Chalice Brands Ltd. Reports over 300% improvement in Adjusted EBITDA (1) as part of Record Third Quarter 2021 Financial Results
Third Quarter 2021 Revenues of $8.0 Million Marks another Record and Fourth Consecutive Quarter of Positive Adjusted EBITDA(1)
PORTLAND, Ore., Nov. 23, 2021 (GLOBE NEWSWIRE) — Chalice Brands Ltd. (CSE: CHAL) (OTCQB: CHALF) (“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 third quarter 2021. All amounts stated are in US Dollars unless otherwise noted.
Third Quarter Highlights:
- Record quarterly revenues from continuing operations of $8.0 million, a 29% year-over-year increase compared to $6.2 million for the same period in 2020, in part driven by a full quarter of revenues from the Company’s Homegrown Oregon stores.
- 63.7% growth in gross profit for third quarter 2021 of $3.6 million, or 45% gross margin, compared to $2.2 million or 36% gross margin for the same period in 2020. Gross margin improvements are due to an increased share of our vertical product growth and retail sales of our own Bald Peak flower.
- Chalice branded products in the Homegrown stores have risen in the quarter from 3% pre-acquisition to 24%. In the Chalice branded retail stores, Chalice products reached a high of over 43% for the quarter compared to 20% for the same period in 2020, demonstrating a 115% year-over-year growth.
- Record positive Adjusted EBITDA1 of approximately $600,000 represents the fourth consecutive quarter of achieving positive Adjusted EBITDA1 and is over a 300% improvement compared to a loss of $260,0001 for the same period in 2020.
- Record year-to-date revenue of $20.4 million for the nine months ended September 30, 2021, an increase of 25% compared to $16.4 million for the same period in 2020 and almost matching total revenue for fiscal 2020 of $21.9 million.
- For the nine months ended September 30, 2021, Adjusted EBITDA1 was approximately $1.6 million, compared with a loss of approximately $1.9 million for the same period in 2020.
- On September 16, the Company announced its Cannabliss & Co. retail acquisition from Acreage Holdings Inc. of four retail dispensaries located in Portland, Eugene, and Springfield, Oregon for total consideration of US$6.5 million. The Company continues to operate these stores under a management services agreement pending OLCC approval.
- Subsequent to third quarter, on October 7, the Company announced the promotion of Meghan Miller to Chief Operating Officer (COO).
“The third quarter was another outstanding performance for Chalice as we accomplished record revenues and our most profitable quarter to date. During the quarter, we closed a transformative acquisition in Oregon of four retail dispensaries from Acreage, bolstering our retail footprint by 130% in the fiscal year. By maintaining our focus on profitable operations and accretive acquisitions, Chalice has immediately impacted the vertical contribution within the new stores ahead of schedule. The Chalice team is motivated by our strategic mission to capitalize on untapped opportunities in Oregon and other markets with significant room for consolidation, synergies, and vertical leverage,” commented Jeff Yapp, President and Chief Executive Officer of Chalice Brands.
Fiscal Third Quarter Ended September 30, 2021 Financial Results
For the three months ended September 30, 2021 (“Q3 2021”), total revenue from continuing operations was $8.0 million as compared to $6.2 million for the same period in 2020 (“Q3 2020”). The 29% year-over-year increase is strongly attributed to a full quarter realizing Homegrown Oregon sales. Gross profit was up 63.7% compared to Q3 2020 at $3.6 million, or 45% of total revenue for Q3 2021, compared with $2.2 million, or 36% of total revenue, in Q3 2020.
Adjusted EBITDA1 was approximately $600,000 for Q3 2021, compared with a loss of approximately $260,000 for Q3 2020, continuing the positive trend since fourth quarter 2020. This move to profitability was primarily driven by continued cost controls, increased contribution from Homegrown, and increased vertical product contribution in both Chalice and Homegrown. The Company considers Adjusted EBITDA an important operational measure for the business and looks to continue to grow this important metric as the business scales.
For the nine months ended September 30, 2021, total revenue from continuing operations was $20.4 million, as compared to $16.4 million for the same period in 2020.
For the nine months ended September 30, 2021, gross profit was $9.2 million, or 45% gross profit margin compared to $5.1 million or 31% for the same period in 2020.
For the nine months ended September 30, 2021, Adjusted EBITDA1 was approximately $1.6 million, compared with a loss of approximately $1.9 million for the same period in 2020.
The Company’s interim financial statements for the third quarter 2021 and related MD&A have been filed on SEDAR and are available for review.
“Chalice is proud to have accomplished record revenue growth and profitable operations for four consecutive quarters. We remain diligent in executing our conservative capital allocation strategy which will ensure the Company is well positioned and prepared for both short and long-term growth and expansion. Despite the ongoing challenges facing the cannabis industry, our financial performance has never been stronger. For the remainder of the year and beyond, we will continue to focus on strengthening Chalice in a sustainable and profitable manner,” noted John Varghese, Executive Chairman.
1Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization, non-cash compensation expenses, non-recurring promotional and investor relations expenses, one-time transaction fees and other non-cash charges that include impairments, start-up costs and extraordinary operational curtailment charges. Prior period amounts have been adjusted for the inclusion of fair value changes related to biological assets effective for Q3 2021 and forward.
| CHALICE BRANDS LTD. | |||||||||
| Interim Condensed Consolidated Statements of Financial Position (Unaudited) | |||||||||
| As at September 30, 2021 and December 31, 2020 | |||||||||
| (Expressed in U.S. dollars) | |||||||||
| September 30, 2021 | December 31, 2020 | ||||||||
| CURRENT | |||||||||
| Cash | $ | 491,170 | $ | 905,149 | |||||
| Accounts receivable | Note 5 | 323,793 | 108,308 | ||||||
| Other receivables | Note 5 | 414,970 | 737,185 | ||||||
| Notes receivable | 1,576,206 | 919,488 | |||||||
| Sales tax recoverable | 32,813 | 89,033 | |||||||
| Biological assets | Note 6 | 566,655 | 455,045 | ||||||
| Inventory | Note 6 | 4,603,057 | 2,304,501 | ||||||
| Prepaid expenses and deposits | 618,213 | 376,080 | |||||||
| Total current assets | 8,626,877 | 5,894,789 | |||||||
| Property, plant and equipment | Note 7 | 2,621,088 | 2,361,357 | ||||||
| Other receivables | Note 5 | 842,440 | 836,235 | ||||||
| Right-of-use assets, net | Note 8 | 5,307,935 | 4,132,035 | ||||||
| Intangible assets, net | Note 9 | 13,568,738 | 10,737,423 | ||||||
| Goodwill | Note 9 | 13,398,793 | 4,056,172 | ||||||
| Total assets | $ | 44,365,871 | $ | 28,018,011 | |||||
| LIABILITIES | |||||||||
| CURRENT | |||||||||
| Accounts payable and accrued liabilities | $ | 4,070,488 | $ | 3,432,525 | |||||
| Interest payable | 43,619 | – | |||||||
| Income taxes payable | 2,046,841 | 1,003,604 | |||||||
| Deferred income tax payable | 510,007 | 55,039 | |||||||
| Sales tax payable | 652,796 | 217,789 | |||||||
| Current portion of long-term debt | Note 12 | 25,846 | 22,171 | ||||||
| Current portion of notes payable | Note 12 | 417,338 | 119,533 | ||||||
| Convertible debentures carried at fair value | Note 10 | – | 5,575,273 | ||||||
| Consideration payable – cash portion | Note 12 | 713,280 | – | ||||||
| Consideration payable – equity portion | Note 12 | 4,566,390 | – | ||||||
| Lease liability | Note 11 | 1,054,621 | 949,496 | ||||||
| Total current liabilities | 14,101,226 | 11,375,430 | |||||||
| Notes payable | Note 12 | 1,706,243 | – | ||||||
| Long-term debt | Note 12 | 119,683 | 134,675 | ||||||
| Long-term lease liability | Note 11 | 5,408,452 | 4,372,395 | ||||||
| Warrant liability | Note 13 | 1,627,495 | – | ||||||
| Derivative liability | Note 10 | 170,742 | – | ||||||
| Convertible debentures carried at amortized cost | Note 10 | 2,832,208 | – | ||||||
| Consideration payable – cash portion | Note 12 | 1,569,758 | 1,824,533 | ||||||
| Consideration payable – equity portion | Note 12 | 39,390 | 4,838,780 | ||||||
| Total liabilities | 27,575,197 | 22,545,813 | |||||||
| EQUITY | |||||||||
| Share capital | Note 14 | 164,336,386 | 149,754,502 | ||||||
| Warrant reserve | Note 15 | 170,901 | 1,079 | ||||||
| Share option reserve | Note 16 | 3,944,102 | 4,070,474 | ||||||
| Contributed surplus | 2,329,997 | 2,329,997 | |||||||
| Deficit | (154,347,596 | ) | (150,683,854 | ) | |||||
| Equity attributable to shareholder of the Company | 16,433,790 | 5,472,198 | |||||||
| Equity attributable to noncontrolling interests | 356,884 | – | |||||||
| Total equity | 16,790,674 | 5,472,198 | |||||||
| Total liabilities and equity | $ | 44,365,871 | $ | 28,018,011 | |||||
| CHALICE BRANDS LTD. | ||||||||||||||||
| Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) | ||||||||||||||||
| For the three and nine months ended September 30, 2021 and 2020 | ||||||||||||||||
| (Expressed in U.S. dollars) | ||||||||||||||||
| For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| Product sales | Note 21 | $ | 7,564,444 | $ | 5,765,970 | $ | 19,183,649 | $ | 15,318,207 | |||||||
| Royalty and other revenue | Note 21 | 447,463 | 430,086 | 1,252,414 | 1,064,886 | |||||||||||
| Total Revenue | 8,011,907 | 6,196,056 | 20,436,063 | 16,383,093 | ||||||||||||
| Inventory expensed to cost of sales | Note 6, 21 | 4,608,488 | 4,033,002 | 11,960,838 | 11,038,401 | |||||||||||
| Gross margin, excluding fair value items | 3,403,419 | 2,163,054 | 8,475,225 | 5,344,692 | ||||||||||||
| Fair value changes in biological assets included in inventory sold | Note 6, 21 | 323,803 | (14,125 | ) | 286,194 | (48,483 | ) | |||||||||
| (Gain) loss on changes in fair value of biological assets | Note 6, 21 | (551,401 | ) | 98,853 | (1,037,581 | ) | 295,009 | |||||||||
| Gross profit | 3,631,017 | 2,078,326 | 9,226,612 | 5,098,166 | ||||||||||||
| Expenses | ||||||||||||||||
| General and administration | 3,197,464 | 2,215,291 | 8,165,255 | 6,714,321 | ||||||||||||
| Share-based compensation | Note 16 | 99,789 | 41,517 | 298,727 | 264,793 | |||||||||||
| Sales and marketing | 373,205 | 478,724 | 1,149,241 | 1,552,778 | ||||||||||||
| Depreciation and amortization | Note 7, 9 | 484,721 | 239,751 | 933,392 | 775,489 | |||||||||||
| Total expenses | 4,155,179 | 2,975,283 | 10,546,615 | 9,307,381 | ||||||||||||
| Loss before items noted below | (524,162 | ) | (896,957 | ) | (1,320,003 | ) | (4,209,215 | ) | ||||||||
| Interest expense | Note 10,11,12 | 519,713 | 350,265 | 1,404,348 | 1,449,109 | |||||||||||
| Transaction costs | 248,349 | 127 | 334,889 | 41,178 | ||||||||||||
| Loss on disposal of assets | Note 7 | – | (10,139 | ) | 6,233 | 307,700 | ||||||||||
| Other losses | 12,453 | 70,249 | 100,566 | 32,029 | ||||||||||||
| Gain on change in fair value of warrant liabilities | Note 13 | (2,377,547 | ) | – | (1,092,337 | ) | – | |||||||||
| Loss on change in fair value of convertible debentures | Note 10 | – | 565,328 | 172,956 | 565,328 | |||||||||||
| (Gain) loss on change in fair value of derivative liabilities | Note 10 | (278,141 | ) | – | 96,118 | – | ||||||||||
| Loss on debt extinguishment | Note 10 | – | – | 88,079 | – | |||||||||||
| Income (loss) before income taxes | 1,351,011 | (1,872,787 | ) | (2,430,855 | ) | (6,604,559 | ) | |||||||||
| Current income tax expense | 600,650 | 848,379 | 1,418,095 | 1,511,595 | ||||||||||||
| Net income (loss) | 750,361 | (2,721,166 | ) | (3,848,950 | ) | (8,116,154 | ) | |||||||||
| Other comprehensive loss | ||||||||||||||||
| Items that will be reclassified subsequently to profit or loss | ||||||||||||||||
| Comprehensive loss attributable to noncontrolling interests | $ | (39,377 | ) | $ | – | $ | (54,431 | ) | $ | – | ||||||
| Comprehensive income (loss) | $ | 789,738 | $ | (2,721,166 | ) | $ | (3,794,519 | ) | $ | (8,116,154 | ) | |||||
| Basic and diluted income (loss) per share from continuing operations | $ | 0.01 | $ | (0.07 | ) | $ | (0.07 | ) | $ | (0.22 | ) | |||||
| Weighted average number of common shares outstanding | 59,237,024 | 38,322,636 | 55,300,678 | 37,427,844 | ||||||||||||
| Adjusted EBITDA | ||||||||||||||||
| For the three months ended | For the nine months ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Loss before income taxes | $ | 1,351,011 | $ | (1,872,787 | ) | $ | (2,430,855 | ) | $ | (6,604,559 | ) | |||||
| Adjustments: | ||||||||||||||||
| Depreciation and amortization | 725,356 | 476,733 | 1,638,563 | 1,548,121 | ||||||||||||
| Fair value changes on debt and equity instruments | (2,655,688 | ) | 565,328 | (735,184 | ) | 565,328 | ||||||||||
| Share based compensation | 99,789 | 41,517 | 298,727 | 264,793 | ||||||||||||
| Interest expense, net | 519,713 | 350,265 | 1,404,348 | 1,449,109 | ||||||||||||
| Transaction costs | 248,349 | 127 | 334,889 | 41,178 | ||||||||||||
| Start-up costs(1) | 211,939 | 59,924 | 382,685 | 179,120 | ||||||||||||
| Nevada curtailment expenses and other (2) | 12,222 | 60,093 | 115,519 | 276,883 | ||||||||||||
| Non-cash non-recurring investor relations | 40,898 | – | 128,925 | – | ||||||||||||
| Restructuring and severance cost | 30,895 | – | 39,249 | – | ||||||||||||
| Non-recurring promotional costs (3) | – | – | 297,443 | – | ||||||||||||
| Costs related to share consolidation and name change | – | – | 26,442 | – | ||||||||||||
| Impairments and other | 12,453 | 60,110 | 106,799 | 339,729 | ||||||||||||
| Adjusted EBITDA | $ | 596,938 | $ | (258,690 | ) | $ | 1,607,551 | $ | (1,940,298 | ) | ||||||
| (1) Write-off of significant start up costs related to the Company’s California business and Fifth & Root | ||||||||||||||||
| (2) Losses experienced in Nevada due to unexpected shut down and facility abandonment due to COVID-19 | ||||||||||||||||
| (3) Promotional costs include non-recurring discounts and promotional campaigns | ||||||||||||||||
Q3 2021 Conference Call Details
Chalice Brands management, led by Mr. John Varghese, Executive Chairman, and Mr. Jeff Yapp, Chief Executive Officer, will hold a conference call for investors to discuss the results on Tuesday, November 23, 2021, at 5:00 p.m. ET followed by a webinar for shareholders providing a corporate update and a summary of the second quarter.
REGISTRATION: Please visit click here to register and stream the conference call.
Once registered, registrants will receive an email for this event inclusive of a calendar invite and details on how to connect. A replay of the webcast will be available online immediately following the call on the Company’s website at investors.chalicebrandsltd.com where it will be archived for one year.
About Chalice Brands Ltd.
Chalice Brands is a premier consumer-driven cannabis company specializing in production, processing, wholesale, distribution and retail, with twelve owned and four managed dispensaries in and around 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 & Root and has operations in Oregon and California. Visit investors.chalicebrandsltd.com for regular updates.
Investor Relations:
John Varghese
Executive Chairman
Chalice Brands Ltd.
971-371-2685
ir@chalicebrandsltd.com
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 registration.
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.
