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$SNNVF 2017 Financial Results Amid Corporate Medical Cannabis Production Successes

May 7, 2018

  • Company selected and broke ground on a 126-acre site in Okanagan Falls, British Columbia, to build its planned 700,000 square foot Sunniva Canada Campus
  • Company commences extraction production, expected to produce 500 pounds per day of bio mass at California facility
  • 489,000-square-foot California facilities to complement its planned 700,000-square-foot facilities in Canada
  • Canadian product outlets include supply agreement with Canopy Growth Corp. and patients at acquired Canadian medical cannabis clinics

Rising medical cannabis products and services provider Sunniva Inc. (CSE: SNN) (OTCQX: SNNVF) issued a report on April 30 detailing its financial results from fiscal year 2017 (http://cnw.fm/t48SZ). This update arrived on the back of month-long successes, including a bought deal public offering of C$27.8 million, selection of its 126-acre Canadian campus, reception of temporary licensing for the state-of-the-art greenhouse cultivation facilities in Cathedral City, California, and news that President Donald Trump’s administration expects to sustain state-based marijuana legalization efforts in the United States (http://cnw.fm/b6Mfo).

An earnings call on May 1 highlighted that Sunniva began extraction production at the California APL facility in April following the company’s first year of revenue generation through its acquisitions of Canadian medical cannabis clinic network Natural Health Services (NHS), which has more than 95,000 registered active patients, and vaporizer subsidiary Full-Scale Distributors, LLC, which operates as the Vapor Connoisseur brand.

“Our goal is to become a low-cost, high-quality, large-scale producer and manufacturer of medical-grade cannabis products,” Sunniva CEO Anthony Holler said during the conference call. “We intend to accomplish this by building large-scale, purpose-built, Good Manufacturing compliant greenhouse facilities. These facilities will incorporate the latest technologies for environmental control and automation, which will allow us to have consistency in production. … As a management team, we remain committed in our focus on execution to support our business strategy and to deliver shareholder value.”

The California extraction facility is expected to process 500 pounds per day of bio mass for cannabinoid extraction, Holler said, and the company expects related revenue generation to begin in May as it negotiates contracts with a variety of cannabis industry brands for cannabis oil, capsules, sprays, tinctures and creams, as well as custom-made vaporization cartridges. Production of premium cannabis at the Sunniva Campus is expected to increase from a rate of 60,000 kilograms annually to about 100,000 kilograms annually, once phase II is complete.

The California APL extraction facility joins phase I of Sunniva’s in-development 325,000 square foot greenhouse and its planned 700,000 square foot greenhouses slated for its Canada Campus, which is in the final review stage for a license from Health Canada.  The company announced on May 3 that it has selected and broke ground on the 126-acre Okanagan Falls, British Columbia, site to build its Sunniva Canada Campus.  The campus has an overall estimated project budget of approximately C$120 million, which does not include the purchase or lease cost of the land that will underlie the facility (http://cnw.fm/7M5kX).

“In California, we have significant first-mover advantage. We will be the first operational large-scale facility producing pharmaceutical-grade cannabis free of pesticides and other harmful contaminants,” Holler said, adding that current estimates peg some 85 percent of California’s cannabis products with contaminants, including pesticides.

“There is currently very little compliant supply. Obviously, that gives us a significant advantage,” Holler added. “That’s led to discussions with major distributors and major brands in California. … What some of these groups are finding is, they’re getting their product from somewhere; they’re assuming it’s compliant, and then it turns out not to be.”

Holler estimated that the cost of production in California will be below $1 per gram once the facility is fully operation, “as we realize the significant economies of scale, utilizing the energy of the sun and our largely automated climate-controlled facility.”

Sunniva’s wholly owned subsidiary, NHS, has agreements with 27 licensed producers in Canada, and its acquisition of a growing number of NHS clinics provides the company with a steady stream of clients for its cannabinoid products. In addition to its agreement with another licensed producer (LP), Sunniva will produce its own brand for market but plans to remain “agnostic” in terms of brand preference for patients at the clinics, Holler said, noting that the expected number of medical cannabis clients is expected to outpace Sunniva’s own brand production rate.

A significant development in terms of the supply agreement came in February, when Canadian LP Canopy Growth Corp. (TSX: WEED) (OTC: TWMJF) entered into a definitive agreement with Sunniva to purchase, through Sunniva’s wholly-owned subsidiary Sunniva Medical Inc., 45,000 kilograms of premium quality cannabis each year beginning with a two-year period that commences in the first quarter of 2019.

Sunniva’s U.S. subsidiary holds eight 10,000-square-foot cultivation licenses, two manufacturing licenses, one 22,000 square foot cultivation license, one 22,000 square foot nursery license and one 10,000 square foot nursery license. The company will also lease seven 22,000 square foot cultivation bays to its selected licensed tenants (http://cnw.fm/j06zI).

Sunniva began trading publicly on the Canadian Securities Exchange in January and the U.S. OTCQX Market in February. During 2017, the company reported C$16.1 million in revenues, two-thirds of which came from the NHS clinics, according to the April 30 financial report. The company noted an overall net loss of C$18.5 million as it dealt primarily with expenses related to its growth, including the acquisition of NHS and FSD. The company also reported that deferred revenue to help offset those expenses increased to $0.7 million, primarily resulting from customer deposits on sales of merchandise.

For more information, visit the company’s website at www.Sunniva.com

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