Canadian partner writes down value of Epican
THE CANADIAN partner in Epican Medicinals Limited has scaled back its market expectations for Jamaica and shelved plans to export weed from the island.
The Green Organic Dutchman, TGOD, disclosed in its March financials a CDN$4.3-million ($430-million) non-cash impairment on the Epican investment.
The impairment reflects an expectation that TGOD’s investments are unlikely to be recovered in full in Jamaica and Canada due to market conditions. The company did not describe the precise factors around the writedown, and Epican has not responded to requests for comment. However, the cannabis market is experiencing increased formal and informal competition and prices are under pressure.
“The balance of CDN$4.3 million non-cash impairment charge related to our investment in Epican in Jamaica, due to market conditions there and our strategic decision to forgo the expansion of proposed cultivation activities for export, in order to focus on our Canadian operations,” said Sean Bovingdon, chief financial officer, at TGOD in an investor conference call.
Instead of importing cannabis from Jamaica, TGOD will sell product from its recently finished facility at Ancaster in Canada and will also import hemp from Europe.
“While 2019 was a challenging year for the entire sector, we have made significant progress on the operational front and adjusted our construction and operating plan to preserve shareholder capital in light of changing market conditions,” commented Brian Athaide, CEO of TGOD, in the preface to the financials.
Epican generated CDN$2.4 million ($240 million) in revenue in the 2019 calender year, but recorded a net loss of CDN$2.2 million, according to TGOD. The Jamaican company’s total assets were estimated at CDN$20.3 million. Epican’s carrying value on TGOD’s books dipped from CDN$8.7 million to CDN$2.8 million after factoring the impairment and its share of net losses.
In July 2018, TGOD purchased 5.76 million shares of Epican in exchange for 49 per cent of the company, for cash consideration of CDN$8.3 million. At the time, Epican was fairly valued at CDN$1.5 million.
TGOD booked a CDN$145 million net loss for the December 2019 fourth quarter that comprised mostly of impairments, which totalled CDN$127 million across its holdings. Over the full financial year, the company recorded losses of CDN$196 million. The net loss was more than 10 times the revenue generated over the period.
“Despite taking impairment charges this quarter, as we continue to evaluate financing options, we note that the value of our assets still far exceeds our liabilities,” said Athaide.
TGOD made quarterly revenue of CDN$3.25 million, and CDN$11.2 million for the year. The December quarterly sales were up by 56 per cent year-on-year. TGOD’s sales consisted of hemp-derived product sales in Europe, amounting to CDN$2.6 million in the quarter and CDN$9.88 million for the year; and cannabis products in Canada of CDN$690,000 for the quarter and CDN$1.28 million for the full year.
Company executives acknowledged that revenues were roughly one-quarter behind projections, but said they reflected an overall downturn in the industry, mainly due to increased competition. Its products now include infusers, teas and vapes.