Earlier this week, Auxly Cannabis Group Inc. (XLY.V) (CBWTF) released fourth quarter and full year financial results and the market responded to the numbers. During the quarter, the Canadian cannabis company reported to have generated $18.3 million of net cannabis revenue. When compared to the same period last year, revenue has spiked higher, and we attribute the growth to Auxly’s cannabis 2.0 business.
In 2020, Auxly generated more than $55 million of revenue ($46.6 million of net cannabis revenue). When compared to 2019, revenues increased by more than 500% and we will monitor how revenue numbers grow from here. The comparable quarters in 2019 have a low bar and we are not surprised by Auxly’s success.
Although the Canadian Licensed Producer (LP) reported for the fourth quarter, ATB Capital Markets lowered its price target to $0.45 (CAD) from $0.50 (CAD). ATB’s price target implies that there is more than 20% upside to current levels. Auxly traded slightly lower after reporting quarterly financial results and we will continue to follow the trend.
During the last year, Auxly has been highly focused on improving its balance sheet and the management has executed on this. In 2020, the company reported to have significantly strengthened its balance sheet through a series of capital raises and we will monitor how the management team puts the capital to work to grow the business.
Auxly has been highly focused on the Canadian cannabis 2.0 market and this has been a bright spots of the story. According to Headset Canadian Insights data (from January 9th), Auxly has captured 14% of Canada’s cannabis 2.0 market (from a product sales standpoint) and we are favorable on this vertical of the industry.
Of the revenue that was generated by Auxly in 2020, approx. 80% was related to the sale of cannabis 2.0 products. When compared to 2019, the company noticed an uptick in the percentage of sales from cannabis 2.0 product. The other portion of revenue was derived from what Auxly considers to be cannabis 1.0 products. Auxly’s cannabis 1.0 product category was led by Kolab Project flower and pre‐rolls and Robinsons dried flower (launched in the summer of 2020) and we will monitor how the business evolves this year.
Another important development from Auxly’s quarter earnings report is related to cost cutting initiatives. The management team stated that it will remain focused on operating efficiently and that it lowered selling, general, and administrative (SG&A) expenses to less than $10 million in the fourth quarter.
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