VANCOUVER, British Columbia, Nov. 12, 2018 (GLOBE NEWSWIRE) -- Auxly Cannabis Group Inc. (TSX.V - XLY) (OTCQX: CBWTF) ("Auxly" or the "Company") has reported its financial and operational results for the three and nine months ended September 30th, 2018. These filings are available for review on the Company’s SEDAR profile at www.sedar.com

Auxly is a global cannabis company with assets in every segment of the cannabis value chain. Through three distinct verticals: Upstream, Midstream and Downstream, Auxly's platform provides for a significant amount of operational flexibility and control resulting in improved margin dynamics. Auxly’s management team has prioritized the following objectives for each of the Company’s business segments.

  • Upstream: The Company continues to acquire cultivation capacity through the development of facilities in Canada and Uruguay. The development of a robust supply pipeline is the cornerstone of the Auxly platform, providing the Company with a secure and diverse source of cannabis which allows it to participate across the entire cannabis value chain. Auxly remains focused on building out its diverse cultivation platform comprised of wholly-owned assets, streaming partnerships, joint venture partnerships and commercial offtake arrangements.
     
  • Midstream: The strategic focus of Auxly's midstream business segment is to add value to the cannabis produced in the upstream segment through the application of intellectual property. The Company continuously evaluates a broad range of applicable intellectual property including extraction and purification methodologies, trademark and know-how licensing, patent acquisition and technology and product licensing. Through its wholly-owned subsidiaries, the Company also intends to develop its own proprietary cannabis-derived products and related intellectual property.
     
  • Downstream: The Company identified the need for a robust downstream distribution platform early in its corporate history and has continued to focus on the development of high value medical and non-medical channels. The Company has made strategic decisions on which distribution channels to prioritize based on production ramp-up and a focus on higher margin medical channels and non-medical channels that are owned by Auxly or where Auxly holds an equity interest in the retailer.
     
  • International: In order to best address expanding global demand for cannabinoid-based products, the Company has acquired an 80% ownership in Inverell S.A. (“Inverell”) providing the Company with a long term, stable supply of CBD molecules to sell into the Company’s international distribution channels. In addition, to meet near term demand generated by the Company’s international channels, the Company signed an international supply agreement with Aphria Inc. (“Aphria”) to purchase up to 20,000 kilograms of cannabis products on an annual basis, during the term of the agreement. The Company is increasingly evaluating new opportunities across the cannabis value chain in North America and Internationally as several jurisdictions look to legalize cannabis use for medicinal and/or recreational use. The Company anticipates that the International segment of the business will become progressively more important to the overall strategy in the long term.

Q3 2018 Highlights

Upstream Business

The Company views its upstream segment, comprised of Auxly’s streaming partners and wholly-owned subsidiaries, as a critical component to the overall success of the Company’s objective of becoming a fully vertically integrated global cannabis company. The quarter was highlighted by several licensing milestones on the part of Kolab Project and CannTx as well as the closing of the Inverell acquisition, welcoming a new upstream partner in Delta 9 Cannabis, and additional investments in FSD Pharma and Lotus Ventures. The Company is pleased to provide the following updates with respect to its upstream business:

  • Kolab Project: Kolab Project Inc. ("Kolab Project") received its sales license from Health Canada, pursuant to the Access to Cannabis for Medical Purposes Regulations (“ACMPR”). The issuance of the sales license to Kolab Project marks a significant milestone for the Company as it allows Kolab Project to participate in the sale of cannabis to both medical patients and adult use consumers across the country through its online portal at www.kolabproject.com as well as other various distribution channels. Kolab Project seeks to differentiate its cannabis offerings by providing a highly curated experience to its consumer base through a carefully selected collection of unique strains and premium products.

    In addition, Kolab Project has successfully completed the design of the third phase of its facility in Carleton Place, Ontario. In addition to incremental cultivation space, Auxly has strategically designed the space for the Company’s plant genetic development initiatives. In particular, the Company expects to use this space to house the Company’s genetics in addition to conducting activities related to genetic breeding, tissue culture, phenotyping and seed breeding. Upon completion, the genetics facility will act as a cornerstone for the development of unique genetics for the Company’s wholly-owned cultivation facilities and for the broader upstream segment.

  • Inverell: Subsequent to the end of the third quarter, the Company received the final Uruguayan regulatory approval from the Secretaría Nacional para la Lucha contra el Lavado de Activos y el Financiamiento del Terrorismo to complete the acquisition of Inverell. Led by Dr. Raúl Urbina, previously the Founder and CEO of Stevia One, Inverell provides the Company with a highly efficient, low-cost source of cannabinoids to address expanding global demand for cannabinoid-based products. A cornerstone asset in the Auxly portfolio, Inverell provides Auxly with an avenue to address emerging international distribution channels, including through the Company's strategic partnership with ICC International Cannabis Corp. (“ICC”).
     
  • Delta 9 Cannabis: The Company made a strategic investment and entered into a long-term supply agreement with Delta 9 Cannabis Inc. (“Delta 9”), a Winnipeg, Manitoba based licensed producer operating an 80,000 square foot facility using proprietary hydroponic grow pods. The investment is of strategic importance to Auxly’s upstream segment as it provides a near-term source of supply into the Auxly platform for immediate redistribution and product development purposes, from a high-quality operator. Pursuant to the agreement with Delta 9, Auxly invested $16,250,000 in exchange for 5,909,090 shares of Delta 9 and received the right to purchase a fixed amount of cannabis at preferential pricing for a period of 10 years. Beginning in January 2019, Auxly will receive the right to purchase 1,000 kilograms of dried cannabis and 100 kilograms of trim per annum from Delta 9, expanding to a total of 5,000 kilograms of dried cannabis and 500 kilograms of trim per annum beginning in July 2020.
     
  • CannTx Life Sciences: Auxly’s streaming partner, CannTx Life Sciences Inc. (“CannTx”) was granted a cultivation license for its production facility in Puslinch, Ontario pursuant to the ACMPR and has subsequently commenced cultivation activities. Auxly holds a minority equity interest in CannTx and an entitlement to purchase 33% of all cannabis (or cannabis-derived products including any cannabis trim) produced at the CannTx facility for a period of 10 years from the date of first sale, at a fixed cost.
     
  • Aphria: The Company announced that its wholly-owned subsidiary Dosecann Inc. (“Dosecann”) entered into a definitive international supply agreement with Aphria pursuant to which Dosecann will have the option to purchase cannabis, including dried flower and cannabis oil, for distribution to certain international markets, including Mexico, Portugal, and Serbia, as well as a certain amount for distribution into the Canadian market. Under the agreement, Dosecann will retain the option to purchase up to 20,000 kilograms of dried flower or oil equivalent, subject to certain minimum purchase quantities and Aphria receiving the necessary regulatory approvals. The Agreement extends until January 31st, 2022 with an option to renew. The supply agreement enables the Company to accelerate its international strategy by providing the Company with a near-term source of product to supply its international channels.
     
  • Lotus Ventures: Pursuant to the streaming agreement with Lotus Ventures Inc. (“Lotus”), the Company advanced $4,000,000 in exchange for 3,755,868 common shares of Lotus to partially fund the completion its 22,500 square foot cultivation facility in Armstrong, British Columbia. Under the agreement, Auxly has the right to purchase up to 50% of the Lotus facility’s total production as well as the right of first offer to purchase the remaining 50% of cultivation output. In addition, the Company has a right of first refusal to finance a prescribed portion of the first expansion of Lotus’ cultivation facility and all or a portion of any further expansions.
     
  • FSD Pharma: Pursuant to its streaming agreement with FSD Pharma Inc. (“FSD Pharma”), the Company subscribed for 7,500,000 shares of FSD Pharma for $7,500,000. Proceeds from the financing subscription will be used to fund the ongoing construction of the joint cultivation space that the Company and FSD Pharma are co-developing. The Company will retain a 49.9% stream of all cannabis (or cannabis-derived products including any cannabis trim) produced at the facility under partnership with Auxly in perpetuity. The Company expects that the product sourced from the FSD Pharma facility will be a significant contributor to the overall supply of indoor product into Auxly’s upstream segment.

Midstream Business

Throughout the quarter, the Company dedicated significant resources towards the development of its midstream business. The Company, alongside it’s cornerstone midstream asset Dosecann, is building a high-value and high-margin derivative cannabis business through the development of its midstream channel. The acquisition of KGK Science is integral to the Company as it brings clinical study and research study capabilities in-house to support the Dosecann product pipeline expected to launch in late 2019. The Company is pleased to provide the following updates with regards to its midstream business:

  • Dosecann: The Company’s wholly-owned subsidiary, Dosecann, successfully obtained a Dealer’s License for Controlled Drugs and Substances from Health Canada pursuant to the Narcotics Control Regulations. Securing the Dealer’s License marks a significant milestone as it authorizes Dosecann to engage in various activities related to the manufacturing of cannabis oils and resins through extraction of dried cannabis flower, production of authorized cannabis products, product formulation, research and development and quality testing. Dosecann’s purpose-built 42,000 square foot facility located in Charlottetown, PEI, will serve as a hub for Auxly and its partners to develop and manufacture high-margin, value-added products through two segments: medical products and consumer packaged goods. Dosecann has recently received its first shipment of cannabis flower and expects to commence its extraction and research and development activities imminently.
     
  • KGK Science: The Company completed the acquisition of KGK Science Inc. (“KGK”) for total consideration of $12,300,000 payable in cash and common shares of the Company. KGK Science is one of the leading contract research organizations offering clinical trial services and regulatory consulting for the cannabis, dietary supplement, functional food, beverage, ingredient and cosmetic industries. Having served many of North America’s leading nutraceutical, natural health product and consumer packaged goods companies such as Kraft Foods, Sanofi, Nature’s Bounty and Nuskin, KGK, using industry leading research and science, will work closely with the team at Dosecann in order to ensure that the products developed and manufactured by Dosecann’s team meet the highest quality and safety thresholds. Outside of the distinct collaboration with Dosecann, KGK will continue to operate its current business in the ordinary course, substantiating claims for their client’s products through randomized clinical trials in addition to providing other research services such as participant recruitment, regulatory compliance solutions, research support services and consulting.

  • Cannabis OneFive: The Company entered into a strategic partnership with Cannabis OneFive, Inc. (“C15”), a leading provider of quality management and document control software systems for the cannabis industry. In connection with the strategic partnership, the Company and C15 entered into a share exchange agreement resulting in Auxly obtaining a 30% equity ownership interest in C15. The Company intends for Dosecann to become the initial lead subscriber of C15’s software with an eventual broader rollout to be deployed at other Auxly facilities across its platform.

Downstream Business

The Company recognizes the value and the opportunity to develop meaningful downstream distribution channels and has prioritized its efforts accordingly. This quarter marked continued domestic and global expansion for the Company through a newly announced strategic partnership with Atlantic Cultivation in Newfoundland & Labrador and through a strategic investment into ICC that provides the Company with access to over 16 jurisdictions across the globe in a capital efficient manner. The Company is pleased to provide the following updates on the development of its medical and adult use channels:

  • Inner Spirit: The Company exercised its pre-emptive right to acquire an additional 7,058,824 units of Inner Spirit Holdings Ltd. (“Inner Spirit”) in order to maintain ownership of approximately 15% of the total issued and outstanding common shares of Inner Spirit. Inner Spirit and Auxly previously entered into a strategic arrangement whereby the companies will collaborate on retail initiatives, including Auxly supplying cannabis products to Inner Spirit’s existing licensed locations in Alberta and Saskatchewan and into any future locations in Canada. To date, Inner Sprit has successfully signed over 110 franchise agreements and has successfully obtained 5 licenses for the sale of recreational cannabis, 4 of which are in Alberta. By applying Inner Spirit’s franchise and retail models to the cannabis space, Auxly believes Inner Spirit is positioned to be a major player and trusted source in the distribution of adult use cannabis in markets where privately owned cannabis retail stores are permitted.

  • ICC International Cannabis: The Company formed a strategic partnership with ICC which included a strategic investment and commercial rights agreement. The strategic investment of $5,000,000 was made by way of convertible debentures bearing an interest rate of 8% with a maturity date of September 17th, 2021. ICC has a number of agreements and licenses in place related to pharmaceutical distribution, wholesale importation, research and development, cultivation, production, storage, and exportation of cannabis. In particular, ICC has agreements in place to supply a European-based pharmaceutical distributor with a network of 35,000 pharmacies in 16 countries, in addition to working interests in industrial hemp licenses in Greece and wholly-owned licenses to cultivate, produce, distribute, store, and export cannabis in Colombia, the Kingdom of Lesotho, and Denmark.

    In connection with the transaction, Auxly will become a preferred commercial partner to ICC, through various rights of first refusal including: supplying ICC's extensive world-wide distribution channels in the event that ICC is looking to source cannabis products; any sale or off-take agreement pursuant to which ICC intends to sell or distribute cannabis products to any third party; purchasing any of ICC’s assets (including its subsidiaries) in the event that it intends to sell any such assets to a third party; and licensing any intellectual property owned or developed by ICC, or its subsidiaries, in the event that ICC intends to license such intellectual property.

  • Atlantic Cultivation: Subsequent to the end of the third quarter, the Company entered into a strategic partnership to collaborate on the development of a 110,000 square foot indoor cultivation facility in St. Johns, Newfoundland and Labrador and on the development of retail locations in the Province. In connection with the partnership, Auxly will invest $2,500,000 into Atlantic in exchange for a 50% equity stake in Atlantic and a long term right to purchase up to 30% of dried cannabis (or cannabis-derived products including any cannabis trim) produced at Atlantic's facility. In tandem with the investment, the founding shareholders of Atlantic will contribute an additional $2,500,000 in funding to the entity and, together with the investment from Auxly, such funds will be used towards the development of retail locations, upon obtaining the requisite approval from the government of Newfoundland and Labrador, and for general working capital purposes. The partnership allows Auxly to expand its presence in Eastern Canada with an exceptionally strong team led by experienced Newfoundland and Labrador entrepreneurs.

Select Summary of Quarterly Results
(Expressed in Canadian Dollars in Thousands)

Period ended (000s)September 30th, 2018December 31st, 2017
Cash and Cash Equivalents$236,920 $33,454 
Total Current Assets$268,475 $35,521 
Total Non-Current Assets$232,565 $57,058 
Total Assets$501,040 $92,579 
Long-Term Convertible Debt$92,327 $17,738 
Total Equity$367,823 $62,793 
   
Three months ended (000s)September 30th, 2018 September 30th, 2017
Revenue$512 $0 
Unrealized Gains and fair value changes$6,205 $0 
Total Income$6,717 $0 
Total Expenses$17,056 $5,211 
Total Comprehensive Profit or Loss($4,592)($5,703)
Net cash used in operating activities($9,031)($5,256)
Net cash used in investing activities($52,172)($15,705)
Net cash from financing activities$2,320 $248 
   
Nine months ended (000s)September 30th, 2018 September 30th, 2017
Revenue$512 $0 
Unrealized Gains and fair value changes$7,105 $0 
Total Income$7,617 $0 
Total Expenses$36,815 $8,255 
Total Comprehensive Profit or Loss($28,331)($8,772)
Net cash used in operating activities($25,591)($8,236)
Net cash used in investing activities($75,307)($18,155)
Net cash from financing activities$304,364 $51,767 

The Company maintained a strong balance sheet and liquidity position with $236,920,000 in cash and cash equivalents at the end of the third quarter earmarked for funding Auxly’s streaming partners, wholly-owned subsidiaries, downstream distribution efforts and general and administration costs. The increase in the cash and working capital balances are attributable primarily to the Company raising $215,115,000 in debt and equity financings year to date in addition to raising $95,017,000 in warrant and broker warrant unit exercises. During the nine months ended September 30th, 2018, cash used in investing activities totaled $75,307,000 which includes strategic investments made in subsidiaries, streaming partners and strategic partners.

In connection with the scaling up of business operations, hiring of additional talent, executing on existing agreements and the addition of three subsidiaries, the Company’s cash outflows related to operations increased to $25,591,000 during the nine months ended September 30, 2018 compared to $8,236,000 for the nine months ended September 30th, 2017.

Management Commentary

Chuck Rifici, CEO and Chairman of Auxly commented: “Auxly continues to build out its platform at an industry leading pace and make progress on the development of its assets and partners at all touch points of the cannabis value chain. We continue to make strategic additions to the overall platform in line with the company’s domestic and international expansion plans. Needless to say, we are pleased with the steady progress we have made in the last three months as the Company works towards achieving its long -term strategic goals.”

Hugo Alves, President and Director of Auxly commented: “The third quarter of 2018 was highlighted by the further progress we have made in developing our assets and securing new accretive relationships across all of our business channels. We are increasingly differentiating ourselves through our focus on science-driven product innovation at Dosecann. We have assembled a world class team and have continued to invest in the infrastructure and strategic initiatives that we feel will best position Dosecann to be a leading player in the product development and manufacturing segment of the cannabis market."

ON BEHALF OF THE BOARD
"Chuck Rifici" Chairman & CEO

About Auxly Cannabis Group Inc. (TSX.V: XLY)

Auxly Cannabis Group is a collective of entrepreneurs with a passion for the cannabis industry past, present and future. Our mandate is to facilitate growth for our partners by providing them with financial support and sharing our collective industry experience. Our partners all have different visions, voices and brand values, and all share a common goal—to build a world-class industry based on ethics, diversity, quality and innovation.

Investor Relations:
For more information about investing in Auxly Cannabis Group, please visit: http://www.auxly.com or contact our Investor Relations Team: 
Email: IR@auxly.com
Phone: 1.833.695.2414

Stay Connected: 
Follow up on Twitter @Auxlygroup

Media Enquiries (only): 
For media enquiries or to set up an interview please contact:
Sarah Bain, VP External Affairs 
Email: sarah@auxly.com 
Phone: 613.230.5869

Notice Regarding Forward Looking Information:

This news release contains certain "forward-looking information" within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or information that certain events or conditions "may" or "will" occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes, but is not limited to: the proposed operation of Auxly, its subsidiaries and streaming partners, future legislative and regulatory developments involving cannabis and cannabis products, the timing of proposed research and clinical trials, the timing and outcomes of regulatory or intellectual property decisions, the relevance of Auxly’s subsidiaries’ and partners’ proposed products, consumer preferences, political change, competition and other risks affecting the Company in particular and the cannabis industry generally.

A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information in this release including, but not limited to, whether: Auxly’s subsidiaries and partners are able to obtain and maintain the necessary regulatory authorizations to conduct business, the Company is able to successfully manage the integration of its various business units with its own, the Company’s subsidiaries and partners obtain all necessary governmental and regulatory permits and approvals for the operation of their facilities and the development of its proposed products, and whether such permits and approvals can be obtained in a timely manner, the success of Dosecann and KGK’s research strategies, the applicability of the discoveries made therein, the successful and timely completion and uncertainties related to the regulatory process, the acceptance of future Dosecann products by consumers and medical professionals, and general economic, financial market, legislative, regulatory, competitive and political conditions in which the Company and Dosecann operate will remain the same. Additional risk factors are disclosed in the revised annual information form of the Company for the financial year ended December 31, 2017 dated May 24, 2018.

New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. In addition, this release may contain forward-looking information attributed to third party industry sources, the accuracy of which has not been verified by the Company. The purpose of forward-looking information is to provide the reader with a description of management's expectations, and such forward-looking information may not be appropriate for any other purpose. Readers should not place undue reliance on forward-looking information contained in this release.

The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.