Schwazze Announces Second Quarter Results

OTCQX: SHWZ

Revenue Increases 467% to $30.7 Million Compared to $5.4 Million in Q1 2020

Adjusted EBITDA is $10.0 Million, 32.6% of Revenue

On Track to Meet Guidance of Annual Projected Revenue of Approximately $110 Million - $125 Million Annual Projected Adjusted EBITDA $30 Million – $36 Million

Conference Call and Webcast Scheduled for Today – 4:30 pm ET

DENVER, Aug. 16, 2021 /PRNewswire/ - Schwazze, (OTCQX: SHWZ) ("Schwazze" or the "Company"), announced financial results for its second quarter year ended June 30, 2021 ("Q2 2021"). 

Financial Summary for Q2 2021:

  • Revenues of $30.7 million grew 467% over Q2 2020 and 58.9% over Q1 2021
  • Gross Margin of $14.9 million was 48.5%, 576 bps better than Q2 2020 and 1,099 bps over Q1 2021
  • Adjusted EBITDA of $10.0 million was 32.6% of revenue, 239 bps above Q1 2021
  • Net Income was $4.4 million or $0.08 Diluted Earnings per share compared to a Net Loss in Q2 2020 of ($6.6) million or ($0.16) Diluted Net Loss per share and compared to a Net Loss in Q1 2021 of ($3.6) million or ($0.09) Diluted Net Loss per share
  • Cash Flow from operations for the six-month period was $1.4 million
  • Same store sales of the seventeen Star Buds dispensaries when compared to last year were $21.5M up 16%.
    • Average basket size was $61.04 up 6.4%
    • Recorded customer visits were 357,056 up 8.9% 
      Note: Schwazze did not own all the assets in 2020 and are using unaudited numbers for this comparison.

Other Q2 2021 Highlights
Acquisition of Southern Colorado Growers: The Company announced on June 1, 2021, that it had entered into a transaction to acquire the assets of Southern Colorado Growers in Huerfano County, Colorado (transaction closed July 22, 2021). The acquisition includes 36 acres of land with outdoor cultivation capacity, as well as indoor, greenhouse, and hoop house cultivation facilities and equipment. This purchase expanded Schwazze's footprint in Colorado, is the Company's first major move into cultivation, and will provide high-end, premium cannabis directly to its Star Buds dispensaries as well as significant production of biomass for its PurpleBee's extraction and manufacturing facility.

Acquisition of Drift Dispensaries: The Company announced that it had signed definitive documents to acquire the assets of BG3 Investments, LLC dba Drift which consists of two marijuana retail stores located in Boulder, Colorado, bringing the total number of Schwazze Colorado dispensaries to nineteen.

"We have continued to see strong revenue growth over last year and are pleased with our adjusted EBITDA results," stated Justin Dye, CEO of Schwazze. "Furthermore, we continue to be encouraged with our retail results, which saw growing sales by 68.9% on a two-year basis. Wholesale results, led by PurpleBee's distillate also had another record-breaking sales quarter. We continue to execute on our retail and manufacturing playbook with excellent results and with the addition of Southern Colorado Growers and Drift, we look forward to continuing to add to our portfolio of companies."

Second Quarter 2021 Revenue
Total revenue was $30.7 million during the three months ended June 30, 2021, compared to $5.4 million during the same period in 2020 and represents an increase of approximately 467%. Retail sales grew to $21.5 million over the quarter from $0.7 million dollars the previous year and wholesale operations revenue increased to $9.2 million from $4.1 million compared to the same period last year. Other sales decreased to $0.02 million from $0.59 million due to a reduced focus on consulting. The increase in retail and wholesale revenue is attributed to the acquisition of Mesa Organics in April 2020 and the completion of the acquisition of Star Buds in March 2021.

Total cost of goods and services were $15.8 million during the three months ended June 30, 2021, compared to $3.1 million during the same period in 2020. This increase was due to improved sales from our retail and wholesale operations.

Gross profit increased to $14.9 million during the three months ended June 30, 2021, compared to $2.3 million during the same period in 2020. Gross profit margin increased as a percentage of revenue from 48.5% to 42.7% mostly driven by the strength of Star Buds acquisition, and our consolidated purchasing approach.

Total operating expenses were $10.5 million during the second quarter compared to $8.7 million during the same period in 2020. The higher expenses were due to increased selling, general and administrative expenses, and salaries from the addition of the dispensaries.

Q2 2021 net income was $4.4 million, or a gain of approximately $0.10 per share on a basic weighted average, as compared to net loss of $6.6 million, or a loss of approximately $0.16 per share on a basic weighted average during the three months ended June 30, 2020.

Q2 2021 adjusted EBITDA was $10.0 million, representing 32.6% of revenue. This is derived from Operating Income and adjusting one-time expenses, merger and acquisition and capital raising costs, non-cash related compensation costs, and depreciation and amortization. See the financial table for Adjusted EBITDA below for details for Q2 2021 adjustments.

During the two quarters, the Company generated positive operating cash flow of $1.4 million and $19.9 million in total cash flow for the first two quarters with $21.1 million in cash and cash equivalents at the end of Q2 2021.

Nancy Huber, CFO for Schwazze commented, "We continue to generate operating cash flows from our acquired businesses. This quarter we used that cash flow to make strategic inventory purchases for third quarter usage."

2021 Guidance
The Company is reiterating its 2021 guidance which excludes transactions that are announced but not closed. Annual revenue guidance is $110 million to $125 million and projected annual adjusted EBITDA from $30 million to $36 million.

Adjusted EBITDA represents income (loss) from operations, as reported, before tax, adjusted to exclude non-recurring items, other non-cash items, including stock-based compensation expense, depreciation, and amortization, and further adjusted to remove acquisition related costs, and other one-time expenses, such as severance. The Company uses adjusted EBITDA as it believes it better explains the results of its core business. The Company has not reconciled guidance for adjusted EBITDA to the corresponding GAAP financial measure because it cannot provide guidance for the various reconciling items. The Company is unable to provide guidance for these reconciling items because it cannot determine their probable significance, as certain items are outside of its control and cannot be reasonably predicted. Accordingly, a reconciliation to the corresponding GAAP financial measure is not available without unreasonable effort.

Q2 2021 Webcast
Investors and stakeholders may participate in the conference call by dialing 416 764 8650 or by dialing North American toll free 888-664-6383 or listen to the webcast from the Company's website at https://ir.schwazze.com. The webcast will be available on the Company's website and on replay until August 30, 2021, and may be accessed by dialing 888 390 0541 / Code 605725#.

Following their prepared remarks, Chief Executive Officer, Justin Dye and Chief Financial Officer, Nancy Huber will answer investor questions. Investors may submit questions in advance or during the conference call itself through the weblink: https://produceredition.webcasts.com/starthere.jsp?ei=1481988&tp_key=212e8e52ee. This weblink has been posted to the Company's website and will be archived on the website. All Company SEC filings can also be accessed on the Company website at https://ir.schwazze.com/sec-filings.

About Schwazze
Schwazze (OTCQX: SHWZ) is building the premier vertically integrated cannabis company in Colorado and plans to take its operating system to other states where it can develop a differentiated leadership position. Schwazze is the parent company of a portfolio of leading cannabis businesses and brands spanning seed to sale. The Company is committed to unlocking the full potential of the cannabis plant to improve the human condition. 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. Schwazze is passionate about making a difference in our communities, promoting diversity and inclusion, and doing our part to incorporate climate-conscious best practices. 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.

MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
Expressed in U.S. Dollars

All accompanying notes to the financial statements can be found within the SEC Form 10-Q filed on August 16, 2021

June 30,
2021

December 31,
2020

(Unaudited)

(Audited)

Assets

Current assets

Cash and cash equivalents

$

21,130,769

$

1,231,235

Accounts receivable, net of allowance for doubtful accounts

3,204,941

1,270,380

Accounts receivable – related party

80,494

Inventory

9,182,942

2,619,145

Note receivable – current, net

144,223

Notes receivable – related party

181,911

Prepaid expenses

1,865,138

614,200

Total current assets

35,528,013

5,997,365

Non-current assets

Fixed assets, net accumulated depreciation of $1,291,349 and $872,579, respectively

3,476,546

2,584,798

Goodwill

41,505,944

53,046,729

Intangible assets, net accumulated amortization of $4,553,827 and $200,456, respectively

94,861,253

3,082,044

Marketable securities, net of unrealized gain (loss) of $221,257 and $(129,992), respectively

498,039

276,782

Note receivable – noncurrent, net

71,667

Accounts receivable – litigation

3,063,968

3,063,968

Other noncurrent assets

419,472

51,879

Operating lease right of use assets

3,934,370

2,579,036

Total non-current assets

147,831,259

64,685,236

Total assets

$

183,359,272

$

70,682,601

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable

$

2,335,217

$

3,508,478

Accounts payable – related party

40,323

48,982

Accrued expenses

10,279,124

2,705,445

Derivative liabilities

436,554

1,047,481

Deferred revenue

50,000

Notes payable – related party

5,000,000

Total current liabilities

13,091,218

12,360,386

Long-term liabilities

Long term debt

54,250,000

13,901,759

Lease liabilities

4,078,375

2,645,597

Total long-term liabilities

58,328,375

16,547,356

Total liabilities

71,419,593

28,907,742

Shareholders' equity

Common stock $0.001 par value. 250,000,000 authorized, 42,925,303 shares issued and 42,408,259 outstanding as of June 30, 2021 and 42,601,773 shares issued and 42,169,041 outstanding as of December 31, 2020, respectively.

42,925

42,602

Preferred stock $0.001 par value. 10,000,000 authorized. 87,266 shares issued and outstanding as of June 30, 2021 and 19,716 shares issued and outstanding as of December 31, 2020, respectively.

87

20

Additional paid-in capital

158,787,183

85,357,835

Accumulated deficit

(45,373,480)

(42,293,098)

Common stock held in treasury, at cost, 517,044 shares held as of June 30, 2021 and 432,732 shares held as of December 31, 2020.

(1,517,036)

(1,332,500)

Total shareholders' equity

111,939,679

41,774,859

Total liabilities and stockholders' equity

$

183,359,272

$

70,682,601

See accompanying notes to the financial statements

MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
For the Three Months Ended June 30, 2021, and 2020
Expressed in U.S. Dollars

Three Months Ended
June 30,

Six Months Ended
June 30,

2021

2020

2021

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Operating revenues

Retail

$

21,525,816

$

732,457

$

33,342,016

$

732,457

Wholesale

9,186,181

4,106,197

16,632,445

6,635,128

Other

16,844

585,675

94,494

1,259,878

Total revenue

30,728,841

5,424,329

50,068,955

8,627,463

Cost of goods and services

Cost of goods and services

15,826,341

3,106,686

27,913,451

5,255,221

Total cost of goods and services

15,826,341

3,106,686

27,913,451

5,255,221

Gross profit

14,902,500

2,317,643

22,155,504

3,372,242

Operating Expenses

Selling, general and administrative expenses

4,797,495

1,088,479

7,987,134

1,755,398

Professional services

1,519,016

2,371,743

3,714,124

3,620,731

Salaries

2,992,055

2,098,291

4,861,413

4,095,327

Stock based compensation

1,153,018

3,109,091

2,636,824

4,361,822

Total operating expenses

10,461,584

8,667,604

19,199,494

13,833,278

Income (loss) from operations

4,440,916

(6,349,961)

2,956,010

(10,461,036)

Other income (expense)

Interest income (expense), net

(1,713,770)

(11,447)

(2,675,053)

36,595

Gain on forfeiture of contingent consideration

1,462,636

Unrealized gain (loss) on derivative liabilities

1,864,741

(348,535)

610,927

843,428

Other income (expense)

32,621

32,621

Gain (loss) on sale of assets

292,479

Unrealized gain (loss) on investments

6,627

81,615

221,257

110,739

Total other income (expense)

157,598

(245,746)

(1,550,390)

2,486,019

Provision for income tax (benefit) expense

228,474

685,088

Net income (loss)

$

4,370,041

$

(6,595,707)

$

720,532

$

(7,975,017)

Earnings (loss) per share attributable to common shareholders:

Basic earnings (loss) per share

$

0.10

$

(0.16)

$

0.02

$

(0.20)

Diluted earnings (loss) per share

$

0.08

$

(0.16)

$

0.01

$

(0.20)

Weighted average number of shares outstanding - basic

42,332,144

41,568,147

42,286,168

40,742,462

Weighted average number of shares outstanding - diluted

53,975,521

41,568,147

53,886,727

40,742,462

Comprehensive income (loss)

$

4,370,041

$

(6,595,707)

$

720,532

$

(7,975,017)

See accompanying notes to the financial statements

MEDICINE MAN TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
For the Three Months Ended June 30, 2021 and 2020
Expressed in U.S. Dollars

For the Six Months Ended
June 30,

2021

2020

Cash flows from operating activities

Net income (loss) for the period

$

720,532

$

(7,975,017)

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

4,807,147

94,269

Gain on forfeiture of contingent consideration

(Gain) loss on change in derivative liabilities

(610,927)

(2,306,064)

(Gain) loss on investment, net

(221,257)

(110,739)

(Gain) loss on sale of asset

(292,479)

Stock based compensation

2,636,824

4,361,822

Changes in operating assets and liabilities

Accounts receivable

(1,854,067)

780,772

Inventory

(3,368,807)

445,345

Prepaid expenses and other current assets

(1,250,938)

107,417

Other assets

(367,593)

(41,879)

Operating lease right of use assets and liabilities

77,444

16,773

Accounts payable and other liabilities

1,169,537

575,153

Deferred Revenue

(50,000)

Income taxes payables

(1,940)

Net cash provided by (used in) operating activities

1,395,416

(4,054,088)

Cash flows from investing activities

Purchase of fixed assets - net

(1,203,180)

(593,785)

Cash consideration for acquisition of business

(66,082,072)

(2,609,500)

Collection (issuance) of notes receivable

181,911

(50,390)

Purchase of intangible assets

(29,580)

Net cash (used in) investing activities

(67,132,921)

(3,253,675)

Cash flows from financing activities

Proceeds from issuance of debt, net

40,348,241

374,500

Repayment of notes payable

(5,000,000)

Proceeds from issuance of stock, net of issuance costs

50,282,798

Net cash provided by financing activities

85,631,039

374,500

Net (decrease) increase in cash and cash equivalents

19,893,534

(6,933,263)

Cash and cash equivalents at beginning of period

1,237,235

12,351,580

Cash and cash equivalents at end of period

$

21,130,769

$

5,418,317

Supplemental disclosure of cash flow information:

Cash paid for interest

$

2,131,495

$

See accompanying notes to the financial statements

MEDICINE MAN TECHNOLOGIES, INC.
Adjusted EBITDA Reconciliation
Non-GAAP measurement
(UNAUDITED)
For the Three Months Ended June 30, 2021
Expressed in U.S. Dollars

Three Months Ended June 30, 2021

2021

2020

Operating Income

$

4,440,915

$

(6,349,961)

Addbacks:

Non- Cash Stock Compensation

1,153,018

3,109,091

Deal Related Expenses

916,471

2,245,683

Capital Raise Related Expenses

230,970

(19,062)

Depreciation and Amortization

3,016,579

91,084

Severance

125,826

103,785

Retention Program Expenses

29,687

-

Employee Relocation Expenses

18,391

25,490

Other non-recurring items

90,012

-

Total Addbacks

5,580,954

5,556,071

Adjusted EBITDA

$

10,021,869

$

(793,890)

Forward-Looking Statements
This press release contains "forward-looking statements." Such statements may be preceded by the words "may," "estimates", "predicts," or similar words. Forward-looking statements are not guarantees of future 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 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) our inability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (ii) difficulties in obtaining financing on commercially reasonable terms; (iii) changes in the size and nature of our competition; (iv) loss of one or more key executives or scientists; (v) difficulties in securing regulatory approval to market our products and product candidates; (vi) our ability to successfully execute our growth strategy in Colorado and outside the state, (vii) our ability to identify and consummate future acquisitions that meet our criteria, (viii) our ability to successfully integrate acquired businesses and realize synergies therefrom, (ix) the actual revenues derived from the Company's Star Buds assets, * the Company's actual revenue and adjusted EBITDA for 2021, (xi) the Company's ability to generate positive cash flow for the rest of 2021 (xii) the ongoing COVID-19 pandemic, (xiii) the timing and extent of governmental stimulus programs, and (xiv) the uncertainty in the application of federal, state and local laws to our business, and any changes in such laws. 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.

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SOURCE Medicine Man Technologies, Inc.