Item 9 Labs Corp

Good day, ladies and gentlemen, and welcome to the Item 9 Labs Q3 Fiscal Year 2021 Earnings Results Conference Call. At this time, it's my pleasure to turn the floor over to Mr. Brian Loper. Sir, the floor is yours.

Thank you, Operator. Good morning, everyone, and welcome to the Item 9 Labs Third Quarter Fiscal Year 2021 for the three-month-ended June 30, 2021 Earnings Conference Call. By now, Everyone should have had access to the earnings press release, which was issued earlier today, before the markets opened at approximately 9 a.m. Eastern Time. This call is being webcast and will be available for replay. In our remarks today, we will include statements that are considered forward-looking within the meanings of securities laws, including forward-looking statements about future results of operations, business strategies and plans, our relationships with our customers, and market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions. Forward-looking statements are based on management's current knowledge and expectations as of today and are subject to certain risks and uncertainties that may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-Q, Form 10-K, and in other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. On this call, we will refer to certain non-GAAP measures that, when used in combination with GAAP results, provides us with additional analytical tools to understand our operations. We have provided reconciliations to the most directly comparable GAAP financial measures in our earnings press release, which will be posted on the investor relations section of our website at item9labcore.com. And with that, I'd like to introduce Item 9 Labs Chief Executive Officer, Andrew Bowden.

Thank you, Brian, and good morning, everyone. We greatly appreciate you taking the time to join us on today's call. We will discuss our operating highlights and financial results for the quarter and year to date, as well as provide an update on our expansion progress in Arizona, Nevada, and with our cannabis dispensary franchise, UnityRoad. After my opening, our CFO Bobby Michelson will give a summary of our third quarter fiscal year 2021 and year-to-date financial results. I will then provide insight into our growth and expansion initiatives. Following our prepared remarks, we will answer questions that were pre-submitted prior to the call during the Q&A portion. With that, I'd now like to walk through some of our recent highlights. We have had a very busy and productive past few months. Arizona is one of the most sought after markets in the U.S., with anticipated revenues reaching $2 billion by 2024 for both adult use and medicinal, up fourfold from 2019 as the state recently expanded to legalize adult use. We're seeing the strength of the Arizona market firsthand as we are the top brand in every dispensary we choose to sell through, According to LeafLink, currently we are in 60% of Arizona's dispensaries. We saw revenue growth of 203% to $6.7 million for the quarter, primarily due to higher market demand driving increased production. Gross margin slightly slid to 43.2% for the quarter as we focused on deeper market penetration in Arizona. Adjusted EBITDA fiscal year to date increased to $1.5 million. Operating loss for the quarter was less than $250,000 and operating loss year to date is less than $100,000. As we expand our facilities, we fully expect our margins and profitability to improve with increased revenues. We have 50 acres approved for cultivation operations on our site in Coolidge. It's one of the largest properties in the state that is zoned to grow, cultivate, and manufacture cannabis. Permitting is in place to expand 650,000 square feet of cultivation and production in the next three years. The first phase of expansion will increase our operational footprint by more than 300% and create 60 new jobs in the next 12 months. It's important to note that our sales performance from Item 9 Labs products is from our current 20,000 square feet of operation space. By the end of our master site expansion, we will have increased our operation space by 33 times. Now for updates on Unity Road, our dispensary franchise. Unity Road has multiple agreements signed with more than 15 entrepreneurial groups who are in various stages of development across seven different states. Recently we reached a major milestone with the opening of our first cannabis franchise shop under the Unity Road brand located in Boulder, Colorado. The first Unity Road is locally owned and operated by father and son team Bruce and Nate Wetzel. This is a prime example of how through Unity Road we're keeping dispensary ownership and the wealth that comes along with it local. which is a core vision that led to the launch of our local alliance program back in April. Additional developments of the cannabis franchise include signed agreements with three entrepreneurial groups for expansion into New Jersey. Each team is pursuing at least one dispensary license to open a Unity Road shop in the state. Our team is guiding the partners through the dispensary license process They've been busy meeting with local municipalities and looking at real estate as we await for New Jersey to establish rules and regulations governing the state's adult use cannabis industry on August 21st. We anticipate they will open dispensary license applications by the end of 2021. The Garden State is a key market for our franchise growth and is expected to generate as much as $950 million in in annual retail sales by 2024. We believe we are extremely well positioned in this market. UnityRoad also signed a multi-unit franchise agreement with entrepreneur Kevin Waltermeyer to open three UnityRoad shops. Due to the industry's unique business opportunities, Waltermeyer is seeking immediate entrance by purchasing an existing dispensary to convert into UnityRoad, as well as applying for dispensary licenses in Michigan and Ohio. Unity Road has also signed an agreement with a mother-son team out of Detroit. We are already helping them plan their strategic market entry, which includes applying for their dispensary license through the city's Legacy Detroiter program, which gives applicants priority review and 99% discounts on application fees. As I recently mentioned, earlier this year we launched a few new programs to accelerate national franchise expansion. Our corporate acquisition strategy and the local alliance program both keep dispensary ownership local and thriving with the backing of our franchise system. We are in process of securing financing to fund our corporate acquisition growth plan. Through this program, we are seeking corporate acquisitions of existing dispensaries throughout Colorado, primarily in Denver, in addition to Front Range and compelling mountain towns, as well as in Michigan, Ohio, and Oklahoma. Our plans are to convert the stores into Unity Road shops, operating them internally and sell them to an existing or future franchise partner. This offers a turnkey solution for entrepreneurs seeking immediate entry into cannabis. This strategy also eases hurdles for newcomers looking to acquire an existing dispensary and keeps ownership in the hands of local, independent entrepreneurs. We'll get the stores fully converted into the UnityRoad shop, train the team, and oversee operations so franchise partners have a seamless transition to ownership. Through our local alliance program, existing cannabis dispensary owners and dispensary license holders have the opportunity to join Unity Road to gain direct access to tools, expertise, and ongoing support necessary to compliantly and successfully operate a dispensary. They gain access to the buying power, resources, and supportive network normally reserved for multi-unit operators, all while maintaining full ownership of their cannabis business and license. What sets us apart is that the franchise model creates a capital efficient method for expanding retail through Unity Road and products through Item 9 Labs, allowing us to focus and cluster operations, which results in a network effect to launch brands into new markets. As the Unity Road dispensary footprint continues to expand nationally, we plan to develop and partner with cultivation facilities in states where retail shops open to bring Item 9 Labs products to the market. This gives Unity Road franchise partners first access to a consistent premium product supply chain and the Unity Road brand gains a national product consistency that consumers have come to expect from franchise concepts. This expansion strategy also eases new market product entry with a built-in distribution platform that will bring Item 9 Labs across the US. Now, I'd like to pass it off to Bobby for a summary of our third quarter fiscal year 2021 financial results.