VAC policy changes and IPO related costs weigh on the first quarter fiscal 2018 profits of MedReleaf Corp. (TSX: LEAF)
SmallCapPower | August 21, 2017: MedReleaf Corp. (TSX: LEAF) recently announced financial and operating results for the first quarter fiscal 2018 ending June 30, 2017, with revenues surging 19% to reach $10.5 million in the quarter from $8.8 million in the prior-year period. Sales of dried cannabis for the first quarter of fiscal 2018 were $8.6 million, flat from a year earlier, due to a 36% reduction in average selling price as a result of the Veterans Affairs Canada (VAC) policy change offset by 56% growth in volume driven by new patients. In the last week of November 2016, MedReleaf began sales of its cannabis-based extract products, including both cannabis oil and cannabis oil capsules. Sales of extracts reached $1.5 million in the quarter, representing 14% of total sales. Current public reports indicate cannabis oil represents ~50% of total industry sales, suggesting a potential for continued acceleration of MedReleaf’s extract sales as the Company trends towards this industry average.
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During the quarter, MedReleaf sold a total of 1,156.9 kilograms (up 77% YoY) of cannabis products at an average selling price of $9.04 per gram (down 33% YoY). The reduction in average selling price per gram from the prior year period was due to discounts offered to qualifying Veterans due to the VAC Policy change that provides a maximum reimbursement rate of $8.50 per gram effective November 22, 2016.
Net income stood at $0.4 million, down $2.9 million from $3.3 million in the prior-year period. The decrease in net income was due primarily to increased operating costs partially offset by increased sales. The main driver of increased operating costs was IPO-related costs of $2.5 million, and fair value loss on shareholder loans of $0.2 million, stock option expenses $1.4 million, and other G&A expenses incurred to support the current and future growth of MedReleaf.
MedReleaf has maintained decent revenue growth in the last two quarters despite the changes in the VAC policy. Going forward we anticipate that MedReleaf will be up for a long-term growth through increasing the extracts product mix, the recent completion of the first harvest at Bradford facility and first successful international transaction in Brazil.
In terms of valuation, MedReleaf Corp. currently trades at TTM price to sales value of 17.37x, price to book value of 8.61x and trailing P/E of 59.93x.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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