Cultivation Expansion Drives Revenue Increase
Gold Flora Corporation (Gold Flora) is a leading vertically integrated California cannabis company. The company has high-quality assets downstream and across the supply chain. Vertical integration enhances margins and is a necessary ingredient for winning in competitive environments like California. Gold Flora reported 1Q24 results, with revenue of $32.2 million, which increased 13.2% sequentially and exceeded our estimate of $29.2 million. Wholesale revenue jumped 72.4%, while retail revenue rose 6.3%. Higher revenue was driven by expanded cultivation that brings total active canopy to 107,000 square feet. Gross margin declined 15.2% to 31.2%, while adjusted gross margin dropped 11.9% to 54.1%. Margin contraction was caused by a 45.3% increase in COGS due to additional costs to expand cultivation and the company expects to realize efficiencies from the increased canopy over time. As a result of the expanded canopy, inventory grew $1.7 million in the quarter to help support the late 1Q launch of Gramlin. Gold Flora expects margins to improve in 2H24. Adjusted EBITDA (AEBITDA) of -$1.8 million declined $1.9 million Q/Q and missed our estimate of $1.2 million. Reduced gross profit driven by the cultivation expansion drove the lower AEBITDA results. Cost controls remain strong. SG&A expenses declined 7.7% sequentially and are down 25.9% since 3Q23. The change reflects the cultural shifts since new management took over the combined company in July 2023. Late in 1Q, Gold Flora launched Gramlin, a disruptive brand aimed at higher-volume consumers. Gramlin launched first with an assortment of premium flower, with vapes and pre-rolls expected in the coming weeks. Live rosin from Gramlin is expected to be introduced in 3Q24. Gold Flora also expanded its kitchen and is bringing production of Mirayo by Santana and Cruisers gummies in house. After 1Q, the company entered into agreements to lease an additional 53,000 square feet of cultivation space in Desert Hot Springs. This will bring the total cultivation footprint to 160,000 square feet and will add an additional approximately 25,000 pounds of annual flower production. The facility will be delivered ready for operations and the lease begins upon receipt of the necessary state licenses. We revised our estimates upward to reflect a faster revenue build and improving margins.
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