Mr. Zohar Krivorot reports

CANNARA BIOTECH INC. REPORTS Q2 2023 FINANCIAL RESULTS WITH QUARTERLY NET REVENUES OF $13 MILLION, A 76% INCREASE COMPARED TO Q2 2022

Cannara Biotech Inc. has released its fiscal second quarter 2023 financial and operating results for the three- and six-month periods ended Feb. 28, 2023.

Fiscal second quarter 2023 financial highlights:

• Q2 2023 net revenue of $13-million, and $23.4-million for the first half of 2023, a 76-per-cent and 67-per-cent increase, respectively, compared with the three- and six-month periods in 2022, in addition to a 26-per-cent increase in net revenue from Q1 2023.
• Q2 2023 gross profit before fair value adjustments was $4-million, and $8.1-million for the first half of 2023, a 54-per-cent and 42-per-cent increase, respectively, compared with the three- and six-month period in 2022. Included in Q2 2023 gross profit was an impairment charge on inventory of $1.4-million for inventory that is expected to be sold on the wholesale market in subsequent quarters. Q2 2023 gross profit before fair value adjustments, excluding the impairment charge, would have been $5.4-million, a 108-per-cent increase, and $9.5-million for the first half of 2023, a 67-per-cent increase.
• Operating income increased to $600,000 for Q2 2023 and $1.8-million for the first half of 2023, which compares with an operating loss of $400,000 incurred in Q2 2022 and the first half of 2022, resulting in an increase of 250 per cent and 550 per cent, respectively.
• Delivered the company's eighth straight quarter of positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $3.2-million, and adjusted EBITDA of $4.9-million for the first half of 2023, a 1,500-per-cent and 346-per-cent increase, respectively, compared with the three- and six-month periods in 2022.
• Net loss of $600,000, a 50-per-cent improvement compared with a $1.2-million net loss for Q2 2022. Excluding the $1.4-million inventory writedown, the company would have achieved a net income figure of $800,000 for the three- and six-month periods ended Feb. 28, 2023.
• Free cash flow for Q2 2023 increased to $1.9-million from $200,000 in Q2 2022, an 850-per-cent increase, and $3.8-million for the six-month period of 2023 from $1.4-million earned in the same period of prior year, a 171-per-cent increase.
• The company has $25.6-million in working capital as of Feb. 28, 2023, which includes $4.1-million of cash on hand.

"In the past quarter, Cannara achieved unprecedented revenue, bolstered gross profits and enhanced adjusted EBITDA, reflecting our unwavering commitment to executing the growth strategy we envisioned from the start," said Zohar Krivorot, president and chief executive officer of Cannara. "Our market share has made significant strides in Quebec, where we now stand as the third-largest producer in the province. With the upcoming launch of 17 new SKUs in Ontario this summer, our expansion into the thriving Alberta market, Canada's second-largest cannabis market, and the activation of additional growing zones, the future of Cannara has never been more promising. As we continue to purposively build out our product offerings across our three flagship brands and enter new markets, we've launched an on-line community channel to authentically engage and support our customer community. Although we still have milestones to reach in achieving our long-term objectives, I am confident that with the support of our knowledgeable and dedicated team, Cannara is well on its way to becoming a leading cannabis producer in Canada," concluded Mr. Krivorot.

Nicholas Sosiak, chief financial officer of Cannara, commented: "When compared to the second quarter of 2022, our financial performance across all metrics has seen substantial improvement. This remarkable growth led to the expansion of our work force, which was crucial in activating additional growing zones. Cannara's market share in Quebec has grown more rapidly than any of our competitors in March, 2023, and we're thrilled to see increasing traction in the Ontario market as well. As Alberta prepares to carry Cannara's products next month and increased sales and marketing initiatives across all markets, we anticipate our revenues to keep increasing quarter-over-quarter. I am proud to announce our eighth consecutive quarter of positive adjusted EBITDA, and I am confident that our solid working capital position will allow us to achieve our yearly goals without diluting the holdings of our current and loyal shareholders," concluded Mr. Sosiak.

Fiscal second quarter 2023 and subsequent sales and operational highlights:

• Cannara activated its eighth of 24 individual 25,000-square-foot growing zones at its Valleyfield facility, reaching a total of 200,000 square feet of active canopy. Combined with its Farnham facility, the company's current annual production capacity is approximately 27,000 kilograms of premium-grade cannabis per year, which will increase up to 120,000 kg of premium-grade cannabis per year when the Valleyfield facility is fully built out.
• During the first half of 2023, Cannara invested $5-million in capital expenditures which was mainly attributable to the activation of the seventh and eighth growing zones, the construction of a butane extraction lab, office and warehouse space, and initial costs related to the processing centre buildout at the Valleyfield facility, in addition to capital expenditures for increased postharvest requirements.
• The company has set an objective by its fiscal year-end, August, 2023, to activate nine growing zones, a 50-per-cent capacity increase at the Valleyfield facility compared with the previous fiscal year-end. Subsequent to quarter-end, the ninth growing zone was activated.
• Increased employee head count from 175 employees in Q2 2022 to 270 employees in Q2 2023, a 54-per-cent increase to support operational growth.
• Approximately 860,000 units were sold across three flagship brands during the second quarter of 2023 and 1.48 million units were sold during the six-month period of 2023, a 140-per-cent increase and 92-per-cent increase, respectively, compared with the same three- and six-month periods of 2022.
• Tribal, Cannara's leading brand, saw sales increase by 124 per cent in Q2 2023 compared with Q2 2022, and by 92 per cent in the six-month period of 2023 compared with the same period in 2022.
• Nugz sales increased by 1,030 per cent in Q2 2023 compared with Q2 2022, and by 528 per cent for the six-month period of 2023 compared with the same period in 2022.
• Orchid CBD (cannabidiol) sales increased by 19 per cent in Q2 2023 compared with Q2 2022, and by 42 per cent for the six-month period of 2023 compared with the same period in 2022.
• Cannara received approval to start expanding into a new Canadian market with cannabis retail sales in Alberta, Canada's second-largest cannabis market, beginning in May, 2023. Subsequent to quarter-end, the Alberta Gaming, Liquor and Cannabis (AGLC) Commission accepted the listing of Tribal's three currently available live resin vape cartridges.
• Cannara continued to grow its distribution in British Colombia across its seven listed SKUs (stock-keeping units) in dried flower, preroll and hash products, and is now carried in over 50 per cent of provincial retailers.
• The company currently has 26 listed SKUs in the Ontario market, three new SKUs have been accepted to be launched in the spring of 2023 and an additional 17 new SKUs have been accepted by the Ontario Cannabis Store to be launched in summer 2023, increasing its SKU count in Ontario by 77 per cent. Cannara products can be found in over 1,400 retail stores across Ontario, being represented in over 88 per cent of stores in Ontario.
• The company estimates its current market share as of the second quarter of 2023 is approximately 7 per cent in Quebec and 2 per cent in Ontario. Subsequent to quarter-end, the company continues to expand its sales and distribution network, achieving a market share in Quebec of 9.3 per cent, the third-largest producer in the province, and 3 per cent in Ontario, the 10th-largest producer in the province for the month of March, 2023.
• In December, 2022, the company designed and launched several lines of apparel and accessories available for purchase on its website.
• In December, 2022, Cannara was awarded three awards at the third annual KIND Awards, Canada's largest consumer-facing awards chosen by budtenders, for:
  • Brand of the year: Tribal;
  • Terpene profile of the year: Tribal;
  • CBD product of the year: Orchid CBD Runtz.
• In a continuing effort to improve its products and customer service, Cannara launched its Discord community channel, which will be utilized to further interactions with the community of consumers and retailers.
• Cannara signed a lease agreement with a new tenant for a building that is under construction at its Valleyfield site. The start of the lease term is set for January, 2024, with a term of 11 years. This transaction will generate an accretive asset and additional free cash flow using an area of the Valleyfield site that would otherwise have been unused as it is not licensed for cannabis production.

Capital transactions:

• The company obtained approval from shareholders during the annual general meeting and from the TSX Venture Exchange for its proposal to consolidate all of the issued and outstanding common shares of the company on the basis of 10 preconsolidation common shares for every one postconsolidation common share. At the date of the conversion, on Feb. 13, 2023, the 907,035,460 shares issued and outstanding were converted into 90,703,552 common shares, after rounding for the fractional shares. All the share capital, stock options and restricted share unit numbers were adjusted retrospectively.
• On Feb. 7, 2023, the company received a notice of conversion from Olymbec to convert $5,319,745 (principle and accrued interest to date) into 2,955,414 common shares of the company. On Feb. 9, 2023, the company issued shares from treasury in relation to the conversion, following TSX Venture Exchange approval, thereby reducing overall long-term debt obligations of the company by this amount.
• During the quarter, the company obtained approval from shareholders during the AGM and from TSX-V for the implementation of a restricted share units plan. On Feb. 9, 2023, the company granted an aggregate of 789,183 RSUs to certain board members, subject to certain vesting conditions.
• During the quarter, the company granted a total of 37,800 stock options at an exercise price of $1.80, subject to certain vesting conditions in accordance with the employee share option plan.
• Subsequent to quarter-end, the company granted a total of 20,000 stock options at an exercise price of $1.80, subject to certain vesting conditions in accordance with the employee share option plan.

Outstanding shares

As at the date of this report, the company had 90,585,552 common shares, 4,423,274 stock options and 789,183 RSUs issued and outstanding. For further information, the complete condensed interim consolidated financial statements and management's discussion and analysis, along with additional information about the company and all of its public filings, are available on SEDAR and the company's investor website.

About Cannara Biotech Inc.

Cannara Biotech is a vertically integrated producer of affordable premium-grade cannabis and cannabis-derivative products for the Quebec and Canadian markets. Cannara owns two megafacilities based in Quebec spanning over 1.65 million square feet, providing the company with 120,000 kg of potential annualized cultivation output. Leveraging Quebec's low electricity costs, Cannara's facilities produce premium-grade cannabis products at an affordable price.

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