Auxly Cannabis Group Inc. (OTCQX:CBWTF) (TSX:XLY) reported its financial results on Monday for the three and six months ended June 30, 2022.

The company showed "better-than-expected sales trends and margin improvement," Cantor Fitzgerald's analyst Pablo Zuanic said in his recent note.

The Analyst

Zuanic retained the Neutral rating on the company's stock and a 12-month price target of $0.08.

The Thesis

The analyst expressed concerns about the net debt of $193 million that the company reported, calling it "the highest in our coverage of Canadian LPs."

The debt includes $106 million in convertible debt recently extended to Sep 2024, with a price of $0.81, held by Imperial Brands [IMB.LON/NC]).

Other highlights from Auxly's Q2 earnings report - that Zuanic highlighted - include 21% quarter-over-quarter growth in net sales, being ahead of the 13% decline projected by the Hifyre scanner data, as well as adjusted gross margins improvement of 200bps quarter-over-quarter to 25%.

Adjusted EBITDA for the period was negative $4 million, representing an improvement decrease from the same period of 2021.

Hugo Alves, the company's CEO, said their key objective is adjusted EBITDA profitability in 2022.

"We will continue to focus on cost control and margin enhancement through a continued process of improvements and investments in automation to further support" the goal's achievement, Alves said.

CBWTF Price Action

Auxly's shares traded 11.08% lower at $0.059 per share at the market close on Monday.

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