Medicine Man Technologies, Inc. (PNK:SHWZ) Q4 2022 Earnings Call Transcript March 29, 2023
Operator: Good afternoon. My name is JP, and I will be your conference operator today. At this time, I would like to welcome everyone to the Schwazze’s Fourth Quarter Conference Call. All lines have been placed on mute to prevent any background noise. Thank you. Ms. Joanne Jobin you may begin your conference.
Joanne Jobin: Greetings, and welcome to the 2022 fourth quarter and year end conference call and webcast for Schwazze. We are being hosted by Justin Dye, Chairman and Chief Executive Officer; Nirup Krishnamurthy, President; and Forrest Hoffmaster, Chief Financial Officer. Following their presentation, management will take questions submitted via the web link found on Schwazze’s Investor Relations website and in the earnings press release. I would also like to remind you that Management’s prepared remarks and answers to your submitted questions may contain forward-looking statements, which are subject to risks and uncertainties. Examples of forward-looking statements include, among others, statements regarding federal and state legislation and regulation and Schwazze’s future results of operations and financial position, business strategy and plans and objectives for future operations.
Such forward-looking statements may be preceded by the words plan, will, may, continue, anticipate, become, build, develop, expect, believe, poised, project, approximate, could potential or similar expressions as they relate to Schwazze. Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause actual events, results, performance or achievements to differ from those anticipated by Schwazze at this time. Additional information concerning factors that could cause events, results, performance or achievements to differ materially is available in Schwazze’s earnings release made available before this call and available on Schwazze’s Investor Relations website and in Schwazze’s Form 10-K for the year ended December 31, 2022.
In addition, other information is more fully described in Schwazze’s public filings with the U.S. Securities and Exchange Commission, which can be viewed at www.sec.gov on www.sedar.com or on the company’s Investor Relations website. Also, Schwazze may discuss non-GAAP financial measures during today’s call. A reconciliation of the differences between the non-GAAP financial measure discussed during the call with the most directly comparable GAAP measure can be found in Schwazze’s earnings press release made available before this call and available on Schwazze’s Investor Relations website. I would now like to turn the call over to CEO and Chairman, Justin Dye.
Justin Dye: Hello, and thank you for joining us this afternoon. I will provide a brief overall business review and our President, Nirup Krishnamurthy, will provide operational details before turning the call over to our newly appointed CFO, Forrest Hoffmaster, who will review our quarterly, and year-end financial results in detail. I will then conclude our presentation with some final thoughts. And afterwards we would then be happy to take your questions. I am pleased to report that for 2022, Schwazze once again outperformed the Colorado market. We successfully entered the New Mexico medical and recreational market and increased our total revenues by 47% year-over-year, with retail sales growing 92% over prior year. We also generated $11.4 million of after tax cash flow from operations in 2022.
Through hard work, diligence, our dedicated attention to detail, we continued outperform our markets despite an ongoing challenging environment. I am extremely proud of the Schwazze team, which I believe is one of the best and strongest in the industry today. We’ve worked hard to continue to grow our market share outperforming our markets in Colorado by 11%, increasing our profitability rate with ongoing improvement, and we continue to generate free cash flow from operations after paying taxes and meeting our capital spending and debt obligations. Our team continues to deliver on our vision to become the most admired cannabis company in the industry providing trusted products, brands, and exceptional customer experiences. Schwazze continues to execute its strategy to go deep in our operating states and build customer loyalty and market share.
Our long-term plans of building a regional powerhouse, delivering a wide assortment of high quality products with exceptional customer service backed by our operating playbook is a winning combination for our customers, our employees, and our shareholders. And now I would like to turn the call over to our President, Nirup Krishnamurthy, to take us through some of our accomplishments for 2022.
Nirup Krishnamurthy: Thank you, Justin. Let’s review the highlights of the fourth quarter of 2022, followed by the highlights of our annual performance. Like the rest of our industry partners, we continue to navigate broader economic conditions in our country, impacts of the failure of the SAFE Banking bill, as well as dynamics in our core markets in Colorado and New Mexico. Despite these challenges, our team delivered another record year and quarter in terms of revenue and adjusted EBITDA growth. We have an experienced and dedicated team, and I would like to thank all of our team members for their hard work, enthusiasm, operational excellence, and most of all, their commitment to our customers. In 2022, the company completed seven acquisitions and opened six new stores not related to acquisitions, which increased the company’s retail presence from 18 dispensaries in 2021 to 41 dispensaries as of December 31, 2022, 16 in New Mexico and 25 in Colorado.
The company now has five operating cultivation and two manufacturing facilities in Colorado and New Mexico. All these accomplishments are too numerous to go through one by one on this call, but they’re listed in our financials and of course, in our press release. The first quarter of 2023, we continue to roll out our plans. We rolled out the enhanced custom e-commerce platform in New Mexico for our Greenleaf customers. We opened two new all-green locations in New Mexico, one located in Albuquerque and the other in the southern town of Carlsbad and in Colorado, we signed a definitive agreement to acquire retail locations in Fort Collins and Garden City, two attractive markets whose customers they currently do not serve. We have previously announced our licensing agreement with Lowell Farms and have now successfully launched their premium line of pre-roll joints to dispensaries rates in Colorado and New Mexico.
In addition, we are introducing a Schwazze brand called EDW, which stands for Every Day Weed. The first product being launched in the second quarter under this brand in both our markets will be a half-ounce, full flower, roll your own joint for our core customers. We are excited about our multi-year house of brands strategy designed to meet the needs and growing demand of customers in our markets. On April 1, 2022, Schwazze commenced selling both recreational and medical cannabis in New Mexico. We opened six new stores in New Mexico last year and two more in the first quarter of 2023. These stores increase our presence in key markets, including Albuquerque and Southern New Mexico cities such as Sunland Park, Ruidoso, Alamogordo, and Carlsbad.
We have incorporated our operating playbook here as well and are now reaping the rewards; plans to open additional stores throughout the state will be focused on adding coverage to areas where we currently do not serve customers. We’re also focused on our internal operations to ensure we are being as efficient as we can to drive lower cost of goods from our production facilities by applying lean practices and lower operating costs at our dispensaries through efficient scheduling and inventory management, we expect that these efforts, along with our retail playbook will further improve our margins and our positive cash flow from operations this year after meeting our tax and debt obligation along with CapEx spending. Now I would like to briefly give you our view on our two markets.
Colorado in particular saw a material decline in wholesale pricing in 2022, which affected retail pricing, which in turn led to pressure on top line revenues. We as a company have been focused to ensure that our volumes in terms of unit sold, remain steady in these conditions and have been rewarded with our results. We expect pricing pressure to continue in 2023, but we are now well positioned to drive results in these conditions. In the New Mexico, the overall market has been steady since the launch of the adult-use program. However, the number of retail licenses has more than doubled since April, putting pressure on store level sales. But again, our operating playbook combined with our high quality product assortment has meant that our Greenleaf dispensaries, our first choice for customers in the state.
Our combined revenue for the quarter totaled $40.1 million, compared to $26.5 million in the same quarter last year, representing a 51% increase. Here are some key quarterly retail statistics for our Colorado and New Mexico operations. Two-year stacked IDs for Colorado were down 6% and one-year IDs were down by 9% year-over-year. Average basket was $60.86, up 1.5%. Customer visits were 416,717, and that was down 10.5%. The two-year stacked IDs for New Mexico were up 57% and one-year IDs were up by 43% year-over-year. Average basket size was $52.54, down 11.8%, and customer visits were 219,665, up 61.7%. Here are the comparable year-over-year retail statistics for our Colorado and New Mexico operations. Retail statistics 2022 compared to 2021 for Colorado and New Mexico included the following: in Colorado, one-year sales ID were down 10.5% and two-year sales ID were up 0.1%.
Average basket size was 60.32 or down 1.9%. Customer visits were 1.685 million or down 8.8%. In New Mexico, one-year sales ID were up 33.8% and two-year sales ID were up 48.2%. Average basket size was 54.04 or down 11.2%, and customer visits were 734,000 or up 50.7%. We are pleased to report as previously noted that we once again outpace the state of Colorado by 11%, a remarkable achievement when you consider the challenges faced by the industry and in particular, Colorado at this time. We will continue to evaluate additional opportunities across the cannabis industry with a primary focus on retail expansion with adequate cultivation and manufacturing assets supporting the expansion. Our criteria for potential acquisitions include dispensaries that compliment our footprint and have a loyal customer base, well-branded products that compliment ours and accretive to the bottom line with material synergies.
Any announcements regarding expansion intentions will be made once we have reached definitive agreements. Lastly, we have been openly discussing the overall shift away from our consulting business, and late this year we made the decision to completely move away from this business to concentrate our resources and our core business. This is reflected as a loss on disposition at year-end. And now I’d like to turn the discussion over to our newly appointed CFO, Forrest Hoffmaster to continue our financial review.
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Forrest Hoffmaster: Thank you, Nirup. I’ll review our financial results for the fourth quarter and year end 2022. As mentioned earlier, fourth quarter revenues of $40.1 million, increased $13.6 million compared to $26.5 million for the same quarter last year, while seasonally lower than third quarter revenues of $43.2 million, the year-over-year quarterly increase was 51% as compared to the year-over-year third quarter increase of 36%. Adjusted EBITDA for Q4 2022 was $13.3 million and 33% of revenue compared to $7.5 million and 28% of revenue for the same period last year. Once again, we generated positive cash flow from operations of $5.4 million after our tax and debt related obligations. For the year ended December 31, 2022 we achieved $159.4 million in revenue, an increase of 47% compared to $108.4 million in revenue in 2021.
Much of our year-over-year revenue growth was driven by our retail segment with the New Mexico entry acquisitions in Colorado and six new store openings in New Mexico. Wholesale revenues continued to be affected by market over supply and price compression. Total cost of goods and services was $74.3 million compared to $59.1 million for the year ended 2021, representing an increase of $15.3 million or approximately 26%. This increase is primarily due to volume from the New Mexico acquisition and subsequent opening of six new stores in 2022. The rate improvement is the result of the company’s vertical integration efficiencies, buying power and retail playbook. As a result, gross profit increased to $85 million or 53% of total revenue compared to $49.4 million or 46% of total revenue during the same period in 2021.
Operating expenses totaled $72.2 million for the year ended 2022 compared to $38.9 million for 2021, representing an increase of $33.2 million. This increase was largely due to increased selling, general and administrative expenses predominately attributable to expenses related to acquisition activity and increased overhead associated with the entry into the New Mexico market, and certain one-time impairment charges of $8 million of goodwill associated with our non-plant touching wholesale businesses serving the broader cultivation markets. Other expenses for 2022 were $16.4 million compared to $8.5 million of other income in 2021. This was largely driven by cash and non-cash debt related interest obligations and a $4.7 million one-time disposition of assets mostly associated with the discontinuation of our consulting business as part of our strategic move to shift our full-time attention to our core segment.
As a result, Schwazze generated a net loss of $18.5 million compared to net income of $14.5 million for the year ended 2021, largely related to the impairment charge, interest expense and disposition of assets. Adjusted EBITDA was $52 million, representing 33% of revenue compared to $32.2 million and 30% for the same period last year. This is derived from operating income and adjusted for one-time expenses, merger and acquisition and capital raising costs, non-cash related compensation costs and depreciation and amortization. Please see the financial table in our press release for adjusted EBITDA details. As already mentioned for the year ended 2022 we generated $11.4 million in positive cash flow from operations compared to $8.4 million for 2021 after meeting our tax and debt obligations and CapEx spending.
We ended the year with cash and cash equivalent of $38.9 million. Given our recent performance and current cash position, we remain optimistic that we can successfully integrate acquired companies and continue our expansion and M&A plans. Thank you for your time today, I’d now like to turn it back to Justin, who will open the call to questions-and-answers.
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