Mr. Norton Singhavon reports

AVANT BRANDS REPORTS Q2 FISCAL 2023 RESULTS WITH FOURTH CONSECUTIVE QUARTER OF CASH FLOW FROM OPERATIONS

Avant Brands Inc. has released its financial results for the second quarter ended May 31, 2023, of the company's fiscal year.

"We are excited to announce another quarter of record revenues," said Norton Singhavon, founder and chief executive officer of Avant Brands. "Robust domestic and international demand for our products, combined with efficient operations, has allowed us to achieve positive cash flow and adjusted [earnings before interest, taxes, depreciation and amortization]. Moreover, the acquisition of the Flowr Group Okanagan has substantially enhanced our ability to fulfill this demand and continue delivering strong revenue growth."

Financial highlights (Q2 fiscal 2023) (all figures compared with Q2 fiscal 2022):

• Gross revenue of $9.0-million, which is a record quarter for the company (positive 101 per cent or positive $4.5-million); the four most recent quarters have been the highest gross revenue quarters in the company's history:
  • Total net revenue of $8.0-million (positive 96 per cent or positive $3.9-million);
  • Recreational net revenue of $4.8-million (positive 53 per cent or positive $1.6-million);
  • Export/business-to-business net revenue of $3.2-million (positive 311 per cent or positive $2.4-million);
• Overall gross margin of 34 per cent (versus 23 per cent) as the company continues to withstand the impact of price compression and inflation; the company's gross margins slightly decreased when compared with its most recent fiscal quarter (first quarter 2023) as a result of liquidating inventory produced by The Flowr Group (Okanagan) Inc. prior to its acquisition:
  • Record gross margin dollars of $2.7-million (positive 187 per cent or positive $1.7-million);
  • Recreational (dried flower prerolls and concentrates/infused products) gross margin of 59 per cent (versus 50 per cent);
  • Export/B2B gross margin of 37 per cent (versus 14 per cent), reflecting a blend of high-margin exports of Avant Brands' premium cannabis, combined with low-margin liquidation of Flowr's preacquisition flower inventory;
  • Total of 2,676 kilograms of cannabis sold (positive 182 per cent or positive 1,727 kg);
• Overall weighted-average selling price of $3.34 (negative 26 per cent), primarily due to liquidation of Flowr's preacquisition inventory plus some changes in recreational product mix;
• Recreational cannabis average selling price of $6.73 (negative 19 per cent), reflecting an expanded product offering, with some lower price point products (for example, partner products) while continuing to hold price points on the company's flagship BLK MKT flower and preroll products;
• Corporate overhead net of depreciation and share-based compensation of $1.8-million (negative 8 per cent or negative $100,000);
• Cash flow from operations before changes in non-cash working capital of $2.1-million (positive $2.7-million);
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $1.7-million (positive $2.7-million);
• Adjusted EBITDA margin (per cent of net revenue) of 21 per cent (versus negative 26 per cent);
• Net income from operations of $270,000 (an improvement of 94 per cent or positive $4.2-million);
• Adjusted net loss of $280,000 (a decrease of 86 per cent or $1.7-million);
• Net and comprehensive loss of $400,000 (positive $3.5-million);
• As at the end of Q2 2023, the company had approximately $800,000 in cash and approximately $16.7-million in working capital.

Corporate and operational highlights (Q2 fiscal 2023)

The company produced approximately 4,642 kilograms of cannabis (which includes dried flower and biomass) in Q2 2023. The company sold approximately 4,100 kilograms of cannabis in the six months ended May 31, 2023, which included the following highlights:

• Completed the acquisition of Avant Brands K1 Inc., which is the entity that owns Flowr;
• Fully integrated Flowr into Avant Brands' cultivation framework and established a high run rate on flower output (approximately two 55-kilogram harvests per week);
• The Flowr integration contributed to the strong growth of the company's gross revenue, gross margin dollars, adjusted EBITDA and cash flow from operations;
• Continued to execute cost savings initiatives to enhance gross margins by reducing cost of goods sold (COGS); these measures are designed to reduce the cost of various inputs, including, but not limited to, labour, energy, carbon dioxide, packaging, freight, fertilizer and personal protective equipment (PPE).

Key subsequent events:

• Received new product listing approvals across multiple product categories (flower, infused prerolls, vapes and concentrates) from various provincial liquor boards (including the Ontario Cannabis Store and the British Columbia Liquor Distribution Branch), with first shipment dates expected to take place in third quarter and fourth quarter fiscal 2023;
• Received $2.8-million in purchase orders from a single export client in July, 2023, with fulfilment scheduled to take place in Q3 fiscal 2023;
• Negotiated and executed new export supply agreements, with Avant Brands signing its first export contract pertaining to the German market in July, 2023.

Credit facility

On July 17, 2023, the company completed the closing of a $3.5-million credit facility, which will be secured by the real estate of the company's non-operational and non-licensed real property (the GreenTec BP in-construction facility) owned by GreenTec Holdings Ltd. and guaranteed by certain subsidiaries of the company, including 3PL, Flowr Okanagan and GreenTec Holdings. The credit facility will bear an annual interest rate of 15 per cent, as will be adjusted for any upward change in the prime rate from 8.25 per cent at the time of any advance, with a three-year amortization period commencing as the credit facility is drawn upon in tranches of a minimum amount of $500,000, subject to the satisfaction of customary conditions precedent, with a condition that Avant Brands completes a minimum drawdown of $500,000 by July 31, 2023, subject to the satisfaction of customary conditions precedent. In connection with closing of the credit facility, the company also issued 1.75 million common share purchase warrants to the lender to acquire common shares in the capital of the company at an exercise price of 30 cents per share on or before July 17, 2026. The warrants will vest and become exercisable in accordance with the drawdown schedule for the credit facility.

The company had recently explored initiatives to monetize its non-core, non-licensed and non-operational assets, some of which included a sale-leaseback model of the GreenTec Holdings real estate; however, management and the board had determined that to protect the company's interest and to preserve growth in Kelowna's rapidly growing real estate market, leveraging the equity in GreenTec Holdings through a credit facility, without any additional security of the company's core or operational assets, would result in the most efficient monetization strategy.

Desjardins Securities Inc. claim

On May 25, 2023, the company received a statement of claim from Desjardins alleging damages (of approximately $1-million) for breach of contract claiming that it was not paid for work it did relating to the potential acquisition of Flowr or its affiliates. Desjardins was engaged on a success-based fee structure by Avant Brands on March 15, 2022, for a potential transaction where Avant Brands would acquire Flowr in an all-share transaction (prior to its restructuring process). Avant Brands and Flowr could not come to agreeable terms, and negotiations were terminated on April 23, 2022. The engagement with Desjardins had a six-month tail period, which would have expired on Oct. 23, 2022.

Subsequently, in February, 2023, a 50-per-cent-owned joint venture of the company, Avant K1, acquired Flowr in connection with the proceedings under the Companies' Creditors Arrangement Act for Flowr. Subsequent to that, in March, 2023, nearly a full year following the company's engagement of Desjardins in connection with the failed transaction, the company acquired the remaining outstanding shares of Avant K1. Desjardins did minimal work in connection with the failed transaction and had absolutely no involvement in the eventual acquisition of Flowr by Avant K1 in connection with the CCAA proceedings or the company's subsequent acquisition of Avant K1. Avant Brands denies the baseless claims made by Desjardins and intends to defend itself vigorously.

Conference call

Management will host a conference call to discuss the financial results on Tuesday, July 18, 2023, at 3 p.m. Eastern Time/12 p.m. Pacific Time.

Conference call dial details

Canada/United States toll-free:  1-800-319-4610

International toll:  1-604-638-5340

A transcript of the call will be posted on the company's website within two business days of the call.

A copy of the interim financial statements for the quarter ended May 31, 2023, and the related management's discussion and analysis will be available for download on the company's SEDAR profile or on its website.

About Avant Brands Inc.

Avant Brands is an innovative, market-leading premium cannabis company. Avant Brands has multiple operational production facilities across Canada, which produce high-quality, handcrafted cannabis products, based on unique and exceptional cultivars. Avant Brands' products are distributed through three complementary sales channels: recreational, medical and export. Avant Brands' recreational consumer brands include: BLK MKT, Tenzo, Cognoscente and Treehugger, which are sold in British Columbia, Saskatchewan, Manitoba, Ontario, Atlantic Canada, Quebec and the territories. The company's medical cannabis brand, GreenTec, is distributed nationwide, directly to qualified patients through its GreenTec Medical portal and through various medical cannabis partners.

Avant Brands is a publicly traded corporation listed on the Toronto Stock Exchange (AVNT), and cross-trades on the OTCQX Best Market (AVTBF) and Frankfurt Stock Exchange (1BU0). The company is headquartered in Kelowna, B.C., and has operations in British Columbia, Alberta and Ontario.

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