Chalice Brands Ltd. Continues Sequential Revenue Growth

Reports Second Quarter 2021 Revenues of $6.9 Million and Third Consecutive Quarter of Positive Adjusted EBITDA(1) PORTLAND, Ore., Aug. 26, 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 second quarter 2021. All amounts stated are in US dollars unless otherwise noted. Second Quarter Highlights: Record quarterly revenues from continuing operations of $6.9 million, a 26% year-over-year increase compared to $5.5 million for the same period in 2020.Gross profit for second quarter 2021 of $3.1M, or 45% gross margin, compared to $1.3M or 23% gross margin 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.Continued the positive Adjusted EBITDA1 trend of approximately $250,000.On April 8, 2021, the Company announced its 80% acquisition of CBD skincare brand Fifth & Root with a national presence in over 400 retail outlets across the United States.A record 412 million shares were voted at the Company’s annual general meeting held on May 10, 2021, with over 95% approving the Company’s name change to Chalice Brands Ltd. along with the share consolidation effective as of May 25, 2021.On May 19, 2021, the Company closed the purchase of 100% ownership in Homegrown Oregon, a chain of five retail dispensaries located in Portland, Salem and Albany, Oregon, for total consideration of approximately US$9.75 million.Retail store count in Oregon increased from 7 to 12. Chalice branded products in Homegrown have risen from 3% pre-acquisition to a high of 28% in August. In Chalice retail stores, Chalice branded products reached a high of over 50%.Enacted the consolidation of its common shares on the basis of one (1) post-consolidation common share for every twenty-three (23) pre-consolidation common shares effective as of May 25, 2021.Appointed Ginger Mollo as Chief Integration Officer of Chalice Brands, and General Manager of Fifth & Root; a nationally recognized CBD skincare brand based in California. Jeff Yapp, President and Chief Executive Officer of Chalice Brands, commented, “Chalice is creating a strong foundation through our decision to prioritize the crawl-walk-run operating philosophy in our approach to investments for growth. We continue to make excellent progress in terms of executing our west coast U.S. strategy to achieve accelerated growth, and our record second quarter results reflect this. Chalice continues to generate strong organic growth due to brand recognition, disciplined capital allocation, and strategic acquisitions.” Fiscal Second Quarter Ended June 30, 2021 Financial Results For the three months ended June 30, 2021 (“Q2 2021”), total revenue from continuing operations was $6.9 million, as compared to $5.5 million for the same period in 2020 (“Q2 2020”). Gross profit grew 131% year-over-year to $3.1 million. Gross margin almost doubled from 23% in Q2 2020 to 45% in Q2 2021. Adjusted EBITDA1 was approximately $250,000 for Q2 2021, compared with a loss of $750,000 for Q2 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 grow this important metric as the business scales. For the six months ended June 30, 2021, total revenue from continuing operations was $12.4 million, as compared to $10.2 million for the same period in 2020. The 22% year-over-year increase is strongly attributed to the accretive acquisition of Homegrown coupled with continued strength in retail tickets and traffic. For the six months ended June 30, 2021, gross profit was $5.1 million, or 45% compared to $3.0 million or 30% for the same period in 2020 with the increase driven by contribution from Homegrown, increased vertical sales and increased third party revenues. While revenue grew 22% during the period, operating expenses decreased 5% from $6.3 million for the six months ended June 30, 2020 to $6.0 million for the six months ended June 30, 2021. The Company’s interim financial statements for the second quarter 2021 and related MD&A have been filed on SEDAR and are available for review. “Management has executed on our targeted high-level business objectives and are confident Chalice Brands will continue to position itself as a market leader in Oregon. In doing so, the Company is proud to have accomplished sequential revenue growth and profitable operations, as highlighted in this record second quarter performance. We look forward to executing on our conservative capital allocation to drive growth organically and through any opportunistic and accretive transactions for the remainder of the year,” added 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 and excluding fair value changes related to biological assets.  CHALICE BRANDS LTD.Interim Condensed Consolidated Statements of Financial Position (Unaudited)As at June 30, 2021 and December 31, 2020(Expressed in U.S. dollars)     June 30, 2021  December 31, 2020         CURRENT       Cash  $1,828,406  $905,149 Accounts receivableNote 5 236,424  108,308 Other receivablesNote 5 829,307  737,185 Notes receivable  919,488  919,488 Sales tax recoverable  78,948  89,033 Biological assetsNote 6 501,737  455,045 InventoryNote 6 4,549,053  2,304,501 Prepaid expenses and deposits  245,367  376,080 Total current assets  9,188,730  5,894,789         Property, plant and equipmentNote 7 2,533,751  2,361,357 Other receivablesNote 5 842,440  836,235 Right-of-use assets, netNote 8 5,567,355  4,132,035 Intangible assets, netNote 9 13,801,001  10,737,423 GoodwillNote 9 13,398,793  4,056,172 Total assets  $45,332,070  $28,018,011         LIABILITIES       CURRENT       Accounts payable and accrued liabilities  $4,170,011  $3,432,525 Income taxes payable  1,435,409  1,003,604 Deferred income tax payable  520,789  55,039 Sales tax payable  358,882  217,789 Current portion of long-term debtNote 12 12,450  22,171 Notes payable – current portionNote 12 214,677  119,533 Convertible debentures carried at fair valueNote 10 –  5,575,273 Consideration payable – cash portionNote 12 72,712  – Lease liabilityNote 11 1,078,199  949,496 Total current liabilities  7,863,129  11,375,430         Notes payableNote 12 1,829,906  – Long-term debtNote 12 50,764  134,675 Long-term lease liabilityNote 11 5,582,873  4,372,395 Warrant liabilityNote 13 4,005,041  – Derivative liabilityNote 10 448,883  – Convertible debentures carried at amortized costNote 10 2,740,345  – Consideration payable – cash portionNote 12 2,239,056  1,824,533 Consideration payable – equity portionNote 12 4,527,350  4,838,780 Total liabilities  29,287,347  22,545,813         EQUITY               Share capitalNote 14 164,336,386  149,754,502 Warrant reserveNote 15 204,484  1,079 Share option reserveNote 16 3,874,825  4,070,474 Contributed surplus  2,329,997  2,329,997 Deficit  (155,097,230) (150,683,854)Equity attributable to shareholder of the Company  15,648,462  5,472,198 Equity attributable to noncontrolling interests  396,261  – Total equity  $45,332,070  $28,018,011  CHALICE BRANDS LTD.Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)For the three and six months ended June 30, 2021 and 2020(Expressed in U.S. dollars)                   For the three months ended June 30,  For the six months ended June 30,   2021  2020  2021  2020 Revenues            Product salesNote 21$6,585,891  $5,312,655  $11,619,205  $9,552,237 Royalty and other revenueNote 21342,810  204,078  804,951  634,800 Total Revenue 6,928,701  5,516,733  12,424,156  10,187,037 Inventory expensed to cost of salesNote 6, 214,157,031  4,041,207  7,337,956  7,005,399 Gross margin, excluding fair value items 2,771,670  1,475,526  5,086,200  3,181,638              Fair value changes in biological assets included in inventory soldNote 6, 2146,720  (34,358) (37,609) (34,358)(Gain) loss on changes in fair value of biological assetsNote 6, 21(404,417) 216,870  (486,180) 196,156 Gross profit 3,129,367  1,293,014  5,609,989  3,019,840              Expenses:            General and administration 2,743,969  2,190,871  4,877,986  4,499,030 Share-based compensationNote 16129,888  93,697  198,938  223,276 Sales and marketing 459,913  539,028  776,036  1,074,054 Depreciation and amortizationNote 8, 9223,740  230,278  448,671  535,738 Total expenses 3,557,510  3,053,874  6,301,631  6,332,098              Loss before items noted below (428,143) (1,760,860) (691,642) (3,312,258)             Interest expenseNote 10,11,12455,414  547,743  884,635  1,098,844 Transaction costs 51,920  41,051  86,540  41,051 Loss on disposal of assetsNote 76,233  310,017  6,233  317,839 Other (income) loss 3,647  (9,781) 88,113  (38,220)(Gain) loss on change in fair value of warrant liabilitiesNote 11(1,689,283) –  1,285,210  – Loss on change in fair value of convertible debenturesNote 10-  –  172,956  – (Gain) loss on change in fair value of derivative liablitiesNote 10(247,618) –  374,259  – Loss on debt extinguishmentNote 10-  –  88,079  – Income (loss) before income taxes 991,544  (2,649,890) (3,677,667) (4,731,772)Current income tax expense 542,445  304,932  817,445  663,216 Net income (loss) 449,099  (2,954,822) (4,495,112) (5,394,988)Other comprehensive  loss            Items that will be reclassified subsequently to profit or loss:            Comprehensive loss attributable to noncontrolling interests $(15,054) $-  $(15,054) $- Comprehensive income (loss) $464,153  $(2,954,822) $(4,480,058) $(5,394,988)Basic and diluted income (loss) per share from continuing operations $0.01  $(0.08) $(0.08) $(0.14)Weighted average number of common shares outstanding 57,956,291  37,469,164  53,299,883  37,427,844              Adjusted EBITDA                        For the three months ended  For the six months ended  June 30, 2021  June 30, 2020  June 30, 2021  June 30, 2020             Loss before income taxes$      991,544  $(2,649,890) $(3,677,667) $   (4,731,772)Adjustments:           (Gain)/Loss on fair value of biological assets(404,417) 182,512  (486,180) 161,798 Depreciation and amortization451,582  503,044  913,207  1,071,389 Fair value changes on debt and equity instruments(1,936,901) –  1,920,504  – Share based compensation129,888  93,697  198,938  223,276 Interest expense, net455,414  547,743  884,635  1,098,844 Transaction costs51,920  41,051  86,540  41,051 Start-up costs(1)60,218  –  170,746  119,196 Nevada curtailment expenses and other (2)30,045  236,000  103,297  236,000 Non-cash non-recurring investor relations88,027  –  88,027  – Non-recurring promotional costs (3)297,443  –  297,443  – Costs related to share consolidation and name change26,442  –  26,442  – Impairments and other9,880  300,236  94,346  404,619 Adjusted EBITDA$      251,084  $    (745,607) $      620,278  $   (1,375,599)(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 Q2 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 Thursday, August 26, 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 at 7:30 p.m. ET on August 26, 2021, on the Company’s website at investors.chalicebrandsltd.com where it will be archived for one year. Chalice Brands Ltd. Chalice Brands is a premier consumer-driven cannabis company specializing in production, processing, wholesale, distribution and retail, with twelve 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. Chalice operates nationally through Fifth and Root and has operations in Oregon and California. Visit investors.chalicebrandsltd.com for regular updates. Investor Relations: John VargheseExecutive ChairmanChalice Brands [email protected] 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, non-recurring promotional and investor relations 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.