SLANG Worldwide Announces First Quarter 2021 Financial Results
TORONTO– SLANG Worldwide Inc. (CNSX: SLNG) (OTCQB: SLGWF), a cannabis consumer packaged goods (CPG) company with a diversified portfolio of popular brands, today released financial results for the three months ended March 31, 2021. All figures in this press release are stated in Canadian dollars unless otherwise noted.
Key Financial and Operational Highlights
- Revenue for Q1 2021 was $9.9 million, compared with $4.7 million in Q1 2020 and $9.7 million in Q4 2020. The primary driver of growth was strong demand in the Company’s core markets of Colorado and Oregon as well as the consolidation of wholesale revenue. Similar strength in the Company’s emerging markets also contributed to growth, as did the successful launch of new products including Lunchbox Alchemy CBD.
- Gross profit of $3.71 million (37% gross margin) in Q1 2021, compared with $2.85 million (61% gross margin) in Q1 2020 and $3.16 million (33% gross margin) in Q4 2020. In 2020 sales were primarily comprised of licensing and packaging revenue. This represented lower topline revenue but higher gross margin percentages, with lower gross profit dollars. With the consolidation of our operations in our core markets2 we are now generating higher topline revenue with lower gross margin percentages and higher gross profit dollars. The increase in margin from Q4 2020 is a result of fully consolidating the economics of our Colorado manufacturing partner from December 31, 2020.
- Adjusted EBITDA (LBITDA) of ($0.96 million) in Q1 2021, compared with ($2.7 million) in Q1 2020. The reduction of the Adjusted EBITDA loss is primarily attributable to an increase in revenue and a reduction in operating expenses. The increase in revenue in Q1 2021 of $5.23M which represents a 112% increase can be attributed to the Company’s consolidation of its core market operations as described above.
- $12.4 million of cash and cash equivalents at March 31, 2021, compared to $6.5 million at December 31, 2020. This includes proceeds from an oversubscribed private placement (the “Financing”) for aggregate gross proceeds of $11.9 million, led by cannabis-focused private equity firm Merida Capital Holdings.
Chris Driessen, CEO of SLANG, said, “We reported improved topline results, both year over year and sequentially, primarily driven by strength in both our core markets of Colorado and Oregon which benefited from the consolidated economics from our recent acquisitions. Gross profit also improved, as expected, as we fully consolidated the economics of ACG, following the execution of a merger agreement to purchase 100% of the equity interest, which is expected to close in the coming weeks. We continued to integrate and invest in the assets that we acquired in 2020 in our core markets, including launching a new e-commerce store through which we are selling our CBD products, in order to maximize the growth opportunity.
“Looking ahead, we are well-positioned to continue our growth strategy of increasing market share in our core markets and expanding in emerging markets. SLANG will continue to benefit from its leaner, more efficient business model which is allowing us effectively manage costs. Excluding expenses associated with the companies acquired in 2020 which were LBA Global, Peoria Partners, Pleasant Valley Ranch and ACG, operating expenses declined by 20% to $8.66M (or 87% of revenue) compared with Q1 2021 operating expenses of $10.78M (or 230% of revenue). All-in, operating expenses still declined in Q1 2021 compared with Q1 2020. This improved operational efficiency, together with our brand leadership and expanding product portfolio, provides us with a strong platform to support the rapid scaling of our business throughout the remainder of the year. We expect to see stronger emerging market sales in 2021 as we drive brand value creation and expand our presence in these markets. Our partnerships with Trulieve, Natura Life + Science and Gage Cannabis will further contribute to our expanded product distribution and improve our brand performance. With a strong cash balance to fuel our expansion into new states and growth in core markets, we are poised for meaningful growth in the remainder of the year.”
Operational Highlights and Growth Drivers:
- Capital efficiency: As of December 31, 2020 the Company consolidated the economics of Allied Concessions Group, Inc. (“ACG”), which led to improved gross margin.
- Strategic Partnerships & Emerging Market Expansion: The Company is continuing to recalibrate or strengthen relationships in emerging markets to provide for sustainable and profitable growth. Recent highlights include:
- California: The Company’s Strategic Partnership with Natura Life + Science (“Natura”) will allow the Company to re-enter the California market in a profitable way. Products, beginning with District Edibles (the previous best-selling gummy in CA), are expected to be available in Q2 2021.
- Massachusetts: The Company has a Strategic Partnership with Trulieve Cannabis Corp. (“Trulieve”) to supply branded products to the market. This is the second market in which SLANG and Trulieve will partner, building on the success that both companies have enjoyed in the Florida market. Massachusetts will mark the first time that both companies can partner on wholesale initiatives, which is a SLANG core competency. Products are expected in summer 2021.
- Florida: SLANG products continue to be sold at all 81 Trulieve locations in Florida. The Company added O.pen Cured Resin to its Florida portfolio. The Company expects District Edibles gummies in sweet and sour formulations to launch in Q2 2021.
- Michigan: SLANG’s Strategic Partnership with Gage Cannabis, signed in Q2 2020, is expected to bring branded products to the Michigan market in Q3 2021.
- Oklahoma: SLANG products are now available in over 90 stores in the Oklahoma market. Sales in Oklahoma were in part driven by District Edibles gummies in both sweet and sour formulations. O.Pen Cured Resin is also set to launch in Oklahoma in Q2 2021.
- Washington: The Company has a Strategic Partnership with Snowcrest, LLC to supply branded products to the market. The Company is expected to bring branded products to market in Q3 2021.
- Canada: In Q1 2021, the Company’s O.pen and Firefly Mini line of products became available in Ontario. The Firefly Mini has been ranked as the #1 selling disposable vape for several weeks in Q1 2021.
- Key Performance Indicators: Excluding California, the Company showed considerable growth. 747,927 Branded Units were sold in Q1 2021, an increase of 44% compared with 520,239 Branded Units sold in Q1 2020; and 56.5 million Branded Servings were sold in Q1 2021, an increase of 23% compared with 46 million Branded Servings sold in Q1 2020. Including California, 748,079 Branded Units were sold in Q1 2021, an increase of 18% compared with 634,751 Branded Units sold in Q1 2020; and 56.5 million Branded Servings were sold in Q1 2021, an increase of 5% compared with 53.8 million Branded Servings sold in Q1 2020. The Company saw a 169% increase in branded unit volume in Oregon and expects California sales to pick up in Q2 2021 with its strategic partnership with Natura. In markets where units are down but servings are up, this generally is a result of consumer preference shifting from .5g carts to 1g carts, which contain a higher number of servings.
- Product Diversification: The Company is bringing new product SKUs to market through the launch of additional brands in new product verticals and the expansion of existing product lines. During the first quarter, the Company entered into a strategic partnership to manufacture and distribute cannabis products for Flower by Edie Parker. The SLANG-manufactured products launched in Colorado in early 2021, with the potential to expand into additional markets over time.
- Brand Leadership: SLANG’s brands continued to earn market-leading positions in its core markets in the first quarter of 2021. Highlights include: O.pen ranked as the #1 vape cartridge in Colorado and #12 in Oregon; Firefly Mini was the #5 and O.pen was the #4 disposable vaporizer in Colorado; Bakked was the #5 dabbable distillate in Oregon and #5 in Colorado; District Edibles was the #12 gummy in Colorado and Lunchbox Alchemy was the #8 gummy in Oregon; Pressies was the #4 pill in Colorado. (Source: BDSA.)
First Quarter 2021 Corporate Development Update
SLANG continued to grow in its core markets of Colorado and Oregon.
- Nationwide, Slang launched a new e-commerce platform, through which its best-selling CBD gummies, Lunchbox Alchemy CBD, are now available for purchase online. Production and fulfilment of all e-commerce orders will be handled in-house through SLANG’s Oregon and Colorado infrastructure that was acquired in 2020.
- In Colorado, Slang signed a strategic partnership agreement with Avér Skin to manufacture, co-package and distribute cannabis-based skincare products, with the potential to expand into additional markets over time.
First Quarter 2021 Financial Review
The consolidated financial statements were prepared in accordance with IFRS. The following is selected presentation of the Income Statement for the quarter end March 31, 2021:
|(In thousands except per share data and percentages)||CDN$||CDN$|
|Net Operating Revenue||$9,923||$4,690|
|Cost of goods sold*||6,224||1,836|
|Gross profit before gain on fair value of biological assets||3,699||2,854|
|Realized fair value amounts included in inventory sold||26||–|
|Unrealized gain on changes in fair value of biological assets||(11)||–|
|Gross Profit Margin||37%||61%|
|Other items (Impairment, FV adjustment, FX, gains/losses, taxes, etc.)||2,468||($31,069)|
|Total Comprehensive Income / (Loss)||($9,076)||$23,141|
|Earnings Per Share|
EBITDA, Adjusted EBITDA, Adjusted Gross Profit, Adjusted Gross Profit Margin, Branded Unit volume and Branded Servings volume are non-IFRS financial measures that the Company uses to assess its operating performance. EBITDA is defined as net earnings (loss) before net finance costs, income tax expense (benefit) and depreciation and amortization expense. Management defines Adjusted EBITDA as EBITDA adjusted for other non-cash items such as the impact of unrealized fair values, share based compensation expense, impairments, one-time gains and losses, and one-time revenues and expenses. Management defines Adjusted Gross Profit and Adjusted Gross Margin as gross profit and gross margin adjusted for inventory fair value adjustments and fair value changes of biological assets. See the heading “Key Performance Indicators” in the Company’s management’s discussion and analysis for the three months ended March 31, 2021 (the “Q1 2021 MD&A“) for a description of how each of Branded Unit volume and Branded Servings volume is calculated. This data is furnished to provide additional information and are non-IFRS measures and do not have any standardized meaning prescribed by IFRS. The Company uses these non-IFRS measures to provide shareholders and others with supplemental measures of its operating performance. The Company also believes that securities analysts, investors and other interested parties, frequently use these non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. As other companies may calculate these non-IFRS measures differently than the Company, these metrics may not be comparable to similarly titled measures reported by other companies. We caution readers that Adjusted EBITDA should not be substituted for determining net loss as an indicator of operating results, or as a substitute for cash flows from operating and investing activities.
|(In thousands except per share data and percentages)||CDN||CDN|
|Total Comprehensive Income (Loss)||($9,076)||$23,141|
See the Q1 2021 MD&A for a detailed reconciliation of EBITDA and Adjusted EBITDA to Operating Income / (Loss). SLANG’s financial statements and the Q1 2021 MD&A are available on SEDAR at www.sedar.com, and on the Company’s Investor Relations website at www.slangww.com.
Conference Call Details
Management plans to host an investor conference call today, May 27, 2021, at 10:00 am EDT to discuss the results.
|Timing:||Thursday, May 27, 2021 at 10:00 am EDT|
|Dial-in:||+1.833-529-0214 (U.S. toll free) or +1.236-389-2114 (international) or
|Webcast:||A live webcast can be accessed from the Investors section of Company’s website at www.slangww.com or at this link.
A replay of the webcast will be archived on the Company’s website for one year.
This news release contains statements that constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements, or developments in the industry to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words “expects,” “plans”, “anticipates”, “believes”, “intends”, “estimates”, “projects”, “potential” and similar expressions, or that events or conditions “will”, “would”, “may”, “could” or “should” occur. Forward-looking statements included in this news release include, but are not limited to, statements in respect of the Company’s prospects and the distribution of the Company’s branded products in its core and emerging markets, the proposed acquisition of ACG and ongoing consolidation of its supply chain in core markets and the impact thereof.
Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management of SLANG at this time, are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies that could cause actual results to differ materially from those expressed or implied in such statements. Investors are cautioned not to put undue reliance on forward-looking statements. Applicable risks and uncertainties include, but are not limited to regulatory risks, risks related to the COVID-19 global pandemic, changes in laws, resolutions and guidelines, market risks, concentration risks, operating history, competition, the risks associated with international and foreign operations and the other risks identified under the headings “Risk Factors” in SLANG’s annual information form dated April 13, 2021and “Risks and Uncertainties” in the Q1 2021 MD&A and other disclosure document available on the Company’s profile on SEDAR at www.sedar.com. SLANG is not under any obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.
(This information is primarily sourced from Slang. Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here).
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