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Schwazze Announces Third Quarter 2023 Financial Results

14 November 2023
  •  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 /CNW/ - 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 This email address is being protected from spambots. You need JavaScript enabled to view it..

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

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Surf Air Mobility is a regional air mobility platform expanding the category of regional air travel to reinvent flying through the power of electrification. In an effort to substantially reduce the cost and environmental impact of...

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