Supreme Cannabis Effectively Writes Off Truverra, Posts Net Loss of $72.3 Million

The Supreme Cannabis Company (TSX: FIRE) reported its third quarter earnings this morning before the open, reporting net revenues of $9.7 million, an increase from last quarters $9.0 million in net revenues but a year over year decline from Q3 2019. Net loss for the third quarter was pegged at $72.3 million.

Gross revenues for the period ended March 31 came in at $11.0 million before the company had to cover excise taxes of $1.3 million. Despite this, production costs for product sold came in higher than gross revenues themselves at $11.2 million, leaving Supreme Cannabis with a negative gross margin before fair value adjustments. After adjustments, the firm was able to report a positive gross margin of $448,000.

Operational expenses came in at $17.4 million, a decline from the second quarters figure of $19.8 million. Expenses were lead by wages and benefits at $4.8 million, followed by share based payments of $3.9 million and restructuring charges of $2.1 million. A financing expense of $4.9 million and impairments of assets to the tune of $57.6 million under the “other expenses” category drove the company to a net less of $72.3 million for the three month period.

Moving to the balance sheet, the company saw its cash position halve from the second quarter, declining from $48.7 million to $23.1 million, suggesting that at the current burn rate the company will either have to flip the switch on its $9.75 million at the market program to fund the operation, or draw on the remaining $35.0 million undrawn capacity for its senior secured credit facility. Outside of the firms cash position, the most significant change in terms of current assets was that of inventory, which grew to $46.7 million from $42.5 million. Supreme’s total current assets declined from $127.9 million to $105.1 million over the quarter.

Fortunately, total current liabilities also declined over the quarter, from $26.9 million to $16.2 million. The decrease was primarily attributed to accounts payable, which fell from $24.9 million to $12.7 million.

In terms of the aforementioned impairments, the charge came largely from Supreme’s recent acquisitions of BlissCo and Truverra. Blissco saw its value impaired by $23.6 million, while Truverra was devalued by $21.3 million. The impairment is significant, with BlissCo having been acquired for $32.1 million in the form of shares in July 2019, with fair value for the acquisition pegged at $28.6 million. Comparatively, Truverra was acquired through the issuance of shares with a fair value of $21.2 million in August 2019 – meaning the company effectively views the Truverra transaction as being worthless only months later.

The final drop came from a revaluation of a product license held by the company, which was reduced in value by $12.6 million. That product license was effectively the partnership with Khalifa Kush, which the company has now ascribed a valuation of $0 to.

Supreme Cannabis last traded at $0.26 on the TSX.

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Information for this analysis was found via Sedar and Supreme Cannabis. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.