Toronto, Ontario–(Newsfile Corp. – October 6, 2022) – Hill Street Beverage Company Inc. (TSXV: HILL) (“Hill Street“, or the “Company“), is pleased to provide a letter to all shareholders from CEO Craig Binkley, with a preview of selected preliminary unaudited financial results highlights for the three-month and twelve-month periods ended June 30, 2022 and an update on operations.

Dear Hill Street Shareholders,

As I stated in my August 11, 2022 Update Letter, fiscal year 2022 was by far the most successful fiscal year in the history of Hill Street. That update included a significant review of the specific operational successes of the Company throughout the year that have helped to drive our financial results. While 2022 audited financials are due at the end of this month, I want to share a preliminary view of select unaudited results which show a strong continuation of the growth trend of the business. In addition, I want to share several operational updates on our business lines to provide context for these results and to preview our evolving business initiatives as we progress through FY23.

Stellar Q4 Performance Drove Significant Growth in Financial Metrics for Q4 and the Full Year

Anticipated consolidated net revenue more than doubled in Q4 of fiscal year 2022, growing a dramatic +118% vs. Q4 one year ago. Full fiscal year 2022 net revenue growth is expected to finish at a robust +42% vs. fiscal 2021, completing a very strong growth year.

Expected gross profit grew even faster than revenues. The quarter marks the first time that this key metric will have surpassed $500,000, with +127% growth vs. Q4 one year ago. Expected gross profit for the full fiscal year 2022 grew an impressive +47% vs. fiscal 2021.

These preliminary results evidence the Company’s sustained financial performance that we have previously highlighted. Graph 1 below, which was first introduced in my April 5, 2022 CEO Letter has been updated to include the quarterly trailing 12-month figures (TTM) for net revenue and gross profit from September 2019 to June 30, 2022, an analysis period that covers the past three full fiscal years. The figures above each line represent the change vs. prior year for that metric. Additionally, the figures in the green boxes represent the gross profit margin expressed as a % of net revenue.

As communicated previously, TTM net revenues have been increasing consistently between 24% and 53% since Q4 of fiscal 2020 – a period of nine quarters. TTM gross profits have been increasing even more rapidly, and the profit margin on the business has increased significantly from 31% in Q3 2020 to a sustained 52-53% for the last four quarters, including the anticipated Q4 2022 figure. Driving profitable growth is our mission and these key financial metrics indicate that we’ve been successful at that.

Graph 1

To view an enhanced version of Graph 1, please visit:
https://images.newsfilecorp.com/files/5205/139750_7033bedd242ec8a4_001full.jpg

Note: The preliminary fiscal year 2022 and Q4 financial results are unaudited, subject to revision, and anticipated to be finalized and released by late October 2022. The Company’s final audited financial results for the fiscal year 2022 and Q4 could differ materially from these selected preliminary results.

We Implemented a Significant Streamlining of the Vin(Zero) Alcohol-Free Wine Business in Q4

Early in the fiscal year, we began an evaluation of our commercial operating system for Vin(Zero), with many of the recommendations from that program being implemented in Q4. We made major adjustments across all the key areas of production planning, shipping and logistics, warehousing, sales and retail distribution. We expect to see several key positive financial impacts from these changes over time. Importantly, we have:

• shortened our order-to-cash cycle dramatically;
• reduced the level of working capital that we will be holding in finished goods inventory; and
• structured our forecasting, operations planning, and inventory logistics models to create a more efficient shipping cycle that will reduce the need for more expensive temperature-controlled containers for our products.

However, an important by-product of these changes is that we expect to see more dramatic quarter-to-quarter swings on the recognized revenues of this business. As we’ve previously explained, the alcohol-free wine business often had quarterly sales shifts resulting from depleted inventories from supply chain issues or COVID-related delays. These inventory problems often caused additional fees from retailers, multiplying the negative impact of the inefficiencies. It was therefore always our view that it was more accurate to look at the business over time to determine the true sales and financial trends.

In this new streamlined commercial model, we will be placing larger orders less frequently, but more rapidly converting those orders to revenues on the P&L and cash on the balance sheet. As a result, we will provide normalizations and longer-term trend analysis for our investors to better understand the true performance of the business.

Q4 of fiscal 2022 got a boost in estimated revenues because we shifted our model and converted warehoused finished goods inventory to revenue and importantly, into cash. We will provide more detail on those impacts when we release the audited results.

Importantly, while a lot of attention has been placed on the launches of our cannabis projects, the Vin(Zero) business has allowed us to generate cash for operations in a way that many other cannabis-related companies can’t. We continue to believe in the growth opportunity of this business as we continue to expand our view beyond Canada, and we believe that the new model will be a more efficient operational and financial approach to profitably capturing that growth.

DehydraTECH^TM Technology Licensing Business Delivered a Strong Year of Expansion and Growth

As we’ve said before, integrating the DehydraTECH™ licensing business into the Company following our December 2020 acquisition from Lexaria Bioscience Corp. changed our business financially, operationally, and geographically. The DehydraTECH™ rights have allowed us to build plans to fundamentally grow our business beyond Canada into global markets, beyond beverages into cannabis technology, and beyond B2C into B2B scale opportunities as we work to build a global, multi-business company pioneering the space where premium crafted consumer products meet bioscience.

As noted previously, as of July 2021, the Company only had one DehydraTECH™ licensee operating live in-market with DehydraTECH™ THC-infused products – the owner of the “1906 Drops” line of products (“1906“), which were then available in four U.S. states, with 1906’s cannabis-infused chocolate products then also available primarily in Colorado.

By the end of fiscal 2022 our U.S. footprint was up to eight states, representing a population of over 90 million people^[1] (+305% vs. the 29.5MM with which we started the fiscal year) and an addressable market of $19.2B USD^[2] in estimated 2022 total cannabis sales.

With 1906’s expansion into Ohio and Pennsylvania in Q1 of fiscal 2023, we now have an operating footprint in the U.S. covering ten states with a total population of 115MM^[3] and an addressable market of approximately $21.5B USD in estimated 2022 cannabis sales^[4]. That footprint covers states generating almost two-thirds of the addressable market of $33B USD in projected total U.S. cannabis sales for 2022^[5], up from our coverage of less than one-quarter of total U.S. cannabis sales at the beginning of FY 2022.

Expected revenues for fiscal year 2022 from DehydraTECH™ licensing are approximately $550,000 vs. just over $200,000 in fiscal year 2021. As we’ve previously highlighted, in fiscal year 2022, we have not yet realized the full impact of revenues expected from many of the DehydraTECH™ product launches and expansion plans of new and existing licensees that have been announced as they continue to roll out.

Recently Announced Expansions Are Now Hitting the Markets Live:

• 1906 Drops have expanded to Michigan, Pennsylvania, and Ohio in Q1 of fiscal year 2023.
• Lume launched their brand utilizing DehydraTECH™ in Michigan dispensaries in September.
• Neo Alternatives launched their Root 66 brand utilizing DehydraTECH™ in Massachusetts dispensaries in September.
• Folium Farms is expected to launch their Karma brand utilizing DehydraTECH™ in Oregon in early October.

Importantly, this licensing business unit has a very attractive financial structure. It is a low operating expense business, with even lower capital expense required of the Company. As the revenues continue to grow and make up a greater percentage of the total consolidated financials, we expect it to continue to improve the overall financial efficiency metrics of the company and further drive our cash efficiency.

We Are Re-evaluating Our Overall Cannabis Strategy for Canada and Withdrawing Our (V)ia Regal Cannabis Beverage Initiative from the Canadian market

Before discussing the important strategic rationale behind our decision to withdraw our (V)ia Regal cannabis beverage initiative from the Canadian market, it is important to note that the exceptional financial numbers that I have shared earlier in this update do not include any revenues from the sale of (V)ia Regal beverages in Canada. We will provide more details when we release our audited fiscal year 2022 results, but the revenues from our Canadian cannabis beverage business were very disappointing and overall, this has turned out to be an unprofitable initiative for Hill Street due to the complexities of the business system that was put in place.

Our rationale in coming to this decision was based on several factors:

1. The cannabis beverage market is in very early-stage development but is already highly saturated.

Beverages hover around only 2% cannabis market share in Canada and around 1% in the US^[6]. Yet there is an exploding number of distinct products fighting for that small and relatively stable share, increasing from around ten products in June of 2020 to over 100 by January 2022 in the Canadian provinces. That type of competitive intensity often drives price and margin compression as we’ve seen in other markets, as brands pay to secure scarce retail space and drop pricing to compete for consumer purchases.

Based on my almost forty years operating in alcoholic and non-alcoholic beverages across the globe with leading companies and brands, I personally believe that the ready-to-drink (RTD) cannabis beverage market is going to take a longer time and significant capital investment to develop. Large investments in capital equipment for manufacturing have been made by LPs in Canada and the US, but it will also take additional significant investment at retail for cold drink equipment – just as we’ve needed those major investments to drive presence, consumer purchase and growth in other beverage categories.

In addition, RTD beverages have higher costs to transport, warehouse, and stock at retail due to weight and bulk vs. other edible products, so the category will always be competing with more efficient cannabis alternatives for distribution and shelf space.

2. There are significant regulatory challenges in the Canadian cannabis market.

The planning of our (V)ia Regal initiative, like many other cannabis initiatives in Canada, began before cannabis edibles were even legal, and before the final cannabis regulations were published by Health Canada. It is now well known that there are significant regulatory challenges in the Canadian cannabis market with very limited abilities to promote products.

Marketing and promotion in mainstream markets provide necessary navigation for consumers and drive differentiation for brands – it’s not just about delivering a product with a name and a logo. The regulatory limitations on cannabis promotion in Canada make it unfeasible for us to support a premium cost / premium priced product like (V)ia Regal. Because of Health Canada’s interpretation of Canadian cannabis promotion regulations, we have had to withdraw multiple elements of our marketing tools and basic messaging around the core product proposition and ingredients. Our inability to effectively promote the brand was further exacerbated by the complex chain of cannabis licenses needed in the route to market, as we could not operate directly without our own licenses.

3. The (V)ia Regal business system is not financially efficient.

The supply chain and manufacturing model for (V)ia Regal was not financially efficient, unlike the key drivers of our success on our other two business lines. Hill Street took on significant amounts of inventory of alcohol-free wine – the base of the (V)ia Regal product, because of the long lead time order and production cycle for that base material. The alcohol-free wine imported as a bulk wine input into (V)ia Regal has a comparatively shorter shelf life than when imported as our Vin(Zero) finished goods. As we ordered bulk wine inventory based on early aggressive forecasts for the industry and, as early forecasts for the (V)ia Regal business did not materialize, we have had to write off significant amounts of that inventory due to code date expiration and spoilage.

4. The cannabis market size in Canada is relatively small vs. our US DehydraTECH™ opportunity.

The (V)ia Regal business was our first cannabis initiative in Canada and was in development well before we acquired the rights to DehydraTECH™ technology. Canada has a total population of 38MM, with addressable cannabis market sales estimated to be just under CDN $4B² in 2021. Contrast those figures with the US population of 115MM and approximately USD $21.5B market that we are currently operating with our DehydraTECH™ footprint in the US, and it’s clear that the larger opportunity for our resources is DehydraTECH™ in the US. The dramatic difference in the financial efficiency and profitability of the two cannabis businesses amplifies the rationale to prioritize the US DehydraTECH™ business.

While we remain committed to developing quality options for Canadian consumers to have great-tasting drinks with THC, the (V)ia Regal results to date and overall Canadian cannabis beverage market conditions have made it such that we believe it would be prudent for us to withdraw from this market at this time and to redirect our efforts to higher and more efficient returning initiatives in our portfolio.

Therefore, we are announcing today that we have made the decision with our Health Canada‐licensed manufacturing and sales partner Molecule Inc. to no longer produce any additional quantities of (V)ia Regal Pink Grape or White Grape sparklers, the two products that we launched together. Once existing inventories of (V)ia Regal products are sold through, they will no longer be available for sale in Canada.

Our Longer-Term View of Winning Consumer Occasions with Cannabis Beverages

While we are withdrawing from the RTD cannabis beverage business in Canada at this time, we do believe that there will be global opportunities for this business in the future, as the category and commercial systems more fully develop. At the appropriate time, we expect to return to product R&D and concept development on the cannabis infused RTD beverage category utilizing our patented DehydraTECH™ technology as the backbone vs. the other technologies and ingredient systems being used across the current RTD cannabis beverage market.

In the meantime, we also continue to work on securing a licensed partner in Canada that could support a DehydraTECH™ manufacturing operation, which would allow us to potentially launch a consumer form factor that could be mixed into a consumer’s favorite drink to win occasions. Interestingly, drops, mixes, elixirs and syrups are the largest segment of the cannabis beverage category in the US markets, and we are continually expanding our experience and knowledge base in those segments as we work with our US DehydraTECH™ licensees. These form factors leverage the infrastructure and presence of existing RTD beverages in the market – both at home and on premise – and allow for more individual customization of consumer beverages to their favorite types and flavors that they already buy and consume.

Lastly, we continue to evaluate options for our Mississauga, Ontario Lucknow facility but have paused any additional investments through the end of calendar 2022, as we utilize our cash on initiatives that have a higher and more immediate return.

We Continue to Make Progress on Building Our Corporate Reputation

As mentioned in the August update, we have now done significant work internally on the Hill Street corporate reputation strategies and plans for both B2B industry awareness and investor relations support. We are actively working with The Panther Group to help drive many of these reputation-building activities with us through their network and programs. We worked closely with them to make additional connections and introductions at two events in September 2022 – the Benzinga Capital Conference in Chicago and MJ Unpacked in Las Vegas. We will share additional programs and materials as they develop, but we believe that our exceptional business performance provides a strong foundation on which to expand and amplify our awareness and reputation.

Summary

In summary, we had a transformative fiscal year 2022 with major operational advances leading to the outstanding financial performance that we’ve previewed here. We enter fiscal year 2023 with the impact of many of those fiscal 2022 operating successes expected to hit our financial results in FY 2023, as well as several important new wins that have already kicked off this fiscal year.

We appreciate your support and hope you share our excitement about the FY22 financial results and the coming year.

Sincerely,

Craig Binkley, CEO

About Hill Street Beverage Company Inc. (TSXV: HILL)

Hill Street Beverage Company Inc. is a progressive non-alcoholic beverage and cannabis solutions company. We are pioneering the space where craft consumer products meet bioscience by combining our deep CPG expertise and our rights to use Lexaria Bioscience Corp.’s ground-breaking DehydraTECH™ patent portfolio for product development, licensing and B2B sales of cannabis ingredients.

For more information on our business activities or to check out Hill Street’s award-winning alcohol-free line-up and order product to be delivered straight to your home go to https://hillstreetbeverages.com/wines/.

For more information:

Craig Binkley, Chief Executive Officer
craig@hillstreetbevco.com.

FORWARD-LOOKING STATEMENTS

Statements in this press release may contain forward-looking information. Any statements in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as “may”, “should”, “would”, “anticipate”, “expects”, and similar expressions. The reader is cautioned that assumptions used in the preparation of any forward-looking information may prove to be incorrect. Events or circumstances, such as future availability of capital on favourable terms, may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. The reader is cautioned not to place undue reliance on any forward-looking information. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement. The forward-looking statements contained in this press release are made as of the date of this press release. The Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by securities law.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Not for dissemination in the United States.

^[1] US Census Bureau, https://www.census.gov/quickfacts/fact/table/US/PST045221
^[2] MJBiz Factbook 2022
^[3] US Census Bureau, https://www.census.gov/quickfacts/fact/table/US/PST045221
^[4] MJBiz Factbook 2022
^[5] MJBiz Factbook 2022
^[6] “Cannabis Beverages: A look at category trends & performance”, Headset 2022 Report, https://www.headset.io/industry-reports/cannabis-beverages-a-look-at-category-trends-performance#form

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/139750

Toronto, Ontario–(Newsfile Corp. – August 31, 2022) – Hill Street Beverage Company Inc. (TSXV: HILL) (“Hill Street“, or the “Company“) announces that further to its March 29, 2022 announcement, the resignation of Hinta Chambers as Chief Financial Officer (“CFO“) of the Company is now effective. However, the Company also announces today that following Ms. Chambers’ resignation, she has been appointed as the Company’s interim CFO, continuing to ensure a smooth transition as the Company progresses in its search for her permanent successor.

Ms. Chambers has served as the Company’s CFO for over four years, and she has been instrumental in supporting the evolution of the Company’s focus from the domestic beverage business towards building a global multi-business company pioneering the space where premium crafted consumer products meet bioscience. Her continued support in transitioning to new financial leadership of the Company provides important stability as the Company continues to deliver impressive growth and strong financial metrics as outlined in the most recent CEO update.

About Hill Street Beverage Company Inc. (TSXV: HILL)

Hill Street Beverage Company Inc. is a progressive non-alcoholic beverage and cannabis solutions company. We are pioneering the space where craft consumer products meet bioscience by combining our deep CPG expertise and our rights to use Lexaria Bioscience Corp.’s ground-breaking DehydraTECH™ patent portfolio for product development, licensing and B2B sales of cannabis ingredients.

Hill Street Beverages brands include Vin(Zero) alcohol-free wines, and Hill Avenue Cannabis Brands include (V)ia Regal Pink and White Grape Sparklers.

For more information on our business activities or to check out Hill Street’s award-winning alcohol-free line-up and order product to be delivered straight to your home go to www.hillstreetbeverages.com.

For more information:

Craig Binkley, Chief Executive Officer
craig@hillstreetbevco.com

FORWARD-LOOKING STATEMENTS

Statements in this press release may contain forward-looking information. Any statements in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as “may”, “should”, “would”, “anticipate”, “expects”, and similar expressions. The reader is cautioned that assumptions used in the preparation of any forward-looking information may prove to be incorrect. Events or circumstances, such as future availability of capital on favourable terms, may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. The reader is cautioned not to place undue reliance on any forward-looking information. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement. The forward-looking statements contained in this press release are made as of the date of this press release. The Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by securities law.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Not for dissemination in the United States.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/135550

Toronto, Ontario–(Newsfile Corp. – August 11, 2022) – Hill Street Beverage Company Inc. (TSXV: HILL) (“Hill Street“, or the “Company“), is pleased to provide a letter to all shareholders from CEO Craig Binkley, with a summary of the Company’s operational advances over the past fiscal year.

Dear Hill Street Shareholders,

June 30, 2022 closed the most successful fiscal year in the history of Hill Street Beverage Company Inc. (“Hill Street” or the “Company“) and as I write this, we are now deeply into the detailed year-end close and audit processes. While we won’t have those audited Q4 and full fiscal year 2022 financials ready for release until later in the fall, I wanted to take this opportunity to summarize the Company’s operational advances over this past fiscal year and to provide a brief recap of the financial strength that has been reported through Q3 of the fiscal year. Consistent with my April update, I want to ensure that we provide a broader perspective on the business over time versus relying on isolated quarterly results and news of the moment.

As we look forward to reviewing our Q4 FY22 and Full Year FY22 results, I want to take this opportunity to remind you of the underlying strength of the Company’s sustained financial performance over the past eight quarters, with this excerpt from the FY2022 Q3 Management’s Discussion and Analysis, a copy of which is available on the Company’s SEDAR profile:

As the following graph shows, the financial results for Hill Street have been solid now for a full eight quarters. Trailing Twelve Month (TTM) net revenues have been continuously increasing between 24% – 53% vs. the prior year and gross profit has been even stronger at +38% to +131%. In fact, the key gross profit figures show that TTM gross profit dollars have more than tripled for the FY22 Q3 period vs. just two years ago for the FY20 Q3 period. As we’ve noted, the dramatic growth in gross profit dollars is accompanied by a significant improvement in our gross profit margins – which have increased as a percentage of net revenue from a low of 31% in fiscal year 2020 to over 50% in each of the past four quarters. As we’ve often mentioned, this significant improvement in gross profit dollars and gross profit margins does not yet show the impact of the DehydraTECH^TM licensing deals announced with Lume in Michigan or the expansion of Dehydr8’s commercialization efforts into Illinois, Massachusetts, or Oregon.

Graph 1

To view an enhanced version of Graph 1, please visit:
https://images.newsfilecorp.com/files/5205/133529_8159f5d8248df8b7_001full.jpg

A Look Back at Fiscal Year 2022 – The Company Has Delivered Strong Profitable Growth While Driving a Transformation of the Business

Here is a snapshot of where the Company’s three revenue-generating business units stood as we began FY 2022 on July 1, 2022:

• Alcohol-Free Wine Business: Our VIN(ZERO) alcohol-free wine business operated almost exclusively within a Canadian footprint, with an emerging online direct-to-consumer channel that had seen a bit of a boost due to changes in consumer buying behaviour and newly available delivery choices resulting from the COVID pandemic.

• DehydraTECH^TM Patent and Technology Licensing Business: We had just completed our first six months of integrating the transformative DehydraTECH™ licensing business into the Company following the December 2020 DehydraTECH™ rights acquisition from Lexaria Bioscience Corp. (“Lexaria“) The Company’s only licensee acquired in the rights acquisition that was operating live in-market with DehydraTECH™ THC-infused initiatives in July 2021 was the owner of the brand 1906 with their 1906 drops, then available in four U.S. states, and their cannabis-infused chocolate products, available primarily in Colorado. Those four operating states – Colorado, Illinois, Massachusetts, and Oklahoma – gave us access to a total addressable cannabis market population of 29.5MM¹ and estimated 2022 cannabis sales of approximately $8B USD².

• (V)ia Regal Cannabis Beverage Business: Our (V)ia Regal cannabis-infused beverage initiative in Canada was approximately six weeks into its initial launch through our Health Canada‐licensed manufacturing and sales partner Molecule Inc. (“Molecule“) and we had secured listing in the Ontario Cannabis Store (OCS). This (V)ia Regal business is our first cannabis initiative in Canada, which has a total addressable market population slightly larger than the four U.S. states mentioned above at 38MM, but with smaller addressable cannabis market sales, which were estimated to be just under $4B CAN³ in 2021.

• Financially, FY 2022 began by building on the base of FY 2021 that had delivered record net revenue, crossing $2MM for the first time with approximately $2,195K (+27% vs FY 2020) and record gross profit, crossing $1MM for the first time with approximately $1,124K (+55% vs. FY 2020).

Q1 of FY 2022 – Aggressive Starts for All Three Businesses

Q1 of FY 2022 delivered a fast start to the year, with key operating activities happening across all three business units.

• DehydraTECH™ Licensing Business

Most importantly, in July we launched the critical pilot program for DehydraTECH™ licensing in Michigan with our new licensee and commercialization partner Dehydr8, LLC (“Dehydr8“). Beyond opening a net-new state for DehydraTECH™ licensing revenues in Michigan with its population of ~10MM and its rapidly growing top-five U.S. estimated 2022 cannabis sales market of $2B USD⁴, this new relationship with Dehydr8 provided the foundation for the Company and its partners to begin developing a portfolio of DehydraTECH™-powered THC products and manufacturing and commercialization solutions for prospective new brands and licensees that could be used as we expand to new legal geographies. As we’ve mentioned before, this initiative was critical as we looked to fundamentally grow the business beyond Canada into global markets, beyond beverages into cannabis technology, and beyond B2C into B2B scale opportunities.

Until July 2021, the licensing relationships we acquired with the DehydraTECH™ rights were exclusively based on licensing the technology to B2C consumer product companies. The Michigan pilot is where we began developing the strategies, processes, and solutions to scale B2B DehydraTECH™ licensing business globally alongside a roadmap of continually increasing legal geographies.

By the end of August 2021, Dehydr8 had licensing agreements in place with LPs in Michigan and we began intense product development on a wide range of consumer product formats, from foods and beverages to topicals and other product forms that would benefit from the use of DehydraTECH™ technology in their manufacturing processes and would result in enhanced consumer experiences. Because of the different recipes, ingredients and manufacturing processes of these product concepts, our collective team implemented a broad range of product development initiatives to bring new products and form factors to life, which were now made possible because of DehydraTECH™ technology.

As we were developing and launching products in Michigan with Dehydry8, including the first ever DehydraTECH™ THC-infused multi-serve fast-acting dissolvable powder and DehydraTECH™ THC-infused gummies, we also focused on expansion opportunities with our pre-existing DehydraTECH™ licensees that we acquired with the December 2020 rights acquisition.

In August 2021, the Company’s licensee Boldt Runners Corporation (“Boldt Runners“), owner of Cannadips, the leading brand of smokeless nicotine and tobacco free dips in the US, announced that it would begin production of a new DehydraTECH™-powered THC-infused line of its top-selling CBD Cannadips products in California for launch in November 2021. This launch alone nearly doubled the total addressable population in the Company’s U.S. footprint to almost 79MM people and put operations into states with a combined $16B USD in estimated 2022 cannabis sales. For perspective, California alone has a greater population than all of Canada, with 90% higher equivalized estimated cannabis sales. Getting a foothold in California and intensifying our licensing relationship with the owner of the Cannadips brand were two major achievements that the Company has continued to build upon.

• (V)ia Regal Cannabis Beverage Business

In Canada, our (V)ia Regal initiative was fully into in-market launch activities as we entered FY 2022. Given the new nature of the business and systems, there was significant activity around integrating into the OCS vendor systems as they continued to evolve, as well as new sales and dispensary support activities developed with Molecule. Molecule also began to present the brand to additional provinces as they accelerated their roll-out initiatives beyond Ontario.

• VIN(ZERO) Alcohol Free Wine Business

One of the major opportunities in our VIN(ZERO) alcohol-free wine business as we entered FY 2022 was to look beyond Canada and take a more global view of its potential, as we have significant global beverage experience on our team, and we also work very closely with a globally-focused manufacturing partner. In August 2021, we launched a new distribution and promotional program in the U.S. with New York-based alcohol-free retailer Boisson, with their progressive retail concept that was created to serve the fast-growing movement toward a conscious approach of “better and better for you” consumption. We also expanded our sales much further geographically with new distribution in Australia, despite the intense pandemic situation in that country at the time. These expansions were early outcomes of the broader strategic re-engineering of our alcohol-free wine business to capture more profitable growth in the attractive global non-alcoholic beverage category.

Q2 of FY 2022 – Continued Expansion of DehydraTECH™ and (V)ia Regal, Normalized Sales and Inventories on the Alcohol-Free Wine Business

• DehydraTECH™ Licensing Business

As we transitioned into Q2 of FY 2022, we continued the intense DehydraTECH™-powered product development and testing initiatives in the Michigan pilot market and we also expanded the Dehydr8 licensing rights into Illinois to begin building relationships and R&D programs across the lake. As DehydraTECH™-powered 1906 Drops were then already available in Illinois, this license grant did not represent a net-new market for DehydraTECH^TM licensing, but it did represent the opportunity for further B2B development in another top five U.S. state for cannabis sales.

Hill Street also continued to build upon the pre-existing DehydraTECH™ licensee relationships in Q2, as the Cannadips THC product launch went live in California in November 2021 and as we worked with the owners of the 1906 brand on additional state launches that were in their pipeline.

• (V)ia Regal Cannabis Beverage Business

In Canada, Molecule received its initial orders of (V)ia Regal cannabis beverages from new provinces British Columbia and Northwest Territories, as Molecule expanded their distribution beyond Ontario.

• VIN(ZERO) Alcohol Free Wine Business

The VIN(ZERO) alcohol-free business continued to operate on a strong track through the first half of FY 2022, although the Q2 FY 2022 financial results showed a normalization when compared to an extraordinary Q2 FY 2021. In Q2 FY 2021, sales were shifted and elevated dramatically beyond normal due to retailers and distributors restocking empty shelves and pipeline inventories that were emptied by global pandemic and supply chain issues in Q1 FY 2021. After this normalization and coupled with the Company’s discontinuation of its unprofitable alcohol-free beer business, we finished the first half of FY 2022 with 9% growth in net revenue and 12% growth in gross profit on a consolidated basis.

Q3 of FY 2022 – Full-Time CEO, Stock Ticker Change to HILL, and Significant DehydraTECH^TM Expansion with Multiple Licensees

We turned the calendars to 2022 in January and Q3 began with some significant changes on the corporate side. I accepted the full-time CEO role in January 2022 after serving as interim co-CEO with fellow Board member Lori Senecal since February 2021. In addition to my belief in the future of Hill Street, its major shareholder HoldCo St. Catharines Ltd. also showed continued support of the strategic and operating direction of the Hill Street team by exercising warrants it held and making significant Hill Street stock purchases on the open market. Additionally, we made the important change of our ticker from BEER to HILL, reflecting the Company’s growth and evolution beyond the Canadian beverage business towards building a global, multi-business company pioneering the space where premium crafted consumer products meet bioscience.

• DehydraTECH™ Licensing Business

Q3 was also another quarter of significant advances in the Company’s DehydraTECH™ licensing business. 1906 Drops, the leading multi-state brand of fast-acting, low-dose, swallowable pills were launched into Arizona in March 2022, adding yet another top ten net-new state to our U.S. footprint with a total addressable population of 7.3MM people and estimated 2022 cannabis sales of $2B USD⁵. This marked an important first new state launch for 1906 Drops since becoming Hill Street’s licensee in December 2020, demonstrating an aggressive rollout plan that would see a steady stream of new state launches following closely thereafter.

Dehydr8, further amplifying its successes in the Michigan pilot, entered into a new DehydraTECH^TM sublicensing deal in March 2022 with Lume Cannabis Co. (“Lume“), the top vertically integrated cannabis operator in Michigan and the largest single-state cannabis operator in the U.S.⁶ The launch of Lume DehydraTECH^TM-powered THC products is expected later this month.

In Q3, we also expanded the DehydraTECH^TM licensing rights for Dehydr8 beyond the Great Lakes to Massachusetts in March. Massachusetts is another strong top-five market where 1906 Drops was already operational, and we wanted to activate broader B2B commercialization in the state through Dehydr8. That expansion led to the July 2022 announcement of a licensing agreement with NEO Alternatives, LLC, owner of the “Root 66” brand of CBD extract products, who will launch a new line of fast-acting THC products that are expected to hit shelves this month.

• (V)ia Regal and VIN(ZERO) Businesses

In Canada, we continued to work closely with Molecule on sales and distribution efforts for (V)ia Regal. We also worked with our supply chain and go-to-market partners on our VIN(ZERO) alcohol-free wine business to continue re-engineering our approaches and business models to drive increased profitability and growth.

• Strong Financial Results Through Nine Months

In terms of the financial results through the first three quarters of FY 2022, net revenue for the 9-month period was already approaching the $2MM threshold that we had cracked for all of FY 2021, with approximately $1,994K in net revenue representing a 19% increase vs. prior year. We have also already surpassed the $1MM mark on gross profit year-to-date, with approximately $1,066K in gross profit representing a 23% increase vs. prior year. Gross margin as a percentage of net revenue increased from 51.7% to 53.4% as the Company’s DehydraTECH™ licensing revenues grew as a percentage of the consolidated revenues.

Q4 of FY 2022 Through Now – Continuing Aggressive DehydraTECH™ Licensing Growth, Adapting (V)ia Regal to Market Conditions and Re-Engineering the Alcohol-Free Business

• DehydraTECH™ Licensing Business

As we began the final quarter of FY 2022, we added yet another net-new U.S. state to our footprint in May as we expanded Dehydr8’s DehydraTECH™ rights into Oregon, and Dehydr8 immediately signed up Folium Farms as a sub-licensee LP. That brought our fiscal year-end DehydraTECH™ operating addressable U.S. footprint to eight states, doubling the number with which we started the fiscal year. The real impact, however, was even greater than double, as our ending eight states represent a population of over 90 million people (+305% vs. the 29.5MM with which we started the FY) with estimated 2022 cannabis sales of $19.2B USD (+240% above where we began the FY at $8B USD)⁷.

Importantly, many of the new state or licensing deals that have been announced in FY 2022 are only beginning to impact our financials in Q1 FY 2023. For example, while Lume was granted DehydraTECH™ rights in March, its product launch in Michigan is expected to occur later this month, as is the Massachusetts launch of Root 66 DehydraTECH™-powered THC-infused products, which rights were granted in July. Similarly, the Oregon product launch from Folium Farms is expected to hit retail shelves in September.

As we close our fiscal year, we must also note the significant progress that has been made to expand the DehydraTECH™ product portfolio and form factor concepts that are now available to licensees for multi-state launch. At the beginning of the year, 1906 Drops and 1906 chocolates were the only DehydraTECH™-powered THC consumer products being sold. By the end of the fiscal year, we had added DehydraTECH™-powered THC gummies, multi-serve dissolvable powder, dip pouches, and dissolvable tablets, with other form factors being developed for launch in FY 2023.

FY 2023 Is Already Off to a Good Start with 1906 Drops Expansions

In July 2022, 1906 launched their signature line of 1906 Drops into Michigan, further adding to the number of DehydraTECH™ form factors and products that are available to consumers in that key market. Continuing the aggressive footprint expansion, 1906 also just announced the 1906 Drops launch in Pennsylvania through a multi-state agreement with TILT Holdings Inc. Under that agreement, Ohio is expected to follow later in August.

Both Pennsylvania and Ohio will be net-new states for the DehydraTECH^TM THC footprint, adding a total addressable market of almost 25MM population and $2.3B USD in estimated 2022 cannabis sales. So, we expect to end August with an operating footprint in the U.S. that covers ten states with a population of 115MM and approximately $21.5B USD in estimated 2022 cannabis sales. That footprint covers states generating almost two-thirds of the projected $33B USD in total U.S. cannabis sales for 2022, up from our coverage of less than one-quarter of total U.S. cannabis sales at the beginning of FY 2022.

Cannadips Sets the Stage for International Expansion of its CBD Dip Pouches

DehydraTECH^TM licensee Boldt Runners, owner of Cannadips – the leading brand of dip pouches – also announced in July 2022 that it had expanded manufacturing agreements for its CBD products with Lexaria to include Europe, Japan, and South Africa. Boldt Runners licenses DehydraTECH^TM technology from Hill Street for production of its THC line of products, and from Lexaria for production of its CBD line of products.

Like Hill Street, Lexaria and Cannadips are looking at global opportunities for DehydraTECH^TM expansion as we build our roadmaps beyond FY 2023.

• (V)ia Regal Cannabis Beverage Business

During Q4, we also continued sales and distribution efforts on our (V)ia Regal business as Molecule engaged the sales agency Humble + Cannabis Solutions Inc. to drive retail support of its LP portfolio, including the (V)ia Regal products. In addition, the decision was made together with the Ontario Cannabis Store to lower the retail price of (V)ia Regal products in Q4 to encourage broader consumer trial. While the Company’s (V)ia Regal products are made with high‐quality premium ingredients producing a superior product, the Company felt that a price reduction was warranted given that consumers in the early‐stage, highly competitive and fragmented Canadian cannabis beverage market were still quite price sensitive in their trial choices, Additionally, the significant regulatory and legal challenges in Canada limited the Company’s ability to effectively market the brand’s premium ingredients in Canada to support higher pricing.

• VIN(ZERO) Alcohol-Free Wine Business

In Q4, we completed several significant changes in our business model for VIN(ZERO) as we looked to streamline the business, eliminate costs, and improve the overall financials on this important business. However, we will be in a better position to outline those specific changes and the resulting financial impacts once we have fully closed Q4 and announce the audited Q4 and final FY 2022 financial results.

Summary

In summary, we had a transformative fiscal year 2022 with major operational advances leading in front of strong financial performance that we’ve reported through the first three quarters and over the past two full years. We enter fiscal year 2023 with the impact of many of those fiscal 2022 operating successes expected to hit our financial results in Q1 FY 2023, as well as several important new wins that have kicked off this fiscal year.

While the business results have been strong, as shown in the April update, our share price performance and valuation have been depressed, with declines being similar to those across the entire sector over time. However, we are committed to building awareness of our positive profitable growth story, even as we manage our precious cash resources very conservatively.

We have now done significant work internally on the Hill Street corporate reputation strategies and plans for both B2B industry awareness and investor relations support. We have signed an agreement with The Panther Group to help drive many of these reputation-building activities with us through their network and programs. The Panther Group is an organization founded to solve business problems that impede growth for companies in the cannabis industry. They provide core solutions essential to growth marketing, business improvement, and capital raising, and we expect them to be an integral partner to our efforts throughout the rest of this year. We have engaged The Panther Group to amplify our efforts at major industry events including Benzinga Capital Conferences, MJ Unpacked and MJ Biz, as well as other key events and opportunities that they provide.

We are very pleased with the successes of FY 2022 and are extremely excited for FY 2023 and the positive momentum that we are confident that we can accelerate even further this year. We appreciate your support and hope you share our excitement about the coming year.

Sincerely,

Craig Binkley, CEO

About Hill Street Beverage Company Inc. (TSXV: HILL)

Hill Street Beverage Company Inc. is a progressive non-alcoholic beverage and cannabis solutions company. We are pioneering the space where craft consumer products meet bioscience by combining our deep CPG expertise and our rights to use Lexaria Bioscience Corp.’s ground-breaking DehydraTECH™ patent portfolio for product development, licensing and B2B sales of cannabis ingredients.

Hill Street’s beverage brands include award-winning VIN(ZERO) alcohol-free wines, and premium cannabis-infused (V)ia Regal Pink and White Grape Sparklers made from grapes imported from European vineyards.

For more information on our business activities or to check out Hill Street’s award-winning alcohol-free line-up and order product to be delivered straight to your home go to https://hillstreetbeverages.com/wines/.

For more information:

Craig Binkley, Chief Executive Officer
craig@hillstreetbevco.com.

FORWARD-LOOKING STATEMENTS

Statements in this press release may contain forward-looking information. Any statements in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as “may”, “should”, “would”, “anticipate”, “expects”, and similar expressions. The reader is cautioned that assumptions used in the preparation of any forward-looking information may prove to be incorrect. Events or circumstances, such as future availability of capital on favourable terms, may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. The reader is cautioned not to place undue reliance on any forward-looking information. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement. The forward-looking statements contained in this press release are made as of the date of this press release. The Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as required by securities law.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Not for dissemination in the United States.

_________________________________

¹ US Census Bureau, https://www.census.gov/quickfacts/fact/table/US/PST045221

² MJBiz Factbook 2022

³ https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/consumer-business/ca-en-consumer-business-cannabis-annual-report-2021-AODA.pdf

⁴ MJBiz Factbook 2022

⁵ MJBiz Factbook 2022

⁶ https://www.wxyz.com/news/community-connection/an-inside-look-at-lume-cannabis-co-the-top-marijuana-producer-in-michigan-and-the-country

⁷ US Census Bureau, https://www.census.gov/quickfacts/fact/table/US/PST045221

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