Enough is enough here. Adding to Marijuana Stock Review 2020 Bounce Portfolio Watch List – After Being Trounced from $2.80 CDN to $0.44 CDN.
Company Reiterating 2019 pro forma annualized revenue guidance of $70-$100 million
TORONTO, Nov. 26, 2019
- Q3 2019 revenue of $9.3 million, a 29% increase over Q2 2019 revenue of $7.2 million
- Q3 2019 pro forma revenue of $27 million which includes the impact of previously announced acquisitions and investments, a 23% increase over Q2 2019 pro forma revenue of $22 million
- Q3 2019 gross profit of $4.6 million increased 41% versus Q2 2019 gross profit of $3.3 million; gross margin improved to 49% from 45%
- Sold over 900,000 branded units, containing 64 million branded servings, in 12 states, through 2,600+ retailers
- Reiterating 2019 pro forma annualized revenue guidance of $70-$100 million
- Targeting positive operating cash flow by mid-2020
- Exercised option to acquire the Allied Concessions Group Inc. (“ACG”) distribution business in Colorado
- Concurrently announced a $15 million non-brokered private placement, enhancing the balance sheet for opportunistic, previously uncontemplated growth investments and initiatives.
TORONTO, Nov. 26, 2019 /CNW/ – SLANG Worldwide Inc. (CNSX: SLNG), (Frankfurt: 84S), (“SLANG” or the “Company“), today announced that it has filed its financial results for the three and nine months ended September 30, 2019. Additionally, the Company is pleased to announce a non-brokered private placement for aggregate gross proceeds of approximately $15 million. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS“). All figures in this press release are stated in Canadian dollars unless otherwise noted.
“In Q3 2019, we continued to see strong organic revenue growth. Across our portfolio, we saw favourable developments, including a shift in consumer spending toward the premium end of our portfolio, particularly Craft Reserve and Firefly. We continue to diversify our portfolio of products to increase total cannabis market share across both historically strong and blue-sky product segments, for SLANG,” said SLANG CEO Peter Miller.
“Additionally, we are excited to accept additional financing. This significant capital infusion from existing, long-term shareholders further strengthens our balance sheet. The Company’s ongoing efforts toward increased acquisition-centric efficiencies, our goal of positive operating cash flow by mid-2020, today’s enhanced cash position, and our powerful, multi-state platform allow us to be opportunistic around growth opportunities in this dynamic environment. We see huge opportunity in flower, ultra-premium concentrates, and other previously untapped product segments for SLANG.”
Key Financial and Operational Highlights
- Q3 2019 revenue of $9.3 million represents a sequential increase of 29% over the $7.2 million of revenue generated in Q2 2019. The increase reflects ongoing business strength in core markets and a favourable shift in product mix, including accelerating sales of premium products in the SLANG portfolio.
- Q3 2019 pro forma revenue of $27 million which includes the impact of the previously announced proposed acquisitions, investments, and the exercise of options to own assets within the SLANG Network.
- Q3 2019 gross profit of $4.6 million (49% margin) compared to $3.3 million in Q2 2019 (45% margin) reflects positive impact of changes to product mix and continued integration of existing assets, particularly procurement resources.
- Q3 2019 adjusted EBITDA loss of $1.6 million, consistent with an adjusted EBITDA loss of $1.6 million in Q2 2019 as gross profit improvements were offset by increased expenses related to corporate activities.
- Net income of $0.4 million in Q3 2019 compared with a net income of $17.5 million in Q2 2019. Net income in the quarter was driven by a favourable $106.6 million fair value adjustment to derivative liabilities and the options to acquire NS Holdings Inc. (“NSH”) and ACG (the balance of the Organa Brands business), offset by a non-cash impairment charge relating to a write-down of goodwill for acquisitions completed in January 2019 and by increased operating expenses in the quarter.
- $10.6 million of cash and cash equivalents at the end of the quarter. Subsequent to quarter-end, the Company agreed to raise an additional $15 million through a non-brokered private placement financing.
- In July, the RESERVE line of vaporizer cartridges became the first SLANG products available in Florida through the Company’s partnership with Trulieve Cannabis Corp.
- Expanded potential reach of the SLANG Network to the European Union with an announced partnership with Global Cannabis Corp (Greece).
- Further developed the Pressie Pills product line through launching the Pressie Pills 10-pack SKU in Colorado in August, as a follow up to the success of the single-serve Pressies product, and soft-launching the Pressies product in California in July.
- Accepted an investment from Bruce Linton, co-founder of Canopy Growth Corporation on September 17. In connection with the investment, each of the directors and senior officers of SLANG, who hold an aggregate of approximately 53 million common shares, entered into lock-up agreements.
- Launched the Firefly Mini in select retailers throughout Colorado. The Company is focused on increasing distribution for the Mini in Q4 2019.
- On October 15 the Company announced that it entered into a strategic partnership with Cookies, a leading California-based cannabis and lifestyle brand, to bring Cookies’ products to the Colorado market in early 2020.
- Continued to advance the Company’s integration of its existing assets and to pursue value capture initiatives across SLANG. To date, the Company has been focused on strong financial discipline. As such, the Company has sought to streamline its marketing, finance, legal, and operations functions, which have directly led to over 400 basis point improvement of its gross margin percentage and is expected to result in an estimate of $3 million in annualized savings, thereby accelerating the Company’s path to profitability.
- Worked toward consolidating the Colorado supply chain. The Company has exercised its option to acquire ACG. Closing of the acquisition will allow us to consolidate operations in Colorado. This is expected to increase revenue while streamlining operations and costs in our largest market.
Brand Key Performance Indicators in Q3 2019:
- 913,000 branded units sold — The Company saw an increase in quarterly revenue driven by higher sales of premium products within the portfolio. Despite sociopolitical headwinds, our leading Craft Reserve and Reserve brands in the O.penVAPE line maintained a #1 sales positions across key markets, including Colorado, New Mexico, and Vermont.
- 64 million branded servings (average of approximately 700,000 servings per day) —The divergence between sales volume and branded servings was driven by product mix which increasingly contains premium products with fewer cannabinoids per serving or, in the case of the Firefly 2+, no cannabinoids. Branded Servings declined less than Branded Units as cannabis-containing products sold were generally premium, larger format product offerings.
- 2,600+ retail stores across 12 states selling SLANG’s branded products — SLANG continues to maintain an extensive distribution network which spans the US and abroad.
SLANG will continue to capitalize on growth opportunities within the sector through expanding both its product offerings and distribution channels, ensuring that the Company stays ahead of evolving consumer trends and may reach the broadest consumer base possible. The Company has highlighted a number of key growth initiatives being pursued that will increase consumer demand within its portfolio.
- Flower: To-date, SLANG has not yet engaged consumers directly in the flower vertical. In FY2020, SLANG expects to enter this space with three key partnerships: Green House Seed Company, Strain Hunters, and Cookies. Each brand was strategically added to the SLANG portfolio, as they are among the most recognized flower brands in cannabis today. The Company expects to release branded flower and pre-rolls in Colorado and California by Q2 2020. The flower segment accounts for an estimated 40% to 50% of retail sales in each of these markets, which can significantly expand SLANG’s addressable market. Additionally, we anticipate that premium branded flower may further bolster sales of the Firefly 2+ through cross promotion.
- Concentrate and Vaporizer: SLANG currently maintains a portfolio of dozens of concentrate SKUs under its Craft Reserve, Reserve, and Bakked product lines. Within most key markets, these SKUs are among the highest selling concentrate products on shelves, including in Colorado where 6 of the highest selling vape SKUs are either Craft Reserve or Reserve products. To build upon this success, SLANG is continuing to innovate through the development of improved delivery devices and form factors. As part of its iterative product strategy, SLANG soft-launched the FireFly Mini product in Colorado during Q3 2019. After positive traction in the market, the Company now anticipates a full state-wide launch in Q4 2019, followed by a product roll-out in California, Oregon and Washington in the first half of 2020. Additionally, SLANG anticipates offering further additions to its product mix, including live resin products in 2020.
- Edibles:To build upon the success of its District Edibles, Pressies, and Magic Buzz brands, SLANG is expanding its SKUs with the release of new flavors of existing products and new delivery forms, including sours, chocolates, and mints, and expanding the brands’ market reach by distributing new offerings throughout our core markets—we see significant upside here as our Edibles portfolio is not yet as well distributed throughout our channels as our concentrate and vaporizer products.
- SLANG Health & Wellness: SLANG entered the CBD market in Q2 2019 with the launch of its Reserve CBD vape pen under the O.penVAPE brand. The company expects to continue the development of its portfolio of CBD products by extending its existing brand portfolio, while also introducing new branded products in 2020. In addition to SLANG’s existing strategic relationship with Greenlane, the Company is also pursuing other direct-to-consumer distribution channels that will position its brands for large-scale adoption.
- Organic Growth in Core Markets: SLANG brands maintain leadership positions in a number of competitive recreational cannabis markets, both mature and evolving. The Company views these core markets (Colorado, Oregon, California, Nevada) as key to SLANG’s continued growth. As SLANG continues to expand the distribution footprint and contents of its portfolio of products within the aforementioned territories, the company is poised for organic growth as regulatory headwinds and a changing capital environment create greater opportunities to build market share.
- Maturation of Emerging Markets: Several of SLANG’s existing key US markets are expected to mature in FY2020, including Florida and Oklahoma. In emerging markets such as Michigan and Massachusetts, the Company is well positioned to make a quick entry should market dynamics shift favourably. The above markets represent well over $1 billion in potential sales. Internationally, SLANG is well-positioned for early market adoption through its previously announced proposed partnerships in Latin America, the EU, and in Canada through its minority ownership of the Canadian Licensed Producer Agripharm Inc. SLANG’s partnerships within emerging markets offer exponential growth within the context of this novel market.
Corporate Development Update:
- Subsequent to quarter-end, the Company exercised its option to acquire Allied Concessions Group (“ACG”), one of the two manufacturing and distribution assets of Organa Brands. Upon closing, the acquisition of ACG will allow the Company to consolidate and streamline its operations in Colorado while increasing revenue. Completion of the transaction is subject to the execution of definitive documentation and State licensing approval and is targeted for early 2020.
- The Company continues to work towards being in a position to exercise its option to acquire NSH, the other remaining Organa Brands business, subject to the terms and conditions of the applicable option agreements.
- The Company announced the proposed acquisition of Arbor Pacific, Inc. (“Arbor”) and LBA Global Corporation (“LBA”) during the second quarter of 2019. The Company is committed to completing both transactions on terms that are mutually agreeable for shareholders of the acquiring and selling companies, in the context of evolving market conditions since the time of the original announcements.
Announcement of $15M Private Placement
SLANG has announced today a non-brokered private placement financing (the “Financing”) for aggregate gross proceeds of $15,152,063. Investors include existing institutional shareholders of the Company and an additional investment by investor Bruce Linton. The Company intends to use the proceeds of the private placement to support strategic growth opportunities and for general corporate purposes.
Pursuant to the Financing, the Company will issue 30,922,579 units (“Units”) at a price of $0.49 per Unit. Each Unit is comprised of one SLANG common share (a “Common Share”) and one common share purchase warrant (each, a “Warrant”). Each Warrant entitles the holder to purchase one Common Share for five years at an exercise price of $0.52 per Common Share. The Company has the option to accelerate the exercise of the Warrants after one year, in quarterly tranches equal to one-third of the aggregate number of Warrants issued, in the event that the Common Shares trade at a price in excess of $1.50 for a period of 30 consecutive days. Should all of the Warrants be exercised, it would provide the Company with an additional $16 million in cash.