AUXLY REPORTS Q1 2023 FINANCIAL RESULTS

TORONTO, May 15, 2023 /CNW/ - Auxly Cannabis Group Inc. (TSX: XLY) (OTCQB: CBWTF) ("Auxly" or the "Company") today released its financial results for the three months ended March 31, 2023. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com. All amounts are Canadian dollars except common shares ("Shares") and per Share amounts.

Q1 2023 Highlights

• Total net revenues of $24.0 million in Q1 2023, an increase of $1.3 million or 6% compared to the same period in 2022;
• The Company achieved the first quarter of positive Adjusted EBITDA in its history;
• Retained the #5 LP position in Canada with 5.7% share of market and continued to improve sales of Cannabis 1.0 products, finishing the quarter with 4.6% share of market up from 3.7% in the previous quarter¹;
• The Cost of Finished Cannabis Inventory Sold Margin was 37% during the quarter, increasing from 23% during the first quarter of 2022 and 30% from the fourth quarter of 2022;
• Cash from continuing operating activities was $3.2 million during the current quarter, as compared to a use of cash of $7.0 million during the first quarter of 2022.

Financial Highlights

For the three months ended March 31:
(000's)	2023	2022	Change	Change
Total net revenues	23,968	22,626	1,342	6 %
Net income/(loss)*	(10,249)	(39,846)	29,597	74 %
Adjusted EBITDA**	138	(6,324)	6,462	102 %
Weighted average shares outstanding	954,014,308	847,603,874	106,410,434	13 %
As at:	March 31,	December 31,
(000's)	2023	2022	Change	Change
Cash and equivalents	$          16,841	$             14,636	$            2,205	15 %
Total assets	$        332,610	$           331,820	$               790	0 %
Debt***	$        174,335	$           174,475	$              140	0 %

	*Adjusted EBITDA is a Non-IFRS financial measure. Refer to the Non-GAAP Measures.
	**Debt is a supplementary financial measure. Refer to the Non-GAAP Measures.

	_____________________________________
	^1 Data provided by Headset as at May 4, 2023

Results of Operations

For the three months ended March 31:
(000's)	2023	2022
CONTINUING OPERATIONS
Revenues
Revenue from sales of cannabis products	$           37,544	$           33,204
Excise taxes	(13,576)	(10,578)
Total net revenues	23,968	22,626
Costs of sales
Costs of finished cannabis inventory sold	15,025	17,522
Biological asset impairment	-	704
Inventory (gain)/impairment	673	4,878
Gross profit/(loss) excluding fair value items	8,270	(478)
Unrealized fair value gain/(loss) on biological transformation	4,247	6,473
Realized fair value gain/(loss) on inventory	(4,639)	(2,325)
Gross profit	7,878	3,670
Expenses
Selling, general, and administrative expenses	10,090	12,639
Equity-based compensation	409	203
Depreciation and amortization	1,745	4,600
Interest expense	5,808	5,080
Total expenses	18,052	22,522
Other income/(loss)
Interest and other income	14	85
Impairment of assets	-	(23,673)
Foreign exchange gain/(loss)	(89)	(361)
Total other income/(loss)	(75)	(23,949)
Net loss before income tax	(10,249)	(42,801)
Income tax recovery	-	2,955
Net income/(loss)	$         (10,249)	$        (39,846)
Adjusted EBITDA	$                 138	$          (6,324)
Net income/(loss) per common share (basic and diluted)	$             (0.01)	$            (0.05)
Weighted average shares outstanding (basic and diluted)	954,014,308	847,603,874

Hugo Alves, CEO of Auxly, commented: "We are very pleased to have achieved the Company's first quarter of positive Adjusted EBITDA. The results for the first quarter of 2023 continued to build upon the gains made in the fourth quarter of 2022, despite historical revenue headwinds in the first calendar quarter of the year. The shift in sales mix towards the dried flower and pre-roll products categories allowed us to better leverage Auxly Leamington's cost structure and contributed to further improvements in the Cost of Finished Cannabis Inventory Sold Margin to 37%. During the quarter we completed the full build-out of our new internal sales team, and we are working hard on increasing distribution and new sales channels. We are encouraged by our recent achievements and remain dedicated to delivering further improvements in financial performance. I want to thank our talented team members for their continued commitment to Auxly's success."

Net Revenues

For the period ended March 31, 2023, net revenues were $24.0 million as compared to $22.6 million during the same period in 2022. Revenues for the period were comprised of approximately 55% in sales of dried flower and pre-roll Cannabis Products, with the remainder from oils and Cannabis 2.0 Product sales. Net revenues included wholesale bulk flower sales of approximately $1.0 million during the first quarter of 2023. Auxly maintained its position as a top 5 LP, by maintaining strength in sales of Cannabis 2.0 Products while increasing its share of market for Cannabis 1.0 Products to 4.6% from 3.7% in the previous quarter.

Consistent with prior periods, as the Company does not participate in the Quebec market, approximately 85% of cannabis sales during the period originated from sales to British Columbia, Alberta and Ontario.

Gross Profit

Auxly realized a gross profit of $7.9 million in the first quarter of 2023, an increase of $4.2 million as compared to the same period in 2022, which includes the impacts of non-cash impairments and fair value adjustments. The Gross Profit Margin for the first quarter of 2023 was 33% versus 16% in the same period of 2022. Excluding non-cash amounts, the Cost of Finished Cannabis Inventory Sold Margin improved to 37% versus 23% in the same period of 2022, while increasing from 30% in the fourth quarter of 2022 as a result of a higher proportion of Cannabis 1.0 Products sold by the Company utilizing low-cost cannabis cultivated at Auxly Leamington, and the streamlining of certain Cannabis Products and operating costs.

Realized and unrealized fair value gains and losses reflect accounting treatments associated with Auxly Leamington cultivation activities and sales and are influenced by changes in production, sales and net realizable value assumptions.

Biological and inventory impairments during the first quarter of 2023 of $0.7 million were associated with certain slower moving SKUs and certain product not meeting quality specifications, while impairments in the first quarter of 2022 were primarily related to the closure of the Auxly Annapolis facilities.

Total Expenses

Selling, general and administrative expenses ("SG&A") are comprised of wages and benefits, office and administrative, professional fees, business development, and selling expenses. SG&A expenses were $10.1 million during the first quarter of 2023, a $2.5 million or 20% decrease over the same period of 2022.

Wages and benefits were $4.7 million for the first quarter of 2023, as compared to $5.7 million for the same period of 2022. The net decrease is primarily due to measures taken after the third quarter of 2022 to reduce overhead in the organization.

Office and administrative expenses were $2.3 million for the period ended March 31, 2023, decreasing by $1.3 million compared to the same period in 2022. The decreased expenditures primarily relate to higher product cost absorption, reduced waste and the timing and cost associated with product innovation.

Auxly's professional fees were $0.8 million for the first quarter of 2023, approximately $0.4 million greater than the same period of 2022. Professional fees incurred primarily related to accounting fees, regulatory matters, reporting issuer fees, and legal fees associated with certain corporate activities and as a result can fluctuate significantly from one period to the next.

Business development expenses were $0.1 million for the period ended March 31, 2023, consistent with the same period in 2022. These expenses primarily relate to acquisition, business development and travel related expenses.

Selling expenses were $2.3 million for the first quarter of 2023, a decrease of $0.6 million over the same period in 2022, primarily as a result of cost reductions associated with the internalization of the sales team, partially offset by Health Canada fees related to higher revenues, and increased marketing initiatives.

Equity-based compensation for the three months ended March 31, 2023 was $0.4 million, an increase of $0.2 million over the same period in 2022, primarily reflecting the impact of restricted share units ("RSU") granted in June 2022, in respect of services provided by employees in 2021.

Depreciation and amortization expenses were $1.7 million for the first three months of 2023 representing a decrease of $2.9 million over the same period in 2022, primarily as a result of reductions in intangible assets, completion of certain leases and right of use assets, and depreciation associated with disposed assets.

Interest expenses were $5.8 million in the first quarter of 2023 as compared to $5.1 million during the same period in 2022. The increase in expense is primarily a result of the impact of rising interest rates where such obligations are subject to variable charges. Interest expense includes accretion on the convertible debentures and interest paid in kind on the $123 million Imperial Brands Debenture. Interest payable in cash was approximately $2.0 million for the period.

Total Other Incomes and Losses

Total other incomes and losses for the first quarter of 2023 were a net loss of $0.1 million primarily due to foreign exchange losses, as compared to a net loss of $23.9 million in the same period of 2022. Total other losses in the first quarter of 2022 were primarily related to the closure of the Auxly Annapolis and Auxly Annapolis OG facilities, where the carrying value exceeded the fair value less cost to sell.

Net Income and Loss

Net losses for the three months ended March 31, 2023 were $10.2 million, representing a net loss of $0.01 per share on a basic and diluted basis. The change in net loss in the first quarter of 2023 as compared to the same period of 2022 was primarily driven by changes in total other losses, improved gross profits and lower total expenses.

Adjusted EBITDA

Adjusted EBITDA for the period ended March 31, 2023 was positive $0.1 million, an improvement of $6.5 million over the same period of 2022, primarily as a result of improvements in net revenues and reduced costs of finished cannabis inventory sold and SG&A.

Outlook 

In 2023, we aim to continue to improve earnings performance, increase focus on key product formats, lower costs and increase efficiency, which we expect will yield positive results. With these actions in mind, our goals for 2023 are broadly defined below:

• Increase net revenues by 15%, with a focus on key product categories, enhanced by strategic expansion of our product portfolio, while supporting strong retail distribution through our internal sales team.
• Continue to leverage Auxly Leamington's large-scale, low-cost cultivation facility and the Company's manufacturing automation to increase blended Cost of Finished Cannabis Inventory Sold Margin to an average of 35-40%.
• Vigorously manage SG&A as a percentage of net revenues to keep it below 40%, further building upon savings realized in Q4 2022.
• Prudently manage the Company's balance sheet and streamline assets where possible.

The results for the first quarter of 2023 continued to build upon the gains made in the fourth quarter of 2022. While the first calendar quarter of the year has historically been impacted by greater seasonality, revenues for the quarter declined only marginally from the fourth quarter of 2022. We believe this improved result is due to a more balanced sales mix as our portfolio expanded further into dried flower and pre-roll product sales, which represented approximately 55% of revenues for the period. The shift in sales mix towards these product categories allowed us to better leverage Auxly Leamington's cost structure and contributed to further improvements in the Cost of Finished Cannabis Inventory Sold Margin to 37%. Despite a slight increase in SG&A, which includes the full build-out of our new internal sales team, we are very pleased to have achieved the Company's first quarter of positive Adjusted EBITDA.

We believe that we are on track to achieve our full year plan, built upon proven demand for our products, outstanding employees, top-tier assets and an underlying desire to continue to put our consumers first by delivering safe, effective, high-quality products that address their evolving needs and preferences and help them live happier lives.

Non-GAAP Measures

Please see the Company's MD&A for the three months ended March 31, 2023, under "Non-GAAP Measures" for a further description of the following financial and supplementary financial measures.

Financial Measures

EBITDA and Adjusted EBITDA

These are non-GAAP measures used in the cannabis industry and by the Company to assess operating performance removing the impacts and volatility of non-cash adjustments. The definition may differ by issuer. The Adjusted EBITDA reconciliation is as follows:

(000's)	Q1/23	Q4/22	Q3/22	Q2/22	Q1/22	Q4/21	Q3/21	Q2/21
Net income/(loss)	$  (10,249)	$  (16,056)	$  (60,102)	$  (14,289)	$  (39,846)	$  (18,376)	$  (13,527)	$     (3,685)
Interest expense	5,808	5,655	5,507	5,336	5,080	4,348	3,932	4,787
Interest income	(14)	(63)	(105)	(84)	(85)	(308)	(436)	(431)
Income tax recovery	-	(1,112)	(2,110)	(85)	(2,955)	-	-	(4,291)
Depreciation and amortization included in cost of sales	1,120	1,296	681	2,180	1,211	689	386	326
Depreciation and amortization  included in expenses	1,745	2,791	3,525	3,900	4,600	5,678	2,223	2,174
EBITDA	(1,590)	(7,489)	(52,604)	(3,042)	(31,995)	(7,969)	(7,422)	(1,120)
Impairment of biological assets	-	-	-	-	704	-	-	-
Impairment of inventory	673	2,062	2,014	1,778	4,878	2,194	716	124
Unrealized fair value loss / (gain) on  biological transformation	(4,247)	(2,814)	(7,496)	(11,735)	(6,473)	(1,462)	(352)	(315)
Realized fair value loss / (gain) on  inventory	4,639	7,382	8,175	6,898	2,325	904	1	1
Restructuring related costs	165	-	193	-	-	-	-	-
Equity-based compensation	409	429	475	2,916	203	212	55	960
Fair value loss / (gain) for financial instruments accounted under FVTPL	-	-	-	-	-	408	(223)	(75)
Impairment of assets	-	676	42,831	-	23,673	-	60	11,366
(Gain) / loss on settlement of assets, liabilities and disposals	-	(1,330)	1,574	(163)	-	815	(1,396)	(16,995)
Share of loss on investment in joint  venture	-	-	-	-	-	(1,387)	3,095	2,494
Foreign exchange loss / (gain)	89	301	(938)	(647)	361	242	(633)	571
Adjusted EBITDA	$          138	$       (783)	$    (5,776)	$    (3,995)	$    (6,324)	$    (6,043)	$    (6,099)	$    (2,989)

Supplementary Financial Measures

Cost of Finished Cannabis Inventory Sold Margin

"Cost of Finished Cannabis Inventory Sold Margin" is a supplementary financial measure and is defined as Cost of Finished Cannabis Inventory Sold divided by net revenues.

Gross Profit Margin

"Gross Profit Margin" is defined as gross profit divided by net revenues. Gross Profit Margin is a supplementary financial measure.

Debt

"Debt" is defined as current and long-term debt and is a supplementary financial measure. It is a useful measure in managing our capital structure and financing requirements.

Conference Call

Auxly's management team will host a conference call today, Monday, May 15, 2023, at 10:00 a.m. EST to discuss its financial results.  Participants can access the conference call by telephone by dialing: 1-888-664-6383 or by audio webcast at: https://app.webinar.net/WylvMd6xn37

For those unable to participate in the conference call at the scheduled time, it will be available for replay on the Company's website within 24 hours after the conclusion of the call.

ON BEHALF OF THE BOARD
"Hugo Alves" CEO

About Auxly Cannabis Group Inc. (TSX: XLY)

Auxly is a leading Canadian consumer packaged goods company in the cannabis products market, headquartered in Toronto, Canada. Our focus is on developing, manufacturing and distributing branded cannabis products that delight our consumers.

Our vision is to be a leader in branded cannabis products that deliver on our consumer promise of quality, safety and efficacy.

Learn more at www.auxly.com and stay up to date at Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.

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 and its subsidiaries; the intention to grow the business, operations and existing and potential activities of Auxly; the impact of the COVID-19 pandemic on the Company's current and future operations; the Company's execution of its innovative product development, commercialization strategy and expansion plans; the Company's intention to introduce innovative new cannabis products to the market and the timing thereof; the anticipated benefits of the Company's partnerships, research and development initiatives and other commercial arrangements; the current and anticipated benefits of the Company's acquisition of Auxly Leamington; the expectation, timing and quantum of future revenues, Cost of Finished Cannabis Inventory Sold Margin, SG&A and of positive Adjusted EBITDA; expectations regarding the Company's expansion of sales, operations and investment into foreign jurisdictions; future legislative and regulatory developments involving cannabis and cannabis products; the timing and outcomes of regulatory or intellectual property decisions; the relevance of Auxly's subsidiaries' current and proposed products with provincial purchasers and consumers; 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: the Company will be able to execute on its business strategy or achieve its goals; Auxly's subsidiaries are able to obtain and maintain the necessary governmental and regulatory authorizations to conduct business; the Company is able to successfully manage the integration of its various business units with its own; there are not materially more closures or lockdowns related to the COVID–19 pandemic; the Company's subsidiaries obtain and maintain all necessary governmental and regulatory permits and approvals for the operation of their facilities and the development of cannabis products, and whether such permits and approvals can be obtained in a timely manner; the Company will be able to continue to successfully integrate Auxly Leamington's operations with its own, and whether the expected benefits of the acquisition materialize in the manner expected, or at all; the Company will be able to successfully launch new product formats and enter into new markets; there is acceptance and demand for current and future Company products by consumers and provincial purchasers; the Company will be able to increase and maintain revenues, maintain positive Adjusted EBITDA, and/or achieve and maintain its target Cost of Finished Cannabis Inventory Sold Margin; and general economic, financial market, legislative, regulatory, competitive and political conditions in which the Company and its subsidiaries and partners operate will remain the same. Additional risk factors are disclosed in the annual information form of the Company for the financial year ended December 31, 2022 dated March 30, 2023.

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 forward-looking information is being provided for the purposes of assisting the reader in understanding the Company's financial performance, financial position and cash flows as at and for periods ended on certain dates and to present information about management's current expectations and plans relating to the future, and the reader is cautioned that 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 Toronto Stock Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Toronto Stock Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Auxly Cannabis Group Inc.

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