Q2 Revenue of $42.4 Million; Income from Operations of $5.0 Million; Adjusted EBITDA of $13.8 Million or 33% of revenue
Generated $2.7 Million of Operating Cash Flow
DENVER, Colo., Aug. 9, 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 second quarter ended June 30, 2023.
Second Quarter 2023 Summary
| For the Three Months Ended | |||
| $ in Thousands USD | June 30, 2023 | March 31, 2023 | June 30, 2022 |
| Revenue | $42,375 | $40,001 | $44,263 |
| Gross Profit | $24,519 | $23,033 | $25,156 |
| Income from Operations | $4,957 | $5,650 | $9,036 |
| Adjusted EBITDA1 | $13,814 | $14,525 | $15,021 |
| Operating Cash Flow | $2,683 | $(880) | $(13,486) |
| ______________________________ |
| 1 Adjusted EBITDA 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. |
Management Commentary
“We continued to execute on our ‘go deep’ retail strategy in the second quarter, demonstrated by our acquisitions of Everest Apothecary in New Mexico in June, as well as Standing Akimbo and Smokey’s in Colorado,” said Nirup Krishnamurthy, CEO of Schwazze. “Although it is early in the integration process and these stores have yet to ramp, in July we began to recognize synergies from bulk purchasing, introducing new product assortment, and leveraging best cultivation practices to improve yields, among other improvements. We expect to realize additional benefits as we further integrate our assets in the months ahead.
“The cannabis market environment in Colorado and New Mexico remains a challenge due to pricing pressure and license proliferation in key markets. However, we are beginning to see early signs of wholesale pricing stabilization in Colorado and are hyper-focused on customer acquisition and experience, while maintaining our brand standards and margin through targeted promotions for customers. Through these efforts, we increased market share in both Colorado and New Mexico, demonstrating the effectiveness of our operating playbook and acquisition strategy, as well as our ability to execute in a competitive environment.
“Looking ahead, we will continue to run a lean operation while implementing the Schwazze retail playbook across our markets to expand our customer base, increase labor and price optimization, and improve customer loyalty and brand penetration. We are well positioned to continue driving strong adjusted EBITDA margins and consistent cash flow generation in 2023.”
Recent Highlights
- Completed the acquisition of Everest Apothecary in June, increasing the Company’s New Mexico operations to 32 dispensaries, four cultivation facilities, two manufacturing facilities and over 400 employees statewide.
- Appointed Nirup Krishnamurthy as Chief Executive Officer.
- Acquired two Colorado retail dispensaries from Smokey’s Cannabis Company.
- Acquired Standing Akimbo, the largest medical cannabis dispensary in Colorado, and opened the Company’s first medical dispensary in Colorado Springs under the Standing Akimbo banner.
- Ecommerce penetration in New Mexico and Colorado grew approximately 45% and 15%, respectively, compared to the first quarter of 2023 when the program was first launched.
- Experienced 17% sequential growth of new customer loyalty members in the second quarter of 2023.
Second Quarter 2023 Financial Results
Total revenue in the second quarter of 2023 was $42.4 million compared to $44.3 million for the same quarter last year. The decrease was primarily due to lower wholesale revenue resulting from a 25% year-over-year decline in wholesale pricing and the proliferation of new licenses in key New Mexico markets, partially offset by growth from new stores compared to the prior year period.
Gross profit for the second quarter of 2023 was $24.5 million or 57.9% of total revenue, compared to $25.2 million or 56.8% of total revenue for the same quarter last year. The increase in gross margin was primarily driven by efficiency gains across retail, cultivation, and production, partially offset by the aforementioned wholesale pricing pressure.
Operating expenses for the second quarter of 2023 were $19.6 million compared to $16.1 million for the same quarter last year. The increase was primarily due to the four-wall SG&A increases associated with 27 additional stores in Colorado and New Mexico that are still ramping, as well as an increase in stock-based compensation. This was partially offset by efficiencies implemented throughout the Company’s operations.
Income from operations for the second quarter of 2023 was $5.0 million compared to $9.0 million in the same quarter last year. Net loss was $6.6 million compared to net income of $33.8 million for the second quarter of 2022, primarily driven by a $35.2 million change in the non-cash accounting revaluation of the derivative liability related to the Company’s convertible note.
Adjusted EBITDA for the second quarter of 2023 was $13.8 million or 32.6% of revenue, compared to $15.0 million or 33.9% of revenue for the same quarter last year. The decrease in adjusted EBITDA margin was primarily driven by lower revenue and higher SG&A associated with new stores that are still ramping, partially offset by improved gross margin.
As of June 30, 2023, cash and cash equivalents were $19.9 million compared to $38.9 million on December 31, 2022, while operating working capital increased by $5.8 million to $10.0 million during this period. Total debt as of June 30, 2023, was $155.4 million compared to $127.8 million on December 31, 2022.
Schwazze CFO Forrest Hoffmaster added, “In addition to our focus on top line growth, supply chain efficiencies and cash generation, we are capitalizing on our hyper-regional retail strategy with a series of cost optimization programs that are improving our cash position and margins. We have begun to see the benefit of these initiatives and expect to drive further improvements in the months ahead.”
Conference Call
The Company will conduct a conference call today, August 9, 2023, at 5:00 p.m. Eastern time to discuss its results for the second quarter ended June 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: Wednesday, August 9, 2023
Time: 5:00 p.m. Eastern time
Toll-free dial-in number: (888) 664-6383
International dial-in number: (416) 764-8650
Conference ID: 70252888
Webcast: SHWZ Q2 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: 252888
If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at (720) 330-2829.
