VIVO Cannabistm reports fourth quarter and full year 2019 results

139% year-over-year increase in revenue, with 7% increase in SG&A expenses

Cash and equivalents of $43 million as at December 31, 2019

Successful launch of initial Cannabis 2.0 products

Proactive measures implemented re: COVID-19

Accelerated growth into Q1 2020

NAPANEE, ON, March 30, 2020 /CNW/ - VIVO Cannabis Inc. (TSX: VIVO, OTCQX: VVCIF) ("VIVO" or the "Company") today released its year end and fourth quarter 2019 financial and operating results.

Management Commentary

"During the fourth quarter of 2019, VIVO continued to execute on our strategy, recording revenue growth, sustaining top-tier prices for our premium products, and executing a successful launch of Cannabis 2.0 products," said Barry Fishman, CEO of VIVO. "We have maintained a disciplined and fiscally prudent approach, including taking key actions to navigate through the current COVID-19 pandemic. Going forward, we see several positive catalysts which are expected to deliver profitable growth, including production expansion, distribution channel development, entry into high-growth international markets, and the development and launch of innovative products and services. We are also pleased to be experiencing increased sales in Q1 2020, supported by our medical and Cannabis 2.0 products."

Financial Summary

The Company's gross revenue was $9.5 million for Q4 2019 and $31.8 million for 2019. Net revenue was $6.6 million for Q4 2019, a 5% increase over the previous quarter. Fourth quarter results were positive but were impacted by a considerable allocation of resources to the launch of VIVO's portfolio of Cannabis 2.0 products.

The Company's revenue for fiscal 2019 grew 139% over 2018, while sales, general and administrative (SG&A) expenses increased by 7% year-over-year. Sales and marketing costs were significantly higher in 2018, primarily related to the opening of the adult-use market on October 17, 2018. Post legalization, greater restrictions were placed on advertising and promotional activities by cannabis companies, and the Company's marketing efforts were materially scaled back.

VIVO continued to sustain top-tier prices for its medical and adult-use dry flower products, with a net average selling price of $6.54 per gram in Q4 2019 and $7.02 for 2019. The majority of the Company's 2019 revenue (approximately 85%) was derived from cannabis product sales to patients and adult-use provincial wholesalers and retailers. The remaining 15% was derived from Harvest Medicine, VIVO's medical clinic network. 

The Company's adjusted EBITDA⁽¹⁾ was ($2.7) million for Q4 2019 and ($15.2) million for 2019, an improvement of $2.6 million and $4.8 million when compared to the previous quarter and full year, primarily due to increased sales and operating cost containment. 

VIVO continues to maintain a healthy balance sheet through prudent management of operational expenses and a measured approach to capital expenditures. Cash and cash equivalents (including short term investments but excluding strategic equity investments) as at December 31, 2019 stood at $43.2 million, compared with $74.8 million one year previously, a decrease of $31.6 million. Roughly half of this decrease was related to capital expenditures and increases in working capital, with the balance primarily attributed to funding operating losses. Equity investments in strategic partners as of December 31, 2019 were valued at approximately $5 million.

With most facility expansion projects materially completed and paid for, VIVO anticipates 2020 capital expenditures to be approximately $5 million, to be primarily spent in the first half of 2020. In addition, disciplined investments in product development and international market preparation are expected to continue to facilitate future profitable growth.

Table 1 - Key Performance Indicators

Business Update

VIVO made significant progress in 2019 executing against its four strategic priorities. The Company enhanced production capabilities, expanded its network of loyal customers, launched new innovative products and accelerated initiatives in two high-growth international markets. The Company believes that focusing on these four priorities will generate long-term shareholder value and will accelerate the path to profitability.

1.            Enhance Supply and Production Capabilities 

The Company has followed a measured approach to capacity expansion, part of its focus on fiscal discipline, capital stewardship and ensuring financial stability, while at the same time scaling-up to meet growing patient and consumer demand.

• The Company's total internal cultivation capacity in 2020 will remain at approximately 12,000 kilograms annually. To meet evolving market needs, VIVO allocated resources to convert some cultivation space in our existing and new facilities to use for post-harvest activities. We also continue to improve productivity at our existing facilities. The Company continues to maintain a strong compliance record with Health Canada and has not had any product recalls.
  
  
• The Canna Farms Phase 5 build out, commissioning of automated pre-roll equipment, large-scale ethanol extraction, and high-speed packaging equipment at the Company's licensed facilities later this year are expected to increase production output and reduce unit costs.
  
  
• VIVO is on track to begin full-scale planting activities at its seasonal airhouses in Napanee, Ontario, in the spring of 2020, which is expected to allow for a longer period of vegetative growth prior to flowering as compared to the 2019 pilot crop, and significantly higher output.
  
  
• Considerable progress has been made towards addressing the observations following the EU-GMP inspection of the Vanluven facility provided by the German authorities in September 2019. The Company expects to send its final written response in May 2020. Barring regulatory delays, and any delays in the ability by the German authorities to make a final inspection as a result of the COVID-19 pandemic, certification is expected to be granted in the second half of 2020.
  
  
• A two-tier grow system was tested successfully in Hope, with plans to expand use of the system in 2020.

2.            Create a Broad and Loyal Customer Network

VIVO has a strong portfolio of brands in both the medical and adult-use markets. Its Canna Farmstm brand is one of the leading brands in the industry, known for producing award-winning, BC indoor-grown, craft cannabis flowers and newly launched extracts and edibles.

• VIVO continued to focus on supplying sought-after premium products, allowing the Company to maintain top-tier net pricing of $6.54 per gram of dry flower.
  
  
• VIVO's family of brands, each targeting a specific market segment, include Canna Farmstm, Beacon Medicaltm, Firesidetm, Luminatm and Harvest Medicinetm.  The Company recently expanded its offering with the Canadian Bud Collectiontm, a value brand, to satisfy a need in this high-demand segment of the market. The Company currently sells over 100 stock keeping units (SKUs) and will introduce several new products in 2020.
  
  
• In the adult-use market, VIVO has entered into strategic partnerships with leading Canadian cannabis retailers, including Meta Growth, Friendly Stranger, Prairie Records and Choom.
  
  
• Canna Farms successfully shipped Cannabis 2.0 products to multiple provinces in Canada in Q1 2020. Of special note, VIVO products were also the first and only Cannabis 2.0 extracts initially listed in Ontario.  
  
  
• VIVO also made initial shipments of its Firesidetm chocolate products in Q1 2020, which were created in collaboration with the founders of award-winning Belgian chocolatier ChocolaTas, to the provinces of British Columbia, Alberta and Saskatchewan. Firesidetm vape products from its Vanluven facility were shipped to the provinces of Alberta, Ontario, British Columbia and New Brunswick.
  
  
• VIVO expanded its genetic library, with Canna Farms launching three new strains of cannabis flower (Blue Dream, Purple Haze and Chem Dawg). The Company intends to further expand its strain and cultivar portfolio in 2020.
  
  
• Canna Farms operates an industry-leading online medical cannabis marketplace (https://www.cannafarms.ca), allowing patients to access one of the widest selections of cannabis products from multiple suppliers. The marketplace now has over 21,000 registered patients (a quarter over quarter increase of 7%) and provides access to products cultivated by five different licenced producers.
  
  
• VIVO's chain of innovative cannabis clinics, operating under the Harvest Medicine brand, has completed approximately 100,000 patient visits to date through its brick and mortar clinics, clinic-in-clinic partnerships, and its HMED Connect telemedicine application, making it one of the top medical cannabis clinic networks in Canada.

3.            Build an Innovation-driven Branded Organization

VIVO has a strong commitment to pursuing innovation throughout its value chain. The Company is also using its robust data insights as a foundation for the development of novel products with a strong competitive edge and high margins.

• During Q4, 2019 VIVO launched new product lines focused on the Cannabis 2.0 concentrates market.  When fully launched, product presentations will include chocolates, vape pens and cartridges, wax, shatter, live rosin, kief and bubble hash. The Company has submitted and received approval for the sale of a number of these products in various provinces in response to provincial product calls, and has listed select products (including chocolates) on its medical marketplace.
  
  
• Through partnerships with several pharmaceutical manufacturing companies, VIVO continues to advance the development of innovative cannabis products, incorporating novel formulations and delivery formats. The Company's goal is to expand its offering of high-quality and precisely dosed cannabis products for medical patients and health care professionals. VIVO expects to launch one or more of these novel products in Canada during 2020.
  
  
• VIVO's technology and research venture with CB2 Insights is expected to accumulate "real world evidence" to assist healthcare professionals in making informed treatment decisions for their patients.
  
  
• There are currently approximately 100 patients enrolled in VIVO's ongoing Australian pain study, and interim results are expected to be available in the coming months. Subject to the findings of the study, VIVO intends to use information derived for the development of novel, targeted therapies.

4.            Accelerate International Medical Business Growth

The Company is selectively expanding its international medical footprint, leveraging its experience and leadership to enter new high-growth markets. The Company is following a capital-light approach, with an intense focus on go-to-market execution, leveraging strategic partnerships and pharmaceutical experience to ensure success. Initial focus is on the German and Australian markets, which combined have a population of over 100 million people.

• VIVO was granted a narcotics licence in Germany, and is awaiting receipt of an import licence, the final permit necessary to facilitate imports from VIVO's Vanluven facility or from other non-EU sources.
  
  
• VIVO continued to advance its European expansion strategy through its entry into a partnership with Linneo Health, a Spanish-based EU-GMP certified supplier of pharma-grade cannabis. Products cultivated at Linneo are expected to enter the German market in the second half of 2020.
  
  
• The Company's Australian business continues to evolve as VIVO explores additional partnership opportunities in this expanding market. During 2019, VIVO has continued to sell dry flower in Australia through medical cannabis distributors.

COVID-19 Update

For the past several weeks, VIVO has been actively monitoring COVID-19 developments and taking the necessary precautions for its business. VIVO has encouraged all employees to suspend travel and work from home when possible. Enhanced use of personal protective equipment was implemented to reduce the risk of COVID-19 exposure and spread. The Company deployed additional cleaning and sanitization protocols across all its sites and continues to assess its facilities and clinics as the situation continues to evolve. At present, VIVO's production facilities are continuing operations and there have been no confirmed cases of COVID-19 among Company personnel.

Cannabis retailers and producers were recently recognized as an essential service by many provinces. As VIVO continues to monitor the COVID-19 pandemic, the health and well being of its customers and employees remains the Company's top priority. However, uncertainty exists, visibility beyond Q1 2020 is limited, and the future business impact of COVID-19 is extremely hard to predict.

VIVO is doing everything possible for its valued customers, including ensuring that its medical patients will continue to have access to the cannabis products on which they depend. While the Company has temporarily suspended all in-clinic visits at its Harvest Medicine centres in Calgary, Edmonton, Moncton and Dartmouth, it has expanded its telemedicine platform of phone and video consultations, including through its HMED Connect App (https://hmed.ca/connect/). The Company's dedicated team of clinicians and educators continue to be available to provide patient support.

Medical patients can also continue to access their treatments across a range of high-quality cannabis products through the Canna Farms online cannabis marketplace. VIVO is committed to prioritizing the consistent supply of medical cannabis for patients in need during these unprecedented times. If patients have concerns, they should contact the Canna Farms Patient Services team at [email protected] or Harvest Medicine at [email protected] . 

Q4 2019 Results Conference Call and Webcast

About VIVO Cannabistm

VIVO Cannabistm is recognized for trusted, premium cannabis products and services. It holds production and sales licences from Health Canada and operates world-class indoor and seasonal airhouse cultivation facilities with proprietary plant-growing technology in Hope, British Columbia and Napanee, Ontario. VIVO has a collection of premium brands, each targeting different customer segments, including Canna Farmstm, Beacon Medicaltm, Firesidetm, Luminatm and Canadian Bud Collectiontm. The Company is expanding its production capabilities and distribution network. Harvest Medicine, VIVO's patient-centric, scalable network of medical cannabis clinics, has serviced over 100,000 patient visits. VIVO is pursuing several partnership and product development opportunities and is focusing its international efforts on Germany and Australia. The Company has a healthy balance sheet and is well-positioned to accelerate its path to profitability. For more information visit: www.vivocannabis.com

ON BEHALF OF THE BOARD OF DIRECTORS

Barry Fishman
CEO and Director

Disclaimer for Forward-Looking Information

All dollar amounts in this news release are in Canadian dollars. Certain statements in this news release are forward-looking statements, which are statements that are not purely historical, including statements regarding the beliefs, plans, expectations or intentions of VIVO and its management regarding the future. Forward-looking statements in this news release include statements regarding: the Company's expected catalysts which are expected to deliver profitable growth, including production expansion, distribution channel development, entry into international markets and the development and launch of innovative products and services, and the financial impact thereof; the expected impact and duration of the COVID-19 pandemic; expected 2020 capital expenditures and the timing of spending of same; the Company's expectation that focusing on its four strategic priorities will generate long-term shareholder value and accelerate the path to profitability; expected 2020 internal cultivation capacity; the impact of productivity improvements, including as the result of new automated systems; the expected timing of planting at the Kimmetts facility seasonal airhouses and the expected impact of such timing; the expected timing of EU-GMP certification and a German import licence; the expected expansion of the two-tier growing system being used at the Hope facility; the expected introduction of new products, and the expansion of the Company's strain and cultivar portfolio, in 2020;  the expected results of the Company's technology and research venture with CB2 Insights; the expected timing of entry of Linneo products into the German market; and the expected use of the results of the Australian study. Such statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the forward-looking statements, including: that the COVID-19 pandemic may last longer and have a more significant impact on the Company's operations, the Canadian cannabis industry, or the global economy generally, than currently expected; that the Company may not be able to achieve its expected internal cultivation capacity; that the Company may not be able to launch new products in the time expected or at all; that the Company may not be able to achieve competitive margins; that the Company may not be able to increase the sales of its products in the current domestic market or successfully develop and launch new product lines in the time expected or at all; that new products, if launched, may not be accepted by the market or may become subject to product liability claims; that the Company may not be able to obtain necessary licences; that demand for the Company's products may not meet management's expectations; that the timing of EU-GMP certification or the launch of European sales of Linneo products may be delayed, due to travel restrictions related to the COVID-19 pandemic or otherwise; that the Company may be unable to retain its key talent; that the Company may not be able to execute on its strategic partnerships; that regulatory approval for the Canna Farms' Phase 5 expansion may not be received in the time expected or at all; that the Company may not obtain any other necessary regulatory approvals as required from time to time; that the Company may be unable to protect its intellectual property; and other factors beyond the Company's control. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. Readers are urged to consider these factors, and the more extensive risk factors included in the Company's annual information form for the year ended December 31, 2019, which is available on SEDAR, carefully in evaluating the forward-looking statements contained in this news release, and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements. The forward-looking statements in this news release are made as of the date hereof and the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws.

SOURCE VIVO Cannabis Inc.