The Letter eviscerates the BasherThe Shareholder Letter from Jeff Yapp that was issued yesterday morning and shared here on the Bullboard, eviscerates the nonsense from Basher RebeccaG (and all her aliases).
There's no cash crunch for November 2022. They have cash to service all their obligations through year end.
Acquisitions are on track. The most recent is awaiting regulatory approval. The OLCC has been slow in the past, but they've approved all thetransactions this company has moved across the finish line, so far.
Read the Letter, and plug the information into your own model to estimate what the financials will look like for 2022. I really like what I see. Here's the recent quarterly history drawn straight from the financials filed with the Securities Commission.
The only criticsm The Basher has left is that the shares have fallen a lot. My cup is half full, and I see the shares as depressed and way oversold.
Here are the facts:
CHAL INCOME STATEMENT ANALYSIS
Q3 2021 Gross Margin = 3631017 / 8011907 = 45.32%
Q3 21 revenue / Q3 20 revenue = 8011907 / 5516713 = 45.23% YoY revenue growth
Source: Page 9 of Q3 2021 MD&A filed with Securities Commission
GROSS MARGIN
Q3 2021 Gross Margin = 3631017 / 8011907 = 45.32%
Q2 2021 Gross Margin = 3129367 / 6928701 = 45.17%
Q1 2021 Gross Margin = 2480622 / 5495455 = 45.14%
Q4 2020 Gross Margin = 1659938 / 5526455 = 30.04%
Q3 2020 Gross Margin = 2077934 / 6195664 = 33.54%
Q2 2020 Gross Margin = 1293014 / 5516733 = 23.44%
Q1 2020 Gross Margin = 1726826 / 4670304 = 36.97%
Q4 2019 Gross Margin = -27600 / 3529599 = -0.78%
OPERATING MARGIN (gross profit minus expenses of G&A, share based compensation and sales & marketing expenses). Keep in mind these steadily improving operating margins are being achieved on 45% Year on Year revenue growth.
Q3 2021 Operating Margin = (3631017 – 3197363 – 99789 – 373205) / 8011907 = -0.49%
Q2 2021 Operating Margin = (3129367 – 2743969 – 129888 – 459913) / 6928701 = -2.95%
Q1 2021 Operating Margin = (2480622 – 2134017 – 69050 – 316023) / 5495455 = -0.70%
Q4 2020 Operating Margin = (1659938 – 2215049 – 41157 – 478724) / 5526455 = -19.45%
Q3 2020 Operating Margin = (1293014 – 2190871 – 93617 – 539028) / 5516733 = -27.74%
Q2 2020 Operating Margin = (1726826 – 2045274 - 129579 – 535026) / 4670304 = -21.05%
Q1 2020 Operating Margin = (-27600 – 2866337 – 529177 – 582280) / 3529599 = -113.48%
NET MARGIN Declining interest expense, normalizing tax rates and positive net income for last two Q’s
Below the Operating Margin line, sits depreciation, interest expense and taxes. Management have asserted that when adjustments are made for non-recurring expenses, that the “Adjusted EBITDA” has grown 300%. I’ll wait to see that the non-recurring expenses don’t recur, and just note for now that there is grounds for optimism that EBITDA is moving in the right direction.
Interest Expense is coming down as debts are being paid down and also being converted to equity.
Q3 2021 Interest Expense 519,713
Q2 2021 Interest Expense 455,414
Q1 2021 Interest Expense 429,221
Q4 2020 Interest Expense 833,226
Q3 2020 Interest Expense 350,265
Q2 2020 Interest Expense 547,743
Q1 2020 Interest Expense 551,101
Q4 2019 Interest Expense 668,645
Taxes payable are not within management control, and reflect the US requirements of Section 280E, which limits the deductibility of legitimate business expenses for companies active in cannabis. Unless an investor understands the wack-a-doodle US tax rules on cannabis companies, the focus on EBITDA or Adjusted EBITDA will seem misplaced.
Q3 2021 Tax Rate = Taxes Payable / Pre-Tax Income = 600,650 / 1,351,011 = 44.46%
Q2 2021 Tax Rate = Taxes Payable / Pre-Tax Income = 542,445 / 991,544 = 54.71%
Q1 2021 Tax Rate = Taxes Payable / Pre-Tax Income = 275,000 / (4,047,334) = - 6.79%
Q4 2020 Tax Rate = Taxes Payable / Pre-Tax Income = (555,996) / (2,468,132) = 22.53%
Q3 2020 Tax Rate = Taxes Payable / Pre-Tax Income = 848,379 / (1,873,307) = - 45.29%
Q2 2020 Tax Rate = Taxes Payable / Pre-Tax Income = 304,932 / (2,649,890) = -11.51%
Q1 2020 Tax Rate = Taxes Payable / Pre-Tax Income = 358,284 / (2,081,882) = -17.21%
Q4 2019 Tax Rate = Taxes Payable / Pre-Tax Income = 796,537 / (24,508,759) = -3.25%
And at the bottom of the income statement sits the net income. The last two quarters have shown positive net income.
Q3 2021 Net Income = 750,361
Q2 2021 Net Income = 449,099
Q1 2021 Net Income = (4,322,334)
Q4 2020 Net Income = (1,912,136)
Q3 2020 Net Income = (2,721,686)
Q2 2020 Net Income = (2,954,822)
Q1 2020 Net Income = (2,440,166)
Q4 2019 Net Income = (25,305,296)
Q3 2021 Gross Margin = 3631017 / 8011907 = 45.32%
Q3 21 revenue / Q3 20 revenue = 8011907 / 5516713 = 45.23% YoY revenue growth
Source: Page 9 of Q3 2021 MD&A filed with Securities Commission
Profit and Loss
Dec 2019 March 2020 June 2020 Sep 2020 Dec 2020 Mar 2021 June 2021 Sep 2021
Product sales $ 3,449,555 $ 4,239,582 $ 5,312,655 $ 5,765,578 $ 5,293,704 $ 5,033,314 $ 6,585,891 $ 7,564,444
Royalty and other revenue 80,044 430,722 204,078 430,086 232,751 462,141 342,810 447,463
Total Revenue 3,529,599 4,670,304 5,516,733 6,195,664 5,526,455 5,495,455 6,928,701 8,011,907
Cost of sales expense 3,557,199 2,943,478 4,223,719 4,117,730 3,866,517 3,014,833 3,799,334 4,380,890
Gross profit (loss) (27,600) 1,726,826 1,293,014 2,077,934 1,659,938 2,480,622 3,129,367 3,631,017
Expenses:
General and administration 2,866,337 2,045,274 2,190,871 2,215,419 2,037,401 2,134,017 2,743,969 3,197,464
Share based Compensation 529,177 129,579 93,697 41,517 372,876 69,050 129,888 99,789
Sales and marketing 582,280 535,026 539,028 478,724 389,288 316,123 459,913 373,205
Depreciation and amortization 601,046 568,345 230,278 239,751 235,826 224,931 223,740 484,721
Total expenses 4,578,840 3,278,224 3,053,874 2,975,411 3,035,391 2,744,121 3,557,510 4,155,179
Loss before undernoted items
Interest expense, net 668,645 551,101 547,743 350,265 833,226 429,221 455,414 519,713
Transaction costs 270,568 - 41,051 127 19,986 34,620 51,920 248,349
(Gain) loss on disposal of assets 94,187 7,822 310,017 (10,139) (14,529) - 6,233 -
Loss on impairment 18,735,818 - - - - - - -
Other (income) loss 37,842 (28,439) (9,781) 70,249 (102,813) 84,466 3,647 12,453
(Gain) loss on debt modification - - - - - 172,956 - -
(Gain) loss on debt extinguishment - - - - - 88,079 - -
(Gain) loss on changes in fair value of
w arrant liability 44 - - - - 2,974,493 (1,689,283) (2,377,547)
(Gain) loss on change in fair value of derivative liablities (247,618) (278,141)
Loss on change in fair value of liabilities 95,215 - - 565,328 356,809 - - -
(Loss) income before income taxes (24,508,759) (2,081,882) (2,649,890) (1,873,307) (2,468,132) (4,047,334) 991,544 1,351,011
Income tax expense 796,537 358,284 304,932 848,379 (555,996) 275,000 542,445 600,650
Net (loss) income from continuing operations (25,305,296) (2,440,166) (2,954,822) (2,721,686) (1,912,136) (4,322,334) 449,099 750,361
Net loss from discontinued operations (13,454,438) - - - - - - -
Net (loss) income (38,759,734) (2,440,166) (2,954,822) (2,721,686) (1,912,136) (4,322,334) 449,099 750,361
Other comprehensive loss 125,930 - - - - - 449,099 39,377
Comprehensive (loss) income (38,633,804) (2,440,166) (2,954,822) (2,721,686) (1,912,136) (4,322,334) 898,198 789,738
Basic and diluted loss per share (1.09) (0.07) (0.08) (0.00) (0.05) (0.09) 0.02 0.01
Weighted average number of common
shares outstanding 35,503,527 37,386,524 37,469,164 38,322,637 38,795,543 48,591,756 57,956,291 59,237,024