Press release·03/03/2025 19:55:26

Business Overview

We are a craft distiller producing, marketing and selling a diverse line of award-winning craft spirits, including whiskeys, vodkas, gins, rums, and “ready-to-drink” canned cocktails. We recognize that taste and innovation are key criteria for consumer choices in spirits and innovate new products for trial in our company-owned distilleries and tasting rooms. We believe we have developed differentiated products that are responsive to consumer desires for rewarding and novel taste experiences.

We compete in the craft spirits segment, which is the most rapidly-growing segment of the overall $288 billion spirits market. According to the Craft Spirits Global Market Report 2023 of Grand View Research, the craft spirits segment had revenues of more than $21.4 billion in 2023 and is estimated to grow at a compound annual growth rate (“CAGR”) of 29.4% between 2024 and 2030. We believe we are well positioned to grow more than the growth rate of the market by increasing our marketing efforts, increasing the size of our sales teams and broadening our wholesale distribution.

Out of the more than 2,600 craft producers in North America, we have been recognized with more awards for our products than any other North American craft distiller for each of the last ten years. We are one of the largest craft spirits producers on the West Coast based on revenues and are developing a national reach in the U.S. through traditional sales channels (wholesale, on-premises and e-commerce) and our unique Tribal Beverage Network (“TBN”) sales channel.

Our growth strategy is based on three primary areas: 1) growing our direct-to-consumer (“DtC”) sales via shipping to legal purchasers, 2) growing our wholesale volume with distributors through key national accounts, and 3) expanding our collaboration with Native American tribes through the TBN model.

Key Factors Affecting Our Operating Results

Pricing, Product Cost and Margins

To date, most of our revenue has been generated by retail sales of our spirits in our retail tasting rooms and through our eCommerce platform. Going forward, we expect to sell our products in a variety of vertical industry markets in partnership with our distributors across states and geographic regions. Pricing may vary by region due to market-specific dynamics and various layers of taxes. We have experienced inflation in some of our raw inputs, particularly in grains, bottles, cans and barrels. We have been able to manage some of these cost increases, but they have put pressure on our margins. We have also seen a change in consumer buying habits, with consumers looking for “experiences” rather than buying “things.”

Continued Investment and Innovation

Our performance is dependent on our ability to continue to develop products that resonate with consumers. It is essential that we continually identify and respond to rapidly-evolving consumer trends, develop and introduce innovative new products, enhance our existing products, and generate consumer demand for our products.

Key Components of Results of Operations

Net Sales Our net sales consist primarily of the sale of spirits and services domestically in the United States. Customers consist primarily of wholesale distributors and direct consumers.

Cost of Sales Our cost of sales consists of product costs, including manufacturing costs, duties and other applicable importing costs, shipping and handling costs, packaging, warranty replacement costs, fulfillment costs, warehousing costs, and certain allocated costs related to management, facilities and personnel-expenses associated with supply chain logistics.

Gross Profit and Gross Margin Our gross profit is the difference between our revenues and cost of sales. Gross margin percentage is obtained by dividing gross profit by our revenue. Our gross profit and gross margin are influenced by market conditions, our cost structure, capacity utilization, ability to maintain costs, and seasonal sales offerings.

Sales and Marketing Sales and marketing expenses consist primarily of employee-related costs, tasting room costs, and marketing and advertising expenses. We expect these costs to increase as we expand our headcount, open new locations, and initiate new marketing campaigns.

General and Administrative General and administrative expenses consist primarily of personnel-related expenses, professional fees, and overhead costs. We expect these expenses to increase as we operate as a public company and enhance our infrastructure to support growth.

Interest Expense Interest expenses include cash interest accrued on our secured debt, cash interest and non-cash interest paid or accrued on our notes payable, interest on leased equipment or assets, and costs and interest on credit cards.

Change in Fair Value of Convertible Notes and Warrant Liabilities We elected the fair value option for the convertible notes and warrants issued in 2022 and 2023. Changes in the fair value of these instruments are recognized in our consolidated statements of operations.

Changes in Fair Value of Investment in Flavored Bourbon, LLC We own a 12.2% interest in Flavored Bourbon, LLC as of September 30, 2024. We recorded a $3.4 million gain on the increase in fair value of this investment during the nine months ended June 30, 2024.

Changes in Fair Value of Convertible Notes The convertible notes issued in 2022 and 2023 were exchanged for common stock and prepaid warrants upon the closing of our IPO. The changes in fair value of these notes prior to the IPO were recognized in our consolidated statements of operations.

Changes in Fair Value of Warrant Liabilities Certain warrants issued in connection with the convertible notes were classified as liabilities on our balance sheet. Changes in the fair value of these warrant liabilities were recognized in our consolidated statements of operations until the warrants were amended to fix the exercise price.

Income Taxes Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, and changes in tax law.

Comparison of the Results of Operations for the Three Months Ended September 30, 2024 and 2023

Net Sales Net sales decreased by $327,000, or 15.7%, primarily due to a $512,000 decrease in services sales, partially offset by a $186,000 increase in product sales. The increase in product sales was driven by the launch of the Salute Series line.

Cost of Sales Cost of sales decreased by $241,000, or 17.5%, primarily due to a $208,000 decrease in services cost of sales.

Gross Profit Gross profit decreased by $86,000, or 12%, and gross margin increased from 34.3% to 35.8%. The increase in gross margin was driven by the higher-margin Salute Series product sales.

Sales and Marketing Expenses Sales and marketing expenses decreased by $199,000, or 13.5%, primarily due to decreases in sponsorships, print advertising, and personnel costs.

General and Administrative Expenses General and administrative expenses increased by $136,000, or 10.4%, primarily due to increases in professional fees, personnel costs, and other expenses.

Interest Expense Interest expense decreased by $25,000, or 3.6%, primarily due to decreases in accrued interest on the PPP loan.

Comparison of the Results of Operations for the Nine Months Ended September 30, 2024 and 2023

Net Sales Net sales decreased by $215,000, or 3.9%, primarily due to a $894,000 decrease in services sales, partially offset by a $678,000 increase in product sales.

Cost of Sales Cost of sales decreased by $611,000, or 14.8%, primarily due to a $580,000 decrease in services cost of sales.

Gross Profit Gross profit increased by $396,000, or 28%, and gross margin increased from 25.2% to 33.6%. The increase in gross margin was driven by the higher-margin Salute Series product sales and the termination of low-margin third-party production contracts.

Sales and Marketing Expenses Sales and marketing expenses decreased by $804,000, or 17.6%, primarily due to decreases in personnel costs, sponsorships, and print advertising.

General and Administrative Expenses General and administrative expenses decreased by $1,372,000, or 22.9%, primarily due to decreases in professional fees, recruiting and retention costs, and other expenses.

Interest Expense Interest expense increased by $5,000, or 0.3%, primarily due to increases in loan fees and accrued interest on the PPP loan.

Liquidity and Capital Resources

As of September 30, 2024, we had outstanding aged payables to vendors of $5.6 million, including $834,000 related to IPO preparation. We have reached agreements with most vendors to pay these payables upon the closing of our IPO.

We have violated various debt covenants in the past, but have reached an agreement with our lender, Silverview Credit Partners, to modify the loan terms upon the closing of our IPO. The modified loan extends the maturity date, reduces the amortization schedule, increases the interest rate, and simplifies the financial covenants.

We believe the net proceeds from our IPO, together with our cash generated from sales and services, will enable us to fund our operations into at least the third quarter of 2025. However, we may need to seek additional financing in the future to meet our working capital requirements and make capital expenditures.

Non-GAAP Financial Measures

To supplement our GAAP financial information, we use the non-GAAP measures of Adjusted Gross Profit, Adjusted Gross Margin, EBITDA, and Adjusted EBITDA. These measures help identify underlying trends in our business and provide additional insight for investors.

In summary, our financial performance in the three and nine months ended September 30, 2024 was mixed, with decreases in net sales but improvements in gross margin and reductions in operating expenses. The completion of our IPO and the modifications to our debt agreements are expected to provide additional liquidity and flexibility as we continue to invest in growing our business.