Emblem Corp. Reports Strong Third Quarter 2018 Financial Results

Emblem (TSXV:EMC,OTCQX:EMMBF) (“Emblem” or the “Company”), a licensed producer of cannabis under the Cannabis Act through its wholly owned subsidiary Emblem Cannabis Corporation, is pleased to report financial and operating results for the three and nine months ended September 30, 2018. The strong results underscore the Company’s continued focus on fundamentals such as revenue growth, market share, and operational excellence to drive long-term shareholder value.

“This quarter marked a significant period of transformation for Emblem as we strategically aligned the business around our core strengths. This began with the signing of one of the largest business to business cannabis supply agreements, increasing our aggregate annual product supply run rate to approximately 30,000 kilograms beginning in mid-2019. With product volume and cost visibility addressed, management can refocus both human and capital resources on levering core competencies of product innovation, brand building and securing global distribution channels,” said Nick Dean, President & CEO, Emblem Corp. “During the quarter, we began to realize the significant revenue impact of our Symbl brand within the adult-use market as we fulfilled 100% of our provincial commitments, while maintaining product availability for our growing number of registered patients.”

Highlights for the Third Quarter of 2018

• Record Company revenues of $2.3 million, a 281% increase year-over-year and a 50% increase quarter-over-quarter.
• Among industry-leading revenue per gram equivalent sold to patients of $10.67 per gram.
• Sales of high margin derivative products grew rapidly and represented 48% of total patient sales for the quarter, driving robust realized pricing.
• 20% increase quarter-over-quarter in active registered patients to 4,820 as at September 30, 2018.
• Signed five-year supply agreement with Aphria Inc. (“Aphria”), to receive an aggregate of 175,000 kilogram equivalents of high-quality dried cannabis flower and crude cannabis oil at preferred wholesale pricing, commencing in May 2019.
• Strategic investment and three-year supply agreement with Natura Naturals Inc. (“Natura”), to receive up to 3,000 kilograms of high-quality cannabis flower per year at preferred wholesale pricing with deliveries to commence in December 2018.
• Launch of Symbl, Emblem’s first adult-use recreational cannabis brand.
• Signed supply agreements with the Alberta Gaming Cannabis Commission (“AGLC”) and the Ontario Cannabis Store (“OCS”). Fulfilled 100% of commitments to deliver cannabis products before September 30, 2018, which generated $0.8 million in revenues.
• Launched oral dose-metered spray, Atmosphere.
• Announced strategic partnership with GreenSpace Brands Inc. to develop and commercialize cannabidiol infused health and beauty products for the adult-use recreational market.
• Signed five-year supply agreement with and investment in Compass Cannabis Clinic to become a preferred cannabis supplier through its wholly owned subsidiary adult-use retail entity Starbuds Canada.

Highlights Subsequent to the Third Quarter of 2018

• Increased patient count to approximately 6,000 active registered patients as at the date of this release, representing a 122% increase in patient count since the beginning of the year.
• Appointment of Wayne Kreppner as President of Medical to support the rapid growth of Emblem’s medical division and associated new product innovations.
• Adult-use distribution partners are indicating robust demand for Symbl cannabis products and re-stocking has occurred since the end of the quarter. Shipped 134 kilogram equivalents of Symbl cannabis products to the OCS, AGLC and Fire & Flower Inc., with additional deliveries scheduled for the remainder of the fourth quarter.
• Signed supply agreement with the BC Liquor Distribution Branch and obtained supply approval with the Saskatchewan Liquor and Gaming Authority.
• Signed definitive agreement with German pharmaceutical wholesaler Acnos Pharma Gmbh in respect to launching a joint venture under the name Emblem Germany for the purpose of exporting Emblem-branded cannabis products from Canada to Germany.
• Election of Connie A. Stefankiewicz and Loreto Grimaldi to the Company’s board of directors.
• Completed an equity investment in DriveABLE Assessment Centres Inc., a global leader in cognitive-based driving evaluations, to support its research on cannabis impairment.

Third Quarter Financial Summary

Revenue

During the three and nine months ended September 30, 2018, total revenues of the Company increased by 281% and 148%, 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 the launch of the adult-use recreational market in the third quarter of 2018.

During the three months ended September 30, 2018, the Company sold dried flower and oil products to the AGLC and OCS for total revenues of $766,000.

“Our significant quarter over quarter revenue increase was driven by the legalization of adult-use cannabis and our supply agreements in the provinces of Ontario and Alberta. We are now pursuing Canada-wide distribution, and subsequent to the third quarter, secured sales approvals in Saskatchewan and B.C.,” said Mr. Dean. “In addition, feedback from patients continues to reinforce that Emblem is a trusted brand of medical cannabis that puts patients’ needs first. Medical innovation, supply and support will continue to be our first and foremost priority, as evidenced by the recent appointment of our new division president, Wayne Kreppner, who brings immense R&D experience to our leadership team. Our commitment to product development and innovation was demonstrated with the recent launch of Atmosphere oral dose-metered sprays.”

During the three and nine months ended September 30, 2018, GrowWise Health Limited (“GrowWise”), an indirect wholly-owned subsidiary of Emblem, generated total revenues of $222,000 and $685,000 (September 30, 2017 – $161,000 and $356,000), an increase of 38% and 92%, respectively, from the prior year’s comparable periods.

During the three and nine months ended September 30, 2018, revenues of dried cannabis flower purchased by registered medical patients amounted to $497,000 and $1,453,000 (September 30, 2017 – $438,000 and $1,297,000), respectively. Revenues of dried cannabis flower purchased by licensed producers amounted to $275,000 and $851,000 (September 30, 2017 – $nil and $362,000), respectively.

Total dried flower sold to medical patients during the three and nine months ended September 30, 2018 amounted to 60.4 kilograms and 171.8 kilograms of dried flower (September 30, 2017 – 50.8 kilograms and 159.5 kilograms), at an average selling price of $8.25 per gram and $8.47 per gram (September 30, 2017 – $8.81 per gram and $8.35 per gram), respectively. Total dried flower sold to licensed producers during the three and nine months ended September 30, 2018 amounted to 55.5 kilograms and 164.9 kilograms of dried flower (September 30, 2017 – $nil and 90.0 kilograms), at an average selling price of $5.00 per gram and $5.17 per gram (September 30, 2017 – $nil and $4.02 per gram), respectively.

During the three and nine months ended September 30, 2018, revenues from cannabis oil products amounted to $445,000 and $952,000 or 26% and 30% of total sales to medical patients, respectively. Revenues from sales to other licensed producers amounted to $nil and $221,000 for the three and nine months ended September 30, 2018.

Total bottled oils sold to medical patients during the three and nine months ended September 30, 2018 were approximately 30.6 kilogram equivalents and 66.0 kilogram equivalents, at an average selling price of $14.52 per gram equivalent and $14.32 per gram equivalent, respectively. Total cannabis oils sold to licensed producers were nil and 28.3 kilogram equivalents during the three and nine months ended September 30, 2018, at an average selling price of $nil and $7.83 per gram equivalent, during the three and nine months ended September 30, 2018, respectively.

Prior to December 2017, the Company did not sell cannabis oil products until it received its license to sell cannabis oil products in November 2017.

Production expenditures and realized fair value changes in inventory sold

Production expenditures and realized fair value changes in inventory sold for the three and nine months ended September 30, 2018 was $2,792,000 and $7,161,000 (September 30, 2017 – $1,388,000 and $3,881,000), respectively, and unrealized gain on changes in the fair value of biological assets was $968,000 and $2,575,000 (September 30, 2017 – $845,000 and $1,807,000), respectively. During the three and nine months ended September 30, 2018, Production expenditures and realized fair value changes in inventory sold includes costs relating to inventory sold of $1,016,000 and $2,680,000 (September 30, 2017 – $348,000 and $1,203,000), production costs of $1,719,000 and $4,144,000 (September 30, 2017 – $913,000 and $2,401,000) and patient costs of $57,000 and $337,000 (September 30, 2017 – $127,000 and $277,000), respectively. The higher production costs during the three and nine months ended September 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 and packaging of inventory in preparation of the adult-use recreational market for October 2018.

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 with respect to supply management, cultivation expansion, product development and distribution. Higher selling and marketing costs were due to brand development, brand awareness, and media campaigns in connection with the launch of the Company’s new adult-use brand Symbl, in preparation for the Cannabis Act coming into force.

Adjusted EBITDA

The Company’s Adjusted EBITDA decreased by $962,000 and $2,493,000 during the three and nine months ended September 30, 2018, when compared with the three and nine months ended September 30, 2017, mainly due to higher operating expenses during the current periods.

About Emblem

Emblem is a fully integrated cannabis company focused on driving shareholder value through product innovation, brand relevance, and access to patient and consumer channels. Through its wholly-owned subsidiary Emblem Cannabis Corporation, Emblem is licensed to cultivate, process, and sell cannabis and cannabis derivatives in Canada under the Cannabis Act. Emblem’s state-of-the-art indoor cannabis cultivation facility and Product Innovation Centre is located in Paris, Ontario. Emblem Cannabis Corporation is also the parent company of GrowWise, 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.

For media inquiries, please contact:

Morgan Cates
H+K Strategies
416.413.4649
morgan.cates@hkstrategies.ca

For further information contact:

Ethan Karayannopoulos
Investor Relations
Emblem Corp.
647.748.9696
ethank@emblemcorp.com

Alex Stojanovic
Chief Financial Officer
Emblem Corp.
416.923.1331
alexs@emblemcorp.com

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This news release contains certain forward-looking statements and forward-looking information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “achieve”, “could”, “believe”, “plan”, “intend”, “objective”, “continuous”, “ongoing”, “estimate”, “outlook”, “expect”, “may”, “will”, “project”, “should” or similar words, including negatives thereof, suggesting future outcomes. In particular, this news release contains forward-looking statements relating to, among other things: (i) the development and completion of the proposed facilities by the Company; (ii) the ability of the Company to utilize the new facilities to produce additional dried cannabis and or oil; (iii) potential sales of dried cannabis and oil; produced at the new facilities and the value thereof; (iv) the Company’s future production capacity; (v) the availability of additional sources of financing; (vi) the ability of the Company to complete a Good Manufacturing Practice certified facility; (vii) the ability of the Company to produce high quality dried flower and oil; (viii) the success of the partnership and collaboration arrangements entered into by the Company (ix) the intention to grow the business, operations and potential activities of the Company; (x) the anticipated changes to Canadian federal laws regarding recreational adult-use and the corresponding business impacts on the Company; and (xi) the ability of third parties to perform under certain supply agreements. Management of the Company believes the expectations reflected in such forward-looking statements are reasonable as of the date hereof but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Various material factors and assumptions are typically applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements. Those material factors and assumptions are based on information currently available to the Company, including data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which Emblem believes to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. While Emblem is not aware of any misstatement regarding any industry or government data presented herein, the medical cannabis industry involves risks and uncertainties and is subject to change based on various factors.

Forward-looking statements are not a guarantee of future performance and are subject to and involve a number of known and unknown risks and uncertainties, many of which are beyond the control of the Company, which may cause the Company’s actual performance and results to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks identified in the Company’s Annual Information Form dated October 6, 2018, which has been filed with the Canadian Securities Administrators and available on www.sedar.com. Any forward-looking statements are made as of the date hereof and, except as required by law, the Company assumes no obligation to publicly update or revise such statements to reflect new information, subsequent or otherwise.

This news release contains future-oriented financial information and financial outlook information (collectively, “FOFI”) about Emblem’s prospective results of operations, sales, revenues, funds flow, and components thereof, all of which are subject to the same assumptions, risk factors, limitations, and qualifications as set forth in the above paragraphs. FOFI contained in this news release was made as of the date of this document and was provided for the purpose of providing further information about the Company’s future business operations. The Company disclaims any intention or obligation to update or revise any FOFI contained in this news release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this news release should not be used for purposes other than for which it is disclosed herein.

In this press release, reference is made to Adjusted EBITDA, which is not a measure of financial performance under International Financial Reporting Standards. The definitions for Adjusted EBITDA can be found in the Company’s September 30, 2018 Management’s Discussion and Analysis, filed on SEDAR.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

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