Golden Leaf Holdings Reports Fiscal Third Quarter 2019 Results

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This Post Was Syndicated Under License Via QuoteMedia

TORONTO, Nov. 25, 2019 (GLOBE NEWSWIRE) — Golden Leaf Holdings Ltd. (“Golden Leaf” or the “Company”) (CSE:GLH) (OTCQB:GLDFF), a pioneer cannabis oil solutions company and dispensary operator built around recognized brands, today announced financial results for the fiscal third quarter ended September 30, 2019, and a general business update.

Recent Business and Financial Highlights (USD, unless otherwise stated)

  • Year-to-date revenues of $13.1M are up 9% compared to the same period of $12.0M in 2018.
  • Revenues of $4.5M for the third quarter of 2019 increased from the second quarter of 2019 and compared favorably with the third quarter of 2018 (excluding one-time product sale in Canada of $0.6M in Q3 2018).
  • Material improvement in gross profit to 36% of revenue in Q3 2019, compared with 9% of revenue in Q3 2018.
  • Adjusted EBITDA loss decreased dramatically to $1.8M in Q3 2019 compared with $2.9M in Q3 2018.
  • Overwhelming approval of extraordinary resolutions by debenture holders approving acceleration of maturity date to August 23, 2019 and conversion of all principal in the amount of CDN$13.0M and accrued interest of CDN$0.2M into Company stock at a conversion price of CDN$.06 per share.
  • Extension of $9.5M ($5M in cash and $4.5M in stock) Chalice Earn-Out payment to May 22, 2022.
  • Significantly strengthened and revamped the senior management team with the following appointments:  
    • John Varghese –  Executive Chairman
    • Jeffrey Yapp –  CEO 
    • Stan Grissinger –  President
    • Kate Koustareva – Interim Chief Financial Officer
    • Erin Hills – Senior Vice President, Operations
  • Expansion into California through launch of cannabis-infused fruit chews with premier co-packer Micro Buddery and distributor C4 Distro & Trading.  
  • The Company has developed better manufacturing processes with the expectation that this will continue to improve and produce better gross margins.
  • Store-on-store sales through the Company’s Chalice Farms retail locations have been increasing in Oregon.
  • Through our wholesale distribution operations, our products are now available through 229 wholesale customers in Oregon, 20 wholesale customers in Nevada and are sold in 10 dispensaries in California.

Subsequent Events

Launch of Chalice TV

On October 15, 2019, the Company lunched Chalice TV, an online media channel with content to educate consumers on all aspects of cannabis, from cultivating practices to health benefits and more.

Expansion of Management Team

On October 21, 2019, Jane Sullivan appointed as Chief People Officer, head of Human Resources.

Launch of Chalice Chews in Nevada

On October 23, 2019, Chalice Farms Chews launched in Nevada, with a partnership with Planet 13, the iconic retailer located just off the Las Vegas strip.  The partnership with Planet 13 is part of the Company’s process of re-establishing itself in Nevada.

Oregon Court of Appeals Issues Stay of Vaping Ban

On October 4, 2019, Oregon Governor Kate Brown issued an executive order implementing a six-month ban on both flavored nicotine and cannabis vape products.  On November 14, 2019, the Oregon Court of Appeals entered a six-month stay on enforcement of Governor Brown’s ban on the sale of flavored nicotine and cannabis vape products.  This allows the Company to continue selling its vape products until further action by the Court, or expiration of the stay.

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The Company expects to launch a nationwide U.S. CBD line of products in 2020.

Fiscal Third Quarter Ended September 30, 2019 Financial Results

For the nine months ended September 30, 2019, the company had revenues of $13.1M, which was 9% better than revenue for the third quarter ended September 30, 2018.

Revenues of $4.5M for the third quarter of 2019 increased from the second quarter of 2019 and compared favorably with the third quarter of 2018 (excluding one-time product sale in Canada of $0.6M in Q3 2018). During Q3 2018, the Company had an unusually large one-time product sale in Canada of $0.6M attributable to harvests built-up during 2018 sold under a wholesale contract as soon the Company obtained respective licenses from Health Canada in September 2018. There have been no harvest sales in Canada during 2019 attributable to ending of the long-term wholesale contract and wholesale market oversupply.

Gross profit was $1.6M or 36% of total revenue for Q3 2019, compared with $0.4M or 9% of total revenue in Q3 2018. Gross profit improvement in Q3 2019 over prior year period is slightly lower compared with the gross profit of 40% and 41% of quarterly revenues in Q2 2019 and Q1 2019.

“The strong gross margin run-rate in the first nine months of 2019 is primarily due to significant cost reductions and utilization of improved inventory controls and processes,” said Jeff Yapp, CEO. “Our increased focus on operational excellence and building out our executive team is starting to show results that we believe are sustainable for growth in the coming quarters.”

Operating expenses were $4.2M for Q3 2019 compared with $4.6M for Q3 2018. The Company has been able to increase year-to-date revenues while maintaining its cost structure. The company will continue to focus on cost controls during the fourth quarter and fiscal 2020.

Adjusted EBITDA loss dramatically decreased to $1.8M for Q3 2019, compared with a loss of $2.9M for Q3 2018. Adjusted 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. The Company considers Adjusted EBITDA an important operational measure for the business. For a reconciliation of Adjusted EBITDA to income (loss) before income taxes, please see the Company’s management discussion and analysis for the three and nine months ended September 30, 2019 (the “MD&A”). 

Net loss for Q3 2019 was $3.2M or $0.0 per share, compared with a net loss of $5.5M or $0.01 per share for Q3 2018, a quarter-over-quarter improvement of $2.4M.

As of September 30, 2019, the Company had approximately $3.8M in cash, compared with $12.3M at December 31, 2018.  The Company continues to reduce its cash burn on a monthly basis and expects to turn EBITDA positive during the second half of 2020 further reflecting the improvements on both top line and cost controls.

The Company’s interim condensed consolidated financial statements for the three and nine months ended September 30, 2019, the related notes and MD&A for the three and nine months ended September 30, 2019 will be filed on SEDAR and available for review later today.

The Company will host a conference call for investors to discuss the third – quarter results on Tuesday, November 26 at 12:00 PM ET. Please visit click here to register and stream the call, or use the following phone numbers:

Toll Free: 1-877-423-9813
Toll/International: 1-201-689-8573

A replay of the call will be available at 3:00 PM ET on November 26 and will be accessible until Tuesday December 10, 2019. For access to replay:

Toll Free: 1-844-512-2921
Toll/International: 1-412-317-6671
Replay Pin Number: 13696902
Replay Expiry: Tuesday December 10, 2019, 11:59 PM ET

About Golden Leaf Holdings
Golden Leaf Holdings Ltd., a Canadian company with operations in multiple jurisdictions including Oregon, Nevada and Canada, is one of the largest cannabis oil and solution providers in North America, and a leading cannabis products company built around recognized brands. Golden Leaf cultivates, extracts, manufactures and distributes its products through its branded Chalice Farm retail dispensaries, as well as through third party dispensaries. Golden Leaf leverages a strong management team with cannabis and food industry experience to complement its expertise in extracting, refining and selling cannabis oil.  Visit goldenleafholdings.com to learn more.

Company:
Kate Koustareva
Interim CFO
Golden Leaf Holdings Ltd.
[email protected]

Investor Relations:
John Varghese
Executive Chairman
416-706-2312

Media Relations:
Anne Donohoe / Nick Opich
KCSA Strategic Communications
[email protected] / [email protected]
212-896-1265 / 212-896-1206

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.

 

  GOLDEN LEAF HOLDINGS LTD.        
  Interim Condensed Consolidated Statement of Financial Position (Unaudited)    
  As at September 30, 2019 and December 31, 2018          
  (Expressed in U.S. dollars)          
             
    September 30, 2019   December 31, 2018    
             
  ASSETS          
  CURRENT          
  Cash $ 3,815,208     $ 12,275,372      
  Accounts receivable   465,821       624,453      
  Other receivables   483,594       297,737      
  Income tax recoverable   686,600       686,600      
  Sales tax recoverable   636,946       661,319      
  Biological assets   157,509       74,148      
  Inventory   3,948,961       3,416,906      
  Prepaid expenses and deposits   914,114       1,962,033      
  Assets held for sale         35,274      
  Total current assets $ 11,108,753     $ 20,033,842      
             
  Property, plant and equipment   10,354,392       6,188,835      
  Intangible assets   21,613,323       21,782,949      
  Goodwill   25,471,399       25,471,399      
  Total assets $ 68,547,867     $ 73,477,025      
             
  LIABILITIES          
  CURRENT          
  Accounts payable and accrued liabilities $ 1,519,708     $ 2,624,967      
  Interest payable   685,496       92,554      
  Income taxes payable   69,539       106,808      
  Sales tax payable   133,041       231,675      
  Current portion of long-term debt   814,559       25,492      
  Current portion of convertible debentures carried at fair value         8,888,946      
  Warrant liability   104       369,343      
  Total current liabilities $ 3,222,447     $ 12,339,785      
             
  Long term debt $ 4,344,472       46,229      
  Note payable   312,118       312,118      
  Convertible debentures carried at fair value   4,980,000       4,996,811      
  Consideration payable   9,157,667       8,956,809      
  Warrant liability   243       236,138      
  Total liabilities $ 22,016,947     $ 26,887,890      
             
  SHAREHOLDERS’ EQUITY          
             
  Share capital $ 148,735,032     $ 138,511,038      
  Warrant reserve   3,705,261       4,052,164      
  Share option reserve   4,580,749       4,777,929      
  Contributed surplus   59,940       59,940      
  Accumulated other comprehensive loss   (1,317,999 )     (125,930 )    
  Deficit   (109,232,063 )     (100,686,006 )    
  Total shareholders’ equity   46,530,920       46,589,135      
  Total liabilities and shareholders’ equity $ 68,547,867     $ 73,477,025      
             

GOLDEN LEAF HOLDINGS LTD.                  
Interim Condensed Consolidated Statements of Operations and Comprehensive (Loss) Gain (Unaudited)      
For the three and nine months ended September 30, 2019 and 2018                  
(Expressed in U.S. dollars)                    
                     
  For the three months ended September 30,   For the nine months ended September 30,      
    2019       2018       2019       2018        
Revenues                    
Product sales $ 4,471,510     $ 5,104,251     $ 12,845,088     $ 11,958,978        
Consulting revenue   13,632       8,662       232,266       35,838        
Total Revenue $ 4,485,142     $ 5,112,913     $ 13,077,354     $ 11,994,816        
                                     
Inventory expensed to cost of sales   2,775,054       3,825,330       7,657,688       9,579,838        
Production costs   121,785       476,512       368,972       887,739        
Gross margin, excluding fair value items   1,588,303       811,071       5,050,694       1,527,239        
Fair value changes in biological assets included in inventory sold         (91,672 )     397,356       37,976        
(Gain) loss on changes in fair value of biological assets   (28,773 )     458,542       (436,454 )     (247,715 )      
Gross profit $ 1,617,076     $ 444,201     $ 5,089,792     $ 1,736,978        
                     
Expenses                    
General and administration   2,931,595       3,182,236       8,857,685       9,248,288        
Share based compensation   155,936       539,758       485,646       2,183,179        
Sales and marketing   448,569       557,500       1,457,464       1,381,552        
Depreciation and amortization   669,219       376,977       2,111,248       1,080,772        
Total expenses $ 4,205,319     $ 4,656,471     $ 12,912,043     $ 13,893,791        
                     
Loss before items noted below $ (2,588,243 )   $ (4,212,270 )   $ (7,822,251 )   $ (12,156,813 )        
Interest expense (income)   560,860       (31,280 )     2,064,341       884,295        
Transaction costs   612       454,292       8,834       926,192        
Loss on disposal of assets   4,330             97,241       5,000        
Other (loss) income   (79,517 )     (12,410 )     14,048       (134,813 )      
Gain on debt modification   (312,083 )           (312,083 )            
(Gain) loss on change in fair value of warrant liabilities   (23,371 )     1,372,824       (605,134 )     (9,254,878 )      
Loss (gain) on change in fair value of convertible debentures   351,088       (506,686 )     470,365       (10,477,289 )      
(Loss) income before income taxes   (3,090,162 )     (5,489,010 )     (9,559,863 )     5,894,680        
Current income tax expense         3,842       15,924       12,276        
Net (loss) income $ (3,090,162 )   $ (5,492,852 )   $ (9,575,787 )   $ 5,882,404        
                     
Other comprehensive loss                    
Items that will be reclassified subsequently to profit or loss:                    
Cumulative translation adjustment   210,023       (7,475 )     1,192,068       45,788        
Comprehensive (loss) gain $ (3,300,185 )   $ (5,485,377 )   $ (10,767,855 )   $ 5,836,616        
Basic and diluted (loss) gain per share $ (0.00 )   $ (0.01 )   $ (0.02 )   $ 0.01        
Weighted average number of common shares outstanding   685,518,103       580,321,291       621,050,033       563,832,540        
                     

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