The Parent Company Reports First Quarter 2023 Financial Results

Generates 17% sequential improvement in gross profit resulting in a new gross margin high point of 43%

Workforce reductions completed from January 1, 2022, through March 31, 2023, resulted in approximately $21 million in annualized payroll savings. 

Conference call to be held May 15, 2023, at 6:00 p.m. ET.

SAN JOSE, Calif., May 15, 2023 /CNW/ – TPCO Holding Corp. (“The Parent Company” or the “Company”) (NEO: GRAM) (OTCQX: GRAMF), a leading consumer-focused California cannabis company, today announced, its financial results for the three-month period ended March 31, 2023 (“Q1 2023). All amounts are expressed in U.S. dollars.

Q1 2023 Financial Highlights

• Q1 2023 net sales from continuing operations were $18.1 million (excluding bulk wholesale business which was disposed during Q4 2022).
• Gross profit from continuing operations grew 15.8% to $7.8 million, or 43% of net sales compared to $6.7 million, or 30% of net sales in Q1 2022.
• Q1 2023 net loss from continuing operations was $16.5 million compared with a Q1 2022 net loss of $33.0 million.
• Adjusted EBITDA loss from continuing operations was $9.3 million in Q1 2023, an 57% improvement from a loss of $21.7 million in Q1 2022. Adjusted EBITDA removes the effects of changes in the fair value of financial instruments, impairment charges, stock-based compensation and other non-cash items.
• Cash and cash equivalents totaled $76.1 million as of March 31, 2023.

Q1 2023 Operational Highlights

• Enhanced its brand portfolio with the launch of Cruisers, a combination of the Company’s top-performing brands Fun Uncle and DELI. Cruisers is a no-frills, all-FUN brand, designed to bring consumers everyday value on premium products.
  • Three weeks following its launch, Cruisers became the Company’s top performing brand by revenue across its retail store network.
• Extended the Company’s license agreement with Mirayo by Santana, a line of premium cannabis products curated by ten-time GRAMMY award-winning guitarist and longtime cannabis advocate Carlos Santana.
  • Mirayo and The Parent Company recently hosted a launch celebration for Mirayo’s new line of solventless 10mg hash rosin gummies. The gummies are made with all-natural ingredients, with fun flavors such as Guava, Prickly Pear and Raspberry, and were made available at the Company’s retail locations across California beginning on May 3, 2023.
• Expanded social equity initiatives with the Company’s new Social Equity Ventures (“SEV”) Brand Success Program. Initial participants include CRONJA, Substance & Skewville, Peakz, and Disco Jays by MAKR House, each of whom are expected to participate in a 12-week strategic development program designed to provide minority-owned brands with guaranteed shelf space and individualized mentorship from the Company’s sales, marketing, retail, and operational teams. In the Brand Success Program SEV brands will learn best practices, operational procedures, and tips that can be applied to any retail outlet nationwide to provide them with the knowledge and opportunity to scale their business, increase brand awareness, build customer loyalty, and expand their retail presence.
• Bolstered the Company’s senior management team with the promotion of Roz Lipsey to the role of Chief Operating Officer, effective March 31, 2023.

Management Commentary

“Our strong first quarter results are thanks to the culmination of our team’s effort and the momentum we have generated over the past year positioning the Company as a leader in California,” said Troy Datcher, Chief Executive Officer and Chairman of The Parent Company. “We are just beginning to see the improvement in our profitability as a result of the successful implementation of our strategic plan, as we generated record gross profit and gross margin in the first quarter of 2023. This demonstrates the value of our omni-channel retail platform and its ability to deliver improved margins as well as strengthen our relationship with our customers.”

Mr. Datcher added, “We are committed to investing in innovation and customer engagement and throughout the quarter we announced several exciting brand developments. We previously shared that we were thrilled to have extended our license agreement with Mirayo by Santana, whose authenticity and commitment to delivering innovative and high-quality products make them one of our most valued partners. Recently, our team also celebrated the launch of our new brand line Cruisers, a combination of our top-performing Fun Uncle and DELI brands into one line that will better deliver our quality products at consumer-friendly price points. We remain firm in our belief that building top brands is integral to future success and will continue to connect with consumers throughout their cannabis journey.”  

Mr. Datcher concluded, “2023 is off to a great start and we intend to further accelerate our path to profitability through our proposed transformative merger of equals with Gold Flora. Integration planning is already underway to realize the substantial synergies through our combined platform. Together, we are executing on additional cost-saving measures that will best utilize our proven brand expertise and their premium cultivation and optimized production capabilities to drive efficiency and fuel margin expansion. California has one of the most important cannabis cultures in the world, it is a privilege to operate here, and we look forward to seizing the amazing opportunities achievable as a combined company. Today, we are more excited than ever about the future of our company.”

Gold Flora Transaction Update 

On February 22, 2023, the Company announced it had entered into a definitive business combination agreement (the “Merger Agreement”) with Gold Flora, another leading vertically-integrated California cannabis company, to combine in an all-stock merger.

Integration analysis has begun at both companies, and it is expected the combined company, with its comprehensive vertical integration, would achieve between $20-$25 million annualized cost savings, through benefits such as enhanced scaled and supply chain optimization. Initially the Company is focused on further optimizing its planned combined operations to drive efficiencies. From the period beginning January 1, 2022, through to March 31, 2023, the Company has achieved approximately $21 million in annualized payroll savings through the optimization of its workforce. In parallel, through commercial arrangements the Company has already started to leverage the benefits of Gold Flora’s vertical operations for additional cost savings, cash management, as well as improved production performance over the Parent Company’s current outsourcing model, including:

• Utilization of Gold Flora’s new cultivation environment to flower source specific genetics for more “genetic directional” brands, to deliver enhanced genetic consistency and predictability to consumers,
• Movement of vape pens and certain pre-roll products to Gold Flora’s production lines to further contain costs and improve margins,
• Shifting product development and innovation to Gold Flora’s platform to accelerate research and development timeframes for brands, and

Further details regarding the Merger Agreement and the strategic benefits and rationale for our proposed business combination with Gold Flora, can be found in the Company’s preliminary proxy statement and management information circular filed with the U.S. Securities and Exchange Commission on dated May 2, 2023.

Q1 2023 Financial Results

The Company’s consolidated financial statements, as well as its accompanying management discussion and analysis of financial condition and results of operations (“MD&A”) have been included in its Quarterly Report on Form 10-Q filed on EDGAR (www.sec.gov) as well as SEDAR (www.sedar.com). Please refer to The Parent Company’s MD&A for additional detail and discussion on the Company’s results from operations.

Conference Call
The Parent Company will host a conference call today, May 15, 2023, to discuss these results. Troy Datcher, Chief Executive Officer, Mike Batesole, Chief Financial Officer, and Roz Lipsey, Chief Operating Officer will host the call starting at 6:00 p.m. Eastern time. A question-and-answer session will follow management’s prepared remarks.

Financial results and analyses are also available on the Company’s website (ir.theparent.co).