Westleaf Inc. Announces Second Quarter 2019 Results and Update on Positioning for Cannabis 2.0

CALGARY, Aug. 29, 2019 /CNW/ - Westleaf Inc. (the "Company" or "Westleaf") (TSX-V:WL) (OTCQB:WSLFF), released today its second quarter financial results for the fiscal year 2019, ending June 30, 2019 and provided an update on operations.

Key Highlights:

• Westleaf completed construction on Phase I of The Plant, the Company's large-scale extraction, processing and product formulation facility in Calgary (built to EU GMP specifications), which is now awaiting approval for a standard processing licence from Health Canada;
• The Company completed two key strategic acquisitions – (i) Canndara, a cannabis retail company with prospective retail locations across Canada and (ii) acquiring its partner's 50% interest in Westleaf Labs Inc., providing the Company with full control of The Plant extraction, processing and product formulation facility;
• The Company acquired two retail locations in Saskatoon, Saskatchewan in two separate transactions and opened three Prairie Records retail locations in that province, as well as e-commerce, and is expecting to open a fourth store in Calgary on August 31, 2019;
• The Company reported total revenue for the second quarter of $913,000, which represents revenue from three stores in the Saskatoon region open for partial portions of the reporting period;
• On May 10, 2019, the Company completed a bought deal financing with a syndicate of underwriters for 12,000 convertible debenture units at a price of $1,000 for gross proceeds of $12 million;
• Westleaf continued to strengthen its leadership team – Adam Coates, was promoted to Chief Commercial Officer; John Radostits of Edmonton and Cody Church of Calgary were appointed to the Board of Directors;
• The Company is committed to a focus on overall cost reductions and financial prudence in all its business lines as it enters the second half of 2019.

"Overall, despite the headwinds in the public markets, we maintained our progress through the first half of the year to build and operationalize all three of our business lines with a focus on customer engagement and supplying high quality, consistent products to the market, in conjunction with preparing for the next phase of legalized cannabis products in Canada" said Scott Hurd, President and CEO of Westleaf Inc. "We are thrilled that we have fully completed construction of our extraction, processing, and product formulation facility, The Plant by Westleaf Labs, and we anticipate receiving our standard processing licence from Health Canada in time to manufacture a wide array of new derivative products for the start of Cannabis 2.0 in Canada. We anticipate that the introduction of a more diversified cannabis product offering across Canada will lead to a significant increase in the consumer base and related sales across our retail portfolio".

Operating Highlights

The Plant – Preparing for Cannabis 2.0:

• Construction on Phase I of The Plant, the Company's wholly owned large-scale extraction, processing and product formulation facility (built to EU GMP specifications), was completed and is awaiting licensing from Health Canada;
• Phase I of the facility is designed to process approximately 65,000 kgs of dried cannabis per annum into high quality oils, concentrates, tinctures, vape products and gel caps, including Westleaf's first in-house product, a line of vape pens under the brand General Admission;  
• The Plant is a highly strategic asset for the Company. With the pending legalization of derivative products, Westleaf anticipates strong industry wide demand for efficient extraction, processing and formulation capacity. The scalability of The Plant ensures Westleaf is well positioned to capitalize on the expected demand growth for contract manufacturing, tolling arrangements, white labeling, and in-house product formulation;
• Westleaf signed its first extraction contract with Delta 9 for white label derivative cannabis products worth at minimum approximately $4 million per annum with an option to increase up to $16 million per annum. 

"The Delta 9 contract is the first of what we hope to be a number of similar arrangements between licensed producers, product developers and others who are preparing for the coming legalization of derivative cannabis products such as vapes, edibles, topicals and beverages, or what is called Cannabis 2.0," noted Hurd. "We are preparing Westleaf to be in a strong position to capitalize on the expected spike in consumer demand for these products later this year and into 2020 and beyond."

The Plant has an additional 45,000 square feet of space to expand extraction capacity as well as add additional product lines based on consumer preferences once the additional products are licensed post October 17, 2019. Westleaf will also produce products under its own in-house recreational brands General Admission and Backstage, as well as its wellness brand Loon. The Company expects to launch its line of vape products in Q4 2019.

Prairie Records – A Unique Retail Experience:

• The Company's experiential retail concept Prairie Records, which combines music and cannabis into a unique retail environment, launched with three stores in the Saskatoon region;
• The two most recent Saskatoon stores recorded net revenue of approximately $491,000 for the last 30 days of operations and approximately $188,000 of gross profits equating to a top tier gross margin of 38%;
• Westleaf received a retail licence for a fourth store to be opened in Calgary's Forest Lawn district, with the store expected to be fully operational on August 31, 2019;
• Westleaf maintains a portfolio of over 20 premium retail locations with development permits. The retail portfolio is being developed prudently with planned locations across Alberta including a flagship store in Banff, several in British Columbia and one in Manitoba. The Company is also exploring the potential of brand licensing agreements to bring the Prairie Records experience to Ontario;
• The Company is currently in various stages of development on its retail portfolio, with a renewed focus on its many Alberta locations post the Alberta moratorium being recently lifted.

"We are thrilled to see that the response from consumers at our Prairie Records stores has been overwhelmingly positive. Month over month sales and transaction growth from all the locations has continued since opening. Unfortunately, the Alberta moratorium on issuing cannabis retail licences has delayed our buildouts and financial benefit to our shareholders" noted Adam Coates, Westleaf's Chief Commercial Officer. "Now that the moratorium has been lifted and the backlog addressed, we look forward to opening more Prairie Records retail stores including our first in Calgary, which we expect to open on August 31, 2019."   

Thunderchild Cultivation:

Construction of Westleaf's purpose-built, GMP compliant, indoor cultivation facility near Battleford, Saskatchewan has progressed significantly in the second quarter. Phase I of the indoor grow operation will be a total of 80,000 square feet with 20 grow rooms and approximately 21,000 square feet of flower bench. Phase II will add an additional 50,000 square feet and bring total production capacity up to approximately 14,600 kgs per annum, based on an anticipated 60 grams yield per square foot per harvest and 5.8 harvests per year. Principle construction is expected to be complete before the end of 2019. The remainder of the facility construction is fully financed with low-cost, non-dilutive bank debt from ATB Financial and Westleaf believes it is uniquely positioned to provide high demand ultra-premium indoor flower to the market once operational.  

Outlook and Additional Information:

The Company is well positioned as the market enters an important next phase with the legalization of new cannabis products. Referred to as Cannabis 2.0, Westleaf expects that its strong position in extraction, processing, product formulation and retail will provide a stable platform to develop and market new products. In all other jurisdictions where recreational cannabis has been legalized, cannabis derivative products, such as vapes, edibles, topicals and other forms have become the preferred products and have brought a significant number of new consumers into the market.  

As of June 30, 2019, the Company had 142.7 million common shares outstanding, 23.5 million warrants outstanding, 7.9 million RSUs outstanding, and 3.0 million stock options outstanding. Subsequent to quarter end, the Company granted an aggregate of 600,000 Restricted Share Units (RSUs) to officers of the Company. All RSUs were granted in accordance with the Company's compensation plan.

About Westleaf Inc.

Westleaf is a Canadian cannabis company focused on cannabis brands, extraction and production of cannabis derivative products, wholly owned retail, as well as cannabis cultivation. The Company's extraction and processing facility, The Plant, will produce high quality and consistent cannabis derivatives and consumables, both for Westleaf's in-house brands as well as white label products. Westleaf's retail concept, Prairie Records, leverages the instinctual tie between recreational cannabis and music with stores operating or in development across Western Canada. The Company's Thunderchild cultivation facility is scheduled for completion at the end of this year.  

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

Cautionary Statements

This news release contains "forward-looking information" and "forward-looking statements" (collectively, "forward-looking statements") within the meaning of the applicable Canadian securities legislation. All statements, other than statements of historical fact, are forward-looking statements and are based on expectations, estimates and projections as at the date of this news release. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts", "estimates", "believes" or "intends" or variations of such words and phrases or stating that certain actions, events or results "may" or "could", "would", "might" or "will" be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements. In this news release, forward-looking statements relate to, among other things, (i) retail cannabis stores that Westleaf plans to open; (ii) the construction of the Thunderchild cultivation facility and the timing for completion of same; (iii) commencement of production at The Plant and anticipated timing of licensing from Health Canada; (iv) the Plant providing a competitive advantage by being adaptive to consumer needs; (v) products and brands to be produced from Westleaf's production facilities and the products and services that Westleaf plans to offer; (iv) timing of provincial and federal regulatory approvals; (vii) timing of legalization of certain derivative products; (viii) changes in cannabis consumption habits among Canadians; (ix) the processing and production capabilities of Westleaf's extracting and cultivation facilities; and * anticipated amounts of revenue expected to be received under Westleaf's extraction contract. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: risks relating to the ability to obtain or maintain licences to retail cannabis products; review of Westleaf's production facilities by Health Canada and receipt of licences from Health Canada in respect thereof; future legislative and regulatory developments involving cannabis, including the passing of regulations regarding derivative cannabis products; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the labour market generally and the ability to access, hire and retain employees; the ability of Westleaf's production facilities to operate and perform at peak production; general business, economic, competitive, political and social uncertainties; the satisfaction of conditions precedent under Westleaf's credit facilities; timing and completion of construction of Westleaf's production facilities and retail locations; and the delay or failure to receive board, ATB Financial or regulatory approvals, including any approvals of the TSX Venture Exchange, as applicable. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release. Except as required by law, Westleaf assume no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change, except as required by law.

SOURCE Westleaf Inc.

Taylor Ethans, Chief Financial Officer, Head of M&A, [email protected], 403-618-5411; Bruce Leslie, VP Corporate Communications, [email protected], 403-801-7612

Related Links

http://www.westleaf.com