The Parent Company Reports First Quarter 2021 Financial Results

May 17, 2021 4:13 PM EDT
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Achieves Consolidated Net Sales of $40 Million; Adjusted Net Sales of $46 Million

Maintains Industry-Leading Balance Sheet with $281 Million in Cash

Provides Update on Integration and Consolidation Strategy

Conference Call to be Held Today, May 17, 2021 at 5:00 p.m. EDT

SAN JOSE, Calif.--(BUSINESS WIRE)-- TPCO Holding Corp. ("The Parent Company" or the “Company”) (NEO: GRAM.U) (OTCQX: GRAMF), today reported financial results for the first quarter ending March 31, 2021 (“Q1 2021”). The Company’s Q1 2021 financial results reflect the closing of the Company’s qualifying transaction on January 15, 2021. Prior to closing of the qualifying transaction, the Company was a special purpose acquisition company with no commercial operations. As such, reported sales figures for this quarter are expected to be lower than in future quarters due to the abridged operating period. All amounts are expressed in U.S. dollars.

First Quarter 2021 Financial Highlights

  • Net sales for Q1 2021 were $39.9 million
  • Adjusting for a full quarter of sales beginning January 1, 2021, Q1 2021 net sales would have been approximately $45.6 million
  • Gross profit for Q1 2021 was $7.2 million, or 18% of net sales
  • Adjusted EBITDA loss for Q1 2021 was $11.4 million. Adjusted EBITDA removes the effects of changes in fair value of financial instruments, impairment charges and other non-cash items.
  • Cash and equivalents totaled $281.0 million as of March 31, 2021

Management Commentary

“With some of the most well-known cannabis brands, an industry-leading balance sheet, and strong positioning in the California market, we entered 2021 with substantial forward momentum as we continue to execute on our growth and consolidation strategies,” said Steve Allan, Chief Executive Officer of The Parent Company. “Throughout our first quarter of public company operations, our team has worked diligently on the successful integration of our core business units and house of brands to build a strong foundation for sustained growth. This included our recently announced cultivation investments which have bolstered our supply chain with long-term access to high-quality indoor, greenhouse, and outdoor grown cannabis for use in our suite of branded product lines.”

Mr. Allan continued, “In addition, we strengthened our executive team, launched Fun Uncle Cruisers, our first product to take advantage of the full vertical integration of our business, and made our initial social equity investments from our dedicated $10 million fund. I am pleased with the initial results of these efforts, and we will continue to work to optimize our vertically integrated platform as we both prudently evaluate potential acquisition opportunities and organically build our business for long-term success.”

Mr. Allan concluded, “The California cannabis market is ripe for consolidation, and we plan to leverage our competitive positioning to become true leaders in this market. In addition, as we look to further expand our operations into new states, we plan to employ an asset-light model, utilizing our existing asset base to drive scale and profitability. We have a long runway for significant growth, both organically and through acquisitions, and we believe we will create meaningful long-term shareholder value.”

First Quarter 2021 Operational Highlights

Subsequent Events

First Quarter 2021 Financial Results

Net sales in Q1 2021 were $39.9 million. Note the Company’s Q1 2021 financial results reflect the closing of the Company’s qualifying transaction which occurred on January 15, 2021, prior to which the Company had no commercial operations. Adjusting for a full quarter of sales beginning January 1, 2021, net sales would have been $45.6 million.

Gross profit in Q1 2021 was $7.2 million, representing gross margin of 18% in Q1 2021. With the Company’s focus on driving stronger direct-to-consumer sales, The Parent Company expects to shift its sales to more higher margin product categories, which over time, is expected to drive expanded gross profit.

Operating expenses in Q1 2021 were $63.9 million, of which $50.0 million were non-cash expenses. In the quarter, general and administrative costs were $9.5 million, salaries and benefits were $7.8 million, and sales and marketing expenses were $29.7 million. Approximately $25 million of the marketing expenses incurred in Q1 2021 were settled in shares (and thus a non-cash expense) for services provided under the Roc Nation Agreement. In addition, stock-based compensation of $6.8 million and depreciation & amortization of $8.0 million were also non-cash expenses.

Adjusted EBITDA loss for the first quarter 2021 was $11.4 million. The Adjusted EBITDA loss in Q1 2021 was primarily attributable to the ongoing operations of the Company’s core business.

Cash and cash equivalents totaled $281.0 million as of March 31, 2021, compared to $582.6 million (held in escrow pending closing of the Company’s qualifying transaction) as of December 31, 2020. As of closing of the Company’s qualifying transaction on January 15, 2021, the Company had cash and cash equivalents of approximately $372.8 million, comprised of (i) $309.7 million of net IPO proceeds and interest received by the Company after payments to redeeming holders of class A restricted voting shares in the aggregate amount of $264.3 million, including associated interest; and (ii) $63.1 million in gross proceeds from the closing of the Company’s private placement in Q1 2021 prior to the closing of the qualifying transaction. The above includes $28.8 million in debt retirement, $15.1 million in transaction consideration, and $8.6 million in transaction fees.

The Company’s Q1 2021 consolidated financial statements, as well as its accompanying management discussion and analysis (“MD&A”) have been filed on SEDAR (www.sedar.com). Please refer to TPCO’s MD&A for additional detail and discussion on the Company’s results from operations.

Business Integration Update

Following the completion of the Company’s qualifying transaction on January 15, 2021, The Parent Company has implemented an integration strategy to streamline and optimize the Company’s operations. Centered on driving near-term margin expansion while positioning the Company for continued long term growth, in Q1 2021 The Parent Company has achieved the following:

  • Portfolio Optimization: Streamlined the Company’s brand portfolio offering to 8 core brands from 17 previously, eliminating redundancies and reducing potential sales category overlap.
  • SKU Rationalization: Selectively reduced total SKU count across the Company’s 8 remaining core brands with a focus on higher margin product offerings.
  • Product Innovation: Launched Fun Uncle Cruisers, our first product to take advantage of the full vertical integration of our business and one that we believe illustrates how the Company’s significant efficiencies and resources can combine to create quality cannabis at an approachable price point with best-in-class product margins.
  • Expanded Sourcing: Delivered significant value to the end consumer by strategically expanding the Company’s sourcing network, securing long-term access to over 900,000 pounds of high-quality, low-cost, California-grown cannabis to provide improved flower product availability and more attractive pricing.
  • Manufacturing Consolidation: Successfully rationalized The Parent Company’s manufacturing facilities by closing its 23,000 square foot Santa Rosa facility and its Oakland facility, migrating certain manufacturing operations to its San Jose facility. As a result of these changes, the Company now operates three, streamlined manufacturing facilities.
  • Distribution: To improve dispensary delivery times and to reduce operating costs, The Parent Company centralized its distribution operations to two wholesale hubs located at its San Jose and Costa Mesa locations, resulting in the closure of its North Hollywood facility.
  • Restructured and Optimized Organization: Integrated and consolidated teams from both Caliva and Left Coast Ventures into The Parent Company’s combined operations resulting in reduced overall personnel expenses by approximately 10%. Over time, the Company expects to add additional headcount in certain areas of its business to invest ahead of future grown.
  • Asset Dispositions: In the quarter, the Company completed a review of its asset base and subsequently acted upon a series of structured dispositions that have refocused the Company on its core California cannabis operations. This included the sale of the Company's 34% minority interest in Half Moon Grow, as well the disposition of the Company’s Acai Puree business line. In addition, the Company has entered into a definitive agreement to sell its hemp CBD business to Arcadia Biosciences. The transaction is expected to close before the end of the second quarter.

Outlook

The Parent Company has made substantial progress on its integration efforts and based on the continued strength of its organic operations, the Company believes it remains well positioned for sustained, long-term growth. On an ongoing basis, the Company reviews its financial forecasts to assess the reasonableness of specific developments and broader industry and economic factors. During this process, the Company reviews for unanticipated delays in receipt of licensing approvals, build out of facilities, integration activities, and corporate development opportunities due to competitive actions, as well as potential delays in the build out of its distribution centers and planned retail stores.

As a result of the above and due to the uncertainty inherent in forecasting operating results given the current status of the California cannabis industry, The Parent Company has elected to withdraw its previously provided guidance, which included benefits from potential corporate development activities as well as revenue from the Company’s divested hemp CBD business line.

The Parent Company has a robust pipeline of potential corporate development activities and remains committed to ensuring that potential acquisitions are accretive to the Company’s strategic growth initiatives, create operational efficiencies, and drive long-term shareholder value. As such, timing around these opportunities remains uncertain. To accelerate its execution on corporate development opportunities, the Company has retained two experienced external advisory firms with deep backgrounds in identifying, evaluating and executing inorganic opportunities.

The Company also announced today that Drew Kornreich is stepping down from his position as Chief M&A Officer to pursue other opportunities effective May 17, 2021. “On behalf of the entire team, I’d like to thank Drew for his diligent work and greatly appreciate all his contributions throughout his tenure both at Caliva and The Parent Company,” said Steve Allan, CEO of The Parent Company.

Conference Call

The Parent Company will host a conference call today, May 17, 2021, to discuss these results. Steve Allan, Chief Executive Officer, Mike Batesole, Chief Financial Officer, and Dennis O’Malley, Chief Operating Officer and President of Caliva, will host the call starting at 5:00 p.m. Eastern time. A question and answer session will follow management's prepared remarks.

DATE:

Monday, May 17, 2021

TIME:

5:00 p.m. Eastern Time

WEBCAST:

Click Here

DIAL-IN NUMBER:

1 (877) 407-0789

CONFERENCE ID:

13719172

REPLAY:

 

 

1 (844) 512-2921 or 1 (412) 317-6671
Available until 12:00 midnight Eastern Time Monday June 14, 2021
Replay Code: 13719172

Financial results and analyses are available on the Company’s website (ir.theparent.co) and SEDAR (www.sedar.com).

About The Parent Company:

The Parent Company (TPCO Holding Corp.) (NEO: GRAM.U, GRAM.WT.U) (OTCQX: GRAMF; OTC PINK: GRMWF) is California's leading vertically integrated cannabis company combining best-in-class operations with leading voices in popular culture and social impact. The Parent Company brings together global icon and entrepreneur Shawn "JAY-Z" Carter, entertainment powerhouse ROC NATION, California's leading direct-to-consumer platform CALIVA, and leading cannabis and hemp manufacturer, LEFT COAST VENTURES, to form a cannabis industry leader for the post-prohibition era. Chief Visionary Officer Shawn "JAY-Z" Carter, one of the most recognized and celebrated entrepreneurs of our time, guides The Parent Company's brand strategy in partnership with Roc Nation, the world's preeminent entertainment company with a roster of culture-making artists, athletes and influencers. The brands we build together will pave a new path forward for a legacy rooted in equity, access, and justice.

For the latest news, activities, and media coverage, please visit www.theparent.co or connect with us on LinkedIn and Twitter.

Forward Looking Statements

This press release may contain forward-looking information within the meaning of applicable securities legislation which reflects The Parent Company’s current expectations regarding future events. The words “will”, “expects”, “intends” and similar expressions are often intended to identify forward looking information, although not all forward-looking information contains these identifying words.

Specific forward-looking information contained in this press release includes, but is not limited to, statements concerning (i) The Parent Company’s future financial performance(ii) ability of The Parent Company to execute on its growth and consolidation strategy; (iii) anticipated synergy benefits in 2021; (iv) expectations regarding future corporate development activities; (v) and expectations regarding The Parent Company’s expansion into new jurisdictions. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond The Parent Company’s control, which could cause actual results and events to differ materially from those that are disclosed in or implied by such forward looking information. Such risks and uncertainties include, but are not limited to: changes in general economic, business and political conditions, changes in applicable laws, the U.S. and Canadian regulatory landscapes and enforcement related to cannabis, changes in public opinion and perception of the cannabis industry, reliance on the expertise and judgment of senior management, as well as the factors discussed under the heading “Risk Factors” in The Parent Company’s Annual Information Form dated March 25, 2021, which is available on SEDAR at www.sedar.com. The Parent Company undertakes no obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.

Non-IFRS Financial Performance Measures (Unaudited)

Adjusted net income (loss), EBITDA and adjusted EBITDA are not recognized measures under IFRS and this data may not be comparable to data presented by other companies. For a reconciliation of EBITDA and adjusted EBITDA to the most directly comparable IFRS measure, see the section entitled “Reconciliation of Non-IFRS Measures” of the Q1 2021 MD&A.

Adjusted net income (loss) is calculated by adjusting net income (loss) as recorded in the unaudited condensed consolidated interim statements of income (loss) and comprehensive income (loss) for the exclusion of certain other income and expense items determined in accordance with IFRS. The Company believes that this generally accepted measure allows the evaluation of the results of continuing operations and is useful in making comparisons between periods. Adjusted net income (loss) is intended to provide investors with information about the Company’s continuing income generating capabilities. Management uses this measure to monitor and plan for the operating performance of the Company in conjunction with other data prepared in accordance with IFRS.

EBITDA is calculated by adjusting net income (loss) as recorded in the unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) for finance costs, current and deferred income tax, depreciation and amortization expenses. The Company believes that this measure allows the evaluation of the results of continuing operations and is useful in making comparisons between periods. EBITDA is intended to provide investors with information about the Company’s continuing income generating capabilities. Management uses this measure to monitor and plan for the operating performance of the Company in conjunction with other data prepared in accordance with IFRS.

Adjusted EBITDA is calculated by adjusting net income (loss) as recorded in the unaudited consolidated financial statements of income (loss) and comprehensive income (loss) for the exclusion of certain other income and expense items determined in accordance with IFRS, being the calculation for adjusted net income (loss) and then further adjusting for finance costs, current and deferred income tax, change in fair values, other non-recurring amounts, depreciation and amortization expenses. The Company believes that this generally accepted measure allows the evaluation of the results of continuing operations and is useful in making comparisons between periods. Adjusted EBITDA is intended to provide investors with information about the Company’s continuing income generating capabilities. Management uses this measure to monitor and plan for the operating performance of the Company in conjunction with other data prepared in accordance with IFRS.

Caution Regarding Cannabis Operations in the United States

Investors should note that there are significant legal restrictions and regulations that govern the cannabis industry in the United States. Cannabis remains a Schedule I drug under the U.S. Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute or possess cannabis in the United States. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable U.S. federal money laundering legislation.

While the approach to enforcement of such laws by the federal government in the United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve The Parent Company of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against the Company. The enforcement of federal laws in the United States is a significant risk to the business of The Parent Company and any proceedings brought against the Company thereunder may adversely affect the Company’s operations and financial performance.

 

TPCO Holding Corp.
Interim condensed consolidated statements of financial position

 

(Unaudited, in United States dollars)

As at

 

 

March 31,
2021

 

December 31, 2020

 

 

 

 

 

 

Assets

 

 

 

 

 

Current

Cash

 

$

281,025,634

$

-

Restricted cash and cash equivalents

 

 

5,306,405

 

582,622,025

Accounts receivables

 

 

4,591,133

 

-

Other receivables

 

 

-

 

24,977,765

Biological assets

 

 

2,624,018

 

-

Inventory

 

 

31,606,078

 

-

Prepaid expenses

 

 

7,152,991

 

-

Assets held for sale

 

 

18,774,542

 

-

Other current assets

 

 

2,242,948

 

-

Total current asset

 

 

353,323,749

 

607,599,790

 

 

 

 

 

 

Investment in equity shares

 

 

591,545

 

-

Security deposits

 

 

962,582

 

-

Prepaid expenses and other assets

 

 

2,652,062

 

81,333

Property and equipment

 

 

11,794,694

 

-

Right-of-use assets

 

 

52,353,734

 

-

Goodwill and intangibles

 

 

847,354,978

 

-

Total assets

 

$

1,269,033,344

$

607,681,123

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Current

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

38,584,019

$

28,321,972

Consideration payable

 

 

3,369,507

 

-

Current portion of lease liability

 

 

3,277,486

 

-

Loans payable

 

 

3,358,686

 

-

Cash settled share-based payments

 

 

2,822,371

 

-

Contingent consideration

 

 

101,625,392

 

-

Liabilities held for sale

 

 

4,920,589

 

-

Class A Restricted Voting Shares subject to redemption

 

 

-

 

582,622,025

Total current liabilities

 

 

157,958,050

 

610,943,997

 

 

 

 

 

 

Other long-term liabilities

 

 

1,507,572

 

-

Lease liabilities

 

 

51,188,685

 

-

Deferred tax liabilities

 

 

97,464,014

 

-

Total liabilities

 

 

308,118,321

 

610,943,997

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common shares

 

 

952,900,779

 

-

Warrant reserve

 

 

4,796,410

 

4,796,410

Class B shares

 

 

-

 

13,404,356

Shares to be issued

 

 

19,529,798

 

25,087,000

Contributed surplus

 

 

9,962,442

 

-

Deficit

 

 

(26,274,406)

 

(46,550,640)

Total shareholders’ equity

 

 

960,915,023

 

(3,262,874)

Total liabilities and shareholders’ equity

 

$

1,269,033,344

$

607,681,123

 

 

 

 

 

 

 

TPCO Holding Corp.
Interim condensed consolidated statements of income (loss) and comprehensive income (loss)
(Unaudited, in United States dollars)

 

 

 

 

Three-months ended

 

 

 

March 31, 2021

 

March 31, 2020

 

Sales

 

$

39,917,388

$

-

Cost of sales

 

35,238,987

-

Gross profit before fair value adjustments

 

4,678,401

-

 

 

 

 

 

 

Net effect of changes in fair value of

 

biological assets and inventory

 

2,522,154

-

 

 

 

 

 

 

Gross profit

 

7,200,555

-

 

 

 

 

 

 

Operating expenses

 

61,859,064

311,573

 

 

 

 

 

 

Loss from operations

 

(54,658,509)

(311,573)

 

 

 

 

 

 

Other income (expense)

 

Interest income

 

 

6,908

 

1,949,342

Interest expense

 

(1,623,227)

(1,949,342)

Amortization of issuance costs on Class A warrants

 

 

-

 

(2,836,240)

Loss on remeasurement of assets held for sale

 

 

(58,022,984)

 

-

Change in fair value of contingent consideration

 

 

131,093,854

 

-

Other expense

 

(117,157)

-

 

71,337,394

(2,836,240)

 

 

 

 

 

 

Income (loss) before income taxes

 

16,678,885

(3,147,813)

 

 

 

 

 

 

Income tax benefit

 

3,101,292

-

Net income (loss) and comprehensive income (loss)

 

$

19,780,177

$

(3,147,813)

 

Earnings (loss) per share

 

 

 

 

 

Basic

 

$

0.23

$

(0.22)

Diluted

 

$

0.21

$

(0.22)

 

 

 

 

 

 

Weighted average number of common shares

 

 

 

 

 

Basic

 

 

84,413,911

 

14,543,750

Diluted

 

 

85,697,978

 

14,543,750

 
 

TPCO Holding Corp.
Interim condensed consolidated statements of cash flows
(Unaudited, in United States dollars)

 

 

 

 

 

Three-months ended

 

 

 

 

March 31, 2021

 

March 31, 2020

 

 

 

 

 

 

 

Cash provided by (used in)

 

 

 

 

 

Operating activities

 

 

 

 

 

Net income (loss)

 

 

$

19,780,177

$

(3,147,813)

Adjustments for items not involving cash

 

 

 

 

 

Amortization of issue costs on Class A warrants

 

 

-

 

2,836,240

Loss on remeasurement of assets held for sale

 

 

58,022,984

 

-

Interest expense

 

 

1,623,227

 

1,949,342

Provision for bad debts

 

 

174,111

 

-

Depreciation and amortization

 

 

7,951,093

 

-

Shares issued for long-term strategic contracts

 

 

25,000,000

 

-

Share based compensation expense

 

 

6,829,929

 

-

Non-cash sales and marketing expense

 

 

1,755,096

 

-

Fair value change on biological assets

 

 

(2,522,154)

 

-

Fair value change of contingent consideration

 

 

(131,093,854)

 

-

Deferred income tax recovery

 

 

(3,312,619)

 

-

 

 

 

 

(15,792,010)

 

1,637,769

 

 

 

 

 

 

 

Net changes in non-cash working capital items

 

 

(40,111,018)

 

311,573

Total operating

 

 

 

(55,903,028)

 

1,949,342

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Proceeds from private placement

 

 

51,635,000

 

-

Redemption of Class A restricted voting shares

 

 

(264,318,686)

 

-

Repayment of lease liabilities

 

 

(1,587,771)

 

-

Repayment of loans payable

 

 

(2,778,668)

 

-

Repayment of notes payable

 

 

(15,400,000)

 

-

Repayment of line of credit

 

 

(10,836,105)

 

-

Total financing

 

 

 

(243,286,230)

 

-

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Net cash paid in business combinations

 

 

(1,874,925)

 

-

Cash held in Escrow

 

 

582,622,025

 

(1,949,342)

Purchases of property and equipment

 

 

(532,208)

 

-

Total investing

 

 

 

580,214,892

 

(1,949,342)

 

 

 

 

 

 

 

Net change in cash during the year

 

 

281,025,634

 

-

 

 

 

 

 

 

 

Cash

 

 

 

 

 

Beginning of year

 

$

-

$

-

 

 

 

 

 

 

 

End of year

 

$

281,025,634

$

-

 

 

 

 

 

 

 

 

 

Investor Contact:
Rob Kelly
MATTIO Communications
tpco@mattio.com

Media Contact:
Nike Communications
theparentcompany@nikecomm.com

Source: The Parent Company



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