Medicine Man Technologies, Inc. (PNK:SHWZ) Q3 2023 Earnings Call Transcript

Medicine Man Technologies, Inc. (PNK:SHWZ) Q3 2023 Earnings Call Transcript November 14, 2023

Medicine Man Technologies, Inc. beats earnings expectations. Reported EPS is $-0.03, expectations were $-0.1.

Operator: My name is Lester, and I will be your conference operator today. At this time, I would like to welcome everyone to Schwazze Third Quarter 2023 Conference Call. All lines have been placed on mute to prevent any background noise. Following their prepared remarks, management will take questions submitted via the web link found in Schwazze’s Investor Relations website and in the earnings press release. I would now like to hand over the conference to company’s External Head of Investor Relations, Sean Mansouri of Elevate IR. Sir, please go ahead.

Sean Mansouri: Thank you. Good afternoon, and welcome to Schwazze’s third quarter 2023 earnings conference call. Joining me on the call are Nirup Krishnamurthy, Schwazze’s Chief Executive Officer; Forrest Hoffmaster, Chief Financial Officer; and Justin Dye, Chairman of the Board. The company will begin with prepared remarks and then we will open the call for Q&A. I’d 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, Schwazze’s future results of operations and financial position and Schwazze’s 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 Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 29, 2023.

In addition, other information is more fully described in Schwazze’s public filings with the U.S. Securities and Exchange Commission, which can be reviewed at sec.gov or 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 measures discussed during the call and 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’d now like to turn the call over to the company’s CEO, Nirup Krishnamurthy, for opening remarks. Nirup?

Nirup Krishnamurthy: Thank you, Sean. Good afternoon, everyone, and thank you for joining us to discuss our financial and operating results for the third quarter of 2023. I’d like to start by quickly touching on the broader macro environment. Inflationary and pricing pressure has continued to impact consumer wallets across most industries in the third quarter. Our industry is not immune to these pressures either. Nevertheless, we continue to focus on our sales, our customers and cash flow generations in our operations. We have always prided ourselves in our ability to run a lean operation, while being good stewards of capital, which has materialized in our strong adjusted EBITDA margins and consistent cash flow generation, even in challenging market conditions.

See also 15 Countries With the Best Coffee According to Reddit and 11 Cheap Solar Stocks To Buy According To Analysts.

Q&A Session

While the industry awaits potential legislative change, we will continue to implement the Schwazze operating playbook to profitably scale our regional footprint regardless of outcomes in D.C. Now let’s dive into our results. In Q3, we continue to increase our retail footprint in both Colorado and New Mexico, while further integrating our recently acquired assets in both states. In New Mexico, we worked diligently during the quarter to integrate Everest Apothecary, which we acquired in June. As of today, we have fully onboarded the retail, cultivation and manufacturing assets onto our financial and operating systems. While it is still early in the integration cycle, we have begun to recognize synergies through consolidating resources and optimizing production facilities amongst other initiatives.

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 Star Buds 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 customer experience. Although, we have made significant progress on integrating our newly acquired assets, we were not immune to the broader macro pressures in either Colorado or New Mexico. In Colorado, which has almost 680 active adult use dispensaries across the state, pricing and licenses in new jurisdictions have continued to put pressure on our top-line. Year-to-date, cannabis sales in Colorado are down 13% year-over-year and down 31% on a two-year stack.

We, however, continue to focus on our operating playbook and on customer acquisition, while enhancing our in-store experience and optimizing our operating costs. Wholesale pricing has begun to more broadly stabilize throughout the state, even returning to modest sequential growth in quarter three. Although not reflected yet in retail pricing, flower average market rate increased 7% from $703 a pound in quarter two to $750 a pound in quarter three. In New Mexico, cannabis operators are navigating pricing pressure as a result of the proliferation of new licenses. Legal cannabis states in the state were up 19% year-over-year in quarter three, while total store count was up 76%, resulting in lower revenue on a per store basis. Approximately 200 retail stores are open year-to-date, bringing the total stores up to more than 650 as of September 30.

To navigate this market dynamics, we are strategically investing in the retail experience and are committed to attracting and retaining our customers and patients in the state. 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 retail — 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. While our quarter three results reflect some of these investments and market dynamics, we are well-positioned to leverage our footprint to be the preferred retailer of choice in New Mexico in the future.

Now, let’s take a deeper dive into operational updates within each of our markets, starting with Colorado. In late October, we launched the state’s first store-within-a-store concept in Fort Collins. This idea was conceived through a survey of Northern Colorado customers, which revealed they wanted to experience characteristics from both Star Buds and Standing Akimbo. The model combines a Star Buds neighborhood dispensary with the Standing Akimbo medical banner, allowing us to serve both medical and adult use consumers under one roof. Although, we just opened, initial customer feedback has been strong and we are excited about progress to-date. During the quarter, customer loyalty members increased 8% sequentially to approximately 477,000 members, while increasing average basket by 5%.

In addition, our loyalty penetration grew quarter-over-quarter to 63.3% compared to 60.7% in Q2. As we have stated before, we are focused on enhancing our consumer experience to maximize customer loyalty and retention across our retail footprint. Moving on to our New Mexico operations. In August, we announced the grand opening of a medical and recreational dispensary under the R. Greenleaf banner in Hobbs, New Mexico. We acquired the R. Greenleaf banner in February 2022 and have since opened nine additional R. Greenleaf stores across the state. With the most recent opening, our New Mexico footprint stands at 33 dispensaries each serving the needs of both medical patients and recreational customers. Despite pricing pressure in New Mexico, we generated 10% year-over-year and 5% sequential growth in retail sales in the state and have outpaced overall market growth, increased our share primarily through acquisitions.