Press Release

Schwazze Announces Third Quarter 2023 Financial Results

November 14, 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 ir@schwazze.com.

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

Cision View original content to download multimedia:https://www.prnewswire.com/news-releases/schwazze-announces-third-quarter-2023-financial-results-301988049.html

SOURCE Schwazze

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