The Parent Company Takes $570 Million Charge As Sales Fall

TPCO Holding Corp. also known as The Parent Company (NEO: GRAM.U) (OTCQX: GRAMF) announced its financial numbers for the third quarter ending September 30, 2021, with an eye-popping charge of $570 million. The Parent Company’s revenue for the quarter was $39.7 million and the adjusted EBITDA loss for Q3 2021 was $16.2 million.

TPCO reported that its sales in the third quarter dropped by 26.7 % from the second-quarter revenue of approximately $54.2 million and blamed the decline on a decrease in bulk wholesale flower and bulk wholesale oil prices during the third quarter.  Wholesale revenue fell to $26.9 million versus $42.3 million in the second quarter and this was attributed to the decrease in whole flower pricing during the quarter. The direct-to-consumer revenue grew 7.6% sequentially to $12.8 million.

“Over the last several quarters we have executed on our strategic initiative to drive growth in the higher quality, direct-to-consumer revenue we generate by expanding our coverage in the California market through our omnichannel platform,” said Troy Datcher, Chief Executive Officer of The Parent Company. “While our performance was impacted by the continued bulk wholesale flower and oil pricing declines that were seen across the California market, we expect that as we continue to expand the direct-to-consumer line of our business we will reduce our exposure to these pricing fluctuations. Additionally, we remain well-positioned with our access to high-quality indoor-grown cannabis, which continues to command a higher price point in the market.”

Operating expenses in the quarter were $31.6 million, cash expenses included general and administrative costs of $9.9 million, salaries and benefits of $9 million, and sales and marketing expenses of $4.6 million. Non-cash expenses included stock-based compensation of $3.6 million and depreciation & amortization of $3.3 million.

Impairment Charge Details

TPCO said that the charge was based on the softening of the California cannabis market. As part of the impairment assessment, TPCO’s future forecasts considered changes in cash flow estimates due to lower flower and oil prices realized during the third quarter of 2021. While the Company remains optimistic that cannabis legalization will occur, our expected future cash flows reflect the current tax and regulatory environment. While the company insisted that the challenges it faced were not unique to the company and that the entire California market was experiencing these issues, few other companies have registered a charge of this magnitude.

“Furthermore, the Company would like to highlight that of the consideration paid for the Qualifying Transactions, $232,719,246 related to non-cash contingent consideration. This amount is potential additional consideration issuable, if and when, the stock price reaches certain thresholds. During the nine months ended September 30, 2021, the Company recorded a gain on contingent consideration of $220,997,087 which is reflected in the statement of operations.”

The charge won’t affect the company’s cash position which is a healthy $206.7 million as of September 30, 2021. 

Debra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


2 comments

  • Jonathan Godfrey

    November 16, 2021 at 11:45 am

    Debra, Thanks for your thorough coverage of the sector. Does the impairment charge for TPCO offer any tax advantage going forward? I’m holding a significant position in the company and just want to better understand how this affects book value, as well as wondering if the company should offer a little more detail on exactly where the writedown was concentrated, as in which acquisitions specifically were devalued and by how much?

    Reply

    • Debra Borchardt

      November 17, 2021 at 8:14 am

      I’m not a tax expert, but I believe companies can carry that over several years.

      Reply

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