Q3 GAAP revenue of $13.4 million increased 7% compared to Q3 2020 –
– Excluding discontinued operations, Q3 revenue increased 28% YoY –
– Revenue and margin performance in the quarter negatively impacted by unfavorable weather in Arizona –
Goodness Growth Holdings, Inc. (“Goodness Growth” or the “Company”) (CSE: GDNS; OTCQX: GDNSF), a physician-led, science-focused cannabis company and IP incubator, today reported financial results for its third quarter ended September 30, 2021. All currency figures referenced in this press release reflect U.S. dollar amounts.
“Our third quarter results were negatively impacted by unseasonal weather in the State of Arizona, where monsoonal rains wiped out a substantial portion of our outdoor crop at Elephant Head Farm,” said Chairman and Chief Executive Officer, Kyle Kingsley, M.D. “That loss of biomass severely impacted revenue and gross margin performance compared to our expectations, and results were also impacted sequentially by the non-recurrence of a high-margin wholesale order in New York that occurred in the second quarter. While we’re disappointed with these results, crop yields in Arizona this fall may help our performance in the wholesale channel over the next two quarters.”
Dr. Kingsley continued, “As we close out the fourth quarter and look to next year, we’re looking forward to launching new edibles products and concentrates in the Maryland market, as well as the commencement of adult-use sales in New Mexico and beginning of flower sales in the Minnesota medical market this coming spring. Our operating teams also continue to make a lot of exciting progress in New York. We anticipate our new indoor cultivation and processing facility will be complete in the second quarter of 2022, and we’ve identified several promising incremental retail locations that will help us ensure a successful rollout under the adult-use program in 2023.”
Third Quarter Financial Summary
Total revenue was $13.4 million in the third quarter, an increase of 7.2 percent as compared to Q3 2020, including the Company’s former subsidiaries in Pennsylvania and Ohio. Excluding contributions from Pennsylvania and Ohio, revenue increased 27.6 percent. Retail revenue excluding Pennsylvania increased 34.7 percent to $11.6 million in Q3 2021 and reflected growth in each of the Company’s retail markets. Wholesale revenue, excluding Pennsylvania and Ohio declined by 5.0 percent to $1.8 million, driven by the loss of biomass due to atypical weather in the Arizona market, which resulted in a sales decline during the quarter.
Gross profit was $5.1 million, or 38.3 percent of revenue, as compared to gross profit of $5.0 million or 39.8 percent of revenue in Q3 last year. The relatively flat gross profit margin was driven by higher throughput and decreased fixed costs per unit across most markets, offset by the impact of lower sales and increased costs in Arizona.
Total operating expenses in the third quarter were $9.2 million, an increase of $2.0 million as compared to $7.2 million in the third quarter of 2020. The increase in total expenses was attributable to increased general and administrative expenses driven by operational buildouts in Arizona, Maryland, Minnesota, and New Mexico where the Company has opened new retail dispensaries or has completed cultivation and manufacturing expansion projects.
Total other expenses were $1.5 million during Q3 2021, compared to other income of $11.2 million in Q3 2020. The decrease was primarily attributable to a one-time gain of $16.9 million on the disposition of assets during the prior-year quarter, partially offset by a derivative gain and higher interest expenses in the current period.
EBITDA, as described in accompanying disclosures and footnotes, was a loss of $2.4 million during Q3 2021, compared to a gain of $11.1 million in Q3 2020. Adjusted EBITDA was a loss of $1.9 million in Q3 2021, as compared to a loss of $0.6 million in Q3 2020. Please refer to the Supplemental Information and Reconciliation of Non-GAAP Financial Measures at the end of this press release for additional information.
Net loss in Q3 2021 was $6.2 million, as compared net income of $3.0 million in Q3 2020. The variance compared to the prior year was driven by increased operating and other expenses, higher interest expenses, and the non-recurrence of the gain on disposition of assets in the prior-year quarter.
Other Events
On August 19, 2021, the Company announced that it opened two new Green Goods® cannabis dispensaries in the state of New Mexico, located in Albuquerque and Las Cruces. These openings follow the Company’s strategic investments in cultivation operations to prepare for New Mexico’s adult-use program, which is expected to begin in April of 2022.
On September 1, 2021, the Company announced that the United States Patent and Trademark Office issued a Notice of Allowance for its subsidiary company Resurgent Biosciences, Inc.’s patent application titled, “Cannabis Based Moist Snuff.” This patent covers both the product delivery format and the process for creating a moist snuff from cannabis plants.
On September 28, 2021, the Company announced that it had closed on a sale leaseback transaction with Innovative Industrial Properties, Inc. (“IIP”) in the State of New York. IIP acquired approximately 92.3 acres of land adjacent to Goodness Growth’s existing facility in Johnstown, NY. The purchase price for the land was approximately $1.2 million, excluding transaction costs, and IIP is expected to provide funds of approximately $66.0 million for the construction of a new 324,000 square foot cannabis cultivation, processing, and research and development facility.
On October 28, 2021, the Company received regulatory approval of its acquisition of a dispensary license in Baltimore, Maryland. The previously-announced transaction is expected to close during the fourth quarter, and will bring the Company’s total number of operating dispensaries in Maryland to two.
On October 30, 2021, the Company announced that its wholly-owned subsidiary, Vireo Health of New York began selling whole flower cannabis products at its dispensaries and via its home delivery service in New York. The Company expects to have up to six cannabis flower strains available for patients in New York by the end of calendar year 2021.
On November 2, 2021, the Company announced that it had entered into an agreement to sell its Arizona cannabis licenses, all remaining inventory and equipment at its Phoenix dispensary, the Phoenix dispensary property lease and all revenue producing dispensary contracts in an all-cash transaction valued at approximately $15.0 million. The Company will continue to operate the outdoor farm in Amado, AZ and sell wholesale cannabis and cannabis products, under a cultivation management services agreement with the new owner. The Company expects the transaction to close later this year, pending regulatory approval.
Balance Sheet and Liquidity
As of September 30, 2021, the Company had 126,351,477 equity shares issued and outstanding on an as-converted basis, and 154,358,312 shares outstanding on an as-converted, fully diluted basis.
As of September 30, 2021, total current assets were $44.8 million, including cash on hand of $11.8 million, which does not include $15.0 million in cash proceeds from the sale of the Company’s Arizona licenses and Phoenix dispensary assets, which is expected to close during the fourth quarter. Total current liabilities were $15.2 million, with $1.1 million in debt due within 12 months.
Outlook Commentary
Dr. Kingsley commented, “Given our recent decision to focus solely on the wholesale market in Arizona, as well as uncertainty surrounding the start date of adult-use sales in the state of New York, we’ve revised our previous outlook ranges for financial performance in fiscal year 2022. We now expect fiscal year 2022 revenues to be in the range of $100 to $120 million, and adjusted EBITDA in the range of $20 to $30 million.”
Conference Call and Webcast Information
Goodness Growth management will host a conference call with research analysts today, Wednesday, November 10, 2021 at 8:30 a.m. ET (7:30 a.m. CT) to discuss its financial results for its third quarter ended September 30, 2021. Interested parties may register to attend the conference call via the following link: http://www.directeventreg.com/registration/event/1664907.
Upon registration, each participant will be provided with call details and a registrant ID for Goodness Growth’s conference ID number 1664907. A live audio webcast of this event will also be available in the Events & Presentations section of the Company’s Investor Relations website and will be archived for one year.
