Humble & Fume Inc. Announces Financial Results for Second Quarter Fiscal 2022

8 min readPublished On: February 28th, 2022By

TORONTO – Humble & Fume Inc. (CSE: HMBL) (OTCQX: HUMBF), a North American distributor of cannabis and cannabis accessories, announced its financial and operating results for the three and six months ended December 31, 2021.

Joel Toguri, Chief Executive Officer of Humble, commented:

“During the quarter, Humble made meaningful progress towards our goal of becoming profitable by realigning our corporate structure and operations, while focusing on market expansion. Over this period, we have maintained stable revenue while absorbing one-time costs associated with the restructuring. While these costs have been significant, we believe the changes we are implementing now, will benefit the business as we go forward. Already, these changes have led to the optimization of our operations, improved our product portfolio, and put the team in place to drive the organization to the next level. As a result of these changes, we anticipate annualized efficiencies of approximately $3-5 million.”

Mr. Toguri continued, “As we look ahead to our aggressive U.S. growth strategy, we have appointed seasoned veteran, Jessica Hulser as General Manager of our U.S. operations. Jessica’s priority will be to focus the operations, increase sales, and drive our expansion into cannabis distribution in the U.S., starting with California. Jessica has extensive experience in the distribution market from her time with Johnson Brothers. Jessica has expertise in optimizing and restructuring operations and driving profitable growth. We are excited to see the transformation she will have on our U.S. subsidiaries. We remain aggressively focused on becoming the leading cannabis distributor in North America.”

The Company announces that as of February 25, 2022, President and Founder of Windship Trading, Nathan Todd, has stepped away from his position with Humble to explore new opportunities. Mr. Todd will maintain his role on the Board of Directors.

Mr. Toguri concluded, “We want to thank Nathan for his years of leadership and his dedication to building a strong cannabis accessories distribution company. As a passionate advocate and supporter of the cannabis industry, Nathan’s legacy will remain strong as Humble enters its next phase of growth.”

Operational Updates

  • In October, Humble announced it had signed a share purchase agreement to acquire licensed California cannabis distributor, Cabo Connection, the first step in the Company’s U.S. expansion strategy. The agreement includes a lease for distribution facility strategically located in Los Angeles.
  • In November, the Company announced it had completed a US$8 million private placement by Green Acre Capital Distribution Corp. to acquire 15.23% of Humble, with an LOI to complete definitive agreements for an additional US$2 million for the formation of a joint venture. Funds will be used to execute on Humble’s expansion strategy of cannabis distribution operations in California. Both investments funded, or to be funded, by a subsidiary of Johnson Brothers through the purchase from Green Acre of options to acquire both of Green Acre’s investments.
  • In November, the Company announced the appointment of Jakob Ripshtein as the new Chairman of the Board. Mr. Ripshtein has extensive experience and knowledge of the cannabis and beverage alcohol market, from his time as President of Aphria Inc. (now Tilray, Inc.) and Diageo North America.
  • In December, Humble announced a new sales and distribution partnership with PAX Labs, Inc. for PAXÒ-Branded Vape Devices in Canada. PAX is a leader in premium cannabis vaporizer technology, with over 2 million devices sold to date.
  • In December, the Company announced that its common shares began trading on the OTCQX Best Market under the ticker symbol of HUMBF. Trading on OTCQX can enhance the visibility and accessibility of the Company to U.S. investors.
  • In December, Humble announced it had entered into an exclusive sales representation agreement with Galaxie Brands Inc. for the commercialization and distribution of Wyld Cannabis Edibles in Canada. Wyld is the best-selling cannabis edibles brand in the U.S.

Subsequent Events

Humble hires new General Manager for U.S. Operations
Jessica Hulser brings over 20 years of experience in performance-based leadership and high-level operational execution in the logistics and distribution industry. Holding top level operational and financial leadership roles within Johnson Brothers of Hawaii, Inc., Hawaiian Ocean Transport, Inc., and Odyssey Logistics, Inc., Ms. Hulser led complex logistical markets into sustained profitability and class leading operational metrics. In her role as General Manager for U.S. Operations, Ms. Hulser will be responsible for increasing sales, driving operational efficiencies, and spearheading the expansion into cannabis distribution in the U.S. Ms. Hulser is to start the role March 7, 2022.

Financial Highlights

Three months ended

December 31

Six months ended

December 31,

($ Thousands)

2020

2021

2020

2021

Revenue

$16,807,394

$16,853,284

$36,226,718

$34,904,916

Gross margin

$4,272,387

$2,423,457

$7,489,529

$6,610,364

Operating (loss) expenses

$(1,260,253)

$(4,141,471)

($2,823,352)

(6,196,065)

Net loss after taxes

$(3,123,093)

$(4,151,930)

($7,072,129)

($5,819,703)

Loss per common share

(0.05)

(0.03)

(0.11)

(0.05)

Adjusted EBITDA

$(544,600)

$(3,603,690)

(1,340,799)

(4,899,581)

Financial Results for the Second Quarter Ended December 31, 2021

Revenue for the second quarter was $16.9 million, compared to $16.8 million in the same quarter prior year. Second quarter revenue remained relatively flat as a result of on-going efforts to improve gross profit through higher margin products and expansion of the company’s sales agency business. Revenue for the six months ended December 31, 2021 decreased from $36.2 million to $34.9 million. In Canada, revenue increase by 12% over the six months ended December 31, 2021 as a result of increased sales from government accounts, onboarding new customer accounts and realizing higher margin sales from the accessories business. In the U.S., revenue declined by 14% for the six months ended December 31, 2021 as a result of focusing on higher margin products with competitive pricing and discounting tactics.

In the second quarter, gross profit was $2.4 million, which resulted in a gross margin of 14%, compared to $4.2 million, or a gross margin of 25%, year-over-year. The decrease in gross profit margin is primarily due to a change of the company’s inventory impairment provision of $.366 million along with sale of related clearance inventory of $.477 million resulting in a total net impact to gross profit of $.843 million. Gross profit decreased 12% of the six months ended December 31, 2021 compared to the same period prior year, as a result of the sale of related clearance inventory.

Operating loss for the quarter increased to $4.1 million from $1.3 million compared to the same period in the prior year. The increase in operating loss was driven primarily by restructuring costs, such as severance and rent impairments, and legal fee’s related to deal transactions.

Net losses for the quarter increased from $3.1 million to $4.1 compared to the same period in the prior year. Net losses increase was primarily driven by higher operational expense in support of expanding market and restructuring, which was offset by one-time charges related to the fair-value adjustment of the derivative liability for the convertible debenture. Net loss for the six months ended December 31, 2021 improved by $1.2 million due to the settlement of the convertible debenture in June 2021, which resulted in nil accretion and fair value adjustment compared to the same period in the prior year.

Adjusted EBITDA for the quarter was $(3.6) million, compared to $(0.5) million for the same period in the prior year. Changes were driven primarily by one-time adjustments in the fair value of the derivative liability for the convertible debenture and fluctuations in the foreign exchange gain/loss for each period. For the six months ended December 31, 2021, adjusted EBITDA was $(4.9) million compared to $(1.3) million for the same period in the prior year.

Non-IFRS Financial Measures.

EBITDA and Adjusted EBITDA are financial measures that are not defined under IFRS. We define EBITDA as net income (loss), or “earnings”, before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA before: (i) finance expenses (ii) fair value adjustments; (iii) share-based compensation expense; and (iv) foreign exchange (gain) loss. We believe Adjusted EBITDA is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of our operating business performance and other one-time or non- recurring expenses, and also provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with, the IFRS financial measures presented herein.

Forward-Looking Information and Statements.

This news release contains “forward-looking information” within the meaning of applicable securities laws relating to the Company’s growth and strategic plans for each of its business segments, including distribution of cannabis in the United States and the strategic focus in the United States, as well as expected future results. Any such forward-looking statements may be identified by words such as “expects”, “anticipates”, “intends”, “contemplates”, “believes”, “projects”, “plans” and similar expressions. Readers are cautioned not to place undue reliance on forward-looking statements. Statements about, among other things, Humble & Fume Inc.’s strategic plans including future growth opportunities and strategies in the United States are all forward-looking information. These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements to be materially different from those implied by such statements. Although such statements are based on management’s reasonable assumptions, there can be no assurance that such forward-looking statements will occur as described herein. The Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances or actual results unless required by applicable law. Readers are encouraged to refer to the Company’s disclosure available on its SEDAR profile (at www.sedar.com) for information as to the risks and other factors which may effect the Company’s business objectives and strategic plans.

(This information is primarily sourced from Humble & Fume Inc.  Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here).

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