Plus Products Inc. (CSE: PLUS) (OTCQX: PLPRF) (the “Company” or
“PLUS”), a cannabis branded products company in the U.S., today
released its audited financial and operational results for the
three and twelve months ended December 31, 2019, expressed in U.S.
dollars. These filings are available for review on the Company’s
SEDAR profile at www.sedar.com and on the Canadian Securities
Exchange (the “CSE”) website at www.thecse.com.
Q4 and Year-End Financial Highlights
- Revenues: Net revenues climbed to $13.9M in 2019, representing
a 66% year-over-year growth as compared to 2018 net revenues of
$8.4M. Net revenues in Q4 2019 reached $3.5M, representing a 4%
year-over-year growth as compared to Q4 2018 net revenues of $3.4M.
In December 2019, the Company was transitioning to a new
distributor, HERBL Distribution Solutions (“HERBL”). Due to this
transition, some sales which otherwise would have taken place in
December 2019 were pushed out until January 2020.
- Gross Profits: Gross profits grew to $2.8M in 2019 compared to
$1.1M in 2018. Gross profit margin in 2019 was 20%, up from 13% in
2018. Gross profits increased to $0.9M in Q4 2019 compared to $0.4M
in Q4 2018. Gross profit margin in Q4 2019 grew to 26%, up from 13%
in Q4 2018. Higher sales volumes and a focus on increasing
operational efficiencies diminished the growth of labor and
overhead costs relative to sales, increasing gross profits.
- Operating Expenses: Operating expenses were $27.6M in 2019, up
from $7.6M in 2018. Operating expenses were $9.1M in Q4 2019, up
from $3.3M in Q4 2018. In 2019, the Company invested in the
nationwide launch of its hemp CBD line, entrance into the Nevada
adult-use market, and launch of PLUS Mints, along with other
investments in hiring talent, gaining market share, as well as
building infrastructure and financial capacity to support its
future growth.
- Cash Balance: The Company reported $15.2M in cash and cash
equivalents at December 31, 2019. PLUS is capitalized with enough
cash on hand to continue executing through the entirety of 2020
without any additional fundraising. The Company made significant
changes to its business in Q1 of this year to improve cash flow –
detailed below – and expects the impacts of these adjustments to
benefit PLUS especially well in light of the uncertainty presented
by COVID-19.
2019 Business Updates
Product Launches
- In April, the Company launched PLUS Mints as its first
non-gummy product line. The low-dose products target consumers
looking for a discrete, micro-dose experience with 2.5mg or less of
THC per serving.
- In October, the Company introduced a second line of its
best-selling gummies including: BALANCE Cucumber Lime, UPLIFT
Tangerine, and UNWIND Concord Grape.
Market Launches
- In September, the Company entered the national CBD market with
its line of 100% hemp CBD gummies. The products are currently
available online at PlusProducts.com in 43 states and select health
and wellness retailers throughout the country.
- In October, PLUS gummies hit shelves in Nevada, marking the
launch of the Company’s second adult-use market. According to
Headset Insights, one quarter after market-entry, PLUS was already
the second best-selling gummies brand in the state, a market that
consists of over 40 gummy brands.1
General Highlights
- In July, the Company announced a rebrand of its core PLUS
brand, introducing a new look for its line of low-dose,
cannabis-infused edibles. The new packaging and product system were
designed to go beyond the traditional use of Sativa, Hybrid, and
Indica cannabis strains to focus on the science behind unique
combinations of THC and CBD.
- In December, PLUS announced the transition of its primary
distributor from Calyx Brands to HERBL. After an extensive review,
the Company determined that HERBL was best positioned to scale with
PLUS and reliably deliver products to retailers at the lowest
cost.
- According to BDS Analytics, for the second straight year, PLUS
had the two best-selling products in California across all
categories. The Company’s signature Sour Watermelon UPLIFT gummies
and Blackberry Lemon UNWIND gummies topped the list of over a
thousand products sold throughout the state during
2019.2
Post-Period End Business Updates
- In February 2020, the Company entered the wellness and relief
segment of the California adult-use market with the introduction of
its PLUS CBDRelief brand. The launch represents a significant
extension beyond the core PLUS lineup. The new PLUS CBDRelief
products were designed with low THC and high CBD ratios to serve
the roughly one-third of consumers in the market that are looking
to cannabis for relief.3
- In March 2020, the Company announced a series of material
changes to the business in an effort to prioritize an accelerated
path towards becoming cash flow generative and continuing to
establish itself as a leader in the California edibles market.
These changes included:
- Reduction of the Company’s workforce by 13 full-time employees,
accounting for 20% of its non-production workforce.
- Salary reduction for three executive officers ranging from 20%
to 50% in exchange for options that will be issued following the
current executive financial blackout period.
- Marc Seguin, the Company’s Chief Revenue Officer, left the
organization.
- PLUS and John Legend concluded their engagement. The Company
would like to thank Mr. Legend for the part he played in helping to
bring the PLUS hemp CBD line to the country.
- The Company announced a plan to restructure its equity
incentive program to ensure that it continues to be consistent with
the mandate of the shareholder-approved Equity Incentive Plan to
“promote the interests of the Company and its shareholders by
aiding the Company in attracting and retaining employees.”
Management Commentary
“PLUS emerged from a turbulent year in the cannabis industry
well positioned to pursue its vision of building a global portfolio
of edibles brands,” stated Jake Heimark, co-founder and CEO. “For
the second straight year, we were the largest brand in the largest
category of the California edibles market and had the two
best-selling products across all categories.4 Now more than ever,
we believe that the most successful brands will be those that build
a reputation for high-quality products that do not damage your
lungs.
“Our home market of California has not been without its
complications. The legal cannabis market faces growing pains as it
competes with a highly active illicit market, works to streamline a
disordered regulatory environment, and supports undercapitalized
operators across a nascent supply chain. Despite these factors, we
believe that California unequivocally remains the most valuable
market for building a branded products company in cannabis. In
2019, the state made up 38% of the global adult-use market and is
expected to remain 24% of that market through 2024.5
“In 2020, our strategic initiatives are built around three
critical objectives: 1) ensuring the safety and health of our
employees, customers, and partners during this pandemic; 2)
establishing ourselves as the clear, long-term leader in California
edibles; and 3) becoming a cash-flow positive business.
“Objectives two and three will be driven by the launch of new
brands here in California and the continued growth of our core PLUS
brand in the markets in which we are operational today. By relying
on core capabilities and known distribution channels to drive
capital-efficient growth, we are confident in our ability to
achieve both our market and financial goals for 2020 and
beyond.”
Covid-19 Update
In March 2020, there was a global outbreak of COVID-19, which
continues to rapidly evolve. The extent to which the virus may
impact the Company will depend on future developments, which are
highly uncertain and cannot be predicted with confidence, such as
the ultimate geographic spread of the disease, the duration of the
outbreak, travel restrictions, social distancing, business closures
or business disruptions, and the effectiveness of actions taken in
the United States and other countries to contain and treat the
disease.
While cannabis remains an essential business throughout most of
California, it is still too early to understand how COVID-19 will
impact PLUS or the market as a whole. To date, the Company has not
seen a sustained downside impact on consumer demand in its core
California market and has been able to fulfill orders without
interruption. The Company believes it is well prepared to respond
to this crisis. Please visit plusproductsinc.com/coronavirus to see
the actions PLUS is taking to respond to this unique challenge.
|
|
(1) |
According Headset Insights in January 2019 |
(2) |
According to BDS Analytics GreenEdge Platform in 2019 |
(3) |
According to proprietary research conducted through HJR Associates,
a third-party firm contracted by the Company |
(4) |
According to BDS Analytics GreenEdge Platform in 2019 |
(5) |
According to Arcview | BDS Analytics - State of the Legal Markets
7th Edition |
|
|
Conference Call Details
At 5:00 pm Eastern Time / 2:00 pm Pacific Time on Thursday, May
7, 2020 the Company will host a conference call and webcast to
discuss the financial results and its recent corporate
highlights.
Participant Dial-In Numbers:
Toll-Free: (866) 220-4156
Toll / International: (864) 663-5231
*Participants should request the Plus Products
Earnings Call or provide conference ID: 2867687
The call will also be webcast at
https://edge.media-server.com/mmc/p/rwodgqqw. Please visit the
website at least 15 minutes prior to the call to register,
download, and install any necessary audio software. Following the
conclusion of the call, there will be an archived audio webcast of
the conference call available for replay on the Company’s website
at PlusProductsInc.com.
Jake Heimark, Co-founder and Chief Executive Officer and Jon
Paul, Chief Financial Officer, will be conducting a question and
answer session following the prepared remarks.
About PLUS
PLUS is a cannabis and hemp food company focused on using nature
to bring balance to consumers’ lives. PLUS’s mission is to make
cannabis safe and approachable – that begins with high-quality
products that deliver consistent consumer experiences. PLUS is
headquartered in San Mateo, CA.
For further information contact:
Jake HeimarkCEO & Co-founderir@plusproducts.com
Investors:
Blake BrennanInvestor Relationsblake@plusproducts.comTel +1
213.282.6987
Media:
Megan SekkasPublic Relationsmegan@sekkas.comTel
+310.279.6811
The CSE does not accept responsibility for the adequacy
or accuracy of this release.
Forward-Looking Statements:
This press release includes statements containing certain
“forward-looking information” within the meaning of applicable
securities law (each, a “forward-looking statement”).
Forward-looking statements are frequently characterized by words
such as “plan”, “continue”, “expect”, “project”, “intend”,
“believe”, “anticipate”, “estimate”, “may”, “will”, “potential”,
“proposed” and other similar words, or statements that certain
events or conditions “may” or “will” occur and include, but are not
limited to, statements relating to: the Company’s available working
capital and the ability for the Company to continue executing
through 2020 without additional fundraising; the impact of the
changes made by the Company in Q1 to improve cash flow and how
beneficial (if at all) these changes will be to the Company in
light of the uncertainty presented by COVID-19; how the Company has
emerged from a turbulent year in the cannabis industry well
positioned to pursue its vision of building a global portfolio of
edibles brands; the Company’s belief that the most successful
brands will be those that build a reputation for high quality
products that do not damage your lungs; the Company’s belief that
California unequivocally remains the most valuable market for
building a branded products company in cannabis; how the Company’s
ability to achieve its objectives and strategic initiatives in 2020
will be driven by the launch of new brands in California and the
continued growth of the Company’s core PLUS brand in the markets in
which the Company is currently operating; the belief by the Company
that the reliance by the Company on core capabilities and known
distribution channels will drive capital-efficient growth; and the
Company’s ability to achieve both its market and financial goals
for 2020 and beyond.
These forward-looking statements are only predictions. Various
assumptions were used in drawing the conclusions or making the
projections contained in the forward-looking statements throughout
this press release. Forward-looking statements are based on the
opinions and estimates of management at the date the statements are
made and are subject to a variety of risks and uncertainties and
other factors that could cause actual events or results to differ
materially from those projected in the forward-looking statements.
These risks include, but are not limited to, the success of the
Company’s investments, the ability to retain key personnel, the
ability to continue investing in infrastructure to support growth,
the ability to obtain financing on acceptable terms, the continued
quality of the Company’s products, customer experience and
retention, the continued development of adult-use sales channels,
managements estimation of consumer demand in jurisdictions where
the Company exports, expectations of future results and expenses,
the availability of additional capital to complete capital projects
and facilities improvements, the ability to expand and maintain
distribution capabilities, the impact of competition, the ability
of the Company to implement initiatives and the possibility for
changes in laws, rules, and regulations in the industry.
Further, the duration and severity of the current COVID-19
pandemic may significantly impact or exacerbate some of the
above-listed risks and uncertainties. Risks that may be
further impacted by the COVID-19 pandemic relate to the Company’s
operations and expansion, including the Company’s ability to grow
its brand and sales and to maintain production levels in the event
that the Company’s employees are restricted from accessing
facilities for a significant period of time; to the Company’s
ability to access capital and the level of borrowing costs; the
Company’s ability service obligations under its debt securities and
other debt or lease obligations; and the Company’s ability to
comply with the covenants contained in the agreements that govern
the Company’s existing indebtedness.
The transmission of COVID-19 and efforts to contain its spread
have recently resulted in international, national and local border
closings, travel restrictions, significant disruptions to business
operations, supply chains and customer activity and demand (across
all sectors), service cancellations, reductions and other changes,
and quarantines, as well as considerable general concern and
uncertainty.
The overall severity and duration of COVID-19-related adverse
impacts on the Company’s business will depend on future
developments which cannot currently be predicted. Even after the
COVID-19 outbreak has subsided, the Company may continue to
experience material adverse impacts to the businesses as a result
of its global economic impact, including any related recession.
The Company is under no obligation and expressly disclaims any
intention or obligation, to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as expressly required by applicable law.
Non-GAAP Measures:
Adjusted uncompressed weighted average shares outstanding and
loss per share.
The Company has additionally determined the adjusted
uncompressed weighted average shares outstanding and loss per
share, basic and diluted. The Company believes these measures to be
representative of loss and comprehensive loss on a per share basis;
however, these performance measures have no standardized meaning.
As such, there are likely to be differences in the method of
computation when compared to similar measures presented by other
issuers. Management believes that, in addition to conventional
measures prepared in accordance with GAAP, some investors use this
information to evaluate the Company’s performance. Accordingly,
they 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 GAAP.
PLUS PRODUCTS INC.Consolidated Statements of
Financial Position(Expressed in U.S. Dollars)
|
|
As at December 31, |
|
|
|
2019 |
|
2018 |
|
|
|
$ |
|
$ |
|
Assets |
|
|
|
Current |
|
|
|
Cash and cash equivalents |
|
15,176,184 |
|
22,398,587 |
|
Trade receivables |
|
4,040,183 |
|
1,379,066 |
|
Prepaids and deposits |
|
1,262,269 |
|
172,128 |
|
Taxes recoverable |
|
112,377 |
|
- |
|
Note receivable |
|
200,000 |
|
- |
|
Inventory |
|
3,872,175 |
|
630,337 |
|
|
|
24,663,188 |
|
24,580,118 |
|
Non-current |
|
|
|
Prepaids and deposits |
|
789,521 |
|
586,354 |
|
Property and equipment |
|
3,703,597 |
|
1,875,401 |
|
Intangible assets |
|
98,665 |
|
741,863 |
|
Goodwill |
|
- |
|
61,296 |
|
|
|
|
|
Total assets |
|
29,254,971 |
|
27,845,032 |
|
|
|
|
|
Liabilities |
|
|
|
Current |
|
|
|
Accounts payable and accrued liabilities |
|
2,289,393 |
|
2,009,412 |
|
Income taxes payable |
|
- |
|
155,714 |
|
Current portion of vehicle loans |
|
27,753 |
|
- |
|
Current portion of lease liabilities |
|
284,588 |
|
- |
|
|
|
2,601,734 |
|
2,165,126 |
|
Non-current |
|
|
|
Vehicle loans |
|
137,588 |
|
- |
|
Lease liabilities |
|
1,028,218 |
|
- |
|
Convertible debentures |
|
17,188,223 |
|
- |
|
Total liabilities |
|
20,955,763 |
|
2,165,126 |
|
|
|
|
|
Shareholders'
equity |
|
|
|
Share capital |
|
41,782,711 |
|
34,065,191 |
|
Reserves |
|
7,884,184 |
|
2,391,055 |
|
Deficit |
|
(41,138,127 |
) |
(10,776,340 |
) |
Accumulated other comprehensive loss |
|
(229,560 |
) |
- |
|
Total
shareholders' equity |
|
8,299,208 |
|
25,679,906 |
|
|
|
|
|
Total liabilities and shareholders' equity |
|
29,254,971 |
|
27,845,032 |
|
|
|
|
|
|
|
PLUS PRODUCTS INC.Consolidated Statements of
Loss and Comprehensive Loss(Expressed in U.S. Dollars, except
number of shares)
|
Year ended December 31, |
|
|
2019 |
|
2018 |
|
|
$ |
|
$ |
|
Revenue |
13,850,351 |
|
8,362,547 |
|
Cost of sales |
11,091,720 |
|
7,251,392 |
|
Gross
margin |
2,758,631 |
|
1,111,155 |
|
|
|
|
Operating
expenses |
|
|
Advertising and promotion |
7,163,051 |
|
192,583 |
|
Depreciation and amortization |
39,465 |
|
1,956 |
|
Consulting fees |
1,852,249 |
|
775,683 |
|
General and administrative |
2,064,426 |
|
772,761 |
|
Meals and travel expenses |
1,036,303 |
|
413,278 |
|
Professional fees |
3,242,096 |
|
2,071,338 |
|
Regulatory fees |
24,835 |
|
14,245 |
|
Research and development |
179,003 |
|
828 |
|
Salaries and benefits |
6,825,547 |
|
2,143,927 |
|
Provision for expected credit losses |
1,571,666 |
|
- |
|
Share-based compensation |
3,560,342 |
|
1,225,714 |
|
Loss from
operations |
(24,800,352 |
) |
(6,501,158 |
) |
|
|
|
Other (income)
expense |
|
|
Interest and other income |
(106,424 |
) |
(1,486 |
) |
Accretion finance income |
(121,260 |
) |
|
Accretion expense |
1,437,344 |
|
- |
|
Interest expense |
1,439,655 |
|
33,219 |
|
Foreign exchange gain |
(19,921 |
) |
147,210 |
|
Loss on deemed financing benefit |
408,841 |
|
|
Impairment of property and equipment |
1,570,896 |
|
|
Impairment of intangible assets and goodwill |
803,159 |
|
- |
|
Loss before income
taxes |
(30,212,642 |
) |
(6,680,101 |
) |
|
|
|
Income
tax expense |
13,820 |
|
155,714 |
|
|
|
|
Loss for the year |
(30,226,462 |
) |
(6,835,815 |
) |
|
|
|
Currency translation
adjustment |
229,560 |
|
- |
|
Loss and comprehensive loss for the year |
(30,456,022 |
) |
(6,835,815 |
) |
|
|
|
|
|
Basic and diluted |
30,656,764 |
|
14,296,098 |
|
|
|
|
|
|
Basic and diluted |
(0.99 |
) |
(0.48 |
) |
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