CHILL Brands’ shareholders have voted in favour of plans for a new £3.5m fundraise alongside a separate £484,000 open share offer to ‘ensure the company is well capitalised and able to grow’.
The near £4m raise comes after the company’s board of directors rejected an ‘alternative proposal’, of which little detail is known, stating that it would not provide the company with ‘sufficient working capital’.
With enough cash on hand to keep the company afloat for the rest of the ‘this financial year’, its new CEO Callum Somerton has detailed another new shift in strategy, streamlining its convoluted and delay-ridden retail supply chain and placing a greater focus on its online operations.
However, with its share price at all time lows and the company continuing to trade at a loss, the 26-year-old still has a mountain to climb to bring Chill Brands back to financial health.
On April 26 2022 Chill announced plans for a £3.5m fundraise, subject to approval from shareholders at a General Meeting held last week.
The raise consists of two parts including £583,344 through a subscription of 29m new ordinary shares at a price of just 2p each, issued on the LSE’s Main Market on May 13, while the remaining cash will come from convertible loan notes with an aggregate value of just over £2.9m.
The now approved proposals saw Chill’s share price drop 30% upon their announcement, with many shareholders expressing their concern over the low 2p offering price.
Nearly two weeks later (May 9 2022) Chill announced that it had rejected an ‘alternative proposal’ to the £3.5m raise and had instead chosen to raise an additional £484k through an ‘Open Offer’ to shareholders.
Mr Somerton told BusinessCann: “In short, we received an offer to raise just under 30% of the funds raised in our previously announced round (we raised £3,500,000). This was not seen as sufficient to sustain the Company or its growth plans, and so after careful consideration was rejected by Chill’s Board.”
He added that the open offer was launched after Chill was ‘contacted by a number of long-term shareholders who expressed an interest in investing on the same terms as our recent funding round.’
In total this new fundraise will net Chill just under £4m, an amount Mr Somerton says should provide the company with sufficient runway to operate for the coming year.
“The funding round was calculated to provide the Company with sufficient capital to support its operations for the current financial year.
“We are also engaging in a cost cutting exercise, and our sales channels (especially digital) are expected to improve month on month. All of these activities are intended to put Chill in a healthier financial position while creating a strong investment case.
“Cannabis stocks, and indeed the entire stock market, is particularly turbulent right now and we are really pleased to have raised the capital required to fund the Company during this difficult period. We can now get on with securing and expanding our digital and retail channels.”
New Retail Strategy
In a ‘Business Update’ released last week (May 12) alongside the results of its General Meeting, Chill revealed a number of changes to its operating strategy moving forward.
A key element of this was a new ‘Direct Distribution Model’, which sought to address what it has previously referred to as a complex ‘relationship with its distribution partners’, cited as a key reason behind the significant delays to its major retail deal with The Asian American Trade Association (AATAC).
This deal, announced in 2020, will see Chill’s products rolled out to some 88,000 stores across the US, and has been a major draw for investors since it was announced.
According to its update, until now Chill has relied on major investor the Shrader family’s Ox Distributing LLC to act as its ‘master distributor’.
Under its previous agreement, Chill sold products to Ox, who would then make an additional sale to distributors like AATAC, before the product was sold on to a retailer like a convenience store or gas station.
“As you can see, this was a very complicated approach to making a sale,” Mr Somerton explained.
“We will now be dealing more directly with retail distributors and stores. This should allow us to build stronger relationships, reduce the time it takes to realise a sale, and allow us to gather more sales data that can be used both to inform our strategies and report to the market.”
While it is understood that Chill’s products are to date only available in around 2500 physical stores in the US, Mr Somerton added that ‘all of our retail distribution relationships remain in place, including AATAC, BettermentRS, and others’, but Chill was ‘no longer pursuing rollout timelines for new stores’.
In its update, the company confirmed that the split for Ox would not result in any change to Ox and the Shrader family’s recent investment in Chill.
Alongside major changes to its physical supply chain, the company is reportedly hedging its bets on its recently acquired Chill.com domain, a controversial investment for many stakeholders.
Around £650k of this new fundraise will go towards paying the ‘outstanding balance’ of this domain, which will reportedly have cost the company just under £1.3m in total.
After its new website is fully paid off, Chill says it will prioritise SEO, user experience, and email marketing campaigns to bring in more traffic to the site, which now receives 10,000 unique visitors a month.
The site, which currently only sells products to US customers, will also begin work onboarding its UK website chillthewayuk.com, and will reportedly begin exploring the addition of ‘non-competing’ products as it angles to become an online marketplace in a bid to drive more revenue.