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Medicine Man Technologies Inc

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Fourth Quarter and Full Year 2023 Results
In 2023, Schwazze delivered solid top-line growth in two highly competitive and challenging markets with 31% adjusted EBITDA margins and improved operating cash flow. We continue to believe Schwazze will emerge from this environment well positioned to capitalize on the cannabis market in both Colorado and New Markets.
Fourth Quarter
Total revenue in the fourth quarter of 2023 increased 8% to $43.3 million&nbsp;compared to $40.1 million&nbsp;for the same quarter last year. The increase was primarily due to growth from new stores compared to the prior year period and increased wholesale revenue, partially offset by pricing pressure in the New Mexico market. Fourth quarter Retail revenue was $39.6 million, compared to $36.9 million a year ago, driven by new retail locations. Wholesale revenue grew to $3.7 million, up from $3.2 million in the fourth quarter of 2022.&nbsp;
From a wholesale standpoint, Schwazze generated 18% year-over-year growth in the fourth quarter across both states. The Company made solid progress with fan-favorite gummies brand, Wana, which grew 48% in 2023 and is now in 130 doors with eight of the top ten accounts in the state. While still in the early stages of expansion into the New Mexico market, wholesale sales there in the fourth quarter grew to 28% of the total wholesale business, compared to 22% in the prior quarter.
Gross profit for the fourth quarter of 2023 was $7.0 million,&nbsp;or 16.2% of total revenue, compared to $21.7 million,&nbsp;or 54.1% of total revenue for the same quarter last year. The decrease in gross margin was primarily driven by one-time, non-cash inventory adjustments of approximately $13.1 million&nbsp;comprised of $3.1 million&nbsp;of product consolidation, obsolescence, and shrinkage expenses, $4.3 million&nbsp;of net realizable value adjustments, and $5.8 million&nbsp;of fair value adjustments on acquired inventory in New Mexico&nbsp;in 2023. Adjusted gross profit, which excludes non-cash inventory adjustments, for the fourth quarter of 2023 was $20.2 million&nbsp;or 46.6% of revenue.
Operating expenses for the fourth quarter of 2023 were $23.3 million&nbsp;compared to $24.2 million&nbsp;for the same quarter last year. The decrease was primarily due to a lower impairment charge in the fourth quarter of 2023. This was partially offset by an increase in four-wall SG&amp;A expenses associated with the 22 additional stores in Colorado&nbsp;and New Mexico&nbsp;that are still ramping, as well as greater salaries and stock-based compensation.
Loss from operations for the fourth quarter of 2023 was $16.2 million&nbsp;compared to $2.5 million&nbsp;in the same quarter last year. The decrease was driven by the aforementioned lower gross profit, primarily related to the non-cash inventory adjustment. Net loss was $30.9 million, or a loss of $0.43 per share,&nbsp;for the fourth quarter of 2023, compared to a net loss of $29.8 million, or a loss of $0.53 per share,&nbsp;for the same quarter last year.
Adjusted EBITDA for the fourth quarter of 2023 was $11.0 million,&nbsp;or 25.3% of revenue, compared to $13.3 million,&nbsp;or 33.1% of revenue, for the same quarter last year. The decrease in Adjusted EBITDA margin was primarily driven by higher operating expenses associated with the 22 additional stores that are still ramping. 
Full Year
Consolidated revenues for 2023 totaled $172.45 million compared to revenues of $159.38&nbsp;million for the same period last year, representing an increase of $13.07 million or 8%. This increase in revenue resulted from both acquisitions and organic growth in the retail footprint. Revenues for Retail for the year ended December 31, 2023, were $155.46 million, an increase of $14.21 million, or 10%, compared to prior period, which was largely due to the Companyâ€™s increase in retail dispensary base from 2023 acquisitions. Revenues for Wholesale in 2023 were $16.77 million, a decrease of $1.05 million, or 6%, compared to the prior period, which was primarily due to the year-over-year decline in Colorado market prices. 
Cost of goods and services for the year totaled $96.42 million compared to cost of goods and services of $79.09 million for the year ended December&nbsp;31,&nbsp;2022, representing an increase of $17.33 million or 22%. The increase in cost of goods sold in 2023 was mostly related to one-time non-cash inventory adjustments mentioned in the fourth quarter.
Gross profit totaled $76.02 million compared to gross profit of $80.29 million for the year ended December 31, 2022, representing a decrease of $4.27 million or 5%.
 <img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/SHWZ2023Overview.png" style="width: 702px;height: 167px" /> 
 
 Source: Company reports 
 
Operating expenses for the year totaled $72.73 million compared to operating expenses of $67.43 million during the year ended December&nbsp;31,&nbsp;2022, representing an increase of $5.30 million or approximately 8%. This increase was largely due to increased selling, general and administrative expenses such as rent, wages, and other operating costs, plus, other non-recurring expenses included in selling, general and administrative expenses.
SG&amp;A expenses for 2023 were $39.92 million compared to $29.04 million for the year ended December 31, 2022. The increase in SG&amp;A in 2023 is largely related to acquired and organic retail dispensary growth, partially offset by amounts received for loss recoveries. The increase also includes certain one-time expenditures related to rent, utilities, insurance, and other dark carry costs of non-operational assets. The Company increased store count from 41 to 63 in 2023 compared to the same period last year.
Schwazze took a Goodwill impairment charge during the year. As of December 31, 2023, Success Nutrients was deemed held for sale and at that time, the Company revalued the goodwill of Success Nutrients. Accordingly, the Company had approximately $1.80 million of goodwill impairment in 2023, of which $1.29 million was related to the sale of Success Nutrients and $511,740 was related to a previously acquired retail dispensary and cultivation facility located in Colorado.
In addition, on December 31, 2023, Company discontinued operations related to one cultivation facility located in New Mexico acquired in the R. Greenleaf acquisition. The Company had approximately $1.01 million in fixed asset disposals, and $963 thousand of capitalized raw materials and work in process costs which were disposed of relating to the cultivation facility.
As a result of the factors discussed above, Schwazze generated a net loss for 2023 of $34.5 million ($42.7 million including preferred stock dividends), or a loss of $0.53 per share ($0.66 per share including preferred stock dividends). This compares to a net loss of $18.47 million ($26.3 million including dividends) during 2022, or a loss of $0.34 per share ($0.49 including dividends).
 The Company reported full year 2023 adjusted EBITDA of $53.4 million, or a 31% margin, compared to $52.0 million, or a 32.7% margin, in 2022.
Industry Conditions 
 
Conditions in both states remaining challenging. Sales in the Colorado market decreased in 2023 for the second consecutive year. The Colorado market dropped 14% from $1.77 billion in gross sales during 2022 to $1.53 billion in gross sales during 2023. The New Mexico market showed strong growth in 2023 following legalization of adult-use cannabis sales starting on April 1, 2022.&nbsp;According to BDSA, the leading provider of market intelligence for the cannabis industry, the New Mexico market generated approximately $610 million in sales in 2023, up from approximately $461 million in sales during 2022 or approximately 32%. However, a much sharper increase in the number of New Mexico dispensaries resulted in a lower per location revenue generation.
 As of December 31, 2023, there were 686 recreational cannabis licenses issued in Colorado, up from 670 recreational cannabis licenses issued as of December 31, 2022. In New Mexico, there were 452 cannabis licenses as of December 31, 2022, which increased to 677 cannabis licenses as of December 31, 2023.
However, there appears to be some stabilization in wholesale pricing, especially in Colorado, which we anticipate will continue based on plant counts and ongoing retail pricing pressure. For example, cultivation licenses in Colorado have come down roughly 22%, which is a sizable move from approximately 1,200 licenses at the end of 2022 to over 920 as of the end of 2023, below pre-COVID license counts. In Colorado, flower AMR has maintained an average price around $750 per pound in the fourth quarter, which was consistent with third quarter levels and up from $703 per pound in the second quarter. As supply and demand continue to become better aligned, we would expect pricing to improve.
In New Mexico, the upward trend in retail locations may also running its course. Approximately 225 new stores were opened in 2023, bringing total stores up to more than 677 as of year-end. New Mexico sales increased 18% year-over-year in the fourth quarter, but with store count up over 50% in the same period, thatâ€™s led to about 20% lower revenue on a per-store basis. Closures of retail locations have trended upwards in recent months, and we are starting to see net new store growth rates decline.&nbsp;Better enforcement of regulations and an overall difficult operating market should drive the recent closure trend forward in 2024, in our view.
For Schwazze, management remains focused on cost optimization and asset utilization while implementing a balanced pricing and promotional strategy to drive traffic into stores, where we believe the Company excels in delivering an elevated retail experience. Management noted the Company will be taking some pricing actions to both drive sales and put additional pressure on weaker competitors.
Balance Sheet and Cash flows
At year-end, cash and equivalents totaled $19.3 million compared to $19.6 million at the end of the third quarter, and down from $39 million at the end of 2022. Total debt as of December 31, 2023, was $156.8 million&nbsp;compared to $127.8 million&nbsp;on December 31, 2022. The Company does not have any significant debt maturities until February 2025 when $17 million related to the R. Greenleaf acquisition comes due. If the SAFER Banking Act comes into law, we would expect the Company to revisit its existing capital structure, most likely seeking to refinance its existing outstanding debt.
Schwazze continues to generate positive cash flow. During the fourth quarter, the Company generated positive operating cash flow of $3.5 million. During 2023, the Company had approximately $12.20 million of net cash provided by operating activities compared to net cash provided by operating activities of $6.70 million in 2022. This represented an overall increase in cash provided by operating activities of $5.51 million or 82% when compared to the prior period. We view the generation of positive operating cash flow as a key differentiator with the vast majority of cannabis operators.
Updated Projections 
 
Although we expect overall market conditions to remain challenging in the first half of 2024, we believe we could see an improved environment in the back half of the year. As mentioned, the Company is being proactive in this environment. In early December, the Company rolled out new flower pricing with greater variety while also implementing a tiered pricing strategy for its CPG and branded products. The early results have been positive. Management is evaluating new methods to grow the customer loyalty program and is experiencing seeing growth and penetration there, growth in basket, and growth in new loyalty sign-ups. On the wholesale front, the&nbsp;wholesale portfolio has continued to generate momentum, demonstrated by the more than 250% growth in 2023 of the licensed pre-roll brand, Lowell Farms, which is currently the number one pre-roll in Colorado, selling into six of the largest accounts in the state. The Lowell Farms products are expected to be expanded into New Mexico with an expected April launch. The Company also has a couple of new brand developments on the launch pad.
For the first quarter of 2024, we are estimating revenue of $42.5 million compared to $40 million in the year ago period. Gross margin is projected to decline, due to the competitive environment, to 45.9%, slightly below the fourth quarter&#8217;s adjusted 46.6%, but down from 57.6% last year. We are projecting a net loss of $11.6 million, or a loss of $0.16 per share versus a loss of $283,965, or a loss of $0.01 per share, in the first quarter of last year, which benefited from an $8.5 million unrealized derivative gain.
For the full year 2024, we are projecting revenue of $179 million, adjusted EBITDA of $49 million, or a 27.4% margin, and a net loss of $33.9 million, or a loss of $0.47 per share.

Medicine Man Technologies Inc (SHWZ)

Fourth Quarter and Full Year 2023 Results

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A Move to the OTC Expert Market (SHWZ)

Noble Consumer Virtual Conference (SHWZ)

In for the Long Haul (SHWZ)

Fourth Quarter and Full Year 2023 Results (SHWZ)

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