CanadaEarningsStrong brands boost GTEC’s annual revenue 270%

The firm behind BLK MKT and Tenzo carved out significant market share in 2020, but recorded an $8.4M impairment charge related to a subsidiary
Nick Laba Nick LabaMarch 4, 202112 min

With its well-reviewed, quality legal weed, GTEC Holdings Ltd. (TSX-V: GTEC) more than tripled its revenue in one fiscal year.

The Canadian producer posted its financial results Wednesday for the three months and 365 days ended Nov. 30, 2020 — showing a steady upward trajectory since it launched its BLK MKT and Tenzo brands in December, 2019.

GTEC reported annual revenue of $8.8 million, a 267 per cent increase from $2.4 million in the previous fiscal year.

The company posted fourth-quarter revenues of $2.5 million, a 5.8 per cent increase over $2.4 million in the previous sequential quarter.

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Over the fiscal year, gross margin net of income tax rose to $4 million, increasing 272 per cent from 2.9 million. Overall gross margin percentage increased to 50 per cent from 45 per cent.

However, on a quarterly basis, gross margin fell by 53 per cent to $686,000 from $1.4 million — overall gross margin percentage sliding to 30 per cent from 70 per cent in both Q3 and Q2.

On an annual basis, GTEC has cut cost of production to $1.96 — a reduction of 25 per cent from $2.62 — and operating expenses to $4 million, a 40 per cent reduction from $6.7 million.

GTEC reported adjusted earnings before interest, taxes, depreciation and amortization at a loss of $206,000, a 96 per cent improvement from a loss of $5.7 million.

And net income from operations was $282,000, an increase of 103 per cent from a net loss of $8.3 million. According to the firm’s filings on SEDAR, net and comprehensive net loss was reported at $10.2 million, a 4 per cent increase from a loss of $9.8 million in fiscal 2019.

GTEC reported a non-cash impairment charge of $8.4 million related to its Alberta Craft Cannabis subsidiary, which the company bought to accelerate its time to market via the acquisition of an existing licensed facility.

“In this regard, the company remains confident that this acquisition played an instrumental role in accelerating its development of cultivation systems, B2B sales, brand launches and product listings with Provincial liquor boards,” GTEC wrote in a statement.

After an initial boost following the results, GTEC stock settled back Thursday to the same market close as Tuesday at $0.85 on the TSX Venture Exchange. Since Feb. 1, company shares are up 554 per cent.

CEO Norton Singhavon Q&A

The following questions were answered over email, and have been edited only to match publication style (punctuation, capitalization etc.).

Comparing Q3 and Q4, your average selling price took a hit (and had been steadily increasing previously) — is this just general price compression or what happened there? Is this what primarily affected your gross margin as well? 

There is certainly some margin compression occurring within the cannabis space, and GTEC did pro-actively reduce its recreational product prices in late 2020. However, with respect to Q4 specifically, we would highlight that our bulk (B2B) per cent of total sales increased over Q3. This put a hit on our overall average selling price and gross margin for the quarter, but it allows us to enter fiscal 2021 without stale and/or non-conforming inventory.

Also looking at your net income. Your gains here are being driven by more sales and less expenses, obviously. Is there anything specific at play here you can comment on?

As leaders of this company, it is always a high priority to drive incremental revenue, while concurrently reducing costs. Part of cost savings has to do with us honing in on what we “must have,” versus the “nice to haves.” For example, we eliminated multiple roles at the corporate head office during fiscal 2020, such as, but not limited to: investor relations, in-house counsel, director of regulatory affairs, director of quality assurance.

Regarding Alberta Craft Cannabis and the related charge. Anything else here to note?

When made an offer to purchase ACC in late 2017, which subsequently closed in early 2018. We saw this as a path to expedite our speed to market and to obtain provincial listing once legalization occurred. Without this purchase, we would not have had the success we have accomplished in such a short time frame, as Tumbleweed and Grey Bruce only recently received the necessary approvals to ship product direct to the provinces. We are noticing that it’s becoming more and more challenging to receive provincial listings currently, and many small licensed producers are being turned away, and GTEC would have been about at least a year behind on entering into the provinces.

ACC also had previously conducted all of the rec packaging for our other facilities, and now that the other facilities are licensed to package for themselves, the value of ACC on the books would be significantly less than it was. Therefore, we thought a non-cash impairment charge was necessary to reflect its current fair value.

I’m seeing your year-end cash position is a bit tight at $625K — has that changed since then? Anything you’d like to comment on here?

In our subsequent events we announced the sale of our Vancouver retail store which netted $500,000. We also disclosed earlier in the week that we fully repaid the $2 million debt to Invictus, along with a $2.75 million non-brokered private placement, which the placement is still subject to closing.

Lastly, any predictions for Q1 2021 (especially with GreenTec coming online)?

Although we have elected not to give any forward financial guidance, I can say that I am extremely excited for the launch of our new cultivars, further building on the pre-roll demand, an export deal that we signed, the launch of our BLNT by BLK MKT, and of course to further grow the GreenTec medical e-commerce platform. Our Q1 ended February 28, so we are into Q2 now and I am quite excited to realize all the innovation we have been working on over the last few months. I expect Q2 to be a very interesting and exciting one.

Top photo of Tenzo Wedding Crasher by Nick Laba

 

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