Mr. Matt Milich reports

BZAM LTD. COMPLETES FINAL PHASE OF POST-MERGER SYNERGY PLAN; PROVIDES POSITIVE OUTLOOK

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 (earnings before interest, taxes, depreciation and amortization). In particular, the implementation of this last phase results in focusing the scope of activities at its Pitt Meadows, B.C., facility and concentrating other activities at its Ancaster, Ont., facility, which together allow the company to reduce head count by more than 90 additional personnel.

Highlights:

• The company anticipates Q3 net revenue of at least $20.3-million, a 5-per-cent increase versus the prior quarter.
• Completion of the postmerger synergy plan in Q3 substantially progresses company's objectives of positive EBITDA heading into the final quarter of 2023.
• Since the merger, the company will have reduced fixed operating overhead expenses by approximately $8-million annually which is expected to significantly improve margins from Q4 onward.
• Since the merger, the company has reduced SG&A expenses to approximately $7-million on a quarterly run rate basis heading into Q4, equating to an annual run rate of approximately $28-million versus approximately $48-million on a premerger combined basis, a savings of approximately 40 per cent.
• The company is on track to reduce the term portion of its debt from approximately $29-million to $20-million with the sale of the remaining redundant facilities.

Management commentary

Matt Milich, chief executive officer 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 favourites combine, focus 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."

Operational developments

Since the merger, the company has embarked on a concerted, disciplined approach to realizing combined synergies. As part of the plan, it has been able to dramatically reduce head count and monetize four redundant facilities, realizing annual combined savings across SG&A and fixed cost of goods sold (COGS) expenses of approximately $28-million without impacting future sales:

• Reduced overall head count of the combined entities from approximately 670 premerger to 395 in Q3 2023;
• Completed disposal of Puslinch, Ont., facility on June 30, 2023;
• Completed sale of the Midway, B.C., facility on Aug. 4, 2023;
• Contracted to sell the Maple Ridge, B.C., facility for $3.8-million, with closing expected to occur by the end of September, 2023;
• Listed the Edmonton, Alta., facility for sale at $10.8-million, with a view to concluding a transaction by Q1 2024.

With the pending sale of the Edmonton, Alta., facility, the company expects to be able to reduce the term portion of its debt by up to $9-million, leading to a reduction in interest expense of at least $500,000 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.

Postmerger achievements and 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.
• Head count optimization: The company has reduced SG&A expense across the combined organization nearly to the level it was for each entity on a stand-alone basis prior to the merger -- about $7-million per quarter on a combined basis heading into Q4 versus approximately $6-million per quarter for each on their own (or $12-million 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 stock-keeping units 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 (good manufacturing practice) certification and 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 the Germany in the coming weeks, with the United Kingdom to follow later in Q4.

About BZAM Ltd.

BZAM is a leading Canadian cannabis producer with a focus on branded consumer goods, innovation, quality, consistency, integrity and transparency. The BZAM family includes core brands BZAM, TGOD, ness, Highly Dutch Organic and Table Top, and partner brands Dunn Cannabis, Fresh and Wyld. BZAM operates facilities in British Columbia, Alberta, Ontario and Quebec, as well as a retail store in Regina, Sask.

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