Avicanna Reports First Quarter 2020 Financial Results and Provides Corporate Update

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TORONTO, May 25, 2020 /CNW/ - Avicanna Inc. ("Avicanna" or the "Company) (TSX: AVCN) (OTCQX: AVCNF) (FSE: 0NN) a biopharmaceutical company focused on the development, manufacturing and commercialization of plant-derived cannabinoid-based products announces results for the first quarter ended March 31, 2020.

Aras Azadian, Chief Executive Officer of Avicanna, commented "Our management team demonstrated incredible execution ability by first ensuring the safety of our team and in parallel reducing costs, all while continuing to advance our commercial activities. We are also pleased to demonstrate the maturity of the company's global vertical integrated commercial infrastructure which is exhibited through significantly reduced capex and increased efficiencies in our global operations."

First Quarter Operational Highlights

• Early in 2020, the Company reacted immediately to the COVID-19 crisis and initiated several cost cutting and optimization initiatives to ensure that it directed its resources to its strategic and commercial, revenue-focused activities. These measures resulted in operating expenditures decreasing by approximately 45% from Q4 2019 to Q1 2020. In addition, the Company reduced its headcount by approximately 70 persons in the quarter, which represented approximately 30% of the overall global headcount. Furthermore, management reduced their pay by approximately 30% in an effort to conserve cash and resources. This, coupled with the completion of capex-heavy projects, significantly reduced the company's cash burn rate. In addition, our minority partners in our cultivation subsidiaries, Santa Marta Golden Hemp S.A.S. ("SMGH") and Sativa Nativa S.A.S. ("Sativa Nativa"), contribute their portion of capital on an ongoing basis. As such the Company does not carry full cash burden of operations or capital expenditures.
  
  
• In parallel with the cost cutting initiatives, the Company's commercial preparations and initiatives continue to progress and saw growth in its revenue by approximately 112% over the fourth quarter of 2019. The Company is expecting revenues to continue to increase through fiscal 2020 putting it in the position to generate positive cash flow by the end of 2020.
  
  
• Entered into an exclusive supply agreement with Medical Cannabis by Shoppers Drug Mart Inc. ("Shoppers"), Canada's largest and most trusted pharmacy chain. Under the terms of the agreement the Company's proprietary brands, Rho Phyto and Pura Earth will be distributed by Shoppers in Canada. Rho Phyto products to be distributed under this agreement have been approved for commercial sale by Health Canada.
  
  
• Entered into an exclusive import and distribution agreement with Cannvalate Pty. Ltd ("Cannvalate"), an Australian based cannabis company. Under the terms of the agreement Cannvalate will distribute the Rho Phyto line of products in Australia. The Company is expecting initial orders in the final quarter of 2020.
  
  
• Completed all 3 clinical trials for Pura Earth products that were commenced during the third quarter of 2019. The products involved were Avicanna's formulations targeted at cosmetic factors associated with aging, acne prone skin, and eczema prone skin. The successfully completed trials involved 156 patients that were tested for both safety and certain derma-cosmetics endpoints. The results of all three studies were positive with no adverse effects, making Pura Earth one of the only cannabinoid consumer product lines with human safety and efficacy data.
  
  
• Received amendment by Health Canada to the Cannabis Research Licence to include an additional lab within JLABS @ Toronto, Avicanna's R&D headquarters in the MaRS Discovery District.
  
  
• The Company ranked highest amongst global cannabis companies in the SAM Corporate Sustainability Assessment ("CSA"), a sustainability index that has become the basis for numerous S&P Global ESG indices and showcases the sustainability performance of some of the world's largest companies.

Financial Highlights

• The Company recognized revenue of $260,903 from the commencement of sales through various divisions. There were no write-downs or impairments for 2019.
  
  
• In January, the Company closed a financing round, at a premium to the then market price of the Company's stock, which added approximately CAD$2.06 million of cash to the Company's balance sheet.
  
  
• Subsequent to quarter end, at the height of the COVID-19 pandemic, the Company closed a strategic non-brokered private placement for $2.56 million, issuing 3,200,000 units at a price of $0.80 per unit. The financing primarily included strategic partners, including Tasly International Capital Limited, a division of Tasly Holding Group Co., Ltd., a large healthcare and pharmaceutical group in China.

Recent Developments

• In April 2020, through its Avesta Genetica genetics and seed division, SMGH completed the first known industrial scale seed harvest in Colombia which included approximately 80 million premium and feminized cannabigerol ("CBG") dominant seeds. The seeds have been tested for germination and attained feminization rates of 99%, which are deemed premium within the global seed market. The seeds will be utilized for local production, sales and exports.
  
  
• In May 2020, the Company was approved for the first ever export of hemp seeds (genetics) from Colombia from its majority owned subsidiary Santa Marta Golden Hemp S.A.S. ("SMGH") in Santa Marta, Colombia. This export was authorized with support from the Colombian ministries of justice and agriculture.
  
  
• In May 2020, the Company entered into a strategic manufacturing and intellectual property licensing agreement with MediPharm Labs Inc. ("MediPharm") involving licensed production, domestic and international distribution and intellectual property licensing. Under the terms of the agreement, MediPharm use the specialized contract manufacturing capabilities resident at its state-of-the-art Canadian production facility to produce Avicanna's advanced Rho Phyto medical cannabis products and Pura Earth topicals under license for commercial sales through Medical Cannabis by Shoppers. The partnership provides Avicanna with a commercial pathway to Canadian and international sales, as well as pharmaceutical manufacturing of its products destined for clinical development with its Canadian clinical partners. Additionally, Avicanna will grant MediPharm a license to use proprietary Avicanna formulations to develop additional MediPharm Labs and white label branded products for the domestic and international market. MediPharm has proven expertise in product development and will leverage its in-house sensory testing, processing and packaging capabilities to manufacture finished products using these formulations. MediPharm Labs' pharmaceutical and GMP-certified capabilities and international supply chain expertise will be deployed to produce and deliver the proprietary finished products to partners worldwide.

Summary of Operations ($CDN)

		Three Months Ended
		March 31, 2020	March 31, 2019
		$	$
Revenues		260,903	24,023
Cost of Sales		100,807	-
Fair value changes in biological assets		1,887,452	-
General and administrative		3,185,943	2,687,206
Share-based compensation		338,193	1,044,639
Depreciation and amortization		509,143	56,295
Total Expenses		4,033,278	3,788,140
Other income (loss)		(123,806)	(121,359)
Net loss before taxes		(2,109,536)	(3,885,476)
Future income tax recovery		-	-
Net loss after taxes		(2,109,536)	(3,885,476)
Weighted average number of Common Shares outstanding – basic and diluted		22,970,463	15,885,863
Loss per share – basic and diluted		(0.12)	(0.25)

Summary of Balance Sheet ($CDN)

		As at March 31, 2020	As at December 31, 2019
Assets		$	$
Cash		76,568	441,757
Amounts receivable		670,497	1,202,924
Prepaid assets		1,129,470	704,632
Biological assets		2,110,703	117,367
Inventory		1,774,354	1,484,371
Right to use asset		490,646	539,710
Property and equipment		20,938,344	22,622,322
Intangible assets		10,864,475	11,063,900
Derivative asset		3,780,000	3,780,000
Investments		72	72
Goodwill		3,207,227	3,207,227
Total Assets		45,042,357	45,164,282
Liabilities and Equity
Amounts payable		5,271,444	5,177,634
Due to related party		3,428,114	3,319,116
Convertible debentures		728,946	715,626
Derivative liability		-	23,434
Lease liability		510,473	555,339
Term loan		-	-
Deferred revenue		3,315,430	3,323,518
Deferred tax liability		2,173,834	2,173,834
Total Liabilities		15,428,241	15,288,501
Shareholder's equity		29,614,116	29,875,781
Total Liabilities and Shareholder's Equity		45,042,357	45,164,282

About Avicanna

Avicanna is an Ontario, Canada based corporation focused on the development, manufacturing, and commercialization of plant-derived cannabinoid-based products through its two main business segments, cultivation and research and development.

Avicanna's two majority-owned subsidiaries, Sativa Nativa S.A.S. and Santa Marta Golden Hemp S.A.S., both located in Santa Marta, Colombia are the base for Avicanna's cultivation activities. These two companies are licensed to cultivate and process cannabis for the production of cannabis extracts and purified cannabinoids including cannabidiol (CBD) and tetrahydrocannabinol (THC).

Avicanna's research and development business is primarily conducted out of Canada at its headquarters in the Johnson & Johnson Innovation Centre, JLABS @ Toronto. Avicanna's scientific team develops products, and Avicanna has also engaged the services of researchers at the Leslie Dan Faculty of Pharmacy at the University of Toronto for the purpose of optimizing and improving upon its products.

Avicanna's research and development and cultivation activities are focused on the development of its key products, including plant-derived cannabinoid pharmaceuticals, phyto-therapeutics, derma-cosmetics, and Extracts (defined as plant-derived cannabinoid extracts and purified cannabinoids, including distillates and isolates), with a goal of eventually having these products manufactured and distributed through various markets.

Stay Connected

For more information about Avicanna, visit www.avicanna.com, call 1-647-243-5283, or contact Setu Purohit, President by email [email protected].

Cautionary Note Regarding Forward-Looking Information and Statements

This press release contains certain "forward-looking information" within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only Avicanna's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Avicanna's control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or may contain statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "will continue", "will occur" or "will be achieved". The forward-looking information and forward-looking statements contained herein may include, but is not limited to, the minority partners of SMGH and SN continuing to make capital contributions on an ongoing basis, the Company's ability to continue not carrying full cash burden of operations or capital expenditures, the Company's revenues to continue to increase through fiscal 2020, the Company's ability to export, and Cannvalate's ability to import, cannabis-based products for distribution in Australia, the Company's ability to keep the Cannabis Research License issued by Health Canada in good standing, and the Company's continuing to export seeds from Colombia.

By identifying such information and statements in this manner, Avicanna is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Avicanna to be materially different from those expressed or implied by such information and statements. In addition, in connection with the forward-looking information and forward-looking statements contained in this press release, Avicanna has made certain assumptions.

Among others, the key factors that could cause actual results to differ materially from those projected in the forward-looking information and statements are the following: decreases in the prevailing prices for cannabis and cannabis products in the markets in which the Company operates; adverse changes in applicable laws; adverse changes in the application or enforcement of current laws, including those related to taxation; increasing costs of compliance with extensive government regulation; changes in general economic, business and political conditions, including changes in the financial markets and in particular in the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; risks related to licensing, including the ability to obtain the requisite licenses or renew existing licenses for the Company's proposed operations; dependence upon third party service providers, skilled labor and other key inputs; risks inherent in the agricultural and retail business; intellectual property risks; risks related to litigation; dependence upon senior management; and the other risks disclosed in the Company's long form final prospectus dated July 8, 2019 and the Company's annual information form date April 15, 2020. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.

Although Avicanna believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. Key assumptions used herein are that the Company will not need to expand current infrastructure to meet its commercial milestones, the Company will be able to increase efficiencies in its operations, the Company will be able to continue to earn revenue, the Company will not encounter any delays in the launch of its phyto-therapeutic and derma-cosmetic product lines in Australia and Canada, the Company will not encounter any delays with the CTA for Epidermolysis Bullosa, the Company's CBG seeds are considered premium within the global seed market, and the Company will not be subject to any unforeseen delays or regulatory or contractual actions that will prevent it from completing research on cannabinoids in the MaRS Discovery District.

SOURCE Avicanna Inc.

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