Benzinga | Dec 1, 2020 07:13AM EST

Neptune Wellness Solutions Shares Spiked After Co. Highlights Completion Of 'Strategic Transition'

The Company expects the pivot to B2C branded product revenue across new categories including flower and vapes to deliver higher margins within a $2.1 billion market

With U.S. House to Vote on Decriminalization, the Company announces production of its first hashish product offerings at its Quebec facility

LAVAL, QC, Dec. 1, 2020 /CNW/ - Neptune Wellness Solutions Inc. ("Neptune" or the "Company") (NASDAQ:NEPT) (TSX:NEPT), a diversified and fully integrated health and wellness company focused on natural, plant-based, sustainable and purpose-driven lifestyle brands, today provided an update on its transition and growth strategy from Chief Financial Officer and Global Operating Officer Dr. Toni Rinow.

The Company is completingits transition over Q3 Fiscal 2021 and Q4 Fiscal 2021 from revenue derived from hemp and cannabis extraction to revenue from consumer packaged goods and branded products, such as Mood Ring(tm) -- an end-to-end developed and manufactured cannabinoid-based product portfolio targeting both wellness-focused CBD consumers looking for natural products, and the recreational market with THC concentrate product.

Neptune is beginning its first commercial production of hashish (or hash) -- comprised of extracted cannabis trichomes utilizing its own proprietary technologies at the company's purpose-built facility in Sherbrooke, Quebec. The hashish products are focused on the recreational market for high THC products and will be available to a footprint totaling 567 retail stores across Ontario and British Columbia, with the opportunity to scale to additional retailers in additional provinces upon securing supply agreements.

The Company also owns and operates the brands Forest Remedies(tm), Ocean Remedies(tm), Neptune Wellness(tm) and OCEANO3(tm) and remains in negotiations with various brand ambassadors to build, accelerate and increase product and white label offerings across a broad spectrum of generations and demographics in a determined effort to capture market share.

Neptune is paid on sales for its cannabis-based products, but expects to only recognize the full extent of revenue upon sales to the end customer during the first year of a product SKU due to IFRS accounting rules. Accordingly, in the short term, both revenues and gross margins will be affected. At the same time. Dr. Rinow said: "The Company was relentlessly focused on improving gross margins and developing its core businesses of owned and operated consumer brands in an effort to continue the Company's path throughout fiscal 2022 to achieving positive adjusted EBITDA."



The Company believes the transition from low margin high risk third-party extraction (bottom of economic waterfall) to its own branded products with higher margins and lower risk (top of economic waterfall) is a critical pivot that will set up Neptune to be a sustainable and world-class innovative business differentiated from its peer set and built for long-term profitability. The Company also believes that building its own branded portfolio will result in higher asset values, more sustainable cash flows and higher gross margins leading to positive adjusted EBITDA sooner than under a low margin B2B business model.

These activities will also ready the Company for the next frontier: the future expansion into legal adult use-cannabis and global hemp, beginning in the United States with the potential for legalization of cannabis under President-Elect Joe Biden. Even before Biden is sworn in as the 46th President, the U.S. House of Representatives is expected to introduce the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act for a full floor vote as soon as this week.

"In addition to our commitment to innovate and differentiate in the cannabis space, and to deliver various potency levels and taste profiles to meet a wide range of consumer preferences, Neptune is focused on operating its businesses in a manner that will result in improved gross margins while prudently maintaining a strong cash position. We recently reported the Company's highest ever quarterly gross revenue and at the same time, the business has made significant efforts in strengthening its operational efficiencies to build shareholder value," said Dr. Rinow. "To that end, Neptune is accelerating its evolution in categories of the business that are most able to generate higher gross margins on sales such as its owned and operated branded products. This includes the development of vapes, gummies, flower and other infused products under the Mood Ring(tm) label and additional brands to announced."

With regards to other facets of Neptune's diversified business, including its international trade business, Neptune is delaying fulfillment into the Q4 of Fiscal 2021 (or later) of certain products manufactured overseas due to rising air freight costs and the challenges in international supply chains resulting from macroeconomic conditions facing the world due to the COVID-19 pandemic. There were significant restructuring and other one-time charges included in the second quarter of Fiscal 2021, as was discussed in Neptune's November 16 earnings announcement. Certain aspects of the Company's business experienced tremendous growth but at the same time came under immense margin pressures and expedited delivery of products which did not permit the Company to realize acceptable gross margins which is part of our core financial strategy.

"Neptune remains very excited about its businesses, market strength, and blueprint for the future. Our continued and rapid expansion will permit the Company to maintain and sustain the business while continuing growth in a diligent and prudent financial manner. Such financial discipline and operational agility will better position Neptune to grow and succeed in the near-term and for decades to come and will allow us to continue to become more relevant and move even closer to our consumers, buyers and communities," Dr. Rinow added.

For more information visit Neptune's corporate website.