SCHWAZZE ANNOUNCES SECOND QUARTER RESULTS

·18 min read

OTCQX: SHWZ
NEO: SHWZ

Record Quarterly Revenue and Adjusted EBITDA

Revenue Increases 44% to $44.3 Million Compared to $30.7 Million in Q2 2021

Adjusted EBITDA of $15 Million, 33.9% of Revenue

Revised Guidance Driven by Short-Term, Challenging Colorado Market Conditions
Q4 2022 Projected Revenue Annualized Run Rate: $175 Million - $200 Million
Q4 2022 Projected Adjusted EBITDA Annualized Run Rate: $60 Million - $72 Million

Conference Call & Webcast Scheduled for Today – 5:00 pm EDT

DENVER, Aug. 11, 2022 /CNW/ - Schwazze, (OTCQX: SHWZ) (NEO: SHWZ) ("Schwazze" or the "Company"), today announced financial results for the second quarter ended June 30, 2022 ("Q2 2022").

www.schwazze.com (CNW Group/Schwazze)
www.schwazze.com (CNW Group/Schwazze)

Q2 2022 Financial Summary:

  • Revenues of $44.3 million increased 44% compared to $30.7 million in second quarter ended June 30, 2021 ("Q2 2021")

  • Retail sales were $38.1 million up 77% when compared to Q2 2021

  • Gross Margin of $25.2 million was up 69% compared to $14.9 million in Q2 2021, this quarter was affected by $0.2M in purchase accounting

  • Net Income was $33.8 million compared to a Net Income of $4.4 million for the same period last year

  • Adjusted EBITDA of $15 million was 33.9% of revenue, compared to $10 million for the same period last year

  • Colorado two year stacked IDs for Q2 2022 compared to Q2 2021 and Q2 2020 for same store sales(1) were 1.8% and one year IDs(1) were (12.7%) comparing Q2 2022 to Q2 2021

  • New Mexico two year stacked IDs for Q2 2022 compared to Q2 2021 and Q2 2020 for same store sales(1) were 41.0% and one year IDs(1) were 30.4% comparing Q2 2022 to Q2 2021

Accomplishments
Since December 2021, Schwazze has closed acquisitions adding 15 cannabis dispensaries, 10 in New Mexico and five in Colorado as well as four cultivation facilities in New Mexico and one in Colorado and one manufacturing asset in New Mexico.

  • Closed Acquisition of Urban Health & Wellness Assets

  • Listed Common Stock on the NEO Exchange

  • Closed Acquisition of Brow 2 LLC Assets

  • Closed Acquisition of Emerald Fields

  • Added President of New Mexico Division

  • Closed New Mexico Acquisition, Becoming a Regionally Focused MSO

  • Added to Key Senior Leadership Team

  • Closed Acquisition of Drift Assets

Justin Dye, Chairman and CEO of Schwazze stated, "Similar to the rest of the country, the cannabis industry in Colorado is also experiencing a slowdown in growth compared to the last couple of years. Schwazze, however, is demonstrating that our regional strategy, built on a customer first approach, developing significant scale, building brands and leveraging data analytics and technology is not only sound but gaining momentum as demonstrated by revenue and unit sales growth, customer loyalty and by once again outpacing the legacy market growth by approximately 12%.  We believe this model will travel well to other states as we find attractive opportunities. Despite share price weakness driven by broader market influences, we remain bullish on our business and have conviction that as Schwazze continues to deliver superior operating results that our shareholders will be rewarded."

Justin continued, "As we look to the future, we expect continued growth in Colorado and New Mexico through both organic and inorganic means. Our operations continue to mature and gain momentum, and we firmly believe that we are winning in our markets. Our team will continue to focus on growing profitably and generating cash flow from operations.  When positive federal legislation is passed, Schwazze will be well-positioned as a market leader to take advantage of banking services and institutional investment."

Q2 2022 Revenue
Revenues for the three months ended June 30, 2022, totaled $44.3 million, including (i) retail sales of $38.1 million (ii) wholesale sales of $6.1 million and (iii) other operating revenues of $43,750, compared to revenues of $30.7 million, including (i) retail sales of $21.5 million, (ii) wholesale of $9.2 million, and (iii) other operating revenues of $16,844 during the three months ended June 30, 2021, representing an increase of $13.5 million or 44%. This increase was due to increased sale of our products as well as execution of our growth through acquisition initiatives. In the second quarter of 2022, the Company acquired one additional retail dispensary, which generated additional retail revenue. Additionally, recreational marijuana sales became legal in New Mexico in April 2022, which increased sales volume and revenues in New Mexico. Wholesale revenues in Colorado decreased due to increased cultivation capacity in the state resulting in an over-supply of wholesale cannabis materials.

Cost of goods and services for the three months ended June 30, 2022, totaled $19.1 million compared to cost of services of $15.8 million during the three months ended June 30, 2021, representing an increase of $3.3 million or 21%. The increase in cost of goods is driven by the increase in revenue, however not at the same rate. In the quarter, the Company experienced a reduction in costs driven by vertical integration and third-party price negotiations.

Gross profit increased to $25.2 million for Q2 2022 compared to $14.9 million during the same period in 2021. Gross profit margin increased as a percentage of revenue from 48.5% to 56.8%, and net of purchase accounting, the gross margin increased to 57.4%.  This positive result, net of purchase accounting continues to reflect our consolidated purchasing approach, the implementation of our retail playbook, and vertical product sales in New Mexico.

Operating expenses for the three months ended June 30, 2022, totaled $16.1 million, compared to operating expenses of $10.5 million during the three months ended June 30, 2021, representing an increase of $5.6 million or 54%. This increase is due to increased selling, general and administrative expenses, professional service fees, salaries, benefits, and related employment costs driven by growth from acquisitions.

Other income for the three months ended June 30, 2022, totaled $29.2 million compared to $0.2 million during the three months ended June 30, 2021, representing an increase in income of $29 million or 18,435%. The increase in other income is due to the revaluation of the derivative liability related to the Investor Notes, offset by higher interest payments.

The Company generated net income for the three months ended June 30, 2022, of $33.8 million, compared to net income of $4.4 million for the three months ended June 30, 2021.

Adjusted EBITDA for Q2 2022 was $15 million representing 33.9% of revenue, compared to $10 million and 32.6% of revenue for the same period last year. 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 adjustment for details.

For six months ending June 30, 2022, the Company used cash for operations of ($8.0) million compared to generating cash of $1.4 million for the same period in 2021.  The Company has cash and cash equivalents of $33.9 million at the end of Q2 2022.

Nancy Huber, CFO for Schwazze commented, "During Q2 we focused on completing integration of our acquisitions and made sure that we used our resources effectively. We are focused on reducing operating and SG&A expenses and judiciously investing growth capital to ensure adequate liquidity and profitability despite difficult market conditions in Colorado, which we believe to be transitory and temporary. Our balance sheet remains strong, and we have ample liquidity.  We are focused on delivering positive cash flow net of acquisition costs for the year while driving organic growth and making smart acquisitions."

2022 Guidance

The Company has revised its guidance for a fourth-quarter 2022 (Q4 2022) annualized run rate, which excludes transactions that are announced but not closed.  Q4 2022 revenue annualized run rate is projected to be $175 million to $200 million, and the Q4 2022 adjusted EBITDA annualized run rate is projected to be from $60 million to $72 million.

NOTES:

(1)  Schwazze did not own all the assets and entities in part of 2021, 2020 and 2019 and is using unaudited numbers for this comparison.


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 and capital raise related costs, and other one-time expenses, such as severance, retention, and employee relocation. 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.

Webcast – August 11, 20225:00 PM EDT
Investors and stakeholders may participate in the conference call by dialing 416 764 8650 or by dialing North American toll free 1-888-664-6383 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 18, 2022, and may be accessed by dialing 1-888-390-0541 / # 575833

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://app.webinar.net/lwXbZbBZmKN  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, 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. 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 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.

Forward-Looking Statements
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. Forward-looking statements include the guidance provided regarding the Company's Q4 2022 performance and annual capital spending. 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) 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 New Mexico and outside the states, (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 ongoing COVID-19 pandemic, (x) the timing and extent of governmental stimulus programs, (xi) the uncertainty in the application of federal, state and local laws to our business, and any changes in such laws, and (xii) our ability to achieve the target metrics, including our annualized revenue and EBIDTA run rates set out in our Q4 2022 guidance. 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.
CONSOLIDATED BALANCE SHEETS
For the Three Months ended June 30, 2022 and 2021
Expressed in U.S. Dollars



June 30,



December 31,




2022



2021





(Unaudited)




(Audited)


ASSETS









Current assets









Cash and cash equivalents


$

33,862,423



$

106,400,216


Accounts receivable, net of allowance for doubtful accounts



5,753,621




3,866,828


Inventory



19,375,341




11,121,997


Note receivable - current, net



71,667





Prepaid expenses and other current assets



7,743,112




2,523,214


Total current assets



66,806,164




123,912,255


Non-current assets









Fixed assets, net accumulated depreciation of $3,212,679 and $1,988,973, respectively



20,955,604




10,253,226


Goodwill



107,969,018




43,316,267


Intangible assets, net accumulated amortization of $11,930,443 and $7,652,750, respectively



105,427,462




97,582,330


Marketable securities, net of unrealized loss of $13,813 and gain of $216,771, respectively



479,741




493,553


Note receivable – noncurrent, net






143,333


Accounts receivable – litigation



290,648




303,086


Other noncurrent assets



1,464,163




514,962


Operating lease right of use assets



14,755,181




8,511,780


Total non-current assets



251,341,817




161,118,537


Total assets


$

318,147,981



$

285,030,792











LIABILITIES AND STOCKHOLDERS' DEFICIT









Current liabilities









Accounts payable


$

3,222,956



$

2,548,885


Accounts payable - related party



73,387




36,820


Accrued expenses



8,966,821




5,592,222


Derivative liabilities



11,634,721




34,923,013


Notes payable - related party






134,498


Lease liabilities – current



3,795,776





Income taxes payable



863,971




2,027,741


Total current liabilities



28,557,632




45,263,179


Long term debt



121,080,876




97,482,468


Lease liabilities



11,532,286




8,715,480


Total long-term liabilities



132,613,162




106,197,948


Total liabilities



161,170,794




151,461,127











Stockholders' equity









Common stock, $0.001 par value. 250,000,000 shares authorized; 55,995,681 shares issued and 54,446,575 shares outstanding at June 30, 2022 and 45,484,314 shares issued and 44,745,870 shares outstanding as of December 31, 2021.



55,996




45,485


Preferred stock, $0.001 par value. 10,000,000 shares authorized; 86,994 shares issued and 82,594 outstanding at June 30, 2022 and December 31, 2021.



87




87


Additional paid-in capital



179,623,469




162,815,097


Accumulated deficit



(20,711,687)




(27,773,968)


Common stock held in treasury, at cost, 886,459 shares held as of June 30, 2022 and 517,044 shares held as of December 31, 2021



(1,990,678)




(1,517,036)


Total stockholders' equity



156,977,187




133,569,665


Total liabilities and stockholders' equity


$

318,147,981



$

285,030,792



See accompanying notes to the financial statements

 

MEDICINE MAN TECHNOLOGIES, INC.
CONSOLDIATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
For the Three Months ended June 30, 2022 and 2021
Expressed in U.S. Dollars



For the Three Months Ended



For the Six Months Ended




June 30,



June 30,




2022



2021



2022



2021




(Unaudited)



(Unaudited)



(Unaudited)



(Unaudited)


Operating revenues

















Retail


$

38,138,799



$

21,525,816



$

64,664,515



$

33,342,016


Wholesale



6,080,843




9,186,181




11,288,231




16,632,445


Other



43,750




16,844




88,200




94,494


Total revenue



44,263,392




30,728,841




76,040,946




50,068,955


Cost of goods and services

















Total cost of goods and services



19,106,944




15,826,341




39,946,995




27,913,451


Gross profit



25,156,448




14,902,500




36,093,951




22,155,504


Operating expenses

















Selling, general and administrative expenses



6,666,044




4,797,495




13,521,755




7,987,134


Professional services



1,516,544




1,519,016




4,101,016




3,714,124


Salaries



7,240,368




2,992,055




12,537,145




4,861,413


Stock based compensation



697,842




1,153,018




1,688,925




2,636,824


Total operating expenses



16,120,798




10,461,584




31,848,841




19,199,495


Income (loss) from operations



9,035,650




4,440,916




4,245,110




2,956,009


Other income (expense)

















Interest  income (expense), net



(7,489,205)




(1,713,770)




(14,791,459)




(2,675,053)


Unrealized gain (loss) on derivative liabilities



36,705,764




1,864,741




23,288,292




610,927


Other income (expense)









7





Gain (loss) on sale of assets












292,479


Unrealized  gain (loss) on investments



(5,264)




6,627




(13,813)




221,257


Total other income (expense)



29,211,295




157,598




8,483,027




(1,550,390)


Provision for income taxes (benefit)



4,405,962




228,474




5,665,856




685,088


Net income (loss)


$

33,840,983



$

4,370,040



$

7,062,281



$

720,531



















Less: Accumulated preferred stock dividends for the period



(1,766,575)







(3,510,019)





Net income (loss) attributable to common stockholders


$

32,074,408



$

4,370,040



$

3,552,262



$

720,531



















Earnings (loss) per share attributable to common shareholders

















Basic earnings (loss) per share


$

0.65



$

0.10



$

0.07



$

0.02


Diluted earnings (loss) per share


$

0.24



$

0.08



$

0.03



$

0.01


Weighted average number of shares outstanding - basic



49,178,494




42,332,144




49,178,494




42,286,168


Weighted average number of shares outstanding - diluted



133,481,667




53,975,521




133,481,667




53,886,727



















Comprehensive income (loss)


$

33,840,983



$

4,370,040



$

7,062,281



$

720,531



See
 accompanying notes to the financial statements

 

MEDICINE MAN TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)
For the Three Months ended June 30, 2022, and 2021
Expressed in U.S. Dollars



For the Six Months Ended




June 30,




2022



2021


Cash flows from operating activities









Net income (loss) for the period



7,062,281




720,531


Adjustments to reconcile net income to cash used in operating activities









Depreciation and amortization



5,501,399




4,807,147


Gain on change in derivative liabilities



(23,288,292)




(610,927)


Loss (gain) on investment, net



13,813




(221,257)


Loss (gain) on sale of asset






(292,479)


Stock based compensation



1,474,380




2,636,824


Changes in operating assets and liabilities (net of acquired amounts):









Accounts receivable



(1,677,476)




(1,854,067)


Inventory



3,903,984




(3,368,807)


Prepaid expenses and other current assets



(1,458,786)




(1,250,938)


Other assets



(946,701)




(367,593)


Operating leases right of use assets and liabilities



369,181




77,444


Accounts payable and other liabilities



2,248,013




1,169,537


Deferred Revenue






(50,000)


Income taxes payable



(1,163,770)





Net cash  provided by (used in) operating activities



(7,961,974)




1,395,416











Cash flows from investing activities:









Cash consideration for acquisition of business



(95,903,316)




(66,082,072)


Purchase of fixed assets



(7,004,445)




(1,203,180)


Issuance of notes receivable






181,911


Purchase of intangible assets



(2,825)




(29,580)


Net cash used in investing activities



(102,910,586)




(67,132,921)











Cash flows from financing activities:









Proceeds from issuance of debt



19,165,362




40,348,241


Debt issuance and discount costs



4,433,042





Repayment of notes payable






(5,000,000)


Proceeds from issuance of common stock, net of issuance costs



14,736,363




50,282,798


Net cash provided by financing activities



38,334,767




85,631,039











Net increase (decrease) in cash and cash equivalents



(72,537,793)




19,893,534


Cash and cash equivalents at beginning of period



106,400,216




1,237,235


Cash and cash equivalents at end of period


$

33,862,423



$

21,130,769











Supplemental disclosure of cash flow information:









Cash paid for interest


$

9,004,575



$

2,131,495


Cash paid for income taxes



6,840,000














Supplemental disclosure of non-cash investing and financing activities:









Common stock issued in connection with acquisitions



9,900,506





Issuance of common stock



379,146





Return of common stock



551,875






See
 accompanying notes to the financial statements

 

MEDICINE MAN TECHNOLOGIES, INC.
Adjusted EBITDA Reconciliation
Non-GAAP measurement
 (UNAUDITED)


Three Months Ended


Six Months Ended


June 30,


June 30,


2022

2021


2022

2021







Net income (loss)

$      33,840,983

$        4,370,040


$        7,062,281

$           720,531

Interest expense, net

7,489,205

1,713,770


14,791,459

2,675,053

Provision for income taxes

4,405,962

228,474


5,665,856

685,088

Other (income) expense

(36,700,500)

(1,871,368)


(23,274,486)

(1,124,663)

Depreciation and amortization

2,960,603

3,016,579


5,501,399

4,807,147

EBITDA (non-GAAP measure)

$      11,996,253

$        7,457,495


$        9,746,509

$        7,763,156

Non-cash stock compensation

697,842

1,153,018


1,688,925

2,636,824

Deal related expenses

1,656,529

916,471


3,913,463

1,662,415

Capital raise related expenses

41,312

230,970


605,632

1,182,089

Inventory adjustment to fair market value for purchase accounting

246,613

-


6,507,047

2,164,686

One-time cultivation asset impairment

329,210

-


329,210

-

Severance

44,537

125,826


49,102

142,092

Retention program expenses

-

29,687


-

59,375

Employee relocation expenses

332

18,391


19,110

38,391

Other non-recurring items

8,840

90,011


10,650

217,179

Adjusted EBITDA (non-GAAP measure)

$      15,021,468

$      10,021,869


$      22,869,648

$      15,866,207







Revenue

44,263,392

30,728,841


76,040,946

50,068,955

aEBITDA Percent

33.9 %

32.6 %


30.1 %

31.7 %

 

Cision
Cision

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SOURCE Schwazze

Cision
Cision

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