CALGARY,
AB, May 25, 2022 /CNW/ - Decibel Cannabis
Company Inc. (the "Company" or "Decibel") (TSXV: DB) (OTCQB:
DBCCF), a premium cannabis producer, is pleased to announce its
first quarter financial results for the three month period ending
March 31, 2022.
"Decibel remains on track to achieve its previously communicated
targets, which is a testament to the focus on our strategic plan,
and particularly our New, Unique and Innovative products and
dedication to our customers", said Paul
Wilson, CEO of Decibel. "We see momentum growing in our core
business, and at the same time are driving towards creating
shareholder value by restructuring our balance sheet. This makes
Decibel one of the few in the cannabis space to repay convertible
debentures rather than accept shareholder dilution."
Key Financial Highlights – First
Quarter
- Record Net Revenue: $16.7 million of total net
sales in Q1 2022, with strong growth of 19% over Q4 2021 and 32%
over Q1 2021. Net revenue growth was driven by the launch of
Decibel's new infused pre-roll lines and continued growth in demand
for flower, vape and concentrate products, despite Q1 historically
being a seasonally weak period.
- Gross Margin Before Fair Value Adjustments: 35% in Q1
2022, compared to 26% in Q4 2021 and 39% in Q1 2021. The Company
has a number of initiatives and capital investments in progress and
expects to be successful achieving the targeted 40 – 45% gross
margin by the second half of 2022.
- Positive Adj. EBITDA: Record $2.5
million of adjusted EBITDA in Q1 2022, with strong growth of
70% over Q4 2021 and 21% over Q1 2021. This marks Decibel's seventh
consecutive quarter of positive adjusted EBITDA.
- Derivative Sales: $10.3
million of net sales in Q1 2022, with strong growth of 50%
over Q4 2021 and 85% over Q1 2021. Sales growth was driven by
increased demand for vape and concentrate products, as well as the
launch of a new infused pre-roll line in late Q4 2021 and early Q1
2022.
- Flower Sales: $4.2 million
of net sales in Q1 2022, with an 8% decline over Q4 2021 and 10%
growth over Q1 2021. The Company anticipates that the
infrastructure upgrades to its cultivation facilities focusing on
enhanced quality, will reinvigorate growth within its flower sales.
Sales growth over Q1 2021 was driven by increased volumes from the
Thunderchild facility becoming operational.
- Record Market Share: 4.3% in April 2022, marking the sixth consecutive month
of record market share.
- Cash Flow & Working Capital: Cash flow from
operations was $3.0 million in Q1
2022, an improvement of $8 million
over Q4 2021 and $6 million over Q1
2021. In Q4 2021, the Company made significant investments in
working capital to meet the growing demand for Decibel brands and
products and mitigate against supply chain risks. The Company
anticipates reduced working capital needs in 2022 and is seeing
improvements in its supply chain. The Company has identified
various initiatives and capital investments to accelerate cash flow
generation and manage working capital levels that are expected to
support Q2 2022 onwards.
- Capital Projects: In Q1 2022, the Company made the
following progress on its capital projects:
-
- The Plant: Completed Phase 1 of its processing hub
expansion at The Plant and received its Health Canada license
May 2, 2022. This area will include
newly automated processing and packaging lines for dried flower,
pre-roll, and infused products accompanied by reduced labour and
logistics costs.
- Creston Facility: Completed its infrastructure
optimization project which will have an immediate impact on all new
harvests, further enhancing product quality and contributing to
higher yields.
- Thunderchild Cultivation Facility: Accelerated its
staged infrastructure optimization to better meet growing demand
for Decibel products and enhance product quality and yields.
Production volumes are expected to be partially impacted in
starting in Q2 2022 and resuming full run-rate production by the
start of Q4 2022.
- Repayment of Convertible Debentures: On May 11, 2022, the Company repaid its 9.5%
convertible debentures with the draw-down of a fixed 4.75%
$12 million term loan from its credit
facilities. This extends the maturity date of Decibel's
$12 million of debt by 4 years,
removes approximately 6% of potential shareholder dilution, and
results in $0.6 million of annual
interest expense savings.
- New Product Launches: The Company continued its
launch of new, unique and innovative products in 2022, including
cultivar rotations, expanded infused products into new provinces,
the entry of General Admission into the core flower segment, and
additional vape line extensions:
-
- Introduced Qwest's new cultivars, with Frosted Cherry Cookies
and Icicle launched in May, selling out in the first two weeks.
- Expanded distribution of infused pre-rolls:
-
- Kief-coated terpene infused pre-rolls into ON.
- Distillate infused pre-rolls into BC, SK, and ON.
- Diamond infused pre-rolls into BC, SK, and ON.
- Hash infused pre-rolls into AB and ON.
- Launched General Admission's first flower product offering with
strong demand early on, representing $950k of net sales in Q1.
- Launched Orange Tingz (live resin), Peach Ringz (distillate),
and Honeydew Boba (distillate) vapes.
Summary Highlights
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Three months
ended
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March 31
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2022
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2021
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(thousands of
Canadian dollars, except where noted)
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Gross sales of flower
1, 2
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$5,480
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$4,662
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Net sales of flower
1, 2
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$4,245
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$3,862
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Gross sales of extracts
1, 2
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$16,301
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$7,104
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Net sales of extracts
1, 2
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$10,347
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$5,592
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Number of retail
stores
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6
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6
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Retail sales
1,2
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$2,058
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$3,172
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Total
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Gross
revenue
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$23,839
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$14,938
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Net revenue
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$16,650
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$12,626
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Gross profit before
fair value adjustments
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$5,805
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$4,978
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Gross margin before
fair value adjustments
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35%
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39%
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Adjusted EBITDA
2
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$2,459
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$2,033
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Cash flow from
operations
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$2,985
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($3,114)
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1 In the
table above, wholesale inventory transferred to the retail stores
and subsequently sold of $226 has been eliminated from retail sales
and attributed to wholesale sales of flower and extracts to provide
a more accurate depiction of business performance.
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2 Adjusted EBITDA is a non-GAAP
performance measure. Refer to "Cautionary Statement Regarding
Certain Non-GAAP Performance Measures" for further
details.
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Link to Decibel's Investor
Presentation
Decibel's financial statements for the three month period ending
March 31, 2022
("Financial Statements") and related Management's Discussion
& Analysis ("MD&A"), are available under the Company's
profile at www.sedar.com. As of March 31,
2022, Decibel was in compliance with all of its financial
covenants and expects to remain in compliance for the remainder of
its twelve-month forecast period.
About Decibel
Decibel is uncompromising in the process and craftsmanship
needed to deliver the highest quality cannabis products and retail
experiences. Decibel has three operating production houses along
with its wholly owned retail business, Prairie Records. The Qwest
Estate in Creston, BC is a
licensed and operating 26,000 square foot cultivation space which
produces the widely championed, rare cultivar-focused brands Qwest
and Qwest Reserve, which are sold in six provinces across
Canada. Thunderchild Cultivation,
is a licensed and operating 80,000 square foot indoor cultivation
facility in Battleford, SK. The
Plant, Decibel's extraction facility, in Calgary, AB has 15,000 square feet of Health
Canada licensed extraction and product development space. This
production house will fuel the growth of our brands Qwest, Qwest
Reserve, Blendcraft, and General Admission, into new and innovative
product formats like concentrates, vapes, edibles and beyond.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Cautionary Statements
Non-GAAP Measures
Cautionary Statement Regarding
Certain Non-GAAP Measures
This MD&A contains certain financial performance measures
that are not recognized or defined under IFRS (termed "Non-GAAP
Measures"). As a result, this data may not be comparable to data
presented by other licenced producers and cannabis companies. For
an explanation of these measures to related comparable financial
information presented in the Consolidated Financial Statements
prepared in accordance with IFRS, refer to the discussion below.
The Company believes that these Non-GAAP Measures are useful
indicators of operating performance and are specifically used by
management to assess the financial and operational performance of
the Company. These Non-GAAP Measures include, but are not limited,
to the following:
Non-GAAP Financial
Measures
Adjusted EBITDA: Adjusted EBITDA is a measure of the Company's
financial performance. It is intended to provide a proxy for the
Company's operating cash flow and is widely used by industry
analysts to compare Decibel to its competitors and derive
expectations of future financial performance of the Company.
Adjusted EBITDA increases comparability between comparative
companies by eliminating variability resulting from differences in
capital structures, management decisions related to resource
allocation, and the impact of fair value adjustments on biological
assets, inventory, and financial instruments, which may be volatile
on a period to period basis. Adjusted EBTIDA is not a recognized,
defined, or standardized measure under IFRS. The Company calculates
Adjusted EBITDA as net loss and comprehensive loss excluding
unrealized gain on changes in fair value of biological assets,
change in fair value of biological assets realized through
inventory sold, depreciation and amortization expense, share-based
compensation, other income, finance costs, foreign exchange loss,
non-cash production costs and severance payments. Non-cash
production costs relate to amortization expense allocations
included in production costs. Refer to "Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization" for a detailed
calculation of this measure. The numbers that are input into this
calculation can be found in the statement of financial position in
the Company's Consolidated Financial Statements.
Retail Sales: Retail Sales is a measure intended to provide a
more accurate depiction of the revenue earned by the Company's
retail operations. Inventory transferred directly from the
Company's wholesale operations to the Company's retail operations
is removed from Retail Revenue as presented in the Company's
Consolidated Financial Statements.
Gross Sales of Flower: Gross Sales of Flower is a measure
intended to provide a more accurate depiction of gross revenue
earned by the Company's wholesale flower operations. Inventory
transferred directly from the Company's wholesale flower operations
to the Company's retail operations is added to Gross Wholesale
Revenue of Flower as found in the Company's Consolidated Financial
Statements to arrive at Gross Sales of Flower.
Net Sales of Flower: Net Sales of Flower is a measure intended
to provide a more accurate depiction of net revenue earned by the
Company's wholesale flower operations. Excise taxes associated with
flower sales are subtracted from Gross Sales of Flower to arrive at
Net Sales of Flower.
Gross Sales of Extracts: Gross Sales of Extracts is a measure
intended to provide a more accurate depiction of gross revenue
earned by the Company's wholesale extracts operations. Inventory
transferred directly from the Company's wholesale extracts
operations to the Company's retail operations is added to Gross
Wholesale Revenue of Extracts as found in the Company's
Consolidated Financial Statements to arrive at Gross Sales of
Extracts.
Net Sales of Extracts: Net Sales of Extracts is a measure
intended to provide a more accurate depiction of net revenue earned
by the Company's wholesale extracts operations. Excise taxes
associated with extracts sales are subtracted from Gross Sales of
Extracts to arrive at Net Sales of Extracts.
Working Capital: Working Capital is an indicative measure of the
Company's ability to service its short-term financial obligations
with short-term assets. Management believes this measure provides
useful information about the Company's current short-term
liquidity. Refer to "Liquidity and Capital Resources" for a
detailed calculation of this measure. The numbers that are input
into this calculation can be found in the statement of financial
position in the Company's Consolidated Financial Statements.
Accordingly, these Non-GAAP Measures are intended to provide
additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with IFRS.
Forward Looking
Information
This news release contains "forward-looking information" and
"forward-looking statements" (collectively, "forward-looking
statements") within the meaning of the applicable Canadian
securities legislation. All statements, other than statements of
historical fact, are forward-looking statements and are based on
expectations, estimates and projections as at the date of this news
release. Any statement that involves discussions with respect to
predictions, expectations, beliefs, plans, projections, objectives,
assumptions, future events or performance (often but not always
using phrases such as "expects", or "does not expect", "is
expected", "anticipates" or "does not anticipate", "plans",
"budget", "scheduled", "forecasts", "estimates", "believes" or
"intends" or variations of such words and phrases or stating that
certain actions, events or results "may" or "could", "would",
"might" or "will" be taken to occur or be achieved) are not
statements of historical fact and may be forward-looking
statements.
In this news release, forward-looking statements relate to,
among other things, anticipated growth in the Company's core
business and the creation of shareholder value through
restructuring the Company's balance sheet; the initiatives and
capital investments the Company has in progress and the target
gross margin to be derived therefrom; the Company's expectation
that its infrastructure upgrades will lead to enhanced product
quality and growth in its flower sales; the Company's anticipated
working capital needs in 2022; the Company's expectations that its
initiatives and capital investments will accelerate cash flow
generation and manage working capital levels and the anticipated
timing thereof; the anticipated timing of the receipt of licensing
for The Plant and the anticipated benefits to be derived therefrom;
the anticipated benefits to be derived from the Company's
infrastructure optimization project at the Creston Cultivation
Facility; the anticipated benefits to be derived from the Company's
infrastructure optimization project at its Thunderchild Cultivation
Facility and the anticipated timing thereof; the Company's
expectations that it will remain in compliance with all of its
financial covenants for the remainder of its twelve-month forecast
period; the Company's ability to grow Qwest, Qwest Reserve and
Blendcraft brands into new and innovative product formats,
variations; and Decibel's other business plans and expectations.
There can be no assurance that such statements will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on the forward-looking
statements and information contained in this news release. The
Company assumes no obligation to update the forward-looking
statements of beliefs, opinions, projections, or other factors,
should they change, except as required by law.
Forward-looking statements and FOFI (as defined herein) are
necessarily based upon a number of estimates and assumptions that,
while considered reasonable, are subject to known and unknown
risks, uncertainties, and other factors which may cause the actual
results and future events to differ materially from those expressed
or implied by such forward-looking statements. Such factors
include, but are not limited to: risks relating to delays,
regulatory changes and impacts, capital requirements, construction
impacts, displacement requirements and unforeseen requirements
resulting from the COVID-19 pandemic, the ability to obtain and
maintain licences to retail cannabis products; review of the
Company's production facilities by Health Canada and maintenance of
licences (including any amendments thereto) from Health Canada in
respect thereof; future legislative and regulatory developments
involving cannabis; inability to access sufficient capital from
internal and external sources, and/or inability to access
sufficient capital on favourable terms; the labour market generally
and the ability to access, hire and retain employees; the risk that
the Company may not remain in compliance with all of its financial
covenants; general business, economic, competitive, political and
social uncertainties; timing and completion of construction and
expansion of the Company's production facilities and retail
locations; and the delay or failure to receive board, regulatory or
other approvals, including any approvals of the TSX Venture
Exchange, as applicable. Many of these risks and uncertainties and
additional risk factors are described in the Corporation's Annual
Information Form and Management's Discussion and Analysis for the
year ended December 31, 2021, which
are available at www.sedar.com.
With respect to forward-looking statements and FOFI contained
in this press release, Decibel has made assumptions regarding, but
not limited to: Decibel's ability to enter new markets and industry
verticals; Decibel's ability to attract, develop and retain key
personnel; Decibel's ability to raise additional capital and to
execute on its expansion plans; the timelines for new product
launches, Decibel's ability to continue investing in infrastructure
and implement scalable controls, systems and processes to support
its growth; the impact of competition; the changes and trends in
Decibel's industry or the global economy; the Company's ability to
generate sufficient cash flow from operations and obtain financing,
if needed, on acceptable terms or at all; the general economic,
financial market, regulatory and political conditions in which the
Company operates; the ability of the Company to ship its products
and maintain supply chain stability; consumer interest in the
Company's products; anticipated and unanticipated costs; government
regulation of the Company's activities and products; the timely
receipt of any required regulatory approvals; the Company's ability
to conduct operations in a safe, efficient and effective manner;
the Company's construction plans and timeframe for completion of
such plans; and the changes in laws, rules, regulations, and global
standards.
Any financial outlook or future oriented financial
information (in each case "FOFI") contained in this news release
regarding prospective financial position, including, but not
limited to: anticipated growth in the Company's core business and
the creation of shareholder value through restructuring the
Company's balance sheet; the initiatives and capital investments
the Company has in progress and the target gross margin to be
derived therefrom; the Company's anticipated working capital needs
in 2022; the Company's expectations that its initiatives and
capital investments will accelerate cash flow generation and manage
working capital levels and the anticipated timing thereof; and that
The Plant's newly automated processing and packaging lines will
result in significantly reduced labour and logistics costs, is
based on reasonable assumptions about future events, including
those described above, based on an assessment by management of the
relevant information that is currently available. The actual
results will likely vary from the amounts set forth herein and such
variations may be material.
Readers are cautioned that the foregoing list of assumptions
and risk factors is not exhaustive. The forward-looking statements
and FOFI contained herein are expressly qualified in their entirety
by this cautionary statement. The forward-looking statements and
FOFI included in this news release are made as of the date hereof
and Decibel does not undertake any obligation to publicly update
such forward-looking statements and FOFI to reflect new
information, subsequent events or otherwise unless so required by
applicable securities laws
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SOURCE Decibel Cannabis Company Inc.