24.02.2020 23:02:00

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.

Green Growth Brands Inc. (CNW Group/Green Growth Brands)

"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.  

"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

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 Nevada, Massachusetts 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.

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SOURCE Green Growth Brands

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