WM Technology, Inc.

Good afternoon, everyone, and welcome to the WM Technology, Inc.' 's fourth quarter 2021 earnings conference call. I would now like to turn the call over to your host, Greg Stolowitz, Vice President and Investor Relations and Corporate Development.

Hi, everyone. Thanks for joining our Q4 2021 earnings conference call. We have Chris Beals, our CEO, and Arden Lee, our CFO, with us today. By now, everyone should have access to our earnings announcement. This announcement is also on our investor relations website, along with a supported slide deck. During this call, we'll make forward-looking statements, including statements about our business, outlook strategies, and long-term goals. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties, some of which are beyond our control. Our actual results could differ materially from expectations reflected in any forward statements. For a discussion of risk and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website and our Investor Relations website, as well as the risk and other important factors discussed in today's earnings release. Also during this call, we'll discuss certain non-GAAP financial measures, which are not intended to be a substitute for our reported GAAP results. Reconciliation of these measures to our GAAP results can be found in our earnings release. And finally, this call in its entirety is being broadcast from our investor relations website, and an audio replay will be available on our website in a few hours. With that, I'd like to turn the call over to Chris.

Thanks, Greg. And hello to everyone on today's call. We have a lot of exciting developments to cover. But before I do, I'm going to take a moment to highlight what an incredible place we're in right now as a company. Not only do we cap off a year of really strong revenue growth, we are by far and away in the strongest place we've ever been as a company. And we did all of this while maintaining our commitment to fiscal discipline, building on our over 10 years of continuous profitability. With that, I'll jump right into it. Looking at our Q4 and full fiscal year, our business results highlighted the strength and resiliency of the WeedMaps model and the unique competitive advantage we have as the industry's leading marketplace and technology platform. In many ways, we're providing essential services to the cannabis sector. In Q4, We generated $54 million in revenue, or 39% year-over-year growth in the U.S., with full-year revenue of $193 million, or 48% year-over-year growth in the U.S. Our growth exceeded the guidance we set last quarter and comes at a time when in-market cannabis demand and license channels continues to be sluggish across a number of markets. In times like these, the strong only gets stronger, and Q4 made this reality clearer than ever. As many of our in-markets saw mid-single to double-digit declines in licensed volumes for Q4 versus Q3, we're able to grow our revenue by mid-single digits versus Q3. We also added over 300 new paying clients during the quarter and expanded our share of licensees in the U.S. meaningfully. We believe that our clients fundamentally see not just the value of their spend on our platform, but also how the Weedmaps marketplace and our WM business solutions are vitally essential to their ability to survive and thrive in the current environment. WM Tech's growth has been and will continue to be driven by three areas that I'll walk through today. One, driving deep client engagement with cannabis retailers and brands across all regulated markets. Two, establishing Weedmaps as the center of commerce for consumers seeking cannabis in all markets. Three, expanding adoption of our WM business solutions to enhance the client and user experience of Weedmaps. So first, let's discuss how we drive client engagement. Our focus throughout most of 2021 has been on meeting clients where they are. With the continued increase in the number of cannabis businesses, it's critical that retailers and brands leverage the most efficient channels to stay front and center with frequent cannabis consumers and offer more ways to surface promotions and deals to get revenue from customers who are seeking value. Businesses looking to grow in tough demand environments must invest to grow, and they must invest wisely in channels that deliver tangible and outsized returns on spend. Environments like these provide opportunities for our team to advise clients on making ROI and base decisions to allocate spend, and we did just that through training initiatives and other investments in our client-facing teams, as well as developing product features that help make the return on investment crystal clear to our clients. To that end, we launched several tools for our clients, including the rollout of our new Admin 2.0, which is the primary surface where we drive client engagement and cross-sell. Our new Admin 2.0 features highly visible dashboards on listing traffic trends and other return on ad spend metrics, in addition to various calls to action to drive higher listing performance by leveraging our solutions. Separately, we introduced several new features to assist clients in showcasing deals and promotions. We've streamlined the process for our clients to create deals on Weedmaps and make them more discoverable across our marketplace. This is allowing us to drive increasing user conversion. During Q4, for example, we saw over a 30% increase in deals published and a 50% increase in users claiming deals on our marketplace. We also saw average order values increased by over 15% for users utilizing deals or promo codes. We also have continued to invest behind our client support operations, which has meaningfully improved service levels and response times across our entire client base for our full suite of products. These are just a few examples of how we've helped our clients drive growth and see the returns on spend in the current environment. Moving on to my second point, we're relentlessly focused on building upon Weedmaps' position with cannabis consumers as the destination with what we believe is the broadest product selection, the most accurate product information, and the best values in all of cannabis. Weedmaps has historically been synonymous with cannabis, and we're continuing to work on enhancing the experience in our marketplace to drive higher levels of user growth and conversion. Our teams have been actively testing numerous ways to drive user engagement. whether through personalized experiences on our menu surfaces, express reordering for repeat order users, or the ability to order directly from our brand listing pages, just to name a few initiatives. We've continued to improve the accuracy of product information on Marketplace with the continued expansion of live menus. We launched a new weekly sweepstakes contest in quarter four called Snag the Bag, allowing Weedmaps app users to win cash prizes and merchandise. We also started to leverage our 13 years of transactional data to build powerful personalization for consumers to help guide them to what products and brands to purchase. These are just several examples of how we've improved user growth and engagement in our marketplace, as evidenced by the over 50% year-over-year growth in our monthly active users we saw in Q4. My third point is about expanding adoption of our e-comm enablement and compliance software, or what we call WM Business, which improves the marketplace experience for our clients and users. The software we offer through WM Business creates labor and time savings for our clients and works hand in glove with Weedmaps Marketplace by providing the power tools for our clients to easily set up their Weedmaps digital presence with accurate menus and ways to convert users to order, compliantly fill demand, and retarget users either through our Marketplace or their own website, all powered by WM Business. To that end, we have continued to broaden the availability of our menu and orders integration. which in turn is driving more adoption of our orders functionality and our WM store e-comm embed. For those new to our story, that offering is essentially Shopify for cannabis. Our team has also been actively working on integrating the recent acquisitions of Sprout, Canva, and Concurrent as we look to scale these solutions this year. One example of that is we are building functionality to allow businesses using Sprout to message and target the consumers who follow their business within the Weedmaps marketplace. As we look ahead to fiscal year 22, the opportunities for WM technology are significant. We remain more bullish than ever in our long-term strategy and growth runway. Consumer demand for cannabis is stronger than ever, and with increasing license issuance across existing markets and new state openings, we'll see more consumer demand shift to license channels, which in and of itself creates demand for our marketplace and software. We're also seeing continual growth in the number of regular cannabis consumers across the jurisdictions in which we operate. As the industry's leading marketplace and technology platform, our goal isn't merely to grow share, it's to grow the entire market. I'm particularly excited by several products and client-driven opportunities for fiscal year 22. I spoke last quarter about the opportunity we have with multi-state operators, or MSOs, and brands. We've barely scratched the surface of what's possible with these client segments. For example, our revenue with MSOs grew by over 50% last year. Yet, this client segment is still less than 5% of our total revenue. I also spoke last quarter about the special needs of these clients. MSOs are seeking a one-stop shop to optimize their spend across all user acquisition channels and across all the varied jurisdictions in which they operate. And they increasingly want to make those spending decisions leveraging data and customer segmentation and targeting. They require bespoke tech solutioning services to integrate their operations. Brands are looking for more ways to reach consumers directly at scale and are desperately seeking better data and visibility on performance. Our recently acquired capabilities, as well as the solutions we pilot in Q4, such as our multi-channel media and revamped brand offerings, are already driving strategic client wins as we start this year. As a result of piloting these initiatives, we've had sizable increases in spend commitments and new client wins across several top MSOs and brands, and have plans to meaningfully increase the share of business that we do with these client segments in fiscal year 22. We've also invested in better servicing these client segments and have built dedicated MSO and brand client-facing teams, both on the go-to-market and technical support sides. I'm also excited by the new states that are coming online this year. In Montana, with the shift to adult use in January, our regional teams were actively onboarding operators in Q4 and have already achieved nearly 20% licensee share in that market. Our teams are gearing up for the launch of New Mexico adult use sales later this spring and have already onboarded most of the multi-location operators within that market. As we look towards the East Coast, we plan to invest heavily ahead of the tri-state area opening later this year and in early 2023. As many of you know, these states have structured their licensing programs to support a balanced approach to both enterprise and SMB businesses, with New York and Connecticut, for example, earmarking half of all licenses for social equity candidates, and New Jersey earmarking nearly 30%. We believe these markets will be more functional out of the gate than states like Illinois or Florida that continue to lack a balance between supply and demand. While we wait for licensees to become operational in these markets, we've already begun outreach efforts in these areas, including hosting local social equity workshops and live education events to generate awareness of both Weedmaps and WM Business. We've also continued to invest behind our regional client-facing teams, which will drive early momentum as we attack these markets. We also see a lot of potential internationally as countries like Germany and Portugal inch their way towards legalization. In light of these opportunities, we're revisiting the approach we have to our international strategy. Our international footprint is an underappreciated part of our story. We've had a very central presence in the European Union for almost a decade, and our marketplace platform is widely used in Spain as an information resource for their cannabis social clubs. In many ways, this was a bellwether investment in the nascent EU opportunity, and while we currently have listings in Germany, Spain, Austria, the Netherlands, and Switzerland, we don't yet monetize these regions. That's a huge long-term opportunity for us that we're reevaluating in light of the tide of legalization across Europe. To position ourselves, we plan to begin localizing the Weedmaps app this year and lay the groundwork as these countries head toward cannabis legalization. We're also revisiting our approach to Canada and evaluating how we tailor our solutions to take a more product-driven monetization strategy as that region continues to be challenged with less profit potential than what we see in the U.S., Within the U.S., I want to highlight that we've taken a leading role in bringing cannabis conversations into the mainstream. Some of you may have seen recent press around our commercial, Brock Ollie. If you haven't seen it, I encourage you all to go visit our Weedmaps YouTube site. Time to the Super Bowl, we debuted a digital commercial spot which addresses the current social media and content restrictions imposed on legal cannabis businesses and brands for marketing their products and services. The digital ad personifies cannabis as a character named Brock Ali, who, as you may have guessed, resembles a head of broccoli, the vegetable emoji commonly used as a visual representation of cannabis. Our digital ad struck a nerve in an important national discourse and was covered extensively in the press, with over 325 million media impressions and feature stories in outlets including Adweek, Fox Business, and Forbes. I also visited Super Bowl's Radio Row this year to talk about sports and cannabis and the censorship we are experiencing in the industry. We'll continue to fight for fair, smart, common sense, and effective policies across many issues that are facing this industry and driving forward the macro growth of the cannabis sector. Lastly, I'd like to thank our WM Technology teammates. While fiscal year 21 was a challenging year for the industry, our team has delivered for our users, clients, and the cannabis community at large. So I just want to take a moment to recognize and personally thank our team. You've demonstrated creativity, teamwork, and resilience, and you're the reason that we are where we are today. I'll now turn things over to Arden to discuss our financial performance.

Thanks, Chris, and thanks to everyone for joining our call today. Before I get into the quarter, I also would like to thank our team of Weed Mappers, which is growing and now over 600 employees. They delivered the results that I'll speak to. I also wanted to welcome Tim O'Shea, our new Director of Investor Relations, who will be working with Greg and me on our IR effort. Some of you may know Tim from his days covering the technology sector as a senior equity analyst at Jefferies, and we're excited to welcome him to the WM Tech team. Since we announced our plans to go public in December of 2020, we've navigated through a dynamic environment to deliver what is now our fifth publicly reported quarter of results, all while maintaining our obsession with improving the client and user experience on WeMaps. As each quarter goes by, Our scale and reach continue to expand, and the resiliency of our business model continues to be evident with our performance. Q4 was no different in that regard and demonstrates why, as Chris mentioned, our marketplace and solutions aren't subject to the same pressures facing the industry and in many ways are a critical service for Canvas businesses. We delivered our largest quarter of revenue in the history of the company at $54 million. which is 39% growth versus the prior year pro forma for the Canada reset, and $2 million higher than the top end of our guidance. We grew licensee share in the U.S. to 55%, with over 4,700 average monthly paying clients, or 7% growth versus Q3. Our average monthly revenue per paying client stands at roughly 3,800, which is flat to where we exited Q3. our monthly active users grew by over 10% versus Q3. And for the full year, we closed fiscal 21 with $193 million in revenue, which represents 48% growth pro forma for the Canada reset in fiscal 20. Fiscal 21 also represents the last year where we'll speak to pro forma comparisons as the shifts away from non-licensed operators are now well over a year behind us. I'll note that we've now generated three consecutive years of 40% plus growth pro forma for these shifts. As we saw last quarter, demand decelerated in some license channels, yet our business continued to grow. We've not only expanded our share of licensees on the platform, but also drove spend with our existing clients. Our monthly net dollar retention rates averaged 101% in Q4, consistent with where we were in Q3. We believe that operators are increasingly reallocating spend to higher ROI channels, and the pivots that our teams made during Q4 allowed us to capture incremental wallature with our clients as a result. The wealth of solutions and the transparency of ROAS metrics that we now provide to our clients is arming our reps with the tools they need to engage in deep consultative dialogue with clients to guide them towards growth in this environment. Moving down to P&L, our Q4 growth margin rate continues to surprise to the upsides. Our Q4 margin rate of 96% represents nearly 70 bps of margin expansion versus Q4 of last year, and slight expansion versus the prior quarter. I'll repeat what I said previously, which is that we expect our gross margin rate to contract over time as we expand into new growth areas. With that said, our ability to expand margins yet again speaks to the power of our operating model. Our reported operating expenses after cost of revenues and before depreciation and amortization expense came in at $55 million for the quarter. Our reported OPEX includes $6 million in stock-based compensation and $2 million in additional non-recurring charges related to our recent transactions. More information on these charges is available in our earnings release and earnings slide deck and will be in our Form 10-K. Excluding these items, our non-GAAP adjusted OpEx for the quarter came in at $48 million, or a 60% increase versus last year. Our Q4 adjusted OpEx increase was driven by continued investments in our regional go-to-market teams, our engineering product and design orgs, as well as newly established domain teams that are cross-functional units with a specific focus on each of our expanding portfolio products. Our Q4 adjusted EBITDA of $4 million came within our guidance range of $3 to $5 million, and was achieved while pulling forward investments to attack the new growth opportunities we see in fiscal 22. Our reported net income was $78 million, which includes an $83 million change in the fair value of our warrant liability, resulting from the change in our accounting following the SEC statement last year on accounting for these types of warrants. A reconciliation of adjusted EBITDA to net income is provided in our earnings release. As we've now spoken about in each quarter, we have several classes of shares due to our up-sea transaction structure. Rather than go through all the details here, I'd refer everyone to our quarterly results presentation posted on our investor relations site, which has details on our basic and fully diluted share count. We ended the quarter with $68 million in cash and continue to be debt-free. We believe our highest returns on capital will come from investing in opportunities to drive growth. To that end, we continue to explore opportunities to invest behind our strategic partners and continue to be on the receiving end of interesting bolt-on opportunities. I'll now turn to our financial outlook. On last quarter's call, I noted that our expectation for fiscal 22 revenue growth was in the high 30s area on our percentage basis. Our outlook remains consistent, though off a higher baseline given the better-than-expected Q4 results. We expect fiscal 22 revenue to grow to 255 to 265 million, which represents 32 to 37% growth over our fiscal 21 actual results, or 34 to 39% growth over the midpoint of our prior fiscal 21 guidance. I want to also provide more details around how we expect to drive that growth, particularly given the volatility across licensed cannabis end markets. As a reminder, While we're a marketplace business model, the lack of federal regulation prevents us from monetizing consumer transactions or payments across our marketplace. And as such, our revenue today is primarily derived from selling software subscriptions, listing solutions, and performance-based ad products. Further, over 90% of our Q4 revenue was recurring in nature, comprised of software subscriptions or products with subscription-like terms, such as our featured listings and deal listing solutions. Based on our average Q4 monthly net dollar retention rate of 101%, we expect approximately 15% annual revenue growth to come solely from these subscription-like revenue streams with existing clients prior to adding new clients or driving higher spend from new solutions. This base level growth is consistent with industry growth expectations across our primary end markets. We expect another 10% annual revenue growth to come from new client expansion in our emerging regions, in addition to driving higher spend with existing clients who are seeing outsized returns on spend. Finally, we expect the balance of our revenue growth will come from a combination of new solutions we piloted in Q4, such as our multi-channel media initiative, and higher penetration of underserved client segments, such as our MSO and brand clients. Our guidance does not assume material growth from new state openings on the East Coast or from Canada monetization, as we revisit our international priorities and strategy, as Chris referenced earlier. We also expect our growth to be more consistent throughout the year, given the absence of planned shifts in the business as we've seen in prior years. Our outlook for Q1 revenue is in the range of $54 to $56 million, which implies growth in line with our full-year guidance. Moving on to our expectations on margins. I noted on our November earnings call that while we weren't providing initial guidance on margins, we were committed to maintaining positive adjusted EBITDA while also accelerating investment against a number of growth priorities. As a reminder, we are a high margin business, absent investments for growth, with a proven ability to drive margin expansion, positive EBITDA, and cash flow. We believe that our margin and cash flow profile is a competitive advantage that allows us to lean in when and where we see opportunities, and play offense to drive growth acceleration. Many of the investments that we made in Q4 of last year have positioned us well to drive growth in the first half of fiscal 22. The investments that we plan to make this year are generally weighted towards opportunities that will drive growth in the second half, as well as accelerated growth in fiscal 23 and beyond. More specifically, we've earmarked up to $30 million in OpEx investments related to fiscal 23 priorities. These investments cover a number of initiatives, including, one, winning critical new East Coast states coming online, two, building self-serve sign-on and onboarding capabilities to scale our S&B client growth, which will, in turn, free up our client-facing teams to service our enterprise clients, and three, developing capabilities to leverage our first-party data advantage. As a result, we expect our adjusted EBITDA will be in the range of $15 to $20 million for fiscal 2022, which represents a high single-digit margin rate for the full year. We also expect our margins in the first half will be breakeven to slightly positive, with margin expansion in the second half. It's important to reiterate that our fiscal 22 growth outlook is not reliant on the investments I noted. Rather, we're making these investments to set ourselves up for fiscal 23 and beyond. Absent these fiscal 23-related investments, Our adjusted EBITDA margin rate for the full year would expand by over 100 BIFs compared to what we achieved in fiscal 21, which would imply adjusted EBITDA growth well in excess of our revenue growth outlook. As Chris noted, during environments like these, the strong gets stronger. WM Tech has continued to expand its leadership as the marketplace and software platform powering the industry. And we've started fiscal 22 playing offense as we capitalize on growth opportunities with cannabis consumers and businesses, regardless of region or scale. We have a clear vision for the long-term future of WM Tech that we believe will drive compelling returns for our shareholders and our focus on executing the strategy to get there. With that, we'll now open up the call for questions.

Thank you. And to ask a question, simply press star one on your telephone number. To withdraw the question, press the hash key. One moment while we compile the Q&A roster. Our first question is from Andrew Carter with Stiefel. Your line is open. Hey, thanks. Good evening.

I guess what I wanted to ask here with kind of the initial guidance here on kind of the pulled forward investments and kind of the EBITDA range here, what does it kind of say in terms of your outlook for organic investments versus inorganic kind of investments you can make in the industry. Obviously, a stronger EBITDA would obviously boost your profile. But I guess, could you start there? Thanks.

Maybe I'll kick it off, and I can flip it over to Arden. Look, I think we're in an interesting position where we're seeing outsized opportunities start to emerge on the horizon. We're seeing East Coast markets not only open up on an accelerated timeline, I think when you look at places like New York, New Jersey, where half of cities opted in, that's a great number. In California, that was 15%. And so there's a lot of opportunity to sort of attack and expand. Separately, when we look at the success we're seeing with the marketplace platform and then with the portfolio of solutions, including those that we acquired last year, you know, we'd be foolish, I think, not to sort of invest against expanding those and sort of bringing sort of other exciting opportunities sort of into the launch shoot. You know, I think one of the things that Arden highlighted is that when you think about the growth that we're pointing to for this year, that's sort of the organic growth, and that's covered without that investment. So a lot of that investment is kind of when you think about fiscal year 23 and going forward, and that's us looking to bring new exciting growth opportunities in addition to the already compelling growth opportunity that exists within the four corners of what we have this very moment right now. But Arden, maybe I'll flip it over to you.

Yeah, and Andrew, the only thing I'd add to what Chris just mentioned is that for the investments that we've earmarked related to 2023 related initiatives, again, these are big opportunities that are very strategic in nature. Chris mentioned, for example, the new states coming online. We want to make sure that we're investing well ahead in creating front-of-mind awareness with users and potential clients and licensees and the like. But some of the other investments, whether it's the self-serve capabilities that we called out or leveraging our first-party data set, when you think about, for example, what we're trying to get after in terms of the MSO and brand client opportunity, investing around these capabilities around self-serve allow us to really scale growth with that long tail of SMB clients. while devoting more human capital towards where we see the opportunities with the enterprise clients. And so these are very strategic investments that we're making to set ourselves up, like we mentioned, for 2023. First party data, as we mentioned, we have arguably one of the most valuable first party user data sets within the industry. We're barely scratching the surface in terms of really using that first party data set to kind of power our different surfaces, our different solutions, let alone directly monetizing that. And so These are the types of things that we want to get after that aren't necessarily going to drive revenue for this year.

Got it. Thank you. And then just one kind of a detailed question. It looks like your AR is up a little bit. I don't see in the press release anything about bad debt expense, but obviously kind of more challenging category conditions. Are you seeing anything kind of uneven or any risk in your receivables across your business? Thanks. Yeah.

Yeah, so what I'd say, Andrew, and when the K gets filed, obviously there will be more details, but listen, it continues to be somewhat of a choppy environment for our clients. I'd say, you know, we can talk after you see the disclosures, but what you'll see in Q4 is, yeah, we saw levels that were somewhat consistent with Q3, and that speaks to the environment that we're in.

Okay, thanks. I'll pass it on, guys.

Our next question comes from Terry Tillman with Truist Securities. Your question, please.

Hey, guys. This is Joe Mirzon for Terry. Thank you. I appreciate you taking the question, and I really also appreciate the clarity around where the spending is going and that it's not needed for the 2022 growth. That's really helpful. It's a question on the East Coast. I think you've noticed that multi-state operators and brands are kind of over-indexed on the East Coast, but you've felt a little bit under-indexed in serving those types of customers. Are you planning to use any of this new $30 million spend to kind of go after those types of clients?

Yeah, so I'll kick that off, and I don't know if Arden has any follow-on comments. We're seeing – I would characterize a strong product market fit across the marketplace and our product portfolio with MSOs currently. I think part of the reason that we haven't – had more sort of a revenue mix from them is partially then less about MSOs themselves and more about the jurisdictions that we traditionally focused on. I think as we make this expansion east, we're building on strong product market fit with our suite with MSOs. I think actually there's certain parts of our portfolio, specifically I'd look at something like CanCurrent, which is a power integrations and connectors tool, which frankly I think is best utilized by MSOs or MLOs and large sort of operators. And so a number of the businesses that are successful and are operating on the East Coast, we already have relationships with and have been working with in sort of other jurisdictions in an increasing capacity with the investment we made there in the back half of all of 21. I think the other thing I would note, and this is just a complexion piece, New Jersey, New York, Connecticut all have very sizable social equity programs and pretty rigorous caps on ownership. And I think part of what we're attacking with the East is the fact that the overwhelming majority of operators in those markets are going to be net new operators. They are going to likely be new to operating cannabis businesses. If you take, for example, New York, you can't be vertically integrated and you can own a max of three retail licenses. And so when we look at 50% of cities opting in, and keep in mind other cities can opt in at any point, that's a huge opportunity. But by definition, by statutory definition, the overwhelming majority of those new licenses can't just be the MSOs.

Yeah, and the only thing I'd add to that, Joe, is that, you know, to be clear, we do business with the MSOs. Our MSO revenue, for example, in last year in fiscal 21 outpaced our total company growth, as you might imagine. And I think that just speaks to there's a lot of opportunity there. And in most of 2021, we didn't have some of the capabilities that we're getting a lot of traction with, as Chris mentioned, whether it be on the Conveio side or on the concurrent side or some of the new initiatives that we piloted in Q4 that are really opening the dialogue and and kind of share a wallet with some of these MSOs. So we have big plans. It's a big focus of ours. Some of the investment that we called out for 2023, we'll support that because it's specifically catered towards regions that MSOs play big in. But, you know, we're getting after it like right now, right now. This is a big opportunity for us as we think about growth for this year. Just as a follow-up, Should we think about the $30 million spend? Is the majority of it going towards the New East Coast states, or is it a third, a third, a third split amongst the three things that you mentioned? Thanks so much. Yeah, so here's what we'd say. Based on what we know today and our plans heading into the year, we've earmarked about half of that for what we call Winning the East. It's an internal initiative that we have. Just to give you color around the other buckets of that $30 million that we called out, about a quarter of it will be split across building the self-serve capabilities as well as leveraging our first-party data. And then the balance is some odds and ends that we didn't specifically call out, but, again, are related to growth that's going to be in 2023 and beyond. Awesome. Thank you.

Our next question comes from Tom Champion with Piper Sandler. Your question, please.

Hi, this is Jim on for Tom. Thanks for taking the question. I guess the first on guide, appreciate the commentary on some of the license assumptions for 22. I guess, is there anything worth calling out with regards to some of the gray market dynamics into next year? And I guess the second one on MAUs, this is another nice MAU result. Is there anything in terms of the SEO strategy or customer acquisition strategy that's worth calling out there? Thanks.

Yeah, so on the gray market thing, I think the thing I would emphasize there is the single biggest factor that will kind of sop up that gray market demand is just more licenses. And the good news is it appears – whether you look at L.A. County approving issuing licenses when it didn't before, you look at San Diego County moving forward with starting to issue licenses, when you look at, you know, at some point the litigation that's blocking new licenses in Illinois being resolved, the outlooks are generally rosy for new licenses being issued. I would say that the single biggest way to guarantee an outsized illicit or gray market is to not have any retailers within 30 minutes to 45 minutes of your house. And so I think that's one of the things that will be interesting to watch is the issuance of new licenses. It does feel like in terms of some of the in-market sort of choppiness that it's showing the signs of kind of bottoming out and some of our data sort of shows that and that sort of the declines ameliorated a great deal. And so I think the other thing that's worth noting is these East Coast states getting up and running with true licensing systems. I think for all intents and purposes, for instance, New York doesn't really have a licensed cannabis market because very few folks actually avail themselves of the medical market. That too, you know, it just takes a massive chunk out of interstate illicit cannabis movement, cultivation sales, that sort of thing. So I think that's going to be a key factor to watch for. In terms of your second question on the mouthpiece, I think there's a couple things. Sort of some innovative kind of viral contests, things like Snag the Bag, our partnership with Kevin Durant, our Brock Ollie advertisement around the Super Bowl, work that we've been doing to kind of grab a hold of sort of the broader conversation and movement around cannabis. And frankly, I think kind of be the face of it many times. I can't understate how much that sort of impacted new people becoming socialized with the brand, especially in new markets. Being able to offer ordering through the app and then seeing the growth of app installs as a result of that and the increased adoption of people placing orders in the marketplace where the app is the medium versus mobile web or desktop has also been a driver of that. As with most other businesses, app users tend to be stronger users than non-app users. So I would say those are a couple of the things to highlight. I think we've had a pretty deep bench and deep expertise on SEO, digital marketing, digital acquisition. But I think one of the biggest assets that we have is high-value cannabis consumers are very good at recommending the value of Weedmap's marketplace to other high-value cannabis consumers. And I think we're kind of seeing the flywheels of growth going in terms of viral adoption of the brand and of the marketplace. Great. Thanks.

Thank you. Our next question comes from Pablo Swanick with Cantor Fitzgerald. Your line is open.

Hello, everyone. This is Matthew Baker on for Pablo. We have two questions. Firstly, based on your past commentary, we've calculated that your 1,200 or so California clients spend about four times what your non-California clients spend. So we wanted to know if this is roughly right and how much of the California clients spend on your platform would be discretionary versus sticky. And for our second question, we wanted to know if very fragmented retail markets like Michigan, Oklahoma, and Canada are a big source of opportunity for you or if they represent significant risks. given the weaker retail economics in those markets? Thank you.

Yeah, so I'll take this one. So a couple things, which is, and if I don't address every part of your question, then remind me. But a couple things. First, I'd say we don't provide individual state-level disclosure on revenue per client. We've said, though, previously, California is one of our higher revenue per client type states or regions or markets. But at the end of the day, we don't view revenue per client as having a ceiling just based on an absolute dollar number. What at the end of the day is driving that metric is the returns that we're generating for our clients. So return on ad spend is essentially kind of our indicator of of what opportunities we have in any given region. And what I'd say is California, in particular, remains a very, very high return on ad spend market for our clients. That suggests to us that we have more opportunity there. We still think California is very much a growth market. There will continue to be license issuance within the state. But if you look at the existing ROAS that we're delivering for our clients, As Chris spoke to you on the earnings call, we've done a lot of work both in terms of product as well as kind of training with our reps to make that conversation even clearer with accountants. And then to your other question about some of these fragmented states that you call out, it's a similar dynamic in the sense of At the end of the day, the opportunity that we have, other than just driving more licensee share, the opportunity that we have to drive revenue is a function of what are the ROAS dynamics for those clients, right? It's a pretty simple conversation to say, put $1 in to get X dollars out. And that's how we kind of think about how we manage opportunities against some of these states.

Just to piggyback on that, I mean, look, at the end of the day, this is a marketplace. It's essentially an Amazon for cannabis marketplace. And as long as you continue to have a growing and critical mass of consumers going to the marketplace and viewing it as essential as they do, businesses are going to need to utilize that. Not only that, it's going to be the most cost effective and efficient way for them to reach those consumers. And so, you know, there are emerging markets where we drive ROASs that are significantly higher than California. And that would indicate there's a lot of headroom for spend. there's still a huge amount of headroom for spending California based on the ROAS. I mean, generally, businesses should spend their ROAS number down to one to two bucks. Separately, I think we have a lot of success in markets regardless of complexion. I think that's one of the most compelling things about us is we're agnostic. MSO, SMB, densified state, non-densified state, state with an outsized illicit market, state with a small illicit market. We're ubiquitously there, and our value and feature set is ubiquitously successful and sort of brings value to the business and ease and safety to the consumer.

Thank you.

All right. Our next question comes from David Hines with Canaccord. Your line is open.

Hey, guys. This is Luke on for DJ. So great to hear you're looking to expand your strategy internationally. Can you help us think about sort of the opportunity there today, you know, and what needs to be done to really start monetizing the markets there? And then maybe what other interesting markets maybe you see on the horizon, perhaps in areas like Mexico, which I think had considered legalization recently?

Thanks. Yeah, so I... We in the past actually generated a fair amount of revenue from Spain, and we've consistently had an extremely strong presence there. We actually pulled back from monetization there because it was our view from a compliance view that with some of the changes at the federal level that the provincial legalization systems, it was questionable to us whether we could charge for sort of promotion on a marketplace there. But that presence and that dominance in Spain, which is For all intents and purposes, the leading cannabis market in the EU stretches on at this point for essentially a decade. And so as we look towards sort of a framework where Spain would move forward, we know that as Portugal kind of looks at how they want to do it, they're looking very closely at the social club model in Spain. And so I think in terms of not just product market fit, but sort of being a known quantity, being sort of the leading brand, You know, Weedmaps.es is a very known brand and sort of very known moniker in those markets. So I think in this case, it's kind of coming back to old stomping grounds that we know we've had a lot of success in. I think in terms of what's going to be interesting and exciting on the go forward, you know, you have Germany. with the new coalition government taking a more liberal stance, something that Merkel was very reluctant or sort of, I think, chilly to the idea. We know that they're also very interested, and I think this has implications on the Canadian market. They're very interested in sort of domestic production if they are going to move forward with cannabis, with the discussions at the Bundestag. Separately in Canada, Mexico, you know, many elements of the Mexico model, and I think the big question is not is when, not if. They really borrow heavily from some elements of the U.S. framework in terms of ensuring that there's licenses reserved and set aside for small businesses, people from the communities in which the retailer or the brand will sit. And there is just a question of when and how they move forward. Separately from a consumer adoption and tolerance viewpoint, I think Mexico is well-positioned from consumer sentiment towards cannabis versus some of the more conservative EU jurisdictions. There's a very strong, and we've done a number of activations in years past in places like France, but societally, the sentiment is much chillier in France than, say, a place like Mexico, which is really exciting. If you want to kind of spin the globe a little bit further afield, you look at Thailand, and there's, I think, promising conversations there about moving forward with legalization. And I think really our view is that when you start to see a bellwether jurisdiction move in an area, that starts to put real pressure on neighboring jurisdictions. And so I think for us what's exciting is that those examples I just gave Those are on very different parts of the globe and where you can start putting pressure and pulling on things. In terms of the investment going forward, there's a people lift, but there's also a technical lift. And the good news is that given that we were an international company sort of for a long time in our history, I think we're much readier for internationalization and new markets opening than many other companies that are sort of thinking of this issue de novo.

David, does that answer your question?

Yeah, that's excellent. Thank you very much.

Thank you so much. And ladies and gentlemen, this concludes our Q&A and our presentation for today. Thank you for participating, and you may now disconnect. Have a wonderful day.