Heritage Cannabis Reports Q4 2023 and Year-End Financial Results

Achieved over 50% Growth in Gross Margin for the Year, and 628% in Gross Margin Growth for the Fourth Quarter

TORONTO, February 27, 2024--(BUSINESS WIRE)--Heritage Cannabis Holdings Corp. (CSE: CANN) (OTCQB: HERTF) ("Heritage" or the "Company"), today announced its financial results as at and for the three- and twelve-month periods ended October 31, 2023. All figures are in Canadian dollars unless otherwise noted.

"Remaining true to our vision of sustainable growth, Heritage continued to optimize our products in 2023 while maintaining a close focus on production efficiencies, operational spending, and high gross margin sales, all of which were key in achieving growth in gross margin of over 50% for the year and 628% for the quarter compared to last year, showing a very promising trend for the start of this year," said David Schwede, CEO of Heritage. "Our products continue to see significant demand, specifically for our newly launched RAD vape products and Adults Only brand (#9 vape brand in Canada), which contributed to our concentrate revenues growing by 6% in the fourth quarter. In the U.S., we have six SKUs in New York – our newest state - and our more established business in Missouri and West Virgina saw strong growth with over $3.5 million in sales for the year. With Q1 revenues and gross margins expected to continue this trend and SG&A expected to be down, we are keen to build on these successful ventures throughout 2024 and continue to explore additional revenue channels both in the U.S and internationally."

Selected Financial Highlights

Selected financial highlights for the three- and twelve-month periods ended October 31, 2023 and 2022 include the following:

	Three months ended		Years ended
(in $CDN)	Oct 31, 2023 $	Oct 31, 2022 $	Oct 31, 2023 $	Oct 31, 2022 $
Gross revenue	11,409,434	11,148,059	42,054,936	41,996,297
Net revenue (net of excise tax)	7,977,839	8,038,105	29,794,289	29,566,385
Cost of sales	4,875,162	7,611,993	17,709,500	21,599,867
Gross margin	3,102,677	426,112	12,084,789	7,966,518
General and administrative expenses	5,803,160	5,953,751	20,144,123	20,588,796
Other Income (Expenses)	(12,520,156)	(22,718,884)	(13,262,707)	(14,297,205)
Comprehensive Income (Loss)	(14,123,548)	(26,895,045)	(19,906,411)	(23,937,773)

2023 Financial Highlights

• The Company reported gross revenue of $11,409,434 for the three months ended October 31, 2023, an increase of $261,373 compared to the gross revenue of $11,148,059 for the three months ended October 31, 2022. The increase in gross revenue was primarily due to the continued success of the Adults Only brand vapes and concentrates, with vapes and concentrates seeing sales of $8,229,739 in the three month’s ending October 31, 2023, an increase of $489,033, compared to $7,740,706 for the three month's ending October 31, 2022. This was offset by flower revenues of $1,745,387, a decrease of $659,263 as compared to $2,404,650 in the three month's ending October 31, 2022.
  
  

• The Company reported gross revenue of $42,054,936 for the year ended October 31, 2023, an increase of $58,639 compared to gross revenue of $41,996,297 for year ended October 31, 2022. The increase in gross revenue was primarily driven by other revenues of $1,617,593 in the current year, an increase of $1,111,250 as compared to $506,343 in the previous year. This was offset by flower revenues of $6,700,210 in the current year, a decrease of $582,009 as compared to $7,282,219 in the previous year, as well as tincture revenues of $2,227,355 in the current year, a decrease of $350,152 as compared to $2,577,507 in the previous year and vape and concentrate revenues of $30,116,466 in the current year, a decrease of $136,221 as compared to $30,252,687 in the year ending October 31, 2022.
  
  

• Cost of sales for the three months ended October 31, 2023 was $4,875,162, a decrease of $2,736,831 compared to $7,611,993 for the three months ended October 31, 2022. The decrease represented a 24% improvement, as a percentage of sales, in the current period. As stated in previous quarters, the Company is continuously reviewing its processes for optimization either on the manufacturing side or through material costing which continued to positively impact the results in the current quarter.
  
  

• Cost of sales for the year ended October 31, 2023 was $17,709,500, a decrease of $3,890,367, compared to $21,599,867 for the year ended October 31, 2022. The decrease represented a 9% improvement, as a percentage of sales, in the current period. The improvement was a result of continued production refinements to enable more efficient production and improved inventory management strategies.
  
  

• Gross margin for the three months ended October 31, 2023 was $3,102,677 (27%) compared to gross margin of $426,112 (4%) for the three months ended October 31, 2022. The increase in gross margin of $2,676,565 (+23%) was primarily a result of continually improving production efficiencies and maintaining an overall excise duty rate of under 30% of gross revenues.
  
  

• Gross margin for the year ended October 31, 2023 was $12,084,789 compared to gross margin of $7,966,518 for the year ended October 31, 2022. The increase in gross margin of $4,118,271 was a result of improved production efficiencies over the course of the year, maintaining a lower excise rate in the period and an improved inventory control system resulting in a decrease of inventory adjustments of $1,752,837 from $2,471,371 for the year ended October 31, 2022, to $718,534 for the year ended October 31 2023.
  
  

• For the three months ended October 31, 2023, the Company recorded a comprehensive loss of $14,123,548 or $0.01 loss per share compared to a comprehensive loss of $26,895,045 or $0.03 loss per share for the three months ended October 31, 2022. The decrease in comprehensive loss of $12,771,497 during this period was attributable to increased non-excisable sales, decreased inventory costs and production efficiencies in the period.
  
  

• For the year ended October 31, 2023, the Company recorded a comprehensive loss of $19,906,411 or $0.02 loss per share compared to a comprehensive loss of $23,937,773 or $0.03 loss per share for the year ended October 31, 2022. The decrease in comprehensive loss of $4,031,362 during the period was due to the gross margin gains noted above and the cost management in general and administrative expenses which was partially offset by the intangible asset and goodwill impairment in the period.

Q4 2023 Growth, Operational, and Corporate Highlights

• On August 15, 2023, the Company announced the appointment of Jasmine Paige as Interim Chief Financial Officer ("CFO"), replacing Dan Phaure as he pursues new opportunities.
  
  

• On September 6, 2023, the Company announced that products from its Pura Vida brand were approved for listing by Société québécoise du cannabis for retail and online distribution in the province of Québec. This is a noteworthy achievement for Heritage as it continues to expand its product offerings and increase distribution across Canada, now actively selling products in every province in the country. Québec is the fourth-largest market in Canada and while the Company’s products have been available online through partner medical platforms in the province, Heritage looks forward to directly building a strong portfolio of offerings for Québec consumers.
  
  

• On October 11, 2023, the Company announced the procurement of an EU GMP certified extraction machine to be added to the existing fleet of extractors which is anticipated to double the Company’s hydrocarbon processing capacity. The extractor has the capacity to add 3,600,000 grams of cannabis processing and is EU GMP certified – a global standard for manufacturing practices - allowing for increased international sales of Heritage’s cannabis derivative products to countries such as Germany, the United Kingdom, Australia, and others as cannabis legalization continues to expand across the globe.
  
  Heritage has been experiencing an increased demand for its products both across Canada, and the United States where the Company has already launched products in New York, Missouri, and West Virginia. This new extractor is expected to help to boost production in order to meet the growing Canadian retail demand, as well as create supply to enter global markets as demand for EU GMP certified extracts grows internationally. Additionally, Heritage has been actively pursuing and participating in the vibrant B2B market and amping up production of extracts will support this important and growing sector of the market.
  
  

• On October 23, 2023, the Company announced that it had officially commenced recreational product sales in the state of New York. Manufacturing of Heritage’s RAD branded vape and concentrate products began in the state during the summer of 2023, and the Company achieved its first commercial sale in New York – Heritage’s third state where its brands are now available.
  
  Heritage continues to target the legal markets in the US with an asset light model, and in New York has a manufacturing and distribution agreement with a local partner that produces and sells products using Heritage’s innovative formulations and flavours that the RAD brand is known for. Heritage plans to introduce additional RAD products including live resin, rosin, and infused pre-rolls, and is expanding product offerings with additional Heritage brands.
  
  

• On October 30, 2023, the Company announced its intention to sell the Company’s real estate properties in Ontario (the "Ontario Property") and British Columbia (the "BC Property") to BJK Developments Ltd. (the "BJK Purchaser") for a net purchase price of $9,714,475 (the "Purchase Price") and lease the Ontario and BC properties back from the BJK Purchaser (the "Sale and Leaseback Transaction"). Pursuant to the Sale Leaseback Transaction, Heritage entered into ten (10) year lease agreements with the Purchaser, for its Health Canada licensed Ontario Property and BC Property, where the Company will continue to operate its best-in-class manufacturing and processing capabilities for its domestic and international business segments. Further, the lease terms include a 12-month free rent period, representing approximately $1,389,000 of savings during the period, which commences at closing; and, that the Company also retains an option to repurchase the Ontario Property and BC Property for a period of two years, from the BJK Purchaser, pursuant to option agreements.
  
  The Purchase Price was used to set-off the amount owing by the Company to its lender, BJK Holdings Ltd. ("BJK"), a related entity of the BJK Purchaser, reducing the Company’s remaining term debt by approximately 57% to $7,303,640. The remaining term financing, as amended within a Third Amending Agreement has been extended through to January 31, 2025, with interest calculated at the Royal Bank of Canada prime lending rate ("RBC Prime") minus 1.75%. In addition, the Company retains its revolving line of credit of up to $5,000,000 (the "LOC") with BJK, which has also been extended until January 31, 2025.
  
  In connection with the Third Amending Agreement, Heritage agreed to amend existing warrant certificates held by BJK dated October 8, 2021 which entitled BJK to subscribe for and purchase up to 10,000,000 common shares in the capital of Heritage at an exercise price of $0.25 per common share, and dated September 29, 2022 which entitled BJK to subscribe for and purchase up to 50,000,000 common shares in the capital of Heritage at an exercise price of $0.10 per common share (the "Existing Warrants"). Effective, October 31, 2023, the Company amended the Existing Warrants so that the expiry date for BJK to exercise the Existing Warrants is extended from February 28, 2025, to February 28, 2026, and so that the exercise price of the Existing Warrants shall be repriced to $0.07 per Common Share.

Financial Statements

The consolidated financial statements of the Company as at and for the three- and twelve-month periods ended October 31, 2023, and accompanying management's discussion and analysis have been filed with the securities regulators and are available on SEDAR+ at www.sedarplus.ca under the Company’s issuer profile.

About Heritage Cannabis Holdings Corp.

Heritage is a leading cannabis company offering innovative products to both the medical and recreational legal cannabis markets in Canada and the U.S., operating two licensed manufacturing facilities in Canada. The company has an extensive portfolio of high-quality cannabis products under the brands Purefarma, Pura Vida, RAD, Adults Only, Juicy Hoots, Premium 5, Thrifty, feelgood., the CB4 suite of medical products in Canada and ArthroCBD in the U.S.

ON BEHALF OF THE BOARD OF DIRECTORS OF HERITAGE CANNABIS HOLDINGS CORP.

"David Schwede"
David Schwede
CEO

The Canadian Securities Exchange does not accept responsibility for the adequacy or accuracy of this release.

Forward-Looking Statements

This press release contains certain "forward-looking information" within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company's control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or may contain statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "will continue", "will occur" or "will be achieved". The forward-looking information contained herein may include, but is not limited to, assumptions related to cash flow and capital resources, and expectations related to the supply and manufacturing agreements, the intended expansion of the Company, and partnerships and Joint Venture Partnerships.

By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements.

An investment in securities of the Company is speculative and subject to several risks including, without limitation, the risks discussed under the heading "Risks and Uncertainties" in the Company's annual management discussion and analysis for the year ended October 31, 2023, and dated February 26, 2024. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.

In connection with the forward-looking information and forward-looking statements contained in this press release, the Company has made certain assumptions. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by this notice.

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Contacts

Kelly Castledine
Tel: 647-660-2560
kcastledine@heritagecann.com