Reports Second Quarter 2021 Revenues of $6.9 Million and Third Consecutive Quarter of Positive Adjusted EBITDA(1)
PORTLAND, Ore., Aug. 26, 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 second quarter 2021. All amounts stated are in US dollars unless otherwise noted.
Second Quarter Highlights:
Jeff Yapp, President and Chief Executive Officer of Chalice Brands, commented, “Chalice is creating a strong foundation through our decision to prioritize the crawl-walk-run operating philosophy in our approach to investments for growth. We continue to make excellent progress in terms of executing our west coast U.S. strategy to achieve accelerated growth, and our record second quarter results reflect this. Chalice continues to generate strong organic growth due to brand recognition, disciplined capital allocation, and strategic acquisitions.”
Fiscal Second Quarter Ended June 30, 2021 Financial Results
For the three months ended June 30, 2021 (“Q2 2021”), total revenue from continuing operations was $6.9 million, as compared to $5.5 million for the same period in 2020 (“Q2 2020”). Gross profit grew 131% year-over-year to $3.1 million. Gross margin almost doubled from 23% in Q2 2020 to 45% in Q2 2021.
Adjusted EBITDA1 was approximately $250,000 for Q2 2021, compared with a loss of $750,000 for Q2 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 grow this important metric as the business scales.
For the six months ended June 30, 2021, total revenue from continuing operations was $12.4 million, as compared to $10.2 million for the same period in 2020. The 22% year-over-year increase is strongly attributed to the accretive acquisition of Homegrown coupled with continued strength in retail tickets and traffic.
For the six months ended June 30, 2021, gross profit was $5.1 million, or 45% compared to $3.0 million or 30% for the same period in 2020 with the increase driven by contribution from Homegrown, increased vertical sales and increased third party revenues.
While revenue grew 22% during the period, operating expenses decreased 5% from $6.3 million for the six months ended June 30, 2020 to $6.0 million for the six months ended June 30, 2021.
The Company’s interim financial statements for the second quarter 2021 and related MD&A have been filed on SEDAR and are available for review.
“Management has executed on our targeted high-level business objectives and are confident Chalice Brands will continue to position itself as a market leader in Oregon. In doing so, the Company is proud to have accomplished sequential revenue growth and profitable operations, as highlighted in this record second quarter performance. We look forward to executing on our conservative capital allocation to drive growth organically and through any opportunistic and accretive transactions for the remainder of the year,” added 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 and excluding fair value changes related to biological assets.
| CHALICE BRANDS LTD. |
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| Interim Condensed Consolidated Statements of Financial Position (Unaudited) | |||||||||
| As at June 30, 2021 and December 31, 2020 | |||||||||
| (Expressed in U.S. dollars) | |||||||||
| |
|||||||||
| June 30, 2021 | December 31, 2020 | ||||||||
| CURRENT | |||||||||
| Cash | $ | 1,828,406 | $ | 905,149 | |||||
| Accounts receivable | Note 5 | 236,424 | 108,308 | ||||||
| Other receivables | Note 5 | 829,307 | 737,185 | ||||||
| Notes receivable | 919,488 | 919,488 | |||||||
| Sales tax recoverable | 78,948 | 89,033 | |||||||
| Biological assets | Note 6 | 501,737 | 455,045 | ||||||
| Inventory | Note 6 | 4,549,053 | 2,304,501 | ||||||
| Prepaid expenses and deposits | 245,367 | 376,080 | |||||||
| Total current assets | 9,188,730 | 5,894,789 | |||||||
| Property, plant and equipment | Note 7 | 2,533,751 | 2,361,357 | ||||||
| Other receivables | Note 5 | 842,440 | 836,235 | ||||||
| Right-of-use assets, net | Note 8 | 5,567,355 | 4,132,035 | ||||||
| Intangible assets, net | Note 9 | 13,801,001 | 10,737,423 | ||||||
| Goodwill | Note 9 | 13,398,793 | 4,056,172 | ||||||
| Total assets | $ | 45,332,070 | $ | 28,018,011 | |||||
| LIABILITIES | |||||||||
| CURRENT | |||||||||
| Accounts payable and accrued liabilities | $ | 4,170,011 | $ | 3,432,525 | |||||
| Income taxes payable | 1,435,409 | 1,003,604 | |||||||
| Deferred income tax payable | 520,789 | 55,039 | |||||||
| Sales tax payable | 358,882 | 217,789 | |||||||
| Current portion of long-term debt | Note 12 | 12,450 | 22,171 | ||||||
| Notes payable – current portion | Note 12 | 214,677 | 119,533 | ||||||
| Convertible debentures carried at fair value | Note 10 | – | 5,575,273 | ||||||
| Consideration payable – cash portion | Note 12 | 72,712 | – | ||||||
| Lease liability | Note 11 | 1,078,199 | 949,496 | ||||||
| Total current liabilities | 7,863,129 | 11,375,430 | |||||||
| Notes payable | Note 12 | 1,829,906 | – | ||||||
| Long-term debt | Note 12 | 50,764 | 134,675 | ||||||
| Long-term lease liability | Note 11 | 5,582,873 | 4,372,395 | ||||||
| Warrant liability | Note 13 | 4,005,041 | – | ||||||
| Derivative liability | Note 10 | 448,883 | – | ||||||
| Convertible debentures carried at amortized cost | Note 10 | 2,740,345 | – | ||||||
| Consideration payable – cash portion | Note 12 | 2,239,056 | 1,824,533 | ||||||
| Consideration payable – equity portion | Note 12 | 4,527,350 | 4,838,780 | ||||||
| Total liabilities | 29,287,347 | 22,545,813 | |||||||
| EQUITY | |||||||||
| Share capital | Note 14 | 164,336,386 | 149,754,502 | ||||||
| Warrant reserve | Note 15 | 204,484 | 1,079 | ||||||
| Share option reserve | Note 16 | 3,874,825 | 4,070,474 | ||||||
| Contributed surplus | 2,329,997 | 2,329,997 | |||||||
| Deficit | (155,097,230 | ) | (150,683,854 | ) | |||||
| Equity attributable to shareholder of the Company | 15,648,462 | 5,472,198 | |||||||
| Equity attributable to noncontrolling interests | 396,261 | – | |||||||
| Total equity | $ | 45,332,070 | $ | 28,018,011 | |||||
| CHALICE BRANDS LTD. | ||||||||||||||||
| Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) | ||||||||||||||||
| For the three and six months ended June 30, 2021 and 2020 | ||||||||||||||||
| (Expressed in U.S. dollars) | ||||||||||||||||
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | ||||||||||||||||
| Product sales | Note 21 | $ | 6,585,891 | $ | 5,312,655 | $ | 11,619,205 | $ | 9,552,237 | |||||||
| Royalty and other revenue | Note 21 | 342,810 | 204,078 | 804,951 | 634,800 | |||||||||||
| Total Revenue | 6,928,701 | 5,516,733 | 12,424,156 | 10,187,037 | ||||||||||||
| Inventory expensed to cost of sales | Note 6, 21 | 4,157,031 | 4,041,207 | 7,337,956 | 7,005,399 | |||||||||||
| Gross margin, excluding fair value items | 2,771,670 | 1,475,526 | 5,086,200 | 3,181,638 | ||||||||||||
| Fair value changes in biological assets included in inventory sold | Note 6, 21 | 46,720 | (34,358 | ) | (37,609 | ) | (34,358 | ) | ||||||||
| (Gain) loss on changes in fair value of biological assets | Note 6, 21 | (404,417 | ) | 216,870 | (486,180 | ) | 196,156 | |||||||||
| Gross profit | 3,129,367 | 1,293,014 | 5,609,989 | 3,019,840 | ||||||||||||
| Expenses: | ||||||||||||||||
| General and administration | 2,743,969 | 2,190,871 | 4,877,986 | 4,499,030 | ||||||||||||
| Share-based compensation | Note 16 | 129,888 | 93,697 | 198,938 | 223,276 | |||||||||||
| Sales and marketing | 459,913 | 539,028 | 776,036 | 1,074,054 | ||||||||||||
| Depreciation and amortization | Note 8, 9 | 223,740 | 230,278 | 448,671 | 535,738 | |||||||||||
| Total expenses | 3,557,510 | 3,053,874 | 6,301,631 | 6,332,098 | ||||||||||||
| Loss before items noted below | (428,143 | ) | (1,760,860 | ) | (691,642 | ) | (3,312,258 | ) | ||||||||
| Interest expense | Note 10,11,12 | 455,414 | 547,743 | 884,635 | 1,098,844 | |||||||||||
| Transaction costs | 51,920 | 41,051 | 86,540 | 41,051 | ||||||||||||
| Loss on disposal of assets | Note 7 | 6,233 | 310,017 | 6,233 | 317,839 | |||||||||||
| Other (income) loss | 3,647 | (9,781 | ) | 88,113 | (38,220 | ) | ||||||||||
| (Gain) loss on change in fair value of warrant liabilities | Note 11 | (1,689,283 | ) | – | 1,285,210 | – | ||||||||||
| Loss on change in fair value of convertible debentures | Note 10 | – | – | 172,956 | – | |||||||||||
| (Gain) loss on change in fair value of derivative liablities | Note 10 | (247,618 | ) | – | 374,259 | – | ||||||||||
| Loss on debt extinguishment | Note 10 | – | – | 88,079 | – | |||||||||||
| Income (loss) before income taxes | 991,544 | (2,649,890 | ) | (3,677,667 | ) | (4,731,772 | ) | |||||||||
| Current income tax expense | 542,445 | 304,932 | 817,445 | 663,216 | ||||||||||||
| Net income (loss) | 449,099 | (2,954,822 | ) | (4,495,112 | ) | (5,394,988 | ) | |||||||||
| Other comprehensive loss | ||||||||||||||||
| Items that will be reclassified subsequently to profit or loss: | ||||||||||||||||
| Comprehensive loss attributable to noncontrolling interests | $ | (15,054 | ) | $ | – | $ | (15,054 | ) | $ | – | ||||||
| Comprehensive income (loss) | $ | 464,153 | $ | (2,954,822 | ) | $ | (4,480,058 | ) | $ | (5,394,988 | ) | |||||
| Basic and diluted income (loss) per share from continuing operations | $ | 0.01 | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.14 | ) | |||||
| Weighted average number of common shares outstanding | 57,956,291 | 37,469,164 | 53,299,883 | 37,427,844 | ||||||||||||
| Adjusted EBITDA | |||||||||||||||
| For the three months ended | For the six months ended | ||||||||||||||
| June 30, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | ||||||||||||
| Loss before income taxes | $ | 991,544 | $ | (2,649,890 | ) | $ | (3,677,667 | ) | $ | (4,731,772 | ) | ||||
| Adjustments: | |||||||||||||||
| (Gain)/Loss on fair value of biological assets | (404,417 | ) | 182,512 | (486,180 | ) | 161,798 | |||||||||
| Depreciation and amortization | 451,582 | 503,044 | 913,207 | 1,071,389 | |||||||||||
| Fair value changes on debt and equity instruments | (1,936,901 | ) | – | 1,920,504 | – | ||||||||||
| Share based compensation | 129,888 | 93,697 | 198,938 | 223,276 | |||||||||||
| Interest expense, net | 455,414 | 547,743 | 884,635 | 1,098,844 | |||||||||||
| Transaction costs | 51,920 | 41,051 | 86,540 | 41,051 | |||||||||||
| Start-up costs(1) | 60,218 | – | 170,746 | 119,196 | |||||||||||
| Nevada curtailment expenses and other (2) | 30,045 | 236,000 | 103,297 | 236,000 | |||||||||||
| Non-cash non-recurring investor relations | 88,027 | – | 88,027 | – | |||||||||||
| Non-recurring promotional costs (3) | 297,443 | – | 297,443 | – | |||||||||||
| Costs related to share consolidation and name change | 26,442 | – | 26,442 | – | |||||||||||
| Impairments and other | 9,880 | 300,236 | 94,346 | 404,619 | |||||||||||
| Adjusted EBITDA | $ | 251,084 | $ | (745,607 | ) | $ | 620,278 | $ | (1,375,599 | ) | |||||
| (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 | |||||||||||||||
Q2 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 Thursday, August 26, 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 at 7:30 p.m. ET on August 26, 2021, on the Company’s website at investors.chalicebrandsltd.com where it will be archived for one year.
Chalice Brands Ltd.
Chalice Brands is a premier consumer-driven cannabis company specializing in production, processing, wholesale, distribution and retail, with twelve 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.
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, non-recurring promotional and investor relations 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.
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