Green Growth Brands Reports Second Quarter Fiscal 2020 Results

COLUMBUS, Feb. 24, 2020 /PRNewswire/ – Green Growth Brands Inc. (GGB or the Company) (CSE: GGB) (OTCQB: GGBXF) today reported its results for the period ended December 28, 2019. Revenues for the period totaled $21.1M.

“The results this quarter are a reflection of our ability to create products and experiences that consumers want,” said Peter Horvath, CEO of Green Growth Brands. “We are pleased with the consumer demand signals we saw in the CBD segment during the quarter, and we remain confident in its future potential. However, overhead costs, near-term obligations and constraints on liquidity have posed significant challenges that have hindered us from growing the CBD business in the timeframes we anticipated to its full-potential.

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“The initiatives we announced today to sell the CBD segment, restructure debt and raise equity financing improves the financial infrastructure we need to scale our MSO segment. We believe focusing our expertise on the MSO segment will yield the highest long-term value for our shareholders and customers.”

In light of today’s announcement regarding the CBD Transaction and related matters, GGB has rescheduled its conference call and audio webcast with Chief Executive Officer, Peter Horvath, Chief Operating Officer, Randy Whitaker, and Chief Financial Officer, Brian Logan, for 5:00 PM EST on Wednesday, February 26, 2020.

Second Quarter Fiscal 2020 Highlights

  • Total revenue for the quarter was $21.1 million, a sequential increase of 66% over the prior quarter

  • CBD revenue for the quarter was $11.0 million, a sequential increase of 113% over the prior quarter

  • MSO revenue for the quarter was $10.1 million, a sequential increase of 33% over the prior quarter

  • Total gross margin for the quarter was 30%, compared to 11% for the prior quarter, resulting in a sequential increase in gross profit of $5.0 million over the prior quarter

  • Total operating expenses for the quarter were $29.9 million, compared to $25.0 million for the prior quarter, due to growth in mall-based CBD shops from 139 to 195

  • Net loss before taxes for the quarter was $34.8 million, including non-operating expenses of $11.3 million, compared to a net loss before taxes for the prior quarter of $29.9 million, including non-operating expenses of $6.3 million

  • Adjusted EBITDA loss for the quarter was $13.9 million, compared to a loss of $15.2 million for the prior quarter ended September 28, 2019

Adjusted EBITA loss is a non-IFRS financial measure.  A description of and a schedule reconciling net loss before taxes, an IFRS financial measure, to Adjusted EBITDA loss, a non-IFRS financial measure, accompanies this release

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Second Quarter Fiscal 2020 Financial Statements

Unaudited Condensed Interim Consolidated Statements of Financial Position

As at December 28, 2019 and June 30, 2019

(Expressed in United States dollars)

December 28, 2019

June 30, 2019

Assets

Current Assets

Cash and cash equivalents

$

3,597,173

$

10,256,008

Receivables

1,032,141

580,529

Prepaid expenses

2,046,461

5,142,618

Inventories

8,167,294

10,244,804

Biological assets

685,744

1,352,097

Notes receivable

48,467

47,739

Other receivables

2,845,744

3,006,760

Deferred lease charges

727,518

18,423,024

31,358,073

Non-current assets

Deposits and other assets

716,672

2,880,186

Deferred lease charges

2,606,940

Notes receivable

154,478

17,999,224

Property and equipment, net

29,708,259

18,761,723

Right-of-use assets

86,619,872

Intangible assets

101,667,071

39,925,984

Goodwill

58,416,949

36,253,417

 Total assets 

$

295,706,325

$

149,785,547

Liabilities

Current Liabilities

Accounts payable and accrued liabilities

32,009,434

16,028,807

Taxes payable

1,113,360

282,593

Due to related parties

4,491,862

317,535

Notes payable

35,060,970

45,762,540

Lease liabilities

11,846,119

Embedded derivative liabilities

274,531

1,496,214

Convertible debentures

67,105,410

41,623,041

151,901,686

105,510,730

Non-current liabilities

Long term accrued liabilities

1,672,672

299,977

Lease liabilities

77,796,680

Embedded derivative liabilities

226,797

Convertible debentures

9,033,123

Deferred tax liability

6,985,048

1,437,324

95,714,320

1,737,301

Shareholders’ Equity 

Share capital

182,954,729

119,881,374

Reserve for warrants

16,538,786

9,054,624

Reserve for share-based compensation

4,239,914

3,147,110

Accumulated deficit

(158,425,838)

(92,453,943)

Accumulated other comprehensive income

148,286

148,286

Total equity attributable to shareholders of Green Growth Brands Inc.

45,455,877

39,777,451

Non-controlling interest

2,634,442

2,760,065

Total equity

48,090,319

42,537,516

 Total liabilities and equity 

$

295,706,325

$

149,785,547

Adjusted EBITDA loss is a non-IFRS financial measure, which is calculated as net income (loss) before interest, taxes and depreciation and amortization, plus fair value adjustments on sale of inventory and on growth of biological assets, share-based compensation and payments, loss (gain) on equity investments, loss (gain) on foreign exchange, transaction costs, and certain other non-operating expenses, as determined by the Company. The Company believes this measure provides useful information as it is a commonly used measure in the capital markets and as it is a close proxy for repeatable cash generated by (used for) operations.

Adjusted EBITDA

(Expressed in United States dollars)

13 weeks

Three Months

26 weeks

Six months

December 28,

December 31,

December 28,

December 31,

2019

2018

2019

2018

Net loss after listing fees before income taxes

$

(34,799,689)

$

(14,163,507)

$

(64,686,365)

$

(17,010,044)

Fair value adjustment on sale of inventory

335,681

593,670

1,242,600

593,670

Fair value adjustment on biological assets

527,234

(757,564)

19,950

(757,564)

Stock based compensation

1,649,401

187,640

3,282,323

187,640

Depreciation and amortization

5,661,206

202,561

9,287,735

202,561

Shares issued for services

101,804

1,000,000

101,804

1,567,884

Pre-opening expenses

1,235,974

2,201,717

Non-operating expenses

11,322,409

3,644,412

17,586,574

3,800,514

Termination and severance

199,292

620,688

Writedown of developed technology

573,662

Other non-operating expenses

(155,050)

623,879

Listing fees

459,715

699,190

20,877,951

5,330,434

35,540,932

6,293,895

Adjusted EBITDA loss

$

(13,921,738)

$

(8,833,073)

$

(29,145,433)

$

(10,716,149)

Unaudited Condensed Interim Consolidated Statements of Loss

For the 13 and 26 weeks ended December 28, 2019 and for the three and six months ended December 31, 2018

(Expressed in United States dollars)

13 weeks
ended

December 28,
2019

Three months
ended

December 31,
2018

26 weeks
ended

December 28,
2019

Six months
ended

December 31,
2018

Sales

Revenue

$

21,090,653

$

3,000,445

$

33,792,611

$

3,000,445

Cost of goods sold

13,796,645

3,020,708

24,707,645

3,020,708

Gross profit before fair value adjustments

7,294,008

(20,263)

9,084,966

(20,263)

Fair value change in biological assets included in inventory sold and other charges

335,681

593,670

1,242,600

593,670

Unrealized loss (gain) on changes in fair value of biological assets

527,234

(757,564)

19,950

(757,564)

Gross profit

6,431,093

143,631

7,822,416

143,631

Operating expenses

General and administrative

8,139,725

8,629,756

17,823,392

11,080,716

Sales and marketing

14,458,041

1,183,054

24,528,757

1,183,054

Share-based compensation

1,649,401

187,640

3,282,323

187,640

Depreciation and amortization

5,661,206

202,561

9,287,735

202,561

29,908,373

10,203,011

54,922,207

12,653,971

(23,477,280)

(10,059,380)

(47,099,791)

(12,510,340)

Other expenses (income)

Loss on equity investments

671,578

671,578

Gain in fair value of derivative liabilities

(3,938,846)

(8,179,556)

Interest expense, net

5,693,009

1,887,378

9,454,486

1,887,595

Accretion on convertible debentures

2,153,706

3,563,289

Foreign exchange loss 

518,057

585,529

29,670

741,414

Realized gain on short term investments

(500,073)

(500,073)

Transaction costs

6,896,483

1,000,000

12,718,685

1,000,000

Net loss before listing fees and income taxes

(34,799,689)

(13,703,792)

(64,686,365)

(16,310,854)

Listing fees

459,715

699,190

Net loss after listing fees

(34,799,689)

(14,163,507)

(64,686,365)

(17,010,044)

 Income taxes 

1,142,216

375,618

1,498,825

375,618

Net loss after income taxes

$

(35,941,905)

$

(14,539,125)

$

(66,185,190)

$

(17,385,662)

Less: Non-controlling interest

82,462

12,442

125,623

12,442

Net loss attributable to owners of the parent

$

(35,859,443)

$

(14,526,683)

$

(66,059,567)

$

(17,373,220)

Net loss per Common Share attributable to owners of the parent

Basic and Diluted

$

(0.15)

$

(0.09)

$

(0.32)

$

(0.15)

Weighted average common shares

238,307,273

164,090,148

204,887,700

114,258,347

Other comprehensive loss

Exchange gain on translating foreign operations

148,286

148,286

Comprehensive loss

$

(35,859,443)

$

(14,378,397)

$   (66,059,567)

$

(17,224,934)

Unaudited Condensed Interim Consolidated Statement of Cashflow

For the 26 weeks ended December 28, 2019, and for the six months ended December 31, 2018

(Expressed in United States dollars)

December 28, 2019

December 31, 2018

Cashflow from Operating Activities

Net loss after income taxes for the period

$

(66,185,190)

$

(17,385,662)

Adjustments for:

Stock based compensation

3,282,323

187,640

Shares and warrants issued for services and fees

3,615,733

1,673,328

Depreciation and amortization

9,289,938

209,195

Lease incentives

4,560,000

Loss on equity investment

671,578

Unrealized gain on short term investment

(500,073)

Loss on acquisitions

1,000,000

Writedown of developed software

409,022

Deferred tax expense

(225,333)

Accretion expense

3,563,290

Gain in fair value of embedded derivative liabilities

(8,179,556)

Net fair value adjustment on biological assets

1,262,550

(163,894)

Foreign exchange on translation

29,670

741,414

Changes in working capital balances

Receivables

(438,563)

111,027

Prepaid expenses

3,096,157

(2,701,515)

Other receivables

867,463

(1,339,326)

Inventories

2,749,316

272,793

Biological assets

(596,197)

(267,917)

Accounts payable and accrued liabilities

16,485,190

3,976,455

Income taxes payable

830,767

375,618

(25,583,420)

(13,139,339)

Cashflow from Investing Activities

Purchase of property and equipment

(12,538,980)

(1,044,378)

Purchase of software

(802,876)

Purchase of short term investment

(16,945,040)

Acquisition of businesses, net of cash acquired

(12,703,263)

(31,185,080)

Proceeds from sale of equity investment

23,674

50,000

Purchase of equity investment

(300,000)

Advances on acquisitions

(19,485,000)

(26,021,445)

(68,909,498)

Cashflow from Financing Activities

Proceeds from warrants and options exercised

298,420

23,055,019

Proceeds from equity financings

36,500,915

25,578,714

Repayment of notes

(15,485,000)

Principal payments of lease liabilities

(4,007,059)

Proceeds from promissory notes

6,688,680

Proceeds from convertible debentures, net of issuance costs

20,936,845

60,618,156

44,932,801

109,251,889

Effect of exchange rates on cash

13,229

(408,079)

(Decrease) Increase in cash

(6,658,835)

26,794,973

Cash, beginning of period

10,256,008

4,688,311

Cash, end of period

$

3,597,173

$

31,483,284

Supplemental disclosure of cash flow information

Interest paid

2,245,602

Income taxes paid

750,000

Other non-cash investing and financing activities

Change in accrual for construction in progress

440,662

Acquisition of business for non-cash

47,107,913

Issuance of shares for underwriter fees on bought deal financing

2,080,494

Segmented statement of operations for the 13 weeks ended December 28, 2019 and three months ended December 30, 2018

(unaudited)

(Expressed in United States dollars)

MSO

CBD

Head office

Allocations

Total

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

Sales

Revenue

$

10,112,627

$

2,935,682

$

10,978,026

$

64,763

$

$

$

$

$

21,090,653

$

3,000,445

Cost of goods sold

5,953,122

1,846,179

6,565,210

116,584

1,278,313

1,057,945

13,796,645

3,020,708

Gross profit before fair value adjustments

4,159,505

1,089,503

4,412,816

(51,821)

(1,278,313)

(1,057,945)

7,294,008

(20,263)

Fair value change in biological assets included in inventory
sold and other charges

335,681

593,670

335,681

593,670

Unrealized loss (gain) on changes in fair value of biological
assets

527,234

(757,564)

527,234

(757,564)

Gross profit

3,296,590

1,253,397

4,412,816

(51,821)

(1,278,313)

(1,057,945)

6,431,093

143,631

Operating Expenses

General and administration

8,929,459

8,629,756

(789,734)

8,139,725

8,629,756

Sales and marketing

2,783,110

822,161

11,937,442

9,477

1,183,054

(262,511)

(831,638)

14,458,041

1,183,054

Stock based compensation

1,649,401

187,640

1,649,401

187,640

Depreciation and amortization

528,083

4,509,254

849,937

202,561

(226,068)

5,661,206

202,561

3,311,193

822,161

16,446,696

9,477

11,428,797

10,203,011

(1,278,313)

(831,638)

29,908,373

10,203,011

(14,603)

431,236

(12,033,880)

(61,298)

(11,428,797)

(10,203,011)

(226,307)

(23,477,280)

(10,059,380)

Non-operating expenses

Loss on equity investment in Xanthic Beverages USA, LLC

671,578

671,578

Gain in fair value of derivative liabilities

(3,938,846)

(3,938,846)

Interest expense, net

582,759

1,697,431

3,412,819

1,887,378

5,693,009

1,887,378

Accretion expense

2,153,706

2,153,706

Foreign exchange loss

518,057

585,529

518,057

585,529

Unrealized gain on marketable securities

(500,073)

(500,073)

Transaction costs

6,896,483

1,000,000

6,896,483

1,000,000

Net income (loss) before listing fees and income taxes

(597,362)

431,236

(13,731,311)

(61,298)

(20,471,016)

(13,847,423)

(226,307)

(34,799,689)

(13,703,792)

Listing fees

459,715

459,715

Net income (loss) after listing fees

(597,362)

431,236

(13,731,311)

(61,298)

(20,471,016)

(14,307,138)

(226,307)

(34,799,689)

(14,163,507)

 Income taxes 

1,142,216

375,618

1,142,216

375,618

Net income (loss) after income taxes

$

(1,739,578)

$

55,618

$

(13,731,311)

$

(61,298)

$

(20,471,016)

$

(14,307,138)

$

$

(226,307)

$

(35,941,905)

$

(14,539,125)

Net income (loss) and comprehensive loss attributable to:

Owners of the parent

(1,739,578)

55,618

(13,731,311)

(61,298)

(20,471,016)

(14,307,138)

(226,307)

(35,941,905)

(14,539,125)

Non-controlling interest

(1,739,578)

55,618

(13,731,311)

(61,298)

(20,471,016)

(14,307,138)

(226,307)

(35,941,905)

(14,539,125)

Conference Call Information

Conference ID: 03558055

Local Toronto Dial-in Number: (+1) 416 764 8609

Local Vancouver Dial-in Number: (+1) 778 383 7417

North American Toll-Free Number:(+1) 888 390 0605

Or access via webcast.

The call and replay archive will be accessible on Green Growth Brands’ Investor Relations website.

About Green Growth Brands Inc.
Green Growth Brands creates remarkable experiences in cannabis and CBD. Led by CEO Peter Horvath and a leadership team of consumer-focused retail experts, the company’s brands include CAMP, Seventh Sense Botanical Therapy, The+Source, Green Lily, and 8 Fold. The Company also has a licensing agreement with the Greg Norman™ Brand to develop a line of CBD-infused personal care products designed for active wellness. GGB is expanding its cannabis operations throughout the U.S., via dispensaries in NevadaMassachusetts and Florida and the largest network of CBD shops in malls across the country and ShopSeventhSense.com. Learn more about the vision at  GreenGrowthBrands.com.

Cautionary Statements

Forward Looking Information

Certain information in this news release constitutes forward-looking statements under applicable securities law. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as “may”, “should”, “anticipate”, “expect”, “intend”, “forecast” and similar expressions.  Forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; marketing costs; loss of markets; future legislative and regulatory developments involving medical and recreational marijuana; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favorable terms; the marijuana industry in the United States, income tax and regulatory matters; the ability of the Company to implement its business strategies, including with respect to its CBD Business strategy; competition; currency and interest rate fluctuations and other risks, including those factors described under the heading “Risks Factors” in (i) the Company’s Annual Information Form dated November 26, 2018 which is available on the Company’s issuer profile on SEDAR and (ii) the Company’s Short Form Prospectus dated August 15, 2019. Information relating to the Company’s second quarter results in this news release is based upon unaudited internal financial statements prepared by management and subject to final review procedures.

Readers are cautioned that the foregoing list is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. The forward-looking statements contained in this release, including without limitation, the results of any strategic review process, including the potential sale or other disposition of all or a portion of the CBD Business; the application of proceeds of such sale or disposition of the CBD Business; the ability of the Company to secure short term and alternative financing; the expected expansion of the MSO Segment, including the opening of 45 dispensaries, is made as of the date hereof and the Company is not obligated to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Going Concern Risk

As previously disclosed, the continuing operations of the Company remain dependent upon its ability to continue to raise adequate financing, to commence profitable operations in the future, and repay its liabilities arising from normal business operations as they become due. As at and for the 13 week period ending December 28, 2019, the Company had a working capital deficit of $133,478,662 and used cash for operating activities of $12,589,708. Notwithstanding the CBD Transaction, CBD Sales Process and the strategic review of the CBD Business there remains a significant risk that the Company will be unable to realize sufficient cost savings, find sufficient sources of financing for on-going working capital requirements and other material obligations that are due or maturing in the short term or to negotiate extensions or alternate payment terms in respect of such debt. These material uncertainties cast significant doubt upon the Company’s ability to meet its obligations as they come due and to continue as a going concern. As previously announced, US$5 million was payable to MXY Holdings LLC (“Moxie”) on or before February 5, 2020 (assuming a five-day cure period following January 31, 2020). The Company has been working to secure a deferral of this obligation and is also seeking short-term financing from certain of its key stakeholders in connection therewith. In addition to the Moxie payment, The Company and its subsidiaries have material obligations that are due or that are coming due in the near term. The Company has drawn all amounts available to it under the previously announced working capital backstop commitment provided by All Js Greenspace LLC (“All Js”) and Chiron Ventures Inc. (collectively, the “Backstop Parties”) for purposes of funding the Company’s operations. In addition, for purposes of funding the Company’s operations All Js advanced approximately US$1.5 million from its portion of the previously announced US$52.3 million debenture repayment backstop commitment. Notwithstanding the US$1.5 million advance from All Js, there is no guarantee that either of the Backstop Parties will permit additional funds to be drawn from the debenture repayment backstop commitment for purposes of funding the Company’s operations. Amounts drawn from the debenture backstop commitment to fund operations reduce the funds available to refinance the debentures upon maturity. The Company has ceased negotiations with United Capital Partners LLC (“UCP”) in respect of the previously announced potential debt financing transaction with UCP of up to US$50 million. The Company is actively pursuing alternative sources of financing, but investors are cautioned that additional financing may not be available when needed or, if available, the terms of such financing might not be favourable to the Company and might involve substantial dilution to existing shareholders. Failure to raise capital when needed will have a material adverse effect on the Company’s ability to pursue its business strategy, and accordingly could negatively impact the Company’s business, financial condition and results of operations. Failure to obtain sufficient financing and/or to successfully execute on one or more strategic alternative transactions could result in the Company defaulting on its obligations and force the Company or its subsidiaries into reorganization, bankruptcy or insolvency proceedings.

As previously disclosed, the continuing operations of the Company remain dependent upon its ability to continue to raise adequate financing, to commence profitable operations in the future, and repay its liabilities arising from normal business operations as they become due. Notwithstanding the CBD Transaction, CBD Sales Process and the strategic review of the CBD Business there remains a significant risk that the Company will be unable to realize sufficient cost savings, find sufficient sources of financing for on-going working capital requirements and other material obligations that are due or maturing in the short term or to negotiate extensions or alternate payment terms in respect of such debt. These material uncertainties cast significant doubt upon the Company’s ability to meet its obligations as they come due and to continue as a going concern. The Company and its subsidiaries have material obligations that are due or that are coming due in the near term. The Company has drawn all amounts available to it under the previously announced working capital backstop commitment provided by All Js Greenspace LLC (“All Js”) and Chiron Ventures Inc. (collectively, the “Backstop Parties”) for purposes of funding the Company’s operations. In addition, for purposes of funding the Company’s operations All Js advanced approximately US$1.5 million from its portion of the previously announced US$52.3 million debenture repayment backstop commitment. Notwithstanding the US$1.5 million advance from All Js, there is no guarantee that either of the Backstop Parties will permit additional funds to be drawn from the debenture repayment backstop commitment for purposes of funding the Company’s operations. Amounts drawn from the debenture backstop commitment to fund operations reduce the funds available to refinance the debentures upon maturity. The Company has ceased negotiations with United Capital Partners LLC (“UCP”) in respect of the previously announced potential debt financing transaction with UCP of up to US$50 million. The Company is actively pursuing alternative sources of financing, but investors are cautioned that additional financing may not be available when needed or, if available, the terms of such financing might not be favourable to the Company and might involve substantial dilution to existing shareholders. Failure to raise capital when needed will have a material adverse effect on the Company’s ability to pursue its business strategy, and accordingly could negatively impact the Company’s business, financial condition and results of operations. Failure to obtain sufficient financing and/or to successfully execute on one or more strategic alternative transactions could result in the Company defaulting on its obligations and force the Company or its subsidiaries into reorganization, bankruptcy or insolvency proceedings.

US Securities Law Disclaimer

This announcement does not constitute an offer, invitation or recommendation to subscribe for or purchase any securities and neither this announcement nor anything contained in it shall form the basis of any contract or commitment. In particular, this announcement does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States, or in any other jurisdiction in which such an offer would be illegal.

The securities referred to herein have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) or under the securities laws of any state or other jurisdiction of the United States and may not be offered or sold, directly or indirectly, within the United States, unless the securities have been registered under the Securities Act or an exemption from the registration requirements of the Securities Act is available.

SOURCE Green Growth Brands

Related Links

https://www.greengrowthbrands.com/