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Chalice Brands Ltd. Continues Sequential Revenue Growth

Aug 27, 2021 • 7:36 AM EDT
10 MIN READ  •  By Michael Berger
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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:

  • Record quarterly revenues from continuing operations of $6.9 million, a 26% year-over-year increase compared to $5.5 million for the same period in 2020.
  • Gross profit for second quarter 2021 of $3.1M, or 45% gross margin, compared to $1.3M or 23% gross margin 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.
  • Continued the positive Adjusted EBITDA1 trend of approximately $250,000.
  • 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.
  • A record 412 million shares were voted at the Company’s annual general meeting held on May 10, 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.
  • On May 19, 2021, the Company closed the purchase of 100% ownership in Homegrown Oregon, a chain of five retail dispensaries located in Portland, Salem and Albany, Oregon, for total consideration of approximately US$9.75 million.
  • Retail store count in Oregon increased from 7 to 12. Chalice branded products in Homegrown have risen from 3% pre-acquisition to a high of 28% in August. In Chalice retail stores, Chalice branded products reached a high of over 50%.
  • Enacted the consolidation of its common shares on the basis of one (1) post-consolidation common share for every twenty-three (23) pre-consolidation common shares effective as of May 25, 2021.
  • Appointed Ginger Mollo as Chief Integration Officer of Chalice Brands, and General Manager of Fifth & Root; a nationally recognized CBD skincare brand based in California.

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.
Interim Condensed Consolidated Statements of Financial Position (Unaudited)
As at June 30, 2021 and December 31, 2020
(Expressed in U.S. dollars)
  
June 30, 2021December 31, 2020
  
CURRENT 
Cash$1,828,406$905,149
Accounts receivableNote 5236,424108,308
Other receivablesNote 5829,307737,185
Notes receivable919,488919,488
Sales tax recoverable78,94889,033
Biological assetsNote 6501,737455,045
InventoryNote 64,549,0532,304,501
Prepaid expenses and deposits245,367376,080
Total current assets9,188,7305,894,789
Property, plant and equipmentNote 72,533,7512,361,357
Other receivablesNote 5842,440836,235
Right-of-use assets, netNote 85,567,3554,132,035
Intangible assets, netNote 913,801,00110,737,423
GoodwillNote 913,398,7934,056,172
Total assets$45,332,070$28,018,011
LIABILITIES 
CURRENT
Accounts payable and accrued liabilities$4,170,011$3,432,525
Income taxes payable1,435,4091,003,604
Deferred income tax payable520,78955,039
Sales tax payable358,882217,789
Current portion of long-term debtNote 1212,45022,171
Notes payable – current portionNote 12214,677119,533
Convertible debentures carried at fair valueNote 105,575,273
Consideration payable – cash portionNote 1272,712
Lease liabilityNote 111,078,199949,496
Total current liabilities7,863,12911,375,430
Notes payableNote 121,829,906
Long-term debtNote 1250,764134,675
Long-term lease liabilityNote 115,582,8734,372,395
Warrant liabilityNote 134,005,041
Derivative liabilityNote 10448,883
Convertible debentures carried at amortized costNote 102,740,345
Consideration payable – cash portionNote 122,239,0561,824,533
Consideration payable – equity portionNote 124,527,3504,838,780
Total liabilities29,287,34722,545,813
EQUITY
Share capitalNote 14164,336,386149,754,502
Warrant reserveNote 15204,4841,079
Share option reserveNote 163,874,8254,070,474
Contributed surplus2,329,9972,329,997
Deficit(155,097,230)(150,683,854)
Equity attributable to shareholder of the Company15,648,4625,472,198
Equity attributable to noncontrolling interests396,261
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,
2021202020212020
Revenues
Product salesNote 21$6,585,891$5,312,655$11,619,205$9,552,237
Royalty and other revenueNote 21342,810204,078804,951634,800
Total Revenue6,928,7015,516,73312,424,15610,187,037
Inventory expensed to cost of salesNote 6, 214,157,0314,041,2077,337,9567,005,399
Gross margin, excluding fair value items2,771,6701,475,5265,086,2003,181,638
Fair value changes in biological assets included in inventory soldNote 6, 2146,720(34,358)(37,609)(34,358)
(Gain) loss on changes in fair value of biological assetsNote 6, 21(404,417)216,870(486,180)196,156
Gross profit3,129,3671,293,0145,609,9893,019,840
Expenses:
General and administration2,743,9692,190,8714,877,9864,499,030
Share-based compensationNote 16129,88893,697198,938223,276
Sales and marketing459,913539,028776,0361,074,054
Depreciation and amortizationNote 8, 9223,740230,278448,671535,738
Total expenses3,557,5103,053,8746,301,6316,332,098
Loss before items noted below(428,143)(1,760,860)(691,642)(3,312,258)
Interest expenseNote 10,11,12455,414547,743884,6351,098,844
Transaction costs51,92041,05186,54041,051
Loss on disposal of assetsNote 76,233310,0176,233317,839
Other (income) loss3,647(9,781)88,113(38,220)
(Gain) loss on change in fair value of warrant liabilitiesNote 11(1,689,283)1,285,210
Loss on change in fair value of convertible debenturesNote 10172,956
(Gain) loss on change in fair value of derivative liablitiesNote 10(247,618)374,259
Loss on debt extinguishmentNote 1088,079
Income (loss) before income taxes991,544(2,649,890)(3,677,667)(4,731,772)
Current income tax expense542,445304,932817,445663,216
Net income (loss)449,099(2,954,822)(4,495,112)(5,394,988)
Other comprehensive  loss
Items that will be reclassified subsequently to profit or loss:
Comprehensive loss attributable to noncontrolling interests$(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 outstanding57,956,29137,469,16453,299,88337,427,844
Adjusted EBITDA
    
For the three months endedFor the six months ended
June 30, 2021June 30, 2020June 30, 2021June 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 amortization451,582503,044913,2071,071,389
Fair value changes on debt and equity instruments(1,936,901)1,920,504
Share based compensation129,88893,697198,938223,276
Interest expense, net455,414547,743884,6351,098,844
Transaction costs51,92041,05186,54041,051
Start-up costs(1)60,218170,746119,196
Nevada curtailment expenses and other (2)30,045236,000103,297236,000
Non-cash non-recurring investor relations88,02788,027
Non-recurring promotional costs (3)297,443297,443
Costs related to share consolidation and name change26,44226,442
Impairments and other9,880300,23694,346404,619
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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Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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