SLANG Worldwide Announces Fourth Quarter and Full Year 2020 Financial Results

  • Revenue of $9.7 million in Q4 2020, a 22% increase over Q3 2020 and an 11% increase over Q4 2019
  • Cash and cash equivalents of $6.5 million at year-end; $12.4 million[1] as of March 31, 2021
  • Q1 2021 revenue expected to be approximately $9.9 million, a 112% increase compared with $4.7 million in Q1 2020*
  • Strong brand performance, with approximately 706,437 branded units sold in Q4 2020 (a 22% increase over Q4 2019), containing over 56 million branded servings in Q4 2020 (a 17% increase over Q4 2019)[2]
  • Re-entered California market through strategic partnership with Natura Life + Science, products expected to be available in Q2 2021
  • Re-entered Massachusetts markets through strategic partnership with Trulieve Cannabis Corp., products expected to be available in Q3 2021

SLANG Worldwide Inc. (CNSX: SLNG) (OTCMKTS: SLGWF) , a leading global cannabis consumer packaged goods (CPG) company with a diversified portfolio of popular brands, today released audited financial results for the full year and three months ended December 31, 2020. The Company previously announced preliminary results for the same periods on April 6, 2021. All figures in this press release are stated in Canadian dollars unless otherwise noted.

Key Financial and Operational Highlights

Financial Highlights:

  • Revenue for full year 2020 was $26.8 million, compared with $29.2 million in FY 2019. Revenue for the fourth quarter of 2020 was $9.7 million, an increase of 22% compared to Q3 2020 revenue of $7.9 million and an increase of 11% compared to $8.7 million in Q4 2019. The primary driver of sequential growth was a rebound in demand in the Company’s core markets of Colorado and Oregon. Similar strength in the Company’s emerging markets also contributed to sequential growth, as did the successful launch of new products including Lunchbox Alchemy CBD.
  • Gross profit of $12.8 million (48% gross margin) in FY 2020, compared with $13.1 million (45% gross margin) in FY 2019. Gross profit of $3.2 million (33% gross margin) in Q4 2020, compared with $5.5 million (63% gross margin) in Q4 2019. The decrease in margin is a result of two key drivers: i) product mix as the Company increased sales through its emerging markets and ii) due to not fully consolidating the economics of our Colorado manufacturing partner until January 1, 2021, our Q4 cost of goods sold reflect finished product purchases at wholesale prices rather than manufacturers cost.
  • The Company identified and recognized annualized savings of approximately $8.5 million.
  • Adjusted EBITDA (LBITDA) of ($5.5 million) in FY 2020, compared with ($5.6 million) in FY 2019. Adjusted EBTIDA (LBITDA) of ($1.1 million) in Q4 2020, compared with ($1.5 million) in Q4 2019.
  • Total Comprehensive Loss of $34 million in Q4 2020, compared with $208 million in Q4 2019. Total Comprehensive Loss for FY 2020 was $15 million, compared with $202 million in FY 2019.
  • $6.5 million of cash and cash equivalents at December 31, 2020, compared to $8.9 million at December 31, 2019. Subsequent to the quarter end, the Company completed a private placement for $11.9 million. Unaudited cash and cash equivalents were $12.4 million as of March 31, 2021.
  • Unaudited Q1 2021 revenue is expected to be approximately $9.9 million, a 112% increase compared with $4.7 million in Q1 2020*

We demonstrated growth, with fourth quarter revenue of $9.7 million, a 22% increase over $7.9 million in Q3 2020 and an 11% increase over $8.7 million in Q4 2019. This strong fourth quarter performance followed a year of corporate repositioning to implement a capital efficient and scalable strategy to drive improved topline and bottom-line results. This included the decision to reposition California as an emerging market, not a core market, and other cost reductions implemented over several quarters. While this strategy resulted in lower revenues in the start of the year as we scaled down certain operations, it enabled us to significantly reduce our cost base, streamline operations, and establish a leaner, more efficient business. In the second half of the year, it started to pay off and we generated higher sales, primarily driven by our assets in the core Colorado and Oregon markets. We are very pleased with this progress, and expect to see a continued improvement in our financial results throughout 2021.

Chris Driessen, CEO of SLANG

“The growth strategy in our core markets of Colorado and Oregon is centered around continuing to build the market share of our brands and consolidating supply chain assets in order to strengthen unit economics. To achieve this, we will continue to vertically integrate the supply chain to include cultivation, manufacturing, distribution and wholesale. In Colorado, our acquisitions of Peoria Partners (now renamed Slang Colorado Distribution or SCD), and Pleasant Valley Ranch (now renamed Slang Colorado Cultivation or SCC), and in Oregon our acquisition of LBA Global Corporation, are enabling us to recognize higher topline, wholesale revenue. With the consolidation of these supply chain assets, together with the pending acquisition of Allied Concessions Group, Inc. (“ACG“) once closed, we also expect to see stronger gross margins in 2021 when compared to Q4 2020.

“As part of our cost reduction strategy, we pivoted our core markets of California, Massachusetts and Michigan to become emerging markets via our asset-light strategy of forming strategic partnerships with top operators in these states. Emerging market sales are expected to continue to increase as we drive brand value creation and expand our presence in these markets. During the year, we made strong progress executing against this strategy by signing agreements with partners including Trulieve, Natura Life + Science and Gage Cannabis. These are expected to further improve our brand performance by expanding our product distribution and driving Branded Units and Branded Servings.

Mr. Driessen concluded, “We entered 2021 with very strong operations to accelerate our growth. Going forward, SLANG will be fully consolidating the economics of our recent acquisitions. Subsequent to the year end, we closed a private placement for $11.9 million, which provides us with the financial flexibility to execute against our growth strategy, including expansion into new states, and build value for shareholders.”

Operational Highlights and Growth Drivers

  • Path to Profitability: The Company made strong progress throughout the year accelerating its path to profitability by identifying cost-reduction opportunities, including a rebalancing of the workforce and continued optimization of SLANG Network relationships, and consolidating its supply chain assets. This is reflected in the significantly improved net loss for FY 2020 and Q4 2020, when compared with the same periods in the prior year. As of January 1st the Company will be consolidating the economics of ACG.
  • 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: In 2020, the Company made the decision to reposition its focus from a core market to an emerging market, in order to reduce costs and streamline operations. In the fourth quarter, the Company entered into a Strategic Partnership with Natura Life + Science (“Natura“). This partnership allows the Company to re-enter the California market in a profitable way. The size and scope of the infrastructure at Natura’s Sacramento facility allows for multiple product lines to be produced in volumes sufficient to support the California market, the largest in the United States. Products, beginning with District Edibles (the previous best-selling gummy in CA), are expected to be available in Q2 2021.
    • Massachusetts: The Company re-entered the Massachusetts market through its Strategic Partnership with Trulieve Cannabis Corp. (“Trulieve“) to supply branded products, which was signed in the third quarter. 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 has added O.pen Cured Resin and Firefly Dry Herb Vaporizers to its Florida portfolio. The Company expects District Edibles gummies in sweet and sour formulations to launch in Q2 2021. Branded Unit Sales increased by 4,832 to 103,232 in Q4 2020 compared with 98,400 in Q4 2019; Branded Servings Volume increased by 35,040 to 7,235,040 in Q4 2020 compared with 7,200,000 in Q4 2019.
    • Michigan: SLANG’s Strategic Partnership with Gage Growth Corp., 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. District Edibles gummies in both sweet and sour formulations are now available in the state. O.Pen Cured Resin is also set to launch in Oklahoma in Q2 2021.
    • Canada: SLANG’s minority-owned licensed producer, Agripharm Corp. began selling branded products in British Columbia and also signed a supply agreement with the Province of Ontario. Subsequent to quarter end, the Company’s O.pen and Firefly Mini line of products became available in Ontario. The Firefly Mini is one of the top selling disposable vapes in Ontario per the OCS.
  • Key Performance Indicators: Excluding California, the Company showed considerable growth. 706,437 Branded Units were sold in Q4, an increase of 22% compared with 578,341 Branded Units sold in Q4 2019; and 56 million Branded Servings were sold in Q4 2020, an increase of 17% compared with 48 million Branded Servings sold in Q4 2019. Including California, 708,752 Branded Units sold in Q4 2020, compared with 821,962 Branded Units sold in Q4 2019; 56 million Branded Servings sold in Q4 2020, compared with 60 million Branded Servings sold in Q4 2019. The decline in volumes in 2020 compared with 2019 was due to the Company’s decision to pivot California to an emerging market, as part of its strategy to refocus operations and improve its cost structure. The Company expects to re-enter California 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 brought new product SKUs to market in 2020 through the launch of additional brands in new product verticals and the expansion of existing product lines, including introducing Bakked Gyro live resin dabbing solution in the fourth quarter. This follows the introduction of O.pen Live Resin cartridges to the Colorado market. Subsequent to the quarter end, 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 fourth quarter of 2020. Highlights include: O.pen ranked as the #1 vape cartridge in Colorado for the sixth year running and #12 in Oregon; Firefly Mini was the #4 disposable vaporizer in Colorado; Bakked was the #6 dabbable distillate in Colorado; District Edibles was the #13 gummy in Colorado; Lunchbox Alchemy was the #9 gummy in Oregon; Pressies was the #4 pill in Colorado. (Source: BDSA.)

Fourth Quarter Corporate Development Update

In late 2020, SLANG’s business model considerably shifted and simplified due to the successful execution of its strategy to consolidate its network of licensed cannabis cultivators, manufacturers, distributors and e-commerce distribution platforms in its core markets of Colorado and Oregon.

  • On October 1, 2020, SLANG completed its acquisition of LBA Global Corporation (“LBA“) and its Lunchbox Alchemy brand portfolio and subsidiary Lunchbox Distribution. LBA is engaged in the business of developing and manufacturing edible and consumable products in the recreational and medical cannabis in Oregon along with national distribution of CBD products which can be found in over 600 stores across the US.
  • On December 22, 2020, the Company acquired 100% of the issued and outstanding equity interests of Colorado-licensed cannabis cultivator Pleasant Valley Ranch, LLC (“Pleasant Valley“) for a non-material amount of cash and 500,000 restricted voting shares of the Company. Pleasant Valley’s operations are located in Carbondale, Colorado and specialize in high quality, organically grown cannabis strains that thrive in high altitude, mountainous environments.

These acquisitions follow the acquisition of the licensed cannabis producer and distributor, Peoria Partners LLC (“Peoria”) in Q3 2020. Peoria is the state-licensed manufacturer and distributor of SLANG’s District Edibles brand in Colorado. The Company intends to continue to use Peoria’s Denver facilities for the manufacture of District Edibles and for the distribution of the full suite of SLANG-branded products within Colorado. The Company renamed the entity to Slang Colorado Distribution Inc.

The Company also acquired the assets of Cultivate Brands Corp (“Cultivate”) in the second quarter of 2020, a company with a strong cash position and other complementary assets.

Full Year 2020 Financial Review

The consolidated financial statements were prepared in accordance with IFRS. The following is selected presentation of the Income Statement for the year end December 31, 2020:

 3 months

3 months

12 months

12 months

(In thousands except per share data and percentages)CDN$CDN$CDN$CDN$
Net Operating Revenue             $9,658            $8,716$26,820$29,229
Cost of goods sold*              6,524               3,253             14,028             16,094
Gross profit before gain on fair value of biological assets3,1345,46312,79213,135
Unrealized gain on changes in fair value of biological assets 30–  30– 
Gross Profit3,164      5,46312,82213,135
Gross Profit Margin33%63%48%45%
Operating expenses6,49332,81435,645 72,811
Operating Loss(3,329)(27,351)(22,823)(59,676)
Share of loss of investment2541,6332,0232,174
Financing cost and FV adjustment27,07478,456(12,271)(51,556)
Unrealized exchange gain1,9951,234802467
Gain (loss) on sale of capital assets5– (406)– 
Gain on bargain purchase– – (397)– 
Income (Loss) Before Income Taxes(36,779)(237,299)(16,696)(234,752)
Income taxes322341
Deferred taxes (recovery)(2,638)(29,926)(2,638)(34,456)
Net Income (Loss) For Period(34,144)(207,395)(14,061)(200,337)
Exchange on translation of foreign operations(354)(393)(531)(1,811)
Total Comprehensive Loss($34,498)($207,788)($14,592)($202,148)
Earnings Per Share
          Basic              (0.09)              (0.78)              (0.04)              (0.87)
Diluted              (0.09)              (0.78)              (0.04)              (0.87)

Gross Margin

Below is the gross profit margin from operations for the year ended December 31, 2020:

 3 months ended
3 months ended
12 months ended
12 months ended
(In thousands except per share data and percentages)CDNCDNCDNCDN
Net Operating Revenue$9,658$8,716$26,820$29,229
Cost of goods sold 6,524 3,253 14,028 16,094
Inventory fair value adjustment– – –  (2,419)
Unrealized gain on changes in fair value of biological assets(30)– (30)– 
Adjusted Gross Profit$3,164$5,463$12,822$15,554
Adjusted Gross Margin33%63%48%53%

Non-IFRS Measures

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 “Operations Overview – Branded Volume” in the Company’s management’s discussion and analysis for the year ended December 31, 2020 (the “2020 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.

 3 months ended
3 months ended
12 months ended
12 months ended
(In thousands except per share data and percentages)CDNCDNCDNCDN
Total Comprehensive Income (Loss)($34,498)($207,788)($14,592)($202,148)
Adjusted EBITDA(1,108)(1,546)(5,526)(5,575)

See the Company’s 2020 MD&A for a detailed reconciliation of EBITDA and Adjusted EBITDA to Operating Income / (Loss). SLANG’s financial statements for the year ended December 31, 2020 and the 2020 MD&A are available on SEDAR at www.sedar.com, and on the Company’s Investor Relations website at www.slangww.com.

*These preliminary and unaudited financial results are subject to customary financial statement procedures by the Company. Actual results could be affected by subsequent events or determinations. While the Company believes there is a reasonable basis for these preliminary financial results, the results involve known and unknown risks and uncertainties that may cause actual results to differ materially. These preliminary fiscal results represent forward-looking information. See “Forward-Looking Statements” and “Financial Outlook”.

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