Q3 2021 Red White & Bloom Brands Inc Earnings Call
Greetings and welcome to the Red White, and Blue Q3, 2021 earnings and corporate update call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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I will now turn the conference over to your host CEO, Brad Rogers. Thank you you may begin.
Thank you Alex.
And thank you all for joining us today and your continued interest in Red White and Blue.
I'm excited to share details of our strong third quarter in which we continued to lay building blocks to a solid foundation for Hudson premium brands.
Before we get into that I would like to introduce your first two krish I came to our new CFO, who joined our team in October and it is already positively impacting our there'll be D. With his financial acumen insight, so pes operational efficiency efficiencies et cetera.
Comes to us with more than 25 years ago executive experience at Brown Forman, a powerhouse in the spirits industry with world renowned brands, such as Jack Daniels, Woodford Reserve and Herradura Chris.
Christmas rise through the ranks and track record of accomplishments at each level is a testament to his financial acumen. His visionary leadership and strategic mindset mindset and will be valuable to arguably be in guiding the financial strategy and decisions for each of the.
Each of the company areas as we grow.
Thank you to Chris for your guidance and input and we look forward to more to come curious just so everyone can hear on one Christa say hello to everybody and say a few words prior to us getting into some details Chris.
Thank you Brad.
This is a really exciting time for red White, and Blue and I'm really looking forward to shaping the financial structure of the company as it is typical with startups in their early stages initially management, whereas multiple hats until it can build out the team. Unfortunately I've worked across many areas of finance and I'm relishing the challenges of this opportunity.
Now, let's let's dive into the dive in and take a look at the many significant accomplishments. Our WB has in the third quarter and shed light shed a bit of light on where we're heading.
Thank you Chris first is a bit of housekeeping as a Canadian based company, we will be using Canadian dollars for all monetary figures.
So adjusted sales I also want to explain a little bit about the adjusted sales term and figures that we use the structure of our deal in Michigan does not allow us to fully realize top line revenue at this point as part of the legacy product licensing agreement. The only revenue arguably be can recognize as product sales less inventory purchases.
And direct expenses, so that's revenue minus product sales or sorry, minus inventory minus direct expenses as a result, our there'll be abuse reported revenue and Michigan appear substantially understated.
The adjusted sales we report in the press release shows the revenue RWD would make could would make had a product sales being able to be fully reported which we anticipate getting to.
Two in very short order upon successful completion of a step two license in Michigan arguably they will report full revenue on our platinum base and distribution channels. We are currently in a quiet period related to the regulators are in Michigan. So we can unfortunately not share more details at this point.
But we are progressing.
There's no doubt that we had an excellent third quarter in our opinion with significant progress in multiple states. Despite the fact that isn't fully reflected on our reported revenue quite yet we're still in the building stage.
But now need to leverage what we've built thus far in the third quarter. We made major strides in our core operating states of Florida, Michigan, and California to become more vertically integrated we're focusing on vertical integration only where it makes sense and where it was the most profitable for our company and will help drive.
Drive increased revenue and margins for the company, we expect to see first product sales from our new facilities in Florida, starting Q1 2022, as we are currently harvesting out of our new facilities.
So I'm at Tennessee, we're gaining significant market share with our premium platinum vape and exclusively licensed high times branded products in select markets and our distribution channels in Michigan and our direct sales channels in California.
I'm sorry.
The high times is not in California, and Michigan as cited in our Q a green tax Q1, 2020, Q3 industry. They purport platinum Vape was named number one vape brand cartridge in Michigan.
Really proud of that achievement I hope, you're getting similar prominence with additional products and brands and line extensions such as like a life rosin chocolates gummies.
In Michigan, another core states, Chris will now dig into the numbers and provide a bit of insight on the Chris can you. Please take that alright. Thank you.
Thanks, Brad, but first and foremost so I don't want to start with kind of future earnings reports with the first quarter report being now behind me you know a little more time to plan for the next I'm going to streamline our reporting process and have consistent communication with the investor community, we will be announcing data reporting earnings reports now less than 30 days in advance.
And we will also delve into more details on hospital with future reports.
Well, we're going to turn to Q3 financial results and the revenue for Q3, 2021 was $11 8 million compared to $6 1 million in Q3 2020, an increase of 93% are the majority of revenues derived from our wholesale from wholesaling, our platinum based products in Michigan and our direct sales in California.
As Brad noted we are limited in their revenue we report due to legacy contracts, we expect to reportable revenue to increase substantially and when we can include full product sales in Michigan. Additionally, with cultivation and production underway in Florida, We expect to report significant product sales there in Q1 2022.
For EBITDA, our EBITDA was 5.9 for $5 9 million for Q3 compared to an EBITDA loss of $5 8 million in Q3, 2020, so that was a gain of $11 9 million.
And then our net loss for Q3, 2021 was 5.5 million compared to $9 5 million. In Q3 2020 are the change in net loss is primarily resolve.
The revaluation of the company's call put option as we have rights I as well as rightsize and compensation and achieving economies of scale.
So now I'm going to turn to the nine months ended September 32021 results.
Revenue for the nine months ended September 30th 2021 was $36 9 million an increase of 386% over revenue of $7 $6 million in the comparable nine months ended September 32020, again revenues, primarily derived from the wholesaling of platinum they product in Michigan, and the and the direct sales and Cal.
Before your.
Our gross profit excluding fair value items for the nine months ended September 30th 2021 with $21 5 million an increase of 295% over gross profit of $5 5 million in the comparable nine months ended September 32020.
The net loss for the nine months ended September 30th 2021 was $73 8 million compared to net loss of $29 8 million.
For the nine months ended September 32020, the increase in net loss is primarily attributable attributable to ramping up operations in our core markets and X and an expectation of fortifying our brand strategy as we move forward.
Pinpoint in point, there's an important point to note here is that the increase in expenses reflects that we are rapidly rapidly building the business in our core markets.
So turning to SG&A, our SG&A increase from 22 million to $60 million. This is to be expected at this stage of our growth.
Just for a point of reference the biggest increase was due to increased depreciation of fixed assets and amortization of licenses. We are expanding the management team and staff to accommodate future growth in revenue.
And then also to note a couple of noncash items that we had in the other expense bucket for.
On the nine month basis, So we had about $2 million in foreign exchange loss, we had or the revaluation of the call put up with the put call I'm sorry, the call put option of $2 3 million and the revaluation losses of financial instruments of about $7 1 million.
Now we've had a very sizable increase in SG&A, but we are being diligent as we move forward I've directed the HR staff to look at compensation and institute proper salary bands and rightsize compensation and appropriate to the market as we move forward.
So we've mentioned Brad mentioned, the adjusted cells line, a couple of times and just to kind of get clarity to the numbers around that for Q3, our reported revenue per ifr S was $11 8 million.
Our adjusted sales for Q3 based off the definition is that Brad has given previously was $32 2 million. So an increase by a factor of three and then for the nine months. The ISR revenue was $36 9 million, while adjusted sales was 1999 point to again almost.
Three times, what we were able to report.
So now Brad I'm going to turn.
Turn it back to you for you to discuss the progress we've been making with our core assets and pending transactions.
Right and and I'll mention it later, but Chris just with respect to what those revenues are they don't include a high times revenue and they don't include our investor revenue as well that we're incurring.
In concert with our regulator to bring in and I'd be able to report and as soon as it comes in as well So just didn't know.
This is this has significant upside with what we have.
The availability to increase going forward once we get those pieces in place.
Hum.
I'll just I'll just cover state by state here.
Chart with Michigan acquisition, a big question that everybody's mind, obviously is what's happening with the acquisition of the multiple properties in Michigan.
For what I typically referred to as the Michigan investing our WB, Michigan LLC subsidiary finalize the revised structure for the closing on its purchase of its Michigan Investor. He received the adult use recreational prequalification status pursuant to the licensing provisions of the Michigan regulatory and tax of a marijuana act arguably be as Rick.
Has continued to work closely with Michigan's MRA marijuana regulatory agency and is making progress on the closing of the acquisition of the Michigan facilities, which include active and planned dispensaries cultivation facilities, a significant company owned real estate holdings.
Generally in cash right now these.
These michigan facilities generated $93 million in Canadian revenue in 2020.
We will be vertically integrating upon closing the pending acquisition of the merger of the Michigan investigate and we anticipate that we will leverage cost sharing and other economies of scale to further improve our Michigan operation.
Like you we can't wait so this transaction close has taken far longer than we had hoped or expected the transaction is unfortunately.
I can't talk too much more about it because we are in a quiet period with the.
Regulators right now so we have to be a little bit more tightlipped for the approval process and all of these things that are going on in discussions right now, but we'll share information I promise as soon as a.
Our readily available.
During the period, we've had a we've been preparing the.
Despite our going through this process.
From a nature and operational planning perspective, so we can hit the ground running after were cleared to do so from the regulatory bodies that were that were just transitioning into.
We've also on another Michigan front, we've completed the build out of a separately acquired production.
We're assessing facility.
For the production of Vapes chocolates and Gummies in Michigan, We've received local zoning approval and are just awaiting step two.
By the MRA, so yet one more licensed facility that were just didn't process right now once complete our there'll be they will be able to recognize all topline revenue for all our there'll be control brands from this facility. So that's a huge huge opportunity for us again to.
To consolidate and report topline revenue going forward.
Again due to a quiet period related to the Michigan regulatory body, we cannot disclose more information at this point.
But we'll again update you as soon as possibly humanly possible.
To get a to get everybody updated and.
We look to to get that done relatively soon and I've said, it before but I'm feeling a lot better about where we're at right now in the process as.
As we've had significant discussions with.
With the powers of be so I'm going to move to a pocket, Florida here. So change these days for during Q3 'twenty 'twenty. One we closed the acquisition of the pop to 45000 square foot cultivation facility and $44 seven acres and readied.
30 grow pods for transition onto the site.
The anticipation of being fully planted by December one 2021, arguably it'd be projects is full or first full year of revenue of $58 million from the third project greenhouse and a Parker we anticipate the first harvest from that from the pause in Q4, which were doing right now and a realization of revenue of those newly acquired.
Assets in Q1, 2022 our RW be Florida seem began producing edibles at the Sanderson facility in our R&D. There has resulted in new formulations for live rosin that are now in the approval process with the state regulator in Florida, you're only allowed to sell what you produce and and your own dispensaries and so the edible production and new.
Production formulations will continue contribute to additional product available in our dispensaries.
Across the state.
To open and are scheduled to open in the first quarter of 2022 today.
To date, Florida, the Florida acquisition R&D of preparation for cultivation cultivation has produced has progressed smoothly. The team. There has met all deadlines on time within budget related to preparation of now now now the state operations for our new processing facility and Sanderson at our cultivation facilities in our pocket.
The average, Florida cannabis operators are just currently reporting gross margin of approximately 60%, we'd like to think we're above that but we wanted to share some metrics on the gross margins that we hope to realize in 2022.
We will update shareholders again on our progress shortly.
Eager to share how our work in Florida and other areas is coming to fruition in Q1 2022.
And they're falling results.
California Wow.
We took over operational control of platinum beeps up the operation proper in California. This is leveraged efficiencies of scale across our multiple states. We're operating in and we expect to scale platinum to additional states as we expand further we also anticipate doubling its footprint in California, and expanding beyond vapor products such as chocolates gummies.
In select markets and.
In California, and another state markets that we're operating in we currently transitioned to management oversight of platinum very brands, who are one team with the improved operational structure and procedures or there'll be a b's achieving greater operational efficiencies in areas, including packaging purchasing procurement and distribution. So we're excited about that opportunity as well.
I just want to also talk about vertical integration as we've stated the current.
Planning of vertical integration, Florida, and Michigan is underway, however, arguably be as I as a strategy as being very strategic in pursuing vertical integration only owning where there is value to be added we aim to be asset light and brain rates. Our strategy is to support the brands and the most profitable way will swim upstream for as far as we can.
We need to to to support the brand distribution and fortifying our profitability for us and shareholders. We have or are we have been putting teams in place to support this strategy in each state where we operate is our WB integrates vertically in multiple states, we anticipate that our margins will grow dramatically based on our integration and our business does.
She is enabling us to move forward profitably.
Spanning our workforce, Chris touched on that a little bit on the expansion of our workforce as it relates to increasing SG&A I want to ask your thoughts relative to our long term strategy.
It employees and board members are our most important asset and are critical to achieving our goals. We've actively improved our chow AR improved our talent roster by bringing together top talent from commodity markets and similar industries to strengthen our management team and execute on our strategy. We've added high profile experts across multiple industries to our board such as form.
Congressman Ryan Castello and more to be named shortly when regulatory approval.
It is is achieved.
With a number of additions to the organization over the last year. We now have key members of our management team in place to support our strategy. We will continue to tactically expand our board and management teams as a staff as needed to fulfill our growth.
Some of the regulatory body restrictions, sometimes we have to adjust our timing as I said before due.
Due to.
Pre clearance et cetera are with respect to how how some states manage.
Approvals of our officers and directors.
But before we close.
Just wanted to this present, but this piece of our presentation I want to.
Commend our team members for their dedication expertise and track record of achievements over the past few quarters. It has it truly hasn't been easy without with a lot of regulatory pieces with COVID-19 et cetera, and I didn't know that.
And I hate using that word, but it's just it's truly has.
Affected our ability to efficiently get things done.
And as we look forward to Q4, and bringing all the pieces together and our strategy.
I'm looking forward to to a solid Q4, and Q1 Q2, as we bring on our Florida acquisition and and improve our synergies and our brand strategy with the acumen was what we brought to the table.
So with that I'm going to open it up to Q&A and I believe it's a it's a web based piece and.
I think I'm not sure who I turn it over to you I think it's Tyler I'm not sure.
Thank you.
At this time around I think a question and answer session.
As a reminder, you may submit questions via the web by using the ask a question feature on the web.
That'd be screen.
We will now proceed with questions.
The first question actually there was this question repeated a multiple times I think we have eight or nine questions that are similar but this is from Christy an individual investor.
What is the status of the Michigan will turn this one over to Brian.
Well I gave.
Pretty much gave us a sink Michigan update but I'll just repeat what we're doing I mean, the the roll up of Michigan is effectively two pieces. It's a it's the the the deal that T V Platinum <unk> had in place in the first instance of when we took them over.
Again with the framework that they that they entered into that deal as.
As a public company, we could not recognize their topline revenue and so we are now in a position with our new facility to be able to actually bring that business.
Business and recognize that topline revenue. So we don't have to adjust sales for PV or any of our brands through distribution any longer. So that's a that's a huge huge piece of a two part process that we're going through in Michigan are the other piece is our is our as our Investor tour.
S D. We've executed a put call and and is now.
Just in the what I would like to say the last pieces of.
Tori approval for us to bring that in also and and and into the arguably be umbrella and start operating those stores and and really taking advantage of what we'll be able to leverage across the the stores that are operating and a couple of big stores that we know will be up.
High volume high margin high profit.
The teams going into a into a distribution of R. R. R.
And our extending product lines so.
A lot of opportunity there to be able to actually.
Get what we need out of a out of all of those pieces in Michigan, specifically, but those are the two big pieces of where we're going right now so I mean, when youre looking at.
The ability to to recognize just on the vape business, we're doing 400000 babies per month.
Just from our PV line that doesn't include high times that doesn't include some other brands that we've got coming in or if you're gonna be launching Q1 Q2. So I mean, when you just look at the vape business in PV being the number one brand in <unk>.
In Michigan I mean, that's that's substantial in and of itself and when we piggyback that leverage onto expanded shelf space with our other products and really start leveraging the high times, Brandon and being able to pull that revenue in and recognize that.
We're just you know I I would like to consider us a sleeping giant with respect to where we're at right now being handcuffed on not being able to tell the world what we're doing.
But I'm feeling really strong about that.
Okay.
Is that Uh huh.
Yeah that makes sense for a person to person actually there's two more questions here for you Brad we got narrow down there's quite a few questions, but there's two more here misses from Alejandro P. A M King capital.
Could you update shareholders on what's happening in Illinois.
Okay, well, Illinois, we've encountered a bit of a.
Bit of a layer of complexity with the acquisition due to the fact that the acquisition of the license that we have acquired there who.
Having acquired yet, but we've got we've got some a definitive on.
So.
It's it's the complexity lies within the acquisition due to the fact that the entity as a non for profit we're working with the state regulators to structure the acquisition in a way that complies with the regulations to move forward on.
The first half of 2022.
So that's pretty much all I can say I think it's just it's a bit of a bit more of a complex issue being a not for profit and and license transfers within that framework. So that's where we're at right now.
Thanks, Brad.
And finally for Martin that's in our individual investor.
The company's first full year as a public company, we've seen net losses.
Slightly accelerate what is this attributable to and will G&A levels.
Well G&A level off as we enter 2022.
Okay, Yeah, I mean look.
The company has been building mode as Chris said and were were catch up.
With respect to where we want to be and so when we look in.
Building on look across 'twenty, and 2021 to spatial new acquisitions in the markets et cetera, we've been.
Building towards that.
Set the stage in the form of infrastructure to start reporting all the revenues and assets of these businesses. Most of the one time expenses and large noncash items are behind us.
As you know pretty much solid ground for 2022 and beyond so I'm looking forward to just getting old.
Effectively over the phone.
Great and then we have a couple of financial questions, but.
So I think we'll turn it over to Chris.
A lot of shareholders noticed liabilities have been increasing what is the company doing to ensure that does not get unmanageable.
Yeah. Good question so.
If you look at our historical acquisitions.
They were financed using any shorter term debt and really in order to close the acquisition quickly and not lose the opportunity and I think the company is in position now.
With the lower rate environment.
[noise] bundle up somebody's higher interest short term debt and refinance with long term debt with lower interest rates definitely would improve our liquidity and our profitability measures.
What's also important to us at the same time and in and as I have kind of come into this position also we're looking at really identifying several noncore assets.
And if it makes sense we will.
I'll look to potentially divest those assets and redeem in and redeem additional short term liabilities with the proceeds. So those are some of the actions. We're looking at those who can move forward.
And then there's one more question here can designate another individual investor.
The company reported EBITDA of nearly $6 million, that's great, but what's the company doing to achieve profitability.
Yeah. So I think you know you start thinking about the different markets that we have so we realized that some of our core markets such as Michigan are very competitive and so as such we're really looking to reinforce the power of our brands.
To stand up to the the market pressures pricing pressures in particular within within that market.
Platinum betas platinum vape has been more resilient than the overall market.
And when will you know hopefully will continue to reinforce the power of that brand as we expand the line to include chocolates and gummies.
Really wanted this to be the brand that people demand when they go to the dispensary I think the other point piece for Michigan is as we're looking at opening our new processing facility and we're gonna take one layer of cost out of our value chain and that also should lead to improved profitability.
If you if you go from Michigan and the Florida.
In Florida. The company is really operating in a limited license states. So the way that we think about that is it really is not as commoditized in that state as the non limited license states. So all things being equal as we expand in Florida, I know Brad mentioned, some some some industry margin levels in Florida previously in the call.
But really as we expand in Florida in Q1 of 2022, the company really should benefit from improved gross margins, which will drive profitability in 'twenty, two and well into the future.
Great.
Yeah.
So I think that's all the questions that we're going to take this evening.
Turn it back over to Brad.
Okay.
Thank you I appreciate all of your time, guys and and were as we close off a Q4 2021.
We're working diligently on all of these pieces to threat our strategy together standup our brands.
We're not kidding ourselves and the fact that this is going to be a commoditized market and and our strategy is such that we're we're gonna be standing on brands going forward and when you just need to fortify what we're doing into the into the markets that we're in right. Now are we created a platform to be able to do that and we're looking forward to Q4 2021 in Q1 Q2 12.
'twenty two.
To really show what our what we've built in them I'm excited to bring those to you in.
In short order. So thank you all for your time and I'm looking forward to Q4.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.