– Stem’s Acquisition of Driven is Expected to Close in CY20/Q4
– Stem to be Renamed “Driven By Stem”
BOCA RATON, Fla., and LOS ANGELES, Oct. 29, 2020 /PRNewswire/ — Stem Holdings, Inc. (OTCQX: STMH) (CSE:STEM) (the “Company” or “Stem”), a vertically-integrated cannabis and hemp branded products company with state-of-the art cultivation, processing, extraction, retail, and distribution operations; and Driven Deliveries, Inc. (“Driven”) (OTCQB: DRVD), one of California’s fastest-growing online cannabis retailers and direct-to-consumer logistics companies, today provided a combined business update to include select financial results for the quarter ending September 30th, 2020. Driven’s acquisition by Stem was announced on October 6, 2020 and is expected to close in CY20/Q4 (the “Acquisition”).
Unaudited financial results for the quarter ended September 30, 2020:
- Combined record gross revenues of $14.9 million, reflecting +394% Y/Y growth for Driven and +162% Y/Y for Stem.
- Gross product margin improved to $4.26 million for Driven and to $1.3 million for Stem, or an aggregate of $5.56 million; +37.3%.
- Stem’s dispensary revenues climbed 63% to $4.1 million, with 62,391 transactions for a total of 174,368 units sold at an average price of $62.66. On a combined basis with Driven, 149,591 transactions were completed during the quarter.
- 13.5% of Driven’s delivered orders were to new customers who had previously never ordered from Driven, representing a record new customer acquisition rate.
- E-Commerce Platform venture shopfoothill.com, announced on June 11th to service the Northern California market by integrating Stem’s Foothills Wellness dispensary into Driven’s operations, indicating a successful test-market and will serve as a post-acquisition business model. Stem’s recreational license for Foothills awaits final regulatory approval, now expected in CY20/Q4 which is expected to further enhance our results.
- Rebelle, Stem’s first dispensary in Massachusetts in partnership with Community Growth Partners in Great Barrington, MA, opened to acclaim over Labor Day weekend.
Stem management continues to drive innovation and expansion of its geographic footprint with strategic execution in all markets. Stem’s four-point plan continues to guide its expansion: financial discipline, productivity, customer centricity, and disruptive, margin-accretive innovation for Stem’s brands.
Financial Discipline: Stem’s focus on key performance indicators reveal an improvement to its cash conversion cycle, a 70% reduction in outstanding receivables Y/Y even as Stem drove strong sales growth and continued positive EBITDA from operations of 1.3%.
Productivity: Stem continued to reduce operating SG&A, while strengthening its team for efficiency and yield improvement in its cultivation and processing activities. Stem’s value engineering enabled it to improve product quality and gross margin with higher service levels than previously achieved. This is critical to Stem’s planned integration of Driven in CY20/Q4.
Stem is also increasing its canopy at two facilities in Oregon: (1) The Mulino, OR location will add 4,000 square feet of canopy to its light-deprivation greenhouse facilities, and (2) Stem’s newest facility in Springfield, OR will add 6,000 square feet of mature indoor canopy by the end of CY20/Q4. These improved efficiencies will drive growth in both top-line revenue and gross margin.
Customer Centricity: As the novel coronavirus (COVID-19) outbreak continued throughout the summer, Stem re-doubled its efforts to service its wholesale and retail customers while ensuring their safety. Stem improved customer service and shortened delivery lead time with improved fulfillment procedures and forecasting accuracy.
Innovation: Stem launched margin-accretive, strategic new products as planned, including its new line-up of tinctures from trial size to grow usage within this important product segment, and new formulas including the first-ever co-brand between Stem’s Yerba Buena™ and TJ’s Gardens™ for a new RSO which was launched and announced two weeks ago. Stem’s Cannavore™ edibles brand launched in Oregon to critical claim, having been named one of “21 Brands to Watch” by High Times Magazine, and two additional flavors, mocha and Irish Cream, will launch in CY20/Q4. Cannavore™ will launch in all markets in which Stem operates with consistent branding to increase its national presence and recognition.
Driven will adopt Stem’s four-point plan once the Acquisition is completed. In anticipation of this, Driven has similarly adopted best practices to drive topline revenue growth with a disciplined approach to expenses that are expected to be evident in Stem and Driven’s first quarter of combined operations.
Driven increased its investment in marketing in the quarter, adding 11,815 new customers in Q3. Repeat customer orders were nearly 7x that level and Driven prepared for this growth with a renewed focus on customer service, and by ramping-up distribution capabilities.
The Acquisition is expected to close in CY20/Q4.
About Stem Holdings, Inc.
Stem Holdings, Inc. (OTCQX: STMH) (CSE: STEM) is a leading cannabis and hemp branded products company in the U.S. with proprietary capabilities in sustainable cultivation, processing, extraction, and R&D, as well as retail and distribution operations aligned with state-by-state regulations. Stem’s award-winning brands are the foundation of the Company’s expansion into current and new segments and markets, with exceptional and disruptive brands and products that benefit well-being. Stem’s expertise and scale will drive growth domestically and internationally, building value for shareholders.
About Driven Deliveries
Driven Deliveries, Inc., is one of the first publicly traded cannabis delivery services operating within the United States. Founded by experienced technology and cannabis executives, the company provides e-commerce solutions, online sales, and on-demand cannabis delivery, in select cities where allowed by law. Driven offers legal cannabis consumers the ability to purchase and receive their marijuana in a fast and convenient manner. By 2020, legitimate cannabis revenue in the U.S. market is projected to hit $23 billion. By leveraging consumer trends, and offering a proprietary, turnkey delivery system to its customers, management believes it is uniquely positioned to best serve the needs of the emerging cannabis industry and capture notable market share within the sector. For more information, please visit www.DRVD.com and review Driven’s filings with the U.S. Securities and Exchange Commission.
Cautionary Note Regarding Forward-Looking Information
This press release contains statements that constitute “forward-looking information” within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of the management of Stem and Driven Deliveries with respect to future business activities. Forward-looking information is often identified by the words “may,” “would,” “could,” “should,” “will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect” or similar expressions and includes information regarding: (i) the closing date for the Acquisition, (ii) the timing for receipt of Stem’s Foothills recreational license and the anticipated impacts on operational results; (iii) the expansion plans for Stem’s Oregon facilities, including the anticipated timing thereof and the anticipated efficiencies and impacts on Stem’s revenue; (iv) the timing for the launch of two additional flavors to Stem’s Cannavore™ edibles brand; (v) the anticipated markets in which Cannavore™ will be launched; and (vi) statements relating to the operations of Driven and Stem following the completion of the Acquisition. Investors are cautioned that forward-looking information is not based on historical facts but instead reflects the management of Stem and Driven’s expectations, estimates or projections concerning future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although Stem and Driven believe that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of Stem or Driven. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: changes in general economic, business and political conditions, including changes in the financial markets; the ability of Stem, Driven or the Combined Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; construction delays; decreases in the prevailing prices for cannabis and cannabis products in the markets that the each of Stem and Driven operates in; adverse changes in applicable laws; adverse changes in the application or enforcement of current laws, including those related to taxation; the inability to locate and acquire suitable companies, properties and assets necessary to execute on the Combined Company’s business plans; political risk; and increasing costs of compliance with extensive government regulation. This forward-looking information may be affected by risks and uncertainties in the business of Stem and Driven and market conditions.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although Stem and Driven have attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. Neither Stem nor Driven assume any obligation to update this forward-looking information except as otherwise required by applicable law.
No securities regulatory authority has in any way passed upon the merits of the proposed transactions described in this news release or has approved or disapproved of the contents of this news release.
Certain supplementary measures in this news release do not have any standardized meaning as prescribed under generally accepted accounting principles (“GAAP”) for publicly accountable entities in the United States, and, therefore, are considered non-GAAP measures. Since non-GAAP measures are unlikely to be comparable to similar measures presented by other companies, securities regulations require that non-GAAP measures be clearly defined, qualified and reconciled to their nearest GAAP measure. Except as otherwise indicated, these non-GAAP measures are calculated and disclosed by Stem on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods.
The intent of non-GAAP measures is to provide additional useful information with respect to Stem’s operational and financial performance to investors and analysts though the measures do not have any standardized meaning under GAAP. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with GAAP. Other issuers may calculate these non-GAAP measures differently.
In particular, the term “EBITDA from operations” is used in this news release to describe certain financial information of Stem. Earnings before interest, taxes, depreciation and amortization (EBITDA) is not a recognized performance measure under GAAP. EBITDA does not have a standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other issuers.
The term EBITDA consists of net (loss) income and excludes interest (“financing costs”), taxes, depreciation and amortization. EBITDA also excludes share-based compensation, impairment of assets, acquisition costs, legal settlement costs, restructuring charges, and adjustments for fair value of biological assets, warrant liabilities, and stock appreciation rights. EBITDA is included as a supplemental disclosure because management of Stem believes that such measurement provides a better assessment of Stem’s operations on a continuing basis by eliminating certain non-cash charges and charges or gains that are nonrecurring. The most directly comparable measure to EBITDA calculated in accordance with GAAP is [net (loss) income].
For further information, please contact:
STEM HOLDINGS, INC.
KCSA Strategic Communications
Valter Pinto or Elizabeth Barker
+1 212-896-1254 or +1 212-896-1203