News

CanniMed Therapeutics Inc. (TSX:CMED) (“CanniMed” or the “Company”) today released its financial results for the fiscal year ended October 31, 2017.

Highlights

• Sales of $16.7 million in 2017 were 70% higher than 2016.
• Concentrated cannabis oils sales revenues were approximately 51% of total revenues for the year, compared to 31% of total revenues in 2016.
• Higher sales revenues were driven by rising demand, as dried equivalent medical cannabis sales in 2017 increased 74% from the comparable period in 2016 to 1,647 kg, at an average selling price of $9.99 per gram equivalent.
• Adjusted EBITDA from continuing operations was $(1.3) million for 2017 (2016 – $0.2 million).
• Net loss of $5.9 million for 2017, including a $1.9 million loss on derivative instruments (2016 – $23.2 million net loss, including an $8.0 million loss on derivative instruments, relating primarily to conversion rights on debentures that were either exercised or expired during the first quarter of 2017).
• Commenced construction of a large-scale, state-of-the art ethanol extraction cannabinoid oils processing facility to increase current oils capacity. Civil works for this facility were completed in first quarter of fiscal 2018.
• Completed installation of capsule manufacturing equipment with design capacity of up to 11,000 capsules per hour, and, during the fourth quarter of fiscal 2017, initiated the Health Canada approval process for sale of capsules.
• Continued negotiations with several Canadian pharmacy chains, building on the previously announced letter of intent with PharmaChoice, to collaborate on pharmacist education and the distribution, sale and marketing of the Company’s medical cannabis products.
• With current and planned capital expenditures, the Company is targeting production expansion which is estimated to reach 17,000 to 21,000 kg within the next 24 months.
• On January 24, 2018, CanniMed Therapeutics Inc. and Aurora Cannabis Inc. (“Aurora”) announced that they have entered into a support agreement with respect to the acquisition of CanniMed by Aurora, as detailed below.

“Our success is a reflection of the quality of our people, our assets and ability to remain focused on high-quality product from GMP compliant production practices,” said Brent Zettl, President and CEO of CanniMed. “I applaud our operations team on their many accomplishments throughout the years and for positioning CanniMed Therapeutics Inc. for continued success. In the proposed transaction with Aurora Cannabis, our shareholders gain a meaningful ownership in what will become one of Canada’s largest cannabis producers. The combination creates a company with a strong balance sheet positioned to grow strategically from a diverse portfolio of assets to create long-term value for shareholders.”

⁽¹⁾ The Company provides selected non-IFRS measures as supplementary information that management believes may be useful to investors to explain the Company’s financial results. Please see description and reconciliation of non-IFRS measures in the “Non-IFRS Financial Measures and Reconciliations” section of the Company’s MD&A dated January 29, 2018, available at www.SEDAR.com.

CanniMed’s production is concentrated at its 100-acre site in Saskatoon. The Company’s strategy is to build on its plant biotech experience and expertise to produce high quality cannabis products, with GMP compliant processes, in a variety of dosage forms. The strategy is pursued in the following key areas:

• Rapidly increasing production capacity, including oils production;
• Adding to domestic and international medical cannabis sales; and
• Using research and development to further advance the Company’s high-quality product line.

The 62,000 square foot POD growth facility commenced validation of the first of its growth chambers in the fourth quarter of 2016, with all 18 chambers validated and in production by August 2017. During July 2017 the BGC growth chambers, containing an additional 12 chambers, were taken off-line for upgrading of security, heating, ventilation and air conditioning systems.

CanniMed Therapeutics Inc. and Aurora Cannabis Agree to Terms on Friendly Transaction

On January 24, 2018, CanniMed Therapeutics Inc. and Aurora Cannabis Inc. (“Aurora”) announced that they have entered into a support agreement (the “Support Agreement”) whereby the Board of Directors and the Special Committee of the CanniMed Board have agreed to support a new offer (“New Offer”) made by Aurora for the acquisition of all of the issued and outstanding shares of CanniMed not owned by Aurora.

Under the New Offer, CanniMed shareholders may receive in respect of each CanniMed share, 3.40 Aurora shares or a combination of cash and shares at the election of each CanniMed Shareholder, subject to pro-ration with the maximum aggregate cash consideration of $140 million. Based on an implied Aurora share price of $12.65 and the 3.40 exchange ratio, the New Offer would equate to $43.00.

The total consideration for CanniMed under the New Offer is approximately $1.1 billion based on Aurora’s implied share price of $12.65. The maximum amount of cash available under the amended offer will be $140 million, and the number of Aurora shares to be issued will be between approximately 72 million (assuming full cash elections) and 84 million (assuming full share elections and no cash elections). Assuming maximum cash elections by all CanniMed shareholders, each CanniMed shareholder would receive $5.70 in cash and 2.9493 Aurora shares.

Support Agreement

The Support Agreement provides that CanniMed will support the New Offer and will recommend to its shareholders in an amended directors’ circular that CanniMed Shareholders will tender to the Aurora New Offer. In addition to the foregoing, Aurora will receive customary non-solicitation protection and a right to match any competing proposal made to CanniMed and a break fee payable to Aurora in certain circumstances, together with customary representations and warranties. In addition to the Locked-up Shareholders certain CanniMed shareholders representing approximately 15% of the issued shares of CanniMed, including Brent Zettl, Chief Executive Officer, have agreed to support the New Offer.

The New Offer and the transaction are subject to customary closing conditions, including Canadian Competition Act Approval

Financial Review

Revenue

Revenue for the year ended October 31, 2017 increased 70% to $16.7 million from the $9.8 million reported for the year ended October 31, 2016 (October 31, 2015 – $5.8 million).

Three-year trend

The increase in revenue in 2017 was attributable to a 74% increase in sales volume (2017 – 1,647 kg equivalents; 2016 – 946 kg equivalents; and 2015 – 582 kg equivalents) due to increasing numbers of active patients and an increasing focus on oils in the Company’s product mix.

Cost of Sales

Cost of sales is expected to vary on a quarterly basis, depending on the number of pre-harvest plants, the strains being grown and where the pre-harvest plants are in the growth cycle at the end of the reporting period. Cost of sales during the year ended October 31, 2017 includes depreciation of $1.2 million (2016 – $0.4 million) for both the POD and BGC facilities. Growing activities in the POD facility ramped up gradually throughout the year. For the years ended October 31, cost of sales was composed of the following:

General and Administrative Expense

For the year ended October 31, 2017, general and administrative expense was $5.4 million (2016 – $2.8 million). The majority of this increase was attributable to higher salary and benefits attributable to more personnel and higher accounting, legal and consulting expenses related to building capacity for rapid sales growth.

Sales and Marketing Expense

Sales and marketing expense consists of expenditures on advertising, promotion, sales and customer service. For the year ended October 31, 2017, sales and marketing expense was $4.1 million (2016 – $3.3 million); this variance is primarily attributable to increased sales staff and higher expenditures on advertising materials.

Freight and Distribution

Freight and distribution expense consists of expenditures on the shipping of product to customers. For the year ended October 31, 2017, freight and distribution expense of $1.4 million (2016 – $0.8 million) increased in proportion to increased sales volumes (2017 – 1,647 kg equivalent of sales volume (2016 – 946 kg equivalent sales volume).

Research and Development

Research and development is directed primarily towards plant-based materials for pharmaceutical, agricultural and environmental applications. Research and development costs for the year ended October 31, 2017 were comparable to those of the prior year (2017 – $1.5 million; 2016 – $1.6 million).

(Gain) Loss on Derivative Instruments

For year ended October 31, 2017, loss on derivative instruments was $1.9 million (2016 – $8.0 million). During 2017, the loss on derivative instruments is attributable to the increased value attributed to the embedded derivative liability relating to a conversion to equity option contained within the Company’s convertible debentures, resulting in a $2.4 million derivative loss during the first quarter of 2017 which was partially offset by derivatives gains relating to the Company’s interest rate swaps and convertible debenture receivable. The majority of the Company’s debentures were converted into CanniMed shares during the first quarter of 2017 and for the remainder of the debentures, the option to convert into equity of CanniMed shares expired at the end of the first quarter of 2017.

Loss

For the year ended October 31, 2017, the Company recorded a loss from continuing operations of $5.9 million, or $0.28 per share, net of tax. This compares to a loss from continuing operations of $10.3 million net of taxes, or $0.70 per share, for the year ended October 31, 2016. This decrease was largely attributable to a $6.1 million decrease in the loss on derivative liabilities, partially offset by increases in general and administrative expenditures, sales and marketing expenditures and freight and distribution costs (discussed below) as the Company increased its capability to support growing sales levels.

About CanniMed Therapeutics Inc.

CanniMed is a Canadian-based, international plant biopharmaceutical company and a leader in the Canadian medical cannabis industry, with 17 years of pharmaceutical cannabis cultivation experience, state-of-the-art, GMP-compliant production process and world class research and development platforms with a wide range of pharmaceutical-grade cannabis products. In addition, the Company has an active plant biotechnology research and product development program focused on the production of plant-based materials for pharmaceutical, agricultural and environmental applications.

The Company, through its subsidiaries, was the first producer to be licensed under the Marihuana for Medical Purposes Regulations, the predecessor to the current Access to Cannabis for Medical Purposes Regulations. It was the sole supplier to Health Canada under the former medical marijuana system for 13 years, and has been producing safe and consistent medical marijuana for thousands of Canadian patients, with no incident of product diversion or recalls.

For more information, please visit our websites: www.cannimed.ca (patients) and www.cannimedtherapeutics.com (investors).

Notice Regarding Forward Looking Statements

This news release contains forward-looking statements within the meaning of applicable securities laws. All statements that are not historical facts, including without limitation, statements regarding future estimates, plans, programs, forecasts, projections, objectives, assumptions, expectations or beliefs of future performance, are “forward-looking statements”. Forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “estimates”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.

Forward-looking statements are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of CanniMed Therapeutics Inc. to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including the risks described in CanniMed Therapeutics Inc.’s documents filed with applicable Canadian securities regulatory authorities which may be viewed at www.sedar.com . The forward-looking statements included in this news release are made as of the date of this news release. CanniMed Therapeutics Inc. does not undertake to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise, unless required by applicable securities legislation.

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