Harborside

Third Quarter 2021 Revenues of $8.0 Million Marks another Record and Fourth Consecutive Quarter of Positive Adjusted EBITDA(1)

PORTLAND, Ore., Nov. 23, 2021 — Chalice Brands Ltd. (CSE: CHAL) (OTCQB: CHALF) (“Chalice” or the “Company”), a premier consumer-driven cannabis company specializing in retail, production, processing, wholesale, and distribution, today announces its financial and operating results for the third quarter 2021. All amounts stated are in US Dollars unless otherwise noted.

Third Quarter Highlights:


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  • Record quarterly revenues from continuing operations of $8.0 million, a 29% year-over-year increase compared to $6.2 million for the same period in 2020, in part driven by a full quarter of revenues from the Company’s Homegrown Oregon stores.
  • 63.7% growth in gross profit for third quarter 2021 of $3.6 million, or 45% gross margin, compared to $2.2 million or 36% gross margin for the same period in 2020. Gross margin improvements are due to an increased share of our vertical product growth and retail sales of our own Bald Peak flower.
  • Chalice branded products in the Homegrown stores have risen in the quarter from 3% pre-acquisition to 24%. In the Chalice branded retail stores, Chalice products reached a high of over 43% for the quarter compared to 20% for the same period in 2020, demonstrating a 115% year-over-year growth.
  • Record positive Adjusted EBITDA1 of approximately $600,000 represents the fourth consecutive quarter of achieving positive Adjusted EBITDA1 and is over a 300% improvement compared to a loss of $260,0001 for the same period in 2020.
  • Record year-to-date revenue of $20.4 million for the nine months ended September 30, 2021, an increase of 25% compared to $16.4 million for the same period in 2020 and almost matching total revenue for fiscal 2020 of $21.9 million.
  • For the nine months ended September 30, 2021, Adjusted EBITDA1 was approximately $1.6 million, compared with a loss of approximately $1.9 million for the same period in 2020.
  • On September 16, the Company announced its Cannabliss & Co. retail acquisition from Acreage Holdings Inc. of four retail dispensaries located in Portland, Eugene, and Springfield, Oregon for total consideration of US$6.5 million. The Company continues to operate these stores under a management services agreement pending OLCC approval.
  • Subsequent to third quarter, on October 7, the Company announced the promotion of Meghan Miller to Chief Operating Officer (COO).

“The third quarter was another outstanding performance for Chalice as we accomplished record revenues and our most profitable quarter to date. During the quarter, we closed a transformative acquisition in Oregon of four retail dispensaries from Acreage, bolstering our retail footprint by 130% in the fiscal year. By maintaining our focus on profitable operations and accretive acquisitions, Chalice has immediately impacted the vertical contribution within the new stores ahead of schedule. The Chalice team is motivated by our strategic mission to capitalize on untapped opportunities in Oregon and other markets with significant room for consolidation, synergies, and vertical leverage,” commented Jeff Yapp, President and Chief Executive Officer of Chalice Brands.

Fiscal Third Quarter Ended September 30, 2021 Financial Results

For the three months ended September 30, 2021 (“Q3 2021”), total revenue from continuing operations was $8.0 million as compared to $6.2 million for the same period in 2020 (“Q3 2020”). The 29% year-over-year increase is strongly attributed to a full quarter realizing Homegrown Oregon sales. Gross profit was up 63.7% compared to Q3 2020 at $3.6 million, or 45% of total revenue for Q3 2021, compared with $2.2 million, or 36% of total revenue, in Q3 2020.

Adjusted EBITDA1 was approximately $600,000 for Q3 2021, compared with a loss of approximately $260,000 for Q3 2020, continuing the positive trend since fourth quarter 2020. This move to profitability was primarily driven by continued cost controls, increased contribution from Homegrown, and increased vertical product contribution in both Chalice and Homegrown. The Company considers Adjusted EBITDA an important operational measure for the business and looks to continue to grow this important metric as the business scales.

For the nine months ended September 30, 2021, total revenue from continuing operations was $20.4 million, as compared to $16.4 million for the same period in 2020.

For the nine months ended September 30, 2021, gross profit was $9.2 million, or 45% gross profit margin compared to $5.1 million or 31% for the same period in 2020.

For the nine months ended September 30, 2021, Adjusted EBITDA1 was approximately $1.6 million, compared with a loss of approximately $1.9 million for the same period in 2020.

The Company’s interim financial statements for the third quarter 2021 and related MD&A have been filed on SEDAR and are available for review.

“Chalice is proud to have accomplished record revenue growth and profitable operations for four consecutive quarters. We remain diligent in executing our conservative capital allocation strategy which will ensure the Company is well positioned and prepared for both short and long-term growth and expansion. Despite the ongoing challenges facing the cannabis industry, our financial performance has never been stronger. For the remainder of the year and beyond, we will continue to focus on strengthening Chalice in a sustainable and profitable manner,” noted John Varghese, Executive Chairman.

1Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization, non-cash compensation expenses, non-recurring promotional and investor relations expenses, one-time transaction fees and other non-cash charges that include impairments, start-up costs and extraordinary operational curtailment charges. Prior period amounts have been adjusted for the inclusion of fair value changes related to biological assets effective for Q3 2021 and forward.

CHALICE BRANDS LTD.          
Interim Condensed Consolidated Statements of Financial Position (Unaudited)  
As at September 30, 2021 and December 31, 2020          
(Expressed in U.S. dollars)          
           
      September 30, 2021   December 31, 2020
           
CURRENT          
Cash     $ 491,170     $ 905,149  
Accounts receivable Note 5     323,793       108,308  
Other receivables Note 5     414,970       737,185  
Notes receivable       1,576,206       919,488  
Sales tax recoverable       32,813       89,033  
Biological assets Note 6     566,655       455,045  
Inventory Note 6     4,603,057       2,304,501  
Prepaid expenses and deposits       618,213       376,080  
Total current assets       8,626,877       5,894,789  
           
Property, plant and equipment Note 7     2,621,088       2,361,357  
Other receivables Note 5     842,440       836,235  
Right-of-use assets, net Note 8     5,307,935       4,132,035  
Intangible assets, net Note 9     13,568,738       10,737,423  
Goodwill Note 9     13,398,793       4,056,172  
Total assets     $ 44,365,871     $ 28,018,011  
           
LIABILITIES          
CURRENT          
Accounts payable and accrued liabilities     $ 4,070,488     $ 3,432,525  
Interest payable       43,619        
Income taxes payable       2,046,841       1,003,604  
Deferred income tax payable       510,007       55,039  
Sales tax payable       652,796       217,789  
Current portion of long-term debt Note 12   25,846       22,171  
Current portion of notes payable Note 12   417,338       119,533  
Convertible debentures carried at fair value Note 10         5,575,273  
Consideration payable – cash portion Note 12   713,280        
Consideration payable – equity portion Note 12   4,566,390        
Lease liability Note 11   1,054,621       949,496  
Total current liabilities       14,101,226       11,375,430  
           
Notes payable Note 12   1,706,243        
Long-term debt Note 12   119,683       134,675  
Long-term lease liability Note 11   5,408,452       4,372,395  
Warrant liability Note 13   1,627,495        
Derivative liability Note 10   170,742        
Convertible debentures carried at amortized cost Note 10   2,832,208        
Consideration payable – cash portion Note 12   1,569,758       1,824,533  
Consideration payable – equity portion Note 12   39,390       4,838,780  
Total liabilities       27,575,197       22,545,813  
           
EQUITY          
           
Share capital Note 14   164,336,386       149,754,502  
Warrant reserve Note 15   170,901       1,079  
Share option reserve Note 16   3,944,102       4,070,474  
Contributed surplus       2,329,997       2,329,997  
Deficit       (154,347,596 )     (150,683,854 )
Equity attributable to shareholder of the Company       16,433,790       5,472,198  
Equity attributable to noncontrolling interests       356,884        
Total equity       16,790,674       5,472,198  
Total liabilities and equity     $ 44,365,871     $ 28,018,011  
           
CHALICE BRANDS LTD.                
Interim Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)    
For the three and nine months ended September 30, 2021 and 2020            
(Expressed in U.S. dollars)                
                 
    For the three months ended September 30,   For the nine months ended September 30,
      2021       2020       2021       2020  
Revenues                
Product sales Note 21 $ 7,564,444     $ 5,765,970     $ 19,183,649     $ 15,318,207  
Royalty and other revenue Note 21   447,463       430,086       1,252,414       1,064,886  
Total Revenue     8,011,907       6,196,056       20,436,063       16,383,093  
Inventory expensed to cost of sales Note 6, 21   4,608,488       4,033,002       11,960,838       11,038,401  
Gross margin, excluding fair value items     3,403,419       2,163,054       8,475,225       5,344,692  
                 
Fair value changes in biological assets included in inventory sold Note 6, 21   323,803       (14,125 )     286,194       (48,483 )
(Gain) loss on changes in fair value of biological assets Note 6, 21   (551,401 )     98,853       (1,037,581 )     295,009  
Gross profit     3,631,017       2,078,326       9,226,612       5,098,166  
                 
Expenses                
General and administration     3,197,464       2,215,291       8,165,255       6,714,321  
Share-based compensation Note 16   99,789       41,517       298,727       264,793  
Sales and marketing     373,205       478,724       1,149,241       1,552,778  
Depreciation and amortization Note 7, 9   484,721       239,751       933,392       775,489  
Total expenses     4,155,179       2,975,283       10,546,615       9,307,381  
                 
Loss before items noted below     (524,162 )     (896,957 )     (1,320,003 )     (4,209,215 )
                 
Interest expense Note 10,11,12   519,713       350,265       1,404,348       1,449,109  
Transaction costs     248,349       127       334,889       41,178  
Loss on disposal of assets Note 7         (10,139 )     6,233       307,700  
Other losses     12,453       70,249       100,566       32,029  
Gain on change in fair value of warrant liabilities Note 13   (2,377,547 )           (1,092,337 )      
Loss on change in fair value of convertible debentures Note 10         565,328       172,956       565,328  
(Gain) loss on change in fair value of derivative liabilities Note 10   (278,141 )           96,118        
Loss on debt extinguishment Note 10               88,079        
Income (loss) before income taxes     1,351,011       (1,872,787 )     (2,430,855 )     (6,604,559 )
Current income tax expense     600,650       848,379       1,418,095       1,511,595  
Net income (loss)     750,361       (2,721,166 )     (3,848,950 )     (8,116,154 )
Other comprehensive loss                
Items that will be reclassified subsequently to profit or loss              
Comprehensive loss attributable to noncontrolling interests $ (39,377 )   $     $ (54,431 )   $  
Comprehensive income (loss)   $ 789,738     $ (2,721,166 )   $ (3,794,519 )   $ (8,116,154 )
Basic and diluted income (loss) per share from continuing operations $ 0.01     $ (0.07 )   $ (0.07 )   $ (0.22 )
Weighted average number of common shares outstanding   59,237,024       38,322,636       55,300,678       37,427,844  
                 
Adjusted EBITDA              
               
  For the three months ended   For the nine months ended
  September 30, 2021   September 30, 2020   September 30, 2021   September 30, 2020
               
Loss before income taxes $ 1,351,011     $ (1,872,787 )   $ (2,430,855 )   $ (6,604,559 )
Adjustments:              
Depreciation and amortization   725,356       476,733       1,638,563       1,548,121  
Fair value changes on debt and equity instruments   (2,655,688 )     565,328       (735,184 )     565,328  
Share based compensation   99,789       41,517       298,727       264,793  
Interest expense, net   519,713       350,265       1,404,348       1,449,109  
Transaction costs   248,349       127       334,889       41,178  
Start-up costs(1)   211,939       59,924       382,685       179,120  
Nevada curtailment expenses and other (2)   12,222       60,093       115,519       276,883  
Non-cash non-recurring investor relations   40,898             128,925        
Restructuring and severance cost   30,895             39,249        
Non-recurring promotional costs (3)               297,443        
Costs related to share consolidation and name change               26,442        
Impairments and other   12,453       60,110       106,799       339,729  
Adjusted EBITDA $ 596,938     $ (258,690 )   $ 1,607,551     $ (1,940,298 )
(1) Write-off of significant start up costs related to the Company’s California business and Fifth & Root    
(2) Losses experienced in Nevada due to unexpected shut down and facility abandonment due to COVID-19   
(3) Promotional costs include non-recurring discounts and promotional campaigns      
               

Q3 2021 Conference Call Details

Chalice Brands management, led by Mr. John Varghese, Executive Chairman, and Mr. Jeff Yapp, Chief Executive Officer, will hold a conference call for investors to discuss the results on Tuesday, November 23, 2021, at 5:00 p.m. ET followed by a webinar for shareholders providing a corporate update and a summary of the second quarter.

REGISTRATION: Please visit click here to register and stream the conference call.

Once registered, registrants will receive an email for this event inclusive of a calendar invite and details on how to connect. A replay of the webcast will be available online immediately following the call on the Company’s website at investors.chalicebrandsltd.com where it will be archived for one year.

About Chalice Brands Ltd.
Chalice Brands is a premier consumer-driven cannabis company specializing in production, processing, wholesale, distribution and retail, with twelve owned and four managed dispensaries in and around Portland, Oregon. The Company is committed to developing a dynamic portfolio built around the recognized brands of Chalice Farms, with a focus on health and wellness. Chalice operates nationally through Fifth & Root and has operations in Oregon and California. Visit investors.chalicebrandsltd.com for regular updates.

Investor Relations:

John Varghese
Executive Chairman
Chalice Brands Ltd.
971-371-2685
ir@chalicebrandsltd.com

Neither the Canadian Securities Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Exchange) accepts responsibility for the adequacy or accuracy of this release.

Disclaimer: This press release contains “forward-looking information” within the meaning of applicable securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the Company’s future business operations, the opinions or beliefs of management and future business goals. Generally, forward looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. These risks include but are not limited to general business, economic and competitive uncertainties, regulatory risks, market risks, risks inherent in manufacturing and retail operations such as unforeseen costs and production shutdowns, difficulties in maintaining brand loyalty, and other risks of the cannabis industry. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward looking information. Forward-looking information is provided herein for the purpose of presenting information about management’s current expectations relating to the future and readers are cautioned that such information may not be appropriate for other purpose. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws. This press release does not constitute an offer of securities for sale in the United States, and such securities may not be offered or sold in the United States absent registration or an exemption from registration or an exemption from registration.

Adjusted EBITDA Disclaimer: Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation, amortization, non‐cash compensation expenses, one-time transaction costs and other non-cash charges that include impairments. Adjusted EBITDA is a non‐GAAP financial measure which does not have any standardized meaning prescribed by IFRS and is therefore unlikely to be comparable to similar measures presented by other issuers. The Company considers this Adjusted EBITDA an important figure to show the true day to day operational picture of the business. It should not be considered in isolation as a substitute for measures of performance prepared in accordance with the IFRS.

Chalice Brands Ltd. Reports over 300% improvement in Adjusted EBITDA (1) as part of Record Third Quarter 2021 Financial Results