SAN JOSE, Calif. – TPCO Holding Corp. or The Parent Company (NEO: GRAM) (OTCQX: GRAMF), a consumer-focused California cannabis company, today announced that it has elected to outsource certain aspects of its cultivation and manufacturing activities to select third party operators to realize benefits related to the current California cannabis market conditions. The changes to the Company’s production and manufacturing operations are expected to both reduce the Company’s cost of production and allow the Company to efficiently expand the breadth and depth of its product assortment to better serve evolving consumer needs.
In addition, outsourcing much of the Company’s cultivation and manufacturing operations is expected to improve both product quality as well as generate significant near-term cost savings. In connection with this change, the Company has eliminated an additional full 70 positions, representing 14% of its total workforce. As a result of this decision, the Company has realized annualized payroll reductions of approximately $4.0 million. Year to date the Company has realized an approximate 33% reduction in workforce, representing $10.0 million in annualized payroll reductions.
“Throughout this last year we have taken important steps to transform our business to one that delivers value for both our consumers and shareholders,” said Troy Datcher, Chief Executive Officer, and Chairman of The Parent Company. “While these decisions are never easy, the California market offers us the flexibility to partner with some of the best growers and manufacturers in our industry. We are working closely with our new partners to exceed the high-quality standards we have set for our products while also exploring additional opportunities to expand our product offering and deliver greater innovation for our customers”.
Mr. Datcher added, “This advantage will allow us to realize significant near-term cost savings as well as further leverage our retail data and insights to stay ahead of our peers in a rapidly evolving marketplace. The days of inefficient and asset-heavy operators is quickly coming to an end as we steadily march towards the end of cannabis prohibition in the United States. We are building a consumer-centric business and are executing on our objective to become a world-class brand builder and a leading operator in the market.”
In response to proposed changes to California’s cannabis delivery regulations to increase the allowed delivery “case pack value” limit, the Company has acted to optimize its delivery footprint. Under existing regulations, delivery drivers are allowed to carry a maximum of $5,000 worth of product in a vehicle, of which a maximum of $3,000 can be product that was not part of an order made before the driver leaves the delivery depot. The proposed new regulations would double the “case pack value” limit to $10,000, all of which can be product not part of a previously made order.
As a result of this change, which is expected to come into effect in the fourth quarter of 2022, delivery vehicles will be able to carry significantly more product than currently allowed. This increase is also expected to increase the geographic area that can be covered by a vehicle and allow for a much greater breadth of product to be carried. Consequently, the Company has elected to dispose of select redundant delivery depot locations which geographic region can now be more efficiently managed, including Culver City and Sacramento operations. These dispositions resulted in $500,000 in gross sale proceeds and additional annual cost savings of $1.8 million.
Forward Looking Statements
This press release contains forward-looking information within the meaning of applicable securities legislation which reflects The Parent Company’s current expectations regarding future events. The words “will”, “expects”, “intends”, “believes” and similar expressions are often intended to identify forward looking information, although not all forward-looking information contains these identifying words.
Specific forward-looking information contained in this press release includes, but is not limited to, statements concerning the outsourcing of operations to third parties and associated financial impact, the end of cannabis prohibition in the United States, future conditions of the California cannabis market and delivery depot regulations. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond The Parent Company’s control, which could cause actual results and events to differ materially from those that are disclosed in or implied by such forward looking information. Such risks and uncertainties include, but are not limited to: changes in general economic conditions including the impact of increasing inflation, the continued significant price compression in flower and distillate oil in the California market, competition in both our wholesale and omni-channel retail channels, business and political conditions, changes in applicable laws, the U.S. and Canadian regulatory landscapes and enforcement related to cannabis, changes in public opinion and perception of the cannabis industry, reliance on the expertise and judgment of senior management, as well as the factors discussed under the heading “Risk Factors” in The Parent Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022 and in the Company’s periodic reports subsequently filed with the SEC and in the Company’s filings on SEDAR at www.sedar.com. The Parent Company undertakes no obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.
Caution Regarding Cannabis Operations in the United States
Investors should note that there are significant legal restrictions and regulations that govern the cannabis industry in the United States. Cannabis remains a Schedule I drug under the U.S. Controlled Substances Act, making it illegal under federal law in the United States to, among other things, cultivate, distribute, or possess cannabis in the United States. Financial transactions involving proceeds generated by, or intended to promote, cannabis-related business activities in the United States may form the basis for prosecution under applicable U.S. federal money laundering legislation.
While the approach to enforcement of such laws by the federal government in the United States has trended toward non-enforcement against individuals and businesses that comply with medical or adult-use cannabis programs in states where such programs are legal, strict compliance with state laws with respect to cannabis will neither absolve The Parent Company of liability under U.S. federal law, nor will it provide a defense to any federal proceeding which may be brought against the Company. The enforcement of federal laws in the United States is a significant risk to the business of The Parent Company and any proceedings brought against the Company thereunder may adversely affect the Company’s operations and financial performance.
(This information is primarily sourced from The Parent Company. Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here).