Entourage Health Reports Third Quarter 2022 Financial Results and Posts $13.4 Million in Total Revenue

• Company signs three-year supply agreement with HEXO Corp. to buy bulk cannabis for its expanding retail distribution and increased medical offerings
• Entourage to transition away from cultivation as it phases out growing facilities, generating annualized cost savings of over $10 million and anticipated margin accretion
• Steadily improves capital structure with upsized credit facility for increased liquidity
• Management to host conference call on November 15, 2022, at 10 a.m. Eastern Time

TORONTO, Nov. 15, 2022 (GLOBE NEWSWIRE) — Entourage Health Corp. (TSX-V:ENTG) (OTCQX:ETRGF) (FSE:4WE) (“Entourage” or the “Company”), a Canadian producer and distributor of award-winning cannabis products, announced today its financial results for the three and nine months ended September 30, 2022. The Company reported third quarter 2022 total revenue of $13.4 million and net revenue of $10.1 million, a total revenue decrease of 10% and net revenue decrease of 7.0% year-over-year from Q3 2021, and a 1.9% increase sequentially from Q2, 2022. The Company will host a conference call to discuss its financial and business highlights for the period on November 15, 2022 at 10 a.m. Eastern Time.

“In the third quarter, we continued to make substantial business and operational upgrades to meet the steady demand for our adult-use products – reflected in a notable sequential sales increase of 21% over Q2, which includes a 64% quarterly sequential increase in pre-roll sales,” said George Scorsis, CEO and Executive Chair. “Additionally, with our expanded medical offerings and 75% increase in patients over the last two years, it’s important we secure access to a consistent product pipeline to meet the distribution commitments of our premium, branded products. This newly announced supply agreement with HEXO ensures our renowned and award-winning genetics will continue to be part of our trusted brand line up of Color, Saturday and Starseed and our shareholders will appreciate the margin accretion as we optimize our operations and work to capture profitability in 2023.”

Summary of Results

*Adjusted EBITDA is not a recognized measurement under International Financial Reporting Standards (“IFRS”) and this data may not be comparable to data presented by other companies. Management defines Adjusted EBITDA as EBITDA adjusted to exclude interest, tax, and depreciation, stock compensation, fair value changes and other non-cash items, and non-recurring items. This data is furnished to provide additional information and does not have any standardized meaning prescribed by IFRS. The Company uses this non-IFRS measure to provide shareholders and others with supplemental measures of its operating performance. The Company also believes that securities analysts, investors and other interested parties, frequently use this non-IFRS measure in the evaluation of companies, many of which present similar metrics when reporting their results. As other companies may calculate Adjusted EBITDA differently than the Company, this metric may not be comparable to similarly titled measures reported by other companies. We caution readers that Adjusted EBITDA should not be substituted for determining net loss as an indicator of operating results, or as a substitute for cash flows from operating and investing activities. See the Company’s management’s discussion and analysis for the three and nine months ended Sept. 30, 2022 (the “Q3 2022 MD&A”) for a detailed reconciliation of Adjusted EBITDA to Net Income / (Loss). The Company’s financial statements for the three and nine months ended Sept. 30, 2022 and the Q3 2022 MD&A are available on SEDAR at www.sedar.com

Supply Agreement with HEXO Corp.

On November 15, 2022, Entourage announced it has executed a long-term cannabis supply agreement with HEXO Corp. (TSX: HEXO; NASDAQ: HEXO) (“HEXO“), a leading producer of high-quality cannabis products. Under the agreement, HEXO will provide bulk biomass and soft gel capsules to be marketed to patients and consumers under Entourage’s family of brands (“the Supply Agreement”). This will also ensure the Company’s proprietary genetics and award-winning cultivars are consistently available, and provides a back-up to previous product shortfalls experienced.

The Supply Agreement provides for minimum annual purchase commitments by Entourage, with year-over-year increases. The prices of all products supplied under the Supply Agreement are fixed but subject to limited and periodical adjustments depending on prevailing production costs and market pricing.  It includes exclusivity for HEXO in supplying the specified products, subject to certain exceptions including Entourage’s right to supply itself with such products.  The Supply Agreement has a three-year term, which can be renewed for an additional three years at Entourage’s election on the same terms and conditions, subject to increased minimum annual purchase commitments over the renewed term. For more details, read the joint press release issued by HEXO here.

A copy of the Supply Agreement will be made available on Entourage’s profile on SEDAR at www.sedar.com.

Phasing Out Strathroy and Guelph Cultivation Facilities

The Company also announced today that following an in-depth strategic review and analysis of its business operations, and after careful consideration, it has made the difficult decision to exit from cultivation as it outsources it to HEXO. A transition plan will be enacted over a five-month period as Entourage winds-down its greenhouse and tissue culture operations. The progressive exit is expected to impact about 35% of the Company’s current workforce, primarily cultivation staff based in Strathroy and Guelph, Ontario.

Mr. Scorsis added: “I want to expressly thank our esteemed, talented colleagues who have been pivotal to our start-up and growth as a Company. This decision was not taken lightly. We undertook a careful review of our operations in alignment with our business goals, costs and impact on our valued employees. Regretfully, we realized that given the current cannabis market dynamics of rising costs, and price compression, it is no longer viable for us to grow product we can procure at a fraction of the cost, at scale and with consistent quality. We are now focused on our core capabilities of product innovation, selling our branded products and expanding our retail and medical distribution network.”

Commencing in the first quarter of 2023, Entourage’s cultivation is expected to be fully outsourced and fulfilled by the Supply Agreement. Entourage’s finished goods will continue to be processed and shipped from its processing and distribution hub in Aylmer, Ontario.

Cost Structure Improvement, Sales and Revenue Highlights & Capital Structure Alignment

Entourage took disciplined steps to improve its inventory management and re-calibrated its non-accretive inventory. Additionally, the Company re-positioned its portfolio around selected market segments in alignment with distribution partners that is expected to realize larger savings, improved cost structures, accretive margins and increased revenue.

The Company also made significant strides to improve its capital structure, debt and liquidity position during the third quarter as it settled the repayment of its unsecured convertible debentures and obtained extensions to its secured credit facilities’ maturity dates for increased financial flexibility. Additionally, with the recent $30 million in additional funding capacity from an affiliate of the LiUNA Pension Fund of Central and Eastern Canada (“LPF”), the Company is well positioned and funded for future growth.

“In Q3, we noted a revenue miss resulting from the product shortfall we experienced last spring, which impacted our ability to fulfill all retail purchase orders in the period hence the need to partner with a reliable biomass supply source,” said Vaani Maharaj, CFO. “Also, in reviewing our cost structure, we implemented drivers to ensure disciplined cash and inventory management and a greater focus on operational cost improvements which we expect will generate annualized cost savings of about $10 million. We consistently demonstrated sustainable topline growth in the quarter as we retained our retail market share of about 2%, even as market conditions brought challenges. With the $30 million in financing from LPF and deferral of our debt payments, our year-to-date cash position is one of the best in the industry and we are well positioned to drive for profitable growth in 2023.”

Sales and Revenue Highlights

In Q3 2022, Color Cannabis continued to maintain its market positioning within the pre-rolls segment as a top seller with 4.2% market share captured. Additionally, Color was ranked 4th for overall pre-roll sales according to HyFire data for the period ending September 30, 2022.

As of September 2022, Entourage had distribution in 2,162 retail locations across Canada, or reaching 78% of the total retail stores according to Trellis measurement.

Revenue

Third Quarter 2022 Financial Highlights

• For the quarter ended September 30, 2022, Entourage recorded total revenue of $13.4 million, and net revenue of $10.1 million compared to $14.9 million and $10.7 million for the quarter ended September 30, 2021, a 9.0% and 7.0% year-over-year decline. The decrease was driven by a decline in adult use net revenue, mainly due to the temporary unavailability of the Company’s proprietary cultivars which reduced the case fill rate for adult use products, slightly offset by growth in medical revenue of $0.1 million or 5% over prior year.
• Gross profit (loss) before changes in fair value decreased by $0.7 million, or -18% in Q3 2022, over Q3, 2021 and gross margin before changes in fair value of 5.0% in Q3 2022 compared to 5.0% for Q2 2022 and -39% in Q3 2021. The decrease over the prior periods was a result of higher costs to produce while cultivation remediation and operational upgrades were finalized in the period.
• The weighted average cost per gram from clone to harvest of plants on hand was $0.92 in Q3 2022 compared to $0.56 in Q2 2022 and $0.32 in Q3 2021. Weighted average cost per gram of inventory on hand increased to $0.95 in Q3 2022 compared to $0.79 in Q2, 2022, and $0.55 in Q3, 2021 mainly due to increased cost of operations while cultivation remediation and operational upgrades were finalized in the period.
• Selling, General & Administrative expenses for Q3 2022 was $6.8 million, compared to $7.8 million in Q2 2022 and $4.9 million in Q3 2021. The increase over prior year was partly driven by an increase in selling, marketing and promotional expenses, salaries and benefits, consulting fees, office and administrative expenses and research and development and partially offset by a decrease in professional fees.
• Adjusted EBITDA increased by 29% to ($2.9 million) in Q3 2022, compared with ($4.1 million) in Q3 2021, an improvement of $1,182,405, primarily driven by transformation initiatives targeted at reducing expenses and creating operational efficiencies.

Corporate Highlights During and Subsequent to Third Quarter 2022

• Entourage announced the appointment of James Afara as the Company’s Chief Operating Officer (COO). His leadership comes at a pivotal time as the Company integrates all functional teams in cultivation, tissue culture, production, operations and supply chain under one leader, to align core competencies and resources for maximum output.
• In July 2022, Entourage announced debentureholders approved certain amendments to the outstanding 9.0% unsecured convertible debentures of the Company’s subsidiary CannTx Life Sciences Inc.
• Entourage announced the Canadian debut of The Boston Beer Company’s (BBC) new cannabis-infused iced tea beverages ‘TeaPot’. Entourage is the exclusive distributor of TeaPot to local retailers in Canada. Launched in select provinces as of July 2022, TeaPot is the first non-alcoholic, infused beverage crafted in partnership with Boston Beer’s cannabis subsidiary BBCCC Inc., and Peak Processing, its bottling partner.
• Later in July, Entourage announced the expansion of its medical offerings with the launch of new services, signing with HelloMD, a telehealth network to support the high volume of patient consultations. The Company also debuted its customized, first-of-its-kind digital Patient Treatment Plan for registered patients looking for tailored products along with dosing guidelines.
• In August 2022, Entourage announced it entered into an exclusive licensing agreement with U.S.-based Irwin Naturals, a renowned nutraceuticals and herbal supplement formulator. Under the agreement, Entourage will produce and distribute Irwin Naturals Cannabis products in Canada. This strategic partnership follows a recent release of recommendations for easing access to over-the-counter CBD products in Canadian pharmacies.
• Entourage signed four new union groups to its Starseed Medicinal program in August 2022, in partnership with leading benefits provider Union Benefits – the administrator of group benefits to over 12,000 members. With these additions, Entourage confirms it has 10 union groups, five insurance providers and 24 clinics.
• In September 2022, Entourage launched Syndicate, a direct-to-patient medical cannabis marketplace showcasing a portfolio of premium craft cannabis products sourced both in-house and from third-party micro-cultivators and producers. Syndicate complements the Company’s popular medical platform Starseed Medicinal which specializes as a medical cannabis provider to clients with insurance benefits coverage. With Syndicate, patients without insurance coverage can access a comprehensive catalogue of cannabis products at a competitive price point.
• In October 2022, Entourage launched a new suite of 15 innovative Color Cannabis and Saturday Cannabis products for its largest retail product call to date which includes the debut of ‘Color Calendar’, a unique take on an adult-use Advent calendar featuring 24 pre-rolls; ‘Saturday Cranberry Sauce’ vape; ‘Color Live Resin Soft Chews’ and ‘Color Infused Pre-Rolls’. Additionally, cannabis-infused ‘TeaPot’ beverages are now available in Ontario.
• On October 31, 2022, the Company amended its credit facility with LPF (the “Credit Facility”) and received its first tranche of funding under the amended Credit Facility, amounting to $15 million. The second tranche of $15 million will be received on January 31, 2023. The Credit Facility continues to bear an interest rate of 15.25% with the option, at the Company’s discretion, to capitalize interest in lieu of cash payments of interest and is set to mature on December 31, 2024.

Conference Call Details:

A conference call will be hosted by Mr. Scorsis and Ms. Maharaj, with management available for questions following opening remarks as follows:

Visit Entourage’s website here to access the latest Company updates.

About Entourage Health Corp.

Entourage Health Corp. is the publicly traded parent Company of Entourage Brands Corp. (formerly WeedMD RX Inc.) and CannTx Life Sciences Inc., licence holders producing and distributing cannabis products for both the medical and adult-use markets. The Company owns and operates a state-of-the-art hybrid greenhouse and processing facility located on 158-acres in Strathroy, ON; a fully licensed 26,000 sq. ft. Aylmer, ON processing facility, specializing in cannabis extraction; and a micropropagation, tissue culture and genetics centre-of-excellence in Guelph, Ontario. With its Starseed Medicinal medical-centric brand, Entourage has expanded its multi-channeled distribution strategy. Starseed’s industry-first, exclusive partnership with LiUNA, the largest construction union in Canada, along with employers and union groups complements Entourage’s direct sales to medical patients. Entourage’s elite adult-use product portfolio includes Color Cannabis, Saturday Cannabis and Royal City Cannabis Co.– sold across eight provincial distribution agencies. The Company also maintains strategic relationships in the seniors’ market and supply agreements with Shoppers Drug Mart. It is the exclusive Canadian producer and distributor of award-winning U.S.-based wellness brand Mary’s Medicinals sold in both medical and adult-use channels. Under a collaboration with The Boston Beer Company subsidiary, Entourage is also the exclusive distributor of cannabis-infused beverages ‘TeaPot’ in Canada, which launched in summer 2022, starting in select provinces.

For more information, please visit us at www.entouragehealthcorp.com

Follow Entourage and its brands on LinkedIn

Twitter: Entourage, Color Cannabis, Saturday Cannabis, Starseed & Royal City Cannabis Co.

Instagram: Entourage, Color Cannabis, Saturday Cannabis, Starseed & Royal City Cannabis Co.

For further information, investor or media inquiries, please contact:

Marianella delaBarrera
SVP, Communications & Corporate Affairs
416-897-6644
marianella@entouragecorp.com
investor@entouragecorp.com
media@entouragecorp.com

Forward Looking Information This press release contains “forward-looking information” within the meaning of applicable Canadian securities legislation which are based upon Entourage’s current internal expectations, estimates, projections, assumptions and beliefs and views of future events. Forward-looking information can be identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may”, “would” or “will” happen, or by discussions of strategy.

The forward-looking information in this news release is based upon the expectations, estimates, projections, assumptions and views of future events which management believes to be reasonable in the circumstances. Forward-looking information includes estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of fact. Forward-looking information necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; loss of markets; future legislative and regulatory developments; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the cannabis industry in Canada generally; the ability of Entourage to implement its business strategies; the COVID-19 pandemic; competition; crop failure; and other risks.

Any forward-looking information speaks only as of the date on which it is made, and, except as required by law, Entourage does not undertake any obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for Entourage to predict all such factors. When considering this forward-looking information, readers should keep in mind the risk factors and other cautionary statements in Entourage’s disclosure documents filed with the applicable Canadian securities regulatory authorities on SEDAR at www.sedar.com. The risk factors and other factors noted in the disclosure documents could cause actual events or results to differ materially from those described in any forward-looking information.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE