Earnings call transcript Q1 2023

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Operator

Good afternoon. My name is Jenny and I will be your conference operator today. At this time, I would like to welcome everyone to the Schwazze First Quarter 2023 Conference Call. [Operator Instructions] Ms. Jobin, you may begin your conference.

Joanne Jobin

the quarter to webcast call welcome Schwazze. for and XXXX conference first and Greetings

hosted Dye, Chief by Executive being are We Justin Krishnamurthy, and Officer; Chairman President; Forrest Officer. Hoffmaster, Financial Nirup Chief and

found release. management presentation, and submitted web Relations take Following on earnings their Investor press will Schwazze’s the via questions the link in website

forward-looking anticipate, which answers submitted questions of may financial I would you of build, poised, believe, approximate, include, may and remind uncertainties. your to for preceded statements to Schwazze. develop, that management’s and forward-looking future future could, and statements Such project, similar expressions potential position, to and statements, to are others, operations continue, also plans relate be like and prepared subject risks remarks plan, regulation objectives as regarding and legislation state become, business among strategy, contain results words, and Examples they by federal expect, Schwazze’s and statements forward-looking the or operations. may, will,

are differ Investors events, achievements forward-looking or and risks by performance, results, cause involve to that statements may those at uncertainties this actual anticipated Schwazze time. that from cautioned all

concerning cause achievements differ earnings or quarter March at website is XX-Q the could results, performance, Form for to and Schwazze’s before XX, factors first release ending Schwazze’s available information in this available Relations Investor that materially made XXXX. call events, on Additional available in auto

available GAAP during Schwazze with public financial in directly company’s non-GAAP of which the In the or with addition, website. on website. reconciliation or A made found can earnings www.sec.gov before discussed other between non-GAAP comparable at the measures be call this call Schwazze’s U.S. and available measure Schwazze’s Relations can Relations Schwazze’s filing and release reviewed www.sedar.com Securities the Investor in the press Investor discuss most call. financial measure differences today’s information described fully Exchange Also, be more the during and Commission, is may on

to turn like CEO now Chairman, would Justin over to and the I call Dye.

Justin Dye

us thank you joining and Hello for this afternoon.

start strong XXXX. Our company in a off is to

clearly acquisitions that continue and in in seeing core Mexico. best-in-class We position operations operator increased our Colorado are strength to our a as in solidify and New complementary

the with sharing We are the of to you. here quarter XXXX be today results first happy

your off start Forrest business Krishnamurthy afterwards, review before will President, will will by our we’ll financial providing I and Hoffmaster to turning take will to our who thoughts, CFO, brief results operational overview call a then and provide over be questions. our concluding Nirup offer detail. the I in quarterly details happy

is happening million or states. Schwazze is Regardless XX% that Adjusted year. Colorado share, revenue. deepen market the prior marketplace doubling that increased revenues quarter we I million, compared of with a pleased New EBITDA competitive million to is profitability hear $XX almost which of XX.X% Mexico, $XX.X intensely of in first and seriously XX.X% of growth taking grown that had progress our continue revenue, XXXX and solid SAFE Washington, dynamics, or reform Act. both footprint of in same results the $X.X quarter consistently to industry have D.C. and to encouraging total report am and represents Banking year to the It in of with last quietly

flow synergistic capital improving meet debt ongoing to free and on results customers we core acquisitions cash focus continuously not delighting are generating that tax with obligations. Our only but patients while discipline operations, the remains our and our integrating indicate and capably our

in states deep We strategy regional to to operating gain will loyalty our and and customer share. our continue market go execute

customers, a service wide employees, winning be products proven assortment for our long-term approach combination to with with Our a of differentiated powerhouse customer high-quality exceptional has operating plans building a a by our delivering backed regional playbook and of shareholders. of

Schwazze teams our are I’m the and thank approach strongest Lastly, their team. of talented industry it. operation. to one best-in-class proud would They most and like of in results building the extremely to disciplined today a commitment I the show and

Now, take accomplishments to for President, over us the Nirup our of I Krishnamurthy the to some would call through the turn like to quarter.

Nirup Krishnamurthy

Dustin. It’s strengths a support current Thank on into taking advantage been productive quarter to you, strategy company. our a well play our concentrated on areas, for infrastructure. full dynamics lean market deep our The and of go

the We Standing cultivation is Smoking channel cannabis the for into in Apotea, facility. dispensaries in Collins untapped to definitive In a we Also to City, market. large million the dispensary not Akimbo, signed to opening medical April, where announced have Colorado, start us assets Colorado, our year. Mexico entry operator door a markets $XXX January, we are agreement at Everest X new and of acquisitions Fort April, a the New and acquisition, two plant, will which announce one a this we excited Garden this In acquire served. we X high-potential marking XX we in of operate manufacturing of announced prominent dispensaries, in the with acquisition

also our the New state. successfully in presence new Albuquerque diversified quarter, stores opened and in Mexico team X the During our Carlsbad, increasing

market, manufacturing openings to to in to new cultivation in promotions and facilities. market continue with experience dispensary legislation are New by steady Arizona, of volume New Montana, facilities, combined Colorado, in-store yield additions license growth. program. flat. and and the Like and to growth, Utah the now customer Yet In improvements and retention operators the thoughtful overall excellent these surrounding attention Mexico, remained a total continues our our XX Schwazze show improvements quarter-over-quarter. Medical Mexico, in affected will of With we dispensaries, In state X others we portfolio, be counts X productive the

now the we line have quarter, in the state dispensaries at license share March, of With we one While up than rest XX% is to steady year, the lower in an total month. generally revenues from are the of end XXX quarter The top XX count in prior continue market X.X% Mexico. experience the growth. New the retail

we soon customer average New will in to on we both science States. remain hyper-focused the and our the drive be loyalty dispensaries, disciplines. experience market With strong the stores XX in which at with data the of states, share Mexico, revenue materially increase will In addition retail

to with ourselves inroads, deeply knowledgeable assortment differentiating high-quality a a continue and staff. broad rationalized make of products We

labor programs progressive overall retaining is in cost focus talent we the and employee our in and While engagement and across our banners. markets, best of the with benefits attracting increasing continue the to market all on wages

in of cloud XXXX but pricing In to the we activity $X.X wholesale wholesale Mexico, the fourth and state, quarter show is of Colorado recently began in to grew this we million company. market, stability. the sales opportunity compressed in this limited has the growth begun $X.X In signs remains XX% the for New first of from million Quarter-over-quarter wholesale our the a given quarter assortment year. believe

Our pre-rolls. wholesale products house-free portfolio of includes vape and flower, roll-your-own rolls,

as includes everyday forward. believe growth brands as strategic well will emphasis be farms. us, such low Purplebees and is Our as this a material going a licensed read portfolio brand We opportunity for which

team and we cannabis. Schwazze the Biosciences, will the open addition of of an to and the experience CEO Earlier Commercial his Chris of where was this role Front announced has Range This of distribution to he Chief formerly a decade the in President President will a material Biosciences Executive our Vice distributed brands, and Executive President of cannabis. expansion and Range new widely and powerful of its into brands Swan, over is Prior recognized month, roles of giving across Sales, one Front at markets. as lead at he in both House most rate held Chris Driessen.

that of expertise working automation, our been within lean and have the attention reasons dedicated is to that a supply and the cultivation successful investment, capital size have to challenges and right improvement we chain, One key the industry’s thoughtful dynamics. market manufacturing approach pricing and balances capital with we despite

improve Our has continued and help management, capital expansion. the internal investment of for yield utilization unlock throughout will on goods us quarter consolidation, planning, continued and our cost capacity us and working demand focus helped

facility from XXXX. distribution of began the migration of expect facility products of by suppliers quarter full our second internal off-premise end storage and also the We to

even expansion build expansion. adequate additional and across a manufacturing out we with stronger the to supporting infrastructure, assets we continue cannabis the will with our an markets cultivation primary retail While on industry in opportunities evaluate focus

potential Any definitive announcements synergies. our well-branded have and and footprint loyal intentions products customer criteria with a expansion line agreements. include for complementary base, be complement material acquisitions have bottom regarding now dispensaries made signed that accretive Our we will to the once And

financial I’d to turn over Forrest to CFO like our review. discussion continue for to Hoffmaster our the

Forrest Hoffmaster

you, Thank Nirup.

as of Mexico. the million the for first mentioned the quarter $XX remained quarter was the of industry. and revenue to compared last Quarter-over-quarter revenues or typical with first-quarter for million $XX.X improved is revenues million EBITDA Income XX.X% million goods year. compared year, cash. services was and vertical compared same same the in $X.X to $XX.X due or million to $X.X million XX.X% representing of million cost This quarter $XX to period decrease million earlier, million from operations Adjusted operations $XX XX% XX.X%. $XX.X and million of seasonally Total to a the of improvements was or $X.X New year. last due As loss was same one ended the $X.X from We for for flat in over million last for integration XXXX. cost period XXXX overall in $XX.X $X.X quarter million revenue increased primarily

of XX% for revenue gross $XX quarter-over-quarter As to as increased total XX% total to or compared same $XX.X $XX or XXXX. four or improvement compared last in XX% million of the revenue a profit quarter quarter million year, with result, to million

quarter convertible $XX.X the purchase quarter XXXX operating and representing by XXXX driven XXXX one, revaluation Total by acquisitions by for accounting general one, Other quarter in expense of for the non-cash $XX.X of reflected administrative compared income as accounting amortization one expense liability million an to asset increase year. price million for Other of the was adjustments is tax to driven quarter million last selling, to expenses. million, $X.X refunds, intangible offset the related derivative one related note. in totaled other to XXXX $XXX,XXX same quarter compared payroll expenses $XX.X from for XXXX,

result, of XXXX. a compared Schwazze net net quarter X million As loss $X.X to million income $XX.X in a of generated

are We operating at pleased of results the with XXXX. start our

successfully can to generate our recent integrate and operations, free the our ability current remain to expansion conditions, macroeconomic flow acquired improve we continue performance plans. industry-specific Given and in companies we cash and core optimistic that continue M&A and

back your will open today. and questions like to who Thank you for Justin, to answers. call now turn I’d time it the to

Justin Dye

and Forrest Thank you, Nirup.

questions. Before Q&A, and in we call like support, happy now all interest for continued I would Instructions] to open Thank answer you. your the Schwazze. you thank be encouragement to [Operator your would We to

Joanne Jobin

Colorado the And Thank name Q&A and today. moderating on the the IRO the and you in for – regarding is first you, is Nirup? what New I’m Colorado more can of markets question is you and Justin, Joanne submitted Jobin. Nirup, are experiencing how My Mexico about be the and share impacting the New the behalf Market and Schwazze, Forrest. it business. I’ll team

Nirup Krishnamurthy

thank with continued in level mentioned kind Joanne, the depressed at as price pressure trends. of there, remains you. macro Hi, Colorado Yes, inflationary talking a I points and

you from quarter X one And one Colorado look down so quarter today’s at down of results, XXXX, XXXX. over in quarter X% latest XX.X% but if was about

when still So has is of think the signs remained for well back the are last been is since that pricing, and I the have Colorado slide can predict to the of stability to licenses you Also, pricing is steady. – depressed, but are about in in it’s is tell few the some wholesale goes of all surrendered. October, cultivation kind then you It Colorado it’s But wholesale future. the I here is up. stabilize downward going flow also I cannot flow staffed down XX% all starting in seeing which go market not weeks over licenses

terms also good the to of the that’s for a back it so stability future. rationale for in market And bringing

we wide quarter but a and of Schwazze our due are pricing, in in points our also market offering continue outpaced our plus. noticing are by, wholesale outpace And course, Colorado, what our by healthy, we differentiation to our seeing operating for strategy and we’re of QX. partly the margins driven the Mexico, X% to of customers. the products increased We assortment licenses. New In is playbook promotional and what remaining

there has So are And the well. end it March X.XX%. as up of late, at license from was of gone counts

as have with well. so So pie, there we of we in from in estate there holding to year which and pressure we and is positioned the well are own, New have Colorado, well to but speak, good some taken continues operating playbook, and expect our sharing a to real Mexico, terms work we are great another

Joanne Jobin

Nirup. The one the you, Thank next is acquisitions. recent to related

update congratulations targeted can you your an store in and on strategy First of Mexico, on New growth, offer all, Nirup? acquisition announcement your recent and Colorado

Nirup Krishnamurthy

Sure.

operating currently of dispensaries are we mentioned, As densities XX around currently.

total in we with recently XX be deals, with Now New Colorado announced the dispensaries Mexico. in XX will at and XX

is both our share. to want grow goal to we in markets. market continue be want Our share have the to We to – highest

We join and Colorado, too, what terms Schwazze then here, XX have starting receive in have New inbound more acquisitions. and dispensaries it. Mexico are another but lot the ambitions terms well, footprint we’re businesses as expansion before to XX we opportunities, model of And and get complements patient very we to of be New at inbounds in to our Mexico and make delimit on dispensaries to focused. And are it to going XXX in greenfield to sure again, thoughtful very a current Colorado, family. in expansion, through and fits of In we about look our come we be we trying getting act to

years are come. so portfolio acquisition look the we grow happy several last we with next over to to And to pretty continue over to our will years, and date the

Joanne Jobin

Nirup. The related to and M&A, next debt, Thank you, liquidity. is question

of So more can stores liquidity you little your Forrest? with meet M&A XXX that give a and to position, debt and goals? us about about position cash spoke just target the growth these insight your you

Forrest Hoffmaster

expansion. can mentioned earlier, I Thanks, Yes, that. Joanne. Nirup take thoughtful

So ended $X.X million meeting debt free right our and flow now, just cash, quarter tax of with we’re $XX obligations million. cash the in currently

position, debt is coming largest and XXXX. the late obligations steady has terms remaining leverage XXXX, of the our with In in

and and $XX our to us keep and acquisitions. is with to refinancing And a capital. allows cash to on terms always our release sheet mentioned really But And new and what capital striving an it’s press with we’ve balance which for exposure strong above we and improving working option on think us. So a targets, rigid if M&A way stay operating tend in is improved as cash and that it in operations from the now, resources bit conversion management model right accretive we watermark. of don’t focus earlier little got liquidity cash risk about enough I less disciplines and do, talk million deploy efficiently is our on

So as we factored in that well.

Joanne Jobin

the and in been always Act. scheduling recent Alright. debated Washington, to question is on The SAFE and topic. next announcements perspective hotly recent the Forrest. related Thank you, Justin? activities, to and big descheduling related have pretty Can your D.C., the regulatory news some these a There environment Banking you offer

Justin Dye

Yes. the and sites Thanks, on and Good no patients going are really the think – think and say, to to all running And for look, what discussions SAFE regards are to that. secret us. justice around provisions cash those is for really for not the workers next business With not customers. is safe, negotiating criminal continue have the And it’s It’s dialogue I is that the hurdle reform. down Julianne. I question. two that Washington, banking the to come

Senate we Banking Danes really somewhat think I this with both Senator in Obviously, And think the to going will get if aisle up the sides a need provision Committee, addressed. linchpin that. this of addressed be expectations. Mercy in the strong justice So is are to and criminal is it taking are reasonable which I But the really positive. Senator get

Representative really of a strong benefits with the cannabis and about veterans good that. access been feel to our we associated having So around Joyce healthcare centered advocate has medicine.

Washington. at dialogue continued that seeing we’re So

on way run conversations, our is and So of The to the that there those it, business things to to thing Joa. main a we work care we’re matter, is to taking a customers work hopeful, going serve of we’re I which efficient can think continue lot of the do. customers and still remain but is becoming continue we more running more Thanks, so better. lot

Joanne Jobin

Thanks.

Forrest you you think the Justin. are cash on on of laws, impact could do we question on flow, And have an marijuana? the laws topic of regarding Fed answer how or do Fed while much the

Forrest Hoffmaster

to am that, take I Joanne. happy

conservative take we Alright. X% to XX% pretty of we – our back XXXX improvement And view allocations. just to short around a revenue. looking results, we expect answer at So, is of

Joanne Jobin

you. Alright. Thank

we the are or storage the talk and distribution facility questions your expectations Next facility. please the getting lot and off-premises year, facility Can you question, a of next the on about over Nirup?

Nirup Krishnamurthy

Yes. Joanna, I will.

have went products have be we we we week-over-week We facility the working through the general this all to and sure for stores. that suppliers facility, And primarily on off-premise been is from safe into transitioning the And we internal accounting distribution facility. retail March. which of storage opened needs to are for regulatory distributing and been to used in facility and operate the the going our make

So, four that end off-premise basically suppliers we all means and if there. months, of QX, will to from the storage facility, by which we the delivery our have our take to is transition stores handle would going then to of delivering

we this the So, company very strategic whole. for a a as as advantage see

to is us. In model expectation, right. having terms One, we operating of going this there a of have greater several kind buying benefits for be to leverage,

So, key reduced finally, suppliers benefit store of us, but the to only availability fulfillment significant to will well. have our be visibility operating product efficiency costs, a this with inventory in-stock ability for quickly to we we of our are operational position and have in react facility. kind at And not improvement going stores, as and for

this. about excited are we So,

stores we And can on process to very can XX built just are excited our facility It up started to are handle the way the stores. get starting it. we is We it handle here. XXX the to And growth.

Joanne Jobin

Nirup. much very you Thank

working you that? about you improvements, capital Forrest? share Can a earlier mentioned capital working and business business more improvements. regarding and question bit Next core

Forrest Hoffmaster

Sure. Thank you.

science through ago integration, which learning grow inventory efficiency, our of and of through the capital system, the off-premise mature lean with core and supply excellence attention mentioned primary what facility data the integration integrating our on And team. the facility manufacturing, planning business program to next In off-premise I Nirup our efficiency capital, leverage, terms retail improved chain a across quarters. customer more again, demand mentioned e-commerce, primarily are the focus improvement, is and the in-store yields, in buying customer working terms grow-to-shelf over with ERP, from couple supply and it’s moment that of we earlier, four-wall loyalty a

are We and terms. also on focusing supplier relationships payment

bringing free up think and a days help cash. we both into payable steady will position So,

Joanne Jobin

you, Forrest. Thank

company Nirup, And are you question, Next how in learning did the both states? X/XX? on do your what about customers

Nirup Krishnamurthy

mean Mexico clearly, New also in in the total years I the growth the growth with you and at market. our X of best the number have terms of We had dispensaries last top line. yet the X/XX in in Schwazze had

trying We customers. of managing are our out perfectly customers and to retaining our

customer both across deeper We have focus This our become our our program also meet to promotions cuts needs but it the and all retain one brands day our specific loyalty customer, our called banners giving into only traction science of our also the that them individual data across both get to ability on states. states, us are not helps and beginning that to patterns, redemptions, customers a wants. gives they in us deals insights that us helps which and promotions program targeted communicate the loyal across with with very And Gratify. the manner

of of really some couple believe customers like long and on is that seeing kind in help are going When we these us and focus a is years pay we last to science of happen. market. the over going in dividends so the the data investments And run tough, tough this that our

Joanne Jobin

Alright. Nirup. Thank you,

unrestricted limited looking that Next about the markets you go strategy the you question, markets? any enter more share are versus talking license into entering you to states? license are in other can about And always Justin? deep

Justin Dye

putting With areas, regards to and patients it’s in customers. Joanne. high-traffic capable care really a strategy great in those take is is Thanks the Yes. what of forward retail stores, stores people strategy,

lot north real They So, licenses of we in opportunities – are license opportunities, retail of at still of is Colorado. continuing XXX a are lot to a look estate there. out still there

close. be will we So,

have we have will that stores XX in We the with things about progress.

go. even that So, scale yet we to to a we than have there today that long have us still way And things more in requires Colorado. have really haven’t pursuing what are we started

to doing we our growing capabilities Colorado, going us we continue Mexico. same you Will will and other yes in look hard will. to thing be and product and at in states So, the are store see working base in the New we offering, future,

Colorado And a we are before, said Mexico, accomplish. New to still on focused have lot As there are. we is we and

competitors have terrific We Colorado. in

competitors Mexico. New strong very in have We

you at in still do of companies look Health. larger terms we If Ultra a stores has of one more the number of than

doing of So, continue you And on we to there out the their with really work have with and are people that have but industry the stuff to at to to got in taking customers good just to do we working states. businesses. for do that us And compelling. look other be it down really, states those that, really will road, us for the have care –

doing what doing. going So, are keep to we have we been

Joanne Jobin

Thank Justin. is the and and you your next continued stock debt related to as The Can meet liquidity. your acquisition Justin? about the well on pending ability growth as recent dilution question to effect obligations? talk activity you,

Justin Dye

the about number what’s shares and drives the important price, topic shareholders in fully we share think Yes. which equity as happening diluted obviously value of for That’s an the business. with

the that the is estate we on thing been very working staying side and have side. work the the real on doing we that and So, M&A really disciplined on are

them are and we in, buying EBITDA. well we grow as and sales that people, better where we as businesses at. buying a EBITDA then EBITDA, we grow those acquisitions with with And ensuring So, at try to less are trading high-quality multiple really good are and make good bring we than

value. accrete net as the to acquiring then putting that, income shareholder businesses and to synergies will EBITDA long that line top of and are we create as So, on continue

So, that’s very important.

seller well And some We the to where are to that’s getting notes. We realistic creative rates versus thoughtful a are also of realistic we some debt use as financing tend very as the with price. about allocate with way cash equity, cannabis. today markets think we want purchase how

think we we in to for benefit on expansion and the buy as good And to the us business. that definitely So, be at we and multiples. prove really grow being real multiple go attractive businesses bottom will balancing get I we I out able think a are higher terms of

staying So, very that. we disciplined around are

We have plenty liquidity. of

So, in terms Forrest are flow we are of commitments cash, and our tax and the meeting generating we said, and side, free from cash, of as on we debt operations. cash plenty have

real that’s So, benefit. a

So, to the extent that we ever had be an to issue, we down could slow down a CapEx on investment and expenses. hunker tighter little

the our – Schwazze really think care we customers. of as this in So, haul shareholders need is keep will built as that. we And well win to to obviously, take long and doing we

Joanne Jobin

Justin. Thank you,

We are we time questions today. quarter the that the is now, have and hour for the pretty of much at all

have the call Justin, final end do we any today? you before remarks

Justin Dye

distributing I frontline that They No, job. as taking They to medicine products. have are are they care taking more or want they a customers. want our I great about always, better have to want producing done just customers and care of do the – do growing or associates – and to and of to job passionate thank a our that very continue

management to base So, them. thank Thank want team. continued for want Certainly, their to thank in interest our our us. I shareholder

I to around try think that. to going are And that the continue are corner. We grow things to

a from one – it’s So, where these now Colorado market in perspective. of growth right shape a it’s is difficult

a of new New You Mexico competition with licenses. seeing in lot are

and I quarter. are – the for challenge, are we are the we showing up that first think we So, in

will delivering We work to in value. continue

thank I to So, want for just supporting us. everyone

at We it will again keep hard and trust. once build working

Joanne Jobin

didn’t everyone’s questions once will your e-mail you to website. again, that on the everyone Thank answered. to webcast. like like the webcast were if thank Schwazze this Good to you, first at those Justin. you And joining remind info@schwazze.com, quarter sure I questions for today, available day, Schwazze we for And me everyone. get would would is make I that people

Operator

ended. and for the gentlemen, conference Ladies joining. you has Thank all now

disconnect. You may all

Medicine Man (SHWZ) 10 May 232023 Q1 Earnings call transcript