Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Medicine Man Technologies Inc (SHWZ, Financial) is actively gaining market share in competitive markets like Colorado and New Mexico.
- The company reported a 6% growth in Colorado despite an 11% market decline, showcasing strong operational performance.
- Wholesale penetration increased significantly in both Colorado and New Mexico, indicating successful expansion efforts.
- The company has implemented strategic initiatives to optimize cultivation and manufacturing, including the use of new LED lights to improve yield.
- Medicine Man Technologies Inc (SHWZ) successfully restructured debt, extending maturities to November 2025, providing financial flexibility for growth initiatives.
Negative Points
- Gross profit decreased from 54% to 44% year-over-year, primarily due to pricing pressure and a greater mix of third-party purchasing.
- Operating expenses increased to $21.8 million from $18.1 million, driven by costs associated with additional stores and nonrecurring professional service fees.
- The company reported a loss from operations of $2.7 million compared to income from operations of $5 million in the previous year.
- Medicine Man Technologies Inc (SHWZ) faced challenges with delayed SEC filings, resulting in a transition to the OTC Expert Market.
- Three underperforming dispensaries in Colorado were closed as part of a restructuring initiative, indicating challenges in maintaining profitability across all locations.
Q & A Highlights
Q: When do you anticipate filing your first and second quarter 10-Qs and uplisting from the OTC Expert Market to the OTCQX? What are you doing to improve the company's share price?
A: Justin Dye, Chairman of the Board, explained that they are working with their new auditing firm, Baker Tilly, to complete the re-audit process. They aim to file in the coming months and expect to uplift back to the OTCQX about a month after application. Regarding the share price, Dye noted that the recent volatility is due to forced selling related to their previous auditor's issues, but they expect improvement once relisted and plan to ramp up Investor Relations efforts.
Q: Could you provide additional color on the restructuring strategy? Have all phases been completed?
A: Forrest Hoffmaster, Interim CEO and CFO, stated that the restructuring is ongoing and spans the entire company. They have closed underperforming stores and streamlined operations to focus on becoming the leading cannabis retailer in Colorado and New Mexico. They are also optimizing cultivation and manufacturing operations to align with consumer demand.
Q: Can you expand on the three store closures in Colorado and their impact on revenue?
A: Hoffmaster noted that the closures impacted Q2 revenue by about $0.5 million. Despite this, they outpaced the market with 4% sequential growth. The closures were part of a strategy to ensure all stores meet profitability and capital return measures.
Q: Could you walk us through the gross margin impact that led to the year-over-year decline?
A: Hoffmaster explained that approximately 60% of the decline was due to retail pricing pressures in New Mexico and Colorado. They responded by expanding their product assortment across all tiers to remain competitive. Other factors included increased third-party mix and higher medical sales mix.
Q: Can you update us on your current wholesale offerings and future product roadmap?
A: Hoffmaster highlighted that wholesale penetration increased to 34% in Colorado and 35% in New Mexico. They are expanding their catalog with new private-label and third-party products, including successful launches like Lowell Farms pre-rolls and Wana gummies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
