Improved operational efficiency is one of the factors behind Grown Rogue International Inc. (CNSX: GRIN) stellar performance in the second quarter. A six-fold increase in revenues sets the stage for what could turn out to be a record-breaking year for the licensed cannabis operator.
Grown Rogue Q2 Financial Results
The company’s stock has gained approximately 20% since announcing it’s Q2 financial results which could well be attributed to growing investors’ confidence about the company’s growth metrics and long term prospects.
After making a name for itself in Oregon and California cannabis marketplace, Grown Rogue is once again expanding its footprint into Michigan in pursuit of opportunities for growth. With the expansion drive, the company is planning to accelerate sales growth after reporting $1.9 million in sales in Q2, representing a 548% year over year increase.
Sales growth in Q2 was mostly driven by internal sales force as well as third-party distribution and strengthening of the company’s brand. Gross margins ballooned to $0.4 million from 0.04% million a year, accounting for 20% of revenues. Improvement in gross margin was mostly as a result of refined cultivation process that led to lower costs of sales.
General and administrative expenses more than doubled in the quarter to $1.3 million attributed to an expanded scope of operations associated with sales, general and administrative support. Grown Rogue ended the quarter with an adjusted EBITDA loss of $1 million compared to a net loss of $0.6 million reported a year earlier. Management attributes the wider than expected loss to increased infrastructure investments that continue to support growth plans.
According to the Chief Executive Officer, Obie Strickler, second quarter revenue results underscore brand strength and distribution reach in the Oregon area. The company is planning to replicate the same performance in California and Michigan, other cannabis markets that represent significant opportunities for growth.
“The proposed acquisition of Decibel Farms announced in April is expected to increase our manufacturing capacity in Oregon, where we continue to enjoy record demand for our products. Our California distribution license went into effect during the second quarter with revenues expected to commence this month,” explained Mr. Strickler.
The company’s production capacity is poised to more than double to 5,400 kgs with the acquisition of Decibel Farms. Grown Rogue is also in the process of integrating a 40,000 square feet greenhouse as it continues to ramp up its production capacity.
Grown Growth Expansion Drive
Some of the key highlights in the second quarter included cannabis cultivation in Oregon expected to increase the overall yield by 50%. California expansion is already gaining traction thanks to the integration of a 16,000 sq. ft. facility. Grown Rogue has since strengthened its retail, processing, distribution operations as it seeks to ramp up sales effort in the state.
In Michigan, the company has signed a letter of intent as it seeks to acquire Inferno Gardens that will provide it with a head start in the market. With the acquisition, the company will gain access to a retail dispensary as well as an indoor cultivation and processing facility. The manufacturing facility is still under construction and expected to be operational before the end of the year.
Michigan being host to the second largest medical cannabis population presents a unique opportunity for the company given the size of the target audience. The market is thus expected to provide unique sales opportunities expected to strengthen Grown Rogue revenue base.
“Our facility in Muskegon will have the capacity to produce approximately 4,000 lbs. (~1814 kg) yearly of premium cannabis. This translates to $13-14 million in yearly revenue using today’s average market prices in Michigan,” stated Jacques Habra, Chief Strategy Officer of Grown Rogue.
The investments made have helped strengthen Grown Rogue’s core business as well as revenue base thus affirming growth metrics. The future can only be bright as the company moves to capture a wider target audience as it also continues to ramp up its cannabis production capacity.
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