Nova Announces Fourth Quarter and Year End 2023 Results

The Company achieves record annual revenue and Adjusted EBITDA, and delivers positive net earnings with sustained gross profit growth

This news release constitutes a "designated news release" for the purposes of the prospectus supplement of Nova Cannabis Inc. dated July 22, 2022, to its short form base shelf prospectus dated June 27, 2022.

EDMONTON, AB, March 25, 2024 /CNW/ - Nova Cannabis Inc. (the "Company" or "Nova") (TSX: NOVC) today released its annual consolidated financial statements (the "financial statements") and management's discussion and analysis ("MD&A") for the year ended December 31, 2023. All financial information in this press release is reported in millions of Canadian dollars and represents results from continuing operations, unless otherwise indicated.

"Nova has achieved significant milestones this year, marked by sequential gross profit growth and positive net earnings for three consecutive quarters," said Marcie Kiziak, CEO of Nova. "Our success in the current market is a direct result of our sharp focus on inventory management and the strategic enhancement of our proprietary data agreements, which has contributed to our positive cash flow position this past year. Amidst a competitive and fluctuating market, our expansion will continue to be measured, focusing on tactical opportunities in the key markets of British Columbia and Ontario in 2024. Our achievements through 2023 further highlight the success of the Value Buds banner, which has proven adaptable and well-positioned to endure success in Canada's dynamic cannabis retail sector."

FOURTH QUARTER FINANCIAL AND OPERATING HIGHLIGHTS

• Revenue of $67.4 million for the fourth quarter of 2023, which was consistent with the third quarter of 2023 and a 10% increase from the fourth quarter of 2022.
  
  
• For locations operational throughout the fourth fiscal quarter of 2023 and 2022, same-store sales increased 2% year-over-year.
  
  
• Gross profit of $17.1 million (25% of revenue), a 34% increase from the fourth quarter of 2022 of $12.8 million (21% of revenue). Gross profit improvement was driven by price stabilization in the Alberta market, the Company's development of private label initiatives, and an increased number of proprietary data licensing agreements being entered into by the Company. These factors have contributed to nine consecutive quarters of gross profit improvement.
  
  
• Net earnings of $0.4 million ($0.01 earnings per share) in the fourth quarter of 2023 compared to a net loss of $4.8 million ($0.08 loss per share) in the fourth quarter of 2022. Net earnings increased by $5.2 million or 109% from the fourth quarter of 2022.
  
  
• Adjusted EBITDA for the fourth quarter of 2023 of $6.4 million (9% of revenue) compared to $3.2 million for the fourth quarter of 2022, an improvement of 100%.
  
  
• The data licensing program generated revenue of $4.2 million for the fourth quarter of 2023, compared to $1.6 million in the fourth quarter of 2022, representing growth of $2.6 million, or 163%.
  
  
• 96 stores operating as of March 25, 2024, an increase of 8 stores since the beginning of 2023.
  
  
• Nova's management team ("Management") estimates that its market share was approximately 19% in Alberta and 4% in Ontario for the fourth quarter of 2023, based on available industry data from Statistics Canada¹.
  
  
• Cash provided by operating activities in the fourth quarter of 2023 of $5.0 million, a $2.2 million increase from the $2.8 million cash provided by operating activities in the fourth quarter of 2022.
  
  
• Cash and cash equivalents of $13.8 million as at December 31, 2023.

FISCAL YEAR 2023 FINANCIAL AND OPERATING HIGHLIGHTS

• Record revenue of $259.3 million, an increase of $32.9 million or 15%, from $226.4 million in 2022.
  
  
• Record gross profit of $61.6 million, or 24% of sales, a 40% increase from $43.9 million, or 19% of sales, in 2022.
  
  
• Revenue from Nova's proprietary data licensing arrangements was $12.4 million for 2023, an increase of 125% from $5.5 million in 2022.
  
  
• Net earnings of $3.0 million in 2023, compared to a loss of $11.2 million in 2022, an increase of 127%.
  
  
• Adjusted EBITDA for 2023 was $21.8 million compared to $9.2 million in 2022, an improvement of 137%.
  
  
• Cash provided by operating activities improved to $11.7 million in 2023, an $11.8 million increase from $(0.1) million in 2022.
  
  
• Nova expanded its private label collaboration with SNDL Inc. ("SNDL") through 2023, introducing large format flower SKUs in the Ontario market in the first half of the year. In September, the collaboration expanded further with the introduction of the large format vape.

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¹ Source: Statistics Canada: Table 20-10-0056-01 Monthly retail trade sales by province and territory (x 1,000), unadjusted, as of December 2023.

SPECIFIED FINANCIAL MEASURES

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

Adjusted EBITDA

Adjusted EBITDA is a non-IFRS financial measure that the Company uses to evaluate its operating performance. Adjusted EBITDA provides information to investors, analysts, and others to aid in understanding and evaluating the Company's operating results in a similar manner to Management. Adjusted EBITDA is defined as earnings (loss) and comprehensive earnings (loss) before finance costs; gains and losses on fair value adjustments; depreciation; impairments, lease remeasurements and other costs; and certain one-time transaction costs and restructuring costs, as determined by Management.

The following table reconciles Adjusted EBITDA to net earnings (loss) and comprehensive earnings (loss) for the periods noted:

	Three months ended December 31		Year ended December 31
(expressed in thousands)	2023	2022	2023	2022
Net earnings (loss) and comprehensive earnings (loss)	438	(4,767)	3,027	(11,205)
Adjustments:
Finance costs	1,186	1,074	4,630	3,976
Net loss (gain) on fair value adjustments	115	125	(97)	(313)
Depreciation	2,826	2,884	11,393	10,948
Impairment, lease remeasurements and other costs	1,821	2,887	2,129	3,006
Transaction costs^(1)	-	963	-	2,782
Restructuring costs^(2)	5	—	750	—
Adjusted EBITDA	6,391	3,166	21,832	9,194

1. Transaction costs include expenses incurred in connection with SNDL's acquisition of Alcanna Inc. on March 31, 2022, Nova's former majority shareholder.
2. Restructuring costs include expenses incurred in connection with entering into the implementation agreement with SNDL on December 20, 2022, as amended, which agreement was subsequently terminated on November 17, 2023.

LIQUIDITY AND CAPITAL RESOURCES

 Summary of Consolidated Cash Flows

Cash provided by (used in)	Three months ended December 31		Year ended December 31
(expressed in thousands)	2023	2022	2023	2022
Operating activities	4,967	2,782	11,721	(65)
Investing activities	(388)	(1,668)	(2,330)	(8,408)
Financing activities	(1,631)	(2,438)	(611)	2,979
Net increase (decrease) in cash	2,948	(1,324)	8,780	(5,494)

Revolving Credit Facility

Nova has an uncommitted revolving credit facility with SNDL in an aggregate principal amount not to exceed $15.0 million (the "Revolving Credit Facility"). On November 17, 2023, the term of the Revolving Credit Facility was extended to March 31, 2024. The Company is in discussions with the lender to further extend the maturity of the Revolving Credit Facility.

As at March 25, 2024, the Revolving Credit Facility is fully drawn.

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 in 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 British Columbia. 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 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.
  
  
• To build on the success of the "Value Buds" brand and provide a service to both consumers and industry partners, the Company introduced its pilot concept, "Firesale Cannabis", in 2023. The Company's cannabis liquidation pop-up helps licensed producers sell aged inventory at deeply discounted prices, intending to provide the most affordable cannabis products in Canada. As at March 25, 2024, the Company operates one "Firesale Cannabis" store in Alberta.
  
  
• The Company is dedicated to enhancing retail fundamentals with a keen focus 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.
  
  
• Through its relationship with SNDL, Value Buds' private label strategy has been successfully launched in Alberta and Ontario with four large format flower offerings and a large format vape. The Company is exploring further product extensions in the coming quarters to offer large format pre-rolls and edibles. The private label strategy enables Nova to develop higher gross margin offerings, build customer loyalty, and create long-term brand awareness. The private label strategy focuses on keystone segments, specifically large format, uniquely curated for the Value Buds consumer, and drives meaningful differentiation through the retail network.

CONFERENCE CALL

Nova will host a conference call and webcast at 10 a.m. EDT (8 a.m. MDT) on Tuesday, March 26, 2024.

Call Access

Canada/USA Toll Free: 1-800-319-4610
International Toll: [phone]

Webcast Access

To access the live webcast of the call, please visit the following link:
https://services.choruscall.ca/links/novacannabis2023q4.html

Replay 

The webcast archive will be available for three months via the link provided above.
A telephone replay will be available for one month. To access the replay dial:

Canada/USA TF: 1-800-319-6413 or International Toll: [phone]
When prompted, enter Replay Access Code: 0754

For further information, refer to the Company's financial statements and MD&A for the three and nine months ended September 30, 2023, 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 96 locations across Alberta, Ontario and Saskatchewan, primarily under its "Value Buds" and "Firesale Cannabis" banners. 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 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 and Firesale banners, 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 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.

Marcie Kiziak, Chief Executive Officer, Nova Cannabis Inc., [email protected]