Decibel Announces 2022 Financial Outlook, Strategic Priorities, and Organizational Alignment

Rhea-AI Summary

Decibel Cannabis Company (OTCQB: DBCCF) announced its strategic priorities and 2022 financial outlook on January 31, 2022. The company aims for substantial revenue and EBITDA growth, targeting over 40% market share growth and achieving positive cash flow by mid-2022. Key financial milestones include a projected product gross margin of 40-45%, a blended cost of debt below 5%, and a low-cost $7.5 million debt facility. Organizational changes support a focus on innovative products and enhanced distribution, particularly in Ontario, where market share has tripled. The Canadian cannabis market is expected to grow over 30% in 2022.

Positive

• The company anticipates positive cash flow from operations in the first half of 2022.
• Targeting over 40% market share growth compared to 2021.
• Projected product gross margin of 40-45% by mid-2022.
• Blended cost of debt expected to be below 5%, strengthening the balance sheet.
• Established a low-cost $7.5 million accordion debt facility for future growth.

Negative

• None.

CALGARY, AB, Jan. 31, 2022 /PRNewswire/ - Decibel Cannabis Company Inc. (the "Company" or "Decibel") (TSX-V: DB) (OTCQB: DBCCF), a premium cannabis producer, is pleased to provide an update on its strategic priorities and 2022 financial outlook.

Link to Decibel's Updated Investor Presentation

Highlights

• Strong 2022 drivers now in place to generate substantial revenue and EBITDA growth.
• Anticipate achieving milestone of positive cash flow from operations in the first half of 2022.
• Driving organic growth, targeting 2022 market share growth of over 40% versus 2021.
• Canadian recreational market forecasted to grow more than 30% over prior year.
• Targeting 40 – 45% product gross margin by mid-2022.
• Organizational realignment to focus on 4 strategic priorities (See Strategic Priorities and Five-Year Outlook).

CEO Comments

Commenting on the Company's outlook, Paul Wilson, CEO of Decibel noted the following:

"We have established a solid foundation through strong execution of our priorities in 2021 and are well positioned to execute on our 2022 objectives and achieve strong year over year growth in revenue and margins. Demand for our brands and products in the recreational market continues to exhibit strong growth, confirming our thesis that quality across category expansion, consistency, and revenue growth, will lead to creation of competitive advantages for years to come.

Our organic growth will be focused on broadening distribution of existing products, expanding with brands into core segments, launching a pipeline of new, unique, and innovative products, and operational efficiency gains from a series of investments generating substantial EBITDA improvement.

We are investing heavily in growing sales and broadening our distribution, having set Ontario in our sights as a key market for future growth. Over 2021, we've tripled our market share and revenues from this province and remain focused on maintaining this trend. As our horizons widen, we are looking to other eastern provinces as additional channels of growth.

We're confident that our brands and products will continue to provide superior experiences to our customers and that our team will remain flexible to meet evolving consumer trends – and in the future, will be shaping them. We believe that our strategic plan will provide compelling organic growth, which combines further development of our competitive advantages and an attractive cannabis growth outlook."

Strategic Priorities and Five-Year Outlook

"At Decibel's core, we will ensure genetics, expertise, and quality remain our core competencies, such that we are flexible to meet consumer trends and produce the highest quality product in each price segment."

The Company's 2022 Strategic Plan priorities continue to reinforce elevating Decibel's customers' experiences, aggressive sales growth, differentiation of products, and organic growth potential of its cash flows, include the following:

• Continue to champion the Qwest Family of Brands as an industry-leading premium brand, which creates a "halo" extending to Decibel's other brands and products;
• Broaden distribution and enter new markets through a multi-channel and best-in-class sales system;
• Execute on capital investments and maximizing product gross margin through a large scale transition from manual to automation driven production lines; and
• Establish and refine product differentiation and competitive advantages.

2022 Financial Outlook

The Company highlights the following financial milestones in 2022:

• Anticipate achieving milestone of positive cash flow from operations in the first half of 2022;
• Driving high double digit revenue growth through broader distribution and a new, unique, and innovative product pipeline;
• Targeting 40 – 45% product gross margin by mid-2022 through automation and other capital investments;
• Repaying its outstanding convertible debentures with low cost non-dilutive debt capital, resulting in blended cost of debt capital of less than 5%;
• Strengthening balance sheet and financial position with the expectation to reach less than 3.0x debt / trailing twelve month Adj. EBITDA in 2022; and
• Established a low cost $7.5 million accordion debt facility for future growth.

The Company's 2022 performance drivers include:

• Expanded Decibel presence in the core price segment through the launch of General Admission jarred flower and infused pre-roll products in January;
• Launched Qwest premium infused pre-roll products in January;
• Launched early stage infused products in Ontario in January, with additional General Admission and Qwest infused products launching in early Q2;
• Optimizing yields and supply of Qwest flower and pre-rolls over the course of 2022;
• Enhancing distribution through investments in Decibel's revenue generation system and expanding into Eastern provinces;
• Completing the majority of capital investments in the first half of 2022 which are designed to bring automation and substantial EBITDA generation to existing product lines and revenue; and
• Continued investment in quality of offerings and development of product pipeline (15 new products launching in 2022), focused on new, unique and innovative approach.

Business Updates

Organizational Changes

Decibel has identified an opportunity to be an industry-leader of new, unique and innovative products ("NUI"), shifting product development towards shaping and uncovering consumer preferences. In early 2022, the Company will be formalizing a consumer insights department, to lead this NUI initiative combined with strategic investments currently in progress. The Company's tissue culture project will be critical, as an origination point in the R&D process, by developing new cultivars. These new cultivars, with controlled flavour and experience profiles, will allow the development of an array of products. Through the Company's processing hub that is currently under construction, direct consumer trial and feedback will occur to identify successful flower and derivative products, through a Health Canada R&D license.

Resulting from this opportunity, the Company has made the following organizational changes in addition to the formation of a consumer insights group:

• Forming the executive positions of (i) Chief Product Development & Marketing Officer (Warren Matzelle appointed); and (ii) Chief Revenue Officer (Adam Coates title change); and
• Dissolving the executive positions of Chief Commercial Officer and Chief Compliance Officer, combining those responsibilities into existing leadership.

NUI Initiative: Infused Pre-Rolls

In November, the Company launched its first line of infused pre-rolls under General Admission in a kief coated, terpene infused format, which saw early success. Following the initial launch, Decibel has launched two additional product lines, General Admission kief coated distillate infused pre-rolls and Qwest diamond infused pre-rolls. To date, 14 infused products have been launched, with significant demand above management's expectations between late Q4 and the start of Q1. As a result, process improvements have been made to the production line to debottleneck and substantially improve margin moving into the start of 2022.

With the continued focus on establishing an early mover advantage within the infused category, the Company has the following opportunities to cement this position:

• Significant improvements made to production line to expand capacity to meet demand and improve cost structure moving into start of 2022.
• Product listing barriers to entry – select provinces (AB, ON) next product listing windows occur in April, providing three months to grow distribution and consumer adoption:
• 14 products launched in AB, additional 2 to launch in mid Q1;
• 2 products launched in SK, with an additional 14 to launch in mid Q1;
• 3 products launched in ON in January, with an additional 6 to launch in early Q2; and
• 1 product launched in BC, with an additional 5 launched in January.

	1 HiFyre Retail Analytics, Licensed Producer Sales over Time Nationally and in BC, AB, SK, ON, January 1 – December 31, 2021. Major Markets include BC, AB, SK, ON.
	2 HiFyre Retail Analytics, Premium flower market defined as flower products sold more than 20% above average selling price per gram in 7g or under size formats.

About Decibel

Decibel is uncompromising in the process and craftsmanship needed to deliver the highest quality cannabis products and retail experiences. Decibel has three operating production houses 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, is a licensed and operating 80,000 square foot indoor cultivation facility in Battleford, SK. 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, Blendcraft, and General Admission, 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: that the Company has strong 2022 growth drivers in place to generate substantial revenue and EBITDA growth; anticipated cash flow in the first half of 2022; anticipated market share at the end of 2022; anticipated growth in the Canadian recreational cannabis market; the Company's expectations that its quality of products will lead to the creation of brand equity in the future; that the Company will launch a pipeline of new, unique, and innovative products, and operational efficiency gains from a series of investments generating substantial EBITDA; the Company's geographical expansion plans; the Company's expectations that its brands and products will provide superior experiences to its customers; that the Company will be able to meet and shape evolving consumer trends; the Company's expectations that its strategic plan will provide competitive advantages and attractive cannabis growth outlook; that the Company will be able to produce the highest quality of product in each price segment; the Company's plans to broaden distribution and enter new markets, transition from manual to automation driven production lines and establish and refine product differentiation and competitive advantages; the Company's expectations that its market share will grow; the Company's expectations that it will have a strong 2022; the Company's expectations that in 2022 it will generate a milestone of cash flow, repay its outstanding convertible debentures, establish a low cost $7.5 million accordion debt facility, drive high double digit revenue growth and improve its product gross margin by more than 500 basis points; that the Company will launch additional General Admission and Qwest infused products and the anticipated timing thereof; the Company's expectations that it will optimize yields and supply of Qwest flower and pre-rolls over the course of 2022; that the Company will enhance distribution through investments in Decibel's sales team; the anticipated timing and benefits of the Company's capital investments; the Company's plans to form a consumer insights department; that the Company will develop an array of new products; the Company's anticipated product launches; and the Company's business plans and strategies, including the Company's ability to grow Qwest, Qwest Reserve and Blendcraft brands into new and innovative product formats, variations and its other business plans and expectations. 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 and maintain licences to retail cannabis products; review of the Company's production facilities by Health Canada and 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.

With respect to the forward-looking statements and FOFI (as defined below) contained in this news release, management has made assumptions regarding, among other things: its ability to execute on its business plan in a timely manner and the results thereof; capital requirements, the ability to obtain and maintain licences to retail cannabis products; review of the Company's production facilities by Health Canada and maintenance of licences (including any amendments thereto) from Health Canada in respect thereof; ability to access sufficient capital from internal and external sources, and/or ability 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.

This news release also contains future-oriented financial information and financial outlook information (collectively, "FOFI") about the Company's prospective results of operations including, without limitation, that the Company has strong 2022 growth drivers in place to generate substantial revenue and EBITDA growth; anticipated cash flow in the first half of 2022; anticipated market share at the end of 2022; and the Company's expectations that in 2022 it will generate a milestone of cash flow, drive high double digit revenue growth and improve its product gross margin by more than 500 basis points. 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, the FOFI and are subject to the risks set forth above. 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, except as required by law, the Company assumes no obligation to update the forward-looking statements, FOFI or beliefs, opinions, projections, or other factors, should they change.

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SOURCE Decibel Cannabis Company Inc.

FAQ

What is Decibel Cannabis Company's financial outlook for 2022?

Decibel expects substantial revenue and EBITDA growth, along with positive cash flow from operations by mid-2022.

What market share growth is Decibel targeting for 2022?

Decibel is targeting over 40% market share growth compared to 2021.

What is the expected product gross margin for Decibel in 2022?

Decibel aims for a product gross margin of 40-45% by mid-2022.

How is Decibel improving its financial position in 2022?

Decibel plans to achieve a blended cost of debt under 5% and has established a low-cost $7.5 million accordion debt facility.

What growth opportunities does Decibel see in Ontario?

Decibel has tripled its market share and revenues in Ontario and is focused on maintaining and expanding this trend.