Lower revenues and impairment charges this quarter have cut into the bottom line for Canadian pot retailer Choom Holdings Inc. (CSE: CHOO) (OTCQB: CHOOF), with the firm saying the ongoing pandemic made its situation more difficult.
The Vancouver, British Columbia-based company released its earnings report for the second quarter ended Dec. 31, with revenue dropping 12 per cent to $4.2 million from $4.8 million in the first quarter.
An impairment charge on “certain operating retail locations” combined with the lower revenues resulted in a loss of $5.9 million this quarter. This follows a net income of $5.1 million last quarter, which was largely the result of a debt restructuring transaction.
Choom calls its second quarter “challenging” in part due to the Omicron variant of Covid-19, which impacted customer traffic and store staffing.
“The macro market beyond the pandemic remains extremely competitive for two primary reasons,” reads a company statement.
“First, the opening of new cannabis retail stores continues to outpace market growth, in particular in Ontario where there are nearly 1,400 cannabis retail licenses in circulation, relative to 65 in 2020. Secondly, loss-leading priced retailers continue their focus of buying market share, this was most prevalent in the Alberta market.”
Gross profit fell 12 per cent to $1.6 million, from $1.8 million in the first quarter, and gross margin was 37.5 per cent versus 37.2 per cent.
While the drop in profits is due to the decrease in revenue, Choom points to its efforts to curate product offerings to maximize margins.
“In the previous periods, Choom had incurred operating losses as it continued to grow its operations and execute its long-term business strategy to build one of Canada’s premier retail cannabis chains,” the company says.
The firm offers several reasons why results have varied, such as restructuring costs when shifting focus to retail, a number of strategic acquisitions and increased financing costs as it entered into more lease agreements to secure prime locations.
Choom notes its Vancouver locations continue to outperform, with sales growing by 140 per cent since last year.
The firm says the city is a key organic growth market for the next year because regulatory distancing between stores is “far more favourable relative to other locations.” In Vancouver, cannabis stores must be 300 metres apart and in a commercial zone.
This quarter, its Hamilton location opened in a high traffic area and the company expects to see sustained growth there in the months ahead.
By the end of the period, Choom had 17 stores in operation, mostly in Alberta.
On the digital side, the firm says development of Choom.ca is ongoing and to expect updates on its website media placement and a relaunch of its Greencamp.com site in the coming quarter.
Cash on hand totalled $684,628 at the end of the quarter.