BZAM Ltd. has implemented the final phase of its plan to unlock company-wide synergies following the merger of BZAM Holdings Inc. and The Green Organic Dutchman Holdings Ltd (the “Merger”). The plan has focused on: (i) eliminating redundant facilities, (ii) realigning the Company’s production activities across remaining sites to maximize efficiencies, and (iii) reducing selling, general and administrative (“SG&A”) expenses to achieve its goal of positive EBITDA. In particular, the implementation of this last phase results in focusing the scope of activities at its Pitt Meadows, BC facility and concentrating other activities at its Ancaster, ON facility, which together allow the Company to reduce headcount by more than 90 additional personnel.
Highlights:
- Company anticipates Q3 net revenue of at least $20.3M (1), a 5% increase vs. the prior quarter
- Completion of post-Merger synergy plan in Q3 substantially progresses Company’s objectives of positive EBITDA heading into the final quarter of 2023
- Since the Merger, the Company will have reduced fixed operating overhead expenses by approximately $8M annually which is expected to significantly improve margins from Q4 onward
- Since the Merger, the Company has reduced SG&A expenses to approximately $7M on a quarterly run rate basis heading into Q4, equating to an annual run rate of approximately $28M vs. approximately $48M on a pre-Merger combined basis, a savings of approximately 40%
- Company is on track to reduce the term portion of its debt from approximately $29M to $20M with the sale of the remaining redundant facilities
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(1) Net Revenue forecast for Q3 is based on completed and pending deliveries for existing orders as of September 18, 2023. See “Cautionary Statements”. This target involves known and unknown risks and uncertainties and while the Company believes there is a reasonable basis for this target, such target may not be met. This target represents forward-looking information. Actual results may vary and differ materially from the targets. Accordingly, investors are cautioned not to place undue reliance on the foregoing information. |
Matt Milich, CEO of the Company, stated “It is no secret that the Canadian cannabis industry needs to work through a period of consolidation. While not an easy road, we are proud to be one of the companies leading the charge – and demonstrating what is possible when two consumer favourites combine, focus on sales and our customers, while shedding costs and streamlining operations. The changes we have implemented following the Merger position the Company to thrive in both the Canadian and international markets going forward.”
Operational Developments
Since the Merger, the Company has embarked on a concerted, disciplined approach to realizing combined synergies. As part of the plan, it has been able to dramatically reduce headcount and monetize four redundant facilities, realizing annual combined savings across SG&A and fixed Cost of Goods Sold (“COGS”) expenses of approximately $28M without impacting future sales:
- Reduced overall headcount of the combined entities from approximately 670 pre-Merger to 395 in Q3 2023
- Completed disposal of Puslinch, ON facility on June 30, 2023
- Completed sale of the Midway, BC facility on August 4, 2023
- Contracted to sell the Maple Ridge, BC facility for $3.8M, with closing expected to occur by the end of September 2023
- Listed the Edmonton, AB facility for sale at $10.8M, with a view to concluding a transaction by Q1 2024
With the pending sale of the Edmonton, AB facility, the Company expects to be able to reduce the term portion of its debt by up to $9M, leading to a reduction in interest expense of at least $0.5M per year. In addition, by eliminating these facilities, the Company is expected to achieve a substantial reduction in fixed operating overhead expense, which is part of COGS – which is expected to lead to a significant corresponding improvement in margins.
Post-Merger Achievements & Outlook
Following the Merger, the persistent focus on improving margins and reducing SG&A costs continue to progress the Company’s twin objectives of positive EBITDA and free cash flow. This focus has manifested itself via several complementary initiatives:
- Margin Expansion: The Company expects the closure and sale of its redundant facilities will materially improve COGS company-wide by materially reducing indirect fixed costs and overhead. The Company does not expect to incur significant expenses for unabsorbed overheads by 2024.
- Headcount Optimization: The Company has reduced SG&A expense across the combined organization nearly to the level it was for each entity on a standalone basis prior to the Merger – about $7M per quarter on a combined basis heading into Q4 vs. approximately $6M per quarter for each on their own (or $12M combined). Moreover, the Company has been able to trim over 200 in operating headcount by eliminating redundant facilities and streamlining operations across the remaining facilities, without impacting the Company’s ability to meet sales demand.
- Continued Organic Revenue Growth: The Company expects to launch 11 new SKUs in Q4 2023 and over 20 new SKUs in Q1 2024. At the same time, the Company continues to focus on selling higher margin products and improving margins on existing products.
- EU GMP Certification & Commencement of Exports: Having received its EU-GMP certification in May, 2023, the Company has successfully completed its first shipment to Australia, and expects to commence shipments to the Germany in the coming weeks, with the UK to follow later in Q4.
About BZAM
BZAM Ltd. is a leading Canadian cannabis producer with a focus on branded consumer goods, innovation, quality, consistency, integrity and transparency. The BZAM family includes core brands BZAM™, TGOD™, ness™, Highly Dutch Organic™, TABLE TOP™, and partner brands Dunn Cannabis, FRESH and Wyld. BZAM operates facilities in BC, Alberta, Ontario and Quebec, as well as a retail store in Regina, Saskatchewan.
