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Neptune Wellness Solutions loss widens in Q1; CFO Mario Paradis steps down

Neptune Wellness Solutions’ (NASDAQ: NEPT) net loss increased to C$6.5 million for the first quarter 2020 ended June 30, 2019, from net loss of C$4.1 million in the prior-year quarter. Revenue in Q1 dropped to C$4.4 million from last year’s revenue of C$5.2 million. Neptune also announced that CFO Mario Paradis will be stepping down. Neptune’s stock was down about 5% in the pre-market trading hours.

The Quebec, Canada-based firm announced that its CFO Mario Paradis has decided to quit. The company has begun a search for a new CFO and Mario will remain CFO of Neptune to help with the transition.

On June 7, 2019, Neptune announced a three-year contract with Tilray (NASDAQ: TLRY) for the extraction of cannabinoids from cannabis and hemp biomass. Tilray has committed to provide minimum biomass volumes of 125,000 kg over a three-year period.

Related: Wider-than-expected Q2 loss sends Tilray stock lower

On June 12, 2019, Neptune announced a three-year contract with The Green Organic Dutchman (TGOD) for a minimum of 230,000 kg of cannabis and hemp biomass.

“We expect that our new contracts with Tilray and TGOD will offer strong and consistent revenue over the next three years. The health and wellness market provides a significant opportunity in which cannabis and hemp extracts will play an important role in fulfilling customers’ needs for improved quality of life,” said the new CEO Michael Cammarata who was appointed on July 8, 2019, to replace Jim Hamilton.

Related: Village Farms (VFF) swings to profit in Q2

Neptune closed the acquisition of the assets of U.S.-based hemp processor SugarLeaf Labs and Forest Remedies LLC. The initial consideration paid at closing consisted of US$18 million or US$12 million in cash and US$6 million in common shares.

By achieving certain annual adjusted EBITDA and other performance targets, an additional consideration of up to US$132 million would be paid by Neptune over each of the next three years as a combination of cash and shares for a maximum aggregate purchase price of up to US$150 million.

Read: Aphria stock jumps after reporting better-than-expected Q4 results

In Canada, near-term capacity constraints are expected to be resolved in September with the commissioning of ethanol extraction equipment, which should increase Neptune’s capacity from current levels of 30,000 kg of biomass to 200,000 kg of biomass processed annually. Phase IIIA expansion is progressing as planned with completion expected before the end of calendar 2019 with Health Canada licensing expected thereafter.

In the US, the capacity of SugarLeaf plant is expected to reach 1.5 million kg by the end of December, providing Neptune with substantial capacity to supply its B2B customers with hemp extracts ingredients and finished products. SugarLeaf is expected to contribute to Neptune’s revenue growth starting in the second quarter of fiscal 2020.

Neptune announced in June that its wholly owned subsidiary, 9354-7537 Quebec Inc., has received a notification letter from Health Canada indicating that all requested license amendments have been approved.

The scope of the amendment received from Health Canada permits expansion of cannabis operation areas to include an additional extraction room where Neptune will perform cold ethanol extraction, which is expected to increase Neptune’s input capacity from 30,000 kg to 200,000 kg.

“Given that we only recently acquired SugarLeaf and are still in the process of integrating those operations, we estimate that, based on a conservative capacity utilization scenario of 50%, our two facilities could support in excess of C$450 million in annual revenues,” commented Cammarata.

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