Chill Brands’ shares have fallen as much as 30% since Friday after it announced that it would be scrapping its ambitious retail ‘rollout timeline’.
The international CBD retailer released its interim results for the six months to September 30th last week, reporting both rising revenues and operating losses.
Revenues during the period came in at £1.07m, a dramatic increase from the £54,554 it reported in the same period a year earlier, and up over 230% on its last full fiscal year.
However, the company also saw its operating losses skyrocket 150% from £983,464 to nearly £2.5m during the period, citing a number of factors including the ‘pandemic, logistical issues, and challenging market conditions which negatively affected inventory and distribution’.
Market Reaction
According to its latest financial figures, Chill’s cash and cash equivalents at the end of the period stood at just over £2m, leading some investors to question how sustainable its current burn rate will be.
This saw Chill’s stock drop from 13.5p on Friday morning to lows of just over 11p, falling even further on Monday morning to lows of 9.5p, marking its lowest price since July 2020.
“As we look back on the first half of this financial year, we are also firmly focused on the future and making changes that will propel the Company on to greater success,” Co-Chief Executives Trevor Taylor and Antonio Russo told investors.
“This is the moment at which Chill Brands matures into a focused and fully operational CPG company with aspirations to join the ranks of the world’s largest brands.
“In the coming weeks we will continue to build our model alongside an investment case that reaffirms the decisions of existing long-term holders and attracts new ones. We would like to take this opportunity to thank our shareholders for their ongoing support and restate our belief that Chill Brands has a bright and prosperous future ahead.”
Retail Store Rollout ‘Not in the Best Interests of Company’
The announcement also revealed a significant change in direction for the company, seeing it scrap its current commitments to roll out products to tens of thousands of stores within the timeline it laid out last February.
In 2020 Chill Brands, then called Zoetic, announced that it had signed its largest ever distribution deal with The Asian American Trade Association (AATAC), which would see its CBD tobacco substitute featured in some 88,000 stores across the US.
In the weeks following news of the distribution deal, the company’s share price shot up around 60% seeing its market capitalisation top £100m for the first time, and its progress has been watched closely by investors ever since.
Last September it warned that the roll out had been ‘influenced’ by ongoing supply chain delays and that it would stop providing quarterly financial updates due to the complex ‘nature of the group’s relationship with its distribution partners’.
Now the company’s newly appointed sales and marketing director Michael Sandore has chosen to try and shift the company’s reliance on this distribution deal, and focus on expanding Chill’s sales through other channels.
According to the company, Sandore’s strategy will enable it to overcome the numerous issues which have ‘made it increasingly difficult to distribute to our physical retail partners at scale’.
“With the benefit of new intelligence and guidance, it has become clear that it is not in the best interests of the Company or its shareholders to pursue the rollout timeline announced in February 2021.”
However, it added that this did not mean it was ‘stepping away from physical retail’ and that ‘all previously announced distribution agreements remain in place’.
Shift to Ecommerce
As part of Mr Sandore’s ‘realignment’ strategy, Chill Brands aims to focus on ‘winning online’ where it says ‘order volumes have increased steadily since July 2021’, with the average online customer now spending more than $40 per transaction.
It also believes that its online operations will not succumb to the same logistics issues which have plagued its physical retail operations.
Hedging its bets on the success of its newly acquired domain name ‘Chill.com’, which it bought last July for £1.2m, Chill says all online sales will ‘sit within an ecosystem and supply chain that we control’.
“So long as the internet is up and postal services are running, Chill.com will be online and selling regardless of external factors affecting the retail market.”
More Heavyweight Hires
A day before releasing its interim results, Chill announced the appointment of Scott E. Thompson to its Board of Directors as an Independent Non-Executive Director.
Mr Thompson is one of the leading names in intellectual property law, and has served as General Council to brands including GlaxoSmithKline, Mars and Phillip Morris.
In what has been seen by many investors as a response to calls for greater transparency and corporate governance at Chill, Mr Thompson will be tasked with guiding the company as it ‘becomes a global consumer packaged goods brand’.
“His appointment to the Board shows that we are serious about our commitment to corporate governance. When building a world class brand, you must have best in class experience, talent and leadership. We have all three in Scott E. Thompson.”
His appointment comes just weeks after Chill brought in former Anheuser-Busch InBev and Juul Labs senior sales manager as its new Chief Commercial Officer (CCO) in early January.
