Green Growth Brands Reports Second Quarter Fiscal 2020 Results

USA - English

• USA - English

COLUMBUS, Feb. 24, 2020 /CNW/ - 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.  

"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: ([phone]

Local Vancouver Dial-in Number: ([phone]

North American Toll-Free Number:([phone]

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.

SOURCE Green Growth Brands

For investor relations inquiries, please contact: Julia Fulton, Investor & Public Relations, [email protected] or Eric Wright, 289-805-3697, [email protected] or Peter Horvath, [phone]; For media enquiries or interviews, please contact: [email protected]

Related Links

https://www.greengrowthbrands.com/