Delta 9 Cannabis Inc - Q2 2020 Investor Presentation TSX:DN TSX:DN.DB TSX:DN.WT TSX:DN.WT.A OTCQX:VRNDF - Seeking Alpha
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Delta 9 Cannabis Inc.
https://invest.delta9.ca/
Investor Presentation
Q2 2020
TSX:DN
TSX:DN.DB
TSX:DN.WT
TSX:DN.WT.A
OTCQX:VRNDF
Page 1
Disclaimer
Disclaimers
This document contains forward-looking statements regarding Delta 9 Cannabis Inc. ("Delta 9" or "Company"). Forward-looking statements are
statements that relate to future events or future financial performance. In some cases, you can identify forward-looking statements by the use of
terminology such as "may", "should", "intend", "expect", "plan", "anticipate", "believe", "estimate", "project", "predict", "potential", or "continue" or the
negative of these terms or other comparable terminology. These statements speak only as of the date of this document.
This document also contains financial outlooks ("Outlooks") within the meaning of applicable securities laws. The Outlooks have been prepared by our
management to provide an outlook of our activities and results and may not be appropriate for other purposes. The Outlooks have been prepared
based on several assumptions. The actual results of operations of Delta 9 and the resulting financial results may vary from the amounts set forth
herein, and such variation may be material. Management believes that the Outlooks have been prepared on a reasonable basis, reflecting
management's best estimates and judgments. Any Outlooks in this document are made as of the date of this document and are based upon the
information available to us as of that date.
Examples of forward-looking statements that may have been made in this document include statements pertaining to, among other things: (1)
financial projections; (2) new supply agreements; (3) growth in cannabis production and production facilities; and (4) retail store growth.
Material assumptions supporting these forward-looking statements include, among other things: assumptions regarding the recreational use
cannabis market; that retail expansion will result in greater branding and marketing opportunities and increased sales prices, but also increased
overhead and sales costs; that increasing the scale of Delta 9’s operations will reduce its per gram production costs; assumptions regarding the
amount of cannabis that can be produced per “grow pod”, the expected selling price of such cannabis and Delta 9’s timeline for the construction of
grow pods; that Delta 9 will be able to obtain any necessary financing on acceptable terms; and assumptions regarding our management team's
ability to implement our business plan, and general economic and financial market conditions.
Forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, including all of the risks set
forth in the continuous disclosure documents of Delta 9, including its annual information form dated March 19, 2020. These risks, as well as risks that
we cannot currently anticipate, could cause our actual results, levels of activity or performance to be materially different from any future results, levels
of activity or performance expressed or implied by the forward-looking statements in this document.
Page 2
Delta 9 Cannabis Inc.
• Vertically Integrated cannabis company based in Winnipeg, Manitoba
• Over 6 years of operational experience as one of Canada’s oldest cannabis companies
• 3 Diversified revenue segments with Wholesale, Retail, and Business to Business
• Health Canada Licensed for cultivation, processing, medical sales and wholesale distribution
• Licensed retailer with 4 operational stores and 3 stores pending license
• Business to business offering includes production equipment, consulting, and genetics sales
• Shares listed on main board TSX under symbol DN
Page 3
Delta 9 at a Glance
One of Canada’s First LPs Low-Cost Proprietary Cultivation
Industry leading cost per gram of $0.98/g
Proven track record for high quality cannabis and compliance
Favorable labor, land leasing, and power costs ($0.04/kWh)
Proprietary Grow Pods
Tracking to Positive EBITDA Modular climate controlled hydroponic system provides unique
growing environments and mitigates contamination
42%+ Gross Margin
Superior cultivation economics with focus on strong ROC
Manitoba Market Leader
30% market share1 in Manitoba, a high barrier to entry market Award-Winning Quality
Holds one of only four master licenses 12 Strains in current portfolio with 17%+ THC
Four operational retail stores and one master licence
Extensive Strain Library Scalable Cultivation
World-class bank of genetics with 350 seeds available for
State of the art facilities with ~8,325 kg/year current capacity
commercialization; currently a total of 75 commercial strains with
12 core strains, 4 cannabis pre-roll products and 2 oil blends
Strong Management Team Well-positioned for Cannabis 2.0
Agreements with top LPs & companies in key consumer verticals
Management with Company since inception Diversified footprint in B.C, Alberta, Saskatchewan, and Manitoba
1. Calculated as Delta 9 sales ($9.8MM)/Manitoba sales ($32.2MM) from October 2018 to June 2019
Page 4
Board of Directors & Management
Strong operators and master grow team with stable structure and no key personnel
turnover. Deep in-house personnel and process expertise is a key differentiator
• Over 30 years of entrepreneurship experience across technology, automated systems, security, and process control
Bill Arbuthnot protocols sectors
Co-Founder, President, • Worked in network development and engineering for one of Canada’s Big Six Banks
Chairman • Supervises R&D, design, construction of Delta 9’s Grow Pods and facilities, and day-to-day operations at the production
facility
• Founded Delta 9 with Bill as a fourth-year student at the Asper School of Business at the University of Manitoba
• Driven Delta 9’s growth from original 2 founders to over 200 employees
John Arbuthnot
• Raised over $70MM in expansion capital since 2017, and is the youngest CEO of a TSX-listed company
Co-Founder, CEO, Director
• Focused on corporate strategy, financial planning, business development, and implementation of Delta 9’s modular
growth strategy
• Managing Director in the Deals practice at PwC
• More than 25 years experience in financial investing, life sciences, consumer healthcare, healthcare services and
Nitin Kaushal medical device industries
Director • Sat on the board of numerous pharmaceutical and healthcare companies, and held senior roles in investment banking,
venture capital and consulting firms
• Ranked as the top Healthcare Investment Banker in 2008/2009 by Brendan Wood International
• President of Triple D Developments, where she managed 1.5 MM sq. ft. of commercial and industrial buildings,
Joanne Duhoux-Defehr
including the Delta 9 site
Director
• Experience in business litigation and intellectual property in the U.S. as a member of the California bar
• Chairman of Balnagowan Investments and career investment banker
Hugh Aird • Served as Chairman of Trilon Financial, Founder of Trilon Securities Corporation, and Vice Chairman of Merrill Lynch
Director Canada and Edelman Canada
• Completed many significant merger and acquisitions, as well as over 100 public financings throughout North America
Page 5
Experienced Management
• 25+ years experience in public accounting in areas of First Nations audit, financial training and consulting, financial statement
Jim Lawson
preparation, income tax, and consulting
CFO
• Served as a board member for numerous for profit and non-for-profit boards serving in audit committee roles
• Holds 15+ years of experience in technology, eCommerce and online business
Matthew Sodomsky • Prior experience as a Senior Software Developer at Manitoba eHealth, where he led the development of software applications for the
CTO healthcare sector.
• Lead Developer of software for MRI systems at the National Research Council
• Involved with Delta 9 since its founding in 2013.
Marshall Posner
• Holds 25+ years experience in Marketing and brand development, creative content design, creating high performance websites, and
CMO
developing contextual advertising campaigns
Jennifer Serek • Holds 20+ years in HR experience
VP of Human Resources • Prior to joining Delta 9 she worked in the senior HR role at one of Western Canada’s largest furniture manufacturers.
• Bachelor of Commerce with Honors from the University of Manitoba majoring in both accounting and finance
Mark Jonker
• 20+ years of manufacturing experience in the furniture and vertical machinery industries. Dedicated to implementing sustainable lean
VP of Operations
principles to drive employee engagement with results in both higher quality and decreased overall costs
• Holds 30+ years of experience in investor & media relations, finance and accounting (CPA & MBA)
Ian Chadsey
• Prior experience as VP of Investor & Media Relations Bell MTS, Nutrient (former Agrium)
VP of Corporate Affairs
• Began career as equity analyst on Bay Street
Al Roney • Holds 30+ years in retail experience in private sector and crown liquor sales
VP of Retail • Prior experience as VP of Retail Stores for Manitoba Liquor and Lotteries
Derek Reimer • 20+ years of experience in asset protection, safety, & critical regulatory compliance.
VP of Compliance and loss • Prior experience leading divisional big box multi-channel business operations and compliance which have undergone substantial
prevention organizational growth and scale at Home Depot and more recently Cabela’s Canada
Page 6
Delta 9 Facility
Low-cost and highly advanced facility
• Cultivating premium quality cannabis at $0.98/g
• Favorable labor, land leasing, and power costs ($0.04/kWh)
Modular and scalable production with significant expansion potential
• Currently operating 297 grow pods offering 95,040 square feet of production
• Projected annual production of 8,325 kg of dried cannabis
• Phase II expansion underway - additional 41,280 square feet of production, representing 129 grow pods
• 7 acres (Phase I) owned of 47 total Acres
• Option to purchase remaining 40 acres
for $6MM exercised
‒ $4.5MM mortgage secured
• 1 building owned (Phase I)
Phase I
Phase IIIc
Phase II
Phase IIIb
Phase IIIa
95,040 sq. ft. Current Proprietary Hydroponic Prevents Contamination
Unique Grow Environments 297 Grow Pods
Production Grow System Risk
Page 7
Delta 9 Grow Pods
• Cultivation occurs in proprietary grow areas called Grow Pods:
– Constructed on-site using retro-fitted shipping containers
installed with customized wall panels, electrical, lighting, HVAC, Modular
and security
• This proprietary grow method ensures consistently high yields and
quality
• Data is collated and analyzed to refine harvest techniques
• Mitigates crop loss and risk of contamination
Scalable
• World-class bank of strains and genetics
• Large library of strains and genetics ‘in reserve’ can to be put in
production and commercialization
• Combined total of 30 commercial dried strains with 12 core strains,
with 4 commercial pre-roll products and 2 oil blends already
developed Stackable
• Proprietary in-house production platform supplemented with Ample
Organics compliance and batch tracking system
Page 8
Precise & Low-Cost Cultivation
With a low conversion and installation cost, Delta 9 can expand for less than $100/square foot making
incremental expansion very economical.
Investment in automation of key processes has resulted in cash production costs as low as $0.98/gram, placing
the Grow Pods in an industry leading category for production efficiency.
High level of control over the growing environment allows us to produce indoor hydroponic “craft” quality
cannabis products.
Production in small modular areas helps prevent the risk of contamination and disease and compartmentalizes
risk of crop loss.
Economical & Efficient Hydroponic Craft Quality Risk Reduction
Page 9
Phased Expansion Plan
Expansion Phase Area (Sq. ft.) Total Grow Pods Output (kg/year) CAPEX
Currently Licensed 95,040 297 8,325 $25.0MM
Fully Funded
134,400 420 11,975 $31.5 MM
(Phase I + Phase II)
Phase IIIa 128,000 400 11,520 $35.0 MM
Phase IIIb 160,000 500 14,400 $40.0 MM
Phase IIIc 192,000 600 17,280 $50.0 MM
Planned 480,000 1,500 43,200 $125.0 MM
Total
614,400 1,920 55,175 $156.5 MM
(Fully Funded + Planned)
Page 10Product Offerings
Proportion of Sales by Category
5%
Blended Cannabis Flower
• Several high-quality dried
10% cannabis products blended
Oils, Extracts &
Derivative Product together to produce a
• Ingestible oils milled finished product
• Vape cartridges • Used for pre-rolled joints
• Dried sift/kief
• Additional SKUs in
development for 2020
15%
Premium Dried Flower
• 3.5g and 7.0g settings
Pre-Rolls • Over 30 current SKUs
• 2x0.5g setting
• 4 SKUs
70%
Premium Dried Flower Pre-Rolls Oils & Extracts Blended Cannabis Flower
Page 11Premium Dried Flower Portfolio
As one of the oldest Licensed Producers, Delta 9 has a comprehensive seed bank with over 75 unique
genetics. Our goal is to produce the highest quality indoor hydroponic cannabis on the market.
Strain THC (%) CBD (%)
Sinaloa Gold 25.65% 0.06%
Space Cake 23.12% 0.06%
Electric Punch 22.00% 0.07%
Headbanger 20.85% 0.08% Premium high
Apple Fritter 19.9% 0.07% potency
Super Lemon Haze 19.83% 0.07% flower ensures
Frostbite 19.26% 0.06% protection
from price
White Out 18.36% 0.05%
compression
Kali Mist 18.16% 0.07%
Jack Herer 17.6% 0.06%
Lava Cake 17.58% 0.05%
Bubblegum 17.34% 0.04%
GGIV 15.57% 0.01%
Blue Venom 14.00% 0.05%
Lemon Meringue 13.81% 0.04%
Lemon Skunk 13.73% 0.06%
CBD Skunk Haze 6.00% 9.00%
Page 12Delta 9 Pre-Rolls
Delta 9 offers 4 different cannabis pre-roll products in different potency categories; Delta 9 Twist, being
our high THC, Bliss being mid-range THC, J-Lo, low potency and Mellow are a balanced pre-roll inclusive of
both THC and CBD. Our pre-rolls offer consumers custom curated blends of premium cannabis flower in
2x0.5g pre-rolled “Raw” cones.
To date we have produced and sold over 500,000 cannabis pre-rolls.
Page 13Delta 9 Edibles, Oils, & Extracts
Delta 9 is well positioned for Cannabis 2.0
Auxly Supply Agreement
• Investment of $16MM by Auxly to finance expansion
Sales & Production of Winnipeg, Manitoba facility
• Winnipeg, Manitoba
• Auxly currently has the right to purchase 1,000
• 95,040 sq.ft. facility with Health Kgs/year of dried cannabis, and 100 Kgs/year of
Canada license to produce and cannabis trim
sell cannabis
• Effective July 1, 2020, Auxly will have the right to
purchase an additional 4,000 Kgs/year of dried
cannabis, and 400 Kgs/year of cannabis trim
Decibel Cannabis JV
• Calgary, Alberta
• One-year white labelling
agreement to purchase 2.0 products in
$4MM in cannabis Retail
derivative product from • Winnipeg, Manitoba
Decibel Cannabis
• Successful launch of
cannabis 2.0 products
in retail in December
2019. We continue to
work the with industry’s
leading suppliers to
deliver these products
to Delta 9 customers Page 14Wholesale Cannabis
Manitoba Ontario
July 2018 Application in
2,300 Kg/yr process
Saskatchewan
Feb 2019 Newfoundland
Supply Listing Application in
process
B.C
October 2019
Supply Listing
Alberta Quebec
May 2019 Application in
Supply Listing process
Page 15Retail Stores – An Emerging Chain
Delta 9 currently operates 4 retail stores with plans to build out an
additional 12 locations by the end of 2021
OSBORNE
ST. VITAL BRANDON THOMPSON
VILLAGE
Over $15.7 Million in retail cannabis revenues in 2019 and $5.9 million in Q1 2020
Page 16Delta 9 Retail Store Economics
(Amounts disclosed in C$ unless otherwise stated)
Total Size Avg. Monthly Avg. Monthly 2019 Revenue
Retail Location Name Date Opened Capex Revenue/Sqft
(sqft) Sales Transactions ($MM)
Winnipeg, MB ST. VITAL 3,500 October 16, 2018 $375K $854K 18,000 $9.7 $2,771
OSBORNE
Winnipeg, MB VILLAGE 2,500 March 21, 2019 $900K $319K 8,400 $2.7 $1,530
Brandon, MB BRANDON 4,500 April 2, 2019 $600K $292K 7,200 $2.5 $779
Thompson, MB THOMPSON 2,500 September 27, 2019 $600K $276K 6,900 $803K $1,325
Total 13,000 - $2.48MM $1.7MM 40,500 $15.7
Page 17Business to Business
GROW PODS LICENSING & GENETICS 2019 B2B
Sells turnkey CONSULTING Packages genetics Material revenue
cultivation systems Provides licensing offering for other segment with
and equipment and consulting licensed producers deliveries of 89 Grow
across Canada services to new and looking to expand Pods and over $6
pre-licensed their cannabis Million in Revenue for
producers genetics the year 2019. Q1 2020
was $2.98 million
Page 18Corporate Timeline
March 2014: Feb 2018: Sept 2018: Nov 2018: Feb 2019: May 2019: Sept 2019: Sept 2019:
Winnipeg Awarded Completed Completed Secured Received Received oils Entered
Facility retail store $16.25MM Phase 1 Saskatchewan expansion sales license agreement to
licensed licenses in strategic expansion supply approval from and HC license purchase 2
Manitoba investment (4,200 Kg/yr) agreement Health Canada renewal to retail stores in
under
from Auxly “HC” (5,300 2022 Alberta
MMPR
Cannabis Kg/yr) and
secured
Alberta supply
agreement
Jan 2019:
Oct 2018: Divested Mar - Apr 2019:
Nov 2017: Opened first interest in Opened 2nd Sept 2019:
Commenced June 2018: Delta 9 Calgary facility and 3rd retail Sept 2019: Opened 4th Oct 2019:
trading on the Secured 2,300 Cannabis store for 5.6MM stores in Secured up- retail store in Secured
TSX-V under Kg/yr on October 17, shares in Winnipeg and listing to main Thompson, supply
Symbol NINE Manitoba 2018 Westleaf Inc. Brandon, MB board TSX MB agreement
supply deal with B.C.
Page 19Key Performance Indicators
Production/Wholesale Unit Q1, 2019 Q2, 2019 Q3, 2019 Q4, 2019 Q1, 2020
Total Grams Produced 418,901 675,233 871,516 1,305,806 1,198,983
Cash Production Cost Per Gram $1.44 $1.05 $1.08 $0.91 $0.98
Total Cash Cost Per Gram $1.60 $1.21 $1.21 $1.04 $1.10
Total Grams Sold 399,787 527,693 548,981 416,729 591,080
Avg Selling Price per Gram $7.58 $5.63 $4.19 $3.59 $4.50
Retail Unit
Total Grams Sold (Retail) 189,796 282,336 349,410 491,941 692,661
Avg Selling Price per Gram $12.84 $12.42 $12.47 $10.27 $8.45
Number of Transactions Processed 44,885 84,882 108,438 134,132 149,440
Avg Transaction Size $58.27 $41.46 $41.67 $39.29 $45.40
Page
20Historical Financial Highlights
(All numbers in 000’s) Q1 2019 Q2 2019 Q4 2019 Q1 2020
Q3 2019
Wholesale Revenue $2,935 $2,918 $2,233 $1,448 $2,991
Retail Revenue $2,437 $3,519 $4,359 $5,051 $5,854
Medical Revenue $97 $87 $66 $48 $58
Other Revenue $163 $2,362 $411 $4,067 $3,208
Revenue (Net of Excise Tax) $5,632 $8,886 $6,662 $10,585 $12,112
Cost of Sales $(3,815) $(5,936) $(4,628) $(7,357) $(6,858)
Gross Profit Before $1,816 $2,949 $2,034 $3,229 $4,895
Changes in Biological Assets
Unrealized gain from changes in fair
value of biological assets $2,406 $586 $1,389 $1,991 $2,761
Gross Profit $4,222 $3,535 $3,422 $5,220 $7,656
Total Operating Expenses $(5,169) $(4,645) $(4,048) $(4,739) $(4,756)
Income from Operations $(946) $(1,109) $(625) $481 $2,900
Adjusted EBITDA $(1,978) $(663) $(849) $(92) $1,650
Page 21Financial Position
(All numbers in 000’s)
Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
Current Assets $24,304 $20,552 $28,704 $27,966 $24,304
Capital Assets $20,501 $23,074 $27,795 $28,089 $20,501
Other Assets $20,541 $12,096 $10,791 $10,101 $20,541
Total Assets $65,347 $55,723 $67,291 $66,157 $65,347
Total Liabilities $19,279 $19,347 $32,236 $31,727 $35,848
Total Shareholder Equity $46,067 $36,376 $35,054 $34,727 $36,205
Working Capital $18,833 $15,446 $23,500 $22,816 $23,900
Access to Capital Under Credit Facility $7,206 $7,328 $10,400 $9,530 $7,730
Page 22Delta 9 Employee Overview
Production Retail Clinic Head Office
19%
1%
46%
33%
Total: 206
Page
23Capitalization Table
Type of Security Outstanding (MM)
COMMON SHARES 87.96
CONVERTIBLE DEBENTURES 9.75
WARRANTS
Exercisable @ $3.25 until June 28, 2020 8.52
Exercisable @ $1.33 until July 17, 2022 9.75
AGENT'S WARRANTS
Exercisable @ $2.70 until December 28, 2019 0.60
Exercisable @ $1.21 until July 17, 2022 0.68
STOCK OPTIONS
Exercisable @ $0.65 until October 31, 2022 1.97
Exercisable @ $2.77 until January 22,2023 0.52
Exercisable @ $2.30 until February 20, 2023 0.34
Exercisable @ $1.79 until September 12, 2023 2.35
Exercisable @ $0.55 until November 13, 2024 2.86
FULLY DILUTED 124.70
*Further details available on Sedar
Page
24Contact Us
Management is prepared to meet with interested Investors
Please coordinate with Investor Relations below:
Ian Chadsey
Vice President of Corporate Affairs
Delta 9 Cannabis Inc.
+1 (204) 898-7722
Ian.Chadsey@delta9.ca
Page
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