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spk02: Hello, everyone. We will be getting started in just a moment as we wait for others to join. Thank you.
spk01: Greetings and welcome to the Chalice Brands second quarter 2021 earnings call and corporate webinar. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded today, Thursday, August 26th, and will be available for replay on the company's website at investors.chalicebrandsltd.com. It is now my pleasure to introduce the host of the call, John Varghese, Executive Chairman, and Jeff Yap, President and CEO, who will be going through Chalice's second quarter earnings and investor presentation. At the end of the presentation, management will address some previously submitted questions. If you are interested in asking a question and haven't done so already, please forward them to chalice at rbmilestone.com and we will answer them in a timely fashion. Lastly, RBMG is not a registered investment advisor or broker dealer. For more information, please visit rbmilestone.com. And now I'll hand it off to John and Jeff. Gentlemen, the stage is yours.
spk03: Thank you, David. And thank you all for joining us today to review Chalice Brands' performance for the second quarter of 2021. With me on the call today is Jeff Yap, President and CEO of Chalice Brands. I would like to remind everyone that except for historical information, our discussion today will include forward-looking statements that are based on assumptions which are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Management can give no assurance that any forward-looking statements will prove to be correct. Forward-looking statements discussed on this call are relevant as of the date of this call and we undertake no obligation to update or revise any of these statements except as required by applicable law. Management refers you to the cautionary statement and risk factors included in the company's MD&A by which any forward-looking statements made during this call are qualified in their entirety. Please note that all financial information is provided in U.S. dollars unless otherwise specified. Jeff and I have prepared a few remarks followed by a review of our financial results for the second quarter of 2021, and we will once again read out to you questions that we received frequently during the past quarter. We have now traded under our new name, Chalice Brands, for roughly three months, and under our new symbol, CHAL, post the 23 to 1 share consolidation. Jeff and the management team have done a tremendous job launching the newly named Chalice Brands as we leave the Golden Leaf Holdings era in the past. As a shareholder, board member, and as part of the management team, I'm not satisfied with the performance of the stock price since the consolidation. While I'm not a fan of relative comparisons, our shareholders should note that a review of most cannabis indexes and their returns for the period of February 1st to this past Friday, or those of Chalice Brands versus larger MSOs, or Chalice versus our peer group, the pain is felt similarly across the sector for multiple reasons. Regardless of market sentiment for the sector, we have continuously leaned into business excellence as we work towards our goal of establishing the company as a leader in the state of Oregon. As executive chairman of the company, I believe management has executed on the crawl, walk, run strategy as we continued our focus on operations, continued our expense controls, moved deliberately into the walk phase in California, and boldly executed on the run phase with the acquisition of Homegrown in May in Oregon. Specifically, the second quarter of 2021 represented another pivotal step towards positioning the company as a cash flow positive and leader in the state of Oregon. As we lean into the run phase in Oregon, we have undertaken significant initiatives that position the Chalice brand for growth. In May, the company purchased a 100% ownership in homegrown Oregon, a chain of five retail dispensaries located in Portland, Salem, and Albany, Oregon, increasing our retail footprint from seven to 12 stores, in what we believe is the most competitive cannabis market in the United States. The added fact that homegrown is profitable makes this a highly accretive acquisition for Chalice Brands earnings per share. As part of our West Coast focused growth strategy, we will continue to seek acquisitions like this to demonstrate that we are good allocators of capital. We continue to execute effectively on the business by staying committed to the standards that Jeff and I set for Chalice Brands. We strongly feel that our efforts in summer of 2019 have clearly demonstrated that the philosophy and culture that Jeff has brought, crawl, walk, run, and the business model that goes with it is working for the company. We're not happy with our valuation, but eventually we hope our strong business performance will translate into our share price. I will now turn the call over to Chalice Brands President and CEO Jeff Yap for a few remarks.
spk00: Thank you, John. Our second quarter revenue grew 26% year-over-year compared to a year ago. Gross profit is up 131%, and our gross profit margin has almost doubled. We reported our third consecutive positive EBITDA in the quarter, including the highest revenues to date of $6.9 million. We are very proud of these results and can't wait to show continued improvement for the remainder of 2021. Our results reflect the culture of innovation collaboration we have fostered in this team. Together we have overcome a myriad of natural and social challenges stemming from 2020, while continuing to execute our call, walk, run plan. Since John and I took over in 2019, we have faced many obstacles, including a state-legislated vape ban, the ongoing COVID-19 panic, once-in-a-generation wildfire activity in Oregon, widespread social unrest, and early in 2021, a once-in-a-decade ice storm, which heavily impacted the Portland area. Our response for all these challenges was to lean in and stay committed to serving our customers. We galvanized our team to come up with new product creations and we support our people, our partners, and our competitors during these periods of significant unrest. We are proud to say throughout all that turmoil, our stores did not lose a single day. This is a fantastic opportunity to demonstrate our market leadership and showcase the culmination of our 2020 turnaround year, as well as forward growth, expansion and transformation we've accomplished thus far in 2021. This year has marked a significant increase in our output in the quality of our Bald Peak flower, an all-time high of over 50%, with Bald Peak flower representing our number one selling product in chalice stores. We look forward to the continued positive impact of Bald Peak, led by our Chief Cultivation Officer, Megan Miller, and what it will have on our business. Very near strongly completed the transformational retail acquisition of Oregon-based Homegrown, which increased our retail footprint in the state of Oregon by about 75%. Homegrown is a great example of how we believe we are going to grow in the run phase and demonstrates a disciplined allocation of capital. The purchase of Homegrown will dramatically increase our leverage and expand on our core competencies in retail management, culture, marketing, digital promotion, and innovation. Eventually, homegrown will transition under the Charles Farms umbrella. We look forward to updating shareholders on that transition. We also announced the closing of an 80% interest in Fifth and Root, a CBD clean skincare line, which has presence in over 400 retail doors in the United States. But more importantly, this transaction will allow us to build a nationwide commerce platform that enables us to be well positioned once cannabis is legalized. We will now have the power to target a demographic we feel will be critical once cannabis is federally legalized, and that is female head of household. We are extremely proud of the team we have built at Charleston and have created a culture of agility, integrity, and transparency. We put the customer experience at the center of everything we do. and we were recently recognized as the number one hottest cannabis brand in Oregon for consumer engagement in the month of July. We have strengthened our relationship with our vendors, and they have become a critical part of our overall success. Collaboration and co-marketing partnerships were at the heart of this year's 420 celebration, which became our biggest single day of sales ever. Branded content has become essential to the omnichannel marketing We are seeing the convergence of digital and physical retail showing strong engagement and revenue. Chalice is leading the charge in innovation across the cannabis landscape, and we are investing in technology and content marketing to accelerate and scale at a rapid pace. We carry strong momentum into the end of the year and look forward to accelerating our growth as we add more stores to our portfolio. We look forward to a very bright future to continue to earn your trust and support through our performance. At this time, I will again turn the call over to our executive chairman, Denver Gates, who will review our financial results.
spk03: Thanks, Jeff. We have reported another record revenue quarter and continue to show record year-over-year results and we proudly And proudly, we reported a third sequential adjusted EBITDA positive quarter for the second quarter of 2021. For the quarter ended June 30, 2021, the company reported revenues of $6.9 million, another record, growing 26% year-over-year, compared to $5.5 million for the same period in 2020. Gross profit for the second quarter of 2021 was $3.1 million, or 45% gross margin. compared to 1.3 or 23% gross margin in the second quarter of 2020. Gross margin improvements are due to an increased share of our vertical product growth and our retail sales of our own all-peak flour. For the second quarter of 2021, the company reported a sustained positive adjusted EBITDA of 4%, or $250,000, and a significant gross profit margin improvement of 45%, compared to the 23% in the second quarter of 2020. For the six months ended June 30, 2021, total revenue was $12.4 million compared to $10.2 million for the same period in 2020. That 22% year-over-year increase is strongly attributed to the accretive acquisition of Homegrown, coupled with our continued strength in retail tickets and traffic. Additionally, gross profit for the six-month period was $5.1 million, or 45%, compared with $3 million, or 30%, for the same period in 2020. The gross profit increase is driven by contribution from homegrown, increased vertical sales, and increased third-party revenues. While revenues grew 22% year-over-year for the six-month period, operating expenses decreased by 5% from $6.3 million to $6 million. The management believes that a well-run, properly scaled, vertically integrated cannabis company should be able to achieve more than 25% adjusted EBITDA margin, and we are laser focused on achieving this goal as we continue to execute our business plan. Thank you everyone who joined our call today, and we look forward to continued conversations in the upcoming quarters. Now, if you turn your attention over to your screen, Jeff and I will take you through a presentation of the second quarter, followed by our frequently asked questions from investors during this quarter.
spk00: All right, let's get started. This is our disclaimer. I don't think I'm going to read through the whole thing to get started. Quickly, we believe we're a best in class cash operator focused in Oregon, but really looking to grow in the western half of the United States. We're a positive cash flow operator, and we believe, thrive, innovation, leadership, both retail, marketing, and in developing and building our brands. Our focus is building value around our brands. We think brands create lasting value for shareholders and for our customers. Those brands are around Chalice, Elysium Fields, RXO, and our newly acquired Fifth & Root, which will work hand in hand with our Chalice brands. As I quickly mentioned during my opening remarks, we were recently selected as the number one hottest brand in Oregon. And this is really reflective of overall consumer engagement and that looks at our community, our events, and our content, which I'm really proud of. And I think is a reflection of the work that Karen and our marketing team have been doing and what John and our retail team does every day when it works with our customers. Just a quick reminder of our team. We have an amazingly experienced but also balanced team. I think one of the things that we have set out to do is to balance the kind of science of running a profitable business and the art of cannabis. I think we've done a really nice job. We have over 40 plus years of combined cannabis experience balanced by 40 plus years of Fortune 25 experience. We got over 20 years and kind of supply chain price cumulatively and over 75 years of retail experience, I think you look at those two things I think they're pretty well balanced. This is our team. John and I represent kind of the yin and yang of leadership. I'm focused on the operations running our business. John is focused on capital markets, and we really work well. We each have strong strengths in both of those. The team is then pretty well balanced across. Andrew has a strong experience in the cannabis space, and then before that, public sector, county, and CPA. john we've talked about before comes out of our consumer goods apple and microsoft megan who runs the supply side of our business is you know really well known in the community great relationships with all the top growers across the country but done a really nice job And then the rest of the team, I think, just represents great balance. Karen, out of industry, large industry, great marketing, forefront of digital experience. Ginger, 17 years with Apple and Neiman Marcus, great retail experience, runs Fifth and Root. Jane, you know, over 40 years of HR experience across Apple, Microsoft, Coach. Joel was one of the first licensees in cannabis in Oregon, runs our production operations, and Ben spent the last out of Bank of America and then spent the rest of his career in compliance and business development for our customers.
spk03: We're supported by a great board led by Rick Miller, our lead director, and a good balance between retail expertise, startup and entrepreneurial organizations, and a good legal background in Larry. So I think, as we mentioned earlier, the key highlights, I think we're proud of maintaining the adjusted EBITDA positive, and it's accomplished by the improved operating costs, our continued capital discipline around capital allocation, and of course, strategic acquisitions. We were able to generate record revenues in the second quarter of 6.9 million, a 26% year-over-year increase compared to 5.5 million for the same period in 2020. the acquisition of homegrown, which is really the blueprint of what we, you know, Jeff and I have laid out. We're going to continue improving our same store excellence. We're going to bring in our, you know, more and more of our bald peak flower. As we buy organizations like homegrown on a, you know, ideally in an accretive manner, We then get to blend in our own product line, change the product mix, increase the margin story, and, you know, using our retail expertise, grow the top line while we increase the margins with the product transition. Gross profit grew in this quarter by 131% year over year to 3.1 million. We're really proud of that. Megan did a lot of hard work to help with the production efficiencies. gross margin as a result doubled almost 23% from Q2 to 45% in 2021. We continue the adjusted EBITDA positive trend by generating $250,000 compared to a loss of $750,000 in 2020 for the same quarter. Go ahead, Jeff. No, go ahead. Alright, on April 8th we announced the 80% acquisition of CBD line skin CBD skincare line brand 5th and root. It has a national presence in over 400 retail outlets across the US and this is really the addition of Ginger Mallow is key to this. She her expertise at Apple will help us really create a national brand presence and look for more and more. to make more and more of an impact over the next few quarters. We're very proud that we had 412 million pre-consolidation shareholders vote at the AGM on May 10th, 2021, with over 95% approving the name change to Chalice Brands, along with the share consolidation. On May 19th, we closed the purchase of Homegrown, which we look forward to have ongoing and bigger impact as the next few quarters arise. With this purchase, our retail presence went from seven stores to 12 stores. And what I was saying earlier, when we bought Homegrown, their shelves had 3% of our product line. By now, by midpoint in August, we have now transitioned that to 28%. So just those two things alone will have strong economic benefit. And that's really why we think using the run state in Oregon to become a consolidator will pay off for us and our shareholders. In Chalice stores, our Chalice limited products are at our target of 50%. And Jeff can talk about that more later, should he choose. And as I mentioned, we consolidated and we added ginger. Jeff, over to you.
spk00: Retail revenue up over 40% year over year. Love this slide. This shows our progress towards profitability. Obviously, Q1 versus Q2 pretty much reflects seasonality, but overall, we're really pleased with the general direction that the business is headed in and our progress towards profitability.
spk03: We like to give a scorecard, like to give you shareholders something to measure on. And so we're proud to say our goals of Q2, which was to expand the footprint in Oregon, complete the share, the name change and the share consolidation were achieved. And I think we're making good strides on our Q3 and Q4 objectives. Jeff? Yep.
spk00: I mean, just the way to think about this company, we are clearly focused on geography. We're west of the Mississippi with a strong focus on the West Coast, which we think are some of the most important and influential markets in the country. Discipline growth, there's no question about it. We've quickly followed kind of crawl, walk, run, which is, you know, we validate a revenue model. We then enter the walk phase, which is invest to accelerate growth. And the run phase is you invest to accelerate profitability, but all in a very predictable way, which I think it's really allowed us to kind of bring the discipline to our business and our capital allocation. We're completely integrated. We believe that that is the best way to leverage the overall impact financially from this business. So that would capture all the margin from kind of seed through the sale of our product. Our competitive advantages clearly come and our retail expertise and our branding expertise. I don't think there is a stronger team in the business, no matter the size of the team we put together here. Our companies reflect that competencies reflect that same thing. And lastly, I think you're going to continue to see the strengthening of our brands and our position across as we expanded to several markets.
spk03: Jeff, let's go into the questions. The first one really, I'll ask an answer. One of the ones we've been getting quite a bit is this management believe the stock price reflects the value of the company at this point in time and At the same time, do you still think consolidating the shares was the right move for the company? I think we're on record, whenever we're asked, we do not believe we're valued properly. Any peer group measurement you will see, we are behind on an enterprise value to revenue basis. Obviously, we just took the EBITDA, so that's not positive EBITDA, so that's not a meaningful measure yet. But I think there is room to grow. And the only thing we can do is continue executing till we get reflected properly. In terms of the share consolidation, contrary to what people may believe, our share price is not down because we consolidated. It is down. And I know when you're holding it, it's hard to feel good about it. But the entire sector has been not well treated over the last five or six months. and there are lots of different market forces that drive that. What drove the consolidation was A, the unwieldy number of shares that we had, and B, really looking forward to when federal deregulation occurs. That in itself slowing down, I think, has more of an impact than anything else. And then, obviously, as we work with our BMG and our other investor relations team, getting the story out here, and getting new people and new eyes looking at Chalice and seeing all the great work the team is doing will eventually lead us in the right place. Jeff, do you intend to expand acquisitions beyond the state of Oregon in the near future?
spk00: I think the definition is near future, but absolutely. We would look to, as we described, crawl, walk, run. That first phase, second phase, as you move it from kind of walk into run, absolutely. It's built around acquisitions and beginning to capture the margin, both on manufacturing distribution, eventually into retail, eventually into growth. And it would be in any state we enter.
spk03: So let's keep going on that theme. How has the acquisition of homegrown benefited chalice in the first couple of months? And are you looking to continue taking further acquisitions like this in Oregon?
spk00: To answer the last product question, absolutely. We continue to look at and continue to identify acquisition opportunities. We think we are well positioned, clearly have the capability to expand our footprint. So we're constantly evaluating new opportunities and look forward to telling you about some of those in the future. As it relates to how it benefits us, there's really several benefits in any acquisition. long career in acquiring and then combining culturally. But two things that happen. One, from a financial perspective, we create tremendous leverage for our business in the marketplace. The ability to acquire product and brands from partners increases dramatically as your scale increases. It creates, as John talked about earlier, a significant opportunity to increase the sale of our product in these stores. Homegrown's a great example. It happened much faster than we expected, but we went from kind of a 3% presence in their stores to now, you know, over 20%. And our goal long-term is to represent about 50% of our revenue from our own products and 50% from partners. We think that's the right balance. You obviously could go higher, but I think it's important to continue to provide opportunities for other innovative businesses you know, product holders. So we think it works well there. And lastly, the thing in any acquisition is you have to be confident, mature enough to go in and learn. And I think every time you pick up a new team, you learn from them and you take the best of what they did well. And you incorporate it into your overall value proposition and continue to drive that experience to your customers. Homegrown had done a terrific job of building their business really based on their customer loyalty. And we're obviously going to take the best that they did, combine it with the best that we do, and hopefully have a one and one is three kind of scenario. And so far, it looks to be that case.
spk03: Jeff, the last question for today. Does the success of our long-term business plan depend on the legalization of marijuana at the federal level?
spk00: No. Our business plan right now assumes exactly the environment we're in, and we base all of our projections based upon that. However, there's no question that the eventual legalization will dramatically change the landscape. First and foremost, this potentially opens up the entire country to our products, which I think is interesting. Oregon is the first state in the country that actually has already defined cross-state commerce, allowing us to ship our product outside the states. I think we have one of the premier growing environments in the world, and allowing us to kind of share that with the rest of this country creates tremendous opportunity. Also, the other thing that will happen in legalization is the opening up of the financial markets and capital structure, which will change the overall profile of the industry. But we have built it conservatively, assuming, you know, legalization at some point in the future, but where our results are not dependent upon.
spk03: Great. David, that concludes Jeff and our comments. Thank you very much to you, RV Milestone, and to all our participants in today's call.
spk01: Well, thank you, John and Jeff. And thank you, everyone, for joining today's webinar. Today's webinar recording will soon be made available on Chalice's website. If you have any additional questions that have not been addressed on this webinar, please feel free to email us at chalice at rbmilestone.com. Again, that's chalice at rbmilestone.com. Thanks again. You are now free to disconnect.
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