Fourth Quarter and Full Year 2023 Results

A Management Change

Staying the Course

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Industrials

Business Services

Medicine Man Technologies Inc

<p><strong>Third Quarter 2021 Operating Results</strong></p>
<div>Schwazze reported total revenue for the third quarter of $31.8 million, representing an increase of approximately 328% compared to $7.4 million during the same period in 2020. Retail sales for this quarter were $20.7 million compared to prior year retail sales of $1.1 million. Wholesale operations revenue increased to $11.0 million from $6.3 million. 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.</div>
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<div>Total cost of goods and services were $16.8 million during the third quarter, compared to $4.6 million during the same period in 2020. Gross profit increased to $15.1 million during the three months ended September 30, 2021, compared to $2.8 million during the same period in 2020. Gross profit margin increased as a percentage of revenue from 37.4% to 47.3%</div>
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<div>The Company reported third quarter 2021 net income of $968,756, or $0.02 per share on a diluted weighted average, as compared to a net loss of $2.9 million or a loss of approximately $0.17 per share on a basic weighted average during the three months ended September 30, 2020. Third quarter adjusted EBITDA was $8.8 million, compared to an adjusted EBITDA loss of $782,169 in the same period last year.</div>
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<div><strong>Improving Operating Metrics</strong></div>
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<div><strong></strong>Schwazze continued to post a number of positive operating metrics during the quarter. Same store sales of the seventeen Star Buds dispensaries when compared to last year, prior to taking ownership of the assets, were $20.7 million, up 1%. Average basket size was $59.70, up 8.6%. Customer visits were 353,370, down 5.8%, although year-to-date customer visits are up 5.1% to 1,046,232. GM increased to 47.3% from 37.4% last year. Approximately 65% of revenues were derived from retail and 35% from the wholesale business.</div>
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<div>Through implementation of the synergy realization office, the Company has been able to effectively contribute to growth and efficiencies at its manufacturing and retail locations. As mentioned, retail sales came in at $20.7 million compared to $1.1 million in the third quarter last year. Segment gross margin improved to 54.3% from 45.8%. Wholesale revenue rose to $11 million from $6.3 million in the year ago period, although segment gross margin declined to 34.2% from 38.3% last year. We anticipate further operational improvements going forward.</div>
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<div><b>Market Beating Performance</b></div>
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<div><b></b>Based on recent Colorado Department of Revenue data, Colorado sold $577 million of adult-use and medical cannabis product during the past quarter, an approximate 11.4% decline year-over-year, although down only 1.7% sequentially. We believe the decline in quarterly sales reflects the cycling of COVID related demand, which had increased sales last year as COVID restrictions limited other entertainment options for people. Nonetheless, Schwazze continued to post market beating numbers as it achieved a 1% growth rate at those stores where there is year-over-year measurement, demonstrating the Company&#8217;s ability to outpace and capture market share. We continue to believe that 2021 will be another record year for cannabis in Colorado.</div>
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<div>As we have noted previously, while management indicated expansion into other states remains on the table, we view the likely end result for Schwazze as more of a super regional than a MSO with disparate operations across the country. Given our view, attractive states likely would be contiguous to Colorado and nearby, allowing Schwazze to benefit from the full extent of synergies possible. We also believe management would need to see a clear path to replicating its Colorado success, i.e. a pathway to becoming the market leader, in any other state. But we also continue to believe there is significant growth opportunity just in Colorado, a very attractive market. Management continues to point to a goal of a $500 million to $600 million revenue Colorado business. And the expansion into the cultivation side of the business will improve the long-term margin profile. Where Schwazze is currently paying $1,000 to $1,500 per pound to obtain product for its retail dispensaries, cultivating the product in-house could drop that cost to $500. This is in the early days, as the SCG acquisition just closed, but the vertical integration story is just beginning, in our opinion.</div>
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<div><strong>Emerald Fields Acquisition</strong></div>
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<div><strong></strong>On November 16th, Schwazze announced it had entered into an agreement to acquire MCG, LLC, aka Emerald Fields. Emerald Fields operates two dispensaries, one in Glendale and one in Manitou Springs. This will increase the total number of retail dispensaries to 22.&nbsp;Total consideration for the acquisition will be $29 million and will be paid as 60% cash and 40% Schwazze common stock upon closing. The acquisition is targeted to close in the next 75 days. The Manitou Springs location is reportedly one of the highest grossing dispensaries in the state as it is near the major city of Colorado Springs, which has yet to approve adult use retail&nbsp; dispensaries.</div>
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<div>Although management did not provide detail regarding revenue and adjusted EBITDA contribution, using the middle of management&#8217;s 3-5x adjusted EBITDA goal for acquisitions and the 27% third quarter adjusted EBITDA margin, we back into an estimated revenue contribution in the $27 million range and adjusted EBITDA of $7 million.</div>
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<div><strong>Liquidity</strong></div>
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<div>We expect Schwazze to raise additional capital to complete its pending acquisitions, as well as fund potential new acquisitions. At the end of the third quarter, the Company had $21.2 million in cash and cash equivalents. Cash necessary to complete the Brow, Smoking Gun, and MCG acquisitions totals about $28 million. As with past capital raises, we would expect the Company to use the least costly manner of raising capital. Net cash provided by operating activities was $4.8 million during the nine months ended September 30, 2021, compared to cash used in operating activities of $6.3 million in the same period last year. Long-term debt at the end of the quarter totaled $59.2 million.<br />
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<div><strong>Updated Projections</strong></div>
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<div><strong></strong>Management tightened its prior full year projections, with revenue now anticipated to be in the $110-$115 million, compared to $110-$125 million previously, and adjusted EBITDA to $32-$34 million, compared to a previous $30-$36 million. We are maintaining our prior revenue projection for the fourth quarter of $32.6 million. We did raise some expense estimates, given the third quarter run rates. In addition, we raised our projected tax rate to the 53% from a prior 28%. Net net, the changes reduce our projected net income to $1.3 million, or $0.02 per share, from a prior 2.5 million, or $0.05 per share. Our adjusted EBITDA estimate is $9.3 million for the quarter. For the full year, we are projecting revenue of $114.5 million, adjusted EBITDA of $34 million, net income of $2.9 million, and diluted EPS of $0.07.</div>


Medicine Man Technologies Inc (SHWZ)

Post Management Call Commentary and Updated Models

Fundamental Analysis:

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Fourth Quarter and Full Year 2023 Results (SHWZ)

A Management Change (SHWZ)

Staying the Course (SHWZ)

Insider Adding shares (SHWZ)

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