Schwazze Announces Second Quarter Results

DENVER,  Schwazze, (OTCQX: SHWZ), announced financial results for its second quarter year ended June 30, 2021. Financial Summary for Q2 2021: Revenues of $30.7 million grew 467% over Q2 2020 and 58.9% over Q1 2021 Gross Margin of $14.9 million was 48.5%, 576 bps better than Q2 2020 and 1,099 bps over Q1 2021 Adjusted EBITDA of $10.0 million was 32.6% of revenue, 239 bps above Q1 2021 Net Income was $4.4 million or $0.08 Diluted Earnings per share compared to a Net Loss in Q2 2020 of ($6.6) million or ($0.16) Diluted Net Loss per share and compared to a Net Loss in Q1 2021 of ($3.6) million or ($0.09) Diluted Net Loss per share Cash Flow from operations for the six-month period was $1.4 million Same store sales of the seventeen Star Buds dispensaries when compared to last year were $21.5M up 16%. Average basket size was $61.04 up 6.4% Recorded customer visits were 357,056 up 8.9% Note: Schwazze did not own all the assets in 2020 and are using unaudited numbers for this comparison. Other Q2 2021 Highlights Acquisition of Southern Colorado Growers: The Company announced on June 1, 2021, that it had entered into a transaction to acquire the assets of Southern Colorado Growers in Huerfano County, Colorado (transaction closed July 22, 2021). The acquisition includes 36 acres of land with outdoor cultivation capacity, as well as indoor, greenhouse, and hoop house cultivation facilities and equipment. This purchase expanded Schwazze’s footprint in Colorado, is the Company’s first major move into cultivation, and will provide high-end, premium cannabis directly to its Star Buds dispensaries as well as significant production of biomass for its PurpleBee’s extraction and manufacturing facility. Acquisition of Drift Dispensaries: The Company announced that it had signed definitive documents to acquire the assets of BG3 Investments, LLC dba Drift which consists of two marijuana retail stores located in Boulder, Colorado, bringing the total number of Schwazze Colorado dispensaries to nineteen. “We have continued to see strong revenue growth over last year and are pleased with our adjusted EBITDA results,” stated Justin Dye, CEO of Schwazze. “Furthermore, we continue to be encouraged with our retail results, which saw growing sales by 68.9% on a two-year basis. Wholesale results, led by PurpleBee’s distillate also had another record-breaking sales quarter. We continue to execute on our retail and manufacturing playbook with excellent results and with the addition of Southern Colorado Growers and Drift, we look forward to continuing to add to our portfolio of companies.” Second Quarter 2021 Revenue Total revenue was $30.7 million during the three months ended June 30, 2021, compared to $5.4 million during the same period in 2020 and represents an increase of approximately 467%. Retail sales grew to $21.5 million over the quarter from $0.7 million dollars the previous year and wholesale operations revenue increased to $9.2 million from $4.1 million compared to the same period last year. Other sales decreased to $0.02 million from $0.59 million due to a reduced focus on consulting. 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. Total cost of goods and services were $15.8 million during the three months ended June 30, 2021, compared to $3.1 million during the same period in 2020. This increase was due to improved sales from our retail and wholesale operations. Gross profit increased to $14.9 million during the three months ended June 30, 2021, compared to $2.3 million during the same period in 2020. Gross profit margin increased as a percentage of revenue from 48.5% to 42.7% mostly driven by the strength of Star Buds acquisition, and our consolidated purchasing approach. Total operating expenses were $10.5 million during the second quarter compared to $8.7 million during the same period in 2020. The higher expenses were due to increased selling, general and administrative expenses, and salaries from the addition of the dispensaries. Q2 2021 net income was $4.4 million, or a gain of approximately $0.10 per share on a basic weighted average, as compared to net loss of $6.6 million, or a loss of approximately $0.16 per share on a basic weighted average during the three months ended June 30, 2020. Q2 2021 adjusted EBITDA was $10.0 million, representing 32.6% of revenue. This is derived from Operating Income and adjusting one-time expenses, merger and acquisition and capital raising costs, non-cash related compensation costs, and depreciation and amortization. See the financial table for Adjusted EBITDA below for details for Q2 2021 adjustments. During the two quarters, the Company generated positive operating cash flow of $1.4 million and $19.9 million in total cash flow for the first two quarters with $21.1 million in cash and cash equivalents at the end of Q2 2021. Nancy Huber, CFO for Schwazze commented, “We continue to generate operating cash flows from our acquired businesses. This quarter we used that cash flow to make strategic inventory purchases for third quarter usage.” 2021 Guidance The Company is reiterating its 2021 guidance which excludes transactions that are announced but not closed. Annual revenue guidance is $110 million to $125 million and projected annual adjusted EBITDA from $30 million to $36 million. Adjusted EBITDA represents income (loss) from operations, as reported, before tax, adjusted to exclude non-recurring items, other non-cash items, including stock-based compensation expense, depreciation, and amortization, and further adjusted to remove acquisition related costs, and other one-time expenses, such as severance. The Company uses adjusted EBITDA as it believes it better explains the results of its core business. The Company has not reconciled guidance for adjusted EBITDA to the corresponding GAAP financial measure because it cannot provide guidance for the various reconciling items. The Company is unable to provide guidance for these reconciling items because it cannot determine their probable significance, as certain items are outside of its control and cannot be reasonably predicted. Accordingly, a reconciliation to the corresponding GAAP financial measure is not available without unreasonable effort.   MEDICINE MAN TECHNOLOGIES, INC. CONDENSED BALANCE SHEETS Expressed in U.S. Dollars All accompanying notes to the financial statements can be found within the SEC Form 10-Q filed on August 16, 2021 June 30, 2021 December 31, 2020 (Unaudited) (Audited) Assets Current assets Cash and cash equivalents $ 21,130,769 $ 1,231,235 Accounts receivable, net of allowance for doubtful accounts 3,204,941 1,270,380 Accounts receivable – related party – 80,494 Inventory 9,182,942 2,619,145 Note receivable – current, net 144,223 – Notes receivable – related party – 181,911 Prepaid expenses 1,865,138 614,200 Total current assets 35,528,013 5,997,365 Non-current assets Fixed assets, net accumulated depreciation of $1,291,349 and $872,579, respectively 3,476,546 2,584,798 Goodwill 41,505,944 53,046,729 Intangible assets, net accumulated amortization of $4,553,827 and $200,456, respectively 94,861,253 3,082,044 Marketable securities, net of unrealized gain (loss) of $221,257 and $(129,992), respectively 498,039 276,782 Note receivable – noncurrent, net 71,667 – Accounts receivable – litigation 3,063,968 3,063,968 Other noncurrent assets 419,472 51,879 Operating lease right of use assets 3,934,370 2,579,036 Total non-current assets 147,831,259 64,685,236 Total assets $ 183,359,272 $ 70,682,601 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 2,335,217 $ 3,508,478 Accounts payable – related party 40,323 48,982 Accrued expenses 10,279,124 2,705,445 Derivative liabilities 436,554 1,047,481 Deferred revenue – 50,000 Notes payable – related party – 5,000,000 Total current liabilities 13,091,218 12,360,386 Long-term liabilities Long term debt 54,250,000 13,901,759 Lease liabilities 4,078,375 2,645,597 Total long-term liabilities 58,328,375 16,547,356 Total liabilities 71,419,593 28,907,742 Shareholders’ equity Common stock $0.001 par value. 250,000,000 authorized, 42,925,303 shares issued and 42,408,259 outstanding as of June 30, 2021 and 42,601,773 shares issued and 42,169,041 outstanding as of December 31, 2020, respectively. 42,925 42,602 Preferred stock $0.001 par value. 10,000,000 authorized. 87,266 shares issued and outstanding as of June 30, 2021 and 19,716 shares issued and outstanding as of December 31, 2020, respectively. 87 20 Additional paid-in capital 158,787,183 85,357,835 Accumulated deficit (45,373,480) (42,293,098) Common stock held in treasury, at cost, 517,044 shares held as of June 30, 2021 and 432,732 shares held as of December 31, 2020. (1,517,036) (1,332,500) Total shareholders’ equity 111,939,679 41,774,859 Total liabilities and stockholders’ equity $ 183,359,272 $ 70,682,601 See accompanying notes to the financial statements MEDICINE MAN TECHNOLOGIES, INC. CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED) For the Three Months Ended June 30, 2021, and 2020 Expressed in U.S. Dollars Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Operating revenues Retail $ 21,525,816 $ 732,457 $ 33,342,016 $ 732,457 Wholesale 9,186,181 4,106,197 16,632,445 6,635,128 Other 16,844 585,675 94,494 1,259,878 Total revenue 30,728,841 5,424,329 50,068,955 8,627,463 Cost of goods and services Cost of goods and services 15,826,341 3,106,686 27,913,451 5,255,221 Total cost of goods and services 15,826,341 3,106,686 27,913,451 5,255,221 Gross profit 14,902,500 2,317,643 22,155,504 3,372,242 Operating Expenses Selling, general and administrative expenses 4,797,495 1,088,479 7,987,134 1,755,398 Professional services 1,519,016 2,371,743 3,714,124 3,620,731 Salaries 2,992,055 2,098,291 4,861,413 4,095,327 Stock based compensation 1,153,018 3,109,091 2,636,824 4,361,822 Total operating expenses 10,461,584 8,667,604 19,199,494 13,833,278 Income (loss) from operations 4,440,916 (6,349,961) 2,956,010 (10,461,036) Other income (expense) Interest income (expense), net (1,713,770) (11,447) (2,675,053) 36,595 Gain on forfeiture of contingent consideration – – – 1,462,636 Unrealized gain (loss) on derivative liabilities 1,864,741 (348,535) 610,927 843,428 Other income (expense) – 32,621 – 32,621 Gain (loss) on sale of assets – – 292,479 – Unrealized gain (loss) on investments 6,627 81,615 221,257 110,739 Total other income (expense) 157,598 (245,746) (1,550,390) 2,486,019 Provision for income tax (benefit) expense 228,474 – 685,088 – Net income (loss) $ 4,370,041 $ (6,595,707) $ 720,532 $ (7,975,017) Earnings (loss) per share attributable to common shareholders: Basic earnings (loss) per share $ 0.10 $ (0.16) $ 0.02 $ (0.20) Diluted earnings (loss) per share $ 0.08 $ (0.16) $ 0.01 $ (0.20) Weighted average number of shares outstanding – basic 42,332,144 41,568,147 42,286,168 40,742,462 Weighted average number of shares outstanding – diluted 53,975,521 41,568,147 53,886,727 40,742,462 Comprehensive income (loss) $ 4,370,041 $ (6,595,707) $ 720,532 $ (7,975,017) See accompanying notes to the financial statements MEDICINE MAN TECHNOLOGIES, INC. STATEMENT OF CASH FLOWS (UNAUDITED) For the Three Months Ended June 30, 2021 and 2020 Expressed in U.S. Dollars For the Six Months Ended June 30, 2021 2020 Cash flows from operating activities Net income (loss) for the period $ 720,532 $ (7,975,017) Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 4,807,147 94,269 Gain on forfeiture of contingent consideration – – (Gain) loss on change in derivative liabilities (610,927) (2,306,064) (Gain) loss on investment, net (221,257) (110,739) (Gain) loss on sale of asset (292,479) – Stock based compensation 2,636,824 4,361,822 Changes in operating assets and liabilities Accounts receivable (1,854,067) 780,772 Inventory (3,368,807) 445,345 Prepaid expenses and other current assets (1,250,938) 107,417 Other assets (367,593) (41,879) Operating lease right of use assets and liabilities 77,444 16,773 Accounts payable and other liabilities 1,169,537 575,153 Deferred Revenue (50,000) – Income taxes payables – (1,940) Net cash provided by (used in) operating activities 1,395,416 (4,054,088) Cash flows from investing activities Purchase of fixed assets – net (1,203,180) (593,785) Cash consideration for acquisition of business (66,082,072) (2,609,500) Collection (issuance) of notes receivable 181,911 (50,390) Purchase of intangible assets (29,580) – Net cash (used in) investing activities (67,132,921) (3,253,675) Cash flows from financing activities Proceeds from issuance of debt, net 40,348,241 374,500 Repayment of notes payable (5,000,000) – Proceeds from issuance of stock, net of issuance costs 50,282,798 – Net cash provided by financing activities 85,631,039 374,500 Net (decrease) increase in cash and cash equivalents 19,893,534 (6,933,263) Cash and cash equivalents at beginning of period 1,237,235 12,351,580 Cash and cash equivalents at end of period $ 21,130,769 $ 5,418,317 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,131,495 $ – See accompanying notes to the financial statements MEDICINE MAN TECHNOLOGIES, INC. Adjusted EBITDA Reconciliation Non-GAAP measurement (UNAUDITED) For the Three Months Ended June 30, 2021 Expressed in U.S. Dollars Three Months Ended June 30, 2021 2021 2020 Operating Income $ 4,440,915 $ (6,349,961) Addbacks: Non- Cash Stock Compensation 1,153,018 3,109,091 Deal Related Expenses 916,471 2,245,683 Capital Raise Related Expenses 230,970 (19,062) Depreciation and Amortization 3,016,579 91,084 Severance 125,826 103,785 Retention Program Expenses 29,687 – Employee Relocation Expenses 18,391 25,490 Other non-recurring items 90,012 – Total Addbacks 5,580,954 5,556,071 Adjusted EBITDA $ 10,021,869 $ (793,890) Forward-Looking Statements This press release contains “forward-looking statements.” Such statements may be preceded by the words “may,” “estimates”, “predicts,” or similar words. Forward-looking statements are not guarantees of future performance, are based on certain assumptions, and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified. Consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) our inability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (ii) difficulties in obtaining financing on commercially reasonable terms; (iii) changes in the size and nature of our competition; (iv) loss of one or more key executives or scientists; (v) difficulties in securing regulatory approval to market our products and product candidates; (vi) our ability to successfully execute our growth strategy in Colorado and outside the state, (vii) our ability to identify and consummate future acquisitions that meet our criteria, (viii) our ability to successfully integrate acquired businesses and realize synergies therefrom, (ix) the actual revenues derived from the Company’s Star Buds assets, * the Company’s actual revenue and adjusted EBITDA for 2021, (xi) the Company’s ability to generate positive cash flow for the rest of 2021 (xii) the ongoing COVID-19 pandemic, (xiii) the timing and extent of governmental stimulus programs, and (xiv) the uncertainty in the application of federal, state and local laws to our business, and any changes in such laws. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company’s filings with the Securities and Exchange Commission (SEC), including the Company’s Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC’s website at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise except as required by law. (This information is primarily sourced from Schwazze.  Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here).