After the close of trading on August 28th, Canadian licensed producer, Emblem Corp. (TSXV:EMC)(OTC:EMBBF)(FRA:E0M) announced the company's financial results for their second fiscal quarter ended June 30, 2017. Here are five investor focused highlights from the company's Q2 results:
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Revenues fell 40% from the previous calendar quarter to $538,475 CAD in the three months ended June 30, 2017. Approximately 67% of this revenue came from sales to registered patients at an average selling price of $7.39 CAD per gram. The vast remainder of the revenue for the quarter came from the company's 50% owned GrowWise division. GrowWise operates medical cannabis education centers, helping patients who have been prescribed medical cannabis to register with licensed producers. Revenue declines from the prior quarter can be predominantly attributed to supply shortages.
Gross margin was $146 CAD, up from a gross loss of $89,243 CAD in the first quarter of this year. This increase in gross margin can be attributed to changes in fair value of biological assets, mainly related to the company marking 70 kilograms of dried cannabis for oil production. Because Emblem does not yet have a license to sell oils (although they expect to receive one imminently), accounting standards require them to value these 70 kilograms at $0. Consequently, this required the company to book an unrealized loss from changes in biological assets. Like the rest of the LPs, gross margins tend to fluctuate from quarter to quarter because of how the companies have to account for their inventories and the impact that harvest timing and the like has on this. If you'd like a deeper understanding of accounting for biological assets, check out this helpful guide from PWC.
Net losses in Q2'17 were $2,954,340 CAD, up 18% from the previous calendar quarter and up 74% from the second quarter of last year. This increase is attributable to increased investor relations and governance costs associated with becoming a public company and due to the ramp up in operations versus the previous fiscal year. Net loss per basic and diluted share was $0.03 CAD, down $0.01 CAD from a loss of $0.04 CAD in the first quarter of this year.
During the quarter, the company continued its efforts to increase its production capacity from 650 kilograms per year to more than 1,650 kilograms per year by the end of 2017. Along with this, the company has substantially completed three out of the four phase two grow rooms. Emblem expects this incremental increase in capacity to start showing up in the company's financials in the fourth quarter.
As of August 24, 2017, the company had 2,154 active, registered patients. Patient acquisition was strong in Q1'17, but the previously mentioned product shortages forced the company to halt new patient registrations for approximately three months. Emblem reopened its patient registration on July 19th and added 54 new patients between then and August 24th.
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