Auxly Cannabis touts record revenue as it makes its way out of the red

Auxly Cannabis Group Inc. (TSX: XLY) (OTCQB: CBWTF) reported record revenue and profitability for the second quarter ending June 30, driven by stronger sales of its vaporizer products and improved operational efficiency.

The Canadian cannabis producer saw net revenues increase 33% year-over-year to C$29.2 million in the second quarter, driven by growth in dried flower and vape product sales. Net income came out to C$2 million, versus a C$12.9 million loss in the same period last year.

“The second quarter of 2024 reflected efficient growth in our business, with both increased revenues and increased profits, compared to the previous and comparative quarters,” CEO Hugo Alves said in a statement.

“The improved topline performance was driven by successful innovations and improved consistency and quality resulting in increased sales in our core categories of dried flower, vape and pre-roll.”

Gross margin on finished cannabis inventory sold — a key metric for producers — improved to 41% from 27% a year ago. The company attributed this to a higher proportion of cannabis flower products sold and streamlining of manufacturing operations.

Auxly has been working to reduce costs and improve efficiency after struggling with profitability in recent years. The company consolidated its dried flower and pre-roll manufacturing at its Auxly Leamington facility in Ontario, which it says provides a “significant competitive advantage” in low-cost cultivation.

Auxly warned it still faces liquidity constraints, with negative working capital of C$17.9 million as of June 30. The company said it will need additional financing if sales do not improve or if debt obligations come due without refinancing.

“The Company’s ability to sustain profitability and positive cash flows from operations is subject to material uncertainty that may cast significant doubt upon the Company’s ability to continue as a going concern,” Auxly wrote in its financial filings.

The Canadian cannabis industry continues to grapple with oversupply and price compression as producers vie for market share. Auxly ranked as the 6th largest licensed producer by recreational sales in the second quarter, according data by Hifyre cited by the company.

Auxly recently converted C$123.4 million of convertible debentures held by tobacco giant Imperial Brands into equity. This reduced Auxly’s debt load but resulted in Imperial taking a 19.8% ownership stake.

Alves said Auxly expects “continued revenue expansion, gross margin improvements and enhanced profitability throughout the second half of the year.” The company said it is focused on growing its vape, pre-roll and dried flower product lines while pursuing further cost reductions.