Greenway Greenhouse Cannabis Corporation, an Ontario-based cannabis producer, reported a net loss of $1.6 million in the third quarter of 2023, despite increasing its revenue to $1.4 million. The company attributed the losses to higher production costs, lower prices, and insufficient cash flow.
Production costs surge as prices decline
According to its latest quarterly report, Greenway’s cost of goods sold in the third quarter of 2023 was nearly $1.2 million, more than double the amount in the previous quarter. The company said the main drivers of the cost increase were labor and utilities, which accounted for 72% and 15% of the total cost, respectively. The company also faced challenges in sourcing materials and equipment due to supply chain disruptions and rising commodity prices.
Meanwhile, the average selling price of Greenway’s cannabis products dropped from $3.64 per gram in the second quarter of 2023 to $3.14 per gram in the third quarter of 2023. The company said the price decline was due to increased competition and oversupply in the market, as well as changing consumer preferences and regulations.
As a result, Greenway’s gross profit margin fell from 30% in the second quarter of 2023 to 7% in the third quarter of 2023. The company also incurred higher operating expenses, such as sales and marketing, general and administrative, and research and development, which amounted to $2.5 million in the third quarter of 2023, compared to $1.1 million in the previous quarter.
Cash flow and liquidity issues raise ongoing concerns and doubts
Greenway’s financial situation worsened as the company struggled to generate positive cash flow from its operations. The company reported a negative operating cash flow of $1.9 million in the third quarter of 2023, compared to a positive cash flow of $0.2 million in the previous quarter. The company said the cash flow shortfall was mainly due to the increase in inventory and accounts receivable, as well as the decrease in accounts payable and accrued liabilities.
The company also faced liquidity issues, as it had only $0.4 million in cash and cash equivalents as of December 31, 2023, compared to $2.4 million as of March 31, 2023. The company said it had insufficient cash to pay its creditors and meet its working capital obligations and operational needs for the next 12 months. The company also had a working capital deficit of $3.9 million as of December 31, 2023, compared to a surplus of $0.4 million as of March 31, 2023.
The company’s quarterly report warned that its ability to continue as a going concern was dependent on its ability to obtain additional funding and generate sufficient revenues and cash flows from its operations. The company said it was exploring various financing options, such as debt, equity, or strategic partnerships, but there was no assurance that such financing would be available or sufficient. The company also said it was implementing cost reduction measures, such as optimizing its production processes, improving its product mix, and increasing its sales volumes and prices.
Greenway Cannabis has over $2 million in dried cannabis inventory
Despite its financial troubles, Greenway Cannabis continued to produce and sell cannabis products in the third quarter of 2023. The company reported that it sold 446 kilograms of dried cannabis, 13 kilograms of cannabis extracts, and 3,000 units of cannabis topicals in the third quarter of 2023, compared to 339 kilograms of dried cannabis, 10 kilograms of cannabis extracts, and 2,000 units of cannabis topicals in the previous quarter.
The company also increased its inventory of dried cannabis, which was valued at over $2 million as of December 31, 2023, compared to about $1.5 million as of March 31, 2023. The company said it had an average cash cost of $0.75 per gram for its finished goods inventory as of December 31, 2023. The company’s biological assets, which refer to the value of its pre-harvest cannabis plants, were valued at $0.8 million as of December 31, 2023, compared to $0.5 million as of March 31, 2023.
Greenway Cannabis operates a cannabis nursery facility in Kingsville, Ontario, and a flowering and processing facility in Leamington, Ontario. The company has a total licensed capacity of 29,000 square feet, which can produce up to 4,500 kilograms of cannabis per year. The company also has a sales license from Health Canada, which allows it to sell its products to medical and recreational consumers, as well as other licensed producers and distributors.