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Green Growth Brands Reported Mixed Q2 Performance

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On Monday, Green Growth Brands (OTCMKTS:GGBXF)(NYSE:GGB) reported its earnings results for the second quarter of fiscal 2020. For the quarter, the company reported revenues of $21.1 million, which beat analysts’ expectations of $19.6 million. The company’s adjusted EBITDA was negative $13.9 million, which was better than analysts’ expectations of negative $17.05 million. However, Green Growth Brands’ net losses were higher than analysts’ expectations. For the quarter, the company’s net losses were $35.9 million compared to analysts’ expectation of a loss of $21.5 million.

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Green Growth Brands’ Q2 performance

Compared to revenues of $12.7 million in the first quarter, Green Growth Brands’ revenue rose 66%. Growth in the CBD business and MSO (multi-state operations) drove the company’s revenue. During the quarter, the CBD revenues grew 113% from the previous quarter to $11.0 million. Meanwhile, the revenue from the company’s MSO segment grew by 33% to $10.1 million.

For the quarter, Green Growth Brands reported a negative adjusted EBITDA of $13.9 million—an improvement from a negative EBITDA of $15.2 million in the first quarter. Higher revenue and an increased gross margin drove the company’s adjusted EBITDA. During the quarter, the company’s gross margin improved from 11% in the first quarter to 30%. However, higher operating expenses offset some of the improvements in the EBITDA. The company’s operating expenses increased from $25.0 million in the first quarter to $29.9 million. The rise in the number of CBD shops from 130 to 195 increased the company’s operating expenses.

Green Growth Brands’ net losses rose from $29.9 million in the first quarter to $34.8 million. The net losses also accommodate the company’s non-operating expenses.

Selling the CBD business

On Monday, Green Growth Brands announced that The BRN Group agreed to acquire its CBD business. The companies executed a “stalking horse” asset purchase agreement. If The BRN Group pursues the transaction, it will acquire all of the assets and liabilities of Green Growth Brands’ CBD business. Meanwhile, Green Growth Brands stated that it could own a 20% stake in the CBD business following the sale. The company’s CBD business included CBD-infused personal care and beauty products sold under the Seventh Sense and Green Lily brands. The company sold its CBD products through e-commerce, in mall-based kiosk shops, and wholesale agreements.

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Speaking on the sale of its CBD business, Peter Horvath, Green Growth Brands’ CEO, said that overhead costs, other near-term obligations, and liquidity constraints hindered the expansion of its CBD business. However, he added that despite these constraints, the MSO business delivered a positive EBITDA. According to Horvath, the company decided to sell its CBD business and focus on its MSO business. He said that the board formed a committee to review its business operations and develop a path to attain financial stability and sustainable profitability.

Debt restructuring and raising equity

Green Growth Brands announced that it will restructure its debt and raise equity to improve its financial position to scale its MSO operations. As part of these initiatives, the company announced that it will extend the maturity date of debentures worth approximately $23 million. Green Growth Brands will lower the interest rate payable on the debentures to 5% from 8% previously.

The company also announced its intentions to raise $30 million through a non-brokered private placement of common shares. Initially, Green Growth Brands received a commitment of $10 million from All Js Greenspace. The company has to achieve certain financial and operating milestones to access the remaining proceeds from the private placement.

Green Growth Brands’ stock performance

So far this year, Green Growth Brands has lost 46.3% of its stock value as of Monday. We’ll have to see how investors react to the company’s decision to sell its CBD business. Meanwhile, Green Growth Brands has underperformed its peers this year. Curaleaf Holdings (OTCMKTS:CURLF), The Green Organic Dutchman Holdings (OTCMKTS:TGODF), and MedMen Enterprises (OTCMKTS:MMNFF) have fallen by 9.4%, 28%, and 41.4% YTD, respectively.

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