Third quarter GAAP revenue of $18.9 million increased 41.0% YoY –
– Excluding discontinued operations, third quarter revenue increased 59.6% YoY –
– Company will be seeking damages from Verano; focused on maximizing value for stakeholders –
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, 2022. All currency figures referenced in this press release reflect U.S. dollar amounts.
“Our third quarter results reflect continued revenue growth across each of our operating markets in Maryland, Minnesota, New Mexico, and New York, as well as consistency of our gross margin performance as compared to the prior quarter,” said Chairman and Chief Executive Officer, Kyle Kingsley, M.D. “Margin performance in our home market of Minnesota has been especially strong following the commencement of flower and edibles sales earlier this year, and we are also pleased with substantial increases in wholesale volumes in New York. We expect both of these positive trends to continue as we work toward the expected launch of adult-use sales in New York next year.”
Kingsley continued, “While we are experiencing positive momentum in our business, we were extremely disappointed by Verano’s decision to wrongfully repudiate our transaction, which we previously anticipated would close during the fourth quarter. We are unable to comment more on ongoing litigation beyond what has already been disclosed, but we reiterate that we believe this termination was unlawful and we will be seeking significant damages through the judicial process in British Columbia. We believe there is significant long-term value in our asset portfolio, and our management team and board of directors remains focused, as we always have been, on maximizing value for stakeholders.”
| Summary of Key Financial Metrics | |||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||
| US $ in millions | September 30, | September 30, | |||||||||
| 2022 | 2021 | Variance | 2022 | 2021 | Variance | ||||||
| GAAP Revenue | $18.9 | $13.4 | 41.0 % | $55.6 | $40.8 | 36.3 % | |||||
| Revenue (excluding Arizona and Ohio) | $18.9 | $11.8 | 59.6 % | $53.2 | $33.6 | 58.5 % | |||||
| GAAP Gross Profit | $9.5 | $5.1 | 86.3 % | $22.4 | $17.6 | 27.3 % | |||||
| Gross Profit Margin | 50.6 % | 38.3 % | 1,230 bps | 40.3 % | 43.3 % | -300 bps | |||||
| SG&A Expenses | $8.5 | $8.1 | 4.9 % | $26.4 | $24.4 | 8.2 % | |||||
| SG&A Expenses (% of Sales) | 45.0 % | 60.4 % | -1,540 bps | 47.5 % | 59.8 % | -1,230 bps | |||||
| Adjusted EBITDA (non-GAAP) | $1.9 | ($1.9) | NM | $1.6 | ($4.6) | NM | |||||
| Adjusted EBITDA Margin (non-GAAP) | 10.1 % | (14.0 %) | 2,410 bps | 2.9 % | (11.3 %) | 1,420 bps |
Third Quarter 2022 Financial Summary
Total revenue in the third quarter was $18.9 million, an increase of 41.0 percent as compared to Q3 2021. Excluding contributions from discontinued operations in Arizona, total revenue increased 59.6 percent and reflected strong growth in each of the Company’s operating markets. Retail revenue excluding Arizona increased 60.1 percent to $16.4 million in Q3 2022. Wholesale revenue excluding Arizona increased by 56.1 percent to $2.5 million, driven by increased sales in Maryland and New York.
Gross profit was $9.5 million, or 50.6 percent of revenue, as compared to gross profit of $5.1 million or 38.3 percent of revenue in Q3 last year. The improvement in gross margin was primarily driven by increased retail sales in Minnesota, as well as the discontinuation of operations in Arizona during the second quarter.
Total operating expenses in the third quarter were $9.7 million, an increase of $0.5 million as compared to $9.2 million in the third quarter of 2021. The increase in total expenses was primarily attributable to an increase in professional fees related to the former agreement to be acquired by Verano Holdings Corp.
Operating loss in the third quarter was $0.2 million, a decrease of $3.9 million compared to an operating loss of $4.1 million in Q3 last year. The improvement in operating performance was driven by increased revenue and gross profit dollars, partially offset by the increase in total operating expenses.
Total other expenses were $7.6 million during Q3 2022, compared to $2.2 million in Q3 2021. The variance in other expenses is primarily attributable to increased interest expense related to the Company’s credit facility, and an impairment of long-lived assets of $2.1 million.
Net loss in Q3 2022 was $8.4 million, as compared a loss of $6.9 million in Q3 2021. The variance compared to the prior year was driven by the improvement in operating income, offset by increased interest expenses and an impairment of long-lived assets.
EBITDA, as described in accompanying non-GAAP reconciliation, was a loss of $1.2 million during Q3 2022, compared to a loss of $3.1 million in Q3 2021. Adjusted EBITDA was $1.9 million in Q3 2022, as compared to a loss of $1.9 million in Q3 2021. Please refer to the Supplemental Information and Reconciliation of Non-GAAP Financial Measures at the end of this press release for additional information.
Other Events
On August 25, 2022, the Company announced the launch of its Boundary Waters line of premium cannabis pre-rolls focused on sustainability and environmental preservation. Inspired by Minnesota’s Boundary Waters Canoe Area Wilderness, which exists within Superior National Forest, Boundary Waters pre-rolls are hand-rolled from premium whole flower and are available in Sativa, Indica and hybrid strains, and can be purchased in five-roll packs.
On October 13, 2022, Goodness Growth received a notice (the “Notice”) of purported termination of the agreement (the “Arrangement Agreement”) with Verano Holdings Corp. (“Verano”) pursuant to which Verano had agreed to purchase all of the Company’s stock, subject to the satisfaction of certain conditions. The Notice asserted certain breaches of the Arrangement Agreement, including claims the Company’s public filings and communications with respect to its business and ongoing operations were misleading and that the Company breached its representations to Verano under the Arrangement Agreement. Verano also claimed, as a result of such breaches, it is entitled to payment of the $14,875,000 termination fee and its transaction expenses. Goodness Growth denies all of Verano’s allegations and affirmatively states that it has complied with its obligations under the Arrangement Agreement in all material respects at all times. Goodness Growth believes that Verano has no factual or legal basis to justify or support its purported grounds for termination of the Arrangement Agreement.
On October 21, 2022, Goodness Growth commenced an action in the Supreme Court of British Columbia against Verano arising out of Verano wrongfully repudiating the Arrangement Agreement. The Company is seeking damages costs and interest, based on Verano’s breach of contract and of its duty of good faith and honest performance. Due to uncertainties inherent in litigation, it is not possible for Goodness Growth to predict the timing or final outcome of the legal proceedings against Verano or to determine the amount of damages, if any, that may be awarded.
Company Continues to Explore Strategic Alternatives
As a result of the termination of the Arrangement Agreement with Verano Holdings Corp., the Goodness Growth Board of Directors and its Transaction Committee, which was formed to explore strategic alternatives for the Company in the third quarter of 2021, remain focused on maximizing value for stakeholders. The Committee, with the assistance of outside advisors, ran a thorough sale process and received multiple indications of interest prior to announcing the Arrangement Agreement with Verano on February 1, 2022. The Board of Directors and Committee continue to evaluate strategic alternatives for the Company, which could include a disposition of a material business or assets of the Company, or a merger or sale of the Company. The Company has not set a timetable for the completion of this review process.
Balance Sheet and Liquidity
As of September 30, 2022, the Company had 128,126,330 equity shares issued and outstanding on an as-converted basis, and 158,380,087 shares outstanding on an as-converted, fully diluted basis.
As of September 30, 2022, total current assets were $53.9 million. The Company had cash on hand of $21.8 million, which included net proceeds received from an increase on its delayed draw loan of $8.5 million during the third quarter. Total current liabilities were $26.3 million.
Conference Call and Webcast Information
Goodness Growth management will host a conference call with research analysts tomorrow, Tuesday, November 15, 2022 at 8:30 a.m. ET (7:30 a.m. CT) to discuss its financial results for its third quarter ended September 30, 2022. Interested parties may attend the conference call by dialing 1-888-660-6217 (Toll-Free) (US and Canada) or 1-929-203-1990 (Toll) (International) and referencing conference ID number 2214400. A live audio webcast of this event will also be available in the Events & Presentations section of the Company’s Investor Relations website and via the following link:
