Investor Conference Call

 

Q2 Financial Highlights:

Golden Leaf Holdings Ltd. (CSE:GLH) (OTCQB:GLDFF) (“Golden Leaf” or the “Company”), a premier consumer-driven cannabis company specializing in retail, production, processing, wholesale, and distribution, today announced financial results for the second quarter ended June 30, 2020. All financial results are stated in US dollars, unless otherwise noted.

“Management believes that GLH is substantially undervalued compared to its peers. We have demonstrated the ability to achieve significant growth while navigating the COVID-19 crisis, and its impact on the market as well as our partners in each jurisdiction,” stated Jeff Yapp, Chief Executive Officer of GLH.

The Company focused on growing sales in Oregon, a tactical decision made to offset unexpected shut-down related losses in Nevada, and slower than expected growth in its other markets.

“We brought a laser focus to the areas that we believed provided the greatest opportunity for growth,” continued Yapp. “And we did it everywhere. The team’s disciplined approach to the Company’s front lines helped us drive innovation, maximize results, and further distinguish us from the competition, despite challenges facing the world and the industry. We believe we are turning the corner and can comfortably put past missteps behind us. GLH remains laser-focused on operational excellence.”

  • Record quarterly revenues from continuing operations of $5.5M, an increase of 40% compared to the second quarter of 2019 and 16% greater than the first quarter of 2020. This increase was led by record second quarter Chalice Farms retail revenues of $3.7M.
  • Retail growth was driven by an increase in total tickets of 16% and average ticket size of 16% compared to the second quarter of 2019.
  • Record year to date revenues from continuing operations of $10.2M, an increase of 40% compared to the first half of 2019, driven by Chalice Farms retail revenues and Oregon wholesale revenues.
  • Same store sales growth in the Chalice Farms network of 34% versus the three months ended June 30, 2019 and 25% for the six months ended June 30, 2020.
  • Oregon wholesale revenues up 96% year over year driven by improved supply chain and forecasting resulting in stabilization of inventory levels.
  • Lowest quarterly cash used in operations in Company history of $137,000.
  • Adjusted EBITDA loss (non-IFRS) was $0.7M for the three months ended June 30, 2020, off $0.1M sequentially due primarily to the shortfall in third party toll processing revenues. Adjusted EBITDA is a non-IFRS measure, which the Company considers important in assessing operations. For a reconciliation of Adjusted EBITDA (non-IFRS) to income (loss) before income taxes, please see below.
  • Adjusted EBITDA loss (non-IFRS) was $1.4M for the six months ended June 30, 2020, an improvement of $2.5M or 64% compared to the six months ended June 30, 2019 driven by operational efficiencies, increased revenues and reduced G&A expenses and savings related to headcount. Adjusted EBITDA is a non-IFRS measure, which the Company considers important in assessing operations. For a reconciliation of Adjusted EBITDA (non-IFRS) to income (loss) before income taxes, please see below.
  • Gross profit before fair value items was $1.5M, flat compared to the same period a year ago and down compared to the first quarter due to the unexpected shutdown and related losses in Nevada as well as the shortfall in third party toll processing revenues in Oregon and the reversal of an audit related adjustment in the first quarter of 2020.
  • Gross profit margin excluding fair value items of $(0.2)M and adjusted for extraordinary circumstances in Nevada $(0.2) and the write-off of inventory deposits in California $(0.1) was $1.8M (non-IFRS), equal to a gross margin rate (after these adjustments) of 33% which is favorable versus the average gross profit margin rate during Fiscal 2019 and only slightly off from 37% in the first quarter 2020, due to the shortfall of third-party revenues as mentioned previously.
  • Lowered operating expenses to $3.1M, a reduction of $0.7M compared to the same quarter of 2019 and $0.2M compared to the first quarter of 2020. Year to date for the six months ended June 30, 2020 operating expenses are down 22% compared to the same period of 2019.
  • In early July, the Company obtained approval from its debenture holders to pay all interest in shares, allowing for continued cash preservation as the Company continues the pursuit of becoming cash flow positive operationally.
  • The Company has sufficient cash on hand to meet its short-term obligations and has strong support from all stakeholders to continue to navigate this period of extraordinary growth, while contemplating various non-dilutive capital opportunities to invest further in the Company’s established retail network.

“The Company continues to drive top line growth out of Oregon, while gaining momentum in California and Washington. Discipline, rationalizing head count, optimizing inventory and scrutinizing payables turnover will continue to fuel our growth” further added Yapp.

Preliminary July Financial Results

Record revenues continued in July 2020. The Company produced preliminary unaudited estimated revenues of $2.0M at an estimated gross margin of 33%, led by Chalice Farms retail revenues of $1.4M and Oregon wholesale revenues of $0.5M.

“The Company’s Crawl, Walk, Run strategy helped us build the momentum needed for a great Q1 and Q2,” said Yapp. “Delivery, online ordering and driving innovation in customer experience has led to really solid growth in retail. We are maximizing service to our customers with new products, education and humanity. Our teams have shown up for our customers and continue to perform above our expectations.”

As of June 30, 2020, the Company offers, directly and through its partners, over 145 SKUs across 23 product lines all under Chalice brands, in four jurisdictions: Oregon, California, Nevada and Washington.

Disclaimer Regarding Preliminary Financial Information

The financial information presented in this news release for July 2020 is based on preliminary, unaudited financial statements prepared by management. Accordingly, such financial information may be subject to change. Such financial information is qualified in its entirety with reference to the Company’s unaudited financial statements for the third quarter ended September 30, 2020, which will be filed on SEDAR (www.sedar.com) in November 2020. While the Company does not expect there to be any material changes to the July 2020 financial information presented in this news release, to the extent that it is inconsistent with the information contained in the Company’s unaudited financial statements for the third quarter ended September 30, 2020, the financial information contained in this news release shall be deemed to be modified or superseded by the Company’s unaudited financial statements. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation for purposes of applicable securities laws.

 

About Golden Leaf Holdings:

Golden Leaf Holdings is a premier consumer-driven cannabis company specializing in production, processing, wholesale, distribution and retail, with seven 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. Markets served include Oregon, California, Nevada and Washington. Visit glhmonthly.com for regular updates.

 

GOLDEN LEAF HOLDINGS LTD.  
Interim Condensed Consolidated Statement of Financial Position (Unaudited)
As at June 30, 2020 and December 31, 2019
(Expressed in U.S. dollars)
   
June 30, 2020 December 31, 2019
   
ASSETS
CURRENT  
Cash $ 1,143,787 $ 3,531,202
Accounts receivable Note 5 212,036 167,178
Other receivables Note 5 and 11 1,005,984 447,901
Income tax recoverable 74,034
Sales tax recoverable 327,168 271,866
Biological assets Note 7 233,508 88,078
Inventory Note 7 2,989,032 2,965,304
Prepaid expenses and deposits 432,301 325,329
Total current assets 6,343,816 7,870,892
Property, plant and equipment Note 8 2,831,237 3,723,489
Notes receivable Note 6 919,488 919,488
Right-of-use assets, net Note 9 4,089,643 4,333,064
Intangible assets Note 10 10,737,423 10,737,423
Goodwill Note 10 4,056,172 4,056,172
Total assets 28,977,779 31,640,528
LIABILITIES  
CURRENT
Accounts payable and accrued liabilities 2,547,900 1,564,982
Interest payable 456,372 125,900
Income taxes payable 616,975
Deferred income tax payable 248,852 248,852
Sales tax payable 209,527 187,520
Current portion of long-term debt Note 12 99,894 82,404
Notes payable Note 11 208,817
Lease liability Note 12 887,070 843,238
Total current liabilities 5,275,407 3,052,896
Long term debt Note 12 29,952
Long term lease liability Note 12 4,084,551 4,090,806
Convertible debentures carried at fair value Note 11 4,653,136 4,706,141
Consideration payable – cash portion Note 12 4,517,477 4,218,866
Consideration payable – equity portion Note 12 4,854,132 4,940,667
Total liabilities 23,384,703 21,039,328
SHAREHOLDERS’ EQUITY
Share capital Note 13 147,926,008 147,763,499
Warrant reserve Note 14 1,554,929 1,980,217
Share option reserve Note 15 3,843,938 4,181,350
Contributed surplus 59,940 59,940
Deficit (147,791,739 ) (143,383,806 )
Total shareholders’ equity 5,593,076 10,601,200
Total liabilities and shareholders’ equity $ 28,977,779 $ 31,640,528

 

GOLDEN LEAF HOLDINGS LTD.
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
For the three and six months ended June 30, 2020 and 2019
(Expressed in U.S. dollars)
                 
For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Revenues
Product sales Note 20 $ 5,312,655 $ 3,931,536 9,552,237 $ 7,660,495
Royalty and other revenue Note 20 204,078 8,286 634,800 210,356
Total Revenue 5,516,733 3,939,822 10,187,037 7,870,851
Inventory expensed to cost of sales Note 7, 20 4,041,207 2,465,737 7,005,399 4,981,167
Gross margin, excluding fair value items 1,475,526 1,474,085 3,181,638 2,889,684
Fair value changes in biological assets included in inventory sold Note 7, 20 (34,358 ) (34,358 )
Loss on changes in fair value of biological assets Note 7, 20 216,870 196,156
Gross profit 1,293,014 1,474,085 3,019,840 2,889,684
Expenses:
General and administration 2,190,871 2,867,526 4,499,030 5,744,595
Share based compensation Note 15 93,697 (82,216 ) 223,276 329,710
Sales and marketing 539,028 377,427 1,074,054 1,006,112
Depreciation and amortization Note 8, 9 230,278 560,571 535,738 1,076,501
Total expenses 3,053,874 3,723,308 6,332,098 8,156,918
Loss before items noted below (1,760,860 ) (2,249,223 ) (3,312,258 ) (5,267,234 )
Interest expense 547,743 753,308 1,098,844 1,484,309
Transaction costs 41,051 2,114 41,051 8,222
Loss on disposal of assets Note 8 310,017 109,856 317,839 92,911
Other (income) loss (9,781 ) 124,240 (38,220 ) (16,957 )
Gain on change in fair value of warrant liabilities (82,101 ) (581,763 )
Loss on change in fair value of convertible debentures Note 11 155,446 119,277
Loss before income taxes (2,649,890 ) (3,312,086 ) (4,731,772 ) (6,373,233 )
Current income tax expense 304,932 4,300 663,216 15,924
Net loss from continuing operations (2,954,822 ) (3,316,386 ) (5,394,988 ) (6,389,157 )
Loss from discontinued operations (123,195 ) (96,469 )
Net loss (2,954,822 ) (3,439,582 ) (5,394,988 ) (6,485,625 )
Other comprehensive loss
Items that will be reclassified subsequently to profit or loss:
Cumulative translation adjustment 89,831 982,045
Comprehensive loss $ (2,954,822 ) $ (3,529,413 ) $ (5,394,988 ) $ (7,467,670 )
Basic and diluted loss per share from continuing operations $ (0.00 ) $ (0.01 ) $ (0.01 ) $ (0.01 )
Basic and diluted loss per share from discontinued operations $ $ (0.00 ) $ $ (0.00 )
Weighted average number of common shares outstanding 861,790,774 575,776,971 860,840,418 555,451,438
Adjusted EBITDA
       
For the three months ended For the six months ended
June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019
Loss before income taxes $ (2,649,890 ) $ (3,312,086 ) $ (4,731,772 ) $ (6,373,233 )
Adjustments:
Net impact, fair value of biological assets 182,512 161,798
Depreciation and amortization 503,044 560,571 1,071,389 1,076,501
Fair value changes on debt and equity instruments 73,345 (462,486 )
Share based compensation 93,697 (82,216 ) 223,276 329,710
Interest expense, net 547,743 753,308 1,098,844 1,484,309
Transaction costs 41,051 2,114 41,051 8,222
Start-up costs(1) 119,196
Extraordinary losses(2) 236,000 236,000
Impairments and other (9,781 ) 124,240 86,780 (16,957 )
Loss on disposal 310,017 109,856 317,839 92,911
Adjusted EBITDA $ (745,607 ) $ (1,770,868 ) $ (1,375,599 ) $ (3,861,023 )
(1) Write-off of significant start up costs related to the Company’s California business
(2) Losses experienced in Nevada due to unexpected shut down and facility abandonment due to COVID-19

 

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