Debra Borchardt
MedReleaf Corp. (MEDFF) delivered mixed results for its third quarter fiscal 2018 as sales increased, but so did the losses. The company reported sales of $11.4 million, an increase of 9% over last year and a sequential increase of 16%. Yet, the company still recorded a net loss of $5 million versus last year’s net income of $1.7 million.
According to the company statement, the loss was “mainly due to costs incurred related to the company’s stock-based compensation expense, fair value loss related to the company’s deferred share unit (DSU) plan, increased operating and overhead expenses, and increased advertising and promotional expenses.”
Earnings also slipped as the adjusted EBITDA for the quarter was ($0.2) million, a decrease of $4.3 million from $4.1 million for the prior year period. The drop in earnings was attributed to “overhead costs to support the Bradford Facility; increased expenditures related to professional fees; business development; increased patient support costs to support patient demand; investments in sales, marketing, and brand development; increased human resource talent to support current and future growth; and as a result of the VAC Policy, the company offering discounts to qualifying Veterans to assist with the non-reimbursable portion of their medication.”
On a positive note, the company sold a record 1,263 kilograms of cannabis products, an increase of 27% from the previous year and a 20% increase sequentially. The average selling price per gram was $ 8.98, a decrease from last year’s $10.50 due to the reduction in VAC reimbursement pricing. Sales of cannabis-based extract products were $2.3 million, or 21% of total sales.
The cash cost per gram sold rose dramatically to $1.83, a big increase from last year’s $1.55. MedReleaf said this was primarily due to increased plant operating costs and fixed overhead attributable to the Bradford Facility. The company stated that it expects the cash cost per total gram to improve as the Bradford facility is completed and the company can capitalize on greater efficiencies of scale. MedReleaf has an additional $9 million to spend on the Bradford facility.
Solid Cash Position
The company is in good shape with regards to cash as it closed on a bought deal equity financing that brought in gross proceeds of approximately $132.5 million. At the end of December 31, 2017 , MedReleaf had cash and cash equivalents of $114.6 million and working capital of $137.9 million.
Looking Ahead
On February 6, MedReleaf announced it has received Health Canada approval for the sale of its cannabis oil softgel capsules, becoming the first LP to bring color-coded and cannabis variety-specific softgel capsules to market. Also last week, MedReleaf introduced its first adult-use recreational brand, San Rafael ’71. The company also announced an agreement to become a medical cannabis supplier to Shoppers Drug Mart during the quarter.
Stock Performance
MedReleaf stock on the Toronto Exchange hit a 52-week high in early January as it topped out at C$31.25, but has fallen since hitting C$15.74 on February 2. Lately, the stock has begun climbing back and was recently trading at C$18.54. The 52-week range for the OTC Marketplace stock was $5.85-$24.99. It was higher by 2.6% on the earnings news, trading at $14.67.
