SHWZ - Earnings call transcript Q2 2020 | Medicine Man Technologies, Inc.

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Operator

Greetings, and welcome to the Second Quarter of 2020 Conference Call and Webcast for Schwazze, formerly operating as Medicine Man Technologies, Inc. This conference call and webcast is being hosted by Chief Executive Officer, Justin Dye; and Chief Financial Officer, Nancy Huber.

Following the presentation, management will take questions submitted via the web link found on Schwazze's Investor Relations website and in earnings press release. I would also like to remind you that management's prepared remarks and answers to your submitted questions may contain forward-looking statements, which are subject to risks and uncertainties. The words anticipate, could, enable, estimate, intend, expect, believe, potential, will, should, project and similar expressions, as they relate to Schwazze, are as such, a forward-looking statement. all actual involve those results Schwazze this that that and anticipated cautioned at cause may to time. are forward-looking risks statements uncertainties by Investors differ from

public more Commission, Exchange can Investor be or described are Relations Securities www.sec.gov, which risks at the other the U.S. addition, in In Schwazze's on filings reviewed website. with and fully company's

party; satisfactory term and leases under agreements party's tax structure compliance respective the are of and acquisitions to or in regulatory During obligations certain any relating and approval Officer, or is all the discussion go sir. both of all mutually Enforcement with licensing termination applicable material be sheet; the there all will call each to to the of between management's Chief would now and receipt expiration parties. Please execution to also of satisfaction a execution respects like but filings including, prepared remarks that Division periods; consents conditions, targets; the the early acquisitions. material closing and waiting turn are These agreements -- approval; of not to over and the each applicable Chairman in the the employment Justin aspects that mutual the regulatory third-party acceptable local and Dye. authority upon approvals; respective applicable Marijuana answering Executive and waiver investor questions, of approval of definitive to, conditioned potential limited necessary I ahead, company

Justin Dye

and our joining update the business' performance us. quarter and Today, for I'll on Good afternoon broader market. an thank second you provide

rates, operational This shot deemed for of the recreational by industry very of a both According businesses Colorado State the pandemic, the open chain than XX% of cannabis more the of half growth year-over-year analytics, the in growth its of more beginning and As XXXX to market supply COVID-XX. saw specifically, than quarter half XX% entire cannabis the Colorado also with at and first the more increase was industry. of year-over-year. in growth, growth remain essential and to second XX% to the first you pace from grew which cannabis from XXXX, the Colorado the saw of XXXX medical they were onset quarter-over-quarter allowed know, Outpacing sequentially sales arm XXXX.

more growth addition during we're a federal and pandemic, that a I to banking even options the followed an environment seeing echo industry who Last regulatory same industry legalization. to shared sustained to sentiment the more analyst main global In may cannabis present that favorable street access week, today. want

see evaluate regulatory XXXX, We levels, beyond As we while hit demand since legalization growing essential hire. landscape frame for industry recession-resilient. where stands the pandemic the newly robust and catalysts easing next early the being remains in lag we globally at both the COVID-XX deemed potential to try and the with and state cannabis favorable federal

country. believe industry means cannabis to serve turning growth of we which across tax witnessed a could local, as at potential we cannabis federal job and point. provide the the effects While the state At the has term long and is I unprecedented pandemic, believe cannabis a the further a level, in COVID the to legalize have revenue,

our on advancing our switching continued second and dispensary locations, quarter. Now, acquisition gears. acquisition to which the manufacturing included we executing throughout we Despite I'd we strategy. On supply Purplebee's the completed brands Organics April milestones Mesa the and operating the by like a COVID-XX, retail team. business, chain its and formidable and XX, accomplished business, of playbook on brought key focus that challenges

in manufacturer leading Southern of across operates Ford also and of ethanol as Rocky Los and Animas. Purplebee's, $X.X was approximately cannabis state four Organics Colorado and provisions. $X.X an fit a extractor, distillate already certain reminder, proven white brands strategic a Colorado. consideration already operates The cannabis label in approximately purchase to financial is million and producer million leading transaction It cash to for affecting common in COX The has Ordway, As holdback be adjustment and our dispensaries the Mesa throughout results. stock, for excellent shares Pueblo, subject us a and positively pure of

manufacturing calls, As implement improve data to retail we've incorporates to merchandising product in playbook development, outlined continue practices on best performance. that we lean our operating and and prior operations, leveraging

the strong we growth, started and and drive Organics using incorporating to quality. principles leveraging team Purplebee's, While productivity data at lean Mesa and

retail Mesa we're that margins. merchandising the I'm very and changes leveraging sales impact on see four pleased we're in best these Organics starting to report dispensaries. our practices Additionally, to of

such, quarter, net Mesa while narrowed contributions Organics more Purplebee's starting As tripled, and second to topline gross than loss compared our profit through and prior sharply our year.

continue and based acquisition America XX edibles, and North million one we acquisition revenue adds on unaudited and of is cannabis for definitive EBITDA service. margins. growth successful and to with operations XX best-in-class consists the and acquisitions customer forward in cultivation look in selection Additionally, of in one is operating Based to to signed transaction throughout on This the consolidated on approximately state these to per Colorado X, implement and scale playbook location range. the size profit of XXXX recognized with retail results, acquisitions front operators and $XX concentrates, agreements We these June in strains, Colorado. our company tinctures home locations to our plan. retail generated our the wide most of Starbuds revenue Colorado. a Starbuds adding strong This pending

for change companies we in the XX this expect transactions to Division with already the full the cultivation. Enforcement dispensaries, applications of the first coming close of have manufacturing seed-to-sale Starbuds ownership the the publicly Colorado completion Marijuana with Upon one and in and will traded of locations with Colorado be operations submitted months. XX We transaction,

approach growth. a with conjunction in margin Additionally, in we multipronged see opportunity to improve revenue

that there aligning driving retail service operating operational we driving on line. organization. offerings, opportunity is the focused our First through better driving the that rethinking believe putting throughout implemented drive and manufacturing is partnerships to focused growth, on value we're to products new foremost, and margin bringing on being and more playbook operations From our improvement to emphasis structure our to and cost improvement. We're bottom our our leveraging an market

new process quarter focused grow help of our the rigorous drive and management In capital In throughout addition to quickly. implemented workforce business. technology and scale and productivity. to the second enable people, acquisition year, to we to business to a continues tool human the quarter, to the work this our team the in merger make scale building capabilities headway We're our great on second out

expected We ERP rolling smooth integration continue July the Mesa first Schwazze. Also, system making phase of we best-in-class out Purplebee's integration in are also and progress Organics live a into and our implementation going delivered X throughout XXXX. to created playbook comprehensive that a with has

will acquisitions. for the continue We this framework Starbuds

synergies our Our I'm acquisition pleased all, platform since business. integration improved that with passion a of performance becoming all capabilities, Schwazze our our and dedicated the family. part coupled within and energy focus, areas seeing of very I'm across our execution, track in accurately with has capture to All

acquisition with strategy. on our acquisitions, making announced previously Extracts, proceeding the like Sueños decided let including be Medicine I'd not on And will Correct. following We've and Farms We Man Los the Rx, sheet that previously Medically to we've the announced the with Dabble dispensaries remain announced expire month. negotiations while and Roots platform, also update of with an progress MedPharm Cultivation. Finally, the targets, to term at our also in the active we Canyon provide we're end

Bill House numerous last despite of operators, diligence. signing year, term with forward the Colorado quickly the having the moved Colorado company XX-XXXX due limited Following conducted sheets cannabis on

parties not businesses. transactions. diligence We we forward our to continue spending negotiations, these and move time However, wish all the to the chose with each respective best the after on operators as pursue

opportunities our the our will moving to experiences direction summary, XXXX strategy be that providing evaluate We inquisitive employees, unchanged. and products a is and In of communities for forward to our We're and working all, our for fit stakeholders, make year and our trusted above milestone our consumers. customers. most continue

second Let me to call turn review Nancy our detail. the financials greater Huber our quarter to now over CFO, in

Nancy Huber

echo generated revenue year. prior growth And very saw results, the in Once again, Justin. the your me we grew the first continuing sentiments we regarding you, encouraging quarter second quarter. the each from earlier segment as let Thank business

indicated impact on first COVID-XX that quarter we've we our our on supply call, chain fortunate negative our been conference during a time. As not this and had remained solid businesses, has

compared Organics over was rose the attributed This sales product acquisition can totaled of revenue of million, increase revenue the quarter, over Without last same increase in in goods the XXX%, million. $X.X sales ago. $X.X the to for acquisition, XXXX. $X.X cost For services sale a XX% the XXX% due to million The same and increased the be Mesa in largely year product year which the XXX% a April rose sales ago period to of with nearly period. associated products. Notably, period second primarily year million was $X.X

compared the of higher and stock-based of to million prior XX% the associated from decrease the the of businesses effect last was quarter to a last year in partially Gross for business. the in in XX% a second contingent $X.X percentage the attributed a did The related were This expenses million the million decreased acquisitions increased expense compared points seamless integration offset compensation a Gross the profit XX% with activities salaries, cost versus decrease have same profit the same revenue to not by infrastructure of for in on non-cash of was revenue of building acquired $X.X to services. in Operating million XXXX. year. with $X.X prior primarily year. to period revenue, margin SG&A The professional percentage pipeline. coupled during derivative As and ensuring period services material in and goods compensation XX% $X was year gross X quarter. second to

view FP&A, our expense and other on $X.X will to cash of was net due compared as $X.X discussed facilitate have We unrecognized an on compared equivalents to of $X.X this facilitate interest $X.XX previously, that as had us loss and teams coupled sustainable of net and expenses an and we XXth, The year decrease $X.X $X.X This other weighted will was organic Net for share growth them enable investment and $X.X This on platform liabilities. for to in As million. HR gain primarily second us loss platform, built and marketing million integration, of on represented loss or of including expense, the growth. year. help with a million expense million improvement IT, quickly. classified last in derivative period. other more. a acquisitions future then closing $X.XX loss per net quarter unrealized integrate share totaled a acquisition merchandising, we June have M&A, an per our a for Net investments, average by basic offset lower We or of to as diluted the XXXX. a million million cash loss ago robust

our we And plans the additional we through pandemic, in navigate continuously we As contingency review should resources. place, cash need needs. cash have

We certainty into will entered need. have fund sheets, today, additional to cannot capital to explore much We we may acquisitions may need capital we raise both. equity additional state likely the form or transactions with of and binding in also debt, the term how capital-raising on which

need the expect successful that integrated to will operations. will generate because This from flow execute, capital current cash planned generated to raise on ongoing we us believe is we upon to operations. sufficient allow our completion acquisitions the be we business the revenue not operations. acquisitions, implement business from of positive will fully we And to However, the additional

to call I'd his Now Justin like hand to, comments. over for back the closing

Justin Dye

Nancy. Thanks,

is proud year-over-year clear we're from to a while dispensary it, product with Let labeling far. expanding a Mesa in we expansion by and me thus our winner. Organics what And expansion benefited from encouraged part have of locations, the opportunities. product to part a our quarter, increased July, into of business portfolio. we're as third Purplebee's sales The conclude remarks additional white the are seeing, as year-over-year, due glimpse In

continue services the seed-to-sale expertise that platform, we expand As projects. And to to some we cultivation on we internal are have our in refocusing our areas, of services. professional

while our As coming revenues those savings in and do decrease should months, such, the increased projects to we areas of new business. other expect the in related to services, generate specific these revenues

as acquisitions accomplished have beginning Purplebee's. over Looking believe four we over to plant-touching close date ahead, a These in To months we to with our this the Mesa conclude, additional our Organics aim us just acquisitions at help and a months. increase Starbuds company. I lot, we're we've and on journey. of And collective time, and what experienced efficiencies coming profit the like will margin

and the company we that's will excellence, supported course, cannabis strong that to Our and traded This we're And only intention into and what Colorado, to best will not outcome. operating a recently, if they acquisition long-term performance cases publicly be in success. as in change built, in we get for that by us, leader, can few infrastructure build the become be their re-evaluating To will experienced, driving be of EBITDA most promote sustainable a will is profitable constantly have bringing makes dictate, potential. a a positioned while by single the across we sense terms if together nation. circumstances think there, we entities team organization. have our pioneers, that but so market These accomplished

acquisition we best only act the opportunities that static with and the far from rather, is which And our provide needs. will possibilities. Our us think we it's dynamic pipeline upon therefore, greatest And evolving. suit

our with all my We'd thank sharing link to Relations and appropriate. also enthusiasm thank, employees, for a I leaders our questions. QX to all our So for organization, question, click the progress, for portion of investors, on of that, Investor your performance. and express and the updates, our on of the in be let ask would their a on great as To now further website continued me support please take submit. happy like our

Raquel Fuentes

you, Thank Justin.

again? you targets we your have, acquisition in have do announced How have from gives your question you you throughout off changed What not do XXXX. acquisition is, track What confidence that these you that learned first ensure, experiences? strategy? Our get

Justin Dye

term the my House As diligence. quickly following of Bill the prepared signing deep conducting, moved sheets, number last Colorado of a company without discussed on in forward year, XX-XXXX remarks, the

diligence. we due So had conducted limited

to transactions. diligence doing chosen going for on time our negotiations, spending what's our best to to parties be to the after We're shareholders. on and continue continue have However, not pursue and company focused

very ability these While remain I strategic to confident, forward, profitable deals platform operators. in cannabis winning a didn't move with our build

opportunities business change pipeline therefore, makes best Our shareholder act for upon, and very will the evolving. to dynamic only the continue we re-evaluate, capabilities create the what acquisition is value. And and to we in And sense front. build future is course of We'll But for need our as circumstances acquisitions. the bright I'm And I adaptable. terms dictate, us in we'll is and very think confident future, to. on as our be very M&A most

Raquel Fuentes

Thank you.

Next decline to question. There some coverage related and has been stock the company the changes in recent the price.

Justin, that company be the questioning, you say to if deliver? what might do those can

Justin Dye

last a want months you. four these now. Thank a plant-touching have we've that, I'd lot in company I say, been Yeah. mention first for approximately we've accomplished only few to months. to

this the playbooks, a our all closing first we backdrop definitive a operating system, implementing adding Our of and new announced resources integration, with that pandemic. additional agreements ERP new system, and human

very So to a Recently, young is all started to level this how remind take of circumstances. high just I've company the really. myself that we're getting team's despite of had executed and at the and moment the a

to As would it relates normal start-up, company. the changes We've this had, had every say, we've specifically is early-stage aggressive in strategy. I

products deals, platform and these most might one myself, looking We've see bottom focused leading on to a our delivering some cultivation, leadership each The is retail and most create the our were the with is lot certainly shareholders operations. – building we're pursuing manufacturing experiences and at through each value of for the line. the that trusted and team believe drive that a and committed leading Board, of changes setbacks, evaluating. things While learned the as worth deals opportunities these we

been So we view executing, think our what gotten done. and feel we're good. general we've I proud of We've is, very

Raquel Fuentes

in, you. Starbuds? the how locations Thank Schwazze of acquisition of come The the next that's question Colorado fund has

Nancy Huber

capital, acquisition we and believe So of as transactions we will Starbuds additional closed ongoing we'll We positive to to and equity that form from operations. that capital-raising we coming we And operations the earlier, the and our working need not debt. talked the months. funds Starbuds cash expect close to the capital close anticipate acquisition, we'll do raise generate we're acquisition in business do we've and do exploring that a need believe once in flow execute

Raquel Fuentes

in, The the next and what comes Thank like footprint question partners, now? new changes that with you. the in acquisition will revenue your look

Nancy Huber

So the have we dispensaries, in just that of couple months, specifically Starbuds would manufacturing the acquire closing talking acquisition, as assuming XX cultivation a facility. and a we about next

$XX at be from Schwazze, Late and Organics in Mesa would dispensaries. together. if – early that XXXX, million about company For additional forma Starbuds and three revenue pro in the a XXXX look in Mesa opened and look for Organics then, back you XXXX,

will fact So as obviously, the well positive from as from then certainly a revenue, the on scale as of we review the an XXXX EBITDA we that, will that, so we have very company, Starbuds company based to experiencing And the to revenue you that with anticipate far. that the the expectation XXXX successful increase as negative move the we're add acquisitions. closing

Raquel Fuentes

you. Thank Great.

performance Next in question insight QX? Is that are Organics level sustainable? profit the how of locations that performing? during newest margins you the any comes provide in. And on Mesa Can

Nancy Huber

those the indicated a material our specifically in about separate our So we -- as talk in earlier businesses. we didn't the my effect businesses. acquisition without have margins would as that we don't But remarks, margin I on have reported

continue We playbook the dispensaries we in environment. example, calculate improve. to manufacturing do, as lean the however, stores, MIP we there playbook continued So the expectations well. The operating feel We're operating the at new look margins implement we'll you for and execution two the and appropriately have We just opened like. like see what based revenue are can both the that doing set as those progress for margins believe really those started of are that and pleased pandemic dispensaries. on with the our

Raquel Fuentes

Great.

that's the come Can in. XXXX you question Next more a about tell performance of bit us Starbuds?

Nancy Huber

can add talk at not I wealth brings of a our the of we're some dispensary we're state. expertise their Starbuds I've and And customer company believe The performance and exceptional. that is operator pleased this seen to the locations the cannabis we of able service time. So in largest I to about the stores the say to that become we Colorado best visited, terms their footprint fourth retail would that, that with portfolio. in

really to part them forward looking company. we're as So the having of

Raquel Fuentes

Great. Thank you.

Next question.

timetable When other changed? next has your Justin, transaction for closing the transaction? we can expect

Justin Dye

Yes.

Let you can me tell share. we what

continue We to We to good work very on aggressively the feel close acquisition. that. about Starbuds

team with development additional negotiations as you forward. look can updates acquisitions to remains we corporate the engaged sharing our Additionally, with going more and we in partners, forward and

continue we can. update once we'll to So shareholders

Raquel Fuentes

Great. X, preparing time going We've more delivery for live How I in this January Colorado XXXX. got understand one change? question. is on is recreational Schwazze for

Justin Dye

question. great Great,

in about we experience want world, products multiple multiple products, to receive You ways know buy know, so when approach and think consumers we cannabis. an ways and they as they to today's omnichannel shop that

changes toward to to -- As we fronts. got the rec related on look a multiple delivery, we're we've plan game really

and working things with in around have related When with to municipalities it's a strategy the the it case capability, no on options we working this local ensure comes We're to includes but opt in, delivery. to with with speak the where Colorado, we're it e-commerce, this and delivery As up operate. to able be partners jurisdictions well. benefit last-mile is customer as the delivery to implemented we as local to is cannabis

in and provide details to look coming our opportunity approach the customers, So for to we're excited releases an about forward coming and research. we more sharing omnichannel

Okay.

Justin Dye

everyone information the very thank We your to us for and to joining additional much. in look business today. like Schwazze I'd you future. Thank on providing our interest in forward Well,

Operator

Thank concludes you. This today's conference.

at your Thank you You may participation. lines this disconnect for your time.

Medicine Man (SHWZ) 13 Aug 202020 Q2 Earnings call transcript