Chalice Brands Ltd CHALF

Record First Quarter 2021 Revenues of $5.5 million

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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 EBITDA¹ 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 EBITDA¹ 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 EBITDA¹ 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.
• 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 EBITDA¹ 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.

¹Adjusted 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.

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
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

 

CHALICE BRANDS LTD.
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

 

CHALICE BRANDS LTD.
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
Cash (used in) provided by:
OPERATING ACTIVITIES:
	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
Changes in working capital items
	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	)
INVESTING ACTIVITIES
	Purchase of property, plant and equipment	Note 7		(131,824	)			(66,364	)
Cash used in investment activities				(131,824	)			(66,364	)
FINANCING ACTIVITIES
	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	)
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
See accompanying notes to these interim condensed consolidated financial statements

 

Adjusted EBITDA
	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					-
Nevada curtailment expenses and other (1)		73,252					-
Start-up costs (2)		110,528					-
Impairments and other		84,466					(20,617	)
Adjusted EBITDA income (loss)	$	369,193		$	-	$	(611,303	)
(1) Losses experienced in Nevada due to unexpected shut down and facility abandonment due to COVID-19
(2) Write-off of significant start up costs related to the Company's California business