DBCCF - Decibel Warns Of Going Concern After Reporting Rising Revenues
Decibel Cannabis Company Inc. (TSXV: DB) (OTCQB: DBCCF) announced its year-end audited financial results for the fourth quarter and year ending December 31, 2021 . Decibel reported fourth-quarter net revenue increased 5% sequentially to $14 million. It was a 23% increase over the same time period in 2020. The company attributed the increase to the launch of Decibel’s new infused pre-roll lines and continued growth in demand for flower, vape, and concentrate products. However, this was partially impacted by price compression in the flower segment and slower retail sales from increased competition. Plus, the cash flow from operations in the quarter was a negative $5.1 million.
The company also reported that for its six stores, retail revenues fell from $3.6 million in the fourth quarter of 2020 to $2.5 million for the 2021 fourth quarter. Wholesale revenues increased to $5.5 million from last year’s $3.8 million.
Full Year Results
Decibel said its net revenue for 2021 increased 75% to $52 million. The company did report a net income for the year of $1.7 million.
“Decibel continues to execute on its strategy to accelerate revenue growth and deliver new, unique and innovative choices to cannabis consumers. The success achieved through 2021 with record market share demonstrates the strength we’ve created in our brands, and our dedication towards our customers”, said Paul Wilson , CEO of Decibel. “Our momentum has accelerated into 2022, and we are gaining great traction across our products and brands, particularly with our recent infused product launches over late Q4 and first quarter of 2022.”
Going Concern
While Decibel did note that it earned a net income of $1.7 million, the company also said that it utilized funds of $17.1 million in its operations and has net current assets of $9.5 million. In the company’s filing it stated, “In order to continue as a going concern, the Company must generate sufficient income and cash flows to repay its obligations, finance operations and fund capital investments. The future of the Company is dependent on its ability to attain profitable operations and maintain compliance with covenants relating to its lending agreements, generate sufficient funds from operations, continue receiving financial support from its lenders and obtain new financing. There is no certainty that the Company will raise these necessary funds from operations or financings. As a result of these factors, there is material uncertainty that may result in significant doubt as to the ability of the Company to meets its obligations as they come due and continue as a going concern.”
Decibel went on to say that it expects to be able to comply with its covenants over the next year and actually amended its credit facility. “A decrease or sustained period of materially reduced demand for Decibel’s principal products may result in non-compliance with the financial covenants and reduced liquidity related to changes in the credit facility. Non-compliance with the financial covenants in the credit facility could result in the debt becoming due and payable on demand. Should the Company anticipate non-compliance, Decibel will proactively approach its lender to amend the credit facilities to ensure their availability. There is no certainty that the Company will be successful in negotiating such amendments.”
The company said it had $1.9 million in cash at the end of the period.
First Quarter Outlook
Decibel said that for the first quarter of 2022, it expects net revenue to be between $16.5 and $17.5 million versus $12.6 million in the 2021 first quarter. The company said it plans on exiting the quarter with a record 4.0% recreational national market share.