Aleafia Health Implementing $6.7 Million in Annualized Cost Savings in 2022 and Reaffirms Guidance
- $4.4 million annualized cost reductions being implemented in addition to $2.3 million announced in February 2022
- Grimsby, Ontario cultivation organization realigned to support anticipated growth in product throughput
- Organizational realignment in the medical business to fully integrate the sales channels
- Core corporate shared services consolidated and leveraged across all sales channels
- Company operating leverage in the top quartile amongst its peers(1)
- Reaffirms guidance of achieving break-even Adjusted EBITDA profitability in 2022 and generating $53 to $63 million in Net Revenue in this fiscal year(2)(3)
TORONTO, April 5, 2022 – Aleafia Health Inc. (TSX: AH, OTCQX: ALEAF) (“Aleafia Health” or the “Company”) is pleased to provide a corporate update on its ongoing cost containment initiatives. Additional cost efficiencies identified represent a further $4.4 million in annualized cost savings to be completed in this quarter and will drive further operational efficiencies, enhance operating leverage, and accelerate the pathway to Adjusted EBITDA breakeven profitability expected to occur in the second half of 2022. The Company also reaffirmed its guidance that it expects to achieve $53.0 to $63.0 million in net revenue in the current fiscal year.
“Aleafia Health continues to deliver on its forecast and strategy, experiencing record growth in sales, capturing additional adult-use cannabis market share, and now achieving important efficiencies and additional cost reductions,” said Aleafia Health CEO Tricia Symmes. “These organizational realignments helped create a leaner, more nimble workforce optimized to accelerate revenue velocity and maximize margin. It’s just the beginning of creating a new Company whose products are focused on the highest revenue generating branded dried flower, pre-roll, and vape product categories as consumers continue to express strong interest in our Sunday Market House of Brands adult-use cannabis products.”
“In 2021, the Company launched a transformational organizational change that successfully identified and put into effect numerous cost efficiencies,” said Aleafia Health CFO Matt Sale. “In the quarter ending December 31, 2021, the Company reported reducing its adjusted Selling, General and Administrative expenses (“Adjusted SG&A”)(1) by 37% to $7.1 million, from $11.2 million in the period ending December 31, 2020. Management continues to build on that momentum with aggressive cost containment. In the quarter ended March 31, 2022, the Company identified further headcount reductions, operational efficiencies, redundancies, and nonrecurring costs, which together with those already implemented, total $6.7 million on an annualized basis. This demonstrates the Company’s unwavering commitment to drive profitability and achieve a sustainable business model. We foresee continued tailwinds to improve our margin profile and drive towards achieving our target of break-even Adjusted EBITDA profitability later this year.”
Medical Business Organizational Realignment
In the Company’s fast-growing medical business, there was also an integration initiative that identified $1.25 million in annual cost efficiencies through operational process efficiency gains and organizational realignment. These cost savings are reflected in the projected $4.4 million in annualized cost savings.
“The Company operates a national virtual clinic and several physical clinics serving a base of over 20,000 active patients, and receives referrals from third-party providers. Previously, the clinics operated in a siloed manner independently from one another,” said Symmes. “By rightsizing and integrating them, the clinics now form a comprehensive medical cannabis strategy, which is seeing strong, consistent market demand. There is also continued uptake in our newest markets: Quebec, Veterans and third-party patient-acquisition platforms. We are well-positioned to continue to outperform the market where in 2021 we delivered 33% medical cannabis net revenue growth.”
“At the 160,000 sq. ft. Grimsby, Ontario hybrid greenhouse, the Company drove operational efficiencies and remapped its processes to allow its cultivation organization to meet our anticipated growing throughput,” said Sale. “We also assessed procurement practices, resulting in a consolidation of certain vendors leading to cost efficiencies.”
“Our cost structure is highly scalable and with international purchase orders in-hand that exceed overseas sales in the second half of 2021. Most recently in March 2022, we made yet another shipment of product to the German market and continue to see robust demand for our products through the remainder of this year,” said Sale.
“Aleafia Health has transformed itself from a bulk wholesale producer to a branded cannabis products provider,” said Symmes. “Our achievements in cost containment, organizational realignment and operational process efficiency will enable the Company to execute its strategy, generating greater market share and revenue from its branded cannabis, medical and international businesses.”
- Operating leverage is a non-GAAP measure. Non-GAAP measures are non-standardized and may not be comparable to similar financial measures disclosed by other issuers. Operating leverage is calculated as Adjusted SG&A (wages and benefits and administrative expenses excluding Canada Emergency Wage Subsidy, bonus accruals, vacation payouts and severance) as a % of Net Revenue.
- Adjusted EBITDA is a non-GAAP measure. Non-GAAP measures are non-standardized and may not be comparable to similar financial measures disclosed by other issuers. Adjusted EBITDA is defined, explained, and reconciled against GAAP financial measures on pages 13 and 25 of the Company’s MD&A filed on SEDAR on February 14, 2022. Net revenue, a non-GAAP measure, is Cannabis revenue less excise taxes.
- Please see guidance on forward-looking information below.
For Investor & Media Relations:
Matthew Sale, CFO
LEARN MORE: www.AleafiaHealth.com
About Aleafia Health:
Aleafia Health, a vertically integrated and federally licensed Canadian cannabis company, owns three licensed cannabis production facilities, including the first large-scale, legal outdoor cultivation facility in Canadian history, and operates a strategically located distribution centre, all in the province of Ontario. The Company produces a diverse portfolio of cannabis derivative products including oils, capsules, edibles, sublingual strips, and vapes, for sale in Canada in the adult-use and medical markets and is pursuing opportunities in select international jurisdictions. The Company owns and operates a virtual network of medical cannabis clinics staffed by physicians and nurse practitioners.
Forward Looking Information
This news release contains forward-looking information within the meaning of applicable Canadian and United States securities laws. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “estimates”, “intends”, “anticipates”, or “believes” or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information contained in this news release. Risks, uncertainties, and other factors involved with forward-looking information could cause actual events, results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking information, including risks contained in the Company’s annual information form filed with Canadian securities regulators available on the Company’s SEDAR profile at www.sedar.com. Although the Company believes that the assumptions and factors used in preparing the forward-looking information in this news release are reasonable, undue reliance should not be placed on such information and no assurance can be given that such events will occur in the disclosed time frames or at all. The forward-looking information included in this news release are made as of the date of this news release and the Company does not undertake any obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable securities legislation.