NOVC Nova Cannabis Inc

Record revenue of $69.2 million and gross profit improvement to 24%

EDMONTON, AB, Aug. 1, 2024 /CNW/ - Nova Cannabis Inc. (the "Company" or "Nova") (TSX: NOVC) today released its unaudited condensed interim consolidated financial statements (the "interim financial statements") and management's discussion and analysis ("MD&A") for the three and six months ended June 30, 2024. All financial information in this press release is reported in millions of Canadian dollars and represents results from continuing operations, unless otherwise indicated.

On July 16, 2024, the Corporation announced that, in connection with Marcie Kiziak stepping down from her role as Chief Executive Officer that she would be stepping down from the Board of Directors following the announcement of the Corporation's second quarter 2024 financial results. The Corporation and Ms. Kiziak have agreed that she shall continue to serve on the Nova Board of Directors beyond announcement of second quarter 2024 financial results in order to assist with the Corporation's leadership transition.

SECOND QUARTER FINANCIAL AND OPERATING HIGHLIGHTS

• Revenue increased 8.1% compared to the second quarter of 2023, to record revenue of $69.2 million from $64.0 million. The increase is primarily due to an increase to proprietary licensing sales, an increase in same-store sales primarily in Ontario and new revenue earned related to the acquisition of four (4) Dutch Love stores in British Columbia ("B.C.") and Ontario that were not present in the same prior year period. Revenue related to the B.C. expansion is expected to continue to increase for the remainder of 2024 as rebranding activities and other ramp up factors occurred throughout the second quarter of 2024.
• Proprietary licensing revenues for the second quarter of 2024 increased by $1.1 million, from $2.7 million to $3.8 million, from the same period in 2023. The increase in proprietary licensing revenue is due to an updated proprietary licensing agreement, scalable for the needs of licensed producers, which allows them to purchase specific sales data to assist them with planning for current and future product decisions.
• Gross profit for the three months ended June 30, 2024 was $16.8 million, up $2.2 million or 14.8%, from $14.6 million for the same prior year period.
• For the three months ended June 30, 2024, the Company recorded net earnings of $0.9 million (June 30, 2023 – net earnings of $1.0 million).
• Nova is pleased to announce it has opened its one hundredth (100) Value Buds store subsequent to June 30, 2024. As of August 1, 2024, Nova owns and/or operates 100 stores in Alberta, Saskatchewan, B.C. and Ontario.
• On May 8, 2024, Nova issued to SNDL Inc. $6.1 million in Nova shares as consideration for the acquisition of four Dutch Love stores, including three in B.C. The Dutch Love stores were primarily acquired in order for Nova to expand into the recreational cannabis retail market in B.C.
• For the three months ended June 30, 2024, cash provided by operating activities was $1.5 million, a $1.1 million decrease from the $2.6 million cash provided by operating activities for the same prior year period. The decrease in cash provided by is primarily related to the decrease in non-cash working capital items of $0.7 million.
• On August 1, 2024, the Company had a cash and cash equivalents balance of $ 5.3 million.

SPECIFIED FINANCIAL MEASURES

Certain specified financial measures in this earnings release, including Adjusted Earnings from Operations and Free Cash Flow are non-IFRS measures and may not be comparable to similar measures reported by other companies. These non-IFRS financial measures should not be considered in isolation or as an alternative for measures of performance prepared in accordance with IFRS Accounting Standards.

Adjusted earnings from operations

Adjusted earnings from operations is a non-IFRS financial measure which the Company uses to evaluate its operating performance. Adjusted earnings from operations provides information to investors, analysts, and others to aid in understanding and evaluating the Company's operating results in a similar manner to its management team. The Company defines adjusted earnings from operations as earnings from operations less restructuring costs, goodwill and intangible asset impairments and asset impairments triggered by restructuring activities.

The following tables reconcile adjusted earnings from operations to earnings from operations for the periods noted:

Free cash flow

Free cash flow is a non-IFRS financial measure which the Company uses to evaluate its financial performance. Free cash flow provides information which management believes to be useful to investors, analysts and others in understanding and evaluating the Company's ability to generate positive cash flows as it removes cash used for non-operational items. The Company defines free cash flow as the total change in cash and cash equivalents less cash used for common share repurchases (if any), dividends (if any), changes to debt instruments, changes to long-term investments (if any), net cash used for acquisitions plus cash provided by dispositions (if any).

The following table reconciles free cash flow to change in cash and cash equivalents for the periods noted.

LIQUIDITY AND CAPITAL RESOURCES

 Summary of Consolidated Cash Flows

Revolving Credit Facility

Nova has access to an uncommitted revolving credit facility with SNDL in an aggregate principal amount not to exceed $15.0 million (the "Revolving Credit Facility"). On April 1, 2024, SNDL extended the maturity date of the Revolving Credit Facility to March 31, 2026 and amended the Revolving Credit Facility to limit SNDL's right to demand repayment prior to the maturity date, subject to certain conditions.

As of August 1, 2024, Nova had $12.2 million outstanding under the Revolving Credit Facility.

STRATEGIC OUTLOOK

Nova aims to disrupt and solidify the cannabis retail market by promoting a wide range of cannabis products at everyday best-value prices while encouraging greater migration from the illicit cannabis market. The Company's strategy is rooted in the quality of its store footprint and locations, the sales efficiency of Nova stores, and the appeal of the Value Buds brand. Nova remains disciplined and customer-focused by choosing the best real estate to execute its strategy – whether through acquiring stores or building its own.

• The Company is focused on expanding its store footprint in the prairie provinces and the key markets of British Columbia and Ontario, following regulatory updates increasing the cap on stores in the Ontario market, and proposed updates to the eight-store cap in B.C. The operation of the Dutch Love stores marks Nova's expansion of its Value Buds banner into B.C. and highlights the benefit of SNDL's M&A pipeline. Nova continues to pursue opportunities based on the quality of the real estate and the potential of attractive economic returns while avoiding unsustainable valuations.
• Nova optimized its proprietary data licensing program to increase mutually beneficial results for both our retail operations and licensed producers while increasing the scale and sustainability of the program. Leveraging Value Buds volume and the Company's access to high-quality analytics, the Company is well-equipped to deliver continued margin and revenue expansion through program optimizations and its ability to provide market-driven solutions.
• The Company is dedicated to enhancing retail fundamentals, focusing on delivering a seamless end-to-end customer experience across both physical and digital platforms. This approach aims to bolster conversion rates and drive incremental margin expansion. Nova is committed to implementing top-tier retail strategies, which involve reshaping in-store dynamics and optimizing the purchasing journey to effectively capitalize on basket growth opportunities.
• Nova's Diesel and Berries SKUs were launched in May in Alberta and Ontario in 14 gram, 28 gram flower and 28 x 0.5 gram pre-roll formats, representing the Company's first pre-rolls in the market.
• The Value Buds vape offerings were extended with the Hello My Name is Lemon Lime 1.2 gram vape.

For further information, refer to the Company's interim financial statements and MD&A for the three and six months ended June 30, 2024, which are available from the Company's profile on SEDAR+, at www.sedarplus.ca, or on the Company's website at www.novacannabis.ca.

ABOUT NOVA CANNABIS INC.

Nova Cannabis Inc. (TSX: NOVC) is one of Canada's largest and fastest-growing cannabis retailers with a goal of disrupting the cannabis retail market by offering a wide range of high-quality cannabis products at every-day best value prices. The Company currently owns and/or operates locations across Alberta, Ontario, B.C. and Saskatchewan, primarily under its "Value Buds" banner. Additional information about Nova Cannabis Inc. is available at www.sedarplus.ca and the Company's website at www.novacannabis.ca.

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements or information (collectively "forward-looking statements") within the meaning of the "safe harbour" provisions of applicable securities legislation. Forward-looking statements are typically identified by words such as "continue", "anticipate", "will", "believes", "should", "plan", "intention", "expects", and similar words suggesting future events or future performance. All statements and information other than statements of historical fact contained in this news release are forward-looking statements. In particular, this news release contains forward-looking statements pertaining to: the Company's expectations regarding its growth and business strategies; Nova's private label strategy and the Company's ability to successfully launch additional private label offerings; Nova's ability to become one of the largest cannabis retailers in Canada; the Company's ability to increase its market share; and the Company's expansion in Alberta, Ontario, B.C. and Saskatchewan and other jurisdictions in Canada where it believes there is business efficacy to operate.

With respect to forward-looking statements contained in this news release, the Company has made assumptions regarding, among other things: the Company's ability to identify locations for, construct and open new stores and the costs related thereto; the availability of hardware and equipment for those stores; government regulation and applicable laws will not change in a manner adverse to the Company; receipt of necessary regulatory approvals to open new stores; the Company's ability to obtain leases for new sites and attract the necessary personnel to operate new stores; continued demand for the products the Company sells; other factors that will drive sales growth in the Value Buds banner, including Nova's private label strategy; availability of acquisition opportunities; sustainability of competitors' businesses and competition in the retail cannabis industry, including from the illicit cannabis market; consumer demands; and factors that influence consumer behavior.

Although the Company believes that the expectations reflected in the forward-looking statements, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations and assumptions will prove to be correct. Readers should not place undue reliance on forward-looking statements included in this news release. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause actual performance and financial results to differ materially from any estimates, forecasts or projections. These risks and uncertainties include, among other things, the risk that Nova will be unable to execute its strategic plan and growth strategy as planned without significant adverse impacts from various factors beyond its control; business decisions and strategies of SNDL, Nova's direct majority shareholder; dependence on suppliers; limited operating history of the cannabis business; overall levels of economic inflation; risk of infringement of intellectual property rights; reliance on information and control systems; potential delays or changes in plans with respect to capital expenditures and the availability of capital on acceptable terms; risks inherent in the retail cannabis industry; competition for, among other things, customers, supply, capital and skilled personnel; changes in labour costs and markets, including Nova's ability to hire and retain staff at current wage levels and the risk of possible future unionization; incorrect assessments of the value of acquisitions; general economic and political conditions in Canada (including Alberta, Ontario, B.C. and Saskatchewan), and globally; the unpredictability and volatility of the price of the Company's common shares and the potential lack of an active trading market for the Company's common shares; industry conditions, including changes in government regulations; fluctuations in foreign exchange or interest rates; unanticipated operating events; failure to obtain regulatory and third‐party consents and approvals when required; changes in tax and other laws that affect Nova and its shareholders; the potential failure of counterparties to honour their contractual obligations; stock market volatility; and the other factors described in the Company's public filings available at www.sedarplus.ca. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this news release are made as of the date hereof. Except as expressly required by applicable securities legislation, Nova does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

SOURCE Nova Cannabis Inc.