemic on the Company’s current and future operations; the Company’s execution of its innovative product development, commercialization strategy and expansion plans; the Company’s intention to introduce innovative new cannabis products to the market and the timing thereof; the anticipated benefits of the Company’s partnerships, research and development initiatives and other commercial arrangements; the anticipated benefits of the Company’s acquisition of Auxly Leamington; the expectation and timing of future revenues and of positive Adjusted EBITDA; expectations regarding the Company’s expansion of sales, operations and investment into foreign jurisdictions; future legislative and regulatory developments involving cannabis and cannabis products; the timing and outcomes of regulatory or intellectual property decisions; the relevance of Auxly’s subsidiaries’ current and proposed products with provincial purchasers and consumers; consumer preferences; political change; competition and other risks affecting the Company in particular and the cannabis industry generally.

A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information in this release including, but not limited to, whether: the Company will be able to execute on its business strategy; Auxly’s subsidiaries and partners are able to obtain and maintain the necessary governmental and regulatory authorizations to conduct business; the Company is able to successfully manage the integration of its various business units with its own; there are not materially more closures or lockdowns related to the COVID‐19 pandemic; the Company’s subsidiaries and partners obtain and maintain all necessary governmental and regulatory permits and approvals for the operation of their facilities and the development of cannabis products, and whether such permits and approvals can be obtained in a timely manner; the Company will be able to successfully integrate Auxly Leamington’s operations with its own, and whether the expected benefits of the acquisition materialize in the manner expected, or at all; the Company will be able to successfully launch new product formats and enter into new markets; there is acceptance and demand for current and future Company products by consumers and provincial purchasers; the Company will be able to increase revenues and achieve positive Adjusted EBITDA; and general economic, financial market, legislative, regulatory, competitive and political conditions in which the Company and its subsidiaries and partners operate will remain the same. Additional risk factors are disclosed in the annual information form of the Company for the financial year ended

December 31, 2021

dated

March 30, 2022

.

New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. In addition, this release may contain forward-looking information attributed to third party industry sources, the accuracy of which has not been verified by the Company. The forward-looking information is being provided for the purposes of assisting the reader in understanding the Company’s financial performance, financial position and cash flows as at and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that such forward-looking information may not be appropriate for any other purpose. Readers should not place undue reliance on forward-looking information contained in this release.

The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.


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

Cision
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rt AUXLY REPORTS Q3 2022 FINANCIAL RESULTS

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