Acreage Holdings, Inc. (“Acreage”) (CSE: ACRG.U) (OTCQX: ACRGF)
(FSE: 0VZ), one of the largest vertically integrated cannabis
operators in the U.S., today reported financial results for the
quarter ended September 30, 2019.
THIRD QUARTER FINANCIAL HIGHLIGHTS
- Reported third quarter revenue of $22.4 million, a 307%
increase compared to the same period in 2018
- Pro forma revenue* for the third quarter was $42.2 million
- Reported a net loss attributable to Acreage of $39.9
million
- Adjusted net loss* attributable to Acreage was $15.0
million
- Pro forma adjusted EBITDA* was a loss of $9.1 million
*Pro forma revenue, adjusted net loss and pro forma adjusted
EBITDA are Non-IFRS measures. Please see discussion and
reconciliation of Non-IFRS measures below.
Commented Acreage Chairman and CEO Kevin Murphy: “The third
quarter was highlighted by tremendous progress of our long-term
plan. We launched great cannabis brands that are receiving strong
influencer praise, continued building out our wholesale businesses
across our national footprint, and achieved 100 percent retail
distribution in the fast growing market of Pennsylvania.
Importantly, we also have a path to secure the capital resources
necessary to fund our future expansion and acquisition activities.
The last six months have been challenging for the entire industry,
but as I have emphasized since day one, this is a long game and I
have never been more optimistic about the future of Acreage.”
EARNINGS CALL DETAILS
Acreage will host a conference call with management on
Wednesday, November 13th at 8:30 AM Eastern Standard Time. The call
will be webcast and can be accessed at
investors.acreageholdings.com. To listen to the live call, please
go to the website at least 15 minutes early to register, download
and install any necessary audio software.
Transition from IFRS to U.S. Generally Accepted
Accounting Principles
Acreage has determined it no longer qualified as a foreign
private issuer under the SEC rules as of June 30,
2019. Consequently, financial statements will be
prepared using U.S. Generally Accepted Accounting Principles (“U.S.
GAAP”) beginning with Acreage’s 2019 annual consolidated financial
statements to be filed on Form 10-K, expected to be filed in
February 2020.
ABOUT ACREAGE HOLDINGS, INC.
Headquartered in New York City, Acreage is one of the largest
vertically integrated, multi-state operators of cannabis licenses
and assets in the U.S., according to publicly available
information. Acreage owns licenses to operate or has management or
consulting services or other agreements in place with license
holders to assist in operations in 20 states (including pending
acquisitions) with a population of approximately 180 million
Americans, and an estimated 2022 total addressable market of $16.7
billion in legal cannabis sales, according to Arcview Market
Research. Acreage is dedicated to building and scaling operations
to create a seamless, consumer-focused branded cannabis experience.
Acreage's national retail store brand, The Botanist, debuted in
2018.
On June 27, 2019 Acreage implemented an arrangement under
section 288 of the Business Corporations Act (British Columbia)
(the “Arrangement”) with Canopy Growth Corporation (“Canopy
Growth”). Pursuant to the Arrangement, the Acreage articles were
amended to provide Canopy Growth with an option to acquire all of
the issued and outstanding shares in the capital of Acreage, with a
requirement to do so, upon a change in federal laws in the United
States to permit the general cultivation, distribution and
possession of marijuana (as defined in the relevant legislation) or
to remove the regulation of such activities from the federal laws
of the United States (the “Triggering Event”), subject to the
satisfaction of the conditions set out in the arrangement agreement
entered into between Acreage and Canopy Growth on April 18, 2019,
as amended on May 15, 2019 (the “Arrangement Agreement”). Acreage
will continue to operate as a stand-alone entity and to conduct its
business independently, subject to compliance with certain
covenants contained in the Arrangement Agreement. Upon the
occurrence or waiver of the Triggering Event, Canopy Growth will
exercise the option and, subject to the satisfaction or waiver of
certain conditions to closing set out in the Arrangement Agreement,
acquire (the “Acquisition”) each of the Subordinate Voting Shares
(following the automatic conversion of the Class B proportionate
voting shares and Class C multiple voting shares of Acreage into
Subordinate Voting Shares) in exchange for the payment of 0.5818 of
a common share of Canopy Growth per Subordinate Voting Share
(subject to adjustment in accordance with the terms of the
Arrangement Agreement). If the Acquisition is completed, Canopy
Growth will acquire all of the Acreage Shares, Acreage will become
a wholly owned subsidiary of Canopy Growth and Canopy Growth will
continue the operations of Canopy Growth and Acreage on a combined
basis. For more information about the Arrangement and the
Acquisition please see the respective information circulars of each
of Acreage and Canopy Growth dated May 17, 2019, which are
available on Canopy Growth’s and Acreage’s respective profiles on
SEDAR at www.sedar.com. For additional information regarding Canopy
Growth, please see Canopy Growth’s profile on SEDAR at
www.sedar.com.
*NON-IFRS MEASURES, RECONCILIATION AND
DISCUSSION
This release contains tables that reconcile our results of
operations reported in accordance with International Financial
Reporting Standards (“IFRS”) to adjusted results that exclude the
impact of certain items identified as affecting comparability
(non-IFRS). We use EBITDA, adjusted EBITDA, adjusted net loss
attributable to Acreage, managed results of operations, and pro
forma results of operations among other measures, to evaluate our
actual operating performance and for planning and forecasting
future periods. We believe the adjusted results presented provide
relevant and useful information for investors because they clarify
our actual operating performance, make it easier to compare our
results with those of other companies and allow investors to review
performance in the same way as our management. Since these measures
are not calculated in accordance with IFRS, they should not be
considered in isolation of, or as a substitute for, our reported
results as indicators of our performance, and they may not be
comparable to similarly named measures from other companies. The
tables below reconcile our results of operations in accordance with
IFRS to the adjusted results mentioned above:
Pro forma Bridge |
|
|
|
QTD |
|
YTD |
US$ (thousands) |
|
|
Q3'19 |
|
Q3'18 |
|
FY'19 |
|
FY'18 |
Reported Revenue |
|
|
$ |
22,402 |
|
|
$ |
5,504 |
|
|
$ |
53,044 |
|
|
$ |
10,652 |
|
Revenue from
Entities under Management or Consulting Agreements* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New England |
|
4,516 |
|
|
4,542 |
|
|
12,753 |
|
|
5,648 |
|
|
Mid-Atlantic |
|
2,222 |
|
|
981 |
|
|
5,478 |
|
|
981 |
|
|
Midwest |
|
2,121 |
|
|
— |
|
|
5,352 |
|
|
— |
|
|
West |
|
712 |
|
|
— |
|
|
1,623 |
|
|
— |
|
Managed
Revenue* |
|
$ |
31,973 |
|
|
$ |
11,027 |
|
|
$ |
78,250 |
|
|
$ |
17,281 |
|
Pro forma
Adjustments* |
|
|
|
|
|
|
|
|
|
New England |
|
3,985 |
|
|
6,996 |
|
|
12,193 |
|
|
32,218 |
|
|
Mid-Atlantic |
|
— |
|
|
— |
|
|
— |
|
|
2,111 |
|
|
Midwest |
|
(25 |
) |
|
998 |
|
|
670 |
|
|
1,957 |
|
|
West |
|
6,289 |
|
|
292 |
|
|
20,819 |
|
|
732 |
|
Pro forma Revenue* |
|
|
$ |
42,222 |
|
|
$ |
19,313 |
|
|
$ |
111,932 |
|
|
$ |
54,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of IFRS to Non-IFRS Measures |
US$ (thousands, except per
share amounts) |
Q3'19 |
|
Q3'18 |
|
FY'19 |
|
FY'18 |
Net loss (IFRS) |
$ |
(51,105 |
) |
|
$ |
(3,979 |
) |
|
$ |
(126,456 |
) |
|
$ |
(2,057 |
) |
Income tax expense |
3,165 |
|
|
172 |
|
|
10,436 |
|
|
655 |
|
Interest (income) expense, net |
(170 |
) |
|
1,701 |
|
|
(678 |
) |
|
4,734 |
|
Depreciation and amortization |
3,487 |
|
|
1,569 |
|
|
8,095 |
|
|
1,844 |
|
EBITDA
(non-IFRS)* |
$ |
(44,623 |
) |
|
$ |
(537 |
) |
|
$ |
(108,603 |
) |
|
$ |
5,176 |
|
Adjusting items: |
|
|
|
|
|
|
|
(Income) loss from investments, net |
1,458 |
|
|
(3,249 |
) |
|
(770 |
) |
|
(23,119 |
) |
Equity-based compensation expense - Plan |
12,847 |
|
|
— |
|
|
50,137 |
|
|
— |
|
Equity-based compensation expense - Plan (CGC Awards) |
13,719 |
|
|
— |
|
|
14,033 |
|
|
— |
|
Equity-based compensation expense - other (1) |
4,622 |
|
|
212 |
|
|
9,692 |
|
|
1,353 |
|
Non-cash reserve (income) expense |
(24 |
) |
|
— |
|
|
401 |
|
|
— |
|
Fair market value adjustments |
(2,520 |
) |
|
(8,591 |
) |
|
(14,210 |
) |
|
(3,594 |
) |
Canopy Growth transaction costs |
1,515 |
|
|
— |
|
|
7,580 |
|
|
— |
|
Other non-recurring expenses (2) |
616 |
|
|
7,435 |
|
|
9,180 |
|
|
7,895 |
|
Adjusted EBITDA
(non-IFRS)* |
$ |
(12,390 |
) |
|
$ |
(4,730 |
) |
|
$ |
(32,560 |
) |
|
$ |
(12,289 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Of the $9,692 expense in the nine months ended
September 30, 2019, $116 and $4,954 was expensed in Q1 2019
and Q2 2019, respectively.
(2) During the three and nine months ended September 30,
2019, the Company began adjusting for costs related to certain
acquisition transactions to be more consistent with industry
standards. This resulted in a $2,956 and $3,013 addition to Other
non-recurring expenses in Q1 2019 and Q2 2019, respectively.
Pro forma Bridge |
|
|
|
QTD |
|
YTD |
US$
(thousands) |
|
Q3'19 |
|
Q3'18 |
|
FY'19 |
|
FY'18 |
Adjusted EBITDA* (1) |
|
|
$ |
(12,390 |
) |
|
$ |
(4,730 |
) |
|
$ |
(32,560 |
) |
|
$ |
(12,289 |
) |
Managed/Pro forma
Adjustments* |
|
|
|
|
|
|
|
|
|
New England |
|
1,437 |
|
|
3,133 |
|
|
5,443 |
|
|
10,248 |
|
|
Mid-Atlantic |
|
598 |
|
|
(167 |
) |
|
1,722 |
|
|
(153 |
) |
|
Midwest |
|
(563 |
) |
|
(431 |
) |
|
(2,038 |
) |
|
191 |
|
|
West |
|
1,842 |
|
|
(90 |
) |
|
3,108 |
|
|
(420 |
) |
Pro forma
Adjusted EBITDA* (1) |
|
$ |
(9,076 |
) |
|
$ |
(2,285 |
) |
|
$ |
(24,325 |
) |
|
$ |
(2,423 |
) |
(1) During the three and nine months ended September 30,
2019, the Company began adjusting for costs related to certain
acquisition transactions to be more consistent with industry
standards. This resulted in a $2,956 and $3,013 addition to Other
non-recurring expenses in Q1 2019 and Q2 2019, respectively.
Reconciliation of IFRS to Non-IFRS Measures |
US$ (thousands, except per
share amounts) |
Q3'19 |
|
Q3'18 |
|
FY'19 |
|
FY'18 |
Net loss attributable to Acreage Holdings, Inc.
(IFRS) |
$ |
(39,864 |
) |
|
$ |
(4,509 |
) |
|
$ |
(97,816 |
) |
|
$ |
(2,787 |
) |
Net loss per share
attributable to Acreage Holdings, Inc. (IFRS) |
$ |
(0.45 |
) |
|
$ |
(0.06 |
) |
|
$ |
(1.15 |
) |
|
$ |
(0.05 |
) |
Adjusting
items:(1) |
|
|
|
|
|
|
|
(Income) loss from investments, net |
$ |
1,126 |
|
|
$ |
(3,249 |
) |
|
$ |
(585 |
) |
|
$ |
(23,119 |
) |
Equity-based compensation expense - Plan |
9,923 |
|
|
— |
|
|
38,109 |
|
|
— |
|
Equity-based compensation expense - Plan (CGC Awards) |
10,597 |
|
|
— |
|
|
10,666 |
|
|
— |
|
Equity-based compensation expense - other |
3,570 |
|
|
212 |
|
|
7,367 |
|
|
1,353 |
|
Non-cash reserve (income) expense |
(19 |
) |
|
— |
|
|
305 |
|
|
— |
|
Fair market value adjustments |
(1,947 |
) |
|
(8,591 |
) |
|
(10,801 |
) |
|
(3,594 |
) |
Canopy Growth transaction costs |
1,170 |
|
|
— |
|
|
5,762 |
|
|
— |
|
Other non-recurring expenses |
476 |
|
|
7,435 |
|
|
6,978 |
|
|
7,895 |
|
Total
adjustments |
$ |
24,896 |
|
|
$ |
(4,193 |
) |
|
$ |
57,801 |
|
|
$ |
(17,465 |
) |
Adjusted net loss
attributable to Acreage Holdings, Inc. (non-IFRS)* |
$ |
(14,968 |
) |
|
$ |
(8,702 |
) |
|
$ |
(40,015 |
) |
|
$ |
(20,252 |
) |
Adjusted net loss per share
attributable to Acreage Holdings, Inc. (non-IFRS)* |
$ |
(0.17 |
) |
|
$ |
(0.11 |
) |
|
$ |
(0.47 |
) |
|
$ |
(0.33 |
) |
Weighted average shares
outstanding - basic and diluted |
89,258 |
|
|
81,583 |
|
|
84,815 |
|
|
61,291 |
|
Weighted average NCI ownership
% |
22.76 |
% |
|
— |
% |
|
23.99 |
% |
|
— |
% |
(1) Adjusting items have been reduced by the respective
non-controlling interest percentage for the period.
Managed results of operations are IFRS reported results plus the
results of all entities for which we provide operational assistance
to through management or consulting services or other agreements.
Such entities operate independently and Acreage has no control over
their operations. We do not consolidate revenue from these entities
due to lack of control.
Pro forma results of operations are managed results, plus the
pre-acquisition results for all acquired entities from the
beginning of the applicable period presented through the date prior
to the acquisition date.
FORWARD LOOKING STATEMENTS
This news release and each of the documents referred to herein
contains “forward-looking information” within the meaning of
applicable Canadian and United States securities legislation. All
statements, other than statements of historical fact, included
herein are forward-looking information, including, for greater
certainty, statements regarding the proposed transaction with
Canopy Growth, including the anticipated benefits and likelihood of
completion thereof.
Generally, forward-looking information may be identified by the
use of forward-looking terminology such as “plans”, “expects” or
“does not expect”, “proposed”, “is expected”, “budgets”,
“scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or
“does not anticipate”, or “believes”, or variations of such words
and phrases, or by the use of words or phrases which state that
certain actions, events or results may, could, would, or might
occur or be achieved. There can be no assurance that such
forward-looking information will prove to be accurate, and actual
results and future events could differ materially from those
anticipated in such forward-looking information. This
forward-looking information reflects Acreage’s current beliefs and
is based on information currently available to Acreage and on
assumptions Acreage believes are reasonable. Forward-looking
information is subject to known and unknown risks, uncertainties
and other factors that may cause the actual results, level of
activity, performance or achievements of Acreage to be materially
different from those expressed or implied by such forward-looking
information. Such risks and other factors may include, but are not
limited to: the ability of the parties to receive, in a timely
manner and on satisfactory terms, the necessary regulatory
approvals; the available funds of Acreage and the anticipated use
of such funds; the availability of financing opportunities; the
ability of Acreage and Canopy Growth to satisfy, in a timely
manner, the conditions to the completion of the Acquisition; the
likelihood of completion of the Acquisition; other expectations and
assumptions concerning the transactions contemplated between
Acreage and Canopy Growth; legal and regulatory risks inherent in
the cannabis industry; risks associated with economic conditions,
dependence on management and currency risk; risks relating to U.S.
regulatory landscape and enforcement related to cannabis, including
political risks; risks relating to anti-money laundering laws and
regulation; other governmental and environmental regulation; public
opinion and perception of the cannabis industry; risks related to
contracts with third-party service providers; risks related to the
enforceability of contracts; reliance on the expertise and judgment
of senior management of Acreage; risks related to proprietary
intellectual property and potential infringement by third parties;
the concentrated voting control of Acreage’s founder and the
unpredictability caused by Acreage’s capital structure; risks
relating to the management of growth; increasing competition in the
industry; risks inherent in an agricultural business; risks
relating to energy costs; risks associated to cannabis products
manufactured for human consumption including potential product
recalls; reliance on key inputs, suppliers and skilled labor;
cybersecurity risks; ability and constraints on marketing products;
fraudulent activity by employees, contractors and consultants; tax
and insurance related risks; risks related to the economy
generally; risk of litigation; conflicts of interest; risks
relating to certain remedies being limited and the difficulty of
enforcement of judgments and effect service outside of Canada;
risks related to future acquisitions or dispositions; sales by
existing shareholders; and limited research and data relating to
cannabis. A description of additional assumptions used to develop
such forward-looking information and a description of additional
risk factors that may cause actual results to differ materially
from forward-looking information can be found in Acreage’s
disclosure documents, including the Circular and Acreage’s Annual
Information Form for the year ended December 31, 2018 filed on
April 29, 2019, on the SEDAR website at www.sedar.com. Although
Acreage has attempted to identify important factors that could
cause actual results to differ materially from those contained in
forward-looking information, there may be other factors that cause
results not to be as anticipated, estimated or intended. Readers
are cautioned that the foregoing list of factors is not exhaustive.
Readers are further cautioned not to place undue reliance on
forward-looking information as there can be no assurance that the
plans, intentions or expectations upon which they are placed will
occur. Forward-looking information contained in this news release
is expressly qualified by this cautionary statement. The
forward-looking information contained in this news release
represents the expectations of Acreage as of the date of this news
release and, accordingly, is subject to change after such date.
However, Acreage expressly disclaims any intention or obligation to
update or revise any forward-looking information, whether as a
result of new information, future events or otherwise, except as
expressly required by applicable securities law.
Neither the Canadian Securities Exchange nor its Regulation
Service Provider has reviewed and does not accept responsibility
for the adequacy or accuracy of the content of this news
release.
Media
Contact: |
Investor
Contact: |
Howard Schacter |
Steve West |
Vice President of
Communications |
Vice President, Investor
Relations |
h.schacter@acreageholdings.com |
investors@acreageholdings.com |
646-600-9181 |
646-600-9181 |
|
|
Robert Vanisko |
|
Director of
Communications |
|
r.vanisko@acreageholdings.com |
|
646-600-9181 |
|
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