Mr. Norton Singhavon reports

AVANT BRANDS REPORTS Q3 FISCAL 2023 RESULTS WITH FIFTH CONSECUTIVE QUARTER OF POSITIVE CASH FLOW FROM OPERATIONS

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

"Q3 2023 continued our trend of delivering strong year-over-year sales growth, coupled with positive cash flow from operations," stated Norton Singhavon, chief executive officer of Avant Brands. "Furthermore, Q3 2023 was by far our best quarter for cannabis harvests, which sets the stage for additional sales growth in [fourth quarter] 2023 and beyond."

Financial highlights for Q3 2023 (all figures compared with Q3 2022):

• Gross revenue of $7.5-million (positive 61 per cent or positive $2.9-million); the four most recent quarters have been the highest gross revenue quarters in the company's history and collectively have generated over $33-million in gross revenues over the past 12 months:
  • Total net revenue of $6.5-million (positive 64 per cent or positive $2.5-million);
  • Recreational net revenue of $4.0-million (positive 7 per cent or positive $300,000);
  • Export/business-to-business net revenue of $2.4-million (positive 1,423 per cent or positive $2.2-million);
  • Gross revenue for Q3 2023 was adjusted down by $350,000 for a sales return and allowance provision, and $410,000 for prior-period invoicing corrections; prior to the adjustment for these items, gross sales for the period was $8.3-million;
• Overall gross margin of 31 per cent (versus 37 per cent) as the company continues to withstand the impact of price compression and inflation in the Canadian recreational market; the company's gross margins slightly decreased when compared with its most recent fiscal quarter (second quarter 2023) as a result of an increase in lower-margin sales associated with the liquidation of older bulk lots inherited through the acquisition of the Flowr Group (Okanagan) Inc.:
  • Record gross margin dollars of $2.0-million (positive 37 per cent or positive $1.5-million);
  • Recreational (dried flower prerolls and concentrates/infused products) gross margin of 39 per cent (versus 38 per cent);
  • Export/B2B gross margin of 16 per cent (versus negative 8 per cent), reflecting a blend of Avant Brands' high-margin premium cannabis exports, combined with low-margin sales into the Canadian B2B market (that is, liquidation of Flowr's preacquisition flower inventory); the company's average selling price for Avant Brands cultivars into the global export market did not decrease during Q3 2023;
  • Total of 1,558 kilograms of cannabis sold (positive 147 per cent or positive 928 kilograms);
• Overall weighted-average selling price of $4.17 (negative 34 per cent), primarily due to changes in recreational product mix and some out of spec product sold in the export/B2B market;
• Recreational cannabis average selling price of $4.96 (negative 23 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; prior to the adjustment for sales provisions and allowances, the average selling price was $5.40, representing a 13-cent and 2-per-cent increase over the average price in Q2 2023;
• Corporate overhead net of depreciation and share-based compensation of $2.9-million (75 per cent or positive $1.3-million) due to higher regulatory fees, performance bonuses which were met, and an estimated increase in professional and audit fees;
• Cash flow from operations after changes in non-cash working capital of $1.8-million (positive $1.6-million), demonstrating the company's continued ability to generate positive cash flow;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $900,000 (positive $200,000);
• Adjusted EBITDA margin (percentage of net revenue) of 14 per cent (versus negative 18 per cent);
• Net income from operations of $1.3-million (an improvement positive $1.8-million);
• Net and comprehensive income of $900,000 (negative $1.1-million);
• As at the end of Q3 2023, the company had approximately $1.7-million in cash, representing an increase of $900,000 over Q2 2023; working capital at the end of the period was $17.4-million.

Corporate and operational highlights (Q3 2023)

The company produced approximately 3,268 kg of cannabis (which includes dried flower and other biomass) in Q3 2023. This was the highest quarterly output in the history of the company, and it represents an important precursor to achieving higher levels of quarterly sales in the near future. The company sold approximately 1,558 kg of cannabis in the three months ended Aug. 31, 2023, which included the following highlights:

• Canada's top-growing companies: The Globe and Mail recently published a list of Canada's top-growing companies of 2023, which was sector agnostic. Avant Brands ranked 49th out of 425 companies on this list, at 849-per-cent growth over its last three fiscal years. The list did not include any other public or private licensed producers, placing Avant Brands as Canada's fastest-growing licensed producer on this list.
• The Flowr Group (Okanagan) Inc.: During Q3 2023, Flowr generated positive cash flow from operations. Following the Flowr acquisition in February, 2023, the company initiated a series of cost-cutting measures while optimizing cultivation at the facility; thus, Flowr achieved positive cash flow from operations. Management anticipates that over the coming quarters, Flowr will generate meaningful cash flows for Avant Brands.
• Capacity utilization: The company increased its capacity utilization to 65 per cent in Q3 2023 (versus 46 per cent in second quarter 2023 and 42 per cent in first quarter 2023). This was a result of a series of operational improvements, including optimization of cultivars, planning, scheduling and personnel. The company intends to continue these efforts, with a view to achieving additional improvements in fourth quarter 2023 and throughout the 2024 fiscal year.
• Production versus sales: The company continues to experience strong demand for its products, both domestically and internationally. As stated, the company produced 3,268 kg and sold 1,558 kg in Q3 2023. This discrepancy is a result of multiple factors, including timing associated with postharvest processing, product call delivery dates in Ontario, new listing ship dates in Quebec and accumulation of lots for global export clients. Accordingly, the company has not faced any material systemic decreases in demand; moreover, the Canadian recreational cannabis market continues to display robust year-over-year growth five years after legalization (2018).
• Cost savings: The company continued to execute cost savings initiatives to enhance gross margins by reducing cost of goods sold. These measures are reducing the cost of various inputs, including, but not limited to, labour, energy, carbon dioxide, packaging, freight, fertilizer and personal protective equipment.
• Ontario Cannabis Store listings: The company submitted a series of product listings over four consecutive product calls (spring 2023 to winter 2023). As a result, it was successful in receiving 25 new listings at OCS, facilitating future sales of innovative new BLK MKT, Tenzo and Flowr products.
• Quebec/SQDC: The company secured its first listings in the province of Quebec (with the exception of existing Flowr branded listings, which came with the purchase of Flowr) for BLK MKT flower and prerolls SKUs. The products are expected to ship and be available within the Quebec market in October, 2023.
• Global export market: The company recently expanded its international client portfolio, with a focus on the Israeli, Australian and European markets. The company has executed agreements with new clients in such markets, with a view to increasing the company's total export revenue, while achieving geographic and customer diversification.
• Payment to F-20 Developments Corp.: The company completed its Aug. 1, 2023, payment to F-20 and anticipates that it will make the next payment due on Nov. 1, 2023, on time.
• MENA Investment Network Inc. promissory note: The company negotiated an amendment to its MENA promissory note. The note which carried a principal balance of approximately $1.45-million, plus any accrued interest (at 12 per cent), was originally due on Sept. 14, 2023. The company would like to note that in its original press release on March 14, 2023, it stated that the promissory note was due on Aug. 14, 2023; however, this was incorrectly stated, and the correct date of Sept. 14, 2023, should have been stated. The amended terms of the note are as follows:
  • 25 per cent (or approximately $360,000) which was accelerated and paid on Aug. 2, 2023;
  • 25 per cent (or approximately $360,000) paid on the original due date of Sept. 14, 2023;
  • 50 per cent (or approximately $720,000) due on Dec. 13, 2023.

Global export market outlook

The company is aware of the continuing conflict in the Gaza Strip and, as such, would like to provide its stakeholders with an update regarding its business outlook in Israel:

• The company continues to have regularly scheduled meetings and calls with its existing clients and prospective clients in Israel.
• Currently, the company has not received any information that would indicate a decrease or cancellation of near-term purchase orders.
• The company has continued to expand its global export market over recent quarters with a focus to increase exports to Australia and commence exports to Germany.
• A copy of the company's export presentation can be viewed on the Avant Brands website.

Conference call

Management will host a conference call to discuss the financial results on Tuesday, Oct. 17, 2023, at 4 p.m. Eastern Time/1 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 Aug. 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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