Decibel Releases Second Quarter Results Highlighting Positive Developments with Launch of Cannabis 2.0 Products

CALGARY, AB, Aug. 28, 2020 /CNW/ – Decibel Cannabis Company Inc. (the “Company” or “Decibel”) (TSXV: DB) (OTCQB: DBCCF), a premium cannabis producer and retailer, is pleased to announce its second quarter financial results for the three-month and six month periods ending June 30, 2020.

Decibel Cannabis Company Inc. Logo (CNW Group/Decibel Cannabis Company Inc.)

In the second quarter of 2020, the Company achieved positive cash flow for the first time by delivering net revenue growth in both its high end product brand Qwest and Prairie Records retail businesses, realizing cost reductions and continuing to execute on its business strategy.

Q2 2020 Financial and Operational Highlights

Net Revenue Growth: Total net revenue grew by 17% in the second quarter to $5.9 million, over the first quarter of 2020, driven by continued execution on the Company’s strategic plan with strong same store sales growth from retail operations and continued demand for Qwest products.
Adjusted EBITDA Improvement: Through strong revenue growth and a focus to realize cost reductions in the quarter, achieved Adjusted EBITDA loss of $26 thousand, an improvement of $384 thousand over the first quarter of 2020.
Increased Qwest Sales: 258 Kilograms sold in the second quarter, with an average wholesale flower gross price per gram of $10.03 for the period. During the quarter, the Company executed tactical pricing initiatives on older strains in Alberta and Saskatchewan, which helped drive distribution, volume and velocity in retail stores and increased consumer trial of the premium Qwest family of brands products.
Strong Prairie Records Results: Increased revenue for the period to $3.8 million, including same stores sales growth of 37% over the first quarter of 2020. Showing continued strong retail execution by reducing days of inventory to a targeted 30 days and disposing of non-core leases.
First Sales of Vape Pens and Concentrates: Subsequent to quarter end, Decibel achieved a key milestone with its extraction and manufacturing facility, The Plant, shipping its first orders to Saskatchewan and receiving initial purchase orders for its first 10 SKUs of vapes and concentrates. Decibel received its sales amendment for cannabis derivative products 46 days ago, on July 13, 2020.
New Cultivar Launches: Late June, launched trendsetting cultivars that deliver high THC and strong terpene profiles, including one of the highest recorded THC percentages for Decibel’s Kush Mints cultivar. The new cultivars continue to demonstrate Qwest’s premium pricing having achieved an average blended gross price of $11.23 per gram.
Two New Store Openings: 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.
Substantial Completion of Construction: Subsequent to quarter end, Decibel substantially completed construction of its large scale, indoor cultivation facility, Thunderchild Cultivation, and has begun bringing genetics into the facility.

“The first half of 2020 presented some great challenges for Decibel, integrating the two companies, managing through the pandemic and tremendous volatility in the capital markets, all while staying focused and executing our strategic plan” said Benjamin Sze, CEO of Decibel. “We continue to make significant strides in becoming a premier producer of premium cannabis and cannabis 2.0 products.”

Appointment of Senior Advisor
Decibel is pleased to announce that it has appointed Dr. Ivan Casselman (Ph.D., FLS), a cannabis science advisor and plant medicine researcher, as a senior advisor to Decibel. He has worked in the BC cannabis industry for over a decade. His experience as an analytical chemist and plant medicine researcher gives him a unique insight into product development and business development strategy in the cannabis sector.

“I am so excited to be invited to advise Decibel and to help chart the future course of the company. For decades, BC has been known for the production of high-quality cannabis. Decibel is a company rooted in that BC tradition” said Dr. Ivan Casselman. “As the medical and legal cannabis market continues to develop and grow in Canada, Decibel has an amazing opportunity to bring that tradition to the rest of Canada and one day, the world.”

Quarterly Highlights


	Three months ended		Six months ended
	June 30, 2020	June 30, 2019	June 30, 2020	June 30, 2019

Net wholesale revenue	$2,054	$1,316	$4,281	$1,822
Kilograms sold	258	134	511	194
Average wholesale flower gross pricing per gram	$10.03	$11.86	$10.25	$11.23
Average wholesale flower net pricing per gram	$7.97	$9.82	$8.38	$9.39
Kilograms of cannabis harvested	311	437	625	625

Number of retail stores	4	nil	4	nil
Retail revenue	$3,837	nil	$6,646	nil

Total
Net revenue	$5,891	$1,316	$10,927	$1,822

Gross profit before fair value adjustments	$2,124	$542	$4,266	$678
Adjusted EBITDA (a)	($26)	$385	($436)	$253

(a)	Adjusted EBITDA is a non-GAAP performance measure. Refer to “Cautionary Statements – Non-GAAP Measures” for further details.

Credit Facility Amendment

On May 22, 2020, Decibel entered into an agreement to amend its credit agreement with ATB Financial. The Company believes the amended agreement is better aligned with the Company’s balance sheet and cash flow expectations and provides financial flexibility over the near term.

Decibel’s financial statements for the three-month period ending June 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 June 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.

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, the Company’s expectations regarding the production of high THC premium dried flower and the launch of concentrates and vape products out of The Plant, the timing, construction and licensing of the Thunderchild Cultivation facility, the Company’s ability to grow Qwest, Qwest Reserve and Blendcraft brands into new and innovative product formats, variations and ranges found within third party test results related to tested THC percentages, the Company’s expectations with respect to the amended credit agreement’s ability to provide financial flexibility and allow the Company to meet its near term objectives. 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, its expected revenue growth, 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 June 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.