Supreme Cannabis Company Upbeat After Delivering Q2 Results

February 12, 2019

Supreme Cannabis Company (TSX: ) delivered a loss of 1 cent per share in its second fiscal quarter.

It reported a net loss of C$1.55 million as it announced Q2 financial results for the three months to Dec. 31, 2018. That was down from a loss of C$2.03 million in Q2 of the previous year.

Chief executive Navdeep Dhaliwal called his firm one of Canada’s fastest growing licensed producers.

Revenue reached $7.72 million in Q2, up 359% on the $1.68 million seen in Q2 2018, and up 50% from the $5.14 million it generated in Q1 2019. During the quarter, Supreme Cannabis raised $100 million of gross proceeds through a bought deal that offered 6% unsecured convertible debentures, due in 2021.

Supreme Growing, but Volatile

Chief executive Navdeep Dhaliwal claimed that the results display strong operational execution and called his firm one of Canada’s fastest growing licensed producers. Shares opened at C$1.88 today following the results, after closing at C$1.95 on Monday. It has been a rollercoaster ride for the firm’s share price of late. It reached an all-time high of $3.04 on Jan. 5, 2018, and decreased to $1.31 by Dec. 28, a drop of 57%.

It rallied in line with the Canadian cannabis sector in January and it increased to $2.26 on the back of strong volume by Feb. 1. Since then it has seen pullback and investors will keep a close eye on the action in the days and weeks ahead.

Subsidiary 7ACRES Ties up Supply Deal

The firm’s wholly-owned subsidiary, 7ACRES, has just expanded domestic distribution to eight provinces after tying up a supply deal with the New Brunswick Liquor Corporation. It is also now registered as a supplier to Saskatchewan, furnishing retail outlets with recreational cannabis. That follows on from supply arrangements with British Columbia, Alberta, Manitoba, Ontario, Nova Scotia, and PEI, making it one of just a handful of producers to have a presence in eight provinces.

7ACRES has a 440,000 sq. ft. facility in Kincardine, Ontario, and last month Health Canada gave it the green light to expand, which will increase production capacity from 13,300kg to 17,500kg. When further efficiencies are made and additional licenses are gained, the facility should yield 50,000kg per year. It also has a long-term global distribution arrangement for CBD oil with a firm in Lesotho, Africa.

Supreme Cannabis has a market cap of around $400 million and slightly more than $30 million cash on the books, compared to $23.4 million in current liabilities. It has been busy of late, agreeing to an international partnership with Khalifa Kush Enterprises and contracting Medipharm Labs Co. to facilitate the launch of its CBD oil products line in Q2.

Supreme’s Contract Partner Medipharm Labs

Medipharm (TSXV: LABS; OTCQB: MLCPF) was Canada’s first licensed CBD oil producer, and it works with cultivation partners to oil for their brands. Its share price has increased significantly today after it announced a $35 million deal to produce private label CBD for an unnamed licensed cannabis producer.

It opened at C$2.18 and increased to $2.43 by 11 a.m. on Tuesday following the news. The deal will take up less than 10% of Medipharm’s production capacity of 115,000kg. It has previously secured a long-term deal to produce CBD oil for Canopy Growth Corp., and it is expanding its capacity to 215,000kg in order to give it room to expand, with completion expected in Q2 2019.

“With our significant first mover advantage, deep expertise, leading-edge proprietary technology to manufacture and develop high-quality cannabis oil and concentrate products at commercial scale, we have quickly been able to execute several major contracts already and continue to see robust demand for our specialized products and services and are well positioned to achieve strong revenue growth as a dominant extraction company in the cannabis industry,” said chief executive Pat McCutcheon.

Along with Supreme Cannabis and Canopy Growth, Medipharm also works with James E. Wagner Cultivation Corp., Emerald Health Therapeutics, Inc., INDIVA Limited, and TerrAscend Corp.

The Supreme Cannabis Co. is a market awareness client of Capital 10X.

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