Trichome Financial Corp. (formerly 22 Capital Corp.) (the “Company” or “Trichome Financial“) (TSXV: TFC) today announced its financial results for the three and nine-month periods ended September 30, 2019.

The complete Financial Statements and Management’s Discussion and Analysis for the three- and nine-month periods ended September 30, 2019, along with additional information about the Company and all of its public filings are available at www.sedar.com.

Third quarter highlights

Highlights during the quarter ended September 30, 2019:

• Entered into a $5.5 million senior secured term loan to MYM Nutraceuticals Inc. (CSE:MYM), of which $3 million was funded on closing, and a $2.35 million senior secured term loan to Good Buds Company International Inc.;
• Received full repayment of loans to C.G.S. Foods Inc. (an Ontario cannabis retailer doing business as ‘Ganjika House’) in the amount of $1.25 million and early repayment of the Company’s loan to Blissco Holdings Ltd. in the amount of $1.4 million
• Total par value of investments increased to $8.9 million with a further $2.5 million in commitments, compared to $0.5 million as of December 31, 2018; and
• Appointed Karl Grywacheski as Chief Financial Officer and Dan Cohen as Vice President, General Counsel of Trichome Financial.

Highlights subsequent to the quarter ended September 30, 2019:

• Completed a reverse takeover with 22 Capital Corp. on October 4, 2019, and listed on the TSXV under ticker symbol “TFC” on October 10, 2019;
• Closed a private placement on October 4, 2019, raising gross proceeds of approximately $16.5 million resulting in pro forma cash of $21.1 million and pro forma working capital of $24.4 million;
• Increased the loan agreement to James E. Wagner Cultivation Corporation (“JWC”) (TSXV:JWCA) to $7.5 million from $3.5 million;
• Entered into the Company’s first receivables financing facility with JWC for up to $5.0 million; and
• Received conditional approval to list its common shares on the Canadian Securities Exchange, with successful listing to allow the Company to expand its addressable market for credit solutions to include the cannabis sector in the United States.

“The operational and funding challenges the cannabis sector has experienced in the last six months have been a significant tailwind to Trichome Financial. Our deal pipeline continues to increase, and the quality of actionable opportunities has high-graded materially. Consequently, we believe the risk-return profile of our investment opportunities remains very attractive,” said Michael Ruscetta, Chief Executive Officer. “The need for credit in the cannabis sector is expected to continue increasing at a rapid pace and Trichome Financial remains in an excellent position to capitalize on these opportunities.”

Outlook

The current environment in the cannabis sector is highly favourable for Trichome Financial. Our business model is unique in that it benefits from both the structural, long-term growth of the global cannabis industry as well periods of market volatility when investor confidence wanes. Since the middle of 2019, a series of events have contributed to creating a negative feedback loop for investor confidence in the cannabis sector. A detailed discussion of these events, as well as key learnings by management of Trichome Financial over the last 18 months was published by the Company in a press release on October 7, 2019. Since then, operational and financial performance in the cannabis sector have only deteriorated. This has led to a highly favourable environment for Trichome Financial characterized by an increase in the number of companies in need of Trichome’s solutions, an increase in overall borrower quality as a result of being able to select from an even larger pool of opportunities and improving risk-adjusted return profiles through increasing contractual returns, higher warrant and equity coverage and more favourable structural enhancements.

Trichome has raised gross proceeds of approximately $31.8 million and is in the process of constructing a portfolio of diligently underwritten and structured income generating credit investments. To date, Trichome has closed seven credit transactions to six unique counterparties, with three of those loans having been fully repaid. As at September 30, 2019 the par value of loans outstanding was $8.9 million, with a further $2.5 million committed. Subsequent to quarter end, the par value of loans outstanding increased to $11.7 million with a further $3.7 million committed. The weighted average effective interest rate of the portfolio is approximately 14%, excluding warrants and equity consideration, and the annualized interest revenue from the portfolio is approximately $1.8 million. Interest revenue is expected to grow commensurately with further deployment of the Company’s cash into income-generating credit investments. This amount could be partially offset by any prepayments or early terminations. Total cash-based operating expenses are estimated to be approximately $1.9 million on an annualized basis, excluding one-time listing and fund set-up costs, which could increase by approximately $0.6 million if annual bonus payments are merited. Management expects modest increases in the expense base to continue the buildout of Trichome’s infrastructure. No capital expenditures are planned. Management believes that the proceeds from the disposition of warrants and shares, fee income from the launch of Trichome Financial Cannabis Private Credit Fund (“Trichome Private Credit”), the accretive effect of adding portfolio leverage, and the potential to launch complimentary business lines has the potential to materially increase overall profitability.

Financial results for the three months ended September 30, 2019

For the quarter ended September 30, 2019, interest revenue increased to $412,304 from $9,437 compared to the quarter ended September 30, 2018. This is the result of the par value of total investments increasing over the course of the year to $8.9 million at quarter end, from $0.5 million as of December 31, 2018.

Trichome Financial realized an adjusted loss of $343,276 as compared to $514,847 in the prior year. Offsetting the increase in interest revenue were increases to operating expenses related to hiring new employees, leasing office space, insurance and expenses incurred to perform due diligence on new loans, such as legal, professional, and travel costs. Adjusted loss is calculated by excluding certain non-cash and non-recurring items from net loss as calculated under IFRS.

Cash and restricted cash totaled $15.9 million as of September 30, 2019, compared to $13.8 million on December 31, 2018. Subsequent to its private placement on October 4, 2019, the Company had pro forma cash of $21.1 million and pro forma working capital of $24.4 million.