Auxly Cannabis Group's First-Quarter Loss Widens as It Focuses on Marijuana Derivatives

Whether you realize it or not, marijuana might be a once-in-a-generation growth opportunity. There aren't too many industries that can rightly say their global sales will grow fourfold to sixfold over the next decade, which is what makes the pot industry so exciting.

At the heart of this excitement is Auxly Cannabis Group (NASDAQOTH: CBWTF), a cannabis streaming company and cultivation farm operator that just so happens to have reported its fiscal first-quarter results on Monday, May 27. Although the company's net loss widened from the prior-year period, it remains laser-focused on the expansion of marijuana derivatives later this year. 

Image source: Getty Images.

Auxly Cannabis Group Q1 results: The raw numbers

Data source: Auxly Cannabis Group. All data expressed in Canadian dollars. 

As you'll note, Auxly had no revenue in the year-ago period, meaning the 817,000 Canadian dollars it logged in sales during the first quarter of 2019 were "infinitely" better than this time last year. In total, CA$525,000 in sales were derived from deferred service contracts, courtesy of KGK Sciences, which was acquired in August 2018. The remaining CA$292,000 came from Auxly's first sales of cannabis flower. The report notes that most dried flower is being held back for the production of derivatives (i.e., edibles, topicals, and concentrates), which Health Canada expects to legalize by October 2019.

Meanwhile, net loss climbed 31% to CA$13.8 million, although net loss per share declined to $0.02 from a loss of $0.03 per share in the prior-year period as the result of having more share outstanding in the recently ended quarter. The primary culprits of this larger loss were a CA$3.2 million increase in selling, general, and administrative expenses; a CA$1.3 million increase in interest expenses associated with the issue of convertible debentures; and a $1.8 million impairment taken on its now-severed joint venture with FSD Pharma (NASDAQOTH: FSDDF).

Image source: Getty Images.

What happened with Auxly Cannabis Group this quarter?

As evidenced by the CA$817,000 in total sales, the first quarter, ending March 31, 2019, was predominantly spent advancing projects. Here are some of the most notable highlights during the quarter.

• The biggest achievement has to be Auxly's first sale of dried cannabis flower, even if it only totaled CA$292,000. As noted by the company, dried cannabis flower sales have been curtailed, because the company prefers to use this flower to develop derivative cannabis products in anticipation of Health Canada legalizing new consumption options by October. These derivative products generally have juicier margins than dried flower.
• Auxly continued to work with its joint venture partner Sunens on the construction of its greenhouse facility, which is expected to be complete by December 2019. Once fully operational, this facility should be capable of more than 100,000 kilos of annual output.
• The company made progress at wholly owned subsidiary Dosecann with regard to product research and development, formulation, and the manufacturing of derivative products. Auxly points out that headway has been made in creating cannabis resins from dried flower and in the development of edible product formulations.
• As noted earlier, Auxly also announced the termination of a joint venture with FSD Pharma in February. In mid-January, Auxly provided notice to FSD of certain contract breaches, which FSD Pharma failed to remedy, leading to the dissolution of the joint venture weeks later.