Decibel Cannabis Company Inc., a premium cannabis producer and retailer, is pleased to announce its third quarter financial results for the three-month and nine-month periods ending September 30, 2020.
“We are beginning to demonstrate the positive results of our collective efforts to reposition Decibel for success, as we remain focused on executing our strategic plan,” said Benjamin Sze, CEO of Decibel. “We continue to execute as a producer of premium cannabis, with strong demand for our latest cultivars. The early success of our cannabis 2.0 product categories validates Decibel’s approach to product innovation while maintaining our commitment to quality.”
In the third quarter of 2020, the Company achieved net revenue growth of 29% and, for the first time, positive adjusted EBITDA, by delivering net revenue growth in all business verticals. The Company executed on its strategic plan, delivering high end cannabis products and consumer experiences through its Qwest Family of Brands and Prairie Records retail business, realizing cost reductions, and launching vape and concentrate products within the third quarter.
Q3 2020 Financial and Operational Highlights
- Net Revenue Growth: Total net revenue grew by 29% over the second quarter to $7.6 million, driven by strong sales growth from retail and cultivation operations, and only includes one month of derivative product sales in September. Net revenue grew by 163% over the comparative 2019 period.
- First Period of Positive Adj. EBITDA: The third quarter marks an inflection point in the business, as the Company achieved $860 thousand of adjusted EBITDA, an improvement of $886 thousand from the prior quarter.
- Increased Qwest Sales: 272 kilograms sold in the third quarter, with an average wholesale flower net price per gram of $8.68 for the period, a 9% increase over the second quarter of 2020. The Company launched new trendsetting cultivars that deliver high THC and strong terpene profiles at the start of the quarter, including Kush Mints, Point Break, and Ex-Wife.
- First Month of Derivative Sales: In September, Decibel achieved a key milestone with its extraction and manufacturing facility, The Plant, shipping its first orders to Saskatchewan and Alberta. This initiative contributed $785 thousand of net revenue for the period. Initial product launches have been well received with reorders being received shortly after initial sales.
- Strong Prairie Records Results: Increased revenue for the period to $3.9 million, reflecting sales growth of 2% over the second quarter of 2020. Decibel opened two new Alberta retail stores in July, one near the University of Alberta campus in Edmonton and one beside the Palace Theatre in downtown Calgary on Stephen Ave.
- Cost Reduction Initiatives: Decibel completed the majority of its corporate cost cutting initiatives in the third quarter, and remains laser focused on managing costs and driving profitable operations. Had Westleaf and We Grow been combined for the entire 2019 year, a 32% reduction in SG&A year to date would have been realized, despite commencing commercial operations at the Plant and new retail store openings in Q3 2020.
- Substantial Completion of Construction of Thunderchild Cultivation: Decibel substantially completed construction of its large scale, indoor cultivation facility, Thunderchild Cultivation, in July. The Company has submitted a complete site evidence package to Health Canada for licensing of the Thunderchild Cultivation facility.
Quarterly Highlights
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Three months ended |
Nine months ended |
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September 30, |
September 30, |
September 30, |
September 30, |
|
|
2020 |
2019 |
2020 |
2019 |
|
|
Net wholesale revenue of flower |
$2,361 |
$2,880 |
$6,578 |
$4,702 |
|
Kilograms of flower sold |
272 |
369 |
782 |
563 |
|
Average wholesale flower gross pricing per gram |
$10.18 |
$9.07 |
$10.15 |
$9.81 |
|
Average wholesale flower net pricing per gram |
$8.68 |
$7.80 |
$8.41 |
$8.35 |
|
Kilograms of cannabis harvested |
311 |
345 |
936 |
1,080 |
|
Net wholesale revenue of extracts |
$785 |
– |
$785 |
– |
|
Other wholesale revenue |
$500 |
– |
$565 |
– |
|
Number of retail stores |
6 |
nil |
6 |
nil |
|
Retail revenue |
$3,932 |
nil |
$10,578 |
nil |
|
Total |
||||
|
Net revenue |
$7,578 |
$2,880 |
$18,505 |
$4,702 |
|
Gross profit before fair value adjustments |
$2,898 |
$1,126 |
$7,164 |
$1,804 |
|
Adjusted EBITDA (a) |
$860 |
$875 |
$425 |
$0 |
|
(a) |
Adjusted EBITDA is a non-GAAP performance measure. Refer to “Cautionary Statements – Non-GAAP Measures” for further details. |
Decibel’s financial statements for the three-month period ending September 30, 2020 (“Financial Statements”) and related Management’s Discussion & Analysis (“MD&A”) for the reporting period are available under the Company’s profile at www.sedar.com. As of September 30, 2020, 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. The Company’s ability to meet the conditions of these ratio covenants over the next twelve months is subject to the Company’s ability to operationalize capital projects that are either recently completed or are subject to Health Canada licensing and operationalizing, and all other applicable regulatory approvals in order to generate revenues.
Leave of Absence
Due to personal reasons, Benjamin Sze, Chief Executive Officer, is taking a leave of absence from his role as Chief Executive Officer of the Company as of the close of business today for an indefinite period of time. Cody Church, the Company’s current Chairman of the Board, has been appointed Interim Chief Executive Officer, effective as of the close of business on November 25, 2020.
Results of Annual Meeting
Decibel is also pleased to announce that its shareholders approved all matters submitted by the Company for consideration at its annual and special meeting of shareholders held yesterday, November 24, 2020 (the “Meeting”).
Due to the special circumstances arising from the global COVID-19 pandemic, and following guidance of local health authorities for social distancing, Decibel encouraged shareholders to vote in advance of the Meeting using the instructions provided in the Notice of Meeting and Management Informational Circular and Proxy Statement. The Company also provided remote access to the Meeting via an audio webinar, and will make a recording of the Meeting available on its website in the coming days.
At the Meeting, Decibel’s shareholders:
|
(i) |
Fixed the number of directors of the Corporation to be elected at the Meeting at six directors; |
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(ii) |
Elected each of Cody Church, Paul Wilson, Michael Kelly, Ivan Casselman, Benjamin Sze and Billy Yellowhead as directors of the Company; |
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(iii) |
Appointed KPMG LLP, Chartered Professional Accountants, as the Company’s auditors; |
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(iv) |
Re-approved the Company’s stock option plan; and |
|
(v) |
Re-approved the Company’s restricted share unit award plan. |
Decibel is uncompromising in the process and craftsmanship needed to deliver the highest quality cannabis products and retail experiences. Decibel has three production houses operating or under development 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, an 80,000 square foot indoor cultivation facility in Battleford, SK is scheduled to be completed and licensed in 2020. 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, and Blendcraft, into new and innovative product formats like concentrates, vapes, edibles and beyond.
