Tpco Hldg Corp

Everyone, welcome to the parent company quarter 2021 conference call for the three-month period ending September 30, 2021. Listeners are reminded that certain matters discussed in the conference call or answers that may be given to questions as could constitute forward-looking statements that are subject to the risk and uncertainty relating to the parent company's future financial or business performance. Any such forward-looking information is based on certain assumption and is subject to risk and uncertainty that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. including the risk factor details in the parent company's continuous disclosure feelings that can be accessed via the U.S. Accreditation and Exchange Commission website at www.sec.gov or seda.com. Forward-looking information provided in this call speak only as of the date of this call and is based on the plan, leave estimate, projections, expectations, opinions and assumptions of management as for due date. There can be no assurance that forward-looking information will provide to be accurate. and you should not place until reliance on forward-looking information, the parent company undertakes no obligation to update such forward-looking information whether as a result of new INS. In addition, during the course of this call, there may also be reference to certain non-GAAP financial measures including reference to adjusted EBITDA. which do not have any standard meaning under GAAP and therefore may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-GAAP financial measures, including a reconciliation of adjusted EBITDA to the most directly comparable GAAP measures, please refer to the parent company quarterly reports on Form 10Q, including management discussions and analysis available on the SED website and SEDAR. Now, I would like to remind everyone that this call is being recorded today, Monday, November 15, 2021. Now, I would like to introduce Mr. Troy Thatcher, Chief Executive Officer of the Parent Company. Please go ahead, sir.

Thank you, and good afternoon, everyone, and thank you for joining us today for today's call. With me today, I've got Chief Financial Officer Mike Basil, our Chief Financial operation officer Dennis O'Malley, and also joined by Steve Allen, our head of corporate development, for our Q&A session later at the end of the call. I'm pleased to be speaking with you today on my first quarterly results call since joining the company in early September. Without a doubt, it's been a whirlwind of learning over the first couple of weeks for me, and during that time I've met with many members of the team across all functions in the organization. And I'm encouraged by the talent and the strategy that is driving our business, and I'm excited by the significant potential that lies ahead. During today's call, I'll share recent success developments against our strategic priorities, as well as a brief review of financial results. Briefly looking at our results for the quarter, our Q3 2021 net sales were $39.7 million. In the quarter, the wholesale cannabis market pricing challenges increased which has impacted the entire California cannabis industry, came into focus resulting in sequential decline in our top line revenue. While we cannot control external pricing conditions, we can focus the areas of our business that will drive long-term value. And I'm pleased to report that our direct-to-consumer side of the business grew 7.6% sequentially and is up 22.8% Q3 year over year. Significantly expanding our direct-to-consumer presence in California is one of our key growth strategies. We are doing this through the expansion of our retail storefront footprint, as well as pickup and delivery options for customers. One of our goals is to ensure customers have ease of access to high-quality products, and with this three-pronged approach, we ensure that meeting our consumers where they are, how they prefer to shop, is our objective. On that front, we recently announced the acquisition of two new retail dispensaries, Jane's Journey and Calma, which together with our existing footprint have quadrupled our California retail presence in just four months. Our new Calma store is in the Los Angeles metro area, which has an adult population of approximately 13.5 million people and is licensed for both storefront and delivery. While Jane's Journey is in Modesto, and further increases our reach by approximately 1.25 million adults. In August, we opened our last, latest Deli by Calibra location in Hanford. This Deli location is an expansion into Hanford where we previously served consumers via our delivery service. Our Deli locations provide customers with in-house expert consultations, and in addition, by offering Deli by Calibra products They also carry company product lines such as Monogram and Kaleva, as well as many popular third-party brands. With this new location, customers in this area will now have the expanded option of shopping in-store or pickup in addition to delivery. We also launched new customer delivery hub in the greater San Diego metro area, which serves approximately 2.7 million adults. In the next few months, we'll be further enhancing our delivery in this area with the addition of of our express delivery service, providing delivery in under an hour for select products from a predetermined menu. In addition to San Diego, in August we announced we had acquired a hub in Sacramento. This hub will cover the Sacramento metro area, consisting of approximately 1.8 million adults, and will offer our entire suite of high-quality products for delivery. And lastly, we announced in October that we executed definitive agreements to acquire the Coastal Holding Company, a retail dispensary license holder and operator with six licensed retail locations with five currently operating and two delivery depots in Santa Barbara and San Luis Obispo. The retail dispensaries are located in Santa Barbara, Pasadena, West Los Angeles, Stockton, and Vallejo, with construction engaged for a sixth retail license in Northern California. Upon the close of the coastal transition, our in-state consumer reach will expand to over 80% of the California adult population with 11 retail stores and six delivery depots, which positions us as one of the largest retail and delivery hub operations in the state. This puts us well ahead of our previous forecasted objective to achieve 75% coverage by the end of Q3. All of these recent developments ensure that we continue to be at the forefront of the premier customer service in the largest cannabis market in the state of California, delivering on our mission to ensure customers have superior experiences when accessing our products and further engaging our direct-to-consumer operations. We have maintained one of the strongest balance sheets in the industry and will continue to evaluate opportunities to expand to add both depth and scale to our California operations. Our criteria for acquisitions is strict, and we continue to focus on potential transactions that align with our strategic priorities while also being accretive to our business. I'd also like to take an opportunity to provide an update on an initiative that I believe is important to the work we're doing in this industry, and that is our Social Equity Ventures Program. The opportunity for the cannabis industry to aid those that have been most significantly disenfranchised and economically disadvantaged by historical cannabis legislation is immense. We believe it is our duty to invest in these organizations to ensure a more equitable and diverse cannabis market. Our first investment, Josephine & Billy's, a black and women-led business, opened its first retail location just two weeks ago in the Los Angeles market. And I look forward to joining the team at its official grand opening, which is scheduled for later this week, November 18th. Josephine & Billy's carries a wide range of products owned by women and entrepreneurs of color, along with favorites from our expansive product Our second investment, the Peaks Company, has been performing well through both in-store and online shopping options with select Peaks strains available for sale on Kaleva.com and at our retail locations. Peaks has made a name for themselves with their intuitive grasp of cannabis culture, premium indoor genetics from well-respected cultivators, and a limited product run. We look forward to working together with our current and future partners through this program and will continue to evaluate opportunities for investment in consultation with our Social Equity Advisory Committee. Before I hand over the line, I'd like to take a brief moment to thank one of our colleagues, John Figueroa, sorry, I call him Figs, so John Figueroa for his service. As we announced in today's earnings release, John has stepped down from his position as president of SISU, where he oversaw a bulk wholesale division. John will remain with us until the new year to facilitate a smooth transition, but on behalf of the entire team, we wish John much success and best wishes and for future pursuits. We've completed several important deliverables since early 2021, and our recent expansion efforts combined with our strong balance sheet has built a solid foundation for us to emerge as one of the leaders in California, strongly positioned for long-term growth. I look forward to speaking with you again on our progress as we continue to execute over the coming months and quarters. And at this point, I'd like to turn it over to Mike, who will discuss the financial highlights for the quarter. Mike.

Thanks, Troy, and good afternoon, everyone. As a reminder, the results I'll be going over today can be found in our financial statements in MD&A contained in our quarterly report on Forum 10Q. All figures are in U.S. dollars. Now that we're a U.S. registrant, our Q3 2021 financial statements were prepared in accordance with U.S. GAAP, whereas previously our financial statements were prepared in accordance with IFRS standards. Our Q1 and Q2 U.S. GAAP financial statements can be found on the Security and Exchange Commission website. Q3 2021 net sales totaled $39.7 million, representing a 26.8% decline compared to Q2 2021, revenue of approximately $54.2 million. As Troy mentioned, the sequential decrease was largely driven by a drop in pricing in our bulk wholesale and bulk oil during the quarter. Our Q3 2021 direct-to-consumer revenue grew 7.6% sequentially to 12.8 million or 32% of total net sales compared to 11.9 or 22% of total net sales in Q2 2021. On a pro forma basis, direct-to-consumer sales increased 22.8% year-over-year. Despite lower Q3 2021 net sales, Q3 2021 gross profit of 6.1 or 15% of total sales increased $1.3 million over Q2 gross profit. With continued expansion of our direct-to-consumer operations, we expect to see further improvements in gross profit and gross margin over time as our business shifts towards our higher margin product categories. Excluding impairment, our Q3 2021 operating expenses were $31.6 million, which included cash expenses of $9.9 million in general and administrative, $9 million in sales and benefits, salaries and benefits, $4.6 million in sales and marketing expenses, and $8.8 million in lease expenses. Q3 2021 cash operating expenses improved by $4.1 million over Q2 2021. 2021 non-cash expenses included stock-based compensation of 3.6 million and depreciation and amortization of 3.3 million. Our Q3 2021 adjusted EBITDA was a loss of 16.2 million and was primarily attributable to the ongoing operation of the company's core business, including the M&A activities that occurred during the quarter. In addition, Our Q3 2021 results included a non-cash goodwill and intangible asset impairment of $570 million. Based on softening of the California cannabis market during the three months ended September 30th, 2021, the company determined that an impairment test was appropriate. As part of the impairment assessment, the company's future forecast considered changes in cash flow estimates, due to lower flour and oil prices realized during the third quarter of 2021. And while the company remains optimistic that cannabis legalization will occur, our expected future cash flows reflect the current onerous tax and regulatory environment. The issues faced by the company are not unique to the operations as the entire California cannabis market has been significantly impacted last quarter. The company continues to focus on activities that will create long-term shareholder value, such as signing the coastal and common transactions. Furthermore, I'd like to highlight that of the consideration paid for the qualifying transaction, $232.7 million related to non-cash contingent consideration. This amount was potential additional consideration issuable if and when the stock price reached certain thresholds. And during the nine months, September 30th, 2021, the company recorded a gain on that contingent consideration of $221 million, which is reflective in our statement of operations. This impairment charge is an adjustment that does not affect the company's cash position or long-term strategy. There is no guarantee as to whether further impairment charges will or will not occur in the future. And please review the company's disclosure under the heading Risk Factors in the Company's Form 10-Q for the quarterly period ended September 30, 2021, which are available on the SEC's website and on CDAR. Before I hand over the line, I'd like to reiterate our previously filed registration statement, Form 10, with the United States Security and Exchange Commission recently became effective pursuant to the Security Exchange Act 1934 as amended. This is an important step into the advance of potentially being permitted to list the company's common shares and warrants on the New York Stock Exchange or the NASDAQ stock market upon regulatory advancement. Now I'd like to turn the line over to Dennis to discuss progress on our operational activities during the quarter.