Focus on recapitalization, pipeline growth, and optimization of run stage in Oregon
PORTLAND, Ore., May 25, 2021 (GLOBE NEWSWIRE) — Chalice Brands Ltd., formerly Golden Leaf Holdings Ltd. (CSE:CHAL) (OTCQB:GLDFF) (“Chalice” or the “Company”), a premier consumer-driven cannabis company specializing in retail, production, processing, wholesale, and distribution, today announces its financial and operating results for the first quarter 2021. All amounts stated are in US Dollars unless otherwise noted.
Q1 2021 Financial Highlights:
- Record quarterly revenues from continuing operations of $5.5 million, a 18% year-over-year increase compared to $4.7 million for the same period in 2020.
- Gross profit for Q1 2021 of $2.5M or 45% gross margin compared to $1.7M or 37% gross margin in 2020. Gross margin improvements are due to increased sales of vertical products manufactured by Chalice, including 6.5% of retail sales of our own Bald Peak flower.
-
Adjusted EBITDA
1
of approximately 7% or $370,000, continues the trend from Q4 2020, demonstrating that Oregon covers corporate overhead costs.
Q1 2021 Accomplishments:
-
Entered a letter of intent which recently closed May 19, 2021 for a transformational acquisition of Homegrown Oregon, a chain of five retail stores in Oregon. Homegrown will add $11 million in annual revenues and over $2 million in Adjusted EBITDA
1
after optimization and vertical integration, representing a 50% growth from fiscal 2020 revenues of $21.9 million. -
On a pro-forma basis, had Homegrown been included, first quarter 2021 revenues for GLH would have been US$8.2 million with a 47% gross margin and Adjusted EBITDA
1
of approximately US$722,000. - Strengthened the Company’s balance sheet by restructuring its convertible debentures due November 16, 2021 to extend the term one year to November 16, 2022 and to reprice the conversion features from C$0.30 to US$0.06.
- Financed the Company’s focus on footprint growth in the Oregon market by completing two private placement transactions for total gross proceeds of $10.5 million.
-
Continued optimization of the Bald Peak grow facility resulting in consistent monthly output of 250lbs of finished flower and biomass.
Subsequent Events:
-
A record 412 million shareholders voted at the Company’s annual general meeting held on May 10
th
, 2021, with over 95% approving the Company’s name change to Chalice Brands Ltd. along with the share consolidation effective as of May 25, 2021. - C$3.7M of convertible debentures converted to equity during the first quarter of 2021, reducing balance outstanding to C$4.4M.
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On April 8, 2021 the Company announced its 80% acquisition of CBD skincare brand Fifth & Root with a national presence in over 400 retail outlets across the United States.
Jeff Yapp, Chief Executive Officer of Chalice Brands, commented, “Continued profitable operations and accretive acquisitions should set us up for a record breaking second half of 2021. We continue to look forward to favorable federal regulation changes while we grow Fifth & Root to showcase our brand portfolio nationally. Our team is energized and focused on growth as we remain disciplined in our allocation of capital.”
Fiscal First Quarter Ended March 31, 2021 Financial Results
For the three months ended March 31, 2021 (“Q1 2021”), total revenue from continuing operations was $5.5 million, as compared to $4.7 million for the same period in 2020 (“Q1 2020”). The 18% year-over-year increase largely reflects overall improvements in the Oregon retail and wholesale businesses.
Gross profit was $2.5 million, or 45% of total revenue for Q1 2021, compared with $1.7 million, or 37% of total revenue, in Q1 2020. Operating expenses were $2.7 million for Q1 2021, compared with $3.3 million in Q1 2020, an improvement of $534,000, or 18%. Operating expenses of $2.7 million in Q1 2021 were 49% of total revenue, compared with $3.3 million in Q1 2020, or 70% of total revenue. The reduction in operating expenses was driven largely by decreases in share-based compensation and general and administrative expenses. The reduction in operating expenses was due primarily to decreased salaries, wages and share-based compensation.
Adjusted EBITDA
1
was approximately $370,000 for Q1 2021, compared with a loss of $700,000 for Q1 2020, continuing the positive EBITDA trend since Q4 2020 demonstrating that Oregon covers corporate overhead costs. This measure is primarily driven by the increase in gross profit and the reduction in cash-based operating expenses for the period. The Company considers Adjusted EBITDA an important operational measure for the business and look to grow this important measure as the business scales.
The Company’s interim financial statements for the first quarter 2021 and related MD&A have been filed on SEDAR and are available for review.
1
Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization, non-cash compensation expenses, one-time transaction fees and other non-cash charges that include impairments, start-up costs and extraordinary operational curtailment charges and excluding fair value changes related to biological assets.
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CHALICE BRANDS LTD. |
||||||||
| Interim Condensed Consolidated Statements of Financial Position (Unaudited) | ||||||||
| As at March 31, 2021 and December 31, 2020 | ||||||||
| (Expressed in U.S. dollars) | ||||||||
| March 31, 2021 | December 31, 2020 | |||||||
|
CURRENT |
||||||||
| Cash | $ | 10,475,394 | $ | 905,149 | ||||
| Accounts receivable | Note 5 | 272,288 | 108,308 | |||||
| Other receivables | Note 5 | 593,133 | 737,185 | |||||
| Notes receivable | 919,488 | 919,488 | ||||||
| Sales tax recoverable | 35,673 | 89,033 | ||||||
| Biological assets | Note 6 | 511,277 | 455,045 | |||||
| Inventory | Note 6 | 2,818,333 | 2,304,501 | |||||
| Prepaid expenses and deposits | 573,137 | 555,597 | ||||||
| Total current assets | 16,198,723 | 6,074,306 | ||||||
| Property, plant and equipment | Note 7 | 2,220,922 | 2,361,357 | |||||
| Other receivables | Note 5 | 656,718 | 656,718 | |||||
| Right-of-use assets, net | Note 8 | 4,002,018 | 4,132,035 | |||||
| Intangible assets | Note 9 | 10,737,423 | 10,737,423 | |||||
| Goodwill | Note 9 | 4,056,172 | 4,056,172 | |||||
| Note 31 | DTA | |||||||
| Total assets | $ | 37,871,976 | $ | 28,018,011 | ||||
| LIABILITIES | ||||||||
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CURRENT |
||||||||
| Accounts payable and accrued liabilities | $ | 3,652,595 | $ | 3,404,425 | ||||
| Interest payable | 48,138 | 28,100 | ||||||
| Income taxes payable | 1,263,604 | 1,003,604 | ||||||
| Deferred income tax payable | 55,039 | 55,039 | ||||||
| Sales tax payable | 213,856 | 217,789 | ||||||
| Current portion of long-term debt | Note 11 | 18,189 | 22,171 | |||||
| Notes payable | Note 10 | 48,414 | 119,533 | |||||
| Convertible debentures carried at fair value | Note 10 | – | 5,575,273 | |||||
| Lease liability | Note 11 | 993,053 | 949,496 | |||||
| Total current liabilities | 6,292,888 | 11,375,430 | ||||||
| Long-term debt | Note 11 | 53,501 | 134,675 | |||||
| Long-term lease liability | Note 11 | 4,054,491 | 4,372,395 | |||||
| Warrant liability | Note 12 | 5,154,149 | – | |||||
| Convertible debentures carried at fair value | Note 10 | 2,805,895 | – | |||||
| Consideration payable – cash portion | Note 11 | 1,872,654 | 1,824,533 | |||||
| Consideration payable – equity portion | Note 11 | 4,838,780 | 4,838,780 | |||||
| Total liabilities | 25,072,358 | 22,545,813 | ||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Share capital | Note 13 | 161,085,272 | 149,754,502 | |||||
| Warrant reserve | Note 14 | 204,484 | 1,079 | |||||
| Convertible debenture equity component | Note 12 | 374,437 | ||||||
| Share option reserve | Note 15 | 3,763,065 | 4,070,474 | |||||
| Contributed surplus | 2,329,997 | 2,329,997 | ||||||
| Deficit | (154,957,637 | ) | (150,683,854 | ) | ||||
| Total shareholders’ equity | 12,799,618 | 5,472,198 | ||||||
| Total liabilities and shareholders’ equity | $ | 37,871,976 | $ | 28,018,011 | ||||
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CHALICE BRANDS LTD. |
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| Interim Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | ||||||||
| For the three months ended March 31, 2021 and 2020 | ||||||||
| (Expressed in U.S. dollars) | ||||||||
| For the three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | ||||||||
| Product sales | Note 20 | $ | 5,033,314 | $ | 4,239,582 | |||
| Royalty and other revenue | Note 20 | 462,141 | 430,722 | |||||
| Total Revenue | 5,495,455 | 4,670,304 | ||||||
| Inventory expensed to cost of sales | Notes 6, 20 | 3,180,925 | 2,964,192 | |||||
| Gross margin, excluding fair value items | 2,314,530 | 1,706,112 | ||||||
| Fair value changes in biological assets included | (84,329 | ) | – | |||||
| in inventory sold | ||||||||
| Gain on changes in fair value of biological assets | Notes 6, 20 | (81,763 | ) | (20,714 | ) | |||
| Gross profit | 2,480,622 | 1,726,826 | ||||||
| Expenses | ||||||||
| General and administration | 2,134,017 | 2,045,274 | ||||||
| Share based compensation | Note 15 | 69,050 | 129,579 | |||||
| Sales and marketing | 316,123 | 535,026 | ||||||
| Depreciation and amortization | Note 7 | 224,931 | 568,345 | |||||
| Total expenses | 2,744,121 | 3,278,224 | ||||||
| Loss before items noted below | (263,499 | ) | (1,551,398 | ) | ||||
| Interest expense | Notes 10, 11 | 429,221 | 551,101 | |||||
| Transaction costs | 34,620 | – | ||||||
| Other loss (income) | 84,466 | (20,617 | ) | |||||
| Loss on change in fair value of warrant liabilities | Note 12 | 2,974,493 | – | |||||
| Gain on change in fair value of convertible debentures | Note 12 | 172,956 | – | |||||
| Loss on debt extinguishment | Note 10 | 88,079 | – | |||||
| Loss before income taxes | (4,047,334 | ) | (2,081,882 | ) | ||||
| Current income tax expense | 275,000 | 358,284 | ||||||
| Net loss | $ | (4,322,334 | ) | $ | (2,440,166 | ) | ||
| Comprehensive loss | $ | (4,322,334 | ) | $ | (2,440,166 | ) | ||
| Basic and diluted loss per share from continuing operations | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Weighted average number of common shares outstanding | 1,117,610,381 | 873,783,951 | ||||||
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CHALICE BRANDS LTD. |
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| Interim Condensed Consolidated Statements of Cash Flows (Unaudited) | |||||||||
| For the three months ended March 31, 2021 and 2020 | |||||||||
| (Expressed in U.S. dollars) | |||||||||
| For the three months ended March 31, | |||||||||
| 2021 | 2020 | ||||||||
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Cash (used in) provided by: |
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OPERATING ACTIVITIES: |
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| Net loss | $ | (4,322,334 | ) | $ | (2,440,166 | ) | |||
| Depreciation of property, plant and equipment | Note 7 | 257,240 | 369,360 | ||||||
| Lease amortization | 204,385 | 198,985 | |||||||
| Interest expense | 429,221 | 416,146 | |||||||
| Income tax expense | 275,000 | 382,326 | |||||||
| Share based compensation | Note 15 | 69,050 | 129,579 | ||||||
| Transaction costs | 34,620 | – | |||||||
| Loss on debt extinguishment | Note 10 | 88,079 | – | ||||||
| Loss on fair value adjustment to warrant liabilities | Note 10 | 2,974,493 | – | ||||||
| Loss on fair value adjustment to debt | 172,956 | – | |||||||
| Gain on fair value of biological assets | Note 6 | (166,092 | ) | (20,714 | ) | ||||
| Other non-cash transactions | (214,346 | ) | 41,338 | ||||||
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Changes in working capital items |
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| Accounts receivable | Note 5 | (53,452 | ) | (92,246 | ) | ||||
| Other receivables | Note 5 | 33,524 | (4,372 | ) | |||||
| Sales tax recoverable | 53,360 | (11,465 | ) | ||||||
| Accounts payable and accrued liabilities | 154,256 | 570,573 | |||||||
| Sales tax payable | (3,933 | ) | (176,238 | ) | |||||
| Biological assets | Note 6 | 109,860 | (75,136 | ) | |||||
| Inventory | Note 6 | (349,486 | ) | (740,465 | ) | ||||
| Prepaid expenses and deposits | (17,540 | ) | (233,140 | ) | |||||
| Cash used in operating activities | (271,139 | ) | (1,685,635 | ) | |||||
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INVESTING ACTIVITIES |
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| Purchase of property, plant and equipment | Note 7 | (131,824 | ) | (66,364 | ) | ||||
| Cash used in investment activities | (131,824 | ) | (66,364 | ) | |||||
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FINANCING ACTIVITIES |
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| Issuance of common shares | Note 13 | 10,700,119 | – | ||||||
| Payment of share issuance costs | (200,063 | ) | – | ||||||
| Payment of lease liabilities | (310,573 | ) | (149,822 | ) | |||||
| Repayment of long-term debt | Note 11 | (156,275 | ) | (6,231 | ) | ||||
| Interest paid | Note 11 | (60,000 | ) | (80,048 | ) | ||||
| Other non-cash transactions | 0 | – | |||||||
| Cash provided (used) in financing activities | 9,973,208 | (236,101 | ) | ||||||
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Decrease in cash during the period |
9,570,245 | (1,988,100 | ) | ||||||
|
Cash, beginning of period |
905,149 | 3,531,202 | |||||||
|
Cash, end of period |
$ |
10,475,394 |
$ |
1,543,102 |
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| See accompanying notes to these interim condensed consolidated financial statements | |||||||||
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Adjusted EBITDA |
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| For the three months ended | ||||||||
| March 31, 2021 | March 31, 2020 | |||||||
| Loss before income taxes | $ | (4,047,334 | ) | $ | (2,081,882 | ) | ||
| Adjustments: | ||||||||
| Net impact, fair value of biological assets | (81,763 | ) | (20,714 | ) | ||||
| Depreciation and amortization | 461,625 | 831,230 | ||||||
| Fair value changes on debt and equity instruments | 3,235,528 | – | ||||||
| Share based compensation | 69,050 | 129,579 | ||||||
| Interest expense, net | 429,221 | 551,101 | ||||||
| Transaction costs | 34,620 | – | ||||||
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Nevada curtailment expenses and other (1) |
73,252 | – | ||||||
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Start-up costs (2) |
110,528 | – | ||||||
| Impairments and other | 84,466 | (20,617 | ) | |||||
| Adjusted EBITDA income (loss) | $ | 369,193 | $ | – | $ | (611,303 | ) | |
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(1) Losses experienced in Nevada due to unexpected shut down and facility abandonment due to COVID-19 |
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(2) Write-off of significant start up costs related to the Company’s California business |
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Investor Conference Call
Chalice Brands management, led by Mr. John Varghese, Executive Chairman, and Mr. Jeff Yapp, Chief Executive Officer, will hold a conference call on Tuesday, May 25
th
at 4:30 PM EDT to report its financial results for first quarter 2021.
REGISTRATION:
Please visit
click here to register
and stream the conference call, or use the following dial-in information as follows:
Program Title:
Chalice Brands – First Quarter 2021 Earnings Call
Canada & US: 1-877-407-0784
International: 1-201-689-8560
Once dialed in, participants must request the “Chalice Brands – First Quarter 2021 Earnings Call”.
Replay
A replay of the audio webcast will be available online on the Company’s website at
investors.chalicebrandsltd.com
where it will be archived for one year. A replay of the conference call will also be available at 7:30 PM EDT on May 25, 2021 and will be accessible until June 8
th
, 2021. For access to replay:
Canada/US:
1-844-512-2921
International:
1-412-317-6671
Conference PIN:
13719831
About Chalice Brands Ltd., Formerly Golden Leaf Holdings Ltd.
Chalice Brands is a premier consumer-driven cannabis company specializing in production, processing, wholesale, distribution and retail, with seven dispensaries in Portland, Oregon. The Company is committed to developing a dynamic portfolio built around the recognized brands of Chalice Farms, with a focus on health and wellness. Chalice operates nationally through Fifth and Root and has operations in Oregon and California. Visit
investors.chalicebrandsltd.com
for regular updates.
I
nvestor Relations:
John Varghese
Executive Chairman
Chalice Brands Ltd.
971-371-2685
[email protected]
Neither the Canadian Securities Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Exchange) accepts responsibility for the adequacy or accuracy of this release.
Disclaimer: This press release contains “forward-looking information” within the meaning of applicable securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the Company’s future business operations, the opinions or beliefs of management and future business goals. Generally, forward looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. These risks include but are not limited to general business, economic and competitive uncertainties, regulatory risks, market risks, risks inherent in manufacturing and retail operations such as unforeseen costs and production shutdowns, difficulties in maintaining brand loyalty, and other risks of the cannabis industry. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward looking information. Forward-looking information is provided herein for the purpose of presenting information about management’s current expectations relating to the future and readers are cautioned that such information may not be appropriate for other purpose. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws. This press release does not constitute an offer of securities for sale in the United States, and such securities may not be offered or sold in the United States absent registration or an exemption from registration or an exemption from reg
istration.
Adjusted EBITDA Disclaimer: Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation, amortization, non‐cash compensation expenses, one-time transaction costs and other non-cash charges that include impairments. Adjusted EBITDA is a non‐GAAP financial measure which does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers. The Company considers this Adjusted EBITDA an important figure to show the true day to day operational picture of the business. It should not be considered in isolation as a substitute for measures of performance prepared in accordance with the IFRS.
