Decibel Announces Net Revenue Increases of 29% from Prior Quarter, First Period of Positive Adjusted EBITDA and Results of Annual Meeting

CALGARY, AB, Nov. 25, 2020 /PRNewswire/ – Decibel Cannabis Company Inc. (the “Company” or “Decibel”) (TSXV: DB) (OTCQB: DBCCF), a premium cannabis producer and retailer, is pleased to announce its third quarter financial results for the three-month and nine-month periods ending September 30, 2020.

“We are beginning to demonstrate the positive results of our collective efforts to reposition Decibel for success, as we remain focused on executing our strategic plan” said Benjamin Sze, CEO of Decibel. “We continue to execute as a producer of premium cannabis, with strong demand for our latest cultivars. The early success of our cannabis 2.0 product categories validates Decibel’s approach to product innovation while maintaining our commitment to quality.”

In the third quarter of 2020, the Company achieved net revenue growth of 29% and, for the first time, positive adjusted EBITDA, by delivering net revenue growth in all business verticals. The Company executed on its strategic plan, delivering high end cannabis products and consumer experiences through its Qwest Family of Brands and Prairie Records retail business, realizing cost reductions, and launching vape and concentrate products within the third quarter.

Q3 2020 Financial and Operational Highlights 

  • Net Revenue Growth: Total net revenue grew by 29% over the second quarter to $7.6 million, driven by strong sales growth from retail and cultivation operations, and only includes one month of derivative product sales in September. Net revenue grew by 163% over the comparative 2019 period.
  • First Period of Positive Adj. EBITDA: The third quarter marks an inflection point in the business, as the Company achieved $860 thousand of adjusted EBITDA, an improvement of $886 thousand from the prior quarter.
  • Increased Qwest Sales: 272 kilograms sold in the third quarter, with an average wholesale flower net price per gram of $8.68 for the period, a 9% increase over the second quarter of 2020. The Company launched new trendsetting cultivars that deliver high THC and strong terpene profiles at the start of the quarter, including Kush Mints, Point Break, and Ex-Wife.
  • First Month of Derivative Sales: In September, Decibel achieved a key milestone with its extraction and manufacturing facility, The Plant, shipping its first orders to Saskatchewan and Alberta. This initiative contributed $785 thousand of net revenue for the period. Initial product launches have been well received with reorders being received shortly after initial sales.
  • Strong Prairie Records Results: Increased revenue for the period to $3.9 million, reflecting sales growth of 2% over the second quarter of 2020. Decibel opened two new Alberta retail stores in July, one near the University of Alberta campus in Edmonton and one beside the Palace Theatre in downtown Calgary on Stephen Ave.
  • Cost Reduction Initiatives: Decibel completed the majority of its corporate cost cutting initiatives in the third quarter, and remains laser focused on managing costs and driving profitable operations. Had Westleaf and We Grow been combined for the entire 2019 year, a 32% reduction in SG&A year to date would have been realized, despite commencing commercial operations at the Plant and new retail store openings in Q3 2020.
  • Substantial Completion of Construction of Thunderchild Cultivation: Decibel substantially completed construction of its large scale, indoor cultivation facility, Thunderchild Cultivation, in July. The Company has submitted a complete site evidence package to Health Canada for licensing of the Thunderchild Cultivation facility.

Quarterly Highlights

Three months endedNine months ended
September 30, September 30, September 30, September 30, 
2020201920202019
Net wholesale revenue of flower$2,361$2,880$6,578$4,702
Kilograms of flower sold272369782563
Average wholesale flower gross pricing per gram $10.18$9.07$10.15$9.81
Average wholesale flower net pricing per gram$8.68$7.80$8.41$8.35
Kilograms of cannabis harvested3113459361,080
Net wholesale revenue of extracts$785$785
Other wholesale revenue$500$565
Number of retail stores6nil6nil
Retail revenue$3,932nil$10,578nil
Total 
Net revenue$7,578$2,880$18,505$4,702
Gross profit before fair value adjustments $2,898$1,126$7,164$1,804
Adjusted EBITDA (a)$860$875$425$0
(a) Adjusted EBITDA is a non-GAAP performance measure. Refer to “Cautionary Statements – Non-GAAP Measures” for further details.

Decibel’s financial statements for the three-month period ending September 30, 2020 (“Financial Statements”) and related Management’s Discussion & Analysis (“MD&A”) for the reporting period are available under the Company’s profile at www.sedar.com.  As of September 30, 2020, Decibel was in compliance with all of its financial covenants and expects to remain in compliance for the remainder of its twelve-month forecast period.  The Company’s ability to meet the conditions of these ratio covenants over the next twelve months is subject to the Company’s ability to operationalize capital projects that are either recently completed or are subject to Health Canada licensing and operationalizing, and all other applicable regulatory approvals in order to generate revenues.

Leave of Absence

Due to personal reasons, Benjamin Sze, Chief Executive Officer, is taking a leave of absence from his role as Chief Executive Officer of the Company as of the close of business today for an indefinite period of time. Cody Church, the Company’s current Chairman of the Board, has been appointed Interim Chief Executive Officer, effective as of the close of business on November 25, 2020.

Results of Annual Meeting

Decibel is also pleased to announce that its shareholders approved all matters submitted by the Company for consideration at its annual and special meeting of shareholders held yesterday, November 24, 2020 (the “Meeting”).

Due to the special circumstances arising from the global COVID-19 pandemic, and following guidance of local health authorities for social distancing, Decibel encouraged shareholders to vote in advance of the Meeting using the instructions provided in the Notice of Meeting and Management Informational Circular and Proxy Statement. The Company also provided remote access to the Meeting via an audio webinar, and will make a recording of the Meeting available on its website in the coming days.

At the Meeting, Decibel’s shareholders:

(i) Fixed the number of directors of the Corporation to be elected at the Meeting at six directors;
(ii) Elected each of Cody Church, Paul Wilson, Michael Kelly, Ivan Casselman, Benjamin Sze and Billy Yellowhead as directors of the Company;
(iii) Appointed KPMG LLP, Chartered Professional Accountants, as the Company’s auditors;
(iv) Re-approved the Company’s stock option plan; and
(v) Re-approved the Company’s restricted share unit award plan.

About Decibel

Decibel is uncompromising in the process and craftsmanship needed to deliver the highest quality cannabis products and retail experiences. Decibel has three production houses operating or under development along with its wholly owned retail business, Prairie Records. The Qwest Estate in Creston, BC is a licensed and operating 26,000 square foot cultivation space which produces the widely championed, rare cultivar-focused brands Qwest and Qwest Reserve, which are sold in six provinces across Canada. Thunderchild Cultivation, an 80,000 square foot indoor cultivation facility in Battleford, SK is scheduled to be completed and licensed in 2020. The Plant, Decibel’s extraction facility, in Calgary, AB has 15,000 square feet of Health Canada licensed extraction and product development space. This production house will fuel the growth of our brands Qwest, Qwest Reserve, and Blendcraft, into new and innovative product formats like concentrates, vapes, edibles and beyond.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Cautionary Statements

Forward Looking Information

This news release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of the applicable Canadian securities legislation. All statements, other than statements of historical fact, are forward-looking statements and are based on expectations, estimates and projections as at the date of this news release. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements.

In this news release, forward-looking statements relate to, among other things, Decibel’s expected compliance with its financial covenants, the timing, construction and licensing of the Thunderchild Cultivation facility and the Company’s ability to grow Qwest, Qwest Reserve and Blendcraft brands into new and innovative product formats. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: risks relating to delays, regulatory changes and impacts, capital requirements, construction impacts, displacement requirements and unforeseen requirements resulting from the COVID-19 pandemic, the ability to obtain or maintain licences to retail cannabis products; review of the Company’s production facilities by Health Canada and receipt or maintenance of licences (including any amendments thereto) from Health Canada in respect thereof; future legislative and regulatory developments involving cannabis; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the labour market generally and the ability to access, hire and retain employees; general business, economic, competitive, political and social uncertainties; the satisfaction of conditions precedent under the Company’s credit facilities; timing and completion of construction and expansion of the Company’s production facilities and retail locations; and the delay or failure to receive board, regulatory or other approvals, including any approvals of the TSX Venture Exchange, as applicable. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release. Except as required by law, the Company assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change, except as required by law.

This press release contains future-oriented financial information and financial outlook information (collectively, “FOFI”) about the Company’s prospective results of operations including, without limitation, the expected results of its costs cutting measures and, which are subject to the same assumptions, risk factors, limitations, and qualifications as  set forth above. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on FOFI. The Company’s actual results, performance or achievement could differ materially from those expressed in, or implied by, these FOFI, or if any of them do so, what benefits the Company will derive therefrom. The Company has included the FOFI in order to provide readers with a more complete perspective on the Company’s future operations and such information may not be appropriate for other purposes.

These forward-looking statements and FOFI are made as of the date of this press release and the Company disclaims any intent or obligation to update any forward-looking statements and FOFI, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Non-GAAP Measures

This news release contains the financial performance metric of Adjusted EBITDA, a measure that is not recognized or defined under IFRS (a “Non-GAAP Measure”). As a result, this data may not be comparable to data presented by other cannabis companies. For an explanation and reconciliation of Adjusted EBITDA to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, refer to the MD&A for the three months ended September 30, 2020. The Company believes that Adjusted EBITDA is a useful indicator of operating performance and is specifically used by management to assess the financial and operational performance of the Company.

The Company calculates Adjusted EBITDA as net loss and comprehensive loss excluding unrealized gain on changes in fair value of biological assets, change in fair value of biological assets realized through inventory sold, depreciation and amortization expense, share-based compensation, other income, finance costs, foreign exchange loss, non-cash production costs, severance payments, and other non-cash costs. Non-cash production costs relate to amortization expense allocations included in production costs. Non-GAAP Measures should be considered together with other financial information prepared in accordance with IFRS to enable investors to evaluate the Decibel’s operating results, underlying performance and prospects in a manner similar to Decibel’s management.

Accordingly, this Non-GAAP Measure is 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.

SOURCE NEWSWIRE