IM Cannabis Corp. (the “Company”, “IM Cannabis”, or “IMC”) (CSE: IMCC) (NASDAQ: IMCC), a leading medical cannabis company, provided financial results for its third quarter ended September 30, 2022. All amounts are reported in Canadian dollars unless otherwise stated.
Q3 2022 Highlights
- Revenues for Q3 2022 were $14.2 million, compared to $8.0 million on Q3 2021, an increase of 78%, representing a 12% sequential organic growth.
- Gross profit, before fair value adjustments, for Q3 2022 was $2.8 million, compared to $2.0 million in Q3 2021, an increase of 39%.
- Gross Margin, before fair value adjustments, for Q3 2022 was 20%, compared to 25% in Q3 2021.
- Canadian restructuring efforts continued with the decision to seek a sale of the Company’s Canadian operations in September 2022. On November 7, 2022, the Company announced that it was commencing an exit of the Canadian cannabis market to focus its resources on pursuing growth opportunities in Israel, Germany and Europe. Trichome and certain of its wholly-owned subsidiaries (“Trichome”), filed for and obtained creditor protection under the Canadian Companies’ Creditors Arrangement Act (“CCAA”). The CCAA proceedings are solely in respect of Trichome. As such, the Company’s other assets or subsidiaries, including those in Israel and Germany, are not parties to the CCAA proceedings.
- Trichome’s assets and associated liabilities are classified as “held for sale” in the consolidated statement of financial position as of September 30, 2022 and as “discontinued operations” in the consolidated statements of profit or loss and other comprehensive income for all periods presented.
- Total assets as of September 30, 2022 were $129.1 million compared to $287.4 million as of December 31, 2021, representing a decrease of $158.3 million or 55%. This decrease in the Company’s Total Assets was primarily due to the goodwill impairment of Trichome in the amount of $107.9 million.
Management Commentary
“The third quarter marked a pivotal moment on our trajectory to profitability,” said Oren Shuster, Chief Executive Officer of IM Cannabis. “By commencing our exit from Canada, we are now concentrating all our efforts on our highest value markets, Israel and Germany, to accelerate our path to profitability and long-term shareholder value.”
“We will continue building on the increasing demand and positive momentum in Israel, supported by strategic alliances with Canadian suppliers and skilled sourcing team, to cement our leadership position. In parallel, we are advancing a long-term growth plan in Germany, based on replicating our success in Israel. We are also preparing ourselves for the proposed legalization of recreational cannabis in Germany.”
“We continue to be strongly focused on generating efficiencies and synergies, bringing all our financial and human capital to support growth and profitability in Israel and Germany,” concluded Shuster.
Q3 2022 Business Highlights
- The Company appointed Einat Zakariya and Moti Marcus to its board of directors, replacing Vivian Bercovici and Haleli Barath, each of whom resigned to pursue other opportunities.
- Signed an international trademark licensing agreement with Avant Brands, granting IMC the exclusive right to launch the BLKMKT brand in Israel. The integration of the unique and exclusive varieties of the high-quality BLKMKT brand into the current IMC premium product portfolio will serve to bolster the cooperative and synergistic partnership forged between the two companies over the past two years. It will further strengthen IMC’s business model in Israel that offers medical cannabis patients quality, ultra-premium brands.
- Received the initial international shipment from Canadian supplier SNDL, consisting export of approximately 167 kilograms of premium dried flower delivered to Israel as part of SNDL’s total commitment with IMC. SNDL and the Company have agreed to the aggregate export of 1,000 kilograms of high-quality dried flower products from Canada to Israel for processing and distribution in the Israeli medical cannabis market. The completed export continues the Company’s streamlining approach to provide the Israeli market with the high-quality products it has come to expect.
- The Company’s legacy strain Roma® was voted as the Favorite Strain of the Month in August 2022 by ‘Cannabis’, one of Israel’s leading cannabis blogs for Israeli medical cannabis patients.
- The Company introduced the Top-Shelf Collection in Israel in September 2022 as a premium product line with indoor-grown, high-THC cannabis flowers. In addition, as part of IMC’s Craft Collection, which is the ultra-premium indoor-grown product line, the Company introduced ‘Watermelon Zkittlez’ with record breaking success and strong patient demand for continuity.
Q3 2022 Financial Results
- Revenues for Q3 2022 were $14.2 million, compared to $8.0 million on Q3 2021, an increase of 78%, representing a 12% sequential organic growth.
The increase in revenues is primarily attributed to the increase in the quantity of medical cannabis products sold, as well as from the higher average selling price per gram the Company realized from its portfolio of premium and ultra-premium branded cannabis products in Israel. - Total Dried Flower sold in Q3 2022 was 1,453 kilograms at an average selling price of $9.08 per gram, compared to 1,175 kilograms for the same period in 2021 at an average selling price of $6.61 per gram. The change in the average selling price reflects a 37% increase.
- Gross Profit, before Fair Value Adjustments, in Q3 2022 was $2.8 million compared to $2.0 million in Q3 2021.
- Gross Margin for Q3 2022 was 20% compared to 25% in Q3 2021. The decrease is mainly attributed to an expired local non-premium inventory write-off.
- General and Administrative Expenses in Q3 2022 were $4.3 million compared to $3.7 million in Q3 2021. The increase is mainly attributable to increase in professional and legal services in relation to the capital markets where the Company is listed.
- Selling and Marketing Expenses in Q3 2022 were $2.8 million, compared to $1.7 million in Q3 2021. The increase is mainly attributed to the Company’s increased marketing efforts in Israel, brand launch in Germany, increased distribution expenses, and increased staffing from acquisitions, in line with our expectations.
- Total Operating Expenses in Q3 2022 were $7.5 million compared to $8.0 million in the third quarter of 2021.
- Operating Loss for Q3 2022 was $5.5 million, compared to $8.1 million in Q3 2021.
- Non-IFRS Adjusted EBITDA loss from continuing operations in Q3 2022 was $3.7 million, compared to an Adjusted EBITDA loss of $2.3 in Q3 2021. The increase is mainly attributable to corporate expenses and related legal expenses with connection to the Company’s exit from the Canadian market.
- Net Loss from Continuing Operations for Q3 2022 was $4.5 million, compared with net income of $0.8 million in Q3 2021.
- Basic Loss per Share attributable to equity holders of the Company from continuing operations was $0.06compared to basic earnings per share of $0.03 in Q3 2021.
- Diluted Loss per Share attributable to equity holders of the Company from continuing operations was $0.06compared to diluted loss per share of $0.09 in Q3 2021.
- Net loss from Discontinued Operations for Q3 2022 was $123.6 million, compared with a loss of $6.5 million in Q3 2021. This decrease was primarily due to the goodwill impairment of Trichome in the amount of $107.9 million.
- Basic and Diluted Loss per Share attributable to equity holders of the Company from discontinued operationswas $1.75 compared to basic and diluted loss per share of $0.10 in Q3 2021.
- Cash and Cash Equivalents as of September 30, 2022 were $3.2 million compared with $13.9 million on December 31, 2021.
- By commencing the exit from the Canadian market, the Company has been able to reduce its debt level.
- Debt from Continuing Operations for September 30, 2022 was $5.1 million, representing a decrease of approximately 57%.
The Company’s financial statements as of September 30, 2022 includes a note regarding the Company’s ability to continue as a going concern. The Company’s Q3 2022 financial statements do not include any adjustments relating to the recoverability and classification of assets or liabilities that might be necessary should the Company be unable to continue as a going concern. For more information, please refer to the ‘LIQUIDITY AND CAPITAL RESOURCES’ section as well as the ‘RISK FACTORS’ section in the Company’s MD&A, available under the Company’s SEDAR profile at www.sedar.com on EDGAR at www.sec.gov/edgar.
Share Consolidation
The Company will be consolidating all of its issued and outstanding common shares (the “Common Shares”) on the basis of one (1) post-consolidation Common Share for each ten (10) pre-consolidation Common Shares (the “Consolidation”). The objective of the Consolidation is to enable the Company to regain compliance with the minimum bid price requirement set forth in the listing rules of The Nasdaq Stock Market LLC and maintain its listing on the Nasdaq Capital Market (“NASDAQ”).
The Company’s board of directors approved the Consolidation and it is expected that the Common Shares will commence trading on a post-Consolidation basis on the Canadian Securities Exchange (the “CSE”) and NASDAQ on or about November 17, 2022.
Assuming the Consolidation is completed, the existing 75,695,325 Common Shares will be reduced to approximately 7,569,526 Common Shares, subject to adjustments for rounding purposes. No fractional Common Shares will be issued. Any fractional interest in Common Shares that is less than 0.5 of a Common Share resulting from the Consolidation will be rounded down to the nearest whole Common Share and any fractional interest in Common Shares that is 0.5 or greater of a Common Share will be rounded up to the nearest whole Common Share.
The Consolidation was approved by holders of Common Shares at the Company’s annual general and special meeting held on October 20, 2022. The Consolidation is subject to acceptance by the CSE.
Upon completion of the Consolidation, a letter of transmittal will be sent by mail to registered shareholders advising that the Consolidation has taken effect. The letter of transmittal will contain instructions on how registered shareholders can exchange their share certificates or Direct Registration System (“DRS”) statements evidencing their pre-Consolidation Common Shares for new share certificates or new DRS statements representing the number of post-Consolidation Common Shares to which they are entitled.
Beneficial shareholders holding their Common Shares through an intermediary may be subject to different procedures for obtaining their post-Consolidation Common Shares. If you have questions in this regard, you are encouraged to contact your intermediary.
The Company does not intend to change its name or seek a new stock trading symbol on the CSE or NASDAQ in connection with the Consolidation.
Financial Statements and Management’s Discussion and Analysis
The complete interim condensed consolidated financial statements of the Company for the three and nine months ended September 30, 2022 and 2021 and related management’s discussion and analysis will be available under the Company’s SEDAR profile at www.sedar.com on EDGAR at www.sec.gov/edgar.
Q3 2022 Conference Call
The Company will host a zoom web conference today at 9:00a.m. ET to discuss the results, followed by a question-and-answer session for the investment community. Investors are invited to register by clicking here. All relevant information will be sent upon registration.
If you are unable to join us live, a recording of the call will be available on our website at https://investors.imcannabis.com/ within 24 hours after the call.
