The marijuana industry is budding before our eyes, and investors have taken notice. According to investment bank Cowen Group, arguably Wall Street's most vocal cannabis cheerleader, the weed industry could hit $75 billion in annual sales by 2030, which would put it on par with, if not ahead of, global soda sales. This makes marijuana an industry that's watched very closely by investors.
One such pot stock that has their full and undivided attention is Auxly Cannabis Group (NASDAQOTH:CBWTF), which just so happens to have reported its fourth-quarter and full-year operating results before the opening bell on Friday, March 29. Although the company's loss for 2018 widened significantly from the previous year, Auxly moved closer to recognizing substantial revenue and further diversified its operations through acquisitions and streaming deals.
Auxly Cannabis Group's full-year results: The raw numbers
|Metric||Full-Year 2018||Full-Year 2017|
|Net loss||(CA$67 million)||(CA$18.2 million)|
|Earnings per share||(CA$0.14)||(CA$0.11)|
As you can see from the full-year data above, Auxly only reported total revenue of 747,000 Canadian dollars for 2018, all of which came from research contracts that tend to be lumpy from a revenue-recognition perspective. For example, Auxly recognized CA$512,000 in research contract revenue in the third quarter, but only CA$235,000 in the fourth quarter. Revenue recognition is expected to pick up in 2019 as the company's streaming partners and wholly owned grow farms bring cannabis production online.
Meanwhile, operating expenses rose substantially from the year-ago period. Total recurring operating expenses, such as wages and salaries, office and administrative expenses, and business development, nearly doubled to CA$28 million in 2018 from CA$14.6 million in 2017. Inclusive of nonrecurring costs, such as share-based expenses and impairments on intangible assets, net loss attributable to shareholders rose from CA$18.2 million to CA$67 million year over year.
What happened with Auxly Cannabis this quarter?
Predominantly a streaming company, Auxly spent much of the fourth quarter, and the months subsequent to the end of the quarter, getting its ducks in a row and preparing for a steady uptick in cannabis cultivation and derivative production -- that is, alternatives such as oils, and other consumption options besides dried flower.
Arguably the biggest single development was the announcement in November, and the completion on Jan. 9, of Auxly's acquisition of an 80% stake in Inverell S.A. in Uruguay. The deal, which totaled $15 million U.S. in cash and stock, gives Auxly access to Inverell's hemp crops, which span more than 150 hectares.
Hemp is typically rich in cannabidiol (CBD), the nonpsychoactive cannabinoid best known for its perceived medical benefits, while having only small or trace amounts of tetrahydrocannabinol (THC), the cannabinoid that gets a user high. Inverell essentially becomes a source of CBD production that Auxly can use, in conjunction with its partnership with ICC International Cannabis Corp., to gain access to 35,000 pharmacies across 16 markets.
What management had to say
As you might expect, despite the widening loss, CEO Chuck Rifici is still pleased with the progress Auxly has made in positioning itself as a leader in the cultivation, value-added, and even downstream spaces of the cannabis supply chain. Here's what Rifici had to say:
2018 was an important year for us, as we made substantial progress toward our objective to become a vertically integrated cannabis company. We were successful in building a diverse and robust cultivation pipeline, have made progress on adding value through the research and development of derivative cannabis products through Dosecann, and expanded our distribution channels for bringing cannabis products to market. We added key strategic assets and partnerships to our portfolio, have over [CA]$200 million of cash and cash equivalents, and are well positioned to execute on our objectives for this year.
So, what's next for Auxly Cannabis Group?
As noted, the company will begin receiving and selling raw cannabis into the dry marijuana market for the first time in 2019. But it'll also be focused on maximizing the potential of its derivative products, which typically carry juicier margins than dried cannabis flower. This means Auxly is all-in on completing its research, development, and manufacturing activities at the company's Dosecann facility in Prince Edward Island.
The company will also be focused on completing the construction of all wholly owned cultivation assets, as well as working with joint venture partner Sunens Farms to complete greenhouse construction this year. When fully operational, Sunens' greenhouse should be capable of more than 100,000 kilos a year in peak production.
Lastly, Auxly will be looking to expand its international footprint, especially with regard to CBD product sales.
Auxly's top line may not be much to speak of now, but business is about to pick up in a big way.