Nova Cannabis Inc. has released its interim consolidated financial statements and management’s discussion and analysis for the three and six months ended June 30, 2024.
The company reported a record of $69.2 million in revenue for the three months ended June 30, 2024, the company’s second quarter of 2024. This translated to $16.8 million in gross profits and $859,000 in net and comprehensive earnings, up from a $333,000 loss in the previous quarter.
Nova’s revenue had declined in the past three quarters from a previous peak of $67.7 million in Q3 2023 to $67.4 million in Q4 2023 and $64.3 million in Q1 2024.
As of June 30, 2024, the Alberta-based retail chain owns and/or operates 99 locations across Alberta, Ontario, and Saskatchewan, primarily under its “Value Buds” and “Firesale Cannabis” banners.
The company currently has 61 cannabis stores in Alberta, 34 in Ontario, three in BC, and one in Saskatchewan. It has about a 19% market share in Alberta and a 4% share in Ontario.
Nova’s approach with their Value Buds and Firesale stores is to gain market share by operating in the near term at profit margins of 14-17%, around half that of many other cannabis stores.
Value Buds also sells products under its Value Buds label from its parent company, SNDL.
While Nova says its financial performance and liquidity have improved since the year ended December 31, 2023, it also notes that its ability to continue as a going concern relies on the ongoing support of its majority shareholder, SNDL, through the Revolving Credit Facility and the management and administrative services agreement made effective March 22, 2021.
SNDL is the parent company of Nova Cannabis, and as of June 30, 2024, SNDL Inc. holds an approximate 65% ownership interest in Nova.
On April 1, 2024, Nova and SNDL extended the maturity date of the Revolving Credit Facility to March 31, 2026, and amended the Revolving Credit Facility to remove SNDL’s right to demand repayment before the maturity date, subject to certain conditions. Nova and SNDL also agreed to increase the annual base fee payable by Nova under the Service Agreement from $1.25 million to $5.8 million per year.
On March 31, 2022, SNDL completed its acquisition of all of Alcanna Inc.’s issued and outstanding common shares, including its majority-owned subsidiary, Nova Cannabis Inc. This acquisition brought Alcanna’s ownership of cannabis stores in Alberta, Saskatchewan, and Ontario, along with liquor stores in Alberta and BC.
Those Ontario stores operate under Spirit Leaf Ontario Inc.’s licence to comply with Ontario regulations that don’t allow producers like SNDL to directly or indirectly own or control more than a 25% interest in any licensed Ontario cannabis retailer.
Earlier this year, SNDL Inc. agreed to assign its rights to own or operate four Dutch Love stores to Nova Cannabis Inc., giving Nova a footprint in BC’s retail cannabis space.
“For the three months ended June 30, 2024, cash provided by operating activities was $1.5 million, a $1.1 million decrease from the $2.6 million cash provided by operating activities for the same prior year period. The decrease in cash provided is primarily related to the decrease in non-cash working capital items of $0.7 million.
“On August 1, 2024, the Company had a cash and cash equivalents balance of $ 5.3 million.”
Nova’s Diesel and Berries SKUs were launched in May in Alberta and Ontario in 14 gram and 28 gram flower and 28 x 0.5 gram pre-roll formats, representing the Company’s first pre-rolls in the market.
Nova’s most recent quarterly report also notes that it continues to use its “proprietary data licensing program” to “deliver continued margin and revenue expansion through program optimizations and its ability to provide market-driven solutions”.
The company boasts that its access to its broad data and analytics “allows the opportunity to realize incremental revenue through intellectual property optimization.”
Its proprietary licensing brought in $3.8 million in the most recent quarterly report, up from $2.7 million in the same quarter in 2023. Proprietary licensing revenue was just under $3.3 million in Q1 2024, up from $1.5 million in Q1 2023.
Nova’s previous quarterly report noted that the increase in proprietary licensing revenue was due to an “updated proprietary licensing services agreement, scalable for customers’ needs, which allows customers to purchase specific sales data to assist them with planning for current and future product decisions.”
