Sale Leaseback Transactions with IIPR include Massachusetts and Pennsylvania Facilities
Net Proceeds from Both Transactions Expected to Reduce Existing Debt by up to 50%
PHOENIX, May 16, 2022 (GLOBE NEWSWIRE) — TILT Holdings Inc. (“TILT” or the “Company”) (NEO: TILT) (OTCQX: TLLTF), a global provider of cannabis business solutions that include inhalation technologies, cultivation, manufacturing, processing, brand development and retail, is reporting its financial and operating results for the three months ended March 31, 2022. All financial information is provided in U.S. dollars unless otherwise indicated.
As discussed on our March 30th earnings call, during the first quarter we experienced the effects of inflationary pressure on consumers exacerbated by legacy product mix in our key plant touching markets, coupled with both customer ordering and regulatory timing delays that affected Jupiter’s performance.
Gary Santo, CEO of TILT Holdings
Exiting the quarter, the broader market appears to be gaining momentum, with our inhalation business experiencing the second strongest sales order month in its history in April. Furthermore, opportunistic improvments made to our cultivation and processing operations over the past two quarters would appear to be well-timed to these changing market conditions, positioning the Company for a strong second half of 2022.
“Entering the second year of our B2B strategy, demand from potential brand partners remains strong, with the addition of Timeless Refinery and Toast during the quarter, along with our recently announced partnership with Black Buddha Cannabis, another exceptional brand driven by social impact. With initial revenue attributable to brand partnerships already representing nearly one-third of our wholesale sales, as we continue to activate new partnerships and expand the product offerings for those brands previously launched, we believe the path we have chosen is the right one as we seek to become the partner of choice for independent brands seeking to scale.”
“Today we are also announcing two sale leaseback transactions totalling $55 million, the first of which closed earlier today with the second scheduled to close before quarter-end. Delivering on our promise to seek non-dilutive sources of capital, we plan to use the net proceeds to pay down outstanding debt by up to 50%, representing the first two legs of a stool designed to improve TILT’s overall capital structure.”
Q1 2022 Financial Summary
- Revenue was $42.4 million compared to $46.8 million in the year ago period. The decrease was primarily driven by lower sales volume in the Company’s inhalation business related to the timing of purchases by certain large customers, as well as price compression for the Company’s bulk and house-branded wholesale cannabis products.
- Gross profit before fair value adjustments was $9.4 million or approximately 22% of revenue, compared to $13.5 million or approximately 29% of revenue in the year ago period. The decrease in gross margin was primarily driven by customer mix in the Company’s inhalation business and lower cannabis wholesale pricing for legacy house brands and bulk wholesale.
- Operating expenses less non-cash adjustments for stock compensation, depreciation and amortization, and impairment charges were $10.4 million compared to $7.9 million in the year-ago period. As a percentage of revenue, operating expenses less non-cash adjustments totaled approximately 24% in the first quarter of 2022 compared to approximately 17%, with the increase driven by change in headcount attributed to headcount additions to support expanded retail locations as well as building out our corporate team and costs associated with becoming an SEC registrant.
- Adjusted EBITDA was $1.5 million compared to $6.2 million in the year ago period. The decrease was driven by the aforementioned lower revenue and gross margin, as well as higher operating expenses.
- Cash provided by operations was $4.0 million compared to $2.6 million in the year ago quarter, driven by the sell through of Jupiter stock inventory and collection of accounts receivable.
- Cash and cash equivalents at March 31, 2022, was $9.2 million compared to $7.0 million at December 31, 2021. Working capital was $38.2 million compared to $41.1 million at December 31, 2021.
- Total debt at March 31, 2022 was $88.0 million compared to $86.6 million at December 31, 2021. Subsequent to quarter end, the Company completed a sale leaseback for its Massachusetts facility and signed a purchase and sale for its Pennsylvania facility to pay down its outstanding corporate debt. Additional details of the transaction are below.
Q1 2022 Operational Highlights
- Signed a new brand partnership with Timeless Refinery, which is also one of the Company’s inhalation clients, to initially launch products in Ohio.
- Signed a multi-state agreement with Toast™, which will initially launch in Massachusetts this summer.
- In the first quarter of 2022, brand partner revenue more than doubled over Q4 2021 and, in the Pennsylvania market alone, brand partner revenue as a percentage of wholesale tripled sequentially.
- Planted 25 new strains across our Massachusetts and Pennsylvania facilities to improve strain diversification
Recent Operational Highlights
- In April, the Company’s inhalation business booked its second strongest month of sales orders in its history.
- Announced two sale leaseback transactions totalling $55 million, which will enable the Company to reduce a portion of its senior and junior corporate debt that was set to term within the next twelve months by nearly 50%.
- Announced exclusive partnership with social impact driven brand, Black Buddha Cannabis, to launch products in both Massachusetts and Pennsylvania later this year.
- Filed Form 10 Registration Statement to prepare for alignment with U.S. reporting standards and further improve shareholder transparency.
2022 Financial Guidance
TILT continues to expect 2022 annual revenue to range between $255 – $265 million, and adjusted EBITDA to range between $27 – $32 million. At the midpoint, this reflects approximately 28% revenue growth and approximately 31% adjusted EBITDA growth over 2021.
IIPR Sale Leaseback Completed and Signed Purchase & Sale for PA
TILT’s subsidiary, Commonwealth Alternative Care, Inc. (“CAC”), completed the previously announced acquisition of its facility located in Taunton, MA (the “Taunton Facility” and the acquisition, the “Taunton Purchase”). Concurrently, CAC closed on the sale of the Taunton Facility (the “Massachusetts Sale” and, with the Taunton Purchase, the “Massachusetts Transaction”) to Innovative Industrial Properties, Inc. (NYSE: IIPR) (“IIP”). The purchase price for the property in the Massachusetts Sale was $40.0 million. The all cash net proceeds of the Massachusetts Transaction of approximately $27 million will be used by TILT to pay down its outstanding corporate debt. Concurrent with the closing of the Massachusetts Sale, IIP entered into a long-term, triple-net lease agreement for the Taunton Facility with CAC. The lease agreement is for a term of 20 years, with two 5-year extensions exercisable at the tenant’s discretion.
In addition to the Massachusetts Transaction, the Company announced it has entered into a definitive purchase and sale agreement between TILT’s subsidiary, White Haven RE, LLC, and an affiliate of IIP, providing for the sale and leaseback of TILT’s cultivation and production facility in White Haven, PA (the “Pennsylvania Transaction”) in exchange for $15 million cash. The Pennsylvania Transaction is subject to various closing conditions, including standard property/title inspections and appraisals and is scheduled to close in the coming weeks. In accordance with the terms of the Pennsylvania Transaction, TILT’s subsidiary, Standard Farms, LLC (“SF”), will also execute a long-term, triple-net lease agreement with substantially the same terms as the lease pertaining to the Taunton Facility.
CAC and SF anticipate no disruption to their operations as a result of the transactions.
Earnings Call and Webcast
TILT management will host a conference call today at 5:00 p.m. Eastern time to discuss its financial and operational results, followed by a question-and-answer period.
Date: Monday, May 16, 2022
Time: 5:00 p.m. Eastern Time
Toll-free dial-in number: (877) 705-6003
International dial-in number: (201) 493-6725
Conference ID: 13729376
Webcast: TILT Q1 2022 Earnings Call
Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Elevate IR at (720) 330-2829.
The conference call will also be broadcast live and available for replay in the investor relations section of the Company’s website at www.tiltholdings.com.
TILT helps cannabis businesses build brands. Through a portfolio of companies providing technology, hardware, cultivation and production, TILT services brands and cannabis retailers across 36 states in the U.S., as well as Canada, Israel, South America and the European Union. TILT’s core businesses include Jupiter Research LLC, a wholly-owned subsidiary and leader in the vaporization segment focused on hardware design, research, development and manufacturing; and cannabis operations, Commonwealth Alternative Care, Inc. in Massachusetts, Standard Farms LLC in Pennsylvania, Standard Farms Ohio, LLC in Ohio, and its partnership with the Shinnecock Indian Nation in New York. TILT is headquartered in Phoenix, Arizona. For more information, visit www.tiltholdings.com.
Non-IFRS Financial and Performance Measures
In addition to providing financial measurements based on International Financial Reporting Standards (“IFRS”), the Company provides additional financial metrics that are not prepared in accordance with IFRS. Management uses non-IFRS financial measures, in addition to IFRS financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate the Company’s financial performance. These non-IFRS financial measures are EBITDA, Adjusted EBITDA, and Working Capital, and gross margin percentage. Management believes that these non-IFRS financial measures reflect the Company’s ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-IFRS financial measures enable investors to evaluate the Company’s operating results and future prospects in the same manner as management. These non-IFRS financial measures may also exclude expenses and gains that may be unusual in nature, infrequent or not reflective of the Company’s ongoing operating results.
As there are no standardized methods of calculating these non-IFRS measures, the Company’s methods may differ from those used by others, and accordingly, the use of these measures may not be directly comparable to similarly titled measures used by others.
Accordingly, these non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
EBITDA and Adjusted EBITDA
EBITDA and Adjusted EBITDA are financial measures that are not defined under IFRS. The Company uses these non-IFRS financial measures, and believes they enhance an investor’s understanding of the Company’s financial and operating performance from period to period, because they exclude certain material non-cash items and certain other adjustments management believes are not reflective of the Company’s ongoing operations and performance. The Company calculates EBITDA as net income (loss), plus (minus) income taxes (recovery), plus (minus) finance expense (income), plus depreciation and amortization expense. Adjusted EBITDA excludes certain one-time, non-cash or non-operating expenses, as determined by management, including stock compensation expense, business acquisition expense, debt issuance costs, severance, unrealized (gain) loss on changes in fair value of biological assets and fair value changes in biological assets included in inventory sold.
The calculation of working capital provides additional information and is not defined under IFRS. The Company defines working capital as current assets less current liabilities. This measure should not be considered in isolation or as a substitute for any standardized measure under IFRS. This information is intended to provide investors with information about the Company’s liquidity. Other businesses in the Company’s industry may calculate this differently than the Company does, limiting usefulness as a comparative measure. A reconciliation of working capital to IFRS measures can be found under the “Q1 2022 Financial Condition Including Liquidity and Capital Resources” section of the Management Discussion and Analysis of the Company for the three months ended on March 31, 2022.
Supplementary Financial Measures
The supplementary financial measure presented in this news release is gross margin percentage representing gross margin as a percentage of revenue.
Reconciliations of Non-IFRS Financial and Performance Measures
Adjusted EBITDA is reconciled to Net Loss below as well as the section labelled “Reconciliation of Net Income (Loss) to Non-IFRS Measures” in the Management Discussion and Analysis of the Company for the three months ended on March 31, 2022, which is available on the Company’s SEDAR profile at www.sedar.com.