Schwazze Announces Third Quarter 2023 Financial Results

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Nov 14, 2023, 16:05 ET

Q3 Revenue of $46.7 Million; Income from Operations of $8.9 Million; Adjusted EBITDA of $14.1 Million or 30% of Revenue

Generated $6.9 Million of Operating Cash Flow

DENVER, Nov. 14, 2023 /PRNewswire/ - Medicine Man Technologies, Inc., operating as Schwazze, (OTCQX: SHWZ) (NEO: SHWZ) ("Schwazze" or the "Company"), today announced financial and operational results for the third quarter ended September 30, 2023.

Third Quarter 2023 Summary

	For the Three Months Ended
*$ in Thousands USD*	September 30, 2023	June 30, 2023	September 30, 2022
Total Revenue	$46,747	$42,375	$43,191
Gross Profit	$21,438	$24,519	$22,476
Operating Expenses	$12,514	$19,562	$11,361
Income from Operations	$8,924	$4,957	$11,115
Adjusted EBITDA[1]	$14,119	$13,814	$15,860
Operating Cash Flow	$6,946	$2,683	$10,298

Management Commentary

"We continued to increase our retail footprint during the quarter to a total of 63 stores in Colorado and New Mexico, while further integrating our recently-acquired assets in both states," said Nirup Krishnamurthy, CEO of Schwazze. "We also generated a 41% increase in our wholesale business year-over-year as we are gaining momentum in New Mexico and improved penetration in Colorado. When looking at wholesale penetration, Schwazze now sells into 7 of the 10 largest operators in Colorado and New Mexico with its expanding product portfolio.

_____________________________

¹ Adjusted EBITDA is a non-GAAP measure as defined by the SEC, and represents earnings before interest, taxes, depreciation, and amortization, adjusted for other income, non-cash share-based compensation, one-time transaction related expenses, or other non-operating costs. The Company uses Adjusted EBITDA as it believes it better explains the results of its core business. See "ADJUSTED EBITDA RECONCILIATION (NON-GAAP)" section herein for an explanation and reconciliations of non-GAAP measure used throughout this release.

"In Colorado, we have increased efforts to expand our reach to medical patients through the Standing Akimbo banner with new presence in Colorado Springs and Fort Collins. We also opened a new Starbuds store in Lakewood in August and are seeing promising early results. Alongside new store openings, we are currently remodeling and/or relocating certain stores to further enhance the customer experience.

"In New Mexico, cannabis operators are navigating increased competition as a result of new licenses. While legal cannabis sales in the state were up 19% year-over-year in Q3, total store count was up 76%, leading to lower revenue on a per store basis. In response to these market dynamics, we are strategically investing in the retail experience and remain committed to attracting and retaining our customers and patients there. Our strategy is to first, further integrate the Everest assets while refining assortment, in-stock position and standard costs from a combined integrated supply chain. Second, invest in our leading retail position by bringing new products to our shelves while sharpening pricing and promotional efforts. Third, support the state as it implements cannabis regulation and enforcement to heighten testing and safety standards. And finally, continue to expand our wholesale business in the state.

"As we look to 2024, our strategy remains unchanged: leverage our operating playbook and further integrate our acquired assets to drive customer acquisition and sales across our expanded footprint. We will continue to evaluate opportunities that can enhance our geographic footprint and brand portfolio."

Recent Highlights

Launched Colorado's first "store-within-a-store" concept, combining a Star Buds recreational dispensary with the Standing Akimbo medical banner.
Announced the grand opening of a medical and recreational dispensary under the R. Greenleaf banner in Hobbs, NM, increasing the Company's New Mexico retail footprint to 33 stores.
Third quarter ecommerce transactions in New Mexico and Colorado increased a collective 28% compared to the second quarter of 2023.
Third quarter customer loyalty members increased 16% compared to the second quarter of 2023 with New Mexico loyalty member penetration growing to 78% of total customers.
Lowell Farms premium pre-roll brand, licensed by the Company, is now in over 130 doors and the #2 pre-roll in Colorado.

Third Quarter 2023 Financial Results

Total revenue in the third quarter of 2023 increased 8% to $46.7 million compared to $43.2 million for the same quarter last year. The increase was primarily due to growth from new stores compared to the prior year period and increased wholesale revenue, partially offset by pricing pressure from the proliferation of new licenses in New Mexico.

Gross profit for the third quarter of 2023 was $21.4 million or 45.9% of total revenue, compared to $22.5 million or 52.0% of total revenue for the same quarter last year. The decrease in gross margin was primarily driven by a year-to-date true-up expense reclassification from SG&A into cost of goods sold, as well as increased lower margin medical sales mix in Colorado and lower initial gross margin from the Company's acquisition of Everest Apothecary's inventory. This was partially offset by improvements to product mix across the Company's retail footprint.

Operating expenses for the third quarter of 2023 were $12.5 million compared to $11.4 million for the same quarter last year. The increase was primarily due to four-wall SG&A increases associated with 28 additional stores in Colorado and New Mexico that are still ramping.

Income from operations for the third quarter of 2023 was $8.9 million compared to $11.1 million in the same quarter last year. Net loss was $0.3 million compared to net income of $1.8 million for the third quarter of 2022.

Adjusted EBITDA for the third quarter of 2023 was $14.1 million or 30.2% of revenue, compared to $15.9 million or 36.7% of revenue for the same quarter last year. The decrease in Adjusted EBITDA margin was primarily driven by lower gross margin and the higher four-wall SG&A associated with new stores that are still ramping.

As of September 30, 2023, cash and cash equivalents were $19.6 million compared to $38.9 million on December 31, 2022, while operating working capital decreased by $3.5 million to $0.6 million during this period. Total debt as of September 30, 2023, was $155.1 million compared to $127.8 million on December 31, 2022.

Schwazze CFO Forrest Hoffmaster added, "As we focus on revenue growth, customer acquisition and generating positive cash flow, we are also making steady progress on integrating our recent acquisitions to drive operational efficiencies and cost synergies at scale. In addition, we are in the process of optimizing our inventory through an ERP implementation across our cultivation and manufacturing facilities, which we expect will lead to one-time inventory valuation adjustments as we close out the year. These initiatives will enable us to recognize further improvements across our business as we continue to deepen our presence in the markets we serve."

Conference Call

The Company will conduct a conference call today, November 14, 2023, at 5:00 p.m. Eastern time to discuss its results for the third quarter ended September 30, 2023.

Schwazze management will host the conference call, followed by a question-and-answer period. Interested parties may submit questions to the Company prior to the call by emailing [email protected].

Date: Tuesday, November 14, 2023
Time: 5:00 p.m. Eastern time
Toll-free dial-in: (888) 664-6383
International dial-in: (416) 764-8650
Conference ID: 64450430
Webcast: SHWZ Q3 2023 Earnings Call

The conference call will also be broadcast live and available for replay on the investor relations section of the Company's website at https://ir.schwazze.com.

Toll-free replay number: (888) 390-0541
International replay number: (416) 764-8677
Replay ID: 450430

If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at (720) 330-2829.

About Schwazze

Schwazze (OTCQX: SHWZ) (NEO: SHWZ) is building a premier vertically integrated regional cannabis company with assets in Colorado and New Mexico and will continue to take its operating system to other states where it can develop a differentiated regional leadership position. Schwazze is the parent company of a portfolio of leading cannabis businesses and brands spanning seed to sale.

Schwazze is anchored by a high-performance culture that combines customer-centric thinking and data science to test, measure, and drive decisions and outcomes. The Company's leadership team has deep expertise in retailing, wholesaling, and building consumer brands at Fortune 500 companies as well as in the cannabis sector.

Medicine Man Technologies, Inc. was Schwazze's former operating trade name. The corporate entity continues to be named Medicine Man Technologies, Inc. Schwazze derives its name from the pruning technique of a cannabis plant to enhance plant structure and promote healthy growth. To learn more about Schwazze, visit https://schwazze.com/.

Forward-Looking Statements
This press release contains "forward-looking statements." Such statements may be preceded by the words "may," "will," "could," "would," "should," "expect," "intends," "plans," "strategy," "prospects," "anticipate," "believe," "approximately," "estimate," "predict," "project," "potential," "continue," "ongoing," or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are not guarantees of future events or performance, are based on certain assumptions, and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company's control and cannot be predicted or quantified. Consequently, actual events and results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) regulatory limitations on our products and services and the uncertainty in the application of federal, state, and local laws to our business, and any changes in such laws; (ii) our ability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (iii) our ability to identify, consummate, and integrate anticipated acquisitions; (iv) general industry and economic conditions; (v) our ability to access adequate capital upon terms and conditions that are acceptable to us; (vi) our ability to pay interest and principal on outstanding debt when due; (vii) volatility in credit and market conditions; (viii) the loss of one or more key executives or other key employees; and (ix) other risks and uncertainties related to the cannabis market and our business strategy. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission (SEC), including the Company's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC's website at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise except as required by law.

MEDICINE MAN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS For the Periods Ended September 30, 2023 and December 31, 2022
Expressed in U.S. Dollars

	September 30,		December 31,
	2023		2022
	(Unaudited)		(Audited)
ASSETS
Current Assets
Cash & Cash Equivalents	$	19,624,615	$	38,949,253
Accounts Receivable, net of Allowance for Doubtful Accounts		5,049,869		4,471,978
Inventory		32,767,841		22,554,182
Notes Receivable - Current, net		-		11,944
Marketable Securities, net of Unrealized Loss of $1,816 and Loss of $39,270, respectively		456,099		454,283
Prepaid Expenses & Other Current Assets		6,485,896		5,293,393
Total Current Assets		64,384,320		71,735,033
Non-Current Assets
Fixed Assets, net Accumulated Depreciation of $8,065,794 and $4,899,977, respectively		32,139,192		27,089,026
Investments		2,000,000		2,000,000
Goodwill		76,578,654		94,605,301
Intangible Assets, net Accumulated Amortization of $28,828,713 and $16,290,862, respectively		168,822,669		107,726,718
Note Receivable - Non-Current, net		1,313		-
Deferred Tax Assets, net		50,467		-
Other Non-Current Assets		1,298,950		1,527,256
Operating Lease Right of Use Assets		25,315,122		18,199,399
Total Non-Current Assets		306,206,367		251,147,700
Total Assets	$	370,590,687	$	322,882,733

LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable	$	11,665,499	$	10,701,281
Accounts Payable - Related Party		22,073		22,380
Accrued Expenses		9,430,875		7,462,290
Derivative Liabilities		2,022,248		16,508,253
Lease Liabilities - Current		4,721,713		3,139,289
Current Portion of Long Term Debt		4,250,000		2,250,000
Income Taxes Payable		18,283,784		7,297,815
Total Current Liabilities		50,396,192		47,381,308
Non-Current Liabilities
Long Term Debt, net of Debt Discount & Issuance Costs		150,878,200		125,521,520
Lease Liabilities - Non-Current		23,525,633		17,314,464
Deferred Income Taxes, net		-		502,070
Total Non-Current Liabilities		174,403,833		143,338,054
Total Liabilities	$	224,800,025	$	190,719,362

Stockholders' Equity
Preferred Stock, $0.001 Par Value. 10,000,000 Shares Authorized; 86,494 Shares Issued and
86,994 Shares Outstanding as of September 30, 2023 and 86,994 Shares Issued and 86,994 Shares
Outstanding as of December 31, 2022.		87		87
Common Stock, $0.001 Par Value. 250,000,000 Shares Authorized; 72,607,621 Shares Issued
and 72,591,605 Shares Outstanding as of September 30, 2023 and 56,352,545 Shares Issued
and 55,212,547 Shares Outstanding as of December 31, 2022.		72,607		56,353
Additional Paid-In Capital		199,177,342		180,381,641
Accumulated Deficit		(51,426,247)		(46,241,583)
Common Stock Held in Treasury, at Cost, 920,150 Shares Held as of September 30, 2023 and
920,150 Shares Held as of December 31, 2022.		(2,033,127)		(2,033,127)
Total Stockholders' Equity		145,790,662		132,163,371
Total Liabilities & Stockholders' Equity	$	370,590,687	$	322,882,733

MEDICINE MAN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS) For the Periods Ended September 30, 2023 and 2022 Expressed in U.S. Dollars

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Operating Revenues
Retail	$	41,951,969	$	39,759,734	$	115,871,037	$	104,386,464
Wholesale		4,701,268		3,335,252		13,034,676		14,661,268
Other		93,698		96,000		217,258		184,200
Total Revenue		46,746,935		43,190,986		129,122,971		119,231,932
Total Cost of Goods & Services		25,308,972		20,715,192		60,133,091		60,661,933
Gross Profit		21,437,963		22,475,794		68,989,880		58,569,999
Operating Expenses
Selling, General and Administrative Expenses		9,639,268		6,594,311		28,693,517		20,114,335
Professional Services		767,822		1,507,149		2,443,046		5,609,579
Salaries		4,545,439		3,159,578		17,700,403		15,697,294
Stock Based Compensation		(2,438,073)		99,898		622,162		1,788,823
Total Operating Expenses		12,514,456		11,360,936		49,459,128		43,210,031
Income from Operations		8,923,507		11,114,858		19,530,752		15,359,968
Other Income (Expense)
Interest Expense, net		(8,320,397)		(8,500,235)		(23,956,691)		(23,312,088)
Unrealized Gain (Loss) on Derivative Liabilities		4,516,237		4,816,668		14,486,005		28,104,960
Other Loss		-		-		-		20,400
Unrealized Gain (Loss) on Investments		-		(28,541)		1,816		(42,353)
Total Other Income (Expense)		(3,804,160)		(3,712,108)		(9,468,870)		4,770,919
Pre-Tax Net Income (Loss)		5,119,347		7,402,750		10,061,882		20,130,887
Provision for Income Taxes		5,441,809		5,593,513		15,246,546		11,259,369
Net Income (Loss)	$	(322,462)	$	1,809,237	$	(5,184,664)	$	8,871,518

Less: Accumulated Preferred Stock Dividends for the Period		(1,547,369)		(1,784,113)		(5,930,646)		(5,294,132)
Net Income (Loss) Attributable to Common Stockholders	$	(1,869,831)	$	25,124	$	(11,115,310)	$	3,577,386

Earnings (Loss) per Share Attributable to Common Stockholders
Basic Earnings (Loss) per Share	$	(0.02)	$	-	$	(0.14)	$	0.07
Diluted Earnings (Loss) per Share	$	(0.03)	$	-	$	(0.14)	$	0.03

Weighted Average Number of Shares Outstanding - Basic		87,202,537		51,232,943		78,635,841		50,615,437
Weighted Average Number of Shares Outstanding - Diluted		87,202,537		137,954,532		78,635,841		137,337,027
Comprehensive Income (Loss)	$	(322,462)	$	1,809,237	$	(5,184,664)	$	8,871,518

MEDICINE MAN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Periods Ended September 30, 2023 and 2022 Expressed in U.S. Dollars

	For the Nine Months Ended
	September 30,
	2023		2022
	(Unaudited)		(Unaudited)
Cash Flows from Operating Activities:
Net Income (Loss) for the Period	$	(5,184,664)	$	8,871,518
Adjustments to Reconcile Net Income (Loss) to Cash for Operating Activities
Depreciation & Amortization		15,703,668		8,329,767
Non-Cash Interest Expense		3,003,386		3,137,021
Non-Cash Lease Expense		5,756,492		3,910,679
Deferred Taxes		(552,537)		-
Change in Derivative Liabilities		(14,486,005)		(28,104,960)
Amortization of Debt Issuance Costs		1,264,537		1,264,538
Amortization of Debt Discount		6,269,584		5,505,420
(Gain) Loss on Investments, net		(1,816)		42,353
Stock Based Compensation		835,347		811,897
Changes in Operating Assets & Liabilities (net of Acquired Amounts):
Accounts Receivable		206,179		(1,100,055)
Inventory		(4,883,659)		2,898,959
Prepaid Expenses & Other Current Assets		(1,192,503)		(3,377,844)
Other Assets		228,306		(179,072)
Change in Operating Lease Liabilities		(5,078,622)		(11,938,634)
Accounts Payable & Other Liabilities		(4,124,458)		8,802,231
Income Taxes Payable		10,985,969		1,560,630
Net Cash Provided by (Used in) Operating Activities		8,749,202		434,448

Cash Flows from Investing Activities:
Collection of Notes Receivable		10,631		-
Cash Consideration for Acquisition of Business, net of Cash Acquired		(15,813,028)		(56,875,923)
Purchase of Fixed Assets		(6,766,759)		(12,511,389)
Purchase of Intangible Assets		(2,700,000)		(2,825)
Net Cash Provided by (Used in) Investing Activities		(25,269,156)		(69,390,137)

Cash Flows from Financing Activities:
Payment on Notes Payable		(3,488,302)		-
Proceeds from Issuance of Common Stock, net of Issuance Costs		683,618		1,280,660
Net Cash Provided by (Used in) Financing Activities		(2,804,684)		1,280,660

Net (Decrease) in Cash & Cash Equivalents		(19,324,638)		(67,675,029)
Cash & Cash Equivalents at Beginning of Period		38,949,253		106,400,216
Cash & Cash Equivalents at End of Period	$	19,624,615	$	38,725,187

Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest	$	13,271,618	$	13,239,685
Cash Paid for Income Taxes		5,000,000		9,840,000

MEDICINE MAN TECHNOLOGIES, INC. ADJUSTED EBITDA RECONCILIATION (NON-GAAP) For the Periods Ended September 30, 2023 and 2022 Expressed in U.S. Dollars

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net Income (Loss)	$	(322,462)	$	1,809,237	$	(5,184,664)	$	8,871,518
Interest Expense, net		8,320,397		8,500,235		23,956,691		23,312,088
Provision for Income Taxes		5,441,809		5,593,513		15,246,546		11,259,369
Other (Income) Expense, net of Interest Expense		(4,516,237)		(4,788,127)		(14,487,821)		(28,083,007)
Depreciation & Amortization		5,330,529		3,322,150		15,808,535		8,823,549
Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) (non-GAAP)	$	14,254,036	$	14,437,008	$	35,339,287	$	24,183,517
Non-Cash Stock Compensation		(2,438,073)		99,898		622,162		1,788,823
Deal Related Expenses		1,401,795		993,828		3,331,315		4,907,291
Capital Raise Related Expenses		1,712		185,597		36,780		791,229
Inventory Adjustment to Fair Market Value for
Purchase Accounting		-		34,604		-		6,541,651
Severance		121,715		22,434		425,832		71,536
Retention Program Expenses		110,023		-		505,655		-
Employee Relocation Expenses		12,867		-		65,042		19,110
Other Non-Recurring Items		655,244		87,097		2,132,272		422,532
Adjusted EBITDA (non-GAAP)	$	14,119,319	$	15,860,466	$	42,458,345	$	38,725,689
Revenue		46,746,935		43,190,986		129,122,971		119,231,932
Adjusted EBITDA Percent		30.2 %		36.7 %		32.9 %		32.5 %

MEDICINE MAN TECHNOLOGIES, INC. OPERATING WORKING CAPITAL RECONCILIATION (NON-GAAP) For the Periods Ended September 30, 2023 and December 31, 2022 Expressed in U.S. Dollars

	September 30,		December 31,
	2023		2022
Current Assets	$	64,384,320	$	71,735,033
Less: Cash & Cash Equivalents		(19,624,615)		(38,949,253)
Adjusted Current Assets (non-GAAP)		44,759,705		32,785,780

Current Liabilities	$	50,396,192	$	47,381,308
Less: Derivative Liabilities		(2,022,248)		(16,508,253)
Less: Current Portion of Long Term Debt		(4,250,000)		(2,250,000)
Adjusted Current Liabilities (non-GAAP)		44,123,944		28,623,055

Operating Working Capital (non-GAAP)	$	635,761	$	4,162,725