Chalice Brands Ltd. Continues Sequential Revenue Growth

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:

  • 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, 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.

Related Posts