Mr. Craig Binkley reports

HILL STREET REPORTS FY 2021 SECOND QUARTER RESULTS AND PROVIDES UPDATE ON OPERATIONS

Hill Street Beverage Company Inc. has released its second quarter results for the period ended Dec. 31, 2020. A complete set of financial statements and management discussion and analysis has been filed on SEDAR.

The second quarter of fiscal 2021 saw continued momentum for the company despite continuing pandemic-related challenges. Net revenue grew 8 per cent to $745,748 from $689,276 versus the same quarter a year ago. The company also saw significant improvement on its bottom line, reducing its net loss by 50 per cent from $956,000 to $481,000 year over year for the quarter as a result of improved gross margin and cost management efforts. On Dec. 9, 2020, the company announced the closing of the acquisition of substantially all of the assets of Lexaria Canpharm, the cannabis product division of Lexaria Biosciences, resulting in the addition of a new business-to-business (B2B) line of business.

"This transformative transaction adds a wholly new operating line to our current alcohol-free and cannabis-infused beverage businesses: the licensing of DehydraTECH technology to companies around the globe," said Lori Senecal, interim co-chief executive officer of Hill Street. "The combination of these three businesses creates a vertically integrated product value chain that leverages knowledge from our consumer lines with our new, patented ingredient line to span from consumer to enterprise," added Craig Binkley, co-chief executive officer of Hill Street.

Hill Street recorded its first cannabis revenues

With the Lexaria Biosciences transaction, the company acquired existing contracts to provide licences for use of these patents by companies in Canada and the United States. With these contracts, the company recorded its first cannabis revenues.

Hill Avenue cannabis beverages continued launch preparations

The company worked closely with its licensed production partner to address the regulatory requirements for the coming launch of its first cannabis-infused beverages. The notice of new product introduction to Health Canada was filed on Dec. 31, 2020, beginning the 60-day notice period. The company anticipates its cannabis beverages will launch toward the end of the third quarter of fiscal 2021.

Progress continued on securing cannabis licence

The company continued planning for its licensed cannabis operations at the Lucknow facility, which is strategically located near Toronto Pearson International Airport in Mississauga, Ont. The company worked to confirm the evolving regulatory and operational requirements for the facility as it sought to incorporate its new strategies and line of business after the transaction.

Alcohol-free business increased net revenues year over year

Coincident with driving its cannabis initiatives, Hill Street's legacy alcohol-free business showed growth in the quarter. Total net revenue increased by 8 per cent versus the same quarter a year ago to $745,748 from $689,276. This was driven in part by increased on-line sales revenues of 166 per cent versus the prior fiscal year quarter. The increase in revenues from on-line shopping is consistent with consumer purchasing patterns that have been reshaped by the pandemic across retail and food service channels. The on-line segment is now an important and measurable segment of the company's total business.

Although Hill Street's gross revenue declined 10 per cent during the quarter to $875,529 from $973,710 versus a year ago, this was largely driven by COVID-19-related manufacturing delays that impacted overseas supply partners and are expected to continue into the third quarter. Further, Hill Street eliminated a holiday gift pack promotion, which typically provides a seasonal lift due to these same supply chain challenges.

Hill Street's chief financial officer, Hinta Chambers, stated: "Our attention to costs and our focus on the most profitable lines of business helped us improve gross margin and the bottom line. The new opportunities we are now able to pursue by leveraging the IP [intellectual property] assets of Lexaria Canpharm will help further drive quality of margin through highly differentiated products as well as scale through expanded geographic scope."

Results of operations

The attached table summarizes certain financial information of the company for the three months ended Dec. 31, 2020, and the three months ended Dec. 31, 2019.

The company's lines of business now include:

• Hill Street alcohol-free beverages -- the legacy consumer marketing and distribution business that includes alcohol-free beer and wine in Canada and, on a smaller scale, in the United States. It is sold in thousands of branded retail chain stores through Canadian distributors and direct to consumer on-line;
• Hill Avenue cannabis-infused beverages -- the imminent launch of cannabis-infused consumer beverages under the Hill Avenue Cannabis brand;
• Hill Avenue cannabis technologies -- the licensing of patented global intellectual property for the DehydraTECH technology acquired from Lexaria Biosciences in December, 2020.

Grant of stock options

The company has granted stock options to purchase 4.8 million common shares of the company at an exercise price of 9.5 cents per share pursuant to the stock option plan of the company. The options were granted to existing employees, officers and directors of the company.

Annual general meeting

The company will be holding its annual general and special meeting of shareholders on March 30, 2021, at 11 a.m. Due to COVID-19 restrictions, the meeting will be a virtual-only meeting format by webcast or by conference call at 1-226-316-9330 (PIN: 312193366). Details of the matters to be considered at the annual general and special meeting are specified in the notice of meeting and information circular that is being mailed to shareholders and which will be available on SEDAR.

Private placement

The company has applied to the TSX Venture Exchange to extend the period to close its previously announced private placement of units at a price of eight cents per unit. Each unit comprises one common share and one warrant of the company. Each warrant will entitle the holder to purchase one common share of the company at a purchase price of 11 cents per share for a period of three years from the date of closing. This extension is subject to the approval of the TSX-V.

About Hill Street Beverage Company Inc.

Hill Street Beverage is a leading and award-winning company focused on alcohol-free beer, wine and adult-format beverages. Hill Street's brands include Hill Street Craft Brewed Lager and Vin(Zero) and have won numerous medals and accolades around the world. Hill Avenue Cannabis, the company's wholly owned subsidiary, will produce and sell cannabis-infused adult beverages, manufacturing licences, DehydraTECH powder infusions and other cannabis products, with expected availability at licensed outlets in 2021 and beyond. Check out Hill Street's award-winning lineup and order product to be delivered straight to your home on the Hill Street Beverages website.

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