Gage Growth Corp. Announces Record Third Quarter 2021 Results and Provides Business Update
- Record Q3 2021 revenue of $27.2 million, an increase of 119.6% YoY and 3.2% quarter over quarter
- Announced proposed arrangement pursuant to which TerrAscend Corp. will acquire all of the issued and outstanding subordinate voting shares of Gage
- Closed on a $55 million senior secured term loan
- Ended the quarter with $17.7 million of cash and $72.3 million of pro forma cash1
- Gross margins of 36.5% compared to 34.2% in Q2 2021, sequential quarter growth of 230 basis points
- Q3 2021 average selling price of dried flower of approximately $4,900/lb vs. Michigan average of approximately $3,400/lb – 44% premium
- The state of Michigan posted $164 million of cannabis sales in October, which equates to approximately $1.96 billion when annualized, positioning Michigan as the third largest cannabis market in the United States based on this run-rate
- Eleven cultivation facilities in operation today (three Gage operated and eight contracted cultivation assets) compared to three cultivation facilities in Q3 2020
- The Company introduced Gage branded vape carts in October 2021, which currently account for almost 80% of the overall vape cart sales so far in November
DETROIT, Nov. 29, 2021 /CNW/ – Gage Growth Corp. (“Gage” or the “Company”) (CSE: GAGE) (OTCQX: GAEGF), a leading high-quality cannabis premium brand and operator in Michigan, today reported its record financial results for the three and nine months ended September 30, 2021. All currency references used in this press release are in U.S. dollars unless otherwise noted.
Financial Highlights for the quarter ended September 30, 2021
See “Non-IFRS Financial Measures” below for more information regarding Gage’s use of Non-IFRS financial measures and other reconciliations.
1. Represents cash and cash equivalents at the end of Q3 2021, including the gross proceeds from the recently closed $55 million senior secured debt financing.
Revenue increased to a record of $27.2 million in the third quarter of 2021, as compared to $26.4 million in the second quarter of 2021, a 3.2% increase. Gross margin, before impact of biological asset adjustments, was 36.5% in the third quarter of 2021 compared to 34.2% in the second quarter of 2021. The 230 basis point improvement quarter over quarter in gross margin to 36.5% is due to a greater mix of higher margin sales from retail locations and cultivation capacity expansion via Gage operated cultivation assets, contract grow partners and lower input costs from dedicated wholesale partners. The Company anticipates continuing its quarter over quarter margin expansion in Q4 2021 as in-house branded vape cart sales have recently accounted for over 80% of the category month-to-date in November.
In the third quarter of 2021, Gage had a record performance across all financial and operating metrics. We will continue to invest while improving our margins. Moreover, as we further introduce our in-house branded concentrate products, we expect our gross margin to further improve over the next two quarters.
Fabian Monaco, CEO of Gage
We are very pleased with the announcement of the proposed acquisition of Gage by TerrAscend. Our shared strategic and corporate values make this combination a strong fit, and I am extremely excited and looking forward to executing on our shared strategy of deep vertical integration and scale in our core markets. In addition, I am also very pleased with the closing of our recent debt financing which further strengthens our balance sheet.
Mr. Monaco concluded, “Overall, we will continue to execute on our growth strategy in the remaining months of 2021 and into 2022. With a strong balance sheet, we are well positioned to execute on our near-term acquisition opportunities that will fuel the overall growth of the Company.”
Operational Updates and Developments
1. The Company closed on a senior secured term loan (the “Term Loan”) for aggregate gross proceeds of US$55 million
- Gage intends to use the proceeds (i) to finance the Company’s retail acquisition strategy in Michigan, (ii) to support the Company’s future growth, and (iii) for general working capital purposes.
- The Term Loan bears interest at a per annum rate equal to the greater of 7.00% plus prime rate and 10.25%, payable monthly in arrears, with a maturity date of November 30, 2022.
2. Gage continues to execute on its retail expansion strategy
- In addition to 10 retail dispensaries in operation today, the Company is in active discussions with multiple retail operators in Michigan to potentially acquire over 10 retail locations in the coming months.
- The Company successfully acquired another dispensary located in Detroit. Moreover, Gage expects to close another proposed acquisition of a dispensary in Sturgis by the end of November. Both dispensaries are expected to be rebranded as Gage and Cookies stores, respectively. The Company now has 17 dispensaries in its portfolio with the inclusion of the Sturgis acquisition.
- The Company’s second Kalamazoo dispensary is now fully built and expected to open in December.
3. Introduction of Gage branded concentrate products
- During the fourth quarter, the Company introduced in-house branded vape carts, which on average, are expected to more than double the Company’s gross margin in this product category.
- Gage branded vape carts in the month of November thus far account for almost 80% of the category compared to a low single digit percentage in the same period a year ago.
- In the month of November, the Company has been averaging approximately 18,000 Gage vape carts sold per week.
4. Acquisition of Gage by TerrAscend on track to close in early 2022
- On November 12, 2021, the Company announced that shareholders voted in favor of the special resolution, approving the previously announced plan of arrangement under Section 192 of the Canada Business Corporations Act pursuant to which TerrAscend Corp. (“TerrAscend”) will acquire all of the issued and outstanding securities of Gage (the “Arrangement”).
- On November 15, 2021, the Company announced that the Ontario Superior Court of Justice (Commercial List) has issued a final order approving the Arrangement.
The Company will host a conference call on Monday, November 29, 2021 at 8:30 a.m. ET to review its operational and financial results, and provide an update on current business trends.
To join the call, dial 1-833-366-1123 toll free from the United States or Canada or 1-412-317-5786 if dialing from outside those countries.
The call will be available for replay until Monday, December 13, 2021. To access the telephone replay, dial 1-877-344-7529 toll free from the United States, 1-855-669-9658 from Canada or 1-412-317-0088 if dialing from outside those countries, and use the following replay pin number: 2622301.
Please call the conference telephone number 5-10 minutes prior to the start time.
A live audio webcast of the call will also be available at https://services.choruscall.com/mediaframe/webcast.html?webcastid=PMJIguj7.
About Gage Growth Corp.
Gage Growth Corp. is innovating and curating the highest quality cannabis experiences possible for cannabis consumers in the state of Michigan and Canada, and bringing internationally renowned brands to market. Through years of progressive industry experience, the firm’s founding partners have successfully built and grown operations with federal and state licenses, including cultivation, processing and retail locations. Gage’s portfolio includes city and state approvals for 19 “Class C” cultivation licenses, three processing licenses and 17 provisioning centers (dispensaries).
For more information about Gage Growth Corp., visit www.gagecannabis.com.
Explanatory Note Regarding the Company’s Operations
References in this news release to the Company and its operations and assets are inclusive of the operations and assets of certain licensed cannabis operators that operate under the Gage brand pursuant to contractual arrangements with the Company. For additional information, please refer to the Company’s long form prospectus dated March 26, 2021 and other disclosure documents available on the Company’s profile at www.sedar.com.
Non-IFRS Financial Measures
The Company has provided certain non-IFRS financial measures including “Gross Margin” and Adjusted EBITDA. These non-IFRS financial measures do not have a standardized definition under IFRS, nor are they calculated or presented in accordance with IFRS and may not be comparable to similar measures presented by other companies. The Company defines “Gross Margin” as Gross Profit before fair value of inventory and biological assets divided by Revenue. The Company calculates Adjusted EBITDA as net income as reported adjusted to exclude the impact of the following items: fair value adjustment of sale of inventory, fair value adjustment on growth of biological assets, provision for income taxes, foreign exchange (gain)loss, change in fair value of investments, interest expense, share based compensation, depreciation and amortization, costs associated with public listing, impairment loss, loss on financial instruments and gain on sale of fixed assets.
The Company has provided these non-IFRS financial measures as supplemental information and in addition to the financial measures that are calculated and presented in accordance with IFRS. The Company believes that these supplemental non-IFRS financial measures provide a valuable additional measure to use when analyzing the operating performance of the business. As other companies may calculate these non-IFRS measures differently than the Company, these metrics may not be comparable to similarly titled measures reported by other companies. These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with, the IFRS financial measures presented herein.
See the Company’s management’s discussion and analysis for the three and nine months ended September 30, 2021 (the “Q3 2021 MD&A”) for a detailed reconciliation of Adjusted EBITDA to Net Income / (Loss). The Company’s financial statements for the three and nine months ended September 30, 2021 and the Q3 2021 MD&A are available on SEDAR at www.sedar.com.