Nova Announces First Quarter 2021 Results

EDMONTON, AB–Nova Cannabis (TSXV: NOVC) today released its unaudited condensed interim consolidated financial statements  and management’s discussion and analysis for the three months ended March 31, 2021.

“Nova has been executing its growth strategy to bring everyday value for real cannabis consumers through the Value Buds banner,” said Darren Karasiuk, CEO of Nova. “The increase of over 120% in the sales from the first 18 stores we’ve converted to Value Buds in the last few weeks is evidence of our strategy’s effectiveness. As Alcanna experienced with their Deep Discount trial stores in 2020, we expect further increases in sales in the coming weeks and months as more consumers in those trade areas discover our value proposition and as we expand the Value Buds footprint through more conversions and new store openings.”

“Nova now has 53 stores operating and a further 30 stores in development, with the majority scheduled for completion in 2021. This is exclusive of a number of other potential sites that we are evaluating, and we continue to lever Alcanna’s relationship with national landlords to identify store locations that we believe represents sustainable value. We plan to build one of the largest retail cannabis footprints in Canada, but what we believe sets us apart is our strategic focus on the high-volume value-conscious consumer and our ability to offer a truly better alternative to the illicit market.”

Business and Operating Highlights:

• Converted eighteen (18) stores from either the Nova Cannabis or the Deep Discount Cannabis banners to the Value Buds banner in Alberta in Q1 and to date in Q2 2021.
• Early performance from the stores converted to the Value Buds banner have already seen, on average, transaction count and sales increases of in excess of 120% compared to the period before conversion:
  • Increased sales under the Value Buds banner were realized at a gross margin as a percentage of sales of approximately 19% compared to approximately 32% in the period before conversion; and
  • As we continue to increase the number of Value Buds locations and introduce this banner to more customers, we anticipate that our gross margin as a percentage of sales will blend out to be approximately 12% to 15% in the second half of 2021 and we anticipate that the sales increases already realized to date will continue and possibly accelerate.
• Currently, thirty (30) new stores are under development/construction – nineteen (19) in Ontario and eleven (11) in Alberta; most are expected to open in the second half of 2021. In addition, Nova has another thirty (30) new store locations in Ontario under active negotiation.
• To date in May, converted Nova’s original Ontario store on Queen Street West to Value Buds and opened one (1) new Value Buds store at Bloor and Lansdown in Toronto, Ontario.

Outlook

The Company expects to adopt an aggressive and disciplined stance toward growth focusing on:

• Organic store openings
• Opportunistic and sensible acquisitions to complement organic growth
• Same-store sales growth
• Private label
• Basket size growth

When it comes to both organic growth and acquisition opportunities, the Company is focused on store locations that have long-term viability. Management recognizes that in Ontario, due to its historically slow retail cannabis store rollout, many existing cannabis retail locations have enjoyed monopoly-like positions in very large trade areas. These monopolies have provided many cannabis retailers with revenues that we believe are unsustainable with greater competition and vulnerability to new retailers who can offer better pricing as well as traditional retail fundamentals such as visibility, parking, and proximity to other customer draws.

Additional store conversions to the Value Buds banner will continue in Q2 and Q3 2021. Store banner conversions from the legacy banners of YSS and Sweet Tree to our new discount-focused banner, Value Buds, have been delayed by the world-wide microchip shortage resulting in longer than expected lead times to acquire point-of-sale hardware and other equipment necessary to properly operate the stores as Value Buds; however, we believe that these conversions will be substantially completed in Q3 2021.

First Quarter 2021 Financial Highlights:

The interim financial statements for the three months ended March 31, 2021 reflect the results of the thirty-four (34) stores formerly owned by Alcanna Inc. as well as the results from the nineteen (19) stores owned by the Company (when it was known as YSS Corp.) for the 10 days from the closing of the reverse take over transaction until the end of the quarter. As such, they are not reflective of the Company’s operations as it exists today or as it existed in the first quarter of 2020. During the first quarter of 2020, the stores were largely operated under the Nova Cannabis banner with a different operating, pricing and margin strategy than in the first quarter of 2021. Refer to the interim financial statements and the management discussion and analysis (the “MD&A”) of the Company for the three months ended March 31, 2021, which are available from the Company’s profile on SEDAR, at www.sedar.com, or on the Company’s website at www.novacannabis.ca.

UPDATE TO THE COMPANY’S BYLAWS

Nova also announced that its Board of Directors approved the adoption of a new By-Law No. 1 to reflect recent amendments to the Business Corporations Act (Alberta), including appointing an Agent for Service and removing the requirement that 25% of the Board be resident Albertans. In addition, the new By-Law No. 1 authorizes the Directors to set the size of the board, modernizes the by-laws, simplifies provisions for ease of understanding and application, and adds an Advance Notice Provision, which sets a deadline by which the Company’s shareholders must notify the Company of an intention to nominate directors prior to any meeting of shareholders at which directors are to be elected and specifies the information that a nominating shareholder must include in the notice in order for director nominees to be eligible for nomination and election at the meeting. These changes are subject to shareholder confirmation at the upcoming Annual and Special Meeting of shareholders of the Company.

CONFERENCE CALL

Management of Nova and Alcanna Inc., a majority shareholder of Nova, will conduct a joint conference call on May 18, 2021 at 12:00 p.m. ET (10:00 a.m. MT) to discuss their respective financial results. To participate, please dial (416) 406-0743 or (800) 806-5484 and use the required participant access code: 3518326#. The playback will be made available approximately four hours after the event at (905) 694-9451 or (800) 408-3053, required access code: 1361632#.

FORWARD LOOKING STATEMENTS

This news release contains forward-looking statements or information (collectively “forward-looking statements”) within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “continue”, “anticipate”, “will”, “should”, “plan”, “intention”, and similar words suggesting future events or future performance. All statements and information other than statements of historical fact contained in this news release are forward-looking statements. In particular, this news release contains forward-looking statements pertaining to: Nova’s retail cannabis business strategy, including organic growth and strategic acquisitions; Nova’s discount pricing model; the conversion of Nova Cannabis stores to the Value Buds banner and the timing thereof; the Company’s 2021 objectives, including planned construction of new stores, timing of new store openings, evaluation of potential sites and sales growth, particularly in the Value Buds banner; the ability of the Company to obtain government licenses for its new stores; Nova’s gross margin as a percentage of sales and sales forecast for the balance of 2021; and expectations as to consumer demands.

With respect to forward-looking statements contained in this news release, the Company has made assumptions regarding, among other things: the Company’s ability to identify locations for, construct and open new stores and the cost related thereto; the availability of hardware and equipment for those stores; government regulation and applicable laws will not change in a manner adverse to the Company; receipt of necessary regulatory approvals to open new stores; the Company’s ability to obtain leases for new sites and attract the necessary personnel to operate new stores; the cost of converting existing stores to the Value Buds banner; demand for the products the Company sells; other factors that will drive sales growth in the Value Buds banner; availability of acquisition opportunities; sustainability of competitors’ businesses and competition in the retail cannabis industry, including from the illicit cannabis market;  consumer demands; and factors that influence consumer behavior.

Although the Company believes that the expectations reflected in the forward-looking statements, and the assumptions on which such forward-looking statements are made, are reasonable, especially given the unprecedented uncertainty of the full extent and impact of COVID-19, there can be no assurance that such expectations and assumptions will prove to be correct. Readers should not place undue reliance on forward-looking statements included in this news release. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause actual performance and financial results to differ materially from any estimates, forecasts or projections. These risks and uncertainties include, among other things, the duration and severity of the COVID-19 pandemic on the business, operations and financial condition of the Company; the risk that Nova will be unable to execute its strategic plan and growth strategy, as planned without significant adverse impacts from various factors beyond its control; dependence on suppliers; potential delays or changes in plans with respect to capital expenditures and the availability of capital on acceptable terms; risks inherent in the retail cannabis industry; competition for, among other things, customers, supply, capital and skilled personnel; changes in labour costs and markets; incorrect assessments of the value of acquisitions; general economic and political conditions in Canada (including Alberta and Ontario), and globally; industry conditions, including changes in government regulations; fluctuations in foreign exchange or interest rates; unanticipated operating events; failure to obtain regulatory and third–party consents and approvals when required; changes in tax and other laws that affect us and our shareholders; the potential failure of counterparties to honour their contractual obligations; stock market volatility; and the other factors described in the Company’s public filings available at www.sedar.com.  Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this news release are made as of the date hereof. Except as expressly required by applicable securities legislation, Nova does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

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