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Oct 13, 2023

Nova Cannabis' Private Label Strategy Fuels Positive Q1 Growth, Reduces Net Loss

Nova Cannabis Inc. (OTCQB: NVACF) started 2023 on a high note, showing

Nova Cannabis Inc. (OTCQB: NVACF) started 2023 on a high note, showing improvement across all key financial metrics in the first quarter ending March 31, said CEO Marcie Kiziak.

The quarter included a 20.8% increase in revenue, a 37.4% rise in gross margin, and significant growth in adjusted EBITDA.

Revenue in the first quarter of 2023 reached $60.2 million, a jump from the first quarter of 2022. Meanwhile, gross margin improved to $12.9 million, 21.4% of revenue, from $9.4 million, 18.8% of revenue, in the same period last year. Adjusted EBITDA also saw an increase, hitting $3.2 million compared to $1.4 million in the first quarter of 2022.

The company attributed the positive performance to the successful launch and expansion of its private label products, a proprietary data licensing program, and the recent introduction of Firesale Cannabis, a new deep discount retail banner.

Proprietary data licensing arrangements added $1.5 million to the first quarter's revenue in 2023, the company said, an increase from $1.2 million in the same period last year.

"We’re proud to introduce innovative products and solutions that are clearly resonating with consumers and delivering value to our partners," Kiziak said in a Wednesday evening statement.

Additionally, Nova reported a net loss of $500,000 in the first quarter of 2023, a significant decrease from the net loss of $3.5 million in the first quarter of 2022.

The company used $1.4 million in cash for operating activities, a $4.5 million decrease from the $5.9 million used in the same period last year. As of March 31, 2023, Nova had liquidity, including cash and availability under the revolving credit facility, of $8.0 million.

Nova's partnership with SNDL Inc. (Nasdaq: SNDL) successfully launched in Alberta and Ontario and appears to have driven a meaningful differentiation through the retail network. The company said that private label sales represented about 8.1% of total 28-gram sales and 36.3% of 14-gram sales in Alberta Value Buds stores at the end of March.

The strategic partnership, known as the Nova Reorganization, was approved by Nova's minority shareholders on May 5. The reorganization is expected to be completed by June 30, subject to regulatory approvals and other closing conditions.

The Nova Reorganization will allow the company to greatly expand its footprint across Canada. Nova plans to acquire about 32 additional stores from SNDL's retail network, increasing the company's store footprint by over 33%.

Kiziak expressed optimism about the reorganization, stating, "With the anticipated completion of the (reorganization), we look to further capitalize on the exciting opportunities ahead."

Nova reiterated its goal is to become one of the largest and fastest-growing cannabis retailers in Canada, "promoting a wide range of cannabis products at the best value prices every day." With aggressive pricing strategies, quality store locations, sales efficiency, and the appeal of the Value Buds brand, Nova said it’ll continue to try to disrupt and solidify the Canadian cannabis retail market.

The company continues to test price elasticity and consumer buying trends, adjusting pricing across all categories in Alberta. This contributed to the sequential gross margin improvement from the first quarter of 2022 to the first quarter of 2023, from 18.8% to 21.4%.

The company noted that the completion of the reorganization is expected to "create a well-capitalized cannabis retail platform through a vertical integration model leveraging SNDL's upstream and midstream capabilities."

"The Nova Reorganization will enable Nova to continue to evolve in a still immature sector by becoming a trusted partner to the Canadian cannabis ecosystem," it said in a release.

In addition to the strategic reorganization, Nova has opened or acquired four additional stores so far in 2023, two in Alberta and two in Ontario, increasing its store count to 92. Following the completion of the reorganization, Nova expects to acquire 32 additional stores from SNDL's retail network, significantly increasing its retail presence in the Canadian cannabis market.