Mr. Niel Marotta reports

INDIVA REPORTS SECOND QUARTER 2023 RESULTS

Indiva Ltd. has released its financial and operating results for the second fiscal quarter ended June 30, 2023. All figures are reported in Canadian dollars, unless otherwise indicated. Indiva's financial statements are prepared in accordance with international financial reporting standards (IFRS). For a more comprehensive overview of the corporate and financial highlights presented in this news release, please refer to Indiva's management's discussion and analysis of financial condition and results of operations for the three and six months ended June 30, 2023, and the company's condensed consolidated interim financial statements for the three and six months ended June 30, 2023, and 2022, which are filed on SEDAR+ and available on the company's website.

"This was a transitional and busy quarter for Indiva, with several cross-currents impacting our results, including the negative impact from the loss of revenue from our Indiva Life lozenges, and partial revenue loss in the quarter from the transition to contract manufacturing of Wana gummies, offset by continued growth and excellent market share gains from Pearls by Gron gummies," said Niel Marotta, president and chief executive officer of Indiva. "While we maintain that the lozenge products were compliant with the Cannabis Act and had the positive effect of migrating dollars from the illicit market to the legal market, we complied with regulatory orders and discontinued production and packaging of these products in March, 2023, and completed all sales of finished goods to provincial wholesalers in May, 2023. Since that time, we have innovated and launched a new brand called No Future, including gummies and 1.2-gram vape products, which have since shipped to several provinces. This brand is designed to reset the price floor on edibles and 1.2-gram vapes, and pick up where our lozenges left off, by providing value for of-age consumers with higher tolerances requiring larger doses. Our aim is to recapture the significant incremental market share that our lozenges left behind, drive our path to profitability and in doing so help our regulator achieve its goal of improving public safety while eliminating the illicit market for cannabis edibles. While this effort will not replace the necessary regulatory change that the industry desperately needs, and for which we will continue to advocate, it is a step in the right direction and leverages Indiva's wide distribution network and position as the largest low-cost producer of edibles in Canada."

Highlights

Quarterly performance:

• Gross revenue in Q2 2023 was $8.1-million, representing a 21.6-per-cent sequential decrease from Q1 2023 and an 8.5-per-cent decrease year-over-year from Q2 2022. Year to date, gross revenue decreased 0.5 per cent year-over-year to $18.5-million.
• Net revenue in Q2 2023 was $7.5-million, representing a 20.3-per-cent sequential decrease from Q1 2023 and a 7.6-per-cent decrease year-over-year from Q2 2022, driven primarily by the loss of revenue from Indiva Life lozenges, declines in sales of Wana gummies, offset by higher sales of Pearls by Gron gummies. Year to date, net revenue decreased 0.5 per cent year-over-year to $16.9-million.
• Net revenue in Q2 from edible products declined to $6.9-million, down 6.2 per cent from $7.3-million in Q1 2023 and down 5.5 per cent from $7.3-million in the prior-year period. Edible product sales represent 91.3 per cent of net revenue in Q2 2023. Year-to-date net revenue from edible products decreased 10.1 per cent year-over-year to $14.2-million or 83.7 per cent of net revenue.
• Gross profit before fair value adjustments, impairments and one-time items declined year-over-year by 18.2 per cent and sequentially by 30.3 per cent to $2.2-million, or 29.3 per cent of net revenue, versus 33.1 per cent in Q2 2022 and 33.6 per cent in Q1 2023. The decline in gross margin percentage was due primarily to the loss of high-margin lozenges partially offset by lower unit costs driven by the implementation of automated equipment in edibles processing and packaging. Year to date, gross profit before fair value adjustments, impairments and one-time items increased to a record $5.4-million, or 31.7 per cent of net revenue, versus $5.3-million or 31.3 per cent of net revenue in the corresponding period last year.
• In Q2 2023, Indiva sold products containing 82.2 million milligrams of cannabinoids, the active ingredient in edible products, which represents a 26.5-per-cent decrease when compared with the 111.9 million milligrams in product sold in Q1 2023, and an 86-per-cent increase compared with 44.2 million milligrams sold in Q2 2022. The decrease was a function of lower sales and a mix shift toward products with lower average cannabinoid content due primarily to the loss of lozenge revenue.
• Inventory impairment charges in the quarter totalled $700,000 and $1.5-million cumulatively year to date related to bulk lozenges and packaging which cannot be sold due to Health Canada's recent order to halt production and sale of these products, the write-off of aged and out-of-spec bulk and finished goods, as well as certain marketing, packaging and raw materials. The company will continue to work to monetize any impaired inventory which remains saleable. Operating expenses in the quarter increased 0.2 per cent sequentially, and decreased 7.2 per cent year-over-year, representing 43.1 per cent of net revenue, versus 34.3 per cent in Q1 2023 and 42.9 per cent in Q2 2022.
• Operating expenses increased sequentially primarily due to higher marketing and sales costs offset by lower general and administrative costs. Year to date, operating expenses decreased by 7.4 per cent to $6.5-million primarily due to lower marketing costs, partially offset by increased research and development costs related to new product development.
• EBITDA (earnings before interest, taxes, depreciation and amortization) was a positive $600,000 in the quarter due to a one-time gain on the sale of Wana licence rights to Canopy. Adjusted EBITDA declined sequentially in Q2 2023 to a loss of $600,000, versus a profit of $400,000 in Q1 2023 and a loss of $100,000 in Q2 2022 due to lower sales and lower gross margins. Year to date, adjusted EBITDA was a loss of $200,000 versus a loss of $500,000 in the corresponding period last year.
• Comprehensive net loss of $1-million included a one-time gain of $2.1-million on the sale of licence rights offset by non-cash charges for impairment of inventory and assets held for sale totalling $800,000. Excluding these amounts, comprehensive loss increased to $2.3-million versus an adjusted loss of $1.3-million in Q1 2023 and $2-million in Q2 2022.

Operational highlights for the second quarter 2023:

• Initial deliveries of Pearls by Gron gummies were made to the province of Alberta. Four flavours were delivered, including Blackberry Lemonade 1:1:1 CBN:CBD:THC (cannabinol:cannabidiol:tetrahydrocannabinol), Blue Razzleberry 3:1 CBG:THC (cannabigerol:tetrahydrocannabinol), Pomegranate 4:1 CBD:THC and Sour Apple THC. The company expects meaningful revenue contribution from Pearls gummies in this important market.
• Indiva introduced three new Wana gummie SKUs (stock-keeping units), including Citrus Burst sativa 5:1 CBD/THC, Wild Raspberry indica 5:1 CBD/THC and Pineapple Passionfruit 1:1:1 CBD/THC/CBG.
• Indiva introduced three new chocolates into the Alberta market under the Indiva 1432 brand, namely 1:1 CBN/THC dark chocolate, 1:1 THC/CBD cookies and cream, and 1:1 THC/CBD caramel dark chocolate.
• Pearls by Gron gummies continued to gain market share in Ontario and British Columbia, quickly becoming one of the top edibles in the country. Pearls Blue Razzleberry became the top-selling edible product at the Ontario Cannabis Store in Q2.
• On May 30, 2023, Indiva and Canopy Growth entered into a contract manufacturing agreement, under which Canopy received control of all distribution, marketing and sales of Wana branded products in Canada, and Indiva received the exclusive right to manufacture and supply Wana branded products in Canada to Canopy for a period of five years, with the ability to renew for an additional five-year term upon mutual agreement of the parties. As consideration, Indiva completed a non-brokered private placement offering of common shares of Indiva whereby Canopy subscribed for an aggregate purchase price of $2,155,617. The balance of the consideration will be paid by Canopy to Indiva as follows: (i) additional consideration representing a value of $844,383; (ii) a cash payment of $1.25-million on May 30, 2024.

Loan amendment and supply agreement with SNDL

Indiva is pleased to announce that it has amended the terms of its existing non-revolving term loan facility with SNDL Inc., and has also entered into a supply agreement with SNDL whereby SNDL will supply the company with certain distillate products on an exclusive basis. The supply agreement provides for minimum monthly purchase commitments by the company. The prices of all products supplied under the supply agreement are subject to periodic adjustments depending on prevailing market pricing. The supply agreement has an initial term of 30 months, which automatically renews for successive 12-month periods, unless earlier terminated. Provided that the aggregate minimum purchase commitment under the supply agreement has been met, the supply agreement will automatically terminate upon the repayment of the amended term loan, unless the company elects otherwise. The amended term loan extends the maturity date to Feb. 24, 2026, and extends the existing security interest in favour of SNDL under the amended term loan to the minimum purchase commitment. The interest rate and other terms of the amended term loan remain the same except for the addition of an event of default, whereby a default under the supply agreement (which is not cured by the applicable time period set out in the supply agreement) would constitute an event of default under the amended term loan.

Events subsequent to quarter-end:

• Indiva launched a new value-focused brand called No Future, including four gummy SKUs and three 1.2-gram vape SKUs. The company has already begun shipping product to British Columbia and Alberta and is expected to ship to Ontario in September. Initial orders have been robust, and encouragingly, replenishment orders have already been received for both gummies and vapes.
• Indiva rebranded the Indiva Life sandwich cookies as Doppio: same delicious cookie, with a new look and a new name.
• The company received acceptance of 13 new SKUs for listing, the majority of which were derived from in-house innovation, including four No Future gummies in Ontario, Alberta and British Columbia, and three No Future 1.2-gram vape products in Ontario and Alberta, along with one No Future vape in British Columbia. Six additional SKUs received acceptance across multiple brands, including Bhang, Doppio, 1432 and a 25-pack CBD gummy SKU under the Pearls by Gron brand.

Market share:

• Data from Hifyre Inc. for the second quarter of 2023 show strong sell-through of Indiva's edible products. Please note that Indiva's sales and market share have been adjusted to remove Wana sales reflecting the transaction which closed May 30, 2023. With 21.8-per-cent share of sales across British Columbia, Alberta, Saskatchewan, Manitoba and Ontario, Indiva continues to lead in the No. 1 market share position in the edibles category on an aggregate basis:
  • Ontario: No. 1 with 25.7-per-cent market share;
  • Alberta: No. 4 with 15.7-per-cent market share;
  • British Columbia: No. 1 with 15.9-per-cent market share;
  • Saskatchewan: No. with 7.1-per-cent market share;
  • Manitoba: No. 4 with 8.6-per-cent market share;
  • Gummies: Indiva's Pearls by Gron gummies ranked No. 5 in the edibles category with 7.8-per-cent share based on sales and 11.6-per-cent subcategory share, ranked No. 3 in the edibles category based on units sold with 12.5-per-cent share despite not yet being available in Alberta until May;
  • Chocolate: Indiva held 39.5-per-cent total subcategory share, as Bhang continued to lead the chocolate category with 35.2-per-cent subcategory share;
  • Baked goods: Indiva led the baked goods category with 67-per-cent subcategory share, driven by the success of Doppio, formerly Indiva Life double-stuffed sandwich cookies;
  • Product ranking in Q2 2023 showed two of the top 10 edible SKUs are from Indiva's Pearls by Gron gummies;
  • Based on data from British Columbia, Alberta, Ontario, Manitoba and Saskatchewan, the edibles category increased by 1 per cent in Q2 2023 to $67.6-million in retail sales from $66.9-million in Q1 2023 and increased by 16.2 per cent versus $58.2-million in Q2 2022.

Outlook:

• The company expects Q3 2023 net revenue to improve sequentially and year-over-year compared with the same period last year driven by new product introduction. Gross margins are expected to continue to trend higher in the second half of the year as the company continues to achieve further efficiencies of scale from the implementation of automation in production and packaging activities and from the introduction of margin accretive products.

Conference call -- Tuesday, Aug. 29, 2023, at 10:30 a.m. (EST)

The company will host a conference call to discuss its results on Tuesday, Aug. 29, 2023, at 10:30 a.m. (EST). Interested participants can join by dialling 416-764-8658 or 1-888-886-7786. The conference ID is 16708083.

A recording of the conference call will be available for replay following the call. To access the recording please dial 416-764-8691 or 1-877-674-6060. The replay ID is 708083 followed by the pound key. The recording will remain available until Thursday, Sept. 28, 2023.

About Indiva Ltd.

Indiva is proud to be Canada's No. 1 producer of cannabis edibles. The company sets the gold standard for quality and innovation with its award-winning products, across a wide range of brands including Pearls by Gron, Bhang chocolate, Indiva Doppio sandwich cookies, Indiva 1432 chocolate, and No Future gummies and vapes, as well as other Indiva branded extracts. Indiva manufactures its top-quality products in its state-of-the-art facility in London, Ont., and has a corporate work force remotely distributed across Southern Ontario.

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