Schwazze Announces First Quarter Results

Revenue Increases 64% to $31.8 Million Compared to $19.3 Million in Q1 2021 

Adjusted EBITDA is $7.9 Million, 25% of Revenue 

14 Dispensaries Added During Q1 2022 in Colorado and New Mexico

On Track to Achieve Guidance
Q4 2022 Projected Revenue Annualized Run Rate of Approximately $220 Million – $260 Million
Q4 2022 Projected Adjusted EBITDA Annualized Run Rate of Approximately $70 Million – $82 Million

Conference Call & Webcast Scheduled for Today – 4:30 pm EDT

DENVER, May 16, 2022 /CNW/ – Schwazze, (OTCQX: SHWZ) (NEO: SHWZ) (“Schwazze” or the “Company”), today announced financial results for the first quarter ended March 31, 2022 (“Q1 2022”).

Q1 2022 Financial Summary:

• Revenues of $31.8 million grew 64% compared to $19.3 million in first quarter ended March 31, 2021 (Q1 2021)
• Retail sales were $26.5 million up 124% when compared to Q1 2021
• Gross Margin of $10.9 million was up 34.4% compared to $7.3 million in Q1 2021, both first quarters were affected by purchase accounting
• Net Loss was ($26.8) million compared to a Net Loss of ($3.6) million for the same period last year
• Adjusted EBITDA of $7.9 million was 25% of revenue, compared to $5.8 million for the same period last year
• Colorado two year stacked IDs for Q1 2022 compared to Q1 2021 and 2020 for same store sales⁽¹⁾ were 22.7% and one year IDs⁽¹⁾ were (8.1%) comparing Q1 2022 to Q1 2021
  • Average basket size ⁽¹⁾ for Q1 2022 was $59.21 down 1.7% compared to Q1 2021
  • Recorded customer visits ⁽¹⁾ for Q1 2022 totaled 415,308 down 6.4%, compared to Q1 2021
• New Mexico two year stacked IDs for Q1 2022 compared to Q1 2021 and Q1 2020 for same store sales⁽¹⁾ were 37.3% and one year IDs⁽¹⁾ were (1.9%) comparing Q1 2022 to Q1 2021
  • Average basket size ⁽¹⁾ for Q1 2022 was $59.94 down 1.6% compared to Q1 2021
  • Recorded customer visits ⁽¹⁾ for Q1 2022 totaled 122,913 down slightly at 0.3%, compared to Q1 2021

Accomplishments for Q1 2022
Since December 2021, Schwazze has closed acquisitions adding 14 cannabis dispensaries, 10 in New Mexico and four in Colorado as well as four cultivation facilities in New Mexico and one in Colorado and one manufacturing asset in New Mexico.

Q1 2022 

• Listed Common Stock on the NEO Exchange
• Signed Definitive Agreement to Acquire Assets of Urban Health & Wellness
• 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, “as we continued our successful transformation into a Regional MSO in the first quarter of 2022, we met certain challenges, including the comparison cycling of an inflated Q1 2021, which was aided by stimulus checks and COVID lockdowns.  Colorado’s high COVID rates during Q1 2022 also impacted sales and internal staff. The devastating Marshall Fires in and around Boulder in January of this year, caused one store to temporarily close and the store has been further impacted due to a displaced population in and around Boulder County. Also, overall sales and a decrease in wholesale revenue was largely impacted by wholesale distillate pricing pressure and over-supply in the state of Colorado.”

Justin continued, “however, we remain optimistic regarding our continued growth for the remainder of the year as we believe that Colorado’s first quarter was impacted by macro events.  We are starting to see more positive results entering the second quarter. We are pleased to report that the sales trends in New Mexico, which recently commenced selling recreational-use cannabis on April 1, have seen positive results, and we remain confident in the future growth of this market.  Our revenue continues to grow with a 64% increase overall when comparing Q1 2022 to Q1 2021, with retail sales growing to $26.5 million for the quarter, a 124% increase compared to Q1 2021. While basket sales and customer visits for both Colorado and New Mexico were down quarter over-quarter, attributed to macro events and previous stimulus spending, we once again outpaced the industry performance in the state of Colorado for the quarter by 10.2%.  At this time, we do not have a service that publishes comparable market stats in New Mexico, therefore we will be working on how to compare our performance in the near future.”

Q1 2022 Revenue
Revenues for Q1 2022, totaled $31.8 million including (i) retail sales of $26.5 million (ii) wholesale sales of $5.2 million and (iii) other operating revenues of $0.04 million, compared to revenues of $19.3 million including (i) retail sales of $11.8 million (ii) wholesale of $7.4 million, and (iii) other operating revenues of $0.08 million during Q1 2021 and represented an increase of $12.4 million or 64%. Increased sales are due in large part to additional dispensary sales.  In Q1 2022, we acquired fourteen new retail dispensaries. The decrease in wholesale revenue in 2022 was largely due to wholesale distillate pricing pressure and over-supply in the state of Colorado.

Cost of goods and services for Q1 2022, totaled $20.8 million compared to cost of goods and services of $12.1 million during Q1 2021, representing an increase of $8.7 million or 72%. This increase was due to increased sales and growth through acquisition. The cost of goods and services increased at a higher rate than revenue due to the impact of purchase accounting on retail acquisitions made in the each of the first quarters. Q1 2022 had $6.3 million in additional cost of goods and services due to purchase accounting while Q1 2021 had $2.2 million of additional cost of goods and services due to purchase accounting.

Gross profit increased to $10.9 million for Q 1 2022 compared to $7.3 million during the same period in 2021. Gross profit margin declined as a percentage of revenue from 37.5% to 34.4%, although net of purchase accounting, the gross margin increased from 48.7% to 54.1%.  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 Q1 2022, totaled $15.7 million, compared to operating expenses of $8.7 million during Q1 2021, representing an increase of $7 million or 80%. This increase was due to increased selling, general and administrative expenses including acquisition costs, professional service fees related to acquisitions, salaries, benefits and related employment costs mostly related to the increased number of dispensaries.

Other expense, net for Q1 2022, totaled $20.7 million, compared to $1.7 million during Q1 2021. The increase in other expense, net was due to an increase in interest payments due to various loans and by the non-cash loss on derivative liability related to our 13% senior secured convertible notes due 2026.

As a result of the factors discussed above, a net loss was generated for the Q1 2022 of $26.8 million, compared to net loss of $3.6 million during Q1 2021.  This loss includes non-cash charges totaling $16.9 million; this includes derivative liability of $13.4 million, depreciation and amortization of $2.5 million and non-cash compensations of $1.0 million as well as acquisition and capital raise costs associated with the closing of recent acquisitions of $9.1 million, including $6.3 million of purchase accounting costs and $2.8 million of additional related costs.

Adjusted EBITDA for Q1 2022 was $7.9 million representing 25% of revenue, compared to $5.8 million 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 Q1 2022, the Company generated net cash provided from operations of $5.8 million compared to $1.7 million for the same period in 2021.  The Company has cash and cash equivalents of $47.1 million at the end of Q1 2022. 

Nancy Huber, CFO for Schwazze commented, “Q1 2022 included four acquisitions in January and February expanding the company in all areas.  We also found ourselves cycling large numbers from the previous year and were impacted by COVID as many businesses in Colorado were similarly affected in January. As we move forward in quarters not complicated by acquisitions costs, we are targeting to have positive operating income.  We remain focused on continuing to drive our operating playbook through all our businesses and plan to outperform the market.  We delivered positive operating cash flow despite a challenging quarter.  We will continue to invest that cashflow in growth opportunities both organically and through acquisitions.”

2022 Guidance
The Company’s guidance, issued for 2022 remains unchanged.  Guidance has been issued 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 approximately $220 Million to $260 Million, and the projected Q4 2022 adjusted EBITDA annualized run rate is projected to be from $70 million to $82 million.  

NOTES:

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 – May 16, 2022 – 4:30 EDT
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 May 23, 2022, and may be accessed by dialing 888-390-0541 / 117902#.

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=1548621&tp_key=88d9ed2417  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  and on SEDAR at www.sedar.com