Lftd Partners Inc

Welcome to Lifted Partners Earnings Conference Call to discuss the second quarter of 2023. This call is being recorded. At this time, all participants are in a listen-only mode. If you have joined via webcast and would like to ask a question during this presentation, please click on the Ask Question button on the left side of your screen. Type in your question and hit Submit. Teleconference participants, please hit star 1 on your telephone keypad to ask a question. I will now hand the conference over to Jerry Jacobs, the Chairman and CEO of Lifted Partners, Inc. Please go ahead.

Good morning, and welcome to Lifted Partners' earnings conference call to discuss the second quarter of 2023. Our earnings press release and financial statements for the second quarter of 2023 have been filed with the SEC, and links to both can be found on our website, www.lftdpartners.com. On today's call, we will share some comments on our quarterly performance and we will answer some questions at the end of the call. A replay of this call will be available for an extended period of time accessible through the investor section of our website. Here's the safe harbor notice. Some of the statements that we will make today regarding our business operations and financial performance including words such as may, might, would, should, could, potentially, hope, believe, expect, project, and similar verbiage are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially. So, listeners should not place undue reliance upon such statements. For more information, please refer to the risk factors discussed in our most recent Form 10-K file with the SEC. We undertake no obligation to update these forward-looking statements. Lifted Partners Q2 2023 consolidated net revenues were solid at over 12.5 million with 11 cents in basic earnings per share. So once again, Lifted Partners has continued its impressive profile as being one of the few, if not the only publicly traded company in the cannabis industry that has no debt and that is profitable on a GAAP basis. In this call, I'm going to comment on four topics. Collaborations, regulatory issues, financing, and diversification. First, regarding collaborations, the wall separating the hemp and the marijuana industry is crumbling. Our subsidiary, Lifted Made, has entered into and announced a national collaboration with the prominent privately owned marijuana company Jeter for Lifted Made to manufacture and distribute hemp-derived cannabinoid products that will be rolled out under the Jeter brand. Nick will comment on that exciting collaboration and rollout that is underway now. We announced today that Lifted Made has also entered into a collaboration agreement with Extracts NMLLC, which has just received a marijuana product manufacturer license in New Mexico. Nick will describe that collaboration, which has been carefully structured so that Lifted Made will not be touching the marijuana plant so as to preserve Lifted Partners' potential to eventually list on a major U.S. stock exchange due to the illegality of marijuana under current federal law. Second, regarding regulatory developments, the so-called federal farm bill is reauthorized every five years. The current farm bill expires on September 30th, 2023, and the US Congress is currently drafting a successor bill. The impact of this successor bill on the hemp industry remains to be seen. Our company is also potentially impacted by future rules and regulations that could be issued by the DEA or the FDA and by future state laws and regulations. Our company supports legislation and regulations that require all hemp industry participants to professionally test ingredients and finish products, to label finished products so that ingredients are clearly and accurately stated, and to package and sell finished products in ways that aren't intended to entice sales to minors. We are actively supporting the education and lobbying efforts of the American Healthy Alternatives Association and the efforts of many other stakeholders in the multi-billion dollar U.S. hemp industry. Third, regarding financing, our company is continuing to devote a significant portion of our cash flow to raw materials, product design and packaging, personnel, equipment, inventory build, sales and fulfillment, to support Lifted Maid's ongoing efforts on behalf of our herb and silly shroom brands, our product collaborations with Cali Sweets, Diamond Supply Company, Jeter, and Extracts NM, and other collaborations and product extensions on our portfolio and pipeline, including nicotine and tobacco products. Our company would like to have additional working capital to support these efforts, and also we have contractually agreed to purchase LiftEd's headquarters building in Kenosha for $1.375 million no later than the end of 2023. Our preference is to raise capital in the form of first lien secured debt, and we are devoting significant management time to this effort. Capital raising for the cannabis industry at this point in time is very difficult for numerous reasons, including the gigantic losses that have been experienced by many companies in the industry and the significant regulatory complexities and risks facing the industry. We cannot say with certainty whether such a borrowing can be finalized under terms and conditions that we would view as attractive. Nevertheless, at this point in time, we are optimistic that this goal can be accomplished probably sometime this quarter. Finally, regarding diversification, diversification of our business outside the hemp industry remains a top priority for us. We are in preliminary discussions regarding a potential merger that would allow a particular company outside the hemp industry that currently does a significant amount of business with Lifted Made and that has operations across the United States to go public by merging with Lifted Partners. At this point in time, I am not in a position to say whether this potential merger will proceed forward, but I can say that it is of sufficient size that if it does proceed forward, then an audit will definitely be required. At this point, I will turn the presentation over to Nick Warner, our vice chairman and chief operations officer, and the founder and CEO of our wholly owned subsidiary, Lifted Maid.

Thank you, Jerry, and good morning, everyone. Lifted Maid has been organically growing very rapidly since we went public by merging with Lifted Partners. Despite the pandemic and despite the numerous regulatory challenges that have been put in our way, Lyft generated $5.3 million in sales in 2020, $31.6 million of sales in 2021, and achieved $57.4 million in sales in 2022. Our employee headcount has grown from less than 10 employees to about 200 today. Our operations have grown from 3,500 square feet In Zion, Illinois, to a total of over 45,000 square feet in five locations in Kenosha, Wisconsin, one location in Chicago, Illinois, and one location in Aztec, New Mexico. Our profitability on a gap-based earnings per share basis during 11 of the past 12 quarters is something that few other publicly traded companies in the cannabis industry have come close to achieving. We have carefully deployed our limited capital to pay off all of our debt and to significantly expand our raw materials, equipment, processing capabilities, and finished inventory. And we have a robust new product pipeline. During Q2 of 2023 and this quarter, we have rolled out many new product SKUs, including as part of some important collaborations with three prominent California-based companies. Our first SKUs of vapes and gummies containing hemp-derived cannabinoids pursuant to our collaboration with Cali Sweets began shipping in mid-April. Our first skews of vapes and gummies containing hemp-derived cannabinoids pursuant to our collaboration with Diamond Supply Co. debuted at our industry's largest trade show called Champs in Las Vegas in mid-July. And our exciting third collaboration, which we signed just before the Champs show, is for hemp-derived cannabinoid products under the Jeter brand. In just a few years, Jeter has skyrocketed, become the top manufacturer of marijuana joints in California, Arizona, and Michigan. The Jeter brand has seen widespread consumer acceptance for its high quality and colorful branding and is known as the number one pre-roll brand in the world. We've developed a custom joint gummy mold and a proprietary vape device, along with the famous infused baby Jeter joints, which we expect to shake the industry. Our collaboration with Jeter has the potential to dramatically increase Lifted Maid's revenues and profitability. We plan to begin selling and shipping Jeter branded joints and gummies this quarter. We've already began manufacturing cannabinoid joints for the Jeter rollout at our facility in Aztec, New Mexico, which was formerly operated by Oculus CRS LLC, and we have began manufacturing Jeter branded gummies at our facilities in Kenosha, Wisconsin. Our most recently signed agreement with Extracts New Mexico LLC is the first time that Lifted will be collaborating with a marijuana company that will be manufacturing licensed marijuana products. Lifted Made will be selling empty vape devices and certain other raw materials, providing expertise and loaning cash to Extracts NM, which will be manufacturing marijuana disposable vapes and cartridges that will be sold to affiliated and unaffiliated marijuana dispensaries in New Mexico, with revenues to be split equally between Lifted Made and Extracts. We are excited about this collaboration with Extracts because if it works as expected, then Lifted plans to duplicate that deal in other states which have legalized marijuana. These collaborations, combined with the continuing consumer acceptance of our outstanding Herb brand across over 100 SKUs and our Silly Shroom brand of mushroom products makes us optimistic about our company's future. Regarding our progress in gummy manufacturing, we brought on our first machine online during Q4 2022 and it has been a success. We have substantially reduced our per unit gummy cost and we now control our own destiny relative to ingredients, production schedules, and throughput. We purchased a significantly larger second gummy manufacturing machine that was delivered to Kenosha and was put into operation during Q2 of 2023. With these two machines, Lifted is capable of producing about 30 million gummies per month. And for the first time, we are now fulfilling all of our internal production needs, as well as manufacturing gummies for third-party purchasers. Our experience with these two machines has been so positive that we have purchased a third gummy manufacturing machine that was delivered a couple weeks ago this third machine is more modern and has higher output than our first machine this third machine has now replaced our first machine and we are currently deliberating whether to keep this machine in kenosha as a backup or overflow machine or the potential to ship it to aztec new mexico to launch gummy manufacturing operating there or to potentially sell it in any event we are inching closer to obtaining necessary cgmp certifications and approvals that would allow lifted to begin manufacturing gummies and kenosha that do not contain any thc or cannabinoids that can be sold into general health and wellness industries we have an experienced staff who are responsible for leading this effort and we're very excited about the potential opportunities for us regarding hemp flower products our recent acquisition nearly all of the assets of oculus hemp flower products business and aztec new mexico was intended as a vertical integration move to move lifted into the manufacturing of hemp flower including packaged flower blunts and joints a recently signed collab with jeter has supercharged our aztec operations in regard to the production of high quality jeter branded joints turning our Aztec operations into an extremely significant component of our growth and profitability game plan. At this point, I will turn the presentation over to Jake Jacobs, our President and Chief Financial Officer.

Thank you, Nick. From a financial standpoint, we had another fine quarter during Q2 2023. My comments will compare Q2 2023 to Q2 2022, except when I state otherwise. Nut sales decreased to $12.5 million compared to $16.7 million. Reasons for the decrease in nut sales include, but are not limited to, greater competition in the marketplace, certain distributors creating their own brand, and certain other competing brands paying distributors and wholesalers for valuable shelf space. In addition, comments from regulatory agencies and law enforcement sometimes trigger confusion or fear among distributors, retailers, and consumers, which can result in decreased sales or returns or exchanges of our products. Our total cost of goods sold was $6.8 million, down 21%. Written-off inventory totaled $42,000 for the quarter and consisted of raw goods, down 82%. Operating expenses were $3.3 million, down 10%. The primary driver for this was the lack of any accrual for the company-wide management bonus pool. Operating income was $2.3 million compared to an operating profit of $4.4 million. Our net income for the quarter was $1.6 million compared to net income of $3.2 million. Our company had Q2 2023 basic and fully diluted EPS of 11 cents and 10 cents respectively. Basic and diluted weighted average shares outstanding were 14.5 million and 16.7 million respectively. At June 30th, 2023, we had total outstanding and exercisable options and warrants of 3.6 million. with a weighted average exercise price of $3.85, which, if all were exercised, would generate proceeds of $13.8 million, ignoring any cashless exercise features. In regards to our June 30, 2023 balance sheet compared to our December 31, 2022 balance sheet, Cash on hand decreased 42% to $2 million, down from $3.5 million. Inventory increased 74% to $10.4 million, up from $6 million. Current assets increased 21% to $16.7 million, up from $13.8 million. The current ratio increased 7% to 2.39 from 2.23. Working capital increased 27% to $9.7 million, up from $7.6 million. And there was no outstanding debt as of June 30, 2023. Thank you. We will now answer some of the questions that have been submitted to us.

If you would like to ask a question and are connected via teleconference, please press asterisk one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press asterisk two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Webcast participants, please click on the Ask Question button on the left side of your screen, type in your question, and hit Submit. So the first question we have is, would lifted partners ever consider a stock buyback? I will answer that. We don't have any immediate plans for a stock buyback. in light of our other capital needs, including the purchase in the building in Kenosha. But a future stock buyback would certainly be evaluated as a potential means of helping us meet the listing requirements for a national stock exchange. We have a second question. Have you experienced any significant clogging of your 3 ml vapes in this extreme summer heat? Nick, would you like to answer that?

Sure. No, not so far. The 3 ml vape design that we introduced almost a year ago has performed extremely well. It won first place in a gold medal at the most recent High Times Hemp Cup competition. All the feedback from consumers and distributors have been extremely positive.

Excellent. Then we have another question. Is artificial intelligence or some other new technology going to affect Lyfted? Nick, that's for you.

Very interesting question. We haven't seen any AI applications affecting our industry, at least not as of yet. However, on the technology side, Lyft is in negotiations to help bring nicotine liquids product to market that would incorporate some new exciting technology that's been invented by a company close to us. And it looks like that deal could have some meaningful financial upsides for Lyft with little or no financial downsides. So, we're continuing to move that product forward this year, as well as some other technology that has been on our pipeline for months that we expect to come to market soon.

Okay, then we have a question. What is the interest in the Illinois marketplace?

Well, I'll respond to that by saying, of course, Illinois is a major market for lifted hemp-derived cannabinoid products, which are distributed through many distributors, including some significant distributors in the Chicago area. Regarding the marijuana space, as I tried to indicate earlier, You know, the walls between the hemp industry and the marijuana industry are crumbling. And we have been contacted. We have received inquiries from marijuana companies regarding potential interactions between us and them. And we are... We do have discussions in that regard, but of course, there is a disincentive for us to participate directly in the marijuana space by touching the marijuana plant, as they call it, because if you get involved in touching the marijuana plant, it will, at the current moment in time, it would prevent us from attempting to list on NASDAQ. Nick, I don't know that you want to add anything to that.

No, that's a fair update as of current. Well, we don't have any other questions.

This concludes today's conference and you may disconnect at this time. Thank you for participating.