Gage Growth Corp. (“Gage” or the “Company”) (CSE: GAGE) a leading high-quality cannabis brand and operator in Michigan, today reported its financial results for the three months ended March 31, 2021. All currency references used in this press release are in U.S. dollars unless otherwise noted.
- Record Q1 2021 revenue of $17.6 million, an increase of 219.4% YoY and 67.9% quarter over quarter
- Ended the quarter with over $43.6 million of cash
- Gross margins of 26.1% compared to 17.3% in Q4 2020, sequential quarter growth of 880 basis points
- The state of Michigan posted $154 million of cannabis sales in April, which equates to approximately $1.85 billion when annualized, positioning Michigan as the third largest cannabis market in the United States based on this run-rate
- Eight cultivation facilities in operation today (three Gage operated and five contracted cultivation assets) compared to two cultivation facilities in Q1 2020; the Company expects to expand to 13 cultivation facilities by year end
- Strong average basket size of $158 in the first quarter of 2021
- Expects to operate in-house processing asset in the third quarter of 2021 leading to further margin expansion
- Entered into strategic outdoor off-take agreement for up to 10,000 pounds of premium Gage and Cookies flower strains
See “Non-IFRS Financial Measures” below for more information regarding Gage’s use of Non-IFRS financial measures and other reconciliations.
Revenue increased to $17.6 million in the first quarter of 2021, as compared to $10.5 million in the fourth quarter of 2020, a 67.9% increase. This strong quarter over quarter growth was driven primarily by cultivation capacity expansion and two new dispensary openings.
Gross margin, before gain on fair value of biological assets, was 26.1% in the first quarter of 2021 compared to 17.3% in the fourth quarter of 2020. The 880 basis point improvement quarter over quarter in gross margin to 26.1% is due to a greater mix of higher margin sales from retail locations and cultivation capacity expansion via Gage operated cultivation assets, contract grow partners and lower input costs from dedicated wholesale partners. The Company anticipates further quarter over quarter margin expansion in Q2 2021 as cultivation yields increase from Gage operated assets and more contract grow partners come online.
Management Commentary
“After Gage’s tremendous growth this quarter with revenue of $17.6 million, we expect our first half of 2021 revenue to exceed full fiscal year 2020 revenue and more than double the first half of fiscal year 2020. We are rapidly growing as our investments in infrastructure have started to deliver operating leverage and the team continues to meet the evolving needs of our patients, customers and communities,” said Fabian Monaco, CEO of Gage.
Mr. Monaco continued, “Demand for Gage’s products and retail experience, along with the Michigan market, is extremely strong as cannabis continues to behave like a consumer staple. We opened two new dispensaries during the quarter, including the first adult-use Cookies branded dispensary in the Midwest. In late April, we opened our Battle Creek location, bringing our total retail footprint to eight dispensaries. On the cultivation side, the Company’s three cultivation facilities are fully operational and keeping pace with rising consumer demand while we continue to optimize yields and efficiency. This is all made possible by the dedicated team members we have throughout the organization.”
Mr. Monaco concluded, “Overall, we continue to execute on our growth strategy in 2021. We are excited to build on our momentum and are already seeing great performance evidenced by continued expansion of our retail and cultivation footprint.”
Operational Updates and Developments
1. Outdoor Off-Take Agreement
- The Company is pleased to announce it has entered into an off-take agreement securing up to 10,000 pounds annually of premium Gage and Cookies flower strains.
- Highlights the Company’s continual push to expand its product line and brand via a capital light strategy with an attractive cost per pound of only $400 which will further expand margins.
- Will increase the Company’s flower offering and secure cost-effective supply for processing initiatives in H2 2021 and H1 2022.
2. Opening 9th Gage operated dispensary on May 28th, 2021 in Jackson, Michigan
- The Company continues to execute on its retail expansion strategy with the goal of opening 20 locations by year end.
3. Delivering on cultivation ramp-up and opening of processing lab to satisfy consumer demand
- Currently eight cultivation facilities (three Gage operated and five contracted cultivation assets) are operational in the Company’s portfolio compared to only two cultivation facilities in operation in Q1 2020.
- The Company’s Monitor Phase II cultivation expansion is expected to be completed in Q4 2021, with the 80,000 sq. ft. building now fully complete and indoor build-out starting by the end of Q2 2021.
- Five contract grow partners in operation today, of which three have already delivered product while the remaining two partners are currently harvesting product. The Company anticipates adding several more partners by the end of the year and expanding our total grow capacity to over 7,000 pounds per month by the end of the year.
- Gage is expected to open a processing asset in the third quarter of 2021. This will allow the Company to produce in-house branded extract-based products which command significantly higher margin. Additionally, the processing facility allows the Company to introduce new products (Blue River™ Extracts & Terpenes) and bring internationally recognized brands to market (SLANG Worldwide).
Q2 2021 Outlook
The Company reiterates Q2 2021 revenue guidance of $26-31 million previously provided. The Company further reiterates guidance previously provided of flower margins expanding in Q2 2021 and anticipates a further material increase in Q2 2021 gross margin from improved output from its cultivation facilities and improvement in input costs.
Notes:
- 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 “Cautionary Note Regarding Forward-Looking Information and Statements” and “Financial Outlook”.
Conference Call
The Company will host a conference call on Friday, May 28, 2021 at 8:30 a.m. ET to review its operational and financial results and provide an update on current business trends.
To join the call, dial 1-877-317-6789 toll free from the United States or Canada or 1-412-317-6789 if dialing from outside those countries.
The call will be available for replay until Friday, June 11, 2021. To access the telephone replay, dial 1-877-344-7529 toll free from the United States, 1-855-669-9658 from Canada or 1-412-317-0088 if dialing from outside those countries, and use the following replay pin number: 10157206.
Please call the conference telephone number 5-10 minutes prior to the start time.
A live audio webcast of the call will also be available athttps://services.choruscall.com/mediaframe/webcast.html?webcastid=w3Qc6mqM.
