Golden Leaf Reports Increased Revenues, Bigger Losses

Toronto-based Golden Leaf Holdings Ltd. (GLDFF) delivered its earnings for the third quarter ending September 30 with revenues rising, but losses rising as well. Net revenue was $3.1 million versus last year’s $2.4 million for the same time period. The quarter included $240,000 in non-recurring royalty revenue. The jump in revenue was largely attributed to the acquisition of Chalice Farms this past July, which offset supply problems with other key products.

Golden Leaf still reported a net loss of $3.2 million or one cent per share, versus last year’s $2.3 million which also caused a loss of one cent per share. The company currently has 726 million shares on a fully diluted basis. Adjusted EBITDA loss was $3.1 million which was much higher than last year’s  loss of $1.7 million during Q3 2016. The company said it was “primarily driven by increases in legal costs, salaries, wages, and rents, which offset higher margins that resulted from sales of inventory produced in prior periods, and an enhanced product mix.”

“Our vision is to drive top-line growth by developing our retail brand across our target markets, starting with Portland, Oregon,” said William Simpson, Chief Executive Officer of Golden Leaf Holdings. “To this end, we are constructing three new Chalice Farm retail dispensaries. Construction efforts have progressed faster than expected and we anticipate one new location to be operational before the end of 2017, with a second expected to be up and running in Q1 2018.”

Gross profits were $731,000 or 23.7% of net revenue, higher than last year’s 21.3% of net revenue in Q3 2016, and 19.2% of net revenue in the second quarter of 2017. The company said in a statement that gross margins benefitted from better utilization of production staff and consistent margins across product categories. The gross margins also improved as a result of acquired dispensaries and the higher margins associated with retail products. Operating expenses rose to $4.7 million over last year’s $2.3 million due to higher wages, consulting costs and legal costs. The company said it plans to reduce its corporate overhead.

The Plans For Golden Leaf

The expansion in Oregon is underway as a result of the Chalice Farms acquisition. Golden Leaf now has five retail dispensaries in operation, with an additional three under construction, one of which Golden Leaf expects to have opened by the end of 2017, and a second expected to open in the first quarter of 2018.

In Nevada, the company was granted business licenses by the city of Henderson and Washoe County, Sparks and Las Vegas to sell cannabis to the adult-use markets in these locations. Sales throughout the state have begun and Golden Leaf also signed an agreement with a distributor in Reno to generate sales. Simpson said, “Although at a very early commercial stage, we generated revenues of approximately $100,000 USD in the third quarter of 2017 from Nevada, and are pleased with this early stage traction. Nevada is one of the leading markets for the cannabis industry, due to its more than 40 million yearly visitors and its sizable domestic market, and we are excited about this opportunity.”

In Canada, Golden Leaf completed its acquisition of MMGC in early November, which is expected to enable the company to expand sales of its branded oils and flowers in that marketplace. MMGC was granted a cultivation license by Health Canada for its Ontario cannabis grow facility and Golden Leaf expects to launch retail operations in Canada in the third quarter of 2018.

Cash

As of September 30, 2017, the Company had approximately $634,000 USD in cash, compared with $3.9 million USD at December 31, 2016. In a statement, the company said, “Subsequent to the end of Q3 2017, Golden Leaf received approximately $10.8 million USD in net proceeds from a private placement transaction. The Company is using these proceeds for the payment of outstanding accounts payable, inventory purchasing and general corporate purposes.”

The stock is trading at 23 cents, which is a big drop from its 52-week high of 57 cents.

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