SLANG Worldwide Inc.

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00:39 Thank you, operator and good morning, everyone. Our speakers on today call will be Mr.

Drew McManigle, Interim CEO and Chairman of SLANG and Mr. Mike Rutherford, Chief Financial Officer.

00:51 Before we begin, please let me remind you that during this conference call, SLANG’s management may make forward looking statements made within in the meaning of applicable security laws. Forward looking statements may include but are not necessarily limited to financial projections or other statements of the company's plans, objectives, expectations or intentions.

These forward-looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from those expressed or implied in such statements. Factors that could cause actual results to differ materially include but are not limited to the risk factors contained in the company's filings with SEDAR.

Please also note any forward-looking statements made here are as of today, and except to the extent required by law, the company assumes no obligation to update statements as circumstances change. 01:40 Now, I'd like to turn the call over to Mr.

Drew McManigle, Interim CEO and Chairman. Drew, please go ahead.

01:47 Thank you, Phil. Good morning, everyone, and thank you for joining us on our third quarter twenty twenty one financial results call for the period ended September thirty twenty twenty one.

Before our more detailed discussion of the current status of SLANG’s operational and financial performance during the third quarter, I'd like to provide a brief introduction. My background is deeply rooted in restructuring practices and largely comprises all facts of business reorganization.

A critical part of my involvement in assisting in the rightsizing of businesses, which spans a diverse set of industries has included stepping into executive leadership roles on an interim basis and providing structural financial counsel to reposition businesses for longevity and overall staying power. Based upon the options available for the ongoing execution of SLANG’s operations, the Board has decided new experienced proven leadership as the most effective approach.

02:45 We have recently announced the completion of the successful financing transaction with our respected strategic partner truly and our noteworthy shareholders Pura Vida and Seventh Avenue. This financial agreement provides over seventeen million dollars initially with an option to upsize during the three year term by converting a portion of the loan amount of core interest into SLANG’s common shares and signifies a firm vote of confidence from each of these esteemed partners in the viability of the company's established brand power and foundational strength.

Additionally, this significant investment in support enables this newly appointed restorative leadership team to commence the strategic transformation of SLANG. 03:30 The board opted for a proactive approach towards our company's current challenges.

The appointment of an expert transformational leadership team in conjunction with the significant financing aspect from solid and supportive partners, provide SLANG with the firm platform and the ability to make rapid progress in the repositioning of the company. In the very short-time, since I have been appointed to lead this transformation process, our team's immediate action step has been to assess the elements of the company's current operations that are providing attractive ROI versus the elements that are pressuring the financial performance and therefore, the ability to reach us full potential to profitable revenue.

My leadership style consists of making meaningful, the timely decisions and is a proven method to reach the ultimate vision of creating a streamlined version of SLANG that generates profitability and creates value for our large shareholder base. 04:26 To provide [Indiscernible] direction on the transformation process of SLANG, we start with assessing the current benefits to the company offers including a solid foundational base, our leading product mix and established marketing.

We will continue to strategically position the company in core and emerging market opportunities that present the greatest demand, sales growth momentum and efficiency. As indicated in our recent press release, the financing participants including our strategic partner Trulieve and significant shareholders Pura Vida and Seventh Avenue, whole confidence SLANG’s overall business strategy, as well as our recent Vermont acquisition.

Management views Vermont not simply as a strategic core market, but also as a catalyst for considerable growth opportunities under the direction of the transform leadership team's, fundamental, expertise in guiding and creating operations that materialize in profitability. 05:24 This confidence is further reinforced with a condition in the agreement noting fifty percent of the financing proceeds are to be allocated to complete the development and integration of the Vermont operations to the greater SLANG platform thus ensuring the revamped operational capabilities result in future growth and further building out the state's operations, we will be certain to employ our proven, pragmatic and nimble approach to capture significant efficiencies across the financial and operational lifecycle including infrastructure and human capital as well as refining the product mix that is best suited to the state's most popular consumer preferences.

In addition to Vermont, and a key factor in the transformation strategy, Colorado will remain a core market going forward. As we will continue to consolidate in streamline operations that are already underway and worked toward refining the market leading brands available in the state to generate attractive revenue.

06:24 Next steps in this streamlining process in Colorado include further consolidation across manufacturing and distribution segments and selling several licenses in the state as well as our cultivation facility. The goal of the new management team and my direction is to operate the company in a nimble and efficient manner.

06:43 The consolidated Colorado operations will create numerous operating efficiencies and enable increased revenue recognition in the future. To that end, we've evaluated the viable entities under SLANG’s current core market strategy, and we decided to reduce organ operations and reposition the state as an emerging market.

In the near term, we will wind down manufacturing operations of our THC products in the state, but we will continue to offer our Cbd gummy brands as we search for a partner to license our products in this market. 07:15 Touching on the transformation of our overall emerging market strategy, we are reviewing the current footprint of our emerging markets, and we will only remain the ones that provide meaningful and profitable lines of revenue while exiting the markets that are unprofitable.

In order to generate future significant revenue growth, we will assess the performance data of the leading brands and products offered in these regions and only retain the offerings that are most sensible in terms of total value return based on the output costs and clear contributions to SLANG’s revenue growth. Importantly, we will also consider opportunities for potential growth in alternative geographies with high consumer demand reduce costs and likely to generate a positive return.

08:00 A critical factor in our transformative approach is our notable strategic partnerships with Trulieve, which provides SLANG significant growth opportunities on a go forward basis in several markets. In addition to SLANG’s products and brands available in all truly retail locations throughout Florida and expanded footprint announced during the third quarter now comprises truly retail locations in Massachusetts beginning in July with entrance to additional states of Pennsylvania by the end of Q2 twenty twenty two and West Virginia by the end of Q3 twenty twenty two.

08:36 In addition to pivoting our core margins and overall footprint as another pillar of the company's transformation strategy, We will re-evaluate SLANG’s product mix, retaining the solid products in leading brands in order to capitalize with the greatest unit economics. During this re-evaluation process, we will take a thorough analysis of the full revenue lifecycle of the current brand and product portfolio including packaging and product costs, marketing costs and response rates.

As part of the evaluation, we will suggest potentially efficiencies, inclusive of the sales process and distribution method. The resulting data will reveal the necessary steps forward as it relates to product and brand viability and could entail streamlining or rebuilding our product portfolio to achieve profitable revenue dollars and eliminating the less and non-profitable revenue dollars.

09:30 Effectively, you will see this management team curtail investment in products operations and geographies that do not present a compelling return on investment to the company and have up to this point negatively impacted shareholder value. Our third quarter revenue of ten point one million dollars represents an increase of twenty eight percent from the prior year period but resulted in a sequential decline of eleven percent from the second quarter of twenty twenty one.

Our top line year-over-year revenue growth represents continued momentum in consumer demand for a diversified portfolio of leading cannabis brands. The eleven percent sequential revenue decline is largely a function of the overall decline in the Colorado market.

Due to supply chain and challenges resulting in low inventory levels, as well as overall difficult declines in the cannabis sector during the quarter. However, we believe they remain significant value in our Colorado operations, brand portfolio and the overall Colorado cannabis market in general which will remain as previously noted, a core market to our strategy.

10:38 Overall, we want to ensure our shareholder base at the financing support provided by Trulieve, Pura Vida and Seventh Avenue, it still has a tremendous vote of confidence in the viability of various segments of SLANG’s platform based upon the immediate reorganization under new deep experienced and transformative leadership. 10:57 Our structural transformation encompasses a much leaner, more linear version of SLANG and our transformative agenda begins with building a solid infrastructure by refining our strategy in core and emerging markets as well as product mix based on assessments and due diligence to ensure profitability on each line of revenue.

Additionally, we will take greatest strides in the handling of SLANG’s previously communicated cost cutting initiatives. As a function of the assessments by new management, further cost cutting measures and reductions in human capital and service providers will be necessary.

This type ensures the company is aligned with our updated plan and forecasted financial performance, including profitable revenue growth over the long-term. 11:43 Of note, despite taking immediate and rather significant steps to transform the company.

There is a lag effect and we do anticipate disappointing financial performance to continue in the near-term. Based on management's further strategic evaluations throughout twenty twenty two and with the potential for [Indiscernible] events to occur over the course of this turnaround.

The company's financial performance going forward will be difficult to predict. But once our repositioning initiatives stake hold, the results will indicate improvements across key metrics and profitability over the long-term.

12:20 On a final note, we have tremendous appreciation for Trulieve, Pura Vida and Seventh Avenue and their conviction in the established segments across the SLANG platform built by SLANG’s prior leadership, which secured an adaptable framework. Under my direction, experience and proper execution management SLANG will result in a viable and durable organization, focusing on the rapidly growing cannabis CPG market.

With our knowledge and experienced transformational leadership team now with the home and decades we have experienced rightsizing organizations. We see significant future opportunities to execute our growth plan in new states.

Overall, our goal is to capitalize on opportunities in fast growing markets in order to promote consistent revenue growth and profitability, delivering long-term sustainable returns and increasing shareholder value. 13:15 Thank you for your time, and I'll now turn the call over to Mikel Rutherford our CFO to talk to our financial results.

Mike, please go ahead.

13:23 Thanks Drew. As Drew mentioned, our third quarter twenty twenty one has largely involved preparations for the recently announced strategic repositioning of SLANG enabled by the recent financing transaction with our respective partner Trulieve and our Noteworthy shareholders Pura Vida and Seventh Avenue.

During this final quarter of the year, we shipped our focus to repositioning the company as a more nimble streamlined and profitable business by focusing on the full development of Vermont operations, consolidating the structure of our core markets and reviewing the entire operational revenue cycle to rebuild our core emerging markets and product mix to profitability by eliminating less profitable revenue sources. 14:04 During the third quarter of twenty twenty one, we generated revenue of ten point one million compared to seven point nine million dollars in the third quarter of twenty twenty and eleven point three million dollars in Q2 twenty twenty one.

The primary driver of the year-over-year increase in revenue is attributable to the consolidation of wholesale revenue in our core markets of Colorado and Oregon as the company recognizes wholesale revenue from sales directly to dispensaries. 14:29 Additionally, upon the completion of the Vermont acquisition of Hi-Fi, the largest medical cannabis company in the state in August twenty twenty one.

The company realized approximately one point one million dollars in revenue during Q3 twenty twenty one. The sequential decline of one point two million dollars in revenue from the second quarter of twenty twenty one was due to weaker than expected sales in the Colorado market, largely due to a slowdown across the industry attributable to lower levels, as well as declines in the emerging market packaging and hardware sales due to a reduction of orders from our Florida licenses.

15:04 Importantly, we anticipate the Florida market’s packaging and hardware sales to rebound beginning in Q4 twenty twenty one. As previously noted, and as a critical component of our go forward transformation, our focus turns to fully ramping operations in our core market of demand where we expect the strong consumer demand in the state to drive revenue over the long-term.

15:28 During Q3 twenty twenty one, SLANG’s gross merchandise value or GMV, representing the total retail dollar value of SLANG branded products sold through all existing SLANG sales channels. Whether directly by SLANG or by one of SLANG’s strategic partners, totaled thirty nine million dollars.

SLANG’s Q3 product and licensing revenue of ten point one million dollars represents twenty five point eight percent of GMV. 15:53 We calculate GMV by multiplying SLANG’s number of branded products sold in a period, by the MSRP of those products sold.

Furthermore, the total percentage of GMV captured by SLANG is an important metric and it’s in assessing brand performance as a determine SLANG’s proportion of total retail revenue captured. 16:13 As a newly reported metric, the company will continue to focus on GMV going forward and initiatives that will help increase SLANG’s percentage of GMV.

We expect the acquisition of Hi-Fi and a continued focus on e-commerce channels will have a meaningful impact on SLANG’s percentage of GMV in the remainder of twenty twenty one and into twenty twenty two? Hi-Fi's four retail locations in Vermont, and direct-to-consumer sales, we will allow SLANG to recognize one hundred percent of GMV on products sold via those channels.

16:47 Gross profit for the third quarter twenty twenty one was three point five million dollars, or thirty five percent gross margin compared to four million dollars or fifty percent gross margin in Q3 twenty twenty and four point one million dollars or thirty six percent gross margin in the second quarter of twenty twenty one. 17:03 On a year-over-year basis, the zero point five million dollars decrease in gross profit was primarily due to the acquisitions completed in twenty twenty and twenty twenty one in Colorado, Oregon and Vermont.

As previously noted, we will now be able to distribute all SLANG branded products and recognize higher top line wholesale revenue in our core market of Colorado as we now recognize retail revenue in a fully vertically integrated core market per Vermont. On a quarter-over-quarter basis, the zero point six million dollars decrease in gross profit can be attributed to the reduction in sequential revenue of one point two million dollars [Indiscernible] in the fair value of biological assets and an increase in cost of goods sold associated with fair amount on inventory related to the Hi-Fi acquisition.

17:51 Sequential gross margin was mostly flat due to continued impacts from higher cannabis raw material and input costs due to supply chain challenges. The recent closing of the financing transaction will have a pivotal role further our efforts towards accelerating operations and meet the strong demand for cannabis products in Vermont by selling directly to consume through our retail channels.

18:14 I'll turn now to expenses. Total operating expenses for the third quarter of twenty twenty one were nine point six million dollars compared to nine point seven million dollars in Q3 twenty twenty and nine point two million dollars in Q2 twenty twenty one.

As the enter the informative period, we plan to implement more discipline cost cutting initiatives to streamline our operations without losing operational quality and marketing efficacy. In the [Technical Difficulty], we will consolidate our quorum service expenses in overall G&A including HR and audit practices encompassing a leaner structure that will ultimately contribute to our path to profitability.

18:53 EBITDA was a loss of five point nine million dollars in Q3 twenty twenty-one compared with a loss of four point one million dollars in Q3 twenty twenty and a loss of three point two million dollars in Q2 twenty twenty one. The one point seven five million dollars decline in EBITDA from the prior year was primarily due to a one-time expected credit loss taken on receivables from the company's Oregon licensee.

19:17 Without these credit losses, EBITDA for the three months ended September thirtieth twenty twenty one would have increased by zero point one two million dollars over a quarter-over-quarter basis. The company remains committed to prudently managing its operating expenses on its mission to further improved efficiency.

19:34 Turning to adjusted EBITDA, we reported a loss of two million dollars in the third quarter of twenty twenty one. Compared to fifty seven thousand dollars in the third quarter of twenty twenty and a loss of zero point nine five million dollars in the second quarter of twenty twenty one.

And declined adjusted EBITDA was primarily due to lower gross profit from the consolidation of the Colorado supply chain in twenty twenty. In addition, we experienced higher recurring operating expenses during twenty twenty one as a result of the acquisitions completed in Colorado in Oregon in twenty twenty in the acquisition of Hi-Fi in August twenty twenty one.

20:10 Turning to our balance sheet. We had three point five million dollars of cash and cash equivalents at September thirty twenty twenty one compared to nine point seven million dollars at June thirty twenty twenty one and six point five million dollars at December thirty one twenty twenty.

Increasing cash and cash equivalents as of September 30th is primarily due to five million dollars of transaction expenses related to the Hi-Fi acquisitions. We anticipate a higher cash balance at the end of the fourth quarter due to the approximately seventeen million dollars received from the financing agreements with our respected partner Trulieve and our noteworthy shareholders Pura Vida and Seventh Avenue.

20:45 I'd like to turn the call back to Drew for some concluding remarks.

20:50 Thanks, Mike. While this is a long term refined focus and purposeful approach by experienced leadership, for long-term revenue growth and overall success.

This reposition will require patients from our loyal shareholder base to be certain, we are confident that our hard work will provide rewarding returns. We are laser focused on executing the transformation of SLANG accordingly and largely based on cost cutting initiatives and improving operating performance to efficiency to deliver sustainable, profitable revenue growth.

21:24 I would like to thank all of our dedicated shareholders for their support at this time.

[Call Ends Abruptly]