VANCOUVER, BC – C21 Investments Inc., a vertically integrated cannabis company, today announced the filing of its unaudited financial statements and management discussion and analysis for its first quarter ending June 30, 2024, on SEDAR. The Company’s financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles. All currency is reported in U.S. dollars. The Company recently changed its fiscal reporting period to a March 31st year-end and does not have traditional sequential or year-over-year comparable reporting periods.
First Quarter Highlights
(April 1, 2024 to June 30, 2024)
- Revenue of $6.6 million, up 1% from Q4 – state of Nevada sales down 1% over the comparative period
- Gross Margin of 31%, impacted by temporary internal inventory supply issues and resulting product mix with the launch of the South Reno dispensary
- Earnings (Loss) Per Share of ($0.01)
- Cash Flow from Operations of $0.6 million; positive Free Cash Flow of $0.4 million
- Acquisition of 3rd dispensary closed in the quarter; new dispensary rebranded and operational during final week of Q1
- Closed C$4.0 million convertible debenture financing, principal funding for the acquisition of the new dispensary
Q1 Management and Operational Commentary
“Our Company reported a slight increase in revenue over Q4 (ended January 31, 2024) despite sales in Nevada declining 1% over the comparative period. We are pleased C21 continues to outperform the state of Nevada in terms of run rate and cash flow which includes our flagship Sparks dispensary again generating more than twice the run-rate of the average dispensary in the county[3]” stated CEO and President, Sonny Newman. “Our Gross Margin in the quarter was impacted by a variety of factors, including one-time internal inventory issues as we prepared for the launch of our new dispensary. We anticipate improved margins in the second half of the year. With the opening of our new dispensary in the last week of June, we are excited by the strong, positive customer reception and momentum that we have experienced since opening and expect continued traction moving forward.”
Q1 revenue of $6.6 million was up 1% compared to Q4 (ended January 31, 2024) despite a 1% decline in Nevada sales over the comparative period. Retail revenues remained relatively stable, with continued robust retail transaction volume at C21’s two legacy dispensaries offset by a decline in basket size as inflationary pressures continue to impact the industry with a “trade down” effect in purchases for lower-priced products.
Q1 did not include material results from the new Silver State Relief dispensary, which opened June 26. It is important to note that there is no equivalent time period to this Q1 report in the Company’s historical results due to the previously reported change in fiscal year end from January 31 to March 31.
Gross Margin of 31% was down in Q1 resulting from several factors (see MD&A) including one-time internal inventory supply issues, delays in approvals for production upgrades, and continued retail price discounting in the state.
SG&A was impacted by non-capitalized start-up costs for the new dispensary, as well as non-cash share-based compensation, the first grant of employee options since 2020.
Cash Flow from Operations was $0.6 million for Q1 – slightly up from Q4. Including taxes payable for the period, Operating Cash Flow and Free Cash Flow2 remained positive for Q1.
C21 reported a Net Loss of $1.4 million in the first quarter, or ($0.01) per share, due to aforementioned lower margins, increased SG&A from non-cash share-based compensation granted in Q1 as well as non-capitalized start-up costs for the new dispensary. The Company generated $0.3 million of Adjusted EBITDA for the quarter.
Cash at the end of Q1 was relatively flat from the stub period at $3.1 million, due to $0.4 million of positive Free Cash Flow2 generated offset by partial treasury payment for the dispensary acquisition. Total Assets and Liabilities increased by $3.1 million compared to the stub period due to the dispensary acquisition and convertible debenture financing associated with the acquisition.
As C21 operates in the cannabis industry, the Company is subject to the limitations of Internal Revenue Code (“IRC”) Section 280E for US income tax purposes. Under 280E, the Company is only allowed to deduct expenses for tax purposes directly related to costs of goods sold. Given the recent announcement by the D.E.A. to reclassify cannabis as a Schedule III drug, C21 anticipates the elimination of the future applicability of IRC Section 280E on its business upon final rule. Many U.S. cannabis operators are currently challenging the historic applicability of 280E on state-legal operations. C21 is reviewing its tax stance regarding these matters.
Non-GAAP Measures
C21 reports its financial results in accordance with GAAP and uses a number of financial measures when assessing its results and measuring overall performance. Some of these financial measures and ratios are not calculated in accordance with GAAP. The Company refers to certain Non-GAAP financial measures such as “Free Cash Flow”, “Adjusted EBITDA” and “same store sales”. These measures do not have any standardized meanings prescribed by GAAP and may not be comparable to similar measures presented by other issuers. The Company considers these measures to be an important indicator of the financial strength and performance of its business. The Company believes the adjusted results presented provide relevant and useful information for investors because they clarify the Company’s actual operating performance, make it easier to compare the Company’s results with those of other companies and allow investors to review performance in the same way as the management of the Company. Since these measures are not calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, the Company’s reported results as indicators of the Company’s performance, and they may not be comparable to similarly named measures from other companies. The tables below provide reconciliations of Non-GAAP financial measures to the most directly comparable GAAP measures.
“Free Cash Flow” is defined as Cash Provided by Operating Activities from Continuing Operations in a period minus capital expenses of property and equipment. Management believes that Free Cash Flow, which measures the Company’s ability to generate additional cash from our continuing business operations, is an important financial measure for use in evaluating the Company’s financial performance. Free Cash Flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of the Company’s performance and net cash provided by operating activities as a measure of liquidity.
About C21 Investments Inc.
C21 Investments Inc. is a vertically integrated cannabis company that cultivates, processes, and distributes quality cannabis and hemp-derived consumer products in the United States. The Company is focused on value creation through the disciplined acquisition and integration of core retail, manufacturing, and distribution assets in strategic markets, leveraging industry-leading retail revenues with high-growth potential multi-market branded consumer packaged goods. The Company owns Silver State Relief and Silver State Cultivation in Nevada, including legacy Oregon brands Phantom Farms, Hood Oil and Eco Firma Farms. These brands produce and distribute a broad range of THC and CBD products from cannabis flowers, pre-rolls, cannabis oil, vaporizer cartridges and edibles. C21 is based in Vancouver, Canada.
