National Access Cannabis Corp (NAC) (TSX-V:META) released its Q2 results on Tuesday. Sales for the company’s first full quarter where the recreational market was open were significant, coming in at over $16.2 million. In the previous quarter, sales were $3.8 million for the three months ending November 30.
However, it wasn’t all good news as The Company recorded a net loss of $5.6 million for the quarter as there simply wasn’t enough of a margin for NAC to be able to cover its rising expenses. With just $5.2 million in gross profit, cost of sales took away 68% of the top line. And with general and administrative (G&A) expenses totalling $8.4 million, that alone was enough to wipe out the gross margin.
A big reason for the higher G&A expenses was due to rising salaries and benefits expenses ($4 million), along with rental ($1.7 million), professional ($740k) and consulting ($653k) fees, which made up the vast majority of the costs ($7.1 million). And unfortunately, with more stores being opened, all of those costs are only going to continue to increase, making it challenging for NAC to turn a profit in future quarters as well.
Another area of concern is finance and other costs, where The Company incurred an additional $1.1 million in expenses. A year ago, this number was zero. Financing NAC’s expansion has proven costly and it might only get more challenging going forward.
Aggressive growth planned for 2019
The Company is looking to be one of the biggest retailers in the country and it already has a big presence in multiple provinces.
With 23 stores operating in two provinces, seven applications underway in B.C. and a focused strategy for Ontario, we are poised to continue growing our leading footprint at a national level, while driving solid financial performance for our shareholders
– Mark Goliger, CEO of NAC
With 14 stores in Alberta and nine in Manitoba, it’s an incredible tally given the circumstances and the limitations that retailers have faced so far this year. But NAC isn’t looking to stop there, as its goal is to reach 40 stores by the end of the calendar year. It’s an aggressive strategy, and one that could put even more of a strain on The Company’s sales.
A look at the company’s cash
Over the past six months, NAC has used more than $19 million to fund its operating activities, which is up from $3 million the year before. Inventory has made up a big chunk of that, with $6 million being spent on that line item alone. However, that’s not nearly as bad as The Company’s investing activities which have burned through $31 million in cash. Net debt repayments of $16 million and property and equipment purchases of $12 million made up the bulk of the spending, with another $2.5 million being used on business acquisitions.
In order to help keep adequate cash on hand, NAC issued more than $20 million of shares and another $20 million of convertible debentures. It’s a far cry from the $6 million in shares it issued a year ago and it’s not something investors would like to see continue to happen.