Schwazze Announces Second Quarter Results

Research, News, and Market Data on Schwazze

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 /PRNewswire/ – Schwazze, (OTCQX: SHWZ) (NEO: SHWZ) (“Schwazze” or the “Company”), today announced financial results for the second quarter ended June 30, 2022 (“Q2 2022”).

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
• Average basket size ⁽¹⁾ for Q2 2022 was $59.98 down 4.1% compared to Q2 2021
• Recorded customer visits ⁽¹⁾ for Q2 2022 totaled 444,771 down 8.9%, compared 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
• Average basket size ⁽¹⁾ for Q2 2022 was $54.56 down 12.7% compared to Q2 2021
• Recorded customer visits ⁽¹⁾ for Q2 2022 totaled 209,591 up 49.4%, compared 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.  

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,
2022 – 5:00 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.

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SOURCE Schwazze

Released August 11,
2022