Chalice Brands Ltd. Reports over 300% improvement in Adjusted EBITDA (1) as part of Record Third Quarter 2021 Financial Results


Third Quarter 2021 Revenues of $8.0 Million Marks another Record and Fourth Consecutive Quarter of Positive Adjusted EBITDA(1)

PORTLAND, Ore., Nov. 23, 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 third quarter 2021. All amounts stated are in US Dollars unless otherwise noted.

Third Quarter Highlights:

  • Record quarterly revenues from continuing operations of $8.0 million, a 29% year-over-year increase compared to $6.2 million for the same period in 2020, in part driven by a full quarter of revenues from the Company’s Homegrown Oregon stores.
  • 63.7% growth in gross profit for third quarter 2021 of $3.6 million, or 45% gross margin, compared to $2.2 million or 36% gross margin for the same period 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.
  • Chalice branded products in the Homegrown stores have risen in the quarter from 3% pre-acquisition to 24%. In the Chalice branded retail stores, Chalice products reached a high of over 43% for the quarter compared to 20% for the same period in 2020, demonstrating a 115% year-over-year growth.
  • Record positive Adjusted EBITDA1 of approximately $600,000 represents the fourth consecutive quarter of achieving positive Adjusted EBITDA1 and is over a 300% improvement compared to a loss of $260,0001 for the same period in 2020.
  • Record year-to-date revenue of $20.4 million for the nine months ended September 30, 2021, an increase of 25% compared to $16.4 million for the same period in 2020 and almost matching total revenue for fiscal 2020 of $21.9 million.
  • For the nine months ended September 30, 2021, Adjusted EBITDA1 was approximately $1.6 million, compared with a loss of approximately $1.9 million for the same period in 2020.
  • On September 16, the Company announced its Cannabliss & Co. retail acquisition from Acreage Holdings Inc. of four retail dispensaries located in Portland, Eugene, and Springfield, Oregon for total consideration of US$6.5 million. The Company continues to operate these stores under a management services agreement pending OLCC approval.
  • Subsequent to third quarter, on October 7, the Company announced the promotion of Meghan Miller to Chief Operating Officer (COO).

“The third quarter was another outstanding performance for Chalice as we accomplished record revenues and our most profitable quarter to date. During the quarter, we closed a transformative acquisition in Oregon of four retail dispensaries from Acreage, bolstering our retail footprint by 130% in the fiscal year. By maintaining our focus on profitable operations and accretive acquisitions, Chalice has immediately impacted the vertical contribution within the new stores ahead of schedule. The Chalice team is motivated by our strategic mission to capitalize on untapped opportunities in Oregon and other markets with significant room for consolidation, synergies, and vertical leverage,” commented Jeff Yapp, President and Chief Executive Officer of Chalice Brands.

Fiscal Third Quarter Ended September 30, 2021 Financial Results

For the three months ended September 30, 2021 (“Q3 2021”), total revenue from continuing operations was $8.0 million as compared to $6.2 million for the same period in 2020 (“Q3 2020”). The 29% year-over-year increase is strongly attributed to a full quarter realizing Homegrown Oregon sales. Gross profit was up 63.7% compared to Q3 2020 at $3.6 million, or 45% of total revenue for Q3 2021, compared with $2.2 million, or 36% of total revenue, in Q3 2020.

Adjusted EBITDA1 was approximately $600,000 for Q3 2021, compared with a loss of approximately $260,000 for Q3 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 continue to grow this important metric as the business scales.

For the nine months ended September 30, 2021, total revenue from continuing operations was $20.4 million, as compared to $16.4 million for the same period in 2020.

For the nine months ended September 30, 2021, gross profit was $9.2 million, or 45% gross profit margin compared to $5.1 million or 31% for the same period in 2020.

For the nine months ended September 30, 2021, Adjusted EBITDA1 was approximately $1.6 million, compared with a loss of approximately $1.9 million for the same period in 2020.

The Company’s interim financial statements for the third quarter 2021 and related MD&A have been filed on SEDAR and are available for review.

“Chalice is proud to have accomplished record revenue growth and profitable operations for four consecutive quarters. We remain diligent in executing our conservative capital allocation strategy which will ensure the Company is well positioned and prepared for both short and long-term growth and expansion. Despite the ongoing challenges facing the cannabis industry, our financial performance has never been stronger. For the remainder of the year and beyond, we will continue to focus on strengthening Chalice in a sustainable and profitable manner,” noted 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. Prior period amounts have been adjusted for the inclusion of fair value changes related to biological assets effective for Q3 2021 and forward.


CHALICE BRANDS LTD.     
Interim Condensed Consolidated Statements of Financial Position (Unaudited) 
As at September 30, 2021 and December 31, 2020     
(Expressed in U.S. dollars)     
      
   September 30, 2021 December 31, 2020
      
CURRENT     
Cash  $491,170  $905,149 
Accounts receivableNote 5  323,793   108,308 
Other receivablesNote 5  414,970   737,185 
Notes receivable   1,576,206   919,488 
Sales tax recoverable   32,813   89,033 
Biological assetsNote 6  566,655   455,045 
InventoryNote 6  4,603,057   2,304,501 
Prepaid expenses and deposits   618,213   376,080 
Total current assets   8,626,877   5,894,789 
      
Property, plant and equipmentNote 7  2,621,088   2,361,357 
Other receivablesNote 5  842,440   836,235 
Right-of-use assets, netNote 8  5,307,935   4,132,035 
Intangible assets, netNote 9  13,568,738   10,737,423 
GoodwillNote 9  13,398,793   4,056,172 
Total assets  $44,365,871  $28,018,011 
      
LIABILITIES     
CURRENT     
Accounts payable and accrued liabilities  $4,070,488  $3,432,525 
Interest payable   43,619   - 
Income taxes payable   2,046,841   1,003,604 
Deferred income tax payable   510,007   55,039 
Sales tax payable   652,796   217,789 
Current portion of long-term debtNote 12 25,846   22,171 
Current portion of notes payableNote 12 417,338   119,533 
Convertible debentures carried at fair valueNote 10 -   5,575,273 
Consideration payable - cash portionNote 12 713,280   - 
Consideration payable - equity portionNote 12 4,566,390   - 
Lease liabilityNote 11 1,054,621   949,496 
Total current liabilities   14,101,226   11,375,430 
      
Notes payableNote 12 1,706,243   - 
Long-term debtNote 12 119,683   134,675 
Long-term lease liabilityNote 11 5,408,452   4,372,395 
Warrant liabilityNote 13 1,627,495   - 
Derivative liabilityNote 10 170,742   - 
Convertible debentures carried at amortized costNote 10 2,832,208   - 
Consideration payable - cash portionNote 12 1,569,758   1,824,533 
Consideration payable - equity portionNote 12 39,390   4,838,780 
Total liabilities   27,575,197   22,545,813 
      
EQUITY     
      
Share capitalNote 14 164,336,386   149,754,502 
Warrant reserveNote 15 170,901   1,079 
Share option reserveNote 16 3,944,102   4,070,474 
Contributed surplus   2,329,997   2,329,997 
Deficit   (154,347,596)  (150,683,854)
Equity attributable to shareholder of the Company   16,433,790   5,472,198 
Equity attributable to noncontrolling interests   356,884   - 
Total equity   16,790,674   5,472,198 
Total liabilities and equity  $44,365,871  $28,018,011 
      


CHALICE BRANDS LTD.        
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)  
For the three and nine months ended September 30, 2021 and 2020      
(Expressed in U.S. dollars)        
         
  For the three months ended September 30, For the nine months ended September 30,
   2021   2020   2021   2020 
Revenues        
Product salesNote 21$7,564,444  $5,765,970  $19,183,649  $15,318,207 
Royalty and other revenueNote 21 447,463   430,086   1,252,414   1,064,886 
Total Revenue  8,011,907   6,196,056   20,436,063   16,383,093 
Inventory expensed to cost of salesNote 6, 21 4,608,488   4,033,002   11,960,838   11,038,401 
Gross margin, excluding fair value items  3,403,419   2,163,054   8,475,225   5,344,692 
         
Fair value changes in biological assets included in inventory soldNote 6, 21 323,803   (14,125)  286,194   (48,483)
(Gain) loss on changes in fair value of biological assetsNote 6, 21 (551,401)  98,853   (1,037,581)  295,009 
Gross profit  3,631,017   2,078,326   9,226,612   5,098,166 
         
Expenses        
General and administration  3,197,464   2,215,291   8,165,255   6,714,321 
Share-based compensationNote 16 99,789   41,517   298,727   264,793 
Sales and marketing  373,205   478,724   1,149,241   1,552,778 
Depreciation and amortizationNote 7, 9 484,721   239,751   933,392   775,489 
Total expenses  4,155,179   2,975,283   10,546,615   9,307,381 
         
Loss before items noted below  (524,162)  (896,957)  (1,320,003)  (4,209,215)
         
Interest expenseNote 10,11,12 519,713   350,265   1,404,348   1,449,109 
Transaction costs  248,349   127   334,889   41,178 
Loss on disposal of assetsNote 7 -   (10,139)  6,233   307,700 
Other losses  12,453   70,249   100,566   32,029 
Gain on change in fair value of warrant liabilitiesNote 13 (2,377,547)  -   (1,092,337)  - 
Loss on change in fair value of convertible debenturesNote 10 -   565,328   172,956   565,328 
(Gain) loss on change in fair value of derivative liabilitiesNote 10 (278,141)  -   96,118   - 
Loss on debt extinguishmentNote 10 -   -   88,079   - 
Income (loss) before income taxes  1,351,011   (1,872,787)  (2,430,855)  (6,604,559)
Current income tax expense  600,650   848,379   1,418,095   1,511,595 
Net income (loss)  750,361   (2,721,166)  (3,848,950)  (8,116,154)
Other comprehensive loss        
Items that will be reclassified subsequently to profit or loss       
Comprehensive loss attributable to noncontrolling interests$(39,377) $-  $(54,431) $- 
Comprehensive income (loss) $789,738  $(2,721,166) $(3,794,519) $(8,116,154)
Basic and diluted income (loss) per share from continuing operations$0.01  $(0.07) $(0.07) $(0.22)
Weighted average number of common shares outstanding 59,237,024   38,322,636   55,300,678   37,427,844 
         


Adjusted EBITDA       
        
 For the three months ended For the nine months ended
 September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
        
Loss before income taxes$1,351,011  $(1,872,787) $(2,430,855) $(6,604,559)
Adjustments:       
Depreciation and amortization 725,356   476,733   1,638,563   1,548,121 
Fair value changes on debt and equity instruments (2,655,688)  565,328   (735,184)  565,328 
Share based compensation 99,789   41,517   298,727   264,793 
Interest expense, net 519,713   350,265   1,404,348   1,449,109 
Transaction costs 248,349   127   334,889   41,178 
Start-up costs(1) 211,939   59,924   382,685   179,120 
Nevada curtailment expenses and other (2) 12,222   60,093   115,519   276,883 
Non-cash non-recurring investor relations 40,898   -   128,925   - 
Restructuring and severance cost 30,895   -   39,249   - 
Non-recurring promotional costs (3) -   -   297,443   - 
Costs related to share consolidation and name change -   -   26,442   - 
Impairments and other 12,453   60,110   106,799   339,729 
Adjusted EBITDA$596,938  $(258,690) $1,607,551  $(1,940,298)
(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      
        

Q3 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 Tuesday, November 23, 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 immediately following the call on the Company's website at investors.chalicebrandsltd.com where it will be archived for one year.

About Chalice Brands Ltd.
Chalice Brands is a premier consumer-driven cannabis company specializing in production, processing, wholesale, distribution and retail, with twelve owned and four managed dispensaries in and around 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 & 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, 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.