- Completed the acquisition of JWC out of CCAA, the first asset acquisition of a licensed producer in Canada, recognizing a bargain purchase gain of $1.4 million leading to positive to net income in Q3 2020
- JWC expected to generate net revenue of $22 to $24 million and adjusted EBITDA of $7 to $8 million in 2021, with significant sales momentum in Q4 2020 and brand re-launch in Q1 2020
- Trichome to focus on acquiring and restructuring complimentary assets to leverage the JWC platform to build a portfolio of high-quality consumer centric brands
TORONTO, ON / ACCESSWIRE / November 27, 2020 / Trichome Financial Corp. (the "Company", "Trichome" or "Trichome Financial") (CSE:TFC) today announced its financial results for the three and nine months ended September 30, 2020 ("Q3 2020"). The complete Financial Statements and Management's Discussion and Analysis for the three and nine months ended September 30, 2020, along with additional information about the Company and all of its public filings are available at www.sedar.com.
"With the acquisition of JWC and the marked changes in the cannabis landscape over the past twelve months, we believe that there is a tremendous opportunity for Trichome to consolidate complimentary assets and products to create a leading portfolio of brands rooted in commercial excellence, delivery of quality products, and rigorous focus on allocating capital to the highest returning opportunities. When Trichome Financial started, asset valuations were very high relative to intrinsic value and this favoured a secured lending approach. Today, as capital has fled the sector, valuations have become highly compelling and many opportunities now exist to acquire operating assets with meaningful revenue and cash flow generation capability at a fraction of previously invested capital. With JWC now a focused operation with a competitive operating structure and compelling go-to-market strategy, we have a firm growth trajectory ahead of us and our balance sheet is in a position to replicate this success," said Michael Ruscetta, Chief Executive Officer of Trichome.
Business highlights
- On August 28, 2020, acquired the assets of James E. Wagner Cultivation ("JWC") for $17.3 million through proceedings under the Companies' Creditors Arrangement Act ("CCAA") at a discount to its fair value valuation, resulting in a bargain purchase gain of $1.4 million;
- Obtained two Health Canada standard cultivator and processor cannabis licenses;
- Completed the transformation of JWC by increasing yields, repositioning the product portfolio across Canada with a "consumer obsessed" mindset, and reducing overhead expenses by approximately 30%;
- Closed a $6.2 million upsized convertible debenture on August 5, 2020, with $5.0 million of the net proceeds on-lent to Trichome JWC Acquisition Corp. to fund JWC's working capital, and the balance of the proceeds to be used for the Company's general working capital;
- Increased interest and royalty revenue to $1.0 million in Q3 2020, from $0.4 million in Q3 2019;
- Realized net income of $0.1 million in Q3 2020 as compared to net loss of $1.1 million in Q3 2019;
- Subsequent to quarter end, completed the sale of its loan to Cresco Labs Inc. (CSE:CL) to an arm's length investor, for proceeds of US$1.98 million (CAD$2.61 million); and
- Continued the run-off of the Company's loan portfolio, with cash of $5.3 million as of September 30, 2020 and loan portfolio balance of $8.8 million as of November 26, 2020.
Financial results Q3 2020
In Q3 2020, interest and royalty revenue increased to $963,785 as compared to $412,304 for the period ended September 30, 2019. This is the result of the par value of total advances increasing to $11.4 million in Q3 2020 and the receipt of $37,707 in royalty payments from Hello Cannabis. Revenue at JWC was negligible in the quarter given the timing of the closing and required regulatory hold periods. Since the start of October, JWC has seen significant provincial purchase order flow and a dramatic increase in the rate of sales in the retail channel.
Net income increased to $112,892 in Q3 2020 as compared to net loss of $1,117,908 in Q3 2019. This is the result of a bargain purchase gain recorded in the acquisition of JWC.
Trichome realized an adjusted loss of $1.6 million, as compared to $0.5 million for the period ended September 30, 2019. The variance in adjusted loss is attributable to increased interest revenue, offset by increases to operating expenses from the acquisition of JWC with no corresponding recreational cannabis sales due to a regulatory hold period on product listings related to the new cannabis licenses. Despite the increased adjusted loss, Trichome realized the same ($0.06) adjusted earnings per share for both periods, due to an equivalent increase in the basic common share count over the two periods. Adjusted loss is calculated by excluding certain non-cash and non-recurring revenues and expenses from net loss as calculated under IFRS.
Cash and cash equivalents totaled $5.3 million as of September 30, 2020.
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Three months ended | Nine months ended | ||||||||||||||
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September 30, 2020 |
September 30, 2019 |
September 30, 2020 |
September 30, 2019 |
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Consolidated Statements of Net Loss
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Interest revenue
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$ | 926,078 | $ | 412,304 | $ | 2,575,335 | $ | 693,368 | ||||||||
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Royalty and other revenue
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37,707 | - | 60,889 | - | ||||||||||||
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Gross margin on cannabis sales, including fair
value adjustment on biological assets |
(189,982) | - | (189,982) | - | ||||||||||||
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Operating expenses
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1,714,063 | 869,277 | 4,370,711 | 2,148,475 | ||||||||||||
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Operating loss
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(940,260) | (456,973 | ) | (1,924,469) | (1,455,107 | ) | ||||||||||
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Other expenses (income)
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(827,304) | 660,935 | (554,804) | 1,692,120 | ||||||||||||
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Deferred tax recovery
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225,848 | - | 225,848 | - | ||||||||||||
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Total net and comprehensive income (loss)
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112,892 | (1,117,908 | ) | (1,143,817) | (3,147,227 | ) | ||||||||||
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Net income (loss) per common share - basic
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$ | 0.00 | $ | (0.14 | ) | $ | (0.04) | $ | (0.39 | ) | ||||||
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Net income (loss) per common share - diluted
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$ | 0.01 | $ | (0.14 | ) | $ | (0.04) | $ | (0.39 | ) | ||||||
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Adjusted loss
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$ | (1,587,996) | $ | (474,118 | ) | $ | (2,767,817) | $ | (1,139,662 | ) | ||||||
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Adjusted loss per share - basic
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$ | (0.06) | $ | (0.06 | ) | $ | (0.10) | $ | (0.14 | ) | ||||||
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Adjusted loss per share - diluted
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$ | (0.06) | $ | (0.06 | ) | $ | (0.10) | $ | (0.14 | ) | ||||||
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Weighted average common shares - basic
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27,330,931 | 8,127,709 | 27,068,771 | 8,004,477 | ||||||||||||
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Weighted average common shares - diluted
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31,682,464 | 8,127,709 | 27,068,771 | 8,004,477 | ||||||||||||
JWC Outlook
JWC management are forecasting continued production improvements and improving yields through the balance of Q4 2020 and into Q1 2020 achieving anticipated full run-rate in early Q2 2021. Management forecasts revenues to reach run-rate by Q2 2021. As production continues to ramp through the balance of 2020 and into the first half of 2021, Trichome Financial is providing the following financial guidance for JWC.
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FY 2021 |
Capacity Run Rate |
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Flower Production |
~5,000 kgs |
7,000 kgs per year |
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Net Revenue |
$22 million to $24 million |
$30 million to $32 million |
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Adj. EBITDA[1] |
$7 million to $8 million |
$12 million to $14 million |
About Trichome Financial Corp.
Trichome Financial is a specialty finance company focused on providing creative capital solutions and advisory services to participants in the global legal cannabis market. Trichome Financial was created to address the lack of credit availability in the increasingly complex cannabis market and has since broadened its platform to offer private equity solutions and advisory services. Trichome Financial's experienced management team and founding partners have a unique edge to capitalize on proprietary deal flow and insight while developing an early-mover advantage as a global cannabis focused specialty finance company. With the depth and breadth of knowledge Trichome Financial has obtained, the Company is well positioned to weather the uncertainties brought-on by the everchanging North American cannabis industry.
For further information about Trichome Financial please visit us at www.trichomefinancial.com or @trichomefinance on Twitter and refer to the joint information circular of Trichome Financial and 22 Capital dated May 29, 2019 which is available on the Company's SEDAR profile at www.sedar.com.
READER ADVISORY
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: the ability for Trichome Financial to find other opportunities complementary to JWC. Forward-looking statements 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: general business, economic, competitive, political and social uncertainties; and the delay or failure to receive board, shareholder or regulatory approvals. 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. Except as required by law, Trichome Financial assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change.
This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold within the United States or to United States Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
Non-IFRS Financial Measures
The Company reports non-IFRS financial measures, including adjusted loss and adjusted loss per share, as key measures used by management to evaluate performance of the business, to compensate employees and to facilitate a comparison of quarterly and annual results of ongoing operations. While used to assist in evaluating the operating performance of the Company, readers are cautioned that adjusted loss as reported by the Company may not be comparable in all instances to adjusted loss as reported by other companies. For a detailed explanation of how the Company's non-IFRS measures are calculated, please refer to the Company's MD&A filing for the year ended December 31, 2019, which can be accessed via the SEDAR Web site (www.sedar.com).
Contact Information
Michael Ruscetta, CEO
Telephone: (416) 467-5229
Email: [email protected]
Marc Charbin, Investor Relations
Telephone: (416) 467-5229
Email: [email protected]
[1] Calculated on a cash basis
SOURCE: Trichome Financial Corp.