BZAM Ltd. has implemented the final phase of its plan to unlock company-wide synergies following the merger of BZAM Holdings Inc. and The Green Organic Dutchman Holdings Ltd. The plan has focused on (i) eliminating redundant facilities, (ii) realigning the Company's production activities across remaining sites to maximize efficiencies, and (iii) reducing selling, general, and administrative (SG&A) expenses to achieve its goal of positive EBITDA. In particular, the implementation of this last phase results in focusing the scope of activities at its Pitt Meadows, BC facility and concentrating other activities at its Ancaster, ON facility, which together allow the Company to reduce headcount by more than 90 additional personnel.
Matt Milich, CEO of the Company, stated, "It is no secret that the Canadian cannabis industry needs to work through a period of consolidation. While not an easy road, we are proud to be one of the companies leading the charge – and demonstrating what is possible when two consumer favorites combine, focusing on sales and our customers while shedding costs and streamlining operations. The changes we have implemented following the Merger position the Company to thrive in both the Canadian and international markets going forward."
Since the Merger, the Company has embarked on a concerted, disciplined approach to realizing combined synergies. As part of the plan, it has dramatically reduced headcount and monetized four redundant facilities, realizing annual combined savings across SG&A and fixed Cost of Goods Sold (COGS) expenses of approximately $28M without impacting future sales:
- Reduced overall headcount of the combined entities from approximately 670 pre-merger to 395 in Q3 2023
- Completed disposal of Puslinch, ON facility on June 30, 2023
- Completed sale of the Midway, BC facility on August 4, 2023
- Contracted to sell the Maple Ridge, BC facility for $3.8M, with closing expected to occur by the end of September 2023
- Listed the Edmonton, AB facility for sale at $10.8M, with a view to concluding a transaction by Q1 2024
With the pending sale of the Edmonton, AB facility, the Company expects to be able to reduce the term portion of its debt by up to $9M, leading to a reduction in interest expense of at least $0.5M per year.
In addition, by eliminating these facilities, the Company is expected to achieve a substantial reduction in fixed operating overhead expense, which is part of COGS – which is expected to lead to a significant corresponding improvement in margins.
Post-merger achievements & outlook
Following the Merger, the persistent focus on improving margins and reducing SG&A costs continues to progress the Company's twin objectives of positive EBITDA and free cash flow. This focus has manifested itself via several complementary initiatives:
- Margin expansion: The Company expects the closure and sale of its redundant facilities will materially improve COGS company-wide by materially reducing indirect fixed costs and overhead. The Company does not expect to incur significant expenses for unabsorbed overheads by 2024.
- Headcount optimization: The Company has reduced SG&A expense across the combined organization nearly to the level it was for each entity on a standalone basis prior to the Merger – about $7M per quarter on a combined basis heading into Q4 vs. approximately $6M per quarter for each on their own (or $12M combined). Moreover, the Company has been able to trim over 200 in operating headcount by eliminating redundant facilities and streamlining operations across the remaining facilities without impacting the Company's ability to meet sales demand.
- Continued organic revenue growth: The Company expects to launch 11 new SKUs in Q4 2023 and over 20 new SKUs in Q1 2024. At the same time, the Company continues to focus on selling higher-margin products and improving margins on existing products.
- EU GMP certification & commencement of exports: Having received its EU-GMP certification in May 2023, the Company has successfully completed its first shipment to Australia and expects to commence shipments to Germany in the coming weeks, with the UK to follow later in Q4.
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