- Continued Focus on Ramping Cultivation Capacity in Connecticut and Arizona
- Progressing Into Second Half of 2022 with Strengthened Leadership Team
- Provides Update on Full Year 2022 Guidance
AMITYVILLE, New York, Aug. 22, 2022 (GLOBE NEWSWIRE) — The Greenrose Holding Company Inc. (OTC: GNRS, GNRSW) (“Greenrose” or the “Company”), a multi-state grower and producer of cannabis brands and products, is reporting financial and operating results for the second quarter ended June 30, 2022.
Second Quarter 2022 Financial Summary (Non-GAAP)
| For the three months ended | For the six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| Successor | Predecessor | Successor | Predecessor | |||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net Income (Loss) | $ | (10,336 | ) | $ | 3,268 | $ | (24,904 | ) | $ | 6,060 | ||||||
| Provision for income taxes | 753 | 299 | 1,234 | 550 | ||||||||||||
| Interest expense, net | 6,910 | 44 | 13,529 | 77 | ||||||||||||
| Depreciation & amortization | 4,671 | 206 | 9,197 | 408 | ||||||||||||
| EBITDA | 1,998 | 3,817 | (944 | ) | 7,095 | |||||||||||
| Transaction related fees(a) | 588 | 294 | 588 | 294 | ||||||||||||
| Change in Fair Value of Financial Instruments(b) | (694 | ) | – | (1,164 | ) | – | ||||||||||
| Fair Value Step-up of Inventory (c) | 2,211 | – | 4,345 | – | ||||||||||||
| Infrequent events(d) | (1,046 | ) | 87 | (235 | ) | 87 | ||||||||||
| Management fees(e) | – | 400 | – | 400 | ||||||||||||
| Stock compensation expense (f) | – | – | 662 | – | ||||||||||||
| Adjusted EBITDA | $ | 3,057 | $ | 4,598 | $ | 3,252 | $ | 7,876 |
| (a) | For the three and six months ended June 30, 2022, transaction fees relate to the consulting legal and accounting fees related to the acquisitions of Theraplant and True Harvest and their corresponding contractual filing requirements of an S-1 to register shares. For the three and six months ended June 30, 2021, transaction fees relate to consulting, legal, and accounting fees in preparation for the Theraplant Business Combination. |
| (b) | Change in Fair Value of Financial Instruments represent the (gain)/loss related to private warrants and other derivative instruments. For the three and six months ended June 30, 2022, the Company recognized a gain of $694 thousand and $1,164 on its financial instruments which resulted primarily from fluctuations in the Company’s stock price. |
| (c) | Represents the impact to the cost of goods sold due to the fair value step up of inventory from purchase accounting. |
| (d) | For the three months ended June 30, 2022, infrequent events relates to $1,046 thousand gain on contingent consideration. For the six months ended June 30, 2022, infrequent events relates to the $1,046 thousand gain on contingent consideration, offset by the $811 thousand loss on note settlement. For the six months ended June 30, 2021, the $87 thousand is consisted of $29 thousand related to costs related to a fire in a grow room causing repair expenses that had not yet been recovered by insurance, as well as $58 thousand related to lobbyist fees related to Connecticut cannabis regulation proposals. |
| (e) | Represents management fees associated with management consulting services that were not required to be paid after the closing of the Theraplant Business Combination. |
| (f) | Represents share based compensation incurred for the six months ended June 30, 2022 as part of the Company’s equity incentive plan. |
| Successor | Predecessor | |||||||
| (in thousands) | June 30, 2022 | June 30, 2021 | ||||||
| Revenues | $ | 9,191 | $ | 6,570 | ||||
| Cost of Goods Sold* | 6,297 | 2,127 | ||||||
| Gross Profit* | 2,894 | 4,443 | ||||||
| Gross Margin* | 31.5 | % | 67.6 | % | ||||
| Adjusted EBITDA | 3,057 | 4,598 | ||||||
| Net Income | $ | (10,336 | ) | $ | 3,268 | |||
| Basic Earnings per Share | (0.63 | ) | ** |
* Cost of Goods Sold includes $2,211 of additional expense due to the fair value step up of inventory from purchase accounting, which negatively impacts gross profit by $2,211 and gross margin by 24%.
**Predecessor earnings per shares attributable to Angel Founder Units, Series A units, and Series R units were $15.77 per share, respectively; however, presentation of predecessor results not deemed comparable to results of successor given changes in capitalization and holding company results of operation.
Management Commentary
“During the second quarter, we continued to strengthen our operational foundation in both Connecticut and Arizona,” said Mickey Harley, CEO of Greenrose. “Our revenues increased 40% year-over-year due to incremental contributions from True Harvest, where we substantially reduced our inventory backlog and generated sequential month-over-month sales improvements. At Theraplant, we continued to navigate demand headwinds within the state’s current medical market, but worked to further activate our increased cultivation capacity and build inventory ahead of Connecticut’s expected commencement of recreational cannabis sales. While we continued to incur higher costs associated with ramping our expanded cultivation capacity at both True Harvest and Theraplant, we believe this work improves our positioning for improving our operations in Arizona and preparing for Connecticut’s forthcoming recreational market, respectively. As we progress into the second half of 2022, we remain focused on leveraging our existing production efficiencies to deepen and expand our presence in our existing state markets.
“In Connecticut, we are focused on ramping our harvests to build additional inventory as we prepare to supply the expected recreational market, and we are closely monitoring regulatory progress on this front. After populating all grow rooms at our expanded Theraplant cultivation operations in the first quarter of this year, we successfully completed our first harvest out of our two newest Theraplant grow rooms in June. Subsequent to the second quarter, Greenrose, together with partners, applied for four retail licenses and two hybrid retail licenses as part of the state’s equity joint venture (EJV) program, but the four Greenrose-related retail licenses were among the 14 retail applications that were recently denied by Connecticut’s Social Equity Council. We are working to address deficiencies in the applications.
“In Arizona, we continue activating our expanded cultivation capacity. While True Harvest’s second quarter revenue continues to reflect the impacts of production interruptions stemming from construction on our additional grow rooms, these impacts have gradually eased relative to the first quarter of this year. We have opened our seventh and eighth grow rooms at True Harvest and have overcome some of the post-harvest bottlenecks we experienced in the first quarter. As we bring more of our capacity online, we look forward to further improving our operational efficiencies and implementing them on an even greater scale.”
Paul “Otto” Wimer, Chief Business Officer of Greenrose, added: “Subsequent to the second quarter, we announced two new key leadership additions. We appointed Benjamin Rose to our board of directors, effective August 1, 2022, and named Bernard Wang as our new chief financial officer, effective August 8, 2022. Mr. Rose and Mr. Wang bring over 25 years of experience in finance and investments, and public accounting and management, respectively, including strong public company and cannabis industry experience. We believe their deep expertise will help us advance our strategic progress as an early-stage multi-state operator. With our strengthened leadership team and our growing production operations, we aim to continue enhancing our positions in Connecticut and Arizona to capitalize on market expansion opportunities as they arise.”
Second Quarter 2022 Financial Results
For the second quarter ended June 30, 2022, the Company’s revenue, net of discounts increased 40% to $9.2 million compared to $6.6 million in the prior year quarter. The increase primarily reflects incremental revenue contributions from True Harvest compared to the prior year period, which only included contributions from Theraplant. Theraplant’s second quarter revenues decreased year-over year as a result of sustained demand headwinds in Connecticut’s medical market, as well as increased competition and impacts from the state’s illicit market. True Harvest’s second quarter revenue performance continues to reflect the impacts of production disruptions resulting from the facility’s recent expansion.
Cost of goods sold, net for the second quarter ended June 30, 2022 was $6.3 million compared to $2.1 million in the prior year quarter. The increase was due to purchase accounting considerations in the fair value step up of inventory, which amounted to a $1.2 million cost increase for Theraplant. Cost of goods sold during the second quarter also reflects a $2.9 million cost contribution from True Harvest, including True Harvest’s fair value step up of inventory. The Company also continued to incur start-up costs related to initial planting and production processes at Theraplant’s new production facility, as well as ramping its expanded capacity at both Theraplant and True Harvest.
Gross profit for the second quarter ended June 30, 2022, was $2.9 million compared to $4.4 million in the prior year quarter. The decrease was primarily due to the aforementioned purchase accounting considerations in the fair value step up of inventory, partially offset by $1.3 million in incremental gross profit contribution from True Harvest.
General and administrative expenses for the second quarter ended June 30, 2022 were $3.3 million compared to $0.6 million in the prior year quarter. The increase was primarily driven by incremental cost contributions from True Harvest relative to the prior year period—which only included expenses from Theraplant—as well as additional public company expenses.
Net income (loss) for the second quarter ended June 30, 2022 was $(10.3) million compared to $3.3 million in the prior year quarter. This was primarily attributable to the aforementioned revenue impacts of the production interruptions at True Harvest and ongoing demand headwinds in the Connecticut market, as well as increased interest expense of $6.9 million, purchase accounting fair value inventory step-up of $2.2 million, and intangible amortization expense of $4.0 million.
Adjusted EBITDA for the second quarter ended June 30, 2022 was $3.1 million compared to $4.6 million in the prior year quarter. The decrease was primarily driven by the aforementioned lower level of gross profit generated during the quarter, higher corporate general and administrative expenses, and costs related to ramping the Company’s production capacity at Theraplant and True Harvest.
Cash and cash equivalents combined with restricted cash was $2.7 million at June 30, 2022 compared to $9.1 million at December 31, 2021. The decrease was driven by acquisition-related expenses and debt obligations.
2022 Financial Outlook Update
Due to regulatory delays surrounding the expected timing of Connecticut’s recreational cannabis market, Greenrose is suspending its previously stated full year 2022 guidance. The Company expects to re-evaluate and provide further updates on its 2022 outlook as regulatory visibility improves.
