Emblem Corp. (EMMBF) Reports Strong Third Quarter 2018 Financial Results

“This quarter marked a significant period of transformation for Emblem as we strategically aligned the business around our core strengths. This began with the signing of one of the largest business to business cannabis supply agreements, increasing our aggregate annual product supply run rate to approximately 30,000 kilograms beginning in mid-2019. With product volume and cost visibility addressed, management can refocus both human and capital resources on levering core competencies of product innovation, brand building and securing global distribution channels,” said Nick Dean, President & CEO, Emblem Corp. “During the quarter, we began to realize the significant revenue impact of our Symbl brand within the adult-use market as we fulfilled 100% of our provincial commitments, while maintaining product availability for our growing number of registered patients.”

Highlights for the Third Quarter of 2018

• Record Company revenues of $2.3 million, a 281% increase year-over-year and a 50% increase quarter-over-quarter.
• Among industry-leading revenue per gram equivalent sold to patients of $10.67 per gram.
• Sales of high margin derivative products grew rapidly and represented 48% of total patient sales for the quarter, driving robust realized pricing.
• 20% increase quarter-over-quarter in active registered patients to 4,820 as at September 30, 2018.
• Signed five-year supply agreement with Aphria Inc. (“Aphria”), to receive an aggregate of 175,000 kilogram equivalents of high-quality dried cannabis flower and crude cannabis oil at preferred wholesale pricing, commencing in May 2019.
• Strategic investment and three-year supply agreement with Natura Naturals Inc. (“Natura”), to receive up to 3,000 kilograms of high-quality cannabis flower per year at preferred wholesale pricing with deliveries to commence in December 2018.
• Launch of Symbl, Emblem’s first adult-use recreational cannabis brand.
• Signed supply agreements with the Alberta Gaming Cannabis Commission (“AGLC”) and the Ontario Cannabis Store (“OCS”). Fulfilled 100% of commitments to deliver cannabis products before September 30, 2018, which generated $0.8 million in revenues.
• Launched oral dose-metered spray, Atmosphere.
• Announced strategic partnership with GreenSpace Brands Inc. to develop and commercialize cannabidiol infused health and beauty products for the adult-use recreational market.
• Signed five-year supply agreement with and investment in Compass Cannabis Clinic to become a preferred cannabis supplier through its wholly owned subsidiary adult-use retail entity Starbuds Canada.

Highlights Subsequent to the Third Quarter of 2018

• Increased patient count to approximately 6,000 active registered patients as at the date of this release, representing a 122% increase in patient count since the beginning of the year.
• Appointment of Wayne Kreppner as President of Medical to support the rapid growth of Emblem’s medical division and associated new product innovations.
• Adult-use distribution partners are indicating robust demand for Symbl cannabis products and re-stocking has occurred since the end of the quarter. Shipped 134 kilogram equivalents of Symbl cannabis products to the OCS, AGLC and Fire & Flower Inc., with additional deliveries scheduled for the remainder of the fourth quarter.
• Signed supply agreement with the BC Liquor Distribution Branch and obtained supply approval with the Saskatchewan Liquor and Gaming Authority.
• Signed definitive agreement with German pharmaceutical wholesaler Acnos Pharma Gmbh in respect to launching a joint venture under the name Emblem Germany for the purpose of exporting Emblem-branded cannabis products from Canada to Germany.
• Election of Connie A. Stefankiewicz and Loreto Grimaldi to the Company’s board of directors.
• Completed an equity investment in DriveABLE Assessment Centres Inc., a global leader in cognitive-based driving evaluations, to support its research on cannabis impairment.

Third Quarter Financial Summary

Revenue

During the three and nine months ended September 30, 2018, total revenues of the Company increased by 281% and 148%, respectively, from the prior year’s comparable periods.  The increase in revenues was a result of the commencement of oil sales during December 2017 and the launch of the adult-use recreational market in the third quarter of 2018.

During the three months ended September 30, 2018, the Company sold dried flower and oil products to the AGLC and OCS for total revenues of $766,000.

“Our significant quarter over quarter revenue increase was driven by the legalization of adult-use cannabis and our supply agreements in the provinces of Ontario and Alberta. We are now pursuing Canada-wide distribution, and subsequent to the third quarter, secured sales approvals in Saskatchewan and B.C.,” said Mr. Dean. “In addition, feedback from patients continues to reinforce that Emblem is a trusted brand of medical cannabis that puts patients’ needs first. Medical innovation, supply and support will continue to be our first and foremost priority, as evidenced by the recent appointment of our new division president, Wayne Kreppner, who brings immense R&D experience to our leadership team. Our commitment to product development and innovation was demonstrated with the recent launch of Atmosphere oral dose-metered sprays.”

During the three and nine months ended September 30, 2018, GrowWise Health Limited (“GrowWise”), an indirect wholly-owned subsidiary of Emblem, generated total revenues of $222,000 and $685,000 (September 30, 2017 – $161,000 and $356,000), an increase of 38% and 92%, respectively, from the prior year’s comparable periods.

During the three and nine months ended September 30, 2018, revenues of dried cannabis flower purchased by registered medical patients amounted to $497,000 and $1,453,000 (September 30, 2017 – $438,000 and $1,297,000), respectively. Revenues of dried cannabis flower purchased by licensed producers amounted to $275,000 and $851,000 (September 30, 2017 – $nil and $362,000), respectively.

Total dried flower sold to medical patients during the three and nine months ended September 30, 2018 amounted to 60.4 kilograms and 171.8 kilograms of dried flower (September 30, 2017 – 50.8 kilograms and 159.5 kilograms), at an average selling price of $8.25 per gram and $8.47 per gram (September 30, 2017 – $8.81 per gram and $8.35 per gram), respectively. Total dried flower sold to licensed producers during the three and nine months ended September 30, 2018 amounted to 55.5 kilograms and 164.9 kilograms of dried flower (September 30, 2017 – $nil and 90.0 kilograms), at an average selling price of $5.00 per gram and $5.17 per gram (September 30, 2017 – $nil and $4.02 per gram), respectively.