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Golden Leaf Holdings Announces First Cashflow-Positive Quarter and Record Quarterly Revenues

Golden Leaf Holdings Ltd.
·14 min read

Operational Excellence a key driver of financial results

TORONTO, Nov. 19, 2020 (GLOBE NEWSWIRE) -- Golden Leaf Holdings Ltd. (CSE:GLH) (OTCQB:GLDFF) (“Golden Leaf” or the “Company”), a premier consumer-driven cannabis company specializing in retail, production, processing, wholesale, and distribution, today announced financial results for the third quarter ended September 30, 2020. All financial results are stated in US dollars, unless otherwise noted.

"Rallying off our strong performance in the second quarter, the third quarter reflects the results of continued revenue growth and cost reductions, exceptional vendor management and operational excellence,” stated Jeff Yapp, Chief Executive Officer of GLH. “In addition to this being our first cashflow-positive quarter, we have surpassed the total revenue generated in all of fiscal 2019 in just three quarters.”

The increase was led by another record quarter of Oregon revenues and heightened contribution from the Company’s out-of-state partnerships, primarily in California.

“Starting in the fall of 2019, GLH faced a slew of challenges including the loss of its primary vape line in 2019 during the vape ban,” said Yapp. “A widespread global pandemic, the ongoing period of social unrest in Portland and unprecedented wildfire activity in Western Oregon resulted in the temporary closure and evacuation of some of the Company’s facilities, as well as the evacuation of a handful of staff members from their homes. This provides even greater context for the performance that the GLH team has achieved throughout the year, now highlighted in this record third quarter performance. Today, I am proud to formally say, we’ve turned the corner.”

Q3 Financial Highlights:

  • For the first time in its history, GLH reports positive cash flow from operations of $0.4M.

  • Record quarterly revenues from continuing operations of $6.2M, an increase of 42% versus the third quarter of 2019 and 11% greater than the second quarter of 2020.

  • Adjusted EBITDA loss of $173,000 for the three months ended September 30, 2020, an improvement of 78% over the prior quarter. Adjusted EBITDA is a non-IFRS measure, which the Company considers important in assessing operations. For a reconciliation of Adjusted EBITDA (non-IFRS) to income (loss) before income taxes, please see below.

  • Record year-to-date revenue of $16.3M, an increase of 34% compared to the nine months ended September 30, 2019, surpassing total revenue for the entirety of 2019 in only three quarters.

  • Adjusted EBITDA loss of $1.7M for the nine months ended September 30, 2020 compared to $5.1M for the nine months ended September 30, 2019, a 68% improvement.

  • Gross profit before biological asset adjustments of $2.2M, an improvement of $0.7M or 47% compared to the prior quarter, and $0.7M or 49% compared to the 3 months ended September 30, 2019.

  • Total operating expenses down 22% compared to the nine months ended September 30, 2019 and 3% compared to the 2nd quarter of 2020, demonstrating continued cost containment while growing revenues. The Company has implemented additional cost savings measures beginning in the fourth quarter of 2020 which should result in incremental cost savings during the fourth quarter with no impact to revenues.

  • Same store sales growth increased 26% compared to the third quarter of 2019 and 8% compared to the second quarter of 2020.

  • Senior management demonstrated its commitment to the business by taking significant pay-cuts through the end of 2020 to help manage the current cash position.

  • Subsequent to the third quarter, the Company announced that it restructured its debt with the founders of Chalice Farms, resulting in a reduction of 50% of the $5M cash obligation due in May of 2022 through a conversion of such amount into shares at US$0.06 per share, a premium to market price, and extension of the payment schedule of the remaining $2.5M over 60 months at a favorable interest rate. This demonstrates the support of our stakeholders and is a vote of confidence in the current management team’s successes and paves the way to addressing our debenture obligations in the coming months.

  • Building on the momentum of the third quarter, the Company was Adjusted EBITDA positive in the month of October, based on unaudited results.

“We remain resilient and focused on continued channel growth and cost containment. Optimistically, we await future legislative outcomes that we hope will favor the cannabis industry,” said Yapp.

Disclaimer Regarding Preliminary Financial Information

The financial information presented in this news release for October 2020 is based on preliminary, unaudited financial statements prepared by management. Accordingly, such financial information may be subject to change. Such financial information is qualified in its entirety with reference to the Company's audited financial statements for the year ended December 31, 2020, which is expected to be filed on SEDAR (www.sedar.com) on or before April 29, 2021. While the Company does not expect there to be any material changes to the October 2020 financial information presented in this news release, to the extent that it is inconsistent with the information contained in the Company's audited financial statements for the year ended October 30, 2020, the financial information contained in this news release shall be deemed to be modified or superseded by the Company's audited financial statements. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation for purposes of applicable securities laws.

Investor Conference Call

Golden Leaf Holdings – 2020 Third Quarter Earnings Call + Virtual Webinar

Golden Leaf management, led by Mr. John Varghese, Executive Chairman and Mr. Jeff Yapp, Chief Executive Officer, will hold a conference call on Thursday, November 19, 2020 at 4:15pm ET, to report its financial results for Q3 ended September 30, 2020 following immediately with a Virtual Webinar for a corporate update and a summary of Q3. Please click here to register and stream the call and the webinar immediately following, or use the following phone numbers:

Toll Free:

1-877-407-0784

Toll/International:

1-201-689-8560

Conference ID:

13711923

A live audio webcast will be available online on the Company’s website at www.goldenleafholdings.com where it will be archived for one year.

An audio replay of the conference call will be available through midnight Thursday, December 3, 2020 by dialing 1-844-512-2921 from the US or Canada, or 1-412-317-6671 from international locations. The conference ID is: 13711923.

About Golden Leaf Holdings:

Golden Leaf Holdings is a premier consumer-driven cannabis company specializing in production, processing, wholesale, distribution and retail, with seven dispensaries in Portland, Oregon. The Company is committed to developing a dynamic portfolio built around the recognized brands of Chalice Farms, with a focus on health and wellness. Markets served include Oregon, California, Nevada and Washington. Visit glhmonthly.com for regular updates.

Investor Relations:
John Varghese
Executive Chairman
971-371-2685
ir@goldenleafholdings.com

Disclaimer: This press release contains “forward-looking information” within the meaning of applicable securities legislation. Forward-looking information includes, but is not limited to, statements with respect to cost savings in the fourth quarter of 2020, statements with respect to the Company’s future business operations, the opinions or beliefs of management and future business goals. Generally, forward looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. These risks include but are not limited to general business, economic and competitive uncertainties, regulatory risks, market risks, risks inherent in manufacturing and retail operations such as unforeseen costs and production shutdowns, difficulties in maintaining brand loyalty, and other risks of the cannabis industry. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information 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 forward looking information. Forward-looking information is provided herein for the purpose of presenting information about management’s current expectations relating to the future and readers are cautioned that such information may not be appropriate for other purpose. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws. This press release does not constitute an offer of securities for sale in the United States, and such securities may not be offered or sold in the United States absent registration or an exemption from registration or an exemption from registration.

Neither the Canadian Securities Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Exchange) accepts responsibility for the adequacy or accuracy of this release.


GOLDEN LEAF HOLDINGS LTD.

Interim Condensed Consolidated Statements of Financial Position (Unaudited)

As at September 30, 2020 and December 31, 2019

(Expressed in U.S. dollars)

September 30, 2020

December 31, 2019

ASSETS

CURRENT

Cash

$

1,300,954

$

3,531,202

Accounts receivable

Note 5

219,004

167,178

Other receivables

Note 5

1,385,246

447,901

Income tax recoverable

-

74,034

Sales tax recoverable

128,074

271,866

Biological assets

Note 7

217,385

88,078

Inventory

Note 7

2,838,888

2,965,304

Prepaid expenses and deposits

376,075

325,329

Total current assets

6,465,626

7,870,892

Property, plant and equipment

Note 8

2,597,773

3,723,489

Notes receivable

Note 6

919,488

919,488

Right-of-use assets, net

Note 9

4,093,035

4,333,064

Intangible assets

Note 10

10,737,423

10,737,423

Goodwill

Note 10

4,056,172

4,056,172

Total assets

28,869,517

31,640,528

LIABILITIES

CURRENT

Accounts payable and accrued liabilities

3,129,717

1,564,982

Interest payable

540,860

125,900

Income taxes payable

1,465,353

-

Deferred income tax payable

248,852

248,852

Sales tax payable

449,878

187,520

Current portion of long-term debt

Note 12

108,939

82,404

Notes payable

Note 11

186,910

-

Lease liability

Note 12

852,769

843,238

Total current liabilities

6,983,278

3,052,896

Long term debt

Note 12

56,824

29,952

Long term lease liability

Note 12

4,132,024

4,090,806

Convertible debentures carried at fair value

Note 11

5,218,464

4,706,141

Consideration payable - cash portion

Note 12

4,429,880

4,218,866

Consideration payable - equity portion

Note 12

4,838,780

4,940,667

Total liabilities

25,659,250

21,039,328

SHAREHOLDERS' EQUITY

Share capital

Note 13

148,222,848

147,763,499

Warrant reserve

Note 14

1,554,929

1,980,217

Share option reserve

Note 15

3,729,441

4,181,350

Contributed surplus

59,940

59,940

Deficit

(150,356,891

)

(143,383,806

)

Total shareholders' equity

3,210,267

10,601,200

Total liabilities and shareholders' equity

$

28,869,517

$

31,640,528



GOLDEN LEAF HOLDINGS LTD.

Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

For the three and nine months ended September 30, 2020 and 2019

(Expressed in U.S. dollars)

For the three months ended September 30,

For the nine months ended September 30,

2020

2019

2020

2019

Revenues

Product sales

Note 20

$

5,765,970

$

4,342,000

$

15,318,207

$

12,002,495

Royalty and other revenue

Note 20

430,086

9,917

1,064,886

220,273

Total Revenue

6,196,056

4,351,917

16,383,093

12,222,768

Inventory expensed to cost of sales

Note 7, 20

4,033,002

2,897,220

11,038,401

7,878,386

Gross margin, excluding fair value items

2,163,054

1,454,697

5,344,692

4,344,382

Fair value changes in biological assets included

in inventory sold

Note 7, 20

(14,125

)

-

(48,483

)

-

Loss on changes in fair value of biological assets

Note 7, 20

98,853

-

295,009

-

Gross profit

2,078,326

1,454,697

5,098,166

4,344,382

Expenses:

General and administration

2,215,291

2,602,470

6,714,321

8,347,065

Share based compensation

Note 15

41,517

155,936

264,793

485,646

Sales and marketing

478,724

446,042

1,552,778

1,452,153

Depreciation and amortization

Note 8, 9

239,751

509,525

775,489

1,586,026

Total expenses

2,975,283

3,713,973

9,307,381

11,870,890

Loss before items noted below

(896,957

)

(2,259,276

)

(4,209,215

)

(7,526,508

)

Interest expense (income)

350,265

559,366

1,449,109

2,043,675

Transaction costs

127

125,612

41,178

133,834

Loss on disposal of assets

Note 8

(10,139

)

4,330

307,700

97,241

Other loss (income)

70,249

(87,856

)

32,029

(104,812

)

Gain on debt modification

-

(312,083

)

-

(312,083

)

Gain on change in fair value of warrant liabilities

-

(23,371

)

-

(605,134

)

Loss on change in fair value of convertible debentures

Note 11

565,328

351,088

565,328

470,365

Loss before income taxes

(1,872,787

)

(2,876,362

)

(6,604,559

)

(9,249,594

)

Current income tax expense

848,379

-

1,511,595

15,924

Net loss from continuing operations

(2,721,166

)

(2,876,362

)

(8,116,154

)

(9,265,518

)

Loss from discontinued operations (Note 6)

-

(213,800

)

-

(310,269

)

Net loss

(2,721,166

)

(3,090,162

)

(8,116,154

)

(9,575,787

)

Other comprehensive loss

Items that will be reclassified subsequently to profit or loss:

Cumulative translation adjustment

-

210,023

-

1,192,068

Comprehensive loss

$

(2,721,166

)

$

(3,300,185

)

$

(8,116,154

)

$

(10,767,855

)

Basic and diluted loss per share

$

(0.00

)

$

(0.00

)

$

(0.01

)

$

(0.02

)

Weighted average number of common shares outstanding

881,420,646

685,518,103

867,567,723

621,050,033



GOLDEN LEAF HOLDINGS LTD.

Interim Condensed Consolidated Statements of Cash Flows (Unaudited)

For the nine months ended September 30, 2020 and 2019 (Expressed in U.S. dollars)

For the three months ended

Cash from Operating Activities

September 30, 2020

Cash (used in) provided by:

Operating activities:

Net loss

$

(2,721,166

)

Depreciation of property, plant and equipment

290,091

Lease amortization

186,640

Loss on disposal of assets

(10,139

)

Interest expense

350,265

Share-based compensation

41,517

Loss on fair value adjustment to debt

565,328

Transaction costs

41,178

Loss on fair value of biological assets

84,728

Reserve for obsolete inventory

52,732

Other non-cash transactions

9,252

Changes in working capital items:

Accounts receivable

(6,968

)

Other receivables

(472,837

)

Income tax payable

848,378

Sales tax recoverable

199,094

Accounts payable and accrued liabilities

634,214

Sales tax payable

240,351

Biological assets

(68,605

)

Inventory

97,412

Prepaid expenses and deposits

56,226

Cash provided by operating activities

$

417,691



Adjusted EBITDA

For the three months ended

For the nine months ended

September 30,
2020

September 30,
2019

September 30,
2020

September 30,
2019

Loss before income taxes

$

(1,872,787

)

$

(2,876,362

)

$

(6,604,559

)

$

(9,249,594

)

Adjustments:

Net impact, fair value of biological assets

84,728

-

246,526

-

Depreciation and amortization

476,733

509,525

1,548,121

1,586,026

Fair value changes on debt and equity instruments

565,328

327,717

565,328

(134,769

)

Share based compensation

41,517

155,936

264,793

485,646

Interest expense, net

350,265

559,366

1,449,109

2,043,675

Transaction costs

127

125,612

41,178

133,834

Start-up costs(1)

59,924

-

179,120

-

Extraordinary losses(2)

60,093

-

276,883

-

Impairments and other

70,249

(87,856

)

32,029

(104,812

)

Loss on disposal

(10,139

)

4,330

307,700

97,241

Adjusted EBITDA

$

(173,962

)

$

(1,281,732

)

$

(1,693,772

)

$

(5,142,753

)

(1) Write-off of significant start up costs related to the Company's California business

(2) Losses experienced in Nevada due to unexpected shut down and facility abandonment due to COVID-19