$1.5 million in revenue in 2018 Q2

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Revenues increased 180% over the quarter ended June 30, 2017 and 18% over Q1 2018

Emblem Corp. (TSXV: EMC, OTCQX: EMMBF) (“Emblem” or the “Company”), a licensed producer of medical cannabis under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”), today reported financial and operating results for the three and six months ended June 30, 2018.

“I’m pleased to report a robust second quarter with substantial progress in sales, patient counts, capacity, distribution and product development,” said Nick Dean, President & CEO of Emblem Corp.

“We remain steadfastly focused on executing against our plan and building a sustainable business that will drive long-term value for our shareholders. Our second quarter results are a testament to this mission.”

Highlights for the Second Quarter of 2018

  • A continued increase in revenues to $1.5 million representing a 180% increase over the quarter ended June 30, 2017 and an 18% increase over revenues in the first quarter of 2018
  • Industry-leading revenue per gram equivalent sold to patients of $10.17 per gram
  • 36% quarter over quarter increase in active registered patients reaching 4,000+ active registered patients as at June 30, 2018
  • Increase in cannabis oil sales representing 39% of total patient revenue during the second quarter of 2018
  • Announced joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH (“Acnos”) with the expectation of exporting Emblem branded cannabis products into Germany in mid-2019
  • Commenced research and development activities on oral sustained release formulations in collaboration with Canntab Therapeutics Limited
  • Investment in Fire & Flower Inc. and entered into a 3-year preferred supplier agreement

Highlights Subsequent to the Second Quarter of 2018

  • Announced strategic investment and letter of intent (“LOI”) with 662,000 square foot licensed greenhouse cultivator Natura Naturals Inc. (“Natura”)
    i.     $3 million strategic investment in Natura and a three-year supply agreement for 3,000 kilograms of high-quality cannabis flower per year at preferred wholesale pricing with initial product deliveries beginning in the fourth quarter of 2018
    ii.   LOI to acquire remaining issued and outstanding securities of Natura, increasing Emblem’s annualized production capacity to 70,000 kilograms by the end of 2019
  • Signed supply agreements with the Ontario Cannabis Retail Corporation, operator of the Ontario Cannabis Store, and the Alberta Gaming, Liquor and Cannabis Commission
  • Increased patient count to approximately 4,430 active registered patients as at the date of this release
  • Launch of first adult-use recreational cannabis brand, “Symbl”
  • Announced strategic partnership with GreenSpace Brands Inc. to develop and commercialize cannabidiol infused health and beauty products for the expected adult-use recreational cannabis market
  • Upgraded to trade on the OTCQX Best Market in the United States

Construction of Emblem’s 30,000 square foot integrated building which includes a 5,000 square foot Good Manufacturing Practice (“GMP”) certified lab located at its Woodslee location continues with an anticipated completion date of December 2018.  GMP certification will allow Emblem to pursue international export sales in 2019 with Acnos.  This facility will provide a vital support function for Emblem’s medical and adult-use recreational demand domestically and internationally.

Emblem Financials 2018 Q2

Revenue

During the three and six months ended June 30, 2018, total revenues increased by 180% and 93%, respectively, from the prior year’s comparable periods.  The increase in revenues was a result of the commencement of oil sales during December 2017 and higher patient education revenues.

Mr. Dean explained: “Demand for our medical cannabis products significantly increased period over period, further driven by our oil extracts released at the end of 2017. We have established Emblem as a trusted brand in the medical cannabis space. We are supporting our registered patients with additional cannabinoid oil profiles and new size formats including 30ml bottles, in addition to the original 60ml bottles. In addition, we anticipate launching our new metered-dose controlled oral sprays during the third quarter of 2018.”

During the three and six months ended June 30, 2018, GrowWise Health Limited (“GrowWise”), a wholly owned subsidiary of Emblem, generated total revenues of $251,000 and $463,000, respectively (June 30, 2017 – $131,000 and $195,000), an increase of 92% and 137%, respectively, from the prior year’s comparable periods.

Revenues of dried cannabis flower purchased by registered medical patients amounted to $499,000 and $956,000 during the three and six months ended June 30, 2018 (June 30, 2017 – $398,000 and $859,000), respectively. Revenues of dried cannabis flower purchased by Licensed Producers amounted to $182,000 and $576,000 during the three and six months ended June 30, 2018 (June 30, 2017 – $nil and $362,000), respectively.

Total dried flower sold to medical patients during the three and six months ended June 30, 2018 amounted to 58.6 kilograms and 111.4 kilograms of dried flower (June 30, 2017 – 53.9 kilograms and 108.6 kilograms), at an average selling price of $8.58 per gram and $8.59 per gram (June 30, 2017 – $8.41 per gram and $7.90 per gram), respectively. Total dried flower sold to licensed producers during the three and six months ended June 30, 2018 amounted to 38.8 kilograms and 109.9 kilograms of dried flower (June 30, 2017 – nil and 90.0 kilograms), at an average selling price of $5.00 per gram and $5.25 per gram (June 30, 2017 – $nil and $4.02 per gram), respectively.

During the three and six months ended June 30, 2018, revenues from cannabis oil products amounted to $320,000 and $507,000 or 39% and 35% of total sales to medical patients, respectively. Revenues from sales to other licensed producers amounted to $221,000 for the three and six months ended June 30, 2018.

Total bottled oils sold to medical patients during the three and six months ended June 30, 2018 were approximately 22.0 kilogram equivalents and 35.4 kilogram equivalents, at an average selling price of $14.51 per gram equivalent and $14.31 per gram equivalent, respectively. Total bottled oils sold to licensed producers were 28.3 kilogram equivalents during the three and six months ended June 30, 2018, at an average selling price of $7.83 per gram equivalent.

Prior to December 2017, the Company did not sell cannabis oil products as it did not receive its sales license to sell cannabis products until late 2017.

Cost of Sales

Cost of sales for the three and six months ended June 30, 2018 was $2,495,000 and $4,369,000 (June 30, 2017 – $1,111,000 and $2,494,000), respectively, and unrealized gain on changes in the fair value of biological assets was $828,000 and $1,607,000 (June 30, 2017 – $573,000 and $963,000), respectively. During the three and six months ended June 30, 2018, cost of sales includes costs relating to inventory sold of $1,061,000 and $1,664,000 (June 30, 2017 – $302,000 and $855,000), production costs of $1,281,000 and $2,425,000 (June 30, 2017 – $726,000 and $1,488,000) and patient education costs of $153,000 and $280,000 (June 30, 2017 – $83,000 and $151,000), respectively. The higher production costs during the three and six months ended June 30, 2018 compared to 2017 are related to the higher production volumes resulting from the commissioning of three additional flowering rooms in the fourth quarter of 2017.

Gross Profit (Loss)

Gross profit (loss) for the three and six months ended June 30, 2018 was a gross loss of $159,000 and gross profit of $23,000 compared to a gross loss of $nil and $89,000 for the prior year’s comparable periods, respectively. Higher revenues and unrealized gains on changes in fair value of biological assets were more than offset by production costs as operations ramped up and costs relating to inventory sold as sales volumes increased.

Expenses

General and administrative expenses increased primarily due to the continued build-out of the Company’s management team, as well as higher business development, legal and consulting fees incurred in connection with various strategic initiatives the Company is pursuing across cultivation expansion, product development and distribution. Higher selling and marketing costs were due to brand development, brand awareness and media campaigns, to support the launch of the Company’s new adult-use recreational brand Symbl, in anticipation for the legalization of cannabis on October 17, 2018.

Adjusted EBITDA

The Company’s Adjusted EBITDA decreased by $992,000 and $1,530,000 during the three and six months ended June 30, 2018, when compared with the three and six months ended June 30, 2017, mainly due to higher operating expenses during the current periods.

About Emblem

Emblem, through its wholly-owned subsidiary Emblem Cannabis Corporation, is a fully integrated licensed producer and distributor of medical cannabis and cannabis derivatives in Canada under the ACMPR. Emblem’s state-of-the-art indoor cannabis facility and research and development laboratory is located in Paris, Ontario. Led by an experienced management team of healthcare executives, accomplished marketing professionals, and cannabis experts, Emblem is focused on driving shareholder value through product innovation, brand relevance, and access to patient and consumer channels. Emblem is also the indirect parent company of GrowWise Health Limited, one of Canada’s leading cannabis education services. Emblem trades under the ticker symbol EMC on the TSX Venture Exchange and EMMBF on the OTCQX Best Market.

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