The Parent Company Reports Preliminary Fourth Quarter and Full Year 2022 Financial Results

Reports 2% sequential and 5% annual revenue growth  

Cost savings initiatives generated a 10% improvement in quarterly adjusted EBITDA loss 

FY 2022 gross profit grew 99.8% driving annual gross margin to 31% 

Maintained strong cash balance of $93.7 million at year end

Revised strategic arrangement with Roc Nation to preserve approximately $33.5 million of cash

Proposed transformational merger of equals with Gold Flora to create a leading vertically integrated operator in the world’s largest cannabis market

Conference call to be held March 31, 2023, at 9:00 a.m. ET

SAN JOSE, Calif., March 31, 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 preliminary (unaudited) financial results for the three- (“Q4 2022”) and twelve- (“FY 2022”) month periods ended December 31, 2022. All amounts are expressed in U.S. dollars.

Q4 and FY 2022 Financial Highlights

• Q4 and FY 2022 net sales from continuing operations were $20.0 million and $83.6 million respectively (excluding bulk wholesale business which is shown as discontinued operations)
• Gross profit from continuing operations was $6.7 million, or 33% of net sales in for Q4 2022 and $26 million, or 31% of net sales in FY 2022.
• Q4 2022 net loss from continuing operations was $41.0 million and a FY 2022 net loss of $237.7 million.
• Adjusted EBITDA loss from continuing operations was $14.4 million in Q4 2022 and $71.8 million in FY 2022, respectively. Adjusted EBITDA removes the effects of changes in fair value of financial instruments, impairment charges, and other non-cash items.
• Cash and cash equivalents totaled $93.7 million as of December 31, 2022.

Quarterly Highlights and Subsequent Events

• Entered into a revised strategic arrangement with Roc Nation LLC (“ROC”) and SC Branding, LLC (“SC Branding”) under which approximately 7.1 million common shares were returned to the Company, and approximately $33.5 million in top-line costs are expected to be saved over an eight-year period. Additionally, The Parent Company secured an exclusive and royalty-free eight-year license to commercialize Monogram in California.
• Announced that the Company 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. The proposed combined company is expected to be strongly positioned as a top 10 brand portfolio by revenue in California, with 20 retail stores by the end of 2023, 12 house brands and broad state-wide coverage. 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. Details regarding the Merger Agreement, including the strategic benefits and rationale, can be found in the Company’s press release dated February 22, 2023.
• 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.
  • In May 2023, Mirayo is expected to introduce its new line of solventless 10mg hash rosin gummies made with all-natural ingredients, which will be available in flavors like Guava, Prickly Pear and Raspberry at the Company’s retail locations across California.
• Launched Cruisers, a new all-FUN, no-frills brand that puts consumers first and offers everyday value on premium cannabis products. Cruisers combines the Company’s existing brands, Fun Uncle and DELI, streamlining these top-performing products into a single consumer-centric destination. By skipping the doldrums of the daily grind, Cruisers transports consumers to that carefree place where the bowl is always full.
• Enrolled four participants in the Company’s Social Equity Ventures (“SEV”) Brand Success Program. CRONJA, Substance & Skewville, Peakz, and Disco Jays by MAKR House will participate in the 12-week program implemented to provide minority-owned brands with guaranteed shelf space and individualized mentorship from the Company’s sales, marketing, retail, and operational teams. These 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.
• Further strengthened the Company’s senior management team with the appointment of Roz Lipsey to the role of Chief Operating Officer, effective March 31, 2023.

Management Commentary

“Transforming our business to emerge as a leader in California, as well as a world class brand builder has been our guiding principle throughout 2022,” said Troy Datcher, Chief Executive Officer, and Chairman of The Parent Company. “To achieve this, we took decisive action and focused the organization company on our strongest and most profitable assets. This focus improved our cost structure, with additional benefit to be realized as we move through the year, significantly improving annual gross margin to 30% compared with only 16% for 2021. I am encouraged by the initial results of our actions and would like to thank our team for their commitment to achieving our goals. We operate in one of the most dynamic and exciting cannabis markets in the world and we must remain nimble and pivot where appropriate to create a more efficient and simplified business to remain competitive.”

Mr. Datcher, continued, “Earlier this year we announced, in partnership with Roc Nation, that we have restructured our strategic arrangement to significantly reduce our financial commitments and eliminate future dilution for our shareholders while maintaining our successful collaboration.”

Mr. Datcher added, “Leading the way with innovation and exceptional consumer products, we recently extended our valued partnership with Mirayo by Santana. The authenticity and genuine commitment to delivering the highest-quality products is why Mirayo is a perfect fit in our brand portfolio. We’re investing in these types of relationships to connect with consumers and deliver products that meet their needs and we look forward to introducing several new brand developments to drive consumer engagement in the coming months.”  

Mr. Datcher, concluded, “We entered 2023 on solid footing, and expect to see the results of the significant work our team has done continue to positively impact our financials in the first half of the year.  Our newly streamlined operations have provided us with the opportunity to take the next step in our evolution through our recently announced transformative agreement with Gold Flora. Together, our business will have the scale, cultivation capabilities, brand portfolio, and capital resources to execute on our mission to create brands and a retail experience that consumers love. The opportunity ahead of us in California is significant and the time is right to bring together two operators that can extract value along each step of the supply chain, capture more margin to drive profitability, and deliver further value to our shareholders.”

Optimization and Long-term Profitability Initiatives 

The Company has implemented numerous strategic initiatives to build a foundation for growth and accelerate its pathway to profitability, while preserving the strength of its balance sheet. It is anticipated that these initiatives will increase gross margins while enabling the Company to focus and invest in the development of its strong brands and its omni-channel retail business. The Company anticipates that the financial impact of the strategic decisions made throughout 2022 will be realized within the first half of 2023.

Throughout FY 2022, the Company has taken meaningful steps to reduce structural overhead costs, and drive efficiencies by optimizing its operations, resulting in:

• Achieving annualized expense savings of approximately $13.6 million.
• A workforce reduction of 40% as of December 31, 2022, representing an estimated $17 million reduction in annualized base payroll expense.
• Outsourced product manufacturing to third-party processors which the Company expects will achieve an average of 27% cost savings on these products.
• Divesture of the Company’s non-strategic wholesale extraction division.
• Optimized its delivery depot footprint to realize the benefits of the newly allowable increase in delivery “case pack value”, which enabled the Company to increase the geographic area that can be covered by a vehicle and dispose of certain redundant delivery locations. These dispositions resulted in approximately $500,000 in gross sale proceeds and annual cost savings of approximately $1.8 million.

Q4 and FY 2022 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 Annual Report on Form 10-K 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, March 31, 2023, to discuss these results. Troy Datcher, Chief Executive Officer, and Mike Batesole, Chief Financial Officer will host the call starting at 9:00 a.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).