RYTHM reports US$23.9M revenue and withholds fourth-quarter outlook
Cash reached US$48.2 million as licensing supported operations, while approaching hemp restrictions threaten current products.
Adrian Kessler
Revenue rose 4 per cent from the preceding quarter as RYTHM, Inc. NASDAQRYM reported US$23.9 million in third-quarter sales on Wednesday. The THC brand owner recorded a US$0.5 million net loss and withheld its fourth-quarter outlook because of approaching hemp restrictions.
Cash reached US$48.2 million at Sept. 30, supported by US$6.3 million in quarterly operating cash flow. Hemp-derived product revenue increased 15 per cent sequentially, exposing a growing business to rules the company says would prohibit its current products in their existing form.
RYTHM is a small-cap, Illinois-based THC brand owner whose beverages and edibles reach U.S. consumers through retail and online channels. Its business combines hemp-derived product sales with licensing arrangements.
Shares closed at US$16.50 on Nasdaq on Nov. 3 at 4 p.m. EST, according to Google Finance's NASDAQRYM. That close preceded Wednesday's earnings announcement.
Operating income from continuing operations was US$1.0 million for the quarter ended Sept. 30. Adjusted EBITDA, a non-GAAP measure, declined to US$5.9 million from US$6.4 million in the preceding quarter, despite the sales increase.
Hemp-derived product revenue reached US$6.4 million in the September quarter. Beverage distributor shipments to retailers increased approximately 15 per cent sequentially and 185 per cent from a year earlier, while availability reached roughly 8,000 retail locations across 18 states.
The company measures those shipments in cases equivalent to 24 cans. Its approximately 320,000-case annualized rate multiplies the quarter's shipments by four and is not a forecast of future results.
"We also generated $6.3 million in cash from operations, driven by our licensing business, and ended the quarter with a strong cash position of $48.2 million," RYTHM chairman and interim chief executive officer Ben Kovler said in the Nov. 4 release.
Green Thumb Licensing Supports Cash Generation
The closest listed counterpart is Green Thumb Industries Inc. CNSXGTII OTCMKTSGTBIF, which will report its own quarterly results after Wednesday's market close. Its results call is scheduled for 5 p.m. EST.
RYTHM's Nov. 4 update says an amended licensing arrangement with a Green Thumb subsidiary added Señorita to the fixed-fee structure. That increased the aggregate annual fee by US$250,000 to US$70.25 million, subject to contractual annual escalations.
The arrangement preserves RYTHM's exclusive rights to commercialize Señorita outside state-regulated dispensary channels, where legally permitted and consistent with Nasdaq listing standards. RYTHM also says amendments effective Oct. 10 removed a beneficial ownership limitation from certain securities and its shared services agreement.
Potential dilution remains substantial: at Sept. 30, RYTHM had approximately 2.2 million shares outstanding and 11.2 million warrants. Convertible notes could produce another 3.0 million shares, excluding shares attributable to accrued interest.
Hemp Restrictions Limit The Sales Outlook
A Congressional Research Service analysis updated Sept. 28 says Public Law 119-103 delayed portions of the new federal hemp definition until Dec. 11. RYTHM says the changes would prohibit sales of its current hemp-derived THC products in their existing form unless further legislative or regulatory action intervenes.
That exposure differs from the medical dispensary framework described in the Justice Department's Oct. 30 announcement, updated Nov. 3. Those registrations cover qualifying medical marijuana activities and do not authorize recreational marijuana sales.
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Read more: Trulieve receives DEA registrations for medical marijuana dispensaries
The nearer deadline is Nov. 12, when RYTHM says certain state restrictions, including in Illinois, would restrict sales. The broader federal changes follow on Dec. 11, setting the next test of whether its current hemp products can remain on sale.
