Subject: EARNINGS
Golden Leaf Reports Fiscal Second Quarter 2018 Results
Reported Record Quarterly Revenue of US$3.7 million
TORONTO, Aug. 29, 2018 (GLOBE NEWSWIRE) -- Golden Leaf Holdings Ltd. ("Golden Leaf" or the "Company") (CSE:GLH) (OTCQB:GLDFF), a cannabis company with cultivation, production and retail operations built around recognized brands, today announced financial results for the fiscal second quarter ended June 30, 2018, and a general business update.
Recent Business and Financial Highlights
- Record quarterly revenues of US$3.7 million for Q2 2018, compared to US$2.1 million for Q2 2017
- Opened Chalice Farms dispensary, located in Happy Valley, Oregon
- Signed letter of intent to acquire cannabis dispensary operation in Northern California
- Signed letter of intent to acquire two large cannabis cultivation facilities, one in Northern Nevada and another in Northern California
- Hired Ryan Purdy as Vice President of Operations
- Appointed Rick Miller to Board of Directors and to serve as its Chair
- Announced election of John Varghese and Michael Crooke to the Board of Directors
Subsequent Events:
- Announced definitive agreement to acquire "Sweet 16" license in Northern California
- Announced definitive agreement to acquire Tahoe Hydroponics Company and 11T Corp
- Introduced several cannabis concentrate product lines available in Nevada
- Received license approval from City of Portland and State of Oregon for extraction facility
- Harvested its first crops from Medical Marijuana Group ("MMG"), its Canadian subsidiary, with yields that were 30% greater than originally forecasted
Mr. William Simpson, Chief Executive Officer of Golden Leaf Holdings, commented, "We posted strong year-over-year revenue growth of 76% for the second quarter of 2018 to reach record revenues of US$3.7 million, primarily driven by the acquisition of our Chalice Farms retail operations, when compared to the second quarter of 2017. Adjusted EBITDA for the second quarter of 2018 was a loss of US$3.2M, primarily driven by transaction costs and corporate expenses. During the quarter, we opened our sixth Chalice Farms location in Happy Valley, Oregon, which is now our second highest-grossing Chalice Farms location. In addition to retail operations, revenues from the Company's medical consulting division, as well as its Nevada wholesale operations and sales of our new Fruit Chews line in Oregon, continued to support our top line growth.
"We are strategically increasing our cultivation, wholesale and retail capabilities within our current and target markets to support the growing demand of the industry. With the impending legalization in Canada and the recent announcements to expand our presence in Nevada and enter the California market, we are focused on revenue growth and the responsible management of operating expenses on a per-share basis. Combining these efforts, our goal is to be cash-flow positive by the second half of 2019. Our work to build strong brands in key markets is central to the expansion of Golden Leaf, built on vertical integration where it is economically and operationally rational," concluded Mr. Simpson.
Q2 2018 Business Overview
- Oregon: Golden Leaf has state extraction and post-processing facilities and licenses to support its production of edibles and extracts products. In addition, it operates 7 licensed retail stores, 6 of which operate under the Chalice Farms brand. Its branded products are sold to both 3rd party retail stores on a wholesale basis, as well as directly through its 7 licensed retail stores. Currently, popular brands and products from other manufacturers are also procured and sold through the Company's 7 licensed retail stores.
In the second quarter, the Company officially opened its new Chalice Farms dispensary in Happy Valley, its 7th store in Oregon.
Subsequent to the quarter, the Company's Portland production facility received licensing approval from the Oregon Liquor Control Commission. Immediately after receiving the license, the Company initiated operation of the extraction equipment. Additionally, the commissioning of the Company's cultivation facility in Bald Peak is expected before the end of calendar year 2018.
During the second quarter of 2018, the Company continued to ramp production of its new Fruit Chews edible line in Oregon, which launched in the first quarter.
- Nevada: Golden Leaf has state cultivation and production/extraction licenses to support its production of edibles and extracts products. It sells its branded products through 3rd party retail stores on a wholesale basis, which are currently available in 30-40 retail stores across Nevada. The delivery of those products is facilitated by a distributor in Reno, Nevada.
Through its wholly-owned subsidiary, Greenpoint Nevada, the Company introduced several cannabis concentrate product lines in the Nevada market throughout the second quarter, including Golden Tinctures offered in Orange, Cherry, Mint and Strawberry flavors, Golden Private Stash distillate vape cartridges, and its Golden CBD product lines.
On August 10, 2018, the Company signed a definitive agreement to acquire the assets of Tahoe Hydroponics Company and 11T Corp. (collectively "Tahoe"), following the signing of an LOI in May. With a fully-built ~21,600 ft2 facility in Carson City already producing ~4,000 pounds per annum, Tahoe brings material cultivation capacity to Golden Leaf's Nevada operations.
The Company also plans to open retail dispensaries in Nevada and is in negotiations on several opportunities, all contingent on it receiving retail licenses.
The consideration for the acquisition of the assets of Tahoe consists of:
- In respect of the assets of Tahoe Hydroponics, a cash payment of US$8.5 million plus that number of common shares of the Company such that on closing, the vendors of the assets of Tahoe Hydroponics will hold 25% of the outstanding common shares of the Company (less the shares to be issued to the vendors of the 11T assets as described below) plus a number of common shares of the Company equal to US$1.35 million, using the 20-day volume weighted average price of the common shares determined for the 20 days immediately prior to the closing.
- In respect of the assets of 11T, a number of common shares of the Company equal to US$5 million using the 20-day volume weighted average price of the common shares determined for the 20 days immediately prior to the closing.
- California: Upon closing of the definitive agreements signed on August 13th, 2018 and August 17th, 2018, the Company will have a ~28,800 ft2 cultivation facility in Sacramento, which is currently under development; and a combined cultivation, production and retail facility in San Jose. The aforementioned definitive agreements are expected to provide an immediate foothold in the state of California. The Sacramento cultivation facility is anticipated to be operational in Q1 2019.
- The consideration for the San Jose license and certain associated assets of the seller, including cash, inventory, equipment and contractual rights, is US$7,146,582, consisting of US$1,250,000 in cash at closing plus a number of common shares of the Company equal to US$500,000, using the 30-day volume weighted average price of the common shares determined for the 30 days immediately prior to the closing, plus US$5,396,582 in cash earn-out consideration to be paid over time based upon the net wholesale and net retail revenues generated.
- Canada: The Company's subsidiary, Medical Marijuana Group (MMG), has a cultivation license from Health Canada. The Company's subsidiary Medical Marijuana Group Consulting (MMGC), is a medical marijuana consulting company that secures high-value medical marijuana patients and educates and refers them to Licensed Producers for their product.
In early July, MMG harvested its first crops at its state-of-the-art grow facility in Ontario. The harvested crops, which had yields that were 30% greater than originally forecasted, mirrored yields from Canada's premier cannabis companies. MMG has secured buyers to take delivery of the finished product once the Company receives its final sales license.
As of the end of the second quarter, MMGC had approximately 4,600 medical patients.
- New management: In May, Ryan Purdy joined the team as Vice President of Operations to lead overall supply chain strategy and execution, including vendor selection, production planning, procurement and logistics.
In July, the Company announced the election of John Varghese and Michael Crooke to the Board of Directors, effective June 29, 2018. John Varghese is now the chair of the Compensation Committee and also joined the Audit and Disclosure Committees. Michael Crooke joined the Nominating and Corporate Governance Committees.
Fiscal Second Quarter Ended June 30, 2018 Financial Results
For the quarter ended June 30, 2018 ("Q2 2018"), net revenue was US$3.7 million as compared to US$2.1 million for the same three-month period in 2017 ("Q2 2017"). The 76% year-over-year increase largely reflects the addition of the Chalice Farms retail revenue stream, the addition of the Company's medical consulting revenues and the Company's Nevada wholesale operations, offset slightly by declines in wholesale revenues in Oregon.
Gross profit was US$940,000 or 26% of net revenue, for Q2 2018, compared with US$402,000 or 19% of net revenue in Q2 2017. Q2 2018 gross margins increased primarily due to the addition of gains on fair market value of biological assets from the Company's cultivation subsidiary.
Operating expenses were US$4.6 million USD for Q2 2018, compared with US$2.7 million in Q2 2017, which is largely attributable to the addition of the Chalice Farms retail business which was acquired in July 2017, and higher corporate costs.
Adjusted EBITDA loss was US$3.2 million for Q2 2018, compared with a loss of US$1.9 million for Q2 2017, primarily as a result of increased transaction costs and corporate expenses within G&A. Adjusted EBITDA is defined by the Company as earnings before taxes, depreciation and amortization, less certain non-cash equity compensation expenses, including impairments, one-time transaction fees and all other non-cash items. The Company considers Adjusted EBITDA an important operational measure for the business.
Net income for Q2 2018 was US$3.2 million or US$0.01 per share, compared with a net loss of US$1.7 million or $0.01 per share loss, for Q2 2017. Net income for Q2 2018 benefited from non-operating income of US$7.3 million related to favorable changes in the fair value of warrant and debt liabilities.
As of June 30, 2018, the Company had approximately US$22.6 million in current assets, compared with US$11.6 million in current assets at December 31, 2017. The increase is largely because of the bought deal financing which was completed on January 31, 2018, in addition to proceeds from warrant exercises. Total assets increased to US$86.7 million at June 30, 2018, compared to US$75.8 million at December 31, 2017, also due primarily to the bought deal financing completed in January.
Investor Conference Call
GLH's management, led by William Simpson, Chief Executive Officer, will hold a conference call at 4:30 PM ET today, Wednesday, August 29, 2018, to report its financial results for the second quarter ended June 30, 2018.
The dial-in information for the conference call is as follows:
Program Title: Golden Leaf Holdings Second Quarter 2018 Financial Results Call
Canada & U.S.: (877) 423-9813
International: (201) 689-8573
Participants must request the Golden Leaf Holdings Call.
A live audio webcast will be available online on Golden Leaf's website at goldenleafholdings.com, where it will be archived for one year.
An audio replay of the conference call will be available through midnight September 12, 2018 by dialing +1 (844) 512-2921 from the U.S. or Canada, or +1 (412) 317-6671 from international locations, Conference ID: 13682739.
To be added to the Golden Leaf email distribution list, please email [email protected] with ?GLH' in the subject line.
About Golden Leaf Holdings
Golden Leaf Holdings Ltd. is a Canadian company operating in multiple jurisdictions, including Oregon, Nevada and Canada, with cultivation, production and retail operations built around recognized brands. Golden Leaf distributes its products through its branded Chalice Farms retail dispensaries, as well as through third party dispensaries. Golden Leaf's cannabis retail operations and products are designed with the customer in mind, focused on superlative in-store experience and quality products. Visit http://goldenleafholdings.com/ to learn more.
Investor Relations:
Phil Carlson
KCSA Strategic Communications
[email protected]
212-896-1220 / 212-896-1233
Media Relations:
Anne Donohoe / Nick Opich
KCSA Strategic Communications
[email protected]/nopich@kcsa.com
212-896-1265 / 212-896-1206
Company:
William Simpson
Chief Executive Officer
Golden Leaf Holdings Ltd.
503-201-0659
[email protected]
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 operation, expectations of gross sales, the opinions or beliefs of management and future business goals, statements regarding the timing for opening of the Company's sixth Chalice Farms dispensary. 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, including but not limited to general business, economic and competitive uncertainties, regulatory risks including risks related to the expected timing of the Company's participation in the Adult Use market, market risks, risks inherent in manufacturing operations 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 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.
| GOLDEN LEAF HOLDINGS LTD. | |||||||||||||
| Interim Condensed Consolidated Statement of Operations and Comprehensive Gain (Loss) (Unaudited) | |||||||||||||
| For the three and six months ended June 30, 2018 and 2017 | |||||||||||||
| (Expressed in U.S. dollars) | |||||||||||||
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||
| Revenues | |||||||||||||
| Product sales | $ 3,671,738 | $ 2,089,393 | $ 6,854,727 | $ 4,348,487 | |||||||||
| Consulting revenue | 9,898 | - | 27,176 | - | |||||||||
| Total Revenue | $ 3,681,636 | $ 2,089,393 | $ 6,881,903 | $ 4,348,487 | |||||||||
| Inventory expensed to cost of sales | 3,029,795 | 1,530,212 | 5,754,508 | 3,368,899 | |||||||||
| Production costs | 113,753 | 157,057 | 411,227 | 339,065 | |||||||||
| Gross margin before the undernoted | 538,088 | 402,124 | 716,168 | 640,523 | |||||||||
| Fair value changes in biological assets included | |||||||||||||
| in inventory sold and other inventory charges | 10,518 | - | 129,648 | - | |||||||||
| Gain on changes in fair value of biological assets | Note 7 | (412,360 | ) | - | (706,257 | ) | - | ||||||
| Gross profit | $ 939,930 | $ 402,124 | $ 1,292,777 | $ 640,523 | |||||||||
| Expenses | |||||||||||||
| General and administration | 3,270,258 | 2,058,257 | 6,066,052 | 3,656,530 | |||||||||
| Share based compensation | Note 15 | 567,969 | 215,221 | 1,643,421 | 376,569 | ||||||||
| Professional fees paid with equity instruments | - | 113,071 | - | 167,491 | |||||||||
| Sales and marketing | 440,751 | 287,289 | 824,052 | 566,212 | |||||||||
| Depreciation and amortization | Note 8, 9 | 358,516 | 71,128 | 703,795 | 133,303 | ||||||||
| Total expenses | $ 4,637,494 | $ 2,744,966 | $ 9,237,320 | $ 4,900,105 | |||||||||
| Loss before undernoted items | $ (3,697,564 | ) | $ (2,342,842 | ) | $ (7,944,543 | ) | $ (4,259,582 | ) | |||||
| Interest expense | 266,317 | 312,411 | 915,575 | 857,432 | |||||||||
| Transaction costs | - | - | 471,900 | - | |||||||||
| Loss on disposal of assets | 5,000 | 294,200 | 5,000 | 294,200 | |||||||||
| Impairment of financing lease receivable | - | 27,422 | - | 54,844 | |||||||||
| Other loss | 36,723 | 161,903 | (122,403 | ) | 162,828 | ||||||||
| Gain on change in fair value of warrant liability | Note 12 | (4,415,480 | ) | (82,694 | ) | (10,627,702 | ) | (238,379 | ) | ||||
| Gain on change in fair value of liabilities | Note 10 | (2,841,987 | ) | (1,541,097 | ) | (9,970,603 | ) | (1,585,790 | ) | ||||
| Gain (loss) before income taxes | $ 3,251,863 | $ (1,514,987 | ) | $ 11,383,690 | $ (3,804,717 | ) | |||||||
| Current income tax expense | 8,434 | 200,000 | 8,434 | 200,000 | |||||||||
| Net Gain (Loss) | $ 3,243,429 | $ (1,714,987 | ) | $ 11,375,256 | $ (4,004,717 | ) | |||||||
| Other comprehensive loss | |||||||||||||
| Cumulative translation adjustment | $ 34,146 | - | $ 53,263 | - | |||||||||
| Comprehensive Gain (Loss) | $ 3,209,283 | $ (1,714,987 | ) | $ 11,321,993 | $ (4,004,717 | ) | |||||||
| Basic and diluted gain (loss) per share | $ 0.01 | $ (0.01 | ) | $ 0.02 | -0.03 | ||||||||
| Weighted average number of common shares outstanding | 575,776,971 | 143,604,908 | 555,451,438 | 131,045,274 | |||||||||
| GOLDEN LEAF HOLDINGS LTD. | |||||
| Interim Condensed Consolidated Statement of Financial Position (Unaudited) | |||||
| As at June 30, 2018 and December 31, 2017 | |||||
| (Expressed in U.S. dollars) | |||||
| June 30, 2018 | December 31, 2017 | ||||
| ASSETS | |||||
| CURRENT | |||||
| Cash | $ 15,702,963 | $ 6,009,447 | |||
| Accounts receivable | Note 6 | 270,919 | 377,746 | ||
| Other receivables | 136,234 | - | |||
| Income tax recoverable | 748,200 | 432,000 | |||
| Sales tax recoverable | 549,449 | 442,832 | |||
| Biological assets | Note 7 | 402,675 | 90,627 | ||
| Inventory | Note 7 | 4,059,927 | 3,623,255 | ||
| Prepaid expenses and deposits | 720,415 | 348,176 | |||
| Assets held for sale | 35,274 | 305,274 | |||
| Total current assets | $ 22,626,056 | $ 11,629,357 | |||
| Property, plant and equipment | Note 8 | 6,071,676 | 5,956,910 | ||
| Intangible assets | Note 9 | 26,075,826 | 26,227,116 | ||
| Goodwill | 31,971,398 | 31,971,398 | |||
| Total assets | $ 86,744,956 | $ 75,784,781 | |||
| LIABILITIES | |||||
| CURRENT | |||||
| Accounts payable and accrued liabilities | $ 1,127,110 | $ 2,867,735 | |||
| Interest payable | 1,594 | 48,524 | |||
| Current portion of long-term debt | Note 11 | 40,371 | 131,610 | ||
| Current portion of convertible debentures | |||||
| carried at fair value | Note 10 | - | 271,245 | ||
| Derivative liability | 92,178 | 61,044 | |||
| Total current liabilities | $ 1,261,253 | $ 3,380,158 | |||
| Long term debt | Note 11 | 64,455 | 80,381 | ||
| Note payable | Note 10 | 313,816 | 389,916 | ||
| Convertible debentures carried at fair value | Note 10 | 12,016,126 | 30,360,225 | ||
| Consideration payable | 9,527,350 | 9,527,350 | |||
| Warrant liability | Note 12 | 4,406,297 | 14,300,616 | ||
| Total liabilities | $ 27,589,297 | $ 58,038,646 | |||
| SHAREHOLDERS' EQUITY | |||||
| Share capital | Note 13 | $ 138,002,232 | $ 108,552,681 | ||
| Warrant reserve | Note 14 | 4,078,120 | 5,083,561 | ||
| Share option reserve | Note 15 | 2,100,540 | 1,087,640 | ||
| Contributed surplus | 59,940 | 59,940 | |||
| Accumulated other comprehensive loss | -43,435 | 9,828 | |||
| Deficit | -85,041,738 | -97,047,515 | |||
| Total shareholders' equity | $ 59,155,659 | $ 17,746,135 | |||
| Total liabilities and shareholders' equity | $ 86,744,956 | $ 75,784,781 | |||
| Adjusted EBITDA | ||||||||||
| For the three months ended June 30, | For the six months ended June 30, | |||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||
| Income (loss) before income taxes | 3,251,863 | (1,514,987 | ) | 11,383,690 | (3,804,717 | ) | ||||
| Adjustments: | ||||||||||
| Net impact, fair value of biological assets | (401,842 | ) | - | (576,609 | ) | - | ||||
| Depreciation and amortization | 358,516 | 71,128 | 703,795 | 133,303 | ||||||
| Fair value changes on debt and equity instruments | (7,257,467 | ) | (1,623,791 | ) | (20,598,305 | ) | (1,824,169 | ) | ||
| Share based compensation | 567,969 | 328,292 | 1,643,421 | 544,060 | ||||||
| Interest expense, net | 266,317 | 312,411 | 915,575 | 857,432 | ||||||
| Transaction costs | - | - | 471,900 | - | ||||||
| Impairments and other | 36,723 | 189,325 | (122,403 | ) | 217,672 | |||||
| Loss on disposal | 5,000 | 294,200 | 5,000 | 294,200 | ||||||
| Adjusted EBITDA operational Gain (Loss) | $ (3,172,921 | ) | $ (1,943,422 | ) | $ (6,173,936 | ) | $ (3,582,219 | ) | ||
Adjusted EBITDA Disclaimer: Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation, amortization, less certain non?cash compensation expenses, including impairments, one?time transaction fees and all other noncash items. 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.
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