Tpco Hldg Corp

Everyone, welcome to the parent company's first quarter 2021 conference call for the three-month period ending March 31st, 2021. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to the risks and uncertainties relating to the parent company's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in the parent company's periodic filing and registration statements. These documents may be accessed via the CEEDAR database. I would like to remind everyone that this call is being recorded today, Monday, May 17, 2021. I would now like to introduce Mr. Steve Allen, Chief Executive Officer of the Parent Company. Please go ahead, Mr. Allen.

Thank you. Good afternoon, everyone, and thank you for joining us for today's call. With me today are Mike Batesel, our Chief Financial Officer, and Dennis O'Malley, our Chief Operating Officer. We know that you all enjoyed that Stevie Wonder custom recording hold music that was created specifically at the request of Jay-Z to accompany the Hype Williams recreation of the Slim Aaron's Good Life campaign for Monogram this past month. I hope that each of you have had the opportunity to experience that iconic imagery, which is helping to change the historical narrative and to bring dignity to cannabis. As this is our first earnings call, I'd like to take a few moments this afternoon to review our strategic priorities and to provide an overview of our business and positioning. And then Mike will discuss the financial results and integration efforts. Following that, Dennis will review our progress on operations and corporate development updates. Afterward, we will take your questions. We are the leading vertically integrated cannabis company in California that brought together Jay-Z, Roc Nation, Kaleva, Les Cote ventures and sisu to win in the world's largest cannabis market we completed our qualifying transaction in January providing us the parent company over 300 million dollars in growth capital which has enabled us to execute on our vision to consolidate California's highly fragmented and woefully undercapitalized cannabis market it's been just over four months since we completed our qualifying transaction. And I'm incredibly proud of the combined work of our united teams that they've done to move with urgency to seamlessly integrate into a single, more efficient organization. Our three strategic priorities coming out of our qualifying transaction were to advance our product portfolio, to aggressively build out our direct-to-consumer network, and to further bolster our vertically integrated platform in order to maximize our potential margins and to ensure that we are able to meet our future consumer demand. The foundation of our company is dependent upon the vertical integration of our business in California, and to that end, we integrated our core assets, shed non-core assets, and improved our product distribution. An essential step to achieving our long-term goals was to ensure we enhanced our access to high-quality, low-cost cultivation on industry-best terms. As such, we are pleased to announce today two transactions that provide access to high-quality, low-cost outdoor and greenhouse cannabis biomass for the next 10 years, including our acquisition of four acres of outdoor outdoor cultivation from Mosaic Ag, an affiliate of Soma Rosa Farms, our strategic investment in Mercer Park Brand Acquisition Corp, and our offtake and retail partnership agreements with the Glasshouse Group. These pivotal transactions, coupled with our own award-winning indoor capabilities, provide us with an unprecedented scale and margin advantage through long-term acquisitions to a significant supply of high-quality indoor, greenhouse, and outdoor-grown cannabis biomass, which covers all of our planned product and brand needs for the foreseeable future and allows us to achieve the full potential of our vertical integration. We plan to leverage our access to this high-quality, low-cost cannabis together with our substantial manufacturing capabilities to produce high-demand, high-margin products sold through our own channels, including a robust wholesale distribution network covering the entire state, as well as through our expanding direct-to-consumer platform that includes our retail stores and standalone delivery depots. We are actively working to expand our retail and delivery depots to broaden our reach, having set a goal to serve nearly 90% of the California market within the next 18 months. We're at approximately 50% today and should be approaching 75% before the end of Q3 this year. We believe that in cannabis, strong brands are what will determine the long-term winners. And to be successful here in California, nationally and internationally, Scalability is critical. Our brand strategy and cultural marketing are guided by Jay-Z and Roc Nation, leveraging their unparalleled consumer reach and cultural influence to build the most valuable and scalable brands in cannabis. This unique partnership drives brand awareness, increases access to earned media, and creates market demand. Briefly taking a look at the quarter since completing our qualifying transaction on January 15th, we generated net sales of $39.9 million. Had we reported a full quarter of operations, our first quarter sales would otherwise have been approximately 45.6 million. During the quarter, we executed on a variety of integration efforts, which Mike will review shortly. I am extremely proud of the progress accomplished to date that has brought our companies together to consolidate our operations and to drive efficiencies. This is crucial work which will ensure that we have a strong, scalable, and efficient platform that positions us for long-term success. Turning to another important area of strategic focus, I would also like to take a moment to update you on our corporate venture capital social equity initiative. We are at the forefront of a generational wealth creation opportunity with cannabis. And we both believe and understand that there is a significant responsibility to promote a more diverse and equitable supply chain and cannabis marketplace. In partnership with Roc Nation, we are working to discover the future cannabis entrepreneurs of color that will build the ecosystem, offering them both the capital and mentorship necessary for their burgeoning businesses to thrive and to drive positive ROI for both themselves and their investors. We have set aside an initial $10 million to fund these investments, further supported by our commitment to the Robert Smith Challenge, whereby we will commit 2% of all future net income to invest in entrepreneurs of color in the cannabis space. These entrepreneurs are often not able to access capital to establish their business. In addition, we will leverage our platform where possible to highlight these diverse businesses and to introduce them to a broader potential audience as they grow. We have been accepting and reviewing many incredible applicants over the past couple months, and we're excited to share the news of our inaugural investments in the coming weeks. Finally, we continue to focus on building world-class leadership and management teams. And just last week, we were thrilled to deepen our relationship with Roc Nation by welcoming Desiree Perez, the CEO of Roc Nation, to our board of directors. She is a multi-category business leader and has worked for over a decade to build Roc Nation into the strong brand that it is today. And she is a well-known advocate for both social and criminal justice reform. In addition to her work at the board level, she'll play a critical role as we continue to roll out and scale our corporate venture capital social equity program. We also announced in February that Mike Batesel had joined our team as our new CFO. Mike has deep public company and cannabis industry experience, as well as an established track record for driving profitable growth. He has brought strong financial acumen and rigor to our team. With that, at this point, I now would like to turn the call over to Mike, who will discuss the financial highlights of the first quarter, along with the progress of our integration efforts. Mike? Thanks, Steve.

And good afternoon, everyone. Before starting, I'd just like to say how excited I am to have joined the parent company team and proud of the work I've seen since joining. As a reminder, the results I'll be going over today can be found in our financial statements in MD&A and all are in U.S. dollars. First quarter 2021 net sales totaled $39.9 million. As Steve mentioned earlier, it is important to note that as a result of our qualifying transaction occurring on January 15th, we did not report a full quarter of sales. If we had, the first quarter net sales would have been approximately $45.6 million, which includes the net sales of the operating companies from January 1 through March 31, 2021. First quarter gross profit was $7.2 million, or 18% of total sales. As noted earlier, the company's focus is to drive more direct-to-consumer sales which will shift the weighting of this product category and over time is expected to increase gross profit. To that end, the first quarter companies consumer to direct websites processed over 150,000 consumer transactions. First quarter operating expenses were 61.9 million, which included 40 million of non-cash expenses comprised of 25 million of marketing expenses that were settled in shares for services provided under the ROC Nation agreement. In addition, stock-based compensation of $6.2 million and depreciation of $7.9 million. The remaining $21.9 million of cash operating expenses were comprised of general administrative costs of $9.85 million, salaries and benefits of $7.8 million, and sales and marketing expenses of $4.6 million. First quarter, other income included a gain on the change in fair value of contingent consideration of $131.1 million due to a decline in the common share price from January 15th compared to March 31st, 2021. The corporation agreed to pay certain contingent consideration in connection with the qualifying transaction. Contingent consideration will be valued at each quarter end and the gain or loss will be inversely related to the movement in the corporation's common share price. Our first quarter 2021 adjusted EBITDA was a loss of $11.4 million. The loss was primarily attributable to an ongoing operation of the company's core business. We ended the quarter with $281 million in cash and cash equivalents, and as Steve noted earlier, we are well-funded to continue to execute on our consolidation strategy. On January 15, 2021, three significant companies came together for the first time. We have worked hard over the past quarter to rationalize our organization and align on strategic priorities, which will allow us to win with customers while building a scalable infrastructure, streamlining and optimizing our operations with a focus on driving margin expansion while positioning the company for continued long-term growth. To that end, we successfully streamlined our brand portfolio portfolio offering to eight core brands from 17, eliminating redundancies and reducing potential sales category overlap. We also selectively reduced our total SKU count across our eight remaining core brands to further optimize the portfolio. There's been a tremendous amount of work done to expand our network of raw material sources and to provide improved flower product availability at more attractive pricing for customers. An important component of our Our integration plan and future margin expansion includes a consolidation of our manufacturing facilities, which resulted in the closing of our Santa Rosa and Oakland facilities and the migration of certain manufacturing operations to our San Jose facility during the quarter. With each of these changes, we now operate two streamlined manufacturing facilities, Additionally, we've centralized our distribution operation to two hubs located in San Jose and Costa Mesa while exiting our North Hollywood distribution facility. We also integrated and consolidated Caliva and Left Coast Ventures separate wholesale sales teams into the parent company's combined operations. This will reduce our future operating expenses and improve the depth of our sales organization as we continue to fully service and grow our network of accounts. Lastly, we completed a series of dispositions that have refocused our team on our core business operations. These included the sale of our 34% minority interest in Half Moon Grove for $6.5 million to the majority owners, as well as our Sainte-Prie business line for $1.1 million. And finally, we announced today that we have entered into a definitive agreement to sell our hemp CBD business to Arcadia Biosciences for $6.2 million. Despite making solid progress, significant additional integration and corporate development activities are currently underway. As a result, we have elected to withdraw our previously provided guidance, which included benefits from potential acquisitions, as well as revenue from our recently divested CBD hemp line. The timing around the completion of these corporate activities and receipt of necessary licensing approval remains uncertain. That being said, we have a robust pipeline of potential corporate development activities and remain committed to ensuring that potential acquisitions are both accretive to our strategic growth initiatives and will drive long-term shareholder value. And as such, timing around these opportunities remain uncertain. To accelerate execution of our corporate development opportunities, we have retained two experienced external advisory firms with deep backgrounds in identifying, evaluating, and executing inorganic opportunities. We are very pleased with the progress we have made this quarter and even more excited for what's ahead of us in 2021. I'd now like to turn the line over to Dennis to discuss our progress against our strategy and corporate development activities.